Propaganda v. Propaganda

Certainly President Roosevelt never gave the nation's powermen any false hopes. By word for six years, by deed for two, he has warred on public utilities locally and nationally. That has been the most consistent of the Roosevelt policies. Even so, a thorough reading of the Wheeler-Rayburn bill to abolish public utility holding companies (TIME, Feb. 18) left the industry chilled and dazed. But not for long. Sincerely convinced that the enactment of such stringent legislation would not only wipe out hundreds of millions invested in holding company securities but come very close to wrecking a $12,000,000,000 business, the powermen launched a nation-wide appeal for what they considered justice.

Hastily organized was the Committee of Public Utility Executives with headquarters at Washington's Mayflower Hotel. Representing most of the U. S. power business, the Committee issued memoranda and analyses of the proposed legislation, prepared statements, encouraged protest. The American Federation of Utility Investors, which through chain letters has collected nearly 1,000,000 signatures to a petition against Government power projects, opened fire on the latest threat to the interests which it frankly represents.

But the most potent appeal for public opposition was made by utility companies directly to their own security holders.* Only two major companies used paid advertising. Associated Gas & Electric, whose fantastic capital structure offers as good a reason as any for abolishing holding companies, exhorted: "Write your Congressmen!" United Gas Improvement Co., oldest public utility holding company in the U. S. (1882) and one of the soundest, published the number of institutional stockholders on its books, displayed a group of what appeared to be widows, orphans and pensioned bookkeepers under the caption: "Think it over, Uncle Sam!"

Out to Electric Bond & Share's 143,000 stockholders went a ten-page letter, concluding: "Action by Congress is imminent. . . . You may wish to telegraph or write to your Senators and Congressmen." In the same dignified vein Commonwealth & Southern wrote: "We have no objection to reasonable regulation which will prevent the recurrence of any alleged abuses of the past. . . . The present bill, however, is aimed to control and kill--not to regulate and cure. . . . The passage of this bill can only be prevented by an aroused and indignant public sentiment. We hope you, both as a security holder and as a citizen, will do your part."

By last week, as a result of the utilities' appeal, Congressmen were receiving more telegrams and letters on the Wheeler-Rayburn bill than on any other pending legislation. Missouri's Senator Clark declared that one day's mail swamped him with 6,000 protests. It was estimated that at least 500,000 citizens had urged their representatives to kill or modify the bill. The campaign's effect was apparent not only in the coatrooms of the Capitol but within the Administration. Chairman Sam Rayburn of the House Interstate & Foreign Commerce Committee began to grumble about "propaganda" long before a single foe had testified against the measure. And last week in a special message to Congress, President Roosevelt lashed out at the organized opposition to a pet Roosevelt idea. Said he:

"I have been watching with great interest the fight being waged against public utility holding company legislation. I have watched the use of investors' money to make the investor believe that the efforts of government to protect him are designed to defraud him. I have seen much of the propaganda . . . to exploit the most far-fetched and fallacious fears . . . enough to be as unimpressed by it as I was by the similar effort to stir up the country against the Securities Exchange bill last spring."

Ignoring those sections of the bill which, if enacted, will put 91% of the country's operating companies under the domination of the Federal Power Commission, the President made out a well-tempered case against the holding companies. "Except where it is absolutely necessary to the continued functioning of a geographically integrated operating utility system, the utility holding company with its present powers must go," said the President.

"Lobbying from the White House!" cried Republican Congressman Hamilton Fish.

"Propaganda of the worst kind!" snapped House Minority Leader Snell.

If it were really a question of propaganda on their part, asked the powermen, what about the rolling barrage laid down by the Federal Trade Commission in its interminable power probe? For months that body has been pouring forth releases which by headlines damned all powermen for the sins of a few like Samuel Insull.*

Quickly the Committee of Public Utility Executives hopped on the fact that while the President might not have been "impressed" by last year's protest to the Securities Exchange Act, it was strenuous public opposition, and nothing else, that made that measure in its final form a workable piece of legislation. Moreover, the President's views by no means jibed with the harsh wording of the Wheeler-Rayburn Bill itself, which President Hugh S. Magill of the American Federation of Utility Investors called "one of the most autocratic and destructive measures ever introduced in Congress."

The President's most questionable statement was that if history could be remade, "we would have none of this holding company business." Even his own high priest of public power, Director David Eli Lilienthal of the Tennessee Valley Authority (a holding company), once declared: "Perhaps most important of all, to the holding company must go the credit for the unprecedented flow of capital into the public utility industry, making possible extensions and improvements of service."

And when the first powerman appeared last week before the House committee, he was able to quote from a letter written in 1926 by Franklin D. Roosevelt. Mr. Roosevelt was complaining of the "usual high cost and inefficient service of small local power plants" around Warm Springs, Ga. It was precisely those factors, said President Wendell Lewis Willkie of Commonwealth & Southern Corp., that justified the big interconnected power systems. During the Michigan banking collapse its geographical diversification enabled Commonwealth & Southern to supply cash to operating subsidiaries in the stricken area. In the past five years, large, drawling Powerman Willkie explained, Commonwealth & Southern has poured a total of $126,000,000 into its operating units, most of which could never have financed themselves. If parent company support were suddenly withdrawn, as it would be if the Wheeler-Rayburn bill were passed, at least six Commonwealth & Southern subsidiaries would collapse within a year.

Last week without any fanfare whatever the Government took control of a $400,000,000 public utility holding company serving 570 communities in the U. S. and no less than 503 in England. A classic pyramid of holding companies upon holding companies, Utilities Power & Light was put together by Harley Lyman Clarke, who later burned his promoting fingers in General Theatres Equipment Corp. and Fox Film. His utility system was controlled through a small issue of voting stock held by a super-super holding company called Public Utilities Securities Corp. Shares representing working control of that key unit were pledged for a $2,000,000 loan from the old Dawes bank in Chicago and were eventually turned over to the RFC as part of the collateral for the famed $90,000,000 Dawes advance. To protect his investment RFChairman Jesse Jones last week ousted five directors of the top holding company, including President Clarke, replacing them with his own nominees. Said Mr. Jones: "Whenever the Utility pays its notes, we are willing to get out."

In a driving, snowy rain one day last week the citizens of Chattanooga, Tenn. marched to the polls to vote on as hot an issue as ever burned the self-styled "Dynamo of Dixie." The question was an $8,000,000 bond issue to buy or build a municipal power system using Tennessee Valley Authority energy. Though outside engineers hired by the city pronounced the project uneconomical and though the opposition was ably led by the Chattanooga Times, which is still owned by Publisher Adolph S. Ochs of the New York Times and managed by his nephew, the vote was null in favor of public power.

* Total market value of public utility securities has declined $3,500,000,000 since President Roosevelt took office. * Funnyman Will Rogers last week: "A holding company is a thing where you hand an accomplice the goods while the policeman searches you.''

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