Complex Rabbit

Some 30 years ago a young lawyer from the progressive State of Wisconsin went to Washington, began his career working for the Interstate Commerce Commission. For two years he helped regulate the primordial greed of those early monsters of brutal business methods, the railroads. In 1908 he moved from the Interstate Commerce Commission to New York State's Public Service Commission, where he continued his effort to restrain the selfishness of utilities. In those two jobs he saw all the egregious forms of industrial skulduggery.

And last week the same man, now 53 and round as a butter tub, dug a pit into which the utility tycoons of the U. S. fell and writhed in despair.

The man who had this enlightening education was Howell Colwell Hopson. When he left his job with New York State, he set himself up as a public utility expert. In 1921 he got hold of what is today the great Associated Gas & Electric System, modestly becoming its vice president and treasurer. Bit by bit he expanded it, snapping up one company here, another company there. Today the Philippines and Nova Scotia are on the fringe of his empire, while Tennessee and South Carolina are in its suburbs. Its heart is in New York, New Jersey and Pennsylvania. Hundreds of companies have passed through the hands of this master of corporate complexity. The number of companies he "eliminated" from his intricate set-up was at one time calculated as 296. A few months ago an official reckoning set the number remaining at 164, of which 104 were operating companies. Some Hopson companies were management companies, some engineering companies, some vendors of electrical appliances. By a nice arrangement these companies could sell their services at a profit to the operating companies: 2 1/2% of revenues for management, 7 1/2% for engineering, 6% for interest, etc., etc. At a recent hearing in New York State evidence was given that a $125,000 engineering company in which Mr. Hopson and his four sisters were partners in six years charged fees of $6,428,000 to Associated Gas & Electric Companies, made a $1,818,000 profit.

As he operated his companies ably, so Mr. Hopson financed them astutely. Stocks of his numerous holding companies were sold to the public but control of the two companies at the top of the pyramid remained with him and John Isaac Mange, president and later chairman of the system. Mr. Hopson, shrewd mathematician, invented many complicated kinds of securities for sale to the public. According to the Federal Trade Commission, Associated Gas & Electric Co. has or has had (the system changes so often that A. G. E. can generally catch in error anybody who ventures to describe it) three classes of common stock, six classes of preferred, four classes of preference stock, seven issues of secured bonds and notes, 24 classes of debentures, and four series of investment certificates.

Besides power, Associated Gas & Electric also made enemies. Other utilities found its rivalry uncomfortable. State power commissions attacked it only to bog down in its complications. Bankers apparently grew chilly towards A. G. E.'s methods of financing. Tycoons did not speak of A. G. E. with respect. When President Roosevelt or Representative Rayburn or Senator Norris wanted a text for utility iniquity they turned to A. G. E. When utility executives formed a committee to fight the Wheeler-Rayburn bill, A. G. E. was left like a black sheep outside the family fold. And last week they had some reason to feel that Mr. Hopson had put them all in an unhappy position.

With the decision on the dreaded "death sentence" in the utility bill hanging by a hair in conference between the House and Senate, Senator Hugo La Fayette Black of Alabama and a special investigation committee last fortnight started to track down the Power Lobby (TIME, July 22). Philip Henry Gadsden, head of the Committee of Public Utility Executives, had righteously testified that his group had together disbursed $300,000 on what it considered a legitimate defense of its business. Then Senator Black started a new rabbit which his committee proceeded to chase through last week's headlines.

Representative Driscoll of Pennsylvania told the Black Committee that he had received 816 telegrams on the utilities bill from Warren, Pa., 114 signed with last names beginning with B. One was from John S. Bayer, a friend of his who denied sending it. Others had entered similar denials. Next on the Senate stand was Jack Fisher, who day before had been suspended as manager of the Western Union office in Warren. He testified that a "bond salesman" named Herron, of Associated Gas & Electric, had dictated to him several hundred telegrams to Representative Driscoll, along with signatures out of a city directory, had paid some $300 in cash for sending the messages. After the Senate investigation started, Salesman Herron returned and asked to have the originals destroyed. Fisher quoted him as suggesting that it would be a good idea if "somebody threw a barrel of kerosene in the cellar" of Warren's Western Union office where the messages were filed. Later Manager Fisher found the remains of the messages burned in a stove in the basement although they should have been kept for a year.

Next day the Senate committee got its prize witness, Paul Elmer Danielson, Western Union messenger boy from Warren. After various members of the office staff had told how little they knew about the burning of the messages, Elmer, pink-cheeked, deep-dimpled, wide-eyed, and wearing his Sunday best, was sworn. Awed, he opened his wide mouth full of white teeth and testified that he had burned messages of July 1934 but not the lobby telegrams. Then he told how he had been promised 3-c- for every signature he could get to telegrams protesting the utilities bill. "

How many did you get?" "I got six," said Elmer. "Whose signatures were they?" asked Senator Black. "Well, my mother, a boy friend, a fellow who lives next door--a mechanic-- and I got three others." The committee, charmed with its witness, continued its questioning: "Did you tell the people what the bill was about?" "Yes, sir!" "How did you explain it?" "I told them if the bill was passed it would put the utilities in the hands of big men. I didn't want that. But Mr. Epstein told me--" "Who's Mr. Epstein?" "He has a store. He told me it would do just the other way around." "What is your personal position as to the merits of the bill?" Elmer opened his mouth, shut it, finally grinned. "I'm neutral." Next important witnesses were Salesman Herron, his Associated Gas & Electric Boss Edward J. O'Brien, and O'Brien's Boss Ursel E. Beach, head of Associated Gas & Electric Co.'s securities department. Typical excerpts from their testimony: Herron (admitting he had taken names from the city directory): "I was pretty well acquainted and knew pretty much who was for and who was against the Wheeler-Rayburn Bill." Senator Schwellenbach: "How did it happen your acquaintances were limited to the first letters of the alphabet?" Herron (admitting he had mentioned using a "barrel of kerosene"): "I was just joking, of course. Just like you might say you were going to burn your house to keep from paying taxes." O'Brien (asked whether he had destroyed all his papers on the Wheeler-Rayburn Bill) : "Yes, I set them aside." "Where?" "In the waste basket, Mr. Beach told me we had no further use for the papers." Beach (admitting that he had telephoned his underlings in 26 states, giving orders to destroy copies of telegrams to Congress on which A. G. E. had spent $100,000): "I don't know from which [A. G. E.] company the money came. There are lots of companies in A. G. E. I could not begin to count them. Probably it came from F. E. Martin, head of the treasury department." "Treasury department of what company?" "I don't know." Senator Schwellenbach: "Do you consider a company justified in spending $700,000* for lobbying when it can't pay dividends?" Beach: "Yes." Senator Gibson: "And in the final analysis that money was paid by the consumers?" Beach: "The operating companies are the source of income." Senator Gibson: "And the source from whence their income comes is the consumer? " Beach: "Well, that's true." If Associated Gas was unpopular before last week's investigation, afterward other utility men could have wrung its neck. Said Lobbyist Gadsden for the Committee of Public Utility Executives: "It is, to say the least, unfortunate that representatives of any company should so depart from the standards set by the utility industry in general. It is acts like this, committed by a small number of companies, which have brought discredit upon the industry and which have made it necessary for us to come to Washington to defend ourselves against a bill seeking to destroy us."

*Total lobbying expense admitted by A. G. E.

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