Course Through Confusion

"I am frank to say," remarked Speaker Byrns of the House of Representatives just before the Utility Holding Company Bill was finally passed last fortnight, "that I do not know enough about the bill to discuss its merits." Last week equally bewildered utilitarians and their lawyers were almost wholly preoccupied with the context, meaning and constitutionality of the 297 page act which President Roosevelt described as "the fattest bill I ever signed."

Most lawyers thought the measure was unconstitutional in one or more respects. Utility executives talked darkly of "impairment" of assets, "confiscation" of property. On the New York Stock Exchange utility shares dropped one to four points. Calling the law "purely political," President James Francis Fogarty of conservative North American Co. threatened to take to the courts to protect his company's assets against "attempts to destroy them through punitive legislation." But most utilities were too confused last week to say precisely what they would do and when and how. Some talked of forcing the Government to take the initiative by deliberately refusing to obey the provisions of the act. Most logical time for such a test would be between Oct. 1 and Dec. 1 when 200 holding companies must register with the Securities & Exchange Commission.

One utilitarian who had no doubt what he should do last week was Samuel Ferguson, chairman of independent Hartford Electric Light Co. and its affiliate Connecticut Power Co.* This quiet, genial Yankee has never hobnobbed with holding companies but his two small utilities did have ten-year-old interstate connections with power companies in Massachusetts and New York. Few hours before the Holding Company Bill became law, Chairman Ferguson quietly ordered out a crew of linemen who snipped all the company's interstate lines at the border, pulled the wires off the towers. "Too bad we had to do this," declared Sam Ferguson, who thereby escaped Federal control. "These lines have . . . effected savings to consumers of power amounting to between $2,000,000 and $3,000,000 annually."

One company which could not cut its interstate lines was Associated Gas & Electric. Instead last week it simply cut off its tall talk. In a spectacular policy somersault, A. G. & E., which spent nearly $1,000,000 lobbying against the utility bill, denied that it was ready to challenge the law in the courts. "On the contrary," purred A. G. & E., "the Associated yesterday sent out a letter to all executives and department heads of the system stating that the enactment of the legislation and its signature by the President placed it in an entirely different status than formerly, when it was a controversial piece of proposed legislation, and that it is now the law and as such must, of course, be respected and observed."

Three "D's." Almost forgotten in the bitter fight waged around the so-called "death sentence" for holding companies were numerous other "Thou Shalt Nots" in the act. Utility agents seeking to lobby Congress must hereafter register with SEC. Utility accounting methods are brought under the supervision of SEC and the Federal Power Commission which may order any item on a company's books changed. No officer or director of a bank, brokerage or investment house may serve as an officer or director of a utility--a provision which will bring wholesale shake-ups in personnel when it becomes effective one year hence. But the provisions which were last week giving utilitarians the severest headaches concerned three words all beginning with "D"-- "death sentence," dividends, depreciation.

SEC has the right to determine how much every utility may write off to depreciation--an enormously important power since net earnings may be radically altered by write-offs. SEC may also decide whether any dividends shall be paid by any utility under its jurisdiction. This means that before a holding company receives a return on its investment in a subsidiary, the dividend must first be authorized by the Commission. Finally, as all the world knows, SEC must order holding companies to limit themselves to "a single integrated system" (with certain exceptions), must abolish all holding companies more than twice removed from their operating subsidiaries. Such changes, however, cannot come before Jan. 1, 1938, may even be postponed by SEC to 1940.

Bache & Benefits. "We advise against snap judgment in disposing of any good utility stocks . . ." wrote J. S. Bache & Co., Manhattan brokers, last week. "It should be recalled that the dissolution of the Standard Oil Co., the American Tobacco Co. and various others by the Government, in the final analysis, showed substantial increases in the value of the securities composing those units." And there were others up & down the land who took an equally cheerful view of the future of utilities. Federal Power Commissioner Basil Manly predicted that, with the air cleared by the passage of the bill, utilities would spend no less than $2,000,000,000 for new equipment, replacement and expansion--a prediction which the utilities scornfully rejected.

Most voluble defender of the holding company law last week was Representative Sam Rayburn who helped write it. In Washington he stepped to a microphone to declare in a nationwide broadcast: "If the Supreme Court should deny the power of Congress effectively to regulate the holding company, I am convinced Congress would tax the holding company out of existence."

*Not to be confused with Connecticut Light & Power, a United Gas Improvement subsidiary.

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