Integration Inches Forward

Long have investors and other well-wishers of the U. S. economy wondered when the electric utility industry (total assets: $17,220,617,000) was going to resume its pre-depression rate of growth. Once good for nearly a billion dollars' worth of plant expansion a year, it has averaged only $300,000.000 a year for almost a decade. Two obstacles are 1) the still waterlogged financial structures of many a holding company, 2) uncertainty as to how the various systems will emerge from SEC's application of the holding-company "death sentence." Last March, SEC (after five years of litigation and shadowboxing) asked nine "scatterated" holding companies to prepare plans for compliance with the holding-company law. Since then, with more and bulkier briefs, the shadowboxing has continued.

Last month two events quickened its pace. One was National Defense. As U. S. heavy industry began stirring from its ten-year sleep, many a holding company with arrearages on its preferred stock faced the problem of raising new money, building new generating capacity. The other was a new policy announced by SEC. In response to pleas from United Gas Improvement Co., Chairman Jerome Frank agreed that, instead of merely ruling on plans batted up by the bewildered companies, SEC would step to the plate and suggest plans for compliance itself.

With its plans for U. G. I. still in the works, SEC's official definition of an integrated company remains a secret. But last week light was shed on that definition by negotiations with two holding companies. One was Standard Gas & Electric (where ex-SECommissioner George Mathews and New Deal Alumnus Leo Crowley both work); the other, the late Henry L. Doherty's Cities Service Co.

Cities Service, a $1,068,579,000 aggregation of both oil (60%) and utility (40%) properties, is now run by a smooth, smart powerhouse named W. Alton Jones, for many years Doherty's right-hand man. Served with SEC's integration order in March, its sub-holding company, Cities Service Power & Light, answered with a brief, claiming Section 11 unconstitutional, but came to SEC's hearings nevertheless. Last week, Cities Service men heard an SEC lawyer named Frank Field sound off on what integration means to him. His view: concentrating either on its Colorado or its Ohio properties as a nucleus, Cities Service ought to sell its scatterated units in Washington, Missouri, Arkansas, Tennessee, North Carolina, and build up Colorado or Ohio with the proceeds.

This was one man's opinion. Cities Service and the industry nevertheless guessed that SEC's would not be very different. The view drew weight from the condition of Cities Service preferred and preference stock, on which are owed $30,937,338 in back dividends. Except by selling isolated properties, Cities Service might well have trouble raising new money for expansion in case its industrial customers need many more kilowatts for rearmament.

Meanwhile Standard Gas, a $766,345,000 system scattered from San Diego to Pittsburgh, took the initiative from SEC, last week filed a fairly drastic integration plan of its own. It proposed to boil itself down to two regional systems: one based on Pittsburgh, the other in Wisconsin and the prairie States. Six properties located on the West Coast, in the Rockies, Oklahoma and Kentucky would be sold by trading their common stock to Standard's own bondholders. These bondholders would thus own equities close to the meterboxes, while Standard would rid itself of perhaps $35,000,000 in debt. If allowed to keep Pittsburgh and the Midwest, the Standard system would have a net property investment of around $470,000,000. Smaller, it would nevertheless be stronger, better able to grow up with its two chosen regions.

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