Evening star., 1934-12-20
j. S. POWER POLICY
HELD RATE LEVER
Roosevelt Attitude Seen in
Favor of Operating Units
Acting in Good Faith.
BY DAVID LAWRENCE.

but Is not hostile to the operating
companies, and, indeed, believes the
bonds of the latter are as sound as
Government securities. In this dec
laration, officially revealed at the
White House, may be seen the lines
of battle which the administration has
marked out for its war on utilities.
The inference which may be drawn
from this latest information is that
confiscation of private properties
through Government competition will
not be resorted to If adjustments of
electric light and power rates can be
forced.
This means that the Public Works
Administration, which has Federal
funds to lend to municipalities to
build their own power plants, will
become in a sense a Federal rate
making body. 1t will, of course, have
the assistance of other Government
agencies like the Federal Power Com
mission. But it looks as if the final
decision whether to allow Government
funds to come in and compete with
an existing plant or company will be
made by the P w. A. after all efforts
to force rate reductions have failed
or succeeded as the case may be.
No Projects Yet Begun.
On the face of it, there would
the apparent friendliness which the
President has exhibited in conversa-
tons with utility executives who have
sought to make peace between the
White House and the electrical in
dustry and the latest developments. as,
for instance, the readiness to lend
money to New York City to build its
own plant.
But the truth of the matter is that
Government competition has not
actually begun-that is, no very large
projects have been approved and no
work has been started in any of the
major situations.
This leads to the belief that the
President is trying hard to drive cleo
tric rates down and that he will not
hesitate to use governmental funds as
O weapon to attain his objective.
Operating Firms Not Hit.
But to those investors who have been
startled by this warfare assurance has
now been given that those who hold
securities in what are known as
operating companies have nothing to
fear. Life insurance companies and
savings banks, which have such large
investments in public utilities, have
bonds in operating companies. Some
Of them also have preferred stocks, and
nothing has been said about these as
yet.
It would appear. however, that the
charge of "watered" stock has now
been defined as relating to holding
companies. 1t is true that hundreds
of thousands of small investors hold
such securities, which now are endan-
gered, and nothing has come from
any official source as to the extent to
which the Governments warfare on
the utilities takes into account the
possible losses to such investors.
Need for Separation Seen.
Much talk is heard about the need
for recapitalizing utility holding COM
pany structures and the Importance
of separating holding companies from
operating companies. There can be
no doubt that a much healthier stu
alton would ensue if the holding
companies were subjected to strict
regulation and if they were forbidden,
for instance, to use operating COM
panies as means of marketing the
securities of holding companies. In
deed, there are many reforms which
are undoubtedly needed and upon
which fair minded and disinterested
tribunals would agree.
Meanwhile, a bill to regulate hold
ing companies is being drafted by aides
of the President for presentation to
Congress next month and preparations
are being made for further conference
between the President and utility
leaders in January.
What is most perplexng, however,
Is that all the weapons of warfare are
not in the Presidents hands. The ex-
perience with the railroads showed
that it took more than a decade to
ascertain the proper valuation of the
railroads and the issues raised in the
courts have not yet been decided.
Flood Of Suits Seen.
Stockholders in electric light COM
panies, who feel they have everything
to gain and nothing to lose by court
action-Since they would be threat
ened with complete losses anyway
are bound to pile up suits and re-
straining orders. Nobody here has vet
figured way out of this hurdle. For
even the bondholders of holding COM
panies, or any others who might be
willing to go along with recapitaliza-
tlon plans, would hardly be able to
prevent stockholders who think they
are going to be wiped out from exer-
cislng their rights to argue that prop
erty is being taken from them in vio-
lation Of the fifth amendment to the
Federal Constitution.
Also, it is difficult to see how the
operating companies can be held in
tact If their parent companies and
the holding companies on which they
depend for financing are threatened
by the Federal Government. There
are, of course, different types of hold
ing companies and different local sit
uations on which the White House is
inclined to caution the press not to
generaliZe.
The need OF a national power policy
and definition Of Federal purpose.
however, is becoming more apparent
as uncertainty is added almost daily
to the situation. But the favorable
remarks being made by the President
with reference to bonds of operating
companies would seem to lead to the
belief that much of the present threat
ening Of Government competition is
really to force rates down without &C
tuany plunging the country into Gov
eminent ownership of all power or
electric light systems.
1Q3dN