Evening star., 1934-12-16
j. s. POWER POLICY
OPENS LEGAL WAR
Administration Policy Seen
as WastefuI Attack on
Investors,
BY DAVID LAWRENCE.

power companies who have dared to
invoke the aid Of the courts in pro-
tecting their rights under the Consti-
tuition.
The Federal Government-using the
funds of the Public Works Admins
tration-may lend money to cities and
towns for the purpose OF competing
with existing power and light COM
panies and driving them out Of busi-
ness If they refuse to sell their prop
critics at values which, in many in
stances, will wipe out investors who
have paid actual cash for their Sc
curities.
President Roosevelt has been grap-
pling with the question this week in
an effort to determine national policy.
He has let it be known that there must
be recapitalization and that, if stock
has been watered, then it is just too
bad for those who hold the watered
stock. He gave the impression that
utility arrangements were desirous of
working out amicably a solution of
the problem.
T. v. A. Forges Ahead.
But while Mr.. Roosevelt was talk
ing to the press in general terms about
the whole utility problem and saying
it was question of fact what the cost
of generating, transmitting and dis
tributing electricity should be and
what net earnings ought to be derived,
the Tennessee Valley Authority at the
same moment was issuing statement
formally advising IA municipalities to
60 ahead with their competition with
private companies and to apply to the
Federal Government for money to
do it.
The T. v. A.. in lengthy state
ment, complained that stockholders
had gone to court to block the sale of
local properties by private companies
to the municipalities. It appears that
the Edison Electric Institute, which
recently hired Newton D. Baker and
James Beck to give an opinion on the
constitutionality of the T. v. A. law,
should not have done this, and that
the Alabama Power Co., because it
belongs to the trade association of the
electric power industry. which is
known as the edison Institute, is
guilty of inconsistency.
Legal Studies Condemned.
From the White House came the
executives had advised the President
they were in nowise behind the court
actions begun by investors. The T.
v. A, however, expresses the opinion
that any company which helps to hire
attorneys Of prominence to look up
legal questions relating to constitu-
tionality while it is at the same time
offering its properties for sale is not
dealing fairly with the T. v. A.
The answer, of course, to this charge
is that the companies have not volun-
tarily negotiated for the sale of their
properties, but because they were
being threatened with destruction by
Government composition, and that the
suits are being Instituted by. stock
holders whose property will be con-
fiscated If the sales are blocked or il
fair price is not paid. Also, the
Edison Institute is acting for the en-
tire industry and not one Company
and is not party to any Of the T. v.
A. transactions.
Contradiction Seen.
But irrespective of the controversy
which has arisen over inconsistencies,
the fact remains that the White House
is telling the press that it wants to
avoid destructive competition and the
r. v. A. is simultaneously inviting the
municipalities to go ahead and erect
plants to compete with private COM
panies and that the Federal Govern
ment will supply the money.
This conflict brings the question to
the doorstep Of the White House for
solution. 1t is likely that the threats
issued by the T. v. A. will have to
be taken simply as strategic threats
for the present and that the deci-
sion as to whether P. w. A. money
is to be supplied by the Federal Gov
ernment to the municipalities will
have to be made soon by President
Roosevelt.
The existence of these threats and
Federal funds to back them up is Mr.
Roosevelt's club against the utilities
During the past week, representatives
Of utility managements, docile and
submissive, have sought and obtained
interviews with Mr.. Roosevelt and
have indicated. they want to go along
with him amicably.
Trustee Started Fight.
But these arrangements do not
represent the holders of public utility
securities, large proportion of which
is held by life insurance companies,
universities and savings banks. In
deed, it was the refusal of the Chemi-
cal National Bank of New York, act
ing as trustee for certain bondholders
to accept the T. v. A. price for GER
tain Alabama properties without a
disinterested appraisal, which caused
the declaration of war by the T. v. A.
The exercise of the right to go to
court is what the T. v. A. seems to
think is highly Objectionable. Sc
curity holders, it is inferred, should
simply accept losses and let it go
at that for the benefit of the Nation
as a whole. Unfortunately, investors
do not look at it the same way as
does the T. v. A. Also, when the
President speaks Of squeezing the
water out of utility stocks, it is one
thing to agree that this is desirable,
but it is something else to find a
satisfactory way to do it,
There are, of course, ways to do it.
One is to persuade utility companies
to go into bankruptcy, and, by means
of reorganization proceedings, build
new capital structures. Another is to
begin destructive competition and drive
recalcitrant companies out of busi-
ness, and, in that way, force bank
ruptcy. Still third is to appropri-
ate public funds to take over all pri-
vate utilities at price which squeezes
the water out and turns the proper
ties over to municipalities to own
and operate.
Damaging Results Feared.
All of these methods may involve
considerable chaos and confusion and
do damage to the financial structure
Of life insurance companies, educa-
tional institutions, and savings banks
which happen to be the victims of