Evening star., 1940-02-23

IN
itsinterpretation * 50
of the law, al David Lawrence.
most every one of the big holding
companies, involving directly and
indirectly a $4,000, 100000 industry,
will be forced into the bankruptcy
courts.
The recent activity of the Gov
ernment ownership school of thought
here leads to the belief that the
forcing of the Associated Gas &
Electric Co. into bankruptcy by the
S. E. C. may be but the beginning
Of crusade to force down the
values of utility properties to the
point where they can be acquired
by the Government as were the
private properties in the T. V. A.
area in the South.
The power that the commission
has to step in at any moment and
forbid even the payment of interest
by an operating company to a par
ent corporation is such that if the
point of view exhibited in the Asso-
ciated Gas case is criterion, Con-
gress may well expect a period of
serious def1ation in the American
economic system in the next sew
eral months as one by one the big
utility systems are thrown into the
bankruptcy courts.
S. E. c. Adamant.
The situation Is best revealed by
examining the experience of the
Associated Gas system. This is ad-
mittedly tangled system and one
in which there are two layers of
holding companies-the very evil
that the statute sought to cure. But
the company, through new manage
ment, entirely divorced from the
old, submitted designations of all
officers and directors and offered
comprehensive plan for the S. E. c.
to approve. The S. E. G. would not
bulge an inch. 1t would not help
protect the investors from loss,
though there is much to be ex-
planned in the fact that the s. E. c.
did have the Associated Gas inte-
grafton plan for several months and
did approve an upstream" pay
ment in December, only to reverse
itself In January
It is true that the new president,
Roger Whiteford, in a public state
ment and the commission in it's
formal opinion said that the COM
pany preferred the immediate issu-
ance of an unfavorable order by the
S. E. G. to the opportunity for ap-
peal. But anybody who understands
these things knows that if COM
pany itself is going to be forced into
bankruptcy reorganization, It likes
to file its own petition first in court.
Plea to S. E. C. Vain.
What really happened is that Mr..
Whiteford, who took the presidency
In 1899 and saw the earnings of the
Associated Gas system rise, thought
that the affairs of the company
could be Strengthened out with the
cooperation of the S. E. C. so that
bankruptcy could be avoided. He
struggled in vain to get the COM
mission to help. 1t refused to indi-
cate what it would do, and even
when the Reconstruction Finance
Corp. was ready with a loan to re-
fund the maturing bonds of the
Associated Gas due in March, 1910,
the S. E. G. refused to give any
signal that it would not PIT the
Associated Gas system into the
bankruptcy courts.
It should be borne in mind that
the members of the Securities and
Exchange Commission are consci-
entious men with a high sense of
duty and they could not bring them
selves to approve or work out any
plan with the Associated Gas sys-
tenn, even though it is a solvent COM
pany and has assets more than
sufficient to pay its debts and meet
its equity obligations.
The fact that the S. E. c. hesitated
and insisted on forcing the matter
Into the courts could be taken to
mean that no integration system for
any holding company will be ap-
proved, with possibly one or two
exceptions, unless the holding COM
panies go into the bankruptcy courts.
Investors May Be Goats.
This could mean terrific losses for
investors. Already the bonds of the
Associted Gas, which were selling
at % early this year, have dropped
to IS, and the entire utility industry
is up in the air as to how the death
sentence" is to be applied. Congress
probably is really at fault for the
present situation, but it is argued,
on the other hand, that the S. E. G.
could prevent losses to investors by
a more realistic attitude relating to
the 225, 900 persons who have invest
ed in the Associated Gas properties.
It is true that the Associated Gas
had many faults and that sirnpli-
fled reorganization plan approved by
the S. e. G. could have cured them,
and yet protected the investors. The
S. E. G. commissioners will deny
that this could have been accom-
plished, but persons intimately IA
riliar with the affairs of the COM
pany and the negotiations with the
S. E. c. extending over several
months feel that the S. E. G. did not
sufficiently take into account prob
able losses to investors and took in
stead a course that may mean a
breakdown in values Of these in
vestments.
The properties in question are 10
Gated in territory having popu-
lation of 100000 and involve the
supplying of gas and electricity to
I 762 000 custorperS Tho counnanv