RAPID AMORTIZATION IN REGULATED INDUSTRIES

THURSDAY, JUNE 27, 1957

UNITED STATES SENATE,

SUBCOMMITTEE ON ANTITRUST AND MONOPOLY,
OF THE COMMITTEE ON THE JUDICIARY,

Washington, D. C.

The subcommittee met, pursuant to recess, at 10:15 a. m., in room 424, Senate Office Building, Senator Estes Kefauver presiding. Present: Senators Kefauver (chairman) and Wiley.

Also present: Paul Rand Dixon, counsel and staff director; Dr. John M. Blair, chief economist, Philip Layton and George Clifford, attorneys, Ray Cole, investigator, Carlile Bolton-Smith, counsel to Senator Wiley; George L. Arnold, administrative assistant to Senator Neely, and Peter Chumbris, counsel for the minority.

Senator KEFAUVER. The committee will come to order.

The purpose of the hearing today is to examine the operations and activities of Ebasco Services, Inc., in maintaining and enhancing the concentration of economic power in the electric utility industry.

Ebasco Services, Inc., renders various services to private utilities and is a wholly owned subsidiary of Electric Bond & Share Co. The latter enterprise became, during the 1920's and 1930's, the largest utility holding company system in the United States. Under the Public Utility Holding Company Act of 1935, the operating companies of Electric Bond & Share were freed from the subholding companies through which Electric Bond & Share had exercised its control. This action was in the form of a decision by the Securities and Exchange Commission in 1942, which in some instances was not completed for as long as 10 years.

In the report of this subcommittee during the 83d Congress on monopoly in the power industry, it was pointed out that Ebasco Services was formed as a subsidiary holding company immediately upon the passage of the Public Utility Holding Company Act. The report goes on to state:

Prior to that time Electric Bond & Share Co. had directly supplied managerial and technical services to its subsidiaries ***. Even before the Securities and Exchange Commission took any steps to break up the Electric Bond & Share holding company system, that company apparently set up Ebasco Services as an ostensibly independent company, in what appears to have been a step to insure continuation of ties in the system even after the system's dissolution.

That is on page 94 of the report.

While there may be some question as to the precise extent to which Electric Bond & Share, through Ebasco, perpetuates the same type of control and influence over the operating companies as it did before the

passage of the Public Utility Holding Company Act there can be no question but that the relationship of Ebasco to most of the operating companies continues to be close and lucrative. In this connection, it is interesting to note that in 1955 some 30 percent of Electric Bond & Share's total income was derived from dividends received from Ebasco Services.

Electric Bond & Share has made application to the Securities and Exchange Commission for an exemption from the Public Utility Holding Company Act, so that Electric Bond & Share contends that it now owns no stock in any domestic electric utility and therefore should be declared to be an investment company rather than a holding company. Against this, counsel for the Securities and Exchange Commission have contended that through Ebasco Services, Electric Bond & Share continues to dominate many of its former associated companies. Formal hearings on this issue, which began in September 1955, have been held intermittently before an examiner of the Securities and Exchange Commission. Much of the controversy has revolved around the question of whether the services rendered by Ebasco are of a "continuing" nature and therefore in violation of the order directed against the company by the Securities and Exchange Commission.

Without attempting in any way to pass on the merits of the issue, as chairman of this subcommittee, I have requested the Securities and Exchange Commission to bring together information which has been placed in the public record in this case. Specifically, I have requested the Commission to supply us in summary form brief descriptions of the various services rendered by Ebasco to each of the electric utilities for which Ebasco has acted as representative agent in the securing of certificates of necessity for rapid tax amortization. According to information obtained from the Office of Defense Mobilization, there were 15 electric utilities for which Ebasco acted as representative agent in the securing of certificates in the period of greatest interest to this subcommittee, that is, from 1955 to date. I understand that their information has been prepared and will be presented to the subcommittee by Mr. Ray Garrett, Jr., Director of the Division of Corporate Regulation of the SEC.

Mr. Garrett is accompanied by Mr. Meeker, the General Counsel of the Securities and Exchange Commission; Joseph Woodle, Associate Director of the Division of Corporate Regulations and Amerst Huson, the Chief of the Office of Special Studies and Administration.

The subcommittee will also be concerned today with the related question of how Ebasco companies have fared in the securing of rapid tax writeoffs as contrasted to non-Ebasco companies. We are interested in the rapidity of growth of Ebasco companies through rapid tax writeoffs as contrasted to the growth of non-Ebasco companies. We are interested in the percentages of amortization certificates which have been certified for Ebasco companies as contrasted to non-Ebasco companies. We are interested in determining the reasons for the relatively favorable showing of Ebasco companies on these points. We are concerned lest, through the instrument of rapid tax amortization, the power and influence of the companies which formed the Electric Bond & Share system may have been unduly enhanced as contrasted to other segments of the utility industry.

I think in that connection we recall that Mr. Clyde Ellis, the president of the National Rural Electric Cooperative Association, and Mr. Norwood, testified in connection with certain acquisitions in the Pacific Northwest. Mr. Gus Norwood is with the Pacific Northwest Electric Cooperative Association.

Senator WILEY. Now, Mr. Chairman, I have been faithful in attending these meetings, but I was hoping you would have a quorum here. This is an important matter. We ought to have a quorum before we do business. I am right across the hall and always have attended every one of your meetings, but I wonder if we shouldn't raise the question as to some of these meetings. Can't we get another Senator in here so that we have a quorum?

Senator KEFAUVER. I understood from Bolton-Smith that you said to go ahead and get the meeting started, and that you would be here shortly.

This is not a meeting for the taking of any votes; it is a meeting for the purpose of hearing testimony.

Senator WILEY. I told Bolton-Smith that I would be ready to come to make a quorum. Our calendar is getting pretty well filled. Can't we get another Senator here?

What is the purpose of this hearing?

Senator KEFAUVER. I have been reading a statement as to the purpose of the hearing. It is, generally, to consider the use of rapid tax amortization to enlarge the monopolistic control and influence of electric utilities and also to consider many of these which have been handled by Ebasco Services, Inc.

Senator WILEY. We have had some Supreme Court decisions lately that ought to be given real consideration. I think the first way to proceed is, if we are going to have a committee hearing, to have a committee hearing. As it is now, we have not got a committee hearing; we haven't got a quorum. We are following through in a way that I don't think makes commonsense or follows the right practice.

As you know, I have been very faithful on all of your hearings and I told Bolton-Smith when he came over to see me, the minute you need me for a quorum to call me because I have many other things to attend to also. But you are inquiring into a very serious matter that involves the rights of individuals.

Senator KEFAUVER. Senator Wiley has been very faithful in attending all of these hearings and this is the only hearing that we have had or have planned so far this week on this subject. Of course, we all do have a lot of other hearings. It wasn't contemplated that we would have any votes or any sworn testimony this morning. Under the rules of the Judiciary Committee, while it is desirable to have, of course, as many Senators as possible at any hearing, hearings can be conducted without a quorum of the committee being present.

Senator WILEY. I don't know whether that is correct or not. I think first you will have to have committee action. But what I am saying, without being hypercritical, it seems that since we are going to consider something that involves the property rights of others and the subcommittee is to give consideration to what our findings are to be, before we give a lot of publicity to the subject, we should be properly in session.

Now that is the only point I make.

Bolton-Smith tells me that one Senator can hold a hearing unless the chairman of the Judiciary Committee objects. That isn't what I understand. I understand the rule to be you have to have action of the full committee to authorize the hearing. Now if we have such action, that is different, but I don't like this practice. After all, we are but servants of a great body called the Senate and we, especially in the Judiciary Committee, should conduct our sessions according to good practice and what I think is just common sense.

Here we are inquiring into the rights of people. You refer to Ebasco Services, Inc. We had some testimony on that company and I suppose the idea is to show that they have been violating the law, and all this and that. If that is the purpose, we had better have a setup of the Judiciary Committee that will proceed in due form to find the facts and draw the right conclusions. That is the way I practiced law for thirty-odd years.

I think the Supreme Court has definitely lectured us in pretty good form, telling us how to conduct hearings, and I think the Court has done a great service in many respects. They have told us definitely we are simply a legislative body and as a legislative body we have to proceed according to rules. Particularly involved, I think, is the question of what is right and wrong and justice.

I have nothing further to say in the matter, but I wish you would try to get the other members of the committee here.

Senator KEFAUVER. I appreciate the attitude of my friend and colleague. This subject matter that we are inquiring into today deals generally with part of the same problem that the committee went into in the 83d Congress, when this committee was under the chairmanship of Senator Langer. It deals directly with the announced jurisdiction and the purpose for which this committee was formed, which is to inquire into the monopoly influences in various segments of our country.

The rules of the Judiciary Committee authorize hearings at which sworn testimony may be taken with only one Senator, when certifications of certain types have been received, that is, when the chairman of the full committee authorizes it.

The rules of the committee authorize a hearing of unsworn testimony with one member of the subcommittee present. We have been fortunate in that we usually always have 2 members, as at present, and sometimes 3 or 4. It probably would be impossible for this committee to have hearings if we had to have a quorum present at all times. Each member of the committee is fortunate in having a representative during its sessions. They have administrative assistants or excellent counsel present from the offices of the various Senators. Each member also receives a copy of the transcript as soon after the hearing as possible. Of course any votes or any formal actions taken must be acted upon by the quorum of the committee.

Mr. Chumbris, the minority counsel, is always here. Mr. BoltonSmith, a very able lawyer, is the adviser to Senator Wiley. Mr. Arnold is here representing Senator Neely.

The committee resolution has been called to my attention, the resolution of the whole Judiciary Committee adopted January 22, 1957:

Resolved by the Committee on the Judiciary, That pursuant to subsection 3 of rule 25 on the Standing Rules of the Senate, Senate Resolution 180, 81st

Congress, the quorum of the committee or any subcommittee thereof for the purpose of taking sworn testimony shall consist of one Senator of said committee.

Of course we are not taking sworn testimony, but that is the rule. Senator WILEY. That is for the purpose of taking sworn testimony, Mr. Chairman, and they have proceeded under that rule.

Now we come back to the question of whether or not you may hold a public hearing here, when you don't have a quorum of the subcommittee. I just question the advisability of it, and I leave it at that.

Where is the original resolution under which we are operating? Senator KEFAUVER. We can procure it.

Mr. CHUMBRIS. Mr. Chairman, I just want to point out that Senator Wiley's point was resolved in the recent Watkins decision, which was handed down in the last 2 weeks, which clearly defines what investigating congressional committees should do or should not do. I point that out because you refer to the fact that this is a continuation of the 1953 hearings held by this same committee.

Senator KEFAUVER. As I say, it is dealing with part of the same subject matter that we had under discussion then.

Mr. CHUMBRIS. Further, I know that in the Juvenile Delinquency Subcommittee, we held no hearings with only one Senator present unless we received in writing previous to the hearing the consent of the remaining Senators on that subcommittee. That was the rule of the judicial committee at the time. I think it involved the Army hearings, the so-called McCarthy hearings, dealing with the Secretary of Defense. I think that rule was evolved from that particular hearing, which required there would be no one-man hearings.

Senator KEFAUVER. The general rule we followed in the Juvenile Delinquency Subcommittee was that if we were going to have sworn testimony, we had a statement signed by other members of the committee designating one man to hold the hearing. That was for the purpose of upholding the right of the Senate to fine anyone in contempt of the committee, if it developed that they perjured themselves or didn't tell the truth or if they refused to answer a question. The overall Judiciary Committee at this session of Congress decided on a different method of proceeding and did authorize even one-man hearings to take sworn testimony.

Of course, we are not asking anybody to be sworn here today. Senator WILEY. That rule was adopted in January of 1957 that one man could take sworn testimony. I don't think that is the purpose of this hearing. As you said, the purpose here is to get before the public something that goes very fundamentally into the rights of others. I agree that in the Watkins case and other cases, we have been clearly told that we are only a legislative body and not an inquisitional body, that we must live by the rules and that is my only object this morning, sir. I had not thought that we would not have a quo

rum.

Senator KEFAUVER. If we had to have a quorum every time to hear any witnesses, even unsworn witnesses, we would never get any heard. Senator WILEY. May I ask what is the purpose of this meeting? Senator KEFAUVER. I was just reading the purpose of the meeting. It is in the statement before the Senator.