SECTION I

REVIVAL OF HOLDING COMPANY EVILS

Dixon-Yates contract rears superholding company combine threatening Tennessee Valley Authority

The Dixon-Yates contract, if the Securities and Exchange Commission approves the formation of the Mississippi Valley Generating Co. with Middle South Utilities, Inc., and the Southern Co., as joint sponsors, will join together two holding companies which have won separate Securities and Exchange Commission approval as integrated systems. This combination will largely monopolize the electric power supply of the States of Arkansas, Louisiana, Mississippi, Alabama, and Georgia, and through many high-voltage interconnections by which contract power could be delivered to the Tennessee Valley Authority, start an octopus-like integration of that great public system into this private power monopoly giant.

Former Chairman of the Tennessee Valley Authority, Gordon Clapp, appearing as a witness before the committee, called attention to what he termed the most significant letter in the whole record, that under date of January 4, 1954, from J. W. McAfee, president of Union Electric Co. of Missouri, to Walter Williams, assistant to the General Manager of the Atomic Energy Commission, in general laying the foundations for the Dixon-Yates contract. Clapp quoted McAfee as referring to a previous conversation and then saying that, if he had the responsibility of relieving the national budget of avoidable capital expenditures in the Tennessee Valley Authority area, he would consider:

1. That TVA no longer assume full responsibility for supplying all the needs of municipalities. Thus, as present contracts expire, those municipalities which need a greater supply than is available from the Authority would be obliged to arrange for purchase from others or for the construction of a plant with municipal funds.

2. Arrangements with neighboring companies of TVA to sell power to the Authority. I am confident that arrangements could be made for the construction of a new plant if that is necessary (RDY, p. 572).

Clapp referred to the second alternative as "giving those systems outside the Tennessee Valley Authority literally control over the growth of the Tennessee Valley." He added:

To get those outside utilities to become the major source of new power for the growth of the Tennessee Valley from higher-cost sources would have put a stranglehold in the hands of these private utilities around Tennessee Valley, on which they could tighten the noose almost any time they wanted (RDY, p. 573).

Later Clapp testified that the only conclusion he could come to was that the Dixon-Yates deal would

lead to the formation of a new combine of two large holding companies, each with a long history of aggressive hostility to TVA, acting in concert with two Government agencies, the Bureau of the Budget and the Atomic Energy Commission, to squeeze the TVA *** into submission to the private utilities (RDY, p. 609).

James D. Stietenroth, former chief financial officer of the Mississippi Power & Light Co., had already testified concerning his own holding company, Middle South Utilities, Inc., that the thing he is fighting "is just too big for me and I think it is too big for the Congress of the United States." He stated further:

Now, I am actually frightened as a citizen of the United States by the bigness that even my company and my group of companies represents. I think that its bigness actually destroys the dignity of the individual (RDY, p. 191).

He referred to Middle South Utilities' service area as the "TriState Colonial Empire" (RDY, p. 196).

In response to a question from the committee, Stietenroth said the result of the Dixon-Yates contract would be to enlarge the power and influence of the two participating holding companies (RDY, p. 331). He emphasized particularly the magnitude of the combined properties which would be involved, estimating the Middle South properties. after construction of the Mississippi Valley Generating Co. plant, at close to $1 billion, with the Southern Co. group bringing the total up to about $2 billion (RDY, p. 335). He testified: "It is so huge until it is frightening" (RDY, p. 332). He said further:

Well, if entering into the Dixon-Yates contract is a monopoly, I will say that these two companies, the Southern Co., through its subsidiaries, and the Middle South Utilities, Inc., through its subsidiaries, if they should be joined together ** through the Memphis generating plant, if that joining together makes them one, why it is just simply almost the entire southeastern part of the United States, plus Arkansas and Louisiana (RDY, p. 336).

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This is the view of a former utility financial officer, who made it clear that he favors private ownership (RDY, p. 190) and whose experience in the industry bridged the period of the rise and supposed dissolution of the holding company colossi.

This raises the question whether the holding company combine represented by the Dixon-Yates contract does not violate the intent of the Holding Company Act, which restricts allowable integrated public-utility systems to those "not so large as to impair the advantages of localized management, efficient management, and effectiveness of regulation."

In fact, this evidence of the wedding of the Middle South and Southern holding company groups through partnership in the Mississippi Valley Generating Co. scheme recalls the Federal Trade Commission report, with its reference to the social and political dangers. present or potential, "in the growth of public utility holding-company groups of such great size as to extend the conditions of monopoly far beyond what was originally contemplated in the laws." The Commission said:

Great size, even as an implement of economical operation, has its practical limitations in efficiency and added to that are the even greater disadvantages arising from permitting a small group of capitalists to exercise a large degree of arbitrary power over enormous areas of the country and over millions of their fellow citizens. The financial and political influence which such groups may be able to exercise is unhealthy in any country, but particularly in a democracy. This is especially true in regions where there may be lacking other economic organizations of equal strength. * **"" (800, pt. 72-A, Doc. 92, 70th Cong. 1st sess.).

Later in this report we will note evidence of the very real nature of the dangers which the Federal Trade Commission investigation revealed as implicit in such great combinations. Here we may note.

however, that the consummation of the Dixon-Yates deal will put together a holding company combine serving approximately 9 percent of the entire area and population of the United States. Wall Street domination-Middle South branch of Dixon-Yates

Middle South Utilities' subsidiaries were pictured in the testimony as dominated by an absentee holding company group centered at No. 1 Rector Street, New York City. In that same building are also housed the still vigorous Electric Bond & Share Co., its wholly owned Ebasco Service Co., Haskins & Sells, accountants, and Reid & Priest, attorneys. Local company officials, including boards of directors, were made to appear as little more than puppets who signed papers drawn up at the New York holding company headquarters, or who approved the shifting of funds from various reserves to surpluses where they swelled the amounts available for dividends.

Stietenroth, whose career as a chief financial officer of the Mississippi Power & Light Co. began well before the Public Utility Holding Company Act of 1935, testified that he noticed no material difference resulting from the supposed dissolution of the top holding company pursuant to Securities and Exchange Commission orders.

Examples of local management decisions made in far away lower Manhattan, cited by this witness, include (a) purchase of generating station equipment, (b) refunding of a preferred-stock issue, (c) payment of 9 percent cash dividends, (d) distribution of the equivalent of $3 million in stock dividends, (e) transfer of large overaccruals for taxes to surplus, (f) accounting for quick amortization tax savings, (g) services to be rendered by Ebasco and charges for such services, and (h) proposed increases in rates.

Stietenroth testified that he "could not and would not wear the yoke of Wall Street any longer, because the life of pretense that I was being forced to live was literally shrivelling up my soul" (RDY, p. 191). He tried to persuade the president of the company and the chairman of its board that the three of them together had "some chance of success in breaking the stranglehold that Wall Street has always had on our company" (RDY, p. 192). He referred to "King Wall Street" as having absolute, dictatorial powers over the people of Arkansas, Louisiana, and Mississippi.

King Wall Street

was his way of—

collectively referring to *** Middle South Utilities, Inc., Mr. E. H. Dixon, president, Ebasco Services, Inc., subsidiary of Electric Bond & Share Co., and Messrs. Reid & Priest, attorneys, all of No. 2 Rector Street, New York, which is just across the way from No. 1 Wall Street, New York (RDY, p. 194).

He said:

Not a single principal officer or director of the Mississippi Power & Light Co. is permitted to exercise the full powers and prerogatives or perform the duties of his office, in that said persons sometimes referred to as "Wall Street," exercise absolute veto power over the officers and directors of Mississippi Power & Light (RDY, p. 211).

Stietenroth testified that

Mr. Dixon has a proxy when he comes down to the Mississippi Power & Light stockholders' meeting, which makes it almost absurd for us to go through the monkey motions of voting the shares, because there can't be but one answer (RDY, p. 329).

56070-55- -2

He added:

And when Mr. Dixon votes his shares (98 percent of the voting stock in our company), well, he has appointed each and every single one of those directors, without question, and that also obtains in the Arkansas company, the Louisiana company, and the New Orleans company; and, through that board of directors, he has absolute appointive powers through the suggestion of every chairman of the board and every president and every vice president and every treasurer and every secretary; *** (ibid.).

He went on:

At the annual stockholders meeting he [Dixon, president of Middle South Utilities] comes in without a proxie but an authorization to vote the shares. He is the company (RDY, p. 329).

In response to the question as to how this situation differed from the condition before the Holding Company Act was passed,Stietenroth said:

Sir, except that we have by and large legalized it and gotten SEC approval pretty well down through the line, I don't see any difference. It is the same thing just wrapped up in a different package (RDY, p. 331).

The witness had previously referred to the time when Middle South Utilities succeeded Electric Power & Light, stating they continued to deal with the same people and to do the same things, "and I couldn't tell from 1 day to the next whether EL was still going, or still in existence, or gone" (RDY, p. 198).

Arthur E. McLean, president of the Commercial National Bank of Little Rock, Ark., similarly testified, specifically that the decision of the Arkansas Power & Light Co. to ask an increase in rates was made by the holding company in New York. He referred to the statement of the president of Arkansas Power & Light that "this decision was entirely within their hands" as "about as silly a claim as I have ever heard of" (RDY, p. 486). He continued:

It is true that the board of directors was elected by the stockholders, but the Middle South Utilities Co., who own all of the common stock, in turn delegate by resolution anyone they see fit to vote their entire holdings, and the vote will, in turn, elect all of those officers, which merely amounts to appointing (ibid).

Now, under those circumstances if anyone is naive enough to believe that directors selected at random, with probably little financial interest would set the policies for the holding company, or act independently, then this would be the strangest situation I have ever come in contact with. *** In my opinion, the fact that they do anything about it is a laugh and a joke (ibid.).

Referring to the statement of the president of the company, that the directors could withdraw the proposed rate increase, he added: *** which, of course, they could and they will get fired the next day, I guess, if they did (ibid.).

He stated that the chairman of the board, Hamilton Moses, went around Little Rock spreading the impression that the instruction came from New York and that the local directors pleaded with Mr. Dixon not to do it but went along with it "most of them because they didn't know what it was all about and it sounded plausible and they weren't earning 6 percent and they didn't know any more about it than anybody else did" (RDY, p. 487).

As an example of the extent to which the directors and officers of the subsidiaries appear as mere puppets for the holding company in New York, Stietenroth recounted the procedure in connection with the decision to refund the Mississippi Power & Light Co. 6 percent preferred stock. According to his testimony, the first word of this

proposal came to him from the Mississippi Co. president, Baxter Wilson, who had just learned of it by telephone from the Middle South office (RDY, p. 252). It was a matter of great embarrassment to Stietenroth as treasurer of the company because a couple of days before he had responded to an inquiry from a prospective investor in the 6 percent preferred that there was nothing pending so far as call of the stock was concerned. He testified:

You can imagine how embarrassed I was, the principal financing and accounting officer of this company, to have to call that man and tell him that I didn't know a **thing that was going on in our own company with respect to such an important matter (RDY, p. 253).

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Stietenroth testified further that this telephone conversation was followed by a form of resolution, sent by either Ebasco or Reid & Priest, Ebasco attorneys, "to be passed by the board of directors authorizing the transaction which was already set in motion (ibid.). He added that, among other things, they received "some blank signature pages for a registration statement which was later to run to 35 or 40 pages but which the directors and officers of the operating company were supposed to sign in blank, without ever seeing what they were signing.' Referring to the directors meeting at which they were to adopt the resolution and sign the blank signature page, he said: As I presented this signature page to our directors, one of them said: "What is this I am signing?" (RDY, p. 254).

According to the witness, "the resolution was adopted verbatim as it was sent down to us in suggested form" (RDY, p. 255), the blank signature page was signed by all except Director Dixon, president of Middle South Utilities, who apparently signed it later, and both were shipped "to either Reid & Priest or Ebasco" (ibid.). He testified that he never saw the signature page again until it had "been attached to this registration statement and it had been filed" (ibid.).

Referring further to the signing of the registration statement in blank, Stietenroth testified:

That is exactly the same pattern that has been followed in every financial transaction that has gone on since 1937, since I was treasurer and principal financial and accounting officer (RDY, p. 258).

Then came the following interchange between committee counsel and the witness:

DAVIS. Have you ever signed a registration statement as the principal financial officer that was printed or that contained all the information?

STIETENROTH. Never.

DAVIS. You have always signed them in blank?

STIETENROTH. That is right.

DAVIS. Did you ever go to the SEC about this registration statement?
STIETENROTH. No, sir.

DAVIS. About any other registration statement?

STIETENROTH. I haven't been in the SEC offices in years (RDY, pp. 259, 260). Stietenroth testified further that the proposed preferred stock matter was one of a type for which there was practically no precedent for approval by the Securities and Exchange Commission in the form in which they were instructed to carry it out. Speaking of the fact that it was Sanders, Hallingby, Dixon, and Canaday, all officers of Middle South, who were "negotiating this transaction with the staff of the Securities and Exchange Commission," he continued:

It was just an amazing thing to me that people who are not even officers of our company could go down there to that Commission, to the total exclusion of its