corporate officers, and deal with that Commission and for that Commission to understand that when they reached an agreement with these gentlemen who were officers of Middle South Utilities, that they had also reached an agreement with the Mississippi Power & Light (RDY, p. 260). It is the view of the committee that, if further investigation bears out Stietenroth's evidence on this point, the intent of Congress, through the Holding Company Act, to foster "local management" in permissible "integrated systems," has been deliberately evaded. Here again it is important to recall the report of the Federal Trade Commission with reference to the earlier holding company era. Thus the list of conditions and practices found objectionable by that Commission included "the use of local dummy directors and local officers without real authority, the real dealing with local conditions being through absentee holding-company officials." Dealing with the monopolistic aspects of such absentee control, the Commission said: Monopoly of local operation may be justified as sound public policy on grounds which have little or no application to a superimposed monopoly of ownership and control which of itself performs no operating function but is so powerful and farflung that it transcends the limits of State control and even challenges the power of the Federal Government (47, pt. 73-A, Doc. 92, 70th Cong., 1st sess.). The Commission, in that earlier report, raised the question whether many of the evils of holding-company domination and management disclosed by its investigation did not constitute in essence "the abuses of monopolistic power" and if so, whether the monopoly itself might not be dissolved under the antitrust laws. In amplification of this viewpoint, the report quoted a paragraph from the Commission's petition in the Federal district court seeking to compel the disclosure of certain records in its proceeding against the Electric Bond & Share Co., as follows: Through the creation of affiliated holding companies, the placing of their stocks and other securities in ownership which is subject or friendly to the Electric Bond & Share Co. and the negotiation of supervision contracts with said holding and operating companies, the Electric Bond & Share Co., its officers and directors, are in a position to control numerous transactions involving the sale, purchase, and transmission across State lines of electrical energy or gas, and of the stocks, bonds, and other securities of corporations so engaged. By reason of the absence of substantial diversity of interest between the individuals and corporations involved in such transactions, the Electric Bond & Share Co., and its officers and directors, are in a position to create, impose, and enhance, through collusion and combination, a burden upon interstate commerce in electrical energy which may be undue, unreasonable, and detrimental to the public. It is in part to determine as directed by the Senate resolution, whether such a burden has actually been created and imposed and whether any of the practices herein alleged to have been employed "tend to create a monopoly, or constitute violation of the Federal antitrust laws," that the present application for relief is presented to this honorable court (49, ibid.). The evidence before us indicates the existence of a combination involved in large interstate transactions, capable of engaging in monopolistic practices on a huge scale. This has come into existence through the Dixon-Yates and EEI (Electric Energy, Inc.) contracts which, together, establish a single community of interest in the field of electric power linking together operating companies surrounding the Tennessee Valley Authority in the south, west, and north, including in its embrace the States of Georgia, Alabama, Mississippi, Louisiana, Arkansas, Missouri, and Illinois, with Edgar Dixon's Middle South Utilities as keystone of the arch. In the language of the old Federal Trade Commission petition, this combination, and its directors and officers- are in a position to create, impose, and enhance, through collusion and combination, a burden upon interstate commerce in electrical energy which may be undue, unreasonable, and detrimental to the public interest. Ebasco-Management and milking Stietenroth's testimony concerning the relation of Ebasco Services, Inc., to the subsidiaries of Middle South Utilities (the Dixon holding company) is clear indication of survival of the holding company relations, supposed to have been abolished through enforcement by the SEC of the Holding Company Act of 1935. Ebasco Services, Inc., is theoretically employed by four operating companies under arm'slength arrangements otherwise, its charges would have to be billed on a cost basis. Actually, the operating companies have no choice but to employ the service company. Its decisions are controlling in a wide range of fields of management, and its bills are paid as rendered, without any critical examination. In a subsequent section of this report it will be shown that Electric Bond & Share Co., the old top holding company, owns Ebasco Services, and that an interlocked community of financial institutions represents considerable stock ownership in Electric Bond & Share as well as in Middle South Utilities, with interlocking directorates tending to establish a survival of the old relationships of the pre-holding-company era. The section also shows the extent to which, through Ebasco Services, Electric Bond & Share Co. is still actively concerned with all its old subsidiaries. The witness explained the former interrelations of all these companies and the present ones. He stated that the form has changed, that the subsidiaries of Middle South actually enter into orders with Ebasco for these services but the orders will be executed, and they just remain alive for years on end *** and it keeps us dependent, and I think it costs us more than we could do the same work ourselves (RDY, p. 339). Stietenroth added that it does have the advantage from the holding company's viewpoint of policing us (ibid.). He testified further: It is suggested to us that we ought to purchase this service and that service, and then having purchased it, why that leaves us in a dependent situation ***. He made it clear that a word to an Ebasco man from the holding company treasurer was always sufficient to overrule a suggestion from the treasurer of one of the operating subsidiaries (RDY, pp. 339340). Asked what would have happened if he had hired another company to provide the services, he replied: If I had ordered it on, we will say, August 22, when I was still in fairly good standing *** I wouldn't have been fired on September 22; I would have been fired August 22 (RDY, p. 345). Stietenroth testified that Mississippi Power & Light could perform all or most of the services performed for them by Ebasco if they were adequately staffed, that they could do it for the amount of money now being paid to Ebasco, and that they would not be dependent thereafter. As he put it, "the whole business would have a flavor of home managed much more than it has as of now" (RDY, p. 346). He stated subsequently: Now, I do not testify and I have not testified that Middle South and Ebasco Services are brothers and sisters or in the same corporate family. But I have said that Middle South is able to police and control these operating companies down there by suggesting *** that they buy these services from this separate corporation (RDY, p. 347). Illustrating what he meant by his statement that Ebasco performs a policing function so far as the operating subsidiaries of Middle South were concerned, he testified: Well, Mississippi Power & Light Co. wouldn't any more touch its rates than I would get up on top of a 50-story building and jump off, without the suggestion having come down ***. Let me narrow that a little bit. If there were some very unimportant and immaterial changes in rates, why we might undertake that locally. But, for instance, Mr. Blugman of Ebasco is a rate consultant, and he visits our offices fairly regularly and advises with our rate people. * * * So I would say that Mr. Blugman initiates his own ideas about what services we need in a rate connection. Then he conveys the idea to us that we need that service. We decide that we do need that service (RDY, pp. 345–346). As another illustration, Stietenroth testified that Ebasco's insurance department places a great deal of his company's insurance. As he put it: They go to work and put the insurances under a binder, and they will write us a very nice letter saying that they had done an excellent job on our behalf *** would we please confirm it. We have always confirmed what they suggested (RDY, p. 361). * * * The witness testified that in general Ebasco Services is performing for Middle South operating companies a great many, if not most of what used to be performed by the old Bond & Share Co. (RDY, pp. 344-345). He had previously listed these services as including— technical rate consulting services, indenture requirements, fiduciary fees, insurance and safety services, reports, and other information for investors and others, United States income tax, surtax and excess-profits taxes, reports to governmental agencies, services of Washington office, services to sales department, services of industrial relations department, engineering consultation, testing equipment at NSES, Natchez steam electric station *** (RDY, p. 342). In response to a question, he acknowledged that "they [Ebasco] do everything but lick the stamps" (ibid.). Dealing with payments to Ebasco, Stietenroth testified that, as agent for Mississippi Power & Light, Ebasco had built three important steam electric stations, the latest being the Delta station in connection with which the service company's fees ran to more than $1,500,000. He testified that, for the latest 20-month period for which he had figures, Ebasco's fees totaled $1,162,918, without taking into account direct charges to the company. He testified further that Ebasco bills the company only under general categories without indicating the specific items of service rendered (RDY, pp. 341-343). (See table 1.) 1 See infra sec. VI, p. 81 TABLE 1.—Mississippi Power & Light Co. payments to Ebasco Services, Inc., during 20 months, January 1953 to August 1954 Insurance and safety services.. Reports and other information for investors and others.. United States income, surtax, and excess-profits taxes_ Total payments $935, 877. 31 16, 405. 12 2,210. 72 1, 268. 79 21, 497. 92 3, 442. 39 24, 770. 91 1, 767. 47 7, 204. 74 Testing equipment at NSES. Purchasing and traffic.. Services of general consultants_ Preliminary design 115-kilovolt transmission line, Delta steam 10, 424. 98 2, 639. 67 35, 998. 20 482. 91 913. 68 30, 268. 36 7, 127. 00 4, 898. 76 8, 253. 34 300. 55 1. 44 29, 379. 79 3, 266. 86 442. 04 5. 71 3, 127. 18 1, 967. 05 6, 019. 88 1, 751. 57 1, 204. 15 1, 162, 918. 49 Total.. NOTE.-Above figures are services only and do not include reimbursement for expenditures made for Mississippi Power & Light Co.'s account such as insurance premiums railroad and airplane tickets. Finally, in response to a question as to whether Ebasco bills were checked, the witness said: Well, sir, actually, except for fussing and fuming around about it for a little bit, I never question an Ebasco bill because that is just unheard of and just ought not be done, and I have that much sense. ***Not only me, but I know the rest of them have no more idea than a bat what they are approving when they initial those Ebasco bills. * * We just set up a barrel of money and let Ebasco take whatever they consider fair (RDY, p. 344). * In this connection the witness referred to the report of the congressional committee on section 13 of the bill which became the Holding Company Act. The committee described this section as designed to protect public-utility companies against tribute heretofore exacted from them in the performance of service, sales, and construction contracts by their holding companies and by servicing, construction, and other companies controlled by their holding companies (RDY, p. 347). Data furnished by the Securities and Exchange Commission at the request of the committee shows that Ebasco Services, Inc., is now collecting fees running at more than $30 million a year. But the company does not furnish a breakdown of the bulk of these fees on the contention that they are not being collected from "associated companies" and, consequently, are "confidential." In view of the whole history of holding company use of service organizations to milk electric operating companies, a fundamental revelation of the Fed eral Trade Commission investigation, it is extraordinary that the SEC has required so little essential information about what the financial interests controlling operating utilities are now up to. This will appear doubly extraordinary in the light of the section of this report dealing with the survival of community of interest between Electric Bond & Share and its former subsidiaries. Among the monopoly evils of the holding company era, the Federal Trade Commission cited: Ability of the holding company to organize separate corporations to monopolize certain functions that promise large profits and to acquire such profits at the expense of the operating companies and Fees and charges imposed on the operating companies with denial to the commission (State commissions) of adequate proof of the necessity for, or cost of, performing such services (876-877, pt. 71-A, Doc. 92, 70th Cong., 1st sess.). In another volume of its report, the Federal Trade Commission discusses this evil further in language which may be extremely relevant to the facts developed by the committee's hearings concerning Middle South Utilities, Inc., the Dixon holding company group which is the reincarnation of the Electric Bond & Share subholding company, Electric Power & Light Co. The Commission report states: The fact that operating utilities are usually protected monopolies in their respective local fields provides an opportunity for exploitation of the operating utilities and through them of the consuming public served, if the business of furnishing them with equipment, supplies, construction, and services of various kinds is itself monopolized. Prior to holding company control the various operating companies were free to obtain such supplies and service in the open market. Holding companies, by virtue of their control, have destroyed that freedom. While this allegedly meant lower costs to the operating subsidiaries, there is more disposition to question this than ever before, in the light of disclosures as to the excessive profitableness of the arrangement to the holding company (51, pt. 73-A, ibid.). The report shows that the total servicing income of Electric Bond & Share amounted to $9,373,172 in 1927 and $11,248,273 in 1931. These figures include $4,969,449 of profit in 1927 and $5,700,763 of profit in 1931, the rates of operating profit being 113 and 103 percent of the actual cost of service, respectively. In this connection we may note that Ebasco's annual report to the Securities and Exchange Commission for the year 1953 shows total charges amounting to $30,603,550, or about 24 times those of 1931. Of this total, profits before taxes amounted to $8,357,092 and after taxes, to $3,378,289. Double bookkeeping Accounting at expense of consumers Chief Financial Officer Stietenroth of Mississippi Power & Light testified that his company has at least 2 sets of books, 1 set the regular corporate books kept in Jackson, Miss., and the other the tax books kept by Ebasco at the holding company headquarters in New York City (RDY, p. 212). He testified further that the Mississippi company does not now and has never since 1927 prepared its own income-tax return. Ebasco does it (ibid.). This was all preliminary to his further testimony that the treasurers of the subsidiaries of Middle South Utilities, Inc., were called in to the Ebasco office and directed how much to transfer out of tax reserves into surplus accounts, where it becomes available for cash or stock |