The Commission staff did not find any irregular accounting for the costs of advertising, but did confirm the fact that "the company advertises widely in Mississippi, using radio, newspapers, and other media and, in addition, participates in area and national advertising campaigns on behalf of the Middle South area and the electric utility industry in general." This will be discussed in more detail below. The Commission report indicates total expenditures on advertising by the Mississippi company in 1953 amounting to $188,530.

The Commission staff generally confirmed Stietenroth's testimony as to expenses incurred by the company in connection with the dedication of the Delta Steam Electric Station, the Newcomen dinner honoring Rex I. Brown, then president of the company, entertainment, lodges, and so forth, including "as far as the staff could learn" about $3,100 for "alcoholic beverages" in 1953. In general, the staff did not raise any issue with respect to the accounting for these items, accepting the company's own explanation of the last-mentioned item in the following words:

When we asked for an explanation of the purchases, the staff was advised that in spite of prohibition in Mississippi, it was a widespread custom to serve alcoholic beverages to guests at social and certain business occasions, and that the company conformed to the accepted amenities in entertaining individuals and groups of persons, particularly industrialists, whom whey were seeking to interest in the Middle South area. In other words, the expenditures, it is claimed, were made for proper business purposes.

The Commission staff confirms the testimony of Stietenroth that Ebasco Services, Inc., Electric Bond & Share subsidiary, has pretty much continued down to date the many services which it rendered Mississippi Power & Light when it was affiliated. It further confirms that the Ebasco charges in 1953 for "continuing services," in addition to what it received for consulting and special studies, and design engineering and construction, amounted to $110,549. The staff continues:

The bills of Ebasco for the continuing services described above contain no details underlying the computation of the charges. In auswer to an inquiry, the staff was informed no detailed verification of the components of the charges had been made by Mississippi. In the opinion of the undersigned, the charges by Ebasco for the continuing services are not policed very thoroughly. They have the appearance of being approved automatically. In view of the long time the contracts have been in effect, a reexamination, or at least a thorough verification, of the charges would seem to be appropriate.

This confirms Stietenroth's charge that the relationship of Ebasco Services with Mississippi Power & Light is less one of arm's-length bargaining than of Wall Street domination.

Finally, the Federal Power Commission staff notes that its investigation "was an accounting investigation only and not an investigation for the purposes of establishing just and reasonable rates." It continues:

In rate proceedings, it is not at all unusual to recommend that there be excluded from the cost of service some items which may be correctly charged to operating expenses in the books. If this were a rate proceeding, some of the items mentioned above, and perhaps others as well, would be recommended for exclusion in the computation of the cost of service.

It then brings to light an item of expense which certainly requires further investigation when it says:

Thus the share of litigation expense borne by the company ($10,184) in opposing the construction of a generating station by REA co-ops, with a marketing arrange

ment with the Southwest Power Administration of the Department of the Interior, would be recommended for disallowance as not a proper cost to be charged to ratepayers.

This expenditure represents participation by the Mississippi company in a concerted power company effort to block competitive power supply for cooperative and municipal electric systems in Missouri, Arkansas, and Oklahoma. The significance of the case will be discussed at greater length below. Here, however, it should be noted that the expenditure uncovered by the Federal Power Commission investigation emphasizes the need for further investigation by Congress.

The Commission's investigation was limited to a "determination of Mississippi's compliance with the Commission's uniform system of accounts." Although it found a high degree of compliance on the part of Mississippi Power & Light, it disclosed items of expense and practices which require a broader inquiry to determine whether these expenditures and practices are consistent with the purposes of the Holding Company Act or the control of monopoly.

Kansas City Power & Light Co., et al. v. Douglas McKay, Secretary of the Interior, et al. (115 P. Supp. 402 (1953)).

SECTION II

POWER MONOPOLY EFFORTS TO END COMPETITION

Middle South's subsidiaries seek to block competition

Witnesses from Mississippi and Arkansas testified to the vigorous efforts of Middle South Utilities' subsidiaries in those States to eliminate all competition from municipal and cooperative electric systems. These efforts paralleled similar efforts by the National Electric Light Association and its various branches during the 1920's to establish all-embracing private monopoly of electric power, as exposed by the Federal Trade Commission in its investigation extending from 1928 to 1935.

In Mississippi, the Middle South subsidiary, Mississippi Power & Light Co., was pictured by its former secretary-treasurer as directing its political and other efforts at the following objectives:

(1) The company used all the influence it could muster to block an REA loan making possible the setting up of an electric cooperative system in an area which it had not chosen to serve and in which more than 2,000 farms were without electric service.

(2) When the loan was granted, the company rushed crews in to build "spite" lines which took enough customers away from the cooperative system to cause it to operate at a loss. The company reinforced its drive by offering the area lower electric rates than it was charging throughout the rest of its system.

(3) When a movement got under way to initiate a public power district in the area, in order to save the rural electric cooperative, the company fought it politically. It used its employees and paid others as vote haulers and poll watchers, and employed a law firm in the leading town in the area for the purpose of influencing the election, without disclosing the fact that this firm was on a company retainer.

(4) The company simultaneously offered to buy out the cooperative for enough to pay off all its debts, and cooperated with the Rural Electrification Administration under the new administration in the attempt to achieve this objective.

(5) The company similarly fought the plan of rural electric cooperatives in Mississippi to combine and build their own generating station in order to have a competitive source of power supply in bargaining with what was otherwise a monopoly.

(6) The company made efforts, some of them successful, to take over municipal electric systems under long-term leases.

In Arkansas, the Middle South Utilities' subsidiary, Arkansas Power & Light Co., was pictured by former Governor Sid McMath, as wielding its great political influence in the State, as well as at national levels, to block any challenge to its power monopoly. He described its activities as directed at the following objectives:

(1) Blocking the building of dams as a part of Federal river-basin programs. Such projects as have been undertaken were over its violent opposition.

(2) Blocking the building by the rural electric cooperatives in northern Arkansas of their own generating station financed by loans from the Rural Electrification Administration.

(3) Blocking the selection by the Federal Government of the Spartan Aircraft Co. for a proposed expansion of aluminum production because the company proposed to build its own powerplant; and securing the selection of Reynolds Metals Co. with assignment of the Bulls Shoals project power to Arkansas Power & Light Co. for resale to the aluminum company.

Before undertaking a more detailed analysis of the evidence of this Middle South Utilities campaign against all forms of competition we should note the irony of the power company's capture of Bulls Shoals power. The Bulls Shoals project had been constructed, over the bitter opposition of Arkansas Power & Light Co., solely as a result of the efforts of the rural electric cooperatives to secure it as a source of low-cost power supply to meet their growing power requirements. Instead, on the contention that the power is needed to meet defense aluminum requirements, the company has obtained the marketing of the power at a profit which constitutes a virtual subsidy from the Federal Government.

Mississippi company strikes at rural cooperative

Turning to the Mississippi phase of the Middle South monopoly drive, the Mississippi company's former secretary-treasurer, Stietenroth, described the "tooth and nail" fight to stop the loan to the rural electric cooperative (RDY, p. 290). When the loan had been granted to the cooperative and it was in business, he testified, "we sent construction crews into this area and we built lines in every direction. And I will say the people who formerly had not been able to get service from us could get service." He added:

The construction crews were to build what the opposition would call spite lines; now that is not my description of them. We had just come to the point where we knew that we were going to have to cover the area or the co-op was going to do it, and so we were prepared and we had the forces and the money so we just poured it into the area (RDY, p. 291).

Stietenroth testified that they were building lines where they had never been willing to build them before. He said that the companywide rule of justification for such construction on the basis of economic feasibility was suspended for this purpose (ibid). Explaining the result, he said that the cooperative "said that they were going to get some 2,300 customers, and they never got but 1,600" (ibid).

The testimony with regard to the Mississippi company's effort to block, bankrupt, and take over this rural electric cooperative reveals in striking manner the important part played by the REA program in bringing electricity to the country's farms. The effectiveness of competition as a stimulus to what would otherwise be a private electric monopoly is definitely illustrated.

The witness described the situation before the cooperative came as one in which the company had lines only along the principal highways and in the areas of customer density. But there were areas inside the overall area which were not served at all (RDY, p. 292). He testified further that the company is basically interested in service within municipal areas, characterized by "high density and pretty good usage." He added:

If it were not for the pressure of REA, I expect that we would not be out in the farm area hardly at all, except in those areas where there was pretty good density *** or pretty high usage (RDY, p. 297).

In spite of this situation the company did everything possible to block the REA loan to the cooperative which would provide for full electrification of the entire area. In the words of the witness:

We fought the formation, the granting of the loan, because if those folks could not get the money they could not get the business, that is for sure *** and I don't know how many visits were made to the offices of the national REA *** to show *** that we were already serving the area (ibid.).

In regard to the discriminatory lowering of rates to undermine the cooperative competition, the witness testified that

this lower billing existed nowhere else in our entire property, except within the little area you can just draw a line around the North Central Mississippi Electric Power Association (RDY, p. 294).

In response to the question whether the Mississippi Public Utility Commission did not require some uniformity of rates, the witness replied:

There is no State commission in the State of Mississippi that has jurisdiction over either electric, gas, or water public utilities. The statutes of Mississippi provide in a rather indefinite and vague sort of way that each municipality may fix maximum rates. As to the areas outside municipalities, it is just wide open (RDY, p. 296).

Responding to a later question as to whether there was anyone to protect power consumers in Mississippi, he answered:

Now we do have TVA above us, and we do have some co-ops all around us, and, of course, that gives some people a little bit of protection (RDY, pp. 340, 341). His previous testimony had made it clear that the company's drive to block or bankrupt this particular cooperative was due to the fact that it was adjacent to the TVA area where it could secure an independent source of power supply. This came out in response to the question whether this treatment of the North Central Mississippi Cooperative was in line with the general policy of the holding company. He said:

I am sure that every important thing that we ever did has been cleared with Middle South Utilities, including particularly whatever we have done in this area, because we were just frightened to death that little co-op would be successful and the location of the co-op physically was a true hazard. Now we have co-ops all around us, and we live with them pretty good, but here is one that is adjoining Tennessee, and adjoining northeast Mississippi, and, in other words, this was moving the wall back into Mississippi, and this was one that should have special treatment (RDY, pp. 300, 301).

Stietenroth testified that Mississippi Power & Light was out to wreck this cooperative if they could (RDY, pp. 298, 299). He had previously testified to having seen the little electric power association's balance sheet and that it was losing money every month "because they could never get enough customers to get revenue to make both ends meet." He added:

And we contributed very heavily to that in that we just sort of went into the area and built lines in every direction, and made this special rate concession and gave super-duper service (RDY, p. 300).

The witness testified that his company had written a letter offering to take over the cooperative "lock, stock, and barrel" and enable it to pay off its loans and debts. He continued:

I have heard it said that the national REA folks *** are perfectly willing to go along with that program and they thought it was politically inexpedient for