The Public and Their Utilities: Finance, Engineering, and Management

I

MANY public utility holding companies in this country have to their credit genuine accomplishments in extending and improving public utility service. With these accomplishments has come prosperity, attracting all kinds of men into the industry, with the result that serious abuses have established themselves.

Any attempt to present a picture of these abuses is necessarily a complicated task. Perhaps as clear a way as any will be to imagine that we are looking back from a vantage point of several years hence, and from this vantage point to sketch the history of a composite group of companies, made up for illustrative purposes out of material taken for the most part from companies actually existing at the present time.

Beginning our history, then, we find that our imaginary company controlled a large number of gas, electric, water, and street railway companies, situated in several different states, through a small investment in the Class ‘B’ voting stocks of the operating companies. Bonds, preferred stocks, and Class ‘A’ nonvoting stocks had been sold to the public in sufficient quantity to reduce the holding company’s actual investment to a minimum, and at the same time to absorb nearly all of the net income distributed by the operating companies.

The holding company also had sold certain debentures, preferred stocks, and common stocks to the public, and was itself controlled by a banking corporation through the ownership of an issue of one dollar par value voting stock, each share of which had the same voting power as the fifty dollar and one hundred dollar par value shares sold to the public. As a result of this highly logical development of the modern expedient of pyramiding, the investment of the banking corporation in the system was very small indeed, and the share of the net income of the operating companies which reached the banking corporation in the form of dividends on the one dollar par value stock of the holding corporation was also inconsiderable.

Nevertheless the owners of the closely held banking corporation enjoyed a degree of prosperity which certainly could not be explained by the small dividends which the banking corporation received from the holding company — or even by the salaries which several members of the banking corporation received as officers of the various operating and affiliated companies making up the system. A kind of second sight alone can penetrate the complexities of modern corporate organization and accounting. Assuming that from our vantage point in the future we can apply this second sight, we find that the secret of the profits of the banking corporation lay in that threefold key to the activities of the public utility holding company: finance, engineering, and management.

For the banking corporation, through the exercise of its voting control, was able to serve as syndicate manager to both the holding and the operating companies, and to participate in the underwriting of all their financing. And as the physical properties, particularly of the electric light and power subsidiaries, were being developed at a rapid rate, these operations netted a profit to the banking corporation many times larger than its share in the net income of the operating subsidiaries of the holding company.

In addition, the banking corporation owned all of the capital stock of an engineering and management corporation. This interesting corporation had contracts with all of the operating companies of the entire group to supervise their operations for a fee of 10 per cent of their gross revenue, and to perform or supervise all of their engineering and construction work for a fee of 20 per cent of their expenditures for additions, extensions, and replacements. Its capital was small, its only assets being its office furniture and a small working fund for office pay-roll purposes, as its contracts with the operating companies provided that the latter should advance all funds required for construction and field supervision work. And its profits were large, amounting to several thousand per cent of its capital, as its expenses were a small proportion of its fees, even where it actually performed a service and assumed the entire cost of performing it. Furthermore, the engineering and management contracts permitted a number of kinds of expenses to be charged back to the operating companies in addition to the fees, and, under the liberal interpretation which prevailed, they also allowed fees to be collected, in some instances, on work for which the engineering and management were carried out by and at the expense of the operating companies, with only hypothetical supervision, and with no expense whatever on the part of the engineering and management corporation.

The interests in control of the whole group had many reasons for believing that this situation could be continued indefinitely. In the first place, its very existence was unknown to the public and to the public service commissions which regulated the rates of the operating companies. For the published statements of the operating companies, and the consolidated statements of the holding company, were so contrived as to defy any analysis which might be made in the attempt to show separately the payments to these affiliated non-utility corporations. And, of course, the engineering and management corporation and the banking corporation never published any statements, and had successfully resisted all attempts of the public service commissions to delve into their affairs, on the ground that they were not public utility companies and therefore not subject to regulatory jurisdiction. Furthermore, the operating companies of the group had been active and successful in their ‘public relations’ work, and in educational publicity, demonstrating that their rates were adequately regulated by the public service commissions to yield no more than a fair return on the fair values of their properties. A great chorus of customer stock owners and of newspapers and publicists, convinced by this programme of publicity that the operating companies were devoting themselves to the ideal of furnishing the best possible service at the lowest possible cost, stood ready to cry out against any attack, which would immediately be branded as political and bolshevist. Finally, there had been no serious rate cases for many years, as expanding business and declining costs in the industry had always permitted the threat of rate complaints to be forestalled by the operating companies by so-called ‘voluntary’ rate reductions.

In fact, the situation approached perfection from the point of view of the controlling group, because, in addition to an enormous ratio of profit to investment, the earnings of the banking corporation appeared to conform to a high standard of financial stability and safety. For, instead of depending upon ‘net income’ from operations, they were derived almost entirely from financing fees, payable out of the proceeds of securities sold to the public, and chargeable, under the classifications prescribed by the public service commissions, to deferred accounts, to be written off eventually against the net income of the operating companies, the interest in which had been largely sold out to the public; profits on management fees, chargeable to operatingexpense accounts of the operating companies, in advance even of bond interest; and profits on engineering fees, chargeable to the fixed-capital accounts of the operating companies, and paid for either out of the earnings of the operating companies or out of the proceeds of the sale of securities to the public.

One consideration, however, had been left out of account — the possibility of a searching investigation by the Federal Government. Such an investigation was finally made by a body known as the Federal Trade Commission, and soon brought to light the extent to which the group had sold out to the public its interest in the net earnings of its operating subsidiaries, and was living on its financial, engineering, and management fees. These fees were judged by the public to be disproportionate to their value to the operating companies; in addition, the practice of collecting profits through exercise of control without investment was looked upon as a milking rather than a managing operation, and a wave of popular indignation against the companies of the group arose. The courts and the public service commissions, which had theretofore refrained from delving into financing, engineering, and management companies on the ground that they were not public utility companies, or else had approved profits on financing, engineering, and management when some showing of advantage or value could be made for the services rendered, now swung to the opposite extreme and held that, in the public utility industry, all profits on intercompany transactions, under contracts dictated by controlling interests without independent negotiation by the contracting companies and without competitive bidding, were contrary to business morality and to public policy, and should not be allowed.

At the same time a series of rate cases were started against the operating companies of the group, and the public service commissions of the various states in which they were situated, influenced, no doubt, by the violent public feeling that had followed the disclosures of the Federal investigation, restricted valuations and rates of return to such an extent that many innocent investors, including a large number of customer stock owners, suffered serious losses.

The holding company and the engineering and management corporation, however, had practically their entire income cut off, as a result of which the banking corporation was left so high and dry that the interests in control were glad to step down and out and make way for a complete reorganization by a new group of interests in a manner more nearly in harmony with the public sentiment of the day.

II

It is probable that the Federal Trade Commission investigation of public utility holding companies now in progress will not disclose any single holdingcompany group with all of the features of the mythical group described above. Its fanciful fees, of 10 per cent of gross revenue for management and 20 per cent of capital expenditures for engineering, are higher than any that have ever been disclosed, although it cannot be at all certain, until the investigation is completed, that cases may not be found in which even these extravagant figures may be approximated.

Anyone who is at all familiar with the industry, however, or who is conversant with the few facts that can be gleaned from the published records, can be certain that the investigation will disclose every one of these features distributed among the companies that fall within the scope of this inquiry. Pyramiding of control through superposition of holding companies, and superpyramiding through use of low par value stocks, — a one dollar par value share, for example, sometimes having the same voting power as a fifty or one hundred dollar par value share, — are practices already familiar. Collection of fees for financing, engineering, and management disproportionate to the value of services rendered, collection of fees where no services are rendered, and numerous other methods of taking profits on non-utility operations through exercise of control by the holders of junior securities, no less certainly are among the activities of holding-company groups. Profits on sales of property and securities to subsidiary companies, profits on rentals of real estate, rentals of underground conduits and other facilities, sales of equipment manufactured by affiliated companies, charges for furnishing automobile and trucking services, suggest some of the means by which the controlling interests are enriched.

Such disclosures as these have already been anticipated in general terms by the Federal Trade Commission, which outlines a typical case in the following picturesque language: —

A certain operating company needs a new generating unit or transmission line and needs funds with which to pay for the facilities. Being controlled by a company that is in turn controlled or otherwise dominated by a certain investment banking organization, the company is not free in choosing the channel through which to obtain the funds for purchasing the supplies and equipment and in choosing the organization that is to carry on the construction work. Under these circumstances it is customary for the controlling service organization to provide the various service agencies and charge fees for its services to the operating companies of its group. Its banking organization arranges for and participates in the marketing of the company’s securities, and collects a fee; its purchasing organization places the orders for supplies and equipment, inspects the purchases, and collects a fee; and its construction organization performs the construction work, and collects a fee; and its consulting managerial organization supervises the management and operation of the new facilities, and collects a fee. To a considerable extent, especially where the interests controlling the service organization also control the holding company, this savors of trading with and making a profit out of one’s self.

General terms, however, do not supply an adequate basis for public action. And so the Federal Trade Commission investigation will unquestionably perform a useful function in answering the question, ‘What are the facts with regard to these intercompany transactions and the profits taken from the public utility industry through exercise of voting control?’ When these facts are fully disclosed, it may be expected that these transactions will be recognized not merely as incidental evils, as some have considered them, but as primary factors in the speculation in utility properties and holding-company securities, and in the partial breakdown of public service commission regulation, which have characterized these last few years.

The most striking aspect of this situation, perhaps, is that it should be necessary to ask at this date, ‘ What are the facts?’ and that an investigation by the Federal Trade Commission should be necessary to answer the question. The leaders of the public utility industry, the official spokesmen of its trade organizations and joint committees, and its well-known extensive publicity have insisted day in and day out that the industry was not only willing but anxious to place the facts regarding every aspect of the business before the public. For example, the Official Statement issued by the National Electric Light Association, in convention assembled at Atlantic City, on June 6, 1928, said: —

Recognizing that lack of knowledge is as unfair to the public as it is harmful to the industry, the electric utilities consider it their responsibility to place all the facts before the public.

It is for these reasons that the National Electric Light Association, among its other important functions in the development of the electrical industry, some years ago assumed the responsibility for and adopted the policy of preparing and diffusing as widely as possible full, accurate, and timely information on all phases of the business.

Is it then mere accident or neglect that has so effectively restrained this urge to ‘lay all the facts before the public’ with respect to these transactions between public utility companies and affiliated corporations furnishing them with services now largely outside the field of public regulation? Or has there been a conspiracy of silence to suppress facts which, if known, might interfere with the development of those desirable — and profitable — public relations which have been the object of the publicity activities of the industry?

The Federal Trade Commission investigation may help to answer these inquiries. Whatever may be the case, the fact is that it is rarely possible to secure any information whatever regarding the transactions here referred to from the published reports of the companies.

Try, if you will, as a stockholder or as a member of the public before whom it is desirable that all of the facts should be laid, to ascertain from the reports of the Electric Bond and Share Company what proportion of its earnings come from dividends received on the stocks of operating subsidiaries owned by its subsidiary Securities Corporation, and what proportion from profits on fees charged for financial, engineering, and management services. Look in the reports of the Public Service Corporation of New Jersey for a statement of earnings and expenses of the Public Service Production Company (recently absorbed by the United Engineers and Constructors, Incorporated) and the Public Service Stock and Bond Company, or try to ascertain from these reports the proportion of the earnings of the holding company that it received from the profits of the Production Company and the Slock and Bond Company on their services to their affiliated utility companies. Endeavor to identify in the reports of the American Water Works and Electric Company the earnings from the Water Works and Electric Securities Corporation, and the American Construction and Securities Company. You will fail in each case, just as you will fail if you try to learn from the published reports of the utility companies and their controlling holding companies the corporate relationship and the amount and disposition of profits arising out of intercorporate transactions between the companies of the Stone and Webster group, for example, and Stone and Webster, Incorporated; the companies of the Associated Gas and Electric Company group and the J. G. White Management Corporation, the J. G. White Engineering Corporation, and J. G. White and Company; the companies of the Consolidated Gas Company group of New York City and Thomas E. Murray, Incorporated, which carries the name of the Senior Vice President of its principal subsidiary, the New York Edison Company; the General Gas and Electric Corporation group and W. S. Barstow and Company, Incorporated, etc., etc.

This is not to imply that all of the companies named above have made unreasonable charges for services rendered to their affiliated companies, or have made charges where no such services were rendered. As a matter of fact, some of them will be found to have rendered to their subsidiary companies services of the highest grade, for which charges have been reasonable when compared with the charges for similar services by independent financial, engineering, and management organizations. The point is that the facts regarding these matters have not been fully revealed, and that, in the face of a constant insistence that all of the cards are being laid on the table, a Federal investigation is necessary to bring about an understanding of the situation.

III

The second point is that even the comparatively few figures that have leaked through the veil of secrecy surrounding the subject, by publication in the decisions of various public service commissions, are sufficient to demonstrate the lack of any established standards for reasonable charges, the extreme variation in such charges by different controlling groups, and the obvious unreasonableness of some of the charges that are made.

Few such figures are available regarding charges for financial services, and none at all regarding the cost of furnishing such services, so that this branch of the subject must remain largely a matter of mystery, to be unraveled by the Federal Trade Commission.

But there are a moderate number of cases involving fees charged for management services, and the absence of standards in this field is clearly illustrated by the wide range of the fees reported in these cases. For example, in Alpha Portland Cement Company vs. Lehigh Navigation, Electric Company the Pennsylvania Public Service Commission approved a charge to operating expense of 1 1/2 per cent of the gross revenue of this company, which is supervised by the Electric Bond and Share Company; whereas the Nebraska Railroad Commission, in 1926, called attention in one of its decisions to the fact that the Northwestern Public Service Company was paying to its holding company, the National Electric Power Company, a management fee of 5 per cent of its gross revenue.

In regard to charges for engineering and construction, the number of cases reported is smaller, probably because the public service commissions have rarely taken this question under their jurisdiction, even in cases where fees chargeable to operating expenses were before them.

However, notwithstanding the rarity of such cases, they illustrate even more strikingly the wide range of charges resulting from lack of standards. Thus in Wood vs. Elmira Water, Light and Railway Company the New York Commission approved a charge to operatingexpense account of 5 per cent of the cost of all construction, excepting consumers’ meters and services, for engineering, representing payments in these amounts made to the United Gas and Electric Engineering Corporation. In re Wisconsin Fuel and Light Company, the Wisconsin Railroad Commission disapproved a charge to fixed-capital accounts of 10 per cent of the cost of construction work, to represent the services of the Inter-State Fuel and Light Company and/or the Utilities Operating Company, in connection with engineering and construction. And in the cases of the City Water Company of Marinette and the City Water Works and Electric Company, the Wisconsin Railroad Commission disapproved a charge of 15 per cent of the cost of all construction work for services performed by the American Construction and Securities Company.

It is quite likely that these wide ranges of between 1 1/2 per cent and 5 per cent for supervision of management, and between 5 per cent and 15 per cent for engineering, might appear even wider if all the facts were known as to the extent of the services rendered, and the proportion of the cost of such services assumed by the engineering and management organization in each case. But even without taking this factor into account, and assuming that the engineering and management organization actually performs the service and assumes the cost thereof, experience and the customary charges of independent engineering organizations demonstrate clearly that, for operations of the character and magnitude of those involved in these and similar cases, charges such as 5 per cent of gross revenue for supervision of management and 15 per cent of construction cost for engineering are so greatly in excess of the cost of furnishing the service as to constitute a method of taking an unreasonable profit for the controlling interests, in addition to the fair return on the fair value of its property to which the owners are entitled under public service regulation.

Criticisms of contracts of the type under discussion have been repeatedly made by many of the state commissions, although their hands have been largely tied by their lack of access to the accounts and records of the holding companies and afliliated service organizations.

Thus, in the Wisconsin Fuel and Light Company case and the two water-company cases referred to above, the Wisconsin Railroad Commission used similar language, an example of which is as follows: —

It is the opinion of the Commission that the mere existence of an agreement between affiliated companies does not alone justify its approval of charges made in accordance with the terms thereof, since the subsidiary is not a free agent, but is under the control of the holding company. Under these conditions, it appears that the charges for such services should, in order to be considered reasonable, bear a close relation to the cost of the holding company of performing the same.

And in the Southern Indiana Gas and Electric Company case, where this company was found to be paying to the Commonwealth Power Corporation 3 per cent of the cost of additions to its railway properties, and 6 per cent of the cost of additions to its electric, gas, heating, and other properties for engineering, and 2 per cent of its gross earnings for supervision of management, the Public Service Commission of Indiana said: —

We consider this plan simply a process of milking the patrons of the utility and directly obtaining an enhanced return on its investment. Sooner or later, patrons who are subjected to such contracts will become aroused, and it will furnish splendid argument for those who insist on government and municipally owned utilities.

Another indication of what the sentiment of the people of the United States may be expected to be when they clearly understand the issue raised by these transactions between affiliated companies in the public utility field may be found in the past action of Congress relative to similar transactions of railroad companies. It will be recalled that Section 10 of the Clayton Act provides in part that no common carrier engaged in interstate commerce

shall make or have any contracts for construction or maintenance of any kind, to the amount of more than $50,000.00, in the aggregate, in any one year, with another corporation, firm, partnership, or association when the said common carrier shall have upon its board of directors or as its president, manager, or as its purchasing or selling officer, or agent in the particular transaction, any person who is at the same time a director, manager, or purchasing or selling officer of, or who has any substantial interest in, such other corporation, firm, partnership, or association, unless and except such purchases shall be made from, or such dealings shall be with, the bidder whose bid is the most favorable to such common carrier, to be ascertained by competitive bidding under regulations to be prescribed by rule or otherwise by the Interstate Commerce Commission.

Still another expression of the public’s attitude toward such transactions may be found in the report of the Interstate Commerce Commission, published in the United States Daily for August 1, 1927, upon an investigation of certain transactions between the Erie Railroad and a group of companies in which Mr. Russell S. Underwood, son of Mr. Frederick D. Underwood, at that time President of the Erie Railroad, was a heavy stockholder and with which he was actively connected. The report states that Mr. Russell S. Underwood also served as Director in the Chicago and Erie, and in the New York, Susquehanna and Western, important subsidiaries of the Erie Railroad, during portions of the period covered by these transactions. The Interstate Commerce Commission refers to these transactions in part as follows: —

We cannot, therefore, disregard transactions such as these, which, made under the circumstances and conditions herein described, are not only in conflict with ‘honest, efficient, and economical management and reasonable expenditure for maintenance, ’ but are repugnant to sound business methods, and in some cases, at least, repugnant to good conscience.

IV

It is not intended to suggest that the making of a reasonable profit on fees charged for services rendered by a controlling interest to a controlled public utility company is necessarily illegal under existing laws. In fact, the contrary is clearly established in numerous cases in which such charges have been approved by commissions and courts. For example, in the Southwestern Bell Telephone Company case the Supreme Court of the United States approved the fee of 4 1/2 per cent of gross revenue collected by the American Telephone and Telegraph Company from its subsidiary telephone companies for rental of equipment, use of patents, and services rendered, making, in the course of its decision, the following statement: — Four and one-half per cent is the ordinary charge paid voluntarily by local companies of the general system. There is nothing to indicate bad faith.

The Supreme Court also quoted with approval the Supreme Court of Illinois in State Public Utilities Commission ex rel. Springfield vs. Springfield Gas and Electric Company as follows: —

The Commission is not the financial manager of the corporation and it is not in its power to substitute its judgment for that of the directors of the corporation; nor can it ignore items charged by the utility as operating expense unless there is an abuse of discretion in that regard by the corporate officers.

This doctrine of the separate entity of affiliated corporations, however, has its limitations, which have been clearly set forth by Professor Wormser in his stimulating little book, The Disregard of the Corporate Fiction and Allied Corporate Problems, as follows: —

When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing men and women shareholders, and will do justice between real persons.

To a layman, it would appear that the taking of unreasonable profits by junior security holders through fees charged to controlled public utility companies comes so near to constituting a moral, if not a technical, fraud on the holders of bonds and other senior securities, and that such transactions evade so effectively the obligation to render service at cost plus a fair return on the value of the property, and circumvent so completely the statutory system of public service regulation, that the courts may be counted on, in the long run, to disregard the corporate fiction and do justice between the controlling interests and the public who buy the securities and pay the rates.

The mills of the courts, however, in affairs like these, grind exceeding slow, and it is unlikely that the public, when once it grasps the meaning of these abuses, will await the slow processes of the courts to settle these problems of business ethics and public policy, rather than proceed to settle them itself through legislation and other action.

V

In anticipation of public condemnation of the practices about to be disclosed by the Federal Trade Commission, the duty of the public utility industry is clear. The Chamber of Commerce of the United States, in its Principles of Business Conduct adopted at its annual meeting in 1924, laid down the principle that ‘business should render restrictive legislation unnecessary by so conducting itself as to deserve and inspire public confidence.’ The public utility industry should at once add to its already extensive organization a dictatorship, in the integrity and independence of which the public can have absolute confidence. The dictator should ascertain all of the facts regarding the intercorporate relations and concealed profits resulting from transactions between affiliated companies, and disclose these facts so fully that the public may actually, and not merely theoretically, understand all of the facts of the business. Under his leadership, the industry should develop standards, in harmony with its professed ideals of public service, for reasonable charges for all kinds of service customarily rendered by one affiliated company to another. And it should exert the full influence of the leadership of the industry, either to bring the practices of all member companies into harmony with such standards or else to cast out the companies refusing to conform, for the public condemnation and destruction which they deserve, and will, no doubt, receive.

Not only would such a programme go far toward restoring public confidence in the industry, — which, despite the protestations of the industry’s publicity, has been considerably shaken, — but it is probably the only way in which the reasonable profits now being taken by the more conservative companies on services to their subsidiaries can be justified and maintained.

Up to the present time, however, there has been no indication of any tendency on the part of the industry to follow such a programme. The official attitude of the industry, as expressed by its leaders, has been to doubt the existence of abuses, except in rare, isolated instances, and to insist that in such instances the company or individual involved shall alone be held responsible. As Mr. H. T. Sands, President of the National Electric Light Association, stated it at the Convention of the Association at Atlantic City on June 5, 1928:—

Each association, each company, each individual must take responsibility for its or his own acts, receiving the credit or the blame that the record brings. Every tub must stand on its own bottom. Blame, if cause be found for any, should be placed where it belongs. The entire industry should not be condemned because of the misdeeds of a few, if any.

Unfortunately for this point of view, the National Electric Light Association, the American Gas Association, the American Electric Railway Association, and the Joint Committee of Public Utility Associations have made it impossible for every tub to stand on its own bottom. An industry cannot organize for a vast campaign of publicity on a national scale, to present itself as a whole in a favorable light, and escape the obligation to regulate itself, as the only alternative to restrictive legislation.

If the present attitude of the leadership of the industry continues, it. can only be anticipated that such additional regulation through legislation will result. In such case, an assured feature of such legislation will be the requirement of complete publicity as to intercorporate transactions in the public utility industry, including the publication of separate income statements of all affiliated operating companies, whether engaged directly in public utility service or not; and the filing, as public records, of complete information as to all intercompany contracts and transactions.

Difficult problems must be solved in order to work out the regulatory features of such legislation, the very first of which, of course, is whether such legislation can be made effective by the several states, or whether the Federal Government is going to be obliged to step in to accomplish what will be required. Several possible types of legislation present themselves, also.

1. Public utility companies might be prohibited from contracting for financial, engineering, and management services from any affiliated company, except on the basis of competitive bidding, as provided by the Clayton Act for construction and maintenance work on the railroads. This, however, would be unsatisfactory, as these services are largely professional, and experience has demonstrated that professional services cannot be secured satisfactorily by competitive bidding.

2. Every company affiliated with a public utility company (a definition of ‘affiliation’ being developed especially for this purpose) might be declared to be affected with a public interest, and subject to regulation by the appropriate state or federal commission, so as to limit its earnings from its affiliated public utility companies to a fair return on the capital used by it in its dealings with them. This would add a vast additional burden upon the already overloaded regulatory commissions, and it might well be that it would be the last straw which would break the back of the entire system of regulation.

3. All profits on transactions between the public utility companies and affiliated non-utility companies (again, a suitable definition of ‘affiliated ’ being developed for the purpose) might be prohibited, definitely limiting the returns of all investors in the industry to a fair return upon the fair value of the property used in the public service, and thus bringing the fact into harmony with the theory of public service regulation. This might seem to involve some injustice to those companies that have been moderate and reasonable in their charges for services to their subsidiaries, but it has, at least, certain advantages of simplicity. In view of the fact that the furnishing of services can be carried on without the investment of any substantial capital (and with no investment when such capital as is required is furnished by the controlled utility companies), it might prove to be the most desirable line on which to work.

Of course, there is always lurking in the background the possibility of government ownership and operation — than which no greater public calamity can be imagined. But it is hard to believe that the leadership of the public utility industry is quite so blind or that the American people are so stupid that they cannot avoid this pitfall, while working out a more intelligent solution of the problems presented by the public utility holding company.