War & Rewards

Busiest man in Washington last week was James McCauley Landis, fast-witted young chairman of the Securities & Exchange Commission. By Dec, 1 he was supposed to bring under SEC supervision the bulk of the $12,000,000,000 public utility industry. Supported by seasoned batteries of the smartest lawyers in the land, the public utility industry as a whole had not the slightest intention of submitting to SEC rule, deadline or no deadline. Chairman Landis kept his office open all last Sunday for any penitent powermen who might wish to file registrations at the last moment, and war was not officially declared until the key was turned. But in the best traditions of modern warfare hostilities had already begun.

The Utilities' Campaign opened last fortnight when Philadelphia's United Gas Improvement Co. publicly defied SEC, ordered its attorneys to seek injunctions restraining the Government from enforcing the Public Utility Act on the ground that it was unconstitutional (TIME, Dec. 2). Consolidated Gas of New York and Commonwealth & Southern quickly followed with more suits. Last week North American Co. filed still more suits, was joined by American Water Works & Electric, Stone & Webster, Standard Gas & Electric, Cities Service, United Light & Power. Associated Gas & Electric--all top-flight holding companies. Even United Corp., which is purely an investment company, fired a broadside of injunctions. Many a sub-holding company added its own suits to those of its parent. By the week-end SEC had nearly 50 actions on its hands. Stockholders pitched in, too. Columbia Gas & Electric did not march to court but a stockholder enjoined it against registering. One of the few holding companies that did want to register, Utilities Power & Light, was also enjoined by a stockholder. With companies in the hands of the courts SEC fared better. Chicago's Federal Judge William H. Holley directed the trustees of Public Utilities Securities to file. In Wilmington Federal Judge John P. Nields tossed out a request for an unconstitutional ruling from Central West Public Service's trustees. Undercutting last month's Baltimore decision that the Act was unconstitutional in its "entirety," Judge Nields declared: "A body created by act of Congress is sought to be destroyed and stripped of its powers without being a party to the proceedings and without having its day in court. Such a course violates accepted canons of legal procedure." Meantime SEC was swamped with applications for exemptions from companies whose business is predominately intrastate. But so tightly drawn is the measure that companies like U. S. Steel, Union Pacific, Standard Oil of California felt it wise to file exemptions for power plants used in normal operations. In a final gesture of leniency Chairman Landis granted automatic exemptions to a large group of utilities. But even the exemption applications were prefaced with statements such as this one by Central Hudson Gas & Electric: "Please take notice: Within application is not filed in submission to the claimed jurisdiction of the SEC but is filed under duress, solely because of the penalties imposed by the Public Utility Act of 1935, despite the fact that said pretended statute is void and unconstitutional and of no force." Staff Work. With the power industry determined to fight it out indefinitely, SEC brought its general legal staff up to wartime strength. Transferred to SEC from the Treasury, where he was general counsel for the Bureau of Internal Revenue, was Robert H. Jackson, the Government's able attorney in the Mellon tax case. Another recruit was TVA's General Solicitor James Lawrence Fly, who first made a name for himself as an Anti-Trust prosecutor (Sugar Institute). SEC did not propose to fight entirely on the defensive. Last week without warning it struck out with a suit on its own account against the biggest group of utility holding companies in the U. S.--Electric Bond & Share and five of its satellites. Even Chairman Clarence Edward Groesbeck professed surprise, though the day before he had been closeted with Owen D. Young and Mr. Landis in Washington, supposedly drawing up rules of war. A choice understatement was SEC's explanation that for a test case Electric Bond & Share offered "many points of contact with the statute." No other company is such a conspicuous target for the law, particularly the "death sentence" clause. It is superimposed on five major holding companies, only one of which is apparently exempt from the Act--American & Foreign Power, operating in 13 foreign countries but not in the U. S. The other four--American Power & Light, American Gas & Electric, National Power & Light, Electric Power & Light which controls big United Gas--spread themselves across 32 states. Bond & Share supplies all except American Gas & Electric with various types of service. Big as it is, Bond & Share proved last week that it was as fast on its feet as SEC. Within a few hours after SEC cracked down with its suits, the company announced an internal reorganization that would ordinarily take months. Indeed, Bond & Share insisted that it had taken months, that the announcement on the heels of SEC's action was merely an amazing coincidence. Up to last week Bond & Share's officers served as officers in affiliates and subsidiaries. Horrified was the House Interstate & Foreign Commerce Committee two years ago to learn that Secretary E. P. Summerson of Bond & Share held down jobs in 239 companies. But he got only one salary. Sacrificing the economy of this arrangement to public opinion, Bond & Share has gradually whittled down its interlocking positions. Last week it made a clean sweep, including the resignation of Chairman Groesbeck from four important chairmanships, President Sydney Richard Inch from three presidencies. At the same time Bond & Share formed a wholly owned subsidiary to take over all the parent's service contracts. Precisely what Bond & Share hoped to gain from this sudden upheaval was by no means clear. SEC attorneys would be put to the annoyance of amending its bill of complaints but under the present law the company seemed to be as vulnerable as ever. Shrewd Chairman Groesbeck probably had a thought for future holding company legislation, which is a political certainty if the 1935 Act is voided. One immediate result was to reward three men with the presidencies of three holding companies, the smallest of which (National Power & Light) has consolidated assets of more than $500,000,000. Each succeeded President Inch. Paul Backus Sawyer was upped from a vice-presidency to head National, resigning the same job in Bond & Share. After receiving an E. E. degree from Purdue University in 1902, he went to work as a time keeper in a Des Moines power plant, ten years later began building big utilities out of little ones for Bond & Share in Utah. In American Power & Light Vice President Howard Lewis Aller took command. A Cornell engineer, he worked for General Electric, got his utility start in Colorado Springs, has been in Bond & Share companies for 23 years with the Southwest for his satrapy. Electric Power & Light obtained its new head, Joe (not Joseph) Henry Gill, from National Power & Light, where he had been a vice president. A University of Texas engineer (class of 1910), Mr. Gill helped put together Florida Power & Light, was its head during the 1926 hurricane, which blew away his Miami home leaving him stranded in the water. The hurricane also blew away 1,500 miles of transmission line, leaving 50,000 customers without service. Summoning a repair crew of 3,500 men who slept in their trucks, President Gill rebuilt his system in 50 days. Another last-minute shake-up occurred in International Hydro-Electric System, big International Paper & Power subsidiary. To qualify for exemption Hydro suddenly washed its hands of $400,000,000 New England Power Association, turning over voting control to three trustees. Front. When the Dec. 1 deadline for registration passed 60 holding companies had complied with the law but only two were of major importance--Hydro's orphaned New England Power Association and Middle West Corp., the resurrected Insull system which emerged from the courts last week after three and a half years of uproarious litigation. The power front was held by defiant holding companies representing 80% of the total U. S. public utility industry.

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