Integration of Utility Systems

Report Outline
Initiations of S.E.C. Utility Proceedings
Growth of Public Utility Holding Companies
Congress and Utility Holding Company Act
Holding Company Integration and the S. E. C.

Initiations of S.E.C. Utility Proceedings

A major New Deal reform moved a step nearer realization at the end of February, when the Securities and Exchange Commission instituted a series of proceedings designed ultimately to bring about corporate simplification and geographical integration of public-utility systems having aggregate assets of around $14,000,000,000. By ordering, February 28, the Electric Bond and Share Company and the Engineers Public Service Company—respectively the largest and the smallest of nine holding-company systems selected for initial attention under the integration program—to show cause why they should not be reorganized, the S. E. C. took the first major initiative toward carrying out the difficult mandate imposed on it by Section 11 of the Public Utility Holding Company Act of 1935.

By the terms of that section—the so-called death-sentence provision—the Commission was directed, “as soon as practicable after January 1, 1938,” to require each holding company registered under the act, and each subsidiary company thereof, to take such action as was found necessary to limit operations of the holding company, other than in certain specified cases, to “a single integrated public-utility system.” While some companies have voluntarily taken steps to comply with Section 11 or have become subject to reorganization through bankruptcy proceedings, the majority have waited for the S. E. C. to launch its own program for effecting the integration required by law.

Magnitude of Impending Task of Utility Integration

The recently issued show-cause orders directed the companies to reply at various dates during the month of April as to what action, if any, they believe should be taken to comply with the act. Public hearings in the different cases have been set tentatively to open late in April and early in May. Jerome N. Frank, chairman of the S. E. C, explained in an address in New York, January 25, 1940, that execution of the integration program would be “a slow, tedious process which will take years,” for there will have to be “long days of hearings and many days of” conferences” and “time for careful deliberation on the part of the Commission before any holding-company system can be properly directed as to how it should integrate.” After integration orders have been entered, moreover, the companies affected will be allowed a year or, if necessary, two years in which to comply, and further delays may ensue if they exercise the right of appealing such orders to the courts.