1939: Public Utilities

Electric Light and Power.

The record of the electric light and power industry during 1939 is again one of steady and continued progress. New peaks were made in kw.h. output and demand with output increasing about 11½ per cent over 1938 and about 40 per cent over 1929. A decrease in hydro-electric output resulted from a drought during the summer in certain midwestern, southern and eastern states. A new high level of gross earnings was attained, being approximately 5 per cent above the 1938 level. The total number of consumers increased to above 28,000,000. There was a new peak in the number of farm consumers with steady increase in rural line mileage, built both by private companies and rural cooperatives.

During the first nine months of the year, over $750,000,000 of refunding operations were accomplished by private sale of low coupon bonds to institutional investors and by public sale to private investors. Such refunding, however, came to a virtual standstill at the outbreak of the European war.

In addition to refundings, some $45,000,000 of new funds were obtained by the industry during the first nine months, nearly all through the sale of bonds. By Sept. 30, 1,161,864 kw. of generating capacity had been added, bringing the total of private and publicly owned generating plants to 40,203,969 kw. — 3 per cent higher than at Dec. 31, 1938. There was an absence of new hydro-electric power plant construction by private companies, practically all such construction being placed with public agencies. A sharp step-up in orders placed for new steam generating equipment took place during the third quarter of the year to meet anticipated industrial demand arising from war conditions and in furtherance of the nation's preparedness plans.

During the year there was a moderate increase in taxes and depreciation charges of the industry and some scattered increases in dividend payments to common and preferred stockholders. There was continued extension of the use of home appliances, increased usage of mercury vapor lighting for streets and highways, and a vivid demonstration at the World's Fair of the spectacular new fluorescent lighting.

Rates.

Since 1935 rate reductions in the industry have averaged about $30,000,000 annually. During 1939 substantial rate reductions were announced for consumers in the following cities: Atlanta, Baltimore, Birmingham, Cheyenne, Chicago, Charlotte, N. C., Columbia, S. C., Columbus, O., Council Bluffs, Denver, Indianapolis, Kansas City, Nashville, New Orleans, Omaha, Philadelphia, Providence, Salt Lake City, San Diego, San Francisco, Seattle, Toledo, Washington, D. C., Yonkers and many other smaller communities. There was a continuation of the steady trend toward lower domestic and commercial rates with a concurrent increase in average kw.h. consumption per domestic customer. For the year ended Sept. 30, 1939, the average domestic rate was 4.11 cents per kw.h. as against 4.27 cents a year earlier and 4.21 cents as of Dec. 31, 1938. Average domestic consumption for the twelve months ended Sept. 30, 1939, was 886 kw.h. against 841 kw.h. a year earlier and 845 at the 1938 year end.

TVA Settlement.

The outstanding feature of the year was the settlement of the bitter TVA controversy and the almost complete socialization of the industry in the State of Tennessee.

On Jan. 30, 1939, the Supreme Court delivered its decision in the famous TVA case which resulted in a legal victory for the TVA and a crushing defeat for private ownership. The court dismissed the complaint of the private power companies, holding that they had no standing in court to challenge the validity of the Act and put aside as immaterial the claim of the private companies that their properties were being destroyed. The private utilities were practically told by the court that such government competition, whether or not constitutional, and even if it destroyed their business, could not be protested in court by the private companies. Under this decision, it would seem that the Federal Government may, if it chooses, enter into competition with private business in practically any field.

As a result of this decision, the private utilities decided to sell their properties in the immediate TVA area for the best prices obtainable and abandon this region to the huge experimentation in Federal and state socialism. After some weeks of negotiating between TVA and the management of Commonwealth and Southern Corporation, a contract for the sale of the Tennessee Electric Power Company properties was signed. Congress passed the necessary enabling legislation which was signed by the President on July 26, 1939, and on August 15, 1939, upon payment of $78,600,000, title passed to the TVA and associated local public agencies. Electric utility properties in Memphis and other Tennessee communities likewise passed from private to public ownership. Thus ended one of the most bitter struggles in American history between the forces championing private ownership and operation of electric utilities and those advocating public ownership and operation.

Throughout the year there was a perceptible lessening of the tension between the industry and the Federal Government, emphasized by the more conservative attitude of Congress, by the Congressional investigation of TVA, by the stoppage of PWA grants to build competing municipal plants, by the execution of contracts for sale of publicly generated power to private companies for distribution to ultimate consumers in certain sections of Texas and Nebraska and by an almost complete absence of new municipal plants approved by the voters in the November elections. A conservative attitude toward the utilities was also disclosed in various state legislative halls, particularly in Pennsylvania, Wisconsin and Michigan, where the legislatures became noticeably less radical. Very little important anti-utility legislation became law in the various states during 1939. In Georgia, Oregon and Nebraska, measures were taken to tax publicly owned utility systems. Agitation along the same lines was started in Alabama and Tennessee.

Labor relations were very little disturbed in 1939 as rates of pay are generally high throughout the public utility industry. However, Missouri Public Service Company and Consumers Power Company suffered short-lived strikes due to union activities.

SEC.

1939 witnessed little visible progress by the Securities and Exchange Commission toward enforcing the integration and simplification provisions of the Public Utility Holding Company Act of 1935. The SEC, however, in ruling that Potomac Edison Company, West Penn Power Company and Union Electric Company of Missouri were holding companies, seemed to favor a strict interpretation of the so-called 'death sentence' provision of the act. There was increased pressure by the SEC to hasten the payment or adjustment of preferred dividend arrears, while at the same time, SEC rulings were made forbidding payment of dividends out of capital or unearned surplus. Such SEC rulings, if upheld by the courts, are likely to result in forced recapitalization and reorganization of many utility holding companies, with voting control passing to the preferred stockholders.

The industry has successfully survived the most trying period in its history. It has withstood public disfavor, political baiting, governmental competition, depressed security markets, sharp and at times ruthless rate pressure, discriminatory taxation and compulsory corporate reorganization. There are grounds for anticipating an extended period of further growth and moderate profits in an atmosphere comparatively free of criticism and persecution.