The
New Deal's agenda would face its biggest legislative fight over the passage of the PUHCA. Since March 1928, the
Federal Trade Commission (FTC) was releasing monthly reports to the Senate on its investigation of the electric industry. On November 15, 1934, the FTC released segment 71A of its 94-volume investigation that summarized the decades-old "propaganda" war against the general public and supporters of municipal ownership of electric facilities. There was little coverage of the FTC's ongoing public hearings or monthly reports by the country's conservative news media, but that would soon change. On November 20, 1934, the
Associated Press released a detailed story about Roosevelt's National Power Policy Committee (NPPC). Roosevelt set up the NPPC on July 29, 1934, to review and report on the FTC's massive electric industry investigation. Roosevelt picked
Securities and Exchange Commissioner and former judge
Robert E. Healy, who had also been in charge of the FTC's electric investigation, to lead the NPPC review. The article disclosed all of the administration's legislative plan two months before the NPPC or the FTC had released their reports or recommendations on the electric industry. On January 4, 1935, Roosevelt announced his plan to regulate the electric industry in his Second State of the Union Address. The FTC's investigation was still a year from being completed, with ongoing financial studies and work on the natural gas industry still incomplete. However, on January 25, three days before the FTC released segment 73A of the 94 volume investigation to the US Senate, covering its financial recommendations on electric holding companies, the massive Associated Gas & Electric (AG&E) holding company placed its first large attack advertisement in major newspapers. The FTC on January 28 released a 200-page report that called for the elimination of "evil practices and conditions" in the industry that its investigation had uncovered. In its November 1934 summary, the FTC documented the "propaganda" war waged against the public power movement dating back at least to 1919. In fact, the industry's own annual proceedings clearly document that its campaign against public power had been active since the 1890s. In 1906, the National Electric Light Association's
"co-operation" campaign was established in part to monitor and counter the nationwide public ownership movement.
Conservative press An integral part of the industry's co-operation campaign was its friendly public relations strategy with the nation's press. The result was that the FTC investigation did not appear to be newsworthy. The FTC exposed the industry's nationwide propaganda campaign in the industry's own words to censor any negative coverage or history related to its activities, including the manipulation of the nation's textbook and radio industries. For example, MH Aylesworth, the first president of the National Broadcasting Company (NBC) was also the executive director of the National Electric Light Association from 1921 to 1926. It was
General Electric that founded the
Radio Corporation of America, which purchased the country's first radio network from AT&T and became
NBC in 1926. The FTC investigation produced thousands of pages of testimony on how the country's electric industry successfully enlisted the support of the press across the country with its strategy of dangling advertising dollars and submitted vast quantities of anonymous materials to it for publication. The country's mostly conservative press had become allies with the industry in its goal to stigmatize the municipal ownership community as un-American. Going back to the 1907-13 period when the entire country shifted from municipal to state regulation of the electric industry with the creation of state agencies known as
Public utilities commissions, this shift that favored private companies should have been framed as a regressive shift in favor of the "power trust" as big electric companies were commonly referred to or "city vs. state" power politics. However, that was not how the conservative press framed the struggle or what its advertising client the electric industry wanted. The shift from municipal to state regulatory oversight also represents one of the largest examples of
regulatory capture known as the complexity of the electricity industry combined with the model laws passed between 1907 and 1913 resulted in commissions made up almost entirely of former industry professionals. That bias became evident when 46 of the 48 state commissions openly sided with the electric industry during public hearings on the bill. In other words, the investigation documented that the electric industry had set up a personal relationship with the owners and editorial boards of the news industry and so were given tens of thousands of free editorial pieces monthly. In many cases, the industry's own press services distributed content, which the local and national newspapers then reprinted without acknowledging the source. The same relationship with the press would then be used to frame the battle to stop the bill by terrifying the country's small investors with their "death sentence" clause, which the press repeated from then onward.
Congressional introduction of legislation On February 6, 1935, 9 days after the Federal Trade Commission released its conclusions and recommendations from its six-year probe, Senator Wheeler (SB 1725) and Rep. Rayburn (HR 5423) introduced legislation that became one of the bitterest legislative fights in history. Senator Wheeler's version of the legislation was submitted to the Senate's Interstate Commerce Committee, which held public hearings were held, and amendments were voted on and passed by a vote of 14–2 on May 13. The bill passed the full Senate by a vote of 56 to 32 on June 11. However, Representative Rayburn faced a full-scale war. Representatives were being blasted by millions of letters and hundreds of thousands of telegrams demanding the defeat of the legislation, and the industry lined up allies that produced many expert witnesses during hearings. At the same time, an army of unregistered lobbyists stormed the doors of representatives as the country's print media was bombarded with major ads and editorials opposing the legislation.
Death Sentence Clause fails in House vote On July 2, newspaper headlines across the country blared that Roosevelt and his "Death Clause" had lost as the House of Representatives pulled the dreaded Section 2 of the house bill. The campaign rhetoric against the law became so extreme that lobbyists were even claiming that Roosevelt was planning on taking over the industry. Even bringing in opposition to the bill from the country's public utility commissioners, but there was a mistake: just a couple of towns in the country show up as the source for almost all of the telegrams sent to Congress. The same day that the clause was pulled, the Senate organized a new committee to look into the lobbying. Alabama Senator
Hugo Black was placed in charge of the investigating committee, and the House also opened a special committee, which was led by an industry supporter who used his time to attack the president.
Investigation of Electric Industry's Lobbying Campaign The Black Committee quickly got to the bottom of what was a fake nationwide campaign orchestrated by the electric industry to make it look like there was real public opposition to the legislation. On August 8, Black went on nationwide radio prime time to describe the $5 million (now the equivalent of $93 million) war mounted against the legislation. He also pointed the finger at the head of AG&E,
Howard C. Hopson, who was subpoenaed by the committee but had yet to be found. His nearly-bankrupt company had spent over $700,000 opposing the legislation. AG&E was found to be behind an estimated 250,000 fake telegrams that impersonated citizens who had no knowledge that their names had been attached to telegrams. Hearings documented the destruction of electric companies data in a desperate attempt to cover up the fake movement's millions of letters and telegrams in which even the Western Union offices that had launched the tens of thousands of telegrams accidentally had its records deleted against company policy. Western Union eventually tracked down 97,000 of the fake telegrams, which had been partially burned. Other major issues from claims by senators that their phones had been wired tapped by electric companies, the FTC's report of extensive
tax evasion even to bribery surfaced during the Black Committee lobbying investigation. The Black Committee's aggressive use of tactics often used against less powerful citizens is still used as an historic example by conservatives of government abuse. In an even more dramatic fashion, the House investigating committee located Hopson first and then used its subpoena to protect him from the Senate investigation but let Hopson promote the industry side. It was later disclosed that Representative Conner's brother had been given $25,000 by the industry, and the other members of the committee were eventually able to block the chair's attempt to protect Hopson by putting him under house arrest and then immediately releasing him, which would have by law blocked the Senate from getting him. The scandal gave Roosevelt and other supporters of the bill the power to sway the House back into a revote, which finally passed by a vote of 222–112 on August 24. Hopson was eventually convicted of stealing $20 million from Associated Gas & Electric ratepayers. The so-called "Death Sentence" clause survived – the most expensive lobbying campaigns of the 20th century had failed.
Holding Companies vs. Public Utilities Holding Company Act 1935-1954 Talk of legal challenges were in the news the day congress passed the Wheeler-Rayburn legislation. On September 24, the
Edison Electric Institute went into court challenging PUHCA's constitutionality. According to the Associated Press, on October 2 The Federal Trade Commission issued a complaint charging the
National Electrical Manufacturers Association of New York and 16 member manufacturers with “unlawful combination, conspiracy and agreement to restrain competition.” The same day, another suit against PUHCA was filed in United States District Court of Maryland for trustees of the American States Public Service Co. With the President Roosevelt signing Wheeler-Rayburn bill into law on August 26, 1935, the
Securities and Exchange Commission began the process of preparing for carrying out the two main parts (
Title I & II) of the law now called the Public Utilities Holding Company Act of 1935. As stated in the SEC's 1936 annual report, the agency adopted 7 new rules and 11 forms that electric companies were required to fill out when registering as all were required to do by December 31, 1935. By this June 1936, only 65 companies had registered while an additional 375 had requested exemptions. By December 7, 1935, forty-five lawsuits on behalf of more than 100 companies had been filed in 13 different U.S. District Courts across the country. On this same day, the U.S. Attorney General and the SEC's General Counsel made a motion before the
U.S. Supreme Court to stay all of the above lawsuits until the Supreme Court could determine the validity of PUHCA with the case Securities and Exchange Commission v, Electric Bond and Share Company. On November 26, 1935, the SEC, pursuant to its express authority under Section 18 of the Act, brought suit in the District Court for the Southern District of New York against the Electric Bond and Share Company and fourteen other holding companies. All other lawsuits against the SEC were dismissed except for one which was decided in favor of the SEC – in the case of Public Utility Investing Corporation. v. Utilities Power and Light Corporation. (82 F. 2d. 21, C. C. A., 4th, 1936) where the court found the act of registering did not do any irreparable damage to the company. On March 28, 1938, the U.S. Supreme Court ruled in favor of the SEC and the Public Utilities Act of 1935, giving it full authority to enforce the Act. Within 3 months 142 holding companies had registered with the SEC that made up 51 separate public utility systems, comprising 524 individual holding and 1,524 sub-holding and operating companies. An example of the dramatic impacts the law had was documented with the Columbia Gas & Electric Corporation case where the capital represented by the
common stock was reduced from $194,349,005.62 to $12,304,282.00 a total of $182,044,723.62 by the elimination of the corrupting holding company structures. In 1940, congressional investigations of brokerage firms, insurance companies and their relationship to the electric industry exposed that Middle South Utilities, the Southern Group and the Electric Bond and Share Company were all financed by
Morgan Stanley, with Wall Street having financial influence over nearly 80% of the country's electric industry.
List of PUHCA legal challenges • SEC v. EBASCo., 18 F. Supp. 131 (S.D.N.Y. 1937 • EBASCo. v. SEC, 92 F.2d 580 (2d Cir. 1937) • 1938
Securities and Exchange Commission v. Electric Bond and Share company • 1943 - American Gas & Electric Co. v. Security and Exchange Commission • 1944 - U.S. District Court of Delaware: United Gas Corp. • 1945 - American Power & Light Co. v. Securities & Exchange Commission • 1946 - American Power & Light Co. v. Securities and Exchange Commission • 1946 - North American Co. v. SEC • 1949 - U.S. Supreme Court - Electric Power & Light Co. • 1952 - Kantor v. American & Foreign Power Co. • 1953 - U.S. N.Y. District Court - Electric Bond and Share Co. • 1954 - U.S. Court of Appeals - Electric Power & Light Corporation ==Summary==