If I may go on for just one moment, I would like to read into the record this letter from Gruhl, vice president and general manager of the North American Co., addressed to me under date of April 28, 1928, which is in further reply to Congressman Gipson's inquiry:

Mr. H. P. WILSON,

619 Investment Building, Washington, D. C.

APRIL 28, 1928.

DEAR MR. WILSON: I wrote you yesterday with respect to an erroneous statement appearing in the Washington Times of April 25, referring to contributions made by the North American Co. to the work of the Joint Committee of National Utility Associations. You may desire to make this letter and the attached letter showing the purposes for which contributions were made to the joint committee a matter of public record in the hearings now in process.

I note from the papers received this morning various statements asserting that the North American Co. will control the proposed Capital Transit Co. and regard it as one of its subsidiaries; also vague generalizations concerning public utility holding companies and their alleged practices of requiring the subsidiaries to pay "financial, engineering, management, and construction fees." Such charges can not properly be applied to the North American Co.'s policies or practices. I call your attention to extracts from our annual reports for 1905 and 1922 with respect to such policies and practices of development and management of subsidiary companies:

[From 1905 annual report]
"DEVELOPMENT

*

"The management of your company believes that the policy which should govern the administration of public utilities, if they are to be stable and uniformly profitable investments, is to develop their facilities, so that they may be adequate not only to meet the present demands of the communities in which they operate, with service of the highest standard, but also to respond immediately to the growth of such communities and their business, however rapid it may be. * * The North American Co. stands in a protective relation to these properties. It is not seeking to exploit them for present large profits. It holds their securities as permanent investments and seeks to establish them in the favor and confidence of the public by just methods and efficient administration, and to maintain their finances on the most conservative basis."

[From 1922 annual report]
"MANAGEMENT

"The subsidiary companies are in charge of officers directly responsible for the operation and construction of their properties. Unlike other public utility holding companies, the company does not maintain a central management and engineering organization in connection with the operation of its properties. The various heads of departments of the subsidiary companies and the Detroit Edison Co., in which your company has a substantial investment, are brought together through a system of committee work and have been enabled by this contact to further researches and establish unique records in efficient and economical operation.

11* * * It is believed that these advisory committees provide a better medium for technical development and economical future expansion of the company's business than that afforded by any other similar organization."

The North American Co. will not own a controlling interest in the proposed Capital Transit Co., the new company provided for in the legislation now before the committee for the merging of Washington transit properties. Records of the Public Utilities Commission show that the North American Co. controls the Washington Railway & Electric Co. (and the latter's subsidiary, the Potomac Electric Power Co.) through ownership of 75,45434 total shares of preferred and common stock, 50.30 per cent of the total capital; that it also owns 3,012 shares, or approximately 3 per cent, of the total stock of the Capital Traction Co.

The merger agreement provides that the new Capital Transit Co. shall issue 315,420 shares of stock, including 120,000 shares of 7 per cent preferred stock and 193,420 shares of common stock, both of $100 par value; and that Capital Trac

tion stockholders shall be entitled for each share of their present stock to one-half share of preferred stock and nine-tenths of a share of common stock in the new company. If all Capital Traction stockholders exercise this option they-and not the Washington Railway & Electric Co. or the North American Co.-will control the new company by virtue of ownership of 53.6 per cent of total capital stock. Stockholders of the Washington Rapid Transit Co. would not have a voice, since this company is to be purchased for cash by the new company. Under the option mentioned the North American Co., by exchanging its 3,012 shares of Capital Traction stock, would own 1,506 shares of preferred and 2,711 shares of common stock in the new company. Adding these to the 145,420 total shares owned by stockholders of the Washington Railway & Electric Co., which the North American Co. controls by 50.30 per cent ownership of stock, the North American Co. would control only 47.8 per cent of the new company's stock-and it would actually own considerably less.

The laws of the District of Columbia under which the Capital Transit Co. will be incorporated, moreover, provide that a majority of the directors shall be residents of the District of Columbia.

These detailed facts clearly show that there will be no "foreign control" under the merger agreement-that actual control will remain in Washington. As repeatedly stated, the North American Co. is interested in the Washington transportation situation solely from an investment standpoint and has no hope or desire to control the management of the new company.

In this connection I wish to call you attention to the following extract from the North American Co.'s annual report for 1926, stating the policy and practice with respect to companies classed as subsidiaries:

"The North American Co. does not class as subsidiaries nor consolidate with its own financial statements the financial statements of any companies except those in which it or its subsidiaries own voting control and at least 75 per cent of the common stock. Control of the companies classed as subsidiaries is held through permanent investments, amounting in one case to about 78 per cent, and in all other cases to from 90 per cent to 100 per cent of the common stock of such companies."

Under such policy the North American Co. could not include in its financial statements those of Capital Transit Co. Moreover, for those companies treated as subsidiaries, it should be pointed out that their profits and losses are not "hidden" by grouping or consolidation in the holding company's report. The subsidiary companies whose reports are consolidated issue their own periodical reports of financial condition, which therefore are not in any sense hidden.

You may desire to direct to the attention of the committee the facts set forth above, so that there may be no question that the merger proposal is based upon a continuation of local control and regulation.

Very truly yours,

EDWIN GRUHL.

I would like to put that into the record, if you please.
The CHAIRMAN. Without objection it is so ordered.

Mr. GIBSON. Let me ask you about that. Have you another letter in the same connection?

Mr. WILSON. Just this one other letter.

Mr. GIBSON. All right.

Mr. WILSON. No; Mr. Congressman, this letter is in relation to another matter.

Mr. GIBSON. I take it from that letter that the North American is interested in this merger?

Mr. WILSON. Oh, very much.

Mr. GIBSON. I gained the impression when you first started in that it was your personal ambition to bring about this merger, but I notice by the letter that it is the North American Co. that is the controlling factor.

Mr. WILSON. I think that every stockholder in the company should have great interest in bringing about this merger.

101738-28- -30

Mr. GIBSON. You are working in this case in the interest of the North American Co., are you not?

Mr. WILSON. I am not working in the interest of the North American Co. in this case, Mr. Congressman, any more than I am working in the interest of all of the stockholders and the community served. Mr. GIBSON. You are a director in the North American? Mr. WILSON. I am a director of the North American.

Mr. GIBSON. I notice that this gentleman seemed to pass along to you certain corrections and suggestions and so forth. I assume that that came from a man in authority. The letter too started out with some suggestion in regard to erroneous reports that had appeared in relation to the investigation made by the Federal Trade Commission. Is there anywhere in the letter anything that says they did or did not contribute to the funds which it is alleged the North American contributed to for the control of legislation in Congress?

I

Mr. WILSON. I do not know, Mr. Congressman, why they referred to an erroneous statement made in the Washington Times. suppose they read that statement, which was an attempt to put a false construction upon their contribution.,

Mr. GIBSON. It made that statement but it did not say whether they did contribute or did not contribute, as you read the letter. Mr. WILSON. I am very glad to tell you specifically, Mr. Congressman. that the North American Co. did contribute to the fund.

Mr. GIBSON. I do not suppose that is very material here, but you brought in the letter and I wanted to find out what the facts were. Mr. WILSON. I will now refer to this other letter, with your permission.

Mr. GIBSON. If it is material to the point.

Mr. WILSON. My purpose here I had anticipated, Mr. Congressman, that there might be some questions asked about the North American Co., and while it is with the utmost respect to any member of this committee who wants to ask me any questions, I do not consider that our position here has any bearing upon the business pending before this committee. But I am very glad indeed to have an opportunity to fully advise this committee relative to the North American Co., and its activities in every way, shape or form, entirely aside from the matters involved in this merger agreement.

Mr. GIBSON. You will bear in mind that I did not bring in the issue on that; that it was brought in by your superior officer and put up to us.

Mr. WILSON. NO; Mr. Congressman, you have been very fair, very reasonable, and I want to give you full and complete information. The North American Co. has nothing to conceal.

Mr. GIBSON. I am very glad of that.

Mr. WILSON. Under date of April 27, Mr. Gruhl wrote me as follows Mr. Gruhl is vice president and general manager of the North American Co.:

I have noted the article appearing in the Washington Times of April 5, 1928, headed "Power Trust lobby back car merger."

Now, just why Mr. Gruhl took cognizance of the statements of a Hearst newspaper as to what is being done here, can be explained by me only perhaps through his lack of knowledge of the attitude of the Hearst paper and the tactics and practices of the Hearst papers. I

attach as much importance to what they say with reference to this merger as should have been attached to their statements regarding the Mexican slush fund. I think perhaps they stand on an equal footing. However, cognizance was taken of it.

Mr. GIBSON. Of course there are a great many people who do take some stock in what they say.

Mr. WILSON. Yes; I am not criticizing them; I am simply stating my own position as to any attitude the Hearst papers may take on any subject. Mr. Gruhl's letter reads:

I have noted the article appearing in the Washington Times of April 5, 1928, headed "Power Trust lobby back car merger," referring to the testimony now being taken before the Federal Trade Commission with respect to contributions of the public utility companies to the work of the joint committee of public utility associations. The article states:

"The pivoting point in the disclosure is that the North American Co.-to be the holding corporation for a traction and power monopoly under the Wilson plan-has been one of the largest contributors to the Power Trust 'slush fund' in its fight against the Walsh resolution in the Senate."

The North American Co. makes contributions along with other public utility companies for legitimate purposes of associations such as those represented by the joint committee, for which funds were solicited by it for the purposes enumerated in the attached letter and no other. You will note from this that the accusation made is unfounded. The joint committee, to my knowledge, has never interested itself in legislation now pending upon the merger in any manner, shape, or form,

Very truly yours,

EDWIN GRUhl.

I would like to read into the record, with your permission, Mr. Chairman, a copy of the letter of June 30, 1927, from the joint committee of the national utility associations, representing the National Electric Light Association, the American Electric Railway Association, and the American Gas Association, addressed to Mr. Edwin Gruhl, calling for a contribution. It is a short letter and will only take me a moment to read it:

420 LEXINGTON AVENUE, NEW YORK CITY,

June 30, 1927.

MY DEAR MR. GRUHL: The finance committee of the joint committee of national utility associations has reviewed the committee requirement for the carrying on of its work for the next year, and has prorated the expense among the concerns interested. Your share amounts to $24,000.

In asking for your subscription, I take the opportunity to remind you of the purposes for which the committee is organized.

There seem to be in the public mind much misconception of the attitude of the utility corporations and much ignorance of the fundamentals of economics, business and finance upon which our services are based. The difficulties which we have faced and largely overcome, the continual problems which we must solve and the successful achievements which have given to the people of the United States the most efficient service in the world, are not yet fully recognized.

The very fact that success has been so greatly achieved, that in recent years customers have been multipled, facilities increased and interconnected, and large sums of new capital necessarily invented, has made the utilities shining marks for political and economic agitation, which displays in a large degree ignorance of the nature, organization and operation of the utilities and lack of knowledge of fundamental economic law. Although the mainspring of American progress is private endeavor, we are met not infrequently with a demand for Government ownership, sometimes openly advocated for all utilities, more often urged in particular instances alleged to be exceptional for special reasons.

This movement is directed against all the utilities in like degree. It is well organized and amply financed. Yet, heretofore, there has been no unity of front among us and little has been done to offset it. To defeat this menace, it is only necessary that the American people should understand its true meaning and potential effect, and the motives of those behind it. Attacks upon the fundamental principles on which the utilities rest are assaults upon the basic