Middle West Utilities Company 1931

Middle West Utilities Company 1931

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Middle West Utilities Company 1931
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Beautifully engraved certificate from the Middle West Utilities Company issued in 1931. This historic document was printed by the Republic Banknote Company and has an ornate border around it. This item has the printed signatures of the Company’s President ( Marlin Insull )and is hand signed by the Assistant Secretary and is over 71 years old. In many countries, electric utilities were built up by the state power, precisely because of the unwillingness or inability of private capitalists to undertake the enormous investment required to build the infrastructure needed to deliver electricity widely. In the United States, publicly owned municipal systems appeared in the 1880s and 1890s. But gradually, private capital moved in to take them over, then to build them, under monopoly franchises bestowed by states or cities. Samuel Insull, one of Thomas Edison's first lieutenants, pushed the idea of state regulation, as a way to justify private capital's control over the industry. According to the Edison Electric Institute, the electric utility industry trade group, Insull's proposal for state regulation "became increasingly appealing to investor-owned companies in the face of public enthusiasm for the growth of municipal [that is, publicly owned] electric systems. Privately owned companies surmised that the public might be more supportive if their companies were regulated so that customer interest could be protected." The problem was not simply that of convincing the "public." The fact is that private capital was unable to standardize the industry. Equipment, frequencies and voltages varied from one utility to the next, making connections or transfer of power difficult or even impossible, not to mention the impediments this chaotic situation put in the way of widespread production of electric appliances. Nor was private industry able to provide the capital necessary to build up an electric power industry; that was assured by the state agencies which set rates. Whatever limits states might have set on the upward movement of rates, the fact is that state oversight of the utilities guaranteed the fledgling electricity industry not only a more than adequate profit, it also guaranteed the reimbursement of investments. The development of the utilities kept pace with the vast expansion of capital which had marked the end of the 19th century, leading to ever larger companies, greater concentration of capital and eventually the great financial trusts or "holding companies" which were monopolizing and controlling almost every important industry. By the 1920s, stock market speculation led to a vast movement of mergers and acquisitions, creating super-giant empires. The utility industry was one of the most highly concentrated. During the decade running from 1919 to 1928, over 4300 utilities vanished, most gobbled up by other companies. Three quarters of these were in the electric utility field. By 1932, 42% of the electricity which was generated in the United States was controlled by only three holding companies, 85% by only 16 companies. Holding companies which were tied directly or indirectly to J.P. Morgan controlled almost half of all electricity produced. The classical example of these holding companies was the empire set up by the same Samuel Insull who had earlier argued so strongly for state regulation. Georgia Power Company was only one of thousands of utilities producing and distributing power which sat at the bottom of Insull's empire. Georgia Power was controlled by Seaboard Public Service Corporation, which owned just enough of Georgia Power's voting stock to control all its assets. Seaboard, which did nothing but buy and sell companies, was controlled in the same way by the National Public Service Corporation, which itself only bought and sold stock. In turn, it was controlled by another such company, the National Electric Power Company, which in turn was controlled in similar fashion by the Middle West Utilities Company, which owned 111 other companies and was itself owned by Insull Utilities Investments, which also owned three other such holding companies: the Public Service Company of Northern Illinois, the Commonwealth Edison Company and the Peoples Gas, Light & Coke Company. Insull Utilities was owned by the Corporation Securities Company of Chicago. Of course, nothing was simple in this vast scheme: while Corporation Securities owned 30% of Insull Utilities stock, Insull held 13% of Corporation Securities. And Middle West Utilities, further down on the pyramid, owned 2% of Corporation Securities. Insull himself was chairman of the board of 65 different companies in his pyramid. His son directed dozens more. An executive of General Electric once described the Insull holdings this way: "It is impossible for any man to grasp the situation of that vast structure... it was set up so that you could not possibly get an accounting system which would not mislead even the officers themselves." Not to mention the impossibility of any public regulatory agency, organized as they were by state or even locality, to assess the real costs and income of utilities so controlled even if it had wanted to do so. The holding companies charged the utilities which rested at the bottom of their pyramids exorbitant amounts of money for "financial services," for construction carried out by other companies owned by the same financial group and for fuel which was supplied by still another of the group's companies. According to a study done at the time by the Congressional Research Service, "a holding company might own unregulated coal mines in addition to its regulated electric utilities. The regulated utilities might buy coal from the unregulated affiliated coal mines at 50% above the prevailing market rate. The profit would accrue to the coal company while the cost would be passed on to the electricity consumers by State regulators who could not control the internal activities of the interstate holding company." The great trusts composed of these holding companies were not involved in directing and coordinati


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