Birmingham’s bill on power utility regulation received support from some members of the Legislative Committee on Power and Light during an April 9 hearing, the Boston Globe reported (April 10, 1930, p. 18).
Birmingham, who was the minority member of a special commission on public utility control, introduced a bill that would eliminate reproduction value as a rate base. The bill would prohibit power companies from using the reproduction value theory, which they had relied on in court appeals to rate reductions.
Birmingham’s bill would require a power company to enter into a contract to abide by the Massachusetts investment value basis of rate making. The company would have to sign the contract in order to receive protection against competition from a municipal lighting plant, the newspaper explained.
If a company refused to ink the contract, it would have no redress should a local community set up its own lighting department without buying out the private company, according to the bill.
Birmingham was also seeking a resolution memorializing Congress to “prevent action by the Federal courts in all cases in respect to public utilities in which local judicial authorities and local regulatory agencies are empowered to prevent the abuse of exorbitant or confiscatory rates by a local public utility until the highest court of the States has passed thereon.”
Birmingham refused to argue for his bills during the hearing unless he was permitted to have them printed and presented to the legislature.
Majority Bill Would Also Eliminate Reproduction Value
The conservative majority on the commission also drafted a bill that would eliminate reproduction value as a factor in setting the price which a municipality would have to pay to a private company for the plant before it could set up its own public lighting department. Instead, the Massachusetts traditional fair investment value would be used to calculate the price. However, the majority bill would not touch the basis of valuation for rate making.
The commission majority’s counsel, Arthur D. Hill, testified that reproduction value is a “fictitious value” because it is the cost of “rebuilding something that nobody would rebuild because it is obsolete,” the newspaper reported.
Hill argued that use of the theory in court results in a constant threat of costly litigation because it is difficult to apply. He supported the idea of having the Public Utilities Commission be the arbiter of the price the community would pay for the plant. The commission should use the basis of the plant’s cost less its depreciation for the plant’s value.
The newspaper said that the committee would hold more hearings on the commission’s work on April 17, 1930.
The previous day, April 8, the committee held hearings on the regulation of power companies. Birmingham argued that the holding companies of the power companies should be regulated in order to secure fair power rates, the Globe reported (April 9, 1930, p. 8). He submitted separate bills on behalf of the committee’s minority members to include holding companies under regulation of the Public Utilities Department and to prohibit additional mergers of the eight large power companies in the state.
Birmingham noted that the commission was initially set up become of the attempt by International Power to buy the Boston Herald-Traveler. The commission was unable to find the final control of this power interest, he said.
Birmingham said that encroachment by outside holding companies up the local power field had been going on for years without any warnings from the Public Utilities Department. Only the purchase of the Herald aroused the public and prevented complete monopoly of the power interest in the state. Such a monopoly will prevail unless the state regulates holding companies and forbids further mergers, he said.
The bills introduced by the commission’s majority members would give the Public Utilities Department the authority to supervise contracts between utilities and the holding companies that control them, but would not regulate the holding companies directly. The bills would also require the holding companies to provider certain information that would enable more adequate regulation of the operating companies.
Birmingham wanted to know why his bills were not separately printed. The majority commission’s counsel, Arthur Hill, said that Birmingham’s bills and the minority report would not have been printed without him paying for it out of his own pocket. Birmingham said he would reimburse Hill if the legislature did not.
At a May 13 hearing, the Committee on Power and Light approved the commission majority's bill that would extend the law authorizing cities and towns to purchase and operate power plants, the Globe reported (May 14, 1930, p. 28). The bill was amended in committee to give power companies the right to appeal a decision by the Department of Public Utilities on the price to be paid by the municipality to buy a privately owned power plant.
The committee decided that "no legislation necessary" regarding Birmingham's minority report and proposed measures.
Rep. Birmingham backed an order filed by Rep. Paul Dever of Cambridge to direct the attorney-general to investigate the Department of Public Utilities over the sale of securities of Page & Shaw, the Boston Herald reported May 28, 1930, p. 24.
Birmingham said that unlisted securities of that character are sold only under permits from the Department of Public Utilities. He said that some of the permits had been issued to high-powered salesmen with criminal records.
Birmingham alleged that two other concerns were operating as the Page & Shaw firm did.
Dever charged that the stock selling was one of the greatest frauds ever perpetuated on the people of Massachusetts. He said that the Department of Public Utilities had been warned about the suspicious nature of the stock on Sept. 17 but waited until Dec. 14 to issue a stop order against the firm. At that point, $1.7 million worth have stock had been sold.
Dever said that the attorney-general was needed to carry out the investigation of the department. “Would it have been desirable to have had the police department investigate the Garrett case?” Dever asked.
Dever’s order was not adopted by the House following an adverse reporting of the Rules Committee.
Representative Birmingham accused power interests of planning to buy and operate a chain of newspapers in New England in addition to the two Boston dailies—the Boston Herald and Boston Traveler—they already owned, the Detroit Evening Times reported (April 16, 1929, p. 14).
“It has been brought to my attention that at least six publishers of important papers in this state, Maine and Connecticut, recently have been approached by brokers’ agents sent out of New York, and that in each case a price far in excess of real value of the paper was offered for its acquisition,” said Birmingham.
“There is no doubt, because of the source of this information, that the offers were made by gigantic financial interests battling among themselves for a New England light and power monopoly. These offers, the men behind them and the purpose behind them, we hope to reach through the investigation called for in resolves filed yesterday in the House,” he added.
The author of one of the resolves, Rep. Daniel P. Leahy of Cambridge, warned that a single great power combine could swallow up smaller companies and establish a monopoly of light and power distribution in New England, the paper reported.
“I have observed the rapid and menacing developments of mergers of Massachusetts electric companies. The movement has so far progressed that today the great majority of the 62 private electric companies in this state are under the domination or control of great power combines,” Leahy said.
“This condition is a menace, not only to the people served by the private companies, but also in the 40 or more cities and towns where municipal lighting systems are in existence, because many of those municipal systems, like many of the private companies, no longer have generating stations of their own, but obtain their current from the wholesale power companies,” Leahy said.
“I have evidence that one of these great power groups is actively bidding for municipal plants. I believe that this situation demands a thorough investigation and action by the Legislature to protect our people and our industries, as well, against the danger of economic slavery to the power trust,” he concluded.
During an April 29 Joint Rules Committee hearing into the International Paper and Power Company, Rep. Birmingham grilled the president, Archibald R. Graustein, about the company’s control of much of the state’s power assets and the Boston Herald-Advertiser newspapers, the Boston Herald reported (April 30, 1929, p 1, 14, via Geneaology Bank).
Birmingham asked Graustein if he would be willing to allow the legislature to look at the company’s books and records. Graustein answered in the affirmative.
Then Birmingham asked him if he expected to make additional acquisition of power operating companies in the state, to which Graustein responded that he did plan to make additional acquisitions.
Birmingham asked Graustein to provide the details of his company’s planned acquisition of the Worcester Electric Light Company. He responded that he had told the committee what he knows and that Frank D. Comerford, president of the company’s subsidiary New England Power Association, could provide additional details.
The House minority leader noted that Graustein’s company acquired some of Worcester’s stock at $185 per share. He asked if the company had arranged to pay for all of the stock at that price. Graustein said that his company arranged to acquire some ownership by the exchange of securities, the value of which was not yet determined by the market.
Birmingham then asked how many shares of the Herald-Traveler the company had purchased. Graustein said it was 50 percent, but declined to disclose the price per share. The representative asked if the purchase price was in excess of the market value, and Graustein adamantly said that it was not.
Birmingham asked Graustein if his company had an interest in buying other newspapers in the state. The president of the company said that he did not plan to buy other newspapers “unless we could buy where the investment was profitable without the newsprint contract and could get that in addition.”
Birmingham asked Graustein if he believed the public was concerned his company would use the Herald-Traveler to elect governors and senators favorable to its interest.
“The Herald and the Traveler have been here for a long time. Their policies are known….And we won’t try to dictate [policies] in the future. It would not be good business. We have a financial investment in the Herald-Traveler. The only way to make money on it is to get circulation and you can’t do that unless you have the confidence of the public. I can’t change your mind, but just watch us. The Herald-Traveler won’t play any part in our business, except as an independent paper,” said Graustein.
In March 1930, a House Special Commission on Control and Conduct of Public Utilities issued a report concluding that the eight gas and electric holding companies that dominated the industry in Massachusetts had charged consumers artificially high rates for gas and electricity.
The holding companies were charging high rates to cover the high price of stock of the operating companies acquired by these eight holding companies, which dominated nine-tenths of the total gas and electricity business in the state.
In addition, these holding companies set up affiliated companies for management, construction, purchasing, financing, and other related services. These affiliated companies made large profits by charging high prices for these services to the operating companies owned by these same holding companies, according to the report.
Instead of breaking up the holding companies, the report, prepared by the Republican majority, recommended that the gas and electricity operating companies be subjected to additional regulation. The report proposed a number of bills that would impose greater financial transparency on holding, operating, and service companies and give the Department of Public Utilities additional powers, including regulating rates of bulk energy prices charged to operating companies and municipalities.
Rep. Birmingham inked a dissenting report, criticizing the majority report for not going far enough in exposing the “unjust charges for electric light and power” that consumers had to pay because the holding companies had to generate high profits “to pay dividends” on the “watered stock” of these holding companies.
Birmingham criticized the majority report for not conducting a thorough investigation of the financial practices of these holding companies, including interviewing company executives and examining the books and records of these companies in open hearings.
Despite being given the authority by the legislature to conduct a thorough investigation of these companies' practices, the committee failed “to convey adequate information to the Legislature or the public as to the methods which are being employed in the management of these companies,” the minority report noted.
In addition, Birmingham criticized the committee for not thoroughly investigating the possible ownership of the Boston Herald-Traveler by the International Paper & Power Company, which controlled the New England Power Association. Reports about ownership of the paper spurred the creation of the special commission, yet it failed to explore this issue adequately, he charged.
Birmingham concluded that “the menace of unemployed cannot be removed if this State is to go on paying rates for light and power far beyond what they should be. The responsibility of changing these conditions in the interest of the business men and the workers of Massachusetts is squarely up to the General Court [the Massachusetts legislature].”
Rep. Birmingham joined with Wallace H. Walker, secretary of the Public Finance League, and others to urge favorable action on their measures to ease setting up municipal electric plants, during a March 4 hearing of the Legislative Committee on Light and Power.
Birmingham pushed for enactment of legislation to prevent power companies, “drunk with exorbitant profits,” from appealing to federal courts, according to a report in the Boston Globe, March 5, 1931, p. 4. The state should have the sole authority to determine the amount of property and price for a town to set up a municipal power plant, he argued.
The previous year, a special legislative commission set up to probe control of electric and gas companies in Massachusetts. The commission noted that these companies make profits through contracts for management, engineering, purchasing, and other services, which it regarded as a “very serious abuse,” according to an article in the National Municipal Review, May 1930, pp. 322-323.
Instead, the commission recommended that control over these contracts be vested in the Department of Public Utilities, which should have the power to terminate any contract where the charge is unreasonable. The panel did not recommend the direct regulation of electric and gas holding companies and opposed legislation intended to break up the existing electric and gas system or to restrict consolidation.
In response, Birmingham issued a dissenting report in which he criticized the commission for not holding public hearings. He said there was a need for a fixed rate base and favored a system of contracts in which companies would agree to the state’s cost system or face the loss of valuable rights under the law.
Birmingham also supported enabling municipalities the ability to take over ownership of electric and gas provisioning without being required to purchase company properties. He argued that the rates for electricity and gas were excessive and that the public had not been adequately protected.
In 1932, 1933, and 1934, Birmingham introduced a number of bills that would regulate rates charged by electric and gas companies, but none of them made it out of committee.