The Electric Bond and Share Company (Ebasco) was a United States electric utility holding company organized by General Electric. It was forced to divest its holding companies and reorganize due to the passage of the Public Utility Holding Company Act of 1935. Following the passage of the Act, the U.S. Securities and Exchange Commission (SEC) selected the largest of the U.S. holding companies, Ebasco to be the test case of the law before the U.S. Supreme Court. The court case known as Securities and Exchange Commission v. Electric Bond and Share company was settled in favor of the SEC on March 28, 1938. It took twenty-five years of legal action by the SEC to break up Ebasco and the other major U.S. electric holding companies until they conformed with the 1935 act. It was allowed to retain control of its foreign electric power holding company known as the American & Foreign Power Company (A&FP). After its reorganization, it became an investment company, but soon turned into a major designer and engineer of both fossil fuel and nuclear power electric generation facilities. Its involvement in the 1983 financial collapse of the Washington Public Power Supply System's five nuclear reactors led to Ebasco's demise because of the suspension of nuclear power orders and lawsuits that included numerous asbestos claims. The U.S. nuclear industry stopped all construction of new facilities following the 1979 nuclear meltdown at Three Mile Island, going into decline because of radiation safety concerns and major construction cost overruns.
History
The Electric Bond and Share Group was organized in 1905 as a holding company for electric utility company securities by General Electric using its employees' retirement investment fund. Morgan used his control of General Electric and his position as the country's most powerful financier to set in motion a plan to monopolize the entire country's electric industry via the Electric Bond and Share Group. Until his death in 1913, Morgan was opposed to any form of government regulation. His firing of Samuel Insull resulted with Insull moving to Chicago, where he organized the second-largest holding company in the country, the Middle West Utilities Company or what is known today as Exelon. Insull would actively promote the idea of a regulated monopoly because of the high cost of electrical infrastructure. About the same time as Teddy Roosevelt's trust busting campaign against Morgan, Rockefeller and other elites was gaining national attention, the National Civic Federation (NCF) was formed. It carried out extensive investigations and debates among prominent business men and organized labor over the issue of public vs. private ownership of electric power. Insull's public support for regulation helped popularize NCF's model legislation that quickly spread nationwide after the state of New York adopted its own variation. Morgan's son J. P. Morgan Jr. carried on with the House of Morgan, including his father's goal of a national electric monopoly but was up against the reformist progressive era.
By 1925, General Electric's Electric Bond & Share Group was the largest owner of U.S. and foreign electric companies holding over 10% of the country's companies as subsidiaries organized into five major holding companies. General Electric made a purely symbolic gesture to reduce growing public anger by divesting control of the company leaving Morgan still in financial control. The Commonwealth & Southern Corporation, which owned several utility operating companies in the Midwest and the South, some of which became part of the Southern Company, and the reorganized Electric Bond And Share Company (EBASCo) were both part of J. P Morgan's syndicate via his J.P. Morgan & Co. In 1926, its headquarters in New York City had over 1,000 employees, and controlled companies in 33 states worth $1.25 billion.
As public concern continued to mount by ratepayers of private electric power companies, the Federal Trade Commission carried out extensive investigations between 1928 and 1935. The commission's 48,000-page report included entire volumes for each of the country's major utility companies. The FTC valued EBASCo and its five holding companies at $3.5 billion, along with major investments in dozens of other major U.S. companies. Within the five main holding companies were 121 U.S. subsidiaries, along with a foreign holding company that operated in 16 countries and had 70 subsidies.
Because he was a strong proponent of public power, Franklin D. Roosevelt used the collapse of Samuel Insull's Middle West Utilities electric empire in June 1932 as one of his most important election campaign issues. The failed assassination attempt on his life in February 1933 later became part of U.S. Marine Corps General Smedley Butler's claim of a Business Plot against Roosevelt by J. P. Morgan. On Roosevelt's first day in office, following his inauguration, he ordered the closure of the nation's banks, known as the bank holiday of 1933. In a joint session of the House and Senate, he pushed through the Emergency Banking Act along with Executive Order 6102 that blocked the hoarding of gold and stopped the major New York banks from taking gold supplies out of the country. Roosevelt then selected Ferdinand Pecora to investigate Morgan and the country's other major banks. Both Pecora and the Federal Trade Commission investigations exposed the fact that the electric industry was the most capital intensive industry. The May 24th, 1933 Pecora hearings rocked the country, focusing on J.P. Morgan and his financial empire, whose top lieutenants paid no taxes. In his 1939 book Wall Street Under Oath: The Story of Our Modern Money Changers, Ferdinand Pecora stated that "Undoubtedly, this small group of highly placed financiers, controlling the very springs of economic activity, holds more real power than any similar group in the United States."
The 1933 Pecora Commission hearings identified the National City Company, known today as Citibank, as the location where Morgan conducted EBASCo's investment operations, which played a prominent role in the passage of the Glass–Steagall legislation. The Pecaro investigation along with the findings from the seven-year Federal Trade Commission investigation into electric holding companies nationwide led to the passage of the Public Utility Holding Company Act of 1935. which some historians say was "the fiercest congressional battle in history." Following the act's passage, Ebasco sued the United States government claiming it was unconstitutional, but lost the case before the Supreme Court in 1938. Wendell Willkie, who was the president of one of J.P. Morgan and Ebasco's biggest investments, known as the Southern Company, ran against Franklin D. Roosevelt in the 1940 presidential race, but lost.
EBASCo, known on Wall Street as (EBS) was included in the Dow Jones Utility Average from 1938 to 1947.Robert J. Landman, Underground Secondary AC Networks, A Brief History , 2007 IEEE Conference on the History of Electric Power; August 4, 2007.
Securities and Exchange Commission breakup of EBASCo Following the passage of the Public Utility Holding Company Act of 1935, the U.S. Securities and Exchange Commission (SEC) oversaw the closure, re-organization or divestment of EBASCo's holding companies except for its American & Foreign Power Co., making annual reports on its monumental legal breakup case between 1936 and 1961. The act was used to break up the country's electric industry into regions confined by state boundaries so that state agencies could properly regulate each company. Each year, the SEC reported on the compliance status of the industry. As of 1949, 210 holding companies affecting 918 of the country's electric companies had come under the SEC's legal jurisdiction and procedures, with 46 holding companies still active. In its 1949 annual report, the SEC documented the history of their order for EBASCo to break up its five major holding companies' combined assets worth $3.5 billion.
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 Ebasco were all financed by Morgan Stanley, with Wall Street having financial influence over nearly 80% of the country's electric industry.
Following the passage of the 1935 Act, Ebasco went into the U.S. court system in an attempt overturn the act but failed (see external links for major court cases). Ebasco was then required to register its holding companies and comply with SEC orders. On August 23, 1941, its holding company known as the National Power & Light Co. was ordered to break up its 27 subsidiaries. On March 22, 1949, the SEC signed off on the final breakup of National that included major holdings in Pennsylvania PPL Corporation, the Carolinas and Alabama (see subsidiary list).
On August 22, 1942, the SEC ordered the breakup of Ebasco's holding companies known as American Power & Light Corp. that included 35 subsidiaries and the Electric Power & Light Corporation with its 24 subsidiaries. American appealed the ruling but lost before the U.S. Supreme Court on November 25, 1946. As of 1949, all but one of American's subsidiaries were in compliance. Electric Power and its sub-holding company United Gas Corporation finally agreed to its breakup on March 2, 1949. Electric Power was then re-organized as Middle South Utilities Inc. and is known today as Entergy.
In 1939, proceedings before the SEC were initiated to break up EBASCo's American Gas & Electric Company. On December 28, 1945, the agency agreed to allow it to retain control of its central region of subsidiaries in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia, and West Virginia, if it let go of its companies in Pennsylvania and New Jersey. In 1946, it attempted to acquire the Continental Gas & Electric Corp. but was denied. American Gas & Electric Company was finally spun off in 1958 to become American Electric Power (AEP).
As part of a national campaign to deregulate the electric industry, the Bush administration and Congress passed the Energy Policy Act of 2005 that repealed the 1935 Public Utility Holding Company Act.
EBASCo holding companies prior to 1935
The following EBASCo holding companies, which includes some of its subsidiaries came under enforcement by the Securities and Exchange Commission with the passage of the Public Utilities Holding Company Act of 1935.
American Gas & Electric Company Incorporated in 1906, and controlled by EBASCo., American Gas & Electric Company was finally spun off in 1958 and became American Electric Power. AEP currently serves over 5 million electricity customers in eleven states. It is currently the 6th largest gas & electric company in the United States. Check the reference here for a recent list of AEP's subsidiaries. Appalachian Electric Power Co. - Known today as Appalachian Power Ohio Power Co. - Known today as AEP Ohio Indiana & Michigan Electric Co. - known today as Indiana Michigan Power The Scranton Electric Co. was sold to PPL Corporation in 1956 Atlantic City Elec. Co. - Is currently a subsidiary of Exelon Ky. & W. Va. Power Co. - known today as Kentucky Power Wheeling Electric Co. - is currently a subsidiary of AEP Indiana General Service Co. Kingsport Utilities, Inc. - known today as Kingsport Power Company
American Power & Light Company American Power & Light had over 35 subsidiaries prior to 1935. In 1942, the Securities and Exchange Commission ordered the holding company to be broken up, which was completed by 1951. Many of these companies are still in existence today. Citizens Power & Light Co., Council Bluffs, Iowa. Merged into Nebraska Power in 1937. Central Arizona Light & Power Co., Phoenix, Arizona, merged with Arizona Edison in 1952 to form Arizona Public Service