Appendix — Pacific Gas & Electric Co. v. Securities & Exchange Commission

480 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

Q. Do you know of any instance in which North

American has been consulted in regard to construe-

tion projects proposed by the Applicant prior to

the time the matter was taken up by the Board?

A. No, I think not.

Q. You have very little to do in your capacity

as secretary and treasurer of the company with such

projects? A. Very little.

Q. Is that correct?

A. Yes, before they are adopted, or before they

are approved by the Board or Executive Committee,

Q. So if anyone from the company conferred

with North [404] American you probably wouldn't

be advised of it? A. No, I wouldn’t know.

Q. At any Board meeting attended by you, Mr.

Foote, have you ever heard the views of North

American Company regarding a particular construe-

tion project voiced by any member of the Board?

A. I have not.

Q. Do you know whether or not the Board has

ever requested Mr. Black to obtain the views of

North American Company on any construction pro}-

ect proposed by the Applicant ?

A. They never have formally. That is, you mean

the Board in formal action?

Q. Yes. A. No, they have not.

Q. Well, do you know whether or not any Board

member has suggested it informally?

A. No, I don’t know that. I know of no such re-

quest; I have never heard of it.

Securities and Exchange Com. 481

(Testimony of David Hiram Foote.)

Q. To your knowledge, has the Board ever ap-

proved or directed a course of action which it knew

to be contrary to the wishes of the North American

Company ? -

A. I believe not. It might have turned out to be

so afterwards, but not before the action was taken.

Mr. Phleger: Well, would you mind reading that

question again? [405]

(The question referred to was read by the re-

porter as above recorded.)

Mr. Gerdes: Read the answer.

The Examiner: Is there an answer there?

The Reporter: Yes.

(The answer referred to was read by the re-

porter as above recorded.)

The Examiner: Did you understand that ques-

tion, Mr. Foote?

The Witness: Well, yes. The question was

whether the Board had ever taken any action that

it knew to be contrary to the wishes of the North

American Company.

The Examiner: That is right.

Mr. Phleger: Of course, may it please the Exam-

iner and counsel, some of these questions are

phrased in such a way as to make it rather difficult

to answer and convey a true situation.

Now, that question is predicated upon the assump-

tion that there has been communicated to the Board

482 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

of Directors on some occasion some statement as to

North American’s attitude. The witness has testi-

fied that such matter has never been presented.

Now, when a question is asked do you know of

their ever having taken an action contrary to the

views expressed by North American, it assumes that

there has been at some [406] time an expression of

North American’s views.

The Examiner: Well, that is the possible con-

struction on the question but, on the other hand, it

seems to me the way it is worded ‘‘that it knew to

be contrary’’ might or might not include an infer-

ence that they knew what the attitude of North

American was.

Mr. Phleger: I think that is the fault of the

question. In fact, he has already stated he never

heard of the expression of North American’s views

with respect to any pending matter. That makes

unnecessary, it seems to me, any question to the

effect do you know that they have ever taken any

action contrary to their views, and carries with it

an implication that there must have been some ex-

pression of North American’s views. It is not im-

portant but——

The Examiner (interposing): Well, do you want

to change your answer in any respect, Mr. Foote?

The Witness: May I have the question and the

answer ?

(The question and answer referred to were

read by the reporter as above recorded.)

Securities and Exchange Com. 483

(Testimony of David Hiram Foote.)

The Witness: Probably the best answer to that

question would be ‘‘no, no.”’

By Miss Calkin:

Q. Has Mr. Black ever advised you or the Board

at a meeting attended by you as to North Amer-

iean’s views on any particular matter? [407]

A. No.

Q. Mr. Foote, have you ever discussed any phase

of the Hetch Hetchy situation with any representa-

tives of the North American Company ?

A. No.

Q. Do you know whether or not North Amer-

ican has advised the Applicant with respect to its

activities in municipal elections on bond issues to

construct a distribution plant in the City of San

Francisco ? A. No.

Q. Who recommends dividend payments to your

Board, Mr. Foote? A. The president.

Q. Has that always been the custom?

A. Yes.

Q. Do you know whether or not Mr. Black con-

fers with North American representatives concern-

ing the amount of common stock dividends which

the applicant should pay prior to the time his ree-

ommendations are made to the Board?

A. I do not.

Q. Does Mr. Black confer with any members of

the Applicant’s organization concerning the amount

of dividends on the common stock prior to the time

he makes his recommendations to the Board?

484 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

A. I don’t know. [408]

Q. He doesn’t confer with you as treasurer of

the company ? A. No.

Q. Is the question of common stock, the amount

of common stock dividends discussed at the meetings

of the Executive Committee prior to the time ree-

ommendations are made to the Board?

A. No.

Q. Do you recall any instance in which the Board

has refused to follow for Mr. Black’s recommenda-

tions on the question of common stock dividends?

A. No.

Q. What about during Mr. Hockenbeamer’s

presidency ?

A. The Board when they reduced the dividend

on the common stock—Mr. Hockenbeamer thought

that it might be paid for that particular quarter

which was being considered and then at a later date

it could be decided whether or not it should be re-

duced after the earnings of the company were known,

would be known for the subsequent months.

Q. Well, do you have reference to the dividend

for the third quarter of 1933? A. Yes.

Q. Well, who suggested that the dividends be

reduced at that time? A. Who suggested it?

[409]

Q. Yes.

A. I can’t remember. There were two or three

members of the Board that seemed to be ultra con-

servative on the subject and thought that as long as

r.

Securities and Exchange Com. 485

(Testimony of David Hiram Foote.)

the company’s earnings for the quarter had been

somewhat reduced that it might be better not to pay

the dividend but to pay only at the rate of 6 per

cent per annum instead of at 8 per cent.

Q. And that was the rate of the dividend of the

Applicant on its common stock from the third quar-

ter of 1933 until the last quarter of 1936?

A. Yes. Well, wait a minute. Last quarter?

Yes; it was three quarters, I think, paid at 8, and

one quarter at 6—wasn’t that right? Or was it two

quarters at 8 and two quarters at 6?

Q. In ’33, that is my understanding.

A. Well, the record will show. I can’t carry——

Q. (Interposing) In 36 there were three quar-

ters paid at 6 per cent and the last quarter at 8 per

eent, isn’t that correct ?

A. The last quarter at 8 per cent?

Q. In 1936?

A. That was when it was restored?

Q. That is right. A. Yes, yes.

Q. Now, at whose suggestion was the dividend

restored [410] to 8 per cent in 1936?

A. I think at the suggestion of the president.

The president when he recommends the payment of

the dividend, submits the company earning state-

ments to the Board and if they—he draws attention

to the fact that those earning statements warrant

the payment of the dividend and suggests that they

be paid in accordance with the usual custom.

486

Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

Q. Well, did you ever hear that North American

protested the reduction of dividends in 1933?

A. I heard that they protested after the action

was taken, yes.

Q. Do you know to whom they protested?

A. Mr. Hockenbeamer told me that they had

protested.

Q. And what other comments did Mr. Hocken-

beamer make at that time?

A. Well, he discussed the matter very freely

with me—we were old friends—and he said, I think,

that the president of North American had him on

the telephone, long distance, and had him there for

half an hour, as I recollect, and wanted him to get

the Board to reconsider its action, but he would not.

Q. But Mr. Hockenbeamer refused to submit the

matter ?

A. Mr. Hockenbeamer—my recollection is that

he told me that he wouldn’t ask the Board to recon-

sider its action. [411]

Q. Well, was the matter reconsidered by the

Board? A. It was not.

Q. Do you know whether or not Mr. Black ree-

ommended the increase of dividends in the last quar-

ter of 1936 at the request of North American Com-

pany ?

A. I know that he recommended the increase be-

cause the earnings of the company warranted it, but

I don’t know whether it was done at the request of

Securities and Exchange Com. 487

(Testimony of David Hiram Foote.)

North American Company. I have no knowledge on

that subject.

Q. And you don’t know whether or not Mr. Black

confers with North American representatives re-

garding proposed dividends before the same are de-

clared ? A. I do not.

Q. Ifa reduction or increase in the present divi-

dend rate on the common stock were suggested

would you, as a director of the company, request

North American’s opinion on the advisability of

such action before it was taken by the Board?

A. No; my judgment would be based entirely

upon the company’s earnings.

Q. Mr. Foote, I hand you what has been marked

for purposes of identification Commission’s Exhib-

its Nos. 6 and 7, and will ask you if you can identify

those two documents.

A. (Examining documents) I don’t think there

is any question but I wrote these letters. Yes, the

fact of the [412] matter is I recognize my handwrit-

ing as these were sent to Mr. Black; that is my

handwriting.

Miss Calkin: We offer in evidence Commission’s

Exhibits Nos. 6 and 7.

Mr. Phleger: No objection.

The Witness: They are addressed to a member

of the Board.

The Examiner: May I see them, please, Mr.

Foote?

488 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

The Witness: Yes. (Handing documents to the

Examiner) They are addressed to Mr. Doolittle,

who was a member of the Board of Directors at that

time, I believe.

The Examiner: This photostat of what purports

to be a telegram on a postal telegraph blank dated

December 18, 1935, directed to Mr. F. W. Doolittle

consisting of five typewritten lines of message will

be received in evidence as Commission’s Exhibit 6.

(The telegram referred to was marked Com-

mission’s Exhibit No. 6 and was received in evi-

dence. )

The Examiner: The other telegram answering

the same description, except it contains 6 typewrit-

ten lines of message, will be received in evidence as

Commission’s Exhibit 7.

(The telegram referred to was marked Com-

mission’s Exhibit No. 7 and was received in

evidence.) [413]

The Witness: I could add that that information

in those letters would be sent to any director of the

company who happened to be absent from the city

if he so requested.

By Miss Calkin:

Q. Now, what was the oceasion for your wiring

Mr. Doolittle?

A. I presume that I was asked to do so.

Mr. Bosley: Would you mind stating the purport

of those telegrams so that I may know what you are

talking about?

Securities and Exchange Com. 439

(Testimony of David Hiram Foote.)

The Examiner: Will you let me hear the last

question and answer, please?

(The question and answer referred to were

read by the reporter as above recorded.)

The Examiner: Have you seen those now, Mr.

Bosley ?

Mr. Bosley: What is that?

The Examiner: Have you seen the copy?

Mr. Bosley: She is just showing me the copy

now.

By Miss Calkin:

Q. Mr. Foote, do you recall who requested you

to advise Mr. Doolittle of the matters set forth in

your first telegram to him?

A. No, I do not remember.

Mr. Bosley: Which one was marked 6 and which

one 7?

Mr. Gerdes: What is the date of the letter?

Miss Calkin: Both December 18th. [414]

The Examiner: Both December 18th. The first

one apparently is the shorter one, advises Mr. Doo-

little of the proposed action of the Board and the

second one, apparently after the meeting, advises

him of the action taken at the Board meeting.

By Miss Calkin:

Q. Mr. Foote, I call your attention to the fact

that both of these exhibits have written on them the

name Mr. J. B. Black, which I believe, you stated

490

Pacific Gas & Electric Co. vs.

(‘Testimony of David Hiram Foote.)

was in your handwriting.

A. Yes, they were sent to him, yes.

Q. The copies were sent to him?

A. The copies were sent, yes.

Q. Do you now recall how the Board was advised

that Mr. Fogarty’s election as a director would be

acceptable to the North American Company as one

of its represen(atives on your Board at this time?

The Witness: I didn’t hear that.

The Examiner: Read it, please.

(The question referred to was read by the re-

porter as above recorded.)

A. No, I can’t recall, but undoubtedly the presi-

dent so stated. He would be the one that—customar-

ily in our activities he would be the one to give any

information of that kind to the Board. [415]

By Miss Calkin:

Q. Now, Mr. Foote, I hand you what has been

marked for purposes of identification Commission’s

Exhibits 8, 9, 10 and 11, and will ask you if you can

identify those documents.

Mr. Phleger: Now, before going to that, counsel,

may I inquire whether or not you have copies or

originals of any communications passing from any-

one connected with the North American Company

to anyone connected with the Pacific Gas and Elee-

trie Company at or about the time that Exhibit 6

and 7 were sent?

Securities and Exchange Com. 491

(Testimony of David Hiram Foote.)

Miss Calkin: I don’t understand your question,

Mr. Phleger. You mean any other——

Mr. Phleger: Any communications from anyone

connected with the North American Company to

anyone connected with the Pacifie Gas and Electric

Company at or about the time of Exhibit 6 or 7 to

which the material 6 or 7 might have been a reply?

Miss Calkin: Yes, I have two wires of December

17, 1935, which I intend to introduce when Mr.

Black is on the stand.

Mr. Phleger: Don’t you think that if those were

shown to the witness it might refresh his recollec-

tion as to the occasion for his sending Exhibits 6

and 7?

Miss Calkin: Well, it might, except that he may

never [416] have seen these wires.

Mr. Phleger: Well, maybe he did.

Miss Calkin: I mean they are wires between Mr.

Doolittle and Mr. Black.

Mr. Phleger: Yes.

Miss Calkin: But I will be glad to show him the

copies I have here.

Mr. Phleger: It is rather obvious his wires were

an answer to some inquiry.

Miss Calkin: I won’t introduce these at this

time. I will hand these to you for the purpose of

refreshing your recollection.

Mr. Phleger: Did you ever see those?

The Witness: I can’t say that I did; no, I

492 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

couldn’t say that I did. I don’t recollect ever having

seen them.

Miss Calkin: Now, I believe my last question in

reference to Commission’s Exhibits——

The Examiner: 8 to 11.

Miss Calkin (continuing) —8 to 11, inclusive, is

unanswered.

The Examiner: The witness was examining them.

A. Yes, I remember these letters.

Miss Calkin: We offer in evidence Commission’s

Exhibits Nos. 8 to 11, inclusive.

Mr. Phleger: No objection. [417]

The Examiner: The photostat of letter of Jan-

uary 6, 1936 of F. H. Piske, secretary of the North

American Company, to Mr. D. H. Foote, vice-presi-

dent, secretary and treasurer of P. G. & E., will be

received in evidence and marked Commission’s Ex-

hibit 8.

(The photostat of letter referred to was

marked Commission’s Exhibit No. 8 and was

received in evidence.)

The Examiner: Photostat of letter of January

16, 1936 from D. H. Foote, vice-president, on letter-

head of P. G. & E. to F. H. Piske, secretary of the

North American Company, received in evidence and

marked Commission’s Exhibit 9.

(The photostat of letter referred to was

marked Commission’s Exhibit No. 9 and was

received in evidence.)

_—

Securities and Exchange Com. 493

(Testimony of David Hiram Foote.)

The Examiner: Photostat of copy of letter of

February 17, 1936 from F, H. Piske to D. H. Foote,

and so forth, will be received in evidence and

marked Commission’s Exhibit 10.

(The photostat of copy of letter referred to

was marked Commission’s Exhibit No. 10 and

was received in evidence.)

The Examiner: Photostat of a copy of letter

March 12, 1936 from D. H. Foote, vice-president,

and bearing a typewritten heading of Pacifie Gas

and Electric Company, to F. H. Piske, secretary of

the North American Company, will be received in

evidence and marked Commission’s Exhibit No. 11.

[418]

(The photostat of copy of letter referred to

was marked Commission’s Exhibit No. 11 and

was received in evidence.)

By Miss Calkin:

Q. Mr. Foote, was Commission’s Exhibit 8,

which is the letter dated January 6, 1936, from Mr.

Piske to yourself the first request which you had

received from any representatives of the North

American Company for copies of the minutes of the

meetings of your Board? A. Yes.

Mr. Phleger: Will you read that, please?

(The question and answer referred to were

read by the reporter as above recorded.)

494 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

By Miss Calkin:

Q. And Commission’s Exhibit 9, which is a letter

from yourself to Mr. Piske, dated January 16, 1936,

is your reply to that request?

A. (Examining document) It is.

Q. And Commission’s Exhibit No. 10, being Mr,

Piske’s letter to yor vi Webruary 17, 1936, is a see.

ond request by the secretary of North American

Company for copies of the minutes of the meetings

of your Board, is it not?

A. Not exactly the second request, but, a sort of

followup letter asking what the decision had been

as to the first letter, the first two letters. [419]

Q. Now, what did you do in reference to comply-

ing with the request made in the first letter of Jan-

uary 6, 1936?

A. I talked with Mr. Black about it.

Q. And what did he tell you?

A. Well, we had never done it, and we—I won-

dered whether we should do it, and when the next

letter, followup letter came in, I talked to Mr. Black

again and we thought it all over and couldn't see

any objection particularly to it, although, of course,

if it was asked for by a large number of people it

would manifestly be not impossible but certainly

very—make a great deal of unnecessary work.

Q. Well, now, are all of the directors of the

company furnished with copies of the minutes of

the meetings which they attend?

A. No, they are not.

Securities and Exchange Com. 495

(Testimony of David Hiram Foote.)

Q. Well, then, did Mr. Earl, during his lifetime,

receive from you copies of the minutes of the meet-

ing of the Board or Executive Committee?

A. He received—I think he received copies of

the minutes of the Executive Committee but not of

the Board.

Q. Well, did all other members of the Executive

Committee likewise receive copies ?

A. They could receive them if they desired, but

they haven’t asked for them. They are right there ;

they are read to them the next meeting so they don’t

want them. [420]

Q. Well, do you know why Mr. Earl requested

copies ?

A. He sent them te New York, I believe, sent

them to the North American Company.

Q. It was your understanding, then, that during

Mr. Earl’s directorship and service on the Executive

Committee that the North American Company re-

ceived copies of the minutes of the Executive Com-

mittee from Mr. Earl?

A. My understanding was that Mr. Earl repre-

sented the North American Company and did send

those copies to them.

Q. Well, during the period from Mr. Earl’s

death until the date of these letters in January,

1936, did North American receive copies of the min-

utes of the meeting of the Board or of the Executive

Committee of your company ?

496 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

A. After Mr. Earl’s death there was nobody

went on the committee to represent them, the Ex.

ecutive Committee, and I was requested, as I recol-

lect, by the president, to send the same papers to

the eastern directors as Mr. Earl had sent or, I

guess, to the North American Company that Mr,

Earl had sent, but I always thought that the proper

way to do was to send them to the eastern diree.

tors because they were directors and were not—did

not attend the meetings and I thought they were

entitled to knowledge as to what took place at those

meetings.

Q. Well, do you now, and have you for some

period of time furnished North American with

copies of the minutes of [421] the meetings of the

Executive Committee ?

A. I have—for a time, I think, for a short time

they were sent—maybe they might have been sent

to Mr. Piske but with the idea that he would have

them on file for examination by the eastern diree-

tors, the two eastern directors. At one time there

I decided that they should be sent to the directors

and I sent them after that to Mr, Fogarty.

Q. So that now and for some period of time

Mr. Fogarty has received not, only copies of the

minutes of the Board, but copies of the minutes of

the Executive Committee ?

A. No; he has received copies of the minutes

of the Exeeutive Committee, but the copies of the

Securities and Exchange Com. 497

(Testimony of David Hiram Foote.)

minutes of the Board were not sent until after this

correspondence took place.

Q. But since this correspondence he has received

copies of the minutes of both the Executive Com-

mittee and the Board? A. Yes.

Q. Although North American has not had, since

Mr. Earl’s death, any representative on the Execu-

tive Committee ? A. That is right.

Q. But these requests for minutes were not

made by Mr. Fogarty in his capacity as director,

but were made by the North American Company

through its secretary, Mr. Piske?

A. Yes, that is right, by Mr. Piske, the secre-

tary; [422] he made the request.

Q. But, I believe, if I understand your testi-

mony correctly, in spite of the fact that the requests

came from Mr. Piske as secretary of the North

American Company, the minutes of both the Execu-

tive Committee and the Board of Directors are sent

by you to Mr. Fogarty?

A. Yes. In other words——

The Examiner (interposing): And not to the

company ?

The Witness: Not to the company. In other

words, I thought that the directors were the proper

ones to receive those things, and not the stockholder.

We don’t send those things to stockholders. It

would be manifestly impossible to send our minutes

to 95,000 stockholders, you know and, of course,

498 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

they being members of the Board I thought they

were the proper ones to receive them.

By Miss Calkin:

Q. Well, now, is your reason for sending copies

of the minutes of the Executive Committee when

North American has no representative on that com-

mittee solely that Mr. Hockenbeamer requested you

to send to North Arerican everything which Mr,

Earl had been in the habit of sending?

A. I have forgotten whether Mr. Hockenbeamer

asked me to send them to North American or to

the directors, but that, yes, yes, that is substantially

true, I believe.

Q. Mr. Foote, I hand you what has been marked

for [423] purposes of identification four photo-

static copies of letters exchanged between you and

Mr. Piske which have been marked for identifica-

tion as Commission’s Exhibits 12 to 15, inclusive,

and will ask you if you can identify those docu-

ments ?

A. (Examining documents) Yes, these are all

right. These are all—I can identify all of these.

I remember writing them; I remember receiving

them and writing them.

Miss Calkin: We offer in evidence Commission’s

Exhibits Nos. 12 to 15, inclusive.

Mr. Phleger: No objection.

The Examiner: Photostat of a letter headed

‘Pacific Gas and Electric Company’’ dated April

20, 1930, to F. H. Piske, 60 Broadway, New York,

Securities and Exchange Com. 499

(Testimony of David Hiram Foote.)

signed D. H. Foote, will be received in evidence and

marked Commission’s Exhibit No. 12.

(The photostat referred to was marked Com-

mission’s Exhibit No. 12 and was received in

evidence. )

The Examiner: Photostat of a copy of letter of

April 29, 1936 to F. H. Piske, secretary, to D. H.

Foote, vice-president of Pacific Gas and Electric

Company, will be received in evidence and marked

Commission’s Exhibit No. 13.

(The photostat referred to was marked Com-

mission’s Exhibit No. 13 and was received in

evidence. )

The Examiner: Photostat of a letter on letter-

head of Pacific Gas and Electric Company to Mr.

F. H. Piske, secretary of the North American Com-

pany, signed D. H. Foote, vice-president, [424]

dated May 5, 1936, Commission’s Exhibit 14.

(The photostat of letter referred to was

marked Commission’s Exhibit No. 14 and was

received in evidence.)

The Examiner: Photostat of a letter of Septem-

ber 22, 1936, on the letterhead of Pacific Gas and

Electric, to Mr. F. H. Piske, care of North Amer-

ican Company, signed D. H. Foote, vice-president,

will be received in evidence and marked Commis-

sion’s Exhibit 15.

500 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

(The photostat of letter referred to was

marked Commission’s Exhibit, No. 15 and was

received in evidence.)

By Miss Calkin:

Q. Mr. Foote, these letters would indicate that

from March until September of 1936, at any rate,

you sent copies of the minutes of the meetings of

the Board to Mr. Piske as secretary of North Amer.

ican Company.

A. Yes, but, in doing so, I always had in mind,

and I know the president also always had in mind

that they were sent because officers of that company

were directors of our company. In other words, if

any large stockholder, for instance, Sun Life of

Canada, if they had a representative on our Board

of Directors, they would be accorded the same

courtesy.

Q. Well, if any stockholder who did not have

representation on your Board requested copies of

the minutes of your Board or of your Executive

Committee would that request be [425] complied

with?

A. Depending largely upon the ownership, the

size of the ownership.

Q. Well, do you recall when you first began

sending copies of the minutes of the meetings of

the Board and Executive Committee to Mr.

Fogarty ?

Securities and Exchange Com. 601

(Testimony cf David Hiram Foote.)

A. I don’t recall the exact date, but I didn’t

send them prior to Mr. Earl’s death.

Q. Now, I hand you what has been marked for

purposes of identification Commission’s Exhibits

Nos. 16 and 17 and will ask you if you can identify

those documents.

A. (Examining documents) Yes, this is all

right. These are both genuine.

Miss Calkin: We offer in evidence Commis-

sion’s Exhibits Nos. 16 and 17.

The Examiner: Without objection the photostat

of a letter dated March 31, 1937, on letterhead of

Pacific Gas and Electric Company to Mr. F. H.

Piske, secretary of the North American Company,

signed D, H. Foote, vice-president, will be received

in evidence and marked Commission’s Exhibit 16.

(The photostat of letter referred to was

marked Commission’s Exhibit No. 16 and was

received in evidence.)

The Examiner: Photostat of a letter on letter-

head of Pacific Gas and Electric dated September

15, 1939, to Mr. J. F. Fogarty, 60 Broadway, New

York, signed D. H. Foote, [426] vice-president, will

be received in evidence and marked Commission’s

Exhibit 17.

(The photostat of letter referred to was

marked Commission’s Exhibit No. 17 and was

received in evidence. )

502 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

By Miss Calkin:

Q. Mr. Foote, is Commission’s Exhibit No. 17 a

typical form of the letter regularly sent by you with

the minutes of the meeting of the Board?

A. May I see it?

(The document was handed to the witness)

Yes, it is. (Examining document)

Q. And that letter indicates that a copy of it

was sent to Mr. Freeman. Is that customarily done?

A. I always send that under separate cover he-

cause he is the other New York director.

Q. Mr. Foote, do you know who the regular

banks were for the Western Power Corporation

system ? A. I do not.

Q. Prior to 19309

A. No. I never had anything to do with Western

Power Corporation.

Mr. Bosley: The Western Power Corporation of

New Jersey or the Western Power Company ?

The Witness: No; the Great Western Power

Company of [427] California is a different corpo-

ration altogether. The corporation is the eastern.

Miss Calkin: I was referring to the Western

Power Corporation which was some holding com-

pany of the New York Corporation.

By Miss Calkin:

Q. Mr. Foote, who were the first bankers of the

Applicant ; that is, who were the first persons, bank-

Securities and Exchange Com. 503

(Testimony of David Hiram Foote.)

ing houses, active in the underwriting of Appli-

cant’s securities ?

A. Who were the first? You mean how far back?

Q. Well, from the very beginning, the very in-

ception of the company, who handled its first finane-

ing?

A. My recollection was it was N. W. Halsey &

Company.

Q. Do you know Mr. Halsey?

A. Yes, I have met him quite a number of times,

not intimate at all.

Q. Was he a Californian?

A. Occasi=nally he came to California.

Q. Do you know where the principal office of

N. W. Halsey & Company was located ?

A. New York City.

Q. Who succeeded N. W. Halsey & Company

as the banker for the Applicant?

A. I think their business was taken over by the

National City Bank. [428]

Q. National City Company?

A. The National City Company, yes sir.

Q. And about when did that occur?

A. Oh, I can’t remember those dates; a long

time ago.

Q. Do you know how N. W. Halsey & Company

became interested in the Applicant’s financing, the

contacts that banking firm had with your company?

504 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

A. Through John Martin and E. J. deSabla, the

early—you might call them promoters.

Q. Well, who did you first become acquainted

with in the National City Company organization}

A. The National City Company organization}

Let me see, I knew George Weeks very well. He

was with N. W. Halsey & Company. I don’t know

whether he went to National City Company or not;

it seems to me that he did.

Mr. Bosley: Yes.

By Miss Calkin:

Q. Did Mr. Weeks spend a great portion of his

time in California? Was he a resident of Cali-

fornia?

A. Yes, all of his time was spent here in the

early days. Later he went to New York and went

to London, I believe, as a representative of the

National City Company. I haven’t seen him for

many years,

Q. He was at one time a director of your con-

pany ? [429]

A. Yes, in the very early days.

Q. Well, now, who succeeded Mr. Weeks as a

representative of the National City Company in

connection with your business, if you know?

A. I guess it was Stanley Russell. I think he

was with the National City Company.

Mr. Bosley: Do you remember Mr. Conellen?

Securities and Exchange Com.

(Testimony of David Hiram Foote.)

By Miss Calkin:

The Witness: No, I don’t remember Mr. Conel-

len.

Q. How frequently did you see Mr. Russell?

A. Mr. Russell?

Q. Yes. Did he reside in California?

A. No, I think not. My first close acquaintance

with Mr. Russell was when our first refunding mort-

gage was prepared.

Q. When was that?

A. 1920, wasn’t it? Along in there.

Mr. Bosley: Yes.

The Witness: He came out here.

Mr. Bosley: You are referring now to Mr. Stan-

ley Russell, aren't you?

The Witness: Stanley Russell.

Mr. Bosley: Yes.

The Witness: And he came out here, and he and

Mr. Hockenbeamer and myself formulated the first

refunding [430] mortgage, went over all the provi-

sions and they were afterwards submitted to our

general counsel, Mr. Bosley, and put in shape by

him,

By Miss Calkin:

Q. Would you say that from that time now until

National City Company went out of the investment

banking business that Mr. Russell was the primary

representative of the National City Company in

506

Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

connection with your business ?

A. Yes, and later he was with Lazard Freres—

wasn't he?

Q. So that most of the negotiations between the

Applicant and its principal underwriter from the

period of 1920 until the last financing headed by

National City Company which, I believe, was in

1931, were carried on with Mr. Russell?

A. Yes, yes, Mr. Russell, I believe, yes, but he

came cut here, and those negotiations were carried

on by the president with Mr. Russell, although I

knew of them, and occasionally sat in on the con-

ferences, but not very often.

Q. Now, I believe later testimony will show that

the Applicant had two pieces of financing after

1930, or after North American acquired its stock

interest in the Applicant and prior to the time Na-

tional City Company went out of business, namely,

a twenty-five million dollar bond issue in July of

1930, and a twenty-five million dollar bond [431]

issue in January of 1931. Do you know who formn-

lated those two pieces of financing?

A. I think Mr. Hockenbeamer.

Q. Do you know whether or not Mr. Hocken-

beamer conferred with North American regarding

these two issues? A. I don’t know that.

Q. Do you know who selected National City

Company to be the principal underwriter in these

two pieces of financing?

Securities and Exchange Com. 507

(Testimony of David Hiram Foote.)

A. Mr. Hockenbeamer. Mr. Hockenbeamer, he

suggested that they be made the underwriters and

that was authorized by the Board of Directors.

Q. Did you have anything to do with the selec-

tion of National City Company as syndicate man-

ager or with the selection of any members of the

syndicate which underwrote those two issues ?

A. No, I did not; although I knew about it, but

I had no voice in it.

Q. Do you know whether or not the Board or

Mr. Hockenbeamer or National City Company se-

lected the syndicate members ?

A. Do I know what?

(The question referred to was read by the

reporter as above recorded.)

The Witness: As far as I know they were

selected [432] jointly by Mr. Hockenbeamer and

the underwriters and the main underwriter.

By Miss Calkin:

Q. That is the National City Company?

A. The National City Company, yes. I believe

that is unquestionably a fact.

Q. Now, who carried on——

A. (interposing) And then Mr. Hockenbeamer

recommended those selections to the Board of

Directors.

Q. Now, who carried on the negotiations be-

tween the Applicant and National City Company

508 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

in respect to those two issues?

A. Mr. Hockenbeamer.

Q. Had it been customary for Mr. Hocken-

beamer during his entire presidency to handle such

matters ?

A. Yes, and even before he was president, You

see, Mr. Hockenbeamer had large experience with

N. W. Halsey & Company in New York City when

he came to us. When he came out here in 1907 and

08 his experience was considered valuable in that

financing, and it was valuable unquéstionably. He

was a very efficient man in that respect.

Q. Was he considered as having a greater knowl-

edge of financial matters than Mr. Creed during Mr.

Creed’s presidency ? A. Yes. [433]

Q. Mr. Creed relied upon Mr. Hockenbeamer?

A. Very largely, I think, so did Mr. Drum,

Frank Drum before Mr. Creed.

Q. And when Mr. Hockenbeamer was president

he handled the matters almost by himself ?

A. Naturally he handled them, yes.

Q. And no one in the organization succeeded to

Mr. Hockenbeamer’s position, the position, that is,

that Mr. Hockenbeamer had during the presidency

of Mr. Drum and Mr. Creed?

A. Hardly, no; not exactly.

Q. Do you know whether or not anyone repre-

senting Blyth and Company expressed any dissatis-

faction regarding the second position of Blyth and

Securities and Exchange Com.

(Testimony of David Hiram Foote.)

Company in the two issues of 1930 and 1931?

A. No, I do not.

Q. So far as you know, Blyth and Company

never made any effort to get the leadership of your

business away from National City Company?

A. Oh, there were several bond houses that

wanted to get the business.

Q. That was in 1930 and ’31?

A. Oh, absolutely. They went to Mr. Hocken-

beamer. I know he talked to me about it. There

were several houses who wanted to bid for the bonds

but we had always done [434] business with the

National City Company, and our directors—my

recollection is that our Board thought it was a

good idea to do business with the same people.

Q. Well, now, your company didn’t do any more

financing from January of 1931 until March of

1935, did it, Mr. Foote?

A. Well, I think that is right, yes.

Q. And in 1935 you had an issue of forty-five

million dollars of principal amount of bonds?

A. Yes sir.

Q. Now, was National City Company still in the

investment banking business at that time?

A. I believe so, yes; no. The City Bank Farmers

Trust Company, was it? Well, National—oh, the

National City Company? Yes, yes, I believe so,

although—now, wait a minute, wait a minute.

Q. I think, if you refresh your recollection——

510 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

A. (interposing) I am not quite sure on that

fact.

Q. The Banking Act of 1933 had been passed

by that time which forced the divorcement of invest-

ment, banking business from commercial banking

business ? A. That is right.

Q. I believe it is correct that National City Com-

pany after the passage of that Act and prior to the

March 1935 issue had ceased to be engaged in the

investment banking [435] business.

A. I remember something about that; that is

true, I think.

Q. Now, do you recall who headed the syndicate

which purchased the forty-five million dollar issue

put out by your company in March of 19359

A. I can’t just remember that. I could identify

it if I could see the documents, but I can’t——

Q. (interposing) Well, do you recall the first

piece of business which Lazard Freres & Company

headed for your company?

A. It was about that time. Stanley Russell rep-

resented them, I know, but I can’t just remember

when that change, when that took place.

Mr. Bosley: It was in the spring of 1935 when

we started to refund the earlier issues.

The Witness: Yes, and Lazard Freres had taken

the business at that time.

Mr. Bosley: And Stanley Russell represented

Lazard Freres?

The Witness: Yes, that is right.

Securities and Exchange Com.

(Testimony of David Hiram Foote.)

By Miss Calkin:

-Q. In other words, after National City Company

went out of the investment banking business Mr.

Russell severed his association with the National

City Company and became [436] associated with

Lazard Freres & Company ?

A. I believe that is a fact, yes sir.

Q. Now, what do you know about Lazard Freres

& Company getting the leadership of the syndicate

which purchased the forty-five million dollar issue

of March 19357

A. Very little, little or nothing about it. I don’t

know how it happened that they—except old asso-

ciations. They were the natural—they were the suc-

cessor of the former underwriters and Mr, Hocken-

beamer knew Mr. Russell very well and he was here,

but at the same time there were many others who

tried to dig in and get the business.

Q. Well, who would you say was responsible for

the selection of Lazard Freres & Company as the

syndicate manager of that issue?

A. Mr. Hockenbeamer.

Q. Well, was there any discussion before the

Board as to who should head that business?

A. There was a discussion before the Executive

Commission.

Q. Were all the members of that committee in

accord with the desirability of Lazard Freres hav-

ing that business ? A. Yes.

512 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

Q. And that firm was recommended by Mr.

Hockenbeamer ? A. Yes.

Q. Do you know whether or not Mr. Hocken-

beamer [437] consulted with North American peo-

ple before he selected Lazard Freres as Syndicate

manager of that issue ? A. Ido not.

Q. Do you know whether or not North American

participated in the formation of the refinancing

plan which was consummated by the issuance of the

forty-five million dollars in bonds?

A. I do not.

The Examiner: Will this be a convenient time

for a morning recess?

Miss Calkin: All right.

The Examiner: Are you on the same line of

examination ?

Miss Calkin: No. I have a great deal more.

(Whereupon a short recess was taken after

which proceedings were resumed as follows:)

[438]

The Examiner: We will resume the hearing.

By Miss Calkin:

Q. Mr. Foote, do you recall the names of any of

the banking houses that attempted to get the leader-

ship of the Applicant’s financing in 19354

A. I only know of that from conversations with

Mr. Hockenbeamer. I don’t know that the names

were mentioned, but I know he told me there were

Securities and Exchange Com. 513

(Testimony of David Hiram Foote.)

a number of different houses that were trying to dig

in, trying to get the business.

Q. You didn’t have any personal contacts with

the representatives of any of them?

A. I did not.

Q. Do you know whether or not Mr. Hocken-

beamer conferred with North American represen-

tatives regarding the selection of Lazard, Freres &

Co.? A. I do not.

Q. Did you ever discuss with any representative

of the North American Company the leadership of

this piece of business? A. I did not.

Q. Do you know of any correspondence between

the Applicant and the North American Company

relating to this matter? A. I know of none.

Q. Do you know whether or not there was any

dissatis- [439] faction expressed by anyone concern-

ing the manner in which the March 1935 issue was

handled ? A. I never heard of any.

Q. Are you acquainted with Mr. Blyth, Charlie

Blyth? A. Yes.

Q. How long have you known him?

A. Oh, a great many years; not intimately.

Q. Did Mr. Black ever approach you in an effort

to get the leadership of Applicant’s financing for

his firm in the early part of 1935?

Mr. Gerdes: Read the question, please.

(The question referred to was read ‘vy the re-

porter as above recorded.)

514 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

Miss Calkin: I meant Mr. Blyth instead of Mr,

Black. , A. No, he did -"

yd

By Miss Calkin:

Q. Has Mr. Blyth ever talked to you about the

leadership of his firm? A. No.

Q. Are you acquainted with any other members

of the Blyth & Co. organization? A. 3a

Q. Which ones?

A. Well, Mr. Bernard Ford, and also Mr. Ba-

shore.

Q. Mr. Bashore is in the New York office of

Blyth & Co.? [440]

Q. You knew him prior to the association of the

New York office with that firm? A. No.

Q. You knew him afterwards?

A. I did not know him prior to Blyth getting the

underwriting on those bonds.

Q. How long have you known Mr. Ford?

A. Oh, since he was a small boy, but casually

only.

Q. Did Mr. Ford ever approach you in an effort

to get the leadership of the Applicant’s financing

for Blyth & Co.?

A. No. I knew Mr. Ford’s father and mother.

Q. Did he ever discuss with you the question of

his firm heading the business of the Applicant?

A. No, he never did.

Q. Did Mr. Hockenbeamer ever tell you whether

or not either Mr. Fogarty or Mr, Freeman, or Mr.

Securities and Exchange Com. 515

(Testimony of David Hiram Foote.)

Black advised him as to whether Lazard Freres &

Co., or some other house, should head the first piece

of Applicant’s financing in 1935?

A. I think not; I am quite sure he did not.

Q. Now, I believe later testimony will show that

the next piece of financing of the Applicant was a

$30,000,000 issue in June of 1935, and in that issue

Blyth & Co. headed the business on the West Coast

and participated in the management fee.

Do you know anything about why Blyth & Co.’s

position [441] was improved in the second issue in

1935?

A. I can’t say that I do, except that they were a

western, he was a western man, and it was a western

house, and they had financial standing, and we had

known them for many years.

Q. Do you know whether or not any directors of

the Applicant were endeavoring to get Blyth &

Co.’s position in this business improved about this

time ? A. No, I do not.

Q. Did anyone ever tell you that Blyth & Co.’s

representatives in New York City were endeavoring

to get North American representatives to bring

pressure to bear upon Mr. Hockenbeamer to get

Blyth & Co. the leadership of that business?

A. No, I never heard of it.

Q. Did Mr. Hockenbeamer ever tell you that

Blyth & Co.’s position was improved in the June

1935 financing of the Applicant by reason of the

requests made of him by North American people?

516 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

A. He never told me that. I don’t know any-

thing about it.

Q. Had you ever discussed the leadership of

Applicant’s financing with Mr. Black at this time,

that is, in the early part of 1935?

A. I think not. We might have talked about it

when [442] he was carrying on negotiations. He

may have spoken to me about it.

Mr. Phleger: Will you make clear to the witness

that the time you are questioning him about is in

July 1935 before Mr. Black became president?

Miss Calkin: In the early part of 1935.

A. I cannot recollect. It was very casual, if at

all.

By Miss Calkin:

Q. Is it your best judgment now that you did

have some discussions with Mr. Black prior to the

time he became president of Applicant regarding

who should head the Applicant’s financing?

A. No. I never had any discussion with Mr.

Black prior to the time he became president.

Q. You never had any discussions with him at

all? A. Not at all.

Mr. Phleger: That is, prior to November 20,

1935, when he was elected president.

The Witness: Never.

By Miss Calkin:

Q. The first piece of financing after Mr. Black

became president was in March of 1936, I believe,

Securities and Exchange Com.

(Testimony of David Hiram Foote.)

at which time the Applicant sold a $90,000,000 issue

of bonds to an underwriting syndicate headed by

Blyth & Co.? [443] A. That is right.

Q. What do you know about the change of lead-

ership from the September 1935 issue of $20,000,000,

which was headed by Lazard Freres & Co., to the

issue in March 1936 which was headed by Blyth

& Co.?

A. Only that Mr. Black reported to the Execu-

tive Committee, or the Board of Directors, perhaps

to both of them, that he felt that Blyth & Co. would

be more suitable. They were a western house, a Cali-

fornia house, and we had done business with them,

and they are fine people, and that they had a selling

organization that was probably second to none in

the United States, extending all over the country.

Q. Did you ever hear any other directors express

an opinion as to their feeling in regard to whether

Blyth & Co. or Lazard Freres & Co. should have

the leadership ?

A. I think all the members were in accord with

that idea that expressed themselves, and I think a

number did.

Q. But that expression from them came only

after Mr. Black’s recommendation that Blyth & Co.

head the business ? A. I think so; yes.

Q. Prior to the selection of Blyth & Co. as the

syndicate manager of the first piece of financing in

1936, did any representative of Blyth & Co. ap-

proach you in an effort to get business for that firm?

518 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

A. No, they did not. [444]

Q. Did any member of the Board ever tell you

that representatives of Blyth & Co. had approached

them with the same motive in mind? A. No,

Q. Did Mr. Black ever tell you that his choice

of Blyth & Co. as syndicate manager for the March

1936 issue of the company was favorable to the

North American people ? A. No, he did not.

Q. Do you know anything about how Dillon Read

& Co. got a substantial participation in the March

1936 issue? A. No, I do not.

Q. Was their participation discussed at the

Board ? A. I think not.

Q. You don’t know who selected them as syndi-

cate members?

A. No. I think it was done jointly by Mr. Black

and Mr. Blyth.

Q. You never heard anyone say that Dillon Read

& Co. were included in that syndicate at the request

of the North American Company ?

A. No, I never did.

Q. Do you know why Dillon Read & Co., Kuhn-

Loeb and Morgan, Stanley & Co. did not participate

in the May and October issues of the Applicant?

A. I don’t. [445]

Q. I believe later testimony will develop that

Applicant issued and sold privately $15,000,000

worth of bonds in February of 1938. Do you know

who determined that that issue would be privately

placed rather than publiely sold?

Securities and Exchange Com. 519

(Testimony of David Hiram Foote.)

A. I think it was done after general discussion.

The president brought up the question before the

Executive Committee and it was agreed to and fi-

nally put in formal order, you know.

Q. Do you know whether or not the North Amer-

iean Company played any part in the determination

to have a private placement rather than a public

sale of those bonds?

A. No, I never heard of it.

Q. Do you know of any instance in which North

American has been consulted in reference to the

financial policies of the Applicant?

A. I do not.

Q. And those matters, that is, the financial poli-

cies of the company are, generally speaking, formu-

lated by the president? A. Yes. -

Miss Calkin: I think that is all.

The Examiner: Redirect examination?

Redirect Examination

By Mr. Phleger:

Q. The last question, Mr. Foote, was to the effect

that the financial policies of the company are gener-

ally [446] formulated by the president, are they not,

and your answer was ‘‘ Yes’’. A. Yes.

Q. Does the president make it a custom to dis-

cuss at considerable length with the Executive Com-

mittee and with the Board also the major matters

of financial policies ? A. Yes, that is a fact.

520 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

Q. Now, you have been asked in various forms

and in various ways, whether or not action has been

taken by the Board of Directors, or the Executive

Committee, or officers of the Applicant, which might

not be in accord with views of the North American

Company. Have you ever heard at any time, with

the single exception of the dividend action in 1933

that you have testified to, the name of the North

American Company mentioned in connection with

any action under consideration, or after action had

been taken on the part of Pacifie Gas and Electric

Company ?

A. No; I can’t reeall any discussions of that

kind at all. It might have been mentioned. I can’t

say. ...But ther. hed dizsctera- un tie Board ’and it

might have heen mentioned that those directors were

agreeable to this action, but I can’t remember that

distinctly. No point was made of it anyway.

Q. You have no recollection of it ever having

been stated in the meetings of the Executive Com-

mittee, or the [447] Board of Directors, that the

North American had this view or that view?

A. No, I do not. I don’t remember any such

statement.

Q. Would you have remembered it if such a

statement had been made?

A. I think so; yes.

Q. Now, with respect to Mr. Black’s incumbency,

has any change taken place in the general organiza-

Securities and Exchange Com. 521

(Testimony of David Hiram Foote.)

tion of the company since Mr. Black became presi-

dent ? A. I think not; no important change.

Q. You have seen Exhibit 9, have you not, the

organization chart of the company ¢

A. Yes; I am familiar with it.

Q. Has any change been made in the organization

of the company since Mr. Black became president?

A. I think not.

Q. Who set up the various committees that are

shown on that Exhibit?

A. My recollection is that, generally speaking,

this organization scheme originated at the time that

Mr. Creed was president.

Q. That was during the period 1920 to 1925,

Was if riot? A. Yes. [448]

Q. 1926, rather.

Mr. Bosiey: 1927.

Mr. Phleger: 1927.

The Witness: Yes.

By Mr. Phleger:

Q. And that organization, in the method of oper-

ation through the Executive Committee, and other

committees of officers, has remained unchanged

since Mr. Creed’s administration to the present

date?

A. I think so; yes. If there were any changes

they have been very minor. :

Q. Has Mr. Black made any change that you

know of in any of the major features of operation,

522 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

management, or policy since he has become presi-

dent ? A. I think not.

Q. The policies that are in effect now are the

same that have been in effect for many years?

A. Yes.

Q. Now, Mr. Foote, various letters passing be-

tween yourself and Mr. Piske, Mr. Doolittle and

Mr. Fogarty have been introduced in evidence. Am

I correct in stating that Commission’s Exhibit 6,

consisting of a telegram dated December 18, from

you to Mr. Doolittle, and Commisson’s Exhibit 1,

consisting of a telegram dated December 18, 1935,

to Mr. Doolittle were both sent by you at the re-

quest of someone else? [449]

A. Yes, I believe so; oh, yes, undoubtedly.

Q. All of these letters that were exchanged by

you have to do with your forwarding to Mr. Piske

or to Mr. Doolittle or to Mr. Fogarty certain infor-

mation which they had previously requested, is that

not so? A. Yes.

Q. And the inception of this correspondence was

a letter to you from Mr. Piske, was it not?

A. Yes.

Q. I am showing to the witness a letter from

himself to Mr. Piske, dated December 31, 1935,

reading as follows:

‘*Pursuant to your letter of December 28 I am

enclosing list of directors and officers of Pacific

Gas and Electric Company as of the present date’’—

and so forth.

Securities and Exchange Com. 523

(Testimony ef David Hiram Foote.)

This letter of Mr. Piske’s of December 28,~ re-

ferred to in your letter, was the inception of your

correspondence, was it not? A. Yes.

Q. And all of the subsequent letters had to do

with your acceding to various requests by Mr. Piske,

or Mr. Fogarty, or Mr. Doolittle, for information

which you thereafter forwarded them?

A. That is right.

Q. Now, when Mr. Piske requested a copy of the

minutes of the meetings of the Board of Directors,

by his [450] letter of January 6, 1936, Commission’s

Exhibit 8, you did not immediately accede to his

request, did you? A. I did not.

Q. You referred the matter to the president of

the company ? A. Yes.

Q. And it was a considerable time, was it not,

before that request was finally acceded to?

A. Yes.

Q. I show you Commission’s Exhibit 11, being

a letter from you to Mr. Piske, dated March 12,

1936. A. Yes.

Q. Does that refresh your recollection as to when

you finally acceded to the request ?

A. Yes, it does.

Q. That is, some two or three months after the

request was originally made?

A. Yes; that is right.

Q. Now, you have testified that copies of the min-

utes went forward after that request, first, to Mr.

Piske ? A. Yes.

524 Pacific Gas & Electric Co. vs.

(Testimony of David Hiram Foote.)

Q. But that later you changed the practice and

forwarded the copies of the minutes directly to Mr,

Fogarty? A. Yes.

’ Q. Is that correct? [451]

A. That is right.

Q. That has been your practice for some time

since ? A. Yes.

Q. With respect to the increase of the dividend

of the company from the rate of 6 percent per

annum to 8 percent per annum, which took place

in the last quarter of 1936, you have testified that

the recommendation for that increase came from

Mr. Black. That is correct, is it not?

A. I believe it is; yes, sir.

Q. Did he present at this time financial state-

ments to the Board?

A. He did. That is his practice always in con-

nection with dividends.

Q. It is a fact, is it not, that in connection with

all dividend declarations statements of earnings and

of the financial condition of the company are pre-

sented to the Board of Directors?

A. Yes, that is a fact.

Q. And it is in connection with that that the

president makes his recommendation ?

A. Absolutely.

Q. Do you recall whether or not the earnings

prior to the increase of the dividend rate in 1936

had been showing an increasing trend ?

Securities and Exchange Com. 625

(Testimony of David Hiram Foote.)

A. Just prior, yes; just prior to that increase

they [452] had. Well, now, I don’t recall what the

earnings were, but it must have been so.

Q. If you don’t recall you just say so.

A. I don’t recall that.

Q. Did you ever hear the name of North Ameri-

can mentioned in connection with any financing by

the company ? A. I think not.

Q. So far as you know, or your records show,

has the North American Company ever participated

in any financing of the Applicant ?

A. No, they have not.

Q. With the exception of the contract between

the Pacific Gas and Electric Company and the North

American Company covering the acquisition by Pa-

cifie Gas and Electric Company of stocks of Great

Western and San Joaquin, has the Pacific Gas and

Electric Company ever entered into any contract

with the North American Company ?

A. I think not; no, they have not.

Mr. Phieger: That is all.

Miss Calkin: No further questions.

The Examiner: If there are no further ques-

tions you may be excused, Mr. Foote. Thank you.

(Witness excused.)

Mr. Phleger: I will call Mr. Hodges. [453]

526 Pacific Gas & Electric Co. vs.

Whereupon—

E. W. HODGES

was produced as a witness by and on behalf of the

Applicant and, having been first duly sworn, was

examined and testified as follows:

Direct Examination

By Mr. Phleger:

What is your full name, Mr. Hodges?

E. W. Hodges.

Where do you live? A. In Piedmont.

California? A. California.

How long have you lived in California?

. Since 1905.

. What position do you now hold with the

Pacific Gas and Electric Company ?

A. I am Comptroller for the company.

Q. How long have you occupied that position!

A. Since 1927.

Q. What were your positions with the company

prior to 1927?

A. Prior to my appointment as Comptroller in

1927 I was General Auditor of the company from

December of 1920 to that date; and prior to Decem-

ber of 1920 I was in the general [454] auditing de-

partment in charge of the general books of account

from April of 1917, which was the date I first en-

tered the employ of the company.

Q. What has been your education?

A. I have attended grammar and high school,

Securities and Exchange Com. 527

(Testimony of E. W. Hodges.)

business college, various lecture and extension

courses of the University of California.

Q. What positions did you occupy before you

entered the service of the company ?

A. My first employment was with the San Fran-

cisco-Oakland Terminal Railways in November of

1907. I was in the accounting department of that

company from that date until April of 1917. At the

time I left the service I was Chief Clerk for the

department, and left there to enter the service of

the Pacific Gas and Electric Company.

Q. So that the entire period of your employment

has been with the San Francisco-Oakland Terminal

Railways up until 1917, and since 1917 with the

Pacific Gas and Electric Company ?

A. That is correct.

Q. Will you describe generally your duties as

Comptroller ?

A. Well, I have charge of all of the accounting

records of the company, the preparation of various

reports and statements for regulatory commissions,

and also all tax matters.

Q. Do you prepare all reports for the California

[455] Railroad Commission and the Federal Power

Commission ?

A. Yes. They are prepared in my department.

Q. I show you Exhibit 9, which is a chart of the

corporate organization. From it will you describe

your position relative to the other officers, commit-

tees and the Board of Directors of the company ?

528 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

A. Well, I report directly to the president of the

company. I am a member of the President’s Ad-

visory Committee, and also of the Appropriations

Committee.

Q. What matters are considered at the meetings

of the Advisory Committee ?

A. All matters of any character that are im-

portant in respect to the company affairs.

Q. How frequently does the Committee meet?

A. Each Monday.

Q. Will you describe now generally the extent to

which the affairs of the company are regulated by

the Public Utilities Act and by the California Rail-

road Commission acting under it?

A. The California Railroad Commission, as pres-

ently constituted, was created by the people of this

State by Constitutional amendment (Article XII,

Section 22, adopted October 10, 1911). By further

amendment of the Constitution (Article XII, See-

tion 23) adopted the same date, “public utilities”

as used in that section of the Constitution was [456]

defined to include the several classes of business

therein mentioned, and the Legislature was given

the right to confer upon the Railroad Commission

power to supervise and regulate such public utilities.

Pursuant to the latter authorization the Legisla-

ture (Extra Session 1911) enacted the ‘Public

Utilities Act’’ which was approved by the Governor

December 23, 1911 and became effective March 23,

1912. By this Act the Commission was given power

Securities and Exchange Com. 529

(Testimony of E. W. Hodges.)

to regulate and control all public utilities of the

State, except that incorporated cities and towns of

the State, including the City and County of San

Francisco, retained the powers over public utilities

which they had on March 23, 1912, with the privi-

lege, however, of voting those powers to the Rail-

road Commission.

On November 3, 1914, Section 23 of Article XIT

of the Constitution was amended so as to provide,

in effect, that the Legislature should have the power

to confer upon the Railroad Commission jurisdic-

tion over all the rates of all public utilities in the

State, in incorporated cities and towns as well as

in unincorporated territory. The authority thus con-

ferred was exercised by the Legislature when it

passed the Revised Public Utilities Act (enacted

April 23, 1915, effective August 8, 1915).

Since 1915 the Public Utilities Act has been

amended a number of times. In most instances such

amendments were made [457] for the purpose of

broadening the scope of the Commission’s powers

respecting the regulation and supervision of public

utilities.

The Railroad Commission’s jurisdiction to super-

vise and regulate public utilities, under the Consti-

tution and laws of this State as now in effect, is

very comprehensive. Such has been the fact since

1912 and particularly so since 1915 when its rate

fixing powers were enlarged to include service in

530 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

both incorporated cities and towns and unincor-

porated areas.

Stated in general terms the Commission’s powers

of regulation and supervision cover all matters re-

lating to public utility rates, rules and regulations,

contracts and practices, equipment, facilities, or

service ; additions to and betterments of plant, meth-

ods of manufacture, distribution, transmission, stor-

age or supply; safety and health of employees,

patrons, customers and the general public; stand-

ards for measurement of quantity, quality, pressure,

voltage or other conditions pertaining to the supply

of the product, commodity or service furnished, ac-

curacy of meters and appliances for measurements

and the testing of such appliances; accounting prac-

tices and procedure, including forms of accounts,

records and memoranda to be kept and maintained;

the exercise of franchise rights and the regulation

of competition between utilities by means of cer-

tificates of public convenience and necessity; the

ascertainment for each purpose specified in the

Public Utilities [458] Act of the value of the prop-

erty of each public utility in the State, and the

making of revaluations to ascertain the value of

additions, betterments, extensions and new construc-

tion; the sale, lease, assignment, mortgage or other

disposition or encumbrance of the whole or any

part of the property of a public utility necessary ot

useful in the performance of its duties to the publie;

the merger or consolidation, directly or indirectly,

Securities and Exchange Com. 531

(Testimony of E. W. Hodges.)

by » public utility of its properties, or any part

thereof, with any other public utility; the purchase,

acquisition, taking or holding by one public utility

of any part of the capital stock of any other public

utility of any part of the capital stock of any other

public utility organized and existing under the laws

of California; the issuance of stock, stock certifi-

cates or other evidences of interest or ownership,

and bonds, notes or other evidence of indebtedness ;

the accounting for the disposition of the proceeds

of all sales of securities; the assumption by a public

utility of any obligation or liability as guarantor,

indorser, surety or otherwise in respect of the se-

eurities of any other person, firm, or corporation;

inspection of accounts, books, papers and records;

hearing and deciding complaints respecting any act

or thing done or omitted to be done by any public

utility, including any rule, regulation or charge pre-

viously fixed by or for any utility, in violation, or

claim to be in violation, of any order or rule of the

Commission; to order reparation, [459] with inter-

est from date of collection, on account of an un-

reasonable, excessive, or discriminatory charge; to

require any public utility to file monthly reports of

earnings and expenses and periodic or special re-

ports concerning any matter about which the Com-

mission is authorized by law to enquire or to keep

itself informed on.

Under the provisions of the Public Utilities Act

each public utility is required to furnish to the

522 Pacific Gas & Electric Co. vs.

(Testimony of E, W. Hodges.)

Commission in such form and detail as the Com-

mission may prescribe, all tabulations, computations

and all other information required by it to carry

into effect any of the provisions of the Act, and to

make specific answers to all questions submitted by

the Commission; also, to deliver to the Commission

_ upon request copies of any or all maps, profiles,

contracts, agreements, franchises, reports, books, ae-

counts, papers and records in its possession or in

any way relating to its property or in any manner

affecting its business, and also a complete inventory

of all its property in such form as the Commission

may direct.

The Railroad Commission has, since its inception,

issued ninety-four (94) general orders; the majority

of which are still in force and effect. The more im-

portant general orders which relate to gas and elee-

trie public utilities subject to its jurisdiction, are

the following:

General Order No, 24-A. Relating to the prepa-

ration and filing of monthly reports showing re-

ceipts and disbursements from the sale of stock,

bonds and other evidence of [460] indebtedness

which have been authorized to be issued by the Com-

mission.

General Order No. 28. Relating to the preserva-

tion of all records, memoranda and papers sup-

porting each and every entry in certain of the

general books of public utilities.

Securities and Exchange Com. 533

(Testimony of E. W. Hodges.)

General Order No. 46. Containing regulations

governing the protection and guarding of moving

machinery, power, transmission, and other mechani-

eal equipment, ladders and stairways, and so forth.

General Order No. 48. Relating to the obtaining

of consent of the Railroad Commission to withdraw

entirely from public service or withdraw from pub-

lie service in any portion of the territory served.

General Order No. 52. Governing the construc-

tion and operation of power and communication

lines for the prevention or mitigation of inductive

interference. ,

General Order No. 54. Prescribing the form and

regulations governing the construction and filing of

rates, rules and regulations affecting rates and serv-

ice for gas utilities.

General Order No. 55. Prescribing the form and

regulations governing the construction and filing of

rates, rules and regulations affecting rates and serv-

ice for electric utilities.

General Order No. 58-A, Containing detailed

standards for gas service in the State of California

and the maintenance [461] of records therein speci-

fied.

General Order No. 64-A. Containing rules and

standards of overhead line construction (this Gen-

eral Order, together with the supplements thereto,

comprises approximately 350 printed pages).

General Order No. 65. Relating to the filing by

each public utility, whose operating revenues exceed

534 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

$50,000 per year, of monthly financial and operating

reports.

General Order No. 77-A. Containing regulations

respecting the filing with the Railroad Commission

of salary data, donations, contributions and sub-

scriptions.

General Order No. 78. Governing the filing with

the Commission of contracts for special services or

providing deviations from filed rates, charges, classi-

fications, contracts, rules or regulations.

General Order No. 94. Prescribing a uniform

procedure for the design, operation, maintenance

and inspection of all gas holders and hydro-carbon

vessels operated by public utilities in the State of

California, including the keeping of records and the

making of reports as therein required.

The Examiner: Will you let the reporter have

a copy of that statement you have just read? It may

be helpful in transcribing the record.

The Witness: Yes. [462]

By Mr. Phleger:

Q. Mr. Hodges, has the company complied with

the various orders, rules, regulations and provisions

of the Public Utilities Act that you have described?

A. I believe it has fully done so; yes.

Q. It has regularly filed all of the reports called

for by the Act and by the Orders? A. Yes.

Q. Will you describe briefly the uniform system

of accounts prescribed by the Railroad Commission

for electrical corporations which is now in effect!

Securities and Exchange Com. 535

(Testimony of E. W. Hodges.)

A. The present uniform system of accounts for

electrical corporations was prepared by the Railroad

Commission and made effective January 1, 1938. It

is in practically all respects a copy of a similar

classification of the Federal Power Commission.

The classification, of course, covers all of the com-

pany’s financial accounts, the balance sheet, profit

and loss, and income accounts.

Of course, there is a complete set of primary ac-

counts supporting each of the general accounts that

I have mentioned.

Q. Now, while an existing or presently effective

uniform system of accounts was made effective on

January 1, 1938, there existed prior thereto, did

there not, a uniform system of accounts which, while

differing in some particulars, is substantially the

same? [463]

A. That is correct. The classication in effect

prior to that date for electrical corporations, I be-

lieve, became effective on January 1, 1923, and it

likewise was an adaptation of the corresponding

classification of the Federal Power Commission.

Q. When did the California Railroad Commis-

sion first prescribe a uniform system of accounts

for electrical corporations ?

A. The first classification was prescribed and

became effective on January 1, 1913.

Q. And a uniform system has been described

and in effect ever since that date?

- A. That is correct.

536 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

Q. Now. with respect to gas, has the Commission

prescribed a uniform system of accounts ?

A. There have been two uniform systems of ac-

counts prescribed by the Commission. The first was

effective January 1, 1913 and the second, I believe,

became effective on January 1, 1924.

Q. Are the reports filed pursuant to the uniform

system of accounts open to the public?

A. They are.

Q. Have there ever been, since you have been

with the company, any increases or decreases in

the recorded costs of investments, plants, proper-

ties, or intangible assets on the [464] books of the

Applicant resulting from revaluing such assets?

A. No.

Q. Has the company ever recorded acquired

properties upon its books at other than the cost

thereof to the Applicant?

A. No. I think that——

Q. (interposing) Where the company——

Mr. Bosley (interposing): Just a moment.

The Examiner: Were you going to explain your

answer?

A. (continuing) I think that maybe I might

state in that respect that in the case of certain ac-

quisitions the Railroad Commission has required

that in recording the cost on our books that we

should record it on the basis of original cost. The

over-all effect of that, however, insofar as our total

plant account is concerned, is that the cost, as re

Securities and Exchange Com. 537

(Testimony of E. W. Hodges.)

corded in our accounts, does represent the actual

cost to the company of all acquired properties.

That is due to the fact that the account that they

require us to keep, known as the Acquisition

Adjustment Account, is also a part of the Plant

and Property Account and in that account is car-

ried the difference between the cost to the utility

and the original cost of the property acquired.

Mr. Bosley: By “‘original cost’’ you mean the

original cost to the company first putting it to public

utility use?

The Witness: Yes.

Mr. Bosley: Under the regulations of the Com-

mission? [465]

The Witness: That is correct.

By Mr. Phleger:

Q. When the company has acquired properties

and paid for those properties in stock how has that

acquisition been recorded ?

A. Any property acquired by stock, where the

company has issued its capital stock in the acquisi-

tion of the capital stock or properties of other com-

panies, has never been recorded on its books at an

amount in excess of its par value.

Q. That is irrespective of the market value of

the stock so issued ? A. That is correct.

Q. Is it fair then to summarize your testimony

to this effect: That the company has never recorded

acquired properties upon its books at other than

the cost thereof, except when those properties were

538 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

acquired in exchange for stock, the par value only

of the stock was recorded, and in those cases where

the Commission has directed that the original cost

to the original owner be recorded, that the company

has complied with such orders?

A. That is correct.

Q. Describe generally the depreciation policy of

the Pacific Gas and Electric Company and state the

allowance made by it for depreciation and mainte-

nance.

I will withdraw that question. [466]

The Examiner: Are you going to consume some

time with this next line of examination ?

Mr. Phieger: Yes. I do not know whether you

want to run until 12:30 or not.

The Examiner: I thought probably it would be

convenient for you to stop in ten or fifteen minutes.

Mr. Phleger: It is a matter of your convenience.

This is a suitable time to adjourn.

The Examiner: If you have any material there

that you want to present you may proceed with it.

Mr. Phieger: There is quite a bit of it.

The Examiner: We will take our noon recess at

this time and return at 2:00 o’clock.

(Whereupon at 12:10 p. m. a recess was

taken until 2:00 o’clock p. m. of the same day.)

| [467]

Securities and Exchange Com. 539

Afternoon Session

(Whereupon pursuant to the taking of recess,

the hearing reconvened at 2:00 o’clock p. m.)

The Examiner: We will resume the hearing

whenever you are ready.

Mr. Gerdes said he was not quite ready; when-

ever you are.

Mr. Gerdes: Yes.

The Examiner: Mr. Phleger?

Mr. Phleger: Yes.

Whereupon—

E. W. HODGES

was produced as a witness for and on behalf of the

Applicant, and having been previously duly sworn,

testified further as follows:

Direct Examination

(resumed )

Mr. Phleger: I will offer in evidence as Appli-

cant’s Exhibit 34 two sheets physically attached,

the first headed ‘‘ Pacific Gas and Electric Company

and subsidiary companies, statement showing accu-

mulation of depreciation reserve years 1909 to 1939

inclusive’; the second sheet headed ‘‘Pacific Gas

and Electric Company and subsidiary companies,

statement showing accumulation of depreciation re-

serve during years 1909 to 1939, inclusive.”’ [468]

The Examiner: This document consisting, as

Mr. Phleger as stated, of two pages will be received

in evidence and marked Applicant,’s Exhibit 34.

540 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

(The document consisting of two pages re.

ferred to was marked Applicant’s Exhibit 4

and was received in evidence.)

By Mr. Phileger:

Q. Mr. Hodges, did you prepare Exhibit 34!

A. This exhibit was prepared by my department,

yes.

Q. And are all of the facts and figures shown on

it true and correct ? A. They are.

Q. Will you state briefly for the record what it

shows.

A. The statement shows the provision the com-

pany has made for depreciation commencing with

the year 1909, the amount of the additions to the

reserve, the amount of the charges to the reserve,

and the balance in the reserve at the end of each

year to and including the year 1939.

Q. It shows, does it not, that as of the end of

1939 that a reserve for depreciation amounted to

$116,313,009 ? A. That is correct.

Q. Since you have been with the company has

there been any substantial change in the policy or

practice of accruing depreciation, maintenance, or

in any other accounting policy or practice?

A. Up until the end of the year 1919 I believe

it was— [469] the amount provided for depreciation

was an amount determined on the basis of the judg-

ment of the management as to the amount neces-

sary for that purpose. In other words, the amount

Securities and Exchange Com. 541

(Testimony of E. W. Hodges.)

of the accrual was not determined on the basis of

life tables——

The Examiner (interposing): On the basis of

what?

The Witness: On the basis-of life tables, or the

estimated life of the property. Subsequent to that

time, however, the accruals to the reserve had been

based on the estimated life of the property.

In respect to the accounting for maintenance, I

think I can say that the same policy had been pur-

sued from the beginning until the present time.

Mr. Phleger: I offer in evidence as Applicant’s

Exhibit 35 a statement headed ‘‘ Pacific Gas and

Electric Company and subsidiary companies provi-

sion for maintenance and depreciation out of earn-

ings showing percentages of gross operating revenue

by years, 1906 to 1939 inclusive.”’

The Examiner: This schedule consisting of a

single page will be received in evidence in the

absence of objection and marked Applicant’s Ex-

hibit 35.

(The single page document referred to was

marked Applicant’s Exhibit No. 35 and was

received in evidence.) [470]

By Mr. Phleger:

Q. Was Exhibit 35 prepared under your direc-

tion, Mr. Hodges? A. It was.

Q. It is true and correct? A. Itis.

Q. Will you explain briefly what it shows.

542 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

A. The statement shows for the years 1906 to

and including the year 1939 the gross operating

revenue of each year, the amount of the provision

for maintennce, and the percentage of the gross

operating revenue each year, the amount of the pro-

vision for depreciation and the percentage of gross

operating revenue and the total provision for main-

tenance and depreciation, and percentage of gross

operating revenue for each year.

Q. And it shows, does it not, Mr. Hodges, that

for the year 1939 the total provision for mainte-

nance and depreciation out of revenues amounted

to $19,390,586 which was 18.092 per cent of the gross

operating revenue for that year?

A. That is correct.

Q. Can you state generally how the provisions

for depreciation and maintenance of Applicant com-

pares with the provisions made generally in the

public utility industry in this country?

A. Comparing this company’s provision for

maintenance [471] and depreciation with that of

other utilities—I have a copy of a report submitted

by the Director of the Public Utilities Division of

the Securities and Exchange Commission to its

chairman, dated June 29, ’39, covering financial sta-

tistics for the year 1938 of 177 electric and gas sub-

sidiaries of registered public utility holding com-

panies.

This report shows that the average provision for

maintenance and depreciation of the 177 companies

was 5.81 per cent and 10.3 per cent respectively of

Securities and Exchange Com. 543

(Testimony of E. W. Hodges.)

their operating revenue for the year, or a total pro-

vision of 16.11 per cent.

During this same year this company and its sub-

sidiaries made provision for maintenance and de-

preciation of their properties of 4.539 per cent and

14.176 per cent respectively of their operating rev-

enue, or a total provision of 18.715 per cent.

I might also say that I have already prepared a

statement showing the accumulation of the com-

pany’s depreciation reserve by years, from 1909 to

December 31, 1939, and this statement shows that

the total additions to the reserve during this period

aggregated the sum of $205,111,240.

The Examiner: That is the figure shown on Ex-

hibit 34?

The Witness: Yes, I believe it is. The addi-

tions to the reserve include the reserves of acquired

companies as of the date of their acquisition.

During the same period there was charged to the

reserve [472] $88,798,230 representing cost of prop-

erty retired after allowance for salvage and cost of

removal. This left a balance in the reserve as of De-

cember 31st °39 of $116,313,009, equivalent to 16.13

per cent of the total plants and properties account

of $720,982,452.

- Referring again to the Stetistical report of the

Public Utilities Division of the Securities and Ex-

change Commission for 1938 it shows that the ag-

gregate depreciation reserve as of December 31,

19388 of 177 companies was 10.05 per cent of their

total plant and property account.

544 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

As of this same date the company’s reserve was

$107,350,588 or 15.2 per cent of its total plant and

property account.

By Mr. Phleger:

Q. Mr. Hodges, has there been any change in

policy or practice regarding depreciation mainte

nance or any other accounting policy or practice

since the North American became a stockholder in

the Pacific Gas and Electric Company in 1930?

A. None whatever.

Q. Have you ever received any advice, suggestion

or direction from the North American Company di-

rectly or indirectly with respect to any of the mat-

ters coming under your charge in the Pacific Gas

and Electric Company ? A. No. [473]

Q. Has the Pacific Gas and Electrie Company

ever issued securities upon the basis of paper prof-

its from intercompany transactions? A. No.

The Examiner: Will you read that question for

me, please?

(The question referred to was read by the

reporter as above recorded. )

By Mr. Phleger:

Q. Has the Pacific Gas and Electric Company

ever issued securities upon the basis of paper prof-

its from intercompany transactions ?

The Examiner: I missed part of it. The band

started to play out here.

A. The answer is ‘‘no’’.

The Examiner: Thank you.

Securities and Exchange Com.

(Testimony of E. W. Hodges.)

By Mr. Phleger:

Q. Has the Pacifie Gas and Electrie Company

ever issued securities in anticipation of excessive

revenues from subsidiary companies?

A. No.

Q. Has your company ever shown in its finan-

cial statements any inter-company profits?

A. No.

Q. Has the Pacific Gas and Electric Company

ever paid [474] any fees to the North American

Company or any other holding company for fiscal

services, management services, construction services,

or any other kind of service of a similar nature?

A. No.

Q. What are the names of the firms which have

audited the books of the Pacific Gas and Electric

Company ?

A. We have had two different firms.

For the period 1906 to 1923, inclusive, the ac-

counts of the company and its subsidiaries were

audited by the accounting firm of Price Waterhouse

& Company, and for the period 1924 to date the

accounts have been audited by the accounting firm

of Haskins & Sells.

Q. What has been the extent of the audits by

these firms ?

A. Haskins & Sells account certificate addressed

to the Board of Directors, Pacific Gas and Electric

Company, states: I quote: ‘‘We have examined the

consolidated balance sheet of Pacific Gas and Elec-

546 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

trie Company and its subsidiary companies as of

December 31, ’39, the related statement of consoli-

dated net income and summary of consolidated sur-

plus for the year ended that date, and the balance

sheet of Pacific Gas and Electric Company as of

December 31, 1939, have reviewed the systems of

internal control and the accounting procedure of the

companies, and have examined or tested their ae-

counting records and other [475] supporting evi-

dence by methods and to the extent we determined

appropriate.

**In our opinion, the accompanying balance sheets

and related statement of consolidated net income

and summary of consolidated surplus fairly present

the financial condition of the companies at Decem-

ber 31, ’39, and the results of their operations for

the year ended that date in conformity with gener-

ally accepted accounting principles followed by the

companies on a basis consistent with those of the

preceding year.”’

The Examiner: May I ask you, was a copy of

the financial statements with which that certificate

was accompanied, or accompanied by that certificate

filed with the Securities and Exchange Commission

under the Securities and Exchange Act, do you

know?

' The Witness: This certificate from which I have

been reading is a certificate appearing in the com-

pany’s annual report to stockholders and I believe

approximately the same certificate is contained in

Securities and Exchange Com. 547

(Testimony of E. W. Hodges.)

the annual report filed with the Securities and Ex-

change Commission.

The Examiner: Thank you.

By Mr. Phleger:

Q. Have there been any business transactions of

any kind between Applicant and North American

Compapy or any of its subsidiaries and affiliates

since June 12, 1930? [476] A. No.

Q. With the single exception of the transaction

whereby Applicant acquired the stock of Great

Western and San Joaquin from the North Ameri-

can Company in 1930, has there ever been any busi-

ness transaction of any kind between the North

American Company, its subsidiaries or affiliates and

the Applicant ? A. None.

Q. Describe the contacts, if any, which you have

had with the North American Company, its officers,

directors or employees since June 12, 1930.

A. The only contact that I have ever had with

any of those officers was back in 1934. In Septem-

ber of that year Mr. Hockenbeamer and myself

made a trip to New York City where we appeared

as witnesses before the Board of Tax Appeals in

connection with an appeal Western Power Corpora-

tion had taken against an asserted deficiency of the

Commissioner of Internal Revenue involving the

exchange of 1,825,000 shares of Pacifie Gas and

Electrie Company common stock, for all of the com-

mon and preferred stock of the Great Western

548 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

Power Company of California, San Joaquin Light

and Power Corporation and Midland Counties

Public Service Corporation, which was owned by

the Western Power Corporation on June 12, 1930,

It was necessary to show that this exchange of

stock constituted a tax free transaction under the

applicable [477] provisions of the Income Tax Law

and considerable testimony was introduced to show

that a statutory reorganization had occurred.

A review of the Board of Tax Appeals Decision

No. 72943 dated May 27, 1936, which held that the

exchange of stock constituted a tax free transaction

will indicate the extent of the testimony introduced.

Q. Did you appear as witnesses, that is, your-

self and Mr. Hockenbeamer at the request of North

American Company ? A. We did.

Q. Did you appear merely as a convenience to

them ?

A. No. The matter was of vital importance to

the Pacific Gas and Electric Company as well be-

cause if the transaction constituted a taxable tran-

saction the Pacifie Gas or its subsidiaries might have

been subject to additional tax.

Q. Now, other than the contact which you have

just recited have you had any contacts with officers

or employees of the North American Company or

its subsidiaries ? A. None whatever.

Q. Have all of the outstanding bonds of the Pa-

cifie Gas and Electric Company been issued pur-

Securities and Exchange Com. 549

(Testimony of E, W. Hodges.)

suant to the order and authorization of the Railroad

Commission of the State of California?

A. They have. [478]

Q. Have all of the shares of preferred stock of

the Pacific Gas and Electric Company been issued

and sold pursuant to the order and authorization of

the Railroad Commission of the State of California?

A. They have.

Q. How much, or what proportion of the com-

mon stock of the Pacific Gas and Electric Company

has been issued pursuant to the order and authori-

zation of the Railroad Commission of the State of

California ?

A. My memory is that approximately 85 per

eent of all of the common stock now outstanding

has been authorized by the Railroad Commission

of the State of California.

Q. That would mean, would it not, that approxi-

mately 15 per cent of the common stock of Appli-

cant was issued and outstanding when the Public

Utility Act of the State of California became

effective in 1912? A. That is correct.

Q. So that it may be said that all of the pres-

ently outstanding bonds, all of the presently out-

standing preferred stocks and all but 15 per cent of

the presently outstanding common stock of Appli-

eant had been issued pursuant to the order and

authorization of the Railroad ‘Commission of the

State of California? A. That is correct.

Q. Will you state the approximate amount of

550 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

the [479] public utility property now owned by

Applicant, which has been either built or acquired

by it pursuant to the order or authorization of the

Railroad Commission since the effective date of the

Publie Utility Act?

A. It is approximately 80 per cent.

Q. The testimony which has already been intro-

duced shows that the Pacific Gas and Electric Com-

pany represents a consolidation of approximately

400 separate utility company properties.

Is it a fact that the acquisition of all of the stocks

of those companies and all of the physical proper-

ties of those companies, which have been acquired

since the effective date of the Publie Utility Act in

1912, have been acquired pursuant to the order and

authorization of the Railroad Commission of the

State of California? A. It is.

Mr. Phleger: I offer in evidence as Applicant’s

Exhibit 36 the following sheets, 7 separate docu-

ments which, for convenience, have been bradded

together which respectively are headed as follows,

and all of which have been prepared and are intro-

duced at the request of counsel for the Securities

and Exchange Commission: The first item ‘‘ Pacific

Gas and Electric Company, balance sheet, Febru-

ary 28, 1930”’.

Second sheet ‘‘ Pacific Gas and Electric Company,

Pacific Gas and Electric Company and subsidiaries

companies, balance [480] sheets, February 28,

1930”’.

eae peanaammneaeamonns

Securities and Exchange Com. 551

(Testimony of E, W. Hodges.)

Third sheet ‘‘Pacific Gas and Electric Company,

balance sheet, June 30, 1930, Pacific Gas and Elec-

tric Company and subsidiary companies consoli-

dated balance sheet, June 30, 1930 (after acquisition

of capital stocks of subsidiary companies of West-

ern Power Corporation) ”’.

The next sheet ‘‘Pacific Gas and Electric Com-

pany and subsidiary companies, balance sheets,

June 30, 1930”’.

The next sheet ‘‘ Investments in capital stocks and

bonds of subsidiary companies, June 30, 1930,

Schedule 1’’ which is attached to the foregoing

balance sheet.

The next sheet ‘‘Pacifie Gas and Electric Com-

pany and subsidiary companies, balance sheets, all

companies and consolidation, June 30, 1940.’’

The next sheet ‘‘Profit and Loss statement by

companies and consolidation for the six months

ended June 30, 1940.”’

Attached to the latter are the following separate

sheets: ‘‘Balance sheet of Western Canal Company,

June 30, 1940.

“Statement of profit and loss and surplus of

Western Canal Company for 12 months period

ended June 30, 1940.”’

Certificate thereto of Lawrence Seudder & Co.,

certified public accountants, dated February 14,

1940,

The next sheet ‘‘Vallejo Electric Light & Power

Company, summary of income and surplus for the

552 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

years ended December 31, [481] 1939 and 1938 and

comparison.”’

Attached thereto is a sheet headed ‘Vallejo Elee-

tric Light & Power Company, condensed balance

sheet, December 31, 1939 and 1938 and comparison.”

The next sheet is headed ‘‘Pacific Gas and Elec-

tric Company, analysis of surplus years 1935, 1936,

1937, 1938 and 1939.”’

The certificate of Lawrence Schudder & Co., is

applicable only to the balance sheet of the Vallejo

Electric Light & Power Co.

The Examiner: In the absence of objection the

documents as described by Mr. Phleger will be

received in evidence and marked Applicant’s Ex-

hibits 36-A to M.

(The documents referred to were marked

Applicant’s Exhibit Nos. 36-A to 36-M, inelu-

sive, and received in evidence.)

By Mr. Phleger:

Q. Mr. Hodges, you are familiar with the docu-

ments which have just been introduced in evidence,

are you not? A. I am.

Q. They are full, true and correct statements of

what they purport to be, are they?

A. They are.

Mr. Phleger: I will offer in evidence as Appli-

eant’s Exhibit 37 two sheets bradded together the

first entitled [482] ‘‘ Pacific Gas and Electric Com-

pany 6 per cent first preferred stock’’, the second

sheet ‘‘514 per cent first preferred stock.”’

Securities and Exchange Com. 553

(Testimony of E. W. Hodges.)

The Examiner: This next offer as described by

counsel in absence of objection will be received in

evidence and marked Applicant’s Exhibit 37-A and

B respectively.

(The documents referred to were marked

Applicant’s Exhibits Nos. 37-A and 37-B and

were received in evidence.)

By Mr. Phleger:

Q. Mr. Hodges, has this exhibit been prepared

by you or under your direction? A. It was.

Q. And are the facts thereon set forth true and

correct ? A. They are.

Q. State what the exhibit shows?

A. The first statement covering the 6 per cent

first preferred stock shows the amount of stock

issued by years from 1914 to 1939 inclusive, the

number of shares issued and the proceeds realized

therefrom, the number of shares that were issued

for cash and the proceeds realized, the number of

shares that were exchanged for the original pre-

ferred stock and the number of shares that were

issued in exchange for stock of equal par value of

the stocks of the California Telephone & Light Com-

pany, Western States Gas & Electric [483] Com-

pany, Coast Valleys Gas & Electric Company, Great

Western Power Company of California, Feather

River Power Company and San Joaquin Light &

Power Corporation, also certain shares that were

Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

issued in connection with the acquisition of other

property.

The statement shows that during that period of

time there were 4,197,662 shares issued, and that

the total proceeds obtained therefrom aggregated

the sum of $97,853,150.

The figure I have just mentioned is reconciled

with the total par value of the stock outstanding

and the company’s books or balance sheet of $104,-

$41,550, and discount of $7,088,399.35, leaving a bal-

ance of $97,853,150.65.

The second statement covers the shares of 5-Iy

per cent first preferred stock which was first issued

in 1929 and covers all subsequent issues to and in-

cluding the year 1939. This statement shows that

during that period there were 1,173,163 shares

issued. The proceeds realized aggregated the sum

of $29,267,122. There were 699,001 shares that were

sold for cash, from which the proceeds aggregated

the sum of $17,413,072.

There were 377,358 shares issued in exchange for

the capital stocks of equal par value of the Great

Western Power Company of California and Feather

River Power Company, the aggregate par value of

which was $9,433,950, and that there were 96,804

shares issued in exchange for an equal par [484]

value of the stock of the San Joaquin Light &

Power Corporation, the aggregate par value of

which was $2,420,100.

Here again the total proceeds is reconciled with

Securities and Exchange Com. 555

(Testimony of E. W. Hodges.)

the par values appearing on the balance sheet as

follows: A total par value issued $29,329,075 less

discount of $61,952.97 and leaving proceeds realized

of $29,267,121.

Q. Now, it is a fact, is it not, Mr. Hodges, that

following the transaction in 1930 when the Appli-

cant acquired stocks of the Great Western and San

Joaquin and North American Company that the

Great Western and the San Joaquin had outstand-

ing in the hands of the public several millions of

dollars of preferred stock?

A. That is correct.

Q. State by reference to this exhibit the man-

ner in which the Pacific Gas and Electric Company

acquired the outstanding preferred stocks of those

companies.

A. Well, offers were made to the stockholders of

the Great Western, Feather River Power Company

and San Joaquin Light & Power Corporation, to

exchange certain shares of the company’s first pre-

ferred stock, and in certain instances some of its

common stock for their holdings.

Q. And the result was, was it not, that Pacific

Gas and Electric Company issued its own preferred

stocks and some common stock also?

A. That is correct. [485]

Q. In the acquisition of the shares of Great

Western and San Joaquin which had not been

owned by the North American Company ?

A. That is correct.

556 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

Q. I call your attention to Applicant’s Exhibit

30. That exhibit shows the total preferred and com-

mon stock of Applicant outstanding during the

period 1930-1940.

Is it a fact, Mr. Hodges, that some of the addi-

tional shares of preferred and common stock issued

in that period was issued in exchange for stock of

the San Joaquin and Great Western Companies

which had not been acquired from the North Ameri-

can Company ? A. It is.

Q. Now, by reference to that statement, which

you will note shows an increase in the number of

shares of stock owned by the North American Com-

pany from 1,855,238 shares as of December 31, 1930,

to 2,075,455 shares as of the succeeding December

31, how did that increase come about?

A. I believe probably the entire increase there

was due to the right offering—the par offering of

common stock to the common stockholders during

the year 1931.

Q. That is to say, that during that year the

North American Company purchased a number of

shares of common stock of Applicant which it was

entitled to purchase by virtue of being a common

stockholder in Applicant because of an offer [486]

by Applicant to all of its stockholders of rights to

subseribe to its common capital stock ?

A. That is correct.

Q. Now, you will note that there has been con-

tinuously since June 12, 1930, a decline in the rela-

Securities and Exchange Com. 557

(Testimony of E. W. Hodges.)

tive percentage of the total voting stock of appli-

cant held by the North American Company, the

decrease being from a maximum in 1930 of 19.89

per cent to the present percentage of 17.71 per cent.

Can you state what has brought about that de-

erease in percentage?

A. I would say it would be entirely due to the

additional common preferred stock of the Pacific

Gas and Electric Company that was issued in ex-

change for the preferred stock of the Great West-

ern and San Joaquin Corporation held by other

stockholders, stockholders other than the North

American Company.

Q. Well, it is obvious, Mr. Hodges, that that is

true as to principal amount, but it is also true, is it

not, that a portion of the decline has come about

through the actual disposition by North American

Company of some of its shares of stock?

A. It indicates that they have disposed of some

part of their holdings, yes.

Q. Yes. A. That is correct. [487]

The Examiner: Where is that shown on this Ex-

hibit 30?

Mr. Phleger: That is the maximum number of

shares of stock of this company owned by North

American Company on December 31, 1934, being

2,077,055 shares.

The Examiner: Oh,-I see. You are referring to

the total column rather than the North American

Company ?

558 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

Mr. Phleger: I am referring to the North Amer-

ican and its affiliated subsidiary interests.

The Examiner: All right.

By Mr. Phleger:

Q. So that of today, or rather as of July 31,

1940, the total holding of the North American and

its subsidiaries and affiliates is 2,059,670 shares;

that is correct, is it not, Mr. Hodges?

A. It is.

Q. That came about, did it not, through the dis-

position of some of the shares owned by subsidiary

and affiliated companies rather than through by

North American Company itself ?

A. Yes sir.

Q. Mr. Hodges, also in explaining the relative

decrease in the percentage of voting stock held by

the North American Company, it is a fact, is it not,

that any sales of preferred stock for cash during

that period would also have an effect upon that

percentage ? A. That is correct. [488]

Q. And I believe it is true, is it not, that there

was one sale of preferred stock for cash some

$5,000,000 during that period ?

A. That is correct.

Q. So that the decrease in the relative percent-

age of voting stock of the company has come about

through the exchange of preferred stock for stock

of San Joaquin and Great Western, through the

sale of preferred stock for cash and through the

Securities and Exchange Com. 559

(Testimony of E. W. Hodges.)

disposition by some of the affiliated and subsidiary

companies of North American of some of their

stock ? A. That is correct.

Mr. Phleger: I will offer in evidence as Appli-

eant’s Exhibit 38 a sheet headed ‘‘ Pacific Gas and

Electric Company, summary of bond refunding

operations during period January 1, 1930, to Sep-

tember 30, 1940.”’

Mr. Gerdes: Off the record.

The Examiner: Off the record.

(Discussion outside the record.)

The Examiner: In the absence of objection this

document just described will be received in evidence

as Applicant’s Exhibit 38.

(The document referred to above was marked

Applicant’s Exhibit No. 38 and was received

in evidence.) [489]

By Mr. Phleger:

Q. Mr. Hodges, Exhibit 38 was prepared under

your direction, was it not? A. It was.

Q. And it is true and correct? A. It is.

Q. Will you state what it shows?

A. Well, generally it shows that during the

period from August 1930 to October of 1936 that the

company sold three hundred million dollars par

value of its first refunding mortgage bonds from

which it realized $397,312,500, and that from the

proceeds from the sale of these bonds together with

certain treasury funds it redeemed $285,962,600 par

Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

value, the cost of redeeming aggregating the sum of

$298,550,772.

The Examiner: Does that include interest?

The Witness: No, that does not include interest;

that is just the redemption price.

By Mr. Phleger:

Q. Have all of the bonds issued by the company

during that period been issued under a single bond

mortgage ? A. They have.

Q. And the issues which have been redeemed

have been not only issues of Applicant but also the

issues of subsidiary corporations which bonds were

outstanding when the properties [490] of those cor-

porations were acquired by the Pacifie Gas and

Electric Company ? A. That is correct.

Q. So that during that entire period the com-

pany has been simplifying its bond structure by

retiring the bonds of subsidiary companies, or

bonds outstanding on acquired properties and issu-

ing, to obtain the funds required therefor, bonds

under its own mortgage? A. That is correct.

Mr. Phleger: I will offer as Applicant’s Exhibit

39 a statement headed ‘‘Pecifie Gas and Electric

Company and subsidiaries, statement showing se-

curity issues held by public as of dates shown

below.”’

The Examiner: This schedule will be received in

evidence and marked Applicant’s Exhibit 39.

—

Securities and Exchange Com. 561

(Testimony of E, W. Hodges.)

(The statement referred to was marked Ap-

plicant’s Exhibit No. 39 and was received in

evidence. )

By Mr. Phleger:

Q. Mr. Hodges, did you cause Exhibit 39 to be

prepared and is it true and correct? A. It is.

Q. Will you state generally what it shows?

A. The statement shows security issues held by

the public and amounts outstanding as of December

31, 1929. and as of June 30, 1940. [491]

At the bottom of the statement it is indicated

that as of December 31, 1930 there were 61 bond

issues outstanding.

The Examiner: Security issues?

The Witness: Security issues, yes, right, and that

as of June 30, 1940, that had been reduced to a total

of 10.

By Mr. Phleger:

Q. That is to say, that during that 10 year

period the company has simplified its corporate

structure so that as of today it has but one bond

mortgage outstanding, but two issues of preferred

stock and but one issue of common stock, is that

right ? A. There are——

Q. (interposing) I am talking about the P. G.

& E. itself.

A. Well, but the San Joaquin Light & Power

Corporation bond issue has been assumed by Pa-

cific Gas & Electric Company.

62 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

Q. Well, I will ask you that in a moment. The

company itself has but one bond mortgage outstand-

ing, two issues of preferred stock and one of com-

mon stock, is that correct ?

A. That is correct.

Q. And how many bond issues has it outstand-

ing of other companies which it has assumed ?

A. One.

Q. So that the company’s structure is now that

it has but one bond mortgage itself, has assumed

one mortgage of an [492] acquired company, has

two preferred stock issues, and one common stock

issue ?

A. It has assumed more bond issues than one

company, than the one that you speak of, but there

is only the one issue now outstanding.

Q. Now outstanding, yes. A. Correct.

Q. I have referred, Mr. Hodges, to two issues of

preferred stock. The fact is that there has been one

issue having two different dividend rates?

A. That is correct.

Q. In all other respects except dividend rate the

issue is identical as to priority, position and other-

wise ? A. Correct.

The Examiner: That would appear from the ar-

ticles of incorporation, would it not?

Mr. Phleger: Yes. I wanted to correct my termi-

nology of two preferred issues, which was not quite

accurate.

The Examiner: Unless, as you say, the articles

” ay

Securities and Exchange Com. 563

(Testimony of E. W. Hodges.)

show that there might be an assumption there were

two different issues, because they have—oh, no, they

are titled the same. I thought one was prior pre-

ferred and the other just preferred.

Mr. Phleger: No, the company has but one type

which is first preferred. [493]

The Examiner: First preferred, 54 and 6.

Mr. Bosley: This is off the record.

The Examiner: Off the record.

(Discussion outside the record.)

The Examiner: On the record again.

Mr. Phleger: I offer as Applicant’s Exhibit

os

The Examiner: 40 will be the next number, I

believe, Mr. Phleger.

Mr. Phleger: Right.

The Examiner: 39 is this schedule you jst dis-

cussed.

Mr. Phleger: That is right, 40. A statement

headed “‘Pacific Gas and Electrie Company and

subsidiary companies, statement showing outstand-

ing bonds, preferred stock, common stock and sur-

plus, as of the dates shown below.”’

The Examiner: This compilation consisting of

three pages will be received in evidence and marked,

in the absence of objection, Applicant’s Exhibit 40.

(The document referred to above was marked

Applicant’s Exhibit No. 40 and was received in

evidence. )

564 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

By Mr. Phleger:

Q. Mr. Hodges, was Exhibit 40 prepared under

your direction ? A. It was.

Q. And the facts set forth there are true and

correct, [494] are they? A. They are.

Q. Will you explain what the exhibit shows.

A. The statement shows the amounts of out-

standing bonds, preferred stock, common stock and

surplus as of December 31, 1919; December 31,

1924; December 31, 1929; December 31, 1934, and

December 31, 1939, and shows the respective

amounts outstanding and the percentage of each to

the total amount as of the end of each of those

years.

For the year December 31, 1919, for instance, the

surplus account aggregated the sum of $5,868,331

and represented 3.74 per cent of the total amount.

The common stock amounted to the sum of $54,

004,058 and was 21.67 per cent of the total.

The preferred stock aggregated the sum of $3),

049,580 and was 19.15 per cent of the total.

The bonds aggregated the sum of $87,002,406, and

represented 55.44 per cent of the total.

As of December 31, 1939 the corresponding

amounts outstanding were as follows: Surplus $51,

465,607 or 8.17 per cent of the total; common stock

$156,570,125 or 24.87 per cent of the total; pre-

ferred stock $134,270,625 or 21.32 per cent of the

total, and bonds $287,345,000 or 45.64 per cent of

the total.

—

Securities and Exchange Com. 565

(Testimony of E, W. Hodges.)

Q. The exhibit shows, does it not, Mr. Hodges,

a very [495] substantial improvement in the cap-

ital structure of the company over the 20 year

period ? A. It does.

Q. It shows that the percentage of borrowed

money to the total outstanding securities and sur-

plus has decreased from 55.44 per cent in 1919 to

45.64 per cent in 1939, is that right?

A. That is correct.

Mr. Phleger: I will offer as Applicant’s Exhibit

41 a statement headed ‘‘Pacifie Gas and Electric

Company and subsidiary companies, earnings for

and dividends paid on Pacifie Gas and Electric

Company preferred and common stocks 1920 to

1939 inelusive.”’

The Examiner: The statement will be received in

evidence and marked Applicant’s Exhibit 41.

(The statement referred to above was marked

Applicant’s Exhibit No. 41 and was received in

evidence. )

By Mr. Phleger:

Q. Mr. Hodges, did you cause Exhibit 41 to be

prepared ? A. I did.

Q. Are all of the facts therein set forth true

and correct? — A. They are. [496]

Q. Will you state briefly what it shows.

A. The statement shows for each year from 1920

to 1939 inclusive the earnings available for the pre-

ferred and common stock of Pacifie Gas and Elec-

566 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

tric Company, the dividends paid on the preferred

stock, the balance available for the common stock,

and the amount per share and the amount of diri-

dends paid on the common stock for each year and

the amount per share.

Mr. Phleger: I will offer now as Exhibit 42 a

statement headed ‘‘Table showing all securities js-

sued by Pacific Gas and Electric Company since

its incorporation which was sold to an underwriter

or underwriting syndicate and the respective par-

ticipation of each such underwriter.”’

This exhibit was prepared at the request of

counsel for the Securities and Exchange Commis-

sion.

The Examiner: Off the record.

(Discussion outside the record.)

The Examiner: On the record.

The schedule just described by Mr. Phleger con-

sisting of three sheets of paper will be received

in evidence, in the absence of objection, and marked

Applicant’s Exhibit 42.

(The document referred to was marked Ap-

plicant’s Exhibit No. 42 and was received in

evidence.) [497]

By Mr. Phleger:

Q. Was this prepared under your direction, Mr.

Hodges, and are the facts therein set forth true

and correct ?

A. It was, and they are.

Securities and Exchange Com. 567

(Testimony of E. W. Hodges.)

Q. Will you explain what the exhibit shows?

A. The exhibit shows all securities issued by

Pacific Gas and Electric Company since its incor-

ation which were sold to an underwriter or under-

writing syndicate, and the respective participation

of each such underwriter.

The first securities sold in which there is an

underwriting participation occurred during the

years 1908 to 1911 representing the California Gas

& Electric Corporation unifying refunding mort-

gage 5 per cent bonds, par value 15,074,000, the

underwriter in that instance being N. W. Halsey

& Company and then the statement goes on to list

the other securities that had been sold in all sub-

sequent years down to and including the present

time.

The Examiner: Well, is that as far as you are

going with the explanation of this exhibit?

Mr. Phleger: I think so.

The Examiner: May I ask this question, then?

On the first page of this exhibit I notice at the

bottom a schedule of underwriters with a number of

firms named and their participation.

Does that refer only to this last issue of 45,-

000,000 [498] in April 1935?

The Witness: That is correct, yes.

The Examiner: I see. All right.

By Mr. Phleger:

Q. Mr. Hodges, has the company a pension plan?

568 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

A. It has.

Q. Will you deseribe very briefly its nature?

A. The present retirement plan, or pension plan

of the company, was adopted and became effective

as of January 1, 1937. All employees with one year

or more of service were eligible to join this plan,

It is a contributory plan in that the employees

pay part of the cost and the company pays the

balance. The relative ratio is that the company

pays approximately twice as much as the employees

do.

The plan provides for benefits to employees for

both past and future service; that is, service prior

to January 1, °37, and service subsequent to De-

cember 31, *36.

For service prior to January 1, ’37, the company

pays the entire cost; for service subsequent to De-

cember 31, 36, both the company and the employee

contribute to the cost of the plan. The contribu-

tion of the employee is 2 per cent of his earnings up

to $3,000 per annum and 4 per cent on any earning

in excess of that amount.

The benefits to the employee for services ren-

dered [499] subsequent to December 31, °36 are

1 per cent of all earnings on which he has made

contributions during that period.

I might, for the purpose of example, show what

the benefits to an employee is under the plan.

As just an example given in the retirement plan,

u man with 15 years of past service, who joins

-—

Securities and Exchange Com. 569

the plan January 1, 1937 at age 50 and works until

age 65 will retire with 15 years of past service

and 15 years of future service. If, during this per-

iod he has continuously received a salary of $150

monthly his retirement income will amount to the

sum of $78.75 per month commencing at age 65.

That amount, I may state, includes his social

security benefits under the Social Security Act.

The Examiner: Would that be for life or for

15 years?

The Witness: That would be for life. He would

receive the $78.75 income, monthly income from 65

years, from the time he becomes 65 until his death.

By Mr. Phleger:

Q. Mr. Hodges, referring to Exhibit 42, what

is the first security issue for which the company

filed a registration statement under the Sesurities

Act?

A. The first refunding mortgage funds, Series

@ 4’s that were issued and sold in April of 1935,

$45,000,000.

Q. Was that one of the first registration state-

ments filed by any public utility under the Secur-

ities Act? [500]

A. After the amendment of that Act it was. It

was one, I believe, either the first, or at least, the

second,

The Examiner: You said the Securities Act of

1933. That is what you meant, isn’t it?

(Testimony of E. W. Hodges.)

570 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

Mr. Phleger: Yes.

The Examiner: This was in 1935,

Mr. Phieger: I think that is all.

The Examiner: Can we have a short recess be-

fore you start your cross examination, Miss Calkin?

Miss Calkin: All right.

(Whereupon a short recess was taken after

which proceedings were resumed as follows:)

[501]

The Examiner: Can you think of any more

questions, Mr. Phleger?

Mr. Phleger: I have finished.

Cross Examination

By Miss Calkin:

Q. Mr. Hodges, could you describe the distine-

tion between your duties and the duties of Mr.

Foote, as Treasurer of the company ?

A. Mr. Foote has the control and custody of

any securities owned by the company and of the

company’s cash.

My Jurisdiction is limited to the approval of the

expenditures made by the company.

Q. Do you work on the preparation of registra-

tion statements for the issuance of securities by the

Applicant? A. I do.

Q. Is that done primarily by your department?

A. It is. .

Securities and Exchange Com. 571

(Testimony of E. W. Hodges.)

Q. In connection with the preparation of regis-

tration statements for securities issued by your

company since 1935, have you worked with repre-

sentatives of the North American Company in the

preparation of those statements? A. No.

Q. With what members of the personnel of the

North American Company are you acquainted?

A. At the time of our visit there in 1934 I met

Mr. [502] Fogarty, and Mr. Black at that time,

and Mr. Preger, their comptroller.

Q. Was that your first acquaintance with Mr.

Black ?

A. No. I had met Mr. Black at the time the

company acquired the stock of the Great Western

and San Joaquin in 1930.

Q. What contacts did you have with Mr. Black

from the time you first met him until the time

he became president of the Applicant?

A. Outside of meeting him in New York in 1934

that was the only contact that I had ever had.

Q. Had you had any further contacts with Mr.

Fogarty, or Mr. Preger, other than that meeting in

1934?

A. I believe that I met Mr. Fogarty here in

San Francisco once, or possibly twice, on one of

his visits here.

Q. On those occasions what was the extent of

your discussion of the affairs of the Applicant with

Mr. Fogarty? A. None whatsover.

572 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

Q. Who has charge of the accounting depart.

ment of the North American Company, if you

know?

A. I do not know. I suppose it comes under

Mr. Preger.

Q. Have you ever met a Mr. Sealey, of the North

American Company ?

A. No, I have not.

Q. Have you ever had any correspondence with

Mr. [503] Preger concerning matters pertaining

to either the North American Company or the Ap-

plicant ?

A. Each year I receive a letter from Mr. Preger

in which he gsks us to certify as to the book value

per share of the common stock and we give him

that information.

Q. Is that the extent of your correspondence

with Mr, Preger?

A. That is the extent of our correnpondence;

yes.

Q. Have you ever had any telephone communica-

tions with any representatives of the North Amer-

ican Company. A. Never.

Q. Have you consulted any representatives of

the North American Company with reference to

tax matters of the Applicant ?

A. Never, but the one that I mentioned in 1934.

That was really not our tax matter, although it

was indirectly involved.

Securities and Exchange Com. 573

(Testimony of E, W. Hodges.)

Q. But that is the only oceasion that you had

any contacts with them on the tax problems?

A. The only occasion.

Q. Do you have tax experts in your own employ?

A. Pardon?

Q. Does the Applicant have tax experts in its

employ ?

A. No. I handle the tax matters primarily

myself.

Q. Do you sometimes employ outside tax ex-

perts. [504] A. We have; yes.

Q. Have those been employed on the recommen-

dation of the North American Company ?

A. No.

Q. Have you received the assistance of any

representatives of the North American Company

in making out reports to regulatory bodies?

A. Never.

Q. I believe you testified that acquired prop-

erties had been set up on the Applicant’s books

on the basis of historical cost less accrued deprecia-

tion, is that correct ?

A. I believe my testimony was to the effect that

the over-all plant account, as it appears on the

books of the P. G. & E., represents the cost to the

company of the properties acquired.

Q. If the cost of acquisition exceeds the histor-

ical cost less depreciation to what account would

that difference be charged ?

574 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

A. Under the classification of accounts for elee-

trical corporations, effective January 1, 1938, if

the cost exceeds the so-called original cost of the

property, the difference is supposed to go in the

Acquisition Adjustment Account, which is a part

of the Plant Account.

Q. What is your Account No. 102-44?

A. It corresponds to the Acquisition Adjust-

ment [505] Account in the present classification of

accounts.

Q. Has it been sometimes designated as the cost

of acquisition of properties in excess of historical

cost of properties acquired ?

A. It has and is so designated.

Q. If the cost of acquisition is less than the

original cost less depreciation what account would

be credited with the difference?

A. It should go to the same account.

Q. Is this method preseribed by the Railroad

Commission in the handling of cost of acquired

properties ?

A. It is; it has so been prescribed since January

1, 1938.

I might state in that respect that the classification

that became effective January 1, 1938 provides for

a re-classification of the company’s entire plant

accounts as of that date on a basis of original cost;

and if that original cost was more or less than the

cost to the company of the acquired properties

Securities and Exchange Com. 575

(Testimony of E, W. Hodges.)

that the difference shall be debited or credited to

this Acquisition Adjustment Account.

Q. What reports, if any, do you, as Comptroller

of the Applicant, send to the North American Com-

pany? A. None.

Q. Do you have any knowledge as to what re-

ports are sent by other departments of the Ap-

plieant? [506] A. No.

Q. Have you ever conferred with any repre-

sentatives of the North American Company regard-

ing the maintenance and depreciation policy of the

Applicant ? A. Never.

Q. To your knowledge have any representatives

of the Applicant conferred with any representa-

tives of the North American Company in regard

to the maintenance and depreciation policy?

A. Not to my knowledge.

Q. Will you refer to Applicant’s Exhibits Nos.

12 and 13? A. Yes.

Q. You are familiar, I assume, with the invest-

ments of the Applicant? A. I am,

Q. Now, does Applicant’s Exhibit No, 13 cor-

rectly list all of the investments or, rather, all of

the securities owned by the Applicant in any public

utility company or in any registered holding com-

pany ?

A. It states to include any securities issued by

any public utility or holding company.

576 Pacific Gas & Electric Co. vs.

(Testimony of E,. W. Hodges.)

The Examiner: That includes all of such secur-

ities?

The Witness: It does. [507]

By Miss Calkin:

Q. You know of no securities owned by the

Applicant and issued by any registered holding

company, or any subsidiary thereof, other than those

set forth in Applicant’s Exhibit No. 13?

A. No, I do not.

Q. And does Applicant’s Exhibit No. 12 show all

of the seeurities—seratch that.

In the preparation of Applicant’s Exhibit No. 12

what companies were considered as subsidiaries of

the Applicant, if you know?

A. The San Joaquin Light & Power Corpor-

ation, Valley Electrical Supply Company, Arlington

Properties Company, Ltd. and Western Canal Com-

pany.

Q. Were companies in which the Applicant had

only an excess of a 50 per cent ownership included?

A. They are in those that I have named; yes.

Q. What about Applicant’s investment in com-

panies in which it owns less than 50 per cent, are

there any substantial investments other than those

shown in Applicant’s Exhibit No. 12?

A. None.

Q. Does Applicant’s Exhibit No. 12 list its hold-

ings of the securities of all companies in which it

owns in excess of 10 per cent interest ? [508]

A. Yes, it does.

—

Securities and Exchange Com. 577

(Testimony of E. W. Hodges.)

Q. I believe you testified that all of the out-

standing bonds of the Applicant have been issued

under one indenture, presently outstanding bonds?

A. Well, with the exception of this assumed

issue of the San Joaquin Light & Power Cor-

poration.

Q. The bonds originally issued by the Applicant

that are now outstanding were all issued under one

indenture ? A. Correct.

Q. What is the provision in that indenture re-

lating to the issuance of additional bonds?

A. Well, they may be issued for additions and

betterments, and property acquisitions, and so on,

if approved by the trustee of the montgage.

Q. Do you know what percentage of bonds can

be issued against property additions and _better-

ments ?

A. 75 percent, 75 percent par value.

Q. Does the indenture which secures the out-

standing bonds contain any regulation on dividend

payments by the Applicant?

A. Not to my knowledge.

Mr. Bosley: I may answer that there is one pro-

vision, which is utterly unimportant. In the event—

I can’t remember the exact language of it—but it

was to the effect that dividends should not be paid

out of some prior earnings. I [509] can’t remember

the exact language, but there is a short paragraph

that has been shown in all of the registration state-

ments. It had to do with the earnings prior, I think,

578 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

to the date of the mortgage, but I am not quite cer.

tain.

Miss Calkin: The date of the mortgage is?

Mr. Bosley: December 1, 1920.

I cannot remember the exact language of that,

but there is a short paragraph that had to do with

some declaring of dividends out of earnings prior

to some date specified there.

By Miss Calkin:

Q. What are the provisions, if any, in the inden-

ture relating to maintenance and depreciation ?

A. I don’t recall the specific provisions at the

moment; other than I believe it does require that

such expenditures shall be in accordance with those

approved by the regulatory commissions.

Mr. Bosley: There is a provision designed to

accomplish the same object as a depreciation re-

serve. It is called a general reserve fund. The

company is required to submit a report annually

to the trustee showing its expenditures for main-

tenance, for repiacements and for retirements of

bonds of certain kinds. It is required to set up

a fund equal to a specified percentage of, I think,

its gross income.

The Witness: Outstanding bonds.

Mr. Phleger: May I make this suggestion: We

are [510] speculating about a fact and really testing

memories about something that is easy to show. If

—

Securities and Exchange Com. 579

(Testimony of E, W. Hodges.)

you are interested we will be glad to endeavor to

introduce in evidence a copy of the indenture.

The Examiner: A copy of the indenture is al-

ready in the files of the Commisson in connection

with the registration statement.

Mr. Phleger: That is right.

Mr. Bosley: Its general reserve fund may be

used for additions and betterments, if it is not re-

quired for replacements, to which a certain amount

must be credited each year. The amount there is

this specified percentage less the amount of the

actual expenditures for maintenance and replace-

ments.

Miss Calkin: Is it agreeable with counsel for the

Applicant that the indenture which has been filed

in connection with the registration statement of

Applicant be incorporated by reference in this

record ?

Mr. Phleger: May I have that question read?

(The question referred to was read by the

reporter as above recorded.)

Mr. Phleger: That is agreeable, but may I make

this suggestion: —

The Examiner: I suppose that includes any

supplement or amendment to that indenture, if any?

Miss Calkin: Yes. [511]

Mr. Phleger: Yes. In lieu of that may it be

stipulated that either party may incorporate in its

brief, or otherwise, references to the filed mortgages

580 Pacific Gas & Electric Co. vs.

(Testimony of E. W. Hodges.)

or supplements with the Commission and the por-

tion so recited shall be deemed to be part of the

record? That will diminish the record.

Miss Calkin: That is agreeable.

The Examiner: I think the Commission can take

judicial notice of its own file and, in order to dim-

inish the record, I think that is a good idea.

Miss Calkin has indicated her concurrence and

that will appear in the record as a stipulation to

that extent.

By Miss Calkin:

Q. Do you have available the ratio of the funded

debt to Applicant’s depreciated property account?

A. We have a balance sheet here of June 30,

1940, do we not?

Mr. Gerdes: Yes.

A. (continuing) The total funded debt outstand-

ing in the hands of the public, as of June 30, 1940,

aggregated the sum of $286,705,000.

The total plant account, as of that same date,

was the sum of $731,346,410.

You spoke of the depreciated plant account, and

as of that same date the depreciation reserve was

$121,868,438.

So the ratio you speak of would be the amount

of the [512] plant account less the amount of the

depreciation reserve, and that difference divided

into the bonds outstanding in the hands of the pub-

lic of $286,705,000 of that date.

—

Securities and Exchange Com. 581

(Testimony of E. W. Hodges.)

By Miss Calkin:

Q. What percentage would that be?

A. (Making calculation).

Mr. Phleger: 46 percent.

A. 46 pereent—47 percent.

Miss Calkin: I think that is all.

Redirect Examination

By Mr. Phleger:

Q. May I suggest, Mr. Hodges, there is no log-

ical relationship between the bonded indebtedness

of the company and the difference between its plant

account and its depreciation reserve, is there?

A. I ean think of none.

Mr. Phleger: That is all.

Miss Calkin: Off the record.

The Examiner: Off the record.

(Remarks outside the record.)

The Examiner: On the record.

Mr. Phleger: That is all.

The Examiner: If there are no further questions

the witness is excused.

(Witness excused.) [513]

Mr. Phleger: I will call Mr. Miller.

Whereupon—

Cc. 0. G. MILLER

was produced as a witness by and on behalf of the

582 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

Applicant and, having been first duly sworn, wag

examined and testified as follows:

Direct Examination

By Mr. Phleger:

Where do you reside, Mr. Miller?

San Francisco.

Where were you born?

San Francisco.

Have you resided in California ever since?

Yes. It has been my legal residence.

When did your family first come to Califor-

—~OPOPOPS

ni

A. My grandfather came in 1849; my father in

1851.

Q. And has your family—by that I mean your

parents and so forth—been residents in California

since that time? A. Yes, sir.

Q. What position do you hold with the Pacific

Gas and Electric Company ?

A. lama director and member of the Executive

Committee.

Q. What other corporations are you connected

with?

A. Pacifie Lighting Corporation, American

Trust Com [514] pany, Fireman’s Fund Insurance

Company, Fireman’s Fund Indemnity Company,

Occidental Insurance Company—

The Examiner: Life?

The Witness: Occidental Insurance Company—

Securities and Exchange Com. 583

(Testimony of C. O. G. Miller.)

without the ‘Life’. Also the Soundview Pulp

Company.

I think that is all of any size.

By Mr. Phleger:

Q. Are you a director of the Railway Equip-

ment and Realty Company ? A. Yes.

Q. Are you a director of the Southern California

Gas Company ¢ A. Yes.

Q. And of the Southern Counties Gas Company ?

A. I think I am not a director of the Southern

Counties Gas Company now.

Q. With the exception of the American Trust

Company and the Pacific Lighting Company, are

you an officer of any of those companies, other than

a director?

A. I am Chairman of the Executive Committee

of the American Trust Company, and a member of

the Finance Committee of all of the Fire Insur-

ance Companies.

Q. And you are Chairman of the Board of the

Pacifie Lighting Company ? A. Yes.

Q. Are you a member of the Trust Committee

of the [515] American Trust Company ?

A. Yes.

Q. What are the duties of that Committee?

A. Every trust is reviewed ever so often—I am

not quite sure what the time is—and the invest-

ments are looked into and discussed, and the sales

of securities held in the trust and purchases are all

approved by the Trust Committee.

584

Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

Q. And as a member of that Committee do the

holdings by American Trust Company, as trustee,

and otherwise in the Pacific Gas and Electric Com-

pany, come before you for review?

A. They do.

Q. Are you an officer of Stanford University?

A. I am a trustee. I am Chairman of the

Finance Committee, and Chairman of the Invest-

ment Committee.

Q. All of these companies which you have men-

tioned as being associated with are California com-

panies, are they not? That is to say, their principal

business is located in California? A. Yes.

Q. Are you an officer or a director of any cor-

poration whose principal business is outside the

State of California, other than the Soundview Pulp

Company ?

A. No, not that I know of.

Q. And the Soundview Pulp Company, while its

proper- [516] ties are outside the State, has its

principal office in San Francisco, does it not?

A. Yes; and is owned here.

Q. When did you first become connected with

a publie utility? A. December 1, 1883.

Q. What was that company?

A. United Gas Improvement Company of Phil-

adelphia.

Q. Will you state where the properties of that

company were located ?

Securities and Exchange Com. 585

(Testimony of C. O. G, Miller.)

A. Well, the ones with which I was immediately

- interested were in San Francisco. They did own

qa large number of gas companies and electric com-

panies, and still do, throughout the United States.

I think it is the oldest holding company in the

country, the United Gas Improvement Company.

Q. What position did you oceupy with the

United Gas Improvement Company ?

A. I was cashier in the San Francisco office.

Q. What became of the United Gas Improve-

ment Company properties in San Francisco?

A. They, within about a year sold them to the

Pacifie Gas Improvement Company, a local cor-

poration, which was formed to purchase them.

Q. Who formed the Pacifie Gas Improvement

Company ¢ A. My father. [517]

Q. Did you become an officer of that company?

A. Yes. In 1886 I became the Treasurer. I

was later Secretary and Treasurer, and on my ©

father’s death in 1900 I became President.

Q. Did the Pacific Gas Improvement Company

consolidate with other utility companies in San

Francisco ?

A. Yes. In 1903 they consolidated with the

San Francisco Gas & Electric Company and I be-

came a director of that company.

Q. Did you become a stockholder also in that

company ? A. Yes.

Q. And were you active in its affairs?

586 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G, Miller.)

A. Yes. I was a member of the Executive Com-

mittee. —

Q. When did you first know of the Pacific Gas

and Electric Company ?

A. I am not quite sure because I am not quite

sure when it was formed.

Mr. Bosley: Ili was organized October 5, 1905.

The Witness: Well, I knew of it within a few

days of that time. I may have known of it before

hand. I am not sure.

By Mr. Phleger:

Q. State what transactions you had directly or

indirectly with that company soon after its forma-

tion?

A. The company was formed to buy the proper-

ties of the San Francisco Gas & Electric Company

and towards the end [518] of 1905 an agreement

was reached for the sale of the property. I had

been—

Mr. Bosley (interposing): A sale of the property

or sale of the stock?

The Witness: It was the sale of the stock. In

effect, it was a sale of the property. They took the

property. There was stock, of course.

I thought I had been a very long while in the gas

and electric business then, only 35 years ago, and

having been since I was a boy in the gas and elee-

trie business in San Francisco, I thought I must

have some interest in it. There was no common

stock of the Pacific Gas and Electrie Company

587

Securities and Exchange Com.

(Testimony of C. O. G. Miller.)

available. I bought 100 shares of the preferred

stock of the California Gas & Electric Corporation,

which was a subsidiary, so I should not lose my

continuity of interest in the company.

That was afterwards changed to the Pacific Gas

and Electric preferred.

By Mr. Phleger:

Q. And you have held that stock ever since the

formation of the company ?

A. No. That stock I sold many years ago. It was

preferred stock.

Q. With respect to your holdings in the San

Francisco Gas & Electric Company, what became

of them ?

A. We received for the stock $65 a share in Pa-

cific [519] Gas and Electrie Company collateral 5

percent bonds and $25 a share in cash.

Q. Now, we will go to another subject. When

was the Pacific Lighting Company formed, of which

you are now the Chairman of the Board ?

A. August 24, 1886.

Q. What business did it undertake?

A. Operating small gas and electric companies

throughout the State.

Q. Where were its plants located in the early

days?

A. Santa Rosa, Eureka, San Bernardino, Col-

ton, Riverside, and afterwards in Ventura; and, in

1889, Los Angeles.

588 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

Q. When did the Pacifie Lighting Company

first purchase stock in the Pacific Gas and Electric

Company ?

A. I am not sure of the exact time. I think it

was in 1910.

Q. State how that stock was acquired.

A. I ealled on Mr. Frank Drum, the president

of the company, whom I had known for many

years, and told him—I knew the company had

treasury stock and I knew that they wanted money

—and I told him I would like to have my company

interested in the Pacific Gas and Electric Com-

pany; that if it was agreeable to him we were pre-

pared to buy a large block of stock.

He said he would think it over. Frank was never

in a hurry. In about ten days he said they were

ready to do [520] business, and we agreed upon a

price and bought the stock.

Q. That was the initial purchase by the Pacific

Lighting Company in 1910 of 5,000 shares ?

A. Yes; of the old stock.

Q. Has the Pacifie Lighting Company since that

date purchased additional shares from time to time?

A. Yes.

Q. When did it become the largest individual

stockholder in the company ?

A. I am not sure, but I think in 1912 or 1913.

Q. And how long did it continue to be the larg-

est individual stockholder?

A. It was the largest stockholder until the

Securities and Exchange Com. 589

(Testimony of C. O. G. Miller.)

Byllesby interest sold their Western States—I

think it was but I can’t remember the exact name

—Western Gas & Electric, or Western States Gas

& Electric, to the Pacific Gas, and took in payment

275,000 shares of stock. I think it was 275,000

shares.

Mr. Bosley: 260,000.

By Mr. Phleger:

Q. That was in 1927?

A. Yes; about that time. Was it as late as that?

I think at that time we had about 100,000 shares,

but I am not sure.

Q. Is the company now the third largest, your

company, [521] the third largest stockholder in

Pacifie Gas and Electric Company ?

A. I think so.

Q. When did you first become a director in the

Pacific Gas and Electric Company ?

A. I am not sure of the time. The time we

bought the large interest Mr. Drum stated he would

like very much not to ask anyone to resign and

asked me if I cared whether I was elected a director

immediately, and I told him I would wait until

there was a vacancy. There was a vacancy within a

year or two and I became a director then.

Q. Would you say that you became a director

about 1912? A. Not later than that.

Q. When did you become a member of the Ex-

ecutive Committee ?

590 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

A. I am not quite sure, but I think it was in

1913.

Q. Who constituted the Executive Committee of

the company in 1913?

A. The first Cormmittee was Frank B. Anderson,

then president of the Bank of California, and my-

self. My impression is that Mr. Drum was not a

member, but I am not sure.

Mr. Bosley: He was president at that time.

The Witness: I don’t think he was a member.

[522]

By Mr. Phleger:

Q. Mr. F. B. Anderson continued as a member

of the Executive Committee until his death many

years later, did he not?

A. Yes, sir; until 1935 when he died.

Mr. Bosley: Except for occasional interruptions

when he was absent and Mr. McIntosh took his

place.

The Witness: Once or twice we took a number of

long trips with the Andersons, and once or twice

he would resign and Mr. McIntosh, then chairman

of the Bank of California, took his place.

By Mr. Phleger:

Q. I show you, Mr. Miller, Applicant’s Exhibit

32, and refreshing your memory from it, will you

state the number of shares of company stock which

you own yourself?

A. I own 100 shares of the First Preferred and

7,500 of the common.

Securities and Exchange Com. 591

(Testimony of C. O. G. Miller.)

Q. Also refreshing your recollection, will you

state the number of shares of stock which are owned

by your family?

A. I made a trust with the Bank of California

some years ago and put in 3,000 shares of Pacific

Gas and Electric, common, in it.

One of my daughters has 1,600 shares of the

common.

The other daughter has 420 common and 290

preferred.

My son has 1,200 shares of the common. [523]

My four grandsons have together 670 shares.

Q. How many shares has the Pacific Lighting

Corporation ? A. 131,900.

Q. Will you state the number of shares which

the American Trust Company has in various ca-

pacities as agent, trustee and otherwise ?

A. 24,281 shares of preferred stock, and 25,162

shares of common stock.

Q. How many shares of stock does the Fire-

men’s Fund Insurance Company and associated

companies hold?

A. 12,800 shares of the preferred, and 4,652

shares of the common.

Q. Do you know whether or not Stanford Uni-

versity owns and holds a substantial number of

shares of the company ?

A. Yes. I cannot remember how much it is. I

592 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

think they have $500,000 in bonds, or more, Stan.

ford University.

Q. In addition to the stock? A. Yes.

Q. Who were the individuals who were promi-

nent in the affairs of the Pacifie Gas and Electric

Company in the years immediately after its incor-

poration ?

A. Frank Drum was most active. Pardon me—

from the time of its incorporation?

Q. Yes. In 1905. [524]

A. That is a different story. Eugene de Sabla

and John Martin were the two most active men.

Q. And following their period of chief activity

who were the most active figures ?

A. Frank Drum. Mr. John A. Britton was very

active, but Frank Drum, after the first difficulties

of 1907, 1908 and 1909, predominated.

Q. Did the company have difficulties early in its

career? A. Many.

Q. Were they caused in part by the fire in San

Francisco in 1906?

A. That helped. I think the principal reason

was they put out more money than they took in.

The Examiner: That is the first time I ever heard

a fire referred to as helping anybody.

The Witness: It increased our difficulties.

By Mr. Phleger:.

Q. Have you been a regular attendant at the

meetings of the Executive Committee of the com-

pany?

Securities and Exchange Com. 593

(Testimony of C. O. G. Miller.)

A. Yes; always when I have been in the city.

Q. Is the same thing true with respect to di-

rectors’ meetings ? A. Yes.

Q. Have you ever hesitated to freely and fully

express [525] your views at the meetings of either

the Executive Committee or the Board of Diree-

tors?

A. No; only when restrained by the rules of

good behavior.

Q. Were you acquainted with Mr, Frank Dame?

A. My impression is I never met him. I knew

well who he was.

Q. Did you ever have any communication with

him that you ean recall? A. No.

Q. Did you know Mr. Edwin Gruhl?

A. No.

Q. Did you ever have any communication with

him? A. None that I know of.

Was Mr, Gruhl a director?

Mr. Bosley: Yes.

The Witness: I may possibly, I may have met

him at the directors’ meeting, but I have no recol-

lection of it.

Mr. Bosley: According to the evidence he never

attended any directors’ meetings.

The Witness: Then I didn’t meet him.

By Mr. Phleger:

Q. Are you acquainted with F. W. Doolittle?

A. I think I have never met him.

594 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

Q. Have you ever had any communication with

him ? [526] A. None that I know of.

Q. Do you know Mr. Herbert C. Freeman?

A. I think I have never met him unless | met

him—one or two of those gentlemen have been out

here about every six years and a half and I may

have met him, but I am not sure.

Q. If it is a fact that Mr. Freeman has ever

been in the State of California would you say that

you had never met him? A. Yes.

Have you ever communicated with him?

No.

Do you know Mr. James F. Fogarty?

Yes.

How frequently have you met him?

It would be hard to give the exact number

of denen. I have met Mr. Fogarty almost probably

once every time I have been in New York. But in

addition to that Mr. Fogarty happens to be a mem-

ber of the Bohemian Club and he comes out to the

Bohemian Grove activity every year, and I always

see him up there quite often. But I have never dis-

cussed gas and electric matters with him at the

Grove. It is an intellectual performance up there.

(Laughter).

The Examiner: That isn’t what I heard about it.

(Laughter). [527]

By Mr. Phleger:

Q. The motto of the Grove is ‘‘Weaving spiders

come not near?’ A. That is right.

_POoOPOPS

Securities and Exchange Com. 595

(Testimony of C. O. G. Miller.)

Q. To what extent, if any, have you discussed

the affairs of the Pacific Gas and Electric Company

with Mr. Fogarty elsewhere than at the Grove?

A. I did it once by telephone, had a conversa-

tion with him from San Franciseo. I am not sure

that I discussed it with him when I have been in

New York. But I have usually gone to luncheon

with George Leib, or some member of the firm of

Leib & Co., and very often Mr. Fogarty has been

there. That was for one, two or three years.

Q. Have your talks with him been casual con-

versation ? A. Yes, sir.

Q. Have you discussed P. G. & E. affairs with

him? A. IT think not.

Q. You have no recollection of having discussed

such affairs with him? A. No.

Q. Were you acquainted with Mr. Guy Earl dur-

ing his lifetime? A. Yes.

Q. He was for a time prior to his death a di-

rector and member of the Executive Committee of

the Applicant, was [528] he not? A. yes.

Q. And he attended meetings regularly ?

A. Yes. ,

Q. Was he particularly active in the affairs of

the company ?

A. He took a great deal of interest in the Ex-

ecutive Committee meetings. I don’t know of any

activity outside of that.

Q. Was he more active than other, any other

member of the Executive Committee ?

596 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

A. I think not.

Q. Did he ever ask you to vote in any particu-

lar way, or to take any particular action as a di-

rector or a member of the Executive Committee?

A. No.

Q. Did he ever at any meeting that you attended

express the attitude of the North American Com-

pany with respect to any pending matter ?

A. I do not recollect it. I think not.

Q. If he had you would recall it?

A. I think not.

Q. If he had you would recall it?

A. I think I would remember it. I knew him

very well. He was in the senior class of the Oak-

land High School when I [529] entered the junior

class, and he was a junior at the University of Cali-

fornia when I was a freshman. I knew him very

well from the time I was a boy.

Q. But so far as you recall, and you would re-

eall, you believe, he never mentioned the North

American Company, or its attitude, at any meeting

at which you attended ?

A. I have no recollection, of it.

Q. Do you own any stock in the North American

Company ? A. No.

Q. Does any member of your family, to your

knowledge, own any stock in it? A. No.

Q. To your knowledge do any of these other

companies that you are associated with own any

stock in the North American Company ?

Securities and Exchange Com. 597

(Testimony of C. O. G, Miller.)

A. No.

Q. Do you recall the purchase by Pacific Gas

and Electric Company in 1930 of stocks of the

Great Western Power Company of California and

of the San Joaquin Light & Power Company from

the North American Company ? A. Yes.

Q. Was that purchase the subject of discussion

for a considerable period before the transaction

was consummated ?

A. Yes; for many months.

Q. Were you familiar with the properties of the

Great [530] Western Power Company? —

A. Only in a general way. I never visited them.

Q. Was it an active competitor of the Pacific

Gas and Electric Company ? A. Yes.

Q. Had it been an active competitor for many

years? A. Yes.

Q. Do you recall whether or not in years prior

to 1930 there had been suggestions that the Pacific

Gas and Electric Company should acquire the prop-

erties of the Great Western Company ?

A. Yes; many times.

Q. State generally what those proposals and dis-

cussions were.

A. It would be hard for me to give the details

because I never took part in any of the discussions

with the Great Western. I recollect very well. I

think as early as 1913, Mr. Drum asking me what I

thought of the consolidation or absorption, and

598 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

every few years something would be suggested

about it.

Q. It was a matter which was more or less con-

stantly——

A. (interposing) It was chronic.

Q. Do you recall the acquisition by the Western

Power Company, which was the holding company

of the Great Western Power Company, of the con-

trol of the San Joaquin Light & Power [531] Com-

pany? A. I do very well.

Q. Do you recall about what date that was?

A. I am not quite sure, but in 1917 Pacific

Lighting Corporation thought of buying the San

Joaquin and I think it was shortly afterwards that

the Western Power bought it.

Q. You mean 1917 or 1927?

A. 1917, the Lighting Company—I don’t know

when the Western Power bought it. I thought it

was only a few years afterwards.

Mr. Bosley: Not as late as 1927 because they were

operating at that time.

The Witness: Mr. Wishon would know.

Mr. Phleger: I think the record will show the

acquisition was in 1925.

By Mr. Phleger:

Q. Now, after the Western Power Corporation

had acquired control of the San Joaquin Light &

Power, already having control of the Great West-

ern Power Company, do you recall the North

599

Securities and Exchange Com.

(Testimony of C. O. G. Miller.)

American Company in turn acquiring control of

the Western Power Company ? A. Yes.

Q. Following that acquisition was the question

of the Pacific Gas and Electric Company acquiring

the majority stock of both the Great Western and

San Joaquin Light and Power [532] Company more

or less constantly a subject of discussion by the di-

rectors of the Pacific Gas and Electric Company?

A. In general terms; yes.

Q. Do you recall when the active negotiations

commenced between representatives of the Pacific

Gas and Electric Company and the North American

Company regarding the later purchase ¢

A. I eouldn’t state it at all closely, but I think

it was in the early part of 1929.

Q. Describe, if you can, the course of those nego-

tiations.

A. I was an outsider then regarding the negotia-

tions. The question was whether the Pacifie Gas

was willing to buy the property at the price asked.

That was the question; whether they could afford

to pay the bonus which they did pay to obtain it.

Q. The Pacific Gas and Electric Company was

always desirous of acquiring those properties, was

it not? A. Yes.

Q. And you have described it as whether or not

it was willing to pay the price asked ?

A. That is it. That is what it was in effect.

Q. Who conducted the negotiations on behalf of

the Pacifie Gas and Electric Company ?

600

Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

A. Mr. Hockenbeamer, [533]

Q. Do you know who represented the North

American Company in most of those discussions?

A. I think Mr. Black did.

Q. Did Mr. Hockenbeamer consult you fre-

quently in connection with the negotiations?

A. Yes. It is a hard question to answer when

you say “‘frequently’’. Whenever he, which he did

frequently, found something which was a little un-

certain in his mind, he would ask the Executive

Committee ‘‘What do you think of this ?”’

Q. Who were on the Executive Committee at

that time with whom he consulted ?

A. Frank Anderson. And in the early part, I

think, John Drum was on it and resigned later, and

Fred Elsey took his place. I think Fred Elsey was

on the Committee at the time the purchase was

made. I think that was all—and myself, After the

purchase the number of the Executive Committee

was increased to make a place for Mr. Earl.

Q. Was Mr. Chickering a member?

A. That is right. He came in with the Western

States.

Q. So that at that time the Executive Committee

consisted of——

A. (interposing) There were four.

Q. (continuing) —Mr. Hockenbeamer, Mr. An-

derson, Mr. Elsey, yourself and Mr. Chickering?

A. That is right. I forgot Mr. Chickering. [534]

Q. That is, the President and four others?

Securii ies and Exchange Com. 601

(Testimony of C. O. G, Miller.)

A. That is right; four others.

Q. Were all of the members of the Executive

Committee quite active in connection with the con-

sideration of the transaction? A. Yes.

Q. And that continued for a period of months,

did it? A. Yes.

Q. Before it was finally consummated ?

A. That is right.

Q. Now, in the course of those discussions was

anything reported by Mr. Hockenbeamer to the

Executive Committee with respect to the position

which the North American Company would occupy

as a stockholder in Pacifie Gas and Electric Com-

pany in the event the transaction were consum-

mated ? A. Yes.

Q. State the course of those discussions and

what was said, in substance?

A. In substance, Mr. Hockenbeamer made a

statement of this kind: “‘A great danger which

might arise from this consolidation would be that

the North American Company would overwhelm-

ingly be the largest stockholder.”’

I cannot recall the number of shares they had,

but something like 2,000,000 or more. It was dis-

cussed by the [535] members of the Committee for

half a dozen times or more. I don’t just know how

long it was discussed, but Mr. Hockenbeamer stated

the North American Company was willing to stipu-

late that it would never use its stock to attempt to

gain control, or something to that effect.

602 Pacific Gas & Electric Co. vs.

(Testimony of C. O. G. Miller.)

Q. That was an assurance, was it, which was

given by Mr. Hockenbeamer in behalf of the North

American Company to the members of the Execu-

tive Committee when this transaction was being

discussed, was it not?

A. That is my recollection. I think it was re-

peated probably half a dozen times during the ne-

gotiations.

Q. Was the question of the position of the North

American Company, in the event the transaction

was consummated, one which received repeated and

active consideration by the Executive Committee?

A. Yes.

Q. Would you have voted to consummate the

transaction unless there had been, that is, if there

had not been some assurance with respect to the

position of the North American Company after the

transaction ?

A. Iam not sure, but I think not. It would have

depended a great deal on what the attitude of North

American was stated to be. If I had thought they

were going to sell the stock it would have made no

difference. It is not a [535-A] desirable thing to

have any stockholder with 10 percent, 12 percent

or 15 percent of the stock.

Q. That was in your mind? A. Strongly.

Q. And in the minds of the other members of

the Executive Committee ?

A. Iam sure it was.

Q. Was it in Mr. Hockenbeamer’s mind ?

Securities and Exchange Com.

(Testimony of C. O. G. Miller.)

A. Yes; it was constant with him.

Q. And it was only after Mr. Hockenbeamer

had given the assurance, or had made the statement

that the North American Company would not at-

tempt, as a stockholder in Pacifie Gas and Electric

Company, to control or dominate it that the trans-

action was authorized ? A. That is correct.

Q. Do you recall where you were when the news

came that the n

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