# Appendix — Pacific Gas & Electric Co. v. Securities & Exchange Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385610_0132%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1945 - **Citation:** 324 U.S. 826 ## Text 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? [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385610_0132%3A02. Public record. Not legal advice.