The rise and fall of the American & foreign power company: A lesson from the past?

Electricity Journal

Volumn 10, Issue 1, 1997, Pages 46-53

  Hausman, William J ^a   Neufeld, John L ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

ELECTRIC UTILITIES;

BUSINESS RISKS; EXCHANGE RATES; FOREIGN INVESTMENT; POLITICAL RISKS; POWER COMPANY; RATE OF RETURN; RETURNS ON INVESTMENT; UTILITIES COMPANIES;

INVESTMENTS;

EID: 0030639038     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(97)80297-7     Document Type: Article

References (37)

1. Anthony Edward R. Toward a Global Paradigm. ELEC. PERSPECTIVES. July-Aug. 1993;20.
2. Lippman Thomas W. An Electrifying Opportunity, The Washington Post. April 20, 1993;. section D.
3. Lippman Thomas W. Power to the People. THE ECONOMIST. June 18, 1994.
4. HISTORICAL STATISTICS OF THE UNITED STATES. 1975;867. Part 2.
5. HISTORICAL STATISTICS OF THE UNITED STATES. 1975;869.
6. Data in the table are from Wilkins Mira. THE MATURING OF MULTINATIONAL ENTERPRISE. 1974;55 Harvard Univ. Press.
7. Lewis Cleona. AMERICA'S STAKE IN FOREIGN INVESTMENT. 1938;605 Brookings Inst. It is not possible to precisely separate electric utility investments from other types of public utility investments. Electric plants often were operated in conjunction with tramways (which declined in importance during the 1920s) and inter-urban railroads, gas works, ice plants, and waterworks. But the bulk of public utility investment during the 1920s was in electric plants, high-voltage transmission lines, and distribution networks. By 1936 electric and gas utilities comprised 84 percent of total foreign "public utility" investments.
8. AMERICAN DIRECT INVESTMENTS IN FOREIGN COUNTRIES. 1936:1938;18.
9. The Bureau of Foreign and Domestic Commerce identified 119 foreign public utility investments (including transportation in the case of Canada) between 1925 and 1929, versus 21 in the previous five years. AMERICAN DIRECT INVESTMENTS IN FOREIGN COUNTRIES - 1936. 1938;47. Portfolio investment remained important during the 1920s. From 1914 to 1928, $723 million worth of foreign public utility bonds were issued in the United States: 40 percent of the total were of European origin (with German companies being the largest single borrowers at $149 million), 26 percent were Canadian, 18 percent were Latin American, and 14 percent were Japanese.
10. ELEC. WORLD. Oct. 6, 1928;710.
11. COMMON STOCK INDEXES 68-69, 86-87, 96-97. 1939;Principia Press. Eugene White also made this point, although he did not distinguish between holding companies and operating companies.
12. White E. The Stock Market Boom and Crash of 1929 Revisited. J. ECON. PERSPECTIVES. Spring 1990;71.
13. For a recent discussion of the merger see Carlson W. Bernard. INNOVATION AS A SOCIAL PROCESS: ELIHU THOMSON AND THE RISE OF GENERAL ELECTRIC. 1991;1870-1900 Cambridge Univ. Press.
14. Carlson W. Bernard. INNOVATION AS A SOCIAL PROCESS: ELIHU THOMSON AND THE RISE OF GENERAL ELECTRIC. 1991;292-301 Cambridge Univ. Press.
15. The original portfolio of Electric Bond & Share contained a number of foreign stocks, amounting to some $349,000 or 18 percent of the total value of stocks in the portfolio. As an indication of the risk involved, the total value of all stocks in the portfolio had a combined book value 32 percent below par value. None of the $1.2 million in a bonds held by the company were foreign. Mitchell Sidney A., Mitchell S.Z. THE ELECTRICAL INDUSTRY. 1960;62-64 Farrar Straus & Cudahy. Also see Carlson, id., at 224.
16. CONTROL OF POWER COMPANIES. 1927;xxvi-xxvii.
17. Trade Commission Utility Corporations Federal. Summary Report of the Federal Trade Commission to the U.S. Senate. 1935;86-87. (This multi-volume work is one of the main sources of information on investment in foreign electric utilities and will be referred to hereafter as FTC, followed by the volume number.) No. 72A.
18. The Foreign Power System. 1953;8. (published by the company).
19. Mitchell Sidney A., Mitchell S.Z. THE ELECTRICAL INDUSTRY. 1960;106-107 Farrar Straus & Cudahy.
20. Mitchell Sidney A., Mitchell S.Z. THE ELECTRICAL INDUSTRY. 1960;107-108 Farrar Straus & Cudahy.
21. Mitchell Sidney A., Mitchell S.Z. THE ELECTRICAL INDUSTRY. 1960;110 Farrar Straus & Cudahy.
22. One billion dollars in 1929 was roughly equivalent to $7.6 billion in 1996 dollars (using the CPI as a deflator). But comparing the size of the company's investment to the size of the GNP in 1929 makes the number even more impressive. One billion dollars in 1929 compared to the 1929 GNP would be roughly equivalent to $70 billion today. (That is, $1 billion in 1929 was 0.97% of GNP in 1929. That same proportion of the 1996 GNP - using a very rough estimate, since GNP figures are no longer produced - would be roughly $70 billion, which is more than twice the size, measured by assets, of the Southern Company today.).
23. American & Foreign Power Co., Annual Reports, 1929-31.
24. ELEC. WORLD. 90:Oct. 8, 1927;761. There is no mention of European or Japanese investments in the annual reports of American & Foreign Power, although they are noted, along with Canadian investments, in Moody's Investors Service reports of 1928, 1929 and 1930. A table presented by Segreto indicates that American & Foreign Power held interests, jointly with the Zürich-based Elektrobank, in Iberian Electric Corp., Ltd. (Montreal), European Electric Corp. of Canada (Montreal), and British & International Utilities Ltd. In addition Electric Bond & Share held an interest in the Belgian utility holding company, Société Financiére de Transports et d'Industries Électriques (Sofina).
25. Segreto Luciano. Du 'Made in Germany' au 'Made in Switzerland': Les sociétiés financiéres suisses pour l'industrie électrique dans l'entre-deux-guerres. Trédé Monique. ÉLECTRICITÉ ET ÉLECTRIFICATION DANS LE MONDE. 1992;360 Presses Universitaires de France.
26. Electric Power Development in China. TRANSACTIONS OF THE THIRD WORLD POWER CONFERENCE. II:1938;105-130 US-GPO, The purchase of the Shanghai property is also discussed in FRANK H.H. KING, THE HISTORY OF THE HONG KONG AND SHANGHAI BANKING CORPORATION 338, vol. III (Cambridge Univ. Press). The bank held a substantial amount of the debentures of Shanghai Power.
27. In 1930 Electric Investors merged with Electric Bond & Share. MOODY'S MANUAL OF PUBLIC UTILITY SECURITIES. 1930;Moody's Investors Service.
28. Moody's (1930). In 1929, 22 percent of the gross revenues of the companies supervised by Electric Bond & Share originated outside the United States. FTC, supra note 9, vols. 23, 24, at 410.
29. Mitchell Sidney A., Mitchell S.Z. THE ELECTRICAL INDUSTRY. 1960;110-111 Farrar Straus & Cudahy. By the mid-1940s American & Foreign Power produced 30 percent of the electrical power in Mexico, 15 percent in Brazil, 13 percent in Argentina, 75 percent in Chile, and 90 percent in Cuba. Since there was little foreign direct investment in utilities in the 1930s these numbers probably accurately reflect their position in at the beginning of that decade.
30. Hanson Simon. ECONOMIC DEVELOPMENT IN LATIN AMERICA. 1951;292-315 Inter-American Affairs Press.
31. The $400 million showed up on the liability side as an increase in surplus. Mitchell's obituary claimed that he may at one time have been the wealthiest man in the world; if so, this probably would have been between March and September, 1929 NEW YORK TIMES. Jan. 19, 1944.
32. In December 1931, Electric Bond & Share wrote down the value of its investments by $400 million. FTC, supra note 9, vol. 66, at 1266, 1274. The "artificial" write-up of utility properties was subsequently considered to be one of the major abuses of the holding companies. FTC, vol. 72A, at 298-301, 845-48.
33. The company and its foreign subsidiaries employed 31,000 people at the time.
34. Annual Report. 1953;6.
35. Annual Report. 1960;4-5.
36. Interestingly, the acquisition wheel continues to turn, as Enserch is again being acquired, this time by the TU Electric for $1.7 billion.
37. Power to the People. THE ECONOMIST. June 8, 1994;7.