This book is a blockbuster, and it should be read by every user of electric light and power. It describes and documents how the privately owned public electric utilities charge the consumer excessively, and by erecting and subsidizing an elaborate public relations structure, deceive their victims. This book renders a valuable public service, revealing that American families pay excessive electric light bills and have been kept in ignorance of this. It is a sequel and thoroughgoing elaboration and enlargement of the reviewer’s book, The Public Pays—A Study of Power Propaganda published a quarter of a century ago and republished, updated, three years ago, with an addition to its original title—And Still Pays.

Metcalf and Reinemer make abundantly clear that the vicious practices revealed in the investigation by the Federal Trade Commission from 1928 to 1935 and later published in eightyfour closely printed volumes (their findings were summarized in The Public Pays), not only have not abated, but have become more skillful and, hence, more predatory. The Federal Trade Commission investigation, which followed from a Senate resolution sponsored by Senator Thomas J. Walsh of Montana, was directed not so much at the rates charged by the electric utilities as at their financing. For it was their financing that Walsh feared would bring disaster to the investors in public utility securities. This apprehension was fully justified. The great utility empire of Samuel Insull, who had originated the propaganda campaign of deception and corruption, and the holding-company empires of his fellow electric utility magnates collapsed early in the Great Depression, with a loss to the trusting investing public of billions of dollars.

A brief interlude of apparent repentance and reform followed, in which certain utility leaders publicly abjured their past malpractices. But not for long. While the same propaganda practices are again being used, no longer do they conceal unsound “frenzied finance” such as characterized the utilities before the crash. Corrective legislation enacted during the Roosevelt administration following the electric utilities debacle—the Holding Company Act of 1935, which outlawed the pyramiding of holding companies, and the Securities and Exchange Act—has obviated the particular fiscal skulduggery which victimized so many innocent investors. Indeed the “Investor-Owned Utilities,” as these privately owned utilities have rechristened themselves, now constitute the most prosperous segment of our economy. To maintain their position in the economy and to conceal their inflated profits and the excessive tolls levied on the consumer is the present aim of their propaganda.

APART FROM THE DIFFERENCE in aim mentioned earlier, the practices of the IOU’S are repetitions and amplifications of those of the 1920s. These privately owned utilities distribute 76 per cent of the electricity of the nation, or more than three times that of all the other power systems (the federal government distributes only 13 per cent, local publicly owned systems, 10 per cent, and the cooperatives 1 per cent). Yet their propaganda uses the same old methods as prescribed forty years ago by the Assistant Director of Insull’s Illinois Committee on Public Utility Information, “not to try logic or reason, but to try to pin the Bolshevik idea on the opponent.” The theme of the new propaganda is that all forms of government operation—national, state, municipal, or cooperative are un-American, socialistic, subversive, and in every respect evil.

Again, as Metcalf and Reinemer point out, IOU advertising, by skillful use of pictures, associates government and consumer power systems with Khrushchev, Castro, the Berlin wall, and the Communist conspiracy. One of their advertisements, which President Kennedy considered “particularly ugly,” showed an elderly couple turned back into East Berlin by Communist guards at the Berlin wall: “There is a great threat within,” it reads. “For 30 years the threat has grown in the field of electricity…. When government runs business…it can tell you where to work and live, what to do or say.” Actually the threat has not grown; quite the reverse is true, for the heavily financed war waged by the IOU’S has diminished the number of municipal power plants.

The IOU propaganda contends that the industry is strictly regulated to prevent any other than a fair and modest rate of return, which it is not; that it is burdened by heavy taxes, which, in fact, it passes on to the consumer; that it is faced with rising costs, which in reality are offset by technical improvements and expanding markets. The regrettable truth, as the authors make clear, is that regulation—both federal and state—is ineffective largely because of the IOU’S politicking, and that the cost of propaganda and public relations, including even donations to charity designed to improve their public image, is charged to operating costs and thus passed on to the consumer.

As in the Twenties, school textbooks are rewritten, not by objective economists but by IOU hirelings, and planted in the educational system. Even official publications of the federal Departments of Agriculture and Commerce have been similarly subverted. As in the Twenties the same canned editorial service supplies slanted editorials to hundreds of newspapers where they appear to be the editor’s own brainchildren. In addition to the propaganda generated through their own public relations departments, the utilities now also distribute literature through such apparently unconnected organizations as The American Economic Foundation, The Foundation for Economic Education, The Intercollegiate Society of Individualists, and the various affiliates of the John Birch Society, which add their own concepts to the barrage.


Every effort is made to conceal the essential truth that the IOU’S are a protected monopoly, free from competition in the areas they serve, imposing their own criteria of valuation, rate of return, and chargeable expenditures. What their overcharges are is specified in a six-page appendix which gives the rates of return and the return on equity from each of the years from 1961 to 1964 of 190 of the major electric utilities. Their returns throughout the three years show an obviously higher profit than is secured in normal competitive enterprises. In 1964 they averaged over 13 per cent. The Montana Power Company, in the authors’ state, received a 17.49 per cent return on equity and 10.24 per cent as a rate of return. The rate of return is usually between 7 and 8 per cent. It would be still higher but for practices which reduce the dividends that legitimately should go to the rank and file of stockholders, including the practice of generous stock options to the insiders in management. These practices were lucidly exposed by Adolph Berle and Gardiner Means in their important The Modern Corporation and Private Property, and are particularly prevalent in the management of the investor-owned utilities.

METCALF AND REINEMER cite some juicy examples. The president of the Montana Power Company, with an annual salary of $87,500 and retirement benefits of over $50,000 a year, was holding unexercised options on 35,000 shares with a market value of one million dollars. Moreover, “Seven hundred and fifty thousand shares—about 10 per cent—of the company’s stock had been set aside under restricted stock option plans for purchase by his company’s insiders” who by 1966 “had already acquired almost 500,000 of the shares, worth about $14 million. Some company officials paid only one third or one fourth of the price paid by ordinary stockholders.” The president of Texas Power and Light, with a salary of $71,000, had made $200,000 in option windfalls; the president of that company’s holding company, Texas Utilities, did even better—indicating that all holding-company abuses have not been rectified, a “sleeper” having been slipped into the legislation. In addition to his annual salary of $92,150 this man netted $350,000 in stock options.

Obviously these diversions of revenue, by which the insiders arbitrarily take for themselves large sums, are improper and should be forbidden by law or regulation. Either the consumers or the stockholders or both, are being gypped—the former by lack of a corresponding rate reduction, the latter by a decreased dividend.

In the concluding, prescriptive chapters of the book I do not find that the authors propose easy solutions. Municipal plants, by demonstrating that electric current can be generated and distributed at lower rates, offer some promise. The authors cite the records of successful municipal operations which have provided either lower rates or substantial revenue to the community, and perhaps offer the best hope. But such moves would be vigorously and adroitly fought by the IOU’s with the lavish funds (from their customers or stockholders) at their disposal.

Another approach which the authors consider valuable is the use of electronic data processing in the regulatory process. They point out that any nation with the technical ability to forecast an election with 2 per cent of the vote in, and direct a satellite millions of miles away, can devise a system which will enable regulators to foresee overcharges and order rate reductions. In addition, the use of computers would permit regulators to determine quickly the mischievous account-padding engaged in by many utilities.

One aspect of the IOU’S activity and their success in maintaining their privileged status quo is only slightly treated by the authors, and it might well have been discussed more fully. How do the IOU’S obviate corrective action by legislative bodies? How do they manage to persuade legislators to cut down on appropriations for the regulatory agencies and help maintain the IOU’S inflated profits? The answer is not shrouded in mystery. The IOU’S make generous campaign contributions to friendly legislators. They work to defeat those who might make “trouble” and they do that, in part, by the old device of “pinning the Bolshevik tag on them” and supporting more cooperative opposing candidates. The consumer has no counterbalancing support—no legislators who might, in the public interest and for the further protection of the householders, tackle and tangle with the IOU’S. There is, in short, no “consumers’ lobby.”


It would seem desirable that another investigation of present activities of nationwide power companies, which would bring these practices to wider public attention, to the Congress, to the state legislatures, and to the regulatory agencies themselves, be initiated again by a Senator from Montana. No one in the Congress would be better qualified to sponsor such a study than Senator Metcalf, thereby following in the footsteps of his great predecessor, Tom Walsh. It should be clear at the start that this would impose no real hardship on the electric utilities, but would tend to transform any existing malpractice into conformity with the consumers’ interest, and in no way impair such proceeds and profits as may well be considered legitimate.

This Issue

March 9, 1967