Lost Balance

Other utilitymen did not point to it with pride. Utility-baiters called it an octopus. Roly-poly Utilitycoon Howard Colwell Hopson and his partner, John I. Mange, called it Associated Gas & Electric Co.

The assets of the system were listed at about $7,000,000 in 1922, when they bought control of it. Flashing an ear-to-ear grin, but keeping his own counsel, close-mouthed Howard Hopson reached far & wide. By 1938, Associated had bought or formed some 500 corporations. The top of the pyramid had been jacked far into the sky as Builder Hopson shoved more operating companies into the base, inserted sub-holding companies near its apex. At one time, some bottom operating companies had to feed through eleven layers to get their tribute to the capstone. Today Associated's assets are booked at more than $1,000,000,000. After attempts at simplification, it still has 18 holding companies, stacked as deep as six layers, a bewildering complexity of operating companies. Total number of corporations in the system: 172.

Even before Howard Hopson fell hopelessly ill of heart disease more than a year ago, keeping Associated in a pyramid had become a prodigious balancing act. The Hopson "service" companies had siphoned off too much of the system's fat in better times. The Hopson lawyers, who had al ways kept one jump ahead of the Government in playing hide-&-seek among the hundreds of interlocking subsidiaries, got to the end of their legal inventions. When, in November, SEC ruled that registered holding companies and their subsidiaries could no longer draw dividends out of capital or unearned surplus without permission, must draw on earnings or go without, the writing was on the wall.

Month ago J. I. Mange, longtime president and chairman of Associated, stepped down, was succeeded by veteran Washington Lawyer Roger Joseph Whiteford. Mr. Whiteford, who makes annual lectures on the trial of Christ, was providentially reading a tome on the mathematics of the pyramid about the time Associated called. He was hired at $10,000 a month, but it was not certain whether he would get more than one month's pay. Unless RFC granted a $26,500,000 loan to Associated's sub-subsidiary NY PA NJ Utilities Co. (Nypan), unless SEC allowed Associated's No. 1 subsidiary (Associated Gas & Electric Corp.) to pass $557,000 up to the top of the pyramid as dividends or as interest on a note for $71,800,000 Associated was headed for bankruptcy.

Last week RFC and SEC spoke out. The answer in both cases was no. RFC refused its loan. SEC ruled that the No. 1 subsidiary could not pay Associated the necessary sum because it had not been earned. This decision Mr. Whiteford had seen coming because he well knew that SEC was more concerned about Associated's operating and sub-holding companies (with outstanding securities of $539,139,000 in the hands of the public) than it was about Associated at the top of the heap.

Few hours after SEC's decision Mr. Whiteford sent Associated to the wringer. Without cash to meet a Jan. 15 payment of $263,000 on its 1949 debentures ($11,686,500 in the hands of the public), it filed a petition in bankruptcy. Long had Associated been considered the most tangled of the utility systems. By putting on pressure where it did the most harm, SEC had maneuvered it into reorganization--where SEC and the courts will have a chance to make it over. Soon to lose his new job, Mr. Whiteford was being discussed last week for appointment as one of Associated's reorganization trustees.

This file is automatically generated by a robot program, so reader's discretion is required.