EXHIBITS EXHIBIT 6202 REPORT ON THE EXAMINATION OF THE ACCOUNTS AND RECORDS OF THE POWER & ELECTRIC SECURITIES CORPORATION (SUBSIDIARY OF THE POWER CORPORATION OF NEW YORK) (By Clarence G. Farwell) NOTE This report was prepared with reference to that part of Senate Resolution 83 (Feb. 15, 1928) which relates to the actual investments, financial transactions, business operations, earnings, and other economic results of electric power and gas utility companies, their holding companies, and their associated or affiliated companies. It does not purport to go into questions of the fair value of the property of these public utilities (operating companies) or of fair rates of return or reasonable rates for services rendered; and the Senate resolution in question did not call for such information, which would have required, among other things, an appraisal of all the properties of the utilities in question. The subjects of this inquiry directed by the Senate are fundamental for an understanding of how these utility companies and the utility holding companies have developed and the present position of the holding companies as business corporations and in their relations to these public utilities. 21 Investments in miscellaneous securities_ Investments, December 31, 1931__. Introduction--- Section 2. Northern New York Utilities, Inc. Acquisition of common stock by the Power & Electric Securities Corporation__ Chapter III. Investments-Continued. Section 2. Northern New York Utilities, Inc.-Continued. Page Ledger value of investment in common stock of Northern New 23 Return on investment in common stock. 24 Section 3. Malone Light & Power Co---. 27-32 Introduction___. 27 Acquisition of common stock by the Power & Electric Securities 27 Ledger value of investment in common stock of Malone Light & 30 Return on investment in common stock_ 31 Section 4. Other securities owned on December 31, 1931. 33-41 Introduction 33 Niagara Hudson Power Corporation common stock--- 33-36 33 Acquisition by the Power & Electric Securities Corporation_ 34 35 36 Buffalo, Niagara & Eastern Power Corporation preferred stock_- 37-38 Acquisition by the Power & Electric Securities Corporation_ Buffalo, Niagara & Eastern Power Corporation common stock.... 42 43 45 48 49 50 Organization__ Class A stock.. Old Forge Electric Corporation, option on common stock_. The Power Corporation of New York common stock.. Taggart Corporation common stock_. Chapter IV. Balance-sheet accounts-- Introduction Advances to subsidiary and affiliated companies_. 50 51 51 56 58-63 58 60 Chapter V. Income, expenses, surplus, and rates of return. Chater V. Income, expenses, surplus, and rates of return-Continued. Dividends on investment in stocks of affiliated companies---- Interest on advances to other utility companies___ Interest on advances to nonutility companies. Profit on securities sold_. Section 3. Expenses- Introduction.... General administration expenses_. Taxes (except Federal income tax) Federal income tax--‒‒‒ Section 4. Surplus--- Introduction___. Growth of surplus_ Other surplus items_. Section 5. Rates of return_ Introduction_-_-_ Rate of return on investments in subsidiary companies--- Rate of return on common-stock equity- Rate of return on common stock-corporate basis_-_ Page 69 71 71 71 72 72 72 72 73 76-79 76 76 76 77 79 80-81 80 80 80 81 82-88 82 82 82 85 87 LIST OF EXHIBITS 1. Comparative statement of assets and liabilities as at July 1, 1924, and as at December 31, 1924 to 1931, inclusive__. 89 2. Comparative income statement for each of the years ending December 31, 1924 to 1931, inclusive____ 91 3. Analysis of surplus for each of the years ending December 31, 1924 to 1931, inclusive__ 92 4. Comparative summary of investments as at July 1, 1924, and as at December 31, 1924 to 1931, inclusive____ 93 5. Total revenues from investments for each of the years ending December 31, 1924 to 1931, inclusive__-- 94 LIST OF APPENDIXES 1. Certificate of incorporation of the Power & Electric Securities Cor- 2. Bylaws of the Power & Electric Securities Corporation_-_- 4. Agreement dated December 23, 1924, between the Power Corporation 6. Agreement dated June 14, 1926, between Malone Light & Power Co. 11. Agreement dated September 28, 1928, between A. Augustus Low and 12. Agreement dated September 28, 1928, between A. Augustus Low and F. L. Carlisle covering option to purchase stock and bonds of Inlet Utilities Corporation___ Page 123 124 125 127 135 137 138 [S-I] SUMMARY OF THE REPORT ON THE EXAMINATION OF THE ACCOUNTS AND RECORDS OF THE POWER & ELECTRIC SECURITIES CORPORATION This report deals with the corporate activities of the Power & Electric Securities Corporation, a subholding company of the Power Corporation of New York of the Niagara Hudson Power Corporation group. It covers the period from the organization of the company to December 31, 1931. The Power & Electric Securities Corporation is not directly engaged in rendering public-utility service, but it does control directly through commonstock ownership Northern New York Utilities, Inc., and Malone Light & Power Co. which are actively engaged in the generation, transmission, and distribution of electricity and gas in the counties of Franklin, Jefferson, Lewis, Oneida, Oswego, and St. Lawrence, in the State of New York. As of December 31, 1931, the two operating subsidiaries of the Power & Electric Securities Corporation were serving electric light and power to 90 communities with a population of 126,252. The subsidiaries sold 660,911,389 kilowatt-hours of electric energy in the year 1929. The sales declined to 454,530,437 kilowatt-hours in 1931. As of December 31, 1931, the two operating subsidiaries of the company were serving gas to three communities with a population of 73,157. In 1929, the two subsidiaries sold 391,396,000 cubic feet of gas. In 1931, the sales of gas declined to 352,157,000 cubic feet. The Power & Electric Securities Corporation was organized primarily to acquire control of Northern New York Utilities, Inc., an operating public utility of which 38 percent [S-II] was already owned by St. Regis Paper Co., a Carlisle company. By December 31, 1931, all but 84 shares out of 200,000 shares of Northern New York Utilities, Inc., common stock outstanding had been acquired. From organization in 1924, all of the common stock of the Power & Electric Securities Corporation has been held by the Power Corporation of New York, a Carlisle interest. The Power Corporation of New York was acquired by Northeastern Power Corporation at its organization in 1926. The latter company was acquired by Niagara Hudson Power Corporation in 1929. The Power & Electric Securities Corporation thus became a part of Niagara Hudson Power Corporation group. The investments of the Power & Electric Securities Corporation were primarily in securities of subsidiary and affiliated companies, or in a company |