ACCOUNTING METHODS

A great deal of stress has been laid on the desire to have the investing public secure a better understanding of utility securities, and the general public a better understanding of rates. Despite the extensive propaganda displayed to the public about "yardsticks", there can never be any equitable comparison by the public or anyone else for that matter until there is a uniformity in the methods of accounting.

Uniform accounting methods should not be restricted to the private utility companies, but to any and all agencies engaged in public utility operations regardless of whether they are privately financed or financed and subsidized from funds secured by taxation.

The "yardstick" which has been receiving so much publicity via the propaganda route during the past year or so, is somewhat of a mystery. No one knows whether its unit is a "yard", a "meter", or a "vara" or how many inches or centimers it consists of, though the conclusion must be from the way in which it is described by its originators, that it is made of rubber and consequently is quite variable.

DEFINITIONS-TITLE I

Under the provisions of section 2 (a) 4, page 6, companies that sell gas in containers, are exempted from the provisions of the act. There may be some reason for such exemption, but it is not apparent. Such gas is transported in interstate commerce in a highly compressed conditions, and while it may be argued that the gas as shipped in that state is not in condition to be marketed to individual users, the application of such a conclusion is questionable. If this conclusion is logical, then it would be equally true that electric energy transmitted in interstate lines at very high voltages not suitable for individual use, would be exempted from Interstate Commerce control.

STATE UTILITIES COMMISSIONS

No language should be included in the pending bill which would deprive the States of their vested rights to regulate and control intrastate business. The attempt of the Federal Government to exercise control of purely intrastate matters and business through the National Recovery Administration has brought about litigation now on its way to the United States Supreme Court. Probably no phase of the Constitution has brought about more adjudications by the United States Supreme Court than has the various matters in which the rights of the several States as sovereign entities, are involved. The Commerce clause of the Constitution strictly limits the powers of the Federal Government, and any attempt to encroach on the rights of the several sovereign States through the medium of the pending bill would bring attacks on the ground of constitutionality of such provisions.

FEDERAL POWER COMMISSION AND THE FEDERAL WATER POWER ACT

The pending bill contemplates placing a great many of the phases of the act under the Federal Power Commission. Recommendation has been made previously that the Federal Power Commission be eliminated from consideration in connection with the regulatory provisions of pending legislation, and that the Federal Corporation Commission be established under the Comptroller General, or the General Accounting Office, the latter being the only Government agency not susceptible to "wire pulling.'

Too many incidents of influence not consistent with a fair and impartial handling of matters of importance by the Federal Power Commission, raises a serious question as to clothing that body with any more power than it now has. The nature of the Commission makes it a political body, and therefore subject to political influence.

Another evidence of the unfitness of the Federal Power Commission to exercise additional duties such as would be involved in the pending bill, is shown by the press releases given to the public press relative to a supposed power survey. Information given the House Military Committee as to the manner in which the survey was made, shows that the thing was largely a farce. The figures given out purporting to show an excess of demand over installed capacity are fictitous and clearly concocted to back up the group which is imbued with the socialization of the public utility industry. In order to make it appear that a shortage

exists in developed power, an assumed demand for power is set up by the simple process of picking figures out of the thin air. This process of picking figures out of the air may have been borrowed from the system used by the Tennessee Valley Authority in making rates. There is a possibility that the general discussions that have taken place in latter years relative to the rarefied air in the stratosphere has affected the Federal Power Commission in arriving at its fantastic figures. Two gross errors are responsible for the conclusions arrived at. First, the estimated demand for future power is greatly overdrawn, and, second, the installed capacity as represented by generating capacity is wholly incorrect. The haste with which the Federal Power Commission gave out advance figures, indicates an attempt to qualify some of the wild assumptions put out by various Federal agencies. It is unfortunate that the conclusions put out by the Federal Power Commission should be promulgated as being authentic and having some real value when the reverse is the case.

These are some of the reasons which lead the writer to deplore any suggestion of placing authority under the holding company bill in the hands of the Federal Power Commission, and also why the elimination of title II is recommended. It appears to be more than a mere coincidence that the Tennessee Valley Authority has put up arguments along the same line as regards a power shortage, by exaggerating the possible demand for power and minimizing the installed generating capacity.

In all probability the people of Mars, if any, have concluded that the advance figures given out by the Federal Power Commission were a sort of political expediency put out with the main idea of influencing pending legislation.

POWER OF CONGRESS TO REGULATE INTERSTATE COMMERCE

Undoubtedly the commerce clause of the Constitution permits a rather broad interpretation of the powers surrendered to the Federal Government by the several States, and the right to regulate interstate commerce cannot be denied. However, there is no excuse whatever for the Federal Government, under the guise of interstate commerce, to attempt to interfere in purely intrastate business. Testimony indicates that under the provisions of the pending holding-company bills the Federal Government is seeking to regulate about 85 percent of the publicutility business, while little more than 15 percent is really interstate business. Decisions of the United States Supreme Court have been handed down on this subject for more than a century. Just as examples, two extracts from decisions are quoted herewith:

Peoples Natural Gas Co. v. Public Service Commission of Pennsylvania (270 U. S. 554): "As respects the West Virginia gas, we are of the opinion, in view of its continuous transportation from the places of production in one State to those of consumption in the other, and its prompt delivery to purchasers when it reaches the intended destination, that it must be held to be in interstate commerce throughout these transactions. Prior decisions leave no room for discussion on this point and show that the passing of custody and title at the State boundary without arresting the movement to the destination intended are minor details which do not affect the essential nature of the business" (W. U. v. Foster, 247 U. S. 105; United Fuel Gas Co. v. Hallanan, 257 U. S. 277; Pa. v. W. Va., 262 U. S. 553; Ohio R. R. Com. v. Worthington, 225 U. S. 101; Shafer v. Farmers Grain Co., 268 U. S. 189; Pa. Gas Co. v. P. U. C., 253 U. S. 23-28).

Public Utilities Commission of R. I. v. Attleboro Steam Electric Co. (273 U.S.83): "Plainly, however, the paramount issue in the interstate business carried on between the two companies is not local to either State, but is essentially national in character. The rate is therefore not subject to regulation by either of the two States in the guise of protection to their respective local interests; but if such regulation is required it can only be attained by the exercise of the power vested in Congress." (Covington Bridge Co. v. Kentucky, 154 U. S. 204–220; Hanley v. Kansas City St. Ry. Co., 187 U. S. 617).

The above case resulted in the confirmation of a decree of the Supreme Court of Rhode Island disapproving an order for an increase of rate on electricity furnished at the State line.

TAXATION FOR THE PURPOSE OF PUTTING THE FEDERAL GOVERNMENT INTO COMPETITION WITH PRIVATE INDUSTRY

The pending legislation has injected into the hearings many questions which are coordinate with, though not properly a part of the same.

Some hundreds of millions of dollars are being put into power developments by the Federal Government, and while these funds are being raised by the sale of

bonds, yet as these bonds mature they must be paid from funds raised by taxation. Thinly disguising activities under the term of "national defense", "flood control", "navigation", etc., does not destroy the clear aim and intent of the legislation. Where does the Government acquire its power to tax the public for its_ventures into the field of public utilities?

Section 8 of the Constitution grants the following taxing powers:

"The Congress shall have the power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States, but all duties, imposts, and excises shall be uniform throughout the United States."

Certainly there is nothing in these taxing powers which authorizes the Federal Government to embark in the business of generating and retailing electricity or any other business for that matter, in competition with private industry. The aim of the socialistic State is the destruction of all private industry and the vesting of all industry in the State. If even a major part of the pending legislation on the subject of governmental power projects were enacted into law, the complete destruction of the entire private-utility industry would be assured. That is clearly the intent of the agencies formulating such legislative programs. The question which naturally arises in the minds of the thinking public when the embarkation of the Federal Government into various lines of industry, is considered, is whether or not some well-organized group, which has for its object the socialization of all industry, is not back of the whole movement.

When the Constitution was adopted, the people of the several sovereign States were fearful of permitting too much power to be centered in the Federal Government, or individual. They had suffered too much from the whims and idiosyncrasies of a far distant monarch to permit the establishment of a similar monarchy through the surrender of imperial powers to a General Government. It cannot be denied that under the stress of existing conditions, Congress has been prone to shift its responsibilities to the President, something the founders of the country did not contemplate.

WATER POWER AND THE FEDERAL GOVERNMENT

Federal Government agencies have in many cases laid down the doctrine that the Federal Government is the sovereign and the proprietor of the beds and waters of navigable streams and their unnavigable tributaries (Marine Ry. & Coal Co. v. U. S., 257 U. S. 127).

The Federal Government has no proprietary right in the water of a river or its bed except where it has become a riparian owner of adjacent lands. Under the commerce clauses of the Constitution, there is surrendered to the Federal Government the power to regulate interstate commerce, and in the case of Gibbon v. Ogden (9 Wheat. 1) Chief Justice John Marshall decided that the term "commerce" included "navigation", but in the process of regulating commerce, the Federal Government acquires no right or title to the waters of a river, the title remaining in the State or the individual as the case may be. Even when the Federal Government becomes the owner of riparian properties by purchase, it vests itself with nothing more than the same rights which are exercised by the most humble private citizen. It is an elementary well established proposition that nobody whether sovereign or individual owns the water of a running stream, the right is simply the beneficial uses of the waters as they flow, and the same is true whether the stream be interstate, intrastate, or an international boundary. Another point which is often overlooked or ignored by Federal Government agencies is that it is the water in the stream, and not the dam which produces the electricity, and while the Government may own the dam, the ownership does not extend to the water above or below the dam, the usufruct use of which is vested in the State or individual riparian owners. There is a sound argument in favor of the power generated at a public dam, being the property of the State wherein it is located. Even assuming that the power generated by the Federal built dam in the improvement of navigation, it is a sound argument that any increase in power over that brought about purely from navigation regulation, belongs to the State.

GENERAL WELFARE REFERENCES IN THE CONSTITUTION

Under the guise of "general welfare" governmental agencies have placed some fearful and highly complicated constructions on the Constitution.

Under this guise, as an instance, the Tennessee Valley Authority is spending several hundred millions of dollars of taxpayers' money, which it seeks to justify

on the grounds that the general welfare of the public as a whole is being enhanced by cheaper power rates in a limited area. In this scheme so many features are omitted that no balance of comparison can be struck by an ordinary individual. While the individual area in question may get cheaper rates, apparently, yet the individual taxpayers make up the difference in many other ways. The lavish disregard with which Government agencies spend public funds involves excessive expenses of operation which must be met by taxing the general public.

On this subject, the United States Supreme Court in the case of Knoxville v. Water Company (212 U. S. 1-18) said:

"The courts ought not to bear the whole burden of saving property from confiscation, though they will not be found wanting where the proof is clear. The legislatures and subordinate bodies, to whom the legislative power has been delegated, ought to do their part. Our social system rests largely upon the sanctity of private property, and that State or community which seeks to invade it will soon discover the error in the disaster which follows. The slight gain to the consumer, which he could obtain from a reduction in the rates charged by publicservice corporation, is as nothing compared with his share in the ruin which would be brought about by denying to private property its just reward, thus unsettling values and destroying confidences."

In submitting these comments and recommendations on the pending bill, the writer has fully recognized the earnest manner in which the committee has gone into the many important questions involved. These comments are not made in any direct spirit of criticism, but are comments based on a long and extensive experience as a professional engineer without affiliations with any individual company affected by such legislation. The writer in his professional practice has seen the power utility grow from practically nothing more than a limited number of isolated individual plants with doubtful service, to a 12 billion dollar industry, with efficient service.

Most of the represenatives of the utility industry appearing before the committee have agreed that some of the existing practices should be eliminated, and that regulation of the purely interstate business of the utility company is within the province of the powers granted to the Federal Government by the Constitution.

While there are some agencies in this country which seek the destruction of the private utility as a certain means of forcing Government ownership and operation of utilities as a first step toward the socialization of all industry, yet it is not believed that the committee is willing to embark on a program of destruction in lieu of equitable regulation of the interstate commerce feaures.

JAMES E. CASSIDY,
Consulting Engineer.

APRIL 23, 1935.

STATEMENT OF BERNARD F. WEADOCK, VICE PRESIDENT AND MANAGING DIRECTOR EDISON ELECTRIC INSTITUTE, TO THE HONORABLE COMMITTEE ON INTERSTATE COMMERCE OF THE SENATE OF THE UNITED STATES

My name is Bernard F. Weadock. I live in Greenwich, Conn. I have represented the utility associations in the Federal Trade Commission's investigation of the electric light and power industry since 1928 and have been vice president and managing director of the Edison Electric Institute since its organization. I have attended the conferences and hearings of the Commission. I am familiar with the record and desire to present the following information in reply to Col. William T. Chantland, Attorney in Charge of Utilities Investigation, presented to this committee on April 17, 1935.

METHOD OF PROCEDURE OF THE COMMISSION

The attention of this committee is directed to the method of procedure adopted in the 8 years of its investigation of the electric light and power industry by the Federal Trade Commission. It will be noted from Col. Chantland's testimony that it was necessary to convince Dr. Walker and Judge Healy that the facts as claimed by the examiners were inaccurate. The reports as printed never did carry the full approval of the company examined. This is best evidenced by a statement in the record by Mr. Earle J. Machold, attorney for Niagara Hudson Power Corporation (Dec. 13, 1934, p. 45584 of testimony) as follows:

"I might say that it is the policy of the Niagara Hudson System in this and other similar instances to cooperate with investigating bodies. While we have had differences of opinion with the Commission, and do not agree entirely with some of the things that are in some of these reports, not only on this company, but on the others, and some of the testimony, we have been given an opportunity to present our story, and this being an ex-parte proceeding, of course, the decision is to be made by the Commission.

"I would like to say on the record that failure to cross-examine in detail or to take exception to specific items or matters as they occur in the record I understand does not constitute in any way an admission or bind the company as to the correctness of the exhibits and testimony or affect its right to challenge any of those statements of fact or opinion in any collateral proceeding or before any State or Federal court, commission, or other body. That is my understanding of the nature of the proceeding, and if I am not correct I would like to have you say so on the record."

A reading of the reports on the companies examined, as presented to the Congress of the United States by the Federal Trade Commission, will disclose that full cross-examination, while accorded, was never permitted. A few excerpts from the record will bear out this statement

"Mr. CHANTLAND. I object to counsel interfering with the witness in the middle of a statement. As a matter of fact, I do not think the procedure is proper in these hearings. I do not like to have that happen." (Hearing on Oswego River Power Co., June 15, 1934, p. 42672/3.)

"BUCKINGHAM. As an accountant I like to see a balance sheet and a profitand-loss statement arranged in a fashion which will indicate the nature of the accounts, whether they may be of particular merit or not. It certainly would be a satisfaction even to the owners of the company to have their financial statements arranged in an orthodox manner which would set forth the facts in the case. "BROWN (for the company). Yes; but I do not believe your instructions were to advise these private owners as to what you thought was good or bad. "A. No, sir.

"Mr. WALSH (attorney of Federal Trade Commission) I am afraid I will have to stop you there, Mr. Brown. Mr. Buckingham, when he goes into the field, has no instructions from the Commission to criticize or not to criticize the owners. However, he is to bring back to this Commission what he considers to be the true facts in the case and as an examiner of the Commission he has a perfect right to report to the Commission what he finds to be the true condition of the company. "Mr. BROWN. I think he has gone beyond that.

"Mr. WALSH. I am afraid I must take exception to that.

"Mr. BROWN. Well, I have no guide as to which takes precedence, this public record or his report. I assumed his report would become a part of the public record.

"Mr. WALSH. The report is in the public record.

"Mr. BROWN. And the statements in the public record to which I take exception are not the information you brought out. I think you have done that very fairly and very nicely, and I appreciate the way in which you have got it up, but it is the statements in the report which I assume would supplement the public record to which I take exception, and I only wanted to ask these questions of Mr. Buckingham in order that it might tend to present the other side, which I think we are fairly entitled to bring out, too, in effect; show the other side that he has failed to present in his report. That is all I had in mind." (Hearing, National Gas Pipeline Co. of America, Jan. 24, 1934, vol. 62, pp. 74, 75.)

From the following it will be noted that the proceedings were accepted as being purely ex parte:

"Examiner AVERILL. As I understand-correct me if I am wrong, Colonel Chantland-this is an ex parte hearing; and, while I believe it has been the custom to permit an attorney representing the respondents-not the respondents, because there aren't any respondents, but representing the various utilities to register an objection to certain things at times, that is as far as we have gone; is it not?

"Colonel CHANTLAND. I think that is so, unless the examiner feels that the bounds of propriety are so far exceeded that he should sit down upon us in good conscience; but, otherwise, we do not feel that we are limited by any issues of trial. We are trying to develop information, and we put this in as an illustrative figure. We quite recognize that there must be qualifications stated, if we are to use what we put in; but this illustration we will try to protect, if further use is made of it." 130254-35-64