those operating companies licensees under the Federal Water Power Act, it appeared obvious that the time to take care of the necessary amendments to the Federal Water Power Act was the same time. As I get into this matter I hope to be able to show you the relationship between title I, or the holding-company part of the bill, and the second title II relating to operating companies.

Senator HASTINGS. Might I inquire whether you would urge the Congress to pass title II of the bill regardless of whether we pass title I?

Mr. DEVANE. You are talking now about title II regulating operating companies?

Senator HASTINGS. Yes.

Mr. DEVANE. Yes, sir. I think that both should be enacted. Senator HASTINGS. I understand that, but wanted an answer to my question.

Mr. DEVANE. But I think title II is just as important legislation as title I. I personally think it is more important legislation. You may not agree with me on that but I shall attempt to tell you why I think it is more important.

Senator HASTINGS. I guess you probably have answered my question, but I was wanting to know this: Whether or not you think it advisable to pass title II of the bill even if we did not pass title I. Mr. DEVANE. Well, I hope they are both enacted into law.

Senator HASTINGS. I understand, but suppose you just answer my question.

Mr. DEVANE. The answer to your question is, that I think it is advisable to pass title II.

Senator HASTINGS. That is the answer I wanted to get from you. Mr. DEVANE. I think it is essential to pass title II if we are going to give to the customers, the consumers of electrical energy in this country, the protection they are entitled to.

The CHAIRMAN. You may proceed with your statement.
Mr. DEVANE. Now, may I also

Senator HASTINGS (interposing). Pardon me for an interruption right there: This memorandum which you have handed to the members of the committee is the old Water Power Act with certain things stricken out and certain things added, and this shows the changes made?

Mr. DEVANE. Yes. The memorandum that you have, however, only shows the sections of the Federal Water Power Act that we propose to amend. It does not include all the sections of that act; it is not an effort to reenact the Federal Water Power Act. There is also contained in the memorandum that you have certain administrative sections of the Federal Water Power Act that are there stricken out because those same sections appear in title III of the bill.

Senator HASTINGS. All right.

Mr. DEVANE. May I also read into the record at this point a memorandum I have here which explains these amendments to the Federal Water Power Act?

The CHAIRMAN. Yes.

Mr. DEVANE. I hand it over to the committee reporter.

The CHAIRMAN. Well, you said you wanted to read it in. Do you just wish to submit it and have it made a part of your statement? Mr. DEVANE. Yes; if that is more convenient, just let it be incorporated as a part of the record.

The CHAIRMAN. That may be done.

(The paper entitled "Wheeler bill, S. 1725, Pages 78 to 104, Amendments to Present Sections of Water Power Act", is here made a part of the record, as follows:)

The proposed amendments to the present provisions of the Water Power Act (title 16, U. S. C., secs. 791-823) are all minor and are designed to meet situations which have arisen in the course of its administration.

Section 201 of the bill (p. 78) makes additions to the definition section of the act (sec. 3). The present definition of "corporation" is limited to corporations authorized to deal with electric power. A broader definition is substituted which would embrace all corporations whether dealing in electricity or not and would include unincorporated forms of organization other than an individual business. The terms "person", "licensee ", commission ", "commissioner", "State commission" and "security" are defined for the first time. Both the amendment and the additions are included for their utility in the drafting of later provisions, and to prevent unnecessary repetition. Section 202 of the bill amends section 4 of the Water Power Act. This section consists of a general enumeration of the Commission's powers. The present subsection (a) contains a reference to the Commission's determination of the net investment of the licensee in a project, but the power to make such determination is left to implication and not expressly granted. While its power to do so has been upheld in a suit brought by the Clarion River Power Co. (59 Fed. (2d) 861, certiorari denied 287 U. S. 639), this amendment is designed to remove continued controversy on the subject. Subsection (a) is divided into two subsections, the second, lettered (b), containing the grant of power "to determine the actual legitimate prudent, original cost" of a licensed project. The word "prudent" is added here and consistently throughout the act as a qualification of the cost to be determined by the Commisison for purposes of recapture and rate making. The Water Power Act was the first congressional repudiation of the unstable "fair value" rule; the net investment in the project is the sum to be paid on recapture and the amount to be used as a rate base. Consistent application of this theory requires the qualification that all costs allowed must have been prudently incurred. The commisison interprets the present act in this way, bur this interpretation has not been reviewed by the courts and the amendment is desired to eliminate the possibility of doubt on the subject. In the same paragraph, the requirement that the Commission file with the Secretary the Treasury a copy of the statement of original cost is transposed to the eno of the subsection. For clarity, all doubt is removed that the statement filea is the Commission's determination of cost, not the applicant's claim.

The date for the filing of the Commission's annual report to Congress, fixed in the present section 4 (c), relettered (d), is changed from the first Monday in December to the third day of January, in keeping with the change in the date of the opening of Congress.

The provision of section 4 (d), relettered (e), authorizing the Commission to issue licenses is broadened. As now worded, this section authorizes the issuance of licenses for projects in the navigable waters of the United States. Under section 23 of the act, however, authority is given to license projects on nonnavigable waters where interstate commerce is affected. For the purpose of combining these two grants of power in a single section, it is proposed to state the licensing power in section 4 (c) as a general power to license projects in streams or other bodies of water over which Congress has jurisdiction under the commerce clause. In this subsection also, the exemption of dams constructed prior to "the passage of this act" is changed to read "prior to June 10, 1920", the date on which the Water Power Act became effective.

In the present section 4 (e), relettered (f), the requirement that notice of applications for preliminary permits be published is modified by requiring publication once each week for 4 weeks instead of for 8 weeks. The 4-week period is believed to furnish ample notice and to reduce expense and delay.

The grants of authority in the present subsections (f), (g), and (h) to prescribe accounts, require reports, and make rules and regulations are removed from section 4 and placed in title III of the amended power act, where they relate to all companies subject to regulation by the Commission.

A new subsection (g) is added to section 4, to authorize the Commission to investigate the occupancy of power sites on waters under its jurisdiction. This subsection would enable the Commission to proceed against those who are using power sites without having secured licenses, and thus more adequately protect the water resources committed to its care.

Section 203 of the bill makes two changes in section 5 of the act, which deals with preliminary permits. In the sentence providing that such permits shall set forth the conditions under which priority shall be maintained "and a license issued", the quoted words are stricken out. The Commission is of the opinion that the issuance of a preliminary permit does not of itself carry the absolute right to a license even if the applicant complies with all of the conditions of the permit. The quoted words, however, are relied on in support of the opposite contention. To free the issue from doubt, it is recommended that those words be omitted. In the last sentence, dealing with the cancelation of such permits, a change is recommended which would permit cancelation not merely for failure to comply with the conditions of the permit, but also for "other good cause shown after notice and opportunity for hearing."

The next section would amend section 6 of the act by reducing the notice which must be given before a license may be altered or surrendered from 90 days to 30 days. It is believed that this affords ample opportunity for the presentation of objections. The present provision, applying as it does to every material change in the terms of a license, causes unnecessary delay. This section makes one other change which has been found necessary for the effective administration of the act. This is the provision that copies of all licenses which call for the payment of annual charges shall be deposited with the General Accounting Office in compliance with section 3743 of the Revised Statutes (U. S. C., title 41, sec. 20). The Comptroller General has construed that seetion to require the filing of the original contracts. The Attorney General has ruled to the contrary. The Commission finds it essential in the performance of its work that originals of licenses heretofore issued be left in its files. entire purpose of sending the contract to the General Accounting Office would be satisfied by a copy, photostatic or otherwise. The proposed amendment is taken verbatim from that relating to contracts made by the Indian Service (U. S. C., title 25, sec. 96).

The

Two amendments are made to section 7 merely for the purpose of clarifying the broad objective of the act to secure Commission control over all projects involving the development of the Nation's water resources. In the first paragraph of that section, which gives a preference to applications by States and municipalities, the condition of such preference is made to read that they must be best adapted to develop, conserve, and utilize "the water resources of the region", striking out the words "navigation and" before the quoted phrase. In the second paragraph, which provides that the Commission shall not grant any license when in its judgment a development should be undertaken by the United States, the present reference to the development of a "project" is changed to the development of "water resources for public purposes" and corresponding changes in phraseology are carried throughout the paragraph. The third paragraph of this section relates to a particular investigation which has long been completed; the bill eliminates it.

Section 206 of the bill amends section 10 of the Water Power Act in keeping with the changes made in the preceding amendment. It provides that, as a condition of the issuance of a license, the project shall be such that in the judg Iment of the Commission, will be best adapted to a comprehensive scheme "for improving or developing a waterway or waterways for the use or benefit of interstate or foreign commerce ", instead of the more limited "for the purposes of navigation." It also adds to the other beneficial public uses to which the project may be adapted an express provision that the Commission may include consideration of recreational purposes.

In subsections (b), (e), and (i), there are references to projects of a capacity of 100 horsepower. This figure is used as the dividing line in exempting small projects from certain requirements. The standard is ambiguous. In each case. the uncertainty in its meaning is removed by inserting the word "installed before "capacity."

Subsection (d) of this section provides for the establishment of amortization reserves; it refers to surplus earned in excess of a reasonable rate of return upon the "actual legitimate investment of the licensee. For clarification, the words" actual legitimate investment are changed to "net investment." Obvi

ously, the intent of the present provisions is that the return should be calculated on the total investment reduced by retirements and the depreciation reserve, and not upon the unchanged original cost of the project.

66

Several minor changes are made in section 10 (a), relating to the charges to be paid by licensees. The charge to be fixed by the Commission for the purpose of reimbursing the United States for the cost of administration is limited to the cost of administering this title" instead of the "act." This makes no change in the present situation, but confines the charges to those needed for the administration of the water-power provisions. The amendment also makes explicit the authority of the Commission to adjust from time to time all charges imposed under the act. In the proviso that charges for licenses involving the use of Government dams shall be adjusted at the end of 20 years, there is introduced for the purpose of clarification the provision that such readjustment shall be made "by the Commission"; this time is to run from the time "the project is available for service" instead of from the beginning of operations, as the latter date is subject to postponement by the licensee. Finally, the Commission is authorized to allow a credit for any overpayment of charges which may have been made in preceding years.

In subsection (f) a provision requiring that the Commission shall require as a condition of the license that a licensee directly benefited by the project of another licensee shall make reimbursement for such benefit is amended by including a requirement that the licensees affected shall pay to the United States the cost of making this determination as to benefits. A new paragraph is added to this subsection imposing upon the owners of power projects not under license the duty to pay compensation for headwater benefits received from the construction of licensed projects. Every reason for the imposition of a duty to pay for benefits received that applies where the benefited property is licensed applies with equal force to the receipt of benefits by nonlicensees.

Finally, in section 10 (i), where the Commission is authorized to waive conditions in the case of projects of not more than 100-horsepower capacity, the proviso that this exemption shall not be made in the case of lands within Indian reservations is limited so as to make them not apply merely to "annual charges" for use of such lands.

Section 207 of the bill introduces a slight amendment to the procedure on the recapture of a project by the United States under section 14 of the act. The net investment at the time of recapture would under the amendment be determined by the Commission after hearing, instead of by agreement between the Commission and the licensee, or court proceedings, as the act now provides. The present provision would in effect mean that the court would be asked to decide the question, not merely to review the Commission's determination. Since the Commission will have made a determination of the original cost, together with the cost of additions and betterments during all the years of its operation, there is every reason why it should make this determination.

Section 208 of the bill amends section 17 of the act to provide for separation of charges collected by the Commission for purposes of reimbursing the United States for the costs of administration from the other charges collected by the Commission. Under the amendment these administration costs would be credited to miscellaneous receipts instead of to the special funds among which the other expenditures are divided. This is obviously in accord with the basic purpose of requiring reimbursement of the costs of administration. Further, a new subsection would be added to this section imposing a penalty for delinquency in the payment of annual charges. The Commission has had difficulty in the collection of small sums, and this penalty should be of great assistance in securing enforcement.

Section 18 of the act dealing with the duties of licensees to comply with regulations adopted in the interests of navigation is rearranged by section 209 of the bill for purposes of clarification. The only substantive change would direct the Commission to require licensees to construct, as well as to maintain and operate, such lights and signals as may be directed by the Secretary of War and such fishways as may be prescribed by the Secretary of Commerce. Section 210 of the bill amends section 23 of the Water Power Act. In subsection (a) the determination of the value of projects constructed under prior authority which come under license is placed with the Commission instead of being left to determination by agreement and in case of disagreement by court proceeding. Plainly, this is the kind of a question that should be decided by the Commission.

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In subjection (b) the present proviso that those intending to undertake projects on a nonnavigable tributary of a navigable stream may in their discretion file declaration of such intention with the Commission is changed so as to make it a duty to file such a declaration before proceeding with the construction, maintenance, or operation of any project on such waters. Furthermore, a provision is inserted expressly making it unlawful to construct a project on any navigable waters without a license granted pursuant to the act. This latter provision is in substance the result achieved by the River and Harbor Act of 1899 when read with the Water Power Act. It is thought desirable to bring together the regulations dealing with power projects in a single act. Under this section, as amended, every person intending to construct a project which might conceivably affect any navigable waters would be under the duty of coming to the Commission. The act would be greatly strengthened by enabling the Commission to preserve control over all projects with which the · Federal Government has any valid concern.

Section 211 of the bill, by amending section 24 of the act, would secure to the Commission control over the use of lands of the United States included in proposed projects. As the law now stands, such lands may be opened for other uses by the Secretary of the Interior upon a Commission determination that their value for purposes of power development will not be injured or destroyed thereby. The amendment would authorize the Commission to determine the purposes for which, and the restrictions under which, such lands may be opened and so to protect future power developments against payment of excessive damages. There is also added a proviso securing to the Commission the administration of the laws affecting permits and rights-of-way on lands of the United States or waters under its control for power purposes, except as such administration is reserved to the several departments under the provisions of the act.

Section 25 of the present act carried a general penalty clause, but, in view of the more comprehensive penalty section in the new title to be added (sec. 314, p. 137 of the bill), the present section 25 should be repealed. An appropriate amendment will accordingly be submitted for this purpose.

The CHAIRMAN. You may proceed with your statement.

Mr. DEVANE. I am passing now from the first title II, on page 78 of the bill, to the second title II, on page 104 of the bill, which is the title that has to do with the regulation of these operating utilities. What I have to say of title I of the bill is simply this: I think you can illustrate a holding company, more or less, as a pasture fence that is built around groups of these utilities, here and yonder, scattered all over the country. Now, title I of the bill proposes to tear down that pasture fence and to turn the stock loose, that stock being the operating companies.

These holding companies, as ( has been pointed out to you by Dr. Splawn, are sprawled all over the United States. Electric Bond & Share alone, for illustration, operates in 36 States of the Union. There is, to a certain extent, some integration between the companies that Electric Bond & Share own, but there is no integration in its entire system. Here it has built a fence around a group of companies, we might say, in Massachusetts, and another group in Texas, and another group in Florida, and another in Montana, and another in Indiana, and that is the way it is done all over the country. In other words, it operates in 36 States of the Union.

Now, we propose to tear that fence down and to rid those companies of that holding-company control, and to let the holding company, if it is to exist, operate an integrated system; that is, a system in a particular district.

Title II provides that as you tear down this fence you shall place in the Federal Power Commission supervision over the integration of these operating companies into strong regional systems. That is