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Mr. BENTON. This provision which we have asked for is merely desired for the purpose which I have pointed out.
I think that covers all the amendments to title I which I will ask to read at this time. That brings me to the amendments proposed to title II. We ask to have a new paragraph adopted, to section 201, which shall declare the need for regulation and the extent to which it is intended to be carried.
The CHAIRMAN. In other words, they want a declaration of policy.
Mr. BENTON. Yes. I would say that the first part of that declaration was taken, word for word, from title III of the bill in the House. The last part was an addition. The declaration will declare the purpose of Congress to regulate that part of the business which is beyond the reach of the State authorities, and that it is the intent not to go beyond that. We think that that is a very desirable provision to insert in the act, for the purpose of making clear the intent of subsequent provisions.
The CHAIRMAN. As I recall it, you have a proviso in here saying that nothing in this act shall in any wise interfere with the regulation by the State commission.
Mr. BENTON. There is a provision of that sort already in the bill. We have not believed that that would be construed by the courts as intended to negative the express delegation of power given in other parts. Being inconsistent with such express delegation, the Federal courts would take care of the Federal Commission by saying “Congress intended to do something, and this is what it said. The general statement at the end of the bill cannot have been intended by Congress to unsay what was said expressly at various places earlier in the statute.
So much for that declaration of policy. Then we come to the end of what is now paragraph (a), but which would become paragraph (b) if you included the paragraph (a) which we suggest. At the present time the language is this. [Reading:)
The provisions of this title shall apply to the transmission and sale of electric energy in interstate commerce and to the production of energy for such transmission and sale, but shall not apply to the retail sale of such energy in local distribution.
The plain purpose of the provision, as I agree with the chairman, is to reserve the local distribution to local authorities, and to make this grant of authority extend only to the wholesale transactions, but it is our purpose to insure the construction of that by the inclusion of these additional words which are underscored. It is unnecessary for me to read them. It does not change the intent of the law as understood by the chairman, but simply makes it more certain.
Then, the latter part of the section now reads. [Reading:)
Every person who owns or operates facilities subject to the jurisdiction of the Commission under this title and every person who controls, directly or indirectly, any such person shall be subject to the provisions of this title and title III.
That "title III," of course, was an inadvertence here. We feel that this part of the bill should not be a holding company bill. The holding company provision should be taken care of in the first section. The words "and every person who controls directly or indirectly any such person" The CHAIRMAN. What page are you referring to? Mr. BENTON. I am reading from page 104, section 201.
We have proposed that the words “and every person who controls, directly or indirectly, any such person” should be stricken here, leaving the regulation of the holding companies to the early part of the bill. Then we have asked that there should be added these words:
Provided, however, That a public utility which purchases at wholesale electric energy transmitted into one State from another State, or from a foreign country, which energy is used by the purchasing public utility solely in distribution and sale to local consumers in the State where delivered shall not by reason of such ownership or operation be subject to the provisions of this Act.
Take the Illinois situation, which I was talking about, where the operating local public utility owns a line which it extends outside the State for the purpose of bringing in electricity. Merely because it brings in electricity from a plant which it owns and controls, it should not be subjected to the interstate regulation, because it really does no interstate business.
Then the last line and a half of the section as printed in the bill is a definition of a public utility company, which we have suggested be thrown into a third paragraph. It is unnecessary to read it.
Paragraph (d) is a rewriting of what is now paragraph (b) in the printed bill. Here we have proposed that that part of the definition which would make interstate commerce of that electricity which begins at one point in the State and passes through a point in some other State and is sold in the same State where it begins, be stricken out, Having talked to you once about that on another bill without much success, I will not talk to you about it any longer here, but I will invite your attention to the proviso which we have added. [Reading:)
Provided, however, That after electric energy has been transmitted into one State from another State, or from a foreign country, if the voltage is reduced for the purpose of enabling the same to be distributed to local consumers, or if such electric energy is in any manner so distributed, any transmission for the purpose, or in the course of such distribution, shall be deemed to be in intrastate commerce or in local distribution not subject to the jurisdiction of the Commission.
That we ask to have added for the purpose of carrying into the bill an express statement by the Congress that it considers such transmission local, and intends it to be subject to the regulation of the local authorities.
Senator Bone. Your idea there is that if electric energy is brought into a State and, for want of a better term, may be said to come to repose in that state, it shall in nowise be subject to regulation by the Federal Government.
Mr. BENTON. My idea is that when electricity has been brought in from outside the State and is then stepped down for local distribution, the local distribution is subject to the State regulation; but the production, transmission, and sale of the power interstate should be subject to the regulation of the Federal commission.
Senator Bone. I ask that question largely because of your paragraph (e), which seems to be all-embacing, so to speak.
Mr. BENTON. In the East Ohio Gas case, which is reported in 283 U.S., 465, dealing with gas which was brought in by a company from outside the State and sold by the same company to consumers inside the State, the United States Suprme Court held that when the pressure on the gas was reduced that marked the end of the interstate transmission of it, and it thereafter became intrastate. The purpose of the drafters of this bill, as I understand, has been to leave the consumer rates to local regulation. Inasmuch as the Federal Government is entering the field of regulation to the extent of regulating the interstate wholesale rate, we think that, for the purpose of insuring that no court can possibly understand that it intended to leave the local consumer rates unregulated, it is desirable to include a declaration to that effect. It is in the paragraph which I have just read, and, in all inclusive form, is in paragraph (e), as the Senator has just pointed out. Paragraph (e) is merely the declaration by the Congress that the consumer rate is local.
The CHAIRMAN. We are not going to get through if we do not hurry.
Mr. BENTON. I will pass over the next. I think the purpose of the next suggested amendment will be obvious from a reading of it.
I will turn to the amendment to section 202-A on page 104. There we have asked that no order shall be made by the Federal commission requiring the rendition of service by a public utility the major part of the business of which, measured by gross revenues, is not subject to the jurisdiction of the Commission. The purpose of that is this. Many companies do now, and will hereafter, wish to dispose of their surplus power by selling their surplus to other companies. If, however, a public, utility is designed for a local operating utility and the major part of its business is serving local consumers, we think that it should be left to make voluntary sales of its surplus power without thereby subjecting itself to the liability that it may be required by an order of the Federal commission to sell power to utilities outside the State.
Senator COUZENS. To whom would they sell the surplus?
Mr. BENTON. They could sell it to anybody they wanted to-anybody who wanted it.
Senator COUZENS. In interstate commerce? Mr. BENTON. Yes. Senator COUZENS. Without being subjected to any regulation at all?
Mr. BENTON. Subject to all regulation, except the compulsion that they sell. Subject to regulation as to price; subject to regulation as to the keeping of their accounts—subject to complete regulation except the compulsion to sell.
Senator BONE. Is not this language broad enough to eliminate practically every company in the United States from the scope of the interstate control provisions?
Mr. BENTON. I think not.
Senator BONE. I am not talking about complete control over other matters, but the matter contemplated in this provision.
Mr. BENTON. No.
Senator Bone. Can you name one company which, under the terms of this amendment, would come within the scope of this act?
Mr. BENTON. I do not know the comparative volumes of their output and what their revenues are. The purpose of it, however, is perfectly clear. If it is mainly a local company it should not be disabled from local service. Later we have another provision with respect to extension of facilities, that it shall not be required to extend its facilities and make new investments for the purpose of serving outside the State. If you do not have some such provision you create & situation where a company which has a surplus will not venture to sell it in interstate commerce for fear of being subjected to requirements as to service or as to extensions which it might not be prepared to make.
On page 107 of the bill, section 204, there is now the provision that:
No public utility shall undertake the construction or extension of any facilities subject to the jurisdiction of the Commission, or acquire or operate any such facilities, or extension thereof, or engage in production or transmission by means of any such new or additional facilities or receive energy from any new sourcewithout procuring a certificate of convenience and necessity from the Federal Commission. The purpose, I take it, is to prevent the expenditure of money by needless duplication of facilities. It seems to us that a limitation as to the right to extend its "lines" will accomplish the purpose aimed at, and that it probably will not be the purpose of Congress to require that every company which does any interstate business, and thereby comes under the regulation of the Federal Commission as to the interstate business it does, must come to the Commission at Washington for every improvement or enlargement of its generating capacity or other facilities.
The CHAIRMAN. I do not think you need argue that point to us.
Mr. BENTON. The next suggested amendment is as to abandonments. We recognize that no company engaged in this business ought to abandon anything which will interfere with its interstate service, but otherwise there ought not to be a limitation.
With respect to section 205, on page 108, and subsequent sections, I will let the amendments rest upon their face and upon the basis of what I have said.
The CHAIRMAN. We are going to take all your amendments and study them, and when we come to consider them in executive session we will have your amendments before us and take them up.
Senator Bons. Mr. Benton, I do not want to cause you to digress, but I would like to ask you this one question. I do not want to interrupt you any more. You were referring a moment ago to the classification of accounts that has been adopted generally by State regulatory bodies. Can you inform us how generally a standard form of classification of accounts for electric utilities has been adopted in the country? That is to say, how many States have adopted the same type of accounting?
Mr. BENTON. I cannot at the moment. If I may have leave to do So,
I will include a statement on that, but I will tell you now that a very substantial number of the State commissions have adopted a classification of accounts which is generally referred to as the classification approved by the National Association.
Senator BONE. One other question. How far, in that system of accounting that is now being required more generally, do you compel a breakdown and segregation of figures showing the allocation of taxes to Federal and State governments, and the political subdivisions of the States? In other words, do these accounting systems require these companies to clearly indicate just how much tax they pay, and how it is paid, as to the State and its political subdivisions?
Mr. BENTON. I regret to say that I do not know. I am not an accountant. That is a thing that at the moment I am unable to give you any information on. I am inclined to think that they do not, but I do not wish to state that positively.
On page 117, section 211 of the bill as printed, there is a provision that the Commission shall have power to ascertain, for the purposes of
this title, the actual, legitimate prudent cost of the property of every public utility and every fact which, in its judgment, has any bearing on the determination of such. cost." We think it is desirable that the Commission should have that power, but we suggest that it ought to go to the point of ascertaining every fact which, in the judgment of the Commission, has any bearing on just and reasonable rates. There, as elsewhere, we have asked to have the authority directed to the rates which are subject to the jurisdiction of the Commission.
Paragraph (c) of that section now reads (reading):
In determining just and reasonable rates, the Commission shall fix such rate as will allow a fair return upon the actual legitimate prudent cost of the property used and useful for the service in question.
We have asked to have added to that the following:
Provided, however, That no rate which is unreasonable in amount, having in view the character and value of the service covered thereby and the cost of rendering the same when rendered or to be rendered shall be prescribed or permitted.
I think you will see that it is essential that some provision of that sort, or some variation from the language here, be made, for this reason. This, as it stands, is probably designed to direct the making of a rate which shall exactly yield a fair return on the original cost. It is either that or it is a minimum rate making section, saying that the rates fixed shall provide at least as much as a fair return on the original cost. You must remember, however, that you are beginning the regulation through a Federal commission of the rates on utilities which have been in operation for a long time. Their properties are substantially depreciated. Generally speaking, the depreciation has been recovered as parts of their rates, and has been invested in other property. If you include a legislative direction that the rates must be sufficient to yield a fair return on the original cost of all those properties, you will load upon the public the burden of paying a rate upon the depreciation reserve which the public created. That never was the intent of the persons who wrote the bill, but I think it is the inescapable result of the bill. It has been, as I think, suggested that the matter would be taken care of because the Commission, under this bill, was going to provide for depreciation and provide for having the depreciation invested, and the return on the depreciation reserve covered in as income. It would work out that way all right if you began with a company when the company's properties were all new; but it does not work out when you begin with companies after their properties have been largely depreciated, and they have invested the depreciation reserve in other properties, or used it up-distributed it in dividends.
Senator BONE. Would you not think the suggestion was somewhat modified by the expression “used and useful” for the service in question?
Mr. BENTON. Any rates should be confined to a fair return upon property used and useful. I agree with that.
Senator BONĖ. If the investments are not reflected in property that was presently used and useful?
Mr. BENTON. You have property used and useful, the original cost of which was 100 percent, and it has depreciated to 70 percent.
Senator Bone. You referred, as I understood, to property that was no longer used in electrical service.