nessee Valley Authority expressed the opinion that a toll could be levied on traffic passing through Federal-built locks on the Tennessee River, though in his opinion such toll would be much less than an equitable return on the investment in navigation facilities. Had this director been better informed, he would not have committed the error cited. The sixth section of the act of Congress passed March 2, 1819 (3 Stat. 492, c. 47), admitting the State of Alabama into the Union, provided:

"That all navigable waters within the said State shall forever remain publie highways, free to the citizens of said State and of the United States, without any tax, duty, impost, or toll therefor imposed by said State." This was cited by the United States Supreme Court in the case of Pollard v. Hagan (3 Howard 212), and was referred to and affirmed in the case of Goodtitle v. Kibbe (9 Howard 471. There has been a growing tendency in later years for the Federal Government to encroach on the rights of the several States, and that is why care must be exercised in framing such an act as is now under consideration. While encroachment on the rights of the several States under the guise of the "commerce" clause of the Constitution may not be immediately challenged, yet the challenge may be invoked at any future time. When the Revolution came, the people of the several States became themselves sovereign, and in adopting the Constitution did not surrender their general sovereignty. For that reason the maxim of "nullens tempus occurit regni" is as app icable to the rights of sovereign States as to the General Government.

INVASION OF RIGHTS OF SOVEREIGN STATES

One of the most flagrant invasions of States rights, and which the pending legislation seeks to uphold in section 9 (b) is to be found in Public Act No. 17, Seventy-third Congress, otherwise known as the Tennessee Valley Act of 1933. Under the vague and uncertain terms of this act, the Directors of the Tennessee Valley Authority have set about building up an empire which transcends State lines, State rights, and the rights of individuals, and under which the Board or Authority has embarked on a gigantic power program, the cost of which has been estimated by the Corps of Engineers of the United States Army to exceed $1,200,000,000—this being done under the thinly disguised plea of navigation and national defense.

The pending bills (S. 1725) and the House bill (H. R. 5423) seek to further the idea of such an empire by specifically eliminating such an agency from the provisions of section 9 (a) of the bill.

In setting up this "empire" which has embarked on a general campaign of power production and sale, operation of retail stores, operation of factories, and in fact anything in the line of industry which the directors see fit to take up, the "Authority" has assumed itself as having autocratic powers without any restraint, whatever. This "Authority" has assumed itself to be an independent bureau of the Federal Government with the powers of Federal sovereignty, an assumption which has no foundation and is subject to challenge. The fact that agencies created by congressional incorporation are or may be financed from public funds does not make such agencies either bureaus or departments of the Federal Government, and for that reason such agencies do not acquire any powers of sovereignty, and have no rights or powers other than specifically conferred by the act of Congress, and which powers are subject to attack on constitutional grounds where same transcends the rights surrendered by the several States to the Federal Government by the Constitution.

While the act purports to give the Tennessee Valley Authority to exercise the right of eminent domain, it is questionable as to whether or not Congress had any such right of delegation of that power. A case has been recently filed in Alabama which will test this question. The Tennessee Valley Authority filed a suit to condemn lands to be used for a road in the vicinity of the Gen. Joe Wheeler Dam. This action is being resisted by the owners of the land on constitutional grounds. The road in question is not one that is involved in interstate commerce, and on the contrary is in connection with a project for the development of electric power for sale for profit. The genertion of power and the incidentals thereto such as the construction of roads, is not within the scope of the powers under the commerce clause of the Constitution, and even if it were, the Tennessee Valley Authority has no standing under either the Federal or State laws, by which it can exercise the rights of a sovereign entity, regardless of the Tennessee Valley Act of 1933.

Congress authorized the Corps of Engineers to make a detailed survey of the Tennessee Valley area, which was performed at a cost of approximately $1,000,000 and on which a very complete report was made (H. Doc. 328, 71st Cong.).

This very complete report destroys the contention of the Tennessee Valley Authority that the main objects of this "empire", which has no regard for State lines, or the rights of the States and their citizens, are (a) navigation, (b) national defense, and (c) soil erosion.

The Corps of Engineers shows that flood damages on the Tennessee River are small, and that complete regulation would have little or no effect on the floods of the Mississippi Valley; that soil erosion is much less than in many other sections of the country, and that soil erosion, such as it is, comes from abandoned lands. The report referred to would indicate that of the hundreds of millions of dollars necessary to carry out the scheme of the Tennessee Valley Authority, a maximum of $35,000,000 would be chargeable to navigation. The flood-control feature is exploded by ths same report.

The report also shows that outside of the Wilson Dam and the Hales Bar Dam, if navigation was the main feature, a 9-foot channel from the Ohio River to Knoxville could be established by the construction of 32 low dams at a cost of $75,000,000. The Tennessee Valley Authority which has embarked on a $320,000,000 program in exactly the same river area, would get nothing more from a navigation, flood-control, or soil-erosion standpoint, than would be obtained from the construction of the 32 low dams.

The intent of an operation is clearly indicated by what it does rather than what is put out in the propaganda issued, therefore regardless of the speeches and press releases of the Tennessee Valley Authority, the production and sale of electric power is the paramount issue in the Tennessee Valley, and for that reason the program is outside of the powers surrendered to the Federal Government by the Constitution.

Considerable stress has been laid on the corporation created by Congress in the Tennessee Valley Act of 1933, to emphasize the necessity of keeping within constitutional bounds in the enactment of holding company legislation.

Section 9 (b) by eliminating certain agencies from the stipulation imposed on private industry by section 9 (a) sets up class legislation with powers to entirely destroy private public utilities without due process of law, and for this and other reasons, the act as written could not be sustained under the Constitution.

DESTRUCTION OF UTILITY HOLDING COMPANIES

Section 2 (c) provides for the complete elimination of holding companies after 5 years from the passage of the act. This feature should be discarded, and regulatory provisions enacted in place of destruction. As has been pointed out previously, it is clear that the intent of the authors of pending legislation is to bring about a condition which will force ownership and operations of public utilities into the hands of the Federal Government. In other words the main question is not a matter of rates or service, but unquestionably a move for Government ownership and operation, which is the first step toward a socialization of the industries of the country-a la Russia.

Instead of destruction, Federal regulation of interstate business might well include the following features:

(1) Federal incorporation for interstate business.

(2) Elimination of pyramiding of companies, under which any company more than once removed from operating company status, would have to justify its existence.

(3) Elimination of interlocking directorates.

(4) Elimination of holding company interlocking relations.

(5) Elimination of management company practices.

(6) Provision for larger representation on boards of directors by operating companies.

(7) Change of designation of "economically and geographically integrated" system, to provide for "economically integrated" systems.

The use of the term "geographically integrated" cannot be sustained. The writer recalls the skepticism with which the statement, that power had been transmitted 50 miles, was received some years ago. Now 250-300 miles is considered as a matter of course. The writer designed a large project which required power to be transmitted 675 miles, a feature which was not at all disturbing even 12 years ago. What would be a "geographically integrated" system this year will in all probability be a joke a few years from now, consequently no such provision could be inserted in legislation in an intelligent manner.

(8) Should provide that by the end of 5 years, holding companies shall be so organized as to meet the regulatory requirements of the act.

(9) All utility companies, regardless of whether the financing is done through private or public sources, should be subject to the regulatory provisions of the act when engaged in interstate business.

REGULATION OF VARIOUS CLASSES OF PUBLIC-UTILITIES AGENCIES

Section 2 (c), title I, provides that any form of agency of the United States, State, municipality, or other political subdivision engaged in the public-utility business, shall be exempt from the provisions of this act. This is perhaps the most vicious provision written into the pending bill. This paragraph should be eliminated, leaving such agencies subject to the same regulatory provisions as are required of the public-utilities companies. With the agencies mentioned being eliminated from the regulatory provisions, they would have so many advantages over utility companies privately owned as to force the latter out of business, thus forcing the socialization of the electric-utility business. Some of the advantages such agencies would have over the privately owned utility companies, are as follows:

(1) Money obtained at low interest rates on tax-exempt securities. (2) No taxes to pay.

(3) No insurance to carry.

(4) No workmens' compensation insurance to carry.

(5) No financing expense.

(G) Preferential rail rates from land-grant railroads.

(7) No accountability or responsibility for funds expended.

(8) No interest or dividends to stockholders.

(9) No established system of accounting.

(10) Fictitious capital set-ups under which large amounts of capital are charged off under allegations of "navigation", soil erosion, national defense, flood control, and many other schemes, as exemplified by the Tennessee Valley operations. (11) Operation losses to be made up from public treasuries.

(12) Financing by taxation, and bonds which have to be taken up from public funds secured by taxation.

(13) Assistance of other Government agencies paid for by funds secured from taxation.

(14) Free mailing privileges under postal franks, postal deficits made up from taxes.

(15) Establishment of rates without regard to any established basis of rate making as faced by the privately owned utilities companies.

The average cost of money for private utility operations for a number of years has ranged around an average of 5.5 percent. This would give governmental agencies an advantage on money alone of not less than 2 percent, and when coupled with the fictitious capital set-ups as is shown by the Tennessee Valley, the advantage over the privately owned companies would be in excess of 4 percent on finance alone. Privately owned utility companies have testified to the effect that if they had the financing facilities which are provided for Government agencies, existing power rates could be reduced 40-45 percent, which is not overdrawn.

Laying aside the question of the power which is transmitted across State lines, the bulk of all energy sold is sold on rates established under State regulation. These rates are based on a fair return on investment, whereas the pending bill seeks to place rates made by other than privately owned utilities on any assumed basis desired, without regard to actual capital costs. By a process of camouflage from which the private utility is barred, the agencies excluded from the regulation prescribed in section 2 (a), can fix rates and then set up a fictitious capital set-up to fit the rates. That is exactly what the Tennessee Valley Authority did, and which the pending bill would not only perpetuate but further.

The testimony before the House Interstate and Foreign Commerce Committee, and the House Committee on Military Affairs, shows very definitely that the Tennessee Valley Authority is a holding company, and undoubtedly the worst of its kind by reason of the fact that it is subsidized from Federal funds.

With the methods of financial juggling as regards capital set-ups, and the charging of expenditures to purposes other than those to which they properly belong, the Tennessee Valley Authority is not even a "noble experiment."

The pending bill by excluding the Tennessee Valley Authority, as well as all other agencies of a like nature, from the provisions of section 2 (a) seeks to perpetuate the existing practices and to validate them. All organizations or agencies

engaged in public-utility business, regardless of whatever class or kind, should be placed on an equal footing, and without Government subsidies.

USE OF MAILS IN CONNECTION WITH FINANCING

The very volumnious language in the bill in connection with the use of mails in selling and distributing securities, is useless and superfluous, as the postal laws in effect cover everything necessary, and the incorporation of same in this bill is merely a useless repitition and adds nothing whatever. A large amount of the language used in the pending bill has also been copied from the Securities Exchange Act, and again the inclusion in this bill would be merely useless repeti

tion.

ELIMINATION OF TITLE II

There are some parts of title II which might be properly incorporated in title I, but the whole of title II as it stands should be stricken out. The general tenor of this title is to amend the Federal Water Power Act. Quite likely the Federal Water Power Act should be amended as a whole, but this should be done by rewriting the act as a whole and not attempting to patch it up as a part of some other legislation.

A national water power act was under consideration for many years before the existing act was passed in 1920. The Federal Water Power Act was poorly written in spite of very voluminous hearings held on the subject for a decade or so, and for that reason the entire bill or act should be rewritten, though not with the idea of writing it so as to embark the country in a highly socialistic venture such as is now being sponsored by a number of Federal bureaus.

Due to the recommendation that title II should be stricken out, the features of this title are not discussed.

GAS AND ELECTRIC UTILITIES OPERATIONS

Theoretically, to men with little or no practical experience, it might appear that no valid reason exists for gas and electric utilities coming under the same general control by holding companies.

Gas is a rather highly seasonable utility, and without the administrative and overhead expense being shared by other agencies during the season of low demand, rates would necessarily be higher.

Coal and ice business combinations are logical and beneficial to the public, as both are highly seasonable projects and the demand for ice comes during the season when the demand for coal is at the minimum.

Due to the seasonable features of gas and electricity, there can be little or no valid objection to the operation of these two classes of utility under a common management.

INTERLOCKING DIRECTORATES

It is an acknowledged fact that there is a somewhat complex situation found in the directorship of various holding companies, and it is not apparent just how much "evil" results from this situation. Testimony has shown that a large number of directors of various companies do not function as such, and in fact many directors are on so many boards spread over wide areas that attendance even in a majority of cases would be physically impossible. This is a situation which should be remedied.

In at least one large holding company, it appears from data available that the officers and directors to whom the stockholders have intrusted the management of the operations of the company, are nothing more than figureheads, the duties presumed to be vested in these officials being turned over to a so-called "management company." If the officers and directors are unfitted and incapable of managing the business of the company, they should be eliminated.

While there may be and probably is some good in some of the management and service companies, the whole practice is questionable and should be radically modified or eliminated altogether. The Federal Trade Commission has reported cases where the duly elected officers and directors of companies had turned the management over to management companies, and these management companies had in turn passed the management along to another "management" company at about one-third of the cost, so that as a result the "parent" management company received large fees for no services whatever.

Ownership by one holding company of considerable amounts of voting stock in another holding company is a doubtful practice, though in some instances this

situation may have been brought about by perfectly legitimate methods and without any monopolistic intent.

The complete control over operating companies by far remote holding companies is a situation that should be remedied, and the operating companies should be enabled to have a greater part in the management of the business.

INVESTMENT TRUSTS AND HOLDING COMPANIES

Clarification of the designation of "investment trust" and "holding company" should be included in the bill. In a way, some of the holding companies operate more as an investment trust than as strictly a holding company.

To those of us who have been indentified with the electric utility business since it became something more than just isolated and disconnected local plants, and have seen the real power systems come into existence, the present groupings are more apparent than to those who have come into the business in the more recent years.

Up to 20 years or so ago it was almost impossible to finance power projects in this country as this type of investment did not appeal to the investing publie by reason of the fact that the demand was low, the service poor, and the cost high, a combination of circumstances which made returns of a satisfactory nature somewhat doubtful. When projects were financed, stocks and bonds had to be sold at enormous discounts, and not a little of the alleged "water" in securities today goes back to the necessities of that financing.

Reference has been made in testimony to the Alabama Power Co., some member of the committee making reference to the fact that the Alabama Power Co. was fully organized and in existence long before the Commonwealth & Southern Corporation was organized. That is quite true, and in this connection. the matter referred to above ties in with the situation that existed in the financing of the Alabama Power Co. Approximately a quarter of a century ago, when the original company which is now the Alabama Power Co. was organized, it was impossible to finance the project in this country, consequently the majority of the financing was done in Canada and Great Britain, so that until during the World War the voting control was vested in the British and Canadian interests.

Due to the geographical and economic stituation of the companies now forming the southern group of the Commonwealth & Southern Corporation, the tracing of the history of that company affords probably the best example of economical integration of public utilities.

Due to the vicissitudes of financing, the existing conditions in the holding companies in many instances, are accounted for to a large extent. To illustrate this point, reference is made to just 2 cases, 1 an older one and 1 a recent one. The older instance referred to is the S. Morgan Smith interests. The S. Morgan Smith Co. of York, Pa., manufactured water wheels, and other equipment. By reason of difficulties in financing on the part of utility companies, the manufacturer of water power and electric equipment often accepted securities of the various companies in payment for equipment furnished. The S. Morgan Smith Co. as an example, became heavily interested in the Georgia utilities in this way. The same is true of a more recent company, the General Electric Co., and the large holdings of this company resulted in the formation of the Electric Bond & Share Co. There are many other such cases, but these are cited as examples.

INVESTIGATIONS, INJUNCTIONS, ETC.

Section 18 (f), page 66, title I, contains some very interesting language. It says: (f) "Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts of practices", etc., action may be brought in the proper district court.

It would be quite interesting to see just what action a district judge would take when the Commission appeared to allege that some company was contemplating a violation of some rule. This would be in effect a charge of murder without any corpus delicti. Without the commission of some overt act, the "Commission" would have to rely on soothsayers, mind readers, and seers, to establish the fact that some company was going to indulge in some nefarious act.

Other language of the section vests the courts with rights and duties which have been in the code for more than a century and a quarter so that the inclusion of such matter is merely useless repetition which adds nothing.