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“Those who had acquired large holdings of Government bonds at a time the dollar was at its lowest in purchasing power (0.60) conceived the idea that it would be to their advantage to increase the purchasing power of the dollar in which their funds were invested. They, therefore, demanded that 'the high cost of living' should be reduced—that is to say, that the high cost of commodities should be reduced-or, that the products of labor should decrease in dollars and that the dollar should increase in purchasing power in terms of commodities and labor.

“The country was flooded with arguments that we were suffering from the high cost of living' and 'inflation. These arguments were so subtle and deceitiul that the people accepted them as true, to their own great injury.

“At that time, we were enjoying the results of expansion of credit and abundant money. Bank failures had been reduced to zero, employment was at its maximum, and the country was in a highly prosperous condition.

"A campaign was then put on in 1919 and 1920 to contract credit and currency. A United States Senate resolution of inquiry, introduced by the Honorable Medill McCormick, Senator from Ilinois, demanded of the Federal Reserve Board what steps they were taking to cause the member banks to correct the inflation of credit and currency.

“This resolution passed the Senate during my absence from the Chamber, apparently without being sufficiently understood, on May 17, 1920.

"On May 18, 1920, I vigorously protested against it on the floor of the Senate and warned the country that that policy would produce a depression and unemployment. On the same day (May 18, 1920) the Federal Reserve Board, the Federal Reserve Advisory Council

, and 36 class A directors had a secret meeting and declared in favor of the policy of contraction. It was not until 2 years later, however, that this secret proceeding was disclosed as the result of a resolution adopted by the Senate (S. Doc. 310. 67th Cong., 4th sess.).

“On June 10, 1920, the Republican National Convention adopted a plank in favor of lowering "the high cost of living". That meant lowering the value of commodities by contracting credit and currency. It was called "deflation". It demanded "the courageous and intelligent deflation of credit and currency" but it meant contraction!

“In July 1920, President Harding, in his speech of acceptance, declared in favor of the “courageous and intelligent deflation of credit and currency". It meant contraction. He was overwhelmingly elected in November 1920; and immediately after his election the policy of contraction went into vigorous effect. Bank loans were contracted about 6 billion dollars and currency was contracted about 14 billion dollars, with the result that many commodities fell to one-third their value almost immediately. Farm products fell to one-third their value, petroleum fell to one-third, imported olive oil fell to one-third, and so on through the list. This meant that the dollar was changing its value.

"The dollar increased in value, as a necessary result, from an index of 60 in value in June 1920, to 107 by June 1921, an increase of 68 percent in its purchasing power. And it is now (in February 1933) at an index of 166, a gain of 276 percent in purchasing power.”.

New York's master bankers conspired to deflate many thousands of millions of Liberty bonds so they could cleanly scuttle the market in every direction and grab the Liberties at huge discounts of nearly 20 percent. Under the direction of the Federal Reserve, through Eugene Meyer and an Assistant Secretary of the Treasury, since become one of the Morgan gang's 20 partners, the Treasury Department took part in the manipulative melee precipated by bear raids that deflated Liberties. Senator Huey Long, 2 years ago, read the record on how Eugene Meyer, serving as a Government official, used his own Wall Street brokerage office to privately spend Government money buying bonds millions dollars above market prices from his friends and losing millions of Government dollars selling United States bonds below market prices to his friends.

This witness tried to borrow $1,500 on $2,000 in Liberty bonds from every large bank in Washington without success. My best offer was a loan of ooly 65 cents on the dollar for the safest investment in the world, bonds of the United States Government. This was in April 1920 when no honest bankers could tell what the plans of New York's master-pirate bankers were. They then completely controlled Constitutional money privileges, regardless of Congress.

NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES COMMISSIONERS,

Washington, D. C., May 4, 1935. Hon. BURTON K. WHEELER, Chairman Committee on Interstate Commerce,

United States Senate, Washington, D. C. DEAR SIR: Availing myself of the privilege extended by you at the conclusion of the hearing on S. 1725, I desire to file certain excerpts from my statement before the House committee on H. R. 5423, and to request that the same be printed as supplementary to my statement before your committee on S. 1725. The same are attached hereto. Yours very truly,

John E. BENTON,

General Solicitor.

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EXCERPTS FROM THE STATEMENT OF JOHN E. BENTON BEFORE THE HOUSE

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE ON H. R. 5423, FILED AS SUPPLEMENTAL TO MR. BENTON'S STATEMENT ON S. 1725

Section 202 (a), beginning on page 104, we ask to have amended as follows and I may state that this change is not in the copy which is before the members of the committee but is contained in the corrected copy which I gave to the reporter. Section 202 (a), as amended, would read as follows:

"Sec. 202. (a) It shall be the duty of every public utility subject to the jurisdiction of the Commission to furnish energy to any person, at wholesale, in interstate commerce, upon reasonable request therefor; and to furnish and maintain such services and facilities as shall be in all respects adequate, efficient, and reasonable: Provided, however, That a public utility, the major part of the business of which, measured by gross revenues, is not subject to the jursidiction of the Commission, shall not by order of the Commission be required to furnish energy to any person."

As I stated this morning, that cuts out the common-carrier feature, and also limits the jurisdiction of the Federal Commission, so far as requiring service to be rendered to those companies, is concerned, which are mainly interstate in character.

It is thought of the State commissions that there are many electric utilities in every part of the country which sell some part of their surplus power in interstate commerce at wholesale to other companies but which are primarily local companies, doing the major part of their business in sales to consumers and deriving their principal revenue therefrom.

The State commissions do not think that these companies ought to be required to exiend their plants and facilities to sell power to utilities outside the State, or that they ought to be subject to Federal order requiring them to transmit their electric energy which may be needed at home. It is the belief of the State commissions that every utility which has any power to sell will be glad to sell all its surplus power, but that they should not be disabled in supplying local business for the benefit of utilities elsewhere.

On page 5 of the list of amendments I have given you, subsection (c), we insert the word “undue". The section as originally drawn, we think, would not be practicable. In different classes of service different rates prevail. A difference in rates is a discrimination, but it may be proper. You have the question of whether it is a proper or an "undue" preference. That the Commission can determine. The word "undue" should be put in to give the same discretion to the Federal Commission which every State commission has.

I come now to the part of the bill which would provide for the setting up of regional districts for control over the production of electrical energy and over interconnecting facilities and the determination of the use to be made of the facilities, and the suggestion in the bill that such control, “as far as practicable” be by the companies themselves.

The view of the State commissioners is that it is not necessary for the development of the electrical business, or the gas business, to use the compulsive power of Government; that these companies will expand their capacity to the fullest extent possible where there is a prospective profitable market, and that it is not desirable to subject companies which have established their business, to compulsive measures requiring them to enlarge their operations against the judgment

We have, therefore, suggested the entire elimination of that section.

of their managers.

If the section is not stricken out we ask to have it amended to read as it is set forth on page 5 of the pamphlet which I have handed to you. And in section 203 we ask to have the words stricken out that are so shown. We would strike out the common-carrier feature and would leave the companies subject to the requirements of the Federal law that they must furnish energy to other utility companies asking it at reasonable rates and in reasonably sufficient quantitites, but would not make the company a common carrier nor require the swapping of energy, but would leave those matters to be determined by the companies themselves.

We ask to have section 204, on page 107, amended. That is the section which provides that no public utility shall undertake the construction or extension of any facility subject to the jurisdiction of the Commission or operate such without procuring a certificate of convenience and necessity from the Federal Power Commission.

Now, as that is drawn, as I understand it—and as Mr. Seavey understands it, if I correctly understood his testimony, and what he said to us in conference as drawn, that would require a certificate of convenience and decessity from the Federal Commission for any extension or improvement in facilities of any local company which was also subject to the jurisdiction of the Federal Commission.

It seems to us entirely proper that the Federal Government shall regulate the interstate wholesale business of electric utilities and should provide for a certifcate of convenience and necessity for new lines running into new territory, but we do not think it should require a utility to come to Washington for every change in its facilities that it may desire to make.

And the same is true with respect to abandonment. It would be, under the bill as it is drawn, impossible for a utility, subject to the jurisdiction of the Commission, to abandon any part of its facilities without getting a certificate of convenience and necessity from Washington.

We ask to have that amended to apply only to abandonment of any part of its facilities which would substantially impair its interstate wholesale service

The CHAIRMAN. Which shall not do what?

Mr. BENTON. Shall not abandon any part of its facilities which would substantially impair its interstate wholesale service.

Amend section 204, on page 108, and amend section 206, as proposed, on page 7 of the pamphlet before you. It is sufficient for me to say that what we ask there is that a public utility, engaged in intrastate utility service, and subject to the regulation of a State commission as to its securities issues, shall not be subjected to Federal regulation; and that it may make mortgages to secure bonds which have been lawfully authorized by the State commission having jurisdiction.

The amendments set out on page 8 require no discussion and are not necessary for me to read.

The amendment to section 208 (c) on page 115 as set forth on top of page 9 of the pamphlet. I may say that the purpose of that amendment is to make it accomplish what we understand to have been the purpose of the person who drea the bill. That purpose is to enable a State commission to ask the Federal Commission to investigate and determine the cost of electrical energy which is sold to the State, subject to the jurisdiction of the State commission, where the State commission itself is unable to get the information; and where there is no such State commission, to authorize the Federal Commission to make an investigation on its own motion.

We think that the amendment is desirable to make clear the purpose of the section.

Following the distribution of that bulletin (no. 22), I received communications from two State commissions. * * These I now present for the record.

(The communications referred to are as follows:) COMMUNICATIONS RECEIVED BY NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES

COMMISSIONERS CONCERNING H. R. 5423 FROM THE COMMISSIONS OF VERMONT AND CONNECTICUT

(Western Union)

RUTLAND, VT., February 21, 1935. Hon. John E. Benton,

Earle Building, Washington, D. C.: This commission wires congressional delegation as follows: “Vermont Public Service Commission asks that you energetically oppose any encroachment by Federal Government into a field of public-utility regulation which deprires State

of right and power to regulate utilities. Such features in House 5423 should be combated." "We urge your cooperation to this end. PUBLIC SERVICE COMMISSION OF VERMONT,

Montepelier, Vt.

PUBLIC UTILITIES COMMISSION,

STATE OF CONNECTICUT,

Hartford, February 26, 1935. Hon. John E. BENTON, General Solicitor National Association of

Railroad and Utilities Commissioners, Washington, D. C. DEAR SIR: On February 18 this commission sent you the telegram quoted below, to be presented by you at the hearing in reference to H. R. 5423, a bill for the regulation of utilities holding companies:

“Public Utilities Commission Connecticut desires to record objection to H. R. 5423. Act fundamentally unsound in statement of alleged evils it seeks to cure and in methods suggested to accomplish purpose. Imposes unnecessary burdens on legitimate operators to be borne ultimately by utilities customers and innocent investors. Offers no satisfactory remedies for recognized abuses not already available by enforcement of existing laws.

“Edwy L. Taylor, Chairman. "J. W. ALSOP

“A. W. HYDE". From various correspondence received since that telegram was sent, it appears that there may be some misunderstanding as to the basis for the objections of this Commission to the proposed enactment. It appears that many members of the association have been fearful that, if the act was passed as drawn, it might result in some Federal encroachment upon the field of State regulation of electric and gas utility companies, and the Connecticut Public Utilities Commission requests that you present their views to the committee in the hearings on H. R. 5423 as indicated in the telegram and the attached memorandum dated February 26, 1935. Yours very truly,

EDWY L. TAYLOR, Chairman.

PUBLIC UTILITIES COMMISSION,

STATE OF CONNECTICUT,

Hartford, February 26, 1935. Memorandum in reference to H. R. 5423

Though some sections of this bill are expressed in very general language, it is unlikely that it would actually cause any curtailment of the right now existing in States to control such utilities within their borders. At least it would be a relatively simple thing to correct such an evil if it exists, but this commission bases its objection on much broader grounds.

The fundamental objection to the act, as drawn, is that it attempts to combine in a single bill the regulation of utilities-holding companies and the regulation of utilities-operating companies. There is no legitimate relation between those two matters as the first is primarily a matter of investments and the second a matter of service to customers.

The result of trying to regulate both of these very different types of companies in a single bill is to create the uttermost confusion. The interests of investors in securities-holding companies and the interests of customers of operating companies are in no way similar, and an attempt to include them in a single bill is fundamentally unsound.

In section 1 of title I of the bill in question, a large number of alleged abuses, which the bill is intended to cure, are cited. Due to the fact that there is, in this act, confusion between holding and operating companies, the objections stated are disconnected and, in many instances, wholly without foundation. In section 2 of this title are included the various definitions intended to control the interpretation of the statute and, in this respect, again, the inclusion of the two types of company, in a single bill, leads to an unnecessary degree of uncertainty and confusion which could be avoided if the propositions were dealth with separately.

The entire act is filled with contractions and general statements which can lead to no ends except controversy, litigation, and expense. Owing to the nature of

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operating companies, these companies' expenses will fall, ultimately, upon the customers and there is no justification for imposing such an additional burden upon them.

Utilities-holding companies are no more than investment companies, owning the shares of other securities issued by utilities-operating companies. The objections that have arisen against such companies are, in a large part, due to the losses which have accrued to purchasers of securities issued by the holding companies. These securities are, of course, based on the value given to securities held by such companies and such values have no relation whatsoever to the cost of operation or the rates charged by operating companies.

There is no question as to the abuses which have arisen in connection with holding companies. Starting as investors in the shares and other securities of utility operating companies, some based their own issues of securities upon the market values of the securities they held, and in some instances these were written up without any restraint and securities based upon such valuations were sold to the publie with promises of high returns. Since the enactment of the Federal Securities Act it is difficult to see how such a condition could continue as to any type of company and, for the present, at least, it is hard to believe that there will be any market for securities issued in such fashion by utilities holding companies. It may be that there is necessity for some further regulation but, if so, it should be limited strictly to holding companies which are peculiar to themselves and whose management has no real effect upon the conditions of operating companies

It is, of course, asserted by some that the necessity of holding companies to secure income to pay the holding companies' stockholders affects operating companies. It is also recognized that some holding companies have created service companies through which unreasonable charges have been made to operating companies. Similar action might be taken by any group of stockholders or any corporation offering service to an operating company, and there is no reason for believing that commissions having supervision over operating companies can not investigate and control the reasonableness of such charges, equally well, whether they are made by subsidiaries of controlling companies or by anyone else, just as is done with salaries and other items.

There is undoubtedly reason for giving consideration also to the regulation of interstate transmission of electricity and gas. However, that is a simple field for regulation, and it does not appear sound statutory procedure to include that subject in the same enactment as an enactment intended to regulate holding companies.

It is the opinion of this commission the enactment is so involved, for the reasons stated as well as other reasons, that the evils it contains cannot be cured by amendment. The fault lies not so much in any particular section or sections as in the general confusion in the subjects it attempts to regulate.

Edwy L. TAYLOR, Chairman,
JOSEPH W. ALSOP,
ALVAN WALDO HYDE.

*

No attempt has been made to canvass the State commissions. That is not the way that we proceed in the consideration of legislation. The executive committee considers it usually in conjunction with the committee on legislation and advises the commissions of the action it proposes to take.

However, this morning I was in receipt of a telegram from counsel for the New Jersey Commission which I will ask leave to put into the record. (The telegram referred to is as follows:)

NEWARK, N. J., April 3, 1935. JOHN E. BENTON,

Washington, D. C. The Board of Public Utility Commissioners of the State of New Jersey authorizes you to announce to the congressional committee conducting hearings on the Wheeler-Rayburn bill that it endorses the amendments agreed upon by the national associations committee.

JOAN A. BERNHARD,

Assistant counsel

*

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