Journal. The entire capital stock of the Memphis Commercial Appeal, Inc., was pledged to secure the bond issue of $1,500,000 owned by the Minnesota & Ontario Paper Co.

In March 1931, the Southern Publishers, Inc., went into the hands of receivers, as did also the Minnesota & Ontario Paper Co. (Pt. 62, pp. 258-261; Exs. 5627-5629; pt. 62, pp. 851-857.)


In addition to United Corporation, which is a nonservice group, the Niagara Hudson Power Corporation and its subholding companies, Buffalo, Niagara & Eastern Power Corporation, Mohawk Hudson Power Corporation, and Northeastern Power Corporation, do not charge service fees of any kind.

In the case of the North American Co. the only fees charged were for transfer services. None of the subholding companies in the North American group charged service fees excepting North American Light & Power Co., which at the time of our investigation was not controlled by the North American Co.

III. Cost of MONEY TO OPERATING COMPANIES As to whether there are instances in the record where an operating company actually procured money through a dominating holding company at lower than the current rates after giving effect to all charges and financing expenses, it does not seem possible to answer that in any categorical way. The answer involves too many other questions that would require extended study, including first of all the question of exactly what were current rates for that class of money at the time obtained.

My personal opinion is that there might have been a few such instances. On the other hand, the record is replete with instances where the cost of money to the operating companies due to commissions, discounts, calls at premium, and repeated refinancings ran greatly in excess of current rates and in some instances as high as 20 percent.

IV. SINKING FUND PROVISIONS BY UTILITIES It has not been possible to make such a complete search of the record as to know whether provisions for sinking funds made to retire bonds or other securities resulted in such retirement without coincident refunding or other substitution of issues which left the capital structure the same or greater than it was before. No examination was made especially to determine this point. However, an inquiry of all those who have critically read the reports discloses that no one recalls any instances in the electrical industry where a permanent reduction of capital structure resulted from any sinking fund provision. There may have been a few instances where this occurred temporarily during the accumulation of the sinking fund. But, as stated, no one recalls any instances of any electric holding or operating company which permanently reduced its capital structure as a result of any sinking fund provision.

In natural gas, which is classsed as a wasting asset, the practice is somewhat common.

V. CERTAIN MEMORANDUMS SUBMITTED 1. In the printed memorandum submitted by Mr. Wilkie (pp. 12–30) there are certain general references to the legislative situation in the several States. Permit me again to invite your attention to part 69-A of the Senate print of the Federal Trade Commission's report, which contains an exhaustive compilation, with summaries of the State situation (beginning at p. 145). Even in those instances where some law exists, the provisions are so varying in character and effectiveness that no general statement can adequately cover. This study and situation are discussed in the chapter XII of part 73-A of the Commission's final report.

It should be borne in mind that as long as any State jurisdiction remains open, most of the abuses which have occurred, and new ones that may be devised, can be carried on. To stop them would require a 100 percent coverage of the States by uniform and effective laws-a situation practically hopeless of accomplishment Nor could the States even then reach many holding company practices.

2. Judge MacLane, in his memorandum, quoted certain portions from a report by Mr. Dickerman on the character of the supervisory operations carried on by tħe Electric Bond & Share Co. Judge MacLane failed to quote what followed on the necessity for complete knowledge as to the charges to investment and operat

ing accounts resulting, and as to the high percentages of profit taken by the Electric Bond & Share Co. for such services. The CHAIRMAN. This will conclude the hearings upon this bill. (Whereupon, at 4:20 p. m., the hearings were closed.)


RAYBURN PUBLIC UTILITY BILL (By Oswald Ryan, General Counsel, Federal Power Commission and Dozier A.

DeVane, Solicitor, Federal Power Commission) This memorandum is addressed to the basic constitutional issues underlying title II of the Wheeler-Rayburn public utility bill. It is designed to show that Congress has authority to enact the measure under the commerce clause of the Constitution and that the title meets the requirements of the due process clause of the fifth amendment.

The proposed measure provides for regulation by the Federal Power Commission of the transmission and sale of electric energy in interstate commerce and the production of electric energy for such interstate transmission and sale for the purpose of securing coordination of interstate power facilities and their most economic development in the public interest. It directs the Commission to establish regional districts for the control of the production and transmission of electricity, and, to the extent that this control cannot be accomplished by voluntary coordination, to require companies engaged in interstate commerce in electricity to make extensions to their facilities, to establish physical connection with the facilities of others, permit the reasonable use of their facilities by others, and to sell, purchase, transmit, and exchange energy. To the same end the title requires Commission approval for the construction of new facilities, the extension or abandonment of facilities, and the issuance of securities. Authority is also given to the Commission to fix the wholesale rates of electricity sold in interstate commerce.

The constitutional issues which have been raised by critics of title II of the bill arise under the commerce clause and the due process clause of the Federal Constitution. The exact extent to which any one of its regulatory provisions may constitutionally be carried must be determined, of course in particular cases arising after administrative orders have been issued. For present purposes, it is sufficient to show that under authoritative decisions of the United States Supreme Court the provisions here involved fall well within the power of Congress under the commerce clause and that none of those provisions contravenes the prohibition of the due process clause.

Before considering these decisions, it will be well to review briefly the factual conditions with which the title is concerned. Consideration of these conditions will be essential to the solution of the constitutional questions arising under both the commerce clause and the due process clause. A review of recent official reports and testimony before congressional committees relating to the power industry will show that what the title proposes constitutes a regulation of interstate commerce and that the need and complete justification for such regulation have been convincingly demonstrated.

The fact underlying the electrical industry which is of greatest significance to the present problem is its comparatively recent transformation from an industry of a purely local character to one of a dual local and national character. The generation and distribution of electrical energy was until recently purely intrastate and confined to the local community. The industry consisted of independtat, unassociated, local units and its piecemeal and planless development resulted in an uneconomic division of territory, wasteful overlapping of facilities, and lack of engineering and economic unity. Through consolidation and merger, and under the leadership of the holding company, local units were tied together into systems which ignored the political boundaries of States. While in 1928, 10.7 percent of the power generated in the United States was transmitted across state lines, in 1933 more than 17.8 percent of all the energy generated in the country flowed in interstate commerce--an amount greater than the entire amount generated in the country in 1913. Hearings before Committee on Interstate and Foreign Commerce, House of Representatives, on H. R. 5423, part 1, page 266, statement of Lester S. Ready. In many States, moreover, the



amount of energy in interstate commerce represented a much larger percentage of the total.

The review of official testimony and Government reports which follows shoes that this new development, which involved the webbing of facilities and service over wide areas, did not proceed under adquate social control either in its physical or financial aspect. Electricity crossing State lines is in a no-regulation land, unrestrained by the power of the State which may not constitutionally control it, and unrestrained by the power of the Federal Government, which has not attempted to control it. The dominating impulse has been an uncontrolled quest for private profit. While it often produced a more economical coordins tion of electrical supply and distribution, this development has fallen far short of achieving the benefits that are possible and has been attained at a tremendous cost to the consuming public, which has not received its share of the benefits that have resulted.

Lester S. Ready, the chief consultant for the Federal Power Commission in its national power survey, testified before the House committee on the present bili that except in California, Texas, and possibly New York, the economic areas for power development have no relation to State boundaries, that the existing power systems “have outgrown the States as to the production and transmission of power, not the distribution.” (Hearings, pt. 1, pp. 272, 274.)

That this unregulated power development is a matter of great concern to the Federal Government from the standpoint of the national defense is shown by a report on the Power Situation during

The War by Colonel Charles Keller, putlished by the War Department in 1921. The Keller report stated "that owing to lack of flexible and capacious interconnections between adjacent power systeins it was virtually impossible to reduce this shortage (power shortage during the World War) by taking advantage of the diversity factor and by releasing for active use part of the installed reserves which interconnection would have rendered safely available;

and that finally no broad comprehensive plans were in existence showing how all existing power resources, steam, as well as hydraulic, should be interconnected, developed, and coordinated so as to serve not only the immediate war needs, but also to supply the general public in times of peace with the greatest efficiency and economy. The report quoted a statement of Maj. Malcolm MacLaren of the Army Engineers which stated that the "existing commissions are of State jurisdiction and generally fail to work to a constructive program for unification of systems and centralization of power-generating resources to secure maximum economy for the large districts forming the most economical area for supplying power wholesale.” Major MacLaren thought that the “trouble in this respect is twofold; State jurisdiction is not broad enough for undertakings, and the commissions themselves either do not have wide authority or do not take a broad view of interstate opportunities."

Other governmental reports following the Keller report pointed to the national need for a coordination of power resources under Federal guidance and control. A most comprehensive and accurate survey of the subject appeared in 1921 under the auspices of the Department of the Interior, which was conducted by W. S. Murray and other distinguished engineers of the industry. A plan for the coordination of power production and transmission for the region between Boston and Washington was presented in this report which estimated that power needs for 1930 could be supplied by a coordinated system "at an annual cost of $239,000,000 less than by an uncoordinated system such as is now in use."

i The recently published interim report of the Federal Power Commission's national power surrey contains a table sbowing the amounts and significance of the interstate transfers of power in 1933, it is included in the House committee bearings on the present bill in connection with Mr. Ready's testimony, pt. 1, p. 267. The data are based on the returns of 215 electric utility systems whose output represents #3 percent of the total electric utility

outcut in the country. The State of Delaware depended upon its neighbors for all its energy. Vermont and New Hampshire delivered outside their borders amounts of energy equivalent to 71 and 61 percent, respectively, of the power they generated. Rhode Island and Massachusetts in turn received from other States 48 and 32 percent, respectively, of the total amount of energy available within those States. Maryland received 96 percent of the energy available within the State and delivered outside the State 98 percent of the total amount generated there, West Virginia received energy amounting to 33 percent of the total available within the State and exported 58 percent of the amount it generated. Similarly, Indiana received 24 percent of its total from outside the state and exported 43 percent of the amount generated there. Vir inia importeu 64 percent of its supply and exported 74 percent of the amount generated. For Tennessee, these figures were 68 and 58 percent, respectively. Mississippi received from outside the State 89 percent of its total supply. Arkansas imported 15 percent of its total supply and exported 24 percent of the amount generated. Idaho exported 64 percent of the amount generated within the State, while Utah imported 54 percent of the total energy available within the State. For these States and for a number of others, it is apparent that the unres ulated Interstate transfer is of vital significance.

? "A Superpower System for the Region between Boston and Washington," Caited States Geological Survey, Professional Paper 123 (1921).

The Northeastern Super-Power Committee (Herbert Hoover, Secretary of Commerce, chairman) in its report published in May 1924, declared that the "economical and adequate power supplies for this area require (a) extension of interconnection between different systems; (b) the building of large, centralized steam-electric plants located at strategic points; (c) The development of the large hydroelectric project.''3

The report of the Giant Power Survey Board of Pennsylvania followed in February 1925, with a similar plea for the economic advantages of interconnection.

The Fourth Annual Report of the Power Authority of the State of New York for the year 1934, which has just been released, declares that the State of New York has had practical experience with the results of coordination of power resources where the dominant interests were speculative profits, but that the consumers have not received the benefits of the economics which have been accomplished by the coordination. It recommends public control of the power-planning function.

The report of the Mississippi Valley committee, issued October 1, 1934, sets forth the advantages of a coordinated network created out of unaffiliated companies, but declares that “the present rate of effecting such interconnection is too slow to meet the public need, because it is retarded by intercompany rivalries and other conditions not grounded on social interest and yet readily removable.' The committee recommended that “just as the original impetus to interconnection was given by the Government during the World War in requiring any company having excess capacity to transmit its surplus current to nearby territory in need of it, now the Government must take the lead if we are to achieve the unification desired in the new war upon economic waste and instability, unemployment, and the progressive destruction of basic natural resources.”

Mr. E. A. Yates, vice president and chief engineer of the Commonwealth & Southern Corporation, testifying before the House Committee on Military Affairs April 9, 1935 (on Tennessee Valley Authority) pointed out the need for "centralized control" over the needed coordination of the Nation's power resources. Referring to a study which he had made in 1920 covering the principal power companies in North and South Carolina, Georgia, Alabama, and Tennessee, he said: “This study proved conclusively that by building lines to interconnect these various independent operating units and by coordinating the operations, there will be large savings due to diversity of load, the diversity of rainfall in the different States, and to the saving of spare units required for break-down service.

"The lack of centralized control was the chief obstacle to the full accomplishment of savings as it was impossible to work out effective interchange arrangements and coordinated operation while the companies were under independent and separate ownership:

The report of the water planning committee of the National Resources Board, submitted to the President on December 1, 1934, again cites the advantages of regional interconnection.

Finally, the Interim Report of the National Power Survey being conducted by the Federal Power Commission, (Interim Report, National Power Survey, Power Series No. 1, 1935) adds to the accumulating weight of authority attesting to the need for “the interconnection and coordination of existing facilities”, explaining that "by this is not meant the mere physical interconnection of two or more separate systems, but proper coordination and unified operation of the properties (p. 30). The report significantly states: “*

When it is considered that a single large power project may involve the expenditure of $100,000,000 or more which may be largely wasted if it is improperly located, badly designed, or incorrectly planned in relation to the large number of factors which have been briefly considered in this report, the economy of expending a small fraction of such a sum in securing and maintaining currently the information that is essential to sound planning would appear to be self-evident. When attention is directed also to the fact that savings of millions of dollars Ev year

Although the scope of this survey (Northeastern Super-Power Committee) was limited, it is significant that the subsequent development of the industry in this area, as to the location and interconnecLion of transmission lines and the location of the larger steam and hydroelectric plants, has been substantially along the lines then recommended. There appears to be little question that large savings were eff eicd which were not passed on to consumers because no adequate method of governmental control had been provided. As an indication of the possibilities of forecasting as a basis for regional planning, it is interesting to note that this committee's forecast of power requirements for the year 1930, which was made in 1924, proved to be accurate within a fraction of 1 percent." (Interim Report of National Power Survey, Power Series No. 1, pp. 55–56.)



could be effected through suitable interconnection and coordination of the Nation's power facilities, the economy of such a procedure is strongly emphasized. When there is added the consideration that the safety of the Nation itself in time of war is dependent upon the existence of adequate power facilities which must have been installed before the outbreak of hostilities, its vital importance from a national standpoint would appear to be fully demonstrated" (p. 55).

The unanimity of opinion regarding the vast saving to be accomplished by the proper coordination of power facilities, and the need for a centralized control of the coordination process furnishes a formidable basis for the exercise of congressional power provided in title II of the present bill.

That the uncontrolled and uncoordinated generation and transmission of electricity results in a duplication of facilities and uneconomical operation, which increases the price to the consumer, and obstructs the free flow of electric energy in interstate commerce, are facts thoroughly established by governmental and private studies. That it is within the power of those generating and selling electric energy in interstate commerce to charge excessive wholesale prices to distributing companies, thereby imposing a similar burden upon interstate commerce, is equally demonstrable. Both the present bill and the court decisions indicating the limits of legislative power should be read with these facts in view. The decisions under both the commerce clause and the due process clause will be reviewed to show that Congress, and Congress alone, has power to prescribe the remedy which the bill proposes.

THE COMMERCE CLAUSE The power of Congress over interstate commerce has been recognized from the days of Chief Justice Marshall as a "power to regulate; that is, to prescribe the rule by which commerce is to be governed.” “This power", Marshall wrote, "like all others vested in Congress, is complete in itself, may be exercised to its utmost extent and acknowledges no limitations other than are prescribed in the Constitution” (Gibbons v. Ogden, 9 Wheat. I, 196). In defining the scope of this power, the Supreme Court has consistently paid heed to Marshall's íamous declaration that, “We must never forget, that it is a constitution we are er. pounding" * * “a constitution intended to endure for ages to come, and. consequently, to be adapted to the various crises of human affairs" (McCulloch v. Maryland, 4 Wheat. 316, 407, 415). The same point was made by Mr. Justice Holmes in referring to the powers reserved to the States by the tenth amendment: “We must consider what this country has become in deciding what that amendment has reserved" (Missouri v. Holland 252 U. S. 416). What this country has become in the field of electric power transmission is described in the official reports to which reference has been made.

It has been definitely settled by the Supreme Court that the transmission of electricity from one State to another is interstate commerce within the meaning of the Constitution (Public Utilities Commission v. Ailleboro Steam & E. Co., 273 U. S. 83). The power of Congress to regulate such commerce, the Court has often said, is the power to enact whatever legislation is appropriate to "foster, protect, control, and restrain" interstate commerce (Second Employers' Liability Cases, 223 U. S. 1; The Daniel Ball, 10 Wall. 557, 564; Mobile County v. Kimball, 102 U. S. 691, 697). In Dayton-Goose Creek Ry. Co. v. United States (263 U. S. 456, 178), the Court said: "* To regulate in the sense intended is to foster, protect, and control the commerce with appropriate regard to the welfare of those who are immediately concerned, as well as the public at large and to promote its growth and insure its safety.

The Supreme Court has held that this regulatory power is the only legislative authority under which the price of electricity sold at wholesale in interstate commerce may be regulated. In denying the power of the Rhode Island commission to fix the rate for a bulk sale of energy to a Massachusetts company at the State line, the Court said: “Plainly, however, the paramount interest 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” (Public Utilities Commission v. Aitleboro Steam & E. Co., 273 U. S. 83, 90). The wholesale rates governed by this decision are the only rates which under this title are to be fixed by the Federal commission. Distribution rates which the Supreme Court has held subject to regulation by the States in the absence of Federal legislation (Pennsylvania Gas Co. v. Public Service Commission, 252 U. S. 23), are left in the hands of the States. Hence, it is




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