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on the grounds that the general welfare of the public as a whole is being enhanced by cheaper power rates in a limited area. In this scheme so many features are omitted that no balance of comparison can be struck by an ordinary individual. While the individual area in question may get cheaper rates, apparently, yet the individual taxpayers make up the difference in many other ways. The lavish disregard with which Government agencies spend public funds involves excessive expenses of operation which must be met by taxing the general public.
On this subject, the United States Supreme Court in the case of Knorville v. Water Company (212 U. S. 1-18) said:
"The courts ought not to bear the whole burden of saving property from confiscation, though they will not be found wanting where the proof is clear. The legislatures and subordinate bodies, to whom the legislative power has been delegated, ought to do their part. Our social system rests largely upon the sanctity, of private property, and that State or community which seeks to invade it will soon discover the error in the disaster which follows. The slight gain to the consumer, which he could obtain from a reduction in the rates charged by publicservice corporation, is as nothing compared with his share in the ruin which would be brought about by denying to private property its just reward, thus unsettling values and destroying confidences.”
In submitting these comments and recommendations on the pending bill, the writer has fully recognized the earnest manner in which the committee has gone into the many important questions involved. These comments are not made in any direct spirit of criticism, but are comments based on a long and extensive experience as a professional engineer without affiliations with any individual company affected by such legislation. The writer in his professional practice has seen the power utility grow from practically nothing more than a limited number of isolated individual plants with doubtful service, to a 12 billion dollar industry, with efficient service.
Most of the represenatives of the utility industry appearing before the committee have agreed that some of the existing practices should be eliminated, and that regulation of the purely interstate business of the utility company is within the province of the powers granted to the Federal Government by the Constitution.
While there are some agencies in this country which seek the destruction of the private utility as a certain means of forcing Government ownership and operation of utilities as a first step toward the socialization of all industry, yet it is not believed that the committee is willing to embark on a program of destruction in lieu of equitable regulation of the interstate commerce feaures.
JAMES E. CASSIDY,
Consulting Engineer. APRIL 23, 1935.
STATEMENT OF BERNARD F. WEADOCK, VICE PRESIDENT AND
MANAGING DIRECTOR EDISON ELECTRIC INSTITUTE, TO THE HONORABLE COMMITTEE ON INTERSTATE COMMERCE OF THE SENATE OF THE UNITED STATES
My name is Bernard F. Weadock. I live in Greenwich, Conn. I have represented the utility associations in the Federal Trade Commission's investigation of the electric light and power industry since 1928 and have been vice president and managing director of the Edison Electric Institute since its organization. I have attended the conferences and hearings of the Commission. I am familiar with the record and desire to present the following information in reply to Col. William T. Chantland, Attorney in Charge of Utilities Investigation, presented to this committee on April 17, 1935.
METHOD OF PROCEDURE OF THE COMMISSION The attention of this committee is directed to the method of procedure adopted in the 8 years of its investigation of the electric light and power industry by the Federal Trade Cominission. It will be noted from Col. Chantland's testimony that it was necessary to convince Dr. Walker and Judge Healy that the facts as claimed by the examiners were inaccurate. The reports as printed never did carry the full approval of the company examined. This is best evidenced by a statement in the record by Mr. Earle J. Machold, attorney for Niagara Hudson Power Corporation (Dec. 13, 1934, p. 45584 of testimony) as follows:
"I might say that it is the policy of the Niagara Hudson System in this and other similar instances to cooperate with investigating bodies. While we have had differences of opinion with the Commission, and do not agree entirely with some of the things that are in some of these reports, not only on this company, but on the others, and some of the testimony, we have been given an opportunity to present our story, and this being an ex-parte proceeding, of course, the decision is to be made by the Commission.
“I would like to say on the record that failure to cross-examine in detail or to take exception to specific items or matters as they occur in the record I understand does not constitute in any way an admission or bind the company as to the correctness of the exhibits and testimony or affect its right to challenge any of those statements of fact or opinion in any collateral proceeding or before any State or Federal court, commission, or other body. That is my understanding of the nature of the proceeding, and if I am not correct I would like to have you say so on the record.'
A reading of the reports on the companies examined, as presented to the Congress of the United States by the Federal Trade Commission, will disclose that full cross-examination, while accorded, was never permitted. A few excerpts from the record will bear out this statement
“Mr. CHANTLAND. I object to counsel interfering with the witness in the middle of a statement. As a matter of fact, I do not think the procedure is proper in these hearings. I do not like to have that happen." (Hearing on Oswego River Power Co., June 15, 1934, p. 42672/3.)
“BUCKINGHAM. As an accountant I like to see a balance sheet and a profitand-loss statement arranged in a fashion which will indicate the nature of the accounts, whether they may be of particular merit or not. It certainly would be a satisfaction even to the owners of the company to have their financial statements arranged in an orthodox manner which would set forth the facts in the case.
“Brown (for the company). Yes; but I do not believe your instructions were to advise these private owners as to what you thought was good or bad.
“A. No, sir.
“Mr. Walsh (attorney of Federal Trade Commission) I am afraid I will have to stop you there, Mr. Brown. Mr. Buckingham, when he goes into the field, has no instructions from the Commission to criticize or not to criticize the owners. However, he is to bring back to this Commission what he considers to be the true facts in the case and as an examiner of the Commission he has a perfect right to report to the Commission what he finds to be the true condition of the company.
Mr. BROWN. I think he has gone beyond that. “Mr. Walsh. I am afraid I must take exception to that.
“Mr. Brown. Well, I have no guide as to which takes precedence, this public record or his report. I assumed his report would become a part of the public record.
Mr. Walsh. The report is in the public record. “Mr. Brown. And the statements in the public record to which I take exception are not the information you brought out. I think you have done that very fairly and very nicely, and I appreciate the way in which you have got it up, but it is the statements in the report which I assume would supplement the public record to which I take exception, and I only wanted to ask these questions of Mr. Buckingham in order that it might tend to present the other side, which I think we are fairly entitled to bring out, too, in effect; show the other side that he has failed to present in his report. That is all I had in mind.” (Hearing, National Gas Pipeline Co. of America, Jan. 24, 1934, vol. 62, pp. 74, 75.)
From the following it will be noted that the proceedings were accepted as being purely ex parte:
“Examiner AVERILL. As I understand- -correct me if I am wrong, Colonel Chantland—this is an ex parte hearing; and, while I believe it has been the custom to permit an attorney representing the respondents-not the respondents, because there aren't any respondents, but representing the various utilities to register an objection to certain things at times, that is as far as we have gone; is it not?
“ Colonel CHANTLAND. I think that is so, unless the examiner feels that the bounds of propriety are so far exceeded that he should sit down upon us in good conscience; but, otherwise, we do not feel that we are limited by any issues of trial. We are trying to develop information, and we put this in as an illustrative figure. We quite recognize that there must be qualifications stated, if we are to use what we put in; but this illustration we will try to protect, if further use is made of it.”
(Hearing on Buffalo General Electric Co., of Niagara Hudson group, vol. 62, p. 298, 299.)
Lastly, the rulings on the inclusion of evidence, because of the method used in the investigation, were arbitrary.
“Commissioner McCulloch. Well, I am not going to let you introduce the exhibits now. You understand that? (Re radical organizations.)
“Mr. WEADOCK. Yes; I get that idea, but I do not desire to address myself to the question which urged here, or raised now; that is the competency of the proof. I have considered in this investigation we have been operating more as a court of chancery, so to speak, than anything else, and the exact and strict rules of evidence have not been followed. I think we will all agree to that.
“Commissioner McCulloch. That is true, and that is why I am letting this (Vol. 18-19, p. 193.) (Vol. 18-19, p. 191):
"Commissioner McCulloch. Now, I think I understand your position very clearly, and I have endeavored to make mine clear. I do not think I can add anything to the facts. I do not agree with you. You and I are in disagreement about it. I must make the ruling that is prompted by my judgment, and I have done so. Now, let me see the paper you are offering, and I will state whether I can let it in or not (re radical organizations).
“Mr. WEADOCK. Well, I certainly take an exception. Of course, we have no method of appeal from Your Honor's decision, but it seems to me that it is a most positively unique situation here, for we have given you everything we have had for 2 years.
“Commissioner McCulloch. Now, Mr. Weadock, I have heard you very respectfully. I have heard you develop your position, and I understand it. Now, I have made my ruling on it.
“Mr. WEADOCK. I know; but, Your Honor, I have a situation here to consider.
“Commissioner McCulloch. I am controlling this hearing, and you must respect my rulings on it.
Mr. WEADOCK. I will respect Your Honor's rulings. “Commissioner McCULLOCH. And you must do so. “Mr. WEADOCK. But only to the extent that those rulings do not deprive “Commissioner McCulloch (interposing) I do not care what effect they have.
“Mr. WEADOCK (continuing). Of availing ourselves of our opportunity to present our full case.
“Commissioner McCulloch. So far as this hearing room is concerned, you will respect my rulings, or I will find a way to compel you to do it.
“Mr. WEADOCK. Now, Judge McCulloch, I say this, that under the authority imposed upon you by that resolution we are entitled to show our cause.
*Commissioner McCulloch. Mr. Reporter, suspend this report for a minute."
Whereupon Commissioner McCulloch ordered the reporter to cease taking further objections to his ruling and excluded the testimony.
These are a few illustrations of the many where, under the procedure adopted, companies were rigidly restricted in the character of their proof and the manner of offering the same. BUDGET AND COMMITTEES OF THE NATIONAL ELECTRIC Light AssociATION
In his testimony before the Senate Committee, Colonel Chantland said:
“I want to call attention to the budget of the National Electric Light Association. In this part 71-A (p. 27) that you have before you it shows that that budget exceeded a million dollars a year. It is true that a part of this was for technical work. But it is also true that so far as the time and energy at the headquarters of the various geographical and State divisions were concerned, the principal activities of the staff were devoted to the public relations end. The revived joint committee, in the 7 months from June 1 to December 31, 1927, collected $400,000 for its use. And it was purely for propaganda, of course, or publicity or public relations, whatever you may desire to call it."
It was testified by Mr. Preston S. Arkwright, president of the Georgia Power Co. and formerly president of the National Electric Light Association (Federal Trade Commission vol. 18-19, p. 87), that for the year 1927 the total expenditures of the National Electric Light Association were $993,527.08 and out of that sum $53,213 was directly expended for public relations work. In the same year, the association spent $107.647.85 on account of advertising in farm papers and
magazines to promote farm and rural electrification, which was not spent, according to Mr. Arkwright's testimony, for public relations purposes. So that the expenditure that year on public relations was only 6 percent of the budget. (See also exhibit no. 753, Federal Trade Commission ex. pt. 3, p. 103.)
Exhibit no. 5578, Federal Trade Commission volume 61, page 158, includes & statement of income and expenditures of the National Electric Light Association. It shows the following expenditures for public relations, by years: For 1928: Total income.
$1, 273, 857. 16 Expenditures for public relations.
61, 188. 31 Advertising--
103, 458. 43 Percent of public relations and advertising cost to total income.
12. 13 For 1929: Total income..
1, 456, 138. 11 Expenditures for public relations.
785. 47 Publication cost..
168, 577. 61 Percent of public relations and public relations publication cost to total income..
11. 63 For 1930: Total income..
1, 705, 178. 85 Expenditures for public relations..
6, 732. 68 Publications cost...
42, 639. 31 Percent of public relations and public relations publications cost to total income..
2. 89 For 1931: Total income..
1, 762, 340. 35 Expenditures for public relations..
13, 970. 12 Publications cost...
34, 303. 25 Percent of public relations and public relations publications cost to total income..
2. 73 For 1932: Total income..
1, 197, 444. 53 Expenditures for public relations.
61, 409. 15 Publications cost...
12, 189. 53 Percent of public relations and public relations publications cost to total income..
6. 4 It is conceded by Colonel Chantland that a part of the record was of a technical nature. The work was done by committees. Exhibit no. 3, exs. pt. 1 and 2, p. 9 of the Federal Trade Commission record lists the organization committees showing that of the total of 59 committees, all but 7 related to technical, scientific, commercial, and engineering problems of the business, or, in other words, 88 percent of the total committees were of that nature.
STIGMA UPON THE EDISON ELECTRIC INSTITUTE
Colonel Chantland referred to the Edison Electric Institute as follows:
"Until they put it (the former National Electric Light Association) out of its misery and formed a new so-called 'Edison Electric Institute' and he (Mr. Bernard F. Weadock) is vice president of that, with the same offices and files, but considerable changes, if you please, in their method of procedure."
The Edison Electric Institute was formed on January 12, 1933, and it was the first trade association organized providing for a code of ethics for its members. The code adopted is as follows, as provided in article IV of the Constitution:
“ARTICLE IV-BUSINESS PRINCIPLES
“SECTION 1. The company members shall from time to time and not less than annually publish financial statements, including balance sheets and earnings statements showing gross and net income, operating expenses, and surplus accounts, which statements shall be certified to by independent firms of certified public accountants who shall have audited the books of the company.
“Sec. 2. All statements and data furnished to consumers, stock exchanges and stockholders; all information designed for public dissemination and all reports to governmental authorities shall be accurate and clearly indicate their source.
“Sec. 3. All contracts between any member companies which involve the furnishing of management, supervisory, purchasing, construction, engineering or financing services to operating electric utility companies shall be so drawn and su operate in practice that the charges to the operating company shall be reasonable and commensurate with the value of the services rendered and the fair cost thereof to the company furnishing the services.
“Sec. 4. Company members from time to time shall answer such questionnaires relative to their organization, financing, methods of operation, and business practices as may be requested by resolution of the board of trustees.”
The objects of the Edison Electric Institute are fully stated in its constitution as follows:
“The objects of the Institute shall be:
“1. The advancement in the public service of the art of producing, transmitting, and distributing electricity and the promotion of scientific research in such field.
“2. The ascertainment and making available to the members and the public of factual information, data, and statistics relating to the electric industry.
"3. To aid its operating company members to generate and sell electric energy at the lowest possible price commensurate with safe and adequate service, giving due regard to the interests of consumer, investor, and employee."
Colonel Chantland might have testified with greater consideration for the facts if he had pointed out that two examiners of the Federal Trade Commission, under the jurisdiction and at the direction of Colonel Chantland, spent 2 days examining the files, records, correspondence, reports, and all material in the offices of the Institute. The material gathered was taken to Washington for examination by the superiors of the examiners, and although such examination occurred almost a year ago, it has never been introduced into the record. Inquiry as to why it had not been introduced, brought the answer: "There was not anything of interest to put in the record.”
Had Colonel Chantland desired to be eminently fair, he would have brought the complete story of the Edison Electric Institute to the attention of the members of this committee.
This would seem to be in keeping with the practice of the Commission to avoid giving credit or commendation for things which are of a constructive type. It seems strange that in over 76 volumes printed, but few complimentary things are said by the Commission of a business which has been as successful in serving the public as the electric light and power industry.
It would have added greatly to the Federal Trade Commission's reputation as a fair and impartial body to have included some of the things which its technical and engineering staff stated but which were buried among the volumes of antagonistic reports of the Commission. That the statistical work was completely, thoroughly, and accurately done is best attested by the Commission's report on the interstate movement of electric energy (71st Cong., 3d sess., Doc. 238) an engineering study appearing in 1931:
“For the high degree of completeness and comprehensiveness achieved in the returns and compilations presented, moreover, the Commission owes much to the cooperation of the National Electric Light Association. This organization not only circularized its members but emphasized the importance of 100 percent returns." and again:
“The comparison between the figures of this inquiry and those of the National Electric Light Association is gratifying evidence of the accuracy of both sets of detailed data (p. 9).
the competence of its statistical staff may be taken to mean that its own figures for 1928 and 1929 are on the same basis” (p. 47).
ADVERTISING—A LEGITIMATE AND ACCEPTED ATTRIBUTE OF BUSINESS Expenditures for advertising are referred to by Colonel Chantland in the following terms:
the utilities industries were reported by their own men to have spent in the neighborhood of 28 million dollars for advertising. I need not tell you why. But I think that has to be considered in the matter of the influence it has on the program of the utilities and of getting things favorable to the utilities” (p. 88).
This description of the subject constitutes not only a stigma upon all advertising as such, but is also a misinterpretation of how and why the money was spent. Throughout the years of the Federal Trade Commission's investigation, it has