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count, which is an operating overhead, maintain its system as near as may be to 100-percent efficiency?

Mr. BENTON. The commissions ordinarily recognize a stated depreciation charge from which utilities may maintain their system in 100-percent operating efficiency, but which will ordinarily be more than sufficient for that. In some way or other that depreciation reserve is invested. It may be in securities, but ordinarily it is invested in plant; and it is in that way that a great many utilities have added to their systems-largely through the depreciation reserve. That is the kind of situation which I am pointing to when I say that the law should not compel the Commission to fix a rate to yield a fair return on the whole cost.

Senator Bone. Is it not a practical proposition that if the proper attitude by the State regulatory body is adopted toward these utilities, in other words, if the State regulatory body is inclined to believe that the company, by a very generous expenditure for maintenance, is able to maintain its system in such a fashion that even obsolescence plays no great part in it; that is, out of maintenance to replace portions of that system, which normally might be covered by the factor of obsolescence, with the depreciation fund, it amounts to just that much extra dividend, does it not?

Mr. BENTON. I have no question about that. On the contrary, I believe that companies often have sought to maintain their properties in good operating condition out of operating charges, and to build up depreciation reserves in addition thereto. In fact, rate investigations have disclosed that to be true. You probably have in mind that in the Illinois Bell Telephone case, decided by the Supreme Court last year, the decision turned upon that very point, that the company had been keeping up its properties in addition to an excessive depreciation reserve, and it was by virtue of the right of the commission to consider the depreciation reserve that it was enabled to secure the rate reduction which it ordered. That is exactly the right which we wish to preserve when we ask to have this language put into the bill.

Senator BONE. When a company is using maintenance funds to preserve its system against the ravages of time so that at the end of a 25-year period the system is as near perfect as may be, then that company has no right to have a depreciation fund, for it has substituted in its operating overhead the very function that the depreciation fund is supposed to perform. I have seen some things in the western part of the country that approached so close to that particular situation that it did not present a very happy picture.

Mr. Benton. That is something which any regulatory commission ought to watch very closely.

Senator Bone. There was a case where depreciation funds were paid out to the stockholders, which was an impairment of capital.

Mr. BENTON. You are of course absolutely right, as every fair person must recognize, when you say that a company has no right to charge the public twice for one expense; and that is what it does when it takes care of its depreciation through maintenance and also builds up a depreciation reserve.

Mr. Chairman, that concludes the statement which I desired to make, unless there are some other questions.

The CHAIRMAN. We will take up all your amendments and they will be considered by the committee.

Mr. GADSDEN. Mr. Chairman, before the committee adjourns I would like to ask permission to file statements by the Columbia Gas & Electric, Electric Bond & Share, and Bernard Weadock, vice president of the Edison Institute.

The CHAIRMAN. Very well. There have been some other people who have asked for permission to file statements. Anybody who has a statement that he wishes to file, if there is nothing in the statement that is not pertinent, we will permit it to be filed. Of course we do not want a lot of things to go into the record that are not pertinent to the issues involved here. Anybody who has a statement that he wants to file will be permitted to do so by submitting it to the clerk and to the committee.

I am going to conclude the hearings right now. I probably shall not call an executive meeting before the latter part of this week or the first of next week, because I desire to give the members of the committee who have not been able to attend the hearings an opportunity to read the record and go over the matter before we take it up in executive session.

I would like to have inserted in the record at this point a letter from William T. Chantland, attorney in charge of utilities investigation, Federal Trade Commission, dated April 27, 1935, with the information accompanying it.

(Letter dated Apr. 27, 1935, with accompanying matter, referred to and submitted by the chairman, is here printed in full as follows:)


Washington, April 27, 1935. Hon. Burton K. WHEELER, Chairman Committee on Interstate Commerce,

United States Senate, Washington, D. C. S. 1725, committee hearings.

DEAR SENATOR: At the time I testified before your committee on S. 1725 certain requests were made by you and other members of the committee for additional information which I promised to procure. I am sending the information herewith in a separate memorandum. Very truly yours,

Wm. T. CHANTLAND, Attorney in Charge of Utilities Investigation.

I. UTILITY OWNERSHIP OR INTERESTS IN NEWSPAPERS Inasmuch as our record is not carried to date it is impossible to answer your inquiry as to what the exact situation is at this date. Therefore, I had our records of the investigation examined and present the following summarized statement of the facts as disclosed by them:

Mr. Archibald Graustein, president of the International Paper & Power Co., and also of its owned International Paper Co., testified on March 20, 1931, before the Federal Trade Commission concerning its ownership of newspapers as follows:

"INTERNATIONAL PAPER & POWER CO. The International Paper Co. owns $1,735,000 par value debentures of the Chicago Journal Co. through the Market Property, Inc. (pts. 31–32, pp. 395–400, also footnote on p. 398).

"All the stock in the Augusta Chronicle, the Spartanburg Herald-Journal and the Columbia Record are now owned by the International Paper Co. or a nominee. These newspapers are only being operated until they can be disposed of one's

(Pts. 31-32, p. 405.). At one time, the International Paper Co. owned an interest in the Piedmont Press Association, Inc., the Boston Herald-Traveler, the Brooklyn Eagle, and the Ithaca News Journal. According to the testimony of Mr. Graustein, all of these newspapers have now been sold back to the former owners, and the International

proper basis.

Paper Co. now has no interest except accounts receivable on contracts to supply newsprint paper. (Pts. 31-32, pp. 401-405.)

In addition to the above statements showing utility ownership of newspapers, the International Paper Co. has large open accounts with many newspapers (Ex. 6036; pt. 67, pp. 338, et seq).



The North American Light & Power Co., of Chicago, Ill., in 1926, owned $20,000 worth of bonds of the Press Record Publishing Co. of Granite City, Ill. (Ex. 5005, pt. 39, p. 545, sched. E-2).


The Northern Indiana Public Service Co., of the Middle West (Insull) group, in 1928, owned $500 worth of stock in the Pilot Printing Co. of Plymouth, Ind. This was resold to the Publishing Co. in 1929. In May 1931, this same company advanced $4,000 to the Lake County Printing & Publishing Co. of Hammond, Ind. In December 1931, this sum had been reduced to $1,461.51 (Ex. 5427, p. 545, sched. E-2).

The Central Power & Light Co., a subsidiary of the Middle West Utilities group, in 1924, advanced $18,667.46' to the Brownsville Herald Publishing Co. of Brownsville, Tex. In 1925, the power company owned 10 shares of voting stock of the San Benito Publishing Co., San Benito, Tex., valued at $500. In 1926, the company owned 50 shares of voting stock of the Laredo Daily Times, Laredo, Tex., valued at $5,000.

Also in 1926, the power company advanced $1,000 to the Brownsville Herald Publishing Co.

The power com pany owned 5 shares of voting stock of the Globe Publishing Co. of Harlingen, Tex., valued at $500, in 1926. It owned 5 voting shares of the Valley Telegram, valued at $500.

The note for the indebtedness of the Brownsville Herald Publishing Co. was paid in full.

The transaction shown as a stock investment in the San Benito Publishing Co. actually was an advance covered by the note of W, D, Holland with the newspaper stock deposited a collateral. The note was written off as worthless in December 1931.

The $5,000 worth of stock of the Laredo Daily Times was resold to the newspaper for $2,500, and the loss written off to profit and loss.

The $500 worth of stock of the Harlingen Globe Publishing Co. was written off as worthless in 1928.

The $500 worth of stock of the Valley Telegram was written off as worthless in 1928. (Ex. 5427, pp. 385, 386, schedule E-2).

STANDARD GAS & ELECTRIC (BYLLESBY) GROUP The Standard Gas & Electric Co., in 1926, owned bonds of the Natrona County Tribune, Casper, Wyo., valued at $10,000. This was disposed of by redemption of $2,000 by the newspaper company, and the balance of $8,000 being sold to the H. M. Bylesby Co, in May 1929. (Ex. 5812, pt. 65, p. 257.)


The Union Gas & Electric Co. of the Columbia Gas & Electric group owned $24,000 worth of notes of the Republican Publishing Co., of Hamilton, Ohio, in 1925, and in 1926 an additional $2,000 in notes; in 1928 owned $26,000 worth of notes, and $20,500 in bonds. The bonds were issued in payment of the balance due on the notes. In 1928 and 1929 bonds worth $20,500 were owned, and in 1930 and 1931, this amount was reduced on the books to 50 percent of the face value, $10,250. (Ex. 5783, pt. 64, pp. 955, 966.)


In May 1937, Minnesota & Ontario Paper Co., owner of Ontario & Minnesota Power Co., offered to finance the Southern Publishers, Inc., to the extent of $1,500,000. Luke Lea was the president of the Southern Publishers, Inc., which was a holding company for the Memphis Commercial Appeal and the Knoxville 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 hulding 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 ne 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

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 practiees.

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 the 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 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 independent, 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


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