Hon. DUNCAN U. FLETCHER,

Washington, D. C.

COOK AND HARRIS,
St. Petersburg, Fla., March 15, 1935.

DEAR SENATOR FLETCHER: Please pardon my delay in not writing you earlier regarding the above act. I am attempting in this letter to briefly discuss the act as a whole, and to point out some specific, illustrative sections which should either be corrected or eliminated if the bill is to become a law.

In my opinion, should this act in its present form become a law, all holding companies will be abolished, as provided in the act, and very few operating companies will remain solvent on account of the stringent regulatory powers given the several commissions under whose jurisdiction the act places the utility busi

ness.

NOTE. All references in the following comments and suggestions are to the Rayburn Act, H. R. 5423; there are, however, similar provisions in the Wheeler bill, S. 1725.

Briefly summarized, the act provides that all holding companies, as defined, must be reorganized or dissolved by January 1, 1940, unless the Federal Power Commission certifies that the continuance of such holding company is necessary for a "geographically and economically integrated public-utility system and merger or consolidation is impossible under applicable State law", places all utility holding companies under the jurisdiction of the Securities and Exchange Commission for regulation pending dissolution as provided in the act, gives the Federal Power Commission complete jurisdiction over all "mutual service companies" as defined, all "utility companies" engaged directly or indirectly in interstate transmission of electricity and all licensees of the Federal Power Commission.

The Federal Trade Commission has similar jurisdiction over the transmission and sale of natural-gas companies operating in interstate commerce that the Federal Power Commission has over the interstate transmission of electricity. (This provision as to natural gas occurs in the Rayburn bill, but not in the Wheeler bill.)

The unlimited powers of the commissions having jurisdiction are so broad as to place the respective commissions, their officers, agents, and employees in the position of managers of the utilities without owning them, including the power to destroy the property rights of the owners without compensation, viz:

(a) The act authorizes the commissions to prescribe the rules of account, keeping of records, correspondence, and other data with minute detail, which authority is superimposed over that of all State commissions who can require separate systems of accounting, keeping of records, etc. This in all probability will subject every utility under the jurisdiction of this act to keep two or more complete sets of books, records, data, etc., which means an added burden to the utility which the customer will have to pay.

(b) The commissions having jurisdiction over the installation of equipment, making repairs, additions, changing and operation of facilities, service to customers, and rates.

(c) Construction of plants, transmission lines, and other property are equally supervised.

(d) The issuance of securities under certain provisions of the law must be approved by the Federal Power Commission and then reapproved by the Securities and Exchange Commission in addition to the requirement of having been previously approved by the State authorities.

(e) Commissions have complete detailed supervision over the making of contracts of every kind and character, whether for the purchase of a few insulators or poles, or the construction of a power plant costing millions, and the same regulation applies to the purchase of miscellaneous and incidental supplies in connection with the operation of the utility including contracts relating to the employment of labor or professional services, with power to alter, modify, or approve or disapprove any of such contracts.

The act provides that in the event of the appointment of an equitable receiver, or a trustee in bankruptcy, or in reorganization authorized by section 77-b of the Bankruptcy Act, that the Securities and Exchange Commission shall be such trustee or receiver, notwithstanding the fact that the same commission has regulatory powers over holding companies and subsidiary utilities, with power to force any such company into insolvency. The act further provides that this same Commission is the sole arbiter as to whether or not any such company should be thrown into bankruptcy, receivership, or be reorganized. This authority gives the Securities and Exchange Commission absolute power to dictate

and determine which companies will be liquidated through bankruptcy, receivership, or otherwise, or allowed to live. This, in my judgment, is the most vicic as provision in the entire act, as it gives to the Securities and Exchange Commission the power to strangle any company under its jurisdiction by regulation, throw it into bankruptcy or receivership, become the receiver or trustee of that company, and thus deprive the owners of their property without compensation, through guise of law. Should this provision not be eliminated in its entirety, the act should not become a law.

The act provides that in the event of conflict between the requirements or of the several jurisdictions conferred by the act (title I), the Securities and Exchange Commission and its rules and regulations shall control. What this does to State regulation is uncertain. This provision, in the event of conflict, is not entirely clear in view of the specific authorization of the Federal Power Commission over licensees and utilities engaged in interstate commerce, as there are a number of paragraphs giving specific jurisdiction to make orders, etc., with specific penalty for the violation thereof, and there is doubt, in my opinion, whether or not even in spite of this provision a utility company or licensee would not be subject to the rulings of both Commissions. There is no question that a utility would be subject to the Federal Power Commission in matters pertaining to service, construction of plants, transmission, etc., and to the Security and Exchange Commission, concerning the issuance of securities, keeping the accounts, records, data, etc., and this regulation is superimposed over State regulation.

DISCUSSION

By the destruction of all holding companies the operating companies are deprived of financial, technical, managerial, and other assistance received from that source.

The act makes practically all utility companies common carriers, and thereby enables the Government-owned plants, such as Tennessee Valley Authority, to use private-owned transmission lines and other facilities.

The provisions of the act expressly relieve all governmental competitors of the utilities whether Federal, State, or municipal, from all regulation.

To accomplish the best results for the public, the State, utilities which serve the public, whether licensees or otherwise, and the commission having jurisdiction, it is contended that exclusive jurisdiction should be vested in one commission for the regulation of such utilities. The opposite is provided in the Rayburn Act, since it provides that the regulation of the operation of licensees and utilities who are directly or indirectly engaged in interstate commerce are under the jurisdiction of the Federal Power Commission, which is given very broad powers, and in fact, made the manager of these utilities. It is also provided that the issuance and sale of securities, the keeping of accounts, records, the filing of reports, the acquisition or disposition of capital assets or facilities, are subject to the Securities and Exchange Commission. While the act authorizes and empowers the Federal Power Commission to coordinate the exercise of its jurisdiction with that of the several State commissions, it is not made mandatory. Thus the utility is subject in some instances to municipal regulation, State regulation, and is under the jurisdiction of two separate and independent Federal Commissions. The bill should be redrawn to provide for the regulation of utility companies, including holding companies, by one commission, which should have exclusive jurisdiction of all matters and things pertaining to the business, coming within the scope of its regulation, as has been done in the regulation of railroads, etc. The Securities Act provides that railroads and those companies that come under the jurisdiction of the Interstate Commerce Commission do not have to comply with the provisions of the Securities Act, and leaves the Interstate Commerce Commission with exclusive jurisdiction of utilities under its supervision, including not only their operation, service, and rates, but the issuance of their securities. Why not give the public utilities the benefit of the same methods of regulation which the railroads enjoy?

The provision that the regulated companies should reimburse the United States for the cost of administration of the act, should be eliminated because it is not sound, either politically or economically, to require the regulated utilities to pay the cost of administration of that business. The effect of this is twofold. First, it greatly increases the operating expense of the regulated business, which expense in turn must be passed on to the public in the form of higher rates. Second, with the regulated business paying the tariff it increases the tendency on the part of the commission for continued hearings, investigations, inspections, etc. The bill in its present form should be defeated.

A few specific sections of subtitle II of title II are illustrative: Section 201 (a) (p. 103) (Rayburn Act). "Application of Title": This section should be rewritten so as to express clearly the jurisdiction of the Federal Power Commission over interstate business and include Government-owned plants operated by any agency of the Federal Government, the State, or municipalities. It is not fair to subject one portion of a business which is privately owned, to restrictions, regulations, and burdens (including expense of being regulated), and not the public-owned plants, which are competing with the private plants.

Section 202 (p. 104). "Service and Charges": This section should be rewritten so as to eliminate the common-carrier clauses.

Section 203 (p. 105). "Establishment of Regional Districts; Extension of Facilities": This section should be rewritten so as to eliminate the commoncarrier provisions for as it is now framed a utility company could be required to transmit the electric energy of another utility, whether private or governmental, and enable the generating utility to compete with the transmitting utility. This section construed literally would permit the Government agencies engaged in the power business, such as the T. V. A., to use the facilities of every utility company placed under the jurisdiction of the act, with another Government agency, the Federal Power Commission, fixing the compensation, if any, to be paid by the Government, of whose decision there is, under the act, no review, since all actions of the Commission are made conclusive as to questions of fact when supported by any evidence whatsoever.

The provisions of subparagraph (b) of section 203, should be redrawn so as to conform to subparagraph (a), and the powers of the Commission limited to enforcing only what the companies by voluntary agreement can accomplish in the creation of regional districts. As the section now reads, the Federal Power Commission is the sole arbiter of the destinies of all utilities under its jurisdiction, and the owners have no voice in determining the control or policy of the utility company, since the act makes all determinations of the Commission conclusive.

Section 204 (p. 107). "Certificate of Public Convenience and Necessity": This section should be reframed to include Government-owned plants, whether Federal, State, or municipal. This can be accomplished by enlarging the definition of the term "public utility."

Section 206 (a) (p. 108). "Issuance of Securities": This section should be amended so as to provide for the issuance of securities in addition to the purposes expressed, to include, "or for such other purpose as the Commission might approve.

Section 211 (p. 116). "Ascertainment of Cost of Property": The provision, "the actual, legitimate, prudent cost of property" is a limitation upon the discretion of the Commission, and an attempt by legislation to overrule the decision of the courts, including the United States Supreme Court, that the utility is entitled to earn a "reasonable return" upon the "fair value" of its property devoted to public use.

Section 213 (p. 118). "Reparation Orders": The language of this section is too drastic and authorizes the Commission to issue a reparation order against the utility even though that utility has been charging the rates previously fixed by the Commission. It should be rewritten so as to provide that no reparation would be ordered paid by a utility when its charges have conformed to the rates fixed by the Commission.

Section 215 (p. 121): This section has some of the language of section 12 b, on page 46, and Section 12 d, on page 47 (title I). This section should be eliminated from both titles, as it is unnecessary and is an attempt on the part of the act in its several titles to make the Federal Commission (Federal Power Commission, the Securities and Exchange Commission, and the Federal Trades Commission), the managers of the utilities or companies coming under their jurisdiction. It does more than this. It is an attempt to place under the jurisdiction of these commissions the managements of the business of every person or corporation with whom the utility does business or makes a contract.

I am informed that this section was only intended to cover "management" or "service" contracts, but the way the section is drawn it would cover the purchase of anything from a lead pencil to a power plant costing millions, and every item that goes into either the operation or construction of the plant, transmission system, or office of the utility company, under the jurisdiction of the commission. This section is apparently an attempt to place practically every business in the United States under the control of the Government, through regulation, since the "Commission" has the power to "approve, disapprove, alter, or modify any contract subject to its supervision." The same section appears in each title.

Under other sections of the act the Commission has the authority to ascertain the cost of the utility's property, pass upon its expense account, fix its rates, and authorize the issuance of its securities, which will enable the Commission to ascertain any information they desire regarding the operations of the utility, without subjecting the businesses from which it acquires its equipment, materials, etc., to the jurisdiction and management of the Commissions.

Section 302 (p. 124). "Rates of Depreciation." The last two sentences of this section should be eliminated, since they place a limitation upon the power of the Commission to handle the depreciation accounts of the utilities in such a manner as will best serve the public, the State, and the utility. The regulatory acts of many States provide that the Commission may relieve any utility from the duty of carrying a depreciation account, when in the judgment of the Commission it is for the best interests of the public or the utility. Particular reference is made to the Pennsylvania and Wisconsin acts. In my opinion there will be great conflict between the rulings of the Commission under this section, and that of the several State Commissions, which will have to be reconciled if the operating utility companies are to be permitted to function with any degree of success.

Section 314 (p. 138). "General penalty": Section 28 of title I, page 74, has the same language. This section is too minute in detail and makes the Commission the office manager of every utility under its jurisdiction. It is appreciated that anyone who willfully falsifies books, accounts, or records, or who willfully destroys the same in violation of the Commission's rulings, should be punished, but to extend this drastic penalty to the keeping of general correspondence, accounts, and memoranda, books or records, without limitations, as the act now provides, is unfair, and will keep the officers and employees of all utilities in suspense at all times as to whether or not the act has been violated, for it is customary that the detail miscellaneous correspondence and memoranda are from time to time destroyed in the ordinary course of business. It is suggested that this section be rewritten and these drastic provisions eliminated.

Section 315 (b). “Unlawful contracts and stipulations": This section attempts to void every contract "heretofore made", which involves a violation of any of the provisions of the act.

CONCLUSION

There has been no attempt to minutely analyze every section of the bill. It goes without saying that "holding companies" should not be eliminated, as provided in the act. Reasonable methods of regulation should be provided to correct abuses, with exclusive jursidiction in one commission, which should be the Federal Power Commission. The other drastic provisions of the act should be reframed so as to authorize a reasonable regulation of the business to the end that the public will be better served, the investments in utility business, including holding companies, protected, and the consumers furnished their service at economical rates.

Should it be determined not to amend or correct the act, then it should be defeated.

Title III, relating to the transmission and sale of natural gas, is not discussed. As you probably know, our firm has been general counsel for a number of years for both the Florida Power Corporation and the Georgia Power & Light Co., which companies are operating companies, formerly identified with the Insull group. These two companies, however, are now a part of and affiliated with a single holding company, known as the "Penn-Southern Power Co.", which is s company of small personnel but composed of very high-type executives in the utility field. I am very frank to say that the benefits which these operating companies derive from the holding company in the way of financial support, assistance in issuing securities, and various financial, tax, and accounting service, have been and are invaluable to our operating companies. I am equally positive that none of the evils which have been complained of in the past as attaching to holding companies exist as far as this particular holding company is concerned. On the contrary, the operating companies receive a very district benefit, without any of the attaching so-called "evils."

I will be glad to receive any suggestions that you might care to make regarding the bill, and your assistance in revising the bill, or if that cannot be done, in preventing its passage in its present form, will be greatly appreciated.

With kindest personal regards, I am

Sincerely,

JOHN D. HARRIS.

Senator JAMES HAMILTON LEWIS,

Washington, D. C.:

WHEATON, ILL., April 4, 1985.

On behalf of the Amalgamated Association of Street Electric Railway and Motor Coach Employees of America representing a large majority of all transit workers, we urge that the Rayburn public utility bill H. R. 5423, be amended in section 7 (a) and section 10, to except from its provisions all transportation companies owned by public-utility holding companies. Many such transportation companies under the bill in its present form and dependent on the support of the power and light public, would face liquidation to the great detriment of the riding public, and of the workers. We request a similar amendment in the Senate bill introduced by Senator Wheeler. THOMAS J. KAVANAUGH,

Financial secretary Amalgamated Association of Street Electric Railway and Motor Coach Employees of America, Division 215, Wheaton, Ill.

COLUMBIA GAS & ELECTRIC CORPORATION,

New York, April 29, 1935.

RE: PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 (S. 1725)

Senator BURTON K. WHEELER,

Chairman Committee on Interstate Commerce,

Senate Office Building, Washington, D. C.

DEAR SENATOR WHEELER: When the committee representing companies in the natural-gas industry was considering the appearances to be made on behalf of that industry before your committee in the hearings on the Public Utility Holding Company Act of 1935, representatives of this company agreed with the selection of Messrs. Feagin and Gallagher as the spokesmen for the industry. This was because we believed that they were well qualified to present to your committee, within the limited time which you could give to this subject, the principal problems of the industry as affected by the bill under consideration in a concise manner without using important time on the specific characteristics and activities of the various individual companies.

We, like the representatives of many other companies who did not formally appear before your committee, were present at the hearing on Saturday morning, April 27. In view of the questions asked by yourself and by Senator Couzens for information with particular reference to this company, which were answered in part by Mr. Feagin and Mr. Gallagher, we are writing you this letter to give you more complete and definite information.

We formally request that this communication be submitted to the committee and included in the record of the hearings.

One question that you asked Mr. Gallagher was "Who controls the Columbia Gas & Electric Co.?" There are approximately 55,000 holders of the voting common stock of this corporation and about 17,000 holders of the convertible 5 percent cumulative preference stock, each of which issues have one vote per share. (The other preferred stocks outstanding have only limited voting rights.) Holders of these stocks are found in every State of the Union and in the District of Columbia, as well as abroad. The holdings of the United Corporation give it a fraction more than 20 percent of the voting power.

The only other holding of stock amounting to more than 1 percent of the voting stock outstanding is that of the estate of George W. Crawford, late chairman of the board of this corporation, amounting to approximately 11⁄2 percent.

The acquisition of this stock by the United Corporation dates principally from the spring of 1930. At every stockholders' meeting since that date over 60 percent of the total voting stock has been represented. It is obvious, therefore, that the number of shares voted by the United Corporation was only one-third of the total number of shares voted at each such meeting.

At present there are no officers, directors, or other representatives of the United Corporation on the board of directors of this corporation or among its officers. At various times since the spring of 1930 there have been four directors who might be said to have represented the United Corporation in a total board of 18 or more members. It seems apparent from these facts that the United Corporation does not and never has controlled Columbia Gas & Electric Corporation.