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 conferenceas drawn, that would require a certificate of convenience and necessity 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 certificate 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 drew 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 deprives 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 130254-35-69

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 public 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:)

JOHN E. BENTON,

Washington, D. C.

NEWARK, N. J., April 3, 1935.

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.

JOHN A. BERNHARD,
Assistant counsel.

*

I would like to put into the record a telegram received this morning from the secretary of the Illinois Commerce Commission, which is as follows:

JOHN E. BENTON,

SPRINGFIELD, ILL., April 4, 1935.

Washington, D. C.

General Solicitor National Association of Railroad and Utilities Commissioners, Commerce commission has not as yet taken formal action with respect to H. R. Will advise you immediately when formal action is taken by Commission. ILLINOIS COMMERCE COMMISSION, WILLIAM W. HART, Secretary.

5423.

I put that in, because it may perhaps be fairly interpreted that that commission has not yet determined whether the amendments which we distributed fully protect State power, or what position it desires to take.

BROOKLYN BOROUGH GAS Co.,
Coney Island, N. Y., May 2, 1935.

Hon. BURTON K. WHEELER,
Chairman Committee on Interstate Commerce,

United States Senate, Washington, D. C.

DEAR SIR: In the interests of fairness and accuracy in your record of the hearings before your committee on the above bill, I write to ask that you cause the following to be inserted in the record of such hearings:

In connection with the statement made before your committee, in behalf of the pending bill, by Mr. Thomas G. Corcoran, counsel for the Reconstruction Finance Corporation, at the hearing held on S. 1725 on April 18, 1935, there appear the following references to the Brooklyn Borough Gas Co., in course of a discussion of the Associated Gas System (Mim. S. M. 247):

"The only variation that the Associated management has introduced into this appear the following references to the Brooklyn Borough Gas Co., in course of a discussion of the Associated Gas System (Mim. S. M. 247):

"The only variation that the Associated management has introduced into this method of increasing earnings without any additional investment in fixed capital is the expeditious manner in which the enhancement of valuation is achieved. Although in many cases actual engineering reappraisals have been made, often the management has not been satisfied with the meager results. It has adopted the much quicker method of charging to the fixed-capital account a flat increase of 45 percent of book cost. This is known under the euphonious name of 'Brooklyn Borough Overhead.' In 1926, a district court in New York allowed approximately a 45-percent increase in the value of Brooklyn Borough Gas Co. capital. The Associated management took advantage of this liberality; with one fell swoop these overheads, to quote from the Federal Trade Commission's study, 'were applied by company officials to all properties, regardless of the similarity of the property of their respective companies to the Brooklyn Borough Gas Co.'s property.

The above-quoted excerpt is part of an article entitled "Gas: A Study in Expansion, The Case of Associated Gas" by N. R. Danielian, which Mr. Corcoran put into the record (Mim. S. M. 232 et seq.), and which was made a part of the record despite remonstrance from one member of the committee (Mim. S. M. 261).

The quoted statement appears to leave the impression that the Brooklyn Borough Gas Co. is a part of, or is in some way identified with, the Associated Gas System. Such an impression is not in any way true, directly or indirectly, as to either ownership or management.

The statement also creates the impression that the Brooklyn Borough Gas Co. received, from the Federal Court in Brooklyn Borough Gas Co. v. Prendergast (16 Fed. (2d) 615), a 45-percent increase in its capital structure or that the company had rewritten its fixed capital, on the basis of the court's findings, to the extent of a 45-percent increase. Such a statement or impression is wholly contrary to the facts.

The fixed-capital accounts of the Brooklyn Borough Gas Co., as they appear in its books of account, were determined as of 1914, on the basis of an opinion prepared by Commissioner Milo R. Maltbie and adopted by the Commission, following an inventory and pricing of the property embodied in the fixed-capital

accounts. As of 1914, the company's books were rewritten by the company, under protest, to conform to the Commission's determinations.

The fixed capital accounts of the company were reviewed in 1918 by the Honorable Charles E. Hughes, as referee in Brooklyn Borough Gas Co. v. Public Service Commission (P. U. R. 1918F, page 335; 17 N. Y. State Dept. Rept. 81); and the distinguished referee accepted and found the fixed capital accounts as determined by the Commission in 1914, plus net additions to date.

In the later action referred to in the above-quoted excerpt, the report of the special master and the findings of the three-judge Special Statutory Court of the United States for the Eastern District of New York (Brooklyn Borough Gas Co. v. Prendergast, 16 Fed. (2d) 615) took and found the fixed capital of the company at the amounts determined by the Commission in 1914 and confirmed by Judge Hughes as referee in 1918, plus net additions at actual cost for the further period covered.

In finding the present value of the company's property (as distinguished from the actual investment therein) as of 1925, the master and the court included and allowed the elements of replacement cost according to law. This was only in connection with the finding of a "rate base" by which a confiscatory statute could be tested. It was not used, by the master or the court to anyone else, to allow "approximately a 45 percent increase in the value of the Brooklyn Borough Gas Co.'s capital."

In adopting the master's report, the three-judge court stated (16 Fed. (2d) at page 639):

The opinion and report of the special master deserves commendation for its careful consideration and analysis of the issues. We deem it unnecessary to add more than to say that his conclusions and reasons therefor meet with our approval."

This company's books have never been rewritten, or its fixed-capital accounts added to or altered in any way, by reason of the findings of the master and court as to the 1925 value of the property for rate-making purposes. The company's books and accounts have been at all times kept in full compliance with the effective uniform system of accounts prescribed by the Public Service Commission of the State of New York.

I shall be grateful to you for causing this statement of the facts to be placed in the record of the hearings before your Committee.

Very truly yours,

M. E. DILLON, President.

ASSOCIATED GAS & ELECTRIC SYSTEM,
Ithaca, N. Y., May 1, 1935.

To the Members of the Committee on Interstate Commerce of the Senate of the United
States:

1

GENTLEMEN: In accordance with your permission to file statements or exhibits with your committee, as part of its record in connection with the hearings on the Holding Company Act of 1935, we submit herewith an opinion by Herbert B. Dorau, Ph. D., associate professor of economics at New York University, setting forth his own views, as a student of public-utility economics, on the economic aspects of the proposed legislation. The following brief statement of Doctor Dorau's background, education, and experience is offered in the belief that it will be helpful to you in judging the weight which should be given his opinion in your consideration of the measure under discussion.

Doctor Dorau was born in Wisconsin received his preparatory education in the public schools of that State, and subsequently obtained his bachelor's degree from Lawrence College, Appleton, Wis., in 1919. He received the degree of M. A. from the same university in 1928. He was assistant instructor in economics in the University of Wisconsin, 1920-23. In 1923 and 1924 he was research instructor in the Institute for Economic Research, Northwestern University, and was subsequently research associate (1925–29) and assistant director (1930-31) of the same institute. From 1925 to 1928, inclusive, he was also assistant professor of economics in Northwestern University School of Commerce and associate professor in the same school 1928-33. During 1929-33, however, he was on leave of absence from Northwestern University serving as economist with August Belmont & Co. Since 1933 he has been associate professor of economics in New York University. He was a lecturer on public-service corporations in New York University 1930-33.