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Lieutenant Colonel TYLER. No. I think they are separate jobs, that is all.

The CHAIRMAN. Do you disagree with that they may be done by one commission?

Lieutenant Colonel TYLER. I do not think it will work. That is my own judgment.

The CHAIRMAN. Just why?

Lieutenant Colonel TYLER. Because I think that if you set up a commission to regulate rates, that is the main function of that commission. It has got to go out and valuate all the properties in the business. It can not regulate rates on a few scattered water-powers which come into that rate. It has got to valuate the whole industry to get a rate base. Now that commission can not go into the licensing of these federally controlled sites independently without coming in conflict with the major interests which control the sites. For instance, in the War Department we are interested primarily in developing water-borne commerce. There may be on a navigable waterway which Congress has ordered improved a site which has some power value. Now that decision as to how the power will be developed should be made by the people who are responsible for the success of the navigation improvement, and if this other commission comes in there is going to be a great deal of trouble, not only conflict between the two authorities, but there is going to be dissatisfaction on the part of the applicants, because each one of these authorities can veto the other.

The CHAIRMAN. I do not get that as relates to the question of rate regulation and the granting of license. I can see the point you are making as to a possible conflict between the War Department and the power commission, or any other department and the power commission. But I am asking you with respect to the rates.

Lieutenant Colonel TYLER. With respect to the rates?

The CHAIRMAN. Yes.

Lieutenant Colonel TYLER. You can set it up either way; sir. You can have the authority which grants the license-and by "license" I mean the lease, the right to use the property, the right to go in and develop it-you can have that organization find what the investment is and turn it over to the regulating body, or if you prefer to work it from the accounting end you can have the rate regulating body come in and determine the capital invested.

The CHAIRMAN. I do not see why as long as the power commission is interested in valuations and has an experience in construction and the cost of construction, why that could not be applied to the regulation of rates in interstate commerce. I do not see the point of that. Lieutenant Colonel TYLER. I think I will make that clear, sir. The CHAIRMAN. Very well.

Lieutenant Colonel TYLER. My idea is that the leasing of the sites, the determination of what is the best engineering way to develop the sites, is a function of the executive departments who control the sites.

The CHAIRMAN. We are not objecting to that

Lieutenant Colonel TYLER. Now, they can go on and set up the value. That value can be used by a rate-regulating body.

The CHAIRMAN. But why a separate body, when they have already got the information? I do not get the point.

Lieutenant Colonel TYLER. Because there is not enough of this water power in the country to make it possible to regulate rates on the basis of federally licensed water-power projects.

The CHAIRMAN. I am not talking about that. Because there is not enough water power to take the time of the regulatory body I fail to see why it could not incorporate the regulation of rates in interstate commerce by private companies.

Lieutenant Colonel TYLER. Do you mean to give the commission the authority to go out and valuate all the properties?

The CHAIRMAN. Well, wherever it is necessary to determine the rate in interstate commerce. It has not always been necessary even with the railroads. Sometimes they have been able to regulate the rates without valuation.

Lieutenant Colonel TYLER. Well, if it is based on something besides the value of the property, that is correct.

The CHAIRMAN. But what I am trying to get at is, what objection. there is to the commission-and it is admitted that it does not have enough work to do, to just simply grant licenses and to find the costs what objection there is to it doing the work of regulating the rates and service in interstate commerce and the distribution?

Lieutenant Colonel TYLER. On the basis of simply the license of the fact that the Government issues license for the water-power sites? The CHAIRMAN. No; the question of regulating of power in interstate commerce, whether it is generated by hydraulic power or generated by steam power.

Lieutenant Colonel TYLER. Well, I think then that that commission will have to have authority to go ahead and determine the value of all.

The CHAIRMAN. I am not asking about that, but I am trying to get out from you why you object.

Lieutenant Colonel TYLER. I do not object. I think it is more workable to have two commissions. One devoted to the leasing of the Government's property. The other devoted to the big question of the rate regulation. It seems to me that those are two separate lines of work.

The CHAIRMAN. This statement you are making I understand is on your own initiative?

Lieutenant Colonel TYLER. Absolutely on

my own initiative.

I have shown it to no one except Major Newcomb, my immediate
assistant, and the stenographer who worte it.
The CHAIRMAN. All right, you may proceed.
Lieutenant Colonel TYLER (continuing reading):

It is now proposed in the bill before this committee to set up an independent commission with a broad authorization to build up its own organization. The new commission will have authority over water-power sites over which either the War, Interior, or Agriculture Department also has and must maintain authority. It can hardly be doubted that there will be delays, misunderstandings, and deadlocks. The results will be satisfactory to no one. Nor can it be doubted that by duplication of effort and added personnel not needed the expenses of the Government will be materially increased.

III. ACCOUNTING

For the reasons previously stated this witness believes that accounting for rate-making purposes should be done by a body of bodies set up for the primary purpose of regulating rates. He is further of the opinion as previously stated,

that the leasing of federally owned sites is a separate and distinct job in itself, which can not be confused or combined with rate making, and that the accounting work done by the body charged with leasing Federal sites should be confined to determining the actual and legitimate investment in the developments on those sites.

Now, real determination of the cost of construction work can be made only on the job. An audit of statements and vouchers made up after the work is finished does not carry much conviction to any one who has had charge of work. Cost determination requires not only bookkeeping but such inspection in the field as is necessary to see that the charges made on material bills and payrolls really represent what went into the work.

The CHAIRMAN. Do you mind an interruption there?
Lieutenant Colonel TYLER. No, sir.

The CHAIRMAN. Well then, you are entirely out of sympathy with this long delay in getting these accounting services completed, are you not?

Lieutenant Colonel TYLER. It is my very strong opinion, Mr. Chairman, that if this work had been done in accordance with the law as prescribed by Congress that it would not be now out of date. The CHAIRMAN. And wherein has the commission failed to do the work according to law?

Lieutenant Colonel TYLER. The law specified that this work should be done by and through the departments.

The CHAIRMAN. And why has it not been done?

Lieutenant Colonel TYLER. The Forest Service and the Corps of Engineers of the Army have at all times been able to do a much greater proportion of this determination of construction costs than they have ever been called upon to do.

The CHAIRMAN. Do you know the reason that it has not been done? Lieutenant Colonel TYLER. I do not know the reason; no, sir. The CHAIRMAN. Do you know of any request made by the Power Commission to have this work done that has not been done? Lieutenant Colonel TYLER. They have not made any request. The CHAIRMAN. At any time?

Lieutenant Colonel TYLER. Of any magnitude.

The CHAIRMAN. Well, you heard the statement read by Mr. Bonner this morning with regard to the number of cases or items that they could take care of?

Lieutenant Colonel TYLER. That is new. That is recent, since Mr. Bonner came into the office. He has been trying to get this work cleaned up.

The CHAIRMAN. You may proceed.

Lieutenant Colonel TYLER (continuing reading):

Cost determination requires not only bookkeeping but such inspection in the field as is necessary to see that the charges made on material bill and pay rolls really represent what went into the work.

Where a project is built by contract and the contractor is entirely independent from the licensee there is a certain presumption that payments made by the licensee to the contractor in accordance with the terms of the contract fairly represent work done. Even at that they should be checked on the job. On the other hand, when the contractor is a subsidiary of the licensee and does the work on a cost plus basis, or the licensee himself does the work, the acceptance of pay rolls and material bills without any field inspection and check currently during construction casts more than a little doubt on the value of results obtained from an audit of papers after construction is completed. Real cost determination must answer two questions.

First, were the payments made as claimed?

Second, did the things or services paid for go into the work?

At least 80 per cent of the cost of any project will be construction cost which must be checked on the work as the work is being done, if the audit is to be of any real value. The district offices of the Army Engineers in charge of river and harbor work and the district offices of the Forest Service have excellent cost accounting systems and personnel for their own work and they can without additional employees make thorough check of the actual field cost of licensed projects in their charge.

The CHAIRMAN. That is a point I would like to ask you about. I do not see how they can do this power commission work without additional help.

Lieutenant Colonel TYLER. Well, I will give you an example, sir. Here is an account that was referred to the War Department December 13. It is a prelicense statement of an applicant company down in North Carolina. The prelicense statement amounts to four hundred and sixty thousand dollars odd. At my suggestion this account was referred to the War Department for audit. An auditor was called down from the New York district, and had a conference with Mr. King, the chief accountant. He was posted on the kind of things to look for in a public-utility statement of this sort. He went down to Richmond and checked over the account. He then went to New York to the holding company's office and checked the figures there, and his report came in yesterday, in which he takes exception to some two hundred odd thousand dollars of that account, and for excellent reasons.

The CHAIRMAN. What is the name of that concern?

Lieutenant Colonel TYLER. This is the Virginia & Carolina Power

Co.

The CHAIRMAN. What was the name of the subsidiary?

Lieutenant Colonel TYLER. It is the Stone & Webster Corporation. The CHAIRMAN. And what is the nature of the exceptions he took? Lieutenant Colonel TYLER. Well, he took exceptions to a large number of things.

The CHAIRMAN. Well, the principal ones.

Lieutenant Colonel TYLER. Well, he took exceptions to some items because the thing was an estimated value of stock that had been paid; a payment had been made of stock, and it was put in at par value. He took exception to a lot of overhead that was charged where 100 per cent was added for the overhead of the holding company. He took exception to services charged by the holding company. The CHAIRMAN. How much were those services?

Lieutenant Colonel TYLER. Well, it is a rather long report. It is very clear, sir, but

The CHAIRMAN. But I mean the amount with respect to the service. What we are trying to get at is the amount of service that these holding companies make to the subsidiaries.

Lieutenant Colonel TYLER. Well, the first exception here is to a land payment of $22,000, as I understand it, because it was a stock transaction.

The next one is $60,000 on a land transaction.

The services and expenses, Stone & Webster (Inc.) rated, engineers, in connection with the acquisition of land, $37,000.

Major portion of lands acquired from private individuals and outside interests shown in items B and D were purchased by representatives of Stone & Webster and billed to the Virginia Electric & Power Co. under the provisions of V (b) of the proposition entered

into between the two companies. The costs of this work as billed to the parent company were as follows:

Compensation or salaries paid to enginners and others for the time actually on work, $20,000. Travel and other incidental expenses seventeen thousand and odd dollars.

Now he finds that the actual expenditures on the ground, where there is $20,000 charged, were $10,000, and that the company for its overhead has added $10,000. He takes exception as an auditor to this payment. Of course, the company will have an opportunity to argue this point and see whether it is legal or not, but as an auditor he takes exception to it. And, as I say, he goes on and takes exception to some two hundred and odd thousand dollars' worth of this kind of stuff.

The CHAIRMAN. Just at this point now. Just what is the difference whether the accountant from the War Department does that or an accountant from the Power Commission does that work?

Lieutenant Colonel TYLER. Well, the only difference is that this man did this work, and I do not suppose it has cost the Government over $200. He is already employed. He has worked this in with his other business. His other work has not suffered.

The CHAIRMAN. Well, what would he have been doing if he had not been doing that?

Lieutenant Colonel TYLER. He would have been supervising the cost accounting in several districts of the War Department that are doing a great deal of work by hired labor and direct force accounting. The CHAIRMAN. So they must have a surplus number of accountants if they can pull them off that work?

Lieutenant Colonel TYLER. No; I do not suppose he has spent over 10 days or 2 weeks on this work. Now, in the amount of business which the Federal Power Commission has, he probably will not be called on again for a number of months, or would not be, to do any such work.

The CHAIRMAN. Well, if the future is to be judged by the past, it will be several years before he is called upon to do it.

Lieutenant Colonel TYLER. Well, they never have been called on before, Mr. Chairman.

The CHAIRMAN. Well, that is what I say, it will be several years before he is ever called on.

Senator PINE. When was this project initiated? When was the construction work done?

Lieutenant Colonel TYLER. There is no construction work done yet. This is a prelicense statement, Senator, and under the rules of the commission a license will not be granted until this matter is cleared up. Now when construction starts then the actual money that goes into the work right on the job should be determined as it goes in.

The CHAIRMAN. Do I understand that the practice of the commission is not to grant any license until these prelicense records have been agreed upon? Is that correct?

Lientenant Colonel TYLER. Yes.

The CHAIRMAN. And has that been followed in all cases?

Lieutenant Colonel TYLER. No, sir; not in all cases. There have been one or two cases since I have been with the commission where there was such urgency, apparently, for the beginning of the construction work, that that requirement has been waived.

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