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the issuance of licenses altogether until it is in a better position to safeguard the public interest in their issuance.

I might interject here that shortly afterwards, when the legislation failed, on my recommendation the commission issued an order, Order No. 27, of the commission, not to issue any other licenses until all questions with respect to accounting had previously been settled. So far as I know that order is still in effect.

Senator WHEELER. It may be in effect, but haven't they as a matter of fact issued licenses?

Mr. MERRILL. Not that I know of. Not while I was there.
The CHAIRMAN. You may proceed.

Mr. MERRILL. I continue quoting from that letter:

The Federal water power act established a definite national policy with respect to the disposition and use of the Nation's waterpower resources-a policy which had as its fundamental principles, first, the perpetual retention in the public ownership and control of power sites on public lands and power privileges in navigable rivers, and their disposition under limited term licenses only; and, second, as respects public regulation over or public purchase of the properties and privileges of licensees, the recognition of the actual expenditures reasonably necessary for acquisition and development, and of no more.

To carry out this policy provision was made for the issuance of licenses limited to a period of fifty years; for optional recapture by the United States at the termination of the license period upon the payment of the net investment; and, in order to have adequate records upon which such investment could be determined, for the establishment and maintenance of a system of accounts by licensees and for the supervision of such accounts by the commission.

These fundamental principles of the Federal water power act can be enforced only if correct records are made of all current transactions affecting plant investment accounts and earnings of licensees. Such supervision is the only public safeguard in the disposition of our waterpower resources; but in only a partial degree has it been possible to exercise this supervision with the limited force at the commission's disposal. Failure in the administration of these provisions of the Federal water power act means failure in the very foundations of the law.

Now, if a more straightforward statement of the policy and the conditions could be made I should like to know what it would be. Senator WHEELER. So that as a matter of fact there has not been any attempt upon the part of the Federal Power Commission to regulate rates, in any way, shape or form, has there?

Mr. MERRILL. It has no ability to do it.

Senator WHEELER. First, I want to ask you: It has not done it, has it?

Mr. MERRILL. In only one case, and that indirectly.

Senator WHEELER. The reason you claim it has not done it is because of the fact it has not had the money and the facilities with which to do it, is that it?

Mr. MERRILL. Well, now, I should like to go back

The CHAIRMAN (interposing). Of course they have no authority to do it where a State regulatory body is in existence.

Mr. MERRILL. Well, I disagree with that.

Senator WHEELER. And so do I.

The CHAIRMAN. That has been the contention made here right along.

Senator WHEELER. I know it has been the contention made by Bonner and others; but I contend on the other hand that they have. Mr. MERRILL. But not as broad as you state it, Senator Wheeler. The situation that came up when the commission was organized was this: It was my opinion and the opinion of the members of the com

mission that this question of handling the financial side of these licenses was the most important provision of the statute, the one that most needed to be carefully and consistently handled. I went to Secretary Baker, the then chairman of the Federal Power Commission, to find a means of getting somebody on the commission's staff who was thoroughly acquainted with problems of this sort, and I went to Secretary Baker because the War Department at that time had more funds available than did either of the other two departments. It was decided, in an opinion given by General Crowder, that certain appropriations of the Corps of Engineers could be used for that purpose. A request was therefore made on the Chief of Engineers to make the money available. The Chief of Engineers replied that there was no need of going out and employing anybody, that there were plenty of men in the Corps of Engineers who could do this job. Then we asked him to designate somebody, and he called down to the office in Washington a young Captain of Engineers from somewhere up in Delaware, who he said was thoroughly competent to take up the accounting work for the Federal Power Commission.

I believe that young engineer was a capable engineer, but his experience on the work for which he was recommended was limited to a few months on valuation work on a railroad. I told him that the provisions of the statute required that the accounting work of the Federal Power Commission be developed in conformity with certain provisions of the regulations of the Interstate Commerce Commission. I asked him if the was familiar with these regulations and he said he was not.

I then went back and reported to Secretary Baker that this man would not do. Then it was that we went to the Interstate Commerce Commission with a request made by Secretary Baker, the chariman of the Federal Power Commission, for a man from their staff, and Mr. King was employed as the commission's chief accountant, at a salary of $7,500 per annum. And he has been with the Federal Power Commission ever since.

Senator BROOKHART. Is Mr. King a competent accountant?

Mr. MERRILL. He is a competent accountant. Mr. King drafted the Federal Power Commission's accounting regulations, and he drafted those provisions of the general regulations of the commission that affect the commission's accounting practices.

The CHAIRMAN. You may go on.

Mr. MERRILL. We have found the same situation to exist when we have gone to the other departments to get people assigned to the Federal Power Commission to handle accounting work. I think there are only two instances where we have been able to find a person in the department at the time with sufficient accounting experience to do the character of accounting that the Federal Power Commission has. In all other cases the departments have employed new men for assignment to the commission. There are a lot of people who think there is no difference between the current accounting work of the Government, where a mere record of receipts and expenditures is kept, and the detailed accounting practices of public utility accounting and finance. And I say to you that they are no more alike than blacksmithing and watchmaking.

The CHAIRMAN. Then you are in entire disagreement with Mr. Bonner.

Mr. MERRILL. I am in entire disagreement with im so far as accounting matters are concerned. It is a technical problem, and only those trained in it and with experience can satisfactorily do the work to be performed for the Federal Power Commission in these matters. We were not able to get the personnel to do it. I have gone to the commissioners time after time, and they have made the same reply that they made to the Director of the Bureau of the Budget: "Our appropriations have been given to us for other purposes. We are obliged by law to expend them for that purpose. If the Congress wants this law enforced it is the responsibility of Congress to give the means to do it." And I want to say to you gentlemen of of the committee that I agree with the commissioners in that matter. The responsibility has rested here on the Congress of the United States.

The CHAIRMAN. You were going to say something about your power to regulate rates. As I understand it you disagree with Mr. Bonner and the commission on that.

Mr. MERRILL. No; I do not know whether I disagree with the commission or not.

The CHAIRMAN. Well, do you contend that the commission has the power to regulate rates on the power sites?

Mr. MERRILL. I contend that the commission has authority to regulate rates of its own licensees engaged in interstate commerce. I contend that the commission has the authority to regulate rates of its licensees engaged in intrastate commerce in those cases where the States have no means to do it themselves.

The CHAIRMAN. Well, do I not understand that we are far apart on that question.

Senator WHEELER. There can not be any question but what the commission has the power to regulate rates of its licensees that are engaged in interstate commerce, regardless of whether or not there is any State regulatory body or not.

The CHAIRMAN. I think that is true. But the most of the cases that we have been discussing have been intrastate cases.

Senator WHEELER. Some of them have been. We have not specified whether they were nor not.

The CHAIRMAN. What I want to point out is, that Mr. Bonner if no one else testified stated that they had no power to regulate interstate business.

Senator BROOKHART. Isn't there a provision of the water power act that turns it over to the States?

Senator PITTMAN. I have it right here.

Mr. MERRILL. That applies to intrastate matters.

Senator HASTINGS. Let Senator Pittman read the provision of the law so that we may have it.

Senator PITTMAN. I think it would be well to get our minds cleared up on what we can and can not do:

That in case of the development, transmission, or distribution, or use in public service of power by any licensee hereunder or by its customer engaged in public service within a State which has not authorized and empowered a commission or other agency or agencies within said State to regulate and control the services to be rendered by such licensee or by its customer engaged in public service, or the rates and charges of payment therefor, or the amount or character of securities to be issued by any of said parties, it is agreed as a condition of such license that jurisdiction is hereby conferred upon the commission, upon com

plaint of any person aggrieved or upon its own initiative, to exercise such regulation and control until such time as the State shall have provided a commission or other authority for such regulation and control: Provided, That the jurisdiction of the commission shall cease and determine as to each specific matter of regulation and control prescribed in this section as soon as the State shall have provided a commission or other authority for the regulation and control of that specific matter.

Now I will take up section 20 and will read only a short portion of it:

That when said power or any part thereof shall enter into interstate or foreign commerce the rates charged and the service rendered by any such licensee, or by any subsidiary corporation, the stock of which is owned or controlled directly or indirectly by such licensee, or by any person, corporation, or association purchasing power from such licensee for sale and distribution or use in public service shall be reasonable, nondiscriminatory, and just to the customer and all unreasonable, discriminatory and unjust rates or services are hereby prohibited and declared to be unlawful; and whenever any of the States directly concerned has not provided a commission or other authority to enforce the requirements of this section within such State or to regulate and control the amount and character of securities to be issued by any of such parties or such States are unable to agree through their properly constituted authorities on the services to be rendered or on the rates or charges of payment therefor, or on the amount or character of securities to be issued by any of said parties, jurisdiction is hereby conferred upon the commission, upon complaint of any person aggrieved, upon the request of any State concerned, or upon its own initiative to enforce the provisions of this section, to regulate and control so much of the services rendered, and of the rates and charges of payment therefor as constitute interstate or foreign commerce and to regulate the issuance of securities by the parties included within this section, and securities issued by the licensee subject to such regulations shall be allowed only for the bona fide purpose of financing and conducting the business of such licensee.

Mr. MERRILL. In the Ninth Annual Report of the Federal Power Commission, page 119, you will find a decision of the commission on regulation of rates, services, and securities. This is a decision that I prepared for the commission, with the cooperation of the legal staff of the commission, a few months before I resigned from the commission. That expresses my view of what the powers of the commission are as to rates, services, and securities regulation. The opinion was approved by the law officers of the three departments, it being the practice of the commission before rendering any formal decision to submit the opinion of its legal staff to the legal officers of the three departments for comment, criticism, or approval.

The CHAIRMAN. You might have that placed in the record following your statement.

(The opinion referred to is here made a part of the record, as follows:)

DECISION OF THE COMMISSION UNDER THE FEDERAL WATER POWER ACT REGULATION OF RATES, SERVICES, AND SECURITIES

1. When the interstate commerce consists in importation from without a State by a corporation or other agency which itself sells and delivers the imported energy to its customers within the State, on the authority of Pennsylvania Gas Co. v. Public Service Commission of New York (252 U. S. 23), the State may regulate the rates of charges made locally to such customers until the subject matter is regulated by Congress provided that in so doing the State does not directly regulate or burden interstate commerce; that if the State has not provided a commission or other regulating agency the jurisdiction of the Federal Power Commission applies in full, and if the authority of the State commission or agency applies to a part only of the matters specified in section 20 the jurisdiction of the Federal Power Commission extends to the remainder of such matters.

2. If the power is not distributed in public service by the corporation or other agency importing it, neither the State from which nor the State to which the power is transmitted has any regulatory jurisdiction in the matter (Kansas Gas Co. case, 265 U. S. 298; Attleboro case, 273 U. S. 83); that having no individual jurisdiction, they can not acquire it jointly by agreement between themselves, except by compact entered into with the consent of Congress as provided in paragraph 3, section 10, Article I of the Constitution; and that in the absence of such compact the only agency with authority to regulate the matters specified as to commerce of this character is the Federal Power Commission; that, subject to the limitations imposed, the jurisdiction extends to licensees of the commission, its subsidiary corporations, if stock is owned or controlled directly or indirectly by the licensee, persons, associations, and corporations purchasing power from the licensee for distribution or use in public service.

3. As to intrastate commerce, the authority of the commission under section 19 to regulate rates, services, and securities may be exercised only to the extent and as long as the State has not provided its own agencies of regulation, and only to the extent that the acceptance of such jurisdiction is a contractual obligation enforcible on the parties. The jurisdiction under this section extends to licensees of the commission and to their customers only in so far as they are engaged in the public service.

4. As to filling of a complaint by any person aggrieved, or of a request by any State concerned: Held, that upon the filing of such complaint or request, it is the duty of the commission, and not a matter within its discretion, to exercise jurisdiction to regulate rates, services, or securities; that the character of grievance which entitled any person to invoke the jurisdiction of the commission must be direct and pecuniary; that as to rates charged, or services rendered, any person whose pecuniary interests are directly affected would be entitled to file complaint, and as to the issuance of securities, any person would be entitled to file complaint, if such issuance would have the effect of increasing the rates or impairing the services or of impairing the earning power or market value of the securities of such corporation owned by such person; that any State concerned is one of the States from which, through which or to which the said power or any part therefor is transmitted or delivered in interstate commerce, and that the request must be directed toward the performance by the commission of some act within the commission's jurisdiction and that the request must be by the officer or agent of the State authorized to make it.

5. If complaint or request of the character contemplated by sections 19 and 20 be filed with the commission with regard to the issuance or proposals for issuance of securities, upon notice of such complaint or request, or upon notice from the commission of its intention to exercise the jurisdiction conferred upon it with respect to securities, it will thereafter be unlawful for any parties served with such notice to issue the proposed securities unless and until the commission shall have dismissed the complaint, refused the request, or withdrawn its notice.

CHIEF COUNSEL TO THE EXECUTIVE SECRETARY, DECEMBER 20, 1928 Subject: Regulation of rates, services, and securities by the Federal Power Commission under sections 19 and 20 of the Federal water power act.

You have requested my views on certain questions arising out of sections 19 and 20 of the Federal water power act. These sections confer jurisdiction under the conditions specified therein upon the Federal Power Commission to regulate the rates, services, and securities of its licensees, or of their subsidiaries or customers engaged in the distribution of power in public service, in absence of authority in the State or States concerned to exercise such regulation for themselves; the jurisdiction of the commission to be exercised upon complaint of any person aggrieved, or upon its own initiative, where the distribution is intrastate, or where the distribution is in interstate or foreign commerce upon complaint of any person aggrieved, upon request of any State concerned, or upon its own initiative.

The questions which you submit are as follows:

(1) To what extent has the commission authority to regulate the rates, services, or securities of its licensees or of other parties, and what is the realtion between its authority and that of the commissions or other agencies of the several States (a) In interstate commerce? (b) In intrastate commerce?

(2) Whether the filing of a complaint by any person aggrieved, or of a request by any State concerned, makes the exercise of its jurisdiction to regulate rates,

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