* * *

think the first paragraph of 4 (a) may be construed to authorize the commission "to make investigations concerning development costs to the extent the commission may deem necessary or useful for the purposes of this act." One of the essential purposes of the act is the ascertainment within a reason able time upon completion of project of the net investment of a licensee in that project. It is necessary to the determination of the net investment to first ascertain the actual legitimate cost of the construction of the project.

There

fore the commission is entitled to make an investigation in order to determine the actual legitimate cost and the net investment of a licensee in a project licensed by the commission.

The commission by the very act of making an investigation announces that it considers that investigation necessary and useful for the purposes of the act. And to the ordinary mind it would seem that such an investigation is either necessary or useful for the purposes of the act.

Under paragraph 4 (g) the commission is authorized to hold a hearing in connection with the application for any permit or license, or the regulation of rates, services, or securities, or the making of any investigation as provided in the act.

* * *

Under paragraph 4 (h) the commission is authorized and empowered to perform any and all acts as may be necessary and proper for the purpose of carrying out the provisions of the act.

The holding of an investigation to determine the actual legitimate cost of the original project is surely an act necessary and proper for the purposes of carrying out the other provisions of the statute.

Section 10 (d), as before outlined, provides for the application of a part of the excess profits to the various amortization accounts to be applied from time to time in reduction of the net investment.

Section 10 (e) authorizes the commission to expropriate charges for excessive profits, and provides that these charges may be adjusted from time to time by the commission as conditions may require. The specified rate of return and the proportions of surplus earnings to be applied to the amortization accounts are set forth in plaintiff's license hereafter discussed in detail.

The application of these conditions of the license depends to some extent upon whether plaintiff has had a fair rate of return throughout the entire period of the license, including the first 20 years, and broad discretion is vested in the commission to modify from time to time the proportion of the excess profits to be transferred to amortization reserves, and finally applied to the reduction of plaintiff's net investment.

It will be utterly impossible to correctly apply sections 10 (d) and (e) and the provisions of plaintiff's license thereunder unless the commission should now determine the amount of plaintiff's actual legitimate cost.

Taking the foregoing provisions together it seems to me clear that Congress did authorize the commission to proceed with the investigation sought to be enjoined. The commission in providing for a hearing and in serving notice thereof upon plaintiff is but acting in accord with what our law defines as due process.

Under section 4 (a) authority is conferred upon the commission to determine the net investment of a licensee in any project. Determination of the actual legitmate cost of the original project is a necessary step to this end.

Surely it was not intended that the commission should make this determination ex parte or without a hearing. Such a practice would be repugnant to our ideas of justice and fair dealing.

The procedure of the commission is in accord with that held to be due process of law in Wedderburn v. Bliss (12 App. D. C. 413); Garfield v. Spaulding (32 App. D. C. 158); and Moore v. Heany (34 App. D. C. 31).

Second, the rules and regulations

The proposed hearing is authorized by the rules and regulations adopted by the commission.

The statute provides (sec. 4)—

"That the commission is hereby authorized and empowered

"(h) To perform any and all acts, to make such rules and regulations, and to issue such orders not inconsistent with this act as may be necessary and proper for the purpose of carrying out the provisions of this act."

The regulations providing for this hearing are both necessary and proper for the purposes of carrying out the act; they are valid within the decision of Grimaud v. U. S. (220 U. S. 506).

Regulations 20, paragraph 6, of the rules and regulations of June 6, 1921, provides:

"The commission reserves to itself the right to investigate and make any lawful order concerning any item or amount included in the cost of the original project or of any addition thereto or betterment thereof, whether such cost is incurred by the licensee during the period of the license, or by a permittee or other person, natural or artificial, prior to the issuing of a license under the act."

In accordance with section 10 (d) of the act, regulation 17 provides for amortization reserves, for the fair rate of return, and for the amount of the surplus earned after the first 20 years of operation to be paid into the amortization

reserves.

Section 3 of regulation 17 fixes the specified rate of return at one and one-half times the weighted average annual interest rate payable on the par value of the bona fide interest-bearing debt of the licensee actually outstanding on account of the project property. But there is a proviso that if either at the beginning of the period of amortization or of any calendar year thereafter the outstanding interestbearing debt of the licensee on account of the project is less than 25 per cent of the actual legitimate investment of the licensee in said project, then for the next calendar year the specified rate of return shall be two times the legal rate of interest in the State in which the project is located.

The period for accumulating amortization reserves begins 20 years after the I date the project is placed in operation under a license.

Section 5 of regulation 17 provides that certain proportions of the surplus earnings shall be paid into and held in the amortization reserves. This proportion gradually increases as the surplus earnings increase until it is provided that 90 per cent of the surplus earnings in excess of 6 per cent shall be paid into the reserves. But there is a proviso that if at the end of any calendar year of the amortization period the commission shall find that the accumulated earnings of the licensee during the period of operation including the first 20 years thereof have not yielded a fair return upon the actual legitimate investment in the project, the proportion of such surplus earnings to be paid into the amortization reserves shall be 10 per cent thereof until such time as the accumulated earnings of the licensee will be in the judgment of the commission a fair return upon such investment for such period of operation.

It is perfectly apparent that it would be impossible to arrive at these figures 20 years hence unless the actual legitimate cost should be ascertained now. Finally, rules of practice in formal proceedings were duly adopted by the Federal Power Commission. In the issue effective May 21, 1929, Rule XV (6), (7), (8), as heretofore stated, provides expressly for the hearing contemplated as to the Piney project of plaintiff.

These rules of practice in my opinion are within the power conferred on the commission by the statute.

Third, the license

The authority to hold this hearing and make this determination is contained in the license applied for and accepted by plaintiff and under which the Piney project was constructed.

Under section 10 of the statute it is provided that licenses shall be issued on the conditions named therein; and in paragraph (g) on “such other conditions not inconsistent with the provisions of this act and as the commission may require." The license provides in the introduction that it is subject to all the terms and conditions of the act and of the rules and regulations of the commission pursuant thereto in force on June 6, 1922.

In regulation 20, section 6, heretofore quoted and in force on June 6, 1922, the commission reserves to itself the right to investigate and make any lawful order concerning any item or amount included in the cost of the original project. The provisions of regulation 17-amortization reserves heretofore set forthare included as article 20 of the license.

Regulation 20 expressly authorizes the hearing sought to be enjoined.

Article 20 of the license (regulation 17) could not be carried out unless there be a determination at the present time of the disputed question.

For the reasons set forth I am of opinion that the bill does not state a cause of action; therefore the motion to dismiss will be granted and the motion for a temporary injunction will be denied. This conclusion renders unnecessary a consideration of the other grounds contained in the motion to dismiss.

The petitions for leave to intervene heretofore filed by Judson King as executive manager of the National Popular Government League and by the State of Pennsylvania are denied. In my opinion neither petitioner has such an interest in this matter as to justify intervention. Both petitioners were invited to file briefs, and counsel for Mr. King availed themselves of the invitation.

82033-31-17

APPENDIX E

QUESTIONNAIRE NO. 2

ent to licensees for the purpose of securing information for the public in regard to the nature and ramifications of control among public utility service companies)

licensees under the Federal water power act and others defined as respondents herein:

On July 3, 1931, the Federal Power Commission adopted a resolution reading follows:

RESOLUTION

On motion of Commissioner Williamson, seconded by Commissioner Draper, e following resolution was unanimously adopted:

“Be it resolved, That for the purpose of obtaining the facts needed by the Federal wer Commission in carrying on its functions prescribed by the Federal water wer act, a study be authorized of the ownership, control, and affiliations of the blic utility operating companies which are licensees of the Federal Power mmission:

"And that this study shall include the collection of all available facts bearing on the ownership and control, direct or indirect (through stock ownership or atrol or otherwise), of stock, security, or capital interest of public utilities gaged in the developing, transmitting, or distributing of hydroelectric power sale or use in the public service where the same enters into interstate business, where the same, or any part thereof, shall be subject to regulation by the Federal wer Commission under the jurisdiction conferred by the Federal water power , by holding companies, investment trusts, individuals, partnerships, corporans, associations, and trusts and the organization, financing, development, nagement, operation, and control of such holding companies, investment trusts, tnerships, corporations, associations, and trusts.

'For the purpose of making the foregoing study, the employment of Walter W. Splawn is authorized as a special assistant of the commission for a period to exceed four months."

Pursuant to the authority given in the aforesaid resolution and for the informa1 of the commission in its administration of the Federal water power act, the pondent is requested on or before September 15, 1931, to file with the Federal ver Commission at its office in Washington, D. C., specific and complete anrs to the following questions. These questions are addressed primarily to nsees under the Federal water power act. While some of the information asked is in the files of this commission and of other governmental departments, for sake of uniformity and convenience of compilation the licensees are requested ill in the answer to all the questions.

ach licensee is requested to make complete answers, either by answering the stion directly when it relates to matters of which the licensee has direct cognice, or indirectly when the question relates to matters in the cognizance of the trolling interest, immediate or ultimate. For the latter purpose, additional