Mr. MERRILL. I do not think there was any doubt about that. The CHAIRMAN. Do you condone that?

Mr. MERRILL. No.

The CHAIRMAN. It was at least reprehensible if not criminal. Senator PITTMAN. What action was ever taken about these false reports and these inflated things?

Mr. MERRILL. The commission has proceeded as rapidly as it could with the forces available, and audited those accounts where possible, in order to reach an agreement with respect to them. I was of opinion then and am of opinion now, that had the Federal Power Commission attempted, with the force at its disposal, with the lack of legal assistance, I mean of those skilled in the handling of utility cases, that it would have been worse than futile to have attempted to press these cases in the courts, as they would necessarily have had to go to court, until they were in position to make up a proper court record. And that was the recommendation that I made to the commission, and that was why these cases were not pressed beyond the point where they were. And I am as strongly of opinion now as I was then that it would have been foolhardy to have attempted to do it when the commission would have had to go up against the best legal talent the utilities had and with nothing of its own.

Senator PITTMAN. If you had presented to Congress what you are presenting to this committee now, if you had stated these as the facts, don't you think you would have gotten somewhere? If you had said: It is an important matter for us to have the best counsel we can get in this particular branch of the service to prosecute these people, and if you had gone to Congress and made that very clear it might have been different from when you raised only one question.

Mr. MERRILL. I think it would.

Senator PITTMAN. Who were responsible for this?

Mr. MERRILL. The members of the commission themselves.
Senator WHEELER. Who were they at that time?

Mr. MERRILL. Secretary Davis, Secretary Jardine, and Secretary Work.

Senator WHEELER. Those are the three members of the commission? Mr. MERRILL. I recommended before the report was made to have it done. I sent the report to Congress. I brought it back on the request of the commission.

Senator WHEELER. And those three members deleted this portion of it because of the pressure that was brought to bear by the Niagara Falls Power Company, is that it?

Mr. MERRILL. And on the ground that to start a rumpus, and I think that is the proper word to use, for it would have started one, at that time would interfere with the proposed legislation. I thought the contrary.

The CHAIRMAN. And I think it would be the contrary.

Mr. MERRILL. That was the thing needed in order to get legislation, I thought so then and I am still of that opinion.

Senator PITTMAN. I should say so too.

Mr. MERRILL. I told the members of the commission, if I may add one thing more, that this was information in our records and that it was far wiser for the commission itself to make it public than to have it dragged out, as it absolutely certainly would be, by an investigation afterwards.

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Senator BROOKHART. Did I understand you to say that you the leaving of the granting of permits with the three departments? Mr. MERRILL. No, sir. I said they might make the preliminary field work investigations and then make recommendations to the commission, which would then take the action.

Senator BROOKHART. They would do that work, in these departments, that was asked for by the new commission and under the direction of the commission?

Mr. MERRILL. Yes, sir.

Senator BROOKHART. I do not see any more reason why navigation should be under the War Department than why the railroads should be under the War Department.

Mr. MERRILL. It is there, that is all.

Senator BROOKHART. It happens to be there and that is the only

reason.

Senator PITTMAN. Congress can change it.

Senator BROOKHART. Yes. And we can put that under a commission the same as we have put the railroads under the Interstate Commerce Commission.

Mr. MERRILL. There is one thing more I should like to add: When through an amendment to the appropriation bill the commission was instructed to estimate to Congress for the people up to that time carried on its roll and detailed from the Departments, it thereafter had the legal authorization to employ them, or at least it was so construed by the Budget Bureau. That took effect on July 1, 1929. In the estimate for 1930 the commission carried a provision for increased personnel, and among those provisions there was one for two legal positions in the commission. One of those was for an individual as chief counsel, and the other one for an individual as solicitor.

My idea had been and it still is that the only satisfactiory way to handle these questions of accounting is to bring them up for public hearing, and in a form different from the hearings that we have had, which have been nothing more than a series of stump speeches, but with someone competent to take charge of the hearing, to require a submission of the evidence, and to cross-examine witnesses, and to make the record in the way that a record is made before a commission or a court.

Senator WHEELER. Was that ever done outside of the applications for the Flathead power site?

Mr. MERRILL. No. But during the last six months that I was with the commission

Senator WHEELER (interposing). And that was done only after request was made by my colleague and myself, was it not?

Mr. MERRILL. Yes. During the last six months that I was with the Federal Power Commission I spent the greater part of my time drafting rules of practice for the operation of the commission. I am leaving this rules book with you here. That proposed that every case having valuation or accounting as a matter at issue, should, prior to hearing, be placed on an audits docket, and then that the accounting forces of the commission should take up those cases in the order of docketing and make their audits. When the audits were made the commission should endeavor by conference with the licensees to find out in what points they were in agreement, so as to limit the hearing.

After that the agreement was to be made public for a period of 15 days, together with the report of the auditors, in order that anyone who has any objection to make against it could file a request for a hearing before the commission. That the commission then should proceed to hold a formal hearing on matters in dispute, and when the hearing was held that a report should be made on the record as taken and recommendations made. Those recommendations in turn to be made public for a period of not less than 15 days, with opportunity given to the licensee to ask for a rehearing or for reconsideration, or for any interested party to apply for a hearing.

That I think would be orderly procedure, and would bring out all the facts, and provide for a final conclusion in these cases. And it was in anticipation of such a procedure that I asked the commission for and received the approval of the present commission for the appointment of a chief counsel and of a solicitor. And I told the commission that I wanted a man as solicitor who could appear before the commission as the public's representative.

Senator WHEELER. Was it you that picked out Mr. Russell?
Mr. MERRILL. It was.

Senator WHEELER. How did you happen to select him?

Mr. MERRILL. Because I had heard about him. He came over and spoke to me about it, and I asked the members of the Interstate Commerce Commission about him.

Senator WHEELER. And they recommended him to you as a competent man?

Mr. MERRILL. Yes, sir. They told me he was a competent man. And they told me he was a stormy petrel, and I told them I would take a stormy petrel if he was competent.

The CHAIRMAN. Before you get away I should like to ask you if the delay in getting these accounting and valuation problems settled has acted adversely on the public interest?

Mr. MERRILL. Well, there have been no cases passed by since order 27 of the commission was issued, and that was some time ago. It simply means that these cases are pending and unfinished.

The CHAIRMAN. What I am trying to get at is this: Has that reacted to the detriment of the public interest?

Mr. MERRILL. Only to the extent that the longer you delay the more difficult to reach finally a correct conclusion.

The CHAIRMAN. If we should speed up now and get this work done the public interest would not have been materially hurt, is that it? Mr. MERRILL. Only to that extent, I think. I mean there has been nothing approved in my judgment by the Commission that has been in any way detrimental.

Senator HASTINGS. But the public might suffer because of the fact that nothing has been done.

Mr. MERRILL. Well, that is the situation.

The CHARIMAN. That is not exactly as I understand it, but that the public has not as yet actually suffered by resaon of the failure to act.

Mr. MERRILL. There has been delay in getting things done.

Senator HASTINGS. Now, assuming that the granting of a permit. if it was ever to be of benefit generally must be done now, then a failure to do it for several years would mean that the public was not getting the benefit of it.

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Mr. MERRILL. There has been a suspension of the issuance of permits in some cases.

The CHAIRMAN. What permit issuances have not been materially delayed by these accounting methods?.

Senator HASTINGS. Oh, I think it has.

The CHAIRMAN. No.

Mr. MERRILL. It has been delayed in all cases where Order No. 27 applies.

Senator HASTINGS. There has been nothing done for several months. Senator WHEELER. Has the commission made any ruling with reference to making a power company use all the sites upon one river before they permit them to go upon another river?

Mr. MERRILL. That has been pretty generally done. That is, they have not been permitted to go on another stream unless there were outstanding reasons for it.

Senator WHEELER. Of course what could happen would be that one power company could develop a power site here and tie up a whole stream for a time, and then they could get another power site somewhere else and tie up that whole stream for a time.

Mr. MERRILL. We do not permit that to be done.

The CHAIRMAN. Any further questions by the members of the committee?

Senator PITTMAN. In your report here, in that portion that was deleted and suppressed by the commission, paragraph 29, it reads as follows:

29. In 1910 the stockholders of Niagara Falls Hydraulic Power & Manufacturing Co. organized Hydraulic Power Co. of Niagara Falls and transferred to the latter company the properties and business of the former. At the time of the transfer the fixed capital account of the original company stood at $3,973,716.65. The new company issued its capital stock in the amount of $12,000,000 in payment for the property and business transferred. The new corporation set up on its books under the caption 'purchased property' as an asset item, $15,771,208.90, or nearly $12,000,000 in excess of the amount carried in the fixed capital accounts of its predecessor. This transaction and that connected with the organization of Cliff Electrical Distributing Co. added $12,123,964 to investment accounts which prior to transfer had aggregated $4,395,245, an increase of 282 per cent.

If that watering of their stock stood, would it not affect the purchasers of power, by reason of their water rate being based on those figures?

Mr. MERRILL. If it is used as a rate base, I should think so.
Senator PITTMAN. Yes.

Mr. MERRILL. But may I add this, that you must understand we are dealing under the Federal water power act with a statutory statement of what may be included in the rate base. Elsewhere it would be a question of value and not of actual expenditures. And the question at issue between the Niagara Falls Power Co. and the Federal Power Commission is not so much a question of whether that is or is not correct and I do not know that there would be a claim that the statement is not correct-but that they are not bound in the conditions where they are by the provisions of the Federal water power act at all. And that is going to be the legal issue.

Senator PITTMAN. Why did you write this at all, then?

Mr. MERRILL. Because I wanted Congress to know what was the character of the cases in the matter of questions that we have up.

Senator PITTMAN. You thought that was a violent act, didn't you? Mr. MERRILL. I thought it was a violent difference.

Senator HASTINGS. I want to find out this difference. Is there a difference between power companies, I mean as to the control which the Federal Power Commission has over them, as to power companies that existed prior to the enactment of the law and those organized subsequent to its passage?

Mr. MERRILL. Yes. Power companies who got their rights subsequent to the passage of the act will, unless the act is declared unconstitutional, be limited to the actual expenditures made in their properties. While the act provides that for those corporations which had rights prior to the passage of the law and which came in under the Federal water power act and got licenses, then the value of their properties at the time of the taking of the licenses shall be determined and not the cost. That is one of the questions to be fought out in this case.

Senator BROOKHART. I have one question about the Niagara Falls Power Co.: It is true that for the same service people on the United States side of the line are paying about three times what those on the Canadian side are paying, is it not?

Mr. MERRILL. Do you mean for domestic service?

Senator BROOKHART. Yes.

Mr. MERRILL. There is a difference but I do not know what it is at the present time.

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Senator BROOKHART. It is a very large difference, too.

Mr. MERRILL. I so understand.

Senator BROOKHART. What about the Flathead power project? you know about that?

Mr. MERRILL. I know more or less about it.

Senator BROOKHART. Those power sites are among the largest undeveloped power sites in the United States.

Mr. MERRILL. Oh, yes; they are among them.

Senator BROOKHART. I mean of the undeveloped power sites.
Mr. MERRILL. Yes.

Senator BROOKHART. Was there a contest between two rival applicants for that?

Mr. MERRILL. Yes, sir.

Senator BROOKHART. Who were they?

Mr. MERRILL. The Rocky Mountain Power Co., which is a subsidiary of the Montana Power Co., and an engineer of Minneapolis named Wheeler.

Senator BROOKHART. The Montana Power Co. is controlled by the American Power & Light Co., is it not?

Mr. MERRILL. I do not know. I am not certain of that.

Senator WHEELER. That man Wheeler is not a relative of mine. Mr. MERRILL. I hope not.

Senator WHEELER. Well, the report has been circulated around that he was some relative of mine, a brother or a cousin, or something. The CHAIRMAN. The witness says he hopes not.

Senator WHEELER. Well, I don't know whether he considered it a reflection upon him or not.

The CHAIRMAN. You can draw your own conclusion.

Senator BROOKHART. This American Power & Light Co. is controlled by Electric Bond & Share Co., is it not?