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If this section were limited to interstate commerce and the business done by a company in interstate commerce, there would be no conflict; but it is not. It includes interstate commerce and intrastate commerce.

Mr. BOREN. If it included both, you think there would be no question about it?

Mr. MALTBIE. There is no doubt about it.

When, as I say, we meet a situation of that kind, we say hands off, turn it over to the Federal department. Take the American Telephone & Telegraph Co. That is primarily an interstate commerce company. It does very little business in the State of New York. We have said to the Federal Communications Commission, "You can have the A. T. & T. We will issue no orders against the A. T. & T., regarding matters over which you have no control." But, this goes way to the other extreme.

There are just one or two other things upon page 6, and in line 17, there is a limitation of 5 months for a suspension. Five months plus the initial time when it would go into effect that we have found to be too short. If you have got a large company, a large case, that is not sufficient.

Now, there is no provision in here regarding temporary rates. I think Mr. Booth, of the Illinois commission, made a suggestion yesterday suggesting that a section copied after the law in the State of New York regarding temporary rates should be added here, and we have found it very advantageous. We have found that section in the State of New York to be advantageous and it has been upheld by the court of appeals, so that it is the law in the State of New York at the present time.

There is just one clause in his suggested language which does not meet with my approval, and that is the sentence relating to no deduction for depreciation in case the sinking method is used. I do not want to start on the question of depreciation, because I know that I would get away beyond your time this afternoon. But, that sentence ought to be eliminated and if any of you are interested, I will be glad to sit down and explain the reasons. I will guarantee that I can show you.

Mr. BOREN. You do not believe then that line 9, page 7-in cases which may arise providing for refunds-you do not believe that refunds or the refund method should be adopted or would be as successful as a temporary rate?

Mr. MALTBIE. I do not. One of the criticisms against regulation everywhere is that it takes so long to get anything done. Complaint is made and then an investigation is had which involves the taking of testimony and with a large company it strings along and. the best that you can do is for 3 or 4 years. The public says that nothing happens. Regulation is no good.

Now, the New York law permits us to issue a temporary order immediately. If we get the rate too low, below a fair return as the investigation shows, then it is adjusted in the final rate. That has worked satisfactorily and as I say has been upheld by the court of appeals.

The CHAIRMAN. In brief, how do you fix your temporary rate? Mr. MALTBIE. The temporary rate is fixed upon the basis, according to the law, of the original cost of the physical properties, less depreciation.

Now, we make an investigation. In some cases the books of the company show the original cost of the property and we have an order out now which will require all of the utilities outside of the railroads in the State of New York to produce an inventory and show the original cost of their property before the end of this year. So, if the book shows we get original cost from the books. If the books do not show we are allowed to estimate the original cost. Also the depreciation, if the books show accrued depreciation, we take that from the books. If we do not think that they do, we can quickly make an estimate or fix the minimum amount that we will deduct and deduct that from the original cost, getting the original cost less depreciation, taking all of the physical property, material, supplies, as well as plant. Then, an analysis of the operating expenses show what the revenues should be and we can fix a rate of return on it and do fix it. So far there has not been a temporary rate fixed on that basis reversed in the State of New York; not one. The CHAIRMAN. In effect you give consideration to every fact that you do in fixing the final rate, but you act hurriedly and save yourselves as to the constitutional question in the final rate where you pay the company any deficiency that may be found due.

Mr. MALTBIE. No, Mr. Chairman; I have not included reproduction cost less depreciation.

Now, according to the law of the land original cost and reproduction cost less depreciation must be taken off of each one and must be considered. There are a number of other things that might be considered before fixing a final rate, but in a temporary rate we do not need to give any consideration to reproduction cost less depreciation; none at all.

The CHAIRMAN. Does not the fact that you subsequently award the utility the proper amount of compensation in case you undercompensate them in temporary rates save the constitutionality of your method?

Mr. MALTBIE. Unquestionably it does. The opinion of the Court of Appeals pointed that out.

Mr. COLE. Mr. Chairman

The CHAIRMAN. Mr. Cole.

Mr. COLE. Going back for a moment, do I understand you oppose. the accounting provisions applying to the companies which are engaged partly in interstate and partly in intrastate business? Mr. MALTBIE. Do I oppose them?

Mr. COLE. Yes. You do not want section 8 (a) to apply to any company which has, say, a minor part of its business in interstate commerce?

Mr. MALTBIE. I do not think it is necessary to go that far, Mr. Cole, because so far we have been able to get together, the States with the Federal Communications Commission, and substantially with the Federal Power Commission on a system of accounts, a common system of accounts. Now, if that can be done that will avoid the constitutional question or any other question that might be raised.

Mr. COLE. Does not the operation of this section ultimately lead to the very laudable objective; that is, uniformity of accounting, rates of depreciation, and so forth, for these companies engaged in interstate activities? Your State commission rulings might be a

model for the Federal Power Commission to follow. Other States would not. The holding-company bill, the Federal Power Act, and others which at this minute I do not recall provide for substantially the same thing, to bring about some uniform accounting system.

Mr. MALTBIE. I think you may rely for the time being on endeavors to get uniformity so far as an accounting system is concerned.

What I was objecting to particularly was where it comes to a specific case. You are going to determine that a specific item shall go into this account or into that account. There you are going further than you need to for uniformity.

Mr. COLE. Well, that would impose upon the company two items, but would not interfere with what the State commission would require a company to do?

Mr. MALTBIE. Let us see

Mr. COLE. Well, that is specifically exempted in this provision. What the Federal Power does under section 8 (a) shall not relieve any company from keeping such accounts as the State commission requires.

Mr. MALTBIE. But what I am talking about specifically is to be found in lines 15 to 19.

Now, suppose that a company makes an expenditure and the company says that it is operating expense, but suppose that the State commission says no, that it is not operating expense, that that should be charged to surplus. It should not be charged to operating expense and the State commission orders a company to take that out of operating expense and put it into surplus. Now, then, the Federal commission comes along and, just for the sake of illustration, let us assume that the Federal commission says no, that is operating

expense.

Now, what are you going to do with it? How are you going to construe that clause about the company shall keep the accounts as required by State commissions? Does that eliminate the Federal Commission entirely? It cannot be in both places. It has got to be in one place or the other, and it would mean if you attempted to have one hearing to cover it in the Commission, that would mean the Federal Power Commission whenever this question came up in a rate case or anywhere else, that would mean that the Federal Power Commission would have to sit in with every State commission wherever this question arose.

In some case where you required, before anything is done, the approval of the State commission and the Federal Commission, then, of course, if it did not get the approval of both, the thing would not be done, but that would not apply here. The item has got to be somewhere, and it cannot be in two places.

The CHAIRMAN. I suppose the ideal thing would be if the State commission and the Federal Commission could agree on an accounting system. Is that a practical viewpoint?

Mr. MALTBIE. Yes; that is what I am trying to say in response to response to the Congressman's question of a moment ago, Mr. Chairman. We have been getting along, the States, with the Federal Communications Commission and the Federal Power Commission, and we have gotten in substantial agreements on accounting systems.

I think the objections which I might have raised from the point of view of theory to the rest of this section might be waived for the time being, because the conflict has not developed. We have gotten together. We did not get together with the Interstate Commerce Commission, but we have got together with the Federal Communications Commission and with the Federal Power Commission; but the trouble arises just in those few lines. That is what I am trying to emphasize and to say that I think you may safely let the rest go to a mutual cooperation.

Now, the same thing might be said as to specific charges to depreciation and amortization.

Unquestionably the State commission would have the authority to fix rates of depreciation in intrastate rate cases. There is not any question about that. And there is not any question but what the Federal Power Commission would have the power to fix depreciation in interstate rate cases for the purposes of that rate case; but section 9 goes further and says that they must take the rate of depreciation which the Federal Power Commission fixes, and the Federal Power Commission might fix a rate on property nine-tenths of which is intrastate. That looks to us as if the tail were going to wag the dog, and we would rather have the dog wag the tail.

So I think that a change might be made there, and I will submit to take care of that.

Mr. PETTENGILL. Have you any opinion on 7 (c)?

Mr. MALTBIE. Yes; 7 (c) or its equivalent has been in the law of the State of New York so long-that is about 30 years-so long that everybody is becoming reconciled to it or given in, one or the other.

There are a few instances; there are instances where a municipality can create a competing plant without the approval of the public service commission; but no company under our jurisdiction engaged wholly in interstate business-and I have in mind now the railroads which are engaged in both-no company engaged in intrastate business in the State of New York, in gas, or railroad business, electricity, water, steam, telephone, can build a plant or exercise a franchise without a certificate of convenience and necessity.

Some municipalities, but no company can. All that that argues is for or against giving similar power to the Federal Government.

I think the most important question in this whole thing is not touched upon in this bill, and that is the question of waste of our natural resources; and if a certificate of convenience and necessity must be secured from a Federal department in order to conserve our resources, I am for it. I am for anything that is at all reasonable that will conserve our natural resources-gas resources we are talking about now.

I think my personal opinion is that that certainly will help. I do not think it clears the case up entirely, but it will help.

Now, you have asked

Mr. PETTENGILL. Just a minute right on that point.

There is just so much gas-no one knows the number of cubic feet— but theoretically there is an unknown quantity of cubic feet of natural gas in the reservoirs of the earth. How will you conserve that, whether it is sold to the customer by one company or two companies competing with each other?

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Mr. MALTBIE. The tendency is, of competition, to get that gas out just as quickly as they can. Now, these pools that are tapped are often tapped not by one company or a company or companies controlled from one source, so that they can determine the rapidity with which it will be taken out by each company, but they are often tapped by persons or companies not under the same control.

Now, as this gas flows in the sands, to a considerable extent, when you tap a reservoir, if you get all of it right out at once you have got it. The other fellow has not. It is in there. If he does not take it out, so far as he is concerned, he does not get it. Consequently there is an incentive to get it out as soon as you can, if you have got competitors in the same pool, and that tends to selling the gas not for its most economical and advantageous uses, from a public point of view, but from an individual point of view.

Now, that is not theory. We have some cases-we had one right in New York just recently, the case of the Cabot Co., which asked permission and had to get a certificate of necessity and convenience. Some of the pipe-line companies engaged in interstate commerce in New York had gone ahead and built without getting any certificate. They said that they were not under our commission and were not under the Federal Government, because the Federal Government did not have any commission, so that they were free to do as they pleased. But the Cabot Gas. Co. has a franchise. You practically have to cross streets. If you do not, you run up them. So they have to have a franchise to operate in the State of New York.

And they came to us. They were getting part of their gas over the Pennsylvania line in Pennsylvania. They wanted to sell to the Eastman Kodak Co. in Rochester, and they wanted to sell to one or two other companies, and incidentally small sales to others.

They came to us to get the certificate of convenience and necessity. We wrote an opinion in which we pointed out we, and no one else, at the present time could control the use that was being made of natural gas, and if it did not go into New York, it goes somewhere else. Consequently it was natural for us to say that the Eastman Kodak Co. could have it.

Now, the Cabots were outside the circle of some of these companies, and they have their own money. They have plenty of money, and they came before us, and we gave them the certificate, and partly for the reason or because we did not have any means of controlling, conserving, the natural-gas supply. If we had had, or if there had been some means of serving, I do not know whether we would have given them the certificate or not.

Mr. PETTENGILL. So you think that the Federal Power Commission can determine the question as to whether convenience or necessity would be served by issuing this certificate? But, as to the question of natural resources entering into the consideration, the statute does not say so.

Mr. MALTBIE. I know it does not say so, and all that I am saying is that I think it will help in that direction; and if it will, I am for it. I think probably you gentlemen-I know you have-have this question of conservation in mind and possibly you have in mind next year or later, going further in this field and attempting to do something to conserve our natural-gas supply. The trouble is now the States cannot do it. The only way that the States can do it is through

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