Power Commission to fix temporary rates pending the completion of investigation, because of the time that is involved in determining a final rate, that a minimum standard, minimum rate of return, should be included in the law just as it is included in the New York law, though it is true that in some temporary rate statutes in other States no definite or minimum rate of return has been included even for the fixing of temporary rates.

Mr. MAPES. Is there any difference in the factors laid down by the Illinois courts, from those fixed by the Federal courts?

Mr. BOOTH. No; I think not. The State courts have in a few cases in which rate cases have been presented to them, followed the principles laid down by the United States Supreme Court.

Mr. COLE. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Cole.

Mr. COLE. Your amendment, as proposed to this bill, provides for a temporary rate which is pretty much of a guessing proposition, is

it not?

Mr. BOOTH. Oh, no; not at all.

Mr. COLE. Why not?

Mr. BOOTH. As a matter of fact, it is much less of a guessing proposition than the determination of the final rate case as laid down by the decisions of the courts, because that amendment suggests that a temporary rate be fixed upon the original cost less accrued depreciation of the physical property of said company used and usable in the gas service plus a reasonable amount for working capital, and if the duly verified reports of said company to the Commission do not show the original cost, less accrued depreciation, of said property.

The provision which I am suggesting for the consideration of this committee would fix temporary rates on the basis of original cost, less accrued depreciation, plus working capital.

Now, let us take the case of the Natural Gas Pipeline Co. of America, for illustration. That is probably one of the best illustrations from my point of view, in that the property of that company has been built in a comparatively recent period. Their line was constructed in 1929-31. The books and records of that company should show definitely the money that has been spent by the Natural Gas Pipeline Co. for its properties and facilities. There is no guesswork about that.

Now, the determination of accrued depreciation which must be determined in every rate proceeding, unless the annual depreciation expense is fixed on and allowed on a sinking fund basis, is dependent upon the consideration of the judgment of engineers and accountants as to what is the accrued depreciation of the property; but the fixing of the tentative rate base, which is to be determined on the basis of the original cost, eliminates the guesswork that is usually involved in determination of fair value based upon reproduction cost basis and that is a determination arrived at from the testimony and estimates of engineers. Our courts have held that in the determination of fair value, original cost and reproduction cost is to be considered in arriving at the fair value of the property of the utility company. The New York Court of Appeals has recently sustained the temporary rate provision just referred to.

Now, original cost can be determined with some degree of accuracy, especially in the case of those companies whose properties have been built during the past 15 or 20 years.

The determination of reproduction cost as to what it would cost to reproduce the property of the utility company or pipe-line company, or of another company, is dependent upon the guess or estimate of an engineer based upon hypothetical conditions which never exist.

Mr. COLE. Well, following the formula laid down in your amendment, would the Commission have before it practically all information, legally required, in a rate case, before the final rate would be established?

In other words, as I interpret your amendment, you want this committee to recommend in this bill a temporary rate set-up which the Commission would, in determining, leave out of consideration, some very important elements in the rate structure, necessary as the courts have laid down, in making up a proper and legal rate base. Mr. BOOTH. I am suggesting this, that because of the time and the delay which usually occur in determination of a final rate that the Commission arrive at a tentative or temporary rate base by taking one of the factors which the courts have said must be considered, in determining fair value, namely, the original cost, and since the original cost can be determined and should be determined with a high degree of accuracy, and since it will give the utility company or the company that is being regulated, presumably, a return upon the money that actually has been expended in the construction of its property and facilities, there does not seem to me anything highly unfair about that.

Now, it is true that when the Commission determines the final rate, it will then give consideration both to the original cost, less depreciation, and the reproduction cost, less depreciation, and arrive at the final rate base.

Mr. COLE. Yes; and those elements which you say the Commission would consider in establishing a final rate, as I understand the law, are required to be taken into consideration.

Mr. BOOTH. That is right.

Mr. COLE. You cannot establish a rate solely on original cost.

Mr. BOOTH. The New York courts and the Supreme Court of the United States in the Los Angeles case have held that in determination of a final rate base that a rate base predicated upon substantially original cost does not violate the rules. Commissioner Seavy can tell you about the California case.

Mr. COLE. If that is all that is necessary, why put the rest in here?

Mr. BooтH. I am afraid that I have not made myself clear, Mr. Cole. I said that in the determination of a temporary rate, the time in which it is necessary to make a full and complete investigation is not available and that the Commission should use one of the two elements, namely, the original cost. and since the original cost can be determined, it should be determined, since it can be determined with a high degree of accuracy, since it will return to the company, or since it will allow the company a return upon the money that actually has been invested in the properties.

Mr. COLE. I think that I understand your position. Let me ask you another question dealing with this subject.

Mr. BOOTH. Yes, sir.

Mr. COLE. Take the Illinois situation, for instance. Was the original contract between the distributing company and the interstate company approved by the Illinois commission?

Mr. BOOTH. Well, the proceedings before the Illinois commission were of a very detailed character. The contract between the Natural Gas Pipeline Co. of America and the Chicago District Pipeline Co., the interstate contract, was never submitted for the approval of the commission. It was submitted in evidence when the Chicago District Pipeline Co. requested that the commission approve the Chicago District Pipeline contract with the Peoples Gas Light & Coke Co. and two other distributing companies. The commission considered the estimates of Mr. Gallagher as to the profits which the Natural Gas Pipeline Co. would earn over the life of the 15-year contract in determining whether or not the contract between the Chicago District Pipeline Co. and the Peoples Gas Light & Coke Co. should be approved. It rejected that contract. That case went into the courts and a settlement was reached which was satisfactory in a sense to the commission and the Chicago District Pipeline Co. was allowed to file a schedule of rates.

The contract between the Chicago District Pipeline Co. and the Peoples Gas Light & Coke Co. was not approved. It was allowed to file a schedule of rates, but the commission in its order which was entered about a year and a quarter ago said that the commission still reserved the right to inquire into the reasonableness of the payments at any time and in an appropriate proceeding.

That is what we are endeavoring to do now-to inquire into the reasonableness of the rate, among other matters, of the Chicago District Pipeline Co. under which it sells gas to the Peoples Gas Light & Coke Co.

Mr. COLE. Where such contracts are approved either directly or indirectly is it generally the practice of the interstate company to resist any effort to change the prices set forth in that contract?

Mr. BOOTH. Yes. They seem to be resisting even the effort of the commission to determine how much money they are making today, so that the commission, even though it is not regulating the interstate wholesale rates under which the Natural Gas Pipeline Co. of America sells to the Chicago District Pipeline Co., but it wants to determine whether or not the Chicago District Pipeline Co.'s operating expenses are reasonable. The Chicago District Co.'s principal operating expense-and I am afraid I did not make this point clear, and I want to just clear that up the commission in the Chicago District Pipeline case is confronted with the fact that its principal operating expense, over 95 percent of its operating expense, is the payments which it makes to the Natural Gas Pipeline Co. of America. It has indicated that it wants to see how much money the Natural Gas Pipeline Co. of America is now making out of the sale of gas to the Chicago District Pipeline Co., so that it can determine whether or not the operating expenses of the Chicago District Pipeline Co. are reasonable. If they are not reasonable, it may then-I do not know what it will do. If its position is sustained, it may then be in a position to reject part of the operating expenses of the Chicago District Pipeline Co. under the Western Distributing Co. case and order the Chicago District Pipeline Co. to file a new schedule of rates under which it sells gas to the Peoples Gas Light & Coke Co.; but it does

not have the power to determine what the Natural Gas Pipeline Co. of America shall collect from the Chicago District Pipeline Co., and this bill presumably would confer upon the Federal Power Commission such authority.

Mr. PETTENGILL. It is not clear to me what you mean by the wholesale interstate rate. Is that a tariff charge by a company that is engaged in the business of a common carrier, or does it apply to a company that is transporting and selling its own gas?

Mr. BOOTH. It does not make any difference.

Mr. PETTENGILL. It does not?

Mr. BOOTH. The wholesale rate which is covered by the act would cover, as I understand it, any wholesale rate or charge under which either a transmission company or a producing and transmission company sells natural gas and which transmits it in interstate commerce to either a distributing company or to another wholesale company.

Mr. PETTENGILL. I see. The point in my mind is, where is the constitutional authority of Congress-unless we get 6 or 60 more judges

Mr. MAPES. Sixty_more?

Mr. PETTENGILL. To fix a rate at which a company should sell its own commodity?

Mr. BOOTH. Well, I believe that that constitutional-
Mr. PETTENGILL. Is that clear?

Mr. BOOTH (continuing). Power has been sustained. If you will examine the very excellent memorandum that was filed before the subcommittee in 1936 prepared by Mr. De Vane and Mr. Tingley, of the Federal Power Commission, I think that they have adequately handled the question of the constitutional power of an agency designated by the Congress to regulate rates.

You regulate rates of railroads. There is not any substantial difference.

Mr. PETTENGILL. That is just the whole distinction that I am making. Railroads are carriers of other people's goods, but I am talking now about a pipe-line company and the gas that is moving through the pipes is the property of the same company that owns the pipes. Now, what authority has the Federal Government to tell that person how much he may charge for his commodity at the selling end of the line?

Mr. BOOTH. Well, I would rather

Mr. PETTENGILL. Perhaps it has been fully answered by the Supreme Court. I do not know.

Mr. BOOTH. I believe it has been. I believe there is no question about it.

Mr. PETTENGILL. You think that there is no question but that power would lie in the Federal Power Commission in the same way in which it would have the power to regulate the interstate wholesale rates under which one electric company sells electric energy to a other?

Mr. BOOTH. I do not think there is the slightest doubt about it and Mr. De Vane's memorandum, I think, covers it.

Mr. PETTENGILL. You think that a farmer who grows peaches in southern Michigan and hauls them down into the Indiana market

Mr. BOOTH (interposing). There is a very substantial difference between the hauling of peaches and the sale of a commodity like gas. These companies are supplying gas service and are rendering a service that is dedicated to the public under common law, to public use, and the right of the Government, State or Federal, under appropriate circumstances to regulate the prices under which a company that is devoted to public service like a gas company, or an electric company, or a railroad company, is unquestioned.

Mr. PETTENGILL. Well, of course, I thoroughly agree that the gas business is a utility in the State in which it is selling, but I am not yet clear as to whether Uncle Sam has the right to fix the rate of a company that is moving its own gas. That is what I would like to have answered.

Mr. BOOTH. I believe there are decisions that hold that wholesale public utilities-that is, wholesale companies-are public utilities subject to regulation.

Mr. PETTENGILL. I thought that in considering the motor truck and bus bill a year ago we decided that we did not have any authority to regulate trucks owned by companies that were moving their own goods in those trucks, except with respect to danger, speed on the highway, and things like that.

Mr. BOOTH. I think that is probably true.

Mr. HALLECK. Mr. Chairman

The CHAIRMAN. Mr. Halleck.

Mr. HALLECK. Would not that involve, Mr. Pettengill, the distinction between a utility and a private business?

Mr. PETTENGILL. Well, it might.

Mr. BOREN. Mr. Chairman

The CHAIRMAN. Mr. Boren.

Mr. BOREN. In order to clarify that question, Mr. Pettengill, you are thinking in your question of a situation where the same company that is a producer and a carrier is also a distributing agent in the State where the product sells.

Mr. PETTENGILL. It might not be the retail distributing agency, it might be selling at wholesale; but, it is a producing company. Mr. BOREN. Transmitting and selling its own property.

Mr. PETTENGILL. Producing and selling its own gas. I want to know the constitutional authority under which the Federal Government can tell a man in that sort of a situation how much he can charge for it.

Mr. BOOTH. I would like to just refer again to the fact that I am offering for consideration by this committee an amendment which would authorize the Federal Power Commission to fix temporary rates. I think it is generally recognized that effective and complete regulation of public utilities in the public interest is hardly possible in the absence of temporary rate-making power.

There is one other thing.

Mr. BOREN. I would like to ask a question.

The CHAIRMAN. Mr. Boren.

Mr. BOREN. If I understand your position on this bill, you completely endorse the bill as it is and suggest that an extending amendment be made. You endorse all of this bill and you are simply asking that certain amendments be made extending the powers that are already embodied in the bill.