which has no commission, and the State of New York, the commissions of which are not at present actively identified with the association.

The association meets once a year in annual convention. Between conventions it acts through its elected officers and its standing committees.

The purpose of the association is to promote the efficiency of regulation of public-service corporations by State and Federal commissions. To preserve the efficiency of State commissions in local regulation, the association uniformly opposes the enactment of Federal regulation of such character as to tend to destroy or break down the powers of State authorities in the field of local regulation, where the States have power to act. To supplement State regulation, however, the association has favored the enactment of Federal legislation providing for the exercise of Federal regulatory power in such interstate matters as are beyond the reach of State regulation. The enactment of regulatory laws by the Federal Government has always been supplementary to the enactment of such laws by the States. The need for regulation has been first recognized locally, and the States have legislated to supply the need, so far as State power was adequate for that purpose. Federal regulation has followed when it was found by experience that regulation of certain interstate operations was necessary, because such regulations were held by the courts to be of such character as not to fall within the reach of State regulation. In such cases the State commissions have asked Congress to enact the necessary legislation.

The States undertook the regulation of steam railroads long before the Federal Government, but when the courts held that interstate rates were not subject to regulation by State laws, the State commissions favored the enactment of the Interstate Commerce Act.

The members of this committee will remember that within the past few years, speaking through our association, the State commissions have favored the enactment of laws providing for the Federal regulation of telephone companies and other communications companies, and of electric power companies, and of motor carriers, operating in interstate commerce.

With respect to all of these classes of utilities, State commissions have favored the enactment of legislation providing for Federal regulation in the field where the States could not act, but they have asked the Congress not to invade the field of local regulation. Local utility service, even where rendered across State lines, has been held by the courts to be subject to State regulation, until Congress occupies the field. This was settled by the United States Supreme Court in Pennsylvania Gas Co. v. New York Public Service Commission (252 Ü. S. 23).

In the laws enacted by Congress in recent years to provide for Federal regulation of public utilities and of motor carriers, care has been exercised to avoid destruction of State powers. For this, on behalf of our association and speaking for the State commissions generally, I wish to make acknowledgment at this time.

The States have long regulated companies engaged in supplying the public with gas, both artificial and natural. Until comparatively recent times these companies have been local in character, and subject

to complete regulation by the State commissions, in those States which had enacted proper regulatory laws. In recent years, however, there has been a great development in the natural-gas industry.

Natural gas is now sold to the public in 37 States. Most of these States are dependent upon other States for their supplies of gas, either altogether or in large part.

Distribution is ordinarily made by local companies, which may or may not be owned or controlled directly or indirectly by the pipe-line companies or by holding companies which control the pipe-line companies.

The State commissions under State laws can regulate the rates of these local distributing companies, but under the requirement of the Federal Constitution must allow sufficient rates to enable the distributing companies to pay operating expenses and fair rates of return upon the value of their properties. What the distributing companies pay to the pipe-line companies for their supplies of gas enters into operating expenses. It is thus clear that the price at which the distributing company can be required to sell gas to the public must depend to a large extent upon the price it is obligated to pay the pipe-line company from which it purchases at wholesale.

This wholesale contract, where the gas is brought from outside the State, the United States Supreme Court has held to be beyond the reach of State control. The pipe-line company, so long as it does not sell to the consumer but only to distributing companies, is wholly unregulated; and the Congress is the only body that can provide regulation.

This situation has been considered by our association at various times. At the hearings on the public utility holding company bill last session, under the direction of our executive committee, we supported title III, with amendments designed to protect the powers of State authorities with regard to local rates and service. Title III, however, as you know, was not reported by the committee.

At the last annual convention of our association, held last November, the necessity of Federal regulation of the gas industry was further considered. A resolution was reported by the executive committee and adopted by the association, which I desire to present. That resolution was as follows:

Whereas the business of transmission and sale of gas in interstate commerce at wholesale for resale, under decisions of the Supreme Court of the United States, is not subject to regulation by the States and, in absence of Federal legislation provided therefor, is left wholly unregulated; and

Whereas jurisdiction to regulate such business should be vested in some tribunal so that gas supplied to distributing companies in interstate commerce may be obtained at just and reasonable prices: Therefore be it

Resolved, That this association favors the enactment by Congress of legislation vesting jurisdiction in some one of the existing Federal regulatory commissions to regulate the service of supplying gas, whether artificial or natural, produced in one State and sold at wholesale to a distributing company in another State, including rates applicable to such service; and be it further

Resolved, That Congress be asked to limit the jurisdiction granted strictly to gas transmitted and sold at wholesale for resale, and that such legislation be so drawn as in no way to limit or impair the power of the States to regulate intrastate and local service and the rates applicable thereto; and be it further Resolved, That the committee on legislation be directed to present this resolution to the chairman of the appropriate committees of the two Houses of Congress and to support the passage of such legislation.

This bill, if it is enacted into law, will meet the object principally aimed at in the resolution of our association. What the State commissions ask is that Congress provide a Federal commission to which any State commission may apply to have the gate rates in any city investigated and fixed upon a just and reasonable basis. This bill will give to the Federal Power Commission such jurisdiction.

The bill has been drawn with the evident purposes of preserving the regulatory powers of the States over local rates and service. To make the accomplishment of this purpose certain, however, there are one or two amendments which will be requested on behalf of our association by the general solicitor. They are amendments not designed to change the purpose of the bill but to insure the accomplishment of that purpose.

I have not gone into any discussion of the court cases which have produced the situation which makes Federal regulation necessary. I am leaving that for our general solicitor, Mr. Benton, who will follow

me.

In closing, I will say that there is the same need for the enactment of this bill as there was for the enactment of the Federal Power Act. It is to fill a gap in regulation and to enable the State regulatory authorities to function effectively. In fact, there is more need for the enactment of this bill than existed for the enactment of the Federal Power Act. This is because local distributing companies draw their supplies of gas from sources in other States more largely than distributing electric companies draw upon other States for their supplies of electric energy; and also the State commissions are less able to determine the price which ought to be paid by the distributing companies.

It is comparatively easy to determine the fair cost of generating electric power at a given point, but it is by no means easy to determine what it costs a pipe-line company to produce natural gas and to deliver the same at St. Louis or Washington or any other city.

Such cost can only be determined by a competent commission, exercising power to investigate and equipped with the necessary staff of technical experts.

Thank you, Mr. Chairman.

Mr. COLE. You stated at the outset that the association which you represent includes all State commissions except those of Delaware and New York?

Mr. McDONALD. Yes.

Mr. COLE. How many States do not have regulatory commissions? Mr. McDONALD. I think there are seven that are not equipped with commissions to regulate gas service and rates.

Mr. COLE. What States are those?

Mr. McDONALD. The States of Florida, Iowa, Mississippi, South Dakota, Delaware, Minnesota, and Nebraska do not have regulatory power over the distribution of gas.

Mr. COLE. Does the action of your association of last November esult from demands on the part of the State commissioners pretty generally throughout the country for legislation of this character? Mr. McDONALD. The States were represented from 40 different States, and the action was unanimous.

Mr. COLE. Can you give us some particular State's complaint as to why they wanted legislation of this kind?

Mr. McDONALD. That is what I attempted to explain, Mr. Chair

man.

Mr. COLE. I follow the general idea you have in mind, but I wondered if you could point out to the committee particular localities in the country where State commissions are complaining about their inability to properly regulate rates of gas to the consumers without the Federal Government assisting in the way this bill calls for?

Mr. McDONALD. I cannot at the moment recall any such State, but I can say, Mr. Chairman, that wherever State regulatory commissions have attempted it they have been told by the Supreme Court of the United States that they could not regulate interstate naural-gas service; that is, from one State to the other.

Mr. ČOLE. You are a member of the commission in your State, I believe you said?

Mr. McDONALD. Yes.

Mr. COLE. Suppose I bring natural gas into your State; do you mean to say you have no jurisdiction? If I attempt to distribute it in your State there it would become subject to regulation by the commission, would it not?

Mr. McDONALD. It would be, so far as local distribution is concerned.

Mr. COLE. Yes.

Mr. McDONALD. But so far as the cost of the gas that is distributed is concerned we could not go outside the State to ascertain that fact, and that is one of the biggest items in cost.

Mr. COLE. Instead of selling it direct to the large consumers, or local consumers, I sell it at wholesale to one plant; the jurisdiction of your commission over that company would prevent it entering into a contract with me without your approval, would it not?

Mr. McDONALD. So far as the purchase of the gas interstate, they could purchase the natural gas from you and bring it into the State; but if they undertake to distribute it or sell it to another company that distributes, then we can regulate it; but we cannot find out what a fair price is for them to pay for the gas.

Mr. COLE. Your jurisdiction would not permit you to go into the contract of the kind I mentioned?

Mr. McDONALD. No.

Mr. COLE. That is, your commission has no jurisdiction over the rate they charge to the local distributing company?

Mr. McDONALD. No; nor are any of the other States permitted to do that.

Mr. COLE. Well, if they decide to pay the president of the company $1,000,000 salary a year, could you stop that?

Mr. McDONALD. No; not if the cost of that is figured in the cost of selling and producing the gas in the State from which it comes. The court has so held in several cases.

Mr. COLE. How much, in dollars and cents, if you can tell us, does natural gas moving in interstate business amount to? What percentage of it is subject to State regulation by State commissions throughout the country?

Mr. McDONALD. I do not know; I could not attempt to tell you that.

Mr. COLE. You do not know?

Mr. McDONALD. No; but I do know that 37 of the States are now using natural gas; but as to what amount it is, I would not attempt to say. I know that several States have complained. West Virginia, as I recall, and several others have complained about their inability to regulate transportation and sale of gas because of its interstate character. That, of course, is what brought about this resolution by our association, which I have just read to you. Mr. COLE. All right; thank you.

Mr. PEYSER. You say that 37 States use natural gas?
Mr. McDONALD. Yes.

Mr. PEYSER. Do you know how many States produce natural gas? Mr. McDONALD. I do not. I would say that there are perhaps 8 or 10 altoghether.

Mr. PEYSER. What are the principal States where natural gas is produced; what part of the country?

Mr. McDONALD. Texas, I think, perhaps, produces the greatest quantity. Oklahoma and other States in that part of the country, principally.

Mr. PEYSER. West Virginia produces some, does it not?

Mr. McDONALD. I think it does, but I am unable to say how much. Mr. PEYSER. Indiana formerly did produce some natural gas? Mr. McDONALD. I think so.

Mr. PEYSER. They still have some out there?

Mr. McDONALD. I think so; but not much.

Mr. COLE. Any further questions? If not, we thank you, Mr. McDonald.

Mr. McDONALD. Thank you.

Mr. COLE. We will next hear Mr. Benton.

STATEMENT OF JOHN E. BENTON, GENERAL SOLICITOR, NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES COMMISSIONERS, WASHINGTON, D. C.

Mr. COLE. State your full name and for whom you appear.

Mr. BENTON. My name is John E. Benton. I am the general solicitor of the National Association of Railroad and Utilities Commissioners. My office is in the Earle Building, Washington, D. C. As stated by Mr. McDonald, the association is composed of the members of the State regulatory commissions of every State in the Union, with the exception of Delaware, which has no commission, and of New York, the commissions of which are not actively identified with the association.

Mr. COLE. Will your statement consume the balance of the morning, Mr. Benton?

Mr. BENTON. My statement will not consume the balance of the morning, aside from such questions as may be asked. I think probably 35 or 40 minutes would cover such statement as I will make.

Let me say that the members of the Interstate Commerce Commission, the Federal Communications Commission, the Federal Power Commission, and the Public Utilities Commission of the District of Columbia are also members of our association, but upon matters of legislation the association speaks only for the State commissions and does not attempt to represent and speak for the commissions which