The federation recommends that that clause be so amended as to prohibit the purchase of power for resale by the new company.

The committee will also observe that the joint resolution submitted for its consideration provides that the new company shall succeed to the powers and obligations of the Washington Railway & Electric Co. directly connected with or related to the operation of electric railways, motor busses, or other forms of public transportation.

The arguments for separating the Potomac Electric Power Co. are that it is a dissimilar type of service, that its patrons are not the same as those of the street-car company, and that the burden of one type of patron should not be imposed upon another.

The street-car companies of necessity are operated at a loss. The argument runs that the people who purchase power should not be compelled to pay that loss. In many instances they are not located within reach of the street cars and in others they do not make use of the street cars, preferring to use private automobiles.

If that argument is good, it is equally effective in prohibiting the new company from purchasing power from the Potomac Electric Power Co. and reselling that power to other traction lines running out of the District of Columbia and not included within the merger.

Mr. GIBSON. Will you permit interruptions as you go on, so that I may at least understand it?

Mr. ROBERTS. I shall be very glad to.

Mr. GIBSON. What do you mean by that? To whom could the traction companies sell power?

Mr. ROBERTS Under the present arrangement the Washington Railway & Electric Co. has a number of contracts.

Mr. GIBSON. For the sale of power?

Mr. ROBERTS. For the sale of power.

Mr. GIBSON. To whom?

Mr. ROBERTS. To the Washington, Baltimore & Annapolis Railroad, for example, and others which have been cited in the transcript of record before the Public Utilities Commission.

Mr. GIBSON. Is the Rockville company operated separately?

Mr. ROBERTS. I am informed that the Rockville company-in fact, I now recall that the Rockville company is one of the subsidiary lines of the Washington Railway & Electric Co.

Mr. GIBSON. Does it sell power to the Rockville company?

Mr. ROBERTS. At present it does, but we have no objection to the sale of the power to subsidiary companies, of course, within the corporation.

Those companies would become a part of the new merged company, and obviously power purchased by the new company should be served to all of its constituent members.

What we object to is the sale of power to strangers to this merger, which means that they purchase power at a comparativlely low rate from the Potomac Electric Power Co., and then, for no reason at all, the new company obtains a higher price on resale to the other companies.

Mr. REID. I should think you would be tickled to death to have them do that, if it would help pay the expenses of the operating company.

Mr. ROBERTS. Yes; if that were all there were to it; but although we have not complete information, we have reason to believe that the

franchises of the other companies permit the resale of power again, and would operate as an extension of the

Mr. REID (interposing). You state it to be the other way, that they would sell it for less; you are putting up a very good reason why they should be permited to do it.

Mr. ROBERTS. Why the new company should be permited to do it? Mr. REID. Yes, sir. You are making a very good argument for that.

Mr. GIBSON. What you mean is that it gives them an opportunity to pyramid the price?

Mr. ROBERTS. Yes; the Potomac Electric Power Co., the producing company, might well sell power and sell it at any price that it could get, to stranger companies, but there are certainly no reasons in my mind, at least, and in the minds of the federation, why power should be sold through an agent.

Mr. REID. Are you looking out for the welfare of the citizens or for the welfare of the stranger companies? According to your argument, you are looking out for the Washington, Baltimore & Annapolis Co., to see that they get power at a lower rate than otherwise they would pay under this arrangement.

Mr. ROBERTS. That is not our motive. Our motive is to see that there is not a series of complex contracts which permit manipulation, similar to the contracts now in force between the Potomac Electric Power Co. and the Washington Railway & Electric Co.

Mr. REID. Your argument up to date does not impress me as being a valid one. In fact, it produces just the opposite impression. Mr. ROBERTS. The argument advanced by the companies for permitting this resale of power

Mr. REID. I raised the question yesterday, without even having heard you on your theory, that they might use these contracts in order to put a load on the operating company, so that they would get a higher rate. But your argument to-day is just the opposite; that they can get more money from stranger companies; of course, that will reduce the amount that the operating companies have to

earn.

Mr. GIBSON. And increase the earnings of the operating company. Mr. REID. Certainly. Why should you object to increasing the earnings?

Mr. ROBERTS. It will not change the earnings of the Potomac Electric Power Co.

Mr. REID. We are talking about the earnings of the new company.
Mr. ROBERTS. Unfortunately, we are also consumers of power.
Mr. REID. Is that proper before the committee at this time?

Mr. ROBERTS. I believe it is. The Potomac Electric Power Co. is a member of the present Washington Railway & Electric Co. and is to be separated under this merger agreement.

Mr. REID. Yes; but under the act that we have before us the only thing that is before us is a referendum in reference to the specific thing that the Public Utilities Commission have handed to this committee as their best effort. I do not think we have any right at this hearing-I would be glad to talk to you outside about it-that is, about power rates or anything else but I do not see how we can consider other than as passing remarks, the question of power. I certainly can not see the force of your argument that the transit company is

going to earn more money from a contract, and that it should not be allowed to do that. Your argument should be just the opposite. However, I do not want to stop you in your presentation.

Mr. ROBERTS. If the sole object of this merger were to permit the transit companies to earn more money, it might be provided in the legislation that they could engage in the sale of commercial products, the sale of insurance or anything else.

Mr. REID. That is not what I said. I merely said that your argument is going in the opposite direction from what you intended.

Mr. GIBSON. What you mean is that it would be an advantage to the stockholders to permit them to make money by the resale of power, and that benefit would inure to the stockholders?

Mr. REID. And the street-car riders.

Mr. GIBSON. In the way of keeping down the fares?

Mr. ROBERTS. The uniform classification of accounts prescribed by the Interstate Commerce Commission for electric railroads is in force for the railroads in the District of Columbia, and it is my understanding on excellent advice that the nonoperating revenues, of the type received from the sale of power not produced by the company are not included in the operating revenues before computing a fair return, and therefore it would be a corporate rather than a company operating return.

Mr. REID. But this particular act that is before us is putting it in; that is the thing that you overlook. You certainly do not want to take that out and still pretend to represent the street-car rider.

The CHAIRMAN. The Chair would suggest that the witness be allowed to make a connected statement, and then the members of the committee can interrogate him.

Mr. REID. He yielded to Mr. Gibson and said that he wanted to be interrogated as he went along.

Mr. GIBSON. I am perfectly willing to withdraw that request. I am willing to yield to the ruling of the chairman.

Mr. ROBERTS. Just as you say; I do not care.

The CHAIRMAN. I think you ought to finish your statement. Mr. ROBERTS. The second objection offered under the same paragraph 10 is our desire that the clause be modified to provide for the . fixing of the rate at which power must be sold by the Potomac Electric Power Co. to the new company by the Public Utilities Commission, with a reservation, a right to refuse at its discretion.

The language, as we understand it at present before you, is that the sale of power shall not exceed the present aggregate cost of power to the two present companies.

Of course, the cost of power to the Capital Traction Co. produced at its Georgetown plant is in excess per unit of the cost of power to the Potomac Electric Power Co. or to the Washington Railway & Electric Co., because of the difference in the efficiency of the two plants.

The effect of this provision would undoubtedly be to reduce the unit rate of power proportionate to the lines operated by the Capital Traction Co.; that is, it is less than the Capital Traction Co.'s present unit rate of power; it is in excess of the present Washington Railway & Electric rate of power.

Mr. REID. You certainly do not object to that, do you?

Mr. ROBERTS. The contract also provides

Mr. REID (interposing). Do you, Mr. Roberts?
Mr. ROBERTS. Mr. Chairman, shall I continue?

Mr. REID. You may continue or not, as you wish. You may make your stump speech, if you wish.

Mr. GIBSON. He is not making a stump speech.

Mr. ROBERTS. I am glad to answer the question

Mr. REID. Do you want to yield when you have made a point, or do you want to go ahead and make your speech and be interrogated later?

Mr. ROBERTS. If you will permit me to get through the report of the federation, which I am directed to present, I shall be glad to submit to any questions you like.

Mr. REID. Very well.

Mr. ROBERTS. The paragraph, as we interpret it, does not prevent the fixing of the rate for power in accordance with the usual functions of a regulatory body, with proper relation to the operating costs or the producing costs of the producing company, and to a fair return on the property used in the production of power. It is more or less arbitrary.

I am informed that the stand of the Public Utilities Commission, which we think is not expressed in the language, however, is that they may fix, within their discretion, the rate for power subject to the limitation that it shall not exceed the aggregate cost of power to the two companies, and that in some ways, at least, the contracts should be so devised as to permit modification with the changing price of coal and cost of production.

Nevertheless, we feel that the street-railway company would be adequately protected if the usual process of determining rates to any consumer of power were in force and effect, the Public Utilities Commission, holding a hearing upon the cost of power to street-car companies, in the same manner, as they would to members of the committee or to myself, if we purchased power from the Potomac Electric Power Co.

The second feature of this power contract at that point is the fact that the very argument advanced by the proponents of the legislation is one that does not particularly appeal to us in this respect: Its intention is to secure power for the life of the franchise-it shall run for the life of whichever of the franchises of the two companies expires first.

That would mean that a bona fide contract between two companies would be in force and effect, requiring the purchase from the Potomac Electric Power Co. Now, I have not got the slightest feeling one way or the other as to public or private operation of a waterpower plant in the Potomac River, but I have informed myself to the best of my ability as to the advantages of the production of power along the Potomac River, and I realize that there is a potential source of power which might be utilized by any private company which can obtain Federal permission and would produce power at a rate slightly lower than the production cost of the highly efficient steam plant of the Potomac Electric Power Co.

To bar the sale of power by approved contracts during the period of the life of the franchise of the Potomac Electric Power Co. or of the new company would mean the following:

Sale of power to the Washington Railway & Electric Co. at present as shown by the exhibit of the company at the hearing, which constitutes approximately one-half of the total sales of power by the company. Add in the Capital Traction Co., the power now produced by the Capital Traction Co., and you have a very substantial proportion of the total power produced in the District of Columbia.

A power plant erected upon the Potomac River for the purpose of utilizing water in accordance, for example, with the bill now before the Senate known as the Capper bill, which has been approved, I understand, by Major Grant for the park side of it

Mr. GIBSON. You mean the Parks and Planning Commission? Mr. ROBERTS. The Park and Planning Commission--would mean that, practically speaking, none of that power, whether produced by a private company or by the Federal Government, could be effectively sold in Washington. If you take it from the point of view of public operation, it would mean another very effective discrediting of public operation. If you take it from the view of private operation, of which I am in a measure in favor, it means that nobody else except the North American Co. can produce power on the Potomac River.

They have control, through their holding company, the Washington Railway & Electric Co., of the Great Falls Co., control of certain riparian rights at Great Falls; and that is one effective measure that they already control.

The second would be that they would have a monopoly in the sale of power to the street-car companies in the District of Columbia and near by, large users of power, and the transmission of power from the Great Falls project, or from a similar project, whether privately or publicly owned, would have to be made to much more distant places and would be uneconomical to that degree. I do not believe that that has been given consideration prior to this time.

A third phase of paragraph 3 in reference to the contract reads as follows:

We recommend that they compel the accounting for all property operated by the Potomac Electric Power Co. under lease from the new company as "property used but not owned" by it. Provision should be required in the terms of the lease for the amortization in the power charge of leased property retired from the service.

It was indicated at the hearing by the company officials that the power plant of the Capital Traction Co. at Georgetown was of the estimated value of $4,500,000, including its substations, which would be leased to the Potomac Electric Power Co., and they very clearly stated that it was their idea that would remain in the rate base of the street-car companies, although leased to the Potomac Electric Power Co.

The purchase price of power by the new company from the Potomac Electric Power Co. contemplates, if there is a fair price, amortization of the plant used in producing that power and the operating expenses.

If you leave the plant in the rate base of the street-car companies and fix a rate by contract which includes those elements, you have in effect street-car companies earning on a plant which is in use by the Potomac Electric Power Co. and charging to their operating expense the cost of power.