been very closely associated with that work and, after my general statement, he will discuss that work for you.

DEVELOPMENT OF WATERPOWER SUPPLY FOR WAR PURPOSES

In connection with the assurance of an adequate power supply for war purposes, one of the important lines of work has been in connection with the development of waterpower. Waterpower in many ways is the ideal power supply in a war situation, because, once waterpower plants are constructed, they will go on delivering power with very little call upon manpower, upon materials for replacements and parts. They are not subject to wear and tear of the high-pressure, high-speed steam installations, or upon the transportation system for coal. For that reason, the Commission has been constantly cooperating not only with the War Department, with the W. P. B., in uncovering and carrying through the projects which can best serve the purposes of war power supply, it has not only been working on what we have formerly called our flood-control division, but also it comes under the head of the license project work, which is perhaps the oldest work of the Commission, dating back to the original act of 1920.

I might just mention a couple of instances as an illustration, because I think the importance of waterpower in connection with the war effort, the direct importance to it, is sometimes overlooked. In the first place, in connection with the Ross Dam, which is a licensed project owned by the city of Seattle on the Skagit River in Washington, there developed the possibility that by raising the dam 150 feet an additional 80,000 kilowatts could be made available to the entire Northwest because they had worked out a very complete power pooling arrangement, without the necessity, without the expenditure of critical materials on the construction of additional generating capacity. In other words, simply by providing additional water storage, their existing generating capacity could be made to deliver 80,000 kilowatts more power for war production in the Northwest.

That required an amendment to the existing license. Under the responsibility which the Commission has for work carried out under its licenses, it required very intensive engineering work to make sure that a rather new thing in engineering-the building of an arch dam 150 feet on top of an existing arch dam-could be carried forward. with safety. The Commission engineers had to work in close conjunction with the city engineers in making sure not only that this great dam could be constructed on top of another dam, but also that necessary provision could be made so that the dam could be filled as fast as it was constructed, so that there would be no delay in the availability of additional power.

Similarly, the Commission has, under its licensing powers, been interested in the construction of the new pit No. 5 project of the Pacific Gas & Electric Co. on one of the headwaters of the Sacramento system in California. That plant also is being constructed to utilize existing storage, so that in a minimum of time a maximum of aaditional power can be made available to the northern California war industry area.

In connection with the other phase of the Commission's waterpower work, the Commission has been in close touch with the situation in and around Pittsburgh and although the plan which it has presented to the United States Corps of Engineers has not yet been carried through, it is available to make additional power very quickly available in that area where essential production is very much dependent on electric power, through the installation of units at dams already constructed by the United States Corps of Engineers for flood-control purposes, the Tigert and Youghiogheny Dams, and through the utilization of storage in connection with certain existing private power plants which, by improved storage, can be made to deliver more power in the same way that the plan for the delivery of more power in the Northwest is associated with the greater water storage on the Skagit River.

ADVISORY PHASES OF COMMISSION'S WORK

Other phases of the Commission's work include a range of activities which enable the Commission to advise the various war agencies in connection with important power problems. This advice has not only run to the location of large power-consuming war-production plants in areas where it is necessary that power will be available without great expenditures for additional installations, but also more recently advice concerning the best locations for the concentrations of civilian industry that are planned.

As you have probably seen in the papers, or may have direct information of, in order to increase the country's whole productive effort, both in war and in peace, there is an attempt to concentrate certain civilian requirements in special factories so that more factories can be released for war production. In connection with that concentration of industry, it is necessary to know what the power situation is, in order to make sure there is an adequate power supply available for the additional industrial production which will come to the area as a result.

Similarly, the Commission, on the basis of the material which it is constantly gathering on the power industry, is called upon to advise the Executive Office of the President, particularly the Bureau of the Budget and, from time to time, to advise various congressional committees where the matter under consideration includes appropriations for facilities to provide additional power supply.

COOPERATION WITH WAR AGENCIES

In all of its war work, the Commission is cooperating closely under an agreement with the War Production Board and is also cooperating with the other agencies that are directly involved in procurement for the war program

That, in general, gives a broad picture which will be rounded out as you ask questions and as Mr. Manly talks on certain of these points, particularly the picture of the war work which the Commission is doing. Connected with it, there is a good deal of what you might call routine production work of the Commission which is definitely for war agencies like W. P. B., O. P. A., and the War and Navy Departments. This includes not only the production of statistics, but also the production of our Publication Division where a great part

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of the work today is being done directly for the War Production Board.

Just in passing-and I am going to refer to it very briefly againwe have estimated in terms of percentages that 95 percent of the work of the Bureau of Electric Engineering involves direct war work; about 82 percent of our Division of Finance and Statistics; about 75 percent of the Publications Division; about 70 percent of the Rates and Research Division, with corresponding percentages of the work of the entire Bureau of Accounts and the Legal Bureau, because the two are directly associated; at least 40 percent of the work of our Water Power Bureau, and corresponding percentages of our Administrative Division. Mr. Sechrest will tell you subsequently what his estimate is of the total percentage of the work of the Commission that is today involved directly in war work.

INDIRECT WAR WORK OF THE COMMISSION

In addition to this direct war work of the Commission, there are other broad fields of work which are in a sense indirect war work in the same way that you have the production of raw materials as indirect war work underlying the direct production of war implements.

I think in giving consideration to the work of the Commission from the point of view of the Budget, it is important to recognize the fact that actually the Commission's work is an integral whole and that, for the carrying on of the essential war work it is necessary to have a proper balance of work in the other branches of the Commission's undertaking. For instance, the Rates Division is not only engaged in the direct consideration of the contracts which are being made for power supply for war plants and establishments-contracts for which the Government undertakes a direct obligation for the payment of the power bills--but also is engaged in collaboration with the other branches of the Bureau of Accounts in the conduct of the normal rate cases. Those rate cases have been of particular importance in the field of natural gas, because natural gas has only very recently been brought under regulation, and it has been necessary to do a thorough job with an industry that, in general, has avoided regulation over a period of 10 or 20 years. However, the rate case work appears to us to be an essential part of the attempt of the Government to control inflation, to keep prices under control.

I have assumed, and I think it probably is explicit in the reports that have been associated with the price control legislation, that the reason why Congress, in passing price control legislation, left the actual establishment of ceilings of utility rates out of the law was due to the fact that there existed in the country not only State commissions but Federal commissions responsible for that phase of price control. So that we feel it is necessary to continue the conduct of at least a minimum of rate cases in order to play the necessary part reserved by Congress for the regulatory bodies in the general procedure of price control.

Now, this rate work is, to a very large extent a problem of sound accounting procedure. In fact, all the preparatory work for effective rate control is largely in the hands of our Divisions of Accounts, not only the one specifically referred to as the Division of Accounts but also the foundation work that is being done by our Division of Original

Cost. I think perhaps one of the matters it is important to point out in that connection is the steady progress of the Bureau of Accounts, Finance and Rates has made, in establishing rate making in a strictly accounting basis. This has done a great deal to assure the simplified and expeditious handling of such rate cases. Mr. Smith later, if you wish, can give you a rather clear picture I think of the way the Commission has been steadily reducing the amount of time required, the number of man-hours required both on the part of the Commission's staffs and the staffs of the utilities themselves, in bringing a rate case to a reasonable conclusion. And, in many cases, those conclusions have ultimately been accepted by the companies themselves without carrying on unnecessary hearings and without going into litigation.

ORIGINAL COST WORK OF COMMISSION

I think closely associated with this broad rate-case work is the Commission's original cost work, the work of the Original Cost Division. This original cost work is also a part of the general control of inflation. In fact, increasingly, and again without going into lengthy procedures, the utility companies, particularly the power companies, are coming in and sitting down with the Commission and accepting the removal of inflation from their books and the classification of their accounts on a strictly original-cost basis. The Commission feels. that this phase of the work is of outstanding importance, not only in terms of the war situation, but also in terms of the post-war situation. Actually what it means is that, with the cooperation of the Commission, because it is increasingly on a cooperating basis, the companies are establishing their whole capital set-up on a healthy basis, and that will enable them to face the period of post-war readjustment, to meet the requirements of refinancing, and so forth, on a much sounder basis than would otherwise be the case. It is work which is of advantage not only to the rate payers, but also to investors.

In that connection, I might point out that if work such as is being carried out by the Commission's Bureau of Accounts in connection both with the power systems of the country and the great interstate natural-gas systems-work which deals not only with sound classification of accounts but also with proper handling of depreciationif similar work had been carried out for the railroad industry back a generation ago, we will say, I think the railroads would have been in a much healthier condition when they faced the competition which arose as road transportation, truck transportation, and so forth, developed.

I think the difficulties that the railroads have been going through and are still going through could have been avoided by this kind of sound accounting by the establishment of this sound accounting on an original cost basis a good many years ago.

I have already referred to the fact that the Commission's analysis of natural-gas reserves in connection with its rate cases has a direct relationship to all the plans which are being made for assuring a natural-gas supply for war production in essential war areas, and I do not think I need go further into that.

I think the Budget study should also be based upon a realization of the fact that although the work of the Legal Bureau of the Commission

may seem to be less directly involved in the war activities of the Government, nevertheless that legal work must go on in connection. with practically all the work that the Commission is doing in connection with the prosecution of the war. For instance, certain lawyers are assigned practically full time to the handling of the matter of collaboration with the several war agencies, particularly with the War Production Board. There is a parallel responsibility in connection with the whole of the war work, both in the field of natural gas and electricity, to the extent that under the authority as it stands today there must be parallel action to assure such matters as essential war interconnections between systems.

Just within the last year I think it was last February-the Congress amended the Natural Gas Act, section 7 (c), to give the Commission a wide authority over certificates of convenience and necessity not only for existing natural-gas properties, but also for any extensions, whether emergency or otherwise, of pipe lines made by these interstate natural-gas pipe-line companies. That work is an essential corollary of the work which the War Production Board is doing in assuring the pooling of a natural-gas supply for war purposes.

Similarly, orders under section 202 of the Federal Power Act must be issued frequently in connection with the effort of war production, to assure the best pooling of power for war purposes. So the Commission's lawyers are constantly collaborating in the preparation of orders for such interconnection of companies, in the preparation of certificates for the extension of natural-gas pipe lines, in connection with the proceedings through which the Commission is handling the contracts for power supply to war plants and establishments, in connection with the rate proceedings, in connection with the original cost proceedings, and so forth. The Commission's legal work is inextricably bound in and interrelated with the work of the other branches of the Commission's staff.

Another phase of this indirect war work is the broad underlying analysis of power systems which is necessary to further not only the plant's production work but also the determination of the power supply that can be depended upon in any area for meeting the war requirements under any circumstances and also the interconnection of facilities.

I think the Commission probably has under a single roof the only body of engineers who have intimate knowledge of every power system in the country, so that they can meet any situation, respond to any request for information, at almost a moment's notice. This was particularly important in connection with the Commission's handling of the pooling of power to meet the water shortage in the Southeast during the latter half of 1941. It was the knowledge which the Commission had of the characteristics not only of every power plant but of every transmission system, every substation, which enabled it to work out the plan which was put into effect for meeting a very critical situation and making available power that would otherwise not have been made available.

STATISTICAL WORK OF THE COMMISSION

Similarly, the statistical work which the Commission is doing, whether directly for the war-planning agencies or otherwise, is neces