GRANTING TO THE HAWAIIAN ELECTRIC CO., LTD., THE RIGHT TO CONSTRUCT CERTAIN DITCHES, TUNNELS, AND OIL PIPE LINES IN PEARL HARBOR, T. H.

JANUARY 31, 1945.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. FARRINGTON, from the Committee on Nayal Affairs, submitted the following

REPORT

[To accompany H. R. 1808]

The Committee on Naval Affairs, to whom was referred the bill (H. R. 1808) to grant to the Hawaiian Electric Co., Ltd., the right to construct certain ditches, tunnels, and oil pipe lines in Pearl Harbor, T. H., having considered the same, report favorably thereon without amendment and recommend that the bill do pass.

The purpose of the bill H. R. 1808 is to grant to the Hawaiian Electric Co., Ltd., a Hawaiian corporation, its successors, and assigns, the right to construct, maintain, and operate intake and discharge ditches, and tunnels for the purpose of taking salt water from and discharging it into Pearl Harbor, Oahu, T. H., and to lay, maintain, and operate oil pipe lines from ship's moorings to the company's properties at Waiau, Ewa, Oahu, in the area in Pearl Harbor between the southern boundaries of the company's presently owned properties at Waiau as shown on the company's map W-1614, dated September 26, 1940, filed in the office of the Secretary of the Navy, and the -20-foot contour line in Pearl Harbor. The authority granted in the proposed bill is necessary in order to enable the company to enlarge its facilities for the generation of electricity.

At the present time all naval activities in the Pearl Harbor area, with the exception of the navy yard, are almost entirely dependent on the Hawaiian Electric Co. for power, and the Army, with practically no generating capacity in Oahu, buys its electricity either from the Navy or from Hawaiian Electric Co. The Navy's production capacity is now almost up to its limit, and if its biggest generating unit (10,000 kilowatts) went out, it could not supply the demand. The Navy Department, therefore, considers that an expansion of the generating capacity of Hawaiian Electric Co., will be to the interest of the Navy as well as to the general public.

The proposed legislation saves in the Secretary of the Navy authority to approve the locations and plans of the ditches, tunnels, and oil pipe lines, and to require their relocation when, in his judgment, such is necessary for the purpose of improving navigation or Government use of the area. It is proper that this authority be reposed in the Secretary of the Navy rather than in the Chief of Engineers, United States Army, and the Secretary of War, since Pearl Harbor is now a closed waterway used wholly for naval purposes, and entrance thereto is controlled by the Navy Department. In view of this the Secretary of War on November 7, 1936, approved the revocation of all harbor lines in Pearl Harbor, and such action was noted as having been accomplished by the district engineer, Honolulu, T. H., on December 7, 1936.

The committee are of the opinion that enactment of the bill is desirable and therefore recommend its enactment.

The enactment of the bill was recommended by the Navy Department and the letter of the Secretary of the Navy on this bill is herewith made a part of this report.

NAVY DEPARTMENT, Washington.

Hon. CARL VINSON,

Chairman of the Committee on Naval Affairs,

House of Representatives.

MY DEAR MR. CHAIRMAN: The bill H. R. 1808 "to grant to the Hawaiian Electric Co., Ltd., the right to construct certain ditches, tunnels, and oil pipe lines in Pearl Harbor, T. H.," was referred by your committee to the Navy Department with request for the views and recommendations of the Navy Department thereon.

The purpose of the bill H. R. 1808 is to grant to the Hawaiian Electric Co., Ltd., the right to construct, maintain, and operate intake and discharge ditches and tunnels and to lay, maintain, and operate oil pipe lines in Pearl Harbor, Oahu, T. H. The authority granted in the proposed bill is necessary in order to enable the company to enlarge its facilities for the generation of electricity.

At the present time all naval activities in the Pearl Harbor area, with the exception of the navy yard, are almost ent rely dependent on the Hawaiian Electric Co. for power, and the Army, with practically no generating capacity in Oahu, buys its electricity either from the Navy or from Hawaiian Electric Co. The Navy's production capacity is now almost up to its limit, and if its biggest generating unit (10,000 kilowatts) went out, it could not supply the demand. The Navy Department, therefore, considers that an expansion of the generating capacity of Hawaiian Electric Co., will be to the interest of the Navy, as well as to the general public.

The proposed legislation saves in the Secretary of the Navy authority to approve the locations and plans of the ditches, tunnels, and oil pipe lines, and to require their relocation when, in his judgment, such is necessary for the purpose of improving navigation or Government use of the area. It is proper that this authority be reposed in the Secretary of the Navy rather than in the Chief of Engineers, United States Army, and the Secretary of War, since Pearl Harbor is now a closed waterway used wholly for naval purposes, and entrance thereto is controlled by the Navy Department. In view of this the Secretary of War on November 7, 1936, approved the revocation of all harbor lines in Pearl Harbor, and such action was noted as having been accomplished by the district engineer, Honolulu, T. H., on December 7, 1936.

Accordingly, the Navy Department recommends in favor of the enactment of the bill H. R. 1808.

There has been insufficient time to obtain advice from the Bureau of the Budget as to the relationship of this report to the program of the President.

Sincerely yours,

RALPH A. BARD, Acting Secretary of the Navy.

1st Session

No. 48

AMENDING SECTION 77 OF THE BANKRUPTCY ACT (RAILROAD REORGANIZATIONS)

January 81, 1945.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. HOBBS, from the Committee on the Judiciary, submitted the following

REPORT

[To accompany H. R. 37]

The Committee on the Judiciary, to whom was referred the bill, H. R. 37, to amend section 77 of the act of July 1, 1898, entitled "An act to establish a uniform system of bankruptcy throughout the United States," as amended, having considered the same, report the bill favorably to the House, with the recommendation that it do pass. In the Seventy-eighth Congress hearings were held on a similar bill, H. R. 2857. As a result of the hearings certain changes were made and a clean bill was introduced, numbered H. R. 4960. This was reported unanimously (H. Rept. No. 1615). The bill was reintroduced in the Seventy-ninth Congress as H. R. 37, and is again reported unanimously.

NECESSITY FOR REVISION OF SECTION 77

The purpose of the bill is to correct a very serious situation arising from the interpretation placed by the Interstate Commerce Commission and the courts upon the amendments of section 77 enacted by the Congress August 27, 1935. We believe this situation results from a misapprehension of the intention of Congress with respect to the 1935 amendments. The consequences have been and are so disastrous to railroad investors, and so dangerous to the credit of the railroads in general, that they should be corrected by legislation.

From a legal standpoint, the problem may be stated simply. Section 77 was directed primarily to the relief of financially embarrassed railroad companies through a revision of their capital structures and a reduction of fixed charges. It does not expressly provide for any reduction in the existing total capitalization; but the Interstate Commerce Commission has interpreted paragraph (d) of the section as authorizing it to fix the total capitalization of the reorganized company. In so doing, it has estimated a "capitalizable value of the

assets" of the property based almost entirely upon "earning power"— earning power of the property, past, present and prospective-as these words are used in section 77 (e). Its estimates of prospective earning power are necessarily speculative. Nevertheless it has used its estimates of earning power to fix capitalizations in all cases very substantially below the existing capitalizations, regardless of the investment in the property and of the valuation previously determined by the Commission under section 19a of the Interstate Commerce Act. The Supreme Court in passing upon two major reorganization plans-the Western Pacific and the Chicago, Milwaukee. St. Paul & Pacific-upheld the Commission in this interpretation of the section, and has further held that the Commission's findings will not be disturbed where there is some evidence to support them. In other words, these administrative findings are beyond judicial review.

The result of this interpretation of the statute by the Commission, and the subsequent refusal of the courts to review the Commission's findings, has caused the destruction of hundreds of millions of dollars of railroad securities representing actual investment in the property made, to some extent at least, in reliance upon the belief that such investments could not be confiscated except by due process of law. In more detail, the legal problem is as follows:

The original section 77, "An act for the relief of debtors," enacted March 3, 1933, contained a provision in paragraph (d) that the Commission after a hearing on a plan of reorganization shall render a report approving a plan which "may be" different from any that had been proposed. As carried forward into the amendments of August 27. 1935, the language was as follows:

After the filing of such a plan, the Commission, unless such plan shall be considered by it to be prima facie impracticable, shall, after due notice to all stockholders and creditors given in such manner as it shall determine, hold public hearings, at which opportunity shall be given to any interested party to be heard, and following which the Commission shall render a report and order in which it shall approve a plan, which may be different from any which has been proposed, that will in its opinion meet with the requirements of subsections (b) and (e) of this section, and will be compatible with the public interest; or it shall render a report and order in which it shall refuse to approve any plan. In such report the Commission shall state fully the reasons for its conclusions.

Section 77, as amended, nowhere specifically authorizes the Commission to reduce the existing total capitalization. It does specifically authorize the Commission to reduce the fixed charges. Under subsection (d), as quoted, the Commission has acted upon the assumption that it had the power to reduce the total capitalization, even though that capitalization was well below the investment in the property and below the Commission's physical valuation fixed under section 19a of the act to regulate commerce.

Subsection (e) of the 1935 amendments requires the judge to approve the plan, if satisfied that it conforms with the provisions of subsection (b) (the principal one of which is the requirement that the plan shall provide for fixed charges of the reorganized company in such an amount that there shall be adequate coverage by the probable earnings available for the payment thereof), but contains no requirement that the court shall satisfy itself of the correctness of the Commission's action under subsection (d). The action of the Commission, therefore, in fixing the total capitalization under subsection (d) is not made specifically dependent upon the approval of the court.

Another of the 1935 amendments involved is the valuation section of paragraph (e). It will be recalled that in the Valuation Act of 1913 (Interstate Commerce Act, sec. 19a), the Commission was directed to determine the value of all the property owned or used by every common carrier, except certain street or suburban railways. It was required to report in detail as to each piece of property, the original cost, cost of reproduction new, the cost of reproduction less depreciation, and all other values and elements of value of the property of such common carrier; also, in detail and separate from improvements, the original cost of all lands and the present value of same. Having completed this work, it was required to serve notice of its tentative valuation upon the carrier, the Attorney General and the governors of the various States in which the properties are located. Thereupon, after hearing if a protest was filed, the. valuation became final (sec. 19a (h) (i)). The latter section provides:

All final valuations by the Commission and the classification thereof shall be published and shall be prima facie evidence of the value of the property in all proceedings under the Act to regulate commerce as of the date of the fixing thereof, and in all judicial proceedings for the enforcement of the Act approved February fourth, eighteen hundred and eighty-seven, commonly known as "the Act to regulate commerce," and the various Acts amendatory thereof, and in all judicial proceedings brought to enjoin, set aside, annul, or suspend, in whole or in part, any order of the Interstate Commerce Commission.

The Commission further is required by section 19a to keep these valuations up to date by keeping itself informed of all new construction, improvements, retirements, and other changes in the condition, quantity, use, and classification of all such property. This valuation work has been in progress ever since the passage of the act and the Commission's files contain full information as to all the property of the carriers.

The 1935 amendments of section 77 included the following paragraph as to valuation:

If it shall be necessary to determine the value of any property for any purpose under this section, the Commission shall determine such value and certify the same to the court in its report on the plan. The value of any property used in railroad operation shall be determined on a basis which will give due consideration to the earning power of the property, past, present, and prospective, and all other relevant facts. In determining such value only such effect shall be given to the present cost of reproduction new and less depreciation and criginal cost of the property, and the actual investment therein, as may be required under the law of the land, in light of its earning power and all other relevant facts.

This section was proposed to us by the late Joseph B. Eastman, then Federal Coordinator of Transportation. Both Mr. Eastman and his counsel expressed the view that it was desirable, and also that it would not deprive the stockholder affected by any valuation found thereunder from having his day in court for a judicial determination of the value of the property so found.

In proceedings under section 77, the Interstate Commerce Commission has developed what it terms a "capitalizable value" of railway properties, derived from its consideration of "earning power" under subsection (e); and purporting to act under subsection (d), has limited the capitalization of the reorganized company to the "capitalizable value" so determined.

At the time these two amendments were adopted, some 30 class I railroads, owning an aggregate of 75,000 to 80,000 miles of line, were undergoing reorganization. At this time, only a few of these