Representative BARDEN. In other words, they get no credit for the power, they just give the power to the street railway and to the gas company?

ALLOCATION OF INVESTMENT

Mr. KELLOGG. No, but so far as the generation of the power is concerned, there is no credit for any other purpose like navigation or flood control.

Mr. BIDDLE. If you would put your same system of bookkeeping here into effect, with this company, that operates in conjunction with its power plant, the street railway, and gas company, how would you come out?

Mr. KELLOGG. You would come out just the same, as far as the power is concerned.

Mr. BIDDLE. You mean the power company would come out on top. Mr. KELLOGG. I am talking about accountancy. I say that

NO ALLOCATION FOR FLOOD CONTROL AND NAVIGATION

Mr. BIDDLE. Here is what I am talking about. I am serious about this point: You say that the T. V. A. is not entitled to any credit for flood control, is that right?

Mr. KELLOGG. Well, I say that if you are going to use those to measure the operations of someone who cannot get any credit, no, just for that purpose, I am talking about yardsticks.

Mr. BIDDLE. That is a benefit, and inures to the benefit of the people.

Mr. KELLOGG. All right.

Mr. BIDDLE. How about navigation?

Mr. KELLOGG. Similarly, if it is going to be used as a yardstick for people who can't get any credit for that, then it should not be so credited against them.

Mr. BIDDLE. By mere words, you can't brush out the benefit to the people; can you?

Mr. KELLOGG. I am not trying to by a mere word; I am talking about the yardstick.

Mr. BIDDLE. Now, we will go back to your street railway and gas company, your utilities. How would you work that out?

Mr. KELLOGG. Of course, we would work it this way, as far as the gas company is concerned, the amount of power that they use is very trifling, just a few blower pumps and like that, and a street railway uses a large amount of power and in that case the power would be sold to the street railway department of the company, its proportionate part on a kilowatt basis of the amount of energy they used out of the total energy pool.

Mr. BIDDLE. But the rate fixed to them would be predicated upon the investment and cost and so forth of the generating company, wouldn't it?

Mr. KELLOGG. Surely, that is what I would say they have to pay their share of all of the investment costs for power.

Mr. BIDDLE. But you object to any allocation from T. V. A., to the navigation or flood control or agriculture or fertilizer units, or anything else.

Mr. KELLOGG. I wouldn't put it as strong as that, because I think that that would sound unreasonable, and I don't want to be unreasonable.

Mr. BIDDLE. That is what I am trying to get you out of; I am inclined to think that you are being just a little unreasonable, and I would like to clear you of that.

Mr. KELLOGG. I don't want to be unreasonable; I realize there are benefits, but what I do say, if the results of this operation are going to be used as a yardstick of what somebody else ought to do who doesn't have these benefits, then it isn't an actual factual relative yardstick, that is the burden of my story.

Representative JENKINS. Let me ask you a question with relation to the street-railway illustration. I assume that you have an "A" company that is producing power, it has a cement plant, and it has a street railway, and now you don't mean to tell us, do you, that in your system of cost accounting, for the production of power, that you would consider, for instance, suppose the cement plant had a terrific accident where a hundred men were killed, and it had to pay the families of each of these $10,000, and so forth, and it would run into half a million expense there by reason of that accident, that wouldn't be charged up to the production of power, would it?

Mr. KELLOGG. NO.

Representative JENKINS. And the same way with the streetcar company, if you had a streetcar company operating here in Washington, and that company was running behind, that would not be charged up to power, under your system of accounting, would it? Mr. KELLOGG. NO.

Representative BARDEN. What would it be charged to when you began to fix the rates?

Mr. KELLOGG. How do you mean, charged to?

Representative BARDEN. I mean, if the operating company, if the utility company, had $100,000 expense, whether it was for killing somebody, or the streetcar blowing up, or what it happened to be for, when you went to the commission, the utilities commission, to get your rates fixed, what would you do with that $100,000?

Mr. KELLOGG. That would appear as an operating expense of the street railway as such.

Representative BARDEN. Certainly it would.

Representative JENKINS. I don't think that you would get it, it would appear as the operating expense of the street railway. Mr. KELLOGG. That is right.

Representative BARDEN. I thought we started on the premise that the street railway company was owned by the utilities company.

Mr. KELLOGG. Yes; but if its accounting was handled accurately, all of its own costs would be charged against its own operation. There wouldn't be anything, if the accounting was accurate, there wouldn't be anything carried from one or the other.

For example, the power that the street railway used would be billed to that department at cost, the cost including charges on the total power investment.

Mr. BIDDLE. It would be allocated to it?

Mr. KELLOGG. I think that it would probably be.

Representative BARDEN. And if it was all backed by the same stock if I owned a share of stock in the Andy Gump Electric Co., and that company operated street railways, and a generating plant, and one of the street cars, just as the gentleman from Ohio said, were to kill somebody, and a recovery was had against that electric company

Mr. KELLOGG. That wouldn't be charged against power, if that is what you mean.

Representative BARDEN. What would it be charged to?

Mr. KELLOGG. Charged to the street railway department that had the accident.

Representative BARDEN. All right, would it be charged as an operating cost?

Mr. KELLOGG. Necessarily.

Representative BARDEN. Does your operating cost is your operating cost figured in when you begin to fix your rates, on the people? Mr. KELLOGG. Yes; where else can you get the money to pay operating expenses?

Representative BARDEN. Where do you go with that, if you run around in a circle and come right back?

Mr. KELLOGG. Of course you realize that the street railway companies don't get their bait back from their fares but assume that they did, the only source of income that they have is the fares paid in, and that is the only place out of which they can pay operating expenses. Representative BARDEN. Now, you know I am not running it down into one of those long chains of companies

Mr. KELLOGG. I understand.

Representative BARDEN. We are putting the cards on the table here, and saying

Mr. KELLOGG. You are talking about one company.

Representative BARDEN. And say that this generating company operates the streetcar, and operates something else, but it is all the same generating company.

Mr. KELLOGG. All the same company, right, I understand.

Representative BARDEN. And the expense, and the upkeep, and the operating cost, and all of those things, are figured in when you begin to fix the rate.

Mr. KELLOGG. The rate for streetcar fares.

Representative BARDEN. I am talking about the rate for power and streetcar fares or anything else that it does.

Mr. KELLOGG. I think that the usual practice, in the State commissions, is to make each department stand on its own feet. I think that that is the usual practice.

Senator SCHWARTZ. In the instant case, if the street railway company runs into the red, who makes it good?

Mr. KELLOGG. Well, it is just a burden on the electric company, and there are quite a number of cases of that sort around the country. Senator SCHWARTZ. Where it becomes a burden on the electric light company, the electric light company has no chance to get it back except that it presents the public with a rate which will enable it to get it back.

Mr. KELLOGG. It is very liable to come out of their stockholders. Senator SCHWARTZ. Their stockholders?

Mr. KELLOGG. That is just about where it comes from.

Senator SCHWARTZ. It doesn't come out of the public in the expression of rates, does it?

Mr. KELLOGG. It wouldn't if the rates were accurately fixed, of

course.

Senator SCHWARTZ. You attempt to fix the rates so that anything that you had to pay out that you would get the money back, or otherwise you couldn't operate.

Mr. KELLOGG. Yes.

Senator SCHWARTZ. So in the end it comes back to the charge to the public.

Mr. KELLOGG. There have been cases where public bodies, particularly city councils, recognized the value of transportation to the people of the city, has taken cognizance of the fact that the street railways are not making money, in the rates, but I don't think that any State commission would do it.

Senator SCHWARTZ. I am just referring to the fact, I am not talking about the system.

Representative JENKINS. Wouldn't this be a fair test of that, if a State commission fixes your rate, the rate is fixed, and if you have an accident that costs you half a million dollars, that doesn't change your rate, that comes out of the dividend to the stockholders?

Mr. KELLOGG. Right.

Representative JENKINS. Certainly. Now, let me ask you another question

Representative BARDEN. You mean for the present year; suppose that it has another half a million dollar accident, next year, and they don't get any credit for that in the rates, how many years would it take them to go into bankruptcy?

Representative JENKINS. I don't know; probably very fast.

Representative BARDEN. That is perfectly obvious, that that system wouldn't work.

Representative WOLVERTON. Does the T. V. A. have any trolley

lines?

Mr. KELLOGG. I don't know.

Representative WOLVERTON. I didn't think that they had. That

is all.

Representative JENKINS. Mr. Kellogg, just one other question, if I may. Mr. Chairman, it would seem to me that your figures or your assumption of figures is fair, except this:

When you seek to put the Muscle Shoals, or the Wilson Dam, the original dam, in at the original cost, or the carrying cost, I don't think that that would hardly be fair to T. V. A. You ought to put it in at the cost, or the price it was turned over to them by the Government, or let the difference between the original cost and the price or the cost to the T. V. A.-that is wasted, and gone, long ago, and your figures in order to be fair, it would look to me like you ought to base it on the actual cost to the T. V. A. when it assumed it.

Mr. KELLOGG. I was basing it on the cost to the taxpayer; that is, the Government's investment in it.

Representative JENKINS. But we have got to kiss that goodbye, all of those millions, and start anew.

Mr. KELLOGG. I am afraid that there will be other millions that you are going to kiss goodbye before this is over.

Senator SCHWARTZ. May I ask you one more question? I didn't get it clearly-maybe it is a little out of order but I think that you said that the various dams built by the private power companies also served as flood control, incidentally.

Mr. KELLOGG. What I said was that if they did, the private company got no credit for that fact.

Senator SCHWARTZ. But the private company erecting a dam and accumulating water doesn't let that water out to meet the convenience of flood control, does it? It lets it out as it needs the power. Mr. KELLOGG. It would have to let it out for navigation however; going back to Keokuk again, one of the great sorrows of our life was that we were required to keep that stream flowing normally there all of the time.

Senator SCHWARTZ. In other words, you were not permitted to appropriate the stream.

Mr. KELLOGG. We were not permitted to store water during the night, for example, and use it the next day. Of course, you couldn't stand for that, because it would have grounded a steamer down below our dam and we realized it couldn't be done, but it was very hard when water was low to let it out, and waste it, but we had to do that. Senator SCHWARTZ. You hadn't purchased the right to put the steamers out of business, that was reasonable.

Mr. KELLOGG. That is true.

Representative THOMASON. And it was a navigable stream.
Mr. KELLOGG. Right.

Mr. BIDDLE. May I take the liberty of saying that Senator Schwartz' question, I think, was not addressed to the question whether private companies, if they controlled floods, might be permitted to charge it off, but whether you know of any private companies operating hydro systems that do control floods: Do you know of any?

Mr. KELLOGG. I should think not, on navigable streams.

Mr. BIDDLE. Then we can't we leave out, if it isn't a question of fact, the question of flood control, and would not that require a reallocation in T. V. A., giving it the benefit of all of the flood-control costs, if no other dams actually have that problem to face?

Mr. KELLOGG. The reason that they don't, as a rule, is because the two things are incompatible, as has been shown by some of the Government dams in Texas, recently, as you probably heard.

Shall I go on?

Mr. BIDDLE. I would rather that you answer the question before you go on. I don't care whether in your opinion as an engineer these two purposes are incompatible, but I asked you why, if as a fact no private dam systems have any effect on flood control, you now insist that the investment in flood control of T. V. A. be allocated to power.

Mr. KELLOGG. Well, my point is simply this, that private companies get no credit for anything else that they do.

Mr. BIDDLE. Why should they get credit for something that they don't do? They don't have flood control, so why should they get credit for it?

Mr. KELLOGG. They don't claim credit for it; it is simply that they don't get it, that is what I am talking about.

Mr. BIDDLE. Well, isn't that, then, as I think one of the members of the committee asked you a little while ago, one of those natural advantages of multiple Government operation which is in the picture? If the Government is going to operate for flood control and power,