isn't that a natural advantage which necessitates a fair allocation between those two functions?

Mr. KELLOGG. I think that it would be, to the extent that it really had value.

Mr. BIDDLE. Then let us assume

Mr. KELLOGG. If it could be demonstrated to have value.

Mr. BIDDLE. I want to see how far we are together [continuing] that whatever flood control value this T. V. A. system has, that all of the investment in that figure, whatever it is, must be allocated to flood control, and we could agree on that, then, couldn't we? That is what you indicated?

Mr. KELLOGG. If it could be worked out on that

Mr. BIDDLE. Now, let us carry this a little further.

Mr. KELLOGG. As long as it was practicable and demonstrated value.

Mr. BIDDLE. All right, practical and demonstrated value. From the point of view of practical and demonstrated value, how much would you allocate the power in Gilbertsville? Do you consider that a power dam that a private company would have chosen as a site for power purposes only?

That is an investment of $112,000,000, and do you think that that is 100 percent power investment, and no flood control, practically? Representative THOMASON. Is that Gilbertsville?

Mr. BIDDLE. About 25 miles above the mouth of the river; yes. Mr. KELLOGG. Just from my knowledge of floods on the Mississippi River, that is fairly extensive, because I have lived out there for years, the ability to have storage work out successfully on these branch streams is very limited. It is very hard to time it just right, and the most important feature for ameliorating floods, and of course the Mississippi River is the big stream

Mr. BIDDLE. I don't want to get you off your discourse but all I asked you was whether you consider Gilbertsville a power investment. Mr. KELLOGG. I can't answer that question, because I don't know enough physically about all of the dams on the T. V. A. system; that is to say, I haven't been down there to study them.

Mr. BIDDLE. Don't you know whether or not a private company would have selected that site, if it had intended to build a power dam?

Mr. KELLOGG. No; I don't. I really don't know that.

Mr. BIDDLE. You think a private company may have selected that site, on the river, if they had gone in to get the best power sites they could, they would have gone to Gilbertsville?

Mr. KELLOGG. May I just refer to the figures here, the cost of Gilbertsville per kilowatt, based on the-I am reading from page 919 of the December 13, 1937, testimony, the cost per kilowatt of the Gilbertsville development of $112,000,000 total is about $583, if I have it figured correctly.

Mr. BIDDLE. Now, let us pause for a moment there. What private company in your opinion would have built a power dam at a cost of $583 per kilowatt?

Mr. KELLOGG. They wouldn't have done it.

Mr. BIDDLE. That is the point.

Now, do you think or do you still contend that Gilbertsville was built for a power project?

Mr. KELLOGG. I don't necessarily say that that or any other dam was built for power, but I do say that the T. V. A. figures are being used to support what seems to us very low rates, and to the extent that they do not represent facts that other companies would be up against, they are an unfair measure.

Mr. BIDDLE. We understand your general philosophy, but I am trying to get some detailed picture. Let us keep at Gilbertsville for a little longer.

Do you or do you not, wish to have the committee think that you qualify as an expert on flood control? Perhaps you do?

Mr. KELLOGG. No; I shouldn't say that I qualify as an expert on it, no; although I am quite familiar with the subject.

Mr. BIDDLE. Have you examined Gilbertsville and attempted to determine how much of the investment is effective in flood control? Mr. KELLOGG. No; I have not.

Mr. BIDDLE. And therefore you have no opinion as to how much of the $112,000,000 should be charged to flood control if such a charge is made?

Mr. KELLOGG. I have no basis for an opinion, because I haven't examined it.

Mr. BIDDLE. Although I think a little while ago you said in view of the fact that private companies' dams do not effect flood control, that it would be fair to allocate something to flood control, that the T. V. A. dams effect, although you have no idea of what that something is.

Mr. KELLOGG. Yes; I did start to go on and say about my idea of values on that, I am not trying to evade your question, but

Mr. BIDDLE. But before we get to your ideas of storage will you anwer the last question?

You admit that it is fair to charge something to flood control, do you not? I thought that you did a minute ago.

Mr. KELLOGG. Yes; I think it is fair to charge demonstrated benefits from it.

Mr. BIDDLE. And have you any opinion as to the demonstrated value of flood control in any T. V. A. dam, careful, scientific, factual opinion?

Mr. KELLOGG. I have nothing except what the T. V. A. itself has reported, of course.

Mr. BIDDLE. But you haven't taken those figures in charging to flood control what T. V. A. has reported; you haven't given them the advantage of any allocation?

Mr. KELLOGG. NO.

Mr. BIDDLE. Well, then, do I understand, it is perfectly clear that although you admit that a fair investment in flood control, a fair factual investment should be allocated, you state nevertheless to the committee that you have made no study of such investment, and yet wish the committee to determine the costs of power investment on the figures that you have given without such a study?

Mr. KELLOGG. I don't say that I have made no study. I would say that I am not physically competent to pass on the details of the engineering work on the T. V. A. system.

Mr. BIDDLE. What study have you made? I thought "no study" would be correct

Mr. KELLOGG. I have made a study based entirely on T. V. A.'s own published statements.

Mr. BIDDLE. With respect to the flood control?

Mr. KELLOGG. Yes.

Mr. BIDDLE. What were your conclusions as to how much should be allocated to flood control on each dam separately?

Mr. KELLOGG. I should have to-I haven't got it for each dam separately, and my impression is that on the main river, and this is another point that I want to bring out, Mr. Moreland also brought it out, that when I talk about value of flood control, I mean net value, of course; I mean, for instance, that the large amount of land that was permanently flooded by these reservoirs in the T. V. A. Basin, and the Tennessee Valley Basin, and I mean the extra cost of structures to build them high enough, and I am talking of Norris Dam, now, for example.

Mr. BIDDLE. Would you give figures on each one of those as you go along?

Mr. KELLOGG. I would have to refresh my memory.

Mr. BIDDLE. Won't you refresh it? You see, you have not given any emphasis to any of these figures that you said should go to flood control, and I think that we ought to have them, don't you?

Mr. KELLOGG. I would rather prepare a memorandum on that subject for you.

Mr. BIDDLE. We would be very glad to have you prepare a memorandum, but what I now understand you to say, that although you studied the figures of flood control and have an opinion on them, you nevertheless omitted them entirely from this cost basis, is that correct? Mr. KELLOGG. I gained the impression that so far as the main stream was concerned, there was more land flooded by the permanent flooding of these reservoirs than was covered by occasional floodwaters year after year, and the plan went ahead and deliberately and permanently destroyed good bottom land for reservoir purposes.

Mr. BIDDLE. But the cost of the land appears in your investment in your capital investment, the cost of the flooded land, you have already added that in.

Mr. KELLOGG. Therefore it has no particular value, that is to say, you have gone and spent all of the money for flood control that you might save by controlling floods

Mr. BIDDLE. You mean that they have already flooded the land, and therefore there is no more flood control left for the system? Mr. KELLOGG. Very little on the main stream, I assume.

Mr. BIDDLE. I am not talking about the main stream, I am talking about the whole system.

Mr. KELLOGG. There would be a small amount of flood-control storage in the Norris Reservoir and some in Gilbertsville, of course, but I say before you can give a value to that there should be some practical demonstration of what it can accomplish, in dollars-andcents value of what that is.

Mr. BIDDLE. Was there a practical demonstration in 1937, in the great flood of that year, or do you know?

Mr. KELLOGG. Well, the information that I have received on the subject indicates that the benefit was very trifling.

Mr. BIDDLE. What exactly was the benefit, how many inches were taken off the flood at Chattanooga, for instance, if you know? Mr. KELLOGG. I don't know, it was my impression

Mr. BIDDLE. But that is an impression, and not knowledge.
Mr. KELLOGG. I haven't the definite figures in mind; no.
Mr. BIDDLE. All right, let us go on with it.

COST TO PRIVATE UTILITIES OF DEVELOPMENT OF POWER

Mr. KELLOGG. To pick up the thread, about $500 per kilowatt per investment, that possibly might be reduced to some extent by what your attorney has just stated, I dare say, and taking the cost the private companies would have to pay for power, or money to develop power, I am taking 6-percent interest, and 2-percent depreciation, and 1.6-percent taxes, or a total of 9.6 percent, and we would get a cost of $53.09 on $553, which is 10.1 mills per kilowatt.

That would be reduced to about $48 per annum, at a 60-percent load factor, and adding to this the operating costs of 0.4 mill, which is about what the T. V. A. figures, we get a total cost of around 10 mills a kilowatt-hour that a private company would have to pay for charges and operating expenses, for developing power which cost this much per kilowatt.

That figure is about 150 percent more than the T. V. A. estimated it would earn, 4 mills per kilowatt-hour, and it is over three times as much, that cost is, of private companies, as the T. V. A. actually did earn in the fiscal year of 1938.

Mr. BIDDLE. Mr. Kellogg, I notice in your press release it is 10.5 mills, and 160 percent.

Mr. KELLOGG. I modified that slightly on account of that approximately $500 that I mentioned.

Mr. BIDDLE. I see.

Mr. KELLOGG. I just want to comment here that these figures are the true measure of what private companies would have to pay to produce this power. And to that extent they indicate that T. V. A. is not and cannot be fair measure, or a fair yardstick to measure what private companies would have to get for such hydro power.

Representative THOMASON. What rate of interest do you figure? Mr. KELLOGG. I figured 6-percent interest-that is, for private utilities and I think that that is approximately a fair figure.

May I add, since you mentioned the question of interest, that there were some discussions with Mr. Moreland the other day about his rate of 3.5 percent for Government money. There are two other bases that he did not mention, which I think the committee might be interested just to consider as to the fairness of that figure, for long-term Government money, under normal conditions.

In the first place, that is the figure which Mr. Ross, J. D. Ross, reported to and obtained the approval of President Roosevelt for using in connection with the Bonneville Dam on the Columbia River.

In the second place, if we take the average interest rate reported by the Government itself, which I have here, I have averaged Treasurybond yields for Treasury bonds running 8 years or more, by years, reported in the Statistical Abstract of the United States, for 1937, page 288. That is for the year 1926, which I think has been pretty generally considered to be the last normal year before the great depression.

The average rate for such bonds, Treasury bonds, was 3.68 percent for that year, so that I really believe that three and a half percent as the cost of Government money for a normal year, of long-term money, is a fair figure.

Mr. BIDDLE. Do you know what the average figure is, say, over the last 5 years, of Government long-term borrowing?

Mr. KELLOGG. On the 8-year basis, I can figure it from this table that I have before me.

Mr. BIDDLE. Just give us the years.

Mr. KELLOGG. The years are as follows: 1933, that is 3.31; 1934, that is 3.10; 1935, that is 2.70; 1936, that is 2.47; 1937, that is 2.57. Mr. BIDDLE. How are the bonds taken. Are they the average of all Treasury bonds, or what is the definition of the Treasury bonds?

Mr. KELLOGG. The definition is the averages of yields of all outstanding Treasury bonds due or callable after 8 years. That is the criterion in the Statistical Abstract of the United States.

Mr. BIDDLE. Will you again give me the reference to that abstract? Mr. KELLOGG. That is page 288 of the abstract for 1937. That is published by the Department of Commerce.

Now, that last figure that I gave you, that 2.57 that I gave you, the footnote on that says that that came from Moody's Investors Service. The reason for that being, of course, that the 1937 abstract would not cover the year 1937, that had to be obtained from other

sources.

Mr. BIDDLE. Does it also give 1929?

Mr. KELLOGG. I can give it from 1926, if you like.

Mr. BIDDLE. In 1926 what you gave us was 3.68.

Mr. KELLOGG. In 1927 it was 3.34, in 1928 it was 3.33, in 1929, it was 3.60, in 1930 it was 3.28, in 1931 it was 3.31, in 1932 it was 3.66. And you have the rest of them.

Mr. BIDDLE. Yes, I have the others.

Mr. KELLOGG. I just put that in parenthetically because of the question, and that is a little off my story.

COMPARATIVE costs of POWER DEVELOPMENT

I am coming now, gentlemen, to one other measurement of the value of hydro developments as such, and that is how they size up with steam plants, comparative costs of making power with steam, as compared with water power.

I don't think that the ordinary public realizes quite how this situation has changed, this comparative situation between steam and hydro in the last generation.

For instance, in 1907, when the Keokuk Dam on the Mississippi River was being projected the average amount of coal required to produce a kilowatt-hour of electricity in this country, country-wide, was 5.4 pounds. That was in the year 1907. Ten years later that average had dropped down to 3.3 pounds.

And today a modern steam station of about 100,000 kilowatts capacity, using 14,000 B. t. u. per pound coal, which is good bituminous coal, and operating at a 60-percent annual load factor, can produce a kilowatt-hour from 0.86 pound of coal, which is less than one-sixth of what it was a generation ago, on the average.

Now, with this condition in mind, having in mind also that during the last decade or so the cost of hydro-generating equipment has increased about 20 percent, or 15 to 20 percent, while the cost of steamgenerating equipment per kilowatt has tended to go down, the figures that I am going to show you indicate that it does not now pay, or would not now pay a private company at least, to install a hydro plant if it cost more than about $201 a kilowatt.

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