Mr. BIDDLE. That would be a yardstick measurement, a fair yardstick measurement then?

Mr. KELLOGG. That would be a yardstick measurement of that particular subject.

Now, I have some copies of that sheet in this memorandum of mine that I thought you might like to pass around.

Mr. BIDDLE. What sheet are you speaking of?

Mr. KELLOGG. Well, it is an exhibit, I think that this would be helpful to the members of the committee.

Mr. BIDDLE. This is page 8 of the press release, and I will pass it around in case you gentlemen haven't got this.

Mr. KELLOGG. I thought that it might be easier, gentlemen, if you had the actual figures before you. As is true of so many engineering matters, the important thing is the assumptions on which they are worked out, and the rest of them is merely arithmetic, and therefore I just handed this out to show what my assumptions were.

I have taken a 100,000-kilowatt steam plant, which would consist of two 50,000-watt units, simply to get a plant more or less of the size of the plants on the Tennessee River, that is to say it wouldn't be a little steam plant, it would be a good-sized one. It is a thoroughly modern plant, of 850 pounds per inch steam pressure, 900° temperature, and such a plant with 10 percent for reserves could be built for $100 a kilowatt, or $10,000,000.

For the price of coal, I have used the figure of $3 per ton, and that price is readily available in the Tennessee Valley, at a site with plenty of condensing water available, so it is a competent and obtainable figure.

For the fuel economy, I have assumed a 60 percent load factor, 12,000 British thermal units, which would therefore be twelvefourteenths of a pound of coal per kilowatt-hour, is based on the practice which has actually been obtained by numerous plants of this size, in this country today.

Then I have figured the fixed charges on that, taking interest at 6 percent in each case. In the case of depreciation I have taken 3 percent for steam, and 2 percent for hydro, and I will pause there to say that in view of the lengthy discussions that were had with Mr. Moreland, these figures are used purely for relative purposes, that is to say if a sinking fund basis or some other basis were used or a longer life, the relative value of those figures would change very slightly, and in other words it is a representation of about the relative difference between steam and hydro. It is not any definite representation of just exactly what those would be.

Taxes I have taken on the basis of the experience of the industry, 2.65 percent in the case of steam, and 1.6 percent in the case of hydro. That difference is more or less on the ratio of the capacity cost in each case.

This gives 11.65 percent for steam, and 9.6 percent for hydro. Now, applying those charges to this investment of $201 which is what was assumed in order to make the equation come out even, we find that on steam the fixed charges are $11.65 and for hydro, $19.30. The fuel cost is $6.75, and this is per kilowatt-year for that, and zero for hydro.

For operation and maintenance, I have taken about half a mill, although I say in the footnote that some stations, I mention one

station actually beats that, which makes it $2.63 for the cost of operation and maintenance of steam, and $1.73 for hydro. That $1.73 was calculated from T. V. A. data.

Now, if, for example, just to give you the possible variation, suppose for example you took the depreciation of the hydro as only 1 percent, and it would make a difference of about 10 percent in the answer, and instead of $201 it would be about $220, and the order of that magnitude would be more or less the same.

Mr. BIDDLE. May I ask you a question just to be sure. All through this study you have taken straight-line depreciation, have you not? Mr. KELLOGG. Just for convenience, yes.

Mr. BIDDLE. But it is straight-line depreciation?

Mr. KELLOGG. Yes.

Now, I have made a note at the bottom of my page that I would like to explain, because it may not be entirely obvious, that that $201, or that $221, whichever sort of depreciation you want to take, is the cost per kilowatt of primary power, that is to say power that is just as available as the steam is. So that I have to allow, in my calculations, or at least to consider the fact that T. V. A. has a large amount of generating capacity, and so have other hydro companies, there is nothing peculiar to the T. V. A., the T. V. A. has a large amount of hydro capacity, generating capacity, in addition to its prime power requirements.

Now, as I stated a moment ago, the present value of such capacity including the generators and water wheels, step-up transformers, high-tension switching, and foundations, and other things and all that has to be put as hydro machinery into the dam, once the dam is in being, is about $65 per kilowatt, and I have computed, it is just a matter of arithmetic, that taking these same fixed charges, and assuming that the power above primary power, above the firm power, is available at an average of 75 percent of the time, and could be sold for 1.8 mills per kilowatt hour, then it would just barely float, so to speak.

That is to say, that would just be no gain, and no loss. Personally I doubt very much if the amount of secondary power above the primary level, or firm level, or continuous level, whichever you want to call it, will on the average be available as much as 75 percent of the time, or that it will bring on the average as much as 1.8 mills.

I have had a great deal of experience in trying to sell, and I have also bought, secondary hydro energy, and it is really worth only a fraction of the fuel cost of manufacturing it in a steam station, for the reason that when you come to buy hydro power in place of steam, you don't just save the amount of fuel which you formerly were using to make that steam, but you lose an efficiency in your station to such an extent that you have got to get that extra hydro for, say, about a half that you could actually make it for from coal in your station, in order to come out even.

It may not be exactly a half, but it is a substantially smaller amount. We buy excess hydro, down in Virginia, for as low as 1 mill, or a mill and a quarter per kilowatt-hour, and I understand that excess hydro is sold down in the Tennessee Valley for as low as % of a mill per kilowatt-hour.

So, as I say, I have very much doubt if from the average of all of that power available above the primary level, up to the top, I very

much doubt if on the whole it would bring in more than 1.8 mills or be available more than 75 percent of the time.

I say that with a full knowledge that there have been contracts made for secondary power, or excess power, power not available all of the time, but I do not know how satisfactory they will prove to the people who are buying the power.

In most industries, as you gentlemen may not realize, but it is a fact, power alone forms a very small part of the total costs. The average for all industry, country-wide, is something under 2 percent of the total costs, that is the cost of power. So that it is entirely conceivable that it means a great deal more to a concern to be able to keep running, at a somewhat higher rate for power, than to shut down and let the charges go on, and all of their labor costs, and wear and tear on their plant, simply to save a small amount in the rate for power. That is the reason why the ability to get a substantial amount of money for excess power is likely to fail. At all events, in my opinion, based on actual experience with selling hydro power, from navigable streams, I believe that if the other assumptions are correct, that it is a fair statement to say that somewhere from $200 to $220 a kilowatt is all any private company could afford to pay for the construction of a hydro plant on the Tennessee River as compared with steam. Acting Chairman SCHWARTZ. If you have covered that, we will take a recess of 5 minutes.

(Recess.)

Acting Chairman SCHWARTZ. You may proceed.

Mr. KELLOGG. Just to tie up the figures which I showed on that table I gave you as to the relative cost of steam and electricity, we have the comparison of about $500 as the cost of the T. V. A. system, again corrected for such slight amount as flood control might be worth, compared with about $200 for steam.

Representative JENKINS. Mr. Chairman, I had a question I wanted to ask before recess and that was this. What is the difference-or let me put it this way, which produces the most firm power for the same investment or for the same output of power, hydro or steam? Mr. KELLOGG. In this case I was assuming that the hydro was firm, that is my assumption in comparing the two. Representative JENKINS. You don't get me. The question in my mind is this, I should think that because of the coal out of which the energy is furnished to make the steam plant operate, that the coal would be a constant pile of coal, and consequently you would have more constant power, more firm power out of a steam plant than you would out of a hydro plant, because somethimes the hydro plant would have to go up and down with the flood, especially if it had navigation features. Which is the most constant flow of power? Mr. KELLOGG. Well, Mr. Jenkins-

Representative JENKINS. Generally speaking, I mean.

Mr. KELLOGG. I want to make it specific. You can't generalize too much. For instance, there is a certain minimum below which the hydro should not fall. There is no reason why after a study of the stream over a great many years, the size of its bead, and so on, there is no reason why there should not be a certain figure which you can compare which would represent the absolute minimum of hydro you can get out of a hydro plant.

Now, you are right about a steam station, of course a steam plant, as long as you have the money to buy the coal and the railroads deliver it and the miners mine it and you get it under the boilers, you will get your power.

Mr. BIDDLE. And you don't have any break-downs?
Mr. KELLOGG. I allowed reserve for that in each case.

Of course I assume both plants will run steadily, or there will be reserves in case one unit breaks down, and I assume the hydro plant will be of such size that there will be plenty of water to run it even during the driest or wettest times, whatever the limitation is.

Representative JENKINS. You think the hydro would be more apt to furnish the most constant power if it was properly built and the proper head arranged for?

Mr. KELLOGG. No; it would be no more constant than the other. I am assuming that you have enough flow in your river to furnish a certain amount of power minimum. I am assuming that the steam station you have coal coming into it properly delivered. In that case they would be pari passu as to reliability, one just as good as the other and no better.

Representative JENKINS. I thought the coal pile would be more. constant than the waterhead; but if the waterhead has been amply provided, I can easily see from your answer and my own experience that it might be more constant than a coal pile, so far as that is concerned.

Mr. KELLOGG. There is a great deal of variation about the amount of power you can get from hydro, and that variation should be taken care of by putting in just the right amount of additional generating capacity to use that additional water, but only to the extent you can make money out of it.

Let me explain that a little bit more, since you have asked the question, by a couple of examples. In the Keokuk plant, we started off in the beginning with fifteen 10,000-horsepower generators. They were so sure when they built that plant that they would want to put in 15 more eventually that while the concrete mixers were there, and all of the men working, and this, that and the other, they went ahead and put in the draft tubes, and all of the foundations to these 15 additional units, and the head-gate openings, all ready to put these new units in.

The years rolled by and we never put them in. Why? Because the amount of energy and the value of it which we could have gotten out of those additional units, taking into account time, that is discontinuity in time, and the length of time, and the value of that discontinuous electricity, it was not worth putting them in.

Now, the same thing has happened with the Conowingo plant on the Susquehanna River. There they put in initially seven units, I think 50,000 horsepower each, maybe 55,000, I have forgotten. There was similarly a place left for four more units. They have never put them in since then, because with the relatively short time during the year, the discontinuity in the supply of power, it has not paid to make the investment in those additional units.

That was the point of my remarks of equalizing the cost per kilowatt of putting in more capacity against the value of the discontinuous juice which you would get out of those machines.

But in my comparison as between steam and hydro, I assumed each was equally reliable so far as continuity was concerned.

COMPARATIVE COSTS OF NATURAL GAS AND COAL

Representative THOMASON. Can you give us the difference in the cost of the generation in the steam plant with the use of natural gas as compared with coal?

Mr. KELLOGG. Well, that depends a great deal on where you buy the gas. Out in El Paso, where you come from

Representative THOMASON. What would you have to pay for it? Mr. KELLOGG. Yes. Out in El Paso, where you come from, we pay about 16 cents a thousand feet, and that gas has about a thousand British thermal units, so that the equivalent of coal, 14,000 that would be 14 times 16, which is about $2.25 a ton for 14,000-British-thermalunit coal.

Representative THOMASON. Well, you have found natural gas cheaper in your Big Valley plant that supplies El Paso?

Mr. KELLOGG. Yes. So that to answer your question, I should say gas, as we buy it there, is about three-fourths as much as this $3-coal I was using in my comparison.

Now, in the Gulf coast country we buy gas for 9 cents a thousand. It varies all around. For example, if you get into the gas fields, raw gas in the field where it is produced has a very low value.

Representative THOMASON. What do you pay for your gas in the El Paso Valley plant?

Mr. KELLOGG. 16 cents, in El Paso, 16 cents a thousand. And that gas has about a thousand British thermal units per cubic foot. Representative BARDEN. You pay how much for the other gas,

9 cents?

Mr. KELLOGG. That was one place. Of course in the fields up in the Panhandle, where this gas comes right out of the ground, you can buy it for 4 cents.

Representative BARDEN. How much difference does that make in the rate for power, I mean how much difference do the companies make in their charges for power; are the rates about the same?

Mr. KELLOGG. It saves about-of course, the fuel cost with that size plant, the total fuel cost is about-let's see, from this example, it is less than a mill and a half, so it doesn't make very much difference in the total cost, that is cutting it down you might say, half a mill per kilowatt-hour at 9 cents compared with the other. It is very small. Representative BARDEN. Is that difference made in the power rates? Mr. KELLOGG. It is supposed to show up in the rates; yes. Representative BARDEN. I asked you if it did. You say it is supposed to.

Mr. KELLOGG. I don't know about the power rates of those two places. I ought to know because they are both under our management. Representative BARDEN. What were the names, El Paso and what? Mr. KELLOGG. El Paso is one, and the other is the Gulf States Utility Co.

Representative BARDEN. Your company now owns the El Paso Natural Gas Co. that supplies it.

Mr. KELLOGG. Oh, no; we don't.

Representative THOMASON. One of your associated or subsidiary companies does, does it not?