Representative BARDEN. Well, I would just like to know if the utility companies still have the idea that they are not willing to sell, not willing to serve the public interest or take into consideration the interests of the public.

Mr. KELLOGG. They are delighted to serve every one they possibly The utilities have gone so far with the rural electrification, investment-wise I mean, that it really has become sort of a sociological benefit in the outlying fringes to the public rather than any money making proposition.

Let me see if I can't make it clear why that is. I think it is obvious, perfectly obvious that if you run a line out into a farming section to serve a certain number of homes, it cannot serve anything except those homes. And if for example there are just two homes per mile, in a very sparse settlement, then each of those homes has got to carry the charges on a half mile of line. I think you will agree that is unavoidable logic, isn't it?

Representative BARDEN. Well, I am not agreeing with you about that point, but go ahead, I want to hear your conclusion.

Mr. KELLOGG. The most that the companies can do therefore, and they have done a great deal on that line, is to get the cost of construction of these rural lines down as low as possible. They have succeeded in just about cutting the cost in two, which has enabled them with the same degree of-I won't say profit, but of covering the cost, to take on half as thick territory as they used to be able to, say 5 or 6 years ago.

Just to do a little mental arithmetic, and taking the cheapest line which anyone has yet been able to develop, I am including now transformers and meters on the line, of about $600 a mile, let's take two customers per mile. That is $300 for each one of those customers.

We will take, oh, say, 12 percent for charges. You get $36 a year, $3 a month, just to pay the charges on that extension to that man, that one man, before he has bought any power at all.

After that you have got to maintain that line, which costs some money. You have got to go out and read his meter, you've got to send him bills, and all of that costs money.

Representative BARDEN. In other words, it is your theory that it is perfectly all right for a power company to jump from this town to the next one, both of which are centers of population, and not permit cut-ins, or not make any provision for the people living between those towns, because it doesn't happen to be very profitable for that particular area, but they are perfectly willing to take the cream.

Mr. KELLOGG. No; they have taken

Representative BARDEN (continuing). From the towns, and then should those rural people request service, they go into court and resist the establishment of a parallel line.

Mr. KELLOGG. I don't know just what set of circumstances you are referring to, but I can say in a general way that, for instance, if you refer to a very high-tension line, very high-voltage line going between two towns, it might be enormously expensive to tap it. It may be hard to explain, but it might cost many thousands of dollars just to take a tap off of that high-voltage line.

If there was a 2,200- or 4,400-volt line going between the two towns, I am sure any utility company would be glad to get all of the customers it could along that line. I am positive of it.

The difficulty with rural electrification has been getting out into the sparsely settled areas. For example, one of the most densely electri

fied parts of the country is the far West. I think California, among the large States, has the highest percentage of all. And there the reason for that is that there is a good deal of irrigation done there; in other words, large amounts of power are used, so that it pays to go to each farmer.

Another State which has a very high electrification rate is the State of Washington, where I am interested, and a company that is in my group out there has been a pioneer in the rural electrification, not only in getting power out to the farmers, but also devising various ways by which the farmers could utilize electricity, brooders, and all that sort of thing, burning down stumps with electricity, and numerous helps on the farm.

The reason we have such high electrification out there is because the farms all are located along the valleys. When the forests were cleared, the best land was right down the bottom of the valley, so that you could line your farms up along this valley just like the line goes. That enables you to get relatively cheap and effective distribution.

If you are in a broad farming country where the lines have to go out like the spokes of a wheel, you very soon get into a territory so sparsely settled it just can't carry itself. The farmers themselves cannot afford to pay the costs for getting service to them.

Another difficulty we find is that the farmers as a whole, outside now of people like the dairy farmers and people who get a pretty good size cash income, farmers as a class don't have the money to pay for electricity. It is a luxury to them. It is something a good many of them feel they don't need.

I am again talking about what I know, I am talking about a little place down in Maryland, right across the Chesapeake Bay here, where I tried my darndest

Representative BARDEN. I don't believe you can tell me much about a country that hasn't had the use of electricity. It took me 15 years to figure a lightning bug out. I had never had the privilege of having electric lights, and the thing that is bothering my section of the country is the fact that the power company operating there has taken the centers of population and absolutely refused to serve the rural areas, even where they are willing to put up a bond and guarantee the use of so much power. I have in mind one little 2-mile extension where there are five customers, and one has guaranteed to use $30 worth of power a month.

Mr. KELLOGG. A month?

Representative BARDEN. Yes, sir; just one customer. I can't follow the reasoning of a power company that is not willing to render that kind of service, unless I take the reasoning that was applied in the case of these dams, where they were unwilling to join into a floodcontrol or navigation feature; in other words, anything that didn't go right directly into their operation, they were not concerned with.

This thing of being of service to the public and rendering a service to the public, for their health and comfort, and happiness, and security, and so forth, just never applied, just never entered into their plan of operation apparently.

Mr. KELLOGG. Why, we would run miles for $30 a month, any company would; $30 a month, $360 a year. That's a lot of money on a farm line.

Vice Chairman MEAD. I wonder if it is not true that the operation and maintenance of companies in different sections of the United States has something to do with the problem presented by the Congressman? For example, in my country extensions are granted on rather liberal terms. We have no rural electrification problem of any importance in the far western end of the State.

Mr. KELLOGG. Yes.

Vice Chairman MEAD. But I have read articles and heard statements made that with excessive holding companies, other financial set-ups, like subsidiaries that would be given the contract without competitive bidding to construct pole lines and other physical properties for the electric companies have so enlarged the costs as to make them excessive. Those costs would be greatly reduced if the financial set-ups were simplified, if the customer paid an amount in his bill that was sufficient only for the profit of one company, or one set of supervisors, rather than to have that bill divided over a dozen different affiliated holding companies and subsidiary organizations that just make the cost of electricity excessive.

Mr. KELLOGG. Senator, there is nothing in that. I can assure you of that fact. The strain, the effort, the engineering ingenuity that has been used to try and get the cost of rural lines down, not to keep it up, has been superhuman, because we realized unless we can get that cost down to a certain low figure per kilowatt, which it is very difficult to do, per mile, I mean

Vice Chairman MEAD. I wouldn't say "superhuman" is the proper word. If you delve into the development, say, of the Associated Gas & Electric, "super" was all right, but not "human."

And then, again, if you compare the rural people of Scandinavia that enjoy electricity and its proportion to the rural population of America that does not enjoy electricity, you might find some real reason for the argument advanced by my colleague.

Mr. KELLOGG. Of course, there is this to be borne in mind. I don't want to argue this too strongly, but on the matter of rural electrification, some of the foreign countries that you mention are quite thickly settled, and if you were going to compare the development of rural electrification in those countries you ought to compare it with similarly thickly settled parts of the United States.

Vice Chairman MEAD. Or you might find a comparison in the telephone service which seems in some instances to be out of line with the electric service.

For instance, we lead the world in number of telephones I am told, and yet we are in a bad position, comparatively speaking, in the matter of rural electrification, so that there are other comparisons to be considered other than just distance.

Mr. KELLOGG. Not with respect to the same density. For instance, I think the State of Rhode Island is the highest of all. I think 97 percent of the farms in Rhode Island are electrified. I have forgotten the figure for your State, but the variation from the top to bottom is perfectly tremendous. It has to do with the two things of sparseness of settlement and relative buying power on the farm.

Vice Chairman MEAD. Well, I will agree that density is a consideration, but the efficiency and the economy with which the serving company operates is also a consideration.

Mr. BIDDLE. You didn't want to indicate, did you, that the amount of water in a company's stock set-up had nothing to do with the cost of its rural electrification?

Mr. KELLOGG. Frankly, I don't see what it could have to do with it; the cost of rural electrification is a matter of building transmission lines out to the farms, and what the type of the capitalization of the company that did that could have to do with it, except perhaps in the amount of interest charges

Mr. BIDDLE. Well, that's common, isn't it?

Acting Chairman SCHWARTZ. You stated you were interested in the company in the State of Washington. What is the name of that company, for the record?

Mr. KELLOGG. The Puget Sound Power & Light Co., which has a long and enviable record in this matter of rural electrification development. Senator FRAZIER. What is the rate to the farmer, do you happen

to know?

Mr. KELLOGG. I don't have them right in my mind. They are almost as low as the city rates, as the rates right in the cities, there is a very slight difference. Would you like me to get it for you? Senator FRAZIER. Well, it doesn't matter.

Acting Chairman SCHWARTZ. What is that company's record, enviable or otherwise, in past years on dividends to its common stockholders?

Mr. KELLOGG. It has done very badly on that, I am ashamed to say, very badly.

Acting Chairman SCHWARTZ. That is more equity money?

Mr. KELLOGG. Yes.

Mr. BIDDLE. I would like to go back to a question of Congressman Barden, and let's see if we understand each other, Mr. Kellogg? Mr. KELLOGG. May I make a note, just a minute?

Mr. BIDDLE. Yes.

Mr. KELLOGG. To get these farm rates for Senator Frazier of the Puget Sound Co. I will mail that to you, Senator.

COSTS OF NAVIGATION IMPROVEMENTS TO PRIVATE COMPANIES

Mr. BIDDLE. You say a private company designed to develop electric power on a navigable stream must, under the Federal Water Power Act, at its own expense pay for the full cost of navigation improvement, except only the lock itself, or in any event get no refund from the Government, nor from anybody else for the value of the general improvement it makes to navigation.

Now, do you wish to correct that after Mr. Barden's question to you? Mr. KELLOGG. No, I don't, because as I read what you put forward there it is simply a recommendation of one of the Government departments that apparently was never carried out.

Mr. BIDDLE. Well, don't you mean that a private company can get a refund for navigation if it makes a contract with the government on a particular dam for that purpose?

Mr. KELLOGG. Well, it never has. That is what I am saying, it never has, and I don't see any reason to expect it would.

Mr. BIDDLE. I think we should correct that to say in your opinion a private company never has obtained any allowance for navigation. You don't mean it never could obtain it, if it made the deal, do you?

Mr. KELLOGG. Of course it could if the Government would make the trade, yes.

Mr. BIDDLE. It is provided in the law, and offers have been made to allow money to private power companies for navigation in building dams, that is true, isn't it? But the private companies have never been willing to accept the additional cost of navigation in building higher dams looked to by the Government in the proposal; that is a more accurate way of stating it, isn't it?

Mr. KELLOGG. This just has to do with the Tennessee River, does it not?

Mr. BIDDLE. How about the Rivers and Harbors Act of 1930, doesn't it contemplate that very thing? Are you familiar with that act?

Mr. KELLOGG No; I am not, as a matter of fact I am not. If the act definitely says that the Government will allow credit for navigation improvement to power companies on navigable streams, then my statement is wrong. I didn't know it was that way.

Mr. BIDDLE. I think the act, as I remember it, provides that the Chief of Engineers or the appropriate officer may negotiate for such arrangement with the private companies.

Well, now, let me ask you about one specific dam. How about Hales Bar. Who owns Hales Bar on the Tennessee River? The Tennessee Electric Power Co. does, does it not?

Mr. KELLOGG. I think so.

Mr. BIDDLE. That is a subsidiary of C. & S. How much taxes does Hales Bar pay on this dam construction; any?

Mr. KELLOGG. I can't answer that question specifically.

Mr. BIDDLE. Don't you know it doesn't pay taxes on that dam on account of the enabling act under which the dam was constructed, having been considered for navigation, was exempted from taxes over a period of time?

Mr. KELLOGG. I didn't know that; no.

Mr. BIDDLE. Do you know anything about the tax arrangement of Hales Bar Dam?

Mr. KELLOGG. By itself, no.

Mr. BIDDLE. Is it or is it not true that the private utilities do not pay taxes on the full cost of their valuation, but pay on whatever their property is assessed at? That is true, isn't it?

Mr. KELLOGG. That is true; yes.

Mr. BIDDLE. What does the assessed valuation of private utility. companies in the Southwest run, 52 or 60 percent of the tax value, approximately?

Mr. KELLOGG. Well, I should think, country-wide, that perhaps 60 percent was a fair ratio between tax assessment values and the value which a willing buyer would expect to pay to a willing seller. I think, country-wide, that is true.

Mr. BIDDLE. And yet for the purpose of comparison with T. V. A. you have taken a tax based on the entire book value of T. V. A., and not compared it with the 50 to 60 percent assessment that the private companies actually do pay; is that true?

Mr. KELLOGG. No; that is not true. The figure we have allowed is based on this average which I mention.

Mr. BIDDLE. And is that the figure in your original capital cost too, during the construction period?