or "we figure interest in our rates" but don't pay them, that would be an enormous advantage to the private utilities; they could use that cash to write down their debt, or to cheapen their operations, so as to sell electricity cheaper, and they could do all sorts of things, if they could get by, by simply saying that "We allow for that in our rates," and then not pay it.

I want to make that clear.

Mr. BIDDLE. Do you think, that the duty of the T. V. A. was to figure as a cost, taxes which it didn't pay?

Mr. KELLOGG. Well, if it did, if it figured that they were costs, it should have shown them on its books, if they are going to show what these operations really perform.

Mr. BIDDLE. You don't answer the question. Do you think that the T. V. A. ought to charge itself with taxes which it did not pay? Mr. KELLOGG. I do, if it figures them in its rate computations. Mr. BIDDLE. On what bookkeeping theory would you charge as a cash disbursement, that which was not a disbursement? Would that be an honest charge? Isn't figuring them in its rate basis all the T. V. A. could do? What right would they have to charge as a cash disbursement that which was not a cash disbursement? Would you say that was an honest bookkeeping charge?

Mr. KELLOGG. I would say it was not giving the facts as to the real cost of the service, if the taxpayers were paying that cost and the T. V. A. was not.

Mr. BIDDLE. You still don't answer me. I ask you whether they ought to have charged on their books that theoretical tax comparison which was not a cash disbursement as a cash disbursement?

Mr. KELLOGG. Not necessarily as a cash disbursement. Of course, no one can show a cash expenditure if they don't make it; that is obvious.

Mr. BIDDLE. The only way they could have set it up was on a comparative basis for the purpose of rate-making.

Mr. KELLOGG. For the purpose of showing how they were getting along with the taxpayers' money invested in this property.

Mr. BIDDLE. For the purposes of rate-making.

Mr. KELLOGG. For the purpose of showing how the taxpayers were getting off through their T. V. A. investment.

Now, just on the matter of taxes themselves, may I call the committee's attention to the fact that even if, as alleged, 12% percent of the gross earnings were computed by T. V. A. in setting up their wholesale rates, that would still show taxes about half as large a burden as private utilities would have to pay, because in the last year, 1937, for which we have a record, the average taxes, in percentage of gross earnings, was 16 percent; and if we compare 16 percent of $100, full investment, with 12% percent of $60, say, the reduced investment, based on T. V. A. allocations of the investment cost, we get a tax burden somewhat less than half, on that basis, of what the utilities would have to bear.

Mr. BIDDLE. Where does the figure "16 percent" come from? Mr. KELLOGG. That is the average for the electric-utility industry for the year 1937. I got it from the statistical bulletin which the institute gets out following annual studies of all of these various factors.

Mr. BIDDLE. That is in contrast to the 12.55 which the Securities and Exchange Commission said was the average, is that right?

Mr. KELLOGG. If they said it, I don't question your statementI never happened to see it.

Mr. BIDDLE. I have handed you a copy of it, the other day, and you may still have that.

Mr. KELLOGG. Well

Mr. BIDDLE. No; I am sorry. I gave it to Mr. Moreland.

Mr. KELLOGG. I don't recall that.

The taxes, in percentage of gross, for the year 1937, were 16.1 percent.

Now, going on with my statement, unless you have further questions

Mr. BIDDLE. Go ahead.

Mr. KELLOGG. I want to point out to the committee, that the T. V. A. as a yardstick of what private utilities would have to pay for hydroelectric power, is an entirely unnecessary procedure.

As you are all aware, all of the hydroelectric developments on navigable streams have to be built under license from the Federal Power Commission, under the Federal Water Power Act of 1920, and subsequent amendments. Under that act, the licensees are required to file the most detailed schedule of costs, which are subsequently carefully checked by the Federal Power Commission, and they have to furnish equally accurate detailed reports of operating expenses, so that there is nothing that I can see new that the T. V. A. could add to the already existing information on the subject, which covers many years, and many companies, and a great amount of detail under the most rigid supervision.

It is, of course, true as has been said here before today, that the utilities themselves in selecting waterpower developments, have naturally first developed the most economical ones, so that it is natural that when the Tennessee River came to be developed, it would turn out to be somewhat higher costs, substantially higher cost per kilowatt, than the average of existing hydroelectric plants, but with the tons of information on this subject, that there is in the files of the Federal Power Commission, any further yardstick for the public's information was certainly not necessary if, as I am sure is the case, the Federal Power Commission's regulations have been rigid and satisfactory.

Mr. BIDDLE. May I ask you there, how many licensed projects have had their costs approved by an approved agency and accepted by the Federal Power Commission?

Mr. KELLOGG. I don't know.

Mr. BIDDLE. There are very few, aren't there?

Mr. KELLOGG. I really don't know.

Mr. BIDDLE. And their costs are very greatly in dispute now with the Federal Power Commission?

Mr. KELLOGG. There are some that are in dispute, and have not been settled. How many have been approved, I don't know, and of course they licensed in the aggregate, I should think, 1,000 to 1,500 projects.

Mr. BIDDLE. But the active license isn't an approval of their cost? Mr. KELLOGG. NO.

Mr. BIDDLE. So the number of licensed ones has nothing to do with the question of the cost?

Mr. BIDDLE. Not by itself, except that in view of the fact that they have actually been in operation now for about 18 years, I would assume that there was a great deal of detailed factual information on this subject.

Mr. BIDDLE. Have you ever seen it?

Mr. KELLOGG. No, I have never seen it. I can simply visualize it from the way these records accumulate, and I know how large it is for just one licensee.

Mr. BIDDLE. Now, if we assume that T. V. A. raised their tax from 121⁄2 percent on the gross to 16.1, the percentage of gross paid by private utilities, I would assume that you would think that that would be a fair tax comparison?

Mr. KELLOGG. Yes, I should.

Mr. BIDDLE. All right.

Mr. KELLOGG. Now, may I go further into my last point, gentlemen? You have been very patient with me, and I am sorry to have taken so much time.

Mr. BIDDLE. On the contrary, you have been very patient, Mr. Kellogg.

TENNESSEE VALLEY AUTHORITY'S RETAIL YARDSTICK

Mr. KELLOGG. That is the matter of the retail yardstick. The T. V. A. has, of course, as you all know, in contracting with municipalities to sell power to them wholesale, required them to charge not more than thus and so in the way of rates for retail service, and those rates are substantially less than private utilities can afford to charge to get a return on their investment.

REDUCTION IN RETAIL RATES BEFORE PASSAGE OF TENNESSEE

VALLEY AUTHORITY ACT

May I interject at this point just as a matter of information to the committee, that the matter of reducing residence rates, and the method of doing so through encouraging greater use of electricity in the home is one which has been developed consistently and steadily by the utilities now for over a decade. Its incidence antedated the T. V. A. by at least 6 years.

I have before me a chart, which I have kept from year to year, and from month to month, showing just what the utilities have done along this line, and even at the expense of sounding somewhat boastful, I just want to read the beginning and ending points of that curve into the record.

For the year 1927, the average residence rate, countrywide, was 6.8 cents per kilowatt hour.

That decreased every single year since then, I have been following it monthly for nearly 2 years now, and every single month it goes a little bit lower all the time and for the last month, for which the records were assembled, which was July of 1938, 12 months ending July 1938, that figure had gotten down to 4.29 cents per kilowatt hour. Acting Chairman SCHWARTZ. Is that Nation-wide?

Mr. KELLOGG. Yes; That is from 6.8 kilowatt hours in 1927. During the same period, the average consumption in the residences of energy increased from 444 for the year 1927 to 832 for the 12 months ending July of 1938.

Summarizing that whole process, about half of that range of rate reduction and corresponding increase in consumption per residence, had been accomplished before the T. V. A. came on the scene. I make

that point simply to indicate that the method of being able to reduce rates by encouraging increased consumption and designing rates which will do so, was discovered by the utilities themselves and diligently utilized by them for many years before the T. V. A. appeared at all. Acting Chairman SCHWARTZ. That would indicate that competition by the T. V. A. has not required the companies to sell below cost, is that right?

Mr. KELLOGG. Right; it has indicated also

Senator FRAZIER. What about the prices of electric current right around that country where the T. V. A. is located, before they started, and now?

Mr. KELLOGG. I am not in a position to testify in detail about those, Senator, but my general understanding is that they have made an even better showing than the country as a whole, although the details I have not before me.

Senator FRAZIER. Yes; but the private companies, the power companies, have reduced their rates to compare with the T. V. A. rates, have they not?

Mr. KELLOGG. They have reduced them-when I say "reduced" they have designed schedules which with hard sales effort would produce lower average rates continually, and they have done so, I think, through the years; whether it has been any greater since the T. V. A. came or not, I do not know.

Of course, I will say this, and I will come to this later, these figures that I have recited are all averages, and there are a great many companies which do, of course, much better than the average, and others that don't do so well.

EFFECT OF RETAIL YARDSTICK ON PRIVATE INDUSTRY

Mr. BIDDLE. I am not quite sure if I see your position here, and it may not be at all inconsistent but I thought that you said before lunch that the effect of T. V. A.'s operation was being felt on a Nation-wide scale by the private utility companies?

Mr. KELLOGG. I think it definitely is.

Mr. BIDDLE. And yet you now said, and I just want to be sure that I understand it, so far as the rates are concerned, the competition isn't felt at all on the rates of the private utilities, is that correct?

Mr. KELLOGG. No, if I gave that impression, I gave a most false impression.

Mr. BIDDLE. Then, is it correct to say that the T. V. A. rates have definitely had something to do in bringing down the rates of the private utility companies?

Mr. KELLOGG. I think not, no. The process was going on steadily all the time.

Mr. BIDDLE. Just how has it affected those rates, if it hadn't had any effect, did it put them up? It certainly hasn't put them up, has it? Mr. KELLOGG. It has frightened away investors from going into the electric utility business and equity investments.

Mr. BIDDLE. Is that true in the North, too? You spoke of a Nationwide effect.

Mr. KELLOGG. I think all over the country.

Mr. BIDDLE. It has all over the country.

Mr. KELLOGG. Of course. It has been accompanied by other activities, the most serious of them being the donation of 45 percent of the cost of investment to any city that wanted to compete with its local utility.

Mr. BIDDLE. But I think it is clear that it had no effect on the rates of the utilities.

Mr. KELLOGG. I should say the utilities have continued on their own initiative to get rates down as fast as they could, with the most strenuous sales effort.

Mr. BIDDLE. Do you know anything of the refinancing of the Commonwealth and Southern properties in the North during the last 2 or 3 years?

Mr. KELLOGG. I know as a matter of such cases as I have investigated, that they have had great difficulty, and in fact it has been practically impossible for them to sell bonds and preferred stock on the companies who are in the shadow, so to speak, immediate shadow of the T. V. A.

Mr. BIDDLE. I wasn't speaking of the shadow of T. V. A., I was speaking of the North. You spoke of this being a Nation-wide process, and I think that Mr. Willkie had very clearly stated that he couldn't refinance his southern properties on the same low and cheap basis as he had been refinancing his northern properties.

Mr. KELLOGG. That is true, and I think, of course, that the effect is much more severe in the immediate shadow, than it is outside, and naturally it would be.

Mr. BIDDLE. They have been refinancing well under 4 percent on their bonds in the North, haven't they?

Mr. KELLOGG. Yes, many of the utilities have been able to do equally well.

Mr. BIDDLE. Is that an instance of capital not going into the utilities, being frightened out?

Mr. KELLOGG. In itself, of course, that proves nothing but the very low bond market, the capital which represents real confidence in the utilities, would be equity capital.

Mr. BIDDLE. But that low bond market was not obtainable in the South, so there, definitely, T. V. A. competition did have something

Mr. KELLOGG. There it is so very bad that it got down to affecting the senior securities, but in most parts of the country the earnings were still such, and the prospects still such, on the whole, that the advantage could be taken of low-bond money, which, of course, you realize, and I am sure the committee does, has reached figures lower now than at any time in our history.

Representative WOLVERTON. Did I understand you to say that in your opinion the T. V. A. rates had the effect of reducing rates throughout the country?

Mr. KELLOGG. Not necessarily reducing them; no. I can understand how right in the immediate territory it might be necessary to reduce rates to an unprofitable basis, to keep alive, rather than lose all of the business.

Representative WOLVERTON. I can understand it very readily, with respect to the Tennessee Valley, because there is direct competition there between the T. V. A. and the private utilities and wherever there is competition, there is a tendency to reduce prices, but I am unable to understand how that competition in the Tennessee Valley would have its effect in Puget Sound, for instance.

Mr. KELLOGG. Well, in Puget Sound, exactly the same thing is going on there, in the case of the Bonneville plant, on the Columbia River, as I testified this morning, on the initial installation, only 22