percent of the cost of that plant is being charged to power, and that power, of course, is to be transmitted all around that country, and that makes a threat to a big area there.

Representative WOLVERTON. The illustration that I used, then, was not very apt, because the same condition evidently exists there, that we know to exist in the Tennessee Valley, so that I will use as an illustration, New Jersey. What effect would T. V. A. competition in the Tennessee Valley have on reducing rates in New Jersey?

Mr. KELLOGG. The only effect of the competition, that it would have in New Jersey, would be the example of what has been done with other Government activities, in the way of donating funds to municipalities to compete with their existing utilities. That would not be a specific T. V. A. effect, but it would be a continuation of the sort of subsidizing which the Government has done in the T. V. A., and Bonneville and other places.

Representative WOLVERTON. Well, it would seem you are endeavoring to answer my question by pointing out in the localities that I have used as an illustration, that there have been Government activities, that may be accountable for reduction of rates, but what I am trying to ascertain from you is, how is it possible for T. V. A., a Governmentoperated plant in Tennessee Valley, to affect rates elsewhere?

Mr. KELLOGG. Only through the fear of what the Government might break out and do some place else.

Mr. BIDDLE. Then, of course, there is no question of competition; that is all removed.

Mr. KELLOGG. That is right.

Mr. BIDDLE. Then the effect is psychological?

Mr. KELLOGG. Right.

Mr. BIDDLE. Do I understand from that, that the tendency of the private utility, then, is to reduce its rates elsewhere as a means of discouraging a demand for Governmental projects elsewhere?

Mr. KELLOGG. Speaking for myself, and my companies, and I think the others feel the same way, there is a constant effort to get rates down as low as possible, as it stabilizes the company, and may I add one word to what I have just said about the psychological effect, in answer to your question?

The psychology has had very practical pressure behind it. The advancing of Government funds, and the donating of Government funds, has been very general all over the United States, and having in mind what I said to you in my opening statement about the predominant effect of charges on an investment in their true costs, it must be clear what a tremendous subsidy a donation of 45 percent of the plant involved.

Representative WOLVERTON. I understood you to say, in answer to a question by Mr. Biddle, that there had been a continual reduction over a period of years, that had no relationship to T. V. A. because it had started before T. V. A. was in existence.

Mr. KELLOGG. That is correct.

Representative WOLVERTON. Then there is a natural progressing within the utilities that has brought rates down?

Mr. KELLOGG. That is correct.

Representative WOLVERTON. Then that had no relationship to T. V. A.?

Mr. KELLOGG. No particular relationship country-wide; no, I would say. I wouldn't say "no relationship"-that is too strong a statement, I would say; I would rather put it this way, if I may, that the same desire to get rates down and expand the service caused the gradual development before T. V. A. and continued in the mind of the utilities thereafter.

Representative WOLVERTON. It couldn't have any relationship to T. V. A. if it had started before T. V. A. was in existence.

Mr. KELLOGG. The only relationship it could have would be possibly just that much more spur when this threat of subsidized competition came along, and it might be that much more spur.

Representative WOLVERTON. How much do you attribute the reduction of rates to T. V. A. influence, and how much to general policies of the private utilities?

Mr. KELLOGG. That is a very difficult question to answer. All I can say is that the trend which existed for 5 years before T. V. A. has continued uninterruptedly since then, and the same slope of the line.

Representative WOLVERTON. The question that was asked by Senator Frazier is one, the answer to which would greatly interest me and that is, How far, or to what extent has there been a reduction of rates by the private utilities in the Tennessee Valley region, as a result of T. V. A. competition?

Mr. KELLOGG. That I can't answer, Mr. Wolverton, I am sorry; I don't know.

Mr. BIDDLE. I thought that you first said to me-I am very glad that Congressman Wolverton asked the question-that the T. V. A. reduction had not affected the rates of the private utilities in the valley?

Mr. KELLOGG. I thought that I said-what I said just a minute ago that the natural effect would be that much lower rates, in the effort to keep alive, would be very likely to force the private utilities to take rates below what they should charge, but the extent of it, may I just add, but the extent I don't know.

Mr. BIDDLE. You think now that the utilities are charging rates which do not pay their costs in the Tennessee Valley?

Mr. KELLOGG. I don't know.

Mr. BIDDLE. You had a very interesting table there; you gave us the average costs, I suppose it was average cost for 1927, which was 6.8 cents, and 4.29 in 1937, I think.

Mr. KELLOGG. The 12 months ending July of 1938.

Mr. BIDDLE. Now, have you got any of the intermediate years there?

Mr. KELLOGG. I have them all.

Mr. BIDDLE. Could I look at this table?

Mr. KELLOGG. Yes, indeed. Let me read them off to you.

In 1928-I am reading now the average residence rates per kilowatthour, country-wide: In 1927 it was 6.8 cents; 1928, 6.6 cents; 1929 it was 6.3 cents; 1930 it was 6; in 1931 it was 5.74; 1932 it was 5.57; in 1933 it was 5.49; in 1934 it was 5.30; in 1935 it was 4.99; in 1936 it was 4.69; in 1937 it was 4.40; and, as I just testified, the 12 months ending July of 1938 was 4.29.

Mr. BIDDLE. The dropping from 1934 to 1937 seems to have been very substantially sharper than for the years before, does it not?

Mr. KELLOGG. There is the curve; it is a fairly straight line.
Mr. BIDDLE. Look at your figures.

Mr. KELLOGG. Well, of course, you pick certain years and change. it all around; I am talking about the general trend of 10 years.

Mr. BIDDLE. I didn't say that; I said the drop from 1934 to 1937 had been much sharper, hadn't it?

For instance, in 1934, let me point this out, for 1934 to 1935 the drop is .31 cents.

Mr. KELLOGG. One year, of course, doesn't mean anything.

Mr. BIDDLE. Take the next year, it dropped for the next year .30

cents.

It dropped for the year after 1929. Would you say that that was about the average? I am wondering if the T. V. A. had any effect on the rates. You said that it might have, and I don't know whether it has or not.

Senator FRAZIER. Do those rates that you have given include rates from municipalities?

Mr. KELLOGG. No, I think not. We can't get the data from them. It is only from private companies that you can get, as a rule—it is, not only, but largely, that you can get the break-down of kilowatthours per resident customer and that sort of thing.

Mr. BIDDLE. But they serve municipal plants?

Mr. KELLOGG. They sell wholesale to the municipal plants.
Mr. BIDDLE. But they can't get the rates from them?

Mr. KELLOGG. I don't say that they can't but by and large, the municipalities' plants do not have the statistical data that the privately owned companies have.

Senator FRAZIER. Do you mean to tell us the average rate last July was 4.29 for the private companies in this country? Mr. KELLOGG. Residence service, yes.

Senator FRAZIER. Well, for the private companies?

Mr. KELLOGG. Yes, sir.

Senator FRAZIER. Well, they must-some of them must get awfully low because they charge a heck of a lot more than that in a lot of places.

Mr. KELLOGG. I was just told that they do include municipals; I am wrong about that. Of course, you gentlemen realize that the private companies furnish about 94 percent of the energy of the country, so that the effect of only 6 percent other would not have a very great effect on the total.

Senator FRAZIER. The effect of the low rates of the municipal plants have caused the old-line companies to reduce their rates in order to keep going, and of course Muscle Shoals here, which developed as a T. V. A., has been a live issue ever since the close of the World War, and there has been a movement in every Congress for the Government to finance that Muscle Shoals proposition, to develop electricity down there, and of course that has had an effect, too, on your prices of your old-line companies, and you take the example right here in the city of Washington, when I came here in 1923, the rates were just about 8 cents; I have forgotten what they were, but I think that it was a little under 8 cents and a year or two or three years after that, Senator Norris introduced a bill to have the Government develop power out here at Great Falls, for the District of Columbia, and the result was that the rates came down, and the bill wasn't passed, but the rates

came down almost 50 percent, or pretty nearly that; they are about 4 cents now, I think.

Mr. KELLOGG. They are less than that, Senator.

Senator FRAZIER. A little less than that now, but there has been another movement afterward, too, and the old-line company even offered to furnish the electricity here for the Capitol Buildings cheaper than the Government could furnish it themselves, or were furnishing. Mr. KELLOGG. The company here is making a good showing, as I understand it.

Senator FRAZIER. And they have got their rates, too.

Mr. KELLOGG. We all like to do that, Senator, and we all like to get our rates as low as we can.

Senator FRAZIER. When you are forced to do it.

Mr. KELLOGG. Because it makes our business more stable.

Senator FRAZIER. If you didn't start to cut rates until you were forced to do it by competition from municipalities, that had their municipal plants, and fear of the Government going in

Vice Chairman MEAD. In the city of New York, a threatened development on the part of the municipal authorities caused a rate reduction there, about 2 years ago.

Mr. KELLOGG. May I answer Mr. Biddle's questions? I didn't have time to do so, because I was

Mr. BIDDLE. Just take each year.

Mr. KELLOGG. Well, you took the very steep part of the slope, and I am taking the steep part before T. V. A., and that is fair enough. Mr. BIDDLE. 1927 is the first year that you gave me.

Mr. KELLOGG. Yes.

Mr. BIDDLE. The first drop is 0.2.

Mr. KELLOGG. Yes.

Mr. BIDDLE. It went from 6.8 to 6.6.

Mr. KELLOGG. Yes.

Mr. KELLOGG. All right, I get from 1928 to 1931, which is the steepest part of the pre-T. V. A. year, I get a decrease of eightysix one hundredths of a cent, for those 3 years, and for the 3 years, from 1934 to 1937, I get nine-tenths of a cent, which is more or less the same.

Mr. BIDDLE. For the first 3 years, for 1931, 1932, and 1933, I get 0.17, 0.08, and 0.19; and for the next 3 years I get 0.31, 0.30, and 0.29. For 1931 I get a drop, between 1931 and 1930-that is 0.26, isn't it? And the next one is 0.17, and the next one is 0.08.

Mr. KELLOGG. There is another reason for that

Mr. BIDDLE. Let us find out what they are. The next is 0.19, and then when you get to 1934 you get drops of 0.31, 0.30, and 0.29, and that may or may not be significant, but certainly the year after T. V. A. went into operation you get very sharp drops, don't you? Mr. KELLOGG. You get drops which I should say were very similar to those during the corresponding time before.

Mr. BIDDLE. Similar to what?

Mr. KELLOGG. Similar to the drops which were occurring when business changes were the same.

Now, for instance, in 1933, business, as far as the utilities were concerned, was very depressed, so that in that year there was an actual decrease in kilowatt-hours per resident customer and that had the effect of checking the natural drop which would have occurred. Mr. BIDDLE. Take 1928, that was a good year, wasn't it?

Mr. KELLOGG. Yes.

Mr. BIDDLE. What was the drop between 1928 and 1929?
Mr. KELLOGG. That was three-tenths of a cent.

Well, you can play up and down the line with that curve.

Mr. BIDDLE. I don't know if it means very much, but you had suggested it, and by the way, what does Tupelo pay in cents? It pays about 1.85.

Mr. KELLOGG. I was coming to Tupelo.

Mr. BIDDLE. No; finish your material.

Mr. KELLOGG. That is all that I had on that subject.

Acting Chairman SCHWARTZ. I think that you anticipated some of the difficulty of financing, to the apprehension that the Government might proceed further with the T. V. A. and like programs?

Mr. KELLOGG. Yes, and like programs.

Acting Chairman SCHWARTZ. What effect do you think that it has had upon the general public, that is, the experience of investors in utilities, particularly equity investors over the last 10 years? Do you think that that had anything to do with discouraging further investment?

Mr. KELLOGG. Why, I think, particularly, in holding-company equities, it might have been the case.

Acting Chairman SCHWARTZ. How about the companies out in the State of Washington, what has been their past experience, of equity investors?

Mr. KELLOGG. Well, speaking as a large equity holder out there, it hasn't been so good.

Acting Chairman SCHWARTZ. As a businessman, that might appeal to you in case you were asked to make further investments where you had made substantial losses.

Mr. KELLOGG. Yes; we wouldn't be able to invest any more out there.

Acting Chairman SCHWARTZ. I think some reference has been made here; I think that you testified that the immediate shadow of competition of the T. V. A. with private companies down in the Tennessee Valley might have had a tendency to cause them to, that is the private companies, to reduce their rates below normal, to a point where they wouldn't be paying?

Mr. KELLOGG. That would be a natural thing, a man would rather have half a loaf than no bread.

Acting Chairman SCHWARTZ. We had the testimony from Mr. Lilienthal, in which he stated that the official reports of the Tennessee Electric Co. and the Georgia Power showed that they have successfully in the last years, while these decreases were going on, they have each year increased their earnings, so that they are earning more today under the low rates than they did originally on the higher rates, when the Tennessee Valley Authority came into the Valley.