That one point of sales that I put my finger on, where in this particular year $3,247 was reported, in 1935, $1,600 odd was reported, which would be entirely inadequate to pay for the promotional work necessary to get all of those new devices on the lines, which we found from the figures on page 1 that they did get on their lines. I can assure the committee that we have experienced, careful, economical men running our system in Las Cruces, who do the very best. they can with operating expenses. The ratio was quite comparable with other companies in all parts of the country, and I have a feeling that there is more of what I might call injury to the interests of utilities through the subsidization of these small retail customers than even through the operations of the T. V. A. itself, because the differences are so much greater. For example, other operating expenses exclusive of power, are three and one-third times as great in Las Cruces as for Tupelo. Efficiency alone simply could not produce any such difference. So far as charges are concerned, Las Cruces charges for taxes, depreciation, about two and one quarter times as much as Tupelo, although I dare say the percent of the investment is not very different, in view of the small plant investment which Tupelo reports. Representative BARDEN. Has the Las Cruces plant any connections, connecting with companies to which it has to pay sums of money? Mr. KELLOGG. You mean where it resells to others? Representative BARDEN. No; I mean, you might say, collateral organizations or companies, holding companies. Mr. KELLOGG. Well, all it earned that year for return was $65,000 after taxes and depreciation, which would be about, say, 7 percent on the investment. That is what it would be that year, 1937, fiscal, which for a company of that size is a fair rate of return. Representative BARDEN. Is the Electric Bond & Share Co. one of your companies? Mr. KELLOGG. No, sir; we have no connection with them. I am all through, gentlemen, except for the questions that you may want to ask. CROSS-EXAMINATION ON COMPARISON OF SYSTEMS Mr. BIDDLE. I would like to ask you, I think, first, some questions about this comparison of cost. That is what we have been immediately dealing with. How did you happen to select Las Cruces to start with, to compare with Tupelo? Mr. KELLOGG. The reason I happened to select it was because it has done very well in the sale of household equipment, and it seemed to me to be about the same size as Tupelo. Of course, if you got a different size company you would immediately raise questions of difference in scale between the two companies. Mr. BIDDLE. Those questions would not be raised here because the scale is the same? Mr. KELLOGG. Substantially the same; yes. Mr. BIDDLE. Let's examine some of the things. Acting Chairman SCHWARTZ. Before you get into your general cross-examination, I wanted to ask one question. There was some testimony awhile ago as to the average tax rate paid by the utility companies, fifteen point something. Mr. KELLOGG. 16.1 is the average for the country. Acting Chairman SCHWARTZ. I see Las Cruces has an investment of $922,000 and pays taxes of $20,000 something, which makes 2.27 percent. Mr. KELLOGG. That 16 percent is on the gross. Acting Chairman SCHWARTZ. Tupelo taxes are 5.45, so it would indicate that so far as those two towns were concerned, that the T. V. A. operation or beneficiaries are paying more taxes than a like city is paying? Mr. KELLOGG. Taxes are smaller in a small town. For instance, you will notice taxes, figuring another way, are about 10 percent of the gross earnings. Sixteen percent is the national average. Representative THOMASON. What do you assess your Las Cruces plant at for taxes? Mr. KELLOGG. I don't know. Acting Chairman SCHWARTZ. This Tupelo plant, in your statement, shows an investment of $220,573, and the taxes $12,028. That is about 5.4. Mr. KELLOGG. I beg your pardon, I said 10 percent. That figure on Las Cruces tax is 8 percent of the gross. Acting Chairman SCHWARTZ. The Las Cruces taxes in your statement show as $20,947? Mr. KELLOGG. Right. Acting Chairman SCHWARTZ. And the investment, $922,942? Acting Chairman SCHWARTZ. That is 2.27 percent, isn't it? Mr. KELLOGG. Yes. Those taxes include all taxes, not only property taxes, but income taxes, excise taxes, and all of the various taxes that are paid. That company certainly gets off easy on taxes, compared to the industry as a whole, there is no question about that. Mr. BIDDLE. Now, Mr. Kellogg, you stated: The former difference is due to the things done for Tupelo by T. V. A. and the latter to failure to include items the private company must pay. The same subsidy appears in the Tupelo plant investment, which is less than a third of the national average investment per kilowatt for distribution systems only. The difference was obviously furnished by Tennessee Valley Authority or by a depreciated purchase price produced by its competition. Your comparison, and particularly this statement must, I suppose, be very clearly based on the fact that in other respects the operations of the companies of the two towns are fairly comparable. Mr. KELLOGG. Yes. Mr. BIDDLE. You would not make your analysis, your comparison, unless those operations were comparable, would you? Mr. KELLOGG. That was the effort, to find two companies more or less of the same size. RELATIVE MILEAGES OF DISTRIBUTION LINES Mr. BIDDLE. How many miles of rural lines does the Messilla. Valley system have which are included in the total plant investment of $922,942? Mr. KELLOGG. I don't know. Mr. BIDDLE. Let's find out. I will hand you this. This document which I hand the witness is the annual report of the Messilla Valley Electric Co. to the Federal Power Commission. I have asked you how many lines in their total investment, how many miles of rural lines are counted in that figure? Mr. KELLOGG. The total in service at the end of the year, and this is the year, calendar year 1937, is 267.38. Mr. BIDDLE. That is 267.38 miles. Now, of course, rural lines are far more expensive, I think, as you testified a little while ago, to operate than a concentrated load, are they not? Mr. KELLOGG. They are per customer, yes; not necessarily per mile. Mr. BIDDLE. Per customer? Mr. KELLOGG. Yes. Mr. BIDDLE. That is right. How many miles of rural line are in the Tupelo operation? Mr. KELLOGG. I cannot answer that; I do not know. Mr. BIDDLE. You don't know that there are any, or none at all? Mr. KELLOGG. No, no; I don't. Mr. BIDDLE. Didn't you look to see how many rural lines were in Tupelo before making your comparison? Mr. KELLOGG. No. Mr. BIDDLE. Why not? Mr. KELLOGG. Well, I didn't. Mr. BIDDLE. Well, isn't that a very important factor in determining the relative operating expenses of the two systems? Mr. KELLOGG. Oh, I assume that Mr. BIDDLE. Let's assume that Tupelo has none. Mr. KELLOGG. Well, I assumed that Tupelo would be as aggressive in going out and serving farm territories. Mr. BIDDLE. But you don't know? Mr. KELLOGG. But I don't know, I just assumed they would be just as eager and active on that as any other company of similar size. Mr. BIDDLE. How many miles of distribution line in all has the Messilla Valley Electric Co., urban and rural? Mr. KELLOGG. Urban and rural, miles of pole, 306.38. Mr. BIDDLE. 306.38, that would be both rural and urban, wouldn't it? Mr. BIDDLE. How about Tupelo, how many? Mr. BIDDLE. I will show you the corresponding information, or rather this is the financial and statistical report to the Federal Power Commission for the year ended June 30, 1938, and I refer to-it does not seem to be paged-but will you glance at this and see how many distribution lines there are in Tupelo? Mr. KELLOGG. This is the report of the city of Tupelo, electricity department, for the year ending June 30, 1938, to the Federal Power Commission. Mr. BIDDLE. How many miles are there? Mr. KELLOGG. In the report of distribution lines in Tupelo, it indicates 30 miles of pole lines. Mr. BIDDLE. Thirty as against 306? Mr. KELLOGG. There is nothing said here about rural lines. Mr. BIDDLE. Well, there is a space for rural lines, where rural lines should have been returned, is there not? Mr. KELLOGG. I am just trying to find it. I don't see any. Mr. BIDDLE. There is space for pole-line investment in the distribution system, isn't there? Mr. KELLOGG. Yes. Mr. BIDDLE. And it shows 30 miles? Mr. KELLOGG. Yes. Mr. BIDDLE. So that Tupelo has about one-tenth of the distribution lines that Las Cruces has? Mr. KELLOGG. If they have no rural lines, that would be the case. Mr. BIDDLE. And you think that is a fair basis of assumption? Mr. KELLOGG. The city lines appear to be very similar. Mr. BIDDLE. What are the city lines, your 390 and 30? The rural lines are 267, of which Tupelo has none. Do you still stand on your statement that this difference must have been obviously furnished by a subsidy, even in view of the very wide difference of the two? Mr. KELLOGG. Yes; I think that is a fair statement. The effect of the rural lines in Las Cruces, which of course as I said would tend to raise its cost per kilowatt above the national average RELATIVE MILEAGES OF TRANSMISSION LINES I am Mr. BIDDLE. I am not speaking of the national average now. comparing these two operations. How about the investment in transmission lines, now again referring you to the Tupelo report, how many miles of transmission lines are there shown in the investment in transmission? Mr. KELLOGG. Zero. It says "City of Tupelo owns no transmission lines." Mr. BIDDLE. Owns no transmission lines. And what is the investment in transmission lines in the city of Las Cruces? Is that the correct figure, $191,406.90 [indicating]? Mr. KELLOGG. It is, including substation equipment. It is not solely lines. Mr. BIDDLE. That is part of the total investment for the city of Las Cruces, that does not appear. There is another difference of $191,000, which increases your investment in Las Cruces as against your investment in Tupelo, which you say are both fairly comparable, is that right? Mr. KELLOGG. I would have to look to see. Mr. BIDDLE. I will come to substations in a minute, and we can add that also. Mr. KELLOGG. Well, that is, you have that corrected by the substation investment, of course. Of course, if they had no substation, that is one other thing that the T. V. A. furnished. Mr. BIDDLE. But the substation is included in that figure of $191,000, there is a substation in Las Cruces, but that is included in the $191,000 figure, is it not? Mr. KELLOGG. That is right. Mr. BIDDLE. Now, do you find any substation in the Tupelo report? The switchboard is there, but no substation. Mr. KELLOGG. It just says "switchboard only." Well, then, that is something which the T. V. A. furnished to Tupelo, and is the sort of thing which I referred to a moment ago, saying that I did not know where the difference came from, but the difference must be accounted for by things of that sort. Mr. BIDDLE. What do you mean, something is furnished. What did T. V. A. furnish to Tupelo, that you said it furnished? Mr. KELLOGG. I assume that if Tupelo had no substation of its own, and yet got current from the T. V. A., that it must have gotten it from a T. V. A. substation. Mr. BIDDLE. Isn't there any substation through which current comes to the Las Cruces system, which may not be in that calculation? Mr. BIDDLE. That is 267.38 miles. Now, of course, rural lines are far more expensive, I think, as you testified a little while ago, to operate than a concentrated load, are they not? Mr. KELLOGG. They are per customer, yes; not necessarily per mile. Mr. BIDDLE. Per customer? Mr. KELLOGG. Yes. Mr. BIDDLE. That is right. How many miles of rural line are in the Tupelo operation? Mr. KELLOGG. I cannot answer that; I do not know. Mr. BIDDLE. You don't know that there are any, or none at all? Mr. KELLOGG. No, no; I don't. Mr. BIDDLE. Didn't you look to see how many rural lines were in Tupelo before making your comparison? Mr. KELLOGG. No. Mr. BIDDLE. Why not? Mr. KELLOGG. Well, I didn't. Mr. BIDDLE. Well, isn't that a very important factor in determining the relative operating expenses of the two systems? Mr. KELLOGG. Oh, I assume that Mr. BIDDLE. Let's assume that Tupelo has none. Mr. KELLOGG. Well, I assumed that Tupelo would be as aggressive in going out and serving farm territories. Mr. BIDDLE. But you don't know? Mr. KELLOGG. But I don't know, I just assumed they would be just as eager and active on that as any other company of similar size. Mr. BIDDLE. How many miles of distribution line in all has the Messilla Valley Electric Co., urban and rural? Mr. KELLOGG. Urban and rural, miles of pole, 306.38. Mr. BIDDLE. 306.38, that would be both rural and urban, wouldn't it? Mr. BIDDLE. How about Tupelo, how many? Mr. BIDDLE. I will show you the corresponding information, or rather this is the financial and statistical report to the Federal Power Commission for the year ended June 30, 1938, and I refer to-it does not seem to be paged-but will you glance at this and see how many distribution lines there are in Tupelo? Mr. KELLOGG. This is the report of the city of Tupelo, electricity department, for the year ending June 30, 1938, to the Federal Power Commission. Mr. BIDDLE. How many miles are there? Mr. KELLOGG. In the report of distribution lines in Tupelo, it indicates 30 miles of pole lines. Mr. BIDDLE. Thirty as against 306? Mr. KELLOGG. There is nothing said here about rural lines. Mr. BIDDLE. Well, there is a space for rural lines, where rural lines should have been returned, is there not? Mr. KELLOGG. I am just trying to find it. I don't see any. Mr. BIDDLE. There is space for pole-line investment in the distribution system, isn't there? Mr. KELLOGG. Yes. Mr. BIDDLE. And it shows 30 miles? Mr. KELLOGG. Yes. Mr. BIDDLE. So that Tupelo has about one-tenth of the distribution lines that Las Cruces has? |