Mr. WEADOCK. It cannot be done on this question, because there isn't any question that has ever been involved in this institute with which we have taken more scrupulous action, and more honest action, and given more exact truth, and I want to call your attention to one thing, and this is from the announcement of the association which promotes these debates. I am reading: The question of the electric utilities will be brought directly into the public view as never before. It must be observed moreover that in every debate, both sides of the proposition will be urged and their request was for us to present, if you please, information upon the private side in contrast to the public side, and that is what those documents are. Mr. BIDDLE. What is the basis of the fact, of the statement that T. V. A. rates are political rates, made without reference to cost? Mr. WEADOCK. Because they were established 5 years before they could tell what the costs were. What could you call that? Mr. BIDDLE. Is it the practice of the utilities in determining its rates to determine its costs? Mr. WEADOCK. Certainly; and our rates are continuously under supervision and continuously under regulation. Mr. BIDDLE. How could Ť. V. A. have established rates at all? Mr. BIDDLE. They had to, didn't they? Mr. WEADOCK. They did-I don't know. Mr. BIDDLE. They were based on a very careful, on a consideration of costs, were they not? Mr. WEADOCK. I don't know, I do know that they couldn't have been because the costs weren't known. Mr. BIDDLE. And can costs not be estimated and don't they have to be estimated? Mr. WEADOCK. Very few costs are estimated. Mr. BIDDLE. Very few costs are estimated in considering rates? Mr. WEADOCK. I will tell you the answer to that, if you look in this book you will find out how reliable the estimates are. Mr. BIDDLE. Your answer is that very few rates are estimated, and that very few costs are estimated in considering rates, Mr. Weadock? Mr. WEADOCK. Just a minute. Mr. BIDDLE. Was that your answer? Mr. WEADOCK. Just a minute, until I get the information. Mr. BIDDLE. Let us get your answer down, I want to get that first. Mr. WEADOCK. Let us hear the question. Mr. BIDDLE. Would you repeat the question? I will repeat the question: Do you mean to say that costs are not necessarily estimated in arriving at rates, Mr. Weadock? Mr. WEADOCK. Costs estimated, you mean what? Mr. BIDDLE. Are not costs estimated in trying to determine what the rates should be? Mr. WEADOCK. We have passed the estimated period. Mr. BIDDLE. Let me repeat the question: Are costs not estimated in trying to determine what the rates should be? Mr. WEADOCK. You mean the cost of operation? Mr. BIDDLE. Yes. Mr. WEADOCK. No. Mr. BIDDLE. How else could T. V. A. have arrived at the rates without estimating the costs? Mr. WEADOCK. Well, they should have known what the thing was based on. Mr. BIDDLE. How else could T. V. A. have fixed its rates except by estimating costs, Mr. Weadock? Mr. WEADOCK. You mean the cost of operation, the costs of the dams, and allocations? Mr. BIDDLE. Yes. Mr. WEADOCK. I presume the estimate would have to enter into it to an extent. Mr. BIDDLE. Do you know whether or not those costs were estimated? Mr. WEADOCK. I don't know the details; no. Mr. BIDDLE. Well, then, what basis is there for the statement that T. V. A. rates are political, made without reference to cost? Mr. WEADOCK. Because they are, it is not possible to give the T. V. A. rates as now in effect upon the basis required of an ordinary private operating public utility. Mr. BIDDLE. Mr. Weadock, you say that the T. V. A. rates are political rates, made without reference to costs, and what is the basis for your statement that no reference to costs was made by T. V. A.? Mr. WEADOCK. Because they practically say so in one of their reports, in their 1935 report. Mr. BIDDLE. They say that no reference was made to costs? Mr. WEADOCK. I say that their costs weren't ascertained, that is the way they put it. Mr. BIDDLE. Do they say no reference was made to costs? Mr. WEADOCK. Well, I don't remember that. Mr. BIDDLE. What is your basis of the fact for saying that the T. V. A. rates were made without reference to cost? Mr. WEADOCK. Because I believe that they were. Mr. BIDDLE. What knowledge have you for that belief, or factswhat facts have you? Mr. WEADOCK. The rates were fixed 5 years in advance of the construction of the necessary things to serve the people. Mr. BIDDLE. Of course they were. Mr. WEADOCK. It exactly compares with your western rates of Bonneville. Mr. BIDDLE. That doesn't mean that the costs were not estimated, does it? Mr. WEADOCK. I think, I presume that they were considered, some consideration was had for them, but not upon such data to make them Mr. BIDDLE. Do you still stand by that statement, that the T. V. A. rates are political, made without reference to cost? Mr. WEADOCK. I would say "yes." Representative JENKINS. Mr. Chairman, I would like to read upon my own responsibility, a statement from the last report made by T. V. A. itself, to the President of the United States. Here is what it says: Representative WOLVERTON. After the rates had been fixed? Representative JENKINS. Yes. It was sent to the President after there had been a year and a half of default in reporting, after Congress compelled them to report. This is June 16, 1938: Of the total investment in the Authority's multiple-purpose projects, the only definite portion that can be associated with any one purpose is the added costs made necessary by the inclusion of that purpose. Whether the required additional expenditures is warranted is a question of policy, necessitating the consideration of many factors, relative importance of which cannot always be determined by a common unit of measurement. The problem is one of judgment rather than scientific calculation. Mr. BIDDLE. That is right. Representative JENKINS. That is what they say themselves, and what would they know 5 years before that, if they didn't know anything last June? Representative WOLVERTON. I sought to get the same information from Mr. Lilienthal when he was on the stand in Knoxville, and I haven't gotten it yet. Mr. WEADOCK. You remember, Mr. Biddle, you asked Mr. Kellogg the rate percentage charged by private companies, which I think you found to be 122 percent of gross, based upon the Securities and Exchange Commission study. Mr. BIDDLE. It was 12.55 in the Securities and Exchange Commission study, and Mr. Lilienthal's study of that cost at that time was 12.5. Mr. Lilienthal's estimate as testified to before the committee, at the time that the rates were considered, was that taxes should be considered in approximately 12%1⁄2 percent of the gross revenue. Mr. WEADOCK. I apparently don't make myself any clearer to you than you have to me. My question is this: Yesterday you asked Mr. Kellogg upon a Securities and Exchange Commission investigation of taxes-do you recall that it came out at 121⁄2 percent? Mr. BIDDLE. It came out at 12.55. Mr. WEADOCK. I won't argue about the fraction. Our figures on the same thing are 16.1 percent, and having great faith in the accuracy of our statistics, I inquired and found upon examination of the Securities Commission release that they include gas companies, street railways, steam corporations, and others, and it is not confined to an electric proposition. Mr. BIDDLE. They were public utility companies registering under the S. E. C. Act. Mr. WEADOCK. But that is not the same thing that is allocated here, and I just want to call your attention to that. Are there any further questions? WILKIE'S ATTITUDE TOWARD THE "ASHWANDER CASE" Mr. BIDDLE. I have just one other question. Did Mr. Willkie go on record against paying the fee in the Ashwander case? Mr. WEADOCK. Yes, sir. Mr. BIDDLE. Well, now, the Ashwander case was the case which principally involved the Commonwealth and Southern operations in the Tennessee Valley, was it not? Mr. WEADOCK. Yes, sir. Mr. BIDDLE. Why did the Board of Directors override Mr. Willkie's vote on that? 115943-39-pt. 10- -9 Mr. WEADOCK. Well, because Mr. Willkie was in the minority. [Laughter.] Mr. BIDDLE. And Mr. Willkie being in the minority was unable to persuade the Board that a fee paid in a case effecting chiefly his companies, should not be paid? Mr. WEADOCK. He was very persuasive. Mr. BIDDLE. He wasn't persuasive on that occasion? Mr. WEADOCK. No, sir; he wasn't, but Mr. Willkie stated the reason he didn't vote upon it, and it was spread upon the minutes. Mr. BIDDLE. Did he not vote on it? Mr. WEADOCK. The first time he was absent from the meeting, entirely, and the copy of the minutes in regard to Willkie's vote states: Mr. Willkie stated that the litigation in the case of George Ashwander et al. v. Tennessee Valley Authority et al. involved the validity of contracts executed by the Alabama Power Co., that he was not present at the meeting at which the resolution employing counsel and authorizing expenditures to test the constitutionality of the Tennessee Valley Authority Act was adopted, having been detained because of a conference with Mr. Lilienthal, but that he was opposed to the adoption of that resolution, and desired to be recorded as opposed to this motion. And this motion had to do as follows: After discussion, it was moved, seconded, and adopted that consideration be given to the employment of counsel to appear as amicus curiae in the case now pending, entitled Ashwander v. Tennessee Valley Authority, to present arguments and file briefs upon the constitutionality of the Tennessee Valley Authority Act. Messrs. Groesbeck and Tidd did not vote on the foregoing resolution, and Mr. Chamberlain voted "No" on the adoption of the resolution. Mr. BIDDLE. The Alabama Power was one of Mr. Willkie's operating companies, which signed the contract? Mr. WEADOCK. Yes. Mr. BIDDLE. And the Alabama Power Co. filed a brief, did it not, and defended the actions supporting the complainants? Mr. WEADOCK. The Alabama Power Co., I presume that they would. Mr. BIDDLE. The Alabama Power Co. being a party to the contract, and a defendant in the suit, you presume would have filed a brief in favor of the complainant? Mr. WEADOCK. I presume that if they were a defendant in the suit Mr. BIDDLE. They would have filed a brief arguing the complainant's side of the case? Mr. WEADOCK. I don't know what they did, but I presume that it looked after its own interests in the brief. Mr. BIDDLE. What was the interest of the Alabama Power Co. in the case? As a defendant and a party to the contract, one might think that it might wish to sustain the defense. Mr. WEADOCK. I would rather you get Mr. Willkie's opinion on that; he is an authority and I am not. Mr. BIDDLE. That is all of the questions, Mr. Chairman. Mr. WEADOCK. Thank you. Acting Chairman SCHWARTZ. The committee will recess for 5 minutes. (Recess.) Acting Chairman SCHWARTZ. We will reconvene, gentlemen. TESTIMONY OF WENDELL L. WILLKIE Mr. WILLKIE. If I may say to the committee, I would like about 20 minutes, if I could be uninterrupted, to make a statement to the committee, it won't take me much more than 20 minutes, and if I could have that I would appreciate it very much. Mr. BIDDLE. That is perfectly agreeable to me. Senator FRAZIER. You mean uninterrupted by the cameramen? Mr. WILLKIE. Oh, I don't mind that; they have to make a living the same as we do. Mr. BIDDLE. Will you state your name, address and official position? Mr. WILLKIE. My name is Wendell L. Willkie, my address is 1010 Fifth Avenue, New York, and I am president of the Commonwealth and Southern Corporation. STATEMENT OF WENDELL L. WILKIE Gentlemen, in appearing before your committee, I want first of all to express my conviction that you have the power to make a very important contribution to the national welfare. The consequences of the situation which we are here considering are not confined merely to the T. V. A. or the utility industry. They directly affect a problem in which we are all most deeply concerned-the Nation's economic recovery. Business is now showing signs of improvement, just as it did a year and a half ago. This improvement will be short lived, just as it was a year and a half ago, if the manufacturers of heavy goods are unable to join in this expansion. Economists generally recognize that one of the greatest factors in economic recovery is the utility industry, an industry which is a principal market for construction materials and heavy machinery and which, more than any other, can stimulate the flow of capital and the reemployment of men. In this brief statement I want to suggest a method whereby your committee can break the log jam in the utility industry and can contribute materially to national recovery. In the past 5 years electric-utility expenditure for new construction and new equipment has been far less than necessary because the utilities have been unable to obtain the required capital. It is my estimate that in 1938 these utilities will spend approximately $400,000,000 on capital construction. For the next 2 years the industry, including the company which I head, has pledged the Government its wholehearted cooperation in the national-defense program. In my judgment, however, even with this special stimulant and this special effort and even with the pick-up in general business, the utilities will not be able to spend, under present conditions, over $500,000,000 in 1939 and, insofar as can be predicted, not more than that in 1940. As contrasted with this probable expenditure, Mr. Frank McNinch, former head of the Federal Power Commission, has estimated that the utilities need to spend about 11⁄2 billion dollars each year for the next 5 years. And all students of the power industry, whether they work for the Government or the private utilities and whether or not they adopt Mr. McNinch's particular figure, will agree that the utilities must spend far more than they are currently able to spend if they are to meet adequately the Nation's growing power requirements. Now, it is a natural question to ask: If the utilities need to spend so much money a year, why don't they spend it? The answer is that they are unable to get the necessary capital from the investor. In my |