Mr. WILLKIE. That is fair.

Mr. BIDDLE. All right.

Mr. WILLKIE. Now, I understand when you value the property that way, Mr. Biddle, you have to take it as it would cost today. For instance, if you have a right-of-way that when you got it cost a thousand dollars and today it would cost a half million dollars to get it, you have to price it at a half million dollars.

Mr. BIDDLE. Less depreciation.

Mr. WILLKIE. Yes; there you arrive at what it costs to put that property there today.

Mr. BIDDLE. I follow you.

Mr. WILLKIE. Then you depreciate that property by an observed That is one method.

use.

Mr. BIDDLE. That is reproduction cost new, less depreciation?
Mr. WILLKIE. That is right.

Mr. BIDDLE. That is No. 1.
Mr. WILLKIE. That is No. 1.

Mr. BIDDLE. Now, what is No. 2?

Mr. WILLKIE. Another basis is to take the cost of assembling that business there, what it cost the investor to put that business there, how much has this investor got in this property, what dollars did he put into it, and then apply to that the depreciation which is allowed, or your retirement reserve fund which is allowed by the State commission, because that is all you are permitted to recoup for the investor. Now, what this income-tax thing does that you are talking about is to try and confuse the two. You say we want to take the cost of the property and apply to it a depreciation which is not applicable to that kind of valuation.

Now, personally, I don't care which method is used. I think the Tennessee Electric Power Co., the electric part of the Tennessee Electric Power Co.-I want to say to you here that they are insistingunderstand, we start out to negotiate here, and they insist here is a company that has a transportation department in it; here is a company that has some water and some ice plant property.

Understand, the Tennessee commission insisted on this being valued all together, and the Supreme Court of the United States in the Broad River case said that a utility that operated both a street railway or transportation and an electric property could not abandon the railway property, because in the early days the street railway had supported the electric, and now the electric was supporting the street railway, and both of them were necessary services, and that you could not abandon them.

The first thing they do, they come along in this negotiation and say, irrespective of the historic facts, and you never were able to get rid of this other; you have got to separate them.

Mr. BIDDLE. You didn't expect them to buy your street railways, did you, Mr. Willkie?

Mr. WILLKIE. Expect? I didn't expect them to destroy my property.

Mr. BIDDLE. Well, I understand that. What I am asking you is: You didn't expect them to buy your street railways, did you?

Mr. WILLKIE. Expect? I don't know what you mean by "expect." Mr. BIDDLE. You used the word "expect" also. I think we know what it means. Do you think they should have bought your street railway and ice property?

Mr. WILLKIE. If you say to me that the Federal Government creates a situation such as it has created down there, then I would say to you, although I have not asked for it because I knew it was useless, because they said, "We won't take it"

Mr. BIDDLE. That seems reasonable.

Mr. WILLKIE (continuing). I think they ought to reimburse the investors fully; and I think if the United States Government doesn't do it, I think it is one of the greatest mistakes they can make.

Mr. BIDDLE. I think I get that.

Mr. WILLKIE. The United States Government here ought to lean over backward to reimburse the investor.

Mr. BIDDLE. Irrespective of the value of the property to T. V. A.? Mr. WILLKIE. Irrespective of the value? Now, that all goes back to the same question, Mr. Biddle.

Mr. BIDDLE. I say, irrespective of the value of the property to T. V. A.?

Mr. WILLKIE. No; no; now let's take it again. I am willing to take for this property the reproduction cost new, minus depreciation. That, in my judgment, for the electric property alone will be over $100,000,000.

is.

Mr. BIDDLE. But the trouble is, you differ on what the depreciation

Mr. WILLKIE. No; the trouble is you want to apply

Mr. BIDDLE. I don't want to apply anything. The engineering data would be interesting in trying to determine what your property has depreciated, as you have never had depreciation.

Mr. WILLKIE. I am perfectly willing in any negotiations to take anything to do with depreciation, any kind of study that anybody wants to make as long as it is before any kind of a fair tribunal, and apply it to the reproduction new cost of the property.

I don't care what kind of depreciation study it is, as long as I have a fair tribunal to finally determine what depreciation is used. But I don't want you to take a figure of cost which is a less figure than this figure and then want to apply depreciation that is applicable to the higher figure.

Mr. BIDDLE. Nobody suggested that.

Mr. WILLKIE. That is what they are suggesting.

Mr. BIDDLE. I don't think so.

Mr. WILLKIE. That is where we differ.

Representative WOLVERTON. I would like to break in there a

moment.

Mr. BIDDLE. It's pretty hard to break in here.

Representative WOLVERTON. You are discussing the right or obligation to buy a trolley line. Mr. Biddle stated he has a doubt whether they had a right. I was surprised that point was raised, when I considered the length to which they had gone in connection with freezing strawberries, that jurisdiction would not be considered to go as far as that.

Mr. WILLKIE. What is going to happen is this: You understand, by operating this transportation business in connection with the electric business we were able to operate it much cheaper and more economically. When it is divided and left out, it is going to cost much more, and the only fellow that is going to pay for that is the rate payer.

Representative WOLVERTON. I took it there was something abhorrent about considering buying a trolley line, and it amused me when I realized the vast amount being used to freeze strawberries.

(Remarks made off the record.)

Mr. WILLKIE. I say those are your two methods of valuation. Mr. BIDDLE. Go on. There was a third method, which was capitalization.

Mr. WILLKIE. Sometimes these two-and capitalization. Take the Supreme Court in the Smythe versus Ames case, Mr. Biddle, and all succeeding rules hold, although it has been somewhat limited

Mr. BIDDLE. Those are for rate purposes. I am talking about a deal between you and the T. V. A. You don't have to use the Supreme Court cases for that; you try to arrive at a fair value. Mr. WILLKIE. Yes; that is what the Supreme Court finds in a rate

case.

Mr. BIDDLE. I don't see what rate cases have to do with what the fair value of the property is.

Mr. WILLKIE. You don't? Well, I have always assumed that is the basis on which rates were fixed.

Mr. BIDDLE. Did you

Mr. WILLKIE. That has been the rule ever since I have known anything about the business.

Mr. BIDDLE. Go ahead and describe the capitalization theory. Mr. WILLKIE. I am not saying "the capitalization theory." I am using the third method, which I think is-you have got your original cost new minus depreciation, the cost of assembling the business, and there is a third method sometimes used of taking those two factors plus capitalization, plus earnings. Another method is to capitalize the earnings, combine all of those, and arrive at a fair value.

Mr. BIDDLE. I think those are all fair methods. I don't disagree with any of those.

The capitalization method would then be to see what net return had been made, what the property was earning, as one consideration, and capitalize it at some agreed interest rate.

Mr. WILLKIE. That is right.

Mr. BIDDLE. And suppose, if it were true-we are just assuming this is true for the purposes of my questioning-assume it is true that the earnings had been bad on the preferred stock, and no proper depreciation had been charged, then in that case, assuming that to be the fact, the capitalization theory would not be a fair one to use, would it?

Mr. WILLKIE. In answer to that, Mr. Biddle, the facts are-you want to get an assumption, but let me give you the facts. The Tennessee Electric Power Co. has never earned a fair rate of return on its property, and therefore your assumption could not apply to it. Mr. BIDDLE. All right. Now, will you answer the question?

Mr. WILLKIE. As a general assumption, it is like any other general assumption.

Mr. BIDDLE. You could consider in some deals that the capitalization might not be a fair standard?

Mr. WILLKIE. I am not recommending capitalization.

Mr. BIDDLE. Oh, you are not?

Mr. WILLKIE. No, sir. What I want for this property is its reproduction cost new minus depreciation, or the cost, the amount that it costs the investor to put that business there.

Mr. BIDDLE. All right.

Mr. WILLKIE. I will take either one of them, determined by any fair commission.

Mr. BIDDLE. Let's get at your figures. First, will you describe to the committee the arrangement that was made for auditing and appraising the properties between you and T. V. A.?

Mr. WILLKIE. Now, so that you get that clearly

Mr. BIDDLE. I am asking you.

Mr. WILLKIE. Yes; all right. You understand there has been no appraisal of this property.

Mr. BIDDLE. Just tell us what was done; that will probably be better.

Mr. WILLKIE. T. V. A. said to Lybrand, Ross Bros.: "We want you to go into the books and find certain facts."

Mr. BIDDLE. Can't we start at the beginning. What was the agreement with T. V. A.?

Mr. WILLKIE. That the T. V. A. should go in and audit any particular accounts that they wanted to audit.

Mr. BIDDLE. The purpose of the audit being to get at the values? Mr. WILLKIE. It would be one of the elements of value.

Mr. BIDDLE. Well, one of the elements of value.

Mr. WILLKIE. Certainly.

Mr. BIDDLE. All right.

Mr. WILLKIE. Where you are getting off on the wrong start is this, Mr. Biddle, you assume that Lybrand, Ross Bros., were asked to find the value of the property?

Mr. BIDDLE. Not at all.

Mr. WILLKIE. Or find the final accounts. The T. V. A. said, "We want you to find the following things."

NEGOTIATIONS WITH TENNESSEE VALLEY AUTHORITY

Mr. BIDDLE. No; I don't assume that. What was done in agreement with T. V. A. with respect to any negotiations for the purchase by T. V. A. of the Tennessee Electric Power Co. and other properties of the Commonwealth and Southern?

Mr. WILLKIE. My goodness, that is a very long story.

Mr. BIDDLE. I would like to have it.

Mr. WILLKIE. You mean you want me to start back at the beginning of the negotiations with the T. V. A.?

Mr. BIDDLE. No; I want you to get to the point where you began to try to get some figures in order to determine what it was worth. Mr. WILLKIE. What you want to do is just what I suggested at the beginning of this thing, to try to fix the value of this property. Mr. BIDDLE. No; I don't think the committee is interested in any way in fixing the value of the property; I don't think that would be

helpful. But what I would be interested in is in knowing the negotiations between you and T. V. A., which seem to me a very important thing. You have criticized T. V. A. for being grossly unfair. Mr. WILLKIE. That is right.

Mr. BIDDLE. The Government for "holding a gun at your head." Mr. WILLKIE. That is right.

Mr. BIDDLE. Don't you think it is fair to find out what the negotiations were, so that we can know whether the T. V. A. was grossly unfair?

Mr. WILLKIE. You want to go into the question of value to see whether or not the figures that were discussed as to value were fair, and I say to you that if you are going to do that I ask the privilege of this committee for a week's hearing to present the value to it, because here is a hundred million dollar's worth of property, and there is not a Chinaman's chance of this committee coming to any fair conclusion.

Mr. BIDDLE. The committee, of course, cannot come to a conclusion as to what the values were. I want to find out what the negotiations were. Now, let's see. Did you arrive at any figure of the original cost of the property?

Mr. WILLKIE. No; if you are speaking

Mr. BIDDLE. Can't you say "Yes" or "No?" Did you arrive at a figure?

Mr. WILLKIE. If you put it that way, the answer is "No." If you want to know the facts, I will be glad to tell them to you.

Mr. BIDDLE. Was any figure arrived at, on the book value of the properties?

Mr. WILLKIE. You say, "Was there any book value arrived at?" My answer to that would still be "No." If you want me to give you the facts, I will be delighted to do so.

Mr. BIDDLE. Of course we want the facts.

Mr. WILLKIE. All right. You understand that T. V. A. gave Lybrand, Ross Bros., certain instructions: "We want you to find certain items."

Mr. BIDDLE. What were those instructions? I don't mean the items, but what were the instructions? You don't need to detail the items, but they were to do what with respect to the items? Mr. WILLKIE. Audit them, to determine what they were.

Mr. BIDDLE. To find out the value, wasn't it?

Mr. WILLKIE. To determine what were those particular items, the book value of those particular items, not of the property.

Mr. BIDDLE. They were to find the cost of certain items?

Mr. WILLKIE. That is right.

Mr. BIDDLE. By the way, what were those items?

Mr. WILLKIE. I would have to read them to you. If this committee decides it wants to go into this

Mr. BIDDLE. The committee will judge as it goes along.

Mr. WILLKIE. I know; but I would like to raise the question at this time. If it wants to go into this long report, then I want adequate time.

Mr. BIDDLE. NO; I have no intention of going into any long report.