requirements and approximately 5,000 consumers in the area north of McCallie Avenue, including East Chattanooga. Additional contracts, estimated at $975,000, and including the underground system, will be awarded within the next 60 days. The total of contracts, either executed or to be executed within the next 60 days will amount to $2,064,357.

Mr. BIDDLE. Mr. Willkie, will you read a little louder, please? You would not want the press not to get what you are saying, would you?

Representative WOLVERTON. Mr. Biddle, wasn't this letter read into the record in Chattanooga?

Mr. BIDDLE. No; not in Chattanooga, this was subsequent to that time.

Mr. WILLKIE. Yes; it was read from the stand by Mr. Wilhoite. Mr. BIDDLE. Then I will give you the next letter. Was your answer read?

Mr. WILLKIE. I don't know whether it was or not.

Representative WOLVERTON. I would suggest if you want it in the record, why not offer it at this point to go in the record, in case it is not in.

Mr. BIDDLE. That is a good idea. I will offer the letter of August 24. (Whereupon, the letter above referred to was received in evidence and marked "Exhibit No. 476.")

(The remainder of the letter is as follows:)

These facts with respect to the board's present and immediate future construction program are set out for the purpose of making it clear to you, and to Mr. Lilienthal of the Tennessee Valley Authority, to whom the board has directed that a copy of this letter be sent, that the power question in Chattanooga is no longer one of private versus public ownership and operation. That question was settled by the people of Chattanooga in a referendum election 3 years ago. The power question in Chattanooga is simply one of immediate acquisition of existing facilities or the early completion of a competing system. This board, as has been amply evidenced by its record, is extremely anxious to avoid competition but as you can readily understand from the situation as here outlined, unless the cooperation of the Commonwealth and Southern Corporation and the Tennessee Valley Authority can be obtained in the prompt working out of a mutually satisfactory basis for the acquisition of the local properties of the Tennessee Electric Power Co., competition is immediately unavoidable.

This situation was explained to Mr. Lilienthal, at a conference with him in Knoxville on August 11. The next day you and Mr. Lilienthal discussed further your pending negotiations with respect to so-called State-wide acquisition of the properties of the Tennessee Electric Power Co. Following these conferences, Mr. Lilienthal advised this board that no understanding has been reached with you upon which hope could be based that State-wide acquisition could be consummated in time to prevent competition in Chattanooga. He further stated that, in his opinion, the proposal of this board to purchase the local distribution system, together with such generation and transmission facilities as constitute a major and adjacent source of supply to that system, offered the most workable and practical solution. He gave assurance of his willingness to lend his aid in the consummation of the plans and this board earnestly requests your cooperation in exploring to the utmost the possibilities for acquisition inherent in the proposal as submitted to you on July 7, or such practical and acceptable modification of it as you might suggest.

As to your heretofore expressed objections to considering the sale of your local properties, separate and apart from other holdings of the Tennessee Electric Power Co., this board would call your attention to the fact that it has no legal authority to concern itself with any so-called State-wide plan of acquisition. The legal authority of the board is confined solely to the matter of acquiring, either by acquisition or construction, a public power system for Chattanooga and adjacent territory. However, as has been amply shown by its past actions,

the board, despite its lack of confidence in the outcome of the so-called Statewide negotiations, nevertheless desires to lend such aid as possible to the plan, but it cannot allow this desire to restrict any further the performance of its primary responsibility to the people of Chattanooga.

In view of the fact that you have heretofore precluded any possibility of local acquisition by insisting upon the limiting of purchase negotiations to a so-called State-wide basis, the board desires to point out a number of conditions that would seem, in its judgment, to make further adherence to this policy upon your part contrary to the interest of legitimate investors in the securities of the Tennessee Electric Power Co. and to the public.

The negotiations for State-wide acquisition, although they have been in progress for some months, show no evidence of success. This is doubtless due, at least in part, to the wide diversity of conditions existing in the different communities that would be affected by such acquisition, differences in the political backgrounds against which decisions are influenced and differences in public opinion with respect to public versus private ownership of electric utilities. To obtain the voluntary cooperation of communities, with the wide divergence of local conditions and public attitudes that exist in the area now served by the Tennessee Electric Power Co., in any uniform plan of State-wide acquisition would seem to be impossible of accomplishment within any reasonable length of time. Such a task most certainly cannot be accomplished in time to prevent the completion of a competing system in Chattanooga. It seems obvious that the interest of the security holders of the Tennessee Electric Power Co. would be best conserved by taking advantage of the opportunity that now exists to secure a maximum price for the company's Chattanooga properties rather than to allow these properties to rapidly decline in value to the city of Chattanooga while attempting to consummate a long drawn-out and difficult State-wide plan of transfer. As pointed out in the board's proposal of July 7, your Chattanooga properties are worth more to the city of Chattanooga now than they will be at any time, either in the immediate or distant future. As the city proceeds with the construction of competitive facilities, your properties become rapidly less valuable until within about 18 months from now, they will have no value to the city other than their nuisance value. It would, therefore, seem that any gains in purchase price that might be reasonably expected as a result of State-wide sale as against so-called piecemeal sale would be more than offset by the reduced value of your Chattanooga properties. This is confirmed by your own statement in your letter of July 26 to the effect that "the investments in the Tennessee Electric Poser Co. will be destroyed or seriously impaired if the power board finds it necessary to duplicate the Chattanooga distribution system."

The willingness of the Tennessee Valley Authority, as transmitted in Mr. Lilienthal's letter to this board under date of August 13, copy of which is attached hereto, to cooperate with Chattanooga in effectuating the board's proposal to you on July 7 by purchase, on behalf of the Tennessee Valley Authority, the generation and transmission facilities of the Tennessee Electric Power Co., constituting at present a primary and necessary source of power supply to Chattanooga, would seem to remove your objections to the sale of the Chattanooga distribution system on the grounds that such sale would render useless the generation and transmission facilities now used and useful in the supplying of the power requirements of the Chattanooga system.

Also it would seem to meet your objection that the sale of the Chattanooga properties, independent of the other properties of the Tennessee Electric Power Co., would seriously damage or destroy the value of the remaining properties. The information which this board has indicates that the capacity of the generation and transmission facilities which the board, in cooperation with the Tennessee Valley Authority, proposes to acquire from your company, is approximately equivalent to the power requirements of your local distribution system. This fact, together with the fact that the Tennessee Electric Power Co. recently made application to, and obtained a permit from, the Tennessee Railroad and Public Utilities Commission to construct a large steam generation plant at or near Nashville, Tenn., on the grounds that the need for additional energy supply was urgent, together with generation and transmission facilities supplying these properties, as proposed, would not leave the Tennessee Electric Power Co. with unsold power surplus. On the contrary, since construction of the Nashville steam plant has not yet been undertaken by your company, it would seem that

if any disturbance of load conditions should result from the sale of generation and transmission now used as a primary source of supply to Chattanooga, such disturbance would be in the nature of a reduction of generating capacity below the actual needs, in which event, no serious difficulty should be exeprienced since additional requirements could be supplied, either by the completion of your proposed Nashville steam plant or by purchase of power from the Tennessee Valley Authority.

The board assumes that inasmuch as you have heretofore declined to enter into negotiations for the purchase by the board of your local properties, independent of your other holdings in the State, that the suggestion contained in your letter with respect to arbitration has reference only to the State-wide negotiations between you and Mr. Lilienthal and was, therefore, not intended as a matter for the consideration of this board.

Although the board appreciates, as above stated, that it has no legal concern with the State-wide matters here discussed, nevertheless it sincerely hopes that in pointing out some of the factors involved, it may induce you to reconsider your position with respect to the disposition of your local properties before the board's construction program has advanced to the stage where acquisition of those properties on any basis, other than their nuisance value, would not be economically sound and in the public interest.

This board does not believe that this matter can be worked out in the interest of your security holders by further reliance upon propaganda, designed to create the false impression that the board is employing a club when it tells you frankly that a competing system is now under construction and that, therefore, within a very brief period the board will not be interested in acquiring your properties upon any basis other than their nuisance value. This is not a club; it is a plea to you to recognize the right of the people of Chattanooga to own and operate their electric utility and to recognize the fact that they have exercised that right. They have authorized this board to pay your company a fair and reasonable price for its holdings and, upon your refusal, to build a new system. You state yourself that if this board finds it necessary to compete with your system that it "will destroy or seriously impair your properties." Your continued refusal to negotiate a fair and reasonable basis for their acquisition is making it increasingly necessary for this board to follow a program that, in your expressed judgment, will be disastrous to your company.

You state in your letter, declining to accept the board's purchase proposal of July 7 or to enter into negotiations for the acquisition of your local properties, that "no harm can come from patience under present circumstances.' The board believes that its record shows clearly that it concurs with you in that view. Patience, however, does not imply unnecessary and interminable delay, particularly when that delay is expensive to the public and is jeopardizing the execution of the public will as in this instance. The board has, until recently, been subjected to harassing, expensive, unnecessary and futile litigation instituted solely for the purpose of delaying and obstructing its program. It has voluntarily incurred further expense incident to delay in complying with suggestions from you to the effect that delay might make possible the working out of acquisition plans. Further delay would be an imposition upon the people of Chattanooga because it would deny to them their right to take advantage of the substantial savings on the cost of electric service that early completion of this board's program will afford them. These savings amount to more than $1,000,000 a year, which means that every month the completion of the board's program is delayed is costing the electric consumers of Chattanooga $83,000.

The board earnestly requests you to cooperate to the extent of arranging an immediate conference with representatives of the board, or the board and the Tennessee Valley Authority, in the hope of an early solution of the subject matter of this letter.

Yours very truly,

ELECTRIC POWER BOARD OF CHATTANOOGA,
L. J. WILHOITE, Acting Chairman.

Mr. BIDDLE. Then will you read your answer? I feel certain the answer has not been given us yet.

Mr. WILLKIE [reading]:

Your letter of August 24th received. I delayed answering as Mr. David E. Lilienthal of the Tennessee Valley Authority had called me requesting a discussion last week concerning the same subject and I did not wish to reply to you until I had seen him.

I appreciate your writing me so frankly about the total of contracts, amounting to over $2,000,000, which may shortly be executed by your board for the duplication of the Tennessee Electric Power Co. system in Chattanooga. I am well aware of the disastrous results which such construction will have upon those properties. No one knows better than I the force of your statement that "As the city proceeds with the construction of competitive facilities, your properties become rapidly less valuable until, within about 18 months from now, they will have no value to the city other than their nuisance value."

It is for that reason that I have been so anxious to come to some fair solution of this question which will protect the interests of the security holders. I am still hopeful of this, although you refer to your Board's "lack of confidence in the outcome of the so-called State-wide negotiations" and you state that Mr. Lilienthal also believes that there is no hope "that State-wide acquisition could be consummated in time to prevent competition in Chattanooga.' I am unwilling to believe that the Government will be so unfair as to require so pessimistic a view of the negotiations with Mr. Lilienthal, which are still continuing.

It is apparent from your letter than you do not have the facts with reference to the negotiations between the Tennessee Valley Authority and myself. The Tennessee Valley Authority some few months ago told us that it desired to buy for itself and the municipalities, the utility system within the State of Tennessee and certain portions of northern Mississippi and Alabama and on the 21st day of March, Tennessee Valley Authority submitted to us a map showing the territory in which our properties were to be acquired, copy of which we are enclosing herewith.

Tennessee Valley Authority also requested an independent audit of such properties, to which we readily consented. Such an audit was completed some months ago. Immediately after its completion, Mr. Lilienthal and I, as you know, took up the negotiations with reference to the purchase and sale of the entire property which he desired to acquire and which, of course, includes Chattanooga. There was no divergence of view between us that the property was to be purchased in its entirety and simultaneously. The sole question in dispute was price. I have asked merely that the price for the Tennessee Co. be determined on the same basis as was paid for the Knoxville property negotiated by the Tennessee Valley Authority. Mr. Lilienthal had other views. No suggestion was made that the property could not be purchased as an entirety or simultaneously, until there was a disagreement as to the price that should be paid. Likewise, no such suggestion was made until about 3 weeks ago.

WILLKIE REQUESTS ARBITRATION

When Mr. Lilienthal and I were unable to agree on a price, I suggested that the price be determined by any of the following methods—

First. That the price be submitted to arbitration, one arbitrator to be named by the Tennessee Valley Authority and one by ourselves and the third to be named by the Supreme Court of the United States. This proposal was rejected. Second. I then proposed that the price be determined by Mr. Felix Frankfurter of Harvard Law School, and a noted liberal, friend and confidant of the President of the United States and of Mr. Lilienthal; Mr. Clarence A. Dykstra, noted liberal, and president of the University of Wisconsin; Dr. Karl Compton, one of the outstanding educational engineering authorities of the country and president of Massachusetts Institute of Technology.

Third. When this proposal was rejected, I proposed that the price be determined by the Securities and Exchange Commission of Washington. This commission has to do with the regulation of stock exchanges, utility security issues, etc., and all of its members were appointed by President Roosevelt and most of them among the noted liberals of the country. This proposal has not been accepted. You state in your letter that your board assumes that the suggestions with respect to this arbitration refer only to the State-wide negotiations between Mr. Lilienthal and myself. I should like to state, therefore, that I should be glad to extend this proposal to cover the entire problem so that all three viewpoints— those of yourself, Mr. Lilienthal, and myself-can be considered. Also, if you have any other method of arbitration for the entire subject to suggest, other than those mentioned above, I should be more than delighted to consider it.

With respect to your proposal for the purchase of Chattanooga and the Hales Bar Dam and the transmission lines connecting the two, you must appreciate that Hales Bar is but one of several plants in the Tennessee Electric Power system. These plants were built to balance one with another and to carry the load system

as an entirety. As a businessman, you know that the Tennessee Electric Power Co. cannot be divided into pieces any more than can any other business without great loss. The Tennessee Electric Power Co., under the order and direction of the State Utilities Commission, has been built as a functioning system. It is almost impossible to take out one part from the balance without causing serious damage to what remains.

When I talked to Mr. Lilienthal last, neither he nor I were able to determine from your letter as to just how much of a distribution area you proposed to acquire. Moreover, I obtained no expression from the Tennessee Valley Authority as to what disposition or arrangement was to be made in regard to the balance of the property. Unless it is either acquired or protected against subsidized Governmental competition, it will be impossible to finance or successfully operate, although it was built and the capital invested in it under the regulation and authority of the State of Tennessee. These details are of vital importance, and I think both of us should study them further before finally arriving at a decision. I understand from Mr. Lilienthal that he is to have further discussion with me concerning the Chattanooga and Tennessee Electric Power Co. problem.

Because of the difficulty in reconciling different points of view, it seems to me that the arbitration method of all of these problems is the most logical one to pursue. We ask the Chattanooga Power Board to use its good offices with the Tennessee Valley Authority to that end. If this is accomplished, Chattanooga, and all other cities in Tennessee, can have their own distribution systems promptly and without the enormous loss to investor, consumer, and taxpayer that will result from such duplication as you propose a loss that will greatly exceed the saving in power rates which you expect to achieve.

In the meantime, we earnestly hope that the Federal Government's free gift of 45 percent of the cost of Chattanooga's proposed power system will not be used to force us to take a greatly discounted price for property for which we are trustees.

I might say in connection with that, Mr. Biddle, on a point that I had noted here for a correction in my testimony, or if it requiresMr. BIDDLE. You mean with respect to arbitration?

Mr. WILLKIE. No. I will show you. Give me the transcript. I think it is page 70. I don't think it is a correction, I think I just didn't make it clear, and therefore it was a misunderstanding, and I didn't notice-it was in the press.

You say to me, speaking of Mr. Lilienthal:

That is a fair statement of his position?

Mr. WILLKIE. Based upon the fact that as a matter of policy-the distinction that you do not draw is that as I understood Mr. Lilienthal-understand, it was from conversation-that what he was putting it on was here are three men-as a matter of fact it was suggested at one time

Here is the point, that is where we are talking about the creation of an arbitration.

as a matter of fact it was suggested at one time that both Mr. Lilienthal and I designate another party, and he argued with me probably I couldn't afford as a corporate official, on the same basis to withdraw.

Mr. BIDDLE. You suggested it?

Mr. WILLKIE. No.

Mr. BIDDLE. Mr. Lilienthal suggested it?

Mr. WILLKIE. Mr. Lilienthal suggested to me

Mr. BIDDLE. Suggested that you name one and he name one?

Mr. WILLKIE. No, no.

Mr. BIDDLE. Who suggested it, that each name one? You suggested that, didn't you? It must have come either from you or from him.

Mr. WILLKIE. Oh, no.

Mr. BIDDLE. Someone else?

And I answered:

I think Mr. Thomas Corcoran or Mr. Jerome Frank suggested that.

Mr. BIDDLE. Then you want to make a correction?