Mr. WILLKIE. No, I don't want to make a correction, but I want to make an explanation. I think I didn't make it very clear.

The proposal No. 1, to have Mr. Lilienthal name an arbitrator, or the T. V. A. to name an arbitrator, and us name an arbitrator, and the Supreme Court name an arbitrator was my suggestion.

Mr. BIDDLE. I see.

Mr. WILLKIE. The suggestion that Dr. Felix Frankfurter, Dr. Carl Compton, and Dr. Dykstra act as an arbitration committee was my suggestion, both of which were declined.

I say here, "As a matter of fact it was suggested at one time that both Mr. Lilienthal and I designate another party."

That is true. There was a stage in the proceeding at which it was suggested that Mr. Lilienthal name a party to negotiate for him, and I name a party to negotiate for me, and that was the thing to which I was referring here. And that was when you said, "You suggested it?", and I said, "I think Mr. Thomas Corcoran or Mr. Jerome Frank." That is correct, but there was a misinterpretation, or at least I didn't make it completely clear.

Mr. BIDDLE. I thought it was very clear.

Mr. WILLKIE. I thought it was very clear too, Mr. Biddle.

DEPRECIATION SHOWN IN AUDIT

Mr. BIDDLE. That letter spoke of the independent audit. That was the Lybrand, Ross Bros' audit, was it not?

Mr. WILLKIE. That is right.

Mr. BIDDLE. So far as that goes, do you accept the result of the audit, so far as it goes?

Mr. WILLKIE. Just as to facts in the audit?

Mr. BIDDLE..Yes.

Mr. WILLKIE. Except perhaps as to one thing.

Mr. BIDDLE. Now, let's first get the facts in the audit. You mean the figures arrived at with one exception you accept?

Mr. WILLKIE. Well

Mr. BIDDLE. I don't know what you mean by "facts in the audit." Did you mean the figures?

Mr. WILLKIE. Lybrand, Ross Bros. examined the books and got certain figures from them. That they correctly took the figures from the books there is not the slightest question about that.

Mr. BIDDLE. Very good.

Mr. WILLKIE. But

Mr. BIDDLE. Yes.

Mr. WILLKIE. That doesn't mean that I conclude that they tookunder the first direction, in accordance with the Federal Power Commission's classification all that goes under the Federal Power Commission's classification, nor do I accept that the Federal Power classification is the method of determination.

Mr. BIDDLE. Yes; that is why I said "so far as it went."
Mr. WILLKIE. I just wanted to be clear.

Mr. BIDDLE. In other words I wanted to be clear that you accepted their figures, but it did not cover everything you had in mind. Mr. WILLKIE. Nor completely comply with the request.

Mr. BIDDLE. Did they make another audit for you separately? Mr. WILLKIE. They did.

115943-39-pt. 10-13

Mr. BIDDLE. What did you request them to make an audit of; what additional considerations came into that?

Mr. WILLKIE. That is a rather long letter. I will give you the letter.

Mr. BIDDLE. You can give it to us or you can tell us.

Mr. WILLKIE. I can't tell you.

Mr. BIDDLE. I will ask you to refer to your letter then.
Mr. WILLKIE. I will have to give you the letter.

Mr. BIDDLE. Refer to your letter to Lybrand, Ross Bros., will you, as briefly as you can, and state the items referred to in your letter which you requested Lybrand to cover in their special audit to you, in their additional audit to you.

Mr. WILLKIE. I want to say this to you, Mr. Biddle, if you want to go into this audit in any detail, I have a man here who can give you every detail.

Mr. BIDDLE. That's very nice of you, and when we want more detail, we will ask you to refer to him.

Mr. WILLKIE. I am not qualified to discuss this audit in detail. Mr. BIDDLE. I take it you are qualified to read a letter, aren't you, Mr. Willkie?

Mr. WILLKIE. Well, I don't know.

Mr. BIDDLE. Go ahead.

Mr. WILLKIE (reading):

We have completed our review of the accounting records of the Tennessee Electric Power Co. and its subsidiary companies, including former subsidiaries merged with the parent company. For the purpose of reporting to you upon the matters in respect of such companies outlined in your letter to us of March 24, 1938, as amended by Mr. Bourne's letter of May 17, 1937, we quote below from the above-mentioned letters regarding the extent of our review and the information that was reported upon by us.

This is our letter dated March 24, 1938:

You have been selected by the Tennessee Valley Authority to make an accounting review of the Tennessee Electric Power Co. and other properties. They have shown us a copy of their instructions to you, and have agreed that we are to have a copy of your report. The information thus requested by the Tennessee Valley Authority is not adequate in our judgment to cover all necessary facts. Therefore in conjunction and concurrently with preparing the report requested by them, please make for us, and furnish a copy to the Tennessee Valley Authority, an accounting review and report on the Tennessee Electric Power Co. covering: 1. The actual cost

Mr. BIDDLE. Now, just a moment. When you begin to read these, these are the additional items you asked them to cover in a report, not covered by the joint audit, is that correct?

Mr. WILLKIE. Yes.

Mr. BIDDLE. That is right.

Mr. WILLKIE. These are the additional items we asked this particular auditing firm to check.

Mr. BIDDLE. Right.

Mr. WILLKIE (reading):

1. The actual cost to the company of all of its property (fixed-capital account) segregated as far as possible by classes of property.

2. A statement bringing down to date the values of the properties of the Tennessee Electric Power Co. as determined by the Railroad and Public Utilities Commission of the State of Tennessee as set forth in its orders dated December 22, 1928, and September 13, 1930, by adding subsequent property additions made by the company and deducting property retirements.

3. Statement of retirement-reserve account from date of organization of the company, i. e., June 1, 1922, to December 31, 1937, by classes of property.

4. Statement of amounts expended since June 1, 1922, for maintenance and repairs by classes of property.

5. Statement of expense of acquiring new business for the last 10 years set up in conjunction with the sales in kilowatt-hours by various classes of electric service, the average rates received therefor, the number of customers by classes of service. This analysis should include other accounts of the company involving business promotion, unamortized appliance connection costs, etc.

That is what you wanted?

Mr. BIDDLE. Does that cover it?

Mr. WILLKIE. That was the five items.

RETIREMENT AND RESERVE FUND

Mr. BIDDLE. That letter refers to the retirement-reserve account, and you have referred to it already. Could you, either by looking at the audit or by referring to one of your assistants, tell me the total number of payments into the retirement-reserve account since it was started? Doesn't the audit show that?

Mr. WILLKIE. It may show it. As I say, I would have to check this audit, this is a long audit.

Mr. BIDDLE. There are very few questions I want to ask you about, but that is one.

Mr. WILLKIE. If you will just ask Mr. Bourne, you will save time. Mr. BIDDLE. That is right. Well, just ask Mr. Bourne.

Mr. WILLKIE. This is Mr. Granville H. Bourne.

Mr. BIDDLE. You may ask him, Mr. Willkie. We want to know, and you can get it from any source you want, Mr. Willkie, the total payments into the retirement and reserve account, and the date it was begun, one figure, if you have it.

What year did you start it?

Mr. BOURNE. This audit report starts with

Acting Chairman SCHWARTZ. Is the Auditor to testify now?
Mr. WILLKIE. It seems to me so much more convenient.
Acting Chairman SCHWARTZ. Be sworn, please.

TESTIMONY OF GRANVILLE H. BOURNE

(Thereupon Mr. Bourne was sworn by the acting chairman.) Mr. BIDDLE. Will you give your full name to the reporter, please? Mr. BOURNE. Granville H. Bourne.

Mr. BIDDLE. You are the auditor of the Commonwealth and Southern Corporation?

Mr. BOURNE. I am the comptroller of the Commonwealth and Southern Corporation.

Mr. BIDDLE. Excuse me; the comptroller.

Refer to any papers you wish, Mr. Bourne, either the audit or any of your own papers. Will you tell me the total amount paid into the retirement and reserve fund, and the date that the fund started?

Mr. BOURNE. As shown in the Lybrand report, they start off with a balance at July 1, 1922.

Mr. BIDDLE. Yes.

Mr. BOURNE. And that the credits to the reserve down to the end of 1937, the total is $19,885,003.73.

Mr. BIDDLE. $19,885,003.73. That is all I want to know. Thank you very much.

TESTIMONY OF WENDELL L. WILLKIE Resumed

Now, Mr. Willkie-by the way, in order to get our records clear, I think the reporter will have to have a copy of the letter that you wrote to Mr. Wilhoite that you have just read.

Now, the letter that you wrote to Mr. Wilhoite referred to the fact that you would be willing to settle on the same basis as in the Knoxville settlement with the Electric Bond & Share. Would you be willing to settle on the same basis as the Memphis settlement with the Electric Bond & Share?

Mr. WILLKIE. No; the difference is, Mr. Biddle, the Knoxville sale was on the basis of 104 percent of the rate base.

Mr. BIDDLE. So that naturally would be a good settlement?

Mr. WILLKIE. The Memphis sale was on the basis of 72 percent of the rate base. And both were on a basis to make T. V. Â. rates work.

Mr. BIDDLE. I take it you then think the Knoxville settlement was a fair settlement, if you would have accepted it-or don't you?

Mr. WILLKIE. If we are faced with the situation where the Federal Government is, by this method, going to take over properties, then I would say clearly the Knoxville settlement is the best one that has been made to date.

Mr. BIDDLE. And you would not say that, I take it, about the Memphis settlement?

Mr. WILLKIE. Well, without knowing the details of the Memphis properties, never having examined a balance sheet of it, except perhaps seen its annual reports, and so forth, I wouldn't want to hazard a guess.

But I do know that the people who owned it felt outraged about having to sell it for that price.

Mr. BIDDLE. Now, the letter referred to Hale's Bar Dam. The Hale's Bar Dam was built under special act of Congress.

Mr. WILLKIE. I believe that is correct.

Mr. BIDDLE. Does the company pay any ad valorem tax on the Hale's Bar Dam?

Mr. WILLKIE. No; the company doesn't pay taxes, but under the provision of its building, at the end of 99 years it belongs to the United States Government. And also the lands purchased in connection with it were given to the United States Government, and also by raising the water level it improved the navigation.

Mr. BIDDLE. Under the act the company was to deed the dam over to the Government, was it not?

Mr. WILLKIE. I believe that is correct.

Mr. BIDDLE. Has it ever deeded it?

Mr. WILLKIE. There has been some minor dispute, but the Government has been in possession.

Mr. BIDDLE. Irrespective of the Government having been in possession, has the Government ever been deeded it?

Mr. WILLKIE. It has deeded the land. I am not sure the dam site itself has been deeded. The land has.

Mr. BIDDLE. The Government wouldn't take it because the dam leaked? Haven't you heard that, isn't that true?

Mr. WILLKIE. If that is true I never heard of it.

CORRESPONDENCE WITH ELECTRIC POWER BOARD

Mr. BIDDLE. Getting back to the correspondence again, will you read the next letter of the board to you, I think that is the letter of October 22, if I am not mistaken. Will you give it to me? We are speaking of the Electric Power Board of Chattanooga, Mr. Willkie, letter of October 22:

Mr. WILLKIE (reading):

REFUSAL OF COMMONWEALTH AND SOUTHERN TO NEGOTIATE

Your letter of September 6 reiterating your previous refusals to negotiate with the city of Chattanooga for the sale of your local power properties and declining to consider a joint proposal of the city and Tennessee Valley Authority to pnrchase the Chattanooga district distribution system complete with the generation and transmission facilities constituting primary sources of supply to that system, is disappointing to this board. This because it apparently closes the door to a possible early settlement, fair alike to your security holders and to the people of Chattanooga.

The board appreciates that your relation to this matter perhaps compels you to view it wholly from the standpoint of the special interest involved. This would not, however, seem to justify your continued failure to recognize the right of the people of Chattanooga to own and operate their electric utility and the fact that they have elected to exercise that right.

In your communications to this board, and in other public statements, you have outlined as your reasons for refusal to negotiate the sale of your local properties that private power may be more advantageous to the citizens and taxpayers than public power, that Public Works Administration loans and grants for the construction of municipal distribution systems are unfair to the private utilities, that the power program of the Tennessee Valley Authority is unfair to the power interests which you represent, that Tennessee Valley Authority should restrict its power program to a predetermined area, and that the sale of your local properties independent of other properties of the Tennessee Electric Power Co. would not be as advantageous to your security holders as would the sale of all these properties as a unit.

Candor compels the board to say to you that it cannot accept as valid or relevant to the point at issue any of these reasons as advanced by you as a basis of your refusal to negotiate the sale of your local properties.

Whether the public distribution of Tennessee Valley Authority power in Chattanooga will be more advantageous to the citizens and taxpayers than the present private power arrangements is not relevant to the issue because this phase of the power question was settled by referendum vote of the people and their action has been sustained by the courts.

Whether the Public Works Administration act under which this board is financing the city's power distribution system is fair or unfair to you and your associates in the private power business is not relevant to the issue, because Congress enacted the law, the courts have sustained it, the people of Chattanooga have elected to take advantage of its provisions and the courts have sustained them in their right to do so.

Whether the power program of the Tennessee Valley Authority is fair or unfair to the private power interests is not relevant to the issue because that program is a fact and not a theory-a fact that has been accepted by vote of the people of Chattanooga and a fact that has been sustained by the courts. Whether the Tennessee Valley Authority should agree to restrict its power program to & predetermined area in consideration of the private companies selling their properties in the present area is not relevant to the local power issue, because it is a matter over which the people of Chattanooga have no control and which bears no relation whatever to their right to decide for themselves whether they shall own and operate their electric utility.

Whether it would be more advantageous to the Tennessee Electric Power Co. and to the Commonwealth and Southern Corporation to sell its properties piecemeal or as a whole is not relevant to the local power situation, because it is the duty of this board, acting for and on behalf of the people of Chattanooga to supply Tennessee Valley Authority power to the Chattanooga district and, in the performance of that duty to invite you and your associates to negotiate a