fair and reasonable price for such of your properties as would be useful in the attainment of that objective. Beyond that this board has neither the legal right nor moral obligation to go.

Mr. WILLKIE. I might say to you in connection with that, that Mr. Wilhoite, repeatedly, before writing this letter, after conference with T. V. A., had told me he was in favor of purchasing the entire property and that it should not be torn to pieces.

Mr. BIDDLE. I don't think that there is any question of everybody being in favor of it, but I think Mr. Wilhoite makes clear that he has no say as to purchasing the entire property, and he limits it to Chatta

nooga.

Mr. WILLKIE. Since you raise that question, as a matter of fact the Chattanooga Power Board works in complete cooperation with the T. V. A.

Mr. BIDDLE. You mentioned that before.

Mr. WILLKIE. Now, wait just a minute-and when the T. V. A. and I couldn't agree on a price, I would not come to Mr. Lilienthal's price, then promptly I get a letter from the Chattanooga Power Board, although their previous reiteration was that it should be bought as a whole, that is part of the pressure which I was talking about. Mr. BIDDLE. You testified about that on Friday.

Mr. WILLKIE. I will testify about it again.

Mr. BIDDLE. We would like to have you put Chattanooga's point of view on the record.

Mr. WILLKIE. This is not Chattanooga's point of view.
Mr. BIDDLE. Go on reading the letter.

Mr. WILLKIE (reading):

The board not only has no legal nor moral right to concern itself with the irrelevant problem of so-called State-wide versus piecemeal sale of your properties; but, furthermore, the board is legally and morally obligated to the people of Chattanooga not to allow this or other extraneous and irrelevant issues to delay the earliest possible completion of the public power system now under construction, and it will not do so unless it should be further obstructed by legal, political, financial, or other manipulations beyond its control.

In addition to the submission of these issues, all of which are either dead or irrelevant insofar as a solution of the local power problem is concerned as a basis for your refusal to negotiate a fair price for your local properties, you suggest that the board join the Tennessee Valley Authority in settlement of what should constitute a fair and reasonable price for your Tennessee properties as a whole by resort to arbitration.

This board cannot allow either arbitrators, the Tennessee Valley Authority, or any other agency to set a price to be paid by the city of Chattanooga for your Chattanooga district properties or devise a formula under which such price would be determined. This because the enabling act under which the board is operating imposes

And I may say in connection with that very question I have an opinion here which, if you will permit me to read, shows that these public authorities do have the power.

Mr. BIDDLE. I will be very glad to have you read it in due course, after you have finished the other questions.

Mr. WILLKIE (continuing)

upon the board the sole responsibility of determining the expenditure of public funds and does not give to the board the right to delegate that responsibility to others.

I disagree with that, and that position wasn't assumed until after consultation with the T. V. A.

The board cannot sign a blank check to be filled out by others.

The board frankly cannot see any reason why a price for your properties cannot be arrived at in a more direct manner than resort to the elaborate machinery or arbitration. The people of Chattanooga are unanimous in their desire to pay a fair and reasonable price for your properties and this board certainly has no incentive to act in a manner contrary to this unquestionable desire of the people of Chattanooga. This desire of the people of Chattanooga to do the right thing, coupled with the facts in the possession of the board with respect to the value of your properties, should make possible the prompt negotiation of a fair and reasonable price.

This board knows, with a measure of accuracy sufficient for all practical purposes, the cost of duplicating the existing power distribution system. The board also knows with the same measure of accuracy the original cost and the present physical value of your local power distribution system. The board also knows, with as much accuracy as such values can be measured, the nuisance value of your system or its value from the standpoint of its elimination as a competing unit. With these basic facts before both you and your associates and this board, and with a willingness upon the part of both to deal fairly and reasonably, this board can see no valid reason for the failure of any negotiations that might be undertaken.

Only one issue remains to be settled in the Chattanooga power matter and that is whether Tennessee Valley Authority power is to be supplied to the people of the Chattanooga area through the immediate acquisition of existing private power facilities or through the early completion of the municipal system now under construction by this board. In return for an evidenced willingness upon the part of you and your associates to recognize this fact, the people of Chattanooga, acting through this board, are ready to deal generously with you. The board, therefore, again earnestly urges you to immediately undertake negotiations with this board, looking to the earliest possible acquisition of your Chattanooga district properties.

Very sincerely yours,

LJW:N

L. J. WILHOITE,

Chairman, Electric Power Board of Chattanooga.

Mr. BIDDLE. Did you answer that letter?

Mr. WILLKIE. I have answered so many of them-whether I answered that particular one, I don't know.

Mr. BIDDLE. Let us see if you have answered this.

Mr. WILLKIE. I don't know whether I did or not.

Mr. BIDDLE. Apparently not. Does your correspondence file show? Mr. WILLKIE. Apparently not, but I have had discussions with the members of the power board about it.

Mr. BIDDLE. I asked whether you answered this letter and then you got a telegram from the power board on November 1st?

Mr. WILLKIE. Yes, sir.

Mr. BIDDLE. Would you read that, please?

Mr. WILLKIE (reading):

Supplementing our letter of October 22 yesterday the Federal Government gave its final approval to a further loan and grant of $3,279,000 for the construction of municipal power distribution system here. This additional loan and grant completed the financing of our program. From its creation in March, 1936, however, the electric power board has hoped to secure our public power system here through purchase at a fair price of your Tennessee operating subsidiary's existing distribution system here. During the last 31⁄2 years we have repeated requests for negotiations and have made offers to purchase. You have declined these offers. We now ask you once more to meet us to negotiate a fair price. We again impress upon you that Chattanooga's construction program is progressing rapidly and that the longer you delay beginning netogiations the less will be the value to us of your system here. The obligation upon this board is to acquire a distribution system either by purchase or construction. Anxious as we are to acquire the needed distribution system at low cost this board continues anxious to safeguard

legitimate investors in valid securities of your operating subsidiaries and so we
still seek acquisition through purchase rather than construction. Therefore, we
renew our offer to negotiate by conference for a fair price upon the following basis:
First, negotiate to purchase the electrical distribution properties of your sub-
sidiary in the immediate Chattanooga district. Second, give our aid in expanding
the negotiations to embrace purchase of all your electrical generating, transmitting
and distributing property now serving cities, towns, and rural districts of the
entire Chattanooga area. Therefore, the electric power board proposes with the
cooperation of the Tennessee Valley Authority that negotiations be begun at once
for the acquisition by the Tennessee Valley Authority and cooperating cities, etc.,
of the geographically and engineering complete segment of the Chattanooga dis-
trict as a whole. The exact limits of this area should be determined by a con-
ference of engineers of the electric power board, the Tennessee Valley Authority
and the Tennessee Electric Power Co. The board now has its financing program
complete. Our construction is progressing rapidly. If competition is to be
avoided there must be immediate action. You must appreciate that we must
know within the next few days whether or not you are now willing to negotiate
with us.
We hope we shall see you at the conference board.

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

Mr. BIDDLE. Did you answer that?

Mr. WILLKIE. I got a wire from one of the members of the Chattanooga Power Board asking me not to answer that.

Mr. BIDDLE. Let us have that.

Mr. WILLKIE. I don't know whether it is here or not-have we got the correspondence?-saying that he was quite hopeful that this thing could be worked out in its entirety.

Mr. BIDDLE. So you didn't answer it.

Mr. WILLKIE. Did I answer this particular letter?

Mr. BIDDLE. That was November 1. I am speaking now only of letters addressed to the Chattanooga Power Board.

Mr. WILLKIE. You mean not to members of it who got in touch with me?

Mr. BIDDLE. Between you and Chattanooga.

Mr. WILLKIE. That is what I am speaking of.

Mr. BIDDLE. That is right.

Mr. WILLKIE (reading). "I have your telegram".
Mr. BIDDLE. What is the date of this?
Mr. WILLKIE (reading):

Mr. L. J. WILHOITE,

NOVEMBER 10, 1938.

Acting Chairman, Electric Power Board of Chattanooga,

Chattanooga, Tenn.

MY DEAR MR. WILHOITE: I have your telegram of November 1, as well as Mr. Lilienthal's letter of October 31, both proposing that we negotiate the piecemeal sale of the Tennessee Electric Power Co., viz, that at the present time we sit with your board and with the Tennessee Valley Authority to determine the piece of that company embraced within the Chattanooga area to be sold. I shall not now review my views about the serious consequences such piecemeal sale would cause the Tennessee Electric Power Co., as I have many times heretofore pointed them out to both you and Mr. Lilienthal. Suffice it to say at this moment that your demands present to the officers and directors of the Tennessee Electric Power Co. and of the Commonwealth and Southern Corporation, as well as to the security holders of both companies, a most serious problem. I am fully appreciative that if I do not agree with your suggestion that your Board, possessed of the several million dollars heretofore given to it by the Federal Government, and also with the aid of the T. V. A., has the power to duplicate at low cost to you the property of the Tennessee Electric Power Co. and thereby subject it to serious subsidized competition. I am, therefore, doing all that I can to reconcile my obligation as a trustee and my sense of fairness with your requirement.

The acceptance of your proposal affects not alone the Tennessee Electric Power Co. but the other companies in which we are interested in adjoining States. I have, therefore, been holding a series of conferences with the officers of the Tennessee Electric Power Co. and these other companies, presenting to them fairly and frankly the problem and seeking their advice. I am also having like conferences with some of the stockholders of the companies in order that they may likewise fully understand the problem prior to a decision.

Unfortunately, my endeavors to come to an early conclusion have been interrupted greatly by recent notice from the Joint Congressional Committee Investigating the T. V. A. that it will require me to appear before that committee next week and testify in regard to a great variety of subjects, including correspondence, audits, and income-tax returns of these companies covering a period of 12 years, plant capacities, distribution, and transmission lines, etc. You can readily appreciate that the preparation thus required has thrown upon me a great extra burden. I shall nevertheless devote every minute I can to the problem so that I can give an answer to the question which you propose within as brief a period as possible. In the meantime, I shall appreciate very much your courtesy of forbearance.

Sincerely yours,

WENDELL L. WILLKIE, President.

Ce-Mr. David E. Lilienthal, Mr. Jo C. Guild, Jr.

Mr. BIDDLE. Did you get any answer from that, from Chattanooga? Is that the last letter in the series?

Mr. WILLKIE. I think it is; yes.

INVESTORS' COSTS

Mr. BIDDLE. Now, coming to another matter, Mr. Willkie, you spoke of investors' costs as being a fair consideration in addition to the physical value of the property. We would be interested to know what you have in mind.

Mr. WILLKIE. Well, I can't tell you all that I have in mind, Mr. Biddle.

Mr. BIDDLE. Tell us some of it.

Mr. WILLKIE. But take a property such as the Tennessee Electric Power Co., occupying three-fifths of the State of Tennessee. It has been gathered together over a period of years, by acquisition; that is, practically all power systems started by isolated municipalities, started here and there, and later were brought into minor consolidations and then into larger consolidations.

COST OF ACQUISITION

Now, one question that you have, in such a combination of properties, is: Supposing that you own a power property that is to be acquired, and I come to you and want to acquire it, and you ask me a certain price, and the State regulatory commission finds that that is a fair price. In my judgment, that should go into the capital structure of the company, as long as that is an arm's-length dealing.

Mr. BIDDLE. I see. What would you term that? Is there any word for what you say, that should go in?

Mr. WILLKIE. The cost of acquisition.

Mr. BIDDLE. Right.

Mr. WILLKIE. The cost of acquisition, if it is an arm's-length transaction.

Mr. BIDDLE. That is irrespective of any appraisal consideration. Mr. WILLKIE. Yes; approved by the established regulatory bodies, as a necessary and proper acquisition, and the price determined by

that body, by such regulatory commission-then I say that that is an investor's legitimate cost in the property.

Mr. BIDDLE. Now tell us another one.

COSTS OF SALES PROMOTION

Mr. WILLKIE. Well, take, for instance, the Tennessee Electric Power Co., which has spent a great deal of money in the last few years, in the promotion and sale of electric appliances.

Mr. BIDDLE. Yes.

Mr. WILLKIE. We have built that company, until it has the highest average use, and the lowest average you understand I am speaking of averages, rates of any utility system in the United States.

Mr. BIDDLE. You spoke of that on Friday, and I don't want you to unnecessarily repeat yourself.

Mr. WILLKIE. May I go ahead.

Mr. BIDDLE. Yes.

Mr. WILLKIE. Except in the Northwest. Now, the way we have done that is by an intensive sales-promotion program

Mr. BIDDLE. What would that be in terms of dollars and cents? Could you give us an estimate?

Mr. WILLKIE. Now, wait a minute. I want to add this addition: Which has not as yet been recouped from earnings.

Mr. BIDDLE. Right. Would that be an operating cost on your books?

Mr. WILLKIE. If it had been recouped from earnings, then it should go into operation, but it has not.

Mr. BIDDLE. Now, wait a minute. How is it charged? Mr. WILLKIE. I assume it is charged as an operating cost. Mr. BIDDLE. And what would that be, roughly, in dollars and cents? Mr. WILLKIE. What we have expended to build this business; and understand, anybody that takes it over gets the benefit of that business. Mr. BIDDLE. That is a fair suggestion, but what would it be in money?

Mr. WILLKIE. I think it is something, and I am guessing quickly, Mr. Biddle, something around two and a half million dollars.

Mr. BIDDLE. So that that operating expense of two and a half million dollars should be one of the considerations in making a fair purchase of the system?

Mr. WILLKIE. If we show it has not been recouped.

Mr. BIDDLE. Quite right. Now, what is the next one?

OPERATING COSTS

Mr. WILLKIE. No. 3, in connection with the building of this tremendous use of electricity, we have adopted the policy where a customer wants to take a range, you have to put wiring in his house, and we have done that wiring.

Mr. BIDDLE. That is, installation in his house.

Mr. WILLKIE. Yes.

Mr. BIDDLE. Is that an operating cost?

Mr. WILLKIE. But over a period of time-wait a minute-we amortize that.

Mr. BIDDLE. Sure; that is an operating cost.

Mr. WILLKIE. Yes; it is an operating cost, but it goes-it is an operating cost.

Mr. BIDDLE. Just like the promotion.