wholesale power, what does it sell wholesale power, let us say, to the Birmingham Electric Co. for, do you know? Mr. WILLKIE. Yes; approximately. I want to get your question first, because I don't think the first part of it is correct. Mr. BIDDLE. The first part was, is not the Alabama Power Co. largely engaged in wholesale operations? Mr. WILLKIE. It depends altogether on what you mean by "largely." Mr. BIDDLE. Seventy-five percent of its business. Mr. WILLKIE. Are you speaking of industrial? Mr. BIDDLE. Yes-not industrial, any wholesale business. Mr. WILLKIE. That is the difficulty I have. Mr. BIDDLE. I am speaking of wholesale. Don't you have a defini tion of wholesale business? Mr. WILLKIE. I am trying to get it defined by you. Mr. BIDDLE. Define it yourself. Mr. WILLKIE. If you mean wholesale or selling to others aside form industrial concerns Mr. BIDDLE. And utilities? Mr. WILLKIE. And our own utility system. Mr. BIDDLE. Right. Mr. WILLKIE. "Largely"-I don't know what "largely" means. Mr. BIDDLE. Eighty percent, 75 percent? Mr. WILLKIE. Oh, leaving out industrial consumers? Mr. BIDDLE. No; leaving them in. Mr. WILLKIE. Leaving in all industrial consumers and all municipalities and sale to our other companies? Mr. BIDDLE. Wholesale. Mr. WILLKIE. In other words-what is the percentage? Is there anybody here that knows the exact percentage? A VOICE. The industrial is about 40 percent. Mr. WILLKIE. Do you know what the sale is to the Georgia Power and the others? (Discussion had off the record.) Mr. BIDDLE. Do you classify sales to industries as retail? Mr. WILLKIE. I usually speak of wholesale business as sales to other distributors of electric energy. Mr. BIDDLE. Yes. Mr. WILLKIE. Because they retail it. We retail all of our energy. We wholesale that part that we sell to others for distribution. Mr. BIDDLE. I am talking of wholesale business, of electricity sold on wholesale rates. Could you give us the percentage of that for the Alabama Power Co? Mr. WILLKIE. I can't give that. Mr. BIDDLE. It is a substantial amount. Mr. WILLKIE. Yes. Mr. BIDDLE. Forty percent industrial. Mr. WILLKIE. All right. Mr. BIDDLE. What is your rate in Birmingham ? Mr. WILLKIE. Our rate in Birmingham, as I recall, to the city of Birmingham, to the distribution system in the city of Birmingham is about 5.5 mills-it is 5.8 mills. Mr. BIDDLE. Now, there is another question, Mr. Willkie, I would like to ask you about your point of view which is a little-changing the subject again, as we have to do-you have constantly said, haven't you, that the Government is destroying your security values, you have been saying it for several years in speeches and articles, and in your annual reports, I understand? Mr. WILLKIE. As often as anybody would listen to me. Mr. BIDDLE. I don't suppose that a constant repetition of the "destruction of your security values" by the president of the Commonwealth and Southern would have any effect on your security values, would it? Mr. WILLKIE. Senior securities, the value of them is not determined by the expressions of any man, they are determined by facts. The price of senior securities is determined by the smart buyer. Mr. BIDDLE. Isn't that leaving out the psychological value that you expressed so strongly on Wednesday? Mr. WILLKIE. Wait a minute. Let me answer your question. Mr. BIDDLE. Well, you had answered, and I am asking you another. Mr. WILLKIE. No, I hadn't. The price of the senior securities in the Tennessee Valley area, which have at times run up to 60 percent below par, are determined by those buyers who appraise the danger of the Government operation, and not by the casual buyer, who is influenced by statements either by Government or myself, but are affected, the real buyer is affected by what has happened. Mr. BIDDLE. Then the answer is that those statements Acting Chairman SCHWARTZ. Do you think that the careful buyer has to also take into consideration the past history of the utilities? Mr. WILLKIE. If he took into consideration the past history of these utilities, the better operated utilities in America, free from Government threat, they would be the most popular securities on the market. Acting Chairman SCHWARTZ. That includes the word "better"? Acting Chairman SCHWARTZ. That includes the word "better"? Mr. BIDDLE. Now, I am coming again, Mr. Willkie-or I am coming to your analysis of the annual report of the T. V. A. Acting Chairman SCHWARTZ. Fifteen percent of bad apples in a barrel would sort of affect the barrel, wouldn't it? Mr. WILLKIE. There were two of the Apostles who went wrong you know; maybe three. Acting Chairman SCHWARTZ. I didn't know of but one of them who went wrong. Mr. WILLKIE. Out of 12. Mr. BIDDLE. Let's get the analysis of the annual report. You made an analysis of the T. V. A. annual report for the year ending June 30, 1936, did you not? Mr. WILLKIE. No; Mr. Ketchum, who is here and subject to your complete cross-examination, wrote that analysis. Mr. BIDDLE. You put it out under your signature, did you not? Mr. WILLKIE. Pointing out that it was prepared by others. Mr. BIDDLE. I am going to ask you some questions about it. If you would prefer to put Mr. Ketchum on the stand to answer them you may. Mr. WILLKIE. Fine. Mr. BIDDLE. Then will you withdraw and put Mr. Ketchum on? Mr. WILLKIE. Certainly. (Mr. Willkie was temporarily withdrawn as a witness and Mr. Ketchum called to the stand and sworn.) Acting Chairman SCHWARTZ. We will now take a recess until 1 o'clock. (Whereupon, at 12 noon, the hearing was recessed until 1 p. m.) AFTERNOON SESSION, FRIDAY, NOVEMBER 25, 1938 (Whereupon, at 1 p. m., the hearing was resumed pursuant to recess.) TESTIMONY OF W. D. KETCHUM ANALYSIS OF TENNESSEE VALLEY AUTHORITY REPORT Mr. BIDDLE. Mr. Ketchum, I refer you to the analysis of the annual report of the Tennessee Valley Authority which Mr. Willkie stated, I think, that you had prepared, and which has been marked "Exhibit No. 477." (Whereupon the document above referred to was received in evidence and marked "Exhibit No. 477.") Did you prepare the facts, figures, and conclusions in this report which you have before you? Mr. KETCHUм. That is the case. Mr. BIDDLE. Are they all accurate and substantial? Mr. KETCHUM. They are substantially accurate as best we could prepare them at the time. If I were doing it today, in the light of the additional information that has become available, since the time this was prepared, I could do a better job. Mr. BIDDLE. Do you wish to correct any substantial matters before we examine you about the exhibit? Mr. KETCHUM. No, sir; I think with the statement I just made I have no apology for this report. It is the best job that I knew how to do at the time. Mr. BIDDLE. On the information before you at the time? Mr. KETCHUм. That is right. Mr. BIDDLE. This was prepared for the Commonwealth and Southern Corporation and sent out to the stockholders? Mr. KETCHUM. I don't know to whom it was sent out. It was prepared not only for, but by the Commonwealth and Southern Corporation. Mr. BIDDLE. Now, let's get down to the report. Will you turn to page 39, please, and I am referring, Mr. Chairman, to page 39, to the last paragraph, No. 5. I will read it: During the fiscal year 1936 Tennessee Valley Authority paid a total tax of $45,347. That we can agree is a correct statement I think. At the end of this fiscal year its total investment, excluding properties turned over to it, namely, Wilson Dam, Sheffield steam plant, etc., amounted to about $100,000,000. 115943-39-pt. 10-15 I take it that these figures were taken by you from the annual report of the Tennessee Valley Authority for the year ending June 30, 1936. Am I correct? Mr. KETCHUM. I believe that is correct; yes, sir. Mr. BIDDLE. Will you turn to the page of the annual report at which you find the figure of "substantially $100,000,000"? I refer you to page 127 in order to save time. Here is the report itself. Mr. KETCHUM. I have page 127 here, but I don't think that is the page. Mr. BIDDLE. 123, I think it is. Mr. BIDDLE. My mistake, page 123. Do you refer to the figure of $96,765,646.25, which is stated "Total investment in programs?" Mr. KETCHUM. That is the figure. I rounded it out to approximately $100,000,000. Mr. BIDDLE. That was only a loss of about $4,000,000; that is a minor matter. Mr. KETCHUM. It is a loss of $3,234,000 some odd. And I mention the fact that this does not say the investment was $100,000,000. It says it amounted to about $100,000,000. Mr. BIDDLE. I was wondering why you didn't take the exact figure. Mr. KETCHUM. Simply for convenience in reading I rounded it out, because this paragraph here does not purport to be a mathematically exact statement. Mr. BIDDLE. I see. Mr. KETCHUM. By the way, you asked me if I wanted to make any corrections. In reading this thing over, this paragraph here, while I don't request the privilege of making a correction, it seems to me that that is a wonderful understatement as to the taxes that a private utility would pay. Mr. BIDDLE. Now, let's see about that. Let's continue reading it. Including properties turned over to it, its total investment at the end of the year exceeded $220,000,000. Will you tell us how you arrive at the figure of $220,000,000? Mr. KETCHUM. Yes, sir. That $220,000,000 of course includes in round figures $100,000,000 taken from page 123 of the 1936 annual report of T. V. A. Mr. BIDDLE. Yes; you have given that already. Mr. KETCHUM. That leaves $120,000,000. Mr. BIDDLE. That is right. Mr. KETCHUM. That is derived from the investment in the properties which were turned over to T. V. A. at the time or shortly after the time of its creation. Mr. BIDDLE. That is the cost of the total Muscle Shoals properties to the United States Government, is it not? Mr. KETCHUM. No, sir; it is not the total cost. There again is a case where I leaned over backward and took a lower figure than I would have been justified in taking. At pages 21 and 22 of the House Military Affairs Committee hearings-I don't remember the Congress, but it was in 1922-pardon me, it is the 67th Congress, second session, at pages 21 and 22-there appear the following figures for the investment in the United States nitrate plants Nos. 1 and 2, respectively, $13,682,301 in the No. 1 plant, and $70,979,852 in the No. 2 plant. Mr. BIDDLE. And you excluded both of those, did you? Mr. KETCHUм. Excluded them? Mr. BIDDLE. I am asking you, did you exclude them or include them. Mr. KETCHUM. I was just explaining what is the make-up of those figures. They are definitely included. Mr. BIDDLE. Right; so you included the total cost of the nitrate plants in that figure of $120,000,000, did you not? Mr. KETCHUм. I had to, otherwise the statement would not have been true. Mr. BIDDLE. I understand. Mr. KETCHUM. Pardon me, I was not quite through. In addition to that there was turned over to the T. V. A. shortly after its creation & Wilson Dam hydroelectric plant, which is stated to have cost in round figures, $47,000,000, or exactly $46,950,748. Mr. BIDDLE. That is right. Mr. KETCHUM. Now, that appears at page 123 of the 1936 House Appropriations hearings, I think that was on the deficiency appropriations bill, the bill which provided an appropriation for T. V. A. Mr. BIDDLE. That includes the lock section of $4,382,227.07, does it not? Mr. KETCHUM. That includes everything in the Wilson Dam plant and in the dam and associated with the dam. Whether that is a correct appraisal of the lock, I can't say. It sounds like the figure that is in the T. V. A. allocation report for the lock section. Mr. BIDDLE. What is the original figure for the lock section? Mr. BIDDLE. You don't know that? Mr. KETCHUM. Not without digging into it. Mr. BIDDLE. Your point is that you included the entire cost of the nitrate plant and lock section in trying to arrive at the investment in power. Mr. KETCHUM. Not in its- Mr. BIDDLE. Wait a minute, I have not finished the question. Mr. BIDDLE (continuing). In trying to arrive at the T. V. A.'s investment in power in order to compare what a private utility would have paid on its power investment to what the T. V. A. was paying on its power investment. Mr. KETCHUM. I will have to correct that. In the first place I don't think it is fair to say I was here trying to arrive at the T. V. A. investment in power facilities. That would have been practically an impossible job. Mr. BIDDLE. Oh, you were not trying to arrive at the power invest ment in T. V. A.? Mr. KETCHUM. No. If you will read this, I think you will find there is nothing in it that implies power facilities. That was my idea of taking a crack at the fact T. V. A. does not pay taxes comparable to those that a private utility pays. |