Mr. KETCHUM. I merely say that I don't recall at the moment, I may be in error about this, and if so I am wrong, but I don't recall at the moment seeing such an item. Mr. BIDDLE. What was the last operating statement that you looked at? Mr. KETCHUM. The 1937 annual report of the T. V. A. Mr. BIDDLE. I am not talking about T. V. A.; I am talking about the municipalities. Mr. KETCHUM. It includes in it, the annual reports of its distributing agents. Mr. BIDDLE. Have you seen any report of a distributing agent after the year ending June 30, 1935? Mr. KETCHUм. Yes. Mr. BIDDLE. Which one? Mr. KETCHUM. Well, I am looking at Tupelo, Miss., for the year ending June 30, 1937, now. Mr. BIDDLE. Will you find some of those hidden costs in that statement that you are talking about. Mr. KETCHUM. The burden of my complaint is that they are not in the statement. Mr. BIDDLE. What costs are not in the statement, that is what I meant. Mr. KETCHUM. The load-building expense incurred by the Tennessee Valley Authority, in promoting, I believe that they call it a demonstration, in one of their press releases. Mr. BIDDLE. We understand your position about load building; you say when a wholesaler builds its load, it should be charged to its operating customer. Now, let us get to the next subject, the next subsidy that is not shown. Mr. KETCHUM. The contracts governing the relationship of T. V. A. to these cooperatives and municipalities provide for auditing services, and engineering services, and in effect for management services, by T. V. A. on behalf of these distributing agents. Mr. BIDDLE. Now, have you got a specific basis for that opinion? Mr. KETCHUM. Yes, sir. Mr. BIDDLE. Can you give us that? Mr. KETCHUM. I refer you to page 222 of the 1936 annual report of the Tennessee Valley Authority, section 15 of the contract itself, between the Pontotoc County Electric Power Association and the Tennessee Valley Authority. Mr. BIDDLE. On the page, where is it? Mr. KETCHUM. On the middle of the page, item 15, rendition of advisory services by Authority. Mr. BIDDLE. What page is that? Mr. KETCHUM. Two hundred and twenty-two. Mr. BIDDLE. Go ahead. Mr. KETCHUM (reading): Authority agrees to render advisory services to association in problems of personnel, and administration, to secure the attendance of its officers at meetings of the association, its board of directors, so far as may be practicable and convenient, and to make available to association the facilities and services of its personnel division so far as may be necessary in the selection of association's personnel. In the event professional services are rendered, at association's request, association agrees to pay the reasonable value thereof, as billed by Authority. Mr. BIDDLE. Well, have you computed the value of those services for consultation? Mr. KETCHUм. I have not. Mr. BIDDLE. It would be difficult to compute them? Mr. KETCHUM. I do know that while difficult of computation, that it must have been substantial, in the case of the Middle Tennessee Electric Membership Corporation, where the minutes of the meeting of the executive board or the executive committee or whatever it may be called, show that three or four successive meetings were attended by the T. V. A. district manager, that he made recommendations, as to whom the association should employ as superintendent and assistant superintendent, and that resolutions were passed providing that copies of all correspondence be sent to T. V. A., and I assume that somebody reads it, so that I should think that while I can't hand you a figure in dollars, representing the value of the services, that I should think that it must be substantial. Mr. BIDDLE. Substantial? Mr. KETCHUM. Yes. Mr. BIDDLE. And I suppose that the utility companies don't have consultations with their wholesale customers? Mr. KETCHUм. Well, not Mr. BIDDLE. Not in that sense. Mr. KETCHUM. Not in the sense that they render advisory services and dictate whom they shall employ. Mr. BIDDLE. They may not dictate, but they may suggest. Mr. KETCHUM. One of these contracts provides that the cooperative shall not employ any person that the T. V. A. doesn't want. Mr. BIDDLE. It is subject to their approval? Mr. KETCHUM. Well, that is dictation, isn't it? Mr. BIDDLE. I should think that it might be very different. I think that that is all of the questions for this particular witness, Mr. Chairman. I would like to offer these documents, seven documents, each marked "One of a series of advertisements published in cooperation with the Georgia Power Co." Acting Chairman SCHWARTZ. They are received, if there is no objection. (Whereupon the documents above referred to were marked "Exhibit No. 478" and received in evidence.) TESTIMONY OF WENDELL L. WILLKIE-Resumed Mr. WILLKIE. There is one thing that I would like to correct-it was suggested that this contract with the War Department was on a 30-day basis, and it was revocable without notice, of the power purchased. EFFECT OF RATE REDUCTIONS ON UTILITY PROFITS Mr. BIDDLE. Mr. Willkie, there are a few more questions that I would like to ask you. Do you think that you can compete with the T. V. A. rates? Mr. WILLKIE. You mean the present T. V. A. rates? Mr. WILLKIE. No. Mr. BIDDLE. Well, if you don't sell out, are you going to try to compete with them? Mr. WILLKIE. I should think that that is a question of policy as far as I am concerned, and I don't have to determine that here. Mr. BIDDLE. Certainly not, I am just wondering if you could give us the benefit of your views on it. Mr. WILLKIE. Well, you suggested to me what the T. V. A. and the city of Chattanooga in concert have suggested several times. Mr. BIDDLE. I didn't know that. Mr. WILLKIE. Yes; quite a similarity. That is if we compete, that in addition to that competition, that there will be levied upon us additional municipal taxes. Mr. BIDDLE. No; that is not my suggestion, at all. Mr. WILLKIE. But it is so similar to the others that I have heard. Mr. BIDDLE. That is not what I want. Have you ever lost money in the long run when you lowered your rates? Mr. WILLKIE. Well, now, Mr. Biddle, to answer that question, there is just one argument to that in the utility business, there is not the slightest doubt that if you lower your rates, speaking of domestic, you increase your kilowatt-hour usage. If you would give it away, you would increase it more. In the utility business, the problem is this: To constantly reduce your rates and increase your use, but do it at such a pace, that you do not destroy the financial integrity of your company. Mr. BIDDLE. Of course we know that, Mr. Willkie, I simply asked you, did you ever lose money when you reduced your rates, do you know? Mr. WILLKIE. Yes; in the war time we did, just before the war we did. Mr. BIDDLE. Have you since then? Mr. WILLKIE. No; because we have always reduced them in such moderate degree as to preserve the principle of which I spoke. Mr. BIDDLE. Then might it not be that these rates would not lose money? Mr. WILLKIE. You mean that you could beat the T. V. A. rates? Mr. BIDDLE. Meet them. Mr. WILLKIE. If you could get your domestic use up, to, 2,500 or 3,000 kilowatts, you could lower your rates somewhat comparable to these rates, but that would take a tremendous expenditure of money to sell the necessary appliances for that purpose, and would take a period of several years. Mr. BIDDLE. Several years. Mr. WILLKIE. Yes. THE 18 POWER COMPANIES CASE Mr. BIDDLE. Mr. Willkie, there is very little more that I want to ask you, just one or two more questions. Was the Tennessee Electric Power one of those companies joined in the 18 Power Companies suit? Mr. WILLKIE. It was. Mr. BIDDLE. Could you tell me the total, I don't want it broken down, of the fees paid by the Commonwealth and Southern in the T. E. P. 18 Power Companies case? Mr. WILLKIE. Approximately $200,000, I think. Mr. BIDDLE. Approximately $200,000? Mr. WILLKIE. I will get you the exact figures. Mr. BIDDLE. Was that in addition to fees paid by the operating company? Mr. WILLKIE. You are speaking of Commonwealth and Southern? Mr. BIDDLE. Was that in addition to the fees paid by it? Mr. WILLKIE. Commonwealth and Southern didn't pay any $200,000. Mr. BIDDLE. You mean that that covers the operating companies and Commonwealth? Mr. WILLKIE. That covers all of them. Commonwealth and Southern expended in connection with the 18 Power Companies case, $68,000. Mr. BIDDLE. There is just one other thing, if you will wait just a moment, Mr. Willkie. I was wondering what you meant when you said that the T. E. P. Co. had never earned a fair return on its investment. Could you tell us what you mean by that? Mr. WILLKIE. I mean the allowable rate of return on its property values determined by the commission, and under that rate of return which the Supreme Court in various decisions has allowed. Mr. BIDDLE. You have never earned that rate? Mr. WILLKIE. I think that that is correct. Mr. BIDDLE. What rate have you earned? me. Mr. WILLKIE. I would have to get the exact figures here before Mr. BIDDLE. I just want to know; you never earned up to the allowable limits, so to speak? Mr. WILLKIE. That is right. COST OF ADVERTISEMENTS Mr. BIDDLE. Now, if you will bear with me just a moment, I seem to have a mass of stuff here. Mr. Willkie, are these the advertisements of the Commonwealth and Southern? Mr. WILLKIE. I think that they are the ones your investigators got. Mr. BIDDLE. Just look and see if the Commonwealth and Southern put those out. Mr. WILLKIE. These are the ones that we gave to your investigators. (Whereupon the documents above referred to were marked "Exhibit No. 479" and received in evidence.) Acting Chairman SCHWARTZ. The committee will be in recess for 5 minutes. (Recess.) Acting Chairman SCHWARTZ. The committee will come to order. Mr. BIDDLE. In connection with the advertising which I showed you, you were kind enough to give our representatives the figures for the total advertising costs; have you got those? Mr. WILLKIE. Yes. We have the total for all advertising, you want what the total advertising cost was for all purposes, or for Mr. BIDDLE. I think that it was broken down to the advertisements which I specified. Mr. WILLKIE. Yes; I have that figure. Mr. BIDDLE. What is it? Mr. WILLKIE. It is $19,899.44. Mr. BIDDLE. Then in connection with all institutional advertising, which could be termed advertising of policy, and matters of that kind, the figure is $62,000, and that is the figure for all of the advertising, and not only on those four ads? Mr. WILLKIE. That is $62,000, and that is for 5 years. Mr. BIDDLE. Have you the figure for the total information service, such as this analysis, and material of that kind, for that 4 years and 8 months. While he is getting that, Mr. Willkie, if you can't get a fair return on your investment, why don't you raise your rates? Mr. WILLKIE. Why don't we raise our rates? We never have raised a rate, certainly not since I have been President of the Commonwealth and Southern. Mr. BIDDLE. Would it pay to lower them even more? Mr. WILLKIE. As I said to you, Mr. Biddle, the policy is, and the wisdom is to lower them at such progression as to still retain the financial integrity of the company, because the cost of capital is either the larger or the largest or the next to largest item of expense in every utility system. ARBITRAL AGREEMENTS Mr. BIDDLE. Mr. Willkie, you had a legal opinion you wanted to read to the committee. Mr. WILLKIE. Yes. Mr. BIDDLE. Would you like to read that now? Mr. WILLKIE. Yes; I can read that now. Representative WOLVERTON. That is on the question of arbitra tion? Mr. WILLKIE. I think it is quite persuasive and it will take me just a minute to read it. After my suggestion here of arbitration Acting Chairman SCHWARTZ. Who is the opinion by? Mr. WILLKIE. The law firm of Winthrop, Stimson, Putnam & Roberts, of which Colonel Stimson is one of the senior members, and after our discussion here the other day, you gentlemen seemed to manifest a great interest in the possibility of arbitration, either by the S. E. C. or by anybody else, and I called Winthrop, Stimson, Putnam & Roberts, with whom I have previously advised on that question, and asked them to give me a written opinion. And they have written one, and it is as follows: Letterhead of WINTHROP, STIMSON, PUTNAM & ROBERTS WENDELL L. WILLKIE, Esq. NOVEMBER 24, 1938. Hotel Carlton, Washington, D. C. DEAR SIR: In connection with your testimony yesterday before the Joint Congressional Committee which is making an investigation of the Tennessee Valley Authority, we understand that counsel for the committee called attention to the fact that a question had been raised in regard to the authority of the T. V. A. to buy properties of the Tennessee Electric Power Co. at a purchase price fixed by third parties or by arbitrators agreed upon between the seller and the T. V. A. You have asked for our opinion on this question. |