purposes. You might expect at any time to have a flood, in which case you would want it empty, or you might expect at any time a drought, in which case you would want it full.

But on the Tennessee we have a very marked flood season and a marked dry season, and we plan in general to have this volume full. or occupied, at the beginning of the dry season and the end of the wet season, and to have it empty, drawn down and available for flood storage, at the beginning of the flood season. Is that clear?

Now, just what the dimensions of that joint volume, jointly used volume, should be depends on the dimensions and circumstances of each case.

Representative JENKINS. You can say it that way if you want to, if you want to say that extra head of water you keep back there is for flood protection, all right; but as a matter of fact, that is not what it is for at all. You have got to have your minimum flow, rain or shine; you have to have that minimum flow to give the maximum of power. Then the extra storage you keep back there is just like the farmer who keeps his corncrib full of corn. He don't raise corn only in the summer, but he has to feed it in the winter, and he has to store it against the time that he needs it, and you have got to store it against your dry-weather period.

Isn't this a fact, when they had the 1937 flood-and you didn't have much flood in the Tennessee Valley; you had some extra rainfall, but you didn't have much flood in the Tennessee Valley when you had the big one on the Ohio River-but isn't it a fact when you try to work your plan on the flood control and the flood storage in the Norris Dam, you just wreak devastation back up there, and your calculations were all thrown aside, and your figures were never justified when the flood did come?

Colonel PARKER. I don't think we would agree with that.

Representative JENKINS. I understand you do it. Who will know about that?

Colonel PARKER. Professor Woodward. He will be able to do a much better job than I can on that proposition.

Representative JENKINS. I want to say further about this storageI think I have given you all of the dams except the

Colonel PARKER. Gilbertsville?

Representative JENKINS. Except Hiwassee. I don't know why I haven't got the figures on Hiwassee as to how many feet of water storage you figure there. But of course you must admit that you favor power, these things for power, and you can easily say that extra head is kept for two purposes.

Colonel PARKER. Who did you say favored power? I didn't quite get that. I thought you said somebody favored power.

Representative JENKINS. I said "you who favor power."
Colonel PARKER. I just wondered why you said that.
Representative JENKINS. If you object I will say "those."
Colonel PARKER. I just wondered why you said that.

Representative JENKINS. Because you represent T. V. A., that is my reason; I withdraw that if you object to it.

Colonel PARKER. It doesn't seem quite an adequate reason. Representative JENKINS. You are appearing here as a T. V. A. representative, aren't you?

Colonel PARKER. Yes, sir; but I don't favor power. Power, according to the terms of the act, is merely incidental.

Representative JENKINS. Well, do you still maintain that $400,000,000 as against $75,000,000 is incidental.

Colonel PARKER. No, sir; I don't think that is the measure.
Representative JENKINS. That is all.

Chairman DONAHEY. Proceed with the examination of the witness.
Mr. BIDDLE. Go ahead, Colonel Parker, with your statement.

ALLOCATION OF COSTS RE NAVIGATION, FLOOD CONTROL AND POWER Colonel PARKER. It is obvious that the total costs of the singlepurpose development for navigation and flood control are at least as great and perhaps even greater than the total cost of the Authority's dams and reservoirs less the direct expenditures for powerhouse and generators.

At the same time, the single-purpose projects would provide a much inferior navigation channel and would waste and destroy completely the power resources, which are the only means of liquidating the Government's investment in the navigation and flood-control improve

ments.

It is desirable that a proper share of the total expenditures for navigation and flood control and power production be charged to each function in order to obtain a measure of the economy of this enterprise. For this purpose an allocation of the investment in the three projects in operation throughout the latest physical year has been prepared by the Authority.

I was a member of the financial policy committee which studied that problem and prepared the report. This study required months of careful consideration of all related matters, including a review of the experience of other public bodies in solving somewhat similar problems.

The methods adopted in preparing this allocation will be discussed in some detail by another witness. It is important, however, to mention this allocation now since it affords the most appropriate means for appraising the results so far achieved in the Tennessee Valley.

I would like to emphasize again that I do not regard this allocation as an end in itself. It is a means to an end.

The allocation of the cost of these three projects as made by the Authority is: Power, 52 percent; navigation, 28 percent; and flood control, 20 percent.

On this basis, the Government has secured a navigable stretch of river for less than 60 percent of what this would have cost as a separate project.

Mr. BIDDLE. What proportion of the total common costs are allocated to power? Fifty-two percent, I understand, includes-—— Colonel PARKER. About 40 percent of the common.

Mr. BIDDLE. That is 40 percent of the total common cost as allocated to power; and then in addition to that 12 percent specifically represents the power investment, such as generators, and so forth, and is added to that to make the total allocation; is that correct? Colonel PARKER. That is right; yes.

Mr. BIDDLE. Go ahead.

Representative WOLVERTON. Will you repeat just what you said in those last three lines?

Colonel PARKER. The allocation of the cost of these three projects is: Power, 52 percent; navigation, 28 percent; and flood control, 20 percent.

Representative WOLVERTON. Who fixed those percentages?

Colonel PARKER. The Authority; that is, the findings of our financial policy committee were approved by the board of directors. Representative WOLVERTON. Now, who is that composed of? Colonel PARKER. The board of directors?

Representative WOLVERTON. No; the financial policy committee? I assume the board of directors took their figures without any change. Colonel PARKER. The financial policy committee was composed of E. L. Kohler, comptroller; S. M. Woodward, chief water-control planning engineer; W. C. Fitts, solicitor; J. A. Krug, chief power planning engineer; myself; and Paul W. Ager, chief budget officersecretary.

Representative WOLVERTON. When was that study made?
Colonel PARKER. This report was dated June 16, 1938.

Representative WOLVERTON. When was the study made that enabled you to make that report in June 1938?

Colonel PARKER. The committee, I believe, was originally appointed the preceding summer, but it was not able to make any investigation, or intensive studies, rather, until about-about 6 months preceding this date were devoted to this study.

Representative WOLVERTON. Prior to that time had there been any allocation, or attempt to fix an allocation, on a percentage basis for these different activities?

Colonel PARKER. There were a number of studies made, but there were not officially approved conclusions.

Representative WOLVERTON. Did those studies that had previously been made conform to the studies as finally presented to the President, or have they been changed from time to time?

Colonel PARKER. They were in general-I am not familiar with all of them, but they were in general preliminary studies of various methods which had been proposed for use in the allocation.

Representative WOLVERTON. I am still asking you the question, Did those studies bring about the same result that was finally presented in this report of June 1938, or did they represent a different percentage?

Colonel PARKER. The preliminary studies, as far as I know, were never carried forward to any final conclusion. They were studies of methods and tentative consideration of various ideas along that line.

Representative WOLVERTON. Well, in the studies that were made, you mean to say they were never carried to a conclusion?

Colonel PARKER. I am really not familiar with all of those studies, sir. I was not in any way involved in those earlier studies.

Representative WOLVERTON. Then what was the theory or the method by which this committee fixed 52 percent for power, 28 percent for navigation, and 20 percent for flood control?

Colonel PARKER. I think I shall have to refer you to the report of the committee, which I believe is available. That is quite a long

story to follow through that whole line of reasoning. I can sum it up, but that is not a very adequate way to explain it.

Representative WOLVERTON. After all, this allocation that was presented to the President in June of this present year is one of those things that is more important probably than any other feature outside of some knowledge of the books of the T. V. A., that this committee could give consideration to, because after all when you fix the allocations isn't that what determines the yardstick for power? Colonel PARKER. No, sir; it is not.

Representative WOLVERTON. It has no relation to it whatever? Colonel PARKER. It has a relation to it, but it does not

Representative WOLVERTON. Isn't it one of the elements that enters into it?

Colonel PARKER. May I read from this report a word or two here? On page 5 of the committee's report:

Of the total investment in the Authority's multipurpose projects the only definite portion that can be associated with any one purpose is the added cost made necessary by the inclusion of that purpose.

Whether the required additional expenditure is warranted is a question of policy, necessitating the consideration of many factors, the relative importance of which cannot always be determined by a common unit of measurement. The problem is one of judgment, rather than scientific conclusion.

This question becomes of considerable importance where a dam construction project is justified as required by the Tennessee Valley Authority Act primarily for navigation and flood control purposes. Latent water power, an inevitable consequence of the expenditure for navigation and flood control, may be allowed to go to waste, or an additional expenditure may be made to convert it into electrical energy.

Power may thus be considered self-supporting when the power revenues are just sufficient to cover the additional cost incident to the establishment and operation of the power facilities. How much higher?

May I emphasize this next sentence?

How much higher revenues should be in order that a portion of the remaining costs may be liquidated is a policy which we had to leave to the Board.

The committee's conclusions are therefore in the form of a recommended policy based on judgment, and not on any one allocation theory.

Representative WOLVERTON. Then that would seem to indicate that there had not been any theory or any particular method of a scientific character used in making a determination of these allocations, but just a matter of judgment, where one individual might adopt one figure, and another might adopt another figure.

Colonel PARKER. I should like to refer you to this same report of the committee.

Representative WOLVERTON. Is that the case, is that what those words mean?

Colonel PARKER. No, sir.

Representative WOLVERTON. Very well, then; will you tell me what they do mean?

Colonel PARKER. I should like to refer you to page 8 of this report of the financial policy committee, in which various theories of joint cost allocation are discussed at considerable length. If you wish, I will read it, but I am afraid it will be a burden to the committee. Representative WOLVERTON. Where is it; what paragraph do you have in mind particularly?

115943-39-pt. 11—14

Colonel PARKER. Starting at the top of page 8, and covering pages 8 and 9.

Representative WOLVERTON. We don't want to read all of that into the record.

Colonel PARKER. I simply refer to that as indicating that very, very considerable and mature consideration was given to various types of allocation theories, such as the benefit theory, beneficial use, and others.

Representative WOLVERTON. But the committee, in making its report to the President, stated very definitely that the problem is one of judgment rather than scientific calculation, that is the point that I am making, that after all this is just a question of judgment that cannot be scientifically calculated.

And then in the next paragraph the words, "The committee's conclusions are therefore in the form of a recommended policy based on judgment, and not on any one allocation theory," so that in the final analysis it does not represent anything more than what these individuals wanted to make it; isn't that right?

Colonel PARKER. No, sir. It is judgment based on the use of several scientific theories.

Representative WOLVERTON. Well, the words are very definite in this report in which it is said, "The problem is one of judgment rather than scientific calculation."

Colonel PARKER. I think that you will find that questions of appraisal and valuation, upon which I do not pretend to be an expert at all, always depend in the last analysis on the exercise of considerable judgment. The courts have repeatedly held that questions of value can usually be determined only after careful consideration of all evidence leading up thereto, and the application of judgment to the final assembly of data.

This question of allocation is very similar, is a problem which is very similar, to appraisal and valuation problems. And it is very reasonable to assume that it could be solved, approached and solved, in the same way. It is a very difficult problem to solve exactly.

At the same time I think we can say that several approaches to the problem result in very similar results, and that the difference between those results in their effects on the final allocation of the final cost is rather minor.

Representative WOLVERTON. Was there any difference of opinion among the groups that made recommendations to the board of directors with respect to what percentage of allocation should be made to these different activities?

Colonel PARKER. This group was perfectly selected to include a number of different points of view. It included a lawyer, accountant, and engineer, and so on, and each one of those individuals neces sarily represented the point of view of his calling, and the result, after a lot of discussion, was, of course, a compromise between different points of view and a very bona fide effort to arrive at a correct

answer.

Representative WOLVERTON. When was the task given to this

Board?

Colonel PARKER. I think we really started on intensive considerations along in January preceding this report; January 1938.