COMMENTS ON CHARGES AND STATEMENTS MADE IN TESTIMONY BEFORE THE COMMITTEE

Prepared by Arthur E. Morgan for the Joint Congressional Committee on the Investigation of the Tennessee Valley Authority, December 1938

Before this committee, I have made certain criticisms or charges concerning the conduct of Tennessee Valley Authority affairs. I believe these criticisms to be well grounded. These have been answered by replies or by countercharges. For me to drop the matter at this point might appear to be acquiescence in these statements, many of which are misleading, while others are explicitly inaccurate.

To go over all this ground again would be a waste of time. However, I consider it necessary to reply briefly to a few typical cases of such statements, to indicate the manner in which they are specifically inaccurate or misleading. It has been stated both by Dr. H. A. Morgan and by Mr. Lilienthal that until long afterward, they were unaware of my disapproval of their manner of dividing the authority of the Board. I state definitely that this division was arranged without my knowledge and was imposed upon me by the other two, and that I did protest vigorously against the course taken. Testimony to that effect can be presented to the committee if the members wish to hear it. After the action was taken over my protest and without consulting me until the program was presented at a Board meeting for action, I nevertheless worked under that program in good faith and tried to make it succeed. The fact that I worked under that program which had been arbitrarily imposed on me by a coalition, and that for three years thereafter the other two directors were not aware of any resentment or lack of agreement, is evidence of my capacity to cooperate under difficult circumstances.

Mr. Lilienthal's statement to this committee concerning public announcement of retail or "yardstick” rates in September 1933 is strikingly inaccurate, involved, and misleading. I shall mention only a few of these many misrepresentations.

Mr. Lilienthal testified at length concerning a "plan of action" for the power program, recorded as adopted at a Board meeting August 22, 1933. This socalled "plan of action" appears as a very broad grant of powers by the Board to Mr. Lilienthal in the power field. It is dated about 3 weeks after the division of powers between the Directors was dictated to me by the other two Directors. Mr. Lilienthal said a great deal about it in his testimony. For instance, Mr. Lilienthal said (p. 1238). "To guide negotiations the Board gave me detailed instructions governing the basis and principles of the rates." He refers to the "plan of action" as "complete delegation to me" (p. 1253). On page 1260 Mr. Lilienthal said:

"There was a complete and detailed discussion of this whole matter, plus the fact that was specifically directed to enter into negotiations with communities that were pressing us for contracts, that I had full and complete delegation. And when I left the Board meeting, on August 22, 1933, it was understood I would be derelict in my duty if I did not proceed at once in accordance with my discretion to see that the Board directions were carried out."

This was such a convincing statement that Mr. Wolverton remarked (p. 1261) : "There is no doubt at all in my mind that direct authority was given to you to formulate a schedule of rates; the reading of the minutes to which you have referred, and which are a part of your testimony, leaves no doubt of that fact." The actual situation was very different from that represented. As I recall, the "plan of action" never at any time was discussed at a Board meeting. My recollection is that at the meeting of August 22 Mr. Lilienthal said he wished to negotiate with some of the cities near Wilson Dam for furnishing them power, and those negotiations were discussed. Then he casually remarked that he had prepared and would enter in the minutes a statement of the conditions of the negotiations. Supposing this to be a routine matter I did not take the time to look up this memorandum and read it. It did not itself appear in the minutes. I did not read it or know of its contents until years later. It never was referred to in Board meeting or in conversation as a basis for authority. The first reference Mr. Lilienthal ever made to it, so far as I can recall, was in his testimony before this committee.

In other respects, Mr. Lilienthal's statement about this Board meeting is misleading. He states (p. 1250) that nowhere is there a record that I took the position that his Nation-wide announcement of retail "yardstick" rates before

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disclosing them to the Board was irresponsible. It is true that no Board record of my protest was made. I clearly remember the occasion of my protest in the Tennessee Valley Authority office in temporary building F in Washington, and I clearly remember Mr. Lilienthal's reply, that he considered this announcement a detail on which he need not seek Board approval.

In still another respect his statement is misleading. I testified that Mr. Lilienthal, in response to my repeated requests, never did disclose the basis for the retail "yardstick" rates. In reply he refers repeatedly to a discussion of wholesale rates, which is an entirely different matter. The "yardstick" rate announcement to which I took exception-the only announcement, I believe, which was given general publicity-said nothing of wholesale rates. To bring in reference to discussion of an entirely different matter tends to confuse persons not familiar with the issue.

Mr. Lilienthal states (p. 1248) that the statement on retail "yardstick” rates was released as a basis for negotiations. Also, he said, "The rates were substantially revised before they received final Board approval.”

Both these statements are incorrect. The rates were made public over the Nation, not merely in the region concerned. They were not announced as a basis of rate negotiations. They were arbitrarily dictated to the customers. They were not substantially revised before Board approval. As advertised to the public today, they are substantially the same as those announced September 14, 1933.

Mr. Lilienthal stated (p. 1265), "They (the other directors) knew what the basic terms would be." This definitely was not the case, at least with the chairman. The rates absolutely were not disclosed to me before Nation-wide public announcement was made, and no information was given me afterward in response to my requests as to how they were arrived at, except the remark 2 or 3 years later that they were "no more than a lucky guess."

MR. LILIENTHAL'S TESTIMONY CONCERNING THE CHICKAMAUGA DAM INCIDENT In Mr. Lilienthal's statement concerning the Chickamauga Dam incident there are many inaccuracies and misstatements to which I shall not take time to refer. Two parts, however, are vital. First, contrary to Mr. Lilienthal's statement, he did call the Board members together and propose issuing publicity concerning the beginning of borings at the Chickamauga Dam site, the publicity actually appearing on February 19, 1935, 3 weeks before the Chattanooga election. (In my letter to Mr. McReynolds the expression "about a week before the Chattanooga election" should have read "about 3 weeks before the Chattanooga election." Since the date of the publicity referred to and the date of the election were both matters of public knowledge, this error of wording had no practical bearing on the situation.)

Mr. Lilienthal indicates that since there were no minutes of this meeting of Tennessee Valley Authority Board members, that fact is proof that no such meeting ever occurred. Mr. Lilienthal knows that from time to time meetings of the Board members were held when no formal actions were recorded and no minutes were made. This was such a meeting.

I state categorically that Mr. Lilienthal called the Board members together and proposed this publicity in the Chattanooga papers while the campaign for public power was under way. I recall that meeting specifically and I recall the questions I put to the other two Board members in the matter, and the nature of their replies. Mr. Lilienthal definitely denies that there was such a meeting. He testified before the committee (p. 987) :

"I made no proposal to the Board with respect to any announcement, nor was there any Board discussions in which I participated. I deny completely the allegations of the paragraphs quoted from Arthur Morgan's letter."

Again, Mr. Lilienthal gives a distinctly false impression of the way in which the publicity originated. He says (p. 986):

"I recall that I did have a conversation with Mr. Bock as recorded in his memorandum. As I have mentioned, I was confined to my home during much of this period. Mr. Bock did talk to me, whether in person or over the telephone, I am not entirely clear, outlining his recommendations. My notes indicate that the conversation took place on February 11. It is wholly probable, though I have no distinct memory of it, that he mentioned the desirability of a statement to the press. I would have gladly given it my approval then. and I would have no criticism of such a press statement now. The timing of these operations was recommended by Mr. Bock, and there is nothing in the

whole record, except Arthur Morgan's letter to Representative McReynolds, to indicate that the schedule was formed and announced with any considerations in anyone's mind except efficient operation and candid public relations. [Italics supplied.]

"Whether or not I was consulted about Mr. Bock's statement to the press at the time is unimportant. Its propriety is obvious."

The facts are that Mr. Lilienthal called Mr. Bock to his home for the particular purpose of proposing this publicity. Mr. Lilienthal there inquired in detail as to the drilling operations at Chickamauga Dam, as to the number of men to be employed, etc., and suggested the publicity. Mr. Bock can testify to these facts.

After he urged a letter to the Appropriations Committee correcting my testimony, according to Mr. McReynolds he represented that I was the sole promoter of that letter and that it did not represent his views. He then collaborated with Mr. McReynolds in preparing a letter for me to sign which would largely have nullified the effect of the letter I had written at his insistence. In proposing this letter to me he presented it, not as their joint product, which it was, but as something Mr. McReynolds had suggested. The suggestion for a letter, as given to me by Mr. Lilienthal on June 28, 1935, is as follows: "First, preface this letter by saying 'I have been requested to clarify "Second, something to the effect that it seems probable that the borings now being made will be completed within time to permit of the beginning of actual work within a few months.'

"Third: In my letter to you of June 27, concerning dam construction on the Tennessee River and its tributaries, I indicated that my statement as to estimated cost of these dams required clarification in the interest of complete accuracy. The fact is that no specific cost estimate as to these dams has yet been made by the Tennessee Valley Authority, and no figure of such total cost can be fixed until investigations of foundations, sites, etc., have been completed.

"I would like to emphasize that it is only after the engineering reports respecting the foundation sites and similar matters which have been under investigation by the Tennessee Valley Authority for several months are completed that an accurate and reliable cost estimate will be available. The figures cited in my testimony before the House Appropriations Committee and in my letter to you of yesterday are therefore necessarily not to be regarded as specific cost estimates, which estimates will be forthcoming only when the engineering report is available.

"You will recall that in House Document No. 328, Report of the United States Engineers on the Survey of the Tennessee River and its Tributaries, on page 259, headed 'Preliminary cost estimate Chickamauga,' a detailed statement as to the cost of this particular dam places the total, dam and spillway, at $6,743,194, and the cost of the reservoir, including lands, building highways, moving graveyards, at $4,890,129. Of course, this estimate by the United States Army Engineers was made without the essential borings and investigations now being carried on by the engineering division of the Tennessee Valley Authority, to which I have heretofore called your attention."

Though Mr. Lilienthal criticized me for failing to remember the estimate of the cost of the dam when giving testimony, yet when he collaborated with Mr. McReynolds in writing another letter, the only figures he referred to were far smaller than those I had given.

In conversations with me he continued vigorous opposition to the construction of the Chickamauga Dam while representing to Mr. McReynolds that he favored it.

When the press of Chattanooga took my letter to the Appropriations Committee as being antagonistic to local interests, Mr. Lilienthal allowed the public impression to remain that it was my action alone, though I requested him to make the facts known. He did not let the people of Chattanooga know that it was our joint action, though he surely had opportunity to do so.

MR. LILIENTHAL'S TESTIMONY CONCERNING THE CHANGING OF MINUTES

In Mr. Lilienthal's testimony (p. 922) he includes the statement: "Arthur E. Morgan charged that I had initiated an alteration in the minutes of the Tennessee Valley Board meeting held on November 2, 1933, and that my purpose in such alteration was to misrepresent and to suppress important facts relating to the conduct of public business."

I made no such charge as to reasons for changing Board minutes.

In testifying concerning the position of the Commonwealth and Southern Corporation, with reference to selling its properties, I stated that from time to time, beginning with 1933, Mr. Willkie had stated that his company was prepared to sell all or part of its properties to the Tennessee Valley Authority. I mentioned four cases where I knew that such offers were made, and endeavored to support or to document those cases. The first case, that of November 2, 1933, I could document only by introducing a Board minute which afterwards was deleted, I believe at the instance of Mr. Lilienthal. So far as I can recall, that change never was brought to my attention, but that is not the issue I raised. I pre sented the Board minute which afterward was changed, simply because it stated explicitly the attitude of the Commonwealth and Southern Corporation of being willing to sell some of its properties. In at least four cases my explicit state ments as to what occurred at meetings of Board members have been explicitly denied by another Board member. Therefore, it seemed desirable to present written records wherever possible. That was my only reference, and it was i necessary reference, to a change in Board minutes.

In 1936, or early in 1937, I asked my assistant, Mr. Walter Kahoe, to get for me copies of certain of the early minutes of the Board. In getting these he learned of the changed minutes of November 2, 1933, and brought me copies of the minutes both before and after the change. The typed copy has been in my possession a year or two.

On Mr. Hoffman's call on me on June 2, 1938, so far as I can recall, në mention whatever was made of this matter. He conducted himself with entire propriety and discretion, as is his custom, and I was careful not to embarrass him by asking questions. Mr. Hoffman did not give me or show me and, so far as I can recall, did not mention or refer to any papers or records of the Tennessee Valley Authority. I did not request him to come, and did not know he was coming. He was in Dayton for a visit to his parents.

Mr. Lilienthal's testimony (p. 918) contains the following statement:

"Even more surprising is the fact that the records of the Authority show that it was Arthur Morgan's practice of deleting minutes after they had been signed by the other directors, and in such a way that they had no knowledge of the change

*

This is a false statement. I never deleted or changed minutes after they were signed by the other directors. The facts are as follows: In some cases the other two members of the Board held meetings in my absence without notice or waiver of notice, and decided very important matters of policy concerning which I felt a grave responsibility. Being absent, my negative vote could not be recorded. Since the Board members commonly denied me the right to have recorded in the minutes any motion or resolution which one of the two would not record, I had no way of recording in the minutes the fact of my disapproval. Therefore, when the minutes came to me for signature, instead of signing the minutes I would add a notation that the action was taken at a meeting at which I was absent, and without notice or waiver of notice, and that therefore I considered the action invalid. To cure the defect I claimed, the matter would be brought up again for approval at a meeting at which I was present, and I then had opportunity to express my dissent by a negative vote. That was the only way I had for recording my dissent. Then the Board deprived me of that recourse by providing that the minutes should be signed only by the secretary.

In some cases where I dissented from Board action, I stated at the meeting that my reasons for dissent would be added as an addendum to the minutes. Usually the fact that I would make such a statement was included in the minutes themselves. This was not done secretly. The Board members were aware of it, and when I delayed adding such addenda, Mr. Lilienthal urged that they be completed. I believe that copies of every notation I made on the minutes were sent to the other Board members by Mr. Hoffman, the assistant secretary.

THE ARKANSAS POWER & LIGHT Co. CONTRACT

The Arkansas Power & Light Co. contract as presented to me for approval contained a "joker" which would have allowed the company to buy prime power at secondary power rates. I protested strenuously and got that point eliminated.

Mr. Lilienthal in the hearings before the President (p. 22) admitted that the contract draft presented to the Board permitted the purchaser, under certain circumstances, to purchase firm power at the price of secondary power. He stated:

** but in deference to the chairman's views ** * his suggestion was immediately adopted, and a provision was inserted as follows

I have since examined this contract and find that the provision inserted by Mr. Lilienthal to remedy my objection to the sale of firm power at the price of secondary power does not protect the Authority until after 1942 when the sale of interruptible power (a class of secondary power) is discontinued; also, that the provision inserted by the negotiators and approved by Mr. Lilienthal, "relating to the right to use the Authority's capacity, but not water, in low water seasons for peaking purposes" (p. 22), may aid in nullifying the effect of the before-mentioned amendment.

Furthermore, Mr. Lilienthal's presentation at these hearings (p. 22-23) concerning the manner in which this contract was handled is not in accord with the facts. What actually took place follows:

Mr. Lilienthal submitted to the Board a memorandum dated April 8, 1937 (E-1), together with an outline of a proposed contract between the Arkansas Power & Light Company and the Tennessee Valley Authority. In that memorandum he stated:

“This outline has the approval and is recommended by Tennessee Valley Authority conferees, Messrs. Glaeser, Evans, Swidler, and Juir. I believe it represents a fair contract, if the remaining outstanding provisions can be agreed upon on a proper basis."

On April 27, 1937, Mr. Joseph C. Swidler submitted a tentative draft of the proposed contract to the Board at Mr. Lilienthal's request (E-2). No analysis of the technical points in the contract was given, nor was there any report furnished on the discussion of these points and the manner in which they were concluded between the conferees. The Board, therefore, in considering this important contract involving power sales amounting to from $600,000 to $750,000 annually for a period of years to a private utility outside the Tennessee Valley Authority territory, had only Mr. Lilienthal's judgment and assurance as quoted above, on which to make its decision.

I requested assistant chief engineer, Mr. Carl A. Bock, to have an analysis made of this proposed contract (April 24, 1937, draft). Mr. Barton Jones, acting chief design engineer, was given this assignment. Mr. Jones and a member of his staff, Mr. Harmer, examined the draft critically, suggesting a number of changes in the phrasing of the contract and questioning several important phases of the contract as then drafted. The following notes were made by Mr. Jones:

NOTES ON DRAFT, APRIL 24, 1937, ARKANSAS POWER & LIGHT CO.'S CONTRACT Page 2, line 9: "Tennessee Valley Authority Act of 1933, as amended *(?)"; last line: "When Memphis line changes over to 154 kilowatts transformers (154/110 kilowatts) will have to be purchased."

Page 4: "Peaking privilege-Whenever Arkansas Co. is cut to firm power only, they may run peaks up to a value within 5,000 kilowatts of the sum of the amounts of both classes authorized. The resulting allowed load factors are:

There is a possibility of misinterpretation concerning the years 1942-52. The contract states that peaks need not exceed the sum of firm and interruptible power less 5,000 kilowatts. For the last 10 years interruptible power is zero, so literally, peaks would be 5,000 kilowatts less than firm power.

175th Cong. 3d sess., S. Doc. No. 155.