DEFICIENCY AND EMERGENCY APPROPRIATION BILL 1934 AND 1935

WEDNESDAY, JUNE 13, 1934

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, D.C. The subcommittee met, pursuant to adjournment, at 10:30 a.m., in the committee room of the Capitol, Senator Álva B. Adams presiding.

Present: Senators Adams, Glass, Hayden, Byrnes, Tydings, Hale, and Dickinson.

TENNESSEE VALLEY AUTHORITY

Senator ADAMS. The committee will come to order. We will go ahead. All right, Senator Dickinson, you had some inquiries you wanted to make of Dr. Morgan.

Senator DICKINSON. Yes, Mr. Chairman.

STATEMENT OF DR. ARTHUR E. MORGAN, CHAIRMAN OF THE BOARD OF DIRECTORS, TENNESSEE VALLEY AUTHORITY

Senator ADAMS. Dr. Morgan, will you give your full name and position to the reporter.

Dr. MORGAN. Arthur E. Morgan, chairman of the Tennessee Valley Authority.

Senator DICKINSON. Dr. Morgan, when this bill was before the Congress its sponsors suggested that it would take about $48,000,000 to carry out this program.

It is my understanding that you, in your testimony before the House Committee, you have extended that figure. To what extent has this figure been expanded in your proposed plans?

Dr. MORGAN. When the bill was passed it provided for an initial appropriation of $50,000,000 with specific provision for further appropriations, so that the program as I see it is being carried out, but not necessarily expanded.

What we are doing is provided for in the original bill.

Senator DICKINSON. You recall the statement of the sponsors of this bill before the Senate that it would cost $48,000,000 to carry out this program, do you not?

Dr. Morgan. No; I do not recall that.

Senator MCKELLAR. May I add at this point, that the President, more than a year ago, issued a public statement in which the original program was enlarged, very considerably; that is, he urged its enlargement very considerably. I think that we all recall it, and I

think I will ask permission at this point to put in the record the President's statement at that time.

Senator DICKINSON. Originally it was expected that there would be constructed three dams. According to your testimony before the House, it is my understanding that there is now to be constructed seven dams. Is that right?

Dr. MORGAN. The last part of your statement is correct. As to the first part, I do not recall any mention of three dams in the original bill.

Senator DICKINSON. In order to shorten the testimony, because I do not want to delay the committee, I am going to make a statement and let the witness make such corrections as he may see fit. It is my understanding that the Norris Dam is estimated to cost $34,000,000; the Wheeler Dam $40,000,000; the Hiwassee Dam $13,000,000; and the Aurora Dam $42,000,000; the French Broad Dam $30,000,000; the Pickwick Dam $39,000,000; and the Wilson Dam-I do not have any figures for the Wilson Dam. Can you give me that figure?

Dr. MORGAN. The Wilson Dam is completed. That was built during war time.

Senator DICKINSON. But, I thought that there had to be some expansion and additional funds expended on that in order to put it in shape to fit into your present plans.

Dr. MORGAN. We are making minor repairs to the power plant out of the income from power. That is a matter of a few hundred thousand dollars. There will no be addition to the Wilson Dam plant, unless the demands for power there should require additional generators. That is not contemplated in our plan in the immediate future.

Senator DICKINSON. Now, as I get it then, for the four dams alone down there, your estimates are about $198,000,000.

Dr. MORGAN. Yes; for the six dams.

Senator DICKINSON. And how many of these dams are you constructing now?

Dr. MORGAN. Two.

Senator DICKINSON. Which two?

Dr. MORGAN. The Norris Dam and the Wheeler Dam.

Senator DICKINSON. And what is the percentage of completion of those two dams?

Dr. MORGAN. They will approach completion during the fiscal year of 1934-35.

Senator DICKINSON. Fiscal year ending June 30, 1935?

Dr. MORGAN. Yes.

Senator DICKINSON. They will probably be finished, then, during the calendar year of 1935?

Dr. MORGAN. About that. There will be a little installation to carry over and some remainder of construction, but that is substantially so.

Senator DICKINSON. Well now, in connection with these dams, the entire purpose is the production of electrical energy?

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Dr. MORGAN. That is the major purpose. The purpose of the Tennessee Valley Authority Act, of which these dams are a part, to try to encourage and organize an orderly economic and social development in that region in place of the past haphazard develop

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ment. With reference to the Tennessee River in particular, if we can develop the power on the Tennessee River by a unified and integrated program, we can, I think, develop power at not over half the rate that it would cost by a series of unrelated dams.

Senator DICKINSON. Now, under the law, you are obligated to charge for your power, for your energy, the cost of production. What do you take into account in making out your cost of production?

Dr. MORGAN. We take into account the costs of operating these power plants, and their maintenance; the cost of the interest on the investment; of amortization of the investment; and of depreciation and of taxes.

There may be some minor items that I have not included.

Senator DICKINSON. Then, according to your theory, it is your expectation that you will be able to pay back into the Treasury the capital investment that the Government is now making in this project.

Dr. MORGAN. Yes.

Senator DICKINSON. And that is going to be done out of the sale of electrical energy?

Dr. MORGAN. Yes.

Senator DICKINSON. And, where are you going to sell this electrical energy?

Dr. MORGAN. The law says within transmission distance from the power plants.

Senator DICKINSON. And what is the transmission distance?

Dr. MORGAN. About 250 miles is reasonable transmission distance.

Senator DICKINSON. That is, a sector with 250 miles as a diameter? Senator ADAMS. As a radius, I gather.

Dr. MORGAN. As a radius.

Senator DICKINSON. As a radius?

Dr. MORGAN. Yes.

Senator DICKINSON. What is the consumption of electric energy in that area at the present time?

Dr. MORGAN. I cannot tell you.

Senator DICKINSON. Is there available there sales for the energy increase in the electric energy that you are now proposing to produce? Dr. MORGAN. We believe that if the rates can be suitable the market will develop. We believe that one of the prime reasons the market is not there, is that the rates are so high that it prevents the development of the market, and that the way to create a market is to have rates that will enable people to use power which they cannot use at the present rates.

Senator DICKINSON. Now, that makes it all the more important and in the matter of fixing your rates, you determine definitely that you are going to make this a self-liquidating-amortizing project, do you not? In other words, you are not justified in going down there and fixing an electric light rate that will not pay the money back into the Government that the Government has invested in that plant. You agree with that, do you not?

Dr. MORGAN. In general, that is correct. There are some small exceptions to it, I think, that I might mention.

Senator DICKINSON. All right, what are they?

Dr. MORGAN. I think, in the rural regions, we might be justified, as a Government policy, in trying to rehabilitate some regions that are now in economic distress, to subsidize certain farmers' lines, but that would be a minor item.

In general, I would say that you are correct.

Senator DICKINSON. Well, the matter of rural consumption of electricity in that area would be such a small amount that it would not materially enter into the equation.

Dr. MORGAN. I believe it can be made to enter into it very much. Senator DICKINSON. Oh, your rural, farm consumption cannot be very much; they could not possibly consume a large amount of electricity.

Dr. MORGAN. Three-quarters of our population is rural in that region.

Senator DICKINSON. That is one reason, I wanted the committee to know about this, and I will say to you that I voted for the Tennessee Valley-Muscle Shoals bill. I did not know that you were going to go into the type of ramifications you are going into, I do not know whether I should have voted for it; but the thing I want to get into the record here is the purpose, the plans that you have, as to whether or not you are going to make a reasonable effort to see that their plants are run on a self-liquidating basis.

Dr. MORGAN. We are going to, and we are doing it. We are trying to do that now in all of our programs.

Senator DICKINSON. All right. Now, how can you fix the rate of your electrical energy at the present time, when you do not know what the cost of your plant is going to be?

Dr. MORGAN. We have fixed the cost of the energy we are selling now at what will be a reasonable income on those plants as we can best estimate them now, just as any private company would fix the cost under similar circumstances.

Senator DICKINSON. In other words, you are making the estimate at what you think this program can be developed and fixing your cost of electrical energy on that estimate?

Dr. MORGAN. Not entirely. We believe that when that is developed, we can make reductions in the cost. We are putting it at a rate now we are quite certain of. We think we can quite substantially reduce that cost when we get our additional developments. I think we are on the safe side with our present estimates.

Senator DICKINSON. Are you producing any electrical energy now?

Dr. MORGAN. Yes.

Senator DICKINSON. Where?

Dr. MORGAN. At Muscle Shoals.

Senator DICKINSON. How much?

Dr. MORGAN. We sold about $800,000 worth during this past year. Our estimate for next year is that we shall sell about $1,200,000 of

current.

Senator DICKINSON. And, in your price that you are putting on that electrical energy, are you charging in or taking into account the capital investment of Muscle Shoals?

Dr. MORGAN. Yes.

Senator DICKINSON. At what figure?

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Dr. MORGAN. We have not set that final figure definitely. The price at which we are selling will cover that capitalization at any reasonable price.

I should say somewhere between $20,000,000 and $30,000,000 will be the amount credited to Wilson Dam at Muscle Shoals, as its present worth. It was built as a war-time measure and in estimating what we will really credit it with, I think we should credit it with what a thrifty, well-informed private utility company would pay for that as its present worth. You see, all during the years when there was a boom market for power, the Government was prohibited from selling its power. We come into possession of this plant in a season of depression, and no private utility having been kept out of the market during the good season would take over a plant in a poor season and pay the whole war time cost. I think that as a business proposal, we should pay for this plant about what it is worth as a part of a going system. It was not developed under favorable conditions. It was developed under war time conditions.

We are now in the process of determining the present value of that plant. It is a somewhat slow job, because part of that plant we are exploring to see what we can use it for. As soon as we can conclude that appraisal we shall put that on our books at what seems to be its present worth.

Senator DICKINSON. Well now, with the completion of these additional dams that we have already discussed here, how fast will you increase the capacity for production of electrical energy down there? Dr. MORGAN. We will have considerable increase in production of prime power, as soon as the Norris Dam is completed. We will actually decrease the production of secondary power. We will give a more even flow to the river. We can produce 105,000 kilowatts of prime power at Wilson Dam by supplementing hydroelectric power during the low-water periods of the year with the steam standby plant at nitrate plant no. 2. With the completion of Norris Dam our prime power output will be approximately doubled.

Senator DICKINSON. Now, what assurance have you that when you have expended that money and completed that dam that you can extend the sale of your electrical energy so as to consume that production?

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Dr. MORGAN. We have this kind of an assurance. where the power rate has been put down to where we are putting the rates here, the use has expanded to double the normal consumption in that region at present. At Tacoma, for instance, which is almost exactly the size of Knoxville, the cost of power is a little less than half what it is in Knoxville, and the usage is more than twice as great. We believe that with a reduction in the cost of power, the use will greatly increase, as has been the case in Washington, D.C. You know, you have a contract here whereby the power company is insured a 6 percent income. If the income is more than that, they must reduce the rate. As they have reduced the rate, the use has extended and they have made other reductions, and the use has extended again. That process has gone on until the rates have been set away down, and as the rates are reduced the use increases, and we have, we think, fairly abundant evidence that that process can be counted upon as a basis for a policy. At Tupelo, Miss., for instance, where we have been in operation only a few months, our rates