are less than half of the previous rates and in only about 3 months the use of power there has increased 35 percent over the corresponding period of 1933.

Senator DICKINSON. Well, how much of that is due to the fact that you have gone in and financed individuals for the purchase of electric equipment, and so forth?

Dr. MORGAN. None of it, because that program of helping individuals to purchase equipment was only just started, and this increase of 35 percent preceded that. We think that with a larger use of equipment that increase will be much more rapid.

Senator DICKINSON. Well, now, when you extend your sale into these various localities, what do you do with competing organizations that are already in these various localities?

Dr. MORGAN. So far we have purchased the plants of those utilities.

Senator HALE. Your rates are below their rates, always; are they? Dr. MORGAN. Yes.

Senator MCKELLAR. May I ask, while my friend is hesitating just a minute, is it not true that the private companies have greatly reduced their rates throughout this region since the putting in of the Tennessee Valley Authority rates?

Dr. MORGAN. Since the Tennessee Valley Authority adopted its rates, the other major companies around there have reduced their rates very substantially.

Senator DICKINSON. Now, is that universal, or just in a limited number of cases?

Dr. MORGAN. It is true, I think, in the Tennessee Electric Power Co., Alabama Power Co., Georgia Power Co., the Mississippi Power Co., the Tennessee Public Service Co., which is under the Electric Bond & Share ownership, toward the east end of our district. We are negotiating with the latter for the purchase of their entire system there.

Senator MCKELLAR. If I recall aright, all of them have reduced their rates in the whole Tennessee Valley, the States of Tennessee and Mississippi; in Georgia, and Alabama.

Dr. MORGAN. I think that just recently the Tennessee Utilities Commission ordered a decrease which included the eastern part also. Senator DICKINSON. You mean by that that the Tennessee Utilities Commission has been derelict in its duty in permitting the charge of excess rates down there in previous years?

Dr. MORGAN. I have no opinion to express on the work of the utilities commission.

Senator MCKELLAR. But, you do know that since you started operating down there that these rates have gone down 30 percent, ¦ to the benefit of all the people.

Dr. MORGAN. Yes; and we believe that the rates we are charging are abundant to pay all costs-depreciation, amortization, taxes, and maintenance, and service.

Senator HALE. And, if there are other private companies, then they have to go out of business.

Senator MCKELLAR. Dr. Morgan says that they are endeavoring to buy all of them.

Dr. MORGAN. We are negotiating to purchase the private companies. If I may make a short statement.

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Senator DICKINSON. Yes.

Dr. MORGAN. The establishment of the power policy of the Tennessee Valley Authority, which is, by the way, only one item in its program-it has other functions besides power-is an effort, to use the President's language, to establish a yardstick whereby there could be a case of public ownership to develop what reasonable costs of power may be. In order for that to actually happen, it must have an area in which to sell power. You cannot sell power theoretically. You have to sell it somewhere. That means that these power plants must have some area in which they can actually sell power. If this is to be a fair comparison it means that the area must be adequate; it must be such an area as a well-equipped, well-proportioned utility should have.

To give a power plant no territory in which to sell that power would be just one way of killing it. If there is to be a fair comparison as between a public-operated project and a private-operated project, it must have the qualities of a well-proportioned power development. Now, in order to get that it must purchase properties that are already there, because all of the time that Muscle Shoals was in contest here, the private companies were surrounding that property with transmission lines, so that when the Government did adopt the policy of selling power, that territory was already fully occupied by the private utilities who had occupied it during the time of this controversy. So, as soon as the Government adopts the policy it finds the territory already occupied. We must acquire the territory It is the policy of the Tennessee Valley Authority not to enter into destructive competition, if possible.

We have approached the power companies and have tried to enter into agreements with them, in which we would purchase some of their plants, so that this policy of the Government may find expression in the only way in which it can find expression; that is, by occupying certain territory.

So, we have occupied no territory except after agreement and purchase from the private companies, and we hope that will continue in

the future.

Senator DICKINSON. What will be your policy in case you find you cannot acquire their properties?

Dr. MORGAN. Well, for instance, we are undertaking now to acquire a certain property. We find that just a few years ago a private utility company added 40 percent to its capitalization without adding anything to its properties. Now, we are refusing to buy that water. are offering to pay the full value of the real investment; but we are refusing to pay a 40-percent inflation of the capital assets.

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Now, if we can buy that at a fair capitalization we will. If not, the municipality to which we sell power may have to go in and compete; but we

Senator DICKINSON (interposing). That is, you will construct a competing utility, install a competing plant there?

Dr. MORGAN. Yes; if we cannot purchase at what the property is actually worth, the communities we serve may be forced to compete. Senator DICKINSON. What do you do with reference to the high lines to carry the electricity?

Dr. MORGAN. We are offering to purchase those, too.

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Dr. MORGAN. In considering this with the Commonwealth & Southern Co., for instance, the largest company with which we have done business, our proposal to them was that we buy the property at its fair figure, such a price as a careful business man would such a project, taking into account that it was not built during depression times. It was built during a succession of years, and the do osonable cost of that property when it was actually built, and estab- Sen lished, and the reasonable expenses incurred in building up that property should be what we should pay for it, not the price today in a period of depression, but the reasonable expenditures incurred in building up that property, less depreciation and inadequacy.

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Senator MCKELLAR. Sator, before you do that, I am just vitallym interested in this mate and I have got three or four bills on the calendar that I undead are the first bills on the calendar, and we are goint to meet so clock. I was just wondering if we could not make some arrangement for Dr. Morgan to go on later. I would like to be here while it is testifying.

Senator Diwason. I will be glad to postpone it until this after

noon.

Senator MELLAR. I would like to be here while he is testifying. Senator FVS. Could we not go on now? Senator VALLAR. Dr. Morgan is taking care of himself splennot have any doubt about his ability to take care of didly, and himself, bould like to hear his testimony while he is here. Senato WAINSON. I will be glad to accommodate the Senator. Senato AELLAR. Would it inconvenience you to come back this aft Doctor? Dr. A CAN. Whatever you say.

Sanny BYRNES. May I ask this, Senator Dickinson? I do not know kar you have gone, because I have not been here, but I beli asked for half an hour?

Na DICKINSON. I have not had more than 15 minutes.
ADAMS. Very well, then, we will proceed.

MCKELLAR. Doctor, I hope that you will understand why ving. I am obliged to be on the floor of the Senate. If my put through, and I can get through, I will come right back, obliged to go now.

tor DICKINSON. I note that you are asking for additional priations this year, and to date you have not taken advantage provisions of the law for bond issues. I am wondering why. wondering why your organization does not relieve the public asury of the stress that it is now suffering under and sell your ds rather than ask for appropriations.

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Dr. MORGAN. As to the method of financing this work, in the first I think that we should not sell bonds unless it should conform the policy of the administration in its financing, and we have been the impression that, or we have been asked by the administration, hot to plan on any bond issue without working it out with the administration.

Now, there are, aside from that fact, two or three factors in the tuation. In the development of a well-developed power unit here,

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such as a private utility would consider a suitable basis for effective work, it is necessary that we have a certain amount of leeway; that is, a certain amount of tolerance, of action. For instance, we have under way now negotiations with the National Power & Light Co. for the purchase of its system in and around Knoxville. We do not know whether those negotiations can be completed. We believe they may be completed. That will require 5 million dollars, or more. If we do

Senator DICKINSON (interposing). Now, in the course of fixing of rates, there are two or three vital factors to be taken into consideration. One is your carrying charge, which would be interest that you would be compelled to meet. The other would be whether or not you are taking into account any allowances for taxes, both State and municipal, and national.

Are you going to give any consideration to the fact that the private competing plant is compelled to pay taxes, and must pay its interest charges?

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Dr. MORGAN. We are taking that into account. In the first place, the law requires it. The law requires that on all power developed, for instance, at Muscle Shoals that 5 percent of the gross revenue from generation shall go to the State of Alabama in lieu of taxes. requires that on all of the power developed at the Norris Dam, that 5 percent of the gross revenue from generation shall go to the State of Tennessee in lieu of taxes. It requires that of the power developed at Muscle Shoals, through stored water from Norris, that 21⁄2 percent go to Tennessee and 21⁄2 percent go to Alabama, so that a substantial amount of taxes is written into the law.

We are going beyond that. We are making a survey of what the utilities of that region are actually paying for taxes, and we are setting up on our books an actual total tax that is paid in that region as a charge against such plants.

And then we are going further in the distribution of this power to the municipalities; we are requiring that the municipalities set aside reserves for taxes, and in our latest contract we have gone further than that. In the city of Corinth, Miss., we are working out a contract with an electric power association, which is a private corporation made up of the users of power, and there incidentally it includes the city of Corinth, and the rural region around Corinth. The farming region and the city region are all one association, with one rate schedule. And, that being a private association, subject to all taxes from any source, in that way we are entirely escaping any claim of dodging taxes by setting up an organization that has no immunity from any kinds of taxes.

Senator DICKINSON. In other words, as I understand it now, you are setting up in a municipality, a municipal cooperative organization for the purpose of buying from you electric current and distributing it among the patrons of that locality.

Dr. MORGAN. We are cooperating with an association of citizens. Senator DICKINSON. And in that cooperative organization, what influence do you have on rates?

Dr. MORGAN. We make a contract with them in which we prescribe the maximum rates that they may charge.

Senator DICKINSON. And that is as to the consumer.

Dr. MORGAN. That is as to the consumer.

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Senator DICKINSON. Then all they would be interested in would . MORGAN. be the matter of receiving the current and distributing it, charg-within trans ing for it the rate that you specify, and collecting and paying the territory you for the current, and the balance of it belonging to the cooperative. Dr. MORGAN. Yes; the balance of it is to go in reducing rates further. They must set aside tax reserves and amortization. In that case we are asking amortization in 7 years, to pay for the whole plant in 7 years, and even then we are approximately cutting the cost in two, as compared with their former rates, so that we are putting up amortization charges far more drastic than the private utilities are. Senator DICKINSON. Now, what will be the area that is necessary. to establish what you call an ideal engineering producing and distributing unit down there at Muscle Shoals; how many square miles? Dr. MORGAN. I think there should be in the neighborhood of 50 or 60 thousand square miles. We are within transmission reach of 300,000 square miles, but if you ask what it takes to make a good unit, I should say 50 or 60 thousand square miles.

Senator DICKINSON. Well, in your testimony before the House committee, did you not suggest that your development would expand where it would include 300,000 or 325,000 square miles?

Dr. MORGAN. I beg your pardon. They asked how much area would be in transmission distance of it and I said about 300,000 square miles.

Senator DICKINSON. Well, are not some of your activities extending to points a great deal further away than 250 miles from Muscle Shoals? Dr. MORGAN. Not to Muscle Shoals. Norris Dam is 236 miles from Muscle Shoals. We are building a transmission line direct from one to the other so each can regulate the other. We know we are

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Senator DICKINSON (interposing). You are carrying on some activities up in West Virginia?

Dr. MORGAN. No.

Senator DICKINSON. Some development of the rural section out here around Red House, W.Va., which I have driven through a number of times.

Dr. MORGAN. You are thinking of some homestead organization which is under the Department of the Interior, and with which we have no connection of any kind.

Senator DICKINSON. Well then, I was given an editorial here that was misleading. Preston County, W.Va.-do you stretch up to

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