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No. 127 "Socialization Of The Electric Power Industry: An Analysis of New Deal Policies and Projects Designed to Destroy Private Industry at Tremendous Cost to the Taxpayer," June 15, 1936. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_127 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 127 "Socialization Of The Electric Power Industry: An Analysis of New Deal Policies and Projects Designed to Destroy Private Industry at Tremendous Cost to the Taxpayer," June 15, 1936. American Liberty League. American Liberty League. Washington, D.C. 1936. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. JOIN THE AMERICAN LIBERTY LEAGUE The American Liberty League is organized to defend and uphold the Constitution of the United States and to gather and disseminate information that (1) will teach the necessity of respect for the rights of persons and property as fundamental to every successful form of government and (2) will teach the duty of government to encourage and protect individual and group initiative and enterprise, to foster the right to work, earn, save, and acquire property, and to preserve the ownership and lawful use of property when acquired. The League believes in the doctrine expressed by George Washington in his Farewell Address that while the people may amend the Constitution to meet conditions arising in a changing world, there must "be no change by usurpation; for this * * * is the customary weapon by which free governments are destroyed." Since the League is wholly dependent upon the contributions of its members for financial support it hopes that you will become a contributing member. However, if you cannot contribute it will welcome your support as a non-contributing member. ^ENROLLMENT BLANK American Liberty League National Press Building Washington, D. C. Date........ I desire to be enrolled as a member of the American Liberty League. Signature Name ...................... .......... Street .................................. Town ................................. County.......................... State. Enclosed find my contribution of $........ to help support the activities of the League. socialization of the electric power industry â˜… â˜… * An Analysis of New Deal Policies and Projects Designed to Destroy Private Industry at Tremendous Cost to the Taxpayer AMERICAN LIBERTY LEAGUE T^lational Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. Document No. 127 June, 1936 you have finished with this pamphlet please pass it on to some friend or acquaintance who might be interested, calling his attention to the membership bldn\ on page 32. Socialisation of the Electric Power Industry â˜… Socialism seeks a change of attitude toward property. At present the world's work is carried on under domination of private property. Socialism would reverse this process so that the world's work would ultimately be dominated by public properties. Policies sponsored or encouraged under the New Deal are giving impetus to socialization of the electric power industry. The taxpayers and consumers, as well as the industry, will suffer from this changed condition, for although the selling price of electricity may be lower, the taxes assessed against the remaining property and income of the consumer will be increased to pay the greater cost due to inefficiency. Already the Government has invested some hundreds of millions of dollars in electric power plants. The total will become billions if plans actually under consideration are carried out. Socialistic experimentation revolving around this industry has run riot. The industry now has an investment of about thirteen billion dollars of private capital. The Government expenditures to date have been at the rate of about $3.00 spent to $1.00 that would have been spent by private capital to accomplish the same result. At this rate it would require forty billions of government capital if a completely socialized industry were to supplant the present private industry. The Government has seized the market of the private electric power industry in many areas. The threat of complete socialization hangs over the industry in practically all sections of the country. Policies being pursued in this sphere form a major cause of business uncertainty and a deterrent to recovery. Huge expenditures in the course of the present adventure in socialism are reflected in treasury deficits. The taxpayers are paying the cost of subsidies to consumers in favored sections. A chemical manufacturer who recently made a contract with the TVA may save $300,000 annually, but the saving will be paid for by the taxpayers. It will take more than 3,000 Federal income taxpayers with salaries of $5,000 per year or 800 Federal income taxpayers with salaries of $10,- 000 per year to make up this apparent saving by a single large consumer. Contributing to the trend toward socialization of the electric power industry are the following: 1. The Tennessee Valley Authority, created in 1933 as a permanent agency. 2. The Rural Electrification Administration, established in 1935 by Executive order and extended with a 10-year program by legislation enacted in May, 1936. 3. The Electric Home and Farm Authority, created in 1933 by Executive order and extended to February 1, 1937, by legislation enacted in March, 1936. 4. Federal power projects receiving allotments from funds appropriated for public works and work relief. 5. Non-Federal publicly owned power projects receiving grants and loans from Federal funds. 6. The Public Utility Holding Company Act of 1935 under which private utilities are burdened and harassed. 7. New legislation presented to Congress with administration approval prescribing a national policy for Federal power projects. 8. Proposed legislation, already considered by a Senate committee, for the creation of a Mississippi Valley Authority affecting a large part of the area between the Alleghenies and the Rockies. 9. Proposed legislation, also considered by a Senate committee and recommended by the National Resources Committee, for the creation of a Columbia Valley Authority in the Northwest. 10. Numerous other bills creating power authorities patterned after the TVA. The TVA The rate "yardstick" of the Tennessee Valley Authority is unfair to private industry. The Government arbitrarily charges a large part of its investment to flood control, navigation, national defense and other purposes. Its wartime investment, the nucleus of the TVA capital, has been in large part written off. The Government forces the taxpayer to be-â€¢come an unwilling investor in an electric utility to serve a limited number of customers in a favored section with varying amounts of electricity and does not pay the taxpayer one cent of interest for the use of his money. 4 The Government's investment in the area prior to the enactment of the Tennessee Valley Authority Act was about $140,000,000. The TVA received $50,000,000 from the public works fund during the fiscal year 1934 and $25,000,000 from emergency funds during the fiscal year 1935. Its appropriation for the fiscal year 1936 was $36,-000,000, and for 1937 it is about $40,000,000. The total thus far appropriated or allotted to the TVA is about $151,000,000, in addition to the $140,000,000 of property turned over to it. The program that has been recommended by the TVA calls for an expenditure of $438,000,000, plus $60,000,000 for power plants at Muscle Shoals, a total of $498,000,000 at the rate of approximately $380 per kilowatt of primary power. Under the Federal Water Power Act of 1920 private industry has constructed plants in which there will ultimately be installed 6,753,292 horsepower for the improvement of navigation, flood control and the development of power at expenditures averaging about $125 per kilowatt of primary power. The wide difference in cost illustrates the great inefficiency of the Government in expenditures for developments of this character. Of the wartime investment at Muscle Shoals, $47,000,000 represented the cost of the Wilson Dam. The TVA has estimated its present value to be $33,000,000, less than $20,000,000 of which is carried on the books as charged to power, the balance being divided between navigation and national defense. The TVA was given two plants at Muscle Shoals capable of generating about 600,000,000 kilowatt-hours of primary power annually on a public utility load factor. From these plants the TVA actually generated for ultimate customers, as shown by its annual reports, in the year 1934, 2,912,694 kilowatt-hours, and in the year 1935, 21,000,094 kilowatt-hours. Notwithstanding this small use, the TVA now has plants under construction that will bring this total capacity to 3,500,000,000 kilowatt-hours of primary power annually and has recommended that construction be started on four additional dams that will bring the total capacity to 5,800,000,000 kilowatt-hours of primary power annually, and, in addition to this, there is a large amount of secondary power. Under the law the TVA pays to the state where its power is generated a tax equal to 5 per cent 5 of the amount of gross sales. The last annual tax to the State of Alabama was only $16,900. The Alabama Power Company paid more than $2,500,000 in various kinds of taxes. Citizens of Alabama have expressed resentment because the TVA not only escapes a large part of the taxes to which private industry is subject but also because thousands of acres of land which heretofore have been a source of revenue have been removed from the tax rolls. The assertion has been made before the Alabama Legislature that if the TVA paid taxes like other utilities that state alone would be entitled to from $300,-000 to $480,000 annually. Subsidising Municipalities Much has been made of savings to consumers in municipalities which now get their electricity from the TVA. According to the annual report of the TVA the average monthly bill for electric service in Tupelo, Mississippi, decreased from $3.60 to $2.30 and the number of residential customers increased about 30 per cent after TVA electricity was available. The fact of the matter is that the municipal plant serving Tupelo charged prior to the TVA from one and one-half to two times as much as was charged by privately owned utility companies in comparable towns in the same region. The municipal plant had done nothing to develop business and the average consumption of domestic customers was very low. Under its contract with the TVA, Tupelo was able to buy electricity at wholesale at a rate lower than it had been able to buy it previously. The subsidy represented in the low rate was supplemented by a further subsidy in the form of free supervision and promotion services. The increase of residential customers by 30 per cent, which meant from 955 to 1,241, was stimulated by the activities of TVA employees. The TVA annual report shows that it had 154 employees in its division of operation in Mississippi and that its budget included $100,888 for sales promotion work. The Electric Home and Farm Authority, then affiliated with the TVA, had a fund of $100,216 for promotion and $100,913 for educational programs. The city of Tupelo itself spent for the promotion of new business a sum hardly sufficient to pay the salary of one man, but with the aid of the salesmen of the TVA and the EHFA it was able to show a substantial increase in sales of electric appliances. Some of the municipalities buying electricity from the TVA have had a further subsidy in the form of grants and loans from Federal public works funds. Through outright grants it has been possible for municipalities to get 45 per cent of the cost of distribution systems without charge to their own taxpayers or customers. The TVA charges a large amount of its overhead to construction instead of to the operation of its electric system. Even so, the amounts shown in the 1935 annual report as spent by the TVA for distribution, utilization, commercial, new business and general expense, total approximately $190,000, besides $56,000 spent by cooperating municipalities and county associations, a total of $246,000. There were 7,500 average customers served, the total operating expense being $32.80 per customer, exclusive of the cost of power. This portion of operating expense usually costs the private electric utilities from $15 to $20 per customer. The difference reflects the inefficiency in the operations of the TVA and the municipalities. The TVA also showed an expenditure of $40,244 for new load development, which would add another $5.37 per customer. The private power companies in doing all of these things usually spend less than $20 per customer. Misleading Statements Spokesmen for the TVA have made misleading statements with respect to the effect of its activities upon the business of private companies. According to such statements the private companies operating in the TVA areas have greatly increased their sales of electricity and appliances and also show greater earnings under lower rates alleged to have been forced by the TVA. The Georgia Power Company has been cited as an example by reason of the fact that it has recently led all electric companies in the United States in sales of electric refrigerators and water heaters, and was second in sales of electric ranges, although ranking only twenty-third in total number of residential consumers, and also because the State of Georgia had the highest average residential electric consumption of any state east of the Rocky Mountains. The TVA has claimed credit for these achievements. The fact is that Georgia led all states east of the Mis- sissippi in residential consumption of electricity as long ago as 1932 which was prior to the creation of the TVA. The Georgia Power Company has had an enterprising sales policy for as much as 15 years, although the TVA has sought to give the impression that until its advent promotional rates were unknown. The Georgia Power Company established promotional rates in 1929 throughout its territory, cut them still lower in 1933, and again in January, 1934, before the TVA had announced a rate schedule. Even as far back as 1929 the rates of the company were well below the national average and residential consumption was considerably above the national average. In the light of claims made with respect to increased sales of appliances in the TVA area a comparison of sales of three subsidiaries of the Commonwealth and Southern Corporation within the area and three subsidiaries outside is interesting. The 1935 sales of electric merchandise by the three subsidiaries in the TVA territory, the Alabama Power Company, the Georgia Power Company, and the Tennessee Electric Power Company averaged 126.7 in per cent of 1930 sales as against an average of 163.4 for three subsidiaries outside the area, the Ohio Edison Company, the Central Illinois Light Company, and the Consumers Power Company. Sales of all northern companies of the Commonwealth and Southern system in 1935 were 61 per cent greater than in 1934, while those of the southern companies increased by only 26 per cent. Adverse Effects Injurious effects upon private utility companies operating in the TVA area are indisputable. These effects are evident in the difficulty encountered in borrowing money. Utility companies in many other sections of the country have taken advantage of low interest rates to refinance outstanding securities. The companies in the TVA area have been unable to do so. Investment bankers are unwilling to promote the securities of these companies when the Government is threatening to destroy the property by taking their customers with rates that are not compensatory. They realize that the companies face heavy losses and possible extermination if the Government extends its operations to the point of delivering all the power it now proposes to generate to ultimate customers, either directly or through its sales to municipalities. Specific facts with respect to this situation are presented by Wendell L. Willkie, president of the Commonwealth and Southern Corporation, in his annual report to stockholders for the year 1935, made public May 21, 1936. He says: "During the past year and a half, a total of $162,282,300 principal amount of bonds of subsidiary companies has been sold, bearing coupon interest rates ranging from 4%% to ZVz% and averaging 3.733%. Of this amount of bonds 8154,536,900 replaced like principal amount of bonds refunded bearing coupon interest rates ranging from 6% to V&% and averaging 4.985%. The average public price at which the bonds were sold was 10156% and the companies received an average of 99.16%. The savings on these refunding operations amount to over $1,300,000 per year after amortization charges for premiums paid on bonds refunded and discounts and expenses incurred in the refunding operations. . . . "It is expected that, with exception of the southern companies, whose affairs are immediately influenced by the operations of the Tennessee Valley Authority, the other subsidiary companies also can take advantage of favorable financial conditions to reduce their capital charges by refunding their outstanding bonds and preferred stocks at lower rates. The presence of Government competition has created such market uncertainties that the preferred stocks of our southern companies are selling at 30 to 40 points below par and it is impossible â– for them to refund their bonds and preferred stocks or to publicly finance their construction requirements. The money for such construction requirements has, therefore, of necessity been supplied by this corporation, the holding company, and -it has thus been rendered unable to restore the full dividend payment to its preferred stockholders. "Had Alabama Power Company, the Tennessee Electric Power Company, Georgia Power Company and Mississippi Power Company been able to effect refunding on the same basis as our northern companies, savings of over $5,000,000 a year would accrue to them. This penalty which is being levied against our southern companies by the Government incursion into the field of private enterprise, will, unless brought to a halt, of necessity be paid for by either you as security holders or by the rate payers and probably by both. The southern companies thus compelled to continue to pay high interest rates on their capital requirements, are having great difficulty in bringing about further residential rate reductions." Mr. Willkie asserts in his report that, if the southern companies of his system received the same gifts from the Federal Treasury as the TVA, they could lower their rates at least 25 per cent below the TVA rates. The capital investment of private electric power and light utilities in the principal Tennessee Valley states is more than 8600,000,000. These companies have nearly 800,000 electric customers in the States of Alabama, Georgia, Tennessee and Mississippi and serve communities with a population of about 5,300,000. The people of these four states, who are the chief beneficiaries of subsidized rates of the TVA, paid only about 2 per cent of all Federal taxes in the fiscal year 1935. This means that 98 per cent of the huge cost of the TVA will be borne by taxpayers of other sections of the country. Constitutionality The Supreme Court in its decision in the TVA case, went no further than to hold that the sale of electric energy generated at the Wilson Dam was proper because it was lawfully constructed under war and navigation powers. The Court made it very clear that the decision was limited to the case before it. The Court did not consider that the question as to whether or not the Federal Government could constitutionally engage in all the "collateral" activities was before it for determination. Therefore, the real implications in the activities, the professed objectives, and the legitimate scope of the TVA still remain unadjudicated. This limited application of the Supreme Court decision must be clearly understood to avoid acceptance of the impression which is being subtly given that the TVA in all its ramifications has been held constitutional. Pertinent excerpts from the Court's decision of February 17, 1936, follow: "As we have said, these transmission lines lead directly from the (Wilson) Dam, which has been lawfully constructed, and the question of the constitutional right of the government to acquire or operate local or urban distribution systems is not involved. We express no opinion of such an effort." "We express no opinion ... as to the status of any other dam or power development in the Tennessee Valley, whether connected with or apart from the Wilson Dam." "We express no opinion ... as to the validity of the Tennessee Valley Authority Act." "We express no opinion ... of the claims made 10 in the pronouncement and program of the Authority apart from the questions we have discussed in relation to the particular provisions of the contract of January 4, 1934, affecting the Alabama Power Company." The constitutionality of the TVA Act is involved in a suit commenced by 19 public utility companies in the United States District Court at Birmingham, Alabama, on May 29, 1936. Rural Electrification The Rural Electrification Administration was made a permanent agency, with funds definitely authorized for a ten-year period, in a law enacted May 20, 1936. The original creation of this agency, May 11, 1935, was an example of lawmaking by Executive order under the broad authority vested in the President by the Work-Relief Act. Under the Executive order the Rural Electrification Administration was authorized "to initiate, formulate, administer, and supervise a program of approved projects with respect to the generation, transmission, and distribution of electric energy in rural areas." The Rural Electrification Administrator was authorized in the Executive order to create an unlimited payroll without regard to the civil service law, and to incur expenditures for all sorts of purposes. The REA had 257 employees in March, 1936. The new legislation is an example of belated action by the administration in securing statutory authority for activities first developed on a broad scale without such authority. The question of the constitutionality of the measure was raised during the debates in Congress. Senator William H. King, of Utah, asserted that there was no constitutional warrant for the type of activity involved in rural electrification. He contended that no authority existed under the Constitution to impose taxes to build electric light plants, construct transmission lines and furnish electric appliances. The extent to which the rural electrification program invades the field of private industry is dependent upon the policies which may be pursued. The law is sufficiently broad to make this activity a serious menace to private industry and a factor in stimulating the trend toward the socialization of the electric power industry. Loans authorized under the law to finance the 11 construction and operation of generating plants and distribution lines in rural areas may be on a 100 per cent basis. Under no other government agency can such liberal credit arrangements be found. Terms and conditions may be prescribed by the administrator, except that the loans are intended to be self-liquidating within a period of twenty-five years. The interest rate is to be equal to the average rate of oustanding long term government obligations. It is obvious that if the REA encroaches upon territory served by private industry the latter will be utterly unable to meet this subsidized competition. The law is unusual in many respects. For example, the administrator is given a term of ten years. Except in the case of the Comptroller General, whose independence is sought to be assured by a fifteen-year term, and members of a few boards, there are no other administrative officials in the Government with terms at all comparable. In the case of boards, the terms of members overlap and each President has an opportunity to make appointments as the terms expire. The Rural Electrification Act sets up an agency whose administrator holds office through parts of three administrations. Besides loans for the construction and operation of generating plants and distribution lines, the law authorizes loans to finance the wiring of homes of farmers and acquisition of electrical appliances. No restrictions are imposed as to the terms of payment. While the amount authorized was cut down considerably from the $1,000,000,000 proposed in the original bill, the law obligates the taxpayers for a very substantial amount. During the first year $50,000,000 is to be loaned to the Rural Electrification Administration by the Reconstruction Finance Corporation, but in each of the nine years thereafter $40,000,000 is appropriated directly from the Treasury. The total authorization for the ten-year period thus is $410,000,000. Previous to the enactment of the legislation the Rural Electrification Administration received allotments from the work-relief fund amounting to about $10,500,000, of which $650,000 was for administrative expenses and the balance for loans to states and other public bodies and to private corporations. In propaganda for rural electrification it has been represented that the United States is more backward than other countries in this field. The 12 truth is that, if comparisons are made between areas of comparable density and agricultural income, the United States is far ahead of other countries. For example, rural electrification has gone forward more rapidly in Michigan under private industry than in adjacent Canadian territory, where there is a government subsidy. The EHFA The Electric Home and Farm Authority is another agency for which statutory authority was obtained after its activities were fully developed without any sanction except that of an Executive order. Under authority of the original Executive order, dated December 19, 1933, there was created a Delaware corporation with power to do almost anything. Besides financing the sale of electrical appliances, which was supposed to be its primary function, the EHFA might manufacture, buy and sell appliances and other merchandise; buy, discount and sell notes and mortgages; borrow money and issue bonds; buy and sell real estate, securities and other property. The charter of this corporation was for a seven-year period despite the fact that the National Industrial Recovery Act, upon which the Executive order was based, had a life of only two years. Because of criticism with respect to the broad powers of the Delaware corporation, the administration caused the EHFA to be reincorporated under the laws of the District of Columbia with its powers limited chiefly to the financing of electrical appliances. The new corporation obtained its charter on August 1, 1935, supposedly for a two-year period. However, under a ruling of the Comptroller General, the EHFA would have ceased to exist April 1, 1936, when the extended National Industrial Recovery Act expired. The law enacted March 31, 1936, extended the EHFA until February 1,1937, or such earlier date as might be fixed by the President by Executive order. The law does not contain any itemization of the powers and responsibilities of the EHFA but merely authorizes continuation of the corporation organized under the laws of the District of Columbia. The reason the date of the expiration of the life of the EHFA is February 1, 1937, is that the lending powers of the Reconstruction Finance Corporation expire then. The EHFA has a capi-13 tal of $850,000, which was allotted by the President from the public works fund, and may borrow from the RFC. If the authority of the RFC is extended, it is assumed that the EHFA also will be given a new lease of life. While the original EHFA was formed as a subsidiary of the TVA the present corporation proposes to operate on a nation-wide basis. Up to March 15, 1936, when the legislation to give the EHFA a statutory basis was under consideration, it had purchased 8,700 installment contracts amounting to $1,425,000. The contracts outstanding at that time totaled about $975,000. The states in which the EHFA was then operating were Tennessee, Georgia, Alabama, and Mississippi in the TVA area, and Illinois and Ohio. Negotiations were in progress involving operations in 35 other states. Up to March, 1936, the EHFA had operated on a relatively small scale and had only 29 employees. Through the EHFA the Government is exerting pressure on private manufacturers to reduce prices of appliances. By its low charges it is seeking to hammer down the rates charged by private financing companies. The Government's ability to borrow money at exceedingly low interest rates makes it a dominant competitor. If the corporation unfairly invades the field of private business, it will contribute to the movement for socialization of the electric power industry as well as to the socialization of the banking business. Federal Power Projects The TVA is the largest in point of total contemplated investment but by no means the only power project financed entirely with Federal funds. Entirely apart from the TVA and Boulder Dam, both of which have statutory authority, about a dozen power projects with some degree of importance have been commenced with emergency funds by order of the President. Government competition with the private elec-trict power industry as contemplated on a huge scale through these projects was authorized only in part by the Congress. The rapid strides towards socialization of the industry due to these gigantic projects have their foundation chiefly in administration policies rather than in the considered judgment of the legislative branch of the Government. 14 Boulder Dam, which was authorized by Congress during the Coolidge administration, commenced under the Hoover administration and dedicated under the Roosevelt administration, was not intended primarily as a power project. The sponsors of the Boulder Dam project reported to Congress that there was a market for the output at a rate that would amortize the debt when the power was delivered to other distribution agencies without disturbing their investment in transmission and distribution facilities. In other words, the power was sold to the existing distributing agencies at a rate that made it more economical for them to purchase Boulder Dam power than construct new generating plants. The original Tennessee Valley Authority Act did not give unlimited sanction to the construction of dams and power plants. A considerable part of the present TVA program for the construction of dams was undertaken by allotments from public works funds for projects for which there was no specific authorization in the law. Most of the other important power projects now under construction with Federal funds had no authorization in law, at least in the beginning. Their engineering feasibility and economic desirability were decided upon by the President, who made allotments from funds appropriated for public works and work relief. Some of the projects lacked the approval of the Army engineers. The Grand Coulee project in the State of Washington involves an immediate outlay of $63,000,000 and a possible ultimate cost of $204,-000,000. The Bonneville project in the State of Oregon has had $31,000,000 of allotted funds and may cost $75,000,000 ultimately. Besides Grand Coulee and Bonneville, there is agitation for other power projects on the Columbia River costing considerably in excess of $500,000,000. Among other power projects initiated at the order of the President are the Passamaquoddy tide-harnessing scheme in Maine to cost $37,-000,000, on which the Congress has virtually ordered a halt; the Casper-Alcova project in Wyoming, to cost $22,000,000; the Fort Peck project in Montana, to cost $72,000,000 or more; and the Santee-Cooper project in South Carolina, which may cost $37,500,000. Allocations of substantial amounts to power and irrigation projects in the State of Nebraska 15 have been involved in litigation commenced by private power companies whose property the Government proposes to destroy by taking away their market with a rate below actual cost. These projects are among those under the Reclamation Bureau of the Interior Department for -which allotments have been made from funds appropriated for public works and work relief. In Nebraska the PWA has sponsored a coordination of three hydro-electric projects into a state "TVA." Nonfederal Power Projects Substantial amounts have been allotted from funds of the Public Works Administration for non-Federal electric power projects. A tabulation of activities of the PWA shows that up to December 31, 1935, it had participated in 155 electric power projects, 146 of them being other than water power. Of the 146, twenty-five were electric distribution systems, while 121 involved the construction of power plants. The total cost of these electric projects other than water power is estimated at more than $40,000,000, of which the PWA furnished more than $31,000,000. The total cost of these water power projects is estimated at about $44,000,-000, of which the PWA furnished about $38,000,-000. There are many other projects for which no expenditures had been made at the end of 1935. The approved PWA non-Federal electric power program embraces more than 260 projects involving an aggregate cost of upwards of $200,000,000. Many loans and grants have been to municipalities for the reconstruction of depreciated electric systems. The municipality with its political management had not been able to meet competitive rates for electric service and pay operating expense and have anything left for renewals and replacements. In numerous instances Federal loans and grants to publicly owned power projects have had the effect of encouraging competition with private industry. Evidence of this fact has been given in litigation in the courts. A typical example is that of a PWA loan and grant of nearly $3,000,000 to Greenwood County, South Carolina, for the construction of a power plant. The Duke Power Company, which has lines in the territory, commenced injunction proceedings on 10 the ground that the Government was unlawfully entering into competition with private business. The case is now before the Supreme Court. Suits involving allocation of funds to municipal lighting plants were argued before the District of Columbia Supreme Court in May, 1936. It was brought out that the purpose of the Government was to force down electric rates throughout the country, and that Federal funds were actually being used to enable municipal plants to compete with existing private companies. Following a decision in these cases on June 5 favorable to the Government it was announced that an appeal would be carried to the higher courts. The Holding Company Law The Public Utility Holding Company Act of 1935 is an insidious part of the movement for socialization of the electric power industry. This law, which goes far beyond a proper regulation of the industry, so burdens and harasses management and investors as to weaken resistance to the trend toward public ownership. The so-called "death sentence" provision, under which the activities of most public utility holding companies will be limited after January 1, 1938, to single integrated systems, involves not only an arbitrary destruction of property rights but a disregard of actual advantages of holding company ownership and management. The regulatory agencies under the law are given authority not only to supervise but to manage, control and even destroy an industry. The power of state regulatory commissions is greatly weakened. The Act proposes to destroy large operating systems and break them up into smaller operating units. Notwithstanding this, a recent publication of the Federal Power Commission makes it clear that the larger the operating system, the lower the average residential rate. The Commission reported on 108 systems furnishing about 98 per cent of the service supplied by the industry. If the systems reported upon are divided into groups, No. 1 being those of one billion kilowatt-hours or less, No. 2 of one billion to one billion five hundred million, No. 3 from one billion five hundred million to two billion, No. 4 from two billion to three billion, and No. 5 from three billion to four billion, it is found that the No. 1 group has the highest average 17 residential rate, No. 2 group is slightly less than No. 1, No. 3 group is 3 per cent less than No. 2, and in No. 4 the average residential rate is 5 per cent less than in No. 3, while in No. 5, the average residential rate is 8.4 per cent less than in No. 4 or 19% per cent less than in group No. 1. The constitutionality of the Holding Company Act is at issue in cases which are expected to reach the Supreme Court during the winter of 1936-37. Adverse decisions have been given in lower courts. A National Power Policy Legislation proposed in May, 1936, with the approval of the administration, for the operation of the Bonneville Dam by the War Department and authorizing the Federal Power Commission to control rates of all Federal power projects is a significant step in the movement for socialization of the electric power industry. The legislation was under consideration as Congress prepared to adjourn in June. Until recently there was no occasion to establish a national policy with respect to rates of government power projects. The Federal Power Commission's activities have had to do chiefly with private power companies. Prior to the present administration the Government maintained some relatively small power plants in connection with western reclamation projects, all of them being under the Reclamation Bureau of the Interior Department. Boulder Dam, only now ready to produce power, also is under the Reclamation Bureau. The TVA, in an area remote from that in which the Reclamation Bureau operates, is an independent agency. Other similar authorities, if created, would be independent agencies. The power projects which have been commenced with allotted funds will be operated, unless legislation is enacted placing them under regional power authorities, either by the Reclamation Bureau or the War Department. The designation of a coordinating agency for the various projects in widely scattered areas is recognition that the Government has gone into the electric power business on a nation-wide scale. In other words, socialization of the industry already has been accomplished to an extent sufficient to necessitate the formulation of a national policy. Uniformity in the allocation of costs for different purposes thus far has been lacking among 18 the different power projects. Thus, the TVA has allocated a much smaller part of actual costs to power than is true at Boulder Dam. The Boulder Dam Act of 1928 requires that rates for electricity shall be fixed sufficiently high to amortize costs of the dam and power plant within 50 years, the sum of $25,000,000, less than one-fourth of total costs, being charged to flood control and the balance to power production. Because of complaints that the rates in contract for the sale of Boulder Dam power to municipalities are too high, it is proposed to obtain a reduction and extend the amortization period to correspond with a uniform policy to be established by the Federal Power Commission. The inconsistencies in present policies tend to emphasize that the Government is subsidizing its power plants sufficiently to seize the market from private companies. The Federal Power Commission, if it follows the policies to which the administration appears committed, may under the terms of the legislation so adjust rates as to strangle the private power industry. Under such policies a further expansion of government power production will be encouraged and the day hastened when investors no longer will care to risk their funds in a losing fight with a subsidized enterprise. The Federal Power Commission may exercise its authority "without regard to the provisions of statutes heretofore enacted, but with due regard to (1) insuring the provision of revenue sufficient to cover all costs of maintenance and operation and to repay with interest any and all investments of the United States in any Federal project properly chargeable to development, transmission, and sale of power; (2) available markets; (3) the interest of the ultimate consumers; and (4) the general public welfare." The Commission becomes the arbiter of the part of the costs to be charged to power. The clause with respect to the amortization of costs is meaningless in the light of the right conferred upon the commission to reduce bookkeeping costs at will. The President's Program The President, on June 4, 1934, transmitted to Congress a comprehensive preliminary report on a plan for the improvement and development of the rivers of the United States to provide for "the maximum amount of flood control, navigation, irrigation and development of hydro-19 electric power." Without specifically recommending the projects enumerated in the report the President said that "we should proceed toward a rounded policy of national scope." It has been estimated that the projects in-eluded in the report would cost a total of $1,154,-322,000, exclusive of amounts for the purchase of more than 45,000,000 acres of land which, at an average of $25 an acre, would cost a sum equally as large. The new power projects specifically mentioned in the report would cost a total of more than $350,000,000. The President, by Executive order on August 19, 1933, directed the Federal Power Commission to make a survey of the water resources of the United States as they relate to the conservation, development, control and utilization of water power. Under this authority an extensive study, known as the National Power Survey, has been in progress. An interim report published in the spring of 1936 asserted that control of power is a social as well as an engineering and economic problem, and that careful planning under Federal supervision of new power plants and facilities for transmission is required to promote the safety and welfare of the nation. The report predicted a shortage of generating capacity in the event of a resumption of normal industrial activity, and recommended early construction of electric power plants, either hydro or steam, involving a capital expenditure of at least $300,000,000. Another agency, which at the direction of the President has dealt with the power question, is the National Power Policy Committee headed by the Secretary of the Interior and including in its membership representatives of the Federal Power Commission, the Tennessee Valley Authority, the Rural Electrification Administration, the War Department, the Forest Service of the Department of Agriculture, and the Securities and Exchange Commission. Throughout the activities of administration agencies an antagonism to the private power industry has been evident, together with a purpose to promote a greater participation of the Government in the production and sale of power. The bias in favor of a socialization of the industry has been manifest. The Proposed MVA Socialization of the electric power industry on a grand scale is provided in the Norris bill, 20 S. 3524, for the creation of a Mississippi Valley Authority patterned after the Tennessee Valley Authority. The bill was introduced in the Senate on January 9, 1936, by Senator George W. Norris of Nebraska, whose activities and theories as the chief sponsor of the Tennessee Valley Authority Act have had the complete approval of the Roosevelt Administration. Hearings took place before a subcommittee of the Senate Committee on Agriculture and Forestry in April, 1936. The avowed purpose of the hearings was to furnish a groundwork for discussion during the campaign with a view to arousing sufficient public sentiment to support a determined drive for enactment of the legislation in the next Congress. In some of its provisions the bill treads on the toes of established government departments, and has drawn criticism from the heads of these departments. No word has come from the Administration, however, that the fundamental theories with respect to power development are at variance with its principles. The Mississippi Valley Authority constitutes a logical expansion of the economic and social ideas of the Tennessee Valley Authority. The MVA bill authorizes the construction of dams, generating plants and transmission lines and the sale of power in the Mississippi Valley. Under its terms the Mississippi Valley embraces "all that section of the United States the waters of which, if undiverted, ultimately flow into the Mississippi River." This means the greater part of the area between the Alleghenies and the Rockies and between the Canadian border and the Gulf. The part of the Mississippi Valley now under the Tennessee Valley Authority and the Ohio River valley, which is specifically annexed to the TVA, are excluded from the jurisdiction of the MVA. The area affected by the bill, including the Ohio River valley, covers all or part of twenty-three states. The bill affects one-third of the area of the United States and one-fourth of its population. It builds up a super-state with sovereignty superior to that of almost half the states of the Union. Authority of the states with respect to regulation of electric rates is in no way recognized. The framers of the bill did not even attempt to estimate the amount of the vast appropriations which would be necessary if the MVA embarked upon a program comparable to that of the TVA. The bill disposes of the question of cost by providing that "all appropriations neces-21 sary to carry out the provisions of this Act are hereby authorized." Government seizure of markets, implied in the bill, would mean tremendous losses to investors in private utility companies. At present there are nearly 900 privately owned and operated electric utility companies with a total capital investment of more than $5,000,000,000 in the area affected, including the Ohio River valley. These utilities serve more than 11,000,000 customers. The ownership of the private companies is shared by probably 2,000,000 holders of securities whose investment would be jeopardized in the event of the enactment of the bill. The taxes paid by these companies to the Federal, state and local governments, which would be lost if complete socialization were effected, now amount to more than $125,000,000 annually. In the attempt to give the bill some semblance of constitutionality it is camouflaged with language about flood control and navigation. The primary purpose unquestionably is government ownership and operation of the electric power business. Some idea of the broad mandate to the Mississippi Valley Authority under the bill may be gained from a provision which declares it to be its duty "to bring about in said Mississippi River Valley, including its tributaries, (1) the maximum amount of flood control; (2) the maximum benefit to navigation; (3) the maximum amount of irrigation; (4) the maximum generation of electric power consistent with irrigation, flood control, and navigation; (5) the proper use of marginal lands; (6) the proper method of reforestation of lands in said valley suitable for reforestation; (7) the economic and social well-being of the people living in said valley." This language was taken from the Tennessee Valley Authority Act. It will be noted that the MVA would have not only practically unlimited authority over the development of works relating to flood control, navigation, irrigation and power but also over matters affecting the private lives of the people. The extensive area involved would be made subject to economic and social experimentation. If the sponsors of the proposed MVA really wanted to create the maximum amount of flood control and the maximum benefit to navigation and to make the best use of the so-called surplus power for the economic and social well-being of 22 the people, they could have provided that the power created be sold to existing distribution systems and that the savings in power cost be passed along to the ultimate consumers. This cooperation and assistance to the industry would have lowered rates and made greater use of existing distribution systems without socializing the industry and would have allowed the utilities, due to the stability it would have given them, to refinance at rates practically as low as government bond rates. The government could rightly have insisted that these refinancing savings be passed on to consumers.. The constitutionality of the bill is open to very serious question. Such sanction as the TVA has received from the courts has been based on the sale of power from a dam built under war and navigation powers. The MVA bill purports to make power development incident to flood control, navigation and irrigation, but it is obvious that the language is designed chiefly to deceive the courts as to the real motive. The objections raised by departments whose activities are encroached upon make it clear that the purposes are other than as stated in the bill. The War Department has objected on the ground that matters relating to flood control and navigation already are competently cared for by the Army engineers. The Department of Agriculture has objected to the provisions which give the MVA jurisdiction over land utilization policies. The Interior Department has shown interest because the bill would encroach upon the work of the Reclamation Bureau. The Federal Power Commission has protested because of failure to recognize its authority as an agency concerned with water power development plans. Under the bill the Fort Peck Dam, now under construction on the Missouri River in Montana, would be transferred from the War Department to the MVA. Both in connection with the Fort Peck Dam and all other dams and improvements, the MVA would be authorized to allocate cost among flood control, navigation, irrigation and power development. Competing private power projects have no alternative but to charge the entire cost to power. The MVA would be a corporation controlled by three directors appointed by the President for overlapping nine-year terms at salaries of $10,000. Appointment of employees would be authorized outside the regular civil service under 23 a system similar to that in effect in the TVA. The financial operations of the MVA would be audited by but not subject to the control of the Comptroller General. The Proposed CVA Creation of a Columbia Valley Authority is proposed as part of a comprehensive plan for power development covering the entire United States. Under S. 869, introduced by Senator James P. Pope of Idaho, a Columbia Valley Authority patterned after the TVA would be in charge of power development as well as of irrigation, flood control, navigation and the utilization of marginal lands. The nucleus for its activities would be provided by the Bonneville Dam in Oregon, temporarily under the War Department and ready to deliver power in 1937, and the larger Grand Coulee Dam in the State of Washington, which is scheduled for completion in 1938. A subcommittee of the Senate Committee on Agriculture held hearings on the Columbia River situation during May, 1936. Action on the CVA proposal was deferred on the theory that immediate needs with respect to the Bonneville Dam would be taken care of in the bill which also dealt with a national power policy. The proposed CVA has had the endorsement of the President's National Resources Committee. Such an agency, according to the recommendations of that Committee, "if appointed by the President would keep to the front the social and economic purposes underlying the government's power development at Bonneville and ultimately Grand Coulee, and would secure for the whole region the benefits of this large Federal expenditure." The Committee recommended that the proposed new power agency should have authority to distribute power and establish rates to encourage a broad use of the power and that it should also have authority with respect to the construction of transmission lines, purchase or condemnation of lands and similar activities. The Committee recommended a policy for the sale of electricity "which will make rates similar over large areas, which will pass along the economies in the prices of wholesale power to the ultimate consumer, and which will contribute insofar as may be wise to the stabilization of existing communities, the appropriate decentralization of 24 new industries, the increase of steady employment and the increased consumption of electric energy by farmers and domestic consumers." Political considerations have played an important part in the allotment of large amounts of Federal money to the Bonneville and Grand Coulee projects. There is no immediate demand nor is it likely that there will be in the future for anything like the amount of power which will be made available. Farm organizations have protested against any further expansion of reclamation in the face of a present overexpan-sion of agricultural areas. Other Proposed Power Authorities Many other bills creating authorities patterned after the TVA have been introduced in Congress. While there is no likelihood of immediate action they are significant as embodying a logical sequence of the TVA experimentation. Members of Congress in other sections naturally feel that if the Federal Government is to spend huge sums in the Tennessee River Valley there is no reason why it should not do so elsewhere. If those who want the Government to dominate the electric power situation have their way, the country eventually will be blanketed with a network of power authorities. If the Congress refuses to approve the creation of a Mississippi Valley Authority, it is a reasonable assumption that agitation will be commenced for the enactment of bills setting up separate authorities for different areas within the Mississippi Valley. Among the many proposals actually pending in Congress are bills for the creation of a Connecticut Valley Authority, a Potomac Valley Authority, an Appalachian Authority, a Missouri Valley Authority, a Middle-Mississippi River Valley Authority, an Upper-Mississippi Valley Authority, an Arkansas Valley Authority, a Wisconsin Valley Authority, a Wabash Valley Authority, and a California Valleys Authority. Conservation and Flood Control The Tennessee Valley Authority Act, the Mississippi Valley Authority Bill, and the various other bills creating power authorities pay lip service to conservation and flood control, but contemplate policies which are not conducive either to genuine conservation or the most approved type of flood control. 25 Power development in its use of storage water is essentially inconsistent with flood control. Soil conservation requires the development of a vegetation and soil that will retain the ground water. This contributes to the flood control in that the ground water is retarded at the headwaters of streams. Power development in the southeastern states requires that storage dams be filled during the first third of the year, held practically full of water during the second third of the year, and drawn down during the last third of the year, while flood control regulation with storage reservoirs requires the reservoir to be kept empty at all times so that it may be used to store flood waters. The experience in the southeastern states is that severe floods may occur in any month of the year. For maximum flood control, in any area, reservoirs should be empty in advance of floods, but such reservoirs are of little use for power production. The emphasis upon power development in the various authority bills is proof that provisions with respect to flood control and soil conservation are mere camouflage. Morris L. Cooke, head of the Rural Electrification Administration, brought out the inconsistency in governmental policies with respect to water resources in testifying on the MVA bill before the Senate subcommittee. Mr. Cooke, in collaboration with Rexford G. Tugwell, head of the Resettlement Administration, and H. H. Bennett, Chief of the Soil Conservation Service, has sponsored a small book entitled Little Waters, a Study of Headwater Streams and Other Little Waters, Their Use and Relation to the Land. This book, which has attracted wide attention and is a part of the studies of the National Resources Committee, is premised on the assertion of experts that rich topsoils are being washed into the rivers and oceans, or blown away for lack of* moisture, because of undue emphasis upon development of land and water resources and inadequate attention to conservation of soil and water resources at the headwaters. Mr. Cooke told the Senate subcommittee that in the past the policy has been "to slick the path of water to the sea." The policy should be changed, he said, to one wherein the water is held on the fields and in the headwater streams as long as possible. Present policies, he asserted, will lead to the filling up of dams with silt, which ultimately will destroy power possibilities, besides being injurious otherwise. Mr. Cooke said that while he approved the general purpose of the MVA bill he thought the emphasis with respect to the construction of dams and reservoirs was "more down stream" than it should be. Those who are interested in the preservation of wildlife have complained bitterly because of the havoc caused by policies pursued in the development of water resources. J. N. Darling, former chief of the United States Biological Survey under the present administration, in an article in the April, 1936, issue of Better Homes and Gardens, refers to the Santee-Cooper power project in South Carolina as follows: "Our Government is promoting the Santee-Cooper power project to fight the existing power plants. It's been roughly estimated that all the existing power plants could be bought for one-half the money that's going to be spent by the Government to build the Santee-Cooper project. "We're giving away, then, for the sake of the fetish of fighting public-service corporations, $25,-000,000 plus 500 square miles of natural resources which can never be restored once that supply of fresh water is diverted." Referring to the Keokuk dam in the Mississippi River, Mr. Darling says: "At Keokuk, in the southeast corner of my own state of Iowa, is a gigantic dam which cost $25,000,-000. We all thought it was going to be great to have a lake in the Mississippi River 31 miles long, near our homes, a great recreation area full of fish and game a paradise for boating and swimming and that an industrial Arcadia would result from the cheap electric current. As a matter of fact, the dam has resulted in a barren-life desert 31 miles long without either vegetable or animal growth, useless for recreation. The promised industrial development has been a complete flop." Steam Versus Hydro-power The advocates of the expenditure of huge government funds for the development of hydroelectric power, presumably with a view to providing cheaper electric current to the general public, are prone to ignore the greatly improved efficiency of steam plants during recent years. The most efficient steam plants now generate a kilowatt-hour of electricity from much less than one pound of coal and even inferior plants do not require as much as a pound and a half of 27 coal. As recently as six years ago three pounds of coal were necessary in average plants, and forty years ago ten pounds. Development of hydro-electric power at the expense of existing steam plants may mean the loss of employment for thousands of workers associated with the production and transportation of coal. As matters stand today it is a question for argument whether power can be produced more cheaply than by steam in a hydro-electric plant even when a moderate part of the cost has been allocated to navigation and flood control. It seems to be undisputed that in a region where coal is available close at hand, as is true in the TVA territory and also in a considerable part of the Mississippi Valley, hydro-electric power cannot compete with steam power if the entire cost is charged to power production. Propaganda for Public Power Plants An example of propaganda in behalf of public ownership of the electric power industry is furnished in an illustrated publication issued by WPA workers of New York City, a special power edition of Building America, a Photographic Magazine of Modern Problems. In the magazine it is asserted bluntly though untruthfully that "city owned plants have brought lower electric rates and lower taxes." Referring to the TVA it is declared that consumers are getting electric current much more cheaply, but no mention is made of the extra charge on the taxpayers of the nation. The assertion is made that coal supplies eventually will be exhausted and that gas and oil also will not last many years, and that development of hydro-electric power is therefore necessary. In a leaflet accompanying the magazine, specific suggestions for teaching the power question in the schools include the topic, "Should the Government build its own power plants, which will help to reduce the price of electricity to many consumers?" Socialism Versus Americanism Socialism contemplates the public ownership and management of industry. The theories underlying Socialism are inconsistent with those of Americanism. The Constitution encourages and protects individual initiative in industry. So-28 cialization even of one industry introduces elements out of harmony with the American system of government. The advocates of increased government participation in the production and sale of power represent that the public is being gouged by rates charged by private industry. In order to undersell private industry, the Government finds it necessary to develop a false yardstick which ignores a substantial part of actual costs. The amounts charged to flood control, navigation and other purposes, most of which would not otherwise be spent at all, must be paid by the taxpayers. When account is taken of waste and inefficiency in any government enterprise there , can be no doubt but that the public has gained I nothing. The private power industry has steadily | worked toward lower rates. It has recognized that it is to its advantage to reduce rates to the lowest level possible. In the light of present regulation both by the states and by the Federal Government it is difficult to imagine a continuance of such abuses in the industry as may occasionally have existed in the past. Not only the Holding Company Act of 193fr but the Securities Act of 1933 and the Securities Exchange Act of 1934 served to tighten control. The state commissions maintain effective supervision over local rates. Statutory assertions with respect to flood control and navigation in the TVA and other Government power areas are a sham. The TVA proposes in its program of reservoir construction to inundate permanently considerably more than twice as much land in the Tennessee River Valley as ever has been affected by floods. Cities in the area with flood problems are dealing with them without expecting material assistance from the TVA. The pretense with respect to navigation in the TVA project is equally without basis. | The highly industrialized Tennessee Valley is so well equipped with railroads and concrete highways that the residents have long since ceased to ) depend for transportation upon the "horse and buggy" and the "mule on the tow path." It is very apparent that the TVA, despite its great stress on the construction of navigation facilities, cannot believe that the people of this valley will return to the slower transportation facilities offered by navigation. No important development of navigation is expected, and if it actually took 29 place the chief effect would be to injure the railroads. If navigation improvement were the real purpose, it could be accomplished by the construction of much cheaper dams than those designed for power development. The conclusion is unavoidable that the motive overshadowing all others in these various government projects, which for constitutional reasons are linked to flood control or navigation, is to put the Government into the power business on a scale sufficient to destroy private industry. The movement toward socialization of the electric power industry is an attack upon the American system of government. Its support comes from those who would abandon our institutions in favor of some form of collectivism. In the interest of the preservation of the American system the trend should be checked. The steps toward socialization of the electric power industry, already taken in an unbelievably short space of time, bear witness to what may be imminent in other industries if present policies are continued.