Mr. WILLKIE. Yes.

Senator BONE. I want you to follow me so that we will have this record perfectly straight and so that nobody can ever raise the question in Congress or any place else about this one point

Mr. WILLKIE. I doubt that, Senator.

Senator BONE. It is frequently obscure; so let us now make a record so that everybody can study it and can understand it. Mr. WILLKIE. I hope you and I can do that.

Senator BONE. We can do it across this table now.

All forms of taxation are allowed as an operating overhead. They are allowed as an operating overhead in the same way that maintenance, depreciation, and all other forms of operating expenses are allowed. That is correct is it not?

Mr. WILLKIE. I think that is correct; yes.

Senator BONE. Then, in practical effect without going into the technique or the mechanism by which it is accomplished, the taxes are ascertained and they are added in the light rates collected from the consumer of energy and are reflected in the rates in addition to the amount which the State regulatory body allows to the owner of the property in a return on his investment. That is correct, is it not? Mr. WILLKIE. As to that point, that is not alone true as to taxes on utility companies, but all taxes. The ultimate consumer inevitably pays all taxes. But that does not save us from the differential of the

competition

Senator BONE. We will come to that in a moment.

What I want

now to make clear is the fact that what I have said is corret? Mr. WILLKIE. Yes.

Senator BONE. Now, suppose I own a grocery business. I do not operate under regulation. I have no way of establishing a rate base for my organization. I admit to you that of course taxes are passed on if, as, and when they can be passed on. But the grocery business that I operate may not go down to a regulatory body in the capital of the State and file a rate structure and sell its commodity on a market which is a monopoly market, so that if my business does not make a return adequate to give me up to 8 percent on my investment all I need do is to file another set of rates. A private business such as I have described does not fall within the category of the utility business. You know that as a lawyer, and so do I. That is correct, is it not?

Mr. WILLKIE. No.

Senator BONE. Tell me where it is incorrect.

Mr. WILLKIE. In two respects, sir. Our business is monopolistic as to physical operations, within its limitation, in some 22 States, where nobody can operate without a certificate of convenience or necessity. But the commissions have full power to grant them competitive certificates. As to no. 2, I do not know of an exclusive franchise.

Now, as to our business started out in

Senator MINTON. You mean, theoretically you do not know of any exclusive franchise, but practically you do?

Mr. WILLKIE. Yes. That is, I say as to physical operation. Senator BONE. It is the "mine-run" experience of the country I want to get at.

Mr. WILLKIE. All right. May I proceed, sir?

130254-35--38

Senator BONE. Yes. Go ahead.

Mr. WILLKIE. This business started out and, in its inception, was entirely competitive. That is, when the electric business was origi nally started it was competitive in every phase, in lighting, industrial, commerical, and so forth. Every phase of its business was competitive. Today every phase of its business is competitive except residential lighting. When we go, for instance, to an industrial concern and seek to sell them a power load, we have to meet the competition of their own installation or potential installation. Mr. Corcoran described to you the remarkable development of the Diesel engine, the other day. Whenever we seek to sell a person a range or a refrigerator, we are in competition with every form of fuel. So only about between 10 and 15 percent of our business is noncompetitive. So the picture of myself or any of these gentlemen walking into the State capitol and putting into effect a rate schedule that raises rates under thich we are guaranteed a return is not true in fact.

Senator BONE. To what extent is it true? I am very much interested in the record that we are making now, and I want you to make a thorough exposition of this.

Mr. WILLKIE. I would like to get back to the principal subject, if I may.

Senator BONE. But this question of rates has been brought in. I did not bring it in.

Mr. WILLKIE. I thought you did. You asked me after lunch about this particular point.

Senator BONE. You were discussing rates when I came in.
Mr. WILLKIE. I believe, in response to your inquiry, sir.

Senator BONE. No. I say, you were discussing rates as I came in. However, that is of no moment.

Mr. WILLKIE. As I said, as to our business, some place between 10 and 15 percent of it is residential lighting business. That business probably today can be said to be noncompetitive. As to all of the rest of the business, it is competitive. And a utility does not get a guaranteed rate of return. It is merely permitted to earn a reasonable rate on the fair value of the property.

Senator DIETERICH. As I understand it, this new competitor, the Tennessee Valley Authority, will not have to pay any taxes on any of its property?

Mr. WILLKIE. To the States?

Senator DIETERICH. Yes.

Mr. WILLKIE. You are 100 percent correct.

Senator DIETERICH. And it will only have to figure a rate that will cover an investment of 40 percent in the dams that are constructed across the Tennessee River, because there will be 60 percent of that charged to flood control?

Mr. WILLKIE. I believe that discretion to fix that allocation is with them. I do not know what percentage.

Senator DIETERICH. It makes it a rather hard competitor to meet, does it not?

Mr. WILLKIE. An impossible one, sir.

Senator DIETERICH. And that would apply to everything that the Government might go into. It would apply to the operating of

mines in the West; it would apply to everything that is now the subject of private industry and private enterprise?

Mr. WILLKIE. Yes; until Government credit broke down.

Senator DIETERICH. Yes; until Government credit broke down. My understanding of the theory of Government is to regulate, and that it is the pleasure and the privilege of the citizenship to engage in private enterprise.

Mr. WILLKIE. Being also a Democrat, I subscribe to that, sir.
Senator DIETERICH. Thank you, sir.

Senator BONE. Did I understand you to say that the reports of the properties that form a part of the Commonwealth & Southern structure indicate that only about 10 percent of your total revenue is from domestic service?

Mr. WILLKIE. No; I did not say that.

Senator BONE. That is what I want to make clear.

Mr. WILLKIE. I think the national percentage that residential lighting in gross revenue bears to the whole is some place pretty close to 15 percent. My guess as to our system is that it is less than that by reason of the fact that we have a higher average domestic use than the national average. Therefore I am assuming that our percentage to lighting load is less than the national average. I think that would be correct, but I do not have the figure in mind at the moment. My guess is that it is around 10 percent.

Now, if I may revert momentarily to some of the abuses that have occurred in this business and some of the changes or some of the suggestions that I have to make, and which I do not offer for anybody except myself

Senator BONE. You are preparing now to enter upon a discussion of some suggested changes in the bill?

Mr. WILLKIE. Not particularly changes in the bill. I have some suggestions as to amendments of the Securities Act which I believe will lead to elimination of the abuses in the business.

Senator DIETERICH. And render unnecessary this particular bill? Mr. WILLKIE. Yes.

Senator BONE. You are leaving your general statement behind, now, I take it?

Mr. WILLKIE. Yes.

Senator BONE. I have a memorandum which was placed in my hands because of my interest in one of these Federal Power Commission reports, dealing with the disallowance to the Alabama Power Co. of about 30 percent of the cost of the Mitchell Dam project. You are familiar, of course, with that?

Mr. WILLKIE. Yes; I am fully familiar with that.

Senator BONE. Certain items of fixed capital were eliminated, amounting to nearly three and a half millions. The thing that I particularly direct your attention to is the elimination of fees to the Dixie Construction Co.

Mr. WILLKIE. Yes. Didn't I say that this morning, that the Dixie Construction Co. formerly did this work of the Southern Co.? Senator BONE. Where is their place of business?

Mr. WILLKIE. They are not in business. As I made very clear this morning, we do not have any engineering organization aside from the engineering service supplied by Commonwealth & Southern;

and I may say to you that that matter is still in litigation. The courts have not yet found that the Federal Power Commission is correct. Senator BONE. That is still being questioned in court?

Mr. WILLKIE. Right; exactly so. No tribunal has as yet determined that that is a correct elimination.

Senator BONE. I had assumed that it was still being questioned. Mr. WILLKIE. In the first place, before I go to that point: There has been a great deal of talk about the effect of the attack on utility companies on the market price of utility securities. I have a chart here [handing a chart to the members of the committee]. The second chart I give to you shows the course of all securities on the New York Stock Exchange, classified as to industrials, gas and electric operating companies, and gas and electric holding companies. You see the decline goes right along together until the early part of 1933. That is, all stocks fell together, and almost identically in the different groups. If you will look at the second chart you will see what has happened since that day. I just wanted to call your attention to that incidentally in connection with the problem.

(Two charts referred to and submitted by the witness are here reproduced as follows:)

INDEXES OF THE TOTAL MARKET VALUES OF ALL GAS AND ELECTRIC

AND ALL INDUSTRIAL COMMON STOCKS

LISTED ON THE NEW YORK STOCK EXCHANGE
(Expressed in percentages of their values as of September 1, 1929)

100

90

50

30

20

10

1st

1934

The CHAIRMAN. This fact should not be overlooked, it seems to me, that the stocks of operating companies have been quite different from the stocks of holding companies.