clock in resource development, ignore the lessons of the past, and subordinate the public welfare to the interests of large utility companies. Had the Commission studied and learned the lesson of Muscle Shoals, it is inconceivable that it would have come forth with these recommendations.

In holding this hearing here, we know that your subcommittee will be ever conscious of the meaning of Muscle Shoals to the Nation's natural resource development policies, and, cognizant of the lessons of the past, will point the way to the road that will advance the Nation in its resource development policies, rather than carry us back to policies which hve long been rejected and abandoned. I am sure you will find that the road is broad enough for the healthy growth of both public and private power systems, rather than monopolization by either type of system.

Mr. JONES. Thank you very much, Mr. Radin. That was an excellent statement.

Mr. Reuss, do you have any questions?

Mr. REUSS. No questions.

Mr. JONES. Mrs. Griffiths?

Mrs. GRIFFITHS. No questions.

Mr. JONES. Mr. Lipscomb?

Mr. LIPSCOMB. What is the significance of exhibits A and B? What do they represent?

Mr. RADIN. Exhibit A and the tables there are comparisons of the local publicly owned and the privately owned systems. The significance of the first table is to show the relative size of an average system. That is significant from the standpoint of Federal power policy when we come to the question of building transmission lines or preference in marketing power. The local publicly owned systems are relatively so small they do not have an opportunity to participate in these programs to the extent that the private power companies do, and for that reason I think it is extremely significant to know their comparative size.

Mr. LIPSCOMB. How many companies does this cover?

Mr. RADIN. This covers about 300 of the class A and B publicly owned utilities, and about the same number of privately owned utilities. The statistics are not available in published form on the C and D utilities, which are smaller, so actually this represents only the larger ones; but as I recall, it represents about 70 percent of the consumers served by the local publicly owned systems and in excess of 95 percent of the consumers served by the privately owned companies. Mr. LIPSCOMB. Would the Department of Water and Power of the city of Los Angeles be in this?

Mr. RADIN. Yes, sir. Very much so.

Mr. LIPSCOMB. Included in the total assets?

Mr. RADIN. That is correct. You will notice those are in thousands. Mr. LIPSCOMB. Where did this schedule come from?

Mr. RADIN. This comes from the comparative reports of the Federal Power Commission. Each year they publish reports on the publicly and privately owned systems, and at the bottom of table 4 the exact titles of the comparable Federal Power Commission statistics are cited. One of them is FPC-S-112 and the other is FPC-S-115. 1953 is the most recent year for which those statistics have been issued.

Mr. LIPSCOMB. On page 13 of your statement I am interested in the statement about subsidies to the private utilities under this amortization tax writeoff program.

Mr. RADIN. Yes, sir.

Mr. LIPSCOMB. Where did you arrive at the figure of this estimated amount of the subsidy which you say will far exceed the amount which has been invested by the Federal Government in their power program?

Mr. RADIN. From several sources. If you will allow me just a minute to get some material on that. The Federal Power Commission held hearings on the manner in which the benefits from these accelerated tax amortization certificates would be made available, and whether they would be made available to the consumer, or whether they would be passed on to the stockholders of the companies. In March 1953, and I do not have the exact date, when the Federal Power Commission held hearings on this subject, Francis J. Walsh, staff counsel of the Federal Power Commission, estimated that the benefits to be received by the private power companies as a result of the issuance of these certificates would be almost $2 billion over a 30-year period. Subsequently the Federal Power Commission itself issued a report on this subject in which the Commission stated that these certificates would have the precise effect of an interest-free loan.

If you compute the effect of these certificates as an interest-free loan, the benefits on those issued to date would be in excess of $2 billion. By adding the benefits from certificates to be issued in the future as a result of this new expansion goal, it has been estimated that the total benefits would exceed approximately $6 billion.

Mr. LIPSCOMB. You mean the certificates would total $6 billion? Mr. RADIN. No. The benefits as an interest-free loan. You see, the way the Federal Power Commission has permitted the utilities to use these certificates is to continue their rates at the normal amount, even though they are getting the benefit of these fast tax writeoffs. Then they can use the money they receive for reinvestment in other plants or in other facilities.

If you compound the effect of those benefits, it aggregates this figure of over $2 billion over a 30-year period on those that have been issued to date. That is the contention of the staff counsel of the Federal Power Commission. This contention was subsequently backed up by the Commission, which said that these certificates had the precise effect of an interest-free loan. It is the effects of these certificates as an interest-free loan that is the source of the benefits received by the private power companies.

Mr. LIPSCOMB. Actually it is a tax certificate allowing them to write off the depreciation over 5 years.

Mr. RADIN. Yes. But they collect their revenues and their rates remain the same, even though they have this fast tax writeoff, so that they are permitted to retain the difference between what their taxes ordinarily would be and the lesser amount that they actually are, and they can reinvest that amount or use it as an interest-free loan.

Mr. LIPSCOMB. What happens at the end of 5 years after this certificate runs out on that property that has been depreciated?

Mr. RADIN. If the tax rate remains the same they would begin to repay some of that amount. But even so, they repay it over an extended period of time, and the continued use of a portion of that amount continues to give them a subsidy.

Mr. LIPSCOMB. The theory you have put forth could be challenged if we had time to go into it, I suppose.

Mr. RADIN. It possibly could, but I think it is noteworthy that it has been sustained by the Federal Power Commission itself.

Mr. LIPSCOMB. I am very interested in this. On page 12 of your statement you said:

the electric industry is a regulated monopoly, not a free, competitive enterprise, and therefore is not subject to comparison with other types of private businesses.

You do consider private utilities a monopoly. Now do you consider a public utility, such as TVA, a public monopoly?

The

Mr. RADIN. They are a monopoly in the areas they serve. competition arises in the fact that the service areas are contiguous and, therefore, the consumers of one company or one system can compare rates with consumers of other systems, and thereby competitive pressure is exerted.

Mr. LIPSCOMB. But when you talk about a monopoly you try to put it-maybe not you, but it is put in a bad light, usually. Monopoly is not a good word to use. Do you object to people calling TVA å public monopoly?

Mr. RADIN. Well, it depends on the context in which it is used. But there is a very essential difference between a public monopoly and a private monopoly. The department of water and power in Los Angeles is a municipally operated institution-all of its operations are completely accountable to the people of the city. They have complete control over the way that utility is operated.

But a privately owned company, which might have a franchise in a city, does not have the control by the ratepayers to the extent that a municipally owned utility would have. There is a vast difference between the type of monopoly created.

Mr. LIPSCOMB. You have talked about the department of water and power in Los Angeles, which has all of the water and power within the city limits.

Mr. RADIN. Yes.

Mr. LIPSCOMB. Surrounding the city of Los Angeles is the Southern California Edison Co. Are they a monopoly?

Mr. RADIN. Yes.

Mr. LIPSCOMB. Is the department of water and power a monopoly? Mr. RADIN. They are a monopoly in the city in which they operate. Mr. LIPSCOME. So when we use the word "monopoly" in regard to private and public power, it is not a bad thing to talk about?

Mr. RADIN. The term itself cannot be separated from the conditions that exist when you have these monopolies. My personal view is that a monopoly of a public agency is operated more to the benefit of the consumers, or is more directly responsible to the consumers, than is a private monopoly, because a public monopoly is controlled by the people that it serves.

Not very long ago I had occasion to go to a city in Maryland where they were considering a bond issue. It was very revealing to me to see in this open public meeting how all of the facets of the operation of that utility were subject to public scrutiny. People could get up from any walk of life in the city and ask questions about why the rates are thus and so, or why such a service condition is in effect. However,

I maintain that sort of control does not exist in a private monopoly. Mr. LIPSCOMB. The fact that they can go before the ratemaking bodies of the State and the Federal Governments is undisputed. You mean they do not have that opportunity?

Mr. RADIN. I think the record would show that the regulatory authorities are not nearly as effective as is competition in controlling the rates. I think there is a great body of evidence as to the degree of effectiveness of regulation. I do not think we can rely upon regulation alone.

Mr. LIPSCOMB. There is one further thing I would like to ask about on the charts. On table No. 4, would taxes come under production expenses?

Mr. RADIN. Taxes are not included in expenses of either the publicly or privately owned systems there.

Mr. LIPSCOMB. The taxes have been deleted?

Mr. RADIN. Yes. That is correct.

Mr. LIPSCOMB. So that the expenses that are listed are actual comparisons of expenses right down the line?

Mr. RADIN. That is correct. Without any taxes being computed in either figure.

Mr. LIPSCOMB. Thank you very much.

Mr. JONES. Without objection, the tables that are a part of and appended to the statement, will be made a part of the record at this point.

(The tables referred to are as follows:)

EXHIBIT A. SUMMARY DATA ON LOCAL PUBLICLY OWNED ELECTRIC UTILITIES AND PRIVATE POWER COMPANIES-CLASS A AND B UTILITIES-1953

Source: Statistics of Electric Utilities in the United States, 1953, Privately Owned (FPC-S-112); Statistics of Electric Utilities in the United States, 1953, Publicly Owned (FPC-S-115).

Mr. JONES. Let me thank you again, Mr. Radin, for coming down from Washington and being with us today and enlightening me on some history. I was 2 years off in my statement yesterday, from 1826 to 1824.

We appreciate very much your coming.

Mr. RADIN. We appreciate the opportunity of being here, Mr. Chair

man.

Mr. JONES. The committee would like to say, before recessing for lunch, that I noticed there is a group of high-school students present. I believe they are high-school or college students out in the audience. If you want to come up here and ask us some questions before we recess for lunch, we will be glad to have you. If you would like to speak to us or ask us any questions we would be glad to receive them. The committee is now adjourned until 2:15.

(Whereupon, at 12:50 p. m. the subcommittee recessed until 2:15 p. m. of the same day.)

AFTERNOON SESSION

Mr. JONES. The subcommittee will come to order, please.

I have a telegram from Mr. Rowland R. Hughes, Director of the Bureau of the Budget, directed to me as chairman of the Special Subcommittee on Water Resources and Power, in hearing, Chemical Engineering Plant, Tennessee Valley Authority, Muscle Shoals, Ala. The telegram reads as follows:

In reply to your telegram of October 31 may I ask that you invite the Budget Bureau representatives referred to by you to give their side of this story under oath before your subcommittee. After reviewing the record including a memorandum made by the Budget Bureau representatives following the October 19 meeting in the Bureau on the multipurpose project on the lower Cumberland River in Kentucky, I find that the facts do not conform at all to the allegations in your telegram. From the reports it appears that on the basis of the state