ing statement here, I believe that the difference in costs is always going to lie in favor of the waterways.

Mr. JONES. Mr. Lipscomb.

Mr. LIPSCOMB. Are railroads and waterways actually competing or do they carry different types of goods?

Mr. ROBY. No, they all carry the same types of tonnages. I say "all." I will say the waterways and the railroads carry the same types of tonnage.

Mr. LIPSCOMB. When we talk about bulk traffic; the railroads carry bulk goods?

Mr. ROBY. Oh, very much so. We carry coal and iron ore, and all kinds of ores as well as sand and gravel, and items such as petroleum products, sand and gravel, iron and steel and iron articles, which represent or constitute, I would say, about 70 to 80 percent of the river tonnage. I am talking about the rivers I know about, which are the Ohio and Mississippi.

Mr. LIPSCOMB. So, actually they are all competing for the same type of traffic?

Mr. ROBY. Yes. We are competing. We have tried in some cases to file tariffs that contain the precise rate that is available by water, including the incidental expenses which are incurred in shipping by water from point A to point B, but we have not been successful in getting the Interstate Commerce Commission to approve any actual precise rate that is available by water. The Commission at times has given us or approved, or said what they would approve. When we tried to get the same rate, they said they would approve a differential of 10 percent most generally over the all-water costs.

Mr. LIPSCOMB. You are really advocating user charges that will cover amortization of capital investment?

Mr. ROBY. I do not understand that, sir. report there.

You have the Hoover

Mr. LIPSCOMB. Recommendation No. 8 recommends sufficient charges to cover maintenance and operation and also authorizes the Interstate Commerce Commission to fix such charges. That is the recommendation you are supporting. You are not going any further than that, into amortization of capital investment; are you?

Mr. ROBY. No, sir.

Mr. JONES. Thank you very much, Mr. Roby. We are glad to have had you, sir.

Mr. ROBY. Thank you, Mr. Chairman.

Mr. JONES. Without objection at this point in the record the table requested by Mr. Roby to be inserted in the record will be made a part of the record.

(The table referred to is as follows:)

Statement showing the ton-miles of various transportation agencies together with the percentage proportion for each type of transportation for years 1942 through 1954, and 4-year grouping before and after World War II

Mr. JONES. Mr. Floyd Jones, of Trenton, Tenn., representing the Tennessee Rural Electric Cooperative Association.

We are glad to have you, Mr. Jones. You may proceed.

STATEMENT OF FLOYD JONES, MANAGER, GIBSON COUNTY ELECTRIC MEMBERSHIP CORP., TRENTON, TENN., AND PRESIDENT, TENNESSEE RURAL ELECTRIC COOPERATIVE ASSOCIATION

Mr. JONES. Thank you, sir. Mr. Chairman and gentlemen of the subcommittee, my name is Floyd Jones. I am the manager of the Gibson County Electric Membership Corp., Trenton, Tenn., a rural electric cooperative serving 21,000 member consumers in northwest Tennessee. I am also the president of the Tennessee Rural Electric Cooperative Association, an organization of 21 rural electric cooperatives in Tennessee serving more than 248,000 member consumers, who take electric service principally for their homes and farms. All of these cooperatives purchase their electric power reuirements from the Tennessee Valley Authority.

I would like to first thank the subcommittee for conducting hearings on the Hoover Commission report on water resources and power, because it is certainly in the public interest that the people who would be affected by the Hoover Commission recommendations be heard from. I specifically want to thank the subcommittee for allowing me to present what I believe are the views of rural electric leaders in Tennessee.

I want to call your particular attention to recommendation No. 9 of the Hoover Commission. In this recommendation, the Commission asks that the Congress empower and direct the Federal Power Commission to fix the rates on Government power sales at such levels that will: (a) Eliminate the inequities now imposed upon the great majority of the people.

(b) Amortize and pay interest on the Federal investment in power, plus an amount which will equal Federal tax exemption based upon the Federal taxes paid by the private utilities; and

(c) Provide payments in lieu of full taxes to the State and local government equivalent to those the private utilities would pay.

My comments will, in the main, refer to this recommendation as it relates to the Tennessee Valley Authority. The Commission states on page 109, volume 1, of its report, that—

It is obvious from the financial experience given in the last chapter that the Federal taxpayer is subsidizing these projects.

We resent and reject this conclusion specifically as it relates to the Tennessee Valley Authority.

There is the clear implication that the users of power generated by the TVA do not pay their fair share of State, local, and Federal taxes in any form.

During the fiscal year ended June 30, 1955, the TVA made in lieu of tax payments, $3,878,000 to the costs of local governments. The distributors of this power paid taxes or in lieu payments, in the amount of $6,192,000. This total of $10,070,000 contributed to State and local governments in taxes, or in lieu payments, for the fiscal year 1955, from the consolidated revenues received by the distributors and by TVA, excluding only sales to Federal agencies, represented

6.2 percent of those revenues. The latest date we have for all private utilities in the United States is for the calendar year 1954. The average percentage of their revenues paid for State and local governments was 8.9 percent. The 12 private companies that retail power in areas adjacent to the area served by the TVA system range in payments from 4.8 percent of taxable revenues, to 11.3 percent.

When we take another view of this comparison, we find that in 1937 before the major transfers of property from private to public ownership in this region, the State and local taxes on all electrical operations in the same area totaled less than $3,350,000. In 17 years, in the TVA power service area, the taxes received by State and local governments from their power suppliers have grown by 200 percent, a rate of increase considerably higher than the average for private power companies. The State and local tax payments by private utilities of the Nation showed a growth of 170 percent, from $207 million in 1937 to $563 million in 1954.

May I ask you, gentlemen, where is the inequity here?

In my own cooperative, we expect our local taxes for 1955, based upon assessments by the Tennessee Public Service Commission, to be 17 percent above those of 1953 and 1954. For all the cooperatives in Tennessee, the increase is expected to average 19 percent. This increase is for a 2-year period. At that rate of increase, our ad valorem taxes would double in less than 10 years.

When we take a look at the earnings from the standpoint of the Federal Government, it is also difficult to find an inequity there. It is true that no percentage of TVA's net income is reported paid to the Federal Treasury under the heading "Income tax." However, all the earnings of the TVA belong to the Federal Government as the owner. It is found that the Federal Government has received more income from this public power system than it would have received in Federal income taxes on a privately owned utility with similar revenue. In fiscal year 1955, TVA net income remaining after allowance for costs of money to the Government (on appropriated funds as well as reinvested funds) was approximately $25,300,000. All of this money belongs to the Federal Government. A private company would have paid an income tax of approximately $12,700,000 on this profit. Over the entire period from TVA's inception to the present, 1933-55, the Government earned $312 million on the TVA power investment, after paying all operating and maintenance expenses, depreciation, and payments in lieu of State and local taxes. These earnings represent an average annual return of 4 percent on the Government's average investment during the past 22 years. The average cost of money to the Government, of its marketable obligations, was approximately 2 percent and if that rate of interest had been charged on the power investment for the full period, it would have amounted to $156 million, exactly half of the 4-percent return. The remaining $156 million is the Government's margin over and above all the before-listed deductions.

This is 15.3 percent of TVA's gross power revenues of $1,017 million for the period.

Let us now compare the $156 million in the above calculation with the income taxes the Government might have received from a private utility with the same gross revenue in those years. The Federal Power Commission reports the income-tax payments of the Nation's

private electric companies as a percent of their gross revenues from power sales. For the last 22 years, income taxes ranged from approximately 3 percent of gross revenues in the early thirties to approximately 13 percent in recent years.

If we apply the annual percentages to TVA revenues, a typical privately owned utility would have paid Federal income taxes of approximately $110 million from $1,017 million of sales during the period. The margin of $156 million which TVA earned for the Government was $46 million more than that amount. Again, I ask you, gentlemen, where is the inequity?

Comparing the 13 percent paid by all private utilities in recent years, ignores the fact that half of TVA's revenues are from bulk power sales to agencies of the Federal Government and a lower tax rate should be applied to such revenues. In the two cases where private utilities have contracted to sell large quantities of power to AEC, namely, the Ohio Valley Electric Corp. and Electric Energy, Inc., the income taxes paid by these utilities are expected to average above 1.9 percent of gross power sales.

The explanation for the low rate structure in the Tennessee Valley, is not to be found in an elaborate and detailed comparison of the taxes of all types paid on the production and distribution of electric power. The explanation is to be found in mass distribution economics. This is why the cost per kilowatt-hour of producing, transmitting, distributing and managing the sales of electricity is about half as large in the Tennessee Valley as in the privately owned utility systems of the United States. Comparing the cost before interest, taxes, and profits, we find that in the Tennessee Valley Authority area this cost of producing and delivering kilowatt-hours to the ultimate consumers is 5.4 mills. The comparable cost for the Nation's privately owned utilities in 1952 was 10.1 mills, about twice as much.

There is still another view that is very revealing, so far as the return to the Federal Government of the entire TVA program is concerned. In 1933, the 7 Tennessee Valley States paid only 3.4 percent of all individual income-tax revenue received by the Treasury. In 1953, the individual income-tax payers in those 7 States paid 6.1 percent of the total national individual income tax collections-an increase of 2.7 percent in the proportion of taxes paid out of the valley States. The difference between these rates of tax collections in the year 1953 alone amounts to approximately $1 billion. This is the amount of gain to the Nation in income-tax collections in 1 year alone as the result of the economic gain following the establishment of TVA.

In the 20-year period, 1933-53, the increased proportion of individual income-tax collections from the area, has amounted to nearly $8 billion, which is many times the total Federal investment in all TVA. Again, I ask, where is the inequity?

Maps of the Eastern half of the United States on electric rates in 1932 and 1952 graphically demonstrate how the TVA low rate structure has brought down average electric bills. These maps clearly show the average cost for electricity in the home increases as the distance from the TVA project. The electric rates on the periphery of the TVA area have been materially lowered during this 20-year period. It would seem, therefore, that because of the criticism of the TVA rates on the part of our private power friends that the profits of those utilities would have measurably decreased. Exactly the op