ship was to deprive such local power distribution systems of the opportunity to obtain low-cost power supply, thus forcing them back on uneconomical, small-scale local generating stations (ibid.).

The Federal Trade Commission quotes from a California State Senate committee, set up to investigate the campaign of utilities in that State against a proposed amendment to the State constitution known as the "water and power initiative measure." This quotation, reflecting the situation about 30 years ago, provides a fitting conclusion of this section of our report. The California Senate committee said:

The committee might similarly say, as a result of its investigation, "Victory is on the side of the biggest purse." *** The power of money in influencing public opinion, its ability to carry elections through vast expenditures for propaganda, literature, advertising, and organized campaign workers was made strikingly manifest in the investigations of your committee (367, pt. 71-A, ibid.).

This situation obviously demands that Congress devise some new legislative means of curbing these abuses so inconsistent with the classical free enterprise.

SECTION IV

DIXON-YATES CONTRACT AS A MONOPOLY ISSUE

In previous sections of this report we have analyzed evidence of the activities of two subsidiaries of Middle South Utilities, Inc., seeking to eliminate competition challenging their monopoly control of power supply. This evidence suggests the way in which they use their great influence on politics at the State level. In Arkansas overwhelming political influence was used to block the plan of the rural electric cooperatives to obtain their own source of power supply. It was made clear to the Governor of the State that he would have the company's support for a third term, including funds, if he used his influence to block construction of the proposed rural electric steam plant and that, on the contrary, every effort would be made to defeat him if he supported the cooperatives.

The Arkansas Governor continued to support the rural electric steam plant and the company mobilized an underhanded attack on him and defeated him. The building of the steam plant is still blocked.

The evidence before this committee shows that in the Dixon-Yates scheme for denying the TVA the opportunity to construct the steam plant, which it will need to supply its own distributors, and to substitute private monopoly power supply, the country faces an effort to reproduce the Arkansas situation on a national scale. And, at the national level, Arkansas Power & Light's holding company, with Mr. Dixon as its president, is just the first prong of the attack. The evidence suggests that Mr. Yates, president of the Southern Co., is in on the Dixon-Yates deal because his company may be called upon to build the next private increment in TVA power supply.

An understanding of the Dixon-Yates affair is important because it exemplifies, as perhaps no other application of the new Federal administration power policy does, the countrywide effort to restore the restrictive control of private monopoly over the people's use of electricity, as it prevailed before the launching of the TVA experiment. The evidence before us suggests that this scheme was designed as a master stroke against the TVA, which proves a competitive check on the performance of private monopoly. And the evidence makes it further clear that power monopoly strategy strikes first at control of public sources of wholesale power supply, with the sure knowledge that, once municipal and cooperative electric systems are rendered dependent on higher cost private power supply, they can be taken over, one at a time, or rendered ineffectual as public "yardsticks." Thus, the elimination of competition may be achieved.

Testimony from Stietenroth, chief financial officer of Mississippi Power & Light, Banker McLean of Little Rock, and former Governor McMath of the State of Arkansas, has touched upon the meaning of the Dixon-Yates contract. But the full significance of the affair was brought out in great detail in the testimony of Gordon R. Clapp, former Chairman of the Tennessee Valley Authority and a participant

in the Authority's management throughout its history. We will now turn to an analysis of Mr. Clapp's testimony.

Clapp testified about the TVA as one of the best methods of controlling power monopoly, and about the Dixon-Yates contract as an attack by monopoly directed at strangling this means of monopoly control. He cited many illustrations of the essential shortsightedness of private monopoly in the matters of expansion and rates. He emphasized the effectiveness of TVA in changing this restrictive policy, both within its own market area and within the range of its influence on the private power industry. He showed how the Dixon-Yates conspiracy against the independence of the TVA had been worked out by the Bureau of the Budget and the Atomic Energy Commission, in consultation with TVA's worst enemies, behind TVA's back. For months, he pointed out, the development of the scheme was screened from the view of the public, which had already been deluded by a campaign promise to maintain the TVA at full efficiency.

Significance of TVA yardstick as check on monopoly

Clapp testified that electric utilities are necessarily monopolies in their areas of service and that the public is, therefore, confronted with the problem of making monopoly do the job which the public interest requires. He said:

In this American system that we have, which is the best and most aggressively effective in the world, competition ordinarily provides the stimulus that keeps private enterprise groups on their toes, but in this electric utility industry, the nature of it being what it is, it is very difficult to devise ways of competition without making that competition sort of destructive of efficient service (RDY, p. 543).

Clapp testified that there is, consequently, a need in this field for a "special kind of competition, not in duplicating systems within a single service area, but in setting up and cultivating large-scale centers of publicly owned and publicly operated utility enterprises that will set an example for the private utilities in the way, manner, and level of efficiency, and rates which good operations and good management can achieve" (ibid.).

The witness then undertook to give the committee, as an example of that kind of competition, "the whole history and demonstration in the Tennessee Valley, where the TVA in partnership with 150 municipalities and rural electric cooperatives have shown the country and the world how the electric utility business can be conducted and still be financially successful while it performs a more effective service for consumers" (ibid.).

Clapp first discussed the importance of changing the outlook of private power monopoly toward the importance of an abundant supply of electrical energy in "a dynamic free enterprise economy" (RDY. p. 546). He emphasized that national security is tied to adequate power supply because "electric power is the strategic key to a larger and more efficient production during wartime" (RDY, p. 547). In the face of this, he said, the companies over the last 20 to 25 years have had "a constant habit of lagging behind the demand for electricity in projecting their plans for expansion" (ibid.).

He then cited a series of examples of the outlook of the industry to support this statement, noting especially the testimony of Mr. Yates. then vice president of the Commonwealth & Southern Corp., as well as of its subsidiaries in South Carolina, Georgia, Alabama, Tennessee,

and Mississippi, before the Military Affairs Committee of the House in 1933 on the TVA bill. According to Clapp:

Now, Mr. Yates testified at that time that there was a surplus of electric power in the Tennessee Valley and that therefore there was no reason to set up a TVA and to build dams on the Tennessee River to control floods, or to provide navigation, or to produce electricity. He said all of that power will be surplus and will be wasted (RDY, p. 548).

Clapp also quoted from the 1933 testimony of Mr. Yates to the effect that their engineers had made constant studies of the cost of power generation, transmission, and distribution and concluded "from the companies' standpoint that it cannot possibly make further development of hydroelectric plants in this territory" (ibid.). He quoted Yates further as saying, "We know of no potential hydro development in the territory that will compare in cost with modern steam plants" (ibid.). He also noted that other witnesses were produced by the system now known as the Southern Co. in support of this position (ibid.).

Clapp testified that these witnesses contended that no additional electric lines were needed; that there were few sections of their States that were not served; and that they were quite satisfied with the job they were doing in extending their service to rural communities, although at the time only 1 farm out of 28 in the Tennessee Valley had electricity (RDY, p. 549). He quoted Yates, again appearing in opposition to 1935 amendments to the TVA Act, as telling the House Military Affairs Committee that

Any statement that this area is dependent for power from the plants now being constructed by the Tennessee Valley Authority on the Tennessee River is untrue, and indicates complete lack of knowledge of this system and of conditions. *** This area is now abundantly supplied with power, and in addition has surplus capacities sufficient to provide for future growth for the next 6 years, based on most optimistic estimates of service to rural, domestic, and industrial consumers (RDY, p. 550).

The witness quoted Yates further as saying that there was not the slightest present economic justification for the building of any of the hydroplants being built by the TVA nor for the building of any of those planned (ibid.). Clapp then went on to comment on this monopoly viewpoint, that proved so wrong, as follows:

Well, Mr. Chairman, the irony of this shortsighted and unimaginative picture of stagnation for the Tennessee Valley Authority is unparalleled. Mr. Yates now comes forward through the beckoning gestures of the Bureau of the Budget and the Atomic Energy Commission as the savior of an area now producing 23 times as much electricity as it was when Mr. Yates was testifying that there was too much there to start with, and he comes forward as being willing to supply this area with some additional electricity for a price, to save it from shortage. It is an area that has demonstrated time and again that his predictions about the future of the Tennessee Valley and its need for electricity were completely wrong (ibid.).

This committee must point out here that the Dixon-Yates contract would start the process of turning the power responsibility for the Tennessee Valley back to the very monopolists who were so shortsighted as to the power needs of the people. As stated by Clapp:

The tendency of utility leaders to discount the prospects of future growth of the economy of this country, and the way in which people can use electricity if it can be brought within the range of their ability to use it, should be a source of deep concern and very sober reflection (RDY, pp. 550, 551).

Clapp went on to testify as to the complete failure of leaders of the private power industry to anticipate the power requirements of the

war, referring particularly to C. W. Kellogg, then president of the Edison Electric Institute, as the official voice of the organized utility monopoly groups (RDY, p. 551). He said that—

the record of the past clearly reveals the electric power industry's failure to promote the use of electricity during much of the entire period since the commercial introduction of electricity in the United States (RDY, p. 552).

The witness referred particularly to the failure of private monopoly in the field of rural electrification. He pointed out that in 1924 less than 3 percent of the farms of the United States were electrified, with the ratio falling to less than 1 percent for 18 Southern States, as compared with much higher ratios in many foreign countries. He noted further that by 1935, when the rural electrification program got underway in this country, only 1 farm in 8 had received electric service from this country's electric industry. He cited the high-rate, cream-skimming policy of private power monopolies as one of the reasons for slow progress in this service to our farms (RDY, pp. 552, 553).

Clapp illustrated the cream-skimming policy by again quoting Yates as testifying in 1935 that they considered there were many areas for which they were responsible, where the population was too thin to be reached. He quoted Yates further as saying that experience has shown that it does not pay to serve a farmer with electricity unless his annual income is in excess of $1,000 a year. Clapp added that in 1935, when Yates made this statement, the farmer in the South who had an annual income of $1,000 was a pretty rare one.

The witness also quoted George M. Gadsby, speaking to the Public Utilities Advertising Association, president of the Edison Electric Institute in 1952, as saying that

there never would have been the need for rural electric cooperatives, and there was a need for them, if private utilities had had more faith in themselves to develop the farm market.

Clapp went on to note instances illustrating the failure of the electric industry to promote the use of electric appliances, finally quoting a representative of the General Electric Co. as saying:

The electrical equipment manufacturers' ability to build up the power companies' load is limited by the policies of the power company in every community (RDY, p. 554).

How specialized competition meets need for monopoly control

The former Chairman of the TVA then proceeded to cite accomplishments flowing from the TVA experiment in public competition, to illustrate the effectiveness of this method of dealing with the restrictive influence of monopoly.

Turning first to rural electrification, he noted that the development of rural electricity on an areawide basis had to wait more than 20 years under the monopoly policy. He continued:

Then the rural electric cooperative pioneered in the Tennessee Valley, and it began to spread widely over the country with the aid of the REA. The electric cooperative revolutionized electric service in rural America (RDY, p. 553).

Clapp testified to the TVA demonstration of the possibilities of expanding the market for electricity, with the average home in the Tennessee Valley using nearly twice as much electricity as in the rest of the country and with consumers in the valley buying more than $100 million of new electric appliances each year (RDY, p. 555).