He stated that total home and farm electric uses in the area are nearly 40 times the consumption of power for those uses 20 years ago, while commercial and industrial electric loads have increased 15 times (ibid).

Clapp's explanantion of this phenomenal growth indicates clearly what the antimonopoly power policy, embodied in the TVA, has to contribute as an example of sound sales policy, as well as what the Dixon-Yates contract policy is designed to undermine and ultimately destroy, leaving a clear field to private monopoly. After suggesting that one explanation is found in the law which directed the TVA to undertake the full development of the resources of the Tennessee. Valley area and the maximum development of electric energy, along with flood control, navigation, and other things, he continued:

But equally important, the power agencies of the Tennessee Valley, the municipalities and rural electric cooperatives have by agreements with TVA, in the form of contracts, laid the foundation for a policy of moving electricity to the farthest corners of the region at the lowest possible rates, to achieve the widest possible distribution and the highest possible use. When you get all the energy of these power boards and their managements and their operators and the rural electric cooperatives harnessed up with an agency like the TVA through the means of a contract as between equals, dedicated to the task of making electricity go to work in the whole region, then you really begin to get results that the private utilities ought to emulate once in a while (RDY, p. 556).

This the former Chairman of TVA described as the true partnership policy in the field of electric power.

Diagnosing the failure of the utility companies to have a dynamic power marketing record, Clapp found it due, among other things, to the fact that utility companies are monopolies. He pointed out that they don't have competition. If they don't have enough electricity, the consumer can't go down the street and buy it somewhere else. Utility regulation is not an effective substitute for competition. It can say, "No, you can't do this or you can't do that, but it does not assume or cannot assume positive responsibilities of management to for reduced costs, improved equipment, and improved efficiency" (RDY, p. 558). He testified further:

The lack of direct competition fosters a management of complacency that is bred by a cost-plus security paid for by the consumer who can't shop around in buying his electricity. The management under these circumstances sometimes gets lazy and is incapable of the type of enterprising behavior which characterizes private enterprise in competitive situations (ibid.).

Clapp then proceeded with testimony as to the effect of public power operations upon the private utilities around the TVA. He referred to the analysis of the President's Water Resources Policy Commission, showing that the cost of power to rural electric cooperatives purchasing from private companies in areas in which a Federal agency was marketing power, was about half as high as the cost of similar power where no competitive forces were in operation. He spoke of a map of the United States, with concentric circles centered around the TVA and the public, power development in the Northwest, as showing successively higher charges to rural electric cooperatives as one moves farther and farther away from the two major centers of competition between public and private power (RDY, p. 560).

The witness testified that in 1933, when the private utilities operated in the Tennessee Valley through the many companies of which Mr. Yates was then vice president, the average rates for residential service

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were among the highest to be found in any region of the United States. He said that today the residential rates charged by private utilities around the TVA service area are substantially below the rates charged in the North and the East and the Middle West (RDY, p. 561). He testified further that the companies operating in the vicinity of the TVA area have profited in other ways from the TVA example. He continued:

In 1933, soon after the creation of TVA, the Georgia and Alabama power companies found a new way to stimulate customer use by promotional rates which offered a discount to the consumer if he used more electricity. Since 1933, these companies have promoted greater use of electricity ***. They have competed vigorously with the REA cooperatives for rural loads especially in the more densely settled rural areas. When the cooperatives began to talk about building generating plants of their own to reduce their wholesale costs, the private companies offered power at wholesale on terms low enough to keep that business (ibid.). Clapp gave the committee figures for expansion of power-generating capacity, which reveal in a striking way the influence of the TVA type of competition in breaking the restrictive grip of private monopoly on the power industry. He said that between 1933 and 1952 the TVA expanded its power capacity about 500 percent, while corresponding expansion for the country as a whole was less than 150 percent. He said that if the national figures are limited to privately owned systems, and the private company neighbors of TVA are also excluded, the increase in generating capacity between 1933 and 1952 was only 91 percent (RDY, p. 562).

The witness pointed out, however, that the low-rate policies of the private companies in the neighborhood of TVA, had resulted in a notable expansion in their generating capacity. Thus, he said, in the eight States adjoining Tennessee, excluding TVA capacity in those States, "the power capacity owned by private utilities has increased 200 percent since 1933 when the TVA Act was passed" (ibid.). He concluded his comparison with this contrast:

Now, if you go to the six New England States, where the private utilities are at a safe distance from any effective competition from public-power develop ments***the level of power rates is highest in the country and the growth of power supply has been the slowest. Power capacity in New England has increased only 75 percent for this period I am talking about, compared with the 200-percent increase among the private companies adjoining the TVA area (ibid.). The witness commented:

I think these recitals, and I could add more to it, make it clear that competition between public and private power has benefited the consumer of electric energy (ibid.).

Clapp then turned to the question as to how this constant competition has affected investors in these private companies. Using Federal Power Commission figures, he gives the answer as follows:

The common stock earnings of major privately owned utilities contiguous to the TVA area, using 1937-39 as base of 100, moved to 275 in 1946, while the comparable United States total reached 137. By 1952 the earnings of TVA's private utility neighbors moved to 510 on the index, while the comparable United States total reached only 225 (RDY, p. 563).

The witness then pointed out that "these excellent financial results have come not in spite of but because they have lowered their rates below the former levels and below national averages" (ibid.).

Finally, before turning to a direct analysis of the significance of the Dixon-Yates contract, the former TVA chairman summed up the

fundamental change in outlook toward the power business which this special type of competition, as embodied in the TVA, is offering the country as a check on monopoly. He said:

Now the reason, or one of the major reasons, why this TVA demonstration has been successful is that it adopted the central formula of mass distribution, and it is that which explains why the cost per kilowatt-hour of producing, transmitting, and distributing and managing the sale of electricity is about half as large in the Tennessee Valley as it is in the Nation's privately owned utility system" (RDY, p. 564).

Clapp testified that, excluding the controversial figures for interest, taxes, and profits, TVA costs for producing and delivering a kilowatthour of electricity amounted to only about half a cent, as compared with about 1 cent for the privately owned portion of the Nation's power system. He explained that about a quarter of the difference was to be found in lower costs in customer accounting and collecting, sales promotion and administration, and about a fifth to economies in transmission and distribution. He commented that, in the Tennessee Valley "the distributors of the TVA power do not need to spend nearly as much on promotional advertising because the low rate sells the electricity." The lower costs, he said, were due to the higher average use of electricity (ibid.)

Clapp expressed the thought that this new mass sales formula was at the bottom of the successful demonstration in the Tennessee Valley of how the electric utility business can be run successfully. This was the contribution that the successful record of the TVA, and the 150 municipal and rural cooperative systems marketing the power, has made to the country in providing an example, measurably and uncontestably successful, which consumers all over the Nation can look_to as showing how the private utilities might go and do likewise. He said that the Dixon-Yates proposal "must be assessed in terms of its effect upon the continuation of this effective competitive demonstration" (RDY, p. 565).

Dixon-Yates contract designed to destroy TVA demonstration

Former Chairman Clapp testified that, in his judgment based on some contact with the deal in its formative stages, the whole DixonYates proposition

is the opening step in a program planned deliberately to destroy the TVA demonstration *** of what the real function of the electric utility business can be (RDY, p. 543).

He continued:

The most important objection to the Dixon-Yates deal *** is that it represents the formation of a combine of two big holding companies who have a long record of intent to do anything they could to cripple the TVA, and thereby remove the salutary public effects of competition which the TVA was giving them (RDY, p. 544).

He figured that the combination includes two Government agencies, the Bureau of the Budget and the Atomic Energy Commission, in a scheme to squeeze the TVA into submission to the private utilities, so that in future years they "can dictate their own terms to the TVA and to the municipalities and rural electric cooperatives, who have been showing the country how the electric business can be and should be conducted" (ibid.).

He stressed the fact that the deal involves more than just the fate of the TVA, that it involves also the 150 municipally owned and

cooperative electric distributive systems that are full-fledged partners with the United States Government. In his words:

These municipalities and cooperatives made up their own minds years ago when the TVA first started up that they wanted electricity from the TVA projects. Many of these towns and communities held referenda and people voted to decide whether or not their cities and their towns and their rural areas should put themselves into a position to buy power from the TVA * * * (RDY, p. 545).

· Clapp interpreted this as showing that the program is not one directed by Federal fiat and imposed on the people of the valley. He pointed out that the whole issue thus "involves not just the future of the TVA, but also what happens to the equities and assets of the other end of this partnership, the municipal and rural electric cooperatives who have about $400 million invested in their systems" (ibid.).

Clapp pointed out further that people throughout the country, and particularly rural electric cooperatives, have an important stake in the issue. He said:

There are many instances where rural electric cooperatives point to the experience of other rural electric cooperatives in the Tennessee Valley as a means of obtaining a better power supply at lower rates from the private utilities from which they must get their power (ibid.).

He continued:

The TVA demonstration, therefore, is a bargaining leverage for electric consumers all over the country, as a sort of silent partner at the elbow of every rural group and every municipal group that enters into negotiations with a private utility company (ibid.).

Clapp testified as to the effect which the Dixon-Yates proposal would have upon the continuation of the TVA program in mitigating the monopoly attitudes and attributes of the private utilities. He said that, if the Dixon-Yates deal goes through, and if an unsound engineering scheme is foisted upon the borders of the TVA, and if now or in the future the TVA, through this or subsequent Dixon-Yates deals, is forced to accept excess costs and pass those costs on to the consumer, then:

This demonstration in the Tennessee Valley will have been nullified, and the efficiency of the organization crippled, and its costs will go up, and its rates will go up, and the private utilities will have eliminated from the scene one of the major instruments of public policy by which the taxpayers and the electric consumers of the country can bring the private utility companies to the task of doing a better job (RDY, p. 565).

Enemies decide TVA fate behind its back

Clapp then testified as to the experience of the TVA in connection with the negotiations which gave birth to the Dixon-Yates contract, making it clear that the future of a great Government agency was being decided behind its back through negotiations between the Bureau of the Budget, the Atomic Energy Commission and private power interests, which for years had been seeking the elimination of this special type of competition. When the TVA was finally brought into the negotiations it was not as a participant, but just as a group of experts to examine the figures.

According to Clapp, in the fall of 1953 the TVA submitted its regular budget request for the coming fiscal year, including a request for appropriations with which to begin work on additional power capacity that would have totaled about 1,300,000 kilowatts when completed. This large additional capacity was included because the

Eisenhower administration had cut out of the previous budget the item for the start of the TVA Fulton steam plant. Clapp stated that the rate of growth of the TVA load requires a minimum of 750,000 kilowatts in annual additions to its capacity (RDY, p. 568). The witness testified that on December 17 representatives of the TVA were called in by Acting Budget Director Rowland Hughes and told that the budget to be submitted by the President would include no funds to start new power capacity in the TVA system (RDY, p. 569). He continued:

Mr. Hughes said that the President's budget message was going to call upon the Atomic Energy Commission to seek an outside supply of power from private utilities up to an amount which might be as much as 500,000 kilowatts; and that if that arrangement could be successfully worked out, the Atomic Energy Commission would release the TVA from contractual commitment to the AEC for a like amount of power at the Paducah atomic energy installation in Kentucky (ibid.).

Clapp stated he was also informed that, if a satisfactory arrangement of this kind could not be worked out, the matter of requesting an appropriation for the Fulton station would be reconsidered. He said, further, that at the December 17 meeting there was no reference to the fact that the Bureau of the Budget, as shown by documents released later, had already had discussions with private utility companies about this proposed arrangement of power supply for the AEC (RDY, p. 562). According to Clapp, except for the President's budget message, the TVA had heard nothing further about the matter until March 3, 1954 (ibid.).

Clapp testified that on that date they were called back to the Bureau of the Budget and told of the switch to the February 25 proposal of Middle South Utilities and the Southern Co. "to build a steam plant to be underwritten by the Government through a longterm contract to supply power, not to the Atomic Energy Commission, but to the TVA, at a delivery point in the middle of the river between Memphis and the plant site on the Arkansas side of the river." The TVA was asked to make its experts available to sit in with the Bureau of the Budget and the Atomic Energy Commission, to analyze this Dixon-Yates proposal (RDY, p. 571).

The former Chairman of the Tennessee Valley Authority testified that it was not until the release by the Atomic Energy Commission of the documentary history of the Dixon-Yates deal on August 21, 1954, that he realized the extent to which the whole matter had been worked out behind TVA's back. Reviewing that record, he said:

I find that prior to the time we were first told that we were not going to have any money requested in our budget for 1955 with which to begin new steam capacity I find, upon reviewing this record of correspondence that there had already been meetings between Mr. McAfee and Mr. Walter Williams, of the AEC, on at least one occasion and probably more (ibid.).

The witness found the January 4, 1954, letter from Mr. McAfee to Mr. Williams, Assistant to the General Manager of the Atomic Energy Commission, the most significant letter in the whole record. He quoted the letter as referring to "our conversation the last time. I saw you in Washington." He then quoted the balance of the letter as follows:

The more I consider the possibility you are investigating, the more impressed I am with the necessity of considering other alternatives before a final decision is made. I am sure that I suggested some of the things that would accomplish the