Excerpts from the Press Conference in Warm Springs, Ga
Q. Mr. President, is there anything you can tell us on the record concerning the visit of your various power officials here today?
THE PRESIDENT: They are members of a committee, I could not tell you the name of it, that has on it somebody from the Federal Trade Commission, somebody from T.V.A., somebody from Interior and one or two from the Power Commission. They have been working— I think the whole thing came out last spring—on a general survey of the power situation, and they are going to talk with me about that tonight.
Q. Is that your National Resources Committee?
THE PRESIDENT: No, it is separate from that. It relates only to power.
MR. TUGWELL: Manly can tell them about it. I have forgotten the name of the committee too.
THE PRESIDENT: It is one of the inter-departmental committees to report on the general situation.
Q. With recommendations for legislation?
THE PRESIDENT: Yes, and policy.
Q. Still on the record, does that visit here mean that you have in mind any new moves of a concrete nature in the immediate future in connection with what you were telling us the other day?
THE PRESIDENT: This has nothing to do with the trip or T.V.A. or anything like that, except in so far as it relates to general power policy. . . .
Q. I feel I am doing a lot of talking here, but the other day you spoke of power and there are a lot of interpretations on it. Purely . . .
THE PRESIDENT: Oh, the interpretations are all pure. (Laughter)
Q. Do you mind telling us what your ideas are regarding private power companies?
THE PRESIDENT: All right, I shall give you something on that, but this has to be off the record because I don't want to be in the position of interpreting what I said. (Laughter)
It is a perfectly simple thing. Two years ago, in this room, you were here, Fred . . .
MR. STORM: I was here.
THE PRESIDENT: We spent an hour and a half. I think it was in January, 1933, and we had been down with Norris to see the Wilson Dam. And I had said up there publicly that we were going ahead with the development of Muscle Shoals. That is all I said at that time publicly. We came down here and we had this talk in which I outlined what developed into T.V.A. . . .
I can put it this way: Power is really a secondary matter. What we are doing there is taking a watershed with about three and a half million people in it, almost all of them rural, and we are trying to make a different type of citizen out of them from what they would be under their present conditions. Now, that applies not only to the mountaineers—we all know about them—but it applies to the people around Muscle Shoals. Do you remember that drive over to Wheeler Dam the other day? You went through a county of Alabama where the standards of education are lower than almost any other county in the United States, and yet that is within twenty miles of the Muscle Shoals Dam. They have never had a chance. All you had to do was to look at the houses in which they lived. Heavens, this section around here is 1,000 percent compared with that section we went through. The homes through here are infinitely better.
So T.V.A. is primarily intended to change and to improve the standards of living of the people of that valley. Power is, as I said, a secondary consideration. Of course it is an important one because, if you can get cheap power to those people, you hasten the process of raising the standard of living.
The T.V.A. has been going ahead with power, yes, but it has been going ahead with probably a great many other things besides power and dam building. For instance, take fertilizer. You talk about a "yardstick of power."
Dr. H. A. Morgan is running the fertilizer end of it and at Muscle Shoals he is turning out, not a nitrate—the plant was originally built for a nitrate plant—but he is turning out a phosphate. He is conducting a very fine experiment with phosphate of lime. They believe that for this whole area around here, and that would include this kind of soil around here, phosphate of lime is the best thing you can put on land in addition to being the cheapest.
Now at once, the fertilizer companies, the National Fertilizer Association that gets out figures (laughter), say, "Are you going into the fertilizer business?" The answer is a very simple one. The plant is primarily an experimental plant. That is the primary purpose. Therefore, they are going to take this year a thousand acres of Government land, worn-out land typical of the locality, and they are going to use this phosphate of lime on these thousand acres and show what can be done with the land. They are going to give a definite demonstration. They will compare it with the other fertilizers, putting them in parallel strips, and they will see which works out best and at the lowest cost. Having the large plant, they will be able to figure out what is a fair price for the best type of fertilizer.
Having done that and having figured out the fair price, it becomes a process of education. If the farmers all through that area can be taught that that type of fertilizer at x number of dollars a ton is the best thing for them to use, then it is up to the National Fertilizer Association and its affiliated companies to meet that price. Now, that is the real answer, and we hope that they will meet that price, adding to the cost of manufacture a reasonable profit. We shall know what the cost of manufacture is, and it is very easy to say what a reasonable profit is. Now, if those gentlemen fail to avail themselves of this magnificent opportunity to conduct a sound business and make a profit, well, it is just too bad. Then somebody will get up in Congress and say, "These fellows are not meeting their opportunities and the farmers will have to have the fertilizer and of course we shall have to provide it." But I, for one, hope that that day will never come. Now, that is not holding a big stick over them at all. It is saying to them, "Here is your opportunity. We go down on our knees to you, asking you to take it."
Q. just a little guiding light.
THE PRESIDENT: In other words, what we are trying to do is something constructive to enable business . . .
MRS. ROOSEVELT: An intimation. (Laughter)
THE PRESIDENT: No, it is not even an intimation. No, it is a generous offer.
Now, coming down to power. You take the example of Corinth we went through the other day. In Corinth, without Government assistance- they did it themselves—they had a county electric-power association and they used to buy their juice from the Mississippi Power Company. Because they were on a through line to Tupelo, the T.V.A. came along and stepped in as a middleman, and still bought the power from the Mississippi Power Company at a lower cost per kilowatt on the agreement with the Mississippi Power Company that it would take more juice. The result was that the Mississippi Power Company gets the same gross profit as it was getting before, but it is selling more power. Then the T.V.A., merely acting as middleman without any profit to itself, turns around and sells it to the county electric-power association. That part of it does not change the existing situation at all. The Mississippi Power Company merely gave a lower rate to the Alcorn County people, but it did it via the T.V.A., instead of direct. It was merely a bookkeeping matter. It does not cost the T.V.A. anything, and it does not receive anything.
Now the Alcorn County people, that is the Alcorn County Electric Power Association, did a very interesting thing. There they had Corinth, which is a good-sized town, and they found they could distribute in Corinth—these are not accurate figures—they found they could distribute household power at about two cents a kilowatt hour. But if they were to run an electric line out to a farm, they would have to charge three cents. In other words, the farmer would have had to pay more.
What did the Corinth people do? They said, "We can get cheaper power than the farmer, but we think he should have the same rates we are getting." Voluntarily they agreed to take and to pay for two-and-a-half-cent power which enabled the farmer to get two-and-a-half-cent power. That is an extraordinary thing. That is community planning. Now, there was no reason in God's world why the Mississippi Power Company could not have gone to Corinth and said the same thing—no reason in the world. It just never thought of it. It could have done that same thing. But it was the T.V.A. that went down and sold the idea to the people in that county and said, "Let us have a uniform power rate for the man next to the powerhouse and the same rate for the man who lives twenty-five miles up the Valley. We don't want to concentrate any more people in Corinth. We want to increase the rural population."
The result of that operation is that they are increasing-they have more nearly doubled the consumption of power. Furthermore, they have gone ahead and formed another association, tied up with this county one, by which people can buy refrigerators and electric cookstoves and all the other gadgets at a figure which is somewhere around 60 or 70 percent of what they were paying before.
Now, the process behind what they were paying before amounted to this: A subsidiary of the Mississippi Power Company in the business of selling refrigerators, generally owned —I am just saying this as a mean aside- generally owned by a son of a president of a power company—there is a lot of that nepotism—would go around and say, "We will sell you a refrigerator. The cost is two hundred dollars. You can pay for it over thirty months. The total cost to you at the end of thirty months will be three hundred dollars." In other words, it was a hundred dollars extra for instalment payments. It did not say that, but that is what it amounted to. In other words, it was selling them the thing at two hundred dollars, and it was making an average of 18 to 20 percent on that sale during this thirty months.
Now, who else profits? That selling corporation, of course, made not only its 15 or 20 percent, but also made quite a lot on what it had paid for the machine. It had probably paid a hundred and seventy-five dollars for the machine, so it made twenty-five dollars on the machine. Now, whom did it buy it from? It did not buy it from the General Electric or the Westinghouse. It bought it from the middleman, and he also made a twenty-five-dollar profit on it, and the General Electric Company got only a hundred and fifty dollars for the machine. Therefore, when the consumer paid three hundred dollars, it was just 100 percent more than the General Electric Company got for the machine.
We went to the General Electric Company and said, "Will you give us your wholesale rate on machines?" It said, "Sure." And we went to all the other refrigerator manufacturers so as to have a complete line, and then we said to the householder, "You can buy this for a hundred and fifty dollars plus a five-dollar handling charge, paying for it over thirty months at 5 percent interest instead of 18 percent." The net result is that instead of paying three hundred dollars, he pays a hundred and seventy-five or a hundred and eighty dollars. His instalment cost is at 5 percent instead of 18 percent. He gets it at the wholesale price, which the Mississippi Power Company could have done exactly as well as the T.V.A. In other words, we are teaching him something.
Q. Whom is Corinth getting its power from now?
THE PRESIDENT: Mississippi Power Company.
Q. I don't quite understand the power company getting its same profit. Mr. Ruble, who runs a department store down there, told us that the building had its bill cut from sixty dollars a month to forty dollars and he doubled his consumption.
THE PRESIDENT: That is the point; what does it do? Suppose it were selling—well, let us put it in algebra. Suppose it were selling x kilowatt hours times y cents per kilowatt hour. The total receipts of the company amounted to z. Now, we come in and tell these local people that if they will buy 2x kilowatts times 1/2 y—in other words, half the price—you will still have z. In other words, if they buy twice as much power at half the cost, the gross will be exactly the same at the end of the month. Now, that is what we have been trying to do.
I don't know the consumption back in Corinth, but in Tupelo we estimated it would take a year at a three-cent rate running down to one, instead of a rate starting at six cents and running down to three. We figured it would take a year for the consumption of power to double. Actually, it took only four months. The consumption of power in Tupelo has doubled in four months.
The result is that the local company has an even bigger gross in the way of receipts than it had before, and yet the consumers of that power, whether shopkeepers or farmers or householders or anything else, are getting their electricity for less than half the price—about 45 percent—of what they were paying before.
Q. Isn't there a considerable change in the cost of having to step up its power production to meet a demand like that?
THE PRESIDENT: Very little. The only overhead is when you get an extension of rural lines. There you have a larger inspection force to watch the lines. That is about all.
Then we are doing a third thing along the same lines. The power companies did a silly thing when it came to rural electrification. They put out all kinds of specifications for rural lines that were out of the question. There was a certain rural line we wanted here in Warm Springs, and the specifications of the power company, as I remember them, called for thirty-five-foot poles, white oak, that had to come from North Georgia. They had to be hauled here by railroad. Then I think it charged eighty dollars for the transmission line into the farmhouse. The net result is that a line for five or six farmers would cost somewhere on the average of four or five hundred dollars. That is a pretty big debt for a farmer to assume. Then it said to him, along the same line as the refrigerator, "You can pay that over a number of years with a small charge for interest." The interest ran from 18 to 20 percent.
What we are trying to do is to build a rural line which will be substantial. We will put in transformers, actually at cost from the electric supply company, the General Electric Company or the Westinghouse, and then let the farmer pay for his power line at 5 percent instead of 18 or 20 percent. It means that on the average he can put in his power line for about 60 percent of what it costs the other way.
Now, we come back to the old simile we used before. I hope that the proper power-company officials will accept this free education that the Government is giving them. It is a fine offer and a grand chance. If they come in and do it right with a reasonable profit on their actual cost, that is all we are asking. No threat. . . .
Q. Or else?
THE PRESIDENT: No "or else." . . .
Q. In Atlanta the Georgia Power Company runs its auxiliary plant in Atlanta with gas. It buys gas from Mississippi, makes electricity from the gas—converts the gas into electricity— and sells it at a profit. It uses about twenty million cubic feet a day.
THE PRESIDENT: Do you know, about gas—Ickes told me this on the train the other day— there is going to waste every year in the Texas oil fields $72,000,000 worth of gas. It is just escaping into the air. Now, if that gas were turned into electricity, think what it would mean to Texas. That is $6,000,000 worth of gas a month.
Q. They pipe the gas into Atlanta from Mississippi.
Q. If that much is going to waste in Texas, what is the gas wasted on Capitol Hill? (Laughter)
THE PRESIDENT: That would run the District, anyway. It might cut the District tax rate.
Q. The trouble is that that is nonconvertible gas.
THE PRESIDENT: Now, coming back to the point, this statement shows a balance available for construction and retirement of 35 percent of the gross. If you were to analyze the financing of most of the private power companies, you will find that in the majority of cases they have been following the pernicious rule of the railroads. They get out a twenty- or thirty-year bond issue and they don't start a sinking fund. When the bonds mature they don't pay them off. For example, in the paper yesterday morning, there is one company that is seeking to refund an issue of bonds which were issued twenty years ago. That is what has hurt the railroads. The railroads never paid off a single' bond which had matured. They never set up a sinking fund. . . .
Q. The logical question that that raises is, can the average private utilities undergo the reorganization necessary to cut the rates and take advantage of the opportunity given them?
THE PRESIDENT: Only if they reorganize. Of course, we all know they do a lot of talking about widows and orphans. Now, whose fault is it? I will give you an example: A certain friend of mine, who makes or perhaps saves two or three thousand dollars a year, started in about 1928 to put aside a savings fund, realizing that some day he would get old and could not work any more. Wanting a little more than 4 percent, he went to two banks in New York City, the most reputable, oldfashioned banks he could find. I was partly responsible and told him where to go. As a result, today he finds that the fifteen or twenty thousand dollars he put in is invested, about two-thirds, in bonds of utilities, not stocks but bonds. What kind of utilities? Holding companies, all of them holding companies, none of them operating companies. He was advised to buy the bonds of these holding companies as the best form of investment he could get. They were 6 percent and 7 percent bonds and he bought them at 102, 103 and 104. He bought them above par. Today the average of those bonds is about 40. The result is that he has lost over half of the savings that he put into those bonds.
Now, why are they selling at 40? For the simple reason that you have to find out what is behind them. That starts you back over a chain. Let us take Associated Gas & Electric, as an example, or Commonwealth & Southern, or any of the big holding companies. Those bonds have printed on them that behind them is so much stock. Let us call the first company the A Company, and its bonds state that it has so much stock of B Company, C Company, D Company, in the treasury of the A Company, as security for those bonds. Then you analyze and you ask, what is the common stock of B, C and D Companies? You will find that they are holding companies. And you will also find that they have outstanding certain bonds which are backed by the common stocks of E, F, G, H and I Companies. And then you will come down to those companies and perhaps they are operating companies or perhaps they are holding companies too. Sometimes you get the pyramid of the holding company principle up to the fourth dimension. . . .
The banker who does the merging gets a lot of common stock, and dumps it off on the market. Now what Charlie (Hurd) said was right. I don't like the expression "squeezing the water out," but if the utility companies in this country could recapitalize on the basis of the money put into them, every one of them would be making a profit today and every one of them could reduce the rates.
Q. But a lot of people have taken their money and gotten out.
THE PRESIDENT: And a lot of widows and orphans are holding the bag, having been persuaded by the best banks in New York City to buy that kind of bonds, which is not at all honest.
Q. The answer is that they hold the bag anyway, so that in reorganization it would not make any difference.
THE PRESIDENT: In a reorganization it is just too bad about people badly advised. It is not the Government's fault. In other words, somebody is bound to get hurt. There isn't any question about it.
It is a very simple proposition. Suppose, for the sake of argument, you can save the consumers of power one hundred million dollars at the rate of two hundred dollars a year. That would be five hundred thousand people who would benefit in a year. They would benefit from that kind of saving through cheaper power. You would hurt a lot of people. You might hurt twenty or thirty or forty thousand people in materially benefiting five hundred thousand. But, after all, that is one thing that Government cannot do, and that is to protect widows and orphans against bad advice they have had on investing. . . .
To give you a thought, what we are after primarily is to improve the standard of living for the country as a whole.
Q. And power is merely one of the things?
THE PRESIDENT: Merely one of the things. Better homes, slum clearance, better roads, they all tie in together. Better education is very, very important. . . .
Q. Do you think it is necessary to go ahead with the Tennessee Valley experiment on a national scale to bring about the plans you have outlined?
THE PRESIDENT: Not the same kind of governmental power development if the other fellows will do it. They have every chance in the world to do it.
You take a simple example: Eight miles over here to the eastward is a place called the Cove where they make the best corn liquor in Georgia.
Q. The best is none too good. (Laughter)
THE PRESIDENT: Throw him out. (Laughter) Now, in the Cove the Georgia Power Company owns one of the most favorable power sites in the State. It can turn out at that power site something between forty and fifty thousand kilowatts at a cost of less than half a cent. It has owned it for fifteen years and it bought the whole power site for a total of fifteen thousand dollars. In other words, it bought it as a farm lot. It has sought in other years to carry it on its books for a million dollars. It is an undeveloped power site and I think the old Public Service Commission of this State allowed it to do it for a while.
Farther up, where we are going to picnic, is a place where it can develop 30,000 kilowatts, and I think it paid fifteen or eighteen thousand dollars for all the land comprising that site. It has a grand chance to make cheap electricity for the whole region and we are just giving it the opportunity as well as showing it how.
Q. None of this, I take it, is on the record.
THE PRESIDENT; No, it is just so that when you talk about it in the future you will know all about it.
Q. Can't we write this as background?
THE PRESIDENT: I think not. You had better keep it. If you write anything at all it will look like trying to explain something. . . .
Q. Can't we use this, what you said this afternoon about Tennessee Valley and before—can't we use that?
THE PRESIDENT: Instead of using it right now, jot your notes down and let me give you a hint. The National Resources Board preliminary report is coming out, and it ties right in with it. Let me dig that up for you. Don't use it today—use it for a Sunday story or a Monday story.
Q. These notes are worth a thousand dollars at least, minimum.
THE PRESIDENT; Wait until you learn more about it. You don't know enough about it to write a story. . . .
Q. Mr. President, if you were going to write a story today for the morning papers, what would you write?
THE PRESIDENT: I would write that the power people were all down here and were discussing power policy and legislation, just a preliminary talk.
Franklin D. Roosevelt, Excerpts from the Press Conference in Warm Springs, Ga Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/208258