Valley Campaign

On June 14, 1933 two college presidents and a young attorney held the first directors meeting of the Tennessee Valley Authority. Since then they have added 9,000 persons to the TVA payroll, begun the construction of two great dams which together will cost $72,000,000, ordered surveys for four others and completed no less than 59,680 rock, brush, bag and log dams to check soil erosion. They are spending $4,500,000 experimenting with fertilizers, millions buying power & light systems, millions financing the sale of electrical gadgets, $100,000 trying to make soft coal smokeless. They have built roads, transmission lines, a town and a tourist camp; planted 2,751,000 trees, 7,000 kudzu vines, nine tons of grass seed; started teaching elderly mountaineers trades and have generally created more hubbub than the Valley has seen since Grant took Shiloh in 1862. Most of the Valley's 2,000,000 souls gape in awe at the everlengthening procession of TVA wonders. Some are very angry indeed but no one is bored. TVA's magic wand waves too fast for the eyes of the rest of the U. S. to follow, one group excepted. Last week this group&151;the U. S. powermen&151; spotted the end of a first big chapter in the New Deal's greatest paternalistic experiment.

In the beginning there was Muscle Shoals and Senator George W. Norris's conception of electricity as a great national resource not unlike water and the good earth. President Roosevelt looked at Muscle Shoals and saw much more than a fine opportunity to settle once & for all the hoary argument of whether Government or private corporations could distribute power the more cheaply. So the Tennessee Valley became a social and economic laboratory but power is still the big point of the Tennessee Valley Authority. In charge of all TVA's power activities and, though not its chairman, admittedly its prime-mover is David Eli Lilienthal. Short, baldish and a bear for work. Dave Lilienthal like a number of other New Dealers is young (35), Jewish and a Harvard Law School graduate who was fired with his zest for public wealing by Felix Frankfurter. For years he has been battling the ogre of private ownership. President Roosevelt picked him from Wisconsin's unorthodox public service commission.

His is now a golden opportunity to prove that Government can distribute electricity more cheaply than private capital. TVA is like a "yardstick" which may or may not lead to socialization of all U. S. Power. Dave Lilienthal swears he will include all costs in his rates, but few powermen will concede that his yardstick will be 36 in. long.

Dave Lilienthal's first problem was to find outlets for the power from Muscle Shoals, the two great valley dams now under construction, Norris and Joe Wheeler, and the four others projected. Private companies within TVA's sphere of influence already have plant capacity at least 33% in excess of present demand but this daunts Dave Lilienthal not a whit. Before he and his fellow campaigners are through excess capacity in the Tennessee Valley will have jumped to at least 66%. His solution for this appalling problem of overproduction is lower rates and cheaper gadgets. All powermen know that very low rates will in time stimulate sufficient demand to pay profits but few private companies can stand an indefinite financial strain while the bigger load is abuilding. Director Lilienthal plans to absorb the first few years' losses by surcharges on big customers but it is expected that the early losses will be absorbed by taxpayers throughout the nation.

As an outlet as well as a yardstick Director Lilienthal needed at least one big city and the one he wanted was Birmingham. Ala. In last autumn's elections, however, the citizens of Birmingham roundly turned down a proposal to buy the local power & light system and consume Mr. Lilienthal's Muscle Shoals power. Having instigated a Federal Trade Commission investigation into ''excessive expenditures by private power interests" in the Birmingham referendum. Mr. Lilienthal marched north to Knoxville. He had in the meantime signed a treaty with Commonwealth & Southern, acquiring for $3,000,000 sufficient rural territory for his present plans and agreeing to stay out of Commonwealth's other territory until the generators begin to hum at Norris Dam. This treaty is in effect a truce which will leave C. & S. in peace for at least two years.

At Knoxville Mr. Lilienthal encountered what since the fall of Insulldom is the biggest utility empire in the U. S.&151;Electric Bond & Share, which through National Power & Light controls Tennessee Public Service, operating in and about Knoxville. Far away from TVA-land in an office at No. 2 Rector Street, Manhattan, Bond & Share's Chairman Clarence Edward Groesbeck prepared for pitched battle. Ever since graduating from the University of Michigan in 1898, Mr. Groesbeck has been up to his knees in some phase of the utility business. He came to Bond & Share as general manager of Utah Power & Light in 1914, was upped to vice president in charge of all Bond & Share operations in 1918. For years he worked the clockless hours of Sidney Zollicoffer Mitchell, father of Bond & Share who retired early last year because of ill health.

Dave Lilienthal had learned a trick or two in Birmingham. Knoxville, in the dumps of Depression when TVA first swooped into the Valley, was already beginning to feel the first few shots of hard Government cash. Further to beguile the citizens, TVA established a bustling branch of its Muscle Shoals headquarters in Knoxville. The TVA offices blossomed with educational exhibits and fairly spat TVA publicity. CCC camps sprouted up & down the Valley. More men were at work at nearby Norris. Knoxville began to glow with something which might not be prosperity but which looked very like it. Last November Knoxville voted to build or buy a power & light system which would use TVA current.

The city elders, however, had no money to carry out the people's mandate. Fact was its credit was so low that its bonds were selling at 68-c- on the dollar. An application for a loan was turned down by the State PWA board for that very reason, and later a PWA engineer from Washington also vetoed the loan. No one knows precisely why but PW Administrator Ickes shortly announced that the Knoxville application had been approved.

Dave Lilienthal was now in a position to dictate terms to Chairman Groesbeck. Knoxville had the money to build a competing system the minute Mr. Lilienthal said "Go!" What made him willing to talk turkey with Mr. Groesbeck was that he wanted a system in a hurry and he wanted the existing distributing system in the adjoining countryside. If Bond & Share had been the sole investor. Mr. Groesbeck would undoubtedly have fought the competing system to a finish with loud cheers from each & every U. S. powerman. But he could not forget the bondholders. When Mr. Lilienthal shrewdly suggested that Mr. Groesbeck buy up the bonds in the open market at the then receivership prices, thus in effect paying off the bondholders at 50-c- or 60-c- on the dollar, Mr. Groesbeck was dumbfounded.

After prolonged dickering the ruler of Bond & Share, though trading with a pistol at his head, managed to work up Mr. Lilienthal's early talk of some $2.000,000 for the properties to a firm offer of $6,088,000. With these six millions plus a million he would get by transferring a transmission line to another Bond & Share affiliate plus a little cash-in-hand. Mr. Groesbeck could pay off all the bondholders of the Knoxville Company at approximately par. And so he consented to sell out at Dave Lilienthal's price.*

Did this, then, mean that Mr. Groesbeck's Bond & Share, with 120,000 stockholders, would get not a penny for its equity in the Knoxville company? It did and it did not. Mr. Lilienthal would say that Bond & Share still owned that part of the Knoxville company which ran the local street cars, and which had cost $4,000,000. And at this Mr. Groesbeck would have to laugh grimly. For the street cars.do not make money; they lose it. Bond & Share's Knoxville affiliate had been operated as a balanced business. The deficits from street car operations were more than offset by Power & Light profits. Street cars were a Knoxville necessity and the Tennessee Public Service commission was quite willing to allow the slightly higher Power & Light rates required, provided Bond & Share continued to operate the lines. On the business as a whole the profits were modest. Though he promised his best efforts to aid in their rehabilitation, Dave Lilienthal would not have taken the street car lines as a gift.

Leaving Mr. Groesbeck to worry about the street cars and the New Deal, Mr. Lilienthal rejoiced last week that he had outlets for all the installed capacity of Muscle Shoals, the only plant in operation. He already has figures from Tupelo, Miss, and other towns to show how consumption soars with low rates. He has lined up electric equipment makers to turn out a line of standard low-priced gadgets which Electric Home & Farm Authority is pushing through dealers and private utilities throughout the Valley.

Pessimistic powermen expect Mr. Lilienthal to continue his dashing campaign until he runs every private company out of the Valley with a total loss of holding company equities. However, Bond & Share and Commonwealth & Southern, the systems most vitally affected, have lately acquired a flock of allies which may sand Mr. Lilienthal's high-speed gears. A potent group of bituminous coal operators have filed suit, challenging the Constitutionality of the whole TV A program. Electrical equipment dealers are pouting at the narrow profit margins on Electric Home & Farm Authority lines. Ice and fuel dealers, whose business is threatened with extinction, are up in arms. The American Federation of Labor is bitter against the trade schools which TV A Chairman Arthur Ernest Morgan, president of Antioch (Work-&-Study) College, established for Norris Dam laborers. Businessmen, big & little, view with alarm the growing powers of Director Lilienthal in his southern satrapy.

*Last spring in Manhattan Mr. Lilienthal asked a convention of savings bankers: "Can it be that they [the powermen] are deliberately trying to depress the prices of sound senior securities, so that they can be bought in at hysteria prices?"

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