averaged 3.6 cents per pound. The report of the Attorney General under section 205 of the War Mobilization and Reconversion Act of 1944 contains an additional charge of approximately 0.4 cents per pound for power, which is not explained but may be intended to cover costs for power losses in connection with the Government-owned substation. However, our power cost, based on the actual cost of energy delivered by the utility and power costs as tabulated in the Attorney General's report contrast appreciably with the testimony before your committee that the cost was 4.28 cents per pound. We are also sensible of the need for the establishment of a sheet aluminum rolling mill, of possibly €0,000,000 pounds yearly capacity, in this area. The availability of sheet aluminum in this area through establishment of such a mill would be much greater than through its production and shipment from other locations either in the Northwest or East. Likewise the cost resulting from the saving in freight rates would be much lower. Its presence here, together with existing extrusion and other aluminum plants now located here, would greatly encourage the use of aluminum by the thousands of existing small industries and the establishment of additional small industries in southern California. The Department is prepared to suggest a change in the electric rate for the aluminum plant provided a rolling mill be established here, in conjunction with the operation of the extrusion plant. The Department would then provide electric energy for two pot lines for a period of 3 years at the reduction plant under an electrochemical schedule at a rate of $1.75 per kilowatt of demand, in lieu of the present specified rate of $2.10 per kilowatt of demand per month. This suggested rate, which does not include any incremental charge for preferred service, as contained in the original contract, would result in a production cost for power of 2.5 cents per pound. This rate is predicated on the present supply of surplus hydroelectric power which will be available for a 3-year period. Also, the Department is prepared to negotiate for a third pot line under probable conditions of its being supplied primarily from steam power. We are unable to check the power costs tabulated in the Attorney General's report of the Spokane and Troutdale plants, which, on the basis of 10 kilowatthours per pound of aluminum produced, would be at a rate less than that in the published rates of the Northwest area. This power cost, seemingly at a lower rate than those published, evidently does not include any incremental amounts in addition to the charges made by the electric utility such as appears to be added to the power cost for the Los Angeles plant. Sincerely, (Signed) SAMUEL B. MORRIS, General Manager and Chief Engineer. OCTOBER 5, 1945. Hon. JAMES E. MURRAY, Chairman, Special Committee to Study Problems of American Small Business, Senate Office Building, Washington, D. C. (Attention of Mr. Dewey Anderson, executive secretary.) GENTLEMEN: The intense interest shown and commendable work of your committee in encouragement extended to small business, which we all know is essential to successful readjustment, and the interest shown in aluminum production and fabrication as affecting small industry, and frequent references from many sources to the Los Angeles reduction plant, leads me to believe that a brief statement respecting negotiations with the War Production Board and the Defense Plant Corporation preliminary to the power contract will be of interest, particularly in conjunction with the communication of date by the general manager and chief engineer of the Department of Water and Power of Los Angeles, Mr. Samuel B. Morris, setting forth past and proposed electric power charges by this department for aluminum reduction. In June 1941 the department of water and power volunteered, in response to the Government's S O S call for power for aluminum to furnish 50,000 kilowatts at approximately 3 mills per kilowatt-hour under normal plant operation under its P-3 schedule, except that it would be "preferred service" as required under war conditions. Then Washington requested that we raise it to 85,000 kilowatts, and Mr. Krug was notified officially August 19, 1941, that the department would furnish 85,000 kilowatts at said rate. Then the department learned, quite by chance, that the Interior Department was contemplating for use a large block of Boulder power for magnesium production at Las Vegas. The department called for definite information regarding the intention of the Federal Government respecting magnesium production, and conferences were held in Los Angeles January 14-17, 1942, with Mr. Krug and representatives of Defense Plant Corporation, Department of the Interior, Metropolitan Water District, Edison Co., and department of water and power present. At these conferences power for magnesium was quite definitely set up and limited by statement from the Interior Department and the power contractors, the Edison Co., and department of water and power waived notice under their contracts in the interest of the war effort. Clearly this Federal requirement for magnesium left the situation respecting possibility of power for aluminum production in Los Angeles in a substantially different status. Then, in February, Mr. Bunker, of the Aluminum Branch, notified the city of the necessity of establishing five pot lines for aluminum production in Los Angeles, requiring a maximum of 170,000 kilowatts. In August 1941, Mr. Krug and a representative of the War Department came to Los Angeles and urged the Department to develop the Owens River Gorge power, a water power readily feasible of production with some tunnel work previously done. This was discussed with Defense Plant Corporation with a showing that it would cost the city more than 3 mills for such a quantity of power for aluminum reduction because of the large block of Boulder power being taken for magnesium and the necessity of developing Owens River Gorge or steam or both. The DPC refused to contribute toward the development of the Owens River Gorge in order that the rate might remain unchanged for the remaining Boulder power and the Gorge power. Eventually priorities prevented its development so that a considerabe percentage of steam power was required for the aluminum plant. Accordingly understandings were worked out with DPC by which the city would undertake to supply power for the five pot lines with a provision for an increment in the rate corresponding to the city's average cost for stand-by ("preferred service") as clearly the power would be necessarily preferred power and not the reverse as normally contemplated by the city's P-3 schedule. With the expectancy of the available Boulder power the city had previously offered to provide up to 85,000 kilowatts of preferred service without any increment for stand-by, but with power taken away for magnesium and the demand for aluminum reduction being increased to 170,000 kilowatts, it was utterly impos sible without direct loss to the city. Furthermore, it became necessary to provide that insofar as some of the five pot lines might necessarily be provided from steam power there would be an additional charge for the cost to the department of providing the steam power in excess of the rate otherwise received. It is clear from the above that the department of water and power sought only to protect itself against direct loss on account of the added burdens which the Federal Government imposed on the Boulder power plant and other power supplies available to the department with which to fulfill the power demands. It is worthy of note that complete power pooling by the publicly and privately owned utilities of southern California made possible the availability of more than 500,000 kilowatts of power for war purposes. Present power conditions in this area available to the department are such that it can undertake to supply power for, certainly, two pot lines during the next 5 years and presumably indefinitely. Also, that such power supply would be of such a reliable character as to not justify any provision for stand-by, that is, preferred service. In other words, the power would be of sufficiently high reliability and delivered under excellent voltage regulation such as was experienced by the former lessee whose representatives asserted that the character of power supply resulted in ability to produce an unusually high quality of aluminum at lower cost because of the permissible operation in excess of rating. Respectfully, (Signed) E. F. SCATTERGOOD. Advisory Engineer. An estimate of market for aluminum for Pacific Southwest industries Prepared by business agent's division, department of water and power [Estimates based upon information obtained from local and national markets and from executives of local manufacturing companies] End product: Airplanes Automobiles__ Furniture Auto trailers. Truck trailers. Residential building construction materials_-_. Commercial, architectural and decorative materials_. Cooking utensils_ Aluminum foil_ Home appliances- Miscellaneous: Annual quantity of aluminum, pounds Fixtures, reflectors, hardware, aluminum powders, refrig- Total 80, 000, 000 50, 000, 000 2,500,000 2, 000, 000 3,750,000 2,250,000 5, 000, 000 5, 000, 000 1,000,000 2,350, 000 2, 000, 000 105, 800, 000 NOTES: (1) An executive of a local extrusion plant states that he surveyed the southern California market and that it appears his company could obtain orders that would require 10,000,000 pounds of aluminum annually. (2) Automotive manufacturers are reluctant in converting to the use of aluminum as long as a monopoly exists. The item of 50,000,000 pounds for use in the automobile assembly plants is based upon use of 100 pounds of aluminum per car assembled in California. Other estimates for automobile use run as high as 400 pounds. Our estimates are, therefore, conservative. (3) Of further interest with respect to the market is the statement of a leading local producer of aircraft that his peacetime planning anticipates the use of approximately 10,000,000 pounds of aluminum per year, and his estimate that this is probably one-third of the total for aircraft in this market area, indicating a total of 30,000,000 pounds annually. (4) The residential construction program indicates for Los Angeles County alone a rate of 50,000 units per year for a period estimated at 5 years, and at a lesser rate thereafter depending upon business conditions. No doubt aluminum for window and door sash and other structural parts, if aggressively promoted, will be used in considerable quantities estimated in the foregoing tabulation at 2,250,000 pounds annually. (Signed) CHAS. C. SNYDER, Business Agent. Senator MURRAY. Does anyone desire to make any comment on any of these letters? Mr. OLDS. Mr. Chairman, I would like to ask one question in connection with the statement., In connection with this $1.75 special rate per kilowatt of demand per month, is that on the basis of actual monthly demand or on the basis of contract demand? Mr. SCATTERGOOD. Actual monthly demand. Mr. OLDS. If the demand of the aluminum pot lines rose and fell from month to month, the charge would be simply to the actual demand for that particular month? Mr. SCATTERGOOD. Yes. Mr. Chairman, there is one other thing that appeared from the reading of this statement that might be of definite interest to work out, and that is the removal of some aluminum rolling mill capacity to be placed there in the Los Angeles area in line with the policies expressed in the reports that I have referred to. That is all, Mr. Chairman. Senator MURRAY. Your recommendation will be given very careful consideration. Mr. GOLDSCHMIDT. May I ask a question? This tabulation of allocations of cost which was put in the record in connection with the statement of Mr. Arnold Troy was prepared by your bureau; was it not? Mr. SCATTERGOOD. I have never seen them but Mr. Troy spoke of them and I understood from him that in part at least they were prepared for him by one of the department engineers, Mr. Cozzens. MR. GOLDSCHMIDT EXPLAINS POSITION OF DEPARTMENT OF THE INTERIOR RESPECTING DEVELOPMENT IN WESTERN STATES Mr. GOLDSCHMIDT. Mr. Ely yesterday made some corrections or corrected some impressions in connection with that tabulation, and I want to make the point here, Mr. Chairman, that I think the impression created by these tabulations with respect to the cost of power in the Northwest are also not quite accurate. This tabulation was not read into the record, and was only called to my attention after the hearing yesterday. I do not wish to take up the time of the committee but merely enter an exception to the acceptance of the implication of these figures. Senator MURRAY. Would you care to make an analysis of it and submit it to the committee? Mr. GOLDSCHMIDT. I would be glad to do so if the committee wishes. I want to point out merely in passing that the power costs of Bonneville-Coulee system are required to return to the Government considerably higher investment than are included in this tabulation. Senator MURRAY. Thank you. Mr. ELY. Mr. Chairman, I think your suggestion is very good, and we will be happy to include an analysis of the repayment requirements of Boulder, also in more detail, so they may be studied together. Mr. GOLDSCHMIDT. I would like the record also to be clear that in raising this point I am not objecting to any of the statements that have been made by the Bureau of Power and Light. The Department of the Interior is exceedingly interested in both the Southwest area and in the Northwest area as a business proposition. We have tremendous investments in those areas and are tremendously interested in the development of the aluminum industry, the light metals industry, fabrication, steel, and other products that can be consumed in the western market and in the Far East. We are working closely with the Los Angeles people, as we do with the Northwest people, and any statement that I have made here with respect to our interest in this matter, I want to make clear is not limited geographically to the Northwest or indeed to the Los Angeles area, but is related to the entire West, including the Arkansas southwestern power area, and the Montana area. Senator MURRAY. Thank you. I am glad you include Montana there. We are badly in need of some industrial development out there. Mr. HARVEY. Did I understand the Bureau of Power and Light to say they are considering, for the operation of facilities, that they will put the power rate on the basis of consumption rather than upon a demand load? I know I am not using the proper technical terms, but I think you understand what I mean. 79912-45- -21 Mr. SCATTERGOOD. The form of schedule for the aluminum or electrochemical high load factor plants is based on the monthly demand in kilowatts. Mr. HARVEY. What do you mean by "demand," the connected load or the load actually used? Mr. SCATTERGOOD. The load actually used. Mr. HARVEY. How about an extrusion plant? Mr. SCATTERGOOD. The extrusion plant is under a different schedule, because it is a different type of demand and load, all worked out in accordance with costs to provide such service. Mr. GOLDSCHMIDT. I think it ought to be said in fairness to the power-producing agencies on the point that you make, to bring out again the point that I made after Mr. Caskie testified; namely, that the problem confronting the power-producing agencies is one of securing revenue for facilities that are provided, whether or not the consuming industries use them. Mr. HARVEY. If they don't use it, they don't have any income. No matter what the basis of computation, if you don't use it, you don't have any income. Mr. GOLDSCHMIDT. The power facilities are such an integral part of the aluminum-producing facilities that it becomes different from your situation. If you set up an aluminum reduction plant, you would have to pay capital charges on the cost of that plant. If you issued bonds to build an aluminum reduction mill, you would have to pay capital charges on that mill whether or not it was operating at capacity, half capacity, or not operating at all. As part of that plant construction, if you also put up the power facilities, you would be in the same fix with respect to that portion of your plant. Our problem has been that we have put in the investment in the aluminum business, and on these Government plants, the Government has had to pay capital charges on the aluminum plants as well as on the power plants. Mr. HARVEY. I think there should be a sharp distinction between an institution established by the Government for the general service. of the community in that its profit is measured not only in gross revenue, but the general profit in the economic welfare of the community. Mr. GOLDSCHMIDT. I am glad to have that brought out. Dr. ANDERSON. Especially, by a businessman. Mr. SCATTERGOOD. Mr. Chairman, the whole purpose of the establishment of the Bureau of Power and Light of Los Angeles was to develop a community, particularly manufacturing, and thus create a balanced economy there with opportunity for thousands of people who insist on living there by the balanced economy which has thus been brought about. The whole purpose is that accomplishment, and a utility must necessarily charge for each cost of service a rate proportional to the cost. Otherwise, some other class of consumer has to pay it. The point that Mr. Harvey is concerned about, he need not be concerned about here or at all-he testified that he was advised the power bureau charged the Bohn Co. a minimum of $6,000 per month whether the company used any energy or not at the extrusion plant, and I wish |