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The Great Magazine War

By Paul W. Mandel

A few weeks ago, a Virginia power commission received two requests for permission to build power plants. One was from a private company which wanted to build a dam; the other was from a public company that was planning a steam generating plant. Both groups are planning to serve the same area.

This is typical of a problem that is popping up all over the country, for publicly owned electric power plants are rapidly increasing in number and coming into confict with existing systems. Some consider this "the welcome hand of a Fair Deal"; others call it "specter of socialism." But all agree that Government's role in electricity production is expanding so greatly that it is taking over a new role in the economy.

Federally Owned or Financed

Public ownership of electric utilities occurs in two forms. First, there are the federally-built projects such as Hoover Dam, the TVA, and dams in Washington and California. The electricity produced by these plants is either sold to private distributors or brought to the consumer through publicly-owned lines. Secondly, there are municipally-owned power plants, mostly financed by the Rural Electrification Administration. Together, these methods produce about 20 percent of the nation's power.

Before 1933, there was a negligible amount of publicly-produced power. The Hoover Dam had been commissioned to sell falling water, not electricity, to the private utilities. Under the New Deal, public power was used to bring electricity to markets that had been ignored by the private companies. Now the Fair Deal promises to extend the field and is brushing shoulders with already established companies. In most cases, public power drives out private companies.

Private vs. public Companies

This brings into focus clearer than ever the question of What should be the relation between private and public companies. Each group is very vociferous in defending its side of the problem.

In favor of greatly increasing public power is the undeniable argument that publicly-produced electricity is cheaper. The social benefits of more electricity and cheap electricity are obvious.

On the other side, the utilities argue that the lower rates are a sham. Private companies pay 16 percent taxes while public ones pay six or seven percent in lieu of taxes. Public plants can also obtain finances at a low interest rate from the REA while the private company must go to the money market. This last argument has less significance that it used to because of the fallen interest rate. But these companies insist that the tax differential amounts to a subsidy of the public plants. Their argument is summed up in a caption that appeared under a picture of Grand Coulee dam in "Fortune"--"Grand Coulee: Its power is majestic, symbolic, and subsidized."

The actual results of the government's power programs have been to increase the country's capacity and to bring this new electricity to areas which had inadequate power or no power at all. The reduced rates also proved the elasticity of demand for electricity. Private companies, who complained that they were being undersold, reduced their prices and found that they made more money.

A Mixed Economy in Action

Although the present picture in power is one of a mixed economy, it is hard to tell if it can remain mixed. The rapidly expanding public sphere has at its disposal all the weapons of large monopoly and can drive out private companies whenever they compete. Some say that this is good, for public power is always cheap. Others say that this cheapness is a farce and the people will not notice it until it is too late. The former favor unrestricted increase in public power operations. The latter propose a limitation on federal projects so that the areas o public and private companies are clearly defined. In any case, the role of expanding public power must be examined and its place in the economy determined.

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