how they estimated their costs for those 3 dams, but that did not give us any information as to what or how they would handle the other eight dams when completed.

Representative WOLVERTON. Do you know whether the rates were based upon any charges or on charges that would include amortization of navigation and flood control, as set forth in the report to the President as of June 9?

Mr. MORELAND. I don't know how the original rates were developed. This is a statement of opinion by the T. V. A., as to what rates which have already been promulgated will effect, but I do not know how those original rates were arrived at.

Representative WOLVERTON. Do you know whether any figures are available to the public that would enable a person in your position to know just what did go into the cost of operation on which the rate structure is supposed to be based?

Mr. MORELAND. I do not know whether any such information is available to the public. I don't know that it is not, but I do know that I haven't seen it.

Representative WOLVERTON. The reason that I asked the question is because Mr. Biddle, in his questioning of you, would seem to indicate that there might be a different viewpoint existing either in the T. V. A. or elsewhere with respect to some of the charges that you had felt were proper charges to be considered. It would seem to me that instead of being a question of dispute back and forth whether it is proper or not, at least it would be helpful to the committee to know just whether the T. V. A. takes that particular position different from you, or similar to it, or in what respects it differs from you.

And you don't know of any figures that have been made public by the T. V. A. from which that information could be obtained? Mr. MORELAND. No, I do not.

Mr. BIDDLE. Is that all?

Representative WOLVERTON. Would it be possible, Mr. Biddle, with this statement that Mr. Moreland introduced to us as his first exhibit, I think it was 442, to have a comparative statement made up by T. V. A. where directly alongside of the figures that he has used we could have the T. V. A. viewpoint, whether it agrees with those figures, or disagrees, or whether it eliminates it or doesn't eliminate it.

It would seem to me if we had such a table before us we could very quickly put our finger on where the differences of opinion exist as between Mr. Moreland, representing the utility interests, and the T. V. A. in the policy that they expect to adopt or have adopted.

Mr. BIDDLE. I think that that is an excellent suggestion, and I am not sure, of course, if in each item with different bookkeeping, the exact comparison would be made, but I will direct the T. V. A. witnesses to prepare such schedules, comparative schedules, and have them available for the committee well before the T. V. A. witnesses are called.

Representative WOLVERTON. I have talked to some of the members of the committee about it and they seem to agree with the idea that it would be very helpful in ascertaining just where there is any difference existing and to what extent there are differences.

QUESTION OF REPORTS TO FEDERAL POWER COMMISSION

Now, does the T. V. A. make reports to the Federal Power Commission? That is, in similar form to those that are made by private utilities and private utility companies?

Mr. MORELAND. As far as I know they do not make them in the same form that the utilities make them, but I am not fully informed on that question and I might be wrong.

Representative WOLVERTON. Maybe Mr. Biddle could enlighten the committee on that. In other words, I have again in mind this fact: That if the Federal Power Commission has a definite form of report that is to be filed by utility companies, where they have, as a result of rules and regulations that they have laid down, it would seem to me to be helpful if we could know how the T. V. A. fits into that particular set-up or whether it has a different set-up than what is applied to private utility companies.

Mr. BIDDLE. As you doubtless know the act provides that the T. V. A. shall keep its accounts in accordance with regulations provided by the Federal Power Commission.

I don't know to what extent reports are made by T. V. A. to Federal Power Commission, such as reports made by utilities, but I will inquire and have similar comparisons made. A study, I understand, is being made now by representatives of the Federal Power Commission of the whole T. V. A. set-up of their accounts.

Representative WOLVERTON. Do you happen to know whether that provision of the law to which you have just referred is or has been complied with by the T. V. A.?

Mr. BIDDLE. That is the purpose for which the study that I have just referred to is now being made to determine to what extent the law has been complied with, for the benefit of the committee.

Representative WOLVERTON. Then you don't know whether they have submitted reports to it or not, to the Federal Power Commission? Mr. BIDDLE. Understand, I don't know of any requirement of submitting reports, I understand that the requirement of the act is to keep their accounts in accordance with methods and standards laid down, and whether they have done that or not I do not know.

Representative WOLVERTON. In other words, what I am trying to get at is this, that if the Federal Power Commission in its field of regulation of utility companies has laid down certain rules and regulations with respect to the intricate matters that enter into the operation of a utility company, such as has developed in this examination between yourself and Mr. Moreland, it would seem to me that the committee would be better able to understand the differences that exist, if any, between the T. V. A. and the utilities, if we had that kind of a report before us.

Mr. BIDDLE. Anticipating your suggestion, I requested the Federal Power Commission to make a study and report to this committee, and I do not, or have not heard that that is yet completed, although I know that they have a number of their representatives in Knoxville now engaged in a study, and the moment that I see it, it will be immediately made available to all members of the committee.

Representative WOLVERTON. I think that the committee, so far as I have talked with them, and I know it is my own desire, is to ascertain

once and for all, if it is possible to do so, the advantages or disadvantages that exist with respect to the operation of utilities, whether public or private.

GOVERNMENT DEPARTMENT EXPENDITURES CHARGEABLE TO AUTHORITY

Now, already there appears before us in this examination of Mr. Moreland, the fact that there are many services that are rendered to the T. V. Á. by the other departments of government that enable them, if their figures are taken only from their own books, to show a much more favorable position than if there were made a part of their figures all of these other services and the cost of them that are rendered.

Now, for instance, take the franking privilege. I assume that that runs into a very considerable amount in a year. I don't imagine that you took that into consideration in the forming of your conclusions as to how much the taxpayers of America were out of pocket?

Mr. BIDDLE. Did you hear his testimony on the franking privilege, perhaps you would repeat that, I think that the word that you usedRepresentative WOLVERTON. If he has answered it, I won't press it further. That is only one of them.

Take land-grant freight rates, and this report that you submitted yesterday, Mr. Biddle, I had an opportunity to look at it, and Mr. Garity reports that with a great deal of pride, that there has been a saving to the Government there of $1,200,000, I think it was, by preferential freight rates.

That has been received by the T. V. A., and that is out of the pockets of somebody, and I don't know whether it is out of the pockets of the taxpayers or the railroad companies, but at any rate if we are to make a comparable basis, we ought to have in mind all of these other items which apparently have not been made a part of the statement that was presented by Mr. Moreland.

Mr. BIDDLE. Mr. Moreland also testified with respect to the landgrant college rebates yesterday, and I asked Mr. Garity in preparing his statement to show those, because they very definitely are what might be considered favorable T. V. A. rates, which the utilities could not enjoy, but perhaps Mr. Moreland would like to testify again with respect to that.

Representative WOLVERTON. It isn't necessary, I don't think; we have taken a lot of time, and you say it has been referred to.

Now, is there any calculation made with reference to the development work that is done by the R. E. A., which ordinarily would have to be done by a private utility, which in this case however is done by the R. E. A., and the T. V. A. benefits by it without any cost to them? Mr. MORELAND. No; we have not included any item for that. Representative WOLVERTON. Have you taken into consideration the grants that have been made by P. W. A. to enable municipalities or cooperatives or other organizations to enter into or to become potential electric customers, which were ordinarily the expenses that would have to be incurred by a private utility, but which in this case is done for the T. V. A.?

Mr. MORELAND. I have not taken that into account in these figures, because as I stated in my concluding remarks, our detailed analysis relates only to the wholesale operations of T. V. A., that is T. V. A. itself sells to the municipalities, and what happens beyond that point

of course is of vital interest to the public utilities, who must compete with them in the retail areas, but it is not of interest in considering the wholesale rates of T. V. A.; and this $10,000,000 minimum deficit relates to their wholesale operations.

I did say in terms, but not in dollars, that the municipalities had this advantage in their retail rates, the advantage that you referred to of subsidies in some instances for part of their cost of their distribution system, and for Government loans at low interest rates, and as compared with the rates a utility would have to pay for the balance of the

investment.

I did not evaluate that in dollars, because I am not dealing with the retail rates.

Representative WOLVERTON. But taking it from the standpoint of this committee, looking at the problem in its entirety, it is a proper matter to be considered when you try to determine costs, is it not? Mr. MORELAND. It certainly is an element of cost entering into the operations of the local municipal systems or the cooperative systems, and as pointed out in that statement, such systems enjoy the benefit of low wholesale rates, as well as of these other advantages.

Representative WOLVERTON. But what I have in mind is that enables a field of potential customers to be built up for the T. V. A. at Government expense, and when you speak of it from the standpoint of the American taxpayer, there is a charge there that either directly or indirectly has a relation to T. V. A., does it not?

Mr. MORELAND. Yes; I should say it is definitely related, but it is not included in the $10,000,000 deficit that we have shown for wholesale operations.

Representative WOLVERTON. In your estimate of revenues, did you contemplate charges as between departments of T. V. A. as being a part of your revenues to be received?

Mr. MORELAND. No. Just a moment, I want to see what we did on the fertilizer works. We included the revenue from sales of power to the fertilizer works as part of their potential revenue.

Representative WOLVERTON. Well, from the figures that I have seen so far in this case, it would indicate that the T. V. A. does take that as a part of its general revenue. That is not consistent with good accounting in the utility business, is it?

Mr. MORELAND. If I understood your question correctly, I should say that that was good accounting for T. V. A. to charge for power sold to the fertilizer works.

A utility company-an electric-power utility company-which had a street-railway division might well charge the street-railway department for power it sold to it, and usually does.

Representative WOLVERTON. How about for construction pur

poses?

Mr. MORELAND. I believe the T. V. A. charges itself for power used in its construction projects. And that, of course, is a proper charge against construction.

Representative WOLVERTON. Isn't that a practice that is condemned from a standpoint of accounting for a rate-structure purpose? In other words, hasn't the S. E. C. and Interstate Commerce Commis

sion and others refused similar charges as being properly a part of revenue received?

Mr. MORELAND. I will have to plead ignorance. No case has come to my attention, but probably because I have not been personally concerned with a case where that condition arose.

EFFECT OF USE OF STRAIGHT-LINE METHOD OF DEPRECIATION

Representative WOLVERTON. Well, now, with reference to the distinction that you have drawn between straight-line depreciation and sinking-fund depreciation as different methods of computing depreciation, I understand that you adopted the sinking-fund method? Mr. MORELAND. Yes, sir.

Representative WOLVERTON. If you had adopted the straight-line method, would that have increased the deficit of $10,352,000?

Mr. MORELAND. Yes, sir; it would have increased the deficit by some $6,000,000, I think. I had that figure; I will see if I can check that.

Yes; it would increase it some $6,000,000 in round figures.

Representative WOLVERTON. Hasn't that method been rather severely criticized by different State utility commissions, and Government agencies, and haven't those agencies frequently put themselves on record as being in favor of the straight-line method of depreciation instead of the sinking-fund method which you have referred to?

Mr. MORELAND. Well, there certainly is not unanimous opinion in favor of using the sinking-fund method for general utility purposes, but it seems to me that in making an analysis of this kind that that is a proper method to use.

Representative WOLVERTON. Well, certainly it is more favorable to the T. V. A., isn't it?

Mr. MORELAND. Yes, it is more favorable, but I think the proper method.

Representative WOLVERTON. I have a memorandum with respect to that. This was the memorandum that was issued by the Wisconsin Public Service Commission in 1933:

We believe that deprecia

This report emphasizes straight-line depreciation. tion is consumption of property in service; hence it is a cost of operation occurring throughout the service life of the property and not a cost incurred solely at the date of retirement of property. On those terms in our opinion the straight-line method of providing for depreciation should be the ultimate aim of commission policy.

It went on to say, in speaking of the so-called sinking-fund method, this reference was made:

In the case of long-lived properties, such as dams and reservoirs, a substantial error results from using a sinking-fund method in the amount of accrual charged to operating expenses, unless estimates of service life are accurate, because & relatively large proportion of the total amount of depreciation is derived from interest accumulations during the period immediately preceding retirement.

I am not in a position to express an opinion myself as to which is the better method. I am only calling to your attention the fact that the Wisconsin Utility Commission and our own Interstate Commerce Commission I think have taken that viewpoint, and I was wondering if you were so set against it that you felt that it should not have consideration.