MISSISSIPPI POWER CO. PURCHASE

Representative BARDEN. While I have an opportunity to ask you a question I want to ask you one about another situation about which you testified yesterday. I noticed here where you are quoted as saying that the T. V. A. purchased $850,000 worth of land "without examining the title." Did you make that statement or do you now make it?

Mr. TULLOSS. That was the item with reference to the Mississippi Power Co., I believe, in which I stated that I had been advised that the payment had been made prior to the examination of title.

Representative BARDEN. Now, is that hearsay or are you willing to swear to that?

Mr. TULLOSS. As I said before, I have been so advised.

Representative BARDEN. Was your source of information reliable enough for you to swear to it?

Mr. TULLOSS. Well, from my auditors. I can't swear to it.

Representative BARDEN. You will swear by your auditors, won't

you?

Mr. TULLOSS. Well, I trust them. I have every confidence in them. Representative BARDEN. Did your auditors make a written report to you to that effect?

Mr. TULLOSS. I believe it is in this report.

Representative WOLVERTON. I think, if you will permit me to interrupt, I read last night in this report where Mr. Lilienthal had written a letter to Mr. Willkie, suggesting that they take the property before the title was cleared up. I think you will find it in that report.

Representative BARDEN. I am not asking about the title being clear, I am asking about the title being examined. They are quoting him here as saying that they paid $850,000 without examining the title, and I distinctly heard you say yesterday that when the report was made they reported these defects to the title. I am interested to know how they found the defects in the title if they had not examined the title?

Mr. TULLOSS. Oh, you mean whether my own auditors examined the title?

Representative BARDEN. No; this is addressed to the activities of the attorney for T. V. A.

Mr. TULLOSS. I think that came about later, is my understanding, that the defects were ascertained as to payment. The payment was made

Representative BARDEN. I would like for you to be rather definite about it, because you are making a right serious indictment, and you ought to be willing to either swear to it or produce somebody that can swear to it.

Mr. TULLOSS. I have no personal knowledge of it.

Representative BARDEN. Well, then, that is all I care to ask you. Representative WOLVERTON. I think it would be very helpful-I am sorry I cannot turn to the exact page at this moment-I meant to make a memorandum of it last night, but I distinctly remember reading, I think in April of the year in which the property was purchased, that Mr. Lilienthal addressed a communication to Mr. Willkie in which he said he had been advised that there was difficulty

in clearing the title, and that he suggested that they proceed with the purchase and with the settlement, and clear the title afterward. Senator SCHWARTZ. The title was examined and they found some difficulties and I think the testimony showed yesterday they were very small indeed, compared to the purchase price.

Representative WOLVERTON. I don't know what impression you got from the record, and I would not disagree with you as to the impression you got from the record.

Representative BARDEN. I am not talking about any letter that was written.

Representative WOLVERTON. I think it is improper to ask a witness whether he made a certain statement which is not taken from the record, but probably taken from some news account of the proceedings. Representative BARDEN. I don't know who was responsible for it, but I simply asked the question if he did make it, or would he now make the statement. If that is not a proper question, then I am willing to take the responsibility for that.

Representative WOLVERTON. I think it is perfectly proper, if you are addressing that inquiry to me.

Representative BARDEN. But I do-well, I believe I'll let him pass on that.

DEPRECIATION POLICY RE WILSON DAM

Vice Chairman MEAD. If I may ask the witness a few questions to clear up a sort of a shadowy situation that exists in my mind.

I might not have the figures correct, but you will bear with me if I have not. It occurs to me that on yesterday when you and Representative Wolverton were figuring the number of years that depreciation covered, that it was brought out that in 1934, which was the construction period, the valuation of $51,000,000 was set on the valuation of Muscle Shoals, and a depreciation item of $87,000 was set up. Representative WOLVERTON. $82,000.

Vice Chairman MEAD. Well, $82,000. Now, it occurs to me that I brought it out, that we admitted the fact that we only applied that to power, that depreciation item, and not to the other activities of T. V. A. Is that correct?

Representative WOLVERTON. Yes, sir.

Vice Chairman MEAD. All right. Now, then, it was figured that by reason of the fact that the $87,000 item was set up for depreciation, and that the value of the plant was set at $51,000,000, that it would take about 600 years for that item of depreciation to cover that item of value, that was the rough figure I believe that was used.

That was an incorrect statement in that we then forgot to bring forth the idea that we were only talking about an item that applied to power. Yet when we were figuring the 600 years, we then had in mind all of the activities of T. V. A. not only the power activity for which the $87,000 item was applied; is that correct?

Mr. TULLOSS. That related to the $51,000,000 set up as the value of the property, the whole thing, entire property.

Vice Chairman MEAD. The entire property.

Mr. TULLOSS. You are right, sir, the entire property.

Vice Chairman MEAD. When we set up the entire property we had in mind the whole activity of the T. V. A. One item applied to all

of the activities of T. V. A., the other item, the item of depreciation, applied only to power.

Mr. TULLOSS. The $51,000,000 valuation was on property taken over by T. V. A. at the time it was organized?

Vice Chairman MEAD. And that property was not only for power purposes but it was for other purposes.

Mr. TULLOSS. I think that included fertilizer and other things. Vice Chairman MEAD. It did include it. We might as well not hedge on it; say "yes."

Now, then, we were very definite when we set up our item of depreciation at $87,000, or $82,000, or whatever it was-I haven't the figures-not to develop the idea that that applied only to power.

And then when we set up the figures of $51,000,000 for the entire plant valuation, we then sort of glossed over the fact that that did cover every activity, and we deducted immediately as a result of that illogical development that it would take 600 years for the item of depreciation to cover the item of value.

Mr. TULLOSS. If I may remind you, later on we discussed the valuation finally placed upon the plant.

Representative WOLVERTON. $31,000,000?

Mr. TULLOSS. $31,000,000.

Vice Chairman MEAD. All right. Now, wait just a minute.

Later on we discussed the value at $31,000,000, but we still maintained the depreciation item at $82,000, and we still forgot all about the fact that the $82,000 only applied to power, and that there was navigation and flood control and fertilizer and other items of depreciation that we ought to include, but were not included for some

reason.

And then, then when we forgot all about these other items we came to the conclusion that we must change our 600-year figure to 500 years. Now, 500 years was the figure that we changed it to, and let us see what we did then.

Mr. TULLOSS. I thought it was 400.

Vice Chairman MEAD. Well, we will say 400; just a small item when we are forgetting to be honest enough to state that not only power was a factor but all of the other activities as well, and they have items of depreciation.

Now, last evening I went over this, and let me say this to you, that that item of $51,000,000 listed in the construction period when T. V. A. took over Muscle Shoals was only a temporary calculation for bookkeeping purposes, and it is a practice adopted by good business enterprises throughout the United States. The $51,000,000 was entered in 1934 as a tentative bookkeeping figure, representing for temporary purposes only the value of Muscle Shoals.

Now, then, it was removed in 1935, pending a valuation of Wilson Dam, and pending the allocation report and approval, the allocation report and approval was then pending.

Now, no depreciation was charged as it could not have been fixed until the value had been ascertained, but a maintenance account of 10 percent, and I have here the report of the T. V. A., a maintenance account of 10 percent of the gross power revenues was set up on a

temporary basis. And that is not infrequently done by private interests.

Later Wilson Dam was valued at $30,120,000, and the valuation and allocation was approved by the President in accordance with the act. And then when that was done, when there was some real tangible value set up in accordance with the law, established by the Congress, then there was a real depreciation item set up also.

That was in 1934, in the construction period, when Muscle Shoals was turned over from the War Department to T. V. A., and there was no possibility, because there was no established value, there was no possibility of them inserting a definite item, so they inserted for bookkeeping purposes only a temporary item. And that was not brought out. And then when the allocation was approved by the President, in keeping with the law and the intent of Congress, the item was included in the report, and that was not brought out.

And I really believe that those matters ought to be brought out for the record. That is why I am bringing them out at this time.

Now, in addition to the value which was given to Muscle Shoals, there was also a value given to the Sheffield steam plant. That value was approximately $3,000,000. And when the value was made, in accordance with the law, and approved by the President, a tangible item was listed in the depreciation account column, where it should be. Now, I have here the Annual Report of the Tennessee Valley Authority.

Representative WOLVERTON. You mean submitted to Congress? Mr. BIDDLE. The 1934 Annual Report of the T. V. A., submitted to Congress.

Vice Chairman MEAD. This is for the fiscal year ending June 30, 1934. They list in their financial statement on page 56, appendix F, what I think is a very logical and good businesslike list of items. And down below this ought to be brought out too-in the notes they say:

These figures do not include properties received from War Department on which valuation has not yet been established.

NOTE. This balance sheet does not give effect to commitments of $5,000,000— and so forth.

Now, on page 57 they say here, and this I believe ought to be inserted in the record, this is a very important item in your discussion of this kind:

"Operating reserve for interest, amortization, construction, and for other purposes, $548,657.57."

Representative WOLVERTON. What page is that on?

Vice Chairman MEAD. Page 57. Then down at the footnote it

says:

NOTE. Do not include properties received from War Department on which valuation has not yet been established.

That is very clear. Now, this includes the item of 10 percent referred to: "All net revenues"-all net revenue-"were reserved." So that I really believe what we missed in our discussion yesterday when we were pursuing part of a mysterious problem was the fact that in 1934 we were in the construction period, that under existing circumstances you could not set up a definite depreciation item, and that the five and six hundred year calculation, based on the figures of 1934 was entirely irrelevant.

And I really believe that in justice to the report and to the approval of the allocation report in 1935 by the President in keeping with the act, that we ought to bring that out, we ought to bring that out very forcibly.

Those were the notes that I made on this, and those were the figures that I had ready to bring in yesterday, but I just didn't have the time. But in order to have a businesslike basis of arriving at a property depreciation, we have a valuation and an allocation that has been approved by the President of the United States. That was done in keeping with the law, and that was not brought out, so I bring out now the fact that we were discussing yesterday a part of a construction period, when good business would not exact definite detailed figures, and that we failed to emphasize the fact that when the law was carried out and the allocations were listed, that then there were proper figures set up for interest and amortization charges and depreciation.

That can be found in the report for the fiscal year ending June 30, 1934.

Mr. TULLOSS. Maybe I have not made it clear heretofore

Representative WOLVERTON. May I make a statement, please? Mr. TULLOSs. Pardon me.

Representative WOLVERTON. My colleague has expressed the thought that it ought to be brought out what the true situation is for the purpose of the record.

The emphasis that has been placed upon honesty I have not assumed was any attack on the integrity of those who conducted this particular examination yesterday.

Senator SCHWARTZ. Mr. Wolverton, you don't wish then to import the ordinary definition of the word "juggling," when you said yesterday that the "juggling" of the accounts?

Representative WOLVERTON. Yes.

Senator SCHWARTZ. Juggling implies an intent to deceive.

Representative WOLVERTON. I am glad that the Senator has given us that very plain definition of "jugglery," because before I get through today it is my intention to show that there has been just that very thing done, "juggling," in making the reports to Congress.

The reports that I made an analysis of last night, and I worked very late doing it, and I have some of the results of my examination that I will question this witness about at a later time today, that will indicate that even the T. V. A. itself in the reports that it has submitted to Congress has not been consistent in the figures that they used in carrying balances from 1 year to the next, where they have made their reports for comparative purposes, and I will demonstrate I think before the day is out that they have used different figures in different reports for the same items.

It was for that reason that when Senator Mead stated that he would read from a report that I asked him whether he referred to the Congressional report, because I think if you will, or if the committee will, bear with me during the afternoon we will see that the figures in the report to Congress were not the same figures that were on the books of the T. V. A.