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Mr. Tulloss. I have the reply here, and I possibly can find that item. (After examining reply.) I am unable to find, up to the present, their reply. The references here indicate a reply to items starting on page 136, whereas this item is on page 130.
If there is a reply here I don't find it. I imagine it is in here somewhere, but this document is so voluminous that I don't find it quickly.
Representative WOLVERTON. My interest in the transaction is created because of the fact it would seem as if the purchase price should have been at least $255,000, if it was to be based upon its revenue-producing ability, or at least two and a quarter times as much as what it was sold for, if we are to judge the value of property by what it will produce in the way of revenue.
I am, therefore, interested to know why 30 percent, or why property that would produce 30 percent of the revenues, were sold for 13% percent of the original cost.
Mr. Tulloss. I do not know what the explanation is in that respect. Representative WOLVERTON. Very well. Now
Mr. BIDDLE. Before going to the next item may I ask a question about this?
Representative WOLVERTON. Are you going to answer it, did you say?
Mr. BIDDLE. No; I say, may I ask a question, if you are passing to another item?
Representative WOLVERTON. Oh, certainly.
Mr. BIDDLE. You think it is gross. Let's assume that the property was not making any net return. Would the gross revenue be a basis of its value, would you think?
Mr. Tulloss. No; if it made no net at all, it might not be worth anything
Mr. BIDDLE. I have no idea what it was making. Was the Alcorn Association to use any of the property for street lighting?
Mr. MATCHETT. They used it for the same purposes as the Mississippi Power Co. used it, furnishing municipal service, street lighting and other.
Mr. BIDDLE. Did you make any valuation or appraisal of the property or look at the physical property in any way?
Mr. MATCHETT. Yes; we looked at it; that is, in that community. We are not rate engineers--appraisal engineers.
Mr. Biddle. You are not appraisal engineers ?
Mr. BIDDLE. Have you any idea of what the value of the property was?
Mr. MATCHETT. Only what the records of the Mississippi Power Co. showed.
Mr. Biddle. Well, I say, on your own appraisal; you have no idea at all; you simply know their records?
Mr. MATCHETT. Yes.
Mr. MATCHETT. Yes; we noted an exception to it because of the fact that the Authority had taken property over at approximately 50 percent of the cost and had not at that time themselves made an appraisal of the property.
Mr. BIDDLE. I mean, did you except not merely in the sense of criticizing it, I think we realize you criticized the transaction-but did you carry it as an exception which you could not yet accept in the accounts, and how much was the exception?
Mr. MATCHETT. No; we merely pointed it out.
Representative WOLVERTON. The thought that I have in mind, and which I think is the basis for the inquiry is this, that by selling property at a low figure to the Alcorn Cooperative, it enabled that cooperative to fix a lower rate for consumers than would have been the case if a larger price had been charged to the Alcorn Cooperative.
I am wondering whether—in view of the fact that this arrangement was entered into so quickly after the formation of the T. V. A.whether it was not sold under more favorable circumstances to Alcorn County than the facts justified in order to enable the Alcorn County Cooperative to make a low rate to its consumers, and thereby build up a more attractive picture.
Mr. TULLOSS. I understand that the T. V. A. fixed the rates, and that the property was sold for cost.
Representative WOLVERTON. What do you mean by "cost,” in view of the fact that the price charged Alcorn County only represented 1372 percent of the value or the full price paid?
Mr. Tulloss. In the division of values of the property, as I understand it, this particular property cost the T. V. A. $114,000 plus.
Representative WOLVERTON. How was that determined?
Mr. MATCHETT. That was determined from figures taken from the Mississippi Power Co.'s books, and after revision to put the values on the reproduction basis, or a depreciated basis, and the property sold to the Alcorn County Association was sold at the book cost to the T. V. A.
Representative WOLVERTON. Had the T. V. A. purchased from the Mississippi Power Co. on the book cost?
Mr. MATCHETT. No; they purchased on the-in the final analysis, it amounted to practically a fat 50-percent reduction of the cost.
Representative WOLVERTON. Did T. V. A. make a study of the book costs?
Mr. MATCHETT. Not until after they purchased the properties.
Representative WOLVERTON. So that at the time they paid, as you say, this amount to the Mississippi Power Co., they did it without having made a previous study of the cost?
Mr. Matchett. Not without having made a previous study; some study had been made, but not a thorough study.
Representative WOLVERTON. Not a thorough study. In view of that statement, did you make this criticism?
Mr. MATCHETT. Yes; because it was months before we could get the figures.
Representative WOLVERTON. What information did you obtain as to the kind of study that had been made which you state was not thorough?
Mr. MATCHETT. The information that was available in T. V. A. files showed that it was several months after the purchase that their engineers went out and surveyed the various properties acquired.
Representative WOLVERTON. I thought you said they bought it at a straight 50-percent figure of the book value given to it by the Mississippi Power Co.
Mr. MATCHETT. That is what the final purchase price amounted to, approximately 50 percent of the book value.
Representative WOLVERTON. Did they purchase on that basis in the agreement, or was that the result of the price that they paid?
Mr. MATCHETT. That was the result.
Representative WOLVERTON. Do you understand that the property sold to the Alcorn County Cooperative only had a value of $114,000, notwithstanding the fact that it was producing 30 percent of the revenue of the total property sold?
Mr. MATCHETT. An analysis of the costs of that property made by myself showed that the property was sold for $114,000, which was the cost allocated to it at the time of purchase.
Representative BARDEN. May I have one question?
Representative BARDEN. $114,000 of the cost allocated at the time of the purchase; do you mean by the Mississippi Power Co. or by the T. V. Å. from the Mississippi Power Co. records?
Mr. MATCHETT. By the T. V. A. from the Mississippi Power Co.'s records.
Representative BARDEN. That is the appraisal, or it was the selling price?
Mr. MATCHETT. Yes.
Representative WOLVERTON. The selling price was the total amount, was it not?
Mr. MATCHETT. It was $850,000.
Representative WOLVERTON. Was there any subdivision of that total purchase price into this division that we are now referring to, by which part of it was sold to the Alcorn County Association for $114,000 plus?
Mr. MATCHETT. The $850,000 was analyzed and the separate costs of each property or class of property set up.
Representative WOLVERTON. Was that analysis made before or after the purchase from the Mississippi Power Co.?
Mr. MATCHETT. Afterward.
Representative WOLVERTON. Was that analysis made before or after the sale to the Alcorn County Cooperative?
Mr. MATCHETT. Before.
Representative WOLVERTON. In what respect, if any, did it differ from the original book value given to it by the Mississippi Power Co.? Mr. MATCHETT. I would have to see our analysis of those figures to answer that question.
Representative WOLVERTON. Then you are not able to tell us today whether the price which was given to it by the T. V. A. after it had purchased it was the same or different than it had been carried on the books of the Mississippi Power Co.?
Mr. MATCHETT. That is right. I would have to see those papers to answer that question.
Representative Banden. You do say that all of the property was purchased at approximately 50 percent of what it was carried on the Power Co. books for?
Mr. MATCHETT. That is right; for what they paid $850,000 is supposed to have been recorded on the Mississippi Power Co.'s books at twice that figure, the total of all the property.
Representative BARDEN. Then, on the same basis, what the cooperative bought for $114,000 would have been carried on their books for $228,000?
Mr. MATCHETT. Not necessarily, because that is applying it to individual items. I am speaking of the whole $850,000.
Representative BARDEN. It could just as well have been that way as the other, though, could it not?
Mr. MATCHETT. No.
Mr. MATCHETT. That property could have been worth less or it could have been worth more.
Representative BARDEN. It could have been worth exactly that, couldn't it?
Mr. MATCHETT. It could have; yes.
Representative BARDEN. So you cannot make a statement either one way or the other?
Mr. MATCHETT. Why, the question has been asked how much it was sold for, and the statement was made that it was sold for what it cost the T. V. A. I happen to remember that one particular figure, and the analysis of the property acquired for $850,000 showed that was set up as $114,000 of the total cost.
Representative BARDEN. And sold to them at exactly what it cost? Mr. MATCHETT. At what it cost the T. V. A. Representative BARDEN. Then the question was asked you as to whether or not it was carried at $114,000 on the Mississippi Power Co.'s books?
Mr. MATCHETT. That is right.
Representative BARDEN. And I then asked you if the $114,000 item had been carried in the same manner that the total property was Carried, that the value on the Mississippi Power Co.'s books on that $114,000 would have been $228,000?
Mr. MATCHETT. No; it could have been carried on the Mississippi Power Co.'s books for a million dollars.
Representative BARDEN. I am not asking you what could have been done. I am asking you if the $114,000 worth of property was handled on the Mississippi Power Co.'s books in the same manner that the $850,000 worth of property was carried, then the result would have been $228,000 value?
Mr. MATCHETT. No. As you may probably understand, some property was brought forward
Representative BARDEN. Explain why not?
Mr. MATCHETT. Brought forward to the T. V. A. books at approximately 100 percent of the amount at which it was carried on the Mississippi Power Co. books; others were brought forward at 20 percent, others brought forward at 50 percent.
There are different classes of property. They acquired transmission lines, distribution systems in their entirety, automobiles, and other classes of equipment, substations, transformers; and each of them had a different depreciation rate.
Representative BARDEN. You are not willing to say that it was not carried on the books at that figure?
Mr. MATCHETT. On the Mississippi Power Co.'s books?
Mr. MATCHETT. No; I am not willing to state at what it was carried on their books.
Representative BARDEN. You don't know whether it was carried on them at $114,000 or $228,000?
Mr. MATCHETT. On the Mississippi Power Co.'s books; I don't know.
Representative BARDEN. And it could have been either.
Mr. Biddle. Have you any knowledge of the value of the properties except as shown by the cost on the books of the Mississippi Power Co.?
Mr. MATCHETT. Only as transcribed in the T. V. A. records.
Mr. Biddle. Yes; but I mean you have no independent knowledge, and therefore you have no knowledge as to what extent the costs of the property or the book value on the books of the Mississippi Power Co. reflect true going value or market value, have you?
Mr. MATCHETT. No.
Representative WOLVERTON. Will you turn to that portion of the report which deals with the objections made by the General Accounting Office to the purchase of supplies without proper advertising or competitive bidding, and will you tell me the number of the page? I have here 199 (a) and (b), but when I turn to it, I find I must have made a mistake or else some pages are out, either one or the other.
I think the total amount that you except to on that basis runs into something like about $1,000,000, a little bit over.
While one of your assistants is looking for that, if you haven't already found it
Mr. Tulloss. I have it now; page 200.