Изображения страниц
PDF
EPUB

ORGANIZING AND FINANCING CHARGES

Substantial costs have been incurred by the Treasury Department, the Department of Justice, and other branches and agencies of the Federal Government in financing and serving the Tennessee Valley Authority, which have not been charged to the Authority and do not appear in the Tennessee Valley Authority records. These include financial services by the Treasury Department, legal services by Department of Justice, auditing services by Comptroller General's office, workmen's compensation (injuries and damages), public liability and property damages, War Department expenditures prior to Tennessee Valley Authority.

In addition the Tennessee Valley Authority does not pay social-security taxes, excise taxes, contributions to State unemployment funds, State and Federal gasoline taxes, license fees, etc.

There are no data available, however, which afford a basis for determining definitely in dollars the amount of expenditures and benefits of this character which are properly assignable to Tennessee Valley Authority. It has been necessary, therefore, to make an estimate, more or less arbitrary, of financing and general overhead costs incurred. The amount included is in each case 4 percent of the construction cost and interest during construction. This represents a very conservative estimate of expenditures actually made for which various governmental agencies have assumed liability on behalf of Tennessee Valley Authority.

WILSON DAM AND POWER PLANT

Wilson Dam is the initial unit of the present Tennessee Valley Authority power system. Construction was started by the United States Army in 1918 and, after several interruptions, the dam was completed and put into operation during the fiscal year 1926. The Army operated this dam until July 1933, when it was turned over to the Tennessee Valley Authority.

The total construction cost of the Wilson Dam and Reservoir to the date of transfer was $46,591,156 (6),' of which the amount of $1,263,065 was represented by transmission facilities and substations and the amount of $305,091 was for miscellaneous buildings. The total actual cost to the Government (including interest during construction at 31⁄2 percent per annum and organization, financing, and other overhead charges in the amount of 4 percent) as of July 1, 1933, is shown by the following:

Construction cost -

Interest during construction, at 31⁄2 percent--

Organizing, financing, and other general costs incurred by the Federal Government--

Total investment---.

$46, 591, 156

4,328, 583

2,036, 790

52, 956, 529

The depreciated cost of this property, deducting depreciation at the rate of 2 percent per annum on dams and generating equipment and 4 percent on transmission and distribution facilities from October 1, 1925 (the approximate date when the first unit was placed in operation), to July 1, 1933, is shown by the following:

Total investment to July 1, 1933.
Depreciation for 7 years and 9 months-

Depreciated cost, July 1, 1933____

$52,956, 529

8, 333, 862

44, 622, 667

In March 1937 a valuation committee appointed by the Board of Directors of Tennessee Valley Authority recommended the adoption of a figure of $31,300,000 (7) to represent the value of the Wilson Dam property as of the date of acquisition by the Tennessee Valley Authority, for the purpose of Tennessee Valley Authority bookkeeping. This recommendation was accepted by the Board. This figure does not include interest during construction (which was

1 Figure in parentheses refers to numbered paragraph under "References" on p. 4951.

nevertheless calculated by the committee) and general financing cost.
adjusted valuation follows:

Figure adopted by Tennessee Valley Authority.
Interest during construction, at 31⁄2 percent for period necessary
for reproduction

1

Organizing, financing, etc., 4 percent

Committee valuation, adjusted--

The

$31, 300, 000

1, 951, 868 1,330, 075

34, 581, 943

1 This is the net amount of the interest charge as actually computed by the committee,

Not by way of criticism, but simply to indicate that the above figure of $34,581,943 is not extreme and omits many disputed items, the following is significant. The use of this committee figure represents the omission from Tennessee Valley Authority accounting of a substantial part of the depreciated cost of the Wilson property, as a going concern, as shown by the following: Depreciated cost, July 1, 1933_

Committee valuation, including unabsorbed interest during construction and financing charge---.

Amount of depreciated cost eliminated---‒‒‒‒

$44,622, 667

34, 581, 943

10, 040, 724

The reasonableness of this write-down is in the fact that the Tennessee Valley Authority was taking over a structure which it could have built at less cost in 1933. For this reason over $10,000,000 of actual investment in property, after deducting depreciation for the earlier period of operation, is omitted from the estimated value of the Wilson Dam properties. This writedown is similar to a loss which a private company would cover by a greater depreciation or by financial reorganization to eliminate excess capitalization due to unprofitable investments or other causes.

The result of operation of Wilson Dam for the period of 7 years and 9 months prior to its being taken over by the Tennessee Valley Authority is as follows:

[merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small]

This operating loss of $19,600,358 together with the investment write-down of $10,000,000 was not assumed by the Tennessee Valley Authority when Wilson Dam was taken over. The total loss of approximately $30,000,000 to July 1, 1933, is acknowledged to be unrecoverable.

The point is that with the organization of the Tennessee Valley Authority Wilson Dam "was put through the wringer," and the valuation adopted by Tennessee Valley Authority is an estimate of the fair value at the time this dam was taken over.

No part of this $30,000,000 loss is included in the following analyses and computations. This amount is considered unrecoverable.

WILSON, NORRIS, AND WHEELER DAMS

The cost of these dams as reported in the Tennessee Valley Authority allocation report, including interest during construction at 32 percent per annum,

[ocr errors]

and organization, financing, and other costs to the Federal Government, at 4 percent, is as follows:

[blocks in formation]

Construction of Norris Dam, the second plant in the Tennessee Valley Authority system, was begun October 3, 1933, and the two generating units were placed in operation July 28 and September 30, 1936, respectively. The cost is as follows:

[blocks in formation]

Construction of the third plant in the Tennessee Valley Authority system was started on November 21, 1933. The first generating unit was tested and turned over to the operating department on November 9, 1936, and the second unit was put into service about April 14, 1937. The total cost includes the cost of the lock built by the United States Army Engineers.

[blocks in formation]

The total investment in Wilson, Norris, and Wheeler Dams is shown in the following table:

[merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small]

TRANSMISSION AND DISTRIBUTION FACILITIES

To market the power generated by the Tennessee Valley Authority power plants an extensive system of transmission lines and substations is required as well as other electric plant and equipment. As of June 30, 1938, the amount of the investment in completed facilities (excluding the substations and transmission facilities at the dams which are included in the cost of the dams):

Construction costs'.

Interest during construction---.

Organization, financing, and other costs to the Federal Government_

Total investment-----

$17,477, 488

197, 104

533, 496

18, 208, 088

1 This includes $3,808,242 in work in progress to which interest during construction and organization and financing charges have not been added.

OPERATING EXPENSES AND CHARGES

Operating expenses.-The reported operating expenses charged to the electricity department for the years 1934-38, inclusive, are as follows (9)*: Year ending June 30:

[blocks in formation]

These figures represent the current costs of labor, materials, etc., assigned to "electrical production costs," and do not include depreciation, taxes, interest, and other applicable expenses.

An examination of the expenses for the Authority as a whole makes it clear that not all charges applicable to the production of power have actually been assigned to the electricity department.

Water-control operations.-In particular it is evident that the costs incurred for water-control operations are in large measure assignable to power production. In the independent offices appropriation bill for 1939 the following costs of "water control operations" are given:

[blocks in formation]

This

1 The cost of employee housing at Muscle Shoals is not included in this figure. cost has been charged to the national defense program, maintenance of idle property. In the "Independent offices appropriation bill for 1939," the following cost is given:

[blocks in formation]

These figures represent the net cost of maintaining this property at Muscle Shoals, Ala., after deducting receipts from rents and other sources. They include charges for the maintenance of idle nitrate-plant properties, the cost of which, on the basis of 1939 estimates, amounts to between $70,000 or $80,000 annually.

*Figure in parentheses refers to numbered paragraph under "References" on p. 4951.

E

3

The balance of this expense, amounting to more than $80,000 annually, represents the cost of housing, etc., at Muscle Shoals and is a proper charge to fertilizer and power. In this analysis no amount is included in charges to power for this factor of maintenance of Muscle Shoals properties; and the effect is, of course, an understatement of operating costs.

Viewed as a "joint cost," 40 percent of the cost of "water-control operations" is allocable to power production (in accordance with Tennessee Valley Authority allocation of common investment). The following amounts, 40 percent of the total cost in each case, were charged to power production, although they have not been included by Tennessee Valley Authority in reported power costs:

Cost to June 30, 1936_.
Fiscal year, 1937.

Fiscal year, 1938.

$43, 818

229, 351

274, 400

General administrative expenses.-Another important cost applicable to power production is the administrative and general expense of the Authority as a whole. For the fiscal years 1935-37 and the first half of 1938 this cost totaled $6,837,058, and of this amount only $256,862, less than 4 percent of the total, was allocated and charged to power production. (Moreover, only slightly more than 10 percent of $6,837,058, or $705,664, was assigned to power-production operations and construction of transmission lines, etc., combined.) Granting that construction rather than production of power has been the dominant activity during this period, it seems evident that the amount of general administrative cost charged to transmission-line construction and to power production is ridiculously small, and that for the future, at any rate, a substantial portion of the cost of operating the general offices, the cost of personnel, legal, accounting, and publicity expense, etc.. should be charged to power. No additional amount of this cost is included in this analysis of Tennessee Valley power costs.

Expenses assumed by other Federal agencies.-Operating subsidies in the form of expenditures incurred by other branches of the Government on behalf of Tennessee Valley Authority activities are not included in Tennessee Valley Authority power costs. These expenditures are important from the standpoint of operating expenses as well as that of construction costs. No data are available which make possible a definite estimate in dollars of such charges, but they are of substantial amount. The Tennessee Valley Authority is subject to no Federal pay-roll taxes nor to State levies for unemployment compensation funds. Similarly, the Tennessee Valley Authority does not carry the burden of administrative costs incurred in financing its expenditures, nor the annual audit of its accounts by the Comptroller General of the United States. The Tennessee Valley Authority does not pay the cost of injuries and damages or liability insurance and is free of all excise taxes. As the Tennessee Valley Authority is a major Government activity, elements of the costs of operating the Department of Justice, the executive departments, etc., are associated with this activity and should be taken into account. The fact that precise isolation of these charges is not feasible is no warrant for failure to include a ⚫ reasonable estimate in costs. For purposes of this analysis no amount is included in the charges to power.

Public Works Administration and Rural Electrification Admiinstration loans and grants.-A special form of subsidy for which accounting is not made is found in the effect of the Public Works Administration's loans and grants for power projects. These loans and grants, amounting to approximately $14,046,685 (10), have been used to construct distribution facilities which have served to make available important customers to the Tennessee Valley Authority. In other words, Tennessee Valley Authority business has been promoted in a substantial way by Public Works Administration money, with no charge therefor to the Authority either in the form of development cost or operating expense.

The assistance given to the Tennessee Valley Authority by the Rural Electrification Administration is another example. The total of Rural Electrification Administration allotments which have been made to municipalities and cooperatives in the Tennessee Valley Authority area in Tennessee, Kentucky, Mississippi, and Georgia is $5.343,000. Thus, the Rural Electrification Administration as a Federal agency is helping to build up a load for Tennessee Valley Authority without cost to the latter.

Figure in parentheses refers to numbered paragraph under "References" on p. 4951.

« ПредыдущаяПродолжить »