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tion, and interest on investment. The following is typical of such representations (18)':

"Residential consumers being served by municipalities distributing Tennessee Valley Authority electricity pay an average of approximately 2.2 cents a kilowatt-hour-less than one-half the national average charged by private utilities. How have these municipalities fared in buying Tennessee Valley Authority power at about 6 mills and reselling it at yardstick' rates which reduce the cost of electricity to their citizens from 40 to 60 percent? They have been able to meet all the costs of operation, taxes, amortization, depreciation, interest on investment, in fact every legitimate charge faced by a private utility and still return from 20 to 25 percent of all gross revenue to surplus

WAGES

The low distribution costs claimed for the so-called "yardstick" communities to some extent can be attributed to the scale of wages paid to employees.

Employees of "yardstick" distribution systems in the State of Mississippi, for illustration, receive on the average about a third less than Tennessee Valley Authority employees for work involving similar responsibility and requiring equal technical knowledge and skill.

Fairness and honesty with the public require that in suggesting comparison of the rates and operating costs in "yardstick" communities with other American cities mention be made of the fact that wage rates in these communities are not only below the level of rates prevailing in the area, but are among the lowest in the country. These facts are never mentioned in Tennessee Valley Authority "yardstick" publicity.

THE "YARDSTICK" OPERATIONS IN THE STATE OF MISSISSIPPI

Speaking in Nashville, Tenn., on November 7, 1933, Mr. Lilienthal said: "This public operation is to serve as a 'yardstick' by which to measure the fairness of electric rates. * * *

"What the Tennessee Valley Authority is required to do in its power program is to set up an area for power operations. That area is to be on a comparable basis with typical private operations. To set up such a 'yardstick' the Authority obviously must undertake to serve an area which is large enough and sufficiently concentrated, and with an adequately diversified industrial, commercial, and residential load to provide a fair test * (T. V. A. release, Knoxville, November 7, 1933, p. 4).

Again, speaking in Boston, Mass., on April 24, 1934, before the League of Women Voters, Mr. Lilienthal said:

"The first duty of the Tennessee Valley Authority in its power program is to set up what the President has called a 'yardstick' by which to measure the fairness of electric rates *

* *

"What the Tennessee Valley Authority is required to do in its power program is to set up an area for power operations (Tennessee Valley Authority release, Knoxville, April 25, 1934, p. 3). Speaking before the Tennessee Valley Institute of the University of Chattanooga on April 21, 1934, Mr. Lilienthal said: We are expending, and expect to expend, millions upon millions of dollars in construction activities, all looking toward the development of more and more power. * * (Tennessee Valley Authority release, Knoxville,

*

April 22, 1934, p. 7).

On September 26, 1934, speaking over a Nation-wide radio network from Washington, D. C., Dr. H. A. Morgan said:

*

* You know that the development of this electric power is to be a sort of yardstick with which to determine whether the rates charged in other parts of the country are fair and as low as they reasonably can be (Tennessee Valley Authority release, Knoxville, September 27, 1934, p. 6).

AN AREA FOR FAIR COMPARISON

*

The area in the State of Mississippi served by the Tennessee Valley Authority power system was chosen as an example, since funds and time were not available to study every "yardstick" community account. This area was chosen be

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

cause it offers the best possibilities for a fair analysis of the electric power operations of the Authority and the "yardstick" communities retailing Tennessee Valley Authority power. Here the Authority has an integrated transmission system serving a compact area with power received from the Tennessee Valley Authority generating system substation at Pickwick Landing Dam.

In this extensive area in Mississippi, ceded to Tennessee Valley Authority the terms of the Commonwealth and Southern Corporation contract of January 4, 1934, the Tennessee Valley Authority has been permitted to develop the electric power load without interference; there has been no competition from the power companies, and there has been no interfering litigation. So it cannot be charged that the development of operations in this area was delayed by causes beyond the control of the Tennessee Valley Authority.

At present the Tennessee Valley Authority is selling power wholesale in this area to 5 municipalities serving populations varying from 2,200 to 6,500 and to 8 cooperative associations. These "yardstick" communities in turn serve 11,809 residential, 3,278 commercial, and 49 industrial consumers in urban and rural areas. This set-up offers a good cross section of the various uses of electricity. Most of these communities have been receiving Tennessee Valley Authority service since shortly after the Tennessee Valley Authority was established. A contract was entered into by the Tennessee Valley Authority and the Commonwealth and Southern Corporation under date of January 4, 1934, whereby the Authority purchased from the Mississippi Power Co., a subsidiary of the Commonwealth and Southern Corporation, certain electric lines and generating plants. Some of these lines the Tennessee Valley Authority sold to cities and cooperative associations. having power contracts with the Tennessee Valley Authority. In this way the Tennessee Valley Authority obtained an immediate load for the transmission lines they retained. The Tennessee Valley Authority paid the Mississippi Power Co. $850,000 for these electric properties in Mississippi. Some of the lines as well as the generating plants are still in the possession of the Tennessee Valley Authority.

At the time this agreement was made the Tennessee Valley Authority had no way to supply power directly to this area, and so arrangements were made with the Commonwealth and Southern Corporation to furnish power on an interchange basis. The Tennessee Valley Authority supplied power to the Commonwealth and Southern Corporation at Wilson Dam in payment for power delivered in Mississippi.

In this area the Tennessee Valley Authority, in cooperation with the “yardstick" communities, has engaged in extensive load-building programs. A large staff of Tennessee Valley Authority and Electric Home and Farm Authority employees has been stationed here to assist in developing the load and in furthering the use of electricity. Elaborate promotional programs have been carried out by both agencies.

Many extensions and improvements have been made, and the Tennessee Valley Authority now has a sizable integrated system in Mississippi.

This system supplies whoelsale power to towns and cooperative associations, five of which were municipally owned before Tennessee Valley Authority. These have all been enlarged through loans or grants from one or more of the following agencies: Civil Works Administration, Public Works Administration, Rural Electrification Administration, or Tennessee Valley Authority. The other distribution systems receiving Tennessee Valley Authority service were either purchased from power companies and later enlarged, just as were the municipal systems, or were built by Tennessee Valley Authority and sold to associations organized for the purpose of acquiring them.

At the close of the fiscal year June 30, 1938, the reported investment of the Tennessee Valley Authority in the Mississippi area was $1,885,949. The map included herewith shows in some detail the properties, consisting of transmission and distribution lines, substations, and four generating plants. Only two of these generating plants are kept in operating condition.

A great deal of money has been spent by the Tennessee Valley Authority in extending and rehabilitating the system purchased. Large feeder lines were extended into the area from Pickwick Dam, and large substations have been erected to reduce the incoming voltage for use by "yardstick" communities. The present network now has sufficient capacity to more than serve any load that may be expected immediately. As stated before, there are now 13 cities and associations buying Tennessee Valley Authority wholesale power, and the present permitted peak demands under power-purchase contracts is 27,585 kilowatts. The Tennessee Valley Authority has installed substations with capacities of

48,125 kilowatt-amperes (38,500 kilowatts) to serve these contractors. The total of individual maximum demands of these purchasers for last year was only 12,806 kilowatts, or approximately 33 percent of Tennessee Valley Authority installed substation capacity in the State.

ANALYSIS OF "YARDSTICK" COMMUNITIES IN MISSISSIPPI

Since this Mississippi area offers the best proving ground to test the practical application of the Tennessee Valley Authority "yardstick" rates, an analysis of 11 of the 13 cities and associations has been made. Two of these were not considered because they have been receiving Tennessee Valley Authority service but a short time (Tippah Electric Power Association since April 1, 1938, and Northeast Mississippi Electric Power Association since May 16, 1938).

The analysis shows the results to the citizens in the communities receiving Tennessee Valley Authority electric service as well as the results to the Federal Government. In this study debits against these Mississippi operations have been recorded because of subsidies or contributed services that should be supported by the rates.

Before the American Political Science Association at Chattanooga, Tenn., on December 29, 1935, Mr. Lilienthal said:

"As you can see, under this law the Authority was faced with the problem of devising a price for electricity which would result in maximum use and yet would return to the Federal Treasury all the costs of producing and distributing that energy.

"The component costs of producing and distributing electricity were to be recorded in such a way that they would form a useful and challenging basis of comparison-a yardstick of comparison-with costs in private and public operations in various parts of the country. In using such a yardstick of costs, due weight must, of course, be given to the underlying variable which affect every fair comparison of costs and rates" (Tennessee Valley Authority release, Knoxville, December 30, 1935, p. 7).

From this it will be noted that the Tennessee Valley Authority rates are to be a "yardstick" by which cost of electric service can be measured and compared, and that these rates are to include all costs.

Therefore, to pass judgment on the adequacy of this "yardstick" rate it is essential that all costs be included, but only proper charges against operation be made, and also that only revenue from the sale of electricity be considered.

When an electric rate is established it is expected to provide funds needed to support the operation as they are at that time. As use builds up and costs decline the rate may be reduced. It is unsound and unprecedented to establish what may be called the ultimate rate for initial operation, but apparently this is exactly what the Tennessee Valley Authority did when the "yardstick" rates. were established. Then, to assist in making up shortage in the "yardstick" a surcharge has been added for the developmental period; also an amortization charge for paying off indebtedness of the electric distribution systems of these "yardstick" communities. The public has not generally been made aware that these charges are in addition to the "yardstick" rates.

In the income accounts of these Mississippi communities, published in the annual reports of the Tennessee Valley Authority, there is given a figure in each case of net income or net loss based not upon "yardstick" rates but upon "yardstick" rates plus nonoperating income and surcharges, where such additional charges are collected. Both of these charges are additional costs paid by consumers over and above "yardstick" rates. In these reports, of course, no account is taken of subsidies from Tennessee Valley Authority or other publicfunds. Unfortunately, information is not available in order to justify an estimate in dollars. These subsidies must necessarily be ignored, although they operate to reduce net income or to increase losses very materially. Fortunately, two of them may be stated in dollars. One is promotional expenses paid by the Tennessee Valley Authority and not charged to communities; the other is the loss of public money on Tennessee Valley Authority power sales which should be allocated to these communities, but which has not been charged to them.

The following tables show the results of operation, if all known costs were charged against income when income includes not only revenue from the "yardstick" rates, but also revenue from special surcharges and nonoperating functions. In Holly Springs and Okolona the nonoperating income also includes collections from amortization charges.

Statement of adjusted net income or net loss of Mississippi "Yardstick" communities taking into account only known subsidies and ignoring subsidies with respect to which there is no available data to justify a statement in dollars,

Sources: (1) "Yardstick" communities' annual reports to Tennessee Valley Authority; (2) see exhibit C, pt. V; (3) see exhibit F, pt. V (this statement).

NOTE.-Special amortization charges were collected by all the above communities except Amory and Tupelo. Except only in the cases of Holly Springs and Okolona these collections do not seem to appear in the operating statements. Thus, the results shown in the above table are comparatively more favorable to Holly Springs and Okolona.

Total Inches Up To Distribution System 12.15

Total Inches Up To Distribution System Without Standby 10.85
Total Inches In Distribution System 28.7