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A large force was engaged in load building in this county, composed of employees of Tennessee Valley Authority, Electric Home and Farm Authority, and subsidized land-grant colleges.

The outstanding loans by Electric Home and Farm Authority to customers of the association for the purchase of electric appliances were $63,000 in 1936 and $46,000 in 1938. The extension of this credit by the Federal Government to these customers at low interest rates has been very helpful to the association in building up the use of electricity. This assistance is given without expense to the association.

The unit cost of operation as reported, exclusive of power cost, averaged but 2.7 mills per kilowatt-hour in 1937. This is a very low cost compared with other public operations, both in Mississippi and elsewhere in the United States, the average being nearer 6 mills. Distribution cost as recorded also is exceptionally low, with an average of 0.7 mill, while the average of other public plants is 2 mills. Commercial and new business expense is 0.6 mill. To compare with other plants it should be 1.5 mills.

If these low costs are accurately reported, they are possible partly because of the larger per capita consumption which has been developed with Tennessee Valley Authority load-building subsidies, and partly because of the large amount of contributions and subsidies as well as deferred expenses. The low distribution cost would seem to indicate that maintenance is being neglected or delayed. At the conclusion of each fiscal year the association reports to the Tennessee Valley Authority the results of the year's operation. In these reports it gives a net income figure which is represented as profit. However, these reports do not include all costs of operation which the Tennessee Valley Authority “yardstick" rates are supposed to cover, and, on the other hand, do include revenue which is not derived from the "yardstick" rates. Therefore, as indicated in exhibit A, part V (this statement), adjustments have been made by deductions from the reported net income, in order to include all known costs of operation, and only revenue from the "yardstick" rates. This exhibit shows that if the association had reported on the basis outlined above the following results would be given: 1936, a net income of $10,251 instead of a net income of $35,654; 1937, a net income of $18,051, instead of a net income of $41,400; 1938, a loss of $4,287 instead of a net income of $41,340.

On the following table adjustments have been made to reported net income. The Alcorn County Association made adjustments to surplus in 1936. These adjustments were made to correct for omissions in previous years. Because of these omissions, the net income reported in 1935 did not account for all the expenses incurred.

The operating statement for 1935 overstated the revenue by $186.62; understated the insurance expense by $219.58; and understated the tax expense by $2,102.36. The net income reported for 1935 would be reduced by $2,508.56 if the above adjustments are made to the operating statement.

In 1936 the interest expense was understated by $4,029. Therefore the net income reported for 1936 should be reduced by this amount to give an accurate statement of the year's expenses.

Depreciation expense was understated by $2,025 in 1937, if a composite rate of 4 percent, which should be considered a minimum, is used.

In the second part of this table adjustments referred to above have been applied to adjusted net income or loss appearing on exhibit A, part V (this statement).

The third part of the table shows that the association's current financial position is improving, partly at least as the result of load-building efforts and other subsidies by the Tennessee Valley Authority.

Alcorn County Electric Power Association, net income adjustments based on examination of association's annual reports to Tennessee Valley Authority, years 1935-38

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EFFECT OF ABOVE ADJUSTMENTS IF APPLIED TO ADJUSTED NET INCOME OR LOSS

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1 Based on balance sheet as reported by Alcorn County Electric Power Association. NOTE.-Figures in parentheses are losses.

Source: Annual reports to Tennessee Valley Authority by Alcorn County Electric Power Association or years 1936-38.

MONROE COUNTY ELECTRIC POWER ASSOCIATION

This association now operates what was formerly the Smithville Light & Power Co. This power company had been serving a small number of customers with power which they purchased from the municipal plant at Amory.

The lines and facilities of the Smithville Light & Power Co. were purchased by the association with funds loaned by the Tennessee Valley Authority, amounting to $28,707. No payments have been made by the association to reduce this indebtedness.

Additional lines have been added to the system, the first extension being lines built by the Tennessee Valley Authority and operated temporarily by it before being turned over to the association. Later extensions have been made by means of loans by the Rural Electrification Administration. In the 1937 report of the association there is an entry indicating that the Rural Electrification Administration had loaned the association $176,200; however, the 1938 report does not show that all this money has been spent.

Apparently the Tennessee Valley Authority is building additional lines for the association and is to be repaid out of the funds advanced by the Rural Electrification Administration. There is a notation on the balance sheet for 1938 to the effect that the association owes the Authority $64,715, to be paid from Rural Electrification Administration funds.

The association held for collection in 1936 Electric Home and Farm Authority contracts amounting to $2,405; in 1938, $9,912. Those are loans made by the Electric Home and Farm Authority to customers of the association for the purchase of electric appliances.

At the present time the association is serving approximately 700 customers. Bills for service are based on the regular Tennessee Valley Authority "yardstick" rates plus the usual surcharge of 10 percent on all customers except residential. In addition there is an amortization charge of 1 cent per kilowatthour per month, with a minimum of 25 cents and a maximum of $1. This is added to the bills of all customers.

If all definitely known costs which "yardstick" rates should cover had been charged to operation, and only revenue from "yardstick" rates included, the reports for the fiscal years ending June 30, 1937, and June 30, 1938, would have indicated the following (details are given in exhibit A, part V, this statement): 1937, a loss of $7,182 instead of a reported loss of $3,409; 1938, a loss of $7,686 instead of a reported net income of $614.

The report of the association for the fiscal year ending June 30, 1938, shows the current financial position to be as follows:

Current liabilities exceed current assets by $60,545. Current ratio (assets to liabilities) is 1 to 8.3. This alarming condition can be accounted for only by the fact that the association reports under "Current and accrued liabilities" an item marked "Accounts payable," amounting to $67,516. Of this, $64,715 represents the amount the association owes Tennessee Valley Authority for plant additions made during the year. This debt the association will pay from funds advanced by the Rural Electrification Administration. The association will then, no doubt, transfer the account to long-term debt.

PONTOTOC ELECTRIC POWER ASSOCIATION

This association was organized by Tennessee Valley Authority to take over the distribution facilities in Pontotoc and Calhoun Counties. These facilities had been purchased from the Mississippi Power Co. by the Authority.

The association's operations have been enlarged and it now serves approximately 1,200 customers with a considerable amount of rural load.

The Tennessee Valley Authority has contributed a great amount of assistance to the association both in the way of load building and loans for extensions and improvements.

The total of outstanding loans by Tennessee Valley Authority to the association was $142,332 in 1936, in 1937 it was $142,328, and in 1938 it was $149,879. Electric Home and Farm Authority contracts held by the association in 1936 amount to $17,508. In 1938 they had increased to $27,521. These are loans made by this Federal agency to the customers of the association for the purchase of electric appliances. These loans are made at a low interest rate.

A surcharge of 10 percent is added to the regular Tennessee Valley Authority rates for all customers except residential. This addition is made for the development period. This is a subsidy to residential users, the ones who have been publicized by the Tennessee Valley Authority as paying their own way.

Also an amortization charge of 1 cent per kilowatt-hour for the first 100 kilowatt-hours per month is added to the rates of all customers.

In exhibit A, part V (this statement), are shown the results of the association's operation after adjustments have been made to include only those definitely known items of expense that the rate should cover, and to eliminate all revenues except those from T. V. A. "yardstick" rates.

The schedule shows the following results: 1936, a loss of $6,213 instead of a net income of $512 as reported; 1937, a loss of $8,287 instead of a net income of $2,372 as reported; 1938, a loss of $10.110 instead of a net income of $7.539. From an examination of the association's annual reports to the Tennessee Valley Authority the following findings were made. Details appear on table following the report of findings.

In 1937 an adjustment of $691 was made against surplus for unpaid Federal excise tax. Evidently this is applicable to prior years. It is properly a charge against operations.

Tax expense was understated by $1,275 in 1936. The association did not charge all of current year's accrual to current year's expenses.

Interest expense was understated by $702 in 1936.

In March 1935 an expense of $1,902 in connection with storm damage was incurred and recorded as a deferred charge to be amortized over a period of 6 years, but the association did not start amortizing this until 1937. Had it started in 1936 and made the charge against operation, the reported net income of $512 for that year would have been less by $317.

When the association started amortizing this loss in 1937 it was charged directly to surplus; thus the expense does not appear against operation. For the operating statement to present a true picture it is only proper that the amortization of this storm damage be a charge against operations.

There is an additional depreciation expense of $997 for 1938 to bring the composite rate to the necessary minimum of 4 percent.

In the second part of the table are shown results if above adjustments are added to net losses given in exhibit A, part V (this statement).

A study of the financial position of the association indicates that the current liabilities exceed the current assets, while the reverse should be the case to show a sound operation.

Pontotoc Electric Power Association, net income adjustments based on findings of examination of association's annual reports to Tennessee Valley Authority, years 1936-38

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EFFECT OF ABOVE ADJUSTMENTS IF ADDED TO ADJUSTED NET LOSS PER EXHIBIT

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Source: Annual reports to Tennessee Valley Authority by Pontotoc Electric Power Association for years 1936-38.

PRENTISS COUNTY ELECTRIC POWER ASSOCIATION

This association is operating a distribution system which was purchased by the Tennessee Valley Authority from the Mississippi Power Co. and later sold to the cooperative.

The association serves approximately 1,000 customers located in several small towns and the adjacent rural area. Considerable effort has been expended by the Tennessee Valley Authority to develop the electric load of the association. In the early days of the operation, intensive sales campaigns were carried out under the guidance of the Authority's promotional experts, and largely without charge to the association.

The outstanding loans of the Electric Home and Farm Authority to the association's customers amounted to $24,878 in 1936 and $19,794 in 1938. In 1936 the association owed the Tennessee Valley Authority $85,769; in 1937 the loan was $76,770; and in 1938 it was $62,455.

A 10-percent surcharge on all except residential customers and an amortization charge of 1 cent per kilowatt-hour for the first 100 kilowatt-hours is added to the regular Tennessee Valley Authority "yardstick" rates.

In exhibit A, part V (this statement), adjustments have been made to net income so as to reflect more truly the results of the operation for the years 1936, 1937, and 1938. This has been done by deducting from reported net income other definitely known costs that should be charged to operations and also deducting revenues not derived from "yardstick" rates.

This exhibit shows the following results: 1936, a loss of $4,159 instead of a reported net income of $4,048; 1937, a loss of $3,986 instead of a reported net income of $6,372; 1938, a loss of $3,086 instead of a reported net income of $13,595.

The composite rate of depreciation in 1938 was 3.73 percent. This is believed to be insufficient. The composite rate should be at least 4 percent; therefore the depreciation reported for 1938 is understated by $590. Adjustment has been made for this in the following table:

Prentiss County Electric Power Association, net income adjustments based on examination of association's annual reports to Tennessee Valley Authority, years 1936-38

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EFFECT OF ABOVE ADJUSTMENT IF ADDED TO ADJUSTED NET LOSS PER EXHIBIT

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1 Based on balance sheet as reported by Prentiss County Electric Power Association. NOTE.-Figures in parentheses are losses.

Source: Annual reports to Tennessee Valley Authority by Prentiss County Electric Power Association for years 1936-38.

TISHOMINGO COUNTY ELECTRIC POWER ASSOCIATION

The customers of this association had been served by the Mississippi Power Co. before the company sold its facilities in this area to the Tennessee Valley Authority. The Authority in turn immediately resold them to the association. The association serves approximately 761 customers in the town of Iuka as well as a small rural area. An amortization charge of 1 cent per kilowatt-hour for the first 100 kilowatt-hours and a 10-percent surcharge on all but residential customers is added to the regular Tennessee Valley Authority rates.

The usual assistance, largely without charge, has been given the association, particularly load-building and credit extensions, both by Tennessee Valley Authority and other agencies.

Electric Home and Farm Authority loan contracts held by the association for collection were as follows: 1936, $11,883, 1938, $7,928.

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