Development deficit.-The accumulated deficit from power operations to June 30, 1938, amounts to approximately $9,446,605. Even though there will be additional deficits accumulated by the beginning of the fiscal year ending June 30, 1942, which will have to be provided for, this computation includes only the annual charge to amortize the amount of $9,446,605 in a 25-year period. Revenues. When the four dams under construction as of July 1, 1938, are finished and placed in operation with the necessary transmission system, the construction period will have been completed. With respect to still other dams now under construction, present plans do not call for any installation of generating equipment at the outset. The fair and practical test of the revenues to be expected under the present rate structure, and the adequacy of the rates, must accordingly be based on a study of the potential revenues from, and operating expenses and charges of, the system of seven dams and plants now completed or in construction and the related transmission facilities, rather than on a study of a hypothetical larger system.

Potential revenues of seven-dam system.-According to Tennessee Valley Authority estimates, a generating system with a total of 697,000 kilowatts of installed capacity at the seven dams will be in full operation not later than the beginning of the fiscal year 1942.

While the average rates per kilowatt hour received in 1938 are indicative of the returns which may be expected for future years, an analysis of all the present contracts is helpful in determining what volume of gross revenues can be expected at the end of the present construction period and what the net earnings (if any) will be under the existing rate structure.

On pages 1000 and 1001 of the "Independent offices appropriation bill for 1939" are shown the Tennessee Valley Authority's estimates of load which the Authority expects to be serving and the total each customer will use in the year 1942. Uusing these estimates for expected load and computing, by an analysis of the individual contracts, the probable revenue from each customer, it is possible to determine the probable total revenue in the fiscal year 1942 from all customers with whom contracts have been made. This amounts to a total of $8,619,070. Provided sufficient new customers can be obtained, or there is an increase in present customer loads or extensions of the contractual period for secondary-power sales, so as to make possible the sale of the total potential output, the total revenue would amount to $9,919,209.

It should be noted that under the present contracts the amount of secondary power which the Tennessee Valley Authority has contracted to sell is nearly double that which is available from the seven dams. Therefore, under present -conditions, a considerable amount of primary power must be sold as secondary. Potential sales of electric energy in the fiscal year 1942

NOTE.-The potential capacity of the 7 dams in operation as of 1942 will be 2,995,920,000 kilowatt-hours firm power and 512,460,000 kilowatt-hours secondary power. Transformation and transmission losses of approximately 10 percent will cut the amount of energy available for sale to 2,696,328,000 kilowatt-hours firm power and 461,214,000 kilowatt-hours secondary or a total of 3,157,542,000 kilowatt-hours.

Even if all the potential energy could be sold it would not be practicable to contract for 100 percent sales of the potential primary power; a margin of safety is necessary. But for purposes of this comparison it has been assumed that all potential power might be sold.

REFERENCES

(1) Compiled from figures contained in Investment of the Tennessee Valley Authority in Wilson, Norris, and Wheeler Projects, Document No. 709, House of Representatives, Seventy-fifth Congress, third session.

(2) Same as (1).

(3) Same as (1).

(4) Compiled from figures given on page 279, Hearings before the Committee on Military Affairs, House of Representatives, Seventy-fourth Congress, first session, March 28 to April 10, 1935.

(5) Same as (1).

(6) Report of Valuation Committee to the Board of Directors of the Tennessee Valley Authority, March 10, 1937.

(7) Same as (6).

(8) Tennessee Valley Authority, Department of Operations, Monthly Report, June, 1938.

(9) Annual Report of the Tennessee Valley Authority for the Fiscal Year Ended June 30, 1936.

Tennessee Valley Authority, Department of Operations, Monthly Report, June, 1938.

(10) Hearings before the Subcommittee of the Committee on Appropriations, House of Representatives, Seventy-fifth Congress, second session, on the Independent Offices Appropriation Bill for 1939.

(11) Depreciation: A Review of Legal and Accounting Problems, Public Service Commission of Wisconsin, October 11, 1933.

(12) Same as (8).

(13) Same as (1).

(14) T. V. A. Electricity Rates: A Statement of Facts, Information Division, Tennessee Valley Authority, Knoxville, Tenn.

(15) Same reference as (4).

(16) Same reference as (4).

(17) Hearing before the Subcommittee of House Committee on Appropriations in Charge of Deficiency Appropriations, Seventy-fourth Congress, second session, part I, 1936.

(18) Same as (14).

PART V. EXHIBITS AND SCHEDULES

EXHIBIT A

The tables in this exhibit show the results of operation of 11 of the "yardstick" communities in Mississippi, taking into account all definitely known costs and subsidies as expenses and only revenue from Tennessee Valley Authority "yardstick" rates.

There are two tables for each community, the first showing the net income reported to the Tennessee Valley Authority and the public from which deductions for known subsidies and for revenues from sources other than the "yardstick" rates have been made.

The second table shows an operating statement in which the items of expense have been adjusted to include all definitely known costs and subsidies and the revenue item adjusted to include only revenue from "yardstick" rates.

SOURCES OF MATERIAL USED IN THE TABLES COMPOSING EXHIBIT A

1. "Results of operations as reported": From the "yardstick" communities' annual reports to the Tennessee Valley Authority.

2. "Nonoperating revenue": Ibid. With the exception of New Albany, Okolona, Tupelo, Alcorn County, Pontotoc, Prentiss County, and Tishomingo County in 1937, where these figures were taken from the Tennessee Valley Authority Annual Report for 1937.

115943-39-pt. 11- -27

3. "Tennessee Valley Authority promotional subsidy": See exhibit C, this statement.

4. "Surcharges": See exhibit B, this statement.

5. "Loss on power sales in Mississippi": See exhibit F, this statement.

6. "Kilowatt-hours sold": From the "yardstick" communities' annual reports to the Tennessee Valley Authority.

7. "Average number of customer": Obtained by computing the yearly average from monthly totals given in the Tennessee Valley Authority electricity department's monthly reports.