Yardstick Explained

Among the charges brought by TVA's ousted Chairman Arthur Ernest Morgan against his enthusiastic young colleague, Director David Eli Lilienthal, was the accusation that Powerman Lilienthal wanted to charge the bulk of TVA's expenses up to navigation and flood control instead of to power development, thus reducing TVA's yardstick for private power rates to pure "subterfuge." Until last week neither utility men nor the public knew just what equations TVA did use in working out its rates. Last week, as the joint House-Senate investigating committee and its counsel, Francis Biddle, squared away to look into this and many another TVA question, the President sent to Congress a long-awaited report from TVA's financial committee on cost allocation. At last they show just where the notches on the Authority's yardstick had been cut.

Of the $94,125,671 which the Authority spent on Wilson, Wheeler and Norris Dams, $49,360,179, or 52% of the cost, has been allotted to power, the rest to flood control and navigation, none for fertilizer or national defense. The 52% figure was arrived at by charging to power the $23,967,177 spent specifically for power development, plus 40% of the cost remaining when this and specific expenditures for flood control and navigation had been deducted. With rates based on this allocation, opined Chairman Harcourt Morgan, TVA's power sales "will be sufficient to cover all of the costs of operation, including depreciation and 3% interest on the investment allocated to power and, in addition, to return in 30 years the entire investment allocated to navigation and flood control."

Lower than utility men would like but higher than they expected TVA to admit, the 52% power allocation for Federal power was notable as the first public recognition that TVA is primarily a power project. It was notable also in that TVA wholesale rates are 60% as high as private power rates, indicating that with a similar capital reduction private utilities could undersell TVA. "One of the most interesting angles of the allocation report," observed the Wall Street Journal, "is the flat assumption that the market will be obtained for all the power in calculating the earning power of the system. The only way they can do that, at present, of course, is to take the business away from the private utilities."

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