t - International Brotherhood Of Electrical Workers

6 2
WIhl,4 TAXES Paid
qliCONSUMER CallRetont
SIOME
of the sweeping criticisms aimed
at the electric power operations of
the Tennessee Valley Authority are
therlselves deserving of some critical examination.
If the TVA activities constitute
no sound basis for comparing the
relative merits of private and public
operation of power utilities, the pub ii
should be so informed. On the other
hand, the experiment is too important
to permit it to be discredited by incomplete,
mistaken or deliberately false
information.
The stakes are high. To appreciate how
high, it is necessary only to reeall the
long history of corporate interloehings
and pyram lingo , tile finan.ci I metaphysics
which characteri ze Iapr te utility
operation. aid the consequent impotence
of effective regulation which finally
brought Cvnglrss to recognize that a
yardstick of powerl opeettion1 is a desirable
alnd ncessary thing. It is helpful
to bear in mind that if the TVA can
produce a sound and reliable standard
LI power utility operations, then in addition
to harness.ing the damaging flood
waters of the Tennessee Valley, the
project may succeed in stopping some of
the equally damaging swollen streams
of uniea :d utility profits.
The issues most commonly raised relate
either to the economic justfieatoion
N;K''
This fact
throws light upon vexed TVA
p)roblemss
of the powel operations, or to, the questrin
of taxation, or to a combmiarisn of
both.
MATIHEMATICAL EROSION
One of the most superficially persuaive,
and at the same time i.maginative.
attacks on the TVA was one recently
syndicated by thei (hicago Tribune Press
Sevice. In challenging TVA's claim that
its power operations had become self
Siupporting up..n reaching an Intcomne of
$15,000,000 annual.ly, this article quoted
a statement that the dams, trnsmission
lines, steam plants and other purchased
aIs;ts had cost almost $30i5,000,000.
Against this, it was asserteld, private
utilities would have to pay 5 per cent
as interest, and set up a depreciation reserve
of 2.5 per cent, amountJng to over
$22,000,000, plus taxes of $2,500,000 and
operating expenses of $5,000,000, making
a total of $30,000,000.
Thus simply was the power operation
if the TVA hrown for a $15,000.000
annual loss! Thi; not very subtle reckonig.
even if the figures .v el' acce pted,
Z 0, I
I T
ITE ITTLE CONSUMER OF EIECTRICITY IN THE TVA REGION
The JounlaI
oe ELECTRICAL WORKERS and Operators
makes he initial mistake of charging
against power operations the entire cost
of navigation improvement. flood-ontrol.
LiOnioi in of national defense, fertilizer
experimentation. etc. Consistency would
require that, to tle TVA power rev-
-fue there be added the many hundred,
of millions of dollars resultng from proteelion
agiehist flood loss, transportation
perils, oil erosion and other tangible
losses, to say nothing of the inreas.ed
sccurity to life and happiness.
DIVID)ENDS WITHOUT
INVESTMENTS
The article also makes the mistake of
assuming that interest on the investment
is properly chargeable to the expense of
operat.ion., instead of r'eognizing it as
a part of profits. The justification of
stockholders' profits delends upon their
furnishing the funds needed for a given
enterprise. If the funds are nevertheless
borrowed, the eF'eet of such borrowing
shouli be to reduce the amounts available
for dividends and not to increase
consumer costs. Admission of any other
theory would furnish ihe utility with a
nmotive for remaining in debt perpetually
so that dividemlns could be collected
on an investment which is also supported
by interest payments.
But eve, if it were otherwise, it i'
interesting to note that the bonds sold
by the municipalities and cooperatives
which buy TVA power secured by power
revenue and not by taxation--were readlfly
marketed at interest rates ranging
fron onily 2.3 to 3.6 per cent instead of
5 per cent used in the above computa-
tion. With respect to depreciation, the
let inconme of the TVA power operations
was d!temiled only after deducting an
average depreciation of 2.1 per cent.
whereas the average, depreciation rate
of 1 5fli private utility companies as reported
to the Securities and Exchange
(on is4h)o i was only 1.66 per cet in*
stead of the 2.5 per cent which it was
stated the utilities apply. The correction
of interest and depreciation rates alone
would he equivalent to a saving of about
$11.000.001, even on the basis of the
foregsing figures.
SMOkE SCREEN
Before considering tile question of taxation.
it should he notedl that the TVA,.
on its presenIt basis. will save consimers
of electricity ill tile area which it serves
approxinm ately $8.000,000 annually. In
1933, before TVA. residential eonsu llers
of the T allessee Electric Power Conpany
paid an average of 5.77 cents per kilowatthour.
in 19g3 the TVA average paid was
109 cents per kilo itt-hour, as against
a inatilnal average of 421 cents. These
figures suggest that the -eal value of the
taxato I.i ssue l.is in its eapacity to di
vit attentilon fromn mote fundami..ental
matters.
Plobabty the niost noteworthy piresnitilfn
of the tax issue was that which
"'ppeared in full-page newspaper tldvel'tise
mits of the Conommonwealth & S lbv-
Crs (CenIpuny promptly after the transfer
Continued oil poge 1C )