Exceptions & Explanations

Last week the Tennessee Valley Authority, in humbler mood than usual, bobbed up before the House Military Affairs Committee to ask for a few additional small favors. Two years ago Congress gave the New Deal everything it wanted just for the joy of giving. Now Federal agencies like NRA, AAA or TVA are lucky to get grudging crusts on Capitol Hill. Thus it was no great surprise when an ungenerous House Committee last week turned and snarled at TVA's requests for several amendments to its basic act. One amendment would increase TVA's right to issue bonds, guaranteed in principal and interest by the U. S., from $50,000,000 to $100,000,000. Another would enable it to get around Federal Judge Grubb of Birmingham, Ala. who had ruled that TVA's authorization to sell surplus power did not give it the right to go into the general business of selling electricity and electrical appliances (TIME, March 4).

To start things off before the House Committee, Arthur V. Davis, board chairman of Aluminum Co. of America, appeared to tell the following tale of TVA ethics:

Aluminum Co., planning to build a plant on the Little Tennessee River (tributary of the Tennessee), had begun buying a power site. When 80% of the land for a reservoir had been acquired, TVA stepped in, bought two small tracts for "national park purposes," one of a few acres, the other 30 ft. by 50 ft. For the more minuscule parcel of land TVA paid $150 (compared to $4 or $5 paid by Aluminum Co. for similar land nearby) but it was worth it, for Aluminum Co. could not legally flood two "national parks."

"I don't know," said Mr. Davis mildly, "what they have in mind, but I assume they want to get in a good trading position."

Dr. Arthur E. Morgan, teacherish chairman of TVA, called by the committee, explained: "We bought the land so we could come into their plans and work out with them a unified program. It was done merely so we could cooperate with them rather than work in conflict with them."

Representative Numa Francois Montet of Thibodaux, La. did not like that explanation. Said he: "That's what the land shark does. . . ."

But a much bigger explaining job for Dr. Morgan and friends was an official TVA audit prepared by the one man who has power to pry into all the books and accounts of every New Deal agency-- Comptroller General John Raymond McCarl. His job is as nearly politics-proof as can be, for only Congress can remove him during his 15-year term and he is not eligible for reappointment.* And it was a notable show of independence for Mr. McCarl to be critical of TVA, for the soft-spoken Comptroller General with his flowing Windsor tie was once secretary, close friend and political follower of TVA's best patron. Senator George William Norris of Nebraska.

Mr. McCarl's 394-page report on TVA for fiscal 1934 was issued in four copies. One was whisked out of sight at the White House, two went to TVA headquarters. The fourth remained in the Comptroller General's Office, subject to inspection by Congressmen but not the general public. Representative Andrew Jackson May of Prestonsburg, Ky., a member of the House Military Affairs Committee, visited the Comptroller General's office with a consulting engineer named John E. Cassidy who made extracts from the report which last week came out piecemeal at the Committee hearings.

The Comptroller General's auditing sleuths took "exception," much of it on technicalities, to $2,000,000 of TVA's expenditures. Although the law ordered TVA to establish its head office at Muscle Shoals and money was spent reconditioning offices there, Mr. McCarl found that TVA had moved its headquarters to Knoxville where it paid $36,000 a year rent. Then TVA leased telephone lines, hired cars, bought airplanes to keep in touch with Muscle Shoals. Although TVA owned 223 automobiles and light trucks, its bill for hired passenger cars averaged $8,000 a month. In one period 53 TVA-owned cars drove less than 1,000 miles while the hired cars drove 114,000 miles at 7-c- a mile rental. The cash registers of TVA's commissaries, cafeterias, etc. recorded receipts differing from a few cents to several hundred dollars a day from the actual cash receipts, the differences being explained by such entries as "cash stolen," "children playing with register."

TVA bought a $10,000 herd of dairy cattle. For some cows it paid $950 although they had been offered previously for $200 apiece. The rich milk from the expensive herd was then traded for low-grade milk from commercial dairies. "Just why ... is not apparent," said the McCarl report.

Dr. Morgan hotly defended TVA, declared the report unfair, insisted everything could be explained. Said he: "The principal difficulty of Government operation of any project is the tendency toward inflexibility of management. . . . We did our best to get around it. ... It apparently boils down to a question of whose judgment shall decide questions on the job--the engineers or the auditors."

All this Mr. McCarl admitted, pointing out that his report would be finally revised after hearing TVA's answers. Perhaps everything could be explained satisfactorily.

But it will be difficult for TVA to explain some things in the McCarl report: 1) TVA expenses were $12,438,000, TVA receipts $1,345,000; 2) the Government turned over to TVA dams, electric and nitrate plants and other property valued at $133,000,000 which reappeared on TVA's books valued at only $51,000,000, with no reason given; 3) TVA wrote off as depreciation 10% of gross sales, or a total of $82,618 whereas Mr. McCarl figured that, even if TVA's low valuation on plant and equipment were accepted, at least $1,000,000 a year ought to be charged for depreciation.

These things struck at the heart of the argument for TVA as a yardstick for private power rates. By its write-down of 62% on plant and equipment TVA can make a showing of breaking even on rates that a private company could offer only at loss. Similarly with depreciation, on the present 10%-of-gross basis, TVA will have to get more than ten times as much revenue to make an adequate depreciation allowance. Mr. McCarl commented: "There is very little basis for assuming that revenues will ever reach such a figure."

Representative Maury Maverick of Texas was incensed at these facts from Mr. Cassidy's summary of the McCarl report. Demanding that Mr. Cassidy be thrown out of the Committee room, he yelled: "An immense crooked lobby is trying to defeat TVA. It is rotten and disgraceful!" He charged that the summary was false: "If I weren't in Congress and it would not be undignified to say so, I would say it's lousy." David E. Lilienthal, TVA director, was called to the stand and declared the Cassidy summary "misleading." Comptroller McCarl, also called, said the summary was correct. For climax Representatives May and Maverick all but had a fist fight. Then the Committee took a vote, decided 13-to-12 to table the TVA bill for more power.

*Appointed by President Harding, Comptroller General McCarl's term expires July 1, 1936.

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