The Seamy Side of TVA

August 1, 1955

One wonders whether the hue and cry that Democrats have raised over an alleged Dixon-Yates “scandal” is intended to divert public attention away from the failure of TVA and from the deceptions practiced to put over and extend that and many other socialized power projects.

In the 218-page report of the Hoover commission, and in the 1,783-page report of the task force under Admiral Moreell on which the final commission report was in large part based, we now have a mine of material exposing some of the misleading estimates and unkept promises by which Congress and the taxpayers were induced to undertake many public-power projects. There is not space enough here to cite more than a few random examples from the Hoover-commission report.

Among these are the persistent underestimates of government engineers concerning the real cost of these projects. “In the field of reclamation the original estimated cost of the 90 projects (outside the Missouri Basin) was $1,580 million, and in 1952, the estimated cost at completion was $3,317 million. The cost of the reclamation portion of the Missouri River Basin Project was estimated in 1944 at $850 million. In 1953, the same work was estimated at $3,717 million, an increase of about 343 percent.” Only a small percentage of these increases was owing to soaring prices.

“A report to the House Committee on Public Works, rendered by its subcommittee to study civil works, in December 1952, states that the TVA reports its costs had exceeded its estimates by only 3.1 percent. But an examination of a 1936 report of the Authority showed that later estimates for Kentucky Dam exceeded the original by 93.6 percent; for Fort Loudoun Dam, by 74.7 percent; and for Fontana Dam, by 137.7 percent.”

In a group of Bureau of Reclamation proposed projects the construction costs of irrigated land averaged $509 per acre for land that had an average market value of less than $150 per acre even with the full water supply.

Under the Constitution, Congress has authority to control navigable streams and floods, but no discoverable right to build hydroelectric power plants. This has led to the development of the shrewd doctrine that hydroelectric power may be developed and sold by the Federal government to the extent that it is “incidental” to flood control and navigation. It has also led, as the Hoover-commission report points out, to a bookkeeping allocation of all the costs possible to flood control and irrigation rather than power.

The Hoover task group laid down certain criteria for determining the real success or failure of Federal power projects: They ought to earn 3 percent interest annually to insure return of Federal borrowing costs. The investment should be properly amortized. The projects should pay local taxes equal to those of private utilities. Earnings of Federal projects should include an amount equal to the Federal tax exemptions, based on the tax payments of private utilities. With such an honest “yardstick,” the TVA would show a deficit of $30 million in the fiscal year 1953 and an accumulated deficit up to that time of $100 million. The principal groups of Federal projects would show a cumulative deficit of $332 million.

The Hoover commission points out that the Federal taxpayer is subsidizing these projects. Less than 10 percent of the total population will be directly benefited even when the programs are completed. This means that 90 percent of citizens are forced to subsidize an arbitrarily favored 10 percent. The task group estimates that the Federal projects are selling power on the average at about 50 percent below its real cost.

Finally, while hydroelectric power plants were built under the pretense that they were “merely incidental” to navigation and flood control, the TVA “has now embarked upon an expansion of its power-generating capacity beyond hydroelectric plants by the building of steam plants.”

The moral indignation of the zealots for socialized power at the Dixon-Yates contract seems misplaced.