oversight

Examination of Financial Statements of the Tennessee Valley Authority for Fiscal Year 1970

Published by the Government Accountability Office on 1971-03-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                   30

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REPORT TO THE CONGRESS




Examination Of Financial Statements
Of The Tennessee Valley Authority
For Fiscal Year 1970,-,,,,,,




BY THE COMPTROLLER GENERAL
OF THE UNITED STATES




  75bfif
   c   *-   .




REPORT TO THE CONGRESS




Examination Of Financial Statements
Of The Tennessee Valley Authority
For Fiscal Year 1970B-l,,,50




BY THE COMPTROLLER GENERAL
OF THE UNITED STATES
              COMPTROLLER     GENERAL       OF    THE    UNITED   STATES
                            WASHINGTON.      D.C.   20548




B- 114850




To the President   of the Senate and the
Speaker  of the House of Representatives

       This is our report       on the examination      of the financial
statements     of the Tennessee      Valley Authority      for fiscal   year
1970, made pursuant        to the Government       Corporation      Control
Act (31 U.S.C. 841).       We have included       as an appendix      to this
report   a description     of TVA’s   retirement     system together
with financial    statements     and the certified    public accounting
firm’s   opinion thereon.

        Copies of this report   are being sent to the Director,
Office of Management       and Budget; the Secretary    of the
Treasury;     and the Chairman    of the Board of Directors
of the Tennessee     Valley Authority,



                                        z                   nb
                                                 Comptroller          General
                                                 of the United        States




                    50TH ANNIVERSARY                    1921- 1971
    I
    I

         COMPTROLLERGENERAL'S                        EXAMINATION OF FINANCIAL STATEMENTS OF
         REPORT TO THE CO??GRESS                     THE TENNESSEE VALLEY AUTHORITY FOR FISCAL
                                                     YEAR 1970 B-114850


         DIGEST
         _-----

.   I
    ,    VHY THE EXAIUNATION ‘WAS MADE

    I
                The Government Corporation  Control           Act requires    the Comptroller      Gen-
.   I
    I
                eral to audit the Tennessee Valley            Authority    annually.
    I
    I
     I
     I
     I
         FINDINGS AiVD CCdCLUSIONS

                In the     opinion of the General Accounting          Office,  the Authority's     fi-
                nancial      statements   present fairly     its financial    position   at June 30,
                1970,     and the results     of its operations     and the source and disposition
                of its     funds for the year then ended, in conformity             with generally     ac-
                cepted     accounting   principles    applied on a basis consistent         with that
                of the     preceding year and with applicable          Federal laws.     (See p. 20.)

                Net income from power operations         for fiscal   year 1970 was $74.6 mil-
                lion,  $24 million    more than for fiscal      year 1969.      (See p, 6.)     Of
                the $74.6 million,     $57.6 million     was paid into the U.S. Treasury as a
                return on the Government's       investment    in power facilities      (see p. 8)
                and $15 million     was paid into the U.S. Treasury        as a partial     repayment
                of the Government's     investment     (see p. 8) as required      by section    15d
                of the Tennessee Valley Authority          Act and the remaining     $2 million    in-
                creased proprietary     capital.

                Operating     expenses and interest     charges increased    during fiscal year
                1970 over comparable fiscal        year 1969 amounts by 13 and 35 percent,
                respectively.       As a result,    the Authority  increased   power rates in
                August and October 1970.         (See p. 7.)

                 On    October 14, 1970, Public Law 91-446 was enacted, which increased
                 the    amount of bonds, notes, and other evidence of indebtedness  which
                 the    Authority  may have outstanding at any one time from $1.75 billion
                 to    $5 billion.   (See p. 9.)

                 During fiscal    year 1970, power-revenue   bond sales of $300 million               were
                 made at effective     interest rates ranging from 8.3 to 9.3 percent.
                 (See p. 9.)

                 The aggregate net power income for the latest     5 fiscal  years was about
                 $2 million   less than required   under the Basic Bond Resolution   to en-
                 able the Authority    to increase  the amount of bonds outstanding.    As

         Tear Sheet




                                                        1
                                                                                                  I
                                                                                                  I




     a result,       the Authority    may issue only   short-term     securities   during
     fiscal   year      1971.    (See pp. 9 and 10.)

     The third   Paradise steam unit in western          Kentucky     began commercial      op-
     eration   in February 1970.   (See p. 12.)

     The Authority     now expects to begin operating    its first    nuclear  power
     generating    unit at Browns Ferry, Alabama, in April       1972, although
     originally    planned for operation   in fiscal  year 1970.      (See pa 12.)

     Construction      was started during the year on a new pumped-storage            plant.
     During off-peak        power usage periods, water will         be pumped into a moun-
     taintop     reservoir.     Electricity        generated when the water is released
     will    help meet peak-period          loads.    (See p. 12.)

     The quantity    of coal available           in the Authority's   supply area declined
     to an all-time     low and prices         reached an all-time    high in fiscal  year
     1970.  The Authority's          efforts     to ensure adequate   coal supplies  in-
     cluded visiting      coalfields        to seek new sources of    supply and obtaining
     advance deliveries       of coal.        (See pp. 12 to 14.)

     Pollution    control   and abatement activities       during fiscal  year 1970 cost
     $30.3 million.       TVA estimates  that these activities       will cost $38 mil-
     lion during fiscal      year 1971.    This program is concentrated        largely     on
     problems caused by the Authority's        operations,      such as emissions      from
     s%eamplant stacks and warmwater discharges from steam plant cooling
     systems. (See pp. 1% to 18.)

RECOkPlENDATIONSOR SUGGESTIONS

     None.


AGENCY ACTIONS AND UNRESOLVEDISSUES




MATT!YRSFOR CONSIDERATION BY THE CONGRESS

    This report   contains     no recommendations     or suggestions     requiring    action
    by the Congress.       It is submitted to the Congress, as required by the
    Government Corporation       Control     Act, to disclose    the results    of the an-
    nual audit of the Authority's          financial  statements    and such other in-
    formation   deemed necessary        to keep the Congress informed        of the opera-
    tions and financial       conditions     of the Authority.




                                           2
                              Contents
                                                                Page

DIGEST                                                            1

CHAPTER

   1         INTRODUCTION                                         3

   2         GENERALCOMMENTS                                      5
                Power operations                                  5
                Fiscal year 1971 rate increases                   7
                Proprietary    capital    and payments to the
                   Treasury of the United States                  8
                Borrowing authority                               9
                Fiscal year 1971 security         sales           9
                Construction     program                         11
                Coal procurement                                 12
                Environmental     quality   activities           15
                     Air quality                                 15
                      Water    quality                           17

   3         SCOPEOF EXAMINATION                                 19

   4         OPINION OF THE FINANCIAL STATEMENTS                 20

EXHIBIT

         I   Balance sheets,      June 30, 1970, and 1969        25

    II       Power program, net income and retained
               earnings for the years ended June 30,
               1970, and 1969                                    27
                                a
  III        Nonpower programs, net expense and accu-
               mulated net expense for the years ended
               June 30, 1970, and 1969                           28

    IV       Source and disposition of funds for the
               years ended June 30, 1970, and 1969               30

             Notes to financial          statements              31
SCHEDULE                                                          Page
         A   Completed plant,     June 30, 1970                    37

         B   Construction  and investigations      in progress,
               June 30, 1970                                       38

         C   Details of power expense for       the year ended
               June 30, 1970                                       39

         D   Details of nonpower net expense for       the year
               ended June 30, 1970                                 40

         E   Operating expenses of multiple-use facili-
               ties for the year ended June 30, 1970              44

         F   Administrative and general expenses for        the
               year ended June 30, 1970                           45

APPENDIX
         1   Retirement    system of the Tennessee Valley
               Authority                                          50



l3.t.u       British   thermal   unit

TVA          Tennessee Valley     Authority
COMPTROLLERGENERAL'S                      EXAMINATION OF FINANCIAL STATEMENTS OF
RZPORT TO ?.'HE CONGRESS                  THE TENNESSEE VALLEY AUTHORITY FOR FISCAL
                                          YEAR 1970 B-114850


DIGEST
----we

WHY THE EXAMZNATION'WAS MADE

     The Government Corporation  Control           Act requires    the Comptroller     Gen-
     eral to audit the Tennessee Valley            Authority    annually.


FINDINGS AND C~dCLUSIONS

     In the     opinion of the General Accounting        Office,   the Authority's     fi-
     nancial      statements   present fairly    its financial    position   at June 30,
     1970,     and the results     of its operations    and the source and disposition
     of its     funds for the year then ended, in conformity            with generally     ac-
     cepted     accounting   principles   applied on a basis consistent         with that
     of the     preceding year and with applicable         Federal laws.     (See p. 20.)

     Net income from power operations          for fiscal   year 1970 was $74.6 mil-
     lion,  $24 million    more than for fiscal       year 1969.      (See p. 6.)     Of
     the $74.6 million,     $57.6 million      was' paid into the U.S. Treasury as a
     return  on the Government's      investment     in power facilities     (see p. 8)
     and $15 million     was paid into the U.S. Treasury as a partial             repayment
     of the Government's     investment     (see p. 8) as required       by section    15d
     of the Tennessee Valley Authority           Act and the remaining     $2 million    in-
     creased proprietary     capital.

     Operating     expenses and interest     charges increased    during fiscal year
     1970 over comparable fiscal        year 1969 amounts by 13 and 35 percent,
     respectively.       As a result,   the Authority   increased   power rates in
     August and October 1970.         (See p. 7.)
     On    October 14, 1970, Public Law 91-446 was enacted, which increased
     the    amount of bonds, notes, and other evidence of indebtedness  which
     the    Authority  may have outstanding at any one time from $1.75 billion
     to    $5 billion.   (See p. 9.)

     During fiscal    year 1970, power-revenue   bond sales of $300 million               were
     made at effective     interest rates ranging from 8.3 to 9.3 percent.
     (See p. 9.)

     The aggregate net power income for the latest     5 fiscal years was about
     $2 million   less than required   under the Basic Bond Resolution  to en-
     able the Authority    to increase the amount of bonds outstanding.    As




                                            1
    a result,     the Authority    may issue on1 short-term           securities   during
    fiscal    year 1971.      (See pp. 9 and 10. 3

    The third   Paradise steam unit in western           Kentucky     began commercial      op-
    eration   in February 1970.   (See p. 12.)

    The Authority     now expects to begin operating    its first    nuclear power
    generating    unit at Browns Ferry, Alabama, in April       1972, although
    originally    planned for operation   in fiscal  year 1970.      (See p. 12.)

    Construction      was started      during the year on a new pumped-storage       plant.
    During off-peak        power usage periods,         water will be pumped into a moun-
    taintop     reservoir.     Electricity        generated when the water is released
    will    help meet peak-period          loads.    (See p. 12.)

    The quantity    of coal available            in the Authority's   supply area declined
    to an all-time     low and prices          reached an all-time    high in fiscal  year
    1970.  The Authority's          efforts      to ensure adequate   coal supplies  in-
    cluded visiting      coalfields        to seek new sources of     supply and obtaining
    advance deliveries       of coal.         (See pp. 12 to 14.)

    Pollution    control   and abatement activities       during fiscal  year 1970 cost
    $30.3 million.       TVA estimates  that these activities       will cost $38 mil-
    lion during fiscal      year 1971.    This program is concentrated        largely     on
    problems caused by the Authority's        operations,      such as emissions      from
    steam plant stacks and warmwater discharges            from steam plant cooling
    systems.     (See pp. 15 to 18.)


RECOMMi7NDATIONS
              OR SUGGESTIONS
    None.


AGENCYACTIONSAlVDUNRESOLVED
                          ISSUES
    None.


MATTERSFOR CONSIDERATION
                       BY TEE CONGRESS
    This report   contains    no recommendations      or suggestions     requiring    action
    by the Congress.       It is submitted      to the Congress, as required       by the
    Government Corporation      Control     Act, to disclose     the results    of the an-
    nual audit of the Authority's         financial   statements    and such other in-
    formation   deemed necessary       to keep the Congress informed         of the opera-
    tions and financial      conditions     of the Authority.




                                          2
                             CHAPTER1

                           INTRODUCTION

     The General Accounting Office has examined the finan-
cial statements of the Tennessee Valley Authority  (TVA)
for the fiscal  year ended June 30, 1970.

      A description     of TVA's retirement    system, together
with related    financial   statements and the certified     public
accounting   firm's opinion thereon,      is included in the ap-
pendix.

       The Tennessee Valley Authority       Act of May 18, 1933
(48 Stat. 58; 16 U.S.C. 831) created TVA, a Government cor-
poration,   to provide for the unified       development of the Ten-
nessee River system.        TVA's functions   include both the
power program and nonpower.programs,         such as flood control,
navigation,   and fertilizer     and munitions development.

      TVA expects that increasing      power demands in the Ten-
nessee Valley region will require a doubling of capacity          in
the next decade.     During fiscal    year 1970, 19.4 million
kilowatts   of generating    capacity were in service and 10 mil-
lion kilowatts   of capacity were under construction.         In-
creasing construction     and operating   costs, coal shortages,
and construction    slippages hampered the power program dur-
ing the year, and TVA expects these problems to continue.

      At the end of fiscal  year 1970, TVA had about 22,200
employees-- an increase of about 2,700 over the previous
year.   According to TVA, the increase resulted    primarily
from the accelerated   power construction program.

      A three-man Board of Directors   manages TVA, Members
are appointed to g-year terms, which expire at 3-year inter-
vals, by the President   of the United States with the advice
and consent of the Senate,     Board members at June 30, 1970,
and the expiration  dates of their terms are:

        Aubrey J. Wagner, Chairman             May 18, 1978
        Frank E. Smith, Director                II 81 1972
        Don McBride, Director                   I? 11 1975
                             CHAPTER2

                         GENERALCOMMENTS

       In addition    to providing    for our examination    of the
financial     statements,    the Government Corporation     Control
Act (31 U.S.C. 841) provides for the Comptroller            General to
include in his annual report on the audit of each Government
corporation      such other information     and comments as may be
appropriate      to keep the Congress informed of the financial
condition     and operations    of each such corporation.       There-
fore we are including        in the following     sections of this re-
port,    information    and  comments   on matters   which we believe
may be of interest        to the Congress.

POWEROPERATIONS
       TVA supplies power, at wholesale,       to 160 municipal   and
cooperative   electric    systems and one small privately      owned
system, which distribute       power to'more than two million
customers in parts of seven States.          Power is also sold di-
rectly   to 46 industrial     power consumers having large or un-
usual power requirements        and to several Federal atomic,
aerospace, and military       installations.

        Section 14 of the TVA Act requires       that power accounts
be kept in accordance with the uniform system prescribed            for
electric     utilities     by the Federal Power Commission.    Operat-
ing results        of the power program for fiscal    year 1970 are
shown in exhibit         II of the financial statements.    The results
are summarized and compared with those of fiscal           year 1969,
as follows:




                                       I
                                   5
                                                                      Percent   '
                                                                          in-
                                        1970                1969       crease

Operating revenues:
    Sales of electric
       energy                     $461,477,970         $388,099,883      19
    Rents and other
       revenues                      18.137.729          15,181,053      19

            Total operating
              revenues              479,615,699         403,280,936      19

Operating     expenses              374.214.625         329,822,456      13

            Operating    in-
              come                  105,401,074          73,458,480      43

Interest     income                          15,360a

            Total   income          105,416,434          73,458,480      44

Interest     charges                 30,799,564          22,768,320      35

            Net income               74,616,870          50,690,160      47

Payment of return on
  appropriation  in-
  vestment                           57,648,798          53.082.238       9

            Increase or de-
               crease(-)  in
               retained  earn-
               ings            $ 16,968,072            $ -2,392,078

aIncome on temporary           investments,

        Substantially   greater revenues were realized    in fiscal
year 1970 than in fiscal       year 1969, because (1) more elec-
tricity    was sold during 1970 and (2) the average rate
charged for electricity       was higher during 1970. In March
1969 TVA increased the rates charged to consumers to help
meet higher costs.        Automatic adjustment provisions   to cover
increases in TVA's cost of fuel and borrowing money were put
into effect      in August 1969.
                                         6
      Operating and interest  costs during 1970, however, were
significantly   higher than during 1969. TVA informed us that
these costs were greater than anticipated.      Also TVA bought
more electrical    power from other power producers than it
sold to power producers during the year at a net cost of
$9.6 million.
FISCAL YEAR 1971 BATE INCREASES
       The act requires that TVA sell power at rates as low as
feasible    and yet adequate to maintain the financial     soundness
of the power program.      Operating expenses and interest
charges increased during fiscal      year 1970 over comparable
fiscal    year 1969 amounts by 13 and 35 percent, respectively,
According to TVA, these cost increases necessitated        rate
increases in fiscal year 1971.
     The rate increases,  which TVA expects will provide an
increase in revenue of about 23 percent, were effective      in
two increments --on August 1 and October 2, 1970. The Au-'
gust increase was based on existing    rate schedules which
provided that higher rates be effective    automatically  on
August 1, 1970, in response to rises in the cost of fuel and
money.
      Since the automatic, August adjustment failed to provide
revenues sufficient    to cover the rapid increases in TVA op-
erating costs, it had to be supplemented by a substantial
increase in power rates on October 1 to obtain the additional
revenues needed to meet rising     costs,  TVA and the distribu-
tors agreed at that time to substitute     a quarterly review
procedure for the automatic annual adjustment.
    Under the new procedure TVA's prospective    power revenues
and expenses are reviewed at the end of each 3-month period
by a committee representing  the distributors.    The TVA Board
then determines whether a rate adjustment--upward    or down-
ward--will  be needed.
PROPRIETARYCAPITAL AND PAYMENTSTO
THE TREASURYOF THE UNITED STATES

      From the inception      of TVA in 1933 to June 30, 1970, the
United States made available       to TVA $2,567 million     in propri-
etary capital     through appropriations,     bond purchases, and
property   transfers.     During the same period, TVA repaid
$417 million    to the U.S. Treasury, retained       earnings of
$661 million    from its power programs and incurred net ex-
penses of $454 million      on its other programs.       At June 30,
1970, the Government's proprietary        capital  in TVA was
$2,358 million,
       Under section 15d of the TVA Act, as added by Public
Law 86-137 on August 6, 1959, TVA is required to repay each
year into the Treasury part of the net appropriation          invest-
ment in power facilities      and pay a return on the outstanding
investment.     Beginning with fiscal     year 1961, repayments to
the Treasury are required,      as follows:     $10 million  annually
for the first    5 years, $15 million     annually for the next
5 years, and $20 million      annually thereafter     until a total of
$1 billion    has been repaid.    Although the Board of Directors
may defer the payments for 2 years, this option has not been
exercised.     TVA had repaid $125 million      to the Treasury un-
der this provision     at June 30, 1970, and about $292 million
prior to fiscal    year 1961.

      The required payment to the Treasury of an annual re-
turn on the net appropriation      investment in power facilities
is based on the average interest       rate payable by the Treasury
on its total marketable public obligations        at the beginning
of the fiscal    year and on the unrepaid appropriation        invest-
ment as of the same time.       The 10 annual payments of the re-
turn on the appropriation     investment that had been made as
of June 30, 1970, amounted to $448.2 million         and included a
payment of $57.6 million    in fiscal     year 1970.
       During fiscal   year 1971, TVA will be required to pay
into the Treasury from power proceeds $20 million        as a re-
payment of the appropriation     investment and $65.1 million
as a return on the investment.       Computation of the return
was based on the unrepaid appropriation       investment of
$1,088 million    at July 1, 1970, and on the average Treasury
interest    rate of 5.986 percent at that date.
BORROWING
        AUTHORITY

       TVA is authorized,   under section 15d of the act, to
issue and sell bonds, notes, and other evidence of indebt-
edness to assist in financing     its power program,   Prior to
the enactment of Public Law 91-446 on October 14, 1970, the
amount outstanding     at any one time was not to exceed
$1.75 billion.     Public Law 91-446 increased this limit to
$5 billion.
        Section 15d provides that the time of issuance and max-
imum interest       rates to be borne by the obligations     are sub-
ject to approval by the Secretary of the Treasury, who is
authorized      to purchase TVA interim obligations     up to $150
million    outstanding     at any one time.   Debt service on these
obligations       is payable solely from TVA's net power proceeds
and has precedence over repayments of the appropriation           in-
vestment and payments of a return on investment made to the
Treasury.       Bond sales, which began in 1960, totaled      $675 mil-
lion as of June 30, 1970. Of this amount, power-revenue
bond sales of $300 million        were made in fiscal   year 1970 at
effective     interest    rates ranging from 8.3 to 9.3 percent.
       Short-term power notes , generally    maturing in about
4 months, were sold on a competitive-bid       basis during the
fiscal   year to various underwriters     at an average interest
rate of 8.172 percent.     At June 30, 1970, TVA had short-term
notes outstanding    of $321 million,   a decrease of $31.7 mil-
lion from the amount outstanding      at the beginning of the
fiscal   year.

     Advances from the Treasury, under provisions    of section
15d of the act, were obtained at an average interest     rate of
7.303 percent for the year.    TVA had advances outstanding    of
$100 million  from the Treasury at June 30, 1970.

FISCAL YEAR 1971 SFCURITY SALES

      Under section 3.4 of the Basic Tennessee Valley Author-
ity Power Bond Resolution,    adopted October 6, 1960, TVA's
net power income for the latest     5 fiscal    years must have ag-
gregated at least $200 million     before the amount of bonds
outstanding  might be increased.     Moreover,that    minimum re-
quirement is increased by $15 million        for each one quarter


                                  9
of 1 percent (or major fraction   thereof) by which the aver-
age interest  rate that TVA is required to use in calculating
the annual return on the net appropriation   investment in
power has exceeded 3-l/4 percent during those 5 years.

      TVA failed to meet this requirement   for the 5-year
period ended June 30, 1970, as shown below, and, as a result
may issue only short-term   securities during fiscal  year 1971.

                                                Amount

                                           (000 omitted)

Required aggregate income:
    Minimum                         $200,000
    Additional  requirement           75,000a
                       .
                                                         $275,000

Net power income:
    Fiscal year:
         1966                       $ 47,889
         1967                         40,746
         1968                         59,082
         1969                         50,690
         1970                         74,617

                                                         $273,024

aThe applicable     interest rate was 4.418.  Therefore the ad-
 ditional   requirement was 5 times $15 million,    or $75 mil-
 lion.




                               10
CONSTRUCTION        PROGRAM

      At June 30, 1970, TVA's gross investment in fixed as-
sets for all programs-- including       construction     and investi-
gations in progress--was     $4,423 million,        During fiscal
year 1970, additions    to construction      in progress amounted
to $357.5 million    and transfers    to completed plant amounted
to $253.5 million.     A summary of additions        to construction
in progress during the year follows.


Direct power:
     Generating facilities:
         Nuclear plants:
              Browns Ferry--3 units                          $116,183,736
               Sequoyah--2 units                               la,427,474   $134,611,210

        Coal-fired    steam plants:
             Paradise--l   unit
                 (in commercial operation)                    14,277,420
             Cumberland--2 units                             100,613,282    114,890,702

        Pumped-storage plant:
             Raccoon Mountain--4 units                                         3,170,247
    Transmission  lines,   substations,
      and other facilities                                                    76,644,465

                 Total   direct   power                                      329,316,624

Multipurpose      facilities:
     Tellico     Dam and Reservoir                              6,090,303
      Tims Ford Dam and Reservoir                               9,591,653
      Upper French Broad water
         control    system                                         45,381
      Bear Creek water control system                             448,258
      Other                                                       609,355     16,784,950

Chemical plant                                                                 2,925,078
Land Between the Lakes and other
  recreation    and educational
  facilities                                                                   3,296,427
Navigation   facilities                                                          418,733
General plant and equipment                                                    4,827,015

                 Total additions  to construction       in
                   progress in fiscal  year 1970                             357,568,827

    Less reduction  due to write-off    of prior-year
      costs of flood control facilities                                          -44,542

                 Net additions to construction   in
                   progress in fiscal  year 1970                            $357,524,285




                                               11
      According to TVA's original    plans9 one or more of the
eight nuclear and coal-fired    units were scheduled to go
into operation    in each of the 5 succeeding years beginning
with 1970.     In February 1970, the third Paradise steam unit
in western Kentucky began commercial operation,      The first
of the nuclear units at Browns Ferry was scheduled to begin
operation   in 1970, the second in 1971, and the third in
1972. The units are now scheduled to go into operation         in
April 1972, January 1973, and October 1973, respectively.

       According to TVA, construction  at the Cumberland steam
plant is on schedule and the units are expected to be in op-
eration   in July 1972 and April 1973. The two Sequoyah nu-
clear units are scheduled for operation     in April and Decem-
ber 1974. Construction    continued on the Tims Ford Dam which
is scheduled for operation    in 1971.

        In addition    to expansion of extra-high-voltage      trans-
mission lines and substations        to facilitate    increased power
interchange      and effect peak-load economies, TVA started con-
struction    of the Raccoon Mountain pumped-storage plant.
During off-peak power usage periods,           water will be pumped
from the Tennessee River into a mountaintop reservoir,
Electricity      generated when the water is released will help
meet peak-period       loads.

       Also gas turbines  to be installed at the Allen steam
plant had been ordered, as of the end of fiscal     year 1970,
for use during periods of peak power demands and emergency
conditions.    TVA expects these to be operational   by the sum-
mer of 1971.

         Because of limited    funds, construction     on the Tellico
Dam and Reservoir was limited primarily           to land acquisition
and road. and bridge relocation.         Modernization    of chemical
facilities     and construction     of facilities   for the recreation
project,     Land Between the Lakes, were continued during fis-
cal year 1970.

COAL PROCUREMENT

      TVA officials advised us that the quantity   of coal
available  in TVA's supply area declined to an all-time    low


                                   12
and prices reached an all-time     high in fiscal  year 1970.
Stockpiles  decreased from 4.4 million    tons on June 30,
1969, to 2.9 million     tons on June 30, 1970. On January 21,
1971, 4.4 million    tons of coal were stockpiled.     Over
32 million  tons of coal were burned during the fiscal      year.

      To provide for its coal needs, TVA makes term, spot,
and emergency purchases of coal.        Term purchases are made
under normal bidding procedures,      and contracts   for such
purchases call for regular deliveries       over periods of at
least 6 months and usually longer than 1 year.          Spot pur-
chases are similar to term purchases except that the deliv-
ery period may not exceed 4 weeks.        For emergency purchases
contracts   are negotiated,   rather than advertised,     and usu-
ally the delivery    period is 6 months or less.      TVA consid-
ers an emergency to exist when the coal stockpiled         at any
one steam plant is insufficient      for 60 days of continuous
operation.

       Because of the decline in coal stockpiles      and because
of poor response to invitations     to bid on term purchases,
TVA negotiated   42 contracts   for emergency purchases during
fiscal   year 1970 compared with six contracts     for emergency
purchases in fiscal   year 1969. The statistics       on the method
of coal procurement under contracts      awarded in fiscal   years
1969 and 1970 for power operations     are shown below.
                                  Tons
            Method            (millions)         Percent
                                  1969
           Term                  158.0             98.9
           Emergency               0.9              0.6
           spot                    0.8              0.5
                Total            159.7            100.0
                                 1970
           Term                    46.1            91.3
           Emergency                3.8             7.5
           spot                     0.6             1.2
                Total              50.5           100.0



                                 13
       TVA indicates     that there is a coal supply shortage
caused by such factors as the coal industry's             not develop-
 ing new coal mines to meet increased demands for coal, in-
creased competition       for the available      coal supply, shortage
of railroad     coal cars and trained miners, wildcat strikes,
equipment breakdowns, and adverse mining conditions.                Ac-
cording to TVA, the coal supply shortage resulted              in rap-
idly increasing      prices.    In addition,     TVA pointed out that
price increases under escalation          provisions    of existing
contracts     and increases in transportation        costs also con-
tributed    to higher coal costs.

      Most of TVA's contracts    for term purchases provide for
price escalation     based on the Bureau of Labor Statistics
Index of Wholesale Prices, All Commodities,       During fiscal
year 1970, the value of the index increased 3.4 percent,
Consequently,    prices for coal purchased under these con-
tracts increased about $56,000.

       Several of TVA's coal suppliers      have made claims for
price increase adjustments under the gross inequities
clause, the renegotiation        clause, or other clauses of their
contracts.     During fiscal     year 1970, TVA reached agreement
with several suppliers       for price increases ranging from
9 cents to $1.69 a ton.         Usually TVA was able to negotiate
amendments to contracts       and to reschedule excusable delivery
deficiencies    when otherwise the coal would not have been
delivered    because of cancellation     of the contracts.

        TVA's efforts       to ensure adequate coal supplies included
visiting     coalfields       to seek new sources of supply and ob-
taining    advance deliveries        of coal.    In addition,     TVA nego-
tiated a contract with a coal producer for the mining of
about 1.5 million         tons of coal from TVA-owned reserves.
Also TVA entered into two long-term contracts                under which
it guaranteed payments on the producers'              capital   invest-
ments.     In return for TVA's guarantee of principal              and in-
terest on notes of $25 million,            TVA received liens on the
producers'     equipment.        The contracts  call for the delivery
of 2.35 million        tons of coal a year for 17 years.




                                    14
ENVIRONMENIXLQUALITY ACTIVITIES
        Research, monitoring, and surveillance      of environmental
quality    of the Tennessee Valley are coordinated       with pro-
grams of Federal and State pollution       control    agencies.
TVA's program, however, is concentrated        largely   on problems
caused by its own operations,     such as emissions from steam
plant stacks and warmwater discharges       from steam plant cool-
ing systems.

      TVA's      pollution  control and abatement activities,     dur-
ing fiscal       year 1970, cost $30.3 million.    TVA estimates
that these       activities  will cost $38 million  during fiscal
year 1971.        The nature and cost of such activities      and the
source of       funds used during fiscal year 1970 are as follows:

       Remedial action to control pollution           at
         TVA facilities      (largely  electrostatic
         precipitators,      see p. 16)                    $25,676,000
       Research, development, and demonstra-
         tions                                               3,122,OOO
       Monitoring     and surveillance    of pollution
         sources                                             1,155,ooo
       Assistance     to State, local,    and interstate
         agencies                                              316,000
       Laboratory     equipment and facilities                  75,000

                   Total                                   $30,344,000
       Source of funds:
            Power program                                  $26,158,000
            Appropriations                                   1,855,OOO
            Reimbursements     from others                   2,331,OOO
                   Total                                   $30,344,000
Air   quality

     All 11 coal-fired   power plants in TVA's power system
are equipped either with cyclone furnaces which discharge
about 30 percent of the ash produced during combustion as
fly ash or with pulverized   fuel furnaces which discharge
over half of the ash produced as fly ash. The remaining ash
stays in the furnaces as bottom slag.

                                      15
       TVA plants built in the 1950's had mechanical fly ash
collectors    capable of removing about two thirds of the fly
ash produced.      This equipment met prevailing           air-quality
standards at the time of construction,           but the rapid growth
of power generation     and the advent of more stringent               State.
air-quality    standards required better ash collection                methods.
In 1960, TVA began adding more efficient             electrostatic       pre-
cipitators    at an estimated cost of $100 million.               TVA esti-
mated that, of 3.2 million       tons of fly ash generated at its
power plants in 1969, about 0.6 million            tons were released
into the atmosphere,     an  ash  removal   efficiency        of 81 percent.
TVA estimates that by 1975 only 2 percent of the fly ash gen-
erated will be released into the atmosphere, if all equip-
ment being installed     meets specifications.

      In addition    to producing fly ash, the burning of coal
produces significant      quantities  of gaseous sulfur dioxide.
TVA estimates that in 1969 its power plants released 1.8 mil-
lion tons of sulfur dioxide into the atmosphere.        Pending
the development and application       of more effective processes,
high stacks have been used to disperse the gas and thus
limit   its concentration    at ground level.

       With few exceptions      the use of tall stacks has been ef-
fective    in preventing    significant  vegetation   damage, but the
construction     of larger units and the trend toward more strin-
gent air-quality      standards have led to long-range plans for
developing    sulfur dioxide removal systems.       TVA plans to in-
stall a research and demonstration        wet limestone scrubber
system for sulfur dioxide removal on a unit at the Widows
Creek steam plant at a projected        cost for the unit of more
than $10 million.
       In addition    to its programs, TVA for several years has
been carrying      out studies and tests of sulfur dioxide re-
moval processes under the sponsorship          of the National Air
Pollution   Control Administration.       Full-scale    tests at the
Shawnee steam plant of a dry limestone injection            process and
additional   research are expected to cost $7.3 million           over
a 3-year period.        TVA hopes to incorporate     advances in tech-
nology resulting      from the studies and tests at Shawnee into
the wet limestone scrubber unit planned for the Widows Creek
plant.


                                     16
Water quality
       Steam plant electric       power production  involves    the dis-
posal of large amounts of waste heat into cool water circu-
lating     through heat exchangers.      For each kilowatt-hour     of
electrical      energy produced in a modern coal-fired       plant,
about two thirds of the heat from the coal is waste heat,
most of which must be dissipated-        in cool water.     Nuclear
plants are expected to produce about 40 percent more waste
heat than coal-fired       plants.

        Since 1955 TVA has been studying the distribution                    of
heated-water      discharges      into streams and reservoirs           from its
coal-fired     plants.     The first     plants presented few problems
since their discharges were relatively                small compared with
the size of receiving          streams.     Larger discharges        of waste
heat evolved with the increased production                 of electricity
and the use of larger generating             units.      For example, the
Watts Bar plant, placed in operation                during the 1940's, has
a generating      capacity of 240,000 kilowatts            and uses 280,800
gallons of cooling water a minute to dissipate                  the 24.7 mil-
lion B.t.u.'sl       of waste heat a minute.            In contrast,      the
Browns Ferry nuclear plant will have a generating                    capacity
of 3.5 million       kilowatts      and will use 1.8 million         gallons of
cooling water a minute to dissipate              370 million      B.t.u.'s      of
waste heat a minute.

      TVA advised us that the standards for stream tempera-
ture for the design of water-cooling     equipment at the Browns
Ferry nuclear plant and subsequent plants used by TVA are
predicated   to some extent on the standards which the Federal
Water Quality Administration     approved for the State of Geor-
gia in 1967. In 1969, according to TVA, the Administration
approved more stringent    standards for two other States--Vir-
ginia and North Carolina.      TVA has no thermal power plants
in these three States where water temperature      standards have


1A British thermal unit is the amount of heat required  to
 raise the temperature  of 1 pound of water lo F. at or near
 its point of maximum density.




                                        17
been approved.  A TVA official   has informed us that TVA will,
in every case, do what is required   to meet applicable State
standards when they are formally   established.

       The Federal Water Quality Administration            and TVA are
planning a $2.4 million         research project    at the Browns Ferry
nuclear plant to study thermal pollution            effects   on aquatic
life.    Eight naturalistic        stream channels are planned, each
varying in depth from 1 to 4 feet.             Two channels will serve
as biological     controls,     and the other six channels will con-
tain water at temperatures           above that in the control chan-
nels.    TVA officials      stated that results     from this project
should contribute      greatly     to the knowledge of actual effects
of heated discharges        on aquatic life.

      TVA also conducts projects and sponsors research at
various schools on methods of controlling   aquatic plants.
The luxuriant  growth of aquatic plants sometimes forms dense
mats of plants in shallow water, which block small boats and
swimmers, clog water intakes at steam plants,   and create hab-
itats for mosquito breeding.

        TVA began a program on environmental     radioactivity      mon-
itoring    at Browns Ferry early in 1968. This program will
provide a continuing     check on the effectiveness      of controls
incorporated    into the plant's    design and operation       in con-
trolling    the levels of radioactivity    in the atmosphere,
earth, and aquatic environments.




                                   18
                            CHAPTER3

                     SCOPEOF EXAMINATION

       Our examination of TVA's balance sheet as of June 30,
1970, and the related statements of power and nonpower pro-
grams and of source and disposition    of funds for the year
then ended was made in accordance with generally    acceIfted
auditing   standards and included such tests of the account-
ing records and such other auditing    procedures as we con-
sidered necessary in the circumstances.                ':i I

        As provided by section 15d(c) of the TVA Act, TVA em-
ploys a firm of certified       public accountants  to audit its
accounts and financial      statements for each fiscal    year, to
facilitate     TVA's issuance and sale of revenue bonds,       The
audit does not take the place of that required of our Office
under the Government Corporation       Control Act.    Cur audit
included observations      and tests of the firm's   audit work.




                                19
                              CHAPTER4

              OPINION OF THE FINANCIAL STATEMENTS

       The financial     statements (exhibit    I through IV and
schedules A through F) were prepared by TVA. In our opinion,
these financial      statements present fairly     TVA's financial
position   at June 30, 1970, and the results         of its operations
and the sources and disposition        of its funds for the year
then ended, in conformity        with generally   accepted account-
ing principles     applied on a basis consistent       with that of
the preceding year and with applicable          Federal laws,

      The public accounting     firm's   opinion   on the financial
statements follows.




                                 20
                   LYBRA?VD,ROSSBROS.&MONTGOMERY
                        CERTIFIED   PUBLIC   ACCOUNTANTS



                                                                              COOPERS      r: LYRRAND
                                                                                  IN P*INCIP*L AFlEA5
                                                                                     OF THE W09LO




To the Board of Directors     of
  Tennessee Valley Authority:
           We have examined the accompanying financial      statements of
TENNESSEEVALLEY AUTHORITY at June 30, 1970 and 1969 and for the
years then ended. Our examination was made in accordance with gener-
ally accepted auditing    standards, and accordingly  included such tests
of the accounting   records and such other auditing   procedures as we
considered necessary in the circumstances.
              In our opinion,  Exhibits I, II,                III   and IV of the aforemen-
tioned    financial  statements present fairly:
         (1) the financial  position  of the Authority    at June 30, 1970
                and 1969, and the results   of operations   and source and
                disposition of funds of its several programs for the
                years then ended; and
         (2) the assets and liabilities     of the Authority at June 30,
                1970 and 1969, relating   to the power program, and the
                results of operations   and source and disposition  of
                funds of that program for the years then ended,
all in conformity  with       generally       accepted        accounting   principles
applied on a consistent        basis.
               The supplemental   information              appearing in Schedules A to F,
inclusive,      which has been subjected to                audit procedures applied in
the examination      of the basic financial                statements,    is, in our opinion,
fairly     stated in relation   to the basic               financial   statements taken as
a whole.



New York,     August 28, 1970.




                                               21
-CIAL        STATEMENTS




        23
                                          TENNESSEE                     VALLEY              AUTHORITY
                            (A   CORPORATION        WHOLLY      OWNED      By    THE    UNITED     STATES      OF   AMERICA)
                                        BALANCE         SHEETS          JUNE     30.    1970     AND    1969


                                                                         ASSETS

                                                                                         Power program                            All       programs
                                                                                       1970         1969                        1970               1969
                                                                                                                    ( Thousands )
PROPERTY,PLANT, AND EQUIPMENT,
 substantially all at original cost
   Completed plant; schedule A
     Multipurpose  dams; note 1                                                 $ 478,167 $ 477,324                            $ 961,970 $ 955,403
     Single-purpose         dams                                                    62,891    61,204                               62,891          61,204
     Steam production plants                                                     1,686,930 1,516,730                            l&86,930        1,516,730
     Other electric  plant                                                         974,870   922,046                              gi'4,87o        922) 046
     Other plant                                                                                                                  161,851
                                                                                3,202,858              29977,304                3,848,512      -+?
                                                                                                                                               3,610, 62
     Less accumulated            depreciation;               note 2               924,447                855,979
                                                                                2,278,411              2,121,325
  Construction and investigations in
   progress; schedule B and note 3                                                     481,918              386,354               549,557         445,264
  Nuclear fuel       in process           of fabrication;
   note 4                                                                              24,807                 13,230               24,807          13,230

          Total   property,         plant,        and equipment                 2,785,136              2,520,909                3,378,266      3,097,978

CURRENTASSETS
  Cash                                                                                 42,384                 23,275               64,210          44,928
  U. S. Treasury       bills,  at cost
   (approximates       market)                                                         15,982                                      15,982
       Total cash and investments                                                      58,366                 23,275               80,192          %928
  Accounts receivable                                                                  45,853                 36,519               50,562          41,295
  Inventories , principally                    at average
    cost; note 4                                                                       37,507                 44,214               43,044          50,541    '

          Total   current        assets                                            141,726                  104,008              173,798         136,764     '

DEFERREDCR4.RGES
  Unamortized debt discount                    and expense                              7,078                  7,063               7,078           7,063

          Total   assets                                                   $2,933,940 $2,631,980                               $3,559,142 $3,241,805
Notes 1 through       8 following               the exhibits        are         an integral            part     of the financial        statements.

*Deduct
                                                                                                EXHIBIT          I




                                                  LIABILITIES
                                                                     Power program             All    programs
                                                                  1970         1969          1970            1969
                                                                                   (Thousands)
I    PROPRIETARYCAPITAL
       Appropriation  investment; note 5
         Total congressional appropriations                 $19377,545 $1,376,237          &449,944        $2,399,3@'
         Transfers of property from other
          Federal agencies
         Less repayments to General Fund of
          the U. S. Treasury; note 6                              3lO,O59       295,059       351,601        336,593
            Appropriation  investment                           1,088,315     1~01,850      2~50,781       2,113,248
       Retained earnings of power program;
        exhibit II                                                660,879       643,911      660,879         643',911
       Accumulated net expense of nonpower
        programs; exhibit III                                                                454,026*        418,020*


            Total proprietary     capital                       1,749,194     1,745,761    2,357,634       2,339,w
     LONGTERM DEBT; note 7                                        675,000       375,000      675,000          375,000
     SHORT-TERMNOTES; note 7                                      421,000       452,655       421,000         452,655
     OTHERCURRENTLIABILITIES
      Accounts payable                                               69,268      43,980        76,251          52,262
       IQnployees' accrued leave                                      7,641       7,510        15,370          15,015
       Payrolls accrued                                               3,531       2,323         4,581           2,983
       Interest   accrued                                             8,244       3,819         8,244           3,819
B
.
            Total other current     liabilities                      87,684      57,632       104,446          74,079
z.
9    DEZTRREDCREDITS
       Unamortized debt premium                                         303          183             303             183
     CONTRIBUTIONSIN AID OF CONSTRUCTION                                759          749             759             749
     COMMILitBWrE; note 3

            Total liabilities                               $2,933,940 $2,631,980          $3,559,142 $33241,805



                                                                25
                                                                                         EXHIBIT II

                                TENNESSEE        VALLEY         AUTHORITY
                                             POWER    PROGRAM
                                  NET INCOME    AND   RETAINED       EARNINGS
                          FOR    THE YEARS    ENDED   JUNE     30.   1070   AND   1969




                                                            Kwh            Amount         Kwh         Amount
                                                                              (Thousands)
OPERATING   REXRNGKS
 Sales of electric energy
   Municipalities      and cooperatives                53,692,918         $285,483        49,008,196 $222,235
    Federal agencies                                   13,069,614           59,426        14,826,9W    63,570
    Industries                                         22,012,611          105,995        20,568,110   92,239
    Electric utilities                                  1,273,680                          1,300,494
        Total outside sales                            90,048,823                         859703,709
    Interdivisional
        Total sales of electric energy
  Rents
        Total operating revenues                                                                      2%
                                                                                                       3,2 1
OPERATING  EKPENSES;schedule C
 Production                                                                246,071                     yx$
  Transmission                                                               15,085
  Customer accounts                                                             335                          '304
  Demonstration of power use                                                  1,060                      1,022
 Administrative   and general                                                18,043                     15,551
  Payments in lieu of taxes                                                  16,098                     14,510
  Social security taxes                                                      2,456                       2,198
  Provision for depreciation                                                75-067                       1 672
        Total operating expenses                                           37&5                        &%3
                                                                                                       A
        Operating income                                                   105,401                      73,458
INTERESTINCOME                                                                   15
      Total income                                                          105,416                     73,458
INTERESTCHARGES
  Interest on long-term debt                                                 30,721                     14,797
  Other interest expense                                                     31,559                     23,924
  Amortization of long-term debt discount,
   premium, and expense, net                                                       71                          83
  Interest charged to construction and
    nuclear fuel; note 4                                                     31,552*                    16 036+
        Total interest charges                                               30,799                    22,768
        Net income                                                           74,617                     50,690
Payment of return on appropriation investment;
 note 6                                                                      57,649                     53,082
       Increase or decrease* in retained earnings                            16,968                      2,392*
Retained earnings at beginning of period                                    643,911                    646,303
          Retained earnings at end of period                              $66~879
                                                                           -                          $643,911
Notes 1 through 8 following      the exhibits     are an integral         part of the financial    statements.
*Deduct

                                                 27
     EXHlBlT    .I11
            Page 1

                                   TENNESSEE                 VALLEY         AUTHORITY
                                                  NONPOWER          PROGRAM§
                             NET     EXPENSE        AND      ACCUMULATED          NET   EXPENSE
                            FOR     THE   YEARS       ENDED       JUNE     30.   1970   AND       1969



                                                                                                          1970         1969
                                                                                                             (Thousands)
WATERRESOURCES  DEVELOPMENT
 Navigation operations
   Studies and investigations
   Operation and maintenance of facilities                                                               $ 2 2:      $ 2 2:
   Provision for depreciation                                                                              2:751       2:723
           Total expense of navigation operations                                                          5,745       5,721
  Flood control operations
    Studies and investigations                                                                               699          700
    Operation and maintenance of facilities                                                               2,198        2,181
    Local flood control improvements                                                                        906           331
    Provision for depreciation                                                                            1,264        1.240
            Total expense of flood control operations                                                     5,067        k’+%’

  Regional water quality management                                                                       1,389        u77
  Fish and wildlife   development                                                                           306          287
  Surveys and general studies for river                   development                                                    868
  Recreation projects                                                                                       E;           506
              Total expense of water resources development                                               13,937       13,111
FERTILIZER AND MUNITIONSDEVELOPMENT
  Developmental production
    Cost of products distributed,  including depre-
     ciation and depletion of $l,843,oOo in 1970,
     $1,674,000 in 1969                                                                                  22,912       20,643
    General expenses
      Retirements of manufacturing plant and equipment
      Other general expenses
            Total general expenses
                                                                                                            z!i3
                                                                                                         -%5-
                                                                                                                       2,469
                                                                                                                      -+d
                                                                                                                          1
            Total production expense                                                                     s&r5         2&i
   Less transfers and sales of products
      Transfers to TVA programs, at market prices
        Fertilizer   industry demonstrations
        Farm test demonstrations                                                                         14fz         YE
        Agricultural   projects                                                                             453          508
        Other                                                                                                 38            0
                                                                                                                      -8
                                                                                                                      13,95
     Direct     sales                                                                                    1?291
              Total transfers and sales                                                                  17,22
                                                                                                         -3           ii$z
              Net expense of developmental production                                                    7,291          7,783
 Fertilizer     introduction
   Fertilizer      industry demonstrations
      Fertilizers     used                                                                               14,877
      Educational distribution    expense                                                                  1 14
                                                                                                         -5-t
     Less industry     payments for fertilizer                                                           f4sz6
                                                                                                         -i@3


                                                                   28
                                                                                                        EXHIBIT .I11
                                                                                                             Page 2
                                 TENNESSEE                 VALLEY         AUTHORITY
                                                NONPOWER          PROGRAMS
                           NET     EXPENSE        AND      ACCUMULATED          NET    EXPENSE
                          FOR     THE   YEARS       ENDED       JUNE     30.   1970   AND        1969



                                                                                                             1970              1969
                                                                                                                 (Thousands)
FERTILIZER AND MUNITIONSDEVELOPMENT       - continued
  Fertilizer     introduction - continued
    Farm test demonstrations outside the Valley
       Fertilizers     used                                                                              $       423       $        410
        Planning and supervision                                                                                 509                510
                                                                                                                 932                920
      Less farmer payments for fertilizer
                                                                                                          -+%               -+f
            Net expense of fertilizer             introduction                                              2,497                 2,279
  Research and development                                                                                     4,674              4,468
           Net expense of fertilizer              and munitions
            development                                                                                      14,462            14,530
GENERALRESOURCES   DEVELOPMENT
 Agricultural  projects
   Fertilizers  used                                                                                             453                508
   Planning and supervision
                                                                                                          +4                -T-E
    Less farmer payments for fertilizer                                                                                         '293
                                                                                                          A$
    Development investigations  and general expenses                                                            '327        -Tz
           Net expense of agricultural  projects                                                               1,346          1,488
  Forestry projects                                                                                              995                987
  Tributary area development                                                                                   1,362              1,175
  Regional development planning                                                                                  8%                 299
  Demonstrations in education and manpower development                                                                                40
  Minerals projects                                                                                              :2                 162
  Environmental quality projects                                                                                 215                 167
            Net expense of general resources development                                                       5,712              4,318
LANDBETWEEN
          THE LAKESOPERATIONS                                                                                  1,449              1,272
TOPOGRAPHIC
         MAPPING                                                                                                 405                374
OTHEREXPENSE,NET                                                                                                    41                22
            Net expense; schedule D                                                                          36,006            33,627
Accumulated net expense at beginning of period                                                               418,020           3% 393

            Accumulated net expense at end of period                                                     $454,026           $418,020


Notes 1 through 8 following        the exhibits             are an integral           part of the financial              statements.


                                                           29
EXHIBIT IV


                                        TENNESSEE                        VALLEY           AUTHORlYY
                                               SOURCE        AND         DISPOSITION            OF       FUND5
                                  FOR        THE    YEARS          ENDED        JUNE     30.          1970       AND     1969




                                                                                                        Power progrem                             All     programs
                                                                                                      1970
                                                                                                      -,.-       --- 1969                      1970              1%9
                                                                                                                                ( Thousanas )
 SOURCE
   Net power proceeds
     Power operations;   exhibit        II
       Operating revenues                                                                       $479,616               8403,281         8479,616              $403,281
       Interest   income
                                                                                                 m&                      403,281           d                     403,281
        Deduct operating  expenses,            less noncash
         charges; note below
     Sale of power facilities
                                                                                                 fiz%J                  F&g

           Total net power proceeds                                                              180,959                d
   Gross proceeds from nonpover programs
     Sales of fertilizer;     exhibit III
       Industry payments                                                                                                                       14,206             12,451
       Farmer payments                                                                                                                             504                596
       Direct sales                                                                                                                                                2,288
                                                                                                                                           Tifg                   15,335
     Recoveries    of operating    expense
                                                                                                                                           x%                    -i&i
      Sale of nonpower facilrties                                                                                                                                       ‘618
             Total nonpower proceeds
   Sale of long-term bonds                                                                       299,241                100,227            $2                    ia+
   Increase in chart-term       notes                                                                                   102,655                                  l&655
   Congressional    appropriations                                                                     1,308                 862                                   50,250
   Property transfers                                                                                     157                                  5?$i                    230
   Contributions    in aid of construction                                                                 10                                    ’ 10                     0
                                                                                                                        3
           Total   source                                                                      $481,675                $3491548         $550,205             $415,508

DISPOSITION
  Expended for plant and equipment, excluding
   capitalized  interest;  note 4                                                              8311,382                $252,272         $337,809             $281,760
  Less salvage from plant transfers,      and
   depreciation   charged to construction
   and clearing   accounts

  Payments to U. S. Treasury; note 6
                                                                                                3tJ-$%                  i&3

    Return on appropriation    investment                                                         57,&9                     53,082             57,649
    Repayment of appropriation     investment
                                                                                                w                       -it%%              9
                                                                                                                                           T2,
  Expensa of nonpower programs, less noncash
    charges; note below                                                                                                                        45,573
  Interest                                                                                        62,28i                 38,72;                62,280
  Deferred debt expense, net                                                                          7930                  2,on                   793s
  Decrease in short-term      notes                                                               31,655                                       3,655
  Increase or decrease* In current assets lesr
   other current liabilities;       note 4                                                            7,666                 8,771*         s                      lo, 674*
           Total   disposition                                                                 $481,675                $349,548‘        b550,202             #+15,5c$

                                                                                                              Power                                 Nonpower
Note:     Noncash charges consist of:
provisions      for depreciation                                                               $ 7516;                 $ 71,672        8        6,4;;        $     6,250
   Provisions    for depletion
   Retirements     of fertilizer manufacturing              facilities                          ---                                                677             2,di;
                                                                                            $ 75,069      b 71,672                     $-- 7,150             $     8,734
Notes 1 through     8 following    the exhibits         are an integral                part ~finan~tements.
*Deduct




                                                                           30
                               NOTES   TO   FINANCIAL       STATEMENTS




1. Allocation of cost of multipurpose projects--Section     14 of the TVA Act requires TVA's
Board of Directors to allocate the cost of completed multipurpose projects,        subject to
the approval of the President of the United States.        The cost of facilities    installed
exclusively    for a single purpose is assigned directly        to that purpose; the cost of
multiple-use    facilities   is allocated among the various purposes served.
     The total investment of $~1,970,000 in ccmpleted multipurpose dams at June 30, 1970,
is classified    as follows:

                                                                   Investment

                                                   Direct         Multiple-use       Total
                                                                   (Thousands)
             Power                                $302,683           $175 9484     $478,167

             Navigation                             150,473              137,309    287,782

             Flood control                              59,662           128,516    188,178

             Tributary area
              development                                   19             7,824      7,843

                     Total                        $5~ ,837           $449,133      $961,970


2.   Depreciation policy--Straight-line  depreciation              is provided for substantially on a
composite basis.   Rates of depreciation  are derived              from engineering studies of useful
life and are reviewed each year.

3.    Estimates of cost to complete major construction          projects,   and commitments--The
cost to complete the major power projects          (including nuclear fuel) under construction
or authorized      for construction     at June 30, 1970, is estimated to be $1,614,210,000,
including     commitments of $858,686,000 for materials        and services contracted for and
not delivered.        The corresponding estimate for multipurpose       snd nonpower projects is
$233,140,000,       including   commitments of $5,204,000.      Additional   contractual  commit-
ments of $5,742,000 for multipurpose          and nonpower projects had been entered into at
June 30, 1970, on which TVA's obligation         is limited by the availability     of funds from
congressional appropriations        for succeeding fiscal periods.
      TVA and the City of Memphis, Tennessee, have entered into agreements under which
(1) TVA sells to the City all the power and energy requirements of its electric              dis-
tribution     system, and (2) the City leases to TVA the Thomas H. Allen steam-electric
generating plant with an installed capacity of 990,000 kilowatts;          each agreement is for
a term of 20 years, beginning January 1, 1965. The lease agreement provides for annual
rental payments of $~,~OO,OOO and grants TVA an option to buy the plant for $2,000,000
at the end of the lease term.

4. Nuclear fuel-Nuclear   fuel has been reclassified  from inventories to property, plant,
and equipment,   and includes interest     of $1,944,000 recorded during the year ended
June 30, 1970, of which $475,000 relates to the prior year.

                                                    31
                            TENNESSEE         VALLEY            AUTHORITY
                                        NOTES   -   CONTINUED




5. Appropriation investment --Changes in appropriation              investment during ti,e years ended
June 30, 1970 and 1969, were as follows:


                                                 Power program             All programs
                                                1970        1969         1970        1969
                                                               (Thousands)
    Congressional appropriations          $         1,308 $            862 $      50,600 $        50,250
    Transfers of property from
     other Federal agencies                               5            112         1,941               L
                                                    $6:                974        52,541          50,:S:
    Less repayments to General
      Fund of the U. S. Treasury                 15,000             15,000        15,008          15,002
    Increase or decrease* for
      the period                                  13,535*  14,026*                 37,533         35,478
    Balance, beginning of period              1,101,850 1~15,876               2,113,248      2,077,770
    Balance,    end of period             $1,088,315 $1,101,850              $2,150,781 $2,113,248


     Action on a request for an additional    appropriation                  of $50,080,000       to become
available as of July 1, 1970, is pending in the Congress.

6. Payments to the U. S. Treasury--Section 15d of the TVA Act requires the payment from
power proceeds of a return on the net appropriation    investment in power facilities   plus
repayments of such investment, beginning with fiscal year 1961. The amount of return
payable during each fiscal      year is based'on the appropriation    investment as of the
beginning of that fiscal year and the computed average interest         rate payable by the
U. S. Treasury on its total marketable public obligations        as of the same date. The
repayment schedule calls for payment of not less than $10 million for each of the first
five fiscal years (1961-19651, $15 million for each of the next five years (1966-1970),
and $20 million   for each year thereafter   until a total of $1 billion     shall have been
repaid.   The payments required by Section 15d may be deferred under certain circumstances
for not more than two years.
     Required payments have been made as follows:


                                                    Return          Repayment        Total
                                                                   (Thousands)
               Total to June 30, 1969           $390,597            $110,000       $500,597
               Fiscal year 1970                   57,649              15,000         72,649
                                                $448,246_           $125,000       $573,246


    For fiscal year 1971 the required payments will                   be $65,147,000        as a return    and
$~O,OOO,OOOas a repayment, a total of $85,147,000.

                                                 32
                                  TENNESSEE          VALLEY         AUTHORITY
                                               NOTES-CONTINUED




     In addition to the payments from power proceeds, $8,000 of nonpower proceeds was
paid to the U. S. Treasury in fiscal year 1970 under the provisions          of Section 26 of
the TVA Act.    This brought the total payments from nonpower proceeds to $41,542,000.
     Prior to 1961, under then existing legislation,   TVA paid to the Treasury $185,05g,OOO
of power proceeds.    In addition,    $65,072,000 of bonds sold to the Treasury and Recon-
struction   Finance Corporation    in fiscal    years 1939-1941 have been fully repaid from
power proceeds. Section 26 of the TVA Act provides for annual payments to the Treasury
of any power or nonpower proceeds not needed for the operation of dams and reservoirs,
the conduct of the power program, and the manufacture and distribution        of fertilizers.
7. Borrowing authority--Section    15d of the TVAAct authorizes TVA to issue bonds, notes,
and other evidences of indebtedness up to a total of $1,750 million outstanding at any
one time to assist   in 'financing its power program. Action is pending in the Congress
on an increase in this borrowing authority        from $1,750 million to $5 billion.    Debt
service on these obligations,    which is payable solely from TVA's net power proceeds, has
precedence over the payments to the U. S. Treasury described in note 6.
     Evidences of indebtedness issued under Section 15d and outstanding on June 30, 1970,
consist of the following:
                                                                                     (Thousands)
    Long-term debt

      4.40$  Power        Bonds     1960 Series A, due           November 15, 1985   $   50,000
      4-5/s  Power        Bonds     1961 Series A, due           July 1, 1986            50,000
      4-l/2$ Power        Bonds     1962 Series A, due           February 1, 1987        45,000
      5.7@ Power          Bonds     1967 Series A, due           May 15, 19%             70,000
      6-3/&S Power        Bonds     1967 Series B, due           November 1, 1992        60,000
      %      Power        Bonds     1969 Series A, due           June 1, 1974            100,000
      8-l/4$ Power        Bonds     1969 Series B, due           October 15, 1994        100,000
      9%     Power        Bonds     1970 Series A, due           March 15, 1995          100,000
      g-l/@ Power         Bonds     1970 Series B, due           June 15, 1995            50,000
      8-3/4% Power        Bonds     1970 Series C, due           June 15, 1975            50,000
              Total     long-term     debt                                               675,000

    Short-term        notes

      Payable to U. S. Treasury                                                          100,000
      Payable to public                                                                  321,000
              Total     short-term     notes                                             421,000
                                                                                     $l,og6,ooo

8. Retirement plan--TVA has a contributory   retirement plan which covers substantially
all of its salaried employees. The cost of currently    accruing benefits is funded cur-
rently, ana“the unfunded prior service cost is being amortized and funded over a period
of 36 years from July 1, 1969. The cost of the plan to TVA for the fiscal years ended
June 30, 1970 and 1969, was $l2,355,000 and $10,593,000, respectively.


                                                          33
SCHEDULES
                                                                                        SCHEDULEA

                           TENNESSEE         VALLEY                AUTHORITY
                                       COMPLETED           PLANT
                                           JUNE    10.    1070




                                                                                   Depreciation
                                                                           Provision        Accumulated
                                                                          year ended          balance
                                                    Assets               June 30. 1970 June 30, 1970
Power
  Multipurpose dams; note a                  $ 478,167,051                $ “J,‘;,;;;       $ U+4,m9,178
  Single-purpose dams                            62,891,043                                    23,160,906
  Steam production plants                     1,686,929,'790               43,%X:106          500;628;515
  Other electric plant                          974,870,528                23,731,228         256,548,807
          Total power                          3,202,858,412               751068,351         g24,447,406

Navigation
  Multipurpose dams; note a                        287,781,773                 2,751,020       43,985,631
Flood control
  Multipurpose dams; note a                        181,243,572                 1,198,m
  Multipurpose dams; note b                          6,934,238                    52,433
  Bristol flood control plant                        2,072,966                    13,573
          T&al flood control                       190,250,776                 1,264,521        32,045,249

!lYibutszy erea development
   Multipurpose dams; note b                             7,843,170                48,921           151,209

Recreation and conservation education
  Land between the lakes                             44.241.556                  270,991           947,517
  Other'                                               - 395.;$2                    9,858            9,488
        Total recreation aa
         conservation education                      44,637,058                  28o,84g           957,005

Chemical                                             68,057,556                2,094,219        25&5,802

General                                                  47,083,366         2,5&,796            17,158,080
          Total                              $3,848,512,1~                 $Ww,67~          $1,044,610,382

Total completed plant
  Multipurpose dams                          8 W,%WW+                      $10,626,007      $ 220,225,777
  Single-purpose am                                      62,891,043            795,899         23,160,906
  Steam production plants                         1,686,929,790             43,966,106        5~,628,515
  Other electric plaut                              974,87%528              23,731,228
  Other plant                                       161,850,946              4,974,437
          Total                               $3,848,512,1+                $@+,093,677      $1,044,Q0,382
GAONotes:
  a. Common to power, navigation and flood control.
  b. Beech River and Bear Creek water control projects.
    SCHEDULE         B

                                     TENNESSEE               VALLEY               AUTHORITY
                               CONSTRUCTION           AND     INVESTIGATIONS           IN   PROGRESS
                                                            JUNE    30.   1970




                                                                                               Power program        All programs
Construction in progress
  Generating facilities
    Browns Ferry Nuclear Plant                                                                  $245,459,468        $2455459,468
    Sequoyah Nuclear Plant                                                                        23,349,159          23,349,159
    Paradise Steam Plant unit 3                                                                    2,508,804           2,508,804
    Cumberland Steam Plant                                                                       144,379,695         144,379,695
    Raccoon Mountain pumped storage project
           Total generating facilities                                                            Ji&$i$$            41;$%:;;::
  Transmission lines, substations,                     and other
   additions to power facilities                                                                       53,431,807      53,431,807
  Navigation      facilities                                                                                               36,471”
  Flood control       facilities                                                                                          687,756
  Multipurpose facilities
    Tellico Dam and Reservoir                                                                          7,534,054      21,679,065
    Tims Ford Dam and Reservoir                                                                                       3: m;,;;o”
    Upper French Broad water control                        system
    Bear Creek water control system                                                                                    1:998:691
    Other                                                                                              7,:69,3:3
                                                                                                           3533 9     63,540,652
                                                                                                                          560,372
           Total multipurpose facilities

  Chemical plant                                                                                                       2,704,754
  Recreation and conservation education facilities
    Land between the lakes                                                                                             ~196,950
    Other                                                                                                                219,819
          Total recreation    and conservation
           education facilities                                                                                        1,416,769
  General plant
    General construction  equipment and materials                                                                      2,643,207
    Other additions to general plant                                                                                      502,123
         Total general plant                                                                                           3,145,330
          Total     construction              in progress                                        481,029,780         54’+,819,187

Investigations     for future           projects
  Power facilities                                                                                       888,730         888,730
  Navigation facilities                                                                                                  111,051
  Flood control facilities                                                                                             1,057,743
  Multipurpose facilities                                                                                              2,680,252
          Total     investigations              for future         projects                              888,730       49737,776
          Total construction                  and investigations                 in
           progress                                                                            $4&918,510           $549,556,963
*Deduct

                                                                   38
                                                                                                                                                                   SCHEDULEC

                                                       TENNESSEE                      VALLEY                  AUTHORITY
                                                                   DETAILS           OF     POWER            EXPENSE
                                                                  FOR     THE      YEAR   ENDED       JUNE        SO..    lS70




                                                                                            Provision              Total before
                                                                                                for                depreciation
                            SUMMARY                                     Total             depreciation             (exhibit     II)                 operation          &intenance                 Other
Production
  Multipurpose       dsms
      Direct                                                                                                                                    8     2,914,503        $ 2,:;;,g
      Multiple-use;      schedule E
   Single-purpose      dams                                           2,036,146                                           1,240,247                                             4951213
   Cumberlsnd Basin projects;       note    a                         5,%l,o95                                            5r%l,O95                                                        .     5,96l,O95
   steam plants
          Total generation                                                                                                                                                                      5,%1,095
   Purchased power                                                                                                                                                                              1,314,729
   Interchange      power received                                                                                                                                                             u,aa0,895
   Interchange      power delivered                                                                                                                                                             p;:;g
   System control      end load dispatching
   Other
           Total production                                        *gig-g                   5lr337J.23                                              190,216,372                                5&k%&
TIXtlSlSiSSiOIl                                                                             22J78.944                                                 082,543
Customer accounts                                                         '3351123                                                                       335,u3
Demonstration      of power use                                         l,O59,446                                                                     1,059.446
Payments in lieu of taxes; note               b                     WHW’+                                                                                                                      &oya,46i
Social    security   taxes                                              2,455,9@                                                                                                                2,455,%2
Administrative      and general
  Direct                                                             19,438,253                                          17,@37,736                  17,884,776                    2,960
  Multiple-use                                                           155,107                                             155.107                     155,107

            Total    operating     expense                        $3741214,625             $75,06w34                $299,148,041                $218,633,367            $38,489,728           $42,024,946


                                                                                                                                                               Installed      Ratio of e.verase
                                                                                            Kti generated                 Production           expense        capacity    at  gross generatS&
                                                                                          less station    use                            -                   Juoe 30, 1970       to installed
                                 SYS'ICM STATISTTCS                                           (thousands)                        Total           (mills1      (kilowatts)    capacity    (percent)
Generation
   Multipurpose       dams
      Direct                                                                                   l1,265,995                $ 10,364,470                 .920         29869,230                  45.08
      Multiple-use;       schedule E                                                                                                                  .344
           Total multipurpose       dams                                                       1;fy399                                              1.264          2,869,230                  45.08
   Single-purpose        dams                                                                                                                       1.944             250.200                 47.97
   Cumberland Basin projects;          note a                                                     214471231                                         2.436                                     38.26
   Alcoa dams; note c                                                                                                                                                                         48.07
           Total hydra aeneratfon                                                                                                                                                             44.37
   steam plants                                                                                                           257,665,081               3.384                                     62.45
           Total generation;       note d                                                                                                                                                     58.30
Purchased power                                                                                                              13314,729
Interchange       power received                                                                                            17330m
System control        and load dispatching                                                                                   1~23,830
Other                                                                                                                        warn
           Total system input                                                                101,285,32;
Delivered       under Alcoa agreement                                                          1,847,4W
Interchange       power delivered
           Net energy supply                                                                 Tk%3%
Shop and internal         uses                                                                           6:917*
Transmission        and transformation     losses
           Total kwh sales and production         expense                                                                tp7,408,470


w:
     a.    TVA purchases substantially    all of the output of seven hydra plants in the Cumberlsnd                                          River Basin.     In accordance   with memorandums
           of understanding   with the Corps of Engineers,   Department of the Army, the Cumberlsnd                                          Basin projects     we operated    for optimum pro-
           duction   of power in conjunction    with TVA’s power system, subJect to flood control,                                           navigation,    and other operating    requirements
           of the Army.
     b.    Payments made to states           and counties in which power operations                are carried    out.     The basic amount is 5 percent  of gross revenues
           from the sale of power            to other than Federal   agencies   during              the preceding      year, with the provision  of minimum payments under
           certain  circumstances.
     c.     Operation  of tvelve         hydra plants   of the Aluminum              Company of America is coordinated                           with the         operation  of TVA’s power plants
            under an arrangement         whereby the storage  and release             of water from the Alcoa plants                           are carried         out by the company under TVA’s
            direction.
     d.     Installed      capacity   increased     1,183,200    kilowatts     during      fiscal  year 1970.  Additions    consisted of 1,150,2OC kilowatts                                       in s new
            unit    at   the Paradise      Steam   Plant,    one 28,000    kilowatt        unit. at the new J. Percy Priest    Dam in the Cumberland Basin,                                       and 5,000
            kilowatts      from modifications      to B generator.

*Deduct




                                                                                              39
     SCHEDULED
        Page 1

                                                TENNESSEE                   VALLEY                 AUTHORITY
                                                    DETAILS       OF      NONPOWER                 NET     EXPENSE
                                                         FOR     THE    YEAR       ENDED    JUNE     SO.   1WO




                                                                                                                            Multiple-use
                                                                                                                 Direct     (schedule    E)         Total
                             WATER RESOURCES DEVELOPMENT

 Navigation     operations
   Studies     and investigations
      Navigation     engineering    and investigations                                                     $ 806,688         $          --
                                                                                                                                              $      806,688
      Administrative       end general  expenses;      schedule                       F
                                                                                                            T%%!                               -7zig
    Operation     and maintenance     of facilities
      Operation                                                                                                    16,843     1,749,589            1,766,432
      Maintenance                                                                                                  1’1298       215,864              233,162
      Administrative      and general    expenses                                                                                                    116j330
                                                                                                                                                   2,X15,924
    Provision       for     depreciation                                                                                                           2,751,020
                Total      expense    of navigation          operations                                    $2,?23,652       $3,02L743              5,745,395
 Flood control       operations
    Studies    and investigations
       System studies       and investigations                                                             $ 282,956 $                  -            282,956
       Local flood studies        and cooperation                with     other
        agencies                                                                                                  384,206                            384,206
      Administrative        and general     expenses;             schedule           F
                                                                                                            +%                                 dk%
   Operation     and maintenance     of facilities
     Operation                                                                                                     23,649    1,822,605             1,846,254
     Maintenance                                                                                                               230,750               230,750
     Administrative      and general    expenses                                                                                    99               120;991
                                                                                                                             2,%,3$                2497,995
   Local flood control     improvements
   Provision  for depreciation                                                                                                 902,91;         *
                Total     expense    of flood      control      operations                                                  $3,077,261             5,&6,775
Regional    water quality      management
  Regional     water quality      management                                                                                                       1,346,385
  Provision      for depreciation                                                                                                                      8,410
  Administrative      and general     expenses;                schedule        F                                                                      34,447
            Total         expense    of regional       water      quality          menagement                                                      1,389,242
Fish and wildlife        development
   Fish and wildlife       development                                                                                                              284,074
   Provision      for depreciation                                                                                                                    6,576
   Administrative      and general     expenses;               schedule        F                                                                     15,310
            Total         expense    of fish    and wildlife            development                                                                 305,960
Surveys and general    studies    for river    development
  Surveys and general     studies    for river   development
  Administrative   and general      expenses;   schedule F
            Total         expense    of surveys       and general           studies        for     river     development                            784,668
Recreation     projects
  Recreation       resources    development                                                                                                         612,114
  Provision      for depreciation                                                                                                                     9,858
  Administrative        and general     expenses;              schedule        F                                                                     22,964
            TOtal         expense    of recreation       projects                                                                                   6'+4,936
            Total         expense    of water      resources       development                                                                $13,936,9?6


                                                                                    40
                                                                                                                              SCHEDULED
                                                                                                                                 Page 2

                                               TENNESSEE                           VALLEY                AUTHORITY
                                                      DETAILS            OF     NONPOWER                 NFf’     EXPENSE
                                                                FOR    THE    YEAR      ENDED     JUNE      30.   1970




                               FRRTILIZRR            AND MUNITIONS DRVRLOPMSNT

Developmental          production
  Cost of products             distributed;        note a
     Materials         used                                                                                                            $ 4,733,873
     Direct      manufacturing           and shipping        expense                                                                    13,615,813
     Indirect       manufacturing           and shipping        expense                                                                  23564,511
     Provisions         for depreciation           and depletion                                                                         1,842,528
     Recoveries         from byproducts          and in-process         materials                                                          748,420*
     In-process         inventory        changes                                                                                            20,075
     Finished        inventory        changes
             Total       cost of products          distributed                                                                         *22,912,1 i
  General expenses
     Retirements          of manufacturing          plant      and equipment                                                              676,879
     Other general            expenses
        Administrative             and general;        schedule     F
         Shipping        order expense
         Provision        for depreciation           of idle manufacturing
          plant
         Other
                     and equipment                                                                                           166,586
              Total general           expenses                                                                               90s815-$$g
              Total production
  Less transfers
                                           expense
                            and sales of products
                                                                                                                                     t ,
      Transfers        to TVA programs,          at market prices
         Fertilizer         industry       demonstrations                                                                               14,877,723
         Farm test demonstrations                                                                                                          422,603
         Agricultural          projects                                                                                                    453,595
         Other                                                                                                                              37 484
     Direct
              Total transfers
                  sales
                                                                                                                                        L5,791,405
              Total transfers            and sales                                                                                      i+g%
              Net expense of developmental                            production                                                         7,291,236
Fertilizer         introduction
  Fertilizer           industry       demonstrations
       Fertilizers         used                                                                                                         14,877,723
       Educational         distribution        expense                                                                      ~092,356
       Administrative            and general       expenses;                 schedule        F
                                                                                                                              54,553    ii$g?g
      Less    industry      payments         for      fertilizer;              note      b

   Farm test demonstrations        outside    the Valley
                                                                                                                                        2$g%
      Fertilizers     used                                                                                                                 422,603
      Planning     and supervision                                                                                           480,108
     Administrative       and general    expenses;   schedule                                F                                28,712      508,820
      Less    farmer     payments      for         fertilizer
                                                                                                                                        931;rr23
                                                                                                                                        -+@I3
              Net expense        of fertilizer                  introduction                                                             2,497,OOl
Research and development
  Research and development                   of products               and processes
     Applied research                                                                                                                      812,523
     Process engineering                                                                                                                 19131,958
     General expenses

*Deduct
                                                                                                                                        -&sz
                                                                                             41
   SCHEDULED
      Page 3
                                               TENNESSEE                 VALLEY              AUTHORITY
                                                 OETAILS        Of     NONPOWER              NET     EXPENSE
                                                      FOR     THE     YEAR    ENDED   JUNE     30.   IS70




                        FERTILIZER AND MUNITIONS DEVELOPMENT- continued

 Research and development         - continued
   Research and development         of processes for recovery                      of sulfur                             $     185,621
   Basic chemical and agronomic research                                                                                     1,615,618
   Provision     for depreciation                                                                                               81,685
   Administrative     and general expenses; schedule F                                                                         198,114
             Total   expense      of research      and development                                                           4,673,407
             Net expense       of fertilizer       and munitions             development                                 $14,461,644
                                     GENERAL RESOURCESDEVELOPMENT

Agricultural     projects
  Fertilizers     used
     In specific     tributary       areas
     Outside specific        tributary     areas
  Planning and supervision
     In specific     tributary       areas                                                                     261,769
     Outside specific        tributary     areas                                                               555,359         817,128
                                                                                                                             1,270,723
   Less farmer payments for fertilizer
     In specific  tributary       areas                                                                         63,728
     Outside specific     tributary     areas                                                                  187,651         251,379
                                                                                                                             13019,344
  Agribusiness       development                                                                               63,471
  Preliminary      investigations      in tributary       watersheds                                           39,710
  Program planning        and analysis                                                                         51,841
  Research on forage fertilization              and utilization                                                58,331
  Alleviation      of rural poverty                                                                            29,445
  Tenure and land use adjustment                                                                               17,291
  Tennessee Valley rural          life   conferences
  Provision     for depreciation                                                                                ;'E
  Administrative       and general expenses; schedule F                                                        53:596          326,655
            Net expense        of agricultural       projects                                                                1,345,999
Forestry    projects
  Use of Valley forests                                                                                                        410,726
  Development       of Valley forests                                                                                          5g;,t;89
  Investigation       of forest    influences
  Provision      for depreciation                                                                                               131348
  Administrative        and general expenses;              schedule      F                                                      36,360
            Total    expense     of forestry      projects                                                                     994,781
Tributary     area development
   Basic investigations                                                                                                         67,990
   Development      assistance    in specific    tributary       areas                                                       1,038,078
  Development       assistance    outside   specific     tributary     areas                                                    41,285
   Provision     for depreciation                                                                                                  194
   Multiple-use      operating    expenses;   schedule E                                                                       Opt
   Administrative       and general expenses; schedule F
            Total    expense     of tributary       area development                                                         1,362:259
Regional   development     planning
  Regional     development    planning
  Administrative      and general expenses;            schedule         F
            Total    expense     of regional      development          planning

Demonstrations       in education   and manpower development
  Demonstrations       in education   and manpower development                                                                722,090
  Administrative       and general expenses; schedule F                                                                         7,655
           Total     expense     of demonstrations           in education          and manpower development                   729,745

                                                                              42
                                                                                                                   SCHEDULED
                                                                                                                      Page 4
                                         TENNESSEE                       VALLEY              AUTHdRlTY
                                            DETAILS          OF    NONPOWER                  NET         EXPENSE
                                                      FOR   THE   YE*R        ENOED   JUNE         30.   ,*,o




                                 GENERAL RESOURCESDEVELOPMENT- continued
Minerals   projects
  Mineral resources
  Administrative
                       investigations
                    and general expenses;               schedule         F                                             $ 16:‘%
            Total   expense of minerals          projects                                                                   167:775
Environmental      quality   projects
  Reservoir      shoreline   cleanup                                                                                         63,816
  Regional air quality        management                                                                                     34,787
  Strip mine reclamation                                                                                                     84,292
  Research ondisposal          of solid wastes
  Administrative        and general expenses;           schedule         F                                                   ‘,x2
            Total expense of environmental               quality         projects                                          215,284
            Net expense of general         resources         development                                               $ 5,7p,l24
                                        LAID BETWEENTHE LAKES OPERATIONS

Land between the lakes operations                                                                                      $ 1,142,750
Provision     for depreciation                                                                                             270,991.
Administrative     and general expenses;           schedule        F                                                         35,403
            Total   expense of land between             the lakes            operations                                $ 1,44g,144

                                                   TOPCGRAPRICMAPPING

Topographic mapping                                                                                                    $    385,853
Provision     for depreciation                                                                                                5,974
Administrative     and general       expenses;     schedule        F                                                         13,044
            Total   expense of topographic            mapping                                                          $    404.871
                                                 OTHER EXPENSE OR INCOME+'

Emergency preparedness                                                                                                 $      7,063
Maintenance of bridges financed            by others         on TVA dams                                                     55,901
Interest   income from receivables                                                                                           21,592*
            Other   expense,   net                                                                                     $     41,372
            Net expense                                                                                                $36,006,131




Notes:
  a.     In the discharge     of its obligations         under Section     5 of the TVA Act, TVA operates plants for the
         manufacture   of products      for agricultural      and military   purposes;   conducts research and pilot        plant
         development of new or improved processes for the production              of new or existing  fertilizers       and muni-
         tions; and tests the fertilizers      produced and demonstrates their effectiveness.         Production      is carried
         out on an experimental      basis, and costs are consequently       affected   by the developmental      nature of the
         manufacturing   operations.
         Research on products and processes is not scaled to TVA's production          operations.     Its scope is deter-
         mined by opportunities       to render service in the public interest;     findings     are made available  to the
         public   through   technical     publications,  answers to correspondence,       and discussions   with technical
         visitors    to the laboratories     and plants.  For these reasons, the cost of such research is accounted
         for under a separate program rather than as a part of production           operations.

  b.     Sales of fertilizer  materials are not on a commercial basis, but are made to organizations   collaboratj
         ing in an educational program aimed at improving the manufacture, distribution,  and use of fertilizers.


                                                                               43
    SCHEDULEE

                                     TENNESSEE               VALLEY                 AUTHORITY
                               OPERATING      EXPENSES            OF      MULTIPLE-USE              FACILITIES
                                             FOR   THE    YEAR    ENDED      JUNE     30.   1970




                                                                                                         Distributed    to
                                                                                                                     Flood        Tributary
                                                                               Power               Navigation       control          area
                                                          Total              operations            operations     operations     development
Common to power, navigation,           and
 flood control
   Operation
     Water dispatching                             $ 1,130,122
    Water control investigations                       125,898
     Investigations      and control of
       reservoir    ecology                              1,l53,577
     Plant protection       and services
       to visitors                                       1,364,319
     Operation and upkeep of dam
       reservations                                        888,492
    Reservoir land management                            1,083,160
     Other expense                                          86,396
        Total      operation                             5,831,964 $2,332,786 8~749,589 $1,749,589
  Administrative and general
   expenses; schedule F                                     387,767             155,107                116,330         116,330
  Maintenance                                              752,404              310,708                215,864         225,832
  Provision      for depreciation                        3,044,645            1228,759                 939,960         875,926
        Total common to power, nav-
         igation, and flood control                 10,016,780                4P7,360               3,021,743      2,967,677

Other projects
  Beech River water control system
    Operation                                               96,580                                                      48,290
    Maintenance                                              4,325                                                       1,081
    Provision   for depreciation

  Bear Creek water control system
    Operation                                               49,452                                                     24,726       24,726
    Maintenance                                              8,526                                                                   4,689
    Provision   for depreciation                                                                                                    22,165
                                                                                                                                    51,580
  Administrative and general
   expenses; schedule F                                     9,323                                                        4,661       4,662
        Total    other projects                           243,922                                                      109,584     134,338
        Total                                      $10,260,702 $4,027,360
                                                                --        $3,021,743 $3,077&l                                     $134
                                                                                                                                   A 338


Total expenses
  Operation                                        $ 583;8$                 $2,;;;~;;;             $l,$,;%;    $1,822,605         $ 7;g
  Administrative       and general                                                                                =0,991
  Maintenance                                              765:255                  310:708            215;864    230,750            7:933
  Depreciation                                           3~0,361              1228,759                 939,960    902,915           48,727
        Total                                      $10,260,702 $4@7,360 $3,021,743 $3,077,261                                     $134,338

                                                                       44
                                                                                           SCHEDUIJT F

                          TENNESSEE              VALLEY                AUTHORITY
                          ADMINISTRATIVE             AND      GENERAL         EXPENSES
                                  FOR   THE   YEAR    ENDED     JUNE    SO.   IS70




Expenses
  Board of directors                                                                                  $ 228,905
  Office of the general manager                                                                          267,482
  Budget staff                                                                                           272,546
  Washington office                                                                                       77,199
  Information office,   including technical                library        service                        693,102
  Division of personnel                                                                                2,179,443
  Division of finance                                                                                  2,724,054
  Division of law                                                                                        788,695
  Division of property and supply                                                                      ~375,561
  Medical and safety services                                                                          1,020,352
  Other administrative    and general                                                                     89,997
          Total                                                                                       $9,717,336

                                                                                                         Percent
                                                                                          Amount         of total
Distribution
  Construction                                                                           $4,pg             42.92
  Recovered through services billed to others at cost                                            ¶          1.51
  Expense of programs
      Power                                                                               3,727,894        38.36
      Water resources development
        Navigation                                                                          71,763
        Flood control                                                                                         :;Z
        Regional water quality management                                                    xc;
        Fish and wildlife        development                                                 15:310           ::2
        Surveys and general studies for river development                                    36,888           .38
        Recreation projects                                                                  22,964           .24
      Multiple-use     operations
        Commonto power, navigation,          and flood control                              387,767         3.99
        Other projects                                                                        9,323           .lO
      Fertilizer     and munitions development
        Developmental production                                                                            5.15
        Fertilizer     industry demonstrations                                              5;:$$            .56
        Farm test demonstrations                                                             28:712           .30
        Research and development                                                            198,114         2.04
      General resources development
        Agricultural      projects                                                           53,596           .55
        Forestry projects                                                                    36,360
        Tributary area development                                                           $,;7,"           2;
        Regional development planning                                                                         .38
        Demonstrations in education and manpower development                                     7:655        no8
        Minerals projects                                                                        5,741        .06
        Environmental quality projects                                                       11,482
      Land between the lakes operations                                                      35,403           :g
      Topographic mapping                                                                    13,044           .u
          Total                                                                          $9,717,336       100.00


                                                           45
APPENDIX




           .’   t
APPENDIX I
   Page 1
                  RETIREMENT SYSTEM OF THE TENNESSEE VALLEY AUTHORITY

         The TVA retirement                system was.established                  in 1939 to provide              a pro-

gram of retirement,                  disability,       and death benefits                financed        jointly      by

contributions           of TVA and of its              salaried          employees.            Administration         of

the system         is vested          in its       own Board of Directors,                  and its      funds     are

held     and invested           by two trustees.               Of the seven members of the Board of

Directors,         three       are appointed          by TVA, three              are elected        by the partici-

pants,       and the seventh             is    chosen by these            six     directors.

         The operation              of the retirement           system          is regarded        as a Federal

function        in general           and as a TVA function                in particular.              As authorized

in section         301(b)       of the Government              Corporation          Control       Act (31 U.S.C.

866(b))       the General            Accounting       Office      contracted         with       a firm    of certi-

fied     public      accountants           to make the audit              of the system.              Following       are

the balance          sheet      of the system          at June 30, 1970,               and the related             state-

ments of change in fund balances                        for     the year          then ended with           respect         to

the Fixed         Benefit,          the Variable       Annuity,          the Supplement            to Medicare        Pre-

mium Reserve,           and the Voluntary              Retirement          Savings       and Investment            Plan

Funds,       together        with     the auditors'           opinion.




                                                          48
                                                                             APPENDIX I
                                                                         I      Page 2

                  LYBRAND,ROSSBROS.&MONTGONERY
                            CERTIFIED   PUBLIC   ACCOUNTANTS


                                                                              COOPERS   .%. LYBRAND




To the Comptroller      General         of the    United       States,
      Washington,     D. C.:

            We have examined the balance           sheet of the RETIREMENT SYSTEM
of the TENNESSEE VALLEY AUTHORITY as of June 30, 1970 and the related
statement   of changes in fund balances'for             the year then ended.      Our
examination    was made in accordance         with generally    accepted  auditing
standards,    and accordingly      included    confirmations     from the trustees
and custodiansof     cash and investments         held as of June 30, 1970 and
such tests    of the accounting       records    and such other auditing     proce-
dures as we considered        necessary     in the circumstances.
             In our opinion,      the aforementioned     financial    statements
present  fairly    the financial     position    of the Retirement      System of
the Tennessee Valley      Authority     at June 30, 1970, and the changes in
fund balances    for the year then ended, in conformity            with generally
accepted   accounting    principles     applied    on a basis consistent      with
that of the preceding       year.



New York,   October    8,      1970.




                                                   49
                   RETIREMENT SYSTEM of the TENNESSEE VALLEY AUTHORITY
                              BALANCE SHEET, June 30,



                                                                                                     Fixed
                                         ASSETS:                                                  Benefit  Fund
Investments:
   Securities:
      Bonds and notes (details         annexed):
        At amortized     cost (current       redemption                     values   or
            market quotations,      $67,39X,183)                                                  $ gl,o16,35o
        At market (cost,       $2,966,000)
      Real estate mortgages        (details     annexed)                                                3,156,411
      Preferred    stocks (details       annexed):
                                                            $LW,625)                                    2,198,483
        “Ai Etie     PTEE        k , q~I;ki~%i~~       ’
      Common stocks  (details  annexed :
        At cost (market quotations,   1 133,765,461)                                                 m,oo6,og3
        At market       (cost,          $37,507,559)
     United States         Government           obligations,              at cost
        (approximates        market)
                                                                                                     2X),377,337
     Fund shares:
       148,212 shares,      at market,                     $18.13     per   share
          (cost,  $4,102,953)
       61,745 shares,     at market,                 $8.31          per   share
          (cost,  $659,859)
                                                                                                     220,377,337
  Properties    acquired    under buy and leaseback     agreements,
     at cost,   less amortization      of $542,044                                                     1,928,1x6
  Real property:
    Land, at cost                                                                                         627,000
    Buildings,     at cost,   less allowance    for depreciation
       of $168,304                                                                                         go1,446
                                                                                                     223,,833,919
Cash:
  Treasurer's       fund                                                                                   13,824
  Trustee                                                                                                 317,624
Receivables:
  Contributions
  Dividends,       accrued       interest,         etc.
  Securities       sold

                    LIABILITIES     and FUNDS:
Payables:
  Securities  purchased                                                                          $     154,500
  Other                                                                                                186,231
Fund balances  (statement      annexed)                                                           226,054,485
                                                                                                 $226,3g5,216
The accompanying        note       is     an integral          part       Of these   financial   statements.
                                                                  APPENDIX I
                                                                     Page 3


                      Voluntary Retirement.         Supplement   to
                  Savings and Investment     Plan    Medicare  -
  Variable          Fidelity                          Premium
Annuity    Fund    Trend Fund    Puritan    Fund    Reserve Fund
                                                        (Note)




8b 2,644,500


       485,450

 30,811,507
                                                       $70,173
 33,941,457                                             70,173


                   $2,687,082
                                     $513,104
 33,941,457         2,687,082         513,104           70,173




 333941,457         2,687,082         513,104           70,173

        22,942                  78          51
       178,680                                            1,210
       333,134                   5              3
        66,176                                            1,147

$34,542,389        #2,687,165        $513,158          $72,530


$      270,187
                   $            98   $     100
    x4,272,202      2,687,067         513,058          #72,530
$34,542,389        $2,687,165        $513,158          $72,530




                                      51
                                                                             APPENDIX I
                                                                                 Page 4


          RETIREMENT SYSTEM of the TENNESSEE VALLEY AUTHORITY
                       INVESTMENTS in SECURITIES
                             June 30, 1970


FIXED BENEFIT FUND (at cost                  or
   amortized        cost):
     Bonds and notes:
         Principal         amount:
            Utility                                          $22,885,000
            Industrial                                        26,130,765
            Financial                                         15,977,421
            Foreign                                           11,556,ooo
            Railroad                                           3,531,583
        Unamortized          (discounts)          and
            premiums,        net                              L63ww)
                                                              g,445,350
        Commercial      paper                                    ,571,ooo    $ gl,o16,35o
      Real estate      mortgages:
        Veterans     Administration
        Federal     Housing Administration
        Commingled                                             195~0,035
         Other                                                     9 ,-391       3,156,411
      Preferred     stocks:
         Industrial                                                              2,198,483
      Common stocks:
         Industrial                                           88,408,ogo
        Utility                                               16,9@,645
         Commingled                                           13,8Oo,ooo
         Other                                                 4,828,358      la,oo6,ogj
                                                                             $220,377,337
VARIABLE ANNUITY FUND (at                  market):
  Bonds and notes:
     Industrial                                                1,078,500
     Financial                                                ~L566,ooo      #   2,644,500
  Preferred     stocks:
     Industrial                                                                     485,450
  Common stocks:
     Industrial                                               29,502,497
     Utility                                                     7y735
     Other                                                           ,.          30,811,507
                                                                             $ 33,94x,457




                                                        53
              RETIREMENTSYSTEMof the TENNESSEEVALLEY AUTHORITY
                    STATEMENTof CHANGESin FUND BALANCES
                      for the year ended June 30, 1970



                                                                           Fixed Benefit      Fund
                                                                                             AnnuT
                                                                                             Savings
                                                                      Total                  Account

Contributions:
  Members                                                      $ 2,978,917              8    2,978,917
  Tennessee Valley Authority                                       129355,380
Premiums retained
Investment income:
   Interest                                                          5,576,002
  Dividends                                                          3,464,678
  Rents (less depreciation     and
      amortization of $93,651)                                          178,650
Net realized gains (losses) on sales
  of investments                                                   (19419,599)
Capital gains distribution
Net unrealized appreciation     (depreciation)
  of investments
                                                                   23,134,028                2,978,917
Transfers:
   Interest                                                                                  1,64i’,o%
  Accumulations                                                    (2.063.693)              (4,490,917)
                                                              #    21,070,335           9b      135,095
Administrative  expenses                                      4b       470,964
Withdrawals                                                             358,022        4b       353,520
Death benefits                                                      1,032,508                   186,716
Retirement benefits                                                 6,o29,6f&
                                                              $a 7,8gl,ug              $        540,236
            Net increase (decrease)                           9b 13,179,186           (44       405,141)
Balances,   June 30, 1969                                      212,875,299                 42,396,913

            Balances,   June   30,   1970                     #226,054,4&-j            $41,991,772
The accompanying note is an integral             part   of these financial        statements.




                                            54
                                                                                          APPENDIX I
                                                                                              Page 5




                                                                     Voluntary
                                                             Retirement      Savings
     Fixed Benefit    Fund                                    and Investment      Plan       Supplement   to
   Pension            Investment        Variable            Fidelity                            Medicare
Accumulation            Reserve         Annuity              Trend             Puritan            Premium
  Account               Account           Fund                 Fund              Fund         Reserve Fund
                                                                                                  (Note)

                                    $ 4,125,606            $1,103,063         $238,735
8 12,355,380
                                                                                                $71,897
     5,576,002                             288,239                                                   633
     33464,678                             658,677                71,784         22,897

       178,650

       560,523       ($1,98o,lz)        (5,932,161)
                                                                  98,6w          14,302

                                        (7.138;319)        11,039,178)        1125,586)
    22,135,233        (1,980,122)       (7,997,958)            234,269         150,348           729530

    (1,967,o62)           319,967
     2,427,224                           2,o63,693                (4,995)      4995
$ 229595,395         (?&,660,155)   (?I 5,934,265)         $     229,274       $155,343         $72,530
$      470,964
         4,502                      $      370,249         8b 251,383          $ 48,352
       845,792
     6,029,655                             299,092
$    7,350,913                      $      669,341         8     251,383       $ 48,352
$ 15,244,482         (@,660,155)    ($ 69603,606)      ($         22,109)      $106,991         $72,530
 161,598,284           8,880,102      40,875,8o8               2,7og,176        406,067
$176,842,766          $79219,947    $34,272,202            $2,687,067          8513,058         $72,530




                                                      55
        APPENDIX I
           Page 6
                     NOTE to FINANCIAL STATEMENTS




During the year ended June 30, 1970, the Board of Directors              approved
  an amendment, retroactive       to July 1, 1966, to the "Supplement to
  Medicare" contract   between the Retirement System of the Tennessee
  Valley Authority   ("Retirement      System") and Blue Cross - Blue Shield
  of Tennessee ("BCBST").        Under this amendment, if there is or will
  be an excess of funds over that considered necessary by BCBST to
  maintain adequate reserves under the contract,then            monthly premiums
   (deducted from subscribers)      may be retained by the Retirement
  System until   it again becomes necessary to remit premiums to BCBST.
  Any such premiums retained are to be separately            accounted for by
  Retirement System until the Board of Directors           determines how they
  shall be used for additional       benefits   for subscribers,      to reduce
  future increases in premium rates, to reduce existing             premium rates
  or any combination    thereof.     For the year ended June 30, 1970,
  premiums retained by Retirement System under the contract              amounted
  to $71,897.    Subsequent   thereto,    premiums  totaling    $12,682   for the
  month of August, 1970 were not deducted from subscribers              and that
  amount was paid from this fund to BCBST.




                                                                U.S.   GAO   Wash.,   D.C.
                                        56