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The estimate of $13,112,515 for direct-power expenses in 1944 is based on the assumption that average stream flow conditions will prevail in that fiscal year and that the load to be served will conform to that on which revenue estimates have been based. The reductions in production expense from $10,580,261 in the fiscal year 1942 to $5,965,335 in 1943 and $6,876,515 in 1944 result from the fact that, in contrast with the assumptions for 1943 and 1944, 1942 was actually a very dry year.

The 1944 estimate of $2,300,000 for payments to States and counties in lieu of taxes represents 7.5 percent of the estimated revenue for 1943 from other than Federal agencies, which is subject to the provisions of section 13 of the Tennessee Valley Authority Act, is amended. This amount is more than equal to taxes formerly paid on the purchased properties when they were in private ownership.

The increase in transmission expense is the result of system growth and the general and administrative expense proration is increased as the result of the relative growth of the Authority's power program and the substantial reduction in the Authority's construction program. All other direct expenses, which are being held to a minimum, are estimated to be smaller than for 1942.

Power operations, allowance for a dry year

Allowance:
Fiscal year 1943--- --- $1,500,000
Fiscal year 1944 - ---- 3,000,000

Both estimated power revenues and direct-power expenses are based on the assumption that average stream flow conditions will prevail in the fiscal years 1943 and 1944 and that other circumstances affecting revenues and production costs will be normal. In order to provide against contingencies such as increased production costs arising from abnormal break-down of equipment and particularly the recurrence of dry years, an allowance has been computed to cover the reductions in net income which might be anticipated.

Power operations, met interest erpense

Actual expense, fiscal year 1942 $606,900
Estimated expense:
Fiscal year 1943 650,000
Fiscal year 1944 ---- 613,000

The Authority now has bonds outstanding of $65,072,500, of which the Treasury is holding $56,500,000 on a 1 percent interest basis and $272,500 on a 2.125 percent interest basis. The Reconstruction Finance Corporation holds $8,500,000 on a 2.5 percent interest basis. The Treasury can, at its option, change the interest rate on the $56,500,000 issue. The estimates for interest income and interest expense are based on the assumption that present rates of interest will prevail throughout the period and that one $2.000,000 bond at 2.5 percent interest will be retired at maturity on September 1, 1943.

Earpense common to navigation flood control and power

Actual expense, fiscal year 1942----------------------------------- $1,076, 937
Estimated expense: -
Fiscal year 1943 1,436,000
Fiscal year 1944 ---- 1, 763,000

The 1943 and 1944 increases for common operations are due in part to increases in the number of projects to be in operation in those fiscal years and, in part, to the inclusion in common operations, since July 1, 1942, of total water-control operations and system improvement studies expense. Prior to the fiscal year 1943 expense of this type was prorated between dam construction and common operations. Now that system studies relate almost entirely to operations it seems desirable to discontinue this proration. The increase in system improvement studies expense in 1944 over 1943 provides engineering attention to major problems of system operations previously deferred until the System approached completion and until engineering personnel could be made available.

The item for policing and protection of property against sabotage is reduced in 1943 under 1942 by another change in accounting practice which results in

reduced charges to common operations and increased charges to direct power production expense, but the estimate for this item for 1944 is increased because ... of new projects which will go into operation during that year. The Authority's so plant and property protection system is based upon the requirements of the War Department, the Federal Bureau of Investigation, and the Federal Power

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TABLE 4.—Fertilizer program—Asset accounts

to

so

so Actual Actual, Estimated, fiscal year

to June 30, fiscal year

Wirt 1941 1942 1943 1944

:

* *. Fertilizer plant:

asso Phosphate reserves and rights------------------------|| $1,275, 114 $101, 747 $204,000 $227,000

o Plant and equipment-------------------------------- 5, 245,598 1,943,707 2,517,000 1,220,000

or -

H. Total, fertilizer plant----------------- -------------- 6, 520, 712 2,045, 454 2,721,000 1,447,000 Fertilizer inventories: Net change in balance------------- 1, 748,470 746,510 | 374,000 102,000

Total asset accounts for fertilizer program ---------- 8, 239, 182 2,791,964 3,095,000 | 1,549,000

...! FERTILIZER PROGRAM

--- *

to ASSET ACCOUNTS

# *

His Table 4 shows actual and estimated obligations for asset accounts under the lso fertilizer program. The estimate for 1944 of $1,549,000 is $1,546,000 less than so the estimate for 1943. Projects calling for the additional expenditure of $4,756,to [00 in 1943 and $2,841,000 in 1944 have been deferred because of critical material shortages.

FERTILIZER PLANT

_* Fertilizer plant, composed of plant and equipment, and phosphate reserves and rights will require $1,447,000 in 1944, as compared with an estimate of

... " $2,721,000 for 1943.
~ Phosphate reserves and rights.

* Actual obligation, fiscal year 1942----------------------------------- $101, 747 ... Estimated obligation, fiscal year 1943------------------------------- 204, Estimated obligation, fiscal year 1944------------------------------- 227,000

o The Authority is obligated to maintain adequate phosphate reserves and mining rights to provide a long time basis for the operation of its Muscle Shoals plant. As reserves are used, new tracts must be obtained. Since new phosphate properties cannot be acquired economically at will, it is proposed to make purchases only at such times as tracts are discovered which warrant Tennessee Valley Authority ownership, giving consideration to quality of the mineral, location of property, facility with which it can be mined, and the price at which it can be obtained. The estimate of $227,000 for 1944 represents an increase

of $23,000 over the estimate for 1943.

Plant and equipment.

Actual obligation, fiscal year 1942--------------------------------- $1,943, 707 Estimated obligation, fiscal year 1943------------------------------ 2, 517,000 Estimated obligation, fiscal year 1944------------------------------ 1, 220,000

The 1944 estimate of $1,220,000 for fertilizer plant and equipment represents a decrease of $1,297,000 under the estimate for 1943. The estimates for the various items in this program for 1943 and 1944 are as follows:

Gulf coast phosphorus and metaphosphate plant (1943, $282,000; 1944, $40,000).--This plant, the construction of which has been authorized by Congress, has been deferred by order of the War Production Board. The estimates included for 1943 and 1944 are for the purchase of land for the site and for completion of design of the plant, so that its construction can be begun without delay should it be reinstated by the War Production Board to meet increased requirements

for military phosphorus.

Furnaces for fused rock (1943, $575,000; 1944, $41,000).-Fused-rock phosphate, already produced in experimental quantities by the Authority, is a phosphatic plant nutrient of considerable merit as demonstrated in tests by the various agricultural experiment stations of the land-grant colleges. Sufficient information has been developed from pilot-plant operations for design of a larger furnace for the production of fused-rock phosphate in sufficient quantities for testing under practical farming conditions. The estimate of $575,000 for 1943 is for the construction of a fused-rock furnace to be located at the Authority's existing fertilizer plant at Muscle Shoals, Ala. The estimate of $41,000 for 1944 is for the design of a similar plant for later construction. Temporary laboratory and gatehouse facilitics (1943, $485,000; 1944, $5,000).The construction of a combination permanent laboratory and administration building and a separate gatehouse at United States nitrate plant No. 2 have been temporarily abandoned because of the shortage of critical materials, although designs for the permanent structures are being completed. It is now proposed to construct urgently needed temporary buildings and extensions to existing buildings. These buildings will be of the most temporary nature and will involve a minimum use of critical materials. The need for these facilities results from the greatly expanded activities at nitrate plant No. 2 necessary for the production of anhydrous ammonia, ammonium nitrate and elemental phosphorus for the War Department, and calcium carbide for the Rubber Reserve Company. Phosphorus purification equipment at Muscle Shoals, Ala. (1943, $293,000; 1944, none).-In 1942 construction of certain other projects was deferred to provide for the addition of purification apparatus for two of the electric furnaces at Muscle Shoals to make plmosphorus that would meet Chemical Warfare Service specifications. The second furnace was completed early in 1943. It is proposed to add purification equipment to a third furnace in 1943 if requested by the War I)epartment and the War Production Board. Fluorine recovery plants at Muscle Shoals, Ala. (1943, none; 1944, $213,000).War conditions have cut down imports of fluorine compounds. Artificial cryolite, vital to production of aluminum, and insecticides, needed for pest control in agriculture and public health, are fluorine compounds. Fluorine is a waste product at the Muscle Shoals plant. It is proposed to construct one fluorine recovery unit in 1944 to produce fluorine products that will he helnful in the war effort. Cafeteria at Muscle Shoals, Ala. (1943, $90,000; 1944, none).-Because of transportation difficulties and the isolated location of the plant, the lack of eating facilities is interfering with plant operations at United States nitrate plant No. 2. To solve this problem, the construction of a cafeteria of temporary frame construction is under way, to be completed in the fiscal year 1943. Construction facilities (1943, $98,000; 1944, none).-The synthetic ammonia plant and the rehabilitation and construction of additions to the ammonium nitrate plant at United States nitrate plant No. 2 for the United States Ordnance Department are nearly completed and the plants are in operation. The rehabiliation of the calcium carbide plant at the same location for the production of calcium carbide for the Rubber Reserve Company has been started. Production is scheduled to begin shortly. This item is to reflect transfer of certain Construction facilities which were Secured for the account of the United States Ordnance Department but which are now available for disposal to the Authority, to }. used in the rehabilitation of the carbide plant and other construction projects. Plant replacements (1943, $173,000; 1944, $205,000).—The existing fertilizer plant is approaching the stage where substantial replacements of some facilities will become necessary in order to continue full production and economical oneration of the plant. It is anticinated that $173,000 will be required for such purposes in 1943 and $205 000 in 1944. Plant improvements (1943, $494,000: 1044. $548,000).-The Authority is operating a recently expanded plant for the production of elemental phosphorus for the Chemical Warfare Service and concentrated superphosnhate and calcium metaphosnhate fertilizers for lend-lease and domestic use. From time to time opportunities arise to improve this plant and therehv eliminate bottlenecks, enhance safety in operation, improve the quality of products, or insure the better utilization of by-products. This estimate is to provide for such contingencies, I) exion of mlants for future construction (1943). $3.000: 1944. $153,000)—Several projects originally scheduled for construction in the fiscal year 1944 have been deferred because of the critical materials situation. Among these are included the furnace for potassium metaphosphate previously described in the 1943

estimates submitted to Congress. A dicalcium phosphate plant, designed to utilize a waste acid byproduct of the production of potassium metaphosphate, has also been deferred. Total cost of the latter plant is estimated at $500,000. It would be located adjacent to the proposed potassium metaphosphate plant, and it is anticipated that the project will serve to lower the production cost of potassium metaphosphate and at the same time produce a valuable concentrated fertilizer at a favorable price. Dicalcium phosphate fertilized has properties similar to that of concentrated superphosphate, having only slightly less phosphate plant food content. The 1944 estimate of $153,000 is for preliminary studies and drawings for these and other projects, and for plans for postwar adaptation of the synthetic ammonia and ammonium nitrate plants to the Authority's fertilizer program.

FERTILIZER INVENTORIES

Actual obligation, fiscal year 1942– - ____ $746, 510 Estimated obligation, fiscal year 1943 -- - 374,000 Estimated obligation, fiscal year 1944------------------------------- 102,000

The increase in inventories in 1943 of $374,000 is necessitated by the increase in plant capacity for the production of elemental phosphorus. The increase of $102,000 in 1944 is made necessary largely by demands of the fused-rock plant at Muscle Shoals.

TABLE 5.—Fertilizer program—Income and earpense accounts

Actual, Fstimated, Estimated, fiscal year fiscal year fiscal year 1942 1943 1944 Research and development of fertilizer and munitions production processes----------------------------------------------- $537, 123 $761, 000 $1,003,000 Experimental large-scale production: Direct manufacturing cost, excluding depreciation 2, 342, 608 5, 216,000 5,409,000 General and administrative expense proration 128,924 230,000 300,000 Increase (–) in fertilizer inventories, net----- –283,886 100,000 –81,000 Total cost of fertilizer shipped, excluding depreciation--- 2, 187,646 5. 555,000 5, 628,000 Credit for shipments for tests and demonstrations . . . . . . . —1, 202, 442 – 1, 317,000 –958,000 Interdepartmental transfers and shipments to other Federal agencies-------------------------------------------- — , , 165. 148 —4, 507,000 —5,095,000 Total disposition of fertilizer-------------------------- –2.367, 590 —5, 824,000 –6,053,000 Net cost of large-scale production, excluding depreciation —179,944 –269,000 –425,000 Tests and demonstrations of fertilizer use: Cost of fertilizer used in tests and demonstrations - - - - - - - - - 1,202, 442 1, 317,000 958, 000 Cost of fused rock and slag used in tests and demonstrations. 13, 117 27,000 25,000 Controlled soil and fertilizer investigations---------------- 94, 932 118,000 118,000 Farm unit and large-scale demonstrations. . - 480, 060 580,000 580,000 Soil inventory 83, 219 105,000 105,000 Transportation studies relating to sertilizer distribution. --- 2,807 -------------- -------------General and administrative expense proration.------------ 70,322 50,000 60,000 Total tests and demonstrations of fertilizer use---------- 1,946, 899 2, 197,000 1,846,000 General expense: Profit derived from the sale of phosphate land and rights---------------------------- - - - - –3,055 ---------------------------Net expense fertilizer operations------- --- 2,301,023 2,689,000 2, 424,000

INCOME AND ExPENSE ACCOUNTS

The estimate for the fiscal year 1944 for the net expense of fertilizer operations, as shown in table 5, is $2,424,000—a decrease of $265,000 under the amount for the fiscal year 1943.

Research and development of fertilizer and munitions production processes Actual expense, fiscal year 1942------------------------------------- $537, 123

Estimated expense, fiscal year 1943 761, 000 Estimated expense, fiscal year 1944 -- ---- 1,003, 000 The estimate of $1,003,000 for the fiscal year 1944 is for a program of research and development of processes for the production of munitions and fertilizer. It is contemplated that approximately three-fourths of this activity will pertain to the production of munitions or critical materials and one-fourth to the production of fertilizers. The knowledge accumulated and created by these research activities is not only essential in the development of new and improved production processes but is also of major importance in obtaining maximum production of anhydrous ammonia, ammonium nitrate, and elemental phosphorus for the War IJepartment in the several plants operated at United States nitrate plant No. 2.

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ExPERIMENTAL LARGE-SCALE PRODUCTION

By statute, the Authority, in order to improve and cheapen the process for the production of fertilizer, is authorized to manufacture fertilizer experimentally at the Muscle Shoals plant. Under the statute, however, elemental phosphorus manufactured or otherwise available for production of fertilizer is to be made available, as required, for the War Department. After meeting war requirements in 1944, there is left only 3,600 tons of concentrated superphosphate and 6,000 tons of calcium metaphosphate for the Authority's test-demonstration and food-production program, which is far below the minimum believed to be consistent with long-range success. The completion of the proposed fused-rock furnace will, however, provide 29,750 tons of fused-rock phosphate fertilizer for the test-demonstration program now serving as a leading operation in increased food production.

As shown in table 5, the estimated credits for shipments in 1944, including shipments to other Federal agencies for which there will be a cash transfer, result in a net credit of $425,000 for large-scale production before depreciation.

TESTS AND DEMONSTRATIONS OF FERTILIZER USE

The new forms of fertilizer produced by the Authority are being tested throughout the country in experiment stations and under practical farming conditions. As tested in this manner these fertilizers become the basis for improved farmmanagement and food-production programs and soil-conservation practices. In the valley States in particular this program is making it possible for farmers to meet increased war food production quotas to a degree not possible under conditions prevailing prior to the development of the test-demonstration program. The fertilizer is distributed to experiment stations for use in controlled tests, to soil-conservation associations for use on selected practical farms to measure the economic returns from its use, and to other Federal agencies. As a result of these practical demonstrations on thousands of farms the test demonstrators and thousands of their neighbors are increasing products on a sustained soilfertility basis.

The estimate of $1,846,000 for tests and demonstrations of fertilizer during the fiscal year 1944 consists of $983,000 for fertilizer and slag and $863,000 for administering and conducting the tests and demonstrations in cooperation with the land-grant colleges of the various States—both inside and outside the Tennessee Valley area.

Cost of fertilizer used for tests and demonstrations.

The largest single item of expense in connection with the test-demonstration program is the cost of fertilizer used. This fertilizer is manufactured at Muscle Shoals by the Authority, and is charged to this activity at full production cost. It is estimated that 3,600 tons of concentrated superphosphate, 6000 tons of calcium metaphosphate, and 29,750 tons of fused-rock phosphate will be used in the test-demonstration program in the fiscal year 1944 at an estimated cost of $958,000. Slag and other products to be used are estimated to cost $25,000.

Controlled soil and fertilizer investigations comprise a series of studies of the physical and chemical characteristics of new forms of fertilizers and their effect on plant life and animal and human nutrition. These investigations are accompanied by extensive fertilizer tests on varying types of farms, conducted by personnel of the land-grant colleges. The Authority's phosphates have been tested by the State agricultural experiment stations in 47 States and such tests are now in progress in 39 States. During 1944 emphasis will be given to appraisal of the effectiveness of new phosphate fertilizers recently developed by the Authority and the study of necessary supplements to phosphate fertilizers, the relationships between phosphate fertilization of the soil and the phosphorus

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