1 Selected resources as of June 30 are as follows: unpaid, undelivered orders 1963, $279,000; 1964 $349,000.

Mr. EVINS. Before taking up the regular 1965 budget estimates we have a supplemental request for your operation and maintenance program in the amount of $380,000, as contained in House Document 284.

We shall insert the pertinent part of the document in the record and the justifications for the item, and ask you briefly to explain this

to us.

(The information referred to follows:)

"DEPARTMENT OF THE INTERIOR

"BONNEVILLE POWER ADMINISTRATION

"OPERATION AND MAINTENANCE

"For an additional amount for 'Operation and maintenance,' $380,000.” Of this proposed supplemental appropriation, $190,000 is needed to arrange for the sale of power under recent agreements reached with Canada in connection with the Columbia River treaty. Intensive negotiations and studies should be initiated immediately to permit completion by October 1, 1964, as agreed. The remaining $190,000 covers the cost of pay increases for wage board employees granted pursuant to law.

This appropriation was apportioned pursuant to section 3679 of the Revised Statutes, as amended (31 U.S.C. 665), on a basis which indicated a necessity for a supplemental appropriation for the statutory pay increases. This action was reported to the Congress by the Director of the Bureau of the Budget on February 14, 1964.

Employment:

Average number, current appropriation_

Number involved this estimate..

Actual employment, Jan. 31, 1964.

1 The wage increase portion is applicable for 12 months from July 1, 1963.

PURPOSE AND NEED FOR SUPPLEMENTAL FUNDS

$13, 689, 000 6, 875, 000 6, 840, 000 14, 980, 000 380, 000

1, 113

1,093

A supplemental appropriation is required in fiscal year 1964 to cover added costs resulting from (1) implementation of agreements recently reached between the United States and Canadian Governments pursuant to the Columbia River Treaty, amounting to $190,000; and (2) wage increases granted to hourly rated wage-board-type employees, amounting to $190,000.

OPERATION AND MAINTENANCE

THE 1964 SUPPLEMENTAL ESTIMATE

Operation and maintenance, $380,000

A supplemental appropriation in the amount of $380,000 is required in fiscal year 1964 to cover added costs resulting from: (1) implementation of Columbia River Treaty with Canada, amounting to $190,000, and (2) wage increases for ungraded employees, amounting to $190,000.

These two items, described in detail below, cannot be financed out of the fiscal year 1964 operation and maintenance appropriation without drastic curtailment of the work program already approved by the Congress. The Administration's operation and maintenance program is carefully planned through the application of standard maintenance frequencies, consistent with electric utility industry practice, to specific inventories of installed equipment units. The program now

is set at the minimum level necessary to protect the Government's investment in transmission plant and to insure reliability of electric service to the region. A reduction below this level would cause an increase in vulnerability to emergency breakdowns, interruptions of electrical service, and consequent disruption of community activities.

COLUMBIA RIVER TREATY WITH CANADA

On January 17, 1961, the Governments of Canada and the United States signed a treaty for the cooperative development of the Columbia River. On March 16, 1961, the U.S. Senate gave its consent to ratification of the Columbia Treaty. Neither the Province of British Columbia, which would build the three storage dams, nor the Government of Canada has acted upon the treaty.

The treaty provides for Canada to build three storage dams in Canada, with 15,500,000 acre-feet of storage usable in the United States, and to provide the reservoir area so that the United States can build Libby Dam. This storage will be operated to provide benefits downstream in the United States. For the use of this storage, the United States is to pay Canada $64,400,000 (a portion to be paid upon the completion of each storage) as the estimated worth of one-half the flood control benefits that the Canadian storage provides American property. Also, the United States is to return to Canada one-half the additional dependable power and energy that the Federal and non-Federal dams on the main stem of the Columbia can generate because of the Canadian storage.

After British Columbia embarked on the construction of the Peace River project, it became clear that for the treaty to proceed, the downstream power benefits to which Canada is entitled must be sold in the United States, and that British Columbia must secure financial assistance through such a sale to finance the storage. It was not until July 1963 that the Canadian Government agreed to consider that Canada's share of the downstream power entitlement might be sold on a long-term basis in the United States.

Negotiations to implement the new policy began August 1, 1963. After 4 months of negotiations, the basic elements of the sale and financing arrangements were agreed upon in December 1963 by representatives of British Columbia, the Canadian Government, the United States, and the prospective purchaser. The United States agreed to use its best efforts to assist Canada in the sale of its share of the power from each project to a prospective purchaser in the United States for 30 years from the date of completion of each project for a sum of $254,400,000 (U.S. currency) to be paid Canada on October 1, 1964. In turn, Canada agreed to use its best efforts to proceed with the necessary steps in preparation for ratification of the treaty.

The prospective purchaser is a proposed nonprofit corporation organized by three public utility districts in the State of Washington (Chelan, Douglas, and Grant) with hydroelectric dams on the main stem of the Columbia River, and other major public and private utilities that have purchased a share of the output of these projects.

Since over 70 percent of the downstream power will be generated at Federal projects, and since the Administrator of the Bonneville Power Administration will be designated under the treaty as a member of the U.S. entity for implementing the treaty, conclusion of the arrangements with Canada and with the prospective purchaser of this power will require of Bonneville an intensive program of studies and negotiations which was not contemplated at the time Bonneville's fiscal year 1964 budget was prepared. These studies and negotiations will require greater use of electronic computers, and services of consulting firms, in order to meet the proposed schedule of actions.

Negotiations and studies required are as follows:

(1) Determination of the Canadian entitlement at each downstream project, since about 30 percent of the entitlement will be at five non-Federal projects, each with a different complement of participants.

(2) Negotiation of a contract with the purchaser to deliver to it the amount of power due Canada in terms of delivery of peaking capacity and energy. In order for the purchaser to issue bonds to buy the power, an agreement must be reached as to the amount of power to be provided from the Federal dams for each year of the term of the sale of the Canadian entitlement in the United States.

(3) Wheeling contracts must be negotiated with each user who will obtain power from the purchaser since the Canadian entitlement will be available at the downstream projects.

(4) A coordination agreement with participating utilities for the 60-year treaty life must be negotiated prior to completion of the financing. Only through such an agreement can assurance be given that maximum use will be made of the Canadian storage to secure the power benefits contemplated under the treaty. Although the Bonneville Power Administration has entered into short-term agreements on coordination, they are based on a seasonal storage control period of a hydro system. With Canadian storage, the Northwest power systems will have a multiseason storage drawdown period which presents a number of problems that must be investigated. A long-term agreement must take into account the transition from a hydro system to a hydrothermal system. A long-term coordination agreement must include coordination of peaking capacity and transmission, which are not included in the short-term contracts.

(5) Bonneville will work with British Columbia to analyze the effects on operations of the proposed design of the storage projects. This is necessary so that we can secure the release of water as needed in the United States. (6) Bonneville will retain a financial adviser to follow all phases of the financing. This is essential since Bonneville has a material interest in the cost of financing.

In order to accomplish the requirements previously set forth, it will be necessary for Bonneville Power Administration to contract a substantial amount of work, particularly for financial and power resource studies. It is not possible for the Administration to immediately acquire and train the necessary staff to perform all of this additional workload. Our staff who have competence in the specialized fields of study that are involved already have been working as much overtime as is humanly possible, and this will continue.

Although the cost of this program of implementation for the United StatesCanadian Treaty are greater than that reflected in this supplemental, that portion of the work applicable to the construction program will be absorbed within that appropriation. The additional staff workload in the operation and maintenance

program in an estimated amount of $60,000 resulting from this program, is being absorbed.

Because of the urgent need for obtaining certain data by October 1, the Bonneville Power Administration has proceeded to undertake certain aspects of the treaty implementation work. This has been accomplished by postponing to the last quarter of the fiscal year certain other obligations for approved program elements. Such items include acquisition of certain operation and maintenance supplies, equipment and tools which, under careful control procedures, can be acquired with specifications for shorter delivery times; selected maintenance items such as repairs of access roads, painting of towers, control houses and other electric plant, removal of danger trees bordering transmission rights-of-way, and treatment of rotting pole tops would be delayed where weather forecasts indicate such work can be accomplished in the months April to June.

WAGE INCREASES FOR UNGRADED EMPLOYEES

The Administration has established wage rates for hourly or craft-type (ungraded) employees through collective bargaining since the passage of enabling legislation in 1945 (Public Law 201, 79th Cong., 1st sess., approved Oct. 23, 1945). The policy is to adjust rates of pay to levels consistent with those adopted through collective bargaining by the major electric utilities in the Administration's service areas, both publicly and privately owned systems.

New hourly wage rates became effective June 30, 1963, July 15, 1963, and July 28, 1963, as the result of the annual negotiating conferences of the Administration with the Columbia Power Trade Council, the Amalgamated Lithographers of America, and the American Federation of Government Employees.

These wage increases were effective after the submission of the fiscal year 1964 budget estimate, which was prepared on the basis of compensation scales in effect on September 15, 1962. Thus, the added costs were not included in the estimate, yet such costs are required to be met during the year covered by the estimate.

However, under the provisions of section 1 of Public Law 85-872, approved September 2, 1958, and section 210 of the General Government Matters Appropriation Act of 1958, which authorized obligations or expenditures for wage increases in excess of the annual appropriations, the Bonneville Power Administration has proceeded in the orderly conduct of its approved program with anticipation of supplemental appropriations for the wage increases.

The added cost in fiscal year 1964 resulting from these wage increases, amounting to $190,000, was calculated by multiplying the personnel compensation amount (object 11) applicable to ungraded employese by 3.3 percent, the average increase in hourly wage rates. The product thus obtained was increased by 61⁄2 percent to reflect increased retirement costs included in personnel benefits (object 12). The total then was adjusted downward to reflect the small lapse factor involved for those ungraded employees whose new wage rates were effective July 15 and 28, 1963.

Mr. LUCE. I have a statement which, if the subcommittee will permit, I shall insert in the record at this point.

(The statement follows:)

FISCAL YEAR 1964 SUPPLEMENTAL APPROPRIATION REQUEST

Statement of Charles F. Luce, Administrator

Mr. Chairman and members of the committee, I appreciate this opportunity to appear before you to discuss the new requirements which make necessary a request for supplemental operation and maintenance funds for the fiscal year 1964.

The new requirements, not foreseeable at the time our regular 1964 budget was presented to the Congress, arise from (1) the need to accomplish a heavy and intensive workload of studies to implement the Columbia River treaty with Canada and (2) the need to cover added costs resulting fron wage increases for ungraded employees. The additional funds required for each of these two items amount to $190,000, making a total supplemental request of $380,000.

29-190-64- -12

COLUMBIA RIVER TREATY WITH CANADA

The provisions of the Columbia River treaty with Canada and the subsequent protocol and supplemental agreements are fully discussed in our fiscal 1965 budget presentation.

President Johnson's announcement on January 22, 1964, of a Canadian-American exchange of notes brings the Columbia River treaty closer than ever to reality. By virtue of the notes, the two countries agreed:

(a) "The Government of the United States will use its best efforts to arrange for disposition of Canada's entitlement to downstream power benefits within the United States of America in accordance with the general conditions and limits set forth in the attachment, and

(b) "The Government of Canada will use its best efforts to accomplish all those things which are considered necessary and preliminary to ratification of the treaty as quickly as possible, including any arrangements for implementation and acceptance of the general conditions and limits set forth in the attachment."

The attachments made clear that Canada will not consent to ratification of the treaty until her share of power has been sold in the United States for a 30-year period for the lump sum of $254.4 million payable in full in advance on October 1, 1964.

Since more than 70 percent of the downstream power benefits from the treaty will be produced at Federal projects, BPA is deeply involved in negotiations with the prospective purchasers of Canada's share. The successful conclusion of these negotiations in order to meet the proposed schedule of actions requires of Bonneville Power Administration in intensive program of studies, greater use of electronic computers, and services of consulting firms.

Specifically, the following workload not contemplated in our 1964 budget now confronts BPA:

1. A determination of the Canadian entitlement must be calculated for each of the three Canadian storage dams for each of the 30 years following completion. An allocation of such entitlement must be calculated for each of the six Federal and five non-Federal dams in the United States on the main stem of the Columbia River which will benefit from the Canadian storage. These calculations will fix the amount of power purchased from Canada on an advance payment basis and the cost of such power to the purchasing utility systems in the United States.

2. Contracts must be negotiated among BPA, the nonprofit corporation purchasing the entitlement, and the participating utilities which will provide the money to cover the bond issue. It is necessary to determine the amount of power which each purchasing utility will receive and which it will exchange to BPA for equivalent amounts delivered to the purchasers at points agreed upon in the contracts.

3. Because the energy generated at the non-Federal dams will not be usable unless capacity is provided, contracts must be negotiated for the sale of capacity by BPA to the purchasing utilities.

4. Wheeling agreements must be negotiated in order to deliver to the purchasing utilities the capacity and energy generated at the Federal and non-Federal dams on the Columbia River which generate the Canadian entitlement.

5. A coordination agreement with participating utilities for the 60-year treaty life must be negotiated prior to completion of the financing. Only through such an agreement can assurance be given that maximum use will be made of Canadian storage to secure the power benefits contemplated under the treaty.

6. BPA will work with British Columbia to analyze the effects on operations of the proposed design of the storage projects. This is necessary so that we can secure the release of water as needed in the United States.

It will be necessary to contract a substantial portion of this work, particularly the financial and power resource studies. It is not possible for us immediately to acquire and train the necessary staff to perform all of this additional workload Our staff who have competence in the specialized fields of study that are involved have been working as much overtime as advisable, and this will continue.

Because of the urgent need for obtaining certain data by October 1, 1964, we have already undertaken the treaty implementation work. This has been done by reprograming to the last quarter of the fiscal year selected maintenance items such as treatment of pole tops, painting of electrical plant, removal of danger trees bordering transmission line rights-of-way, access road repair, test and replacement of anchor rods, and brush control.