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THE PROJECT AND ITS ESTIMATED COST

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The bill proposes that there be constructed by the Secretary of the Interior “a dam and incidental works in the main stream of the Colorado River at Black Canyon or Boulder Canyon adequate to create a reservoir of a capacity of not less than 20,000,000 acre-feet of water," the “all-American canal," socalled, and “such other canals and structures as may be required for the delivery of water from said reservoir and said river to lands in the States of Arizona, Nevada, and California, which said Secretary may find practicable of irrigation and reclamation therefrom."

A dam to create a storage capacity of 20,000,000 acre-feet located at Black Canyon would raise the water level about 500 feet and have a maximum height of about 650 feet. Such a dam would cost, according to estimates of the Bureau of Reclamation, approximately $45,000,000. It is estimated that the all-American canal would cost some $31,000,000 and that the “other canals and structures

required for the delivery of water from said river to lands in the State of

California "—that is, the distributing system from the all-American canal-would cost $15,000,000, making a total of $91,000,000. The above figures do not include anything for “such other canals and structures as may be required for the delivery of water from said reservoir and said river to lands in the State of Arizona " and “Nevada,

which said Secretary may find practicable of irrigation and reclamation therefrom," and they do not include interest during construction. The preceding figures, therefore, as well as those later used, must be taken as approximations only and are used hereafter primarily to illustrate the problems presented.

In addition to structures which the bill proposes shall be built and financed by the United States, the completion of the power project will require the construction at or in the vicinity of the dam of a power house or power houses and of high-tension switching and transformer stations, with transmission lines leading therefrom, step-down transformers and substations at the end of the transmission lines, and a regulating station midway on the line. It is estimated that the power house and equipment will cost approximately $15,000,000, and that the structures and equipment necessary for the delivery of power from the high-tension station at the dam into Los Angeles would cost approximately $30,000,000 more, or a total of $45,000,000. The construction of the dam and accessories, and of the power house, transmission lines, etc., exclusive of all costs for irrigation facilities, are, therefore, estimated to cost not less than $90,000,000. The power plant would have an installed capacity of about 600,000 horsepower.

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CONSTRUCTION AND OPERATION OF PROJECT

The bill proposes that the dam and appurtenant structures and the canals and other works for irrigation shall be built by and at the initial expense of the United States, and that the power plant or plants, substations, transmission lines, and all other works incident to the generation, transmission, and distribution of the power shall be financed, constructed, owned, and operated by lessees of the United States, whose applications for “the right to use for the generation of electrical power portions of the water discharged from said reservoir and available for the generation of electrical power at said dam," have been approved by the Secretary of the Interior. Section 2 of the bill, in which is contained the language above quoted, appears to contemplate the possibility, at least, of several independent applications and of several independent power developments.

Whether as a practical matter independent developments of power can be made, or whether if practicable they would assure full economic utilization of the power resources available at the dam, is a matter of grave doubt. It is assumed, if the dam is constructed by the United States as proposed in the bill, that outlet tunnels will be provided as a part of the “incidental works." There appears no doubt that the construction from that point on will cost materially less if a single power house is provided than if two or more are built. It is doubtful if there would be room in the river canyon for a series of power houses without entailing excessive and unnecessary costs for outlet tunnels to conduct the water to such power houses. The greater part of any power that may be developed will go into the southern California market.

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To duplicate transmission lines for hundreds of miles, except to the extent necessary on account of volume of power transmitted, would be an economic waste. Likewise, individual operation of independent power houses would increase operating costs, and make full utilization difficult, if not impracticable. It is my opinion that if the power is to be developed by several lessees that such lessees should be required to pool their interests under some form of joint agreement which would provide for the construction of a single power plant to be operated as a unit up to the substations at the end of the transmission lines, and with costs and output shared on an equitable basis under the terms of the agreement.

Section 1 of the bill provides “ that no expenditures for the construction of canals or appurtenant structures

shall be made until the lands to be irrigated thereby shall have first been legally obligated to pay their proper portions, * * of the total costs thereof." I am of the opinion that construction of the dam likewise should not be started unțil agreements have been executed insuring the construction of power houses, transmission lines, etc., or so much of these structures as the United States does not itself build, concurrently with the construction of the dam and of a capacity adequate for full utilization within a period not exceeding 10 years of the power resources available at the dam. Only on such a basis do I believe that there can be reasonable assurance that the investment of the United States in the dam may not remain wholly or partially unused.

If it is deemed desirable that the construction of the dam be financed by the United States, particularly if some such plan of financing as hereafter suggested is adopted, I believe it would also be desirable for the United States to finance and construct the power plant and the high-tension transformer and switching station, just as has been done at Muscle Shoals, to lease the works for operation when completed, and to require its lessee to build and operate the necessary transmission lines, substations, and distribution facilities. Such a procedure would, I believe, obviate many complications that might otherwise exist, make easier the problem of financing the works to be constructed by the lessees, and give more assurance of adequate and early utilization of the resources available.

PUBLIC SAFEGUARDS

The bill provides that the Secretary of the Interior “is authorized to make leases of the power privileges so allocated, limited to 50 years, on such terms and under such general regulations as he may prescribe, and to fix what he may find to be a reasonable compensation therefor." While it might be assumed that a Secretary of the Interior, being also a member of the Federal: Power Commission, would not issue general regulations inconsistent with the Federal water power act, nevertheless, by the waiver of all the safeguards of that act, as the bill tacitly does, he would be fully authorized to omit them all, while any succeeding Secretary could modify the original regulations at his will.

In 1920, after more than 10 years of consideration, Congress established a general policy toward water-power development by private and public agencies, and toward the disposition of power privileges at dams erected or owned by the United States. In that legislation Congress sought to protect the public interest in the Nation's water-power resources, whether they were developed by private or by municipal agencies, and it saw fit to express its policy in a form that the Executive was not authorized to modify at pleasure. Certain public safeguards expressly set forth in the Federal water power act, and which are not made applicable under the provisions of S. 1868, are as follows:

“(1) There is no requirement, either with respect to the dam and reservoir, or the power plants built to utilize the water released, that the project adopted shall be best adapted to a comprehensive scheme of improvement and utilization for the purposes of water-power development and of other beneficial public uses.

"(2) There is no requirement that lessees shall maintain their works in a condition of repair adequate for their efficient operation in the development and transmission of power; or that they shall make necessary renewals and replacements; or that they shall establish and maintain adequate depreciation reserves for such purposes; or that they shall conform to such rules and regulations as may be prescribed from time to time for the protection of life,

health, and property; or that they shall be liable for damages occasioned to the property of others by the construction, maintenance, or operation of the project works or of works appurtenant or accessory thereto.

(3) There are no requirements respecting the time within which the project, or any part thereof, shall be begun or completed, and no provision for termination of leases for failure to begin or to complete construction, or to operate the project upon completion.

(4) The bill proposes that upon or after the expiration of any lease, the United States may take over the property of a lessee upon payment of the net investment in property taken, not to exceed fair value, plus severance damages; but there is no requirement that lessees shall maintain a system of accounting by which alone it will be possible to determine the net investment; or that they shall make and file on completion of the original construction, or of any extension or betterment, statements showing the actual legitimate cost of construction of such project, addition, or betterment; or that representatives of the United States shall have access to the books and records of the lessees to determine the adequacy of the records being kept and the completeness or correctness of any statements submitted.

* (5) There is no requirement that any Federal agency shall, in absence of State regulation or of interstate agreement, have any jurisdiction to regulate rates, services, or security issues of lessees, whether the power developed be or be not transmitted in interstate commerce.

" (6) There is no requirement that in valuation for rate making purposes no values shall be claimed in excess of the amounts prescribed for purposes of purchase by the United States.

(7) There is no prohibition against transfers at the sole option of lessees of the rights proposed to be granted.

“ (8) There is no prohibition against execution without the approval of the United States, of contracts extending beyond the lease period, a situation which might result in placing such liabilities upon the properties of lessees as practically to nullify the right of the United States to acquire the properties on termination of a lease.

“ (9) There is no ovision for the appropriation of excessive profits; and no requirement that lessees shall out of surplus earnings, if any, establish and maintain amortization reserves, or that they shall compensate either the United States or others for benefits received from headwater improvements.

“(10) There is no requirement that, in case the safety of the United States demands it, the United States shall have the right to enter upon and use the properties of a lessee upon the payment of compensation based upon a reasonable profit in time of peace.

“(11) There are no provisions for enforcing any regulations made under the terms of the bill or of penalizing any willful failure to comply with such regulations or with the provisions of the bill."

The requirements recited above are the elements of an established national policy respecting power development, a policy that has been attended with marked success. Millions of horsepower have been developed under that policy in the last five years with full protection to every essential public interest. Nothing has come to my attention which would justify or excuse the repudiation of that policy on the Colorado River, however much any prospective applicant may desire to secure special privileges or to ignore the general public interest, or to escape the obligations assumed by every other agency public or private which develops a power site under the jurisdiction of the United States. These public safeguards can be maintained only if all leases of power privileges on the Colorado as well as everywhere else, and under the proposed bill or otherwise, are made subject to the provisions of the Federal water power act.

ADMINISTRATION

The bill proposes to place the administration of the project, the issuance of leases, and the determination of charges in the hands of the Secretary of the Interior. All other power projects under Federal jurisdiction are administered by the Federal Power Commission, of which the Secretary of the Interior is a member. The commission was created for the purposes of coordinating the power activities of the three departments which previously had acted independently and with conflicting policies. To return to the former practice, even in part, would be a backward step in public administration. If it is determined to build the project in whole or in part at Government expense or with loan of Government credit, the construction of the project may best be left, as proposed, with the Secretary of the Interior, as well as all matters relating to irrigation structures or uses; but if the existing policy of coordinated administration of water powers is not to be overthrown, the leasing of power privileges should be in the hands of the Federal Power Commission to be exercised under the provisions of the Federal water power act, and under such special provisions, if any, as it may be deemed desirable to include in the bill under consideration. In this connection I quote from the report on H. R. 2903 made to the Committee on Irrigation and Reclamation of the House of Representatives, on March 24, 1924, by the three members of the Federal Power Commission, as then constituted, Secretaries Weeks, Work, and Wallace:

Congress also, in the Federal water power act, created a single executive agency for the administration of all water powers under Federal ownership or control. The plan thus adopted is proving eminently satisfactory. We believe any change in such method of administration is undesirable, and therefore, whether the Boulder Canyon Dam or some other be built, and whether at public or private expense, we believe the disposition of any power developed should be handled by the Federal Power Commission under the general terms of the Federal water power act, and not as proposed in the bill. All interests of the Department of the Interior will be adequately met through the membership of the Secretary of the Interior on the commission."

THE COLORADO RIVER COMPACT

The substitute bill, S. 1868, endeavors in section 8 to protect the interests of the upper basin States by making the provisions of the Colorado River compact conditions and covenants "to run with the land and water right” in any

patent, grant, contract, concession, lease, permit, license, right of way, or other privilege from the United States or under its authority."

The approval of the compact by Congress as proposed in section 13 of the bill, such approval to become effective when the compact shall have been ratified by six of the States, and the inclusion of its provisions as conditions and covenants of any grant of any kind derived from the United States, would seem to afford ample protection to the upper basin States, except under two contingencies: (1) Of a subsequent repeal of the proposed provisions by act of Congress, and (2) of the acquisition by individuals or interests of rights to waters which have been returned to the channel of the river, under conditions where such individuals or interests could utilize such waters without the necessity of securing any grant or other authority from the United States for any lands to be occupied in putting such waters to use.

It may reasonably be assumed that repeal of the provisions if once enacted would be a remote contingency. To what extent, in the event of regulation of river discharge through storage, waters of the river could be appropriated and actually put to use in the United States without occupying lands of the United States, or utilizing structures now owned by the United States or proposed to be built under the provisions of the bill, is not known. In absence of such information the degree of hazard to the rights of the upper States which might arise from this source can not be predicted. In any event, the application of the provisions of the compact to all developments upon the river for any purpose appears to be an essential element in a comprehensive scheme of river development.

PLAN OF FINANCING

The bill originally before the committee and considered by it prior to the introduction of S. 1868, on December 21, 1925, proposed that cash advances for the construction of the project should be made out of the Treasury of the United States and that the United States should be reimbursed under either one of two plans, optional with any political subdivision of a State that might be a lessee of all or of any part of the power privileges.

Under the first plan, as contained in section 3 of the original bill, the United States would be compensated for original cash outlay without interest, such outlay to be repaid in not to exceed 50 years. Under this plan with a total cost of project of $45,000,000, annual payments would amount to $900,000.

To retire the $45,000,000 outlay in 50 years, however, with interest payments meantime at 4 per cent, would require an annual expenditure by the United States of $2,095,000, or $1,195,000 per annum more than would be received from lessees, while the total deficit over the 50-year period would amount to $59,750,000.

The alternate plan as contained in section 4 of the original bill provided for repayment during a period of 25 years with interest at 5 per cent per annum on deferred payments. This plan would have required aggregate an. nual payments from lessees of $3,193,000 per annum, or a total during the 25-year period of $79,822,000. Under this plan the United States would incur no deficit. Since, however, lessees would have been required to pay $2,293,000 more per annum than under the first plan and a total during the lease period of $34,822,000 more than under the first plan, it is hardly to be assumed that any prospective lessee would have selected plan No. 2.

The provisions of the original bill have been modified in S. 1868 by requiring (a) that under both plans interest at 4 per cent per annum shall be paid on the unpaid portion of the capital outlay, and (b) that one-half of the total capital outlay shall be paid back to the United States in the five years next succeeding the issuance of lease. Under these modifications if plan No. 1 is followed, and one-half of the capital outlay is repaid during the last 45 years of the lease in equal annual installments, covering both principal and interest, the annual payments required to be made to the United States would vary during the first five years from $6,300,000 to $5,580,000 per annum, and would amount during the remaining 45 years to the uniform figures of $858,500 per annum, the aggregate of such annual payments during the 50-year period being $68,783,000. Under both plans, however, the only means by which lessees could meet these capital payments to the United States during at least the first five years would be by issuance of their own bonds, and if it be assumed that such bonds would be issued at such a time and in such an amount as to meet these capital payments, and that after the five-year period they would be amortized during the remaining 45 years, the annual charges on account of interest and amortization on such bonds would, if they could be sold on a 5 per cent basis, amount to $1,166,000 per annum. This sum would be in addition to the $858,500 to be paid annually to the United States, thus making the combined obligations during the last 45 years $2,024,500 per annum.

With the same modifications applied to plan No. 2, that is, with half the capital outlay paid in equal annual installments during the first 5 years, and the balance with interest paid in equal annual amounts during the next 20 years, the payments during the first 5 years would vary as under plan No. 1 from $6,300,000 to $5,580,000 per annum, and the uniform payment during the next 20 years would be $1,655,550 per annum, the total payments during the 25-year period amounting to $63,261,000. To these figures should be added, as discussed in the preceding paragraph, the same additional charges as named in that paragraph, which would make the combined financial obligations of the lessees under plan No. 2 $2,821,550 per annum for the 6th to 20th years, inclusive, and $1,166,000 per annum thereafter. The figures of this and preceding paragraphs of the section are predicated on an expenditure of $45,000,000 by the United States on account of the power project. Were the cost of power house and accessories also to be assumed by the United States, the aggregate expenditure would be $60,000,000, and the figures of the preceding paragraphs should be increased one-third. If the $6,000,000 of excess cost of dam, due to provision of flood-control storage, are charged against the lands benefited, the preceding figures, in so far as used to express liabilities of power lessees, would require to be modified proportionately.

It is obvious that under either of the modified plans as considered in S. 1868 the United States will be fully reimbursed, principal and interest, unless during some part of the lease period it is paying an interest rate in excess of 4 per cent. Whichever plan any qualified lessee might elect to accept would doubtless depend upon its ability to meet during the period following the initial five years the annual charges on account both of its annual payments to the United States and of its own bonds issued to take up the initial capital payments. Under the second plan the combined annual obligations would be approximately $800,000 per annum greater during the sixth to twentieth years, inclusive, and about $860,000 less during the last 25 years than under the first plan.

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