For the maintenance of Dam No. 2 and for the maintenance and operation of the locks, payment will be made of $35,000 per annum in quarterly installments. The several classes of payments actually to be made on account of Dam No. 2 and percentages that such payments bear to the Government's investment exclusive of locks, will be as follows. Payments for the thirty-sixth to fiftieth years, and for the entire period are given both with and without interest on deferred rentals. Interest on deferred payments while an item of cost of energy produced is not, of course, a payment for the use of Government property, but only a recompense to the United States for excess interest which it would have to pay because of the deferment of the "rental" payments during the first six years of the lease. Dam No. 3 with transmission line connecting it to Dam No. 2 is estimated to cost $34,875,000 with an additional $2,000,000 for locks. On this amount less $6,000,000 or $30,875,000 the lessee is to pay interest at 4 per cent per annum. "Amortization" payments are to be computed on the $36,875,000 and there is to be a maintenance and operation payment of $20,000 per annum. The actual payment for interest and "amortization" during the first three years of possession is to be $160,000 per annum, deficiencies to be carried forward with interest as on Dam No. 2 and paid off after the thirty-fifth year. It is assumed that work will be begun on Dam No. 2 during the third year of the lease period and that the plant will come into possession of the lessee at beginning of sixth year of lease period. On the same basis as for Dam No. 2 annual and total payments and their relation to the Government's investment, exclusive of locks, in Dam No. 3 will be as follows: With respect to the Cove Creek project it is assumed that probabilities of navigation use are too small to justify construction of locks over the proposed 225-foot dam. Estimate of the cost of the dam, power house for 200,000 horsepower, and transmission line to Dam No. 2 is $34,140,000. It is further assumed that the project, if built, will be completed and ready for delivery at the end of the ninth year of the lease period The bill provides that payments or interest and "amortization" shall be based on a maximum expenditure of $20,000,000 if locks are not provided. Payments would begin at the end of the tenth year and be uniform throughout the balance of the lease period, as follows: Equivalent to 2.5 per cent upon estimated Government investment of $34,140,000. Neither interest, "amortization," nor maintenance payments are to be made upon any part of the Government's investment of $12,326,000 in the existing steam plant. On the Government's investment in power properties (excluding navigation facilities) and varying from $55,714,000 (present investment) to $133,104,000 estimated ultimate investment, the aggregate of the above payments without interest on deferred payments, or $169,514,000, would amount to an average annual return on such investment of 2.6 per cent through the 50-year period. The annual combined payments for interest, "amortization," and maintenance, the current investment in the Government's power properties under lease, and the percentage relation of annual payments to current investment are as follows: Combined power properties-Dams Nos. 2 and 3, Cove Creek, and present steam The cost of power produced in the several plants covered by the proposal will vary in accordance with the amount of energy produced. The two chief items of cost will be the payments to the United States and the cost of fuel for the operation of the steam plant. The following estimates are made for full operation: Since there is no provision requiring replacement of equipment beyond the extent profitable to the lessee, the estimates assume one replacement only of steam turbines during the period of the lease and replacement in hydro plant of only minor equipment not subject to satisfactory repair. From such of the above figures as are applicable to the several combinations, and with the appropriate payments to the United States added, estimates of costs per kilowatt-hour of total energy output and of total primary power are approximately as contained in the following table: Costs per kilowatt-hour in mills and output in thousands of kilowatt-hours per annum The figures under the column headed "Dam No. 2, 60,000 kilowatt, steam," represent the amounts which would prevail throughout the period if the development were limited to 610,000 kilowatts at Dam No. 2, and 60,000 kilowatts in the Sheffield steam plant as now existing. The steam plant is assumed to act as an auxiliary only, that is, to supply power at seasons of the year when water is not available to operate the hydro plant to capacity. Of the total primary power made available under column (1) 95,000,000 kilowatt-hours would be steam produced. With 120,000 kilowatts of steam installation the amount of primary power supplied by steam would be 268,000,000 kilowatt-hours with Dam No. 2 alone and 325,000,000 kilowatt-hours with Dam No. 2 combined with Dam No. 3, or with that dam and Cove Creek. The cheapest kilowatt-hour cost for total output would be produced by Dam No. 2 with the 60,000 kilowatt steam plant, namely, 1.18 mills per kilowatt-hour as the average cost during the 50-year period. This low cost is due to the fact that payments are not required for the steam plant and for only a part of the investment in the hydro plant, and because the amount of steam energy is relatively small. During the first six years of operation, when the payments to the United States are merely nominal, Dam No. 2 if completed and operated with the existing steam plant could deliver the total output at an average cost to the lessee of less than one-half mill per kilowatt-hour, while if all costs were charged solely against the primary power that power would cost only three-fourths of a mill per kilowatt-hour. The costs of power for the maximum years, thirty-fifth to fiftieth, inclusive, during which deferred payments with interest thereon are being liquidated, are only slightly in excess of 2 mills per kilowatt-hour for the output of all the plants. The averages for the 150-year period are, however, well below 2 mills per kilowatt-hour. By building these plants at Government expense and leasing them, as is proposed, for annual payments which are less than the United States must itself pay out in interest, and by making no requirements for depreciation reserves, a situation would be produced whereby the lessee would secure the largest block of power available to any corporation in the United States, or elsewhere, at a cost materially less than anywhere else in the United States, with the possible exception of Niagara Falls. Hon. JOHN M. MORIN, Chairman Committee on Military Affairs, AMERICAN CYANAMID CO., New York, February 28, 1928. House Office Building, Washington, D. C. DEAR MR. MORIN: In the hearings before your committee on the Madden bill on February 20, 1928, during the discussion of what the Government would receive under that bill, pages 1077, 1078, 1079, 1080, and 1081 of the previous hearing, Part II, were inserted in the Record. I have had the pages referred to looked up and the statements therein are, I believe, incorrect. Mr. Madden transmitted with his letter to the President of the United States, of February 13, 1928, a table showing profit to the Government from interest payments under the Madden bill. I inclose a copy of Mr. Madden's statement. I believe these figures are accurate, but believe your attention should be called to the fact that the payment of $140,000 shown on that table for the second year as interest on extra machinery, and the payments of $280,000 annually for the third, fourth, fifth, and sixth years as interest on additional machinery may, at the option of the lessee, be deferred and paid, with simple interest at 4 per cent, during the last 15 years of the lease. Our accounting department is preparing a statement showing all the receipts to the Government under the Madden bill, and, we hope to have this in your hands in the next few days. This statement will show larger receipts by the Government than Mr. Madden's statement, as Mr. Madden's statement only dealt with interest payments. Very truly yours, W. B. BELL, President. |