you and those parts prevent it, all you have to do is to build a transmission line down there and let the local people build the distribution system. Since you have that power you never will be required to exercise it. When you have a qualified man from the electric company sit down at the table and deal with you, they will come to fair terms on the use of that power.

Senator RANSDELL. I can not see where the Government would in any illegitimate way interfere any more with the proper business of the private companies there than it does with the legitimate private business of the express companies through the parcel post. They are still getting along very well, as I understand it, and they are doing the same kind of business that the Government is doing through the parcel post.

Mr. WELLS. This is a better case than that, because in a sense there is competition there. If this thing is properly handled there will be cooperation instead of competition.

The CHAIRMAN. And the fact that the Government has the biggest key to the whole situation suggests the most effective way on earth to regulate the thing.

Mr. WELLS. I wouldn't ask for a better hand if I had to sit down and play the game with a representative of the power company. The installation at Muscle Shoals, counting in the steam, is substantially equal to their whole installation. You have just as many aces as those fellows have.

The CHAIRMAN. I want to call your attention to this fact; that there has already passed the Senate a bill to improve Great Falls, on the Potomac, just outside the District of Columbia. It is pending in the House now. It provides for Government development there, and will produce approximately 120,000 primary horsepower and a little more than that secondary horsepower. The District of Columbia, with all its facilities, can not use more than half that power.

Between Great Falls and Muscle Shoals there are a whole lot of hydroelectric possibilities-some of the very finest kind. With the development, as I think you have so vividly pictured, of the water powers that must take place within the next few years, why isn't it fair to assume that with the rapidity with which this is going on that Great Falls, owned by the Government, operated by the Government, will be connected up to other instrumentalities and private transmission lines, with Muscle Shoals? Eventually not only will they run over into Louisiana and Mississippi from there, but they will be connected up with Washington. The Government will have two levers. It will undoubtedly be connected up with Baltimore and run on inevitably up into the New England States, and before we know it we will have the power run all the way from Maine to New Orleans, with the Government holding two keys for the regulation of that whole system.

Senator RANSDELL. There is a wonderful potential power on the St. Lawrence River. They will develop a million and a half horsepower there if they carry that plan out. That may be done by the Government. I don't know whether any private company can put up the $500,000,000 that is necessary.

The CHAIRMAN. The Government, in my opinion, ought to do it. Senator RANSDELL. I think so.

Mr. WELLS. Governor Pinchot in his letter to Governor Smith of New York, that I mentioned, took the ground that while he wished well to any enterprise that the people of New York State wanted to institute for the development of their resources, and would not undertake to advise them as to public ownership or private ownership, the one thing that would be folly would be to confine this State lines and build a barrier at the New York-Pennsylvania boundary, or the New York-Massachusetts boundary; that he wanted a power system that will go all the way from Virginia to Maine, and whatever the development is it should be tied into it. He said that on the theory that Pennsylvania coal was supplying the electricity for New York, or, if not Pennsylvania, Virginia coal was helping out, and that New York water power ought to be tied in with the Pennsylvania coal.

Senator RANSDELL. That is correct, too. May I ask, since you are discussing that Federal water power bill so learnedly and interestingly, to me at least, whether or not as you construe the law the Federal water power commission has the right to institute a general comprehensive hydroelectric and other developments from the water powers of this Nation, or must it, rather, wait for bids or requests for permits on the different waterways before it can inaugurate a system on each one?

Mr. WELLS. My impression, Senator, is that it is a question of money. There is a provision in the Federal water power act for investigations and surveys, and if the Federal power commission were armed with money, that would answer that question in the affirmative. They have authority to do that same thing now, but they can't do it without money.

Senator RANSDELL. They are not required specifically to do it. I introduced an amendment to the bill which was referred to the Committee on Commerce, which authorized them to make comprehensive plans for the development of hydroelectric power, investigation of flood control, on all the different waterway systems of the country, and specificially authorized them to use money derived from licenses for this purpose. That would supply the very funds you speak of that they are now without, and wouldn't cost the Government, as I understand it, a dollar.. I hope it will go through.

Mr. WELLS. I am delighted, and I hope it goes through. I think it would be necessary to have an initial appropriation to start this work.

Senator RANSDELL. I don't even believe that is necessary, after talking with Mr. Merrill.

Mr. WELLS. Well, Mr. Merrill knows, and I don't know about that. There is another important particular in which the act should be amended. There is a provision in the act that this work shall be done through the personnel of the three departments, War, Interior, and Agriculture, so far as possible.

Now, the construction that has been put upon that is a very severe handicap upon the commission. Take it in the matter of valuation of a project. There has been a big fight going on in the field of public utility regulation as to what should be the rate base, and in the absence of contract provisions the rate base is the value of the plant at the time the rate is made, but the most forward looking

people interested in public utility regulation, on the public side, think that the rate base should be the amount of money prudently invested.

Now, the Federal water power act by contract with the licensee makes prudent investment the rate base, but to determine what the prudent investment is, as to a plant that was built before the act was put into force, the first thing you have to do is to have a valuation. You need valuation engineers and there are no valuation engineers in the War Department or the Agricultural Department or the Interior Department, as I understand the situation. Mr. Merrill's hands are tied and he can not do this thing that the public welfare so fundamentally demands should be done.

He can not value the plants promptly, and he has his choice between blocking development, which is inconceivable, or laying the foundation for future lawsuits and controversies.

Senator RANSDELL. I would be glad to have your suggestions, and if you would not mind writing me a pretty full letter on it, I would appreciate it, because I am going to ask for hearings before the Commerce Committe before long, not that I have any serious hope. that it will pass this session, but I want it taken up. I have got provisions in there that I think would cover the object you speak of, but I am not certain.

Mr. WELLS. There is one thing I want to add. This Pennsylvania statute which I mentioned has done another thing that I think is new. It has extended this idea of public leadership and control into the field of steam electric development and the way it has done that is this: We think that the future of the steam electric development is going to be the building, and ought to be the building, of giant power steam plants near coal mines where the coal can be taken out of the mine and by a very short haul brought to the power plant, and there it can be burned, not as raw coal, but we hope that the valuable by-products can be extracted from it to reduce the cost. The thought is of large plants. Hence the name "giant power."

Now, these are to be steam plants, and the chief necessity of the steam plant is water for condensing purposes. You may have a fine coal mine, but unless you have plenty of water for condensing purposes, as you have at the Warrior plant, you can't have your giant power plant.

What is the answer? The answer is, so far as there is an answer, that by conserving water-storing water, putting in cooling plants so that the water can be used over and over again-you can make possible what would not otherwise be possible. Consequently, the control that is exercised with respect to water-power plants under this Pennsylvania statute, and the privileges of condemnation that are given by its sister statute, one passed on the same day, which is also in the record, applies to the storage and cooling of water for the generation of electricity for use in public service; so we are going to assure to these steam plants the power of condemnation subject to public supervision, but we are going to put them under all the economic control that is embodied in the Federal water power act.

Senator RANSDELL. When you use that water in connection with the development of your steam electricity, it is not necessary to waste it, is it? Couldn't you take it from the reservoir and turn it back in there, like an endless chain?

Mr. WELLS. Engineers tell me that it can be used over and over. There was no power of eminent domain in Pennsylvania for that purpose, and some of the power people were very anxious to get it. When I negotiated this legislation with them that was one of the things I offered them to get their consent to a 50-year limit. recapture, and all the rest of the things in the Federal water power act, and the legislation went through on that basis. I doubt if it could have gone through without that.

Senator RANSDELL. Now, if you can use the water over and over. you have a large available supply of coal reasonably close to some of these reservoirs, have you not?

Mr. WELLS. In a general way I would say yes. I think Doctor Newell could answer that question. I think he has made a study of what there is. We have some large plants now. There are one or two plants on the Allegheny, and one near Johnstown, which have their own coal mines, and which bring it right to their big plant and use the waters of the rivers. There has been no action under this statute, because the flow of those rivers was sufficient without storage.

The CHAIRMAN. The quantity of water the modern steam plant uses is quite large.

Mr. WELLS. It is very large. I couldn't say how much. But they tell me that is the limit on this development near the mines.

The CHAIRMAN. I have noticed it in some steam plants that I have examined-if I ever did know, I have forgotten just how much water would be necessary in a certain given output of horsepower by steam-but I know where they can be located on the bank of a stream, where a coal mine is right adjacent, I have seen the water that flows back into the stream and it is quite a volume of water they use.

Mr. WELLS. That necessity for greater water supply for industrial development is a very important thing. The Beaver River in northwest Pennsylvania is one place where they are very much concerned about it. The great industries up there use that water over and over again, and in times of low flow they tell me it is so hot that they have to shut down their works sometimes.

The CHAIRMAN. Because the water gets too hot?

Mr. WELLS. Too hot, and no vegetable matter or fish live in the water. It is so hot. The State has undertaken to build a great reservoir up on the Ohio boundary to store water in order to better these conditions.

The CHAIRMAN. Well, I think that is all, unless some members of the committee want to ask questions.

(The following letter and inclosures received by the chairman subsequent to Mr. Wells's appearance before the committee are printed by direction of the chairman :)

Hon. GEORGE W. NORRIS,

COMMONWEALTH OF PENNSYLVANIA,
DEPARTMENT OF JUSTICE,
Harrisburg, May 26, 1924.

Chairman Committee on Agriculture and Forestry,
United States Senate, Washington, D. C.

MY DEAR SENATOR: In the matter of the Muscle Shoals power site and the pending legislation thereon:

In the course of my testimony on May 23 Senator Heflin offered for the record a letter from the attorney general of New York to Mr. Herbert Myrick, the material part of which reads as follows:

"There is now pending in the United States Supreme Court a case brought by the Attorney General entitled State of New York v. Daugherty et al. in which this State questioned the pretensions of the Federal Water Power Commission. There has been a fortunate adjustment of that matter, the State retaining its rights over its waters, and it is likely the case will be settled."

This was offered by Senator Heflin for the purpose of upholding the claim that the suit in the Supreme Court of the United States, brought by the State of New York to annul the Federal water power act, had extorted concessions of State rights theretofore denied by the Federal Power Commission. Through your courtesy, as chairman, I was enabled to reply to it.

I have in my files the minutes of the conference between the officials of the State of New York and those of the Federal Power Commission, which led to the adjustment of the case referred to by the letter of the attorney general of New York; also, the report to the Governor of New York made by the conferees representing that State. These documents fully bear out the statement made by me on May 23, to wit, that the State of New York had gained nothing by this suit that was not already expressed in the Federal water power act and established in the practice of the Federal Power Commission. The report of the New York conferees to the governor makes this clear.

That report deals first with recapture. The conferees discuss this, quoting Mr. Merrill as saying correctly that the act itself does not grant authority for recapture, and that the recapture provision is primarily for the benefit of the States and the municipalities if they desire to go into the business of municipal ownership.

This satisfied the conferees for New York. (See pp. 9-11 of their report.) They could have been as easily satisfied before starting the suit. Section 14 of the Federal water power act reserves to the United States the right at the end of the 50-year term to take over the project, or to hand it over to a new licensee. Nobody eevr dreamed, outside of New York, that such taking over could be accomplished without further specific legislation by Congress. Section 7, giving preference to applicant States and municipalities, puts New York and all States in the position to take over at the end of 50 years any project as the preferred new licensee. As to this matter, therefore, the State got nothing by this conference that was not already written in the act.

The second point of the New York conferees' report (pp. 11-12) deals with rental charges that may be made by the United States, under section 10 (e), for the expenses of administration and for use of lands and property of the United States. The New York conferees conclude that the State has nothing to fear as to the exaction of charges for State land and other property. No other conclusion was possible from the words of the statute.

The State conferees next discuss the right of the Federal Power Commission to select licensees and to determine the adequacy of plans of development. Section 10 (a) of the act requires that the project "shall be such as in the judgment of the commission will be best adapted to a comprehensive scheme of improvement and utilization for the purposes of navigation, of water-power development, and of other beneficial public uses." The New York conferees' report (pp. 14-16) that Mr. Merrill asserts the legal right of the Federal Power Commission to determine the adequacy of the plans of a State taking a license. Colonel Kelly, Chief Engineer of the Federal Power Commission, said:

"The State (meaning all States) has been reserving its rights on that business ever since I have been in the Government service, and yet there has been case after case come along, and when there was a specific case under consideration, there has been no particular difficulty about getting together."