Mr. MATHEWS. Yes. We have been going through this year the severest drought that was ever known in that section. I believe similar conditions have been prevailing throughout the State along the coast, and the effect of the drought has even extended up into the States farther north, I believe.

Senator JOHNSON of California. Did that demonstrate that more water was essential for the municipalities?

Mr. MATHEWs. That demonstrated that more water was required not only for the city I come from but for the general territory in which I reside, including many large cities and practically all the municipal communities in that general territory.

Senator JOHNSON of California. Indeed, every municipality in southern California is united before this committee in behalf of this bill?

Mr. MATHEWS. Yes. They are united perforce of their necessity. They must have water for their present development.

The CHAIRMAN. Does this bill contemplate a diversion of any of the water from the Colorado River for domestic purposes? Mr. MATHEWs. Not specifically.

The CHAIRMAN. I realize it is true there exists the necessity for more water, but I am considering if it is pertinent to this situation.

Mr. MATHEWS. It is sought to convey to the committee the idea that if the appropriation is authorized, there is in the condition of the communities of the Southwest an economic fact with respect to their necessities that furnishes a practical guarantee for the repayment of the moneys the Government may advance. We must have water; we must have power. If this structure which is contemplated is built, we, because of our necessities, will be compelled to be customers for the commodities that will be produced.

The CHAIRMAN. That is, the electric power that might be developed in this project, but I am wondering if the impounding of the water to its fullest would supply water there which is so badly needed-in excess of that which you now have use in those communities.

Mr. MATHEWS. It will.

Senator JOHNSON of California. In other words, what the chairman has in mind it this: The completion of this project would enable the communities and the cities of southern California to have additional water for domestic use?

Mr. MATHEWS. Yes. The testimony has shown that for a period of the year the river has been dry, and a dam will store the water and provide such a flow as to give a steady supply of water for their uses. It would catch the flood waters and store them for the time when needed.

Senator JOHNSON of California. And there is no other source of supply for this particular territory?

Mr. MATHEWS. That is true. Our territory is affected by a scarcity of water. The city of Los Angeles is compelled to go a long distance for its water and there are no other available supplies open to those communities, and it is only by combining their resources that they can get the supplies that they need.

Senator KENDRICK. Is the water in the lower Colorado River satisfactory for domestic use?

Mr. MATHEWS. It is not as good as we have now, but it is potable, water when cleared of the silt content which it carries. The people of the Imperial Valley, and they are rather robust specimens, drink that water after the sand and other material are sluiced from it. Now, as to the structures to be built by the Secretary of the Interior. They are a dam and incidental works at or near the Boulder Canyon; a main canal and appurtenant structures located entirely within the United States for delivery of water from the Laguna Dam to the Imperial and the Coachella Valleys. Then, other canals and structures for the delivery of water from the reservoir and river to lands in Nevada, Arizona, and California.

Now, there is a limitation upon the Secretary imposed in section 1, as follows:

Provided, however, That no expenditures for the construction of canals or appurtenant structures authorized hereunder shall be made until the lands to be irrigated thereby shall have first been legally obligated to pay their proper portions, as may be determined by the Secretary of the Interior, of the total costs thereof to the United States in accordance with the terms of repayment prescribed in the act of Congress approved June 17, 1902—

Which is the reclamation act of 1902, and the amendments and supplements thereto.

The CHAIRMAN. Is that their proportion of the benefits derived from the construction of the dam?

Mr. MATHEWS. No; the bill excuses those lands from any contribution for that purpose. It imposes the full cost of the dam upon the power.

Coming now to section 2 and the division and allocation of power heads, the Secretary is empowered to receive applications for rights to use water discharged from the dam for power generation. The division and allocation of such rights is governed by certain principles or requirements

(a) It must be consistent with equitable distribution thereof among the interested States, and among the interested communities in each State.

(b) In making allocations, the Secretary may give consideration to plans of various applicants, having regard to relative adaptability and cost of power to communities served.

The CHAIRMAN, Judge, let us see how that works. It may be very workable, but I want to have it made clear to me. The Government would advance out of the Treasury of the United States a sufficient amount of money to construct a dam and impound the water either at the Black Canyon or Boulder Canyon-that is true?

Mr. MATHEWS. Yes.

The CHAIRMAN. When the water is impounded and the power is available for use the applicants would then file their applications for this power?

Mr. MATHEWS. Yes. I think, however, the Secretary might properly receive such applications upon the passage of the bill.

The CHAIRMAN. Then the Secretary of the Interior would allocate to applicants according to the beneficial use of the water in the various States?

Mr. MATHEWS. Yes.

The CHAIRMAN. I assume you are referring to the seven States which constribute their waters to the Colorado?

Mr. MATHEWS. I take it that the language of the act refers to the adjacent States Arizona, Nevada, and California.

The CHAIRMAN. And those applications might be for industrial power and some might be for power to be used by municipalities? Mr. MATHEWS. Yes.

The CHAIRMAN. Does your bill provide that the Secretary should give preference to municipalities over industrial users?

Mr. MATHEWS. The municipalities over other kinds of applicants. It makes no classification of uses.

The CHAIRMAN. "Uses" means the use for which the water will be utilized?

Mr. MATHEWS. It gives no preference to power used for house lighting over power used for running factories. The preference relates to political subdivisions over companies.

The CHAIRMAN. Suppose the municipalities would ask for 100,000 horsepower, and Jones & Smith, a private corporation desiring to build automobiles, asked for 100,000 horsepower. Would the first applicant filing his application receive the preference or would the city be considered over that of the private individual or corporation desiring to use the power for industrial purposes?

Mr. MATHEWS. The city's application would be preferred.
The CHAIRMAN. Is that in the bill?

Mr. MATHEWS. That is in the bill.

The CHAIRMAN. Where?

Mr. MATHEWS. At the end of section 2. It is provided that:

Provided, That subject to such allocations he shall give preference to applications made by political subdivisions,

The term "political subdivision" is defined in the last section of the bill as including any State, district, municipality, or other governmental organization.

The CHAIRMAN. What page is that?

Mr. MATHEWS. On page 10. The preference clause is, as I stated, at the end of section 2 and the definition of "political subdivision " is in section 12, at the end of the bill.

Now, section 3 deals with the leasing of power privileges. That subject has been covered quite thoroughly by Senator Carr.

The Secretary is authorized to make leases for not over 50 years, on terms and under regulations and at reasonable compensation, to be prescribed by him. The United States may take over at fair value of lessee's net investment, plus severance damages, the property of lessee dependent for its usefulness upon the continuation of the lease. I am now reading from section 3 as follows:

Such net investment or fair value and damages, if not agreed upon, shall be fixed by a proceeding in equity in the district court of the United States in the district in which property, or some part thereof, is situated. If the United States does not exercise its right to take over such property, the Secretary of the Interior may renew the said lease for not more than 50 years, or in his discretion may make a lease under the terms hereof to a new lessee, upon the condition that such new lessee shall pay to the former lessee such net investment and damages determined as aforesaid. If such property is not taken over by the United States, or such new lessee, or such lease renewed, the said Secretary shall extend such lease from year to year until such property is so taken over or such lease renewed.

I think that in this part of the bill they follow quite generally the scheme contained in the "water power act."

The next item is compensation for leases, renewals, extensions, and new leases, which I will read from the bill itself.

The CHAIRMAN. Pardon me just a moment. The lessee, when allocated a certain quantity of power, has a lease for fifty years, and the terms of the lease and the compensation shall be fixed by the Secretary of the Interior?

Mr. MATHEWS. Yes.

The CHAIRMAN. That, then, is repaid over a period of fifty years to the Government?

Mr. MATHEWS. Yes.

The CHAIRMAN. At the end of 50 years, if all the property were leased, it would be a sum sufficient to pay the cost of the construction of the dam?

Mr. MATHEWS. That is the Secretary's business, to see that it does.

Senator KENDRICK. I think Mr. Carr said and intended that we should get the idea that the lessee paid the full amount at the time that it took the leases

The CHAIRMAN (interposing). No; there is a provision they might pay a portion of it. They pay it on deferred payments at 5 per cent interest per annum. At the end of 50 years the lessees would have their machinery, equipment, and property that was appurtenant to the use to which the water was put. In that time the Government would have the right to acquire title to the property. Mr. MATHEWS. That is true under the bill.

The CHAIRMAN. And the Government could buy back all of the property it had sold to these lessees during the period of 50 years? Mr. MATHEWS. No; not "sold," but on the basis of his net investment in the property he puts in, on the basis of its fair value, plus severance damages.

The CHAIRMAN. I thought you said the lessee paid the whole of this amount of money named back to the Treasury of the United States?

Mr. MATHEWS. The lessees covered under section 3, plus the allottees under contract, together must insure repayment to the Government of its full outlay. There are two classes of beneficiaries.

The CHAIRMAN. Out of the whole amount of $70,000,000 that would be returned to the Government if that were the cost, would the lessee have his equipment, buildings, etc.?

Mr. MATHEWs. Yes. However, the proposed appropriation of $70,000,000 is for both dam and canal.

The CHAIRMAN. Then, if the Government acquired the property it would return to the lessees $70,000,000 that it put into the dam, plus the cost of the property?

Mr. MATHEWS. No. The lessee pays certain rentals and the municipalities pay certain compensations, together aggregating the amount that completely amortizes the Government's investment in the dam.

The CHAIRMAN. But the point that bothers me is I apparently do not understand your proposition-that these various lessees will return to the Government the cost of this dam in 50 years?

Mr. MATHEWS. Yes.

The CHAIRMAN. Now, if the Government wants to acquire the investment of the lessees, does it take into consideration the money advanced in the construction of the dam?

Mr. MATHEWS. No, only what the lesses put into power plants and structures incident to power development, not including what the lesse has paid to the Government for the construction of the reser

voir.

Senator JONES of Washington. In other words, the Government at the end of 50 years has the reservoir and also the cost, and it owns it outright.

Mr. MATHEWS. It owns the reservoir completely. It may acquire the power plants on the basis of paying the fair value of the net investment.

Senator JONES of Washington. It has the dam for nothing at the end of 50 years.

Mr. MATHEWS. Yes.

The CHAIRMAN. At the end of 50 years, the Government not only receives the return of $70,000,000, but owns the title of the dam? Mr. MATHEWs. Yes. The cost of the dam will be above $40,000,000. The CHAIRMAN. Then all the lesses have is the property which they have invested on their own account?

Mr. MATHEWS. Yes.

Senator KENDRICK. Does that apply in the same way under the Federal Water Power Act? Does the builder of the dam deliver it without cost to the Government at the end of a lease of 50 years? Senator JONES of Washington. I think so.

Mr. MATHEWS. If I may interpose, it may be under that act that the licensee himself at his own cost pays for developing the power and then pays for the works for developing the power. Here the rentals and the payments under the contracts are intended to absorb the full cost of the dam, leaving it free and clear in the Government, and the Government has the right at the end of the period to acquire on the basis of fair value the net investment of esses in the generating works and incidental structures that may be put in for the development of the power or it may have it turned over to a new lessee.

Senator KENDRICK. It was my impression of that Federal water power act that at the end of 50 years the Government could recapture the control of the dam by paying practically the cost of the dam. Under this arrangement I see no reason why they would not relieve the lessee of it in every case and resell it.

Senator JONES of Washington. But there is this difference, that in the other case the Government puts the dam in under the water power act and in this case the private party puts the dam in.

Senator KENDRICK. Yes; but the Government has in the meantime been paid for it, so it applies almost the same way. In one case the lessee invests his own capital to begin with and in the other case he pays the capital to the Government.

Mr. MATHEWS. Now, if I may proceed, section 4 deals with political subdivisions and provides that political subdivisions may acquire by contract conditional permanent rights. Under this plan, such subdivisions shall pay in annual installments covering not over