TO AMEND THE RECLAMATION PROJECT ACT OF 1939 SATURDAY, MARCH 29, 1947 SUBCOMMITTEE ON IRRIGATION AND RECLAMATION, OF THE COMMITTEE ON PUBLIC LANDS, Washington, D. C. The subcommittee meet, pursuant to notice, at 10 a. m., Hon. Robert F. Rockwell presiding. Mr. ROCKWELL. This committee will please come to order. The first witness this morning is Congressman Jackson of Washington. We are very happy to have you here, and, Mr. Jackson, as former chairman of my Indian Affairs Committee, I particularly welcome you here. Mr. LEMKE. May I make an observation there, Mr. Chairman? I want to say that I had occasion to appear before your committee, and your chairman was the most pleasant to deal with on Indian affairs of any chairman the committee ever had. STATEMENT OF HON. HENRY M. JACKSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON Mr. JACKSON. You gentlemen are very courteous. I shall be very brief. I have a prepared statement. It might be helpful from the standpoint of continuity on the record and to avoid repetition if this could be off the record, because what I have to say is contained in my statement. Mr. ROCKWELL. You want this off the record? Mr. JACKSON. Yes; my statement will embody anything I have to say except any questions and answers which will be on the record. Mr. ROCKWELL. Without objection, the statement will be included in the record, and this, until questions are asked, is off the record. (Off the record.) Mr. JACKSON. I would like permission at this time to file by statement at this point in the record. Mr. ROCKWELL. Without objection, that statement will be included in the record. Mr. JACKSON. This bill is loosely drawn and contains many objectionable features. It contains an extremely reactionary proposal. Even if clarified to express what appears to be the intent and enacted with such an intent, this proposal will do great harm to the water users of the Northwest as well as to the power users and would cripple the entire economy of the State of Washington by eliminating lowcost hydro power as one of the national resources of the region. A 353 section covering power rates, namely, paragraph 1E-5, is most ambiguously set up. H. R. 1886 in this section states: Such power rates shall be estimated on a basis which affords to irrigation the maximum benefits compatible with the cost of generation of electric power within the area served by the project when such electric power is or could be generated by the most efficient or least expensive available method. Under this section power rates would be dependent on the cost of generating power in the same area by the most efficient alternate method. The area lacks definition. The alternate plant could include hydro generation as well as steam generation from coal, oil, wood, or gas. Such great ambiguity exists in H. R. 1886 that, theoretically, it would be possible for electric rates under this provision to be less than requisite rates which would allow the full repayment of all allocated costs. A fair interpretation of this rate language is in direct conflict with other provisions of H. R. 1886 applying to rates sufficient to cover costs properly allocated to power revenues. The above, quoted from the bill, was evidently intended to require power rates to be fixed at a higher level than would otherwise be the case, the higher level being tied to the cost of competitive generating sources. A great uncertainty flows from this paragraph, since it fails to define the quality or qantity of power involved in this rate-making process. In the whole theory of rate making and in the decisions of the supreme and appellate courts there is no precedence for such formula. The alternate plant proposal does not define whether or not the application of this formula refers to similar quality or quantity of power. The provisions of this bill would tend to eliminate low-cost hydroelectric power being used as a natural resource. Consequently, such a bill would retard the industrial development of regions where competitive power costs are high, as exists in the Northwest. Therefore, the effect would be to deprive these regions of the low-cost advantages that could be gained from available low-cost power. In this connection, I would like to point out to the members of the committee the tremendous amount of money saved by the Federal Government as a result of the production of a lower-cost aluminum in the Pacific Northwest since 1941. In that year the cost of aluminum was 21 cents. In 1945, as a result of lower operating costs, due to the availability of cheap hydroelectric power in the Pacific Northwest, the cost was reduced to 15 cents. Virtually all of the aluminum produced in the Northwest during the war period was purchased by the Federal Government. The total savings accruing to the Government as a result of the reduction in aluminum costs aggregated $350,000,000. This represents a sum of money in excess of the total costs to date of all reclamation projects in the entire Northwest area. Reclamation projects brought into being under such a formula would produce products that would become a drug on the market. Unless there is an economic balance between industry and western agriculture, agriculture is bound to become a producer of surplus products. In the sections of the country where agriculture is most prosperous, the statistics show that there are between five and six industrial and allied workers for every single worker gainfully employed in agriculture. The effect of such a rate formula would be placing stilts under rate levels to such a point that the balance between agriculture and in dustry would be lost to a degree that would impair the development of the region. Under one possible interpretation of this bill power users would be required unfairly to subsidize water users by paying for a portion, and possibly all, of the costs of irrigation, which are within the ability of the water users to repay. Under existing law the amount of subsidy from power to irrigation is determined by subtracting from the project cost allocated to irrigation the maximum amount which the water users are able to repay through agricultural operations. The bill can be interpreted in such a manner as to reverse the practice under existing laws. This reversed interpretation would reduce the amounts to be repaid by the water users to a point which is lower than their ability to repay and could even result in a reduction of the obligations of the water users to an insignificant value if the power subsidy was stilted sufficiently to repay all costs allocated to irrigation. This bill would also modify the existing law and require power revenues to be elevated to a point sufficient to return all costs allocated to power as well as interest on the unpaid balances at 2 percent and the cost allocated to irrigation but assigned to be repaid from power revenues. Power would thus be required to pay both interest and a subsidy, limited in size only by what the traffic would bear. The extent of the applicability of the bill is ambiguous. For example, subdivision 6 of the amended section 9-C, beginning at the bottom of page 9, indicates that all sales of power made, renewed, or extended after the effective date shall be subject to the provisions of the act. A fair interpretation of this bill would be to elevate the Grand Coulee rates. The proposed bill would not extend the Bonneville Act or the application to other projects under War Department authorization. The bill is not clear in scope in showing that the act is not limited to reclamation projects. The operations of the transmission set-up for both Bonneville and Grand Coulee are a single-system set-up. Physically it is impossible to ascertain whether any particular customer of the Bonneville Power Administration is being served from power from Grand Coulee or from the Bonneville Dam. The application of this bill and the consequent requirement of the rates between the Bonneville and Grand Coulee projects would create an unrealistic and an unworkable electrical situation. It is obvious that Federal plants in the same marketing area cannot compete with each other without destroying the taxpayers' investment. Such competition between plants would be detrimental to the interest of the Federal Government and would be disastrous to the region. The sections of the bill applying to the period in which water users would be required to pay allocated costs creates a situation which is in direct conflict with existing contracts. The sections of the bill referring to allocation of joint facilities are not clear. H. R. 1886 is defective in not authorizing allocations on a reimbursable basis to users now recognized. H. R. 1886 would also amend section 9-d and 9-e of the Reclamation Project Act covering contracts between the Secretary of the Interior and the water users. The constitutitonality of altering exist ing contracts is questionable. Even if this point were recognized in the bill, discrimination between agricultural areas would result. H. R. 1886 would completely rewrite sections 9-a, 9-c, 9-d, and 9-e of the Reclamation Project Act of 1939. The changes in the basic reclamation law are so numerous that the bill should not be reported out without such extended hearings as to give all the interests in the Western States an opportunity to have their day in court. This bill as written, in my opinion, would cause a great injury to the water users of my region. Likewise power users would be adversely affected and this bill would place a barrier on the economic development of vast regions of the West by eliminating low-cost hydro power as the outstanding natural resource of the region. Mr. ROCKWEII. Are there any questions you want to ask Mr. Jackson? Thank you very much. Mr. JACKSON. Thank you, Mr. Chairman. STATEMENT OF CLIFFORD H. STONE, DIRECTOR OF COLORADO WATER CONSERVATION BOARD-Continued Mr. ROCKWELL. Judge Stone, I think you made a statement yesterday, and now you may continue, please, where you left off. Mr. STONE. Mr. Chairman, and gentlemen of the committee, you will recall that yesterday I devoted a considerable portion of my statement to suggestions for simplifying the matters which are before the committee and which are presented by the four bills which are now before the committee. I suggested that the procedure would isolate many matters relative to reclamation law which seem to be troublesome and, perhaps, need further study, and it would leave before the committee the principal issue with reference to the application of the interest component. I have also suggested in my statement what I shall call a streamlined procedure, in order to get down to the principal issue, include the first Jones bill and an amendment to section 9 (c) of the Reclamation Project Act of 1939. The first Jones bill, as you know, is H. R. 1772, and the one for incorporation in a consolidated or simplified bill would be H. R. 1772. In order to bring that matter down, or that suggestion down to very precise terms for better presentation to the committee, I now suggest that two bills be introduced by you. One of these bills, the longer one, would include the substance, or the exact wording, as a matter of fact, of H. R. 1772, the first Jones bill, and it would include an amendment to section 9 (c) of the Reclamation Project Act of 1939. The amendment to section 9 (c) would precisely raise the issue with respect to the interest component, and that proviso would be in these words: Provided, That nothing in the Reclamation Project Act of 1939 shall be construed as authorizing the application of, nor shall the Secretary apply, the interest paid or payable on the construction cost allocated to commercial power or the interest paid or payable on the construction cost allocated to municipal water supply or other miscellaneous purposes to the repayment of any portion of the construction cost allocated to irrigation or to any other cost in connection with the construction or operation of the project. The other bill which I suggest be introduced in order that the matters presented by these other bills may be precisely before the committee is a shorter bill. It is a bill which does not include the Jones bill but merely includes an amendment to section 9 (c) of the Reclamation Project Act of 1939 with the proviso relative to the aplication of the interest component which I read from the other bill. I have copies of these two bills, and shall be glad to hand them to you. I might make this explanation to the committee that in an effort to agree with the Bureau of Reclamation with respect to he principal issues which might be presented to this committee, there has been prepared an amendment to 9 (c) That amendment to 9 (c) in the form in which I am submitting it to you was largely proposed by the Bureau of Reclamation, but we have made some minor changes. The proviso which I read to you is our own language. Then, with respect to the return without interest from commercial power rates to aid irrigation we have limited that in a degree. That provides that the return, without interest, within a reasonable period of years not exceeding the useful life of the irrigation features, and, with respect to each irrigation block, in a period conforming so far as practicable to the period within which water users are required to repay their share of the irrigation cost, of that share of the investment found by the Secretary pursuant to subsection 9 (a) hereof That is, 9 (a) of the present law to be properly allocable to irrigation but assigned for return from net power revenues. The limitation there is that it was left open under the draft submitted to us so that it could be any period within the useful life of the project, and this indicates that it must conform, as near as practicable, to the time within which the water users are required to repay. Now, in view of the statement made by the Congressman from Washington a few moments ago, and in view of the statements made by others from the State of Washington yesterday, I think it important for me to call your attention to the effect of this bill on the Columbia Basin power rates, or, more exactly, to say the lack of effect of it. Mr. D'EWART. In saying that you are referring now to one of these new bills? Mr. STONE. To one of these new bills; yes, sir. Mr. D'EWART. Does it apply to H. R. 1886? Mr. STONE. No; it does not. Mr. D'EWART. Ít applies to the bill you are presenting? Mr. STONE. Yes; it applies to the bill which I have now suggested. Mr. LEMKE. H. R. 1977 is here before the committee and it will continue to be here for some time, and what he says, I think, has some bearing on that, has it not? Mr. STONE. Yes, perhaps. You mean your bill, Mr. Lemke? Mr. STONE. I think that is correct, Congressman Lemke, that what Mr. STONE. I wish to call your attention to the fact that the statements made here by those appearing from the State of Washington were to the effect that they were not claiming that H. R. 1886 would |