AFTERNOON SESSION

The committee reconvened at 3 p. m., upon the expiration of the

recess.

Mr. ROCKWELL. The committee will please come to order. Mr. Stone, will you kindly take the chair again, please? Mr. D'Ewart, I believe you were asking Mr. Stone some questions. Mr. D'EWART. Yes. I would like to make some statements for the record. Mr. E. R. Fosdick, Assistant Director, Power Utilization, Bureau of Reclamation, Washington, D. C., has explained to me table "B." This table sets forth what would happen to the interest component and to the rate if we used 3 percent interest and 50 years. The increase in the average rate under those conditions is set forth in the right-hand column. The total interest component applied on amortization of irrigation investments at 3 percent and 50 years adds up to $203,800,000 some odd. In other words, we are discussing before this committee what we are going to do with over 203 million dollars.

Now, if we reduce that to 2 percent, and add 67 years, we will get another figure, not quite so large to play with. But if we leave it at that figure then we have that much money to apply on each individual project as indicated in this table, or to vote into the general reclamation fund for the use of the 17 Western States.

Is that a correct statement, Mr. Fosdick?

STATEMENT OF E. R. FOSDICK, ASSISTANT DIRECTOR, POWER UTILIZATION, BUREAU OF RECLAMATION, WASHINGTON, D. C.

Mr. FOSDICK. Yes, sir. It is.

Mr. D'EWART. There is one more fact that might be of interest to you. In the right-hand column it gives the average increase in average rate as it would apply under 3 percent and 50 years. Now, if you look at the Fort Peck project, the rate is 335. Earlier in the testimony that was presented to this committee. I asked a question: How much would it increase the rates for an average REA user who uses 100 kilowatts per month, which is about what the average farmer uses? If this table is correct, and I assume it is, it would increase the rate to a rancher under REA, using 100 kilowatts per month, 3 cents per month.

Now, Mr. Fosdick brought out, in his statement to me, that it would vary with different utilizations of power, and also it would make a difference of how far it was transported, and other costs that might enter into the use of the power when it was moved away from the generator plant.

Is that correct, Mr. Fosdick?

Mr. FOSDICK. Yes, that is substantially correct, Mr. D'Ewart. Mr. ROCKWELL. Do I understand, Mr. D'Ewart, that you are saying that the difference between the Lemke bill and H. R. 2873, is around $200,000,000 into the reclamation fund for future reclamation, and that the difference, so far as a large ranch is concerned, is 36 cents a year, 3 cents a month, the result being that there would be $203,000,000 more in the reclamation fund, besides the fact that

Mr. D'EWART. The total, over the life of the projects of the interest component applied to amortization and irrigation of plant investment on the basis of 3 percent and 50 years, for all the projects, totals $203,000,000. If you make it 2 percent and 67 years, the amount will be somewhat less. I do not have the figure before

me.

Mr. ROCKWELL. Are there any more questions, Mr. D'Ewart, of Mr. Stone?

Mr. D'EWART. I would like to ask Mr. Straus a question.

Do you understand that the Appropriations Committee on last Friday, in dipping into the Columbia Basin interest fund to increase the construction funds for certain projects, will deprive the Treasury of that interest money, or deprive other projects of that interest money?

Mr. STRAUS. My understanding, Congressman D'Ewart, is that the Appropriations Committee in the Congress took no direct action on that fund, that segregated fund, which is set up by the Controller's order.

I understand in reference to that fund that it was set up by the Controller's order to segregate and hold up that fund pending a legislative disposition of it. The disposition of that fund is before this committee. The need of that legislation was pointed out at the time the fund was set up, and it came to this committee in the form of a letter from the President to the Speaker pointing out that some legislation was needed to show how that $10,000,000, I believe at the time, was eventually to be disposed of. That letter was referred to this committee by the House, and is in the records of this committee, and came up in discussion of these bills last year. That is the actual status of that fund.

From my reading of the debate last Friday, it was the desire of the committee to raise a couple of items on the floor above what the Appropriations Subcommittee reported.

Mr. D'EWART. Four items.

Mr. STRAUS. Four items. And there was an explanation on the floor that they found this additional money in the reclamation fund by finding it in the segregated Columbia Basin fund. On that explanation the items were raised.

It is not my understanding that any action has been taken by the Congress to rectify the segregated nature of that fund and the way the Controller has it set up at the present time, and there is also in the appropriation bill a statement saying you cannot spend this money. That money is not in the reclamation fund at the present time, despite the action on the floor of the House last Friday. That is my understanding of the situation of what happened last Friday. Mr. D'EWART. This money came from the interest component in the Columbia Basin?

Mr. STRAUS. That is right.

Mr. D'EWART. And is in the reserve fund, pending the disposition of this committee?

Mr. STRAUS. Yes.

Mr. D'EWART. But it is not in the reclamation revolving fund of the United States Treasury?

Mr. STRAUS. That is correct. And I do not understand of any formal action that has been taken to dispose of the fund, or change its status, at the present time.

Mr. D'EWART. In appropriating that money, Congress stated they were using it out of the reclamation fund while you state it was not in that fund; therefore your point is that it was not available for appropriation.

Mr. STRAUS. The appropriation language, Mr. D'Ewart, says that the following items shall come from the reclamation fund, and it also says that if there are not sufficient funds in the reclamation funds these appropriations are null and void.

Mr. D'EWART. And if we act on this Lemke bill, does that affect that reserve fund of $10,000,000?

Mr. STRAUS. I do not think it would, directly, but it would establish clear specific statutory authority for the application of this fund, or, let us say, from the application of the interest component, which is in this fund, to the project, in the way we outlined.

Mr. FERNANDEZ. In any event it would not absolutely prohibit it as a matter of policy and it would leave the matter open.

Mr. STRAUS. That is correct. It would be a specific legislative and statutory enactment of the method of creating such a fund in substitute for what we consider an original legislative authority by interpretation of an act.

Mr. FERNANDEZ. The Rockwell bill, as a matter of policy-establish the policy to the contrary?

Mr. STRAUS. That is right. If the principle of the Rockwell bill was accepted and became controlling, there would be no such fund. Mr. D'EWART. Thank you, Mr. Straus.

Judge Stone, another question. Are we to gather that the enactment of this legislation would also apply to the money that was invested in transmission lines, transformer stations, and so forth, as well as into dams, such dams as chargeable to generating plants?

FURTHER STATEMENT OF CLIFFORD H. STONE

Mr. STONE. When you refer to "this bill" I presume you refer toMr. D'EWART. H. R. 2873, and the Lemke bill.

Mr. STONE. Yes; it would be my opinion that it would, because transmission lines constitute a part of an investment in a project. It is a part of the power investment.

Mr. D'EWART. Under the Lemke bill it could be used as a repayment on either power or irrigation costs. We would not have to segregate that it could be used on either?

Mr. STONE. NO; it is my opinion that it is the capture of the interest component of power rates, therefore the interest on commercial power, and the use of the returns from that interest component to aid in retiring irrigation costs. It is the use of the returns of the interest component on commercial power investment to aid in retiring irrigation costs, not power costs.

Mr. D'EWART. It would not be applied to retiring power costs?

Mr. STONE. That is right. It would go, in my opinion, to reduce the power rate, and it is, in effect, a subsidy to power.

But it is not used to reduce power investment, as I understand it. It is to aid in retiring the capital investment in irrigation.

Mr. D'EWART. Then if we pass H. R. 2873, and decide to put it in the reclamation fund of the Treasury, does the bill provide for using it on both or either one?

Mr. STONE. You mean the revenues?

Mr. D'EWART. Yes.

Mr. STONE. The Lemke bill and the Rockwell bill do not change the fund to which the revenues from the interest component would go. With respect to both bills, the returns from the interest component and all moneys arising from a reclamation project, including the power facilities of such project, would go into the reclamation fund. Neither bill changes that.

Mr. D'EWART. As I understand, on the Lemke bill it could be applied directly to the project which it was derived from.

Mr. STONE. Under the Lemke bill

Mr. D'EWART. You state only "for all retiring irrigation," not power.

Mr. STONE. That is right.

. Mr. D'EWART. But under H. R. 2873 it would go into the reclamation fund of the United States Treasury, to be appropriated out again by the Congress as they saw fit.

Mr. STONE. That is correct, sir.

Mr. D'EWART. I think that answers my question.

Mr. MURDOCK. I have two questions, Mr. Chairman.

Judge Stone, I would like to ask what is your basic philosophy or policy in back of your contention in these hearings? Do you not object to the wide leeway granted to the Secretary of the Interior under existing law to determine these financial matters?

Mr. STONE. If I understand your question correctly, I would answer it this way: We feel that under the 1939 act, as it now exists, and under the Rockwell bill, if it were to pass, a very broad discretionwide discretion, as you said-is lodged in the Secretary of the Interior in authorizing projects. It gives him a formula under which he may determine the feasibility of projects. But when you consider the Lemke bill you are broadening that discretion beyond the point of discretion which we believe should be lodged in the Secretary of the Interior, because you are permitting him to determine what we sincerely believe is a subsidy and the application of that subsidy. We believe that that should be determined by the Congress as to each individual project.

Mr. MURDOCK. The legislation which you have endorsed, then, would have the effect of centering in Congress the authorization power, rather than permitting it to rest with the Secretary of the Interior?

Mr. STONE. No; it would not have that effect, in all cases. It would liberalize, as we believe, the formula under which the Secretary could find a project economically justified, and authorize it for construction. It would do that by extending the time to 67 years and reducing the interest on commercial power to 2 percent.

And if he found that à project was economically justified and feasible, by using that formula he could proceed to authorize the project. But if he found it necessary to use the interest component in order to find the project economically justified, then it would have to go to Congress.

So it does not take away from the Secretary the power to authorize projects.

Mr. MURDOCK. This morning, toward the close of the session, you made reference to projects and mentioned one, the central Arizona project, in which Congressman Murdock is interested. I did not want to interrupt at that point. But I wish the record had shown that I had said, as I thought, "Yes; I am interested in that. I am always interested in that. I am thinking about it all the time, with reference to this legislation."

What is worrying me greatly is this: That in rewriting this formula we are drawing the line so tightly that many, many projects which might be feasible will not be feasible. Of course, you have said in that case put it up to Congress, and that, of course, will be the effect. But the general effect will be, I am afraid, the same in that case.

Mr. STONE. Congressman, may I say with respect to that remark that you are not drawing the line so tightly, if I may use your words. As a matter of fact, you are liberalizing, and making it possible for the Secretary to authorize projects which he could not authorize under a 3-percent interest base and a 50-year repayment period, because you are extending the time and reducing the interest.

You are doing this: You are giving legislative approval in the Lemke bill to a solicitor's opinion, where the 1939 act is interpreted. so as to permit the use of the interest component in retiring irrigation costs. You are writing into the law something which the Solicitor has interpreted to be there in any event. We have attempted to show you, and I think have conclusively shown you, that that was not the original intent of Congress.

Commissioner John Page was here during the time that that 1939 act was under consideration, and the statements made by him then, and the statements made by him now, indicate that it was not the intention at that time that the 1939 act should be interpreted so as to permit the use of the interest component to retire irrigation costs. The Solicitor said that irrespective of the practices, or irrespective ⚫ of the legislative history which he has thrown aside, and I believe that that was something that should not have been done, it was not entirely good faith with the Congress, that it can be done.

Now, there has arisen a controversy as to whether that was the intent of the act. And, under the Lemke bill, you are asked to pass legislation which will approve such application of the interest component, so that in addition to extending the time to 67 years, in addition to reducing that interest, it is proposed by the Lemke bill that you pass legislation to permit the use of this additional subsidy.

Now, our point is-and I say this as one interested primarily and solely in our reclamation program in the West-the point is that if you go before the Congress and ask for all of these things, and in addition if you request the write-off for these other nonreimbursables, we may end up by losing it all.

We believe that it is the part of wisdom, in the interest of future reclamation projects, to support a program which can retain the confidence of the entire Nation. I am not talking about appeasing any group, in Congress or any section of the country. I am talking about it broadly, of being able to retain that old reclamation policy in which, as far as possible, we pay our way.