Mr. SAWYER. May I call your attention, Mr. Fernandez to the fact that Mr. Straus has presented to you the report on the Central Valley project, which embodies the ideas of the Solicitor's opinion.

In other words, the time has now come when the opinion of the Solicitor is being followed as law by the Bureau.

Mr. FERNANDEZ. I do not understand that, but if that has happened, of course, we should clarify the Solicitor's opinion, and I am in favor of that.

Mr. BARRETT. Will my colleague yield to me?

Mr. FERNANDEZ. Yes.

Mr. BARRETT. I do not so understand that the Bureau of Reclamation have ever admitted that they have disregarded the opinion of the Solicitor.

I think the record in the previous hearings will fairly disclose that they have followed the Solicitor's opinion. I think they have made the statement repeatedly and if Mr. Straus, or Mr. Warne, or anybody else wants to dispute it, now is the time to do so, I think they have made the statement repeatedly that they have computed costs and records on the basis of the Solicitor's opinion, and it may be that they have a duplicate set of books down there and they can tear out some pages if they want to sometime later on, but I think they have told you that.

Mr. FERNANDEZ. One further point.

Only yesterday, I believe, there was submitted here a computation which showed they are not following the Solicitor's opinion but are following the original interpretation of the law, and under that interpretation of the law, we are giving more money into the Reclamation Fund than we would be either under the Solicitor's opinion, or under the Boulder Dam Act itself.

Mr. MURDOCK. Before Mr. Warne makes his statement, I would like to ask a question.

Mr. LEMKE. I have not yielded to you.

Mr. MURDOCK, Do you yield?

Mr. LEMKE. I yield.

Mr. MURDOCK. Just to test my memory, I sat through these hearings, and I am inclined to agree with my colleague from New Mexico that the Bureau of Reclamation has maintained that they have not followed the Solicitor's opinion, but have followed the original law.

I wanted to say that to see whether my memory is good.

Mr. MILLER. Is not the Bureau of Reclamation now defending the Solicitor's opinion? Is that not the statement we heard a couple of days ago, that they were defending the Solicitor's opinion? I would like to have that answered.

Mr. DAWSON. Will the gentleman yield?

As a freshman member listening to all of these discussions, it seems to me that we are all in agreement.

As I understand it, Mr. Fernandez states that the Department now is following the original intent of the law and according to the Rockwell bill, it is intended to write into the law the original intent. What stands between us?

Mr. FERNANDEZ. That last part stands between us. His bill goes much further than that.

If it is limited to that point, then, of course, we will agree with him and we hope he will amend it so that it will be truly going back

to the original interpretation of the law as administered by the Department.

Mr. ROCKWELL. Mr. Lemke, would you like to have Mr. Warne make a statement?

Mr. LEMKE. If he wishes to, but I want to keep my time. I want to get through with the judge.

STATEMENT OF WILLIAM E. WARNE, ASSISTANT COMMISSIONER, BUREAU OF RECLAMATION, DEPARTMENT OF THE INTERIOR, WASHINGTON, D. C.

Mr. WARNE. The question of whether or not the minimum provisions of the Solicitor's opinion have been applied is one that we answer in the negative.

The question of whether or not the Solicitor's opinion affected the application of the interest component as an aid in the repayment of the irrigation facilities, properly chargeable to irrigation, but over and above the ability of the water users to repay the costs has been posed. Our practice, in advance of the time the Solicitor rendered his opinion, was to use the power revenues in excess of operation and maintenance costs and replacements, whether they be payments of principal or interest, in the repayment of the entire project costs, including irrigation facilities.

Now, that is what is done in the Central Valley project allocations report, and on other projects.

The Solicitor's opinion confirmed that practice of the Bureau of Reclamation and did not change it. Now, it is a very technical matter and one on which I am inclined to think we have had in the past more heat than light.

Let it be stated that in no instance have we only proposed to return or have we only returned 3 percent interest on the power investment as authorized in the Solicitor's opinion.

Mr. LEMKE. May I ask you there: To that extent you did not follow the Solicitor's opinion?

Mr. WARNE. That is right.

Had we done so, power would be paying approximately $700,000,000 on our total investment in Reclamation projects to date. If we had followed the Boulder Dam pay-out plan, where power repays only power costs plus 3 percent interest, into the Treasury, in a 50-year period, power would be repaying on our projects approximately $800,000,000. Following the pay-out plan that we are now using; in other words, power paying the power costs plus 3 percent interest plus some additional irrigation costs that are beyond the abilities of the water users to pay, but which can be returned from power revenues, including the interest component, power is paying about $1,100,000,000. These are significant and revealing facts.

Mr. LEMKE. I think, Mr. Warne, Dr. Miller wants to ask you a question.

Mr. MILLER. No.

Mr. BARRETT. I would like to ask a question there, Mr. Warne.

Mr. WARNE. I would like to get the record straight so that I will understand what the situation is, so I am asking you this question: In the letter of the Director of the Budget, Mr. Harold D. Smith,

dated March 29, 1946, to the Secretary of the Interior, he outlines the precise theory that he thinks the Department should follow, and I want to call your attention particularly to the fourth requirement, and I quote:

The repayment in annual installments, not necessarily equal, over a 50-year period of the share of the project investment costs appropriately chargeable to water uses other than electric power generation allocated for repayment from power revenues.

Well, I will take No. 3:

The repayment in annual installments, not necessarily equal, over a 50-year period of an appropriate share of project investment costs chargeable to commercial power facilities

and this is the important part―

together with annual payment of interest on the unpaid balance at a rate of not less than 2 percent.

What I want to know is, do you carry out on your books a method whereby you are computing as a basis for the power rates costs that reflect repayment of the portion of the investment chargeable to power together with 2 percent interest to be paid annually on that cost?

Mr. WARNE. If you will amend that to say 3 percent interest instead of 2 percent, I will answer "Yes."

Mr. BARRETT. All right. I think 3 percent is proper, because that is the law at the present time.

Mr. WARNE. That is right. The law requires that 3 percent be charged.

Mr. BARRETT. 3 percent. That is right.

Mr. WARNE. The answer is "Yes." Power rates are fixed at a figure so that they will return the power allocation in installments not necessarily equal within a 50-year period of the appropriate share of project investment costs chargeable to commercial power facilities, together with annual payment of interest on the unpaid balance at a rate of not less than 3 percent.

Mr. BARRETT. Yes.

Mr. WARNE. But that is not all.

Mr. BARRETT. I know it is not. I am going to follow it up.

Mr. WARNE. That is right.

Mr. BARRETT. Now, do you pay the 3-percent interest into the general fund of the Treasury?

Mr. WARNE. No, sir.

Mr. BARRETT. Where does it go?

Mr. WARNE. Into the Reclamation Fund, but the application of the revenue is not in question here. Most of the difficulty in the past on this subject has arisen because of confusion between the method of computing power rates and the application of the revenues received from the sale of power.

Now, the West benefits by the fact that we take the interest that power pays on the power investment and apply it to the irrigation allocation that the farmers cannot repay. The rates would be lowered if we could follow the straight financing plan of the Boulder Canyon project without change, because, in the Boulder Canyon project Act, power does not pay any irrigation allocation at all.

If you followed the straight accounting procedure for rate-making purposes, power would pay less and irrigation would suffer. It is the

application of the interest component to the irrigation aid on subsidy that is important to the program. We apply the interest earned on the allocation to power facilities as an aid in the repayment of the irrigation facilities.

Mr. BARRETT. Of course, Mr. Warne, what I am trying to do here by this interrogation is to determine precisely what you are doing down there.

I am not now debating the merits of one proposal against another, but I do want to make it clear then that your record does show that you are charging the appropriate share of the investment cost over a period of 50 years and you are charging interest at 3 percent per annum and using that as the basis for power.

Now, then, as I understood it, the Solicitor's opinion, he said you did not need to make any charge for return on the investment, but merely a charge of 3 percent.

Mr. WARNE. He said that you had to fix rate schedules for sale of power so that there would be returned the operation and maintenance costs, interest at-3 percent on the power construction costs, and other fixed charges so that the amount returned will equal the construction costs allocated to power to be returned from power revenues. Now, he did not say it had to be completed in 50 years. The law does not say anywhere that it has to be done in 50 years.

We have used a period of 50 years from the time that the unit becomes productive as the repayment period for which we figure our power rates.

Now, some tend to confuse the problem of rate-making with the problem of application of the revenue.

Mr. BARRETT. Well, I agree with that.

Mr. WARNE. They are separate in the law.

Mr. BARRETT. That is right. The important point, and the matter that is in dispute with the gentleman of the Committee on Appropriations, is the fact that you do not collect interest and pay it into the Treasury or into the Reclamation Fund.

Mr. WARNE. Oh, yes; that is true. That is one point the gentleman on the Appropriations Subcommittee makes. That the interest is not paid into the Treasury as miscellaneous receipts.

Mr. BARRETT. That is right.

Mr. WARNE. Above and beyond the repayment of the project cost. I agree that is one point of dispute.

I would also like to point out that the bill Mr. Jones brought in here the day he testified says definitely that the irrigator must repay all of the costs charged to irrigation, which is something that none of our laws heretofore have stated. They have all recognized, and both the Rockwell bill and the Lemke bill recognize, the use of some of the power revenues in aid of irrigation.

So, the quarrels are not simply over the rate base. They largely revolve around what you do with the money after you get it.

Mr. BARRETT. I think you are exactly right, Mr. Warne, but I was wondering: how are we people in the West going to justify a position where we come to the floor of the House and we say, "All right, you have spelled it out very definitely that the water users were to have their loans without interest over a period of 40 years." but we also want you in a backhanded way to accord the same treatment to the investment in power.

Now, when you come right down to brass tacks, if you do not pay that interest into the general fund of the Treasury, does it not really result in the fact that you are putting back on the same people as reclamation to all intents and purposes as far as that is concerned?

Mr. WARNE. I think you might better state it in this manner: That you are putting a multiple-purpose project on the same basis as an irrigation project.

Mr. BARRETT. No. I think they distinguish between the part that is properly chargeable against pure investment. I do not think anybody contends for these other public purposes, silt control, and flood control, and so on and so forth, reclamation, that they should not be or are not to be considered. I do not think that, Mr. Warne.

Mr. WARNE. This is what I meant, Congressman Barrett, that the effect of the application of the earnings of the projects as they presently are applied, is to return the reimbursable costs of the multiple purpose projects without interest to the United States. Do I make the distinction clear?

The effect is obtained by the application of the earnings.

Now, I would like to point out that at the present time, the revenues coming in through the operation of these reclamation projects are roughly 3 percent of the entire investment made to date in all reclamation propects even though many of these projects have not started to pay at all so far.

So I do not think that the East or the South or any other section has much quarrel with the program and its financial arrangements. Mr. MILLER. Will the gentleman yield?

Mr. ROCKWELL. May I just say that we have two other witnesses who hope to come in this morning. This is very interesting, and this is really a moot question, but we will probably have a dozen other men that we can ask the same questions. I do not think we should spend too much time on it.

Mr. Lemke, did you have any other questions?

Mr. LEMKE. I wanted to ask just one or two questions, but I will yield to my colleague.

Mr. MILLER. I wanted to clear up this Solicitor's opinion, because Mr. Straus, in discussing the second bill before us, states this, and I quote:

The principal item in the background was a question of law that had arisen involving the interpretation of certain portions of section 9 of the Reclamation Project Act of 1939. This question of law was resolved by a legal interpretation of the Solicitor of the Department of the Interior, and properly so, inasmuch as the Congress has established the Solicitor as the most authoritative legal adviser who has yet given any opinion on this legal question.

Incidentally, his opinion, despite assorted criticism, has never been reversed or challenged by any higher legal officer, any court, or by any action of the Congress, and the Solicitor's opinion may properly be considered as controlling today.

Also it must be borne in mind that the Bureau of Reclamation and the Department have not exercised all of the various privileges extended under the Solicitor's opinion, but, in fact, have only continued in the main to operate under previous procedure which appears to the Bureau to have been fully authorized by congressional enactment long prior to the handing down of the Solicitor's opinion. In fact, it appears to the Bureau that an entirely unwarranted emphasis has been placed on the Solicitor's opinion, which unwarranted emphasis and distortion may have reasons that will become apparent.

It seems to me that the committee is working on the same objective. in Mr. Lemke's bill and Mr. Rockwell's bill, and in the interest of the