Mr. D'EWART. And none of it would be amortized?

Mr. STONE. That is right.

Mr. MURDOCK. Three percent annually, forever. Thank you.

Mr. ROCKWELL. We will stand adjourned until 10 o'clock tomorrow morning.

(Thereupon, at 5 p. m., an adjournment was taken until Saturday, March 29, 1947, at 10 a. m.)

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.

353

A

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