B. Conditions Precedent

The statute stated certain conditions precedent which should be met before the act should take effect for any purpose. It stipulated a second group which, after the effective date of the act, must be met before any appropriations should be obtainable under its authorizations. These two groups were as follows:

(1) Conditions precedent to the effectiveness of the Project Act.-Section 4 (a) stipulated that

this Act shall not take effect and no authority shall be exercised hereunder and no work shall be begun and no moneys expended on or in connection with the works or structures provided for in this Act, and no water rights shall be claimed or initiated hereunder, and no steps shall be taken by the United States or by others to initiate or perfect any claims to the use of water appurtenant to such works or structures unless and until

one or the other of two alternate conditions should be met: (1) Ratification by all seven States of the Colorado River Compact and declaration thereof by the President in a public proclamation; or (2) if seven States should have failed to ratify within 6 months from the date of the passage of the act, then until six of the States, including California, should have ratified it, waiving the requirement of article XI of the compact which stipulates seven-State approval; accompanied, in this second alternative, by enactment by California of a statute in prescribed terms, limiting her use of water; and proclamation by the President of six-State ratification.

(2) Conditions precedent to appropriations under the authorization of the Project Act.-Section 4 (b) stipulated that before any money should be appropriated for the construction of the dam or power plant or any construction work done or contracted for, the Secretary of the Interior should make provision for revenues by contract adequate in his judgment to assure repayment of all expenses of operation and maintenance and the repayment of the Federal investment within 50 years from the date of completion of such works, together with interest thereon made reimbursable under the act.

As to the All-American Canal, section 4 (b) stipulated that before money was appropriated for construction, or any construction work done, the Secretary of the Interior should make provision for revenues "by contract or otherwise" adequate in his judgment to assure payment of all expenses of construction, operation, and maintenance in the manner provided in the reclamation law.

C. Financial Structure

As indicated by the conditions precedent referred to supra, a characteristic of the act was its insistence on self-liquidation of the

investment. To implement this, the statute provided the following mechanics:

(1) Creation of the Colorado River Dam fund.-All revenues flowing from the Treasury for construction of the project, and all income flowing back from its operation, were required to pass through the Colorado River Dam fund (sec. 2 (a), 2 (b)). Appropriations were required for advances from the Treasury to the fund (sec. 2 (b)), as well as for expenditures out of the fund, including those for operation and maintenance (sec. 2 (c)). Appropriations to the fund of $165,000,000 were authorized (sec. 2 (b)).

(2) Separation of financing of irrigation and power features.—Although the Colorado River Dam fund was established as a common financial channel for the Hoover Dam expenditures and revenues and the All-American Canal expenditures and revenues (sec. 2), the financing of the two project features was sharply segregated. No part of the power revenues of Hoover Dam could be used to reimburse the cost of the All-American Canal (sec. 1); these costs were required to be reimbursed in full under the reclamation law, i. e., by the lands benefited (sec. 1); but these lands, having vested rights to natural flow, were not to be charged for storage (sec. 1).

(3) Repayment of the investment in Hoover Dam.-The entire investment in Hoover Dam, power plant, and appurtenant structures was made reimbursable (sec. 2 (b), sec. 4 (b)). No part of the investment was written off, but $25,000,000 was allocated to flood control, to be repaid out of 62% percent of the surplus revenues during the amortization period (sec. 2 (b)). This period was set as 50 years from the date when energy was first ready for delivery (sec. 4 (b)). No provision was made for holding any part of the investment in suspense, although it was contemplated that the generating units would be installed over a period of several years. The investment in the dam, power plant, and appurtenant structures was required to be repaid with 4-percent interest, the interest to be included in the calculation of the power rates received by the fund (sec. 4 (b)), and to be paid. over by the fund to the Treasury (sec. 4 (d)). The accounting practice later employed by the Reclamation Bureau on other projects, of collecting an interest component in the power rates but accounting for it to the Treasury as available for retirement of capital, was impossible under the Boulder Canyon Project Act.

(4) Repayment of the investment in the All-American Canal.-The entire investment in the All-American Canal was required to be repaid under the reclamation law, i. e., in 40 years without interest (sec. 4 (b)). In addition, the Imperial Irrigation District was required (sec. 10) to continue to pay the balance of $1,600,000 which it had agreed to pay toward the cost of Laguna Dam under its contract of

October 23, 1918 (appendix 1103), although it never in fact utilized that structure as a diversion work.

(5) Disposition of surplus power revenues.-In the event that the power revenues should exceed the amortization requirements of the act, three provisions were made:

(a) Current application of 62%1⁄2 percent of such excess revenues to the retirement of the $25,000,000 flood-control allocation (sec. 2 (b)). (b) Current payment of 37%1⁄2 percent of such excess revenues to the States of Arizona and Nevada, one-half to each (sec. 4 (b)), in lieu of taxes which these States might have collected from the project if built by private capital.

(c) After repayment of all the interest-bearing debt, the revenues were to be kept in a separate fund to be expended in the Colorado River Basin as the Congress might direct (sec. 5).

(6) Requirement of revenue contracts in advance of appropriations.Unlike statutes controlling certain other projects, which simply require that repayment contracts be obtained before water is delivered, the project act required that revenue contracts adequate to liquidate the investment, both in the dam and All-American Canal, be obtained in advance of construction and indeed in advance of appropriations (sec. 4 (b)). Such contracts were thus to be based necessarily on the Secretary of the Interior's judgment as to what the costs of construction would be and what revenues could be anticipated over a protracted period commencing after completion of construction. As noted infra, this construction period was about 7 years in the case of Hoover Dam; the All-American Canal is still incomplete, 16 years after execution of the first repayment contract. The requirement of firm revenue contracts, to remain executory until after completion of a long construction period, thus imposed extraordinary responsibilities on both the Secretary and the managements of the contracting agencies, as noted in more detail in chapter VI.

These contracts were, moreover, subject to a number of other controls, outlined below.

D. Provisions Controlling Power Contracts

(1) Construction and operation of power plant.-The act provided three alternatives for the installation and operation of the power plant. The Secretary of the Interior was authorized—

(a) To "construct and equip, operate, and maintain" the plant (sec. 1), and "control, manage, and operate the same" (sec. 6); or (b) To "construct and equip" the plant (sec. 1), and "enter into contracts of lease of a unit or units of any Governmentbuilt plant, with right to generate electrical energy" (sec. 6); or

(c) To "enter into contracts of lease for the use of water for the generation of electrical energy" (sec. 6), in which case the lessees would install the machinery.

In any case, the United States was required to retain title to the "dam, reservoir", and also to the "plant, and incidental works" (sec. 6).

And in either of the three alternatives, section 6 required that energy was to be disposed of only by contract, under the controls provided by section 5 (infra).

(2) Basic authority for power contracts. The act provided (sec. 5) for disposition of energy by the Secretary of the Interior, under general and uniform regulations (a phrase frequently repeated), at the switchboard (sec. 5), to "responsible applicants therefor who will pay the price fixed by the said Secretary with a view to meeting the revenue requirements herein provided for" (sec. 5 (c)). The applicants were required to execute contracts (sec. 5). In the event of conflicting applications, the act established standards of preferences (sec. 5 (c)), as noted below. It provided a maximum duration for any contract of 50 years from the date when energy was first ready for delivery thereunder (sec. 5 (a)), but provided that the holder, if not in default, should be entitled to a renewal under the laws and regulations existing at such time (sec. 5 (a)). It directed the Secretary to prescribe regulations conforming as nearly as possible to the regulations of the Federal Power Commission in stated respects, and to conform to the Commission's rules in others (sec. 6). And the Secretary and his contractors were subjected in their operations to the Colorado River compact (sec. 8 (a), 8 (b), 13 (b), 13 (c), 13 (d)). These compact requirements are referred to again, infra.

Because of their importance in the formulation of the power contracts, referred to in Chapter VI, the provisions relating to preferences, rate determination, and transmission are amplified below.

(3) Preferences.-The act provided for preferences to public bodies in the initial disposition of energy, in the event of conflicting applications. All contractors, preferred or otherwise, were required to "pay the price fixed by the said Secretary" (sec. 5 (c)). The conflicts were to be resolved by the Secretary "after hearing, with due regard to the public interest" (sec. 5 (c)), and "in conformity with the policy expressed in the Federal Water Power Act as to conflicting applications for permits and licenses" (sec. 5 (c)). However, preference was to be given first to a State, provided that it exercised its preference by contract made within 6 months after notice by the Secretary "and on the same terms and conditions as may be provided in other similar contracts made by said Secretary" (sec. 5). A reasonable time, to be fixed by the Secretary, was to be allowed for marketing of necessary bond issues by public agencies (sec. 5). However, once the energy

was allocated, no distinction was provided for in the terms of contracts, as between public and private agencies, either as to duration, price, renewal, or other terms, the regulations governing the awarding and renewal of contracts to be "general and uniform" (sec. 5).

(4) Determination of rates.-The act contained provisions of three general classes bearing on rates:

(a) Those governing the initial rate determination;

(b) Those governing periodic readjustments;

(c) Those, bearing on rates to prevail after the investment was amortized.

These are discussed below.

(a) INITIAL DETERMINATION: In general, it will be noted that the standard (1) for the initial determination was self-liquidation of the investment; (2) on periodic readjustment, a competitive level; and (3) after completion of amortization, such basis as Congress might then determine.

The first two of these situations, however, were cut across by the act's references to "excess revenues," to be applied in part to the retirement of the flood-control allocation (sec. 2 (b)), and in part to payments to Arizona and Nevada (sec. 4 (b)), and by the provision in section 5 (a) that contracts "shall be made with a view to obtaining reasonable returns," leaving some uncertainty, from an administrative standpoint, as to both the floor and the ceiling applicable to rate determinations. As noted later, the Boulder Canyon Project Adjustment Act of 1940 (appendix 801) was designed in part to remove these uncertainties.

(b) READJUSTMENT: Section 5 (a) required that power contracts contain provisions

whereby at the end of fifteen years from the date of their execution and every ten years thereafter, there shall be readjustment of the contract, upon demand of either party thereto, either upward or downward as to price, as the Secretary of the Interior may find to be justified by competitive conditions at distributing points or competitive centers, and with provisions under which disputes or disagreements as to interpretation or performance of this contract shall be determined either by arbitration or court proceedings

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This was a major feature in which the Project Act was amended by the Boulder Canyon Project Adjustment Act (appendix 801), which substituted the "amortization standard" for the standard of "competitive conditions," and defined and restricted the field of arbitration.

(c) RATES AFTER THE AMORTIZATION PERIOD: Section 5 provided that after the repayments to the United States of all money advanced with interest

charges shall be on such basis Congress.

as may hereafter be prescribed by the