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nor would there be any possibility of the existence of a separate fund under the Project Act prior to 1987. For this reason, in shifting from a competitive rate base to an amortization rate base, it became necessary
to commute the uncertain amounts involved in the payments to Arizona and Nevada and to the separate fund into definite and fixed amounts. This has been done in the proposed bill and all parties have agreed upon the figures used. That agreement refers to the agreement of the Committee of Sixteen. It is provided that if Arizona and Nevada collect any taxes from the project or the privilege of using the generating equipment or falling water, their respective payments shall be correspondingly reduced.
With respect to the Colorado River development fund, it is provided that the first $1,500,000 shall go to the completion of the studies and investigations now being carried on by the Bureau of Reclamation for the formulation of a comprehensive plan for the utilization of waters of the Colorado River system.
Senator CHAVEZ. May I interrupt you there, Judge, please?
Senator CHAVEZ. What further studies are to be made below Boulder Dam?
Mr. STONE. Senator Chavez, with respect to that, I have brought with me a statement here, and when I get through with this statement I intend to go into that. I did that because of the question you asked yesterday. I thought you would like to know, so I brought this to clarify that matter.
Senator CHAVEZ. Thank you. Will you proceed?
Mr. STONE. After those first 3 years, thereafter until 1955, the revenues in the development fund are to be expended in the States of the upper division as that term is used in the Colorado River compact. That is, after the first 3 years and until 1955, the $500,000 annually will be expended solely in the four States of the upper division.
Senator CHAVEZ. That will be 15 years?
Mr. STONE. It will be 15 years. Under the act as it was originally agreed to, it was 13 years, and then this bill now before you includes an amendment inserted in the House adding 2 more years, so that for 15 years the $500,000 will be expended and equitably apportioned among the four upper-basin States.
Senator CHAVEZ. Who will decide that, as to the equitable apportionment?
Mr. STONE. That is subject to the appropriations from the Colorado River development fund by the Congress, so in the end it is decided by the Congress as to what is an equitable apportionment.
Now I might say here, in order that this may be clear and some things may be before you which were suggested in the House, that some suggestion has been made that the bill provide for equal division among the four States, but the opinion of the committee was that the word "equitable" should be used as to the fund before 1955, and the fund after 1955. Thereafter such funds are to be used in the entire basin.
For the purpose of making the amortization plan entirely equitable as among contractors for energy whose contracts called for the com
mencement of payment for energy at different times, the whole plan is made effective as of June 1, 1937. But this will not require any refunds from the United States Treasury. All adjustments will be handled by credits and the retroactive effect so far as the United States is concerned is immaterial; the dam will be amortized in 1987, as contemplated by the original act. When I say “as contemplated
“ by the original act,” under the original act it might have been extended beyond 1987, but we have always talked of the 50-year period.
Because of the fact that, in the rate base, provision will be made for replacements, the payment therefor extending over the entire periorl in a substantially uniform annual amount, moneys will be on hand for replacements when there is no immediate occasion for the use thereof. It is consequently contemplated that, in order to reduce interest charges, such funds shall be paid into the Treasury and that readvances of moneys paid into the Treasury from the Colorado River Dam fund may be called upon to make replacements when required. Of course all such readvances will bear interest.
In the original Project Act it was provided that $25,000,000 of the investment in the dam be allocated to flood control. It was further provided that 6212 percent of "excess revenues” should be applicable to the repayment of that amount (the 6212 percent was the complement of the 3712 percent payable to Arizona and Nevada as hereinbefore stated and is subject to the same uncertainties). The Project Act provided that if, at the completion of amortization of the rest of the works, any part of the $25,000,000 remained unpaid, 6212 percent of the net revenues thereafter should be applied to payment of the remainder. No provision was made as to the disposition of the remaining 3712 percent. It is thus apparent that it was not contemplated in the original Project Act that the flood-control allocation should of necessity be repaid within the 50-year period of amortization. The pending bill proposes to definitely defer the repayment of the amount so allocated until after 1987 without interest. Floodcontrol expenditures are ordinarily not deemed reimbursable. The proposed treatment in the pending bill is thus more favorable to the Treasury than is the ordinary treatment of flood-control expenditures.
In the original Project Act, as between the Colorado River Dam fund and the Treasury, a 4-percent interest rate was fixed and moneys transferred to the Colorado River fund were charged with that rate until repaid. This does not mean that the power contractors undertook to amortize the works on a 4-percent basis. As hereinbefore indicated, on and after 1945 the rates were to be adjusted on a competitive basis which has no reference to interest rates. In the proposed bill, as between the Treasury and the Colorado River Dam fund, a 3-percent interest rate is fixed. This represents a consider: able margin over the cost to the United States of money invested in the dam. Inasmuch as the entire firm output at Boulder has been sold to responsible purchasers for the full 50-year period, the advances may properly be considered a secured loan. It must also be borne in mind that after the contractors have paid in enough to restore to the Treasury all of the advances made, with the 3-percent interest, the United States will still own the works and be entitled to secure revenues therefrom. Under these circumstances the 3-percent interest rate appears to be entirely reasonable and justified.
At that point may I call the committee's attention to the fact that in 1939 the reclamation repayment bill provided for a 3-percent interest rate. So this is in line with the rate as fixed by the act of 1939 for reclamation projects. I say it called for a 3-percent rate. I meant that the rate could not be less than that amount, the idea being that if it should appear that the projects were not fully secured, the repayments not as secure as they might be, the rate might be higher, but in this case we have a project where contracts are made and the loan is secure, so the rate here is in line with the provision for repayment on such projects passed by the last Congress.
At present the Boulder power plants are operated by the city of Los Angeles and the Southern California Edison Co. as lessees. The pending bill authorizes the termination of the leaseholds and the substitution of operation by the United States through agents. The Secretary of the Interior had indicated that he will designate the present lessees as agents of the United States for the operation of the generating works under the bill if it becomes law.
Senator McCARRAN. By that, Judge Stone, you mean the Bureau of Power and Light of the City of Los Angeles, and the Edison Co.!
Mr. STONE. Yes; the Edison Co. to operate for the private allottees and the Bureau of Power and Light for the public bodies.
Senator McCARRAN. How far would that agency go! You better explain that. It seems to be a matter of indefiniteness or misunderstanding. I would like to have as much explanation go into the record as possible as to the agency to be established by the Interior Department.
Mr. STONE. I think, no doubt, Senator, that is correct. However, I should prefer if that agency arrangement could be explained by some others here who are more familiar with the arrangement than
Senator McCARRAN. Who, for instance, is here?
Mr. STONE. Some of the representatives here of the Bureau of Reclamation, or Mr. Scattergood.
Senator McCARRAN. Very well. That is right.
Mr. STONE. It is provided that the bill shall not become effective unless and until contractors representing 90 percent of the firm energy shall have signed supplementary agreements undertaking to pay the rates promulgated by the Secretary under the bill.
One of the questions most frequently asked is, “What will the effect of the proposed law be on the Treasury of the United States, as compared with the existing law and outstanding contracts ?"
It is obviously impossible to compare certainty with uncertainty. Revenues under the proposed bill can be computed with certainty and will be calculated to definitely make the Treasury whole, with interest, by 1987, except, of course, as to the flood-control item, which is repayable after that date. Rates under the present law and contracts are subject to adjustment to meet competitive conditions and the revenues to the United States are therefore uncertain. That is, under the present act, the 1928 act, those revenues would be uncertain. Estimates that have been made necessarily involve many unpredictable facts and many assumptions, notably the future cost of fuel oil. Due to lower cost of fuel and increased plant efficiency, this com
petitive cost of energy now has a downward trend which, if continued, would result in less revenue to the United States than would result from the operation of the pending bill. In fact, it would now seem that under the present law and contracts the works will not be amortized within 50 years. Of course, the trend might be reversed and the total revenues prior to 1987 under the existing law be greater than under the proposed law. This is pure speculation, however, and it has been deemed better by the Secretary of the Interior, he being advised by the Budget Bureau and Treasury, to exchange certainty for uncertainty, to change from a competitive basis to a clear-cut amortization plan and to clear up the difficulties foreseen in the administration of the existing law.
When I refer to the Secretary of the Interior, that statement is based upon the report from the Secretary of the Interior.
I have endeavored in this statement to give a general background of the situation and indicate some of the reasons for the request for adoption of the bill now before you. This subject has many facets, and I have not attempted to pursue all of the ramifications of the complicated power set-up. I think, however, that I have given you a general description of the operation of the proposed measure and earnestly hope that the labors of the Committee of Sixteen will not have been in vain, and that the Congress will enact the proposed bill. A substantial contribution to harmony among the States of the Colorado River Basin will have been made when the bill is enacted into law.
Now supplementing that prepared statement and going to the question asked by Senator Chavez, Senator Chavez' question, as I understand it, referred to the investigation during the first 3 years, or a total of $1,500,000 for investigation within the basin.
In answer to your question, Senator, may I explain that there has been working in the Colorado River Basin for about 3 years the Committee of Fourteen, which is substantially the same as the Committee of Sixteen except that there are no representatives of the power contractors on that committee. This committee, during the past 2-year period, has been holding regular meetings and working in cooperation with the Bureau of Reclamation in devising a comprehensive plan of development within the basin. The Bureau of Reclamation at all of those meetings has been represented by Mr. E. B. Debler, who is the chief hydraulic engineer.
Naturally, when this question of the expenditure of $1,500,000 for investigation came up, these States desired to know, as you desire to know, how this money was to be spent, and in what States, and the proportion, and so forth. We felt that it is obviously necessary to carry out the provisions of section 15 of the present Boulder Canyon Project Act authorizing the expenditures of money under the Bureau of Reclamation for an investigation over the entire basin. That is not in the upper basin alone, but the entire basin, and this $1,500,000 and its expenditure applies to carrying out the provisions of section 15 of the present act for investigation within the entire basin.
Senator Chavez. Why should so much attention be paid? What makes it essential that it remain as it was provided for in the original act?
Mr. STONE. Because it was desired by all of the interests in the Colorado River Basin, in all of the States, and it was realized that reclamation developed in that basin would have to be preceded by adequate investigation.
Senator CHAVEZ. Of course, there is only one member of the committee that made the statement, but according to available information and from the statement made by Senator Hayden yesterday morning, the irrigation end of it has been completed, as far as Arizona and the lower part of California are concerned.
Mr. STONE. Well, irrigation and power development has proceeded in the past faster in the lower basin but much is to be done there, too. It is necessary to protect the interests of the United States as against the Republic of Mexico and this means early completion of waterutilization plans over the entire basin. The use of water in the lower basin reflects directly upon the uses in the upper basin, and the converse is true.
Senator CHAVEZ. Let me interrupt right there, Judge Stone, if I may, so you may get my idea as to what I have in mind along the same lines that you have suggested.
Mr. STONE. Yes.
Senator CHAVEZ. Now southern California, Arizona, and Nevadaand I am not complaining about it, I am for them—have been amply protected, as far as their particular rights are concerned, and I am glad that they have had sufficient people around here, or the class of people that would take care of their interests. Now the upper basin States, Utah, Wyoming, Colorado, and New Mexico, they haven't had a thing, and as you stated a while ago, under the original act they cannot have anything for many years, but we are worried just as much as you folks are by the use of water by the Republic of Mexico. Therefore, I, for one, believe with the representatives of the other Basin States. We believe that something be done within the near future, so our water rights will be protected, what little is left.
Mr. STONE. I think you are right in the last part of your statement, but to carry out your desire is the very purpose of this $1,500,000.
Senator O’MAHONEY. It does not carry out that desire. May I interrupt, Senator Chavez?
Senator CHAVEZ. Yes.
Senator O'MAHONEY. You will recall, Judge Stone, that there was a general conference several years ago at Yellowstone Park before this bill was drafted, at which this Committee of Fourteen was represented. I was fortunate enough to be able to attend that session. The discussion on the part of the upper basin States at that time revolved around a separate allocation out of this fund for the upper basin States.
Now, will you tell me, and tell the committee for the record, how it came about that your committee finally decided not to make a separate allocation for the upper basin States? First, before you answer the question, let me point out that the argument for that separate allocation was the one which Senator Chavez has just now indicated, namely, that this bill is brought in here primarily to grant immediate relief, immediate benefits to California, and if this bill should be passed, California will be an immediate beneficiary.
It also appears that there is a provision in the bill which grants immediate benefits to the States of Arizona and Nevada, as set out in subparagraph (c) of section 2.