Mr. TUDOR. I am Mr. Tudor, Senator. I think perhaps one of the best documents on that subject that I have seen recently is a document prepared by the Committee on Public Works of the House, in the 82d Congress. We can get a copy of that for you and I can send it over, if I may.

Senator DIRKSEN. I do not want that thick one, because I have other work to do.

Mr. TUDOR. It is a little one and will summarize that Southwest power situation. I might add further that there have been several discussions of this cost allocation which I quite agree with you is a very difficult one. The Bureau of the Budget has a discussion of it, the Army engineers, the Federal Interagency Basin Committee and then the Congress had discussed it, and in recent months the Department of the Interior, which has generally been the agency which has not agreed with the others, we have sat down with these agencies and we now generally agree on the methods to apply in cost allocations. Senator DIRKSEN. I wish to ask Mr. Aandahl one question before he leaves, Mr. Chairman.

Is it your opinion that you in the Department of the Interior are making every reasonable effort within the compass of facts that surrounds every project, of complying with the so-called preference clause that may govern in every individual case?

Mr. AANDAHL. That is correct. And I very definitely feel that the preference clause does not necessarily mean preference in perpetuity. I take a middle of the road position and I would be glad to amplify that, at the proper time.

Senator DIRKSEN. I have one question of Mr. Davis. As a matter of common sense, can you actually apply a rule of reason or a rule of thumb to this thing, unless there is language so specific as in the case of the Bonneville project where the law definitely says that the contract shall be abrogated at the end of 5 years if there is a need for that power to public bodies. But other than that, isn't it a case where you simply have to use the rule of reason?

There are the problems of how much you have available, how far you have to wheel it, who is available to buy it at a given time, and how you then discharge, to the best of your ability and by every rule of prudence and common sense, what you shall do in order to meet your responsibility to. a larger authority, and that is not the preference users in the country.

The larger authority are the taxpayers of the United States, because they have an interest in this, too.

The CHAIRMAN. Before Mr. Aandahl leaves, he has to leave at 12 o'clock, Mr. Wise, do you wish to ask Mr. Aandahl any questions? Senator KEFAUVER. Is Mr. Aandahl coming back this afternoon? The CHAIRMAN. I understood be has a meeting with the Appropriations Committee.

Mr. AANDAHL. I have other commitments which will occupy me for the remainder of the afternoon, but I will be available tomorrow morning or any time after that.

Senator KEFAUVER. I did want to ask Mr. Aandahl some questions some time or another, Monday or whenever it is convenient. The CHAIRMAN. How about tomorrow morning?

Senator KEFAUVER. I think we have some other meetings.

Mr. SMITHEY. We have a meeting of another subcommittee; yes. The CHAIRMAN. Suppose we set it for Tuesday morning.

Mr. SMITHEY. We have two hearings set for that date, one on Senator Williams' bill, and also a meeting of the Civil Rights Subcommittee, or a hearing, rather.

Senator DIRKSEN. That is right. We have a subcommittee meeting of this committee at 10 o'clock on Tuesday.

Senator KEFAUVER. Perhaps we can get permission to meet Monday afternoon. I do not think anything of any importance is going to be up Monday.

The CHAIRMAN. Unless somebody comes up here. For example, I wouldn't want the Senator from Oregon to object to the afternoon. Senator DIRKSEN. I would suggest that if they bring the Bricker amendment to the floor, there will doubtless be an objection. I would feel constrained to object myself. They might put it in the mill tomorrow, for all I know.

The CHAIRMAN. How about Wednesday morning?
Mr. AANDAHL. That will suit me.

Senator DIRKSEN. Wednesday morning we have a meeting of the Civil Rights Subcommittee.

Mr. AANDAHL. And I have some Appropriation Committee hearings coming up. I don't know the exact date of them, but I know they are scattered along there. I will have to check on them.

The CHAIRMAN. Well, we can meet today, even if Mr. Aandahl is absent. He can come back later. We can figure out some time. Mr. Wise, did you want to ask any questions?

Mr. WISE. Yes; but they will take some time in view of Mr. Davis' testimony.

The CHAIRMAN. All right. We will arrange a date.

Senator KEFAUVER. Then Mr. Davis and Mr. Tudor will be back this afternoon, or are we going to continue on this afternoon?

The CHAIRMAN. I think we can go ahead. I would like to have Mr. Aandahl here.

Senator KEFAUVER. He will not be here, but I think with the others we can go on.

Mr. SMITHEY. They have a commitment at 2 o'clock before the Appropriations Committee, as I understand it.

The CHAIRMAN. Did you have a statement, Mr. Aandahl?

Mr. AANDAHL. I was just going to say that here is a very brief statement that I made before the House committee and it couches upon the question that I have just answered with respect to preference and perpetuity. I would like to make it a part of the record at this point.

The CHAIRMAN. Certainly.

(The statement referred to follows:)

PREFERENCE CLAUSE EXPLANATION

A preference clause for the sale of Federal power is written into several different statutes. Most of them are much the same. A few have specific differences. It is incorrect to say that Congress meant the same in all of them.

The Bonneville Project Act of 1937 is the only Federal statute that makes the withdrawal clause a part of its preference. Apparently special circumstances in the area or the complexion of Congress at that time directed such provision. Congress, both before and after the enactment of the Bonneville Project Act of 1937, enacted other statutes providing for perference without including the withdrawal clause requirement.

The withdrawal requirement establishes more than preference. It sets up a sizable element of exclusive right. To not recognize that there are some circumstances under which power in excess of the needs of preference customers can be sold to nonpreference customers without the withdrawal provision is to say to the people of local communities that they must change the retail system that is acceptable to them, or that has been set up by them, and establish themselves as preference customers if they want to share permanently in any way in the benefits of the Federal power that is generated in their area. Exclusive right in perpetuity to the extent of all future needs surely is not the meaning of the preference law as generally used. The several long term contracts made by the Department in the past without the withdrawal provision is evidence of the above interpretation. When a marketing pattern for Federal power has been established in a local community in such a way that it provides for the widespread distribution of the Federal power among the rural and domestic consumers of the area after having given preference to public bodies and cooperatives in establishing it, it should have permanency by long time contracts. It should be added that the sale of power on a short term interim basis to a nonpreference customer, especially to a customer where it constitutes only a small percentage of his total needs, does not constitute the establishment of a local marketing pattern.

The Missouri Basin power marketing criteria does not create a new type of preference customer that is not provided for under the law, as was indicated in the hearing yesterday, but it does recognize circumstances under which nonpreference customers should be given permanency and dependability in their purchase of power from the Federal Government. I feel that this criteria is the best administrative interpretation of the exact meaning and purpose of the preference clause as phrased in reclamation law and the Flood Control Act of 1944 that has thus far been suggested. Furthermore, it is put into writing so that it can be a matter of open discussion and understanding.

JANUARY 5, 1954.

FRED G. AANDAHL, Assistant Secretary.

Mr. SMITHEY. Now if we may return to Mr. Davis, and along this line of preference perpetuity, I would like to ask Mr. Davis his opinion as a lawyer as to whether the preference clause means preference in perpetuity. That was the third one I mentioned to you.

Mr. DAVIS. Let's define what we are talking about. Are we talking about the general preference clause as it appears in the Reclamation Act?

Mr. SMITHEY. Let's talk about the preference clause as it appears in the Flood Control Act of 1944.

Mr. DAVIS. Well, in that I see no grounds on which you interpret that preference to be, as you say, in perpetuity. I don't know just what you mean by that.

Mr. SMITHEY. Let me define it this way, in order to clarify the situation: That is a preference without a termination date. We have had three definitions here of preference. One is that it is a stationary preference, one is that it is a preference with a termination date, and now a preference without termination date. This third, the preference in perpetuity means preference without a termination date.

Mr. DAVIS. I still don't quite understand exactly what you are saying. When power is offered for market, let's assume that some of it is sold to somebody on a fixed contract for 10 years, we will say, not a preference customer. At the end of 10 years that contract expires. My notion would be that therefore at the end of that 10 years. the Secretary has power available again, and again I would suppose it would go to preference customers under the act. During that interval, I wouldn't agree that that contract could be terminated and that power pulled out from under the customer, except only as you get into language like you have in the Tennessee Act and the Bonneville Act.

Mr. SMITHEY. Can we come to some conclusion, then, on the meaning of preference?

Senator DIRKSEN. Can we button that up at that point? Would you have any legal or constitutional authority to abrogate a contract except in specific terms in that it provided a cancellation clause? Mr. DAVIS. Of course you wouldn't.

Senator DIRKSEN. You would have to let it run for that period? Mr. DAVIS. We would have to let it run.

Senator DIRKSEN. Quite aside from the preference clause, if the contract were made, obviously it would have to run.

Mr. DAVIS. But the argument, Senator Dirksen, and I don't think you have heard all of it, is that there should be inserted in that contract as a matter of policy the right to pull it back anytime you wanted

it.

Senator DIRKSEN. Do you mean in a renewal of the contract? I thought you were talking about an existing contract.

Mr. SMITHEY. Existing contracts. Some of which have what is known as a withdrawal clause or a withdrawal option, in which power is available to the public bodies and co-ops at any time they needed it, subject of course to a sufficient notice. Normally, I think the Secretary has testified that is 24 to 36 months. The difference now is that the contracts will be entered into without that withdrawal option or withdrawal clause. It goes to this interpretation of the preference.

Now, if the preference is a continuing one, it is then incumbent it seems, to place in these contracts a withdrawal clause so that the co-ops and the municipalities, the public bodies to whom preference is given, can obtain that power whenever needed for their future load growth. If on the other hand preference means something else, that is, preference at the time of sale or preference whenever the power is available for sale, then it would be permissible to not have a withdrawal clause in there and to permit the co-ops to secure this power only when the contract has run its term. Is that correct?

Mr. DAVIS. Yes.

Mr. SMITHEY. It is on that basis that I am proceeding to interrogate Mr. Davis now.

Senator DIRKSEN. Of course there is a question of fact here that comes into my mind. Power can be available at a given time, the purchaser has something to say about whether or not he will go for a contract that has a withdrawal clause in it. Because you have reserve power, do you hold it, do you waste it, do you hold it in a reserve for a period of that long? Suppose a purchaser says, “I can't do business with you on that basis.' That is where the public

interest comes in?

Mr. DAVIS. As I said to Mr. Smithey a moment ago, and I want to repeat, I don't think it is possible to generalize about this middle ground we are talking about. I think you have to administer it with a little bit of commonsense. The Secretary has testified at least 10 times that he expected to make short-time contracts for 2 or 3 or 5 years, and within that period probably not over 5, that would terminate at approximately the time when it was estimated the preference load would have grown until they would need it. Beyond that, I don't think we can go. I think it is perfectly legal, I think it is

perfectly proper, and I think it is a perfect recognition of the preference clause.

Mr. SMITHEY. Now let us move into the amended criteria. On December 11 the criteria was expanded or restated as I think the Assistant Secretary said, and that restatement applied to section 7. Section 7 reads:

The available power will be disposed of in the following priority of consideration: (a) present power commitments; (b) requests of customers which can be served from present facilities; and (c) requests for power requiring new facilities or arrangements.

Now, recalling that you testified a moment ago that certainly as of a given date there was a preference in the public bodies and municipalities and that they had first call for that power, does (a) of section 7 of the criteria as it has been amended conform to that opinion of yours? The present power commitments include both preference and nonpreference customers; do they not?

Mr. DAVIS. I assume they do.

Mr. SMITHEY. However, the criteria says that present power commitments have priority in the sale of power. Is that correct?

Mr. DAVIS. That is the language anyhow, yes.

Mr. SMITHEY. Now, supposing we have the B power company, a private utility, who has an existing contract with the Bureau, and we have the C company, a municipality or a co-op who has no existing contract with the Bureau, but desires to make a contract.

Now, when the 210,000 kilowatts become available-they are available for sale now, I take it does not this criteria mean that B, the private utility company, will have preference over C, the public body and co-op?

Mr. DAVIS. I don't think so.

Mr. SMITHEY. What does it mean?

Mr. DAVIS. I think it is designed simply for an orderly administration. As a practical matter I know of no situations that are in prospect of arising that get into the category that you are talking about. Of course, that brings me to another thing

Senator KEFAUVER. Mr. Davis, if no situation is going to come up, why is that clause there?

Mr. DAVIS. Because, Senator, for the first time it was attempted, by Secretary Aandahl, to put down in some kind of words, in some kind of tangible form, the power marketing policy of the Interior Department, a thing which has not been done heretofore. My frank opinion is that there is vastly too much significance attached to it in any event. After all, it is nothing but a declaration of the Secretary's intentions. Good or bad he can change it tomorrow. His successor can certainly change it, and it is nothing in the world but a secretarial declaration of "this is the way I propose to market power."

The CHAIRMAN. That is the very thing, Mr. Davis, which has disturbed these REA cooperatives all over the United States. We certainly want to have that spelled out so we know exactly what it means. I think you are quite right, Mr. Smithey, in going into that very carefully.

Senator KEFAUVER. If I may interrupt, Mr. Davis said he knew of no situation where this might come up. If there is no situation where it is going to come up, I wonder why that is put in there as the No. 1 consideration. That is all right. Proceed, Mr. Smithey.