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Committee Investigating National Defense Activities prevent his being with us today. He expresses the hope that he will be able to join us before the hearings are completed. The letter reads as follows:


May 28, 1942.
Hon. John H. OVERTON,
Chairman, Commerce Committee on s. 2130,

Washington, D. C. MY DEAR SENATOR OVERTON: I am deeply sorry that I am unable to be with you throughout the hearings on the Columbia Power bill that Senator Bone and I introduced. My work on the Special Committee Investigating National Defense Activities, however, has necessitated my remaining in the West. While I hope that I shall be able to join you before the bearings are concluded, I want emphatically to record at the outset my deep conviction that the prompt enactment of this measure is of the greatest importance.

My recent trips to the Northwest have convinced me of the urgency of this measure-not only because most of the people out here have long experienced the desire to see it enacted, but also because I have seen the far-ilung and dramatic war development of the region. As a member of the Senate Committee Investigating the National Defense Program, I have had a particularly good view of the Pacific Northwest's contribution to the war program. I wish that the members of your committee raight also have had this opportunity. This area has always been a storehouse of natural resources—it has now become a workshop for making these resources into the machines and ammunition of war. This development has been made possible principally by the Federal Government's power program on the Columbia River. Its continuation and expansion depends upon the commensurate growth of the power program.

We all know that every kilowatt of public power and every kilowatt of power produced by private companies must be wrung from the generators and put to work in this war. This will require the closest coordination of both generating and transmission facilities. The maximum degree of coordination is impossible to obtain under any scheme of management that continues the present diversity of ownership; but we must have the maximum. I am convinced that this can be secured better under public ownership than any other way. We are talking in terms of millions of kilowatts in the Pacific Northwest. The two Federal dams on the Columbia River alene will have an installed capacity of over a million kilowatts by the spring of next year. An additional half million kilowatts are installed in plants operated by other public agencies in the States of Oregon and Washington. Private companies have over 900,000 kilowatts of generating capacity in these two States. The continnal development of large power supplies in this region is vital; and only the Federal Government can plan and execute projects of the magnitude required for the proper utilization and conservation of the energy available in the Northwest. The Government's investment in these great projects must be preserved for the people and must not be jeopardized by unbusiness-like arrangements with private utilities seeking to profit from the people's power and the people's money. The simple but effective solution for securing the immediate war benefits of coordinated' operation as well as the longterm benefits of greater power development and conseqnent improvement of the public welfare is provided in S. 2430. It is a solution that has the support of the people of the Northwest and their Representatives in Congress as well as of the President and his advisers on power matters.

In connection with my interest in war industries, I have observed over an extended period the work of the Bonneville Power Administration and have been impressed with its speed and efficiency in meeting emergency problems as well as with its constant striving to secure for the Northwest the long run benefits of stable and diversified industries. I was particularly impressed with the work of the Bonneville Power Administration and the Department of the Interior in connection with the aluminum program, which our committee investigated thoroughly. In this case a real effort was made to effeet a rational program based on expanding aluminum production through increasing the number of plants in the Northwest and providing for the local fabrication of the ingot metal in order to avoid expensive and time consuming, cress hauling and to stabilize the industry in the region after the emergency. These agencies supported a program for the production of aluminum from local raw materials and plants for this purpose are under construction. This, too, will cut down the maintenance of the expensive “life lines" across the continent and overseas to foreign raw-material deposits and will strengthen the Pacific Northwest's natural advantage as a producer of light metals. These activities in the aluminum program constitute merely one of several instances of valuable service that has been performed. This service can and should be multiplied again and again.

I refer to these matters because I believe that the amendments setting up the Columbia Power Administration will make it possible for that agency to extend and enlarge upon the activities of the Bonneville Administration without disrupting its administrative arrangements during these critical times. The work that the Columbia Power Administration can do in this emergency will be an eternal benefit to this country.

The provisions of S. 2430, I believe, offer a sound approach for the quick and effective solution of many problems confronting the Pacific Northwest. I do not hesitate to recommend it wholeheartedly to your committee for favorable action. Sincerely yours,

United States Senator.

Mr. Smith, will you resume your statement ?

Mr. SMITH. Yes, Mr. Chairman. I am prepared to resume my statement.


Mr. ANGELL. Mr. Chairman, may I ask the witness a question ? We were discussing when we adjourned this section 5, page 5, and also the provision on page 10 that has to do with the examination of expenditures by the Government, and as to whether that should be placed in the hands of the Secretary of the Interior.

Mr. Smith, will you state what is the present arrangement that is being followed by the Bonneville administration? Does it have the power now as is set forth in section 5 on page 5 of the bill, or is this a departure from existing law and regulations?

Mr. Smith. I think that that power now is being exercised by the Department of the Interior. Isn't that your understanding?

Mr. ANGELL. Yes. But is it subject to examination by the General Accounting Office ?

Mr. SMITH. I think it is.

Mr. ANGELL. Then this provision of the bill would be a departure from existing law!

Mr. Smith. That is a change in the existing laws.

As Senator Bone explained, the purpose, of course, is to get away from some of what I might term the interminable red tape of the General Accounting Office, the Comptroller General's office, which ofttimes interferes with the efficient administration of the project.

I believe that this change has been evoked by their experience in the past at Bonneville, in having delay in getting certain necessary and legitimate expenditures and disbursements approved by the General Accounting Office, and as a result hampering them in their administration of the project. That has been my understanding. Senator Bone, isn't that a fact?

Senator BONE. Yes.

Mr. SMITH. Because otherwise the provision would not have been written into this act, unless there had been some good reason for it. I do not think that the purpose of the act is to get away from any of the penal statutes or any of the present general statutes giving powers to the General Accounting Office except insofar as it relates to mere matters of detail, such as the Administration should by all means have the power to decide, and which, of course, any, private power company would have the unreserved power to exercise.

Mr. ANGELL. Mr. Smith, this provision, however, does take the power out of the General Accounting Office and lodge it in the Secretary of the Interior.

Mr. SMITH. It does not take it out entirely. I would not say that. But it does limit it. There would still be the audit, as provided for in section 10 on page 15.

I do not believe that it is anything more than a slight deviation from that general provision, which would make it easier for the Administration to administer the project without having to have all of these various items go back here to Washington and be approved by the General Accounting Office, many matters of which are purely of detail and which do not vitally affect the project. That is, there could not be any great harm result to anybody if the Administration had the power to pass on these items, instead of having to submit them in every instance to the General Accounting Office and be subject to the approval of the General Accounting Office.

Mr. ANGELL. My purpose in asking the question is not to express an opinion on the merits of the provision, but merely to find out its meaning and effect and what you had in mind as one of the authors of the bill.

Mr. SMITH. I think that that is what I had in mind—to give the Bonneville Administration a little more leeway and a little more latitude in passing on the ordinary business transactions in connection with the Bonneville and the Grand Coulee projects. · Mr. DONDERO. A question was raised this morning about the issuance of revenue bonds. I think Senator Burton brought up the subject. I want to ask Senator Bone if any estimate has been made as to the amount of revenue bonds that might be issued.

Senator BONE. I think that that would be an utter impossibility, because of the situation that is presented.

One of the things that would assuredly be done under this bill would be to purchase all of the Puget Sound Power & Light Co.'s property. They are already being taken over in part by public utility districts of the State by the process of eminent domain.

The company objects to that piecemeal acquisition and wants to sell the whole system in one transaction and so get rid of this question of severance damages. It would be impossible to know what that system would be worth until appraisals are carefully made and value determined.

Mr. DONDERO. They have not been made yet?

Senator BONE. They have made many appraisals, but those things would have to be determined probably at a conference table.

It is my own opinion, not supported by anything except my own conclusion, that probably the system would be purchased rather than condemned. It might be condemned.

Mr. DONDERO. It have this in mind, Senator Bone, and you will know the reason for the question: We are at war. We are asking

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our people to dig into their pockets and buy defense bonds to the utmost. I am wondering whether or not this might come in and interfere with the defense effort of the Nation by the issuance of these bonds, which would be placed upon the market for sale.

Senator Bone. We are trying, at least, to avoid that. We cannot however eliminate all forms of private investment during the war. Companies are continually refunding their bonds, and they go through precisely the same procedure when they refund a bond issue, when they call it in and issue other bonds. That is in practical effect what this amounts to.

This would offer to investors a very legitimate form of investment. Unless we are going to abolish all forms of private investment, I would think that this would be a most attractive form of private investment.

Mr. DONDERO. The thing that I have in mind is this: We are trying to lay everything aside in this country temporarily in order to continue a successful defense effort. We are all for that. So the question in my mind is, Would this place upon the market for sale to the public any appreciable degree or amount of bonds that would interfere with our defense effort at this time?

Senator BONE. No more than the usual normal forms of private investment. If we are going to follow this argument through to a logical conclusion in the fear of the consequences that it would have to the war effort, we would be forced abolish every form of private investment. If we do that, I do not know what would happen.

Mr. Smith. Isn't it a fact—at least, it has been my opinionthat there is a vast reservoir of surplus funds in this country seeking investment; that banks and investment companies are loaded with idle funds which have been seeking an outlet?

Of course, we are assuming now that they are going to invest entirely in Government securities, which is being done, I think, to a great extent. But nevertheless, I frequently read in the financial pages that there is a vast amount of private capital that is seeking investment and is unable to find investment.

If that is so, then this should not seriously interfere with the marketability of the Government securities to finance the war, it seems to me.

Senator BONE. It must be borne in mind that this is largely an exchange operation. If you wash out the investments of all private companies and substitute for them merely another form of the same investment, you have not materially changed the picture.

If I have $100 invested in the securities of the Puget Sound Power & Light Co., and that company is acquired and I get my $100, and I proceed to immediately reinvest it in bonds against the same property, I have not changed the picture to the detriment of the Nation or its people. The investment is still there. It is not a new thing. It does nothing to change the picture appreciably.

Mr. DONDERO. What you have in mind is that the Government would merely exchange bonds of the stockholders of this corporation, which may sell out to the Government, and let the Government bonds take the place of their investment in the present private company. That is the exchange which you have in mind.

Senator BONE. Here is what will be done under this operation: If this Government agency acquires the Puget Sound Power & Light Co.—I use that as an illustration—it would pay that company for its physical property. It would issue and sell revenue bonds to secure the money to buy that property.

The bonds issued would be revenue bonds. Some would be callable. Some short-term bonds would have to be used because this Federal agency would immediately sell part of that physical property back to these local districts, cities, towns, and power districts. They are all set up and ready to go and want to buy the property. They want to use the Government agency as a purchasing agency so that they can get away from paying severance damages in biting off chunks of this system because of that process.

They in turn would sell their bonds to finance their acquisitions. These would be term bonds; probably long-term bonds. They would run for terms under the State law.

If they sold their bonds and got cash, they would pay that cash to the Columbia Power Authority, and the Authority here would use that money to retire the revenue bonds that it had issued to acquire the private power system.

Sɔ that when we get through with this process, the Federal Government would have retired much of the bond issue originally required. The only part of the revenue-bond issue then outstanding would be that part of the revenue-bond issue reflected in the cost of the power plants retained.

Perhaps 50 percent of this acquisition might ultimately get back in the hands of these public bodies in the States of Washington and Oregon in due time. The distribution systems would go back at once.

Senator OVERTON. Isn't it true that the investment that is represented by these bonds would be used in the production of war materials, such as aluminum?

Senator BONE. Oh, yes.

Senator OVERTON. Have you any idea how much of it would be used for that?

Senator BONE. Around 90 percent of it is now being devoted exclusively to war production. Those power facilities will go, those of all of this system, into one giant power pool.

Senator OVERTON. So that the investment will really be used to further the war effort.

Mr. Smith. In answer to Senator Overton's question I might say that two firms which happen to be in my district, one the Aluminum Corporation of America at Vancouver, Wash., and the other the Reynolds Metal Co. of Longview, Wash., will produce this year 240,000,000 pounds of aluminum for the manufacture of airplanes. It is that vital to the successful prosecution of the war.

Senator BURTON. This does not contemplate the construction of any new distribution systems or power systems other than what now exist ?

Senator BONE. That is right; the bill does not.

Senator BURTON. Therefore it is not a use of capital for some purpose other than the war, but merely an acceptance of new securities in place of existing investments.

Senator Bons. It is largely a mechanical operation.

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