start how much it is supposed to reimburse the Government for the investment made at Grand Coulee. In the light of present-day events, the Government interest charged to Bonneville is certainly too high, but the President, when he fixed the rate at 312 percent, based it upon very different money market conditions which then prevailed. Interest has constantly been lowering in our country for almost a century. I ask for the very lowest possible figure for the interest rates on Grand Coulee investment for power, as found by the Federal Power Commission.

RECLAMATION CONGRESS OPPOSES THE BILL

It is my firm conviction that the pending bill does not in any way interfere with nor affect irrigation rights. Nevertheless, as the Oregon Reclamation Congress has gone on record in opposition to the bill in its present form, I recommend that a section be added disclaiming any intention to curtail in any way, or to interfere with or to limit irrigation projects, in any manner.

THE ACQUISITION PROGRAM

The heart of the pending bill is the private utility acquisition feature which gives and grants to the Authority the right and privilege to purchase existing private utilities in Oregon and Washington. It is expressly provided that this purchase shall be financed by the sale of revenue bonds.

Revenue bonds have demonstrated their adequacy when applied to agencies which are subdivisions of the State, but so far as I know, it is a new Federal procedure. I am strongly in favor of such financing, provided that, in so doing, Congress can retain the functions delegated to it by our Constitution.

The buyers of revenue bonds must be assured that they will be liquidated and that interest charges will be met. Rates are the security upon which such bonds rest. Naturally, the first concern of the lenders will be the rate base. In marketing some municipal issues of revenue bonds, it has been argued that they were more secure for the holders than general obligation bonds because they usually carry a provision that if the income is not sufficient, rates may be raised. This may be done by agreement or by court order. It is quicker and more easily accomplished than a general property levy to meet any deficiency.

This history shows the imperative necessity of protecting the established Bonneville wholesale rate, as well as the Federal investment in the power project. You cannot get away from the fact that the inclusion of rate provisions is standard procedure in indentures covering the issuance of revenue bonds. You must legislate to protect the public interest.

HANDLING THE FUNDS

Section 11a covers the creation of a separate fund in the Treasury to be known as the Columbia Power Administration Fund. Experience to date indicates strongly that there must be a separation of funds, according to the derived sources, rather than lumping these funds together. It would seem that public interest, as well as sound

financing, requires an accounting separation of funds so that the status of the project can be determined from time to time by the appropriate congressional committees. Without such separation, the Budget and the Appropriation Committees of Congress have no gauge to measure the use of appropriations. Section 11e covers the permanent appropriation of unsegregated funds.

Senator OVERTON. Will you kindly repeat that last sentence? Mr. PIERCE. Section 11c covers the permanent appropriation of unsegregated funds. The effect of such handling of funds, as is included in this bill, is to subordinate the Federal equity to that of the holders of the revenue bonds. I will explain that more in detail a little later.

It must be borne in mind, in this connection, that the existing Bonneville Act requires that returns, with interest, be made to the Treasury on that part of the Federal investment allocated to power. The appropriations to date have been made on this basis and it would appear that the same provision should be included in the proposed bill, inasmuch as funds were definitely voted on the theory that a full return would be made to the Treasury. We may assume that, after the Coulee allocation is made, the same obligations will exist there.

PLEDGES AND OBLIGATIONS

The first large appropriation for Bonneville and Coulee was allotted by the Public Works Administration in 1933. Since that time, the wise and far-seeing Appropriations Committees of the House and Senate have poured millions more into these dams, elec tric equipment and transmission lines. In all this expenditure: hearings, when seeking appropriations, and in statements 01 floor of the House, the people of the United States have been our sacred pledge that the money invested in the power 1 should be put back into the Treasury of the United Sta interest. That pledge must be kept in its fullest detail. i to keep that pledge and promise, and also to conduct the in an orderly manner, we must have a definite outline of for the whole river. Bonneville is operating under star fully worked out; Coulee power project is connected Executive order. The period of 40 years for amor declared a reasonable period by the President, whe interest rate at 3% percent.

Under this bill the entire power income of Coules r generating plants is pledged to pay the interest in on the revenue bonds sold to acquire the public util If I am wrong on that, I want to be corrected, These charges may come in ahead of the orig and Coulee. It was never intended that anythin the aforesaid repayment. The primary coine power rates at these dams, less actual operater bound to be taken to pay interest and amortiz

SAFEGUARDE

We who are now making the laws for ri power plants, may all be out of office bec

purchased and turned over to the Authority under the terms of this bill. Recalling some of the experiences of the past, and looking to the far future, I ask the subcommittee to make this bill proof against any possible action leading to scandals or questionable transactions or monopolization, which might take place because or errors in human judgment, or evil intentions on the part of any person or persons in authority. Certain safeguards will protect all concerned, including the Administrator or board or Authority, and will above all, strengthen and protect the public power program.

The sponsors of this bill must clearly remember the scandalous difficulties which grew out of the sale of the Seattle Street Railways to the city of Seattle. The reverberations reached Oregon when I lived in its capital city.

Let us have a clear-cut amendment that the revenue bonds sold have no lien except on the revenue from the properties purchased with monies so obtained.

THE CERTIFICATE OF VALUE

In this bill, acquisition of property is to be determined upon by the Administrator, alone. This should, in my opinion, he surrounded by safeguards so the decision may be subject to review. We must do what is necessary to assure the sale of the distribution systems to public bodies on terms which they will willingly accept and find advantageous. It should not be intended to set up a public successor to the private power holding companies, on the same model.

There is a section in the present bill (section 2-G), providing that the Administrator or the Authority shall make a certificate to the Secretary of the Interior on the feasibility and on the justification of the price, stating that the properties will pay out and are a good purchase. Let the bill provide that the certificate be a document of real consequence and significance. Let the certificate show what has been the assessed tax value of the properties about to be purchased. Let the certificate show the values placed on the properties, by the private electric companies, for rate-making purposes. Let the certificate carry a survey and an estimate of value by some well known firm of engineers to be selected by the Secretary of Interior. Let the certificate state the annual revenue and the operating expenses over a 3-year period. Let the survey show the number of customers, the number of meters, and the mortgage on each meter. Provide in the bill the proper detailed form of that certificate and require that it all be published for three consecutive weeks in at least two weekly papers in the district affected, before any purchase is consummated. Let the full calcium. light of publicity shine, with all its searching glare, on each point in the transaction. We cannot afford to pass a bill that will affect so many thousands of people and cover so many millions of dollars of transactions, without safeguarding every step and providing against bargains made behind closed doors.

In the matter of determining the values of any public utility under purchase consideration by the Authority, no value should be given the property for a going business. No financial value should be set on a franchise which was a free gift from the people to the private utility, and one which they have a right to reclaim. No value should

be placed on old and useless machines. It is a difficult problem which must be faced in these acquisitions.

The suggestions I have made should not interfere with marketing revenue bonds. This is, however, a point that should be fully developed by the committee for the information of Congress because a new type of financing is being applied to a Federal undertaking. Protection of public interest requires the the revenue bond holders shall not write the ticket. We must protect the Government invest ment and the rates of the ultimate purchaser. Beware repetition of the holding company experience.

COMPETING LINES

I believe you should add a section to the bill giving the Authority the right and power to build a competing line when it is found im possible to purchase private utility properties for a reasonable price, Nothing will squeeze the water out of an over-capitalized property quicker than competition.

THE VALUE OF THE PRIVATE PROPERTIES

You have testimony before you that the private utilities in Oregon and Washington have a book value of $300,000,000. The Chairman of the Federal Power Commission, after a careful survey and study, has stated that the private utilities of the Nation have a cup italization of $13.000.000.000, with an actual valuation of les fruit $6,500,000,000. In other words, one-half of the stocks and bons upon which the private utilities are earning dividends, is white is a fact that, in the growing Northwest, electric propers jer capitalized more highly than anywhere else in the United state is safe to say that the private utilities, there, with a book saa $300.000.000, claimed in testimony before you, are not you more than somewhere between $100.500.000 and $14.90689 The price will be the only issue in many cases, Hona el us panies will sell their properties. The most important peo vision on the purchase price req dres amendment of the ultimate purchaser a chance to sit in at the toge The cities, the P. U. D. and other public bodies st thority what they can afford to pay. Sound opera ognition of the fondamentals of note rie xoles accepted in Oregon. The properes to from the governmental units must be to briced • sound base and that seal interacia T

the bill needs amendment

of the receivers, and in governmental records. I quote from a speech that I made in the Congress on July 1, 1935:

The floating of Central Public Service stock under gilded promises and the victimizing of 11,675 persons in Oregon is one of the greatest financial scandals in our State history. Worse still, Pepco, under orders from Central Public Service, bought 29,994 shares of Seattle Gas, worth $15 a share and paid for it $225 a share, or 15 times its market valle.

Senator BONE. You might identify "Pepco." These folks won't know what Pepco is.

Mr. PIERCE. It is a private company in Portland, the Portland Electric Power Co. I quote further:

Central Public Service at the time being the owner of Seattle Gas, as well as Pepco, paid itself through this deal 15 times the market price for Seattle Gas. The celebrated holding company sat on both sides of the table giving the operating company no choice, and swindling it out of $6,753,748. Reporting the deal to its stockholders, Pepco, the Portland operating company described it as $6,753,748 "added to plant and equipment."

By that and other like deals Central Public Service, a holding company, as owner of Portland Pepco, increased the indebtedness of that corporation from $45,000,000 to $71,000,000, an increase of $26,000,000, in only 1 year and 4 months, without any increase in tangible assets.

Is it not apparent to this subcommittee that very careful safeguards must be thrown around the purchase of such a property? Should such a private utility be able to manipulate affairs so as to get the power of the Columbia River at $17.50 per kilowatt-year, for a long enough period, the growth of population and business will make such an increase in the values of their properties that they can be secure in the dividends on their watered stock.

Recent private utility financial reports show that, as their rates have been forced down by Bonneville, use has increased and profits have mounted. Conditions are changing so rapidly that if Bonneville Authority is not ready to buy nor the private utilities to sell, only short-term contracts should be entered into.

INTERCONNECTIONS

When the recent order came forcing interconnection between publicly and privately owned utilities, I said, "Goodbye to public power in the Pacific Northwest." I do greatly fear the result of that order. I fear that it is the nose of the camel under the tent. Enactment of this legislation and the purchase of the private utility properties will safeguard us against this threat coming to us through enforced interconnection. Enactment will also make it possible for our P. U. D.'s to get into actual operation. I hope the bill will be protected by amendment so far as our present knowledge extends. The possible faults of the bill lie in omissions rather than in inclusions. I urge its approval, with amendments, by this subcommittee and hope for its enactment by Congress.

FURTHER POINTS SHOULD BE COVERED IN THESE HEARINGS

The bill is predicated on the ability of the Authority to sell the acquired systems, almost immediately after acquisition, to cities and P. U. D.'s which are ready to distribute the power locally. I must, in all frankness, point out that there are very few organizations in