a reasonable time, be made equally well adapted to those of a competing applicant for the same project.

In considering the application of the preference provisions of section 7(a) to the issuance of new licenses under section 15, the legislative history of the act is revealing.

The intent to prefer public agencies under some type of Federal licensing scheme was embodied in almost every bill, involving_water power legislation from 1914 to the passage of the Federal Water Power Act in 1920.

When the Wilson administration bill was received in 1918, and considered by the House Water Power Commitee, the question of preference to public agencies was made discretionary with the Commission. The language was made mandatory on a floor amendment and henceforth was to remain in every subsequent version.

The preference provisions approved by the 65th Congress were strengthened by the 66th, when preference was afforded to a public agency whose plans were not as well adapted as a competing nonpublic applicant to comprehensive development of a waterway, provided that the public agencies' plan could be made equally well adapted within a reasonable time.

Section 7 contained no reference to new licenses issued under section 15 when it was considered by the Senate Commitee on Commerce in 1919, but the Committee amended the public preference language to read as follows:

That in issuing preliminary permits hereunder or licenses where no preliminary permit has been issued and in issuing licenses to new licensees under section 15 hereof the Commission shall given preference to applications thereof by States and municipalities . . . (new language italicized.)

A conference approved the Senate amendments to section 7, and the bill was signed by President Wilson on June 10, 1920.

It seems quite clear that Congress at every turn of the way consistently adopted language which strengthened, rather than diluted, the application of the public preference language even in the face of formidable opposition expressed by the supporters of investor-owned utility interests.

By the same token, the legislative history reveals no support for the proposition that preference provisions of section 7(a) do not apply to licensing proceedings where competing applications are offered by the original licensee and a public agency.

Sections 14 and 15 of the act were certainly among the most controversial sections, but the chief items of concern were primarily the right of the government to recapture, and the length of term of licenses to be issued, both for the original project and for new licenses as well.

Mr. O. C. Merrill, Chief Engineer of the Forest Service in the Department of Agriculture, and a principal architect on the act, testified before the House Committee on Public Lands in 1914:

With respect to the matter of renewal, I believe that provision should be made in any lease granted that the original lessee should have the right to renew except under two conditions, first when the site is needed for public purposes, either by the Nation, by a State, or by a municipality.

Later bills replaced a leasing system with a licensing procedure. As late as 1920 there was opposition expressed to the preference to

municipalities, and Senator Phipps suggested an amendment which would have precluded the operation of the preference clause to new licenses on the theory that those taking the initial risk should have the benefit of a new license later. His amendment was rejected.

Under section 15 of the act, the Commission is authorized to issue a new license to the original licensee or a new license to a new licensee. In either event there would be a new license and a new licensee authorized to act under the terms and conditions of that new license. The act draws no distinction between the original license, issued for a project subsequently to be built, and a new license to operate and maintain a presently existing project, insofar as the applicability of the preference language is concerned. Quite obviously upon the expiration of the fixed term of the original license, a new license must be issued. An entirely new licensing procedure must be undertaken by the Commission upon the expiration of the old license, in the event of competing applications. There is no automatic renewal or relicensing; such terms do not appear in the act in any section involving the Commission's licensing authority. Contrast this with section 5 of the Boulder Canyon Project Act (45 Stat. 1060, 43, U.S.C. s 617 d (c)) which does provide for renewal of leases and contracts.

It is a matter of obscure semantics to urge, simply because section 7(a) refers to a "new licensee" and section 16 distinguishes between the "original licensee" and a "new licensee," that the framers of the act intended to make the preferenec purportedly given to public agencies totally inoperative if the original licensee should apply for a new license.

It would have been a relatively simple task for the authors to have expected from the preference provisions of section 7(a) situations wherein the original licensee desired to apply for a new license to operate and maintain his existing project. No such intent on the part of the authors of the legislation can be inferred from the language of the Act or from its legislative history. The demonstrated successful efforts to strengthen the public agency preference provisions make it quite clear that the contrary effect was intended.

Thank you, Mr. Chairman.

Senator CANNON. Thank you, Mr. Ely.

In Mr. Radin's statement, I was intrigued by your analysis there concerning the fact that "Congress and Commission are one and the

same."

Did you hear the discussion we had yesterday with some of the witnesses on that point?

Mr. RADIN. No, I am sorry I was not present yesterday.

Senator CANNON. The first sentence of section 14 of the act says. Upon 2 year's notice from the Commission the United States shall have the right to take over the project.

Doesn't that seem to make a definite distinction between the United States and the Commission, which you contend is one and the same in your interpretation?

Mr. RADIN. Yes, sir.

Our interpretation is on the basis of the proviso I quoted here, that the Commission shall make that determination. The rationale, the reasoning is this: If you look at the sentence I have quoted here, I stated "that in the event the United States does not exercise the right to take

over or does not issue a license to a new licensee, or a new license to the original licensee, the commission shall issue from year to year an annual license."

Embodied within that sentence the Commission is given the authority to issue a new license to the original licensee, and we would assume that the Commission refers there also back to the provision to take over a project.

I think the net effect of our position there, Senator Cannon, is that in some cases the authorization procedure would be obviated. The Congress would still have the right to make the final determination, because the Congress would have to appropriate the money for recapture of a project. But you would eliminate, by the procedure we have suggested here, the authorization step for recapturing a project. That is really the net effect of the difference in the interpretation of the legislation as we see it.

Senator CANNON. Generally, Mr. Ely, you support the bill, this approach, except that you do want to make it clear that, in your interpretation of it, the public body would have priority, other things being equal, even over an application by the original licensee?

Mr. ELY. That is correct, Mr. Chairman.

We are concerned by this. The bill does not contain any language on the subject of a preference or non-preference to the public agencies with respect to new licenses. The difficulty is created by the fact that the Commission, in submitting its recommendation, now embodied in the bill before you, volunteers its interpretation of section 15 with respect to this preference provision.

It appears in the Commission's letter to Speaker McCormack. The Commission, as I say, volunteers this interpretation. Under section 7(a) the Commission says:

Under the Federal Power Act the Commission is instructed to give preference to applications by States and municipalities in issuing licenses to new licensees · under section 15.

It continues:

We believe that this preferences applies only after it has been determined that the original licensee should not receive a new license. In those instances, where the original licensee and another applicant seek a new license for the same project, the Commission believes that the new license is to be issued to whichever applicant can best meet the standards of the Act.

In those rare cases where the two applicants are evenly matched, the Commission believes the new license should be issued to the new licensee, so long as he can meet the standards of the Act as well as the other applicant.

Our concern is that in later interpretation of S. 2445, if it should be enacted, someone would urge that the legislative history of the bill before you, since it contains this somewhat gratuitous interpretation by the Commission of the preference effect of section 15, would be deemed to have been approved by this committee and therefore by the Congress even though the bill you are on does not contain a word on the subject.

This has happened before. We note in some of the prepared testimony of the utility representatives, this interpretation is relied upon. It has led to the protective legislative history. We think it appropriate for this committee, if you are not going to legislate on a preference on the issuance of new licenses, to show you that you do not adopt the Commission's interpretation by silence in enacting an amendment to

section 15.

Indeed, if the Commission is correct, then this same committee of the Congress, in amending the Federal Power Act in 1920 to add a preference to the public agencies on the issuing of new licenses under section 15, was a wholly futile act. It is inconceivable upon what set of circumstances any public agency would have any preference to a new license, if the Commission's interpretation of section 15 is correct.

We do not wish the committee, by sort of negative legislative history now, to be deemed to have reversed the decision of this same committee of Congress made 40 years ago. If you are going to legislate on the question of the preference, so be it.

We hope you would adopt language which we would urge, that affirming preference to public agencies.

If you are not going to legislate on that subject, then let us not have the unrefuted assertion by the Commission of its interpretation of section 15 adopted by silence.

We refute it. We collide with it head on.

We ask the committee to protect our view in the way I have described.

Senator CANNON. Let's assume that your view was followed and that a private licensee and a public agency had both applied for the new license and that the public agency was not one of the agencies of the Federal Government where the Congress had to appropriate the funds. What would be your position with respect to the required payment to the previous licensee of its capital investment?

Mr. ELY. We regard the act, the Federal Power Act, as intending fair compensation to the original licensee. We would not assert a right, as some witnesses have indicated, to take anybody's property at a gain. Quite the contrary. On the other side of the coin, the act itself prohibits the licensee from capitalizing the value of the water power. It is established law, by the U.S. Supreme Court, that it is inconceivable that any person should have a private property right in the flowing waters of a navigable stream. Consequently on relicensing, new licensing, if a public agency should present a plan equally well adapted to that of the original licensee for the future utilization of the resource, the development of the river, we think the preference should apply as though these were two new competing license applications, with the difference that the prior licensee to the extent that he had not amortized his investment by the rates approved by the Federal Power Commission, should be compensated by the new licensee for the fair value of the property taken. I would not contend that the new licensee had any right to take that property at any fair sale price. It should be fair compensation.

Senator CANNON. You are raising a question in my mind. You say to the extent that his capital investment has not been amortized. Yet you turn around and say the fair value, fair market value. It seems to me that there is a difference between the fair market value and the unamortized capitalization.

Mr. ELY. There may well be in certain cases.

Senator CANNON. Would your position be that a public agency under those circumstances would be required to pay the fair market value of the assets that they were taking just as though they were taken under condemnation proceedings?

91-510-68

Mr. ELY. It is. I draw no distinction. There is a distinction of what should happen to the proceeds. The company should not be paid twice, once by the rate payer, once through rates which have in effect amortized by providing for complete depreciation, and the second time by the new licensee. There should in the public interest be some regulation of the windfall, if there is one, of the sale by the old licensee of its property twice. So far as the new licensee is concerned, we seek no windfall. The fair value of the property taken as of the date of its taking, just as in condemnation, I assert is the fair standard. Senator CANNON. Let's go a step further. You say they should not have a windfall. Let's assume it was not a profitable operation that was being taken over and they were actually receiving less than, as the fair market value, less than the amount that they were carrying on their books, which imposed an added burden on the rate payers. What would your position then be?

Mr. ELY. It is for the Commission in the first instance, and ultimately on review by the courts, to determine the value of the property acquired by the new licensee. And the question of whether the property was economic or not economic I suppose should be taken into account by the fixing by an impartial agency of the price to be paid. If there is an obsolete plant and the generators taken out and replaced, or if it is taken about the time when the useful life of the property has expired and the company has not made provisions for replacement, obviously you have a different valuation problem than if the turbines had just been renewed or had been maintained in first-class condition. Each case would have to be adjudged on its merits.

Senator CANNON. Mr. Radin, you indicated that the Appropriations Committee would have the right to review and therefore perhaps some of these steps were unnecessary. Do you believe that the Appropriations Committee would have the same degree of expertise in substantive legislation as an authorizing committee might, which might initially have considered that problem?

Mr. RADIN. Yes, I certainly think so. But beyond that, as my statement points out, I believe that the issues are not nearly so complex on the recapture of an existing project as they are on the authorization of a new project because the feasibility would have been demonstrated over the period of the operation of the project. So I think the analogy is not the same as between the authorization of a new project and the recapture of an existing project. Also of course on that point, the expertise of the Commission would be brought into play, too.

Senator CANNON. Thank you very much, Mr. Radin and Mr. Ely, for your appearance here this morning.

Mr. RADIN. Thank you, sir.

Mr. ELY. Thank you, Mr. Chairman.

(The following letter from Mr. Ely clarifies his statement:)

ELY & DUNCAN,
COUNSELLORS AT LAW,

Washington, D.C., March 19, 1968.

Hon. WARREN G. MAGNUSON,

Chairman, Committee on Commerce,

U.S. Senate, Washington, D.C.

DEAR SENATOR MAGNUSON: Upon reviewing my testimony given before the Senate Committee on Commerce on S. 2445, on February 27, I find that I may