COLUIiBIA RIVER BASIN Summary Statement on Salient Items Relating to Hearings Before the Senate Committee on Interior and Insular Affairs on Proposed Amendment to H, R. 5472 GOVERNMENT PUBLICATIONS SECTION JAN 1 3 2016 U. Of IINASH. LIBRARIES Prepared at Request of the Committee Chairman by the Department of the Interior February 11, 1950 UNITED STATES DEMMENT OF THE INTERICR BURaU OF RECLA1IATION Washington 25, D. C, February U, 1950 Hon. Joseph C. nilahoney, Chairman Committee on Interior and Insular Affairs Washington 25, D. C. My dear Senator Ontiahoney: At the close of the session of your Committee on February you asked that in addition to preparation of the material to complete the record of the hearings on the Columbia Basin authorization amend—ment for H. R. 5472, we prepare a summary statement on points that appear to be of parttuular interest to the committee to date. It was your thoughts I believe, that the committee members might utilize such a summary to advantage over the coming weekend. am sure you realize that if anything more than rough approximations are desired, it would require several days to prepare some of the material that was requested by members of the committee. Since we could not make the summary available to members for their use during the weekend and still carry those particular matters beyond approximations, we have thought it best to cover the various subjects as best we can on a schedule that will permit their availability today. Sincerely yours, (Signed) Kenneth Markwell Acting Commissioner Enclosures COLUMBIA RIVER BASIN The Present Situation February 11, 1950 On February 1, 1950, the Director of the Bureau of the Budget, acting in behalf of the President, addressed letters to the Secretaries of the Interior and the Army setting forth the conditions under which their respective reports on coordinated plans for the development of the Columbia River Basin were approved by the President for submission to the Congress. By his letter to the Secretary of the Interior, the Director requested that copy of that letter be transmitted to the Congress with the Basin report, and approved recommendations for certain amendments to the Omnibus Rivers and Harbors and Flood Control Bill H. R. 5472. On February 3, 1950, the Secretary of the Interior transmitted his plans for the development of the Columbia River Basin to the Congress together with the letter from the Director, to which was attached language for the proposed amendment to H. R. 5472 to authorize the Columbia River Basin projects of the Bureau of Reclamation and the Columbia Basin Account which permits unified rate determinations and payout accounting, and provides an equitable basis for assistance to existing and future irrigation projects in the Pacific Northwest. Hearings on the proposed amendments were initiated by the Senate Com m4ttee on Interior and Insular Affairs on February 6, and, continued through February 9. On that day, the Chairman, the Honorable Joseph C. 011iahoney, requested that the following summary statement be prepared for incor poration into the record, and for the convenient use of the Senators during this week-end anticipating continuation of the hearings next week. This summary does not attempt to spell out in detail all of the material on any one of the score of subjects touched upon in the record of the hearings. Instead, it is designed to set forth certain salient facts vihich may be of assistance to the Committee in evaluating the President's proposal. 1 TM ARY 1. The Federal Government has provided or assisted in provision for irrigation of some 1,800,000 acres of land in the Columbia Basin. 2. The People of the Pacific Northwest and of the west generally, are making contributions to the repayment of their water resource development projects far larger than those of states in the Mississippi Valley and to the east. 3. The President has recommended the following authorizations: Mountain Home Project, Idaho, following features Upper Scriver Creek Power Plant Lower Scriver Creek Power Plant Smiths Ferry Dam Smiths Ferry - Scriver Creek Tunnel Scriver Creek Dam and Reservoir Cambridge Bench Project, Idaho Council Project, Idaho Hells Canyon Project, Idaho-Oregon Bitterroot Valley Project, (including 'Woodside Unit), Montana Canby Project, Oregon Crooked River Project, Oregon Vale Project, Oregon -.Bully Creek Extension Grand Coulee Dam, Washington Modifications for flood control Upper Star Valley Project, Wyoming Mann Creek Project, Idaho (reauthorization) Lissoula Valley Project, Montana (reauthorization) The Dalles Project -.West Unit, Oregon Basin AcccAint (as Provided in draft of proposed amendment) 4. The estimated cost of the new reclamation projects recommended by the President for authorization at this time is $413,000,000, of which the water and power users would return directly to the Federal Treasury more than #384,000,000, or 93%. Other incidental revenues are expected to approximate 4200,000, and the remaining cost of 28 to 29 million would be non-reimbursable. 5. Other returns to the Treasury from income and other Federal taxes on new wealth are estimated, over a period of relatively few years, to produce at least again that much Federal revenue. 6. Adjustment of the allocations of cost to nonreimbursable items in accordance with the President's recommendations on H. R. 1770 will result in very small changes (less than 2 percent of the total project costs) and will not affect the overall justification of :the proposed projects. 2 7. It will be necessary in any event to raise power rates lAthin a few years because of the incorporation into the system of power facilities which necessarily are constructed at higher cost that. was the case when Grand Coulee and Bonnerville Dams were being constructed. 8, A Basin Account is necessary to average the high cost power plants with the older, low cost power plants and thus at least delay and minimize such rate raises as may be necessary from this situation. 9. Unless the financial assistance to irrigation development is provided, as presently contemplated in the proposed Basin Account including the application of the interest component, additional increases in power rates will be necessary to provide that assistance. Regardless of whether or not the application of the interest component is to con—tinue to be permitted under Reclamation law (it is now being considered by the President's Later Resources Policy Commission) such a Basin Account is necessary to permit uniform consideration of future irrigation projects. 10, All Federal power facilities in the basin should participate 1.n the Basin Account as recommended by the President, regardless of whether they are constructed by the Bureau of Reclamation, the Corps of Engineers, or the Bonnerville Power Admisistration. The Departments of Interior and of the Army concur fully with the President on this recom—mendation. 11. There is precedent for, the principles embodied in the Basin Account in actions already approved by the President and by the Congress in other areas. There is also need for application of the same principle i other areas of the West. 12. The Basin Account is, as its name implies, an accounting procedure which is necessary to achieve payout through uniform power rates and to achieve appropriate assistance to irrigation. It will in no may affect the flow of funds to and from the Treasury. 13. The Basin Account will permit fair appraisal of all irrigation proposals upon the same basis. The geographic accident of whether or not an irrigable area happens to be near a potential power development will not control, as is now often the case. Proposed irrigation projects can then be evaluated upon the basis of their merits as irrigation projects, and not upon the basis of whether they happen, by- pure coin—cidence, to have power possibilities directly related to them. 14. The Columbia Basin Project (Grand Coulee Dam and related irrigation works) will recluire approximately 125 years to pay out under present arrangements and at the prevailing power rate. The present cost of producing power at Coulee Dam, including transmission, is $15,a8 per kilowatt yeat. The rate to accomplish its payout under present estimated costs by the year 2017, unless the Basin Account is established, would be $19.61, or an increase of $2.11 above the present $17.50 rate per kilowatt year. 15. The power rate that probably would be required to pay out all existing, authorized and recommended power and irrigation projects (both Army and Interior projects) are as follows on the three following bases: If interest component on all power facilities is available for application to assist irrigation (b) If interest component on Bureau of Reclamation power facilities only is applied to assist irrigation If interest component is not applied to assist irrigation Without including Including Liountain Home Mountain Home Irrigation ERE Irrigation Features $21.21 $21.21 $21.21 $21.51 $22.20 $22.57 16. It is reasonable to expect that within the next 20 years addi— tional projects will be authorized for the development of the Pacific Northwest. It is estimated that they will require an additional irrigation subsidy of approximately 000,000,000 (including irrigation features of the Yountain Home Project). The draft of legislation and the recommendation of the President and the Secretary anticipate the possibility of such additions for the development of the Northwest. Limitation of the application of the interest component to that which would be realized from Bureau of Reclamation power facilities alone *would prejudice the consideration of such future projects because of the increase in power rates which they would make necessary. Credit to the Vision of Men Early irrigation develonents by :-rite- to enterer 'ein the Pacific NorthweEt were, for the nort pert, the result of indenenOent and isol:ted endeavors by far-sighted 7)eo)le who created Vieir -rojects by their own efforts. Generally s7ec7Ang, they were the simpler more direct types of develonment which could be executed ec.sily and within the finencial means at the disposal of the irrigrtors. Such eevelopments date hck into the 1870's. Shortly after the turn of the century, the Federal Government ineuzurnted the Feder =1 me:lam:Um progrm, in recornition of the need for continued develoyient end the increased com-lexity of the physic .l developments and the increasing need for finEnci_l rnd engineering eseiFVnce to the water users. Its early -.-Tojects, while still of the lore or less indej,enCent or Isola ted types, made possible a degree of ex2zneion the could not othrrwise tvve been accorn2lished. The a7riculturs1 found: tion lelich was laid was invaluable for the trowth of the country. It eesisted not only the develop rent of the Ueet, but contributed e market for products to he rrnufectured in the East. By the e:rly 1920's, serious consieention being given to developments so lerce s to have been thou ;ht fantstic at eerlier dates, .1. rtiaulerly the Grend Coulee Dam and its rel. ted power and million-acre irrig-ticn develo-ment, and shortly thexeefter the Bonneville Dam for 7)over and ivvigation. Those local leaders, Congressional leaders, and officials of the State and Federal Government that contributed to this thinking, will long be credited with their far-s.tghted contribution to the nation es borne out by the essential services that these -rojects rendered to the country during Vorld Uar II, and will continue to render for a century to come. It is sie7nificent th-t despite the invaluable Federal assistance thus rendered, Federel legislation reeuires subsVnti7-1 return of inveetnent costs from nroject beneficieries, 71erticu1rrly in the Ueet. Uhile costs for dens for flood control and imerove-fients for navi*:tion, as a nationel Tyr lle are nonreimburseble, costs for irrigation and 'over Ere repaid by the peoele of the region through direct re7eyments for irrigation service vne through revenues from the sale of nower. Since we are considering here Yee develonent of water resources for the entire Pacific Jorthwert, for severe nurnores, let us co-n--K- re the Federal investments m nd reimbursements for all typos of water conservation and control of ..)rojects in the :3dorVI-eet with investments and reimbursc.Yments for developments in other areas of the country. Fedcml Exrymditmres for. Ucter ConservDtion and Control Projects 1824 - 1948 111lionsof Dollars Expenditur e s Repayable Non-Repay to 6t30/1,8(21 investment , Amount __.. 2. Columbia Lasin rtptes Average 167 100 67 renv - 60r. 72zr Mississinni WI:1,a Stites Average 124 0 124 Lutaz_=.25- Loipmr Misjssipi Valley Stt...t.L.1 Average 362 66 296 Pepay_7 18% Eastern Seahard -........,........______, Average 96 7 89 EtPL (1) Expenditures by Peclamation, Corps of Engineers, TVA, Bonneville, and Southwestern Power. (2) Includes Peclamtion projects and power v;Ilocetions for TVA dams and Norfolk, Denison, Ft. Peck and Bonneville !Dams constructed by the Corps of Engineers, and Couthwostcrn Power. Note: See Exhibit A for details. Proposals for the continued development of the Northwest have been brought forward from time to time simultaneously with more retlictic considerttion of the essentials of developing coordinated plans. Large dams for the control and use of water for various purposes have been authorized. Included are the Hungry Horse, AcUary, Detroit, Chief Joseph and others, and work is proceeding upon them ct the present time. 13_22.1.gy_Ssmidexs Now, further proposals are made on a basin-wide basis for the Columbia Flyer Bain, coordinated on the basis of engineering and economic .stuftes prepared by the Department of the Interior and the Corps of Engineers over a period of yet.rs. Consistent with the Congressional policy that Federal power be sold with the lowest possible rates consistent with sound business principles, power rates will be eetebliehedas low as is possible, and still repay all power costs, including interest, and such irrigation costs as cannot be met ray application of the interest compenent. These plans recognize that we ere dealing with one river system. Regardless of which agency builds or oper:tes any structure, the fact remains thet there is to be only one set of dame, each operating as a part of the syetem, each doing its pert as a member of a team. There will be one transmission system which will interlock all of the Federal T)ower plants for delivery of power to lord centers. One uniform set of nower rates will prevail. It is obviously undesireble to have islands of high-cost or law-cost power. An alternative means by which financial assitance to irrigation could be provided, other than the application of the interest cormonent on power facilities, is to increase power rates. This is not planned. All Federal Power facilities, regardless by which agency constructed, will return to the Feder el Government their cost plus interest. Because of the similarity of projects and the interlocking transmission system, and the inter-relationships of river operations, they c. re all pelts of one system. Any suggestion that the interest component from one source of power facilities should be available to assist irrigation repayment, End that other similar power facilities within the same system should not be equally available, is without logical basis. There should be no artificial separation based upon the coincidence of whether one power dam, or power plant, or transmission line happens to be constructed by one agency or another. Electric power is the same, regardless of which a#ency builds a plant. The power is all intermingled through the same transmission system, and once the power is put into Vrat system, no one can separate the red kilowatts from the green leilowatts. Hence all Federal power facilities should contribute regardless of whether or not the interest component in the Basin Account is ever fully utilized to assist irrigation. Under the pro7osed legislation the Congress will, at all times, have complete control of which projects are to receive assistance from the Basin Account, since only by Act of Congress can a project receive that assistence. The Basin Account is needed not only to maintain uniform power rates for a system of many dams of varying unit cost, but also it is needed to provide equitably for aprropriate development of irrigntion in those instances where the water users cannot afford to repay the irrigation costs. It is basic under the Peclamation law for irrigation developments to receive financial assistance from related power developments, but in application it creates inequities. Take, for example, two areas of irrigable land of equal quality. One is associated with a potential power development; the other is not so favorably situated. The development of the first, under present laws, is quite possible because of the financial assistance it will receive from its related power development. The financial feasibility of the second area is much less assured since, because of a geographic accident, it is not as favorably located in relation to power possibilities. The Basin Account will permit financial assistance to development of irrigation, regardless of the relationship of en irligable area to potential power sites. :Thus the Basin Account permits irrigation projects to be evaluated on the bas-.1.s of their merits as irrigation projects, and not upon the basis of whether they hallen, by sheer coincidence, to have power possibilities directly related to them. Irrigation in the Columbia River Basin The following tabulation shown the extent of irrigation, private and Federal, in the Columbia River Basin and the distribution of that development between rrivate and Federal agencies. 1. Approximate total area now irrigated in Columbia River Basin. . . . . • • • • • • . . . 3,700,000 acres 2. Approximate total area of potentially irrigable land (Including areas to be irrigated from presently authorized projects). . . . . . . . .3,800,000 acres 3. Percentoge of total acreage now irrigated (1) which have been developed solely by private enterprise 50% (2) which have been developed solely by Bureau of Reclamation 28% (3) which were originally developed privately but which now receive supplemental water supplies from Bureau of Beclanation 22% 9 Porulation Increases This year the Federal Government is conducting its seventeenth population census. From official samples, we already know the trends. The population is up almost everywhere. No where throughout the country are the increases in population greater than in the West. While it is true that the 1ihts have occasionally gone out in Manhattan, and that New York City, the greatest metropolis of the world, has outgrown its water su2ply, the State of New York has recorded a 10-year population increase of only something over 6%. Compare this to the West where the 10-year population increases in the Columbia Basin states are : Washington 46%, Oregon 59%, Idaho 12%, Wyoming 1.2%,, Montana minus 8%, Utah 24%, and Nevada 56%. Although the increase, population-wise, in New York may be greater than in the western states, the relative expansion is much less. In practical terms, this means that there is a relatively greater strain on facilities in the Columbia Basin states, than in New York, and the .t it puts greater emnhasis on the necessity for resource development. 10 Irrigated Areas Pay Surveys of 7 widely scattered individual reclamation areas, places that would have been virtually uninhabited if it had not been for reclamation, show that in the F. Y. 1948 these 7 areas paid a total of 62 million dollars in income taxes to the Federal Treasury. During the period that Federal income taxes have been in effect, the cumulative total paid by these areas was more than 326 million dollars, of which more than 90 percent has been paid since 1943. 11 SUMMARY OF FECOMENDATIONS BY THE BUREAU OF THE BUDGET Simultaneously with transmittal of his Columbia River Basin Report to the Congress, the Secretary transmitted to the Vice President, on February 3 the letter which he had received from the Director of the Bureau of the Budget. Conies of Clat letter and its three enclosures already have been made a part of the official record of this hearing and are not separately attached hereto. At the same time the Secretary of the Interior transmitted a copy of that letter to the Honorable Joseph C. O'Mahoney, Chairman of the Senate Committee on Interior and Insular Affairs. With regard to the Columbia River Basin report, the Director of the Bureau of the Budget, acting in behalf of the President, approved the authorization of all 13 projects recommended by the Secretary of the Interior, with the exception of the irrigation features of the Mountain Home Project. Favorable recommandat ion on those features was withheld at this time, without prejudice for its reconsideration after review of certain policy matters by the President's Water Resources Policy Commission. That Commission will consider such issues as "the maximum length of time for repayment of irrigation costs, the levels of subsidy justifiable for irrigation projects, the source of such subsidies, (including consideration of application of the interest comnonent) and related considerations". The President approves authorization of the Basin Account, which the Director of the Bureau of the Budget indicates as being "obviously necessary to permit efficient management of the Government's power operations in the Columbia Basin and a proper assignment of power revenues to return the costs of irrigation facilities which are beyond the ability of the water users to repay." The Director of the Bureau of the Budget recommends certain limitations with regard to allocations of some kinds, of non-reimbursable costs, all in relation to H. P. 1770. However, since these items are very small in comnarison with the total costs, adjustment for them will not materially affect the final results so far as the Pacific Northwest is concerned. The Director of the Bureau of the Budget advises the Secretaries of the Interior and Army that the President expects the two Departments to "both continue to operate in conformity with agreements of 12 this general character (coordinating agreement of April 11, 1949, between the Secretaries of the interior and the Army). The Director of the Bureau of the Budget reconmends that the bill, H. R. 5472 be amended to include the authorizations of the thirteen projects and the Basin account. 13 Pro,j e t ,pescTiptions, The Columbia Fiver Basin report, together with the individual project reports which support it, have been made available to the Congress end to the Committee on Interior and Insular Affairs. In addition, one-page summary statements of these projects have been furnished to the Committee, and there has been testimony on each of them. For the pur-)ose of this su :nary, therefore, there is attached a tabulation referred to as "Summary of Data - Projects Fe commended by Department of the Interior," - Exhibit B. 14 The Basin Account in Relation to Irrigation Assistance and tower Rates The Committee was interested in whether or not the existing Qolumbia Basin Project (Grand Coulee Dam and its related irrigation works) would pay out in a reasonable length of time if the present scheduled rate of repayment were retained and if the irrigation subsidy were to be repaid from power revenues without application of the interest component. The answer is that the payout schedule will have to be extended from the present 75 year period to a period of approximately 125 years. Since authorization and construction of the power facilities at Grand Coulee and Bonnerville Dams, other power facilities have been authorized in the Columbia Basin, such as those at Hungry Horse, Chief Joseph, McNary, and Detroit Dams. The projects that are now under construction, since they are being constructed under post-war rather than pre-war conditions, will cost more per kilowatt of power than Grand Coulee and Bonnerville Dams, Therefore, within a relatively' short length of time, estimated to be about 5 years from the present tine, it will be necessary to increase power rates in the Pacific Northwest solely because of incorporation into the systems of these higher cost power plants, Even with those dams constructed and in operation, the power demands will not be met, and other dams and power facilities are necessary. A further raise of power rates will also be necessary to provide needed irrigation assistance for existing, authorized, Land currently recommended projects unless a financial pooling plan such as the Basin Account is provided, and unless the Grand Coulee Project is properly' incorporated into that account, This is because the Columbia Basin Project itself will require $331,200,000 for irrigation subsidy over and above the interest component ( 496,600,000) from that project, The total assistance to irrigation which is required for existing and presently authorized reclamation projects (q478, 300,000), plus that required for reclamation projects proposed to be included in H. R. 5472 (415,900,000) is 0494,200,000. This is the requirement for the immediate developments only. Against this requirement, the interest coAponent on power features of these reclamation projects only, by the year 2000, would total $528,600,000, This would leave an apparent surplus of about $34,400,000, or less than 7%. However, a change in interest rate, asy from 3 percent to 2-1/2 percent, would eliminate it several times over. 15 Further, and far more important, is the fact that limitation of the application of the interest component to reclamation projects would prejudice the consideration .of future irrigation developments because of the increase in power rates which they would make necessary. It is sensible to look forward for a reasonable length of years, say 20, to the incorporation into the program of additional plojects for irrigation which appear likely to be undertaken. The estimated irrigation assictance which such projects may reasonably be expected to require approximates $300,400,000. Within this period of 20 years, therefore, the basin account may reasonably be expected to have a total requirement of sane $794,600,000 Compared to the $558,600,000 which may conceivably be available to offset this amount, it is clear that a deficit of some $236,000,000 will exist. And this is without taking into account other developments which assoredly will be brought forward in the remaining 30 years of the 507year period we are considering. Thence, it is clear that the intent of the legislation, and that the facts indicate unequivocably the desirability, from the standpoint of policy, and the necessity from the standpoint of financial require—ments, that the application of the interest component be not limited to power features of reclamation projects, but come from all. Federal power facilities provided for under the Basin Account. The conclusions are: (1) That some increase in power rates will be inevitable because of the incorporation of higher cost power dams into the system. (2) That an additional rate increase will be needed to meet irrfgation costs if the interest component is limited to recta Potion power •development alone* (3) That the Columbia Basin Project, as well as other recla‘-mation-projects, must-be covered-into the Basin Accouht if - payout.peritd is to be kept below approximately 125 years for that project, without raising power rates (4) That all power facilities in the entire system regardless of which agency happens to construct or operate them, should contribute to the Basin Account. A tabulation showing the anticipated interest component to become available, and the probable obligations to be met by application of cthe interest component, is attached as gxhibit C. 16 Outline Shoring asnificance of Basin Account I92E2E2Laprations and Rate Policies 1. Physical operation of system as a unit is a necessity. (Vhile certain of the Pacific Northwest Federal power generating facilities perhaps would be operated as separate units, rather than as integral parts of a unified system, the following observations clearly are applicable to the larger Federal plants which together represents the bulk of power generated in the area.) (a) Each generating plant is operated not independently, but in relation to all other plants in the system. Its role in system operation is continually changing. At one time it may be supplying peaking capacity, at another time it may be carrying base load, at still others it may be held in reserve as standby in order to permit the filling of reservoirs. (b) Transmission line use is also subject to frequent change. Power may be flowing in one direction part of the year and in the opposite direction during other parts of the year, as in the case of the Grand Coulee—Hungry Horse intertie now being developed. (c) The foregoing changes are due to constantly changing water and load conditions. 3.• Critical water season varies from stream to stream. System output is maintained at relatively constant levels by increasing production at plants on stream having high flows. 2. Even on the same stream the use varies between run—of—the—river plants and storage plants, depending on the amount of water in the river. 3. Load conditions have seasonal variations; e.g., irrigation pumping high in summer and lighting, heating and home useshigh in winter. 4. Emergencies, e.g., line failure, compel loads to be served over other lines, thereby requiring a series of changes in power flows over a large portion of the transmission system. Sudden unpre—dictable increases or decreases in loads have the same effect. (d) Because of changes in use of plants and transmission lines, each line usually carries power generated at several different plants and the proportion from each plant,ia.nd the proportion of use of each line, will vary from day to day. It is virtually impossible to determine at any given time 'here tne power delivered to a customer was generated. Even if it could be physically determined, the hourly and daily changes would make the determination an expensive and unworkable process. (e) Even if the source of power could be determined so that costs and revenue between plants and lines could be segregated, the result would be an irregular and need—lessly complicated checkerboard of varying power rates. (r) Operations on a physically integrated basis mean maximum production, maximum economy of uater and energypand maxi revenues, 2. A uniform rate is most desirable. (a) Uniform rate policy diffuses fenefits of low cost power throughout the region. Communities have equal opportunity to share in those benefits. There is no discrimination between communites close to and distant from the gener—ating plants. The policy is therefore consistent with the principle that upstream areas should be treated as fairly as downstream areas. (b) Such a policy tends to foster decentralization of industry. Latter can locate at best sites from point of view of markets, raw materials, labor supply, transportation facilfw it ie s, etc., regardless of location of generating plants. (c) Kstoricallz, rate structures in electric industry have moved from territorial differentials toward uniformity throughout the territory served. 3. Rates and payout should be based on over—all system results and not on results in an individual plant. (a) Use of plants and loads will vary, as developed in point 1. (b) Most efficient use of system and greatest amount of power revenues will be achieved from operation as a unit. The amount of power developed in the system as a whole will far exceed the total of power developed at the same plant if they are operated on an isolated single—plant basis') It is impossible, except on the basis of rather arbitrary assump—tions, to allocate this increased power from integrated operation and revenues therefrom between the various plants. 18 (c) Costs of production will vary at the different generating plants-effect of price levels during construction period, loca location, design, variations required by other purposes (e.g., irrigation), and existence of other purposes which will share part of the costs. 4. Without authority for pooling of obligations and revenues, a uniform rate can be achieved only by having the rate high enough to meet the financial requirements of the highest cost project from revenues derived from sale of its own power. (a) 'Mine various arguments have been advanced to justify pooling under the various Federal laws applicable to the Pacific Northwest, most lawyers familiar with this field have grave doubts concerning the legality of any arrangements, under those laws, which might accomplish a practical pooling plan, In any event; even if a rationale which would legally justify pooling could be devised, there are sufficient ambiguities in the laws to suggest that this step should preferably be taken pursuant to specific legislative sanction rather than purely by administrative determination. (b) If a power project must stand on its own feet, rates must be determined and revenues must be disposed of on that basis. There is no specific authority for using revenues from one project to pay part of the costs of another. (C) Financial feasibility of new projects cannot be measured by revenues from other projects under existing law, except insofar as downstream benefits can be credited to the new projects. (d) Rates required by the highest cost project thus may become the minimum rates for the entire system. The result will be the arbitrary maintenance of an unjustifiable high rate, to the detriment of the region as a whole. 5. Fooling of obligations and revenues as contemplated in the proposed amendment will permit rates to be established at a level which will pay off, within the period required by law, all costs of the power system, as well as irrigation costs beyond the repayment ability of the water users, in a manner which avoids arbitrary maintenance of high rates. 19 WHAT IS THE COUEBIA BASIN ACCOUNT? The Columbia Basin Account records, on a consolidated, basin-wide basis, the amount of repayment obligations which are a charge against power revenues, as well as the progress of repayment of those obliga-. tions. Thus, instead of dealing with obligations against power revenues and their repayment as a series of unrelated transactions on a project-by-project basis, the basin account recognizes the essential and continuing inter--relationship of the various projects in the basin. The essence of the basin account is pooling - a pooling of costs that are to be met from power revenues, and a pooling of these revenues to meet those costs. The power system as a whole, in addition to assuming the power costs, thus assumes all those costs which under Reclamation law are normally assigned for repayment from power revenues of individual reclamation projects, as well as comparable costs in the case of reclamation projects which do not have power features. Since the basin account treats as a unit the power revenues and the charges against them, the effect of this arrangement is to eon solidate all developments into a single project in so far as concerns repayments to be made out of power revenues. This result would, however, be accomplished without interfering with existing arrange ments whereby Congress considers benefit-cost ratios and engineering and financial feasibility and authorizes developments on a project by-.project basis with the qualification that the Congress would consider financial feasibility in the light of the basin account This shift from the project-by-project approach to repayment account ing till facilitate a more practical year-to-year approach in programming the repayment of the Federal power investment and of that part of the Federal irrigation investment which is beyond the ability of water users to repay. This consolidation of repayment schedules will facilitate the integration of the Federal .power facilities in the region and will permit extension of the uniform rate irinciple to the entire region. The basin account will be credited with all revenues - including those representing the interest component of power rates - derived from or incidental to the marketing of power from federal power plants in the Pacific Northwest now existing, now under construction, previously authorized, or authorized in H. R. 5472. The account will be charged (1) with all operation, maintenance, and construction costs of the facilities that are allocated to power, including, of course, an appropriate share of the joint facility costs, (2) with interest an the unrepaid balances of the federal power investments, and (3) with all other reimbursable costs of the character that, under 20 Reclamation law, are assigned for repayment from power revenues. The last mentioned costs are predominantly the irrigation costs which are beyond the ability of the water users to repay. Costs of reclamation projects, existing or heretofore authorized, that under present Reclamation law cannot receive any repayment assistance from any power revenues, can be charged against the pro—posed basin account only with the specific approval of the Congress. Costs and revenues of projects authorized in the future likewise may be included in the basin account only with the specific approval of the Congress. The basin account in no way affects the flow of funds to and from the Treasury. The Bureau of Reclamation, the Bonneville Power Administration, and the Corps of Engineers will in the future, as in the past, continue to have their budgets reviewed by the Congress and will continue to receive their funds from appropriations made by the Congress, Similarly, all power revenues will continue to be deposited in the Treasury. In the case of reclamation power develop—ments, they will be placed to the credit of the Reclamation Fund, to the extent required by the Hayden—Mahoney Amendment. That is, when costs to be repaid by reclamation power revenues have been repaid, these revenues will go to the credit of miscellaneous receipts. In the case of the other federal power developments which are covered by the basin account, these revenues will be placed to the credit of miscellaneous receipts. Finally, establishment of the basin account will not relieve any agency from its statutory duty to keep its power accounts in accordance with the Federal Power Act. 21 Precedent There is precedent not only for assistance to irrigation from power revenues and the application of the interest component to assist irrigation, but also, in effect, for the pooling of financial costs and rerurns on a basin-wide basis. There till be need for further application of these principles in other river basins, as well. In the Central Valley Project of Calif onia, by way of illustration, revenues from the Shasta and Keswick Dams, which are located in the northern end of the Sacramento River Basin, are utilized to assist in financing the construction of the Friant-Kern Canal and other physically remote irrigation features in the San Joaquin Valley hundreds of miles to the south. This is the identical principle of the basin account as applied to reclamation projects. Loreover, in its relation to Corps of Engineers projects, essentially the same result has been accomplished and approved by the Congress through enactment of the American River Act (Publ. Law 356-81st Congress) whereby, upon completion of the Folsom Dam by the Corps of Engineers, the dam is to be transferred to the Secretary of the Interior for maintenance and operation as an integral part of the Central Valley Project. , Thus, the power revenues will be ma de available for'assist ante to irrigation on that project. Further, the President, in advising the Secretary of the Interior on his proposed plan for further development of the Central Valley Basin, has recommer4ed to the Congress, that certain of the projects now authorized for construction by the Corps of Engineers be re-authorized for construction by the Secretary of the Interior and that his so-called "Folsom Formula" be applied to all other multiple-purpose features now authorized for constuction by the Corps of Engineers in Central Valley. Hence, there is already precedent in the form of an authorization by the Congress, supplemented by continuing and further recommendations to the Congress along the same lines by the President, in the Central Valley of California. The Missouri River Basin Project has, from the outset, been predicated upon the pooling of power revenues, to assist in the payment of the irrigation features of the plan. The interest component is applied here for that purpose, also. When the Congress adopted the Boulder Canyon Project Adjustment Act, it provided for the use of power revenues from the Hoover Darn for the investigation and construction of other, disassociated, projects in the Colorado River Basin. 22 The principle of the basin account will also be required for such future projects as the "Colorado River Storage Project," through which the states of the Upper Basin may utilize the waters of the Colorado River System as apportioned among the states, and ratified by the Congress, in the recently adopted Upper Colorado River Compact. 23 Increase in Construction Cost Estimate for Columbia Basin Project The estimated cost of the Columbia Basin Project based on 1940 price levels as shown in House Document 172, 79th Congress, 1st Session was 0487,030,228. Of this, v1,000,000 is a non-reimbursable allocation to navigation and flood control. The reimburseable cost shown in Table llp page 26 of that document is therefore Q486,030,228. The estimated cost of the project based on current prices is 0773,339,000 for 18 generating units and including the settlement land purchase program, and the cost of installing and removing the Shasta generators which were "borrowed" for temporary use during the war. The reimbursable construction cost, with 15 generators, is 0743,512,000, as indicated on the attached table. The increased costs of lab6r, materials, and equipment which, for construction of the types involved, are on the (composit) average 2.15 times as great as they were in 1940, is the major reason for the rise in cost estimates. Other factors such as repair of the spillway bucket, addition of generating units R-7, 8 and 9, and repair of flood damage caused by the 194 flood also are reflected in the present cost estimates. Exhibit D presents a chronological summary of the cost estimates for the Columbia Basin Project with brief explanations of the reasons for the periodic increases in estimated total costs. 24 EXISTING BONNEVILLE *, RECLAMATION MARKETING AND PAYOUT AGREEMENT The Bonneville-Reclamation Marketing and Fayout Agreement (Memorandum of Under standing) of January 31, 1946, is the means by which power revenues realized from the sale by the. Bonneville Power Administration of power generated at Grand Coulee Dam are applied to the return of Grand Coulee power costs and costs of the Columbia Basin Project which are assigned for return from power revenue. Reclamation law requires that all reimbursable costs of recla—mation projects be returned to the United States. It also permits the assignment of irrigation costs beyond water users repayment ability for return from power revenues.. President Roosevelt by executive order dated August 264 19400 desipnated the Bonneville Power Administrator as marketing agent for Grand Coulee power. The Allocations Report of January 31, 1945 ( House Document No. 172, 79th Congress) provided basis for allocation of costs of the Columbia Basin Project, The Liarketing Agreement is the means by which the provisions of law and of the Allocations Report are made to operate.. It does this by providing: (1) For payment by the year 2017 of the Columbia Basin Project construction costs assigned for repayment from power revenues (0382,547,068 of which $228,404,676 represents irrigation cost) payment to be out of revenues realized by Bonneville as marketing agent, (2) If construction costs assigned for repayment by power exceed the original estimate, the continuation of annual payments by Bonneville at the same level until the extra cost is paid. Provision also was made for ultimate use, with Congressional approval, of a portion of the interest component in the determination of the financial feasibility of other reclamation projects. 25 Federal Expenditures by States EXHIBIT "A" Fof Water Conservation and Control Projects 1824 -.1948 Millions of Dollars Expenditures Columbia Basin States to 6/30/48 (1) Washington 510 Oregon 202 Idaho 86 Utah 30 Nevada 99 Wyoming 65 Montana 177 Average 167 Upper Mississippi Valle- States Wisconsin 107 Minnesota 39 Illinois 249 Iowa 98 Average 124 Repayable Investment 0 0 0 0 0 Non-Repay (21 Amount 394 37 2 5 7 21 67 Repay-60% 107 39 249 98 124 Repay70% 316 65 84 30 94 58 50 100 Lower kississip Louisiana Arkansas Tennessee Mississippi Missouri Average Valley States 463 268 595 205 280 362 O 463 259 311 284 9 196 O 280 296 Repay-18% Eastern Seaboard States New York 230 New Jersey 115 Delaware 43 M4ryland 49 Virginia 57 North Carolina 142 South Carolina 35 Average 96 230 O 115 O 43 O 49 1 56 49 93 O • 89 Repay-7% (1) Expenditures by Reclamation, Corps of Engineers, TVA, Bonneville, and Southwestern Power, (2) Includes Reclamation projects and power allocations for TVA dams, and Norfolk, Denison, Ft. Peck and Bonneville Dams constructed by the Corps of Engineers, and Southwestern Power. 26 The Chart omitted here appears between pages 82 and 83 on the transcript. 27 t- Exhibit C Reclamation Projects Irrigated Costs to be returned from power revenues (Millions of Dollars Interest Available from Power Investment in Reclamation Projects, Accumulated to year 2000 Existing projects (only with Con— gressional apidroval 350 ..1.10P11111110 Authorized, but pro—posed to go into Basin A/c under amendment to H.R. 442.4 194.6 5472 478.3 194.6 Subtotal Recommended for authorization by the Director of the Bureau of the-Budget and the Secretaty of the Interior Subtotal 494.2 Future Projects — (a) Irrigation features of Mountain Home Projects 185.4 (b) Expected to be authorized within 20 years only 115.0 Subtotal 300.4 Total 794.6 Deficit anticipated in 20 years in application of intelest 15.9 34.0 528.6 30.0 558.6 236.0 28 aS 4) Cd 4) 0 a) 14 S-1 0 O 0 4-4 o to as w 0 +) w 1-1 0 7-4 a) et r4 I-I 0 0 r4 0 0 anN4 AD 0 4) 4-4 • co a) to P4 0 rd o vie C• O $4 43 Ce r4 PI 0 0 t i4 f4 634 Pi a) as aS 43 o 0 4-, +3 14 id CI) "r4 0 id (CS +2 so-I t)1 cd o' • CI) 0 14 C4 3 G) Cti 0) 0 cg • il• f-4 f-I trN a) cd S-I a) 0 •r4 rd a) x140) (1) P.4 cu a) 03 0 A 4D 1:• * (1) (14 CH g 0 o I ci) 0 cd • W a) LC\ re% %.,r) • • • cr\ b0 .Z" r4 LCN, r4 r4 r a) cp 0 r4 ri-i 0 i fXi CIS +3 43 43'd a) 0 0 ts) IA E-1 Eri Na g al cd k .,....4 $.4 rn a) o O 0 +a 0 ›, ci-i 1,4 +I 0 0 a)Ain >.aW 1 Pi Q 0) ad:11114 tl. 43 h 4.) +) a) (30 1-1 'd 0 1-4 0 a) to 0 rii IV Cd •r4 A W C) i> 03 r--1 $.4 4-) U. ./.4 c.) 4., a a) nd rd O o 4 ci a9 0 4 4 ) c f )( I ) O $.4 1 O 0 P, CH cd $4 0 a) v)(1) a) 0; CU 1X1 tin ai N frg 1 f. 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