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HOUSE OF REPRESENTATIVES,
COMMITTEE ON WATER POWER,
Friday, March 22, 1918.

The committee met at 10.30 o'clock a. m., Hon. Thetus W. Sims (chairman) presiding.

The CHAIRMAN. The committee will come to order. Who is to be the first witness this morning?

Mr. HALL. Mr. Chairman, Mr. Weston was to come first this morning, but Mr. Pierce asked if he could make a brief statement, and Mr. Weston is willing for him to proceed now for about five minutes. The CHAIRMAN. Then you may proceed, Mr. Pierce.

ADDITIONAL STATEMENT OF MR. HENRY J. PIERCE.

Mr. PIERCE. Mr. Chairman and members of the committee: In his testimony yesterday, Mr. C. K. Kelley, vice president of the Montana Power Co., stated that he thought the cost of hydroelectric projects might, in certain cases, be amortized during a 50-year tenure of lease and I wish to go on record with the statement that the Priest Rapids water power could positively not be developed under a law requiring that the cost of the property be amortized during a 50-year tenure of lease and I am equally positive that such a requirement would effectually prevent the development of at least 95 per cent of the water powers of the country, whether located in navigable streams or in the public domain. The following are my reasons for making this statement:

The Priest Rapids of the Columbia River are located in a desert country having a population of not over 100 people within a radius of 20 miles. The market for power will have to be created and if secured will have to be derived mainly from electrochemical and other industrial plants which will not locate there unless they can be assured of large quantities of very cheap power. The Priest Rapids proposition is a pioneer project which it would take years of hard work to fully establish. It will be difficult enough to earn even the interest on the cost of construction during the first lean years of operation and it would not be possible to set aside any fund whatever for amortization purposes.

The water-power business is of a hazardous nature and conducted on a very close margin of profit, and under the rates allowed to be charged by State public-service commissions it would be impossible to retire the capital through amortization during a period of 50 years. In the State of Washington the public-service commission has valued the property of all public-utility corporations for rate-making purposes, and only permits such rates to be charged as will permit of a fair return upon the investment, and which return would not permit of setting aside a sufficient sum for amortization purposes. During the period before public-service commissions were established, and before rates of public-utility corporations were regulated, the bond issues of these corporations were generally amortized, either in whole or in part, during a period of from 35 to 60 years, but under regulation of rates to a lower level by the public authorities it is no longer possible for a public-utility corporation to amortize its securities. It is the universal custom at the present time to refund bond issues

upon their maturity. The business of a power company, if successful, is always growing, and it has to not only keep increasing its indebtedness, but often has to forego dividends for years, owing to the necessity of investing its earnings in betterments and extensions. It might well take 20 years before a property like Priest Rapids would be developed to its full capacity.

The Montana Power Co., of which Mr. Kelley is vice president, and which, I am informed, does about 90 per cent of the power business of Montana, has passed through its pioneer stage; its water-power rights are, for the most part, perpetual, and its waterpower plants are not subject to recapture by the Federal Government; it has an established business, based on long-time contracts, for sale of its electrical energy to such great concerns as the Amalgamated Copper Co., the Anaconda Copper Co., and the Chicago, Milwaukee & St. Paul Railroad, and with these large outlets for power, it is quite possible that the Montana Power Co. might be able to create an amortization fund out of its earnings large enough to amortize within 50 years such hydroelectric extensions to its present system as may be required to keep up with its growing business, but it would be utterly impossible for newly developed power plants to retire their capital in that way.

The CHAIRMAN. Mr. Pierce, I have given some attention to the Priest Rapids proposition, and it has always seemed to me that it was so large and so great, both in expenditure and in possibilities, that it ought to have special treatment.

Mr. PIERCE. Yes, sir,

The CHAIRMAN. And I think so yet. I think that Congress can very well afford to pass a special bill with reference to that particular project. Whether it would be wise to apply the provisions of such a bill to the whole country or not, I do not know, but if we passed a bill that would tend to prevent that development or make it impossible, we ought to pass another one specially authorizing it to be developed under such conditions as would bring that about. It seems to me that your irrigation project there is about as important as anything else which would not apply to any of these projects located east of the Mississippi River.

Mr. PIERCE. I thank you, Mr. Chairman.

The CHAIRMAN. Who is the next gentleman to be heard?

Mr. MATTHEWS. Mr. Chairman, may I interrupt a moment to ask that, as the representative of Los Angeles, particularly, and its municipal electrical enterprises, I may have an opportunity to be heard before the committee before you close your hearings?

The CHAIRMAN. As a matter of course, we want everybody to be heard that has an interest, and I should think the municipal interets of Los Angeles would certainly be entitled to be heard. I have not been trying to arrange who shall come first, except the officials of the Government and other State officials, and I suppose you are in that class.

Mr. MATTHEWs. I am not particular about the order. I just want the privilege of being heard before you close.

The CHAIRMAN. Then, suppose you follow Mr. Weston.

Mr. RAKER. Before Mr. Pierce concludes, I would like to ask him a question. Mr. Pierce has been before the Committe on Public

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Lands and before this committee, and I am satisfied that he has gone over this proposed legislation, and I want to ask you, as a general proposition, from your investigation of this matter and this bill, you think it is workable and about the best bill that could be presented?

Mr. PIERCE. I do, sir; with the amendments which have been suggested. I think it would be workable. I believe we could develop our Priest Rapids water power under the measure, with the amend

ments.

Mr. RAKER. Those amendments are the ones suggested by Mr. Merrill?

Mr. PIERCE. By Mr. Merrill, Mr. Britton, and Mr. Hall.

Mr. RAKER. And with those in the bill you believe it is about the best that could be obtained, and will really be workable?

Mr. PIERCE. I do, Mr. Raker.

Mr. RAKER. And protect the Government and give it a chance to control the situation and at the same time give the investors a full and fair opportunity?

Mr. PIERCE. I do.

Mr. RAKER. Now, one other question, and I want to call the attention of the committee to the fact that in addition to the members of the Committee on Interstate and Foreign Commerce who are interested in this legislation, in addition to the members of the Committee on Public Lands who are interested in this legislation, and in addition to the members of the Committee on Agriculture, which are the three committees having this character of legislation before it, I also want to call to the attention of the committee, and particularly to certain members, that to my mind this involves, and will in the future, irrigation as well as water power, particularly in the West, and while the members of the committee were not selected from the membership of that committee, nevertheless the three ranking members of the Committee on Irrigation of Arid Lands are on this committee, and its chairman is a member of this committee. I do this for the purpose of calling attention to the fact that any legislation that will affect the question of irrigation, so far as dams and reservoirs, where there may be a possibility of power, are concerned, it is our duty to see that we take care of that feature of the legislation, and therefore that is one reason I have been directing my attention to that feature of the bill relating to irrigation, and I want to ask Mr. Pierce this question, following that statement

Mr. TAYLOR (interposing). Let me interrupt just a moment by saying that as chairman of the Committee on Irrigation I have been watching this trend very intently, because I know how much it will affect especially the Western States; but thus far I can not see that there is anything that militates against us, unless there is some assumption here to supersede our State laws out there, which, of course, we must jealously guard; but I feel there is no disposition to transgress upon our irrigation or upon the State owership of the

water.

Mr. RAKER. I am particularly pleased that Mr. Taylor has made that statement, knowing his interest in that matter and his experience in irrigation matters and the means required for it. This bill, while it is designated a power bill, so far as the West is concerned,

is in substance an irrigation bill as well. And I want to ask Mr. Pierce now, right in that connection, if it is your opinion that the provisions of this bill safeguard and provide for the development of irrigation in the arid and semiarid States to the full extent that they can be, the same as it does the water-power development.

Mr. PIERCE. It seems to me it does, Judge Raker.

Mr. RAKER. Your view is that under subdivision A of section 10, which reads as follows:

That the project adopted, including the map, plans, and specifications, shall be such as in the judgment of the commission will be best adapted to a comprehensive scheme of improvement and utilization for the purposes of navigation, of water-power development-~

And then it says:

And of other beneficial public uses.

Now, I have inserted after the word "development" "irrigation," and I am going to ask you now, from your experience in this matter, to avoid any possibility of irrigation not being considered, when, to my mind, it is one of the prime objects of every dam and ditch and water development in the West, as well as hydroelectric power, if to make it specific the word "irrigation" might not better be put in there.

Mr. PIERCE. I think it would be very wise to put it there.

Mr. RAKER. And otherwise you believe that under the provisions of the bill and under the authority given in the development of each plant consideration would be given and should be given, not only to the development of hydroelectric power but also to irrigation? Mr. PIERCE. I do.

Mr. RAKER. And you know that in the West irrigation is as important as water-power development?

Mr. PIERCE. Fully.

Mr. RAKER. And in developing a plant we should take into consideration and look forward to its utilization for irrigation as well as for the development of water power?

Mr. PIERCE. Yes; a large part of the electrical energy to be developed would be used in the operation of electrically driven pumping plants to raise the waters from the streams to lands which lie out of reach of gravity water.

Mr. RAKER. And in many instances where you will place your dam and use your reservoir and place your ditches you have taken the location that could be used for an irrigation project; but if they both can be used together and the full benefit obtained for hydroelectric power consideration should also be given to its highest development for irrigation?

Mr. PIERCE. It should.

STATEMENT OF MR. S. P. WESTON, 315 WOODWARD BUILDING, WASHINGTON, D. C.

The CHAIRMAN. You may proceed, Mr. Weston.

Mr. WESTON. Mr. Chairman, I represent on water-power legislation the committee on paper of the American Newspaper Publishers' Association. The American Newspaper Publishers' Association is composed of practically all the large daily newspapers in the United

States. The reason for the interest of the committee on paper and the members of this association in water-power legislation is involved in the production of news print.

In the manufacture of news print the first essential is the pulp wood; the next essential is the water power; and in one sense the water power is the first essential. As you cut your stands of timber they retreat from the water power. You can bring your timber to the water power, but you can not bring your water power to the timber. As a result of this natural condition and the steady depletion of the stands of pulp-wood timber associated with water power in the eastern portion of the United States or in those sections where both can be privately owned and are privately owned, the papermaking industry of the United States has in a large measure left the United States and gone into Canada, in spite of the fact that locked up in the Pacific coast States is a stand of pulp-wood timber which, without natural replacement, would supply the entire paper needs of the Nation for a century and associated therewith the largest undeveloped water powers, which lie almost entirely on the public domain.

Two years ago there came a crisis in the publishing business. News print is from 25 to 40 per cent of the entire operating expense of a newspaper. Through combinations and for other reasons, over night the prices of news print were advanced to such a point that the entire newspaper publishing business was jeopardized, with the result that several hundred-I have had the figures given as upward of 2,000-small papers throughout the country were forced out of business. The committee on paper in their line of endeavor immediately attempted to provide a natural remedy and invited propositions for establishing paper mills. A survey was made and it was found that the only chance on this side of the line was out in the far West. They proceeded and certain important undertakings were submitted. Among them was one in which I was interested from the paper-mill standpoint. We went along and in association with the American Newspaper Publishers' Association and with its members originated what promises to be the largest paper mill on the American continent. I have on deposit in New York competent contracts amounting on the face of them to over $75,000,000 worth of news print. We had our preliminary arrangements for financing. We contracted with people who had a proposed water-power development to take 30,000 horsepower, but the Supreme Court decision in the Utah power case absolutely blocked all further progress.

It then became necessary to see if remedial laws could be secured. I came to Washington at the request of the committee on paper (and I will say parenthetically that for 10 years I was a director in the association representing the Pacific Coast States) under these instructions: "To use every legitimate effort to see if remedial legislation could be secured which, while protecting the rights of the public, would give a basis on which financing could be done and development secured."

I have conferred with all sources outside of Congress. I have been with the departments in conference, the water-power people, and the financial people, and I think I have a rather broader and more unprejudiced view. I probably will scatter a little bit in my

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