widely published, this taking issue with some criticisms recently advanced by the speaker and others regarding the Colorado River storage project.

The chief point asserted was that in directing attention to the glaring divergencies between original estimates of costs approved by the Congress at the time of authorization and final costs the critics ignored the greatly increased costs of construction. The answer to this is in the Bureau's own records.

In 1952 the Bureau celebrated its golden jubilee. In the summer of that year there was a meeting of regional employees at Cody, Wyo. At that meeting a paper was read by a consultant to the Bureau in which these divergencies were analyzed and discussed. A careful study, according to this authority, revealed that 30 percent of the increased costs were due to additional engineering and administration charges, 40 percent to post-authorization changes in design, and only 30 percent to increased construction costs.

Another argument advanced in the Commissioner's statement is that huge subsidies for irrigation projects are justified by reason of the creation of new wealth and the additions to the rolls of new Federal taxpayers. It is the distinct reaction of your speaker that if this is a valid reason for subsidies, then the argument must be carried to a logical conclusion. Any successful new enterprise creates added wealth and brings into being new taxpayers. If we are to subsidize enterprise on that score, then we must consider as consistent the subsidization of new oil refineries, new copper mines, new shoe factories, if you please.

Then there is the assertion we should build these projects because they largely pay for themselves, whereas we build flood control and navigation works which are nonreimbursable.

The fact is that reclamation of itself does not pay. A study in the task-force report cites Bureau of Reclamation figures to indicate that water users are expected to pay only 9 to 30 percent of the costs allocated to irrigation on recently proposed projects. Records of repayment disclose that it will take 300 to 400 years for some projects to pay such charges. Likewise, evidence that many flood-control and navigation projects are worth building just is not to be found in Federal records.

You will find that the Hoover Commission task force on water resources and power strongly contends that all beneficiaries of water-development projects should shoulder consistent shares of the costs. If Congress will agree and enact proper laws to require this, it is as certain as that day follows night that there will be far fewer pork-barrel authorizations thereafter and the taxpayers of the Nation will be greatly relieved indeed.

But consider for a moment the implications of this argument concerning the repayment of the cost of irrigation. If a given project costs for construction $1,000 per acre and the resultant value to the general economy is $300 per acre, then it is clear someone has lost $700 per acre. It doesn't make any difference whether the cost is paid by the water user, the power purchaser, or the general taxpayer, if the thing paid for has cost more than it is worth in all circumstances, then the difference between cost and value has been lost to the economy of the Nation. I can draw no other logical conclusion.

Your indulgence for the speaker is requested in that he has taken more of your time than he should. Please read the reports.

ADDRESS OF ADM. BEN MOREELL BEFORE THE ASSOCIATION OF EDISON ILLUMINATING COMPANIES, WHITE SULPHUR SPRINGS, W. Va., OCTOBER 21, 1955

WHAT PRICE PUBLIC POWER

Last June 30, the Honorable Herbert Hoover sent to Congress and released to the public the 1.800-page report of his Commission Task Force on Water Resources and Power. This report was the result of 18 months of intensive labors by 26 task-force members, 6 consultants, and an administrative, engineering, and research staff of 40.

The second Hoover Commission, established by act of Congress approved July 10, 1953, was directed to study and report to Congress on ways and means of promoting economy, efficiency, and improved service in the transaction of the public business in the executive branch of the Government. It was prohibited from investigating the two other coordinate branches of Government, the legislature and the judiciary.

The scope of the second Hoover Commission differed materially from that of the first, which had been established in 1947. The latter was restricted to studies and recommendations with respect to existing functions of Government. The second Commission, in addition to the duties of its predecessor, was directed to study matters of policy, that is, to determine not only whether an exising function is being performed efficiently but, also, whether it should be done by Government at all, and, if so, to what extent and in what manner. While everything having to do with Government involves political considerations, it is clear that the first Commission was a far lesser political irritant than the second has been and will continue to be. The first was concerned primarily with the shrinkage, reshuffling, and consolidation of agencies. This resulted in loss of jobs, and thus caused political pain. The second, however, was authorized to recommend the elimination of functions. This means not only abolishing jobs but, also, reducing or canceling subsidies. Whenever such measures are proposed, the voice of the anguished is heard through the land crying, "Don't let them take it away; we never had it so good."

The Task Force on Water Resources and Power was charged with making studies leading to recommendations which would enable the Commission to carry out its mission in the field of water resources and power. The scope of the task force work covered four principal areas, as follows:

1. Power generation and distribution, including atomic power.

2. Reclamation and water supply, including domestic and industrial water supply, irrigation, water pollution abatement, recreational projects, fish and wildlife projects, and drainage.

3. Flood control, including water retardation projects and upstream watershed treatment.

4. Improvements to water navigation, including inland water transportation and beach erosion.

Soon after our work began, public power proponents complained that they were not represented on the task force; and such representation was demanded with great vehemence. In reply, it was pointed out that none of the members of the task force was a representative of any special interest. It was then decided that the task force would hold public hearings at which oral and written statements could be presented by advocates of any policies and/or ideologies with respect to public and private ownership and operation, subsidies, taxes, jurisdiction, organization, or any other matters related to Federal water and power resources development.

The task force held public hearings in San Francisco, Denver, New York, Chattanooga, and Portland, Oreg., at which 186 witnesses presented oral statements. The testimony covers in excess of 5,000 typewritten pages. Also, 75 written statements were received and entered into the record.

In addition to the public hearings, closed hearings were held in Washington with the Federal Power Commission, the Department of Agriculture, the Department of the Interior, and the Corps of Engineers.

The Governors of the State and Territories were invited to present their views and responded with 78 written statements.

Twelve major field inspection meetings were held with the Federal agencies and a number of trips to field projects were made by task force members, consultants, and staff members.

Some 200 individual projects were studied in detail. These included every reclamation project, every Federal power system and important examples of both flood control and navigation projects.

Chief among the considerations which guided the task force in its studies is the importance of the subject in terms of—

(a) The total of Federal funds invested to date; and

(b) the rapid increase in the rate of growth of Government expenditures for water resources and power development at a time when Federal budgetary deficits have become chronic and the Federal debt is at an alltime peak.

Since 1824, when the Federal Government first initiated work on the water resources of the country, a total of $14.3 billion has been spent. Projects already authorized call for an additional capital outlay, estimated by the Federal agencies concerned at $18.5 billion. This authorized backlog thus calls for an expenditure over 50 percent greater than the total expenditure for these purposes during the past 131 years.

But this is not all. In 1948, the Corps of Engineers made an estimate of the cost of water resources projects then contemplated and came up with a figure of $57.5 billion at 1948 price levels. Since then, the 1950 and 1954 Rivers and

Harbors and Flood Control Acts and the 1954 Hope-Aiken Act providing for upstream watershed treatment have been passed and numerous reclamation projects and the St. Lawrence River Improvement Project have been authorized. The $57.5 billion mentioned above is thus increased by some $13 billion. Therefore, a very conservative estimate of the backlog of projects now authorized, or contemplated, by the Federal agencies is in excess of $70 billion for capital outlay alone. This is almost seven times as much as was spent in the first century and a quarter of these activities.

As to the rate of expenditure, up to 1920 only 8 percent of the present $14.3 billion total had been spent. Between 1920 and 1930, 6 percent was spent, and since 1930, 86 percent of the spending has taken place, with the bulk of it (68 percent) crowded into the postwar years.

In 1954 there were 43 offices and Bureaus of the Federal Government involved in water resources and power developments. Of these, 25 are concerned with this work as a primary responsibility or as a major activity. Their 1954 expenditures approximated $1.5 billion, and they had more than 70,000 employes. Almost imperceptibly, a bureaucratic colossus, whose weight has become oppressively onerous on the public treasury, has been built up.

The foregoing is a skeletonized account of the scope of our task force work. While all of the studies should be of great interest to anyone who dislikes paying taxes, this audience is probably most interested in what we did in the field of power generation and distribution.

I have mentioned the four principal areas covered by the task force work. Special subcommittees, called task groups, were set up to cover each of these areas. The task group on power generation and distribution was under the chairmanship of John Jirgal, a consultant in utility economics and finance, of Chicago, Ill. The other five members of the group were Albert C. Mattei, of San Francisco, an engineer and now president of the Honolulu Oil Corp.; John W. Reavis, an attorney, of Cleveland, Ohio; Robert W. Sawyer, of Bend, Oreg., retired newspaper publisher and editor, former president of the National Reclamation Association; William D. Shannon, consulting engineer of Seattle, Wash., State senator; and Charles L. Andrews of Memphis, Tenn, Partner in C. L. Andrews Cotton Co. The special consultant to the task group was Walter J. Milde, an attorney of Cleveland, Ohio.

This able and hard-working group, assisted by a devoted and capable staff in Washington, made detailed studies of all Federal power projects. They held meetings throughout the country and made field studies of the Tennessee Valley Authority, the Columbia River developments, the Central Valley project of California, the Misouri River projects, the lower Colorado River improvements and the Colorado-Big Thompson project. They held meetings, also, with the personnel of the Tennessee Valley Authority and the Bonneville Power Administration. And they submitted a report of 323 pages, completely documented, with maps, charts, and tables.

It is obviously impossible, in the brief time available, to give more than a capsule account of the task force work in this area. Before doing so, I wish to state that the task force received full cooperation from the Federal agencies. In particular, the Corps of Engineers, the Federal Power Commission, the Tennessee Valley Authority, the Rural Electrification Administration and the several Bureaus of the Department of the Interior were most helpful in providing information and in lending personnel.

The engineering work and physical operations of Federal power projects appeared to be in keeping with the best practices of the electric industry generally, and the task force was impressed with the competence of the field supervisory forces.

It is pertinent to note that while the findings of the task force may appear to cast doubt on the general competence of the Federal agencies, the professional qualifications and personal integrity of their personnel are generally not called into question. The task force report contains this statement:

"Much of the blame [for inefficient and uneconomic practices] must be assessed against the lack of consistent policies and the absence of adequate provisions for review, inspection, and coordination * * *. The task force has been forced to the rather depressing conclusion *** that most of the weaknesses revealed by its studies are inherent in bureaucracy and can be kept within reasonable bounds only by improvement of existing policies and establishment of more adequate machinery for review, inspection, and coordination."

Sound engineering practices and correct operating procedures are only one factor in the successful operation of a power business. A plant can approach

perfection in design and operation but be deficient economically if the power it generates and transmits is not sold at prices which cover the full costs of operation, including a fair return on the investment. I shall return to this matter of prices, but first I should like to give you a very brief outline of the history of Federal power.

The first Federal activity in waterpower came in 1879. In that year Congress authorized the Secretary of War to lease mechanical power developed at a navigation dam on the Mississippi River to a private company. In the following 2 decades Congress authorized a number of private power developments on navigable streams. In 1890 Congress prohibited the building of power dams on navigable streams without the permission of the Secretary of War. In 1906 and 1910 Congress enacted general dam acts establishing some uniformity in control by the Secretary of War. Concurrently legislation was enacted to govern the disposition of excess energy from power installations developed in connection with the reclamation program.

In 1920, with the enactment of the Federal Water Power Act and the establishment of what is today the Federal Power Commission, there came a relatively uniform policy for the treatment of non-Federal builders of power dams on navigable streams.

Under President Coolidge, Federal powerplants were authorized deliberately for the first time to generate surplus power for sale in order to subsidize other features of water development. Then, in 1928, came the initial undertaking by the Federal Government of a large-scale project designed to effect multipurpose utilization of a major river, with emphasis on power development. This was the Hoover Dam.

While plans and legislation for the Hoover Dam project were being developed, interest in the total waterpower potential of the United States was aroused. In 1927 Congress directed the Corps of Engineers and the Federal Power Commission to inventory the country's hydroelectric power potentiality. A list of streams whose survey was recommended had previously been presented to Congress in House Document 308 of the 69th Congress. As a result, studies undertaken by the Corps of Engineers during the next decade became known as the 308 surveys. While most of these reports which had been completed before 1936 recommended against Federal development, the reports furnished the basis for Corps of Engineers construction in the series of Flood Control Act starting in 1936. Many of these structures have been authorized to include power development, ostensibly as an economically justified incidental feature.

In 1933, about 10 weeks after the Roosevelt administration took office, the Tennessee Valley Authority Act became law. This was followed by the Public Utility Act of 1935, which, among other things, assigned responsibility to the Federal Power Commission for regulating interstate electric utility rates of investor-owned power producers. Federal power projects were not to be regulated, persumably under the theory that only Federal power is without sin.

Under the emergency relief appropriation acts many innovations in Federal assumption of responsibility took hold. These include, among other activities later endorsed by specific legislation, the Rural Electrification Administration, Bonneville and Grand Coulee Dams on the Columbia, the Central Valley project of California, and Fort Peck Dam, Mont.

The Flood Control Act of 1936 and the Reclamation Project Act of 1939 included legislation pertinent to the subject of their titles, but they also extended Federal jurisdiction in hydroelectric power development. Less general in their nature were the Bonneville Project Act of 1937, the Fort Peck Act of 1938 and the Water Conservation and Utilization Act of 1940. Any outstanding loose ends were tied together in the Flood Control Act of 1944. The Federal Government was now firmly established in the power business.

Before proceeding with our discussion let us define the scope thereof. By "public power," as the term is used in this paper, is meant power generated and transmitted by the Federal Government for sale either to consumers or to others who will distribute and sell it to consumers.

The following excerpt from the task-force report is pertinent to our further consideration of this subject:

"Since there is no present or prospective necessity for Federal power development to overbalance the social undesirability of continuing such activities, the task force finds that they are not essential Federal activities. This task force believes that the Federal Government does not owe a responsibility to supply any community, section, or region, with its power requirements. Nor does the presence of potential waterpower in a Federal water resource development

project necessarily constitute a mandate for its development; but when such potential power can be developed in accordance with sound business principles, it should be developed in the national interest by selling either the potential or the power at the lowest technological level which will produce fair returns to the Federal Government."

The task force concluded that no additional Federal projects which are exclu, sively for public power should be built, and that an early start should be made on selling public-power projects or the power portions of multipurpose projects to private industry, or, if this is not feasible, to the State and local governments. Without doubt, power generation and distribution is the most important of our studies, for two reasons: first, because those who advocate intrusion by the Government into the economic affairs of its citizens have found that this issue has a strong popular appeal, which makes it a convenient vehicle on which politi cal demogogs can hitch-hike into public office; and second, because socialization of electric power can easily lead to socialization of all large-scale industry. He who controls power will have a large measure of control over all of industry.

There is no logical reason for the popular appeal of public power, But demogogs have been able to hoodwink the public into believing that it is an important factor in their cost of living. Actually, the cost of power to the average householder is about 1 percent of his family budget, as against 29 percent for food, 9 percent for clothing, and 2 percent for tobacco and smoking supplies. A reduction of only 3 percent in his tax bill would pay for all of his power. But the demagog conveniently forgets about tax reduction. He says that high taxes, whose spending he controls, are essential to promote the general welfare. ⠀

As for manufacturing, except for the electrochemical and electrometallurgical industries, the cost of power averages little more than one-half of 1 percent of the product value. For the two industries mentioned it averages a little over 10 percent. The importance of public power to the average small industry lies principally in the fact that a market has been artificially stimulated by profligate spending of public funds in a favored area. Those electrochemical and electrometallurgical industries which are subsidized by public power obtain an advantage over competitors who must use private power.

Public power has become a potent and emotionally charged political issue. In 1933, the installed capacity of Federal power projects was less than 1 percent of all electric utilities in the country. By mid-1953, the Federal Government had invested $2.3 billion in power facilities and had become the largest single producer, accounting for 13.1 percent of the kilowatt-hours generated. Federal projects now under construction and authorized will, by 1960, more than double the 1953 capacity and, when all are completed, will triple it, reaching a total of 35 million kilowatts, at a total cost of $10 billion. If subsidizing public power continues, the situation will be worsened by the development of atomic power. It is estimated that by 1975, atomic power will have an installed capacity of between 40 and 60 million kilowatts, and will be increasing rapidly. Present total power capacity is about 107 million kilowatts.

Technically and financially there is no present nor prospective need for Federal public power. Private power is amply able to finance and install needed generating, transmission, and distribution facilities. Since the end of World War II, investor-owned electric companies have spent approximately $20 billion for such facilities, as against an approximate total expenditure by the Federal Government, from the very beginning of its program to mid-1953, of $2.3 billion.

These last two figures answer the allegation that public power is essential for national defense. The need for public power to "support the defense effort" was stressed time and again by public-power advocates at our public hearings. From their statements, one would conclude that if the TVA and the BPA had not been built the atomic-bomb project and many other vital war activities would have collapsed. I had the responsibility for obtaining large quantities of power and many other things during the recent war. I do not recall that I ever felt dependent upon Government production for anything. I believe the American people are sophisticated enough to view with cold suspicion that old, shop-worn

1 The term "lowest technological level" as here used, means that the first consideration should be given to issuing a license for a developer at his own expense to provide generating and other necessary power facilities. Only if such licensing is truly impracticable from the standpoint of fair returns should the Government provide generating facilities, and then it should seek to lease or license non-Federal operation. Where it is now or may in the future become unavoidable that the Government itself operate the generating facilities, the electrical power should be disposed of at the generating station, or at the nearest practicable point thereto.