for in this bill, the water users would be required to pay not the agreed upon sum of $14,250,000 but the amount of $15,348,597.92.

COMMITTEE CONSIDERATION

The committee held full and complete hearings on this legislation and is convinced that its enactment will provide an equitable settlement of this longstanding controversy. The committee, therefore, recommends that S. 2402 be enacted.

AGENCY COMMUNICATIONS

The reports of the Department of the Interior and the Comptroller General on this legislation follow:

U.S. DEPARTMENT OF THE INTERIOR,
Washington, D.C., October 2, 1967.

Hon. WAYNE N. ASPINALL,

Chairman, Committee on Interior and Insular Affairs, House of Representatives, Washington, D.C.

DEAR MR. ASPINALL: This is in repsonse to your request for the views of this Department on H.R. 12892, a bill "To provide for credit to the Kings River Water Association and others for excess payment. for the years 1954 and 1955."

This bill would authorize the Secretary of the Interior to credit outstanding obligations of all members of the Kings River Water Association incurred pursuant to the master agreement among the members and the association and the United States dated December 30, 1963, and the Alta Irrigation District, Consolidated Irrigation District, Fresno Irrigation District, Kings River Water District and Tulare Lake Canal Co. pursuant to agreements dated December 23, 1963, in a total amount not to exceed $1,098,579.92 representing excess payments over their share of the operation and maintenance charges of Pine Flat Reservoir, Kings River, Calif., during the years 1954 and 1955. The background on this matter began with the authorization of the Pine Flat Dam and Reservoir. Congress authorized the construction of Pine Flat Dam by the Army in the Flood Control Act of 1944 (58 Stat. 887). An appropriation of $1 million to start construction was approved in May 1946. Upon signing the appropriation act, President Truman impounded the funds, "pending determination of the allocation of costs and the making of the necessary repayment arrangements," and directed the Secretary of the Interior to instruct the Bureau of Reclamation "to proceed forthwith to make the necessary repayment arrangements with prospective water users," although the Flood Control Act of 1944 designated the Secretary of War as the one to make such arrangements. In accordance with this directive, the Chief of the Corps of Engineers and the Commissioner of Reclamation issued a joint public statement in June 1946, urging the local interests to cooperate, stating that the Army would "start construction after costs are allocated *** and after required repayments are insured by

contract

*

Sharp division appeared immediately over the matter of cost allocation, the principal issue being how much should be assigned to nonreimbursable flood control and how much to irrigation which

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would be repayable by the water users. The Army, the Bureau of Reclamation, and the water users were not able to reach agreement on the local level. The matter was thus submitted to Washington in late 1946, where agreement was reached between the Army and Interior that the irrigation allocation should be "at an amount not to exceed $14,250,000, the exact amount to be as agreed upon between the Bureau of Reclamation and the local agencies concerned."

It is reported that construction of the Pine Flat Dam was started in April 1947 and that construction was completed and the reservoir was ready for use before the Bureau of Reclamation and the district could agree on the terms of a final repayment contract. It also is reported that with no end to the negotiations in sight, the obvious step was to make some temporary arrangement. An interim storage use contract was entered into on February 4, 1954, between the Bureau of Reclamation and the district. The agreement was denominated an "interim" contract because negotiations for a permanent contract governing the repayment obligations of the district could not be consummated within the foreseeable future. The interim contract provided for the storage and release of water at the rate of $1.50 per acre-foot of water during the 1953-54 runoff season and by its terms expired on December 31, 1954 Since a permanent repayment contract had not yet been executed, the term of the interim use contract was extended on December 31, 1954, for another year. The amount of $1,098,579.92 represents payments made by the district during 1954 and 1955 which were in excess of the operation and maintenance costs for those years.

The interim contracts for 1956 and later years contained a provision for a credit of excess payments for those years against the repayment obligation of Kings River in the event of execution of a final contract. In 1956 it was thought that a final agreement would be reached before the expiration of the year's contract, though such an agreement was actually another seven years in coming.

Since at least June 1955, and prior thereto, Kings River has been contending that it should receive credit for the 1954-55 excess payments. The request was rejected by the Commissioner and the Secretary in 1955. Thereafter, the issue lay relatively dormant for 10 years; but it should be noted that the question was consistently raised in the permanent contract negotiations. Such rights as Kings River had relative to this issue were sought to be preserved by provisions included in paragraph 3(a) of the permanent contract, executed in December 1963 by some of the Kings River contractors and paragraph 3(c) of the master agreement, executed in December of 1963 by the balance of the Kings River contractors. Paragraph 3(a) of the permanent contract and paragraph 3(c) of the master agreement are in substantially the same language, with paragraph 3(a) of the permanent contract containing the following language: "but nothing herein contained shall be deemed or construed to prejudice any right or rights of the Contractor and other members of the Kings River Water Association, or of said Kings River Water Association, or of the Kings River Conservation District, and the right is reserved to seek credit for payments made to the United States pursuant to said contract number 14-06-200-2365 and amendments thereto, during the years 1954 and 1955, through and by means of an appropriate act of Congress, or in any other manner."

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The interim contracts cited only the Flood Control Act of 1944 for authority. Section 8 of that act provides for the disposition by the Secretary of the Interior of the irrigation benefits of Army-built flood control projects "under reclamation laws (act of June 17, 1902, 32 Stat. 388 and acts amendatory or supplementary thereto)," thus making all of the provisions and limitations of the reclamation law applicable to the irrigation features of the Pine Flat project. See opinion of Attorney General Rogers, dated December 15, 1958, appearing at 65 I.D. 549. Any doubts as to this interpretation would appear to have been dispelled by the recent decision in Turner v. Kings River Conservation District, 360 F. 2d 184 (9th Cir. 1966).

Under subsection (d) of section 9 of the Reclamation Project Act of 1939 (53 Stat. 1187, 1193), as amended (43 U.S.C. 485h), the Secretary is prohibited from delivering water "for irrigation of lands in connection with any new project *** until an organization*** has entered into a repayment contract with the United States* * In lieu of such a repayment contract, the Secretary may, under section 9(e) of the act, enter into either short- or long-term contracts to deliver water "at such rates as in the Secretary's judgment will produce revenues at least sufficient to cover an appropriate share of such fixed charges as the Secretary deems proper, due consideration being given to that part of the cost of construction of works connected with water supply and allocated to irrigation * * *". Thus, the Secretary's alternative to a section 9(d) repayment contract is a water delivery contract under section 9(e) which by its language involves the possibility of a profit. Congress in section 9(e) has directed the Secretary to charge at least enough to break even.

The 1939 act was amended in 1956 (70 Stat. 483; 43 U.S.C. 485h-1) to require the Secretary to give credit for payments in excess of operation and maintenance costs under section 9(e) long-term (defined as over 10 years) contracts, but no provision was made for such credits under short-term contracts. Existing law was left unchanged for those contracts, and the Bureau of Reclamation continued to include the crediting provision first contained in the 1956 interim contract (signed in 1955) in later contracts, but never granted credit for the years 1954 and 1955 in which credit was not a contract term. In making application for credit, the Kings River water users summarized their argument as follows: A sale of water was not involved; section 8 of the Flood Control Act of 1944 cannot operate to alter the repayment obligation; the interim contract was merely part of the repayment arrangements authorized by the Flood Control Act of 1944, and that its purpose was to provide for use of the facility and repayment by the water users in the interim until other issues could be resolved enabling the United States and the water users to execute permanent repayment contracts.

The fundamental argument in the briefs for both the Kings River Conservation District and the Kings River Water Association was that Congress envisioned payment of a "fixed total amount" equal to the repayment obligation, "either in lump sum or annual installments," and that payments under the two interim contracts must be treated as payment on that total amount.

On the other hand, the position of this Department has been that the first two interim contracts are complete in themselves and contain no provision for credit; that they provide an interim arrangement

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while the parties negotiated out settlement of their various differences, including the credit problem; and that to introduce a credit arrangement now into the first two interim contracts is to change them in a manner which the parties did not then contemplate.

On May 25, 1967, this Department submitted the adjustment issue to the Comptroller General for determination. By decision (B-156046) dated August 1, 1967, the Comptroller General said:

"We have reviewed the legislation comprising the applicable provisions of the Flood Control Act of 1944, especially section 8 (43 U.S.C. 390) and section 10 (58 Stat. 901), and we conclude, in the light of the rulings in 41 Op. Atty. Gen. 377; and Turner v. Kings River Conservation District, 360 F. 2d 184, 192, cited in the May 25 letter, that the provisions and limitations of the reclamation laws are applicable to the interim contracts of 1954 and 1955. Under 43 U.S.C. 485h/e)-section 9(e) of the Reclamation Project Act of 1939, as amended the Secretary, in his discretion, may enter into short-term contracts to furnish water for irrigation purposes 'at such rates as in the Secretary's judgment will produce revenues at least sufficient to cover an appropriate share of the annual operation and maintenance cost and an appropriate share of such fixed charges as the Secretary deems proper due consideration being given to that part of the cost of construction of works connected with water supply and allocated to irrigation ***'

"There is no requirement in this provision of law that the Secretary should fix a rate which will not, under any circumstance, preclude an overcharge; rather, the Secretary is charged only with the responsibility of fixing a rate 'sufficient' to cover expenses and fixed charges. No affirmative statutory relief is provided in the 1939 act as amended if the 'sufficient' rate results in excessive payments; however, in the execution of short-term water supply contracts, the Secretary, in cognizance of past contract overpayments resulting from a fixed 'sufficient' rate, may provide in later contracts for the crediting of excess payments to a contractor's firm repayment obligation.

"We cannot agree with the district that 'payments' under the interim contract and amendments must be treated as a total which should equal the repayment obligation. It is evident that the parties treated each year from 1954 to 1963 as independent water runoff periods as to which the Secretary could fix a 'sufficient' rate. He fixed such a rate, which contemplated crediting for the years subsequent to 1955 at the time the then-current agreement was expiring and when the succeeding year agreement was being negotiated. The provisions for crediting were of prospective effect only and related only to the particular runoff year and not to prior year expired interim agreements wherein no credit provisions were included.

"We have considered the contentions raised by the attorneys for the district and the water association and we have concluded that no overriding considerations have been presented to refute the Department's position quoted above. Essentially, what the proponents for adjustment argue is for retroactive amendment of the 1954 and 1955 agreements which have been completed within their terms and which contained no authority for retroactive adjustment. We find no authority of law either in the reclamation laws or in general contract law which would impose an affirmative duty on the Secretary to make the adjustments requested. We therefore advise that we are in agreement

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with the position maintained by your Department for over 10 years regarding the obligation of the Government to make the credit adjustment."

As indicated above, H.R. 12892 would provide clear authority for the Secretary of the Interior to adjust, in his discretion, the excess payments up to the total amount of $1,098,579.92.

We believe that it is desirable to settle this matter once and for all. In our opinion, a discretionary authorization to adjust the excess payments is not the answer. If the Congress finds, after reviewing the above facts, that an adjustment is in order, then H.R. 12892 should be amended to direct the Secretary of the Interior to allow the credit either in the total amount of $1,098,579.92 or some lesser amount to be set forth in the legislation. If credit is to be allowed, it should be against the payments last coming due, rather than against the next ensuing installments, and the bill should be modified to so provide. The following language would accomplish this:

1. On page 1, line 3, of the bill change the words "is authorized to credit" to "shall credit".

2. On page 2, line 1, change the words "not to exceed" to "of". 3. On page 2, line 4, after the period insert a new sentence to read as follows:

"Such amount shall be credited to the total repayment obligation and not to the annual installments thereof."

The Bureau of the Budget has advised that there is no objection to the presentation of this report from the standpoint of the Administration's program.

Sincerely yours,

KENNETH HOLUM,

Assistant Secretary of the Interior.

B-156046.

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.C., October 6, 1967.

Hon. WAYNE N. ASPINALL,

Chairman, Committee on Interior and Insular Affairs,
House of Representatives.

DEAR MR. CHAIRMAN: By letter dated September 21, 1967, you submitted a copy of H.R. 12892, 90th Congress, first session, entitled "A bill to provide for credit to the Kings River Water Association and others for excess payments for the years 1954 and 1955," and requested our report on this proposed legislation.

The bill would authorize the Secretary of the Interior to credit outstanding obligations of all members of the Kings River Water Association incurred pursuant to the master agreement among the members and the association and the United States dated December 30, 1963, and the Alta Irrigation District, Consolidated Irrigation District, Fresno Irrigation District, Kings River Water District, and Tulare Lake Canal Co. pursuant to agreements dated December 23, 1963. in a total amount not to exceed $1,098,579.92, representing excess payments over their share of the operation and maintenance charges of Pine Flat Reservoir, Kings River, Calif., during the years 1954 and 1955.

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