EXECUTIVE OFFICE OF THE PRESIDENT, Hon. OREN HARRIS, BUREAU OF THE BUDGET, Washington, D.C., July 28, 1959. Chairman, Committee on Interstate and Foreign Commerce, MY DEAR MR. CHAIRMAN: This is in reply to your letter dated May 21, 1959, requesting the views of the Bureau of the Budget on H.R. 7201, a bill to provide for the comprehensive operation of hydroelectric power resources of the United States, and for other purposes. The President has recommended that legislation be enacted to provide that the Federal Government make payments to owners of non-Federal water resources projects when Federal hydroelectric power developments receive benefits from such projects. H.R. 7201 would accomplish this objective. This bill would also encourage the formulation of coordination agreements between the owners of water-control facilities and the owners of hydroelectric facilities benefited by such water-control facilities. The agreements under section 31(a), which could be negotiated by both Federal and non-Federal agencies, would be voluntary, subject to Federal Power Commission approval, and would assure the benefits of coordinated operation under contractual arrangements. This feature of the bill would afford an incentive to owners of water-control facilities and of downstream facilities to enter into coordination contracts which would result in increasing the power production of the hydroelectric power system. We believe such coordination would be desirable. The Federal Power Commission and the Department of the Interior in their reports on this bill, and the Department of the Army in its report on S. 1782, a similar bill, favor the general objectives of the legislation. These agencies have suggested certain amendments, however, which we believe the committee should consider in order to improve the effectiveness of the legislation and to permit the Federal agencies concerned with the construction and operation of water resources projects to participate in coordination agreements in a way that will assure optimum development and utilization of all authorized purposes of Federal projects, including such purposes as flood control, navigation, water supply, and irrigation as well as power production. The Department of the Interior is particularly concerned about the provisions of section 31(b) which would permit the imposition by the Federal Power Commission, in the absence of a voluntary agreement, of an operation plan with respect to Federal agencies operating and marketing power from Federal water-control facilities. The Department believes that to require the operation of Federal water-control facilities in accordance with a coordination plan without the agreement of the Federal agencies concerned would not be consistent with the exercise of other responsibilities imposed on the agencies with respect to such facilities. The Bureau of the Budget would favor enactment of legislation to accomplish the general objectives of H.R. 7201. Sincerely yours, PHILLIP S. HUGHES, Assistant Director for Legislative Reference. DEPARTMENT OF AGRICULTURE, Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce, DEAR CONGRESSMAN HARRIS: This is in reply to your request of May 21, 1959, for a report on H.R. 7201, a bill to provide for the comprehensive operation of hydroelectric power resources of the United States, and for other purposes. The bill would repeal section 10 (f) of the Federal Power Act which requires inclusion in licenses issued thereunder of provision for payment by non-Federal interests for benefits accruing to their power projects from the projects of others, including the Federal Government. A new section, numbered 31, would be added to the act dealing with the coordinated operation of Federal and nonFederal hydroelectric facilities and with benefits and detriments accruing from the operation of such facilities. It authorizes voluntary agreements, subject to Federal Power Commission approval, for coordinated operation and compensation for benefits. In the absence of such agreements, procedures are established for filing with the Commission plans for the coordinated operation of Federal and non-Federal hydroelectric facilities, for the determination by the Commission of compensation for benefits furnished by one facility to another, and for the determination by the Commission of compensation for detriment caused by the operator of a facility which is not party to a coordination agreement or plan. The Department is in accord with the general objectives of the bill which look toward coordinated operation of Federal and non-Federal hydroelectric facilities and compensation for benefits and detriments accruing to one such facility from the operation of others. Since we do not operate facilities which would be affected by the bill and since the administration of the prescribed procedures are entrusted to another agency of the Government, we have not attempted to evaluate these procedures in terms of their appropriateness to achieve the objectives of the bill and their workability. For the foregoing reasons, the Department makes no recommendation with respect to enactment of the bill. The Bureau of the Budget advises that there is no objection to the submission of this report. Sincerely yours, TRUE D. MORSE, Acting Secretary. The CHAIRMAN. I might say, if there are any late reports from any agency, which is a frequent thing with legislation in these days, let them be incorporated in the record, too. Mr. Gatchell, you may proceed. STATEMENT OF WILLARD W. GATCHELL, GENERAL COUNSEL, FEDERAL POWER COMMISSION Mr. GATCHELL. Mr. Chairman and members of the subcommittee, my name is Willard W. Gatchell, and I am General Counsel of the Federal Power Commission, where I have been since 1931, the last 6 years as General Counsel. The three bills on which the subcommittee is holding hearings, H.R. 5309, H.R. 7201, and H.R. 7494, are directed toward an equitable sharing of the cost of separately owned dams and reservoirs which provide increased electric power production either at downstream or at upstream powerplants. The principle of charging for headwater benefits is not new. It has been in effect under section 10(f) of the Federal Power Act since 1920. The amendments proposed would not only cure some of the technical imperfections in the present statute, but go further and would encourage real integration of electric plants. to the mutual advantage of electric power consumers and power developers. These bills are predicated upon some rather fundamental principles. Rainfall is not uniform nor is the runoff of streams at uniform rates. If high flows are to be stored for later use when the flow would otherwise be reduced, it is necessary to construct dams and reservoirs, and these facilities cost money. State and municipal power developers and privately owned power companies must pay for all of their power facilities from the revenues which they receive from power sales. Congress has followed the same principle of complete reimbursement for all direct Federal power costs and has required that the power rates be fixed high enough to return the direct Federal power investments over a reasonable period of years. That is to say, the power consumers pay the power costs. 51029-60- -2 However, Congress has not provided that the United States should share in the cost of storage dams and reservoirs constructed by other parties where there are power benefits received at Government plants by reason of upstream storage operations. These bills proceed upon the plain principle of fairness and equity in placing all electric power consumers on an equal footing-those served from Federal powerplants and those served from other powerplants, either publicly or privately owned. If there is an increase in power output or power capacity at one plant by reason of the construction of a storage dam and reservoir at another site, the power users purchasing power from the benefited plant should, as a simple matter of equity, contribute to the cost of the facilities. There is another equally important principle in these bills, however, than this principle of fairness and equity. This is the principle that full coordination and integration of separately owned power facilities is in the public interest and should be encouraged. When the Federal Water Power Act was passed in 1920, it was designed to encourage water power development by non-Federal interests. Licenses were to be issued to States, municipalities, cooperatives, privately owned power companies, and industrial concerns. Congress provided in section 10 (a) that licenses should be issued only for those projects which would be in conformity with comprehensive plans for development of water resources considering all beneficial public uses such as navigation, flood control, irrigation, municipal water supply, and other public benefits. At the time the Power Act was passed in 1920, however, the potentialities of the vast integrated power systems which now span every section of the country were not fully comprehended and Congress did not provide the machinery for compelling electric coordination and interconnection of separately owned powerplants or power systems, correctly judging this to be then a matter of mutual interest rather than governmental intervention. The growth of interconnection of electric generating plants into large systems has been so successful that it is not difficult to demonstrate the advantages of interconnections and coordination between separately owned power systems. These three bills are drawn upon the principle that the advantages of coordinated operation will induce publicly and privately owned power systems to coordinate their operations and thereby reduce power costs, obtain better services, and provide for more complete utilization of water resources. One strong inducement for coordinated operation is the sharing of costs which contribute to power benefits and a saving of investment in generating capacity. These savings in costs and improvements in service should be sufficient to encourage interconnection and coordination on a voluntary basis and to bring together privately owned power companies, States, municipalities, public utility districts, cooperatives, and such agencies as the Bonneville Power Administration and other marketers of power developed at Federal projects. It is our belief that these advantages are offered by the bills which the subcommittee is considering. The Federal Power Commission urges the enactment of legislation along these lines. Its reports on the Gary bill, H.R. 5309, and the Metcalf bill, H.R. 7201, suggest some highly important amendments which we urge be adopted by the committee. We were not asked to comment upon the Hemphill bill, H.R. 7494, but since this is identical with H.R. 7201, a duplicate report is not necessary. In its report on the Gary bill, H.R. 5309, the Commission also supports sections 3, 4, and 5, which would raise the limit of minor projects from 100 horsepower to 2,000 horsepower. It does not recommend enactment of section 6 of the bill which would amend section 15 of the Federal Power Act with respect to the issuance of a new license at the end of the original license period. Mr. Francis L. Adams, the Commission's chief engineer and Chief of its Bureau of Power, is with me, and we will be glad to answer any questions which the subcommittee may have. As a member of the American Section of the International Joint Commission, Mr. Adams has also been considering problems of water resources development in the Pacific Northwest in both Canada and the United States, and is thoroughly familiar with conditions within the Columbia River Basin. We also have present Mr. Frank L. Weaver, who is in charge of our engineering staff, working on headwater benefit charges, and Mr. John C. Mason, Deputy General Counsel, who has worked on this matter for several years. The CHAIRMAN. Are there any questions? Mr. ROGERS of Texas. May I reserve my time? Mr. Moss. I have no questions at the moment. Mr. AVERY. I hav a lot of questions, Mr. Chairman, but I don't know quite how to phrase them, and so I will join my other colleagues and reserve my time for now. The CHAIRMAN. Mr. Gatchell, as I understand from your explanation here, the bill of Mr. Gary, 5309, goes further in certain provisions than does H.R. 7201 and H.R. 7494. Mr. GATCHELL. Yes, sir. The CHAIRMAN. And you suggest that the Gary bill would be considered without section 6? Mr. GATCHELL. Yes, sir. The CHAIRMAN. In preference to the other two bills? Mr. GATCHELL. Well, I do not believe, Mr. Chairman, that the Commission has taken a position as to whether the Gary bill or one of the other bills should be passed, as respects headwater benefits. There are merits to both the Gary proposal and the others. It seems to me that the other bills do stress one thing which is very important, and that is the desirability of voluntary interconnections by which firm power capacity will be assured. The CHAIRMAN. And the Gary bill does not contain that? Mr. GATCHELL. It contains it, but it does not stress that. The Gary bill contains provision for voluntary arrangements which would be in lieu of the present headwater benefit charges, but it is not drawn on quite the same principle in that respect as the other bills are, 7201 and 7494. The CHAIRMAN. What is the difference? Mr. GATCHELL. I would say that the difference lies in the inducements which are offered to the power companies, which might take advantage of the other bills by entering into this agreement. The CHAIRMAN. What inducements are there in the other bills that are not in 5309? Mr. GATCHELL. Well, the Gary bill provides for voluntary arrangements. I believe if you will take a look at that bill, you will see on pages 2 and 3 in paragraph (ii), and in paragraph (b), provisions for voluntary arrangements that are not drawn on quite the same lines as in 7201, and I would think you could make the Gary bill equally as effective as you could either of the other bills. I think it is merely a matter of emphasis in the language, that the purpose of the three bills is one with which we are in complete accord, and either one of them could be made fully effective by some amendments which would be very minor in detail. The principle, however, is sound. It looks to voluntary arrangements because there is not now, and I don't see any prospect of having, real coordinated integration of systems under the present arrangement. The Gary bill encourages the interconnection and coordination of systems, so that you can get full advantage. In the Columbia River Basin, this is particularly valuable. It is less valuable in other areas, but it is still a matter of considerable economic importance to achieve this real coordination of operations. It is done, Mr. Chairman, I might say, by trying to bring together those Federal projects and publicly owned projects with private power companies, where neither one would be in complete control because the Commission would have to give its approval, but where both sides would be able to coordinate their operations so as to save the investment in additional generating capacity until that is absolutely needed. That is a very desirable economic goal if I understand the operations at all. The CHAIRMAN. Now, take as an example that we have in a given area, area A, there is a privately owned and operated project up above where water is stored during times of rainy season and will be utilized, as an example, when maybe there is a dry period, or where you do not have uniform rainfall. Now that water of the private company will come out and come down below where there is a federally owned project. By the coordinated effort here, the one above supports the one below, and vice versa; is that right? Mr. GATCHELL. Yes, sir; and in an exchange of power you can have and do have now, a coordinated operation insofar as the hydraulics are concerned, the water use. But what is particularly valuable, and what is not presently achieved as fully as it should be, is the electric interconnection, so that the loads of the upper company can be supplied by the lower company when it is releasing water to the advantage of the lower powerplant, and vice versa. The CHAIRMAN. Does that mean that the lower project will pay some of the costs to the upper project? Mr. GATCHELL. It may pay some of the costs or might exchange power, either way. The CHAIRMAN. I know they might exchange power, but we will get to that in a minute. Let us take the water first. Mr. GATCHELL. If you are dealing with water, and not considering power, they would then pay to the upper if they are assured of this water at the time when they want it. That is when it can be of real use to them. |