The regulation of service and charges is usually a State or local function. It should be exercised by the Nation only in interstate industry and when the failure of other agencies leaves the consumer at the mercy of a corporation.

The necessity for development need not be argued here. It has been from the first a most essential part of the conservation policy. To secure it the conditions of investment must be made safe and attractive to capital, and speculation in waterpower by holding power sites undeveloped must be stopped.

A waterpower can be controlled and used by only one concern at one time. Therefore waterpower is a natural monopoly. Hence the prevention of injury to the public from a monopolization of waterpower involves the whole question of the terms upon which the right to use a waterpower site should be granted. It makes necessary a governmental veto power upon concentration of ownership, limitations of the term for which the franchise is granted, compensation to the public for value received, full publicity, and in general all those conditions in the permit or franchise which will help to safeguard the public against injustice or oppression, reduce or prevent the domination of one industry over another, and give to the development its greatest usefulness to the whole community. The public regulation of rail roads, and other public utilities, whose franchises involve the use of natural monopolies, offers an instructive analogy for similar regulation of waterpower.

The application of these principles is briefly considered under the following head:

III. FEDERAL WATER POWER FRANCHISES.

Within the jurisdiction of the Federal Government are the waterpowers on navigable streams and those in the National Forests and on the Public Domain, all of which may here be considered together. The prompt development and proper control of these powers constitute the two great phases of the National waterpower problem.

The recent Supreme Court decision in the Chandler-Dunbar case has confirmed the right of Federal control over the waterpowers of navigable streams and thus has overthrown one of the principal legal contentions heretofore used to obstruct the legislation required both in the interest of the power companies and of the public. That decision contains in substance the following conclusions:

(1) In the regulation of navigation-and to regulate means
to develop the United States is a single government, and
as to that governmental function there are no states.
(2) Where, when and how such improvements in navigation
are to be made is a legislative question for congressional de-
termination.

(3) Such improvement may be furthered by the utilization
of the power inherent in navigable streams to the extent
of making commercial use of such power over and above
the needs of navigation.

(4) This power belongs to all the people, and not to the chance owner of the contiguous land.

The right of the Federal Government to control and dispose of waterpowers on the National Forests and the Public Domain has never been successfully questioned.

Federal legislation to insure prompt development and the prevention of unregulated monopoly of waterpower, and to make good franchises possible, is urgently needed, both for the navigable streams, and for the National Forests and Public Domain. The essential provisions of a franchise fair to both sides are the same in both cases.

In order to protect the public interest and promote power development, rights to develop and use waterpower should be granted in accordance with the following general conditions, among others. These conditions are the result of governmental experience and of much discussion with waterpower men and others.

Franchises should be granted :

(a) So that during a period of not exceeding thirty years the franchise or privilege granted by the Government may be revoked at any time by the granting officer for sufficient cause, subject to review by the courts. Although almost without exception the whole development of waterpower under Government franchise has so far take 1 place under revocable permits, these revocable permits are not fair to the power interests, whose investment should be protected for the whole of the fixed period of the grant. In this way security and attractiveness of investment will be obtained without the obvious dangers of perpetual control.

(b) Thereafter the franchise or privilege may be revoked at any time in the absolute discretion of the granting officer upon giving one year's notice, and upon payment to the grantee of the value of its material property and improvements as hereafter provided in (j). The power to terminate the franchise and take over the plant will greatly strengthen the efficiency of public control.

(c) After the expiration of the first period of the grant (described under (a) above as "not exceeding thirty years") and at recurring periods of not more than ten years thereafter, the amount of compensation to be paid to the Government for the grant, and all other terms and conditions of the grant during the next succeeding period of not more than ten years, shall automatically come up for readjustment and determination by the granting officer of the Government. Thus as conditions change the compensation to the public and the terms of the franchise may be changed to meet them.

(d) At the end of a period of fifty years from the granting of the franchise, it shall automatically determinate, but may be renewed by mutual agreement and on terms to be fixed by the Government. In this way, the conditions of the franchise will necessarily become subject to complete review under circumstances most conducive to the public advantage. At the same time the provisions for renewal to the original grantee upon mutual agreement will be attractive to capital and will tend to promote development.

(e) Franchises should be non-assignable and non-transferable except with the approval of the Government, because thereby speculation in power rights and monopoly of power control may be regulated or prevented.

(f) On condition of a reasonable annual charge based on the value of the site for power development, and adjustable at intervals, and upon the further condition of direct Government participation in the profits over and above a percentage to be determined in the franchise.

The values which are made available by waterpower franchises should pay a yearly and unfailing compensation in return. The Fublic makes the grant and there should be no uncertainty as to the participation of the public in the profits which arise from the grant. The power interests should pay something for what they get and what they pay should be subject to readjustment in accordance with the changing value of what the public has given them. The difficulties inherent in the establishment of new enterprises in sparsely settled regions should be recognized.

In the case of powers upon navigable streams, it is appropriate that the proceeds should be used for the improvements of navigation. The price of hydro-electric power to the consumer is determined not by the cost of production but by what the traffic will bear, and the latter is fixed by the cost of competitive steam power. The public there

fore cannot get its full share of the advantage of power development except by a Government charge, collected, so to speak, at the water wheel, as set forth fully and conclusively in the reports of the Commissioner of Corporations. For the same reason this charge will not be paid by the consumer but out of the profits of the Corporation.

(g) On condition of development of the whole capacity of the power site as rapidly as the granting officer may from time to time require, giving due consideration to market conditions and demands, and of continuous operation, subject also to market conditions, in order to prevent waste of power before and after development.

(h) With the right of the public to approve or disapprove issues of capital stock in order to prevent overcapitalization, to prescribe uniform methods of accounting, and to inspect all books and records of the grantee, for only so can public officials and the public learn the facts.

(i) With the right reserved to the Government to regulate rates and service to the consumer, should the business be or become interstate or should the State or local authority fail to do so.

(j) On condition that the public may, after a fixed period, take over the works covered by the franchise at their appraised physica! value at the time, not including consequential damages or the value of the franchise. While all Government waterpower franchises now granted provide for termination of the franchise from the beginning at the will of the Government without compensation, that provision is an unfair burden upon the grantee, tends to increase the cost to the consumer, and should be removed.

(k) On condition that the franchise may be terminated if at any time the works constructed under it are owned, controlled, or operated by an unlawful trust, or in restraint of trade.

The General Dam Act (June 23, 1910) under which all franchises on navigable streams are or should be granted, does not, as interpreted, require adequate compensation to the Federal Government for the use of waterpower, does not provide for the renewal of franchises or for taking over the improvements at the discretion of the Government at the end of fifty years, and neither prohibits speculation in franchises nor requires prompt and complete development. It should be amended in accordance with the foregoing.

While the effort to secure the passage of sound and needed water

1

power legislation has not yet succeeded, the passage of bad legislation has become increasingly difficult. This statement is true in spite of the fact that the indefensible Coosa River Bill passed both House and Senate at the end of the last Administration, and was only prevented from becoming a law by the wise and patriotic veto of the President. The recent introduction in Congress of waterpower bills by Senator Burton and by Mr. Lever of South Carolina, both of which bills clearly recognize that the public interest in waterpower should come first, is a further satisfactory evidence of progress in the right direction.

HENRY L. STIMSON,
JOSEPH N. TEAL,

GIFFORD PINCHOT.

In the compilation and checking of the foregoing figures the following were some of the authorities consulted:

U. S. Bureau of Corporation Reports on Waterpower Development, 1909, 1912.

U. S. Bureau of Census Reports 1908, 1911, on Manufacturing and Commercial Power.

National Waterway Commission Reports 1912.

Hearings before Senate and House Committees, 1911, 1912, and 1913.

Moody's Manual, 1913, Moody's Public Utilities, July 1, 1913. Poor's Manual, 1913, Poor's Industrials and Utilities, 1913, Manual of Statistics, 1913, McGrew's Electrical Guide, Hutton's Investors Manual, Directors Guide, 1913.

Reports of Missouri Waterway Commission; Minnesota Waterway Commission; Conservation Commission of California; Waterpower and Drainage Commission of Wisconsin; Conservation Commission of New York; Michigan Public Domain Commission.

Papers on waterpower in Alabama, Georgia, Montana, Washington, U. S. Geological Survey; Sen. Doc. 370, Waterpowers of Idaho; Waterpowers of South Carolina by A. Kohn,

Journal of Electricity; Electrical Age; Proceedings of American Institute of Electrical Engineers; Electrical World; General Electric Review; Stone and Webster's Journal; Electrical Record; Waterpower Chronicle; Electrical Review.