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our natural resources estimated at $55,000,000 per annum or eleven dollars per horsepower per annum is the equivalent at five per cent of an annual sum in perpetuity equal to fifty-five cents per horsepower per annum on the whole 5,000,000 of economically available horsepower. A delay of two years, therefore, represents a loss equivalent to an annual sum in perpetuity of more than one dollar per horsepower on the whole five million horsepower. A delay of three years, which I think it may be conceded we have experienced, has probably cost us the equivalent of a sum in perpetuity at the rate of $1.50 per year per horsepower on the whole 5,000,000 undeveloped horsepower. A superficial view of the question might suggest that the country could recoup these past losses by charging a rental of $1.50 per horsepower per year and make a profit by charging a higher rental, but no country can enrich itself or recoup past losses by a tax, because a tax merely changes the ownership of a part of the wealth of the nation. We can never recoup for the nation the losses that have already been incurred, and it is our imperative duty to bend all our efforts to stop further WaSte. I think it should be conceded that there would be considerable competition between different groups skilled in water power development in this country and abroad if the opportunity were offered to development, those sites now controlled by the Federal Government and that are economically available, and therefore it seems to me the part of wisdom for those having the public welfare at heart to ascertain at the earliest practicable moment the terms, the best under which responsible capital will come forward in competition to develop our powers and unless the acceptance of these terms will be more harmful to the public welfare than the continuance of our water powers in an undeveloped state, these terms should be accepted and all parties should join in securing the legislation necessary to bring about the developments forthwith. So far as I know, investors are not dissatisfied with the attitude toward capital as far as it pertains to the rate of return. The community would thus be without adequate service and would be paying for such service as was rendered all the traffic would bear, with the further disadvantage of not being able to get any more service even at such a price. At what stage in the tenure period this condition would occur would depend upon how cheaply the water power could produce electricity. If the cost was substantially equal to that by coal, this condition would be reached early in the tenure period. If the cost was lower, this condition would be reached later.

To make clear why after the water power is put in operation there is need for such a constant supply of new capital, I may say that it is seldom that the initial expenditure at a water power site fully develops it. The initial expenditure is kept as small as possible consistent with the existing market. As new business is secured, further expenditures are necessary both at the hydro-electric plant and in added transmission facilities.

It is proper to include the cost of the transmission facilities in the amount to be amortized, because this is merely the body, in which the water power is the heart. If deprived of the heart's action, the body dies.

To properly perform its function to the public, a public service corporation should be able, indeed it should be required, to serve within its sphere every legitimate need of the public. If the public welfare requires that the corporation should enter into long time or even perpetual contracts with its consumers, it should be under no legal disability to do so.

One case will illustrate the point.

Many of the western power sites when developed will supply large quantities of power for irrigation to be used in pumping water on lands that cannot be profitably irrigated by coal

power. It is the experience that irrigation projects cannot be financed unless the water right is perpetual and runs with the land. If this be true, then such irrigation projects as I have described cannot be financed without a perpetual contract for power. Obviously a public service corporation may not make a contract for service beyond the limit of its tenure unless the state is obligated at such date to take over and assume the contract. More could be said on this general subject of credits, prices and service, but I think I have said sufficient to show the baneful influence upon the usefulness to the public of a public service corporation operating a water power under a limited tenure. However expedient it may be considered to apply the principle of limited tenure to a water power built to serve a private use, I think we should, in view of the arguments just stated, gravely consider whether in the case of a public service corporation acting as the agent of the state the proposed requirement of a limited tenure should not be abandoned. I have tried to present the matters herein discussed in a fair and impartial light and I should be glad to think that I had in your opinion succeeded. Facing, as we all are, such a tremendous waste in our natural resources from further delay in developing our water powers, I appeal to all patriotic men and women, without previous convictions on this subject, to again examine the grounds for your convictions, and to make your conscience the judge of how far you should yield in an effort to reach an agreement that will put a stop to this waste by a speedy development of the powers. I have not heard it stated anywhere that anyone is opposed to investors receiving a fair, even a liberal return on their money devoted to water power development. The leaders of the conservation movement have always recognized that capital is entitled to a fair, and indeed a liberal, return, and I cannot state their position more concisely than to quote from the testimony of Mr. Gifford Pinchot before the National Waterways Commission in 1911, as follows: “I should like to be understood as asserting with a good deal of vigor that I believe investors who go into water power development should be given a much more generous return on their investment than men who go into a less hazardous business, for the risks of a business of that kind are certainly very large. The public needs the development of water powers.

“I can say, for instance, that it is wholly impossible to expect general water power development under present conditions on a six per cent basis. The risks are too large. Ten or fifteen per cent would be more like what is required to induce capital to go into the field.”

So far as I am in touch with the class of investors who can be induced to undertake the development of water powers, I believe I am justified in saying that while there are in other quarters decided differences of opinion as to whether the Governmental control should be Federal or State, the water power investor as a rule does not care which it is provided it is not both at the same time. He insists that he serve but one master.

It is feared that if the control is dual a conflict might arise between the State and Federal authorities which would result in injury to the investor. There is a feeling, however, that because the state has inalienable right to regulate public utility corporations doing business within its boundaries, the Federal Government should relinquish to the state its right to exercise a control, provided that the developing agent takes the form of a duly incorporated public service corporation, subject to and recognizing the state's right to supervise and control its acts. Since its revenue would be derived almost wholly from the sale of its power for public uses, it would not be a difficult matter to determine what its actual profits are, and the state, through its power to regulate, would always be in a position to

place a reasonable limit upon those profits by reduction of prices, by taxation or by both. It is for a public use of this kind for water powers that there is now so pressing a need for legislation. It may not be out of place here to call attention to what seems to be a fundamental difference in the case where a power site is to be developed for private use. When developed for such a use, the profits would not be derived from the sale of power, but from the sale of commodities manufactured by the use of that power, and it would be much more difficult in this case to put into practice an effective plan of control which would give to the people what might be considered their fair share of the values created by the development. The treatment of this private use of water powers may require for its correct solution more time for further reflection and study, and if this be true, it would seem the part of wisdom not to delay action pending the necessary discussion, but to proceed at once to bring about legislation that will enable public service corporations to raise the money necessary to make water power developments for public use, leaving until a future time the settlement of the more difficult question of the private use of water powers. While there does not seem to be, other than the desire to eliminate a dual control, any marked preference on the part of the water power investors for Federal or State control, there does seem to exist a very marked preference for a Federal control on the part of those who have been heretofore most active in the conservation movement. As I understand the matter, their preference for Federal control springs from a distrust of the state's machinery for control. They understand the advantage to any community accruing from the expenditure in it of very large sums of money on construction work, with the prospect of added population and employment after the power development has been made. They fear that if two states containing water power sites become active competitors for the expenditure of money in hydro-electric development capital might obtain concessions which would limit the opportunities of the people to participate to the extent they ought, in the values created by the development. In other words, if I correctly understand their position, they regard the people of the general section in which the development is to be made as incapacitated through selfinterest, to look after the welfare of those to come after, and they desire that the Federal Government shall exercise a guardianship over the future of the state because they believe the Federal Government to be free from the evil influences of self-interest.

A strong preference in favor of control by the state is held by those who are citizens of the state and who believe that in the long run control by the state will be more truly responsive to the legitimate needs of both the people and the power companies. They point out that the uses to which these water powers will be put in the different parts of the country and the conditions surrounding these uses will be so different that it is doubtful whether a controlling body at long distance from the place of use can be made to understand and properly administer to the needs of the particular locality.

The question of a limited tenure, however, seems to be the real sticking point. Because I believe there is much merit in the arguments of those who affirm that it is against the true interest of the public to limit the tenure of sites granted to public service corporations, except for breach of contract, I will summarize as best I can their position.

A public service corporation created by the state and engaged in a work of internal improvement is quasi-public in character and is entitled in many states to exercise the state's sovereign power of eminent domain. The generation and distribution of electricity to municipalities and the public generally is a public use, and an association organized as a public service corporation engaged in generating electricity by water power and offering it for sale to the public is in effect an agent of the state supplying a public use and as such is subject to the state's supervision and control. Most states have by legislation provided the machinery to give effect to this right to supervise and control and it should be conceded that those states that have not yet done so will not neglect much longer to give effect to those rights. The state's sovereign power to supervise and control a public service corporation extends not only to the power to regulate and fix prices, but it extends to the character of the service and to every act which directly or indirectly influences the public welfare. The business served by a public service corporation supplying electricity never ends its growth. It is, so far as experience teaches, continually growing and expanding. In prosperous communities the annual requirements of such companies for new capital for improvements and extensions often largely exceeds the annual net earnings, and at times exceeds the annual gross earnings, so that the ability of the company to give adequate service is dependent upon its ability to continually borrow money for its extensions. If for any reason the credit of a company is impaired, its ability to make

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