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The amount of such compensation should clearly depend upon circumstances. In some cases the works constructed by the Government may cost but a small fraction of the total cost of power developed, while in other cases the ratio may be large.
In the case of private concerns at Government dams, the proper method of fixing the charge involves many difficulties. The best plan appears to the Committee to be to authorize the Secretary of War to issue permits in such cases providing for fixed or definitely varying rates for power with a definite preliminary period of small payment, if he deems desirable. Many difficulties incident to this question would be avoided if every user of water under a Government permit should incorporate as a public utility corporation.
II. At dams on navigable rivers constructed by public service corporations, or by private parties, the first requisite is that the plan of development should be subject to Government approval, in order to insure that the project will not interfere with the proper development of the stream for navigation; and further, the operation of the plant should not restrict navigation. It should, therefore, be required that before the right to construct a dam and utilize water power upon any navigable stream is granted by the Federal Government, there should be a survey of at least that portion of the stream, the regimen of which would be affected by the proposed construction, and a further requirement that the dam and works should be built in such a manner and of such dimensions as not to interfere with the ultimate proper development of the stream as a navigable waterway.
The General Dam Act provides that the grantee should, when required by the Secretary of War so to do, construct locks suitable for navigation, and to furnish power and water for operating them, and also to light the Government buildings and grounds.
This case differs from the one previously considered in the fact that the power development may be of great benefit to the Government in aiding the navigability of the stream, and that the Government pays nothing for these works, but secures the benefit of the dam and the pond above it, and the flowage rights, without any expense. Projects of this kind would, therefore, materially aid the Federal Government in securing the navigability of our inland waters, and if we can imagine the case in which a stream were fully utilized for water power by a series of dams, each backing the water up to the next and all provided with locks, the water power development would at the same time render the stream completely navigable, without any expense to the Government. As to the charge therefor which the Government should exact, in such cases, this might fairly be materially less than in the case of water power utilized at Government dams. Circumstances will differ, however, in different cases. The preservation of the Government rights, whatever they may prove to be, being recognized by the principles that the Government must give a permit and fix its terms, we believe that in many cases the real interests of conservation will be best subserved by making no Government charge, the improvement of navigation brought about by the construction of the dam and locks being accepted in lieu of charge. In other cases, some charge may be desirable. Many methods have been proposed for regulating the charges made for power by the Federal Government. The best method appears to the Committee to be, in case of public service corporations, to allow the corporation to earn up to a reasonable fixed return upon the money properly invested before being subject to any charge, this return being different in different parts of the country, and to divide the earnings in excess of such limit with the Government in some definite manner, the method of division to be subject to revision at fixed intervals of time, the first interval being the longest, and sufficiently long to be financially attractive, the books of the company being also open to Government inspection. In any case the primary object, whether of the Federal Government or the states, should be the encouragement of properly regulated power development, and the collection of revenue should be subordinate. To grant water power provileges under such onerous terms or regulations that development is hindered is an injury not only to the people of the state, but to the people of all the states, because all are concerned in the preservation of the non-renewable resources. It is more important that a wise development should be encouraged and that the consumer should obtain his power at the lowest rate consistent with a proper return on the money invested, than that the Government, whether Federal or State, should participate in the profits.
III. In the case of water powers in which the power site or the right of way for transmission lines is on Government lands, the Federal Government should unquestionably grant permits in such form as will not only insure proper control and provide that the use of such lands shall not injure the remainnig Government lands, but that the public interest should be fully protected in the future. In such a case the Government fee might perhaps best be fixed in the same manner as that recommended for navigable streams.
Notwithstanding the fact that electricity is playing every day a more important part in our social and industrial economy, and the fact that the development of hydro-electric properties should be proceeding rapidly, there seems no doubt that present Federal laws, and the permits hitherto issued under them, have brought about a condition of relatively slow development of water power. These laws constitute in many cases a practically insuperable obstacle, and while many developments have been made under these laws, many more possible developments have been postponed. Several Secretaries of the Interior have called attention to these facts, and to the urgent need of a revision of the laws regulating the use of water power. Water power developments if undertaken today on the public lands or on navigable streams are attended by serious financial difficulties.
One of the most serious obstacles to the development of water powers under Government permits is that these are by law, revocable, at any time, at the pleasure of a member of the Cabinet. Under present laws the only way by which water power can be developed on the public lands is under revocable permits prescribed by the Act of February 15, 1901.
On navigable streams the General Dam Act of June 23, 1910, provides for a fixed term or tenure of fifty years, subject to revocation for violation of terms, and without provision for renewal. Neither of these Acts suitably provides for a tenure that will attract private capital, and thus development is either defeated or made precarious, and the whole public suffers accordingly.
There are, in general, three forms of franchise or concession, namely, the perpetual, the fixed term and the indeterminate. For reasons which need not be discussed here and with which nearly all will agree, the perpetual franchise may be considered a thing of the past. The crude fixed term franchise which grants rights for a limited period of years, without provision for renewal or for compensation at the end of the franchise term, has proved to be an impracticable thing, under which financial organization is either impossible or too expensive, and during the term of which,-and especially during the last part of the term, profitable operation becomes almost impossible. Securities under the fixed term franchise can be disposed of only at high rates of interest and discount, the fixed charges under which make a great drain upon annual earnings. Such a franchise also necessitates the creation of an amortization fund which will, at compound interest, equal the investment at the end of the franchise period. Moreover, under this form of franchise, it is impossible for the operating company, especially during the latter years of the term, to make contracts for the sale of power covering long periods. Long period contracts are becoming more and more common and necessary in every day public service operation, and the crude fixed term franchise operates in direct opposition thereto. To cover all of these difficulties, the modified fixed term franchise is advocated by many. Such a franchise provides for right of renewal at the end of the period, for purchase of property improvements in the event that the extension is denied or the title thereto transferred, and finally for the assumption of contract obligations entered into by the grantee for periods extending beyond the close of the franchise term. Such provisions may largely obviate the financial and other difficulties and uncertainties that usually attach to the fixed term franchise.
The Committee believes, however, that under all conditions that prevail with reference to public owned water powers, whether by the Federal Government or the states, the indeterminate franchise is the form which most readily adapts itself to changing conditions, and that under which the greatest and most satisfactory measure of control may be secured by the public.
The indeterminate franchise favored by the Committee would have no fixed term limit. For an initial period sufficient to allow the grantee to properly finance the project the franchise should be irrevocable except for cause, subject to review by the courts. Said franchise should after the said period has elapsed, be subject to revocation by the Government at any time on due notice to the grantee of such intention and on payment of compensation equivalent to the fair value, exclusive of franchise, of the property and necessary appurtenances or of so much of it as is dependent upon or intimately connected with the water power development, and without value when separated i.e. but such value shall not include properties such as railroads, lighting systems, etc., which are of themselves separate industries. In such transfer all contracts for the sale or delivery of power made by the grantee previous to such notice of transfer should be assumed by the transferee, so that said grantee may operate and maintain the power business during his occupancy of the property under such stable guarantees as may beget confidence therein by prospective long term contractors provided that the Government or said transferee shall not assume any contracts made at a price or under conditions which may be established as unreasonably low for the service rendered or which may be found to be confiscatory.
In view of the above, and of other considerations, the full treatment of which would require more space than can properly be claimed for a report of this kind, the Committee believes that the development or conservation of water powers, together with the proper protection of the public interest, can best be secured by the enactment in Congress of legislation which will contain the following provisions:
(1) The granting, without distinction, to all states and governmental subdivisions thereof, and to all public service corporations charged by any state with the power so to do, the right to construct, maintain and operate dams in any of the navigable streams in the United States and territories and island possessions thereof, provided that such maintenance, construction and operation does not adversely affect the navigable qualities of such navigable streams; and provided further that the grantee shall construct and shall at all times maintain and operate, such dams under the supervision of and in the manner to be approved by the War Department of the United States; and shall construct and maintain locks and other necessary appurtenances in such dams when required so to do by the Secretary of War, and subject to his approval; and shall, without cost to the United States Government, at all times provide the necessary water, power and light required by the Government for the operation of said locks, and shall, under the supervision of the Government, maintain the water at such heights in the pond created by such dam as may be required by the Government to best facilitate navigation. Upon an application being made to the Secretary of War for a grant to construct, maintain and operate any of such dams it should be the duty of the Secretary to take testimony at public hearing before a Commissioner of the United States Court to establish sufficient information of record to determine whether or not the construction, maintenance or operation of such dam will adversely affect navigation. Such Commissioner, after full hearings, shall make findings of facts on this point and file the same, as a public document, with the Secretary of War and such findings shall be conclusive and final as to whether or not navigation will be adversely affected in the premises, but if either the Secretary or the applicant believes that the findings are not in accordance with the evidence, such dissatisfied party shall have the right to appeal to the United States District Court in the district where the proposed improvement is located and the adjudication of the question in controversy by the Court shall be binding upon both the Government and the applicant.