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States, and which, in the case of one group of interests, already extends into seventeen states. From the beginning of the fight to protect the public interest in the water powers the strenuous claim of the power interests has been that development was being or would be stifled, the growth of industry held back, and the public welfare injured, by unreasonable requirements which discouraged investment and locked up against beneficial use the water powers on navigable streams, in the National Forests, and on the Public Domain. So often and so plausibly has this claim been made that many good people have been brought to believe it; and the fight against the monopolization of water power has been made correspondingly harder. But the foregoing figures, taken largely from the official statements of the power companies themselves, make the facts plain. As was said in the admirable report on water power development made by the Commissioner of Corporations in March, 1912: “Our public policy must recognize both the need for utilization and the dangers of monopolistic control and take effective action on both.” We must check the unregulated concentration and monopoly of water powers, but that is not enough. The need is urgent also to force the development of water powers already under private control. This is as practicable as it is necessary. Prompt and ultimately complete development is required by the regulations for the use of power on the National Forests adopted by the Forest Service, which was the first branch of the Federal Government to define and apply a water power policy fair both to the power companies and to the American people. Under the regulations of the Forest Service, which include also the very provisions so vigorously objected to by certain power interests as sure to hamper development, there were on the National Forests, on October 1, 1913, 78 water powers developed, 30 under construction and no less than 76 of 728,300 horsepower capacity at low water, for which permits have been taken out within the past two years, under conditions requiring prompt development. The total capacity of all these powers is about 1,090,000 horsepower reckoned on minimum stream flow, or not less than twice that amount in actual fact. The total present development in the United States is about 7,000,000 horsepower. Nearly one-third as much has been or is required to be developed in the National Forests under Government regulations. These figures finally and completely disprove the claim so often heard that proper Government regulations check development. The record of the power situation makes it very clear that the fight for the conservation of the public water powers is first of all a fight against monopoly. But the second prime necessity in the public interest is to forbid and prevent the speculative holdings of powers unused, and to force the prompt and full development of the vast aggregate of power resources now held idle and unproductive under concentrated private control. If we take the valuation of $45 per horsepower, the water powers now held undeveloped in the control of the ten great groups of interests represent a total annual loss to this country of one hundred and sixty million dollars worth of power. To do the work which these powers would do were they developed costs the nation each year, if we use the estimate of 10 tons of coal as necessary to produce one horsepower per year. more than thirty-five million tons of our diminishing coal supply. It is perfectly clear that no right to use a public water power should ever be granted unless the grantee can show either that he or it controls no water power not developed or not in actual process of development, or that there are reasons, sound from the point of view of the public, for leaving such controlled power undeveloped and asking for a further grant. II. Water Power Policy. Mechanical power lies at the root of modern civilization. The raw materials of mechanical power, coal, oil, natural gas, and falling water, are the bases for the larger part of transportation and industry. The control of them carries with it the control of industry and transportation, unless that control is modified by effective public regulation. Control of industry and transportation involves the control of modern life. Hence the monopoly of water power, one of the raw materials of mechanical power, is among the most threatening of monopolies. Upon this point the Inland Waterways Commission said in 1908: “In the light of recent progress in electrical application it is clear that over wide areas the appropriation of water power offers an unequaled opportunity for monopolistic control of industries. Wherever water is now or will hereafter become the chief source of power, the monopolization of electricity produced from running streams involves monopoly of power for the transportation of freight and passengers, for manufacturing and for supplying light, heat and other domestic, agricultural and municipal necessities to such an extent that unless regulated it will entail monopolistic control of the daily life of our people in an unprecedented degree. There is here presented an urgent need for prompt and vigorous action by State and Federal Governments.” In 1912, the final report of the National Waterways Commission said:
“The important fact to be gathered from the entire discussion of this phase of the subject would seem to be not so much that financiers and promoters might find it to their advantage to promote a monopoly as that economic considerations and the natural character of the business make monopoly almost inevitable, and perhaps desirable when subject to strict public regulation. A form of possible monopoly, however, that needs to be immediately guarded against is the acquiring and holding of dam sites for speculative purposes where no immediate development is contemplated.” There are three essentials of a sound water power policy: 1. Prompt development. 2. Prevention of unregulated monopoly. 3. Good service and fair charges to the consumer. 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 water power by holding power sites undeveloped must be stopped.
A water power can be controlled and used by only one concern at one time. Therefore water power is a natural monopoly. Hence the prevention of injury to the public from a monopolization of water power involves the whole question of the terms upon which the right to use a water power 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 railroads, and other public utilities, whose franchises involve the use of natural monopolies, offers an instructive analogy for similar regulation of water power.
The application of these principles is briefly considered under the following head:
III. Federal Water Pozver Franchises.
Within the jurisdiction of the Federal Government are the water powers 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 water power problem. The recent Supreme Court decision in the Chandler-Dunbar case has confirmed the right of Federal control over the water powers 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 determination. (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 water powers 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 water power, 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 water power 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 water power 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 water power under Government franchise has so far taken 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 water power franchises should pay a yearly and unfailing compensation in return. The public 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.