extensions is impaired, and to that extent its ability to adequately serve the public is impaired. A public service corporation operating a water power under a limited tenure would not be able to borrow money for extensions or improvements which it could not demonstrate would be returned, principal and interest, out of earnings prior to the limit of its tenure. During each succeeding year of operation the sinking fund percentage on moneys expended for improvements during the year would have to be increased. This would necessitate an increase in price each year which the state's right to control might not be able to prevent because the state's right does not extend to a confiscation of property and the prices may not be regulated below a point which would prevent the return to investors of the principal with interest at the expiration of the tenure period. Prices would thus grow each year until they reached the limit of what the traffic would bear. Above this they could not go; so that when this limit was reached the demand for new capital for extensions would automatically cease and growth would end. LETTERS FROM BANKERS Chairman Swain presented several letters from bankers with reference to water power from the standpoint of the investor. These letters are as follows: HARRIS, FORBES & COMPANY. Mr. George F. Swain. New York, November 15, 1913. Chairman Water Power Committee, Dear Sir: Permit us to submit some reasons for the present lack of development of water powers of this country, particularly on the Public Domain. The present laws and regulations as construed by the departments at Washington do not permit development of water powers on the Public Domain except under a permit revocable in the absolute discretion of the Secretary of the Interior and pursuant to terms and conditions imposed by the Departments of the Interior and Agriculture, which in a number of particulars are burdensome and render investment in such enterprises unattractive. Without attempting to enter into a detailed criticism of the regulations issued by the departments, it may be sufficient to say that no matter how liberal such regulaions may be, so long as the Secretary of the Interior has the power of arbitrary revocation, the financing of such enterprises must be upon the theory that subsequent administrations and subsequent departmental officials may disagree with the regulations as made at the time the permit is granted, and may at a later date seek to impose new conditions and new regulations, which of course the permitee, after his plant has been constructed and his securities issued, must either accept or face revocation of his permit. There are so many opportunities for investment offered the public and bankers which have not attached to them the burdensome restrictions imposed by the regulations of the departments, and which are free from the hazard involved in an investment where the franchise to do business may be revoked at any time by a governmental authority, that it must be apparent that investments in water powers subject to revocable permit are not attractive in competition with these other numerous inducements to private capital; and even though private capital would be willing to invest in water powers under the present laws, it would logically follow that such investment can only be upon more burdensome terms to the company, higher rates of interest and larger discount upon the bonds, and consequently greater burdens to the consumer of the product of a public service corporation. While it is true that some water powers have been developed in recent years, and some securities have been sold, where the only permit from the Federal Government was one revocable in the discretion of the Secretary of the Interior, nevertheless such securities were sold, so far as we have knowledge, upon the assumption that the permit would at no time be revoked and that it amounted in effect to an indeterminate franchise. But experience has demonstrated that reliance can no longer be placed upon the tenure for any definite period of time under the revocable permit. With the change of departmental officials permits of water power companies in the west have been revoked, and the companies have been confronted with the alternative of accepting new conditions which seemed to them onerous or meeting litigation commenced by the Federal Government designed to eject them from the Public Domain. The water powers of the country should be developed by public service corporations for the benefit of all the people of the country. In order that the people may obtain the greatest benefit from these natural resources, the tenure of the power companies should be made certain and safe, for thereby will capital be attracted at the lowest possible rates of interest. Of course, interest rates are directly proportionate to the hazard involved in the enterprise, and that hazard is dependent in a large measure upon the character of the franchise under which the water power company operates. The most desirable franchise is one which is for an indeterminate period of time because thereby greater security is given to the investment; that is, a franchise which continues so long as the company continues to do business and renders adequate service at reasonable rates in a fair and proper manner and which is subject to termination by the proper public authorities only upon condition of taking over the property of the utility at a fair valuation. Furthermore, while we recognize the necessity for and are in hearty sympathy with the regulation of all public utilities by properly constituted public authorities, we believe that capital will be more largely attracted into enterprises which are not subject to conflicting jurisdictions; that is, there should be single and not dual public control, because dual controlcontrol by both the State and Federal Government-may readily result in conflict of authority and consequent inability to finance, resulting in hardship to the company and the public. Very truly yours, HARRIS, FORBES & CO. HODENPYL, HARDY & CO. New York, November 17, 1913. Mr. George F. Swain, Dear Sir: As chairman of the National Conservation Congress, you are doubtless aware that existing congressional legislation makes it impossible to economically develop water powers located upon the Public Domain of the United States; the present laws provide only for permits revocable at any time without cause; and under such permits, as they are now construed by the Federal officers, it is impossible to finance development of any water powers on Government lands. In our opinion, the rights of the Federal Government and of the people of the United States may be amply protected if provision is made by act of Congress for adequate title. If such title is granted in perpetuity, the people will be adequately protected by the state or interstate regulation of rates and general corporate control through existing commissions; if the title is by indeterminate franchise, with provisions for adequate compensation for all of the property used or connected with the development, in distribution or otherwise, and for termination only for breach of reasonable conditions, the rights of the Government and the people can also be perfectly well protected with such assurances to investors as would permit financing upon reasonable terms. It is apparent to those who have studied the existing regulations that the Federal control insisted upon and the compensation to the Government exacted must discourage hydroelectric development upon public lands even if such title could be secured as would protect the investment. Federal control of an industry purely local is unnecessary because adequate control is being assumed by the states through their public service commissions; and compensation to the Federal Government even upon an equitable basis must increase the cost of the product to the consumer. Proper principles of conservation and the interests of the west require that we urge upon the Federal Government such laws and regulations as will encourage water power development so that fuels may be conserved and the newer parts of our country developed with the cheaper power which may be made available. Yours respectfully, HODENPYL, HARDY & CO. WHITE, WELD & CO. George F. Swain, Esq., New York, November 18, 1913. National Conservation Congress, Dear Sir: In view of the early meeting of the National Conservation Congress, we take the liberty of calling to your attention the necessity of Federal legislation of such character as will permit the development of water powers located within the forest reserves and other Public Domain. Under existing acts of Congress no title or tenure can be secured justifying the expenditure of money for the development of hydro-electric or other works for the utilization of a great amount of water power now wasted. To secure such development it is necessary, in the first place, that such title be provided as will make the investment safe; and, in the second place, that such regulations be enacted as will not discourage such operations upon the Public Domain nor put them to a disadvantage with like developments upon private property through the exaction of taxes which must ultimately be borne by the consumer. Respectfully yours, WHITE, WELD & CO. LEE, HIGGINSON & COMPANY. Boston, November 17, 1913. Professor George F. Swain, Chairman, Dear Professor Swain: I hear that the Conservation Congress is now sitting at Washington and is considering the matter of water rights for the generation of power, and also considering the question of whether a company hampered by revocable rights to use the water power could be brought into existence. After discussing this matter with the members of my firm, I feel sure that we have no question as to what reputable bankers should do in the case of revocable rights. Neither we nor any reputable house should or could undertake an issue of securities for the construction of a water power unless the rights to use that water power ran for many years. At the best, the establishment of a water power company is risky, and any doubt as to the length of rights granted to use this water power would be a death blow. Of course there have been cases where revocable rights for a minor proposition have been accepted, but only because the user of the power |