percent to Nevada. These percentages are the complement of the 62% percent of excess revenues payable on the flood-control allocation. The legislative history of this provision made it clear that these payments were in lieu of taxes which the States might have collected had the project been built by a taxable entity, and which they cannot collect because the project is a Federal one. Manifestly, if the rates were stabilized at the amortization level the chance of obtaining excess revenues would disappear.

Second, section 5 of the Project Act provided that

After the repayment to the United States of all money advanced with interest, charges shall be on such basis and the revenues derived therefrom shall be kept in a separate fund to be expended within the Colorado River Basin as may hereafter be prescribed by the Congress.

The elimination of excess revenues would eliminate the possibility, however remote, that the amortization period would be shortened by the application of the remaining 621⁄2 percent excess revenues to the early retirement of the flood-control allocation under section 2 (b) and thereafter to the acceleration of the retirement of the balance of the investment.

The governments of the 7 States appointed a committee of 16, including 2 representatives of the power allottees, to reconcile these differences. In conference with the Interior Department a compromise bill was gradually evolved, approved by the Interior Department, the 7 States, and the power contractors. This is that measure.

PRINCIPAL PROVISIONS OF S. 4039

THE AMORTIZATION RATE

Section 1 substitutes an amortization basis for the competitive rate basis of the Project Act. The Secretary of the Interior is directed to promulgate rates computed to meet four requirements: (a) To operate and maintain the dam and make provision for replacements (excluding replacements due to act of God, the public enemy, or major catastrophe); (b) to repay to the Treasury with interest within 50 years from June 1, 1937, all advances made prior to that date for the construction of the dam and installation of machinery and equipment, later advances to be repaid on the basis of amortization within 50 years from their respective dates; (c) to provide $300,000 per year for each of the States of Arizona and Nevada during the amortization period, as herinafter explained in connection with section 2 (c); and (d) to provide $500,000 for each year of the amortization period for a new fund in the Treasury designated the Colorado River development fund as hereinafter explained in connection with section 2 (d). Periodic adjustment of the rates is authorized.

APPLICATION OF REVENUES

Section 2 directs that the money received from these stabilized rates be paid into the Colorado River Dam fund and distributed from that fund as follows:

(a) Payment of the cost of operation and maintenance and to provide for replacements;

(b) Repayment of the Treasury advances with interest, excluding the flood-control allocation, which is provided for in section 7.

(c) Payment of $300,000 annually to each of the States of Arizona and Nevada.-These payments are in commutation of the payments provided for in the Project Act, and involve no new question of policy, nor do they set any precedent. The pending legislation commutes the payments of a percentage of excess revenues into fixed annual amounts. They are not payments by the Treasury but by the power contractors via the Colorado River Dam fund. It being the intent of Congress that this Federal project-its use and output-should be free of taxation by the States and their political subdivisions, provision is made that, in the event of an attempt to levy such taxes, any amounts which may be so collected, notwithstanding the provisions of this subsection, shall be deducted from the $300,000 payments provided for.

In H. R. 9093 as originally introduced these payments were specifically stated to be "in lieu of taxes which (had the project been constructed by any taxable entity) might be levied by or under authority of said States, or either of them upon" certain classes of property or rights enumerated in considerable detail.

The Attorney General, in a letter to the Director of the Bureau of the Budget, stated that

1. I doubt the advisability of the phraseology of the provision contained in section 2 (p. 3) to the effect that certain payments proposed to be made to Arizona and Nevada out of the Colorado River Dam fund, shall be "in lieu of taxes." Since the States would not be entitled to collect taxes under the circumstances, the use of this phrase appears to be inadvisable.

In view of this comment, the House committee revised the provision so as to exclude the expression "in lieu of taxes," and those words are not used in this bill, S. 4039. The omission of these words is because of the suggestion of the Attorney General and should not be construed as indicating any intent to depart from the principle on which the provision for payments to these States was inserted in the existing Project Act, viz, that such payments were to be in lieu of taxes and other benefits which those States would have enjoyed if the project had not been federally constructed.

(d) Transfer of $500,000 annually into the Colorado River development fund in the Treasury.-Appropriations from that fund are authorized for river-development work. The first $1,500,000 so realized is earmarked for the completion of studies by the Bureau of Reclamation looking toward a comprehensive plan for the utilization of the waters of the river. Thereafter, until 1955, the fund will be used exclusively in the development of the river in the upper basin. After 1955 it will be available in the entire basin. No expenditure may be made without an appropriation. The committee amended this subsection to require that the money be spread equally among the States, and to make New Mexico's share available for the San Juan transmountain diversion project.

ACT OF GOD OR THE PUBLIC ENEMY

Section 3 requires reduction in the payments to the States, and the payments into the development fund, in the event that acts of God or the public enemy or any major catastrophe or any other unforeseen and unavoidable cause reduce the revenues for any year of operation below the level required to make such payments.

EFFECTIVE PERIOD OF THE RATES

Section 4 provides that the act shall be effective for the entire amortization period, that is, from June 1, 1937, to May 31, 1987, and the rates fixed under it shall be payable during that period. Under the contracts made in 1930 the obligations of the several contractors to take and pay for energy did not begin at the same time. Those of the public corporations began in 1937 and 1938; those of the private companies, June 1, 1940. The effect of making all rates effective as of June 1, 1937, is to distribute the cost of the energy per kilowatt-hour over the 50-year period equally among all contractors, without affecting the date of completion of amortization or the aggregate amount coming into the Treasury. The contractors who have heretofore paid at the higher rate receive credits, not cash refunds, for the excess of their payments, and it will not be necessary to withdraw any funds heretofore paid to the Treasury. This method, it will be noted, accords with the belief held by the Secretary of the Interior and the power contractors in 1930 that rates would be adjusted as of the date of commencement of operations.

READVANCES FOR REPLACEMENTS

Section 5 contemplates that moneys collected as a reserve for replacements under section 1 (a) shall be deposited in the Treasury, thus reducing interest charges; and that when replacements are required money will be readvanced by the Treasury to the Colorado River Dam fund for that purpose. All such readvances bear interest. Readvances from the Treasury are limited solely to the purpose of making replacements.

INTEREST RATE

Section 6 establishes an interest rate of 3 percent. The latter is the rate allowed by the Reclamation Project Act of 1939, and is in excess of the cost of money to the Government prevailing during the construction of Boulder Dam and at present. In the original Project Act a rate of 4 percent was charged on advances from the Treasury to the Colorado River Dam fund. This does not mean that the power contractors undertook to amortize the works on a 4-percent basis under the Project Act. Their obligation was solely to pay the rate justified by competitive conditions, which might or might not place the Colorado River Dam fund in funds with which to repay the Treasury within 50 years on a 4-percent basis.

FLOOD-CONTROL ALLOCATION

Section 7 deals with the $25,000,000 flood-control allocation made by the Project Act. The Project Act directed that this allocation be repaid out of 621⁄2 percent of excess revenues (the complement of the 371⁄2 percent of excess revenues allocated to Arizona and Nevada), but provided that repayment of that amount might be deferred, with interest, until repayment of the balance of the investment had been effected. Section 7 definitely so defers the repayment of the floodcontrol allocation, and without interest. The section also reduces interest charges during construction by directing that the flood-control (interest-free) allocation be deemed the first money advanced for

S. Repts., 76-3, vol. 347

construction. Boulder Dam was built primarily to afford flood protection to the Imperial Valley and the Lower Colorado River Basin, and such flood-control expenditures are not ordinarily deemed reimbursable. It will be noted that this amount is offset by the aggregate of the amounts required to be paid into the Treasury for the Colorado River development fund under section 2 (d), with the result that this bill assures the Treasury the recovery of an amount equivalent to its investment of principal ($25,000,000 being earmarked for further river development), plus interest on all except $25,000,000 allocated to flood control.

REGULATIONS AND CONTRACTS

Section 8 authorizes the Secretary to make regulations and enter into contracts necessary to carry out the purpose of the act.

AGENCY OPERATION

Section 9 authorizes the Secretary to negotiate for termination of the present lease, held by the Southern California Edison Co. and the city of Los Angeles (who generate the energy allocated to all of the contractors), and substitute an agency plan. The Secretary has stated that he proposes to enter into an agency contract with the present lessees. The bill assures these entities, as agents, the security of tenure that they now enjoy as lessees, by providing that the agency contract shall not be revocable or terminable except by mutual consent or in accordance with provisions for termination for default specified in the contract; and legal and equitable remedies are provided to protect that tenure.

MISCELLANEOUS PROVISIONS

Section 10 provides that the act shall not become effective until contractors obligated to pay for 90 percent of the energy have consented to its terms and executed contracts thereunder.

Section 11 provides that contractors failing to execute new contracts under the proposed act shall not have its benefits but shall pay the rates provided in the Project Act.

Section 12 defines certain terms used in the act.

Section 13 requires annual reports from the Secretary of the Interior to Congress on the operations under the act.

Section 14 reserves to each State its present control over the appropriation and use of water within its borders. The Colorado River compact is not affected. All provisions of the Project Act not inconsistent with this bill are preserved in full force and effect.

PREVAILING WAGES

Section 15, which was added by the committee, requires the payment of prevailing wages to all laborers and mechanics employed in the construction of any part of the project (the term "project" being defined in section 12 to include both the dam and the power plant) or in the operation and maintenance or replacement of any part of the dam itself, as distinct from the power plant. In the event of disputes as to what are the prevailing rates, the determination is left to the

final decision of the Secretary of the Interior, subject to the concurrence of the Secretary of Labor.

SHORT TITLE

Section 16 states the short title of the act, "Boulder Canyon Project Adjustment Act."

The future of the financial operation under the existing Boulder Canyon Project Act is uncertain and unpredictable, resting as it does on the foundation of a competitive rate which is determined by elements beyond the control of the administrative officers. These elements include the price of fuel oil, the efficiency of steam plants, the capital and operating costs of such plants. If all goes well, the Government realizes a profit, which it shares with the States; but if the present trend in these competitive factors continues, it takes a loss, which it bears alone.

In authorizing all later projects Congress has preferred a definite standard of rates, related to the amount required to retire the Government's investment. It seems fair to extend that principle to Boulder Dam; every interest involved, including the Interior Department, the States and the power contractors, prefer such a definite standard, each being willing to forego the speculative advantage to it of certain possibilities under the old law in consideration of the removal of its equally speculative hazards.

The standard set up by the new bill demands much more for the Treasury than is asked at the newer projects, and the contractors are willing to pay it. They pay, in addition to the costs of operation and maintenance and replacements, an amount equal to 100 percent of the principal of the Government's investment, plus 3 percent interest (which is a rate higher than the cost of the money invested here) on all but $25,000,000 allocated to flood control, plus an amount in lieu of taxes to the States wherein the project is located. The Treasury, for its part, earmarks $25,000,000 of the money so received for further development in the basin under Congress' control and retains its claim to another $25,000,000, being the original flood-control allocation, after the remainder is paid for. And the project thereafter belongs to the United States, not to the contractors who have paid for it. The committee believe that S. 4039 is a fair and carefully workedout measure and recommend its passage.

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