4

H °Q

COLUMBIA RIVER BASIN ACCOUNT 1'4 \

HEARING DEc

INTERIOR AND INSULAR RS

AFFA;;965

COMMITTEE ON

BEFORE THE

UNITED STATES SENATE

Y4 GOVERNMENT

. In 0113 Storage

1/21/ I

EIGHTY-NINTH CONGRESS

FIRST SESSION

ON

A PROPOSED BASIN ACCOUNTING SYSTEM FOR

THE COLUMBIA RIVER BASIN

SEPTEMBER 1, 1965

Printed for the use of the

Committee on Interior and Insular Affairs

U.S. GOVERNMENT PRINTING OFFICE

53-864 WASHINGTON: 1965
COMMITTEE ON INTERIOR AND INSULAR AFFAIRS

HENRY M. JACKSON, Washington, Chairman

CLINTON P. ANDERSON, New Mexico THOMAS H. KUCHEL, California

ALAN BIBLE, Nevada

FRANK CHURCH, Idaho

ERNEST GRUENING, Alaska

FRANK E. MOSS, Utah

QUENTIN N. BURDICK, North Dakota

CARL HAYDEN, Arizona

GEORGE McGOVERN, South Dakota

GAYLORD NELSON, Wisconsin

LEE METCALF, Montana

II

GORDON ALLOTT, Colorado

LEN B. JORDAN, Idaho

MILWARD L. SIMPSON, Wyoming

PAUL J. FANNIN, Arizona

JERRY T. VERKLER, Staff Director

STEWART FRENCH, Chief Counsel
COLUMBIA RIVER BASIN ACCOUNT

WEDNESDAY, SEPTEMBER 1, 1965

U.S. SENATE,

COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,

Washington, D.C.

The committee met, pursuant to call, at 10 a.m., in room 3110,

New Senate Office Building, Senator Henry M. Jackson (chairman

of the committee) presiding.

Present: Senators Henry M. Jackson (Washington), Frank E.

Moss (Utah), Quentin N. Burdick (North Dakota), Thomas H.

Kuchel (California), Gordon Allott (Colorado), Len B. Jordan

(Idaho), and Paul J. Fannin (Arizona).

Also present: Kenneth Holum, Assistant Secretary of the Interior;

accompanied by J. Karl Lee, staff assistant; Joel Adamson, Bonneville

Power Administration, Portland; Leo Kudej, Bonneville Power Administration, Washington; Paul Sant, Bureau of Reclamation, Salt

Lake City; Kenneth E. Johnson, Bureau of Reclamation, Boise,

Idaho; Loren Holt and David E. Flipse, Bureau of Reclamation,

Washington.

Also present: Jerry T. Verkler, staff director; Stewart French,

chief counsel; Ralph Johnson, chief consultant on water; and Richard

N. Little, minority counsel.

The CHAIRMAN. The committee will come to order.

A proposed basin accounting system for handling irrigation assistance has again been suggested for the Columbia River Basin.

The public hearings called today are for the purpose of enabling

the committee to obtain background information on the basin account

method of developing our water resources, and to hear testimony

by the Department of the Interior officials on the current proposal.

On two prior occasions, in 1950 and 1960, basin account proposals

for the Columbia were placed before this committee, although on

neither occasion did they result in legislation. Since then, in 1963,

important administrative changes were made in the accounting system

used by the Bonneville Power Administration concerning the way it

provides assistance to particular irrigation projects.

I believe, however, that there is some confusion about these changes

and about the alternative methods that can be used to handle assistance to irrigation in the Columbia Basin. Thus, one of the purposes

of these hearings is to review the 1963 changes and to ascertain

whether administrative or legislative action might be desirable.

There are no specific bills before the Congress at the present time

to establish a Columbia Basin account nor is it my understanding

that the Department of the Interior has finalized its own position on

the matter as yet. Therefore, we are free to discuss the subject and

to ask questions of Assistant Secretary Holum and his associates in

order to get all the information we can about this complex matter.

1
2 COLUMBIA RIVER BASIN ACCOUNT

Secretary Holum, I believe you have a formal statement that you

would like to present. We are delighted to welcome you back before

the committee and suggest you bring to the table whatever associates

you wish to have present and available in connection with your statement and the questions that are to follow.

Mr. Ho',um. Thank you, Mr. Chairman.

STATEMENT OF HON. KENNETH HOLUM, ASSISTANT SECRETARY

OF THE INTERIOR, ACCOMPANIED BY J. KARL LEE, STAFF

ASSISTANT; JOEL ADAMSON, BONNEVILLE POWER ADMINISTRATION, PORTLAND; LEO KUDEJ, BONNEVILLE POWER ADMINISTRATION, WASHINGTON; PAUL SANT, BUREAU OF RECLAMATION, SALT LAKE CITY; KENNETH E. JOHNSON, BUREAU

OF RECLAMATION, BOISE, IDAHO; LOREN HOLT AND DAVID E.

FLIPSE, BUREAU OF RECLAMATION, WASHINGTON

Mr. HoLum. It is always a pleasure to appear before this committee. I and other representatives of the Department have appeared

before you many times during the last 8 months. On every occasion

that I can recall, we have come before you as advocates either of a

position developed by the administration on its own initiative or on

the basis of the administration position and the Department's position

developed in response to legislation introduced by members of the

committee or the Congress. I am here this morning under different

circumstances. We have, as you have already noted, no legislation

prepared and submitted to the Congress, no Interior-administration

position developed.

Finally, as far as facing legislation for the Pacific Northwest and

the Columbia Basin drainage area is concerned, this may be my last

appearance before this committee during the current session of the

89th Congress. If it is, I certainly want to take this opportunity,

having noted our previous appearance here as applicants, to express

my appreciation and the appreciation of the Department in the

splendid leadership that this committee has given to resource development and conservation during the current session of the Congress.

The CHAIRMAN. Secretary Holum, we of the committee want to

extend our appreciation to you for your full cooperation and willingness to be completely responsive to our many requests. We are

pleased to have you make this presentation today.

Mr. HoLum. Thank you, Mr. Chairman.

As I have already noted, I am not here as an advocate. We are

here to discuss what is a complicated and intricate problem related

to resource development, and that is the proper financial management

of these projects.

I have with me at the table this morning a new associate of mine

in the Department of the Interior. I am very happy—and we are all

happy in the Department—to have Karl Lee. Many members of

the committee have known him longer than 1; he is now associated

with the Office of the Secretary. He has already, and will in the

future, I know, provide us with very valuable assistance with matters

that we are going to be discussinc,this morning and other matters that

are of equal importance to the Department and this committee.
COLUMBIA RIVER BASIN ACCOUNT 3

The matter we are discussing this morning is intricate and complicated, and Karl is going to be my strong right arm, I know, as we get

involved in details of account legislation and accounts as they have

been applied historically in other areas of the country, and as they

might be applied in the Pacific Northwest.

I am sure the discussions this morning will be useful to the Department and I hope to the members of the committee as we consider

finally the question of whether or not such legislation ought to be

submitted by the Department for your consideration.

In connection with the discussion of the Northwest, and particularly with respect to the Columbia River Federal power system, I

would like to make it clear at the outset that we do not have a payout

study for the system which has been approved by the Secretary to

discuss with the committee this morning.

As members of the committee know, the Bonneville Power Administration has prepared such studies based upon different assumptions.

These studies are now under review in the Department. Therefore,

we are not in a position at this time to present to you an approved

repayment study for the Columbia River Federal power system.

To illustrate some of the changes that have taken place in power

marketing policy as related to a basin account in the Pacific Northwest, we are going to present certain charts representing a hypothetical payout for that system. These charts should be considered

only as illustrative in nature and should not be considered as showing

specifically the projected payout status of the Columbia River Federal

power system.

Perhaps I should also point out as a further preface that in considering basin accounts we are concerned with a very elusive subject. In

many respects it is simply an accounting concept, difficult to define

in specific and precise terms. For this reason, we have developed

charts and illustrations which we hope will help in explaining some

of the concepts involved.

I suspect that after we are through today we will still have many

unanswered questions. I want to assure you that we will be happy

to spend as much time as you consider appropriate responding to

questions that occur to members of the committee.

A basin account involves a presentation of the status of project

costs and revenues related to a repayment plan, projected over the

repayment period. Such a presentation can cover any given grouping of projects, units, or divisions comprising a geographic area or

region or a river basin. It may involve methods of funding the construction costs of projects in the same manner as the reclamation fund,

but projects or units can only be added to the account by the specific

authorization of Congress. It does not involve an account into which

funds are literally deposited and held until used. It is a procedure

whereby total project revenues are used to account for the return of

total reimbursable project costs.

The justification for the use of total project revenues to repay total

reimbursable project costs derives from several basic relationships.

The first is that a river basin represents a single hydraulic unit in

which downstream flows depend upon upstream management.

The second is that the construction of multiple-purpose projects

makes it possible to serve individual functions more cheaply than

would otherwise be the case, and therefore all functions involved in

a project have a common interest.
4 COLUMBIA RIVER BASIN ACCOUNT

The basin account facilitates the orderly development of all water

resources within a basin. Each segment of area of the basin is not

dependent wholly upon the financial resources within that segment

or area. The basin account makes it possible to secure the optimum

development of all water resources within the basin regardless of the

location or the physical association with other functions. There

may be one or several reimbursable purposes within a unit which

may require financial assistance.

Immediately after the passage of the Reclamation Act of 1902,

it became evident that the impoundments made to store irrigation

water provided an opportunity to generate power. In recognition of

this, the Congress in 1906 enacted legislation which permitted the

generation of hydroelectric power for project use on irrigation projects.

The first power on a reclamation project was generated on the Minirn

doka project in southern Idaho in 1909.

The act of 1906 also provided authority to sell the surplus power not

needed for project use. Since then, the generation of hydroelectric

power has grown to be an important function on many reclamation

projects in the 17 Western States. At the present time, power is

generated at 54 plants, including those for which the Bureau of

Reclamation has marketing authority. The presently installed

capacity amounts to 8,310,000 kilowatts. In addition, there are

seven plants under construction, with a planned capacity of 1,339,000

kilowatts.

The present concept of a basin account had its origin in the 1939

amendment to the Reclamation Act. The act did two things which

are important from the standpoint of basin accounts: it authorized

the use of total project revenues to repay total reimbursable projects,

and it authorized the use of utility contracts in addition to the repayment contract which had been used since the passage of the original

act.

Under the utility contract approach, after the costs allocated to a

given function have been repaid, the revenues previously used to

amortize the capital investment of that function can then be used to

repay the costs of the same functions or other functions at additional

units or divisions of the project.

The 1939 Reclamation Project Act also specified that the water

users annual payments should be based upon their repayment ability.

Since then, it has been a common practice in the reclamation program

to anticipate the use of revenues from other functions to assist in the

repayment of those costs allocated to irrigation which are in excess

of the ability of the water users to repay.

There are three operating basin accounts in the 17 Western States

in which the Bureau of Reclamation operates. In addition, S. 1019,

which would establish a basin account for the lower Colorado River,

has been introduced.

The three basin accounts are the Central Valley project, which

was initially authorized in 1935; the Missouri River Basin project,

which was authorized in 1944; and the upper Colorado River storage

project, which was authorized in 1956. In spite of their similarities

with respect to the use of total project revenues to repay total project

costs there are some distinct differences in the details of application

of the principle in each case.
COLUMBIA RIVER BASIN ACCOUNT 5

The Central Valley project is located entirely within the State of

California. It serves the functions of irrigation, municipal and

industrial water, commercial power, flood control and navigation,

fish and wildlife, and recreation. The function of municipal and

industrial water is relatively more important in this project than in

any other project involving the basin account concept. Except for

water distribution systems, this project presently involves straight

utility contracts for all commercial power, irrigation water, and

municipal and industrial water.

The reimbursable functions of the project are repaid under terms

established in reclamation law and policy. The commercial power

investment is being repaid within 50 years with appropriate interest,

the municipal and industrial water investment within 50 years with

appropriate interest, and the irrigation investment without interest

within 50 years plus the permissible development period.

When new units are proposed for addition to the project, analyses

are presented to the Congress showing the effect of adding the new

unit to the payout of the base system, including the existing authorized

units. The comparison of the proposed payout systems under the

"without" and "with" condition illustrates the effect of the addition

of the new unit which is proposed and demonstrates the ability to repay

the costs of the new unit by the use of system revenues under the

criteria applicable to the Central Valley project. Several such repayment studies have been presented to the Congress in connection with

hearings on new units.

As the Central Valley project grows and new irrigation units are

added involving irrigation pumping, the allocation to commercial

power may be reduced. This reduction in the allocation does two

things: It reduces that part of the allocation which is reimbursable

with interest, and it also reduces the potential source of financial

assistance to irrigation.

It is partly because of this and partly because of the relative importance of municipal and industrial water in the Central Valley

project that a significant portion of the total financial assistance to

irrigation in that project will be derived from municipal and industrial water.

It should also be noted that water service contracts are subject to

extension. Under this concept, it is possible that eventually one

irrigation unit will be aiding another just as one powerplant might

aid another.

Three charts illustrating the payout of the Central Valley project are

attached. It will be evident from these that the Central Valley

project is in sound financial condition and is substantially ahead of the

payout requirements.

One of the common features of basin accounts is the repayment of

the interest-bearing allocations prior to the repayment of the noninterest-bearing allocations to the extent this can be accomplished

within the authorized repayment periods. This permits some flexibility in scheduling of construction and repayment of additional units.

I think, Mr. Chairman, it would be appropriate at this time to ask

Mr. Lee to explain these charts. We have them available here in

larger form. These three charts relate specifically to the basin

account for the Central Valley project.
6 COLUMBIA RIVER BASLN ACCOUNT

(Chart 1, Central Valley project, follows)

CENTRAL VALLEY PROJECT POWER FUNCTION

INCLUDING AUBURN-FOLSOM SOUTH UNIT

Million Dollars REPAYMENT STUDY

30

25

20

16

10

ANNUAL

POWERREVENUES „-

AMO TiZATiON

oltitt

1945 55 65 75 85 95

FISCAL YEAR

ASSISTA

2005

CI-OART '

UNCOMMITTED

REVENUES

/:

15 2625

Aug. 1965

Mr. LEE. Mr. Chairman, these are the same charts that are bound

in the statement which Mr. Holum has distributed and you have

before you.

Starting on the bottom axis we have the number of years involved

in the payout starting from 1945, going to the year 2025. On the

other axis we have dollars amounting to $30 million a year.

This chart shows that the annual revenues expected from the

Central Valley project, from the existing project plus Auburn-Folsom

South, and it is projected to the year 2022, because that will be 50 years

after Auburn-Folsom South is expected to go on the line, in 1973.

With these revenues, first, you take off annual operation, maintenance, and replacement costs. These are depicted by the area under

the black line (medium stipple). I should point out that the reason

these fluctuate so much is that the replacements have been costed

into the payout study at the specific year in which they are expected

to be made.

There are alternative ways of handling replacements, but these

have been costed in at a specific year, and this has the effect of making

the annual operation and maintenance costs irregular.

The next thing that is repaid is the interest on the commercial

power investment. The interest also fluctuates up and down because

of the effect of the replacement line.

After paying interest, then the commercial power investment for

all units is repaid. This is the commercial power investment for all

existing units including Auburn-Folsom South. After that the authorized irrigation assistance is repaid and this will be repaid by about

1997. You will also note that the commercial power investment will

be repaid in about 1986. This is much less than the normal 50-year

period which is permissible.
COLUMBIA RIVER BASIN ACCOUNT 7

After repaying the power, the irrigation assistance is repaid in

approximately 11 years. After that, this block of income (diagonal

lines) would then be available to provide further irrigation assistance

and to aid in the repayment of future power projects, power costs,

and muncipal and industrial water costs.

You will note particularly the irrigation assistance here with

Auburn-Folsom South will be paid in about 1996.

Senator Moss. Does that line showing irrigation assistance run off

the chart entirely?

Mr. LEE. This is extended for 50 years, the terminal date of this

payout study is 50 years after Auburn-Folsom South is added. If

you project the revenues at constant rates, as is done in this case, it

would go to the end of the economic life of these projects, but this

was extended to 50 years past Auburn-Folsom South.

The CHAIRMAN. At this point, what is the reasoning behind the

repayment of the interest-bearing allocations prior to the repayment

of the non-interest-bearing allocations?

Mr. LEE. Well 

The CHAIRMAN. It makes a difference in the payout?

Mr. LEE. Yes, it does make a difference in the payout. It simply

saves money. It is good financial management to payout the interestbearing amount first to the extent you can do this and still pay the

non-interest-bearing allocations in the time specified by the Congress.

In this case you can repay the power and you can repay irrigation

all within less than the 50-year period, much less than the 50-year

period in this case.

This is not true in some other cases, notably the Columbia River.

The CHAIRMAN. But it is merely an arbitrary determination?

Mr. LEE. It is a system of financial management to pay out the

system costs in the most expeditious manner. Other procedures

could, of course, be used.

(Chart 2, Central Valley project, follows:)

CENTRAL VALLEY PROJECT POWER FUNCTION

INCLUDING AUBURN-FOLSOM SOUTH UNIT

Million Dollars REPAYMENT STUDY

400

300

200

100

CHART 2

ALLOWABLE

UNAMORTIZED

INVE5TMENT

CUM LATIVE COMMERCIAL

POWER INVESTMENT?.

PLACED IN SERVICE //:;//

//

..... 1945 55 65 75 85 95 2005 15 2025

FISCAL YEAR

53-864-65----2

Aug. 1965

•
8 COLUMBIA RIVER BASIN ACCOUNT

Chart 2 for the Central Valley has the same number of years, and

presents the cumulative power investment and it also shows the allowable unpaid investment (light stipple) to accomplish payout in 50

years for each block of power. You could theoretically take this long

to pay out each block of power and still repay within 50 years. Actually, the power investment is being returned in much shorter time than would be allowed under the standard criteria. This is a

very happy circumstance, to accomplish payout within this period of time.

Senator JORDAN. A question, Mr. Chairman.

The CHAIRMAN. Senator Jordan.

Senator JORDAN. Would you tell me, are the variations in the red line on the graph the result of codifying mechanical replacement?

Mr. LEE. This line goes up and down, the allowable unpaid balance

goes up and down because of the treatment of irrigation pumping

power.

In about 1962 we added Trinity and this increased the investment. Shortly after we added Trinity, we added the San Luis Canal. This converted a lot of power from commercial use to irrigation use, and when we converted that power, it no longer is considered to be interest bearing. It is no longer considered commercial power, it is an irriga- tion allocation and so we reduced the commercial power correspond- ingly in 1966 and 1967.

After we did that, we projected the anticipated addition of AuburnFolsom South in 1972.

Senator KUCHEL. Let me just say, this is highly important, Mr. Chairman. I assume that when those charts are reproduced in the printed hearings you will not have the benefit of a green and red, and

I just wonder whether mechanically, for example, the answers to the questions just now by Senator Jordan referred to that top line—I wonder in some fashion if we could have the questions posed differently?

The CHAIRMAN. I think it would be helpful if the questions and

responses could be related to the lines on the chart so they would be identifiable.

Senator JORDAN. I will restate the question.

My question is, Why is the unamortized investment area on the chart circumscribed by a very irregular line?

Mr. LEE. This is explained by the treatment of the commercial

power investment. As that investment is converted to irrigation use, the commercial power investment is decreased and, when we add new commercial power investment, it is increased.

Mr. Chairman, if it would be helpful to the committee and the record, we could change these charts, and use cross-hatching, which would make this more evident.

Mr. CHAIRMAN. It would be very helpful if you could do so and then the questions and answers can be related to the chart in the record.

Mr. LEE. This is the third chart in the series for the Central Valley project and it is a little different than the other in that it is cumulative. This shows the effect of the projection of revenues and the projection

of required financial assistance over the total payout period.
Million Dollars

600

400

200

0

COLUMBIA RIVER BASIN ACCOUNT 9

(Chart 3, Central Valley project, follows:)

CENTRAL VALLEY PROJECT

INCLUDING AUBURN-FOLSOM SOUTH

AVAILABILITY & REPAYMENT ASSISTANCE

A .v-1

0

.b• At°

z„

‘00:gt. AA/3A

CHART 3

USED FOR REPAYMENT ASSISTANCE

1985 90 95 2000 05

FISCAL YEAR

10 15 20 2025

Aug. 1965

The amount of financial assistance under the Central Valley project

that is required is a little under $200 million. With the projection

of revenues to the year 2022, we would have surplus revenues available

for irrigation assistance in the amount of somewhat over $600 million.

The difference between the two lines shows the unassigned revenues

that would be available for irrigation assistance at any time.

The CHAIRMAN. In other words, what you are saying is that you

have committed yourself thus far to just a little under $200 million?

Mr. LEE. Correct.

The CHAIRMAN. That commitment is for payment in connection

with authorized projects. That is the lower line. And the upper

line is what would be available over and above that which you have

committed?

Mr. LEE. At any point in time, Mr. Chairman. For instance, at

2015 we would have approximately $310 million that could be anticipated. As we project out further, the magnitude grows.

Mr. HoLum. Mr. Chairman, I think that these charts illustrate

that the Central Valley project in California is an excellent project

and its financial position is completely sound.

Now we would like to move to the Missouri River Basin project

which includes all or parts of the seven States that are within the

operating area of the Bureau of Reclamation and covers approximately

one-fifth of the total land area of the United States.

This project, which was authorized by the Flood Control Acts of

1944 and 1946, is unique in that the plan involves 18 powerplants and

several hundred irrigation units. The Fort Peck Dam on the main
10 COLUMBIA RIVER BASIN ACCOUNT

stream of the Missouri River, which had been previously authorized, is now considered as an integral part of that project for purposes of financial reporting and accounting.

Since this project was authorized in its entirety, it has not been a,

common practice in consideration of additions to the project to present information showing the "without" and "with " condition.

Current repayment studies have been presented showing the prospects

for repayment of the total Missouri River Basin project.

The legislative history of the Missouri River Basin does not clearly define or establish the financial criteria that the Congress intended be applied. Therefore, in recent legislation, Public Law 89-108, reau- thorizing the Garrison Diversion Unit, the Congress, in effect, adopted financial criteria to be applied to the Missouri River Basin project.

The studies supporting that legislation were based on the requirement

that the commercial power investment be repaid within 50 years at appropriate interest rates and the irrigation assistance within 50 years without interest following a permissible development period.

Another important aspect of the legislation authorizing the Garrison Diversion Unit was the deferral beyond the prescribed period of the authorized financial assistance on existing irrigation units in the basin

until after the commercial power investment on existing projects is

repaid. This deferral amounts to $32 million and will be for a maximum of 10 years.

In the Missouri River Basin project, 18 percent of the power

allocation is suballocated to irrigation pumping. This•amount, which

is reimbursable without interest, is an important factor in the repayment of the total project, since it reduces the amount of interest

payments.

In order to provide needed flood control for downstream areas,

the main stream dams which are primarily involved with flood control,

navigation, power, and irrigation storage were constructed first.

Most of the irrigation works remain to be constructed. As of the

current time, it is estimated that 80 percent of the commercial power

has been completed or placed under construction, while only about,

10 percent of the irrigation facilities has been constructed or committed. Therefore, to insure the financial integrity of the total

project, it is highly essential that the remaining irrigation units upon

which the irrigation suballocation is based, be constructed.

Under terms of Public Law 88-442, the Congress deauthorized all

remaining units of the Missouri River Basin project. This will mean

that each new proposal will have to be reauthorized prior to the initiation of construction of such unit.

Again, we have three charts illustrating the repayment of the

Missouri River Basin project as approved by the Congress by Public

Law 89-108.
COLUMBIA RIVER BASIN ACCOUNT 11

(Chart 1. .N.Tisniiri River Basin project, follows:)

Million Dollars

60

50

40

30

10

MISSOURI RIVER BASIN PROJECT

REPAYMENT STUDY

AMORTIZATION

CHART 1

''ANNUAL POWER REVENUES

OPERATING EXPENSES

IRRIGATION ASSISTANCE

t

o Mote..1•10C %Ira

1950 60 80 2000 20 40 60 2080

FISCAL YEAR Aug. 1965

Mr. LEE. Mr. Chairman, the first thing I should explain about this

chart is that it is extended to 2077.

This is 60 years after the last irrigation unit is scheduled for installation. This would give us a 50-year repayment period for

irrigation, plus the 10-year development period.

As Secretary Holum indicated in his statement, in the Missouri

Basin we have anticipated the total project, and this covers the total

Missouri River Basin project. In this respect it is different from the

chart we just showed you for the Central Valley project.

That covered only the existing projects including Auburn-Folsom

South. This covers everything we anticipate.

Senator KUCHEL. Let me make sure I understand you. When you

say this includes everything you anticipate, by that do you mean in

this instance there is no authorization by Congress for the ultimate

development of the Missouri Basin project, while, to the contrary,

in the Central Valley project charts you utilize only those projects

which do have congressional sanction?

Mr. LEE. That is true. That is the difference, and perhaps I

should go back and explain just a little.

When the Missouri Basin project was originally authorized in 1944,

it was authorized in total and the financial structure and management

of the project was then established in terms of that total authorization,

and 18 percent of the costs were suballocated to irrigation pumping.

Even though the Congress deauthorized, in effect, the remaining

units of the Missouri Basin project, it has been necessary to maintain

the same financial management principles for the Missouri Basin

project as originally established after the project was originally

authorized.
12 COLUMBIA RIVER BASIN ACCOUNT

The reason it is necessary to maintain these principles is that the

payout of the Missouri Basin project depends upon the suballocation to

irrigation pumping and that suballocation to irrigation pumping in

turn depends upon the ultimate construction of all irrigation units.

So, we have continued to present our financial analysis on the

assumption that all irrigation units will be constructed.

Senator KUCHEL. I do not quarrel with that, Mr. Secretary, but I

think we should understand that with this difference you find at any

given time in the future with respect to the Central Valley project,

as reflected in those charts, a project had available moneys for further

development which would be considerably lower if we took into

consideration those future project developments in the Central Valley

area about which the Department for many years has been studying.

Mr. Ho',um. That is correct, Senator Kuchel. In fact, the Central

Valley project, we have all of these uncommitted revenues because no

decisions have been made in any way as to what will happen in the

future. In the Missouri Basin we have a different situation, because

in the 1944 Flood Control Act the Congress did at least indicate that

these were projects that in the future ought to be built.

Of course, as a result of the legislation that has been enacted by

the Congress this year, the commitments this Department made to

this committee and the Congress, we will have the same obligations

in the future. We have attempted to schedule these projects in the

future. As we bring them to you, we will have the obligations to

assure the committee—and to show you that the revenues will be

available for repayment as they are scheduled to be repaid.

The CHAIRMAN. Mr. Lee, is it not a fact that in the Missouri

Basin, the 50-year period does not start to run until the last power

unit is on the line?

Mr. LEE. In the case of the Missouri River Basin project, the irrigation assistance does not start to be provided until the commercial

power investment has been repaid and the commercial power investment in total is repaid in 50 years after each unit of investment goes

on the line.

The CHAIRMAN. So that extends the period on out from that point?

Mr. LEE. Yes, sir.

Mr. HoLum. But each commercial power unit will be repaid in a

50-year period, depending on when they were built.

The CHAIRMAN. But the 50 years does not start to run until the

last unit is in. Is that not correct?

Mr. LEE. Yes; Congress provided in the authorization of the Garrison diversion unit that the then-existing investment in irrigation

works that required assistance could be deferred until after the commercial power investment had been repaid, and as Secretary Holum

indicated, this deferral involved $32 million and the maximum period

of time was 10 years.

Senator KUCHEL. Excuse me, what was the intent of Congress

in adopting that technique here exclusively?

Mr. HoLIRA. In the legislation authorizing the Garrison diversion

project and the studies we presented to the committee earlier, each

one of these projects is different. This one is different principally

from the point of view because of the urgent need for flood control

downstream—the flood control portions and, of course, the big flood

control dams are also the power generating dams and were constructed
COLUMBIA RIVER BASIN ACCOUNT 13

first and very little irrigation has been constructed up to this time,

so that 

Senator KUCHEL. You have a little different problem then.

The CHAIRMAN. It was to ease the burden on the irrigators because

of what the Secretary, I believe, has just said. But I think it is

important to point out the difference before you put the chart away,

and this question applies to all of the charts. What would the chart

look like if the interest on irrigation assistance were shown?

Mr. LEE. If the interest on the irrigation assistance were shown?

Well, since irrigation assistance here is repaid after the commercial

power investment, you have not delayed the repayment of power and,

therefore, I would say that it would not affect the part of this chart

relating to power repayment.

This is not true in the Columbia River Basin, but it is true here.

The CHAIRMAN. You say it would not affect the chart?

Mr. LEE. It would not affect the chart. The chart would still be

the same. This is because the commercial power investment is completely repaid before we start to provide financial assistance to irrigation in this case.

Senator JORDAN. Mr. Chairman, may I ask a question?

The CHAIRMAN. Yes, Senator Jordan.

Senator JORDAN. The Central Valley project, of course, involves

only one State. Could you tell us how many States are involved in

the Missouri River Basin project?

Mr. HoLum. There are seven States involved hi the project. There

are 10 States wholly or partly in the Missouri Basin. Three of them

do not have irrigation—Missouri, Iowa, and Minnesota.

Senator JORDAN. They are treated as one basin irrespective of

where the State boundaries may be?

Mr. HoLum. Yes; the Missouri Basin project is considered one unit.

(Chart 2, Missouri River Basin project, follows)

MISSOURI RIVER BASIN PROJECT

REPAYMENT STUDY

Million Dollars

1200 

1000

1100

600

400

200

ALLOWARLE UNAMORlizED

POWER 3VESTMFNT—

NAM0iI O 

ç5po ER INV STMENT: ......

0 . 

1950 60 70

CUMULATIVE COMMERCIAL

POWERPLANT IN SERVICE

80 90 2000 10

FISCAL YEAR

'

;///.ge

CHART 2

20 30 40 2050

Aug. 1965
14 COLUMBIA RIVER BASIN ACCOUNT

Mr. LEE. Now, chart 2 for the Missouri Basin project is comparable

to chart 2 for the Central Valley project. We have the plant in

service for commercial power. We have the allowable unamortized

investment, that is the 50-year criteria—this is 50 years from the

date each of these investments go on the line. This is the actual

unamortized investment under the last financial adjustments that

were explained during the Garrigon diversion hearings.

The investment in power is now repaid somewhat ahead of the

time that it would otherwise have been necessary to have met the

50-year payment criteria. And by paying this somewhat ahead of

time we are able to provide financial assistance to irrigation to permit

irrigation to go ahead as scheduled.

Senator Kuchel, the question you were getting at a moment ago

.when I showed the Central Valley charts, where there was a big

space here not required for financial assistance, because of the difference in these two projects in the Missouri Basin, the required irrigation assistance line goes way out and is very close to the line depicting

the available revenues for irrigation assistance.

(Chart 3, Missouri River Basin project, follows:)

MISSOURI RIVER BASIN PROJECT

AVAILABILITY & REPAYMENT ASSISTANCE REQU!RED

Million Dollars

2400

1800

1200

600

0

..e.$4

/**

C.-ART 3

2010 20 30 40 SO 60 70 SO

FISCAL YEAR Aug. 1965

In other words, there is no surplus here under the Missouri Basin

and this is what you were saying. As we project more irrigation

units in the Central Valley we will tend to absorb the potential

financial assistance developed from both power and municipal industrial water there, too.

Mr. KUCHEL. Could you give us an idea where the required irrigation assistance line would be if you considered only the irrigation

assistance projects? It would be way down?

Mr. LEE. It would be way down if we considered that. The

authorized assistance on existing projects, excluding Garrison diver-
COLUMBIA RIVER BASIN ACCOUNT 15

sion, is only $30 million, so it would hardly be evident here on the

chart.

The Congress has just authorized the Garrison diversion unit and

we had about $180 million of additional financial assistance on that

unit, so that would put this line about here [indicating].

The CHAIRMAN. By "here" you mean near the bottom.

Mr. LEE. Yes, very near the bottom.

Senator Moss. Are you saying, Mr. Lee, that the lower line showing required irrigation assistance assumes that the projects that were

once authorized in 1944, and have now been deauthorized, will be

rescheduled so as to require the amount of irrigation assistance

depicted?

Mr. HoLum. The required irrigation assistance line shown on this

chart provides the power revenue systems for all of the power projects

that were in the 1944 act that have now been deauthorized.

Senator KUCHEL. Is there a comparable payout period in the

Missouri Basin project, 50 years plus development, as there is in the

Central Valley project?

Mr. LEE. Yes, sir.

Senator JORDAN. Does the 50 years run from the time of the last

project to come in the system?

Mr. LEE. No, the 50 years runs on each power project as it is added

to the system.

The repayment requirement for each project is that it be repaid

within 50 years, plus the allowable development period for irrigation,

so this chart is projected for 60 years past the date of completion of

construction of the last irrigation unit.

Senator JORDAN. As I read the chart, it runs closer, nearly to the

year 2080.

Mr. LEE. 2077, Senator.

Senator JORDAN. 2077. If an additional project came into the

system, would the repayment line be extended further than the year

2077?

Mr. LEE. Yes, sir; it would have to be.

Senator JORDAN. In a sense then, you are employing a rolling

maturity with respect to the Missouri River Basin.

Mr. HOLUM. The reason the chart extends to the year 2077 is

because in our scheduling, this is an internal matter that has to be

confirmed by the Congress as they authorize projects. I assume the

last irrigation unit was authorized and placed in service in 2017.

Mr. LEE. Senator, with reference to the use of the word "rolling

maturity," perhaps I could explain that a little by the use of chart

No. 2. When the Bureau of the Budget first used the term "rolling

maturity" in the Budget Bureau Circular A-47, it was used to mean

that each time you added an additional unit to a system, you may

reschedule the then remaining unpaid power investment plus the new

power investment for repayment in 50 years.

Senator JORDAN. Even though the first project on the line may have

been paid out for, say, 40 years?

Mr. LEE. Even though the first project on the line may have been

behind in repayment and would not have met the repayment criteria.

It could have been rescheduled.

I want to make it very clear that all of these basin reports are

based on the requirement that each unit of power investment be

53-864-65---3
16 COLUMBIA RIVER BASIN ACCOUNT

repaid in its 50-year period, and it is not rescheduled for repayment

when you add additional power units, and this is demonstrated by

this "Allowable Unpaid Balance" line.

This allowable unpaid balance line is fixed and is 50 years from the

date when each unit of investment goes on the line.

Now, if this were a so-called rolling maturity, then it would be

impossible to fix this line. You would not know where it would be

because each time you added 

Senator JORDAN. Exactly. I am glad you explained that.

The CHAIRMAN. On that same point that Senator Jordan raised,

can you state now when the last power unit will go on the line? It is

50 years from whatever time that happens and this is a speculative

thing that you have to resolve, I take it, based on judgment. But it

is 50 years from the time the last unit is added, so if you add another

power unit, then the 50 years does not start running until after that

time.

Mr. LEE. That is correct.

The CHAIRMAN. If nothing else is authorized, when would the

payout period be?

Mr. LEE. Our last allowable remaining unpaid balance figure is

right short of 2050, so by subtracting 50 years from that, the last

power investment would be made in about 1998, and I do not know the

specific project this is. We could look it up for you if you wish, but

it is a small upstream power project.

The CHAIRMAN. What I am saying is that this period could be extended continuously if Congress continued to add power units. If

hydropower ran out, thermal could be added. Am I not correct in

that?

Mr. LEE. That is correct.

Senator JORDAN. But each project would stand on its own 50 years?

Mr. LEE. When you did this, you would not extend the repayment

period for the existing projects. You would extend the use of revenues

from the old unit to help repay the new unit, which would be subject

to repayment in 50 years.

The CHAIRMAN. I understand, but you would have the effect of

extending the whole power component.

Mr. HoLum. Our studies of the Missouri Basin are based on the

assumption that the power investment is approximately 80 percent

complete at the present time. Good units have been built when the

big dams on the river were being started, and are being finished at the

present time.

We turn to the Upper Colorado River storage project, which was

authorized in 1956 

Senator JORDAN. May I ask one more question?

The CHAIRMAN. Yes.

Senator JORDAN. In the Missouri River project, as each power

project is paid out in the 50 years' time, then the revenues from that

power project continue to be made available to the system and are

not returned to the Treasury?

Mr. HoLum. All of the power revenues, Senator, go to the Treasury.

Whether or not they will be used to assist further irrigation development or other types of water resources development will depend, of

course, upon future actions by the Congress, because we are speaking

here only of an accounting concept. These are revenues that are
COLUMBIA RIVER BASIN ACCOUNT 17

available and can be used by the Congress to assist future development, if that is what the Congress desires to do.

The CHAIRMAN. The power revenues that become available after

the payout of each component unit are used to pay for the next unit.

Is that correct?

Mr. HoLum. That is correct.

The CHAIRMAN. This is the whole basin accounting system, as I

understand it, that is now applicable?

Mr. HoLum. That is correct.

The CHAIRMAN. Then as the requirement comes in for payment on

an irrigation cost, they likewise have to be paid at that time.

Senator KUCHEL. So that you have both a "rolling maturity" and a

"rolling payout."

The CHAIRMAN. That is right. It is rolling forward.

Mr. HoLulu. Well, the whole idea, of course, is based on the concept

that resource development is going to continue and that these funds

will be available if the Congress makes such a decision to assist them.

The CHAIRMAN. I think it is well to point out, too, that Congress has

arbitrarily set a 50-year payout period for power, whereas the life of

the project, if this were being handled on a private utility payout

basis, would be probably around 80 years-70 or 80 years anyway.

So, if you used private utility accounting methods, you could justify

a 70- to 80-year payout instead of a 50, is that not correct?

Mr. HoLum. Very easily. Many of the power features of these

projects have lives extending beyond the 80 years.

The CHAIRMAN. Let us say the Internal Revenue people would at

least approve 70 or 80 years as a payout.

Mr. Ho',um. They have. And our repayment studies are based

on the idea that as the items that are subject to wearing out wear out,

that they will be replaced and we keep the projects practically as good

as new condition throughout the repayment period.

Senator Moss. Mr. Secretary, what you are saying is that this is

really an accounting measure based so the Congress can assure itself

that it is doing a financially sound thing? The actual dollars are not

captured and put in the pot and then paid out.

Mr. HoLum. That is absolutely correct, Senator Moss. This is an

accounting concept, so that the Congress and the country can know

what is happening financially to the Federal water resource development.

It there are no other question of the Missouri Basin, I will proceed

to the Upper Colorado River storage project, which was authorized

in 1956.

The storage project involves parts of the States of Wyoming, New

Mexico, Utah, Colorado, and Arizona. The authorization of that

project provided for the establishment of a fund which will be used

to repay: total reimbursable project costs, including necessary irrigation assistance. The authorization also required that the allocations

to commercial power and municipal and industrial water be repaid

within 50 years of the date of completion and those for irrigation

within 50 years in addition to the allowable development period.

The Colorado River Storage Act also provided for the distribution

of the surplus project revenues among various States for assistance in

the repayment of irrigation costs on Federal projects, roughly in

proportion to their contribution to total basin water supply. The
18 COLUMBIA RIVER BASIN ACCOUNT

specific percentages for the distribution are: Colorado, 46 percent;

Utah, 21.5 percent; Wyoming, 15.5 percent; and New Mexico,

17 percent.

The authorization provided for the construction of certain initial

units of the project, including Glen Canyon Dam, Flaming Gorge,

Navajo Dam, Curecanti, and associated powerplants and transmission

systems. These main stem storage reservoirs included space required

to reregulate the river flows to meet downstream requirements in

order to permit construction of additional upstream irrigation projects.

The cost of such storage space for reregulation was allocated to

irrigation and was assigned to be returned from power revenues.

These costs are to be repaid within 50 years. When new participating

units are proposed, a "without" and "with" analysis is prepared and a

demonstration is made that the prospective revenues are adequate to

assure repayment under the controlling criteria.

It should be recognized that this is the only basin account which

involves apportionment of the potential financial assistance among

the participating States. The specific apportionment of such assistance among the States has the essential effect of sterilizing a certain

amount of potential financial assistance.

The Secretary cannot proceed with the construction of an individual

participating unit within the boundaries of any State until the prospective unassigned revenues of that State are adequate to assure repayment within the specified periods and conditions.

This means that it is necessary to accumulate prospective surplus

revenues for a period of time until such a showing can be made. If

the project were operated on a regional basis without such assignments,

individual projects could proceed whenever the prospective revenues

from the total project were adequate to assure repayment.

The unique feature of this project are that (1) it uses the fund

approach, and (2) it prorates the fund among the States. The power

rates have been set at a level which will actually repay the commercial

power investment and the irrigation assistance on the dams in somewhat less than 50 years, so that surplus revenues will permit the

construction of the participating projects sooner than would otherwise

be the case.

Again we have three charts to illustrate the operation of the Colorado River Basin account.
COLUMBIA RIVER BASIN ACCOUNT 19

(Chart 1, Colorado River storage project, follows:)

COLORADO RIVER STORAGE PROJECT & POWER COSTS

OF CENTRAL UTAH & SEEDSKADEE PROJECTS

REPAYMENT STUDY

Mi lion Dollars

40

30

20

10

0

1960 70

nnual Power Revenues

CHART I

Apportioned Revenues

(Irrigation Assistance)

Annuf.71 Operriting Expernes

80 90 2000 10 20

FISCAL YEAR

30 40 2050

Au,.1965

Mr. LEE. Mr. Chairman, this chart is prepared on the basis comparable to the other two. But there are two or three things that are

unique about it that I would like to call your attention to.

First, it is expected that the annual revenues will decrease over

time and this is because of the depletion of the flows of the Colorado

River.

Second, we have a big increase here at this point in the green line

(medium stipple) in the cost of operation and maintenance. This is

the cost of interference with the power generation at existing plants,

primarily Hoover Dam, which must be compensated for by the

Upper Colorado River storage project, and this is the additional cost

involved.

The schedule in the repayment study for the Colorado River

storage project has been extended to 2049. This is 50 years, plus

development period, after in this case, the investment in the last

irrigation block has been made.

Now, the investment in the main stem storage dams involves an

allocation to irrigation, $93 million. And this would be repaid in

4 years after the payout of the commercial power investment is

accomplished.

So, after payout of the irrigation allocation in the main stem dams

the remaining amount can be used for apportionment among the

States.

The CHAIRMAN. Was it the basis for the formula of apportionment?

Do you recall that?

Mr. HoLum. The formula, as I understand it, was determined by

the Congress on the basis of the water that each of the States, essential-
20 COLUMBIA RIVER BASIN ACCOUNT

ly on the basis of the water that each State contributes to the Colorado

River.

The CHAIRMAN. In other words, it is the amount of water that

each State contributes to the Colorado that determined the apportionment that was made by the Congress of the power revenues?

Mr. HoLum. As I understand it, that was the principal basis for

the congressional decision.

(Chart 2, Colorado River storage project, follows:)

COLORADO RIVER STORAGE PROJECT AND POWER COSTS

OF CENTRAL UTAH AND SEEDSKADEE PROJECTS

REPAYMENT STUDY

Million Dollars

600

CHART 2

Oxymora,

tr 

AvoVal4e4

Reyu!ent

Ass/stimoo

•:•::•:•:•:•:•::•:•:•:,..:•:•:•:•::•:•:•:•::i::•::•:::•:•: :•:•:•..:•::::;•::::::•::•::::;•,:,:t:::::, 1

K:Unarnortize Irrigatecin ," rnvesiment -Storage Uniti::::. •,...., , 

,, . i Irrigation inVe2t7t;

.....,—..........-i--„ ''',,/

80 90 2000 10 20

FISCAL YEAR

V umu ativcile Commarcia

Power I nt in Service

AI ciwa orti

le U ed

ham

-Power In estme

re- r

cAI

//t'-';: ////

.8 14 

owable Unamortized

30 40 2050

Aug. 1965

Mr. LEE. This again is comparable to chart 2 of the other two

series, except that it is a little more complicated and the reason it

is more complicated is the allocation of part of the main stem dams

to irrigation is covered by the next to bottom line.

The green line (top line) shows the cumulative commercial power--

plant in service. The red line (heavy stipple) shows the unamortized

power investment, and the blue line (light stipple) shows the allowable

repayment period for irrigation.

In other words, this project is being repaid in substantially less

time Ulan would be required to meet the 50-year criteria, and the irrigation storage cost in the main stem dams is being repaid in less time

than would be required to meet the 50-year criteria. The objective

of this is to accumulate revenues that can be apportioned among

the States and that can be used to assist in other development at an

early date.
COLUMBIA RIVER BASIN ACCOUNT 21

(Chart 3, Colorado River storage project follows:)

COLORADO RIVER STORAGE PROJECT

AUTHORIZED PARTICIPATING PROJECTS AND EDEN PROJECT

AVAILABILITY AND REPAYMENT ASSISTANCE REQUIRED

Million Dollars

1200

1000

800

600

409

200

,A4000/

V145

COS

2000 05

CHART' 3

Use4 kRepayrroont

ASli:5 1 CO

owoulowygoutinel.......••••aar 4,4•••.

10 15 20 25 30 35 40 45 2050

FISCAL YEAR AIM. 1965

On chart 3, the black line (heavy stipple) shows the projection of

revenues from the year 2000 up to the year 2049; this is the amount

that is theoretically available for irrigation assistance. The green

line (light stipple) is the amount that is actually required for the

projects that have been authorized, participating projects, and the

red line (cross hatched) is the amount that has to be apportioned

among the States because of the provision in the law that requires

that whenever moneys are apportioned to one State, they must also

be apportioned to the other States, and the effect of this—as the

Secretary's statement said—is to sterilize the funds between the

green line and red line (cross hatched).

In other words, these are not actually needed, but they are set

aside to the States in order to meet this requirement down here.

This is a unique provision of the Colorado River project formula.

The CHAIRMAN. And what is the reason for that?

Mr. LEE. The reason for that is that the law requires that whenever

funds are allocated or apportioned to the States, that a proportionate part must go to all of the States involved, and so whenever

you need money for one irrigation project in a State, you must apportion a share of the prospective revenues to all States, even though the

other States do not need it at that time.

The CHAIRMAN. Could you indicate to the committee where the

funds are being used and where they are not being used in the basin

States?

Mr. LEE. I would like to have Paul Sant, who is from Salt Lake

City, the regional economist in Salt Lake City, answer that question

specifically about where the participating funds are being used in

projects involved in the States.
22 COLUMBIA RIVER BASIN ACCOUNT

Mr. SANT. This is the authorized units now. This first—

The CHAIRMAN. You say this. Try to identify it as closely as you

can on the chart so the record will be understandable.

Mr. SANT. The moneys were first apportioned to meet the repayment period of the Vernal unit of the Central Utah project requiring

some $6 million. In order to apportion $6 million to Utah, it required

approximately $24 million—that is, the money for Colorado, Wyoming, and New Mexico.

The second apportionment in 2019 was for the Emery County

project, again in Utah, with corresponding amounts to each of the

other three States.

At this point in time there was enough moneys apportioned, for

example, to Colorado to meet the repayment of the Paonia, the Smith

Fork, the Florida projects now under construction.

Let us go to 2024. This next large increase required apportionment

of funds in addition to those that had already been apportioned to

the State of New Mexico in order to meet the required repayment

periods of the San Juan-Chama project.

In 2030, again an apportionment of funds was required to New

Mexico to meet the repayment periods of additional irrigation blocks

in the San Juan-Chama project.

The units thereafter in 2033, approximately, and in 2038, were

required to meet the repayment of the Bonneville unit of the Central

Utah project in Utah.

Each time that an apportionment is made, there are unused funds

for three States having been triggered, as we have called it, by the one

project in the particular State. A part of these revenues, a portion

beyond the authorized unit, are available to meet new projects. The

repayment, for example, of the potential Animas-La Plata, the

Dolores, or other projects not yet authorized. This was contemplated in the original act and the Department makes a presentation

as to the funds available in each State to meet the repayment required

on the particular project being proposed.

The CHAIRMAN. I wonder if you could summarize. I take it that

Utah has used a substantial portion of the amount allocated to it?

Mr. SANT. This is true.

The CHAIRMAN. Can you run it down by States in the Colorado

Basin—those having the greatest unused portion and so on?

Mr. SANT. If you will permit me to get another book.

The CHAIRMAN. All right.

Mr. SANT. In 2039 when we will have apportioned moneys to meet

the requirements of the repayment in Utah, the Bonneville unit of

the Central Utah project, there will be no moneys left in the State of

Utah. In Colorado there will be approximately $230 million remaining for additional projects. In New Mexico there will be approximately $59 million. In Utah, as I said, there will be no remainder.

In the State of Wyoming there would be approximately $49 million.

These moneys within the $635 million required for the authorized

projects would be available for repayment of projects not yet authorized.

The CHAIRMAN. So Colorado has the biggest amount remaining?

Mr. SANT. This is true, yes, sir.

The CHAIRMAN. And then New Mexico, then Wyoming?

Mr. SANT. Right.
COLUMBIA RIVER BASIN ACCOUNT 23

Unassigned

Revenues a

,

,4

4

4

4

John Day

Lower Monumental- l'

_OlieenPeter-Foster--- 44,

Hills Crk

Ice Ha

ee

. I: or—

________ _ ..

Irt

1

...

Ai

4

.

The Dulles

Cougar—______

Chief Joseph- ,

-Palisades— imori:•,„:,,, ,AL. ,..... .:- N0107/1•7 WA' /7/4%./ i.v

AI.:

`,

Dexter

.4W1

31iff---- whirfffi..r

1— W Pt rArA/,f

e 4')

Ill r Ov ./r _

6

- 

i

Senator ALLOTT. You are speaking of the year 2039?

Mr. SANT. Actually, 2049 is correct. That would be the end of the

repayment period on the last irrigation block of the Bonneville unit

of the Central Utah project.

The CHAIRMAN. All right. Any further questions on that?

Mr. Lee?

Mr. LEE. That is all, sir.

Mr. HoLum. If there are no further question on the Colorado River

storage project, we will turn now to the Columbia River Basin.

As the chairman noted at the beginning, hearings directed toward

the establishment of a basin account for the Columbia River have been

ASSIGNMENT OF POWER REVENUES

FROM FEDERAL POWER PROJECTS

Existing and Under Construction in the Pacific Northwest

Authorized

Power

MILLIONS OF IPayout 

Financial

Assistance

DOLLARS LJ to rr loaf ion

TO

65

60

55

50

45

40

35

30

25

Lookout Pt.-

20

Albeni Polls

Detroit-Big

15

Hungry Hors

Bonneville

Chandler, Roza.

Minidokci &Talent

Columbia Basin

Boise

20

15

10

5

0

1940 45 1950 55 1960 65 1970 75 1980 85 1990 95 2000 05 2010 15 20 2025

2022
24 COLUMBIA RIVER BASIN ACCOUNT

held on two previous occasions. The first was in 1950 and the second

in 1960.

In both cases, proposed legislation would have established an account which is somewhat different than either the project approach

or the fund approach, but would have resulted in substantially the

same final effect. Those bills would have authorized an accounting

procedure which could have been used to demonstrate the financial

feasibility of all new projects when added to the system.

The studies were then based upon the payout of the individual

power projects from the pooled system revenues. Under that approach, the system power rate had to be set at a level to meet the total

financial requirements of all the individual units when added together.

After payout of each individual project, it was assumed that the portion of the system revenues specifically assigned to the repayment

of the capital cost of each individual project would thereafter be available to assist in the return of irrigation costs.

We have a chart that illustrates this procedure (chart on p. 23).

We do not have a large copy of this chart, but again I will ask Mr. Lee

to explain it.

Mr. LEE. This chart is comparable to the other charts we have

been looking at. If you look at the bottom of it, there is the amount

required for project operation, maintenance and replacements, and

except to note the existence of it, I think we can pass over that.

Starting above that, we have the commercial power, the repayment

analysis shown for the system as of several years ago under the criteria

that was then being followed.

Under that criteria the studies were based in the assumption that

after the commercial power investment for each project was paid out,

the revenues from that project would be available to assist irrigation.

The important part of this chart is that the rates required for the

system 

The CHAIRMAN. This is the way it was prior to 1963?

Mr. LEE. This is the way it was prior to 1963. The important

part of this chart is that the rate required to accomplish system payout

had to cover the financial requirement of each project when added

together in totai. And this considered each project as a separate

undertaking so far as the total financial requirement of the system

was required.

The chart shows in red cross-hatching revenues that would accumulate after the repayment period for each project and this amount

was assumed to be available for irrigation assistance.

Again, you could project this chart out to the right and the further

you projected it, the more potential assistance you would have.

Most of the power projects in this chart were scheduled for repayment in the 50-year period. I should like to point out, however, that

the power investment on certain reclamation projects were scheduled

for repayment in less than 50 years in order that revenues would be

available from power to assist in the repayment of irrigation costs on

those individual projects within a 40- or a 50-year period, depending

upon the authorization requirements on the Columbia Basin project,

for instance, individual units were scheduled for repayment in somewhat less than 50 years. On the Palisades, the individual power units

were scheduled for repayment in a very short period of time.

Unless there are specific questions, I think that is all we need to

say about this chart at this time.
COLUMBIA RIVER BASEc ACCOUNT 25

Mr. HoLum. I think, as the chart illustrated, the account was

designed specifically to assist irrigation. Except for the possibility

of rescheduling the payout of the power investment over longer periods

of time, it did not benefit power.

The bill considered in 1950 involved the use of the interest component of power revenues to repay irrigation costs, and it provided

for the authorization of several individual units comparable to the

storage and participating units of the Colorado River storage project.

The bill that was considered in 1960 provided that under certain

conditions revenues from the Federal Columbia River power system

could be used for financial assistance outside the basin or Bonneville

Power Administration marketing area.

Since the last hearings to establish the Pacific Northwest account,

an important change has occurred in the administration of the

Columbia River Federal power system which has a definite bearing

upon the participation of power in the account and its effect upon the

• role that such a basin account would now play.

This change involved the adoption of the consolidated system

payout by the Secretary in 1963. Whereas before it was the practice

to pool system revenues, the adoption of the consolidated payout

system resulting in the pooling of both revenues and costs of repayment of the system as a single project. The consolidated payout

system made it possible to use revenues from power projects after

they are repaid to aid both new power and irrigation projects.

The payout on a project basis is consistent with the terms under

which new projects are added, the operation of the system and the

allocation of costs of the system.

Under the consolidated payout system, the irrigation assistance

would be scheduled for repayment as it falls due along the required

repayment of commercial power.

The scheduling involved for both irrigation and commercial power

is illustrated on the next chart.

The CHAIRMAN. Before you start on the chart, Mr. Lee, I would

like to ask you about the interest component. Legislation was introduced in 1950 which would utilize the interest component of the power

revenues to pay the irrigation costs. Would you explain that concept?

Mr. LEE. The 1939 Reclamation Project Act specifies that the

power rate shall be set at a level which will return 3 percent on the

power investment and stemming from that provision of law there has

been much controversy over exactly what it means: Whether this

provision of law requires that the entire investment be returned

with 3 percent interest or whether the Secretary of the Interior must

set a rate which would amount to at least 3 percent of the power

investment. There was a Solicitor's opinion which held that the

Secretary was obligated simply to set a rate which would amount to

3 percent and that it was not necessary to return interest, so to speak,

to the Treasury, and that the interest could be used to provide

financial assistance to irrigation.

So, there was a period in history, following this interpretation, that

Reclamation reports were submitted to the Congress on the assumption that financial assistance would be secured through the use of

interest.

Perhaps I could illustrate this with one of the charts here. According to this interpretation it was ruled the interest did not have to be
26 COLUMBIA RIVER BASIN ACCOUNT

returned to the Treasury, but the interest could be used to provide

financial assistance to irrigation, and so 

The CHAIRMAN. You are talking about interest, of course, from the

power investment?

MT. LEE. Yes.

The CHAIRMAN. All right.

Mr. LEE. So, under that interpretation the interest was available

for financial assistance to irrigation as well as the unassigned revenues.

The interest component and the so-called unassigned revenue were

both available, and we submitted some of our reports on this basis.

The Kennewick Division of the Yakima project was submitted on that

basis and the Congress in authorizing that project specified that the

.interest on the power investment should be calculated at 23/ percent,

• and that one-fifth of that amount, or one-half of a percent, should be

used to provide financial assistance to irrigation on the Kennewick

Division.

As far as I know, that was the only project authorized on that basis,

but several of them were presented with such analyses and this was a

common understanding at that time.

The CHAIRMAN. And what has been the policy since that time?

Mr. LEE. Well, starting about 1954, about 11 years ago, this decision was reversed and the conclusion has been, as a matter of policy,

that the Department will pay interest on the power investment and

that these revenues are not available for financial assistance to irrigation.

Mr. HoLum. Mr. Chaiiman, one of the reasons that we found the

Missouri Basin project in difficulty, was the fact that originally the

financial management of the project was structured on the basis of

using the interest component to assist irrigation. As Mr. Lee has

said, this idea was rejected during the 1950's and in the payout

studies that we completed and were finally approved by the Congress

this year, we rejected the idea also. We did not use the interest

component of the Missouri Basin project, although it had been used

at one time.

The CHAIRMAN. SO, roughly since 1954, this doctrine no longer has

been followed by the Department as a means of assisting irrigation?

Mr. LEE. That is correct, sir.

Now, coming to the specific chart that illustrates the effect of a

consolidated payout system. If you compare the two, you will note

in the last one that each time a power unit is added, the revenues from

previously repaid power units are then assumed to be available to.

assist in the repayment of the new unit.

The CHAIRMAN. This is the practice that has been followed in other

basins?

Mr. LEE. This is the process followed for all other projects where

we have basin accounts. This is the effect of the consolidated

payout system now in use.

There is one other thing about the two charts I would like to

point out. Previously financial assistance was not provided until

all commercial power investment for that particular project was

repaid.

Now, in order to meet the criteria for 50-year repayment for irrigation assistance it is necessary to—and this is evident by the second

chart—to schedule some of the irrigation assistance for repayment,
COLUMBIA RIVER BASIN ACCOUNT 27

prior to the completion of the repayment of the commercial power

investment.

This has the effect of making irrigation reimbursable with interest

when you repay it prior to the completion of the repayment of the

commercial power payout.

AN ANALYSIS OF ANNUAL AMOUNTS REQUIRED

TO RETURN FEDERAL MULTIPLE-PURPOSE

PROJECT CAPITAL COSTS ASSIGNED TO BE

MET FROM POWER REVENUES.

MILLIONS OF

DOLLARS

80 

70

60

50

40

Power

Payout

Authorized Financial

Assistance to Irrigation

Dworshok,Lower Granite B YakfKennj

John Day

Little Goose

Green Peter-Foster &Lower Mon.

Cougar

Ice Harbor & Hills Creek

The DoIles

30 JTL

Chief Joseph 8 Yak.(Roza), ,

Palisades 

Mc Nary

20 ---

10

Albeni Falls 

Lookout Point-Dexter

Detroit-Big Cliff

Hungry Horse

Columbia Basin—,

Boise

0 Minidakc I

1940 19SO 1960 19X) 1980 1990

USBR

8.se,Iclono FISCAL YEARS

Dec. 964

r

,

20b0 2610 2020

MILLIONS OF

DOLLARS

80.

70

40

30'

20

Fr

.11

1

• 

20V

This is one of the major differences that has resulted from adopting

the consolidated payout system. Also under this new system, power

revenues are used to assist power as well as irrigation, whereas before,

power revenues were used to assist irrigation after the individual

units were repaid.

Mr. HoLum. When the Secretary approved the consolidated

payout for the Bonneville system in 1963, every effort was made to
28 COLUMBIA RIVER BASIN ACCOUNT

make this new payout system for the Columbia Basin project and

the Bonneville system consistent with the procedures that were

followed in other regions where similar circumstances existed. These

are the results as illustrated in these two charts.

The CHAIRMAN. All right.

Mr. Ho',um. Under the previous studies, the financial requirement

of the power system dictated the level of rates required to meet the

payout of the commercial power investment. In those studies the

provision of financial assistance to irrigation did not affect the level

of the rate requirements, except in those cases where the power payout period was shortened to provide irrigation assistance within a

specific time.

In the new studies the financial requirements are determined by

the financial requirement for both commercial power and irrigation

assistance. The financial assistance to irrigation is a component of

the power rate requirement. However, the effect of irrigation

assistance associated with new projects on the level of the rate can

be eliminated by scheduling the construction of such projects so

that such assistance will not be needed until unassigned revenues

are in prospect.

It should be noted that the adoption of the consolidated system

payout by the Secretary of the Interior, in effect, accomplishes the

same financial objectives as those resulting from the other three basin

accounts previously discussed. Even so, the Congress may wish to

consider the enactment of legislation which would establish a basin

account for the Columbia River Federal power system.

We have attached to my statement another summary of selected

financial data which presents in different form essentially the same

information that we have already discussed with you. Perhaps it

might be appropriate to call attention to two lines that are significant:

One, the allocation to commercial power in each of the four areas

that we have been discussing this morning—the Central Valley project,

the allocation is $400 million; the Colorado River storage project,

$561 million; the Missouri Basin project, $1,235 million; and the

Columbia River system, $4,724 million.

The amortization of these investments occurs at different times.

The power investment, as we have already noted, will be repaid in

the Central Valley project in 1987; the Colorado River storage project

we anticipate it will be repaid by 1996; the Missouri Basin project,

2014. Because the Columbia River system is the one where there

are substantial opportunities for continuing power resource development, the final repayment of power investment will come in 2037.

I might note, too, as we have already noted, that where we speak

of irrigation assistance, and the amount that is available and the

amount that is required, in the Missouri Basin project two numbers

come very close together, because we have considered in these repayment studies not only existing authorized projects, but all projects,

that were included in the Flood Control Act of 1944.

I think, Mr. Chairman, that Mr. Lee and I have completed our

presentation. We will be very happy to discuss these ideas with you

and answer any questions that occur to members of the committee.
COLUMBIA RIVER BASIN ACCOUNT 29

(The summary referred to follows:)

Summary of selected financial data—Central Valley, Colorado River storage, and

Missouri River Basin projects and Columbia River Federal power system

[Unit—Millions of dollars]

Item

Central

Valley

project

Colorado

River storage

project

Missouri

River

Basin

Columbia

River Federal

power system

Estimated cost I $1, 924 $1,361 2 $4, 852 $6, 670

Financial data through year _ 2022 2049 2077 2046

Allocation to commercial power 3 $400 $561 $1, 235 $4, 724

Installed power capacity (megawatts) 1,456 1, 352 2, 768 20, 657

Gross power revenues $1, 750 $2, 939 $6,928 $19, 180

Operating expense $785 $758 $2, 161 $6, 472

Net revenue $965 $2, 181 $4, 767 $12, 708

Interest payments (power) $97 $284 $866 $5, 870

Amortization payments:

Power costs $400 $561 $1, 235 $4, 724

Other costs 4 $10 5 $93 

Power investment repaid fiscal year 1987 1996 2014 2037

Irrigation assistance:

Available 6 $639 $1, 243 $2, 666 $2, 114

Required _ $176 7 $635 $2, 260 $689

Uncommitted $463 $608 $406 $1, 425

'Includes costs of recreation, fish and wildlife, investigations, etc.

2 Does not include Corps of Engineers' costs for "other works" amounting to $1,256,000,000, which are

not directly associated with the multiple-purpose project—such as single-purpose Rood control works

for navigation, levees, etc.

3 Includes reimbursable interest during construction.

Repayment aid to waterfowl conservation.

5 Costs of storage units allocated to irrigation.

Includes repayment assistance (aid) from municipal and industrial water revenues totaling $181,000,000.

7 Includes $340,000,000 "apportioned" but not used in repayment of authorized participating projects.

The CHAIRMAN. First, I would like to refer to the table entitled

"Summary of Selected Financial Data."

On the top line you have the estimated cost. The first is the

Central Valley project, then the Colorado River storage project, the

Missouri River Basin, and the Columbia River Federal power system.

Is it not true that in the first three basins, not including the Columbia, those projects were authorized as multiple-purpose projects with

the inclusion of irrigation features?

Mr. HoLum. That is correct.

The CHAIRMAN. Whereas, in the Columbia River power system,

other than the Grand Coulee project, the Boise project, and a few

others, all of the units are nonirrigation projects. In other words,

they are for power, navigation, and flood control?

Mr. HoLum. Mr. Lee tells me that Yakima should also be included

in the irrigation category.

The CHAIRMAN. Yes; but I mean of the total of $6,670 million in

the Columbia River Federal power system, a substantial part was

authorized for nonirrigation purposes?

Mr. HoLum. That is right.

The CHAIRMAN. And that can be supplied, of course, for the record

with a breakdown?

Mr. HoLum. We will be happy to, Mr. Chairman.
30 COLUMBIA RIVER BASIN ACCOUNT

(The information requested is as follows:)

Columbia River Federal power system

Estimated cost 

Allocations:

Millions

$6, 670

Commercial power 1 4,724 Irrigation 1, 135. Flood control 422 Navigation 364 Highway improvement -, 68 Recreation 21 Fish and wildlife 20. Municipal and industrial water 1 6

Other 11

'Includes interest during construction period.

The CHAIRMAN. I make this point because development in the. Columbia Basin is very different from that of the other basins.

Now, in view of the changes that were made by the Secretary of Interior in April 1963 in the accounting system for the Federal river

power system, is it necessary now to pass basin account legislation?

Do we not have, in effect, a basin account?

Mr. Ho',um. Mr. Chairman, I think certainly we have, in effect, a,

type of a basin account. I think the Congress is confronted with the same situation that you considered, and finally led to the adoption

of the Water Resources Recreation Act. We have, in effect, a basin

account.

However, the Congress might consider the desirability of prescribing

in more detail the type of rules which should be followed by the

Secretary of Interior in administering that basin account and making

his presentations to the Congress. We could have accomplished the

purposes of the Water Resources Recreation Act by dealing with the

problems as they developed in relationship to individual projects.

The Congress in this instance decided to enact legislation that prescribed the general rules to the Secretary of the Interior and the

Secretary of the Army and the other agencies in the water resources

field were to follow in dealing with recreation and fish and wildlife

development, and the water resources development.

I think generally we have the same situation here. You have, in effect, a basin account now. There is also the alternative point that

the Congress may wish to spell out more specific rules for the adminis- tration of that account, and if they do, of course, general legislation

would be appropriate.

The CHAIRMAN. Senator Jordan wants to ask a question at this point.

Senator JORDAN. Going back to your statement here on page 18,

Mr. Secretary, you say, "It should be noted that the adoption of the consolidated system payout by the Secretary of the Interior"—

this is in the last paragraph—"by the Secretary of the Interior, in effect, accomplishes the same financial objectives as those resulting from the other three basin accounts previously discussed."

And then you end up, and I am a little surprised to hear you end

up by saying that no further basin account action or legislation is necessary, because you have already implemented it.
COLUMBIA RIVER BASIN ACCOUNT 31

I submit it has not been implemented, that it is entirely different

from that which is operating, for instance, in the Missouri Basin where

the seven States share, as a basin, in the basin account.

It is different in the Upper Colorado Basin where the States and

the power revenues are distributed on the basis of their presumed

watershed contributions to the flow of the river. In the case of the

Columbia River Basin, the effect of the 1963 regulation is to freeze

the reserves which our reclamation projects are building up in Idaho—

to assimilate them and take them into the whole Columbia Basin

accounting system and leave Idaho without any reserves from Idaho

projects to take care of further reclamation projects in Idaho. This

is the simple statement of it.

I contend that, by your implementing of the accounting system

which you have installed in all good faith, you have not made it

possible for future reclamation projects in Idaho to share in the downstream power which our water contributes to.

Mr. HoLum. Senator Jordan, I do not think that that is the case.

I think the Congress has available to it now, and will have available

-to it in the future, all of the necessary machinery for providing the

next financial assistance to irrigation projects in southern Idaho.

I think that the projects that have been considered since the

Secretary adopted the consolidated payout system in 1963 have been

approved by the Congress. I think the vehicles are here. Congress

will act one way or another, either in general legislation or in relationship to specific projects to provide the necessary financial assistance.

Senator JORDAN. But it is necessary for each project in Idaho to

establish some right to downstream power benefits. This is not

required of downstream projects themselves. Is that not a fair

statement?

Mr. HoLum. Well, that is why I suggested that the Congress may

wish to consider adopting specific rules that the Department should

follow.

Senator JORDAN. I think you have provided 

Mr. HoLum. I am sure that we will present individual projects

for the consideration of the Congress in their decision.

The CHAIRMAN. Of course, our hearing today is just a preliminary

examination of this problem. However, I will say that if one wants

to look into the relative contribution of the States involved, then my

State of Washington, and to some extent Oregon, will be making

available the bulk of the power revenue—the lower Columbia is

where the power revenues are generated. In the upper areas of the

Snake, of course, we do not have any great Federal power project.

The power projects are all located in our area, so if you apportion

it on that basis, you would come to different conclusions, too.

Senator JORDAN. While we are on the subject, I think we need

certainly to explore some fairer allocation than simply to restrict

future reclamation projects in Idaho to those of the power revenue

assistance which might be available from power projects in Idaho.

I believe, and I would ask that the Secretary provide for the record

the contribution of water which each State in the Columbia Basin

makes, we will say, to the Grand Coulee project, to all of the projects

downstream, if that is possible. I think we need to explore this

thing, Mr. Chairman.
32 COLUMBIA RIVER BASIN ACCOUNT

The CHAIRMAN. I agree, but I say with that, let the Secretary

also supply the amount of Federal power that comes from each of

the respective States.

(The information requested is as follows:)

Columbia River water supply

At The

Dalles

At the

mouth

Canada 39 29

Washington 11 18

Idaho 27 20

Montana 13 10

Oregon 7 20

Wyoming 3 3

Utah (1) (2)

Nevada (2) (2)

Total 100 100

1 Almost none.

2Some.

Generation for Bonneville Power Administration, fiscal year 1965

Bureau of Reclamation:

Chandler 

Grand Coulee 

Hungry Horse 

Roza 

Total 

Corps of Engineers:

Albeni Falls 

Bonneville 

Chief Joseph 

Cougar 

Detroit 

Big Cliff 

Hills Creek 

Ice Harbor 

Lookout Point 

Dexter 

McNary 

The Dalles 

Total 

Total, excluding southern Idaho 

TISBR southern Idaho:

Anderson Ranch 

Boise River diversion 

Black Canyon 

Minidoka 

Palisades 

Total 

Total, including southern Idaho 

Generation,

megawatt-hours

Fiscal year

1965

Fiscal year

1964

46,293 62,680

11, 079, 599 11,234, 779

1, 036,390 938, 764

50, 195 38,315

12, 212, 477 12,274, 538

220,191 185,841

3,365, 975 3,502, 132

6, 191, 688 5, 234, 586

89,835 37,421

371,917 382,997

87,254 98,774

151,8,58 159,291

1, 920, 331 1,809, 481

362,432 333, 568

69, 132 80,460

5,689, 612 5,066,389

5,819, 167 5,189,289

24, 339, 392 22,080, 229

36, 551, 869 34,354, 767

97,696 111,969

4,340 3,842

37,032 58,260

102,075 80,207

533,189 483,348

774,332 737,626

37, 326, 201 35,092, 393

Date in

service

Feb. 13, 1956

Sept. 28, 1941

Oct. 29, 1952

Aug. 31, 1958

Mar. 25, 1955

June 6, 1938

Aug. 20, 1955

Mar. 25, 1964

July 1, 1953

June 12, 1954

May 2,1962

Dec. 18, 1961

Dec. 16, 1954

May 19, 1955

Nov. 6,1953

May 13, 1957

Dec. 15, 1950

1912

1925

May 7, 1909

Feb. 25, 1957

Includes transfer from Grand Coulee, Chief Joseph, and Roza for USB R.
COLUMBIA RIVER BASIN ACCOUNT 33

Senator JORDAN. I take the position here to say that every kilowatt that is generated in the basin owes a duty to the watershed. I

do not think the burden should be borne wholly by Federal power

installations in a particular State. I think it should be borne by

non-Federal, private, Federal alike.

The CHAIRMAN. You mean that the private 

Senator JORDAN. Indeed I do. Indeed I do. Before we get

through with the project basin account, I think we have to levy against

every kilowatt-hour that is generated in a river basin to support

irrigation.

The CHAIRMAN. Then will the individual retailer be required to

make up that payment?

Senator JORDAN. No. In the case of a licensed project, at the

termination of the 50-year license period of non-Federal project, if and

when a continuation or renewal of that license is granted and new rates

are calculated, then included in the power rate structure at that time

should be an assessment for the assistance of irrigation. Such an

assessment should be made if we are to have a true basin account.

The CHAIRMAN. The Federal Waterpower Act of 1920, as amended,

stipulates, I believe, that at the end of the license, at the end of the

50-year period, the Federal Government has the right to take over the

property. The issues and procedures have not been finally resolved.

Is this not substantially the situation?

Mr. HoLum. Questions concerned with the relicensing of projects

are very rapidly going to be before us as some of the older licenses

begin to expire.

The CHAIRMAN. Then there is a question as to whether they should

become Federal projects, as authorized by present law, and the

power revenues go to the Federal system.

Senator JORDAN. In either case, whether they go to a Federal

system or whether the licenses are renewed to the original applicant,

under my proposal, revenues would be available from every kilowatt

generated in the system for the assistance of irrigation. I think this

proposal should be explored fully.

The CHAIRMAN. Of course, this goes to the whole question of how

far and to what extent we should subsidize reclamation projects. I

think it is something we have never gone into in depth in this committee and that is why I think this hearing is very useful.

I do not have any fixed idea, but I can certainly conceive of a situation in the future where there can be unjust enrichment. In other

words, a portion of the power bill paid by the ratepayers would be

going to individual landowners.

I think there is a real question as to how far one should go and that

is one or the purposes of the hearing that we are conducting this

morning.

Senator JORDAN. Mr. Chairman, I just want to be sure that I am

understood here, because I think that my State has come up on the

short end of the new accounting system that has been inaugurated by

the Bonneville Power Administration.

Let us take the case of the Palisades project. I would like to send

down to the Secretary a copy of the power system's average rate and

repayment study put out by the U.S. Department of the Interior for

January 1963.
:34 COLUMBIA RIVER BASIN ACCOUNT

Now, Mr. Secretary, referring to page 8, under the old payout

schedule which prevailed until 1963, am I correct in saying that the

power costs of Palisades would have been paid out in the year 1968?

Mr. HoLum. Yes, that is correct.

Senator JORDAN. And am I correct in saying that the assistance to

irrigation would have been paid out in the year 1986? That is under

your chart?

Mr. HoLum. That is correct.

Senator JORDAN. And at the end of the year 2008, a surplus would

have been built up in the Palisades account alone of $28 million, or

thereabouts, is that not correct?

Mr. HoLum. Yes, that is correct.

Senator JORDAN. But under your Executive order of 1963 the

Palisades, along with other Idaho reclamation projects, were taken

into the whole Columbia Basin accounting system. In a sense, then,

these reserves were wiped out for any use for which Idaho might put

them. Is that not correct?

Mr. HoLum. Yes, that is correct up to that point.

Senator JORDAN. Any future Idaho projects confined strictly to

power assistance from Idaho Federal projects would have been denied

these reserves which otherwise would have accumulated under the

old system?

Mr. HoLum. Yes, Senator. This specific $28 million was not

available, but the total financial assistance available from the Bonneville system 

Senator JORDAN. SO to the extent that Idaho cannot participate

in project revenues downstream, we are being penalized by the new

accounting system, are we not?

Mr. HoLum. Only if prior to that year, $28 million was not made

available to south Idaho from the total revenues of the Bonneville

system, and in the meantime, Senator, I would also like to point out

that the ratepayers in southern Idaho are getting the benefit of the

Bonneville rates, which are substantially 

Senator JORDAN. At the expense of Idaho reclamation, the way it

is working.

Mr. HOLUM. I think not.

Senator JORDAN. The way it is working.

Mr. HoLum. I think not, Senator. Every Idaho project that I

know of that has been considered by the administration and brought

before the Congress since 1963 has been approved by the Congress,

and financial assistance has been provided, and I do not think it will

be difficult at all to find the $28 million, if necessary, for financial

assistance for irrigation from the consolidated Bonneville revenues.

It will be a very small portion of those total revenues and I would

doubt very much that the Congress would not make it available to

assist irrigation in southern Idaho.

The CHAIRMAN. Right at this point, if you go back to the old system

and you relate the power revenues on each project to the irrigation in

that area, who ends up with most of the revenue available for irrigation purposes?

Mr. HoLum. Well, southern Idaho has the $28 million that would

have been available from the Palisades unit.

The CHAIRMAN. If you take all of the dams in the Columbia River

system and you go back to the old system in which the power revenue
COLUMBIA RIVER BASIN ACCOUNT 35

from that dam is available for irrigation in that area, who ends up

paying most of the revenue for irrigation subsidy?

Mr. HoLum. The State of Washington, Senator.

Senator JORDAN. And may I add another comment here, Mr.

Chairman, if you would apply the formula that is applicable, either

in the Missouri Basin or in the upper Colorado, then how would

Idaho fare under either of those applications?

Mr. HoLum. You would have substantially more than $28 million

available to assist irrigation in southern Idaho.

Senator JORDAN. Indeed you would. Yet you say it should be

noted that the adoption of the consolidated system payout by the

Secretary of the Interior, in effect, accomplishes the same financial

objective as those resulting from the other three basin accounts

previously discussed. I insist it does not. It needs a lot of study

before we can make such a statement as that.

The CHAIRMAN. Of course, it is up to the Congress to decide how

these revenues should be made available, but the point is that the

revenues under this consolidated system are available from the full

system to be utilized in the legislative discretion of the Congress.

Is that where we are right now as a practical matter?

Mr. HoLum. That is absolutely correct, and while I do not have a

comparable figure available at my fingertips, I think $28 million

becomes a very small portion of the amount that is available to the

Congress to use in providing irrigation assistance from the consolidated

system of the Pacific Northwest.

Senator ALLOTT. Could I ask a question?

The CHAIRMAN. Yes Senator Allott.

Senator ALLOTT. What sums, 

then, 

are available for southern

Idaho, Mr. Secretary? If you say $28 million is just a small part of

that which would be available, do you have any charts or projections

which 

Mr. HoLum. I cannot make that decision. It is a decision that the

Congress will have to make, but the total revenues available from the

Bonneville system for irrigation assistance, will be about $190 million

annually after the presently authorized system is paid out in about 2035.

Senator ALLOTT. Now the chairman has repeatedly pointed out

that if either the amount of water contributed, or the location of the

power generated is used as a criterion, then Washington would be the

primary beneficiary.

The CHAIRMAN. Based on the power generated?

Senator ALLOTT. Based on the power alone.

The CHAIRMAN. You see, water for Columbia River power comes

from Montana, from northern Idaho, and a big chunk, of course, from

Canada—under the storage system a tremendous amount. Our third

powerhouse, plus the storage in Canada, plus Libby Dam, will make

possible 3.6 million 

Senator ALLOTT. I do not want to misquote the chairman.

The CHAIRMAN. I said "generating."

Senator ALLOTT. I thought I also heard him make the statement

that upon the basis of water contribution—you made this comment

earlier—on the basis of where the water comes from then Washington

would still get the major share. If this is not so, why, I am glad to

get the record straightened up.
•36 COLUMBIA RIVER BASIN ACCOUNT

Senator JORDAN. The Secretary had said that he would supply a

table showing the origin of water that flows through the powerplants

downstream. I also carry a rough figure in my mind. Washington

contributes 3 percent of the water at Grand Coulee and, of course,

gets the power benefits that radiate out through the basin, but the

assistance to reclamation is wholly confined to the State of Washington, and it is a substantial amount—around $400 or $500 million—

and we do not have any quarrell with this if we get something like

equal treatment. That is what I hope we can do.

The CHAIRMAN. I was just pointing out, of course, that we have

built the Federal dams in our area. A great deal more power revenues

would be available for irrigation if that should be the decision of

Congress, if we had more Federal dams on the Snake River in Idaho.

Of course, we lost the big battle, Hells Canyon.

I mention this fact because the problem is not just water. We

need water, plus, of course, the dams in order to get the revenue. If

we had the dams we would have greater revenues available for the

irrigation subsidy. Again, that is a decision of Congress. If those

dams had been built, if they were built and had been built on the

Upper and Lower Columbia River, and on the Lower Snake the

situation would be different. That is my point—that the problem

is not just water. It is water in which you have maximized the power

potential so that you have the wherewithal to make possible irrigation

subsidies, if that is the decision and policy of the Congress.

Senator JORDAN. And that is why I am quite willing, Mr. Chairman, to join with you in introducing legislation that would levy an

assessment against every kilowatt that is generated in the Columbia

Basin—private, non-Federal, Federal alike—for the purpose of

assisting irrigation.

The CHAIRMAN. Anything further, Senator Allott?

Senator ALLOTT. No; I have nothing further.

The CHAIRMAN. I wanted to ask this historical question. The

initial concept of the irrigation program was to make water available

directly for irrigation, is that not correct?

Mr. HoLum. That is correct.

The CHAIRMAN. There was no power involved, as I recall, in the

Roosevelt Dam in Arizona, which was the first one, was it not?

Mr. HoLum. Not in the 1902 act.

The CHAIRMAN. That is right. Then the next one in Idaho, in

1909, which stored water and produced incidental power, was the

Minidoka project?

Mr. FloLum. That is correct.

The CHAIRMAN. At what point did we depart from the use of

structures primarily to provide the means of assisting irrigation and

move to diversion of power revenues from projects totally unrelated

to making available water directly for irrigation?

Mr. HoLum. It was the 1939 act, I believe.

Mr. LEE. There were two cases, Senator. The first one that I

am aware of that provided financial assistance to an unrelated irrigation project was the Michaud Flats project constructed by the

Bureau of Reclamation. It was authorized in 1954, and financial

assistance was provided for that project from Palisades.

The CHAIRMAN. That is located where?
COLUMBIA RIVER BASIN ACCOUNT 37

Mr. LEE. Southeastern Idaho. And then about the same time

we had the legislation involving the Chief Joseph Dam in the State of

Washington, that provided financial assistance to associated units in

that vicinity, not directly connected therewith.

The CHAIRMAN. The Crooked River project in Oregon?

Mr. LEE. The Crooked River in Oregon is the next one. These

are the three first ones that I recall.

The CHAIRMAN, in the Columbia River Federal power system,

we have a series of dams, other than Grand Coulee, that were authorized primarily for the purposes of power production, navigation,

and flood control. They were not authorized directly for irrigation

purposes, is that not correct?

Mr. HoLum. That is correct.

The CHAIRMAN. Well, there are some minor projects, I think, the

Kennewick project uses a little bit of power; and you can identify

those for the record.

Mr. HoLum. We will be happy to do so.

(The information requested is as follows:)

Existing and authorized projects in the Columbia River Federal power system

classified by the inclusion or exclusion of irrigation as a project function:

Projects including irrigation

Boise Minidoka Yakima

Chief Joseph 1 Palisades Teton Basin

Columbia Basin

I Special legislation was enacted in 1052 which recognized that irrigation would be developed as a project

function.

Projects not including irrigation

Albeni Falls Lookout Point-Dexter Little Goose

Bonneville McNary Lower Monumental

Cougar The Dalles Asotin

Detroit-Big Cliff Dworshak Libby

Hills Creek Green Peter-Foster Lost Creek

Hungry Horse John Day Lower Granite

Ice Harbor

The CHAIRMAN. What I am trying to point out is that these projects that are making power available on the Columbia River and

the Snake River—in the Columbia River system—were authorized

initially for purposes other than irrigation. Grand Coulee and the

others you will supply for the record are exceptions. Now proposals

are being made for the use of the power revenues on a pool basis

under the latest accounting system, to assist agriculture through

irrigation. The question, of course, that will be before Congress—

and it is before Congress every time we consider one of these proj ects—

is to what extent we are going to use these power revenues to subsidize irrigation projects. Is this not correct?

Mr. HoLum. That is a decision that the Congress makes every

time it considers the authorization of a reclamation project, or an

irrigation proj ect .

The CHAIRMAN. Do you have further questions?

Senator JORDAN. I do not have any further questions, but I think

a basic problem before the Congress is whether these projects were

authorized for power production alone, or whether they were authorized for flood control and other purposes. Then we should
38 COLUMBIA RIVER BASIN ACCOUNT

decide whether the power revenues can be used for reclamation, in a

specific area or in other areas.

That is the question I think the Congress is going to have to resolve.

The CHAIRMAN. All I am saying is that the existing law provides

that each of these projects have been authorized for particular

purposes. Grand Coulee was authorized—well, it was not authorized.

The money was made available initially out of a direct allocation of

public works funds, as I recall it, funds of the Public Works Administration. The decisions were made by President Roosevelt without

authorization. The Columbia Basin project as such, was not authorized until 1945, I believe. It started out initially as a reclamation

project and this was truly a multiple-purpose project in support of

irrigation, because the water from the Columbia River is pumped

up onto banks and flows outward by gravity. It feeds the whole

system.

This kind of project, I think, can be thoroughly understood by the

average person m that it is directly, physically related to the making

of water available for irrigation purposes. I think we take a long

leap forward when we talk about Chief Joseph and we talk about all

the other dams on the river, which were built by the Corps of Engineers, authorized as a project either relating to navigation, flood control, or power, but without reference to irrigation.

I mention this because it points up a need for a thorough review

of this whole problem.

Senator JORDAN. Our only point of difference, Mr. Chairman, is

whether the revenues from those strictly power and flood control

projects, containing no reclamation whatever, should be enjoyed as

the exclusive and sole property of the downstream States, or whether

those headwater States that provide the greater part of the water

should share in those benefits.

The CHAIRMAN. Or stated another way: Should the projects be

modified to include irrigation? Or stated an additional way: To

what extent should the States that have the power projects share in

making available power revenues for the support of irrigation/ as

compared to the States who have not built those structures?

All of these things are 

Senator JORDAN. I thought they were Federal projects. I did not know the States built them. I am learning here for the first time,

Mr. Chairman, that the States built them.

The CHAIRMAN. I thought the water was Federal. Senator

Jordan, you are basing your contention on the fact that the water is Idaho's. So I was just merely following through on your reasoning.

Of course, they are neither. The water is Federal in the sense that

the right to control it and the right to 

Senator JORDAN. To build the dams?

The CHAIRMAN. Right, but the point is that in order to get the wherewithal to provide the irrigation subsidy, you have to have the

Federal dams.

You are saying that we ought to have the private utility and the

non-Federal utility dams make revenues available for irrigation sub- sidy. This is a rather novel idea and it is worth exploring. But I

think it also involves a question fundamentally as to what we should

do at the end of the 50-year licenses with these projects. Because
COLUMBIA RIVER BASIN ACCOUNT 39

under existing law, they could become the property of the Federal

Government if the Government chooses to exercise its rights.

Mr. Ho',um. There are some serious questions that have to be

answered.

The CHAIRMAN. Am I correct in that assumption that under the

Federal Waterpower Act of 1920, as amended, at the end of the period

of the license the Federal Government could make these non-Federal

facilities Federal property?

Senator JORDAN. Then in that event, all revenues could be made

available and my amendment would not be necessary.

Mr. HoLum. I think the Federal Government has to decide to take

possession. There is no question but what the license 

The CHAIRMAN. The committee can take that up at a future

meeting.

The committee will stand in recess subject to call of the Chair.

Thank you, gentlemen. We appreciate having your testimony.

(Whereupon, at 12 noon the hearing recessed, subject to call by

the Chair.)

0