I have adopted them, except in two respects, each affecting the unit, annual value of capacity.

There are used in the report two methods of evaluation of hydro power which I believe are erroneous.

First, in evaluating capacity it is the practice of the Federal Power Commission, and for that matter I believe also of the Army engineers, to use the same rates of interest or cost of money when evaluation is made of hydroelectric power in terms of steam electric power. That, I submit to the committee, is erroneous, and it does not give a fair comparison. Actually, the measuring stick of the value of hydroelectric power is the most economical of the justifiable alternatives which would produce the same results.

The CHAIRMAN. Is that the yardstick that the utilities use? Colonel SCHEIDEN HELM. That is the yardstick that is appropriate for anybody to use under the circumstances.

The CHAIRMAN. Was that the yardstick that the utilities used? Colonel SCHEIDENHELM. I believe so.

The CHAIRMAN. All right; go ahead.

Colonel SCHEIDENHELM. It is the one which I would use in serving a client, whether Federal, State, or private.

The CHAIRMAN. I was just asking for the record what they used generally.

Colonel SCHEIDENHELM. Now, the same results are, properly enough, east of the Rocky Mountains assumed to be produced by steam-electric power. However, if the Federal Government is going into the power business, it can just as well build steam-electric plants by means of money at 3 percent as it can build hydroelectric plants with money at the same rate.

The CHAIRMAN. You have now given me your yardstick. Now, you have asked that you be permitted to correct the transcript and the only way is for you to come down and look it over. You are frankly an expert witness and you will be accorded that privilege, sɔ that there cannot be any mistake in the transcription of your state

ment.

You may proceed, sir. You have got a lot of facts and figures, and as a practical expert you may present your facts and figures. The reporter, no matter how competent he is, may not get all your facts and figures as you state them, and for that reason, being an expert, you will be given the privilege of checking your statement. An ordinary expert usually comes with a prepared statement.

Colonel SCHEIDEN HELM. As I explained to your secretary, I have engagements tomorrow and I cannot well be in Washington. Can it not be at some other time?

The CHAIRMAN. We want to oblige you every way we can; but, frankly, the statements here will be submitted first to the Government agencies and then submitted to you, and if you want to know when you can come back to correct them, we will let you know. We want to cooperate with you in every way we can.

You may proceed.

Colonel SCHEIDENHELM. The second item to which I wish to call attention in the evaluation of the steam-electric power is this, that the steam-electric power is assumed to be subject to the payment of all possibly applicable taxes, whereas the hydro power is treated, and in actuality would be, free of taxes. Without doubt a Federal steam

electric plant would likewise be without taxes; or, alternatively, the same kind of subsidization can be given to private steam-electric plants. In the present case the item of taxes and insurance amounts to 1.5 percent per annum.

In the district engineers' report, in the appendix, it is stated that— Development of the Rappahannock River for power alone would not be attractive to private industry, due to the high fixed charges incidental thereto.

That is, this statement I construe to be to the effect that steam electrict power would be cheaper for private interests. However, I point out that by the same token the Federal Government, at equal fixed charges, namely, equal for hydro and for steam, would likewise find to be advantageous whatever is the advantageous course for private development; except for one thing, and that is, such savings as result from making a single water development embody more than one project, for instance, power and flood control. That saving, however, is not sufficient to make every multiple-purpose project economically feasible.

Again, as to the matter of evaluation of the power, on the matter of load factor the Federal Power Commission has proposed that the project operate on the basis of a 15-percent load factor, meaning that its reliable energy output could be generated in 15 percent of the 24 hours; that is, 3.6 hours, or less than 4 hours out of the 24. Actually, there are very few developments which could operate on so low a load factor.

In the present instance, the specially favored position or place in carrying the market load, which would be necessary if at all feasible to permit the load factor to be as low as 15 percent, would not be available to the Rappahannock power. Without question the first. claimant for that position would be the Buggs Island development on the Roanoke River. Actually the Buggs Island development, instead of having a 15-percent or 25-percent load factor, so far as concerns its. initial installation, is set up at a load factor of 38 percent. That is in House Document 650, Seventy-eighth Congress, on page 83.

Moreover, the instructions of the division engineer of the Middle Atlantic Division to the district engineer, as set out in the Roanoke River report, prescribe load factors of 25 percent to 50 percent. That is a far cry from 15 percent.

Again there is allowance for high-tension equipment and transmission which was made by the district engineer but omitted in the report of the Chief of Engineers. There is no doubt that a development like the Salem Church development requires that the electric current be stepped up to a high voltage. That costs money, and it is part of the cost of the development. Similarly, it must be carried to a market. The Federal Power Commission allows 25 miles for transmission. That is not enough. I have been told by company engineers that 50 miles is needed. I have no assumption to make for the moment than that the Federal Power Commission is correct, although I do not underwrite that figure. Apparently, because of the provisions of section 5 of the Flood Control Act of 1944, the Chief of Engineers eliminated the allowance for transmission and in doing so, apparently unintentionally, eliminated also the allowance for high-tension equip

ment.

The fact is, however, that, regardless of what agency or party markets the power-private, public, Army engineers, Secretary of the Interior-they must all somehow provide the high-tension equipment and provide enough transmission to put it on a parity with steam, and that is not contained in those figures of cost.

The CHAIRMAN. Would you insist on that being done by the power company by some provision to utilize the power and make a contract with the Secretary of the Interior so that the consumer would get the benefit of it? Do you think it would be wise to duplicate those lines? Colonel SCHEIDENHELM. Mr. Chairman, I was not speaking on the question of who spends the money or of duplicating lines. I was merely pointing out that proper economic analysis of a project

The CHAIRMAN (interposing). I was merely asking if it was economically feasible to build lines, if they could dispose of the power to the power companies, and the latter would give the consumers the benefit of it.

Colonel SCHEIDENHELM. Pardon me, sir; I am afraid our minds haven't met, and I haven't succeeded

Mr. JACKSON. At that point, does it follow that transmission lines are going to have to be built if they sell this power to the private utilities? You are predicating something there which has not been substantiated by the record, as I understand it.

Colonel SCHEIDENHELM. I am assuming merely that the Federal Power Commission is correct when it states that not a duplicate linethere is no duplicate line involved here-that there would be needed 25 miles of transmission. Somebody has got to build it.

Mr. JACKSON. In other to connect with the private utilities?

Colonel SCHEIDENHELM. In order to put it on a parity with steam electric power.

Mr. JACKSON. I am not talking about putting it on a parity with steam electric power. How long a line would they have to build in order to sell that electricity generated from the dam to the private utility, that is general?

Colonel SCHEIDENHELM. I do not know. I know merely that the Federal Power Commission stated that 25 miles of transmission should be charged against the project.

The CHAIRMAN. Do you think that is fair, or not?

Colonel SCHEIDENHELM. I assume it is fair. It would not be a duplicate line. That is just a mistake.

General CRAWFORD. The District Engineer in his report included the cost of transmission lines and on that basis the project had a favorable cost to benefit ratio of 1.0 to 1.45. Since under existing law the Department of the Interior would market the power, the cost of transmission lines are not included in the estimated cost of the works recommended for construction by the War Department, as contained in the report of the Chief of Engineers.

The CHAIRMAN. How far is it?

General CRAWFORD. It is right close by.

The CHAIRMAN. All right; you may proceed.

Colonel SCHEIDENHELM. Again, I would like to point out that these projects are assumed to be self-liquidating. Various persons have referred to it today as being so. Specifically I would point out that the amount that is allowed for amortization will not take care of both the

depreciation charge and also liquidate the project. That is, there is not an allowance both for replenishing the Treasury for the investment and also for replacing equipment and structures after they were used. Mr. JACKSON. How much is charged for power on this project, assuming you made a careful analysis of this development?

Colonel SCHEIDENHELM. As far as the charge for power is concerned, I note that it has been assumed merely that the charge was proportional to the benefits.

Mr. JACKSON. How much is allocated? How is it broken down? The flood-control factor is not amortized in building a project, if my understanding is correct. Power is amortized. How much is set up for power? That seems to be a particular issue. I assume you have made a very careful study and have gone into all details.

Colonel SCHEIDEN HELM. No; I did not have time to do it. I said that to begin with.

Mr. JACKSON. That is a very important part of your testimony. Tell us how much is set up for power. That goes to the very relevant question you raised about putting power in this subject.

Colonel SCHEIDEN HELM. If that gets into the question as to what is the proper allocation of power, then I will have to say I do not agree with the allocation of costs given here.

Mr. JACKSON. What is it?

Colonel SCHEIDEN HELM. The allocation of costs to power, per the report, would undoubtedly be 90 percent of the cost of the project. Mr. JACKSON. Is that the way it is set up?

Colonel SCHEIDENHELM. Yes, sir.

Mr. JACKSON. You said it is set up 90 percent for power and 10 percent for flood control; is that right?

General CRAWFORD. That allocation of cost to power is made when the project is completed. We do not predict it now, but at the time it would generally follow about the same ratio as the benefits.

Mr. JACKSON. Let me ask you this: What is the additional cost, assuming you did not put in generation facilities? How much of the cost factor is that actually going to be in this project, in trying to build up power? Suppose you build a dam and do not go into the power factor. How much would you save? I think you said 3 or 4 weeks ago the cost would be $17,000,000, according to the estimates. General CRAWFORD. Yes, sir.

Colonel SCHEIDENHELM. That is the estimate of prewar prices. Mr. JACKSON. That is right, and that is what the engineers stated. too. All these projects were worked up prior to the war, so they are all predicated on prewar prices.

Colonel SCHEIDENHELM. There is no doubt, Mr. Jackson, that the amount of flood control which would be given by this project can be had for far less than the $17,000,000 or $18,000,000 or $24,000,000.

Mr. JACKSON. That is what I am trying to get here for the purpose of the record. In order to do the flood-control job the way the Army engineers feel it should be done, from the standpoint of flood control, how much is that going to increase the cost by adding the power feature?

Colonel SCHEIDENHELM. It is my recollection that I saw an estimate of the cost of a flood-control-only project.

General CRAWFORD. The cost of the hydroelectric generating facilities was estimated at $4,212,800.

Colonel SCHEIDEN HELM. May I state that is not the only additional cost. The additional cost is represented by the additional cost of the dam, because the dam is higher and longer and fatter.

Mr. JACKSON. The engineers feel it would have to be that high in order to take care of the floods, too, as well as power.

Colonel SCHEIDENHELM. I doubt if the engineers would say that. General CRAWFORD. The cost of the flood-control reservoir alone at elevation 215 is $6,793,000.

Mr. JACKSON. Two hundred fifteen feet high?

General CRAWFORD. The dam would not be that high but the floodcontrol pool would be at elevation 215 feet above sea level as compared with the multiple-purpose project, which has a maximum pool at elevation 253.

Mr. JACKSON. In other words, there is a difference of 38 feet elevation between the flood-control project and the combined multiplepurpose dam which includes power.

General CRAWFORD. Yes, sir.

Mr. GRIFFITHS. And a little over $10,000,000.
General CRAWFORD. Yes, sir.

The CHAIRMAN. What is your next point?

Colonel SCHEIDEN HELM. We were on the matter of self-liquidation. I want to call attention to section 5 of the Flood Control Act of 1944, which carries, to my notion, a strong indication that there must be set aside annually an amount for replenishing of the Treasury. It is not put in precisely those words. The words are to the effect that the rates shall be such that that shall be done-and I submit that, by strong implication, it would follow that that would be done. If so, then the annual charges of the project would have to be sufficient to permit that to be done.

In addition it is a matter of common knowledge that depreciation must be considered.

Finally, on that phase, of evaluation of power output, it is one thing to set up values for power and to predicate economic justification upon that. It is quite another thing to realize those values in actual practice. I believe there is only one project of this multipurpose natureI do not include Boulder Dam-there is only one project of this nature which has been in operation long enough to afford a test. That is the Denison Reservoir and I believe it is a fact so far that the power income has been about one-half of what the authorization of the project was based upon.

Now, having studied the Salem Church economics and the district engineers' report, showing the ratio of benefits to costs of 1.45, it seems to me that the economic set-up should be reviewed. I will just run through the effect, on the ratio of the benefits to costs, of the facts and considerations which I have pointed out.

We started with the Chief of Engineers' estimated cost on the prewar price level and stepped it up by 35 percent and reached a total figure of $23,970,000, with corresponding annual charges of 135 percent of $867,000. In other words, the annual charges are stepped up to $1,170,000.

Leaving the power benefits and the flood-control benefits undisturbed, the foregoing changes the district engineer's ratio of benefits to costs from 1.45 to 1.12.