Page images
PDF
EPUB

Second. That such interest must be paid and that it is payable annually during the fifty-year period of amortization and that the power rates should be fixed at a high enough figure to pay such interest during the fifty-year period, or

Third. That it was the intention of Congress that interest should be paid on the principal of the amount allocated to flood control, but that such interest is not required to be paid absolutely during the fifty-year period and is only to be paid, as is the principal of the item, out of 62% per cent of excess earnings, if any, during the fifty-year period and out of the 62' per cent net earnings after the expiration of that period.

It does not seem reasonable to suppose that Congress intended to make the payment of interest on the $25,000,000 allocated to flood control an absolute charge during the fifty years when it left the payment of the principal to the chance that there might be excess earnings during that period. I am inclined to believe that Congress intended that interest should be ultimately paid on the $25,000,000 allocated to flood control from the same source as is provided for the payment of the principal, to wit: Out of 62% per cent of the excess earnings during the fifty-year period and out of 62 per cent of the net earnings thereafter.

The word “thereon” in section 4 (6) following the word “interest” in the phrase "all amounts advanced to the fund under subdivision (6) of section 2 for such works, together with interest thereon made reimbursable under this act” apparently limits the requirement, with respect to interest, to interest on such principal sums as are embraced within the scope of the paragraph.

A construction of the act as not absolutely requiring the fixing of rates high enough to cover the payment of interest during the fiftyyear amortization period upon the $25,000,000 allocated to flood control is entirely consonant with the apparent purposes of Congress in adopting the amendment which made that allocation, namely, to discharge a governmental obligation to provide flood control, and to make the project more probably feasible by reducing the amount which would have to be amortized out of revenues obtained from power and water at the dam.

It does not seem necessary to pass further upon the question of the ultimate payment of interest, as I am of the opinion that if such interest is ultimately payable, the act does not require you to make provision for its payment out of power proceeds during the fifty-year period of amortization. Respectfully,

WILLIAM D. MITCHELL,

Attorney General. The honorable the SECRETARY OF THE INTERIOR.

DEPARTMENT OF THE INTERIOR, Washington, D. C.

[APPENDIX 48]

OPINION OF THE SOLICITOR OF THE DEPARTMENT OF THE INTERIOR

JANUARY 6, 1930

627

UNITED STATES DEPARTMENT OF THE INTERIOR,

OFFICE OF THE SOLICITOR,

Washington, D. C., January 6, 1930, The honorable the SECRETARY OF THE INTERIOR.

MY DEAR MR. SECRETARY: You have asked me to consolidate in one memorandum my views on the following 16 questions, the majority of which have been covered in separate memoranda submitted to you from time to time as the problems arose.

Your questions and my opinions on them follow:

(1) What is meant by the term “public interest” as used in the act? What body of people comprises the public as the act uses the term? Is the “interestreferred to as "public" the Government's responsibility to the whole people of the United States, or is it the interest of the area to be immediately served by Boulder Dam power, or is it the interest of a particular part of that area?

The term "public interest" is used in section 5 (c) of the Boulder Canyon project act as follows:

In case of conflicting applications, if any, such conflicts shall be resolved by the said Secretary, after hearing, with due regard to the public interest, and in conformity with the policy expressed in the Federal water power act as to conflicting applications for permits and licenses except that preference to applicants for the use of water and appurtenant works and privileges necessary for the generation and distribution of hydroelectric energy or for delivery at the switchboard of a hydroelectric plant shall be given, first, to a State for the generation or purchase of electric energy for use in the State, and the States of Arizona, California, and Nevada shall be given equal opportunity as such applicants.

The same term “public interest” is used in the Federal water power act, as follows: Preferences in issuance of preliminary permits or licenses.

the commission shall give preference to applications therefor by States and municipalities, provided the plans for the same are deemed by the commission equally well adapted, or shall within a reasonable time, to be fixed by the commission, be made equally well adapted to conserve and utilize in the public interest the navigation and water resources of the region;

“Public interest" is one of those broad terms like "public policy" capable of different legitimate interpretations in the discretion of the officer called upon to administer it. The "interest” referred to is, primarily, the Government's responsibility, financial and otherwise, to all the people of the United States for the greatest good to be derived from this project, the cost of which is to be advanced from the Public Treasury. Secondarily, the term excludes confinement of the benefits of Boulder Dam power to one locality out of the many which comprise the “region" capable of service. The term “public interest” is the dominant consideration, a check upon the preferences mentioned in the two acts. It is necessarily a source of broad discretionary power in the Secretary.

(2) Does "public interest” include the necessity for making a good business contract which will guarantee the return of the investment within fifty years? If the “preference right” of States and municipalities would require the making of a contract which is less sound as a matter of business than a contract offered by a privately owned public utility, which consideration is the Secretary required to regard as dominant, the public interest or the preference right of the State or municipality?

[ocr errors]

*

*

*

*

*

To the first question I answer yes. Money provided by taxes from the entire United States constitutes the sum placed at risk by this Federal investment. When contracts are made for its repayment as required by section 4 (6) the primary "public interest” is in the soundness of the contracts and the solvency of the contractor, not in the corporate or municipal character of that contractor. If one bidder can obligate itself by a contract whose enforceability is unquestionable, and the financial future of another bidder is uncertain or its legal capacity is questionable, public interest obviously requires acceptance of the sounder bidder. All preferences are subordinate to this public interest. It is only when two bidders can both offer a satisfactory contract from a business viewpoint that the Secretary must or should base his choice between them on claimed preferences.

(3) Is the Secretary required to accept the highest bid made for power by a reputable bidder, or must he take into consideration what constitutes a reasonable return under all attendant circumstances, including “competitive conditions at distributing points or competitive centers ''?

The Secretary is not required to accept the highest bid if that bid is in excess of the price which can be realized for the power under competitive conditions at competitive centers.

The act specifically provides (sec. 5 (a)}

Contracts made pursuant to subdivision (a) of this section shall be made with a view to obtaining reasonable returns and shall contain provisions whereby at the end of fifteen years from the date of their execution, and every ten years thereafter, there shall be readjustment of the contract, upon the demand of either party thereto, either upward or downward as to price, as the Secretary of the Interior may find to be justified by competitive conditions at distributing points or competitive centers and with provisions under which disputes or disagreements as to interpretation or performance of such contract shall be determined either by arbitration or court proceedings, the Secretary of the Interior being authorized to act for the United States in such readjustments or proceedings.

The selling standard is to be "reasonable returns," not "all the traffic will bear.” The phrase "shall be made with a view to obtaining reasonable returns” was in fact a specific amendment to this section (Cong. Rec., Senate, Dec. 14, 1928, p. 618), and clearly indicates the selling basis deemed to be feasible and most in line with public interest and the equitable distribution of benefits of Boulder Dam power. In deciding what a "reasonable return" may be it is proper to look to the language of the same section respecting renewals; 15 years from the date of execution of the original contract it may be renewed at a price revised “either upward or downward,” as the Secretary of the Interior may find to be "justified by competitive conditions at distributing points or competitive centers.” If this is to be the standard 15 years after execution, it is just to assume that it would also be a fair standard at the time of execution. Indeed, it is the only standard consistent with sound business and the execution of an enforceable contract with a solvent bidder. If the bidder can not sell his power in competition with other sources he is not a desirable source for reimbursement of the Federal expenditure. A "reasonable return" must be justified by "competitive conditions” or it is not reasonable. An unreasonably high return at the risk of bankruptcy of the bidder is not a sound basis for a contract required to be made in the "public interest."

(4) Does a municipality or a State have a preference for power which it proposes to sell outside its boundaries, as against a bid for power by a privately

« PreviousContinue »