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I have no authority to say what this policy will be. However, I believe that certain facts will control. First, there will be an ample market for both private and public development. Second, the private interests will be only too glad to buy Bonneville and Grand Coulee power because it will be cheaper than they can produce themselves and because it will be unnecessary for them to make huge investments in generating plants. Third, that even if the private utilities were required to make reductions in rates in order to secure Government power, the increased volume of business would offset the reductions in price. Fourth, I believe the Government would prefer the above arrangement rather than make large investments in distributing facilities. Economists employed by the War Department estimated that the development of the Grand Coulee-Columbia Basin project would add $81,000,000 to the value of the franchises of the electric utilities in that area.

Mr. LEAVY. Now, Mr. O'Sullivan, you have not any authority to state as to what the policy of the Federal Government will be in that respect?

Mr. O'SULLIVAN. No, sir.
Mr. LEAVY. Other than has been indicated by it.
Mr. O'SULLIVAN. No, sir.

Mr. Rich. I have asked this question and I would like to get a reply to it. He says everybody in Washington is for it. I do not know but what they are, and I am not questioning his statement in that respect, but I want to develop this thought. You have a lot of people that have their all invested in power companies, and you also probably have some municipalities there that have power developments. I do not know whether you have or not. I have not gone into this, but I want to know that all of those people are satisfactorily going to be taken care of in some manner for the best interests of the public, or that they are going to be given some consideration without the Government going in there and stripping them of all of their life's holdings by Government competition.

Mr. O'SULLIVAN. Even though the Government, in selling this power to the electric utilities, required that its economies should be passed on to the public and that rates should be adjusted more equitably, there would not necessarily be any injury to the electric interests. A drop in rates, as a rule, increases the volume of business. An increase in volume decreases the cost of distribution.

The development of the Northwest through the construction of the project will create a vast, new market for the electrid utilities.

Mr. Rich. You have had no complaints from them as secretary of this Commission? Can you make that statement?

Mr. O'SULLIVAN. Well, in my opinion, the private electric utilities were for years opposed to the Grand Coulee plan of reclaiming the Columbia Basin lands and very much in favor the old, discarded gravity plan of bringing the water from Idaho. It was my belief that they did not want to see this great block of Government power come on the market. They have always claimed, however, that they were not opposed to Grand Coulee. Perhaps they now realize the need for this great project and have become reconciled to it.

Mr. Rich. Is it for selfish interests, or is it because they do not want the site developed?

Mr. O'SULLIVAN. In my opinion they were afraid Grand Coulee power would give them some competition. For many years we have had a hard fight to secure the project and I always was quite sure they inspired the opposition.

Mr. SCRUGHAM. Let us confine ourselves to a direct answer to the question.

Mr. Rich. I tried to ask the question, and I think he is going to answer it, if he is not interrupted.

Mr. LEAVY. The substance of Mr. Rich's question is, do you believe that the Washington Water Power Co. and the Puget Sound Power & Light Co., which in the end is the Electric Bond & Share Co., and the Stone & Webster people are supporting this public power development out there?

Mr. Rich. I will go further than that. I am not interested in the Electric Bond & Share Co., at all, but in the people who have invested their money out there.

Mr. LEAVY. Those are the companies operating in that territory.

Mr. Rich. I am interested in the people of the State of Washington who have private companies there, and those who have invested in those companies. I am not interested in the Electric Bond & Share at all.

Mr. LEAVY. I am telling you that those are the companies that are operating that Puget Sound Power & Light Co. and the Washington Water Power Co. They are operated by the Electric Bond & Share Co. and Stone & Webster. They are in opposition to the Government developing and selling this power.

Mr. Rich. Have you any local companies out there besides these subsidiaries of these great corporations?

Mr. O'SULLIVAN. Aside from our municipal, industrial, and several small public-service plants, the Stone-Webster and Electric Bond & Share groups control the electric-power business in the State of Washington and for that matter large corporations control it in the Pacific Northwest.

Mr. Rich. How about the people of Seattle; how do they feel about this project?

Mr. O'SULLIVAN. The people of Seattle are almost unanimously in favor of it, and likewise all the people of the State.

Mr. Rich. How about the people of Tacoma?
Mr. O'SULLIVAN. They are very much in favor of it.

Mr. Rich. I understand Tacoma has the cheapest electric power of any city in the country now.

Mr. LEAVY. I made that statement.
Mr. Rich. Do they need additional power in Tacoma?
Mr. O'SULLIVAN. Yes; they do.
Mr. Rich. They want you to furnish them power?

Mr. O'SULLIVAN. They want additional power for industrial development over there.

Mr. Rich. You are coming here asking us, as the Federal Government, to make this development. You say if we stop everything will be chaotic in that locality, simply because the project is stopped. You also made the statement a while ago that everyone in your State was interested in the proposition. Now if, for any reason, the Federal Government should stop on this project, could not your State authorities take it up where the Federal Government left off, if it is such a good project, and go ahead with it?

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Mr. O'Sullivan. For a number of reasons it would be difficult for the State to complete the project. The State constitution limits the indebtedness of the State, except in the case of a great emergency, to $500,000. The Columbia River is an interstate and international stream and the construction of the dam may involve interstate and international problems with which only the Federal Government can deal with success.

Mr. Rich. The Federal Government can straighten out any legal entanglements. Can your State constitutional changes be made to take care of that situation?

Mr. O'SULLIVAN. Well, I do not believe that the State of Washington is able to finance this development.

Mr. Rich. Well, if it is a self-liquidating project, they would have no trouble financing it, would they?

Mr. O'Sullivan. Well, a considerable amount must be invested before any return is received.

Mr. LEAVY. Will you permit me to interject for a moment, Mr. Rich?

Mr. Rich. Let me go on with this. I have waited an hour to ask him these questions.

Mr. LEAVY. Yes. I am perfectly willing that you should, except that I am acting as chairman of this, and I want to expedite matters. Are there other areas besides the State of Washington that will be interested in the power that will be developed here?

Mr. O'SULLIVAN. Oh, yes, there are.

Mr. LEAVY. What about the panhandle of Idaho, Montana, and eastern Oregon?

Mr. O'SULLIVAN. They are all interested in the power that will be developed there.

Mr. LEAVY. That is the point I wanted to bring out. Thank you.

Mr. Rich. That is perfectly all right, Mr. Leavy. I am perfectly willing that you ask any questions you want to ask, but I think when I am trying to develop something here I ought to be permitted to go ahead. I am in sympathy with self-liquidating projects, but I want to know if it is, in fact, going to be self-liquidating.

Mr. LEAVY. Of course, you are asking this question in substance: Do the private power interests endorse the project as a competitor?

Mr. Rich. I want to find that out because he said there was no objection whatever to it. I am only trying to do my duty as a member of this committee.

Mr. LEAVY. I am perfectly willing that you proceed now.

Mr. Rich. I want to try to develop this from Mr. O'Sullivan, because he is secretary of this commission, and he is probably the most important witness you will have, because he has lived with it, and he has stayed with it for 18 or 19 years.

Mr. O'STLLIVAN. Yes, sir.

Mr. Rich. If anybody ought to know the answer, he ought to know. If there are certain limitations whereby your State constitution would have to be changed in order to pern it you to go ahead with this project, I want to know if the Federal Government can stop lending assistance and whether the people of your State would take it up where the Federal Government left off, and proceed with the project.

Mr. O'SULLIVAN. Well, I cannot say as to that, but I do know the sentiment in favor of the project is very fine throughout the State.

Mr. Rich. Would there be any reason why they would not go ahead?

Mr. O'SULLIVAN. In addition to the reasons stated, I really believe Grand Coulee Dam is beyond the State's capacity to finance. The project will greatly benefit not only the Pacific Northwest but the whole United States. Downstream developments may be required to contribute to the cost of storage at Grand Coulee and in turn Grand Coulee may be required to contribute somewhat to the cost of storage in Canada and in Idaho and Montana, should such upstream storage be constructed. The United States can most effectively deal with these matters.

Mr. Rich. How does this Grand Coulee Dam affect Montana and Idaho from the standpoint of storage?

Mr. O'SULLIVAN. Any storage built up in those States will increase the power at Grand Coulee.

Mr. Rich. But I understand you are going to get enough from Grand Coulee and these 11 dams to generate all of the power that you expect to get from this project.

Mr. O'SULLIVAN. Grand Coulee does not need th construction of the 'dams on the lower river or the storage that may later be secured upstream. But, if, and when storage is developed in the Arrow Lakes in Canada, in Priest, Coeur D'Alene, and Pend O'Reille Lakes in Idaho, in Flathead Lake and at Hungry Horse Canyon in Montana, the firm or commercial power at Grand Coulee will be increased and Grand Coulee will probably have to contribute something toward the cost of this storage.

Mr. Rich. Does that lead me to believe that Grand Coulee is not going to have enough water in this stream without additional water power?

Mr. O'SULLIVAN. Grand Coulee will have plenty of water and plenty of power without any of the storage referred to. It has everything it needs and at the cost already given. But the upstream storage might some day increase Grand Coulee commercial power a great deal.

Mr. Rich. Then you are not going to have enough water in the Grand Coulee to keep the 18 units working when they are fully complete? Mr. O'SULLIVAN. Oh, yes.

Mr. Rich. Then why do you have to have this other water that you speak of?

Mr. O'Sullivan. We do not have to have that storage upstream. Mr. Rich. Well, you just told me it would be necessary.

Mr. O'SULLIVAN. No; I did not say it would be necessary; I said there was a possibility of the building of those storage reservoirs up there for other power developments.

Mr. Rich. Why would you have to have it at Grand Coulee if you did not need it?

Mr. O'SULLIVAN. We do not have to have this storage and we don't need it at Grand Coulee. But the storage mentioned may be developed by other interests and it will increase the firm power at Grand Coulee. The flow of the Columbia is low in the winter and heavy in the summer.

Mr. Rich. Yes.

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Mr. O'SULLIVAN. And if they store some of the summer flow in the upper lakes, and so forth, and release it in winter, it will come down to Grand Coulee and increase its firm power.

Mr. Rich. Then it is going to be necessary to construct those dams in order to make Grand Coulee function efficiently when you have your 18 units in operation?

Mr. O'SULLIVAN. No.
Mr. Rich. I cannot understand you, then. Are you an engineer?
Mr. O'SULLIVAN. I am a construction engineer.

Mr. Rich. Then explain to me why it is necessary to have those additional dams above there if you are going to have water enough in the Greand Coulee to do the work that is contemplated in the layout as we now have it before us.

Mr. O'SULLIVAN. No; I did not say this storage was necessary, Mr. Rich. If I did, it was a mistake. This storage is not needed by the Grand Coulee development. However, the possibility of such storage makes our project an interstate and international proposition. Under the Federal Water Power Act, if other interests develop storage upstream that will benefit Grand Coulee, Grand Coulee may be required to pay its proportionate share of the cost of such storage. Do I make it clear?

Mr. Rich. No; you do not.

Mr. LEAVY. What you mean is, if such development occurs up in Montana or in Idaho, it will supplement the power that you already have at Grand Coulee.

Mr. O'SULLIVAN. Yes.

Mr. LEAVY. And such supplementary power would have to be accounted for?

Mr. O'SULLIVAN. Yes, sir; it would.
Mr. LEAVY. Such increased power as was available?
Mr. O'SULLIVAN. Yes.

Mr. LEAVY. But the project, in and of itself, independent of any development in other States, is a complete project?

Mr. O'SULLIVAN. Oh, yes; it is a complete project without that storage.

Mr. LEAVY. The development in Montana and Idaho would change the water situation as it is on the Pend Orielle River on Clarks Fork, the main tributary of the Columbia, which flows into Canada and back again into the United States.

Mr. Rich. Maybe I can address my question to you, Mr. Leavy, instead of to the engineer, and get the information I desire.

Mr. LEAVY. I think you misunderstood him.

Mr. Rich. So that I can myself determine whether $186,000,000 is going to complete this project. I have seen so many of these Government projects get started for $186,000,000, and then when we get through we have $1,000,000,000 in it, instead of $186,000,000. When we get through with Grand Coulee and these coordinating things that go with it, it is going to run up into hundreds of millions of dollars above this item. I want to be sure that I can develop in my own mind that such is not going to be the case.

Now, Mr. Leavy, let me ask you this question.
Mr. LEAVY. Very well.

Mr. Rich. If we develop this Grand Coulee project as is now outlined, why does the State of Washington in any way have to rely on

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