HOOVER DAM POWER CONTRACTS MADE UNDER THE BOULDER CANYON PROJECT ADJUSTMENT ACT

A. Regulations of May 20, 1941 (Appendix 901)

On July 27, 1940, Secretary Ickes designated Mr. R. V. L. Wright as his special representative to hold hearings in preparation for the promulgation of regulations and the determination of charges. Mr. Leland Olds, Chairman of the Federal Power Commission, and Dr. W. F. Durand, of Stanford University, were designated to act as advisers.

Hearings were held under that authorization from August 12, 1940, to December 6 of that year. Mr. Wright submitted his recommendations on February 19, 1941, and they were approved and regulations promulgated on May 20, 1941.

Below are summarized the more important features of these regulations:

Operation and maintenance.-The United States reserved operation and maintenance of the dam and appurtenant works, but provided for operation of the generating machinery and equipment by the city of Los Angeles and the Southern California Edison Co. under an agency contract (art. 2).

Firm and secondary energy.--Firm energy was defined as 4,330,000,000 kilowatt-hours (being the 4,240,000,000 kilowatt-hours defined by the regulations of April 25, 1930, plus 90,000,000 additional made available by an increase in the height of the dam, and allocated to the city of Los Angeles by the supplemental regulations of November 16, 1931). The same annual diminution (8,760,000 kilowatt-hours per year) was stipulated in the new regulations as in the old. Secondary energy was defined to be all electrical energy available in any year of operation in excess of the amount of firm energy; but for the purpose of computing energy rates, it was assumed that 40,000,000,000 kilowatt-hours of secondary energy would be available in the 50-year period ending May 31, 1987 (art. 3).

Allocation of energy.-Energy was allocated in the same proportions as under the regulations of November 16, 1931, but by virtue of the increase of the base from 4,240,000,000 to 4,330,000,000 kilowatthours (art. 4) the percentages were necessarily restated to afford to

each allottee the same number of kilowatt-hours. Substantially the same provisions relating to allocations to the States, disposition of unused energy, etc., were provided for as under the original regulations, the schedules relating to the States' withdrawal and relinquishment of energy being restated somewhat. During the 10-year period intervening since promulgation of the regulations of 1931, the City of Los Angeles had acquired the properties of the Los Angeles Gas & Electric Corp. and its revised allocation reflected that change.

The table (p. 94) shows the commitments and entitlements of the various allottees.

Components of charges.-The 1941 regulations, like those under the original Project Act, separated the charges into two components: (a) An energy charge which was primarily related to the investment in the dam, and (b) a generating charge primarily related to the investment in the power plant machinery (art. V).

Basis of energy rates.-The basis of energy rates stated by article VI of the regulations conforms to the elements of section 1 of the Adjustment Act, spelled out in somewhat more detail with respect to annuities for replacements, etc., and with the necessary provisions to exclude from this calculation the annuities relating to the generating machinery (art. VI).

Uniformity of energy rates.—Article VII stipulated that the rates for firm energy should be uniform for all allottees and the rates for secondary energy uniform for all users of that class of energy (art. VII).

Relationship between rates for firm and secondary energy.-These regulations carried forward a stipulation originating in the City of Los Angeles "third-circuit contract" dated July 6, 1938, establishing a permanent ratio between the rates for firm energy and secondary energy (art. VIII).

Firm energy rate. Subject to minor revision and adjustment as provided for below, a rate for firm energy 1.163 mills per kilowatt-hour was established for the period June 1, 1937, to May 31, 1987 (art. IX). Secondary energy rate.-Subject to similar provisions for a readjustment, a rate for secondary energy of 0.34 mill per kilowatt-hour was established for the period of June 1, 1937, to May 31, 1987, and it was provided that energy taken by any allottee in excess of its obligation for firm energy should be charged for at the secondary rate (art. X).

Credits for allottees not taking their full firm energy obligations.— Article XI provided that if any allottee should take less than its obligation but another allottee should take more, the excess revenues paid by the latter should be credited at the secondary energy rate against the obligation of the former.

Credits to adjust payments occasioned by energy rate reduction.— Provision was made for retroactive adjustment to June 1, 1937, to place the modified rates in effect for the amortization period (art. XII).

TABLE 2.-Allocation of Hoover Dam energy under regulations of May 20, 1941

Payments to States and transfers to Colorado River development fund.— Mechanics were established for the transfers to Arizona, Nevada, and the development fund of the amounts provided for in the Adjustment Act (art. XIII).

Adjustment of energy rates.-Provision was made for three types of adjustments: (1) some on a periodic 5-year basis, primarily to reflect differences between the estimated quantities of firm and secondary energy on which the rates were calculated, and the quantities actually available; (2) annual adjustments to reflect variations between estimated costs of operation, maintenance, and replacements and actual costs as well as to reflect additional investments not taken into account in previous estimates; (3) an adjustment at the end of the amortization period June 1, 1987, to accomplish the result that the revenues during that period should be "sufficient but not more than sufficient" to provide the amounts required by the regulations (art. XIV).

With respect to the first category, the assumption was made that during the 50-year amortization period a total of 205,769,000,000 kilowatt-hours of firm energy would be available, and provision was made for adjustment if the firm energy actually available should be short as much as 30 percent in any 1-year or 25 percent in any 5-year period, or 3 percent short of the total assumed for the 50-year period. Details were spelled out with respect to these calculations.

In like manner it was assumed that during the 50-year period a total of 40,000,000,000 kilowatt-hours of secondary energy would be utilized, and provision was made for adjustment in the event the quantity actually used should vary from that figure.

With respect to the second category of the adjustments, i. e., those made on an annual basis, provision was made for hearings on the Secretary's annual estimates.

As to the investment prior to June 1, 1937, a fixed amortization period of 50 years, ending May 31, 1987, was stipulated; as to investments subsequent to June 1, 1937, a 50-year period commencing June 1 following the year of operation in which the funds were advanced; and in the event of a deficiency in revenues for firm energy occasioned by act of God, major catastrophe, etc., it was provided that such deficiency should not be reflected in any adjustment of the energy charge, but only in the amount to be amortized within the period ending May 31, 1987 (art. XV).

It will be noted that all of the foregoing relates to energy charges, and not to generating charges, which are treated separately in article XVI.

Division of generating machinery and equipment.-These regulations (art. XVI) continued the policy established by those of 1930, in segregating the main generating facilities, transforming and switching facilities, etc., into groups to be operated separately by the Depart

ment of Water and Power of the City of Los Angeles, and the Southern California Edison Co. Whereas the original regulations of 1930 had been written in advance of construction of the power plant, those of 1941 were promulgated after the equipment was largely installed, and hence designated in detail the elements to be included in the various groups. The assignment of facilities, and responsibility for amortizing investments or various sections thereof, were spelled out in subsequent articles.

Adjustment of generating charges.-The operating agents are required to furnish as of May 1 each year their estimates of the costs of operation and maintenance for the coming year of operation. Monthly bills for generating charges are rendered by the United States to the various allottees, based on those estimates (art. XIX).

Under these regulations, the Secretary has entered into the contracts summarized in the following pages.

B. Agency Contract (Appendix 902)

The agency contract of May 29, 1941, between the United States, the Department of Water and Power of the City of Los Angeles, and the Southern California Edison Co., Ltd., effectuates those portions of the regulations which provide for substitution of an agency contract for the outstanding lease between the same parties. In general, it terminates the lease (art. 14), designates the city and the Edison Co. severally as operating agents, the first with respect to the equipment serving the public agencies and the latter with respect to equipment serving the privately owned utilities (art. 15); fixes a term ending May 31, 1987, for the agency contract (art. 15 (d)); specifies the properties to be operated by each agent (art. 16); specifies the duties, powers, and rights of each operating agent (art. 17); specifies the powers and duties of the power-plant director to be appointed by the Secretary (art. 18); and provides for metering and keeping of records, etc. (art. 19). The foregoing provisions parallel, more or less, comparable provisions in the preexisting lease.

Article 20 contains a new provision relating to integration of operations, its general effect being to recognize the statutory directions of the Project Act with respect to operation of the reservoir but, subject thereto, to grant to each operating agent the assurance that

the operation of Boulder power plant shall be reasonably integrated with the operation of other projects on the Colorado River owned and operated by the United States at which power is or may be developed, and with the operations by the operating agents of their respective systems, including their other sources of electrical energy.

An integrating committee is provided for, representing the operating agents and the Secretary, to set up annually a program for integra