39a

by the review of the so-called Sibert board." The latter was a commission of engineers appointed pursuant to an act of Congress, whose principal function was to pass upon safety features of the proposed works. The result of all these studies, as reported by Commissioner Mead, fixed the estimated cost of the Boulder Canyon Dam and power plants at $109,446,000. Interest upon this sum during construction was estimated to amount to $11,554,000, or a total estimated cost of $121,000,000. During the negotiation of the contracts the Sibert board authorized an increase in the height of the dam, to raise the water level 25 feet; and, while that board estimated that the higher dam could be built within the original estimate, the Bureau of Reclamation added for safety another $4,392,000 to the estimate, making an aggregate investment of $125,392,000. But as the project act provided that $25,000,000 of this cost might be allocated to flood control, to be repaid out of surplus revenues, the amount remaining to be met by firm power sales became fixed at $100,392,000. But of this sum, $17,717,000 was estimated to be the cost of power machinery, which it was contemplated would be financed by the lessees of the power plant. This reduced the net investment, exclusive of flood control and the cost of machinery, to $82,675,000. Computed against an amortization period of 50 years, interest at 4 per cent on this investment (required by the project act to be paid to the Treasury) was estimated at $108,107,007. The total which the Secretary was required to recover from sale of power during a 50-year period thus became $206,920,024.

(2) Preliminary studies of the quantity of water available for generation of power had been carried forward under the direction of Mr. E. B. Debler, hydraulic engineer of the Bureau of Reclamation. Revised to January 31, 1930, these computations showed that with a dam 557 feet high, we would have available on completion 3,600,000,000 kilowatt-hours of firm energy per year; with a dam 575 feet high, 4,240,000,000; and with a dam 582 feet high, 4,330,000,000. During the negotiation of the contracts the figure 4,240,000,000 was assumed. During negotiations the decision of the Sibert board, permitting an increase in the water level to 582 feet, raised this output by 90,000,000 kilowatt-hours, and this increment was separately disposed of.

39 This preliminary commission, "The Colorado River Board," reviewed the plans and specifications with particular reference to safety items. It consisted of Maj. Gen. Wm. L. Sibert and Messrs. Charles F. Berkey, Warren J. Mead, Daniel W. Mead, and Robert Ridgway.

(3) The third basic element of information required before undertaking negotiations was the price which could be realized for this power. That price was subject to control by two factors:

(a) The Secretary was required by the project act to obtain a sufficient rate to amortize the cost of the dam, but (b) the act required that the amount be determined by "competitive conditions at distributing points or competitive centers"; and this latter would have been a determining factor even in the absence of statutory direction. As the only market large enough to absorb sufficient energy to yield the required revenues lay in southern California, and was located over large oil and gas deposits, the cost of energy provided by oil and gas necessarily fixed the comparative value of Boulder Canyon power. A study was accordingly undertaken by R. F. Walter, Chief Engineer, L. N. McClellan, chief electrical engineer for the bureau, Prof. W. F. Durand, of Stanford University, and others. Their report, rendered on September 10, 1929, computed the value of Boulder Canyon power at the switchboard on a series of assumptions as to costs of private and public development, all of which reckoned back to a value for the use of falling water, amounting to about 1.63 mills per kilowatt-hour.

The amount of money to be brought in by sale of power at the rate stated would, of course, be subject to certain assumptions. First, the project act required the readjustment of rates to accord with competitive conditions at competitive centers 15 years after the date of the contract, and every 10 years thereafter. Second, the amount of water available for generation of power would decrease by virtue of upstream use and gradual silting of the reservoir. Third, the amount would be affected by the number of years covered by each power contract. (The contracts ultimately negotiated disposed of 4,330,000,000 kilowatthours of firm energy on the completion of the dam, decreasing at the rate of 8,760,000 kilowatt-hours per year thereafter; and the three groups of contracts will run for 50, 49, and 47 years, respectively, as described below. They will yield a total from the sale of firm power amounting to $327,866,350, and are so distributed that performance by any two of the three principal contractors will provide the minimum of $207,000,000 required for amortization.)

Invitations for applications for the purchase of power were published on September 10, 1929. October 1 was fixed as the application

date. Upon that date the Secretary had at hand applications from 27 parties. Some of these applications were conditional and others were indefinite; but the three principal applicants were the City of Los Angeles, the Southern California Edison Co., and the Metropolitan Water District of Southern California. Each of the first two asked for the entire power output, which was assumed at that date, prior to decision on the final height of the dam, to be 3,600,000,000 kilowatthours. The Metropolitan Water District asked for about half that amount of energy and the State of Nevada asked for a third of it. The total of the applications was thus well over three times the amount of power available.

The Secretary was accordingly faced with the problem of allocating the energy available among the conflicting applicants.

The allocation of the energy was undertaken on the premise that the project act required that the public interest be the governing factor, and that the first requisite in protecting the public interest was to provide adequate security for the taxpayers' money. It was recognized that the absorption of this quantity of power represented a serious problem and that adequate security for the Government required that the risk be spread among several agencies. It was recognized also that it was desirable that as broad a regional benefit be obtained from this power as was consistent with financial soundness. The dam would rest on the border between Arizona and Nevada, and it was desired to give them an opportunity to use its energy; but neither of them was in a position to make a firm contract for use of any power within its borders. The California applicants included agencies serving cities, great rural areas, and the Metropolitan Water District, which proposed to construct an aqueduct from the Colorado River to the Coastal Plain. It was recognized that the water needs of this area were the great motive force behind the financing of the dam.

On October 21 the Secretary announced a tentative allocation of power, as follows:

"The power to be developed at the Boulder Dam subject to certain deductions is to be contracted for as follows:

"To the Metropolitan Water District of Southern California, 50 per cent, or so much thereof as may be needed and used for the pumping of Colorado River water.

"To the City of Los Angeles 25 per cent; and

"To the Southern California Edison and associated companies, 25 per cent.

"These allotments are to be subject to certain deductions which may arise through the exercise of preference rights, i. e.,

"(a) not exceeding 18 per cent of the total power developed for the State of Nevada for use in Nevada;

"(b) not exceeding 18 per cent of the total power for the State of Arizona, for use in Arizona, as above; and should either of the States not exercise its preference rights the other may absorb them up to 4 per cent;

"(c) not exceeding 4 per cent for municipalities which have heretofore filed applications.

"All such preference rights in whole or in part are to be exercised by the execution of valid contracts with the respective States and municipalities satisfactory to the Secretary and the exercise of such preference rights is to reduce proportionately the above allotments to the district, the city, and the company.

"Any State desiring to withdraw power within the limitations above stated must serve on the Secretary of the Interior written notice. within not less than 12 months of the amount of power desired, and for the purchase of which valid contracts satisfactory to the Secretary must be executed.

"Power contracted for but not required within a State shall be allocated to the city and the company on a 50-50 basis, with the reservation that it can again be called for within a reasonable time for use within the State. All power provided a State shall be at actual cost. "Should the 50 per cent allocated to the Metropolitan Water District be not required for pumping, this shall become available to the City of Los Angeles, 66% per cent; to the Southern California Edison and associated companies, 33% per cent.

"Any municipalities desiring power within the limitation prescribed must execute the necessary contract therefor within 12 months from the date the contracts are made with the district and the city.

"Any firm power available at the Boulder Canyon Dam for the payment of which other contractors do not become and remain liable, aside from that allocated to the Metropolitan District, shall be taken and paid for by the City of Los Angeles and the Edison Co. on a 50-50 basis.

"The contract for the available power is to be made with the City of Los Angeles and the Metropolitan Water District, with various subcontracts assuring the above, and providing for a board of control made up of two members nominated by the City of Los Angeles and

the Metropolitan Water District, two by the Southern California Edison and associated companies, and one by the Secretary of the Interior, to act with the City of Los Angeles in the operation of the plant.

"The Federal Government will install the dam, tunnels, power house, and penstocks. The machinery for the generation and distribution of power is to be provided and installed by the lessees. The costs of installation and operation are to be borne by those contracting for the power in proportion to the amounts received. When the dam and power house are actually in operation the lessees may have the right to ask for a review of the actual cost of units of power and be entitled to deductions which will still permit the charge made to return to the Government all advances and interest in accordance with the Boulder Dam act, and provided further that if such review indicates that a higher rate should be paid for power to meet the obligation to the Federal Government such an advance in rate will be put into effect.

"There will be a clause inserted in all of the contracts which will insure the distribution of all power developed at the Boulder Dam at such a price as in the opinion of the Federal Power Commission is fair to all consumers. Should certain municipalities operating their own power plants desire to make separate agreements with the City of Los Angeles and the Metropolitan Water District they shall be supplied with power at cost price.

"The charge for storing water for the Metropolitan Water District will be 25 cents per acre-foot."

November 12, 1929, was set as a date for a hearing in the event of any protests against this allocation as provided in the Boulder Canyon project act. On that date an extensive hearing was held. An attempt was made thereafter to reconcile the conflicting applications on their points of disagreement; it was recognized that the size of the undertaking required that the various contractors present a unified front for the protection of the financial stability of the project.

Negotiations among the conflicting applicants having failed to crystallize in an agreement, Northcutt Ely, assistant to the Secretary, was sent to Los Angeles in the latter part of February, 1930, and negotiations with the applicants were resumed there. On March 20, after negotiations participated in on behalf of the United States by Mr. Ely and Mr. L. N. McClellan; for the City of Los Angeles by Mr. E. F. Scattergood, Dr. John R. Haynes, and members of the