[From the New York Times of May 1, 1957] "ODM DEFENDED ON AID TO TWO DAMS-AGENCY HEAD SAYS FAIRNESS REQUIRED HELLS CANYON TAX WRITEOFFS FOR UTILITY “WASHINGTON, April 30.-Gordon Gray, Director of the Office of Defense Mobilization, defended today his award of special tax incentives to the Idaho Power Co. for the construction of two power dams on the Snake River in Idaho. Several congressional Democrats have assailed the award. “Mr. Gray said at a news conference that the two dams, at Brownlee and Oxbow, met the standards for such benefits, and fairness required the award. "The dams figured in the Hells Canyon controversy over public or private development of the river's power potential. The Federal Power Commission authorized Idaho Power to build three dams. "In the award last week to Idaho Power the ODM authorized it to write off part of the $103 million cost of 2 of the dams against its earnings in 5 years. Writeoff periods usually are 20 years or more. The company sought no benefits for the third dam. "BACKGROUND PROPOSAL "In the background is a bill in Congress that would authorize the Government to build in Hells Canyon a high dam that would flood the Idaho Power dams. The Senate Interior Committee approved the bill today, as it had in earlier years, but the proposal has never gone much further. "The ODM has approved fast writeoffs on about half the cost of 913 power projects. The cost of these projects is estimated at more than $6,650 million. "The effect of the Idaho Power award is to permit the postponing of about $31 million of taxes in the first 5 years the dams are in operation. The writeoffs amount to an interest-free loan, which the company will repay in the form of higher taxes in subsequent years. "Mr. Gray said that the 2 dams covered by last week's award were among 33 power projects approved for rapid tax writeoffs (amortization) after the ODM had stopped accepting applications almost 15 months ago. All the applications approved were filed before the deadline, he added. The last approval before that for the Idaho Power dams, he said, was for a $21,500,000 project of the Virginia Electric Power Co. "Mr. Gray was asked whether there had been any objection to the Idaho Power award by Senator Harry F. Byrd, Virginia Democrat, a critic of the project. Mr. Gray replied that he knew of nothing to indicate that the Senator objected. "ROBERTSON PROPOSAL CITED "Part of the criticism of the ODM action on the Idaho Power dams is based on the proposal of Senator A. Willis Robertson, Democrat, of Virginia, that a study of the writeoff applications be made by the Joint Committee on Defense Production, of which he is chairman. Mr. Gray said that he had been unable to find any commitment by the ODM to delay action. "Mr. Gray declared that he acted on his own responsibility in the Idaho Power case, without any instruction from the White House. He has indicated that the ODM writeoff certification might have come much earlier had it not been for suit challenging the project. He said today that the legal problems were cleared away early this month when the Supreme Court refused to hear an appeal of the challenge. "In justification of the two dams in the defense mobilization program, an aid of Mr. Gray noted that the power they generate is to go into a grid system serving a wide area. He stressed that there was a power shortage in the Pacific Northwest. "The Interior Department, in recommending approval of the applications, argued that the normal demand for power in the area was growing, that Idaho Power was soon to lose the power it had been buying from the Utah Power Co., and that the Atomic Energy Commission had created new demand for power in the area. "It declared that the Idaho Power project was needed by defense industries in the area prospective further such industries there. "The Senate Interior Committee also approved today construction of the $152 million Fryingpan-Arkansas reclamation project to carry water across the Rocky Mountains. The bill was substantially the same as that passed by the Senate last year, but which died in the House." Senator KEFAUVER. Mr. Chumbris, this has a list of the certificates to the electric-utility companies? Mr. CHUMBRIS. It is by State; it has Washington, Oregon, and Idaho, and it is through December 31, 1956, and deals with power utilities. Senator KEFAUVER. Then it only deals with electric utilities? Senator KEFAUVER. By way of explanation, the amount applied for is $1,259 million. The amount granted is $1,228 million. This is a very interesting table. It will be made a part of the record. Anything else, Mr. Chumbris? Mr. CHUMBRIS. I have not further questions. Mr. BOLTON-SMITH. Thank you, Mr. Chairman. Congressman Ullman, I was interested in your statement that when the application of the Idaho Power Co. was granted, the application for accelerated tax amortization was pending. I would like to direct your attention to a letter which appears in the Congressional Record of May 10, last, on page A3590, written by Clyde T. Ellis, general manager of the National Rural Electric Cooperative Association, dated April 29, 1957, in which he states, in effect, that, on April 24, the Federal Power Commission authorized the Idaho Power Co. to issue $40 million in short-term promissory notes to finance the construction of the dams on the Snake River and on the next day, April 25, the Office of Defense Mobilization announced the issuance of accelerated taxamortization certificates to the power company. Is that in accordance with your recollection? Mr. ULLMAN. That is correct. It is a significance that this type of coordination has been running through a lot of the actions of the Federal Power Commission in the last 4 years under the chairmanship of Jerome Kuykendall. Mr. BOLTON-SMITH. Do you think it was coordinated? Senator KEFAUVER. Mr. Bolton-Smith, what were those dates? Mr. BOLTON-SMITH. On April 24, the Federal Power Commission authorized the Idaho Power Co. to issue $40 million in short-term promissory notes to finance the construction of the dams and on the next day, April 25, the ODM issued its tax certificates, according to this letter. Senator KEFAUVER. That is very interesting. I think the letter has been put in the Congressional Record. Mr. BOLTON-SMITH. Yes; it could speak for itself, if you desire to offer it into the record at this hearing. Senator KEFAUVER. Let the letter and the explanation of the Congressman as it appears in the Congressional Record be printed in our record at this point. (The document is as follows:) HUGE TAX WINDFALL FOR IDAHO POWER Co. Extension of remarks of Hon. John D. Dingell, of Michigan, in the House of Representatives, Friday, May 10, 1957 Mr. DINGELL. Mr. Speaker, I recently received a letter from the National Rural Electric Cooperative Association telling how the Idaho Power Co. is about to get a huge windfall from the Federal Government in the form of accelerated tax amortization conferring on that company an interest-free loan of about $30.5 million, and enabling it to collect a total subsidy of $329 million for the construction of the Brownlee and Oxbow Dams. That figure will, of course, be 3 times in excess of their total cost and far in excess of the $308 million which would be required for full Federal development. It is interesting to note that the president of the Idaho Power Co. said that the dam was to be constructed with the money of Idaho Power and without a cent of cost to the taxpayers of the United States. It now appears, however, that his words did not reflect the real situation at all. But rather, that the pure capitalistic enterprise of which he thought so much is to be diluted with the taxpayers' money. It is not necessary to say that it would be better that this pure capitalistic enterprise, if it must be carried out to the detriment of the people of the Northwest and of the United States, be carried out without dilution and not have one socialized cent of the money of the Government of the United States or its taxpayers in to corrupt its great capitalistic purpose. I insert a letter giving the full facts and hope that the people of the United States and the Congress of this great country will give some attention to a big steal which is going on in the Northwest. The letter follows: NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION, Washington, D. C., April 29, 1957. DEAR MEMBER OF CONGRESS: Attached is a copy of a small pamphlet which a number of organizations have had produced for the purpose of summarizing the issues and the facts in the struggle of our organizations to prevent the Idaho Power Co. from destroying almost half of the power potential and other major benefits to be had from Federal construction of Hells Canyon dam. Since this pamphlet was prepared two absolutely incredible developments have taken place, the developments in strange juxtaposition. (1) On April 24 the Federal Power Commission authorized the Idaho Power Co. to issue $40 million in short-term promissory notes to finance the construction of its dog-in-themanger, run-of-the-river run dams on the Snake River. (2) On April 25, the following day, the Office of Defense Mobilization issued accelerated tax amortization certificates to the power company, thereby granting to that company an interest-free loan of $30,500,000 and enabling it to collect a total subsidy of $329 million for the construction of Brownlee and Oxbow dams, three times their total cost. This $329 million subsidy contrasts brutally with the $308 million investment required for full Federal development, an investment which is not a subsidy but repayable in full with interest. Under oath, during the Federal Power Commission hearings, R. P. Parry, president of the Idaho Power Co. said: "The applicant is here before you asking the privilege of constructing solely with its own money and without one cent of cost to the taxpayers of the United States a great multipurpose project * * *." In advertisements published all over America, the power companies boasted that they would save taxpayers $465 million and that "they (private power companies don't have to wait for an act of Congress or for tax money from the Treasury." (See Saturday Evening Post, May 26, 1956, p. 16.) That the Office of Defense Mobilization would approve this subsidy on the basis of applications pending since 1953, applications for two projects whose relationship to defense is so remote that it has never been used by the company as a justification for FPC licensing almost defies belief. There is no justification in the world for destroying close to half the potential benefits of the middle Snake River with a $329 million public subsidy when by the investment of $308 million, repayable with interest, and without subsidy, we can have full development, low-cost power, maximum flood control, and development of low-cost phosphate fertilizers. Nor is there any reason why the people, or, it seems to me, the Congress, should tolerate the kind of interagency collusion which has led to this revolting deal. We urge you most strongly to press for quick committee action on the MorsePfost and other similar bills, get them to the floor, and by a vote of approval tear this black and infamous page from the history of this Nation. Sincerely, CLYDE T. ELLIS, General Manager. Senator KEFAUVER. Anything else, Mr. Bolton-Smith? Senator KEFAUVER. Congressman Ullman, did I understand you to say that the amount not paid as taxes under the rapid amortization certificates is available to be paid out as dividends to stockholders? Is that what I understood you to say? Mr. ULLMAN. That is my understanding. It is placed in a deferred account and is available to be distributed among the stockholders. Senator KEFAUVER. In other words, the subsidy for it, or the savings to the company, which, according even to Secretary Humphrey's estimates run into several billion dollars, are available to be paid out as dividends for the shareholders? Mr. ULLMAN. Yes. The $30,500,000 which is the normal 52-percent corporate taxation amount of the certificates would be available for distribution to the stockholders of the company from this deferred account. Senator KEFAUVER. You have made quite a study of this? Mr. ULLMAN. I am not an authority on it, but I have studied this problem as a layman for many years. Senator KEFAUVER. We have heard from Congresswoman Pfost, who represents the district immediately east of this reach of the Snake River, to the effect that consumers there will get no benefit by virtue of the rapid tax amortization certificates. You represent the district immediately to the west in the State of Oregon? Mr. ULLMAN. That's correct. Senator KEFAUVER. Under the laws of the State of Oregon and the ruling of the Federal Power Commission, as you understand it, will consumers in your area, and in the State of Oregon, which is most directly affected, get no benefit in the way of reduced rates by virtue of these rapid amortization certificates? Mr. ULLMAN. They certainly would not. Of course, the irony of this whole thing is that the high dam would make available Bonneville rates, so we would have the base 212-mill rate available in the area, but the licensing of the private power companies guarantees us rates of 8 to 10 mills as a minimum. The private scheme, by canceling the threat of any competition, would guarantee us high-cost power from here on out. Senator KEFAUVER. Are you familiar with the granting of tax amortization to the Washington Water Power Co., in connection with the Cabinet Gorge project? Mr. ULLMAN. I understand such certificates were issued. Senator KEFAUVER. Do you know whether or not immediately after the issuance of such certificates large dividends were paid out by the Washington Water Power Co.? Mr. ULLMAN. That is my understanding. Senator KEFAUVER. Have you looked into the matter? Mr. ULLMAN. I believe that is correct, yes, sir. Senator KEFAUVER. Mr. Clifford, I believe you looked into that matter as counsel for this subcommittee, the year before last? Mr. CLIFFORD. In September, 1955. Senator KEFAUVER. Did you have hearings on this matter out in the State of Washintgon and Oregon? Mr. CLIFFORD. Mr. Chairman, they were conducted in the city of Washington. Senator KEFAUVER. But the witnesses came from out there? Mr. CLIFFORD. Yes. Senator KEFAUVER. Can you give us some information as to what was developed in that hearing? Mr. CLIFFORD. Yes. In September 1955 this subcommittee conducted hearings on a proposed merger between the Washington Water Power Co. and the Puget Sound Power & Light Co. The subcommittee staff examined documents of Ebasco Services, Inc., a wholly owned subsidiary of the Electric Bond & Sare Co. in New York. The staff gathered documents which are the possession of the subcommittee which show that very substantial savings were realized by the Washington Water Power Co. upon the advice of Ebasco Services, Inc., and that funds subsequently were distributed by Washington in the form of tax free dividends. Senator CARROLL. May I interrupt, Mr. Chairman, to ask a question? Did the tax savings about which you just testified, arise out of the fast tax writeoff? Mr. CLIFFORD. Precisely. Senator CARROLL. Mr. Clifford, will you and the staff make as brief a digest as possible, by way of summary, as what took place at those hearings? Mr. CLIFFORD. Yes, sir. Senator KEFAUVER. Congressman Ullman, is it true that the Pacific Northwest represents the great bulk of the undeveloped hydroelectric potential of the United States. Mr. ULLMAN. Yes, that certainly is true. We are fortunate enough to have in our borders about 40 percent of the hydroelectric potential in America and we have just barely gotten started on the development of our river resources. Senator KEFAUVER. Are there proposals pending for the licensing of projects on the Columbia River by the Pacific Northwest Power Co. and other companies? Mr. ULLMAN. Yes, sir. Senator KEFAUVER. Do you look for issuance of tax amortization certificates in those matters as has been done in the case of Idaho Power Co., if this law remains as it is? Mr. ULLMAN. That certainly has been the formula in the past. We in the Middle Snake area are the people who are particularly suffering from this program that has been undertaken in the last 4 years by this administration. First the Hells Canyon area was given to the Idaho Power Co. for underdevelopment and now in the Hells Canyon stretch below the Hells Canyon site the Pacific Northwest Power Co. which is a supermonopoly corporation composed of the four major utilities in the Pacific Northwest has applied for a further low underdevelopment project in place of another high storage dam that should be built if we are to get the full potential of the Snake River. Senator KEFAUVER. Is the Pacific Northwest Power Co. an Electric Bond & Share subsidiary? Mr. ULLMAN. I understand that Ebasco Services are doing the major engineering services for the company. Senator KEFAUVER. I mean, is it a company formerly connected with them? Mr. ULLMAN. Three of the companies are former Ebasco companies. One of them is not. 94133-57-pt. 1—3 |