Mr. SCUDDER. Would this not be a Federal project? Colonel WHIPPLE. Yes, sir. Mr. SCUDDER. This is a Federal project? Colonel WHIPPLE. Yes. Mr. SCUDDER. How do we get taxes from a Federal project? We get token taxes sometimes. Colonel WHIPPLE. We have had a restudy of the method of approaching the economics by the Corps of Engineers, the Department of the Interior, and the Federal Power Commission, and we have come to the conclusion that the taxes paid by the private steam companies should be considered as an element in determining whether the Government should or should not enter into a given enterprise. The fact that the Government does not pay the taxes does not mean that that tax is not an element of economic cost, and that is the reason why we are raising this question on an authorized project today, because if you do consider the taxes as an element of economic cost, that is the margin by which the inclusion of power becomes submarginal. There is really a broad question of policy involved. Mr. ANGELL. This power is to be intermittent power, as I understand it? Colonel WHIPPLE. This power we are talking about has been evaluated on the basis of firm power. Mr. ANGELL. We have a letter addressed to the committee from Mr. Frank M. Wilkes, president of the Southwestern Gas & Electric Co., in which he says: While such power and energy is of an intermittent nature, it can be used by the electric systems in the area as peaking power, which would give it a maximum value. In your judgment that is incorrect? Colonel WHIPPLE. I think it is a question of what he means by intermittent. The amount of power we have based this on would be available as peaking power for 99.3 percent of the time, so it is available as peaking power substantially all the time but at a load factor which would vary from 10 to 30 percent. Mr. ANGELL. Any further questions? Thank you, Colonel. Without objection the letter from Mr. Frank M. Wilkes addressed to the chairman will be inserted in the record at this point. (The letter referred to is as follows:) SOUTH WESTERN GAS & ELECTRIC CO., Hon. GEORGE A. DONDERO, House of Representatives, Washington, D. C. MY DEAR CONGRESSMAN: It is our understanding that a subcommittee of your committee in the next few days will be considering the proposed dam and reservoir at McGee Bend on the Angelina River in southeast Texas. This development has a great deal of merit, particularly for the supply of fresh water for industries and for irrigation in that area. As water is released from this dam for use for these two purposes, it also can produce a considerable amount of power and energy. While such power and energy is of an intermittent nature, it can be used by the electric systems in the area as peaking power, which would give it a maximum value. While there is no shortage of power in the area, contracts can be made for the sale of this power and energy before the dam is constructed so the systems in that vicinity can make arrangements for its distribution to all electric consumers, especially to the local rural electric cooperatives. Peaking power and energy as will be produced at this project is always a useful and valuable commodity. It can always be absorbed as peaking power into the loads of the area regardless of the power-producing equipment otherwise available. With kindest personal regards. Yours very truly, FRANK M. WILKES. Mr. ANGELL. We have with us, I understand, now, our colleague, Mr. Brooks. The committee will be very happy to hear you, Mr. Brooks. STATEMENT OF HON. JACK B. BROOKS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS-Resumed Mr. BROOKS. Thank you very much, Congressman Angell. I am sorry I was a few minutes late. I will summarize in about 5 minutes what the proposal is and I think it will clear up any doubt you may have in your mind. Mr. ANGELL. The committee will be very glad to hear from you. (The statement by Congressman Jack B. Brooks is as follows:) STATEMENT SUBMITTED BY JACK B. BROOKS, MEMBER OF CONGRESS, SECOND DISTRICT OF TEXAS Planning studies subsequent to the time of authorization of the plan of improvement of the Neches and Angelina Rivers, Tex., in the River and Harbor Act approved March 2, 1945, indicate substantial changes in the benefits and cost. The Chief of Engineers by letter dated March 29, 1954, advised the committee of those changes. The next project which should be undertaken in this plan of improvement is the McGee Bend Reservoir on the Angelina River for flood control, hydroelectric power, water supply, and other beneficial uses. The estimated cost of the McGee Bend Reservoir has been increased to $47 million. However, the project as a whole still has a favorable benefit-cost ratio, even under relatively severe new criteria of evaluating power benefits, and information furnished to the committee indicates that a contract can be made for the sale of power at rates which will return annual payments greater than the incremental annual project cost of including the power. Owing to the increased project costs and the substantial benefits which will acrue to local interests from water supply, the amount of the contribution required of local interests under the same percentage of local contribution would be proportionately $7,900,000, which together with the $2 million already contributed to the construction of dam B would make the total contribution required $9,900,000. The act approved March 2, 1945, required a contribution toward the first cost of construction of the Rockland Reservoir, dam A, McGee Bend, and dam B. Local interests have agreed to contribute, in addition to the $5 million, the amount of $200,000 annually for a 50-year period the first payment to be made 5 years from the date of completion of McGee Bend Dam. Such offer to pay $10 million over a period of time is in addition of $3 million required under the 1945 act. It is also important to note that when the power developed is sold at $800,000 per year or more, as can be done now to private public utilities, the ultimate return to the Government on power alone over the 50-year period will be $40 million. The annual incremental cost of power is $762,000 which figure is exceeded by the $800,000 now offered for this power. The knowledge that there is a minimum value of $800,000 annually for the power involved certainly should be justification for continuing hydroelectric power in the authorization of the project. The more than one-half million people who are interested in and dependent upon the development of the Neches and Angelina River watersheds have relied upon the contract of the United States Government. They have put up their money, they have committed their resources, all of this having been done in 1946 and reaffirmed in 1947. Now, under new directives, new rulings, issued after this project has been begun and after partial performance has been accomplished by both parties, it seems only fair and proper that the full feasibility of this multiple purpose project be considered. The full project, including flood control, power, and conservation has, even under the more stringent new criteria, standing as a beneficial, feasible, and worthwhile project, not piecemeal, but as an entity in the complete utilization of the potentialities of this great watershed, the Neches and Angelina Rivers. I particularly request your attention to the written brief filed with this committee bringing out the equities and rights of local interests. From the standpoint of equity, moral oblngation, and fairness to the good faith of half-million American citizens, I am accordingly including some suggested language which I believe represents a solution which gives due consideration to the interests of all concerned. NECHES AND ANGELINA RIVERS, TEX. Neches and Angelina Rivers, Tex.: The plan of improvement authorized in the River and Harbor Act approved March 2, 1945 (59 Stat. 10), is hereby modified to provide for the construction of the McGee Bond Reservoir on the Angelina River for flood control, hydroelectric power with an installed capacity of 45,000 kilowatts, water supply, and other beneficial uses at an estimated cost of $47 million as outlined in table 2 of the summary of pertinent information concerning Neches and Angelina Rivers, Tex., project dated November 1953 and filed with the Public Works Committee, March 29, 1954, provided that the lower Neches Valley authority, a State agency, in payment of the conservation storage contribute $3 million toward the cost of construction on completion of McGee Bend Dam and $200,000 annually for a 50-year period the first payment to be made 5 years after completion of McGee Bend Dam. Mr. BROOKS. The cost of the power will be $762,000 a year. We have and will introduce a letter from the independently owned private utility which operates in this area right here [indicating], which is the Gulf States Utilities Co., in which it states that it is willing to pay $800,000 for that power per year, whch would be a net profit to the Government of the difference between $800,000 and $762,000. $800,000 is what it can be sold for. We do not have to sell it for that. We may sell it for more, but they are willing to pay that for it now which indicates clearly, I think, that the power is worth more than the money we are putting in that dam. Starting about 1939 and 1941, this project was worked out with the Corps of Engineers, and in 1945 it was authorized. The project originally was to include four dams. In 1946 there was another hearing and it was agreed then that they would postpone action on the Rockland Dam and dam A and would concentrate on McGee Bend and dam B if the local people would increase their contribution to $5 million for the 2 projects rather than $5 million for the 4 projects. The local people agreed to that and put up $2 million for dam B, a regulatory dam. The Federal Government has invested $8 million in dam B, of which $2 million was put up by local people. They had invested $750,000 in planning on McGee Bend. In 1953 there was a change in the rules as to the method by which we were going to count benefits and give value for benefits. The Corps of Engineers have interpreted this in the light of the new rules as well as the rules under which we started this. When they changed the rules, it makes a considerable difference. Take for example the possibility of putting in steam plants. We do not even recommend steam plants in east Texas, and I do not think the Corps of Engineers will. I think it is an unrealistic yardstick. We will save money by putting this power in. We have this additional advantage, and we are very proud of it. The power company that represents all this area in here and to Baton Rouge, La., is the Gulf States Utilities Co. The vice president of that company was in my office and we are on good terms and he said, "We will buy this power. We think it will be of benefit to the community. We are glad to see REA in the area, we work along with them, and there is no conflict." In addition to that, the north area is represented by the company from whom you have a letter, I believe, written by Mr. Wilkes. This project has been authorized since 1945. A part of it has been done, but the part that has been done is of much less value now than it will be when the whole project is completed. We are confronted with this problem: Before this project can be approved by the Appropriations Committee the Bureau of the Budget would like to take a look at it. The Bureau of the Budget has encouraged the Corps of Engineers to make a restudy of all these projects, which they have done, and in the case of this one they felt obligated to give you a copy of their restudy so that you will know what the status is. 1 Essentially, what we want to do is establish these facts by testimony from the people in my district who know the industrial needs and the farming needs, and from the REA people, who know the power needs, and from the Lower Neches Valley Authority, which is willing to put up every dime they can. This is important. They have tried to cooperate and put up money and have agreed voluntarily to put up another $10 million. We cannot put it up in cash. We cannot float bonds for that amount in 1 year. But they will pay $200,000 a year for 50 years, and I think that is indicative of the good faith of our local people. That will represent about 30 percent of the total cost as opposed to 18 percent of local contribution that would have been made under the original plan. As I understand it, there is absolutely no hydroelectric or other Federal power produced on either the Neches, or Sabine, or Calcasieu. or Trinity. Is that correct? Colonel WHIPPLE. Not on the Trinity. Mr. BROOKS. Those are the rivers involved. We are not concerned with the Brazos and we are not concerned with Arkansas. This is the area we are concerned with [indicating], and there is no power there now and we need it. I would like to introduce the people who will give the facts on this. Mr. ANGELL. Just a minute. Are there any questions? Mr. BROOKS. If there are any questions at all, I will be glad to try to answer them. Mr. ANGELL. If there are no questions, you may present your wit nesses. Mr. DEMPSEY. Who will operate this hydroelectric plant if it is constructed? Mr. BROOKS. If it is constructed as part of the McGee Bend project, it would be operated by the Federal Government and the power would be sold to a private utility company which is ready and willing to buy and ready and willing to protect the interests of the REA's, of which there are several in the district. Mr. DEMPSEY. They would pay $800,000, as I understand? Mr. BROOKS. Yes, sir Mr. DEMPSEY. And it would cost the Federal Government how much? Mr. BROOKS. $762,000. That is the annual cost allocated to power. Mr. DEMPSEY. Does that include depreciation? Mr. BROOKS. As I understand it. It is the total cost including all the factors. Colonel WHIPPLE. That is right. Mr, DEMPSEY. Does it include depreciation? Colonel WHIPPLE. It is an annual figure that includes cost of operation, depreciation, amortization, and so forth. Mr. DEMPSEY. Does it include taxes? Colonel WHIPPLE. It does not include any allowance for taxes at all. Mr, BROOKS. Were there any other questions? Mr. ANGELL. If there are no further questions, you may present your witnesses. May we suggest that the witnesses be as brief as possible in order that all of them may be heard. Mr. BROOKS. Could we take another 20 or 25 minutes? Mr. ANGELL. That will be all right. Mr. BROOKS. First I would like to introduce Mr. W. F. Weed, president of the Lower Neches Valley Authority. Mr. ANGELL. We will be very glad to hear you, Mr. Weed. STATEMENT OF W. F. WEED, PRESIDENT, LOWER NECHES VALLEY AUTHORITY Mr. WEED. I am W. F. Weed, president of the Lower Neches Valley Authority, headquarters at Beaumont, Tex. The Lower Neches Valley Authority was created by the Texas Legislature in 1933 for the purpose of developing the lower Neches River and its tributaries, for the benefit of the people of Texas. The authority has no taxing power, and for 10 years had only voluntary contributions. In 1943, through voluntary negotiations, we acquired the water distribution rights to the flow of the lower Neches River. At that time we began to intensify our efforts to find a means of obtaining an adequate reserve supply of water above stream for our use, and we hired engineers and planned a dam to be built at Rockland with our own resources. This dam had the approval of some governmental agency-I do not recall its name-and we had the right to build a dam on that river. We asked for a hearing before the Army engineers in order to get a permit to build this dam. This hearing was held in March of 1945 in Beaumont, Tex. At the time of this hearing the Congress passed the omnibus bill of 1945 which authorized among other things the building of the four dams on the Neches and Angelina Rivers which Colonel Whipple has told you about. We were invited to appear before the Army engineers and discuss the problem with them. They pointed out that the building of a single purpose dam for water conservation containing approximately 1 million acre-feet of storage would interfere with the building of the 4 dams because it would remove the incentive of a local agency to contribute $5 million toward the cost of these dams. Therefore, we abandoned plans to build a dam on the Neches Riverand we had estimated the cost of that in 1945 to be $5 million-and at a conference with the Chief of Engineers and our Congressman we agreed to go in with the Federal Government to construct this |