Appendix A. Minutes of the commission's meetings.. Appendix B. Decisions of the Comptroller General affecting administra- Appendix D. Terms of permits and licenses issued; and statement of Table No. 12.-Proceeds to Dec. 31, 1927, derived from licenses.. Table No. 13.—Distribution and credit of proceeds of licenses. Table No. 14.—Analysis of receipts collected from licensees............ Table No. 15.-Payments to States under the Federal water power A3 EIGHTH ANNUAL REPORT OF THE PART I INTRODUCTION In previous reports of the commission primary emphasis was laid upon the number of the applications filed, the licenses which had been issued, and the extent of the development which had taken place under the commission's administration of the Federal water power act. After the long period of restricted water-power development which preceded the enactment of the existing legislation, it was evidently the purpose of Congress to encourage the use, under the terms of the act, of the country's latent water-power resources. The commission, therefore, issued licenses and authorized developments which have resulted in a marked increase in the use of these resources. Due, however, to lack of adequate personnel it could not at the same time perform other duties imposed upon it by the act-duties which related primarily to the protection of the public interest in the water powers so licensed. It was, therefore, obliged either to postpone for the time being the performance of these other duties or to prolong the period of nonuse which had preceded the passage of the act. The investigations and studies which were preliminary to the issuance of permits and licenses occupied the time of the small staff of employees which was all that the several departments, already burdened with their own responsibilities, had been able to loan to the commission, for the commission had no staff of its own; and neither sufficient time nor qualified employees were available for inquiring into the financial arrangements of applicants, the cost of construction of their projects, or the items which they were entering into the fixed capital accounts of their projects, all matters upon which costs to consumers are so largely dependent. The commission has called attention to this situation in its annual reports. It had hoped that the difficulties incident to permitting these unsettled matters to accumulate would be recognized, that it would be given the requisite means to perform all its duties, and that it would not be necessary for it to call a halt to power development in order that it might direct its whole attention toward performing the duties which it had hitherto been forced to postpone. In a letter under date of January 28, 1928, concerning certain recommended changes in the Federal water power act, signed by the three members of the commission and addressed to the chairman of the Committee on Interstate and Foreign Commerce of the House of Representatives, it was said: The proposed legislation is for the purpose of curing a serious situation in the work of the Federal Power Commission. The commission was created in 1920 and was given responsibilities over the disposition and use of the Nation's water power resources many times greater than had previously been placed upon the several executive departments. It was, however, given no personnel with which to perform its work, and, in consequence, it has been necessary for the commission to leave the greater part of its duties unperformed. Attention has repeatedly been called to this situation both in the annual reports of the commission and in recommendations heretofore made in reports on similar legislation. It was the purpose of Congress in passing the Federal water power act to afford means for a rapid development of the Nation's water-power resources under conditions which would safeguard the large investments involved, and which would at the same time fully protect the public interest. The first part of this purpose has been reasonably well accomplished. The second part of the purpose of Congress, namely, fully to protect the public interest in the issuance and administration of licenses, has because of lack of adequate personnel, been impossible of accomplishment. The com mission has proceeded with the issuance of licenses in the annual expectation that it would be given the means to exercise adequate supervision over them. This had not been given, and it is a serious question whether the commission ought not to cease the issuance of licenses altogether until it is in a better position to safeguard the public interests in their issuance. The legislation which the commission recommended having failed of passage, the commission issued Orders, No. 27,1 at its meeting of May 28, 1928, after making the following formal entry on its records: That the work of the commission relating to auditing of the accounts of its licensees and to the valuation of properties which were constructed at the time license was issued is seriously in arrears and must remain so until a more ade quate personnel is available for the performance of this work; and That under such circumstances it is desirable to limit as far as practicable any further accumulation of unsettled cases affecting questions of accounting and of valuation. These orders provided that after the date thereof no application for license or for amendment of license which added to the property subject thereto should, except in cases of emergency or in cases com ing within the scope of subsection (i) of section 10 of the act (that 1 See page 140. is, minor parts of projects or projects of 100 horsepower or less) be presented to the commission for approval unless and until agreement had been reached with the applicant with respect to the valuation under section 23 of the act, in cases where the provisions of that section were applicable, of the property or properties covered by the application, or, when such section was not applicable, with respect to the amount which, under the provisions of the act and of the rules and regulations of the commission, might properly be included in the fixed capital accounts of the project or projects covered by the application. The order further provided that all preliminary permits thereafter issued should require the permittee in its application for license to submit to the commission, under oath, a statement in triplicate showing the items and the amounts of expenditures made, charges accrued, or liabilities or obligations incurred which were claimed by the applicant to be actual, legitimate costs of the project, and that each such item must be supported by satisfactory evidence. Up to July 1, 1928, there had been filed 33 applications for license which came within the provisions of the order. In four of these cases complete statements, and in two cases partial statements, have been filed. In each of the six cases the necessary audits of the applicants' accounts have been made by the commission or are now in progress. In two cases agreements on cost have been reached and the licenses have been issued. The remaining four cases are well on the way to settlement. With respect, however, to 27 of the 33 applications subject to the order, no statements at all had been filed up to the 1st of November. The filing of statements in these cases while a prerequisite to action by the commission, is, of course, optional with applicants and the applicants themselves are, therefore, responsible for any delays caused by failure to submit the required statements or supporting evidence. The procedure fixed by Orders, No. 27 will avoid the future accumulation of unsettled questions concerning expenditures made or obligations incurred during the "prelicense " or promotion period; and these are the costs the validity of which it is most difficult to determine, both because of the nature of many of the claims presented and because of the frequent lack of supporting evidence. Orders, No. 27 have, however, no bearing on the accumulation of unsettled claims. arising from licenses issued prior to the date of the order. Of these cases there are 87 in all for which licenses have been issued, and in which claims of cost or value have been settled or are awaiting settlement. These 87 projects involve claims of $297,000,000. In 50 of these cases complete inventories or statements have been filed by the licensees. In 30 of the 50 the commission has made complete audits; and in 27 either agreement has been reached with licensees or costs have been fixed by order of the commission. The 27 cases involve an aggregate of $21,851,000, or about 7 per cent of the total of the claims involved. In addition the commission has audited $20,118,000, or a total of $41,696,000, 14 per cent of the total, leaving $255,000,000 not yet audited and $275,000,000 not yet settled. As it has frequently reported, the commission has not had a sufficient number of field accountants available for auditing accounts of licensees. Under such circumstances the commission has deemed it advisable to act first on those cases which could be settled by agreement and which did not require public hearings. In the majority of the remaining cases such hearings are likely to be necessary, and the commission has in course of preparation a manual of procedure to cover action in such cases. It proposes with whatever force it has to proceed to act upon the accumulation of unsettled cases. NATURE OF ACCOUNTING WORK AND REQUIREMENTS OF THE ACT WITH RESPECT THERETO The discussions before the committees and on the floors of Congress during the two sessions when the water-power bill was under consideration, as well as the provisions of the act itself, give adequate evidence of the intent of Congress to establish, with respect to the use of the Nation's water-power resources, a definite policy based upon perpetual retention in public ownership and control of power sites on public lands and power privileges in navigable waters; and, as respects public regulation over or public purchase of these properties and privileges, the recognition of only the actual expenditures reasonably necessary for their acquisition and development. To carry out this policy provision was made for the issuance of "licenses" limited to a period of 50 years; for optional "recapture" by the United States at the termination of the license period, upon the payment of the "net investment"; and for the current determination of such investment. To make such determination possible the act provided for the establishment and maintenance by all licensees of a system of accounts in the form prescribed by the commission. Particular emphasis was placed upon the desirability of definite records of expenditures and upon the important relation which such records would bear both to rate regulation and to "recapture.' "Those accounts, if we are to regulate rates and see that business is fairly conducted, must be at hand and made up from year to year. Without them nothing can be done in the way of securing continual good management, not to speak of 'recapture."" (Mr. Parker of New Jersey, vol. 56, Cong. Rec. p. 9959.) "The fundamental and, I think, the most important advantage of the net investment basis is that of certainty, and that certainty means a certainty not only at the end of the 50-year period but certainty of the amount invested every day, every month, and every year during the entire period of |