Chapter 10: Private Enterprise and River Development

CHAPTER 10 Private Enterprise and River Development One of the main arguments advanced for river development by government is that private enterprise cannot or will not do the job. Demonstrably, this is not true. For example, the Southern California Edison Company's Big Creek development shows what private power companies have done — and are doing — on many rivers in various parts of the United States. In the High Sierras, Southern California Edison Company has constructed a $100 million project. Beginning 36 years ago, this company (and its predecessor companies) built access railways and highways, a 13-mile tunnel, hydroelectric power houses and dams. In addition to furnishing a steadier water flow for power production, these dams also provide valuable flood control for the lower San Joaquin River. They flood no good or tillable land. They store water to be released for power production during the dry season. This water is then also automatically available for irrigation in the valley below. Not only do the taxpayers make no contribution to this project but also they receive contributions from all these improvements through taxes paid on them by Southern California Edison. Contrasted to the tax-supported TVA project, this job is taxed while the people get the resulting incidental flood control and irrigation benefits without charge.

66 PRIVATE ENTERPRISE AND RIVER DEVELOPMENT Many other similar comprehensive hydroelectric projects—some dating back to the beginning of this century — have been financed and built by private citizens on the West Coast as well as elsewhere in the United States. But probably the best known example of private enterprise effecting a comprehensive development of a large river is found in the development of the Wisconsin River by the privately owned Wisconsin Valley Improvement Company. In 1905, several businessmen in the Wisconsin Valley drew up a plan for comprehensive development of the 430-mile long Wisconsin River. In 1907, the State Legislature issued them a charter. Today there are 21 privately built storage reservoirs for water control on the tributaries of the river. They can impound more than 17 billion feet of flood water. In addition to these 21 water control reservoirs, there are 24 hydroelectric and hydromechanical power plants built as separate projects lower down on the main stream. These plants are owned by several different private companies. They have a capacity of 119,000 electrical kilowatts and 28,000 mechanical horsepower. The purpose of these power dams is to produce power. They are of little, if any, value for flood control. That problem is handled by the non-power producing reservoirs on the tributaries. The number of reservoirs and power dams is to be increased as fast as there is economic justification for doing so.

The reservoirs and dams are integrated into one privately controlled system to provide flood control and steadier water flow for power production. The basic needs for navigation, fish, elimination of water pollution, and other services are also provided — at no cost to the taxpayers. The essential points of this story are well told by the following extracts from an article entitled "One Less River to Boss" printed in the Electrical World, August 14,1948: "The man who says that only the Federal Government can do THE WISCONSIN VALLEY IMPROVEMENT COMPANY 67 a complete river development job doesn't know whereof he speaks. They've been doing it otherwise on the Wisconsin since the turn of the century. Here's how: "The Wisconsin Valley Improvement Company is to the Wisconsin River what TVA is to the Tennessee. It would be hard to point out two agencies doing jobs so similar which are so different.

"WVIC is a privately owned stock company. Its reasons for existence are three: "1. To develop and control the water resources of the river as an agent of the State of Wisconsin, operating under a revocable charter; "2. So to manipulate the river flow, under all legal restrictions, as to permit member companies to get the greatest amount of power they can or will use; "3. To earn money. "WVIC is a 40-man organization with headquarters at Wausau, about mid-way on the 430-mile river...." "The WVIC works hard and it works effectively. It serves those who live and work near it. This it has done for 40 years. And it's paying its own way. "The WVIC boasts a comprehensive, integrated, substantially complete, privately financed and controlled development of a river. "Every year, the WVIC pays complete taxes — local taxes, state taxes, federal taxes. "Every year, the Wisconsin River stays where it belongs — and maintains a remarkably even rate of flow while doing it.

"Every year, the Wisconsin River provides recreation and fine fishing. "Every year, the Wisconsin River provides a generous flow of dependable, economical kilowatt hours to the industries and homes along its banks.

68 PRIVATE ENTERPRISE AND RIVER DEVELOPMENT "Every year, the Wisconsin River does a sewage disposal job, which, under other conditions, would require many expensive sewage disposal plants. . . ." "Every year, then, the Wisconsin River does about what the Tennessee River does — on a much smaller scale, to be sure. But the Wisconsin River does it under private auspices. The Wisconsin uses venture capital, not taxes. . . ." "The state has not recalled or even threatened seriously the original grant.... So, similar grants might pay off elsewhere today, yielding proper development of undeveloped water resources to other states which want development and see no sin in permitting private capital and initiative to do the job. "By statute, Wisconsin assigned the Wisconsin Valley Improvement Company several rights. These include: "1. The right to build or buy a reservoir system and waterways for diversion of flood waters to or from the river. . . ."

"4. The right to charge and collect reasonable and uniform tolls — for the navigation service it renders boats and other floatables, and for the stored water it makes available to power plants below its reservoirs. Tolls for the stored water may not exceed those sufficient to pay all reasonable operating and maintenance costs, including taxes, working capital and depreciation, and a net return not to exceed 7% on invested capital. Tolls are fixed 'in proportion to the benefits conferred' on water powers...." "7. The right to issue, with Public Service Commission approval, bonds or other obligations. Also, the right to issue common stock to the extent WVIC debt is retired. WVIC has a program in existence whereunder debt is retired regularly to maintain credit " "To those who automatically fear abuse of the public trust by any private developer, WVIC has a reassuring story to tell. It is COMPARISON OF PRIVATE AND STATE PROJECTS 69 permitted a rate of return not to exceed 7%. It is taking a fraction less than 4.4% today and has done so for some years now "

"Any attempt to assay the value of the Wisconsin Plan, as exemplified by WVIC, must start with the recognition that WVIC isn't trying to save the world. It isn't even trying to save the Wisconsin River Valley — except from floods, low stream flow and improper management of the stream's water resources. This may or may not be a backward way to tackle river development, but it's the way Wisconsin has chosen. "So WVIC is unconcerned with water-fowl development, malaria control, fertilizer research, soil development and all the other programs. Quite possibly, the strongest political argument which could be made against the application of the Wisconsin Plan on other undeveloped rivers is that it fails to provide as much spending within a river basin as a valley authority would assure. "At the same time, depending upon the political climate, this argument might be one of the strongest that could be made for the Wisconsin Plan against a new series of valley authorities.

There's pretty broad agreement that strong demands will continue to be made for river development and control. The voters like flood control and are insisting that it be performed. Where flood control and power potentialities exist in the same site, the chances are that the power will be developed. If, at the same time, a strong demand exists for federal economy, the Wisconsin Plan then would possess real attractions which federal plans don't have. For instance, TVA cost the U. S. Government $13,099 per cubic second foot of mean annual flow past the Paducah gage. WVIC cost private investors $175 per cubic second foot of mean annual flow past the Muscoda gage. Without making any attempt to adjust these loose figures for the differences in the benefits derived from the two streams, they point up the fact that the one type of river development is intrinsically a lot more expensive than the other. . . ."

70 PRIVATE ENTERPRISE AND RIVER DEVELOPMENT This discussion of private enterprise and river development is not to be taken to mean that private enterprise would build a TVA. In fact, it is reasonably certain that there would be no such grandiose project as TVA today if it had been left to the free choice of the people. The evidence indicates quite clearly that the total TVA project was — and is — economically unjustified. The people living in the TVA area were not — and are not — willing to pay the full costs of the project. They would not voluntarily pay four cents per tonmile to ship freight by water when they can ship it by rail for one cent per tonmile. They would not voluntarily pay millions of dollars for a flood control project that has permanently flooded about as much land as it partially protects from occasional flooding in the Tennessee Valley. They would not voluntarily pay the high price for electricity that would result from including these "other TVA services" — plus interest and taxes — in the electricity bill.

Nor would the people living in other areas have invested their savings in this TVA project that Mr. Lilienthal estimates to be "more than twelve times the bulk of the seven great pyramids of Egypt." In short, private enterprise — that is, voluntary cooperation among free persons — would build neither the pyramids in Egypt nor TVA in Tennessee. The only reason that either of those economically unjustified projects was built is because government used its power to force persons to do that which they would not do by free choice.