Proceedings of the Second National Conservation Congress at Saint Paul Part 10

Strangely taking its inception on the field of battle, this great international organization of the Red Cross for the conservation of human life was born, has pa.s.sed from infancy into a strong and n.o.ble maturity ever ready to protect and preserve human life, for which the Conservation of all material things has its reason and its purpose.

(Applause)

Chairman CONDRA--We shall now have the privilege of hearing the Commissioner of Corporations, called to that responsible duty by President Roosevelt, and continued in his responsibilities by President Taft, Honorable Herbert Knox Smith, whom I have great pleasure in introducing (applause).

Commissioner SMITH--Mr Chairman, Ladies and Gentlemen: My text is that superb word "power"; and it has no more appropriate place for enunciation than this center of gravity of imperial power, the Mississippi valley.

In our complex civilization there are many things that are necessaries of life. Control over any of them represents a power that is essentially governmental. This is plainly true of basic necessaries like food, clothing, transportation, heat, and light; it is true also of the natural resources that are back of these. It is no less true of the mechanical power that produces and delivers them. Private control of any one of these, unrestrained either by business compet.i.tion or by governmental authority, means that irresponsible individuals hold a command over the daily life and welfare of the citizen which the men of our race have never willingly granted to any except their own representatives chosen by them.

For us of our generation, mechanical power is a basic necessary. Our daily existence is borne on its current, and our power demand steadily increases. Our chief present sources of power supply--coal, petroleum, and natural gas--although at present ample, are absolutely fixed in quant.i.ty and cannot be replaced. Water-power is the one important source of mechanical power now practically available which is self-renewing.

Its importance, therefore, to our present vision, must steadily increase.

Effective restraint, imposed by compet.i.tion on its control, is becoming more and more improbable. There has been a marked concentration of water-power control in private hands, and this process is advancing rapidly. Public regulation of water-power, the only other alternative, therefore, becomes a necessity.

Electric transmission has worked this change within the last decade. As now commercially practicable, such transmission allows a given water-power to reach a market area of at least 80,000 square miles. It has raised water-power from purely local work, and made it the vital energy for great communities and distant enterprises. It has brought our water-power resources suddenly within the sweep of great economic forces.

Within these market areas just described, there are strong practical reasons for consolidation of water-powers--what is known as "coupling up." A power plant must be constructed to meet the highest point of its expected demand--the "peak of the load." The nearer the "load" (the power demand) approaches that peak for all the time, the more fully will the entire fixed investment be earning a return. Suppose there are two independent power plants in two neighboring communities where the demand in one community is mainly for power during the day time, and in the other at night. These plants can advantageously combine, throwing the surplus of their joint power by day to one place and by night to the other, thus bringing their normal load in each case up nearer to the peak. Similarly, such coupling up is obviously advantageous in two neighboring watersheds where the excess water-power occurs at different times. In general such combining of varying conditions to produce a closer parallelism of supply and demand is in itself an entirely proper industrial development. We have no reason to oppose it if accomplished by fair methods; we must simply be prepared to regulate such monopolistic power as may result therefrom.

The investigation of developed water-powers now being made by the Bureau of Corporations shows that up to date 18 concerns or closely allied interests control over 1,800,000 horsepower of the water-power developed or in process of construction, and, in addition, over 1,400,000 horsepower of undeveloped water-power. As to undeveloped powers, this information was secured merely as an incident to our main work, and certainly much understates the case. As it stands, however, it makes a total water-power controlled by these 18 groups of over 3,200,000 horsepower. The total water-power in use in the United States in 1908, as estimated by the Census and Geological Survey, was only 5,300,000.

And this total includes a very large number of small powers which the Bureau did not include, as it dealt almost wholly with powers of over 1,000 horsepower. The total now commercially capable of development is variously estimated at from 30,000,000 to 60,000,000 horsepower, the smaller figure being the preferable one. The great bulk of both developed and undeveloped water-power lies on the Pacific Coast, in the Northwest and Northeast, and in the South Atlantic States. Our power demand as measured by the total unduplicated capacity of all prime movers--steam, water, and gas--is now at least 30 million horsepower.

It is obvious that a local monopoly of power covering simply one market area is nevertheless as complete in its effects on the inhabitants of that area as if it covered the entire country. Conditions in separate sections are therefore important. In California, for example, four princ.i.p.al hydro-electric companies dominate the water-power industry.

They have a total developed horsepower of 259,000, with probably 500,000 additional undeveloped, and a very strong hold on the most important power markets. And between these four concerns there is also evidence of considerable harmony. This is not a unique case. Conditions somewhat like this exist in the Puget Sound territory, in the southern peninsula of Michigan, in Colorado, in Montana, and in the Carolinas. In each of these sections, one, or at most two concerns are predominant in their control of water-powers, public-service companies, and power markets.

The horsepower figures do not fully represent the extent of actual commercial control. The best powers have of course been developed first.

These will always hold a disproportionately dominant position over later developed and less favored powers, because of their lower operating cost and prior hold on the important power markets.

There is also going on a concentration of a wider sort--a process of deep significance, but as yet little recognized. There is a marked progress toward a mutuality of interests among public service companies generally, electric light, power, gas, and street railway concerns. The significant ident.i.ty of officers and directors in a large number of such companies throughout the United States is very remarkable. This is due in part to specialization by financial houses in given lines of investment; in part to the common employment of certain eminent engineering firms; and in part to relations with certain leading equipment companies. Electric equipment is usually supplied by one of a few great equipment concerns and frequently paid for, at least in part, in the securities of the proposed project. Thus the equipment company acquires interests in widely separated power and light concerns.

Take a single example, the General Electric Company, the most powerful electric equipment concern in the world. Men who are officers or directors of the General Electric Company, or of its three wholly controlled subsidiary companies, are also officers or directors in many other corporations. These other companies, with their subsidiaries, and the General Electric with its subsidiaries, make thus a group interconnected by active personal and financial relationship. This one group includes 28 corporations that operate hydro-electric plants, with at least 795,000 horsepower developed or under construction, and 600,000 undeveloped in 16 different States, a total of 1,395,000 horsepower (equal to more than 25 percent of all the developed water-power in the United States in 1908). This group includes also over 80 public-service corporations, not counting their minor subsidiaries; more than 15 railroads; 6 companies that use their power in the manufacture of cotton goods, with 35,000 hydraulic horsepower developed; and over 50 banks and financial houses, many of them in the first rank of importance. This remarkable financial connection in itself is very significant.

Fifty-three General Electric men, in all, const.i.tute this chain of connection. Nor are these men, as a rule, of the figurehead type; their presence on a directorate means something. Of course these facts in no sense always mean ident.i.ty of control. They certainly do mean a striking degree of non-conflicting interests and personal relationship which makes further concentration easily possible.

This wider concentration is still in a formative stage, developed almost wholly within the last decade. The forces compelling thereto are still operative. It is like a physical solution of chemical elements which is still in suspension but which a single jar may precipitate into crystallization. Water-power, being naturally allied with public-service business, will be included in any movement that affects that business generally. So wide is this interrelationship, and so comparatively few are the constantly recurring names in the directorates, that a few brief conferences, given the necessary impetus, might conceivably at any moment concentrate into definite legal form a sweeping control over the dominant water-powers of the country, as well as their related public service interests.

Here, then, is the present situation of the hydro-electric industry:

(1) It deals with a basic necessary, and its importance inevitably increases as the fixed supply of other sources of power decreases.

(2) Substantial control of mechanical power means the exercise of a function that is essentially governmental in its effect on the public.

(3) Driven by underlying economic and financial forces, concentration of control of water-powers in private hands has proceeded very rapidly. It is doubtful if anything can arrest this process, and a swift advance to a far higher degree of concentration is entirely possible.

(4) Any chance, then, of restraint by compet.i.tion is rapidly disappearing, certainly over given sections, and public regulation is therefore an imminent necessity.

The extent of such regulation will depend mainly on const.i.tutional limitations. A State, roughly speaking, can at any time exercise a high degree of control over power companies as quasi-public servants. The jurisdiction of the Federal Government covers a wider range geographically, but involves some difficult const.i.tutional questions.

Over water-powers on the public lands it has full control. I concede no merit to doubts as to the Government's unlimited jurisdiction there.

As to powers on navigable streams not in the public domain, there is an undetermined const.i.tutional question. It is well settled that no power dam can be maintained on a navigable stream without the consent of the Federal Government. Nearly everyone admits that the Government may impose upon such grants any desired time limitation, and may thus require readjustment of terms at any desired period. But some hold that the Federal Government, in exercising its arbitrary power as grantor, may also impose any further conditions it chooses upon such grant, as, for example, that the grantees shall pay a rental for the power acquired. Others hold that the Federal Government can only impose such conditions as are directly connected with the Federal power over interstate commerce, such as navigation. Even this view would apparently at least permit a rental charge, if applied to navigation improvement.

Personally, I am strongly inclined to the former and broader view that any conditions whatsoever may be imposed (applause), both on general principles and on well-established legislative precedents. In numerous bridge and dam acts Congress has used the broad power and imposed conditions in no way related to interstate commerce. In the California Debris Commission Act, operative since 1893, Congress imposed a straight charge on placer miners for the privilege of emptying their refuse into the streams.

The scope of the Federal jurisdiction is of first importance, because the water-power problem is, in the main, a National one. Much of the power is transmitted across State lines, or is used by interstate carriers. The bulk of the capital that is developing our most important powers comes from interests outside the States where the powers are located, and from the brief survey I have already given of the interrelationships existing between public-service companies it is obvious that State lines and State jurisdiction have no practical relation whatsoever to the sweep of these forces (applause). The hydro-electric industry has been largely nationalized by those who are foremost in it.

The Nation and the State will have to use their full powers to meet the water-power situation. The most effective time to use them is before, not after, private rights accrue. The one certain method is for the State or the Federal Government, to retain its interest, or impose its conditions, at the inception, as a part of the grant. Then public control and private rights go together, as they must if we are to safeguard the public interest in water power. (Applause)

Let there be no unnecessary hampering of hydro-electric development, but let the public be in on the ground floor at the start: for at the start the public must grant the power and for all time the public will be the party chiefly interested in its use. (Applause)

As President Taft very justly said yesterday, when a man talks to you about conservation, you have the right to ask him to specify what steps he desires to take. I am going to specify.

(1) The _status quo_ of all water-power still controlled by the Nation or State should be maintained until we know what we have, and can act intelligently thereon.

(2) No water-power grant should be made except for a fixed period, with at least the reserved right to readjust terms at the end thereof. That period, however, should be long enough to permit adequate financing and complete development.

(3) Complete publicity of accounts and transactions should be required, as well as a record of cost, and the real relation of investment to stock and bond issues.

(4) Power to revoke the grant for breach of conditions should be lodged in a specified public authority. Otherwise there will always be the possibility of protracted litigation to determine the status.

(5) So far as is possible, direct provision should be made against excessive charges and monopolistic abuse.

(6) Public authorities should reserve such const.i.tutional compensation or rental as will establish the principle of underlying public interest.

(7) All public eas.e.m.e.nts of navigation, fisheries, etc., should be safeguarded.

(8) In the case of new grants, all these provisions should be made conditions of the grant.

Finally, the purpose and probable effect on the public of any water-power grant should first be fully ascertained and carefully considered, in order to determine whether public interest justifies beyond a reasonable doubt the surrender by the public of even a part of its power over this great public resource. Where reasonable doubt exists, the surrender should not be made. (Applause)

[During the delivery of the address President Baker arrived and resumed the Chair.]

Honorable JOHN BARRETT--Ladies and Gentlemen: President Baker has requested me to announce that Professor George E. Condra, of Lincoln, Nebraska, has been appointed chairman of the Committee on Credentials in lieu of Mr Edward Hines, of Chicago. (Applause)

Governor Pardee has an announcement to make in regard to the Committee on Resolutions.

Governor PARDEE--Simply that the Committee on Resolutions will meet at the Saint Paul hotel this evening at 8 oclock, in Room 534.

President BAKER--The program in your hands announces that an address ent.i.tled "Safeguarding the Property of the People" will be delivered by Honorable Francis T. Heney, of California. He is prevented from being here this afternoon, but will arrive later.

We have now the opportunity of hearing from one whose name has been so closely a.s.sociated with the work of Conservation that he is regarded as one of its greatest and ablest advocates; I have great pleasure in introducing, to speak on "The Federal Government's Relation to Conservation," Honorable James R. Garfield, of Ohio. (Applause)

Mr GARFIELD--Mr President and Delegates, Ladies and Gentlemen (renewed applause): I appreciate your applause at this time very much, for I fear me at the end of what I have to say it may not be forthcoming.

The subject I have chosen is one that affects very directly what may not merely be talked about but can actually be done by the people of this country in connection with Conservation problems. It was often said a few months ago that Conservation was an enthusiasm--that it was an idea, or perhaps an ideal, and that those who were urging Conservation were not practical men and looking forward to practical work-a-day solutions of their own problems. So I chose to speak on the relation of the Federal Government to Conservation--a very practical subject, one on which we have been working, as well as talking, for a number of years.