Petition for Writ of Certiorari — Federal Power Commission v. Niagara Mohawk Power Corp.

Supreme Court brief1954

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i ee chen tecnica ica acd aR eden eee 3

Specification of errors to be urged_-___......-..------------- 9

Reasons for granting the writ____________--__.__._________- 10

a ie a ae a sa eh ae atid didi lores oc toe Does ara 29

ee AVS OEN SO ORSMETN REN EOE bes eseee 30

CITATIONS

Cases:

Alabama Power Co. v. Federal Power Commission, 128 F.

2d 280, certiorari denied, 317 U. S. 652_____.-..______- 23

Alabama Power Co. v. McNinch, 94 F.2d 601___________- 23

First Iowa Coop. v. Federal Power Commission, 328 U.S.

RE ORE - Sige ait Pe pee sree 9, 13, 18, 19, 20, 21, 22

Ford & Son v. Little Falls Co., 280 ee ees, 14, 27

Grand River Dam Authority v. Grand Hydro, 335 U. 8. 359--. 10,

25-27, 28

International Paper Co. v. United States, 282 U. 8S. 399____ 6

Lewis Blue Point Oyster Co. v. Briggs, 229 U. S. 82______- 14, 20

New Jersey v. Sargent, 269 U. 8. 328._........__.-.__.-.- 15

Niagara Falls Power Con, In the Matter of the, 6 F. P. C.

Neen ec SI a alee nt ya el a ee 8

Niagara Falls Power Co. v. Federal Power Commission, 137

F. 2d 787, certiorari and rehearing denied 320 U.S. 792,

En BERS Ai Ble EERE OE AIOE = A Sea 8, 11, 17, 23

meen ¥, Corral, 306 U. 8. 606... . 5.2.55... 27, 28

Sanitary District v. United States, 266 U. S. 405_________- 16

State of Jowa v. Federal Power Commission, 178 F. 2d 421,

certiorari denied, 339 U. S. 979._........_...-.._..-. 19

United States v. Appalachian Power Co., 311 U.S. 377___- 14,

16, 22, 29

United States v. Chandler-Dunbar Co., 229 U. S. 53. _____- 14,

15, 19-20, 29

United States v. Chicago, M., St. P. & P. R. Co., 312 U.S.

Sires ot ot ee a a ec a 15

United States v. Commodore Pork, eat U, 8,.300....-- =.=. 15

United States v. Willow River Power Co., 324 U. 8. 409. ... 15

United States ex rel Chapman v. Federal Power Commission,

Nos. 28 and 29, this term, decided March 16, 1953_____- 15

(I)

2487 78—53——-1

ae SLATES EOE SE RAPER TY NR ENR TNE erty te

SENS ER

Statutes:

Act of March 3, 1909 (35 Stat. 815)____________________

Burton Act, June 29, 1906 (34 Stat. 626)__._...__________

Extensions of Burton Act. ................_..._._-

SEE atvadukionWurndsidd onanevenchanercbuenn

Sec. 27 Bete oi a aii ore etd eine a he oe wae lesoe 17, 22, 39

Mau idbreehuitnvescOslsuuneddeuctOeeeedexaenes

River and Harbor Act of March 3, 1899 (30 Stat. :

NG ea oe ote aeinta wed oueuwbuscuess 3, 4, 16, 40

Miscellaneous:

ner NN oe ot ees sedeeeeles 16

er wale bakckewewus 16

59 Cong, Rec. 1483-1484, 1485-1486, 1487-1494__________ 17

Veto Message:

President Theodore Roosevelt, 42 Cong. Rec. 4698. -_- 16

’ %

Fo Smee LLORES TIRED SS ST

BLEED THR OU GH-

Guthe Supreme Court of the United States

OcToBER TERM, 1952

No. 691

FEepERAL PowER COMMISSION, PETITIONER

Vv.

NracaRaA MoHawk Power CoRPORAT!ON

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE DISTRICT OF

COLUMBIA CIRCUIT

The Acting Solicitor General, on behalf of the

Federal Power Commission, prays that a writ of

certiorari issue to review the judgment of the

United States Court of Appeals for the District

of Columbia Circuit remanding, with instructions

to modify, an order of the Commission issued

September 27, 1950.

OPINIONS BELOW

The opinion of the United States Court of

Appeals for the District of Columbia Cireuit

(R. 585) is not yet reported; that of the Com-

mission (R. 105) at 9 F. P. C. 228.

(1)

a ae eT ae pL eats Sn at ee Pare aad

JURISDICTION

The order of the Court of Appeals was entered

on December 31, 1952 (R. 614). The jurisdiction

of this Court is invoked under Section 313 (b)

of the Federal Power Act and 28 U. S. C.

1254 (1).

QUESTIONS PRESENTED

The respondent, the Niagara Mohawk Power

Corporation, a licensee under Part I of the Fed-

eral Power Act,’ paid two other companies for

waterpower rights those companies claimed to

possess under state law to the use of the water

of the navigable Niagara River. The use of such

water through the Niagara Falls project by the

respondent was expressly authorized under a Fed-

eral Power Act license for that project. In

computing the amortization reserve of the re-

spondent required by Section 10 (d) of the Act

(Appendix, pp. 32-83 infra), the Commission dis-

allowed these payments for the waterpower rights.

The Court of Appeals reversed, holding that the

payments were legitimate project expenses and

properly allowable in computing the amortiza-

tion reserve of Section 10 (d).

116 U. S. C. 79la et seg. The Federal Water Power

Act of 1920, as amended, is Part I of the present Federal

Power Act.

The license was issued on March 2, 1921, to Niagara Falls

Power Company, which merged with the respondent on Oc-

tober 19, 1950. Nothing in the case turns on the merger and.

for convenience, “Company” is used to refer to the com-

pany holding the license.

SERIO AE POE RI EE ISIS PSOE APOE RE ae KY Fo,

BLEED THR OUGH-

;

—_—_

The questions presented are:

1. Are state laws authorizing waterpower use

of a navigable stream and waterpower rights

acquired thereunder superseded by the Federal

Power Act and a license pursuant thereto grant-

ing Federal authority for the use of such stream

for waterpower development?

2. Is a party licensed under the Federal Power

Act to use the waters of a navigable stream

through a hydroelectric project required to com-

pensate another company for taking the latter’s

waterpower rights acquired under state law for

power use of the same water?

3. Are payments by federally licensed com-

panies, with express authorization to use certain

waterpower, to owners of the alleged waterpower

rights under state law properly allowable as

legitimate operating expenses under the Federal

Power Act?

STATUTES INVOLVED

The pertinent provisions of the Federal Power

Act (41 Stat. 1063, 16 U. S. C. 791a, et seq.), and

the River and Harbor Act of 1899 (30 Stat. 1121)

are printed in the Appendix (infra, pp. 30-41).

STATEMENT

During the last two decades of the nineteenth

century, the International Paper Company, cer-

tain parties termed the ‘‘Pettebone-Cataract in-

terests,”? and others were granted certain lands

and “‘waterpower rights” on the United States

side of the Niagara River above the Falls by

private grant, letters patent from the State of

New York and acts of the legislature of that

state. These ‘‘waterpower rights’’ were exer-

cised by diverting the water above the Falls,

conducting it through an intake canal owned by

a predecessor of the licensee Company, dropping

it through tunnels for about 100 feet and dis-

charging it from a cliff below the Falls into the

River.

After passage of the River and Harbor Act of

1899 (30 Stat. 1121), prohibiting structures in

navigable waters and impairment of navigable

capacity without War Department permission, a

predecessor of the licensee Company applied for

and secured such permission in 1900, 1903, 1904,

and 1905, respectively, to use the water for power

purposes. Upon passage of the Burton Act of

June 29, 1906 (34 Stat. 626), specifically pro-

hibiting diversions from the Niagara River with-

out War Department permission, and upon ex-

tensions of that Act with a similar requirement,

the Company’s predecessor secured further War

Department permission to make the diversions.’

? The Burton Act, and extensions thereof approved March

3, 1909, August 22, 1911, April 5, 1912, January 19, 1917,

June 30, 1917, June 29, 1918, and July 12, 1919, are printed

at R. 416, 437, 452, 453, 457, 461, 465, and 468. The Inter-

national Boundary Waters Treaty proclaimed May 13, 1910

(36 Stat. 2448, R. 438) permitted a diversion of 20,000 cubic

feet per second (cfs) on the United States side. The War

Department permits were issued August 16, 1907, September

BLEED THR OUGH-

On March 2, 1921, a license authorizing the re-

spondent company to divert water from the Niag-

ara River fer use in the development of power

through the Niagara Falls plant (FPC Project

No. 16), was issued under the Federal Water

Power Act. Pursuant to Section 10 (d) of the

Act,’ the license specifies six percent as a reason-

able rate of return and provides that one-half of

the earnings in excess thereof should, after 20

years of operation, be transferred to the amorti-

zation reserves required by that section. The

amortization reserve is one of the deductions to

be made from the original cost in determining the

‘net investment”’ in a project.

On September 27, 1950, in a proceeding pur-

suant to Section 10 (d) of the Act, the Commis-

sion found that the Company had earned

$1,828,864.08 in excess of the six percent return

from normal project operations for the period

2, 1911, April 23, 1912, January 19, 1917, July 2, 1917, July

1, 1918, June 30, 1919, and July 30, 1919 (R. 436, 452, 454,

459, 462, 466, 467, and 469). None of these permits allowed

a total diversion of more than 15,600 cfs.

’ This plant develops the full head, 212 feet, instead of the

100 feet formerly developed.

‘ The pertinent part of Section 10 (d) provides:

That after the first twenty years of operation, out of sur-

plus earned thereafter, if any, accumulated in excess of a

specified reasonable rate of return upon the net invest-

ment * * *, the licensee shall establish and maintain amor-

tization reserves, which reserves shall, in the discretion of

the Commission, be held until the termination of the license

or be applied from time to time in reduction of the net

investment. * * *

from March 2, 1941 (20 years after the license

was issued) to December 31, 1946. Accordingly,

the Commission directed that one-half of this

excess ($914,437.04) be placed in an amortization

reserve as required by Section 10 (d) and the

provisions of the license (R. 115-117). 9 F. P. C.

228. On appeal to the court below, the respond-

ent claimed that the amount to be transferred to

the amortization reserve was only $515,432.04.

The $399,000 difference between the Commission

and the Company represents one-half of $798,000,

the amount by which the Commission adjusted

the Company’s operating expenses for the period

involved. The disallowance of $798,000 is made

up of two items.

1. Payments of $577,500 made by the Company

to International Paper Company under a con-

tract entered into in 1919, as subsequently ad-

justed in 1937, by which International Paper

leased to the Company, at an annual rental of

$99,000, its ‘‘water-power rights’’ to use 730 cubic

feet per second (cfs) of water for power develop-

ment which it had enjowed since the 1890’s under

State law.

5 Cf. International Paper Co. v. United States, 282 U. S.

399. In that case, this Court held that when the Paper

Company had an agreement with respondent’s predecessor,

itself a Federal licensee under the Act of June 29, 1906, 34

Stat. 626 (p. 407), to use certain amounts of water for power

purposes, a diversion of that water in 1918 by the Secretary

of War from the Power Company (and from the Paper

Company) rendered the United States liable in damages to

ieee AN ee ee aL ote ae) a ee ee

BLEED THR OUGH-

—— Py

9. A concession amounting to $220,500, which

the Commission found to result from the reduced

electric rates which the Company charged Buf-

falo Niagara Electric Corporation (the Com-

pany’s then parent) in exchange for other

‘“waterpower rights’? under State law. The

Buffalo Niagara ‘‘waterpower rights’’ (derived

from the “Pettebone-Cataract”’ interests) are said

to have arisen toward the end of the last century

for the use of 262.6 cfs of Niagara River water

for power development. In 1925 the Company

leased these State waterpower rights from

Niagara, Lockport and Ontario Power Company,

the then owner under State law, in return for a

concession in the rates at which the Company

would furnish electric power to Niagara Lock-

port. In 1945 Niagara Lockport was consoli-

dated with another company to create Buffalo

Niagara.

This refusal of the Commisison to recognize

any charges by other parties for the use by the

licensee Company of their State-created ‘‘water-

power rights’? was held by the majority of the

the Paper Company. As the Court held (p. 407), the Secre-

tary of War made no attempt to revoke the license of the

Power Company, and proceeded “on the footing of a full

recognition of the Power Company’s rights and of the Gov-

ernment’s duty to pay for the taking that he purported to

accomplish.” .

248778—53——2

court below (Kimbrough Stone, Miller, JJ.) to

be improper.’

The basic principle underlying the decision of

the lower court appears in connection with its

distinction between a claim to ownership of run-

ning waters (which it said was not asserted here),

and the right to use such waters temporarily, a

usufructuary right long recognized. The court — '

said (R. 607-608) that the Federal Power Act:

is a purely regulatory measure. <A_ fed-

eral license is not an original grant of

authority, but a permission to use a state’s

grant of authority. To be sure, a license

is a prerequisite in that water rights under

state law in a navigable stream may not

be exercised without one, as the Supreme

Court held in the New River ease [United

States v. Appalachian Power Company, 311

U.S. 377 (1949) ]. * * * But these consid-

erations do not by any means require the

conclusion that the Act and a license there-

under constitute the source from which all

water rights tlobw. An applicant for a li-

cense must show the Commission he has

under state law the right to divert the

*In 1947, the Commission denied a proposed amendment

to the charter of the Company, which would have had the

effect of recognizing the validity of the water rights of the

Pettebone-Cataract interests and of the International Paper

Company. /n the Matter of The Niagara Falls Power Com-

pany, 6 F. P. C. 784 (R.387). See also Viagara Falls Power

Company v. Federal Power Commission, 137 F. 2d 787, 791,

certiorari denied, 320 U.S. 792, rehearing denied, 320 U. S.

815.

SPOILS Nar a Te te REN Bs sme AZ APN RO Cot wat Be YEN i RE BO LRA SANE RTI RN URNA AE (OS

BLEED THR OUGH-

water for the use of which he desires a

license. Unless he has that right, we think

the Commission cannot lawfully issue a

license to him.

The court further concluded that an analysis of

the statutory provisions of the Federal Power

Act showed that Congress intended by that Act

to give full weight to state ownership of water-

power rights in navigable waters as recognized by

state law. Accordingly, since the lower court

was of the view that these ‘‘waterpower rights”

were valid usufructuary property rights under

New York State law, it held that the payments

of the Company pursuant to its contractual obli-

gations should be allowed as project operating

expenses.

Judge Bazelon dissented. He considered this

Court’s opinion in First Iowa Coop. v. Federal

Power Commission, 328 U. 8. 152, controlling. He

read that opinion as holding that the Power Act

stated a Congressional assertion of the dominant

Federal authority over navigable waters. Hence

by that Act Congress superseded all water rights

affecting navigable waters except those expressly

saved. Nothing in the Act, according to Judge

Bazelon, operated to save the “waterpower rights”

of the type here involved.

SPECIFICATION OF ERRORS TO BE URGED

The Court of Appeals erred:

1. In holding that Congress has not by the Fed-

eral Power Act and its predecessor statutes as-

—_— PD RIE NANI LIM, PRETEEN MOEN RN HT De yt TREN, its DO idea EEN ety SG On, eo

serted its dominant authority over navigable

waters of the United States insofar as concerns

water-power development.

2. In holding that state laws authorizing water-

power use of navigable streams and waterpower

rights acquired thereunder are not superseded

by the Federal Power Act and a license there-

under.

3. In holding that a Federal Power Act li-

censee, licensed to use the waters of a navigable

stream through the project covered by the license,

is also required to comply with state laws re-

lating to the power use of such waters, and that

the licensee is required to compensate other par-

ties for taking their waterpower rights under

state law, if the licensee uses the water covered

by such state rights for power development un-

der the license.

4. In holding that payments by the respondent

company to others for their state waterpower

rights were legitimate operating expenses for the

purpose of computing the respondent’s amortiza-

tion reserve under Section 10 (d) of the Act.

REASONS FOR GRANTING THE WRIT

The court below has decided a basie and im-

portant question in the administration of the

Federal Power Act—a question expressly left

open by this Court in Grand River Dam Authority

v. Grand-Hydro, 335 U.S. 359, 8373—in a manner

which is inconsistent with the interpretation of

BLEED THR OUGH-

the Act in prior decisions of this Court and

which is in subtantial conflict with the reasoning

of the Court of Appeals for the Second Circuit

in Niagara Falls Power Co. v. Federal Power

Commn., 137 F. 2d 787, certiorari denied, 320

U. S. 792, rehearing denied, 320 U. 8S. 819.

1. (a) The narrow question in this case is

whether, in computing the amortization reserve

of a licensee under part I of the Federal Power

Act, the Commission is forced to recognize, as

valid operating expenses, payments made by the

licensee for the use of waterpower rights which

are allegedly owned by others under state law.

Under Section 10 (d) of the Act, after 20 years

of operation, one-half of the earnings of a licensee

in excess of a reasonable return are to be trans-

ferred to the amortization reserve. This amorti-

zation reserve then serves to decrease the amount

of the net investment of the licensee.

The net investment of a licensee is important

in the administration of the Act for the follow-

ing reasons:

(1) It determines the cost to the United

States of the acquisition of the project

under Section 14 of the Act (Appendix,

pp. 33-34, infra), should the United States

decide to take over the project at the end

of the license period.

(2) It serves as the basis for the rental

which the United States must pay for a

project which is taken temporarily during

— — LOONIE REE PIE IN IARI SIRE PRES LINE LMI FE IIE IO PTF EEO

periods of national emergency. Sec. 16

(Appendix, pp. 34-35, infra).

(3) It serves as the basis for the price

the United States shall pay for the project

upon a court sale pursuant to Section 26

of the Act (Appendix, pp. 38-39, infra).

(4) It serves as the basis for the fixing

by the Commission of reasonable rates to

be charged by the licensee. Secs. 19 and

20 (Appendix, pp. 35-88, infra).

The questions presented by this Act will arise

in every case where licensees treat as legitimate

operating expenses payments made for water-

power rights claimed under state law. Further,

if payments for state-conferred ‘‘waterpower

rights” are legitimate project expenses, the prin-

ciples applied by the court below would require

the Commission to allow them as legitimate proj-

ect costs under Section 4 (b) (Appendix, p. 31,

infra) when made for outright purchase of

such ‘‘rights.” It is not possible at this time to

say in how many instances similar payments,

either as annual rental payments for the use of

state-conferred waterpower rights or as outright

purchases of such rights, are claimed as either

project operating expenses or as project capital

costs. However, the claims to such payments

already submitted by licensees run into several

millions of dollars and relate to a sizeable num-

ber of licensed projects. The increase in net

investment in this case alone will amount to

$399,000, plus the additional sums which must

AE ETS EIN BAR E TRR ST 9 o

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be allowed, if the judgment of the court below

is not disturbed, in the years from 1946 until

the end of the license on March 1, 1971.

(b) The broad question in this case goes to the

basic theory of the Act. It presents the issue as

to the extent to which the Federal Power Act has

superseded state law. Under the decision below,

an applicant for a Federal Power Act license to

construct a waterpower project in a navigable

stream must also pay for ‘‘rights’’ recognized by

state law in order to use the water of the stream

for power purposes. The decision of the court

below is thus of importance to every licensee,

which, in reliance upon the Federal Power Act

authority and license, may have failed to meet

the conditions imposed by the alleged possessors

of state rights for the use of the power, to every

prospective applicant for a license, to the con-

sumer of power whose rates are based upon the

licensee’s operating costs, and to the United

States, if and when it takes over or leases the

project. Cf. First Iowa Coop. v. Federal Power

Commn., 328 U.S. 152.

2. The waterpower rights for which the pay-

ments in question were made were ‘‘owned’’ by

private parties, who are not authorized or licensed

under the Federal Power Act to possess such

rights. The only basis for those rights claimed

by these parties is that they are recognized under

state law. This has the effect of requiring the

United States to pay, at the = of the

license peciod or during a temporary seizure, for

waterpower rights—that is, the right to use the

water in a navigable stream for power purposes—

claimed by private parties. This result is com-

pletely at odds with the decisions of this Court

which recognized as early as 1913 that the Fed-

eral Government has complete dominion over the

waterpower of navigable streams. United States

v. Chandler-Dunbar Co., 229 U.S. 53, 69; see also

Lewis Blue Point Oyster Co. v. Briggs, 229 U. 8.

82, 88. If there ever was any doubt as to the

exclusive proprietary interest of the United

States in a navigable stream (ef. Ford & Son v.

Little Falls Co., 280 U. S. 369), that doubt was

resolved by this Court in United States v. Ap-

pelachian Power Co., 311 U. 8. 377, when it stated

(pp. 424, 427):

* * * The Federal Government has dom-

ination over the water power inherent in

the flowing stream. It is liable to no one

for its use or nonuse. The flow of a navi-

gable stream is in no sense private prop-

erty; ‘“‘that the running water in a great

navigable stream is capable of private

ownership is inconceivable.”

* * * * *

* * * It has been shown * * * that there

is no private property in the flow of the

stream. This has no assessable value to

the riparian owner. If the Government

were now to build the dam, it would have

to pay the fair value, judicially determined,

PNR AN NILSEN NSS REY ENE N RIS ae SREY EE EERE ARE SOE ET ST FE

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for the fast land; nothing for the water-

power.

See also New Jersey v. Sargent, 269 U. 8. 328,

337; United States v. Chicago, M., St. P. & P. R.

Co., 312 U. S. 592, 596-597; United States v.

Commodore Park, 324 U. 8. 386, 390; United

States v. Willow River Power Co., 324 U.S. 499;

United States ex rel. Chapman v. Federal Power

Commn., Nos. 28 and 29, this Term, decided

March 16, 1953, slip opinion, pp. 16-17, dissent,

pp. 1-2.

Despite these clear expressions that the com-

plete ownership of the flow of a navigable stream

is in the United States, the effect of the decision

below is that in the Federal Power Act Congress

intended to obligate the United States to pay for

such state vested waterpower rights upon ac-

quisition or rental of the project and to obligate

the consumers of electric power to pay for such

rights in their rates.

The court below held that in the Federal Water

Power Act of 1920 Congress had not asserted its

paramount authority over the navigable waters of

the nation to the same extent as it had in the

Act of March 3, 1909 (35 Stat. 815, 820). It

attempted to distinguish United States v. Chan-

dler-Dunbar Co., 229 U. S. 53, where, in a con-

demnation proceeding instituted by the United

States under the Act of 1909, this Court held

that that Act had extinguished all inferior rights

' 248778—53-—_3

ROBES GEL I EY CRED EN MN YORR DIE Pe NI ROONEY GOR TE

in the St. Marys River. Accordingly, the United

States did not have to pay for the ‘‘flow of the

stream.’’ As this Court stated, “that the run-

ning water in a great navigable stream is capable

of private ownership is inconceivable”’ (229 U. 8S.

at 66,69). The only relevant distinction between

Chandler-Dunbar and this case is the fact that

the two cases arose under different statutes. Yet

nothing in the Federal Power Act indicates that

the private power rights in navigable waters were

to be recognized by the Commission or the United

states to any greater extent than were the rights

involved in Chandler-Dunbar.

*The Federal Water Power Act of 1920 may be traced

at least as far back as President Theodore Roosevelt’s veto

‘of the Rainy River bill, 1908, decrying the policy of “giving

away the property of the people in the flowing waters” (42

Cong. Rec. 4698). The River and Harbor Act of 1890 (26

Stat. 426, 454) required either federal or state authorization,

in appropriate circumstances, for obstruction to navigable

streams. Sections 9 and 10 of the River and Harbor Act of

1899 (30 Stat. 1121, 1151) (Appendix, infra, pp. 40-41) made

it unlawful to construct certain structures in navigable

streams without the consent of Congress and War Depart-

ment approval, and prohibited, without express Federal au-

thorization, any obstruction to the navigable capacity of

any of the navigable waters of the UnitedStates. See United

States v. Appalachian Power Co., 311 U. S. 377, 424.

The Burton Act of June 29, 1906 (34 Stat. 626) expressly

made any Federal permits for the use of the waters of the

Niagara River for power development revocable at will, and

fixed a final termination date for those permits, as did all

extensions of the Act. Sanitary District v. United States,

266 U.S. 405, 431. See also 54 Cong. Rec. 704, 55 Cong. Rec.

4541.

During the consideration of the Federal Water Power Act,

an amendment was offered to the bill to exclude the Niagara

wg rr APR POL ARERR SS S |

BLEED THROUGH-

Both the majority and dissenting judges of the

court bel&w recognized (R. 604-605, 612-613) that

the crucial section on the issue of interpretation of

the Federal Power Act was Section 27, infra, pp.

39-40, which provides:

That nothing herein contained shall be

construed as affecting or intending to af-

fect or in any way to interfere with the

laws of the respective States relating to

the control, appropriation, use or distri-

bution of water used in irrigation or for

municipal or other uses, or any vested

right acquired therein. [Emphasis added. }

Clearly the use of water for power purposes is

not an “irrigation” or ‘‘municipal’”’ use. These

are consumptive water uses and would also in-

clude rights to water for domestic purposes and

for stock watering, the type of uses which gen-

erally and more especially in the arid West are

vital to the preservation of life and the mainte-

nance of the economy of the area. On the other

River from its coverage (59 Cong. Rec. 1483-1484, 1487-

1494). Chairman Wadsworth, in charge of the bill for the

Commerce Committee, opposed the amendment and assured

the Senate (id. at 1485-1486) that “the company now oper-

ating at Niagara Falls will fall completely under the juris-

diction of the commission just as any other water-power com-

pany anywhere in the United States falls under it.”

The International Boundary Waters Treaty of 1910 (36

Stat. 2448, 2450), relied upon by the court below (R. 602-603 )

was, of course, an agreement between the United States and

Canada and did not relate to the question as to whether

federal or state laws should control the diversions allowed’

in the United States. Cf. Niagara Falls Power Co. v. Fed-

eral Power Commission, supra, at 790.

= ———

hand, the use of water for power purposes is

obviously not a consumptive use and state laws

for its control are not protected against super-

sedure by Section 27 of the Power Act, at least

insofar as navigable waters of the type here in-

volved are concerned. As this Court held in

First Iowa Coop. v. Power Commission, 328 U. 8.

152, 175-176:

The effect of § 27, in protecting state laws

from supersedure, is limited to laws as to

the control, appropriation, use or distribu-

tion of water in irrigation or for municipal

or other uses of the same nature. It

therefore has primary, if not exclusive,

reference to such proprietary rights. The

phrase ‘‘any vested right acquired therein”

further emphasizes the application of the

section to property rights. There is noth-

ing in the paragraph to suggest a broader

scope unless it be the words ‘‘other uses.”

Those words, however, are confined to

rights of the same nature as those relating

to the use of water in irrigation or for

municipal purposes. This was so held in an

early decision by a District Court, relating

to § 27 and upholding the constitutionality

of the Act, where it was stated that ‘“‘a

proper construction of the act requires that

the words ‘other uses’ shall be construed

ejusdem generis with the words ‘irriga-

tion’ and ‘municipal.’” Alabama Power

Co. v. Gulf Power Co., 283 F. 606, 619.

[Emphasis added. ]

EEE RU EI LEI EN EES LLL SRE OLR DTS NRA BIT

BLEED THR OUGH-

The issue in the First Jowa case was whether

requirements imposed by Iowa law were neces-

sary prerequisites to the granting of a license

by the Federal Power Commission. This Court

held, consistently with the expression quoted

above, that the Federal Act superseded state law

and that the secururing of a state permit was not

a condition precedent to the securing of a fed-

eral license. It thus appears that the decision

of the court below (R. 607-608)—that ‘‘an appli-

cant for a license must show the Commission

he has under state law the right to divert the

water for the use of which he desires a license.

Unless he has that right, we think“the Commis-

sion cannot lawfully issue a license to him”—

is inconsistent with the decision of this Court in

First Iowa’ For, as this Court stated, ‘‘The

’In proceedings subsequent to the decision of this Court,

the Commission issued a license without any showing that

the applicant had complied with state laws for waterpower

use of the navigable Cedar River, notwithstanding a pro-

hibition in the state law against the diversion proposed.

The validity of this license was affirmed by the Court of

Appeals for the Eighth Circuit, State of Lowa v. Federal

Power Commn.. 178 F. 2d 421, certiorari denied, 339 U.S. 979.

°In referring to the regulatory nature of the Power Act,

the lower court distinguished between a claim to the owner-

ship of running waters (which it says is not asserted here)

and a claim to usufructuary rights in flowing waters long

recognized as incident to riparian land ownership (R. 594).

On the other hand, no such distinction was considered rele-

vant by this Court in denying compensation to the Chandler-

Dunbar Company for alleged “waterpower rights” acquired

under State law or for additional value to uplands strategi-

cally located for waterpower development, United States v.

EMER P ELAR GENEL LE ATLA AGE LAE AT. IVI OL EAI EAI DIG PIE

VO" TRL ADIGE AOL IM

TKN

detailed provisions of the Act providing for the

federal plan of regulation leave no room or need

for conflicting state controls.’’ 328 U. 8., at 181.

The court below attempted to support its con-

clusion by reference to the language of certain

other sections of the Act. None of these sections,

however, furnishes substantial support for its

result. Section 9 (b) (Appendix, infra, p. 32)

provides that an applicant for a license must

submit to the Commission ‘‘satisfactory evidence

that the applicant has complied with the require-

ments of the laws of the State or States within

which the proposed project is to be located with

respect to bed and banks and to the appropri-

ation, diversion, and use of water for power pur-

poses * * *,”’ But this section recognizes no

waterpower rights under State law. It does not

‘‘establish by implication such a_ substantive

policy as that contained in § 27 * * *.” It is

merely a description of ‘‘the evidence which the

Chandler-Dunbar Co., 229 U. S. 53, 69, 76. The funda-

mental objection to compensation for loss of such state-

conferred “waterpower rights” in the construction of a Fed-

eral improvement was there expressed by the Court :

“* * * The Government had dominion over the water power

of the rapids and falls and cannot be required to pay any

hypothetical additional value to a riparian owner who had no

right to appropriate the current to his own commercial use.”

See also Lewis Blue Point Oyster Co. v. Briggs, 229 U.S.

82, 88. These two decisions make it clear that the-commerce

power of the United States, when asserted, is not to be bur-

dened by payment for claims under state law to either the

waterpower of navigable streams or to usufructuary rights

in such waters.

LOL ER NE H PR RS IMTS Xi TOPOL LOO NEL DRIER: SIGE NN ES KS INA INIA ENOTES 2

BLEED THR 9UGH-

+ One eee or

SLED

—

Commission shall require in order to pass upon

applications for federal licenses.” First Iowa

Coop. v. Power Commn., 328 U.S. at 177. Sec-

tion 3 (11) (Appendix, infra, p. 30) defines

“‘project’’ as including ‘‘all miscellaneous struc-

tures * * *, and all water rights, rights-of-way,

ditches, dams, reservoirs, lands, or interest in

lands the use and occupancy of which are neces-

sary or appropriate in the maintenance and op-

eration of such unit.’’ Section 4 (b) provides

that ‘‘to determine the actual legitimate original

cost of and the net investment in a licensed proj-

ect, and to aid the Commission in such determina-

tions, each licensee shall * * * file with the

Commission * * * a statement * * * showing

* * * the price paid for water rights, rights-of-

way, lands, or interest oo hee © 9 oe

Judge Bazelon pointed out (R. 611), neither Sec-

tion 3 (11) nor 4 (b) recognizes any State water

rights. Section 3 is merely a definition of the

word, ‘‘project’’ without substantive implications,

and Section 4 (b) is “‘strikingly similar to ia

§9 (b) and is in no sense a recognition of any

rights.”’

Indeed, Section 14 of the Act expressly pro-

vides that when the United States takes over a

project at the end of a license period, the net

investment, which is the basis for the compensa-

tion due the licensee, ‘‘shall not include or be

affected by the value of any lands, rights-of-way,

or other property of the United States licensed

RATES y

OY NE ES AOR DB

a erhrd Vain we

Sete Sa kes KS ih a

by the Commission under this Act, by the license

or by good will, going value, or prospective rey-

enues.” And in United States v. Appalachian

Power Co. this Court stated (pp. 427-428) :

It has been shown * * * that there is no

private property in the flow of the stream.

This has no assessable value to the riparian

owner. If the Government were now to

build the dam, it would have to pay the

fair value, judicially determined, for the fast

land; nothing for the water power. We as-

sume without deciding that by compulsion

of the method of acquisition provided in

§ 14 of the Power Act and the tendered

license, these riparian rights may pass to

the United States for less than their value.

In our view this ‘‘is the price which [re-

spondents] must pay ‘to secure the right to

maintain their dam.’’

But the result of the decision below will be to

require the United States to pay, at the expira-

tion of this period, for water rights which have

not been saved by the Act.”

In the words of this Court (First Iowa Coop.

v. Power Commn., 328 U. 8. at 180), the Act

* * * was the outgrowth of a widely sup-

ported effort of the conservationists to

° The remainder of this clause of the section provides:

“nor shall the values allowed for water rights, rights-of-way,

lands, or interest in lands be in excess of the actual reason-

able cost thereof at the time of acquisition by the licensee.”

This reference to “water rights” obviously is directed toward

those rights saved by Section 27. See supra, pp. 17-20.

BLEED THROU GH-

secure enactment of a complete scheme of

national regulation which would promote

the comprehensive development of the

water resources of the Nation, in so far as

it was within the reach of the federal power

to do so, instead of the piecemeal, restrictive,

negative approach of the River and Harbor

Acts and other federal laws previously

enacted.

It would require clear and unequivocal language

in the statute to warrant holding that water rights

used for power purposes were among the rights

saved by the Act. Such an expression does not

appear. Indeed, the effect of the decision below

is inconsistent with those sections.

8 'The decision below is in substantial conflict

with the reasoning of the Court of Appeals for

the Second Cireuit in Niagara Falls Power Co. V.

Power Comm’n, 137 F. 2d 787, certiorari denied,

390 U. S. 792, rehearing denied, 320 U. 8. 8195." In

The lower court’s decision in the instant case is in har-

mony with its decision in 1937 in Alabama Power Co. v.

McNinch, 94 F. 2d 601, and its subsequent opinion in the

same case in Alabama Power Co. v. Federal Power Com-

mission, 128 F. 2d 280, certiorari denied, 317 U. S. 652. How-

ever, both these cases were decided before this Court's opin-

ion in the First Jowa case, and the opinion of the Court of

Appeals for the Second Circuit in Niagara Falls Power Co.

Indeed, in the Alabama Power Company cases the Commis-

sion took a position which was inconsistent with the position

taken in regard to the state waterpower rights here involved.

piles hen adi ae:

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that case the question was whether the property of

the licensee (the Niagara Falls Power Company,

the immediate predecessor of the respondent)

should be valued at fair value under Section 23

(a) (Appendix, infra, p. 38) or at net investment,

as defined in Section 3 (13) for the purposes of the

rate base and the costs of acquisition to the United

States. This question in turn depended upon

whether the license involved was ‘‘for a project

* * * already constructed’’ undera‘‘permit * * *

heretofore granted’’ within the meaning of the See-

tion 23 (a), in which ease the licensee could use

fair value, which was presumably higher. The

company urged, inter alia, that Section 23 (a)

referred to a state permit or authorization. But

the court held that the section referred only to a

federal permit. It stated (per Learned Hand, J.)

(pp. 790-791) :

* * * When Congress passed the Federal

Water Power Act in 1920 * * *, the peti-

tioner’s slate was wiped clean; it stood at

discretion, so far as concerned any exist-

ing federal rights of diversion. Congress

had absolute power to stop it from taking

any water whatever, or to impose what

terms it chose * * *. When Congress set

up the Commission with power to issue li-

eenses for the ‘‘utilization of power * * *

from * * * any of the navigable waters of

the United States’? * * *the Commission

was vested with the distribution of its al-

lotment, and any rights acquired from the

BLEED THR OUGH-

State of New York necessarily yielded to

what it might do. * * *

The fact that the Second Circuit was dealing

with the capitalization of assets and not, as here,

with operating expenses, does not, as the court

below seemed to think (R. 606), distinguish the

two cases. For the principle underlying the two

deisions—the effect of the Federal Power Act

upon state water rights—is the same, and the

practical effect, increasing the cost to the United

States of the project apon recapture at the close

of the license period or during emergency periods,

is directly affected by both capitalization and op-

erating expenses. Niagara Falls Power Co.

stands for the proposition that state waterpower

rights need not be recognized for the purposes of

the Federal Power Act. On the other hand, the

court below held that the Act did not affect such

rights. This basic difference in analysis of the

Act and the difference in treatment of the same

company, depending upon its choice of circuit

for review, present a conflict which requires

resolution by this Court.

4. The court below failed to appreciate the dif-

ference between the relationship of the Federal

authority vis-a-vis the licensee on the one hand,

and the licensee vis-a-vis private parties, on the

other. This distinction was clearly pointed out

by this Court in Grand River Dam Authority v.

Grand-Hydro, 335 U. 8. 359. There the courts

of Oklahoma had allowed power-site value for

neteahdneeMnte RON

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Kis.

the dam site of a project, even though the develop-

ment had been built under a Federal Power Act

license. Though holding that such evidence of

power-site value was relevant to the question of

compensation due the owner for its land, the

Court said (pp. 373):

If either the United States, or its licensee

as such, were seeking to acquire this land

under the Federal Power Act, it might face

different considerations from those stated

above. The United States enjoys special

rights and power in relation to navigable

streams and also to streams which affect

interstate commerce. The United States,

however, is not a party to the present ease.

It is not asserting its right to condemn this

land. The petitioner, likewise, is not seek-

ing to enforce such rights as it might have

to condemn this land by virtue of its fed-

eral license. Accordingly, we express no

opinion upon what would be the appro-

priate measure of value in a condemnation

‘action brought by the United States or by

one of its licensees in reliance upon rights

derived under the Federal Power Act.

The Court then went on to state (pp. 374-375)

that the question as to the effect of the provisions

of the Federal Power Act coneerning the rate

base of the licensee and the acquisition price were

not before it and that no opinion was expressed

on those issues. On the other hand, the dis-

senting opinion clearly reached the issue and as-

serted its belief that the Act had wiped out any

BLEED THROUGH-

waterpower value to a private party, who, by

reason of Federal law, neither had nor could

acquire any lawful claim to it (id. at 375-376).

The effect of the majority opinion in Grand

River Dam is to draw a distinetion between the

requirements the Federal authority may place

upon the licensee and the relationship between

the licensee and third parties. Thus, even if it

is assumed (contrary to our contentions) that the

Federal Power Act did not wipe out State water-

power rights as between private parties, it does

not follow that the Act did not wipe out those

rights as between thie licensee and the United

States and its regulatory agency. In Regents of

the University System of Georgia V. Carroll, 338

U. 8. 586, the Federal Communications Commis-

sion had required the breach of a contract be-

tween the licensee and a third party as a condi-

tion of the Federal license. The third party

brought a successful suit for damages in the State

court over the contention of the licensee that the

requirement of the Commission was superior to

any private contract. This Court affirmed the

judgment for the third party, holding that the

question of the rights between the licensee and

the third party did not affect the licensing power

of the Federal Communications Commission.”

12 This distinction between rights of third parties and li-

censees, on the one hand, and rights of the licensee and the

Commission, on the other, makes any reliance by the respond-

ent upon cases such as Ford & Son v. Little Falls Co., 280

U.S. 369, misplaced.

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In this case it may be that the disallowance of

the payments by the respondent to the Buffalo Ni-

agara Power Company and the International Paper

Company will lead the respondent to refuse to

recognize its contract with those companies, re-

sulting in suits for damages by those companies

against the respondent. It is our contention that

such a suit should not prevail, inasmuch as the

Federal Power Act has wiped out the state

waterpower rights claimed by the Buffalo

Niagara and International Paper. Even if this

contention is not sustained, the fact that re-

spondent may be liable in damages for breach

of the contract, does not, under Regents v. Car-

roll, affect the power of the Commission to dis-

allow the payments as a condition of the license

it has granted to the respondent.

The scheme of the Act places the Federal

Power Commission and the United States in a

completely different position from that enjoyed

by the private parties in the Grand River Dam

case. The United States is concededly the ulti-

mate owner of all water rights in navigable

streams. The question the ‘majority in the

Grand River Dam ease did not reach is the ques-

tion presented by this case: the effect of state

waterpower rights upon the federal regulatory

agency and the United States. It is our posi-

tion that, in finding those rigkts binding upon the

Commission directly, and the United States some-

what more indirectly (see pp. 13-14, supra), the

BLEED THR OUGH-

court below failed to follow the principles set

forth by this Court in the Chandler-Dunbar, Ap-

palachian Power and First Iowa Coop. cases

(all supra). In any event, we believe the ques-

tions presented are ones which this Court shou!

decided at this time. United States v. Appala-

chian Power Co., 311 U. S. 377, 421.

CONCLUSION

For the foregoing reasons, it is respectfully

submitted that this petition for a writ of certi-

orari should be granted.

Rosert L. STERN,

Acting Solicitor General.

MarcH 1953

APPENDIX

FEDERAL POWER ACT

The following sections are taken from the Fed-

eral Power Act, as amended August 26, 1935,

The Act was originally approved June 10, 1920

(41 Stat. 1063) and amended August 26, 1935

(49 Stat. 838), insofar as pertinent here, 16

U.S. C. 791a-825r.

Sec. 3. The words defined in this sec-

tion shall have the following meanings for

purposes of this Act, to wit:

* * * * +.

(11) ‘‘project’? means complete unit of

improvement or development, consisting of

a power house, all water conduits, all

dams and appurtenant works and struc-

tures (including navigation structures)

which are a part of said unit, and all

; storage, diverting, or forebay reservoirs

: directly connected therewith, the primary

} line or lines transmitting power therefrom’

to the point of junction with the distribu-

tion system or with thé interconnected

primary transmission system, all miscel-

laneous structures used and useful in con-

nection with said unit or any part thereof,

and all water rights, rights-of-way, ditches,

dams, reservoirs, lands, or interest in lands

the use and occupancy of which are neces-

sary or appropriate in the maintenance

and operation of such unit;

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(30)

BLEED THR OUGH-

Sec. 4. The Commission is hereby au-

thorized and empowered—

* * * * *

(b) To determine the actual legitimate

original cost of and the net investment in

a licensed project, and to aid the Com-

mission in such determinations, each li-

censee shall, upon oath, within a reasonable

period of time to be fixed by the Commis-

sion, after the construction of the original

project or any addition thereto or better-

ment thereof, file with the Commission in

such detail as the Commission may require,

a statement in duplicate showing the ac-

tual legitimate original cost of eonstrue-

tion of such project, addition, or better-

ment, and of the price paid for water

rights, rights-of-way, lands, or interest in

lands. The licensee shall grant to the Com-

mission or to its duly authorized agent or

agents, at all reasonable times, free access

to such project, addition, or betterment,

and to all maps, profiles, contracts, reports

of engineers, accounts, books, records, and

all other papers and documents relating

thereto. The statement of actual legiti-

mate original cost of said project, and

revisions thereof as determined by the Com-

mission, shall be filed with the Secretary

of the Treasury.

* ~ * * *

(e) To issue lieenses to citizens of the

United States, or to any association of such

citizens, or to any corporation organized

under the laws of the United States or

any State thereof, or to any State or mu-

nicipality for the purpose of constructing,

operating, and maintaining dams, water

conduits, reservoirs, power houses, trans-

mission lines, or other project works neces-

Se eT TE LED ATR at, SOOT eT te Agee

sary or convenient for the development and

improvement of navigation and for the

development, transmission, and utilization

of power across, along, from or in any of

the streams or other bodies of water over

which Congress has jurisdiction under its

authority to regulate commerce with for-

eign nations and among the several States,

or upon any part of the public lands and

reservations of the United States (inelud-

ing the Territories), or for the purpose

of utilizing the surplus water or water

power from any Government dam, except

as herein provided:

* * * * *

Sec. 9. That each applicant for a li-

eense hereunder shall submit to the com-

mission—

* * * . *

(b) Satisfactory evidence that the appli-

eant has complied with the requirements

of the laws of the State or States within

which the proposed project is to be located

with respect to bed and banks and to the

appropriation, diversion, and use of water

for power purposes and with respect to

the richt to engage in the business of de-

veloping, transmitting, and distributing

power, and in any other business neces-

sary to effect the purpose of a license under

this Act.

* * ~ * +

See. 10. All licenses issued under this

Part shall be on the following conditions:

* * * * *

(d) That after the first twenty years of

operation, out of surplus earned thereafter,

if any, accumulated in excess of a speci-

fied reasonable rate of return upon the

BLEED THR OUGH-

net investment of a licensee in any proj-

ect or projects under license, the licensee

shall establish and maintain amortization

reserves, which reserves shall, in the dis-

cretion of the Commission, be held until

the termination of the license or be applied

from time to time in reduction of the net

iavestment. Such specified rate of return

and the proportion of such surplus earn-

ings to be paid into and held in such re-

serves shall be set forth in the license.

* * * * *

Sec, 14. Upon not less than two years’

notice in writing from the Commission the

United States shall have the right upon or

after the expiration of any license to take

over and thereafter to maintain and op-

erate any project or prejects as defined in

section 3 hereof, and covered in whole or

in part by the license, or the right to take

over upon mutual agreement with the li-

ecensee all property owned and held by the

the licensee then valuable and serviceable

in the development, transmission, or distri-

bution of power and which is then depend-

ent for its usefulness upon the continuance

of the license, together with any lock or

locks or other aids to navigation con-

structed at the expense of the licensee, upon

the condition that before taking possession

it shall pay the net investment of the

licensee in the project or projects taken,

not to exceed the fair value of the property

taken, plus such reasonable damages, if

any, to property of the licensee valuable,

serviceable, and dependent as above set

forth but not taken, as may be caused by

the severance therefrom of property taken,

and shall assume all contracts entered into

by the licensee with the approval of the

Commission. The net investment of the

licensee in the project or projects so taken

and the amount of such severance damages,

if any, shall be determined by the Com-

mission after notice and opportunity for

hearing. Such net investment shall not in-

clude or be affected by the value of any

lands, rights-of-way, or other property of

the United States licensed by the Commis-

sion under this Act, by the license or by

good will, going value, or prospective rev-

enues; nor shall the values allowed for

water rights, rights-of-way, lands, or in-

terest in lands be in excess of the actual

reasonable cost thereof at the time of ac-

quisition by the licensee: Provided, That

the right of the United States or any State

or municipality to take over, maintain, and

operate any project licensed under this Act

at any time by condemnation proceedings

upon payment of just compensation is

hereby expressly reserved.

* * * * *

See. 16. That when in the opinion of the

President of the United States, evidenced

by a written order addressed to the holder

of any license hereunder, the safety of the

United States demands it, the United

States shall have the right to enter upon

and take possession of any project, or part

thereof, constructed, maintained, or op-

erated under said license, for the purpose

of manufacturing nitrates, explosives, or

munitions of war, or for any other purpose

involving the safety of the United States,

to retain possession, management, and con-

trol thereof for such length of time as may

appear to the President to be necessary to

accomplish said purposes, and then to re-

store possession and control to the party

BLEED THROU GH-

————————

or parties entitled thereto; and in the event

that the United States shall exercise such

right it shall pay to the party or parties

entitled thereto just and fair compensation

for the use of said property as may be

fixed by the Commission upon the basis of

a reasonable profit in time of peace, and the

cost of restoring said property to as good

condition as existed at the time of the tak-

ing over thereof, less the reasonable value

of any improvements that may be made

thereto by the United States and which are

valuable and serviceable to the licensee.

* * * * *

Sec. 19. That as a condition of the li-

cense, every licensee hereunder which is a

public-service corporation, or a person, as-

sociation, or corporation owning or oper-

ating any project and developing, trans-

mitting, or distributing power for sale or

use in publie service, shall abide by such

reasonable regulation of the services to be

rendered to customers or consumers of

power, and of rates and charges of pay-

ment therefor, as may from time to time

be prescribed by any duly constituted

agency of the State in which the service

is rendered or the rate charged. That in

ease of the development, transmission, or

distribution, or use in public service of

power by any licensee hereunder or by its

customer engaged in public service within

a State which has not authorized and em-

powered a commission or other agency or

agencies within said State to regulate and

control the services to be rendered by such

licensee or by its customer engaged in

publie service, or the rates and charges of

payment therefor, or the amount or char-

acter of securities to be issued by any of

said parties, it is agreed as a condition of

such license that jurisdiction is hereby con-

ferred upon the commission, upon com-

plaint of any person aggrieved or upon its

own initiative, to exercise such regulation

and control until such time as the State

shall have provided a commission or other

authority for such regulation and control:

Provided, That the jurisdiction of the com-

mission shall cease and determine as to

each specific matter of regulation and con-

trol prescribed in this section as soon as

the State shall have provided a commis-

sion or other authority for the regulation

and control of that specific matter.

See. 20. That when said power or any

part thereof shall enter into interstate or

foreign commerce the rates charged and

the service rendered by any such licensee,

or by any subsidiary corporation, the stock

of which is owned o~ controlled directly

or indirectly by such licensee, or by any

person, corporation, or association purchas-

ing power from such licensee for sale and

distribution or use in public service shall

be reasonable, nondiscriminatory, and just

to the customer and all unreasonable dis-

criminatory and unjust rates or services

are hereby prohibited and declared to be

unlawful; and whenever any of the States

directly concerned has not provided a com-

mission or other authority to enforce the

requirements of this section within such

State or to regulate and control the amount

and character of securities to be issued by

any of such parties or such States are un-

able to agree through their properly con-

stituted authorities on the services to be

rendered or on the rates or charges of

payment therefor, or on the amount or

BLEED THR OUGH-

character of securities to be issued by any

of said parties, jurisdiction is hereby con-

ferred upon the commission, upon com-

plaint of any person aggrieved, upon the

request of any State concerned, or upon its

own initiative to enforce the provisions of

this section, to regulate and control so much

of the services rendered, and of the rates

and charges of payment therefor as con-

stitute interstate or foreign commerce and

to regulate the issuance of securities by

the parties included within this section, and

securities issued by the licensee subject to

such regulations shall be allowed only for

the bona fide purpose of financing and con-

ducting the business of such licensee.

The administration of the provisions of

this section, so far as applicable, shall be

according to the procedure and practice in

fixing and regulating the rates, charges,

and practices of railroad companies as pro-

vided in the Act to regulate commerce,

approved February 4, 1887, as amended,

and that the parties subject to such regu-

lation shall have the same rights of hear-

ing, defense, and review as said companies

in such cases.

In any evaluation of the property of any

licensee hereunder for purposes of rate

making, no value shall be claimed by the

licensee or allowed by the commission for

any project or projects under license in

excess of the value or values prescribed

in section 14 hereof for the purposes of

purchase by the United States, but there

shall be included the cost to such licensee

of the construction of the lock or locks

or other aids of navigation and all other

capital expenditures required by the

United States, and no value shall be

claimed or allowed for the rights granted

by the commission or by this Act.

* ~ * * x

See. 23. (a) The provisions of this Part

shall not be construed as affecting any

permit or valid existing right-of-way here-

tofore granted or as confirming or other-

wise affecting any claim, or as affecting

any authority heretofore given pursuant to

law, but any person, association, corpora-

tion, State, or municipality holding or pos-

sessing such permit, right-of-way, or

authority may apply for a license here-

under, and upon such application the Com-

mission may issue to any such applicant

a license in accordance with the provi-

sions of this Part and in such case the provi-

sions of this Act shall apply to such appli-

cant as a licensee hereunder: Provided,

That when application is made for a license

under this section for a project or projects

already constructed the fair value of said

project or projects determined as provided

in this section, shall for the purposes of

this Part and of said license be deemed

to be the amount to be allowed as the net

investment of the applicant in such project

or projects as of the date of such license,

or as of the date of such determination,

if license has not been issued. Such fair

value shall be determined by the Commis-

sion after notice and opportunity for

hearing.

* * * * *

Sec. 26. That the Attorney General may,

on request of the commission or of the

Secretary of War, institute proceedings

in equity in the district court of the United

States in the district in which any project

or part thereof is situated for the purpose

of revoking for violation of its terms any

oe ae

BLEED THR OUGH-

permit or license issued hereunder, or for

the purpose of remedying or correcting by

injunction, mandamus, or other process

any act of commission or omission in vio-

lation of the provisions of this Act or of

any lawful regulation or order promul-

gated hereunder. The district courts shall

have jurisdiction over all of the above-

mentioned proceedings and shall have

power to issue and execute all necessary

process and to make and enforce all writs,

orders, and decrees to compel compliance

with the lawful orders and regulations of

the commission and of the Secretary of

War, and to compel the performance of

any condition imposed under the provi-

sions of this Act. In the event a decree

revoking a license is entered, the court

is empowered to sell the whole or any part

of the project or projects under license, to

wind up the business of such licensee con-

ducted in connection with such project or

projects, to distribute the proceeds to the

parties entitled to the same, and to make

and enforce such further orders and de-

crees as equity and justice may require.

At such sale or sales the vendee shall take

the rights and privileges belonging to the

licensee and shall perform the duties of

such licensee and assume all outstanding

obligations and liabilities of the licensee

which the court may deem equitable in

the premises; and at such sale or sales the

United States may become a purchaser. but

it shall not be required to pay a greater

amount than it would be required to pay

under the provisions of section 14 hereof

at the termination of the license.

See. 27. That nothing herein contained

shall be construed as affecting or intend-

ing to affect or in any way to interfere

with the laws of the respective States re-

lating to the control, appropriation, use,

or distribution of water used in irrigation

or for municipal or other uses, or any

vested right acquired therein.

RIVER AND HARBOR ACT APPROVED

MARCH 3, 1899

30 Stat. 1121, 1151

* * * * *

Sec. 9. That it shall not be lawful to con-

struct or commence the construction of any

bridge, dam, dike, or causeway over or in

any port, roadstead, haven, harbor, canal,

navigable river, or other navigable water of

the United States until the consent of Con-

gress to the building of such structures

shall have been obtained and until the plans

for the same shall have been submitted to

and approved by the Chief of Engineers

and by the Secretary of War: Provided,

That such structures may be built under

authority of the legislature of a State

across rivers and other waterways the

navigable portions of which lie wholly

within the limits of a single State, provided

the location and plans thereof are sub-

mitted to and approved by the Chief of

Engineers and by the Secretary of War

before construction is commenced: And

provided further, That when plans for any

bridge or other structure have been ap-

proved by the Chief of Engineers and by

the Secretary of War, it shall not be lawful

to deviate from such plans either before

or after completion of the structure unless

the modification of said plans has previ-

ously been submitted to and received the

approval of the Chief of Engineers and of

the Secretary of War.

BLEED THROUGH-

Sec. 10. That the creation of any obstruc-

tion not affirmatively authorized by Con-

gress, to the navigable capacity of any of the

waters of the United States is hereby pro-

hibited; and it shall not be lawful to build

or commence the building of any wharf,

pier, dolphin, boom, weir, breakwater, bulk-

head, jetty, or other structures in any port,

roadstead, haven, harbor, canal, navigable

river, or other water of the United States,

outside established harbor lines, or where

no harbor lines have been established, ex-

cept on plans recommended by the Chief of

Engineers and authorized by the Secretary

of War; and it shall not be lawful to ex-

cavate or fill, or in any manner to alter or

modify the course, location, condition, or

capacity of, any port, roadstead, haven,

harbor, canal, lake, harbor or refuge, or

inclosure within the limits of any break-

water, or of the channel of any navigable

water of the United States, unless the work

has been recommended by the Chief of

Engineers and authorized by the Secretary

of War prior to beginning the same.

U. S$. GOVERNMENT PRINTING OFFICE: 1983

Opinions below - - - -- - ------------------------------------ 1

ee patie dap ee wees <a deE A rhe on chew He See es 1

Questions presented... ----------------------------------- 2

EE ee ee Pee 3

ee POR po 0 2 Gy SIR A 3

(a) International Paper v ea ee Lae 5

(b) Pettebone-Cataract water rights_..---—-- Pero a 6

Specification I ES ERE ee 11

er i a aewtaaie cake 12

nn ee EEO ee eee 16

I. The Federal W ater Power Act of 1920 eliminated pri-

vate water power rights in navigable streams___ --- 21

A. The purposes of the Federal Water Power Act

would be frustrated were private water

power rights still to be recognized. __ an 22

B. Congress asserted its dominant servitude i"

the water power in navigable rivers - — - ~~ 25

(1) The licensee is the agent, 7. e., the

chosen instrument, of the United

Se — 25

(2) The assertion by the United State s ”

its dominant servitude wiped out

private rights_— ~~~ ‘ es 31

C. Congress completely preempted the fi field of

the development of water power from nav-

igable streams, and private rights inconsist-

ent with that preemption were terminated __ 38

D. There is no basis for the contention that pri-

vate water power rights were = specially

saved by the Act. SD 2 Eee ; 43

II. The circumstances under whie h these water power

rights were created serve to show that the Federal

Water Power Act of 1920 cannot be read to pre-

serve private rights in water power... -—------ ‘ 48

A. The water power rights involved in the in-

stant case are of such a highly attenuated

nature under State law as to be nonrecog-

nizable under Federal law -- - - - 5 49

B. Congress could not have intended to require

the consumer and the Federal Government

to pay for dealings in water power rights

of the kind involved in the instant case___-- 54

C. Congress intended to abolish private water

power rights in the Niagara River- - ------ 57

273107-—53-—-—-1 iy

Argument—Continued Page

III. The Federal Power Commission properly disallowed

the payments as invalid operating expenses - ---., -- 60

PNG erences budunebed din cheek crcterweduenesueedeus 63

CITATIONS

Cases:

A. T. & T. Co. v. United States, 299 U. S. 232. ....------ 55

Alabama Power Co. v. Federal Power Commission, 128 F.

2d 280, certiorari denied, 317 U. 8. 652_.----_-_---- 29, 56, 60

Alabama Power Co. v. Federal Power Commission, 134 F. 2d

Alabama Power Co. v. McNinch, 94 F. 2d 601_-_------_- 56,

ee, Ses Oe Ws SY EG wv Sine wicownnnwesdensensccens

Board of Regents v. Carroll, 338 U. 8. 586_____---- 16, 45—46, 61

Chapman v. Federal Power Commission, 345 U. 8. 153__--- 26, 28

Alabama Power Co. v. Gulf Power Co., 283 Fed. 606-- ~~. _- 30

Clarion River Power Co. v. Smith, 59 F. 2d 861, certiorari

EY TIRE SU in rit os eh anne aanenemeue

Cloverleaf Co. v. Patterson, 315 U. 8. 148__-.__-_--_------

Federal Power Commission v. Idaho Power Co., 344 U.S.17- 40

First lowa Coop. v. Federal Power Commission, 328 U. 8.

ere 10, 12, 14, 20, 23, 26, 29, 39, 43, 44, 45, 46, 47

Ford & Son v. Little Falis Co., 280 U. 8. 369__..___..---- 45

ee Oe Ga, © ly Bi cncdnntescccenseoexwsucce 25 '

Grand River Dam Authority v. Grand-Hydro, 335 U.S.359_ 16, 37-

38, 46, 62

BO ULL UGE 55

International Paper Co. v. United States, 282 U.S. 399. 37, 49-50

Lewis Blue Point Oyster Co. v. Briggs, 229 U. 8. 82______- 21

Long Sault Development Co., Matter of, 212 N. Y. 1, error

SC OO EG on cewtcevescenevccessccuuss 51 )

Niagara Falls Power Co. v. Duryea, 185 Misc. (N. Y.) 696_ 15, 52, 53

Niagara Falls Pow Co. v. Federal Power Commission, 137

F. 2d 787, certiorari denied, 320 U. 8S. 792, rehearing

denied, 320 U. 8. 815.°.........._-! *_ 25, 30, 42, 56,58,59 |

Niagara Falls Power Co. v. Water P. & C. Comm., 267 N. Y.

Minis cls dee alpls a dean aauee es ai alan ik 5, 15, 27, 51

Northern States Power Co. v. Federal Power Commission,

Ss Be Pamiedsnss pouekeenebewdenedancuededaes 29, 60

Pennsylvania Power & Light Company v. Federal Power

Commission, 139 F. 2d 445, certiorari denied, 321 U. 8.

lige sugenscaseeeeneemmcbeiedeperersenenesene< 56

Puget Sound Power & Light Company v. Federal Power

Commission, 137 F. 2d 701_______- 2 EAR i Sem Spee 56

United P. B. Co. v. Iroquois P. & P. Co., 226 N. Y. 38... 31, 50

United States vy. Appalachian Power Co., 311 U.S. 377_._- 17, 20,

21, 22, 25, 32, 35, 36, 40, 45, 61

BLEED THR OUGH-

_ —

Cases—Continued Page

Uniied States v. Chandler-Dunbar Co., 229 U.S. 53--.---- 12, 13,

17, 21, 33-35, 36, 37, 59

United States v. Chicago, M., St. P. & P. R. Co., 312 U. §.

LA EE ee LY ia ha Sele CG 32 ok Pe 21

United States v. Commodore Park, 324 U. S. 386. eueeeed _ 2!

United States v. Gerlach Livestock Crngmes, 339 U.S. 725-- 45

United States v. Kansas City ee Ce., 339 U. S. 799. 21

United States v. New York Tel. Co., 326 U. 8. 638__---___- 55

United States vy. Willow River = 324 U. 8. 499. _._- 21, 36, 37

Van Etten, Matter of v. City of New York, 226 N. Y. 483_.- 49

Statutes:

Burton Act of June 29, 1906, 34 Stat. 626__.______- _. 40, 50. 57

Federal Power Act, 41 Stat. 1063, 16 U.S. C. 791a et seq.:

Ee Sb wos Katedsee teen e decane coadeerie . 47,48

Si ctwaterekadntwxagvecece ceerkaseenditen 47,48

DP dic urtderscteeerieychee neeeeeseseuet 13, 32

PE DitnGibewervowspacebererdisaresvbusunenes i 28

SE Dinvccusonedasevessevecdesessanasenaters 50

ON EES. TT CGE OF 47, 48

ees wud ihn adad eas 32

Section 10 (d)_...------ Sevewbtiavex'es 2, 4, 10, ll, 12, 17, 56

enceGuds asbnageade patesek mew aee 56

BE Dilcesecensreeevenss neha s ake asae 18, 47,48

Section 16___--- ee ++ ce eedebanceupes a mesealinieardl secta 18

Section 20___---- seeeweewd — 18

Seas SP GD). cc cevenses olwdleeWamalemadewwern wae 47

CO ek ae jivaciewes 32

Pi cvebhacdetGrabankekwesceneebanaeen 18

PD DE ciiveresatevases aces ee 44, 45, 48

International Boundary Waters Treaty of 1910, 36 Stat.

Kacbiceodeededeerasese’ cetnbasetaewrereese 59

Joint Resolution of January 1°, 1917, 39 Stat. 867___.__.__ 40, 58

Joint Resolution of June 5u, 1917, 40 Stat. 241.________- 40, 58

Joint Resolution of Juns: 29, 1918, 40 Stat. 633______- _.. 40, 58

Joint Resolution of July 12, 1919, 4° Stat. 163__....____- 40, 58

River and Harbor Act wf 1899, 30 Stat. 1121_-.-..___--- 58

River and Harbor Act of 1909, 35 Stat. 815, 820...._.___- 59

Section 9 (30 Stat. 1151, 33 U. 8. C. 401)_________-- 26

New York Conservation Law, Sec. 612 (McKinney’s

Consol. Laws of New York, Book 10, 1951)_......---- 53

er ey SE SE SO Ble a wececsusscsciccseses 5

Sey ee en CA, Onc cee cndescenesscesens 5

New York Laws of 1896, Ch. 968. ..............--..--.- 5

eS 8 NS Oe 5

Miscellaneous:

36 Cong. Rec. 3071__-_----- Siedt Gis ak anda dotrhdaaiaaats 7

ee A ned enw uw ieee Wedwen+eesreeterereue 26

ey SI igen nese cee erguesewenvesceveneevens 27

a Ear

Miscellaneous—Continued Page

eR ix oss ws aso kereknsenseecasenuee 27

Oe i eo cee oe eo weeweaeaeuses 27, 30

EE eas eee caeeneenseeeee ace 30

RO Ne: WO PRS oS ce Sone cece seuss ese 58

ee SE Se ss he doe ee ane bac sceetakeawens 58

Pe UE ND WEE rence eee oe wee Ceram Se enupweeatS 19, 28, 29 f

ea UR ss eo causes eee oereoeeaes 18 |

Se NE SE I cs cceas ow tees lee a ake ee Sees 46

Re EN inn sv accuechyerduewanka caatbasice 19

Sey Ns I MN oc es wk wy enemas ceeeeehes 19

a EE oe awn cen vesnweececar nee ee 33, 47

ee A ee Roo oe oh ek eae een eee 42 |

Se eee BER, Ps oe ha wemon da cke bens aoa ee eeeee 42 :

Ra EE TRO INTE gs oe uinc ae ie saewe aie erLeaaee 31

Pet i SO Noo 5 ads Sac ecewakusnnadeessuwsaone 46 |

De Re CORO, SEE, SIME = one a ve new es eb ek ecweeecee 56

ee ne: ek Me oe a carver nan nee ee 41 I

Federal Power Commission, Third Annual Report___.---- 23

Hearings Before the Special House Committee on Water ie

AE A EN NIE occas a ene kkas aes Sakae Se een eaaw 19 |

H. Rept. No. 61, 66th Cong., Ist Sess. .........-.....-. 28

H. Rept. No. 910, 66th Cong., 2d Sess_...............-. 46

Sen. Rept. No. 180, 66th Cong., Ist Sess.......-....-_--- 29, 45

Poor, Public Utititses (1926) 1156... . 2... 5-22-2-25---cc 6

Power Authority for the State of New York:

VE IAT SEONG, ooo ne wa ew pn ewenacoes 53 ‘

Sixteenth Mnaual Report... .cesccnewccse 52

EF ERR ETN ET ea aes NOSE mE OR CEN) MRT: Nam SSA TaBSRS Rca RR PEE aoe

Guthe Supreme Court of the Gnited States

OcroBER TERM, 1953

No. 28

FEDERAL POWER COMMISSION, PETITIONER

Vv.

NIAGARA MoHAWK PowerrR CORPORATION

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE FEDERAL POWER COMMISSION

OPINIONS BELOW

The opinion of the Court of Appeals for the

District of Columbia Circuit (R. 585-613) is

reported at 202 F. 2d 190. The Commission’s

opinion and order (R. 105-117) is reported at

9 F. P. C. 228.

JURISDICTION

The judgment of the Court of Appeals (R.

613-614) was entered on December 31, 1952. The

petition for certiorari was filed March 30, 1953,

and was granted on May 18, 1953 (R. 617). The

jurisdiction of this Court rests upon Section 313

(b) of the Federal Power Act and 28 U. S. C.

1254 (1).

(1)

“aie

QUESTIONS PRESENTED

The respondent, the Niagara Mohawk Power

Corporation, a licensee under Part I of the Fed-

eval Power Act,’ paid two other companies for

water power rights those companies claimed to

possess under state law to the use of the water of

the navigable Niagara River. The use of such

water through the Niagara Falls project by the

respondent was expressly authorized under a

Federal Power Act license for that project. In

computing the amortization reserve of the respon-

dent required by Section 10 (d) of the Act, the

Commission disallowed these payments for the

water power rights. The Court of Appeals

reversed, holding that the payments were legiti-

mate project expenses and properly allowable in

computing the amortization reserve of Section

10 (d).

The questions presented are:

1. Are state laws authorizing water power use

of a navigable stream and water power rights

acquired thereunder superseded by the Federal

Power Act and a license pursuant thereto grant-

ing federal authority for the use of such stream

for water power development?

2. Is a party licensed under the Federal Power

Act to use the waters of a navigable stream

through a hydroelectric project required to com-

116 U.S. C. 791a et seg. The Federal Water Power Act

of 1920, as amended, is Part I of the present Federal Power

Act.

BLEED THR OUGH-

E_ pags

pensate another company for taking the latter’s

water power rights acquired under state law for

power use of the same water?

3, Are payments by federally licensed com-

panies, with express authorization to use certain

water power, to owners of the alleged water power

rights under state law, properly allowable as

legitimate operating expenses under the Federal

Power Act?

STATUTES INVOLVED

The pertinent provisions of the Federal Power

Act (41 Stat. 1063, 16 U. 8S. C. 791a, et seq.), and .

of the River and Harbor Act of 1899 (30 Stat.

1121, 33 U. S. C. 401, 403) are included in the

Statutory Appendix (‘‘Stat. App.”’), which is

being filed with this brief.

STATEMENT

On March 2, 1921, the Federal Power Commis-

sion issued a license to Niagara Falls Power Com-

pany (‘‘licensee’’)* under Part I of the Federal

Power Act for a water power project along the

Niagara River on the New York side of the inter-

national boundary at Niagara Falls, designated as

Project No. 16. The license for Project No. 16

authorized licensee to divert water from the Ni-

2 The license was issued on March 2, 1921, to Niagara Falls

Power Company, which merged wit the respondent on

October 19, 1950. Nothing in the case turns on the merger

and, for convenience, “licensee” is used to refer to the com-

pany holding the license.

—_— Hai

ee.

agara River at the rate of 19,500 c. f. s.° around

the Falls for water power development (R. 382).

Pursuant to Section 10 (d) of the Act (Stat. App.

11, 12), the license specified six percent as a rea-

sonable rate of return and provided that one-half

of the earnings in excess thereof should, after

twenty years of operation, be transferred to the

amortization reserve required by that Section.

In proceedings brought to determine such ex-

cess income, the Commission, in its order of Sep-

tember 25, 1950, found that during the period

March 2, 1941, through December 31, 1946, the

licensee had unlawfully increased its Project op-

erating expenses by annual payments of $99,000,

totalling $577,500 during the five-year period, to

International Paper Company for the use of

water rights claimed by International Paper

under state law. The Commission also found

that during this period licensee had unlawfully

reduced its annual revenue by making rebates or

credits on electric energy sold first to its affiliate,

Niagara Lockport and Ontario Power Company,

and subsequently to its parent, Buffalo Niagara

Electric Corporation, which at the rate of other

energy sold to those companies amounted to

$37,800 per year or $220,500 during the five-year

period. These credits to its affiliate and to its

parent were said to be made by licensee in pay-

ment for the use of water rights claimed under

* Subsequently increased to 20,000 e. f. s.

BLEED THR OUGH-

state law. The Commission disallowed payments

and credits made by the licensee during the pe-

riod March 2, 1941, through December 31, 1946,

for the use of the alleged water rights, in a total

amount of $798,000 and ordered that $399,000,

which represents one-half of this disallowance, be

included in the amortization reserve account.

The alleged state water rights which form the

basis of the payments here involved stem from a

series of water power grants from the State of

New York to the corporate predecessors of li-

censee,* made in 1892 and 1893 to Niagara Falls

Power Co.’ and in 1896 to Niagara Falls Hydraulic

Power and Manufacturing Co.° See Niagara Falls

Power Co. v. Water Power & Control Comm., 267

N. Y. 265, 272.

(a) International Paper Water Rights.—As a

result of a series of leases and conveyances and

option agreements entered into between Niagara

Falls Power Co. and International Paper Com-

pany (or its predecessor the Soo Paper Company)

the paper companies were permitted to use 730

*Niagara Falls Power Company, which was the licensee

during the five-year period here involved, was formed in

1918 by the consolidation of (original) Niagara Falls Power

Company, Hydraulic Company of Niagara Falls (originally

Niagara Falls Hydraulic Power and Manufacturing Co.),

and Cliff Electric Distributing Co. (Laws of New York of

1918, Ch. 596, R. 406).

°> New York Laws of 1892, Ch. 513, and 1893, Ch. 477 (R.

3-405).

® New York Laws of 1896, Ch. 968 (R. 405).

273107—53 2

e. f. s. of Niagara Power’s water, acquired under

temporary and revocable War Department per-

mits and State grants, at a rental of approxi-

mately $75,562 per annum (R. 168-209, 220-223).

In 1919 International Paper released and ‘‘condi-

tionally surrendered”’ to its grantor the water

power rights leased by it in consideration of rate

concessions which, in 1937, were converted into

flat annual payments of $99,000 (R. 220-247).

International Paper never had, nor does it now

have, a license from the Federal Power Commis-

sion to use such water.

(b) Pettebone-Cataract Water Rights.——The

second disallowed item of $220,500 goes back to

a contract dated January 1, 1900, between Ni-

agara Falls Hydraulic Power and Manufacturing

Company and two manufacturing companies, re-

ferred to as the Pettebone-Cataract Companies,

pursuant to which the latter were given the right

to withdraw 262.6 ¢. f. s. of Niagara Hydraulic’s

water. In 1925 the Pettebone-Cataract Com-

panies were acquired by Niagara Lockport and

Ontario Power Company, an affiliate of Niagara

Falls Power Company.’ By deed dated May 1,

1925, but recorded July 6, 1925 (R. 280, 292),

Niagara Lockport conveyed to its affiliate, the l-

censee, all of the assets of the Pettebone-Cataract

Companies, except the rights to the 262.6 c. f. s. of

7 Niagara Lockport and Niagara Falls Power Company

became affiliates on May 11, 1925. Poor, Public Utilities

(1926) 1150.

Pee eens wee weg .

OFF LL PCR MEL ERLE TE Oe eat POPSET I LEN LBA B LER IN TEE TIONED BO Seth Nae ROR Ing SEIS

BLEED THR OU GH-

water (R. 283-284). Those Niagara Lockport

leased to the licensee in return for the above-men-

tioned rate concessions. In 1945 Niagara Lock-

port was merged with Buffalo Niagara, its own

parent and also the parent of licensee.

On January 24, 1921, in support of its applica-

tion pending before the Commission, licensee

(then an applicant) stated that it had “the legal

proprietary right to the use”’ of at least the 20,000

¢. f. s. of water permitted by the 1910 Treaty with

Great Britain and that “no other person or cor-

poration has any lawful authority under the laws

of the State of New York or is qualified under

the Federal Water Power Act to use or divert

such waters for power purposes, or to apply fora

preliminary permit or license therefor”? (R. 374-

3759). However, in Article 13 of the license, the

Commission recognized that the International

Paper Company and the Pettebone-Cataract in-

terests made claims to water rights at Niagara

Falls under State laws (R. 384). The pertinent

parts of Article 13 provide:

13. In the event that the United States

or a new licensee shall take over the project

of the licensee pursuant to the provisions

of the Act, * * * such taking over of the

project shall also be subject to the rights,

if any, of Pettebone-Cataract Paper Com-

pany and Cataract City Milling Company

to withdraw water at a rate not exceeding

265 cubic feet per second from the Hydrau-

lic canal or basin of licensee, and to the

rights, if any, of International Paper Com-

pany. [Italics supplied. ]

By application dated February 14, 1947 (R.

257), as supplemented March 7, 1947 (R. 306),

licensee requested amendment of the license for

Project No. 16 to include the so-called Pettebone-

Cataract water rights which licensee proposed to

acquire from its parent, Buffalo Niagara. The

licensee, in its application, as supplemented, for

amendment of the license, stated (R. 306-307)

that:

The license in its present form appears to

us specifically to exclude from project prop-

erty the water rights of the Pettebone-

Cataract Paper Company and Cataract City

Milling Company outstanding as of March

2, 1921. These rights were acquired by a

predecessor of Buffalo Niagara Electric

Corporation in 1925 and have since that

year been used by us under lease in the gen-

eration of electric energy in the Schoell-

kopf Station which is a portion of the

property under license in Project 16.

It is the purpose of our requested amend-

ment of license for Project 16, and we

hereby so apply, to have the license amend-

ment include in the project the so-called

Pettebone-Cataract water rights which are

to be acquired from Buffalo Niagara Elec-

tric Corporation.

* * * * *

We propose to include the payment of

$728,415.48 for the Pettebone-Cataract water

rights in the actual legitimate original cost

of Project 16 upon acquisition of such

rights.

This application was denied on the basis that

licensee already possessed these water rights pur-

suant to its federal license (R. 387-393). The

Commission held (R. 389):

* * * In our opinion Buffalo Niagara

Electric Corporation does not possess any

lawful title to the water rights in question

for the reason that there cannot be private

ownership of the waters of a navigable

river of the United States. United States

v. Chandler-Dunbar Co., 229 U. 8. 53, 66.

* * * The licensee already has the right,

under the license, to use the 262.6 ¢. f. s. which

is the subject of its petition, and it is futile

for it to attempt to purchase that which it

already possesses to the fullest extent of the

law.

Licensee did not seek the review of this decision,

although warned by the Commission that it had

thereby waived the right to reopen this issue

(R. 592-593). In the instant case, the Commis-

sion, while considering its earlier decision res

judicata, also held that it was correct in substance

(R. 109).

Respondent filed a petition (R. 1) in the Court

of Appeals for the District of Columbia Circuit

for the review of the Commission’s order (R. 115-

117) of September 25, 1950, disallowing the pay-

ments and credits for use of water rights in de-

termining licensee’s amortization reserve liability

under Seetion 10 (d) of the Act for the period

Mareh 2, 1941, through December 31, 1946. The

majority of the court below (Kimbrough Stone

and Miller, JJ.) held that the Commission improp-

erly refused to recognize any charges by other

companies for the licensee’s use of their water

rights originating in leases made by the licensee's

predecessors. The Court of Appeals held that a

license under the Federal Power Act was a mere

permission to use a state’s grant of authority and

conferred no right to divert water. ‘‘An appli-

‘ant for a license must show the Commission he

has under state law the right to divert the water

for the use of which he desires a license. Uniless

he has that right, we think the Commission eannot

lawfully issue a license to him.’’ (R. 607-608.)

The eourt concluded that the Act disclosed an in-

tention to give full weight to state ownership of

water power rights in navigable waters as

erounded in state law. And since in its opinion

these water power rights were valid usufructuary

property rights under the law of New York which

were left undisturbed by the paramount federal

power, the payments and credits the licensee made

in discharge of its contractual obligations were

proper operating expenses.

Judge Bazelon, reading this Court’s opinion in

First Iowa Coop. v. Federal Power Commission,

328 U.S. 152, to hold that in the Power Act Con-

gress asserted the dominant federal authority over

eer ae ae De ee ie a a 8 ae a

BLEED THR OUGH-

navigable waters, which superseded all private

water rights affecting navigable waters except

those expressly saved, and did not save the rights

in question, dissented.

SPECIFICATION OF ERRORS TO BE URGED

The Court of Appeals erred:

1. In holding that Congress has not by the Fed-

eral Power Act and its predecessor statutes as-

serted its dominant authority ever navigable

waters of the United States in so far as concerns

water power development.

2. In holding that state laws authorizing water

power use of navigable streams and water power

rights acquired thereunder are not superseded by

the Federal Power Act and a license thereunder.

3. In holding that a Federal Power Act licensee,

licensed to use the waters of a navigable stream

through the project covered by the license, is also

required to comply with state laws relating to the

power use of such waters, and that the licensee is

required to compensate other parties for taking

their water power rights under state law, if the

licensee uses the water covered by such state

rights for power development under the license.

4. In holding that payments by the respondent

company to others for their state water power

rights were legitimate operating expenses for the

purpose of computing the respondent’s amortiza-

tion reserve under Section 10 (d) of the Act.

— se mre 8 RRP TUR CRS PIE TE

SUMMARY OF ARGUMENT

The decision of the court below—that the Fed-

eral Water Power Act of 1920 did not abolish

private, state created water power rights, and

that, for the purposes of Section 10 (d) of the

Act, these rights are binding upon the United

States and the Federal Power Commission—is

inconsistent with the decisions of this Court and

defeats the purposes of the Act. Under that de-

cision the United States and consumers must pay

for ‘‘rights’’ which are subject to abolition by the

United States without compensation. This con-

struction of the Act finds no substantial support

in the language, in the history, or in the purposes

of the Act.

It is unecontrovertible that the United States

has the power to appropriate or destroy water

power rights in navigable streams without com-

pensation. United States v. Chandler-Dunbar

Co., 229 U. S. 53. The primary question in this

case is whether such rights were terminated by

the Federal Power Act of 1920.

A. The decision below frustrates the purposes

of the Act. It forces the United States and con-

sumers to pay for private water power rights,

considerably reducing the economic advantages

of a hydroelectric plant. Further, it subjects the

financial soundness of licensed projects (First

Iowa Coop. v. Federal Power Commission, 328

U. S. 152) to payments made by licensees to non-

licensees, over which the Commission has no con-

trol. It gives value to ‘‘rights’’ which, in the ab-

sence of a license, are valueless; it gives private

interests first mortgages on the water power of

the Nation. Not only is there no clear and un-

equivocal manifestation of a Congressional pur-

pose to effect this untoward result; the indica-

tions are quite the other way.

B. (1) The Federal Power Act of 1920 is based

on the theory that the water power in the navi-

gable rivers of the Nation belongs to the people

and that the licenses granted under the Act are a

means of making those natural resources available

to the people. The Act consequently provides for

the issuance of licenses to private corporations,

with the project subject to recapture at the end

of the fifty-year license period. The court below,

therefore, clearly erred in holding that the license

is merely a federal permission to use state created

rights to water power.

(2) Consistently with this agency or chosen in-

strument theory, Congress asserted in the Act its

paramount interest in the water power in navig-

able rivers, and transferred all its authority to its

licensee. See Section 4 (e). That this assertion

took the form of a prohibition of structures in

navigable streams rather than the form of a real

property condemnation is immaterial. United

States v. Chandler-Dunbar Co., 229 U.S. 53. The

273107—53.

—d

730

fact is that the United States claimed its domi-

nant right in the navigable streams and private

rights were, accordingly, extinguished.

C. Even without reference to this theory, it is

clear that Congress completely preempted the

field of the development of water power so as

to eradicate private water power rights, which

are inconsistent with that preemption. First

Iowa Coop. v. Federal Power Commission, 328

U. S. 152. The expressions on the floor of Con-

gress during the consideration of the Bill which

became the Act make it quite clear that Congress

was fully aware of the completeness of the con-

trol it was establishing in the Act. Unless private

rights were expressly saved by the Act, they were

necessarily abolished.

D. There is nothing in the Act which pre-

serves private water power rights. Section 27,

upon which the court below relied, does not pre-

serve water power rights. Rather, it preserves

rights of an irrigation or traditionally municipal

nature, not power rights. First Iowa Coop.,

supra, And this conclusion is bolstered by the

other sections of the Act.

The circumstances under which these private

rights were allegedly created point up the unten-

ability of the contention that the Act was not

intended to affect the validity of such private rights.

oueneeemeeens eer.

CEB ENET EIR ROSIE RET RO ROTRT_ SLANG AE BALD AME CRI ARNE SP SE RSL TILA AE TRG OER ION AE .

hee? OS ARR RET A PET PONY AE BA OM Tae CRSP NOSIS :

BLEED THR OUGH-

—, |

A. Under the laws of New York, these rights

are highly attenuated, and the reserved power

of the State has been actually exercised to such

an extent that little but an empty shell is left.

Niagara Falls Power Co, v. Water Power & Con-

trol Commission, 267 N. Y. 265; Niagara Falls

Power Company v. Duryca, 185 Mise. (N. Y.)

696. Accordingly, assuming that these rights are

valid to some extent under the laws of New York,

they were subject to such a high degree of de-

feasibility that the term ‘‘vested”’ in its ordinary

connotation cannot be applied to them.

Both sets of rights for which the payments in

question were made, are the result of compli-

eated transactions, by which particular water

power rights were specially and unusually pre-

served. Even assuming that these transactions

were at arms-length, the reliance of the respond-

ent upon their validity should be given little

weight, for these payments involve only five per-

eent of the rights respondent uses, and the other

95 percent are the subject of potential claims of

its own. Its own self-interest would not lead it

to disavow the contracts. Indeed, these trans-

actions point up the unlikelihood that Congress

intended to impose upon the public the necessity

of paying for such ‘‘rights.”’

C. The legislative history of the Federal Water

Power Act of 1920, starting with the Burton Act

of 1906, demonstrates clearly that Congress knew

a eh jm SEG GSA, ATLL IAIN LOIS SENATE ILE ITE MEL FO ER

De rmrmncrccaesssctec eh che

of the diversion from the Niagara River by the

respondent and its predecessors in interest, and

considered such diversions usurpations, which

were not to be recognized.

III

The Federal Power Commission has the au-

thority to disallow actual expenditures if they are

not of a legitimate nature. The disallowance of

the payments in question was, for the reasons

above stated, quite proper.

Moreover, even if there were some aspects of

“‘legality’’ to the transactions as between the

parties, it is clear that, insofar as the Federal

Power Commission and the United States are

concerned, the transactions have no_ binding

effects. Board of Regents v. Carroll, 338 U. S.

586. This Court has itself indicated that such

type of transactions need not be recognized as

binding upon the United States just because they

may be binding upon the parties. Grand River

Dam Authority v. Grand-Hydro, 335 U. S. 359.

Consequently, even if the respondent had a legal

obligation to make the payments in question, they

were properly disallowed by the Federal Power

Commission.

ARGUMENT

In 1913, contemporaneously with the introduc-

tion in the Congress of the bills which eventually

became the Federal Water Power Act of 1920,

this Court stated in no uncertain terms, ‘‘that the

SE RS re Te Rng BPN ELF Re ERP CLE ITED EL ERAS, TU LER Gr Ne MRE Rapes SRN

BLEED THR OUGH-

running water in a great navigable stream is

capable of private ownership is inconceivable.”

United States v. Chandler-Dunbar Co., 229 U.S.

53, 69. Subsequently, in 1940, twenty years

after the passage of the Power Act, this Court

was faced with the contention (and forty-one

states joined in support of the argument) that

certain aspects of the Act were unconstitutional,

as a violation of the reserved powers of the

states under the Tenth Amendment. This Court

rejected the contention, repeating with approval

the language of Chandler-Dunbar and further

stating, ‘‘Exclusion of riparian owners from [a

great navigable stream’s] benefits without com-

pensation is entirely within the Government’s

discretion. * * * [T]here is no private property

in the flow of the stream.’’? United States v.

Appalachian Power Co., 311 U. 8. 377, 424, 427.

Under the Federal Power Act, the Federal

Power Commission is charged with the duty of

issuing licenses for the development of electrical

power. Accordingly, the Commission has com-

plete regulatory control over the terms of the

license and over the licensee. The issue in this

case arises out of the requirements of Section 10

(d) of the Act. This section provides that, after

the first twenty years of operations, a portion of

the excess profit of the licensee shall be trans-

ferred to an amortization reserve account which,

at the discretion of the Commission, shall either

be held until the termination of the license or

eA Tg = *

MES Tee ari 2, Date ti cere rerIe se cere - " .

2 STEN CORNING

applied in reduction of the net investment, and

that the license shall state what rate of return is

to be considered excessive and what percentage of

the surplus earnings is to be transferred to the

amortization reserve. Respondent’s license pro-

vides that earnings in excess of six per centum

are to be considered surplus and that one-half

of such surplus should be transferred to the

amortization reserve (R. 4).

The proper computation of the amortization

reserve is of great importance to the parties,

since, as mentioned above, it serves to reduce

the licensee’s net investment, and the latter in

turn determines four important and far reaching

financial issues, viz: (a) the price the United

States has to pay should it decide to recapture

the project at the end of the fifty-year licensing

period (Section 14, Stat. App. 16); (b) the

rental due if the United States should requisition

the project during a period of national emergency

(Section 16, Stat. App. 17); (¢) the price the

United States would have to pay for the project

if it should acquire it at a judicial sale following

the revocation of the license (Section 26, Stat.

App. 24); and (d) a basis for rate fixing (Section

20, Stat. App. 20).*

* The function intended to be served by this amortization

reserve was probably best expressed by Representative

Parker in his discussion of an earlier version of Section

10 (d) (56 Cong. Rec. 9284) :

“* * * it is the duty of the commission * * * to find out

what the earnings have been. If they are less than a fair

ETL A EE IBS St EEL TL ERE CT LEGS LN IG GOCE MIST US NREL ELIE ELL | EAE DEL LEDGE OLE: IER AY i GPE.

BLEED THR OUGH-

It is undisputed that the Federal Power Com-

mission has the responsibility of disallowing pay-

ments which are not ‘“‘legitimate”’ in nature. See

p. 60, infra. Nevertheless, the court below has

held that the tenuous, almost transcendental

water power rights for which the respondent

makes annual payments, are valid, as against the

Federal Power Commission and the United States

Government, and that the Commission erred in

disallowing the payments. This holding is incon-

sistent with the decisions of this Court, and goes

a long way to defeat the purposes of the Federal

Power Act. Under this decision the United

States will have to pay for privately owned water

rights, which are subject to complete abolition by

both the State and the Federal Government with-

out compensation, which have heen completely sev-

ered from the land, and which are obviously

worthless without the approval of the Federal

Power Commission. The development of the

return upon the cost of the investment, they will go to the

licensee. If they are more than a fair return—and what will

be a fair return will be expressed in the lease—then they

may be applied and shall be applied under the contract,

either to the reduction of the original cost and of the amount

that the Government will have to pay upon recapture, or

else they will be applied to a reduction of rates, so that the

public wili get the benefit * * *.”

See also remarks of Representative Anderson, 56 Cong. Rec.

9282; Representative —isch, 56 Cong. Rec. 9957, 57 Cong.

Rec. 4638; 1918 Print of Hearings Before the Special House

Committee on Water Power (pp. 650-659).

£5 OLE RAT, LS ISNA POG TNR ADE TPA OD I A

Niagara River, one of the greatest sources of

hydroelectric power in this nation, and one of

the chief concerns of Congress in its considera-

tion of the Federal Water Power Act of 1920,

will be hobbled by these payments for private

water rights—originating out of complicated

intercorporate transactions and deriving only

from state grants and temporary federal per-

mits—saving only the circumstance that the

United States, by some eminent domain pro-

ceedings, shall formally confiscate the “rights.”

This alternative is as dubious as it is specu-

lative. The Federal Water Power Act ‘was

the outgrowth of a widely supported effort of the

conservationists to secure enactment of a complete

scheme of national regulation which would pro-

mote the comprehensive development of the water

resources of the Nation, in so far as it was within

the reach of the federal power to do so * * *,”

First Iowa Coop. v. Federal Power Comm’n, 328

U. S. 152, 180. And that power is as broad as

the commerce power itself. United States v. Ap-

palachian Power Co., supra, at 423-424, 427. To

hold, as did the court below, that the United

States is restricted by these privately owned water

rights, is to raise the formalistic terminology of

property law to the level of federal power. There

is no substantial basis for this result, in the lan-

guage, in the history or in the purposes of the

Federal Power Act.

, a OS A SRR SRAES IPN EROS TNC IEE ON

0 SEP DRONES O LS SGA OA EG. RENE LR LSE LIE CR i

BLEED THROUGH-

THE FEDERAL WATER POWER ACT OF 1920 ELIMINATED

PRIVATE WATER POWER RIGHTS IN NAVIGABLE

STREAMS

Whatever may be said about the existence and

validity of the water power rights for which the

payments in question were made, it is indisputable

that the United States has the dominant right in

navigable rivers; that under the commerce clause

it may control, improve or regulate such rivers

without restraint by prior private “‘rights’’ or by

state authority; and that, assuming such rights

are ‘‘vested’’ and otherwise unassailable, the

United States could nevertheless appippriate or

destroy them. United States v. Chandler-Dunbar

Co., 229 U.S. 53, 62; Lewis Blue Point Oyster Co.

v. Briggs, 229 U. 8. 82, 87; United States v. Ap-

palachian Power Co., 311 U. 8. 377, 423-424;

United States v. Chicago, M., St. P. & P. R. Co.,

312 U. 8. 592, 595-597; United States v. Commo-

dore Park, 324 U. 8. 386, 390; United States v.

Willow River Co., 324 U. S. 499, 509; United

States vy. Kansas City Insurance Co., 339 U. 8.

799, 804-808. It is further uncontrovertible that

when the United States exercises this dominant

right, it need not pay compensation to the person

who under state law may hold ‘‘technical’’ legal

title (United States v. Commodore Park, supra).

As has been pointed out by this Court (United

273107 —53——-4

States vy. Appalachian Power Co., 311 U. 8. 377,

424):

* * * The Federal Government has dom-

ination over the water power inherent in

the flowing stream. It is liable to no one

for its use or non-use. The flow of a navi-

gable stream is in no sense private prop-

erty; ‘‘that the running water in a great

navigable stream is capable of private

ownership is inconceivable.’’ Exclusion of

riparian owners from its benefits without

compensation is entirely within the Gov-

ernment’s discretion. [Italics added.]

It is therefore an uncontrovertible starting

point that Congress had the power to extinguish

without compensation the water rights involved

in this litigation. It is our position that in en-

acting the Federal Water Power Act of 1920

Congress (a) asserted the Federal Government’s

dominant right over water power rights in navi-

gable streams, and extinguished without compen-

sation all private water power rights under state

law, and (b) so oceupied the field that it neces-

sarily terminated water rights based on state law

to the extent that they were not expressly saved

from supersedure, and that the water power

rights here involved were not so saved.

A. THE PURPOSES OF THE FEDERAL WATER POWER ACT WOULD BE

FRUSTRATED WERE PRIVATE WATER POWER RIGHTS STILL TO BE

RECOGNIZED

Despite the fact that it conceded that the United

States had the superior right to the flow of a

navigable stream (R. 600), the court below

Lea te aad x a é ae aa oO aE IS ORES A

BLEED THR OUGH-

held that the Federal Water Power Act of

1920 continued to recognize pre-existing water

power rights. Under this decision, the United

States will have to pay for those rights upon

recapture and every year consumers will have to

pay for those rights in their rates. In this case,

for example, the Company pays out $136,800 per

year for the “‘private water power rights’’ as

operating expenses. As these rights represent

only five percent of the power the company uses,

the consumers would be forced to pay almost

$2,600,000 annually, were the remaining ‘‘rights”’

in private hands and were similar charges as-

sessed. To a substantial extent the recognition

of such rights vitiates the advantage of a hydro-

electric plant, whose benefits lie mainly in its low

operating expenses, which usually more than off-

set its higher initial cost and interest charges.

Third Annual Report of the Federal Power Com-

mission for Fiseal Year Ended June 30, 1923, p.

7. Indeed, the recognition of such rights may

very well have the effect of curtailing the develop-

ment of hydro-electric ppwer in those marginal

projects which, unlike these in the Niagara here,

are not so readily susceptible of the development

of water power.

Further, despite the fact that the Act demon-

strates ‘‘the obvious concern [of the Federal Gov-

ernment] in maintaining control over [the li-

censed project’s] engineering, economic and finan-

cial soundness * * *’’ (First Iowa Coop. v. Fed-

eral Power Commission, 328 U. S. 152, 172), that

concern is subjected, under the decision below,

PRE MPN LIT VOI, HOARD IONE GEES COIN, EVE A CLIP EN PS a

to payments made by licensees, over which the

Commission has substantially complete control, to

non-licensees, over which the Commission has no

control, and which, under the decision below, could

charge for the rights concerned to a point where

effective regulation of licensees would be imprac-

ticable.

This decision means that private water power

rights, which are worthless in the absence of a

Commission license, must be paid for by anyone

who does obtain a license. Indeed, under the de-

cision below, the State could create water power

rights in non-licensees even after the issuance of

a license, and thus inordinately hamper the effec-

tive use of water power. The distinction between

private ownership of flowing waters and a usu-

fructuary property right, drawn by the court

below (R. 594-595), accords to private interests

first mortgages on the water power of the Nation,

and elevates those interests above the Federal

Government and the consumer—a complete rever-

sal of the purposes of the Act.

In large part, the decision below rests upon the

holding that the federal license was not a primary

or original source of authority inasmuch as, ac-

cording to the court below, the issuance of a li-

cense to use navigable water power ‘‘negates the

idea that it declares all such water necessary for

use in commerce,’’ and is an implicit determina-

tion by the Commission that ‘‘the entire flow of

the Niagara was not required for navigation or

LICL RI PER BL NOEL HNO LE, RIPE RL BLS ES SES SRG PIO FS TS PLEDGE I YENI OTOL eS SE Des PT =

BLEED THR OUGH-

any other use in interstate commerce’’ (R. 607).

But this premise is completely inconsistent with

the decision of this Court in United States v.

Appalachian Power Co., 311 U. 8. 277, 426, that

‘navigable waters are subject to national plan-

ning and control in the broad regulation of com-

merce granted the Federal Government.’”

In sum, the holding below is so completely in-

consistent with the admitted power of the United

States and with the apparent objectives of the

Federal Water Power Act of 1920, that it can

stand only if there is some clear and unequivocal

manifestation of Congressional intent to permit

these private rights in the flow of the navigable

streams of the nation to encumber the development

of the water power of the nation. As we shall

show, there is no such manifestation. Indeed, the

substantial indications are that Congress intended

to ‘‘wipe the slate clean’? when it enacted the

Federal Water Power Act of 1920. See Niagara

Falls Power Co. vy. Power Comm’n, 137 F. 2d 787,

790-791 (C. A. 2, per Learned Hand, J.), certi-

orari denied, 320 U. S. 792, rehearing denied, 320

U.S. 815.

B. CONGRESS ASSERTED ITS DOMINANT SERVITUDE Re THE WATER

POWER IN NAVIGABLE RIVERS

(1) The Licensee is the Agent, i. ¢., the Chosen

Instrument, of the United States—The Federal

® See also Gibbons v. Ogden, where Chief Justice Marshall

decisively rejected the view that a federal license under

} the commerce power was merely a permission to use a state

grant of authority. 9 Wheat. 1, 69, 211 ef seq.

’ Rr en Sa ee ee ee a eae laa

Power Act is based on the theory that the water

power inherent in the navigable rivers of the

Nation belongs to the people and that the licenses

granted under the Act are a means of making

those natural resources available to the people.

Ideologically and historically the Federal Power

Act goes back to the conservationist movement of

the opening of this century, as articulated by the

veto messages of Presidents Theodore Roosevelt

and Taft denying approvals to bills authorizing

the construction of dam sites acress navigable

rivers’ on the ground that this legislation gave

away the property of the people without adequate

safeguards. First Iowa Coop. v. Federal Power

Commission, 328 U. 8. 152; Chapman v. Federal

Power Commission, 345 U. 8. 153, 167.

In 1908, President Theodore Roosevelt based

his veto message relating to the Rainy River

Power Project (42 Cong. Rec. 4698) on the fol-

lowing considerations:

* * * This natural wealth is the heritage

of the people. I see no reason for giving

it away. * * *

* * * . * *

The present policy pursued in making

these grants [special acts of Congress au-

thorizing hydro-electric developments] is

unwise in giving away the property of the

people in the flowing waters to individuals

or organizations practically unknown, and

"0 These bills were required by Section 9 of the River and

Harbor Act of 1899 (30 Stat. 1151, 33 U. S. C. 401) (Stat.

App. 52).

ERNE SPER RELIG EOIN OTE SARL YM AOL ALE STE ST LER IRE 8 SEEN IM EN UT TE!

BLEED THR OUGH-

granting in perpetuity these valuable privi-

leges in advance of the formulation of defi-

nite plans as to their use. * * *

A year later, in his Veto Message Relating to

the Building of a Dam across the James River

(43 Cong. Ree. 978-980), President Roosevelt

adverted to the same subject:

** * This bill gives to the grantee a

valuable privilege * * *.

* aaa * * +

To give away, without conditions, this,

one of the greatest of our resources, would

be an act of folly. * * *

* * * * *

* * * T consider myself bound, as far as

exercise of my executive power will allow,

to do for the people, in prevention of

monopoly of their resources, what I believe

they would do for themselves if they were

in a position to act.” * * *

These veto messages resulted in an impasse,

for even if these natural resources were consid-

1 See also the Muscle Shoals veto of President Theodore

Roosevelt of March 3, 1903, 36 Cong. Rec. 3071; and the

Coosa River veto of President Taft of August 24, 1912, 48

Cong. Rec. 11796.

In his James River Veto Message President Theodore

Roosevelt prophetically warned that the power companies

would try to seek refuge in the twilight zone between

federal and state law (43 Cong. Rec. 979). Thus, while

respondent is here stressing that the Federal Government

did not seek to affect state created riparian rights, it has

apparently tried to escape state regulation on the basis of

the federal origin of its license. Cf. Niagara Falls P. Co.

v. Water P. & C. Commission, 267 N. Y. 265, 276.

£4: FOVE ST

ered as belonging to the Nation, the Federal Gov-

ernment, at that time, was in no position to

exploit them. And the resulting delay in the

development of cheap water power was heavily

felt during World War I.”

The Federal Water Power Act consequently

proceeds on the theory that although the water

power resources belong to the Federal Govern-

ment (see, e. g., Rep. Anderson, 56 Cong. Ree.

9282), they should be developed by private enter-

prise where public development is not practica-

ble.” Hence, the Act provides for the issuance

of licenses to private corporations, the public in-

terest being protected by strict supervision and

the provision that the project is subject to re-

capture at the expiration of the fifty-year period

for which the license is granted.“ As Representa-

tive Anderson stated:

= Cf. H. Rep. No. 61, 66th Cong., Ist Sess., pp. 2-5.

3 Cf. Section 7 (Stat. App. 9), giving priority in the issu-

ance of licenses to the United States, states, and munici-

palities.

“See Chapman v. Power Commission, 345 U. S. 1538,

169-170:

“Congress was of course aware that, by granting a license

to private enterprise, the Federal Power Commission would

not commit the site permanently to private development and

preclude all further congressional action. The Commission

would, as it did here, simply express its judgment that at

the time, private development of the site was consistent with

the general conception of the way in which the Roanoke

River Basin should be developed. For, at any time short

of the fifty years in which a site automatically becomes avail-

able to the Government without compensation, the Govern-

BLEED THROUGH-

The present bill represents a scheme of

development between these two extremes,

and contemplates development by private

capital under leases of 50 years, which

will reserve to the Government the right

to supervision of operation and rates and

provide for the recapture of the property

on the expiration of the license period. [56

Cong. Rec. 9282] [Italics supplied.] ”

It is thus the fundamental theory of the Act

that the Federal Government grants to the li-

censee the right to exploit governmental assets in

consideration of the grantee’s undertaking to de-

velop this national resource,” and that the licensee

ment may determine that the public interest makes it more

desirable that the project be operated publicly and has the

right then, by appropriate steps, to take over the project.”

[Italics supplied. ]

15 See also Sen. Rep. No. 180, 66th Cong., Ist Sess.. p. 3:

“We should pass legislation which leads private capital and

enterprise to develop these resources under such regulations

as will give consumers good service and cheap power, or the

Government itself should proceed to make this development.

This bill proceeds on the theory of private development with

ultimate public ownership possible.”

See also First Lowa Coop. v. Federal Power Commission, 328

U.S. 152, 180-181.

“The grant of a license, being a privilege from the sover-

eign, can be justified only on the theory of resulting benefit to

the public.” Clarion River Power Co.v. Smith, 59 F. 2d 861,

863 (C. A. D. C.), certiorari denied, 287 U. S. 639; Northern

States Power Co. v. Federal Power Commission, 118 F.2d 141,

144 (C. A. 7); Alabama Power Co. v. Federal Power Com-

mission. 128 F. 2d 280, 288-289 (C. A. D. C.), certiorari

denied, 317 U.S. 652.

273107538 5

OO — GRETNA AMEE EOS IPT IDLE AIRE HEMET ND [RT NNT RITE

is basically an agent or chosen instrument of the

Government.” This statutory theory that the

Government grants its own rights to the water

power to its licensee * is utterly inconsistent with

the concept advanced by the court below that its

license is merely superimposed over persisting

state created rights to the same water power™

and that the federal licensee is bound to pay its

toll to the owner of such private rights.”

* The notion that the utility is the Government’s agent goes

back to President Taft's Coosa River Veto of August 24,

1912, 48 Cong. Rec. 11796. See also statement of Sen. New-

lands at 49 Cong. Rec. 2702; Alabama Power Co. y. Gulf

Power Co., 283 Fed. 606, 616 (M. D. Ala.).

* It will be noted that the scope of rights granted by the

license is identical with the range of rights claimed by the

Government as the result of the exercise of its dominant

power. See infra, pp. 32-37.

** Learned Hand, J., said in Niagara Falls Co. v. Federal

Power Commission, 137 F. 2d 787, 791 (C. A. 2), certiorari

denied, 320 U. S. 792:

“The purpose being to conserve all water power, so far as

it was national, it would have been an anomaly to exempt

anyone—states or individuals—who by an earlier unauthor-

ized occupation had assumed to appropriate any part of this

natural resource. No prescription could in law run against

the nation; we must not impute to Congress any willingness

to grant prescription as a favor, * * **What equitable claim

then has a company which relies upon the grant by a state of

something beyond its power? What standing does a state's

license give it to seize upon the energy of the nation’s streams,

or to impair their navigability?” [Italics added.]

** In this connection it may be pointed out that the United

States refrained from imposing upon its licensee a charge

for the use of the water power on the ground that such

RATS NET NON NEE EDIT ORE PIB RSENS Fe NERY MR WN RCA PEM SEBEL ERA Sti

BLEED THR OUGH-

—

(2) The Assertion by the United States of Its

Dominant Servitude Wiped Out Private Rights.—

The circumstance that the U. ted States exer-

cised its dominant servitude over water power

rights and granted respondent a license of the

rights thus asserted is not of itself, however,

conclusive for the decision of this case. Con-

ceivably, the exercise of this paramount right

might not have gone so far as to prevent the pri-

vate holder of the water power rights from assert-

ing his rights or a remnant of them against re-

spondent. This is particularly true since the pri-

vate power rights and the exercise of the federal

servitude are couched in different terms. Thus,

under New York law—as under the law of most

of the states—the water power rights are de-

fined in terms of riparian ownership.” The exer-

cise of the federal dominant right, on the other

hand, takes the form of prohibition of the obstrue-

tion of the flow of a navigable river or of main-

exaction would not be borne by the licensee but passed on to

the consumer. See, e. g., 59 Cong. Rec. 1572. It would be

incongruous to assume that Congress intended to perpetuate

the rights of private individuals to levy similar charges on

its licensee although it had the power to terminate them.

* See, e. g., United P. B. Co. v. Iroquois P. & P. Co., 226

N.Y. 38,4445:

“* * * The rule of law is familiar that each owner of land

contiguous to a natural watercourse has a right, as owner

of such land and as naturally connected with and incident

to it, to the natural flow of the stream along his land and its

descent, and all the force to be derived therefrom, for any

domestic or hydraulic purpose to which he may decide to

apply it.”

ote opsneeagreRNg

taining installations for the development of power

along it. We shall show, however, that Congress

exercised its rights to a degree that private water

power rights may not interfere with the opera-

tion of a license.

(a) Section 10 (a) of the Act (Stat. App.

10) requires that the license to be granted

be best adapted to a comprehensive plan

for improving or developing a waterway

or waterways for the use or benefit of in-

terstate or foreign commerce, for the im-

provement and utilization of water-power

development, and for other beneficial public

uses, including recreational purposes. * * *

And the licensing provision, Sec. 4 (d) (now

See. 4 (e) (Stat. App. 6)), prohibits by implica-

tion all those acts for which license will be

granted.” Thus, all the powers the Government

has claimed by the Act are intended to be trans-

ferred to the licensee.” Under Section 4 (e), the

Federal Power Commission has authority to issue

licenses for the:

purpose of constructing, operating, and

maintaining dams, water conduits, reser-

2 United States v. Appalachian Power Co., 311 U.S. 377,

424. Section 23 (b), as amended by the Federal Power Act

of 1935 (Stat. App. 22), now contains an express prohibition

which, significantly, is virtually identical with the license

granted under Section 4 (e) as far as navigable rivers are

concerned.

*? This feature of the Act reinforces the point made supra,

pp. 25-30, that the licensee stands in the same position as the

Federal Government.

LED ee ODES SNARE EE MORES LPR IL LLIN LLL LILLIE EEN TE

BLEED THR OUGH-

voirs, power houses, transmission lines or

other project works necessary or con-

venient for the development and improve-

ment of navigation, and for the develop-

ment, transmission, and utilization of

power across, along, from™ or in any of

the streams or other bodies of water over

which Congress has jurisdiction under its

authority to regulate commerce with

foreign nations and among the several

nN li tia

The problem becomes whether this grant of

license is sufficiently extensive so as to supersede

all the riparian water power rights existing under

state law as far as the United States and its

licensee are concerned.

(b) This very problem was presented to this

Court in United States v. Chandler-Dunbar Co.,

229 U. S. 53, and was answered in the affirmative.

In that case the United States had condemned

‘all lands and property of every kind and de-

scription north of the present St. Marys Falls

Ship Canal * * * and the international bound-

ary line.” 229 U.S. at 56. For several years

24 The word “from” was inserted in this section on motion

of Senator Wadsworth “so that in the event of diversion of

water to a distance from the stream, which could not be

called ‘along’ the stream, the case would be covered.” 59

Cong. Rec. 1482. The purpose of this amendment was pre-

sumably to assure the extension of the Act to respondent’s

installations along the hydraulic basin (R. 588).

25 Prior to the 1935 amendment, the Act referred to “the

navigable waters of the United States” rather than to

“streams and other bodies of water * * *”

prior to that condemnation Chandler-Dunbar Co.

had operated a power plant in the rapids at

Sault Ste. Marie under revocable permits issued by

the Secretary of War.” The circuit court before

which the condemnation proceedings were held

decided that under state law Chandler-Dunbar

was the owner of riparian water power rights”

and awarded to the company $652,332, $550,000 of

which represented the estimated value of the

water power. 229 U. S. at 58. This Court re-

versed. It held that the owner was entitled to

compensation for its tangible property, movable

or real (229 U. S. at 68), but with respect to

Chandler-Dunbar’s claim to compensation for its

water power rights, this Court pointed out that

this demand hinged on the question whether these

power rights constituted private property (229

U.S. at 69). It held that whatever private prop-

erty rights might exist in the flow of the stream

depended completely on the right to maintain in

the river the obstructions necessary to utilize the

river’s powers. This Court said (229 U. S. at

69-71) :

* * * that the running water in a great

navigable stream is capable of private

ownership is inconceivable.

*® The act authorizing this condemnation terminated every

permit, license, or authority issued by the War Department.

229 U.S. at 57.

** Transcript of Record, Nos. 783-786, October Term, 1912,

pp. 406-407.

a MIRE HEE BAA a Ue emer oe FORT, PES Tt Ed

BLEED THR OUGH-

r Lae

menee SEES Pe

Whatever substantial private property

rights exist in the flow of the stream must

come from some right which that company

has to construct and maintain such works in

the river, such as dams, walls, dykes, etc.,

essential to the utilization of the power of

the stream for commercial purposes.

* * * * *

* * * But every such structure in the

water of a navigable river is subordinate to

the right of navigation, and subject to the

obligation to suffer the consequences of the

improvement of navigation, and must be re-

moved if Congress in the assertion of its

power over navigation shall determine that

their continuance is detrimental to the pub-

lie interest in the navigation of the river.

[Citing authorities. ] It is for Congress to

decide what is and what is not an obstruc-

tion to navigation. [Citing authorities. ]

* * * * *

Upon what principle can it be said that in

requiring the removal of the development

works which were in the river upon suffer-

ance, Congress has taken private property

for public use without compensation ?

And the Court concluded this argument by stress-

ing that the company

had no property right in the river which

has been ‘‘taken”’ (229 U.S. at 74).

Chandler-Dunbar was reaffirmed by this Court

in United States v. Appalachian Power Co., 311

U. S. 377, 423-424, where it was pointed out that

EEE SRSLY ON SI SL RTA OP ERS NTE RIPEN OREN GO TNO

S ~~ ae ee Tt COOL Se

BLING ERS ASAIO AT LEE EE PIE INS 5 EE MG ETRE OS ERE

the possession of a state license to use the water

power was immaterial against the dominant right

of the United States. Again, in United States v.

Willow River Co., 324 U. 8. 499, 509, this Court

interpreted the Chandler-Dunbar case as holding

that a shore owner has no appurtenant property

rights in two natural levels of water in front of

its land or to the use of the natural difference

between the two as a head for power production.

The court below sought to distinguish Chandler-

Dunbar on the ground that the statute there in-

volved contained an express determination that all

the waters in the St. Mary’s River were needed

for the purposes of navigation and that the Fed-

eral Power Act, which does not contain so broad

a statement, did not intend to extinguish riparian

rights in so sweeping a way (R. 600-602). The

stress on the particular nature of the statute in

Chandler-Dunbar is obviously misplaced. That

decision itself points out (at pp. 74-75) that

Chandler-Dunbar had no property rights in the

river (supra, p. 35). Moreover, neither A ppalach-

tan Power nor Willow River contains a qualifi-

cation to the effect that the existence of private

water power rights turns on the extent to which

the waters in question were needed for navigation.

To the contrary, Appalachian Power (at 423-4297)

stresses that in the Federal Power Act the Con-

gress exercised its dominant right, not only in the

limited interest of navigation, but for the broad

purposes of commerce in general.

PETE NE Pa PP ln

BLEED THROUGH-

In other words, this Court has recognized that

state water power rights couched in terms of ripar-

ian rights, and the federal easement defined as the

authority to maintain structures in or along the

river, cover the same area and that the prohibition

of the latter means that the former rights, which

ean be exercised only by means of maintaining

structures, have been extinguished, as far as the

United States (and its licensee)* are concerned.”

In sum, in view of this Court’s decisions and

of the language of the Act and its general pur-

poses, we doubt that there could have been a more

complete appropriation by the Federal Govern-

ment of the flow of navigable rivers. But assum-

ing that there do exist some areas left in which

private riparian rights might be permitted to have

effect,” it is incontrovertible that the United

8 See supra, pp. 25-30.

* The United States, having the power to exercise its

paramount rights without compensation, has not chosen to

indemnify the riparian owners for the loss of the water power

rights. Such action would have been inconsistent with the

philosophy underlying the Act that these rights belonged to

the nation (supra, pp. 25-30).

* This involves especially the rights of riparian owners

inter sese and as against third persons where no rights based

on the Federal servitude are in issue. Cf. United States v.

Chandler-Dunbar Co., 229 U. S. 53, 70; United States v.

Willow River Co., 324 U. S. 499, 508; Grand River Dam

Authority v. Grand-Hydro, 335 U. 8. 359, 373; International

Paper Co.v. United States, 280 U.S. 399.

In the Grand-Hydro case, the question was whether in

computing the condemnation value of a water power site

on the Grand River, a nonnavigable river, pursuant to Okla-

“Age Ay

States, in the Federal Power Act, has claimed its

dominant right to prohibit or to license the

maintenance of structures in navigable rivers for

the development and utilization of water power

and has granted to respondent the right to main-

tain such structures for the development and

utilization of water power. It follows from

Chandler-Dunbar (see supra, pp. 33-35) that

riparian water power rights, such as those for

which the payments in question were made, were

extinguished to the extent that they were incon-

sistent with this grant.

C. CONGRESS COMPLETELY PREEMPTED THE FIELD OF THE DEVEL-

OPMENT OF WATER POWER FROM NAVIGABLE STREAMS, AND

PRIVATE RIGHTS INCONSISTENT WITH THAT PREEMPTION WERE

TERMINATED

The foregoing section is designed to show that

in the Federal Water Power Act of 1920 Congress

asserted its exclusive title to the water power in

the navigable waters of the nation. Assuming

arguendo that this is not so, it nevertheless is clear,

from a review of the genesis of the Act and of

homa law, the jury might take into consideration the availa-

bility of the property as a dam site. Although the con-

demnor held a Federal Power Commission license, it did

not base its right to condemnation upon the Federal Power

Act or the license issued to it thereunder (335 U. S. at 364,

366). Holding that only Oklahoma law was applicable, pur-

suant to which the owner was entitled to the value as a power

site (335 U.S. at 372-373), this Court expressly pointed out

that the decision might be different if the United States or

its licensee sought to acquire the property under the Act or

by virtue of its license. 335 U. S. at 373. In the instant

case, of course, it is the interest of the United States which

is directly involved.

ita ln a a POOL RA LST ROR ORE IE TS EU ETI NR a ST

BLEED THROUGH-

. -

the decisions of this Court interpreting that his-

tory, that Congress, considering that the water

power in navigable rivers was within the domin-

ion of the United States, specifically exercised its

dominant servitude so as to oust all conflicting

laws of the states,” including any creating private

rights in water power.

In First Iowa Coop. v. Federal Power Com-

mission, 328 U.S. 152, this Court was faced with

the contention that an applicant for a Federal

Power Commission license had first to show that

it had complied with the applicable state law re-

lating to the construction of dams and the diver-

sion of water for power purposes. Analyzing the

relation between the states and the Federal Goy-

ernment which had been created in the Federal

Power Act, this Court pointed out the ‘‘detailed

provisions of the Act providing for the federal

plan of regulation leave no room or need for

conflicting state controls’’ (328 U. S. at 181).

It further held that ‘‘in those fields where rights

are not thus ‘saved’ to the States, Congress is

willing to let the supersedure of the state laws

by federal legislation take its natural course’’

(328 U. S. at 176). It is, accordingly, indisput-

In First Jowa Coop. v. Federal Power Commission, 328

U. S. 152, 174, this Court pointed to the carefully designed

statutory pattern designed to prevent divided authority over

any one subject. Hence, a finding that the Federal Power

Commission was granted some authority over water power

rights would be sufficient to make the federa) control

complete.

able that with the enactment of the Federal Water

Power Act of 1920, the Federal Government

entered the field of water power for the first time

in a truly comprehensive manner” (328 U. S.

at 180-181; see also Federal Power Commission Vv.

Idaho Power Company, 344 U. S. 17, 23). The

Act ‘‘was the outgrowth of a widely supported

effort of the conservationists to secure enactment

of a complete scheme of national regulation which

would promote the comprehensive development of

the water resources of the Nation, in so far as it

was within the reach of the federal power to do

so * * *.”’ 328 U. S. at 180. And that power

is as broad as the commerce power itself. United

States v. Appalachian Power Co., supra, at 423-

424, 427.

Congress was well aware of the completeness of

the federal control it was establishing in the new

statute. Thus, Congressman Lee, explaining the

committee report to the House, stressed :

Under the terms of the bill the public

retains complete control of water-power

rights on the public lands and in the

navigable rivers. No development can

be made by any agency other than the

* Earlier attempts had been the piecemeal legislation of

the River and Harbor Acts of 1890 and 1899, statutes grant-

ing authority to build specific water power projects, and

temporary legislation dealing with the diversion of water

at Niagara Falls, such as the Burton Act of June 29, 1906

(34 Stat. 626) and the Joint Resolutions of January 19, 1917,

39 Stat. 867; June 30, 1917, 40 Stat. 241; June 29, 1918, 40

Stat. 633; July 12, 1919, 41 Stat. 163 (R. 416, 457-471).

POTOMAC BIEL BIO ILLES OO LEON ILL LLL SELES LE SELON PL A LILLE MOOG LOLS Se

BLEED THROUGH-

7, .,

United States itself, except under the

authority of and in accordance with the

provisions of a license issued by the com-

mission. * * *

* + * * *

Whenever licenses are issued for devel-

opments by private capital, full public

control is retained over the construction,

maintenance, and operation of the proj-

ect. * * * [59 Cong. Rec. 6527]. [Italics

supplied. |

Senator Wadsworth, in charge of the bill in the

Senate, made similar statements to demonstrate

the sweeping control to be exercised by the Fed-

eral Government. Significantly, he spoke with

particular reference to the power rights involved

in this very litigation:

However that may be, let me say to the

Senator from Mississippi [Senator Harri-

son] that the one company cannot act or do

anything in the future with respect to the

diversion of water from above the Falls in

contravention of the treaty or without the

permission of this commission created

under the bill. The company now oper-

ating at Niagara Falls will fall completely

under the jurisdiction of the commission

just as any other water-power company in

the United States falls under it. * * *

They fall under exactly the same juris-

diction; the Government wields the same

power of them. Under the terms of this

a AO ED OT DOVE EEL MDOP LLYN IEE EERIE AEE NS 5 VRE LAGE LIE OAD

bill the Government ean condition the is-

suance of a permit as it sees fit, and the

Niagara company must comply or it can

not divert any water * * *. [59 Cong.

Ree. 1485.] [Italics supplied. ]

Again (at 59 Cong. Rec. 1486), Senator Wads-

worth exposed the exclusive powers assumed by

the Government under the bill:

This bill does not confer any perpetual

rights for the diversion of water in Niag-

ara Falls upon anybody. The water power

company that is there now and all the com-

panies that may be organized there in the

future to develop power upon other parts

of the river, we will say below the Falls,

must come to the commission and get a

license, and the commission can prescribe

the conditions upon which the license is to

be issued. * * *

* * * The Federal Government will be in

complete control * * *

* * * Our Government has control of

the shore on its side of the river and to

midstream * * * So long as this bill is

eareful to clothe the Federal Government

through this commission with power to con-

trol this question, to straighten out the un-

certainty that has existed at this particular

point for 30 years as to the right of any-

body to do anything, then I think we are

perfectly safe.“ [Italics supplied. }

88 Niagara Falls Power Co. v. Federal Power Commission,

137 F. 2d 787, 791 (C. A. 2), certiorari denied, 320 U. S. 792.

Judge ‘earned Hand interpreted those statements as “un-

BLEED THR OUGH-

—

Inasmuch as the continued existence of private

water power rights is completely inconsistent with

such a comprehensive control by the Federal Gov-

ernment (see supra, pp. 22-25), those rights were

necessarily abolished by the preemption of the

field by the Federal Government, unless they were

expressly and specially saved by the Act. This,

we shall show, was not done.

D. THERE IS NO BASIS FOR THE CONTENTION THAT PRIVATE WATER

POWER RIGHTS WERE SPECIALLY SAVED BY THE ACT

Inasmuch as Congress intended to make full

use of its legislative powers in the field, it recog-

nized ‘‘the need for an express ‘saving’ clause in

the Federal Power Act if the usual rules of su-

persedure are to be overcome.” First Iowa Coop.

y. Federal Power Commission, supra, at 175. But,

contrary to the belief of the court below (R. 605),

the Act does not save the water power rights

here involved; indeed, it contains a provision ex-

pressly designed to prevent their preservation.

As this Court has pointed out in First Iowa

Coop. v. Federal Power Commission, supra, at

175-180, Section 27 is the saving clause of the

Act. It provides:

** * That nothing herein contained

shall be construed as affecting or intending

to affect or in any way to interfere with

the laws of the respective States relating to

the control, appropriation, use or distribu-

equivocal assertions that the petitioners’ existing rights

would not be recognized.”

tion of water used in irrigation, or for

municipal or other uses, or any vested prop-

erty right acquired therein.

This provision was fully analyzed in the First

Towa ease, supra, at 175-176:

* * * The effect of § 27, in protecting

state laws from supersedure, is limited to

laws as to the control, appropriation, use

or distribution of water in irrigation or for

municipal or other uses of the same nature.

It therefore has primary, if not exclusive,

reference to such proprietary rights. The

phrase ‘‘any vested right acquired therein”’

further emphasizes the application of the

section to property rights. There is noth-

ing in the paragraph to suggest a broader

scope unless it be in the words ‘other

uses.’” Those words, however, are confined

to rights of the same nature as those relat-

ing to the use of water in irrigation or for

municipal purposes. This was so held in

an early decision by a District Court, relat-

ing to § 27 and upholding the constitution-

ality of the Act, where it was stated that

‘fa proper construction of the act requires

that the words ‘other uses’ shall be con-

strued ejusdem generis with the words ‘ir-

rigation’ .and ‘municipal’.’”’ Alabama

Power Co. v. Gulf Power Co., 283 F. 606,

619. [Italics supplied. ]

Accordingly, this Court has determined that

Section 27 is limited to the preservation of legis-

lation concerning irrigation or municipal uses of

BLEED THROU GH-

—_

water and proprietary rights of the same or re-

lated nature. Water power rights in navigable

(eastern) rivers obviously do not fall into those

exempted categories.“ This interpretation is sup-

ported by the legislative history of Section 27,

for it is derived from reclamation laws” and

public lands bills,” not from legislative projects

dealing with water power.” It is significant that

the statements concerning Section 27“ set forth

%* This was the express holding in Alabama Power Co. V.

Gulf Power Co., 283 Fed. 606, 619 (N. D. Ala.), quoted with

approval by this Court in the First owa case, supra.

3 United States v. Gerlach Livestock Company, 339 U.S.

725, arose under the Reclamation Act of 1902, and hence the

invasion of water rights was considered compensable.

* Cf, First Iowa Corp. v. Federal Power Commission, 328

U.S. 152, 176-177 (fn. 20).

" The Federal Water Power Act of 1920 was the result of

the consolidation of originally separate legislative projects

dealing with public lands and water power. Sen. Rep. 180,

66th Cong., Ist Sess., pp. 5-6.

% There is nothing necessarily inconsistent between this

interpretation of Section 27, and Ford & Son v. Little Falls

Co., 280 U.S. 369, which involved very unusual circumstances,

was decided without participation of the Federal Power Com-

mission, and without the presentation by the parties of a care-

ful analysis of the Act and its legislative history. More-

over, in the Ford case, the right of the Little Falls Co.

to maintain its dams in the river was not questioned or

considered. Whatever force the decision may have had

seems to have been spent with the later decision of this

Court in United States v. Appalachian Power Co. 311

U. 8.377, 427. And finally, the question of the rights between

the parties in Ford is a completely different one from that

between the licensee and the Commission. See Board of Re-

gents v. Carroll, 338 U.S. 586; Grand River Dam Authority

v. Grand-Hydro, 335 U.S. 359.

in the Brief in Opposition at pp. 11-12 all re-

ferred to western irrigation rights.”

The court below based its conclusion that Con-

gress sought to preserve water power rights not

only upon the express saving clause, which it mis-

read, but also by way of implication on the cir-

cumstance that the Act repeatedly refers to such

interests. This Court, however, has held in the

First Iowa case, supra, that Section 27 is the

sole saving clause of the Act, and that a sub-

stantive policy, such as the saving of State laws

and substantive rights, should not be based on

implication. 328 U. 8. at 177. The Act itself

contains a provision expressly designed to pre-

* The statement of Representative LaFollette (56 Cong.

Rec. 9810) quoted in the First Jowa case (328 U. S. at 174)

refers to the property rights in the fast lands and has no

bearing on any interests in the raw water.

The House indicated at another occasion its feeling that

the administration of and the rights created under the new

Act should not previously be burdened with the remnants of

the late state system of regulating water power rights. Thus,

the House conferees successfully insisted upon the elimina-

tion of a Senate amendment which provided :

“* * * that no contract which shall have been lawfully

made prior to the passage of this act, not extending beyond

the term of the license, for power, light, heat or water, or for

the service or delivery of the same to be furnished from any

project works, and to which such project works, or the person,

company, or corporation constructing, owning, or operating

the same shall be subject, shall be affected by any license

under this act, and no such person, association or corpora-

tion shall be released from any lawful obligation by reason of

this act or any license granted thereunder” (H. Rep. No. 910,

66th Cong., 2d Sess., p. 13: See also 59 Cong. Ree. 6385).

BLEED THR OUGH-

-_ ——<

vent the preservation by way of implication of

water power rights not based upon federal grants.

When the Federal Water Power Act was. debated

in the Senate, Senator Wadsworth, who, as indi-

cated above, was in charge of the bill, secured an

amendment resulting in the insertion of the words

“confirming or otherwise affecting any claim’’ in

Section 23 (a) (Stat. App. 22). The purpose of

the amendment was explained by Senator Wads-

worth as follows (59 Cong. Rec. 1482) :

* * * T have a difficult situation in mind.

It is one that the Senator from Wis-

consin has often spoken about—the Niagara

Falls situation. It so happens that the

rights that those companies received there

years and years ago, as I understand and

recollect, came as grants from the State of

New York; and those companies—rightly

or wrongly, I do not know which—have

claimed, or have indicated that they might

claim, certain continuing rights to the di-

version of water and the generation of

power. It might be said that this claim

has been a constantly pending one, but it

never has been settled. The Niagara situa-

tion always has been uncertain as to its

future for that reason. Now, I do not

want this bill in any way to confirm that

claim. [Italics supplied. ]

Water rights are mentioned in Sections 3 (11),

4 (b), 9 (b), and 14 of the Act (Stat. App. 4, 5,

10, 16). This Court has pointed out in the First

Iowa case (328 U.S. at 177 ff.) that Section 9 (b)

does not preserve any rights but merely seeks

to secure adequate information. Section 4 (b)

serves analogous purposes; Section 3 (11) is

merely a definition and may easily be read as re-

ferring to the water rights of the licensees result-

ing from the federal grant. Section 14 provides

that upon recapture of a project the United

States shall pay compensation for ‘‘water rights.”’

This, however, does not mean that all water rights

have been considered preserved. Section 14

easily may be read as limited to such water rights

as were preserved by Section 27.“

It is clear, therefore, that state-created water

power rights were not preserved by Section 27 of

the Act.

THE CIRCUMSTANCES UNDER WHICH THESE WATER

POWER RIGHTS WERE CREATED SERVE TO SHOW THAT

THE FEDERAL WATER POWER ACT OF 1920 CANNOT

BE READ TO PRESERVE PRIVATE RIGHTS IN WATER

POWER

The previous discussion shows that the Federal

Water Power Act, generally, eliminated the basis

of claims to private water power rights. More-

over, the circumstances under which these par-

ticular rights were allegedly created point up the

untenability of the contention that the Act was not

intended to affect the validity of such private

*° Cf. the dissenting opinion of Bazelon, J., R. 611-612.

And this interpretation may well apply to all the references

to water rights in the Act.

BLEED THR OUGH-

rights. For these alleged rights were created out

of state grants and licenses, admittedly subservi-

ent to the rights of the State of New York, and

were the result of corporate transactions wherein

the licensee had little cause to repudiate the

“rights.’’? Further, they allegedly attach to the

Niagara River, one of the foremost sources of

hydro-electric power in the Nation—the very river

which was pointed out during the Congressional

consideration as representative of the hampering

effect of such claims; indeed, these were the very

‘rights which were expressly designated as not

being confirmed by the passage of the Act.

A. THE WATER POWER RIGHTS INVOLVED IN THE INSTANT CASE

ARE OF SUCH A HIGHLY ATTENUATED NATURE UNDER STATE

LAW AS TO BE NONRECOGNIZABLE UNDER FEDERAL LAW

Even assuming that in the Act Congress did in-

tend to recognize some private water power rights,

it is highly doubtful, in view of their origin, that

the rights in question could satisfy any reasonable

test of validity.

Under the laws of New York the riparian owner

generally has a right to the natural flow of water

in a stream along his land, and this right has been

classified as a corporeal hereditament and a real

estate (Matter of Van Etten v. City of New York,

226 N. Y. 483, 486; see also International Paper

Co. v. United States, 282 U.S. 399, 405)." It also

“ The /nternational Paper case has no bearing on the issues

presented here, inasiuuch as it involved events antedating the

enactment of the Federal Power Act and the surrender of

has been held that this right can be severed from

the riparian land by way of grant, condemnation,

relinquishment, or prescription. United P. B. Co.

v. Iroquois P. & P. Co., 226 N. Y. 38, 47. This,

however, does not mean, as the court below ap-

parently held, that New York considered the water

rights involved as absolutely vested common law

rights, the destruction of which is not readily im-

puted to Congress (R. 605). For the same New

York decisions make it clear beyond doubt that

this incorporeal hereditament is subject to the

superior rights of the State. United P. B. Co. v.

Iroquois P. & P. Co., supra, at 45, 49.

the International Paper Company’s leases to the grantor

(supra, pp. 5-6). Thus, the Paper Company had an agree-

ment with respondent’s predecessor, itself a Federal licensee

under the Act of June 29, 1906, 34 Stat. 626, to use certain

amounts of water for power purposes. This Court held that

a diversion of that water in 1918 by the Secretary of War

from the Paper Company rendered the United States liable

in damages to the Paper Company. Contrary to the transfer

of federal permission from an original licensee to Interna-

tional Paper Company recognized in that case, Section 8 of

the Federal Power Act (Stat. App. 10) prohibits transfer

of license rights without written approval of the Federal

Power Commission. Admittedly, Commission approval has

not been given here (R. 306). Moreover, that case involved

a taking under the Fifth Amendment and not an assertion

of the Government’s dominant easement from navigable

rivers. As this Court held, the Secretary of War made no

attempt to revoke the license, but proceeded “on the footing

of a full recognition of the Paper Company’s rights” (as

a subpermittee or tenant of the Power Company (R. 419-

420) ), and of the Government's duty to pay for the taking

that he purported to accomplish. 282 U. S. at 407-408.

AGLI OITA EAE IM PIER EAE SE AO SE ERR NG LEE IEG REE IRE LIE TIE CAD I ANG TERE SE? BEE 2

BLEED THR OUGH-

With respect to the water power at Niagara

Falls the reserved power of the State has been exer-

cised to such an extent that little but an empty

shell has been left of the common Jaw riparian

water rights. As pointed out above (supra, pp.

5-7), respondent’s rights to use the water power

at Niagara Falls are not based upon its owner-

ship of the shore but upon grants made by the

State of New York in the 1890’s. Hence,

it has been well recognized that the water power

rights asserted here are of a highly qualified and

tenuous nature, and might even be in conflict with

the Constitution of the State of New York.” As

the New York Court of Appeals said (Niagara

Falls P. Co. v. Water P. & C. Commission, 267

N. Y. 265):

* * * The petitioner [licensee] claims

that by the acts of 1892, 1893 and 1896,

it had a grant from the State to rights in

the Niagara river of which it could not be

divested by subsequent acts, and that it

could withdraw 20,000 ¢. f. s. without paying

for it. The answer is that the acts per-

mitting the withdrawal of water were sub-

ject to the reserve power of the State to

regulate and control the use in behalf of

the publie, and the privileges and rights

granted to the power company were taken

subject to this right of the State and also

* Cf. Matter of Long Sault Development Co., 212 N. Y.1,

error dismissed, 242 U. S. 272, questioning the power of

the State to abdicate state control over a navigable river.

subject to the control of Congress. The

power of Congress to regulate this river is

unquestioned * * *. [at 276.]

+ *

* * *

There are other questions arising which

we do not deem it necessary to consider,

such, for instance, as the constitutionality

of the acts of 1892 and 1893 and 1896 and

further, the power of the State at any time

to give away to private parties for com-

mercial enterprises the sole use of navigable

rivers or the diversion of the water therein.

[at 279.] “

Thus, assuming that the water power rights

involved here were ‘‘vested’’ under the laws of

the State of New York, they were manifestly

subject to such high degree of defeasibility that

the term ‘‘vested’’ in its ordinary connotation

cannot be applied to them.

Indeed, effective since 1943, the Company has

been paying rent of $1,100,000 annually to the

State of New York for these very rights. Six-

teenth Annual Report of the New York Power

Authority for the Year Ended December 31, 1946,

Legis. Doc. (1947) No. 18, p. 46. In sustaining

the exaction of rentals to the State, the New York

Supreme Court destroyed the foundation for any

claim of ‘‘riparian ownership’? or ‘‘private

** See also Niagara Falls Power Co. v. Duryea, 185 Misc.

(N. Y.) 696, stressing that the legislative grants to respond-

ent’s predecessors in interest were revocable at the will of the

legislature.

TYR SPIT ey MARINE Di LIND LOT IERIE EOI LON IT LONELY, MI ET TS

BLEED THROUGH-

usufructuary rights.’’ Niagara Falls Power Com-

pany Vv. Duryea, 185 Misc. 696. For the State

eould not require rentals for water rights in priv-

ate ownership; most certainly, that decision

eviscerated the power of the lessor to prevent

withdrawals by other parties.“ See also Section

612 of the Conservation Law (McKinney’s Con-

solidated Laws of New York, Book 10, 1951.)

To argue, as did the court below (R. 598),” that

such an exaction of rent confirms the private right

is completely out of line with reality. The fact

of the matter is that under New York law the

Company has no ‘“‘vested right” in any normal

sense of the term; to hold that such a tenuous

“Indeed, New York itself recognized that requiring the

respondent to pay such rentals in fact passes the charges on

primarily to the consumer. Thus, the Twelfth Annual Re-

port of Power Authority of the State of New York for the

Year Ended December 31, 1942, pp. 67-68, stated :

“Over short periods of time, to be sure, the inflexibility of

the company’s rates may preclude the company from shift-

ing the burden of a newly imposed rental charge to the

pocketbook of its consumers. Sooner or later, however, its

effort to shift these rentals is almost sure to be successful.

The State would, therefore, be deluding itself if it failed

to recognize that any rentals which it may impose upon the

Niagara Falls Power Company for the use of the State’s

water-power resources will ultimately come, not out of any

excess profits of the company, but rather out of the con-

sumers of electricity themselves.”

4 The court below recognized that the usufructuary right

“is subject to the paramount right of the State to utilize the

waters for a public purpose without paying compensation

therefor * * *” (R. 595), and that the state legislature

might have preempted the entire flow.

interest comes ahead of the interests expressly

protected by the Power Act is, clearly, to mis-

conceive the nature of that Act.

B. CONGRESS COULD NOT HAVE INTENDED TO REQUIRE THE CON-

SUMER AND THE FEDERAL GOVERNMENT TO PAY FOR DEALINGS

IN WATER POWER RIGHTS OF THE KIND INVOLVED IN THE

INSTANT CASE

1. The origin of the rebate granted Niagara

Lockport and Buffalo Niagara has been set forth

in detail above (at pp. 6-7). It may be recapitu-

lated briefly as follows: At the beginning of the

century respondent’s corporate predecessor leased

the right to use 262.6 cubic feet of water to the

Pettebone-Cataract Companies. The assets of

these two corporations were acquired in 1925 by

Niagara Lockport, respondent’s affiliate. Niagara

Lockport conveyed to respondent all the assets of

the Pettebone-Cataract Companies except the

water power rights. Those it leased to respond-

ent in return for certain rate concessions. As

the result of these complicated transactions

among affiliates, the Pettebone-Cataract water

“‘rights’—if still in exietence—were carefully

kept alive with a resulting reduetion in respond-

ent’s income by $220,500 over the five-year period

here involved.

2. The International Paper water rights had

their inception in a number of leases and options

granted by respondent’s predecessor in interest

to the predecessor of the Paper Company or the

Paper Company itself. By 1919 the Paper Com-

PAC AT Me eT A A EN REL STE! AMG GLE LIOR LE RE TIME OIL II BOD EI

BLEED THR OUGH-

pany had thus acquired the right to divert 7,200

hp (the approximate equivalent of 730 ¢. f.s.) ata

price of about $10 per annum for each horse-

power. In 1919, when the enactment of the

Federal Water Power Act was imminent, Inter-

national Paper released and conditionally sur-

rendered its lease to its lessor. Ordinarily, such

surrender would terminate the lease by merging

it with the fee. In the instant case, however, the

power lease was painstakingly kept alive and the

relationship of lessor and lessee reversed. The

Jandlord became the tenant of its own lessee and

paid to it charges for the use of its own water.

The rental first consisted of a rebate for power

charges and later of an annual payment of

$99,000, i. ¢., more than International Paper had

paid to Niagara Falls Power. Moreover, con-

sidering that International Paper has been re-

leased from its duty to pay rent to Niagara Falls

Power, respondent now is paying to International

Paper Co. more than twice the rate it used to

charge its

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