Stone, Albert W.

English

University of Montana School of Law

Montana Law Review
Volume 18
Issue 1 Fall 1956 Article 15
July 1956
Introduction to the Preference Clause
Albert W. Stone
Follow this and additional works at: https://scholarship.law.umt.edu/mlr
Part of the Law Commons
This Article is brought to you for free and open access by The Scholarly Forum @ Montana Law. It has been accepted for inclusion in Montana Law
Review by an authorized editor of The Scholarly Forum @ Montana Law.
Recommended Citation
Albert W. Stone, Introduction to the Preference Clause, 18 Mont. L. Rev. 1 (1956).
Available at: https://scholarship.law.umt.edu/mlr/vol18/iss1/15
MONTANA LAW REVIEW
VOLUME EIGHTEEN FALL, 1956 NUMBER ONE
Introduction to the Preference Clause
By ALBERT W. STONE*
Fifty years ago, on April 16, 1906, Congress amended the Reclamation
Act, with respect to the distribution of electric power, to provide a prefer-
ence for "municipal purposes."' The practical interpretation of this clause
has been that municipally owned utilities have had a priority in the pur-
chase of federal power. In 1933 this preference was extended to electric
cooperatives,' with the result that one may generalize that all instrumental-
ities of state and local government and non-profit consumer organizations
have prior access to federally generated power.
In 1906 Congress was considering the disposal of an incidental amount
of electricity at reclamation projects. Today in several large regions of our
country the federal government dominates the power generating business,
and power generation is by no means an incidental result. In those regions,
as elsewhere, demand for power presses hard upon supply. Power shortages
have occurred and must still be faced even in the Columbia Basin. Private
utilities and industries are the federal customers who are the first to be
forced to adjust themselves to power shortages, for the preference clause as-
sures to public and non-profit bodies the delivery of federal power when any
is available. And as these preference customers promote additional uses of
electricity and increase the demand for power within their service areas,
they pose an ultimate threat to private utilities.
Yet the ability to obtain firm commitments for federal electric power
is essential to the very existence of many consumer owned electric co-ops
which have done much to improve the efficiency and comfort of small farms.
To these electric distributors, the preference clause is their life blood, and
they vigorously assert the importance of enabling the local citizenry to own
and control essential local utility services.
This conflict between private utilities and locally owned non-profit
utilities relates directly to the question: What is the appropriate role of
*Associate Professor of Law, Montana State University. Member of the California
Bar. B.A., University of California, 1943; LL.B., Duke University, 1948.
'34 STAT. 116 (1906), 43 U.S.C. § 522 (1952). The Act reads in part: "Whenever a de-
velopment of power is necessary for the irrigation of lands under any project under-
taken under the said reclamation law... the Secretary of the Interior is authorized
to lease for a period not exceeding ten years, giving preference to municipal purposes,
any surplus power or power privilege ......
248 STAT. 64 (1933), 16 U.S.C. § 8311 (1952) of the Tennessee Valley Authority Act,
which reads, in part, as follows: "The Board is hereby empowered and authorized to
sell the surplus power . . . to States, counties, municipalities, corporations, partner-
ships, or individuals, according to the policies hereinafter set forth ... it shall give
preference to States, counties, municipalities, and cooperative organizations of citi-
zens or farmers, not organized or doing business for profit, but primarily for the
purpose of supplying electricity to Its own citizens or members.. . ." Nearly all fed-
eral water resources legislation contains some such preference clause.
1
Stone: Introduction to the Preference Clause
Published by The Scholarly Forum @ Montana Law, 1956
MONTANA LAW REVIEW
the federal government in the business of generating electric power? For
if it is desirable that public and non-profit groups distribute this energy
developed from our nation's rivers, are not the same considerations ap-
plicable to justify non-private or federal development of the hydro sites?
Or, if there is no longer a persuasive reason for distribution through the
preference groups, isn't there less reason for public development of the
power itself?
Although this "preference" policy is fifty years old, it is only now
coming in for reexamination under modern conditions.8 Prosperity has
placed private utilities in a financial condition where they are able to un-
dertake enormous generating projects themselves. Technological advances
in transmission have made integration of electrical resources a necessity and
independence of electric systems obsolete. Private utilities feel that the
government should not be in the power business when private enterprise can
do the job, and that preference customers have an unfair advantage not
merely by reason of this preference, but also because they pay no federal in-
come taxes and obtain financing at lower interest rates.
There are many facets to this federal policy. The two papers which fol-
low bring out a number of them.
'One of the few attempts to gather all of the arguments, pro and con, regarding the
"preference clause," was the conference sponsored by the Montana State University
Law School in July, 1956, from which the two papers which follow this introduction
were taken.
[Vol. 18,
2
Montana Law Review, Vol. 18 [1956], Iss. 1, Art. 15
https://scholarship.law.umt.edu/mlr/vol18/iss1/15


Introduction to the Preference Clause

University of Montana

Montana Law Review Volume 18 Issue 1 Fall 1956 Article 15 July 1956 Introduction to the Preference Clause Albert W. Stone Follow this and additional works at: https://scholarworks.umt.edu/mlr  Part of the Law Commons Let us know how access to this document benefits you. Recommended Citation Albert W. Stone, Introduction to the Preference Clause, 18 Mont. L. Rev. 1 (1956). Available at: https://scholarworks.umt.edu/mlr/vol18/iss1/15 This Article is brought to you for free and open access by ScholarWorks at University of Montana. It has been accepted for inclusion in Montana Law Review by an authorized editor of ScholarWorks at University of Montana. For more information, please contact scholarworks@mso.umt.edu. MONTANA LAW REVIEWVOLUME EIGHTEEN FALL, 1956 NUMBER ONEIntroduction to the Preference ClauseBy ALBERT W. STONE*Fifty years ago, on April 16, 1906, Congress amended the ReclamationAct, with respect to the distribution of electric power, to provide a prefer-ence for "municipal purposes."' The practical interpretation of this clausehas been that municipally owned utilities have had a priority in the pur-chase of federal power. In 1933 this preference was extended to electriccooperatives,' with the result that one may generalize that all instrumental-ities of state and local government and non-profit consumer organizationshave prior access to federally generated power.In 1906 Congress was considering the disposal of an incidental amountof electricity at reclamation projects. Today in several large regions of ourcountry the federal government dominates the power generating business,and power generation is by no means an incidental result. In those regions,as elsewhere, demand for power presses hard upon supply. Power shortageshave occurred and must still be faced even in the Columbia Basin. Privateutilities and industries are the federal customers who are the first to beforced to adjust themselves to power shortages, for the preference clause as-sures to public and non-profit bodies the delivery of federal power when anyis available. And as these preference customers promote additional uses ofelectricity and increase the demand for power within their service areas,they pose an ultimate threat to private utilities.Yet the ability to obtain firm commitments for federal electric poweris essential to the very existence of many consumer owned electric co-opswhich have done much to improve the efficiency and comfort of small farms.To these electric distributors, the preference clause is their life blood, andthey vigorously assert the importance of enabling the local citizenry to ownand control essential local utility services.This conflict between private utilities and locally owned non-profitutilities relates directly to the question: What is the appropriate role of*Associate Professor of Law, Montana State University. Member of the CaliforniaBar. B.A., University of California, 1943; LL.B., Duke University, 1948.'34 STAT. 116 (1906), 43 U.S.C. § 522 (1952). The Act reads in part: "Whenever a de-velopment of power is necessary for the irrigation of lands under any project under-taken under the said reclamation law... the Secretary of the Interior is authorizedto lease for a period not exceeding ten years, giving preference to municipal purposes,any surplus power or power privilege ......248 STAT. 64 (1933), 16 U.S.C. § 8311 (1952) of the Tennessee Valley Authority Act,which reads, in part, as follows: "The Board is hereby empowered and authorized tosell the surplus power . . . to States, counties, municipalities, corporations, partner-ships, or individuals, according to the policies hereinafter set forth ... it shall givepreference to States, counties, municipalities, and cooperative organizations of citi-zens or farmers, not organized or doing business for profit, but primarily for thepurpose of supplying electricity to Its own citizens or members.. . ." Nearly all fed-eral water resources legislation contains some such preference clause.1Stone: Introduction to the Preference ClausePublished by ScholarWorks at University of Montana, 1956MONTANA LAW REVIEWthe federal government in the business of generating electric power? Forif it is desirable that public and non-profit groups distribute this energydeveloped from our nation's rivers, are not the same considerations ap-plicable to justify non-private or federal development of the hydro sites?Or, if there is no longer a persuasive reason for distribution through thepreference groups, isn't there less reason for public development of thepower itself?Although this "preference" policy is fifty years old, it is only nowcoming in for reexamination under modern conditions.8 Prosperity hasplaced private utilities in a financial condition where they are able to un-dertake enormous generating projects themselves. Technological advancesin transmission have made integration of electrical resources a necessity andindependence of electric systems obsolete. Private utilities feel that thegovernment should not be in the power business when private enterprise cando the job, and that preference customers have an unfair advantage notmerely by reason of this preference, but also because they pay no federal in-come taxes and obtain financing at lower interest rates.There are many facets to this federal policy. The two papers which fol-low bring out a number of them.'One of the few attempts to gather all of the arguments, pro and con, regarding the"preference clause," was the conference sponsored by the Montana State UniversityLaw School in July, 1956, from which the two papers which follow this introductionwere taken.[Vol. 18,2Montana Law Review, Vol. 18 [1956], Iss. 1, Art. 15https://scholarworks.umt.edu/mlr/vol18/iss1/15

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