Senator SMITH. Along the same principle as the relay in the telephone? Secretary WEEKS. Yes; except that this is somewhat different from that. Senator HEFLIN. In other words, if the power were sent from Muscle Shoals to some point in Georgia, they would use that power, and send their own power to some place in North Carolina?.. Secretary WEEKS. They would not send it so far as that, from Georgia to North Carolina. They would probably relay it once in South Carolina. Senator KENDRICK. You spoke something about the necessity of giving the lessee time in which to get started. I call your attention. to the fact that this power plant differs materially from any other lease that will probably be let under the Federal water power act, because of the fact that the Government has made the development itself, invested its own money, so that as long a term lease will not be an essential part of the contract. Secretary WEEKS. It is distinct in that respect. Practically all the water power development being done in the United States is being done with private capital, and under the provisions of the water power act. Incidentally, in the last three years, I think the water power board has given permits and licenses for the development of water power, something like ten or twelve times as much as was done in the previous 20 years under the laws that obtained before the water power act was passed. But that is all private operation. Senator KENDRICK. But where the private interests invest their own money it is essential that they should have a long-time lease in which to derive the benefit. It is very much more necessary than it would be where the Government invests its own money in the development. Secretary WEEKS. What I mean, Senator, by the statement I made, was that this whole question revolves around the development of nitrate, and nobody knows just exactly the method that is going to be used. There have to be experiments made. Mr. Ford probably does not know. In fact, I think he told me he did not know just what method he was going to use. Others who have this matter in view have got to experiment, and it is going to take two, three, four or five years to find out what the best method for the development of nitrate is. New ones are coming along. Senator KENDRICK. And then your plant will probably have to be junked for the better one? Secretary WEEKS. Quite likely. I think that whole question is in its infancy. The CHAIRMAN. Mr. Secretary, you have reminded me, by referring to what Mr. Ford told you, that you are quoted as having said, probably before the House committee-I don't think you said it before this committee-and I would like to ask you what the facts are that in a conversation with Mr. Ford you asked him the question whether he would make nitrates if he found that he could not make them at a profit of 8 per cent and sell them on the market. Secretary WEEKS. Yes; I asked him that question. The CHAIRMAN. And what did he say? Secretary WEEKS. It is a long time ago. Mr. Ford may have changed his ideas. I wouldn't want to quote him as having that opinion at this time. That happened a year and a half ago, or two years ago. The CHAIRMAN. The same legal question is involved in his bid. Secretary WEEKS. What I said to Mr. Ford was, after discussion on what the basis of 8 per cent would rest, "Now, suppose you cannot manufacture fertilizers and sell them at a profit of 8 per cent, what are you going to do?" He said, "Of course, I am going to stop." Then I said, "Doesn't this proposition of yours reduce itself to this, that you are borrowing, we will say $50,000,000. which is the cost of completing these dams, of the Government, for 100 years at 4 per cent, and as you do not agree that in case you stop manufacturing fertilizer the contract shall cease, in effect you will be borrowing that money at 4 per cent, and the farmers will be getting a gold brick?" I think that I made use of that rather uncomfortable language. He said, "Well, of course, you cannot expect me to manufacture fertilizers if I can't do it at a profit." Senator GOODING. And he called 8 per cent a profit. That was the figure he considered profitable. Secretary WEEKS. That was the basis of his original offer. Senator HEFLIN. That was before his other bid was changed and a provision put in in which he guaranteed that he would manufacture 40,000 tons? Secretary WEEKS. There were three or four changes made, as you recall, Senator. The CHAIRMAN. But that still remained in his bid-the 8 per cent profit. Senator KEYES. Did I understand that the Government is now receiving $350,000 a year rental from the steam plant at No. 2? Secretary WEEKS. Yes. (The following is the statement by the Secretary of War relative to Mr. Ford's accusations concerning Muscle Shoals, the opinion of the Judge Advocate General of the Army, and the opinion of the Attorney General :) [Release No. 3] WAR DEPARTMENT, October 12, 1923-5.30 p. m. STATEMENT BY SECRETARY OF WAR RELATIVE TO MR. FORD'S ACCUSATIONS CONCERNING MUSCLE SHOALS The Secretary of War has issued the following statement: Mr. Ford this morning delivered a personal attack upon me in connection with the conduct of the administration in relation to Muscle Shoals. His statement is filled with reckless assertions. It may be that Mr. Ford, relying as he does upon other persons in the conduct of so many enterprises, probably is not himself possessed of the full facts of the situation. For the benefit of those who do not fully understand the problems involved I shall briefly review the subject. Muscle Shoals was a development for nitrate purposes in the war, which included the construction of a large dam on the Tennessee River and the construction of two air-fixing nitrate plants, with large quarries and as an adjunct to those two plants in order to supply power pending the completion of the water-power dam a steam plant was erected 90 miles away on the Warrior River, known as the Gorgas plant. The total expenditure on these properties was about $102,000,000, of which less than $5,000,000 was spent upon this isolated and temporary steam plant. The steam plant was erected on the property of the Alabama Power Co., which reserved title to the land on agreed conditions with the Wilson administration, for which this administration is not responsible, and which gave to them the right to purchase the Gorgas steam plant. The proposal made by Mr. Ford for the purchase of this entire equipment involved the payment by him of $5,000,000 for the entire plant, including the above isolated and temporary steam plant. They also involved many other conditions with regard to the completion of the water power, etc. No disposal of Government property can rightfully be made by any administrative officer without the approval of Congress, and I, as the responsible official in this matter, referred Mr. Ford's offer to Congress, which has so far not acted upon it. In the meantime, the Alabama Power Co., under their rights in the old contract, notified the Government that the lands must be vacated on or before October 15, this year. They offered to pay $3,500,000 for this comparatively small item of the whole equipment. The Government had an option to accept this offer, which was the highest made, or to salvage this plant as secondhand machinery and from which they could not have realized more than $1,000,000. On the other hand, it must be borne in mind that for this single item in the entire equipment the Government has secured $3,500,000 as against the $5,000,000 offered by Mr. Ford for the entire plant and equipment. At the time of the sale, in a desire not to disturb the status quo, the administration stated to Mr. Ford that this amount could be credited on his original offer of $5,000,000, if it was so wished. Mr. Ford's declared purpose in purchasing the Muscle Shoals is the manufacture of nitrates for fertilization purposes. I have the keenest interest in the development of air fixation of nitrates in assistance of the American farmer and in the adaptability of Muscle Shoals for this purpose. As evidence of the Government's desire to promote this end it is carrying forward to-day the construction of hydraulic works on the Tennessee River, with a view to making that great water power available for the purpose. I have never opposed Mr. Ford's securing the use of this water power or any other equipment we have, provided he is able to give such assurance of its being devoted to the public interest. That he could ever economically make nitrates by the use of steam power is denied by every expert adviser. The fact that he says his offer is still open would seem to indicate that he does not regard the Gorgas plant as necessary to him in the carrying out of his plan to purchase and develop Muscle Shoals water power. I do not propose to continue a newspaper discussion of this subject, but if necessary shall place all facts before a proper tribunal. WAR DEPARTMENT, OFFICE OF THE JUDGE ADVOCATE GENERAL, Memorandum for the Secretary of War. 1. You recently asked me what I thought should be done in the matter of the Alabama Power Co. 2. The Alabama Power Co. gave-in accordance with the terms of the contract, dated December 1, 1917-the United States a notice, dated April 14, 1923, to remove the Warrior extension, the Warrior substation, and transmission lines from the lands and rights of way of the Alabama Power Co., unless the United States, within 90 days after receipt of the notice, proceeds to exercise its option under the contract to require the company to buy all its rights, title, and interest in and to said Warrior extension, Warrior substation, and transmission lines with all appurtenances and rights appurtenant thereto. In a letter of the same date the company states that if the United States exercises the option to require the company to purchase all of the facilities installed or erected upon the company's lands or rights of way the company stands ready to pay $3,000,000 for the interest of the United States therein, or to proceed under the contract with arbitration to determine the fair value of the facilities or to negotiate the question of the fair value. 3. In response to your request the Attorney General, under date of May 24, 1922, rendered an opinion upon Article XXII of the contract and stated that the provision giving the Alabama Power Co. the right to demand that the value of the facilities installed by the Government be determined by arbitration, and obliging the Government to sell to the company at the figure thus determined. was invalid. In reaching this conclusion the Attorney General states that the act of May 10, 1918 (40 Stat. 548), and the act of July 9, 1918 (40 Stat. 850), authorize the sale of these facilities. The Attorney General said, in part: "The act of May 10, 1918 (40 Stat. 548), authorize the President, during the emergency then existing, to sell upon such terms as he deems expedient, through the head of any executive department, any supplies, materials, equipment, or other property acquired by the Government in connection with the prosecution of the war. The act of July 9, 1918 (40 Stat. 850), is of a broader scope, although it embraces in substance the provisions of the act just mentioned. It, too. authorizes the President, through the head of any executive department, to sell, upon such terms as he shall deem expedient, any war supplies, materials, equipment, or by-products, and any building, plant, or factory for their production, including lands, acquired at any time during the emergency. The power to give the Alabama Power Co. the option already mentioned must exist, if it exists at all, by virtue of these statutes; for the contract was not in fact signed and delivered until November, 1918, although dated prior to the passage of these statutes. The option that was given is, in my opinoin, invalid for these reasons: 1. I do not think the power that is thus given to sell Government property is broad enough to give the designated officials the power to grant an option to buy. * * * 4. The opinion of the Attorney General is clear to the effect that you are not bound to sell the facilities to the Alabama Power Co. at a value to be fixed by arbitration in accordance with Article XXII of the contract-which is the only article relating to the sale of the facilities to the company-but that you have authority under the acts cited to sell the facilities upon such terms as you deem expedient. 5. It seems to me that there are four courses of action open to you. (a) The first is to sell to the Alabama Power Co. by negotiation at a price deemed adequate to you. In its letter, dated April 14, 1923, the company stated that it stood ready to pay $3,000,000 for the facilities installed or erected on the company's lands or rights of way, or to proceed under the contract with arbitration to determine the fair value of the facilities, or to negotiate the question of the fair value. In view of the Attorney General's opinion, the arbitration provision as provided in the contract may not be followed. I have no knowledge of the adequacy of the company's offer. It is at least substantial, and the company states in addition that it is prepared to negotiate the fair value. In view of the fact that the addition called the "Warrior extension was built as an additional unit to the main plant of the company and uses the same intake facilities, the Alabama Power Co. is in a position to offer a better price than any other purchaser. (b) The second course would be to sell the facilities to a party other than the Alabama Power Co. or to junk them. The sale to another would be a junk sale, because Article XXII (5) provides that if the facilities are sold to another it shall be "subject to the condition that said properties shall not be operated and that they shall be removed within six months after the sale has been consummated." (c) The third course would be to take no action pursuant to the notice given by the company. Such a course will probably cause the company to bring suit. I am unable to predict what form the suit will take or what will be the result, except that I think it will be less beneficial to the United States than a sale to the company at a reasonable price. (d) The fourth course would be to condemn the land upon which the facilities are located, on the ground that the land is necessary to protect the interest of the Government in the facilities which it owns. The result of such action can not be foreseen. The facilities owned by the United States and the land upon which they rest, standing alone, would be of little value. It might be neces sary to proceed further and condemn the power plant of the company and its water rights in order to make the facilities now owned by the United States salable at a fair figure to an outside party. It seems to me that this course is so beset with the question of policy, business judgment, and lawsuits that it would be of little practical value. 6. I am of the opinion that prompt action looking to the sale of the facilities to the Alabama Power Co. by negotiation at a fair value will best serve the interest of the United States. W. A. BETHEL, Judge Advocate General. The ATTORNEY GENERAL. WAR DEPARTMENT. Washington, July 21, 1923. MY DEAR MR. ATTORNEY GENERAL: Under date of May 24, 1922, you furnished me with your opinion upon the validity of certain features of the contract T-69 between the United States and the Alabama Power Co., dated December 1, 1917. In view of conditions which have arisen since May 24, 1922, your further advice is desired with reference to the contract. For your convenience there is inclosed a pamphlet which contains the contract and other documents referred to herein. Under article 21 of the contract and pursuant to notice given to the Alabama Power Co., copy of which notice appears beginning on page 51b of the inclosed pamphlet, the United States on July 31, 1919, discontinued taking energy, under the contract, from the Warrior extension and Warrior substation and from the transmission line. Those properties belong to the United States, but are located on lands of the company and were placed there under conditions set out in the contract. The United States has for more than 365 consecutive days, as provided in subdivision 6, and for more than two years, as provided in subdivision 7 of article 22 of the contract, ceased to take energy in accordance with the contract. Subsequent to the expiration of those periods, on, to wit, the 14th day of April. 1923, the company, as permitted by the contract, served notice on the Chief of Ordnance to remove the property from its premises, unless the United States required the company to purchase 'the property, and accompanied the notice with a letter of the same date to the Chief of Ordnance containing offer of purchase. Copies of the same appear beginning on page 51d and page 51f of the inclosed pamphlet. The 90-day period provided for in subdivision 6 of section 22 of the contract, within which the Government shall elect what disposition to make of the property, expired on July 13, but by mutual agreement in writing this period has been extended to include August 14, 1923. In his previous opinion the Attorney General advised that the provision for sale to the Alabama Power Co., at a price to be fixed by arbitration, is invalid and that the United States is under no legal obligation to sell the properties to that company. In view of the notice given I request you opinion whether, the Government having no title to the land upon which either the transmission line or the Warrior extension or the Warrior substation are built, and the option provisions of the contract being invalid as stated in the former opinion, in event the United States should not determine to sell the property to the Alabama Power Co. under the general authority vested in the Secretary of War within the time fixed by the notice, as extended, it will be the duty of the United States to comply with the provision of the contract with reference to removal. Sincerely yours, JOHN W. WEEKS, Secretary of War. DEPARTMENT OF JUSTICE, SIR: I am in receipt of your letter of July 21, 1923, in which, after referring to my opinion of May 24 last (35 Op. 160), you ask my advice upon another question arising in connection with the contract made during the World War with the Alabama Power Co. The general scope and some particular features of that contract were de scribed in my former opinion. For present purposes it seems sufficient to say that at the time negotiations were begun the Alabama Power Co. was a public service corporation organized under the laws of Alabama, and then engaged in generating and distributing power from a hydroelectric plant on the Coosa River and also from a steam reserve plant located on the Warrior River near the mouth of certain coal mines and about 88 miles from Muscle Shoals, where the Government was about to erect nitrate plants mainly for war purposes. The company then owned a right of way for a transmission line extending 20 miles toward Muscle Shoals. By the contract it agreed to acquire, at its own expense, a right of way for a transmission line for the remaining distance. It was then to build, at the expense of the United States, on its own lands an 97903-24-PT 3- -2 |