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Provided further, That the said lessee shall be entitled to such quantity of secondary power subject to all the conditions herein set forth applying to said 15 per centum of primary power as in the judgment of the President is fair and equitable.

(d) Said lease shall also provide that there must be manufactured under said lease annually at least a prescribed amount of nitrogenous plant food of a kind and quality and in a form available as plant food and capable of being applied directly to the soil in connection with the growth of crops; and that such lease shall also contain a stipulation requiring the lessee to produce within three years and six months from the date such lease shall become effective, such fertilizer or fertilizer ingredients containing not less than ten thousand tons of fixed nitrogen, and shall require periodic increases in quantity of such fertilizer or fertilizer ingredients from time to time as the market demands may reasonably require. Such lease shall also provide that such increases shall, within twelve years after such lease becomes effective, reach the maximum production capacity of such plant or plants as the board may find to be economically adapted to the fixation of nitrogen, if the reasonable demands of the market shall justify the same, except when the nitrogen produced is required for national defense, or when the market demands for the same are satisfied by the maintenance in storage and unsold of such fertilizer or fertilizer ingredients containing at least two thousand five hundred tons of fixed nitrogen, but whenever said stock in storage shall fall below the quantity containing two thousand five hundred tons of fixed nitrogen, the production of such nitrogen, and the manufacture of such fertilizer or fertilizer ingredients shall thereupon be resumed. Said lease shall also provide that the sale of such fertilizer or fertilizer ingredients to be used as fertilizer by the said lessee shall be at a price to include the cost of production and not exceeding 8 per centum profit on the turnover produced, and the cost shall include whatever may be paid to the Government for the use of that part of Government property employed by the lessee' in manufacturing such fertilizer or fertilizer ingredients to be used as fertilizer and also not exceeding 6 per centum on any capital invested by the lessee in improvements to exist. ing plants or in additional plants employed in the manufacture of fertilizer or fertilizer ingredients to be used as fertilizer and shall include a reasonable actual carrying charge (exclusive of 8 per centum profit thereon) on the stocks of such fertilizer and fertilizer ingredients as are held in storage and unsold for a year or more as the market demands as above provided shall be satisfied. There shall not be included as part of the cost of producing such fertilizer or fertilizer ingredients any royalty for the use by such lessee of any patent, patent right, or patented process belonging to the lessee, or in which the lessee has any interest, or belonging to any subsidiary or allied corporation, or belonging to or controlled by any officer or agent of the lessee of any such allied or subsidiary corporation, and if the lessee should buy any patent, patent right, or patented process with the hope and expectation of thereby reducing the cost of manufacturing such fertilizer or fertilizer ingredients, or of processing any by-product as hereinbefore permitted, then such sum of money as shall be so paid by the lessee shall be considered and treated in the accounting of the cost of such fertilizer or fertilizer ingredients as investment in the nature of plant account, and not as current expenses, and such costs shall be written off on the expiration of any junior patent or license so acquired. For the annual determination of

the cost of such fertilizer and fertilizer ingredients there shall be appointed by the board a production engineer, and by the lessee another production engineer and by these a firm of certified public accountants, and these three shall proceed to ascertain and compute the cost of producing such fertilizer and fertilizer ingredients, and in the event of any disagreement the two said engineers shall select a third production engineer who shall hear and consider the contentions and decide the issues, and such decision shall be binding upon all parties for the year for which the determination shall have been made. A copy of such audit and decision shall be filed each year with the board and by it preserved. The expenses incident to this provision shall be paid by the lessee and shall be charged as an item in the cost of producing such fertilizer or fertilizer ingredients. If such annual cost determination discloses that any purchasers have paid a cost for fertilizer or fertilizer ingredients in excess of that allowable under this act, then the lessee shall refund such excess to the respective purchasers.

(e) The said lessee shall give to the said corporation a good and sufficient bond to be approved by the President of the United States, conditioned ụpon monthly payments to the corporation during the term of said lease for all the power sold by the said corporation to the said lessee.

Sec. 26. The corporation hereinbefore referred to, operating the steam plants at Muscle Shoals and Dam Numbered 2 and any other stream and hydroelectric power facilities which may hereafter be constructed or built as hereinbefore provided in this act, shall supply the said lessee with the power necessary

for the operation of the properties leased and for the other manufacturing purposes mentioned in subdivision (c) of section 25 hereof at a price which shall be deemed fair and just by the President and the board.

Sec. 27. For a period of twelve months after the passage of this act, all the provisions of this act relating to the activities of said corporation in the manufacture and production of fertilizer and fertilizer ingredients and to the operation of any of the property authorized to be leased by this act are hereby suspended; and if, within said period, the President leases the property authorized to be leased, such suspension shall continue during the entire time said lease is in effect.

SEC. 28. If within twelve months after the passage of this act, no lease is made by the President as herein authorized, then authority to make such lease shall cease and sections 25, 26, and 27, shall, at the end of said twelve months' period, become null and void and all the other provisions hereof, which have been suspended for said period of twelve months, shall at once go into full force and effect.

Amend the title to read as follows:

A bill to provide for the national defense by the creation of a corpora-
tion for the operation of the Government properties at and near Muscle
Shoals, in the State of Alabama; to authorize the letting of the Muscle
Shoals properties under certain conditions; and for other purposes.
And the House agree to the same.

HARRY M. WURZBACH,
CARROLL REECE,
PERCY E. QUIN,

HUBERT F. FISHER,
Managers.on the part of the House.

Chas. L. McNARY,
G. W. NORRIS,

E. D. SMITH,
Managers on the part of the Senate.

STATEMENT OF THE MANAGERS ON THE PART OF THE HOUSE

The managers on the part of the House at the conference on the disagreeing votes of the two Houses on the amendments of the House to the joint resolution (S. J. Res. 49), providing for the leasing of the Muscle Shoals properties on certain terms and conditions, and providing for the national defense by the creation of a corporation for the operation of the Government properties at or near Muscle Shoals, in the State of Alabama, and for other purposes, submit the following statement in explanation of the effect of the action agreed upon and recommended in the conference report.

The Senate joint resolution provides for the creation of a corporation to be known as the Muscle Shoals Corporation of the United States, with authority to operate existing plants for experimental purposes for the manufacture of fertilizer or fertilizer ingredients; for donation of not exeeding 1 per cent of the total product of such plants for experimental, educational purposes to county demonstration agents and agricultural colleges; to allot to the Secretary of War certain power for use in operation of all locks, lifts, and other facilities in aid of navigation; and then to sell the surplus power to States, counties, and municipalities, corporations, partnerships, or individuals, with preferences as indicated in said resolution, and providing, that in order to place the Government upon a fair basis for making sales of such surplus power, then to construct transmission lines, within transmission distances in any direction from Dam No. 2, and the steam plant; and also provides for the building of Cove Creek Dam, and an authorization of not to exceed $2,000,000 to begin construction of said dam.

The conferees accepted the Senate joint resolution without amendment but only as an alternative, and its provisions can not, under any circumstances, become effective for a period of 12 months after the passage of the act, during which 12-month period the President of the United States is given authority to lease all of the Muscle Shoals property for private operation of the nitrate plants for fertilizer manufacture. And if a lease can be made, then for all practical purposes, never become effective.

The managers on the part of the House who have signed the report believe that the leasing language is so liberal as that the President will be able to effectuate a lease, thus consuming all of the power distributable at Muscle Shoals, leaving little, if any, power for sale, or sale and distribution, under the provisions of the Senate joint resolution. They believe further that if a lease is made, and if not quite all of the power is thus consumed, that the minor part for distribution will be taken by municipalities, willing to build their own transmission lines and thus prevent, by making wholly unnecessary, at least the construction of any transmission lines at the cost of the Government. In other words, we believe that the liberal leasing language written in this report will serve as an effectual barrier against the provisions of the Senate joint resolution from becoming operative.

The language of the bill, as it passed the House, has been superseded by new language whereby the President of the United States is given almost unlimited authority to lease the Muscle Shoals property for fertilizer manufacture, with limitations only controlling the quantity, quality, and selling price of the fertilizer there manufactured, leaving it wholly to the judgment of the President what rental shall be charged for the nitrate plants and other property mentioned in the bill, and the price for power to be paid by the lessee.

It is our firm conviction that only by granting such wide and general blanket authority to the President, making it possible for him to sit across the table from a prospective lessee, can a lease of the Muscle Shoals properties ever be negotiated. We believe that there are no such restrictions or limitations in the leasing language of the conference report as will bar any reasonably minded prospective lessee from submitting a bid, or from negotiating for a lease." The terms may be made attractive, without the grant of government subsidy, and at the same time realizing a much fairer return to the Government than it is now receiving, and has been receiving, under present arrangements.

Manifestly, it was necessary to make the lease language as liberal as possible so as to bring about a lease. The price for power and the rental to be charged for the other property may be made as liberal as the President sees fit.

The long continued disagreement between the Senate and House conferees arose over the language to be used in granting authority to the lessee in the matter of manufacturing or processing by-products incidental to the manufacture of fertilizer. Under the language as now written in the conference report, the lessee is permitted to manufacture, process and sell, on the Government reservation, all such by-products as are not ingredients of fertilizer, and is also permitted to manufacture and process, but on property outside of the reservation, electrochemicals, or any other product whatever, he chooses to manufacture, and for that purpose is allowed as much as 15 per cent of all the power actually used in fertilizer manufacture, so long as he complies with the quantity stipulations of subdivision d of section 25 of this act, and subject to the same conditions, is permitted to purchase as much secondary power as, to the President, appears fair and equitable. The lessee is given first call on power, both primary and secondary, subject only to the reasonable conditions stated in the report.

HARRY M. WURZBACH.
PERCY E. Quin.

HUBERT F. FISHER.
Managers on the part of the House.

For the purpose of giving the two Houses opportunity to act upon the measure, I am signing conference report embodying provision for private leasing of nitrate plants for quantity production of fertilizer with Government operating power plants and constructing Cove Creek Dam.

While this is not what I preferred, it is the best that could be obtained in view of the situation which developed in conference. If satisfactory operations are secured under proposed lease authorization, the legislation will be beneficial. Otherwise it would be unsound and hurtful.

This formula includes in a measure compromise principles propounded by House conferees last December, but it is not consistent with the House plan.

In event the measure should become law, I am hopeful that successful fertilizer production may be started and continued under limitations now proposed or modified as practical experience demonstrates to be necessary.

With successful operation of nitrate plants under lease contract for large-scale fertilizer production, no need will arise for Government to build transmission lines, as most, if not all, the power will be used in nitrate plant operations as originally intended in national defense act under which whole project was constructed.

CARROLL REECE. O

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