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+ * Senator CANNON. In other words, if the Navy's theory is correct, and that applied to your line in that fashion, it would simply result in your paying more tax to the Federal Government in those early years
Mr. McGANNEY. Much more.
Senator CANNON (continuing). Than you have estimated you would pay?
Mr. McGANNEY. That is right, sir.
Senator CANNON. So that the ultimate cost, net cost, to the Government would really be less if you furnished the line, and the Navy's theory was correct.
Mr. McGANNEY. I would say, yes, sir.
Senator CANNON. Let me ask you a technical question. You are talking about JP-4 and JP-5. How do you, as a practical matter, pump both of those fuels through the line?
Mr. McGANNEY. Well, the fuel moves through the line in what we term as batches, and we put in a separator between the batches, and that is why we have to have a terminal at Atwater.
Senator CANNON. I see.
Mr. McGANNEY. Because the JP-4 would go into one terminal for the Air Force, and JP-5 would go into the other set of tanks for the Navy.
We move seven or eight products through the same pipeline by simply putting in something to separate the batch, and when they do commingle it is just a short distance, and you cut them clean for both the Navy and for the Air Force. That is another expense that is encountered in connection with military fuels that is not encountered to the same extent in commercial fuels, because both the Air Force and the Navy insist that the product be absolutely pure.
Senator CANNON. One final question: Does the Air Force favor this proposal that you have made so far as your negotiations with them? In other words, would they like to have this overall program so that they will have the line at Castle?
Mr. McGANNEY. Very much so, with one exception. The Air Force has raised a question about a 5-year service contract. They have a policy against that.
However, we have argued with them and continued to argue with them if the Navy can do it they can do it, and if the Navy can get permission from the Defense Department to do it they can do it.
However, I will add that is not a very serious problem here, because you will see that the rental on the Air Force part of it is only $9,000 a month, and we can undoubtedly work something out on the tankage even if we could not get the service contract on only 212 miles of pipe. That is where they draw the line.
So I do not think it is serious, but it is, I would not-I would be less than frank if I did not tell you that it is something that has to be worked out. Senator CANNA
further questions, Mr. Chairman. Senator STEN Gentlemen,
friends from the Navy for just a minute.
e last stages of the hearing with respect to
amed for this, and neither is the Southern
najor point here, that the
Navy has not had a chance to study or consider these last figures. We want to mark this bill up, that is, finish it up, certainly not later than the first part of next week, and we hope to get started on it this week.
If this is a firm offer, I think we will have to call on the Navy and the Air Force to give us their analysis of this situation and their full response thereto.
I think the Southern Pacific people have made out a strong showing here that commends itself to me. I think if the company that is in the business will come in here and offer to do this for these services, they would be better off to have this service.
They do not use their own railroads to haul the freight, and I do not see any particular difference here.
We are confronted all the time with these enormous added expenses every year, added construction, added costs of various kinds when we put in a military installation.
Senator CANNON. Mr. Chairman, will the Senator yield? Senator STENNIS. Yes, I will yield. Senator CANNON. May I make one further request? I think the Navy and Air Force both ought to consider, and I think we ought to ask for a report from the Department of Defense on this because it is difficult for the two branches of the service to get together to resolve a joint agreement problem.
Senator STENNIS. I see representatives of the Department of Defense sitting here now, and I frankly do not see how there is a chance to get all this together and get it considered and get it in the bill. I think we may just have to leave it out for further study and consideration.
Mr. CORLISS. May I make a point, Mr. Chairman?
Senator STENNIS. Yes. I want to ask right now what are your present plans? Is there any other way to get this fuel to Lemoore? You have no alternative except a pipeline ?
Mr. CORLISS. We have a secondary means of unloading by truck.
Mr. CORLISS. We have a rail siding not too far away, but we do not intend to exploit that. We are providing for secondary means by truck unloading.
Senator STENNIS. This is in your new installation?
Senator STENNIS. You are just getting it built now, Lemoore, the naval air station?
Mr. CORLISS. Yes, sir. The commissioning period will be early in the fall of 1961, with 343 aircraft, carrier groups.
Senator STENNIS. All right. You said you wanted to make a statement.
Mr. CORLISS. It is difficult, Mr. Chairman, to condense about 2 years of intensive study into the few moments that I could ask you to listen.
However, there has been some pretty good engineering talent that have derived these facts that the Navy could not afford the price of a commercial pipeline.
I would like to mention the substantial difference between that which we have carefully evaluated and this proposal, and that is the difference between 98 cents per barrel from the San Francisco área and this current proposal of 80 cents.
Now, on the basis of 98 cents per barrel charges it would cost the Government about $134 million a year more on the actual proposals offered by the Southern Pacific pipelines up to this point.
In return for this $134 million charge the Air Force would benefit to the tune of $200,000 a year, making the Government lose $112 million a year over its pipeline from Estero Bay.
Another reason we have chosen this Estero Bay is that our investigations with the California refining industry indicates that it is unlikely that we can expect to obtain much more than 25 or 30 percent of the carrier-based jet fuel, JP-5, which Lemoore will use.
Consequently, we are going to have to get this from other sources, and when you say the cost is the same delivered at Estero Bay as San Francisco, this is not quite true of time-charted vessels bringing fuel from the gulf or southern California northward to Estero Bay. On the basis of time charter, there is a difference in cost.
The other aspect that is quite important to us, Mr. Chairman, is that we are removing our source of JP-5 to Lemoore, a much less vulnerable and attractive target than the San Francisco refining area with its five refineries or unloading points.
Senator STENNIS. You mean this dispersal idea?
Senator STENNIS. My friend, the Navy is putting so many installations up on the west coast around San Francisco that it cannot find room for them.
This dispersal has long since been abandoned. There is shore enough for the Navy where they are giving away underneath, due to oil explorations. I do not follow your reasoning there. I mean, I do not accept that point there about the dispersal.
Senator CANNON. Mr. Chairman, if the chairman would yield, if dispersal were thë problem, it seems to me that this base would not be where it is. It would be over some place on the Sierra Nevadas, around Fallon, Nev., where they already have an installation and already have a pipeline in. . But this entire area is in a very vulnerable position, and I certainly agree with the Chairman that I would not buy this idea of dispersal being any problem.
Senator STENNIS. Let the gentleman continue. Mr. CORLISS. I would like to single out, Mr. Chairman, that this decision or recommendation on the part of the Navy was accompanied by page after page of testimony to the Secretary of Defense in which we asked, Mr. Milne, asked for an exemption to the restrictions normally applicable to commercial and industrial facilities under 60–2 of the Bureau of the Budget, and this exemption to restrictions has been granted to the Navy by virtue of the preponderance of testimony and actual data that this Navy project was in the Government's best interests.
Senator STENNIS. What is that 60–2? Mr. CORLISS. 60–2 is a bulletin from the Administrative Office of the President directing that the Government not compete with commercial and industrial interests.
Senator STENNIS. Yes.
Mr. CORLISS. Dated September 21, 1959.
Mr. CORLISS. Now, for me to single out any one particular facet of this and say this is the reason, would be foolhardy.
The Navy's view is that this is the collection of a multitude of items such as this which, added collectively, the Navy cannot afford a commercial pipeline service.
I would like your indulgence, Mr. Chairman, and let the Navy, along with the Air Force, evaluate it.
Senator STENNIS. Before you leave that point, let me be certain we understand you there. You say the Navy cannot afford it. Is that because the Navy would be sharing, paying more than its share of this total cost?
Mr. CORLISS. No, sir. We would regard that the Government, as a whole, that is, the Air Force and the Navy, would be paying on the basis of Southern Pacific's last proposals about $1.5 million more for the sole delivery service for jet fuel.
Senator STENNIS. Yes. All right.
Senator STENNIS. Let the gentleman finish. Do you have additional points you want to make?
Mr. CORLISS. No, sir. These are characteristic of a multitude. I did not want to burden you with additional time, Mr. Chairman.
Mr. McGANNEY. Mr. Chairman, I would say, in response to that last statement of Mr. Corliss, that again I believe he has omitted consideration of the return to the Government of the income tax.
If that is not considered then he is right. But if it is considered, and we look at this as an overall U.S. Government proposition, then he is wrong.
Senator STENNIS. Let me see, are there any objections now to the 5-year proposal?
Mr. CORLISS. This is a matter of law, Mr. Chairman.
Senator STENNIS. It was suggested that you did not want to obligate yourself for 5 years.
Mr. CORLISS. No, sir. We would be delighted. I do not think Mr. McGanney suggested that. I believe he said the Air Force did not want to participate in such an effort.
Senator STENNIS. Yes, sir. I remember that he said the Air Force, but you agreed to that so far as that point is concerned, it would be acceptable?
Mr. CORLISS. Sir, it is a little bit outside of my ken. We are the engineer bureau, as you know, not the supply organization. I do envision that the Navy would not have such an objection.
Senator STENNIS. Who can we appeal to to have a joint study of this proposal made by the Navy and the Air Force ?
Mr. Corliss. We would be very pleased to do this, Mr. Chairman.
Senator STENNIS. Is there anyone here representing the Air Force! This is the first time that we did not have all the services here that I can recall. There is no one here from the Air Force, military or civilian? I was not expecting them to be here except they are always here.
What about someone representing the Department of Defense?
Mr. SHERIDAN. Mr. Chairman, I think that ought to be referred to Mr. McGuire, the Assistant Secretary for Supply and Logistics.
Senator STENNIS. All right. If that is agreeable with the committee we ought to refer it.
I know you are crowded for time. These are involved matters, and I would not attempt to decide these matters one way or another except we might want you to refer this. How much time can you spare with reference to your operation date here?
Mr. Corliss. No time, Mr. Chairman. We would like to do this such as to deliver the required quantities of JP-5 in the fall of 1961. This requires an authorization and an appropriation act of this year.
Senator STENNIS. Well, you could haul it in there by truck.
Senator STENNIS. There is no question about time. If you get the go-ahead here with a contract you could have it ready for delivery?
Mr. McGANNEY. We could build the line within 7 or 8 months, Mr. Chairman. If they give us the go-ahead, and I might add there if you will notice on the map we would have very little problem with respect to rights-of-way because a large portion of the line would be upon our railroad right-of-way, and a short portion on county roads, and another short portion over private rights-of-way, so we would have no real problem of getting going immediately and, as I say, we have the money, we have the talent, and we have the experience, and we know we could build the line in 7 or 8 months.
Senator STENNIS. And you pay all these local taxes to the taxing subdivisions that you pass through?
Mr. McGANNEY. Yes, sir.
Senator STENNIS. Of course, you get credit for that as an expense on your Federal income tax return?
Mr. McGANNEY. That is correct.
Senator STENNIS. But at the same time it is taxing—it is a taxing asset to the area through which you pass ?
Mr. McGANNEY. Yes, sir.
Senator STENNIS. All right. Have we made clear now what we expect from you gentleman?
Mr. CORLISS. Yes, sir; I believe so.
Senator STENNIS. What about the time allowed? We are very close here. We do not have much discretion about the time.
Mr. CORLISS. Yes, sir.
Mr. Sheridan, do you think Secretary McGuire's Office could get something in here that soon? You suggested it be referred to him.
Mr. SHERIDAN. That is the proper place to refer it, and I would know of no reason why we could not get something back by Monday.
Senator STENNIS. All right. Mr. CORLISS. Mr. Chairman, do I understand that the Department Defense or the Navy has a firm proposal from Southern Pacific? nator STENNIS. That is what the gentleman said, Mr. McGanney is that correct?