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Mr. CORLISS. Dated September 21, 1959.

Senator STENNIS. Yes.

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.

Mr. McGANNEY. Mr. Chairman

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. I mean-

Mr. CORLISS. We would have no objection to this.

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.

Mr. CORLISS. Yes, sir. We would have to curtail operations, sir. 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.

We are most anxious to evaluate this promptly, sir.

Senator STENNIS. Could you get something back to us by Monday! Mr. CORLISS. We certainly will try, sir.

Senator STENNIS. All right.

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 of Defense or the Navy has a firm proposal from Southern Pacific? Senator STENNIS. That is what the gentleman said, Mr. McGanney said, is that correct?

Mr. CORLISS. 'Is this it?

Mr. McGANNEY. That is it. We also handed a similar proposal, not in as much detail as that, to Admiral Biggs about 10 days ago, so they have had it. They have been working on it.

Mr. CORLISS. Admiral Biggs is a part of the Honorable Perkins McGuire's Office.

Senator STENNIS. All right. This is a firm proposal to the Navy and the Air Force?

Mr. McGANNEY. At Castle; yes, sir; that is correct.

Senator STENNIS. At Castle. If we did not have that, I would not ask you to do anything because we have got to have a firm proposal.

Mr. McGANNEY. Yes, sir. That is what we are here for, sir. We are here to try to find the part of the U.S. Government that will recognize this project as a Government project.

Senator STENNIS. All right. I am sure these gentlemen want to do the best they can.

Mr. CORLISS. Mr. Chairman, I would like to point out for some year or 18 months ago we were pleading with people in California to avoid a Government investment in the pipeline. There is no way in which the Navy wanted to incur more capital investment if we could obtain this as commercial service. We were not able to do this.

Senator STENNIS. Well, it just shows that Rome was not built in a day. One step leads to another.

Mr. CORLISS. Thank you, sir.

Senator STENNIS. Thank you for being here and presenting this

matter.

Is there any other matter now to come before the committee? Mr. McGANNEY. Thank you, Mr. Chairman, very much for hearing us, and you, Senator Cannon, thank you very much indeed for listening to us.

(NOTE. The following communications were subsequently received from the Department of Defense and the Southern Pacific Co., and are hereby made a part of the record at this point.)

Hon. JOHN STENNIS,

OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE,
Washington, D.C., April 29, 1960.

Chairman, Subcommittee on Military Construction,
Armed Services Committee, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: The attached statement concerning the Lemoore pipeline is submitted in accordance with your request of April 28, 1960. It is requested that this statement be made a part of the record of your committee's hearings.

Sincerely yours.

PHILIP LEBOUTILLIER, Jr.,

Acting Assistant Secretary of Defense (Supply and Logistics).

STATEMENT REGARDING SOUTHERN PACIFIC PIPE LINE'S PROPOSAL

The proposal of the Southern Pacific Pipe Lines, Inc., which was presented to the Senate Armed Services Subcommittee on April 27, has been carefully reviewed. As in the case of the two or three earlier proposals of this company, there is not sufficient merit in this latest offer as to warrant adoption of the plan by the Navy for delivery of jet engine aircraft fuel to NAS, Lemoore, Calif. Nor is there sufficient merit in the offering for delivery service to both Castle AFB and NAS, Lemoore, from an overall Government benefit standpoint. At present the Department of the Air Force has another pipeline proposal for Castle AFB only that reflects lower prices than those proposed by Southern Pacific.

In substance, the Southern Pacific Pipe Lines Co. testimony claims that the merit of their proposal for delivery of aircraft fuels to both Castle and Lemoore lies in the alleged annual refund in the amount of $694,616 to the Government in the form of income tax, based upon a gross business volume of $2,164,000. This alleged refund is in a large measure conjectural. It is not clear how much a nebulous gain to the Government can be admitted even in an evaluation. In any event, it must be obvious that adoption of the Southern Pacific Pipe Line Co. plan would require about $900,000 more per year in annual operating appropriations than otherwise necessary for Lemoore pipeline.

In his testimony, Mr. McGanney, president of Southern Pacific Pipe Lines, Inc., indicated that the company has about $62 million in the treasury which would be put to use, without interest charges, for construction of their proposed pipeline extension to serve both Lemoore and Castle. It is assumed that this may be the basis for their reduced service charge as compared with their last previous proposal. In any event, it appears to be a rather unrealistic use of capital as compared with amortization of the proposed Navy pipeline at 44 percent and 15 years, which is included in the Navy's annual cost.

In furtherance of the administration policy for Federal Government use of commercial and industrial facilities, careful comparison of the proposed Navy plan with all possible alternate fuel delivery patterns has been made. Even with such hypothetical factors added to the Navy plan as depreciation, insurance, overhead, taxes, profit, etc., the resulting annual cost was significantly lower than any other alternate plan, including that of Southern Pacific Pipe Lines, Inc. After a study of these comparisons, the Office of the Secretary of Defense authorized the Navy to pursue its proposed pipeline project as an exemption to the provisions of the Bureau of the Budget Bulletin No. 60-2. The latest Southern Pacific proposal has been similarly examined and the Office of the Secretary of Defense finds insufficient reason to modify this authorization.

The data supplied as exhibit B with the testimony of Mr. D. J. McGanney have been rephrased to reflect more clearly the relationship of the various delivery costs for aircraft fuels to Lemoore and Castle as follows:

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It is apparent that even with the newly reduced cost of the Southern Pacific Pipe Lines, Inc., offer, the Government would pay nearly $900,000 per year more for this commercial service. This amount for 5.4 years is equal to the estimated construction cost of the proposed Navy pipeline project ($4,759,000).

The Navy's recommendations in this case, and the project in the proposed fiscal year 1961 MCON program for a Navy fuel pipeline, are based upon conclusive detailed engineering investigations of the Navy, and substantiated by the engineering and economic findings of a firm of consulting engineers from San Francisco.

It is urged that the Estero Bay-Lemoore fuel pipeline project be favorably as a project in the fiscal year 1961 military construction program in in adequate fuel delivery system may be in operation when the es of aircraft are deployed at NAS, Lemoore.

SOUTHERN PACIFIC CO.,

TEXAS & NEW ORLEANS RAILROAD CO.,
Washington, D.C., May 2, 1960.

Re H.R. 1077, Lemoore, Calif., Naval Air Station.

Mr. GORDON A. NEASE,

Professional Staff Member, Committee on Armed Services,
Senate Office Building, Washington, D.C.

DEAR MR. NEASE: Mr. D. J. McGanney, president of Southern Pacific Pipe Lines, Inc., has requested that I supply you with some additional information for use of the Senate Military Construction Subcommittee in connection with the proposal of Southern Pacific Pipe Lines, Inc., to furnish pipeline facilities to Lemoore Naval Air Station and Castle Air Force Base in California.

In Mr. McGanney's testimony before the subcommittee on April 28 he stated that the through charge of 46 cents per barrel from the Richmond-Concord area to Castle Air Force Base represented a saving to the Air Force of approximately 9 cents per barrel as against present methods of handling. This would indicate that the present cost to the Air Force is 55 cents per barrel. The 55-cent figure was based on the following computations:

Cents

per barrel

Barge rate from Bay area to Stockton, including 12-percent surcharge. 9.502 Truck rate from Stockton to Castle Air Force Base--

37.380

Total_.

46.882

In addition to the 46.882-cents-per-barrel charge, is the charge made by the Port Authority of Stockton and Time Oil Co. for handling through their tankage at Stockton, which we understand to be__.

6.663

This makes a total charge of___

53.545

However, in addition to the foregoing charges there must be added the loss in loading the barges, transporting the fuel to Stockton, and unloading it at Stockton, which we have been advised amounts to one-half of 1 percent or, considering the value of the fuel to be $5 per barrel, a loss of 22 cents per barrel. Adding this loss to the cost above indicated of 53.545 cents per barrel gives us a total cost of 56 cents per barrel as the Air Force cost of transporting fuel to Castle Air Force Base.

The figure of 56 cents thus computed is approximately the same as the figure of 55 cents used in Mr. McGanney's testimony and furnished us at the conference between Navy and Air Force representatives and Southern Pacific Pipe Lines, Inc., on February 12, 1960. The conference report of that meeting, prepared by Mr. Earle Corliss, includes the following paragraph :

"(g) The discussion revealed that a reasonable average cost of truck delivery to Castle AFB from various sources shipped from Stockton area would be $0.55 per barrel. This cost consists of $0.085 barge delivery to Stockton, $0.015 per barrel cost through the fuel terminal, and $0.45 per barrel for truck delivery to Castle AFB."

Senator STENNIS. Thank you very much. This concludes the hearing except that we have some people here from the Department of Defense, Senator Cannon, on the general provisions of the bill, you know, general legislation, that is always carried forward and, without objection, we will submit for the record statements by Senator Kefauver of Tennessee, Senator Young of North Dakota, and a joint statement by Senators Scott and Clark of Pennsylvania. (The matter referred to is as follows:)

STATEMENT OF THE HONORABLE ESTES KEFAUVER, SENATOR FROM TENNESSEE Mr. Chairman, I am very grateful for the opportunity to appear before your subcommittee to urge strongly that consideration be given to the need for extension of the military runway at McGhee-Tyson Airport at Knoxville, Tenn. What was formerly a U.S. Air Force base there was taken over by the Tennessee Air National Guard about 3 years ago. Before the Air Force left, it had

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