DIGEST OF THE STATEMENTS MADE ON I ISCLE SHOALS PROPOSITIONS AT THE HEARINGS BEFORE THE COMMITTEE ON MILITARY AFFAIRS -v-v- OF THE HOUSE OF REPRESENTATIVES ' FEBRUARY 8, 1922 TO MARCH 13, 1922 WASHINGTON GOVERNMENT PRINTING OFFICE 1922 COMMITTEE ON MILITARY AFFAIRS. HOUSE OF REPRESENTATIVES. * SIXTY-SEVENTH CONGRESS. JULIUS KAHN, California, Chairman. JOHN C. McKENZIE, Illinois. WILLIAM J. FIELDS, Kentucky. FRANK L. GREENE, Vermont. PERCY E. QUIN, Mississippi. JOHN M. MORIN, Pennsylvania. HUBERT F. FISHER, Tennessee. HARRY E. HULL, Iowa. WILLIAM C. WRIGHT, Georgia. W. FRANK JAMES, Michigan. PHILIP H. STOLL, South Carolina. CHARLES C. KEARNS, Ohio. DANIEL E. GARRETT, Texas. JOHN F. MILLER, Washington. RICHARD WAYNE PARKER, New Jersey. FRANK CROWTHER, New York. HARRY C. RANSLEY, Pennsylvania. JOHN PHILIP HILL, Maryland. HARRY M. WURZBACH, Texas. LOUIS A. FROTHINGHAM, Massachusetts. THOMAS S. CRAGO, Pennsylvania. HOWARD F. SEUGWICK. Cler*. II CONTENTS. Page* Almon. Hon. Edward B.. Representative in Congress from Alabama 28 Bankhead. Hon. William B.. Representative in Congress from Alabama 40 Beach. Maj. Gen. Lansing H., Chief of Engineers 7 Boot on. Maj. John G., in charge of contract section, Ordnance Department 32 Bower. R. F., assistant in Washington office of American Farm Bureau Federa- tion '. 19 Burns. Maj . J . H . . Ordnance Department 9 Butler. Hon. Marion, attorney for Mr. Engstrum 34 Byrns. Hon. Joseph W.. Representative in Congress from Tennessee 46 Cooper. Hugh L. . consulting engineer 15 Dent. Hon. S. Hubert, jr., attorney for Alabama Power Co 19 Engstrum. Frederick E., president of the Newport Shipbuilding Corporation. . 33 Frothii)gham, Francis E., of Coffin & Burr .' 38 HammitT, J. O., vice president Air Nitrates Corporation 16 Hull. Col. John A.. Acting Judge Advocate General Joyes. Col. J. W. , Ordnance Department 40 Levering, J. H.. civil engineer 37 MacDowell. Charles H.. president National Fertilizer Association 18 McDuffie. Hon. John, Representative in Congress from Alabama 40 Mahoney. F. D., commercial manager Alabama Power Co 28 Martin. "Thomas W., president Alabama Power Co 23 Mayo. William B., chief engineer of the Ford Motor Co 10 Oliver. Hon. William B., Representative in Congress from Alabama 30 Parsons. Dr. Charles L., consulting chemist 43 Silver, Gray, Washington representative of American Farm Bureau Federation. 18 Swann, Theodore, president Federal Phosphorus Co 15 Taylor. Hon. A. A., Governor of the State of Tennessee 13 Tolman. Dr. Richard C., director Fixed Nitrogen Research Laboratory, De- partment of Agriculture 12 Weeks. Hon. John W. , Secretary of War 1 Whitney. Dr. Milton, chief, Bureau of Soils, Department of Agriculture ]3 Williams. Maj. Gen. C. C.. Chief of Ordnance 5 Worthington. J. W., chairman of the executive committee of the Tennessee River Improvement Association 14 ra * 736978 DIGEST OF THE STATEMENTS MADE (L\ MUSCLE SHOALS PROPOSITIONS. DIGEST OF REPORT AND STATEMENT OF HON. JOHN W. WEEK- SECR-EIA^I'. uf WAS (pp. 3-66). The report includes the following exhibits: Proposal of Henry Ford, dated July 8, 1921; letter from Henry Ford, dated January 11, 1922, modifying the proposal of July 8, 1921; proposal of Henry Ford, dated Jan- uary 25. 1922: memorandum from the' Chief of Ordnance; memorandum from the Chief of Engineers; cost statement of nitrate plants No. 1 and Xo. 2 and Warrior- Sheffield power station and transmission line; and memorandum from Maj. John A. Smith, Judge Advocate General's Office. (Unless otherwise noted, the paging given refers to the report or testimony of Mr. Weeks.) Alabama Power Co. Alabama Power Co. donated dam site for Dam No. 2 and other lands, represent- ing an investment of approximately $476,000. (Letter from company, pp. 38-39.) Costs. Dam Xo. 2. total expenditures, $16,251,038.14 (p. 4). Dam Xo. 2, allotments, $17,159,610.42 (p. 4). Gorgas- Warrior steam plant. (See Warrior-Sheffield power station and trans- mission line.) Xitrate plant Xo. 1, $12,887,941.31. (Chief of Ordnance, p. 21.) Xitrate plant Xo. 2, $67,555,355.09, including Waco quarrv. (Chief of Ordnance, p. 22.) Xitrate plant Xo. 2, $69,674,000, approximately. (Chief of Ordnance, p. 18. Figure includes the Muscle Shoals substation.) Waco quarry, $1,179,000, approximately. (Chief of Ordnance, p. 18.) Waco quarry, $1,179,076.80. included, however, as an element of the total cost of nitrate plant No. 2. (Report of Mr. Weeks, p. 5.) Waco quarry. $1,302.962.88. (Chief of Ordnance, p. 22.) Warrior-Sheffield power station and transmission line, $4.676.000, approximately . (Chief of Ordnance, p. 18.) Warrior-Sheffield power station and transmission line. $4,979,782.33. (Chief of Ordnance, p. 22.) Total amount of money the Government has already expended in the entire project at Muscle Shoals is $106,203,016.07. This* includes maintenance to July 1. 1921 (p. 36). Costs of .maintenance. Cost of maintenance of nitrate plant Xo. 2 for the fiscal year 1921, including Waco quarry, was $201,674.63 (p. 5). The Government is getting more out of payments for leases on power plants than it is spending there now (p. 59). Dams. Dam Xo. 2. approximately 30 per cent completed (p. 4). "I do not know about the 30 per cent. I am not very clear in my own mind about that" (p. 30). Under the Ford proposal, Mr. Ford's company is to do the construction work pf Dams Xos. 2 and 3 in accordance with plans and specifications prepared or approved by the Chief of Engineers (p. 8). Disposition of Muscle Shoals proposition. If Mr. Ford's proposal be not accepted, it is opinion of Mr. Weeks that Dam Xo. 2 should be completed by the Government. If this were done the Government may itself undertake to sell the product to the best advantage. In such case the amount of the Government's present proposed investment would be very materially reduced, because Dam Xo. 3, costing from $18,000.000 to $25,000,000, would not be built. At Dam Xo. 2 it would not be necessarv to make the full 2 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Disposition of Muscle Shoals proposition Continued. installation of power plant until the market should require such installation. This partial installation would effect a saving of present investment in at least the sum of $3,000,000, leaving not to exceed "$22, 000. 000 to be invested by the Government at this time instead of $40,000,000 to $50,000,000 (p. 9). The acceptance of the Ford proposal would mean the following indirect benefits to the United States: (a) The maintenance of a nitrate plant in readiness for a war emergency. (&') The production, in the interest of the public welfare, of large amounts of fertilizer at a cost not exceeding the reasonable cost of production, providing that the production of nitrates adapted to fertilizing pur- poses is found to be practicable. (c) The elimination of the cost of maintaining and operating the present imperfect facilities for navigation at. Muscle Shoals, amounting to from $35,000 to $85,000 per annum. (d} The advantage to interstate commerce and navigation of far superior facilities to navigation. (Memorandum of Chief of Engineers, pp. 2(^21.) Mr. Weeks is opposed to the Government engaging in the manufacture of fer- tilizer (p. 33). Mr. Weeks would not recommend scrapping of nitrate plant No. 2 (pp. 35, 36). From the standpoint of national defense the War Department would recom- mend that it maintain nitrate plant No. 2, if Mr. Ford's offer is not accepted. The United States might conclude to complete Dam No. 2 to obtain power cheaply, and to sell the power. Mr. Weeks thinks that it could sell the bal- ance of the property at more than the estimated scrap value (pp. 49-50). Estimates. Dam No. 2, $23,230,000 (Mr. Ford's engineers). (Memorandum of Chief of Engineers, p. 20.) Dam No. 2, $25,000,000. (Chief of Engineers, p. 20.) Dam No. 3, $19,000,000 (Mr. Ford's engineers). (Memorandum of Chief of Engineers, p. 20.) Dam No. 3, $25,000,000. (Chief of Engineers, p. 20.) Flowage rights , $1 , 500 , 000 . ( Mr . Weeks , p . 43 . ) Flowage rights, $2.331,000. (Chief of Engineers, p. 20.) If Mr. Ford's proposal is accepted the Government must make new appropriation, amounting to $40,000,000 to $50,000,000, of which Mr. Ford's company will have the benefit for approximately 100 years at 4 per cent (p. 8). Carrying charges on construction of dams will lie $13,320,000. Such carrying charges are not customarily considered in Government work, but are here in- cluded in order that the analysis may be complete. The cost of the flowage rights for Dam No. 3 is estimated af $2,331,000, giving a total of $15,051,000 (p. 20). The funds that have been expended on Dam No. 2 have not been included in the analysis, for the reason that neither the acceptance nor the rejection of Mr. Ford's offer would restore any substantial portion of them to the Public Treasury. (Memorandum of Chief of Engineers, p. 21.) Cost of acquiring land on which transmission line has been built, in order to clear title, would amount to a substantial sum (p. 40). Fertilizer. Mr. Ford said he would not continue to manufacture fertilizer if he finds that he can not manufacture it profitably (p. 29). His modified offer does modify that statement (p. 37). Total production of fertilizer in the United States during 1920 amounted to 7,700,000 tons. Total nitrogen content of this fertilizer probably amounted to 160,000 tons. About one-half of this, or 80,000 tons, was inorganic nitrogen. The No. 2 nitrate plant can produce some 200,000 tons of sulphate of ammonia per year, which contains some 40,000 tons of nitrogen. Or, in other words, this plant can produce about one-fourth of all the nitrogen used in fertilizer, or about one-half of the inorganic nitrogen used in fertilizer (p. 45). If Mr. Weeks could be convinced that there would be a large amount of fertilizer produced, he would feel much more enthusiastic about Mr. Ford's offer than he does now. Has not had sufficient evidence that that can be done, and does not believe that Mr. Ford or his engineers know whether it can be dome (p. 62). Financing by the Government. The major item of the consideration for the lease is the payment, after specified periods, of 4 per cen,t on the net capital expenditures to be made by the Govern- ment. Considering that the Government is now paying somewhat less than 5 DIGEST OF STATEMENTS OX MUSCLE SHOALS. 3 Financing by the Government Continued. per cent on short-term loans, it is believed reasonable to assume that when the specified full rental begins to run, some 10 years hence, the interest rates paid by the United States will not substantially exceed 4 per cent and may be less. (Memorandum of Chief of Engineers, p. *19.) Believes that the Government could complete Dam No. 2 without taking a dollar from the Treasury, issuing bonds that could be sold, based on the dam and the sale of the water power that could be contracted for (p. 33). The Government, for the first six years, does not receive any substantial interest on the investment (p. 49). Flo wage rights. Cost of acquiring the lands and flowage rights necessary for Dam Xo. 3 should be included in the sum upon which Mr. Ford is to pay 4 per cent interest as rent. The omission of the cost of these lands from this computation is more serious than would be the omission of the provision for a sinking fund, for the annual interest of 4 per cent on the cost of such lands and rights, if used for that purpose, would umortize a sum much larger than that provided for in. paragraph 10 of Mr. Ford's proposal (p. 9). Cost of flowage rights for Dam Xo. 3 estimated at $2,331,000. (Chief of Engineers, p. 20.) Cost of flowage rights for Dam Xo. > estimated to cost about $1,500,000. (Mr. Weeks, p. 43. i Mr. Ford stated that he does not intend to and would not- agree to "pay i.ho cost ol acquiring the land and flowage rights *p. 57*. Gorgos-Warrior steam plant. During the calendar year 11)21 netted the Government approximately -75,000 . Legal questions involved. Construction of nitrate plant Xo. 1 started from an appropriation contained in the national defense act of June 3, 191 ("5, &nd completed from appropriations made for the national security and defense, arman.ent of fortifications, and ordnance sen ice (p. "> . Nitrate plant Xo. 2 paid for from the appropriations for armament of fortifications and ordnance service (p. 5>. Gorgas- Warrior steam plant paid tor from the appropriations for armament of fortifications i-. ' . Understood by otfce of Judge Advocate General that nitrate plant No. 1 and Dam No. 2 were paid for in part from the $20,000,000 appropriated by the national defense act. Understood that the land for nitrate plant No. 1 was paid for from that appropriation, but the construction, of plant No. 1 and all expenses in connection with nitrate plant No. 2 were paid for fiom war appro- priations for the Ordnance Department. (Memorandum from ofl.cc of Judge Ac! \ocate General, p. 23. i Air Nitrates Corporation has sent written notification that it claims the right to exercise the option, which it claims ro have, to purchase nitrate plant No. 2 (p. fi). Acting Judge Advocate General advised that on date contract with the Air Nitrates Corporation was executed there was no authority under existing law for the sale of the property covered in the contract, and that the provision in the contract relating to the option of the company is nugatory and void and is not binding upon the United States, i Memorandum from office of Judge Advocate General, p. 24.) The Ordnance Department now has a contract with the American Cyanamid Co. which contains a clause to the "sale of plants " to the company. It is believed that due consideration should be taken of this right of the American Cyanamid Co. (Memorandum of Chief of Ordnance, p. 18. ) Before the United States can turn over to Mr. Ford all of the properties that he desires some sort of an arrangement will have to be concluded between the United States and the American Cyanamid Co. which may require a money consideration. (Memorandum of Chief of Ordnance, p. 19. )* The license agreement with the American Cyanamid Co. involving the use of patents at nitrate plant No. 2 provides that the United States may transfer to the purchaser of said plant the right to avail itself of the license agreement, but i DIGEST OF STATEMENTS ON MUSCLE SHOALS. Legal questions involved Continued. it is extremely doubtful that the term "purchaser" as used in the contract could be construed to include a "lessee" of said plant. (Memorandum from office of Judge Advocate General, p. 25.) The Ordnance Department now has a contract with the Alabama Power Co. which provides definitely for the sale to that company of the Gorgas power plant on Warrior River and transmission line from Gorgas plant to plant 2. It is be- lieved that our contractual obligations require us to meet both the spirit and letter of this contract unless the Alabama Power Co. is willing to surrender or sell its rights. (Memorandum of Chief of Ordnance, p. 18.) Before the United States can turn over to Mr. Ford all of the properties that he desires, some sort of an arrangement will have to be concluded between the United States and the Alabama Power Co. which will undoubtedly require a substantial money consideration. (Memorandum of Chief of Ordnance, p. 19.) Acting Judge Advocate General advised that on date contract with the Alabama Power Co. was executed there was no authority under existing law for the sale of the property covered in the contract, and that the Secretary of War was without authority to enter into a contract for the sale of said property or for granting an option for the purchase thereof, since the Constitution vests in Congress the sole power to dispose of the property of the United States. (Memo- randum from office of Judge Advocate General, p. 24.) Acting Judge Advocate General advised that contract with the General Chemical Co. provided for secrecy in the use of its patents and processes at nitrate plant No. 1, but that there is no restriction upon the sale of the machinery installed. (Memorandum from office of Judge Advocate General, p. 24.) Mr. Ford is bound by his proposition to operate nitrate plant No. 2, but there is no legal obstacle to prevent his disposing of the other properties to which he gets title (p. 8). There should be some assurance that the contracts made by Mr. Ford's proposed company will be carried out or some penalty imposed for failure to perform (p- 8). In case the proposed company of Mr. Ford sells any or all power developed at either or both of these dams, it should be required to do so under terms and con- ditions imposed by the Federal Power Commission or the Public Service Com- mission of Alabama in the manner required of other power companies (p. 9). Mr. Weeks suggests that there will be a considerable difference of opinion about whether the Alabama Public Service Commission or the Federal Water Power Commission has jurisdiction over a matter of this kind in the Tennessee River (p. 56). It is believed that the construction placed upon the contract provisions by the law officers of the Army is correct and would be sustained in the event these questions should later arise. In any event Congress may, if it sees fit, ignore them. (Memorandum from office of Judge Advocate General, p. 25.) There should be some kind of forfeiture in case Mr. Ford does not carry out the part of the agreement relating to the manufacture of fertilizer, without the necessity of bringing suit implying damages (p. 29). Bringing suit for damages in case there were failure to carry out project after Mr. Ford is gone might bring very unsatisfactory results (p. 35). Does not like to see the Government enter into any contract through its authorized agents which is not carried out (p. 33). Mr. Ford agrees to keep nitrate plant No. 2 in condition for 100 years for the use of the Government. Mr. Weeks thinks that would prevent his selling it (p. 48). National defense. An operating plant could no doubt be used for the production of explosives far soonet than a plant in stand-by condition (p. 8). The Ordnance Department aims to make the United States self-sustaining in their supply of nitrogen compounds. It believes that .this result can be achieved only through the fixation of atmospheric nitrogen, and that the best method of developing nitrogen fixation is its establishment on a commercial basis. (Memorandum of Chief of Ordnance, p. 17.) If the Ford offer means that nitrate plant No. 2 will be operated at its approxi- mate present capacity for the fixation Of nitrogen it is most satisfactory from the standpoint of nitrogen preparedness. (Memorandum of Chief of Ordnance, p. 17.) Eleven million dollars appears to be the price which the United States is paying for nitrogen preparedness, under the Ford proposal. (Memorandum of Chief of Ordnance, p. 19.) DIGEST OF STATEMENTS ON MUSCLE SHOALS. 5 Navigation. Construction of Dam No. '2 will render 14.7 miles navigable: construction of Dam No. o will improve conditions of navigation for ( io additional miles (p. 5). Mr. Weeks would not advise the development of the Tennessee River at Muscle Q hoals lor navigation purposes; that is, would not appropriate money this year (p. 62 >. Nitrate plants. Xitrate plant No. I was built to use the Haber process. Plant is now in idle, stand-by condition, with part of land leased for farm purposes (p. 5. Xitrate plant, Xo. 2 was built to use the cyanamid process. Plant is now in an idle, stand-by condition, except that its power plant is leased to the Alabama Power Co., the lease being revocable at any time (p. 5). Power. Po\ver is being transmitted 700 miles in California (p. 34). Proposals of Mr. Ford. Text of first proposal of July S : 1921 (pp. 10-12). Text of letter of January 11, 1922, modifying first proposal (p. 13). Tex.t of present proposal of January 25, 1922 (pp. 13-17). Summary of present proposal (pp. 3-4, 6). Repairs, maintenance, and operation of dams and locks. Paragraphs 4 and 8 of Mr. Ford's proposal proAide that his company i to pay to the United States annually the sum of $35,000 on Dam.Xo. 2 and $20,000 on Dam Xo. 3 for repairs, maintenance, and operation of the dams, gates, and locks. Congress may well consider whether it would be more desirable to have Mr. Ford maintain the property and omit these pavments Cp. 9). Payments specified for the operation and maintenance of the dams are considered adequate to meet all ordinary operation and maintenance costs. (Memo- randum of Chief of Engineers, p. 19.) Royalties. Xo royalties have been paid on nitrate plant No. 1. Not in excess of $1,500 has been paid at No. 2 (p. 44.) Salvage value of plants. Table showing estimated salvage value of ordnance property in the State of Alabama : Salvage value as operating concern $10, 032, 000 Salvage value as scrap 8, 812, 000 Salvage value as operating concern and scrap 16, 272, 000 (Memorandum of Chief of Ordnance, p. 18.) Sinking fund. The annual payments specified to create an amortization or sinking fund of S48.000.000 at the termination of the lease are relatively small in amount. The sum eventually produced, with the value of the dams on the termination of the lease, should be amply sufficient to reimburse the United States for the initial capital charge, and the eventual payment of the costs, hereafter com- puted, of carrying the expenditures in the interval before the full payments begin. (Memorandum of Chief of Engineers, p. 19.) Value of plants. Mr. Ford offers but $5,000,000 for the title to the two nitrate plants, the Waco quarry, the Gorgas- Warrior steam plant, transmission lines, and appurtenances. These" properties cost the United States approximately $85.000,000. As scrap they are estimated to be worth $8,812,000. However, the Chief of Ordnance believes they can be disposed of for $16,272.000 (p. 8). Mr. Weeks thinks the Government is making a sacrifice in selling plants at $5,000,000 (p. 36). Warrior-Sheffield transmission line. The Government constructed the transmission line on land that belongs to the Alabama Power Co. (p. 40). DIGEST OF STATEMENT OF MAJ. GEN. C. C. WILLIAMS, CHIEF OF ORDNANCE, UNITED STATES ARMY (PP. 67-98). Alabama Power Co. Option of Alabama Power Co. covers property valued at $4,979,382.33 (p. 81.) Costs of maintenance. Maintenance cost for nitrate plant No. 2 in fiscal year 1921 was $201,674.33, and for fiscal year 1922 will be about $125,000 (p. 85). 6 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Estimates. Cost of changes necessary to make nitrate plant No. 1 a working plant, retaining its present capacity, estimated at about $4,000,000 (p. 74). No estimate made of probable cost of right of way for transmission lines from Gorgas- Warrior steam plant to nitrate plant No. 2, which Mr. Ford presupposes would be paid for by United States. Would probably be a substantial sum (p. 80). Table giving "Estimate of results of operation by Government of United States nitrate plant No. 2, for period of six years" shows excess estimated expenses over estimated receipts of $2,919,650 (pp. 84-85). Estimates of maintenance. Estimated that the cost of maintaining nitrate plant No. 2 in idle stand-by for a period of 20 years would average $100,000 per year, or $2,000,000 for the 20-year period, plus $2,000,000 for replacements, or a total of $4,000,000 for the 20-year period (p. 85). Gorgas- Warrior steam plant. Can be disposed of without in anywise interfering with operation of nitrate plant ' No. 2 (p. 79). If salvaged, the Government would receive three fifths of what Mr. Ford intends to give for entire Muscle Shoals property, including, the Gorgas- Wan ior plant (p. 80). Legal questions involved. Government is under moral obligation to deal with Alabama Power Co. in con- nection with Gorgas- Warrior steam plant, as is stated in the contract (p. 69). The Gorgas- Warrior steam plant was paid for out of the appropriation for arma- ment and fortifications, and was not provided for under the national defense act (p. 77). National defense. Guaranty of Mr. Ford to keep nitrate plant No. 2 in operation during the term of his lease is a matter of vital importance to the Ordnance Department. * * * Whether or not Mr. Ford's offer is accepted, the department should recommend that nitrate plant No. 2 be maintained in a ^tand-by condition whether operated or not (p. 73). Under Ford proposal, Government would be paying $11,000,000 for nitrate preparedness, which General Williams considers a very moderate sum (pp. 73-74). There would be no difficulty in disposing of Gorgas- Warrior steam plant so far as preserving nitrate plant No. 2 as an element of national preparedness is concerned (p. 79). From a national-defense point of view the upkeep of nitrate plant No. 2 is the one that is of material benefit to the Government (p. 83). War Department, from the standpoint of national preparedness, is opposed to scrapping of nitrate plant No. 2 (p. 84). Nitrate Plant No. 2. Has a power plant which is practically sufficient to operate it. In an einergen- v some 20,000 horsepower would be needed over the transmissi; n line from i e Alabama Co.'s system (p. 79). Salvage estimates. The smokeless-powder plant at Nitre, W. Va., cost $60,631,400. The estimated salvage value was placed at $8,736,026. The sale price of the plant was 18,- 551,000 plus a storage space of 67,500 square feet for two years valued at $33,750 (p. 86). The Old Hickory plant ccst $84,912,000. The estimated salvage value was placed at $7,600,000. * The sale price of the plant was $3,505,000 plus a storage space if 866,000 square feet for five years, valued at $1,082,500 (p. 86). Salvage value of plants. Estimate of salvage value of Gorgas- Warrirr plant based on Federal Power C< in mis- sion's estimate of $100 per kilowatt, which makes the estimate about $3,000,000 (pp. 79-80). Savings to the Government. By eliminating Dam No. 3, selling Gorgas- Warrior steam plant, and completing construction of Dam No. 2, the Government would be way ahead in the deal (p. 80). ^ alue of plants. Considers Mr. Ford's offer of $5,000,000 inadequate, leaving out of consideration any advantages that come to the Government because of the operation cf the plant by Mr. Ford. The estimated scrap value of these properties is $8,812,000, DIGEST OF STATEMENTS OX MUSCLE SHOALS. 7 Value of plants Continued. and if arrangements be made to operate certain portions of them and scrap the remainder, the estimated value is $16,272,000 (p. 71). DIGEST OF STATEMENT OF MAJ. GEN. LANSING H. BEA< H, CHIEF OF ENGINEERS UNITED STATES ARMY (PP. 98-131). Alabama Power Go. Has stated that with the installation of a new unit which it is putting in at Dun- cans Ripple, on the Coosa River, it will be more than supplied with power for the immediate future (p. 112 . Costs of maintenance. The Engineer Department is spending about $200,000 a year to keep the Muscle Shoals proposition in a stand-by condition. The properties leased to the Alabama Power Co. belong to the Ordnance Department, and they state they are receiving in rentals $120.000 a year, plus certain other features (p. 108). Dams. It would take two and a half or three years to complete Dam No. 2, provided the work was not interrupted by floods or disaster of any kind (p. 103). From all the evidence that has been obtained it is perfectly practicable to build Dam No. 3 (p. 129). Disposition of Muscle Shoals proposition. Believes that leasing Dam No. 2 to Mr. Ford will be followed by a development along Tennessee River which would be very material, and would probably amount in a few years to more than would be obtained in any other way in the course of a generation or two (p. 104). Estimates . There is very little difference in most cases between Mr. Ford's unit price and that of the Engineer Department, in the estimates for construction. The Engineer Department figures are an estimate for an appropriation, which provides for contingencies (p. 102). Cost to make Muscle Shoals stretch of the Tennessee River navigable without the construction of Dams Nos. 2 and 3, estimated at $8,000,000 (p. 122). Flo wage rights. Understands Mr. Ford to mean that he will not procure the flowage rights, but will leave it to the Government to procure them by its right of eminent domain. Mr. Ford does not say that the cost was not included in the cost of construction, or that the United States must assume all cost of flowage rights, but the United States inust acquire them (p. 113). Ford, Henry. Mr. Ford has the idea that he would like to stand in the same relation to the farmer and to agricultural pursuits that John D. Rockefeller stands in toMay in ralation to the eradication of disease and the promotion of medical science (p. 105). Leases, length of. It would be advisable to consider the conditions of business, the lack of an imme- diate market for power, and other circumstances, very carefully and see whether they were not such as to justify an exception to the rule that puts the period at 50 "years (p. 111). Muscle Shoals Canal. Probable annual cost of Muscle Shoals Canal runs between $30.000 and $40,000. The use of the canal would cease with construction of Dam Nos. 2 and 3 (pp. 108-109). Muscle Shoals proposition. Those who came to consult with General Beach regarding making a proposition were told that the United States did not desire to install the power plant for the purpose of being a disturbing element to vested interests; that, other things being equal, preference would be given that proposal which fitted in best with existing conditions and did not destroy established business (p. 102). National defense. Nitrate preparedness is of first importance. The United States should not be placed in such a position that in case of hostilities it would have to depend upon nitrates from a foreign source of supply (p. 103). Navigation. Development of navigation of Tennessee River is of great importance. It is one of the richest rivers in the country in regard to mineral deposits along its banks. 8 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Navigation Continued . There are immense coal fields in eastern Tennessee which have not been touched (p. 104). Estimate of cost to make the Muscle Shoals stretch of the Tennessee River navi- gable without the construction of Dams Nos. 2 and 3 is something over $8 000 000 (p. 122). DIGEST OF STATEMENT OP COL. JOHN A. HULL, ACTING JUDGE ADVOCATE GENERAL, UNITED STATES ARMY (PP. 131-205). Legal questions involved. The sale and lease of property involved in the Muscle Shoals plant is entirely a question for Congress to decide (pp. 173, 178-179). On nitrate plant No. 2 we [the Government] have a number of processes which, under the contract we have, we could transfer, and which, under the contract with Mr. Ford, he has an option on. Whether he will take them or not depends upon his investigation. If he does take them and produces any nitrate there, under these patents he must pay a royalty which amounts to about $12 a ton (p. 179). The options of the Alabama Power Co., the Air Nitrates Corporation, and the American Cyanimid Co. to purchase are nonenforceable unless ratified by Con- gress (pp. 173, 194). The option of the Alabama Power Co. to purchase purporting to be given by the contract is unauthorized and void; there is no authority for the sale of this plant or any part thereof. This conclusion is based specifically on article 4, section 3, clause 2, of the Constitution, which reads, in part, as "follows: "The Congress shall have power to dispose of and make all needful rules and regula- tions respecting the territory or other property belonging to the United States." Section 124 of the national defense act also forbids the entering into contracts with any private concern on the part of the United States. This law was passed a year and a half before the contract with the Alabama Power Co. was made (p. 134). The comment made in the preceding paragraph upon the option of the Alabama Power Co. applies also to the claims of the Air Nitrates Corporation and the American Cyanimid Co. (p. 135). Under the contract with the General Chemical Co., the obligation of secrecy as to processes has expired by reason of the fact that the contract is no longer recognized by the General Chemical Co., and whatever the Government has there is a matter of general information obtained from abroad after the war (p. 173). The contract with the General Chemical Co. relating to nitrate plant No. 1 has practically terminated (p. 179). The lower courts have held that the United States has power to condemn property, thje title to which is not in the United States, but upon which buildings have been constructed, which are the property of the United States (p. 194). It may take several years before the Government can complete the title, by con- demnation, to the lands now owned by the Alabama Power Co. (p. 198). The first thing the Government ought to do to determine the stability of the Ala- bama Power Co.'s interest in order to commence action on the construction of the contract, would be to proceed to condemn the lands, and acquire the fee (pp. 202-203). The Government is responsible for any obligations outstanding at the time Mr. Ford takes over the property (p. 200). Mr. Ford could make his estate liable for the fulfillment of his contract, and the estate in Michigan would be bound under the existing law (p. 179\ Clause in section 19, "And all the^ necessary contracts, leases, deeds, and other instruments necessary or appropriate to effectuate the purposes of this proposal shall be duly executed and delivered by the respective parties above men- tioned," is not an offer of Mr. Ford to guarantee (pp. 195-197). Under section 14 Mr. Ford would be bound to produce fertilizer to the maximum capacity of plant No. 2 (p. 179). Mr. Ford is bound, under section 14, to start producing at plant No. 2 without any installation (p. 191). Mr. Ford's company does not obligate itself to get his manufactured product,, commercial fertilizer, into the hands of the farmer; he can dispose of it in any way, subject only to the control of the board which is provided for in the con- tract (p. 184). DIGEST OF STATEMENTS ON MUSCLE SHOALS. 9 Legal questions involved Continued. The board provided for in section 15 is not a permanent guaranty that Mr. Ford would be under the surveillance of the farmers. There is nothing in the con- tract that would guarantee the continuance of this board if the organizations represented were out of existence and had no successors; in that case there would have to be an agreement between the Government and Mr. Ford, or it would have to be referred to a court of equity (p. 200). Mr. Ford is obligated to keep apace with developments in the production of commercial fertilizer, and has to produce at the maximum given capacity (p. 201). Under clause B of article 14 Mr. Ford would be obliged to rebuild nitrate plant No. 2 in case of its being destroyed by fire or any other cause (p. 202). National defense. Mr. Ford would be obligated at all times to keep nitrate plant No. 2 in readiness to manufacture materials necessary in time of war for the production of ex- plosives (pp. 201-202). DIGEST OF STATEMENT OF MAJ. J. H. BURNS, ORDNANCE DEPARTMENT, UNITED STATES ARMY (PP. 70-71, 207-240). Air Nitrates Corporation. Capitalization was $1,000. It received a cost-plus fee, and a fee has been paid to the amount of $1,150,000. They are claiming $1,500,000. (pp 232, 238). Has no money invested in Muscle Shoals, so fas as Major Burns knows (p. 236). Alabama Power Co. If condemnation proceedings are instituted the Government would be required to pay the Alabama Power Co. a fair value for the property taken over from them and the damage caused to them. Major Burns thinks these damages would be very high (pp. 213, 224). Property involved in contract between the Alabama Power Co. and the Govern- ment includes land on which the Gorgas- Warrior steam plant is located, the land on which the transmission line is located, and the damages to the Gorgas plant that would be caused by the Government taking that land away from them and giving Mr. Ford a clear title to the plant site (p. 224). American Cyanamid Co. Has no money invested in Muscle Shoals, so far as Major Burns knows (p. 236). Ammonium sulphate. Estimates price at which Mr. Ford can produce ammonium sulphate (p. 216). Costs. Government power plant at nitrate plant No. 2 cost the Government $12,000.000 (p. 218). Disposition of Muscle Shoals proposition. Recommends that nitrate plant No. 1 be sold (p. 222). If Major Burns had farmers' interests solely at heart, he would say that the Ford offer is good. If he were a fertilizer man. would say that the Ford offer is not good. He thinks that it has great possibilities for developing the country and that it would be beneficial from the standpoint of nitrate preparedness (p. 238). Estimates. Estimates that the cost of putting in an ammonium sulphate plant equt to capacity of nitrate plant No. 2 would require a capital expenditure of $3,000,000 (pp. 209, 220). Gorgas-Warrior steam plant. Government must sell to the Alabama Power Co., and if the Alabama Power Co. is unwilling to purchase then the Government must remove the plant (p. 210). Nitrate plant No. 2 could run at practically full capacity without Gorgas-Warrior steam plant because the Government has completed a 60,000-kilowatt plant at Muscle Shoals (pp. 210, 235). Unless this plant can be eliminated by further conference between Mr. Ford and representatives of the Government, the Government should not consider Mr. Ford's proposition (p.212). Is part of the Alabama power plant. Each interest has a boiler plant and a gen- erating plant included here. However, the electricity is all handled over the same switchboard within the plant. The water for the feeding of both sets of boilers comes through the same intake from the Warrior River. The ash- handling equipment is common, and the coal-feeding equipment is common (p. 213). Would not affect Ford offer if it were left out (p. 214). 10 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Legal questions involved. Gist of article 22 of contract with Alabama Power Co. is that at a certain period after the war is terminated it is agreed that the Government will sell to the Alabama Power Co. the properties of all kinds that are included in the contract at a price to be determined by a board of arbitrators, one arbitrator to be selected by the Alabama Power Co., one to be selected by the Government, and the third to be selected by the other two (p. 70). Government can give a clear title to nitrate plant No. 2 (p. 213). Mr. Ford is obligated to continue to use nitrate plant No. 2 for the output of ammonium nitrate (p. 220). The Government must institute condemnation proceedings and take over the Gorgas-Warrior steam plant, or sell it to the Alabama Power Co. (p. 227). Believes Alabama Power Co. contract should be lived up to, even though it means the rejection of the Ford offer (p. 229). Government's interests, as a matter of policy, would be best protected if it insisted upon living up to the contract with the Alabama Power Co. (p. 237). Major Burns thinks that if the American Cyanamid Co. claims the right to pur- chase nitrate plant No. 2, there is an obligation on the part of the Government to live up to the contract. He thinks, however, that this option will not be an impediment, because he believes that the company would not give the United States what Mr. Ford is agreeing to give (p. 239). National defense. If Mr. Ford's offer means that he will run the Muscle Shoals plant as a nitrogen fixation plant, it will be a very great additional benefit to the Government from the standpoint of preparedness (p. 215). Waco quarry. Was constructed solely for the purpose of supplying limestone to nitrate plant No. 2, limestone being one of the raw materials necessary (p. 209). DIGEST OF STATEMENT OF MR. WILLIAM B. MAYO, CHIEF ENGINEER OF THE FORD MOTOR Co., DETROIT, MICH. (PP. 241-311, 383, 971-f" Capital investment of Mr. Ford's company. Investment in project to start with would be cost plus operating capital (p. 242). Investment in project by Mr. Ford will probably be $25,000,000 or $30,000,000 within a few years (p. 259). Would be necessary to expend in excess of $50,000,000 in a manufacturing plant in order to use total power producible; Mr. Ford intends to spend what is neces- sary to develop plant to use all the power (p. 282). Investment in fertilizer plant by Mr. Ford will probably be $5,000,000 to start with (p. 308). Investment in project by Mr. Ford will not exceed $50,000,000 (p. 383). In the altered contract Mr. Ford has had inserted in paragraph 1, line 2, after ''company," "with a paid capital stock of not less than $10,000,000" (p. 971). Mr. Mayo's Opinion is that the whole $10,000,000 would be used in developing the plant. He imagines that the investment will be twice that amount (p. 978). Dams. Maximum time needed for construction of dams would be two. years (p. 269). Flowage rights can be purchased at maximum sum of $1,500,000, and cost should be charged to navigation (p. 247). Deficit to the Government in interest payments during construction and tor nrst six years under Ford proposal will be $7,359,800. This is $5,960,200 less de- ficiency in interest during this preliminary period than is stated by the Chief of Engineers in his report of January 30, 1922. His estimate of this deficiency is $13,320,000 (p. 248). Mr. Ford's engineers estimate $500,000 as cost to the Government for clearing title to property to be transferred to Mr. Ford (p. 249). Total new money that must be spent by the Government to carry out P ord oner will not exceed $45,000,000 (p. 249). Fertilizer. Mr. Ford intends to produce a complete fertilizer at 8 per cent above cost at nitrate plant No. 2 (p. 253). Mr. Ford hopes to start producing fertilizer within a year (p. 257). Mr Ford would manufacture about 20 per cent of amount of fertilizer used m United States (p. 259). Getting cheap power will be one of the principal reasons for being able to make cheap fertilizer (p. 279). DIGEST OF STATEMENTS OX MUSCLE SHOALS. 11 Fertilizer Continued. Mr. Ford will be able to produce fertilizer at one-half the cost of production by other firms (p. 284). Safe to figure that Mr. Ford will be able to produce fertilizer at 33 J per cent cheaper than is now being produced; he hopes to make it 50 per cent (p. 303). Mr. Ford would manufacture from a minimum of 200,000 tons of fertilizer up to a maximum of 2,000,000 tons, depending upon the class of the product (p. 308). Financing by the Government. Basis of financing of Mr. Ford's offer figured on Government lending its credit at 4 per cent (p. 268). Bonds could be issued by the Government in blocks, at 4 per cent, for payment of construction of dams (pp. 272, 980). Flowage rights. Flowage rights can be purchased at maximum sum of $1,500,000, and cost should be charged to navigation ip. 247). Gorga.s- Warrior steam plant. Mr. Ford has never indicated that he would consider the proposition without the Gorgas- Warrior plant (p. 975). Leases, length of. Mr. Ford would not consider the Muscle Shoals proposition under a 50-year lease i p. 285 i. Mr. Ford stands pat on the 100-year proposition. This proposition Mr. Ford does not consider under the Federal power act. The point at issue is that Mr. Ford considers the investment too large to take the risk for a 50-year period. This is not a straight water-power project, it is 'a combination of many things; the investment in the industrial plant will greatly exceed that in the water power i pp. 971-972). Leases, renewal of. Preferred claim of Mr. Ford's company to be furnished with power after 100-year period only a fair proposition as the company would have a large investment built up around the dams, which would be of no value without power (pp. 285- 286, 304-306, 973-975, 975-976). Mr. Ford's company should have the preference to obtain power after the 100-year period. The company will have kept the plant in order for 100 years, 'will have invested a great deal of money, and the point is the company can.not be left with a very large investment there and with no power. Any change in the language that would so fix it that it is not possible to take the power from under the company's feet would be agreeable (pp. 973, 982-987). Legal questions involved. Sale of power by Mr. Ford would probably come under State of Alabama law (p. 243). Clause might be added to Mr. Ford's contract to protect the Government against his mortgaging property (p. 281). Amount of money that Mr. Ford has to put into proposition as working capital to stait with, is sufficient guaranty (p. 300). Mr. Ford could not legally discontinue manufacture of fertilizer until he had exhausted every known effort to make cheap fertilizer (pp. 302, 309). Mr. Ford would not object to clause being added in the deed, regarding produc- tion of explosives in time of war at nitrate plant No. 2 (p. 303). Mr. Ford would not be wil ing to take over any legal work in reference to segre- gating the Government's rights from the rights of the Alabama Power Co. (p. When plants are conveyed to Mr. Ford's company that company will take them subject to the existing contracts entered into by the Government and the Air Nitrates Corporation and the American Cyanamid Co. regarding the operation of the plants and the pavment of royalties (p. 980). Mr. Ford does not think the Government will have any litigation to speak of in connection with its contracts with the Alabama Power Co. "and the Air Nitrates Corporation (p. 987). National defense. Value to the Government of nitrate plant No. 2. when operated according to section 16 of Mr. Ford's contract, given by Major General Williams as $11.000.000 appears reasonable (p. 295). Navigation. Construction of dams would increase navigability of river by about 90 miles (p. 295). 12 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Phosphates. Phosphates can be obtained within a radius of 100 miles of nitrate plant No 2 (p. 281). Potash. Possibility of working out process whereby potash may be made at or near nitrate plant No. 2 (p. 283). Plans of Mr. Ford. Nitrate plant No. 1 is to be used for manufacturing automobile parts (p. 258). Mr. Ford intends to use all power he will produce; is not a question of selling power (pp. 262, 265). Power. Power from Gorgas- Warrior steam plant cheaper than at plant No. 2, because transportation of coal is not necessary (p. 257). Power which will be generated will be approximately 230,000 primary and 650,000 secondary horsepower (pp. 262, 275-276). Since Mr. Ford's payments to the Government for power purposes total $1,781,746 annually, he pays as rental for primary power, on the basis of the Chief of En- gineer's estimate of the absolute primary power at Dams Nos. 2 and 3, 2.9 mills per kilowatt hour, or $18.95 per horsepower-year on a 100 per cent load factor basis. Mr. Ford pays for the power whether he uses it or not. No one has ever attained a 100 per cent load factor in the practical operation of any indus- trial plant. If Mr. Ford has an average load factor of 54 per cent, on the above basis his primary power will cost him about 5.3 mills per kilowatt-hour, or $34.61 per horsepower year (pp. 265-266). Mr. Mayo does not imagine there is a demand within 200 miles of Muscle Shoals for possibly over one-third of total power producible (p. 282). Savings to the Government. Saving to the Government would be approximately $16,000,000 if contracts for construction of dams were handled by a private party instead of by the Gov- ernment (pp. 300-301). Government balance sheet presented showing net total credit to the Government of $9,090,200 at end of first six years it' the Government completes the dams under the terms of the Ford proposal (p. 301). Sinking fund. Sinking fund to be established by Mr. Ford would wipe out cost of construction of dams and over $70,000,000 in the 100 years, if invested by the Government at 4$ percent (p. 247). The table presented illustrating decrease in net investment of Government due to operation of a sinking fun.d, investments of which bear 4 per cent interest, payable annually, shows total amount in sinking fund at end of 100 years to be $60,163,271; the Government's net investment, nothing (p. 299). DIGEST OF STATEMENT OF DR. RICHARD C. TOLMAN, DIRECTOR FIXED NITROGEN RESEARCH LABORATORY, DEPARTMENT OF AGRICULTURE (PP. 313-319). Disposition of Muscle Shoals proposition. The Department of Agriculture believes that the farmers would be benefited by the operation of the Muscle Shoals plant to produce fixed nitrogen for use in fertilizers! The department looks with favor on the Ford proposal, if its terms are sufficiently definite and binding to make sure that the plant will be oper- ated continuously for the manufacture of fertilizer (p. 316). Nitrate plants. Nitrate plant No. 2 as it stands will only manufacture ammonium nitrate. Addi- tions could be made in varying amounts to manufacture a variety of fertilizer materials (pp. 314-315). If the Muscle Shoals plant is to be run commercially to produce ammonium sul- phate as its main product, the plant can not pay expenses. If the plant is developed for a variety of materials, including ammonium nitrate, ammonium sulphate, urea, and special chemicals of various kinds, Doctor Tolman thinks the plant can be made a commercial success (p. 316). There is an opportunity for the production of nitrates at plant No. 1 under the Haber process. Doctor Tolman believes the Haber process a very important one (p. 316). DIGEST OF STATEMENTS ON MUSCLE SHOALS. 13 DIGEST OF STATEMENT OF HON. A. A. TAYLOR, GOVERNOR OF TENNESSEE (PP. 319-322). Disposition of Muscle Shoals proposition. No corporation should bear the name of Tennessee and Alabama which opposes the immediate acceptance of the Ford offer by this committee. The Alabama Power Co. ought to withdraw its contentions, however righteous they are, or the Alabama Power Co. ought to change its name. No man, no interest, no corporation can oppose the Ford offer and be a friend to Tennessee and Ala- bama and their people and the people of the South (p. 320). Mr. Edison has said that the immensity of power to be generated by the plant when completed was impossible to conceive, and at the same time he said that Mr. Ford is the man to take hold of it and operate it. He is the man because of his ability, because of his sound judgment, and because he has the money (p. 320). DIGEST OF STATEMENT OF DR. MILTON WHITNEY, CHIEF of THE BUREAU OF SOILS, DEPARTMENT OF AGRICULTURE (PP. 332-349). Fertilizer. Concentrated fertilizer has got to be adopted to dispose in the most ready and efficient way of fixed nitrogen products (p. 334). It is difficult to say what the annual increase in demand for fertilizer is. The best figures we have show that it is about 1\ per cent per annum (p. 335). We are not dependent upon the products of foreign countries. We have all the fertilizer compounds within the United States, if we will but develop them; but it is, at present, cheaper tc get nitric acid from Chile and muriate of potash from Germany, because we have not developed our own processes here (p. 335). In 1920 Doctor Whitney estimated that we were using 227,888 tons of ammonia. If the country as a whole used fertilizers in proportion to the use in Georgia, which was at that time 160 pounds per acie of land in crops, we would require 751,945 additional tons of ammonia. The intensity of the use of fertilizer in Germany at that time w.as 180 pounds per acre of land in crops; in England about 160 pounds, so that the intensity of use in Georgia was about the same as the English practice. There were seven States using fertilizer more inten- sively than Georgia. If we should extend the use of fertilizer over the remain- ing acres of land in crops it would require 751,000 tons increase over the 227,000 tons we are now using. Doctor Whitney thinks this is a conservative figure, and yet it is looking long into the distance (p. 336). Just now we have a surplus of fertilizer material, but, under normal conditions we would expect a demand for about 8,000,000 tons. If it had not been for the war it would have been at this time about 9,000,000 or 10,000,000 tons. The limitations en the amount of nitrogen by the increase in the use of ferti- lizers, and particularly by the increase in the amount that is fed to cattle, would make it very difficult for us to manufacture normally now 10,000,000 tons of fertilizers (p. 348). There is a difference in practice in the use of formulas between the North and the South. In the northern States the ammonia is always given first, and that would be 3-8-3, three parts ammonia, 8 parts of phosphoric acid, and three of potash. In the Southern States the phosphoric acid is invariably given first, and the same formula would be written 8-3-3 (p. 348). Nitrogen. Regardless of what any interests say, it is the deliberate feeling of the scientific men of the world that the time has come when it is essential for agriculture that we have an independent source of supply of fixed nitrogen (p. 322). The fixed nitrogen products that are obtained from either the Haber process or the cyanamid process are essential to the future welfare of this country (p. 329). Nitrate plant No. 2 will produce about 40,000 tons of nitrogen, or 110,000 tons of ammonium nitrate, or 190,000 tons of ammonium sulphate; and we are using about 227,000 tons of nitrogen (p. 348). Potash. There are known deposits in Alabama and Georgia; there are deposits of shale near the Muscle Shoals that carry about 8 per cent of potash. There are depos- its in Illinois and throughout the country (p. 335). 10077422 2 14 DIGEST OF STATEMENTS ON MUSCLE SHOALS. DIGEST OF STATEMENT OF MR. J. W. WORTHINGTON, CHAIRMAN OF THE EXECUTIVE COMMITTEE OF THE TENNESSEE RIVER IMPROVEMENT ASSOCIATION (PP. 351-408). Alabama Power Co. la not a foreign corporation, but is probably controlled by a Canadian company (p. 362). Capital investment of Mr. Ford's company. Has the impression that it would finally run to forty or fifty million dollars (pp. 381-383). Electrification of railroads. President of the Louisville & Nashville Railroad stated that if Mr. Ford developed the power at Muscle Shoals and would let the L. & N. have it, he would elec- trify one of the divisions of the L. & N. the one running into Muscle Shoals (p. 355). Estimates. Mr. Ford thought that the work on the dams and power houses, not including the navigation locks, would cost the Government about $30,000,000 (p. 383). Fertilizer. Mr. Ford would produce about 2,000,000 tons per annum of the 2-8-2 mixture (pp. 366, 367). It would be impossible for Mr. Ford to state in his offer that everything manu- factured at nitrate plant No. 2 is to be used for the manufacture of fertilizer and for no other purpose (p. 366). Mr. Ford has stated that it was entirely possible that the fertilizer end of this development would be the major end (p. 379). It would be impossible to market, in such quantity of production, the product of nitrate plant No. 2 for other purposes than the production of fertilizer (p. 390). Nitrate plant No. 2 is better situated for the economical manufacture of ferti- lizer than any place in the United States, the raw material being available there (p. 398). Financing by the Government. Government is lending its credit to Mr. Ford,* which credit is not to exceed 4 per cent (p. 373). Gorgas- Warrior steam plant. Interests of the Government can be -separated from those of the Alabama Power Co. (p. 361). Haber process. Admittedly has never been a success at nitrate plant No. 1 (p. 364). Leases, length of. There ought to be a longer period of time for a 700,000-horsepower project than 50 years (p. 394). Lagal questions involved. Considers that in section 14 of his proposal, Mr. Ford binds himself to produce the approximate annual capacity of the present plant and that can be stated at 110,000 tons of ammonium nitrate and the equivalent thereof (p. 381). National defense. Mr. Ford binds himself to maintain nitrate plant No. 2 as a plant that would fix nitrogen for use in the manufacture of explosives (p. 403). Navigation. There are no facilities now at Muscle Shoals in aid of navigation, and the dam has progressed in its construction to such a point that it is a Qomplete barrier to navigation (p. 370). Completion of Dam No. 2 and the construction of Dam No. 3 will make naviga- tion very complete (p. 392). Phosphate rock. There are large deposits of phosphate rock in Tennessee and it will be no trouble to reach that rock from the Muscle Shoals plant (p. 398). Plans of Mr. Ford. Mr. Ford said he was going to try to make aluminum and possibly some of its alloys (p. 382). Power. Mr. Ford's unalterable intention and objective is to reduce the cost of power to the consumer (p. 356). Completion' of Dam No. 2 and construction of Dam-No. 3 will add about 750,000 horsepower, and if the dams on the upper Tennessee and tributaries should be built, it is a rough guess to say that there is a million horsepower there that could be developed above Chattanooga (p. 392). DIGEST OF STATEMENTS OX MUSCLE SHOALS. 15 DIGEST OF STATEMENT OF MR. HUGH L. COOPER, CONSULTING ENGINEER (PP. 409- 429. 638-639). Dams. It will take three years to complete Dam No. 2 and the same time to construct Dam No. 3. Would not carry on these operations simultaneously (p. 418). Disposition of Muscle Shoals proposition. Recommends that the Government should finish Dam No. 2 itself; could then lease the power on the basis of a return to the Government of 5 per cent on all money invested in it Cp. 417). Recommends that the Government complete Dam No. 3 in the absence of a better proposition than Mr. Ford's (p. 426). Estimates. Expenditures of the Ford proposition will cost the United States Treasury * 1.275.000.000. Total cost of dams, which will be $83,175,475. compounded annually at 4 per cent for the lease period, would produce a grand total of $3.304.095.000. Investing the $2.000.000 Mr. Ford proposes to pay into the Treasury annually (4 per cent of estimated cost to complete the dams. $50.000.- 000). it would return to the Treasury at the end of the lease period $1.979.185.000, leaving a grand total deficit of $1.324.910.000. Mr. Ford's amortization pay- ments will amount to $50.000.000, leaving a net deficit of $1.275.000,000 (pp. 410. 411). If the 4 per cent interest charges payable by the Government, referred to in preceding paragraph, are figured at*2 per cent payable semiannually. the net total deficit the Government must supply by general taxation because of the failure of Mr. Ford's 'payments to foot the cost to the Treasury rjecomes $1.485.- 900.000 minus $50.000.000 returned to Treasury by Mr. Ford's amortization fund, or a net deficit of $1.435.900.000. (Letter to the Committee on Military Affairs, dated February 21. 1922. pp. 638-639.) Mr. Ford's engineers' estimate for completion of Dams Nos. 2 and 3, $42,000,000, inaccurate; it will be more than $50,000,000, instead of less (p. 417). Mr. Ford's estimate of cost of flowage rights, $1,500,000, is inadequate; will probably be double that amount (p. 422). Financing by the Government. Is conservative to use 4 per cent in calculating the cost to the United States Treasury of Mr. Ford's proposal (p. 414). Flowage rights. Mr. Ford's estimate of cost of flowage rights, $1,500,000, is inadequate; will probably be double that amount (p. 422). Leases, length of . < 'onsiders 100-year lease very unreasonable; maximum time should be 50 years (pp. 417,418, 424). Power. Annual production of power from the two dams will be 517.000 horsepower. 8,000 hours a year, which is the amount of power that 3,000,000 people normally use in commercial life. This power will save 5,000,000 tons of coal a year (p. 420). Mr. Ford a annual expenses, or operating costs, when Dams Nos. 2 and 3 are fin- ished, would be $3,622,000. Figuring the expenses into the amount of power producible, Mr. Ford would get his 24-hour power for $10.80 a horsepower per annum, which is about half the current price of this class of power (p. 420 K If Mr. Ford would pay 4 per cent on total cost of dams, $83,000.000, he would still get the power at 20 per cent less than he could get it anywhere on American continent (p. 421). There should be a limit in assigning any more water power to chemical industries, proven by conditions at Niagara Falls (p. 423). It would be a tremendous calamity to the South if the greatest water power they have should be taken out of the field of public utility for 100 years (p. 424 (. Salvage value of plants. Dam No. 2 could not be salvaged at any value (p. 416). DIGEST OF STATEMENT OF MR. THEODORE SWANX. PRESIDENT, FEDERAL PHOS- PHORUS Co. (PP. 431-442). Fertilizer. Mr. Swann's testimony consists chiefly of an explanation of the content of fertilizer and a description of his efforts to perfect a cheap and efficient method of production. The component parts of fertilizer with respect to plant food 16 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Fertilizer Continued. . are ammonia, phosphoric acid, and potash, averaging 3 per cent ammonia, 9 per cent phosphoric acid, and 3 per cent potash. His method is the phos- phoric acid process, which can be used wherever cheap power is available. By this process the manufacturer can produce a cheap fertilizer for the farmer, and at the same time realize a legitimate manufacturing profit. DIGEST OF STATEMENT OF MR. J. 0. HAMMITT, VICE PRESIDENT, AIR NITRATES CORPORATION (PP. 443-519). Air Nitrates Corporation. Is a subsidiary of the American Cyanamid Co., and has a purely nominal capi- talization of $1,000, all of which is owned by the American Cyanamid Co. [p. 443). Obtained from the Government in the way of protection merely this: That if the Government ever does sell nitrate plant No. 2, it gives the corporation the first chance to buy it, not on any better terms than it is willing to give to somebody else, but on precisely as good terms (p. 446). Has not made 1 penny of profit out of its contract. There was not any $2,000,000 fee. There was a maximum fee of $1,500,000 provided, but that was not money that the American Cyanamid Co., or the Air Nitrates Corporation was permitted to receive and keep. One hundred million dollars worth of work was done for the Government (p. 446). Has not been paid in American dollars for any thing it gave up, and what it netted on, its contract is a loss, and it is somewhere between nothing and $75,000 (p. 446). Mr. Miller states that if Mr. Ford takes over nitrate plant No. 2 he will pay Air Nitrates Corporation a million dollars a year on royalties (p. 477). The Air Nitrates Corporation and the American Cyanamid Co. have no connec- tion whatever with the Alabama Power Co. (pp. 448, 486). Ten men did not form the Air Nitrates Corporation, but it was formed by the American Cyanamid Co. However, the services of 10 men were delivered to the Government without charge under the Air Nitrates Corporation's contract. None of these 10 men owns a dollar of stock in the Air Nitrates Corporation (p. 495). Was organized under the laws of the State of New York (p. 505). Has worked out no plan by which there is in prospect a definite offer *to be sub- mitted to the Government (p. 506). American Cyanamid Co. Has devoted years of effort and millions of dollars to acquiring patent rights, developing processes, in expensive research in the design and construction of plants, and the placing of those plants in operation, and in the work of intro- ducing new products into American commerce; and when the war came, the only company in this country that was engaged in fixing nitrogen on a com- mercial scale was the American Cyanamid Co. (p. 445). Has succeeded in paying 6 per cent on its preferred stock with the exception of its last two quarterly payments. Has never paid a penny of dividends on its common stock: but it was a contribution to American industry and there was a hope that the money that had been invested in it could be got out (p. 445). Total assets of the company are approximately 16,800,000 (p. 465). Capital stock of the company is approximately $12, 200,000 (p. 466). Mr. James B, Duke owns between 23 and 24 per cent of the stock of the company and the Virginia-Carolina Chemical Co. owns approximately 26 per cent of the stock. Mr. Hammitt thinks that there is no other individual or group that possesses as much as 10 per cent of the stock (p. 467). Not more than 10 per cent, or possibly as much as 16 or 17 per cent, of the stock of the American Cyanamid Co. is owned in all foreign countries (p. 505). Has no connection with the Georgia Railroad & Power Co., the Columbus Power Co., the Central Georgia Power Co., or the Tennessee Power Co. (p. 486). The company had an absolute monopoly of the manufacture of cyanamid at the time the construction of nitrate plant No. 2 was contemplated (p. 503). Operation of nitrate plant No. 2 by Mr. Ford would certainly injure the American Cyanamid Co.,, very materially by placing upon the market a product of the cyanamid process (p. 506). Ammonium nitrate. There is no market for the quantity of ammonium nitrate that the full product of nitrate plant No. 2 would amount to (p. 456). DIGEST OF STATEMENTS ON MUSCLE SHOALS. 17 Ammonium sulphate. Is the only one of the various nitrogenous fertilizer materials that has a large enough market to make the operation of nitrate plant Xo. 2 attractive, and the cost of producing sulphate of ammonia at Muscle Shoals would be from 30 to 50 per cent more than the present wholesale market price, for which reason the plant can not be operated commercially at the present time (p. 456). ' Disposition of Muscle Shoals proposition. The best thing the Government can do at the present time is to keep nitrate plant Xo. 2 in stand-by condition. It is now costing $125.000 a year, and is self- sustaining in view of the fact that a part of the plant is rentecl to the Alabama Power Co., for a minimum of 120,000 a year, plus something per kilowatt hour (p. 492). , Fertilizer. Cyanamid is used as a fertilizer material (p. 518). Fertilizer or fertilizer compounds can not be manufactured in nitrate plant Xo. 2 at a profit (pp. 462-464). Hughes. Charles Evans. Was employed by American Cyanamid Co. for the purpose of advising regarding the form of protection that could be provided for the company against the thing it was creating during the war being used after the war for the purpose of destroying it (p. 451). Legal questions involved. The acceptance by the United States of the offer of Mr. Ford would violate the agreement entered into with the Air Nitrates Corporation under date of June 8, 1918 (p. 444). Text of article 19 of contract with the Air Nitrates Corporation which would be violated by acceptance of the offer of Mr. Ford (p. 444). As to the matter of drafting of contract of the Air Nitrates Corporation Messrs. Sullivan and Cromwell acted as attorneys (pp. 488, 501). The contract of November 16, 1917, with the Air Nitrates Corporation does not now exist because it is superseded by the contract of June 8, 1918 (p. 510). Mr. Hammitt feels that a moral obligation exists relative to the option of the Air Xitrates Corporation, and he has been advised and believes that there exists also a legal obligation. If the committee does not recognize any moral obligation, the corporation may have to determine the legal obligation in the courts, and that is a thing it wants absolutely to avoid (p. 447). Nitrate plant No. 2 is not subject to the provisions of the national defense act. It was paid for out of appropriations for armaments and fortifications (p. 448). Unless section 124 of the national defense act is changed the Government could not possibly accept the proposal of Mr. Ford (pp. 450, 454). Mr. McKensie states: "If the contract with the Air Xitrates Corporation is good under existing law, then, in my judgment, the law itself needs amendment, because, the way I view it, a contract of this character ought to be void on the ground of public policy" (p. 453). Nitrate plant Xo. 2. Nitrate plant No. 2 could not be operated at all without the license agreement for use of the patents made between the American Cyanamid Co and the I nited States (p. 479). The United States ha's no authority to grant a license to a lessee under patents applicable to nitrate plant Xo. 2 (p. 503). Mr. Hammitt outlines procedure the Government might follow in disposing of nitrate plant Xo. 2 as follows: The first thing the United States must do must be to reach a decision to dispose of the plant. Having reached that decision it must communicate in writing to the Air Xitrates Corporation the fact of its determination to dispose of its plant, and the material terms upon which such disposition will be made. The Air Xitrates Corporation is to have a reasonable time, not exceeding six months, to consider the matter. Mr. Hammitt thinks, that the reasonable time would not reach six months (p. 491). AT the present time the Air Xitrates Corporation would not make any offer for the plant, because it does not believe it is practicable to have a commercial operation of that plant at the present time, unless the Government will make up the losses by providing a subsidy (p 453) Patents. Principal patents of the Air Xitrates Corporation expire in 1932 fp 478) balvage value of plants. The salvage value of nitrate plant Xo. 2 would be about 10 per cent of the amount ol the investment in it. It cost about 67,000.000. making the salvage estimate .^fi. 700, 000 (p. 506). 18 DIGEST OF STATEMENTS OX MUSCLE SHOALS. Subsidy. If Mr. Ford's offer is accepted Mr. Hammitt considers that Mr. Ford will be receiving a subsidy. He states that Mr. Ford will receive very cheap water power at the expense of the United States Treasury, because Mr." Ford proposes to pay a very much smaller interest rate to the United States upon the additional money the United States invests in the water power than he would be required to pay if he were compelled to finance the development of the water power in the usual way. In addition, Mr. Ford does not propose to pay any interest at all upon the amount of money the Government already has invested and a considerable part of the amount which the Government will have to addi- tionally invest (p. 458). Mr. Hull states that in his opinion the acceptance of Mr. Ford 's offer would not involve a subsidy (p. 458). DIGEST OF STATEMENT OP MR. CHARLES H. MACDOWELL, PRESIDENT NATIONAL FERTILIZER ASSOCIATION (PP. 519-542). Disposition of Muscle Shoals propo ition. Recommends that, from the preparedness standpoint, the Government keep nitrate plant No. 2. The Government could keep it on an economical-invest- ment basis, and hold it until there is a need for it for fertilizer purposes (pp. 538-539). Fertilizer. Until the farmer uses materially greater quantities of nitrogen in the forms in which it would be made at Muscle Shoals, there is no need for that product for agriculture (p. 521). Cyanamid process will be obsolete within about five years. The Haber and Claude 'processes are much more efficient methods of producing nitrogen compounds (pp. 521-522). The National Fertilizer Association is opposed to the Government's making the Ford contract, though they are in favor of the development of water power at Muscle Shoals. The association thinks it is a questionable public policy to provide facilities and over-facilities at a water power for one man to monopolize for 100 years (p. 523). Mr. Ford could not make fertilizer at 50 per cent less than it is being made to-day (p. 537). Germany and England will be in the market and will control the price of fertilizer, because such products come in duty free (p. 538) DIGEST OF STATEMENT OF MR. GRAY SILVER, WASHINGTON REPRESENTATIVE AMER- ICAN FARM BUREAU FEDERATION (PP. 542-615). American Farm Bureau Federation. The actual paid-up membership of the federation in the latter part of November was about 1,000,000 (p. 577). More than 1,500 and upward of 2,000 county organizations are federated into 46 State federations which are federated into' the American Farm Bureau Federa- tion, or the national association (p. 609). Capital investment of Mr. Ford's company. In discussion with Mr. Ford he intimated it might take between ten and fifteen million dollars to make nitrate plant No. 2 the kind of production plant that he desired (p. 595). "Disposition of Muscle Shoals proposition. Ford offer indorsed in letter from American Farm Bureau Federation (pp. 41-42). At the annual meeting of the American Farm Bureau Federation in Chicago on March 4, 1920, they adopted a resolution as follows: "We support the measure pending in Congress looking toward the operation of the nitrate plant No. 2 at Muscle Shoals for the production of nitrogen fertilizer compounds" (p. 542). Ford offer indorsed in resolution adopted at conference of those engaged in agri- culture and related lines, which met in Washington on January 23 to 27, 1922, with farmers and others participating (p. 543). Telegram from Alabama Farm Bureau Federation states that the offer of the Alabama Power Co. is the culmination of trick methods which are devoid of business ethics (p. 574). DIGEST OF STATEMENTS OX MUSCLE SHOALS. 19 Fertilizer. Believes that if Mr. Ford were in the fertilizer business under the piovisions of his contract the farmers would get much cheaper fertilizer (p. 572). Mr. Kearns states that Mr. Ford has not agreed in his offer to make fertilizers. but he has agreed to make a certain component part of the fertilizer (p. 592). Financing by the Government. Letter of January 9. 1922, from Mr. Silver to the Secretary of War, suggesting the floating of a Muscle Shoals bond issue of $40.000.000 at 4 per cent (p. 569). If the Government issues 4 per cent bonds believes that there would be no hesita- tion on the part of the farmers of the country to subscribe for these bonds (p. 574). Legal questions involved. In regard to the question of the legal "successors'' of the farmers' representatives of the board provided for in section 15 of Mr. Ford's offer. Mr. Silver states that if the question arose it would be left to the determination of the President (p. 576). In regard to the question of Mr. Ford's liability under his offer to produce fertilizer Mr. Silver says. "The whole of sections 14 and 15 refer to the producing and supplying of the farmers with fertilizers at reasonable prices. I do not think any mind would read that altogether and say that there was but one purpose that could rightfully be accomplished, and that is to produce and supply fertilizer for agricultural purposes (pp. 590-591). Our people are inclined to take the opinion of the Government officials and of the Judge Advocate General to the effect that the claim of the Air Nitrates Cor- poration is not a valid obligation and that they have no claim (p. 596). Phantom freights. Phantom freights are freights that are paid under the Pittsburgh plus agreement on goods never shipped (p. 567). Subsidy. It has been stated that, if Mr. Ford is allowed to have an opportunity to develop these plants at Muscle Shoa's. he will be receiving a subsidy. Mr. Ford is not asking for a subsidy and the farmers are not asking for a subsidy (p. 573). Mr. Fields states that instead of the Government extending a subsidy in this case. it is ma'dng a trade with Mr. Ford which is the most favorable trade the Govern- ment has ever made with an individual in the United States (p. 608). DIGEST OF STATEMENT OF MR. R. F. BOWER, ASSISTANT IN WASHINGTON OFFICE OF THE AMERICAN FARM BUREAU FEDERATION (PP. 615-638). Disposition of Muscle Shoals proposition. Army engineers have testified that depreciation of nitrate plant No. 2 is $2,'oOO,000, and cost of maintenance $200,000 a year, which is $2,700,000 of expense to the Government which Mr. Ford assumes, and in two years he will pay more than the Government would receive from the Alabama Power Co. in cash (p. 631). Fertilizer. The American Farm Bureau Federation submits that if the Government will complete this water power, and allow Mr. Ford to have it, farmers will get fertilizer at one-half the price they would otherwise pay for it (p. 623). Mr. Ford's proposition will be of lasting benefit to agriculturalists of the country (p. 631). Subsidy. The American Cyanamid Co. which denounces the Ford proposal as a subsidy at 4 per cent interest was before this committee (Committee on Military Af- fairs) in 1916 asking for the identical thing at 3 per cent, and called it "proper Government cooperation'' (p. 623). Those opposing Ford proposal say the 85,000,000 is a subsidy. If nitrate plant Xo. 2 can not be operated at a profit then no subsidy is involved in selling plants to Mr. Ford for $5,000,000 (p. 632). DIGEST OF" STATEMENT OF HON. S. HUBERT DENT, JR., ATTORNEY FOR THE ALABAMA POWER Co. (PP. 640. 742-704, 816-833). Alabama Power Co. The question has been raised as to whether or not the Alabama Power Co. had anything to do with the passage of the act authorizing the heads of the various departments to sell property of the Government that was acquired during the war. That provision of law is a rider on the Army appropriation bill of July 9, 1918. The legislation was requested by the Secretary of \Var (p. 74(5;. 20 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Alabama Power Co., contract with. Arbitrators are not bound by the strict rules of law in fixing the price of property. Mr. Dent thinks that, in this case, they would ta~ke into consideration the original amount that. the Government put into the plant, that they would con- sider how much it would cost to reproduce it, that they would consider the earning capacity of the plant as it is, and the wear and tear and the use of the property for the time that it has been used. All of those things being taken into consideration, the arbitrators could reach a fair conclusion as to what the Alabama Power Co. would have to pay for this property, and under the con- tract they would have to pay that price. Mr. Dent thinks that this contract with the Alabama Power Co. is one of the fairest contracts that were made in the stress of war, of that class (p. 744). It was not unusual for the Government to make contracts of this kind (p. 744). Whenever arbitration contracts are made, each party names his own arbitrator, and if they can not agree the two select a third. The arbitration provision in the contract with the Alabama Power Co. goes farther and states that if the two arbitrators, selected on the one hand by the power company and on the other by the Government, can not agree upon the third man, then the presiding judge of the Court of Appeals of the Fifth Circuit of the United States shall select the third man. Nothing could be fairer than that in providing the means of fixing the fair price that the Alabama Power Co. should pay for this property (p. 827-. Bond. Mr. Martin states that the bond given by the Alabama Power Co. was executed after the execution of the contract on the 7th of November. The Government had a disbursing officer on the work, and the Government disbursing officer took care of practically all the disbursements. There were some disbursements which the company took care of in completing the work. The bond was actually tiiven between the execution of the contract and December I, 19] 8 (p. 762). J Dent, S. Hubert, jr. Mr. Dent represents the Alabama Power Co. as an attorney with reference simply to their legal rights in connection with this proposition, lie does not represent the company or anybody else with reference to any policy that the committee may see lit to adopt (p. 640\ Estimates*. If the Gorgas plant is left in Mr. Ford's proposition, the Government is giving to Mr. Ford nine or ten million dollars, tree gratis, for absolutely nothing, con- sisting oi the $5,000,000 that they ha\e already expended and something like l,000,000 that the Alabama Power Co. has put into this property (p. 748). Gorgas- Warrior steam plant. Mr. Dent contends that the reserve steam plant of the Alabama Power CQ., situ- ated out in the coal fields of Walker County, 88 miles from Muscle Shoals, can not of necessity be essential to the development of the Muscle Shoals project (p. 7fi2). Mr. Dent can not see the essential necessity oi having to use the Gorgas plant to operate the nitrate plant at Muscle Shoals, which ultimately is to be operated, if operated at all, by water poxver (pp. 750- -7 57). Legal questions involved. It has been charged that the contract with the Alabama Power Co, is a hard and unconscionable bargain. If it is a hard bargain, it appears on the face of the instrument itself. Mr. Dent knows of no rule, even in a court of equity, which will relieve against a contract because one party gets an unfair advantage over the other if that advantage appears on the face of the contract itself and the contract was executed by parties competent to contract (p. 741). The main reason for the opinion that the contract with the Alabama Power Co. is a hard bargain seems to be because the only party that can purchase the Government's interest in the contract is the Alabama Power Co. Mr. Dent asks if the law books are not full of cases where the owner of land has entered into a contract with a third party to put improvements on his land and to use those improvements for a stipulated period. of time, and at the end of that time the owner to pay for them at such a price as may be agreed upon between them or, if not, at such price as may be be fixed by arbitration (p. 744 X Wherever parties enter into a contract involving the sale and purchase of property it is an ordinary feature of such a contract that if they can not agree upon the terms that they shall be fixed by arbitration. The right to fix the price by ar- bitration necessarily follows the absolute power to sell the property (p. 827). DIGEST OF STATEMENTS ON MUSCLE SHOALS. 21 Legal questions involved Continued. Section 124 of the national defense act has no application to the contract with the Alabama Power Co. (p. 747). Mr. Dent considers that the Dent Act recently passed by Congress is an expression of the congressional will that the Government of the United States, even if it had the opportunity to take advantage of the Alabama Power Co. in this case, because of the fact that perhaps the contract may be in violation of section 124 of the national defense act. that under no circumstances ought the Govern- ment, in this instance, to set such an example to the American people (p. 750). One of the well-established exceptions to the rule that parole evidence can not be introduced to vary a written instrument is that you can always prove the true date of the instrument. The undisputed proof iri this case shows that this con- tract was not actually executed until November, 1918, some months after the passage of the act of July 9, 1918, authorizing the heads of the various depart- ments to sell property of the Government that was acquired during the war (p. 746). The parties to a contract can adopt any date they want to when they sign a contract provided it is not signed on a Sunday or some day that is illegal . They can adopt any date they want to: but when it comes to the proof of the actual date of exe- cution the law always permits the proof to be established by parole evidence (p. 758). In answer to the question, if the minds of these parties came together in Decem- ber, 1917, upon the terms of the contract, whether or not the law then in existence would not govern rather than the law in existence at the time of the actual execution of the written instrument, Mr. Dent states that the well- established rule is that where parties enter into negotiations and they are pending for a long time, with verbal negotiations and written memoranda, etc., that all previous negotiations are merged finally into the execution of the written instrument (p. 751). A contract must be signed and delivered before it has any vitality (p. 758). The contention of the Alabama Power Co. is that its contract is really fairer than most of the contracts that were made during this time, that it is 'in line with the policy adopted by the Government during the war in making such contracts, that it is in accordance with the general law on the subject, that the date of the contract shows that it was executed after Congress had authorized such a contract to be executed, that it is not in violation of section 124 of the national defense act, and that it is not a joint undertaking on the part of the Alabama Power Co. ''We contend that even if you have the right to take a technical advantage of the Alabama Power Co., the Government of the United States is too big and Congress is too honest to justify any such legislation" (p. 750). party should be given fair and just consideration. The company claims that if the Government should enter into a contract with Mr. Ford in accordance with his proposition, in order to carry- it out, the Government must condemn the company's contractual rights with it, as well as the land and the plant which confessedly the company owns in fee simple. In order to do that the Government must surrender about $5.000.000 that it has put into that plant, and in addition to that the Government would be required to pay to the company whatever the courts would say its property rights were, amounting at least to some three or four million dollars (p. 748). The right on the part of the Government to condemn is limited to property that is essential in order to carry out the fundamental Government purpose. If it can be shown that the Gorgas plant is not necessary in order to effectuate the public purpose of developing Muscle Shoals so that we can make nitrogen from the air. then Mr. Dent questions whether any court will take the property of the Alabama Power Co. and give it to Mr. Ford under a condemnation pro- ceeding. "At any rate, if you make this contract, nobody could blame the Alabama Power Co.. as the owner of this property, from [for] asserting its rights in the courts, and acceptance of the contract in its present form would mean a lawsuit " (p. 748). If Congress should accept Mr. Ford's offer, Congress would have to provide some means and method of taking the property of the Alabama Power Co. away from the company and turning it over to Mr. Ford. Mr. Dent does not know of any way that can be done except by an act of condemnation of that property declaring that it is necessary for this particular public use. and in that con- demnation proceeding the company would be the defendant, and would assert 22 DIGEST OF STATEMENTS OX MUSCLE SHOALS. Legal questions involved Continued. its rights under its contract, and would deny that this property was necessary for Mr. Ford's purpose at Muscle Shoals as a public use (p. 822;. Mr. Dent contends that even if Congress should pass a law asserting that it is necessary to have the Warrior plant to successfully carry on the work at Muscle Shoals, that that act could be contested in the courts and tried out as a question of law, based on the facts of whether or not it was necessary for carrying out the Government's intention (p. 821). Mr. Dent thinks that the language of the contract by which the Alabama Power Co. had the right at any time to purchase the Gorgas- Warrior steam plant from the Government shows that the company did not admit that the project at Gorgas was necessary for the earning on of the project at Muscle Shcals (p. 823). As Mr. Dent construes the Dent Act, it is permanent law. The time proviso in it is a proviso to the effect that this act shall not authorize payment to be made of any claim not presented before June 30, 1919: but that only applies to cases where the other party to the contract has a' money demand against the Gov- ernment. The Alabama Power Co. has no money demand against the Gov- ernment in this case, but is simply asking that its contract be fulfilled (p. 749). Mr. Dent thinks that the language of the act of May 10, 1918, authorizing the sale of any property that has been acquired or that may hereafter be acquired aiid that was used in connection with the prosecution of the war, is broad enough to cover the question of the authority for the sale of the Gorgas- Warrior steam plant (p. 751). Mr. Dent understands the term "the head of any executive department'' to include the chiefs of bureaus (p. 752). It is Mr. Dent's contention that one of the heads of departments, such as a Cabi- net officer, would have the power under the law [act of July 9, 1918] to redele- gate authority delegated to him by Congress (p. 817). The act of July 9. 1918. does not say that the contracts must be signed by the heads of the depaitments, but says that these contracts must be made through the heads of the various departments, and that language was used intentionally, because it would have been a physical impossibility for the Secretary of War alone to sign all the millions of dollars' worth of contracts that the War Depait- ment made during the war (p. 825). The language of the proviso of the act of July 9, 1918, reads this way: That a detailed report shall be made to Congress on the first day of each regular session of the sale of such war supplies, ft was not limited to the next regular session. Mr. Oliver, in making his statement, apparently overlooked the word "each"' in that proviso (p. 832). Mr. Dent thinks that the property that the Government and the Alabama Power Co. owned together and operate together is part of the realty, and that the realty is vested in the Alabama Power Co. (p. 755). Mr. Dent believes that the Government ought not to enter into a contract with Mr. Ford in accordance with the proposition as it is now pending, which includes the farming out, so to speak;, of the property of the Alabama Power Co. to Mr. Ford; that is, the steam plant at Gorgas and the transmission line (p. 758). At any time under the contract the Alabama Power Co., after the construction of this additional equipment and this transmission line, could have demanded of the Government, if they were ready to pay for it, that the property be sold to them upon the payment of the value, the Government reserving the right to demand of the power company that the}* continue to supj'ly power, pending the construction of this plant at Muscle bhoals (p. 760). Under the terms of the contract with the Alabama Power Co. the Government had the right to demand that the Alabama Power Co. purchase this property, on the one hand, and the Alabama Power Co. had the right to demand of the Government that it sell the property. Mr. Dent does not see any reason why an agent, having authority to sell, "can not go ahead and select' the party to purchase the property including that party in the agreement, at a speciued time and stating that that party shall buy the property, lie does not think that the time limit has any effect upon the authority of the agent (p. 829). It is an absolute right on the part of the Government to demand that the Alabama Power Co. purchase this property; on the other hand, the Alabama Power Co., as the other contractor, has the absolute right to demand of the Government that it sell. There is no option in that (p. 829). Mr. Dent thinks if the Government demands under the contract within the time limit that the Alabama Power Co. purchase the property, and the Alabama Power Co. refuses to do it, the Alabama Power Co. has broken the contract and would be liable for a breach of contract (p. 831). . DIGEST OF STATEMENTS OX MUSCLE SHOALS. 23 Legal questions involved Continued. Mr. Dent thinks that from the legal point of view there would not be any differ- ence between the sale of the property and the optioning of property. In law the ri^ht to make a sale carries with it the ris;ht to make a contract for sale (p. 761). The contention of some of the members of the committee and others is that the contract with the Alabama Power Co. is invalid, but conceding the validity of the contract, the company has reserved all its rights in the property, and has been in possession of the property all along. . The Government could not get possession of that property now. It could not sue in ejectment for it because it has no title. The only' way the Government would get it would be for Con- gress to pass a condemnation act. and then for the Government to proceed in the Federal courts to institute condemnation proceedings, and in that case the company would assert its rights to the property (pp. 821-822). The law of the place where the land lies is the law that governs this contract. Mr. Dent has not the slightest doubt, under the law of Alabama, that if this contract is held invalid, then the Government has put property on the land of the Alabama Power Co. and the property belongs to the company, and the Government has lost the money it has put in there (p. 822). Mr. Dent. '* * I said that'if the contract between the Alabama Power Co. and the Government is declared invalid and void, of no effect whatever, then the Government is in the attitude of having gone involuntarily and without our consent, and put improvements on our land, and, under the'laws of Alabama, if I put improvements on your property without any contract with you as the owner you get the benefit of my work and my improvements, and they belong to you." ******* Mr. STOLL. "It must have been by permissive use. Did the Alabama Power Co. try to enjoin anybody from going on there or to stop them? " Mr. DENT. ''Not at all, and we are not claiming that." ******* Mr. DENT. ''I was simply suggesting what might result if this committee and Congress should hold that this contract was absolutely void and had no force and effect whatever. In my opinion the natural consequence of that would be to give to the Alabama Power Co. all the improvements which the Govern- ment had put on that land" (pp. 822-823). There is nothing in the contract of the Alabama Power Co. that raises any estoppel against the company (p. 824). The power to sell carries with it the lesser power to make a contract for a sale. It necessarily carries with it the power to fix the terms of the sale. It necessarily carries with it the time when the sale shall take place (p. 826). Mr. Dent thinks that if the contract between the Alabama Power Co. and the Government is a valid contract, then the property placed on the land of the com- pany by the Government is in the nature of personal property. He considers that the laws of May and July, 1918, covering the sale of personal property belonging to the Government are applicable to this property (p. 826). Mr. Oliver has asserted that the Muscle Shoals property was not property that was acquired for the emergency, but it was property that was acquired for perma- nent use. Mr. Dent thinks that the facts will not bear out this statement, because the President located this plant there as a waMime measure (p. 831). DIGEST OF STATEMENT OF MR. THOMAS W. MARTIN, PRESIDENT ALABAMA POWER Co. (PP. 640-702, 706-741, 762. 774-816, S37-8S5. 946. 1027-1038). Advantages to the Government. The advantages to the Government under the proposal of the Alabama Power Co. are summarized by the Secretary of War in his letter transmitting the report to Congress (pp. 774-776). Under the proposal of the Alabama Power Co. the Government will be in a posi- tion to turn over the two nitrate plants, with power and money, for the opera- tion thereof, to anyone capable of meeting the requirements *of the Govern- ment and the farmers for nitrates and fertilizers, or the Government may retain the properties and itself cany on experiments and manufactures. (Letter from company, p. 7.78.) Under the proposal of the Alabama Power Co. pro vision-is made that in case the use of 100,000 horsepower is discontinued by the Government the company 24 DIGEST OF STATEMENTS ON MUSCLE SHOALS. - Advantages to the Government Continued. will purchase that power from the Government and the proceeds will then be available for any use desired by the Government, including the amortization of its present investment in the situation. (Letter from company, p. 778.) Under the proposal of the Alabama Power Co. the Government need not appro- priate any money. Under another offer the Government will dispose of the two nitrate plants, including the steam plant and equipment, for $5,000,000. It has been stated that the two nitrate plants represent about $75,000,000 of Government investment that the Government retains under the proposition of this company. In addition, the company has the Government's investment of $17,000,000 made in the incomplete Wilson Dam. No one has suggested that the Government get any return upon that $17,000,000 except by way of an annual amortization fund. This company proposes to give the Government 100,000 horsepower, plus $5,000,000 for the work that has been done at the Wilson Dam and the steam plant and equipment, and to finance the Wilson Dam to its completion. The obligation to finance this property to its comple- tion, the obligation to pay $5,000,000, the obligation to deliver the Government 100,000 horsepower, and the maintenance of the dams and gates throughout the 50-year lease period are included in the offer of the company. The obli- gation of the company runs for 50 years; under another proposal the obligations of the Government and of the licensee or purchaser would run for 100 years. There is also the great question of the right of recapture at the end of 50 years on the payment of the net investment (pp. 812-813). Alabama Power Co. Mr. Martin has been president of the company since February, 1920. Prior to that time he was vice president and general counsel, and had been connected with the company as its counsel and as a director since 1912 (p. 640). Alabama Power Co. was organized under the laws of Alabama in 1906 by citizens of that State. Company remained a nonoperating company for six years. After 1912 millions of dollars were found abroad principally for the project of the company on the Coosa River. In August, 1914, about 65 or 70 per cent of the company's securities were held abroad. Since that time the company has been entirely financed in America to the extent of about $23,000,000. Now about 35 or 40 per cent of its securities are held abroad (p. 641-642). Investment and expenses of the company in' connection with Gorgas- Warrior station amounted to $1,016,515.61 (p. 650). The company received $285,000 as a fee for constructing the Gorgas- Warrior plant, basis a cost-plus contract (p. 663). In 1918 the company conveyed to the Government for $1 the site at which Dam No. 2 is being erected. The company owned this land in fee simple, and had ex- pended more than $500,000 on its development (pp. 669-671, 698, 699). During the year 1921 the company paid the Government $77,211.61 for power from Gorgas- Warrior steam plant (p. 683). The payment of $60,000 to the company by the United States provided for by article 12 of the contract T-69 was received November 27, 1918. The con- tractor's fee, provided for in article 13 of said contract, was received as follows: November 27, 1918, $100,000; April 18, 1919, $75,000; May 26, 1919, $50,000 (p. 708). Company is an Alabama corporation with headquarters in Birmingham. Com- pany has been authorized to transact business in the State of New York (p. 724). The Alabama Traction, Light & Power Co., domiciled in the Dominion of Canada is the holding company for the Alabama Power Co. and owns its common stock. The stockholdings of this Canadian company are largely held in America now. The preferred stock of the Alabama Power Co. is all held in Alabama. The common stock is the majority of all the stock, common and preferred. The poli- cies of the company are fixed by the board of directors, the majority of whom live in Alabama (pp. 726-727, 738-739, 740-741, 851-852, 880-861). The company has more than 17,000 customers and serves more than 50 munici- palities. It has more than 1,500 miles of transmission lines, an installed electric- generating capacity of 175,000 horsepower, and is engaged in constructing a new hydroelectric plant on the Coosa River of 110,000 horsepower capacity under a 50-year license granted by the Federal Power Commission (p. 777). Mr. Martin does not see how there can be anything in excess of a fair return, because the Government or public authorities regulate the rates on the one hand and the Government will take by exappropriation annually anything over a fair return under the present rules and regulations of the Federal Water Power Commission (p. 813). DIGEST OF STATEMENTS ON MUSCLE SHOALS. 25 Alabama Power Co. Continued. The company has a fixed position by which it can go out and sell its securities to most of the public and can finance its proposals. In 1921 it sold approximately $10.000.000 worth of securities (pp. 857-858, 859). The company has no options for any power outside of Alabama. It has developed two water powers in Alabama and a third is in process of development. If the company gets control of Muscle Shoals. Mr. Martin considers that this will not mean that the company would have a monopoly (pp. 869-870). A statement was presented by Mr. Martin in answer to statements made before the Military Affairs Committee of the House of Representatives on March 8. 1922 (pp. 1027-1038). It has been charged against the company that it owns and controls a number of power sites on several rivers in Alabama and that in 14 years since its incorpora- tion it has built but one power dam and commenced work on another, and that it has been the policy of the company to develop only such power as could be sold in small units and at high prices. Mr. Martin affirms that this statement is both misleading and untrue (p. 1027). Although the Alabama Power Co. has been able to make but one power develop- ment in Alabama, there being no Federal legislation until 1920, the company has extended its lines in various parts of the State, and with the aid of reserve steam plants now has a connected load in excess of 370,000 horsepower (pp. 1028-1029). In 1907, before any large power developments were made in the State, the aver- age cost per horsepower year was $72, and in 1917, due to the direct influence of the power developments of the Alabama Power Co. and others, had decreased to $21 per horsepower year. On the other hand, in the State of Mississippi the cost per horsepower year was $97 in 1907, and this had decreased to $93 in 1917. This answers the statement that the Alabama Power Co. has only developed power which it could sell in small units and at high prices (p. 1029). It has been charged that the Alabama Power Co. controls the utilities in the principal cities of Alabama. The company has no interest in the utilities at Birmingham, Montgomery, and Mobile, the principal cities of the State, but furnishes the power to the utilities operating in Birmingham and Montgomery. The company does control, however, the utilities in a number of the other towns and cities. In every case the company has taken over utilities or con- structed systems in response to the public demand (p. 1029). It is of no importance that some of the early securities of the -company are held out of the United States, for its licenses and its property are always "subject to the laws of the State and Nation (p. 1029). "Reference is made to the company's letter of November 6, 1917, to the Ordnance Department with regard to the building of an extension to the steam plant at Gorgas. It was soon found that this extension would not furnish the sufficient power required by the Government, and was also based on financing through the War Credits Board. Here again those who wished to be fair could have learned that the program desired by the Government was different from that which was understood by our company and, of course, resulted in an increased expenditure" (p. 1031). The Graham report refers to the company's system as being a small system, poorly equipped before the war. Mr. Martin states that every citizen of Alabama knows that this is wholly incorrect (p. 1031). If Congress should direct the condemnation of only a part of the land of the Alabama Power Co. at Warrior, it would destroy the usefulness of the company's entire plant there for any other purpose, rendering its investment in coal mines practically useless and imposing obligations and burdens upon the company which would be very serious (p. 1031). Alabama Power Co.. contract with. In the very beginning of the negotiations the Alabama Power Co. explained that the cost of an extension of the capacity desired by the Government would be more than the demands of the company warranted; however, if the Govern- ment would aid in securing the funds with which to make such an extension that it would do so. Effort was made by the Government officials to advance funds with which to build the plant, but it was found that there was no law under which if could be done. Thereupon the company agreed to buy upon demand of the Government its interest in the plant and" substation at. Gorgas. It further agreed to maintain the plant and to pay. during the time the Govern- ment was taking power under the contract 6 per cent interest on the actual cost of the Warrior extension and the Warrior substation, and when the Government 26 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Alabama Power Co., contract with Continued. was not taking power under the contract to pay the Government for the power generated by the extension. Here, then, is property of the Government located where it has a going value as compared with a junk value, and main- tained without cost to the Government under an agreement from which the Government will always receive a return until it demands the Alabama Power Co. to purchase it at its fair value (p. 1030). In the case of its contract the Alabama Power Co. obligated itself to buy the addi- tional facilities at fair value to be fixed by arbitrators, thus insuring that the Government is bound to receive a very substantial value for them (p. 1031). Bond. The bond given by the Alabama Power Co. was executed between the execution of the contract and December 1, 1918 (p. 762). Estimates. Lock at Dam No. 2. $2,500.000 (Secretary of War) (p. 775). Fertilizer. It has been suggested by Mr. Bower that secondary horsepower could not be used for the manufacture of nitrates. Mr. Swann, who is the president of the Federal Phosphorus Co. took the definite position that secondary power could be used. Mr. Bower's earlier statements at hearings held in February, 1921, support the plan of using secondary power for the operation of the nitrate plant. If more power is needed, it is always there and can be purchased (pp. 801-802). Gorgas-Warrior steam plant. It was not physically possible to extend and increase original Gorgas plant and make the extension a separately contained plant (p. 672). It can be separated [from plant of Alabama Power Co.] in the sense that it can be removed. It can not be separated in the sense that it can remain and form a distinct and separate operation (p. 688). Land. Alabama Power Co. owns in fee simple the abutment sites at the proposed Dam No. 3 (p. 669). Legal questions involved. Statement made by chairman that the national defense act provided that the Government alone should erect such plant? as the Gorgas-Warrior steam plant and should conduct them without any interference from any private c rpo- ration (p. 641). It was explained and understood clearly by representatives of the Government and the Alabama Power Co. at that time [in 1917] that there was no law under which the United States could agree to sell that property [i. e., Gorgas-Warrior steam plant], if created on the land of the company, to the company. Rep- resentatives of the Government asked, "If an arrangement is worked out by which an extension of your station is created and equipment placed there, will you agree to purchase at the conclusion of the emergency on the basis of fair value to the United States?' ' The company agreed to do SD. So that these gentlemen concluded that the Government would be protected in the situa- tion if the company would agree, on the demand of the Government, to pur- chase the property at fair value and not at junk value. It was the plan to provide in the contract that the United States would, if permitted by law, sell to the company on its demand (p. 644). This law [of July 9, 1918,] gave the authority from Congress to the executive branch of the Government to sell such property as the Gorgas-Warrior steam plant. Captain Noble and the gentlemen in the nitrates division construed it to give authority for them to agree in bghalf of the United States that the United States would sell this property to the Alabama Power (Jo. upon its request. It removed the uncertainty which up to that time had existed as to whether the Congress has conferred the power on executive officers to sell such property as this (pp. 645, 646). Contract between Alabama Power Co. and the United States is dated December 1, 1917; it was executed on November 9, 1918,. In the meantime the work had been largely completed (p. 647). It was never throughout any of the negotiations suggested that section 124 of the national defense act had anything to do with this question [i. e., Gorgas-Warrior steam plant] (pp. 649, 650). There is a clause in the contract that in the event the United States Government should sell this property or its interest therein to any other person except the Alabama Power Co. the plant could not be operated (p. 676). DIGEST OF STATEMENTS OX 'MUSCLE SHOALS. 27 Legal questions involved Continued. Mr. Martin recognized, in December. 1917. that there was no authority in the Government to agree to sell that which was created. There was authority in the Government to create that which was necessary to supply its armament of its fortifications (p. 733). Further legislation was necessary if the Alabama Power Co. was to buy the property, but Colonel Joyes proposed in the initial memorandum, that if the law did not permit the Government to sell it to the company, then the Government would remove the property from the lands of the company, because the company could not agree to sell the lands without destroying its 'plant. The companyVas perfectly willing to agree to buy on the demand of the Government, and Colonel Joyes recognized the fairness of the Government agreeing to remove the property if it did not sell it to the company (p. 733). Mr. Martin was not in touch with any Member of Congress with reference to the acts of May and June. 1918. He did not know about the legislation until the August after it was passed (p. 734). The signing of the contract of the Alabama Power Co. was not deferred in the hope that legislation would be enacted that would legalize every phase of the contract (p. 738). Mr. Martin considers that the rights of the Alabama Power Co. under its contract began when the contract was formally executed (p. 740). Option claimed by the Air Nitrates Corporation would seem not to interfere with the "acceptance of the proposal of the Alabama Power Co. (Letter from Secretary of War. p. 775-776). Mr. Martin did not have anything to do in any way with the legislation known as section 124 of the national defense act (p. 807). Mr. Martin understands that the recapture clause would relate only to the invest- ment of the Alabama Power Co. and not to the amount of money the Govern- ment has alrea'dy put into Dam No. 2 (p. 815). Mr. Martin thinks that section 2 of the proposal of the Alabama Power Co. as drawn would make the 100,000 secondary horsepower available to the Govern- ment for such purposes as lighting the camp at Anniston or Camp Benniag. The company is entirely willing that the Government modify the wording of this section (pp. 863-864). Load factor. The load factor is the ratio of the average consumption to the peak demand; that i^, the ratio of the average horsepower demand to the maximum instan- taneous horsepower demand during any given period (Mr. Thurlow) (p. 868). National defense. The Alabama Power Co. does not undertake any obligations with respect to maintaining nitrate plant No. 2 in condition to produce nitrates, but does undertake to give the Government power and money (p. 813).. Navigation. The building of Dam No. 2 and Dam No. 3 will improve a stretch of the river but they will not "put us into the heart of the raw-materials regions" of the Tennessee River (p. 850). Proposal of Alabama Power Co. will make the river navigable to the extent of the pool created by Dam No. 2. Mr. Martin thinks that five or six dams must be built in addition to Dam No. 3 before the development for navigation on the river is complete (pp. 813, 849-851). Power. Chief engineer of Alabama Power Co. estimates that between 80,000 and 100,000 horsepower is developable at Dam No. 2 (p. 810). Power. Secondary power will be available for the operation of nitrate plant No. 2 approx- imately 82 per cent of the time (p. 810). The power to be given to the Government is to be the second 100,000 horsepower available from the normal flow of the river (p. 814). If the Government does not need all of the 100.000 horsepower which the Alabama Power Co. will furnish, the company will buy what the Government does not use (p. 815 >. The 100.000 horsepower which the Alabama Power Co. offers to furnish to the Government might be valued at $753.000 or $1,000.000 a year (p. 842). Proposal of Alabama Power Co. Proposal involves the financing of the Wilson Dam and the power-house develop- ment, the payment of $5.000.000 for the Sheffield steam plant and the Govern- ment's interest in the Warrior plant, and furnishing the Government 100.000 secondary horsepower for its us?s at these nitrate plants (p. 800-801). 28 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Proposal of Alabama Power Co. Continued. Text of proposal (pp. 776-777). Summary of proposal and statement of its advantages. (Letter from Secretary of War, pp. 774-776.) Makers of plan sought to meet requirements of the Government first, in the desire to produce cheap fertilizers; second, to have nitrates available in time of war; third, to contribute to the industrial development of the region, and to complete the project without further expense to the Government. (Letter from com- pany, p. 777.) Savings to the Government. Under the proposal of the Alabama Power Co. the Government would save at least $2,000,000 a year in the form of an outlay in interest which it would other- wise pay; it would save its annual losses by way of maintaining and upkeeping the dam and the gates. In addition it keeps the two nitrate plants (p. 856). Warrior-Sheffield transmission line. Right of way for transmission line was purchased with funds of the Alabama Power Co. (p. 662). Washburn, Frank S. Mr. Washburn, president of the American Cyanamid Co., was formerly a stock- holder in the Alabama Power Co.; he is not now (p. 643). DIGEST OF STATEMENT OF MR. F. D. MAHONEY, ALABAMA POWER Co., BIRMINGHAM, ALA. (PP. 703-706). Alabama Power Co., contract with. Mr. Mahoney was a consulting engineer along electrical lines to the Ordnance Department during the war. He was witness to the contract between the War Department and the Alabama Power Co., relative to the Gorgas steam plant. The contract was signed on the twenty-ninth floor of the 'Equitable Building, in the office of Mr. James Mitchell, in New York City, on November 7, 1918, the day of the false report of the armistice (pp. 703-704). Mahoney, F. D. Mr. Mahoney went to work with the Alabama Power Co. in February, 1919, and is at present commercial manager of the company. Mr. Mahoney was not in the Army, but was serving under Colonel Joyes in the nitrates division, until about July or August, when he went to New York and was an assistant to Mr. Frederick Cranford, director of construction of all nitrate plants. He was paid by the Ordnance Department as a civilian (pp. 704-705). Mr. Mahoney is a stockholder as well as an employee of the Alabama Power Co., as practically every employee of that company is (p. 705). DIGEST OF STATEMENT OF HON. EDWARD B. ALMON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA (PP. 741-742, 1002-1018). Alabama Power Co. If the Alabama Power Co. should secure Muscle Shoals there would be formed a combination of interests of water power and fertilizer with power for evili without limit (p. 1010). Cyanamid process. The cyanamid process for the fixation of atmospheric nitrogen is one of the oldest and best (p. 1002). Disposition of Muscle Shoals proposition. It will be to the interest of the Government and the public to recommend the acceptance of the offer of Henry Ford and reject that of the Alabama Power Co. (p. 1003). The Alabama delegation in Congress is as a unit in favor of the Ford offer and will continue to work together very earnestly to have it accepted bv Congress (p. 1012). Ford offer indorsed by resolutions introduced by Hon. C. W. Ashcraft and adopted by the Florence Chamber of Commerce, Florence Rotarv Club, and Florence Exchange Club (pp. 1015-1017). Ford offer indorsed by resolutions of Birmingham mass meeting (p. 1017). Ford offer indorsed by petition of officials of Jefferson County, Ala. (pp. 1017- DIGEST OF STATEMENTS ON MUSCLE SHOALS. 29 Estimates. Dam No. 2, s23,000,000 (Mr. Almon) (p. 1004). l">ara No. 3, 17,000,000 (Mr. Almon) -p. 10l)i,. The pre-war estimate by United States engineers of the amount chargeable to navigation was $8,575,000 (p. 1004*. The present capacity of the plan would produce about 2,000,000 tons of fertilizer, which is about 30 per cent of the amount consumed. With cheap water power the Ford Co. can make fertilixer at about one-half of the present price. The Nation's fertiliser bill is now nearly $250,000,000 annually. If the operation of the Muscle Shoals plant should only result in a 20 per cent reduction in prices, that would amount to $50,000,000 a year saving to the farmers. This amount for 100 years out on compound interest- as the opponents of the Ford offer have undertaken to do in claiming what Mr. Ford would make from the Government in compounding interest would be over $5,000,000,000 saving to the farmers of the country (p. 1000 \. Financing by the Go -/eminent. When the Ford offer is accepted Congress, instead of appropriating money from time to time to complete the dams, could provide for the issuance of -4 per cent bonds, which would be easily negotiated. The interest paid by the Ford Co. as rental lor the power would pay the interest on the bonds and the amortization plan would liquidate the bonds, and in this way the completion of the dams would not cost the Government anything (p. 1007). Leases, length of. Tli ere should be no objection to the Ford offer on account of the 100-year lease period. The dams at Muscle Shoals were approved by the War Department and work commenced on one of them before the ena'ctment of the general water-power law. The development at Muscle Shoals is in a class by itself. The darns will be the property of the Government, and not a lessee. Mr. Ford claims that on account of the heavy expenses and the time required to provide a use and market for this power that a lease for less than 100 years would be unreasonable .'p. lOO?"). Leases, renewal of. If the plants of the Ford Co.. or its successors or its assigns, depending upon the power developed at Muscle Shoals, should be denied the necessary power for operation at the end of the lease it would amount to a confiscation of their plants. Section 17 of the Ford offer, which provides that the company shall ha\ e a preferred claim to be supplied with power, is reasonable and proper (p. 100S i. Legal questions involved. ' '1 remember last February when we had up the question of an appropriation of $1 0,000,000 to complete the work on the dam, the question was first a mooted question as to whether it was subject to a point of order. After thorough inves- tigation, Mr. Graham, who was very familiar with the subject, announced in the open House of Congress that the national defense act, section 124, author- ized this ?10,000,000 additional appropriation to complete the dam." Mr. Almon thinks that the committee will reach the conclusion that nitrate plant No. 2 and everything connected with it, such as the Gorgas plant, the steam plant, and the Wilson Dam, are all part of the nitrates program provided for in the national defense act ip. 742). The nature of the contract with the Air Nitrates Corporation and the amount which has been paid by the Government to this company clearly shows that there is not even a moral obligation on the part of the Government (pp. 100S-1009.). Navigation. The prewar estimate by United States engineers of the amount chargeable to navigation was $8,575,000 (p. 1004). Payments to the Government. In normal times our Government bonds have been issued for much less than 4 per cent, so it is fair to assume that the 4 per cent which Mr. Ford is to pay as annual rental for a 100-year period will be above the average rate that will prevail during that time (p. 1007). Proposal of Mr. Ford. To meet the terms of the Ford offer and produce a proportionate return to the Government, the Reclamation Service, representing a Government net invest- ment of $125,870,830, would have to show an annual gross inccme of $10,180,132, instead of $4,191,844, which it now shows. The Panama Canal, representing 10077422 3 30 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Proposal of Mr. Ford Continued.- an investment of $380,554,949, would have to earn $32,450,886 grcss revenue, whereas last year's total revenues were only $12,040,117 (p. 1004). Salvage to Government from war-time investments compared with Ford offer. Mr. Almon presents a table (p. 1004-1005), showing in part, the following: Per cent of cost Government property sold : salvaged. Muscle Shoals nitrate plants 5. 85 Old Hickory powder plant 4. 28 Wooden ships, United States Shipping Board, each 63 Savings to the Government. Mr. Almon presents a table showing an annual cash saving to the Government by the acceptance of the Ford offer of $747,121.44. This figure represents an estimate of the expenses of guarding and maintaining the nitrate plants, the uncompleted work at Dam No. 2, and maintaining the Muscle Shcals Canal (p. 1004-1005). . Mr. Almon presents a table showing the ' ' cost to Government of the delay in accepting Ford offer." The table (p. 1004-1005) shows, in part, the following: Total annual loss to Government by delay $2, 902, 521. 00 Average monthly loss 241, 877. 00 Loss since Ford's offer was made eight months ago 1, 935, 016. 00 Daily addition to ccst 8. 062. 50 DIGEST OF STATEMENT OF HON. WILLIAM B. OLIVER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA (PP. 764-774, 833-836, 994-1002). Alabama Power Co., contract with. Article 22 of the contract of the Alabama Power Co. gives the Government the right to call upon the Alabama Power Co. to purchase the Gorgas- Warrior steam plant "at any time subsequent to three years after peace is declared" (p. 765). The Government, under the contract with the Alabama Power Co., if valid, would be postponed in its right to sell for three years from October, 1921 (p. 771-772). During the time the Alabama Power Co., under its contract, will have the use of the Gorgas plant the value of the property may depreciate and the value of the earnings of the Alabama Power Co. upon the use of the property may increase to such an extent that those earnings will pay the Government's claim on the property (p. 772). sition of Mi Disposition of Muscle Shoals proposition. Resolution adopted on March 1, 1922, at a mass meeting of 5,000 citizens of Ala- bama affirms that at the present rate of development of the power potentialities already under the control of the Alabama Power Co. more than 100 years will go by before all of these dormant water powers are harnessed. States* it would be a travesty on legislation if the Nation's greatest water power should be handed over to the Alabama Power Co. under the national water power act (pp. 994-995). Ford offer indorsed by this resolution adopted on March 1, 1922. (pp. 994-996). Fertilizer. Mr. Oliver thinks that Mr. Ford would be turning out fertilizer in less than 15 months if Congress voted to accept his offer and directed the condemnation of the Gorgas plant (p. 999). Legal questions involved. The Government's power to condemn does not extend alone to property essential to the permanent operation of a Government project or plant, but it likewise extends with equal force to any property that may be economically necessary for the construction of such plant or project, or for its temporary operation (p. The question was suggested by Mr. Martin and Mr. Dent that in all condemnation proceedings it must be shown to the court that there is a public necessity for the taking of the property sought to be condemned. Mr. Oliver affirms that when Congress directs that any property be taken in connection with a public project, such action by Congress precludes all further inquiry into the question of necessity (p. 764). The court simply held [in re a case cited] that courts could inquire into the public use sought to be declared by Congress, but when a proper public use was found that then the action of Congress in declaring what property should DIGEST OF STATEMENTS ON MUSCLE SHOALS. 31 Legal questions involved Continued. be taken for the enjoyment of that public use was a legislative and not a judicial question (p. 833). Since the Government owns a nitrate plant at Muscle Shoals, which is to serve the Government in war and in peace for a public use, and since the question now before the committee is whether the power plant at Gorgas and the trans- mission line leading therefrom, constructed with Government money, on land of the Alabama Power Co., and which supplies electric energy and power to the nitrate plant at Muscle Shoals, is necessary for the use and enjoyment of such nitrate plant, if Congress decides that it is, and orders the acquirement of the land on which the Government property is situated, by condemnation, that the action of Congress would be conclusive on the question of necessity, and could not be inquired into by any court (p. 834). The Gorgas power unit was built as a plant to supply the electric power to operate a national project. If now Congress should accept an offer providing for the maintenance and operation of that plant, so as to conserve the two national purposes, as expressed in the 1916 act, and in that connection should direct that this Gorgas plant be condemned and taken over, the necessity for thus taking it over could not arise in any court (p. 765). Mr. KEARNS. *' Could the Government * * * condemn property that belongs to the Alabama Power Co. for Mr. Ford? The question in my mind is that it would not be exactly for governmental use." Mr. OLIVER. "* r the Government in making a sale to Mr. Ford or a lease to Mr. Ford of this power and of these plants, and in authorizing the taking over of the power plant at Gorgas, which has heretofore been used in connection with nitrate plant No. 2, is doing nothing but providing the necessary power for a governmental purpose, the governmental purpose having been declared in the national defense act of 1916 " (p. 770). The Government would have the power to condemn the rights of the Alabama Power Co. in the plant at Gorgas and take over the entire plant (p. 769). The act of May 10. 1918, and the act of July 9, 1918, relate alone to property acquired by the Government for the war emergency. These acts never had in contemplation any property acquired for future use after the war was over. Therefore, these acts conferred no authority on the President or the head of an executive department to sell the plant at Muscle Shoals or its power unit at Gorgas (p. 766). The act of July 9, 1918, involved a limitation. It served notice on the agent and on everyone dealing with the agent that the Government had authorized not a sale or an option to buy property three years after peace, but if any sale was made before December, 1918, the property sold, the party to whom sold, the purpose for which sold, and the amount received must be reported to the December session of Congress (p. 767). Mr. Martin, who helped to draw the contract, might be selected by the Alabama Power Co. to be one of the arbitrators to determine the value of the property. He would have voice, equal with the agent to be appointed by the Govern- ment, in the selection of a third party, who together may determine the price the Alabama Power Co. shall pay. ' 'Is there any man who ever studied law for a day that would for a moment contend that, where you confer authority to sell large and valuable property upon an agent and confer it upon him and him alone, the agent has the right, in the exercise of that authority to sell, to delegate to the party who is to buy the right to appoint some one to fix the price? That is perfectly absurd " (p. 768). The power to sell, under the act of July, 1918, would certainly not confer on the agent the power to postpone the right of the Government to sell for three years after peace, and that is what this contract with the Alabama Power Co. does (p. 770). Mr. Oliver does not think that Mr. Dent will be able to supply the committee with any authority to sustain the position he announces as to the law of agency. Surely he will not insist that the President or head of an executive department, authorized by the July 9 act to sell war emergency property, requiring that where a sale was made that a report should be submitted to the next ensuing regular session Of Congress, showing the property sold, to whom sold, for what purpose sold, and the price received, would authorize the President or head of an executive department, one or both, to enter into a contract which, according to its terms, would postpone the right of the Government to sell the property to anyone for six years, giving to the Alabama Power Co. during this time the use of the property and the right to purchase if they so elected, and if the price, 32 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Legal questions involved Continued. when its election to purchase was so executed, it ever, could not be agreed on,, that then the power company might appoint one arbitrator, the Government one, and these two a third, could by any stretch of the imagination be con- strued as a proper exercise of authority by the President or the head of an executive department under the said act (p. 834). The term "head of an executive department" can be construed to include only the Cabinet officers who are at the head of the 10 executive departments (p. jf*>j\ Mr. Oliver thinks that article 22 of the alleged contract of the Alabama Power Co. is not a binding agreement on the part of the Government (p. 769). The contract with the Alabama Power Co. is absolutely void (p. 772). You can not suffer the Government to expend $5,000,000 on your property, at a place you consented and permitted it to be spent, and then come in and threaten the Government, in the event it institutes condemnation proceedings so as to acquire and utilize that property in the future as it has been utilized in the- past for Governmental purposes, that you will claim large consequential dam- ages. There could not be any principle of law sounder than that the Alabama Power Co. will be limited to very small consequential damages under those circumstances (p. 773). If Congress passed a law directing the condemnation they could pass an appro- priation limiting the amount of money that could be paid ; if the assessment exceeded the appropriation it could be provided afterwards (p. 773). The contract of the Alabama Power Co. is not for a sale, but it is for an option on their part to buy (p. 773). The purpose of the Dent Act, passed in 1919, was to authorize the adjustment, and settlement of claims against the Government and a limitation was fixed on the time when they could be adjusted. It has absolutely no effect in a matter of this kind (p. 774). Mr. Oliver thinks that claims of the Alabama Power Co. would not involve three- or four years of litigation if Congress should by vote accept the offer of Mr. Ford and direct condemnation of Gorgas plant (p. 999). The Alabama Power Co. was responsible for the proviso that was put in section 124 of the national defense act of 1916 (p. 1001). DIGEST OF STATEMENT OF MAJ. JOHN G. BOOTON, ORDNANCE DEPARTMENT, IN CHARGE OF CONTRACT SECTION (PP. 885-889). Alabama Power Co., contract with. Major Booton, who is keeper of the records, contracts, orders, etc., of the Ord- nance Department, read a part of Bulletin No. 50, issued by the Secretary of War, August 31, 1918, which gave the Director of the Purchase, Storage and Traffic Division authority to dispose of such supplies embraced within the provisions of the act of July 9, 1918. Major Booton also read Supply Bulletin No. 13, headed "War Department, Purchase, Storage and Traffic Division, General Staff, Purchase and Supply Branch, \Vashington, August 3, 1918," which contains contract provisions regarding increased manufac- turing facilities, and which was signed by authority of the Secretary of War by George W. Goethals, major general, Assistant Chief of Staff, Director of Purchase, Storage and Traffic. Major Booton read office order No. 157, dated March 3, 1918, issued by the Chief of Ordnance, which appointed, among others, Lieut. Col. William Williams as a contracting officer. Colonel Williams was a contracting officer from March 2, 1918, until February 4, 1919 (pp. 886-887). There is attached to the retained copy of the contract with the Alabama Power Co. in the nitrate division an approval carrying the signatures of the officers approving the contract, and the statement "approved by Board of Contract Review of Procurement Division, November 8, W. Arthur Babson, secre- tary." That board was an ordnance function, a committee appointed by the order of the Purchase, Storage and Traffic Division of the General Staff. The names of the signing officers are Col. J. W. Joyes, Maj. C. F. Beanies, Maj. E. V. Prentiss, Capt. G. M. Alexander, Lieut. Dale Bumstead, R. H. Swart- wout. Colonel Joyes was the senior officer, and there were six initiators, each of whom was responsible for his separate detail. Colonel Joyes was in charge of the nitrate division, so he was the one most interested (pp. 887-888). Major Booton, in answer to questions of Mr. McKenzie, stated that nothing at all had been found in the records to indicate that the Secretary of War gave any directions in connection with the Alabama Power Cb.'s contract; rior had DIGEST OF STATEMENTS OX MUSCLE SHOALS. 33 Alabama Power Co., contract with Continued. anything been found to indicate the approval of the Secretary of War except the approval by his authorized agencies. The clearance committee of the Purchase. Storage, and Traffic Division of the General Staff was one of these agencies. The Chief of Ordnance delegated his authority to the Purchase, Storage, and Traffic Division to approve forms and individual contracts, which is the reason for the approval of the clearance committee, and the Chief of Ordnance gets his general authority directly from acts of Congress. In the Revised Statutes, section 1164. it is prescribed "it shall be the duty of the Chief of Ordnance, under the direction of the Secretary of War. to make con- tracts of purchase for procuring necessary supplies and ordnance stores for the use of the armies of the United States "(p. 888). Mr. McKenzie stated that there was nothing whatever before the committee up to date that indicates that the Secretary of War had anything to do with either directing or procuring or preparing the Alabama Power Co.'s contract, whereupon Mr. Dent interposed, and stated that ; 'The first document we offered was a general order issued by the Secretary of War authorizing con- tracts in the various departments to be made in 'this way. There was no specific authority for this particular contract, but general authority for con- tracts of this nature. That is the first document we put in the record this afternoon * * * in connection with the act of July 9" (p. 888). The contract was approved November 8, 1918. prior to the signing on the 9th. The approval was supposed to be before the signature. Sometimes it was before the contracts were sent out and before the contractor was allowed to sign or before the Government released it (p. 889). DIGEST OF STATEMENT OF MR. FREDERICK E. ENGSTRUM, PRESIDENT OF THE NEW- PORT SHIPBUILDING CORPORATION (PP. 895-900, 935-939). Cost of construction. Construction of Dam Xo. 2 under Engstrum proposal is not a cost-plus method, because in the 5 per cent plus the cost of construction, the overhead which always goes into the cost of a project is under the plus, in this condition. Mr. Engstrum believes that he can complete the dam by the Government paying him 5 per cent, at less expense than the Army Engineers could complete it without the 5 per cent (p. 938). The overhead spoken of in the construction of Dam No. 2 is the accounting system necessary to carry on the business and the engineering companies which operate together' with Mr. Engstrum's company and all expenses entirely outside of the lump-sum contracts which are let. All contracts will be let a*s lump-sum contracts. To carry on those lump-sum contracts, all the other expense falls on the operating company . The plans of the engineers of the War Department that are now completed will be used, but it requires Mr. Engstrum's engineers to take it up where the War Department has brought it up to this time, and in conjunction with the engineers of the War Department to complete the contract. Taking the expense over three years Mr. Engstrum does not figure there is any profit to speak of. It is barely an equal proposition (p. 938). Disposition of Muscle Shoals proposition. The two nitrate plants, one having cost $13,000.000 and the other $67,000,000, can be put in a high state of efficiency for about $7,000,000; and the greatest dam in the world partly constructed at *a cost of $17.000,000 will soon be worthless unless completed. Obviously it is economy and good business to finish this dam. Mr. Engstrum submits that his proposal "provides for utilizing the Muscle Shoals property in the most efficient manner, at the least possible cost, and also guarantees a* most ~ liberal cash return to the Government after the investment (p. 9:^i . Proposal of Mr. Engstrum. Summary of outstanding features. (Letter of submittal, Feb. 23, 1922, p. 896.) Text of proposal (pp. 896-899). The only return Mr. Engstrum's corporation expects to get is what it is able to conserve or to save from the excess power and the practical utilization of that power in utilizing the high-peak load, utilizing the secondary power to its utmost advantage, holding all the power intact and keeping the stand-by steam plants available to make up the gap where the secondary power falls off, and the practical and economical usage of all of the assets which are there, and which will be there upon completion of the project, not offering to purchase any of the property but all of the property remaining intact and in the ownership of the Government (p. 936). 34 DIGEST OF STATEMENTS ON MUSCLE SHOALS. DIGEST OF STATEMENT OF HON. MARION BUTLER, ATTORNEY FOR MR. FREDERICK E. ENGSTRUM (pp. 900-935, 989-993). Mr En^strum's corporation will give a bond for the faithful performance of every- thing it agrees to do as lessee, and it is to be approved by the Government. The company would be responsible under the bond the very first time the Government would call upon it under any clause of the bond for any part, or for its first failure to perform; and if the company defaulted on the bond in one respect, it would be called to account at once in damages (p. 915). The one important thing needed to protect the interests of the Government and the public is a good and sufficient bond, and that Mr. Engstrum's company is prepared to furnish (p. 991). Capital investment of Mr. Engstrum's corporation. Amount of capitalization considered entirely immaterial, since the company is giving a bond. "But * * * we are ready to meet any suggestions along that line " (p. 910). Mr. Engstrum, who signs the proposition, is alone financially responsible lor all the capital that will be needed until the corporation becomes an operating concern. Mr. Butler thinks that they can meet Mr. Miller's suggestion that the corporation have a stated paid-up capital of $1,000,000 to $5,000,000 (p. 922). It might be more practicable for the personnel of the company to become per- sonally responsible in addition to the bond, that would be better than putting up a lot of idle money (p. 923). Cost of construction. Amendment to section 19, regarding the cost of construction, which reads as follows, "The cost in each case to be determined by the lowest responsible bid resulting from a public offer by lessee, and by the contract awarded by lessee to such bidder, subject to approval by the Secretary of War, " makes it perfectly clear and certain that the construction will be done at the lowest possible cost; and it will also be done in the most efficient manner, because one of the best engineers in the country will be in charge (p. 907). Mr. Engstrum's proposal is not a "cost plus" one, as understood during and since the war. The cost is fixed by the lowest bidder, and a 5 per cent fee on that low and fixed cost is asked, in that way the Government is protected under this contract (p. 919). Dams. Mr. Engstrum's proposal does not provide for building Dam No. 3 at this time, but it does provide for doing it later, any minute that the Government decides as a matter of policy to proceed with it (p. 903). Disposition of Muscle Shoals proposition. Mr. Engstrum proposes to use both nitrate plants for making nitrates. Nitrate plant No. 1 is the only plant in this country, except a small one built at Syracuse since the war, that is built to use the Haber process. It is a shocking proposi- tion to abandon the use and development of that process at Muscle Shoals, and to go back to simply running the cyanamid plant there, which is more ex- pensive and which has not the same future possibilities of development. We know to-day that we can redesign nitrate plant No. 1, and run it perfectly by the Haber process. The one serious defect in the plant is the need of an efficient catalyst. An investment of $4,000,000 (the estimate given by General Williams, Chief of Ordnance), therefore, will make the plant a successful going concern, the best and most efficient Haber process plant in the world (pp. 902-903). It is clear that we need to-day all the nitrogen which can be produced at Muscle Shoals by both nitrate plant No. 1 and nitrate plant No. 2, and that we should lose no time in putting both plants to work on full time. No one who is con- cerned in providing this country with an adequate supply of nitrogen can favor the scrapping of plant No. 1, which would mean the abandonment of the Haber process (p. 990). Fertilizer. The United States is using less fertilizer material than the small country of Ger- many. We are .starving our soil. Germany used last year 500,000 tons of nitrate for fertilizer; we used less than 175,000 tons, and at least half of that we imported from Chile (p. 901). Mr. Engstrum wants the Secretary of Agriculture to regulate the amount of nitrates to be offered for sale, and also the amount of commercial fertilizers. A complete fertilizer is not the ideal thing. Even now many farmers are buying their ingredients and mixing them themselves. But there should be some of DIGEST OF STATEMENTS ON MUSCLE SHOALS. 35 Fertilizer Continued. the complete fertilizer prepared and ready to sell to be used by farmers who have not yet learned to mix their own (p. 906). Nitrate plants Xos. 1 and 2 will produce between 2,000 : 000 and 3.000,000 tons of fertilizer, or about one-third of the fertilizer needed (p. 917). The results which will come from the operation of this great plant in the produc- tion of fertilizer are staggering. The benefits will be nation-wide. It is truly national, a tremendous governmental function reaching to every person in the Nation (p. 929). Haber process. Germany used over 500.000 tons of nitrogen in the form of ammonia last year. She made 300,000 tons of this ammonia from the air by the Haber process, which is the most efficient process for the fixation of atmospheric nitrogen (p. 990). Legal questions involved. The question as to whether the Government would have a legal or moral right to take the Gorgas- Warrior steam plant away from the Alabama Power Co. does not enter Mr. Engstrum 's proposition. His offer is the use of it under a lease that would come within that contract which the Government has with them. Mr. Engstrum's corporation could sell the Alabama Power Co. all the power that they need for their customers, and that is all the need they have for that plant. So, there would be no litigation about it under Mr. Engstrum's lease pp. 914-915). The contracts between the United States and the Air Nitrates Corporation and the United States and the Alabama Power Co. would not interfere with this proposition. The contract with the Air Nitrates Corporation is only in the event the Government sells, and Mr. Engstrum is simply leasing. In the case of the Alabama Power Co. the Government could lease that property just as the Government is using it now (p. 918). National defense. One of the important features of the Engstrum proposal is that the nitrate plant will be ready to produce nitrates for national defense in time of war (p. 929). National defense act. Mr. Engstrum is primarily interested in the operation of this property as provided in the national defense act. "We are not buying anything: we are not taking the Government's title. We are simply offering to carry out, as we see it, the . declared governmental purpose in connection with this property, and then to turn it back at the end of 50 years if the lease is not renewed * * " (p. 908) . Nitrate plants. It is a simple matter to redesign nitrate plant No. 2. The process for making a nitrate for explosives and a nitrate for fertilizer is exactly the same under the cyanamid process down to the last step. By simply adding the sulphuric acid equipment, the plant will- be ready to make both kinds of nitrates at all times, and the highest estimate, as given by both General Williams and Major Burns, $3,000,000, will be sufficient to do this (p. 904). The chief defect in nitrate plant No. 1 is the want of an effective catalyst. Since the war we have made, in our experimental laboratories here in Washington, a catalyst which is to-day the best in the worlti. We have also succeeded since the war in making the largest and most efficient electrolytic cell in the world. This cell is the most improved method known for producing hydrogen gas. This new electrolytic cell is a 10,000-ampere cell, and it is a tested success. So we already have in the possession of our Government two important improve- ments on the Haber process (the new catalyst and the new electrolytic cell), which will make this plant at once the most efficient on earth for the fixation of atmospheric nitrogen (pp. 990-991). Payments to the Government. Under an estimated development of 440,000 kilowatts, the 1 mill per kilowatt hour will produce $3,500,000 a year, which will go either into the United States Treasury or be used in financing the making and selling of cheap nitrates for fertilizers, at the option of the Government. When Dam No. 3 is built and another nitrate plant is in operation there, then the income to the Government will be proportionately increased, and so on with all the other proposed devel- opments during the 50* years of this lease (p. 906). Plans of Mr. Engstrum. Mr. Engstrum would not spend, probably, any more money in building more dams after finishing Dam No. 2 until there was a need for more power and until the art of making nitrates is more fully developed. But cheaper methods of making nitrates are sure to be found, and when that time comes Mr. Engstrum 36 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Plans of Mr. Engstrum Continued. contemplates putting in additional nitrate plants, building extra dams, and as fast as necessary utilizing all of the tremendous water power in producing cheaper nitrates (pp. 903-904, 991). When Dam No. 3 is built Mr. Engstrum will put in another nitrate plant, and it its size is in the same proportion to the output of the dam, then Mr. Eng- strum's proposal will apply to it in the same way, and if not, the difference can then be adjusted; and so on with the whole development of the river. But when cheaper nitrates can be made at a profit, then the returns to the Government will be greater (p. 913). Mr. Engstrum's corporation hopes to sell power at wholesale to all the power companies near by. Mr. Butler thinks every power company around will want to tie in with Mr. Engstrum's corporation, and he thinks they [the companies] would build connecting lines to get the power (p. 912): Proposal of Mr. Engstrum. Mr. Engstrum's proposal can not be a failure. The corporation gives bond to run the nitrate plants and it can be done by the sale of power, no matter if the nitrates are sold below cost. The plant finances itself, pays a profit, pays the Government a profit, and produces cheap nitrates. This is plain, simple, and certain (p. 933). When Dam No. 2 is completed, there will be, under Mr. Engstrum's contract, an assured profit both to the Government and to his company (p. 991). Proposal of Mr. Engstrum compared with Mr. Ford's tender. Mr. Engstrum's lease of this great water power should provide : (1) That a sufficient amount of the power developed at Dam No. 2 should be used from the beginning to operate both nitrate plant No. 1 and nitrate plant No. 2 at their full capacity; (2) that the remaining power to be developed at Dam No. 3 and at other dams on the Tennessee River should be conserved and used to operate more nitrate plants by the cheap Haber process, as they are required to meet the growing need for nitrogen. It would be most improvident to lease Muscle Shoals, having a potential future of at least 1,000,000 horsepower, with only enough power reserved to operate nitrate plant No. 2, which will produce less nitrogen than our present needs, with all the remainder of this enormous water power surrendered and mortgaged to a private monopoly for 100 years or more (p. 991). Under the Engstrum proposal, the property, which will enormously increase in value, will be returned to the Government at the end of 50 years, and with no strings to it. No preference is asked for at the end of the 50-year period (p. 991). Mr. Engstrum does not offer to capitalize his company for $10,000,000 because it is not buying any property from the United States, and because it is not pro- posing to use the larger part of this power for a manufacturing program for private profit. The only capital which it will need will be sufficient capital for operating expenses until it is a going concern. That amount the company will be amply able to furnish. The $10,000,000 capital of Mr. Ford's company will be used to build and operate automobile plants. Neither the Govern- ment nor the general public will be profited to the extent of one penny by the $10,000,000 capitalization (p. 991). If Mr. Ford's proposal should be accepted the Government will be required to spend over $60,000,000 to complete Dam No. 2 and also to build outright Dam No. 3. The only benefit which will accrue to the public will be from the opera- tion of nitrate plant No. 2 to make fertilizer at 8 per cent profit. Under the Engstrum proposal the Government is required to spend only the amount of money necessary to finish Dam No. 2 and to redesign the two nitrate plants, which is estimated to be within $30,000,000. "We agree to use all of the power that is necessary to run both nitrate plants at their full capacity, and besides to make nitrates regardless of whether the same can be made at 8 per cent or not" (p. 992). The Engstrum company proposes to run a research plant to develop improved methods for producing cheap nitrates, which will mean cheaper fertilizers. Vastly greater results can be expected from a research plant operated under conditions where the whole purpose of the plant is to produce more and cheaper nitrates than under a lease where the making of nitrates will, at best, be a side issue. There is not a reasonable ground for even a hope that Mr. Ford will ever develop any improved process for making nitrates at less than present prices (pp. 992-993). Mr. Engstrum's company proposes to sell the nitrates to be produced at both plants at Muscle Shoal's at a price lower than the cost of the Chilean nitrates, the price to be fixed by the Secretary of Agriculture. This means that all the DIGEST OF STATEMENTS OX MUSCLE SHOALS. 37 Proposal of Mr. Engstrum, etc. Continued. nitrates produced will be sold at a loss for the present of from $5 to $10 per ton. -To cover this loss, the company proposes to sell at wholesale all of the excess power produced at Dam No. 2 not needed to run the two nitrate plants and for the present to set aside 1 mill for each kilowatt-hour of power sold to finance the selling of nitrates and fertilizers at a price below cost. When the Haber process makes it possible for a larger amount of nitrogen to be taken from the air at a cost much below the present selling price of Chilean nitrates, then the 1 mill per kilowatt-hour for power sold will be turned by the company into the Treasury of the United States. On the estimated production of 440,000 kilowatts at Dam No. 2 this 1 mill per kilowatt-hour will mean an income to the Government of $3,500,000 a year. Here is a return of $3,500,000 on an investment of 830.000,000, as against Mr. Ford's 4 per cent return, which is SL'. 400,000 on an investment of $60,000,000 (p. 993). The Ford proposal must be accepted or rejected as a whole: the Engstrum pro- posal is divisible. If the Government prefers itself to finish Dam No. 2 and redesign the nitrate plants, then Mr. Engstrum's company will lease the prop- erty when it is ready to be operated; otherwise the company is ready to han- dle the construction' also (p. 993). Proposal of Mr. Ford. There are two basic defects in the Ford offer: (a) It is not a good business proposition on the part of the Government. f> It defeats "the purpose of the Government as declared in the national defense act by diverting the public money already invested and to be invested, largely to serve the ends of a private monopoly (p. 992). Rentals. Mr. Engstrum proposes to sell the surplus power at wholesale and to set aside 1 mill for each kilowatt-hour of power sold, to be paid into the Treasury of the United States as rental for the lease of the property ip. 906). Subsidy. Under the Engstrum proposal the plan is to begin at once producing nitrates at both plants by both methods and to continue to produce without asking the Government for a subsidy. The water power will be made to finance the mak- ing of these nitrates from the beginning, no matter what the cost may be, therefore a part of the power will be used for running these plants and a part will be sold at wholesale, 1 mill for each kilowatt-hour of power sold to be set aside and paid into the United States Treasury as rental for the lease of the property. If the Secretary of Agriculture thinks that the nitrates should be sold to the farmers at $10 a ton less than it may cost to produce them, in order to furnish nitrates, then this loss of $10 a ton is taken out of the sum arising from the 1 mill per kilowatt-hour of the power sold before that sum is paid into the Treasury. It is only by this kind of a subsidy that nitrates can now be made from the air and sold at a price less than Chilean nitrates (pp. 905-906). DIGEST OF STATEMENT OF MR. J. H. LEVERING, WASHINGTON', D. C. (PP. 939-946). Muscle Shoals proposition. Mr. Levering does not believe that all the engineers in the world could build the dam any cheaper or 'better than the Army engineers are now doing it (p. 939). Proposal of Alabama Power Co. Under its proposition the Alabama Power Co. will take over the wires between Muscle Shoals and Gorgas. One of the essential things to work the nitrate plant is the quarry at Waco. There would be no chance to get power down there unless the wires were hired or bought back again from the Alabama Power Co. They would have the lime tied up forever (p. 943). The second 100.000 horsepower will not be available 82 per cent of the year. "It won't start up just 100,000 and run even 100.000 for eight months and then stop; but it will vary, and a great deal of the time your plant will not be in full opera- tion : and at other times they will* crowd that power on to you when you can not use it. The result would be you would have to have the employees there half of the time idle, and your nitrates would cost you more than it would be possible to sell them for" (p. 943). If the company finishes Dam No. 2 at the present height, they will have the Gov- ernment so tied up that it can not build Dam No. 3 without doing business with the Alabama Power Co. again (p. 944 >. Under its proposal the Alabama Power Co. would get the Gorgas plant, the trans- mission line, and the steam plant at nitrate plant No. 2. which cost in the. neigh- borhood of $20.000,000. Then there is the $17,000.000 in Dam No. 2. which it takes over, and ** * * they get at least $35.000,000 with which to finance 38 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Proposal of Alabama Power Co. Continued. themselves to finish Dam No. 2 and give them a power equipment that will pay interest on $50,000,000. That is to say, they talk about financing themselves; they are not financing themselves at all; the Government is financing them, just as much as they would Mr. Engstrum, because you are turning over to them property that you can go put into the market and borrow the money on to com- plete Dam No. 2, and it is not, in my opinion, a fair proposition. You might as well simply give them a bill of sale for the whole thing and let them have it, and you will save a lot of trouble hereafter" (p. 944). Proposal of Mr. Engstrum. "Mr. Engstrum, first, wants a cost-plus contract. He lets the contract to a con- tractor, whom, he states, will have to have 10 per cent; then he gets his 5 per cent on top of that, which makes it a 15 per cent contract, and that in itself is 15 per cent more than there is any reason to pay" (p. 939). Under section 21 of the proposal, which states that all stores, supplies, equip- ment, and other loose personal property now on or about the premises shall be- come the property of the lessee upon the execution of the contract, Mr. Eng- strum would acquire $3,500,000 worth of property. If the Government lets the work to a contractor, Mr. Engstrum could sell this property to the contractor for at least $5,000,000, or rent it to him. So that Mr. Engstrum would not be short of money anywhere during the construction (p. 939). The alterations of the nitrate plant are estimated at about $7,000,000. Such alterations are to be made at the expense of the contract. There is a trust fund created of 1 mill for each kilowatt hour of current sold; the mill and the cost of the nitrates becomes a trust fund in the hands of the lessee to make up the deficit in the manufacturing of nitrates and also for the purpose of making the alterations from time to time in the plant. "When business gets dull with them, all they have to do is to tinker with the plant and use up all the money in the hands of the trust fund. They do not have to do a thing about making nitrates" (p. 939). "As foolish as this contract is, as absurd as I think it is. it is a better contract to-day than the Alabama Power Co. or the Ford contract. * * * I do not claim that neither of these three contracts [is] raised to the dignity of a con- tract, but [they] are simply well worded applications for a hand -out" (p. 940). Proposal of Mr. Ford" Statement showing defects in the Ford tender (pp. 942-943). Summary of defects in the Ford tender: 1. It requires the completion of Dam No. 3. which is uncertain. 2. It requires the Government to litigate the title to the Gorgas steam plant and transmission lines before it becomes operative. This means delay and the ruin of nitrate plant No. 2. 3. The Ford tender does not provide for increasing the nitrate supply. The first right to the power would be vested in the Ford industries. 4. Under the tender the Government would bear the burden of maintenance. 5. This tender will cost the Government more than $50,000,000, and if Dam No.. 3 is not successful there would be little chance of recapturing the property or amortizing the investment. 6. Mr. Ford make this tender as a dear friend of the farmers, from whom he has acquired millions of dollars. Should he get possession of their fertilizer supply they will realize that he is the "dearest friend" they ever had (pp. 942-943). DIGEST OF STATEMENT OF MR. FRANCIS E. FROTHINGHAM, OF COFFIN & BURR, BOS- TON, MASS. (PP. 947-969). Alabama Power Co. Alabama Power Co. is in the business of making electricity for general use and for needful service. The company carries on its business under public regulation, either of the State, of the Congress, or of the Federal Water Power Commission, which means that the company is allowed to earn only a fair return on the money actually used in the public service. That means, then, not that the Alabama Power Co. is building up a monopoly hostile to the interests of the public, but that the public has decided that it will regulate that monopoly in its own interests; that it will be the monopolizer and not the Alabama Power Co. or anyone else (p. 949). Should the Government accept the proposition of the Alabama Power Co., Coffin & Burr have told Mr. Martin that they believe that in the face of what he has told them of the growing markets and the business which is expected to absorb the initial output of this plant when it is completed, that his proposition can be DIGEST OF STATEMENTS ON MUSCLE SHOALS. 39 Alabama Power Co. Continued. financed and that they [Coffin & Burr] could probably supply the money (p. 963). Disposition of Muscle Shoals proposition. As an American citizen who has studied these questions the country over, Mr. Frothingham thinks that the best interests of the public are served by putting the Muscle Shoals situation into the hands of the agency which is prepared and has demonstrated its ability to serve the public already [the Alabama Power Co.] (p. 955). If Mr. Ford should develop this project and should' have power for sale cheaper than the Alabama Power Co.. that company would not be injured by the ex- istence of that power developed by somebody else; but the public would be greatly injured , because instead of retaining the monopoly control which it has over the situation as it is to-day, it would deliberately create a monopoly control as against itself in the hands of a private owner beyond the reach of governmental regulation and that would be very much the graver of the two evils to the public (p. 957 i. Fertilizer. ;< I have a feeling * * * that if there is a demand for the manufacture of nitrates, with a situation as clean as a whistle, as it would be for an independent concern, expert in that business, to lease a plant from the Government and have 100.000 horsepower of free power, and with, therefore, a minimum demand for new capital that people would come, forward to do that business, and if they did that business, and that business only, you would get more and better fertilizer made than you could get made in any other way" (p. 968). Interest. In Mr. Frothingham's opinion the 100,000 horsepower which the Alabama Power Co. will supply to the Government has an equivalent money value, and he thinks that equivalent money value might be taken as an interest on the $17,- 000.000 investment the Government already has in Dam No. 2 (p. 954). Muscle Shoals proposition. Only by tying together by transmission lines, and in every way known to science, the capacities of hydroelectric development possible on the Coosa and the Tallapoosa Rivers with the Tennessee River development, the greatest value of that river may be realized. Under such a scheme the Muscle Shoals plant might be developed economically to 500,000 or 600,000 horsepower, and the aggregate of hydroelectric installed capacity which might be created within a 90-mile radius' of Birmingham is in the neighborhood of 1,500,000. The Muscle Shoals powep will then have reached the full of its usefulness, because it is one limb of a whole live functioning body. But those figures can only be realized and full advantage taken of them if coordinated by some single agency. No combination of agencies can accomplish the equivalent results that a single agency can if every advantage is to be taken of the diversity fact or which such a combination can realize. With a combined system widely scattered loads may be averaged, so that the average aggregate demand is much less than the sum of the individual demands. That means that there is less requirement for installa- tion of power producing and distributing capacity and a correspondingly less in- vestment to take care of that same business. It means also that the shortcomings of one source of power may be offset by the availability of another source, and that whatever power is generated at one source or another may find its way to the market by the most direct and efficient route. That is applying the principle of load factor to all the various portions and to the whole of such a property (p. 948 1. Financing the Muscle Shoals dam as an independent proposition would be en- tirely uninteresting to Mr. Frothingham (p. 969). Proposal of the Alabama Power Co. The Alabama Power Co.'s proposition leaves the nitrate plants and the quarry which supplies them in possession of the Government, and it gives to the Gov- ernment, free of cost, 100,000 horsepower, so that the Government not only has the plants which it has built for the production of explosives, but the free power with which to run them. If the Alabama Power Co. is allowed to finish the Muscle Shoals plant, it will have started a great power system on its way, so that as time goes on and the markets increase, there will be developed such an aggregate of power in that territory that in the event of war the Government will have more power available than it can conceivably use. The nitrate plant is left in the hands of the Government and 100.000 horsepower, free of cost, is provided to the Government, or to any other agency that the Government wants to specify to manufacture fertilizer. The company in its offer to com- 40 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Proposal of the Alabama Power Co. Continued. plete the work without further cost to the Government meets the demand of the Government for the most complete general use of Muscle Shoals 100 per cent (pp. 950-951). The Alabama Power Co.'s proposition completely complies with the policy ot the Government in the handling of the powers in the public domain and on navigable streams, as laid down by the Federal Water Power Commission. The fact also that the company completes the development at its own cost is no slight consideration (p. 952). Should the Government accept the proposition of the Alabama Power Co., Coffin & Burr have told Mr. Martin that they believe that in the face of what he has told them of the growing markets and the business which is expected to absorb the initial output of this plant when it is completed, that his proposition can be financed and that they [Coffin & Burr] could probably supply the money (p. 963) Public utilities. Mr. Frothingham has studied problems of public utilities and is sincerely inter- ested that the best public service shall be performed ; he is convinced of the fact that as our institutions are run in this country the privately managed con- cern, under regulation, secures through private initiative and close application to the problems involved results that can not be gotten in any other way. Therefore, it is to the advantage of the public to have these concerns run in that manner. Competition in the water-power business is destructive. It multiplies investment needlessly, and the cost has to be absorbed by the com- munity in some wav or other, whether it knows it and realizes it or not. (pp. 966-967). DIGEST OF STATEMENT OF HON. WILLIAM B. BANKHEAD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA (PP. 1018-1020). Disposition of Muscle Shoals proposition. "The entire Alabama delegation * * present to you [the committee] a statement of the expression of the unanimous attitude not only of our entire delegation in the House, but I am authorized to say also the attitude of our representatives in the Senate, as being all for the recommendation" by this committee that the offer of Mr. Ford be accepted in its amended form and reported to the House for favorable action" (p. 1018). DIGEST OF STATEMENT OF HON. JOSEPH W. BYRNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE (P. 1020). Disposition of Muscle Shoals proposition. "Representing one of the districts in Tennessee, and on behalf of Tennessee, speaking, as I believe, the sentiments of an overwhelming majority of the people of that State, I hope that this committee will, in its wisdom, see fit to recommend the acceptance of the proposition made by Mr. Ford" (p. 1020). DIGEST OF STATEMENT OF HON. JOHN McDuFFiE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA (PP. 1021-1026). Alabama Power Co. If the offer of the Alabama Power Co. were accepted, they would get over $30,000,000 worth of property for $500,000, because the cost of the locks is esti- mated to be $4,500,000 (p. 1023). If this great water-power project is given over to the Alabama Power Co., that company will have a complete and perfect monopoly of the water-power in- dustry of the State (p. 1023). Disposition of Muscle Shoals proposition. The offer of Mr. Ford more nearly conforms than any other to the policy of Congress in authorizing the development of plants for making explosives and fertilizer, and his offer, viewed from the standpoint of a return on the invested capital, is better than any other. Measured by other investments of public money the Ford offer means a greater return on the capital invested than any other Government enterprise Mr. McDufne can recall (p. 1022), DIGEST OF STATEMENT OF COL. J. W. JOYES, ORDNANCE DEPARTMENT, UNITED STATES ARMY (PP. 1038-1115). Alabama Power Co. The Alabama Power Co. bought the right of way for the transmission line on their own account and paid for it with their own money, but they did it at the sug- gestion of Colonel Joyes (p. 1090). DIGEST OF STATEMENTS ON MUSCLE SHOALS. 41 Alabama Power Co., contract with. When negotiations with the Alabama Power Co. were opened in December, 1917, the Ordnance Department found it difficult to get at a working arrange- ment. If the power had been taken by commandeering many industries would have been interfered with which the War Industries Board said must not be interfered with in any way. In addition, the probable cost and com- plication due to commandeering appeared prohibitive (p. 1044). How to have the Government's interest protected and the Alabama Power Co.'s interest protected made a very complicated situation. "I said. 'We have got to do the thing anyhow and we will find a way to do it after we have got it started.' " Consequently three purchase orders were drawn, one for delivery of power, one for an extension of the Gorgas plant, and one for the building of a transmission line. Those orders were safe, as they were capable of later treatment as commandeering orders (p. 1045). In the summer of 1918 Colonel Joyes no longer had any authority to sign a con- tract. He took a draft of the contract with the Alabama Power Co. to the Procurement Division. The matter was referred to Colonel Williams. He redrafted the contract, putting it into the regular form of the division. Im- portant conferences were held at which Colonel Joyes and representatives of the company were present. The contract was finally signed on November 7 1918 (p. 1049). The United States had to provide additional facilities to enable the power com- pany to give.it the power it wanted to sell it and having provided those facilities, it wanted to get some return upon its expenditures if possible, and it wanted the best return upon its expenditures that it could get. The Ordnance Department considered very .carefully how that could be done. Possibly it could have taken some land somewhere down there, seized the land or bought it. and gone ahead to build, but at that time there were specific legal provisions against buying any land (p. 1050). The contract with the Alabama Power Co., was made because Colonel Joyes thought that the best thing that could be done was to arrange to take the tem- porary use of the land and such facilities as were needed of the company. There was no bar to a lease or to a rental, while there was to a purchase. "Why did we . go in there and get mixed up, interlocked, and intertwined with agoing concern so it could not be gotten away? ' * * The reason was this: They had what we wanted there and at that time when we were in the war, when we found what was needed, we went after it and took it in some way or other" (p. 1052). The making of the contract with the Alabama Power Co. meant a considerable gain of time for the Ordnance Department. It wanted the power in six months. The contract meant taking a particular piece of land with certain structures belonging to the power company already in the ground. To make power of high potential it has to be either in one plant or there must be a more expensive and troublesome installation. "So, naturally, we built it to go right into the one thing ' r and especially we felt it preferable to do that because that gave us a very proper and correct outlook to get some money back for the United States. In many cases where the Ordnance Department had at that time to put in additional facilities to get what the Government had to have, we thought, This is all lost money: this is sunk. It is an expense account and not an invest- ment, and we will never get any of it back'; but here we had an assurance of getting some of it back " (p. 1052). Instead of the contract with the Alabama Power Co. being, as some people have hinted, an unprecedented monstrosity, it has lots of good precedents, the precedents have gone further than it went, and those that went the furthest got the best ultimate result in the settlement generally (p. 1058). The part of the Alabama Power Co.'s contract which gave to them the option to buy the buildings erected by the Government was not at all unprecedented. It was exactly the same kind of contract, in principle, that was entered into in many other cases (p. 1094). The reason for the clause in the contract with the Alabama Power Co., which provided that the Government might not demand that the company buy the Gorgas- Warrior steam plant until three years after peace was declared was that it was thought that there would be a certain period after the war when condi- tions of financing and of business would be difficult. It seemed but fair to allow anybody whom the Government would require to make a purchase a little time for business to readjust itself (p. 1108). Believes that in the contract with the Alabama Power Co. are to be found the best means of enforcing the legal rights and protecting the proper equities of the United States. Advises that the contract be respected and enforced and 42 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Alabama Power Co., contract with Continued. urges that the policy of the Government be to secure in the manner prescribed in the contract the most advantageous settlement possible (p. 1115). Disposition of Muscle Shoals proposition. The War Department has in the past proposed that Congress authorize a Govern- ment-owned corporation to take over and operate the power of Dam No. 2 and all the nitrate properties . The plan provided that about $1,500,000, the balance on the books of the old $20,000,000 appropriation, was to go to the corporation which would, in return, issue common stock which was to go to the United States in toto. The United States was to provide $12,000,000 as operating capital, the return for which was to be preferred stock issued to the United States in toto. It was also proposed that to get the operating capital a certain amount of Chilean nitrate in storage would be marketed instead of trying to raise the money (p. 1097). Gorgas- Warrior steam plant. Considers that it is not necessary for Mr. Ford to have the Gorgas- Warrior steam plant or the property that belongs to the Alabama Power Co. in order to operate the Muscle Shoals project (p. 1075). Legal questions involved. Revised Statutes, 3736, prevented Ordnance Department from buying land at time contract was made with the Alabama Power Co. (p. 1050). The Gorgas- Warrior steam plant has no connection whatever with the national defense act. The Ordnance Department did not spend a cent of money under that provision of law, section 124, either for the Alabama Power Co. work or for the nitrate plant No. 2 which it was to serve (p. 1053). Regarding the difficulties incident to purchasing land for nitrate plant No. 2 Colonel Joves testifies, "We could get the' money * * * from the general appropriation acts to build the plant, but we could not get the money to buy the land. So the only way I saw to do it was to take some of this money pro- vided for in section 124 of the national defense act to cover the purchase of land alone, and I got an allotment made by the President of the sum of $200,000 to pay for the purchase of the land for United States nitrate plant No. 2 at Muscle Shoals. * * * There was altogether allotted tome $350, 000 for the purpose of buying the land. But I never spent a cent of it. I realized the disadvantage of using that money to buy the land for the nitrate plant, because I knew the only way we could make the nitrate plant was to work with a private corporation, and the law forbade that. * But before it came to the payment for the first parcel of land there was legislation which did permit the purchase of land out of the general appropriations for purchasing munitions, namely, armament of fortifications. * * So the money being on my ledgers intact and never touched I had it revoked" (pp. 1054-1055). Nitrate plant No. 2 was constructed out of money appropriated to purchase munitions and armament of fortifications (p. 1057). Considers that nitrate plant No. 1 was proceeded with, as far as it did go, under the terms, authority, and limitations of section 124 of the national defense act, and that nitrate plant No. 2 was primarily and completely a war proposi- tion. That opinion is supported by the nature of the actual need which inspired the creation of plant No. 2 (p. 1061). Nitrate plant No. 2 had no reference to the national defense act, but it was located at Muscle Shoals because that was the best plave where it could be put (p. 1086). "The fundamental purpose of that plant [nitrate plant No. 2] was that it was not an act of the President or his agent under the legislation contained in section 124 of the national defense act. It was not intended to be from the beginning, by anybody that I know of who advised the President. It was intended purely and simply to help the Government in its war needs, and, having done so, we found the most certain way to get it was to work with this coporation" (p. 1091). Mr. WRIGHT. "Is it not a fact, Colonel, that when you were locating this nitrate plant that the only authority of law you had for doing so was the national de- fense act of 1916,, and that, regardless of where the money was to be derived with which you would pay for the construction, that the authority for estab- lishing these plants was derived from the act of 1916?" Colonel JOYES. "I would not say the authority for establishing the plants. It could hardly be said, I believe, that the authority for establishing the plant could be given by the national defense act, which appropriated only $20,000,- 000. We knew we could not do it wif;h that. ' ' DIGEST OF STATEMENTS ON MUSCLE SHOALS. 43 Legal questions involved Continued. Mr. WRIGHT. -i Did you know exactly where you were when you were establishing these plants, a)s a matter of legality?" Colonel Jo YES. "We had a pretty fair idea that we were working with very little backing in law or legislation for all the things we were called upon and required to do." # * * * " ' * * Mr. WRIGHT. "Xow, your idea is that the sole means by which to determine under what law these plants were constructed, especially nitrate plant No. 2, would be with reference to the funds with which they were paid for. " Colonel Jo YES. "I think that is a legitimate assumption' ' (pp. 1098-1099). National defense. Considers that acceptance of the Ford offer does not mean complete independence of Chile in the matter of nitrogen. It would be a most desirable step toward preparedness, but would not mean full preparedness (p. 1097). Nitrate plant No. 2. Nitrate plant Xo. 2 needs a little more power than is present in the generating unit of its steam power plant to produce to full rated production. The plan of the power plant was changed early in its construction sp that there is ample room in the electric generating room to put in another uuit, about a 30,000- kilowatt unit (p. 1096.) Nitrates. The Nitrates Commission recommended the synthetic ammonia process. Nitrate plant No. 1 was built for that process. In the emergency of October, 1917, the Ordnance Department recommended the cyanamid process (pp. 1062, 1064, 1092). DIGEST OF STATEMENT OF DR. CHARLES L. PARSONS, CONSULTING CHEMISI (PP. 1115-1145). Cyanamid process. The cyanamid process is practically already superseded by the Haber process and its modifications. Many cyanamid plants in foreign countries are closed (p. 1121). The ammonium sulphate plant of the American Cyanamid Co. at Warners, N. J., is not operating. The company can not operate against the competition that is coming from this country, and they certainly can not operate against the competition which may come from foreign countries (p. 1122). Disposition of Muscle Shoals proposition. 'I think the Government should first find out what it has to sell and then having found that out it can put this before the people of the country and offer it to them for bids and sell it to the highest bidder, who will put it through for the purposes you want" (p. 1140). Estimates. "There is a little calculation I have made showing what interest it might be possible to obtain from the hundred thousand horsepower which is unques- tionably salable by the Government. * * * If you sell that horsepower for three-quarters of a mill on the average, it amounts to $657,000 a year, and if you take that $657,000 a year and put it in a sinking fund as the smaller sum which Mr. Ford offers is suggested to be put into a sinking fund, that $657,000, in 94 years at 4 per cent compounded, as given in the Secretray of War's report, would be equal to $676,572,030 instead of $40,000,000, which the other one would amount to on exactly the same basis. At 5 per cent interest it would be over $1,200,000,000" (p. 1144). "I have not said the Government was going to make this money. The Govern- ment is not in the habit of putting its money in a sinking fund and keeping it for 94 years and compounding it semiannually, as the plan proposed in the Ford offer would do, according to the statement prepared by the Secretary of War. I simply said that there was a comparison; Mr. Ford has spoken of a sinking fund of $40,000 annually on Dam No. 2. Here is another sinking fund, identically parallel, of $657,000 income annually .from Dam No. 2, which, if you do the same thing with it, would amount to that money in that time. But I do not think the Government is going to do it" (p. 1145). izer. ''The statement was made that the 2,000,000 tons of fertilizer would probably be made at a saving of 33 per cent. Now, if you will take the present price of that amount of fertilizer and put all the 'nitrate' which could be made in plant No. 2 into it for nothing, the saving would not be 33$ per cent of the fer- tilizer" (p. 1127). 44 DIGEST OF STATEMENTS ON MUSCLE SHOALS. Fertilizer Continued. Doctor Parsons does not believe Mr. Ford or anyone else can operate nitrate pla No. 2 to make fertilizer. He thinks that if Mr. Ford runs it to its capacity make nitrates he will lose all his fortune in 20 years (p. 1138). Haber process. The Haber process and its medications have practically superseded the cyanamu process (p. 112T). There is no patent on the Haber process at the present time that keeps us froi using it. This process will make ammonia a great deal cheaper than any otl process for the fixation of nitrogen from the air (p. 1122). Doctor Parsons has not the slightest doubt that the fixed nitrogen which is to b< made in the future in America is going to be made by a synthetic ammonii process, whether it is at Muscle Shoals or wherever it may be, simply for th< reason that there is no other process it the world that for a minute can compet with it commercially (p. 1124). In Germany the Haber process is operating at full capacity, turning out 300, ( tons of nitrogen per year, about 90,000 tons of which is at Oppau and the oth< 210,000 at Merseburg (p. 1124). The explosion at Oppau had absolutely nothing to do with the Haber proc< (p. 1124). First trial of nitrate plant No. 1, using the Haber process as modified by General Chemical Co. was not thoroughly successful. Doctor Parsons di agrees, however, with the testimony to the effect that that plant was a failui (p. 1136). Navigation. If nitrate plant No. 2 is operated, there will be approximately 460,000 tons oi sludge per year that has to be disposed of. In the hearings which have gone before, they have assumed it would be run into the Tennessee River. Doctor Parsons thinks that if it is run into the Tennessee River it will damage navi gation far more than the locks that may be put in will help it (p. 1126). Nitrate plants. Doctor Parsons objected to the installation of nitrate plant No. 2 because th( cyanamid process was a process that was becoming obsolete (pp. 1116, 1117). Instead of being a failure, nitrate plant No. 1 has thoroughly justified itseU (p. 1124). Doctor Parsons believes very strongly that the one possibility of making fertilizer with any degree of cheapness is through the development of plant No. I at Muscle Shoals, and that the Government can never hope to do anything with plant No. 2, and that anybody that runs it will lose money very rapidb (p. 1125). As Doctor Parsons understands the situation, nitrate plant No. 2 was built wholb as a war emergency. It was not expected that it could compete with othf processes on the fertilizer basis (p. 1129). If nitrate plant No. 2 is changed, it will have to be practically wiped off thf ground before it can be used for any other method for fixing nitrogen (p. 1130). Doctor Parsons thinks that nitrate plant No. 1 at the present time could be put into operating form for $1,500,000 to 12,000,000 with about 30 tons a day capacity (p. 1133). Mr. McKEN^iE. "Then, as a matter of fact, if the Alabama Power Co.'s offer should be accepted you think that the Government would simply have that plant [nitrate plant No. 2] standing there without ever being operated at all." Doctor PARSONS. "I think so, unless they might possibly operate it. for calciur carbide. You might possibly do that, which would enable you to pay all expenses in connection, there with; that is, a certain amount of calcium car- bide would be taken in the South for the manufacture of acetylene gas for autc genous welding" (1144). Power. Two million tons of 2-8-2 fertilizer would contain 40.000 tons of nitrogen, 160,00( tons of phosphoric acid, and 40,000 tons of potash. To produce these, woulc require approximately 100,000 horsepower for the 40,000 tons of nitrogen anc possibly 160,000 to 170.000 horsepower for the production of the phosphoric acid and approximately 75,000 horsepower more for the production of the pot ash. "Where are vou'going to get the power if this is going to be done rai power propostl^fe?" You simply will not have any power to run the automobil factory which p'Tant No. 1 is is to be converted into" (p. 1126). o Photom Pampl Bind! Gaylord Mak| Stockton] PAT. JAN. LD9-307n-4,'65(F3042s4)4185 This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recall. IK ^. I 6 '66 AW APR2 5 1966^ LD 21A-60w-10,'65 (F7763slO)476B MAY 10 1933 20 1934 1935 NOV 8 1936 ' General Library University of California Berkeley JU <- 31 1943 REC'D LD MAY 1 1 1957 16May'58 OS REC'D LD MAY ic-iS58 FEB 1 8 1966 7 6