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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: U.S. Congress. House Title: Muscle Shoals propositions Place: Washington, D.C Date: 1922 •« MASTER NEGATIVE * COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD I 550 Un398 U.S. Congress. House. Committee on milita^y af f airs . Muscle Shoals propositions. Hearings before the Committee on military affairs. House of represen- tatives. Sixty-seventh Congress, second session. Thursday, February 9, 1922, to Monday, March 13, 1922.. • V/ashington, Govt, print, off., 1922. iii, 3-1208 p. 23 ^. \ •^nm RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA FILM SIZE :J£ W/»7 REDUCTION RATIO: . /2^ IMAGE PLACEMENT: lA IB MB DATE FILMED: f^h^nj- INITIALS: J>^ TRACKING # : ttsu d-ki^O FILMED BY PRESERVATION RESOURCES, BETHLEHEM, PA. > ^^ a? 3 3 0) o > 05.0 N C/) CO CJl ^-< COM O 3 > o m (DO do" N>. (J0_, X N X M a V ^v '^ > .**' A^' ^? ^^^ ^^^y^ ^ ^: V ^c- 10 o o 3 3 o 3 3 J^^ > J^/ a? O o 3 3 10 01 o Kill ^ NO 00 o 00 b K3 I 01 1.0 mm 1.5 mm 2.0 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 2.5 mm 1234567890 ifo kvT ^O ^f^ fp ^Sr ■#. € ■^2^ 4^ <^ m O O ■o m -o OL,"0 I u ^ ^Ooo 0 I" '*♦* % 0^/^' I t)550 Uv^^^8 LIBRARY I: i 1 SCHOOL 01 MUSCLE SHOALS PROPOSITIONS "" HEARINGS BEFOBB THB COMMITTEE ON MILITARY AFFAIRS HOUSE OF EEPRESENTATIVES SIXTY-SEVENTH CONGRESS SECOND SESSION THURSDAY, FEBRUARY 9, 1922 TO MONDAY, MARCH 13, 1922 IN ONE VOLUME ttiwo WASfllNGtON QOVBBNMBNT PBINTINO OFFICB 1922 MUSCLE SHOALS PROPOSITIONS -«.':L i.^.J> BEFORE THE COMMITTEE ON MILITARY AFFAIRS HOUSE OF EEFRESENTiiTIVES SIXTY-SEVENTH CONGRESS SECOND SESSION THURSDAY, FEBRUARY 9, 1922 TO MONDAY, MARCH 13, 1922 IN ONE VOLUME / 92900 WASHINGTON GOVERNMENT PRINTING OFFICE 1922 CONTENTS « 1 t • ■ I PaKC COMMITTEE ON MILITARY AFFAIRS. House of Representatives, sixty-seventh congress. JULIUS KAHN, California, Chairman. JOHN c. Mckenzie, iiunois. FRANK L. GREENE, Vennont. JOHN M. MORIN, Pennsylvania. HARRY E. HULL, Iowa. W. FRANK JAMES, Michigan. CHARLES C. KEARNS, Ohio. 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. WILLIAM J. FIELDS, Kentucky. PERCY E. QUIN, Mississippi. HUBERT F. FISHER, Tennessee. WILLIAM C. WRIGHT, Georgia. PHILIP H. STOLL, South Carolina. DANIEL E. GARRETT, Texas. n Howard F. Sedowice, Clerk, SCHOOL OP BUSfNESS LI BHARY y ■^ «i.-'osed rental wa^ an adequate return on the Government's proposed investment and suggested that Mr. Ford modify his offer so that it would be based upon an annual payment eqmvalent to a rate of interest on the total cost to the Government of com- £ ?«^ • projects. On January 13, 1922, Mr. Ford presented to me a proposed modihcation of his previous offer, by which he agreed to undertake the constniction ana completion, at actual cost and without profit, of the work referred to in his offer 01 July 8, 1921, and when completed and ready for operation he offered to pav the '-mted fetates as annual Cental of the property an amount equal to 4 per cent of the total cost of such construction. At my suggestion Mr. Ford placed in one instrument his offer as modified which was signed by him on January 25, 1922, and delivered to me on January 27, and which nave the honor to transmit herewith for such action as Congress mav deem appropriate in brief, Mr. Ford offers to undertake the completion of Dam No. 2 and the con- ' iruction of Dam No. 3 according to the Government's plans, for which he shall be MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. reim])iirsed the actual cost, and to lease the dams and power plants at an annual rental equivalent to 4 per cent of the cost to the Government of completing Uam ^o. 2 and constructing Dam No. 3 (exclusive of the cost of acquiring lands and tlowage rii regulations regarding the property of the United States, and Congress not having authorized the Secretarv of War to sell the same, the plenary power to dispose of such property still rests solely in Congress. The Acting Judge Advocate General has alsa held that the provision contained in section 124 of the national defense act directing that the plant therein authorized be operated solely by the Government and not in conjunction with any other industry or enterprise carried on by private capital, is applicable to the plant as a whole and is a restraint upon its sale. This construction if justified, would prevent the lease or rental of the plant for private operation. The solution of the numerous legal questions involved naturally occasioned more or less dela> in the consideration of the proposals. In this connection, I may say that the Air Nitrates Corporation has notified me in writing that it claims the right to exercise the option, which it claims to have under the terms of its construction contract, to purchase nitrate plant No. 2 on as favorable terms as those offered by Mr. Ford for the property, should the United States deter- mine to accept Mr. Ford's offer. The Alabama Power Co. may make a similar claim in regard to the Warrior plant and line. To briefly summarize Mr. Ford's offer for the above properties, the considerations running to the Government are: (a) Four (4) per cent on part of the capital necessary to complete the construction of the power projects (no interest is proposed to be paid upon that part of the Govern- ment's investment which goes to ;pay for lands and flowage rights for Dam No. 3, which item is estimated by the engineers to exceed $2,00C,000 in probable cost). (b) The pa>Tnent of a sum semiannually into a sinking fund calculated to produce about $49,000,000 at the end of the lease periods. This payment amounts to $46,746 annually. In other words, Mr. Ford proposes to pay approximately $49,000,000 at the end of the lease period provided the Government has been able to invest his payments at 4 per cent per annum. (c) Mr. Ford proposes to pay $35,000 a year for the upkeep of Dam No. 2 and its locks, and the sum of $20,000 a year for the upkeep of Dam No. 3 and its lock. These payments are expected to meet the ordinary upkeep expense with which the Govern- ment is charged. Mr. Ford assumes the responsibility for upkeep and repair of the power houses and equipment, so that ultimately such equipment is expected to be turned back to the Government in approximately as good condition as when received. (d) The proposal requires Mr. Ford's company to operate nitrate plant No. 2 to its approximate present capacity, which is estimated to be a production of 110,000 tons of ammonium nitrate per annum, and to sell such product at a price not to return a net profit in excess "of 8 per cent of the actual annual cost of production." (e) Mr. Ford 's company is to maintain nitrate plant No. 2 in its present state of readiness for immediate operation for the production of explosives, and is to turn it over to the Government, together with such of its personnel as may be required for the national defense. (/) The Government will be saved the expense of maintaining and operating the present imperfect facilities for navigation at Muscle Shoals, amounting to from $35,- 000 to $85,000 per annum. There are a number of advantages to the Government in the present proposal that were not apparent in the first offer. Mr. Ford's original proposal of July 8, 1921, contained two paragraphs dealing with the matter of amortization of the cost of con- struction of the two dams. The first of these paragraphs was numbered 2, and reads as follows: "At the beginning of the seventh year of the lease period, and annually thereafter, the company will pay to the United States a sum not greater than thirty-nine thousand five hundred thirty-seven dollars ($39,537) to retire, during the remaining period of ninety-four (94) years, the total cost of the Wilson Dam and its power house, sub- structures, superstructures, machinery and appliances, including locks, all taken at forty million dollars ($40,000,000); the sinking fund investments to bear the highest rate of interest obtainable, but not less than four per cent (4 per cent) per annum. '^ The other paragraph was numbered 7 and reads as follows: "At the beginning of the fourth (4th) year of the lease period, and annually there- after, the company will pay to the United States a sum not greater than seven thousand ten dollars ($7,010;), to retire, during the remaining period of ninety-seven (97) years, the total cost of Dam No. 3 and its power house, substructures, superstructures, ma- chinery and appliances, including lock all taken at eight million dollars ($8,000,000) ; the sinking fund investments to bear tne highest rate of interest obtainable, but not less than four per cent (4 per cent) per annum." In the present proposal the subject of amortization is covered in one paragraph^ numbered 10, which reads as follows: MUSCLE SHOALS PROPOSITIONS. 7 "For the purpose of enabling the Government to create and provide a sinking fund to retire the cost of Dam No. 3 at the end of one hundred (100) years, the company will, at the beginning of the fourth (4th) year of the lease period, and semiannually thereafter for the remammg term of the lease, pay to the United States Government, the sum of three thousand five hundred and five dollars ($3,505); and for the purpose of enabling the Government to create and provide a sinking fund to retire the cost of Dam No. 2 at the end of one hundred (100) years, the company will at the beginning of the seventh (7th) vear of the lease period, and semiannually thereafter for the remaining term of the lease, pay to the United States Government the sum of nineteen thousand eight hundred and sixty-eight dollars ($19,868)." It will be observed that the provision for amortization in the last proposal is very much more favorable to the United States than it was in the offer of July 8, 1921. By the earher proposal the maximum amount which the Government could realize from the payments made by Mr. Ford at the end of the lease periods would be not to exceed $48,000,000 ($40,000,000 in the case of Dam No. 2 and $8,000,000 in the case of Dam No. 3). The annual payments were in no case to exceed the amounts stipu- lated, which are the same in the present proposal as in the former proposal, but the former proposal contemplated a reduction in amount of annual payments to corre- spond to the excess over 4 per cent interest which might be earned by the sinking fund, whereas under the present proposal the fixed installments for amortization are T? '^fa ^^^r^l^fs of the rate. of interest earned by the fund. Therefore, if the United states should be able to invest the money at a higher rate of interest than tour (4) per cent, the sinking fund at the end of the lease periods would amount to very much more than $48,000,000. This may be best shown by the following table: Amoiint retired by Mr. Ford's sinking fund at various rates of interest, compounded semiannually. Account of— Semi- annual pay- ments. Life of fund (years). Amount retired at rate of— 4 per cent. 4i per cent. ^ per cent. 5 per cent. 6 per cent. DamNo.2 Dam No. 3 $19,868 3,505 94 97 $40,919,798 8, 152, 137 $48,783,949 9,786,054 $58,319,359 11,780,690 $8.3,718,097 17,150,545 $176,030,810 37, 103, 880 Total 49,071,935 58,570,003 70,100,049 100,868,642 213, 134, 690 int^?S D^riS"' Th1.%TnHn^® l^^t}^^"" ^'"^J"^ ^^^ Semiannually at the beginning of each semiannual rnrarpl5i.l^n^ts^?oTs=^^^ ^^« ^-^-^ — ^ P-^^le^ -1th the a&v?Sf hx?M^^^^ *5? ^^^^ ^® constructed at a cost of not to exceed $42,000,000, as estimated ^■^; A l"^/ engineers, there would be left to apply on the investment of the Govern- S the llfmo'^ ?f'lK^*^''^' the amortization payments would produce in excess nJ^f f42,WO,000 If the amortization fund should be invested continuously at 4 at « Z J ""^ r^^i^ ^^ ^* ^T* $7,000,000 to be thus applied, but should it be invested ai a greater rate of interest the amount would be increased, as shown by the table ine provision for renewal of the lease which was contained in the proposal of July », 1921, was numbered 11, and reads as follows: ^ flip oi^^^ *^°^u ^f^?^ ^ ^^^ expiration of said lease period of one hundred (100) years th! il P ?^ !?^" ^^\® ^^® "^^* ^ negotiate with the Government for a renewal of mt^i^!\^\ ^ ^'^^ ?u ""^'^ ^^°'',' ^^"^ P?"^®^ ^^"«^«' ^^' I^ the event of disagree- a^nnL^o ^t^^^^ the renewal, the Umted States and the company shall each SitStinS ^^^^^^ll^""^ these arbitrators shall choose a third. The decision of the arbitration board of three shall be final and binding upon both parties " forim t^!''^ this provision was to bind the United States to a renewal of the lease UmW f^f ^^ ^"^^ terms as should be determined to be just by a board of arbitration as foflows ""^^ P^^P««^^ ^^^ renewal clause is contained in paragraph 17, which reads fan^l^^uf /*l^f- ^^^ company may be supplied with electric power and the uS^^^t JT^f ""! ?^*^' *^^ termination of the said 100-year leL, should the of samp f hf l^""^ ''''* *u "iF^^*^ ^^}^ P^^^^ P**^*« b^t determine to leake or dispose State^L s^f.hTr^^ shall have the preferred right to negotiate with the United If thP ^\aZ ^^ '''■ P^^^hase and upon such terms as may then be agreed upon, tne said leases are not renewed or the property covered thereby is not sold to^id 8 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 9 company, its suoressors or assigns, any operation or disposal thereof shall not deprive the company, its successors or assigns, of the right to be supplied with electric power at reasonable rates and in amount equal to its needs, but not in excess of the average amount used by it annually during the previous 10 years." . , This parac^raph does not bind the United States to a renewal of the lease and is in BO way an attempt to control the policy of Congress beyond the 100-year period of the present lease, except to preserve to Mr. Ford's company ''the preferred right to nego- tiate with the United States for such lease or purchase and upon such terms as may then be agreed upon. " It also attempts to preserve for the company a right to be supplied withelectric power, for a period not stated, "at reasonal)le rates" in the event the power plants are operated or disposed of to some one other than the company. In Mr. Ford's offer of July 8, 1921, no provision was made, except possibly by in- ference, as to who should bear the expense of renewals, repairs, and maintenance on the power houses, machinery, and appliances which will be erected and installed in connection with the dams. Paragraphs 4 and 8 of the present proposal impose the obligation upon Mr. Ford's company of making such renewals and repairs and effecting such maintenance at its own expense. These provisions impose upon Mr. Ford a considerable obligation. ,,.,■.• r.u j Under the first proposal the United States was to undertake the building of the dams and power plants, but under the present offer Mr. Ford's company is to do the con- struction work in accordance with plans and specifications prepared or approved by the Chief of Engineers. ' ' . . ,. .v , The proposal of July 8, 1921, contained no provision for a termination of the leases in case of default. Paragraph 18 of the present proposal applies substantially the same provisions to Mr. Ford's proposed leases as are contained in the present water power act Paragraph 19 of the present proposal, except the first sentence thereof, had nc counterpart in the original proposal of July 8, 1921. The new matter reads as follows "Upon acceptance the promises, undertakings, and obligations, shall be binding upon the United States, and jointly and severally upon the undersigned, his heirs, representatives, and assigns, and the company, its successors and assigns; and all the necessary contracts, leases, deeds, and other instruments necessary or ajDpropriate to effectuate the purposes of this proposal shall be duly executed and delivered by the respective parties above mentioned." , , ,. Apparently this is an attempt on Mr. Ford's part to express a personal obligation to assure the performance of the contracts which are to be made by the company which he is to organize. It might be contended that this languagg is susceptible of a con- struction to the effect that Mr. Ford is personally bound only to see that his company enters into the contracts required to carry out the terms of the proposal, and this point should be cleared up so that there can be no question as to its proper construction. There should be some assurance that the contracts made by the proposed company will be carried out or some penalty imposed for failure to perform. In the event Mr. Ford's proposal is accepted, the Government must make new ap- propriations 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. The companv is, of course, bound to keep nitrate plant No. 2 in a condition to produce explosives, which, as a matter of preparedness, is of great value to the Government, as, no doubt, a plant fully organized and in production would be available far sooner than one maintained merely in stand-by. Nevertheless, Mr. Ford is offering but $5,000,000 for the title to the two nitrate plants, the Waco quarry, the Gorgas-Warnor steam plant, transmission lines, and appurtenances. That Congress may the better under- stand the value of the propertv for which Mr. Ford is offering this $5,000,000, I am attaching to this letter, as Exhibit A, a statement prepared by the Chief of Ordnance showing the cost and estimated salvage value of these properties. From the table contained in this statement it will be saen that these properties cost the United States approximately $85,030,000 and that as scrap they are estimated to be worth $8,812,000. However, the last column of the table in Exhibit A indicates that the Chief of Ordnance believes the War Department can dispose of the property for $16,272,000. Mr. Ford is bound by his proposal 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. Should he be able to^obtain what the Chief of Ordnance estimates that the Govern- ment can secure for the various items, namely, $3,000,000 for the Warrior plants, which have an installation of 40.000 horsepower, and $(>00.000 for nitrate plant No. 1 and dispose of the Warrior-Muscle Shoals transmission line as a transmission line and not as scrap for $675,000, and should he obtain $357,000 for the Waco quarry he would have left the nitrate plant No. 2, with its 80.000-horsepower steam plant, at a cost to him of less than $400,000. The interest on the proceeds of such possible sales would amount to a very large sum during the terms of the proposed contract. The Prfent revenue from rental of the power plant at nitrate plant No 2 is a mini- {^''$"^60 000 ' T^r' Tr ^'} " I-««i»f it/that in event of^operation it ma^ n ^onWnnnA ■ 1 "^T^ ""/ '"'^in^enance of nitrate plant No. 2 was approximate v $200,000 during the fiscal year 1921. The total horsepower developed by the S th?ril^«i?^^' '"^ "^^-'^ ^'i ^^''^ '^"^ ^^' ^^^^ i« ^25,000. which prLXafly doubles So 000 ofT I' P"""^'"^ horsepower to be developed at Dam No. 2 (approximatelv 365'daysln th^^^^^ '^''' '' '" ^' ^'^'^^"P^^ '^' ^^"^ ^^' ^ will notT av^iS Inasmuch as f am vvithout authority in law to accept Mr. Ford's offer or disoose of ar!,? TC'^-"^ wS '^^^'^•' f'^^^y ^'^ «^'^ «^ ^'y ^^^«^' it is peculiarly the province of Con- gress to weigh the considerations which will pass to the respective parties to the oro posed arrangement and to determine whether or not the advLtage toTh7GoverL^en^^ in having nitrate Plant No. 2 maintained in readiness for the manufacture of exnlos hes and in actua production of fertilizer, together with the improvement to naW^^^^^^ fL'Vi^'-"''^ importance to justify the proposed departure fron! the p^sentfol ov of rit 1 T •'' '?^T/ ^S ^S^^'^^ ^^^ t^^ water-power resourTJ^iI'!,'^",^' P»lf y to limit the contract to a term of 50 years to con- form to the e8ta])lished policy of the Federal Government as set out in the watPr power act. In my opinion a contract such as that proposed for a period of 100 vea^ IS not a wise general policy, in view of the unknown possil ilities siTroundino^^^^^^ is l?otv to'fhf&lH^'^l ^. ^^ *^'' P^'l* P'^P^^^ P^^^-i^^^ tliat Mr. Ford's companv in I)?m Nn^ f ^ • ^t^tes annually the sum of $35,000 on Dam No. 2 and $20 m on Dam No. 3 for repairs, maintenance, and operation of the dams ?atps nnH L.;.v=^ ^A? T^^^^ property and omit these payments. ^ If Mr. Ford's proposal be not accepted, it is my ooinion that Dnm Nn 9 nva.r.^ Dam) should be completed by the G^)vemment, InHZ hf pow^r reouirem^t^ for conimercial purposes, the benefits to navigation, as well LXe poSb e nepds of the Government, would warrant this expenditure If this werl doZtLf^l ernment may itself undertake to sell the product to ' the best aXanta^^^^ In ^Th" mater^a^lvrH^^^'','^" Government's preLt proposed investmerw^^^^^^ be ery ^t ^e bu^l' ^D^^^^^ ^?^ ^' "^T^^ from^$18,000,000 to $25,000,(Sk) wouW r!^L 1 :* .., , ^ ^^- 2 ^* ''^'ould not be necessary to make the full installatinn nf Uon w?i^d Vfft' '^' ^.^rket should require such installation ThL S & WinT^cofd^ tlrex^^:ed^$^^^^ ra?^'maVe\V&^^ eS of $15 OOO^S) d^wn^^^^^^^^ '^'^'^^ ^*/^^^^^ ^' E^^ibit B)'shows a loss in t&nrJ^^n^^A^^?^ *V^ is a large amount of unemployment it is not without imnor- tance to consider the advantage to the Nation of the employment of thriaree amo^fnt FvlS^^f^T^P^ hereto the follo.^'ing exhibits which mav prove helpful to Concrress- ii^xhibit A: Proposal of Henry Ford dated July 8, 1921:' ^^^^P^^i lo congress. I 10 MUSCLE SHOALS PEOPOSITIONS. MUSCLE SHOALS PEOPOSITIONS. 11 Exhibit B: Letter from Henry Ford dated January 11, 1922, modifying the proposal of Julv8, 1921; Exhibit C: Proposal of Henry Ford dated January 25, 1922; ' Exhibit D: Memorandum from the Chief of Ordnance; Exhibit E: Memorandum from the Chief of Engineers; ^i. xn i^ Exhibit F: Cost statement of Nitrate Plants No. 1 and No. 2 and ^\ amor- Sheffield Power Station and Transmission line; and , ., ^ ,, Exhibit G: Memorandum from Maj. John A. Smith, Judge Advocate General a- 1 shall be glad to place at the disposal of Congress any additional information which it may desire. ^^^^ John W. Weeks, Secretary of War. Exhibit A. • Dearborn, Mich., July S, 1921. Gen. Lansino H. Beach, Chief of Engineers, United States Army, Washivqton, D. C. Sir- In response to your advice that the Government invites an offer for the power at the Muscle Shoals Wilson Dam, on my part or on the part of a company to be formed by me ^and throughout this proposal to be called the company), I hereby and through you place at the disposal of the President, the Secretary of War, and Congress the following tender: . 1. If the United States will promptly resume construction work on the ^ilson Dam and as speedilv as possible complete the construction of the dam, and pro- gressively install hvdroelectric facilities and equipment for generating 600,000 horse- power then the coinpanv will agree to lease from the United States the Wilson Dam, it^ power house, and all of its hvdroelectric and operating appurtenances, together with all lands and buildings owned by the United States, connected with and adjacent to either end of the Wilson Dam, for a period of one hundred (100) years from the date of the completion of the dam and its power-house facilities; and the company will pav to the United States six (0) per cent on the remaining cost of the locks, the dam and power-house facilities, taken at twenty million dollars ($20,000,000), in pavments of one million two hundred thousand ($1,200,000) annually, except that during the first six years of the lease period payments shall begin and be made annually Two hundred thousand dollars ($200,000^ one year from the date when 100 OOO' horsepower is generated and continuouslv ready for service, and thereafter two hundred thouFand dollars ($200,000) annually at the end of each year for five yeare A^^uu first six vears pavment of one million two hundred thousand dollars ($1,200,000) ehall be made annuallv, at the end of each calendar year, dunng the lease penod. 2 At the beginning of the seventh year of the lease period, and annually thereafter, the" company will pay to the United States a sum not greater than thirty-nine thou-^ sand five hundred thirty-seven dollars ($39,537) to retire, dunng the remaining period of ninety-four (94) years, the total cost of the Wilson Dam and its power house, sub- structures, superstructures, machinery and appUances, including locks, all taken at forty million dollars ($40,000,000); the sinking fund investments to bear the highest rate of interest obtainable, but not less than four per cent (4 per cent) per annum. 3 The company will further agree to pay to the United States thirty-five thousand dollars ($35 000) annually for repairs, maintenance, and operation of the dam, gates, and locks at Wilson Dam; all repairs, maintenance, and operation of the same to be under the direction, care, and responsibility of the United States dunng the hundred (100) ^^4^ §'he company will furnish the United States, free of charge, delivered at a point on the lock grounds designated by the Chief of Engineers, electnc power not to exceed two hundred (200) horsepower, for the operation of the locks. ^ 5 If the United States shall accept the above proposal for leasing the Wilson DaTn and its power installation, then as a condition of acceptance the company will ask that, immediately upon release of suitable construction equipment and facihties at the Wilson Dam, and upon the release of labor forces, the United States will forthwith proceed to construct and fully complete with reasonable promptness Dam No. 3, bs designed and proposed by the United States Engineers, the power installation at Dam No. 3 to be taken in this proposal at two hundred fifty thousand (250,000> h orseno^^ef 6 when the lock, dam, and power house installation at Dam No. 3 are completed, the company offers to lease Dam No. 3, its power house and all of its hydroelectric and operating appurtenances for a period of one hundred (100) years from the date of the completion of the dam and its power house facilities, and the company will pay to the Umted States six per cent (6 per cent) on the cost of the dam, lock, and power house facihties, taken at a cost of eight milHon dollars ($8,000,000), in payments of four hundred eighty thousand dollars ($480,000) annually, except that dunng the first ttiree years of the lease penod payments shall begin and be made annuaUy as One hundred f^ty thousand dollars ($160,000) one (1) year from the date when eighty thousand (80,000) horsepower is generated and continuously ready for service and thereafter one hundred sixty thousand dollars ($160,000) annually at the end of each year for two years. If and when, after the first three years, the entire power- house generating equipment of two hundred fifty thousand (250,000) horsepower is ?SfS!)^^ ut^^ ^""I ^^"^"^I'l P^y^ents of four hundred eightv thousand dollars ($480,000) shall be made annually at the end of each calendar year during the remain- ing mnety-seven (97) years of the lease period. 7. At the beginning of the fourth (4th) year of the lease period, and annually there- after the company will pay to the United States a sum not greater than seven thousand, and ten dollars ($7,010) to retire during the remaining period of ninet v-seven (97) years the total cost of Dam No. 3 and its power house, substructures, superstructures ma- chinery and appliances, including lock, all taken at eight million dollars ($8,000 000) the sinking-fund investments to bear the highest rate of interest obtainable, but not less than four (4) per cent per annum. Hn?i;I^^t9n''Z^''^ will further agree to pay to the United States twenty thousand dollars ($20,000) annually for repairs, maintenance, and operation of dam, gates, and lock at Dam No. 3; all repairs, maintenance, and operation of the same to be under the direction, care, and responsibiUty of the United States durine the one hundred (100) year penod. " ^ ^ 9. The company will furnish the United States, free of charge, at Dam No. 3, to be delivered at a point on the lock grounds designated by the Chief of Engineers, electric power not in excess of one hundred (100) horsepower for the operation of the lock. *x, 1 Umted States shall accept the above several proposals in their entirety, then the company offers to purchase from the United States the following properti^' 1 ^^) u *-,^- *^® property at nitrate plant No. 2 and its adjacent steam-power plant land, building, material, machinery, fixtures, equipment, apparatus, appurtenances, tools, supplies and the right, license, and privilege to use any and all of the patents processes, methods and designs which have been acquired bv the United States (and which the United States haa a right to transfer and assign the use of to any purchaser of nitrate plant No. 2), together with the sulphuric-acid units now in storage on the premises. ° Jl\ A" ""I the properties of the United States at nitrate plant No. 1, its steam-power plant, land, buildings, matenal, machinery, fixtures, equipment, apparatus appur- tenances, tools, supplies and the right, license, and privilege to use any and all of the patents processes, methods, and designs appertaining to said nitrate plant No. 1 which have been acquired by the United States; but nitrate plant No. 1 shall not be operated as an air nitrogen fixation plant as designed to be. ^nli J^ °^^^^ property at the quan-y of the United States, known as the Waco quarry othe^ e ui mSTt buildings, quany tracks, machinery, railroad tracks, tools, and t\.^^\i^^^^ the steam plant, built and owned by the Government at Gorgas, Ala., on annu^olr!^'''' T^' ^^^^^^^^ material, buildings, machinery, fixtures, apparatus, ?n n?tJi? i""^^^ if^'^^.^iP.^^'^^' ^S? ^¥ transmission line from the Goi^as steam plant o? w.f ^ ^J^""^ ^^' ^t Muscle Shoals; the United States to acquire title to the rkht- uZl A 'I ^eces^ along the transmission Une, and also to acquire the title to the othitf ^'*® "^""^^^^y t^® «team plant and by all Government buildings and other structures at^le Gorgas steam plant. unrlol *^\ foregoing plants and other properties, as set forth and described above (%^^ru^\ ^^Ixf' }^ company offers to pay the United States five million dollars ^^0 uuo,ooO), the terms of payment to be agreed upon between the Secretary of War an^ ^t ^o^Pany' the Secretary of War having the authoritv to dispose of said plants 11 ?^' properties as above enumerated. ^ vears fhot^L*^"^® ^^n u° the expiration of said lease period of one hundred (100) of thl' lp.!f cT^fu ^.^^^"^^^""^^^^ ''^^* ^^ negotiate with the Government for a renewa mpnt i!f f ^'^'" *^! *^^ ^^""""^ ^^'^^' ^^^^ ^o^er houses, etc. In the event of disagree- ?n arlWf ^^/^^™«5f the renewal, the UniteS States and the companv shall each ap|oint Sn boa^^^^^^^ ^^^"^'r «\^»,^.hoose a third The^decision of the a?C won Doard of three shaU be final and binding upon both parties. I 12 MUSCLE SHOALS PROPOSITIONS. 12. If the United States agrees to sell, and the company purchases these severaf properties, nitrate plants, qiiarrv, steam power plants, transmission lines, etc., and at prices and on terms miituallv'satisfactory, the company will operate nitrate plant No. 2 to approximate present capacity in the production of nitrogen and other fertilizer- compounds, with the following special objectives: (a) To determine by research on a commercial scale whether by means of electric furnace methods and industrial chemistry there may be produced fertilizer com- pounds of higher grade and at cheaper prices than the fertilizer-using farmers have m the past been able to procure, and to determine whether in a broad way the applica- tion of electricity and industrial chemistry may do for the agricultural industry of the country what they have economically accomplished for other industries. (h) To maintain nitrate plant No. 2 in a state of readiness to be promptly operated in the manufacture of materials necessary in time of war for the production of ex- plosives. 1 TT • J o J -e 13. If the above offers of the company are accepted by the United btates, and if the agreement between the Secretary of War and the company can be made for the- •purchase of the above-described properties, it wall naturally and reasonably follow^ that the buyers of fertilizers will desire to be assured that fertilizers produced at nitrate plant No. 2 shall be sold at fair prices and without excessive profits. 14. To meet this reasonable expectation on the part of the farmers of the country who buy fertilizer, the company proposes that the maximum net profit which it. shall make in the manufacture and sale of fertilizer products at nitrate plant No. 2: shall not exceed eight per cent (8 per cent) . The company also suggests that a board be created composed of officially designated members and representatives of farmers national organizations, such as the American Farm Bureau Federation, the National Grange, and the Farmers' Union, together with a representative from the Bureau of Markets of the Agricultural Department (to be an ex officio member of this board, serving in an advisory capacity, without right to vote) and two representatives of the companv. It is expected that the board shall have access to the books and records of the company at any reasonable time and that its duty shall be to investi- gate costs and revenues and to determine for public information whether the profits of the company are being kept within the established limit of eight per cent (8 per cent), as above set forth; and it is also suggested that this board determine upon tha territorial distribution of fertilizers produced at nitrate plant No. 2. If and when this board can not agree upon its findings and determinations, then the points of dis- agreement by the board, at any time, shall be referred to the Federal Trade Commis- sion for arbitration and settlement, and the decision of the trade commission shall be final and binding upon the board. . 15. Whenever, in the event of war, the United States shall require any part of the operating facilities of nitrate plant No. 2 for the production of materials necessary in the manufacture of explosives then the United States shall have the immediate- right, upon notice to the company, to take over and operate the same for the national defense of the country, and the company will supply the United States with hydro- electric power necessary for such operations, together with the use of all patented processes which the United States may need in time of war for munition purposes and which the company owns and has the right to use, and any of the company s personnel and operating organization required in times of war for operating any part of nitrate plant No. 2 in the manuliacture of materials for explosives shall be at the- disposal of the United States. All duly authorized agents and representatives of the United States shall have free access at all reasonable times during the lease period to inspect and study all of the operations, chemical processes, and methods employed by the company at nitrate plant No. 2, provided that such agents and representatives shall not ilge the information and the tacts about any of the (5ompany's operations, except ^irfiie benetit and protection of the United States. 16. Itiwill be obvious to you that, should the above proposals and offers of ^.he company be accepted by the United States, there will be many details in the lease and purchase agreements to be worked out; but it is believed that the above will fur- nish all of the information required for decision by the United States upon the tender herein submitted. 17. The above proposals of the company are submitted as a whole and not in part. 18. The plans of the company with respect to its hydroelectric power needs are such that it is hoped that you, and those to whom you refer these proposals, will be able to arrive at prompt decisions regarding the company's offer, and that it can be confidently expected that the undersigned will very soon receive an answer to this communication . Respectfully, „ _ . Henry Ford^ MUSCLE SHOALS PROPOSITIONS. Exhibit B. 13 , Hon. J. W. Weeks, Dearborn, Mich.. January 11, 1922. Secretxiry of War, Washington, D. C. My Dear Mr. Secretary: Referring to offer of July 8 1921 The company proposes to undertake the construction' and completion, at actual cost of a 1 the work referred to; and when completed and ready for operation will pay the Umted States Government as annual rental of the property an amount equal to 4 per cent of the total cost of such construction f f j u^it e^uai Very truly, yours, Henry Ford. Exhibit C. PROPOSAL OF henry FORD FOR THE COMPLETION AND LEASING OF THE DAMS AND HYDRO- ELECTRIC POWER PLANTS AT MUSCLE SHOALS AND FOR THE PURCHASE OF NITRATE PLANT NO. 1, NITRATE PLANT NO. 2, THE WACO QUARRY, AND THE GORGAS WARRIOR RIVER STEAM PLANT, ALL IN THE STATE OF ALABAMA. WAKKIOR ir.'^T,^ the United States through the Chief of Engineers, United States Armv qhnif "^urf ""dersigned to submit an offer for the power to be developed at the m3 Shoals Wilson Dam (hereinafter referred to as Dam No 2)- and F^^^""^^^ the undersigied did under date of July 8, 1921, submit to the Chief of Engineers an offer for the consideration of the President, the Secretary of War and Congress which offer proposed a lease based upon the completion of Dam No. 2 Sd &^9fi9 "L^r^ ^ ^"^ .''■ ^ ^^ designated by the United States Engineers in House Doc. 1262, 64th Cong. 1st sess., and hereinafter referred to as Dam No 3) and of their power houses by the United States, and the payment by the unders%ned of a fixed A^rlr'i^^ ther^or, and proposed to purcW Nitrate Plant No. 1 at Sheffield 5;^^' w*^ P^^* '^^- ^^^ ^""^^^ Shoals, Ala.; Waco quarry, near Russellville Ala • Lw pttTnd '''^°' ^ ^' ^"""^^ ^*^' ^^^ ^" transmiiion lines cTnircted t^th Whereas the undersigned, at the invitetion of the Secretary of War, did, on January «nH .3r.? ^ l^ modification of his former proposal, based upon the construct!^ offfr of J?, if riQ?l\7^ ^ ^^ 1^"?^^ ^y}"'"^^ ^^ ^" th^ ^«^k r^f^^ed to in the Sf qf a^nt^'^^^^ r ^v' fTu^p^r ^cL^tTpe^^^^^^^^^^^ Now, therefore, in lieu of said offer of July 8, 1921, and in accordance with said ^^^^TVau^^w'' 1'' ''''' '^' ^^^-^^^-^ hereby submits to The SecTetrrol war, and through him for appropriate action by the President and Cont'resa tl a cdnJTeLl '^''' "^^"^ '^"" ^^^""^^ ^ ^^"^i^^ ^^^«-««t ^A approval ofs^m'e I y fnrm o"""" ^^^ P^^'PTu''^ carrpug out the terms of this agreement, the undersigned wiU orm a corporation (hereinafter referred to as the company), to be controuS bv the undersigned which company will immediately enter Into and execute all nec^sar? or appropriate instruments of contract to effectuate this agreement necessary Dam No 9T£TJv ^^" complete for the United States the construction work on withthpnLfin ' P.7^^.^«^««' and all necessary equipment, all in accordance mm the plans and specifications prepared or to be prepared or approved bv the Chief of Engineers, United States Army, and progressively install the hX^lectric eauin Tmomli P"^'' ^""T, 1"^""*? f or geSeSting app^roximatelfsiSndr^ L^^^^ (bOO,000) horsepower, all the work aforesaid to be performed as speedilv as dossi^I p nec'e's^arv landsTnd T^'^' ^'^^' ^' .*^.^- ^T^^^' '' being''uTdersS>d^tM| tions to^ Ik ^""^ ^M^u^® "^^.^^' ^i^cluding lands for railway and terminal connec- tions have been or will be acquired by the United States. all of it!f ^?''?P^''^.'^" *T^ from the United States Dam No. 2, its power house and a rinds ^J^^r -M •"' ^°^ operating appurtenances, except the locks, togethe?^°h or aSnt l^'^.^i'^'^'^i''?^ ^' .*? ¥ acquired by the United States connected wi h the Jate wbpn «^' f ^ ^^ '^^ '^^ ^^"^'^^^ ? P^"«^ «^ «°« ^^^^red (100) ^eare fTom (100 000>i W '^'"^^"'■^« and equipment of a capacity of one hundred thousand nav fnfl ?T^?T?r ^^ constnicted and installed and ready for service and^ll actual o^t ^i'''^'^ -^^^^^ as annual rental therefor four per cent (4 peVcen?) ofThe and"'p*ow?;i^^^^^^^ ^^^. of completii.g?heS,lm' power nouse facilities (but not including expenditures and obligations incurred I wi 14 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 15 i prior to approval of this proposal by Congress), payab e annually at the end ot each lease vear except that during and for the first six (6) years o the lease period the rentals shall be in the following amounts and payable at the following times to wit: Two hundred thousand dollars ($200,000) one (1) year from the date when one hundred thousand (100,000) horsepower is installed and ready for serv;ice, and thereatter two hundred thousand dollars ($200,000) annually at the end of each year for fave (5) years. 4. The company will further pay to the United States during the period of the lease of Dam ^o. 2 thirty-five tWsand dollars ($35,000) annually, in installments quarterly in advance, for repairs, maintenance, and operation ot Dam JNo. 2, its gates and locks, it being understood that all necessary repairs, maintenance, f^id operation thereof shall be under the direction, care, and responsibility of the United btatea during the said one hundred (100) year lease period; and the comply, at its own expense will make all necessary renewals and repairs incident to effacient naainte- nance of the power house, substructures, superstructures, machinery and appliances appurtenant to said power house, and will maintain the same m effacient operating *^^5 xTail times during the period of the lease of Dam No. 2 the company will furnish to the United States, free of charge, to be delivered at any point on the lock grounds designated by the Chief of Engineers, United States Army, electric power to an amount necessary for the operation of the locks, but not m excess of two hundred (200) horsepower. ^ j i u « * 6 As soon as the release of suitable construction equipment and labor forces at Dam No 2 will permit, or at an earUer date if desired by the companv, the company shall construct and complete for the United States Dam No. 3, its lock, power house, and all necessary equipment, all in accordance with plans and specifications prepared and to be prepared by the Chief of Engineers, United States Army, or by the company, at its option, and approved by the Chief of Engineers, United States Army, and pro- eressivelv install the hydroelectric equipment in said power house adequate for generating approximately two hundred fifty thousand (250,000) horsepower, all the work aforesaid to be performed as speedily as possible at actual cost and without profit to the company, *it being understood that the necessary lands, fiowage rights, and rights of way shall be acquired by the United States 7 Tie company will lease from the United States Dam No. 3, its power house and all of its hvdroelectric and operating appurtenances, except the lock, together with all lands and "buildings owned or to be acquired by the United States connected with or adjacent to either end of the said dam, for a period of one hundred (100) yearsfrom the date when structures and equipment of a capacity of eighty thousand (80,000) horse- power are constructed and installed and ready for service, and will pay to the United States as annual rental therefor four per cent (4 per cent) of the actual cost of construct- ing the lock, dam, and power-house faciUties, payable annually at the end of each lelse year, except that during and for the first three (3) years of the lease period the rentals shall be in the following amounts and payable at the following times, to wit: One hundred sixty thousand dollars ($160,000) one (1) vear fropa the date when eighty thousand (80,000) horsepower is installed and ready for service, and thereafter one hundred sixty thousand dollars ($160,000) annually at the end of each year for two ^^8^Th«' company will further pay to the United States during the i)eriod of the lease of Dam No. 3 twenty thousand dollars ($20,000) annually, m installments, quarterly in advance, for repairs, maintenance, and operation of Dam JNo. 3, its gates, and lock, it being understood that all necessary repairs, maintenance, and operation thereof shall be under the direction, care, and responsibihty of the United states during the said one hundred (100) year period; and the companv at its own expense will make all necessary renewals and repairs incident to the efficient maintenance of the power house, subsiructures, superstructures, machinery, and appliances appur- tenant to said power house, and will maintain the same in efficient operating condition. 9 At all times during the period of the lease of Dam No. 3 the company will furnidi to the United States, free of charge, to be delivered at any point on the lock grounds designated by the Chief of Engineers, United States Army, electric power necessary for the operation of the said lock, but not in excess of one hundred (100) horsepower. 10 For the purpose of enabling the Government to create and provide a sinking fund to retire the cost of Dam No. 3 at the end of one hundred (100) yeara, the company will at the beginning of the fourth (4th) year of the lease period, and semiannually thereaftei^for the remaining term of the lease, pay to the United States Government the sum of three thousand five hundred and five dollars ($3,505); and for the purpose of enabling the Government to create and provide a sinking fund to retire the cost of Dam No 2 at the end of one hundred (100) years the company will at the beginning of the seventh (7th) year of the lease period, and semiannually thereafter for the remaining term of the lease, pay to the United States Government the sum of nineteen thousand eight hundred and sixty-eight dollars ($19,868). ']}- fi^l^Ti?^''^ ^^^^ ^ purchase from the United States and the United States will sell the following properties, namely: oiaiea (a) All of the property constituting nitrate plant No. 2 (as officially known and designated), including lands, power plants, buildings, material, machi/eiy fixtur^ equipment, apparatus, appurtenances, tools, and supplies, and the riifit ifcenTe and privilege to, use any and all of the patents, processes methods, and Sns whkh have been acquired and may be transferred or assigned to a purchkser of St?ate nlant ihe pre^' "^^'^ ^*"*''' ''^''^'' ^'^ '^' 8ul?huric-aci§ units now fn sto^'oa (b) All of the property constituting nitrate plant No. 1 (as officiallv knovvn and designated), including lands, power plants, buildings, material, machinerl tou?es equipment, apparatus, appurtenances, tools, and supplies, and thTrighi' HcenS' and pnvilege to. use any and all of the patents, processes, methods, and dlsi^s whidl have been acquired and may be transferred to a purchaser of nitmte plant^o 1 bv ^^{i<^ iS^uS^^t^^^^ l^^ ^-^-4 ™'C°ad;ra<;k8, appurtenances, tools, and e.ippli<4. v iracKs, macninen . (d) All of the property constituting the steam power plant, built and o^vned bv th« Government at 6orgas, Ala on the Warrior Ri'ver, including lands ri^teofUv building, machinery material, fixtures, apparatus, appurtenances too s and sud^^« tltt^^TTT" '°* '"'■"»•*'»« «<"-g»« ^^'^ Pl^nt to nitrate plkS 2 at "Fiscl^ aioals, and all other tninsmission lines belonging to the United States and TOnnected mth any of the aforesaid Government propertils. The United State Xuacauh^ all necessary easements or titles for right-Sf-way lands alonrall traSiSon llZ and convey same to the company , and the United States shall acqi^re the tS the laS and site occupied by the said steam plant and bv all Government bidldinw and other Government structures at.theGorgas plant, whidi will be con^ eveSTto Si? ™mmnv fo tL /„ f^'^^^t P^T^? *°r *« foregoing plants and properties to be con!?vid ^ve milliTddlla,^ ($' oK> fnT'' ■*", ^'"'"'''y ^'iV «« *e UnitS Stat^ J«i nnn nJS collars ($5,000,000, in five installments, as follows: One million dollars ($1,000 000) upon the acceptance of this offer, and one million dolla^rsi O(¥»onm TeTer'' *n?%'Ter"centf^er^*' P"^^ 'f *"'!7 ^'^' -th intesrat'K^ pa^'^nX-Lrp^oTniTr^^^^^ »' ~"^-^^^^« ^ "^ <»««-^ ^-- "» prop JvSore^sLTw^A^'-^?'! 'i f ""^^^ *•>»* *« P»r<^J>a«e Price for the Igp^lnTtiL^^rn^^-g^r^^^^ Mates in preser^ng and safeguarding the aforesaid real and personal proi^rtv iXct until possession thereof passes to the company . If any part or mrts of tKnil^f^ S^T^r"^. '^ Wr "P^'^*T ^^ «^^^^^^^ been Xoved PLvt^dSt^s panv%ppr' f' '^^" ^^ ''*"?^^^ ^^^"^ possession of said plants passes o the S Numbered ""^^^^^^^^ ^^ ^^^^ P^^P^'^^ ^^a" warrant^the title to be gL a^d anita?caDrc?tr7i>T^?i- ^P^^^^e^i*^?^ plant. No. 2 at the approximate present other fprH?f.?.^ machinery and equipment in the production of nitrogen Ind oiner fertihzer compounds (said capacity being equal to appioximatel v 1 1 Om f^n« veS b'V'Tn'kV'rt?^ T^^^ '^'^^4"* ^^^ '^^'^ periT'xcTpfalt ma^^^ p^' agrees ^ ' accidents, fires, or other causes beyond its control, and further industrial'^cS^^^^^^ ^yj^'^^^ o^ electricfumace methods and pounds of h1^^^2 ^ ?? ^ produced on a commercial scale fertilizer com- S hpp^ okf f ^^^^ ^""^^^ *T®^ P"^^« *^an fertilizer-using farmers have in the electrickv^iH V 2^*^',^^^^ t» determine whether in a broad lay ^1 apXatTon of the Pnni7 and industrial chemistry may accomplish for the agriculturalmdust^ of (6) TrJ;^ W ^^ ^^^/ ?^T ^c' * * * xi , .. ind^'"tri^^htSv^,h^r^,^v 'l"''*'!i*'' *>? "^"^ "* eleetric-fumace methods and Ordnance K^eS^^th rSnce Z ^hT/n^""^ "^^t ?« ''^^^^"^ »' *« and it is not nijcSvfcim thf .^n^i^- , fP™.^*^ ^^' *erefore, been achieved plant be peKd^S^o^Sted ''*'"*P<"°» °^ ""'"^en preparedneea that the No. 1 M 18 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 19 ment of the nitrogen fixation business on a large, long-enduring, and commercial S In other words, it completes the objective which the Ordnance Department Seves es^ntYalfo^^^^^^^ making of the United States able to be self-sustaming in its supply of nitrogen compounds. ORDNANCE-CONTROLLED PROPERTY TO BE TRANSFERRED. Article 11 outlines the ordnance-controlled property which is to be transferred under the offer and includes (a) nitrate plant No. 2, (6) nitrate Pl^^ .^^«- J' (^) ^aco quarry, (d) Gorgas power plant on Warrior River and transmission hne from Gorgas ^^Item (d)*requires the United States to acquire title to the lands on which the power plant and transmission line are located. , ^ ^ , -rw +rv.««+ «^w yio« a In respect to (a) it is desired to point out that the Ordnance Department now has a contract (T-66) with the American Cvanamid Co. which contains the following clause: -Allele XIX Sale of plants: If upon cessation of this war or for any other reason the United States determines to cease the construction, equipment, or operation ot ant of the said plants and to dispose of the same, the agent shall be given the A^^^^ opportunity (for a reasonable period of time not to exceed six months after receipt oF^tten notice stating the determination of the United .States to dispose^^^^^^^^^^ and the material terms upon which such disposition will be made) to purchase the Lme upoTaX^^^^^ tefms as the United States is willing to accept therefor before the United States shall sell the same to any other party. . ^^ , .v » It irbelieved that due consideration should be taken of this right of the American Cyanamid Co. , , , ., ^ *In respect to (b) the offer is believed to be satisfactory. In respect to (c) the offer is believed to be satiefactorj-. ll respect to (d) it should be noted that the Ordnance Department now has a con- tract (T-69) with the Alabama Power Co. which provides definitely for the sale of these properties to that companv. The provisions of the contract covenng such sale SfnotoSoted on account of length. It is believed that our contmctual obhgations ?eqiS?e ?is to meet both the spirit and.letter of this contract unless the Alabama Power Co. is willing to siurender or sell its rights. PURCHASE PRICE OF PLANTS. Article 12 of the offer states that — .• ^ r ^ ,„^ +« "As the purchase price for the foregoing plants and properties to bo con^eyed to the company bv the United States the company will pay to the Lnited States five million dollars ($5,000,000) * * *." . . ,.•,•*• x .:,«i„ If this is cons derod to be onlv a part of the consideration to be paid, it is not entirely fair to ^tch it up against the estimated salvage value of the properties to be trans, ferred However the following summarv of estimated salvage va ues is submitted. Nroti. have been received to' substantiate these figures^thou^^^^^^ steam plant at nitrate plant No. 2 is now leased on the basis of $6,000,000 valuation. Estimated salvage value of ordnance property in the State of Alabama. ' Approxi- mate cost. United States nitrate plant No. 1, 1,900 acres of land •■-•- $12,888,000 United States nitrate plant No. 2, 2.300 acres , of land, including the Muscle Shoals substa- | tion (surplus materials at plant 2, costing ' $1,500,000 and having salvage value of $900,000, are included in plant 2) > ^?'So7'2SS Warrior generating plant '.tai'nfvi Warrior substation l r^'lvnA Drifton railroad -••-:.■ n^'nnn Warrior-Muscle Shoals transnussion hne | , ?I^' "xx Waco quarry, 400 acres of land l, I7tf, om Salvage value As operating concern-. Total i 88,417,000 (') (») $3,000,000 / 675, 000 357,000 As scrap. $600,000 7,250,000 800,000 60,000 102,000 As operating concern and scrap. 10,032,000 ( 8,812,000 $600,000 8 11,640,000 3,000,000 675,000 357.000 16,272,000 i N» SlL^Te wllsfn'Bam ifcX'leTed^ of 60.000 kio watt steam-electric power plant whicrhas^akie of DosSv^ OTO ^^ value of United States nitate plant No. 2 as an operating J^^cern dewnds ma^SlyuJon the price which must be paid for power for its operation. If power is to ^^^f 5f> ftii K?k w h the Dlant ha? practicaUy no earning power and th erefore has no value. However, iftowe??aS'L obTained Itttl pe^^^^^^^^^ hal In earning capacity and corresponding value. » Basis of steam plant as operating concern and balance of plant as scrap. < 75 per cent of cost. In this connection It should be noted also that before the United States can turn over to Mr Ford all of the properties that he desires that 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 and arrangements will also have to be concluded between the United States and the Alabama Power Co., which will undoubtedly require a substantial money consideration. SUMMARY. The Ford offer from the standpoint of the Ordnance Department has the very important advantage of materially assisting in the development of nitrogen prepared- ness and has the disadvantages of conflicting vvith contractual obligations with the American Cyanamid Co and the Alabama Power Co. and of making a net return to laL^Xre'ne 0^^^^^^ $5,000,000 for properties which have an estimated salvage ^fl^Lt .^^^^^^^e;$li;000;000, appears, therefore, to be the price which the United States IS paying for mtrogen preparedness. If the plant is diverted to any purposes which do not include nitrogen fixation, this asset is lost to the Government ^"^^^""^^ ,, . ^ G. C. Williams, Major General, Chief of Ordnance, United States Army, Exhibit E. War Department, Office of the Chief of Engineers Memorandum for the Secretary of War. Washington, January SO, m2. Subject: Analysis of Mr. Ford's offer for Muscle Shoals power plants Ju^'t;tnf-X.^t^'^'- "^""'^ ^"'^ '^^ ^'^ ^"^^^^ ^""'^'^ p«-- pi-* - -»>- Ti'f ?T *-!J^*?."? ""? the offer as concerns hydroelectric plants at Muscle Shoals- The Umted States is to furnish the funds for the completion of Dam No 2 and for Ind Ttn '"'*^" ^^ ^^™ ^^- ?' T^"^^°^ P«^^^ generating machinerTand structures and 18 to operate and maintain the dams and locks Btruciures, A company to be formed by Mr. Ford is to have a lOO-year lease of the power nlant«, beginning with the dates on which certain specified amounts oT^ower L^availaM^ In consideration of this lease the companv is to pay: (a) $200,000 per annum fnr tVio ^frj.T"^ ^^^ the power plant at No. 2 is in operation; $mOOOpTZ ^Jlt ^^""^ ^^^'' ^}^^ *^^ P^^^^ P^^^t ^t No. 3 is in opemtioi^Tnrr^pSfv H«?^ !f ^ ^""^ ^?"^^ ^^ ^ P^^ ^«^t «^ t^e net capital cost to the United sStS^of th« arsrofTh.^T^^^"^'"- ^'^'^r^" "^ *>S amounte heretofore expended and e?cW^ also of the cost of acquinng flowage rights for Dam No. 3. exclusive (2 Q P^^-^F;? annual sums to cover the cost of operating and maintaining the dam« of thVl^^e p^ri^!^"'' ^^'^^^^ ^^^^^ '" P^^^^^ ^^^^^°^ ^' $48 oSWat the e^^^ fo/n«^1^^!^'''' *^® company ^ees to maintain the nitrate plant in good condition ronS V^ war emergency and to produce nitrates at a reasonable profit As a miC aSnt'o nn "' n'^^^^"'^'^ '^^ ^'"1*^^ States without charge a llrSited but suffident amount of power for the operation of the locks at the dams. utBumcieni PerioHs'^ri '^^"^ ""K^^^ consideration for the lease is the payment, after specified Wnment in^frtS' '^ *^%Ti.' "^P^'"* expenditures to be hereafter nlde^by the tMJreh^n H ^7*h«ra^,^e f the agreement. A determination of the adequacy of hS pav o?.?tf7o^''''^^^^ interest that the Federal Government liH 1^ th^n^?^ Its loans Considering that the Government is now paying somewhat ^specifi^^^^^^^^ ^«^^«' i* i« believed reasonable to J^rithaTwhen the ^nftid qlf "^^"^n ^ ^f^T 1^ ^4^; some 10 years hence, the interest mtes paid by The mvminl^ "^"-fi "!$ «"bstentially exceed 4 per cent and may be less. ^ sidereda/pnno.^fP^'^'^^'^i^'i-^^ operation and maintenance of the dams are con- Thp «n«^V^^^ ^ "^^^^ ^" ordinary operation and maintenance costs. 000 at thp wT^^T^*^ specified to create an amortization or sinking fund of $48 000 - aUy prSnrrr. rATu^^ ^¥ l^afe^re relatively small in amount The siun evS- th] r vKS tXS'l^^^^'^^ir''''''^ ^^ --^^^^'^^ exp^Tdifu^r^st costs WeTnlL^/SotcL^^^^^^^^^^ I 20 MUSCLE SHOALS PEOPOSITIONS. ing the early rental periods in which the full rental at 4 per cent is not to be paid, nor does it include a return on the cost of acquiring flowage rights for Dam No. 3. An estimate of the amount in question depends upon the cost of the two dams. The engineer department's estimate made in July, 1921, for completing Dam No. 2 with its full power equipment is in round numbers $28,000,000; and in August, 1921, for constructing Dam No. 3, $28,000,000. The estimate of Mr. Ford's engineers for completing Dam No. 2 is in round numbers 123,230,000; for Dam No. 3, $19,000,000. Construction of Dam No. 2 has so far advanced that foundation conditions are thor- oughly established and the work required can be predicted with certainty, leaving as the only uncertainty the cost of executing the work. The condition does not exist at Dam No. 3, where the foundation work necessary will not be certainly determined until the bed of the river is laid bare. The engineer department's estimates are re- garded as adequate to meet any reasonable eventuality of construction at the costs current when tne estimates were prepared. Subsequent to the preparation of the engineer department's estimates the prices of material and labor have generally declined, and it is believed that a reduction of about 10 per cent in the prior estimates is now justifiable. The cost of completing the two dams with power equipment for purposes of this analysis is therefore taken at $25,000,000 each, in round numbers, or $50,000,000 in all. The time of completion of Dam No. 2 has been placed at 40 months, of No. 3 at 36 months. Considering, however, the fact that the hydroelectric machinery for the first 100,000 horsepower of No. 2 is already under contract, and that the first units can be put in operation prior to the eventual completion of the entire installation, it is considered that, for purposes of analysis, the time before payments begin to accrue may be placed at three years for each dam. Interest during the preliminary period is taken at 5 per cent. On these assumptions the carrying charges become as follows: Dam No. 2: Funds required for completion $25, 000, 000 Interest during construction, one-half of three years, at 5 per cent. . 1, 875, 000 Interest for first six years subsequent $7, 500, 000 Less six payments of $200,000 1,200,000 Net deficiency 6, 300, 000 Total accrued interest before full payments begin 8, 175, 000 Dam No. 3: Funds required for completion 25, 000, 000 Interest dmring construction, one-half of three years, at 5 per cent. . 1, 875, 000 Interest for first three years subsequent $3, 750, 000 Less three payments of $160,000 480,000 Net deficiency 3, 270, 000 Total accrued interest before full payments begin 5, 145, 000 The gross cost of carrying the expenditures during the preliminary periods will therefore be $13,320,000. Such carrying charges are not customarily considered in Government work but are here included in order that the analysis may be complete. The cost of the flowage rights for Dam No. 3 is estimated at $2,331,000, giving a total of $15,651,000. The interest charges on this sum at 4 per cent will amount to $626,040 per annum during the life of the lease, subsequent to the preliminary period. During the pre- liminary period these charges will increase from about $100,000, on the completion of Dam No. 2, to the ultimate figure stated. The exact amount of this annual charge will depend upon the actual costs of the dams and the periods required for construc- tion, but it can scarcely be less than $500,000 per annum and it should not exceed $650,000 per annum. Indirect benefits accruing to the United States are: (a) The maintenance of a nitrate plant in readiness for a war emergency. (6) The production, in the interest of the public welfare, of large amounts of ferti- lizer at a cost not exceeding the reasonable cost of production, providing that the production of nitrates adapted to fertilizing purposes is found to be practicable. MUSCLE SHOALS PROPOSITIONS. 21 t (.<;) The elimination of the cost- of maintaining and operating the present imnerfprt innum"' ^^^^^^^^^ ^^ ^^^^^^^ Shoals, amounting to from $35!ooST$85To p^^ (t/) The advantage to interstate commerce and navigation of the far suoerior farili ties to navigation that will be secured through the constructyn of thfdam^rnd iS" The funds that have been expended on Dam No. 2 have not been inHndpH in th. analysis, for the reason that neither the acceptance nor thrreject^oi^^^^^ offer would restore any substantial portion of them to the Public TreLSrv If Dam No. 2 be not completed, either bv Mr. Ford's company, the United SteTes' or of hp? wise, the work done will be wholly without value idthin a brieTDeriod of V/rf a.H the only recovery possible from the investment aSy Si^de w U ^^^^^^^^ snaTyt."''^"''^ '' '"" ^' ^'^P°^^^ ^^' ^^^ '^^^ in^mounrto affect%'he ^ei^^ Lansing H. Be.\ch, Major Gen£TaL, Chief of Eiigineen. Exhibit F. War Department, Oppicb op the Chief op Ordnance, From: Chief of Ordnance. Washington, November 18, mi. To: Secretary of War '"'^It^^l^Zi^i^^.^t:'' '"^"*' ^"- ^ ""-^ ' «^ Warrior-Sheffield 1, . ^ C. C. Williams, Major Gerural, Chuf of Ordnance, U. S. Army. Cost statement of United States nitrate plants Nos. 1 and 2 and Warrior-Sheffield power station and transmission lin£ '^ ISubmitted by G. B. AttersaU, chief Accounts Branch, Nitrate Division, O. O.. Nov 1 19>, j Chemical plant ^''"^'' ^^^^^' ^'^^^^^ ^^^^'^ ^o. 1. Oxidation plant.. ..:;;::::::::;;::;;;; irmqTfi'fi^^^'^^^'^^^-^ Soda-recovery plant ^ ' I'llt^l Processplant . o^k Vka o^ Neutralization plant \\ '?OQ'Q?«?f Coal and coke storage * f^'V,lfa Gas plant t 3^SI? Concentration plant... ;::;;;;;::;::::;;;; 28908320 ^^^ Ammonium nitrate plant ;;;; If^'j^^- 20 ^^U^'V----^ Oil house..... ;.;•;;;;;; 140,686.72 ^ Warehouses. . . .* * " " „?' i??- ^^ Powerhouse 73,27L96 Land 1,271,665.23 Village 615,127.20 Public worS. ...!!';;;: 928,298.02 Sewer svstem ^^» ^^^- ^ -5^^-:::::::::::::::::::::::::,^ -.-33 Electric' distribuiion sysiem.V.V.: \ \ '. [ [ ] W::]:'' J^?' fi' II 314 076 00 1,026, OIL 60 Total 101, 288. 88 <^Perations: 'Sheffield operation and Grand total. •••.•; V •, 12, 887, 941. 31 maintenance to July 1 , 1920 794] 359. g5 mtenance to July I 19*2*1 1^, 682, 301. 16 ^ • 75,506.42 22 MUSCLE SHOAlrS PROPOSITIONS. United States Nitrats Plant No. 2. Chemical plant $35,984,090 55^ Raw material and storage group $2, 809, 361. o3 Carbide group 5, 768, 305. 82 Cyanamid group 4, 987, 045. 31 Liquid air group 4, 005, 50.3. 09 Ammonia gas group 3, 710, 872. 79 Nitric acid group - 12,627,103.80 Ammonium nitrate group 1, 236, Oib. 39 Process steam plant 559, 577. 74 Laboratory 280,245.08 Shops : 2, 696, 481. 30 Engine terminal and machine shops 937, 049. 35 Blacksmith shop 187,284.30 Woodworking shop 168, 202. 88 Warehouse »67, 662. 53 Switch house 495,772.14 Foundry 90,650.64 Gatebuilding ^^^'^^^'^^ 19 <^ofi aqo o-. Powerhouse 'oo^'iii'nk viCe ;■;::::::::::::.:::::::: 3,121,193.31 fee plant 166,312.32 Permanent dwellings 1, 984, 120. 64 Temporary dwellings (*) HospitaL. 142,877.97 First quarters hotel 586, 924 . 89 Soldiers' barracks 240,957.49 Public works 8,843,007.62^ Roads and walks 583,201.94 Sewer svstem 1,132,606.80 Water svstem 2, 265, 452. 59 Railways 2,025,478.13 Trolley lines 173,393.99 Fencing 107,641.25 Telephone svstem 22, o55. 46 Electrical distribution system 2, 532, 677. 46 Inventories (approximately one-half of these inventories have been disposed of) 3, 043, 516. 20 WacoQuarrv 1,302,962.88 Construction 1,250,000.00 I^d 52,962.88 Total 67, 555, 355. 09 Operations.'.!'.!!-'.'.'.'." '.". ! ! ! ! ; - - - - 3, 424, 496. 85 Rockwood quarry 986, 858. 85 Muscle Shoals 1,840,568.32 Ordnance maintenance to July .1, 1920 597,069.68 Grand total 70,979,851.94 Maintenance to July 1. 1921 201, 674. 63 Warrior-Sheppield Power Station and Transmission Line. W'arrior generating plant $3, 417, 702. 70 W^arrior substation 383, 756. 35 Transmission line 938, 057. 35 Muscle Shoals substation * 189, 843. 99 Drifton Railroad '^0>-^21.94 Total 4,979,782.33 Maintenance to July 1, 1920 - 25, 804. 57 Maintenance to July 1 , 1921 7, Oo6. 8:i 1 Temporary buildings, the cost of which was $5,174,377.19, have been allocated to the cost of the per- manent plant as overhead. • » Located on Government-owned land at Muscle Shoals, Ala MUSCLE SHOALS PROPOSITIONS. 23 Exhibit G. War Departme.vt, Office op the Judge Advocate General, •»f J r xt. o . , T,. Washmgton, January 28, 193-2. Memorandum for the Secretary of War. , -'^'.-. Subject: Legal questions involved in Henry Ford's Muscle Shoals proposal. Instead of discussing at length the legal points involved in Henry Ford's Muscle Shoals proposal, you will observe that this subject has all been covered in one short paragraph in the draft submitted. I am transmitting herewith, however a copv of my notes covering this subject^ originally intended for your consideration as a part of your contemplated report t« Congress, which you mav find helpful or available for your use if needed. . ^ «. axA^iciui John A. Smith, Major, Judge Advomfe. notes. Shortly after receipt by me of the offer of Henry Ford for the leasing of the dams and proposed power plant at M uscle Shoals and disposition of the power to be developed at tha place my attention was invited to certain provisions conuined inX com^ct T'trLilLZ^^^^^ ^ orporation dated June 8, ftlS. under which nitrate plant No 2 was constructed granting to said company an option to purchase same under certain S"?or^^ ,firont7nT'r' "f ^^ agreement enWd intS with the General CherS ^ ;. t V 1 UK Pf ^""^ ^"""^ processes in the construction and operation of nitrate ritPnt^ln' n'n''^ ^^^^^? certain limitations and restrictions upon the use oi^d patents and processes and enjoined secrecy on the part of the Government as lon^ as the Government shall continue to use said processes; also to certain provdsions if the contract for the construction of the Goi^as Warrior River ste^ p?ant and tmn^ mission line constructed by the Alabama Power Co. at the expTns^ of the Unfted States on and owned by saia company, but with a provision in the^conTr^t luthoiS W the operation of Gorgas VVarnor station under certain conditions and the sale of eW? r^ilL^nr^.''^^ C^/'T.r^ T^^'^^° "P«^ '^^ P^>°^«^t to the UiSted S?ate^ of U mills for each kilowatt-hour of ener^gy produced, ;vith an option to the AlabamrPower he wa?at'a vah^Tn'bP n7JT 'frV'"'' '^*^^^^ ^^^^ ^^er the terr^nation of tne war at a value to be fixed by arbitration; and more important still the auestiou wa^ raised a^ to my authority, in view of the provisions of the national defe^ns? act to sell or make any other disposition of these properties, under existing laws A^co^dl kt^ocSrOe^nrir o^piS "^^^' '-'"^ '^-^ '^ ^-^' submitted to%hfjTJ^ for 7h^ flT^"^ 'J^' the Acting Judge Advocate General that the onlv existing authority in thP alt nf fv.n ^"^^'"^ P'^P^T^? f^^il ^ ^^^t contemplated herein is tllrgranted n the act of ( ongress approved July 28, 1892 (27 Stat., 321) which nrovides for th^ leasing by the Secretary of War of property o the Un ted St^te^ under hi^^^^ which may not for the time being be required for public use or a^eri^^ Lot 1o pxop^' five years and revocable at any time, and that the onirau^orityTo^^e ^all ^T^^^^ tbnTfs'trP''*^ that might possibly be applicable, in^he S'^e of sped^^ io Ita? s^o^'T?!^"^- ^"l^ contained in the act of Congress, approved July 9 918 mlt . ' M^' authorizing the President, through the head of any executive denart- ment, to sell war supplies, material, and equipment- ^ executive depart- aiul any building, plant, or factory acquired since April 6. 1917 includincr the lanH«i Bpeciai attention to the following pro\asion in said act: ^ mle\v\Jf^^^L^^T^^^ "^^^'' ^^}' ^^t «^^" '^« constnicted ana operated r^i^L^ u ^^Xemment and not in conjunction with anv other industrv- or enterori^ earned on by pnvate capital." ^39 Stat., 215 ) ' mu«ir> or enierpri^e in the same opinion the Acting Judge Advocate General said: PrP«iV«tl'''^'^^?^^^I^'^ ^^"^^ *^^* ^f^^«^^® ^^hoal^ ^-as selected bv authoritv of the th«t ^1 ^. V ^f *^H^^?r."^*'^^^ P^^"t authorized by the nationaf defence act and pa? From\h^orl*to^'^''^ ^"^ ?? ^^l*"^" otheJ: facilities have bVen paiSfoHn abou $?^. mn nfi^'f^'?^ appropriated by the national defense act. It appears that 24 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 25 "It thus appears that the Muscle Shoala nitrate project, considered as a whole, was initiated b}r Congress by the provisions of the national defense act of June 3, 1916, and that a considerable portion of the expenditures for the plant have been made from the $20,000,000 appropriated by that act. *'In my opinion the general authority contained in the act of July 9, 1918, supra, for the sale of war supplies and plants acquired since April 6, 1917, does not apply to the Muscle Shoals project, considered as a whole. It is a rule of statutory construc- tion that a general statute does not repeal or supersede a prior particular statute imless there is some express reference to the previous legislation on the subject, or unless there is a necessary inconsistency in the two acts standing together. * * * I con- sider, therefore, that the provision contained in section 124 of the national defense act directing that the plant therein authorized be operated solely by the Government and not in conjunction with any other industr\^ or enterprise carried on by private capital 13 applicable to this plant as a whole and is a restmint upon its sale. The same statute would prevent the lease or rental of the plant for priv^ate operation." Acting upon the advice of the Acting Judge Advocate General, I have taken the position that I have no authority to act finally upon the Ford offer or any other offer submitted for the Muscle Shoals project as a whole, the disposition thereof, in any event, being subject to the will of Congress. It is because of such fact that I submit tliis proposal to Congress for appropriate action. With reference to the option to purchase, contained in the contract for the con- struction of the power plant by the Alabama Power Co., covering the Gorgas Warrior Bteam plant and transmission lines, which contract was dated and executed December 1, 1917, the Acting Jud^e Advo::ate General has advised me that at that time there was no authority under existing law for the sale of such property, and therefore the Secretary of War, or contracting ofiScsr reoresenting the United States, was without authority to enter int") a central for the sale of siid property or for granting an option for the purchase theraof, and as the Constitution vests in Congress the sole power to dispose of and make all needful rules and regulations respecting the property of the United States, and Congress not having vested that authority in the Secretary of War or anyone else, it was beyond the power of the S9cretary of War or contracting officer to bind the hands of Congress in the matter of determining to whom or upon what terms said property might be sold or otherwise disposed of. Attention is also invited to the date of the contract with the Air Nitrates Corporation for the construction of nitrate plant No. 2, which was executed on June 8, 1918. And as there was at that time no authority for the sale of said plant, the same situation exists with reference to the option granted to the Air Nitrates Corporation purporting to give to said cor- poration an option for a period not to exceed six months after the date of notice stating the determination of the United States to dispose of the same. This provision is nugatory and void and is not binding upon the United States. With reference to nitrate plant No. 1, which was constructed upon plans of the General Chemical Co. and contained provisions for the use of patents and processes of said company and provided for secrecy in the use thereof, it appears that the Gen- eral Chemical Co. has treated said contract as at an end and construed the same as binding only so long as the Government shall continue to use said processes. In a letter received from the General Chemical Co. under date of September 13, 1919, replying to a request for certain information from the General Chemical Co., appears the following : "If, as we understand, your request for information was made pursuant to clause 4 of our tender of June 5, 1917, we need only remind you that by the express terms of this clause our obligation to communicate improvement to the Government was limited to the period during which the Government should continue the use of our process, and that the Government's plant for the use of that process has been shut down for nearly a year." In reply to an inquiry as to whether or not the equipment used in the synthetic process at nitrate plant No. 1 could be sold or removed from the reservation, without restriction as to its use, the Acting Judge Advocate General said: "The subject matter of the contract was processes and apparatus, and the machinery installed is not shown to fall within those classes, and no restrictions being set fortn as to its use, may be sold without restriction or reservation as to its use, and the future use of the plant by the purchaser as a plant for manufacturing the subject matter embodied in any patents would, of course, be a question between the purchaser and any patentee owning processes to be used. "Inasmuch as processes covered by the contract are no longer in operation or use by the Government, the prohibition relating to the exclusion of the public is no longer applicable and the equipment, not being the subject matter of the contract, may be sold for whatever purposes the Government may see fit. " With reference to the question as to whether or not the United States may transfer the right, hcense, and privilege to use any or all patents, processes, methods, and designs which have been acquired by the United States under the license agreement with the American Cyanamid (b., my attention has been invited to the fact that said agreement provides that the United States may transfer to the purchaser of said plant the right to avail itself of the license granted in the operation of the plant so purchased, subject, of course, to the conditions of use granted to the United States, but that it is extremely doubtful that the term "purchaser" as used in the contract could be construed to include a "lessee" of said plant. With reference to the present use of the Gorgas Warrior steam plant by the Alabama Power Co. under the provisions of the contract for the construction thereof I am advised by the Acting Judge Advocate General that the only authority for such use at the time the contract was entered into was the authority contained in the general leasing act of July 28, 1892, which provided that any use permitted under the authority thereof shall be revocable at any time, and hence the use by the Alabama Power Co. must be construed as subject to termination at any time by the Secretary of War. With reference to the use of the transmission line and power plant at nitrate plant No. 2, covered by the lease to the Alabama Power Co., dated November 17 1921 attention is invited to the fact that this lease was executed under the authority of the said act of July 28, 1892, and is, by its terms, revocable at any time. It IS believed that the construction placed upon these contract provisions and upon the lease above mentioned by the law officers of the Army is correct and would be sus- tained in the event these questions should later arise. In any event Con«Tess mav if It sees fit, ignore them. ° ' STATEMENT OF HON. JOHN W. WEEKS, SECRETARY OF WAR AC- COMPANIED BY MAJ. GEN. C. C. WILLIAMS, CHIEF OF ORDNANCE- MAJ. GEN. LANSING H. BEACH, CHIEF OF ENGINEERS: AND COl' JOHN A. HULL, ACTING JUDGE ADVOCATE GENERAL. •'^^^i,^^'*^^'^^' ^^^^ *^® desire of the committee, as I understand it, to get through with this matter as reasonably speedily as possible, and we will confine ourselves for the present entirely to the Ford matter. Mr. Secretary, have any jother proposals been made to you? Secretary Weeks. Yes; there are two. The Chairman. Have you sent them to Congress? Secretary Weeks. I have not yet. I am having them analyzed and I will send them m a few days. The Chairman. How soon can we expect them? Secretary Weeks. I should say by the end of this week. The Chairman. Mr. Secretary, the committee would like to have you explain as lully as possible the offer of Mr. Ford, as you understand it; but before you begin with that I desire to offer for the record section 124 of the national defense act of June 3, 1916, as follows: . ''Sec 124. Nitrate supply.— The President of the United States is hereby author- ized and empowered to make, or cause to be made, such investigarion as in his judg- ment IS necessary to determine the best, cheapest, and most available means for me production of nitrates and other products for munitions of war and useful in tne manufacture of fertilizers and other useful products by water power or any otner power, as m his judgment is the best and cheapest to use; and is also hereby autnorized and empowered to designate for the exclusive use of the United States if in nis judgment such means is best and cheapest, such site or sites, upon anv naAi- gabie or nonnavigable nver or rivers or upon the public lands, as in his opinion will oe necessary for carrying out the purposes of this act; and is further authorized to ujnsiruct, maintain, and operate at or on any site or sites so designated, dams, locks ^provements to navigation, power houses and other plants and equipment or other means than water power as in his judgment is the best and cheapest, necessarv or con\enient for the generation of electrical or other power and for the production of uurates or other products needed for munitions of war and useful in the manufacture .rJ^Jjlizers and other useful products. mif }^ President is authorized to lease, purchase, or acquire, by condemnation ?t" ,' f.''^^*' ^l devise, such lands and rights of way as may be necessary for the con- acruction and operation of such plants, and to take from anv lands of the United nafof; J purchase or acquire by condemnation materials, minerals, and processes, anrfS^l^' othemse, necessary for the construction and operation of such plant^ and for the manufacture of such products. f"* « i 26 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 27 "The products of such plants shall be used by the President for military and navat purposes to the extent that he may deem necessary, and any surplus which he shall determine is not required shall be sold and disposed of by him under such regulations: as he may prescribe. , , ^ , u a: "The President is hereby authorized and empowered to employ such otticers, agents or agencies as may in his discretion be necessary to enable him to carry out the purposes herein specified, and to authorize and require such officers, agents, or agencies to parform any and all of the duties imposad upon him by the provisions^ bereof. . , , • ^u m- "The sum of $20,000,003 is hereby appropriated, out of any moneys m the rreasury not otherwisa appropriated, available until expended, to enable the President of the United States to carry out the purposes herein provided for. "The plant or plants provided for under this act shall be constructed and operatect solely by the Government and not in conjunction with any other industry or enter- prise carried on by private capital. "In order to raise the money appropriated by this act and necessary to carry its provisions into effect, the Secretary of the Treasury, upon the request of the Presi- dent of the United States, may issue and sell, or use for such purpose or construction herein above authorized, any of the bonds of the United States now available m the Treasury of the United States under the act of August 5, 1909, the act of February 4, 1910 and the act of March 2, 1911, relating to the issue of bonds for the construction of the Panama Canal, to a total amount not to exceed $20,000,000: Provided, That any Panama Canal bonds issued and sold or used under the provisions of this section may be made payable at such time after issue as the Secretary of the Treasury, in his discretion, may deem advisable, and fix, instead of 50 years after date of issue, as in said act of August 5, 1909, not exceeding 50 years." , ^ ^r. t^,. And also the so-called Leasing Act of July 28, 1892, which was passed by the l^ifty- second Congress, first session, as follows: "Chap. .316. An act authorizing the Secretary of War to lease pubUc property in certain cases. ''Be it enacted by the Senate and the House of Representatives of the United States of America in Congress assembled, That authority be, and is hereby, given to the Secre- tary of War, when in his discretaicn it will be for the public gcod, tc lease, for a period not exceeding five years and revokable at any time, such property of the United States under his control as may not for the time be required for public use, and for the leasing cf which there is no authority under existing law. and such leases shall be reported annually to Congress: Provided, That nothing in this act contained shall be held to apply to mineral or phosphate lands. "Approved, July 28, 1892. " Now, Mr. Secretary, will you kindly proceed. Secretary Weeks. Mr. Chairman, I am a little embarrassed t« know ]ust exactly what the committee wants. I have analyzed the Ford offer in the statement which I sent to Congress. I can do it again if it is desirable, but, of coiu^e, it would take a very considerable amount of time. If the committee could ask me any questions it desires regarding any phase of the analysis or the offer, I think the committee would gain time and I would not unduly burden it by much repetition. The Chairman. Of course, the committee felt that this whole matter was before us really for the first time, and I think it would be ad\dsable for you to analyze the offer as best you can, and get the matter before us in that way. Secretary Weeks. Very well. Very soon after the 4th of March, people interested in the Muscle Shoals development came to me and asked if I would be willing to recommend an appropriation to complete the work there, meaning, presumably, I sup- pose, the Wilson Dam, although it was not so definitely stated. I replied that when a proposition was made which seemed to me to promise commercial results commen- surate with the expenditures that would have to be made, I should consider it my duty to send that proposition to Congress. . . On the 8th of July, the first offer came to Gen. Beach, who had been in negotiations with Mr. Ford, or his engineers. That is before you. There were necessarily some considerable delays, which I could refer in detail, if it were desirable. For example, the representative of a very large company informed me at the time that his company proposed to make an offer and asked me if I would delay taking action until they had^prepared their offer. That delay covered something like six weeks, and, finally, the president of the company came to me and said they had decided not to make an offer; that they would have made one or would make one, if I had any power to act; not referring to me specifically in making that statement, but if any one had the power to act, but they did not want to make a competitive offer that might develop into a political controversy. I suppose they had reasons for coming to that conclusion . Then matters developed from time to time. It was difficult for Mr. Ford to come to Washington^ His engineers came more or less frequently. I had consultations with Gen. Beach, Gen. Taylor and Secretary Hoover, who had come in at my request being an engineer, and with Mr. Ford's two engineers. Various phases of the Ford offer were discussed of course, at these meetings. I suggested at the begin- ning that there should be modifications in the offer; that it was not specific or definite ^nough m many respects; and, in a word, these negotiations continued until the latter part of November, when Mr. Ford did come to Washington. Unfortunatelv I was sick m bed at the time, and it was not desirable for me to go into any ^!n tIIwI^hV^w^ ^^^ Mr. Ford come to my house, after seeing Gen Beaph and •Gen Taylor and Mr. Hoover, and talking over the situation with them. Mr Ford told me then that he intended to go down to Muscle Shoals. As I recall, he said he had ■only been there one day and he wanted to look it over again and was going to take Mr. Edison down with him and when he had made this inspection with M? Edison lie would return to Washington and take the matter up with me. He did not return to Washington but sent his engineers. I make no criticism of Mr. Ford for that We had another discussion and the engineers finally made several rather specific state- ment, and I asked them if they had authority from Mr. Ford to make^th^e sS t ments. They said they had not. Then I said that I thought if we were going to make progress on this matter and reach any conclusion, which I was anxious to do, that thev •ought either to get written authority from Mr. Ford to represent him or that Mr Ford should come here himself . The result was that Mr. Ford came himself on whatevoT day is stated in this review, early in January. The Chairman. January 11. Secretary Weeks. Yes. At that interview-and the members of the committee Tl^'^Z'^'^t^ *S^ statement which I made at the time, and which Mr. Ford madi liltoJlfj'^ A-. n^'^ Practically dissented from many of the things which his end- unnn «n^ ' t^^^/'^^^.f V^'' ^/"^ ^^^f ^ ^ ^^^^§^* ^^ ^'^^« ^^ Comparative agreement upon, and it did not look as if we had made any progress toward a modification of his of^er, except that at about that time he submitted a letter, or his engineers did r^ suiting from my attempt to get a guaranty from him that he would pay interest on w!? r '''' ^A tj? d -« Mr. Garrett. Yes, sir. Agricultural ChemiSi Co Chemical Co. and the other is the American panlS ItTh^Trn'^o^em^'SepenSe^tly 17! ^T^ "^^ f -™- «>- preferred XTand onlv mid il^dPnH^^r ''^''^' ^^^^ ^^^^ ^ P^^ ^^^^ «° its abIut%*^CCte'bIforVSl'S^L*?S- P'^™'/^ ^ **•'« " fro" '••"'t you have said. Secretary Weeks Y^ ^ "^"""^ agreement which is now before us! 4r?"?<>'-^°"^^^^^^ the time he to>d inWomt^inTsoricdntlir— tTnl^rP'^nl"^ *t« construction had to\e feferr^ in th«e paShs M the enH nfil^ff *■"**« o*er things to which I have i>'' agreed to bv his pf^E«!^ i?.! t *?* "?f' '^'"<='» "^ substantially new, were of thfm thei tLk th^ftS^rt mT/S**^! Advocate General's Department.' One •■ack by the sa^e me^lnger ^"'^ "" °**™" *"<* ^^ ''Sned it and sent it sXton- WEEKS^ri^i^Wwl ",\t°^«g*» "^king you questions now? HousI v^u makesomTretrt^'f"'^ "' ^<"" ^t^**"^*"* sent to thi Sp^ker of the 30 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 31 4 I « "I also suggest that the cost of acquiring the lands and the flowage rights necessaiy for Dam No 3 should be included in the cost on which Mr. Ford is to pay 4 per cent Secretary Weeks. That is a matter of figures, Mr. Chairman. Of course, that one item is much more important in this whole transaction than the amortization which he proposes to make for the payment of the principal at maturity; probably twice as important in the matter of dollars and cents. Our engineers estimate that it will be likely to cost $2,000,000 to obtain the land and flowage rights which would be aftected by the construction of Dam No. 3. That figure may be high. Mr ^ord s engineers placed it lower. I do not believe any one knows exactly, because 1 do not think they have gone into it in sufficient detail, but Mr. Ford s engineers express the view that it would not be over $1,500,000; but anybody can take his pencil and figure what $1,500,000 paid at this time would amount to in 100 years, ana it will be found, of course, that that is of very great moment compared with the fund proposed to be established to amortize this debt, and that was my reason tor saying that I thought that amount should be included in the cost of the enterprise. It is a part of the cost of the enterprise. _ ,, t. , , »«. +^ inoao The Chairman. As I understand the proposition, Mr. Ford makes an offer to ease a certain part of the plant, and then he wants certain other parts of the plant sold to him outright; that is, the nitrate plants 1 and 2, and the Waco quairy and also the Warrior River plant and the transmission line. He wants that sold to him outrignt. The Cha^trman. And he wants to lease the Wilson Dam and also Dam No. 3 when it is completed. Secretary Weeks. Yes. . , , ^ ^i. i * +i,^c^ The Chairman. You make some comment m your letter about the sale ot those nitrate plants. What was"the original cost to the Government of those plants.^ Secretary Weeks. About $87,000,000. .- nn^ c^m The Chairman. And he wants to buy them outright for $o,ouo,uuu. Secretarv Weeks. That is his ofler. . , .^-i -.y, ^u^ The Chairman. I presume we had better take up those matters in detail witn tne Chief of Ordnance, when we come to that. , , .u + o4o+«T^or.t Secretary Weeks. Mr. Chairman, in order that I may make clear that statement, Congresssman Quin calls my attention to the fact that perhaps I did not answer the quesuon correctlv. I understood you to ask me about the cost of nitrate plants Nos. 1 and 2, the Warrior plant, the Waco quarry, and the transmission line. The Chairman. Yes. ^ ^ , -j ■ +„*«,v,«t,+ Secretary Weeks. And I stated about $87,000,000. I have said in my statement to the committee here $85,000,000, and thatis probably nearer cojrect than $87,000 WO but that does not include what has been expended m the construction of the Wilson Dam which is between sixteen and seventeen million dollars. The Chairman. Of course, the Wilson Dam is not yet completed. You sav m yoiir letter that it is about 30 per cent completed and it will require according ^ the Ann> engineers, to build and complete the Wilson Dam and also Dam No. 3, about 5)0U,- 000 000 t Secretary Weeks. Yes. The cost of what has been done at the Wilson Dam, of course is very much higher than the same cost would be at this time I do not know about the 30 per cent. I am not very clear in my own mind about that. The Chairman. I think your report states that it is about 30 per ^^^^ completed^^ Secretary Weeks. I think the Wilson Dam could be completed for $22,000,000 which would make a total of about $39,000,000 for that dam but if it were constructed at this time I think it could be constructed for $30,000,000, and bear m niind M . Chairman and gentlemen, that I am talking as a layman about these figures and engi- neering propositions, because I am not an engineer; but this is stated after consider- able familianty with the discussions that have been held m my presence by engineeis representing both sides of the matter. -^ • j * „ ^^^..f atai- The Chairman. Have you with you, Mr. Secretary an itemized cost account stat ing just exactly how much money has been expended by the Government up to tne present time on all these projects? . i-|i-_i,„x_^„q Secretary Weeks. I have an itemized statement, and it was included m what wa marked "Exhibit F" in the report which I sent to Congress on page 23, of the co.t of the nitrate plant and everything, I think, except the Wilson Dam. That is the ^""fhe^CHlfRMl^^^^^ Exhibit F, on page 21 of the pamphlet, there is a stateme^^^^^^^^ the approximate cost of the nitrate plant, of the Warnor River plant, the Waco quarr} , and so on. am^unffo*"™^"- ™' ^"^ ^''^^^ ""^'^ *<" ">« '^"'^ )"«» what that would ii^mfi^l!"^^"- ^'- ^^^''''' °»t i^^'-di"? maintenance, the total cost is The Chairman. For nitrate plant No 1 poSsTS^y*"'^''' (interposing). That includes the properties that Mr. Ford, pro- wMch hS'oreven'beent^'^"^ '" ''"^ '''' ^''^^ """^ -" '"^ »»- No. 3, equipped" ofl'.^"- """■' t'^t^-'-tte proposes to lease; the two dams, electricaUy S'cret^ WKEKS^'lljriS^.te:' *^'^ "^' ** Gc^emment up to the present time? The Chairman. For the two dams'? Secretary Weeks Nothing has been done on Dam No. 3 ^.®,.. *'' w"^"^- ^^t^^ig lias been done on that property at all? Secretary Weeks. There may have been some exploration work and the Chipf nf r^n^neers is here and can inform you about that when he te^tiTes ^"""^ *^^ ^^'^^ ^^ The Chairman. What is it estimated it will cost to complete Dam No 3 The Chairman. You make a recommendation that a lease of 100 vears wnnlH ho TorZ^ir^.t^^..1r.^, -<1 ^- -^^^ P-i^y a ^Ve^rS."°^y^<; ^Ib. C.ui«... Up.li .tu Mm. do. Mr. r,rt rm^ K. km. Din N„. 2 becretary Weeks. It would unless Mr. Ford aereed to it *ouU wSiffereS cSions In^^^'^n'^'f.^' * 50-yearfranchise, he undoubtedly l.e ha. nTdl h^X^'lW-yrfmnc" "" *' '^""*^*=* '""^ '""^^ "^ "^^ P-P'^'^ courl'rbZiYff nn' ^n t ™'""'*' T*°i *? ?S?°8e his method of amortizing the debt of any mteri^^ifff, ^^" instead of 100 years, but I do not think it would nike been^^lSL ^f^X^ otherwise You must remember, Mr. McKenzie, tS mvl knowlXaf^ltas^vSftCl^/"'^ considerable transaction, he having the increase the exnensf to Zfv.Tff Ti,^ 50-y^r franchise, that would proportionately Secretafv W?^^ w^' ^ ?i^ ^"""^ ^^^ ^^^^^t he would derive from the proposUion wouW n^t be anv gr^^^^^ the indebtedness so that the annSrexpe^'^e loi De any greater, but it would not be entirely paid at the end of 50 years 92900—22 3 32 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 33 Mr. McKenzie. Of course, it is true as you suggested, that the waterpower legisla- tion provides for a 50-year term franchise? Secretary Weeks. Yes. . Mr. McKenzie. That was a controverted question, was it nots" Secretary Weeks. I think it was. , . , , ^ / v Mr. McKenzie. There are very many who hold the view that a long-term franchise is advantageous not only to the licenses, but also to the general public; is that not Secretary Weeks. Yes. I am simply expressing my own personal view in the ^Mr^'^ilcKENZiE. However, if the committee should object to the 100-year proposi- tion, as one element in the plan, it would necessarily involve the redrafting of the whoie proposition, would it not? j *x« rpi,^^^ Secreta^ Weeks. I do not think there would be any material redrafting, mere would have to be a redrafting of the amortization plan. Mr. McKenzie. In regard to your suggestion that if this plan should go throiign there shoald be some provision put in which would make Mr. Ford s company liable under the State laws of Alabama, or that might bring him under the general water- power law of the country, is it your view that there is not an implied understanding fiiat he would come under those laws, regardless of any specific reference to it in the ^ Secretary Weeks. I do not know whether he would be or not. That was discussed, and there was some little doubt about it. There is no reason why it should not l^e put in, if there would not be any certainty about it. . x- u Mr. McKenzie. So far as you know, neither Mr. Ford nor his representatives have any objection to that sort of a provision going in? Secretary Weeks. I think they would not have. ^^ -. x, xt Mr McKenzie. Now, Mr. Secretary, in regard to the amount to be paid by Mr. Ford 'for the property he is to take, that is, his offer of some $5,000,000, as set forth in the contract, is it your judgment that that offer was based on what he considered a fair salvage value for the property, if taken over, simply as a matter of salvage, or was the figure of $5,000,000 put in as a part of the consideration of the whole scheme? In other words, if there were no other conditions connected with this matter, would it not be reasonable to presume he might have made a greater offer to take that property over as a mere matter of salvage? . ,, „ , , , . Secretary Weeks. I can not tell what course of reasoning Mr. Ford and his engineers followed to arrive at the $5,000,000 figure, but they have refused m any way to modify it. , , ^x^ *. 4.u Mr McKenzie. I notice by your letter and the report of the engineers that the maximum sum that can be expected to be received from the sale of this property would be $16,000,000? Secretary Weeks. A Uttle in excess of $16,000,000 Mr McKenzie. And that you think a fair estimate would be $8,000,000.' Secretary Weeks. The $8,000,000 is based entirely on scrapping and salvaging the property and the War Department has done so much of that kind of thing that Its estimates are fairly accurate as to what can be obtained by scrapping. Mr McKenzie. It has occurred to me, Mr. Secretary, that the minds of Mr i^orU and the Army engineers did not meet on the point of the salvage value m its entirety, * that Mr Ford took into consideration other elements in connection with the whole proposition and simply said that among other things he would give $5,000,000 for this ^Tecretan^^WEEKS. I can not tell about that. Of course, there has been a great deal of discussion about this matter. Mr. Ford originally proposed to pay 6 per centfon $20 000,000 as the amount he was willing to provide for the completion of the dams. That matter was discussed for a long time, and his engineers repeatedly said to me that Mr. Ford could not afford to do any more than that because he was going to put ten or twelve million dollars into a plant for the manufacture of fertilizer, and that would prohibit his paying interest on any more of the cost of construction and make the proposition a reasonable one from a commercial basis. That would seem to indi- cate that they had considered all parts of this offer. Of course, Mr. Ford has modifaed the matter of the payment of interest on the cost of construction . Mr McKenzie. I take it from your statement, Mr. Secretary, that you have some apprehension as to whether or not Mr. Ford or his company would continue the manu- facture of fertilizer at this plant through the whole period of the lease. Secretary Weeks. If I were operating for myself and this were my prop- erty I should insist on a guaranty that the manufacture should contmue dunng the life of the contract, and I say that without any reEection whatever on Mr. Ford or Mr. Ford's estate, or on the company he is goin- to form That ,*<, simply a common-sense business proposition. S"i"« lo lorm. mat is Mr. McKenzie. I am not sure but what you are risht about that Mr <5^..«*« because there is no question whatever but^hafthXtere^t of^^^^^ peopirSlS^ country has been centered around the fertilizer nronnmti-nn of fV.^. ^ E^ ^1 ^V"^ But I take it from your statement, f u/ther IhTt^^hTLT^^^^^^ Kzer h^^o't been a great financial success, up to date, in this country fertilizer has not I do notkLw.'""'- ' '' "^' "^"* '' ''^ *^^* fi"^"y^" --y '^Pe-ifi- case, because Mr. McKenzie. Speaking of the two large companies - Secretary Weeks (interposing). I just happened, last night in dancing through « '"Secretary Weeks. Yes. Co^'lre^wSUdltiri; rawr*^"'"^ '"^^ **•« ^•^™^ "' *« ^'^"ama Power Department durinii fte war Tnrt tWf„ ^ ^/ 5?® contract section of the War kfr McKFvJ^r I ^ very much surprised when I received that decL on from t^'^Xct tbJbTdTnTT'"' "' ** T't' ^* ^- Ford, uTevident taking a dollaXm thp^^'J.,^! -^ (xovernment could complete that dam without and the sale of tKSwer^^^^^^ that couM be sold, based on the dam ?4rne^e^s^£^^^ ' ^^I bility for it anH ? ?h ' ?^^ ""^^"^/^"^ ^^^' additional power, and Siere is the W PowJr pLnt at nilt'^i^^^^^^^ understand that we are 'nowle^in^^the reaches the mms of North CaroHnl T L J .^^"^l^Jr/i^^" ^^ ^ ^^^^^ ^^^t jSwer ^^ ere on rather o^^« i *l ^^f^^i'^*/ 1 had to make that lease while these neeotiatinns , ^^l^PeT^X^TnVtoS^ Ford's engineers. TlrX^'d W «nd South Carolina and Sat w^ tT^^^^ because there wa^ a shortage of power in North plant was st^rtlli ««? ^^ .. ^^^ available place to get power. So that now^r I 84 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 35 Secretarv' Weeks. You will have to ask one of the officers about that; I do not know I do not mean to sav that power is now being transmitted from Alabama to North Carolina. It is being diverted so that it reaches North Carolina. What I mean to say is that it has a specific application to this 100-year lease— in that nobodjr knows what we are going to see in 10 or 20 years in the transmission of power. It is in its infancy. We can develop perfectly enormous power in the Colorado River. The greatest power in the United States, far and away, is there, and I anticipate that in the course of a comparatively few years there will be means of transmission of power to the Central West, anvway, and perhaps to the whole country. Mr. McKenzie. It is being transmitted now as far as 200 miles, is it not? Secretary Weeks. More than that. I am reminded that it is being transmitted 700 miles in California. I am not personally familiar with that. Mr. McKenzie. At any rate, if this proposition is turned down by the committee, you would recommend the completion of this dam for power purposes, and in that event possibly all of these improvements would be salvaged and dismantled. Secretary Weeks. Would be salvaged. I suppose members of the comnntteo have been there. There are two villages there, one at nitrate plant No. 1, the Sheffield plant, and one in Florence. There are 400 or 500 houses at those plants, and most ot them are not occupied. A few of them are occupied by our officers and men who are there. Those houses are of stucco construction, reinforced concrete, or whatever it may be.. I went into one of them, and there is not one of them that is not suitable for any man to live in unless he has a family which is too large. If there is any de- velopment of commercial enterprise there, those houses are coming into the market, and while the estimate of their salvage value is very small now, I have no doubt those houses cost $3,000 or $3,500, and that they would cost |2,500 each now, on an average, and you could get quite a large salvage value out of them. Mr. McKenzie. But this much can be said in favor of this proposition, perhaps, that Mr. Ford agrees to take over all that property for the sum of $5,000,000, and that he vdW continue to operate the nitrat« plant from which we expect to get the material to make exolosives. Se-' retary Weeks. He will keep the nitrate plant in condition for the Government's use, and that is favorable from the standpoint of the War Department. Mr. McKenzie. He further agrees to undertake the manufacture of fertilizer to the maximum amount of 110,000 tons per annum? Secretarv Weeks. He does now, yes. Mr. McIvenzie. To that extent he is taking on a pretty good-sized contract on his part? Secretarv Weeks. Undoubtedly. Mr. Greene. Mr. Secretary, if this offer were declined, considering your suggestion that the completion of the Wilson Dam be carried through, would it be done with the idea of maintaining it as a Government enterprise, or simply preparing it to get it into shape for salvage? , . . i. , i Secretary- Weeks. I think the whole thing could be leased and m time probably salvaged, but that is simplv an expression of opinion on my part. Mr. Greene. Then, so far as I understand it, this whole business is looked upon primarily as a proposition for salvage, and that the question as between one, two, or three or 'any different forms of salvage which may be offered is simply which form carries with it the greatest operating benefits and the best financial terms? Secretary Weeks. Yes. Mr. Greene. Salvage is the motive in the whole proposition? Secretary Weeks. The motive is to get the Government out of an enterprise in which it is involved as a result of the war. • • . i. a Mr. Greene. Are you prepared to give us anything like an opinion for the record as to whether, if this particular form of Mr. Ford's offer should be declined, that would terminate all negotiations wdth him, or whether he might be likely to come back with a second proposition? Secretary Weeks. I am not justified in speaking for Mr. Ford in that matter, but as I tried to explain awhile ago, I have taken the position that unless something were done we would not make a trade. My position was to get the best offer possible from Mr. Ford or someone else and send it to Congress. Mr. Greene. I appreciate that, and I did not mean to ask the question to put you into the attitude of expressing Mr. Ford 's mind. I wondered whether the negotiations were attended with such circumstances as might lead to the reasonably presumable assumption that he would come in with another offer. Secretary Weeks. 1 do not know that he would come in with another offer, but ne might make some changes in this offer. nec'tion with Smr^aT^o"? o^^^^PP'^ft ^'^^^ y°" ^^'^ «'«°«'««' ^^« i° oon- necHonwim nitrate plant No. 2. You wou d not recommend that wonlH ™ii? Secretary VVeeks I would not; no. That refera enS to No 2 ^ I: „f «^' ■ \ *" 4*'' }° ^^' y"" =ay *•>»». in Mr. Ford-s offer he soeaks of a. Clude^'theTpeTolnT. ^"^^ '"''"^"' ''''' ''"^ -'*-*- -<•« aat"h^7Ctu.l c^npZ:f:u^'^f--l^:^^tlJ^^^^ a conCuaion. but the «na. Mr. Hull. That would be rather excessive, would it not'' r ttu:^clTd^LKt1v:?Jr^^*°en^ -to *•"« -"ufaeturing business unless pl!fs''i"ts!'did"wtiot7^ '■^'^'"""^ '" *'^« ""• ^" «"'"«'=«i°° 'rith these cost- Secretary Weeks. This is not a cost-plus contract. SecreteJ^' Weeks^? iTf^t^ turnover even if he turns it over two or three times.' a y^ar? "'• ^' ''""''* *" ^'^'"^ "^ ^^^ """b^r of ti^es he could^Tt over in Secretary Weeks. Yes. Mr. Hull. That is another thing; that is 8 per cent Secretary Weeks. That is the production ot fertilizer. Mr Fo7d"' wIuMrno^tet'tfiiTt' '«?P<'°«ib.Uty or what was back of the offer of S.;.o, • J *'^"'' i^''' ^^ "> 'lie second one, too: 'urniea. tw^cl'^Tn^'^T-till'S isTefiSef f ?° "^ ^"^ 't'h''' ''-^ «>">''ine the t'ord wfnS^suViSth^^^^^^^ 1 H T'^ '*^^- »"' ^ '^^'^^ i° view of Mr. in the manSure of fcrtiUze^ tW mlSht'^ *° "^^'it^u "■■ ^'^"^^^ "^"i"" dollar the capital of thU company ^ ^ considered their opinion of his idea of Secr^ti;r'V''wi'^K.'T'ihinl\1»^ '=°?'P*"y °'" operating the dams at all. 'hmkitUnl^nL'd-thatulouldSXr'' " *" "^""^ ""* '""^ ''''*- oP«™«™; ^ ''^i^^i^^^o^n^^^J^l:-'^^^^ --•• you did not say: I Serrptamr vtr /• " "' .^® companies you cited secretary Weeks (interposing). One company I cited. S6 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 37 Mr. Hull. Yes; I believe you cited only one company; but that company does not manufacture nitrates, it simply assembles the nitrates it buys of the importers; is that not true? Secretary Weeks. Undoubtedly. -^ ., . .^ Mr Hull. This is an entirely different proposition. This is evidently for the nianu- facture of the nitrates which would take the place of the Chilean nitrates, which are imported. -^^i , Secretary Weeks. We can fix nitrogen, however, at that plant, without any ques- tion. I want to offer this opinion, however, that the fixation of nitrogen is m its in- fancy and that ten or twenty vears from now we will be surprised at the development which has been made. If you will ask Gen. Williams the question he will tell you about observations he has made recently along that line which would substantiate the general statement 1 made in that regard. r -x * Mr Hull. I think that is true; but my point was that in the manufacture of nitrates this company which you cite probably has to pay $90, $100, or more per ton for its nitrates Secretary Weeks. About $40, I think. Mr. Hull. During the war they paid $90. Secretary Weeks. It is about $40 now. ,r ,. j • n- Mr James. Section 11, Mr. Secretary, enumerates the things that Mr. J^ord is willing to buy, and which cost us $85,000,000. You figure the salvage value at $8,000,000 and you say that possibly they might sell for as much as $16,000,000. Under section 12 Mr. Ford agrees to pay $5,000,000. I understand that you feel that in view ot Mr. Ford's offer to manufacture nitrates and fertilizer, Congress should accept the proposi- tion, although there is quite a difference betwean your figures and his? Secretarv Weeks. I think the Government is making a sacrifice m selling at $5 000,000.' I tried to get Mr. Ford to pay the salvage value on the property. He has declined to make any change in the amount he will pay for it. There are so man\ contingencies and benefits that result from this that it is a question for Congress to decide whether it can afford to make a monetary sacrifice in the sale of its property, but in any case you should remember that the salvage includes the salvage of nitrate plant No. 2, which I would not be in favor of doing at all. There the Government has a complete plant which can now produce, by using steam power, without an>- development of waterpower, about 100,000 tons of ammonium nitrate a year. Mr James. WTiat would be the salvage value without the nitrate plant? Secretary Weeks. Those figiu-es are given in detail in Gen. Williams's report. Let me add a word here, so that it may clarify the statement I have made. The Government is now equipped to produce nitrates for its purposes through the use oi this nitrate plant No. 2. Under present conditions it would have to operate the plant by steam power, which, of course, would be more expensive, presunia])ly, than to operate by waterpower, and there is an advantage in that the steam plant is kept in condition all the time, so that regardless of Mr. Ford's or any other offer the Govern- ment has that property now and can produce in any year it wishes to, 100,000 tons ot ammonium nitrate. „ , . ^ ,, ,., Mr. Kearns. Mr. Secretary, I think the answers to all the questions I would like to ask you are in this document we have before us.^but in order to assemble them, 1 would like to ask you a few questions. How much money has the Government already expended in the entire project at Muscle Shoals? Secretary Weeks. Including maintenance? Mr. Kearns. I mean including everything. Secretary Weeks. You want that figure definitely? Mr. Kearns. Approximately. ^ . , , Secretary Weeks. That amount is $106,203,016.07. That includes maintenance to July ] 1921 . Incidentally, I want to say a great many statements have been made about the cast of carrving on those plants now, as being $700,000 a year or figiires to that effect. That has been modified in the last year, we having leased the Warrior plant and the power plant No. 2, and my opinion is that we are getting enough out of those two leases to pay the expenses we are going to be put to there so that we are probably breaking even at this time. , , Mr. Kearns. If the Go^ ernment should enter into this contract or lease with "vir- Ford, and should complete this project, how much would the additional cost amount Secretary Weeks. It would be from $40,000,000 to $50,000,000 more. That would make a total of approximated $150,000,000. ,j ^r,. Mr. Kearns. After the work was all completed, on what sum of money would Mr- Ford pay rental? ^ , . i^ ^t ^ j v ' Mr. Weeks. On whatever the additional cost of compleUng Dams 2io. 2 and so. o may be, and tlie equipment of those dams. oxpInfedXwnlhere ?*" ^"''^'"""'''^'^''"^'^ S^t "« ^ntal from the money already Secretary Weeks. No, sir. down therir^* ^^^^ ^^'^' ^^'^ P'^l^« to finance the completion of this entire project Secretary Weeks. He expects to contract to construct the dams, and the Govern- ment to furnish the money to do it, and the terms on which the interest payments are to be made are stated clearly in his o ffer . ^^ "ttruio Mr Kearns If the Government should enter into this lease with Mr. Ford and he ' knt? ''''^®^**^® ^ P^"*^^^® fertihzers and should fajl, what would become of the Secretary Weeks. He makes the offer for the whole or nothing. I asked him if he failed to manufactiu-e fertilizer if that would mean-I asked in various terms-if tlu^ would mean the cancellation of the balance of the contract, that is, relating to the power obtained from the dams, and he said not at all, that his offer included eveiy! S'^U l^l^^.^.'^^w i^^^'P^'^^il^ ^^T' *° manufacture fertilizer unless he could do It at a profit, but his modified offer does modify that statement Mr. Kearns. If this lease should be granted to him, there is no assurance then that he would continue the manufacture of fertilizer throughout the term of the lea^e th^t to thaTeffect?^'''^''' ''''' '''' ^^'^ *^^* ^^ '^*" ^""^ ^^''^ ^' ^^^ ^^^^ «^ ^ |uamn?y the'c'omi.'^wMci It'to^^'''''''' '''^"P^ *^ ^^^ ^^^«^« ^^^ his estate behind periodf^"'^^^^' ^"* ""^^ agreeing to manufacture fertilizer throughout all of the lease Secretary Weeks. I do not think it is quite in businesslike shape in that respect Mr. Kearns. In connection with the manufacture of fertilizer he intends to fu^h he not? corporations and individuals in that section of the cSm^rTdJ^^ Secretary Weeks. I do not know. That is entering into a question which la a rilvif^^t^^^i,^^^®'' *?® ^^^ ^^ *^® ^^^^ ^ submitted by Mr. Ford, he would have a right to furnish power to any one to whom he saw fit to furnish it? Secretary Weeks. Undoubtedly. ml'en^h^^gh^Lrfi^t?^ ^^""^ '^" ''^^' '' '^ '^' manufacture of fertiUzer the gcretary Weeks. That is clearly stated, I think, in paragraph 14 of the Ford offer Mr. Kearns. In your opimon, would he be reqmred i^der the provSions of the agreement to produce fertiHzer during the Ufe of the lease? Provisions of the secretary Weeks. If you will look at page 10 of my comment in the sPcnnH nara a^th^iT *^^V ^^'Z •" ^^//^ ? Proposa/be a Wd by C^^^^^ ^est that there should be certain modifications made to safeguard the Gdv^men^s mlrK'-u-"^' heretofore stated there should be some assuXce that thl^Xcts made by his proposed company will be carried out. " contracts 100 vefr^'Tthp^o^*?^^-^''*^^ '^'^"^'^.^^ ^""^ *^** ^^^^ li^e t^'o^J^ the period of SecreSVv W^t ^^^ ^ *^'' company for the manufacturer of fertiliser? its f^wTn Hn «nt. u'^'^''^'^ provide the company with sufficient capital so that Secretary Weeks. You mean the Alabama Power Co.? Mr. Kearns. Yes. denf nf ^^ ]^^u ^®- l}"^""^ * ^^**®' ^®'« <^ated the 28th of May, 1921. from the nreai- fulfhLtoJ,%ftH^«^L^^^^^*" ^"^' ?^^^^ '^'S^'^ ^^ Engineers, whT^SvIX deX m^nevlSpr^^P??^ ' connection with that project. They have spent a good unreasoSV? rt ? ^^ preliminary operations, and I do not tMnk ft would be Mr K^A PMo t' S^"??^' to ask that this letter be put into the record, this option? """^^^ ^ ^^ '"^ ^^ '^^^^^- ^^ ^^y claim they received beltte^Terecortatlr^^^ *^^^*^^ Secretary will 38 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 39^ (The letter referred to is as follows:) Alabama Power Co., - Birmingham, Ala., May 28, 1921. Maj. Gen. Lansing H. Beach, Chief of Engineers, Washington, D. C. Dear Sir: We duly received your communication of April 2, 1921, inquiring what arrangements can be made to derive a reasonable return upon the investment if the Government completes the dam and hydraulic power plant at Muscle Shoals, len- nesseeRiver, and you invite a discussion of the matter if we are interested. ^ We have given the subject of your letter careful consideration since its receipt and wish to make a reply as follows: , , ™ t.- 1. The site at which the dam is bein^ constructed on the Tejinessee River was purchased by our company in 1906, and from that tune until 1919, a period of \l years, we expended large sums of money in making studies, exploring foundations and in the pi^chase of reservoir lands, with the view of its development as an integral part of the hydroelectric system which woiUd be requu-ed to meet the needs of the communities which the company proposed to serve from time t« time. It was our plan to construct storage reservoirs and to connect them with the proposed Muscle Shoals development to make up the deficiency in power at the latter place during seasons of low water. This fact alone would have enabled this company to plan for an ultimate instaUation at Muscle Shoals largely in excess of the installation that should be made as an independent, separate development. In short, our plans were adapted to fully conserve and utilize in the public interest the navigation and water resources of the region. . . » , i j j „«+ 2. In the meanwhile we acquired other power sites in Alabama, and under an act of Congress of 1907 constructed a dam and power plant on the Coosa Kiver, a smaller hydro plant on a nonna^dgable stream, and several steam plants at different points on our system, with a total capacity of 177,400 horsepower (not including the Govern- ment steam plant at Wamor). This system embraces about 1,500 miles of high- tension lines over which we are distributing ener^ to the public in m9re than two- thirds of Alabama, including one of the greatest industrial and mining districts in the ^^3^ Dming the same period engineers of the United States were investigating the project pu^uant to the direction of Congress. A special board of engineers was created for the purpose of obtaining information and estunates relative ^ the coordi- nation of proposed improvements for navigation and water power, and that board invited bids for cooperation by water-power interests in the proposed development. This compnay, through its subsidiary, Muscle Shoals Hydroelectric Power Co., sub- mitted a plan in response to that invitation of the United States engineers. Plans were also submitted by others, but upon careful investigation the special board recom- mended that Congress undertake the improvements m cooperation with this com- pany, and that recommendation was concurred in by the Board of Engineers for fcvere and Harbors and by the Chief of Engineers. Believing that this was an eco- nomical and profitable undertaking, we were prepared under the conditions then existing to prc^eed with our share of this undertaking and if this recommendation had been favorably acted upon, the project would have been available for the manufac- ture of nitrates during the war period, and many millions of dollars would have been 4. A further examination and survey of the project was made by the engineers ot the United States in compliance with the provisions of the River and Harbor Act approved March 4, 1915. Receommendation was again made that the improvements be undertaken in cooperation with this company, but the^^n-me^ers further recom- mended that action be suspended until it should be determmed whether the Muscle Shoals power would be utilized for a nitrate plant under the act of Congress of June •>. 1916. (Doc. No. 1262, 64th Cong., 1st sess., 1916.) 5. We are adverting to these matters in order that you may see that we were for a number of years interpsted in working out a feasible plan for the development of the Muscle Shoals power for general industrial use on lines of coordination with improve- ments for na\igation. Howevf.r, in 3 918- 19, this particular site was selected for de- velopment by the United States to supply power for a nitrate plant; and as it seemed that the United States needed to go forward quickly in its war program to make pro- vision for nitrates, we concluded, as the result of various conferences mth representa- tives of the Government, to donate to the United States the dam site and other land, owned in fee by this company, leaving entirely to the Government the question of^anv Plan for future cooperation with the United States. This donation was made and we received irom the United States its voucher for the sum of $1, being the nominal cou- K 1foT/iTfl!r?T'' -f ^ is ^}^ u^^A- ^^ ^""'^ "^7 '^^^"' ^^« donation was accepted in behalf of the Tainted States by the Secretary ol War under date of Februarv '>0 1918 who expressed the thanks of the Government for the company 's aL 'ion hfS Sonatina the property. The property thus donated represented on our books a to?al invest'^ meiit by this company to the time of the donation, of approximately $476,000, but in'that snir^t l^n^^?i'? l' ' Government in its war program and made the donit^n m that spirit. From that time until the receipt of your letter we have takpn no 'virnTtn- .-"'?• *" '}' ^'"^^^ «hoals pro3ect^ther^han the invest oom^^^^^ n^r^t^'Lf^Tc^J^Zl^^^ ^^^ development of the Tennessee thf; «ri nffho M,T''t S^^^T^^^t ^ course contrary to the expressed purpose of Congress nrn^niff .^fJ^H '?^ Shoalspower shall be used in the manufacture of ^trates or othei products needed for mumtions of war and useful in the manufacture of fertilize! and Sn^ol^iSol^'^Al ^^^^^^l^y ^l^^ ^^ electrical power used in indusS w m^l v^tvP. H^iT "" Alabama is furnished by this company, in addition to which of th^ S?lte ^n J ?n* f?. '''' f^^' municipal requirements in more than two-thirds hi rptrvpl for ^ilLf *^ '^'^^'^ ""^ Congress all of the power at Muscle Shoals should hpnpfit Thf wT.^^^Ki^'''^^'^^^ "^^ ^P?^^^ ^ ^^y «t*^^^ "«« considered to be of greater nro^m tolvplnrnfl'"^ '"T"^^ '^^^^'^^ t^ *^P company, we will continue our program t» develop other water powers as the pubUc needs may require. .„L!^fni oT/i?-^ .™^ to mention the following difficulties in the wly of making any Sr^h^^rSe^nitttu:^^^^ ll^Lf''^''''^' ^^^^^^ ^ the^Govemm/nt i^ ShoilH^dam^'w 1.^^ ''^^''''^^ ^^^f"^ ^f*-^^ "^"^^ 3' 1916' "^^er ^l^ch the Muscle clause P'''^^'' P^^""* ^'^ ^^'""^ constructed, contains the following nZL.*A Z i^u Pj?^*?' P^^^te provided for under this act shaU be constructed and operated solely by the Government, and not in conjunction with any other inSustrv or enterprise earned on by private capital * * *» t uu wim any omer industry of W^r ?hGTp'dp;^?'pnwi^ P serious, legal question as.to the authority of Secretary vv; i federal Power Commission or other agencies of the Government to deal eteunlnTUp^^^^^^^^^ '"' """''"'^ '' '^'"" '^ ^"^^ ^ ^^^'^ ^^'"^ Aiit^ ^}^ company is not advised as to the extent to which the Government is wKorttn'Z'^"' ^ P^r^"^ "^ *^" investment as being due to war eme^enc? or tlon to wh??h^?^- /'''P^'^ VT?^^* its.power supply for nitrate purposes^ in Jddi- naWil^n? {,f T^''"'^'^ %•* ^ P^Sr ^^ ^« ^h^^d to the improvement of exSvp n^fa^ m'1!'®T^ S'"'^'- .^^^^ ^^« vital considerations, inasmuch as fhf f y® f"^^ ^"""^^^ ^^""^^^ ^^^ ^^t^e ^ture of the power development increase tewl^we7c'o^^Tr?r' ^f *^^^ '? dT^^rage^industrial^enfe^ris^;"^^^^^^^^ (c) S3 nfW 'rf.w''^'^ '"PP^^ ^ market for a part of the Muscle Shoals power promptlv to finH i^^H ^T? ^^°^P^^«« f^g^ed in public service are in duty Lund ply tW^raSidfv fnPrp^frn^ ""S ''''''T ^f ?e^^" ^* t^^ l«^««t practicable cost to sup- arJnf fi.f P ^ mcreasmg demands of the communities served. These demands mf ha^aDoTpTto'^t^pTf "^^^ ^A^" ^*? immediate requiremente thlcom PAW ? applied to the Federal Power Commission for a license and is about to STt'i^'^n^^^^^^^ ^^^^<>^i hydroelectric development oTtheCc^rRiver Boirts re^u^^^^^^ 'T'^^ T" be coWletely absorbed and nlw Hiffin»if- ^ J^ y . t^® t^® Muscle Shoals dam cou d be completed vet the ?afcetf Cont'p'^^^ mentioned and the doubt which arises from tSrappa'^t^ rd of the act of ?qi1 nhn^r^'^''. ^J" arrangement of cooperation, as shown bv the clause fiprl fn ? ^- ^^^^ ® quoted, suggest that this company would scarcelv be iusti- which'a^eTe^&oT^^^^^^^ '? ^^^ '''' /^^^'^ more remote^ demands, 8 If thp ?Wo l-S^i?'"'^ '^^i'^^ """"^t ^^ .prepared for well in advance. and excessive ro«t A vn^H^^i^^ ^"l"^- ^^^^^^tamties can in any manner be cleared up, poses aXmnrnlnlo^^^^ ^?f- ""^^"^^^ *^ ^^ emergency, power for nitrate purl ^^ngotLSr^nf^^^ '' ?^ ?^ ^Pi^i^^ ^b^t '^^ development eient voW ornowpr ril^"^ "^^M^^ ^^"^ ^^ *^^ ^^^ ^^^ distribution of a suffi- Public serW irf thf f^r '''°'^^^ ^^ company and other companies engaged in States to dli?^'?.^ territory adjacent to this development to enable the United erlv aiwli f a reasonable return upon such part of the investment as may be proi^ 9 o ^ *® *^® P^^®^ feature of the project ^ ^ ^ sary organSn7nr Jh^f h^T -w^ ^^l^?f ""^ P^^^" companies, possesses the neces- cipal markers ?n IV^ df nbution of the power to the public; Vnd while the prin- WeCwould hav^^^^ now served by those companies, their transmiLion would have to be supplemented by new lines and other equipment to market 40 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 41 I this power. The power systems in the southeastern States are now interconnected and the advantage to the public of such interconnection was the subject of a careful survey by eminent engineers acting under your direction, and the subject is thoroughly discussed in a report prepared in the office of the Chief of Engineers by Col. Charles Keller and now printed as an official document entitled, "The Power Situation During the War." We are inclosing with this letter further excerpts from that report which discuss at length the Muscle Shoals development. (See page 792.) j /. • 10. It will require much consideration and study to enable us to present any dehmte commitment, and would, furthermore, require a more definite statement as to when the power would be available and as to just what portion of the cost would be accepted as the investment in the power project; these being elements which you will appre- ciate are vital in determining a course in the matter so far as our ability is concerned to take the power at a price affording the United States a reasonable return. We may add, however, that during our connection with the project, as shown by our formal proposals in response to the Government's invitation (Docs. Nos. 20 and 1262), we regarded the construction of a power dam (at reasonable costs and on com- mercial plans) at this locality as both a practicable and profitable undertaking; and if there is a possibility that the Government will wish to have any part of the power used in a practical way for commercial purposes, then we would like to urge now that some disposition of the matter be made as early as possible ^ you can appreciate that in its present status it is a disturbing feature in the industrial situation in this If, therefore, authority is conferred by Congress to conclude a contract for the use of any part of the power by power companies, we wish to assure you that we are ready to work out a mutually satisfactory arrangement looking to the completion of the dam and the disposal of such part of the power as Congress wishes to place in com- mercial use; desiring now, as at all times in the past, to cooperate in every way desired by the United States in working out the matter. Yours, very truly, Alabama Power Co., By Thos. W. Martin, President. Mr. Kearns. Does this company claim in this letter that this option was granted them because of the money they had expended in the preliminary construction t f that plant? Secretary Weeks. In effect, I should think so. . Mr. Miller. Mr. Secretary, there are six units in which the Government is inter- ested, as I understand it, five of which are completed, that is, Dam No. 2, nitrate plants Nos. 1 and 2, the Warrior plant, and the Waco quarry. Secretary- Weeks. And the transmission line. You do not understand that the dams are completed? * i. i. Mr. Miller. No. In referring to the numbers of those dams some of us have been a little bit confused. Is there a dam No. 1 at Muscle Shoals? Secretary Weeks. I would like to have Gen. Beach explain that when he makes a statement to you. There is a dam, No. 1, scheduled as a part of the whole Muscle Shoals navigation project. . . Mr. Miller. Then Dam No. 1 has no relation to these negotiations? Secretary' Weeks. No; that is a navigation project. Mr. Miller. I notice the Warrior steam plant is 88 miles southeast of nitrate plant No. 2. Secreta/v Weeks. Yes. Mr. Miller. There is a transmission line running there, is there not? Secretary Weeks. Yes. The Government constructed the transmission line on land that belongs to the Alabama Power Co. . . , .. , , .i. Mr. Miller. Are there any negotiations pending; is that entirely above there, or are there easements or rights of way to be acquired? Secretary Weeks. That land is not paid for. ^ . . Mr. Miller. About how much would be the outlav for completing the transmission line from the Warrior steam plant to nitrate plant Is o. 2 —that is, 88 miles? Secretary Weeks. You mean to clear the title? Mr. Miller. Yes. Secretary- Weeks. That has never been figured, I am informed. Mr. Miller. It would be a substantial sum, would it not? Secretary Weeks. It is through comparatively wild countiy, but it woidd be » substantial sum, because of the distance of 88 miles. ^ , , ^ t> r Mr. Miller. At the present time the Warrior plant is leased to the Alabama 1 owei Co. for $75,000 a year? Secretary Weeks. Yes, that was our return for the calendar y«ar 1921 Mr. Miller. Figuring on the basis of |4,(j05,000 that vour report gives as the cost that would be between 1^ and If per cent of the cost? * Secretar\^ Weeks. That is leased on the basis of 1^ mills per kilowatt hour, and thev used enough power last year to provide a revenue of $75,000. Mr. Miller That is between 1^ and If per cent of the cost of that plant? Secretary Weeks. Yes. (Thereupon the committee took a recess until 2 o'clock.) after recess. The committee met, pursuant to recess, at 2 o'clock p. m u'^^? ^^i^^^^A '^¥ ?®cr^ary has not yet arrived, and whUe we are waiting for him I will have the clerk of the committee read a letter which I have received from the American l^m Bureau Federation through Mr. Silver, who is at the head of that institution or the representative of the institution in Washington. He asked that the letter be read to the conunittee. It is a farmer proposition and favors the Ford (The clerk read as follows:) American Farm Bureau Federation Hon. Juuos Kahn, Washington, D. C, February 7, mi. Chairman House Committee on Military Affairs, House of Representatives, Washington, D. C. Dear Mr. Kahn: The American Farm Bureau Federation desires to present to you the following statements which we would ask that you have read before your committee when it meets. It is not a brief but a practical statement of a business Situation mvohang- our interests m the Muscle Shoals development. We are making onr'^ll^nn o^^r^- "^^^ \^^ sure that you and your committee will sympathize wUfi our P08 tion and desire to have this statement at the outset of your considerations tn nrZ^f. f ^.r representative of the American Farm Bureau Federation I desire IJf^^fn XfuJ'^T''^^^^,^ ''tPJ ""^ *^^ resolution adopted at our last annual con- .^?S f ,A*^^^*^' ^a. Also I desire to present a copy of the resolution adopted ;^»htTthl^K^^^ ^^^^^'^^^^ -"^^ ^y ^^^ administraU (Resolutions follow.) Wo have indorsed the Ford proposal and urge its acceptance in good faith The SI'Tk"^^^^ ^^ *?" Secretary of War axl not new objections"^ W been bPforpl.^1^^ opponents of the propo^I, all of which have been considered by v^ offp^ o fi ?^ ^\^ conclusion on this broad question. We believe that this proposal of the dPvlr *^t^^^uscle Shoals question that will provide for the compS with th. rn^^^''^ ? ^^^ ^'?^^''^ *? *^^ ^^^ ^terests of the people of the Nation, by a^cuuS^e ""^^ explosives safeguarded, and sec^ire the results sought nrnLoo?^®^*'°\'^i*^ *?® appropriation suggested as necessary to carry out the Ford onTm ;ro''''*' ^ '^^r * ^ ^?Pyi>f.tl^« letter we addressed to the Secretary of wS sarv ^^ - ^^jommending a bond issue to cover the additional investment neces- sary We wish to advocate the same proposal for your consideration. timr''H^oL'',?o!'^T*5^'*-''T'^^''*' on the Ford proposal that we desire to make at this be wesP^ Jh ;? ' / "^ •'"'^.*^ rt^H^"* ^^^ the interests I represent that should arguments offeMK be heaT '''^*' ''' ^""' ^^"^ ^ '" '^' advisability of accepW the WU^on nfm^fn?'-''^ ^*'* has recommended as an alternative the completion of the 3iblf..~?^xl^^^ 'commercial purposes, the benefits to navigation, as well as the pos- bi^proluLlo^the^^^^^ the ?,i n Hof 1 ® best advantage. He goes on to point out that by not completing ThisGovprn±Er''* the Government will only be required to expend $22,000,m tioi^ w?fZ?.^^* completion and operation of the Wilson Dam will not furnish naW makern^sVL'p.HP^^*'''? \^' -^ ^^"^ ^^^ ^""^^^^^ disregards the nitrate planSTd Dam S^ ?,^?gestion as to their operation. Obviously, the ''product" of the Wilson though^iLtrt^^^^^ rto the best advantage" is lot fertifizer, but power. ThS pletina?hJ\x7?®^^®i^® that your committee would report to Congress in favor of com seSe oni^r^^^ r * rT^" ^"^*^? ^^^^^^^ ^t least an equal opportunity to posal A r.^ ^*T.u \^.® '''*^^^®, P^^^* *^^ t^e research provided for in the Ford pro^ Posal. AncT we ask that m case the Ford proposal is rejected and you decide to c^y 42 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 48 ,j out the recommendation to appropriate the necessary money to complete the Wilson Dam as a Government activity, that you will include some plan for the Government operation of the nitrate plants such as was before the last Congress in H. R. 10329, the Kahn bill, and which passed the Senate, and at the same time authorize the appropri- ation of the needed amount, at least $12,500,000, which was carried in this bill for the purpose of operating the plant and carrying on research provided in the Ford proposal. The above states our position as expressed in the Atlanta resolution, and we must en- deavor to safeguard our interests in any authorization for the completion of the Wilson Dam by amending it with the Wadsworth-Kahn bill or an equally efficient alternative,, carrying at the same time the necessary appropriation. <. . t^ j We wish to make plain our position. We are for the acceptance of the Ford pro- posal. We believe the Government interests and ours are mutual and amply safe- guarded in that proposal and we believe it will prove a solution of the Muscle Shoals problem. Our contentions for Go\ ernment operation are to be considered solely in case you decide against accepting the Ford proposal now before you, and in such case we must ask for extended hearings on this question of the operation of the plant, and will need a reasonable amount of time to prepare our case. I respectfully request yon to present this statement to the committee and leeL confident you will appreciate our position. Very truly, yours, ^ American Farm Bureau Federation, Gray Silver, Washington RepresenU>tiv( . (The two resolutions referred to follow:) resolution in regard to muscle shoals, passed by the AMERICAN FARM BUREAU federation at the ANNUAL CONFERENCE AT ATLANTA, GA. We recognize in the Muscle Shoals nitrate water-power project in Alabama such an essential measure to secure the preservation of our soil resources as well as to develop the industrial and transportation facilities of our Nation, that we urge the Congress of the United States to authorize the Secretary of War to enter into such contract or contracts with Henry Ford for the completion and continuous operation of the project as will protect the public welfare. If such authority is not prom})tly given, we reserve the right to institute such action as will guarantee the completion and operation ol this enterprise under Federal supervision. RESOLUTION ADOPTED IN REGARD TO MUSCLE SHOALS AT THE AGRICULTURAL CON- FERENCE CALLED BY SECRETARY OF AGRICULTURE WALLACE AT THE REQUEST OF PRESIDENT HARDING. Resolved, To accomplish results without any further delay whatsoever, we urge the Secretary of War to recommend and the Congress to accept Henry Ford's proposal to take over the hydroelectric power and air nitrate plant at Muscle Shoals under a guaranty to operate same for TOO years, at its present capacity of approximately. 100,000 'tons of ammonium nitrate per annum, opening the Tennessee River to navi- gation, cheapening the production of fertilizer, metals, and other commodities and assuring the United States nitrogen independence in peace or war. STATEMENT OF HON. JOHN W. WEEKS, Besumed. SECRETARY OF WAR The Chairman. I think when we adjourned, Mr. Secretary, Mr. Miller was aakinir you some questions, and we will proceed from that point. Mr. Miller. Mr. Secretary, according to Mr. Ford's offer there is a governmental investment here of between $105,000,000 and $106,000,000, out of which we will got nothing whatever except the $5,000,000 offered for the plant. Secretary Weeks. Substantially that is correct. Mr. Miller. In other words, there is $12,887,941.31 invested in plant No. 1, $70,- 979,851 in plant No. 2, $4,979,000 in the Warrior plant, and $52,000 in the Waco quarry, and $16,251,000 in the Wilson Dam, making a total of $105,943,000, as I figure it. Now, we will get no amortization or anything out of that? Secretary Weeks. No; except as $49,000,000 may exceed the cost of future con- structions and of site and flowage rii-hts. Mr. Miller. Then we have that much of a dead investment there; we will get amortization, though, on what it mil cost to complete the Wilson Dam? Secretary Weeks. Yes. moi(^OOof ''■ ^"""^ *^^ installation of Dam No. 3, which Mdll be approximately Secretary Weeks. Yes; that means completion of the two dams and equippin- them Mr. Miller. In other words, then, we have a dead investment tWreZmNvS the Government will get nothing, of $105,000,000 or $106,000,000 Secretary Weeks. Except $5,000,000 th^'f5^^0 OOoIfihTK^^ ?5,000,000. By the way, will not the major portion of Dal Nn ?o^3 ^1. ^^«^^b,^^.in paying for the overflow damages in connection with Dam No. 3 and the conap etion of the transmission line from the Warrior plant? Secretary Weeks. I think about $1,500,000 will be absorbed in paying?or the land damages and overflow damages from Dam No. 3; probably a^ much L that S^'cr^tary'^WElK^^ 7^""'' ^'*''^^*^ '* '"^ ^''''' '^^""'^ ^* 12,000,000. ' . Mr. Miller. Now, it will cost a substantial amount to complete the transmission Ime and the easements and the right of way from the Wamoryant to ni^t^am Secretary Weeks. Just how much that will cost no one knows v5q ^^^^^' ^""^ 1^^^ amount, whatever it is, and the overflow damages on Dam ^ Q ^ "?" ^A^'^ ^ ^^I^^ P^^i^^^ «^ ^^^ $5,000,000 that Mr. Ford pays fo? the plam Secretary Weeks. A considerable portion of if yes ^ Mr. Miller. In other words, our $5,000,000, or the major portion of it is eone and hat would leave $105 000,000 or $106,000,000 out of which we would 'get^no^^^^^ Just for the purpose of getting the matter geographically located on wMchide of the river are these plants, or are they on each Ide of the river? ' ^ ^^^ ""^ m/ Mfr^^r^^TK ^- •■^" ^li^^ ^''^^'^^ ^^^ «^ th^ ««"th side of the river, saf th^ Se dW^^ f'rd "^r* ^^Tv.^^ ^ southwestern direction, because you Secretary Weeks. Yes. lecrm^^WEEKr "no*"*'" *'^''"'^'»" ""» ^"""^ '« <="■<«« *« river? Mr MiLLEK There are apparently two angles to Mr. Ford's proposition- one is the Secretarv Weeks. Yes. h. vL'Jl^pi;;tiIS^^^^^ ^V^ :^^ "' ^''^ "orsep^.wer for sale Secretary Weeks There mil be developed there about 140,000 horseoower m-imarv power; perhaps 350 000 more that is available from 10 to 12 months of the vearanri t^^^T^' ^''^ horsepower, a lesser time, from 4 to 10 months a^totk? of ^IteTbut ZCbout lioZlt "" '^' ^"T' °' ^»"r ' ""-^ *« ^nditfon oT the ^ecretary Weeks. At all seasons of the year; ves and not install DZ"\rT^ny^1w7'''"r"'^ '^'^^^l^^ ^P ^^^ ^^^"^P^^^^ ^'^'^ ^^- 2 mission ifrfirlr ^ 1^ ' u""^ l^" ^^'^ "^'^^^^ P^"^^"' ^^ ^^^ Govcmment anv trans- SttThe^ ^-«^-^^ ^5^- - -^- to distribute this pow^^r is tha^tS ^"^"^1^^- ^^l" '^''''^^ ^^''X? t« construct more or less lines, but mv judT 1 Secretary Weeks. Yes; that relates to plant JNo. 1. Mr. Miller. Do we have to pay them any royalty or have we any engagement to pay them any royalty for their process which, I believe, is the Haber process.' Secretary Weeks. I will read this paragraph of the agreement: "In so far as the Government shall see tit to employ the said processes or apparatus or any of them in the manufacture of products to be used for fertilizers the Govern- ment shall pay to the General Chemical Co. a royaHy for such use. . The royaHy so to be paid shall be based upon the nitrogen content of the material V^ducedior fertilizer purposes, and shall be at the rate of $5 for each ton of 2,000 Pounds of hxed nitrogen in whatever form combined, and shall be payable quarterly until the ?th day of November, 1932, and thereafter ilntil the expiration of all patents involving any substantial features of the process or apparatus." Mr. Miller Then from niw until 1932 we are to pay $5 a ton as a royalty for the Haber process. MT'^XhLLER.^That plant Mr. Ford does not intend to operate, as I understand it. Secretary Weeks. I do not understand that he intends to operate it. Mr Miller. Now, on plant No. 2, which is the one that the Air Nitrates Co. con- structed, what royalties, it any, do we pay on that? Secretarv' Weeks. I will just read you that paragraph: . i i,«,^f ^In coiSideration of the 'granting of the licenses provided for m article Ih^^^^^ and of the other conditions to be performed by the licensor the ^^^^^fff.^ff ^*^ ^ to the licensor during the term thereof specided in said article as royalty an amount e^Snt to 6 mills%er pound of all nitrogen fixed as lime nitrogen manufactured at the plant horeinbef ore described in the contract of even date herewith between the Unfted States and the Air Nitrate. Corporation, and to which reference has here- iSLfore been made and up to and including the first 91 ,700,0M pounds of s^^^^^ gen so fixed in any fiscal year of the United States; and in addition thereto, 3 milJe le? ^und of all nitrogen h^xed as lime nitrogen in any said fiscal year m excess of the 8^i^d^91,V000 pounds of nitrogen, it being further underatood and agreed that no party of such royalty shall directly or indirectly inure to the benefit of an alien enemy of the United States except as may appear upon a diEflosure of stock lists made pur suant to law Payment for royalties shall be made each month as early m the month rpmcUcabie upoTthe presentation of satisfactory evidence «l^owmg the pr^^^^^^^ during the preceding month of nitrogen iixed as lime nitrogen at the plants herem ^ Mr'^MllER"^ Then at each of these plants, if we are to pay these respect we royalties. I su^DC^e that will become a part of tie overhead in the manufacture of the fertihzei^ ^ ZSy We^ks Just a mWent, and I ^^ill add something Pertinent to that las statement The royalty to the Air Reduction Co. until January, 1931, is $2.72 per ton oTiStrogen fixJd allime nitrogen. After that date, there will be no royalties That is in addition to what I have just read. imrlprstand it Mr. Miller. Have we paid those companies any royalty? As I understand it, Dlant No. 1 has never produced anything. ^. . . , x t * i^ +v.o+ r.nt ^Secretary Weeks, /o royalty has been paid on No. 1 at least. I am told that not in excess of $1,500 has been paid at No. 2. , , Mr Miller. I suppose those royalties, whatever they may be, will be a part of the overhead ii the manufacture of fertiUzer and the United States wj not be bound for the payment of those royalties although this contract is with the United States? KSer^'S ^ be a part of the overhead, charge if Mr. Ford is to operate the plant and will go into the cost of the fertilizer, is not that the idea.' Secretary Weeks. I think so. . ^ i. x +• „ «f ihp Mr. Mil£er. Has your department made any research as to what Proportion of the amount of commerckl fertilizer used in the United States will be produced at the Muscle Shoals plant by the full operation of plant No. 2? SecretaryA\EEKs. The total production of fertilizer in the United States during 1920 amounted to 7 70W0 tons. The total nitrogen content of this fertiliser 3 ^^}lTr!'''%t^ M ^^o^'^.^ ^.^^'i ^^^"* ^^^-^^" «^ this, or 80,000 tons, was inor^nic nitrogen. The No. 2 nitrate plant can produce some 200,000 tons of sulphate ofam- raonia per year, which contains some 40,000 tons of nitrogen. Or, in other words ^^'! ^l^^Jf^ I>roduce about one-fourth of all the nitrogen used in fertilizer or about ^^; ifl ^ inorganic nitrogen used in fertilizer L^°'>^^ "^^f for the purpose of information, both of these plants produce am- ""Tprn^H"??' I^^'S^^; i ^y *^^ ?^^^' P'«^^««' ^^d Pl^^t No. 2 by the cyaSmTd K n'l^^f 1 in^nnJTi ^^^""^ ^^' a production of 22,000 tons a year if operated, and the atter plant 110,000 tons a year i opterated. I do not know myself how many tons of fertihzer one ton of ammomum nitrate will make Secretary Weeks. I think you had better ask that question of Gen. WilUams or Maj. Clement or somebody who has been giving particular attention to it, because my answer quite hkely would not be accurate. "c^uee my Mr. Miller. I read some time ago a rather astounding article in an agricultural paper which was to the effect that if the Muscle Shoals plant should be opLted S commerml fertihzer manufactured there, and if it was possible to manufacture that nl'-l o^®"! .-^i^^.^iJ^^'^^^.P'''^® t^^^ fertiUzer commands in the market— that is. the Chilean article— that our imports would cease. i-uano, ui« Secretary Weeks. You are speaking of nitrates now fv,^M 1 q5- y^s; and that the American farmer would be whoUy dependent upon he Muscle Shoals plant because they could not compete with that. ^ I do not suppC there is any apprehension along that line Huppoee thfrUn?"^ Weeks. I have not been called upon to have any apprehension along Mr Miller The main point, Mr. Secretary, that I was after, was to ascertain whether or not the operation of the Muscle Shoals plant would yield the very bX- ficent results to the American farmer that he is expecting out of it Secretary Weeks I wish I could answer that question with definiteness. I do not thmk any one can, but I am fearful that the American farmer will be disappointed fv, fi T'^^^^- lu ''^f®^?^^^ to the sale of this surplus hydro-electric power there 'in he first pMce, the navigation of the Tennessee River is inseparably ?onnected^ith this enterpnse down there, is it not? ^ cuuueciea wim at feiSe ^^^^^' " *^^ "^^'* '^ ^"^ ^^ navigated, it must be taken into consideration fi^'^"^^^' ^k^?""^.^"^ his proposition sets aside an amount sufficient for the prac- tical operation of the locks at Dams No. 2 and No 3 ^ Secretary Weeks. Yes. Da^'N^^'f anH^liQ^^fif/^^^ sinking fund from a semi-annual payment of $3,505 for vea^ or 97 w^l! 'P^^ ^""'^ ^T ^^''^ ^' "^^'^^ P^^^®^ ^* '""^^^^^ ^^^ ^ Period of 100 years or 97 and 93 years, respectively, would yield about $49,000,000. Secretary Weeks. Yes; that is, at 4 per cent. plet^'nflifNn* 7ii!?ft® ^^!?®' ^"^^^^^ ^? pay 4 per cent on what it will cost to com- plete Dam No. 2 and the entire construction of Dam No 3 ^secretary Weeks. Yes. Govp'r^t''^^- ^^^ Government, then, is doing this: It is advancing to Mr. Ford reS oToverTl 7^0^ ^^^ giving W the benefit without anythin/iS not? $17,000,000 that we have expended on Dam No. 2. That is right, is it Secretary Weeks. Yes. now is^o^t* fc^"" *^ enterprise which I guess we are all in a position to admit tCl^ fi^i^ H ''l''^ practical benefit to the farmer, or at least not the benefit he Ford^ tl ^^^ ? .^' ^^® Government is going into an enterprise of financing Mr. and $lof EnHw*^^ extent of $50,000,000 more and losing between $105,0W,0W 4?er/atty^ §loto(5)^^^^^ '"^^^^^^ "^ *^^ fi^"^- y^^ ^'-''^oned before of ^r. Miller. That is, the Wilson Dam? ^ecretary Weeks. Yes. Ww ^^^^'t ^^^^ ^* ^^^1 ^® cut down to $80,000,000 or $87,000,000? ^ecretary Weeks. Yes. -*-,,. ^iew' w «ri''i7-^®'' "^f- T S'^'^^ ^- Ford, or, from the Government's point of Plant No 1 Jh N^ entirely the investment of $85,000,000 that we have in nitrate hav. .J'?- } ^^^ ^o. 2, the Warrior plant, the Waco quarry, and the $16,000,000 we w e spent on Dam No. 2? 46 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 47 I Secretary Weeks. Well, you do not want to say -entirely." Mr. Miller. No; we get $5,000,000 for it. mT M^LLER.^^Titch. as we have seen previously, will be almost wholly absorbed in paying the overflow damages on Dam No. 3 and the completion ot the Warrior power plant. Secretary Weeks. Partially absorbed. . , „ ^ * • **• Mr. Mil£er. The fact of the matter is the United States Government is getting nothing out of this thing, as I see it. , xi, ^ *i,- Secretary Weeks. The United States Government is getting two or three things .out of it which vou have not called attention to. Mr. Miller. We are getting this plant as a stand-by in case of war to make ammo- nium nitrate for war purposes. * +^ ^i„ + s^onrptnrv Wffks Mr Ford is to keep in condiUon for operation the nitrate plant No 2 foftL use of the ^^^^ K would cost about $2,500 000 for the locks at the Wilson Dam. That is included in the cost on which Mr. Ford, as his proposition now stands will pay interest at 4 per cent. So that the Government gets those two benefits Then if Mr. Ford is going to develop industrial business there, which 1 shSid think he 'would be able to tell and be willing to tell the Congress, it is of monaent to the people of the country to have developed industrial business, and I think those things should be taken into account. ^ , • ^- v.« ,+ +>.«+. v^„t Mr Miller. Yes; that is an indirect benefit; there is no question about that bi 80 far as the United States Government is concerned, Mr. Secretary, if we should tel Mr Ford to-day, "We will make you a present of the Waco quarry, the nitoate plants No' 1 and No 2, the Warrior steam plant, and what we have put into the Wilson Dam. Dro^-ided YOU will complete the Wilson Dam and furnish the money yoiu-self, and keep Sitrate plant No. 2 in readiness for war emergency," the United States Government would be ahead in the transaction, would it not? ./-._ + Secretary Weeks. I do not think the United States Government, as a Government, is at all interested in Dam No 3. Mr Miller. I did not say Dam No. 3; I said Dam No. 2. , , , . , Secretary Weeks. Of course, if Dam No. 2 is constructed, and electrical power is furnished to run the nitrate plant in case the Government needs to operate it, it would be very much cheaper than steam power. ttxjc,^* Mr Miller. But what I was getting at, Mr. Secretary, is that if the United fetates Government should say to Mr. Ford, "We will give you nitrate plants Nos 1 and 2 .out and out, we will give you the Warrior steam plant, we will give 7^^ the Waco am No. ^ "P to this time, $500,000 is allotted to navigation, and it will cost about $2,500,uuu complete the locks. Mr. Miller Then from the standpoint of aiding navigation on the Tennessee River we wUl have to complete a third dam, will we not? euuesi^e iviver, ..uoh^^lA^^^^f' u^a' ^"^ ^2«^Plete it, but just exactly what that would cost or how much would have to be done there, I can not say Mr. Miller. Then take the three propositions— the fertiUzer, the navigation of the Secretajy Weeks. You will be 'told by these engineers that the cost of making the isToo oortr"' ^•^'??' ^^2^^^' " '^^ ^^' ^^^^«t constructed, will a^roxiLatl dams navigation, however, would not be as good aa that creTted by the jn^ifjo^l?^^; T?f t^ree dements I have mentioned are the three elements involved in this project at Muscle Shoals, as I see it. Secretary Weeks. They are a part of it. Mr. Millee.. Absolutely, and you can not separate them, as I see it. because Mr ,7Tw*wf.^^ ^"^^T" ^^ f^'^^ ^ ^t^' ^^^ t^^ «P«^*i«^ «f «^e of those S! and velveTinThTit^raT^^^^^^ '' ^^""' ^^^^^ '\ ^^ ^^^^^^ *^-^> -<^ ^^ ^- ^^^'^ of Secretary Weeks. I am not so sure about that. I am not so sure but what thp Government would get that $35,000 if one rowboat went through th^ Mr. Miller. Mr. Secretary, I notice at the bottom of page 4 you say that the Waco ' sTci^rry'^E^^ Ye'.'''' "^ ^'''''' ""^ '''^^'^' ''''''''' ^^ ^^^ Dp^arwif ^io^'^'Ii*?^''? ''''^'" *?3P^^® 20 Of your report, I see that the Ordnance wir.^*^ t^^i^h^t we paid $52,000 for can be scrapped for $102,000. cnf^^^hl^i^^^^^' -^^^A •' ^^figH^e. but that includes the equipment The ^"^rry has been equipped since that time. ^ ^ 2, wf we^'not?^^ ^^^^ ^"^^^ ^ ''^^^''^^ ^"^"^ *^^ ^^''^ "^"^^'y ^P ^ ^^''^^^ P^^^* No. Ur'mMf^T^L l^^ Government did build a spur back there about 1 mile long. Mr. Miller. Then we installed, I daresay, some very expensive eauinment at Waco quarry-rock crushers, and things of that kind ^^P^^^^e equipment at Secretary Weeks. I have no doubt but what it is adequate iJH^' ^^^^^\ The purpose of the erection of this Warrior plant, 88 miles distant rora nitrate plant No. 2 and the dam at plant No. 2, was for the purpo^ of nutti^ the steam pl^it near the coal mines where fuel would be reaSly avaffi? ^ ^ Secretary Weeks. Yes; that was the purpose. ^ Mr. Miller Does the Government own that coal mine? ^ecretary Weeks. No, sir. Mr. Miller. The Government buys its fuel there? ^ecretary Weeks. That is what the Government would have to do fl voo. i:^®^'- C^^} P^*^* ^^ being leased now to the Alabama Power Co for $75 000 a >ear, which is between ^ and If per cent of the cost of the plant. * ' aafo^tX^wTr^tLr^^^^^ ^^'' '^' P'""' "^'*^^ '''' ^'^'> ^^^'^' "^^'^ -^ '^- Ww ^^^ XX7 ^^^ ^^^ ^}^^^^ ^^ *bat, may I ask, Mr. Secretary? oke of some royalties payable from that plant, but in reading nTstlte ^:CZ t'^. r.^ ^^^ ' -^^« ^ P-^^ -^ Weeks. In subdivision (a), under section 11, page 16, of Mr. l^ord s offer, it savs' "AH of the propertv constituting nitrate plant No. 2 (as officially known and desig- nated), including lands, power plants, buildings, material, machinery, fixtures, equipment, apparatus, appurtenances, tools, and supplies, and the right, license and pri\dlege to use anv and all of the patents, processes, methods, and designs which have been acquired and may be transferred or assigned to a purchaser of nitrate plant No. 2 by the United States, together with the sulphuric acid units now m storage on the premises. " . „ , • Mr Parker I see from the proposal that he proposes to pay $5,000,000 lor all this propertv in five installments, and that after he pays $1,000,000 gets possession, and after he'pavs the whole $5,000,000 he gets a deed of conveyance. Of course, that gives him full title with warrantv of the title to be good and unencumbered, and nevertheless he agrees after he gets title, seemingly, to operate this nitrate plant No. 2. This is not made a part of the deed . After he has acquired that title, have you anything to prevent him from selling the title to somebody else free of the clauses of this contract? Secretary Weeks. The title to No. 2? Iklr Parkfr Y^es. • Secretary Weeks. He agrees to keep that in condition for 100 years for the use of the Government. I think that would prevent his selling it. Mr. Parker. He is to maintain it, but he takes a deed and the title to it first. Secretary' Weeks. I know, but he can not sell a piece of property which he agrees to maintain for 100 years for the use of the Government. , tt • j Mr. Parker. There would have to be some sort of a reservation by the United States in the deed, I take it. I notice we are to give him a full deed, free and un- encumbered. I am speaking now of his proposal and not of your way of carr>dng it out, because I have no doubt we will get that straightened out, but it seems to me rather odd when a man takes a piece of property under an agreement to maintain it for 100 years, that he should take a deed instead of taking a lease. The deed ought not be effective until the end of the 100 years. Secretary Weeks. Mr. Ford declined to consider a lease of that property. Mr. Parker. And he would get a full title and the Government would have only a collateral agreement to use it in a certain way. Is there any navigation now on the Tennessee River? Secretarv Weeks. At Muscle Shoals. Mr. Parker. Through from above Muscle Shoals down, say, to New Orleans. Secretary Weeks. There has been some navigation there but there is no navigation now possible on account of the condition of Dam No. 2. Mr. Parker. I notice, and I think I am right, that the 4 per cent on the $50,000,OCO which is to be spent on Dam No. 2 and Dam No. 3 and the other pa>Tnents prehnii- nary to the 4 per cent do not begin until after the dams are completed so that they furnish horsepower. . . Secretary Weeks. There are slight payments commencing at the beginning. Mr- Ford's offer is quite explicit on that subject, but on Dam No. 2 the lidl payments do not commence until six years after the first 100,000 horse power are available. Mr. Parker. Taking up No. 2 first, I notice that he leases the property from tl^^ date when structures and equipment of a capacity of 100,000 horsepower are con- structed and installed and ready for ser\'ice— that is, after the completion of the clam: and by paragraph 7 he leases No. 3 for 100 years from the time when 80,000 horse- power is installed and ready for service. Secretary Weeks. You will notice in the latter part of paragraph 3, page 15, $200,000 one year from the date when 100,000 horsepower is installed and ready for service, and thereafter $200,000 annually at the end of each year for five years. Mr. Parker. I notice that covers the five years, but none of those payments i? made until after the dam is completed. Secretary Weeks. Until 100,000 horsepower has been installed. Mr. Parker. And that can not be until the dam is completed. Secretary' Weeks. No. Mr. Parker. And the same thing is tnie of the other dam, so that the United htaU'^ get no payment whatever on account of the interest on what it spends until after the dam is completed. Secretar)^ Weeks. Substantially, I think, that is correct. Afr. Parker. How long will it take to complete Dam No. 2*? Secretary Weeks. That would depend on the way it is dohe; but in all probabilitv two years. *^ -^ Mr. Parker. Hom- long will it take to complete Dam No 3*^ ^rifr^7 ^^.l' ^l^"*!!!^ *?'"'*' P'-o^ably the construction would take about the f^me time. Whether the two dams would be constructed at the same time or not I do not know. ' Mr. Parker. On Dam No. 3 you have to find out about the foundations? vef ?e aJ?d Nobody knows about that. The plans and specifications are not Mr. Parker Then you do not know how long it will take to complete that dam after you once begin to spend money on it? J!a^7f^^^^^' '^^^/'Py engineers place the time of completion of Dam No. 2 wnrt i^Hpi fho P?^«of.a»y I think that IS too much, and if Mf. Ford contracts this Jwi^p S J^^ t^,e.^tion of the Army engineers, I think it will be done quicker. The time of completion of Dam No. 3 is placed at 36 months. Mr. Parker Does that include the installation of the machinerv etc for the development of the 80,000 and 100,000 horsepower? «*^iii"eo , etc., lor tne Secretary Weeks. I think it does. The first 100,000-horsepower machinery is already under contract for Dam No. 2. , y ^i xu^tcuauf ry is Mr Parker. During the time of the building of the dams, the United States gets no interest on its expenditures, and after completion for th^ first five years it lets rather small interest, $200,000 on $22,000,000, which is a little less than l^rcl^t for the first five years, is it not? ^ ' Secretary Weeks. It would depend on how much money is already put into it ih^A'S^^^^^A ^ f"^"^ ^^^"^ they get to paying interest, after the le^e is made and a vpfrTr fW ^/r '^'^'^^' and $22,000,000 has been spent, they get only $200,000 a year for the first five years, which is less than 1 per cent on the $22 000 000 w v^,^'^ r.^\^}i^^ guestion of interest is covered in the statement on page 22. but you are substantially right m saying that the Government, for the first six yeare does not receive any substantial interest on the investment ^ ' ing the d^m^^' ^^^'' *^^ ^^"^ '^ completed, aside from the time consumed in build- Hke'wa w^!^^,^f ^- ^"""^ '* '' true that if this were being done in an entirely business- like way, the interest on construction cost would become a part of the capital of the enterpnse on which interest should be paid. capiuti oi me Mr. Parker. And that is not in this contract? Secretary Weeks. That is not in this contract. That would be in accordance with the pohcy of the Interstate Commerce Commission ^ccoraance mf/k f • ^7- Secretary, there are two things I would like to ask you about On Comnr^H ^T ^^"^l*^ *^^ ^P^^^?" reference is made to the claims of the Air NitratS ted ^.H^P^^'w^ "^^"^^ P^^^u* ^^- ? ^^ ^ ^^^«^ble t^rms as those offere^by a s^Ir '.f.^!?^"^ ^^^^l "^J*'^^' ^y '^**'^^ *^^* *^« Alabama Power Co. may make SpI« T. \^^'^ *^ ^t ^l""^" P^^^* ^^^ 1^«- I tl^ink the committee would Xdias? m^inX/^"*^"' *^^Vr^^^ seriously interfere with this proposal to SofthSmpanf^^^^^ '"""''' ^''^*'"^ ^^' '^' Government arising^out of the NifefrJr^ff.^''- i ?"" Z'^* 1*^" how serious it would be. I supposed that the Air is a mini r'^^''^'' ^1^ ? legal option to purchase. I am informed it has not. That Judn^'^o^r'r '' *^f ""i^ ^^""^ ^ ^" adjudicated, and if you will ask the Acting morf comn?i? 1 General, who IS present. Col. Hull, he will answer that question ^mUhT^lti\^^^ V'^'l^l^^^f y i^^il ^^ necessary for the United States to Mr H title both to plant No. 2 and the Warrior River plant I the tSS" qVI^P^^^ ^ *^^ statement is made in your letter that these properties cost ^0 be worth IrIT9 nffiTl"if f ^i^^^^l^-^^/fA ^^ **^^* ^« «^^P ^^^^^^^ estimated jecretary Weeks. Yes. ' ' Ito the ^nLi^""" ^^\'f ^f-^'i. ''^^^^'' questions about the Ford proposal in reference CWnrn ' v-^'"'- •'''^^ interests, and I would like to ask you regarding the Muscle h it stSTt^r "'' '*' P;f-'°* ^^^^: forgetting what it cost,' but iSoking^at it simply ^yCWp«!l, ? present 1:ime if the Ford proposition were not favorably received put a mT ' P^^^y .as a national-defense proposition, has the War Department worked Pu elvT.T°'!?^^^'T .**^^* '^ ^^^^^ "^^^^ ^«^ the disposition of th^ plan?; that 2^ Se Lf ^ national-defense matter, what would they do ^^ith it? ' \^^- 2 bSnl^lf!/' ^f as plant No 2 is concerned, they would maintain plant I -> because that does furnish them the facilities for obtaining nitmtes in case of 50 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 51 war up to 100,000 tons a year. Then the United States might conclude to complete Dam No. 2 to obtain the power cheaply and to sell the Power m the ^e^ntP^f^ I have not very much doubt but what it would sell a considerable P^^ of the balance of the property, and I think I have assurances that it could sell that property at materially more than the estimated scrap value by tal^lng time. Mr. Hill. If they maintained plant No 2 for national-defense P^^f.^^^^^,!?^^^ the rest of the plant, the United States would then retam all the benefits of the defense elements of the situation without the expenditure of any very great amount, would they not? Secretary Weeks. Yes. , , .. - -.r^ t^^ ^ Mr. WuRZBACH. Mr. Secretary, I understand the second proposition of Mr. * ord is based upon the theory that the Government will accept or refuse his Proportion implying that Mr. Ford is not favorable to listening to any counterproposal made by ^^'se^^etry'wEEKS. I do not know whether he is or not. Mr. Ford left my office on the 13th of January saying that he would not do several things which he prettj promptly permitted his en|ineers to put into this contract which is before the com- "^Mr. WuRZBACH. You do not think, then, that the failure of the Government to accept his last proposal would mean that he would not consider any counter proposi- 'tecTe^^EEKS.'! fhl^k uTvery difficult for Congress to make counter proposi- tioi^ or toagree on counter propositions. I should think, as a practical measure, as a?^ the Fofd proposition is concerned, practically speaking, it is ^P jor acceptence or rejection If an individual were dealing with Mr. Ford, it would be compara- tivelv easv to make counter propositions. , , , . ., ^-^^ „,^ Mr^ WURZBACH. I understand, but do you not think he haa put the Proposition up to the Government in a way that it does not admit of any counter proposals by the Government, or do you construe it in that way? ^.„««ooi SecrXry Weeks.^ If you think you could get through Congress a counter proposal which I d^ not think you could-I think it would be. almost a hopeless ta^k-and the counter proposal were better than this, Mr. Ford might accept it. Mr WurzbIch I notice in section 14 of Mr. Ford's last proposal, the company a^ees to operate Nitrate Plant No. 2 at the approximate present f^^^^\^^P^^%^^ ite machinery and equipment in the production of mtrogen and other fertihzer com- plTsLII capacity Ving equal to approximately 110,000 tons of am jmm^ nitrate per annum) throughout the lease period, except as it may be prevented by Ss and so on I wish you would translate that 110,000 tons of ammomum mtrate intft fprtili/pr products. What does that mean? Sec^tarr'v^^^^^ would mean about 200,000 tons, or perhaps a little more, of ammonium sulphate. Mr WuRZB\cH. That is the fertilizer product. , . , ,. t Secretarv Weeks. But I do not want you to get me into a technical discussion of fertilizer Droducts, because I might become emliarrassed. X Wurzbacu This is sort ol Greek to me, and I am simply trying to get some information about it. Do you not take it, Mr. Secretary that that me^^^f ^.'J^ligation on the part of Mr. Ford to a-ree to this proposal to furnish a certain amount of fertihzer. Secretarv Weeks. That para-raph says that the company will. , Mr. WURZBACH. That the company will, without reference to t^^® authority of the company to bind itself, but this does mean that this proposal agrees to bind the obU- ore question I ^^^"^^d^^^^i^^^ecially is con- tary, do you not think that the proposal «« ^^g' J°™„\™Xn of t^ie contract to '^\l,'^rhl^?^.s''an]-'eV™^^^^ P^*""'"^^ "' ''"' •=""■ %r^Trs'«e '^r Mi ^^nSrS'ut with who. is he going to do **Mr Whbzbach. You do not think there is anything in the proposal that is incon- there what I wanted to put in^that Jf-^^f contract wS to be carried out. ^X"^i::^xoHTlMnrr.^!'bt^V- dTr^^^^ his proposal is inconsistent ^ii:^i^^^l^^r:L^\^^''^°i''^^ no desire t. question Mr. Ford's "Mi'cKXOO. Mr. Secretary, recognizing the fact t^t^ a^ar^^f our miUta^J^^^^^^^ of preparedness, the Government alj^adyh^nvested^to ^^ ^J^ .^ rn^it^-"? bl.rJs^'ird^r a'-pS-S^n!^^^^^^^^ of Congress accepting ttif^propj^tio^,, ^,, , , ^ ^ ^^^^It of this apeement Secretary Weeks. If I thought >^fj^^^^ in the cost of fertihzers with Mr. Ford, imperfect as I ^«^^J,^*' ?^°L^^^^^^^^^^ I think, if 1 were to the usei-s of fertihzers; if I thought ^^^ ,TAm s^much in doubt about it that I in Coi^ess, I should vot^ for ^^f P^Xothef ^^^ ^^ ^his plant. Sg^fruitifn^^^^^^^^^^ -^^^ -^^ ^-^^ ^-^^- adv^nfage to the Government than th^ particular mie^ ^ ^^^^ Mr. FfELDs. Mr. Secre^, Xec'^SnlMbe ^^^ tSLt Mr. Ford is asking ago one not famihar with th^ ^i^^vSn worth or possibly $105,000,000 worth of is $8,812,000? ^'F^S)8^TwIrrMr. Ford's offer is only $3,812,000 less than the department 8 estimated scrap value of the property? Secretary Weeks. Yes. Fxhibit E an analysis of the cost to the Gov- Mr. Fields. I notice on page 20. in E^^it ^;^n ana^y t^^tion of the emment by reason of its ^,^,%«J^.^l^5^^^^ to ask at this point that S^fnIS'a^b^e%^ar|rn»fo|eV^^^^ tti^te'^XrgTh^'sre^ttrfrl^errcra^esr^^^^ Secretary Weeks. I wiU have that done. Mr. Fields. I believe you stated earlier in the hearing that this plant, nitrate plant No. 2, IS ready tor the production of nitrates; that is, nitrates used in explosives 18 it not? * ' Secretary Weeks. Yes. Mr. Fields. There would be considerable additional expense to prepare this plant for the production of the elements going into fertilizer? Secretary Weeks. Yes; but depending altogether on the manner in which the fer- tilizer was going to be made; 1 mean tho process that was to be used and the amount to be used. »,^^T%'^j^^^^','^^®^™^^'^* ^^^^^ ^ apparently contemplated by the proposition of Mr. I^ord is 110,000 tons a year. What would be the additioanl cost of equipping this plant for the production of that amount of ammonium sulphate? ^ *-'' -» Secretary Weeks. If you put in an ammonium sulphate plant to use the entire product the estimated cost would be about three million dollars. Mr. Ford's engi- neers stated in interviews which I had with them that it was his proposition to inv^t between ten and twelve million dollars. I do not know exactly how he would in- vest that, and I do not know that he knows exactly how. Mr. Fields. He would at least have to invest three million dollars before he could begin to produce ammonium sulphate? Secretary Weeks. In any considerable amount. Mr. Fields. Before he could get very far he would have to invest about three mil- lion to possibly ten milhon dollars in the equipment of his plant? Secretary Weeks. 1 think so, probably. Mr. Fields. [ believe it is stated in House Document No. 167, either in your report .^^S?^i^^ *^® Chief of Engineers, or the report of the Chief of Ordnance, that it cost $201,674 to maintain nitrate plant No. 2 in stand-by, idle condition last vear? Secretary Weeks. Yes. * ' Mr Fields. Approaching this from the standpoint of preparedness, in which we are all hrst interested, that is, the members of this committee, if the Government is to maintain this plant for preparedness, its first cost would be $200,000 a year to main- tain it? '' Secretary Weeks. Not necessarily, because we are leasing the steam plant now for 110,000 a month, plus 2 mills a kilowatt hour for the amount of power used so that iofn'^^"^^ '®^®^iP^ ^*^^^^ ^® *^®^* $120,000, and the maximum receipts about $250,000. That is leased for a year, on a revocable lease. Mr. Fields At least, in computing the charges against the plant, we would first have to consider the cost to the Government of maintaining it, which would be $200 - 000 a year? -^ i Secretary Weeks. Let me correct you on that. I am informed by an officer who is perfectly familiar with the plant that it will cost this year about $120,000 Mr. Fields. Calling that insurance for preparedness, then, for the life of Mr Fotd's lease, that would run into several million dollars. Secretary Weeks. You will note— I do not know that it can be done every year but we will get out of the Warrior plant and this plant at least $300,000 this year' and quite likely as much as $400,000. Three hundred thousand dollars would be 6 per cent on the entire amount that Mr. Ford is to pay us. Mr. Fields. This item of expense you refer to covers not only maintenance but the upkeep, repair, etc., of the plant. Secretary Weeks. The lease is made in such form that the lessor a^ees to main- tain the plant m as good condition as it was received. Mr. Fields. Will this cost of maintenance materiallv increase within a few vears by reason of deterioration? ' ^ Secretary Weeks. Undoubtedly there \d\\ be some expense everv vear in the maintenance of those plants. * ' Mr. Fields. I have heard it stated that the entire roof of the buildings which is a very considerable item, would have to be replaced within 10 years. Secretary Weeks. I do not think that is so. There have been more foolish thin<^8 said, pro and con, m reference to Muscle Shoals than in reference to any other matter 1 nave ever investigated. Mr. ^lELDs. If my memory serves me correctly, I saw somewhere in House Docu- ment 167, that if this plant is maintained in a stand-by condition it will practically all have to be replaced in 20 years, because of deterioration and obsolescence becretary Weeks. I would not attempt to answer that question. I should refer that question to the Chief of Engineers. , -^^/l?^^^' ^^- Secretary, I would like to ask at this point whether Mr. Ford sub- mitted this proposition upon his own volition or at the request of the War Department, mat 18, the original proposition? 54 MR. ford's muscle shoals proposition. "PM^rKrWUl you put in the hearings at this point a copy of that letter? SecreUry Weeks. Yes. ^ g^^i^Z'tZiC^l S'ent to many individuals or iinns thro.^hout ,he country? I assume it was. have been sent along? favorable ud to the time Mr. Ford's offer was Jri'lrr I^=.?^S Sro^^oft^cl^Und to send here so that the rommit'i^e may have the ir^o^a^^onw^^^^^^^ ^ ,„, I ,^i,e Mr. Fields. I notice this !^ l'««'i/.f.![Xt m7Wii^^^^^ discussed in reference to turn to it in connection with » q-Jjf »° ^f^^^^iately proceeds to install a plant, *° ^S^^Vc'om^yThrat Ih^^^ oTTol ^^^Am. which it haa been suggested it contemplated — - , ^ Ford— that is, Mr. Ford in Jrcrior^^hCXTn^d \o'l^nZ}^l^n any amount of money, so Siltta^atement oi.ght to be moafled U. tl^^^e=^^°^^„_ ^ j„ ^ the company it- J\^'S^rI^^;r:V^'!X'^X' t^r., Ws agreement with the «°^ecr^ wTE^^'Tpm^^^^^^ ,„a his Mr. Fib£d8. As Mr. Wurzbach <=a"ed attention w,Mr^r^^^^ heirs and assigns and for the P'^.^"*' °';''""^S h^/rthfGo^^^ would'it not? auaraBty behind any agreement *at he makes mtnine>.^o^ ^ ^^^^ "Secretary Weeks. It would be, except that yo*! hf/e got t« P™.ee = ^iff^cnlt. forTama^s. and to prove d^ '^^tS coSmrison fhat a ter'thrcontractis^made, for an appropriation. What '^""if, J'^ranVc^eement signed by somebody authorized J?;'^^S™fh:p%7"t!L'U^^Tor;hef this Lvernment is going to ^°ilf FT.LflThope't; too; but- sometimes appropriations have been materially deteyed, and ihat thought came to my mind in passing. IrCJTrotiJrnt^f^xnep^^^^^^^ j-Ss' tUtrbrgraJ^^rto%h'£^i- ^orl^^^^ - "^ *» ^^'^pI^^WeekI I have not that information, but the policy of the Government nolls^^-y^r Wdl*^^^ length of a j^^h^rrso^l I'^^Ty trn^^tXof *e propc^ition, as?t would be harder to finance a Iwger ProP»f ««" ^»^ » ^X^Aing about what is going to happen in fcTISra^!b/'rr?o1&%KM^^^^^ ically become subject to tj^at stetute? ^^ question. The Ford engineers Secretary Weeks. That ^^,J,^f J^^^^^^^^^^^^ it in the agreement? thought that would be tme^ B^if ^^^^^J^ JnTe hearing the pertinent parts of the Alaba^S^^^^^ ^^^^^d^ '^ '"^ "'""• ^ Th^H^RMAN ^^ have put the statute in the record MUSCLE SHOALS PROPOSITIONS. 55 Mr. Fields. We have not put in the Alabama law. I ask to insert the pertinent parts of the Alabama statute, Mr. Chairman. The Chairman. If there is no objection, that will be done. (Sections of the Alabama public utility act, approved October 1, 1920, governing the operation of electric power companies in Alabama, are as follows:) "Sec. 2. * * * Utility. — Unless otherwise specified, the term 'utility,' when used in this act, shall mean and include every person, not engaged solely in inter- state business, that now or may hereafter own, operate, lease, or control (1) any plant, property, or facility for the transportation or conveyance of or for the public of pas- sengers or property by street or interurban railway; (2) any plant, property, or facility for the generation, transmission, or distribution, sale, or furnishing to or for the pub- lic of electricity for light, heat, or power or other uses, including any conduits, ducts, or other devices, materials, apparatus, or property for containing, holding, or carry- ing conductors used or to be used for the transmission of electricity for light, heat, or power or other uses; (3) any plant, property, or faciUty for the manufacture, stor- age, distribution, sale, or furnishing to or for the public of natural or manufactured gas for light, heat, or power or other uses; (4) any plant, property, or facility for the supply, storage, distribution, or furnishing to or for the public of water for manu- facturing, municipal, domestic,- or other uses; (5) any plant, property, or facility for the production, transmission, conveyance, delivery, or furnishing to or for the public of steam for heat or power or other uses; (6) any public wharf, dock, or ter- minal; (7) any toll bridge, ferry, or road; (8) any boat line propelled by any power and not regulated by the laws of this State heretofore or hereafter enacted as a steamboat or steam packet line. Unless otherwise specified, the term 'utility ' shall also mean and include two or more utilities rendering joint service. 1 "Rate.— Unless otherwise specified, the term rate,' when used in this act, shall I mean and include, in plural number as well as in the singular, every individual or joint rate, classification, fare, toll, charge, or other compensation for ser^ico ren- dered, or to be rendered, by any utility, and every rule, regulation, practice, act, requirement, or pri .ilege in any way relating to such rate, fare, tull, charge, or other compensation, and any schedule or tariff, or part of a schedule or tariff thereof. "Service regulation. —Vnlees otherwise specified, the term 'service regulation ' shall mean and include every rule, regulation, practice, act, or requirement in any way relating to the service or facilities of a utility including the voltage of electricity, the heat units, pressme and candlepower of gas, the purity and pressure of water* and, in general, the quality of any commodity, service, or product supplied. "Sec. 14. Valuation of the property of a utility by the covimission.— The commission may, upon its own motion, at any time, and upon reasonable notice to any utility, when the commission deems it necessary to ascertain the value of the property of such utility, proceed to investigate, ascertain, and report the value thereof, and shall make such investigation, ascertainment, and report upon the request and application of any utility. To enable the commission to make such investigation and report, if upon its own motion it is authorized to employ such experts and other assistants as It may deem necessary. If such investigation and report be made upon the applica- tion of a utiUty, the same shall be made and the experts and assistants employed by the commission for that purpose shall be employed at the expense of the utility mak- ing such application. The commission may appoint examiners who shall have the power to administer oaths, examine witnesses, and take testimony in connection with any such investigation. " In arriving at a valuation of the property of any utility as provided in this section, the commission shall give due conaideration to the history and development of the utility and its property, original cost, cost of reproduction as a going concern, and other elements of value recognized by the law of the land for rate-making purposes. For the purpose of making such investigation, the members of the commission and its duly authorized agents and employees shall at all reasonable times have free access to the property, accounts, records, and memoranda of the utility whose property and rights are being -^^alued, and it shall be the duty of such utility to aid and cooperate with the commission and its duly authorized agents and employees to the fullest degree for the purpose of facilitating such investigation. Upon the completion of the valuation of any utility, as herein provided, the commission shall thereafter keep Itself informed of all extensions and improvements or other changes in the condition ^J^d values of the property of such utility and shall ascertain the value thereof, and shall from time to time revise and correct its valuation to the extent that may be necessary by reason of such extensions and improvements or other changes in the phys- ical condition and resulting value of such property; and to this end every utility shall ^^lo '"^^ report and furnish such information as the commission may require. 'Sec. 17. Supervision and regulation of utilities. — The commission shall have general and exclusive power and jurisdiction to regulate and supervise every utility in respect .56 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 57 ""'^^^ITf^^'o Deration rates etc-Everv utility shall miintaiQ its plants ficilities, be reasonable and just to both the utility and ^lie public •'^pr -'5 Schedules and contracts to be filed.— hvery utilit> snaii nie ^n^" ";« ^" **'^Sec. 3->. Comn^ission ma„ ,-uAe «r*«. -Whenever after ^^^^^^^^f^ZTlt .anee with the P-^^-^ /'jj^ -,*-^'>':,'^^^^^^^^^ 'l^ ?^K orllceepTanv service from a utility for a rate greater or less than that pre- ""^ W '?5'"sWarl"or,;.r,i«.-That commission may prescribe adequate standards of service renderer* ti te rendered by any utility and may prescribe regulations f4TeTx^"^tL and t«,ting of such ^ervice and for *« "^-^i*,"* f.^^^'eon- * tS FedemrWater Power Commission has jurisdiction over a matter of this kind '"'{^IcZKT^.'irmight be well for the purpose oUWb committee to have both .the laws before the committee when we consider the matter. Mrvi^Ds^Mf WW I believe it was stated in your letter that the Air Nitrates Co^Sn ciatoiTCe'a ^ntract with the Government for some of this property proposed to be purchased by Mr. Ford. ^'f^Tos* wSt i^ youJ'o^i^n, if you care to state it, as to the attitude of this Mr. */.E'''>s- wnat w your ojuu " , ^ No. 2 or the operation of nitrate plant No. 2? ""^reui^ w7^8*! dTiSt taow a?^"t thkt, but the& attitude is that they expect to h^velSs property offe°^ to them at the price the Government is willing to sell '*Mr*Fri,DS°?toire to state at this point, Mr. Chairman, for the beneet of the vplant No. 2. The Chairman. That is for the benefit of the Chief of Ordnance, the Chief of Engineers, and the Acting Judge Advocate General? Mr. Fields. Yes. The Chairman. I hope those officers will kindly take notice of your statement. Mr. QuiN. Mr. Secretary, is there anything in the language of the proposition of Mr. Ford that would indicate that he would not pay for the cost of acquiring the land and the flowage rights? Secretary Weeks. He does not intend to; he states to me he does not intend to and would not agree to do it. Mr. QuiN. He could not of his own accord acquire that property under condemna- tion proceedings; that would have to be done by the Federal Government. Secretary Weeks. Probably. Mr. QuiN. Then, as a legal proposition, the only way to acquire that land and the flowage rights is by condemnation proceedings on the part of the Federal Government, provided the people who own them will not sell tliem. Secretary Weeks. I do not think the question is so much the matter of acquiring the property; it is the question of who is going to pay for it. Mr. QuiN. You say that it will cost at least a million and a half dollars? Secretary Weeks.* That is what Mr. Ford's engineers believe it might be. Thp Government engineers say about 12,000,000. Mr. QuiN. When was the contract or lease made with the Alabama Power Co.? Secretary Weeks. On plant No. 2? Mr. QuiN. Yes. Secretary Weeks. That was made last November. Mr. QuiN. 1921? Secretary Weeks. Yes. Mr. QuiN. For a five-year period? Secretary Weeks. For one year. Mr. QuiN. Mr. Ford did agree to bind himself and his heirs and assigns to carry out this contract in the proposal which he submitted, did he not? Secretary Weeks. You can read the language; as far as his statement is concerned, he does. Mr. QuiN. You spoke of a guaranty, and some gentleman asked you some question about the type of guaranty. What have you to say about that? Secretary Weeks. If he were to organize a company with a capital of between ten and fifteen million dollars, I think that might be considered one type of guaranty. But I have not any assurance that there is going to be any money behind the capital stock of this company which he is going to organize. Another form of guaranty would be a bond to carry this out. As tnis proposition now reads you have got to proceed against Mr. Ford or his estate for damages, in case they do not carry out the agreement. Mr. QuiN. Would not the Government be bound to proceed in the same manner against any guarantor in the form of an indemnity company, or corporation you speak of? Secretary Weeks. You do not have to proceed in the courts against an indemnity company. They pay the indemnity. Mr. QuiN. They do not just shell out the money. Do you not have to show lia- bility? Secretary Weeks. Oh, yes. Mr. QuiN. I beg to diPi'er with you about these bonding companies. I have had some litigation with them and you have to sue them like you do anybody else. Secretary Weeks. That has not been my experience. Mr. QuiN. Mr. Secretary, in the hearings of 1920 it was stated before this committee that the War Department had on hand 300,000 tons of nitrate. I do not know what it cost, but it is worth $40 a ton to-day, you state? Secretary Weeks. About that. Mr. QuiN. In case that plant at Muscle Shoals were thoroughly equipped for opera- tion, the War Department's representative stated before this committee that they could sell that nitrate. Secretary Weeks. We have sold 80,000 tons of it. Mr. QuiN. With this plant turned over to Mr. Ford, could you sell 150,000 tons of the remainder? You would be safe in doing that, would you not? Secretary Weeks. The Chief of Ordnance tells me he thinks it would be safe to reduce the stocks to about 150,000 tons, which would be about 60,000 tons more that could be sold. Mr. QaiN. You could sell 130,000 tons, approximately, altogether. Secretary Weeks. Yes, but only some 60,000 tons additional. Mr. QuiN. That much money could be put on this dam to finish it, could it not, without any other draft on the Treasury? 58 MUSCLE SHOALS PEOPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 59 Secretary Weeks. Of course, if that money were obtained from any source and were appropriated by Congress, it could be used to build the dam. Mr. QuiN. In the time mentioned by Mr. Ford, 100 years, he proposes to give that back to the Government; the Government does not give him any title to it, and he is giving it back to the Government at the expiration of that time, is he not? Secretary Weeks. The Government gets all the dams back. Mr. QuiN. Does not the Government get back that land which he is paying $5,000,000 for? Secretarv Weeks. No. Mr. QuiN. What is that considered to be, a straight-out sale? Secretary W^eeks. That is a straight-out sale. . , , , , Mr. Quis. The dams themselves go back to the Government, with the preferred right in Ford or his company to make a new contract with the Government at the expiration of the lease? Secretarv Weeks. Yes; the dams and the power plants. Mr. QuiN. Mr. Secretarv, what is the real objection to the lease being for 100 years? Secretary Weeks. I do not think it is good public policy in this developing period that we are going through to have a lease made for as long a period as 100 years. Mr. QuiN. Granting all that to be true, this is an immense proposition in financing a plant, and it will take many millions of dollars. Secretary Weeks. The Government is furnishing that. . Mr. QuiN. That is true to the extent of building the dams, but in the operation of them the Government will not furnish that. What assurance will Mr. Ford have that he could finance them for so short a period as 50 years? Secretary Weeks. Simply drawing his check on the bank would finance him. He has got more cash in the bank than he will ever put into this enterprise. Mr. QuiN. There is no doubt about Mr. Ford having financial backing to operate the plant successfully? Secretary Weeks. Undoubtedly. Mr. QiTiN. It is your idea that the lease ought to be made for 50 years, the Govern- ment to get a better proposal at the end of the 50 years? Secretary Weeks. Possibly so; yes. . Mr. QuiN. If this man, or the Ford Corporation, developed the fertilizer l)usineBS there and the current business to carry such an enterprise across 600 or 700 miles, do you not think it would be reasonable to give him a lease for 100 years, if he could do that? Secretarv Weeks. I do not think so. . i ^ Mr. QuiN. In view of the probability of the Government making a better contract at the end of 50 vears', you think it is better to lose that now? Secretary Weeks. I am not in favor of the Government making any lease for 100 years? Mr. QuiN. No kind of a lease? , . , ^ , 1 1 i. x t j Secretary Weeks. No kind of a lease. However, I think I ought to add that 1 do not think that is vital to this offer. Mr. QuiN. That is, the term of years? Secretary Weeks. No. I would not think it was vital at all. Mr. QuiN. I believe Mr. Ford considers that a vital question. , , . Secretary Weeks. I do not know why he should. The amortization of the in- debtedness would be reduced from 100 to 50 years; the plant would not be paid for at the end of 50 years, but the Government would have its investment there and it would not make any difference to Mr. Ford. . , , , r^ Mr. QuiN. It would be paid for entirely at the end of 50 years, provided the Govern- ment got 4 per cent, and it costs $40,000,000 or $50,000,000 to build it? Secretary Weeks. It would take 97 years to accumulate the fund to retire $40,000,000 at 4 per cent. . , i • x- ^ x Mr. QuiN. The loss you have on that plant now in actual detenoration amounts to more than the cost to the Government of maintaining it, annually? Secretary Weeks. On No. 2? Mr. QuiN. Taken as a whole. Secretary Weeks. We do not know what the deterioration amounts to. Mr. QuiN. The Government is put to a fixed cost in guarding it and looking after it. Secretary Weeks. Not while it is under lease. Mr. QuiN. You have no expense at all during that time? Secretary Weeks. There is a lot of property around there. There is the property at the nitrate plant No. 1, which the Government had to look after, but the lessee takes care of the power plant while it is under lease. Mr. QuiN. What I would like would be to have you give the difference between what the Government has to pay out every year and what it receives from these leases you mention. I would like to have that statement in the record. Secretary Weeks. As to the matter of dollars and cents, the Government is getting more out of those leases than it is spending there now. Mr. Qum. Of course; the normal deterioration is a big element in fieurinc the amount invested. s^ ^b *^^ Secretary Weeks. That is considerable, but we do not have to take that into con- sideration at the Wamor plant, because that is to be returned in as good condition as It was, and at power plant No. 2 the condition is the same. That is the onlv outside property we have to look after. ^ Mr. QuiN. The territory adjacent has phosphorus rock in it, has it not? Secretary Weeks. I have been told that there is some of that in Tennessee. Mr. QuiN. About how many miles above this dam is phosphorus rock? Secretary Weeks. About 100 miles. Mr. QuiN. If the river was navigable the phosphorus rock could be floated down in barges from the phosphorus beds to the plant at Muscle Shoals? Secretary Weeks. This is near the town or city of Columbia, which is on the Duck Kiver, not far from Naflh\dlle, I think, and not on the Tennessee River at all, so the 1 ennessee River navigation would not apply to that. Mr. Qum. It would have to come in on other streams, if they could take it down on barges? ^ ^ ^ ^ Secretary Weeks. Yes. Mr. QuiN. Mr. Secretary, I suppose that the contract which the Government has with these pwple who own the patents for the fixation of nitrogen is such that it could be transferred to Mr. Ford by the Government, or to his company? Secretary Weeks. I think there is a question about that, and I would like to have you ask that question of the Acting Judge Advocate General. I am not a lawyer and 1 do not want to get into a legal discussion. ' Mr. QuiN. I simply wanted to know whether the Government could carry out its contract with Mr. Ford, in case his offer is accepted. Secretary Weeks. Col. Hull can answer that question. Mr Fisher. Mr. Secretary, have we before us now all of the propositions you have ^9^ J'l^. purchase or transfer of Muscle Shoals that you have thought worthy of con- Secretaiy Weeks. I have another I am going to send to vou in three or four days which I think the committee ought to have. Mr. Fisher. May I ask how many propositions have been presented to the Secretary Secretary Weeks. Five in all. Mr. Fisher. Woald it be possible for the committee to have the advantage of havine a copy of each one of those five propositions in the hearing? Secretary Weeks. Two of them have been withdrawn, so I do not think thev are 01 any moment. ^ Mr. Fisher. That would leave three still pending. Secretary Weeks. Yes; Mr. Ford's and two others. Mr. Fishek. Would you be kind enough to let the committee have copies of those before it, and put them in the record? Secretary Weeks. Yes. (These offers appear hereafter.) . ' lili ^i?^^'? • ^ notice on page 10 of your letter to the Speaker of the House you say. J /if* 4.- ^ proposal be accepted by Congress, I suggest that there should be certaii modihcations made to safeguard the Government s interests. As heretofore stated there should be some assurance that the contracts made by his proposed company wili be earned out I will ask you whether or not, in the negotiations that have been had between Mr. Ford and the War Department since last Julv, such suggestions in refer- ence to the proposed assurance have been made by the War Department to Mr. Ford or his representatives? r «^ Secretary Weeks. Frequently to him or to his representatives. Mr. Fisher They were not included in the last draft presented by Mr. Ford? n^rf^rfitf'iQ i!?l' "■• ^"^'J^ declines to guarantee anything whatever, but he put in paragraph 19, which you are fanuliar with. r **• Mr. Fisher. In the otheT propositions that have been presented are there any more assurances than m the Ford proposition? t; r «,uy uiore Secretary Weeks. They are in very different form. Mr. Fisher. They are different propositions altogether? * Secretary Weeks. Yes. Mr. Fisher. I would like to know whether or not the War Department has to-day a plant for nitrate preparedness which is comparable to the provisions of section 16 of 60 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOAI^ PROPOSITIONS. 61 the Ford offer, which provides for the turning over upon five days notice m time of \^ar of the entire facilities of nitrate plant No. 2, with the personnel, and the keeping- up for 100 years of an adequate and efficient laboratory for the use of our Army otticers^ Secretarv Weeks No. Mr Fisher. In the estimate that has been made by the War Department as to the salvage value, shown on page 22, the salvage value of No 2 is shown to be a little over $7,000,000. I would like to know whether or not the offer ot Mr. tord, if accepted, tendering to the Government at all times a magnificently equipped nitrate-producing plant, would be worth more than $7,000,000, the tender running for 100 years, or ten- dering it to the Government in the event of war. Secretary Weeks. That is of. material value, of course. w *• i Mr. Fisher. I would like to ask you whether or not it is not an asset for national preparedness such as we had never hoped for before. Secretary Weeks. I do not want to admit that. Mr. Fisher. That we had planned for even with the money that would be appro- priated by Congress. , .„ , . u r i * Secretary Weeks. I believe that in 20 years there will be a large number of plants in the United States producing nitrates; that it is going to be a very common process Mr. Fisher. But the proposal as offered in paragraph 16 is a magnificent one as it stands to-day, with the present financial condition of our Government? , ^ .^, Secretary Weeks. I dx) not know that I would agree with your adjective, but with your sentiment I do agree. , „7 t^ _x * v „ Mr Fisher I would like to know whether or not the War Department has any plan 'for the utilization of these plants so that chemicals could be manufactured or produced to be used in the making of cheap fertilizers. Has the War Department now a plan for the utilization of the Muscle Shoals plant for the production of chem- icals which could be used in the manufacture of cheap fertilizers? Secretary Weeks. I think you had better ask Gen. Williams that question. Mr Fisher. I would like to ask you this question: In the event the Ford offer is not accepted, is it the attitude of the War Department now that a recommendation will be made to Congress to complete the Wilson Dam? Secretary Weeks. I would make that recommendation. • . u u Mr. Fisher. Would that recommendation carry with it anything further than the production of power? Secretary Weeks. No. ^ ,.,,-, ^ ^u Mr. Fisher. So, as far as the outlook for the production of chemicals for the manu- facture of cheaper fertilizer is concerned, no plan has been made for that? Secretary Weeks. I ought to modify that answer, that unless we could use, by lease or otherwise, the plant we have there for that^purpose. Of course, the Govern- ment will retain that plant for its own requirements. At present at least the Govern- ment will do that, and it will make use of its property wherever it may be without affecting its ultimate use for governmental purposes. Mr. Fisher. The present plan would be to retain it in a stand-by condition.' Secretary Weeks. Yes. , , ^^ « . n •*. Mr Fisher Is the condition of a plant like nitrate plant Jso. 2 as favorable as it would be if it were maintained under section 16 of Mr. Ford's offer? Is a plant m stand-by condition as effective or efficient as one operated with personnel, as de- scribed in section 16? , i ^ i, t -i^ Secretary Weeks. I would not undertake to say that we could get enough for it to entirely provide for the maintenance of the plant. In some years we might and in some years we might not. I do not know. „. ^ . , . Mr. Fisher. I judge from your answers that the W ar Department is working on a proposal for the utilization of No. 2 other than in a stand-by condition. Secretary Weeks. Perhaps there is nothing definite because it is a matter which has been before the department for six months. If this is accepted, there is no reason why the War Department should work on other plans. Mr Fisher Something has been said relative to an option which has been retained by two companies which had had contracts with the Government. Do you consider that there is any moral obligation to defer everything because of that option, which has been declared illefiral? Secretary Weeks. Undoubtedly a Government board gave the option and it is charged in the legal opinion that that board had no right to do it. I leave it to you to make up your own mind what the Government ought to do under those circum- stances. , ,., , Mr. Fisher. Did the Government draft the agreement, or did these two corpora- tions draft the agreement, that was finally entered into? Secretary Weeks. I do not know about that. Mr. Wright Mr. Secretary, there is no dam No. 1? pr^'i't "^ ""'• ^^''^ '' "" ^^'^ ^"- 1 i^ '^^ proposition. That is a navigation Ka^rv Week!' 77a "Z^l^^\t '^ ^^^; '^^'t ^P^t^mplated, about 6 feet high? imrld^^h thp tntcfri ^-^ ^^^^ t.h« exact height, but it is a small dam and, corn- er Wright TlaafZ^ll''^,. '^ '' "-^^ ""{^^^^ importance in regard to cost. Mr WRIGHT A good deal has been said of the salvage value and it has bppn Psti "JaS^'NoT? *''^''^ •" ««.000,000. That would Lclude the «i*v^1 ^^i^l^ Secretary Weeks. Yes. ^o';.!^f ^^ w- ^^^^ i? ^^^ P^'^J^^* *^« department does not feel it should let eo*^ Mr CL^^ if i, % r ^^^l^ ?^^*.^^ *^^* ^^^^^ P^^«^^t conditions ^ Mr. WRIGHT It should be maintained and retained? Secretary Weeks. Under present conditions Secretary Weeks. Except for Mr. Ford's requirements s/.r!;,"'" w- " '^"l"'? •'* * '"'•'''izer proposition and also a navigation propositioni- M^-ST^^T^^^^^- ^ '^'' ''°* '"«*° •» "'««'«'• that in the affirmative beraiS^S^uma SL'^J^acSfS^^r"' wL'^F r'?***^.'" W« P<"-er for some otW pTrp'TZan .oj[d ix^eir;tesee^/i,r;?r ^'^^ ^-^^ '-^- p'^"o„ ^}uZ^^2 ^.rf^- ^.i''^''^ ^®?^^« *^at i« necessarily so. Dam No 2 would furnish all the power that would be used for the manufacture of fertiUzer D^^rZfT^' ?^ ''''"'^^ this whole project is primarily essentially one for the War Department for the purpose of producing explosives? that is thel,rimar^ e^ential Secretary Weeks. That was the original purpose. re£e^rStl^u"K^4f^ii t t^h"a?'pTr^''« ^" ^^P^''-"*' » '» *» ^ - Secretary Weeks. That is the pending proposition. Mr. Wright That was always the thought, was it not? |crp"^EE\T IW^rtSTmlir ^ "' *'^ '-' ''"^'■ arp^\7/t;Tn'^^ ^o'teiL^^^^e^, "^^ ^~-' « *' ^-^ "«->'» Secretary Weeks. I tried to do that in the comments which I made to Conges, mT Wr^ht" Whi V°< ""* ''"?,"■ "'*'■ " ^*"' •» materially change that. ^ecretary Weeks. Yes. Mr. Wright. Tliat is the big thing ^^ecretary Weeks. From the Government standpoint 62 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 63 Mr. Wright. Then incidentally it might develop a great quantity of cheap fertilizer could be produced there. , ^, , , .. . ^ , Secretary Weeks. There is the sticking point. It anybody could convince me to a certainty that there could be a large amount of fertilizer produced I should f^l much more enthusiastic about Mr. Fork's offer than I do now. But I have not suffi- cient evidence that that can be done, and, incidentally, I do not believe Mr. l^ord, or his engineers, know whether it can be done. Mr Wright. You regard that as in the experimental stage: Secretary Weeks. I do; in fact Mr. Ford put it into his offer that he would experi- ment on the manufacture of fertilizer. 1 .. J •*V.^l,„+,r«,.,,;^«o Mr. Wright. Perhaps subparagraph A of paragraph was inserted with that very idea ^"''To deteriS'by research whether by means of the electric furnace method and industrial chemistry there may be produced on a commercial scale f ertihzer compounds of higher grade and at lower prices than fertilizer using farmers have in the past been able to obtain, and to determine whether in a broad way the application of electricity and industrial chemistry may accomplish for the agricultural industry of the country what thev have economically accomplished for other industries. . Secretary Weeks. Mr. Ford undoubtedly believes there are going to be ^eat de- velopments along those lines, and undoubtedly he took Mr. I^' Weeks I have never talked to him about it. I know what his views are about paving for the property. ^,0 Mr Wright. Does he think it is worth anytlung ; Secretarv Weeks. I refer to the manner of paying for it. _„+w Mr. Wright. Mr. Miller propounded quite a number of questions about this mattei and the trend of his questions would indicate perhaps it would be a good idea to donate the propertv to Mr. Ford. . ■, 1, x Mr Miller. I made no suggestion of that character. Secretin Wee^ I think Mr. Miller meant that the Government was not going to get xeT^r much out of the $5,000,000 Mr. Ford was going to pay. Mr Wright. $5,000,000 sounds very small in companson with the many billions of dollars the Government has spent; but is not this hke the Government money spen on other war projects? It is a question of whether having passed over the wheel it is not alreadv lost. Secretary Weeks. Most of this was lost. ^ .. , ., r^ ^ „„a Mr wSght. You are striving to get the most out of it for the Government and utilize it in the best way for the Government aud the people? Mr^'tSoZ^lndlTcidenX^lly there might grow out of the Ford offer quite a development in four or five States around there? Secretarv Weeks. That is possible; 1 have had that in mind. ^_^ ^ , ^ ^^ Mr Wright. Do you share in common with some of us the thought that whatever Henrv Ford touches is like magic, and it is a go from the very start? S^ Weeks. I do not know of any of Mr. Ford's activities that have been "^^•mGH^* I beUeve he took over a railroad and is now operating that railroad Bo profitably that he wants to reduce the rates and the Interstate Commerce Com- mission will not let him do it. ^ -, n Secretarv Weeks. I have not analyzed the figures. ,^^ m Mr. Wright. In addition, Mr. Secretary, the question of navigation of the Tennessee River would be very material, would it not? Secretary Weeks. You want my absolute opimon on tnat: sirlt^TwES! I would not advise the developnient of the Tennessee River at Muscle Shoals for navigation purposes; that is, I would not appropriate the mone> *^Mr^ Wright. I speak of this as an incident that would grow out of the development. Secretary Weeks. If it were not for the building of the dam development for navi- gation this perhaps would cost much more. Mr. Wright. Following the construction of the dams will come navigation on the Secretary Weeks. With the probability that at some time the river will be improved for navigation at this locahty it is necessary to put the locks in at the time the dams are constructed, so I am entirely in favor of doing that. Mr. Wright. It is simply independent of the project? Mr. Stoll. Referring again to the guarantees, the Government has made some le^es to private concerns of certain water powers, has it not? Secretary \Veeks. All I know about that is this: T am chairman of the Federal Water Power Commission now, and the Wat«r Power Commission is acting under the provisions of the water power act, and those leases and permits are limited to 50 years. Mr. Stoll Are there any guarantees there by the lessees to the Government? Secretary Weeks. They furnish their own money. Mr. Stoll. But they take over Government properfy. Secretary Weeks. They are granted a permit on a navigable stream to build a dam, for example, and they build the dam with their own money. The Government has nothing to do with financing those propositions and the permit only continues tor 50 years. '' Mr. Stoll. In regard to the 50-year period, if the Ford offer should prove satis- factory in every respect except the 50-year period, do you think that is sufficiently wrong m principle to warrant the discrediting of the Ford offer*^ T t^^^^i^^y Weeks. If it was satisfactory in all respects, so far as Congress is concerned. 1 should say not. . x 7 © , Mr. Stoll. You mean that the 50-year period would not be considered, but that you would let it go at 100 years? Secretary Weeks. I would consider it to be my duty. Mr Stoll. You do not think it would warrant rejecting the offer if it is satisfactory m other respects? '' Secretary Weeks. I do not think so. Mr. Stoll. From the standpoint of the Government, which is better, the Ford otter or the salvagingof Muscle Shoals? na^Z7f^''^u^A''^- ^ ^isli.I could answer that question with great frankness and certainty. But I can not with certainty. I believe that a sale of the Warrior plant and the properties m that neighborhood can be made for more than the Ford offer is paying for all that property. I believe that can be done. I believe that the Wilson ^m^s^"" completed without taking a dollar out of the Treasury of the United Mr Stoll. I do not mean that. The Ford offer contains certain specific things, mow f ^ maintaining of the plant for the benefit of the Government and the manufacture of fertilizer for the benefit of the farmers. I am taking the Ford offer oXr "a4e"Mus"l^^^^^^^^^^^ '"^ ^^^"^^^^^^^ ^^ ^^^ Govermnent, to accept that Secretary Weeks. The Government is not going to salvage plant No 2 and the TXtlfTr '^ ^''- TTf ' f ^^ 'V"" "^y ^'^^^^^t' ^h^ther p^eople are gdng toge! Jt^riJh ""^Z """^i ^^^^ heretofore. If that phase of the offe? were diminatfd, offer ^^ advantageous disposition could be made of this property as Mr. Ford's 7 000 fSflTn^^,? /•''''. ^^Vr'-f JU^ *^^ fertUizer proposition? There was about isTlw t^iuZ^ 'V^^. ^""'^^ ^^ ^' \^ ^^20, I think. What per cent of nitrate 18 m that fertilizer— about 3 per cent, is there not*? Secretary Weeks. There are all kinds of fertilizer Mr. Stoll I know; but the usual fertilizer is 3 per cent nitrate, is it not? Secretary W eeks. I am a farmer, and when I want to buy fertilizer, I send soil to If ^ ^^ ^° analvsis and I buy fertilizer that fits the soil u o 1 w 3 per cen^'o'f" nUrat^^n U?^""^ *^^^ *^^ average fertilizer which a farmer uses has about Secretary Weeks. I do not know that. Mr. Stoll. That is my information. Mr. Garrett. Mr. Secretary, Mr. Stoll and other members of the committee have covered very well practically all the questions I M-anted to ask you. If I understood JomtZT ^ \^r 'i"^. ^/ ^^'•- ^'^^ '' ^"^ '^^' ^'^1« y«^ hid certain objections von wl!fSii^" \^^ pointed put m your communicatiou to the Speaker of the House, f^ct Mf ^ri'^^ ^A^y ^^f H y^"" "^^'^ convinced in your own mind, as a matter of Toh ^ !■ ^?u^^ manufacture, or would manufacture, fertilizer at this location in 92900—22 5 64 MUSCLE SHOALS PEOPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 65 Secretary Weeks. That is in substance what I said. However, that is a pretty- important question, and I want to have the privilege of revising that answer, putting it in just the form I would like to have it. I do not want to have somebody else put phraseology in my mouth. Mr. Garrett. I am not attempting to do that. Secretary Weeks. I know you are not. Mr. Garrett. I understood you to say that in your opinion, from the facts, the mat- ter would have to appeal to each Member of Congress when the whole record was pre- sented as to whether Mr. Ford could materially reduce the price of fertilizer to the consuming public by taking over this plant under certain terms and conditions as shown in the evidence before the committee. Secretary Weeks. Getting a lease for 100 years? Mr. Garrett. Yes. Do you consider his contract is so hedged about with provisions that he would be required to produce fertilizer to the capacity mentioned in his con- tract for the period of the time mentioned? Secretary Weeks. I do not think so. Mr. Garrett. Then you want that part of it strengthened? ^ Secretary Weeks. I do; and lest I may be accused of not giving Mr. Ford the inten- tion of good purposes in carrying out his proposition, I want to say, if Mr. Ford said he would see that it was done, as long as he lived it would be done. Mr. Garrett. In a proposition of this kind we have to have it so framed and drawn that it will be done after the man who made it is dead and gone? , , •, j Secretary Weeks. Yes; we are here providing something for oiu: great-grandchildren. Mr. Garrett. I think we should hedge it about with every precaution and restric- tion to bring the desired results to future generations. But these 110.000 tons of nitrate of ammonia that his contract calls for would be a component part of about 3,000,000 tons if made up into fertiUzer, as commonly used by the farmer, would it not? Secretary Weeks. I can not answer that question. The Chairman. This Muscle Shoals plant originated under a provision of the national defense act, passed in 1916, I think on June 3, 1916, was it not? That was provided for in section 124 of that act, was it not? Secretary Weeks. The correct answer to that question apphes to No. 1 plant, not to No. 2. T e t 1 • 1 i- The Chairman. Were not all the plants started as a result of that legislation, cover- ing the development of the Muscle Shoals plant, as provided in section 124? Secretary Weeks. I think not. I have a copy of a letter from President Wilson to the Secretary of War, dated February 23, 1918, which refers to his wishes regarding the setting aside of money to construct plant No. 2. The Chairman. I think we appropriated in that act 120,000,000. Secretary Weeks. I will read this letter: The White House, Washington, February 23, 1918. My Dear Mr. Secretary: I refer to section 124 of the national defense act of June 3, 1916, authorizing the President to determine the best means and adopt the most advantageous projects for the production of nitrates, and appropriating the sum of $20,000,000 for that purpose. Of this appropriation, I am advised that there is an available unallotted balance of $13,785,000. The completion of Dam and Power House No. 2, at the Muscle Shoals on the Ten- nessee River, as designed and projected by your department, is, in mv judgment, of vital importance in accomplishing the purpose of the law. I should be pleased, therefore, to have you allot to that work all of the aforesaid balance, after deducting the sum of $400,000, which I understand will be required for the purchase of land required in connection with another project. Cordially and faithfully, yours, WooDROw Wilson. "Hon. Newton D. Baker, Secretary of War. The Chairman. That shows that Muscle Shoals was originally provided for under that section of the national defense act. Secretary Weeks. I am informed, Mr. Chairman, that this money applies to dam No. 2, and not the nitrate plant. ^ .- i j The Chairman. WTiat money went into the nitrate plant? Or, if I may broaden the question somewhat, what funds were called upon to complete, so far as they have been completed, these various projects? .■,■,. Secretary Weeks. The money to construct the nitrate plants was provided m the fortifications act. The Chairman. A military proposition? Secretary Weeks. Yes. The Chairman. This whole proposition was a military proposition? Secretary Weeks. Fundamentally, undoubtedly, ernment?^^'**''^^' ^^^ ^^^ purpose is primarily to furnish explosives for the Gov- pmlZT"^ ^'^^^^' ^ *^^^^ probably that is a correct statement of the primary imnmvp^i'f'nll'"' ^""^ .Mr Ford promises that he will keep alive permanently and mJ^ZVi^^uT"^' ""'^"^^ plant No. 2 and turn it over t5 the Government for the making of explosives any time the Government wants it? thftX r!X JL^^""^- ^ ^^""^ ^^ "^^ ^^ ^ ^^"•^^t a'^^^^ ^ yo"^ OTigiBB,! inquiry to^on«tr^.f hn.rr^^^' ^P^?* *o^ P"'^^^^^ ^^^ ^^^^ ^t ^^- 1 Pla^t> but the money ^^f^T -ii^u*^ ^.''- 1 ^""^ ^^- 2 came from the fortifications act. If that is not puUn the^iL^r '' ^^^^«^^^^i«^« °^de, and I will have the correct aiLweJ is KcUsTnot?"^* "^^ '"*'' *^^* ^^^^y ^*« ^^^^ ^^^«^ * ^^^^y source; that praSt7a^&X'^e'^^^ '' '' ""^ '"" *'^ ^^^^^'"*^^^^ -^ '' -- ^PP- Secretary Weeks. Yes. ti<^t yormfnd atprient*?"' '"^^ "*"''*'"°' '""^ *""* '^ ^ ^^^^ ^P-«-°* ?-•«- emS'^r^s^''^- '^' -^°te°*°ce of thia plant should be continued for Gov- tot s^:nT|.^i?e Vr^rr Vh^;; iTo.'Z'tci '*'"■' »•-* """"^^ -"•'^ >-- thfoXSeTboU'""' --^--t. can be made to produce that money Mr. Parker. Other people would produce it? m'TtZZ^^Vr.J'"' "r'!,f'-»."' *« Government standpoint? Mr. fARKER. J? rom any standpoint. thera1pleSnlJpTjf,r"°Pj''*' ^^"^ ^"^ ^- ^'^'■"'^ you have a foundation thire to ISl power^""^ "* ''°'^- '""^ ^^^ ^°> "* '^y "P'-^o". develop power enough Mr. Parker. You would spend, you say, $22,000,000' MT'l^Z.^'^^if •• Twenty-two million dollars and probably more, power y*ucandevelop?° ' ^''-"■"^'■^"" proposition to complete it for the sake of the Secretary Weeks. That is my judgment. 66 MUSCLE SHOALS PROPOSITIONS. Mr Parker. With reference to the manufacture of these nitrates by the cyanamide process can not that be done wherever there are coke ovens, coal, and limestone.' Secretary Weeks. It could be done. i • j i Mr. Parker. Is it not better to have it done where there are coal mmes and coke ^^Secretary Weeks. I think there is a large surplus of that material at this time. Mr. Parker. It is not made there, is it? Mr'^PASER^^S^^tharthe manufacture is usually carried on where there are coke ovens or where they have limestone in the neighborhood. Secretary Weeks. You must necessarily have power for the cyanamide process. Mr. Parker. Is there much power needed in that process? Secretary Weeks. A good deal of power, I understand. Mr. Parker. But if you are near a coal mine, the smallest coal is sometimes used Secretary Weeks. It can be. . , , . . . x- i . Mr Parker. There is therefore no particular necessity for haying this particular place for manufacturing large quantities of nitrate by the cyanamide process .' Secretary Weeks. To manufacture successfully you need very cheap power Of course, in time of war we would not pay much attention to the cost of power, but if that were to be used in time of peace it would be very desurable for the Government to have cheap power for the purpose. i i • u ^^^ *u„r. +>,« Mr Parker. Do you know whether water power, on the whole is cheaper than the power that can be gotten from coal, if you are close to coal mines? Secretary Weeks. It makes a vital difference where it is. There are cases where power can be developed from coal cheaper than almost any water power, and water powers are not the gold mines that many people imagine. , i , +u , Mr. Parker. And if they are at the coal mine where they can get coal cheaper, they can develop cheaper power than by water power. Secretarv Weeks. I am told so. , •» x Mr. Hull. My mind is not clear, Mr. Secretary, in regard to your idea as to com- pleting this proposition. Just how is that to be done? If you issue bonds on it, It would require legislation, would it not? , . , t u * u^f^,^ +v.^ ^r^m Secretary Weeks. If I had a definite proposition which I could put beforejhe com- mittee' I would do so, but I have not. The discussions I h^^^had^^VrNo people lead me to the conclusion that water power can be developed at Dam JNo. 2^MchTill carry an issue of probably $25,000,000 bonds; that is to say, if the Govern- LnVwould gfvTyou that foundation and you could sell the power developed by Sit dam at what are normal prices in that vicinity you could probably float an issue of $20,000,000 or $25,000,000 in bonds to complete the dam. Mr HuLl I quite agree with you on that. Would it be possible to do the same ^'^Ki'J^y Wee^k^ C'ht^^fcomplicated with Dam No. 3, which is quite a differ- ent matter. . . Mr Hull I lust wanted your opimon oi it. . .^t. i.. , ^reta^ wJeks It depinds on what Mr. Ford is going to do mth his power If^So manufacture krninum and use the entire power f«^*at pun>ose and he would allow a sufficient rate tor the power you m^ht do it. But I do not know "^Mr '^HuLf ?f ^u dSde'to complete the proposition outside of the Ford matter, there would' be practSly no difference in the time of the completion of the dam, '"«iii^»t^ WKF.KS I think the dam can be completed under contract in 30 months. M^H^Yt In efther case it would not make much difference whether it was for X?:u^ W^EKrrcTpVfnlhe Ford proposition you will lose the interest on the * ^f +>,« rvnTTinlption of the dam for a considerable period. Mr HuLt Tn yoTopUon there would not be much difference in the cost, whether it was for Ford or for somebody else? ^'O.\ou''would braUrS saTvage it better as a completed project than you are at the present time? meSon^TlsS o^ul^rp. m., the committee adjourned to meet to-morrow, Thursday, February 9, 1922, at 10.30 a. m.) MUSCLE SHOALS PROPOSITIONS. Committee on Military Affairs, House op Representatives, Thursday, Fehniary 9, 1922. The committee met at 10.30 o'clock a. m., Hon. Julius Kahn (chairman) presiding. The Chairman. Gentlemen, I have received a telegram from Mr. Liebold in response to the telegram that I sent him and which was read at the hearing yesterday. It is as follows: Detroit, Mich., January 8, 1922. Mr. Julius Kahn, Chairman Committee on Military Affairs, Washington, D. C. Your telegram received. In view of the fact that Mr. Ford finds it impossible to come to Washington, we are asking Mr. J. W. Worthington to call on you and to be of such service as is possible. E. G. Liebold, General Secretary to Henry Ford. I want to say that this morning Mr. Worthington did call on me and said that Mr. Ford's representatives will be glad to answer any questions, but they are all very busy and will not be able to appear before the committee until next Monday. He has stated that Mr. Mayo, whose name appears in connection with the offer of Mr. Ford, I think as a witness Mr. Fields. May I state in that connection, Mr. Chairman, that I read in this morning's paper a statement given to the Associated Press in Detroit by Mr. Ford to the effect that while he is very busy, he would come in person if the committee thought it necessary to do so. The Chairman. Mr. Worthington stated that they would be here at 10.30 o'clock Monday morning to answer any questions that the committee might desire to ask. STATEMENT OF MAJ. GEN. C. C. WILLIAMS, CHIEF OF ORDNANCE, ACCOMPANIED BY MAJ. JAMES H. BURNS, ORDNANCE DEPART- MENT. The Chairman. General, we are considering the offer of Henry Ford for the Muscle Shoals property. We understand that you have had considerable to do with the de- velopment of the plants there, and the committee would be very glad to hear you in connection with the work that has been done down there. Will you kindly proceed in your own way? Gen. Williams. Mr. Chairman, the Muscle Shoals project or enterprise is very clearly di\aded into two entirely separate and distinct parts; one has to do with the water power development and the other has to do with the installation of two nitrate plants, together with certain auxiliaries that go with tho^e plants in order to make them complete. With the water power question the Ordnance Department has not now nor has it ever had anything to do. That comes entirely under the Chief of Engineers. As to the nitrate plants at Muscle Shoals the Ordnance Department, of course, lias started those plants, built them, and brought them to their present state of develop- ment. The main facts concerning these two plants are briefly about as follows: The first plant to be started down there is the one that we call plant No. 1 located at Sheffield, Ala. The plant was constructed to fix nitrogen from the air in accordance with what is known as the Haber process. It was designed and built by the General Chemical Co., but in a vital part of the plant it failed to operate and never pro- duced any appreciable quantity of product. We think, however, that by certain jnodifications in the part of the process in which the nitrogen gas is welded to the hydrogen gas to form ammonia, the plant could be made to operate successfully. As a matter of fact, the plant at Sheffield was designed by the engineers who have since 67' 68 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 69 designed, along the same lines, a successful plant which has been installed at Syracuse N. Y., by the Solvay Process Co. They of course had considerable experience in the design and attempted operation of the plant at Sheffield. Then the Solvay Co. spent a year and a half or two years in research work concerning this particular phase of this process, and they finally installed the plant at Syracuse, which Maj. Burns and myself visited this past summer and found to be working very successfully. It looks very much as though the plant was a very considerable success; unusually so for a new thing of this kind. The various figures concerning the cost of the installation of No. 1 nitrate plant, etc., are contained in a memorandum that the Ordnance Department submitted to the Secretary of War, and forms an appendix to the letter from the Secretary of War to the Speaker of the House of Representatives, dated February 1, 1922. I do not know whether the committee would care to go into those figures again or not. The Chairman. I do not recall that they were gone into in detail, but they are set out on page 23 of the document. Gen. Williams. Yes, sir; they are set out in detail on page 23. The Chairman. And the whole letter was introduced in the hearing yesterday, so that that is already a part of the record. Gen. Williams. Yes, sir. I can state briefly the figures, if you care to have me do so. The total cost of this plant has been $12,887,941.31. The operation and mainte- nance of this plant to July 1, 1920, has cost $794,359.85, making a grand total of $13,- 682,301.16. This plant is included in the list of properties for which Mr. Ford pro- poses to pay the sum of $5,000,000. The Chairman. WTiat do you mean by operation of the plant at Sheffield. Gen. Williams. I should have said attempted operation. We attempted to run the plant to see if it would produce the material it was designed to produce, and it did not produce it satisfactorily. The Chairman. But that much was expended in vour effort to make the plant work? Gen. Williams. Yes, and in maintenance of the plant since. The other and main plant at Muscle Shoals is what we call the nitrate plant No. 2. This plant was designed to fix nitrogen from the air by the cyanamid process, and the plant has a rated capacity of 110,000 tons of ammonium nitrate per year. The plant was completed sufficiently to start operating just a very short time before the armistice. We continued the operation of the plant for a sufficient length of time and to a sufficient extent to demonstrate that it would produce the ammonium nitrate in the quantities that it was designed to produce. The investment in nitrate plant No. 2 is given on page 23 of the letter of the Secretary of War referred to before, and the total cost is shown to be $67,555,355.09. The operation cost $3,424,496.85, making a total of $70,979,851.94. In addition, there was the cost of maintenance to July 1, 1921, of $201,674.63. At the time it was decided to install this plant there was a very great demand for nitrate of soda and also some question as to the sufficiency of t his supply during the remainder of the war. The object of the Ordnance Department was to install a nitrate plant which it felt absolutely certain, or as certain as one could be, Would operate and protiuce. The cyanamid process was a very well known proce33 and also was ia successful operation in this country. The Chairman. In successful operation in this country? Gen. Williams. Yes, sir; part of the process was operating in this country. The Chairman. WTiere else was it being produced? Gen. Williams. In Canada and in this country together, as well as in several European countries. Thft Chairman! By private concerns? Men. Williams. Bv a private concern in Canada and in this country, not on such a large scale as the No. 2 nitrate plant, but on a sufficient scale to be sure that they would be able to design a plant of this size and successfully operate it. The Chairman. When you say in Canada, do you mean at Niagara Falls? Gen. Williams. Making use of the water there, I think, at Niagara Falls, for the purpse of making the calcium carbide and the cyanamid, and then there was another portion of the plant situated within the United States itself which transformed the cvanamid to other nitrogen products. The No. 2 nitrate plant was designed and built, and, as I said before, had just come into operation and had been nearly finished at the time of the armistice. The Chairman. Is that plant completely finished at the present time? Gen Williams. It is practically ready to operate at the present time. The power plant, the quarry, and the plant itself, in fact the whole thing, forms one unit and is ready to operate. The next one of the properties we have down there included in Mr. Ford's offer is StTu ""-^^^ P^^^^ station and the Warrior-Sheffield transmission line When It was decided to install in the nitrate plant No. 2 the cyanamid process it was known of course, that a very considerable amount of power would be necessary lo have built a power station of the size that was needed would have taken a longer time iu^^^^u^^^^'k*^® ^*J^®^ portions of the process, so that the matter was taken up with the Alabama Power Co. I should say that the whole power situation down there was looked into very carefully and it was found that the quickest results in the wav of obtaimng power could be had by a contract with the Alabama Power Co They had in progress of construction or had just completed at that time, I think, a plant at Gorgas on the Warrior River, some 88 miles from nitrate plant No. 2. The Ordnance Depart- ment made arrangements whereby an extension to their plant should be completed for the account of the Ordnance Department and be the property of the Ordnance Department, subject to certain conditions. A question has arisen concerning an obligation on the part of the United States to sell this plant to the Alabama Power Co. There is no question in my mind but what a moral obligat;ion exists on the part of the Government to deal with the Alabama Power U., as is stated in the contract. The lawyers say that there is not a legal option there. In our opinion there certainly is a moral one The Chairman Could you state to the committee why, in your opinion, there is not a legal obligation, but only a moral obligation? -^ ' -^ ^ Gen. Williams. I am not sufficiently familiar with the law, Mr. Chairman, to enter ^""^^lAi®^^^ discussion of it. The Acting Judge Advocate General is here and he could ^ve you a much better analysis of it than I can. The Chairman. We will ask the Judge Advocate General about that when he makes nis statement. State why, in your opinion^ there is a moral obligation A 1 i?°" "'^^^Ms The Government found itself very greatly in need of power. The Alabama Power Co had already projected this extension, and all their plans had been drawn, and they came to the assistance of the Government at a critical time PHfV^»n^* ^^ disposal their facilities and the plans which they had already made ' ine Chairman. And those facilities and plans were accepted by the Government "i* J^en. Williams. They were accepted by the Government. The Chairman. And have been used ever since by the Government, have they? Gen. Williams. They were used for a while by the Government in the operation of the plant at Muscle Shoals, and they have since been leased to the Alabama Power CO. VVe entered into a very definite agreement with the Alabama Power Co., and so tar as we are concerned, we believe that that agreement should be carried out 1 he Chairman. What was that agreement? Gen. Williams. The agreement is contained in the contract, Mr. Chairman The agreement 18 contained in article 22 of contract T-69, which I can give to the commit- tee and enter on the records if you care to have that done iJn?\.2^r!^^^'t''- ^ ^f^l ^?°fi/ient the committee would like you to put that contract into the official record of the hearings. ^ f p ^IJs^^^"^*'®- I ^i" be glad to do so. [Later put in record by Col. Hull; see M^Jji^e sE*^^ °''^'' properties that the Ordnance Department is interested in at The Chairman. Is that contract with the Alabama Power Co quite lono-*? txen. Williams. Yes, sir; it is a long contract. "'" if Ji^® Chairman. And was signed by the Alabama Power Co., by James Mitchell a^"" WM?""*' ^o^t^^e^Power company, and for the United States of America by Will nam VVilliams, lieutenant colonel. Ordnance Department, United States Army contracting officer, and was witnessed by C. F. BeSunes and Frank D. Mahoney^' Is that all you have to submit, General? ^ Gen. Williams. Yes, sir; that is all I have to say, sir Pnnf V^^i«man. Article 22 of this contract relates to the sale to or purchase bv the contractor; are you familiar with article 22 personally? Furcimse oy me Gen. Williams. Yes, sir; I know the general contents of it. standby thTa'^S^^^^^^^ ^'^'^ ^""^^^ ^^^^^^ '^ '^^ committee what you under- v^hh'\hY'xut''^- ^l^- ^1^^™^^' r^^- ^"™' ^^« ^^^"^ handling this whole question betL^^Lfl c^^n^rfi,^- •' ^""^ ^^ i^"" "^P>^^ '^ '^ ^^' committee ve^' much bfvprv cSL ff ' ^ f^*"^ '^ very much more familiar with the details, and I should The clLiR^^^^^^ , ^i^.^V*'^ explaining rather than have me do it. ine Chairman. We will be very glad to hear from Maj. Burns. 70 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 71 Maj. Burns. Mr. Chairman, that article is quite complicated. It is so compli- cated that most of us have really hesitated to summarize it, and if I could escape a summary of it, I should be very ^lad. However, the ^st of it is that at a certain period after the war is terminated, it is agreed that we will sell to the Alabama Power Co. the properties of all kinds that are included in the contract, at a price to be de- termined by a board of arbitrators, one arbitrator to be selected by the Alabma Power Co., one to be selected by the Government, and the third to be selected by the other two. That is the substance of it. There are many complications as to time and other things that I think would confuse the committee. The Chairman. In what way? Maj. Burns. If I read it, I believe I could bring out the points. The Chairman. I think it is sufficiently important to have it read at this time. Mai. Burns (reading): ^ ''Article XXII. ''Sale to or purchase by contraHor .—{\) At any time subsequent to three years after the termination of the war, the United States shall have the option to sell to the con- tractor and the contractor shall upon written demand of the United States buy all its rights, title, and interest in and to the Warrior extension and Warrior substation with all rigiits appurtenant thereto at the value fixed by arbitration as hereinafter provided. The accumulated fund referred to in Article XIX shall be applied in payment of said value, and anv excess of said fund over said value shall be paid over to the contractor: Provided, That if the actual cost of Warrior extension and Warrior substation to the United States shall exceed said value, then only the excess of said fund over said cost shall be paid over to the contractor. If said value shall exceed said fund, then the contractor shall pay to the United States the excess in the manner hereinafter provided. As soon as the amount of said value shall be paid or secured as in this article pr only an estmiate on your part? Gen. Williams. It is only an estimate, that is very- true; but it is based, however h^.t ^''/''P^T''^! ""^^ ^*^®'* ^^'S® properties that we have salvaged, and it is our be^t judgment as to what may be obtained. Now, it may or may not be realized. Gen. W^lTiams' ThaUs'^all ^^"^ estimate is only a matter of your judgment. The Chairman. You might not receive even $5,000,000. ben. \ViLLiAMs. That is entirely possible. rz MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 73 The Chairman, The committee will probably want to ask you some questions now. Gen. Williams. Did you ask me if we think we may not receive $5,000,000? The Chairman. Yes. /v«/. a Gen. Williams. I should say almost positively we will receive more than $5,000,000. We may not realize the $8,000,000 or almost $9,000,000 that we have estimated, but we believe without any question we would realize more than $5,000,000. The Chairman. I also asked whether you knew you would receive the $8,000,000. Gen. Williams. That we do not know. • Mr. McKenzie. General, the estimate made by the Ordnance Department of the salvage value of these plants, of course, brings in speculative or problematical ques- tions, does it not? Gen. Williams. Yes. Mr. McKenzie. In other words, you are not sure whether you can get $8,000,000 or $4,000,000 if these plants are sold for scrap? Gen. Williams. We are not sure we could get $8,000,000, of course, and that is based upon our judgment as to the present market we would have to sell it in. Mr. McKenzie. It is a problematical proposition? Gen. Williams. It is. «. • . t c x Mr. McKenzie. And this much can be said of Mr. Ford's offer, it is a dehnite, fixed offer of $5,000,000. Gen. Williams. Yes. Mr. McKenzie. So we know what he is willing to pay for these various plants. Gen. Williams. Yes. Mr. McKenzie. Now, General, I want to ask you just one or two questions in con- nection with the purpose of this whole proposal. When the law was enacted in 1916 there were several things taken into consideration in writing the legislation, but as I remember— and I was a member of the committee at that time, and helped to write the legislation— the main contention at that time was to enact legislation that would enable the Government to establish, not at Muscle Shoals particularly, but at some point or points within the United States, certain plants for the manufacture of nitrate to be used in preparation for war in the manufacture of munitions and, as I understood it. that was the primary purpose of the legislation; am I right about that? Gen. Williams. That is the way I understand it, sir. ■ . v u Mr. McKenzie. It was also understood in connection with that proposition that the War Department would have unquestioned jurisdiction? Gen. Williams. Yes. sir. . - , ^ , Mr. McKenzie. And you have handled it as the representative of the Ordnance Department? Gen. Williams. Yes, sir. r . • Mr. McKenzie. Another proposition involved was the development of the river for navigation purposes: that is, in developing the water power which could be utilized in the manufacture of nitrate navigation was taken into consideration as a secondary proposition, over which the War Department also has jurisdiction. Gen. Williams. Yes. . Mr. McKenzie. And the third proposition involved, which at that time was under- stood to be incidental, was that these plants when established and not ))eing used for the manufacture of nitrates to be used in the munitions of war the Government could utilize the plant in the production of nitrates to be used as one of the elements m the production of fertilizer to be used on the farm; am I right about that? Gen. Williams. I understand so, sir. Mr. McKenzie. Of course, at that time, the manufacture of nitrates to be used for munitions was the primary and basic proposition. Gen. Williams. Yes. , . , , ♦ Mr. McKenzie. Of course, the Great War ha\'ing been fought and with the prospect of a number of years of peace ahead of us— we all hope so at least— and with no real necessity for the operation of these plants for the production of nitrates for munitions, they could be advantageously used for the manufacture of this element of fertilizer which could be sold to the farmers of the country, and while, as a matter of fact, in the inception of this proposition the manufacture of fertilizer was incidental, yet at the present time when we are at peace, the manufacture of fertilizer becomes, perhaps, the most important proposition, and to that is attached the condition, even under Mr. Ford's proposition, that the plant shall be maintained continuously in such a condition so that in case of war or in case the Government needs it in any way for the manufacture of munitions it can be immediately turned over to the Government as u matter of national defense and preparedness. Gen. Williams. Yes. . . , . • t-« Mr. McKenzie. And to that extent it would be under the super\ision and jurisdic- tion of the War Department; am I right about that? Gen. Williams. Yes, sir. Mr. McKenzie. Now, I just want to ask one or two questions about this contract. The contract with the Alabama Power Co., as I understand it. was entered into between that company and representatives of the Ordnance Department? Gen. Williams. Yes, sir. Mr. McKenzie. And as I understand it, the Alabama Power Co. owns all of the land over which this transmission line extends, owns the land where the plant is con- structed, and is referred to in the contract as the contractor. Am I right about that? Gen. Williams. Yes, sir. Mr. McKenzie. The Government put up that money to build that plant and to build the transmission line, as I understand it? Gen. Williams. Yes, sir. Mr. McKenzie. Was that plant built on what is now, perhaps, not the famous but the infamous cost-plus contract system? Gen. Williams. I think it was, Mr. McKenzie; with a limit as to total fee to be paid to the contractor. Mr. McKenzie. At any rate, the Alabama Power Co. simply got the money from the Government, constructed the plant, built the transmission line, entered "into a contract to sell back to the Government electric current for its use at this plant for the manufacture of nitrates. Gen. Williams. Yes. Mr. McKenzie. As I understand it, notwithstanding the law of 1892, the Ordnance Department entered into a contract giving these people an option to purchase this property that the Government has built at its own expense Am I right about that? Gen. Williams. Yes, sir; I think so. Mr. McKenzie. It was built at the exclusive expense of the Government, and that ^ one of the propositions with which we are confronted at this time, the Alabama Power Co. claiming to have certain equities and that we can not enter into a legal contract with Mr. Ford or anyone else until we first settle with them when, if the statute of 1892 is still in force, they have not any standing in court, and it is so stated by the department of the Judge Advocate General: but as I understand you knowing you to be always fair and charitable to all mankind, notwithstanding you are an officer of the Army and supposed to be somewhat Prussianized, you fee'l we ought to take the claim of the Alabama Power Co. into consideration and at least treat them equitably and justly in case we go on with this proposition. Gen. Williams. I think so. Mr. McKenlie. That is all I want to ask you. General, at this time. Mr. Hull. In speaking of scrapping or salvaging these plants, I presume that means the Government would lose its capacity to produce nitrates for war purposes if they did that, would it not? ' Gen. Williams. The $8,812,000 includes the scrapping and consequent destruction of the mtrate plant No. 2 which wipes out the capacity to produce. Mr. Hull. As a matter of fact, is not that a perfectly unthinkable proposition from the national preparedness standpoint. Gen. Williams. Mr. Hull, I do not put that forward as a recommendation. I put that forward simply as a statement of the money that could be obtained from these plants under certain conditions. In so far as the Ordnance Department is concerned it feels it is vitally interested in the question of the fixation of nitrogen; that it is a measure of preparedness that it must use every endeavor to see brought about and m so far as we are concerned, the guaranty of Mr. Ford to keep that plant in operation during the term of his lease is a matter of vital importance to us. Mr. Hull. And instead of recommending that we scrap them you would positively be opposed to that proposition? ^ j t^ j Gen. Williams. I should be opposed to that proposition, and I have not made any recommendation that they be scrapped. I am simply stating what would happen if they were scrapped. Mr. Hull. And your opinion of this is all from the national defense standpoint? Gen. Williams. Exactly so; and whether or not Mr. Ford's offer is accepted the Urdnance Department should most earnestly recommend that nitrate plant No 2 be maintained m a stand-by condition whether operated or not. CO d^-f^^^'?* ^^' ^^^^'^ proposition positively agrees to keep these plants in working Gen. Williams Very true, and from that point of view it is a very great advantage to the Ordnance Department. ^ Mr. Hull And about $11,000,000, you estimate, is what the Government would be paying for that measure of preparedness? Gen. Williams. That is the statement we make at the end of our report. 74 MUSCLE SHOALS PROPOSITIONS. Mr. Hull. In your opinion is that too much or too little to pay to be prepared with nitrates? Gen. Williams. I think that is a very moderate sum. Mr. Hull. You are selling some water power at the present time from Dam JNo. ^, *'Gen!* WILLIAMS. No, sir; Dam No. 2 is not completed. There is no water power at Muscle Shoals at the present time. , . , . v • „ ^i^ Mr Hull. I thought something was said yesterday about some power being sold. Gen. Williams. That was steam power. We have leased the steam power plant at the nitrate plant No. 2. Mr. Hull. That is steam power? Gen. Williams. Yes, sir. Mr. Hull. What are you getting for that? , x, .. • . • Gen. Williams. $120,000 a year, I think, is guaranteed, and then there is a certain other return dependent upon the amount of power that is supphed. , . v. .u Mr. Hull. You spoke of the cost of the changes in plant No. 1 what would be the estimated cost, approximately, of the changes necessary to make that a working plant ' Gen. Williams. We estimate that to change this plant oyer so as to retainits present capacity of 22,000 tons of ammonium nitrate a year would cost about |4,000,uuu. Mr Hull. And there would not be much doubt, if we did that, but what it would be a successful plant, inasmuch as you have seen a plant m this country working that is made on the plan that you would adopt for plant No. 1. Gen. Williams. We believe it could be done successfully. , t • i, Mr Hull. WTiere do we get nitrates at the present time, and as y9U go along, 1 wish you would state how much, for instance, we get from Chile, or what is the approxunate amount that is imported at the present time. , j- j *u u«o+ c+o+^afi^a Gen Williams. We have prepared a chart in which is embodied the best statistics we could find concerning the consumption of inorganic nitrogen and the various sources of supply. I ean put that chart into the record. Mr. Hull. That would show, would it not, all the sources for nitrat^ at the present time with the approximate amount we are getting from those sources? Gen. Williams. Yes, sir. ■, n xv xv o Mr. Hull. That would include the coal-tar process and all the others.^ Gen. Williams. Yes, sir. . Mr. Hull. I wish you would put that chart into the record. Gen. Williams. Yes, sir. (See p. 75.) , », , t. r^ le ^r^ Mr Hull. You spoke of a moral obligation to the Alabama Power Co If we made a contract with the Alabama Power Co. and we asked them to carry out certain provisions of it and they did not carry them out, would there be any moral obhgation on our part to carry out the written contract? ^ , ^ i • *v i „i «^r« Gen. Williams. I do not think I am entirely competent to explain the legal com- plications involved in these contractual relations. ^ * i +v,^ Mr Hull That is not a legal question; that is a moral question. You took up the question of the moral obligation, and I would like to have your opimon of that as a moral obligation only. ,. . .. , ... Gen. Williams. So far as I know, the condition you specify does not exist. Mr. Hull. If it did exist? ^, x • i „ ^ ;r««Nr Gen. Williams. I would rather not answer a question that is purely and 8impl> supposititious. , ^ , ^, ^ * ^o Mr James. General, what was the exact date of that contract? Gen. Williams. With the Alabama Power Co.? Gen. Wi^uAMS^The contract was signed in November, 1918, but it was negotiated "^Mr. James. Was that contract ever submitted to the Judge Advocate General's office for approval? , , -. j. Gen. Williams. I do not know, sir, whether it was or not. p__„^,„t i. Mr James. Do you not think that all important matters when the Government is practically gi vine' away money should be first submitted to the Judge Advocate General's office before we get into trouble and not afterwards? Gen. Williams. No, sir; I do not, because we had during the whole time {his con- tract was negotiated some of the best lawyers in the country who were employed on this kind of work, and I should very much object, m so far as the operations of the Ordnance Department are concerned, to first call upon the Judge Advocate General for approval before we could make a contract. Nothing would slow up business more . Mr James. Did some of those lawyers approve of this contract? Gen. Williams. They did, and it was negotiated by lawyers. MUSCLE SHOALS PROPOSITIONS. 76 Con3UMPvgi amd sSupply IM UNfTCD STATED 1900-1920 CONsunprioh in tACH ypa/^ TAKen eqpal to /^et ^^pply roK, that TEA^ A3 OATA LACKi/iG rOf^. STOCKS C^ HAfiD AT EfiD OF rmAfZ, 6oo>ax> \ AOO.COO yiOfXXi ^OOJXO - 100,000 i 100.000 200,000 300000 400,000 £00,000 1920 CYAhlMtO IS* 20 76 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 77 Mr. James. When these negotiations were entered into, the war was on? Gen. Williams. The war was on; yes, sir; in 1917. . , , . Mr. James. Under the war powers, did we not have the right to take any property or anything else that the Alabama Power Co. had that we wanted? Gen. WiLLLiMS. I think we did have the legal right to do that, but it was a right that was very, very seldom exercised; only in the most exceptional cases. Mr. James. If we had carried out that legal right which we had at that time we would not be in this controversy with the Alabama Power Co. Gen. WiLLLAMS. But the properly constituted agents of the Government did make this contract with the Alabama Power Co., and that is the fact we are confronted with. Mr. Kearns. General, the Air Nitrates Corporation has something to do with Muscle Shoals, has it not? , . , , j Gen. Williams. The Air Nitrates Corporation, I think, was the company we made the contract with to build nitrate plant No. 2. Mr. Kearns. How many men compose that corporation? Gen. Williams. I do not know, sir. Mr. Kearns. Is it not a fact that there are only 10 of them? Gen. WiLLLA-MS. I have no idear whatever. Mr. Kearns. And they only put in a capital of $100 apiece? Gen. Williams. I do not know. Mr. Kearns. And that they are capitalized for $1,000? Gen. Williams. I do not know. Mr. Kearns. And they have already made $2,000,000 out of this proposition, and they still have other claims pending against the Government, have they not? Gen. Williams. I know nothing about their profits. ^^ , , , , „ Mr. Kearns. Thev still claim some interest in Muscle Shoals, do they T^otf Gen. Williams. They, or rather their parent company, the American Cyanamid Co., have certain royalty rights. • i • x * * Mr. Kearns. And it is a corporation composed of 10 men with an investment ot $100 each, and they have already made at least $2,000,000 out of it. Gen. Williams. I do not know about that. , ,r , oi_ i Mr. Kearns. Your department has had control of the Muscle Shoals operations, has it not? Gen. Williams. I know nothing about their profits. r ^.i, Mr. Kearns. Whatever profits they have made have been paid to them by the United States Government? , , ^t • ■. o. . ^ +«> Gen, Williams. They have been paid to them by the Umted States Government.^ Mr. Kearns. Yes. , ^ , , x * xu Gen. Williams. We had a contract with them; what profit they made out ot the contract I do not know, just as I do not know the profits that other people make out of Mr. Kearns. I believe it is a fact that the Alabama Power Co. was in charge of Mus- cle Shoals at the time the Government took over the project? ,*•*!, Gen. Williams. I think they did have some land holdings there at the time the Government became interested in that plant. x- xi. x xv Mr. Kearns. Did they have any acti\ities that they were operating there at the time? Gen. Williams. Not so far as I know. x x i •* «> Mr Ke \Rxs. What was there at Muscle Shoals before the Government took it over.^ Gen. Williams. In so far as the actual use of the waterpower was concerned, noth- ino- was being done as far as I know; there was no activity that corresponded to the United States nitrate plant No. 1 or the United States nitrate plant No. 2. Mr. Kearns. Was the Alabama Power Co. carrying on any activity of any kind at Muscle Shoals when the Government took it over? Gen. Williams. Not so far as I know. „ x xi. />. * Mr. Kearns. WTiat did the Alabama Power Co. have to sell to the Government— just the land? , , , , x xv i -ui *v,^,r Gen. Williams. We may have bought some land from them; I think possibly they did have some holdings there. x x -xi, +1,^ Mr. Kearns. How did the Alabama Power Co. come to have this contract with the ^In. Williams. Because they were so situated that they could build a sufficient power plant and deliver power to the Government quicker than anybody else couia do it, in so far as we knew. Mr. Kearns. Thev had no activity there of any kind? , x xt o a .r^ Gen. Williams. No; but the plant they built is 88 miles from plant No. 2, and we had a transmission line to bring the power to nitrate plart No. 2. 1.0^ fW of fi; \^^ ^T"^*^ ^""^ ''''^ J"«* ^^* ^ater rights the Alabama Power Co had there at the time the Government took it over. What was the Alabama Powpr Co doing, and what did the Government buy from it? Alabama Power T ^^^ Williams. I do not know what they were doing at Muscle ShoaJs So far as I know, they were not doing anything. ' ouoajg. 00 lar as Mr. Miller. General, I want to ask you a few questions in regard to this contract This contract relating to the erection of the station at the Warriof ste^Xnt Xch n f^.h^"'°' '^^^' "^^^ ^^^ "Hy^l^ ^^ '^ ^^^g the Alabama Power cH ^AoTr^hlZ purchase,^ was drawn under the law of June 3, 1916, was it not? ^ Gen. Williams Is that the reorganization act of June 3. 1916? Not so far as T know; I should think it had nothing to do with it. so lar aa 1 Mr. ^^ler. Under what law was the contract drawn? Gen. Williams. I do not know under what law it was drawn Mr^ Miller. I will read that portion of the act of June 3, 1916, which authorizes ^^'f Jr^i^"^^^ l^^, Y"'i?^. ^*^*^« ^ «^^^t nitrate plants. It says: ^^^^^"^^s The President of the United States is hereby authorized and empowered to make or cause to be made, such investigation as in his judgment is neceskry to dete^ne the best, cheapest, and most available means for the Wduction ofStes and Xr products for munitions of war and useful in the manufacture of f eSere and oSeJ useful products by water power or any other power as in his judgS is the btt and cheapest to use; and is also hereby authorized and empowered to S-nate^r X exclusive use of the United States., if in his judgment sucS means is btt and chSp^t such site or sites, upon any navigable or nonnavigable river or riv?i; or up^^^he pubhc lands as in his opinion will be necessary for carrying out Sie pur^se? of tWs act; and is further authorized to construct, maintain, and operat^at 3n any sul or sites so designated, dams, locks, improvements to navigation, power houLs and other plants and equipment or other means than water power as fn hL jud^nt^^ the best and cheap^t, necess:^ry or convenient for the generation of elecS 0I her power and for the production of nitrates or otlier products needed for mmdtioM of war and useful in the manufacture of fertilizers and other useful prnducts" Then further along m the same section it is provided • prouucis. Ji IJlf '""^ ""^ ?20,000,()00 is hereby appropriated, out of any moneys in the Treasury not otherwise appropriated, available until expended, to enable the President^^he Lnited States to carry out the purposes herein provided for ^resmeni 01 the The plant or plants provided for under this act shall be constructed and onerated VrS<^r^X^Z'^^Xi^^'^ ""^"°^"°" ^*' '"'' "*"*' '"^"^'^ - -^ Mr. Miller. Then it was not provided for under this acf den. Williams. No. Mr. Miller. United States plants No. ] and No. 2 were installinl bv tha ii«o nf fV,^ money provided for in this fuid, were they not? ^^^talled by the use of the Gen. Williams. No, sir, they were not. Mr. Miller. Out of the fund appropriated for fortifications? Gen. Williams. Yes. ^^ Mr. Miller. Plant No. 2 was completed and ready for operation at the close of the Gen W^iLLiAMs. Yes, not long after the close of the war. Air. Miller. When was this rock quarry at Waco purchased? M^r ^^^^^^^^- It was purchased after the war. Mr. Miller. How long after the war closed? Gen. Williams. T should sav about a year. Mr. Miller. Out of what fund was that purchased? ytT\f '^^^r^i ^* "^^ ^^'^ ^^'^ ^"^ ^^ *^*^ fortifications appropriation. with ; ^1'^'^^''/ ^^^ '^^'* "7^ ''^^''' ?"* «^i^l ^^ acquired a rock quarry in connection with a plant for the manufacture of war munitions or nitrates conneciion uTun'^^l!'''^\A acquired facilities that were necessary to complete the plant. ferHli,^ 1 ; 2'^ y^"^ understand you were authorized to go ahead and install a (^^Bh W^^L?AMs ' T^^^^ funds provided for the fortification! of the vSted^uL? Mr Mr^T J^l Ti; ^1 ^^ "^""^ ^''''^ '^ connection with that fertilizer plant. Ge'n'wirLrAM^s^^^^^^^^ ""'' ^^^^^^^^ ''' '"^^ P"^--? Mr. A^ller (interposing). What was it purchased for? Mr'^M^ t';''^'''^^^^. ^? .^o^nection with the ammonium nitrate plant, ^vir. Miller. WTiat is used in that production? 78 MUSCLE SHOALS PROPOSITIONS. Gen. Williams. The limestone is first converted into lime, and that is one of the raw materials for making the cyanamid. ^:„*wSam^°1 Sku"^uU 2,000 tons a day for the full operation of the T)lant * Mr Miller. Two thousand tons of the stone? Gen Williams. Two thousand tons of the limestone. Mr Miller. To make how many tons of the ammonmm mtrates. Gen. Williams. That is to make 110,000 tons a year. Mr. Miller. It requires 2,000 tons a day? Gen. Williams. That is my recollection of the figures. «nnnrtP Mr Miller. This rock crushing plant at the quarry was used as a part of the appurte- "^Gen l\\'ilK was one of the faciUties necessary to supply needed raw material %\^. MTL^^Nott^ process at plant No. 1, which you speak of, is a different process from that at plant No. 2? Gen. Williams. Yes. , ^ „ Mr. Miller. That is the Haber process-the German process? process? Gen. Williams. Completely. G«fe%Tu.M? utfaTalh^^e^tt s, that part of it which is known a. the Haber p^cess; where the nit^gen w?^ wkded to the h5;drogen ; the other parts were entirely fliir*o^ssilll ^ Mr Miller. But so far as the output is concerned-— Gen Williams. So far as the output is concerned, it is a failure. Mr Miller. Did it follow the correct Haber formula? Gen Williams. It was a modification of the Haber process. ^e'n^^T.f.MrThra^nl'lll OhISTo. designed it. They».ad made certain experiments which had convinced them that they could modify it, as they thought. *°rtTL:rwI?KtC given to them to modify this process, with the under- "■SetC^i^Ml 'iT^o^^no'w^Xrr ^^^^^^^^ we^de a coSracrwFth them in the light of the best information we had. Mr MiiiER. And authorized them to put in the process Gen. WiLUAMS (interposing). That proved a failure. ^L''^^.^'Q2^lo''^MZt^e!r^ ge'^S'^ordrGermanv, but there wiS no i^o'mXn h",l! ^^far as I know, in regard to it on which we could go ahead *"Mr*! iM^'who was the authority that designated that this Haber process should ''*rr^'^W,?«lMs'"i*t^was^done by the Chief of Ordnance, acting, however, under 12. Vn, ^.tp^ions frim the Secretary of War and the President, who acted on the T" .r^hp ni .Z. XDlfcomiSttee, a committee composed of leadi.^ engineers andTci^nttramo^Te,^ 'S"?harles L, Parsons, an enthusiastic advocate of the Haber proSand at'that time chief chemist of the Bureau of Mines. wS a pioneer^ procest and it would have been rather extmordinary if it had come *'Mr"'L:i*^Knt'Sir»t'Te*Goverument went into a 112,000,000 venture which P'fVn'' wtu^s Yes- but they were entirely justified in doing so, in my opinion. M^M^LERThalis a question, as to whether the Government wants to go into it. r M^^.r(?an?hlV='S ^owTXSd at a reasonable expensed ?,rMYil"""caJifnorb" turned ii,to the cyanamid proce.? Gen. Williams. Oh, no; it is entirely different. MUSCLE SHOALS PBOPOSITIONS. 79 Mr. Miller. But it can be turned into a productive concern, in your judornent? Gen. Williams. Yes; it could be. j o • Mr. Miller. Out of what fund was the $16,000,000 which wa^ put into Dam No 2 taken? Gen. Williams. That was entirely out of the $20,000,000 appropriated in the act you have just referred to. "^ Mr. Miller. That came out of this $20,000,000? Gen. Williams. Yes, sir. Mr. Miller. That is the dam proposition? Gen. Wilxiams. Yes. Mr. Miller. General, you are acquainted somewhat with the manufacture of fer- tilizer? Gen. Williams. I know nothing about the manufacture of fertilizers The only thing we have gone into has been the production at Muscle Shoals in nitrate plant No 2 of one of the essential components of fertilizers. Mr. Miller. Was the construction of Dam No. 3 at Muscle Shoals, or the proposed construction of it, for the purpose of furnishing power for either of these nitrate Dlants plant No. 1 or plant No. 2? ^ * Gen. Williams. No, sir; it was not necessary for that purpose. Mr. Miller. Any power produced at that time would have been merely for com- mercial purposes; that is, around the two nitrate plants, to sell or do whatever they wanted to do with it. Gen. Williams. The continuous operation of nitrate plant No, 2 would require about 90,000 horsepower, and that would take up nearly all the primary power that would come from Dam No. 2. Mr. Miller. Then, so far as the continuation of nitrate plant No. 2 is concerned, that is, it being held in reserve and in readiness as a war preparedness measure Dam No. 3 has no connection? * Gen. Williams. No, sir. Mr. Miller. The Warrior steam plant is 88 miles distant? Gen. Williams. Yes, sir. Mr. Miller. And that furnishes the power to each of these nitrate plants, plant No. 1 and plant No. 2? r . t- Gen. Williams. Yes, sir; but nitrate plant No. 1 has its own power plant; very little power is required in the Haber process, and that is one of its great advantages. Mr. Miller. Then, the power from the Warrior steam plant ° Gen. Williams (interposing). Will be needed principally at plant No. 2. Mr. Miller. Has plant No. 2 any local power plant? Gen. Williams. It has a power plant which is almost of sufficient capacity to run it by itself. That power plant, however, was not expected to be entirelv completed by the time its power would be needed by the remainder of the plant. * Mr. Miller. That plant is still in existence? Gen. Williams. It is there, and is now leased. Mr. Miller. And it is sufficient to operate plant No. 2? Gen. Williams. Yes; practically so. Mr. Miller. Then the presence* of the Warrior steam plant would be simply as a reserve power, and is of no practical use in operating plant No. 2? Gen. Williams. It is not essential to plant No. 2, assuming that in case of emergency some 20,000 horsepower can be obtained over the transmission line from the Alabama Power Co.'s system. Mr. Miller. Then that can be disposed of without in anywise interfering with the output of plant No. 2, so far as fertilizer production is concerned? Gen. Williams. Yes; because water power rather than steam power would be necessary to manufacture fertilizer commercially. Mr. Miller. That could probably be disposed of to the best advantage of any of these units around Muscle Shoals, could it not? Gen. Williams. I should think probablv so. Mr. Miller. Wh&t would be the difficulty, so far as preserving plant No. 2 as an eiemejit of national preparedness is concerned, in disposing of the Warrior steam Gen. Willla-ms. There would be no difficulty. Mr. Miller. You have placed a pretty high value on the salvage of the plant, have you not? Gen. Williams. Our figures there are based on information we s'ot from the Federal rower Commission, m which they estimated that a plant of that kind was worth about *iuu per kilowatt. Mr. Miller. That would make the value how much? 92900—22 6 80 MUSCLE SHOALS PBOPOSITIONS. Gen. Williams. About $3,000,000. Mr. Miller. If we should dispose of the Warrior steam plant we would receive salvage to the amount of three-fifths of what Mr. Ford intends to give for the entire property, including the W^arrior plant? Gen. Williams. Yes, sir. Mr. Miller. If that can be done, it seems to me it would be rather imprudent to sell the whole thing for $5,000,000, when you could sell a little angle of it for $3,000,000. Gen. Williams. According to our estimates, Mr. Ford could salvage everything except the nitrate plant No. 2, and get a sufficient return to make nitrate plant No. 2 stand him a cost of about $400,000; in other words, almost give it to him. Mr. Miller. Do we own all of the right of way on the transmission lines from the Warrior plant to plant No. 2? Gen. Williams. We do not own any of it. Mr. Miller. What would it probably cost? Gen. Williams. We do not know. Mr. Miller. Have you estimated the probable cost? Gen. Williams. No, sir; we have not. Mr. Miller. Who has estimated what that would be? Gen. Williams. So far as I know, there has been no estimate made on that. Mr. Miller. Mr. Ford's contract presupposes that that would not only be acquired but paid for by the United States? Gen. Williams. As I understand it, the United States must give him a clear title to all those properties. Mr. Miller. Tlie cost of that would probably be a very substantial sum, would it not? Gen. Williams. I should think so. Mr. Miller. According to Mr. Ford's contract the United States is also to pay any overflow damages at Dam No. 3, which your department estimated to be $2,000,000, as I understand it? Gen. Williams. That is the ^timate of the Engineers. Mr. Miller. Wh&t I was getting at is this: The purchase of the transmission line from the Warrior steam plant to plant No. 2, a distance of 88 miles, adding also to that the expense to which the United States Government would be put for damages for the overflowing at Dam No. 3. would probably absorb the greater portion, if not all, of thi£ $5,000,000 that Mr. Ford is going to pay? Gen. Williams. I should think it might. Mr. Miller. Then the United States Government would get nothing whatever in the shape of payment? Gen. Williams. Practically nothing. Mr. Miller. But we can salvage the little unit down there at the Warrior plant for $3,000,000 and get something out of it? Gen. WujJAMs. Yes, sir. Mr. Miller. And by eliminating Dam No. 3, that would eliminate the .•!;2,000,000 of consequential damages that would arise in the event of damage to that property? Gen. Williams. Yes, sir. Mr. Miller. It would also eliminate about $20,000,000 for the construction of that dam? Gen. Wili iams. Yes, sir. Mr. Miller. And if that amount were put into the construction of the Wilson Dam vou would have a completed dam that would generate how many horsepower? Gen. Williams. It would generate about 100,000 primary horsepower. Mr. Miller. Wliat do you mean by primary horsepower? Gen. Williams. That means power available every day for 365 days in the year, 24 hours a day. Mr. Miller. At some periods of the year there would be in excess of that? Gen. Williams. Yes, sir. The Engineer Department have ligures in reference to the probable horsepower that could be developed. Mr. Miller. Then by eliminating Dam No. 3, selUng this Warrior steam-power plant, and completing the construction of Dam No. 2, the Government would be way ahead in the deal, would it not? Gen. Williams. It seems so to me. Mr. Parker. Gen Williams, how much property does that option of the Alabama Power Co. cover? Gen. WiLi.iAM^s. I think there are about 15 acres at the Gorgas plant. You mean the value? Mr. Parker. No: I mean what property does it cover. Of course, it covers the Warrior steam plant and the transmission line. MUSCLE SHOALS PROPOSITIONS. 81 Gen. Williams. It covers a total of .$4,979 382 33 rl'r. w ^^"^^ ^^^\* other property would be included in the nurchase? station and what was called the DrXn railro^ ^""^ *^^ ^^^^ '"^- Mr. Parker. It does not coA^er plant No 2^ Mr°■p!^';;t'^''?; -^ ^f °.2*>^^ ^ ^« ^ith plant No. 2 at all. Mr. Parker. It is only this extra power? Gen. Williams. Yes, sir. *- • ^ undir theroonti'c*'^ "" "' ^'^ ^^"""^ ^^'^'^ t" P^^ *e cost of construction, cos't of^com'uot'i^n*'" *''■ """"' '^^' '' ^* * P"'^ '^'^■"« extent upon the Gen. Williams. No, sir: not at all nitmer-rnUnto\Krtiri.lror dXf ;^^^^^ ^y}"^ I unde..taud you to say that monia before the^ go intftheTertmzer*^ '" *" ^ "^^"^'^ ""^ «"'P''«'« "^ ^- Oen. Williams. Theammoniummtrate which we make at tl,or>io„«i.„o» t _.i- • ^rJ^ " ™^ ^-^ """• ""* '^ P'^>--' <=ha-te?i:rcsirsu«ari?4'3?&t Mr. Parker. It is dangerous to carry; it might explode? Gen^WiAMs' Thf "^ r/ef'^iJper, or is the sulphate used? ferdlizfr^""^"- '^'''" '' ^ ''''^"""* """«• ^he ammonium nitrate is not used in Mr"p^'!:"'"'!i *^"'5' '° ^ 'ery limited extent, if at all, cL iVl "v* «"? a°V facilities for making ammonium sulohate' anSnium sulpSate"' '"' ^'''""■"" '"''"'''-- --'<» "ave to bettkl to produce y.^r? ^•""'^''- ^"'^ ■"""'• '"°"«y ^°"W that '^<^< for a capacity of 110,000 tons a -<^on^""^LiItl^!:XliyJ)L^^^^^ ■^^"-«' to produce «.000,000, capacity ol the plant, 215,000 tons a year, would be about |n3^;;^Ls^T=^;^^^ -ery well-known article of commerce? Gen Wn?T'!;,«^^Tf -^^^^ '^ ^f}^ ^'^" ^t '^^^^ Pr^s^nt time? Mr PARKKrTi/*. •' ^r 'fV"^ ^'^' ^^ ^ ton. n \^J^*^ER. That IS the sulpliate? ^^fr°" "^^^^ ammonium nitrate? -^iy. j^arker. 1 es. • 82 MUSCLE SHOALS PRaPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 83 profit, taxes, insurance, depreciation, or re- Gen Williams. We estimate that by using steam power it will ^ost us $96.92 ip)er ton to make nitrate of ammonia; using the cheap waterpower we estimate it will 'tr.'^PAlKd' Cs'that include any overhead charges, or only the actual cost of Te'll'x^^LLLMS. It does not include 'any .allowance for interest on the capital cost for depreciation, obsolescence, taxes, or insurance. Mr. Parker. Or profit of any kind? Gen. Williams. No profit, no. Mr. Parker. Nothing for interest, repairs? . , , • Gen. Williams. It includes repairs. Mr Parker. But not depreciation? I^ARK^rComme^cially then, you can not make it tor much less than flOO a ^^\r^ WT.TTAMq T should think that would be about right. Mr P^RKBrThit "e nTtrate. How much ^o"" ^e added to that c<^t in convert hi" U^nto sulphate for getting sulphuric acid and *i"S= °' *»* ^jf ' tu. ?„t \v,,>i.M« \Vp would not convert nitrate into sulphate of ammonia, the coSS;>oX "aphate pric^ would be, using the steam power, $58.70 per ton; and using water power. $48.07 per ton. Mi- Parker. For the sulphate? Gen Williams. For the sulphate; yes, sir. •♦ ,+^0 Mr Parker. So that that can be made cheaper than the mtrate? Apn WiiiiAMS Cheaper than the ammonium mtrate; yes, sir. Mr Parker Of cours'^ something ought to be added for deprecia urn ran \V^. I lAMs That price was figured on the same basis as the other. . Mr Parker Commercially , you would add at least 25 per cent tor that? pnii Wttttams I should sav that was not unreasonable. , , ^ Mr Parker So tCwouli make it $75 a ton. approximately if made by stoam power, and approximately $62.50 per ton if made by water power? Gen. Williams. Yes. . Mr Parker. It is now selhng in the market for $dO a ton? Gen. Williams. Yes; but that is a very low price for it Mr Parker. It is low compared to what it was during the war. Gen. Williams. And right after the war. Mr. Parker. What was the price before the wai-; n^r^ tVttttamq It averao^ed about $60 a ton. I tnink. MrPA^Er Wur figuref h^ both instances are rather higher than the figures show- in^ file average price paid for it before the war. fvn WrfLllMs Yes- if you add 25 per cent to your cost to manufacture. Mr P.rker I'added 25 per cent^for contingencies. Any manufacturer would have tracwLmething for thai and Mr. Ford proposes to add 8 per cent, by way of his profits? MrPrRKER.'^HowTs this ammonium sulphate usually made-by this process or in "^Ten'\fiZ7u.. I think the largest sources of supply are the by-product coke ovens and the eas works Those two constitute the principal sources of supply. Mr p!rkIr Thevare by-products in the coke ovens and gas factories, so that any 'hing tbey get o^t of it Is^o their advantage, and they can lower their prices if they have to, in order to meet the market. MrP^^'KE^UndeX^e circumstances it does not seem to me that a very strong ca^e is made outTo tL eYect that fertilizer can be made much cheaper here than ^^Gen^WiLLi\MS We have never been able to make out such a case. Mr p\rker You can not make out a case if fertilizer can not be made cheaper, or its Ingre^ntrcan Lt be made cheaper at Muscle Shoals than at the coke ovens and ^^ofn Wn LI .MS Our estimates on the cost of ammonium sulphate produced at these pla^i'sdoesnolSdu^^^ Mr. Parker. As I understand it. fertilizer contains only about 3 per cent of tuis material. Gen. Williams. I do not know much about fertilizer, but I understand that tl^re are three essential elements in it — phosphorous, potassium, and nitrogen. Now, the formula specifies a certain percentage of each of these elements contained in the fertilizer. Mr. Parker. What did fertilizer sell for before the war? Gen. Williams. I suppose that would be a question of the formula on which it was made. Mr. Parker. I am getting at the practical end of it. You do not think the opera- tion of this plant would materailly reduce the cost of fertilizer, under these circum- stances? Gen. Williams. This plant would produce only one of the components of fertilizer. Mr. Parker. And not at a cheaper price than it can be produced elsewhere? Gen. Williams. I do not think that we would find the cost of that component would be materially reduced. Mr. Hill. General, Mr. Ford's offer includes nitrate plant No. 1, nitrate plant No. 2, the Waco quarry, and the Gorgas-Warrior steam plant? Gen. Williams. Yes. Mr. Hill. As I understand it, the question as to the possible rights of the Alabama. Power Co. only apply to the Gorgas-Warrior steam plant? Gen. Williams. And the transmission line. Mr. Hill. The transmission line is included in the properties which Mr Ford wishes to buy, and that would come under the head of the Gorgas-Warrior steam plant? Gen. Williams. Yes. Mr. Hill. Nitrate plant No. 1 is not in operation? Gen. Williams. Neither one is in operation. Mr. Hill. Asa matter of national defease, nitrate plant No. I ie not essential Gen. Williams. Nitrate plant No. 1 to-day, as a producing plant, has no value. Mr. Hill. Mr. Ford does not propose to keep that up? Gen. Williams. No; he does not. Mr. Hill. Nitrate plant No. 2 is the one that it is proposed to keep up" Gen. Williams. Yes; that is the only one. Mr. Hill. The only inducement to the Government, from a national-defense point of view, so far as this office is concerned, is the upkeep of nitrate plant No. 2" Gen. Williams. That is the one that is of material benefit to the Government Mr. Hill. Nitrate plant No. 2, as listed by Mr. Ford, is entirely self-sustaining- it has all Its elements of power? °' Gen. Willl\m8. Yes. Mr. Him,. Does it depend on Dam No. 2? Gen. Williams. Of course, the cost of the product of nitrate plant No. 2 would be materially reduced by using the cheap watc^r power that would come from Dam No 2 Mr. Hill. He could use this power so obtainable? Gen. Williams. Yes; he would have the steam plant, and mv guess would be that fie would use the steam plant so that in time of low water he would materiallv increase the primary power and at the season of high water he would cut off the st^am plant and let it he inactive. " • ^ Mr. Hill. Is the Waco quarry essential to nitrate plant No. 2? Gen. Williams. It is essential in that one of the raw materials used in the manu- tacture of the cyanamid comes from the quarry. That is, we take the limestone and ™ake from it the lime which is used in the manufacture of carbide iiTV' ^Vf: 1^ o^^^T"^^ a question asked you by Mr. Miller you estimated that that would take 2,000 tons a day? . Gen. Williams. That is for the whole operation of the plant. Mr. Hill. I suppose that would be on a basis of 300 days a year"? Gen. Williams. Yes, sir. Mr. Hill. To make 110,000 tons? Gen. Williams. Yes. Mr. Hill. That is, 600,000 tons altogether? Gen. Williams. Yes. Mr. Hill. Has it been e^imated how long the quarry would be able to furnish that? Ixen. Williams. No defimte estimate has been made, but there is a large amount 01 stone there. Mr. Hill. The reason I asked that question is that it has a bearing on the matter oUhe term of the lease, whether it is 50 years or 100 years. It is not an outright pur- cnase, but looking at it from a national-defense point of view, I wanted to find out wnether the products of that quarry were available elsewhere in the vicinity Is mat material met with frequently in the neighborhood*? ■i 84 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PBOPOSITIONS. 85 Gen. Williams. Mr. WURZBACH. Gen. Williams. Mr. WruzBACH. Gen Williams. I think so. I am told by one of our officers that the exploration of Waco quarry so far made has disclosed a supply for 20 years, and the estimate is that there will be enough for 80 or 100 years. , . , , • .i, • ui u j Mr. Hill. But the products of the quarry are obtainal)le in the neighborhood for use? Gen. Williams. I think so; yes. Mr. WuRZBACH. Are there any plants in Germany in successful operation which are using the Haber process at this time? , ^^ i Gen. Williams. I think the plant at Oppau was using the Haber process. Mr. WuRZB ACH. That was the plant that blew up some time ago . Yes. Yo!i do not know of any other? There is one at Merseburcj. ^ That is the only one which has used that process since the destruc- tion of the plant at Oppau? Gen. Williams. So far as we know. . . -^ Mr FiELi>«^. General, referrinjr to the discussion of the puce of tertihzer, it is highly probable, is it not, that new developments and new comi)ounds may materially re- duce the cost of the production of fertilizer at this or any other point in the near future, with our present progress? , . . 4. v^,.- Gen. Williams. We do not produce fertihzer; we produce just one component, ^o^v it seems to me that the fixation of nitrogen from the atmosphere, in so far as 1 know it. is just really be<>inning. TheCHAiKMAN. You do not produce fertihzer' ..^,,;^„ Gen. Williams. No, sir; we produce only one ingredient of tertihzer. ^ ^he question of the fixation of nitrogen is one that is being constantly studied in all of the scientific countries, and it is something that all recognize as essential. The supplies in ( hile are being exhausted, and it probably will not be a great many years betoie they will no lon-er be able to supply the needs of the world. Therefore it is essential to develop this process. Just what is ?oing to be the successful method , I do not believe anybody can sav. The people who have studied the question all difier among thems^-hes as to just what is the best process. They all agiee that it is of great benefit; they all agree, I think, that some time or other in the not far distant future the fixation of nitrc^en will be on a commercial basis, just as the production of pig iron, but nobody will dare to say what ]>rocess is ffoins> to bring that out. , . , ^, „^ «««o^Kiii>;oo9 Mr. Fields. They all agree it is a proposition m which there are great possibihties .' Mr^FiE^Ds'^ Taking the proposition at Muscle Shoals, the whole outiit down there, we have got to do one of five things: First, scrap it; second, operate it by the Govern- ment; third, maintain it in an idle, stand-by condition for the use of the Government in time of energency; fourth, lease it to private individuals or a corporation; or fafth, let it rust down and become a wreck. „ _ . ir j * j Let us take the propositions in their order. . The War Department, as I undeiH^^and from the standpoint of national preparedness, is opposed to the scrapping of this plant.' Gen. Williams. Yes. Mr. Fields. Under any circumstances? Mr^ipl^lD^s^'Then the^next proposition would be its operation by the Govemmejit Probably the Secretary of War has made some suggestion along that line. I \\^U ask YOU to prepare, if you have not already done so, an aiialysis covering the ^P^^^^^^^^ Dknt No 2 for a period of six years, we ^iU say, by the Government, sho^^^ng the cost of operation and the proceeds therefrom, including depreciation, etc., everything that a business concern would put into its operating computation. Gen. Williams. I will have that prepared. Estimate of results of operation by Government of United States nitrate plant No. 2, "^ Muscle Shoals, Ala., for period of 6 years. llncluding fixed charges, etc., figured in accordance^ith commercial but not with Government account- estimated receipts. Sale of 6X215,000 tons of ammonium sulphate, at $65 per ton. $83, 850, 000 estimated expenses. Cost, f. o. b. cars, of 6x215,000 tons of ammonium sulphate, assuming l^cf ?n F^r/^^'n^^ ^^'.^ ^^^"^ ^""^ "^^^^^ P*^^^^ ^^^^ ^or ^ years, at $o8. 70 and $48.07 per ton "^ ' «aq 7r« ri=n Extra expense in building up business. ."'. i' ^on 000 WeciS^^^^ ""* ""'f^ ^"^ sulphate manufact-ure'.: ' 180,' Z Lfepreciation on itJO.OOO.OOO for 6 years, at 5 per cent 6 000 000 Interest on $24,140,000 ^ for 6 years, at 5 per cent 7' 249 OOO Taxes ^ on $24,140,000 for 6 years, at U per cent o' 172' fiOO Insurance on $15, 140,000 * for 6 yeara, at 1 per cent -..'.■.'.■.■.'.■.:::"::;;:: 908,' 400 ^""^^^ 86, 769, 650 Excess estimated expenses over estimated receipts 2~919~6S note. Estimated present value of plant 1 1 fi40 non ^ bSnV?t^ ""^ sulphate of ammonia department; "including 'storage i^:stimated working capitaineeded .'.'.*. '. ." .'.'.*.'.".". .... '. '. '. '. ] [ [ [ [ [ ] ] ] ] [ [ [ [ [ [ 9' J^' ^ HiHnn ^'u^f; 'ri^«,jShird proposition is that of maintenance in an idle standby con- dition. A\Tiat would be the annual cost of maintaining this plant in an idle condition? ZT^T.lS':^^V'!^' ^•^' "^ ^"^^if ^^ ^"^^>-« -' that\ind at the present tlr? because the nlLt h.^ w f "^^ ^''^ *?^i ^^^''^^- ^^P^^ditures for its maintenance, Decause tlie plant had not been operated since it was closed down shortlv aftpr thp \[;%irn « ^ the fiscal year 1922 the cost of maintenance ^ill be about $125 0(^ Mr. fields. Does that include the receipts from the power company? ' Gen Williams. No, sir; that is the expenditure nithL w"^"?^^- "^^^^ I ^o"ld like to have you prepare an analysis showing the cost S tion I blSev^itl^ «f.f H P"'^'^"^ ^'' " P™.^ i '^ y'^'' ^^ ^^ idle stand-by con- mtion. 1 believe It is stated in your report and also in the exhibit included in the thnwKn' 'l^'^ -^ ^^T'f ' ^^^* depreciation and obsolescence would result iS the condftinn ^ T fr^'^'?? '^^"Hl'' '^ ^^ T^'^' '^ '^ ^'^^^ maintained in an idle, stand-by condition. I am asking for this in order to trv- to airive at a correct estimatP of vrhnt he cost to the Government would be for the period of tL proposed lea^M^^^ tplepi^di^^^^^^^^ ""'"^^ '' maintain W plant inL?dle stan^b? conS Then, General, how long would it take, if the plant were maintained in this wav to secure an organization for the operation' of the plant in time of eme?|ency ? ^' x^or the sake of companson which we may want in the future in the considprfltioTi tstViT5nfa%l^^^^^^ liketohaveyou put In the record the ci't o^he nTrfpS^^ Al^ I w^milf f^iT^^"^ '^^''^-^ "^t^"^' ^^^ t?^ P"^^ that the Government got for it ^ll^/ a!^ 'f *? ^^r y^"^ Pyt in the same information in regard to the Old Hickorv plant and the mtrate plant on the Ohio River, so we may understand or know whethpr these plants have brought the Government the estimated sXage value r^- }^ '^"^MS- Yes, sir; I >.ill put those statements in the record ( ihe following statement was later furnished for the record :) in idle standtv7n^r*fnlrfn w 9n '* ^^ maintaining United States Nitrate Plant No. 2 for the fo-ve^r period ^n u A2 000 S ^^"^f ^'"'^^^ ^^^^'^^^ P^' ^^^^ «^ $2,000,000 20-year%rfod ' ^2,000,000 for replacements, or a total of $4,000,000 for the for'thi^rf'*'"'t*« °^ $100,000 per year for maintenance is based on maintenance cost $2 ono nSr^^'f ^^""^^ y^^^ .^^^'^S i^*« ^^count savings made and to be made The Lp.?^^ replacement estimate is made on the cost of those replaceme^ which it app ears now would have to be made, viz, the various vent stacL, pSSlTy all ^f orlflefem pro?els' ''^'^'' plant at end of 20 years by plant of equivalent capacity, using same ammon?a"pKlce1s?t^^^^^^ construction necessary to manufacture sulphate of ammonia. ^ ^ ^ ^°^^ °^ additional construction necessary to manufacture sulphate of 86 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 87 which are too small to permit of painting inside; flashing where these stacks and others project through the roof; all rubber and the greater part of the leather conveyor and drive belting; helicoid conveyor casings; boiler tubes of the power houses and steam plant- a large amount of the piping; and much of the equipment of the acid area. Replacement expense will not start for possibly from 5 to 10 years and then in rather small amount, but will increase in such proportion that by probably the end of 20 years this expense per year will be prohibitive. WTiile it is reasonably certain that these replacements will have to be made, it is also likely that there will be others which may amount to as much as $7,000,000. ^ "(2) With the plant maintained in idle stand-by it is estimated that sufficient organization for emergency operation could be secured to start operation in one and one- half months, to start production in three months, and to reach capacity production "(3) The smokeless power plant at Nitro, W. Va., cost $60,631,400, but materials aggrecrating $2,798,329 were sold or transferred from the plant prior to its sale. The estimated salvage value was placed at $8,736,026. The sale price of the plant was $8 551,000 plus a storage space of 67,500 square feet for two years valued at 25 cents per square foot per year or $33,750. "The Old Hickory plant cost $84,912,000, but materials aggregating $5,708,000 were sold or transferred from the plant prior to its sale. The estimated salvage value was placed at $7,600,000. The sale price of the plant was $3,505,000 plus a storage space of 866,000 square feet for five years valued at 25 cents per square foot per year, or $1 082,500 for the five-year period. **The nitrate plant near Cincinnati, Ohio, was never completed, but cost $7,321,400 as far as completed. This plant has been retained by the War Department and is beino' used as a storage depot." Mr. QmN. General, you are the Chief of Ordnance of the United States Army? Gen. Williams. Yes, sir. Mr. QmN. Let us see what difference there is between us. I am a Congressman of the United States, and we both represent the people. I believe we ought to accept this proposition of Mr. Ford. I do not think you believe we ought to accept it, do ^*A8 1 understand it, this Congress ought to do the best thin^ for the American people. You start out with an investment of $85,000,000 or a little more, which Mr. Ford proposes to take over. As I understand it, the estimate submitted bv the Secretary of War as well as your estimate shows that the scrap value which the Government could get out of these plants is something over $8,000,000? Gen. Williams. Yes, sir. , xt oo Mr. QuiN. That includes the nitrate power plant No. 2? Gen. Williams. It includes everything. , . , , t. n Mr QuiN. What did the Government, through you, pay the Alabama Tower Co. forerectingnitrateplant.No. 2, powerplantNo.2? •..-.. i , Gen. Williams. The Alabama Power Co. had nothing to do with nitrate plant Nn 9 Mr. QuiN. They had nothing to do with it? Gen. Williams. No, sir. ,„,.,, Mr. QxHN. What did you pay them for? What did they construct? Gen. Williams. We made a payment to them amounting to $4,789,938.34. Mr. QuiN. That was with a profit to them of 10 per cent upon the cost, was it not? That was one of the 10 per cent cost-plus contracts? Gen. Williams. Six per cent, with a limit as to total fee. Mr. QuiN. Did they have a contract different from the contracts of these other fellows, General? . . , Gen. Williams. The percentage on the cost-plus contracts varied. Mr QuiN I would like vou to get the exact information on that to show us exactly what those gentlemen got, because 4 per cent on $4,000,000 makes quite a difference. This nitrate plant No. 2 and the power plant at No. 2 is proposed by Mr. Ford to be left intact, ready for operation, is it not? Gen. Williams. Yes, sir. . • , ^ xi. i. v ;= Mr. QuiN. In yoiu: estimate of what Mr. Ford is getting, aside from that, lie is pa>'ing $2,000,000 mote than you estimate in yoiu- figures of $8,000,000 as the scrap value. Gen. Williams. I do not understand you. . Mr. QuiN. Mr. Ford is offering to give the Government $3,000,000 more, is ne not? , ,. 1, Gen. Williams. I do not understand that at aU. Mr. QuiN. You have estimated the total scrap value at $8,000,000 and a little over, have you not? Gen. Williams. The total for everything as scrap is estimated as $8,812,000. Mr. QuiN. Close to $9,000,000. Gen. Williams. Mr. Ford gets a clear title to all the property represented by that amount. Mr. QuiN. Except this nitrate plant No. 2 and power plant No, 2, which he leaves to the Government? Gen. Williams. He gets a clear title to that. Mr. QuiN. But he is to hold it in readiness for the use of the Government at any time? Gen. Williams. He obligates himself under the contract to operate plant No. 2 for the purpose of fixing nitrogen, eventually for the purpose of producing fertilizer, but in such condition that it can produce explosives needed by the United States in the event of an emergency, so that it can be turned over to the United States. Mr. QuiN. He obligates himself to keep that plant in working condition with the personnel and the officers there so that it may be turned over to the United States Government, or to the War Department, in case of emergency? Gen. Williams. And to pay a profit of 8 per cent. He told the Secretary of War that unless he got 8 per cent profit he would not operate it. Mr. QuiN. But he would have it ready, so that if somebody just blew a whistle everybody would go to work and turn out nitrates. Gen. Williams. Nothing like that ever happened. Mr. QuiN. That is what he says in this proposition. He does not use that language, but that is the effect of it, is it not? Gen. Williams. No, sir; I do not think so. If that were all there were to the propo- sition of getting munitions, it would be a very simple proposition indeed. Mr. QuiN. But that would be a part of it? Gen. Williams. He will not make explosives there at all during this time. Mr. QuiN. But at this time we are getting it from Chile, or from these coke-oven plants? Gen. Williams. Yes; we get nitrate, but in so far as explosives are concerned he would not during peace times, as I understand it, actually manufacture any explosives at all. He would maintain the portion of the plant that is needed to make the explo- sives. Mr. QuiN. In other words, he will maintain it for the purpose Congress put it up for? Gen. Williams. Yes; but in whatever way he intends to maintain it, it will take time to get the product for explosives because of the fact that the process beyond the point where you make ammoma will not be in operation; there will be no organization, nobody will be trained, so that you will have to get your organization and train them to go ahead and make this particular product. Mr. QuiN. That is, to turn nitrate into explosives? Gen. Williams. No, sir;_you do not turn nitrate into explosives. Mr. QuiN. Mix it with T. N. T. Gen. Williams. No; the thing that happens here is that the process for making ammonium sulphate and the process for making ammonium nitrate are the same up to a certain point. Up to that point you would have an organization and machinery and a plant working, but from the point where you get your ammonia on unt;il you produce the ammonium nitrate the plant would not be in operation in peace time. Mr. QuiN. That would be ready, would it not? Gen. Williams. Yes; it would be ready. Mr. QuiN. That is all the Government could do with it? Gen. Williams. That is all the Government would do. Mr. QuiN. My friend, Brother Miller, seems to have engendered a special hostility against Dam No. 3. If Dam No. 3 is completed, or constructed, any sensible man knows it is going to back the water up into the Tennessee River and other streams. Is that not true? Gen. Williams. Yes. Mr. QuiN. That water will be held in reserve for the dry season of the year to keep a normal supply running at the maximum rate for Dam No. 2? . Gen. Williams. I do not know about that, the Chief of Engineers can give you that information. Mr. QuiN. That is a reasonable conclusion to reach, is it not? Gen. Williams. I understand the building of Dam No. 3 would not increase the primary power of Dam No. 2. Mr. QuiN. That is one of the purposes of Dam No. 3, is it not? Gen. Willl\ms. No; not as I understand it. But I am not familiar with it. 88 MUSCLE SHOALS PEOPOSITIONS, MUSCLE SHOALS PROPOSITIONS. S9 Mr. QuiN. Furthermore, the construction of Dam No. 3 will make navigable certain waters above there that would not be navigable above that. Gen. Williams. Yes, sir. _ ^ - ^u- *• * j Mr QuiN Then, under Mr. Ford's proposition, you have, out of this estimated scrap value of something over $8,000,000, a plant which has been estimated b^ the Secretary of War to be worth $7,200,000. That is nitrate plant No. 2, and that is the estimated amount it is stated to be worth on page 20 of the Secretary's report to Congress. Gen. Williams. Yes. sir; that is right. *- ^^ a/v. j Mr. QiJiM. Mr. Ford ir> asking the Government to let him advance So,0(H),()00 under that i3ropr»sition in the periods named, the Government to construct and finish Dam No. 2 and Dam No. 8 at an estimated co^'t of between $42,000,000 and $')(),000,fl00, as i understand it. You do not know what he is going to do, so far as damming up other places there is concerned and making the water supply l^etter, do you? Gen. Williams. No. . i , ^■^^ ^^ Mr. QiiN'. Mr. Parker seems to think it would cost more to maire fertilizer there than it ever did l^efore. Do vou not believe that Mr. Ford can make certain hy- oroducts as a result of liis investment at this place, such as aluminum and other metal products that will make this fertilizer product a mere waste, so far as expense is con- cerned, at ?S or >iO a tm; is that not possible? Gen. WiLTJAMs. No, sir: I have no such idea as that. Mr. QriN". I !>elieve thev can do it, and the farmers believe it too. Do you not believe that if this proposition is accepted Mr. Ford can take the power from these dams and transmit electric current several hundred mile? away from there; that is, in addition to what he needs? Gen. WiLLrAMs. Oh, yes. _ • • n *i, " ^fr. Qri\. Then, that would develop manufactunng enterpnses in all tne sur- rounding States within a reasonable distance, would it liot? Gen. Williams. It would encourage them. Mr. Oris. If those manufacturing enterprises can get cheap current wita coal at $10 or :^'12 a ton. would that not be a reasonable proposition? Gen. WiiLiAMs. That is an important element of the cost. Mr. Qmn. Tlien, the construction of the dam would improve and increase naviga- tion? Gen. Williams. Yes. , , , -.r i ci i o Mr. Qcis. That would help all the territory both above and below Muscle 5^hoals. Gen. WifLiAM^. I should think so. ,1 Mr. Quix. And commercial activities, agricultural interests, and everything else would be bound to be helped? Gen. Williams. Yes. . , . , ^ x j i. t,« Mr. QuiN. This man Ford has made a success m everything he has entered, has he not? Gen. Williams. Undoubtedly. Mr. QriN. It is no chimerical dream with him? Gen. W^iLLiAMS. No. . , -rr . r, j 1, v ^ Mr. Qrix. He has one of the best factories in the Unites States, and now he has succeeded in the raiboad business, considering the short time he has been in it, has he not? , . , , - . , . Gen. Williams. That. I should think, would require analysis. Mr QuiN. He has succeeded so well in the railroad business that he tried to get the Interstate Commerce Commission to reduce the rates on his railroad, which they refused to allow him to do, and he has reduced the employees on the raikoad from 2 700 to 1 600 and raised all of their salaries. Does that not show that he is a man of more than ordinarv abilitv? If he could do that, while the other roads were cr\^ng that thev had to increase their rates and decrease the salaries of their employees, do vou not 'think there is some chance for Mr. Ford to decrease the price of commercial fertilizer to the agricultural classes of the country by the development of this project. Gen. Williams. I see no relation between the one and the other. Mr. QuiN. I think there is a relation between them. General. Mr. Ford does not propose, as I understand it, to hold this for himself and his estate, as a profit-making proposition, does he? . , . , , x- « 1. ^m Gen. Williams. He stipulates that in the operation of nitrate plant !so. 2, he wiu not make more than 8 per cent profit, but he said to the Secretary of War in an inter- view with reference to making a profit, that he will not operate it unless he does make a profit, and I take it that he means he must make a profit on the whole enterprise. Mr. Quix. As I understand it, this gentleman wants to set an example to the people of the United States as to what can be done. Gen. Williams. My understanding is that the operation of nitrate plant No. 2 is not necessarily tied up with the rest of it, according to his statement to the Secretary of War. There would be various elements of the enterprise, and if one part were not successful, he would lop it off. Mn QuiN Mr. Ford proposes that the Government would have this back at the end 01 100 years c Gen. Williams. It is a lease. Mr. QuiN. He wants the right of renewal. Gen. Willlams. It is a lease. Mr. QuiN. He wants the right of renewal, with his estate operating this after he ia gone. He proposes to keep in operating condition and turn over to the Government ".' i'^^lno nnT^'fT"''^ ^^'^ P>?^ ^H ^^tin^ated scrap value of which has been put at $/ 200.000 Do you not believe, laying aside all benefit to the people and iu«.t considering the benefit to the Government for the purpose of securing nitrates in case ol an emergency or m case of war, that it is a good proposition *» Gen. Williams. It is of value; yes, Mr. QuiN. You and I both believe we ought to keep the nitrate plant ready. AC S" j,^^^^^*'®-. ^®^5 I should not recommend that this plant be not retained. If Mr. foras otter IS not accepted, then our recommendation would be that nitrate plant JNo. 2, with its steam power plant, be retained. Mr. QuiN. Then you would either have to maintain it at a cost to the Government or you would have to lease it to somebody else. Gen Williams. We could lease the power plant for a sufficient amount to main- tain tne rest of it. Mr. QuiN. There could not be a profit on it? Gen. Williams. No, sir; there would be no profit. Mr. QuiN. Under Mr. Ford's proposition you have the element of navigation vou have the element of industrial development, not only for the immediate territory but you have all the prospective development in the territorv surrounding that country for 700 miles. If the proposition stated bv my friend, Mr. Miller if true would you not cut out navdgation and cut out development and have nothing there except the power plant? ° Gen Williams. No, sir; I do not think that follows, because you have the steam plant tliere to be operated in connection with the dam. You could very materially increase your primary power, and then vou would have a considerable period during the year when you would have a large excess or power beyond what would be needed for the nitrate plant. Mr. QuiN. It would not be sufficient to carry out a great program If vou went ahead and built Dam No. 3 you would have water for the very periods of the year when it would be needed. Gen. Williams. Dam No. 3 may very materially increase vour power inni^* i^^^^^'-^^^^^ Government— and I believe righteously so— has irrigated the land of the farmers in the West, has it not? Gen. Williams. Yes. beUeve^^fhnt ^wT '* l^^ ^'''}^ ^''"'^ ^^ "'^<^ ^^^'^^ "^ ^^''- ^^^"^^'8 State. I Delieve m that. We turn the water on these arid lands and that fertilizes them The Government, through its agencies, is turning the water on that land' ^utv'ft atVrV'\ '"'f rf '^" Government owes tliat same responsl^Uy' and souL or ifr^o^H^^^ ""^ ^^'^ '^.^"''^'''^' *^ ^'""^ ^^^ ^^'•"^^r^ fertilizer from this somce or some other source, just as the Cxovernment turns water on the arid no^cLSt^'^o'pJss^o^^ "" '"''''"' '' governmental policy which I think I am Mr. QuiN. Mr. Parker suggested that the coke ovens could sunnlv this am- nmnium sulphate. How much do thev supply now' ^ ' fo.uf ^*^ Williams. The capacity of the by-product coke ovens is about 500 000 " Ir Omrwilh f^^JP^^t^^ year. This plant has a capacity of 2^U ti^ n^a^y- ti^s'of Tei?ilL'eV^ S T^^l'^f ^"" ^^^^"^^«^^' ^'^ ^^^'^ ^-«' ^^ Gen. Williams. I do not know, sir. Mr. QuiN. About three or four million tons, would it not? M?'(^m%hf;i^^^^^ ''''* *^" y-""' ^ ^^ ^^* ^^^^ *^« ^«^°^«la ^«r fertilizer. Gen Wn • TJilf ^T? """^ ''''"'^f out in a concentrated form, as I understand it. i^mze7 '''''^^' """^ ^' '""^P*"^^^ ^^ ammonia, which is an ingredient of The Cttairman. But it is not fertilizer? ^en. Williams. No, sir; it is not. 90 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PflOPOSITIONS. 91 Mr QuiN It is the basis of fertiUzer. You understand, do you not, that certain ^termiuM^;! t^^^^^^ are three essential elements that go into fer- *^^r QSrA^^rcr^^^^^ at Muscle Shoals has all three of them. Phosphorus is there in great quantities, is it not? Gen Williams. There is i^hosphorus rock m Tennessee. Mr. QuiN. And limestone is in the quarries there. Gen. Williams. Yes. ^»«i«^v t^ m ^ (Thereupon the committee took a recess until 2 o clock p. m.) AFTER RECESS. The committee met pursuant to recess at 2 o'clock p. m. STATEMENT OF MAJ. GEN. C. C. WILLIAMS, CHIEF OF ORDNANCE-^ Besuxned. Mr 0cm General, did you find out during the recess the cost of cj"^*™^*'"" «' thft mrt of the ptot that the Alabama Power Co. put up. You said you did not Sl'^he&er it wTlO or 6 per cent, but you thought it was 6 per cent. MrbmN"co^d'yo,Ke*out'in dollars and cents how much it was then that th^AlSZa Power Ifo reeved from the Government for its work in that construc- ^^ gL Williams. The contract provides that "the total of said fee shall not exceed ''Ki'N.Vteftriura^iToter Co. received from the Government 1225,900 for its services in that construction work. Sf Qum'under^Aetontract of the Ordnance Department or the Government with t&b^a Power Co. you stated they were •'"t^" PPt't'T ^Pf/.^^ wlr 'Zed during the war under that contract any power because of the fact that the war closea ■^cTfeilMivl^Vtal'^wt'^ ^°lr QvixX^^at^^^l^'tir whSfo^^^ and some odd dollars was ex- wnded the Government put up the money and not the Alabama Power Co. SfQ^ Tnl tL^^ Sretv1d«uL^rS6(^«ch w.k .their f.s anH DTofits On the question you were discussing about the moral obligation on the "^T w.'f,fAM°,''Mv*JJFnt of view Mr. Quin, is that the Government, through its acSl^ditXeX e^r^^ntd^aitM^^^ and, so far as it knew, in accordance with the law, and 1 tlunk tne uo\ernmeni, it eAtered into that contract, assumed an obhgation to carry it out. Mr OuiN And you do not think the $225,000 that they received would be a s^^^^ cient compensTto and warrant that contract to be nullified without additional TeTwiiuAMT'lna^^ as the $225,000 was itself a.part of the contract I can noTseeihatThas any relation whatever to the obligation which the Goverrnnent """"Mf ^Omv In the estimate for scrapping this entire outfit at Muscle Shoals for $8'812,Xdo ?ou"tn^o^^^^^^ s^e type of estimate that the other plants were "^Gel' Williams. Yes, sir; we axnve at that figure through our experience with other ^^ Mr.'QuiN. Well, take Hog Island. We lost a great sum of money there; wa^ it based *^^Gen. WiIliams. No, sir; I had nothing to do with that. Mr. Quin. That was not under the Ordnance Department? Gen. Willla-ms. No, sir. Mr. Quin. This West Virginia plant was under the Ordnance Department. Gen. Williams. At Nitro? Mr. Quin. Yes; how about that? Gen. Williams. Our experience there was taken into consideration and our expe- rience at Old Hickory and various other places where we have salvaged large plants. Mr. Quin. We lost a great deal of money on the West Virginia business, did we not? About $100,000,000 was put into that? Gen. Williams. No, sir; we put in there about $60.000,0000, as I remember the figures, and we expect to get out t)f it anywhere from eight to eleven million dollars. Mr. Quin. How much did you have in the Tennessee plant, the Old Hickory plant, I believe they call it. Gen. Williams. We put in there about $80,000,000 and we are getting out of that about $3,500,000. Mr. Quin. $3,500,000 out of $80,000,000, about what per cent is that? Gen. Williams. That would be about 4i per cent. Mr. Quin. To scrap the outfit at Muscle Shoals for the sum named would mean the dismantlement and abandonment of the whole business there. Gen. Williams. Yes, the whole thing. That is what we mean by scrapping. Mr. Quin. And the bats would fly over there and nest there instead of having smoke- stacks and having 1.000,000 men at work there. * Gen. Williams. There would be nothing left there for the bats to fly over or to nest ill. Mr. Quin. They would have to make their nests on the bare ground, whereas Mr. Ford stated when he had his enterprise completed it would employ 1,000,000 men. If that be true, and he pays about $5 a day, that would be about $5,000,000 a day in pay rolls down in that community, would it not, General? Gen. Williams. Yes, sir. The Chairman. Of course, that is not officially before us, Mr. Quin. Mr. Quin. No, sir; but that is the statement he made. I have no means of knowing whether it is true or not. The Chairman. Of course, Mr. Ford's representatives will be before the committee on Monday and undoubtedly will state just what is intended. Mr. Quin. We know he is going to employ some labor down there. He is bound to do that. Gen. Williams. Yes, sir. Mr. Quin. And it is bound to be a good thing for that territory, especially. Gen. Williams. Yes, sir. Mr. Quin. Under his offer $5,000,000 will be received by the Government for the property and the Government will have nitrate plant and power plant No. 2 at its disposal, as you stated this morning, in case of war, or threatened war, on the basis of 8 per cent profit to Mr. Ford. Gen. Williams. The 8 per cent profit, as I understand it, is what he limits himself to in the case of producing fertilizer. Mr. Quin. That was my understanding, l)ut I asked the question this morning about turning it over to the Government to operate Gen. Williams (interposing). I do not understand that the 8 per cent applies to that. The nitrate plant No. 2 will be Mr. Ford's property, and when that is taken over by the Government in rase of a crisis, undoubtedly, there will be negotiations between the Ford Co. and the United States as to the terms under which it will be taken over. Mr. Quin. Then, General, you do not mean to state, as I understand it, that he would get 8 per cent out of the Government during a war. Gen. Williams. No, sir. Mr. Quin. Or in case of an emergency when it was turned over. Gen. Williams. No, sir. Mr. Quin. And if he did get that it would be a heap more reasonable than what we got from other concerns during our last experience from 1917 to 1919. Gen. Williams. I do not think that necessarily follows. . Mr. Quin. It may not necessarily follow, but then you know something about what It cost your department and you know what other departments had to pay for a great many things where the Government was hogged. You could not help it and we could not help it, but it was hogged at Hog Island, and at a great many other places, and by these airplane concerns in Ohio and elsewhere. Now, the record will show your answer to be that under his proposition, if accepted by the Congress and the Govern- ment, plant No. 2 and the power plant at No. 2 will be under the control of the Govern- ment through the War Department at whatever terms the Government sees proper to niake, or they can take it for nothing if they want to. Gen. Williams. No, sir; they could not take it for nothing. 92 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 93 Mr QuiN. Well, we conscripted men, and I believe if we are going to conscnpt men we should go ont and conscript everything we need in case of war. The Chairman. The gentleman did not believe m conscripting men for the war. Mr QuiN. No, I did not believe in it until they put it up to me that they could not get thern in any other way and then I was for conscription, and I do not think we ought to conscript them ^vithout conscripting such enterprises ^« this if the GoveTn^ ment needs them. That is my honest judgment about it. Gen. Williams, $7,250,000 is the estimated value of nitrate plant No. 2 and the power plant for .^^rapping. How much more is the total amount of all of the business at Muscle Shoals lor scrapping? Gen. Williams. $1,562,000. , . . j v t Mr QuiN. Then Mr. Ford or his con pany will be gmng Ypu— and by you I mean the Goveniment-all of the estimated value except $1,220,000 and the Government will have for its own use the main thing it needs for war, namely, mtrate plant No. 2. Gen Williams. No, sir; because I should have no idea that the Ford company would scrap these properties. They would dispose of them as going concerns if they ot)t control of them, I take it. . , ,, ^ ^ j -.^i- ^Mr QuiN. You liiisunderstood me. I think that is what they want to do mth them', but I said that for scrap purposes-I am trying to get the difference between •what we would be out. xi_ v • t *^a fi.of *>.«., Gen Williams. Then I think you must take it on the basis I suggested, that they would 'make the best disposirion of those properties they could, and the best disposi- tion, as we indicate bv these figures, is not to scrap them. Mr QuiN. You do not know whether they would be scrapped or not. Gen. Williams. I can not imagine they would scrap them. Mr. QuiN. You do not know that? , , ^ xi. i * * Gen Williams. Because that would not be the way they would get the best return. Mr. QuiN. In the analysis presented by the Secretary of War, the question of lease for 100 years came up. Gen. ^\^illiams. Yes, sir. , tt • i Mr. QuiN. And he is against it and beUeves in a 50-year lease. Have you a judg- ment on that proposition. General? .V ' ** +1.^4^ T +l,i„l' Gen. Williams. No, sir; I have no particular thoughts on the matter that 1 think ^Mr QuiN ^It^would be immaterial to you which was adopted, and you would not object to a 100-year lease if we decided in favor of the Ford proposition? Gen. Williams. No; we would raise no objection, particulariy. , „ Mr. QuiN. What you want is that nitrate plant to be kept there ready lor an ^"gS^ A\^lliams. That is our prime concern in so far as the Ordnance Department is concerned, 1 ecaiise it has to do with preparation for furnishing the materials ot war. Mr Fisher General, a good deal has been said al out the options that were gi\ en to the two I ig corporations that did work for the Government in that section. 1 ou are very familiar with those options, are you not; that is, as to the phraseology ot me contracts reserving the options? • i x -i Gen. Williams. I am not sufficiently tanuliar to discuss them m detail. Mr Fisher From what you know of them, do you consider that the GovernmenT, as it stands now, without an expression from those companies, is in a position to aycepi the Ford offer; that is, in the al sence of a declaration from those two companies, is the Government in a position to accept the Ford offer? . -^ i ,.i,i Gen. Williams. It seems to me that as parties at interest, their side of it sliouiu certainlv I e heard and considered. , Mr FisHER Have your had any communication with the representatives ot eitner of those corporadons to determine their atritude about the exercise of the options, that is, whether they expect to exercise that right or not? Gen. Williams. I think the Secretary of War testified that the Air Nitrates ( orpora- tion said they would desire to exercise their opdon, and also that he expecteu me Alabama Power Co. would desire to do the same thing. The Chairman. Mr. Fisher, I would say to you that both companies have written the chairman of the committee asking to be heard on the proposition. Mr Fisher. On the question of section 16 of the Ford contract, I would like w ask you whether or not you consider that if the contract is carried out, that the pro- visions as indicated in section 16 would give the United States Government ^Nnai you would consider as preparedness in the way of nitrates for munitions in case ot au ©merEfencv*^ • tna Gen. Williams. It would very materially contribute to preparedness for nitrates in so far as munitions are concerned. Mr. Fisher. Has the Ordnance Department or the War Department a laboratory with otticers or representatives studying these chemical problems and making experi- ments such as would be offered to the Government under section 16? Gen Williams. During the war we started a chemical research laboratory alon'^ these lines at the American University, just out of Washington. That wak main- tained by the Ordnance Department until last July, when we turned it over to the Agricultural Department. That laboratory is in operation now Mr. Fisher WTiat would you consider the approximate cash value to the Ordnance Department of a plant that is functioning with skilled personnel, as is indicated in section 16? Gen Williams. The nearest answer I can give to that would be the cost to install this plant because Mr. Ford's offer provides for the maintenance of that plant at approximately its capacity output. Now, then, under war condidons, I can see no reason to suppose that we are going to do things very much cheaper, reladvely, in any crisis to come, m the course of the next 25 or 30 years than we did in this crisis, thecBBh^vilu' ^^ ^^^* ^^® '^^^ ^^ ^^^® P^^^* ^'^"^^ represent practically Mr. Fisher. If the Ford offer is not accepted, is it the plan of the Ordnance De- partment to keep ^0. 2 in a stand-by condition? Gen. Williams. It is; we recommend it. Mr Fisher. Is a plant in a standby condition, such as you propose to keep plant ^o. 2, comparable as a ready plant for the production of nitrate ^ith one that is a going concern as indicated by section 16? Gen. Williams. No; it is not. Mr. Fisher I would like to know whether or not the Ordnance Department, in the failure of the acceptance of the Ford offer, has a plan for nitrate preparedness. Gen. Williams. Our plan is simply the retention of tliis plant in a standby condi- tion ready to be put in operation as soon as an organization can be gotten together and started going. We estimate it will take about three months to start production and live months before we would be producing to capacity Mr. Fisher. Whereas, if the Ford offer was accepted, it is ready within five davs. Gea. Williams. No: not wUhin five days, I should say. because under the Ford IZa1^'^F''u''''' ""S^^^ P^''^'^^? ^^"^^ ^'^ ^^"^^^ oil normally, and the remainder would have to be put into operation, and that of necessity would take time. ab^ndo^nSieXTNoT? '''"^ '"' "'^'^ '' ^^'^^^ ^ ^^""^ ^^^^^^^ P^^^^^' ^ Gen Williams. I think it would be contrary to a sound military policy; ves, sir. JJ^;.f^/'?h^; .t^'i'^'''^^ ^^"""i ''''* further recommend if the Ford proposition is not Sate plant No 2? "^^^^^ complete Dam No. 2 to be used in conjunction with Gen. Williams. That does not come within my province at all. The Secretarv of War has stated he would recommend it and has so stated in the record power? '^* ^^^ ^^^ ^^^^^ *^^^ cheaper power is essendal there than steam Gen. Williams. That would cheapen the product attpnH^''''^.T'" ^"""^^ ^^ M H?5!«^^nd you, the fertilizer feature of this project is one attended with great possibilities. ^ ■" of nrnH.^ff'^'''-^^' ^'^^^' ^^'^ ^u ^^t^^^ ^^^ ^^^^ possibilitics of it 80 far as cheapuess ttfw mk''.? concerned The thing to my mind that offers the greatest possibili- dowrthi J"^ w%K fvf' ^i" H^«^^t?^y. that Mr. Ford says he is going tS put in operation down there. With the fixation of nitrogen in the stage of development in wh^h it is be Ld"ai^ W^^ '^"^ "^^ ""^^^ P'^"^ '' ^""^^ *^ ^' ^^ P^^^^ that will Mr. Wrig'ht. That is largely what I meant by great possibilities. • nitr^en "^'^'''''^" ^""^ ^""^^^ possibilities in the question of the fixation of Mr. Wright. And in the development of this industry? Gen. Williams. Yes, sii-; I think so. Powrlv'or tS Gover^en^t?' "^"""^ '''' ^""'^^ P'""' "* ^"^^^' '^' ^^^^^"^ th^bp.Z'^'^'''''f. J^^ property, the land on which the plant is built there, was at Mr T.?. '""^TK ^n^ '^^'' ^""^ ^.P^^' th^ property of the Alabama Power Co. ^ir. feTOLL. Ihe Government did own it for awhile? ^jen Williams. The Government has never owned it. Air. Stoll. The Government has never owned the land? ^en. Williams. No, sir. 94 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 95 Mr. Stoll. I believe you have stated that that plant is about 88 miles from nitrate plant No. 2. ^ , M^S^L^ wLl^lihl^^^ point at Muscle Shoals to this Warrior steam plant? Gen Williams. Muscle Shoals is about 2 miles from the Muscle Shoals No. 2 Dam. Mr Stoll. Then, how did this Warrior steam plant at Gorgas get connected up with the Muscle Shoals project if it is 88 miles away from it? Gen. Williams. Bv building a transmission line. Gen^WiLufML^F^r SeTrpose of tmn^mitting power from the Alabama Power Co. to nitrate plant No. 2. . Mr. Stoll. For the manufacture of nitrates? Gen. Williams. Yes, sir. , , ^ 4^ *i, ^i^^f^^u^.9 Mr. Stoll. Did vou not have a steam plant there to generate the ^l«^tnat> ? Gen. Williams. 'We had one in process of construction which was not completed ^^Mr.^STOL^^Tle^r^^^^^^ Co. is furnishing electricity to various portions of that countrv'? Mrl'sTOLL.' And iL^NoTember of last year the Alabama Power Co. leased the steam plant at plant No. 2, did they not? Gen. Williams. Yes, sir; in November of last year. Mr Stoll. Did thev ever use it? . ,, • * x- • Gen Williams. I do not think they have put it into operation. My information is that thev put a gang of men in there to put it in operation, but at about the time they were^ready, th? rains came and increased their water power to the point where it was not necessarv for them to throw in that plant. M?^Stoll Nitrate plant No. 2 produces, I believe you stated, 110,000 tons annually? Gen. Williams. Of ammonium nitrate; yes, sir. • Mr Stoll. That will make how much sulphate of ammonia .^ Gen. Williams. About 215,000 tons, I am informed Mr. Stoll. You sold some of your nitrates there, did you not.' Gen. Williams. We produced only a very small amount and I do not think ije have yet sold anv. We made about 1,700 tons of the ammonium nitrate, and m addi- tion to that about 2,000 tons of cyanamid. Mr. Stoll. Did you have any Chilean nitrate there.' Sfs^L'^'what are the different parts of commercial fertilizer besides the sodium P^Gen^WiLLivMs. I know verv little about fertilizers, Mr. Stoll. As I understand it, the ammonium sulphate is simply one of the ingredients that carry the nitrogen. Mr Stoll. Is not that about the hardest one to get? Gen. Williams. For the fixed nitrogen we are dependent now on the sodium nitmte that comes from Chile; that is the largest source of supply in the world. There is also the ammonia recovered at the by-product coke ovens and the gas works Mr. Stoll. And that is the hardest ingredient the fertihzer people have to get, is ^ Gen. Williams. I think so, sir, although I am not positive about that. Mr. Stoll. If we had a supply in this country, that would tend to solve the ter- tilizer problem? MrS^OLL^i'lTl understand it, only about 3 per cent of sodium phosphate is used in fertiUzer, and there is a little over 7,000 000 tons of fertilizer used in the Un ed States- would not that 200,000 tons go a long ways toward supplying the sodium ''''^^'^^^:''TmAI r/er fentTh^ich you refer to is th. nitrogen content. w^!£S>!SlFsSt^hrfinit%^^^ Mr. Stoll. I thought the common brand of fertilizer was 8, 3, and 3. Mr^'STOil^^lliere are 2,000 pounds in a ton of fertilizer and the great part of the 2,()00*pounds is bulk that is simply used to distribute the ingrements put into u, an as I understand it. there is onlv 3 per cent of the fertihzer that is sodium phosphate. Gen. Williams. My understanding of the meaning of that formula is this: You liave three elements that are essential to plant life. You have *he phosphorus nitrogen, and potassium. Now, the formula of 8, 3, and 3 refers to the percentage by weight of those three elements in the total weight of the fertilizer. Mr. Stoll. I will put it in this way: You do not know how many pounds of ammonia there would be in a ton of commercial fertilizer? Gen. Williams. Of ammonium sulphate, no, sir, I do not. That could be figured back very easily. The figures I have here indicate that for the average nitrogen rontammg fertilizer sold in 1919 there were 56.7 pounds of ammonium sulphate per 2,000 pounds of fertilizer. Mr. Stoll. How many pounds? Gen. Williams. 56.7 pounds. Mr. Stoli,. In a ton? Gen. Williams. In a ton. Mr. Stoll. If there are 200,000 tons that would make about how many ton of fertihzer? Would not that be around 8,000,000 tons? Gen. Williams. I am inclined to think there must be something wrong about sthat figure. Mr. Stoll. Of course, I do not know. They are the figures you give. There are about 7,000,000 tons of commercial fertilizer used and if we get enough of the ammonia there to make 8,000,000 tons, we are doing the farmers a considerable service, do you not think? Gen. Williams. Assuming those figures are correct and you can produce the am- monium sulphate at less than the present market prices. Mr. Chairman, I would like to have a chance to look into this matter of the formulas and the amount of various ingredients further and correct my statement in the record accordingly. The Chairman. If there is no objection, that may be done. (The statement referred to follows:) ' * Ammonium sulphate furnishes only a part of the nitrogen in commercial fertilizers. Among other nitrogenous materials are nitrate of soda, cyanamid, slaughterhouse tankage, and cottonseed meal. In 1919, according to the census figures, the average mixed fertihzer contained 45.7 pounds of nitrogen. The 56.7 pounds of ammonium sulphate furnished 11.7 pounds of the nitrogen. Nitrate of soda furnished 8.4 pounds of nitrogen, and cyanamid 1.3 pounds. These chemical or inorganic materials fur- nished thus a total of 21.4 pounds of nitrogen. The other 24.3 pounds was furnished by the organic materials, such as cotton seed meal, and slaughter house tankage. " If all of the 21.4 pounds of 'inorganic ' nitrogen had been furnished by sulphate of ammonia, there would have been 104 pounds of sulphate used per ton of fertilizer. On this basis 215,00 tons of sulphate would furnish enough nitroeen for some 4,000,000 tons of fertilizer. ^ "i eume *' If the entire 45.7 pounds of nitrogen had been furnished by sulphate, it would have required 222 pounds of sulphate per ton of fertilizer. On this basis 215,000 tons of sulphate would furnish all the nitrate for nearly 2,000,000 tons of fertilizer." Mr. Stoll. Mr. Chairman, I have here a table furnished me by the Department of Agriculture that §ives the amount of fertilizers used by the various States and I would like to put it in the record at the proper place. ' The Chairman. If there is no objection, that may be done. fertilizer tonnage by states. Following is the list of States, showing the consumption of fertilizers for the fiscal years ending in 1913, 1914, 1915, 1916, 1917, 1918, 1919, and 1920, compiled from the most reliable statistics that are obtainable. In some of the States there are absolutely no accurate figures available. 92900—22 7 96 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 9 State. Fiscal year euSing— Alabama Arizona! Arkansas California Colorado i Connecticut ^ Delaware 1 Florida Georgia Idaho! Illinois ' Indiana lowai Kansas Kentucky ' Louisiana Maine 1 Maryland Massachusetts '... Michigan ^ Minnesota! Mississippi Missouri! Montana! Nebraska! Nevada ! New iiampshire !. New Jersey...:... New Mexico! New York! North CaroUna... North Dakota!... Ohio Oklahoma! Oregon i Pennsylvania Porto Rico! Rhode laland!... South Carolina Scuth Dakota! Tennessee Utah! Vermont! Virginia Washington! West Virginia Wisconsin' Wyoming! Oct. 1 June 30 Sept. 30 June 30 Dec. 31 ...do — ...do.... ...do ...do.... July 1 Apr. 30 Dec. 31 Apr. 30 Dec. 31 ...do Aug. 31 Dec. 31 ...do June 30 Dec. 31 ...do Oct. 1 Dec. 31 No law.. ..do ..do Apr. 30 Oct. 31 No law.. Dec. 31 Dec. 1 Dec. 31 ...do.... June 30 Aug. 3J Dec. 31 June 30 Mar. 31 June 30 July 1 May 31 Sept. 1 Dec. 31 June 30 Dec. 31 Mar. 31 June 30 Dec. 31 No law. 1913 Tom. i 4»4,730 600 52,000 36,000, 5001 62,000' 50,000 213, 728 1,120,693 2001 30,000 193,!s99 3,500 7,3a0 75,000 9S,778 160,000 169,000 51,000 57,985 3,500 128,050 60,0001 800 500l 800| 18,000] 156,6611 200 380,000 840,447 500 183,476 2,000 4,500 340,000 18,836 9,000 918,336 700 84,060 75,500; 1,000 14, 500| 412,434 1,500 31,852 4,000; 200 1914 Tons. 592,200! 650j S4,S50 39,471 500 74,000! ."w,000 240, 812 1, 2vs S95, 897 500 45,000 156,0001 5,000 7,600 93,000 9N, -^64 160,923 191,900 64,000 91,4.i5 4,500 76,717 65,000 1,000 500 1,000 20,000 176,4.S1 500 420 600 849,728 1,000 165,857 3,000 7,000 334,309 45, 767 11,500 850.790 2,500 99, 5W 40,500 1,000 14,500 496, 217 4,000 41,000 6,500 500 Tons, i 289,990 500 8S,500| 32,036 1,000 80,000' 54,0001 197,954 923, 020' 500; 45,000! 244,340| 5,000; 8,0001 128,0001 81,0-25 155, OJJ; 173,000' 6^,000, 78,0(J0l o.tRX) 104, 700 90,0oO 1,0.0 oOJ 1,000 i«,ojo 153, 19ft 500, 430, OOC' 921,962 1,000 219,328 3,000 6, COO 340, 898 40,811 10,000 1,064,8861 2,i00| 113,000 58,000. l.OOOi lO.OOOi ; 430, 549! 4,010 ' 59,036' 7,500; 5001 1920 Detailed estimate of cost of sulphate of ammonia and nitrate of ammonia at United States nitrate plant No. f , Muscle Shoals, Ala. Tons. 297,903 500 64,427 43,126 1,000 65,000 30,398 2.J0,6i3 990, 919 500 45,000 241,000 5,000 16, 937 103,000 97,724 156,000 174,500 61,000 103,264 5,000 110,000 91,0J0 1,1>0J 500 i,Ojo 14,000 149,485 1,500 410,000 961, 238 1,000 335, 1:36 4,000 7,500 340,000 21, 815 9,000 ,033,8871 3,0001 109,3661 46,000 1,000 18,000| 421, 4841 4,0001 63,000| 10,000 500 Tons. 388,341 500 81, S75 58,6;iG 1,000 65,000 61,537 272, 316 978, 090 500 45,000 230, IW 5,000 12,050 90,000 95.^64 16x, 000 173, OUO 61, 4.50 112,616 5,000 139,000 120,332 1,0(M) 500 1,000 17,000 164,820 1,500 400,000 ,221,796 1,000 300,000 4,000 5,500 326,864 20,000 10,000 ,253,890 3,000 112, 2C2 56,701 1,00C 20,00( 429,024 4,(X)0 121,052 12,000 .500 6, 206, 543 6, 756, 743 6, 891, 32217, 654. 239 ' S0;000| 64,000| 71,000| 70,000 I Estimated. Mr Parker. General, I asked vou about the cost of manufacture, and I would like for vou to put in your detailed statement the cost by water power and steam, so that I can see how much you allow per horse power. I do not suppose you allow much per horse power for the water power. ^ * .i. ^ r *i, a Gen Williams I will give you a detailed statement of that for the record. Mr Parker. I wanted to see whether you allowed any cost for the water power. Gen. WttLiAMS. Yes, sir; that is taken into consideration. That is shown m ine cost per ton as we estimate it. ., , , j ,. i j * * * Mr Parker. Then I will wait until I get your detailed statement. SULPHATE OF AMMONIA. Limestone Coke Coal ;.;;.; Electrodes Soda ash Snlphuric add, 60" •MiscoJIaneons materials. Supplies and repair narl,^ Steam pow er Water power Steam Compressed air Labor (operation ) Labor ^maint enance ) Superintendence Quantity per ton. 1.81 tons 0.56 ton 0.23 ton 39.1 pounds. 0.034 0.96 ton Unit cost . $1. 25 6.00 4.00 .05 25.00 10.00 Cost per ton. 2,973 kilowatt hours.. do 2.19 thousan d pounds. . 3.7 thousand cubic feet ' .004 .00075 .285 .013 Total product ion cost Bugging and loading (as.suming less ihan 35 r er cent of product will be bagged ) . Sales Itesearoh and main ollice. Cost , wit hout royalties .Mlowanre for rovaities at 10 per cent. a.KsuiVin" !c luction by arbitration. Using steam pover. |;2.26 3.36 .92 1.96 .85 9.60 1.62 2.01 11.89 .62 .05 9.08 2.93 2.30 Cost, f. o. b. cars, Muscle Shoals, Ala. 49. 45 ..50 1.87 1.54 53. .36 5.;34 Using ^vater po .ver. f2.26 3. 36 .92 l.t>6 .8.5 9.60 1.62 2.01 . 62 .05 9.08 2.93 2.3(» 58. 70 39.79 .50 <7 .54 43. 70 4.37 4S.07 NITRATE OF AMMONIA. /iEf«t°"« 13.54 tons |$L25 r",i i 1 .09 tons | 6. 00 V^ltrr^'^^ 0.42 ton 4.00 slS^nS 176.4 pounds .a5 w'^'^f.^** V---,- ' 0.067 ton I 2.5.00 Miscellaneous materials i j.w Supplies and repair parts Steam power i.^'."!!!^".".".'!'6,d(W kilowatt hours." vNater power i dn M^m.... j 5.88 thousand pounds t omprcssed air 51 .94 thousand cubic feet Labor (operation ) Labor (maintenance) "superintendence Total production cost . BagKing and loading Sales Keseareh and main office Cost, withput royalties Allowance for royalties at 10 per cent, assuming reduc- tion by arbitration. Cost, f. o. b. cars, Muscle Shoals, Ala. .004 .00075 .285 .013 $4.43 6. .54 1.68 3.82 1.68 .3.19 4.83 24.24 1. 68 68 16.67 6.47 4.57 W.43 6.54 1.68 3.82 1.68 3.19 4.83 •L54 L68 .68 16. 67 6.47 4.57 80.48 2.00 3.08 2.55 88.11 8.81 96.92 60.78 2.00 3.08 2.55 68.41 6.84 75.25 NOTES. MimTrT ?f/"i>^'^a"al.v«i« of certain of the above items will be found in "Hearing before the Committee oi'i S 33W" 1920 "" Representatives, Sixty-sixth Congress, second session, on H. R. 10:i29 and ased on the actual results of the two weeks' operating test of the plant at one-fifth ctr.fV "^ Ja'^'ary, 1919. The quantity of materials used in the several manufacturing processes were anH u y measured and weighed daily and theconsumpt ion for the entire period of the test thus determined ''"a the products manufactured carefullv determined. nf li^,^"'"*; Prit^es of materials are those which existed at the time the estimate was made, in the summer iyi9, and it is believed will prevail as conditions U'come more stabilized, wifh^'^t"^® ^^^ royalties and fees has been figured in accordance with the provisions of the present contracts R'H t^ American Cyanamid Co. and its subsidiary, the Air Nitrates Corporation, and with the Air ^auction Co., due consideration being given to arbitration clauses in estimates of cost after June 1.1921. 1 iiese estimates do not include any allowance for interest on capital cost, depreciation .and obsolescence monf^**'' mV^ insurance. These estimates are also based upon th as.sumption that all community arrange^ "US will be self supporting in so far as current operating expenses are concerned. 98 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 99 The Chairman. General, do you consider the production of nitrates essential to this country for military purposes? ' G^ ^CuaLTo'u' ^pStoent has built all of the establiBhmente that are then, "''^el^^STn^'uwfsTorthe primary purpose of supplying material in case we got into war. . . . Gen. Williams. That was the primary purpose of it. Mi,«nlp ^hnala The Chairman. And all the money that is invested in the plant at Muscle Shoals, I take it, was taken from the appropriations for ^^^^^^J'y f^J^^f- -.^.^ -.i^nt No 2 Gen. Williams. Armament of fortifications, yes. sir, that is, for J^*J^Jf P^^J^* -^^^^^^ I think the land on which plant No. 1 is located was paid for out of the $20,000,000 '^C^'chmrman' And that was the national defense bill, which was a military bill? Mfitan wouwTik^to ask for the record one question more and that is how lo^ was the peri^of time that the Bahama Power fco. was engaged in constructing the^^?k ther^f^rwhich they received the $4,000,000 plus, or for which that amount was paid? 'i^r^'-^TGeler^fT^ this question has been answered or it may be that vou^an not answer it offhand; but I think, for the record, it shoidd be staTel and that is provided we accept Mr. Ford's offer or some proposition of tha Hnd how lon^ would it take to change that plant from a fertilizer plant into a plant t ?he nTanScture" of nitrates for high explosives? There has been some question along that line, but I did not hear any definite answer, and I would like to have tne ^'^'Zt 'wiuiois I think Mr. Ford in his proposition proposes to maintain the plant roadv to nroduce the explosive. The time it would take would be the time it would tSkeCd' ver^^^^^^ producing ammonium sulphate to producing ammo- nium nitmre, and ^hat should be a comparatively short time; just what length of '"Slr.'HrLL^. T'thlnk we should have something from the experts io show about how long. ^, -r , , , Gen. Williams. About three months, I should say. Mr. Hull. As long as that? ^ . n •+ Gen. Williams. Before it would be producing to full capacity. qTATEMENT OF MAJ. GEN. LANSING H. BEACH, CHIEF OF EN- gI^^S ACC^PANIED BY BBIG. GEN. HARRY TAYLOR, ASSISTANT. Tb.^ Chairman. Hen. Beach, we are considering, as you ^"^w, the proposal of^Mr. ronV wi h reference to the Muscle Shoals proposition 1 understand that the Fn-i nee ; ave had considerable to do with the building of that plant. W ill 7^ « sttte in vour own way just what you know about the proposition and what interest the ^'^fenTEArr Thl^'on?tm^tion or building of Dam No. 2 was intrusted to the Engi- nopr Department which has charge of river and harbor works tliroughout the countr> . ™s?am w^'t^rt^d as a means of reducing the cost of operating the nitrate plants, nhicl had been installed at that locality by another branch of the Government. The unds ^hi-h were allotted were from the appropriation for fortific^ition and anna- mcl .i^^a^riaUon with which the Engineer Department of the Army ordinari . rL^hinfto do except to build fortifications, and the allotment «ot Slaving e^ ' n f.dent to complete the dam, a year ago when we were n«inng the end of the und L Hnd we had to a^k for an additional appropriation from Congress. .Tjift ^^^ ref.Hel at the la" t session of the last Congress, and after the present admmistratio t^^cl arl o^'o^ e^^^^ affairs 1 was directed by the Secret^rv of W ar to ascerta n whotherth^ of this dam and power plant was a practical arrangemen o^ not and to a'certahi what I could in regard to that feature of the case a"^ report t^^^^^^^^^ T tt-rnf P in all the nower companies and different parties throughout the country thLuhUhtmigh^^ ^J■r'''':^^T'''^'^''^^zZtc- one which was received up to the time it was presented, and I forwarded it to the Sec ?etliy of War, as evidence of the fact that the completion of this dam was a practicable undertaking; and he has had charge of the negotiations with regard to Mr. Ford and other parties since that date. The Chairman. The Secretary himself has had direct communication with Mr. Ford respecting the turning over of the plant rather than the Chief of Engineers? Gen. Beach. Yes, sir. After I forwarded Mr. Ford's proposition to the Secretary of War, he has handled those matters directly. He has had, I believe, four interviews with Mr. Ford or his representatives, at only one of which I was present, because it happened that on the first two occasions I was out of town, and on the last occasion I was not notified, or my office was not notified, until Mr. Ford was in the office, and at that time I was tied up in a conference with officers of the General Staff. The Chairman. Is there any special statement that you desire to make to the committee respecting Mr. Ford's offer? As I understand it, the first offer made on July 8, 1921, was made to you and not to the Secretary? * Gen. Beach. Yes, sir; it was made to me in response to that inquiry which I sent out to all the parties, as I have mentioned. The Chairman. About how many letters did you write, or about how many parties did you communicate with? Gen. Beach. Probably 10 or 12. The ( 'hairman. And the only answer you got was from Mr. Ford? (Jen. Beach. The only proposition which I received. The ('Hairman. The only proposition, yes. Gen. Beach. I sent out this letter: ''The Secretary of War has directed me to ascertain what arrangements can be made to derive a reasonable return upon the investment if the United States coin- l)lete8 the dam and hydraulic power plant at Muscle Shoals, Tennessee River. *' If you are interested, I would be pleased to discuss the matter with you at this office at the earliest date that may be mutually determined. "It is desired to develop the matter and come to a conclusion at as earlv a date as possible." That is practically the same letter that the Secretary was requested vesterday to put on file. The Chairman. In response to that letter the only offer was the one received from Mr. Ford. Gen. Beach. The only, what I would call, genuine offer. I gave as wide publicity to that letter as was possible. A good many papers printed it. I furnished it to the press. T did receive some responses which from their tone and the character of writ- ing were evidently from irresponsible parties. The Chairman. Would you mind stating to the committee just what some of those answers were? Gen. Beach. One, I remember, was to the effect that the man would be pleased to undertake that if the Government would pay him $1,000,000. Another one was from a man who said that he was accustomed to forming large companies and under- taking matters of great import, and if he could be allowed $40,000 as expense money , he thought he could put it over, and there were others to that effect. I paid no atten- tion to them beyond filing them, for the reason that I felt if the parties were genuinely interested in the matter, they would follow it up and none of them did. The Chairman. You heard nothing after the first letter? Gen. Beach. I heard nothing from any one of those parties after the fir.st letter. The power companies in the South to whom I wrote replied. The Mabama Power Co. replied under date of May 28. The gist of their letter is reallv in the final para- gmph : "If, therefore, authoritv is confeiTed by Congress to conclude a contract for the use of any part of the power by power companies, we wish to assure you we are ready to work out a mutually satisfactory arrangement looking to the completion "of the dam and the disposal of such part of the power as Congress mshes to place in commercial use, desiring now as at all times in the past, to cooperate in every way desired by the United States in working out the matter." I had several interviews with the officers of the Alal ania Power Co. and they stated that they had always l>een interested in this proposition. It was a verv large and im- portant power development in their territory, and I have understood that thev would liave been very glad to establish this dam if it had not been beyond their financial resources. They pointed out that they were naturally most interested because any invasion of their field with as large a power plant as this would mean a great deal to them in their business relations with tlieii* clients or customers, and they said they did not see their way clear to make a proposition because I was not in a position to state ^vlien the power would be available, and the terms on which they could obtain it. 1 requested them, as I did all the others with whom I had conferences, to make their 100 MUSCLE SHOALS PROPOSITIONS. MUSC3LE SHOALS PBOPOSITIONS. 101 own Dioposition. I '.vas asked by several of them to draw up specifications bu . said that the matter was so larj^e and so complex that I was very much afraid that ;- 1 drew up anv set of specifications it might hamper the development in some respects rather than facilitate the development of the whole, and they were all invited to come in and make their own propositions to start with, so that we could then work oui something definite after their proposition was received. i .u r , I found that 1 was verv hadlv handicapped, as the Secretary found later, hy the fact that we could not £?ive these people anv definite assurance. AVe could not coine to anv contract or definite agreement with them, and that I think may have possibly pre- ^ented some definite offers, but Mr. Ford was the only one that came in with a definite respons?. , , _ ,, , , •* • ^i To save time I will just ^le this reply of the Alal ama Power Co. and place it m the record if vou care to, or it can be read. ^ • .i i . The Chairmax. Is that the same letter that the Secretary pi:t in the record yeeter- dav'* Gen. Beach. Yes, sir; he was requested yesterday to frrnish it. The Chairman. Then it would simply be a duplication, as that letter is already in the record. Gen. Be.\ch. Yes. (See p. 790.) ...or. i o The Chairman. The Alabama Power Co. was organized when? Do you know? Gen Be\ch. No; I do not know the date of organization, but I do know that along in 1912 and 1913 it made a proposition to the United States in regard to taking over of the power at this locality, which was the subject of exanamation and report by the Board of Engineers for Rivers and Harbors, and it was then recommended that the offer of the Alabama Power Co. be accepted. , ^ ^o The Chairman. That was before the World War in Europe started/ Gen. Beach. That was in 1912 and 1913. x. t ^u u The Chairman. So that the company had had some existence before they began to get in closer relationship with our Government? Gen. Beach. Yes, sir. . ., x i jxv.- The Chairman. I assumed from some of the questions that were asked this morning that perhaps this company was gotten up during the war particularly for the purpose of setting these contracts with the Government. ,.,.,, ^ * m, 6en. Beach. No, sir; there was nothing of the kind in that respect. The com- panv was a well-organized and going concern in northern Alabama at the time of the outbreak of the war. It had built its large dam, known as Dam No. 12, at the Coosa River before the war and was engaged in the distribution of power from that dam. The Chairman. What did they offer to do? AVhat offer did they make? Gen. Beach. In 1913? The Chairman. Yes. , . t ^ t j * v +i. ..«r^«rf= Gen Beach. I would have to get the record in that case. I do not have the reports here. It is all reported and published, and I am sorry I do not have a copy ot that report with me, but I will obtain it. ,.- u ^^ i The Chairman. What was the sense of the offer that they made? W ere they to do the building or was the Government to do it? , , . -n- Gen Be \ch To the best of mv recollection the Government was to do the building and lease the plant to them at a rate which would amortize the investment and pay a reasonable return to the United States for the use of the money. There was consider- able discussion as to whether the term should be 50 years or 100 years, and it was hnall> decided that in the state of water-power development and the market, that the com- pany would be badlv handicapped by a shorter term, and 100 years was recommended The Chairman. W'as the general water power act m effect at that time? W hen ma you sav this was? (>n: Beach. In 1912 and 1913. v •. .u if*- o tWo The Chairman. Then, of course, there was no limit on the period of time as tnert is now? The Chairman. Is there anything further you would like to state with reference lo the matt<^r? . , , . , . <■ .. i- -^ *-^t, nt Gen Be\ch. There is only one thingand that is on the question of the limitation oi time It seems to me that it is not always advisable to apply one general rule, ^ou do not always treat the large bodies the same as the small ones, because the conditions which are necessary to be imposed on a large body would unduly restrict a small ors the St. Tiawren^^e River. At Muscle Shoals we count on about 100,000 primiry horsepower and aV>out 440,000 or 450,000 secondarv horsepower. Mr. Hull. That is at Dam No. 2? Gen. Beach. Yes; but every dam that is built on the up])er Tennessee whi -h will restrain the flood waters and let them out a:radually during the low -water season will increase the primary power at Dam No. 2, with a correspondin ; decrease in the second- ary power. Mr. Ford has said that if he obtained the lease of this property at Dam No. 2, or the lease of the propirtv according to his proposition, he intends to come in and make applicaiion for other dams on the unper river and develop them up there above with the idea of utilizino: the power which he can obtain from them and increas- ing the value of the power which he has made arrangements to obtain by his ©"^er at Dam No. 2. That one feature of the case alone appears to me to be worthy of the most careful con.«ideration by Congress, for I believe that the leasing of Dam No. 2 to Mr. Ford will be followed by a development along the Tennessee River which would be very material, and would probably amount in a few years to more than you would get in any other way in the coiu^e of a generation or two. Mr. Hull. That is a very comp"ehensive answer, and I think it is what the country wants to know. Have you any opinion to express in regard to the effect upDn the river navigation in the development of the two d ims? Gen. Beach. The navigation of the Tennessee I regard as of great importance— that is, the development of navigation. The Tennessee River is one of the richest rivers in the country in regard to mineral deposits along its banks. Thev have immense coal fields in eastern Tennessee, and in the upper reaches of the Tennessee Hivcr, which have not been touched. They have some coal beds up there, I unierstand, which are 30 feet thick in solid coal, and anv development which would permit that coal to reach the market economically would be, I consider, of nitional importance. The Tennessee River is not subject to tHe same floods that the Ohio is subject to, and vet it carries practicallv the same amount of water throughout the vear that the Ohio does above the junction of the two streams. The reason for that is that the upper waters of the Tennessee lie in a region where they receive the rainfall of storms that come from Arkansas and Texas, moving northeast, and they also feel the effect of rainstonns that come up the coast and do not extend west of the Appalachian system. The consequence is that the Tennessee carries a larger volume of water than almost anv other stream in the United States in proportion to the area of its watershed. Mr. Hull. You have given us a very comp-ehen^ive answer to that question. Taero is another question I would like to ask vou. You have some development down there in what is known as a stand-by condition. Your whole organizaticn, as I under- stand it, is decimated and gone, and you would have to reorgani/.e, which would take yon some time. FTave you anv opinion as to what that would cost the Government . Gen. Beach. Yes, sir. Mr. Hull. Will you give us that? Gen. Beach. It is close to $20,000 a month, so far. Mr. Hull. That continues as long as it stands there; is that true? Gen. Beach. And we have any money to meet the pay roll. Mr. Hull. In other words, we ought shortly to do something with it. Gen. Beach. Yes, sir; because you are spending that amount of money tically $200,000 a year, without one cent's benefit from it. Mr. Kearns. General, most of your testimony has been along the line of ooing water power for commercial purposes, and very little has been said about tne maniifacture of nitrate for the purpose of making fertilizer. What is Mr idea as to developing water power and manufacturing nitrate for fertilizer? prac- devel- ut the Ford's Gen. Beach. It is very hard to tell what another man's idea is if he has not talked hiiut^elf, and all that I have to go on, in reply to your question, is the remarks that have been made to me by Mr. Ford, not directly on this point, and those which have been repeated to me by people with whom he has conversed on the subject. I know that 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 to-day in re- pird to the eradication of disease and the promotion of medical science. He has said that he hoped to be able to get the production of his machines to such a price that the farmers can buy a Ford automobile, a Ford tractor, and a Ford truck, all for $1,000. And I have every reason to believe that he aspires to go down in history as the man wlio has done the most to develop the agricultural resources of his country and the agricultural possibilities of the world. Mr. Kearns, In his talk with you has he discussed the building of other dams by means of which he might produce greater horsepower? Gen. Beach. That has been mentioned, not with me, but with other parties who have reported the conversation. Mr. Kearns. Do you know how many tons of nitrate are used in the manufacture of fertilizer throughout the United States to-day? Gen. Beach. No, sir, I do not. Mr. Kearns. Can you get that information? Geu. Beach, Yes, sir. I understand that representatives of the American Farm Bureau Federation have requested to be heard by this committee. ' They can give you more definite and direct information on that subject in five minutes than I can in an entire afternoon. Mr. Kearns. Has your department those figures? Gen. Beach. No, sir. Mr. Kearns. Do you know how many tons of nitrate could be manufactured at , provided Mr. Ford were to get the plant and operate it at^ full No, sir, I have no information on that. That is entirely outside of Muscle Shoals capacity? Gen. Beach, my province. Mr. Kearns Gen. Beach Mr. Kearns Gen. Beach Can you get it? I can get it for you very readily, sir. Has not some bureau of the War Department those figures? The Ordnance Department, whom you have just heard, has more information on that point, or should have it, than any other branch of the Army. Mr. Kearns. I would like to get it from that department if I could. Can you get it from them? Gen. Beach. I would prefer, if there are no objections, and I am to bring that information to you, to go where I think I can get it most reliably and accurately. Mr. Kearns. Has not the Ordnance Department these figures, and will those Hgures not bo reliable? Gen. Beach. I would not like to say they would not be reliable, because they ought to be, and if they have not got those figures themselves they ought to go to the best place to get the information. Mr. Kearns. I would like to get the information from as many different sources as possilde in order to show how nearly they correspond, and whether anv reliability can be placed in any of the figures. C^en. Beach. I will be very glad to do that, and if I can get information I will do this: I will try to obtain it from different sources, and if I find they do not agree I will try to reconcile them for you. Mr. Kearns. If they do not agree, why can you not put the different answers in iho record and show the disagreement? Gen. Beach. That is what I mean. I only meant I would try to see whether the ^liferent estimates had any explanation, just as in the case of Mr. Ford's figures for completing the dams and mine, wliich although they are quite different, yet as soon as the reasons for those different figures are given the discrepancy is perfectly intcl- "f?ible to any maji. j^ccurate figures upon fertiliz.er production are difficult to obtain; those noted in the gble following have been derived from the following sources: The American Fertilizer Jandbook for 1921; Bulletin No. 798, United States Department of Agriculture, The f"^Y®y o^ the 'Fertilizer Industry; Census Bureau's Advance Summary Concerning the Fertilizer Industry, May 18, 1921; Senate Document No. 551, Sixty-fourth Congress, nrPt session, Report on the Fertilizer Industry bv the Federal Trade Commission, ine following is quoted from the American Fertilizer Handbook with regard to its Jtatistics: "Following is a list of States showing the consumption of fertilizers for the 15'cal vears ending in 1913, 1914. 1915, 1916, 1917, 1918, 1919, and 1920, compiled *rom the most reliable statistics that are obtainable. In some of the States there are •^osolutely no accurate figures available; in these States estimates have been made 106 MUSCLE SHOALS PROPOSITIONS. r I. ( : ■ / I I V ^ ^)ri based on information obtained from State officials and fertilizer manufacturoiv. • Bulletin No 798, Department of Agriculture; contains figures prepared by the assistant to the secretary in charge of fertilizer control for 1917 and 1918 during which years the fertilizer industry was under Government supervision, and figures should be quite reUable The Census Bureau report gives figures for 1914 and 1919; m this case, however, there is apparently some duplication, which makes the totals appear greater than they might be expected to be. The report of the Federal Trade Commission quotes figures from the American Fertilizer Handbook for 1915, hence they are not '^Ther^are apparent discrepancies between the figures of the Department of Agri- culture and the Fertilizer Handbook for 1917 and 1918. It must be remembered however, that fertilizer is sold in two important forms, namely, mixed fertilizer and acid phosphates. A certain amount of the acid phosphates, sold as such, is bought by the manufacturers of mixed fertilizer for use in their product. It is evident that we must subtract from the acid phosphate, sold as such, the amount used m mixed ferti- lizer in computing the total fertilizer production. If this is done, figures of the Depart- ment of Agriculture tally closely with those of the American Fertilizer Handbook. If similar precuations are taken it is possible to make the Census Bureau figures also tallv with reasonable closeness mth those of the American Fertilizer Handbook. It should here be noted that the latter's figures are for consumption and not production. The percentage of nitrogen in mixed fertilizer is a variable quantity. Computa- tions based on the statistics of the Department of Agriculture would indicate that in 1917 the percentage of nitrogen in mixed fertilizer was 3.4, whereas the same source would show that in 1918 the percentage was only 2.5. Best available sources, though uncertain, indicate that this percentage varies on the average between 2.5 and 3.o. Aeain using the figures of the Department of Agriculture and assuming the production of nitimte plant No. 2 at Muscle Shoals as 110,000 tons of ammonium nitrate per annum; the tables show that this plant at that capacity would produce for those years from 25 to 30 per cent of the total nitrogen used in mixed fertilizer. The foregoing discussion does not take account of organic fertilizer such as hsh scraps, dried blood, cottonseed meal, etc., as these products form only a small and uncertain proportion of the total fertilizer produced. ^ The foregoing consideration.^ also seem to show that the figures of the American Fertilizer Handbook are in the mam reasonably accurate as regards total fertilizer consumption. Fertilizer production. [All figures in 1 tons (2,000 pounds) unless otherwise noted.] 1914 1915 1916 1917 1918 1919 1920 Total production (all kinds):i American Fertilizer Handbook 7,340,528 8,432,000 5,612,000 5, 563, 212 5, 390, 549 6,206,543 6,756,743 6,891,322 8,291,000 4,696,000 7,mrm Census Bureau Mixed fertilizer: Census Bureau Department of Agri- 4, 442, 528 4,9.57,799 culture Acid phosphate (sold as such): » Census Bureau Department of Agri- 1,761,000 2,457,000 2,097,625 494,261 2,02.'>,116 culture Acid phosphate (used by mixed fertilizer manu- facturers), Department oi Agricuiiure Other fertilizers, Census 1,059,000 1 1,138,000 Total ammonia in mixed ferilizer. Department of Agriculture 1 186,000 130,000 Per 1'^^; cent. ^■^•f.\ 4 2 ■'• Ammonia in mixed fertilizer • — *• t -i.-^ Nitrogen in mixed fertilizer •\. Total nitrogen supplied by nitrate plant ^ m 31 the 1 Federal Trade Commission's report in 1916 states that 80 per cent of all fertilizer produced is form of mixed fertilizer. (P. XVI.) s There is no nitrogen in acid phosphate. ^. . a «„«„«1 nroc^i'" » Based on 110,000 tons of ammonium nitrate, or 38,500 tons of nitrogen, the estimated annual i> tion of nitrate plant No. 2, at Muscle Shoals. MUSCLE SHOALS PBOPOSITIONS. FERTILIZER TONNAGE BY STATES. 107 Following is the list of States, showing the consumption of fertilizers for the fiscal years ending in 1913, 1914, 1915, 1916, 1917, 1918, 1919, and 1920, compiled from the most reliable statistics that are obtainable. In some of the States there are absolutely no accurate figures available. For these States indicated by an asterisk, estimates have been maide, based on information obtained from State officials and fertilizer manufacturers. State. Alabama *,\riiona Arkansas California ♦Colorado ♦Connecticut ♦Delaware Florida Georgia ♦Idaho ♦Illinois Indiana ♦Iowa Kansas ♦Kentucky Louisiana ♦Maine Maryland ♦Massachusetts ♦Michigan *Minnesota Mississippi *Missouri ♦Montana *Nebraska *Nevada *New Hampshire. New Jersey *New Mexico *New York North Carolina *North Dakota.... Ohio *Oklahoma *Oregon Pennsylvania *PortoRico *Rhode Island South Carolina ♦South Dakota Tennessee Texas *Utah ♦Vermont Virginia ♦Washington West Virginia... 'Wisconsin Wyoming Fiscal year ending— „ Total. Hawaii... Oct. 1.. June 30 Sept. 30 June 30. Dec. 31.. ...do-... ...do ...do ...do Julyl... Apr. 30.. Dec. 31.. Apr. 30.. Dec. 31.. ...do.... Aug. 31 . Dec. 31.. ...do Jime 30. . Dec. 31.. ...do — Oct. 1... Dec. 31.. No law.. ...do ...do Apr. 30. . Oct. 31.. No law.. Dec. 31.. Dec. 1... Dec. 31.. ...do June 30.. Aug. 30. Dec. 31.. June 30.. Mar. 31.. Jime30.. Julyl... May 31.. Sept. 1.. Dec. 31.. June 30.. Dec. 31.. Mar. 31.. June 30. Dec. 31.. No law.. 1913 June 30.. Tons 474,730 600 52,000 36,000 500 62,000 50,000 213,728 1,120,693 200 30,000 193,899 3,500 7,380 75,000 98,778 160,000 169,000 51,000 57,985 3,500 128,050 60,000 800 500 800 18,000 156,661 ■ 200 380,000 840,447 500 183, 476 2,000 4,500 340.000 18,836 9,000 918,336 700 84,060 75,500 1,000 14,500 412,434 1,500 31,852 4.000 200 1914 Tons. 592,200 650 84,850 39,471 500 74,000 55,000 240,812 1,282,088 500 40,000 219,000 4,200 9,460 83,000 90,588 168,000 183,350 54,000 60,000 3,800 127,400 65,000 900 500 950 20,000 155,414 200 420,000 872,820 550 203,000 2,000 6,300 381,900 18,164 12,500 1, 095, 728 1,000 93,550 77,400 1,200 18,000 437,808 2,400 35, 475 4,500 400 1915 6,544,345 7,340,528 67,000 80,000 Tons. 302,350 650 26,396 31,540 600 80,000 45,000 208,782 872,979 500 35,000 156,152 5,100 10,060 8.5,000 73,420 150,000 16K,000 56,000 65,000 4,000 85,414 57,000 1,000 500 1,000 16,000 153,075 500 400,000 647, 188 600 225,000 2,000 6,500 316, 319 20,000 11,000 670, 610 •1,500 77,390 17,500 1,500 13,500 406,077 3,000 46,010 5,000 500 1916 5,563,212 70,000 Tons 206,000 600 65,600 29,415 1,000 73,000 45,000 212,250 741,347 500 42,000 132, 159 5.000 7,940 62,000 96,426 155,000 154,000 53,000 70,000 4,500 75,667 41,000 1,000 500 1,000 18,000 129,800 500 400,000 650,000 700 187,848 3,000 6,500 268,455 37,725 12,000 833,624 1,500 91,128 39,845 1,000 15,000 369,520 3,000 40,000 5,000 500 1917 Tons 210,000 500 58,500 4.3,964 1,000 78,000 50,000 214,088 895,897 500 45,000 156,000 5,000 7,600 93,000 98,264 160,923 191,900 64,000 91,455 4,500 76,717 65,000 1,000 500 1,000 20,000 176,483 500 420,000 849,728 1,000 165, 857 3,000 7,000 334,309 45.767 11,500 850,790 2,500 99,584 40,500 1,000 14,500 496,217 4,000 41.000 6,500 500 1918 1919 1. 0* tJ^^Jy Ovf 65,000 6,206,543 80,000 Tons 289,900 500 88,500 32,036 1,000 80,000 54,000 197,954 923,020 500 45,000 244,340 5,000 8,000 128,000 81,025 155,000 173,000 68,000 78,000 5,000 104,700 90,000 1,000 500 1,000 18,000 153,198 500 430.000 921,962 1,0001 219,328 3,000 6,000 340,898 40,8111 10,000, 064,8861, 2,500i 113,0001 58,000: 1,000 16,000 430,549 4,010 59.036 7,500 500 6, 756, 743 64>000 Tons. 297,903 500 64,427 43, 126 1,000 65,000 30,398 250.613 990,919 500 45,000 241,000 5,000 16,937 108,000 97,724 156,000 174,500 61,000 103,264 5,000 110,000 91,000 1,000 500 1,000 14,000 149,485 1,500 410,000 961,238 1,000 305,236 4,000 7,500 340,000 21, 8151 9.000 033, 887 1, 3,000 109,366 46,000 1,000 18,000 421,484 4,000, 63,000 10,000 500 1920 1, 6,891,322 71,000 Tons. 388,341 500 81,875 58,636 1,000 65,000 61,537 272,316 978,090 500 45,000 230,184 5,000 12,650 90,000 95,864 168,000 173,000 61,450 112,616 5,000 139,000 120,332 1,000 500 1,000 17,000 164,820 1,500 400,000 221,796 1,000 300,000 4,000 5,500 326,864 20,000 10,000 253,890 3,000 112,202 56,700 1,000 20.000 429,024 4,000 121,052 12,000 500 7,654,239 70,000 Mr. Parker. General, under this contract or proposition of Mr. Ford, he agrese to coTnplete the construction work at the two dams and install the power, etc., for the ''nit<}d States at actual cost, and without profit to the company. That makes him a contractor with the United States. Would he not therefore be bound by the rules as f^ the 8-hour day, Saturday half holidavs, etc.? Oen. Beach. That is quite questionaf»le. Tf we were to simply make a contract to ^naplete that dam, take over the construction of the dam and complete it without 'be usual form of contract specifying that he must adhere to the 8-hour law, J would "i^J myself that the 8-hour law would not apply. «.•« 108 MUSCLE SHOALS PBOPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 109 !■' I i '? *1 Mr P\RKER. This is a contract with the United States to complete a da.n and to do certain work at actual cost. Tn carrpng out the details and making a contract, under the statutes should not that l^e put into the contract^ , , .1 o . , Gen Heach. That is questionable. At any rate, he is not bound }>y the >atur(iay haU-holiday provision. He would have that advantage. It has been held in a imm- ber of cases that even where the 8-hour law applies, it does not apply to Rubcontrartors. and it seems tn nie it would deT>end on the manner in which that contract whs made. as to vv-hether the 8-hour law was a n9ce3sary part of the contract or not. Mr. Parker. I oiilv brouo:ht it up becaiLse you said it would apply to liim: 1 was a little doubtful about it and you are a little doubtful about it. Gen Bea(^h \ es. VxT Hilt. General, I understood vou to say the United States at the present tin.e wa^ expending about $2^,000 a month at Muscle Shoals. Does that take into con- sideration the"" amount of rental received from the Alabama Power Co.? Gen Beach. We are not receiving any rent from the Alabama Power to. 1 hose properties which have been leased to the Alabama Power Co. belong to the Ordnancu Department and not to the Engineer Department. ',. . , ^. Mr Hill. Then I would like to try to get those two things coordinated. \ou say th3 Engineer Department is spending al out $200,000 a year down there at the present time. Gen. Beach. Yes. ... ,,„ Mr Hill. Do you know how much the Ordnance Department is receiving m rentals? Gen Beach. They stated that they had made the lease at the rate of $10,000 a month, or $120,000 a year, plus certain other features, which varied with the amount of power supplied, 1 believe. . , ^ 1 1 Mr Hill. I was not clear from the Secretary's statement yesterday as to whether Muscle Shoals at present is costing the Government anything ultimately or not. 1 understood the Secretary to say that the income from leases at the present tmie wa.s such that Muscle Shoals was not costing the Government anything. Gen. Beach. I understood the Secretary's reply to refer to the nitrate })lants and not to the dams. . , , , x- /^ Mr Hill. I would like to ask that question as to the whole proposition. ( an you give us that? We will be asked that question undoubtedly on the floor as to what tin stand-by situation is at the present time. Gen. Beach. I will very gladly do that. . . , , Mr Wurzbach. General, quite a thorough examination and sur\ey was made during the year 1915 by the Engineer Department \^'ith reference to the foundations at both these dams, No. 2 and No. .3, was there not? , , , , , , , , Gen. Beach. We have had no survey made at No. 3 of such character that 1 would like to be held responsible for the detailed plans and the foundations. We would have to make further examinations at No. 3. ,,1,0 Mr. Wurzbach. Maj. Burgess, I think, made a report on that, did he not/ Gen. Beach. At No. 2. Mr. Wurzbach. Did that not include No. 3? Gen. Beach. No, sir; No. 3 was only referred to incidentally. Mr. Frothingham. I would like to ask you, General, where the Tennessee rises. Does it rise in West Virginia, or eastern Tennessee? Gen. Beach. The Tennessee River rises in Virginia, and North Carolina. Mr. Frothingham. Virginia, or West Virginia? ^ Gen. Beach. Part of it goes up into West Virginia, as well as Virginia. 1 there are some small branches there, but the West Virginia portion is so small as to be practically negligible. ,. , ^ Mr. Fields. General, what is the annual cost of the Muscle Shoals Canal? Gen Beach The probable annual cost of the present Muscle Shoals Canal woula run in'the neighborhood of between $30,000 and $40,000. With regard to the question in reference to the condition of Dam No. 2, 1 would like to show the committee some pictures that illustrate the present progress of the work. I would state as you s?e by this map, which is ri^ht here in front of you, which most of you have examined, the river is divided at this point by an island, and the total length of the dam is about 4, 800 feet, nearly a mile long. We have pushed the concrete work on the island a little faster than at other points, because we could work in the dry at that point, and we wanted to leave as much as possible of the waterway for the river. Consequently , the greatest height of the dam, as shown by thesa pictures, is on the islaim- This one, which 1 suggest be kept s?parat3 [indicating photograph], is a view from tiij^ south bank, looking north, showing the enture work, with our construction camp 01 the other bank, and this one with the little house down in front [indicating photogmpn 1 Rivei think is a view from the north bank looking toward the south. They will give you a better idea of the construction than you can get from my description of it Mr Fields At the suggestion of Judge Parker, I will ask you at this point how , much the water is raised there by the dam? Gen. Beach. We have not raised the water any as yet. Mr. Fields. How much will it be when it is completed'? Gen. Beach. One hundred feet. Mr. Fields. What did you say the annual cost of the Muscle Shoals canal is? • Gen Beach Between $30,000 ^nd $40,000. That varies, depending on how many locks have to have new gates, and other matters of that kind Mr Fields. The use of that canal would cease with the construction of the dams ^08.^ and 6, would it not? Gen. Beach. That would be entirely drowned. Mr. P^elds. The Government would be saved that amount of expense for all time to come; that is, as far as the operation of the canal is concerned Gen. Beach. Yes. The cost has varied between $35,000, which I think is about as '""^^ is? nnn^^^^^ ^^^"^ ^^^' "P *° $85,000, but it will probably average between $40 000 and $50,000. Mr. Fields. Mr. Ford offers to pay the Government $35,000 and $20,000, respec- tively, for the maintenance of Dams 2 and 3, and the operation of the gates and locks. The b^cretary of War suggests to Congress the advisability of letting Mr. Ford do that work himself and relieve him of paying this amount. Is it not a fact, General, that the operation of the locks pertains strictly to navigation? Gen. Beach. I did not understand the Secretary's proposition to relate to the locks *n th d^^ ^^^Vh relating to the maintenance of the dams and the controlling gates Mr. Fields. I may have misread it. He proposes to elieve the Government of the expeiise of operating these locks and gates. 1 was going to ask the question, if the operation of the gates was not strictly a governmental function? Gen. Beach. Oh yes; we could not allow anybody else to operate the locks or the lock gates for us. The dam is pro^nded with controlling gates across the entire length of the dam, which will regulate the height of the water in time of flood, and those Ire the gates which Mr. tord must necessarily operate if he operates the power house, house^^^^ ^'^^ ^^*^^ ^^ necessary in connection with the operation of the power ^l^/^?Jf ^- ^^^ government could not delegate to him any function which is con- nected with navigation. Gen. Beach. It could not, and would not. Mr.FiELDS. I misconstrued the Secretary's letter to that extent. The Secretary also su^ests on page 10 the operation of plant No. 2 a« a power proposition and the sale «ti^S ?i''''^- i T l*'^ y^'' ^"^ P^*/^ '^ *^^ "^^^^''d at t^« Poi^t' General, an analysis homng the cost of the operation of power plant No. 2 by the government for a term ot SIX years, and what its income would be from such operation. I would like to see where we would be on a propos tion of that kind. for the'firelrix ' ^re?^^''* *^^ ^^^^ °^ operation of the power plant itself and the dam a 1 w ^J^^i, ' ^?i? the proceeds, or the value of its income. I would like to have a statement showing the interest on the investment for the time Mr. Ford is building these dams. It might be well to state the interest on this proposition too ^en. Beach. I will be glad to do that. Jl!*^^^^^^' ^?'^ F^"^^ concerns are operating under franchises from the Govern- ment m navigable streams for a penod of 99 years, or an indefinite period? ijen. Beach. I do not recall any offhand that are operatine on a 99-vear basis now ZIT^^ power plants in navigable streams without any limitation, the most M. S""® being the dana across the Mississippi River at Keokuk, Iowa. Mr. J^ields. It was an indefinite lease? Mf F?.^^^'^ J^^'^l^ °? *^'''^. *? *^® P^^^i* ^^^^^ w^ granted that cf)mpany. Rivlr? '^ ^ ^^^ ^'^^ ^^^ Tennessee River at Chattanooga Gen. Beach. At Hales Bar? Mr. Fields. Yes. Gen. Beach. That has no term. Gen^Sfnt i^"^.*^®- ^ff^l""^ ^ht Alabama Power Co. at Lock 12 is indefinite? and ^11^ .k' ^^^^ 19 indefinite. That portion of the Coosa River is not navigable •^^a will not be navigable until a large number of dams are built. "^vigaoie ' ■ I 110 MUSCLE SHOALS PBOPOSITIONS. Mr. FIEID3. Under the recent power act, what has been the progress of the devel- opment under the 50-year lease ^an? Have they been able to finance projects, m ^Tenl^BiA^H. You must remember, Mr. Fields that that is not my province and I onlv have such information as comes to me incidentally. , , ^ , , i , ^ fIelds I kn^^ but by reason of your position you would get Probably much rawe information than the balance of us would get, and if you have no objection to ^i^^SigXe question I should be very glad to have your opinion. But if you prefer "^Grn.TE^^H^VwtM nolrr^^^ regard to the matter because I do not feel that the information which has come to me was P^esf ted to me m the same manner and with the same care that a person would make that statement if he knew I were going to quote it and the statement be spread throughout the country . In oTher words, we find in holding hearings with regard to nver and harbor matters, that it is of the greatest impotance to have those statements made m writing if we Sn getX partifsTo do so.'because they will make statement, they ^viU be came^^^ away with enthusiasm, or if they beUeve theb- statements would affect the parties to whom they are presenting them they will make them a little bit stronger. Mr. Fields. A little more reckless. , , . .1. i j * *^«i +u„+ Gen Beach. A little more reckless, and because of that they would not feel that it i^ fair to those parties to quote them, nor would I like to be in a position of stating those oninions made to me in that way. ^ , ^ ^ „ . , ^Thereupon the committee adjourned at 3.55 o'clock to meet to-morrow, Fnday, February 10, 1922, at 10.30 o'clock a. m.) MUSCLE SHOALS PROPOSITIONS. Committee on Military Affairs, House of Representativtcs, Priday, February 10, 1922. inesllu'r '"'^ "' ^"^'^^ '^'"''^'^ ''■ ""' ^^"- -^"""^ ^^^^^^ (chairman) The Chairman. Gen. Beach, when we adjourned last night, Mr. Fields was askmg yqu some questions, and we will continue from that point. STATEMENT OF MAJ. GEN. LANSING H. BEACH, CHIEF OF ENGINEERS, WAB DEPARTMENT— Besumed. Mr. Fields. General, when we adjourned yesterday we were discussing op- erations under eases of 99 years, or for indefinite periods. Has there beli vou kno'w ^o^Thaf '^'m "^ "^" ^^^^^'"""^ "^ ^""^ ^' ^^^^^ ^^"^ f mnchfses tha sirabl'eTharyfhl KraThi^r '^ ""'^ ^ '^'^"^'^^"^ ^^ '''^' ^^"^ ^^'^ Gen. Beach. The only power dams that are located in navigable rivers at , ?r^^"v5 ^'""'^ T^^ ^"^^t ^^^«^^ the national water power act was pass^ and they have no limit whatever. They are simply there with riXts Fn d^: etiiity, and Congress when it passe] the water power act took the position hat the use of the water power was likely to beconie so valuabirthat th^co^^^^^^^ tions might change very materially, and the privilege whidi was give!i th^^^^^^ partes might become so valuable that they thought a readhistinent at the end of a definite period would be advisable, and they put that S years. Now that was the view of Congress and the p^fnt that I made vef terday was that while that might be very advisable in the ordinary case such as minor streams, for instance, like the Coosa or the Tle4env o^' ivers of that kind, yet in the case of Muscle Shoals, with as large a river nn,f J^"^^''^k; ^^"/ considering conditions of business in «mt ' icinity U would be advisable, I think, to consiler the circumstances very carefulTv and ''I '"'^^^^^'' ^^^'^ r'^ "^^ '"^'^ ^« t^ J"«tlfy an exception to the rSL of^ho f'cf'T ^"n^'Ji^" ''^^'^"' -^'^^ ^'^ "^ « ^^-^^ at least, measure the tenure of the franchise by the magnitude of the proposition? frl^;^^^'^' ^^^^ f»tirely. I would take all conditions hito consderation I tiled to invite attention yesterday to the fact that there was no immed ate sigii of a market at this locality. There are ordy four towns withirtl e ordinafv r aeh of direct electric distribution from Muscle Shoals-cStanLga Bi7- nmgliam, Nashville, and Memphis. Birmingham already is sup^Hed with (• lectrical power bj; the Alabama Power Co. ; Chattanooga is LpplitTwith nmver trom Hales Bar a dam on the Tennessee River 8 miles below imtcrtv Nash- n fA ^ fb '^^^'' '""^'^^'^'^ ^'^ P^^^'^^* f^^n^ ^ dam on one of the sum U streams "1 the State of Tennessee, and that leaves Memphis alone as the onlv HkPiv immediate market for all the electric power at Musde Shoals, and «i situa- 1011 seems to be very similar to a man's establishing a large department .to"^ ,nrkS7 ^T ^ ''''^'^'^ "f •^^^''^' '''''^ ^*^^t is all he can raise he "^1^1 a •nai^et for his goods in almost any small town. But if he is go n- to est .hb^S ;; sore with a million dollars capital, he has to go where h^can^iiw expenditure' ''' '" '""' '""' '^ "^^'^ "^ ^ trade which would justifv that den. Beach. Exactly ; and that is the point to which I am inviting attentinn wherf fh''*^^''f^i."^ ^ "i"^*"'^ ''''''^' «^^^-^' «« t« ^-«1^' here irthVs fo?nm^^^^^^^ ^here the population and the business interests are not yet sufficient to suDDorJ: . I just want to invite attention to the fact that the coLmupUon of elect^^^^^ 1^ something that I do not believe is generally understood. People see Sric 92900—22- 111 112 MUSCLE SHOALS PROPOSITIONS. i lights burning, street cars running, and they think that a large quantity ot electricity is being used. Now, I understand that the entire electric lighting of the whole State of Alabama does not require more than about 2o,000 horsepowei. If you go into Chattanooga you will see a little building, not much more than a shed not much larger than a three-automobile garage, standing besiue thy railroad tracli. That little building uses more electric power than all ot the rest of the city of Chattanooga put together, because it has some electric furnaces in there for use in making electroferrosilicon, and those electric furnaces alone use more than all the other industries, tlie lightmg and the running of the street cars in Chattanooga. ^ .. ^ i i. 4. xt.- Mr FiEiJ)S. You spoke of Memphis being the only possible market at this time.' It is probable, is it not, that the plants at Memphis are equipi^ for the production of additional industries that would require additional electric ^Gen' Beach. I have been told, but I do not know whether the inforniation is authentic or not, that Memphis could probably not absorb more than 50,000 horsepower in all particulars, if the dam were built. ^ t, ^i, 1 Mr. Fields. Then, aside from that, a market must be found by the lessee, ivhoever takes this proposition, for the entire consumption of power? Gen. Beach. Yes, sir; the entire use of power. ,^ . Mr. Fields. That is what I mean. The Alabama Power Co. could not use it, apparently, from their statement, could they? Gen. Beach. Thev have said so, in connection with the installation ot the new unit which they ajre putting in at Duncans Riffle, on the Coosa River. Mr. Fields. They are putting in a new plant there now? Gen Beach. They have received a permit for that recently, and work has just started, and they said that with the installation of that plant they would be more than supplied with power for the immediate future. Mr. Fields. For the benefit of the committee will you put that statement of theirs in the record? Gen. Beach. I have just made it. Mr. Fields. You have covered what they said in your statement? Gen. Beach. Yes, sir; but I have a copy of their letter, a;id I will read you what they said on that point. This is a letter addressed to me, dated July 14, 1921, in which they say: "Since that letter was forwarded to you (referring to their former letter) the Federal Power Commission has issued to this company a license to con- struct the Coosa development. We are planning to install 60,000 horsepower, and preliminary construction is now beginning. It is our purpose to prose- cute the work with all diligence, with the view of having power available therefrom in the spring of 1923. While the initial installation as now planned is 60,000 horsepower, the ultimate installation will be 120,000 horsepower. In going forward with this development we considered that we- w^ere in duty bound to proceed, because it did not seem at all possible that the Muscle Shoals hydro development could produce any power during 1923 or 1924. Our power demands are at present in excess of our waterpow^er capacity, but the power which will result from the new Coosa development will fnlflll our immediate require- ments—that is, will enable us in 1923 to greatly reduce our steam running— and we will thus be enabled to meet the public demands during 1923 and for the most part of 1924 with the output of our hydro plants. " However, we wish to say that study of the power markets in the territory served by our company convinces us that the demands for power will require further sources, which should be available during 1925 at the latest. "We must make our plans for several years in advance of actual power needs, and longer notice than one year in advance of actual date at which the Muscle Shoals power could be delivered would be necessary for this company to commit itself for the taking of definite amounts of power; and unless a commitment can be made not later than March, 1922, by the United States Government, for the delivery of definite amounts of power we will find it jiecessary to proceed with another hydro development in Alabama to meet our requirements. We will be glad, meanwhile, to discuss the subject with you in a definite way if desired." Mr. Fields. Did not the Alabama Power Co. plant supplement the secondary iwwer at Muscle Shoals, the power from storage reservoirs on the Coosa ana Tallapoosa Rivers, when they made their offer of 1913? Gen. Beach. It js my understanding that they did. Mr. Fields. And that dam was in the interest of navigation, was it not? MUSCLE SHOALS PROPOSITIONS. Gen. Beach. It could be made so. 113 lit it rage of Dams Nos. 2 and 3 would properly by each dam If that dam^^re m-mX w Vh^ 1' ^7^^^^^^" ^" "^^ ^^^' ^-^' Mr. F1E1.DS. It is permit IT^^^ would furnish navigation? Probable, under that arrangement tlu Gen. Beach. There is the possibility Mr. I lELDs. What part of the flowag l>e chargeable to navigation? - and the total '""^■'^'"^'' '**''^^^™ »« fl««age for necessary navigation alone f<:^z^:^si innZsro^^if jeZ-jir^trof tsr..*'^"'^ "" '*"' ^^°~ ot -Muscle Shoals, the cost wou d be ab^t ^0^ ^ "i7 "'^''^* ^pisid'-'-ins ;;:;;;:rt"ira? ^'r^^,^xs,^ '- umtedraKvs ^^ Jg- l^liUfM^^^^^^^^ prU-sltUTtf ^^r^ rt'hVraSlS Mr. Fields. I understand there is some difference of opinion onTat Gen Beach. In other words, the interpretation which I have placed on that is this I understood Mr. Ford to state that he would not procure K nS^tl leaving t to the Government to procure them by its right of eminent dom^^^ Ru he does not say that the cost was not included in tfie cost ™f constSn' smne all ?he "cosrof""th.^ fl statement to mean that the VnZ StaTes musf "s' rnTttn JfoJ ^^^^^^ ^h? flowage rights, but that it merely meant that the I nted States must acquire them, and did not prevent the L^ited States from including that amount in the costs of the work ^ Now, I would like to just invite attention to one feature of the question of bind condemnation. If the Government, or a very wealthy partv li^e Henrv Ford, desires land, it immediately goes up tremendously in value, and it sSs ro me that it would be only a good business move on Mr. Ford's part to place the Sn'^n.^ I'V^' land upon the Government under the right^f eminent do rna^n, and I did not understand, and I do not yet understand, that his propo- sition means that he is opposed to that being included in the cost of the work vaf t\ ^^^'^"S: ^ ^^^^ V2^ ^'^" ^" ^^^^^' ^^^^ ™y reading of the proposition ; and >et I know there IS a difference of opinion, and I was trying to bring out some tacts for our guidance in the future. In that connection, the maintenance of a reservoir up there is a very necessary appurtenance to the production of hvdro no^.'l "J Pi?'""^^' \^ '! "*^* • "" r»^^^ "^"^*^ '^^ maintained, and therefore it becomes a part of the project. J^J!'4^^^^^\ ^^ y^s- You can not obtain a uniform and a definite supply fn.?- V ^ P^? ^^ considerable magnitude, or a reservoir of sufficient area to M^*^ 17? uniform supply during the lower stages of the stream Ti^ll: ^^^1' ^^^ **'^ maintenance of the pool naturally requires flowage the W)'we"r ^^®^**^® ^^" ^^'^"'^ connect flowage rights with the production of Gen Beach. As Napoleon said. " Yon can not make an omelet w.tliout broak- 'ng eggs, and you can not make a pool without overflowing Oommiff'^''fi; \ ?;?"^^ ^''.^^."5f Document No. 20, of the Rivers and Harbors M)mmittee, that the Board of Engineers on May 18, 1914, said that the amount Shoi^r.^'r^'^f '5^'!!^ ^^ '''^ ^'^'"^ ^^ «^« P^«I^«^^1 improvement at mS chariLS^^^''"^^ be Chargeable to navigation, and the remainder would be ynn^^-^ * f *^ power development. Would that statement be true to-dav? In J'our opinion, would the condition that prevailed then, or the estimate made at 114 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 115 H that time be a proper estimate at this time of the amount which would l,o chargeable to navigation? Gen. Beach. If you are going to use that basis for determination ; that is, if you are go'.ng to aUow the amount which the United States would have to spend in order to provide navigation over this stretch of river without providing any power whatever. Mr. Fields. Would Dam No. 2 alone make the river navigable over the shoaLs? Gen. Beach. No, sir ; it needs Dam No. 3 also. Mr. FiEiJ>s. How much 6-foot navigation would you get from Dam No. 2? Gen. Beach. We would get 6-foot navigation up to the side of Dam No. 3. Mr. Fields. That would be the minimum? Gen. Beach. Yes. Mr. Fields. How much 6-foot navigation would you get from Dam No. 3? Gen. Beach. Dam No. 3 would back the water up a good deal farther than Dam No. 2, because that section of the river does not have as steep a slope. I have not looked up the exact figures recently, but it is my impression that it would go about 60 miles. The Chaikman. If you will permit me, Mr. Fields, the Secretary of War in his letter to Congress shows that it will go 63 miles. Mr. Fields. Dam No. 1 has nothing to do with the power proposition, but relates to navigation only? Gen. Beach. Dam No. 1 is navigation only. It is a dam with a small lift, too small to be provided with a power-house adjunct. Mr. Fields. It does not amount to a very large item? Gen. Beach. I think our estimate for that is about $1,400,000. Mr. Fields. I believe you stated yesterday that no examination had l»e^ii made for the foundation of Dam No. 3. I have House Document 1262, Sixt.v- fourth Congress, first session, which states on i)age 54 that some insp:»ctioii was made there. I just wanted to call that to your attention. You probnl)ly had forgotten that when you testified yesterday. Gen. Beach. I was going to ask the committee for permission to say a wonl upon that point, because I f<)i poration has notified him in writing, or the letter probably went to you i" reply to the invitation you extended, and that is why I ask you this question- that the Air Nitrates Corporation claims the right to exercise the option which it claims to have to purchase Nitrate Plant No. 2 under as favorable terms as offered by Mr. Ford. Was this Air Nitrates Corporation invited to submit bids along with Mr. Ford and the other people to whom invitations were ex- tended? Gen. Beach. I do not remember whether an invitation was sent to tliem or not. I would have to look that up. I would like to state that their letter has not been referred to my office, as far as I know. % Mr. Fields. Do you know whether or not an invitation was extended to Mr James B. Duke? Gen. Beach. It was. ^Ir. Fields. Do you know what his connection is with the Air Nitrates Cor- l)oration ? Gen. Beach. I understand that he is closely connected with that companv. Mr. Fields. Do you know whether or not he is also connected with tlie American Cyanam'd Co.? Gen. Beach. I have been told that he is, but I have no proof of my own knowledge. Mr. Fields. Did Mr. Duke submit a proposition to lease plant No. 2? (Jen. Beach. He did not. He wrote a letter stating that the whole project at Mus<.*le Shoals was very inadvisable and foolish on the part of the Govern iiient. That is practically a synopsis of his letter. Mr. Fields. Will you put his letter in the record in its entirety? Gen. Beach. I will. Mr. Fields. Do you know whether or not Mr. Duke requested Mr. Lee to prepare a recommendation or a letter upon the subject, and if .so, was it sub- mitted by Mr. Duke or by anyone else? Gen. Beach. Mr. Duke sent Mr. Lee's rei)ort to me. I have here Mr. Dukes letter which I could read, if the committee would care to have it. Mr. Fields. I would be glad to have it read for the information of the com- mittee. Gen. Beach (reading) : Southern Power Co., . New York, June 2J,, 1021. Lansing H. Beach, Major General, Chief of Engineers, United States Army, Washington, D. C. Dear Sir: In further reply to your letter in which you ask whether I am interested in any arrangement that might enable the Government to derive a reasonable retuni from its investment should it complete the Wilson Dam and hydraulic power plant at Muscle Shoals, on the Tennessee River, let me say that I have given this subject some consideration. I have also examined the report of Mr. W. S. Lee, vice president and chief engineer of the Southern Power Co., on the Muscle Shoals situation. My conclusions follow : 1. The steam-power stations built during the war to supply the Government's nitrate plants— No. 1, at Sheffield, Ala., and No. 2, at Muscle Shoals, Ala.— are of the most modern design and of high efficiency for use in connection with the nitrate plants. They are adequate sources of power for these plants in the emergency of war. They render unnecessary for military purposes the com- pletion of the Wilson Dam and hydroelectric power station. 2. Under the law ai)propi-iating money for Muscle Shoals hydroelectric devel- opnient, tooperation betwten the (Government and any private corporation in the use of such devehjpnient is specifically forbidden. Unless this law is ainen(leeen largely overestimated. Measured in kilowatt hours annually at various '"►ad factors that power will be as follows: At 100 per cent load factor, 413,018,000 to 416,107,000 kilowatts. At 90 per cent load factor, 371,716,000 to 374,496,000 kilowatts. \ 116 MUSCLE SHOALS PROPOSITION'S. MUSCI/B SHOALS PROPOSITIONS. 117 I m At 65 per cent load factor, 268,462,000 to 270,470,000 kilowatts. At 35 per cent load factor, 144,556.000 to 145,637,000 kilowatts. I understand that the Government has been advised that the primaiy output will be 700,000,000 kilowatt hours annually, using the flow as it occurs each 24 hours. The serious discrepancy between 700,000,000 kilowatts and Mr. Lee's estimates arises from two causes: A. The consulting engineer advising the Government has used as his minimum the average monthly mininuim flow. Mr. Lee has taken as his mininmm the mini- nium flow. Under the first method a heavy rainfall during the last of the month increases the average flow for the whole month, and therefore the minimum power estimate for that month. Inasnmch as the power station can not during the first of the month operate on water which falls during the last of the month, :Mr. Lee's method of computation must, in my opinion, be followed, if wo are to secure dependable estimates. In this connection it has been suggested to one of the congressional committee investigating Muscle Shoals thnt there has been constructed above the Wilson Dam storage sufl^icieiit to overcome any periods of dry weather. Large storage projects have been projected, but Mr. Lee has investflgated those actually con- structed and finds that they are not of size suflicient to increase substantiallv the primary power of Muscle Shoals. B. The Government's estimate of 700,000.000 kilowatt hours annual primary output and the revenue to be derived from it assumes a load factor of 100 per cent. I know of no public utility corporation that attains such a load factor The load factor of the Southern Power Co. is less than 50 per cent I would regard a load factor of 65 per cent as unduly favorable to the project ; no power company in the South has such a load factor, but even at that figure the primary power for Muscle Shoals will be less than 40 per cent of the 700,000,000 kilowatt estimate. The power companies of the South can not take power from the Wilson Dam at a 100 per rrent load factor, for they have plants which can furn sh all tho |K>wer they need for this part of the load. Under the plan projiosed to the Government for Muscle Shoals power distribution the power companies of the South would have to shut down a part of their power equipment in order to use the 100 per cent of the primary power from Muscle Shoals. This thev can not jiflford to do. 5. So far as the Southern Power Co. is concerned, the cost of transmission from Muscle Shoals to the Southern Power Co.'s market is prohibitive. Not less than 420 miles of transmission line would be required. The capital in- vestment involved would exceed $20,000,000. Transmission costs based on so large an investment are more than the traffic will bear. As a matter of fact, for $20,000,000 the Southern Power Co. can develop in its territory more hydro- electric power of its own than could be transmitted over the proposed trans- mission lines. Furthennore, if the Government will, at its own expense, con- struct transmission lines from North Carolina to Muscle Shoals the Southern Power Co.. after investing $20,000,000 in new hydroelectric plants in its terri- tory in North Carolina, will s^U to the Government at the North Carolina end of such transmission lines primary power at 3 mills per kilowatt-hour on the 100 per cent load factor proposed by the Government, instead of at the four and four-tenths mills charge proposed by the Government for primaiT power at the Wilson Dam. The market for power from the Muscle Shoals Dam has, in my opnion, been overestimated. The demand for power in this district during the war has mn- terially decreased. Some c«)mpanies have an excess supply. The shortage in any one company or in all combined, including those which, 1 ke the Southern Power Co., are too far away to take from Muscle Shoals, is less than the pri- mary output of the Shoals and is likelj' to remain so for some years. One reason for this overestimate is that the Government's consulting engineer has counted on supplanting most of the steam power within electric transmission distance. In practice all steam power can not be replaced by hydroelectric. There are many isolated cases where the cost of transmission is st) great thnt steam power remains cheaper even though generated by an inefficient plant. 0. I have said enough of the cost of generating power in the territory of the Southern Power Co, and of transmission co.sts to indicate that the estimates of the price at which power can be sold from the Wilson Dam will prove dis- appointing. Primai-y power on a 40 per cent load factor is being sold in tlit* South at 20 per cent less than the rate proi>osed for the snle of power from the Wilson Dam. It only remains for me to add that the estimates of revenue to be derived from the sale of secondary power are even less reliable. There is no dependable market for four months' secondary power in the southern field. With every desire to assist the Government in the solution of its problem at Muscle Shoals I am forced by the facts to the conclusion that the Government should leave the permanent work as it is and salvage the construction plant. The Government should then wait until labor and materials render possible the completion of the project at reasonable cost and until there has developed some near-by use for power at the Wilson Dam at an 80 or 90 per cent load factor. The loss in discontinuing and deferring the work will be small compared to the loss which will inevitably be sustained if the work is completed at this time. Meanwhile, the Government should maintain the nitrate plants and their steam power stations in stand-by condition, ready for war. In my opinion, the United States Government can not, at the present time, complete the Wilson Dam and hydroelectric plant and obtain a reasonable re- turn on its investment. I have referred several times to Mr. Lee's report on this subject. This re- l)ort is exhaustive. I have no doubt that, should you wish to avail yourself of (he information it contains, Mr. Lee would be glad to hand a copy to you. Very truly, yours, J. B. Duke, President. Mr. Fields. So this gentleman who is insistent upon his right to lease this ])roposition does not think very favorably of it for some reason, and therefore it seems he would not go very far toward the operation of it if the Government should turn it over to him. What is the American Cyanamid Co.? Where does it operate? Is it con- nected with Niagara Falls? Gen. Beach. It has a plant at Niagara Falls. I understand the larger portion of its production comes from the Canadian side. Mr. Fields. And at any other points in the country? What is the extent of its operations? Gen. Beach. I could not answer that, I do not know. Mr. Feelds. Anyhow, it is a part of this Niagara proposition. Gen. Beach. That is a fertilizer proposition I have not gone into very thoroughly. Ml'. Fields. Do you recall a joint letter written by four southern power com- panies in response to your request for bids, and would you give us the gist of that letter? Gen. Beach. There was a letter received by me on June 2, 1921, It is signed oy the Georgia Railway & Power Co., by H. M. Atkisson, chairman board of directors ; the Columbus Power Co., by H. H. Hunt, vice president ; the Central Oeorgia Power Co., by P. G. Gossler, vice president ; and the Tennessee Power Co., by C. M. Clark, president. The letter is quite long, being seven pages of legal cap, and in a general way they state they can not utilize the power and they regard the construction as inadvisable. I would state that these gentlemen all came to me together and handed me the letter. After I read the letter I asked them if they realized what impression it made on me, and they said no, and I told them that it struck me «s exactly the kind of a letter a man would write me who wanted to buy a horse I had for sale. The Chairman. Pardon me, Mr. Fields, will you allow me to get the dates flear in my mind. This letter was written on the 2d of June, 1921? Gen. Beach. I notice it is dated at the end. It was dated May 20, 1921, but was presented in person by Mr. Atkisson and the other gentlemen at my office on June 2, 1921. The Chairman. And Mr. Ford's first offer was presented on July 8, 1921. Gen. Beach. July 8; yes. ' The Chairman. I simply wanted to get those dates in my mind. Gen. Beach. These gentlemen state that the completion of the dam is inadvis- able, and there is nothing in it. Mr. Fields. I gather from the chairman's questions that he probably has the impression these gentlemen considered a proposition; in fact, they did not Submit a proposition at all? Gen. Beach. No, sir; they advised me I was wasting my young life in trying ^0 secure propositions. 118 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 119 ■mI HP' I *i Mr. Fields. In order to keep that matter straight, I will ask you to put that letter in the record. The CHAmMAN. Mr. Fields, will you let me ask just one other question: were they asked to submit a proposition? Gon. Beach. Yes, sir. The Chairman. And this is their answer? Gen. Beach. This is their reply. Mr. Fieij)S. Recommending against the development of Muscle Shoals? Gen. Beach. Yes, sir. (The letter referred to follows:) The United States Government, through Gen. Lansing H. Beach, Chief of Engineers, asks the southeastern power companies the following question : " The Secretary of War has directed me to ascertain what arrangements can be made to derive a reasonable return upon the investment if the United States completes the dam and hydraulic power plant at Muscle Shoals, Tennessee River." The answer to that question depends upon a correct determination of the fol- lowing points: (1) What commercially usable power output can be produced at Muscle Shoals, Tennessee River, taking into consideration the flow of the river, its characteristics, and Government regulation requiring a uniform river flow for navigation of not less than 10,000 second-feet at all times? (2) What market is available for the sale of the power and at what rates? (3) What gross revenue can be derived from the sale of the commercially usable available power output? AN S WEB TO QUESTION (1). (a) Based on data contained in various reports available, which further investigations have confirmed, the continuous 24-hour primary power, i. e., 100 per cent use of available power, is approximately 700,000,000 kilowatt-hours per annum. This figure is arrived at by assuming a plant capacity of 100,000 kilowatts and operating at 100,000 kilowatts for 12 daylight hours and at 60,000 kilowatts during 12 night hours. To obtain a plant capacity of 100,000 kilowatts dur:n? f/eriods of high water it will be necessary to have an installation considerably in excess of that amount. The portion of the 700,000,000 kilowatt-hours primary power per annum wliicli could he used under existing commercial conditions in southeastern territory estiniatee safer to tstimate upon not to exceed 500,000,000 kilowatt-hours maximum. It is estimated fhat the demand for power in southeastern territory will absorb this latter amount of additional power by the year 1927. There are nine years dur"ng the 26-year i>eriod coveretl by the hydrograph of the Tennessee River at Florence, Ala., during which the total availability of primary power on 100 per cent load factor was less than 700,000,000 kilowatt- hours per annum. To supply such deficiencies, which will undoubtedly occur periodically in future as tlu»y have in the past, steam backing equal to the fuH capacity of the Sheffield steam plant, i. e., 60,000 kilowatts, nmst be exclusively available subject to call to meet such deficiencies; in certain years that cupacit> would not have been sufficient. (a-1) The 10 months secondary power which it is possible to produce ni Muscle Shoals has little or no commercial value. ANSWER TO QUESTION (2). (ft) The only market for the power at present available is the market served by the southeastern power companies, and the rates for delivered power pei- mitted to be charged by those companies are the published rates fixed by t'le various public ut lity conunlssions of the States in which those compame operate, and the value of the power at Muscle Shoals must take into considera- tion all elements of cost between generation and delivery. ANSWER TO QUESTION (3). (c) The amount of gross revenue which it will be possible for the United States to derive from the sale of power is definitely fixed by the amount of (onunerclally usable power available ami the prevailing rates fixed bv public regulation. REASONS FOR CONCLUSIONS AS TO PRIMARY POWER. Considering the southeastern territory (including Muscle Shoals) a study of hydrographs of the various rivers now serving the existing and proposeil power plants shows that years come periodically when drought is coincident and shortage of water is general. Such years have come with unfailing certainty and will undoubtedly come in future. The safe capacity rating for public service uses of the existing and pro- posed water-power developments, even granting the full effect of coordination of watersheds, is limited definitely to the sum total of their respective com- bined capacity ratings during these low years. This limitation is absolute and contracts to deliver primary power must not exceed it, except as supple- mented by steam production. The hydrograph of the Tennessee River at Florence, Ala., for 26 years (from 1894 to 1919, both inclusive) proves that there were 9 years during the 26-year period when it would have been necessary to use the Sheffield steam plant (and m certain of those years its full capacity would not have been sufficient) to supply the deficiency in primary power. Tliis condition will inevitablv occur periodically in future and steam backing equal to the full capacity of the Sheffield steam plant must be exclusively available at all times to supply the deficiencies. SEASONS FOR CONCLUSIONS AS TO 10 MONTHS' SECONDARY POWER. There is no coordination of the other existing and proposed water-ix)wer plants (including both storage and river flow plants) in the southeastern terri- tory under any plan of operation that seems commercially practicable that will convert any large amount of Muscle Shoals secondary power into continuous primary power ; at least it would not be safe for public service corporations serving the commercial uses of the public to base contracts on any such result leo.! ^y^^'^snwh of the Tennessee River at Florence, Ala., for 26 years (from 1894 to 1919, both inclusive) shows frequent periods of time varying from por- tions of a month to an entire month, to several entire months, up to a year. When there is no 10-nionth secondary power. There are only 3 years during the period of 26 years during which such periods or gaps do not occur There are 7 years in the 26-year period observed during which there is either no 10- raonth secondary power at all or only a negligible amount. These gaps in the lO-months secondary power, together with the impossibility of predicting when they will occur, inevitably lead to the conclusion that the 10-months secondary power has no commercial value for public service use capable of measurement. Steam backing to convert any substantial amount of 10-months secondary power into primary would be very expensive because a steam plant of large capacity would have to stand by subject to call, probably continuously, cer- tainly for large and frequently recurrent portions of almost every year, for operation under extremely variable conditions both as to load and duration of time. Steam stand-by costs would be a permanent annual charge on the cost 01 the total power output, whereas the annual kilowatt-hour production by the steam plant would be relatively small and very costly, meaning an average cost per kilowatt-hour of the combined water and steam power produced, much m excess of water power cost. To attempt to convert any substantial amount of 10 months' secondary ix)wer j'lto primary power by use of the Sheffield steam plant owing to its character- stics and its location with respect to the distributing companies it would have serve, would result in such a high average cost per kilowatt-hour delivered to the distributing companies as to make the total water and steam power pi-o- •luced unmarketable at the rates and standards of service fixed by the pi-esent ngorous public service regulations in the Southeastern States. This steam Plant, consisting, of only one unit of 60,000 kilowatts, must be held exclusively n reserve at all times to make up the deficiencies in primary power; therefore 't will not be available to convert 10-months secondary power into primary power. X 118 MUSCLE SHOALS PROPOSITIONS. Mr. Fields. In order to keep that matter straight, I will ask you to put that letter in the record. The Chairman. Mr. Fields, will you let me ask just one other question: were they asked to submit a proposition? Gen. Beach. Yes, sir. The Chairman. And this is their answer? Gen. Beach. This is their reply. Mr. Fields. Recommending against the development of Muscle Shoals? Gen. Beach. Yes, sir. (The letter referred to follows:) The United States Government, through Gen. Lansing H. Beach, Chief of Engineers, asks the southeastern power companies the following question : " The Secretary of War has directed me to ascertain what arrangements can be made to derive a reasonable return upon the investment if the United States completes the dam and hydraulic power plant at Muscle Shoals, Tennessee River." The answer to that question depends upon a correct determination of the fol- lowing points: (1) What commercially usable power output can be produced at Muscle Shoals, Tennessee River, taking into consideration the flow of the river, its characteristics, and Government regulation requiring a uniform river flow for navigation of not less than 10,000 second-feet at all times? (2) What market is available for the sale of the power and at what rates? (3) What gross revenue can be derived from the sale of the commercially usable available power output? answer to question (1). (a) Based on data contained in various reports available, which further investigations have confirmed, the continuous 24-hour primary power, i. e., 100 per cent use of available power, is approximately 700,000,000 kilowatt-hours per annum. This figure is arrived at by assuming a plant capacity of 100,000 kilowatts and operating at 100,«300 kilowatts for 12 daylight hours and at f>0,000 kilowatts during 12 night hours. To obtain a plant capacity of 100,000 kilowatts during r*eriods of high water it will be necessary to have an installation considerably in excess of that amount. The portion of the 700,000,000 kilowatt-hours primary power per annum which could be usetl under existing commercial conditions in southeastern territory estimate 1 to be .')70,000,000 kilowatt-hours per annum maxinuim. including ds- placement of ai)proximately 135,000,000 kilowatt-hours at present produced by steam ; and in view of theuncertainty of the amount of steam which could be displaced and of the amount of power which could be taken at night, it woulerate, and the value of the power at Mus^-le Shoals must take into considera- tir.n all elements of cost between generation and delivery. MUSCLE SHOALS PROPOSITIONS. ANSWER TO QUESTION (3). 119 (c) The amount of gross revenue Avhich it will be iiossible for the l.nited States to derive from the sale of power is definitely fixed by the amount of lommeicially usable power avaiial)le and the prevailing rates fixed by public regulation. KKASONS FOR CONCI.TSIOXS AS TO PIJIMAUY POWEIL Considering the southeastern territory (including Muscle Shoals) a study of hydrographs of the various rivers now serving the existing and proposed power plants shows that years come periodically when drought is coincident and shortage of water is general. Such years have come with unfailing certainty and will undoubtedly come in future. The safe capacity rating for public service uses of the existing and pro- posed water-power developments, even granting the full effect of coord. nation of watersheds, is limited definitely to the sum total of their respective com- bined capacity ratings during these low years. This limitation is absolute and contracts to deliver primary power nuist not exceed it, except as supple- mented by steam production. The hydrograph of the Tennessee River at Florence, Ala., for 26 years (from 1894 to 1919, both inclusive) proves that there were 9 years during the 26-year period when it would have been necessary to use the Sheffield steam plant (and in certain of those years its full capacity would not have been suflicient) to supply the deficiency in primary power. This condition will inevitably occur periodically in future and steam backing equal to the full capacity of the Sheffield steam plant must be exclusively available at all times to supply the deficiencies. REASONS FOR CONCLUSIONS AS TO 10 MONTHS' SECONDARY POWER. There is no coordination of the other existing and proposed water-power plants (including both storage and river flow plants) in the southeastern terri- tory under any plan of operation that seems commercially practicable that will convert any large amount of Muscle Shoals secondary i)ower into continuous primary power; at least it would not be safe for public service coi-porations serving the commercial uses of the public to base contracts on any such result. The hydrograi>h of the Tennessee River at Florence, Ala., for 26 years (from 1894 to 1919, both inclusive) shows frequent periods of time varying from por- tions of a month to an entire month, to several entire months, up to a year, when there is no 10-month secondary power. There are only 3 years during the period of 26 years during which such periods or gaps do not occur. There are 7 years in the 26-year period observed during which there is either no 10- nionth secondary po^^•er at all or only a negligible amount. These gaps in the 10-months secondary power, together with the impossibility of predicting when they will occur, inevitably lead to the conclusion that the 10-months secondary power has no commercial value for public service use capable of measurement. Steam backing to convert any substantial amount of 10-months secondary power into primary would be very expensive because a steam plant of large capacity would have to stand by subject to call, probably continuously, cer- tainly for large and frequently recurrent portions of almost every year, for operation under extremely variable conditions both as to load and duration of time. Steam stand-by costs would be a permanent annual charge on the cost «'f the total power output, whereas the annual kilowatt-hour production by the steam plant would be relatively small and very costly, meaning an average cost per kilowatt-hour of the combined water and steam power producewer into primary power by use of the Sheffield steam plant owing to its character- istics and its location with respect to the distributing companies it would have to serve, would result in such a high average cost per kilowatt-hour deliveret think I quite understand your question. M? (n-iN What I am driving at is how much more will the completion ,.! Dams 8 and '2 mean in navigation as compaiv miles. CoriN W^l the'.mipletion .f Dam No. 2 and Dam No. 8. If FonKs pr.,, ' sition is accepted, the information is communicated to you that he intends t- build <»ther dams aliove there, as I understood you. ,,, ^ , (Vn KENcn Yes sir: but I would state that 1 did lu.t iind<'rstand that he ccm^enphUed buih^^^ in that secthm of the r ver bel<»w Chattanooga, ifwo 1 pn»bably. aiul if he were wise, he would go further up W;iv ;«' slopes are steeper and where the cost of building the dams woijUl "• /*'^^' ! ' • he c^ould gefa grea^ return in power for his money than he could by bu Nl ing them on that section of the river, which .s very wide and where the slopes "'Mr IkT?' ThaT would then be the cause of wwer which thev would produce. Ml OUIN Ml Ford from vour evidence intends to make this a great monu- ment' to his'life for the benefit of the American people as I understand it. Gpu Bevch. I did not say that. . , .. ^ Mr QuiN. You stated it in other language. Y»m stated that he wantwl it t<. be a lifework for the agricultural interests. ^, .. ,- Gen Be\ch. I stated in general terms what might be termed as Mr. I'oul- desiring to build a monument to himself, Init I made no specification as to an.N stones that he intendeil to put into that monument. Mr QriN Well it occurs to me from the proposition he has made here tuat there is a large element of philanthropy in his ultimate intentions. If Mi'- Ford with the vast amount of wealth he has— more than rm men c(»uld evci spend— would take upon himself this gigantic scheme involving worhls or work and studv and money, it means either one of two things, that he is attt amassing more money for himself or that he is endeavoring to accompli^'i' something great for the benetit of the American people. Do you not think tnai that is a logical conclusion? Gen Bevch. Not necessarily. I made the statement that he desired to gam a reputation on certain lines.* Now. he might desire to secure that reputation and a good financial return at the same time. I have not the information from him as to whether he desires to separate the tw^o or not. Mr QriN. If it were purely a selfish motive to make money for himself ano his familv and estate, would it not be a fine thing for the peoide if those dan«^ ;iic constructed and this territory developed for the puriKises which we believe his i»roposition sliows? Gen. Beach. UiKpialifiedly so. Mr. Qi IN. Some of the gentlemen engjigcd in competitive lines of water power think it inadvisable and foolish to proceeil and complete these dams aial develop this wonderful territory. Did any of them agree to lease it or buy it or submit a proposition that could be placed in a relative or compara- tive position to the one of Mr. Ford? (Jen. Beach. Those letters which I have just placed in the record. I think, are the best answers to that question. .Mr. (}urN. To my mind they indicate they do not want it done, and I believe lor the reason that it is in competition with their business. You do not know about the i)roduction of nitrates personally, do you. ot vour own knowledire'' Gen. Beach. No, sir. * ' Mr. QuiN. That is under Gen. W^illiams's department. You do not know about the production of fertilizer? (^en. Bea( n. No, sir ; not sufficiently to be willing to testify before the com- mittee. . yji > Mr. QuiN. You stated the river would be navigable to Florence, Ala.; where is 1^ lorence with reference to Muscle Shoals? Gen Beach. It is practically at the lower end of Muscle Shoals. Dam No 1 \yould be at 1^ lorence. Dam No. 1 would be just above the railroad bridge ''. «i^ ^^\ f ^T^" ^^'^ '"^P' '''^^^*^ connects the town of Florence with the towTi of Shettield. I would state that the town of Florence, in actuality, it not as large as shown on the map and does not reach up as close to No. 2 as the man would indicate. * Mr. QuiN. You would have, then, 6 feet of navigation from the Ohio River up to Florence at the lower end of Muscle Shoals? Gen. Beach. Y'es. .Mr. QuiN. How many miles is it betAveen Dam. No. 1 and Dam No 3 (Jen. Beach. A little less than 30 miles, or about 30 miles. Mr. Fisher. General, something has been said about the avaihible market for the water ix)wer if the Ford offer should be accepted. Have you ever made a survey of the industrial needs of the cities within loO miles (Jen. Beach. No, sir. Mr. Fisher. You are not familiar with the industrial needs, for instance at Alemphis, except in a general way? Gen. Beach. Only in a general way, knowing the citv and its general busi- ness tendencies and size. ^Ir. Fisher. You are familiar with the fact that Memphis is short on power for its industrial needs? Gen. Beach. Memphis has no water power inunediately available. Thev iiave to depend upon coal. Mr. Fisher. Art? you familiar with the fact that even with the steam power that we have lor our industrial plants, we are now short on that kind of lK)wer? Gen. Beach. I do not know. Mr. FrsiiEu. You are not familiar with that situati(m? (Jen. Beach. I do not know^ the definite data on that point. Mr. Fisher. You stated you are pretty familiar with the terriory through which the Tennessee River fiows, I will ask you whether or not the farm lands through that country are sadly in need of thorough, scientific fertilization after many years (d" cultivation of cotton, and so on. Gen. Beach. Are you referring to the lands of the entire State or only those iimuediately adjacent to the Tennessee River? Mr. Fisher. I mean the States of Alabama, Georgia, Tennessee, and Mis- sissippi. (Jen. Beach. I have understood and have been told on my trips through that section of the country that they do need fertilization very greatly. Mr. Wright. General, the foundations of Dam No. 2 are limestone, are they Hot? ^' miles? , , Gen. Beach. I could not state that offhand, because it would depend a go«»u deal on the methods used. They are constantly improving methods of insuhi- tion, and it varies considerably with the voltage at which it is placed. You understand, voltage means what you might call the electrical head, the push of the current, and if you have a high voltage you get through more electricity than if you have a low voltage. Mr. Wright. It is true that the percentage of loss has been reduced very materially by modern appliances and inventions? Gen. Beach. Oh, yes. The extension of the distance to which they are sending electricity now proves that, and I have been informed by some of the best electrical engineers that they soon expect to be able to transinit electricity directly to a distance of 400 miles as efficiently as they formerly did to a distance of 200 miles. Mr. Wright. Have you made an estimate of how much per kilowatt it would cost to produce power at Dam No. 2? Gen. Beach. No, sir; I have not figured that out exactly. Col. Cooper gave that m his testimony, but I have not done that myself. Mr. Wright. You know the average price at which it is sold by the power companies in that section; that is, primary power? Gen Beach. Yes, sir. Those parties who signed that joint letter stated that they got an average of 9 mills per kilowatt. Mr. Wright. General, what is the life of an ordinary cement dam such as you are constructing down there? Gen. Beach. It ought to be perpetual if your cement is of proper quality Mr. Wright. And, of course, properly constructed, there is not much element of risk in its being washed away? The Chairman. Mr. Wright, will you permit me to ask just one question' Mr. Wright. Certainly. The Chairman. I think those gentlemen said they w^ere able to furnish the power at 3 mills per kilowatt, whereas it would cost a little over 4 mills if the dam was constructed by the Government? Gen. Beach. I asked them what their average selling price per kilowatt was and they told me 9 mills. Mr. Wright. General, the construction of storage dams on the upper part of the river and its tributaries would very materially increase the production of power at Dams 2 and 3, would it not? Gen. Beach. Every reservoir which is built on the Tennessee above Muscle Shoals IS naturally beneficial to Muscle Shoals because the difference be- tween the primary power and the >econd power is due to the loss of water which escapes during high stages of the river and leaves only a relatively small proportion to fiow down during the low stages. Every reservo r tha't IS built on the upper section of the river will impound that much flood water and consequently tend to equalize the flow, keep the flood waters from beinc wasted, and supposing, naturally, tliat the outflow from your powerhouse is regular, it will tend to increase the low water flow. Consequently with the construction of dams on the upper river or its tributaries, the amount of ori- mnry power at Dam No. 2 will be increased. * Mr. Wright. General, speaking about the market for this power, you have named Memphis as possibly the greatest prospective market for this power Ut course, there are numerous towns and cities dotted all over that country of smaller size than Chattanooga, Mem^-^s, Nashville, and the others you have mentioned that would be customers fc this power, would they not' ,,. ;|®^; Beach I imagine that they would, but I would say from my experience Mth tiie people of that section, they are very slow to adopt innovations I am leferring now to the people of the rural sections of that countiT Mr Wright But taking good-sized towns like Ozark, Florence, Huntsville ec^tur, and towns of that size and character, they are modern to the extent at they want elec-tric lights and they use a grea deal of hydroelecric power "1 their small industries, do they not? f^ v^i .in!lT' Bf^^H- .^'«' sii*; the amount which they would consume in manufacturing urn for domestic purposes under present conditions would be very small indeed Mr. \V right. It IS true, generally speaking, that the use of hydroel^^c I'ower is constantly on the increase, is it not? n.P iJ; ?^'^^"' ^^' ^;^^' decidedly. I find that there are manufacturers that use electric power when it costs them more than steam power. They do that npn,w ""l M '*^f ''^'^^^^^«' «"^ of the first reasons is that it is ordinarily inde- wl^ ^^"^ '"'"^" equation, as nearly so as you can make it. It does not "^pend on whether the firemen happen to get hold of some fire water or some- 126 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 127 lliiir' of tlmt kind which incapacitaUs them from atteiuling to the fmnace. s^l so o eaner and does m)t involve the question of ashes or the fi^tn^fion of ashes ami cinders. It also removes one very ajrgravating feature of the '"•M^Tumr GJ:;:^al, .ettin. hack to the leased period I mn^ ]^^^ from what you said pretty thoroughly your posit.on, ^^"t is ^lot tiue t^^^^^^^ power companies or people who want to invest m the constiuc^um of electiical plants insist on long-term leases? Is not that the g^"^»;^l f"j^ •,, Gen Bevch. It is when they think they have a good hargain Mr Wright Well, let us analyze that just a little, General. In the firs place it rSessoine vears to get the plant constructed and equipped am [bat inuslT taken into'consideratio.i, and you e.stimate that perhaps it would require* two and a half or three years to complete Dam No. 2. M^^VmGnT ^There is an immense amount of capital entering into that proi^-t all the while, and the investor is waiting for some return, and tli(>n ! f?ei he gets his plant conipleted and f(,uipped he must develop a market to ids poweI^ and. as y"ld '^^^t do anything at all. Thev anri ?h^^ , ""T^ ^'''Z'' """l^ ^^^P t^^°^' ^^<1 I ^'e°t down and held a hearing thaf in fH ^f^ T '''5!'^ ^^^ ^^""^^^^ ^0"l«;i Gen Be Jh. The town of Frederick, Md., paid the Baltimore & Ohio Rail- riad Co $10,000 to keep out of the town because it was one of the important iM lints on the stage route to the W^est. The Chairman There are one or two things I think you can clear up very nicely General, in connection with this matter. How long has this matter of the tixation of nitrogen from the air been in existence? (Jen Beach. That I could not answer without looking it up. The Ch\irman. It is comparatively recent, is it not? Gpu Beach Yes : I do not suppose it is 20 years old. The Chairman How long has Germany been using that method of securing "^G:^BE.c^^^ll,'lo^^^^^ than they let the rest of the world know; but the ^^T^'hai^^^^^^^^^ Po-ible to secure nitrogen by fixation from the air here in the United States? ,r ^, • ;fi> (^n BEA.CH You are getting into a branch of the subject, Mr. Chairman with wh c 'l am not acqu^^^^^ This is outside of the work of my department, and I ha!Vin?ornmthm upon it only incidentally, and I would not like to give any evidence where my information is of that character. The Chairman. My information has been that the whole proposition is com naratively modern. Gen Be\ch. I do not think there is any question on that point. The'CHAiRMAN. That is, it has only been within 10 or 12 years that the thing h-is been developed. So that this is all a new development, and therefore it s reasonable to suppose that many additional inventions will be made, and that the process will be materially developed in the years to come? Cen Beach I do not think there is any question upon that point. The" Chairman. That is what I had in mind myself. .^efifvi.w Mr Mckenzie. General, on yesterday afternoon, when you ^vere testifj ng. if niiX hP imnossible to construct successfully a dam at that point »>^<^a^^; ^f ThffoundaS^^K should happen, you can see it would very greati; change the conditions of the whole proposition. of ^hl^'unUed'sfUes "i?' vnn'«'ri' ^-n-^^ ^^ ^^" ^^^P« ^^ Engineers of the Army Uiat in vo ir in S^ ''' ''"^ ^"^ ^^"^^ "^ unhesitatingly an assurance niai in join judgment the Government will be able to perform that nnrt of the contract in case we enter into the contract P^rrorm tnat part of at the s^teT'hrvrno^"r.«ln%''^^KT- '^^^ ^'^ ^^^'^' "^^ ^^^^^^s of our borings s innos^ihlP Tf t,o K^^^'vi? ^^^'^''^ ^^^* ^^^ construction of Dam No. 3 \o " Rnf to uaT^ ^^ '' ^'"^^ "^^^^ expensive, proportionately, than Dam del;' e^es t fl P ff^? rf ?l ^^ ^^"^''^ ^^^^ ^* ^« impossible, and all our evi- dence goes^ to the effect that it is perfectly practicable. If iJ"; n.-m?'^«f; lZu^^ ^^""^i ''^'^^^?^ hesitation are willing to assure us that It is a piettj safe gamble, so far as the United States is concerned? th^nVrcondlti^n"' '''' ^""^ '"'"''^^ ^'"""^ *^ ^"^ ^ ^^^^^' ^'^^ ^^ ^^'P«' "^^^ ^« P«^fnn/y r^^^'f'^^o^'''' ^''*'' ^^"^^ "^' offhand, what the present return on the 1 aiiama v^anai is I Gen. Beach No, sir. I think it has recently gone on a paying basis; that is, it has covered expenses. ^ j & ^^ . -^"^i- i=>, Mr. Mckenzie. I think probably that is true, because I was informed day before yesterday that they had raised the wages down there. I am referring to the cost of operation. Gen. Beach. I understand that it is only recently that the revenue of the canal is more than the cost of operation. Mr. McKenzie. It would amount to more than, 4 per cent on the investment would it not? ' Gen. Beach. Tlie present return, as I understand it, has not reached the 4 per cent basis. ^ Mr. Hull. General, speaking of the worth of horsepower, it seems to me it would be interesting for the committee to know what the value of this horse- power would be, provided it could be sold at the rates that are now prevail- ing at such developments as Niagara Falls and the Keokuk Dam. I do not mean to say you can sell it, but I would like to know myself, if this dam is completed as proposed in the Ford offer and the power could be sold at the going rates that now prevail at Niagara Falls and the Keokuk Dam, what the value of the horsepower would be. I do not presume you can answer that question offhand, but if you can obtain the information and put it in the record, I shall be glad to have it. You can get that information, can you not? Gen. Beach. Yes, sir. Mr. Hull. I might say, giving my impression of the matter, that the dis- crepancy in the cost of the Panama Canal^ it seems to me, is too great for en- gineers to permit to go unchallenged. I think if it was investigated we would find that the great share of the difference in the cost of the Panama Canal is o^^^[^"tmnea^^ ^^^^^ ^ ^^^^^ ^^ ^^i^^^r^ir^^^o^^ Which they sold it? investigation by the ^^^^mitte^ on Interstate ^nd foreign ^ ^^^^ ^^^^ called power bill, in ^<>»"ection with power ^^^^ made by a Government distributed, and tha a very^^^^^^^^ tie p^wer com^v sold their power? witness concerning the PJ^^^ ,?,t^ which the P^^^^j^ ^^^.^f ^Jij^g p^wer to small I ^nf o^r": Ce 'u'J^dr ^ml? y^ a^n^ VC^o^ "n^V that matter. '''■d''Ut^:TJ^^%lTi^'inTX!^''^:t matter. , ^ ^^,^„ at prices as low "^ thatj commercially in Tacoma and Seattle, thans,^«^"derSrom the water coming down from Mt. Ranier at 1 cent " mI" P^BK^^That is water power. I am talking, now, about steam power, and the "Sr^of that power between the different power companies m the Ea.t. You do not know about that? ^ ^, . „.^ fjpn Reach. I do not know about that; no, sir. ^..^^f^ri it Mv pT^f'Fn You did not know that that had been thoroughly investigated a n ^/Vi^tp and tMt thrpower bill, when it was proposed, did provide such po'4r by'es^^^^^^^ power 'plants at the coal mines and distributing ^"Sln ^BE^^c^'lTlnow the superpower survey has been made. I am not familikr with the details of the report in connection with that. Mr. Parker. Who would be able to give it to us? Gen. Beach. I think probably Col. Keller, the present Engineer Commissioner of the District of Columbia, would be able to give you as much information on that point as anybody you could call locally. Mr. Parker. Does it or not seem to you to be important to know with refer- ence to the value of this place what can be done in that way with steam? Gen. Reach. I should think it would be very important. Mr. Fields. General, what time elapsed between the submission of your invi- tation to Mr. Ford and the receipt of his first proposition? Gen. Beach. Probably two months and a half or two months. Mr. Fields. From the time you submitted it to him? Gen. Beach. From the time I first wrote to him. Mr. Fields. Until his offer came to you? Gen. Beach. I do not think I wrote to him at quite as early a date as I wrott to the power companies in the South, because it did not occur to me at first that he would be interested. Mr. Fields. In Exhibit E, on page 22 of the Secretary's report, Avhich exhibit is signed by yourself, you make an interest charge of $1,875,000 against the Ford proposition for the investment of the Government during the construction period and the first six years of the lease. Is that an ordinary interest charge, or is not that out of the ordinary on Government propositions? Gen. Beach. You will notice in the second sentence below that tabular state- ment it says "such carrying charges are not customarily considered in Govern- ment work." Mr. Fields. Do you know whether or not a charge of this kind has ever been considered in Government work? Gen. Beach. I do not know of its ever being included before. I think if the Government did include those that the appropriations by the Rivers and Har- bors Committee would be very differently made than they have been made ff>r many years past. Mr. Fields. Upon what do you base that opinion — how^ do you reason that out? Gen. Beach. We liave spent in the course of the last 15 years something like $60,000,000 on the Ohio River to improve that stream, and the interest charges on that, it seems to me, if Congress were going to consider them, would help expedite the work. Mr. Wright. General, in the construction of these plants and development of electrical current by water power it is very necessary or desirable to have an auxiliary steam plant in connection with it, is it not? Gen. Beach. That depends entirely upon the manner in wiiich the power is utilized. If you are selling your power you have to provide some means to cover the production of the total power for which you have made a contract. If you can sell more than your primary power itself, and you have a period where the secondary power is of value, you can supplement your primary power you obtain from the water by a steam plant, making a large portion of your second- ary power primary. Mr. Wright. Then it is verj'^ desirable, from the standpoint of a breakdown. The consumer wants his power with regularity. Gen. Beach. Yes, sir. Mr. Wright. That is also an element, is it not? Gen. Beach. That is quite an element. We could, of course, guard aga'nst tliat by duplication of transmission lines. It would be a question of whether the duplication of transmission lines for the establishment of a separate steam plant would be more economical. STATEMENT OF COL. JOHN A. HULL, ACTING JUDGE ADVOCATE GENERAL, WAR DEPARTMENT. The Chairman. Colonel, we are discussing the proposition of Mr. Ford for certain rights at ^luscle Shoals and it seems that the Alabama Power Co. and the Air Nitrates Corporation also make claims for those separate propositions. I understand that you have looked into the matter very fully and are in a r>osi- tion to explain the matter to the committee at this time. Col. Ht'll. The question as to the Alabama Power Co. was submitted to the otfice in November with the request to give it great expedition, so it was tl.ere a •^•omparatively short time. I made a report to the Adjutant General of the '^rmy, under date of November 16, 1921, and I have a copv of that report with nie. (Thereupon the committee took a recess until 2 o'clock p. m.) \ 132 MUSCLE SHOALS PROPOSITIONS. AFTER RECESS. MUSCLE SHOALS PROPOSITIONS. 133 The committee met pursuant to recess at 2 o'clock p. m. STATEMENT OF COL. JOHN A. HULL, ACTING JUDGE ADVOCATE GENERAL, UNITED STATES ARMY — Resumed. The Chairman. Colonel, at the time of adjournment you were going to offer some letter for the record. Will you kindly continue your statement just as you were doing, and in your own way tell the storj\ Col. Hull. I stated that at the end of October of last year, the office was asked its opinion as to what steps were necessary to clear title, so that the Warrior-Sheffield transmission line and the Warrior Power Plant and Substa- tion, and other incidental properties of the Government erected by the Alabama I'ower Co. for the account of the United States and all as described in con- tract T-69, could be dispos'^d of by the United States to other than the Alabama Power Co., and in such a way that they can all be operated as at present located. As a result, the office prepared an opinion dated November 16, 1921, a copy of which I will at this place insert in the record. The Chairman. Is it very long? Col. Hull. Four pages, sir. The Chairman. Would you kindly read it so that the committee may have it before them. Col. Hull. I will be glad to. » [First indorsement] War Depart^ient, Judge Advocate General's Office. November 16, 1921. T lie An.iUTANT General : 1. In the attached communication, dated October 31,- 1921, the Chief of Ordnance states : " The Secretary of War desires information as to what steps are necessary to clear title so that the Warrior-Sheffield transmission line and the Warrior power plant and substation and other incidental possessions of the Government erected bv the Alabama Power Co. for the account of the United States, and all as described in contract T-69, copy of which is attached, can be disposed of by the United States to other than the Alabama Power Co. and in such a way that they can all be operated as at present located. " The Secretary of War is desirous that this information be supplied at the earliest possible date." 2. Contract T-69, dated December 1, 1917, provided for the construction, maintenance, and operation of the following: Warrior extension, a new power station, adjacent and in effect an addition to the power plant of the Alabama Power Co. on Warrior Creek, to be erected upon land belonging to the Alabama Power Co. Warrior substation, a new substation and substation apparatus, to l)e erected near the Warrior extension, on land belonging to the Alabama Power Co., and to constitute an extension to the switching house of that company. Muscle Shoals substation, a structural-steel bus and switching structure with concrete foundation, at Muscle Shoals, on land belonging to the United States. The transmission lines for transmission of electrical current, extending from said Warrior substation to the Muscle Shoals substation, said lines to run over the present right of way of approximately 100 feet in width and 20 miles in length; thence over a right of way to be acquired by the Alabama Power Co. at its own expense, from its present right of way to land of the United States, and thence over the land of the United States to the Muscle Shoals substation. The quarry branch line, for the transmission of electrical current, extendinj; from a point on the transmission line, near Russellville, to a limestone quarry, the property of the United States, a distance of approximately 3,000 feet, the right of way " to be provided by or at the expense of the United States." Drifton extension railroad, extending about 8,000 feet from the terminus or the disused Drifton branch of the Southern Railway to the Warrior extension, the right of way from the terminus of said disused track to the property ol the Alabama Power Co., and all of the rails and rail-joint material to be fur- nished by the United States. . • , . ^ . ^,, • «„4rv This office understands that all of these properties are included in the inquiry which is the subject of the present reference. 3. It is specifically provided in the contract that title to these facilities, with the exception of the Drifton extension railroad, shall be vested in the Uiiireu States, although the land upon which are located the Warrior extension, the Warrior substation and the major portion of the transmission lines belong to the Alabama Power Co. 4. This contract, furthermore, provides for the maintenance and operation of these facilities and for electrical current to be supplied the Government thereunder for a period of 10 years, terminable, however, under the condition.^ therein stated ; and that the right to receive such current may be transferred or assigned to the purchaser or lessee of the Muscle Shoals nitrate plant. 5. Under this contract, the Alabama Power Co. is obligated to purchase the Warrior extension and the Warrior substation, if at any time subsequent to three years after the termination of the war the United States shall so demand the price to be paid therefor to be fixed by arbitration. The power company may also at any time, upon its own election, purchase these two facilities, anil if it elects so to do, the United States is obligated to sell to it. A fund which was to accumulate from sums withheld by the Government from its payments for electrical current was to apply on the purchase price, if sold under the above provision.s. 6. It is further provided that if the Alabama Power Co. shall not purchase these facilities upon the demand of the Un'ted States, the property may be sold to another, subject to the conditions that the properties shall not be oper- ated and that they shall be removed within six months after such sale. If not sold they must be removetl by the Government at the expiration of the 10-year period of operation, or sooner under certain circumstances therein set out. 7. The Government also has the right under this contract, upon receipt of notice by the Alabama Power Co., to remove its transmission lines and ap- purtenances located upon land or rights of way belonging to the power com- pany, to require the power company to purchase the same, at a value to be fixed by arbitration. If not sold the Government is obligated to remove such lines and appurtenances at the expiration of the 10-year period during which it is provided that current shall be supplied. 8. The contract is not specific as to the title to the Drifton extension rail- road. As to that portion of it, however, which is on the right of way pro- cured by the Government, this office considers that the title thereto may safely be considered as in the United States, in view of the fact that the contract is silent as to the ownership and the Government furnished not only the rails but also paid $40,000 toward the expense of its construction. The Govern- ments ownership of that portion of such railroad, however, which is on land belonging to the power company is possibly limited to the ownership of the rails which were furnished by it. The contract makes no specific provision for disposition of this railroad. 9. This office is informed by the Chief of Ordnance that no energy has been furnished the Government under the contract T-69, but that such energy has been received under the terms of an informal agreement made in October, 1918. Therefore the situation is not complicated by any rights of the companv under paragraph 2, article 17, of the contract. (See J. A. G. 164, Mar. 29, 1921.) 10. It is the understanding of this office that the plant constructed at Muscle Shoals was constructed under the authority of section 124 of the national defense act of June 3, 1916. (39 Stat, 166, 215.) That act authorized and empowered the President of the United States to construct, maintain, and operate plants for the generation of electrical or other power and for the pro- duction of nitrates or other products needed for munitions of war and useful in the manufacture of fertilizer and other useful products. It also empowered the President to acquire by lease, purchase, or condemnation lands, rights of way, and materials, minerals, and processes patented or otherwise necessary for the construction and operation of such plants and for the manufacture of such products. It also provided : " The plant or plants provided for under this act shall be constructed and operated solely by the Government and not in conjunction with any other indus- try or enterprise carried on by private capital." Notwithstanding the foregoing provision, the contract of December 1, 1917, was entered into with the Alabama Power Co. and in consequence the I'nited States now finds itself the owner of a plant and transmission lines on land belonging to the Alabama Power Co. which, by the terms of the contract, the Alabama Power Co. may under certain conditions acquire, and the United States in accordance with the contract may requife the company to purchase 134 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 135 the plant and transmission lines under certain circumstances not yet developed. The question presented to this office is how best to free the Government's plant and transmission lines from any interest which the Alabama Power Co. has therein, so that, if authorized, it may, if so advised, dispose of the property to some other purchaser or lessee free and clear of the rights of the Alabama Power Co. As to the lands constituting the right of way and site upon which the transmission lines and power plants are located, the United States has authority, under section 124 of the national defense act above cited, and other condemnation statutes, where funds are available, to proceed by condemnation if necessary to acquire the interest of the Alabama Power Co. therein ; and that feature of the situation presents no difficulty. There remains but the right of the power company to purchase the plants and transmission lines be- longing to the United States which by the terms of the contract are made per- sonalty and its right, in the event that the United States should take the plants and lines under the terms of the contract and dispose of them to some other purchaser, to compel the United States or such purchaser to remove the same from the real estate. This right to compel removal will, of course, be nugatoiy in the event of the acquisition by the United States of the real estate upon which the transmission lines and plants how stand. Tliis leaves to be considered only the contract right, if any, of the Alabama Power Co. to purchase the property of the Government which, by the terms of the contract, is to be con- sidered personalty. This contract was entered into December 1, 1917 ; then and now there is no authority for the sale of this plant or any part thereof. Therefore, the option to purchase purporting to be given by the contract is unauthorized and void. Consequently the only action necessary is to condemn the land constituting the right of way and plant sites, authority for which is granted by the statutes above cited. J. A. Hull. Acting Judge Advocate General. Col. Hull. I might state that the conclusion that this option is null and void 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 regulations respecting the territory or other propertv belonging to the United States." The Chairman. Colonel, section 124 of the national defense act of June 3, 1916, contains this provision: "The plant or plants provided for under this act s-hall be constructed and operated solely by the Government, and not in conjunction with any other in- dustry or enterprise carried on by private capital." Are you familiar with that section? Col. Hl^x. Yes, sir; I cited that in my memorandum. The Chairman. That was passed on the 3d of June, 191G, and became the law of the land on that date. Col. Hull. Yes, sir. The Chairman. This contract with the Alabama Power Co. was negotiated in December, 1917, I think you said? Col. Hull. Yes, sir; that is the date of the contract. The Chairman. Fully a year and a half after the passage of this law by Con- gress forbidding entering into contracts with any private concern on the part of the United States. Col. Hull. Yes, sir. The Chairman. So that in your opinion the officers of the Federal Govern- ment who entered into that contract with this private corporation exceeded their authority, and the whole thing, in your opinion, is therefore void. Col. Hull. Yes, sir. The option is nonenforceable by the Alabama Power Co. The Chairman. Now, will you kindly state anything else with reference to any of these contracts. Was there a contract with the Air Nitrates Corporation? Col. Hull. Yes, sir; there is a contract between the Air Nitrates Corpora- tion and the United States of America and the American Cyanamid Co. ar.d the United States of America negotiated by the Ordnance Depariment, dated June 8, 1918, which is in relation to nitrate plant No. 2. The Chairman. That was practically two years after the passage of this law. Col. Hull. Yes, sir. The opinion of the office was not ^i^cifically asked in re- gard to this contract, but it also has an option of purchase, I believe. Article lO of this contract reads as follows: If.^^l^i ?^^°*^" ^^ "P^"^ cessation of this war, or for other reasons the United receipt of written notice stating the determination of the United States f-^ dispose of the same and the material terms upon which such disposifion 4on be made) to purchase the same upon as favorable terms ^s the Unii^^^^^ ir^^ir parT;-"' '^^^^'^^' ""''''' *^^ ""^''^^ ltS"sh\u"rell\"r samf to the^lVbTm7S rSef ro%K!itrc? ^^^ ^^^^ '^ ^^^^ ^ ^^^^^ ^« thJplir^fetrtn'er^es^^^^^^^ ^^^ ^^^^^°^^ -"^-^^ -^<^«^ who were ^iS'rica^'''4p^corr?Pf*^^ Alabama Power Co. and the United States of sented bv wminm wnr ^^ ^^^^^ted by the Ordnance Department, repre- senrea oy William Williams, an emergencv officer ' i ^ The Chairman. Was that Gen. Williams' Col. JJjn^. No, sir ; that is Gen. C. C. Williams. ±ne chairman. Col. Williams was an emergencv officer? Col. Hull. Lieut. Col. William Williams ; yes Po?er g^r''*'^' ^^"^^ "^'"^"^"^^ *^^ concract'on the part of the Alabam. its^presm'Si^ ^* '"''" "^"'"^''^ ^^ ^""^ "^'^^"^'^ ^^^^^^^ ^^^ ^y ^^^^^ ^^itchell, ref^erlnS'to'^"'''''' ^''''' '''''^"* "'^ ^^^^' contracts which you have just made Col Hull. The Air Nitrates Corporation contract was executed bv nartin^ named at the end. The copy I have does not give the Ime of its presfdent but It was prepared to be executed by the president and the sec,-eLn of th - American Cyanamid Co. and by a colonel of the Ordnance DepartS of t e .\ational Army At the head it is the Air Nitrates Corporation of te first p^^^^^ and Samuel McRoberts, colonel. Ordnance Department National Armv Ihl StaSrlV"£y?''^^^^ ''''''' ^'^ '^'^^^ ^^ "^^ ^^^^^ Of Trdn'^^ncrof ^u^! b.v't?he';«i^"-p^?t?^^ '"'" "'^'"^^ '^ "^* *'^ ^^"^^^^^ ^^' ^"^>' --<^"ted wiSLJ^-Y'^^" ^^^^ ^opy fails to show whether it was formallv executed or TMiether it was proxy signed. I have only a borrowed copy here ..TiJ^^S.?^'^^'^^- ^^"^? ^^" ^"^^ t^^at <>"t and state that in the hearings la er so that the record may be as nearly complete as we can make j^, ^^^'^"-^ ^'^'^^ Col. Hull. I will be glad to do so. nJ^lf Chairman. I might suggest that you put in the record for the benefit of the^ hearings the contract in full. ^f^innu oi Col. Hull. I will pui in the record both contracts. They are as follows: [Order xNo. War-OrdP 9771-1029 E T 1006— Cont. T— 66. Ordnance Department U. S. Army. Dated and executed June 8, 1918.] ^epaitment, AiK Nitrates Corporation and United States of America-American Cyxna- olL.lf.^^''^^ ^""^ ^""V^ ^^^^^^ ^^ America-Contract for Erection and Oo^nnL^t'?''^''''''^' "'^^^ }^'^ ^^^ ^^y ^^ J"^^' 1918' t>y and between Air Nitrates toiporation, a corporation organized under the laws of the State of New York (hereinafter called the " agent »), party of the first part, and the United States tmv'ZT;- by Samuel McRoberts, colonel. Ordnance Department, NationS .ti t^'oritv o? thfph-r."^? A^'i ^^^t^^^ting officer "), acting by and 'under the tion nf fL Q .^ '^^Z/.^^'''^"^''^^' ^""'^^^ S^^t^« '^^"^y' and under the direc- tion of the Secretary of War, party of the- second part, Witnesseth : Whereas a state of war exists between the United States of Americn nnri iha, mZT «"y the United States, up to and including 110,000 tons produced in any fiscal year of the United States, and one-eighth of one cent ($0.00125) per pound of 140 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 141 i ammonium nitrate so produced and accepted or utilized in any said fiscal year in excess of such 110,000 tons. Payment shall be made monthly. The Chief of Ordnance may direct the agent to produce at any one or more of said plants products other than ammonium nitrate, and to the extent that such products are not utilized in the making of ammonium nitrate in any of said plants operated by the agent, the agent shall receive as compensation for making such products an operation fee computed upon such a basis as will give the agent for making such products the same amount as the agent, by way of operation fee, would have received (1) where such products are nitrogenous compounds, for fixing an equivalent amount of nitrogen in the form of ammo- nium nitrate, and (2) where such products are other than nitrogenous com- pounds, for making ammonium nitrate equivalent in cost to that of such products. ARTICLE xn. Basis of cost for construction fee.—The cost upon wliich the construction tee of the agent is based shall be the entire cost of the construction of the plants herein mentioned, including, amongst other items, those mentioned in Schedule A hereto annexed and made a part hereof. The enumeration of said items shall not be deemed to be inclusive of all items of cost and shall not be construed to exclude in determining cost and the fee thereon other items of expenditure entering into the cost of planning, constructing, and equipping the plants not therein enumerated. ARTICLE xiir. Maintename.—The agent shall, at the expense of the United States, maintain the plants in suitable condition for economical operation, and to this end it shall make all proper repairs. The contracting officer may from time to time specifv extraordinary repairs, which shall be made only with his written ap- proval Should anv'part of any plant be destroyed wholly or partly by fire or otherwise the Chief of Ordnance shall determine whether such part shall be restored. ARTICLE XIV. Title to ©roperf//.— The title to all proi)erty, real or v>ersonal, paid for or partly paid for bv the United States, shall, immediately upon such payment, or upon coming into the possession of the agent, vest forthwith in the United States. ARTICLE XV. Records. The agent shall keep complete records as to all construction and operation expenses, all of which records shall at all times be open to the inspec- tion of the dulv authorized representatives of the United States. ^ Inspection.— The inspection officers of the Ordnance Department shall at air times have full access to the plants for the purpose of inspecting in every detail all work done, materials used, and ammonium nitrate produced, and be- coming familiar with all processes and methods used in the manufacture thereof, and the agent shall afford them all necessary facilities and assistance for performing their duties aforesaid. ARTICLE XVI. Loss and damage— The agent in oiDerating, caring for, and storing property <5hall use all reasonable effort adequately to protect the same, but this shair not authorize or require the agent to take out or carry insurance for this pur- IX)se The United States shall hold and save harmless the agent from all los» or damage (exclusive of future profits) by accident, fire, flood, explosion, or otherwise arising or growing out of the construction or operation of the sai'i Dlants and all losses and expenses not compensated by insurance or otherwise. ARTICLE XVII. Termination of agreement as to any plant.— In the event that in the opinioiv df the Chief of Ordnance the public interests so requii-e, this contract may be terminated as to any or all of tlie plants described herein by notice in writin:^ i.» the agent without prejudice to any claim which either of the parties hereto may then have against the other. In the event of the tenniuation of this con- tract, as aforesaid, the United States shall pay to tlie agent all costs and dis- charge all obligations of the agent rising in connection with the construction or operation of the said plant or plants theretofore properly incurred, but not previously paid or discliarged, as to which said notice is given. At the option of the United States the agent shall assign or transfer to the United States iill contracts outstanding at the date of termination as to anv plant previously entered into by the agent hereunder in respect of such plant. In addition thereto the United States shall make the following payments under the follow- ing conditions: (1) In the event that this contract is terminated as aforesaid as to anv plant during the construction thereof, if the agent is not in deiault in any snbstuntial agreement herein contained, the United States shall pnv the agent such per- (entage of the construction fee provided for in Article XI hereof and not there- tofore paid as may be found by the Chief of Ordnance as fairly and justly amounting to the percentage of the work tlieu performed, including obliga- tions incurred in respect to said plant, and for which payment has been or will be made. (2) In the event that this contract is terminated as aforesaid as to any Ulant during or prior to the operation thereof by the agent, then the agent shall be paid the sum of money, if any, then due on account of the production of ammonium nitrate in said plant, and the United States shall thereafter continue to pay during the period set forth in Article IV hereof to the agent for the ammonium nitrate produced therein one-quarter of one cent ($0.0025) per pound for all ammonium nitrate produced in said plant in any fiscal year of the United States until such date in .said year as the amount produced at said plant, together with that produced by the other plants referred to herein shall equal one hundred and ten thousand (110,000) tons; and as to the amount produced in said plant in said fiscal year, if any there be, after the said one hundred and ten thousand (110,000) tons of ammonium nitrate have been produced as aforesaid, the United States shall pay the agent one-eighth of one cent ($0.00125) per pound. The aggregate payments to the agent under this paragraph (2) on account of plants as to which this contract may have been terminated as aforesaid, shall not exceed five hundred and fifty thousand tlollars ($550,000) in any said fiscal year. Wherever the designation ammoni- um nitrate is used in this paragraph (2), it shall be deemed to include other products, described in paragraph numbered 2 in Article XI hereof if any there be, produced in the plants described herein, but the fees due on said other products shall be calculated and determined according to the provisions of said paragraph (2) of Article XI hereof. Provided, however, and it is understood and agreed, that this contract shall not be terminated as to any plant prior to June 1, 1921. or so long as the tnited States shall remain in the present war, except for the permanent cessa- tion of all activities of the United States in connection with said plant unless the agent exhibits such default or negligence as respects such plant as to require that the United States in its best interests should directly construct i«ud operate said plant. In the event of the termination of this contract as to any plant or plants aforesaid, the agent agi-ees to cooperate with the United States and to give to It its good offices and such assistance as the United States may from time to time request, in making the planning, construction, equipment, and operation ot such plants successful and economical in all respects. AETICLE XVIII. .h?n^f * ^J ^'^*^ States to discontinue.— l^othing in this contract contained ^ an be deemed to prevent the United States from at any time discontinuing "le construction or operation of any or all of the said plants, and in the event Z ^!!^* discontinuance the United States shall be under no liability to the •M^nt for any payments as respects such plant or plants beyond those in m s agi-eement specified. In the event that construction or operation is re- fnnl- ^i ^°'^' ^* ^*^^ P^*"^^ ^^ ^'^^^^ construction or operation has been dis- continued, the provisions of this contract shall govern the rights and obliga- »ns ot the parties with respect to any such plant to the same effect as though "e construction or operation thereof had not been discontinued. ■ i 142 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 143 ABTICLE XIX. Sale of plants.— It upon cessation of this war or for any other reason the United States determines to cease the construction, equipment, or operation of any of the said plants and to dispose of the same, tlie agent shall be given the first opportunity (for a reasonable period of time, not to exceed six months after receipt of written notice, stating the determination of the United States to dispose of the same, and the material terms upon which such disposition will be made) to purchase the same upon as favorable terms as the United States is willing to accept therefor, before the United States shall sell the same to any other party. ABTICLE XX. Bo7id.— The agent shall furnish to the United States within 20 days after the execution of this agreement a bond in the sum of five hundred thousand ($500,000) dollars, conditioned upon the full and faithful performance by the agent of all terms, covenants, and conditions of that part of this agreement providing for the construction of said plants. The surety on said bond and the form thereof shall be satisfactory to the contracting officer. Unless such bond is furnished within said time limit this agreement may, at the option of the con- tracting officer, be canceled. ABTICLE XXI. Contract nonassignable.— This contract shall not, uov shall any right to receive payment or anv other interest therein, be transferred or assigned by the ag*nt to any person, firm, or corporation without the written consent of the Secre- tary of War. . _ , t ^ Disputes.— BxQeiit as this contract shall otherwise provide, any doubts or disputes which mav arise as to the meaning of anything in this contract shall be referred to the Chief of Ordnance for determination. If, however, the agent shall feel aggrieved at any decision of the Chief of Ordnance upon such reference he shall have the right to submit the same to the Secretary of War. Persons not to benefit.-^o Member of or Delegate to Congress or Resident Commissioner, nor any person belonging to or emplyed in the military service of the United States is or shall be admitted to any share or part of this contract, or to any benefit that may arise therefrom, but this article shall not apply to this contract so far as it may be within the operation or exception of section 116 of the act of Congress approved March 4, 1909 (35 Stats., 1109). Prison labor.— No persons shall be employed in the performance of this con- tract who are undergoing sentences of imprisonment at hard labor which have been imposed by the courts of the several States, Territories, or municipalities having criminal jurisdiction. ABTICLE XXII. Service of notices.— Any notice addressed to the agent at 511 Fifth Avenue, New York N. Y., or at such other address as the agent shall by notice m writ- ing advise the contracting officer, and either there delivered or deposited in a postpaid wrapper in any post-office box regularly maintained by the United States shall be deemed to have been served upon the agent. Nothing herein contained shall preclude service of notices upon the agent by delivery thereof to any of its coriX)rate officers in person. ABTICLE XXIII. Prior agreement superseded.— This agreement shall supersede the agreement of November 16, 1917, between Air Nitrates Corporation and the United States by which Air Nitrates Corporation is authorized to act as agent of the United States in the construction and operation of the Muscle Shoals plant herein- before referred to. . t „ * «* ^ * ^i,^ ,,icrht< Provided, however, that such supersession shall not affect any of the iiguts or obligations of the parties hereto which have accrued or become fixed undei said agreement of November 16, 1917, prior to the date hereof, except in Jo far as it is clearlv intended by these presents that such rights or obligations shall be affected, whether through extinguishment, the substitution of other;, therefor, or otherwise. Provided, also, that such supersession shall not in any way affect any of the subcontracts, obligations, or commitments which the Air Nitrates Corptv ration has heretofore in good faith entered into, made, or incurred under said agreement of the 16th of November, 1917. ARTICLE XXIV. New contract for deficient/ in appropriations. — In the event that the existing appropriations applicable to the purposes of this agreement shall be inadequate, the United States shall have the right to execute and deliver, and the agent shall thereupon also execute and deliver, a new contract having the same terms and conditions as are contained herein. ABTICLE XXV. Definitions. — Wherever in this contract the words hereinafter enumenUed are used they shall mean what is set opposite them : Agent. — The party of the first part and its duly authorized representatives, successors, and assigns. Chief of Ordnance.— The Chief of Ordnance, the Acting Chief of Ordnance, or any duly authorized representative of either. Contracting officer. — The contracting officer executing this contract, his suc- cessor or successors, his or their duly authorized agent or agents, and anyone from time to time designated by the Chief of Ordnance to act as contracting officer. Ton. — Two thousand (2,000) pounds. Fiscal year of the United States. — The period from .Tuly 1st in any year to June 30th in the following year, both dates inclusive. In witness whereof, the parties hereto have caused these presents to be exe- cuted and delivered, in triplicate, at Washington, D. C, the day and year first above written. AlB NlTBATES COBPOKATIOX. By Fbank S. Washburn, President. By A. E. Bonn, Secretary. United States of Am erica. By Samuel McRoberts, Col., Ord. Dept., N. A., Contracting Officer. W'ltnesses : A. G. Logan. C. Lavega Cohen. William Williams. Schedi'^le A, items of cost referred to in article xti. ia) All the land. Including gravel pits, quarries, and coal mines, labor, iiijtterial, machinery, fixtures, e^iuipment, apparatus, appurtenances, tf>ols not "^^ued by the workmen, supplies and equipment necessary for either temporary <>•• permanent use for the construction and ojieration of the plants, including the ^Mx'ning up and operation of gravel pits, qnarries, and coal mines. ih) Rental for construction plants and for the main and branch offices, and f<»i- furnishings and equipment for such offices. ((') Loading and unloading con.^truction plant, the transportation thereof, iucjiiding transportation to and from the place or places where it is to be used h) connection with said work, the installation and dismantling thereof and ^"■•linary repafrs and replacements dnr'ng its nse in the said work. ^d) Transportation and expenses' including transportation tax to and from ^l'»' work of the necessary field and office forces, procuring labor, anroduction and transixntation of material and equipment. All freight atents covering the same, upon the following terms, to wit • The licensee shall pay monthly to the licensor for such additional license under this article a royalty, unless and until changed by the arbitration here- inafter provided, of one and one-lialf cents ($0,015) per pound of nitrogen con- tent in any and all products manufactured by the licensee at each and every of said plants under and by the use of any of the patents, processes, methods or designs embraced in the said additional license. In the event that either the licensor or the licensee shall be dissatisfied with the aforesaid royalty in this article defined, either or both may, within the first three years of the period fixed for the duration of said additional license demand that the amount of the royalty to be paid hereunder shall be determined and fixed by arbitration. Such demand shall be made in writing and shall be delivered to the other party hereto, together with the name and address of the arh'trator chostii by the party demanding the arbitration, and the other party hereto shall, within. fifteen (15) days thereafter, choose a second arbitrator and notify the i)aity demanding the arbitration of its choice and give the name and address of such arbitrator. The two arbitrators so chosen shall, within fifteen 'lo) days after being notified by either party that the second arbitrator has l»oen chosen, choose a thii-d arbitrator. The arbitrators, when chosen, shall promptly fix a time and place for tlie hearing, and then and there the parties hereto shall attend and present their respective proof ts and arguments The '•ejiring may from time to time be adjourned by the arbitrators by a writin*' n^^tifying the parties of the time and place to which such adjournment is mm\e. The arbitrators shall with all reasonable speed ascertain and determine what] "1 their opinion, under all the circumstances, are adequate and reasonable •oyalties to bo paid under this article and the date, not e-arlier than that of the demand for such arbitration, from which the said award shall be effective iliey shall notify the parties in writing of the royalties so ascertained and de- termined and state the amount, if any, that either party may then owe to the <»nier with re.spect to royalties under the terms of the award.' The said award ^vhen signed by any two of the arbitrators shall be final and conclusive upon "d parties concerned. . In the event that either the second or the third arbitrator shall not be chosen [>» the manner and within the time hereinabove fixed, anv United States dis- "'»f;t judge for the southern district of the State of New York, upon the appli- [ation of either party, may choose an arbitrator or arbitrators,- as the case mav '^N to act. Xo terms with respect to royalty contained in this agreement or in the said agreement of November 16, 1917, or in any agreement between said Air Nitrates '-oiporation and the United States, or in any negotiations or proposals between 'N 148 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. ARTICLE XVII. 149 the paid several parties looking to the making of the said agreements or relat- ing to the subject matter thereof shall be utilized by either party in said arbi- tration or taken into consideration by the arbitrators in making their award. The costs and expenses of the arbitrators and of the arbitration shall be ascertained by the arbitrators and shall be borne equally by the parties hereto. The licensee mav transfer to the purchaser of any one or more of said plants the right to avail itself of the license in this article granted in the operation of the plant or plants so purchased, if said purchaser, as a term of said purchase, expressly covenants to undertake, observe, and perform all the terms of this article, including the payment of royalties and the findings of the said arbitra- tors, if any, as respects the plant or plants so purchased. ABTICLE XI. Cessafion of royalties.— Jt the use of the inventions of the aforesaid letters parent and the methods, apparatus, and processes owned by the licensor and disclosed hereunder to the Air Nitrates Corporation and the licensee shall be discontinued bv the Air Nitrates Corporation or by the licensee or its assigns, the obligation "for the payment of royalties hereunder shall cease as to those of said parties who shall have so discontinued such use. ABTICLE XII. Contract fwt assipnahle.-^This contract shall not, nor shall any right to re- ceive payment, or any other interest herein, be transferred or assigned by the licensor to any persons, firms, or corporations. ABTICLE xin. Persons not to benefit— '^o Member of or Delegate to Congress, or Resident Commissioner, is, or shall be, admitted to any share or part of this contract or to any benefit that may arise therefrom, but this article shall not apply to this contract so far as it may be within the operation or exception of section 116 of the act of Congress approved March 4, 1909 (35 Stat., 1109). ABTICLE XIV. Disputes,— Except as this contract shall otherwise provide, any doubts or dis- putes which mav arise as to the meaning of anything in this contract shall be referred to the Chief of Ordnance for determination. If, however, the licensor shall feel aggrieved at any decision of the Chief of Ordnance upon such reference, he shall have the right to submit the same to the Secretary of War. ABTICLE XV. Definitions.— Whenevev in this contract the words hereinafter enumerated are used thev shall mean what is set opposite them. Licensor.— The party of the first part and its legal representatives, succes- sors, and assigns. ^, . „ « ^ ^ Chief of Ordnance.— Thh Chief of Ordnance, the Acting Chief of Ordnance, or any duly authorized representative of either. Contracting officer.— The contracting officer executing this contract, his suc- cessor or successors, his or their duly authorized agent or agents, and anyone from time to time designated by the Chief of Ordnance to act as contracting officer. ABTICLE x^^:. Neio contract for deficiency in appropriations.— This agreement shall he binding upon the licensor for the term of the license, but in the event of tlie existing appropriations applicable to the purposes of this contract being inade- quate, the licensee shall have the right to execute and deliver, and the licensor shall thereupon also execute and deliver, a new contract having the same terms and conditions as are contained herein. Previovs affreemrnf .wperseded.—Thifi agreement shall super.^ede Uw 5. "Process of making calcium cyanamid," November 21, 1911. , ^ r. S. patent K)06927. " Method of producing nitrogen compounds from car- bids." October 24, 1911. , ^ r. ,S. patent 1010404. " Apparatus fbaina (herein- after called the " contractor "), party of the first part, and the I nited States ot \merica by William Williams, lieutenant colonel, Or ai rior Station things and facilities which will be useful in c(mnection \vith tne installation, construction, and operation of the Warrior extension and Warrioi substation hereinafter referred to, hicluding (a) adequate circulating water in- take and discharge facilities with gates, screens, canals, and tunnels; (6) par- tially constructed building and apparatus foundations; (c) camps, roads, tracks, jind docks; ((i) plans and specifications; (e) a staff for engineering, construc- tion and operation; (f) ash-handling facilities and ash-dumping spaces; and iff) other facilities in existence at or about said station at the commencement of work under this contract which will be useful in the maintenance and opera- tion of said Warrior extension as a plant for the generation of electric energy; and Whereas the existing state of war creates a national emergency and the United States requires the performance of the work and the supply of electric energy herein described at the earliest date possible: Now, therefore, in consideration of the mutual agreements herein contained, the said parties have agreed and by these presents do agree with each other as follows : Article I. Tie line from contractor's system to M^arrior substation. — The contractor shall at its own cost and expense furnish the labor, materials, tools, machin- ery, equipment, facilities, and supplies and do all things necessary for installing between its said 110,000-volt system and the Warrior substation mentioned in Article II hereof, a tie line and other facilities of capacity and character suffi- cient for transmitting continuously 30,()(X) K. W. of 3-phase, 60-cycle, alternat- ing current at IIO.OCK) volts, to said Warrior substation and through it to the transmission lines referre- erty so acquired shall become a part of the Warrior extension, the Warrior substation, the Muscle Shoals substation, the transmission line, or the quarrv branch line, as the case may be. (2) In said schedule there shall be indicated the articles or apparatus and the value thereof which have been installed to replace those existing in the property of the contractor \vhere such replacement was necessarj- to adapt the apparatus or system of the contractor to the requirements or apparatus of the United States. , Article XI. Cost payahle by United States.— The cost of the work mentioned in Article II in subdivisions (2) and (3) of Article III, and in Article IV shall, upon approval (»r ratification of such cost by the contracting officer, be borne and paid by the I'nited States. Included in the items of such costs are those listed in Schedule F hereto annexed and made a part hereof. The Uiiiteeration menti< ned in Article XIV, the contractor shall at its own expense operate said Warrior extension. Warrior substation. Muscle Shoals substntion, the transmission line, and thr quarry branch line as part of its .^vstem and shall maintain the same in readiness to supply and shall supply the demands of the United States and those of its successor in interest herein- after referred to under this contract to the extent of the capaciy of the War rior extension at the time; provided, that all repairs, renewals, or replace- ments to and in the Muscle Shoals and quarry branch substati(>ns and their apparatus shall be made by the contractor nt the expense of the United States. Nothing in this contract contained shall authorize the contractor, i?xcept with the written approval of the Chief of Ordnance, to transmit energy over said transmission lines otherwise than for the use of the United States or its said successor. But with such approval, and upon terms and conditions approved by the Chief of Ordnance, the contractor may transmit energy over said lines. All energv to be supplied by the contractor shall be in the form of three phase,. GO cycle, alternating current, at a pressure of approximately 110.000 volts. It shali be measured at the low tension switchboard of the Warrior substation and thence delivered to the transmission line at the Warrior substation to be transmitted to the J^Iuscle Slioals substation and that of the quarry branch line, as may be required by the United States, and all at the expense of the contractor. , ■, „ The contractor shall operate said properties in an efficient manner and do an things necessary or appropriate in and about such operation, including pro- curement of alflabor and materials, except that the United States may at any time furnish the contractor with the necessary coal for the operation of the Warrior extension, subject, however, to the provisions of Article XVI. The contractor shall use its best eftVirts to maintain a reserve of coal adequate to insure a continuous supply of energy from the Warrior extension. The manufacturers' rated capacity of the generating unit in the Warrior ex- tension is 30,000 kw. when operated under the following conditions: Steam pressure, 200 pounds per square inch ; superheat, 200 degrees F. ; vacuum, 29 " ; and power factor, 90 per cent. The contractor shall so maintain the operating conditions of the Warrior ex- tension which are within its control, that, provided the power factor of the load of the United States at the Warrior extension is not less than 90 per cent, the United States shall receive from the Warrior extension a supply of electric energy at least equal to that which said unit is capable of producing under normal operating conditions. The Warrior extension and Warrior substation are to be operated in paraiie* with the steam generating plant of the United States nitrate plant No. 2 at Muscle Shoals and the contractor shall maintain at the Warrior extension and substation and the United States at its said steam generating plant sucn usual and proper operating conditions as to voltage and frequency as may be required to make such operation in parallel successful. The contractor shall operate said properties and supply energy as aforesaia for the United States or its said successor for the period of ten (10) yeai-» from the date of this contract. The United States shall upon request furnish the contractor from time to time such information as it may possess concerning its probable require- ments for energj', in order that the contractor may make all necessary arrange- ments to supply the same in an efficient and economic manner. Should the United States at any time during the war and within three years after its termination require more energy than the Warrior extension is capable of producing and delivering at such time, or should an emergency arise preventing the operation of the Warrior extension,, then, in either event the contractor shall supply energy to meet the requirements of the United States from its own system, provided it can do so without curtailing the service to any of its firm power customers existing on December 1, 1918, or operating the steam generating plant of the Birmingham Railway, Light & Power Co • and provided further, that the requirements of the United States in respect to such energy shall, to the extent of the capacity of the Warrior extension, be met in preference to those of any customer of the contractor other than said firm power customers existing on December 1, 1918. Article XVI. Supply of coal hp the United States.— All coal supplied to the contractor by the United States shall be so supplied at prices not in excess of those at which coal can be obtained by the contractor delivered at the Warrior extension making due allowance for the difference, if any, in the quality of the coal from' that specified in Article XX and in accordance with the procedure therein indi- cated. In exercising this option the United States shall supply coal in such quantity, at such a rate, and in such a manner as not to put the contractor to any additional expense, and so as not to interfere with the continuous operation of the Warrior extension at its capacity, with a sufficient supply on hand for reserve ; provided that the contractor may use coal for the purchase or supply of which it has previously and in good faith become definitely committed in preference to coal to be supplied by the United States. The price of any coal supplied by the United States shall be deducted from any payments due the contractor for energy as such coal is from time to time used in the generation of energy. Article XVII. Payments hy eontraetor.— (l) Beginning at the termination of the period of preliminary operation mentioned in Article XIV, and so long as the United States shall require the contractor to supply energy to the United States for the operation of either or both of said nitrate plants, the contractor shall pay to the United States monthly for the use of the Warrior extension and Warrior substation interest at the rate of 6 per cent per annum upon the actual cost to the United States of said extension and substation, less the amount of the accumulated fund referred to in Article XIX, as the same may vary at each monthly computation of such interest. In computing such cost there ^hall be excluded all payments by the United States for supervision, inspection, and protection of the Warrior extension or Warrior substation, but there shall be moluded the nro rata share of the contractor's fee mentioned in Article XIII nttributablA to the construction and equipment of the Warrior extension and Warrior substation. The contractor shall also pay to the United States interest monthly at the rate of six per cent (6 per cent) per annum upon the sum of thirty thousand dollars ($30,000) and upon the cost of the rails and rail-.ioint material referred to in subdivision 7 of Exhibit E. The payments hereunder ^Itnll be m.nde at the same time as the monthly payments due the contractor from ti^e United States under Article XVIII are made. (2) Durinsr such period as the contractor may under the provisions of -^^rticle XXT bp relieved of said monthly payments, the contractor shall pav to t'i« United Stntes monthly in lieu of said monthly payments, one and one-half i\i'll for each kilowatt hour of energy produced by the contractor at the War- nor extension and measured at the Warrior extension switchboard for sale fo customers other than the United States. Said rate of U mill is subject to ^pHuction by an amount to be ascertained on the first day of each month by nividing by 200.000,000 the interest at 6 per cent per annum on the then accumulated fund. \ 158 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 159 Akticlk XVIII. Payments by the United States for electric energy, including mininium pay- ^ewfs.— (1) The United States shall pay to the contractor at the rate of six and one-half (6^) mills for each k. w. h. of energy actually delivered to the United States at the Warrior substation. Said rate is based upon the power factor of the load of the United States measured at the Warrior substation being no less than eighty-five per cent (85%). Energy generated at the Warrior extension or the Warrior substation shall be measured at the low- tension side of the step-up transformers at said Warrior substation; and energA^ generated elsewhere on the contractor's system and delivered to the United States hereunder shall be measured at the Warrior substation either at the low-tension side of the said transformers, or, at the contractor's option, at approximatelv 110,000 volts. If so measured at 110,000 volts, the contractor shall supply the necessary instruments and accessories at its own expense (^) Where the amount due for energy at said rate of six and one half mills in anv one calendar month from and after December 1, 1918 (said energy having been delivered at a maximum rate not in excess of t,»^«;, ^^^P^f i^y «f ;'^^; Warrior extension), is less than thirty thousand (30,000) dollars, the Unitec States shall, nevertheless, pay to the contractor the sum of thirty thousand (30 000) dollars as a minimum payment for service during such month, subject, however, to the provisions of the first paragraph of Article XXI. (3) The contractor shall render all bills on or before the tenth day of each calendar month for electric energy furnished during the preceding calendar month, and payment thereof shall be made within fifteen days after such bills are rendered. Article XIX. Amount to be retained by United States from payments for electric energy.- From and after such date as the contractor shall begin to operate the ^^ arrior extension and Warrior substation as a part of its own system the L nited States shall retain two mills per k. w. h. from the amounts payable to the contractor bv the United States under Article XVIII hereof, except that (a) in no case shall the said minimum numthly payment by the United States be less than $30 000, and (6) the United States shall retain no part of the payments due for 'energy delivered bv the contractor at a rate in excess of the capacity at the time of the said Warrior extension, provided that said two mills shall no longer be retained bv the United States when the accumulated fund shall equal the actual cost' to the United States of the Warrior extension and the W arrior subsSn. computed as set forth in Article XI. The funds so retained shnl accumulate in the hands of the United States but without the addi ion ot interest, and shall be applieil or otherwise disposed of in accordance with the provisions of Article XXII. Article XX. » Price for electric energy to vary with price of coal and labor.— (1) The rMte of six and one-half mills per k. w. h. is based upon the use of unwashed ruii- of-mine Alabama coal, having a heat value of approximately thirteen thousaim five hundred (13,500) British thermal units per pound "as received, at the mine price of two dollars and thirty cents ($2.30) per ton, and for variations from such standards the following adjustments shall be made monthly la said rate, but only as it relates to energy generated in the Warrior extension or Warrior station for the use of the United States. The actual average cost per ton of coal consumed under the boilers ot fiie Warrior extension and the warrior station shall be the average cost per ton of the total quantitv of coal consumed, calculated on the basis of the mine prices fixed bv the' United States Fuel Administration for the respective mines, plus tra'nsportation charges. In the event that the United States Fuel Administration shall not fix such mine prices, then such actual average cost shall be calculated on the basis of the prevailing competitive market prices at the various mines from which the coal is obtained, plus transportation charsres In the event that the average heat value of the coal used during any calendar month is less than thirteen thousand (13,000) or more than fourteen thousand (14,000) British thermal units, then said actual average cost of coal used during such month shall be corrected by multiplying such actual average cost by the ratio of thirteen thousand five hundred (13,500) to the actual heat value of the coal as determined by tests. If the average heat value of the coal falls within the Umits of 13,000 and 14,000 British thermal units no change shall be made in the actual average cost. The said rate of six and one-half miUs ($0.0065) shall be adjusted for such calendar month by an increase or a decrease of one hundredth of a mill ($0.00001) for each increase or decrease of one cent ($0.01) per ton in the corrected average cost of coal above or below said price of two dollars and thirty cents ($2.30) per ton. The price for coal used in determining said rate of six and one-half mills ($0.0065) shall not exceed the price at which an adequate and bona fide supply of coal for the operation of the Warrior extension can be procured at the time, and said cost of coal so used in determining said rate shall, except as other- wise provided herein, be the said actual average cost of the coal consumed during the calendar month for which the determination is made. As soon as practicable after the first day of each month the contractor shall render to the United States a statement showing the actual average cost per ton for coal delivered during the preceding month to the track hoppers or coal-storage piles at Gorgas, the amount so delivered, the heat value of the coal, and the actual average cost of coal on hand at the beginning of the month for which bill is rendered. The term " ton " as used in this article shall mean the net ton of two thousand (2,000) pounds. Either the contracting officer or the contractor may at any time request that analysis of representative samples of the coal used in the operation of the Warrior extension and Warrior station be made by a competent person acceptable to both parties to determine its quality and heat value. Upon fail- ure of the parties to agree upon such a person within ten days after such request is made known, the Bureau of Standards shall make the analysis. If any such analysis shows that the heat value is higher than fourteen thousand (14,000) British thermal units per pound, then the United States shall pay the cost of the analysis ; if the heat value is shown to be lower than thirteen thousand (13,000) British thermal units, the cost of the analysis shall be paid by the contractor, and if the heat value is show^n to be not less than thirteen thousand (13,000) nor more than fourteen thousand (14,000) British thermal units, the cost of the analysis shall be divided equally between the United States and the contractor. All coal tests made under this article shall be conducted in accordance with the standard method of analysis of the American Chemical Society and the bomb calorimeter shall be used in determining the heat value. (2) In the event that the United States shall use energy obtained under this contract otherwise than in the manufacture of munitions of war, or in the event that the United States shall assign or transfer to another the right to obtain energy under this contract as hereinafter provided, then the following labor adjustment clause shall apply : Should the cost of tabor for the operation of the Warrior extension, said transmission lines, and said substations be increased the contractor may sub- mit to the contracting ofllcer or to the successor of the United States, as the case may be, a schedule at intervals of six months or more showing such in- creased cost over the cost prevailing on October 1, 1918. Upon the acceptance of such schedule, the rates payable for energy shall be increased by an amount proportionate to such increase in the cost of labor. Similarly, if in the opinion of the contracting officer or the successor of the United States, as the case may 1'^, such cost of labor shall be decreased, the contracting officer or such suc- cessor, as the case may be, may at like intervals submit a schedule to the contractor showing such decrease below the cost prevailing on October 1, J^OIS. Upon the acceptance of such schedule the rates payable for energy shall oe decreased by an amount proportionate to such decrease in the cost of labor. The contractor shall with all convenient speed file with the contracting officer a schedule showing said cost of labor prevailing on October 1, 1918. Each party to whom a schedule may be presented under this subdivision shall have one month's time within which to verify the correctness thereof. Any schedule not rejected within such time shall be deemed to have been accepted as correct. In the event of disagreement as to any schedule within one month of presentation thereof the matter in dispute shall be adjusted under Article "^XV. Any changes in rates under this article shall relate back to and take effect on the first day of the month next following the submission of said schedules or from such other date as may be fixed under Article XXV. 92900—22 11 \ 160 MUSCLE SHOALS PROPOSITIONS. Abticle XXI. MUSCLE SHOALS PROPOSITIONS. 161 Suspension of demand for electrical energy by the United States.— The United States raav at any time and from time to time upon sixty days' written notice, suspend its demand for energy, in which event and provided such suspension shall exceed sixty days, the United States shall during the period thereof be relieved of the obligation to make said minimum monthly payment of thirty thousand (30,000) dollars and the contractor shall, during such period, be correspondinglv relieved of the payments mentioned in subdivision (1) of Article XVII ' The service to be rendered under this contract shall be restored on sixty davs' written notice to the contractor by the United States, and after such restoration said minimum monthly payment and said payments for the use of Warrior extension and substation shall again be made, as if there had been no suspension. ^ , ,. ,, A suspension of service under this article shall not operate to relieve the contractor of the obligation to maintain said transmission lines. In case such suspension exceeds sixty (60) days, the United States shaU for the period of suspension in excess of sLxty (60) days, pay the contractor the cost of main- taining said transmission lines, plus 10 per cent of such cost. The United States may, on thirty (30) days' written notice to the contractor, take over the maintenance of said transmission lines during any period of suspension of service x» Nothing herein contained shall prevent the contractor during any such suspen- sion from continuing to operate the Warrior extension and substaUon upon making payment for enegy as provided in subdivision (2) of Article XVII. Article XXII. Sale to or purchase hy cmtr actor. —{!) At any time subsequent to three years after the termination of the war, the United States shall have the option to sell to the contractor and the contractor shall, upon writt^en demand of the Un ted States, buy all its rights, title, and interest in and to the Warrior extension and Warrior substation with all rights appurtenant thereto at the value fixed by arbitration as hereinafter provided. The accumulated fund re- ferred to in Article XIX shall be applied in payment of said value, and any excels of said fund over said value shall be paid over to the contractor pro- vwld^that if the actual cost of Warrior extension and Warrior substatiou to the United States shall exceed said value, then only the excess of said fum over said cost shall be paid over to the contractor. If said value shall exceed said fund, then the contractor shall pay to the United ftate««ie excess i the manner hereinafter provided. As soon as the amount of said value shall be P?W or secured as in this article provided, the United States shall convey all of its right title, and interest in and to said properties to the contractoi. (2) If and when said accumulated fund shall be equal to or greater than the actual cost to the United States of the Warrior extension and the Warrioi substation, the contractor may demand that the United States ^o^^ey all of it^ right, title and interest in and to said properties to the contractor and tha t mv over to the contractor the excess, if any, of said fund over said cost, reta u - ine the balance. The United States shall comply promptly with such demaiul. (3) The contractor may also at any time demand that the United States coii- vey to it all of the right, title, and interest of the United States in and to tbo Warrior extension and the Warrior substation upon payment to the Unite i States of any excess of the actual cost of said properties over the amount ot sakl accumulated fund then in the. possession of the United States. And upu pavmentTo tl^^^^ States of such excess the United States shall compl> with said demand, retaining the whole of said accumulated fund. m At anv time after December 1, 1926, or such earlier period as the United States shall finally cease to take energy under this contract, said accumulated fund being l^s than the actual cost to the United States of t^e Warrior ex^e^^^ sion and Warrior substation, the contractor may demand that the value of saiU Dronerties be fixed by arbitration ; and propert^es^oe n^^^^ ^y ^^^^ .^ ^^^^^ ^^ ^^ ^^^^ ^^^^^ ^^^ ^^ of such acciin v lated fund, then the United States shall convey to the contractor all of it^^ ri-ht title and interest in and to said properties by proper instruments m writLg wi^^^^^^ sixty (60) days after notice of the award, retaining in paj ment the whole of said fund. (&) If the value so fixed be greater than said fund, then the United States shall upon payment by the contractor of the amount by which such value is greater than said fund, or payment thereof being securetl as hereinafter pro- vided, convey all of its right, title, and interest in and to said properties to the contractor by proper instruments in writing within sixty (60) davs after notice of the award, retaining in payment the whole of said fund. (5) In the event that the contractor shall on demand of the United States fail or refuse to purchase the Warrior extension and Warrior substation under any of the foregoing subdivisions of this article, the United States may sell the same to another, subject to the conditions that said properties shall not be operated and that they shall be removed within six (6) months after the sale has been consummated. Upon the consummation of such a sale with an- other purchaser the United States shall pay over to the contractor the whole of said accumulated fund, less the amount, if any, by which the actual cost of the said properties shall exceed the price realized from such sale. (6) In the event that (a) the Warrior extension and Warrior substation are not sold in the manner herein provided to the contractor or to another within the period of ten (10) years referred to in Article XV, or (&) said properties not having been so sold, the United States or its said successor shall cease for 365 consecutive days to take any energy from the Warrior extension; the United States shall, upon six months' notice in writing from the contractor, remove the Warrior extension and Warrior substation from the lands of the con- tractor unless it shall within ninety (90) days after receipt of such notice pro- ceed to exercise its option under subdivision (1) of this article. In the event of removal pursuant to such notice, the United States shall leave the premises in a neat and workmanlike condition and shall pay over to the contractor the entire amount of the said accumulated fund then in its possession. (7) If the United States or its said successor shall for a period of two con- secutive years fail to take energy from the Warrior extension, and in any event at the expiration of said period of 10 years, the United States shall, upon six (6) months' written notice from the contractor, remove such of said transmission lines and appurtenances owned by it as are located on land or rights of way owned by the contractor; provided, that upon receipt of such notice the United States may require the contractor to purchase all of its right, title, and interest in and to said transmission lines and their appurtenances a their fair value as fixed by arbitration. (8) The contractor shall have a period of five years in which to make pay- ment of any amounts due the United States under subdivisions (1) and (4) of this article over and above said accumulated fund, provided that all deferred payments shall be secured in a manner satisfactory to the Chief of Ordnance. During such period the contractor shall pay to the United States interest on deferred payments at the rate of 5 per cent per annum. At the request of the contractor said period shall be extended two and one-half years, interest during such extended period to be at the rate of 6 per cent per annum. The contractor may anticipate any deferred payment in whole or in part. (9) The value of said properties to be determined under this article shall be their fair value, and it shall be fixed by arbitration under Article XXIV. (10) Actual cost under this article shall be computed as provided in Ar- ticle XI. Article XXIII. Energy for successor in interest of the United States. — If at any time within the period of ten years referred to in Article XV the United States shall sell or lease its said nitrate plants at Sheffield and at Muscle Shoals, or either or any part of said plants, the United States may assign and transfer to the pur- chaser or lessee thereof (in this contract referred to as the successor of the United States) the right to demand and receive electric energy under this con- tract to the extent of the capacity of the Warrior extension 'at the time, and any other rights hereunder as may be agreed upon between said successor and the United States, excluding, however, the right to furnish coal to the con- tractor and the right to require the contractor to supply energy from other Parts of its system under Article XV, also the provisions of Articles XVI, XVII, subdivision (3) of Article XVIII, Articles XIX, XXI, and XXII. . ff the successor desires to accept said assignment and transfer, it shall so signify in writing simultaneously with the execution of said assignment and transfer by the United States, and shall thereupon be deemed to have accepted .V 162 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 163 and assumed all of the obligations of the United States under this contract in relation to the portion thereof so assigned and transferred (including the obligation under subdivisions (1) and (2) of Article XVIII), except as modi- fied in the following respects : . . .^. (a) Such successor may give the contractor six months' notice m writmg that it will cease taking energy under this contract. Such notice shall have the effect of terminating all of the rights and obligations of the successor under this contract from and after the expiration of such six months' period, and the successor shall thereafter have no further right to demand energy hereunder. (&) Bills shall be rendered monthly by the contractor for energy supplied during the previous month, and if not paid at its office within ten days from the date of rendition the contractor shall haye the right upon five days' written notice to suspend service; and if not paid within a further period of thirty days the contractor shall have the right, at its opton, by notice to the succes- sor, to cancel and terminate its agreement for further delivery of energy to the successor, whereupon all rights of the successor as to such further energy shall cease (c) Without the written consent of the contractor the successor shall not sell or dispose of any energy furnished hereunder or which may be generated directly or indirectly therefrom, except to tenants on the successor's premises ; nor transfer or assign to anyone, directly or indirectly, the right to obtain energy under this contract. No right or benefit hereunder shall be assigned or transferred by operation of law without like consent. (d) Service to said successor shall, in addition, be subject to such other rea- sonable rules and regulations, not inconsistent with the terms of this contract, as may then be in effect or as may thereafter be established from time to time by the contractor or by the Alabama PubUc Service Commission. Upon the execution of said assignment and transfer by the United States and its acceptance as above provided by the said successor, the United States shall be relieved of all of its liabilities under this contract in so far as they relate to the portion thereof so assigned and transferred. Abticle XXIV. Arhitration.-Whenevev either party is entitled to and desires the determina- tion of the value of any of the properties mentioned in Article XXII, it shall so .tate in writfng to the other party and shall add the name and address of the arbit?a^r chosen by the party demandng the arbitration. The other nartvshaH within fifteen (15) days thereafter, choose its arbitrator and no- tffv the paVtTdemam^^ the arbitration of its choice, giving the name and adLess oTsuch a^bttrator. The two arb'trators so chosen shall, withm twenty ?20rdavs after being notified by either party that the second arbitrator has been chosen choose a third arbitrator. If said two arbitrators are unable v.Mthin twintv (20) davs after being so notified to agree upon such^ third arbi- Trator then iipon tL^^^^ of Either party, the senior judge of the United Q?nVa« riroiiit Court of Appeals for the Fifth Circuit shall have the power to ^ -l Snhthiv^ arbitrator -ten (10) days' notice of the application to the rd"seX\ircuU ju™^ by thJ party aPP^nf to th^^^^^^^^^^ Tn the event of the disqualification or refusal to act of the said senior circuu ^'^utfther party fails to ohoose an arbitrator within thirty (30) days after ,„i.i»,„. ™ia« Ml.. i~rt M^^ mmmmsmm such adjournment is made. The arbitrators shall with all reasonable speed determine aU disputes and questions submitted to them and notify the parties in writing of their determination. Any award when signed by any two of the arbitrators shall be final and conclusive upon both parties. The expense of the arbitration, including the arbitrators' fees, shall be ascertained and borne as determined by the arbitrators. Said fees shall be subject to the approval of the Chief of Ordnance. ArticI/E XXV. Disputes. — Except as herein otherwise provided, all disputes and questions which shall arise under this contract shall be referred to the Chief of Ordnance for determination. If, however, the contractor shall feel aggrieved at any deci- sion of the Chief of Ordnance upon such reference it shall have the right to submit the same to the Secretary of War. Article XXVI. Time — Delays due to causes beyond contractor's control. — It is essential that all work and operations under this contract be carried out as expeditiously as possible, and to this end the contractor agrees to perform all such work and operations on its part with great diligence and the highest speed practicable consistent with the proper performance thereof. The contractor shall not be held responsible for or be deemd to be in default hereunder by reason of delays in the performance of this contract or interrup- tions to service caused by strikes, fires, explosions, riots, acts of God, failures of transportation, or other causes beyond the control and without the fault of the contractor : ProiHded, That the contractor shall have promptly and fully notified the contracting officer of any such cause of delay and shall have used its best efforts promptly to remove the same and to obviate the effects thereof : And pro- vided further. That such delay shall not have been due to the contractor's fail- ure to comply with any of the provisions of this contract. The contractor shall proceed with the performance of this contract as soon as, and to the extent that, any such cause of delay shall have been removed. Article XXVII. CANCELLATION AND TERMINATION BEFORE COMPLETION. Section 1. Cancellation for contractor's default. — If the contractor shall aban- don any construction work under this contract, the Chief of Ordnance may can- cel this contract by thirty days' notice in writing, without prejudice to any other lights or remedies or to any claim which the United States may have against the contractor. Thereupon the United States shall have the power to complete such constructtion work or enter into agreements with others for the completion thereof, in whole or in part, at the expense of the contractor. Work completely performed in accordance with the requirements of this contract at the date of any such cancellation shall be accepted and paid for by the United States. Sec. 2. Termination in public interest. — If, in the opinion of the Chief of Ordnance, the public interest shall so require, the construction work required by this contract may be terminated by the United States by thirty days' notice in writing. Such termination shall be without prejudice to any claims which the United States may have against the contractor under this contract. After the receipt of such notice the contractor shall not order any further materials or facilities, or enter into any further subcontracts, or make any further pur- chases in connection with the performance of this contract, without written consent previously obtained from the contracting officer, but inspection of the completed work and acceptance thereof by the United States in accordance with the terms of this contract shall continue during such period of thirty days as though such notice had not been given. In the event of and upon such termination of this contract prior to com- pletion for any reason other than the abandonment thereof by the contractor, the United States shall make payments to and protect the contractor as fol- lows : (1) The United States shall pay for (a) all expenditures made by the contractor in good faith and in connection with the performance of this con- tract for which the United States is obligated to pay under the terms of this contract and which the United States has not previously paid, (ft) in addition 8 164 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 165 the United States shall pay the contractor for all work completed in accord- ance with the provisions of this contract the sum provided as profit thereon under the terras of this contract and not theretofore paid. (2) The United States shall discharge the contractor's outstanding obliga- tions incurred by the contractor in good faith in connection with the per- formance of this contract for which the contractor has not theretofore receive< of a temporary nature for use during construction work only. .57. Water, sewer, light, and telephone lines as additions to Alabama Powei Co. facilities, as shown on drawing E-6887. .58. One guard fence (with towers) to inclose powerhouse and substation, substantialfv as shown on drawings G-Q5S2, A-6914, E-6887. 59. Also such additional facilities as may be authorized by the contracting officer prior to December 1, 1918, for use in connection with the construction and operation of said Warrior extension. .^ ^ , ..t, 60 Copies of the drawing referred to in this schedule, identified by tne parties hereto, are on file in the office of Col. .1. W. .Toyes, Ordnance Department, Washington, D. C, and are hereby made a part of this agreement. Schedule B. Being a description of the Warrior substation and the apparatus therein, annexed to and made a part of agreement dated December 1, 1917, between Alabama Power Co. and United States of America. 1 The Warrior substation shall consist of an extension to the present switcn- ing' house of the Alabama Power Co. of brick and concrete to house switch- boards and control apparatus, and be the terminus of control conduits ana ^^2 ^Also an extension to the Alabama Power Co. power plant to house oil switches, bus structures, and auxiliary transformers and equipment. 3 One 110,000-volt structural steel bus and switching structure, as shown on drawing C-6532, all erected on suitable concrete foundations. 4. Ten 6667 kva 110,000/13,200-volt single phase oil insulated, water-coolotl transformers. 5. Four 3333 kva 44,000/13,000-volt single phase oil insulated, water-cooled transformers. 6. Two 750 kva 13,200/5.50-volt 3-phase oil insulated, water-cooled trans- formers. 7. One completed set of oil and water piping for all transformers. 8. Two 110,000-volt electrolytic lighting arresters. 9. Six 300-ampere 110,000-volt choke coils. 10. Eight 13,200-volt 2 pole single-throw indoor type oil switches. 11. Eight 110,000-volt disconnecting switches. 12. Eight 15,000-volt disconnecting switches. 13. One complete set of 110,000-volt copper busses, with necessary connections to apparatus and insulators. 14. One 12-panel switchboard for controlling above apparatus, complete, with necessary indicating and measuring instruments and appurtenances. 15. One set of control cables and conduits, as shown on drawing 0-6532. 16. Copies of the drawings referred to in this schedule, identified by the parties hereto, are on file in the office of Col. J. W. Joyes, Ordnance Department, Wash- ington, D. C, and are hereby made a part of this agreement. Schedule C. Being a description of the transmission line extending from the Warrior substation to the Muscle Shoals substation on the land of the United States adjacent to United States nitrate plant No. 2, annexed to and made a part of agreement dated December 1, 1917, between Alabama Power Co. and United States of America : 1. One single-circuit, 3-phase, 60-cycle, l(X),(X)0-volt transmission line from the Warrior substation at Gorgas, Ala., to the land of the United States, on which is located its Muscle Shoals nitrate plant and substation, and a double-circuit transmission line of similar specifications from the boundaries of the said land of the Uniteil States to the Muscle Shoals substation adjacent to the steam generating plant of the United States nitrate plant No. 2, all as shown on drawing No. A-6914. In general, the transmission lines to consist of three 250,000 C. M. B. & S. gage copper conductors, supported by suspension type insulators from H frame structures, consisting of two creosoted wooden poles and wooden cross arms. Also two /ff" galvanized Siemens-Martin ground wires to be attached to the poles, together with the necessary guy wires, braces, and other hardware and appurtenances, in accordance with specifications and bill of material shown on drawing C-7070. 2. A single-circuit telephone line consisting of two No. 10 copper-clad wires supported on wooden cross arms attached to wooden poles separate from the transmission line and parallel thereto and made available for use at frequent intervals by means of telephone booths and instruments. 3. A sectionalizing and lightning arrester station located approximately half- way between Gorgas, Ala., and United States nitrate plant No. 2 at Muscle Shoals. 4. Six patrolmen's and 10 guards' houses and storehouse located at proper intervals along the line. 5. Transformer and substation equipment located at the point of junction of the quarry brancli line with the transmission line. 6. Such other facilities as may be authorized and approved from time to t'me by the contracting officer and erected or installed by the United States in con- nection with the transmission lines and appurtances mentioned in said agree- ment. 7. Copies of the drawings referred to in this schedule, identified by the par- ties hereto, are on file in the office of Col. J. W. Joyes, Ordnance Department, Washington, D. C, and are hereby made a part of this agreement. Schedule D. Being a description of the Muscle Shoals substation and the apparatus con- tained therein, annexed to and made a part of -agreement dated December 1, 1917, between Alabama Power Company and United States of America : 1. One 110,(X)0-volt structural steel bus and switching structure, as shown on drawing C-6792, erected on suitable concrete foundations. I: 170 MUSCLE SHOALS PROPOSITIONS. 2. Seven 6667 kva 13,200/110,000 volts single phase transformers. 3. Two 110,Q00-electrolytic lightning arresters. 4. Four 110,000-volt outdoor type 3-pole oil switches. 5. Four 110,000-volt 3-phase choke coils. 6. Eight 110,000-volt disconnecting switches. 7. One set of oil and water piping for all transformers including spare oil tank. 8. One set of 110,000-volt buses with necessary connections to apparatus and insulators. 9. Such other facilities as may be authorized and approved from time to time by the contracting officer and erected or installed by the United States in con- nection with the transmission line. • 10. Copy of the drawing referred to in this schedule, identified by the parties hereto, is on file in the ofiice of Col. J. W. Joyes, Ordnance Department, »Wash- ington, D. C, and is hereby made a part of this agreement. Schedule E. In relation to Drifton extension railroad, annexed to and made part of agree- ment, dated December 1, 1917, between Alabama Power Co. and United States of America : (1) The United States Railroad Administration shall rehabilitate and put in condition for service at its expense the disused track extending southeast from Drifton about 7,000 feet. (2) The United States shall acquire the right of way for the Drifton exten- sion from the end of the disused track of Drifton branch to the property of the Alabama Power Co. (3) The Alabama Power Co. shall construct at its expense said extension from the end of the disused track to the terminal at Warrior. (4) The Railroad Administration shall operate said extension for which the Alabama Power Co. shall pay the Railroad Administration a rate of 30 cents per ton on coal from mines on the Drifton extension to the Warrior station and Warrior extension, such rate to be added to the cost of coal trans- ported over said extension for use in operating the Warrior station and War- rior extension. (5) The Railroad Administration shall maintain the rehabilitated track, but the cost of maintaining said extension shall be assumed by the power company. (6) The Railroad Administration shall assist the power company in building said extension and shall furnish the construction plant for this purpose if required. (7) The United States shall supply the rails and rail-joint material required for the portion of said extension to be built by the Alabama Power Co., and shall in addition contribute $30,000 toward the cost of work to be done by the Alabama Power Co., said sum and the cost of said rails and joints shall be deemed a part of the actual cost of the Warrior extension for the purposes of Article XXII. (8) The United States shall grant the Alabama Power Co. an easement over the right of way to be acquired by the United States pursuant to the foregoing for the period of such easement, and provided such period is twenty- five years or more the Alabama Power Co. shall, upon taking over said railroad extension, reimburse the United States for the cost of such easement. Exhibit F. Items included in cost of the work annexed to and made a part of agreement dated December 1, 1917, between Alabama Power Co. and United States of America : (a) All labor, material, apparatus, and supplies. All hand tools not owned by the workmen, supplies and equipment necessary for said work; but this shall not be construed to cover machinery or equipment mentioned in section (c) of this schedule. The contractor shall make no departure from the stand- ard rate of wages being paid in the locality where said work is being done without the prior consent and approval of the contracting officer. (ft) All subcontracts made by the contractor in accordance with the provi- sions of this agreement. (c) Rental actually paid for construction plant and other equipment, in sound and workable condition, at such rates as may be approved by the con- MUSCLE SHOALS PROPOSITIONS. 171 tracting officer as being necessary for the proper and economical prosecution of the work. Rental to the contractor for such construction plant or parts thereof as it may own and furnish at such rates as may be approved by the contracting officer. When such construction plant or any part thereof shall arrive at the site of the work the contractor shall file with the contracting officer a schedule setting forth the fair valuation at that time of each part of such construction plant. Such valuation shall be deemed final unless the contracting officer shall within five (5) days after the machinery has been set up and is working modify or change such valuation, in which event the valuation so made by the contracting officer shall be deemed final. When and if the total rental for any such part shall equal the valuation thereof, no further rental thereafter shall be paid and title thereto shall vest in the United States. The contracting officer may at his option purchase for the United States any part of such construction plant by paying the difference between the valuation of such part or parts and the rentals paid therefor. Rates of rental as substitutes for rental rates then in effect may be agreed upon in writing between the contractor and the contracting officer, such rates to be in conformity with the rates of rental charged in the particular territory in which the work covered by this contract is to be performed. If the con- tracting officer shall furnish or supply any such plant or equipment, the contractor shall not be allowed any rental therefor. Rental for the use of the contractor's machine shop at the site of the work to be at such rates as shall be agreed upon by the contracting officer and the contractor. (d) Loading and unloading such construction plant, the transportation thereof to and from the place or places where it is to be used in connection with said work, subject to the provisions hereinafter set forth, the installation and dismantling thereof, and ordinary maintenance, repairs, and replacement during its use in the said work. (e) Transportation and expenses to and from the work of the necessary field forces of the contractor. Procuring labor and expediting the production and transportation of material and equipment. if) Salaries of engineers, superintendents, timekeepers, foremen, and other employees at the field offices of the contractor in connection with said work, also the salaries of other employees engaged on this work at the contractor's principal office. In case the full time of any such employee of the contractor IS not applied to said work but is divided between said work and other work his salary shall be included in this item only in proportion to the actual time applied to this work. The salaries of the contractor's executive and general officers shall not be included. • (g) Rent for office space required for necessary offices in the city of Bir- mingham, Ala., but this shall not include payment of any rent for the con- tractor's regular offices or any expense incident to conducting same. Rent for buildings and equipment required for necessary field offices, and the cost of maintaining and operating commissaries and hospitals and minor expenses as telegrams, telephone service, expressage, postage, etc., in cojinection with such office. (h) Such bonds, fire, liability, and other insurance as the contracting officer may approve or require and such losses and other expenses not compensated by insurance or otherwise as are found and certified to by the contracting officer to have been actually sustained (including settlements made with the written consent and approval of the contracting officer) by the contractor in performance of said work. (i) Permit fees, deposits, royalties, and other similar items of expense inci- dental to the execution of this contract and necessarily incurred and specifi- cally approved in advance by the contracting officer. (?) Such proportion of the transportation, traveling, and hotel expenses of the officers, engineers, and other employees of the contractor as is actually in- curred in connection with this work. . (k) Such other items as should, in the opinion of the contracting officer, be included in the cost of the work. Before such an item is allowed by the con- tractmg officer, it shall have been specifically certified as being allowed under this paragraph. il) Such cost shall not include interest on capital or borrowed money nor Charges for the use or occupancy of the contractor's property or facilities ex- cept as otherwise specifically herein provided. \ 172 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 173 State of New York, County of New York: I hereby certify that the following are correct extracts from the minutes of certain meetings of the board of directors of Alabama Power Co., at which said meetings there was present a quorum of the said board authorized to transact the business hereinafter described; that the proceedings of the said meetings were in accordance with the charter and by-laws of the company, and that the same have not been revoked, annulled, or amended in any manner what- soever. I further certify that I am the custodian of certain records of said company, including the minutes of meetings of the board of directors. Special meeting held November 4, 1918. On motion, Resolved, That the president and vice president, or either of them, is sepa- rately authorized to sign and execute on behalf of this company any and all proposals which may be submitted and any contracts, bonds, or other documents relative to any work which is or may be awarded by the United States Govern- ment to this company, and also any contracts and bonds with the said Govern- ment concerning such work. Armual meeting held March 11, 1918. On motion duly made and seconded, the following officers of the company were elected to serve for the ensuing term and until their successors are elected and qualified : James Mitchell, president ; Thomas W. Martin, vice president ; Wiley Alford, secretary; Wiley Alford, treasurer; H. S. Swan, assistant secretary; H. S. Swan, assistant treasurer ; M. P. Randall, assistant secretary ; M. P. Randall, assistant treasurer. In witness whereof I have hereunto set my hand and affixed the corporate seal of the company the 7th day of November, A. D. 1918. [SEAL.] H. S. Swan, Assistant Secretary. November 9, 1918. From : Lieut. Col. William Williams, Ordnance Department, United States Army. To : Col. J. W. Joyes, Ordnance Department, United States Army, Chief of the Nitrate Division, Ordnance Office, through the Chief of Ordnance. Subject: Designation of contracting officer under contract No. T-69. (Army No. 12385.) 1 You are herebv authorized to act in my stead as contracting officer for all purposes and in all respects contemplated by the contract dated the 1st day of December, 1917, between the Alabama Power Co. and the United States of America, by Lieut. Col. William Williams, Ordnance Department, United States Armv William Williams, Lieutenant Colonel, Ordnance Department, U. 8. Army, Contracting Officer. [First indorsement.] From: The Chief of Ordnance, United States Army, November 12, 1918, to Col. J. W. Joyes, Ordnance Department, United States Army. 1 In accordance with the terms of the above-mentioned contract, dated the 1st day of December, 1917, between the Alabama Power Co. and the United States of America, by Lieut. Col. William Williams, Ordnance Department, United States Army, therein designated as the contracting officer, you, as Chief of the Nitrate Division, Ordnance Office, and in the event of your relief from that position, your successor therein, are hereby designated to act as contractmg officer thereunder in all respects and for all purposes contemplated by that contract. ,^ r-, ^^ C. C. Williams, Major General, Chief of Ordnance, U. S. Army. The Chairman. By reason of the specific language of the contract itself, you came to the conclusion that these separate contracts which were entered into by the officers of the corporation, I imagine, and the Government of the United States, are absolutely void and of no effect. Col. Hull. The options to purchase are nonenforceable unless ratified by Congress. The Chairman. Will you go right ahead with your statement and state anything else you have to say about the matter? Col. Hull. Another question that was before the office was the contract that we had between the General Chemical Co. and the United States relative to nitrate plant No. 1, the apparatus and the processes for nitrate plant No. 1. The opinion of the office is dated December 14, 1920. We answer a number of inquiries as to the rights of the Government as to the use of our properties. It relates primarily to patent rights. The Chairman. Will you kindly insert that in the record? Who is that contract signed by, or was it signed? Col. Hull. I have not that contract in front of me now. I can get that and insert it. It w^as a tender by the General Chemical Co., dated June 5, 1917, sub- mitted by Mr. W. H. Nicholls, chairman of the board, and Mr. John A. Martin, secretary, and accepted on behalf of the President July 14, 1917, by Newton D. Baker. The Chairman. Do you hold that that contract or that agreement comes in the same category as the agreements with the Alabama Power Co. and the Air Nitrates Corporation? Col. Hull. No, sir; the question here was a limitation whereby the Govern- ment received the right to use certain patent processes and apparatus, together with all improvements in the art made, so long as the Government continued the use of the process, and the Government agreed to exclude the public from all works " in which said process shall be employed^" etc. ; in other words, to keep it secret, and we held that the obligation of secrecy had expired by reason of the fact that the contract was no longer recognized by the General Chemical Co. and whatever we had there was a matter of general information obtained from the other side, after the war, anyway. The Chairman. Are those the only contracts you have respecting these matters? Col. Hull. They are the only ones submitted, except the one of Mr. Ford's. On January 17 the Secretary of War called upon my office for a memorandum as to whether there was a mandlate upon him to sell the Muscle Shoals nitrate plant, which I answered in a short memorandum that there was not, and that it was a matter for Congress, which I will also insert in the record. (The memorandum referred to is as follows:) January 17, 1922. Memorandum for the Secretary of War. Subject: Is there any mandate upon the Secretary of War to sell the Muscle Shoals nitrate plant? The only statute authorizing the sale of manufacturing plants under the jurisdiction of the War Department is contained in the act of July 9, 1918 (40 Stat. 850), in the provision authorizing the President, through the head of any executive department, to sell war supplies, material, and equipment " and any building, plant, or factory acquired since April 6, 1917, including the lands upon which the plant or factory may be situated, for the production of such war supplies, materials, and equipment * * * " This authority may be considered in the nature of, or equivalent to, a direc- tion or mandate to sell war supplies, material, and equipment, and also manu- facturing plants no longer needed for Government use, but does it apply to the Muscle Shoals nitrate plants? This question must be answered in the light of the provisions of section 124 of the national defense act of June 3, 1916 (39 Stat, 215), which authorized the President to cause to be constructed a nitrate plant, at some location to be determined by him after an investigation, for the manufacture of nitrate for military purposes in time of war and for fertilizers for agricultural purposes. There was appropriated the sum of $20,000,000 theefor, this sum to be raised by the Secretary of the Treasury from the sale of Panama Canal bonds. Among other provisions of the section special attention is invited to the following : "The plant or plants provided for under this act shall be constructed and operated solely by the Government and not in conjunction with any other industry or enterprise carried on by private capital." 174 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 175 It is understood by this office that Muscle Shoals was selected by authority of the President as a site for the nitrate plant authorized by the national- defenle act and that Plant No. 1 and the Wilson Dam and certain other Sties have been paid for in part from the $20,000,000 appropriated by the nationa^^^^^^ act. It appears that about $16,000,000 has been expended from ^at apDropriation, chiefly, however, for the construction of the Wilson Dam. It is SStood tl at the and for the Nitrate Plant No. 1 was paid for from JLt approprYatlon, but the construction of Plant No. 1 and all expenses in con- ne^tion\vX No. 2 were paid for from war appropriations for the Ordnance ^Tthus^appears that the Muscle Shoals nitrate project, considered as a whole, was inimted by Congress by the provisions of the national-defense act of June ri9lHnd that a cfLiderable portion of the expenditures for the plant have been made from the $20,000,000 appropriated by that act In my opinion the general authority contained in the act of July 9, I9lb, sunra for the sale of war supplies and plants acquired smce April 6 1917, d^s not apply to the Muscle Shoals project, considered as a whole. It is a r^e of statutory construction that a general statute does not repeal or super- St a prior particular statute unless there is some express reference to the devious legisfation on the subject, or unless there is a necessary inconsistency in the two acts standing together. Ex parte Crow Dog ^^^^^^ f| 5.0.) T f.nn«iripr therefore that the special provision contained in section i^4 01 rne LtXal dk ense a^^^^ directing that the plant therein authorized be operated ^iX by thraovern^^^^ and not in conjunction with any other industry or Ste^rise carri^ on by private capital, is applicable to this plant as a whole and ?sfre™t upon its sale. The same statute would prevent the lease or rental of the plant for private operation. ^ ^ ^^^^^ Acting Judge Advocate General. [Second indorsement.] Wab Depabtment, Judge Advocate General's Office, December U, 1921. ^o The Adjutant General of the Army : 1 Bv the preceding indorsement you refer to this office for opinion the ques- tions set forth in subparagraphs (a) to ((f), inclusive, of paragraph 4, and Xaralraphs (a) to if) of paragraph 5, of the letter of the Chief of Ordnance ^I'^Thesnue^'tfonf^^^^^^^ between the General Chemical Co and ?heUnuld Spates executed on July 14, 1917, whereby the Government r^eived {he right to use certain patented apparatus and processes therein described together with all improvements in the art made or acquired by the rPTiJrTchemical Co at any time "so long as the Government shall continue fhe Tsl of saTd proce^^^^^^^^^ The authority for the contract appears to have been sectfon ?24 of the act of June 3, 1916 (39 Stat., 215). The patented processes mentioned in the agreement are embodied in patents Nos. 1141947 1141948 n423^ 1151537, 1159364, and 1159365, and the agreement contained no 'llTorftlme IfteX'eZ^e^nt was made the Government proceeded to huL nitrate pSnt No 1 at Sheffield, Ala., in accordance with the plans of the Ka Chemi^^^^ first unit being completed in June, 1918 Thereafte trial onerations were carried out in the above-mentioned unit with the as •i?L^ronTnnder the instruction of the General Chemical Co. organization tCr^out ?he ?eSainTng m^^^^^^^ of the year of 1918. It became evident to those 4« ^io™ nhnlit the latter part of December, 1918, that extensive changes m l?/nw would b^necelsa?y before it would operate successfully, and thert.- nftJ thi nersinnel was r^uc^ to the point of stand-by. Presumably on ac- tafan understanding with all its officers and employees as follows: "In consideration of my employment by the United States and its agree- ment to pay me for my services, and in consideration of my access through such employment to confidential information as to processes and apparatus used by or communicated to the United States, I agree that I will not divulge any information so gained without express written permission of the Secretary of War, or his duly appointed representatives, and that I will use my best efforts to prevent improper disclosures of any confidential information by others." This agreement being between the Government and its employees was not shared by the contractor, the chemical company. 4. The Ordnance Department appears to have been still interested in the development and research incident to the Government experiments in the above- mentioned plant, for on August 13, 1919, Mr. A. E. Hecker, of the nitrate divi- sion, requested information from the General Chemical Co. as to the methods of manufacture and durability of catalysts No. 719, No. 698, and No. 744, in response to which request the General Chemical Co. on August 22, 1919, replied : " In response to the request for information contained in your letter to us of the 13th instant, the writer is directed by the chairman of the board to advise you that, as this company is under no present obligation to furnish such information to your office, we must respectfully decline to do so." Apparently having in mind the above-mentioned contract. Col. Burns, of the Ordnance Department, on September 8, 1919, requested by letter of the General Chemical Co. the reason for their refusal to give the information called for in the Hecker letter of August 13, and the chemical company replied by their letter of September 13, 1919, as follows : " If, as we understand, your request for information was made pursuant to clause 4 of our tender of June 5, 1917, we need only to remind you that by the express terms of this clause our obligation to communicate improvement to the Government was limited to the period during which the Government should continue the use of our process and that the Government's plant for the use of that process has been shut down for nearly a year." 5. On June 6, 1919, a commission designated the " United States Fixed Nitro- gen Commission " was sent to Europe to ascertain the development of nitration processes abroad. This board investigated the British, French, and German processes, and reported particularly on the German development, and their re- port show that the processes as covered by the patents of the General Chemical Co. were not only well known and understood, but that they had been exten- sively practiced for several years in Germany. 6. The agreement of July 14, 1917, contains no express provision for its termi- nation other than the terms " so long as the Government shall continue to use said process," and " in which said processes shall be employed." The letter of August 22, 1919, in which the chemical company states " this company is under no i)resent obligation to furnish such information to your office " would indi- cate that the chemical company believed that the contract was no longer in force. By the further information contained in the letter of September 13 the chemical company states that their refusal to give the information is upon the ground that the use of their process in the Government plant has been discon- tinued for more than a year and therefore fell outside the provision of para- graph 4 of the agreement to furnish information " so long as the Government sholl continue the use of said processes." It appears that although the plant was shut down because the process as used under the advice and direction of the chemical company did not prove satisfactory, the Government agents car- ried on experiments and inquiry along that line with a view to determining an efficient method of obtaining the product desired. The plant having been placed in standby and so remaining for about a year, the question arises as to whether this was a discontinuance of the use of the process. The chemical company takes the stand the the process has ceased to be used by the Government. This position implies that the contract is completed and has expired, because the only limitation on its life is governed by its terms, which include " so long as the Government shall continue to use said process," " exclude the public * ♦ * from all works in which said processes shall be employed," etc. These terms appear in the contract where, had there been a definite time limit in the minds of the parties, it would have been set forth. It appears that the inten- tions of the parties were that the contract should govern as long as the Gov- ernment made use of the process and no longer. The action by the chemical 92900—22 ^12 .\ id. 176 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 177 company estops that company from taking the position that the process was merely temporarily discontinued. ^ ^ ^r. 7. The questions propounded by the Chief of Ordnance are set forth and answered seriatim : «, ^„ » mv, 4. . (4a) Is the agreement of July 14, 1917, still in effect? Answer. The contract of July 14, 1917, may be considered as terminated as of the date of the discon- tinuance of the process by the Government. _ (4b) Can the plant be sold as a going concern to parties desiring to develop it as a nitrogen fixation plant? Answer. Since it clearly appears that the plant was operated without success and later completely closed down due to the fact that operation resultetl in a failure, it can not be said to be a going concern, and therefore could not legally be sold as such, and in the sale of the plant no further w^arrantv should be given than a statement that it is sold " as is." (4c) Can the^ equipment in the synthetic process be sold for removal from the reservation, without restriction as to its use? Answer. The subject matter of the contract was in process and apparatus, and the machinery installed is not shown to fall within those classes, and no restrictions being set forth as to its use may be sold without restriction or reservation as to its use, and the future use of the plant by the purchaser as a plant for manufacturing the subject matter embodied in any patents would, of course, be a question between the purchaser and any patentee owning processes to be used. ^ ^^ ^ (4d) Can the equipment used in the synthetic ammonia process be sold for use other than for nitrogen fixation, allowing prospective buyers to inspect the plant*? Answer. Inasmuch as processes covered by the contract are no longer in operation or use by the Government, the prohibition relating to the exclusion of the public is no longer applicable, and the equipment, not being the subject matter of the contract, may be sold for whatever purposes the Government may see fit (5a) Can operations at Sheffield be described and published? Answer. TTie in- formation received bv the Government from the General Chemical Co. was the subject matter of the six patents, together with the knowledge and experience of the engineering force of the chemical company. It appears that at the outset the chemical companv relied on the information of their engineers, Mr. De Jahu and Mr Schultze but after several weeks' trial these gentlemen were replaced by others who had no experience with this type of project and who met with no greater success. It would appear that at the time the contract was made there were no other plants of this type in operation in this country, and that the chemical company had merely the patents and a theoretical idea as to the means of the operation, which means were intended to be worked out at the expense of the Government. The terms upon which the contract was undertaken clearly show that it was intended as an experiment, the chemical company giving services and theory as expressed in their patents and the Government financing the proposition in addition to giving the services of its employees. The sub- ject matter set forth in the patents can be under no injunction of secrecy, be- cause they are as a matter of law complete publications which may be dis- cussed and criticized at will. Under the terms of the contract the Government agreed to " exclude the public from all works in which said processes shall be employed." The process being no longer in operation, the restriction as to the public appears to be terminated. The Government did not agree to any secrecy other than this clause and is now at liber iy to give such information as it chooses. As to the agreement of secrecy between the Government and its em- ployees, the General Chemical Co., not being a party to the agreement, has no authority to claim under it. . • a (5b) If not, can operations be described v^hen these operations were carnea out in exact accordance with published patents, or can it be published that operations described in patents were actually used at Sheffield? Answer: As to the information received by the Government and its employees as a result oi experience and experiments carried on at Nitrate Plant No. 1, the only stipula- tion referring to this matter in the contract is that the General Chemical Co. receives an implied license to use such information. Information thus received belongs to the Government to do with as it sees fit. The rights thus obtamea by the chemical company would be necessarily restricted to an implied license to the matter which would plainly not entitle it to restrict the publication oi such information by the Government. ... ,»,_, ,-n (5c) If not, can the principles involved in these operations and described i" the patents aiid other literature be described if no reference is made to the fact that actual operation at Sheffield was in accordance with these principles. Answer : As to the information received as the result of the inspection of the European plants by a board of officers, any information thus obtained would be clearly outside the contract, inasmuch as it was obtained after the cessation of operations at Plant No. 1, and therefore would preclude the chemical company from any interest therein. (5d) Can the advantages and disadvantages of certain variants from the process described in the patents be discussed, even though such variants were used at Sheffield, provided no statement is made that they were actually used? For example, a discussion of the relative merits of pressures or temperatures higher or lower than those described in the patents. Answer : In the letter of October 3, 1921, the General Chemical Co. to Maj. Burns, Ordnance Department, the writer urged that the Government, under paragraph 5 of the contract of July 14, 1917, agreed to keep the designs and processes secret. Examination of this paragraph cited shows that the Government agreed to recognize the chemical company as the sole owner of the processes under the patent, and further agreed to exclude the public from the works in which said processes shall be employed. This office can not agree with the position taken by the chemical company as to its construction of the prohibition, and, on the other hand, is of the opinion that all powers of this paragraph were terminated upon the cessation of the use of the processes. (5e) If certain information was obtained by the Government during the operation of the Sheffield plant and was subsequently obtained from the British Ministry of Munitions or by inspection of the German synthetic ammonia plants, can this be published if no reference is made to Sheffield? Answer : Yes. (5f) There have been researches on problems that arose at Sheffield, and others, the outgrowth of collateral researches, on problems which have arisen since the operation at Sheffield and which are entirely distinct from the opera- tion of that plant but which might be construed to be indirectly the result of knowledge acquired during the operation at Sheffield. To what extent can the results of this research work be described and published? Answer : The contract under consideration can place no restrictions upon the Government as to dis- closure of information resulting from its independent researches, even though the original reason for such research arose out of operations at Sheffield, and the publication of such information is purely a matter of departmental determi- nation as the interests of the Government may appear. J. A. Hull, Acting Judge Advocate General. The Chairman. Col. Hull, were you present before the committee, or in the committee room, when Gen. Williams stated that in his opinion there was a moral obligation on the part of the Government to recognize the validity of the Alabama Power contract? (^ol. Hull. Yes, sir. The Chairman. What do you think about that moral obligation? Col. Hull. Ordinarily, I am strictly in favor of the Government carrying out its contracts that are duly entered into, notwithstanding that the officer, in the time of emergency, exceeded his powers. But in this contract I notice it is n cost-plus contract. It is a long contract that bears many evidences of having been very carefully prepjired by the attorneys for the company, and they have provided several very remarkable things, namely, the construction of a power- transmission line and power plant at the expense of the United States, but at the same time providing that the company takes th.e real estate and an option. The company can not get, ordinarily, in time of war, the right of way .'IS cheaply or as expeditiously as the Government can, and it certainly would have been a matter of ordinary business sense when they were constructing a plant and buying real estate to do it in that way. Therefore, I believe it is a proper ease to leave to Congress, after a due investigation, to determine what the equities of the matter may be. The Chairman. You are not greatly impressed, I take it. with the moral obligation? Col. Hull. I do not know the nature of the negotiations that lead up to that contract, but they had a profit of about $285,(X)0 on the face of the contract, for the construction. The Chairman. For the construction of the transmission line? Col. Hull. And the properties there which were constructed. I •k 178 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 179 The Chairman. Is there anything else you want to explain to the committee regarding these contracts? Col. Hull. The contract with Mr. Ford was prepared in my office; that is. the proposal of Mr. Ford, after an interview with Secretary Weeks. The Secre- tary of War and Mr. Ford wanted it expressed in a little more legal language, and it was drafted in my office. Several of my best assistants worked a couple of weeks on it with Mr. Ford's representatives to try to express Mr. Foil's idea. It was not a negotiation in my office. The contract which he sent here was the result of that drafting in the office. The Chairman. Do you mean the signed contract of January 25, 1922? Col. Hull. Yes. sir. But we were acting there more as a drafting agency for Mr. Ford than negotiating across the table. Mr. Fields was asking some questions on which I might throw a little more light. If vou will turn to page 15 of the contract, section 3, in regard to the flowage lands and rights, you will find the following language, after 4 per cent : *' Of the actual cost of acquiring lands and flowage rights, and of completing the locks, dam. and power-house facilities (but not including expenditures and obligations incurred prior to approval of this proposal by Congress)." Similar language was also in the draft as it left the office, in section 7, but before signing it was stricken out, which causes a certain amount of misun- derstanding. I understood that what Mr. Ford was afraid of was that that would obligate him to get that land, and, being a private party, he was afraid he would have difficulty in condemnation proceedings, whereas the Government could condemn. But the omission leaves it in question, and I believe you will find that his representatives, who will appear before you next week, will clear that up to the satisfaction of the committee. The Chairman. Of course, the experience of this committee has shown con- clusively that when the Government tries to negotiate for land the value goes up enormously. Col. Hull. Of course, it is liable to go up even still more in the case of a private individual. The Chairman. I believe it would also go up if a very wealthy man like Mr. Ford were known to be in the market for the purchase of real estate. Col. Hull. Of course, the Government is protected' by the right of em'uent domain. The Chairman. But I find that juries generally, when you go into court on condemnation proceedings, are more apt to save the private citizen than to save the Government. , , , , Col. Hull. I would have recommended to the Secretary of War, if funds had been available, that condemnation proceedings start at once on the Alabama Power Co. property, so that that could be completely disposed of before we attempted to sell it. But there were no funds available, so there has been no authority given to start condemnation proceedings. There has been a great number of legal questions which have arisen around this table, and I will be willing to answer those questions as far as I can. I do not recall just what they were. What I have mentioned are the principal ques- tions that have been in the office. The Chairman. By the by, I heard it stated that there is a rumor around that quite a number of private corporations and private individuals own consider- able land around Muscle Shoals, and that if any effort is made to secure those lands there will be a pretty big increase in the value. Have you heard anything of that kind? . ,.,.., i .„ Col. Hull. I have not heard anything. Those stories were likewise told in Washington when the Union Station was started, I believe. The Chairman. Oh, yes. We have those things all over the country, uliat have you to sav regarding this language in the Secretary's report, on page o : "The Acting Judge Advocate General has also held that the provision con- tained in section 124 of the national defense act directing that the plants therein authorized be operated solely by the Government, and not in conjunc- tion with any other industry or enterprise carried on by private capital, is applicable to*the plant as a whole, and is a restraint upon its sale. This con- struction, if justified, would prevent the lease or rental of the plant for private operation." What have you to say in regard to that? ^., „« Col Hull. Section 124 of the national defense act, which I read a whde ago, Mr Chairman, I think is clear and unambiguous, and consequently the Secre- tary of War is without power to dispose of these properties until authorized Dy Congress. I I^^ ^^''^f^^^: ^^" ^^^^ *^^* ^^ Congress were to authorize the sale and the coXovefsy?' "''''''^''' '" "'" ^'"''^" ^''^^^^ P^^^^^' *^^^ ^'^"^^ settle the whole Col. Huu.. It is entirely a question for Congress Mr. Hull. Colonel, you spoke of the contract with the General Chemical Co in connection with patent rights and royalties. Is it your opinion thaT we are not under any obligations under that contract' Col Huix That contract with the General Chemical Co. has practically ter- mmated. That is on nitrate plant No. 1. piatucauy rer Mr Hull. Would there be any on nitrate plant No. 2? Col. Hull. On nitrate plant No. 2 we have a number of processes and patents which, under the contract we have, we could transfer, and which under ths contract with Mr. Ford, he has an option on. Whether he will take them or no? depends upon his investigation. If he does take them and produces an^nitrate there, under these patents he must pay a royalty. nuraie Mr. Hull. Then under the contract with Mr. Ford, we would have to pav that royalty. Would that money be charged against the contract with Mr. Fo?di» col. hull. If he took over those patent rights that rovaltv wonld be a mrt ''m/ Hnxr^S?'" ^'^"^'^ f ^?."' *^^ fertilizer Which he wiulKuce there"^ Mr. Hull. If we accept this contract with Mr. Ford, does that leave us free of any contract or liability with any other company? ^ Col. Huud. I should say so. of^his^?ntmd:T ^^^ ^^"^ething to do, as I understand it, with the drafting Col. Hull. It was drafted in the office. Col Hull. Yes sir ; it has been studied, wa^ fou^'ijo^^ble^ ^^ ^^ ^''"''^ ^"^ P'*'^'''^^ fertilizer under that contract, if it Col. Hull. As now drafted? Mr. Hull. As now drafted he would have to produce at least Col. Hull (interposing). To the maximum capacity of plant No 2 Mr Hull. There would not be any question about that? Col. Huix. There is not any in my mind. The Chairman. Under what section? Col. Hull. Section 14. Mr. Hull. Suppose he could not produce it; that it was found nhvsicallv impossible to produce the fertilizer compound in paying quantities what woud be the result, so far' as the contract with the Government goes? ' • Col Hull. If the Government insists, a court of equity would ''rant relief and not compel the performance of the impossible ' Co7. Hull lection^"*''' ""^ ^^^ ^^''''^ contract with Mr. Ford covers that? Mr. Hull. If it was found impossible to produce this fertilizer, I presume of course he would be enabled to take the hydroelectric power that vvas supS to go into the production of the fertilizer and use it or s^l it as he saw fit^'^ fnrv or.H ^" -^^ ' \^^' ^^ ^'^"^^^' ^^ ^^'^"^^ ^^ Obligated to maintain his labora- tory and experiments and try to produce. ^tiuura Mr. Hull. He would have to keep experimenting and trying to produce fertilizer? Col. Hull Mr. Hull, Yes, sir. ^"^^^ *^'^ contract there is nothing, as I understand it at the Pi'esent time at least to guarantee the fulfillment of the contracrexcept the ft'ouT^ w^r.'^"'^ ^' ^'''7 ^"^•^^- ^"^ ^^ ^''^"^^^ ^« binds hTs estate tTcar^ It out. What IS your opinion as to the liability of the estate ^i I have not nnv ^loubt about the liability of Henry Ford, but ^.^Iat wouWhe tbe liSty of th^ estate? Can he make his estate liable? Humiy or me iimipl.* Si'''" •".• ''''V^'^ '^^^^. ^^^ ^^^""^^ "''^^^^ *^"^ the estate would be bound nnder the existing law— that is, the estate in Michigan where he signs this nin?"'- JK^ ^'^ }r^ '"^^^^"^ ^^ tb« «t^t"t« in^iichigan to wMch my attention has been called which I would like to read to vou I auote from the compiled laws of Michigan of 1915 (vol. 3, p. 4867)T '(13898) Sec. 16. If the court shall be satisfied from the report of the com- mSSr^T T ^^*^^ P"^."^.^ exhibited, said court may order the executor or ad- whPn fvf ^"^ ""t^^'iV ^'^ ^l""^.^ sufficient estate to pay such contingent claim vvnen the same shall become absolute, or if the estate shall be insolvent sufficient ^0 pay a proportion equal to the dividends of the other creditors." » \ 180 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 181 Following a little later down you find this : "(13905) Sec. 23. When the heirs, devisees, or legatees shall have received real or personal estate and shall be liable for any debts as mentioned in this chap- ter they shall be liable in proportion to the estate they may have respectively received, and the creditor may have any proper action at suit or in law or equity and shall have a right to recover his claim against a part or all of such heirs, devisees, or legatees to the amount of the estate they may have respectively received, but no such action shall be maintained unless commenced within one year from the time the claim shall be allowed or established." Of course there is one obvious difficulty in that, and that is if he should breach the contract on a question of production of fertilizer for the Government to maintain a suit for damages it would have to show that the Government was damaged because the farmers of the country did not receive fertilizer at a cheap rate. I will leave It to the lawyers on this committee as to how difficult It would be to secure a measure of that in dollars and cents. Of course we can compel specific performance, but as long as Mr. Ford is alive I do not think that would be necessary. Mr. Hull. Under this contract Henry Ford obligates himself and his company to start to develop certain properties down there. Unquestionably there would be considerable property that would be worth something to the Government. Would there be any question at all, or could there be any question, raised in case Henry Ford failed to carry out the contract as to whether that property would revert to the Government? That is the property he puts on our property down there. , ^ ^i, i. * ^ Col Hull. He does not contract to put any property on land that is to remain In the United States, so that anything we could hold would have to be held after judgment IMr Hull. There would be more property there on which we could recover? Col. Hxjll. I should say we would have to hold it after judgment, but we could not hold it otherwise. , . ^x. , Mr Hull We would have a cause for damages against the company? Col". Hull. If there was a breach on which you could recover damages, the property of the company would be subject to execution? Mr Hull. I do not know whether you would care to do so Col Hun (interposing). I presume your suggestion is in regard to the pos- sibility of the insertion of a clause returning to us the properties we dispose of in case of a breach? Mr. Hull. There is no such clause in there now. Col. Hull. No such clause there now. :Mr. Hull. Should there be? <\>1 HuiL It would be an additional protection to the United States. Mr Hull. Tliev should not object to putting it in, should they? Col Hull I have given it no consideration at all along that line. , Mr' HuiL Do vou care to express to the committee a general conclusion in^ regard to this contract, anything that would be of interest to the com- '"col HuLT I have never given the business features of it any real considera- tion except in hearing the testimony which has been given the committee. Mr. Hull. You have heard a good deal of testimony? Col Hull. I have simply the information that the other members of the com- mittee have had, and I would not consider, without further evidence, that i would be able to arrive at any definite conclusion. Mr. James. Colonel, under the contract entered into by the Alabama Power Co. with the United States, how much money was invested by the Umtea States ** ' Col. Hull. About $4,676,000> I think. Mr. .Tames. How much was invested by the Alabama Power Co.? Col. Hull. I have no knowledge of that. Mr. James. Have you any idea what profit they made? Col. Hull. The contract provided for $60,000 for overhead ; also 6 per cent profit on the expenditure, with a limit of $225,000. ^^ .^ ^ ^^ ^ , ., ,^j. Mr. James. Under the contract between the Umted States and the Aii Nitrates Corporation, how much money was invested by the United States . Col Hull The total cost was $69,000,000, approximately $70,00(),000. Mr.' James. How much money did the Air Nitrates Corporation invest? Col. Hull. It was a cost-plus contract. Mr. James. At what rate? Col. Hull. Article 10 of the contract of the American Air Nitrates Corpora- tion with the United States provides : " Costs and expenses — Audit and payment thereof. — The United States shall bear all costs and expenses of every character and description incurred or made in conn^tion with the planning, construction, equipment, and operation of each of the said plants or any part thereof, and in the conduct of any other business or activities of the agent hereunder; and the United States shall supply all money necessary therefor in such amounts and In such manner as to permit all of the agent's activities with respect to the planning, construc- tion, equipment, and operation of the plants to proceed without delays or inter- ruptions and without the necessity of the agent providing any capital or bor- rowing any moneys. Vouchers for all accounts payable shall from time to time be furnished to the Chief of Ordnance, and upon presentation of satisfactory evidence he shall either furnish the agent funds to the amounts thereof, which funds shall be immediately paid out by the agent under the supervision of a representative of the Chief of Ordnance, or the vouchers may be paid direct by the Chief of Ordnance to the persons entitled to payment thereunder. Such vouchers shall be acted upon by the Chief of Ordnance promptly. " All accounts payable by the United States hereunder, including those in re- lation to costs and expenses of construction or operation, shall be subject to audit by the United States, which shall maintain at the plants and elsewhere, if necessary, a sufficient number of auditors promptly to audit the same. " To expedite payments to the agent the United States shall detail represen- tatives at each of the said plants and at the agent's home office, with power and sufficient funds to discharge the pay rolls and to make any other payments as they shall become due hereunder. Payments by the United States shall be sub- ject to correction for errors, if any. "The agent shall make no charge to the United States for the following things : " 1. For procuring from the American Cyanamid Co. a license to it as agent of the United States to use the said company's patents and processes. "2. For procuring from the American Cyanamid Co. the disposal, for pur- poses of the Air Nitrates Corporation, of the said company's experiences, rec- ords, and plans appertaining to the production of the said chemicals herein- above referred to. •• 3. For procuring from the American Cvanamid Co. the disposal, for the pur- poses of the Air Nitrates Corporation, of the following members of the said company's executive and technical force, namely, the President, vice president and general manager, sales and traffic manager, engineering assistant to gen- eral manager, superintendent of manufacture, chief technologist, chief engi- neer, assistant engineer, and, in addition thereto, in connection with the opera- tion of the said plants, two principal works managers, as such offices may from time to time be filled. •' 4. For procuring from the American Cyanamid Co. the disposal, for the pur- poses of the Air Nitrates Corporation, of all of the said company's plants for the purpose of training superintendents, foremen, and chief operatives." Article XI provides: "Agent's compensation. — ^As full compensation for the services of the agent the United States shall pay to the agent the following fees : "1. Construction fee. — Three and one-third (3^) per cent of the cost in con- nection with the construction and equipment of the said plants, until such cost (exclusive of the agent's compensation) shall equal thirty million (30,000,000) dollars, and thereafter one and two-thirds (If) per cent of such cost in excess of said thirty million (30,000,000) dollars. Said fee shall be payable monthly upon that portion of the cost for which payment has been made during the month or months preceding and as to which the fee is unpaid. There shall be credited on account of said construction fee any payments for construction compensation heretofore made to the agent under the provisions of said con- tract of November 16, 1917. The total of the construction fee shall not exceed one million five hundred thousand (1,500,000) dollars. "2. Operation fee. — One-quarter of one cent ($0.0025) per pound of ammo- nium nitrate produced in compliance with Art'cle VII hereof and accepted or utilized by the United States, up to and including 110,000 tons produced in any fiscal year of the United States, and one-eighth of one cent ($0.00125) per pound of ammonium nitrate so produced and accepted or utilized in any fiscal year in excess of such 110,000 tons. Payment shall be made monthly. " The Chief of Ordnance may direct the agent to produce, at any one or more of said plants, products other than ammonium nitrate, and to the extent that 182 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 183 4-11 Ml such products are not utilized in the making of ammonium nitrate in any of said plants ojierated by the agent the agent shall receive as compensation for making such products an operation fee computed upon such a basis as will give the agent for making such products the same amount as the agfnt, by way of operation fee, would have received (1) where such products are nitrogenous compounds, for fixing an equivalent amount of nitrogen in the form of ammonium nitrate; and (2) where such products are other than nitrogenous compounds, for making ammonium nitrate ejquivalent in cost to that of such products." Mr. James. Is Lieut. Col. William Williams still in the Army? Col. Hull. No, sir; I think not. Mr. James. Do you know what his present business is? Col. Hull. I am informed that he is living in New York and just recently left for the Orient. Mr. James. Do you know what his business is? Col. Hull. I do not. Mr. James. Is Lieut. Col. Samuel McRoberts still in the Army? Col. Hull. No, sir. Mr. James. Do you know what business he is in? Col. HxjLL. He is in the National City Bank, I believe. Mr. James. He is a banker? Col. Hull. Yes, sir. Mr. James. I understood you to say that Lieut. Col. Williams, who signed this contract on behalf of the United States with the Alabama Power Co., and Lieut. Col. McRoberts, who signed the contract on behalf of the United States with the Air Nitrates Corporation, are out of the Army? Col. Hull. Yes, sir. Mr. Kearns. Colonel, do you know what the capital stock of the Air Nitrates Corporation amounted to? Is it not true that that was a company composed of 10 men and each one put $100 into the organization ? Col, Hull. I have so heard, but I have never looked into that matter. Mr. Kearns. If this was a company composed of 10 men, each putting in the company $100, making the capital stock $1,000, what business or activity could they have that the Government would want to buy? Col. Hull. Possibly the relationship of the Air Nitrates Corporation with the parent company, the American Cyanamid Co., might explain why they made a separate company for the purpose of the contract. Mr. Kearns. I have been told — I do not know how true it is — that these 10 men got from the Government or got from some one, something over $2,000,000 on a capital stock of $1,000 out of this project at Muscle Shoals. Is that true? Col. Hull. I do not know. I have heard a great many stories on both sides of that, but I have never had occasion to go into it officially. Mr. Kearns. I was wondering how a company with a capital stock of $1,000 could furnish the Government anything in the way of materials that would be worth over $2,000,000. Do you know of any service that they have rendered to the Government that would justify a payment of $2,000,000? Col. Hull. I do not know enough about the business to pass any intelligent judgment on that at this time. I could imagine a condition — for instance, if you take the 10 leading men of the United States Steel Corporation and they would start a small corporation for the purpose of helping us out in the con- struction of steel for a couple of years ; their experience might be worth a good deal, considering Mr. Carnegie's old statement that he did not care whether his mills burned down as long as he had his personnel. Mr. Miller. Colonel, under section 15 of this contract, which might be called the advertising section of it, you find this peculiar language : " In order that the farmers may be supplied with fertilizers at fair prices and without excessive profits, the company agrees that the maximum net profit which it shall make in the manufacture and sale of fertilizer products at nitrate plant No. 2 shall not exceed 8 per cent of the actual annual cost of production thereof. In order that this provision may be carried out, the company agrees to the creation of a board of not more than nine voting members, chosen as fol- lows: The three (3) leading representative farm organizations, national in fact, namely: The American Farm Bureau Federation, the National Grange, the Farmers Education and Cooperative Union of America (or their successors) shall each designate not more than seven (7) candidates for said board. The President shall nominate for membership on this board not more than seven (7) of these candidates, selected to give representation to each of the above- mentioned organizations, said nominations to be made subject to confirmation by the Senate, and there shall be two voting members of said board selected by the company. A representative of the Bureau of Markets, Department of Agriculture (or its legal successor), to be appointed by the President, shall also be a member of the board serving in an advisory capacity without the- right to vote. The said board shall determine what has been the cost of manufacture and sale of fertilizer products and the price which has been charged therefor, and if necessary for the purpose of limiting the annual profit to 8 per cent (8 per cent) as aforesaid, shall regulate the price at which said fertilizer may be sold by the company. For these purposes said board shall have access to the books and records of the company at any reasonable time. The said board shall also determine the equitable territorial distri- bution of fertilizer products produced at nitrate plant No. 2. If and when said board can not agree upon its findings and determinations, then the points, of disagreement shall be referred to the Federal Trade Commission (or its legal successor) for arbitration and settlement, and the decision of said com- mission in such cases shall be final and binding upon the board." Do you construe that section of the contract to mean that Mr. Ford is obli- gated to follow his product until it reaches the farmer? Col. Hull. No, sir. Mr. Miller. Then, that is idle phraseologj' in the contract? Col. Hull. No ; it limits the profit of the manufacturer but not the profit of the middleman. Mr. Miller. I am asking you. Colonel, whether that makes it obligatory on IMr. Ford or upon his company to follow their manufactured product until it reaches the hands of the farmer? Col. Hull. I believe it would be left entirely to the discretion of the board,, and that you could not force anything by the terms of this contract. Mr. Miller. What board do you speak of? Col. Hull. The board provided for in section 15. Mr. Miller. Then, tJiat is of no more binding force upon Mr. Ford than phraseology something like this : " In order that commercial fertilizer may be- made at fair prices, without excessive profits, the company agrees that the maximum net profit which it shall make out of the manufacture and sale of fertilizer and fertilizer products at nitrate plant No. 2 shall not exceed 8 per cent per annum." Col. Hull. On the actual cost of production. You are just changing the preamble. Mr. Miller. I have left out that portion of the phraseology in here, " in order that farmers may be supplied." Col. Hull. Yes. Mr. MiLLia?. It means nothing more than if the word " farmers " was not in there. Col. Hull. It is a declaration only. Mr. Miller. Now, Colonel, read section 15, where it makes use of the lan- guage, " In order that farmers may be supplied with fertilizer," and see if that is substantially the same language that is repeated in section 17 of Mr. Ford's offer, which reads in this way : " In order that said company may be supplied with electric power and the farmers with fertilizers after the termination of the said 100-year leases, should the United States elect not to operate said power plants," does not this con- tract convey all the way through it that Mr. Ford's product shall be sold directly to the farmer, and that he shall follow his product until it reaches the hands of the farmer? Col. Hull. I understand that that clause, 15, was prepared by some farm organization and inserted almost in the words that they asked. Mr. Miller. What farm organization was that? Col. Hull. I think they were the ones that 'were named in the claiiee, the American Farm Bureau Federation, the National Grange, and the Farmers' Educational and Cooperative Union of America. Mr. Miller. I am reading from this contract. Col. Hull. I am reading from the contract, too. They are mentioned in paragraph 15. Their representatives drafted that clause and it was put in in that way. I see your point. I should say that under the terms of the con- tract, as far as the Government and Mr. Ford are concerned, it limits it only to the price to the manufacturer and does not provide that the Government should control how it should be disposed of to the farmer or to other industries 184 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 185 Mr. Miller. There is no effort in here to have the Government do anything. . Mr. Ford is to do it all, or rather Mr. Ford's company, and what I am getting at is this, does Mr. Ford or his company obligate himself to get this manufac- tured product, which is commercial fertilizer, intx) the hands of the farmer? Col. Hull. Not to the United States. It does not so obligate itself in this contract. Mr. Miller. Then Mr. Ford, after he manufactured his fertilizer, could dis- pose of it to anyone? Col. Hull. Subject to the control of the board which is here set up. Mr. Miller. He could sell it to a purchasing concern or sell it through any other means that he might organize or anyone might organize to take the out- put of his factory? Col. Hull. Yes, sir. Mr. Miller. And all the limitations that he and his purchaser would be under would be that Mr. Ford's profit should not exceed 8 per cent? Col. Hull. Yes, sir. Mr. Miller. Then it would be possible under this contract, so far as the im- mediate effect to the farmer is concerned, for his product to go through one or more hands before it reaches the farmers? Col. Hull. Yes, sir. Mr. Miller. And each one could take his slice out of the profits, but Mr. Ford himself could not get more than 8 per cent? Col. Hull. That is correct. The matter is covered by the creation of a board to control. Mr. Miller. They control the profit Mr. Ford is to get, do they not? Col. Hull. They control the price. Mr. Miller. I understand that. I have read the section about the board, and what I am getting at is that Mr. Ford shall not make over 8 per cent out of his o. -. Col. Hull. Yes. ., ^ ^, ^ i, , ,^.i Mr WURZBACH. What other property would he necessarily have that belongea to him that he could not give as security, or as a guaranty of the i>erformauce of this a**'reement? Col. Hull. Of course, during his life, everything he owns. Mr. WURZBACH. I mean what must he place upon this particular property he is offering to lease and purchase? Col. Ujtll. Under the terms of this contract? Mr. WURZBACH. Yes. <. ., ^ .. Col. Hull. Nothing, specifically under the terms of the contract. Mr WURZBACH. Do vou not think that by the wording of section 19 it was clearly Mr. Ford's intention to give some other kind of security to the Govern- ment to guarantee the performance of his obligation? Col. Hull. I do not think so. . Mr WURZBACH. You referred to the laws of Michigan a while ago on tnis point'of security. Do you think the laws of Michigan would control in a question of the measure of damages in a suit the Government might bring against Mr. Ford for breach of his contract? Col. Hull. It depends on the nature of the breach. Mr. WURZBACH. For instance, failure to pay the 4 per cent rental ; do you think the laws of Michigan would control in that matter? Col HLT.L. They are very important when you come to discuss what you can do against the estate or the administration of Henry Ford's estate. That is tne reason I looked up the laws of Michigan. , i ^.^ Mr. WURZBACH. That would only be with reference to his personal estate. Col. Hull. His personal liability on a contract signed in Michigan. Mr. Fields. Colonel, just what did Mr. Ford say about his obligations, or about binding him up, if he said anything? Col. Hull. He did not say anything to me. Mr. Fields. He did not make any statement that you know of to any officer ' to bind him up as tight as they cared to? , Col. Hull. Not that I know of. This was drafted by the office with the idea to bind him as tight as he could be bound, probably. Mr. Fields. He might have said to some other'officer, " Bind me as tight as possible," without your knowledge, might he not? Col. Hull. No. I think the officers would have reported that to me without any delay. Mr. Fields. What additional advantage would the Government have should they require Mr. Ford to give a bond, beyond the conditions in the present proposed contract? Col. Hull. The bond would probably extend beyond the life of Mr. Ford and should provide for liquidated damages. I want to call your attention to this, that the Government has a very serious burden in a lawsuit to prove that not doing something for the farmer would ciiuse u monetary loss to the Government of the United States. Mr. Fields. If the Government recovered from a bonding company, it would have to establish its claim? Col. Hull. It would have to be in the nature of liquidated damages. Mr. Fields. It would have to establish its claim? Col. Hull. If it was drafted in the shape of liquidated damages, only the default need be established. Mr. Fields. During the lifetime of Mr. Ford, or so long as his estate is held intact, any damages that might attach against him would be secured? Col. Hull. This clause would secure the Government on anything we could establish. Mr. Fields. And any estate that the company might own would after that time secure the Government? Col. Hull. It would probably be used ; yes, sir. Mr. Fields. Even during the lifetime of Mr. Ford, if a thing of that kind should occur. C'ol. Hull. Yes. Mr. Fields. In the nature of things Mr. Ford must do one thing right away, or the Government would have cause of action again.st him. He must invest a jrreat deal of money, or his company must invest it, within the not far distant future, or the Government would have a cause of action against him for his failure to do so; is that not correct? Col. Hull. Under what part of the contract, Mr. Fields? Mr. Fields. Well, in connection with the production of the nitrate that goes into the composition of the fertilizer. Col. Hull. I should say that under section 14 it would be incumbent upon him, within a reasonable time, without any undue delay, to start producing at No. 2. There are other clauses of the contract that do not take effect until the Government has completed the construction of dam No. 2 and then other clauses in regard to the completion of dam No. 3. But with the machinery and equipment now there, under clause 14 he is obligated to start, which means within a reasonable time — not to-morrow, or 50 yeai*s from now. ^Ir. Fields. If he failed to do that the Government is protected by his estate? Col. Hull. We could compel specific performance. Mr. Fields. If he makes the installation necessary to do that he has quite »n investment there which would also protect the Government? Col. Hull. No; he is bound to start under this proposition without any installation. ^Ir. Fields. He must have, according to the statement of the Secretary of ^Var. at least a million and a half dollars in installation. Col. Hull. I do not know as to the nature of that. Mr. Fields. The plant as it now stands produces nitrates used in explosives. and it will require an additional installation of a million and half dollars, and from that up to ten million dollars to produce the nitrates for fertilizer. Col. Hull. It would require, I think, a million and a half dollars to produce ftnimonium sulphate, but ammonium nitrate can also be used for fertilizer. I ^^nderstand plant No. 2 is ready to produce nitrate for explosives right now, ♦ii'd has had a trial run of production. 92900—22 13 192 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 193 Mr Fields. At any rate, if Mr. Ford goes very far with improvements there he must invest a great deal of money, which will be an additional protection to the Government in the performance of his contract. Col Hull. Every dollar he puts in will be that much protection. Mr Fields. If he fails to make that he then forfeits his contract and his estate is subject to any damage that the Government might sustain by reason of his failure; is that not true? Col. Hull. In general, yes. Mr Fields I would like to know if you can suggest how we can secure the information asked for by Mr. Reams with regard to the capitalization of the Air Nitrate Corporation and the profits they made from the United States. Col. Hull.. I do not know where that information can be easily and accu- ^^Mt. Quin." Colonel, this mare's nest that Mr. Miller thinks he has discovered here does not exist, does it? Col Hull. I will leave that question to the committee. Mr QuiN. This section 15 of the contract proposes to create a board of nine members, does it not; that is, nine voting members, which it specifically sets up? Col. Hull. Yes, sir. Mr QuiN These farm organizations or their successors named here are to nominate seven of the members of the board, and the President is required to send their names to the Senate, and they are to be confirmed by the Senate; is that not true? That is, seven out of the nine are to be farmers? Col. Hull. Yes, sir. Mr QuiN. Only two of the nine are to be named by the President? . Coi Hu-LL. Yes, sir ; seven by the President and two by the company. Mr QuiN Now, it is reasonable to conclude from the fact that these farm organizations drafted this themselves, that they knew what they were doing; Is that not true? Col. Hull. They thought they did. Mr OuiN. The language is here. These gentlemen here tried to read out of the contract the thing that Mr. Ford has in it. This board of nine members would have seven farmers on it. This board, in the language set out here, is to regulate what? The manufacture and sale of the fertilizer product and the territorial distribution of it. Mr. Crowther made a very extravagant state- ment about what the farmers of the United States thought was coming to them. The language that Mr. Ford puts into this contract does not bear Out the ex- travagant statement that Mr. Crowther made. Let us read it. Section 14 says : " The company agrees to operate nitrate plant No. 2 at the approximate pres- ent annual capacitv of its machinery and equipment in the production of nitro- gen and other fertilizer compounds (said capacity being equal to approximately 110 000 tons of ammonium nitrate per annum) throughout the lease period, except it be prevented by strikes, accidents, or other causes beyond its control. What else does it provide? It says : .^ ^ i " To determine bv research whether by means of electric-furnace methods anU industrial chemistry there may be produced on a commercial scale fertilizer com^unds of higher grades and at lower prices than fertimer-using farmers havebeen able to obtain, and to determine whether in a broad way the applica- tion of electricity and industrial chemistry may accomplish for the agricul- tural industry of the country what they have economically accomplished tor • ^^"IbrTo^ma^intain nitrate plant No. 2 in its present state of readiness, or its equivalent, for immediate operation in the manufacture of materials necessary in time of' war for the production of explosives." , «, . ^ ^v, ^^v, Is it not a fact that that means that all the brains and efficiency of the tech- nical minds engaged in that Industry will be employed— that is, guaranteed-- Snder^ord's nime and estate for that special purpose? That is the language ^^CorHuLL^ Certainly he does not contemplate that all the men now in his employ shall be turned over to this work. ^ ^v, a. ««?«/. Mr QuiN. No ; but he does propose to use the best brains for that specific ^'^O^^^HULL. And also it might be well to call attention to the fact that the board provided for here is not the board of directors for the corporation Mr QUIN. I understand that. It is a board formed for the control of the very things Brother Miller was complaining about. It is for the purpose of seein. that the ^rtilizer and the sale of it is put out at a profit of not over 8 per cent. Mr. Miller. If you will show me anything in that contract that provides that the sale shall be limited to the farmers, I would like to hear you read it — that is, the sale of the product of this plant. Mr. QuiN. It provides for territorial distribution. The language set out here gives certain powers to the board, does it not? Col. Hull. Yes, sir. Mr. QuiN. This contract provides for an amount of fertilizer that Gen. Wil- liams stated yesterday, although I think he made a mistake, and that it would be as much as all the farmers in the United States use to-day. May I ask Maj. Burns a question? How much would this 110,000 tons per annum of nitrate yield in fertilizer? Have you made that calculation? Maj. Burns. At the present time there is being used in fertilizer approxi- mately 80,000 of inorganic nitrogen in plant No. 2 and 40,000 tons of inorganic nitrogen are therefore bound to produce about half of the inorganic nitrogen being consumed in fertilizer. Mr. QuiN. I believe the Secretary of War stated that it would not make over one-thlrtleth of the fertilizer that is used in the country. These are the con- centrated forms of fertilizer, are they not? Col. Hull. Yes, sir. Mr. QuiN. I do not think my friends there who have talked about fertilizer ever larnied any. Do not the farmers take these concentrated forms of fer- tilizer and mix them and make their own fertilizers? Col. Hull. I do not know, sir. Mr. QuiN. Oh, yes ; that is the common custom. I did it when I was a boy. We would take acid phosphate and mix it with leaves and other component parts. We had to do that to save freight rates. The Chairman. Mr. Quin, Col. Hull is a lawyer ; he is not a farmer. Mr. Quin. These other two gentlemen are not farmers, and they were trying to tell about the fertilizer. A sack of phosphate weighs 200 pounds, does It not — what we call raw-bone phosphate — and there is only about 12 pounds of nitrogen in that, Is there not? Col. Hull. I never bought a pound of It in my life. Mr. Quin. Do you believe that these farm organizations would be crazy enough to want that sand and dirt weighing 188 pounds hauled from Muscle Shoals, Ala., to Oregon or to Mississippi or to Texas, when they could get the same results by paying the freight only on 12 pounds of the concentrated form? Col. Hull. Hardly. Mr. Quin. We know they would not, and the farmers In this thing as directors know what they are doing. They know that they are getting the fertilizer they want, and they know about the territorial distribution and know that no sales agent, as Mr. Miller seemed to be afraid of, would have control of It. The Chairman. I would suggest, Mr. Quin, that you kindly ask some ques- tions of Col. Hull. Mr. Quin. There was a question raised here about the Alabama Power Co. contract. Mr. Parker suggested the unethical attitude of the United States Government repudiating that contract. I heard you read that contract, and Gen. Williams stated that he thought the Ordnance Department had attorneys who drafted that. Does it not appear from the wording of that contract that the Alabama Power Co. must have had some good lawyers standing close around? Col. Hull. I should say they had some attorney in connection with the drafting of that contract. Mr. Quin. It Is patent on its face that the United States was getting the smutty end of the stick, is It not? I believe In carrying out the moral obliga- tions of this Government, but I do not believe in letting anybody put up a job on the Government, and I am not going to permit it with my vote. Col. Hull. The .Judge Advocate General's department assumes no responsi- bility for the wording of that contract. Mr. Quin. When that corporation received $285,000 In about one year's time, with Uncle Sam putting up all the money as their fee for the construction >^'ork they did there, Is It not reasonable to presume that they have been well paid, even If the contract they had were not a nullity? Col. Hull. The question whether the compensation shall be increased is one for Congress to determine. Mr, Quin. Of course, I do not presume there is any lawyer who would think that the War Department would have the right to bind this Government on a 194 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 195 contract of this nature, and I know I do not, and I practiced law IS years before I came here. Now, take up this contract with this air corporation, as they call it. Is there anybody who pretends that that would be legitimate after they had gotten all that money out of the (Government, from a moral or legal standpoint? Col. Hull. *You mean the question as to their having an option? Mr. QuiN. Yes ; as to whether that would act legally to controvert and pre- vent the acceptance of the Ford proposition. Col. Hull. I can not add much to what the Secretary said on that. Mr. B^iSHEK. After a careful consideration of the contracts entered into by the Government with the Air Nitrates Corporation and the Alabama I'ower Co.. and particularly the paragraphs whereby they reserve options, can you now state, as your judgment, that the reservation of options by those corporations is not a legal obstacle to the United States Government accepting the Ford offer? Col. Hull. That is my opinion, that the obligations there are not enforceable against the United States. Mr. Fisher. If the Congress of the United States should decide to accept the Ford offer, has the United States the power to condenm i)roperty, the title to which is not in the Unite iakig the land from one man to give it to another, which would not be a public purpose. Of course, the question has not been passed on by the higher ^^Mr^'wRiGHT Colonel, the fact that the option feature of the contract with the Alabama Power Co. is void would not necessarily render void the other narts of the contract? „ . , , Col Hutl Especiallv when a great deal of it has been executed. Mr Wmght Yes Do vou understand from an analysis of that contra-t that the option feature is one of the moving considerations? Col. Hull. It was not so expressed. Mr Wright It is rather an incident of the contract? Col* Hull It was so expressed in the drafting of the contract. Sr Wrio^ht And is not really a part of the substantial consideration which rnnvpd the Alabama Power Co. to execute the contract? To^ HUL^ AsTtwLn man and man, it would be construed as a consulera^ tion? but between an individual and the Government, with the law as it i^ it would not be so construed. Mr. Wright. Tlie Alabama Power Co.. like every other person and corpora- tion, was charged with knowing what the law was when they executed the contract? ('ol. Hull. Certainly. Mr. Weight. Col. Parker, I believe, asketl you about section 14 of the Ford offer, the first part of section 14, whereby the company agrees to operate ni- trate plant No. 2 at the approximate present annual capacity of its machinery and equipment in the production of nitrogen, etc. This particular part is what I desire to call your attention to, "except as it may be prevented by strikes, accidents, fires, or other causes be.vond its control." The particular words there, " or other causes beyond its control," certainly could not be con- strued to mean that they would be relieved if they were not making a profit. Col. Hull. That is the way I answered Judge Parker. Mr. Wright. The words, " or other causes beyond its control " are of the same genus or the same species as the words, " strikes, accidents, fires, etc." Would not that be the proper construction? Col. Hull. Yes, sir. Mr. Wright. Some act of God, or some providential happening along the same lines. Col. Hull. Yes ; in the same general class, W'RiGHT. Do you know what this Air Nitrates Corporation realized out contract with the Government? Hull. No, sir. Wright. You have no information on that subject? Hull. I have no information. Wright. Do you know the character of transmission line that was con- by the Alabama Power Co., whether it consisted of steel towers or Mr. of its Col. Mr. Col. Mr. structed poles? Maj. Burns. Wooden poles with copper wire. Mr. Wright. You may not know, but perhaps Col. Burns knows whether this nitrate plant No. 2 was constructed on Government land. Col. Hull. On Government land. Mr. Wright. That is where the principal investment was made? Col. Hull. By the Government ; .yes. That was with the Air Nitrates Cor- poration. Mr. Wright. The Air Nitrates Corporation really constructed this nitrate plant No. 2? Col. Hull. Yes, sir. Mr. Wright. Incidentally, I believe. Colonel, that is the construction work down there about which so much criticism was made about the lavish ex- penditure of money. - Col. Hull. Yes ; it has been investigated by Congress, by the Department of Justice, and by the War Department. Mr. Wright. I understand you did not prepare this section 15, about which Mr. Miller asked you? Col. Hull. No, sir. Mr. Wright. And you say that is satisfactory to the agricultural interests? Col. Hull. So I am informed. Mr. Wright. Do you think it would be possible under that section for some purchasing company to organize and create a monopol.v on this product; buy it all up so as to prevent its proper distribution at reasonable prices? Do you not think the Sherman Antitrust Law would take care of that in the absence of this provision here? <'ol. Hill. It might be applicable. They would also have to have the coop- erijiion of the board of directors of the company. Mr. Stoll. Colonel, I want to have a little legal controversy with you rela- tive to section 19, the guaranty clause of Mr, Ford's offer. Secretary Weeks expi-essed some doubt, but stated, however, he was not a lawyer, as to the guaranty that Mr. Ford made, and some of my brethren of the bar around the table here also expressed some doubt. I want to call your attention to that potion 19. There are two distinct clauses, you might sjiy, in it. The first 1^: "Upon acceptance, the promises, undertakings, and obligations shall be I'inding upon the Uniteromise to form a company. Col. Hull. And also to do other things. Mr. Stoll (continuing). By his own guaranty and by what his property is worth, and then it says, " and all the necessary contracts, leases, deeds, and other instruments necessary" to do what? Or appropriate to do what? To effectuate the purposes of this proposal. Now, what does. that mean? Col. Hull. Under that clause there was somewhat of an argument that Mr. Ford by the time he would organize the company that would bind itself to do all these things would be excused. A careful study of the language con- vinces me that Mr. Ford is bound, as well as the company, and is not dis- charged the minute the company is organized and undertakes these matters, but to go one step further and say that the Government under that language could compel him to do this or that or the other thing, except what he has already bound himself to do, I do not believe the Government can do it. Mr. Stoll. Mr. Ford, for instance, said that he would opej-ate this plant for 300 years for the purpose of manufacturing certain elements used in fertilizers, at 8^ per cent profit. Now, when it says here, " necessary contracts to effectu- ate that." what will you stipulate in the contracts to effectuate that unless you make him put a guaranty in it; in fact, everything that he has promised to do, this says we will make contracts whereby he will effectuate what he has promised to do, and no other construction can be put on it that I can see, ex- cept that he would be compelled to enter into a guaranty to do it. That is the only practical, legal construction that could be put on it. Col. Hull. That provides for the deeds and contracts he has already bound himself to. I do not believe that clause wouhl pernut anyone, the court or the Se{ ivtarv of War, to hold he would have to put any other additional guaranty. Jilr. Stolu What do you mean, then. Colonel, by the words, '* to effei'tuate the purposes of this proposal "? What does that mean? Co\. Hull. How about the Government turning over the deeds? Mr. Stoll. That is for the Government to do, but both of them have got ■ Col. Hull (interposing). What about the construction contracts for Dams 2 and 3? Mr. Stoll. Well, what else? To get back to the fertilizer proposition, how under the contracts that the Government must enter into Col. Hull (interposing). Those are some of the contracts that would have to be entered into — those construction contracts. Mr. Stoll. And also the payment of interest, and all that sort of thing. How can the Government form a contract to effectuate the puiT)Oses of that promise of Mr. Ford unless they put a guaranty in it? What other means could they adopt unless they put a guaranty in it ? Col. Hull. I am sorry I do not fully follow you. Mr. Stoll. It is as clear to me as the nose on a man's face. I will state u again, referring to the second clause after the semicolon in paragraph 19 ; I wjU use this as a concrete illustration. Mr. Ford agrees to make fertilizer, or the elements of fertilizer. Now, in fixing the contract, you admit that the Goveru- ment and Mr. Ford will have to enter into a contract? Col. Hull. Not necessarily. This may be the only contract as far as the main purposes are concerned. Mr. Stoll. You have got to enter into something. Ool. Hull. No contract is necessary to effectuate this feature. Mr. Stoll. Oh, yes ; it is ; becausfe the Government has never signed it. Col. Hull. They may never have to, if Congress accepts the proposal. Mr. Stoll. Of course, this is all predicated on the idea that this goes through, because if it does not go through we wiH not need any contracts. Col. Hull. Suppose Congress passes the resolution and it is approved by the President, stating that we will accept the offer of Mr. Ford. This instrument will not have to be signed by anybody. Mr. Stoll. I hardly think we will do that. If they pass anvthing, it will be something authorizing the Secretary of War or some one else to enter into a contract with Mr. Ford, and I do not think Congress would be so foolish as to accept it in that way. Now, when they fix up a contract, as they will have to do, and Mr. Ford has promised heretofore to make this fertilizer, what will you place in the contract that will make him carry out this part to effectuate the purposes of this proposal unless you put a guaranty in it? Col. Hull. On the contract as it stands to-day, 'Mr. Stoll, his promise is the only guaranty. What the Secretary suggested was that there should be addi- tional guaranties. Now you are suggesting that the Secretary, under the terms of this contract, could write those additional guaranties in the contracts. Mr. Stoll. Oh, no. Colonel ; this is not the contract. A contract is where two parties agree, and the Government has never agreed to this. Col. Hull. No. Mr. Stoll. This is merely an offer by Mr. Ford, so it can not be construed as a contract. He offers to do certain things, and it is up to the Government to accept or reject it. Col. Hull. In connection with that, ^Ir. Ford wanted this matter to be vir- tually a contract, and he uses language w^hich makes a contract in many cases. Mr. Stoll. You mean the provision about the acceptance in whole,? Col. Hull (reading). "The undersigned hereby submits to the Secretary of War, and through him for appropriate action by the President and Congress, the following offer, which shall become a binding agreement upon approval of same by Congress." Mr. Stoll. Binding agreement on whom, on Mr. Ford? Col. Hull. Yes. Mr. Stoll. That is his offer, and he follows all that up wiien the Secretary was dissatisfied with the original offer whereby he guaranteed for himself and his assigns to do a certain thing— and then he goes on to say that all the nec- essary contracts must be made for the purpose of carrying this out. Now, I ask how will it be fixed in the contract to effectuate the purposes of the pro- posal unless you put a guaranty in it of some kind. You can not do it other- wise. Col. Hull. That is what the Secretary was suggesting, that some additional guaranty be put in. Mr. Stoll. Under this language, does not Mr. Ford agree to do it? Col. Hull. No. Mr. Stoll. Then what do you mean by necessary contracts to effectuate it? Col. Hull. He thinks his word is suflic'ent to protect the Government. The Secretary does not. There is not a meeting of minds yet. Mr. Stoll. If he had thought that he would have stopped at the first clause wherein he bound himself to do it, but there is a semicolon there, and he goes on and agrees to enter into contracts and leases to effectuate these very things. Col. Hull. There has been no meeting of minds between Mr. Ford 'and the Secretary yet as to that point? Mr. Stoll. No; because it is an offer, and that is a part of his offer— to enter into a contract to effectuate what he has offered. Col. Hull. What he may think will effectuate it and w^hat the Secretary and Congress may think will effectuate it Mr. Stoll (interposing). As a lawyer, you say that is not an offer to guarantee? Col. Hull. Mr. Stoll. Col. Hull. I would have to say no. I will have to beg to differ from you. I may be entirely wrong. Mr. Stoll. You certainly are. Now, just a few more facts, Colonel, if you please. How many outstanding contracts has the Government now relative to Muscle Shoals? Col. Hull. I have had three brought to my attention. Mr. Stoll. What three are those? Ifr t i < 198 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 199 Col. Hull. Mr. Stoll. Col. Hull. Mr. Stoll. Col. Hull. The Air Nitrates, the Alabama Power, and the General Chemical, which I think has been terminated. Mr. Stoll. Which of those affect real estate, the Alabama Power Co.? Col. Hull. The Alabama Power Co. is the principal one. Mr. Stoll. That is the only one that affects real estate? Col. Hull. The other has an option on plant No. 2. Whether there are any others I do not know. Maj. Burns. We have still a contract with the A'r Reduction Co. whereby we agree to pay certain royalties for the use of their process for separating nitrogen and oxygen. Mr. Stoll. But that does not apply to real estate. Maj. Burns. No. Mr. Stoll. The power plant of the Government is on land owned by the Alabama Power Co.? Col. Hull. The power plant at No. 2 is on our own land. Mr. Stoll. I mean the steam plant at Gorgas. Those are on the lands of the Alabama Power Co. And the Government does not own that land. The Government does not own that land ; no, sir. How, then, can the Government make a contract to sell Mr. Ford that which it does not own? Col. Hull. We would have to condenm. Mr. Stoll. How long would it take you to condemn usually? What is the usual procedure when the Government undertakes to condenm. do you know? Col. Hull. It depends on how much it is litigated. It may take several years before we can complete the title. Mr. Stoll. Has the Alabama Power Co. made any demand for specific per- fonuance of this contract with the Government? Col. Hull. I have never read the letter which the Secretary submitted the other day from them. The Chairman. Colonel, I want to try to make one or two things clear. Gen. Williams, I believe, SJiid that the funds used for the construction of the Muscle Shoals property were appropriated in the fortification bill. You say that the funds were expended under the national defense act. Is it not a fact that the money that was used from the national defense act was used for the work in connection with Dam No. 2? Col. Hltj.. Only partly. The project was started under the funds of the national defense act. The funds provided in the national defense act were inadequate for all the expenditures that were made in connection with the Muscle Shoals project The Chairman. That is quite true. Col. Hull. And the result is that a great many of the projects were virtually all constructed out of funds obtained through " armament and fortification." The Chairman. As I recall, for Dam No. 2 the appropriations amounted in the aggregate to a little over .$17,000,000, and the actual money expended was a little over $16,000,000, and the total embraced in the national defense act was $20,000,000. Col. Hull. $20,000,000. The Chairman. So that after you have obligated about $17,500,000 there is not vei*y much left out of that fund for use at Muscle Shoals, is there? Col. Hull. I think it was all spent and then recredited back from other appropriations. I am not sure as to that. Maj. Bttrns. May I help out a little bit in that matter? Col. Hull. The Ordnance Department can tell about that much better than I can. Maj. Burns. The No. 2 plant was always very carefully kept separate from the national defense act of 1916, and not one cent of the national defense act money has been spent on the No. 2 plant or any of its subsidiary plants. The Chairman. As a matter of fact, the No. 2 nitrate plant cost the Govern- ment $67,000,000. Maj. Burns. Yes, sir. The Chairman. And we never had that much money in the national defense act and they had to go to other sources. Maj. Burns. The national defense act of 1916 money was used partly for the No. 1 plant. The Chairman. Can you tell the committee just exactly how that $20,000,0W was expended or the basis of expenditure? Maj. Burns. The Engineer Corps has had allotted, I should say, $17,000,000, most of which has been spent on the dam. I think they still have available several hundred thousand dollars which they are holding to maintain the plant until its final disposition is known. The Ordnance Department had a total of, roughly, $3,000,000. The Chairman. Out of the $20,000,000? Maj. Burns. Yes, sir; although part of it was spent for the land at No. 1 and part of it is still available on the books of the Ordnance Department. The Chairman. What do you mean by land at No. 1— the nitrate plant or No. 1 dam? Maj. Burns. No. 1 nitrate plant; the Ordnance Department still has money under the nitrate supply act on its books, and the fixed nitrogen research laboratory which is operated at the American University is also being financed i)Ut of that fund for the accomplishment of the objective of the appropriation, namely, for the investigation of the fixation of nitrogen for use in munitions of war and fertilizers. The Chairman. So anything more than this $20,000,000 comes out of another appropriation? Maj. Bltrns. Yes, sir; it comes out of the appropriation for fortifications almost entirely. There has been a little ordnance service and repairs of arsenals' money spent for maintenance purposes. I would like to emphasize the fact that not one cent of the national defense act money was spent at the Warrior plant. That was all out of the fortifications appropriations. Mr. Greene. Colonel, these questions are asked by a layman and may not be framed correctly to meet the legal mind, but, on the other hand, the public interest is largely on the part of laymen, perhaps, and if put into their tongue we may get something in the way of information. If this proix)sition on the part of Mr. Ford is accepted as it is written in the copy before us, do you understand that thereby the United States Government is freed entirely from any resulting obligations to any corporation or firm or i^ersons incidental to the Muscle Shoals project in any way after Mr. Ford has taken possession imder the terms of the accepted proposition? Col. Hull. So far as I have been advised, that is correct. ^Ir. Greene. We stand clear of any obligations, except such as may be speci- fied in the proposition of Mr. Ford? Col. Hull. I do not know all the construction contracts that the engineer department may have made in connection with the dam, or any other matters. :Mr. Greene. Was it the general intent of this contract that when Mr. Ford took possession he took it subject to all the obligations that were then upon the United States Government relating to the proposition? Col. Hltll. You mean In regard to royalties, and things of that kind? Mr. Greene. Any kind of obligation now incumbent upon the Government in the ownership or operation or utilization in any way of the Muscle Shoals project, using the general term. Col. Hull. So far as I know, we have no obligation outstanding in this con- tract It is also silent in regard to his taking over and holding the United States harmless. Mr. Greene. It is silent on that? Col. Hull. So far as I can see. Mr. Greene. So there is the possibility of the threat of persons assuming or proposing some claims or rights against the Government which did not pass to Mr. Ford to defend? Col. Hull. Take the Alabama Power Co. rights, for instance. We agree to turn over to Mr. Ford the title to that property, and the Alabama Pf>wer Co. claim they had a contract with us that is legal, and if it is legal Mr. Ford Ooos not agree to hold us harmless against the claims of the Alabama Power Co. We did not ask him to. Mr. Greene. One of the things which the general public will want to imder- stand is this : If we complete the contract with Mr. if'ord we step out and have unloaded apparently what is regarded as a white elephant. Col. Hull. We have that obligation, irrespective of Mr. Ford, which does not release us from or increase our obligation. Mr. Greene. I appreciate that. What I am trying to get at is for general popular information, whether we are free and clear, and that all obligations fjiat were entailed upon us would pass to Mr. Ford as a part of his considera- tion? i ii I 200 MUSCLE SHOALS PROPOSITIONS. Col Hull. No, sir; he would take up the burdens at the time he took over the property, aud if any obligations are outstanding we are responsible for Mr. Greene. The property does not pass to him subject to the rights or royalties of other people? ^^ ^ . ^, Col. Hull. If he utilizes the patents, of course, he would have to take over the royalties. , , ^ ^ x,.* * . Mr. Greene. We might be running along having unloaded this property, to use tiiat term, upon Mr. Ford and still ourselves be liable and subject to such claims and interests as other persons might propose against the Government irrespective of Mr. Ford's present operation of the plant? Col. Hull. No; if there are any claims made for use of the royalties they would be against Mr. Ford. Mr. Greene. There would be these other things? Col. Hull. These other things existing to-day would still be a burden on the Government. , j. ^ ^ ^ Mr. Greene. We would have to go through another process to get us out of those obligations. , ^ , , ». 4. *. Col. Hull. If we are liable at all we are liable now, and would have to get free any way. , ^ ^, . Mr. Greene. So that to sum up this contract it does not mean that upon its acceptance w^e stand out from under completely? Col. Hull. Oh, no. _ ^ Mr Greene. I notice this much discussed section 15 by which it is provided that there shall be the creation of a board of not more than nine members from various farmers' organizations that are classified. This contract is to run for 100 years according to its present term. What is there to guarantee to anybody that farmers' organizations such as are represented here are to continue for 100 years, and therefore have representatives on this board? That may seem like an absurd question, but I want to get at the stability of this board. If a board were to be composed out of existing governmental institutions we would assume it would be permanent, but this is an ephemeral citizens' organization which may pass out of existence as easily as it came into existence. They may disband, and what then would constitute the board? Col. Hull. There would be an agreement between the Government and Mr. Ford, or it would be referred to the courts. Mr. Greene. Then on the happening of such an emergency it would necessi- tate new action. Col. Hull. Yes. sir. . .^ ^ „ Mr Greene. There is nothing in the contract that w^ould guarantee any reasonable continuance of this board on its presently proposed foundation? Col Hull. Not if the organiaztions were out of existence and had no suc- cessor. Upon the happening of that contingency you would have to have an agreement between the Government and Mr. Ford, or it would have to be referred to a court of equity. Mr Greene. If this board should lapse through any failure of the organiza- tions to perpetuate themselves, and failure of the farmers themselves to agree upon any one who should represent them, there must be a new meeting of tlie minds between the Government and Mr. Ford? Col. Hull. Yes, sir. „ ^ 1/1 ho Mr. Greene. That is not a permanent guarantee that Mr. Ford would oe under the surveillance of the farmers? Col. Hull. No. , . ,, ^ , i^ 1^ Mr Greene. That is not a permanent guaranty that Mr. Ford would oe No 2 for the purpose of producing this ingredient necessary for the making 01 fertilizer at a specified capacity, with this exception, in language set our. *• except as it mav be prevented by strikes, accidents, fire, or other causes i bey ona its control" It 'is reasonable to assume, of course, that notwithstanding i>ir. Ford's production of this sulphate of ammonia for fertilizer purposes under tins contract other concerns, chemical laboratories, and similar industries would ne at work on all sorts of methods for accomplishing the same thing. That is something which we are always trying to provide for. If in the course ot J few vears it is demonstrated that this ingredient of fertilizer can be procUiceu through ordinarv commercial sources, and If it becomes as common a stap e as manv other commercial products, it would manifestly not be to the business interest of Mr Ford to continue the manufacture at his nitrate plant, it "' MUSCLE SHOALS PROPOSITIONS. 201 <'omes a market condition which is one of the causes looking toward its control. Would you think he would be justified then in ceasing to manufacture this ii»- gredient? Col. Hull. No, sir. I do not think the conditions which you outline would be construed by any court as another cause beyond his control as specified by this contract. That is a technical question and that is the reason I give vou the answer that that language among lawyers would mean that it would have to be something that is set forth. Mr. Greene. I want to get at the facts. Col. Hull. That is the same question which Judge Parker asked. Mr. Greene. Suppose the farming world commonly accepted as an economic necessity, and so far as that is concerned, an economic advantage, an entirely new process in the manufacture of this product. Would Mr. Ford have to re- adapt this nitrate plant to meet the new process? Col. Hull. Yes, sir. Mr. Greene. He must keep apace with the developments in the outside world for 100 years? Col. Hull. He is obligated to do that by the contract. Mr. Greene. That you think is quite clear? Col. Hull. Yes, sir. Mr. Greene. Whatever may be the change in the manner of the outside world producing this product or its equivalent he must meet it. and we are assuming that the laws of chemistry will not change, and it will be this ammonium sul- phate? Col. Hull. It might be an entirely different compound. Mr. Greene. Then he must meet that compound? Col. Hull. He would have to meet that proposition to produce fertilizer, be- cause that is covered in the very next clause in regard to maintaining a re- search laboratory and to keep on experimenting to get the products in a cheaper und more feasible way. Mr. Greene. He would have to follow the thing all through the transmuta- ti(»ns of chemistry? Col. Hull. He has to produce to the maximum given capacity. Mr. Greene. I thought the production was of this specific, particular element. Col. Hull. It says nitrogen and other fertilizer compounds. Mr. Greene. Mr. Stoll was interested in asking you about section 19, as to the probability of that section being interpreted to mean that Mr. Ford bv the terms of the contract actually guarantees the fulfillment of this part of the contract in that he obligates himself to pass the necessary papers to do it. What do you lawyers say— is the promise to make the guarantee equivalent to a specific guarantee? I read no promise to make a guarantee. Mr. Stoll does. I was interested in following that question, from a layman's standpoint. I thought a guarantee of anything was in the shape of a specific proiK>sition in sitecified terms and words as to the particular thing to be done as a guarantee, and generally accompanied by some proposition of indemnity. Col. Hull. You and I come nearer to agreeing than you and Mr. Stoll. Mr. Hull. Colonel, I think we are sometimes liable to lose sight of the funda- mental idea of this whole matter, and that is that this is a national defense proposition. We have down there at the present time nitrate plant No. 2, built and in working shape, ready to turn out practically at a moment's notice nitrates for high explosives. Now, by this contract we agree to sell this to Henry Ford. Yet we have a string attached to the sale to the effect that at any time we can take that plant over and operate it for the production of nitrates for the making of high explosives. The Chairman. In case of war. Mr. Hull. Yes. The question has come to my mind — and I think it is of vital importance — is there anything in this contract to assure the Government that this plant will be maintained under all circumstances as a plant for the manufacture of explosives or nitrates for high explosives in case of war? Is niat fully protected? In other words, could Henry Ford assign this plant, as ^Ir. Greene has suggested, to some other method of manufacturing nitrate for fertilizer and change the method? In other words, I mean, we would have a formula for the manufacture of nitrates for high explosives which is another method. Is that fully protected? Ool. Hull. In section 14 you will find this provision: "To maintain nitrate plant No. 2 In its present state of readiness or its equivalent for immediate "11 \ \ 202 MUSCLE SHOALS PROPOSITIONS. operation, in tlie manufacture of materials necessary in time of war for the production of liigh explosives." That is his obligation. Mr Hull. In other words, although he would own the factory, if we were to find he was destroying that factory as a factory for the manufacture of nitrates for high explosives, we could stop him? Col. Hull. It would be a breach of contract, and under section 18 we would have the right to go into the district court for the northern district of Alabama and maintain the appropriate action. Mr Hull. He could not destroy it in any way without our stoppnig Inm; we would have the right to stop him if he tried to assign it to somebody else, or sell it for some other process? We would still have the right to go m? Col Hull. I think so, without the shadow of a doubt. We would have the right to have that property protected. If we make a deed for the transfer of nitrate plant No. 2. I see no violation of the contract if that clause was written into the deed we would give to Henry Ford for plant No. 2. Mr Hull. There is another question that comes up, and that is the question of the profits on this plant for the manufacture of the components of fertilizer. It is agreed that 8 per cent on the money invested is enough, or on the cost ner^annum. Supposing that the fertilizer is manufactured down there and at a price which, in the opinion of this board, it could be sold, and they sell it at a higher price, in agreement with that board. What would become of the profits in excess of 8 per cent? . ^^ .. .^i • fi, .*. Col Hull. I do not think the board would have any right to authorize that. They would have to juggle the figures by putting in other items of cost. Mr. Hull. How would they do that? . ,. , Col Hull. In a manufacturing enteiprise where they have various lines of activities, the figures as to what certain articles will cost are determined to a great degree bv the items which they put in the overhead. , ^, . , Mr Hull. Your contention is that they would have to reduce the price low enough so they were not making but 8 per cent ; is that correct? Col Hull. That is in the contract. , , , Mr' Hull. Then how would they allocate that fertilizer? Suppose they could Drodiice it at a price $20 cheaper than any other fertilizer, there would be eertainlv a great object to get hold of it. How are you going to hx the alloca- tion of it to the different factories? Col. Hull. The board has to make the allocation. ^ .. f^ Mr. Hull. They would have the right under the contract to allocate it to ^^cSrnuLL. They could allocate it by State or sections of the country or by ""Tr! MILLER. Colonel, I do not care to indulge in any niceties here at alL What we are trving to get at is something practical. Nitrate plant No. 2 is the country's resource: so to speak, in regard, to the production of ammoniu.u nitrate It is of intense interest to the country that nitrate plant No. J shall be preserved and be available for the production of that substance. Suppose there should be a fire which should destroy nitrate plant No. 2. Wilder the clause of that contract Mr. Ford is excused trom the operatnm of this plant. A fire hazard is alwavs present, and accidental destruction is especially alwa.ys present in dealing with any ingredient of an explosion. What condition would the United States be left in as to the reproduction of nitrate plant No. 2 m the event of fire, or any other fatality? ,. ^ ^, . Col Hull. He would be excused from producing nitrate as a result ot tiie fire but under clause B of article 14 he would be obliged to rebuild because he must maintain the plant in its present state of readiness or its equivaleni. Mr. Miller. This is aside from that question, but I do not suppose the Uniteower to set the whole thing off. The Chairman. You may proceed, Major. ^^ - t *. Maj Burns. The Ordnance Department has been holding the No. 1 plant for some time in order to find out what the developments in America would be along the Haber process. We have made studies and designs of the plant, so that we could modify it and make it w<»rk in case it were necessary ; but, fortu- nately we do not believe we have to do that now, because the Atmospheric Nitrogen Corporation, which is a subsidiary of the Solvay Process Co., and the General Chemical Co., has developed at Syracuse, N. Y., a plant which can pro- duce fixed nitrogen by this process. We visited it, and it is a very fine plant and is producing ammonia very satisfactorily. The Haber process is now an accomplished fact in America and is on a commercial basis. The Ordnance Department has therefore recommended to the Secretary of War that this No. 1 plant be disposed of. ,. ^ , . 4. 4. ,. ^^' The No. 2 plant was started as a direct result of very large requirements for ex- plosives during the war. Shortly after we entered the war we found the require- ments for explosives so colossal that they could not be met with T. N. T. or the approved explosive. We ascertained from the English how they were solvmf? their explosives problem, and they were doing it by means of amatol, a com- bination of T. N. T. and ammonium nitrate. We therefore cast about for some scheme of getting large quantities of ammonium nitrate. We encountered tANO difl[icultles ; one. a shortage of nitrates from Chile, and the other a shortage oi ammonia. So the solution accepted was to put up a plant by the cyanamiu process, which would not only take care of the shortage of Chilean nitrates, but it would also take care of the .shortage of ammonia, as this plant could make Dorn the ammonia and the nitrates from nitrogen which would be obtained from tne air. So this No. 2 plant is absolutely a war plant, erected for the purpose oi producing explosives. The only company in America that understood the cyanamid process was the American Cyanamid Co., which has a plant at Niagara Falls, Canada, and therefore that company was called in to erect this plant. They started earlv in 1918 and had the plant practically ready for operation at* the time of 'the armistice. The plant has been tested by a low capacity run, 20 per cent of its capacity, and the plant has proven very definitely that It can turn out the quality and quantity of the material that was desired. The Chairman. Is that plant practically completed? Maj. Burns. Yes, sir ; the plant Is practically completed. It is ready to-day to turn out Its full capacity of material. The Chairman. If it should turn out fertilizer and It Is de.slred at any time to begin to turn out explosives, what should be done with the plant. Maj. Burns. The product of the plant as it Is now constructed Is ammonium nitrate. That so far has not been accepted as a good fertilizer material. It has all the qualities for feeding plants, but, unfortunately. It absorbs moisture so rapidly when you put It Into fertilizer that it makes the fertilizer gummy. So that you have got to produce some other material there, with the present state of knowledge, in order to fit into the fertilizer market. You can take the fixed nitrogen that is produced there at a midway point an. 2 plant It was found that they could erect the chemical end much quicker than they could the power end, so they endeavored to find how they could ^et pcwer quickly. The Alabama Power Co. Is the larg- est power producer In that region. At Gorgas, Ala., they already had con- structetl and In operation a 20,000-kllowatt plant located on the W\arrlcr River. They had foundations laid and plans made for increasing Its capacity when conditions warranted It. So the Ordnance Department went to them and asked them to what extent they cculd help In the furnishing of power. They stated that by Increasing their transmission line to Gorgas they could guarantee to the Government almost at once power foi- construction purposes provided the Government would tie Into their line with this 90-mlle transmlss'on line. They f»tated further that If the Government wculd Increase at once the capacity of the plant at Gorgas* they could guarantee power to the United States to the extent of the increase, or 30.000 kilowatts. Tliat agreement was finally entered Into as outlined In contract T-69 and this 90-mlle transmission line was erected, and this power plant addition was r»laced at Gorgas. There has been mention made of condemniug the land on which the Govern- nient-owned Gorgas plant is located. As a matter of fact, it is a part and parcel of the Alabama Power plant. It is all under the same roof. The boilers are fed by water through the same Intakes. The ash-dlsposal system and the oard of arbitrators, one of whom would be the Alabama Power Co.'s representative, one would be the Government's representative, and one would be selected l)y the two. In other words, by that contract we were able to sell back to the Alabama Power Co. this whole plant at its fair valuation. The Chairman. Has any effort been made to sell it back? Maj. Burns. No definite offer because of tlie fact that the time limit imposed by the contract has not yet arrived. The Chairman. In case the Government should decide to hold it or acquire it itself, how would those eg^s be unscrambled? Maj. Burns. According to the contract the Government can not hold it itself. The Chairman. It can not? Maj. Burns. No, sir ; it must sell to the Alabama Power Co.. and if the Ala- bama Power Co. can not purchase, then we have got to remove the plant and leave the land in a satisfactory' condition. The Chairman. That is one of the conditions of the contract. Maj. Burns. Yes. sir. I think the idea is very definitely fixed in the contract that in case the sale is not consummated to the Alabama Power Co. the Gov- ernment has got to remove the plant. The Chairman. So that, after all, it was only a temporarj^ expedient. Maj. Burns. It was an expedient to get for the Ciovernment quick power in order to pnxluce explosives at this No. 2 plant. The Chairman. For war purposes. :Maj. Burns. Yes. sir ; and that seemed to be the very best solution that the Government could make at that time of this problem. Mr. Parker. Mr. Chairman, you might ask him if they have enough power without it. The Chairman. I understand they are not running the plant at all. It is in a stand-by condition. Mr. Parker. And your own power plant is now completed. Maj. Burns. As it stands to-day, we could run our No. 2 plant at practically full capacity without this power plant at Gorgas. because in the meantime we have completeil a 60,000-kilowatt plant at ^luscle Shoals ; but this arrangement with the Alabama Power Co. was of great help to the Government in the early days, because they were able to give us power at the No. 2 plant in May. 1918, or a few months after the plant was started, and we were never short of power as a result of that, in spite of the fact that our own steam plant at Muscle Shoals was not finally accepted until quite a long period of tinre after the armistice. The Chairman. Go right ahead with your statement, :iIajor. ]Maj. Burns. Those are the main projects of the Ordnance Department in that region. The rest of it has to do with the hydroelectric development in the Tennessee River, which has l)een handled by the Corps of Engineers. The Chairman. And you have had little to do witli that? Maj. Burns. I have had nothing directly to do with that, but, of course, I have heard a good deal of evidence submitted in regard to it ; that is all. The Chairman. Do you know how nearly completeil is Dam No. 2? M;\}. Burns. You appreciate, Mr. Chairman, that this is sec( ndliand infor- matiiin you are getting from me. and the Corps of Engineers would bi^ able to give yoii first hand information ; but as T understand it from the records, all t f the auxiliary construction work pertaining to Dam No. 2 has been completeil. and approximately 30 per cent of the concrete work that goes in the dam. Mr. McKenzie. I^Iajor, in connection with the construction of this plant on the land of the Alabama Power Co., you stated that it would give the Govern- ment the benefit of power much earlier than they could otherwise have obtained power to operate the nitrate plant; is that true? Maj. Burns. Yes. sir. Mr. McKenzie. Is it more difficult to construct a steam power plant than it is a nitrate plant or a plant for the manufacture of fixation of nitrates? Maj. Burns. It took considerably longer time in our experience at the No. - plant to construct the power plant than it did to construct the nitrate plant. Mr. McKenzie. That is not the question I asked you. Of course, that might be iwssible, but is there anything more difficult in the construction of a steam power plant than there is in the construction of a plant for the production or fixation of nitrogen? MUSCLE SHOALS PROPOSITIONS. 211 Maj. Burns. I can only answer that by saying that the No. 2 chemical plant or fixation plant was constructed in much less time than tlie steam plant that goes with it. Mr. McKenzie. I understand that, but I am asking you now for your judg- ment on this proposition. Knowing the plants, having seen them and the con- struct'on of them, would you say that it is a more difficult proiwsition to con- struct an ordinary steam-power plant than it is to construct a plant for the fixation of nitrates? Maj. Burns. In my judgment, as a result of experience with plant No. 2, you can construct a nitrate plant by the cyanamid process quicker than you can construct the steam-power plant that would go with it. Mr. McKenzie. At any rate, you had the power plant constructed at Muscle Shoals before you were ready to produce nitrates at the nitrate plant, did you not? Maj. Burns. No, s'r; we did not have the steam-power plant at the nitrate plant constructed until long after the fixation plant had been constructed. Mr. McKenzie. I understand; but when did you have this experimental test? Maj. Burns. The plant was producing fixed nitrogen about the time of the armistice, and we ran it through this small test, I think, in January and February, 1919. Mr. McKenzie. Did the Government or the Ordnance Department proceed hn- mediately with the construction of the power plant in connection with the con- struction of the nitrate plant? Maj. Burns. Yes, sir. Mr. McKenzie. How long after they began that construction did they enter into th's contract with the Alabama Power Co. to take power from the company and also to build an addition to their plant? Maj. Bi RNs. I think it was all taken care of at practically the same time. You see, the Alabama Power Co. was able to supply us with power nuich quicker, because this Gorgas effort w{» only an expansion of the plant which they had there. Furthermore, they had some foundations already constructed for this additional plant, which they had in mind for their own purposes. Mr. McKenzie. Of course, as I remember it, it was the understanding, at least of the ^lembers of Congress, and I assume it was also the understanding of the Ordnance Department, that at ^luscle Shoals there could be developed sufficient power to take care of this particular proposition. Was not that your understanding? Maj. Burns. Of course, you can develop steam power at Muscle Shoals to almost unlimited extent, I imagine. Mr. McKenzie. Yes: but notwithstanding that fact, this particular contract was entered into with the Alabama Power Co. to take power from the com- pany, buld a transmission line 88 miles long, build an addition to the plant in such a way that, as you have suggested, it is almost impossible to unscramble it, and the only possible chance for the Government to get free from this proposition is to sell it to the Alabama Power Co. Maj. Burns. In my judgment it ought to be sold to the Alabama Power Co. ; yes, sir. Mr. McKenzie. Is it possible to do anything else? ^laj. Burns. Not in my judgment. Mr. McKenzie. Of coui-se, this is all water that has gone over the dam, but it has something to do with this proposed proposition which we are now consider- ing. That being true, and with this contract entered into by the Ordnance Department with the Alabama Power Co. and the building put up in such a way that it is absolutely impossible to separate the Government's interests from those of the Alabama Power Co., we are asked now to consider that as one of the items that enter into tlie proposal submitted by Mr. Ford; and, according to your testimony, we would be absolutely unable to deliver to him anything of any value unless we bought out the interest of the Alabama Power Co. in this particular plant on the Warrior River; is that true? Maj. Burns. That is exactly the way I see it; yes, sir. Mr. :McKenzie. Of course, I assume Maj. Burns (interposing). I would like to point out, Mr. McKenzie, that if you tried to buy out the Alabama Power Co. at Gorgas, you would have to spend a great deal of money. Mr. McKenzie. I understand that. Maj. Burns. And it would, probably, run into the millions. Mr. McKenzie. I assume that is true. Then it appears to me that with the inclusion of this particular project in the proposal of Mr. Ford, we are attempt- I 212 MUSCLE SHOALS PROPOSITIONS. ing to do something that is practically impossible for us to do without great loss to the Government, in so far as it relates to this proposal. Maj. Burns. In my judgment, that is entirely correct, sir. Mr. McKenzie. I assume, and I think it is fair to assume, that the Ordnance Department, when the department entered into this contract, felt they were conserving the interests of this Government. Maj. Burns. Yes, sir. Mr. McKenzie. Do you remember the name of the officer that had charge of this particular proposition and prepared this contract? Maj. Burns. The contract was signed by William Williams, but the real negotiating officer in the case was Col. J. W. Joyes, of the Ordnance Depart- ment. Mr. McKenzie. This officer, Mr. Williams, as I take it, was an emergency officer commissioned in the Ordnance Department as an attorney. Maj. Burns. Yes, sir. Mr. McKenzie. Was he a man who had had large experience? Maj. Burns. I only know him more or less casually, but I understand lie Avas a verj' good officer. Mr. McKenzie. However, he involved the Government in a contract wliich provided that the Government should put up all the money and then i)ay tliis company a 6 per cent cost plus profit, and permitted them to build an addition onto their plant in such a way that when the Government got through using it there would not be anything left except to give it to the Alabama Power Co. at such price as the Alabama Power Co. might see ftt to offer; is not that the situation? Maj. Burns. No, sir. The Alabama Power Co. has got to pay a price that will be fixed by a board of arbitrators; and, as I said before, they have repre- sentation on the board of arbitrators, the Government has a representative on the board of arbitrators, and the two then select a third ; so tliat the Alabama Power Co., as I understand, has got to pay to the Government tlie fair value for its investment at Gorgas. Mr. McKenzie. That is, the fair salvage value. That is what that means. Maj. Burns. No; the understanding is not that tliey shall pay the scrap vahie ; the understanding is they will pay the fair, going-concern value. Mr. McKenzie. If that should happen, in my judgment, it would be the first example of any sale of Government property where any such consideration en- tered into the transaction. Maj. Burns. It is my understanding that that was the idea, and I believe that really you would get a better return from that Gorgas plant than you will from 99 per cent of the Government undertakings that we have had to salvage as a result of the end of the war. Mr. McKenzie. Just one other question and then I will conclude. If I untler- stand your testimony correctly, it is your judgment that the inclusion of this particular plant in the so-called Henry Ford proposal makes it an absolutely impracticable proposition for Congress to undertake. Maj. Burns. Yes, sir ; it does, in my judgment. Mr. McKenzie. I might put just one other question to you. Would you con- sider that a complete barrier to carrying out this proposal? Maj. Burns. As an ordnance officer who is affiliated with ordnance contracts and whose duty it is to live up to its contracts, if I had to vote on the Ford offer I w^ould vote against it on that one point. Mr. McKenzie. And unless that can be eliminated by further conference be- tween Mr. Ford and the representatives of this Government, you say unhesi- tatingly we should not consider the proposition. Maj. Burns. I do; yes, sir. Mr. Greene. I think Mr. McKenzie has brought out pretty much everything I wanted to ask you, Major. It is apparent, I suppose, by the contract with the Alabama Power Co., providing for the additional plant to be so blended with the original plant, that they could not well be unscrambled, as you say, that the Alabama Power Co. then regarded it as a probable addition to its plant after the war emergency was passed. Maj. Burns. Yes, sir. Mr. Greene. And it was built with that prospective value in mind. Maj. BuTCNS. Yes, sir ; they have been using it as part of their system suioe the war and have been paying us a rental for it. Mr. Greene. What was the idea, then, in thinking that they would be likeiy to refuse to take it, and that they should have to be put to the expense ot removing it from their land? MUSCLE SHOALS PROPOSITIONS. 213 Maj. Burns. I do not think it was ever anticipated they would refuse to take it. Mr. .Greene. That was only an alternative in the contract? Maj. BuTtNS. Yes, sir; that was an alternative in case something happened that would prevent their taking it. Mr. Greene. Is there any way to separate the interests of the United States and of the Alabama Power Co. in this plant ; that is, its physical structure, if we were to sell our plant to Mr. Ford? Maj. Burns. I do not believe so, sir. I h^\e here a picture of the plant which might help to answer that question. The Chairman. Maj. Burns, I will ask you to explain this picture so thai the members of the committee may understand exactly what the situation is at the plant. Maj. Burns (referring to picture). This is a picture of the plant at Gorgas. The part to the right as you look at the picture is the part that was con- structed by the Alabama Power Co. and was in operation when we went to Gorgas. The part to the left is the plant that was constructed for the account of the United States. So that you can see that it is just one plant, all under the same roof. Each interest has a boiler plant and a generating plant in- cluded here. However, the electricity is all handled over the same switch- board within the plant. We have a substation here owned partly by the Ala- bama Power Co. and partly by the Government. The water for the feeding of the boilers, to both sets of boilers, all comes through the same intake from the Warrior River. The ash handling equipment is common, the coal feeding equip- ment is common and upon the hill here we have a village, part of which is Ala- bama Power Co. property and the other part Government property. Mr. Greene. How can the United States deliver title to Mr. Ford to plant No. 2 with the condition as it is down there now? Maj. Burns. As I understood the .Judge Advocate General's Department it would be necessary to institute condemnation proceedings, and get title, and then turn it over to Mr. Ford, and, of course, those condemnation proceedings would require us to pay to the Alabama Power Co. a fair value for what property we took over from them, and what damage we caused to them, i personally think those damages would be very high. The Chairman. Did not the Acting Judge Advocate General take the position that the Alabama Power Co. had no claim whatever down there under the law, and that their contract with the Government is absolutely void? Maj. Burns. I do not think he took the attitude that we would not have to pay to the Alabama Power Co. for any property we took from the Alabama Power Co. or for any damage we inflicted on the Alabama Power Co. He claimed that the option to purchase of the Alabama Power Co. was of no value, as I understand it. There is another point covering the necessity of this Gorgas plant that I would like to point out. We not only needed power for operation purposes at nitrate plant No. 2 when it was completed, but we also needed power to assist in the construction of it, and this contract with the Alabama Power Co. allowed us to get power, as I said before, in May, 1918, or shortly after construction work at Muscle Shoals was undertaken. Mr. Hull. Major, following the question asked by Mr. Greene, are you not mistaken in saying that we can not get possession of No. 2. The No. 2 plant, as I understand it, has nothing to do with the development at Gorgas. Maj. Bu-RNS. I did not understand Mr. Greene's question that way. I thought he meant with reference to a clear title to the Gorgas power plant. Mr. Hull. No ; he said the No. 2 plant. Maj. Burns. We can give clear title, in my judgment, to the No. 2 plant. Mr. Hull. That is what I thought. Maj. Burns. Yes, sir ; we can do that. Mr. Hull. That is absolutely an entirely different proposition. ^laj. Burns. That is correct. Mr. Hull. I just wanted to clear that question up. You were present the other day and heard COl. Hull, the Acting Judge Advocate General, say that we could give possession of the Gorgas plant if we wished to by a certain line of procedure, and that there was nothing in the contract that would prevent it. That was his testimony, was it not? Maj. Bltins. Yes, sir; that was his testimony. Mr. Hull. What have you to say to that? Maj. Burns. It is all a question of judgment. I do not think it can be done. Mr. Hull. Are you a lawyer? i 214 MUSCLE SHOALS PROPOSITIONS. Maj. BuBNS. Ko, sir. Mr. Hull, It is quite evident that the two departments of the Government the Ordnance Department and the Judge Advocate General's Department, are not unscrambling these eggs very well for the committee. Maj. BuBNS. We are doing the best we can. Mr. Hull. Right along that same line, now, what is the reason, and there must be a reason, for Mr. Ford asking for this plant at Gorgas? As I under- stand it, if I understand it properly, you have a complete steam plant at No. 2 in operation to-day ; is not that true? Maj. BuBNS. Yes, sir; not in operation, but ready to operate. Mr. Hull. Are you not selling power from it? Maj. Burns. The plant is leased, but the Alabama Power Co. is not operating it to-day, because they do not need to, because of the fact that the water supply down there is sufficient to take care of the demand by means of water-power energy. Mr. Hull. They are operating, then, your end of the plant at Gorgas? Maj. Burns. Yes, sir. Mr. Hull. They are operating that plant, and you are receiving some reve- nue from it? Maj. Burns. Yes, sir ; a large part of the year. Mr. Hull. Do you know why they want this plant at Gorgas? I want to know the reason. Maj. Burns. It is not a vital part of the Ford offer, in any way. Mr. Hull. It is not. Maj. Burns. I can not see how it would affect the Ford offer if it were left out. Mr. Hull. Then he could carry out the intent of his contract without this? Maj. Burns. Yes, sir; in my judgment. Mr. Hl'Ll. As I understand it, if I have this thing visualized correctly, this I^lant at Gorgas is some 80 or 90 miles away. Maj. Burns. That is correct; yes, sir. Mr. Hull. And it has to do with a steam plant which would naturally supplement the water power, but if I understand it correctly, it is not neces- sary or vital, as you say, to the Ford proposition, because at the No. 2 plant you have a steam plant that supplements the water power there. Maj. Burns. Yes, sir; we have a steam plant at nitrate plant No. 2 of 60,000 kilowatt capacity. Mr. Hull. Now, getting back to something that you probably know more about than the rest of us, and that is the chemical end of the proposition of Mr. Ford, there are two things you can manufacture at this plant No. 2, ammonia nitrate and ammonia sulphate; is not that true? Maj. Burns. The plant is now equippeil to produce ammonium nitrate. It is also equipped to produce ammonia, but it is not equipped to convert the ammonia into ammonium sulphate. Mr. Hull. And ammonium nitrate is the element we have to have for high explosives. Maj. Burns. That was one of the high explosives we used in great quanti- ties during the World War. Mr. Hull. Is that an explosive itself? Maj. Burns. Yes. sir. Mr. Hull. It would explode without being mixed with other elements? Maj. Burns. It would, but it is very difficult to explode. It would be classed as an explosive that is very hard to detonate. Mr. Hull. It would be very hard to detonate? Maj. Burns. Yes, sir ; you would never put it in a shell by itself. Mr. Hull. How long would it take if you had this plant running or if Mr. Ford had it running, producing ammonium sulphate, to convert it back to where it is now and produce ammonium nitrate? Maj. Burns. That is a question of judgment. Mr. Hull. Yes ; I know that. Maj. Burns. I should say it would take a month or two. That would be my estimate. Mr. Hull. What would be the probable expense? Maj. Burns. If he kept the plant in a stand-by condition the expense would be more or less negligible. Mr. Hull. That is, if he kept it running or in shape to convert. MUSCLE SHOALS PROPOSITIONS. 215 Maj. Burns. Yes, sir. I would like to point out, Mr. Hull, that the Ordnance Department is primarily interested in the development of nitrogen fixation. It is not so much worried about changing the fixed nitrogen, once that is an accom- plished fact, into the various forms that are necessary for the manufacture of explosives. In other words, if the Ordnance Department were assured that that plant would continue as a fixation plant, I do not think it would worry very much about keeping the nitric-acid plant and the ammonium-nitrate plant going. Mr. Hull. That is a very good answer, and that is just what I wanted to know. I am more concerned about this whole matter from a national-defense standpoint, and I want to keep something so that we may have an independent source of nitrates. If ^ye accepted the Ford offer, there' would be no question but what we would always have there an independent source of nitrogen in this country. Maj. BiTRNs. Yes, sir; the Ford offer, as I read it, has two very important ad vantages from the standpoint of nitrogen preparedness. In the first place, it guarantees to keep that plant or its equivalent in stand-by and ready to produce the quantity that it was designed for for a period of 100 years. That certainlv is a big help to the Ordnance Department. Then it agrees to operate the plant to its present approximate capacity. There is a little doubt in my mind as Xo just what that means. If it means they are going to produce anything except fixed nitrogen, it is practically of no use to the Ordnance Department. In other words, if they are going to produce such a thing as phosphoric acid, that will not help us, but if they are actually going to continue making fixed nitrogen, it would be a very material help to the Ordnance Department and to the Govern- ment from the standpoint of nitrogen preparedness. Mr. Hull. Under the contract, as I understand it, if they in any way con- verted this plant so that we would not have it available, we would have the right to stop them, is not that true? Maj. Burns. He guarantees to maintain this plant or its equivalent in stand-by. That is a very firm guaranty and would assure us always of having that plant ready to operate. Now, over and above that, he may or may not guarantee to run it as a nitrogen fixation plant. I think you can interpret it very readily to the effect that he does agree to run it as a nitrogen fixation plant, 'if he does, that is a very great additional benefit to the Government from the standpoint of preparedness. Mr. Hull. You used the word " stand-by " ; you mean if he is running it, it would be in stand-by? Maj. Burns. No, sir; if he were running it, it would not be, although it would be in the equivalent of stand-by. What I mean by stand-by is that vou are maintaining the plant ready for operation but are not operating it. Mr. Hull. That is what I understand by stand-by. but, unquestionably, he intends to run it; and as I understand it, he would carry out his contract to run it so that you could convert it at any time into an ammonium nitrate plant. Maj. Burns. As I understand it, he makes these two stipulations. One is that he will keep that plant or its equivalent for 100 years ready to produce its present rated capacity of explosive, and the other is that he agrees to operate it to its approximate present capacity for the production of fertilizer. Mr. Parker. And fertilizers may not mean nitrates? Maj. Burns. That is the fear I have. Mr. Parker. You think he might operate it for some other sort of fertilizer? Maj. Burns. Yes, sir. Mr. Hull. You have no doubt in your mind but what he can take plant No. 2 at the present time, when equipped to manufacture ammonium nitrate, and convert it into anmionium sulphate, which we ordinarilv sav is fertilizer, but which is one of the ingredients of fertilizer. Maj. Burns. There is no doubt in the world that the plant can be made to produce ammonium sulphate. Mr. Hull. There is not any doubt about it? Maj. Burns. No, sir. There is a doubt as to the cost at which he will be able to produce it. Mr. Hull. That is a very important question to have answered, because it has been called into question very often as to whether he could manufacture It or not. Maj. Burns. Physically it can be done ; economically it is doubtful. Mr. Hull. There is no doubt but what he can do it if he tries to. Maj. Burns. There is no doubt in my mind. 216 MUSCLE SHOALS PROPOSITIONS. Mr. Hull. Now, plant No. 1, which is the Haber process, as I understand it, he takes over also. Could this plant be converted, after being made a success, to manufacture ammonium nitrate into an ammonium sulphate plant? Maj. BuBNS. Yes, sir; that plant can be reconstructed and can be made to produce ammonium sulphate. Mr. Hull. Major, there has been some question in regard to the cost of this ammonium sulphate manufactured at plant No. 2. As I understand it, and if I am not correct I want you to correct me. ammonium sulphate is selling around $50 a ton at the present time. Is that true? Maj. Burns. That is correct; yes, sir. Mr. Hull. At times it was sold, after the war, if I remember aright, at $90. Maj. Burns. After the war it got up as high as $150 a ton. Mr. Hull. Yes; it went as high as $150 a ton. Maj. Burns. Yes, sir. Mr. Hull. And the present price is $50? Maj. Burns. Yes, sir. Mr. Hull. What is your opinion as to Mr. Ford being able to stabilize that price at $50 a ton or to be able in the future to reduce it. Of course, I under- stand this is simply asking for your opinion, but you ought to know something about the expense. Maj. Burns. In my judgment, in accordance with our estimates, the price at which he can produce ammonium sulphate, exclusive of interest, taxes, in- surance, and obsolescence of the plant, would be approximately $48 per ton to-day. So that when you add the various overhead charges that a business concern would have to add he could hardly produce ammonium sulphate for less than $60 a ton, and that also is based upon power at three-fourths of a mill per kilowatt hour. Mr. Hull. Using power at three-quarters of a mill per kilowatt? Maj. Burns. Yes; so, I honestly do not believe Mr. Ford, with the present knowledge of the game, would be able to materially reduce the price of fer- tilizer. I do believe, however, he could prevent these excessive increases in prices that sometimes come about. Mr. Hull. He could stabilize the price. Maj. Burns. Yes, sir; I believe he could stabilize the price of nitrogen compounds. Mr. Hull. Of course, you know nothing as to his ability to decrease the cost through his ability to increase production, etc. You know nothing about that. Maj. Burns. No; but I do believe there is quite a possibility of that. I be- lieve that we will get big benefits as a result of chemical research. Mr. Hull. Of course, the question of salaries and the question of the water- power rates that he would pay to the water-power company of his would all enter into that question? Maj. Burns. Yes, sir. The price of power is a very important matter in tlie cost of the fertilizer compound that could be produced at Muscle Shoals. Mr. Hull. And by the discovery of new processes and new inventions, and by increased production, he might be able to decrease the price very materially. Maj. Burns. He might be able to decrease the price. I do not know about the " very material " part of it. Mr. Hull. Of course, that is a matter of opinion. Maj. Burns. There are certainly great possibilities that chemical research will be a big aid in the fertilizer business. Mr. Hull. Of course, that is all up to Mr. Ford and is a matter of opinion, and I simply wanted your ideas in regard to the cost under the present facilities that exist at plant No. 2, and you still insist that he could carry out his contract and do all this work at plant No. 2 and No. 1 without the addition of the Gorgas plant. Maj. Burns. Yes, sir. Mr. Hull. That is all. Maj. Burns. I would like to point out also, with reference to the price of ammonium sulphate, while to-day it is selling for $50, the prewar average over four or five years was $60 a ton. Mr. James. The United States furnished all of the money and the Alabama Power Co. did not furnish a cent, but had a 6 per cent cost-plus contract. Maj. Burns. That is my understanding : yes, sir. Mr. James. And yet the contract is so drawn that the Unitetl States is tied up in such a way that it could only sell to one concern, and that is the concern that had already made several hundred thousand dollars out of the deal; is that correct? MUSCLE SHOALS PROPOSITIONS. 217 Maj. Burns. Not several hundred. They made $225,000. Mr. James. But it was so tied up that the only concern that could buy from the United States was the concern that had made $225,000 without the invest- ment of a dollar. Maj. Burns. That is correct; yes, sir. Mr. James. Is Col. Joyes still in the service? Maj. Burns. Yes. sir. Mr. James. Do you know what Col. Williams is doing at present? Maj. Burns. I understand he has just left for a five-months trip to the Orient. Mr. James. Do you know of any particular concern that he represented be- fore he went into the Army? Maj. Burns. No, sir ; I do not. Mr. James. Do you know any particular concern he represents now? Maj. Burns. I do not. Mr. James. You stated that you do not think Mr. Ford can cut the price very materially on fertilizer. Maj. Burns. That is correct ; yes, sir. Mr. James. Do not things of that kind depend a great deal upon the man himself? Maj. Burns. Somewhat; yes, sir; but, of course, there are always certain quantities of raw materials you have got to put into your finished product. He can not get greater eflSciency than the chemical equation demands, so that there is that limitation. A man, of course, can use labor efficiently or ineffi- ciently, and he can likewise use materials efficiently or inefficiently. Mr. James. A short time ago the Lincoln Motor Co. failed, and Mr. Ford bought it in the other day at $8,000,000, and I suppose you have seen where he states he is going to cut the price of that automobile $1,000, have you not? Maj. Burns-. Yes, sir; but, of course, while I have very little association with an automobile, I understand that the price of the Lincoln car had not been reduced as the price of other cars had been reduced, and that this reduction of $1,000 really only puts it in line with the reductions that have taken place in the case of the Cadillac, which is a comparable car. Mr. James. Where is Col. Joyes located at the present time? Maj. Burns. At the Munitions Building, in Washington. Mr. Kearns. What was the value of the plant of the Alabama Power Co. when the Government built this addition to its plant? Maj. Burns. It would be very hard to give that information. Their generat- ing plant amounted, in capacity, to 20,000 kilowatts, and ours had a capacity of 30,000 kilowatts, so that it had two-thirds as much capacity as our own. Our properties down there cost about $4,000,000 — that is, our steam plant — so that on that basis their steam plant alone would be worth two-thirds of $4,000,000, or approximately $2,667,000. It probably did not cost that much, but in addition to that they have transmission lines and stations that they erected to tie in with their Gorgas plant. Mr. Kearns. That was at the expense of the Alabama Power Co.? Maj. Burns. Yes. Mr. Kearns. What was the Alabama Power Co. doing at the time the Grov- ernment entered into the contract with them? Maj. Burns. They were manufacturing and selling power to the neighbor- hood surrounding Birmingham, Ala. Mr. Kearns. You think they had an investment of two or three million dollars? Maj. Burns. I think they had an investment in excess of $3,000,000 in con- nection with their Gorgas plant. Mr. Keabns. What did they do to earn this fee of $285,000? Maj. Burns. They built that plant for us. Mr. Kearns. What plant? Maj. Burns. This Gorgas plant I was speaking about. Mr. Kearns. The Government paid for it, did they not? Maj. Burns. They built it ; we had a contract with them for the building of the plant. •Mr, Kearns. The Goverment furnished the money, did the.v not? Maj. Burns. The Government furnished the money, but the power company furnished practically everything else. Mr. Kearns. What did they furnish? Maj. Burns. They furnished their knowledge. That was the principal thing they furnished, of course. Pi h 218 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 219 • Mr. Kearns. The men who did the work were employed by the Government? Maj. Burns. They were paid by the Government. Mr. Kearxs. And the materials were paid for by the Government? Maj. Burns. Yes, sir. Mr. Kearns. The machinery that went into the manufacture of that product was paid for by the Government? Maj. Burns. Yes. Mr. Kearns. The Alabama Power Co. paid nothing? Maj. Burns. That is correct, from the standpoint of dollars. Mr. Kearns. Has the Alabama Power Co. any interest in any of the other projects in and around Muscle Shoals? Maj. Burns. I could not tell you that ; I do not know. Mr. Miller. Major, on this Warrior plant the Government has now spent $4,979,000 and upward, according to the report of the Secretary of War. You will tind that on page 5 of the report of the Secretary of War, near the top of page 5. Maj. Burns. Those figures are a little bit high, Mr. Miller. Mr. Miller. That is all we have to guide us. Maj. Burns. You will find those costs of the projects analyzed on page 24 of the report. Mr. Miller. The Secretary of War has reported to us in this language : " The total cost of the plant was $4,979,782.33." That is the report made to us by the Secretary of War. That is on page 5 of his report. Then on page 24 of his report he analyzes the items that constitute that amount, and informed us that the total is the same sum, $4,979,782.33. Maj. Burns. Of course, the Secretary of War's report tries to generalize the matter. But if you put it this way, that the Government spent $4,979,782.33 for the purpose of getting power from this Gorgas plant, then you are correct. Mr. Miller. Let me call attention to this fact: That these figures, $4,979,- 782.33, are the figures of the Ordnance Department. You will see on page 23, at the top of the page, the report of the Ordnance Department to the Secretary of War. Maj. Burns. That is correct. The jK)mt I want to make is this — that all that money was not spent at Gorgas. It includes the transmission lines and the substations at Muscle Shoals. Mr. Miller. The transmission line goes along with the Gorgas plant? Maj. Burns. Yes, sir. Mr. Miller. We put $4,979,782.33 into an enterprise and so ingeniously inter- twined it with the lines of the Alabama Power Co. that you say .it can not be unscrambled ? Maj. Burns. Yes, sir. Mr. Miller. Then we have this situation. The Government put this amount of $4,979,782.33 into this one plant at Warrior to furnish power to nitrate plant No. 2, built the power plant, the nitrate plant No. 2, and connected it up. Maj. Burns. And also to furnish additional power required over and above Mr. Miller (interposing). The capacity of the steam plant at plant No. 2 has double the capacity of the Warrior plant? Maj. Burns. That is correct, but the original engineering estimate was that the No. 2 plant would require in the neighborhood of 90,000 kilowatts, and when we add the Warrior plant and the steam plant at No. 2 they will produce 90,000 kilowatts. Mr. Miller. According to that the practical operation of plant No. 2 does not produce enough power in its own unit to run it? Maj. Burns. Not quite ; but the engineer's estimate at the start was that the requirements would be 90,000 kilowatts, and the plant that was constructed was more eflScient in the use of power than was planned for, so that the GO,0ion line, but I do feel it would cost a great deal to get the property rights to the Gorgas plant. Mr. Miller. Did we furnish the wires? Maj. Burns. We paid for everything for the transmission line except the land. Mr. :Miller. Except the right of way and the easements? :Maj. Burns. Yes, sir. Mr. Miller. You say that particular item would not be very expensive? ]Maj. Burns. I do not think so. The condemnation proceedings, I think, would only affect the price of the land. There would be no additional dam- ages, that I can see. Mr. Miller. What I am getting at is to see what the Government is getting ont of this proposition. We have in the neigliborhooonents of fertilizers. They have done a great deal of very important work along those lines, and one of their accomplishments has been the development of a good catalyst. 222 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 223 Mr. Pakker. But you have not tried it on a commercial scale? Maj. Burns. No, sir ; because we thought the necessity did not call for that, inasmuch as the Atmospheric Nitrogen Corporation had established a plant, for we felt that the objective of the Ordnance Department had been accom- plished and that we should not spend any more money. Mr. Parker. You think in time of war you would merely assist them rather than use plant No. 1, except in an emergency? Maj. Burns. The Chief of Ordnance has recommended that the No. 1 plant be sold. Mr. Parker. What would it cost to change it? Maj. Burns. To reconstruct the No. 1 plant on a capacity equal to its present rated capacity would cost in the neighborhood of $4,000,000. Mr. Parker. What is its rated capacity; how much a day? Maj. Burns. Thirty tons of ammonia per day. , Mr. Parker. Tliat is three times the capacity of the Syracuse plant? Maj. Burns. Yes, sir. Mr. Parker. Do you recommend, however, that it be sold? Maj. BuTtNS. Yes, sir. Mr. Parker. I ask these questions because I think your brief answers ex- plain the matter nmch quicker than any scientific discussion. What does the other plant do? What is the process used there — that is, plant No. 2? Maj. Burns. The first raw materials used are limestone and coke. You burn limestone and form burnt lime, and then these two materials or burnt lime and coke are welded together to form calcium carbide, the material from which we get acetylene gas. The nitrogen is extracted from the air by the liquid-air pro- cess and it is combined with the calcium carbide to form the cyanamid or lime nitrogen. Mr. Parker. How is that made? Maj. Burns. The last welding? Mr. Parker. The welding of the nitrogen with the calcium carbide. Maj. Burns. That is done in a small oven. Mr. Parker. An electric oven? Maj. Burns. Heat is the cause of it. If you heat those materials a reaction sets in, and the combination is made. Mr. Parker. That makes the cyanamid? Maj. Burns. Yes, sir. If you treat the cyanamid with steam you produce ammonia. Then, if you pass ammonia and air through a" platinum gauze at a high temperature, and absorb the gases in water, you change the ammonia into nitric acid. Then, if you put ammonia and nitric acid together, you will get ammonium nitrate. Mr. Parker. Is that under heat? Maj. Burns. One is an acid and the other is an alkali, and they will combine of themselves. Mr. Parker. If you want to make sulphate, you take the ammonia and the sulphuric acid and put them together, instead of using the nitric acid? Maj. Burns. Yes. sir. Mr. Parker. You do not make sulphate out of the nitric acid, but out of ammonia and sulphuric acid? Maj. Burns. That is correct ; yes, sir. Mr. Parker. As the sulphuric acid is much cheaper than nitric acid, you can make the sulphate much cheaper than nitrate, can you not? Maj. Burns. Much cheaper; yes, sir. Sulphuric acid has no fertilizer value, however, whereas nitric acid has a great fertilizer value. Mr. Parker. The nitric acid is used a great deal? Maj. Burns. Yes, sir ; that is the basis of the Chilean nitrate. Mr. Parker. But the Chilean nitrate is changed into sulphate before it is used in fertilizer? Maj. Burns. No, sir; it is used in fertilizer as such. Mr. Parker. What is the comparative cost of the nitrate which you get in this factory and the nitrate you get from Chile? Maj. Burns. As I stated before, we believe, with power at three-quarters of a mill, we can produce ammonium sulphate at No. 2 plant for approximately $60 a ton. Mr. Parker. I asked about the nitrate. Maj. Burns. The nitrate is selling at about $45 a ton, I believe; that is the Chilean nitrate. Mr. Parker. And the nitrate you make would cost you how much? Maj. Burns. Ammonium sulphate \yould cost $60 per ton. Mr. Parker. I am talking about the nitrate ; that costs more than i^m a ton, does It not? Maj. Burns. Yes ; ammonium nitrate, or the final product of the No 2 plant would cost in the neighborhood of $90 to $100 a ton, depending on the amount of your overhead. Mr. Parker. So, as a peace proposition it is cheaper to buy the nitrate from Chile than it is to make it at the factory? Maj. Burns. Not necessarily; because there are varying properties of nitro- gen in the compounds of which you speak. The Chilean nitrate has approxi- mately 16 per cent of nitrogen, the ammonium sulphate has approximately 21 per cent of nitrogen, and the ammonium nitrate has approximatelv 35 per cent of nitrogen. They are all rated in value really upon their nitrogen content. Mr. Parker. As a connnercial proposition, if you made nitrates there, could you make them at the market price? Maj. Burns. You could not make ammonium sulphate to-day in competition with the market price, because I do not believe you could make it for less than $60 a ton, and the market price at the present time is $50 a ton. Mr. Parker. Can you make the ammonium nitrate at the market price of that product? Maj. Burns. Just about; yes, sir. Mr. Parker. Are there any processes which, instead of using air and water and limestone, make it out of coke refuse or gas refuse? Maj. Burns. One of the by-products thrown off when you make coke out of coal is ammonia, which is thrown out as a gas, and of course that ammonia in lertilizer is just as good as any other ammonia. Mr. Parker. That ammonia is being developed more and more from year to year in the by-products ovens? Maj. Burns. It is being produced in very large quantities from the by-product coke ovens. Mr. Parker. And the by-product coke ovens are making a greater saving every year? Maj. Burns. I can only answer that question by saying that the by-product coke-oven industry is expanding. Mr. Parker. There are a great many by-products from the bv-product cok^ ovens, are there not? Maj. Burns. Yes, sir. Mr. Parker. All of which can be sold? Maj. Burns. Yes, sir. ^Ir. Parker. So that by-product coke ovens, if they make ammonia in large quantities, will dispose of that for what they can get for it? Maj. Burns. They will undoubtedly set the prices for their products so they can get the best combined return. Mr. Parker. But no matter what the price of ammonia in the market may be, as charged by the Syracuse company or anybody else, the by-product ovens would be able to lower the price of the ammonia which they are making out of their products? ^laj. Burns. They would, if they could make their money out of their other products. But sometimes you can not sell coke at the price you would like to. Mr. Parker. The by-product coke ovens are making more and more ammonia every year, are they not? Maj. Burns. The by-product coke oven business is expanding. On the other hand, there is more or less of a limit as to how greatly it can expand, because their principal product is coke, and unless they, can get a ready market for their coke they can not well afford to put in additional by-product ovens. Mr. Parker. What proportion of the coke ovens are by-product ovens? Maj. Burns. Approximately 55 to 60 per cent of all the ovens are by-proanct ovens, and the remainder are beehive ovens. Mr. Pa:,ker. Gas works use coke ovens practically altogether, do they not? Maj. Burns. Yes, sir ; in the manufacture of coal gas, but not for water gas. Mr. Parker. And you have not included those in your estimate of 55 per cent, have you? Maj. Burns. No, sir. But they do not have any appreciable effect upon that percentage. Mr. Parker. Why not? Maj. Burns. That is, as far as the ammonia product is concerned. Mr. Parker. Because they do not save it? Is that what you mean? 92900—22 15 224 MUSCLE SHOALS PROPOSITIONS. Maj. BuKNs. Their total production of ammonia, even though it were all saved, is not very great as compared with the production in by-product coke ovens. Mr. Pabker. How much coke is made in coke ovens and how much in gas evens? Maj. BuBNS. I am informed that gas plants produce about one-tenth as much ammonia as by-product ovens. Mr. Hill. Major, do you know what Mr. Ford contemplates doing with plant No. 1? Maj. BuBNS. No, sir. Mr. WuBZBACH. Major, in taking issue with Col. Hull on the construction of the contract between the Alabama Power Co. and the Government, did you have in mind the legal obligation or the moral obligation, if any, on the part of the Government? Maj. BuBNs. I do not think I am qualified to argue the legal problems at all. Mr. WuBzBACH. So what you had in mind was a supposed moral obligation? Maj. BuBNS. Principally ; yes, sir. Mr. WuBzBACH. Would you not be willing to admit that if the officers of the Government who undertook to make this contract were, in fact, not authorized to make it, but that the power rested with Congress, that you would not infer a moral obligation from an unauthorized act of an agent? Maj. BuKNs. There is another way of attacking the problem. Suppose you assume the contract is illegal, and you start condemnation proceedings to get full title to that land. You have got to pay a great deal of money to estab- lish those rights. Mr. WUBZBACH. Is that what you meant? Maj. BuBNs. I*ersonally, I believe the Alabama Power Co. contract should be lived up to. But in case it is not lived up to. you have that alternative, of beginning condemnation proceedings and paying whatever damages are awarded by the power that controls. Mr. WUBZBACH. That is based on a supposed moral obligation due to the fact that the officers of the Government attempted to make a contract? Maj. BuBNS. NR, sir ; exclusive of the moral obligation, you would still have these very large damages to pay if you tried to get the property rights which Mr. Ford requires in his agreement. Mr. W'URZBACH. What property is involved in the contract between the Alabama Power Co. and the Government that would have to be passed with a valid title under this contract, according to your construction? Maj. BuBNs. The land on which the Gorgas power plant is located, the land on which the transmission line is located, and the damages to the Gorgas plant that would be caused by our taking that land away from them and giving Mr. Ford a clear title to the plant site. Mr. WUBZBACH. What damages? Maj. BuBNs. As I said, that plant is all under one roof, and it is worked as a combined plant. Mr. WUBZBACH. Part of the property under that roof belonged to the Alabama Power Co. before the contract was made? Maj. BuBNS. Yes, sir; and part of it belongs to the United States. Mr. W^UBZBACH. In which item, on page 24 of the Secretary of War's letter, is that particular proposition involved; that is, the Gorgas power plant? Maj. BuBNs. Under the heading " Warrior-Sheffield power station and trans- mission line," it was included, and comprises the first item under that heading, or the Warrior generating plant, at a cost of $3,417,702.70; then the Warrior substation, at a cost of $383,756.35 ; and also the Drifton Railroad, with a value of $50,421.94. Mr. WUBZBACH. Which particular part of that photographed property is in- volved in those items, the Warrior generating plant? Maj. BuBNS. Yes ; and the Warrior substation. ' Mr. WUBZBACH. What was the approximate value of that plant before the Government expended money on it in enlarging it? Maj. BuBNs. I can not tell you that. Mr. WUBZBACH. Was it a substantial, going plant at that time? Maj. BuBNs. Yes. sir ; it was a producing plant at that time, and undoubtedly had a value in excess of $3,000,000. Mr. WuBZBACH. Which other one of these items is the Government's property, £o scrambled up with the Alabama Power Co. property that it is difficult to un- scramble? I suppose that is the Warrior generating plant proposition? MUSCLE SHOALS PROPOSITIONS. 225 Maj. Burns. You include by that question the Warrior generating plant and substation, and the Drifton Railroad, those three? They are all part of the same project. Mr. WUBZBACH. But they are not under that same roof; they could be easilv separated, could they not? Maj. BuBNs. The Drifton Railroad is not under the same roof. But the Drif- ton Railroad does not amount to much, anyway. Mr WUBZBACH. The value of all that property is given here as $4,979,782.33. Maj. BuBNS. Yes, sir. Mr. WuKZHACH. Is that the cost to the Government? ]Maj. BiRxs. Yes, sir. Mr. WuRZBACH. That does not undertake to fix the present value of that pronei'ty ? Maj. BuBNS. No, sir. ^Ir. WuRZRACH. Is that the cost to the Government based urwn a 10 ner cent cost-plus basis? Maj. BuBNs. That is the entire cost to the Government, the money expended in the project. ?i'i ^^ *o^^^^^^" ^''^-^ ^* ^^ ^'^"^ judgment that this same property could be sold for $3,000,000, or about 60 per cent of its cost under the 10 per cent cost- plus contract? Maj. BuENS. Yes, sir. ^Ir. WuRZBArH. Wouhl thnt not be a higher value received bv the Government than any amount the Government received for any property' built during the war under a 10 |)er cent cost-plus contract? Maj. BuBNS. Not for any property, but it would be more than has been re- ceived for a great portion of its property. Mr.^ WUBZBACH. It generally has received about 10 to 15 per cent of the Maj. Burns. Approximately that. Of course, those plants had to be sold practically as scrap plants. When we were able to sell a plant as a going con- cern we got more money for it. I think in some instances where we had bv- product coke-oven contracts more or less similar to this power plant contract we got a very substantial proportion of their cost value. I think in some in- stances it ran as high as 80 per cent. Mr. WuRZBACH. This proposition involved in Mr. Ford's proposal includes au additional expenditure of about $50,000,000, does it not? Maj. Burns. You are referring to the hydroelectric proposition' Mr. ^^'^RJ'jBAc H The whole proposition, the completion of Dam No. 2 and the DuiKling of Dam No. 3. Maj. Burns. As I understand the report, that is correct, about $105 000 wb?^^^ Government now has invested in and about Muscle Shoals Maj. Burns. Yes, sir. Mr. WURZBACH. That would make a total there of about $150,000,000 involved in tnis proposition? Maj. Burns. That is correct. Pc>wer^CoT^'oi^- J^*?^ Government could salvage or receive from the Alabama uTL^l V • ^^-O,^-^^ f«i* ^he A^ arrior generating power station and the trans- «hnm o "^' '^'^^'^'^ ^^ -''^"^ estimate, then that part of the proposition represents Af ^.^J*^^' ^*^"* ^^ ^^^^ ^"^^^^ proposition in money, does it not? Maj. Burns. Yes. sir ; that is correct. othe!"nv^Ir''K'**^'^"«?\'',"^'^ ^'""V ^^ '''"'"^ ^^ ^"•'^ ^<>^^'" a proposition that would $2,cSo(5^? profitable to the Government on account of the possible loss of doxv!!'';.?^'^^.^* •^*'* ^*i ""^*^*^^ because of the possible loss, but I would turn it \i uheu it causes the Government to break a contract. if •. y.^^^^"^^"- Coming back to the moral obligation? Maj. Burns. Yes. sir. V(m/ tnTY^^f "V^'^- ^i* •^'**" "^* recognize, Major, that your conclusion would lead Hj;enf tn «, «. 'l.^^ ^""^""^^ '^^'''' ^''^""^ constitutional provision, if you permit an follow th^it ^'^''"" "*!? ^'*,^ '''^''''^' ^'^ ^^^ "^ authority to perform and then 0(. ernnfpnt^' l?i"^ *^^^ because he was the agent of the Government the leoog' "i^?u^„7f.^^^^ ""^'Jl <>"t that obligation as a moral duty, and do you not ^oKiiize that that would be subversive of all law? whetlJer th^nffi..?^.*'?"'*^,'1 ^ !^}^^ there may be considerable doubt as to »ecner the officer did really violate the law or exceed his authority? 226 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 227 Mr. WuRZBACH. Now you are coiiiinir back to the lejial obligation. Ma.i, Burns. I am saying there might be a doubt. Mr. WuRZBACH. You are not a lawyer? Maj. Burns. No, sir. Mr. WURZBACH. The law branch of the War Department has lield, as was stated before the committee by the Acting Judge Advocate General on Friday last, that the contract is invalid. You heard that statement? Maj. Burns. Yes, sir; I heard them say that. Mr. Fields. Major, by whom was plant No. 2 constructed? Maj. Burns. The prime contractor was the Air Nitrates Corporation, which is a subsidiary of the American Cyanamid Co. Mr. Fields. What were the terms of the contract under which that plant was constructed — was it a cost-plus contract? Maj, Burns. Yes, sir ; it was, cost plus a limited fee. Mr. Fields. What was the total cost of the construction of that plant? Maj. Burns. In round numbers, $70,000,000. Mr. Fields. What was the totjil amount received by this company for the construction of the plant? Maj. Burns. This company constructed not only plant No. 2, but also nitrate plants Nos. 3 and 4, which, after the war, were declared surplus. Their total earned fee, as I read the contract, was $1,500,000. They have received of that amount, approximately, $1,150,000. Mr. Fields. My question was, What was their total fee for the construction of nitrate plant No. 2? Maj. Burns. As I said, as I read the contract they earned a fee of $1,500,000, but they have only Mr. Fields (interposing). That is for plant No. 2? Maj. Burns. Yes, sir; on plant No. 2. They would have received the maxi- mum fee when the expenditures reached $60,000,000, and no matter how much work they had to do after that on all three plants, they would have earned no more fee. Mr. Fields. Their total earned fee on this proposition was what? Maj. Burns. In my judgment it was $1,500,000. I wish to point out, however, that they have not been paid all of that fee; they have been paid only $1 150 000. Mr. Fields. And the Gorgas steam plant and these other matters we have been discussing in connection with the Alabama Power Co. contract were constructed by the Alabama Power Co.? Maj. Burns. Yes, sir. Mr. Fields. What was their total fee? Maj. Burns. Their total fee was $225,000. Mr. Fields. That covered all they received? Mai. Burns. That covered all of their fee. Then they received $60,000 for overhead exi>enses, but that was supposed to be a direct cost, although it was lumped in order to avoid cost accounting. ]Mr. Fields. Does this contract between the Government and the Alabama Power Co. for the purchase of this property by the Alabama Power Co. at a price to be determined by a board of arbitrators compel the Alabama Power Co. to accept the price fixed by the board? Maj. Burns. I think it does. Here is a clause of that sale article, "At any time subsequent to three years after the termination of the war the United States shall have the option to sell to the contractor and the contractor shall, unon the written demand of the United States, buy all its rights, title, and interest in and to the Warrior extension and the Warrior substation, with all riehts pertaining thereto, at the value fixed by the board of arbitrators, as here- iirifter provided." That would seem to me to definitely require the Alabama Power Co to purchase provided the Government wishes them to do so. Mr Fields It might be a question, it seems to me. Now, as to the value of the nroperty you refer to as a going concern— that is, the Gorgas steam plant- do vou regard the estimated salvage value fixed by the Ordnance Department as a fair value for that property as a going concern? Mr FiH^s^ With regard to the production of the fertilizer product contem- plated at nitrate plant No. 2, what by-products would be produced along witn the production of fertilizer? Maj. Burns. None, to my knowledge. Mr. Fields. None at all? Maj. Burns. No, sir. Mr. Fields. Referring to your statement with regard to the cost of the pro- duction of this product, you recognize the fact, of course, that labor and its efficiency is always a great item in the production of any commodity? Maj. Burns. Yes, sir; that is correct. Mr. Fields. Were you basing your figures upon the cost of production by the Government or by private industry when you referred to the cost of it a few moments ago? Maj. Burns. I do not know that we differentiated very much iti that. We set out against our work what we figured was the proper labor item. We assumed labor would be utilized efficiently. That was the basis of our assumption. Mr. Fields. It seems to me Mr. Ford has always shown great ability to per- fect a very thorough labor organization. Do you believe it possible he could perfect an organization there that would produce this product more cheaply than the Government could produce it? Maj. Burns. I think, without doubt. Mr. Ford could utilize labor more efli- ciently than the Government-controlletl plant could utilize labor. Mr.' Fields. In view of your statement that it would be impossible to un- scramble this proposition between the Government and the Alabama Power Co., you think there is only one of two courses open to the Government : The Gov- ernment must institute condemnation proceedings and take over this property, or sell it to the Alabama Power Co.? Maj. Burns. Yes, sir; that is what I think. Mr. Fields. Following a little further what Mr. Wurzbach has said with regard to your contention that the contract should be morally binding, if not legally binding upon the Government, because some agent of the Government happened to enter into it, just how far would a proposition of that kind, it followed to its last analysis, carry us? Maj. Burns. I do not think the contract should be lived up to if any taint of -. any kind could be proved against the parties that entered into the contract. ' Mr. Fields. Granting that it was legitimate and that the parties who made it on the part of the Government did it with the best intentions, would it not, in the end, bind the executive departments and the Congress as well to a re- pudiation of the constitutional provisions which place that authority in the Congress? Maj. Burns. It seems that it might ; yes, sir. Mr. Fields. If the Congress did not maintain the safeguards, as provided in the law and the Constitution, around Government contracts and Government expenditures, there might be no limit to the abuses that would be indulged in by agents of the Goverrnnent, probably not through ulterior motives but by lack of judgment, by which the Government would be bound if it accepts the con- tention of the Ordnance Department in this case. Maj. Burns. I should say that might be true; yes, sir. Mr. Fields. So the Ordnance Department, in order to protect a contract made by one of its agents, urges the Government to embark upon a rather dangerous policy? Maj. Burns. I think, Mr. Fields, we are getting into a complicated legal discussion which I am hardly qualified to indulge in. Mr. Fields. Let us refer to the legal side of it a little further. Whether you have knowledge of the subject or not, is it not fair to assume that the Ala- bama Power Co.. in entering into this contract with the Government, was rep- resented by able counsel? Maj. Burns. Yes; I think they were. Mr. Fields. Do you believe that the counsel of the Alabama Power Co. did not know that they were drawing a contract for the agent of the United States Government to sign that was not authorized by law or by the Constitution of the United States? Maj. Burns. It is. my judgment that they did not draw a contract that they thought was illegal. I do not think that either they or the representatives of the Ordnance Department drew a contract that they thought was illegal. Mr. Fields. Was the gentleman who drew this contract for the War De- partment a lawyer of noted ability? Maj. Burns. I do not know how noted he was, but he was a lawyer. Mr. Fields. Is it fair to assume that great coi-porations like the Alabama Power Co. would enter into a contract with the Government or anybody else without being represented by able counsel? Maj. Burns. I think unquestionably they were represented by able counsel. 228 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 229 .. ^'•- FiEij)s. Do you think it is possible that their able counsel did not know that this contract was not authorized by law and bv the Constitution : that the power to dispose of property of this character is vested in Congress '' Maj. Burns. I think it is very probable that they did not know it was against A]S^' This work was done practically during the fall of 1917 and the spring of 1918, when the war fever was at its height, and when every effort was bein^ made to put the United States in such a condition that it could win the war as quickly as possible, and anybody who hesitated to enter into a contract that wofeld help along that purpose was rated as a slacker. Mr .Fields. I agree with you on that, and am therefore always ready to make reasonable allowance for an agent acting on the part of the Government who might have exceeded his authority. But the object of the attorney for the company entering into this contract was to properly protect his company and he would evidently look up the law to see if the contract which he was entering into for his company was being drawn in accordance with the law, so it would ^^*? ^f^^J. contract. He would be a very poor attorney if he did not do that Maj. Burns. That is correct. This matter has been passe«l upon bv* the Judge Advocate General's Department. I have every confidence in the world in that department, but I have had enough experience with the law to know that sometimes one judge will say yes to a question and another judge will say no to the same question. So I do not believe it lias been proven that this is an illegal contract. Mr. Fields. I notice that the Acting Judge Advocate General read a decision of the Supreme Court of the United States on Friday in support of his opinion in reference to this proposition. Maj. Burns. That is correct. Mr. Fields. That is the highest authority in the United States on legal matters. * Mr. QuiN. Major, you are a graduate of West Point? Maj. Burns. Yes, sir. Mr. Quin. What age are you? I am not asking this in a personal wav h\\t just to get the information in the record. Maj. Burns. I am 36. Mr. Quin. You are a practitioner of the law, I presume? Maj. Burns. No, sir; I am not. Mr. Quin. How is it you give such a full opinion on such a verv delicate and intricate constitutional legal question? Maj. Burns. I do not think I have given any opinion of a legal nature on a legal question. I did not intend to do so. Mr. Quin. Did you not say that the United States Government did not have anything but a legal contract with this company, and that the Government could not enter into an agreement with Mr. Ford in connection with this par- ticular property on which the Alabama Power Co. is interested? Maj. Burns. I do not know that I answered a question that was framed like that ; I did not answer it like that. Mr. Quin. Tell us what you did say touching the legality of this contract between the Alabama Power Co. and the United States Government, entered into by a representative of the Ordnance Department? Maj. Burns. I did not know that I touched upon the legality of it. I think you have a situation down there that is very complicated and that you should solve it in accordance with the contract that has been drawn up, which requires that the property be sold to the Alabama Power Co. If you do not do that, you will have to condemn the land and pay damages, in accordance with the decision of the judge advocate. Mr. Quin. You do not mean to say the Government can not condemn the land and acquire the title? Maj. Burns. I do not believe I have said that. Mr. Quin. You did not mean in your answer to say that under this alleged contract the Government of the Un ted States could not go ahead and condemn that property? Maj. Burns. The judge advocate says it can. Mr. Qrix. Then there is no legal reason, according to your idea, why the Government can not proceed? Maj. Burns. Assuming that it is an illegal contract — I am now getting into the illegality of it again— I believe the United States could condemn. Mr. Quin. You did get "nto it when you answered the question very em- phatically, and if you are not for it I want the record to show your exact idea. Maj. Burns. I am very glad to give you the facts as I see them. Mr. Quin. I want to know just what you meant. Maj. Burns I feel this way about it, that wo ha^-^ a contract with the Ala- bama Power Co. that I think should be lived up to. Mr. Quin. Do you put that opinion upon legal, constitutional grounds? Maj. Burns. Principally on the ground that we ought to live up to a con- tract that was entered into in all good faith by the parties to the contract. Mr. Quin. Then if a contract is made that is supposed to be a contract, and made under the circumstances you relate — that is, in violation of the Constitu- tion of the United States, and the party making the contract on the part of the Government did not have any authority under the Constitution, nor through any legislative act of Congress to enter into the contract, and the Alabama Power Co. had people representing them who, constructively at least, knew that to be true, you believe the people of the United States ought to be deprived of this offer on that ground, that we should carry out such an alleged contract as that? Maj. Burns. I think the contract ought to be lived up to. even though it forces us to the rejection of the Ford offer. Mr. Quin. Then you would be willing to see a contract made by Mr. Williams, who some witness testified was from the National City Bank of New York, the Wall Street banking interests, the Rockefeller, Stillman crowd, at a time when we were conscripting our boys and sending them to die in the trenches — you would be willing to see a contract made with the Alabama Power Co. with nothing but a lot of land and blue-prints for buildings which they were going to construct themselves, and you think this Government under those circum- stances should allow these people, after giving them $285,000 clean profit, with- out their investing a dollar for construction, investing nothing but their knowl- edge, to thwart the best interests of the American people by preventing the Government from making a contract with Mr. Ford for the development of this enterprise? Maj. Burns. I believe if Mr. Ford is going to insist upon that provision in the contract that tile Ford offer ought to be rejected. Mr. Quin. In other words, you believe that if an armed hold-up man should force me to sign a check that I ought not to direct the bank not to pay out cash for the check? Maj. Burns. You are asking ihe hypothetical questions. I have tried to make myself plain to the effect that I believe the Government ought to carry out that contract. Mr. Quin. On what grounds do you base that opinion? Maj. Burns. Because I believe that contract should be lived up to. Mr. Quin. Then you do not think that the interests of the American people come ahead of a contract drawn, wherein the party who signed it knew the law and the Constitution of the United States, and must have Known that the American people were being deprived of their ultimate rights? Maj. Burns. I can see no necessity for the inclusion in the Ford offer of the requirement to give title to the Gorgas plant. Mr. Quin. Outside of your viewpoint, Mr. Ford views It otherwise, and he* is the man who is putting up the money in this instance. If other people con- nected with it think it is necessar.v — I do not know myself, but they seem to think it is necessar.v — do you not think the Government ought to go ahead? Maj. Burns. No, sir ; I do not. I think they ought to live up to the Alamaba Power Co. contract. Mr. Quin. Is that for moral reasons? You do not give any legal reasons for it. You are unaware of any, you say. Maj. Burns. I suppose it is a question of judgment, and my conviction Is that they should live up to It. Mr. Quin. That Is your judgment of the question, and not your opinion as a constitutional lawyer. You have not Investigated any of the decisions of the Supreme Court of the United States touching this question? Maj. Burns. Not in any way. shape, or manner. Mr. Quin. When the Acting Judge Advocate General of the War Department says this is an Invalid contract, and that the Government, so far as the law is concerned, would have no trouble in proceeding to acquire this property and turn it over to Mr. Ford, you do not dispute that, do you? Maj. Burns. I can only repeat my statement, and that is that it Is my feeling that the Government should live up to this contract. Mr. Quin. What percentage of dirt and sand Is there in the Chilean nitrates? Maj. Burns. You mean those received in the United States? 230 MUSCLE SHOALS PROPOSITIONS. Mr. QriN. Yes : the nitrates we get from Chile. ^laj. BmNs. Those nitrates are practically 95 iier cent pure sodium nitrate Mr. QuiN. That comes through the chemical work? sodium I think the re- and the fer- Maj. Burns. No, sir. In the plains of Chile there are deposits of nitrate, but the sodium nitrate is only a part of the soil that is dug up. the deposits now are about 20 per cent sodium nitrate. That goes to fineries and the extraneous matter is removed by chemical processes, whole thing is concentrated until it is about 95 per cent pure. Mr. QuiN. What percentage of nitrogen is in the ordinary commercial tilizer that is used, and what percentage of anmionia? Maj. BuKNs. There are all kinds of fertilizer materials. Mr. QuiN. You are acquainted with what they call raw bone phosphate, are you not? Maj. Burns. No, sir. Mr. QuiN. Are you acquainted with the acid phosphates? Maj. Burns. Generally. Mr. QuiN. Take the general average. Maj. Burns. Ordinarily, a complete fertilizer material has about 2 or 3 per cent of ammonia, about 8 per cent of phosphoric acid, and 2 or 3 per cent of potash. They have a great many different formulae. Mr. QuiN. Do they not have nitrogen in them, too? Maj. Burns. That is contained in the ammonia. Mr. QuiN. I wish you would give us the total percentage, so that the record will show the total percentage of phosphate; tlrat is about 16 per cent, is it not? Maj. Burns. It would be somewhere between 13 and 15 i)er cent. Mr. QiiN. About 14 per cent, on the average? Maj. Burns. That is practically correct. Mr. QuiN. The rest of it is what? Maj. Burns. It is filler of one kind or another. Mr. QuiN. It is dirt and sand, is it not? Maj. Burns. There is some dirt, but most of it is necessary. Mr. QuiN. Because if you throw do\A'n a handful of it and let rain come on it. the chemical part is washed away and the dirt and sand are left there. That is my experience in spreading it over the ground. This plant turning out 110.000 tons of nitrogen a year would make one-half of the total amount of fertilizer consumed in the United States, would it not? Maj, Burns. It would make one-half of the inorganic nitrogen content of the fertilizer used in the United States at the present time. Mr. QuiN. That is what I meant. It would make one-half of the nitrogen content for the maximum consumption of any one year, and that is close to 8,000,000 tons. That is what that plant would turn out, running at a capacity of 110,000 ton§ a year? Maj. Burns. That is substantially correct; yes. Mr. QuiN. You remember some questions Mr. Miller asked you about this fertilizer business? In the manufacture of fertilizer for the farmers there I is about 86 per cent of dirt and sand and about 14 per cent, approximately, of real fertilizer content. Is that not correct? Maj. Bu^ns. It is not all dirt They can not escape putting a certain amount of filler. Mr. QuiN. I understand that. If it was all nitrogen, you could not afford to buy it. Maj. Burns. Take, for instance, the ammonium sulphate. The nitrogen content is only 20 per cent. You can not separate the 20 per cent from the carrier, because you have to have 80 per cent of the carrier to get the ammonium sulphate; you have to have the carrier in acid phosphate and in potash salts, so it would be absolutely impossible to eliminate more than a small part of all the carrier or filler. Mr. QuiN. What is the carrier composed of? Maj. Burns. In the case of ammonium sulphate the big bulk of the carrier is really sulphuric acid, which you have to have to form the ammonium sulphate. Mr. QuiN. Is not the fertilizer compound "made into this concentrated form? Maj, Burns. It is, but in ammonium sulphate you can not concentrate the nitrogen any more, because the chemical equation will not allow you to do so. Whenever you furnish ammonium sulphate it is 20 per cent nitrogen and 80 per cent filler or carrier. MUSCLE SHOALS PROPOSITIONS. 231 Mr. Quin. Why can not the farmer dig up the dirt and sand and mix them with 1 per cent fertilizer and 4 per cent dirt? Maj, Burns. It can not be done because, as I am telling you, in the chemical equation you have to have a lot of this carrier to hold this nitrogen which is used in the fertilizer. Mr. Quin. You mean you could not get it there without having all of that? Maj. Burns. You could not eliminate more than a small part of it. Mr. Quin. What is the distance from plant No. 2, where the power plant, or this water power is going to be, from the Gorgas plant? Maj. Burns. The No. 2 plant is about 2 miles from the big hydroelectric dam, and they are both approximately 90 miles from Gorgas. Mr. Quin. And this territory over which the transmission line runs to supply the extra power which you state was contemplated there is land that belongs to the Alabama Power Co,? Maj. Burns. Yes, sir. Mr. Quin. And the Gorgas plant itself is on land that belongs to the Alabama Power Co.? Maj, Burns. That is on land that belongs to the Alabama Power Co. Mr. Quin. How many acres of land is there? Maj. Burns. I think it amounts to about 15 or 20 acres at the Gorgas power- plant site. Mr. Quin. What have they at that site? jMaj, Burns. They have a power plant capable of producing about 20,000 kilo- watts by the steam process, and they have a substation for turning that power into their line, and they have a connecting line which ties the substation into their main distribution system. Mr, Quin, And that was tied into this alleged contract with the Government? Maj. Burns. Yes, sir. Mr. Quin. How far is Dam No. 3 above this? Maj. Burns. As I heard the testimony, it is the neighborhood of 16 or 17 miles above No. 2 Danr, Mr. Quin. In what direction does that stream flow? Maj. Burns. In that region it flows a little south of west. Mr. Quin. Into what does it empty? Maj. Burns. It empties into the Ohio River, as I understand it. Mr. Quin. It has its source in the Carolinas or in West Virginia, does it not? Maj. Burns. Gen. Beach stated that it has its source in Virginia. Mr. Quin. At what point does it enter into the Ohio River? Maj. BuTtNs. I do not remember that. Mr. Quin. It enters the Ohio River near Paducah, Ky., I think. Mr. Wright. What business is the American Cyanamid Co. engaged in? Maj. Burns. It is engaged in manufacturing materials for the fertilizer trade, principally the nitrogen and phosphoric-acid compounds. Mr. Wright. Where is its plant located? Maj. Burns. It has a plant near Niagara Falls in Canada, at which it makes cyanamid by the same process we use at the No. 2 plant. Mr. Wright. It makes the same product? Maj. Burns. Yes, sir. Mr. Wright. Has that company any other plant? Maj. Burns. Yes, it has a plant at Warner, N. J., where it makes a ma- terial called amophos, a combination of phosphoric acid and ammonia. Mr. W^right. Do you know what the capacity of this Canadian plant of the American Cyanamid Co. is? Maj. Burns. It is about one-fourth the capacity of the plant at Muscle Shoals. Mr. Wright. Do you know where it finds a market for that product? Maj. Burns. Generally, I understand, they sell their cyanami;! or their amophos to the fertilizer trade as one of the ingredients of a complete fer- tilizer. Where is the Air Nitrates Corporation located? It had an oflBce at 511 Fifth Avenue, New York. Is it still in existence? Yes, I think it is. What business does it do? Mr. Wright. Maj. Burns. Mr. AVright. Maj. Burns. Mr. Wright. • I 4 ■ I i 232 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 233 Mr. Wright. Maj. Burns. Mr. Wright. Maj. Burns. Maj. Burns. It was formed solely for the purpose of executing this con- tract with the Government for the construction and operation of United States Nitrate Plants Nos. 2, 3, and 4. Mr. Wright. Do you know what the capital of that corporation is? Maj. Burns. I understand the capitalization was $1,000. Mr. Wright. How much has it already received from the Government for constructing these plants at Muscle Shoals? Maj. Burns. It received a cost-plus fee, and a fee has been paid to the amount or $1,150,000. Mr. Wright. They are claiming considerably more? Maj. Burns. They are claiming $1,500,000. Mr. Wright. The Air Nitrates Corporation is subsidiary of the American Cyanamid Co.; is it not? Maj. Burns. That is correct ; yes, sir. It was formed, as I understand it, for the purpose of protecting the company from possible difficulties that might ensue as a result of the Government contract. Mr. Wright. It was really the American Cyanamid Co. which was acting, except that it would be relieved of legal liability. Maj. Burns. That is my understanding. Mr. Wright. The American Cyanamid Co. would undoubtedly receive the profits? Maj. Burns. Yes; without doubt. Of course, the American Cyanamid Co. turned over for the construction and operation of this plant all of their talent. Mr. Wright. The principal consideration there was to secure the services of somebody who knew how? Maj. Burns. Yes, sir. Where is the Alabama Power Co. located? I understand their headquarters are at Birmingham, Ala. Do you know where they were chartered? No, sir ; I do not know that. Mr. Wright. Is it not a Canadian company, so far as its capitali74ition is concerned, and was it not chartered in Canada? Maj. Burns. I beliere it was, but I am not qualified to answer that. Mr. Wright. Your opinion is that it was chartered in Canada? Maj. Burns. Yes, sir. Mr. Wright. And Canadian or English capital was furnished? Maj. Burns. That is my general information. Mr. Wright. Is it not true. Major, that the Alabama Power Co. is but a branch of the American Cyanamid Co.? Maj. Burns. I have never heard any intimation to that effect before this time. Mr. Wright. Either that, or that the American Cyanamid Co. is an ally of the Alabama Power Co.? Maj. Burns. I have never heard any intimation of that before. Mr. Wright. Do you not understand that these three companies are all of the same origin and are intertwined? Maj. Burns. No, sir; I do not. Mr. Wright. In what business is the Alabama Power Co. engaged? Maj. Burns. In the manufacture and sale of power in the general region surrounding Birmingham, Ala. Mr. Wright. Incidentally, these contracts, or the one entered into by the Alabama Power Co., had a clause which gave it an option to buy the Warrior Steam Plant? Maj. Burns. Yes, sir. Mr. Wright. That was a part and parcel of the construction contract? Maj. Burns. Yes, sir. Mr. Wright. That company received from $225,000 to $285,000 for its services? Mr. Burns. It received a fee of $225,000 on that contract. Mr. Wright. They executed the construction of this steam power plant at Gorgas? Maj. Burns. Yes, sir; that is correct. Mr. Wright. That was an emergency, so far as the Government was con- cerned, and was so considered? Maj. Burns. Yes, sir. Mr. Wright. The prime object was to produce nitrates in Alabama for ine War Department? Maj. Burns. Y'es, sir. Mr. Wright. And it was contemplated that the power from Dam No. 2 would be sufficient to run tliat nitrate plant No. 2, when developed, or to operate nitrate plant No. 2? Maj. Burns. I can not describe or explain what was in the back of the minds of the people wlio started the Wilson Dam. Mr. Wright. Is it not true that the nitrate project was started by the Grov- emment principally because they thought they could get cheap water power there? Maj. Burns. INIy understanding is that the No. 2 plant was started there because Muscle Shoals was the best-known site, and the raw materials were available. Mr. W^right. And the element of power was one of the material things? Maj. Burns. Hydroelectric power could not have been considered very seri- ously, because they nmst have known it would have taken much longer to produce power from a dam in the river than to produce power from a steam plant. Mr. Wright. Can you tell us why they started Dam No. 2 if it was not intended to use it in that way? It was the only activity the Government had down there. Maj. Burns. I can not explain that. Mr. Wright. That was the prime object, was it not? Maj. Burns. If you want to know the way I look at it now, it seems to me it was started to fit in with the No. 2 nitrate plant, but I do not know the intention of the people who started the project. Mr. Wright. This contract for the Warrior plant was entered into to get power quickly for nitrate plant No. 2, was it not? Maj. Burns. That is correct. Mr. Wright. It was contemplated that when that steam plant near the nitrate plant was completed the Government would have no further use for the Warrior plant, was it not? In other words, the steam plant near nitrate plant No. 2 was adequate to furnish power? Maj. Burns. No, sir; not quite. When that plant was originally designed it was expected that 90,000 kilowatts would be required to run it. and they got that by getting 30.000 from the Alabama Power Co. and 60,000 from the Government's steam plant at Muscle Shoals. In that contract the Alabama Power Co. had to furnish power during the war ; they could not buy back that plan* during the war. Mr. Wright. It was contemplated that the steam plant near nitrate plant No. 2 would supplant the power plant at Warrior, was it not? Maj. BiTRNS. No, sir. When the project was designed it was thought that 90,000 kilowatts would be necessary, and therefore we had to make a contract for the 30,0(¥) kilowatts from the Alabama Power Co., as well as to use the capacity of the steam plant at No. 2. The operation of the plant leads us to believe that the No. 2 plant can be operated nearly to its complete capacity with only the steam plant at Muscle Shoals. Mr. Wright. Near nitrate plant No. 2? Maj. Burns. Yes, sir. Mr. Wright. That was the object of constructing that power plant — to fur- nish power? Maj. Burns. Not complete power. Mr. Wright. Not complete power, but to furnish power? Maj. Burns. I'es, sir. Mr. Wright. And the option contained in that contract with the Alabama Power Co. provides that the Alabama Power Co. can become the purchaser of the Warrior steam plant? Maj. Burns. Yes, sir. Mr. Wright, In other words, it is purely an option. In reference to the language you read a while ago, to the effect that the Government agrees to sell this plant to the Alabama Power Co., and the Alabama Power Co. agrees to buy it from the Government, those are mutual terms to make an option binding? Maj. Burns. What I read was only a part of the sales clause. Mr. Wright. Whoever drew the contract wanted to avoid a one-sided contract. There must be a mutuality. The Government agreed to sell it, and the Alabama Power Co. agreed to buy it, so at last it simply was an option. Maj. Burns. I do not understand it that way. I read you only a part of the sales clause. Mr. Wright. That is the option feature of it. Maj. Burns. That is one option feature. 234 MUSCLE SHOALS PROPOSITIONS. I t I Mr. Wright. You understand that an option is a privilege by wliieh one party agrees to do or not to do a certain tiling. Do you undertake to say that if the Government would offer this plant to the Alabama Power Co. that the Alabama Power Co. would be bound to appoint an arbitrator as a member of the board to fix the value of the plant, and that the Alabama Power Co. would be bound to accept the award, or could they not just say we want to accept it? Maj. Burns. There is a very long clause pertaining to the method of selling that plant, -and what I read to-day was only a small extract from the sales clause. Mr. Wright. In the light of all that has transpired — and I am not criticizing what was done during the emergency — can you not now see that it was the pur- pose of the Air Nitrates Corporation, which had an option in its contract to buy nitrnte plant No. 2, and in the contract of the Alabama Power Co., which con- tained an option for it to buy the steam plant at Warrior, that it was simply a long-sighted, shrewd, ingenious idea to tie up the Government so that it could not dispose of these properties except these companies were the purchasers ; in othf^r words, it gave them the key to the situation? Maj. Burns. I can not subscribe to that. IVfr. Wright. Does it not do that by the very terms of the contract? Maj. Burns. No, sir; I think not. Mr. Wright. You have just said the Government could not accept this con- tract with Mr. Ford because of the contract it has with the Alabama Power Co. Maj. Bitrns. But I also said the Warrior plant was not a vital part of the Muscle Shoals project. Mr. Wright. The fact is, it is included ui the proposition. Maj. Burns. Yes, sir. Mr. Wright. You recited that as a reason why the Ford proposition can not be accepted? Maj. Burns. Yes, sir. Mr. Wright. Because of that clause in the contract with the Alabama Power Co.? Maj. Burns. That would be only Mr. Wright (interposing). Do you not now see it wns the purpose of the Alabama Power Co. in inserting this option clause to so tie up the Government that it could not dispose of this property except to it? Maj. Burns. It was undoubtedly the intention to tie up the Gorgas plant ; but by that they did not, as I see it, put any restrictions upon the sale of nitjftte plant No. 2. Mr. Wright. I am talking about the power plant. Do you not further realize that the Alabama Power Co. has practically a monopoly of the hydroelectric power in that region, and can you not see that they do not want a competitor to come into that field? Can you not see that they put this clause in to keep down competition and to prevent further developments being made down there? Maj. Burns. In all fairness to the Alabama Power Co. :Mr. Wright (interposing). I am talking about what you now see. Maj. Burns. I can not make an answer to that question by simply saying yes. Mr. Wright. Do you not further see that the American Cyanimid Co. is in the market manufacturing the identical product that nitrate plant No. 2 was designed to manufacture? Maj. Burns. That is correct. Mr. Wright. Can you not see that it is proposed in this construction contract whereby they agree to build nitrate plant No. 2 to also insert a clause which would tie up the hnnds of the Government so that the Government can not get into competition with the American Cyanamid Co., and can not sell this land to anybody who would come in competition with them ? Maj. Burns. I should say that would be reasonable, businesslike protection. Mr. Wright. So far as the American Cyanamid Co. was concerned. Maj. Burns. Yes, sir. Mr. Wright. What do you think about the Government? Maj. Burns. It does not seem to me that the Government has the right Mr. Wright (interposing). You are a business man of very wide experience? Maj. Burns. I am not a business man, and I doubt if I am a man of very wide experience. Mr. Wright. You would not say that a man of very wide business experience would enter into a contract like that for the Government? Mai. Bl'rns. I think that contract is all right from the standpoint of the Government. MUSCLE SHOALS PROPOSITIONS. 235 Mr. Wright. Can jou see anything in it for the Government except to get nitrate purely as an emergency feature, and the other feature was not looked out for at all ? Maj. Burns. No, sir ; I would not go as far as that. Mr. Wright. If it develops that the Alabama Power Co., the American Cya- namid Co., and the Air Nitrates Corporation are practically one, that the stock- holders are practically the same, that the companies are simply organized under different names, then you can readily see why these contracts were entered into, can you not? I am asking you if that be true Maj. Burns (interposing). I do not believe I could answer that question, be- cause I think the hypothesis is wrong. Mr. Wright. The maintenance and operation of the steam plant is not at all essential to the conduct of these plants down there at Muscle Shoals; is that not true? Maj. Burns. In my judgment, it is not. Mr. Wright. There is adequate power now from the steam plant constructed by the Government in all these plants, and what may be received from dam No. 1 and dam No. 2, to supply these plants? Maj. Burns. Yes; there is almost enough nower available at the steam plant No. 2 alone. Mr. Wright. And with the construction of dam No. 2 you can abandon the power connected with the steam plant? Maj. Burns. Absolutely. Mr. Wright. You do not regard the Gorgas power plant as at all essential to the successful operation of these plants at Muscle Shoals? Maj. Burns. I do not; no, sir. Mr. Wright. You think you can salvage that for $3,000,000? Maj. Burns. I do; yes, sir. Mr. Stoll. Where does plant No. 1 get its power? Maj. Burns. There was a small power plant erected with a capacity of 5,000 kilowatts. Mr. Stoll. Where does plant No. 2 get its power? Maj. Burns. Its principle source of power Mr. Wright. If the gentleman will pardon me, I have one other question I omitted to ask the Major. Mr. Stoll. Certainly. Mr. Wright. Major, you said the Alabama Power Co. was intended to fur- nish hydroelectric power. Maj. Burns. They furnish both hydroelectric and steam power. Mr. Wright. Then it is a power proposition, pure and simple. Maj. Burns. According to my understanding, it is. Mr. Wright. If the Air Nitrates Corporation is given the right to buy this nitrate plant No. 2 according to the terms of the contract with the Govern- ment, then the Governmen*^ would have no use for dam No. 2, known as the Wilson dam, because it would have no way to use the power. Maj. Burns. Of course, power can be used for a great diversity of things. Mr. Wright. But you do not know of any market unless it was used for the operation of the nitrate plant. Maj. Burns. I do not personallv know of any ; no, sir. But I have heard the testimony of Mr. Cooper, and he claims that the general country down there can easily utilize the power that would be developed at Muscle Shoals. Mr. Wright. The idea is that the nitrate plant No. 2 and Dam No. 2 are supposed to be built in conjunction, so far as the Government proposition is concerned, and one depends on the other. So that if the Government disposes of nitrates plant No. 2 to the Air Nitrates Corporation, would there be any market for the power produced at Dam No. 2, except the Alabama Power Co.? Maj. Burns. As I said before, the testimony of Mr. Cooper indicated there would be abundant use for power over and above the market at the No. 2 nitrate plant. Mr. Stoll. Plant No. 2 has its own steam plant to produce its power? Maj. Burns. It is expected that that will be almost enough to run the entire plant. Mr. Stoll. Who owns the right of way between the Gorgas Plant and Muscle Shoals? Maj. Burns. The Alabama Power Co. ; I do not know whether they have a complete title, but they either own it or they have control of the land. Mr. Stoll. They own no other land at Muscle Shoals? Maj. Burns. Not to my knowledge. i 236 MUSCLE SHOALS PROPOSITIOXS. MUSCLE SHOALS PROPOSITIONS. 237 Mr. Stoix. Where is the principal place of business of tlie Alabama Power Co, — I do not mean its office? Maj. Burns. I can only give you my general information. I believe most of their hydroelectric power is generated at what is known ns Lock No. 12 on the Coosa Kiver. They have steam plants scattered around to back up the hydro- electric power, and one of those is their plant at Gorgas. Mr. Stoll. How much money has the Alabama Power Co. put into the Gorgas steam plant? Maj. Burns. My judgment is that it is well in excess of $3,000,000. Mr. Stoll. You stated, I believe, that the Alabama Power Co. built a part of the plant and that the Government built the other part of the plant? Maj. Burns. Yes, sir. Mr. Stoi.l. The Alabama Power Co. has no money in the part that the Gov- ernment built? Maj. Burns. No, sir ; except that they own the land. Mr. Stoll. They had a profit of something like $285,000 on the construction of that plant for the Government? Maj. BuTiNs. That is correct; yes, sir; if you include the overhead fee of $60,000 as profit. Mr. Stoll. How much has the Government invested in Muscle Shoals? Maj. Burns. Nitrate plant No. 2 represents an investment of approximately $70.(KM).000 ; nitrate plant No. 1 represents an investment of practically $13,000,000 ; ; the Wilson Dam Mr. Stoll. The Government has an investment there of something over $30(»,000.()00, has it not? , Maj. Bltins. When we consider plant No. 1, plant No. 2, Gorgas power plant and the dam, it is, roughly, $105,000,000. * Mr. Stoll. The Government in its operation of Muscle Shoals is to gen- erate electric power to manufacture nitrates for the Ordnance Department and to manufacture nitrates to use in making fertilizer? That is the principal function of the Goveniment at Muscle Shoals, is it not? Maj. Burns. Those plants were put up during the war for the purpose of manufacturing explosives. Mr. Stoll. As it stands to-day, if it is developeil it will be for electric power explosives, and fertilizer. Maj. Burns. Those three could be produced. Mr. Stoll. They have already invested there about $100,(K)0,000? Maj. Burns. Yes, sir. Mr. Stoll. What does the Alabama Power Co. develop? Maj. Burns. Power. ^Ir. Stoll. That is one of the elements which the Government will develop? Maj. Burns. Yes, sir. Mr. Stoll. What does the Air Nitrates Corporation develop? Maj. Burns. They are engaged principally in the manufacture of fertilizer materials. * Mr. Stoll. That is another element the Government would develop? Maj. Burns. Yes, sir. Mr. Stoll. What does the American Cyanamid Co. develop? Maj. Burns. It is a company that develops fertilizer materials. The Air Nitrates Corporation is a subsidiary of the American Cyanamid Co. Mr. Stoll. The only three companies that have an interest at Muscle Shoals, outside of the Government interests, develop power and ingredients of fer- tilizers? Maj. Burns. That is correct. Mr. Stoll. How much money has the Air Nitrates Corporation invested in Muscle Shoals? Maj. Burns. None, so far as I know. Mr. Stoll. How much has the American Cyanamid Co.? Maj. Burns. In so far as I know, they are in a similar position. Neither combination has any money invested. Mr. Stoll. Whose interest do you think is paramount— the Government's, with over $100,000,000 invested there, or the interests of the Alabama Power Co., with a few million dollars invested? Maj. Burns. I think, without doubt, the Government's interest is always paramount. Mr. Stoll. If the two interests conflict, whose interests must we look after? ^laj. Burns. I think you must always look after the Government's interests. Mr. Stoll. When you say we are under obligations to the Alabama Power Co. and, in your opinion, this Ford offer should be rejected rather than break a contract with the Alabama Power Co., your opinion is based more on a desire to save, as it were, the skin of the Ordnance Department for entering into a foolish contract than it is concerned with the rights of the Government to go ahead and do this particular thing? Maj. Burns. Not necesessarily. I think the Government's interests, as a matter of policy, would be best protected if it insisted upon living up to the Alabama Power Co.'s contract. I do not think you can always measure the Government's interest in dollars and cents. Mr. Stoll. But we are considering this proposal from the standpoint strictly of Mr. Ford's offer, whether the Government should take the Ford offer, and iu considering that there has been brought in the contract with the Alabama Power Co., so we are considering that contract solely in the light of the Ford offer, and vou stated that you thought that ought to be thrown aside to protect the intereiil^ of the Alabama Power Co. Maj. Burns. Yes, sir; I made that statement. Mr. Stoll. Suppose the Ford offer, in the opinion of Congress, would be beneficial to the Government, saving what they have already invested in pro- ducing elements that would be beneficial to the Government in time of war as well as in time of peace. Do you think the contract with the Alabama Power Co. is so paramount that you could let those other things go in order to protect tliem? Maj. BuKNs. If you take the stand that the Ford offer is of vital benefit to the United States, I can see only one conclusion to come to, and that is to accept the offer. But I do not take that stand. Mr. Stoll. That is a hypothetical question, because we are considering the Alabama Power Co. solely in view of its relation to the Ford offer, and not what we would do with the Alabama Power Co. otherwise. Maj. Burns. My judgment is it would be to the best interests of the Govern- ment to live up to the contract. Mr. Stoll. That is not the question. The question is. if the Ford offer is the best interest for the Government Maj. Burn, (interposing). You have made your answer. Mr. Stoll. You think the Alabama Power Co.'s right should offset that? Maj. Burns. If you make that assumption to start with, you have also written the answer, I think. Mr. Stoll. Then, you do not consider the Alabama Powder Co.'s right neces- sarily so strong it would offset the Ford offer? Maj, Burns. I do; but you are assuming that it is not, and, therefore, you get another answer. Mr. Stoll. Perhaps you did not catch the drift of my question. Maj. Burns. I think I did. You are assuming that the Ford offer is of para- mount importance to the Government. Mr. Stoll. No ; I say if it is to the best interests of the Government, or if the Ford offer is good. Maj. Burns. If I understand your question, you put it this way : If it is to the best interest of the Government to accept this Ford offer, should we throw over the Alabama Power Co. contract? I say, if you believe it is to the best interests of the Government to accept the Ford offer as drawn you have written your answer. Mr. Stoll. Suppose there is no controversy over the Alabama Power Co. at all; suppose there is no question about the Alabama Powder Co. — ^that they have no claim — ^w^ould you think the Ford offer good? Maj. Burns. It all depends on the point of view. If I were a farmer and had the farmers' interests solely at heart, I would say that the Ford offer is pood. If I were a fertilizer man and had only the fertilizer interests at heart, I would say that the Ford offer is not good. Mr. Stoll. Why? Maj. Burns. Because there is a great possibility of the Ford offer hurting the fertilizer busine«='s and the people who have their money so invested. Mr. Stoll. By cheapening fertilizer? Maj. Burns. There is a possibility of that. Mr. Stoll. Then from the standpoint of agriculture it would be a benefit? Maj. Burns. It has possibilities of benefits ; yes, sir. I 238 MUSCLE SHOALS PKOPOSITIONS. Mr. Stotx. I am glad you have made tliat statement. From the standpoint of developing the country down there through the use of electricity Maj. Burns (interposing). In that case, also, in my judgment, the Ford offer has great possibilities. Mr. Stoll. And from the other standpoint of providing in a permanent way. ready at all times to make the nitrates that your department needs in time of war, it would be beneficial from that standpoint? Maj. Burns. Yes, sir; it would. Mr. Stoll. Then from every standpoint, leaving out the contract with the Alabama Power Co., the Ford offer is good, Maj. Burns. It has great possibilities ; yes, sir. • Mr. Stoll, You have just admitted it was good, Maj, Burns, I did not say from every standpoint except one. That is where you put in a proviso I did not include. Mr. Stoll. The fertilizer, the electrical power, and the explosi\j«| that you use in time of war are the only three elements involved ; and if We thing is good, if the Alabama Power Co, had no contract, the interests of the Govern- ment at all times being paramount, why should we now throw it aside on ac- count of this alleged interest of the Alabama Power Co,? Maj. Burns, My own judgment of that is that the Government should set the foremost example in living up to its contracts, and I think that is a greater matter of policy than anything else. Mr. Stoll. But you just admitted that the Government's interest is para- mount, and you admit that if these other things are true it would be for the good of the country. Maj, Burns, No; I did not say that, I said from certain points of view it would be good, and from other points of view it would not be good. I did not make the summarized statement. Mr. Stoll. I think you have about admitted yourself out of court. That is all, Mr. Fields. There is one question I overlooked, :Major. The Government fur- nished the Air Nitrates Corporation the funds on which it operated, did it not, in the contruction of nitrate plant No. 2? Maj. Burns. Yes, sir. Mr. Fields, And all the other plants that were built? Maj. BuTiNS. Yes, sir, Mr. Fields. What was the total claim of the Air Nitrates Corporation for the construction done for the Government? Maj. Burns, $1,500,000, Mr, Fields. And they all applied to nitrate plant No. 2. Maj. Burns. Yes, sir ; they could all be applied against that plant. Mr, FIET.D, Including the other plants, 3 and 4, what was the total for the entire construction program? *^^^^^n/^A Maj. Bl-rns. $1,500,000. They earned their complete fee when $60,000,000 was expended, and since $70,000,000 was expended on No. 2 plant alone, that of itself earned for them the entire fee. Mr. Field. This corporation, like the Alabama Power Co., also secured an option for the purchase of n'trate plant No. 2? Maj. Burns. Yes, sir. Mr. Field. Do you feel that that places upon the United States the same moral obligation that the option of the Alabama Power Co. carries? Maj Burns. I do not think that option is so important, because one of the provisos of that option is that they must agree to pay to the Government as good a return as the Government can get from somebody else. Mr Fields If thev come in and claim their right to purchase nitrate plant No 2 just like the*^ Alabama Power Co. claims its right to purchase the Gorgas plant, you think that the Government should also live up to that proposition? , , ,. . , ^^ ^ t ^ „r» Maj. Burns. Yes, sir; I think there is an obligation also there to live up to the contract. , , « i. „ ,u Mr Fields And are you aware of the fact that when the Government sun- mitted to Mr Duke, the moving spirit of the Air Nitrates Corporation and the American Cyanamid Co., an invitation to submit a proposition for the lease or purchase of nitrate plant No. 2, that he at that time declined to submit a proposition, condemned the operation of plant No. 2, either by the Government MUSCLE SHOALS PROPOSITIONS. 239 or by private interests, and also recommended against the completion of dam No. 2; are you aware of that fact? Maj. Burns. I heard the letter read a day or so ago. Mr. Fields. Was not the Alabama Power Co. included in that as.sociation of southern producers of power which also subuTitted to the Secretary of War a long letter recommending against the completion of Dam No. 2 and the oper- ation of nitrate plant No. 2? Maj. Burns. I did not know their name was included in that association of power producers. Mr. Fields. It is not clear in my mind whether it was or not. Maj. Burns. I did not hear it read. Mr. Fields. I can hardly see where you distinguish between the option of the Alabama Power Co. and the option of the Air Nitrates Corporation on nitrate plant No. 2. If one is a binding obligation on the Government, it seems to me from your viewpoint the other would be binding upon the Government. Maj. Burns. I appreciate your point, but as I said before, the American Cyanamid Co. can not buy that plant unless it is willing to give as good a return to the United States as the United States is able to get from any other person. It is my own judgment that the American Cyanamid Co. would not give the United States what Mr. Ford is agreeing to give. Therefore, I feel, without knowing the facts in the case, that the American Cyanamid Co.'s option is not going to be any impediment at all. Mr. Fields. In line with the questions asked by Mr. Stoll a moment ago, I will ask you, eliminating the Alabama Power Co. and the manufacturers of fertilizers in the country, to which you yourself referred, what is your opinion as a military man of the completion of Dam No. 2 and the development and operation of nitrate plant No. 2 from the standpoint of preparedness ; is that of interest to the Government? Maj. Burns. Yes, sir; it is. I would like very much to see the dam com- pleted and the plant operated. Mr. Fields. What would be the annual cost of the maintenance of nitrate plant No. 2 in an idle stand-by condition? Maj. Burns. We are keeping it this year for a cost of about $125,000, with the additional proviso, however, that we are leasing the power plant for a fixed rental of $120,000 a year and an additional probable return of $140,000. Mr. Fields. And if the Government should continue this operation for 20 years, what money would it have to expend for reinstallation and improvement of the plant? Maj. Burns. I can not answer that question, Mr. Fields, because it all de- pends on the life which. you give to the plant in standby. It might all go to pieces in 10 years or it might not go to pieces for 50 years. Mr. Fields. Is it not a fact from the standpoint of national preparedness that the Ford offer would be a great saving to the Government in the end, not including the 4 per cent interest on the investment, and the sinking fund, and the allowances for the maintenance of locks and dams Nos. 2 and 3, by reason of the fact that he must himself keep this plant in condition to operate, and turn it over to the Government upon five days' notice at any time the Government may want it. Maj. Burns. I think it would. Mr. Fields. There is a very great element of cost there that must be met by Mr. Ford if he takes over the proposition in order to keep that plant in condi- tion for the Government. Maj. Burns. He undoubtedly would bear the burden that the Government would otherwise have to bear or might have to bear. Mr. Fields. If the Government should bear the burden of maintaining this plant in the condition that Mr. Ford proposes to maintain it. for the life of the proposed Ford lease, it would necessitate an expenditure of millions and mil- lions of dollars on the part of the Government, would it not? Maj. Burns. It probably would. I w^ould like to qualify that statement in this way : The Government, in my opinion, would only hold nitrate plant No. 2 until the business of nitrogen fixation was developed in America to such an extent that it could be depended upon. If it was never developed within 100 years, that might mean that the Government would retain that plant for 100 years. If, however, nitrogen fixation were an accomplished fact on a big business basis in 10 years, the Government would not be justified in carrying the plant any longer than 10 years. 92900—22- -16 240 MUSCLE SHOALS PROPOSITIONS. Mr. Fields. Your proposition hangs upon the possibility of tlie development of nitrogen fixation by private capital? Maj. Burns. Yes, sir. Mr. Fields. There is just one other question that has been overlooked, in my judgment, all the way through that I desire to ask you about. What is the distance of the haul by water of Chilean nitrates from the Chilean mines? Maj. BuBNS. Roughly, 4,000 miles. Mr. Fields. That is, through the canal? Maj. BmNS. Yes, sir. Mr. Fields. In time of stress, if the canal should for any reason be put out of commission, then what would be the distance? Maj. Burns. It might not be so very much greater, because in that instance you might take it up to the California coast and ship it across the continent by rail. If, however, you had to go around the Cape, I should imagine your distance would be at least doubled. Mr. Fields. I just wanted to get that in the record. That is all. Mr. McKenzie. Major, we are very much obliged to you, and the committee will now take a recess until 2.30 o'clock p. m. ■i MUSCLE SHOALS PROPOSITIONS. Committee on Military Affairs, House of Representatives. Mondoif, February 13, 192.2. after recess. The committee met pursuant to reces*; at 2 :30 o'clock p. m. STATEMENT OF MR. WILLIAM B. MAYO. CHIEF ENGINEER OF THE FORD MOTOR CO.. DETROIT, MICH. The Chairman. Gentlemen of the committee, this is Mr. ]^Iayo, who rep- resents Mr. Ford in th's proposition. He has come here from Detroit and de- sires to be heard regarding the matter. Will you kindly state your name in full? Mr. Mayo. William B. Mayo. The Chairman. And also explain the position you occupy? Mr. Mayo. Ch'ef engineer of the Ford Motor Co. The Chairman. How long have you been with Mr. Ford? Mr. Mayo. About eight years. The Chairman. Are you acquainted with the Muscle Shoals development? Mr. Mayo. Fairly well, I think. The Chairman. To what profession do >ou belong? Are you an engineer? Mr. Mayo. Yes, sir. The Chairman. And you have been acting as an engineer for Mr. Ford? Mr. Mayo. Yes, sir. The Chairman. Are you familiar with the offer that Mr. Ford made for the Muscle Shoals plant? Mr. Mayo. Yes, sir. __ The Chairman. It will not be necessary, therefore, to call your attention to the contract or the proposal that he has submitted. ^Ir. Mayo. I think not. The Chairman. Of course, the first proposal he submitted on July 8, 1921, he has asked to be superseded by a later proposal which he signed January 25. Mr. Mayo. I'^es, sir. The Chairman. And gave to the Secretary of War on January 27. Mr. Mayo. Yes, sir. The Chairman. The committee has a few matters about which they have in- sufficient information, and they would like you, if possible, to tell just what Mr. Ford proposes to do. There is nothing said in the proposal regarding the company of which Mr. Ford speaks, whether it is going to have a capital stock or not; what the capital stock will be, if they propose to have capital stock; could you inform the committee regarding that matter? Mr. Mayo. Mr. Ford has not fully determined whether he will operate as a company or under his own name. The Chairman. Or under his name? Mr. Mayo. He has not fully determined which way he will operate, yet. The Chairman. He has not? Mr. Mayo. No, sir. The Chairman. If he should operate as a company do you think he will op- erate with a certain amount of capital stock? Mr. Mayo. He will have to operate with sufllcient capital to properly handle the business, certainly. The Chairman. But you can not give the committee any idea of just what amount of capital that will be? 241 ?J » 242 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 243 i I m Mr. Mayo. Not other than to say it will be sufficient to properly conduct tlie business. The Chairman. Will Mr. Foni be able to tell the committee of Congress be- fore very long how much money he expects to organize for? Mr. Mayo. I think likely ; yes. sir. The Chairman. It is the desire of the committee and the desire of Congress to get this thing through with as early as possible. How long do you think it would take Mr. Ford before he could let this committee know just how much capital stock he would organize for? Mr. Mayo. I hardly think it would be fair to press him for a definite sum at this time, until he has worked out the neee useitimony before the committee is to the effect that the amount recinired for the acquisition of those rights will be in the neighborhood of .$4,000,(K)0. Do you think he would be willing to allow 4 per cent to the Government for anything that is laid out for that purpose ? Mr. Mayo. I do not think so. I think the amount you stated, though, is very high. I notice the Government estimate is $2,331,000. We had estimated a maximum amount of not over $1.50(>,(k:K) and we are quite sure it will not run over $1,000,000. The Chairman. For the flowage rights. Mr. Mayo. Mr. Ford had thought that the necessary amount ought to be charged to navigation. The Chairman. To what? Mr. Mayo. To navigation. The Chairman. He does not think he should be called upon to assume anv of that, not even to the extent of paying 4 per cent interest? Mr. Mayo. He has not thought so. so far ; no, sir. The Chairman. It has been suggested that if Mr. Ford should acquire thi the l(K>-year agreement, there seems to be a difference of opinion whether the agreement should run for 50 j'ears or 100 years. Mr. Mayo. Yes, sir. The Chairman. The Secretary of War notified this committee that he was under the impression that it ought to be limited to 50 years and that any effort to extend beyond that period would not be good public policy. Mr. Mayo. Yes, sir. The Chairman. Have you thoroughly thought out that matter? Mr. Mayo. Mr. Ford has given that a great deal of thought and he thinks that very few really know the magnitude of this project, and, as he proposes to use all this power himself, eventually, it will take a very large investment down there and quite a few years to build up to it. The Chairman. He proposes to use all the power himself? Mr. Mayo. He expects to. The Chairman. That is a pretty big proposition, is it not? Mr. Mayo. We realize it ; yes, sir. The point is if the offer is accepted we Will have such a very large investment at Muscle Shoals in the course of the next 10 or 15 years that we could not afford to risk that much of an investment there and run the risk of having the power end of it cut from under your feet at the end of 50 years. The Chairman. Personally, I do not think Mr. Mayo (interposing). It is different from a gi-eat many projects, in that rne Muscle Shoals district is more or less of a virgin country, and we have to develop everything there. The Chairman. I do not think that is a very serious complaint. For myself, 1 am perfectly willing to stand by a 100-year agreement. Mr. Mayo. In general, that is his thought. Mr. Ford has a $5,000,000 invest- ment to start with, and to my mind that is but a drop in the bucket. That is 244 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 245 why I also think the amount of capital is hardly worth talking about at this time. The Chairman. That is not a very material matter, in your opinion? Mr. Mayo. Not at all. The investment will be so very large that there will always be plenty for the Government or anybody else to hold in case of trouble. The Chairman. How many years do you think it will take for the invest- ment to be fully developed? Mr. Mayo. Well, it is pretty hard to venture a guess; I would say in 15 or 18 years, or some such time. The Chaibman. The world has not known very much about this matter of the fixation of nitrogen very long, has it? Mr. Mayo. No, sir. ' The Chairman. And you are willing to take all this chance with the limited knowledge that the world has of the i)roposition? Mr. Mayo. Well, Mr. Ford does not think he is taking much chance. Mr. McKenzie. Mr. Mayo, one of the propositions involved in the Ford offer, and one which has been giving us no little concern, is what is known as the Gorgas or Warrior River plant owueil and operated by the Alabama Power Co. Mr. ]Mayo. I understand. Mr. McKenzie. What is your idea as to the absolute necessity of including the Warrior River plant of the Alabama Power Co.'s project in Mr. Ford's offer. Mr. Mayo. The real necessity as he looks at it is to have the steam power dur- ing the low-water period so as to increase the primary power. Mr. McKenzie. Does he feel it is absolutely essential, at least for many, many years to come, to have the additional power that would be furnished by this Warrior River power plant? Mr. Mayo. It is more essential now than it will be later. Mr. McKenzie. You are perfectly familiar with the situation down there at the Gorgas plant, I take it. Mr. Mayo. I think so. Mr. McKenzie. You know how it is constructed? ]Mr. Mayo. Fairly well. I have never seen it. Mr. McKenzie. Fnnn a description given here this morning by an Army officer, it is more intricately woven into the property and interests of tlie Alabama Power Co. than the League of Nations was in the treaty of Ver- sailles, and it would be almost impossible, so it strikes me, as a member of this committee, to undertake to .separate the interests of the Government from the interests of the Alabama I*ovver Co., and that would necessitate pos- sibly the taking over of the rights of the Alabama Power Co. Mr. Mayo. That might be, but we never thought so. Mr. McKenzie. And this officer stated it would be practically impossible to unscramble the rights of the Government from those of the Alabama Power Co., and it had been my hope, at least, as one of the members of the committee, that we might bring about some acceptance of this offer without this complication — that is, that some acceptance of the offer might be arrived at between Mr. Ford and representatives of the Government which would very materially simplify the whole proposition, but you say you have not looked into that matter very closely, as I understand it. Mr. Mayo. Not so veiy, but we have always been of the opinion it could !he unscrambled all right. Mr. McKenzie. But in your proi>osed contract you put the responsibility of the unscrambling on the Government. Mr. Mayo. I know it. :Mr. McKenzie. And that is one of the propositions included in your offer.' 3Ir. Mayo. Yes, sir. Mr. McKenzie. And your offer must either stand or fall on the Government delivering the property it contracts to deliver to ^Ir. Ford. Now, then, if >ve should get into litigation and it should be held by the courts that the Govern- men could not deliver this property to Mr. Ford, then all of our work would have been in vain. Mr. Mayo. I see. Mr. McKenzie. Because the whole proposition would fail. Mr. Mayo. I am sure Mr. Ford does not expect to ask the Government to do anything that is physically impossible. Mr. McKenzie. I think that is true. Mr. Mayo. He thinks it can be worked out. If it can be shown him Mr. McKenzie (interposing). I have wondered whether Mr. Ford is thoroughly familiar with the existing condition of things at that plant. Mr. Mayo. I would not say he was thoroughly familiar but quite familiar, and he is of the opinion it can be worked out. Mr. McKenzie. As a simple offhand proposition, not knowing any of the de- tails, I felt at first, when I read the offer, " that is all right ; that is easy enough ; we will just turn that over ;" but there is more than that to it, it is the most dif- ficult proposition, in my judgment, the way the thing has been constructetl, whether intentionally or otherwise, and the Alabama Power Co. have them- selves fortified in a position that is most lamentable, in my judgment, in connec- tion with this whole proposition ; to be as charitable as possible, I would say that. Mr. Mayo. I see. Mr. McKenzie. It would probably cost the Government more than Mr. Ford's entire offer of $5,000,000 in order to be able to deliver to him this one element of the contract, to say nothing of the other property which we would expect to de- liver to him. Now, in speaking of the manufacture of this element which can be used in the manufacture of fertilizer, and without using any of the technical or chemical terms, I will simply speak of it as nitrate, which can be produced at Muscle Shoals, and I understand you to say that as long as it is profitable or can be produced without a loss Mr. Ford would be glad to continue to produce that product. Mr. Mayo. Yes, sir. Mr. McKenzie. And I think you stated it very correctly when you said that it is a fair assumption that if it was being produced at a loss it would only be a matter of time when even Mr. Ford, with all his wealth, would go out of business, and therefore the element of profit or the cost of manufacture has to be taken into consideration. Mr. Mayo. Yes, sir. Mr. McKenzie. The price of fertilizer. I take it, the same as the price of any other product, is fixed ordinarily, under the laws of trade, by competition. Mr, Mayo. Yes, sir. Mr. McKenzie. And in this country we have certain manufacturers of ferti- lizer. That rule, however, can be overcome by what is known as combinations or trusts, and if all the fertilizer manufacturers of the country, including Mr. Ford, would enter into a trust, they could fix the price of fertilizer in this country. I am not assuming that Mr. Ford is a believer in the forming of trusts to put up a price of a commodity to the people of this country, but that could be done, and if that is done, of course, then the only competitor that Mr. Ford would have or the other manufacturers of this so-called fertilizer would be the importations from Chile and other outlying countries, is not that true? Mr. Mayo. Yes, sir. Mr. McKenzie. Now, as a matter of fact, knowing Mr. Ford as you do, have you any fear in your mind that with his splendid organization he could not com- pete successfully with the other manufacturers in this country. Mr. Mayo. I am absolutely sure of it. Mr. McKenzie. In the production of that product. Mr. Mayo. I am absolutely sure that he could do so. Mr. McKenzie. Then the only thing he would have which might put him out of business, would be the nitrate. Mr. Mayo. I do not have any fear of that. Mr. McKenzie. I think I agree with you on that, but if that should happen, then the American agricultural people would not hold Mr. Ford responsible for not selling fertilizer to them at a higher price, but would be glad to have it imported from a foreign country at even a lower price than Mr. Ford could produce it Mr. Mayo. Yes. Mr. McKenzie. So there would really be no great harm done under those circumstances if Mr. Ford ceased to manufacture fertilizer; is that true? Mr. Mayo. That is true, but I think it goes without saying that he could find some process wherein he could meet any competition. We consider the plant so situated naturally, and with the very cheap power, that you have all the fundamentals with which to make a very cheap fertilizer. Mr. McKenzie. I think that is true, and the 8 per cent you would consider a fair measure of profit on the expenditures. Mr. Mayo. We think so. to feai", of course, and low price of imported I i I Hi t t 246 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 247 r ' 1 Mr. McKenzie. And he is willing to be limited to 8 per cent? Mr. Mayo. Yes, sir. Mr. McKenzie. I believe you have explained your views on the 100-year lease or franchise, and, of course, it goes without saying that if the Congress should determine they would not accept the 100-year proposition but would accept a 50-year proposition, that would involve an entire change of the whole offer made by Mr. Ford. Mr. Mayo. Yes, sir. Mr. McKenzie. And would materially increase the cost to Mr. Ford an«i accordingly, in my judgment, depreciate the value of it to the Government. Mr. Mayo. Yes, sir. Mr. Mckenzie. In regard to the so-called guaranty in the proposed contract, and in relation to the questions asked by our chairman as to the necessity of having a capital stock named, I presume one of the reasons why Mr. Ford put into this contract that he was binding his heirs and assigns, as well as binding the corporation or company that might hereafter be created, goes to show that he has not at this time, as you say, made up his mind as to whether he vrill operate it as a company or coi*poration or as an individual. Mr. Mayo. Yes, sir. Mr. McKenzie. And you feel that with the expenditure of money he will be immediately called upon to expend at this plant, that that would be a sufficient guaranty, as a matter of protection to the taxpayers of the country and the people of the county, without his putting up his individual bond or a guaranty of so much capital stock on the part of the company. Mr Mayo. Yes, sir. If you forced him to raise capital to an extent where he would have some idle capital lying by, that would naturally increase the cost of his product. , . . . ^. Mr. Mckenzie. That explains, then, to some extent, that provision in his pro- posal; is that the idea? "\Ir Mayo. Yes sir. Mr MoRiN. Do' vou agree that the estimate of cost of completing Dam No. 2 and building Dam No. 3 is accurately estimated by the Army engineers at $50,000,000? . .„ Mr Mayo. I think that is considerably more than it will cost. Mr MoRiN. Is it vour judgment that the flowage rights which the Government is to acquire under the Ford offer can be purchased for the $2,331,000 estimated by the Government engineers as the cost? * Mr. Mayo. I am of the opinion they can be secured for less. Mr. MoRiN. How much less? Mr. Mayo. Not over $1,500,000 total cost. Mr. MORIN. It would not cost more than $1,500,000? Mr. Mayo. Not to exceed $1,500,000. Mr. MoRiN. Would not this item be nearer $5,000,000? Mr. Mayo. I do not think so. , * , ^ Mr MoRiN. Or $10,000,000, or even more, considering present values of lana and the necessity of acquiring lands for railway and terminal connections as imposed by Mr. Ford's offer? Mr. Mayo. I do not think so ; no, sir. Mr MORIN. What are these " railway and terminal connections "? Mr. Mayo. The only thing I call to mind is the present track connections that now exist, with the possible addition of two single track lines to Dam No. 3, which need only be temporary, I should say. Mr. MoBiN. They are the only connections you recall? Mr. Mayo. Yes, sir. Mr. MoRiN. On its amount, whatever its cost, Mr. Ford seemingly would pay no interest ; is that your understanding? Mr. Mayo. I do not follow you. You are talking about this track or ngni Mr. MoRiN. Yes ; the connections that would have to be secured there by the Mr. Mayo. They have already been secured ; all except the rights of way to Dam No. 3. They exist at present. „ , , „, , .^,^ ^his Mr MoBiN. You will note that the Secretary of War recommends that this sum be included in the sum upon which Mr. Ford is to pay interest. His letter of transmittal states : " The omission of the cost of these lands from this com- putation is more serious than would be the omission of the provision tor a sinking fund, for the annual interest at 4 per cent on the cost of such lanes, and rights if used for this purpose would amortize a sum much larger than that provided in paragraph 10 of Mr. Ford's proposal." What is your opinion of that? Mr. Mayo. I think you are confusing that with the flowage rights for Dam No. 3. Mr. MoRiN. No; I do no think so. Mr. Mayo. That subject has never been brought up, as I remember. Mr. MoEiN. The Secretary of War refers to it in his statement. What about the flowage rights for Dam No. 3, then? Mr. Mayo. We are of the opinion that they can be purchased at a maximum sum of $1,500,000, and the cost of that should be charged to navigation. That has been Mr. Ford's idea. Mr. MoBiN. Mr. Ford agrees to pay 4 per cent on the actual cost of acquiring lands and flowage rights, etc., in the case of Dam No. 2; that is correct, is it? Mr. Mayo. I think it is. Mr. MoBiN. Are not those dams and flowage rights already paid for and acquired at Dam No. 2, and constitute a part of the $17,000,000 already ex- pended at that point? Mr. Mayo. Most of them. I think a few parcels are under lease. Mr. MoRiN. Then, Mr. Ford does not intend to reimburse the United States for any part of the $17,000,000, does he? Mr. Mayo. Well, in our sinking fund, if the Government invests that sinking fund on the basis of, say, 4^ per cent, it would take care of over $58,000,000 of cost. If the cost of the two dams, for instance, does not exceed $40,000,000, then it would wipe out the entire $17,000,000 that have been spent, and more. Mr. MoRiN. I hardly think that is an answer to my question. My question was whether :Mr. Ford intends to reimburse the United States for any part of the $17,000,000 under his proposal? Mr. Mayo. I am of the opinion that I was answering that. We establish a sink- ing fund to wipe out the cost of this work, and we state the definite amount of that sinking fund. If the Government invests that on the basis of 4^ per cent — I did not read the figures right before — it will wipe out $70,000,000 in the 100 years. Mr. MoBiN. Your idea is that he does propose t^ reimburse the Government? Mr. Mayo. If we are fortunate to keep the cost of Dams No. 2 and No. 3 as low as, say $40,000,000, then you will have $30,000,000 left to wipe out the original investment, which you say is $17,000,000. Mr. MoRiN. Mr. Ford's offer contemplates the free and unencumbered title tx) all of the property to be transferred to him, so that he contemplates paying no interest on any sums to acquire such clear title, whether by condemnation or otherwise; is that true? Mr. Mayo. He pays interest on only the cost of the dams. Mr. MoRiN. This sum for clearing title may aggregate several million dollars, may it not? Mr. Mayo. I do not think so. Mr. MoRiN. During the construction period of several years, although the Government is supplying funds for construction aggregating perhaps $50,000,- 000 from the very beginning of construction, Mr. Ford pays a total rental of $1,200,000 for a 6-year occupancy of Dam No. 2, at the rate of $200,000 a year, and a total rental of $480,000 for a 3-year occupancy of Dam No. 3. at the rate of $160,000 a year, which is, in the case of Dam No. 2, a return of eight-tenths of 1 per cent per annum on $25,000,000 of Government money for a period of six years, and in the case of Dam No. 3 a return of sixty-four one-hundredths of 1 per cent on $25,000,000 of Government money for three years, as I figure it. These figures ate substantially correct, are they not? Mr. Mayo. I do not know about the totals. It is plainly stated in the offer as to when the payments commence and the amounts. You could not expect Mr. Ford, I do not think, to pay interest on property until he can occupy it and until it is ready to operate. Mr. MoRiN. Why should Mr. Ford not pay 4 per cent during this period, par- ticularly as his aforesaid payments do not begin until a year after the plants liave actually been in operation? Mr. Mayo. We have to build our factory and develop our processes for what- ever we intend to make up before we commence taking power, and it takes a con- siderable amount of time for that. We have tried to make the estimates so that he commences to pay when he commences to use the power. it 248 MUSCLE SHOALS PROPOSITIONS. Mr. MoRiN. Whether he should pay or does not so pay 4 per cent for this period, we have to consider as capital to be supplied by the United States the interest lost on the Government's money for a period of six years in one case and three years in another, do we not? Mr. Mayo. Yes, sir. Mr. MoRiN. These figures are summarized by the Chief of Engineers under date of January 30. 1922. (P. 2 of Exhibit E.) Funds required to complete Dam No. 2 $25, 000, 000 Interest during construction, one-half of three years, at 5 per cent__ 1, 875, 000 Interest for first six years subsequent $7,500,000 Less six payments by Mr. Ford 1, 200, 000 Net deficiency 6,300,000 Total accrued interest before full payments begin 8,175,000 Funds required to complete Dam No. 3 25, 000, 000 Interest during construction, one-half of three yeai's, at 5 per cent 1, 875, 000 Interest for first three years subsequent $3, 750, 000 Less three payments of $160,000 by Mr. Ford 480, 000 Net deficiency 3, 270, 000 Total accrued interest before full payments begin 5, 145, 000 Loss to Government during above periods 13, 320, 000 Is this not true? Mr. Mayo. We can not reconcile those figures. We will, however, make up our figures as we have figured it, for the record. Government balance sheet of Muscle Shoals during construction and for first »ix year under Ford proposal. Assume: Dam No. 2 completed in two years, or one year after first 100,000 horsepov er is installed: Dam No. 3 comnleted in three vears, or one vear after first 80,000 horsepower is installed; cost of Dam No. 2, $23,230,000; cost of Dam No. 3, $19,000,000. Years from start of work. Years of Mr. Ford's lease of Dam No. 2. Ford payments. Government interest. Progress of work. Account Dam No. 2. Account Dam No. 3. .\ccount Dam No. 2. .Vccount Dam No. 3. Remarks. Work starts on both dams. • 100,000 horsepower ready at Dam No. 2. Dam No. 2 completed; 80,000 horsepower ready at Dam No. 3. Dam No. 3 completed . 1 2 3 4 5 6 7 1 2 3 4 5 6 $200,000 200,000 200,000 200,000 200,(00 200,000 $160,000 160,000 160,000 760,000 760,000 1 $464,600 1929,200 929,200 929,200 929,200 929,200 929,200 1 $240,000 1480,000 1760,000 760,000 760,000 760,000 760,000 Government does not pay interest in advance. Lease of Dam No. 2 begins. Lease of Dam No. 3 begins. Total 1,200,000 2,000,000 6,039,800 4,520,000 Grand total 3,200,000 10,559,800 , Difference 7.350.800 Deficit in interest payments. 1 Interest during construction. Note. — This is $5,960,200 less deficiency in interest during this preliminary period than is stated by the Chief of Engineers in his report of Jan. 30, 1922. His estimate of this deficiency is $13,320,000. This defi- ciency in interest is much more than offset by Mr. Ford's single item of maintenance of nitrate plant No.2 on which the Ordnance Department figures 5 per cent annual depreciation amounting in the 6 years to $14,100,000 on a plant valuation of only $47,000,000. MUSCLE SHOALS PROPOSITIONS. 249 Mr. MoRix. Considering now the money required to be invested by the Gov- ernment for flowage rights, rights of way, land for railway and terminal con- nections — estimated at $2,000,000 by the Army engineers— is it your judgment that this sum is adequate? May it not, in fact, run several times that sum? Mr. Mayo. No. Mr. MoRiN. Mr. Ford's offer contemplates a free and unencumbered title to all the property to be transferred to him, so that he contemplates paying no interest on any sums required to acquire said clear title, whether by costly condemnation proceedings or otherwise; is this correctly stated? Mr. Mayo. No, sir; the Government has to do that anyway to clear its own title. Mr. MoRiN. This clearing up of title may require several million dollars, may it not? Mr. Mayo. I should think not. Mr. MoRiN. Assuming that this item is, say $5,000,000, it appears that the following sums will be necessary to carry out the Ford offer : For Dams N'os. 2 and 3, $50,000,000 ; for flowage rights, rights of way, and terminals. .$2,000,000; for clearing title, $5,000,000; for interest charges lost. $13.320.CK)0 : a total of $70,320,000. If these totals are correct, and they seem to me to be, the minimum sum required we find as capital required an amount aggregating $70,320,000, on only $50,000,000 of which Mr. Ford pays interest. This leaves a sum exceeding $20,000,000 on which the United States must con- tinue to pay interest, if at 5 per cent, as calculated by the Chief of Engineer.s, of over $1,000,000 annually for the term of the lease; is that correct? Mr. Mayo. No. sir. The questiim is too long to give a definite answer to, but all the figures are greatly in excess of what they should be. Mr. MoRix. These figures are susceptible to your analysis as an engineer and it would be of advantage to the record if you will point out any discrepancies. Mr. Mayo. All right, sir. Mr. MoRiN. And will you put them in the record? Mr. Mayo. Yes, sir. Analysis of Mr. Morin's statement of noninterest-hearing charges on Dam No. 2. Item. Mr. Morin's estimate. Mr. Ford's engineers' estimate. Remarks. C!ost of completing Dam No. 2 and building Dam No. 3. Flowage rights, rights of way, and terminals. For clearing title $50,000,000 2,000,000 5,000,000 13,320,000 $42,230,000 1,650,000 500,000 7,359,800 Discrepancy largely accounted for by economies possible with privatie rather than Government construc- tion. Unit prices lower account decreased market prices. No disposition to hold reservoir lands for high prices is evident locally. Nearly all rights of way and term- inals nave been acquired. There would be 1,067 acres for a 100 Interest charges lost foot right of way 88 miles long; at $100 per acre (for rough hilly ground) it would cost $106,700. This is the principal part of this item of cost. See detailed statement above. Total 70,320,000 20,320,000 812,800 2,500,000 51,739,800 9,509,800 380,392 2,500,000 Amount on which Mr. Ford does not pay interest. Interest on same at 4 per cent Against which there is an offset because of the fact that Mr. Ford carries the depreciation on nitrate plant No. 2 amounting annually to— No analysis of the Ford offer is fair or complete which omits his obligations regarding the nitrate plant. The single item of depreciation on this > plant, taken at a normal peace-time value of $50,000,000. amounts to $2,500,000 annually and will much more than offset Mr. Morin's items taken at his own figures. Mr. MoRiN. What is your estimate of the total new money that must be spent by the Government to carry out the Ford offer? Mr. Mayo. I am of the opinion it will not exceed $45,000,000. Mr. MoRiN. Mr. Ford's proposal covers a $35,000 yearly payment for mainte- nance of Dam No. 2 and a $20,000 yearly payment for maintenance of Dam No. 3. Is it your opinion as an engineer that these sums are adequate in view of maintaining intact and In first-class condition masonry structures, gates, and hydraulic equipment costing some $30,000,000 or more? Mr. Mayo. I think so. i I I J I * 250 MUSCLE SHOALS PROPOSITIGNS. Mr. MoRiN. These amounts are less than two-tenths of 1 per cent of such cost. Is it not customary of work of such character and hazard to figure bare maintenance cost at a much higher figure, say 1 per cent or more? Mr. Mayo. I think not. The amount does not include the upkeep on the power plant which is taken care of by Mr. Ford. Mr. MoRiN. Would even 1 iter cent be a safe figure when the risk of flood damage and responsibility for life and property is considered, this responsibility being entirely carried by the Government? Mr. Mayo. We have figured the amount we could afford to pay for maintenance based on what we figure we can pay for the cost of the power, and that allows us to allot that much for the maintenance. Mr. MoRiN. This responsibility for and maintenance of dams of this magni- tude and character on a stream of the type of the Tennessee where severe flood conditions frequently occur, is a real hazard which engineering skill in design and construction can not completely remove, is it not? Mr. Mayo. Yes, sir. Mr. MoEiN. There have been, to your knowledge, many expensive and disastrous failures of such structures, have there not? Mr. Mayo. Yes, sir. Mr. MoRiN. What if the dams should fail in whole or in part, or foundations prove defective, would it be the task of the United States under this offer to rebuild the structure or remedy the defects? Mr. Mayo. Yes, sir. It would be? Yes, sir. And on this further new money would Mr. Ford pay interest? That has not been contemplated. Is it possible for these failures to occur? Almost anything is possible. Then it is possible. And that such failures might involve large sums of new money running into the millions? Mr. Mayo. It might. Mr. MoRiN. And under the Ford offer these risks are entirely borne by the United States? Mr. Mayo. Yes, sir. Mr. MoRiN. The fixation of atmospheric nitrogen is a new art, is it not? Mr. Mayo. Quite new, relatively so. Mr. MoBiN. What nitrogen fixing plants are there in operation in the United States? Mr. Mayo. The one at Syracuse, N. Y. Is that the only oneZ. I think so. What plants are there abroad that you know of? I will put that statement in the record. I have not a list of World capacity of air nitrogen plants. [Metric tons of nitrogen (2,204 pounds per ton).] Mr. Mr. MORIN. Mayo. Mr. MoEiN. Mr. Mayo. Mr. MoRiN. Mr. Mayo. Mr. MoBiN. Mr. MOBIN. Mr. Mayo. Mr. MORIN. Mr. Mayo. em all. Germany France Italy Scandinavia... Austria Switzeriand... Japan Canada United States. Total. Haber, Cyan- amid. 300,000 (») 300,000 93,000 40,000 12,000 28,000 22,000 7,500 12,000 12,000 40,000 266,500 Arc. 1,000 1,000 30,000 32,000 Total. 393,000 41,000 13,000 58,000 22,000 7,500 12,000 12,000 40,000 598,500 1 There should be added about 3,000 tons to cover the probaple output of the modified Haber process plant recently installed at Sj^acuse, N. Y. Nitrate plant No. 1 at Muscle Shoals was designed for this process, but being unworkable without extensive rebuilding, is omitted. American Fertilizer Handbook, 1920, p. 39. MUSCLE SHOALS PROPOSITIONS. 251 Mr. MoRTN. I wish you would. What are the several processes so far developed? CONVERSION OF ATMOSPHERIC NITROGEN.* The conversion of the nitrogen of the air into compounds available for use may be accomplished in several ways, the principal ones of which are : 1. The direct oxidation of nitrogen and its conversion into nitric acid. 2. The combination of nitrogen with metals to form nitrides, which may be treated to furnish ammonia. 3. The formation of cyanides or cyanogen compounds by combination of nitro- gen with metals and carbon. 4. The formation of a compound with carbide, producing cyanamid. 5. The direct combination of nitrogen and hydrogen from its elements for the formation of ammonia. THE ARC PROCESS. The direct oxidation of nitrogen in the electric arc to form nitric acid was the first of tlia processes to be developed abroad. Many forms of arcs, through which air passes or is blown, have been proposed, but the principle involved is the same, the union of oxygen and nitrogen at the temperature of the arc. The only commercially successful plant is located in Norway, where electric power is cheap. The method itself is very inefficient as regards production in relation to power consumed. The low cost of electric power in Norway makes the proc- ess workable there. It is generally conceded that this process would not be adapted, in it§ present state of development, for use in the United States. Apparently there is not a sufficiently large amount of cheap hydroelectric power available in America within reach of points where nitric acid would be used. The cost of installing the process is high, and the product, nitric acid, is not economically transport- able. Nitric acid is not readily converted into materials that are used for fer- tilizers. Calcium nitrate and ammonium nitrate formed by neutralizing nitric acid with lime or ammonia are of some value as fertlizer material, but can not be used readily in mixed fertilizers demanded by American farmers. In spite of the simplicity of the arc process, and the supply of raw material without cost, the disadvantages are seemingly greater than the advantages for this country. NITRIDE PROCESS. The nitride process consists of the combination of nitrogen with various ma- terials under the influence of high heat, and the nitrides produced may be treated subsequently to furnish ammonia. The best developed of the nitride process is that of making aluminum nitride from alumina, coke, and nitrogen heated to a temperature of about 1,800 " C. in an electric furnace. The process has not been developed sufficiently to show what the ultimate power require- ments would be, although they are known to be rather high. At present, how- ever, it is not used on a commercial scale for the production of ammonia. CYANIDiJi^PROCESS. The cyanide process is one depending upon the formation of cyanides by the combination of nitrogen with metals and carbon. There is no difficulty in the chemical reaction involved. Sodium carbonate, ground coke, or carbon in some other form is brought into contact with finely divided iron and heated to redness, and nitrogen or air passed through the mass. The nitrogen is fixed as sodium cyanide. The reactions take place readily, but mechanical difficulties of carrying them out have not as yet been entirely solved. The sodium cyanide formed may be readily converted into ammonia, and the sodium carbonate recovered for further use. The product obtained here, as in the case of the nitride process, is ammonia. This process, however, at present is not a com- mercial success. * An extract from a _paper entitled "Atmospheric nitrogen for fertilizers," bv R. O. E. Davis, scientist, U. S. Bureau of Soils. 252 MUSCLE SHOALS PROPOSITIONS. CYANAMID PROCESS. MUSCLE SHOALS PROPOSITIONS. 253 J^^ ■Mi . The cyanamid process consists of the union of nitrogen with carbide at the temperature of the electric furnace. Raw materials required in the process are lime, anthracite coal, or coke for producing calcium carbide and nitrogen ob- tained from liquid air. The process consists of the production of the carbide in a large furnace by heating lime and coke or anthracite coal. The second step involves the fine grinding of the calcium carbide without contact with air and heating the ground mass to a red heat, when nitrogen is introduced and is absorbed by the carbide to form cyanamid. The cyanamid may be treated with steam for the production of ammonia. This is necessary where nitric acid or nitrates are to be formed, but cyanamid itself has a value as a fertilizer material. This process has been worked commercially in Germany, producing about one-third of the German requirements during the recent war. It has also been worked successfuly in other countries, and the only commercial plant for fixation of nitrogen on the American Continent used this process. This plant at Niagara Falls has been in operation for a number of years, pro- ducing cyanamid daily for agricultural purposes. The advantge of this process is that it gives a product which is salable as a fertilizer material or convertible into materials which may be used for fertilizers. The disadvantages are that it involves a high consumption of power and the cost of the finished product is comparatively high.^ In addition the product is very disagreeable to handle because of the irritation to the mucous membranes when the dust is breathed by animals or men working with it. HAREB PBOCESS. The Haber process is based upon the direct combination of nitrogen and hydrogen in the elemental form to produce ammonia. The process has to be carried out at a pressure of 100 to 200 atmospheres and a comparatively high temperature, about 550** Centigrade. The process was first developed in Ger- many, and during the recent war it contributed at least one-third of the fixed nitrogen required by that country. In no other country has this process been worked commercially,' but a great deal of work has been done toward develop- ing it. It has a number of advantages. The power required is small, the product — liquid ammonia — is readily available for oxidation, and the nitric jicid obtained is convertible into fertilizer materials The raw materials — air, water, and coal — are available in large quantities. The disadvantages of the method involve the use of highly technical labor and the mechanical difficulties of carrying out the operations at pressures of 100 or more atmospheres. Mr. Mayo. I will put that in the record also. Mr. MoRiN. What study have you made of processes for such fixation as applicable to nitrate plant No. 2? Mr. Mayo. We have made quite a number of studies. Mr. MoRiN. Have they been satisfactory? Mr. Mayo. Quite so. Mr. MoRiN. Tklany people and scientists who are working on this very problem are of the opinion that Plant No. 2 can not produce nitrogenous compounds at a price at which they can compete with similar compounds from other sources or made by other processes; what is your opinion? Mr. Mayo. I will refer to two statements made by eminent authorities, one by Dr. N. Caro and one by Mr. Frank Washburn, president of the American Cyanamid Co. Dr. Caro is the originator of this cyanamid process. The Chairman. He is in Germany, is he not? Mr. Mayo. Yes, sir. We will submit these two authorities. Dr. Caro and Mr. Washburn. (The statements referred to follow:) " Dr. N. Caro. How far the German nitrogen industry will be able to cope with foreign competition, in view of high wages and high costs of combustibles, can not at present be predicted. Since the cost of coal, which in the future is sure to be one of the most important items of expense, can hardly decrease, the 1 The cost depends to a large extent upon the cost of power. (W. B. M.) * Since the war a small plant using a modification of the Haber process has been operated at Syracuse, N. Y. A large plant employing this process recently blew up at Oppau, Germany, with great loss of life. (W. B. M.) lime-nitrogen industry, on account of its unusually small consumption of coke, will be in a very favorable situation. This will be particularly true when the construction market sinks to some halfway normal level, so that the capital cost of water-power developments will be more reasonable. * * * "Far more dangerous (than the competition of Chilean nitrate) appears to be the possibility of competition with artificially fixed nitrogenous fertilizers produced in foreign countries. "The largest of these (foreign lime nitrogen) plants is located in the United States, in Alabama. Its situation is most excellent. " It is connected with the ocean by means of the Tennessee Ptiver, which has been made navigable. It is situated at a source of almost constant water power, amounting to 400,000 horsepower, and is right in the midst of a locality where all the raw materials of the lime-nitrogen (cyanamid) industrv are present in the highest purity and at the very lowest prices. ♦ ♦ * "Near by are the inexhaustible deposits of high per cent phosphate rock. The possibility therefore exists of * * * producing cheaply * ♦ * am- monium phosphate containing roughly 45 per cent of water-soluble phosphoric acid and 20 per cent nitrogen." " Mr. Washburn. My anticipation is that the establishment of the nitrogen industry, as it can be estabUshed with what I believe and what I believe would appeal to those who study the subject is the proper and legitimate Government cooperation, will give the farmer his fertilizer for one-half of what he would otherwise pay for it." The Chairman. Where can Dr. Caro be reached at this time? Mr. Mayo. I could not say. I expect in Germany. The Chairman. He was identified, I recall, with a German company. Mr. Mayo. Yes, sir. The Chairman. I think he was at the head of those companies. Mr. Mayo. I believe so. The Chairman. We would have to go over to Germany to get him. Mr. MoRAN. From your study and knowledge, is Mr.* Ftrd able to so operate plant No. 2 for the agreed period of 100 years that his produce— ammonium nitrate or other fertilizer compounds— can successfully compete with these other sources? Mr. Mayo. I am of the opinion he can. Mr. MoRiN. Ammonium nitrate is, as I understand it, only one of the ingredi- ents necessary to the making of a complete fertilizer such as agriculture can use; is this understanding correct? Mr. Mayo. Yes, sir. Mr. Morin. In the form produced at nitrate plant No. 2 it is not fertilizer, but is a fertilizer compound ; is not that true? Mr. Mayo. He intends to produce a complete fertilizer. He intends to produce a complete fertilizer? Yes, sir. Would it be sold in this form to the farmer? Yes, sir. Could the farmer use it in this form without the addition of the other essential ingredients? Mr. Mayo. He will be able to use the completed product as it will be furnished fiom that plant. Mr. MoRiN. As it will be furnished to him? Ur. Mayo. Yes, sir. Mr. Morin. It will not be necessary, then, for the farmer to mix it with the other ingredients in order to market this product through the fertilizer mixers now existing? Mr. Mayo. Not further than perhaps mixing it with dry earth or gand or some- thing he has right at hand. Mr. Morin. If Mr. Ford plans the making of a complete fertilizer, does Mr. 1^ ord's 8 per cent profit mean that the farmer will get his complete fertilizer at 8 per cent above cost? Mr. Mayo. Yes, sir. Mr. Morin. And his 8 per cent is not limited to the ingredients of ammonium nitrate? Mr. :Mayo. It is limited to everything that goes into the cost of production. Mr. Morin. Complete. Mr. Mayo. Yes, sir. Mr. Morin. Mr. Mayo. Mr. Morin. Mr. Mayo. Mr. Morin. 254 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 255 i Mr. MoRix. If found by Mr. Ford after the starting of operations that he can not produce ammonium nitrate in competition with the wholesale marlcet price of the same material from other sources, do you understand that his agreement binds him to continue the operation of the plant for nitrogen compounds at a loss? Mr. Mayo. I do not think so, but of course he would have an opportunity to change the process. He would exhaust every effort with every process before he would quit. Mr. MoRiN. But it would not bind him to continue? Mr. Mayo. I hardly think so. However, I would consider he was bound to keep the plant there in readiness. Mr. MoRiN. He has stated to Secretary Weeks that he would not run the plant at a loss. Mr. Mayo. I think he meant he could not. Mr. Greene. I do not know whether the last question brought out just exactly what I want to know or not. If this contract holds for 100 years, of course, it is reasonable to expect that constant experimentation and research work will develop, very likely, new discoveries in chemistry and chemical combinations used in fertilizer. Mr. Mayo. Yes, sir. Mr. Greene. And they will bring with them, of course, new processes, me- chanical and otherwise, so that there is always the possibility that the present idea of fixation of nitrates will be superseded. Mr. Mayo. Yes, sir. MV. Greene. And that this particular plant with its present equipment may be a side issue within a quarter of a century. Mr. Mayo. Yes, sir. Mr. Greene. Does the contract proposed by Mr. Ford contemplate his follow- ing all these new experimentations and developments in the chemistry of fer- tilizers, so that he may continuously keep abreast of what is being done in the world? Mr. Mayo. Yes, sir. Mr. Greenr And he obligates himself to do that? Mr. Mayo. I would say so. Mr. Greene. If the method and practice presently followed or if other proc- esses or agencies or conditions or influences intervene to sidetrack the present methods or some later method, he will still develop fertilizer for the farmers there. Mr. Mayo. That is his intention. Mr. Greene. If it is possible that the fixation of nitrates — ^because I suppose the chemistry of the soil will not change no matter what man does about his agencies — if the development of the fixation of nitrates goes to such a point that it becomes a more or less everyday neighborhood affair, commercially, with no longer any particular incentive for the Government or a great industry to concentrate on it, so that the present objective of this proposition was lost, would Mr. Ford still continue to manufacture fertilizers there? Mr. Mayo. Not unless it could be done profitably. I think after he had evi- denced he had exhausted every effort known to the state of the art to produce it at a profit, if it was not in the woods, so to speak, I do not think he would be obligated to continue. Mr. Greene. Somebody outside may be producing it at a profit. Mr. Mayo. If they could there is every reason to believe that he could. Mr. Greene. Exactly ; but the question was raised several times as to whether those conditions not within his control and so on, which are his outlets from the fulfillment of this nitrate part of the contract, would include such a thing as outside copipetition ; in other words, if he should be bested by outside com- petition and in a state where he could not produce as economically as other people in the business could, would that be his legitimate and altogether valid reason for discontinuing? Mr. Mayo. The only valid reason for discontinuing would be that he had proved by every possible effort that it was an absolute impossibility to make the product there with a profit. Mr. Greene. That would have to be both a physical and a moral proposition. Mr. Mayo. Yes, sir. Mr. Greene. And yet, of course, the inducement in this contract, as it has been put by some of our brethren, is that Mr. Ford will produce fertilizer there so cheaply that the outside world will not raise the nrici* nf it n» fi.o* ««« ^}'l^Vl '?;« J?.*"^^* ^^"«' ""^^^ inducement IslhSl for^hf Goveiiment t^^^^^ iirm w^^^ f the people. Mr. Ford is left with no obligatton to ^rinufthe fertmzer part of the contract and has got a very generous water ^wer on hand Mr. Mayo. He is paying the lease price for it. It is reasonable to suoDose that after starting in the production of fertiliier for any le^ of tUne h^^onfd not discontinue unless he had exhausted every effort my o^JS^at^Ia "^""""^ *"* """^ '°^°* ^"^ P'*'*''^ ^"^ anticipated thoughts on Mr. Mato. I understand. Mr. Greene. I am Just trying to see how nearly our minds meet I «m -^ LT »?, """ ^'- ^"'^ *'" "« 8»^<*™«' throughout as a reasonaWe m«n and that all we can expect of him Is to do as reasonable men woTld do This Is not necessarily an antagonistic question, but the question does come?after al ' he farmertTha?e%ZirJi't,''' ^ ""'='' ""^ »»*>" "«• *« th^cemlnty thai in"tM S "thlTf^ »tr^f ^ *r abandoning such a'comrtr.v^interes't in ufe ttside'caS'bring aat' ab'our'''* ^'^' ''^'""^' '"" '""^^ " ""^ •*»»"' Mr Mayo. I do not see how there Is any chance for him to continue to carrv msTne^Um!^" '"' "' *' """""=' """ <"«">''"°»e- He is enterlSg'Into Mr. Greene. I have no doubt of it. Mr. Mayo. And he will not quit, because there is more or less of hardshin in rying to meet competition. The only reason for him to discontinue w^^^^^^ his actual inability to manufacture at a profit s^outmue wouia De Mr Greene. Yes; and that is the very phase, you know that nmvAa tu^ «rumblingblock as to what would be a legitimate e^xcusf foT' h'f ina^l tv hi physical conditions attending the plant, or failure to bring those physical 'co^^^ <]itions up to a point where they met outside competition. Physical con Mr. Mayo. Every authority that knows anything about that particular hii«l aess agrees and are a unit in the opinion that that plant is as fU^rably situa"^ as any p ant in the world to make fertilizers cheaply. Now, if that ^s a fart U 'Z'^l?Zi'lZX'^le''^ '^^^ ^'^ '"'^'^"'^^^ POssWlir of^iSaS^g Mr. Mayo. Yes, sir. Mr GreexNe. Now, supposing, as I said, we develop new processes it Is pt- pected he will follow those developments too, and insttt^te hfh^? p lant the changes that are necessary in order to follow them' ^ ^ Mr. Mayo. Yes, sir. Mr. Greene One more question, if you please: This 8 per cent profit which Mr Ford limits himself to in the terms of his proposed contract is sudik)^ to Ah.^ AffYo' r^' ^" '^ ^'X'' ""? '""'^ ^^^'^ '^ the indiXaffarme,^'^^ '^ i« oVVk J • It/^s not matter, it seems to me, where you take it- whether it ios't may be'' " '^''^'^ "' '" '^" '^''""'' " *« « ^' cent on Ulte'lrthe Mr. Greene Yes; and I only asked that because I thought, perhaps that was not businesslike form, and it was brought out here onc^ or twlT'l hPill\p through previous witnesses, that possiblfMr. Ford might^-e^p wTthhi the /e?te; 1. .• rnt'Tould th«?"b.''' Uhf T.^*^/^^^ ""'l P^«^"^^ '^ '^^^ Sreman at 8 M^ mIC T IhinJ ^ /''*S " P"^ ^^^"^^ **^ *^^ «P'"t «^ t^e contract? consuiner^as pos^ble "'^""^" '' '^ ^^"""^ '' ^« ^^^^ ^*^^'">' *« ^he maft'^r^y^' ^i^' ^^^^""^ following Mr. Greene's questions on the 8 per cent V, ;f^ ^^""i^ {J^"* ^'^"^ ""^ ^^^ turnover or 8 per ctnt on the monev invSted^ •ost plus sc'heme!'''" """^ ^^ *"" "'^ turnover, because that would really be a Mr' ntu?" ^" *^^.*t""'X* P^'o^u^'tion eost is the way we put it. thinl* fi 'n*'''\ ^''*- H'^y'"' speaking of contract No. 2, it is apparent I voii«.nf,ii "1"^^ «"/ radical changes in that contract. However I nresume ^^^>n viould not object to making the contract more specific if we thought U was 92900-22 17 256 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 267 i * ( "SrSf' advisable in order to protect the interests of the Government and the people; anything that would clear it up would be acceptable, would it not? Mr. Mayo. I imagine, if we have not clearly stated our intent, the wording may be changed to clarify it. Mr. Hull. Any reasonable changes in order to make it clearer. Mr. Mayo. Yes. „ , , Mr. Hull. There are some things hi there which I think naturally would sug- gest themselves to anyone. I do not care to go into all the details because it would take quite a good deal of time. Mr Mayo. Mr. Ford has indicated he did not want to make any further changes, but if there is some change in the wording to clarify the meaning, he would accept it. , , .. ^i, • ^ Mr Hull. You estimate about $45,000,000 would be about the approximate sum the Government would have to invest in the proposition to make it a going concern for Mr. Ford. In that do you estimate the increased cost of the flow- age rights there. I imagine, although I may be wrong, that there will be in- creased costs of the flowage rights the minute you begin buying them up. Have you thought of that? Mr. Mayo. I did not quite get you. . v.. x, Mr Hull. Have vou thought of the increased cost of the flowage rights when vou go to buying them up. The minute the Government goes to buying any- thing of that kind up we found through our experience during the war tliat immediately the real estate we want increases in value very materially, without anv reason at all except that it is the Government that is buying it. Mr. Mayo. They did not find that so when they bought the flowage rights for Dam No. 2, did they? . , ^ ^ • ., Mr. Hull. If they did not, it was about the only case I know of during the war Mr. Mayo. My understanding is those lands were bought at a figure approxi- mating tbe estimates. Mr. Huu^ They were. _. ^^ ^ ^ -kt n Note.— The estimated cost of the lands and flowage rights at Dam No. 2 was $350,000 In 1916. (H. Doc. 1262, 64th Cong., 1st sess., p. 35.) The actual co^ of acqtiirii« 6,612.4 acres out of 7,212.4 acres has been $383,490 (averaging $58 per aci«) and the War Department's estimate of the cost of acquiring the remaining 60a acres is $40,000, making a total amount for this item at Dam >>. 2 of $423,490. (From record of Chief of Engineers: U. S. Engineer Office, Florence, Ala., statement of July 31, 1921.) ^ ,^ . , ^ ..,,,„ h,p Mr. Mayo. Yes. I am led to believe we can buy those rights within the estimate we have suggested. Mr. Hull. You know who the owners are? Mr. Mayo. Many of them ; yes, sir. ^ . , , k *t ,.»hiio Mr Hull Of course, there is a great deal of emphasis placed by the public and the press and some of the committee on the fertilizer proposition, ana that is very valuable, but to my own mind this contract is far more valuable to the Government in the fact that if we accept it we will always have an indepen^tent source of ammonium nitrate. Mr. Mayo. Yes, sir. ' ^ ^ ^^ ^ „«^f Mr. Hxjll. Without the changing of the plant or anything of that sorr, that supply would always be protected, would it not? Mr. Mayo. Yes, sir. Mr. Hull. There can be no doubt about that. Mr. Mayo. No, sir. , , ^ ^, i«^ thP Mr Hull. You would not have the right, although, apparently, """•f^^ tne * contract vou have bought this property— although I might say that I oe^jfj;^ you have' simply bought the land of it because you would not have the aDsu- lute right of ownership there because you could not change that plant anu destroy what we now have In plant No. 2, and that Is, an Independent source for the production of ammonium nitrate. Mr. Mayo. Not unless we replaced it with something equally as goort "i Mr.* Hull. I do not know that I want to correct an expert and PerhaP« mttv be wrong, and If I am I was misinformed, but you said ammonium mirai ^s the Ingredient that went Into fertilizer; is it not ammonium sulphate. Mr. Mayo. Ammonium nitrate can be used. It Is not usually used m n" form. ,,^ ^ >Ir. Hull. It is not a success as a fertilizer? Mr Mayo. I would not say it could not be, but it is not now. Mr. Hull. It may be that you may find sonje way of doing that. As a mat- ter of fact, right on that point, this plant produces to-day ammonium nitrate. Mr. Mayo. Yes, sir. Mr. Hull. To produce ammonium sulphate, which you will have to produce, I think, if I am correctly informed, you would have to spend about one mil- lion, or two, or three million dollars; is not that true? Mr. Mayo. We might, If we went into ammonium sulphate. Mr. Hull. Of course, that money you spend yourself? Mr. Mayo. Yes, sir. Mr Hull. That is a part of your proposition, and you would keep the plant, at all times, so that in case we needed it at any time for war purposes we could convert it right back into an ammonium nitrate plant. Mr. Mayo. Yes, sir; or perhaps if the need of the Government changed it might be changed to make some substitute. Mr. Hull. We understand that, and that would be all right. Mr. Mayo. To all intents and purposes it would be kept ready for them as the contract states. Mr. Hull. Of course, you will turn over your personnel and all that. Mr. Mayo. Certainly. .u?^^-^^^'^' ^^^^ ^^^- ^^<^Kenzie. I am a little in doubt as to the purchase of this Gorgas plant, and I can not see just exactly why that is necessary, and 1 imagine it is going to be a very hard nut for the committee to crack As I understand it, you say you want it to duplicate the power by steam. That power is practically duplicated in plant No. 2 and the Gorgas plant is some 70 or 80 miles away, and would not be necessary to the proposition, so far as I can see. Mr. Mayo. It is more beneficial, as we look at it, than the one located at plant No. 2. Mr. Hull. It is? Mr. Mayo. Because it is at the coal mines, really, and it does not necessi- tate transportation of the coal. Mr Hull. There is a new element then. It Is so near the coal mines that therefore you think it would be much cheaper? Mr. Mayo. Yes, sir; you can make your power cheaper and it increases our primary power that much. Mr. Hull. In your 8 per cent profit on wtat you sell the farmer— and you say you are going to sell it direct to the farmer and not to any middleman or corporation to profiteer on the farmer; is not that true? Mr Mayo. The hope is to hand it to the farm organizations and let them distribute It themselves. Mr. Hull. Now, how about the salaries of these men engaged In that work* that would have to be figured In? * Mr. Mayo. Certainly. Mr. Hull. Is there any protection against excessive salaries? Mr. Mayo. Nothing but good faith, I guess. Mr. Hull. Would it not be a pretty good plan to suggest some salary list there ? Mr. Mayo. I think not. Mr. Hull. You could put in men at $50,000 and the farmers would have to pay those salaries. Mr. Mayo. That is very true, but I do not think we would stand very well with the farmers if we started that sort of tactics. Mr. Hull. I understand that, Mr. Mayo, and I would not have the slightest doubt if this contract was to be carried out by the present personnel of the i^ord company; but that is not the proposition. You realize we are making a contract for 100 years, and at the least it will be three years before you start and probably from 15 to 18 years, as you suggest, and in that time many things may change, and It might be over in the hands of a corporation, and our dealings With corporations are not such as to be as satisfactory sometimes as when we are dealing with persons. Mr. Mayo. We hope to start within a year. Mr. Hull. Producing fertilizer? Mr. Mayo. Yes, sir. A^l' ?^^' ^ ^^ ^^^^^ *** ^^^^ ^^^^' I <1W not know you figured you could «o that. You would have to start, then, with your steam power. Mr. Mayo. Yes, sir. V i 258 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 250 Pil^ v^^ Mr. Hull. You hope to start right away with steam power mannfacturing the fertilizer and selling it to the farmer? |Lf|. \iayo Yes sir. Mr! Hull. What do you estimate the cost of ammonium sulphate from this plant would be at the present time under present conditions? Mr. Mayo. We have not attempted to find out what the cost would.be under present conditions. Mr. Hull. You have not? Mr. Mayo. No, sir ; we have several processes that we have been at work on for the last six months, and we still do not know which one we will finally adopt. Mr. Hull. Under this contract you also take plant No. 1. Mr. Mayo. Yes, sir. Mr. Hull. What do you Intend to do with that? Mr. Mayo. Use It for manufacturing purposes. Mr. Hull. For manufacturing fertilizer? Mr. Mayo. No, sir. Mr. Hull. For manufacturing nitrates? Mr. Mayo. No, sir ; manufacturing parts for our automobile business. Mr. Hull. You intend to manufacture parts for the automobile over there? Mr. Mayo. Yes, sir; raw materials. Mr. Hull. That would, of course, contemplate changing that plant entirely from a nitrate plant. Mr. Mayo. Yes, sir. Mr. Hull. You do not contemplate, however, changing No. 2 In that way. I^Ir Mayo. No sir. Mr! Hull. You have not any doubt but what you can manufacture a cheap fertilizer at plant No. 2 at the present time? Mr. Mayo. We have no doubt at all ; no, sir. Mr. Hull. How Is the Government to be protected against destruction by fire or by an explosion of plant No. 2? You would expect to insure against that? Mr. Mayo. Yes, sir. Mr. Hull. Who would have to pay for that Insurance? Mr. Mayo. Mr. Ford would. . Mr. Hull. That would be charged against the operation and against the project? Mr. Mayo. Yes, sir. ,, „ , , , ..i Mr. James. Mr. Mayo, the last proposition of Mr. Ford was drawn In tiie ofltee of the Judge Advocate General of the War Department, was It not? Mr. Mayo. Yes, sir. Mr. James. Were you present? Mr. Mayo. Yes, sir. ^ ^ ^^ ,.i. «... Mr James. When the Judge Advocate General was before the committee the other day the matter concerning the cost of the flowage rights came up, and he stated that Mr. Foril believed the Government could acquire those cheai^er than anybody else, and there was not any doubt in his mind but that Mr. Ford intended to reimburse the Government for those expenditures, and that when jou appeared before the committee you would agree with his view concerning that matter. What have you to say about that? , , . ,, r. ^ * * if.. Mr. Mayo. I differ from his opinion: I do not think Mr. Ford Intends to liave that charged up against the project at all. . , .,, ,^ u^^ Mr James. It makes quite a difference to the Government whether It has to pav for them or whether Mr. Ford Is going to pay for them. Mr! Mayo. I have stated before that Mr. Ford thought that the cost of those flowage rights should be charged up to navigation. Mr. James. What plan has Mr. Ford for giving the fertilizer to the farmer? Mr Mayo. No definite plan has been worked out. Mr. James. You think he Intends to work It out through some agricultural .society ? Mr. Mayo. That Is the intention ; yes, sir. „ . .». . .n« Mr. James. If that plan falls through, and he has to sell to others to dis- tribute and thev In turn distribute to the retailers, would that 8 per cent prom Include all the 'different turnovers, or would Mr. Ford's profit be 8 per cent, and the distributors and the retailers get a percentage? .^„„„n.pr be Mr. MAYO. If It passes out of his hands before It reaches the ^i .veui on a This is more than twice the amount which the Aluminum Co. of America IS said to pay for primary power at Niagara Falls. It is nearly twice tlm anumnt which the American Cyanamid Co. pays, as testified ?o byMi' Wast burn , It is about <5 per cent of the minimum price at which power is retailed ID the city of Chattanooga. For example, the Southern Ferro Alloys Co uavs a minimum of 4 mills per kilowatt hour, or about $26 per horsepower year for the power they use. . "i lui Mr. B^ord pays for the power whether he uses it or not. No one has evt^r attained a KX) per cent load factor in the practical operation of any industrial If Mr. Ford does as well as the consumers of the power from the Keokuk Dam, Ihi will liave an average load factor of about 54 per cent,* and hi» abso- lute primary power on the above basis will cost him about 5.3 mills per kilo- watt hour, or $34.61 per horsepower year for the primary power which he is able to use. As for the secondary power, the southeastern power companies have declared that It has no commemal value. Be that as it may in their cases the fact remains that the only reason that Mr. Ford has been able to make his offer is because he can use much of the secondary power and because he can find in the upi)er tributaries of the Tennessee Kiver and elsewhere the storaj^e that enables him at large expense to convert a large part of this secondary power into primary power. Mr. Miller. I want to learn all I can about this, Mr. Mavo. It strikes me this way : Is there anything in the taxation laws of Alabama bv which a leasehold interest is taxed at a less rate than a title in fee? Mr. Mayo. I do not know about that. Mr. Miller. Have you investigated the laws of Alabama in that regard' Mr. Mayo. No. Mr. Miller. I am frank to say I do not know what the law is on that, and I have a letter on the way to the attorney general of Alabama to get a state- ment of the taxation laws that will be applied to Mr. Ford's enterprise. It occurs to me that that will be quite an item. How would this proposition strike you? Suppose the United States Government would allow Mr. Henry Fords company to have nitrate plant No. 2 as a free occupying tenant during the lifetime of the lease for 100 years, not pay a cent for it, the onlv limita- tion upon it being that he will keep it in readiness for the production of am- monium nitrate as a matter of nitrate preparedness, the fee to remain in the Government, and he to obligate himself to occupy nitrate plant No. 2 in the production of fertilizer. Do you suppose that proposition would be entertained by Mr. Ford? Mr. Mayo. No, sir ; that would prevent him from changing nitrate plant No. 2. Mr. MuxER. It would prevent him from changing to a different process? Mr. Mayo. Yes. Mr. MiLijcR. Suppose there should be a provision in the lease for the manu- facture of ammonium nitrate by the cyanamid process at plant No. 2, or anv process of manufacture they discover to be less expensive. Mr. Mayo. He might want to make large investments of his own monev in additions to the present plant. Mr. Miller. We would provide for that in the contract. He could invest whatever money he pleased. Mr. Mayo. He would not want to invest it on the Government's property. Mr. Miller. What I am getting after is the maintenance of nitrate plant No. 2, in readiness to instantly meet a war necessity in connection with ammonium nitrate. MUSCLE SHOALS PROPOSITIONS. 267 *.,'J*''i^?*S'?«P*y*.®°'^"*"y * J"*^^^^** $1,680,000 (on a cost of $40,000,000) ; retiremeut fund, $46,746 ; maintenance, $55,000 ; total, $1,781,746. « Hearings before House Committee on Agriculture, 64th Cong., 1st sees., on Agricul- tural appropriation bill, Feb. 9, 1916, p. 28. * ' ' ^ * Supplement to Hearings before Subcommittee of House Committee on ADnroDriations ?^A'^,?''y ci^l appropriation bill for 1922, 66th Cong., 3d sess., Fpb. 14, 1921. Table Lready for delivery to-morrow from the two steam plants? Mr. Mayo. Yes, sir. Mr. Miller. With a title in fee. Then during all of this period when the •Government is paying 8 per cent Interest, and you are paying a flat rate of :$200,000, you have in addition to that the use of 100,000 horsepower from the rtwo steam plants? Mr. Mayo. Yes, sir. Mr. Miller. Now, taking the 2-year period of construction, the Government -will be out $1,600,000 of interest, and on the 6-year period that you pay a flat rate of interest, the Government is out $4,800,000 in interest, and you will pay the Government $1,200,000 in interest on the flat rate, and at the end of the 8-year period, the 6-year period of the flat payment of interest and the 2-year period of construction, the Government will have paid out $5,200,000 jnore than you have paid the Government. Is that right? Mr. Mayo. I do not think so. Mr. Miller. Now, just tell me wherein I am wrong. Mr. Mayo. As I say, there are a number of offsets. Mr. Miller. I am basing it on this interest period. We will get to those -offsets later. Mr. Mayo. The Government will pay out that much money in interest ; yes, sir. Mr. Miller. We will be out then in eight years when you commence to pay interest on the flat rate which will be eight years from now? Mr. Mayo. Six years. Mr. MnxER. On dam No. 2. Mr. Mayo. Six years, I think. Mr. Miller. Six years after the dam is completed? Mr. Mayo. Yes; but your money is not all invested until it is completed. Mr. Miller. Yes; it is invested in two years when the dams will be com- pleted ; every dollar that the Government has put in that dam will be Invested in two years, and after the Government has invested every dollar that goes into the dam, then there is a period of six years that you pay a flat rate of interest. Mr. Mayo. That is only partly correct. Mr. Miller. Then, up to the time you begin to pay interest at the flat rate 4)t 4 per cent on the investment, the Government will have paid out in inter- -est $5,200,000 more than you have paid the Government. Mr. Mayo. I think you are wrong. Mr. Miller. The Government excess on Dam No. 2 is $5,200,000. That is what the Government is out over and above what it has received from your -company. Now we will take Dam No. 3— the same cost, $20,000,000; the same rate of interest, 4 per cent; the same interest charge per year of $800,000— and take the two-year period of construction ; and by the way, if you do not commence Dam No. 3 until you ha\ e completed Dam No. 2, it will be a three-year period of construction, and $800,000 more; but. provided you can complete Dam No. 3 also within the tw^o-year period, we are out $1,600,000 interest on that at the rate of 4 per cent on the cost of the dam during that two-year period of construction. Now, at the end of two years the Government has got every dollar in that dam it will put in, and the dam is completed, capable of generat- ing 80,000 horsepower; that is the rate, is it not? Mr. Mayo. Yes. Mr. Miller. Now, you have a three-year flat rate of interest on Dam No. 3. instead of six years on Dam No. 2? - ,^^T - ^v/- *?» Mr. Mayo. Yes, sir. -•"■ V -'•> ^/ Mr. Miller. Take, then, the two-year period of construction and your three years of flat rate of interest, and again you do not pay anything until the end of the third year or you do not pay anything until one year after Dam No. 3 is completed; that is right, is it not? Mr. Mayo. Practically so. Mr. Miller. It is actually right, is it not? That is the wording of the con- tract. Mr. Mayo. The contract states one year from the date when 80,000 horse- power is installed. Mr. MnxER. That Is, one year after the dam is completed, because you say when 80,000 horsepower is generated the dam is completed, practically. Mr. Mayo. Practically. Mr. Miller. And you do not pay even the flat rate of interest until a year after that time. Mr. Mayo. The entire amount of money is not in the dam at that time. Mr. Miller. The dam ia completed. Mr. Mayo. But all the apparatus that goes into the power house is not. Mr. Miller. I am not talking about the apparatus. Mr. Mayo. Or the power house. Mr. Miller. But the dam is completed and, of course, during the period of construction of the dam you will be working on installing this machinery, will you not? Mr. Mayo. The power house and machinery is the most expensive portion of the dam. Mr. Miller. It is very expensive, I will admit that ; but I would not say the most expensive. Do you think it is the most expensive? Mr. Mayo. Exactly so, sir. Mr. Miller. Well, it is a very expensive proposition, but when the power house is completed you will have, your machinery ready to install, of course, on the ground. Mr. Mayo. We hope to. Mr. Miller. So there will be practically no interval, and will not take you very long — not over three months. Mr. Mayo. It may be a year or more. Mr. Miller. If it is. a year you have given yourself that year when you do not pay any interest at all. That is the basis on which you are financing it? Mr. Mayo. We have got to build up our load for it to get any return out of it. Mr. Miller. I am not talking about that. I am saying that within a year after your dam is completed and the Government has its investment there, you do not pay even the flat rate of interest, because your flat rate of interest does not commence until one year after the dam is capable of generating 80,000 horsepower. Mr. Mayo. That is not correct. The first interest payment is made one year after 80,000 horsepower of equipment is installed, but that payment covers the preceding and not the following year. We pay interest from the date the 80,000 horsepower is ready. Mr. Miller. Now, we will follow that through. Take the two-year period of construction, the same as we did before ; the Government is again out on Dam No. 3, $1,600,000. Now, we will take your three-year flat rate of interest, and you pay $160,000 on Dam No. 3. Mr. Mayo. Yes, sir ; $160,000 per year for three years. Mr. MnxER. The interest the Government will have to pay will be three years at the rate of $800,000 a year, or .$2,400,000, will it not? Mr. Mayo. You are making the same mistake as before. Mr. Miller. Plus the two years of the construction period, which will amount to just $4,000,000 exactly. No^, during that three years you have paid a flat rate of interest of $160,000 a year, or $480,000. That is right, is it not? That is your flat rate period on Dam No. 3? Mr. Mayo. Yes, sir ; that is our flat-rate period. Mr. Miller. Now, deducting your $480,000 from what the Government has paid in interest on its bonds there on the $20,000,000 investment leaves a deficit on Dam No. 3 of $3,520,000 that the Government has paid out in interest more than you have paid the Government under your contract. Mr. Mayo. I think you have your interest too high during the construction period. Mr. Miller. I have figured on 4 per cent. Mr. Mayo. I do not mean the percentage. Mr. Miller. You mean the period is too long? Mr. Mayo. Yes, sir 92900—22 ^18 272 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 273 w Mr. MiLLEB. You have said in article 6 of your contract tliat you reserve the option to build Dam No. 3 after you have completed Dam No. 2, and if it talces one year, taking the shortest i^riod, to build Dam No. 2 how can you build Dam No. 3 under a three-year period. You can not do it, can you? Mr. MxVYo. No, sir. Mr. Miller. Then the construction period on Dam No. 3 can in nowise be less than two years. Is not that right? Mr. Mayo. I agree to that. ' Mr. Miller. Then on Dam No. 3 the Government will have paid out $3,520,000 more than you have paid in. Mr. Mayo. I do not think so. Mr. Miller. Then I would like to know wherein that is wrong. You have agreed with me all the way down to the total. Mr. Mayo. Will you repeat, please, in regard to the time? Mr. Miller. Two, years for the construction period for Dam No. 3, wherein the Government is bearing an interest charge of 4 per cent on $20,000,000, or $800,000 a year. Mr. Mayo. Are you not taking the interest for the whole 3-year period on Dam No. 3? Mr. Miller. No; I am taking the interest for two years on Dam No. 3. Mr. Mayo. We do not need all the money until we finish. Mr. :Miller. But the Government will have to have this money to pay you because vou are going to rush this work down there. Mr. Mayo. I do not see the necessity of issuing the bonds only as we need the money. Mr. Miller. If you can find any living man on earth that will take a bond issue and deliver it in serial form at 4 per cent interest, you will discover something in finance that the rest of us have never heard of. Mr. Mayo. I do not think so. Mr. Miller. With an interest rate less than the rate on Liberty bonds. Any man in the world would put his money in Liberty bonds, because he would get one-fourth of 1 per cent more than he would get from these bonds, even paying par for Liberty bonds. I do not see how you are going to do that, and what I am trying to get at is the propos'tion from the Government's angle. Mr. Mayo. We think it can be done. Mr. Miller. I am figuring on a rate of 4 per cent and on the cost of Dam No. 3 at $20,000,000. Mr. Mayo. I think you should cut the construction period charge in two. Mr. Miller. If you can show me or show anybody how you can complete Dam No. 3 under two years I would like to hear it. Mr. Mayo. No ; but if we take the money as we use it, that interest rate will only amount to about one-half. Mr. Miller. You understand that the Government will have to finance this thing from a bond issue, becauee we can not go out and get any more money for this from the taxpayers, and we are figuring on its costing $50,000,000. Mr. Mayo. Yes, sir. Mr. Miller. And it would not be good propaganda for this company to no that. Mr. Mayo. But it can be issued in blocks. Mr Miller. That is what I have said. I do not believe you can find anybody that will take a bond issue in blocks and make partial deliveries at 4 per cent interest. Mr Mayo. I do not think that is anything neyv. Mr Miller. It would be less than Liberty bonds pay, and any company would rather put its monev in Liberty bonds, because they would get from one-fourth to one-half per cent more than the Government would be paying on these bonds, even if they paid par for Liberty bonds. Mr Mayo. I am not a financier. Mr Miller. I am not either ; but I know a little something about the money market but not very much. I wish I knew more. Figuring on the basis i have figured, the Government will have paid out in interest $3,520,000 more than you have paid them, and the only discrepancy you can find in that state- ment ^is that the construction period is a little too long. Mr Mayo. The interest during construction is about double what it shouwne. Mr'. Miller. Suppose we take that ofe; that will only decrease it $400,000 a year, or $800,000. Mr. Mayo. That is about correct ; yes, sir. Mr. Miller. That will be $3,500,000 ; and deduct from that $800,000, assum- ing you can complete Dam No. 3 in one year, the Government in that case would be out $2,720,000. Mr. Mayo. All rght, sir. Mr. Miller. Now, add that to the $5,200,000 that we are out on Dam No. 2, and that would make a total of approximately $8,000,000 that the Government would be out before you reach that period under your contract when you begin to pay the flat rate of 4 per cent. Mr. Mayo. The Government is going to spend that much, but they will not be out that amount. Mr. Miller. The Government will have paid that in interest on its bonds, will it not? Mr. Mayo. Yes, sir. Mr. Miller. It will have paid $8,000,000 interest on its bonds over and above what your company will have paid the Government ; that is money out of the United States Treasury, and that is the way I analyze your contract. Mr. Mayo. Yes, sir. Mr. ]MiLLER. Now, at the end of the six-year period on Dam No. 2 and at the end of the three-year period on Dam No. 3 you begin to pay the flat rate of 4 per cent on the cost of construction ; that is right, is it not? Mr. Mayo. Yes, sir ; on the cost of the work we have constructetl. Mr. Miller. And you do not begin to amortize the plant until* three years after the plant is completed. You are not even doing anything on the amortization of the plant. Mr. Mayo. That is right ; yes, sir. Mr. MiLiJCR. Then up until three years after the dam is completed, you pay nothing on your amortization account and up until six years after the dam is completed, you i)ay a flat rate of interest of .$200,000 on Dam No. 2, and for a three-year period on Dam No. 3 you pay $160,000. Then you pay nothing in the world, under the terms of your contract, so far as these dams are concerned, until at least one year after both dams are completeil, and then the flat rate unly, because your flat rate does not commence until a year after the dam is wnipleted; that is right, is it not? Mr. Mayo. We begin to pay interest when the amount of power is ready to serve, as stated here. Mr. Miller. You have fixed that at one year after the dam is completed be- fore you pay anything? Mr, Mayo. No; they are not wholly completed. Mr. Miller. I thought you said you were going to complete the dams in a year and you objected to my construction period being too long. Mr. Mayo. Well, I did not say that. The dam itself will be completed, but the power house and its apparatus will not be. Mr. Miller. Anyway, your contract does not commence until the dam is com- pleted, capable of generating 100,000 horsepower at Dam No. 2 and 80,000 horse- power at Dam No. 3. Mr. Mayo. That is correct ; and even then it is far from being finished. Mr. Miller. It may be far from being finished, but I understood you to say a moment ago that when 80,000 horsepower is generated at Dam No. 3 and 100,000 horsepower is generated at Dam No. 2, that the dams are practically completed. Mr. Mayo. No, sir. Mr. Miller. I understood you to say so a little while ago, Mr. Mayo. Mr. Mayo. I was mistaken if I did. The power-house machinery is a very expensive end of it. Mr. Miller. The Government has to buy that machinery, does it not? Mr. Mayo. Exactly, but Mr. Miller (interposing). And it has to place all that machinery in position? Mr. Mayo. But they do not have to pay for it until it is completed. Mr. Miller. That is all right. The Government will have to pay for its niachinery probably the same as any other company would have to pay for it. A'he Government has to build these dams ; it has to buy and install all of this piachinery, turn it over ready for use ; and even then, during the 100-year period, it has got to keep the dams in repair. Mr. Mayo. I do not agree with you. Mr. Miller. Let us see about that. Mr. Mayo. We pay a maintenance fund for them to keep it in repair. ^ Mr. Miller. You pay $35,000 a year on Dam No. 2 and $20,000 a year on Dam No. 3. 274 MUSCLE SHOALS PROPOSITIONS. Mr. Mayo. Yes, sir. Mr. MnxEE. And furnishing 300 liorsepower to operate the gates. Mr. Mayo. That is correct, 300 horsepower. Mr. MnxEB. Now, let us see if the Government is not to maintain these dams. Listen to this, Mr. Mayo, referring now to paragraph No. 4 : " The company will further pay to the United States, during the period of the lease of Dam No. 2, $35,000 annually, in installments quarterly, in advance, for repairs, maintenance, and operation of Dam No. 2, its gates and locks, it being understood that all necessary repairs, maintenance, and operation thereof shall be under the direction, care, and responsibility of the United States during the said 100-year lease period ; and the company, at its own expense, will make all necessary renewals and repairs incident to efficient maintenance of the power house, substructures, superstructures, machinery, and appliances appurte- nant to said power house, and will maintain the same in efficient operating condition." You maintain the power house ; now, let us see about the dams. I had that here a moment ago. Can you point me to that paragraph, Mr. Mayo? Mr, Mayo. The paragraph which you read, No. 4, explains it fully, and is repeated again in paragraph 8 in reference to the other dam. The wording of both, however, is identical. Mr. Miller. Let us look at paragraph 8, which is the one that provides for the locks, etc., at* Dam No. 3. Mr. Mayo. No. 8 is identical with No. 4, with the exception that it applies to Dam No. 3. Mr. WuEZBACH. Look at the latter part of section 8. Mr. Miller. The latter part of section 8 refers to the power house of Dam No. 3. It is here some place. Mr. WuRZBACH. Is this what you refer to, "it being understood that all necessary repairs, maintenance, and operation thereof shall be under the direc- tion, care, and responsibility of the United States "? Mr. Milleb. Where are you reading? Mr. WuRZBACH. From paragraph 8. Mr. Miller. " It being understood that all necessary repairs, maintenance, and operation thereof shall be under the direction, care, and responsibility of the United States during the said 100-year period." That means we are maintain- ing these dams for 100 years, Mr. Mayo. Mr. Mayo. Maintaining it with our money. Mr. Miller. Maintaining it with your money? Mr. Mayo. Yes, sir. Mr. Miller. How so? You pay $35,000 a year, do you not? Mr. Mayo. Yes, sir. Mr. IMiLLER. You allot $35,000 a year for the operation of the locks and main- tenance of the dam. Mr. Mayo. Yes, sir. Mr. Miller. Then the dam is to be maintained by the United States, and if maintained by the United States for $35,000 a year plus the operation of the locks, we are even. Mr. Mayo. Yes, sir. Mr. Miller. If the maintenance of the dam is over .$35,000 a year, together with the operation of the locks, the Government is out, is it not? Mr. Mayo. Yes, sir. Mr. Miller. Then the Government maintains the locks and operates them, maintains the dam during the 100-year period, and all you are bound to pay is $35,000 a year and furnish 200 horsepower. Mr. Mayo. We are bound to the amounts we have stated on both dams an Mr. Mayo. There might be a half million dollars more, possiblv. There are some leased properties at Dam No. 2 which were never purchased.* Mr. Stoll. The second requirement of the offer on the Government is to repair, operate, and maintain the dams, locks, and gates. For this Mr. Ford ofters to pay $35,000 and $20,000, respectively, for dams 2 and 3. Will that be .sufficient to operate, repair, and maintain the dams, h>cks, and gates? Mr. Mayo. We think it will. That is not includng the power houses and its apparatus. That is taken care of under a separate fund. Mr. Stoll. Tlie third requirement is to furnish the necessary money to com- plete Dam No. 2 and install the machinery and to build Dam No. 3 and install the necessary maehinerj'. You estimated that, I believe, to cost about •Jj>40,000,00i). Mr. Mayo. Yes, sir. Mr. Stoll. Under Mr. Ford's offer the United States gets very little in return on its investment for the first three years, as was brought out by Mr Milh»r's questions. Mr. Mayo. Yes, sir. Mr. Stoll. To look at that properly, is it not really a problem in arithmetical I.iogression, does not the Government as the years go by get more by the crea- tion of this sinking fund that Mr. Ford proposes to establish? Mr. Mayo. The sinking fund finally wipes out the entire cost. Mr. Stoll. That is what I know, and so I say that as the years go by the way that decreases? It may be impractical)le to do that; I do not know. Mr. Mayo. I think that can l)e very n^adily done; yes. Mr. Sroi,L. I wish you would have that statement put in the record. Mr. Mayo. All right, sir. Table illiLstrating decrease in net investment of Government due to operation of a sinking fund. Assume: Payments into sinking fund total $46,746 annually, sinking-fund investments to bear 4 per cent interest, payable annually. Government investment taken at $48,000,000. Life of fund. 25 years.. 50 years.. 75 years.. ^ years.. 100 years. Total amount in sinking fimd. $2,024,569 7, 421, 862 21, 809, 346 40,250,643 60, 163, 271 Striking a balance at the end of each period the Government's net invest- ment is— $45,975,431 40, 578, 138 26,190,654 7,749,357 t»,!?^^"~'^',*^®,^^^'^^S-fund investments bore interest at 4 per cent payable semiannually, the amount in ine smkmg fund at the end of 100 years would be $61,973,977. In Mr. Ford's offer the sinking fund for Dam trat- '^lu y®^"^^ *^^ ^^^^ ^°^ ^^^ No. 3 nms 97 years. The above table is intended simply as an illus- Anri,?^ °^ ^^^ amortizing effect of a 4 per cent sinkmg fund over several periods of years, maintained by annual payments equal to the payments offered by Mr. Ford. » «« uy 300 MUSCLE SHOALS PROPOSITIONS. Mr. StolL Because the figures as Mr. Miller presented them I do not think carry the correct idea as to the expense the Government is put to in this. I)ro.iect under Mr. Ford's offer. Mr. Mayo. The offsets to the expenses, as I brought up before, are very great during the first few years. Mr. Stoll. Yes; I understand that; but to my mind, as the years go by, this decreases. Mr. Mayo. Yes, sir. Mr. Stoll. The Government gets more return and has less money invested. Mr. Mayo. The Government's net investment is steadily decreasing. Mr. Stoll. Do you know how many tons of sulphate of ammonium can be I)roduced under your plan annually? Mr. Mayo. It all depends. We would have to put in a sulphate plant to make any sulphate of ammonia. We would have to put in a sulphuric acid plant to start with. If we use the same amount of nitrogen that the plant is now equipped for, it runs to 190,000 tons annually. Mr. Stoll. Under section 19 of Mr. Ford's offer he agrees to enter into a contract to effectuate the purposes of his agreement. Do you understand that to mean he will put in the necessary guaranties that are usually required in business contracts, to do what he promises to do? Mr. Mayo. What would you term as a guaranty? Mr. Stoll. First, be binds himself Mr. Mayo (interposing). He pays the money. He does not receive title until he pays the purchase price. That would, of course, guarantee the purchase. After that he would have jo put in the ne<'essary amount of working capital to make it operative. ]Mr. Stou-. I understand, but here is what he says : " Upon acceptance, the promises, undertakings, and obligations shall be binding upon the United States, and jointly and severally upon the undersigned, his he'rs, representatives, and assigns, and the company, its successors, and ass'gns; 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 so on. He promises to do certain th'ngs. Is any guaranty contemplated in the con- tract? What do you mean by "effectuate"? Mr. Mayo. The passage of the proper papers and deeds and everything that go with settling the titles. Did you have in mind a bond or something of that sort? Mr. Stoll. I did not know a bond or paid-up capital or something that would make it a real business contract. Mr. Mayo. The amount of the purchase price, the amount of money that has to be put in as working capital to start with, I think is a sufficient guaranty. Mr. Stoll. But this is silent as to what that would be. Mr. May'o. It is silent because it is problematical how much it will take. Mr. Stoll. I understand. I am not complaining about the offer as it stands, but I am speaking of how it will be consummated. Do you not think something ought to be in there more definite than that. Mr. Mayo. I do not think so. Mr. Stoll. You think that is sufficient. Mr. May'o. He has to carry out the terms of that contract, and when he does he at least has to operate the nitrate plant No. 2 at full capacity, which will require sufficient added capital to have plenty to reimburse the Government for any breach of contract. Mr. Stoll. Do you think it probable that Mr. Ford will increase the produc- tion of fertilizer over the present capacity of plant No. 2. Mr. Mayo. I think it is very probable. Mr. Stoll. And it is his intention, of course, to give the consumers the benefit of the cheap power. Mr. Mayo. Yes, sir. Mr. Stoll. What will be saved by the Government in constructing Dams Nos. 2 and 3 if the work is done by Mr. Ford without any profit to himself rather than if they follow the usuaJ plan. Mr. Mayo. We were of the opinion it could be done nmch quicker on account of not being bound tip with the ordinary governmental red tape, and) he could also handle the contracts to much better advantage as a private party instead of as the Government. MUSCLE SHOALS PROPOSITIONS. 301 Mr. Stoll. And there would be considerable saving in money' Mr. Mayo. Yes, sir ; both money and time. Mr. Stoll. Do you have any idea of how much that would amount to, unless that IS shown by the estimates made by the Engineers and by vou? Is that a fair estimate of what the saving will be? $16000 WO '^' "^^^^ '^ ^ ^^''" ^®*"''^*^- '^**^* ^^ ^ difference of approximately Mr Stoll. Is there any way you could use or sell the maximum horsepower for the first few years of operation at Muscle Shoals? Mr. Mayo. No, sir ; no possible way. Mr. Stoll. You would have to develop the business to use it? Mr. Mayo. Yes, sir. Mr. Stoll. Following Mr. Miller's questions asked you on yesterday, did vou prepare any figures? ^ » . Mr. Mayo. We prepared a sheet of figures ; yes, sir. Mr. Stoll. Relative to what? Mr. Mayo. Relative to the cost to the Government and the credits during the first six years. Mr. Stoll. I would like to have that put in the record. Mr. Mayo. All right, sir. Mr. Stoll. Would you mind reading it? The Chaibman. I was just going to say that probably it is short and could be read. Mr. Mayo. It is not very long. (The statement which Mr. Mayo read is as follows :) Government balance sheet at Muscle Shoals during first 6 years of Ford lease of Dam No. 2. [Assume, as stated by Secretary Weeks, that the net revenue from leases of steam plants pays the cost of maintenance of nitrate properties.] Items.i Interest during construction: Account Dam No. 2 $1,393,800 Account Dam No. 3 1,480 000 Interest on Government investment during first 6 years of Ford lease of Dam No. 2: Account Dam No. 2 4L 646 000 Account Dam No. 3 3,040,000 Debit. Payments by Mr. Ford, first 6 years of Ford lease of Dam No. 2: Account Dam No. 2, 6 pajrments at $200,000 1,200.000 Account Dam No. 3— 3 payments at $160,000 $480,000 2 payments at $760,000 1,520,000 2,000,000 Depreciation on nitrate plant No. 2 for 7 years 2 at $2,350,000 (see letter of Mai. J. H. Bums to Congressman Fields, Feb. 6, 1922) .7.. Total. Credit. $2,873,800 7,686,000 10,559,800 $3,200,000 16,450,000 19,650,000 1 For details regarding interest figures see p. 248. » Since the Ford lease of Dam No. 2 begins when the first 100,000 horsepower is instaUed, and since it is estimated that there will be one year construction period prior to the installation of 100,000 horsepower ai Dam No. 2, there will be a 7-year period of depreciation of nitrate plant No. 2, which is assumed by Mr. * ord and must be carried by him prior to the expiration of the first 6 years of the Ford lease of Dam No. 2. Note.— Ordnance Department figures depreciation on nitrate plant No. 2, 5 per cent. Mr. Stoll. Mr. Mayo, have you ever seen the Gorgas steam plant? Mr. Mayo. I have not; no, sir. Mr. Garrett. Mr. Mayo, I want to get a little more specific information in regard to this fertilizer. In this contract you agree to operate nitrate plant No. 2 at the approximate present annual capacity of its machinery and equipment in the production of nitrogen and other fertilizer compounds (said capacity being equal to approximately 110,000 tons of ammonium nitrate per annum) throughout the lease period, except as it may be prevented by strikes, accidents, fires, or other causes beyond its control. I want to get in figures Hi 502 MUSCLE SHOALS PROPOSITIOXS. MUSCLE SHOALS PROPOSITIONS. 303 now the number of finished tons of fertilizer ready for use by the farmer that tluit would be equivalent to per annum. Mr. Mayo. That depends, of course, upon the process you use, the kind of fertilizer you are making, and the pei'centage of plant food. Mr. Garrett. Well, we will say you are making a tobacco grower ; how many tons of average tobacco grower, about a 2-4-8 compound or something like that? Mr. Mayo. You are getting me kind of astray, because I do not know much about tobacco growing. I know a little about smoking. What percentage of nitrogen would you want? Mr. Garrett. I would want 2 per cent of nitrogen and the other ingredients in the usual proportions in such compounds, 4 per cent and 8 per cent. Mr. Mayo. It would run almost 2,000,000 tons with 2 per cent nitrogen. Mr. Garrett. The 2,000,000 tons of average tobacco grower is distributed over the country by the other companies. That would be about 2,000,000 tons l)er annum? Mr. Mayo. Yes, sir. Mr. Garrett. There has been a good deal said here about whether or not Mr. Ford or his company would continue to manufacture this fertilizer in the -event he could not do so profitably. There is nothing in this contract about excusing Mr. Ford from making fertilizer whether he is making it profitably or unprofitably. The only limit in here that I find is that he agrees to make it And not charge more than 8 per cent profit. Mr Mayo Yes sir. Mr! Garrett. Where does the idea spring that Mr. Ford, with the single exceptions pointed out here, that is being prevented by strikes, fires, accidents, or other causes beyond his control, etc., that there is anything in there that would relieve Mr. Ford from making fertilizer at the rate of 2,000,000 tons per year of the finished product, if he was not making it at a profit, but simply making it for cost or below cost? Mr. Mayo. Oh, I think if he was only making it at cost, he would have to continue. Mr. Garrett. Where is he excused from this condition, if it is below cost, according to this contract? Mr. Mayo. You can not do the impossible. Mr. Garrett. Suppose he should not make a profit for one year, the conditions miglit change in another year, do you not think there should be some con- .«»truction of that contract as to just what it means. If he should operate at a loss for one year, could he discontinue the manufacture of fertilizer? Mr. Mayo. I do not think he could, sir. Mr. Garrett. That is a very essential thing in this investigation, Mr. Mayo. Mr. Mayo. I realize that. Mr. Garrett. You have developed about the power and what that means And what it means to the Government to have plant No. 2 maintained there for military purposes. All that has been gone into, but you have not got the facts In the record just like I would like to see them in the record on this fertdizer .question. , , ^., , i „.i Mr. Mayo. As we look at it, Mr. Ford would not be excused until he had exhausted every known effort to make cheap fertilizer, using any reasonably good process. . . Mr Garrett. You stated in answer to a question by some gentleman here tnis morning that you thought he could make fertilizer 50 per cent cheaper than it is being made to-day. Mr. Mayo. We think so ; yes, sir. Mr. Garrett. On what do you base that statement. Mr. Mayo. Well, we base that on a number of processes, any one of which we Mr. Garrett. You mean that you have in mind processes for the manufacture of fertilizer that have not yet been developed by any of the other companies? Mr. Mayo. Yes, sir ; or partly developed by some of them. Mr. Garrett. What I want to get at is this: Regardless of that, because that is something we do not know about now, but we do know that fertilizer is bein,, made, and how it is being made, and how it is being distributed now. Mr. Mayo. Yes, sir. «^ ««n Mr. Garett. And what I want to get in the record is how much cheaper can Mr. Ford, in your opinion, make the fertilizer at this plant, -if the Governniem accepts his offer, at the rate of about 2,000,000 tons per year than it is now being made generally throughout the country! ^ ^^ Mr. Mayo. Of course, we are green at the fertilizer business, and I could not exactly say, but Mr. Washburn, in his statement, said he thought it cou d be made there at about one-half the price. tnou^uc it couia Mr. Garrett. Do you think you would be safe in saying to the committee as the spokesman of Mr. Ford, that it would be made 33^ per lent cheape™n U being made and distributed to the farmer nowv ^neaper man it is Mr. Mayo. Yes, sir. Mr. Garrett. And of equally good quality? Mr. Mayo. I think it is perfectly safe to figure on that. Mr. Garrett. If your plant makes about 2,000,000 tons of finished fertilizer speaking m round numbers, and there is only about seven arid a half or eight Jfni fh^J''''^ consumed m the country, you would control at that plant about Mr. Mayo. If the rest of the country stood still, we would ; yes, sir Mr. Garrett And if the rest of the country moves on, you would move at the same pace that they did ; so that your proposition now, as I understand ?t on the fertilizer quest on, is that you will make as much finished fertilizer as ^;L«^ n^H%V^^. s.)methmg like one-fourth of the present output in the Un'ted btates, and that you believe you can represent to this committee that you will make It 33J per cent cheaper and get it to the farmer 33i per cent cheaper than It IS now being gotten to the farmers in this country cneaper Mr. Mayo. Yes, sir. Mr Hull. Mr Mayo, as I stated to you before, the big, compelling thing m this contract is in section 14 : &. f s tums "(&). To maintain nitrate plant No. 2 in its present state of readiness, or Its equivalent, for immediate operation in the manufacture of materials nw?es- sary m time of war for the production of explosi\es." \ ?i"^Au^ ? lawyer and I may be wrong, but I think that the lawyers would say that that would be a condition that would have to go in the deed in order to make it binding on the company in the future. If the lawyers said that it was necessary, would there be any objection on your part or on the part of vour company to placing that in the deed as a condition of the deed' Mr. Mayo. I do not think there would be any objection. Mr. Greene. Following the replies you gave* to Mr. Garrett, of course, as a business man you would not hold that your present statement as to the pro- portion of fertilizer that you could furnish would be likely to hold good through a century of development in this country? Mr. Mayo. No, sir; you can not tell how the quantity would change It would change with the processes. Mr. Greene. In other words, you may furnish 20 per cent of the total pro- duction of the country with the maximum output of this plant to-day if the base holds at the same figure of total production for the country, but if, as is quite probable, the country resorts more and more to intense fertilization as the century goes on, it would be more diflicult for you to keep up the same rela- tive proportion of fertilizer to the total, would it not? Mr. Mayo. I do not think so; no. Mr. Greene. You think you can bring the capacity of that plant up to that proportion and maintain it? Mr. Mayo. I am of the opinion that if the demand would require it Mr. Ford luight possibly double up the plant. Mr. Greene. With the same power? Mr. Mayo. Yes, sir. Mr. Greene. You think, then, that there is a reasonable expectation that you could hold to about the same relative production as compared with the total now? Mr. Mayo. My opinion is that Mr. Ford has only stated his minimum amounts here. Mr. Greene. This morning Mr. Hill was inquiring about your interpretation '•f section 15, as to the right you had to the use of power after the expiration of the 100-year lease. Mr. Mayo. Yes, sir. Mr. Greene. Mr. Hill suggested that in the century to come it was possible that the public policy of the United States might change with regard to the ownership of these natural resources and public utilities and things of that 92900—22 20 J k 304 MUSCLE SHOALS PROPOSITIONS. kind and tliat we might adopt the policy of either owning or controlling all the water powers. In that case, what would you say of such a public policy that had already mortgaged the Government to give away certain power to one certain concern, no matter what the other demands of the other people and the other agencies throughout the country might be ; the Government was held in perpetuity to give one certain concern, one certain power. Do you regard that as very good public policy? Mr. Mayo. I do. I think it would be entirely unfair to Mr. Ford to have very extensive operations all built up to consume this power and then have it taken away from him. Mr. Greene. Mr. Ford is presumed, of course, in his own interests, to have so provided in this contract that he gets back what he puts in in the course of the century, but the Government is entirely a different proposition from an individual investor, because the Government is the guardian of the interests of the Nation as a whole for all time. I appreciate that this proposition is a matter somewhat close to your professional interets, and I do not want to ask any improper questions, but would you think, as a matter of public policy, this Nation, through its Government, should bind itself for all time, no matter what the future might develop as the necessary changes in public policy, so that one specific water power should always go to a certain identified concern ? Mr. Mayo. I think so, when that one concern was the means of building it up md bringing it into the condition it was or might be in at that time. Mr. Gbeene. Would that, then, justify the people who opened and owned and developed the coal mines to have a perpetual right to their use and their product even though the Government a century from now took over the operation of such public utilities? Mr. Mayo. If the Government took over the Ford plant as well as the water power it would be quite another thing. Mr. Greene. I am simply suggesting, as I did yesterday, in questioning you, the possibility of tremendous revolutionary changes in public policy within the century. I dare say nobody here at this table or in this room now approves of the idea of public ownership and control of these natural resources, but we do know that it is quite within the possibilities, and it is already being urged and has been for a good many generations,^ for that matter, and a century might see a complete change. We are custodians of the property of the people of the United States, and to that extent the custodians of their future. Would we be justified in so tying up the future that our children's children back into several further degrees might not dispose of their own property because a dead hand had tied it up for them? Mr. Mayo. I think the Government has every right to dispose of it as though this contract did not exist, in so far as price goes. Mr. Greene. I am not talking about price; I am talking about the actual control of the administration of the power. The price is immaterial to that. Mr. Mayo. It plainly says, " Terms that may then be agreed upon." Mr. Gbeene. When people who are lawyers, and probably it is not necessary for me to say that I am not a lawyer r * Mr. Mayo. I am not, either. Mr. Greene. I am a layman and read this only as the English language would suggest and not as a lawyer would read it. It seems to me, as it did to my friend, Mr. Hill, this morning, that there are two statements in this paragraph which may be taken up separately and considered, and if the Eng- lish language means what has been written 4,own here, it does seem to me that upon the failure of a lease or a sale, Mr. Ford has the first right to the power that is developed there. The question of your coming to terms might be en- forced by whatever court should decide the case, but he has a prescriptive right on that power. Mr. Mayo. I think he should have all that he has asked for. I think a man who has the courage he has to make this offer, if he can make a successful run of this plant for 100 years and at that time hand th's project back to the Gov- ernment, cost free, practically, he should at least have a preferential right to get the power at the same going price that anybody else would get it. Mr. Greene. Now% Mr. Mayo, this question is suggested merely in our com- mon interests as citizens. Mr. Mayo. Yes; that :s my personal opinion. Mr. Greene. And we are approaching it from that point of view. Mr. For(l and the public to-day may be well disposed toward one another, as doubtless MUSCLE SHOALS PROPOSITIONS. 305 they are, and there may be great and immediate practical benefits to all the country in the Government accepting Mr. Ford's offer under present-day con- ditions. Those condit'ons may more or less continue throughout the genera- tion and possibly the generation to follow, and yet Mr. Ford will be gone and all of these people who consent with us to-day to this contract are all gone and an entirely new economic and sociological situation confront their grand- children, all within the century, because we are still a pioneering civilizat on in a continent which even physically is still being pioneered. Now, all at once, those people are confronted w th new economic conditions and with entirely new social relationships which perhaps we can not conceive, but we know that what we live in now is a tremendous advance over what our own grandfathers had on this very soil. Those people suddenly find that the policy of the Government is to admnister these natural resources and these public utilities in its own hands, and it may do so with respect to all the water power in the land except one, and that one is bound up in the hands of this company. Mr. Mayo. I do not agree wth you on that, because there are a number of other water powers with perpetual rights. Mr. Greene. But they are now in private ownership. Mr. Mayo. Yes. Mr. Greene. I am speaking >about the water powers that Uncle Sam owns and controls. Mr. Mayo. Yes. Mr. Greene. Would you think, as a matter of public policy, it was desirable notwithstanding the immed'ate benefits to be gained by this arrangement, which I am not arguing at all, or the benefits perhaps for a generation or two, still, as a matter of public policy, do you think we should commit the Gov- ernment beyond the lifetime of three generations and beyond a century — in perpetuity? Mr. Mayo. Well, I will come back to my former statement and say that if the development is such at the expiration of 100 years the company is consuming all the power (and, of course, it only has a chance to get what it does consume on an average during the last 10 years), and if the conditions are such, for the sake of the argument, that a vast investment had been made, nothing should happen to take that power away from the plants and wreck that big de- velopment. Mr. Greene. I think I will not prolong the discussion of the matter, because it is simply a question, you realize, that will be dwelt upon from the very nature of things by and by, and I think the people w^ill be more likely, if you will permit me, Mr. Mayo, to regard it as a matter of principle rather than a con- fusion of identities and property interests. It does not make any difference who did own it or the antecedents of the owner, the presumption is that if this is a reasonably successful business speculation or investment, it will have re- paid for itself several times, so that the people who may own this power 100 years from now will have made no original outlay from their own pockets and will have nothing to recoup themselves for on account of the original invest- ment because that wiU have been paid back long, long before. Mr. Mayo. Ye*?, that may all be true, yet it might be that at that very period when there might be a new set of owners who have had their money invested only a few years. Mr. Greene. Exactly; and the people who conceived this thing, assuming that Mr. Ford should carry out his original intention, would be gathered to their fathers many, many decades, and the people who come on later do not partake of the original, personal element engaged in this thing at all, but are mere automatic heirs in some way, either by law or by birth and descent, of certain property, which they never had a part in forming, and they find that they can stand out against the whole Government of the United States with a prescriptive right that no power on earth can take away from them in the use of certain water power ; is that your interpretation? Mr. Mayo. I think you put it in more or less of an arbitrary light. A great deal of thought was given in drawing that particular paragraph, and it was tried to be drawn in a fair form. The line of thought that was used was that this project can not continue without being successful, and if so, it should be a eontinually growing one, and if so, it should finally absorb all the power, and a contract should never be so drawn that some day, no matter when, somebody should be able to cut its feet right out from under it by robbing it of all its ' t 306 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 307 power. It should at least have the right to continue taking this power at a reasonable rate or the going rate. That was the line of thought it was built upon. Mr. Greene. I would suggest that it may be worth inquiring into as to whether Mr. Ford would insist upon that. I think the people themselves, and even those who expect an immediate interest in the thing, and properly so, may well take second thought as to the great principle of public policy involved there, whether when the time comes, properly, when the Government wants to operate its own properties or dispose of them as it may, its hands are not' tied by another ghastly hand from the grave, a century back. Mr. Mayo.* Are they tied ? Does not this say, " If the Government does not dispose " Mr. Greene. I think the conditions there all run in the interest of Mr. Ford and not one of them in the interest of the Government. Mr. Stoll. Mr. Greene, may I ask you a question? Mr. Greene. Certainly. Mr. Stoll. It says here. Mr. Greene, that should the United States elect not to operate said plant Mr. Hill. That is not the section. Mr. Stoll. That gives them the power at the end of 100 years to operate the plant. Mr. Greene. Oh, certainly; we always have that power. Mr. Stoll. In case they decided not to operate but determined to lease or to dispose of same, the only two things they could do, if they do not operate it, would be to lease or dispose of it. Then thjB Ford company shall have a pre- ferred right to do what? Not to take it, but merely to negotiate with the Un-ted States for lease or purchase, and upon such terms as may then be agreed upon. Mr. Greene. Yes. Mr. Stoll. If they do not agree or if the Ford olfer is not satisfactory to the Government, they do not have to take it. Mr. Greene. If you will go to the next sentence, I think Mr. Hill made that plain this morning : " If the said leases are not renewed or the property covered thereby is not sold to said company, its successors or assigns, any operations or disposal thereof shall not deprive the company, its successors, or assigns of the right to be supplied with electric power at reasonable rates and in amount equal to its needs," and so on. Mr. Stoll. That gives them a right to purchase the power. Mr. Greene. Exactly, and that is what I am referring to. Mr. Stoll. I did not understand just what you had in mind. Mr. Greene, That is exactly what I was referring to, Mr, Stoll, whether the Government, in other words, should not always be at liberty to choose its own customers and whether any man, 100 years in advance, may so tie the Gov- ernment's hands that when that period arrives the Government may not be able to choose its own customers. Mr. Stoll. May I ask one question? Can you conceive of a person who would have more right to be supplied with the current at a reasonable rate than the Ford company who had developed it for 100 years? Mr. Greene. I do not venture to make any speculation on what may be the relation or rights of any person to this Government 100 years from now. Mr. Stoll. But as I say, can you conceive of a person who would have more right to it? Mr. Greene. Not on the immediate, present basis of economic reasoning, but that may not be the basis 100 years from now, just as our present basis is not that of 100 years back. Mr. Hill. Will the chairman permit me to interject a question there to Mr. Stoll? Under that section, which is as follows: " If the said leases are not re- newed or the property covered thereby is not sold to said company," etc., under that section, if the Government wanted to use the property itself for its own pur- poses at the end of the 100 years, and the Ford company desired the power it- self, the Government could not use its own property. Mr. Stoll. Oh, yes ; because you could not take it from the Government. If the Ford company bought it the Government could take it back. Mr. Hill. But just read that second clause. Mr. Stoll. I understand that, but we could not, by any agreement we could draw, deprive the Government of the right to take any property. Mr. Hill. But this section does so. Mr. Stoll. Oh, no ; it is not meant to be taken in that sense. The Chairman. Gentlemen, we are getting into a discussion that we had better carry on m executive session. n/^^,; CJREENE. I just wanted to be quite certain that I understood lust what Mr. Fords interpretation of that clause is, and you do not th^nk it is against good public policy? " Mr. Mayo. Do you think you understand his intention? Mr. Greene. I think I have gathered your impression. If it is not an im- proper question, may that question be reopened if in the course of this hearing and Its results there is some understanding that a redraft nuiv be made of the proposal of Mr. Ford, with his consent, of course; is it possible' that that mav be reconsidered? Mr. Mayo. I have stated before that I believe he wants this offer to stand as It IS. \\ e are willing at any time to change the verbiage to clarifv the meaning Mr. Greene. Let me finally put this question then : You think it is advisable apart from any relations of Mr. Ford or our present-dav conditions, that the Government shall be tied hand and foot to one customer for that particular water power as against the usual prerogative of the Government to deal with each case as it comes up on its own merits at the time, no matter what the idenity of the people may be? Mr. Mayo. I think it goes without saying that the Government could take it itself at the end of the period. Mr. Greene. I do not question the Government's right to come in nor do vou as I understand it. "^ ' Mr. Mayo. No, sir. Mr. Greene. But the question is, Even though the Government assumes or reassumes the management of the proi)erty, it does so only subject to this right of Mr. Ford's company and its successors to take the property? Mi\Mayo. I think that if the company has handled this property successfully for 100 years and has handed in a retirement fund that wipes out the first cost It should at least have the preference of purchasing the power that is to be sold' Mr. Greene. Then I will simply call your attention, Mr. Mavo, to the fact that you are holding that individual rights may run against the Government, no niatter what the future may develop. I think that would be a fair statement of it. Mr. Crowther. Somebody previously testified, Mr. Mayo, as to the author- ship of article 15 here, and I do not just remember the answer as to who prepared it. I would like to know who prepared that paragraph. It was sug- gested at the time that some farm organization prepared article 15, and that you adopted it in the preparation of this proposal, commencing with this language " In order that the farmers may be supplied with fertilizers at fair prices." Is not that unusual language to appear in a semilegal document? Mr. Mayo. We think so. The Chairman. I think Col. Hull, of the Judge Advocate General's Depart- ment, made that statement. Mr. Cbowthee. By whom was it prepared? Mr. Mayo. By representatives of these farm organizations. Mr. Crowther. Those that are mentioned here? Mr. Mayo. Yes, sir. Mr. Crowther. Then, following that language, did they have anything to do with the preparation of this paragraph 17, because the same language appears m the first three lines of that paragraph which we have just been discussing? Mr. Mayo. No, sir ; they had nothing to do with that. Mr. Crowther. How did that language creep in there? Mr. Mayo. I do not know. Mr. Crowther. What is the necessity for the language " and the farmers with fertilizers ? Ur. Mayo. That was put in to show the purpose. Mr. Crowther. That was for advertising purposes largely? Mr. Mayo. I would not say so. Mr.^ Crowther. It is a method of propaganda to convey the idea that this Is ?^"*^,^"^ ^ fertilizer proposition ; that is, that is the plan being discussed now? Mr. Mayo. No, sir ; not propaganda. Mr. Crowther. You do not think so? Mr. Mayo. No, sir. Mr. Crowther. Can you suggest any other idea for the interpolation of that language at that place? I 308 MUSCLE SHOALS PROPOSITIONS. Mr Mayo. It is to show the intent of what we are trying to do. Mr Fields. This article 17 that has been discussed was prepared by or sub- mitted to you bv the Judge Advocate General's Department, was it not? It was prepared by' the Judge Advocate General's Department and the representa- tives of Mr. Ford? Mr. Mayo. Yes, sir ; that is, they took our offer and revised it. Mr. Fields. And this is the revised form as it came from the Judge Advocate General's Department? Mr. Mayo. Yes, sir. Mr. Fields. Returning to the question of the probability or the possibility of Mr Ford discontinuing the manufacture of fertiizer if he should find it was unprofitable— he could not discontinue the production of fertilizer by just locking up the shop and quitting, could he? Mr. Mayo. No, sir. ., .^. Mr. Fields. Would he not have to make a showing to the proper authorities and get the necessary relief? Mr. Mayo. Yes, sir. Mr. Fields. That is your understanding? l^Ir. Mayo. Yes, sir ; that is my undertsanding. Mr Fields. I desire to ask you, Mr. Mayo, if Mr. Ford or his representa- tives, or both, discussed this contract as now before us with Mr. Weeks, the Sec- retary of W^ar? Mr. Mayo. Several times ; yes, sir. ^ . . ^ ^ . ^ t.c Mr. Fields. Is it your opinion that Mr. Ford emphasized the fact to Mr. Weeks that this is his proposition or was as far as he could go toward meeting his demands. Mr. Mayo. Yes, sir. ,, ^ ^ .„ . Mr. James. Mr. Mayo, how much money do you expect Mr. Ford will put into this fertilizer plant? ^ .... Mr. Mayo. My opinion is it will keep increasing from time to time. Mr. James. About how much? Mr. Mayo. To start with? Mr. James. Yes ; to start with. *^ .w^ /wx Mr Mayo. My guess is that it would amount to some $5,000,000. Mr. James. How many tons of fertilizer per annum do you think Mr. Ford will distribute to the farmers? , . ^ . ^^i, v.»«h Mr. Mayo. It depends on the kind of fertilizer you make to start with, wnicn, of course, controls the capacity of the plant. Mr. James. Well, about how much? ^ ^^^..nn. *^«o Mr. Mayo. I can only answer that by saying the equivalent of 110,000 tons of ammonium nitrate. .„ ^, ^ , « Mr James. About how many tons approximately will that make? Mr. Mayo. As we said before, almost 2,000,000 tons of complete fertilizer- say a 2-8-2 mixture. , , ^, i 4. Mr James. Under the proposition submitted by Mr. Ford, what is the least amount in number of tons of fertilizer that Mr. Ford is bound to manufacture/ Mr. Mayo. What is the least number of tons? TWr Tames Yes Mr! Mayo. That would be the amount, if it was made as it is made at present by other fertilizer manufacturers. Mr. James. About how many tons under this contract? Mr. Mayo. Approximately 2,000,000 tons. ^ .^ . . Mr. James. Mr. Ford binds himself under this contract to produce the equi>a- lent of 2,000,000 tons of fertilizer per year? Mr. Mayo. No, sir. . „ ^ ,., * 4.9 Mr James. How many tons does he bind himself under his contract/ Mr.* Mayo. That all depends on the mixture and whether you carry a nner or not. Mr. James. About how many ; the least number of tons? oaaooo Mr Mayo In my judgment it would run from a minimum of possibly 200,Uii^ tons up to a maximum of about 2,000,000 tons, depending upon the class of ferti- lizer, whether it carried a filler or not, and the proportion it did carry, if any. Mr. James. You consider that under the contract the least number of tons that Mr. Ford would manufacture would be 200,000 tons? Mr. Mayo. I think so; yes, sir; that is, of sulphate. Mr. James. What section of the contract is that in? Where you bind youi selves to produce at least a minimum of at least 200,000 tons. Mr. Mayo. It is in section 14. MUSCLE SHOALS PROPOSITIONS. 309 I Mr. James. What is the language? Mr. Mayo. That is the equivalent of 110,000 tons of ammonium nitrnte an- nually, said capacity being equal to approximately 110,000 tons of ammonium nitrate per annum." Mr. James. That would not bind him to produce fertilizer ; that is the equiva- lent to be used for that purpose. Mr. Mayo. Fertilizer equivalent to that amount. That is expressed in that manner because the plant was built originally to make ammonium nitrate, and thnt IS based on the amount of nitrogen the plant would produce. Mr. James. Is there any objection to our making an amendment in the offer providing, in effect, that Mr. Ford guarantees to produce at least 200,000 tons a year? Mr. Mayo. I think he does guarantee that. I think the present form of guar- anty is the best form you can get in there. Mr. James. Will he object to our rewriting that so that it will be positive that there is a guaranty? Mr Mayo. I do not think there would be any objection if it carried out the intent of that paragraph. Mr. James. It is the intent of Mr. Ford to produce fertilizer itself? Under the terms of the contract there is not any guaranty that general fertilizer will be manufactured. Mr. Mayo. Oh, yes. Mr. James. What is the language? Mr. Mayo. In the production of nitrogen and other fertilizer compounds Mr. James. That is not fertilizer, is it? Mr. Mayo. You do not mean to say it is not a fertilizer ; it is not complete ferti lizer. Mr. James Mr. Ford's proposition, you have said, is that he expects to dis- tribute this fertilizer himself to the farmers through an agency he will create having the fertilizer ready for use? Mr. Mayo. Yes ; I do not think he would have any objection to clarifying the language so that it >vould mean complete fertilizer. Mr. Miller. Mr. Mayo, are we to understand from you that we are to assure our colleagues on the floor of the House that Mr. Ford agrees to make a com- mercial fertilizer, irrespective of the cost, through the life of the lease, or are we to impart to our colleagues on the floor of the House the information that he is only to produce it if he can produce it profitably? Mr. Mayo. The only provision that would let him out of having to make it would be the exhausting of every known effort. Mr. Miller. Your proposition has this absolutely binding language, without any exceptions or qualifications: "That company agrees to operate nitrate plant No. 2 at the approximate present annual capacity of its machinery and equip- ment m the production of nitrogen and other fertilizer compounds (said capacity being equal to approximately 110,000 tons of ammonium nitrate per annum) throughout the lease period, except as it may be prevented by strikes accidents, fires, or other causes beyond its control." Now. we are getting in there a very important exception, providing he can make it at a profit. Mr. Mayo. That paragraph is there, and it can stand. Mr. Miller. Then if that paragraph means what it says it is unequivocablv without any condition whatever, providing that Mr. Ford is to operate nitrate plant No. 2 and put out 110,000 tons of ammonium nitrate, which is a fer- tilizer element, during every year of the lease period of the 100 years Mr. Mayo. He is willing to stand by the paragraph that is there Mr Miller. Then it is without any equivocation, condition, or exception as to whether it would be a paying proposition or not. Mr. Mayo. I do not think so. Mr. MnxER. What does that mean, that he does not have to do it' Mr. Mayo. In my opinion, he would not have to do it, as I have said before. If he exhausted every known effort, and still could not make it except at a great loss. t^ «u « Mr. Miller. He can make it whether he makes it at a loss or not, can he Mr. Mayo. I do not think he could do it very long. Mr. Miller. That is like the story of the old clothier who sold goods at a low cost because he sold so many of them. You can make, this fertilizer just as well If you make money out of the proposition, or if you can not, so far «s the physical manufacture is concerned, but when vou approach it from a r- 310 MUSCLE SHOALS PROPOSITIONS. financial angrle, it is not wholly impossible even from that angle. What we are after is to assure our colleagues on the floor of the House that Mr Ford's company agrees unequivocally and without condition throughout the time of the lease to produce yearly at that plant 110,000 tons of ammonium nitrate Mr. Mayo. It does not seem to me it would be good judgment to try to pass that sort of an idea along. You can not expect the impossible of him. I can best answer the question by saying that he is willing to let the paragraph stand as it is. Mr. Miller. Without any condition attached to it. I observed the statement you tiled when Mr. Stoll asked you a question. Did you prepare that state- ment? Mr. Mayo. Yes; Mr. Waldo and myself together prepared it. Mr. MiLLEB. I would like to analyze it because I heard it and I am much interested in it. Mr. Mayo. That is what it was made for. Mr. Miller. Mr. Mayo, how much will be the aggregate amount you will pay in on your amortization fund during the lifetime of your lease? You pay $46,746 a year, do you not? You pay $19,868 on Dam No. 2, semiannuallv and you pay $3,505 on Dam No. 3, semiannually. Mr. Mayo. I think that is right ; yes, sir. Mr. Miller. So you pay $46,746 per year. The period of your lease is 100 years. Mr. Mayo. Yes, sir. Mr. Miller. If you multiply that amount by 100 you will get how much? Mr. Mayo. It is approximately four and a half million dollars. Mr. Miller. All you pay for your amortization fund for the 100 years is $4,670,600, is it not? You were speaking of the Investment of the Government gradually being decreased. Mr. Mayo. Yes, sir. Mr. Miller. In your statement you referred to that. It will be decreased $46,746 a year on a $42,000,000 investment? Mr. Mayo. Plus the interest? Mr. Miller. Plus what interest? Mr. Mayo. Plus the interest it makes. Mr. Miller. Do not compound against the Government. You are compound- ing against the Government. Mr. Mayo. I think not; no, sir. Mr. Miller. The straight interest you will pay is $46,746 a year for that period ? Mr. Mayo. That Is not interest ; that is the retirement fund. Mr. Miller. Or the amortization fund. That is what I am speaking about. Mr. Mayo. To be put out at interest. Mr. Miller. Yes; but you said it would decrease the amount so much. Mr. Mayo. I aay so again. Mr. Miller. It will decrease it $46,746 a year, will it not? Mr. Mayo. And plus the interest. Mr. M1I4LER. If you place that out at compound interest and compound it against the Government, it will amount to $49,000,000 at the expiration of your lease, will it not? Mr. Mayo. I do not understand the language you use when you say "against the Government." Mr. Miller. You are getting the benefit of that compound interest if you amortize this proposition. Mr. Mayo. Certainly. Mr. Miller. And the compounding is against the Government. Mr. Mayo. I do not so understand it. Mr. Mlller. It is not against you, is it? You are getting the benefit of it, are you not? Mr. Mayo. But the Government gets the money. Mr. Miller. You are getting the benefit of the compound interest in figuring your amortization fund, are you not? Mr. Mayo. So is the Government. Mr. Miller. I say you are getting the benefit of that? Mr. Mayo. I am saying so is the Government. Mr. Miller. Then, if the Government has that amortization fund equal to the cost of the dam, it is compounding it against itself; there can not be any other interpretation to It. MUSCLE SHOALS PROPOSITIONS. 311 Mr. Mayo. I can not see it ; I may be dense. Mr. QuiN. Mr. Mayo, the Government is in this business of loaning money to the farmers through the Farm Loan Board, is it not? Mr. Mayo. So I understand. Mr. QuiN. Then, this money you pay this Government as a rental or for amortization could ordinarily be loaned to the farmers at 5 per cent, could it not? Mr. Mayo. I expect so. Mr. QuiN. They are now crying for money, and the banks can not let them have it. There would be no trouble about investing the funds, would there, after it was paid in? Mr. Mayo. I do not think so. Mr. Parker. Mr. Mayo, referring again to this question of being unable to manufacture profitably, no matter how hard you might try, I find that section 14 says that the company shall operate " except as it may be prevented by strikes, accidents, fires, or other causes l)eyond its control." Do you mean to .say you consider its inability to manufacture profitably a cause beyond it? control ? Mr. Mayo. I am not a lawyer, but that ivS a usual phrase in usual commercial contracts. Mr. Ford stands by that paragraph and is willing to take the con- sequences. Mr. Parker. I again ask the question: Do you consider the inability to manufacture profitably a cause beyond the coniipany's control, under that clause? Mr. Mayo. I can not definitely say. Mr. Parker. It is a very common thing, I believe, to have construction con- tracts on which money is paid out from time to time to the contractors and the whole thing is funded when the construction is done. Mr. Mayo. Yes. Mr. Parker. Is it not universal that interest is allowed on the moneys paid out in construction when the funding is done and included in the funding? Mr. Mayo. It all depends on the arrangement. Mr. Parker. Is not that the ordinary arrangement? Mr. Mayo. Well Mr. Parker (interposing). It is to be paid out of a fund in the end? Mr. Mayo. It is to be paid out of something. Mr. Parker. Under those circumstances, interest has to be added upon the amounts paid upon the initial construction? Mr. Mayo. Yes, sir. Mr. Parker. Have you built dams in a limestone country? Mr. Mayo. We have built small dams in our country, which is a limestone country. Mr. Parker. You know the dangers of a dam being undermined? Especially In a limestone country, with hidden channels forming under the limestone. Mr. Mayo. I think that trouble is liable to occur at the start, if at all. Mr. Parker. You do not think it is liable to occur during the hundred years? Mr. Mayo. I do not think so. Mr. Parker. If during the hundred years floods or an earthquake should destroy that dam the Government would have to replace the dam without get- ting a thing for that security? Mr. Mayo. Yes, sir. Mr. Hill. I have just one question I want to ask you, Mr. Mayo, in refer- ence to paragraph 14. If Mr. Ford's company should produce annually 110,000 tons of ammonium nitrate, that would be in full compliance with the contract, would it not? Mr. Mayo. It is not proposed to make ammonium nitrate at all, as such. That is not a fertilizer ingredient. Mr. Hill. Let us put it in another way. If Mr. Ford's plant should produce annually nitrogen or other fertilizer compounds equivalent to 110,000 tons of ammonium nitrate per annum, that would be in full compliance with the con- tract, would it not? Mr. Mayo. I would say so. The Chairman. We are very much obliged to you, Mr. Mayo. You have given us a great deal of very enlightening information. ■^^m MUSCLE SHOALS PROPOSITIONS. Committee on Military Affairs, House of Representatives, Tuesday, February IJ^, 1922. STATEMENT OF DB. RICHARD C. TOLMAN, DIRECTOR FIXED NITROGEN RESEARCH LABORATORY, DEPARTMENT OF AGRI- CULTURE. Dr. ToLMAN. Mr. Chairman, I represent the fixed nitrogen research labora- tory of the Department of Agriculture. We have carried out a large number of investigations as to the best metliods of utilizing the Muscle Shoals plant for the manufacture of fertilizer, and I shall be glad to make a statement, if you desire, concerning the kinds of material that can now be manufactured at that plant, the kinds of material that could be manufactured in the future or might be manufactured in the future ; then I would like to make a tentative statement as to the commercial possibilities; and then I have an authorized statement from the Secretary of Agriculture as to the attitude of the Depart- ment of Agriculture toward the Ford proposition. The Chairman. You may proceed in your own way to discuss these questions. Dr. ToLMAN. The Muscle Shoals plant is now designed to produce two mate- rials, it is designed to produce 220,000 tons of cyanamid per annum, which is later transformed into ammonium nitrate, amounting to 110.000 tons, as the final product of the plant. I have here a chart which shows the stages by which this transformation of nitrogen is carried out. This particular line [indicating on chart] represent*^ the raw materials which come into the process, air, limestone, coke, and a certain amount of coal for drying and heating pur- poses, and power, which might come either from the Wilson Dam or from the steam power plant. The final product which the plant now makes is ammonium nitrate, which was to be used, mixed with T. N. T., in explosives, and that is represented by this pile of material here. The size of the pile represents the approximate daily tonnage. Besides this final product, ammonium nitrate, which is now the product that the plant is designed to make, it can make a variety of other products. If the committee desires, I can tell you briefiy about the different possibilities as to what the plant might make as well as ammonium nitrate. The first material is ammonium sulphate, and that would be made from the ammonia by setting up sulphuric acid units which were shipped from the Old Hickory plant to make that material. Another product, in the making of which we would employ phosphoric acid, would be ammonium phosphate. Another product which could be made there by a method which we have worked out at the fixed nitrogen research laboratory is urea. Then we have ammonium nitrate, which might well be made in certain quantities even during peace time, because it is used in peace time in permissible explosives and might work to some extent into fertilizer products. The Chairman. What is urea used for? Dr. ToLMAN. That material is manufactured at the present time in Germany and has been manufactured to some extent in this country. It is used at the present time, in the largest quantities, as a stabilizer for celluloid, and because of the size of the moving picture inViustry considerable quantities of urea are used for that purpose. It is our belief that this material is being imported from Germany. We have tried to work out at our laboratory a process for this material which we believe is somewhat similar to the process used in Germany, although we believe we have some improvements over the proceiM^ used by the Germans. I have here a number of small bottles containing some samples of these chemicals which the members of the committee may examine at their leisure. 313 314 MUSCLE SHOALS PROPOSITIONS. • The main problem with ammonium nitrate as a fertilized compound is that although it is an excellent plant food, nevertheless it is a very deliquescent substance, in other words, it picks up water. We have made* a number of experiments in regard to the various possibilities of ammonium nitrate as a useful component of fertilizer products. We have gotten up methods for graining and oil coating the ammonium nitrate, and you might sell it in that form. We have also experimented with a compound of ammonium sulphate and amomnium nitrate, which is a double salt. This doublt salt is less deli- quescent than the ammonium nitrate, although not perhaps entirely satis- factory. Another method is to take potassium chloride and mix it with am- monium nitrate. The two salts react together to form a mixture which is nondeliquescent, and that material contains two substances which are useful in fertilizer, and which are used in fertilizer practice. Still another method is to mix ammonium nitrate and potassium sulphate together. Mr. QuiN. I would like to know the meaning of that term, nondeliquescent. Dr. ToLMAN. A deliquescent salt or material, is a material which, when ex- posed to the air will pick up water and become so moist that you can not use it in a fertilizer because it makes the fertilizer cake. I have here a sample of ammonium nitrate and if you expose that material it will take up moisture. This pile on the chart represents a certain daily production of cyanamid fertilizer. That is made from the first product that is produced, namelv. cyanamid, by hydrating and oil coating it. It is a material which is already used to some extent in fertilizer practice. The capacity of the Americaii Cynamid Co. at Niagara Falls is believed to be 64,000 tons per annum, and it is believed that the largest quantity of cyanamid used in a single year in America was in the neighborhood of 40,000 tons. The Chairman. When was that? Dr. ToLMAN. That was before the war; the exact year I do not remember. The figures were stated by the company. Since the total capacity of this plant in the form of cyanamid, which is th*^ cheapest form of nitrogen, which it produces, would be 220,000 tons, it is not believed that ^ny large proportion of the product of the plant could be sold as cyanamid . The material can not be used in mixed fertilizers in large amounts, for the following reasons: If used in large amounts it reacts with the acid phosphate to destroy its availability and it is also liable to produce dicyanodia- mide, which is a poisonous substance to plant life. It can, however, be used in quantities of about 50 pounds to the ton of mixed fertilizer, but that would not absorb anywhere near the whole production. We have made experiments which show that it can be more successfully mixed with basic phosphate, a material now produced by the Tennessee Coal & Iron Railroad Co. in Birmingham, and that it can be mixed with Thomas slag. a material which has been imported from Europe, and that it can be mixed with calcined phosphate, a new material which is not yet on the market. This small building with the string of bottles is a plant where we think special chemicals should be manufactured. Nitrogen, when mixed in the form of cyanamid, is combined directly with the carbon atom, and that leads to the possibility of the production of a variety of chemicals which could not be produced by other methods of nitrogen fixation, and we believe the plant could produce quite a variety of organic chemicals. The Chaibman. That is what is being produced at the present time? Dr. ToLMAN. The plant at the present time is shut down. The Chairman. Or it could be produced at the plant if it were put into operation? Dr. ToLMAN. The plant as it now stands is a real plant. One year after they started breaking ground their first product came through, but the plant as it stands will only manufacture as its final product, ammonium nitrate. Additions to the plant would have to be made in varying amounts to manu- facture this variety of products. Some of the additions would be relatively unimportant, such as putting in hydrating and oiling equipment for treating the cyanamid. To put in phosphoric-acid furnaces to make the ammonium phosphate would be more expensive. Those are some of the possibilities for the future. I have a set of samples showing the different stages in the process, a set showing the various fertilizer materials which could be manufactured, and a set of samples of the special chemicals. I will not stop to explain these un- less the committee desires me to do so. MUSCLE SHOALS PROPOSITIONS. 315 The Chairman. You might explain that. Dr. Tolman. This first case shows the stages of the process as now de- signed to be used at Muscle Shoals. You start with limestone, and coke, and nitrogen as your raw materials. You burn the limestone to form burnt lime and mix it with the coke and make calcium carbide. That is then ground up and put into a furnace through which nitrogen is passed, and you get your material which is called lime-nitrogen pig. Your other steps continue until you get the present product now made there, which is ammonium nitrate. If in- stead of treating your ammonia with nitric acid you treated it with sulphuric acid you will get ammonium sulphate. Then I have here another case which shows a considerable variety of fer- tilizer materials which could be made with various additions to the plant. These are the varieties of the materials which could be made and I will leave these here with the committee. Here, for instance, is cyanamid mixed with calcined phosphate. That is a form of phosphate which could be suc- cessfully mixed with cyanamid, and here is the mixed salt that could be made from annnonium nitrate and potassium chloride. That would be a satisfactory material. This case shows you some special chemicals which can be made with the lielp of nitrogen in the cyanamid form. There are only two substances which I would like to call special attention to. One is nitroguanidine, which is a substance that the Ordnance Department is now experimenting with as a constituent of smokeless powder. Nitroguani- dine can only be obtained from nitrogen in the cyanamid form. It is believed that there is a considerable possibility that nitroguanidine will be an impor- tant constituent of smokeless powder in the future. It was used by the Ger- mans to some extent during the war. At the present time the only place on this continent where you can get the material to make nitroguanidine is the plant of the American Cyanamid Co. at Niagara Falls, Canada. If the smoke- less powder used in the future should contain 50 per cent of nitroguanidine, which is perhaps an upper limit, the amount necessary to keep 100 divisions in the field per annum would be far larger than the total output possible at the Muscle Shoals plant. The reason why this material is a desirable substance for smokeless powder is because it has a high explosive force, and yet ex- l)lodes with a very low temperature rise, is a pure chemical substance and is nondeliquescent. In smokeless powder made out of nitrocellulose the charac- ter of the smokeless powder will depend to some extent on the character of the cotton. Nitrocellulose is not nondeliquescent and is not as dependable a sub- stance as a pure chemical. Another substance is veronal, a material used in sleeping tablets and that IS also manufactured by using cyanamid. Turning now to the value of the fertilizer compounds which could be made at Muscle Shoals, these are merely samples showing experiments which have been made. I have quite a number here. For instance, this photograph [indicating photograph] shows the yield of corn without any fertilizer being used, and this photograph [indicating photograph] shows the yield of corn when there were 80 pounds of phosphoric acid and 40 pounds of potash used to the acre. The yield has gone up. In this case [indicating photograph] nitrogen was used as well as phosphate and potash. Here [indicating photograph] 40 pounds of am- monia were supplied in the form of cyanamid. The Chairman. Let me ask you a question right there. In the first basket, which is overfiowing, was there no fertilizer used? Dr. Tolman. No fertilizer was applied. Mr. Garrett. What was the percentage of increase there? Dr. Tolman. This yield was 33.6 bushels of corn per acre without fertilizer, ihis one was 40.4 bushels, obtained by the use of phosphate and potash, and this one was 48.6 bushels, obtained by the use of phosphate, potash, and 40 pounds of ammonia to the acre in the form of cyanamid [indicating respective photo- graphs]. These were experiments which we carried out at Muscle Shoals. (At this point the witness exhibited a number of other photographs showing the increased yield of corn and cotton obtained by the use of nitrogen. ) Dr. Tolman. Mr. Chairman, I would like to try to make a tentative statement as to the possibilities of commercial success in the operation of the Muscle Shoals plant for the production of commercial fertilizer. You realize this is a difl[icult field because it is trying to make predicitions with regard to the future. This IS the way that the fixed nitrogen research laboratory feels about the possibili- ties there. i 316 MUSCLE SHOALS PROPOSITIONS. With nmmoniiini sulphate at its present market price, in tlie neighborhood of $50 a ton, if the Muscle Shoals plant is to be run connnercially to produce am- monium sulphate as its main product, the plant can not be run and made to pay expenses. If you regard the Muscle Shoals plant as mainly producing ammonium ulphate, then with the price of aniuionium sulphate at .$65 a ton, the fixed nitrogen research laboratory feels that the plant can just about pay expenses, and perhaps make a little profit, provided whoever runs the plant charges himself with a low enough figure for the water power which he uses, and does not make his capital charges too high. You might about break even, with ammonium sulphate selling at $65 a ton, if you charge yourself for power about three- quarters of a mill per kilowatt hour and do not take your capital charges on a sum larger than five or ten million dollars. I have to say these are our best guesses, because you can not make precise predictions in a field of this kind. I w^ould also like to make a statement as to the possibilities of the Muscle Shoals plant if you do not make anunonium sulphate your main product. If you go ahead and develop a plant for a variety of materials, including am- monium nitrate, ammonium phosphate, urea and special chemicals of various kinds, under these circumstances, I think the plant can be made a commercial success, provided the man who obtains the plant surrounds himself with the proper chemical and scientific talent. The Chairman. You spoke about having an authorized statement from the Secretary of Agriculture. Dr. ToLMAN. Yes, sir. The Chairman. Are you ready to give that to us? Dr. ToLMAN. Yes, sir; I have just reached that point. I have the authority of the Secretary of Agriculture to present the following statement : " The Department of Agriculture believes that the farmers of the United States would be benefited by the operation of the IMuscle Shoals plant to produce fixed nitrogen for use in fertilizers. " The department understands that Congress has already decided against the operation of this plant by a Government-owned corporation, and that operation must be by a private individual or corporation. " The department has collected a great deal of information as to the utiliza- tion of the plant and as to the possibilities for its future development, and stands ready to cooperate to the fullest extent possible with any agency which may secure the plant. " Concerning the Ford proposal, if its terms are sufticiently definite and binding to make sure that the plant will be operated continuously for the manufacture of fertilizer, the department looks with favor upon its acceptance, believing that it will result in making available a considerably increased supply of fertilizer in time of peace and give us assurance of adequate supplies of explosives in case of need. The department does not undertake to pass upon the terms of the contract, or venture an opinion as to whether they are sufficiently definite and enforcible to guarantee the continuous manufacture of fertilizer." Mr. Crowther. I would like to ask one question. Is there any opportunity for the production of nitrates at plant No. 1 which proved a failure? Dr. ToLMAN. Yes. sir. Mr. Crowther. That is a possibility? Dr. ToLMAN. Do you mean the plant or the i»rocess? Mr. Crowther. The process. Dr. Toi.?.rAN. The Haber i)rocess. I should like to say that I believe the Haber process is a very important one. Mr. Crowther. There is quite a plant there, is there not, that cost about $13,000,000? Dr. ToLMAN. Quite a plant, but it is not at all on the same scale that plant No. 2 is on, and is not yet successfully developed. Mr. Crowther. Do you think that would be the plant that Mr. Ford refers to in connection with experimentation and further production? , Dr. ToT/MAN. I believe it would be vei-y important to carry out further ex- perimentation on the method of fixing nitrogen by the Haber process. In fact, there are many people who believe the Haber process will replace the cyanamid process. There is already more capacity for nitrogen fixation in Germany by the Haber process than by the cyanamid process. Mr. Crowther. I do not understand that this contract binds Mr. Ford to undertake that in plant No. 1 ; his specification is confined to plant No. - entirely. MUSCLE SHOALS PROPOSITIONS. 317 Dr. ToLMAN. Yes, sir. We have carried out a considerable number of investigations at our laboratory on the Haber process. The main step of that process is to obtain a catalyst which will cause the union of the nitrogen and hydrogen to form anunonia. This is a sample of our catalyst, which we know is superior to any catalyst in America, and we believe it is superior to any in the world. It produces 36 per cont anui'onia at 100 atmospheres, while the Germans were getting in their plant about 5 per cent ammonia at the time of the armistice. The Chairman. There was an explosion in the German plant about a year ago. Dr. ToT.^rAN. There was an explosion at one of the two German plants that use tho Haber process, the smaller of the two that use that process. The ('HAHUfAN. The loss of life in that explosion was something terrific. Dr. ToLMAN. I believe so. The Chairman. I think our newspapers went on to say there were about 6,000 people injured and killed in that explosion. Would you consider that a safe process? Dr. ToLMAN. We do not know what it was that exploded at the plant. A committee has just been formed in this country at the call of the president of the National Academy to undertake an investigation of the explosibility of the substances involved at that plant, and we have not yet received sufficient information to tell what the causes of the explosion were. Until we get that information I think in any case it would not be wise to condemn the Haber process. I feel sure it can be operated with reasonable safety. The Chairman. There is one other company that is using that proce.ss at the present time in Germany, but it is a comparatively small company, is it not? Dr. ToLMAN. No ; it is my understanding that both plants are owned by the same company and the one which did not explode at Merseburg is much the larger of the two. The Oppau plant was the smaller of the two. It was nearer the allied lines, and is within the territory taken at the time of the armistice. The Chairman. I was of the impression that the plant which did not ex- plode was the smaller of the two. Dr. Tolman. I think it is the other way around. Mr. Pabkeb. The Haber process is used by the Syracuse plant? Dr. Tolman. At Syracuse, I believe, they are making about 12 tons of am- monia a day by the Haber process. Mr. Greene. Speaking of processes. Dr. Tolman, these questions which fol- low will be those of a layman. I do not understand the chemistry of this business, but I would like to get a little information in regard to the general principles. It is reasonable to assume that you chemists of agriculture have pretty well established what might be regarded as standard definite formula for the future regarding the necessities of the soil in the way of fertilizer. Dr. Tolman. Prof. Whitney, of the Bureau of Soils, is here to testify and he is qualified to speak on subjects of that kind. I am a chemist and not an agronomist or a water power expert and I can not answer that question, or questions in regard to the agricultural use of fertilizers in general, or ques- tions in regard to water power. Mr. Greene. You have made some reference to a term which is comparatively new to most of us ; that is to say, urea. W^hat is the percentage of nitrate in that? Dr. ToL^rAN. Forty-six and six-tenths per cent nitrogen. Mr. Greene. How does that compare with the ingredients now commercially employed? Dr. Tolman. It is very much higher. It has a very much higher content of nitrogen than any in the substances now used in fertilizer practice. Mr. Greene. Approximately, what will be the difference in the percentage? Dr. Tolman. In ammonium sulphate the percentage is 21.2. In the Chile nitrate the percentage of nitrogen is 15.7 ; that is, 95 per cent pure Chilean nitrate. Mr. Greene. Then it is the recommendation of you people who have made experiments with these things that any process or formula that makes for the development of this more highly concentrated form like urea is an advantage? Dr. Tolman. I would say they have certain advantages, but I would not like to see anything done which would crowd out of the fertilizer market certain low- 318 MUSCLE SHOALS PROPOSITIONS. I grade materials which have a detinite economic place in the market at the pres- ent time. Mr. Greene. That would have its peculiar trade advantages? Dr. ToLMAN. It would have advantages in the case of shipping from place to place. Mr. Stoll. How many tons of annnonium sulphate can be gotten from the 110,000 tons of the nitrate you would produce at Muscle Shoals? Dr. ToLMAN. If we were going to make ammonium sulphate there we would not make ammonium nitrate. The total capacity of that plant for making am- monium sulphate would be in the neighborhood of 190,000 tons. Mr. Stoll. That is in the shape of a fertilizer ingredient. Dr. ToLMAN. Ammonium sulphate is a material which is now used in standard fertilizer practice. Mr. Stoll. In what other forms do you use ammonia in the sulphate? Dr. Tolman. Nitrate of ammonia Mr. Stoll (interposing). Ammonia for fertilizer? Dr. Tolman. We consider fertilizer nitrogen as so much ammonia, even though the nitrogen is not contained in the exact form of ammonia. We speak of the organic ammoniates, such as dried blood, fish scrap, and garbage tankage, etc. We speak of it as containing so much ammonia. Mr. Stoll. Is ammonia a scarce element, hard to get? Dr. Tolman. There are at the present time two main sources of ammonia — from coke-oven by-product recovery and from city gas manufacture. The coke- oven by-product recovery is much the larger of the two; Mr. Stoll. Those are the only sources we have now? Dr. Tolman. Except the Muscle Shoals plant and other nitrogen-fixation plants. Mr. Stoll. Through the air or from the coke ovens? Dr. Tolman. Either through the air or from the coke ovens, and a small amount from gas manufacture for city gas. Mr. Stoll. Do you know the amount that is being made from coke ovens and from gas? Dr. Tolman. Prof. Whitney can tell you about that. Mr. Hull. Doctor, I judge from your answer to a question asked you some time ago that you think we should have something specific in the contract we make with Mr. Ford in order to protect the people in regard to overcapitalization on increased overhead in this proposition, in order to make a success of the com- mercial production of fertilizer; is that true? Dr. Tolman. I do not think that is quite what I said. Mr. Hull. I know you did not say it, but you suggested it. Dr. Tolman. I think what I said was that you could not manufacture sul- phate there at a profit if you charged yourself too large a quantity for the water power and too much for the working capital which you put into the busi- ness. With regard to the form of the contract which the Congress should require I have no suggestions to make, because that is entirely outside of my field. Mr. Hull. You spoke of the Government having decided not to develop it as a Government proposition. You would not recommend that, would you? You are acquainted with the difl^culties we w ould confront if we undertook to do that? Dr. Tolman. I think it would be very difficult to operate the plant by a Government department. That is somewhat different from operating it by a Government-owned corporation. But so far as my ideas on either of thoso subjects are concerned, I have not had enough experience to make any sug- gestions to you. Mr. Hill. Doctor, I understood you to say this plant had a capacity of about 190,000 tons of ammonium sulphate. Dr. Tolman. If you should turn the fixed nitrogen into ammonium sulphate. Mr. Hill. Has ammonium sulphate any place in explosives at all? Dr. Tolman. No. Mr. Hill. I think I also understood you to say that to make ammonium sul- phate you do not first create ammonium nitrate. Is that correct? Dr. Tolman. That is correct. Mr. Hill. The ammonium sulphate is an ingredient essential to certain types of fertilizer? Dr. Tolman. It is used in mixed fertilizers. Mr. Hill. If this plant were run at its maximum capacity for fertilizer, which would be 190,000 tons of ammonium sulphate, it would not have at tlu* same time any capacity for the production of nitrate, would it? MUSCLE SHOALS PROPOSITIONS. 319 Dr. Tolman. If the units for making ammonium nitrate were left there, it would have. Mr. Hill. Then you could not get 190,000 tons of ammonium sulphate? Dr. Tolman. Yes. sir; if you did not operate the ammonium nitrate units. Mr. Hill. If you had the two separate units, it would be a question of where you turned the power in; is that right? Dr. Tolman. If you are going to make ammonium sulphate or ammonium nitrate, down to this part of your process here [indicating], taking in this general range, your process is the same. Then when you get ammonia gas you can run it into sulphuric acid to make ammonium sulphate, or you can take a part of the gas and run it into nitric acid and make ammonium nitrate. If you are going to make ammonium sulphate and have to keep the capacity of the plant for making ammonium nitrate you could cease to operate a part of the plant. Mr. Hill. Then it w^ould be a comparatively simple matter to make ammo- nium nitrate if it were necessary? Dr. Tolman. Yes, sir. Mr. Hill. In the meantime the plant could be producing ammonium sul- phate? Dr. Tolman. Yes, sir. Mr. Miller. It is very desirable, is it not. Doctor, from an agricultural point of view, that the production of ammonium nitrate be encouraged in this country? Dr. Tolman. Ammonium nitrate or ammonium sulphate. Mr. Miller. Those things that go into the fertilizer. Dr. Tolman. You say is it desirable? Mr. Miller. I say it is desirable that there should be encouragement given to the manufacture of those substances. Dr. Tolman. That is a question? Mr. Miller. Yes. Dr. Tolman. That is my belief. Prof. Whitney will testify as to the need of nitrogen ; but that is my belief ; yes. (Thereupon, at 4.25 p. m., the committee adjourned to meet to-morrow, Wednesday, February 15, 1922, at 10.30 o'clock a. m.) COAIMITTEE ON MILITARY AFFAIRS, House of Representatives, Wednesday, Fehruary 15, 1922. The committee met at 10.20 o'clock a. m., Hon. Julius Kahn (chairman) presiding. The Chairman. Gentlemen, I expected this morning to begin with the other representative of Mr. Ford, but he has sent me word that he is ill this morn- ing and will not be able to come down until to-morrow morning. Dr. Whitney, of the Department of Agriculture, will be here in a very short while. The governor of Tennessee is here to testify before the committee to-day, and I will ask Mr. Taylor to say a few words in presenting the governor. STATEMENT OF HON. J. WILL TAYLOB, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE. Mr. Taylor. Mr. Chairman and gentlemen of the Military Affairs Committee, it certainly affords me a very distinct and peculiar pleasure to present to the committee this morning Hon. A. A. Taylor, governor of Tennessee. Perhaps some of the members of this committee who have been in congressional service a number of years remember Alf Taylor, as he served here as a Member of Congress for three terms from the first congressional district of Tennessee. As I said in the opening, it is a very great pleasure to me to present him to the committee this morning. STATEMENT OF HON. A. A. TAYLOR, GOVERNOR OF THE STATE OF TENNESSEE. The Cuairman. Gentlemen, Gov. Taylor, of Tennessee, will give his views on this Muscle Shoals proposition to the committee. We will be very glad to hear from you, Governor, in your own way. 929#0— 22 21 320 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 321 Mr. Taylor. Mr. Chairman and gentlemen of the committee, before proceed- ing I wish to thank the chairman and tliis committee on behalf of my State for the great courtesy that has been extended to us by your granting us the privilege of appearing before the committee at this hearing. I have a state- ment that I wish to read, and I hope you will pardon me for reading it, because I did not want to make any mistake, and I have therefore reduced the statement to writing. I must tell the committee that I feel a sorrow to find upon arrival here that a power company in my sister State of Alabama, known as the Alabama Power Co., is perhaps delaying and disturbing this committee's approval of Mr. Ford's offer for Muscle Shoals. I am sorry that my brother governor of Alabama, Mr. Kilby, is not here, for I believe he would agree with me that the Alabama Power Co. ought to withdraw its contentions, however righteous they are, or the Alabama Power Co. ought to change its name. No corporation should bear the name of Tennessee and Alabama which oppose the immediate acceptance of the Ford offer by this committee, and while I always will and shall hope not to strain Tennessee's hospitality to any corporation desiring to build up the State of Tennessee, yet I must say that no corporation or indi- vidual is welcome in Tennessee which opposes the immediate adoption by Con- gress of the Ford offer. I am further informed that the street railway troubles in two cities of my State, Memphis and Knoxville, are being adjusted and re- financed by interests in New York which are identified with and may be in control of the Alabama Power Co., and while I welcome their afforts to estab- lish the street railway transportation of Memphis and Knoxville on a sound financial basis, I must tell them that if they are opposed to the Ford offer I hope they will excuse me for saying that they are not welcome in Memphis or Knoxville— not welcome in Tennessee. No man, no interest, no corporation can oppose the Ford offer and be a friend to Tennessee and Alabama and their people and the people of the South. We who are here from Tennessee to-day are deeply interested, and this is our reason for seeking to appear before this committee. The Tennessee River is obstructed by the dam that has been built. We used to carry our products down the river into the Ohio River to market, but all navigation is done away with by reason of this obstruction. It is doubtless true that the original intention of the project was to generate power to operate machinery to manufacture the munitions of war, but now that the war is over, it is easy to convert it into a plant for the manufacture of the implements of peace. It is located in the heart of a great agricultural country ; in the heart of a great mineral country and timber section; perhaps the only virgin hardwood forests left in the United States. The only reason these vast resources have not been developed fully has been the lack of machinery and cheap power to oper- ate it. The Muscle Shoals project is, as you all understand by this time, unfinished. The Government has expended a great deal of money, which will be lost, lost forever, if the project remains unfinished. In the nick of time there steps for- ward a man who proposes to lease it and operate it if the Government will fin- ish it. It is my privilege to be acquainted with that gentleman, and my conduct with him has given me confidence in him as a very superior man. If I needed nn in- dorsement of him to increase my confidence in him, the indorsement of one man would be suflicient for me. Mr. Edison said in my presence that the immensity of the power to be generated by that plant when completed was impossible to conceive of, and the results, industrially, to the United States, of the completion and operation of that plant, were inconceivable also. At the same time he said that Mr. Ford is the man to take hold of iti and operate it. He is the man be- cause of his ability, because of his business sound judgment, and because he has the money. Now, this is the indorsement of Thomas A. Edison, whom I regard as the est man alive to-day. If invention is the chief civilizer of mankind. Thomas A. Edison has done more to advance civilization than any living man, for he is un- questionably the greatest inventive genius of the age. The completion, gentlemen of the committee, of this dam means a great deal to the United States and to us; in fact, it means almost everything. We are down in the dumps. We are depressed. We want this Congress to start some- I doubt if you have — I know that this committee has not great- ( thing to give us hope. had before it a question of so great and of such far-reaching importance as the question now before you since this committee had under consideration the proposition to provide an American army to participate in the AVorld W^ar. Why, the completion and operation of the Muscle Shoals project, gentlemen, means new enterprises. It means new fields for the employment of labor. It means the creation of new wealth. It means the enlargement of the basis of taxation. It means new life,' new hope. One of my brothers remarked that it was in the South and " what do we care for the South ; we are taking care of our own section." Now, gentlemen, we are here not to try to champion the cause of any particular State or any particular section. We are Americans and we believe that whatever is good for one section is good for all. When the Government of the Unitetl States was expending $116,000,000 in the interests of irrigation in the different sections of the West, we of the South rejoiced. We said amen ! We did not object to the building of the Roosevelt Dam, which cost so many millions. We did not object to the Government of the United States donating about 120,000,000 acres of the public domain to induce the building of railroads into those unde- veloped sections, to secure to them transportation. We said amen! What is good for the great West is good for the South. What is good for New England is good for the whole country. We ought not to allow these local prejudices to have anv weight, and, of course, they will not before this patriotic, intelligent committee. We were divided once. Thank God, we are all together now. There have be^n two periods in this country since we were divided and hostile when we were absolutely a unit. We were united in sentiment and in purpose. North South, East, and West, in the Spanish-American War, when the first blo^: ^o<^ to embarrass you at all, I would like to ask one question for my own information. I have not been to Muscle Shoals but I have read some articles about Muscle Shoals and have tried to inform mvself My information is that the shoals at the present time and in the present 'state of the development prevented any navigation, commercially, up the Tennessee tCuX'^h^ shoal^^^'* ^ '"'^^' ^'''™ ^''"' '^'''^'^' ^^^^ thereNvas navigatio^ Mr. Taylor. Yes, sir. thpt^wJ''-' ^^,^^^*^ ^^l^""} was there commercial navigation? I understand 100 feet '^ ''''^'' ^^^^^"^ "^""^ "'^* '* '^ ^ ^^^^ ^^P^*^ ^^*1 «^ some a ]lffJi^^\^^^i 'f *''"^' ^""^ ^^ '"^^ ^^^^ ^'^^ ^a^se boats we have to wait a little for a tide, but we got along pretty well. I remember that my father bv ^r^ l^?^ ^^^^. flatboats down the river loaded with iron to the Ohio River f>J way of the Muscle Shoals. ti ..f!!' ?^.^^' ^t^' ^^® "^^ *^ navigate on the Mississippi when we had low h. nf^ "* we have found recently that unless you keep over 2 feet of wateT l^i:^Tn Z Snessee?" ''^' ''^^^ ^^ "^ ^^""^^^'^-^^^ ^^^^^^"^ - -^ -It^iro^do^^n'^^^^^^^^^^^ ov^r^tle'shoa^s.^'^^^^ ^^^'^' ''^'''' ''^''^ ^"^ ^'^^^'^ km 322 MUSCLE SHOALS PROPOSITIONS. Mr. Hull. I understand that, but was there any real navigation? I am try- ing to be informed on this matter. Were there any commercial companies transporting grain down the Tennessee River and transporting other things up the river through these shoals? Mr. Taylor. There was a canal, sir, 5 feet deep. It was not large enough for a very large boat, of course. The Chairman. Is not your condition down there somewhat like the condi- tion over in Canada, where they have boats especially to go through the rapids? Mr. Taylor. Yes sir. The Chairman. And so you could always get through with a man who un- derstood where the rapids were and so on? Mr. Taylor. Yes, sir. Mr. Garrett. Governor, unfortunately, I did not get here until after you had started your statement. As I understand it, you indorse this proposition made by Mr. Ford, in its entirety, regardless of any other criticism. Mr. Taylor. I certainly do ; yes, sir, and I speak the sentiments of every man, woman, and child in my State. The Chairman. Gentlemen, this morning I expected to be able to call Mr. Worthington, of the Ford forqes, but Mr. Worthington this morning sent me word that he was ill and in bed and was not able to be out. Therefore, Dr. Whitney, of the Department of Agriculture, has kindly consented to tell his story regarding the Muscle Shoals matter. Dr. Whitney, the committee will be very glad to hear you, and you may pro- ceed in your own way, stating for the benefit of the record your name and the position you occupy. STATEMENT OF DR. MILTON WHITNEY, CHIEF OF THE BUREAU OF SOILS, UNITED STATES DEPARTMENT OF AGRICULTURE. Dr. W^hitney. Mr. Chairman, as Chief of the Bureau of Soils, which has the consideration of the fertilizer material problem, we have for a long while studied the materials available for use on the soil in increasing crop production. Some 20 years ago Sir William Crooks in addressing the British association made the announcement that if we did not work out methods of supplying our- selves with fixed nitrogen the limit of the production of wheat would soon be reached. This put the world on record, gave them notice that there was one very material step to be taken to find some way to get an independent supply of nitrogen, additional to anything that we now have, in order to keep pace in our crop production with the needs of the world. When the European war first started, before we got into it, we recognized the importance in this country of finding a method of fixing nitrogen for the use of our farmers. We knew that a great amount of the nitrogen that was available would be diverted to war purposes. We therefore constructed in the Bureau of Soils at the Arlington farm one of the first, if not the first, unit of the Haber process of fixing nitrogen. We investigated other proposed methods^ but decided that this was the best. When this country went into war we hatl the unit in operation as a testing plant, as a small unit, and the War Depart- ment took that over, enlarged it somewhat, and after the signing of the armis- tice moved it from the Arlington farm to the American University, where we have continued to cooperate in the perfection of this exceedingly difficult method. Regardless of what any interests say, it is the deliberate feeling of thP scientific men of the world that the time has come when it is essential for agri- culture that v.e have an independent source of supply of fixed nitrogen. The fertilizer industry, as you all know, is a comparatively new industry. We discovered our first phosphate-rock deposits in 18G5, and others shortly afterwards; and the potash deposits of Germany in about the same tinie^ Nitrates and nitrogen were not used for agriculture until the early part ot the last centurv* The first shipload of nitrate of soda sent over to London at the Instigation of Humboldt, or as a result of his travels, lay In the vessel until it waff dnmpea overboard. No one would venture to try this new fertilizer for crops. In 1830 a second shipment was sent over, which was sold, distributed, an^ used. Gentlemen, after all the years of civilization, the use of nitrate of soda ^ that is, the use of something that comes from outside the farm, from outsuit the country — was stiirted in 1830. - The fertilizer industry was started a little bit earlier by the digesting <'i bones in sulphuric acid.' They were mainly the bones of the farm that were MUSCLE SHOALS PBOPOSITIONS. 323 cracked up and treated with sulphuric acid. This was started, I tJiink, by some person in Scotland about 1780. Now, you have the beginning of the ferti- lizer industry. You can see that it is not a very old industry. The fertilizer industry has grown up as a scavenger industry. They have collected old bones ; they have searclied the plains for bulfalo bones; they have gathered up all of the bones from domestic slaughterhouses. Those were the first things that were com- monly used. The industry has now attained very large proportions, but it has never been put on a real chemical basis. This material that is gathered up from the cities and as waste materials from the factories and either used as it is or processed has been the chief source of our supplies. The time has come, however, gentlemen, when we must look to large and more independent sources. We can not depend upon the waste products. Let me tell you what we are depending upon now, and which is only sufficient to fertilize the crops of the Eastern States. Our great commercial crops of corn and wheat are not fertilized at the present time. They have got to be, if we keep pace with the needs of tlie world. In ammonia we have nitrate of soda, which comes from Chile and for which we dei)end upon a foreign source. That is the only source of nitric acid also, and that supply, which is scraped up off of the arid plains and crystallized out, is the only source of nitric acid for the entire world. All the world is bidding for that. Then we have sulphate of ammonia which is produced in our coke ovens, but the supply of sulphate of ammonia is limited by the amount of iron civilization needs. No one would think of coking coal for the value of the ammonia. It is a mere by-product, and the amount that we get is strictly limited by the amount of coal that is coked for use in the iron industry. Then we have cottonseed meal which is a very low carrier of ammonia. It has about 7 per cent of nitrogen, or a little over 8 per cent of ammonia. The amount of that is limited by the amount of cotton we need for our clothing. We would never think of growing cotton for the cottonseed meal. Furthermore, while the amunt of nitrogen is low as compared with other materials that we use for fertilizers, the protein content of the cottonseed meal is quite high. It is 35 to 40 per cent of protein which we need for stock- feeding purposes. So that as a feeding material cottonseed meal is one of the high-grade materials that we are using more and more for feeding pur- poses. Now, we in the Department of Agriculture recognize that cottonseed meal is an admirable fertilizer, but if it can be used for feed and the material is fed directly to the animals, you do not have the uncertainties of the climate that we have when we apply cottonseed meal to the soil in the hope and expecta- tion that we will raise a larger crop. We have the feeding value in itself, and it is better to use it as feed than as fertilizer. The same thing is true of animal tankage or dried blood which we get from our slaughterhouses. The amount of nitrogen that we draw from that source is limited by the amount of cattle we slaughter. We will never rai^e cattle and slaughter them for fertilizer uses. Now, it happens that the animal tankage and the dried blood, while they have a larger nitrogen content than cottonseed meal, are also valuable as feedstuflfs, and the tendency now is. and the desire of the department is, to favor the use of tankage and of dried blood for feeding purposes rather than for fertilizers. During the war the question was debated in the department whether we should issue an order that no cottonseed meal and that none of the organic materials that we use for fertilizers now that are fit for feeding cattle — that they all should be debarred from use for fertilizers, and the question was put up to me. I said it would be a very desirable thing, " but you have got to give the farmers a source of nitrogen supply to take the place of what you propose to withdraw from them." This gives you an idea, gentlemen, of the limitations on the nitrogen supply for the farmers now, and upon the need that we can make of those things if we apply them to other things, provided we can get a fixed supply of nitrogen from some other source. I think you will find — I know you will find that it is the sentiment of the scientific men of the world and of all those who have looked into these matters -> 324 MUSCLE SHOALS PROPOSITIONS. that the world now needs an independent supply of fixed nitrogen for fertil- izers to maintain the yield of crops. Now, at the same time that we were considering the nitrogen supply, we looked into the phosphoric-acid supply at the Bureau of Soils. We found that the methods of mining and of treating the phosphate rock were exceedingly crude and very wasteful. I think you will find in some instances that some- thing like 68 or 70 per cent of the rock that was mined of this valuable deposit upon which the world is dependmit for all time, that 68 or 70 per cent* of the rock was thrown on the dumps because it was not suitable for the manufacture of acid phosphate by the sulphuric-acid method. Furthermore, when you have a phosphate rock that carries 68 per cent of tricalcium phosphate and 32 per cent of phosphoric acid, the commercial method is to mix it in about equal weights with sulphuric acid of a certain concentration. One part of rock, one part of acid brought together, a chemical reaction sets in, and you have the ordinary 16 per cent acid phosphate made out of a 32 per cent rock. So that you have diluted it, you have added something to it. You have increased its weight twice in order to distribute the material that you want. This is uneconomical. . Now, the method we used for treating this rock, which I think I may say is the beginning of this talk about concentrated fertilizer, was to take the phosphate rock and add to it some connnon sand, and add to that some powdered coke. There is another advantage in this. If we take the high-grade rock which is selected for treatment with sulphuric acid, we have to add sand. If we take the run of mine rock, part of which is rejected because of its impurities, we do not have to add the sand, except possibly just to finish off the proper proportions. So that we can often take rock that has been rejected by the miners and mix it with coke and heat it in an electric furnace, using the Cottrell precipitator, which we were the first ones to try, and we can get a phosphoric acid that looks very much like the sulphuric acid, but which has different properties. This is brought down in a form more or less concentrated. This [indicating] is 76 per cent of phosphoric acid, and the rest is water. If we get the phosphoric acid out at a proper concentration and cool it. we get the crystallized phosphoric acid which is 100 per cent pure. All of the impurities have l)een left behind in the slag, and we have this beautiful crystallized phos- phoric acid. I think the committee would like to see this. I doubt if they have ever seen it because I had never seen it until we had prepared it. An interesting thing in this connection is the fact that this phosphate rock is treated commercially with sulphuric acid, and the rock has to be pure, otherwise it will use up so much sulphuric acid that its manufacture will be unprofitable. In the treatment of the phosphate rock with sand, we have another acid here, ordinary sand silica, and that, when liquid— and it liquefies at a tempera- ture of about 1,500 or 1.600 degrees, has the same acid properties that the sulphuric acid has at ordinary temperatures. So that by using this in a liquid form, it acts on the phosphate rock. It combines with the lime and sets free the phosphorus or phosphoric acid, and we get a complete recovery of the r»hosphorus, and a complete separation of all the impurities which we do not get with the sulphuric acid. Now, Mr. Chairman, we have then a phosphoric acid which in its present form is not adapted to plants at all; plants would be entirely unable to live in this solution as it is now. From the Haber process or from the cyanamid process we get annnonia gas which is perfectly colorless. You would not think there was anything there until you removed the stopper, and then you have a very, very pungent odor, similar to the ammonia of commerce. This also, in its present form, is not adapted for use, but if this ammonia gas is led into this liquid phosphoric acid, then you get a salt, an ammonium phosphate which has 12 per cent of nitrogen, and 61 per cent of phosphoric acid. Eliminating all impurities, you just have a salt, all of which will pay its freight. The ordinary method of taking care of this anmionia gas is to lead it into sulphuric acid, and if you pass this gas into sulphuric acid, you get ammonium sulphate; you get crystals of ammonium sulphate. This is what you use on your crops. This is something with which you are all familiar [indicating]. Now, let me call your attention to the wasteful method of the manufacturer. To make this sulphuric acid he has to bring pyrites from Spain or sulphur from Louisiana, burn it, and in the burning has to use a considerable amount of nitrate of soda and other things to get sulphuric acid. He has this very MUSCLE SHOALS PROPOSITIONS. 325 corrosive un'xture. sulphuric acid, which will destroy this table or anything with which ir conies in contact ; but he does get ammonium sulphate, but the sulphuric acid i§ simply a fixer, is simply a carrier, is simply something that puts it in cimdition under which plants will take it up. They will not take it up in this form. Now, instead of using sulphuric acid, which is merely a carrier, which has no value in itself, which pays no freight, and which adds an impurity, gypsum, to the prosphate rock, if that ammonia gas is led into phosphoric acid, which also can not be used by itself, then you get this concentrated fvmmonium phosphate which can be used and which is more valuable, pound for pound, than ammonium sulphate, because it has the nitrogen and it has the phosphoric acid, while the ammonium sulphate has only the ammonia and the sulphuric acid, which has no value at all. Now, Mr. Chairman, in considering the fertilizer industry and in consider- ing the possible changes in the methods of the fertilizer manufacturers, many of which are exceedingly wasteful, for example, in order to make up their particular brands of 2-8-2, or 4-8-4, they have to get materials that they can mix together ; that is, with no chemical change and no loss from mixing. They also have to get low-grade materials because they can not make out of high- grade fertilizer materials low-grade mixtures without adding fillers. The fertilizer manufacturers are very sensitive about this question of adding filler, but what they do is to import kainite from Germany. Kainite has 12 per cent of potash. The Chairman. What is that? Dr. Whitney. Kainite. They import kainite which has 12 per cent of potash and 88 per cent of worthless material. They pay the freight on it and they use it in their low-grade mixtures. They could just as well import muriate of potash which carries 50 per cent of potash and 50 per cent of impurities, but if they use muriate of potash in their low-grade fertilizers, they have got to add that 88 per cent of filler that was left over on the German soil. If they bring that high-grade potash and do not bring the low-grade, then they would be compelled to use a filler; that is, sand or peat or anything that would dilute it up, so that they could conform to their formula of 2-^2 and have so much in a ton of 2,000 pounds. The Chairman. What does that formula mean, two parts of what? Dr. Whitney. Two parts of ammonia, 8 per cent of phosphoric acid, and 2 per cent of potash. The Chairman. Does that simplify the matter so that the scientific men who are working on this thing can understand it better? Dr. Whitney. Yes, it is intelligible to them, and it is, I think, to the farmers, because they have come to speak in those same terms. The Chairman. Would it not be better if you could speak of the products themselves without referring to the component parts. Dr. Whitney. Possibly so. I may have to do both, and I will be sure to do both if I use the one. Mr. Greene. Doctor, very likely some of us who do not understand about fertilizers and are profiting greatly by your instruction, would like to know why this vehicle containing the fertilizer compound is necessary; in other words, why add this great bulk of useless matter to it? Why is it not dis- tributed upon the ground in its pure form? Dr. Whitney. That is the point I am coming to. Mr. Greene. All right. Dr. Whitney. The possibilities of that have not been realized until the re- searches of the Bureau of Soils have shown the possibilities. I am going to propose to you now a formula here, a complete fertilizer, that can be made from fixed nitrogen and from phosphoric acid, and from potash in one and the same plant. It is possible to get the ammonia from the Haber process or from the cyana- mid process. That is admitted. Then it is also admitted that that ammonia can be oxidized to nitric acid so that we can make both ammonia and nitric acid in the same process in the same factory. If ammonia and nitric acid are com- bined, you get ammonium nitrate. Now, this can be made in the same process. It can be made at Muscle Shoals. Ammonium nitrate has a nitrogen content of 35 per cent, exceeilingly con- centrated; 35 per cent against 7 per cent for cottonseed meal. It also has nitrogen present, in both the ammonia form and in the nitric acid form, which is considered of importance by the farmers. Now, if we have ammonium t i. i 326 MUSCLE SHOALS PROPOSITIONS. nitrate and if we have ammonium phosphate, Which I have already shown you that you get by leading ammonia gas into phosphoric acid prepared by the furnace method, then you can get potassium phosphate into this mixture. The potassium phosphate can be made in several ways. One of the proposed ways — and I am not sure that it will be successful because we have not finished our investigations — is instead of using sand in our mixture of phos- phate rock andi coke, to use the potash shales that carry about 8 per cent of potash; just dump that in with the phosphate rock and the coke in proper proportions, and the theory is that we will obtain potassium phosphate in that way, in one and the same operation. Mr. QxjiN. Could you answer this question? Is there a relationship between potash and this potassium phosphate? Dr. Whitney. Yes; the potash goes into combination with the phosphoric acid and gives a potassium phosphate. Here is the salt [indicating]. It is proposed to manufacture that, but the details of manufacture have not yet been worked out as well as these others. Now, if we take a mixture, therefore, of ammonium nitrate, of ammonium phosphate, and of potassium phosphate, which can be mixed in any proportion, and I have mixed them here in this bottle, so that in this sample of fertilizer there is 12.29 per cent of nitrogen, 49.17 per cent of phosphoric acid and 12.29 per cent of potash. You now have a mixture which has the fertilizer materials in the proportion of 2-8-2; that is, 2 per cent of nitrogen, 8 per cent of phosphoric acid, and 2 per cent of potash ; but if you wanted to dilute this in accordance with the custom in the fertilizer factories, you would have to add 83.73 per cent of a filler, and you would have to pay the freight and the tonnage on 84 per cent of material that is of no value to anyone except possibly to enable them to spread it more uniformly on the ground. There are not any impurities in this material, there is no filler necessary, and every part of this mixture carries its own freight, and none of it occupies useless space in the freight car. The Chairman. Let me understand you. Can you simply use the product and spread it over the soil without any filler or anything added to it? If so, will it then act just as well as a fertilizer? Dr. Whitney. Oh, yes. This has all the necessary properties. The filler you may put in if you want to. Now, that brings up a question which the fertilizer men have asked The Chaibman (interposing). Could you tell us why they put the filler in? Dr. Whitney. They put it in because it has become a custom, because they have sold these brands which, as I have told you. have generally been made of scavenger material. They have put this up in this form and have gotten the farmers used to it. The farmer is now beginning to get away from that practice. He is himself buying nitrate of soda. He knows how, and he is capable of using the concentrated form of nitrate of soda, which has 19 per cent of ammonia. He can be trusted to apply that. He is also using acid phosphate — 16 per cent acid phosphate. This formula I suggest has doubled that amount of phosphoric acid. I think if he can use it in the one strength he can use it in the other. The Chairman. Suppose he were to use it in excess of the strength that you give? Dr. Whitney. We have these different mixtures. The Chairman. What I mean is this: You say he can use it without the filler? Dr. WhTtney. Yes, sir. The Chairman. Suppose in spreading that over the soil he gets too much of the concentrated stuff in any particular portion of his farm ; what would happen? Dr. Whitney. He will very likely injure his crops, just as he injures his crop now if he puts on too much acid phosphate or lets the seed get too close to the acid phosphate, or if he puts on too much of the nitrate of soda. The Chairman. Then it would be necessary for him to study this proposition very carefully so that it would work out properly on his farm? Dr. Whitney. O, yes ; he has had to do that. Mr. Fields. The farmer can do the same thing by using it with filler, by ap- plying too much of it, can he not? I have seen farmers burn up their crops in that way. Dr. Whitney. Yes. Mr. Garrett. As I understood the inquiry of the chairman it was this: Ac- cording to your formula, out of a ton of so-called fertilizer as now distributed by the manufacturers, you would have 320 pounds of that mixture in a ton, and 1,680 pounds of filler? MUSCLE SHOALS PROPOSITIONS. 327 Dr. Whitney. Yes. Mr. Garrett. The process of distribution by the farmers now is by machinery that has been adapted to that work, so that he can so drill and arrange his ma- chinery as to distribute any number of pounds he wishes over an acre of ground. Now, then, I understood from the chairman's inquiry it was whether by the use of machinery it would be possible for the farmer now to readjust him- self and distribute 320 pounds of concentrated fertilizer where he had heretofore to distribute 2,000 pounds? Dr. Whitney. That is a very fair question. It has to be met in one of two ways. Our fertilizer distributors are not very satisfactory as we have them now. The makers of farm machinery have got to devise better machines for applying fertilizers. You all know that those we have are none too satisfac- tory. If it is desired to mix a filler with this so as to get it more dilute, this can be mixed with sand or with peat, or any material you want. It can be mixed on the farm, it can be mixed at the distributing point, by the dealer, or it can be mixed by the farmer. The Chairman. That explains my point of inquiry. If you will kindly pro- ceed, we will be obliged to you. I am very sorry to have interrupted you. Dr. Whitney. There have to be adjustments. This is not going to take place all at once. This is looking to the future; this is looking to the time when, instead of 8,000,000 tons of fertilizer we may have to produce 16,000,000 tons, or even more than that. It is a question of providing the material and putting it in concentrated form, and the question of how it is to be applied has to be worked out by the farm machinery men or by the manufacturers, or the farmers themselves. Mr. Fields. The farmer, in applying this concentrated fertilizer to the soil, will have to follow the instructions, just as he follows the instructions now in applying the fertilizer which he gets from the dealer. Dr. Whitney. Yes ; he has to take care. Mr. Fields. He has to be careful to follow instructions under the present system? Dr. Whitney. Yes. Of course, in getting a ton of fertilizer now you pay all the freight on 2,000 pounds. You get an equivalent amount of fertilizer material and pay the freight on 320 pounds by this other method. Mr. Garrett. That is what I wished to develop there in connection with the process of mixing after it gets to the farmer. He would have to pay freight on 1,680 pounds of filler in each ton of fertilizer. Dr. Whitney. That is what I mean now in reference to concentrated fer- tilizers. Of course, there are intermediate grades. For instance, when you take this rock phosphate and treat it with phosphoric acid you can get a double or a triple superphosphate that carries 45 to 50 per cent of phosphoric acid. That is a great advance over what we have been doing over the method we have been pursuing. But, strange to say, that concentrated phosphate is in very little demand. If we leave more of the filler in Florida or in Tennessee and deliver to Baltimore a concentrated acid phosphate that contains 45 or 50 per cent of phosphoric acid, the manufacturer in using it in his mixtures is obliged to restore to it, in order to get his formula, the impurities that equal those that have been left in Florida or Tennessee. I have spoken of the formula 2-8-2. I have here also mixtures of other kinds. Here is one of 10 per cent nitrogen, 8 per cent of phosphoric acid, and 4 per cent of potash. That is equally satisfactory as a mixture. The Chairman. Is that referred to as 10-8-4? Dr. Whitney. That would be 10-8-4, and it is a highly nitrogenous fertilizer. Here is one which is called 4-8-10, which contains 4 per cent of ammonia, 8 per cent of phosphoric acid, and 10 per cent of potash, which would be some- thing like what they use in the potato fields of Maine. And they can be mixed in all proportions. ^ Mr. Fields. The character of the mixture, or the proportion of the mixture, IS determined by the character of the soil to which it is to be applied? Dr. Whitney. Yes. Mr. Fields. And the crop to be grown? Dr. Whitney. Yes. Mr. Chairman, there is a situation in the fertilizer in- dustry now that is difficult to explain and difficult to understand. When the war came on we knew that potash would be denied us by an embargo on the German potash salts. Congress authorized investigations to find possible sources of potash in this country. We found that we have an 328 MUSCLE SHOALS PROPOSITIONS. ample supply of potash in this country for our needs. It is a question of manufacturing costs. The Bureau of Soils feels that we will eventually be able to supply our needs, but that is a prediction that I want you to take with caution, because it is tied up with manufacturing enterprises, and the potash is generally a by-product. So that while we know we can get the potash under stress, the question of how much we can produce in competition with the foreign supply is one that we can not answer. At the present time, or in 1920, the fertilizer numufacturers estimated a tonnage for 1921 of around 8,000,000 tons. As you will remember, the break in the business markets of the world, in the farmers' prices which they were able to get for their products, and the manufacturers' prices for their products began to appear in Washington about February. 1920. The indications were not sure, but we rather looked for a break to come. In March, the manufacturers contracted for their ammonium sulphate at prices then prevailing. They contracted for their ammonium sulphate in March of 1920 for the season of 1921. Now, by May and June, the break was very pronounced. The farmers had experienced their losses of revenue, and by the time the fertilizer men decided, or were deciding on their prices, from November to December, 1920, the market in fertilizer materials had broken and had gone to pieces, and by the time the farmers began to buy in the spring of 1921, the market was completely demoralized. The actual sales of fertilizer materials which it was anticipated would be about 8,000.000 tons in 1921, was approximately 4,500,000 tons, due to lack of buying power. That left the manufacturers with a large amount of material, of high-priced material, to carry over in 1922. Now, the difficulty of bringing down prices where mate- rial has been carried over for two years is very great. But it happens If their anticipations are correct, that the market for 1922 will not be much larger than the market for 1921, then they have a large part of their material that they will need in 1923, which was actually bought under contract prices of the spring of 1920. Now, there is no price for fertilizers. There is no price for fertilizer mate- rials. It is a buyer's market; you can get the material for what you are willing to give. At the present time there is a large excess of nitrate of soda in this country; there is a large excess of ammonium sulphate, although the dealers will tell you there is a great activity. But there is an excess of am- monium sulphate, although it is less than it Would have been if there had not been a shut down of the iron and coke ovens. There is a large excess of potash salts in this country, imported. They imported last year about the i^anie amount as they imported in 1913, but the purchasing power was gone and the price now is down below the 1913 price. To make any statement, to make any prediction of the amount of material that will be needed right now is very difficult. We have these surplus conditions in all lines of business; it is ad- mittedly abnormal. What we must look at here is not what the conditions are to-day, but what they will be when we return to a normal situation. They anticipated 8,000,000 tons of fertilizers to be called for last year. If it had not been for the intervention of the war and the fact that during the war period we saw no increase in fertilizer production, instead of having 8,000,000 tons we should have expected a market of about 10,000,000 tons, because there is a pretty steady increase of about 7^ per cent per annum in the consumption of fertilizers. That is as close an estimate as can be made, so that we should be looking for 10,000.000 tons of fertilizers before very long, and we would have had them if it had not been for the war. When the demand is increasing at that rate it is becoming more and more difficult to get adequate supplies of ammonia, and that is the limiting condition. We have plenty of phosphoric acid, and we are searching very diligently for potash. We can get it anyway from European sources. But the nitrogen is the limiting condition. If we have the fixed nitrogen products we have got to change our fertilizer system in order to use those fixed nitrogen products to the best advantage, an have they not? Dr. Whitney. Oftentimes they do. Mr. Parker. What about the Japanese? Dr. Whitney. They also rotate their crops. They have a much more intense system of rotation. They often raise four crops on the same soil in a year. Mr. Parker. All different crops? Dr. Whitney. Yes ; different crops. Mr. Parker. Those methods do add nitrogen, do they not ; that is, the use of cowpeas, etc. Dr. Whitney. Yes. Mr. Parker. As to the stall feeding of cattle, that adds the nitrogen — that is, the use of manure? Dr. Whitney. Just a moment. It is a question as to just what you mean. The stall feeding of cattle does not necessarily mean the adding of nitrogen from a source outside of the farm. Mr. Parker. I see that perfectly; but they add the nitrogen that goes into the crops that they eat? Dr. Whitney. Yes. Mr. Parker. And some of that comes out of the air, does it not? Dr. Whitney. If you have the leguminous crops, but if you take the ordinary pasture grasses and the grains grown on a farm and feed the animals with that you would get very little nitrogen. Mr. Parker. You save it? J Dr. Whitney. You save it, and you return it in a condition in which it is quite active. Mr. Parker. How about the phosphorus? Is there any phosphorus saved by stall feeding? Dr. Whitney. Yes; you save all of the phosphorus taken up by the crop from the soil. Mr. Parker. How about potash? Dr. Whitney. The same thing would apply; but you add nothing that comes from outside the farm unless you deliberately buy something and bring it in. Mr. Parker. I am speaking of the things not bought and brought in. They do add the nitrogen that comes from the leguminous crops? Dr. Whitney. Yes. Mr. Parker. Do these English farmers who have had such a successful ex- perience use much outside fertilizer, or do all of them go without it? Dr. Whitney. They use fertilizers very freely. :Mr. Parker. What about the Japanese? Dr. Whitney. They are using fertilizers now. Mr. Parker. I mean in their olden days. Dr. Whitney. No ; there were no fertilizers at that time ; that is, there were no fertilizers in the sense in which we understand them. ^ir. Parker. I mean chemical fertilizers. Dr. Whitney. No ; there were not any. Mr. Parker. During the period of growth of the English production from 12 bushels to 32 bushels an acre did the English farmer use much fertilizer? Dr. Whitney. He did not have it. Mr. Parker. And yet he made his crop grow from a yield of 12 bushels to a yield of .82 bushels an acre? Dr. Whitney. Yes; the fertilizers that have come up in modem times have given us another and an additional method to use in increasing crops. Mr. Parker. I am speaking of the men who make the real progress, the English and Japanese farmers. The English farmer, when he was bringing up his production, did not use outside fertilizers, and the Japanese, when he was maintaining his production, did not use outside fertilizers? Dr. Whitney. No. Mr. Parker. Are you familiar with the Haber process and the cynamid pro- cess, so far as the cost of material is concerned? Dr. Whitney. No ; not on a commercial scale. Mr. Parker. You do not speak, therefore, on the question as to whether nitrates can be made here so as to compete with the Chilean nitrates? Dr. Whitney. No. Mr. Paekee. Nor whether, by mechanical processes we can make potash to compete with the German potash? Dr. Whitney. In a general way only. Mr. Parker. You can not speak as to the costs? Dr. Whitney. No. Mr. Parker. The electrical furnace has to be used in some of these processes? Dr. Whitney. Yes. Mr. Parker. Is it a cheap or expensive way of getting heat? Dr. Whitney. It would depend largely on the cost of the power. We have operated an electrical furnace, and we are now operating a fuel furnace, and we have been studying the cost of production, but the cost of production in our laboratory experiments, of course, can not be applied to the commercial plant. « Mr. Parker. In your laboratory experiments, how did the cost of the fuel compare with the cost of the electricity? Dr. Whitney. The fuel is generally cheaper than electricity. Mr. Parker. How much? Dr. Whitney. It is generally considered about half as much. But that all depends entirely upon what you pay for your power. Mr. Parker. But I am talking generally. Dr. Whitney. In Hoboken, where we carried on some of our experiments, we were paying $25 per horsepower, and with that cost of power we considered that we could cut the cost of producing phosphoric acid something like half, and cut the cost of power something like half, if we used the fuel furnace. Mr. Parker. In producing phosphoric acid the fuel costs half as much as the other power? Dr. Whitney. At those rates; yes. Mr. Parker. Do you know enough about the cost of making these materials you have mentioned to know whether they can be made so as to compete with the phosphate rock and the German potash? Dr. Whitney. We believe they can. Mr. Parker. Have you any warrant, on a commercial scale, for saying that you can? Dr. Whitney. I think we have. Mr. Parker. You have not mentioned that. Dr. Whitney. I would rather not speak of that because I am not an au- thority. Mr. Parker. Who would be able to speak on that? Dr. Whitney. Dr. Tolman has been in direct contact with that. Mr. Parker. He said yesterday, as I recall, that as far as he can understand, sulphate of ammonia could not be made at present at Muscle. Shoals and compete with the sulphate of ammonia sold in the market. Dr. AVhitney. I do not believe we want sulphate of ammonia. Mr. Parker. He spoke of that as the simplest thing that could be made. These mixtures you have spoken of here have not been used in commerce, have they? They have not been used except in laboratory experiments? Dr. Whitney. They have been used in field experiments, but they have *iever been available for use in commercial work. Mr. Parker. These are propositions you think might come in? Dr. Whitney. Yes. Mr. Parker. That is all you can say about them? Dr. Whitney. I'es. ^Ir. Crowther. Doctor, there is some little difference, it seems to me, be- tween the statement you made to-day and the statement made by Dr. Tolman yesterday, and by some of the other witnesses, in regard to the fact as to whether this plant at :Muscle Shoals is presumed to make and was originally 334 MUSCLE SHOALS PROPOSITIONS. constructed to make ammonium nitrate. The question has been asked several times, how much ammonium sulphate, which they say is a component part of fertilizer, can be produced there. You say you do not think we want any ammonium sulphate, that the advantage is in the more highly concentrated nitrogen product. Dr. Whitney. Yes. Mr. Cbowthee. Then we do not need them? Dr. Whitney. I should not think so. Mr. Crowther. It has been said that this plant has a capacity of 110,000 tons of ammonium nitrate, which was to be treated by sulphuric acid and developed into ammonium sulphate for fertilizer purposes. Dr. Whitney. That is one way; that is the easiest way; it is the best known way. Mr. Crowther. As I understand you, you said it was rather a wasteful procedure? Dr. Whitney. That is my opinion. Mr. Crowther. What is the use of starting in on what is acknowledged by authorities to be a very wasteful proposition? Dr. Whitney. I think in working out their plans it will be a long while before they can get that into operation. Mr. Crowther. I realize that. Dr. Whitney. I have been working on these matters quite a little while. I made a statement before the Graham committee on war expenditures of the House (hearing before subcommittee No. 5 (Ordnance), 66th Cong., 2d sess., serial 6, pt. 50, p. 2878), and also made a statement before the Senate Committee on Agriculture and Forestry in hearings on the production of atmospheric nitro- gen. This matter hits been available, and all of us are thinking along these lines. I could not tell you what should be done without considering the whole thing. The methods available down there and the materials available down there and the fertilizer need, marketing possibilities and things of that kind are matters to be taken into consideration. I have only sketched before committees of Congress just the'idea that the concentrated fertilizer has got to be adopted to dispose in the most ready way and the most efficient way of fixed nitrogen products. The ammonium nitrate is not a good fertilizer itself ; it is not a sat- isfactory fertilizer. It will not mix in large proportion with our acid phosphate as we have it to-day. Cyanamid, as Dr. Tolman told you yesterday, is not a satisfactory fertilizer ; because it will not mix with our fertilizer materials. Mr. Crowther. Are these materials soluble; could they be used with a sprinkler? Dr. Whitney. These concentrated fertilizers are. Mr. Crowther. Then they could be used with sprayers, just as we use sprayers in orchards? Dr. Whitney. Yes. The Chairman. Will you kindly cite the title of the volume you referred to a moment ago, so it will be in the record? Dr. Whitney. This is a copy of a hearing on the production of atmospheric nitrogen. The hearing was held before the Senate Committee on Agriculture and Forestry in the second session of the Sixty-sixth Congress, and this is in part 2 of that hearing, beginning April 8, 1920. Mr. Fields. Doctor, what is the extent of our deposits of phosphate rock in the United States? Dr. Whitney. Very great. The first deposit was developed in South Caro- lina. That was a small deposit, a river deposit. That has been practically used up; at least, they are not working it now very much. The Florida phos- phate was next discovered. Those deposits are very large. The Tennessee de- posits are also large, although not quite as available to the fertilizer-using country. Then there are the western phosphates, which are enormous. Nobody knows the extent of those. They are tremendous. Mr. Fields. Have we large quantities of the potash shale you referred to in the United States? Dr. Whitney. Yes; we have a great deal of the insoluble potash rock; not so much of the potash shale, perhaps, but we have a great amount of potash material that could be used. The difficulty has been the cost of handling it. It is low-grade material and is not worth working over by itself. Mr. Fields In what section of the country is that found? Dr. Whitney. You mean the potash shale? ' MUSCLE SHOALS PROPOSITIONS. 335 Mr. Fields. Yes. Dr. Whitney. It has never been mapped, particularlv. There are known ld in each State (the American Fertilizer Handbook, 1920), the estimated amount of ammonia contained therein (estimate, 3.3 per cent), and the additional amount of nitrogen that would be required to bring the practice in the several States at least up to the present rate of use in Georgia. There are nine States that use more fertilizers per acre of land in crops than Georgia. Georgia was selected as a basis of comparison, because the intensity of use is nearly the same as in the United Kingdom, and is less than the practice in Germany in 1913. and he- <-anse of the general agriculture practiced as against the spec?ialized Florida and in some of the other coast States. use in i H 340 MUSCLE SHOALS PROPOSITIONS. Total acreage in crops in 1919, the tonnage of fertilizers sold in each State, and the additional amount of ammonia required to bring the intensity of use at least up to the present practice in Georgia. state. New England: Maine New Hampshire Vermont , Massachusetts. . , Rhode Island Connecticut...., Total Middle Atlantic: New York New Jersey Peimsylvania Total , East North Central: Ohio , Indiana IllLnois Michigan , Wisconsin Total , West North Central: Minnesota , Iowa Missouri , North Dakota.., South Dakota. . . Nebraska. ..—.., Kansas Total , South Atlantic: Delaware , Maryland Virginia , West Virginia. . . North Carolina. . South Carolina. , Georgia , Florida , Total , East South Central: Kentucky Tennessee Alabama Mississippi Total West South Central: Arkansas Louisiana Oklahoma Texas Total Mountain: Montana Idaho Wyoming Colorado New Mexico Arizona Utah Nevada Total In crops. Acres. 1,516,000 570,000 1,206,000 616,000 84,000 528,000 4,520,000 8,382,000 1,168,000 8,344.000 17,894,000 11,731,000 12,661,000 21,249,000 9,178,000 9,529,000 64,348,000 16,093,000 21,732,000 15,190,000 17,648,000 15,284,000 19,021,000 23,436,000 128,404,000 539,000 2,812,000 4,903,000 2,373,000 7,889,000 6,989,000 12,386,000 1,452,000 38,843,000 6,891,000 7,092,000 9,742,000 8,063,000 31,788,000 7,276,000 4, 950, 000 14,342,000 25,902,000 52,470,000 4,820,000 2,259,000 1, 669, 000 5, 027, 000 1,922,000 544,000 1,053,000 436,000 17,736,000 Fertilizer used in 1919, Total. Tons. 156,000 14,000 18,000 61,000 9,000 65,000 323,000 Per acre in crops. Poutids. 205 49 30 198 214 246 143 410,000 149,485 340,000 899,485 98 256 81 100 305,236 241,000 45,000 103,264 10,000 704,500 5,000 5,000 91,000 1,000 3,000 500 16,937 122,437 30,398 174,500 421,484 63,000 961,238 1,033,887 990,919 250,613 3,926,039 52 38 4 22 2 22 12 .6 .6 .1 .3 .08 115 150 172 53 244 295 160 345 202 193,000 109.366 297,903 110,000 620,269 64,427 97,724 40,000 46,000 248, 151 1,000 500 500 1,000 1,500 500 1,000 1,000 7,000 30 31 61 28 39 17 39 6 4 9 2 2 2 5 .04 .5 .6 .4 Ammonia used. Tons. 5,148 462 594 2,013 297 2,145 10,659 13,530 4,933 11,220 29,683 10,073 7,953 1,485 3,408 330 23,2)49 165 165 3,003 33 99 17 559 4,041 1,003 5,758 13,909 2,079 31,721 34,118 32,700 8,270 129,558 3,399 3,609 9,831 3,630 20,409 2,126 3,22.5 1,320 1.518 8.189 33 17 17 33 50 17 33 33 233 Additional required. TVM. 1,043 2,589 3,632 8,598 10,808 19,406 20,897 25,472 54,612 20,822 24,827 146,630 42,321 57,207 37,099 46,558 40,251 60,198 51,312 324,946 420 346 4,186 4,952 14,793 15,114 15,888 17,650 63,451 17,083 9,843 36,543 0(),803 130,332 12,70P- 5,947 4,389 13,238 5,024 1419 2 747 1 118 46,590 MUSCLE SHOALS PROPOSITIONS. Total acreage in crops in 1919, etc. — Continued. 341 In crops. Fertilizer used in 1919. Ammonia used. Additional required. state. Total. Per acre in crops. Pacific: Washington Acres. 3,891,000 2,850,000 6,065,000 Tom. 4,000 7,500 43,126 Pounds. 3 5 14 Tons. .132 247 1,423 Tom. 10,140 Oregon 7,277 Caliiomia 14,589 Total 12,806,000 ! 54,626 8 1,802 32,006 Grand total 368,800,000 6,905,507 40 227,883 771,945 We have always thought of the agriculture at least of northern Europe as being of the most intensive kind with the use of a relatively large amount of fertilizers. It appears from this table, however, that already in 10 of the States of this countrj^ the use of fertilizers is more intensive than in the European countries. The following table shows the fertilizer tonnage in 1913 and in 1919 as taken from the American Fertilizer Handbook, together with the increase or decrease in 1919 based upon the 1913 figures : State. Fertilizer tonnage. Per cent. State. Fertilizer toimage. Per cent. 1913 1919 1913 1919 New England: Maine New Hampshire Vermont Massachuestts. . 160,000 18,000 14,500 51,000 9,000 62,000 156,000 14,000 18,000 61,000 9,000 65,000 - 2 -22 24 ■20 South Atlantic- Continued. South C&rolina. Georgia Florida 918,336 1,120,693 213,728 1, 033, 887 990,919 250,613 12 -11 17 TMioflfi Island Total Connecticut 4 3,756,490 3,926,039 4 East South Central; Kentucky Tennessee Alabama Mississippi Total Total 314,500 323,000 3 75,000 84,060 474, 7:30 128,050 ia3,ooo 109,:i66 297, 903 110,000 37 30 -.37 -14 Middle Atlantic: New York New Jersey Pennsylvania.. 380,000 156,661 340,000 410,000 149,485 340,000 8 - 4 761,840 620, 269 -18 Tntftl 876,661 899,485 2 West South Central: Arkansas Louisiana Oklahoma Texas 52,000 98, 778 18,000 75,500 64,427 97, 724 40,000 46,000 East North Central: Ohio 183,476 193,899 30,000 57,985 4,000 305,236 241,000 45,000 103, 264 10,000 66 24 50 78 150 23 —I Indiana Illinois 122 —39 Michigan Wisconsin Total 244,278 248, 151 1 Mountain: Montana Idaho Total 469,360 704,500 50 800 200 200 500 200 600 1,000 800 1,000 500 500 1,000 1,500 500 1,000 1,000 25 West North Central: Minnesota Iowa 3,500 3,500 60,000 500 700 500 7,380 5,000 5,000 91,000 1,000 3,000 500 16,937 42 42 51 100 328 150 Wvoming Colorado New Mexico.... Arizona Utah 150 100 Missouri North Dakota.. South Dakota. . Nebraska 650 -16 Nevada Total 25 Kansas i29 4,300 7,000 63 Total 76,080 122,437 61 Pacific: Washington Oregon 1,500 4,500 36,000 4,000 166 7,500 66 South Atlantic: 50,000 169,000 412,434 31,852 840,447 30,398 174,500 421, 484 63,000 961,238 -39 3 2 97 14 Delaware Maryland Virginia California Total 43,000 19 42,000 54,500 30 West Virginia. . North Carolina. Grand total I.! 1 6,541,164 6,905,507 i 6 * Exclusive of Porto Rico. Note.— Increase or decrease (-) in 1919, compared with 1913. i f k 342 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 343 f.ZH ^ T ^''^}^ showing the intensity of use and fronp the second tSp L ^oiVii'^/ l-r'''^^*"Sl ^""^^v, *^ '''""^'^ ^PP^^^" tl»at the intensity of use in the so-called fertilizer States has already reached the maxinuim application It has long appeared to students of agriculture that the future development in the fertilizer 'industry would be in its extension westward into the so-called corn and wheiit States and the Central and Southwestern States. The increase shown both by tonnage and by percentage in the East North Central States Atlantic States is signittcant and appears to show the westward trend in the use of fertilizers while individual States, such as Oklahoma, Arkansas, Ken- «'?:u , V*®^^*"^' ^^^^ Missouri, appear to emphasize the same fact ^^lth this data before you and the knowledge of local conditions, I should be very glad to have you give me your best judgment in answering the ques- tions on the inclosed questionnaire. The questions which the bureau has to answer and which we hope to be able more intelligently to answer from your questionnaire are as follows: t, ^ « ci nuiu yuur (1) If the Muscle Shoals plant operated by the Government or by private m,Z 1'S^^"i''''^^*",^P7^^^.^ ^^'^? y^^^« ^^ Prev^rea to produce an- iiuallj 168,000 tons of sulphate of ammonium, could this countrv absorb this either for straight application to the soil or in mixed fertilizers, without seriously interfering with production by private capital? ^vimour (2) If the Muscle Shoals plant instead of producing sulphate of ammonium produced concentrated fertilizer materials such as ammonium nitrate am- monium phosphate, and potassium phosphate, which could be mixed in many proportions by the farnri^rs themselves or at Muscle Shoals or by fertilizer mauufacturers would the farmers be willing to use such concentrated materials either m mixed fertilizers or in straight application just as he emplovs nitrate of soda, ammonium phosphate, acid phosphate, and would he take \he pains which he must now take with nitrate of soda to use it so that it will not pfautkig time^^ coming undiluted into intimat- contact with the seed at (3) If the farmers would accept the concentrated form of fertilizers, could the coiintry absorb the equivalent of 2,000,000 tons of fertilizers carrying 44 440 tons of anraionia in addition to what is now produced •> ' ni .wl^ purposely refrained from discussing prices as these are relative and firt ^h «^"^^ '"^J" '"''°-'' conditions in the business world. It must be assumed that the fixed nitrogen products will have a relative value comparable with the ammonia derived from other natural sources ^i^mparauie wiin Very truly, yours, • Milton Whitney, Chief of Bureau. QUESTION N AIRE. is k vonr TtJa^^'TfT^^S?^^ ^""^ ''''^ '''^"^ knowledge of local conditions, nrodnctf in^i«To ""^ 'i fertilizer material, e.specially the ammoniates, were ?W x.^n S ^«/f .^"'^""ts, through the operation of the Muscle Shoals plant, lf«TonH '? ^ "" ^""^^y '"^''^^^ '"^ '"^"^ State for fertilizers or fertilizer mate^ rial, and if so, approximately how much greater than in 1919 *> Increase, per cent, . Decrease, per cent, . fern-lifer^' n?AT,^«nfo''^f ""?" ^^ developed for the manufacture of concentrated ^nlnhntP nr nf^^^^^^^^^ •''*'" ^^''^" the manufacture of ammonium Immoniifm sul^^^^^^^^^^^ fertd.zers, or of fertilizer materials at that point? Concentrated fertilizers. nr^iniri Jnl I ^^f^J' Pv''*' '"^^^''^ ^^ producing sulphate of ammonium, pioduced concentrated fertilizer materials, such as ammonium nitrate, am- Sn'^Ji^^K'^fP f ^' «n^ Potassium phosphate, which could be mixed in any pro- fu^is woni^fho T"^"" himself or at Muscle Shoals, or by fertilizer manufac- mfvprwlrH viL^ farmer be Willing to use such concentrated material either in mixed fertilizers or as straight applications just as he now emplovs the com- mercial grades of nitrate of soda, ammonium sulphates acid Xsrhates or other readily soluble fertilizer salts in straight appliatfons, ami ^3 he ^^^^^^ the pains to use it so that it will not dnmage the crop by coming undiluted into intimate contact with the seed at planting time? unaiiutea inio Answer yes or no. Please write on a separate sheet other information or discussion you desire to give and inclose in the penalty envelope without postage and return to the Bureau of Soils. Name: . Title: . Post ofl5ce: . State : Please return to the Bureau of Soils, United States Department of Agricul- ture, Washington, D. C. Following is the Ust of States, showing the consumption of fertilizers for the fiscal years ending in 1912, 1913, 1914, 1915, 1916, 1917, 1918, and 1919, com- piled from the most reliable statistics that are obtainable. In some of the States there are absolutely no accurate figures available. For the States in- dicated by an *, estimates have been made based on information obtained from State officials and fertilizer manufacturers. Fertiliser tonnage by States. state. Fiscal year ending- Alabama Arizona * , Arkansas , California Colorado* Connecticut* Delaware* Florida Goorgia Idaho* Illinois* Indiana Iowa* Kansas Kentucky* Louisiana Maine* Maryland Massachusetts* Michigan * Minnesota* Mississippi Missouri * Montana* Mebraska* Nevada * New Hampshire *. New Jersey New Mexico* New York* North Carolina North Dakota*.... Ohio Oklahoma* Oregon* Pennsylvania Porto Rico* Rhode Island*.... South Carolina South Dakota*.... Tennessee Texas Utah* .'■.*■ Vermont*....!!* ^;Fginia vVashington* West Virginia Wisconsin* Wyoming* , 1 30 31 30 31 1 30 31 30 30 31 31 31 „ Total. Hawaii Oct. June Dec. June Deo. ...do. ...do. ..do. ...do. July Apr. Dec. Apr. Jime Dec. Aug. Dec. ...do Nov. 30 Dec. 31 ...do — Oct. 1 Dec. 31 No law., No law.. No law.. Apr. 30 Oct. 31 No law.. Dec. 31 Dec. Dec. ...do Apr. Aug. Dec. June Mar. June July Dec. Sept. Dec. Jtme Dec. Mar. Dec. ..do No law. 1912 Tons. 452,215 500 50,000 50,000 500 48,000 30,000 187,927 1,103,864 1913 1914 1 31 "m 30 31 30 31 30 1 31 1 31 30 31 31 31 25,000 143,678 2,500 5,000 65,000 75,555 150,000 160,000 48,000 51,000 2,''.00 1^9,710 38,359 700 500 600 15,000 140,000 200 376,000 695,705 500 151,784 10,000 3,500 318,716 20,000 8,000 886,222 300 77,473 45,000 700 12,000 372, 108 1,400 31, 750 3,500 150 June 30 5,981,016 70,000 Tons 474,730 600 52,000 36,000 500 62,000 .50,000 213,738 1,120,693 200 30,000 193,899 3,500 7,389 75,000 98,778 160,000 169,000 51,000 57,985 3,500 128,050 60,000 800 500 800 18,000 156,661 200 380,000 840,447 500 183,476 18,000 4,500 340,000 18,836 9,000 918,336 700 84,060 75,500 1,000 14,500 412,434 1,500 31,852 4,000 200 6,560,345 67,000 Tons. 592,200 650 81,850 39,471 500 74,000 55,000 240,812 1,282,088 500 40,000 219,000 4,200 9,460 83,000 90,588 168,000 183,350 54,000 60,000 3,800 127,400 65,000 900 500 950 20,000 155,414 200 420,000 872,820 550 203,000 29,000 6,300 381,900 18,164 12,500 ,095,728 1,000 93,550 77,400 1,200 18,000 437,808 2,400 35,475 4,500 400 1915 1916 1917 7,367,628 80,000 Tons. 302,350 650 26,396 31,540 600 80,000 45,000 208,782 872,979 500 35,000 156,152 5,100 10,060 85,000 72,420 150,000 168,000 56,000 65,000 4,000 85,414 57,000 1,000 500 1,000 16,000 153,075 500 400,000 647, 188 600 225,000 25,000 6,500j 316,3191 20,000 11,000 670,610 1,500 77,390 17,500 1,5001 13,500 406,077 3,000! 46,010 5,000 500 Tons. 206,000 600 65,600 29,415 1,000 73,000 45,000 212,250 741,347 500 42,000 132, 159 5,000 7,940 62,000 96,426 155,000 154,000 53,000 70,000 4,500 75,667 41,000 1,000 500 1,000 18,000 129,800 500 400,000 650,000 700 187,848 20,000 6,500 268,455 37,725 12,000 833,624 1,500 91, 128 39,845 1,000 15,000 369,520 3,000 40,000 5,000 500 Tons. 210,000 500 58,500 43,964 1,000 78,000 50,000 214,088 895,897 500 45,000 156,000 5,000 7,600 93,000 98,264 160,923 191.900 64,000 91,455 4,500 76,717 65,000 1,000 500 1,000 20,000 176,483 500 420,000 849, 728 1,000 165,857 21,000 7,000 334,309 45,767 11,500 850,790 2,500 99,584 40,5001 1,000 14,500 496,2171 4, 0001 41,000i 6,500 500 1918 1, Tons. 289,990 500 88,500 32,036 1,000 80,000 54,000 197, 954 923,030 500 45,000 244,340 5,000 8,000 128,000 81,025 155,000 173,000 68,000 78,000 5,000 104,700 90,000 1,000 500 1,000 18,000 153,198 500 430,000 921,962 1,000 219,328 25,000 6,000 340,898 40,811 10,000 064,886 2,500 113,000: 58,000, 1,000; 16,000! 430,549 4,010: 59,036 7,500j 500! 1919 1, Tons. 297,903 .500 64,427 43,126 1,000 65,000 30,398 250,613 990,919 500 45,000 241,000 5,000 16,937 103,000 97,724 156,000 174,500 61,000 103,264 5,000 110,000 91,000 1,000 500 1,000 14,000 149,485 1,500 410,000 961,238 1,000 305,236 40,000 7,500 340,000 21,815 9,000 033,887 3,000 109,366 46,000 1,000 18,000 421,484 4,000 63,000 10,000 500 5,586,212:5,407,5496, 70,000 65,000, 224, 54316, 778, 743:6, 927, 322 80,000i 64,000 71,000 11 344 MUSCLE SHOALS PROPOSITIONS. ^ , , „ „ September 27, 1920. Col. J. H. Burns, Nitrate Division, Ordnance Department, Washington, D. C. Dear Col. Burns : In line with the cooperative work we have been carrying on concerning the operation of the Muscle Shoals plant, as well as the Haber process, and after consultation with you. I addressed a letter on August 14, 1920, to the commissioners of agriculture and directors of the experiment stations of the several States to obtain their opinions on certain phases of the problem. It seemed to me that they were in a position to advise in regard to fertilizer problems, as they either have charge of the administration of the fertilizer laws of the respective States or have been vitally interested through their investigational work in the general fertilizer problem. In this letter I laid before them in some detail the present status of the fertilizer industry and the relative intensity of use in the several States, asking them to give their judgment, so far as their State is concerned, as to whether and approximately how much, additional fertilizers would be used in their States in the event that a larger supply of fertilizer material, especially nitrogenous material, were made available through the operation of the Government plant, in order that I might determine whether the production of 168,000 tons of ammonium sulphate could be absorbed bv the country without seriously upsetting the present industrial relations. I sent these letters to representatives in 48 States. I have received up to date replies from 37 States. These 37 States represent 89 per cent of the tonnage of fertilizers in 1919. I sent out 85 letters and have received to date 46 replies. Three States did not express an opinion as to whether or not there would be an increase in fertilizers used in these States if larger amounts of nitrogenous material were supplied. These States in 1919 had a total consumption of 22,937 tons out of a total of 6,927,322 tons used in all States in 1919. Three States which consumed 29,000 tons looked for no increase in use in their States. Eight States which consumed 1,053,102 tons in 1919 expressed the opinion that there would be an increased use, but did not state how much. Twenty-three States which consumed 5,070,744 tons gave the probable per cent of increase. The average weighted increase to be expected, according to the judgment of the officials of these 23 States, is about 17.2 per cent. This, applied to the total tonnage of 1919, would indicate that 1,191,499 additional tons of fertilizers could have been consumed if the fertilizer material had been available. If we use the factor 3.3 per cent for the ammonia content, it would be equivalent to 157,276 tons of ammonium sulphate. This is close to the estimated capacity of the Muscle Shoals plant In no case was any doubt expressed bv the officials that the product of the Muscle Shoals plant could be absorbed without serious disturbance to commercial production. My opinion, previously expressed to you, that the production of 168,000 tons of ammonium sulphate could be absorbed into the fertilizer industry of this country is thus confirmed, as, if I had taken their maximum estimates, the amount stated by them which could be used would considerably exceed this figure. The general opinion of the correspondents is that there is at present and has been for a long time a serious shortage of fertilizer materials, especially of the nitrogenous materials, and they seemed to feel very strongly that the operation of the Muscle Shoals plant, with the production of fixed-nitrogen compounds, would be of great benefit to agriculture. I called the attention of the State officials to some of the difficulties in the use of fixed-nitrogen products, such as cyanamid and ammonium nitrate, in the system that has always prevailed in this country of depending largely upon mixed fertilizers. I also called attention to the waste of phosphate-rock mate- rial in the present system of acidulating with sulphuric acid. I suggested that this waste could be eliminated by the preparation of liquid phosphoric acid from mine-run material and from low-grade rock, which could then be fixed by introducing potash or ammonia, with the formation of potassium phosphate or ammonium phosphate, to which ammonium nitrate could be added without chemical change taking place. I told them that in my judgment the time had come to put the fertilizer industry on a real chemical basis. After laying before them such details and such opinions of my own. I asked them whether, in their judgment, the Muscle Shoals plant should produce am- monium sulphate or should produce concentrated fertilizer material of the above kinds. Four States, which used in 1919 a total of 17,000 tons, expressed no opinion on this point. Two States, which used 46,500 tons, advised that MUSCLE SHOALS PROPOSITIONS. 345 ammonium sulphate be produced. Thirty-one States advised the manufacture of concentratea fertilizer materials. These 31 States represent practically 99 per cent of the tonnage of 1919 from those States reporting and about 87 per €ent of the total tonnage of all States in 1919. I further asked my correspondents if in their judgment, if concentrated fer- tilizers are produced, the farmers would take pains to apply them with the same care that they now have to exercise in applying straight nitrate of soda or acid phosphate so that they will not come into direct contact with the seed at planting time. All of the correspondents who favored the production of concentrated fertilizers expressed the opinion that with suitable warning and a campaign of education the farmers could and would use concentrated fertil- izer materials safely. I trust this information will be of interest and value to you. Very truly, yours, Milton Whitney, Chief of Bureau, Mr. Fields. Doctor, from your study of the subject, what has been the average mcrease in the production of corn by the use of fertilizer? If you will put in the hearing a table showing the average increase in the yield of the staple crops of the country by the use of fertilizer it will be of great assistance to the com- mittee. Dr. Whitney. I think it will be very difficult to state that in any fair way. We have not the information in regard to general use. We have the information in regard to some of the fertilizer experiments that have been carried on in this country, but it is hardly fair to apply those to general use. Mr. Fields. Any figures you could give us to show the benefit of fertilizer ap- plied to the soil in the production of crops would help us. Dr. Whitney. I will try to get up some data that will be satisfactory. Average increase per acre of all fertilizer experiments in the United States published up to 1910, with the number of experiments reported up to that time. Corn. Fertilizer. Mineralfertilizers: Single fertilizer materials contain- ing ammonia, from mineral sources, acid phosphate, or potash Minerals in combination of two of the above elements Complete mineral fertilizer con- taining all three of the above elements Organic fertilizers: Single organic fertilizer material. . Organicfertilizer material in com- bination with a(Md phosphate or potash Complete fertilizer containing ammonia in organic form, acid phosphate, and potash Num- ber of experi- ments 1,622 1,036 1,233 302 364 1,037 Aver- age in- crease in bush- els. Wheat. 3.7 11.0 14.5 4.6 7.2 10.8 Num- ber of experi- ments. Aver- age in- I crease in bush- els. Potatoes. 799 378 534 151 161 377 2.0 4.6 8.9 2.2 3.7 7.5 Num- ber of experi- ments. 295 254 226 60 128 269 Aver- age in- crease in bush- els. Cotton. 10.5 29.6 48.5 23.7 49.3 53.5 Num- ber of experi- ments. Aver- ages in- crease in pounds. 559 280 311 209 469 730 54.0 82.5 160.4 72.0 109.4 130.3 These summaries include all published records regardless of the character of the soil, the climatic con- aitions, or the length of time fertilizers have been applied, or the previous treatment of the soil. Thev are, however, the best summaries that can be presented at this time. Mr. Chairman, there is a great deal of information regarding that matter. The Bureau of Soils compiled all the results from all the experiments that had been made with fertilizers about 10 years ago and has published a bulletin analyzing the whole question. But it is very hard to draw a general comparison because we do not know the soils that they were used on, and we know nothing except the figures. We have to accept those as they come. 346 MUSCLE SHOALS PROPOSITIONS. Mr. Fields. 'I want to get back to the subject of the filler used in the fertilizers. Did I understand you to say early in the hearings that much of the filler used la fertilizer was contained in the product shipped from Germany? Dr. Whitney. It is used in products from our own country. For example, we use acid phosphate that carries only 16 per cent of phosphoric acid. The rest of it is filler. In our ammonium sulphate we absorb our ammonia in sulphuric acid. Mr. Fields. Do we get potash from Germany in concentrated form? Dr. Whitney. Yes ; potash comes to us in two forms — as muriate of potash and sulphate of potash, each having 50 per cent of K2O. That is as concentrated as we can get it unless in making these concentrated fertilizers we get the potash in the form of phosphate of potash, potassium phosphate. Then it would not be a filler, but it would be a valuable constituent. Now, the sulphate and the chloride in w^hich we get it from Germany are unnecessary, but they are the most concentrated forms we have unless w^e can make them in this country. Mr. Fields. At any rate, if a farmer buys 2 tons of fertilizer of 16 per cent phosphoric acid, he is getting 640 pounds of fertilizer and 3,360 pounds of filler. In addition to the freight charges, he must pay for the handling of all this bulk. Dr. Whitney. Yes ; and also for the sacks. Mr. Fields. And also the drayage, the expert men and the labor in handling it, which is a very large item in this type of fertilizer. Dr. Whitney. Yes. Mr. Fields. I believe you have referred to two or three methods for the ap- plication of this highly concentrated fertilizer that you have showed us here. Dr. Whitney. Yes. Mr. Fields. It could possibly be mixed with sand, as the phosphoric acid seems to be, and put on the soil by the farmer under instructions given, just as he must follow the instructions given in connection with the fertilizer he now buys? Dr. Whitney. Yes ; or it could be put on in its concentrated form. Or where large quantities are used, as on the truck soils and the citrus-fruit soils, it could be put on by sprays. Mr. Fields. Judge Parker questioned you about the fertilization of the soil by stall feeding of cattle. My experience has taught me that that is a splendid way, but it does not supply enough fertilizer to meet the requirements of the farmer. Dr. Whitney. No; the amount is insufficient, and besides that the difficulty and the expense of transporting such a bulky material as manure is very great. It is not practicable, except for intensive agriculture in the market gardens. Mr, Fields. Take, for instance, the fertilizer from a 40-acre field of corn. If it is handled with the greatest care it would not fertilize that same number of acres. It would only fertilize a small part of that. Dr. Whitney. Yes. Mr. Fields. Put on by the most scientific methods, and, we will say, by the best manure spreader that could be had. Dr. Whitney. Yes. Mr. Fields. It probably would not fertilize one-fifth of that area. Judge Parker also referred to the fertilization of the soil by the growing of cowpeas, which is another splendid method, if you need to produce cowpeas as an agri- cultural product. Dr. Whitney. I'^es. Mr. Fields. But it is a very expensive method if you are producing that for the fertilization of the soil alone. Dr. Whitney. Yes. Mr. Fieij)S. In countries which are not adapted to the production of cowpeas, where it is difficult to save the seed, the farmer must buy his seed as is the case in my country largely. My experience has been that if he buys the seed, then the cowpea seed will cost more than the fertilizer, and in addition to that there is the cost of plowing the land and planting the crop. Dr. Whitney. And losing the use of the land for other purposes. Mr. Fields. For one year. Dr. Whitney. Yes. Mr. Stoll. The main object of plants like plant No. 2 at Muscle Shoals, I be- lieve you stated, was to make fixed nitrogen. What do you mean by fixed nitro- gen? MUSCLE SHOALS PROPOSITIONS. 347 Dr. Whitney. It is really the free nitrogen of the air, which is very inert and Tery difficult to react, to fix that in some form in which it will be active and beneficial to the crops. Mr. Stoll. What form must it be in to be beneficial to the crops? What do you call it when it is in the shape that will be beneficial to crops? Dr. Whitney. In a general way we speak of it as ammonia, because that is the simplest form. Mr. Stoll. That is what I thought. Dr. Whitney. But it may be put into the form of cyanamid, or urea, or nitrate of soda, or ammonium sulphate, but we fix it in a way so that we designate it as a fixed nitrogen product. Mr. Stoll. The farmer understands it as ammonia. Dr. Whitney. He would value it as ammonia. Mr. Stoll. In what form is ammonia used for fertilizer? Is it in the sulphate? Dr. Whitney. It is used in the form of ammonium sulphate ; but it is referred to as ammonia, even when it is present as nitric acid in sodium nitrate, or as in organic forms of nitrogen in cottonseed meal or tankage. Mr. Stoll. What I am after is to find what you get out of the air. It would be sulphate of ammonia you would get out of the air, would it not? Dr. Whitney. No ; in the case of the Haber process, it would be straight anmionia gas. In the case of the cyanamid process, it would be, as Dr. Tolman told you yesterday, cyanamid from which ammonia can be made by heating it under pressure by steam. Mr. Stoll. Dr. Tolman, who testified yesterday stated, I believe, that nitrate plant No. 2, if it makes 110,000 tons of nitrate would yield about 190,000 tons of sulphate of ammonia. Dr. Whitney. No ; It will make either. It will not make both. You can get your ammonia out from your cyanamid and you can convert part of it into nitric acid and dissolve the rest of the ammonia gas into nitric acid and make ammonium nitrate, or you can dissolve some of the ammonia gas into sulphuric gas and make ammonium sulphate. Mr. Stoll. But what I am especially after now is the statistics. If we get 190,000 tons of sulphate of ammonia, that would be in form to be used as fertilizer. Dr. Whitney. Yes. Mr. Stoll. What per cent of fertilizer now used is sulphate of ammonia? Dr. Whitney. That is very difficult to tell ; very difficult. In 1917 and 1918 the proportion of ammonia used in fertilizers that was derived from ammonium sulphate was between 16 and 17 per cent. Mr. Stoll. Perhaps I can get at what I want in this way, what other sources of ammonia have we? Dr. Whitney. We have nitrate of soda, and about 29 per cent of all the nitrogen in our fertilizers in those years was derived from sodium nitrate. Then we come down to the animal tankage which is one of the organic forms or nitrogen or ammonia, and there was about 15 per cent derived from animal tankage. There was about 2 per cent derived from garbage tankage. There was about 2^ per cent from dried blood and about 14 to 15 per cent from cotton- seed meal. There was about 2 per cent from fish scrap and the rest was from small sources, waste materials. Mr. Stoll. Can you state how many tons that would be in the shape of fertilizer or ammonium sulphate. Dr. Whitney. Yes, knowing the number of tons that were produced that year, we could, of course, arrive at that. Mr. Stoll. I wish you would put in the record the number of tons of ammonia we now use. Have w^e got a sufficient supply of it? Dr. Whitney. As I tried to show a while ago, we have a sufficient supply. We have an overabundant supply just now of nitrogen, in all its forms, because the farmers did not purchase last year. Mr. Stoll. I understand that, but I mean under normal conditions have we enough. Dr. Whitney. Under normal conditions, of course, we have been keeping up with the demand for fertilizers, but there has been an impossibility of get- tmg nitrogenous material in suflficient amount for any great expansion of the use of fertilizers. I have had this matter up with the fertilizer manufacturers. If they were successful in getting a demand of 2,000,000 tons of fertilizers in the wheat and corn States, we then could not get the nitrogen to supply it. It 348 MUSCLE SHOALS PROPOSITIONS. ^o\\^ one of the reasons that the use of fertilizers has not been pnslied more rapidly is that the supply, particularly of nitrogen, has been insufficient to meet any rapid increase or drastic increase in the amount of fertilizers that would be required. Just now we have a surplus of fertilizer material, but. under normal conditions we would expect about 8,000,000 tons. If it had not beea SJi -.n^jJJIl'^^ ^^^ expectation would have been at this time about 9,000,- 000 or 10,000,000 tons. The limitations on the amount of nitrogen by the in- crease in the use of fertilizers, and particularly by the increase in the amount that IS fed to cattle, would make it very difficult for us to manufacture nor- mally now 10,000,000 tons of fertilizers. ^ Mr. Stoll. In the formula of 8-3-^, which is the one most commonly used m my Stiiti' — South Carolina— how much ammonia is in that formula' Dr. Whitney. There are three units of ammonia and a unit is 20 pounds, so there is 60 pounds of ammonia in a ton of fertilizer. nJl^!L?l^^^- ^ "^^^^ ^^ ^ pounds of ammonia in a ton of 8-3-3, and about J00,000 tons of ammonia can be manufactured at nitrate plant No. 2 that would furnish almost all the ammonia needed in the formula of 8-3-3, would Dr. Whitney. For the country or for 8,000,000 tons? Mr. Stoll. Yes. Dr. Whitney. No ; I showed a while ago Mr. Stoll. That would make around 8,000,000 tons of fertilizer, would it not' Dr. Whitney. I showed a while ago in my letter that is quoted by Senator Smith in the Congressional Record of January 7, 1921, that we were using at that time 227,833 tons of nitrogen. Now, I understand the capacity of the Muscle Shoals plant to be about 40,000 tons of nitrogen. Mr. Stoll. No, sir ; Gen. Williams said it would produce about 200,000 tons of sulphate of ammonia. Dr. Whitney. Two hundred thousand tons of sulphate of ammonia Mr. Stoll. And I think Dr. Tolman said about 190,000 tons. Dr. Whitney. And 110.000 tons of ammonium nitrate, but the production of nitrogen is about 40,000 tons. Dr. Tolman. One hundred and ninety thousand tons of ammonium sulphate contains about 40,000 tons of nitrogen. Dr. Whitney. And we are using 227,000 tons of nitrogen. Mr. Stoll. I thought it would produce 190,000 tons or 200,000 tons of ferti- lizer material. That is where the mistake comes in. Dr. Whitney. Yes ; of course, you know, in figuring these things, 40,000 tons of nitjogen to be converted into ammonium nitrate has to be converted first into ammonia and then into nitric acid, so that by the time you have oxidized and added to it you get out of your 40,000 tons of nitrogen 110,000 tons of am- monium nitrate or 190,000 tons of ammonium sulphate. Mr. Stoll. I notice from the statement that has been submitted here that my State uses about one-sixth of the fertilizer used in the entire United States, and using more than any other State I thought that if this would make all the ammonia needed it would be a very important item. Dr. Whitney. No ; it is only a part. It is 40,000 tons as against 227,000 tons. Mr. Parker. Doctor, I am somewhat puzzled by your formula of 8-3-3 You said "3" was the ammonia in the other figures, and I thought the first one represented ammonia, the second one phosphorous, and the third potash, but in the 8-3-3 you made the ammonia " 3." Dr. Whitney. Let me tell you about that. That is a difference in practice between the North and the South. In the Northern States the ammonia is always given first, and that would be 3-8-3. In the Southern States the phos- phoric acid is invariably given first, and the same formula would be written o— o— 3. Mr. Parker. That is to say, in each case it means 8 of phosphoric acid. Dr. Whitney. Eight of phosphoric acid. Mr. Parker. Three of potash. Dr. Whitney. Three of potash. Mr. Parker. And 3 of ammonia. Dr. Whitney. Yes, sir. Mr. Parker. That makes it plain. I now want to ask you one other ques- tion. Something has been said about cowpeas; all beans' and peas take am- monia from the air, do they not? Dr. Whitney. Yes ; all leguminous plants. MUSCLE SHOALS PKOtOSITIONS. 349 Mr. R\rker. And some of them will ripen in any climate, for instance. Dr. Whitney. Yes. Mr. Parker. If you take any soil on a farm, all the nitrogen that is in it has been Brought there from the air by plants, if it has not been fertilized? Dr Whitney. Well, we are uncertain about that. We would not say that. We do not know. '' Mr. Parker. On the ordinary farm there are no nitrates'? Dr. Whitney. Oh, yes. Mr. Parker. As to the potash ; that comes out of almost every pebble, espe- cially if they come from granite rock. Dr. Whitney. Yes, sir. Mr. Parker. And as those pebbles break into smaller pieces more potash is formed. Dr. Whitney. Yes, sir. Mr. Parker. As to the phosphorus, that is about the same, too. It does not come from the air, but certain parts of the mineral on every farm contain some phosphorus, or ought to. Dr. Whitney. Yes. Mr. Parker. But very little. Dr. Whitney. It is a small amount ; yes. Mr. Parker. And there is quite a quantity of potash, if it can only be put m usable form on almost every farm? Dr. Whitney. Yes, sir. Mr. Crowther. I have just one question, Doctor. You exhibited this morn- ing two specimens of fertilizer with different formulas and you read the formu- las. Did either of them contain nitrogen in the sulphate form or ammonium sulphate? Dr. Whitney. No. sir. Mr. Crowther. They were not present in either of those formulas that you exhibited this morning? Dr. Whitney. No, sir. The Chairman. Doctor, we are very much obliged to you and thank you exceedingly for your patience and kindness. Dr. Whitney. I have been very glad to be with you. (The committee thereupon adjourned until Thursday, February 16, 3922, at 10.30 o'clock.) f MUSCLE SHOALS PROPOSITIONS. Committee on Military Affaies, House of Representatives, Thursday, Febniary 16, 1921. The committee met at 10.30 o'clock a. m., Hon. Julius Kahn (chairman) pre- The Chairman. Gentlemen, Mr. Worthington, who was not feeling very well yesterday, and who is not feeling particularly strong this morning, is here to make his statement and to answer such questions as the committee mav desire to ask. STATEMENT OF MR. J. W. WORTHINGTON, CHAIRMAN OF THE EXECUTIVE COMMITTEE OF THE TENNESSEE RIVER IMPROVE- MENT ASSOCIATION. The Chairman. Mr. Worthington, will you kindly proceed in your own way and tell us what you have to say in reference to the offer of Mr Ford re- garding the Muscle Shoals propertv? Uv. Worthington. Well, Mr. Chairman, I hardly know what to say to you unless I knew what you desired to be told to you. The Chairman. Have you been following the hearings' Mr. Worthington. I have read the hearings. The Chairman. Is there anything you desire to add to what Mr. Mavo told us the other day? Mr. Worthington. Well, perhaps, not on the line of his statement and not so much as speaking for Mr. Ford, I think I would like to make a statement somewhat on my own account, and I make that explanation because I think that Mr. Ford would be displeased w'th me if I was to say anything that was in the nature of an appeal to this committee that they accept his offer. He has expressed himself to me as very much opposed to anything of that sort However, there are some phases of the case I would like to get in the record The Chairman. Would you kindly state those phases? Mr. Worthington. There is a phase of this case that seems to me, according to my view, very much misunderstood. Take the case of the Warrior River steam plant, and I am sure that any one who looked into the question would understand why Mr. Ford included it in his offer. The steam plant at nitrate plant No. 2 when running at capacity will require, perhaps, 1,500 tons of coal uaily. The Chairman. 1,500 tons daily? Mr. Worthington. Daily; and* nobody who knows Henrv Ford would ever think he would pay a railroad $1,500 or more a day to haul that coal up there If he used that plant, and so it was most natural for him to have included the steam plant in his proposition. Not only so, but at nitrate plant No. 1 vou have a steam-power development of 5,000 kilowatts; but, of course, if this offer of Mr. Ford is accepted, you can see at once that he would move that down to the coal instead of hauling coal up to it. So his offer for the Warrior River steam plant was in keeping with his intention and purpose all through his proposal; that is, economy. s »» I wanted to clear that up. There was an economical, sound reason for the proposal. In addition to that, while this committee, of course, will make its own decision, that power down there is needed to supplement the secondary power at the dam of the United States, and that is so plain from the record as not to require any discussion whatever. There are some other phases of this case which I think are not understood As I read the report of the Secretary of War and his statement and some of the other statements made before this committee, I am quite certain they do not understand Mr. Ford, and I will confess to this committee that it took me a good 92900—22 ^23 351 352 MUSCLE SHOALS PROPOSITIONS. long time to' get such little iimlerstanding as I have of him. And I mean by that statement that in my earlier negotiations with him I supposed he was like other business men I had met, that they wanted to make money, but he called me on that proposition more than once and said that that was not his purpose at all, and I have become firmly convinced that that is true. So you will see, Mr. Chairman, that he was a little different in that respect from most men, if that is true. Perhaps you know that as it turned out. I carried this Muscle Shoals case to him at the request of the Chief of Engineers. I noted in reading the Secretary of War's testimony^and please do not understand that this is a criticism ; far from it — that Mr. Ford seemed to be groping around in the dark about his enterprises. I think that is about the most inaccurate statement that could be made about Henry Ford, and I would like to relate to the committee a little incident that happened. Instead of his being a groper around in the dark, he is the most definite and direct-acting rapid-firing human motor that I ever met. I will give you an illustration. On .Tune 6 this Muscle Shoals matter was presented to iiim and in the afternocm he looked over some of the maps with his chief engi- neer. Mr. Mayo, and after two hours' consideration, he jumped up and said, " Let us go to Muscle Shoals," and Mr. Mayo asked him when, and he said "At 8 o'clock this evening." I just offer that as a suggestion that he is not much of a groper. He is the most direct, rapid-firing institution that I ever ran against. , But I do not think it is a thing to be wondered at at all that the Secretary of War said that, because in my little way, in the last 10 years here in Wash- ington, I have found it the most difficult thing in the world to get with you gentlemen any engineering contact, and if you will take the history of your power legislation, you seem to have listened to everybody except the engineers who knew about it. So it is not a surprising thing that the Secretary of War would make that comment, and it is not new to me, Mr. Chairman, that statesmen do not understand the man of genius in certain lines, because you gentlemen remember, no doubt, that Mr. Gladstone was aked to go to meet^ right at the peak of his career, some of England's scientists. He was carried to Mr. Darwin, and it is said that Mr. Darwin understood just about as little of what Mr. Gladstone said to him as Mr. Gladstone understood about what Mr. Danvin said, and then they carried Mr. Gladstone to meet Faraday, and Faraday showed him the motor. Mr. Gladstone asked him, " Why, what is the use of it?" It stumped Faraday, but he arose to the occasion and said, " Tax it," and that is the way with this whole proposition of waterpower here in Washington. Everybody wants to tax it, which is not in the interest of the consumer. On that side of taxation and the creation of taxable wealth, there is one phase of the case at Muscle Shoals that, as far as I have seen, you have not con- sidered. You take the internal-revenue receipts for the fiscal year 1920 and you will find a very interesting thing. The State of North Carolina, after the Civil War, was the poorest State, perhaps, among all southern States. They had no coal, no iron, and were strictly an agricultural State. Their cotton interest and production were ruined by the Civil War, but, Mr. Chairman, did you know that North Carolina, in the year 1920, paid more Federal taxes than any State in the South, not excepting Texas ; more taxes than any New England State, with the exception of Massachusetts ; more taxes than Indiana, with Gary in it, and more taxes than Missouri and more taxes than West Virginia. There is an explanation for that, and when that explanation is sought and truly found you will find that it is the development of water power in North Carolina, and, Mr. Chairman, I need not consume the time of the committee by making a similar and greater example of your own State of California. So. suppose all of these claims about these hardships that the United >States Treasury i s very definitely opposed to a great many details, an^L Lids ex^ausdve C^^T"" ^"""^ accounting not in very high esteem, anfif anvb^^feom^^^ ?!f.hrH "^'^ ^Ti'' P^'''^'' '^'^t, and complies with it, he must open a SkeS establishment here in Washington. There is no doubt about it ''''''^^^^^'''S nZ;.^^^ iVliV^'/i^'ld ?.- -- there has been a great mLsunder- n^^ ^- f y--/ What h;:^ ha;;e;;ent H^^^^ \TLifi:'u Si^: f at, and what has happened at Lock 12 on the Coosa River- and if noth?n^ n! sSSm 5"r ■"«.-'- ">--"^ aJ'HSss the State of Alabama charged with the duty to do it; and I would just lYte I 354 MUSCLE SHOALS PROPOSITIONS. to ask yon gentlemen, if you were renting a great big skyscraper and you were l^rniitted to make the rates, just why would you want to reduce the time ; and I suggest to you that I would not want to own anybody's skyscrai)er if I could make the rates, and that is just the way this proix>sition is about the making of rates for power. The period has nothing to do with it. as I am sure a moment's reflection will cause this committee to decide, and if the United States or C!ongress ever decides that it nuist take over a water power, do you suppose they would wait 50 years if they found it necessary to do it? Why. of course not. Now, how did the 50-year limitation ever get in there? It was a compromise and ever>' one of you gentlemen who was a Member of Congress during that discussion knows it. It has nothing sacred about it. Why was it not 40 years or why was it not 60 years? Now, tinaJiy, at Muscle Shoals, it is too bi^ for 50 years. It takes too nuich capital to ever work it out in 50 years, and not only that, the secondary power at Muscle Shoals is such a large percentage of the iwwer that it wiil take years and years to make it primary, and the most important single state- ment that Mr. Ford has made to me in the last two months, and on his own motion and without any coaching on my part, was when he said, " Well, if we get Muscle Shoals we will go up the Tennessee and build the dams on the main stream and tributaries and develop that i)ower and improve the naviga- tion, and we will not ask the United States for a single cent." This Tennessee River program, gentlemen, is out of the usual class and clear out of any 50-year period. Now, you may find that there are those wlio will offer to take it on 50 years, but the.v have no such program as Henry Ford: not at all; and before I leave this 100-years question, I would like to cite thi.s committee to what Germany is doing, and I am going to ask the indulgence of the committee to let Mr. W. G. Waldo, the consulting engineer of the Tennes- see River Improvecent Association, read for me, l)ecause I am not just fit to-day, if you have no objection to that. The Chairman. There is no objection and we will be very glad to have the engineer read it. Mr. Waldo. In the issue of July 26, 1921, of the magazine called " Power." there is an article entitled " Germany Developing Water Power." describing the project on the Neckar River which is a link of the Danube. The proposal is to build from 25 to 28 dams, and the ultimate development is only 70.0other particularly dwelt upon the Muscle- Shoals-Ford case, and announced his indorsement of it, and he made this significant statement, Mr. Chairman. He said that if Mr. Ford developed this power and would let the L. & N. have it, he would electrify one of the divisions of the Louisville & Nashville Railroad ; the one running into Muscle Shoals. I would like, in making these connnents on electrification, for the gentlemen from Washington, Oregon, and California to take particular notice. The Chicago, Milwaukee & St. Paul Railway is operating a total of 646 miles electricall.v, and these figures are taken from a signed statement of the president of the road. They estimate that their electric oi)erations save annually about 260.000 tons of coal and about 32,0(H),000 gallons.of oil. The saving in avoiding the use of this fuel is not only the value of the fuel itself, but eliminates the hauling (►f nonrevenue-compaiiy fuel amounting to nearly one-quarter of the total revenue freight business. The 44 electric locomotives have replaced 120 steam h^comotives, and it would have required 210 cars moving continuously to handle the coal for those steam locomotives on one division alone. If this power is generated even by steam in a central station, 100 pounds of coal will do the work of 290 pounds burned under the boiler of a locomotive, and if this power was supplied from water power on all the railroads of the United States the saving would total the enormous sum of 122.500,000 tons of coal, which is about 25 per cent of the total maximum output of the bituminous mines of the Unitetl States. Electrification of railways doubles the capacity of their track and ix)stpones by a long term of years the time when double tracking will be necessary. Now, I insist that if nothing came out of this proposition at Muscle Shoals, if you accept Mr. Ford's offer, except the electrification of the railroads, it would be an example and a les.^on that would be beyond anything that we can calculate to the interests of the United States, and I would like to speak particu- larly to the gentlemen who are from the Pacific Coast States, where you have nearly 40 per cent of tlie power. What effect will it have on you if the rail latMu* of the coimtry and the coal labor ever get together and there is a strike, if your roads are electrified? You will not have to w^orry. Now, there is no doubting of that. That is not a matter of opinion. Somebody may raise the question, " Well, will Mr. Ford let the L. & N. the power?" Nobody who knows Henry Ford will doubt it a minute. Now, it has been said that Mr. Ford does not pay enough interest ; ought to pay more than 4 per cent. Now, that is right where Henry niis\mderstood, and I may say to you that he says that the money changers, some of them, have got to get out of the water-power temple, and this is what he means : If you take a hydroelectric development with an investment of $200 per horsepower and your money costs 2 per cent, you have got an interest charge of .$4 per horsepower per year. If the money costs you 3 per cent, you have $6: if it costs you 4 per cent, it is $8; if it costs you 6 per cent it is .$12; if it costs 7 per cent, it is $14 ; and if it costs 8 per cent, it is $16 ; and if it costs i»er cent it is $18 rand if 10 per cent it is $20. Now, that is a charge that the consumer has to pay. His idea is that some way or somehow there ought to be a plan devised, a policy set up in this coun- try to develop these powers without these shocking interest charges. You may say that it makes no difference, but it does make a difference. It is the difference between cheap power and expensive power, because in the case of water power 75 or 80 per cent of the annual cost of the power is the cfjst of the money investeower developed at 5 per cent instead of 8 per cent is $3,000,000 annually, and the saving per million of horse- power developed at 4 per cent instead of 9 per cent is $5,000,(XX); mind you, i)er million of horsepower developed. Now, I mean no disrespect to anybody at all, but I say to this committee, in the light of some years of study of the case and being around Washington and watching water-power legislation, that you have no water-power policy. No member of the conmiittee takes up the gantlet on that proposition. The results of your power legislation answer and sustain what I have stated. I be- lieve this water-power law was passed in 1920, I am not sure ; am I right about that? The Chairaian. I think it was. Mr. WoRTHiNGTON. Well, what has been done? Now, what have you done? The very latest interesting thing about the whole case is that the representa- tives of the power companies were before the powder commission on November 21, and one of the leading authorities on the subject of power, Mr. M. R. Bump, the president of the National Electric Light Association, outlining the reasons for asking a hearing before the commission, in part, said: " We understand that applications for permits have been filed before your commission for over 16,0()0,000 horsepower. This shows the public interest which indicates the national importance of the act. We wish to point out, how- ever, that the mere filing of these applications does not at all signify develop- ment." And right there I would like to ask this committee to contrast what is going on in Canada with your filings here. " It is exactly similar in nature to the filing of myriads of mining or oil claims. The filings, which cost practically nothing, are in some cases dupfica- tions; they do not indicate any ability on the part of those who file to carry out the development, and in many cases they merely represent the dreams and the hopes of speculators. Many of these filings, however, we know have been made by men or companies of means solely with the hope that they will be able to develop independent water-power properties as soon as the present rules and regulations are made workable, as they feel confident must be done. The acid test as to the present rules and regulations is not at all the spectacu- lar and very misleading applications for permits, but the amount of actual, bona fide construction now in actual progress. An investigation will show that there has been practically no financing of independent water-power projects of consequence under the present rules and regulations, but that, on the con- trary, substantially all the material development where the Ignited States Government is involved is by and on the credit of the large property holdings of the older companies not on Government land and based on the credit of their woU-etsablished business, antedating even the passage of the act itself." Now, is it a reasonable thing for Mr. Ford to want to stay from under an un- workable law? That is the case on that side of it. and I want to say to the com- mittee that I know if it can be shown to Mr. Ford that he is avoiding anything that will contribute to the cheapening of power and to the service of power in an economical way, that he will subscribe to whatever that is ; but this thing of attacking him about it and not offering a gocKl reason for it is all aside from the question, because this is a big business matter you are dealing with. There has been a great deal said, I fear rather thoughtlessly, about the pro- duction of fertilizer at Muscle Shoals. I am not going to engage the attention of the committee on that subject at length. I will suggest, however, that we ought not to boast so much in this country if we can not do what Germany is doing. Germany has freed herself from her dependence on Chile for nitrogen, and I believe if Henry Ford goes to Muscle Shoals he will free the United States from dependence upon Chile; at least, he will do as well as Germany. I will not agree that he will fail in that. 'A i II I 358 MUSCLE SHOALS PROPOSITIONS. Now. you have directed your attention, I think, too much perhaps to the subject of nitrates, and I see in the paper that a gentleman is going to appear before this committee, and you will learn from him that the country is so fortu- nate in that there is something else at Muscle Shoals except nitrates for the farmer, and that gentleman is Mr. Swann, w^ho deserves more credit, according to my view, than any man in the United States to-day for what he has done at Anniston, Ala. This subject can be discussed, as has been demonstrated for the last 15 vears at length. ^ * Mr. Chairman, it was stated by Mr. Mayo that Mr. Ford would use all the power himself in connection with his proi)osed industrial operations at Muscle Shoals, and the committee might raise the question with me about bringing up this electrification of a portion of the Louisville & Nashville Railroad There w^ould not be any trouble about what Mr. Ford would do, because cheap trans- portation assures cheap rates on what he manufactures there, and he would be as much interested in getting those rates cheap as any other job that he undertakes to do. That is a plain case of ordinary business economy. I want to go back, if the committee will indulge me, to this 100 years' business I am not critical, but I want to show this committee how utterly absurd the whole thing is. Here is a map of the Little Tennessee River, and it is one of the most w^on- derful power rivers in all the Southeast. It is very little known, and yet the Aluminum Co. of America— and that company knows a good water power— has practically controlled the power development on that stream. The Little Ten- nessee flows into the Tennessee down here at Lenoir City. As a matter of fact this development of the Aluminum Co. of America is in North Carolina just over the Tennessee line. Their plan is seven dams, and No. 2 dam is alreadv completed, with a capacity of 75,000 horsepower, and the power is being used at Alcoa, where the Aluminum Co. of America has an aluminum plant Now. gentlemen, the period that the American Aluminum Co. of America wntrols this river is perpetual. Just what is the common sense in saying that when the water of the Little Tennessee River serves the Aluminum Co of America at Alcoa in the production of aluminum, it is without limit and when the same water gets into the Tennessee River and runs down the Tennessee and gets to Hales Bar, 27 miles below Chattanooga it there becomes 99-year water- and then when it gets to Muscle Shoals it is 50-vear water? If there had been any other falls lower down toward the Ohio, I suppose it wouhl have gone to the vanishing point. I submit to you in all common sense that that absolutely blows up that whole contention. Do not understand that I suggest that you interfere with the Aluminum Co. of America in their location. I do not suggest it to you at all, but I do suggest most respectfully to you, not as a threat either that if it is attempted the Tennessee River Improvement Association will come here to Washington and fight it. There is no reason why that company should not go on making aluminum for 50 years, or for 100 years, or for 150 vears Of course, as to the rates, that is another matter which I do not need to dis- cuss. But you will not control the price of aluminum by limiting the period of water service. You had just as well say that in regulating railroad rates the Interstate Commerce Commission will be controlled bv the duration of a rail- road's charter. It is all absurd. It just blows up itself, and there never was anything in it. It ought to be changed. I do not suppose it ever will be. -.rJ^" ^"'" ^^^^ **^^^ "**^^ ^^^'^^* ^^^^'^ ^*^ ^^'^ ^^''^^^- ^^t "s see if we can make this 100-year proposition, or 50-year proposition a little more ridiculous. These are the transmission lines of the southeastern power development. There are 750 000 horsepower developed in the Carolinas, Georgia. Alabama, and Tennessee. Those powers happen to be developed on streams that are said to be nonnavi- gable. But whenever the water gets into a stream where on the map the United States engineers have taken their brushes and colored it, it immediately becomes 50-year water. That is a fact ; you know it is, Mr. Chairman, yourself I have not the strength to-day-and I have not the ability either, but I do know a man who is strong, and he has the ability, whom I suggest vou have before you before concluding these hearings. You ask him to describe to you his studies conducted under the War Industries Board with regard to powder during the war in connection with this whole southeastern situation, and you will find that he vaiU make statements that are most interesting to this committee with respect MUSCLE SHOALS PROPOSITIONS. 359 to the coordination of these power developments. Now, I would like to know how ycm could coordinate 50 years with 100 years. You must take some basis. Then what would you do with this perpetual case, if .vou try to coordinate and tie in with that? The gentleman I referred to is Mr. Frederick Darlington. The Chairman. Where can he be found? Mr. WoRTHiNGTON. He can be found at the Westinghouse Co. in New York. In that connection, Mr. Chairman, you will remember his report, or the report made by his staff, which was printed and submitted by the United States engineers, I think signed by Col. Keller. If you are interested in the w^ar preparedness side of this case. Col. Keller knows this waterpower question as related to that matter. Our association is too poor to make exhaustive surveys, but vou will remem- ber you appropriated $125,000 to make this supersurvey fron/here to Boston, and you will find some most interesting statements on the subject of electri- fication. But as poor as we are, we made a little study. It is no more than a sug- gestion, but it shows how the super-power program might be worked out for Muscle Shoals, around to Birmingham, Atlanta, through the Tallulah Falls, and around through Roanoke, Charleston, Huntington, Cincinnati, Louisville, and Nashville. Of course, that does not mean the Tennessee River alone, be- cause the Cumberland River has valuable powers, if you ever decide to survey them and find out what they are. The powers on the upper Tennessee have never been surveyed, and it is not known wiiat they are. But they are con- trolled by the United States. That is just a little study we made. If we had had $125,000 we would have carried it out much further, but we did not have the money. Now% Mr. Chairman, in respect to the fertilizer side of it. just a practical example: I suppose the members of the committee know that the cottonseed production in 1914 is reportefl at 1.901.467 tons. Of that tonnage, 881,000 tons went into fertilizer— food into the ground. Cottonseed meal has only 6 or 7 I>er cent of nitrogen. It is a crime to do that, because this nitrogen compound that the farmer uses is only 6 per cent nitrogen, which is about 30 cents a pound, with cotton seed at only $40 a ton. We ought to get the nitrogen out of the atmosphere, ought we not, and stop boasting, so that the cottonseed meal can go to California, Illinois, and Washington to feed cattle, and so that it can go to Vennont and to Massachusetts. And then if there is any surplus it ought to go to Norway, Sweden, Holland, and other European countries. But now, what does the southern farmer use it for? He has not got anything else ; nobody has ever taught him how to use anything else or where to get anything else. How in the world can that poor negro tenant in the South work that problem out? You may think that on this proposition I am talking through my hat, but if Henry Ford goes to Muscle Shoals he will work it out. I suppose you gentlemen know that it is stated by those who are best in- fonned that we in this country passed the peak of food production per capita in 1898, and that importations are expected in 20 years, the way we are pro- ceeding. What is the remedy? Make the soil more fertile, restore it. and increase production. I do not think I should consume the time of the committee any further 1 suppose the committee is informed about the increase in electric-furnace op- erations in this country. It is an industry by itself, new, and described very uniquely by a writer on the subject as silent and a secret. Mr. Ford stated to me in these discussions that we will not have any secrets at Muscle Shoals. You will not find an industrialist in this country who will make that statement except Henry Ford. The Chairman. Mr. Worthington, I believe you stated vou carried to Mr ford the proposition that was drawn up by the law officers of the War De- partment of this Government? Mr. WoKTHiNGTON. Mr. Chairman, I suggested at the time the Chief of En- J^'ineers sent out invitations to power companies and a great number of other companies that might be interested, that he send Mr. Ford an invitation just tlie same as the others, and the Chief of Engineers was a little surprised at it. But I told him certain things Mr. Ford was doing, some in connection with 360 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 361 power development. He sent the invitation, and within 48 hours, perhaps, the Chief of Engineers got a telephone message from Mr. Ford's office asking him to come up there. But he could not go, and he asked me if I would go and gave me a letter, or a copy of th<^ letter he wrote to Mr. Ford, saying that he asked me to come. I got anotlier letter of introduction from Senator Underwood and with those I went there on June 6. Mr. Ford went to Muscle Shoals on June 14, and he asked me to go to Detroit with him. He and Mr. Mayo went and he said he was interested. He said he had nothing to conceal about it He said he wished I would spend some days with. Mr. Mayo assisting Mr. Mayo with such information as we had collected through all these years I did that, and it required only until July 8, when he signed the offer, and this thing about his groping ground sort of sticks in my craw. I called the Government's attention to the fact that he got this offer down here between June 6 and July 8, and the Government has been at Muscle Shoals working with it nearly 100 years. I do not refer to that same 100 years, either. That is how quickly he acted ; and the offer has been coming to you for six or seven months. That is the history of it. I want to make it very clear to the committee that I am not a paid employ<'e of Mr. Ford. I do not know that that information would be of any interest to the committee, but I want it understood. He stated on the first day I was with him. on June 6, that he wanted to know what my relations to it were, and I explained them briefly. The next morn- ing, June 7, Mr. Mayo said Mr. Ford was not satisfied with that statement. It b<^came clear that they wanted to know what I was going to charge them, and I made it very clear that I did not have anything to sell ; that this prop- erty belonged to the United States; and that I had not brought myself into the present situation or status, but civic organizations, farmers' organiza- tions, etc., had done it, and I had no right to sell their influence'. He could not buy it if he were to try. So I have merely furnished him such information as we had. If the committee would like to see at any time what we have down there, or if any member of the committee is interested in that, we would be de- lighted to have you come down to our headquarters on Pennsylvania Avenue, and we will show you a motion picture of this plant from the time they broke the dirt until it turned out ammonium nitrate, and you can learn more there in 40 minutes than you can learn by reading books, because it is plain to the eye, and you can see the whole proposition. That is an answer in reference to my relations with Mr. Ford, is it? The Chairman. Yes. Mr. WoRTHiNGTON. That is what you wished? The Chairman. Yes. What company are you connected with at the present time? Mr. WoRTHiNGTON. N 7. 5 Next 500 kilowatt hours, per month 5. 5 All over 1,000 kilowatt hours, per month 5 Mr. Hull. There is one thing I am a little bit concerned about. In the first place, as I have stated before, it seems to me that plant No. 2 is the one im- portant thing in this whole proi^osition, in keeping plant No. 2 in such condi- tion so that we can use it at any time in case of war. That, to my mind, is the greatest object we have in making this contract, if we make it. But I am a little concerned about plant No. 1, known as the Haber process plant. If I understood correctly, it is the intention of Henry Ford to convert this plant from a plant for the utilization of the Haber process to an automobile plant. It seems to me that is rather questionable, in view of the fact that there will always be a demand for nitrates, and they say there is no doubt but that this plant No. 1 could be made into a successful plant and probably provide nitrates cheaper than the No. 2 plant. Have you anything you could suggest to the committee in regard to that? Mr. WORTHINGTON. I could uot speak technically on the subject to the extent that others whom you can bring before this committee can, but I will give yoii my opinion if you care for it. Mr. Hull. I should like to have your opinion. Mr. WORTHINGTON. In the first place, it seems to me that the committee can accept it as positively certain that Mr. Ford will never do it, because nobody who would want to be prudent would use that process in view of what happened in Germany a few months ago, where the Oppau plant blew up. That is one thing. Mr. Hull, I understood you to say you felt that perhaps nitrogen or fertilizer compounds could be produced at nitrate plant No. 1 cheaper than at plant No. 2? ^ Bills in excess of minimum subject to 10 per cent discount if paid on or before 10th. ' Minimum annual charge $18 per kilowatt of maximum integrated 15-minuteload. ' Based on maximum integrated 15 minute load. 364 MUSCLE SHOAI.S PROPOSITIONS. 11 Mr. Hull. I have understood so ; I do not know. Mr. WoKTHiNGTON. I think if you will see those who perhaps caused you to understjunl it that way and talk to them pretty closelv vou will find that per- haps you are mistaken, because it is rather singular that if that can be made a success, and admittedly it never has been— and that, I think, is known to the connnittee— It always did seem very strange to me that if it was a plant that would pi-ove a great success, that the General Chemical Co. who designed it and who let the Government have the process, refused Mr. Glasgow's offer for It to take the plant for three years, and that the United States would not charge a penny for its investment or the use of the i^ant, if only the General Chemifal Co. would agree to siiend JK.llKXOOO in further development investiga- tion, research, and oi)eration. ' Mr. Hull. It is not true that it is not a success, because there is a plant at Syracuse, N. Y. Mr. WoRTHiNGTON ( intcrposiug) . If you please, Mr. Hull, it stands to-dav as a failuie. Mr. Hull. But the same process, if we have the correct information, is beinir used at Syracuse. N. Y., and is a success. Mr. WoRTHiNGTON. But they have by-product hydrogen there, and the process IS not the same. Nitrate plant, S'o. 1 would have to be rebuilt. That plant at Syracuse is so located because of the coke-oven plant, I think. But I hope vou will feel sure. Mr. Hull, that it would be impossible for Mr. Ford to consider— I would say for Mr. Ford as a duty to him, if you required it, that he had better ask you to let him withdraw this offer. :Mr. Hull. We are not saying what we believe ; we are trving to get at the facts. Mr. AVoRTHixr.TON. And I am respectfully trying to state what they are. but on this side of the case. Mr. Ht LL. Is there any reason why plant No. 1 should not be utilized in the manufacture of nitrates Mr. WoRTHiNGTox (inteiTosing) . There is this to be considered. Suppose it was a success and had proved to be a success. It would not be operated bv Mr. Ford where it is. He would double it up with No. 2. We will assume instead of your having the modified Haber process there (Dejohn's process)' that both of your plants had been cyanamid plants as No 2 Then Mr' Fonl would not continue No. 1, because that would be in the face of ex- pensive production as against economical production. Mr. Hull. Of course, one of the objects of making this contract is the production of nitrates. That is one of those things that induces us to be in favor of something being done down there, and of course we want, if we can to have it so that they will produce as much of the nitrate as is possible Mr. AVoRTHiXGTON. While I had not intended to enter that field unless the committee required it. I will say this : Mr. Ford has absolutelv convinced me that whatever is possible at nitrate plant No. 2 now. he will do*; that whatever this new world of electrical soil food production will do, he will do it It is a question that has not been solved. The fixation of nitrogen from the atmosphere IS still at the threshold. But I was going to sav that personallv after all these years of association with it, and the last eight months' association with Mr. Ford and Mr. Mayo. I have no earthly doubt about it. There are a great many other things in this country that I doubt more than that K o-)^^^^" ^'^" ^^^'® "^ ^^"^^ '^"^ ^^^^ ^^^^y ^*^" produce nitrates at plant Mr. WoRTHiNGTON. I have no doubt in the world ; they would not be confined to the present method entirely, however ; oh, no. Mr. Hull. Hiive you studied the question so that you could tell us how cheaply it can be done? Mr. WoRTHiNGTON. t think only time can determine that. But I have lone felt very sure that, as this committee was advised in 1916— and since then there Mn^^rSh/'trr^^'l evidence of it-complete fertilizers can be produced at th n th. 1 '^"i ^""^i ^^ Vevhav^ one-half, or, I feel sure, at one-third less than the farmers have been paying for it in normal times time"? '^' '^""^ «»^-^»^^ ^^ one-third less than they are paying at the present T dn''\inT''wr^;T- ^^^'^ *^fJ Pf '^ ''^^^^^ ^^^ ^^^' i» »«^n^al times. While I do not ha\e it here, I would like to show the committee the report of an Lnglish commission which arrived at the same conclusion Mr. Hull. How long is that report? MUSCLE SHOALS PROPOSITIONS. 365 Mr. WoRTHiNGTON. It is one of the most voluminous documents on the subject. There were 15 or 20 members of that commission, including engineers and scientists. The Chairman. What is the name of the report? Mr. Worthington. It is the report of the British Nitrogen Products Commis- sion. We will bring you a copy so that you can see it. There are only a few copies of it in this country. Mr. Hull. Your relations with the improvement of the Tennessee River at Muscle Shoals have brought you in some contact with the fertilizer people, have they not? Mr. W^ortiiington. Oh, yes; at times. Mr. Hull. Have they encouraged you at all in trying to develop the Muscle Shoals proposition V Mr. Worthington. All of the farmers' organizations, that I ever discussed the subject with, beginning in 1915, have, without exception, indorsed it. Some of them were reluctant and slow and others investigated it on their own ac- count but without an exception they have indorsed it and we have cooperated with them. We have furnished them information just as we have furnished other people iftformation — such as we have. Mr. Hull. How about the manufacturers of the finished fertilizers ; do they encourage you at all. Mr. WoRTHiNGTOBi. Not uulcss they do it in my sfeep. Mr. Hull. Have they ever interviewed you? Mr. Worthington. What was the question; have they ever interviewed me? Mr. Hull. Yes; on this proposition? Mr. Worthington. Yes ; I have been interviewed but it would not add any- tliing to your information to press me for an answer. Mr. James. Were you present in the Judge Advocate General's office when this proposition was being drawn up? Mr. Worthington. No, sir ; not all the time. The Judge Advocate General's (»ffice requested, in keeping with the Secretary of War's directions that they draft the offer in the legal form, that they get in touch with ^Ir. Ford's repre- sentatives, and they called me in and a few days later Mr. ]Mayo came here and conferred with them. Mr. James. Were you present there at the time? Mr. Worthington. I was present when they sent for me. Mr. James. The Acting Judge Advocate General stated to the committee the other day that he understood the flowage rights were to be secured by the Government and to be paid for by Mr. Ford. What is your understanding of that? Mr. Worthington. I have not seen Mr. Ford since he signed this final paper. I am advised, however, that he did not want to have anything to do with that. I will suggest, however, to this committee — and I do that on my own account and ask to be excused by Mr. Mayo — but speaking for myself, there is nothing in his proposition that he says he will not do it. Mr. James. In your conversations with Mr. Ford it was understood that nitrate plant No. 2 would be used for the production of nitrogen and other fertilizer compounds, was it not? Mr. Worthington. All the time? Might I, if you will allow me, state this, that Mr. Ford, when he went to Muscle Shoals, never thought of nor did I suggest in our discussions on June 6 and 7 that he take the nitrate plants. But, when Mr. Ford and Mr. Mayo had examined them and spent a full day- there on June 14, Mr. Ford said that nobody could ask the United States for that power without being willing to get under the fertilizer proposition and he repeatedly said he did not want to get into the nitrate business, but that the investment there was so great and when it had been explained to him how he possibly could contribute to the agricultural welfare of the country, he said: " Well, I will undertake it as a public service." And his proposition indicates that, I am sure. Mr. James. The compounds that are to be manufactured at nitrate plant No. 2 could be used for other purposes than in the manufacture of fertilizer, coulil they not? ^Ir. Worthington. May I ask you to repeat that question? Mr. James. I say the compounds that are to be manufactured at nitrate plant No. 2 could be used for other things than the manufacture of the finished fertilizer? ^||^ ^t9 366 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 367 • Mr. WoBiHiNGTox. I do not exactly catch the meaning of your question. Do you refer to plant No. 2? Mr. James. Nitrate plant No. 2 and the provisions contained in article 14 of the Ford offer. Mr. WoKTHixGTOx. So far as I know, it could not go into anything else. I can readily see how, with the possible changes that will be made there, de- pending upon the process adopted, you might have some results, you might get some compounds that would not be fertilizer compounds at all, but might be something else. But the primary product produced in volume would be fertilizer compounds. In coke making in retort ovens the primary product is coke— but they get ammonium sulphate as a by-product. Here the primary product sought is fertilizer. Congressman Bjinkhead says I did not quit under- stand your question, that the present possible production of fertilizer com- pounds, as I get it, you think might possibly be used for some other purpose? Mr. James. I asked you this question: Mr. Ford is going to manufacture nitrates and other fertilizer compounds at nitrate plant No. 2; does Mr Ford intend to use that for fertilizer alone? Mr. WoRTHiNOTON. That would be the primary purpose. Mr. James. Some of these things could be used for otlier pui-poses than the manufacture of fertilizer? Mr. WoRTHiNGTON. S.)me of these things— tlo you mean some of the plants or some of the things produced? Mr. James. Some of the things he intends to produce. Paragraph 14 of the offer says: " In the production of nitrogen and other fertilizer compounds (said capacity l>eing equal to approximately 110,000 tons of ammonium nitrate per annum) throughout the lease period." Mr. WoRTHiNGTON. That is, with some conditions and changes and processes that can be employed. There would be. for instance, phosphoric acid. Mr. James. There is nothing in this article which says that Mr. Ford shall use the entire production of nitrogen and other fertilizer compounds for the manufacture of fertilizer alone, is there? Mr. WoRTHixGTON. But you can not use those compounds vou mentioned for any other purjwse in that volume ; you might in a very small way. Mr. James. Then there ought to be no objection on the part of Mr. Ford to stating in the offer that everything manufactured at nitrate plant No. 2 is to be used for the manufacture of fertilizer, and for no other purpose? Mr. WoRTHiNGTON. It would be impossible, because there may be other proc- esses in existence that will, in spite of anything or any intention on his part, make something else. Mr. James. I wi.sh you would show me where there is any guaranty in this contract that the company Mr. Ford is to organize is to manufacture anv particu- lar amount of fertilizer. If it is not contained in paragraph 14, where is it? Mr. WoRTHiNGTox. I have to acknowledge that if that is not clear, we can not make it clear. Mr. James. Do you think Mr. Ford would have any objection to stating that products of that kind would be used for fertilizer alone? Mr. WoRTHiNGTON. I think he would be absolutely prohibited from stating it ; he could not comply with any such terms. Mr. Ja^ies. How many tons of fertilizer do you suppose Mr. Ford would agree to guarantee per annum? Mr. WORTHIXGTON. The equivalent of 110,000 tons of ammonium nitrate, as he says. Mr. James. How many tons of fertilizer do you figure that would make? Mr. WoRTHixGTox. With a mixture which is very common, 2-8-2, it would be about 2,000,000 tons. Mr. James. Do you think Mr. Ford would guarantee to produce a minimum of 2,000,000 tons of fertilizer? Mr. WoBTHiNGTON. That answer which I made is the interpretation of sec- tion 14 of the contract. Mr. James. If that is the correct interpretation, why not put it in the agreement. Mr. WoRTHixGTON. You take the question of the production of fertilizer at nitrate plant No. 2 and the possible processes to increase the percentage of the soil food in the compounds that would be used to compose a complete fertilizer, and as the quality goes up the tonnage required would be less. As I do not seem to get along fery well in straightening this thing out, I would suggest that you let Mr. Waldo try his hand at it. Mr. James. Mr. Ford intends to guarantee a certain amount of fertilizer' Mr. WoRTHiNGTON. It is stated here. Mr. James. What is the number of tons— you say it would be 2,000000' •.J'';. T7'''''?i'1- '^o^Jl^''"^^ ^^ expressed in its production of ammonium nitrate. It would be 38,500 tons of nitrogen. That can be put in another form I take the liberty, without consulting Mr. Mayo— of course, he is speak- ing for Mr. Ford-I take the liberty of saying that this plant will not be confined to nitrogen compounds alone, but with those phosphates and other deposits there within 40 miles. Of course, I think in the course of your hear- ing you will understand that with perfect clarity. Mr. James.. Evidently you do not want to answer the question. Mr. WORTHIXGTON. Congressman, I assure you I do. I may have failed to do it, but I do really want to answer your question. Mr. James. You intended to answer it until Mr. Mavo whispered to vou Mr. UoRTHiNGTON. That is very unjust to Mr. Mayo and unjust to 'me I positively assure you, upon my word of honor, that he did not color my replv at all. I want you to know I am of a friendly disposition and with friendly intentions, and I want to try to answer your questions. I might have failed but it is very diflScult to answer what you are asking, I assure you. because it involves so much. Mr. James. I am in favor of the proposition, but it appears to me some of the witnesses are holding back some of the information they really know- Mr. WORTHINGTON. I am uot holding back anything, I can state to you I am sure I can say with a good deal of confidence that it is true that I never held any information back on this subject that I ever had, because it would do me no good in the world to do it. I have not any interest in it. I am very frank to tell you all I know about it and also that I have a lot to learn about the chemistry of fertilizer production. The more I study it the less I think I know about it. (Thereupon, the committee took a recess until 2 o'clock.) AFTER RECESS. The committee met pursuant to recess at 2 o'clock p. m. STATEMENT OF MR. J. W. WORTHINGTON— Resumed. The Chairman. Mr. Worthington, Mr. James, I believe, would like to ask you some further questions. Mr. James. Pursuant to our conversation this morning, will j-ou put in the record to-morrow the total number of tons of fertilizer vou 'figure will be made? Mr. WORTHINGTON. I wiU be glad to prepare a very full statement in regard to that. Mr. James. Showing the number of tons of fertilizer Mr. Ford agrees to make under the proposition. Mr. WORTHINGTON. Yes. Note.— Mr. Ford agrees in his offer " to operate nitrate plant No. 2 at the approximate present annual capacity of its machinery and equipment in the production of nitrogen and other commercial fertilizers (said capacity being equal to approximatetly 110,000 tons of ammonium nitrate per annum) throughout the lease period," etc. He therefore agrees to make nitrogen commercial fertilizers and other kinds ot commercial fertilizers requiring for their nitogen content an amount of uiti-ogen equal to the amount of nitrogen contained in 110,000 tons of ammonium nitrate. Since ammonium nitrate is 35 per cent nitrogen, 110.000 tons of ammonium nitrate c(mtains 38,500 tons of nitrogen. This is sufticient nitrogen to make— . Tons. Ammonium sulphate (24 per cent nitrogen) I 1(50 000 Sodium (Chilean) nitrate (16 percent nitrogen) I_ *>4o'oOO ^-8-2 commercial fertilizer (2 per cent nitrogen) 1,925^000 It should not be understood, however, that Mr. Ford intends to make any of niese, for it is his expressed purpose to produce a more concentrated plant food than any of the above forms. 92900—22 24 368 MUSCLE SHOALS PROPOSITIONS. ■I Mr. MiLLEB. Mr. WorthingtoD, we all were Interested in your very thorough analysis of the desirability of water power, and along with it, it really seems *x?., Til^ ^^^^ ^^^^ ^^^^ ^^^^^ energy- has gone to waste for so many years while the world has been industriously working out its supply of fuel in the shape of coal. I may say, Mr. Worthington, that some of my colleagues on the committee and some of my brethren in the House agree that we are now engaged in these hearings for the purpose of determining a way of salvaging this war necessity at Muscle Shoals. I may say for my part that I disagree with many of my colleagues. We are not engaged in undertaking to salvage a war necessity, because this was one of the enterprises of the American Government initiated before we were in any war, and was initiated simply and solely for the purpose of what we might call nitrate preparedness of this Government, and this is one of the enterprises, and, perkaps, the only one that never was intended to be salvaged. It was to be one of the standby, permanent adjuncts of the War Department, and was not to cease, and never was a war emergency but the legislation that created this enterprise at Muscle Shoals was of a hybrid character, the production of ammonium nitrate for war purposes in time of war and in time of necessity, and during times of peace the production of some substance that could be used to advantage in times of peace, and it never was intended as a war measure. Now, you are very familiar with the electric power contained in the Tennes- see River. You have made that a special study, as I understand it. Mr Worthington. Mr. Worthington. Somewhat. Mr. Miller. And, notwithstanding the great advantages of water power over steam power, there has been, up to this good hour, no private company that has been willing to take hold of the Muscle Shoals proposition and develop it with the purpose in view of generating hydroelectric power ; that is a fact. is it not? Mr. Worthington. Except Mr. Ford's offer. Mr. Miller. I say up to this hour there has been no person willing to take it over before this tentative offer of Mr. Ford. All the years \ efore the Gov- ernment went down there in 1916, no private company in the w^rld was willing to embark upon the enterprise of developing the hydroelectric energy at Muscle Shoals? Mr. Worthington. Oh. yes; there was a company. Th« Alabama Power Co. was quite willing and made an offer on it to the United States. Mr. Miller. How long has the Alabama Power Co. been in the business of producing hydro-electric power in northern Alabama. Mr. Worthington. It has not been in that business in northern Alabama at all, but the Alabama Power Co. owned the dam site upon which and at which you have built Dam No. 2. Mr. Miller. Well, it never did anything to develop power there, did it? Mr. Worthington. Nothing except to make the most exhaustive studies of it and made a proposition to the United States which the United States engi- neers recommended to Congress that it accept, but it never got any further than the Rivers and Harbors Committee. It never was reported at all. Mr. Miller. Well, there are a large number of those cases throughout the United States where companies sursey the possibilities of water power but never do anything. Mr. Worthington. Yes. Mr. Miller. And there are a multitude of applications down here on file now. The trouble seems to be, Mr. Worthington, the reluctance of the financial world to invest in hydro-electric plants. In other words, a financial institu- tion may lend $20,ower State. Mr. Worthington. You certainly do. Mr. Miller. A State that probably has more water power than any State in the Union per square mile, and roughly estimat(id at one-seventh of the un- developed water power. Mr. Worthington. One hundred and twenty-five horsepower per square mile. Mr. Miller. The great factor in that is the Columbia River of our country, probably only exceeded by Muscle Shoals or rather, we are the only one that exceeds Muscle Shoals in potential energy. The water power development is what will mean increased activity and produce the substantial things of value connected with the Ford enterprise, and it is the water power end of it that constitutes the major value of the enterprise. Mr. Worthington. I do not know that I exactly grasp or comprehend your question, but that is primary to everything that is to happen there that* Mr. Ford can do. Mr. Miller. You related to the committee this morning that in one of your interviews with Mr. Ford, if not the first one of your interviews, you men- tionetl the production of fertilizer, about which he hesitated at first and then afterwards agreed to take up that angle of it. Mr. Worthington. Yes, sir. Mr. Miller. So, then, it must have been the water power Mr. Worthington (interposing). Oh, certainly. He went to Muscle Shoals to see the water power primarily. Mr. Miller. That is what I have been trying to satisfy myself about in my own mind. Mr. Worthington. You may be satisfied of that, because he would not have gone there to look at the nitrate plants. Mr. Miller. No; or anyone else. Mr. Worthington. That is right. Mr. Miller. Nobody in the world would go there to look at the nitrate plant. It is the water power that is of value. Mr. Worthington. Yes ; but he would be interested in the nitrate plant after he saw the water power. Mr. Miller. Oh, yes; but, after all, it only takes in the vicinity of 100,000 horsepower to drive nitrate plant No. 2 to its full capacity. Mr. Worthington. Yes. Mr. Miller. And we are developing, according to Mr. Ford's proposition here, nearly 1.000,000 horsepower, of which 850,000 is to be hydroelectric, 110,000 of it, approximately, steam power, and out of the 850,000 hydraulic power some 230,000 of it will be primary power. Mr. Worthington. With the steam power included. Mr. Miller. Yes ; with the steam plant of approximately 110,000 horsepower. Now, taking in view the proposition that this nitrate enterprise at Muscle Shoals was designed and constructed as a permanent proposition ; that it was never intended to be salvaged and sold and disposed of by the Uniteil States, and at best that it was intended to be kept in a standby condition for the purpose of producing this war necessity and the production of other things m time of peace. Now, according to Mr. Ford's offer we are parting with that which we never intended to part with. That is the basis of it. We are to part with our title to these two vast nitrate plants which the Government has always intended it should cling to; but, in return for that, while we do part with them, Mr. Ford's proposition is that during the lifetime of his lease this plant shall be kept intact, available to the Government for the very purpose it was constructed for. So that as I look at it, it amounts to little m whom the title may be vested. What we are after is the stand by of that great plant, which we can take advantage of in case of necessity. Mr. Worthington. Yes. Mr. Miller. Now, there is another angle to that, and that is if the Govern- ment remains the owner of this property and the title in fee continues in the Government, in case of an emergency the Government would be using its own property, whereas with a lease we would be using another man's property and ■• j 'Bill 370 MUSCLE SHOALS PROPOSITIONS. be paying correspondingly for it. Tliat is tlie way I view it, and tliat is your analysis of the situation, is it not? Mr. WoRTHiNGTON. I think you have analyzed it, but do you not think, Mr. Miller, you have omitted there to include in your statement the important fact that he does maintain it and keep it ready, whereas, if I understand you, if the Government sliould keep it it would only continue it idle, maintain and watch it, and keep it ready. Do I catch that as your point? Mr. Miller. No ; I do not think we quite >meet. Mr. WoRTHiNGTON. I was not sure on that point. Mr. Miller. The purpose of the legislation by which this entA'rprise was first started, under the national defense act and the initial appropriation of $20,000,- 000, the Congress had just as much in view in the industrial future of this plant as it had the military future of it. So that it is of that particular char- acter, the two utilities blended, and I might say that the way the Militar> Affaii-s Committee has jurisdiction of this hearing is because we are dealing with a piece of property that was constructed under the national defense act and has always been operated by the War Department. Mr. WoRTHiNGTON. Yes. Mr. Miller. Let me ask you, INIr. Worthington — I have never been at Muscle Shoals, much to my regret- Mr. Worthington. I hope you will come, and I invite you to come there. Mr. Miller, Thank you, very kindly. What facilities are there now at Muscle Shoals in aid of navigation? 1SU\ Worthington. Well, really, none. Mr. Miller. No steamers drawing any draft of water Mr. Worthington (interiwsing). No; not at all. This dam has progressed in its construction to the point that the navigation that we had had previous to this dam's partial construction has been cut off. IVIr. ]MiLLER. It is a complete barrier to present navigation? Mr. Worthington. It is to-day. Mr, Miller. Now, before this dam was constructed Mr. Worthington (inteiposing). We have a canal beginning at LfX'k 9. so called, ,3 miles up the river from this dam, and that portion of the .stream be- tween Dam No. 2 and Lock 9 of this canal is a shoaly, unimproved stretch of the river and can be used by boats only in the wet season ; that is to say, some- times three or four or more months in the year, and almost always for a month or two you could not have any river traffic over it. This canal, there- fore, was really isolatetd. It has nine locks on the north bank of the river and two locks on the south bank, but between the eastern en«l of the locks on the north bank and the western end of the locks on the south bank is another very shoaly and unimi>roved stretch. I may say to you that a practical answer is that the navigation was unre- liable, expensive, and that as it stood the cost of those locks and that canal, Mr. ^Miller, was an absolute waste. There is no denying it The Chairman. This morning you stated to the committee that if the mem- bers desired to see a moving picture of Muscle Shoals we could go Uj s«»me place down here on Pennsylvania Avenue, Mr. Worthington. Yes; just two blocks away. The Chairman. We have here in this building the caucus room, which is quit^ large and which has its own machine. Mr. Worthington. Then, we will bring the films and exhibit them to you at an.v hour that you select. The Chairman. I was going to ask if there would be any objection to having this connnittee and such other Members of the House as may desire to be present see the whole thing? Mr. Worthington. Absolutely none. We shall be glad to exhibit them at any time you may select. Mr, Miller. How far is the Tennessee River navigable upstream from Muscle Shoals? Mr. Worthington. The navigation sti-etches are interrupted by nonnavigable stretches. After you get to Decatur, Ala. , Mr. :Mim:R (interposing). How many miles is that from Mu.scle Shoals? Mr. Worthington. That is about 35 miles from the canal; that is, from Lock A, which is located at the upstream or eastern end of the canal. Then. if I may continue, please, there is a stretch of the river that is navigable nearly all the year around, but at very low stages the navigation is interrupted. After II MUSCLE SHOALS PROPOSITIONS. 371 you get upstream farther east or northeast there is a stretch of some 40 or 50 miles that needs improvement. There is an improvement now authorized on which work is suspended at the present time on account of funds, which im- provement is being made srmthwest of Hales Bar, and Hales Bar is the power- navigation dam that is 27 miles, I believe, south of Chattanooga. That was built by private interests under a 99-year grant by Congress. That is a slack-water pool, providing about 3.S to 35 miles of very perfect navigation, of course, and then after that the navigation is interrupted very frequently. I would like to ask you, if you can possibly find the time, to come and look at these maps, which answer better than I can possibly put into words, the questions you ask about the navigation. Mr. Miller. That would be very desirable and is very kind of you. Mr. Worthington. It would give a complete answer, and vou will find some very interesting facts about it ; and you will also find there has been a great deal of money wasted. I do not criticize anybody, I am just stating the facts. Mr. Miller. We can not get maps into the hearings, however. Mr. Worthington. It is a pity you can not. The Chairman. The chairman will ask the Speaker of the House to allow those maps to be put into the hearings. The Speaker can authorize that, and I will take the first opportunity to present that matter to him. Mr. Worthington. I am going to ask you, Mr. Miller, to go around some evening with me and take a brief look at them. It will not take you more than 30 minutes. Mr. Miller. Now, the distance following the river channel upstream from Muscle Shoals to Chattanooga is approximately how many miles? Mr. W^orthington. About 188 or 190 miles. Mr. Miller, Following down the stream from Muscle Shoals to the mouth of the Tennessee, where it flows into the Ohio Mr. Worthington. Two hundred and fifty-nine miles. Mr. Miller, Then, you are approximately in the middle, between Chattanooga and the mouth of the river. Mr. Worthington. Yes; and you have hit the nail on the head about the whole thing. During all these years the trouble was that this vei-y serious obstruction at Aluscle Shoals of some 37 miles blocked the navigation and pre- vented—well, really, it was practically impossible for traflfic from the upper river to get through. Mr. Miller. It was blocked in the middle of that stretch. Mr. Worthington. Yes, sir: that was exactly the situation, and it was the expense, as you have suggested, at Muscle Shoals that made it look for a long time utterly impossible. Mr. Miller. Are there any obstructions down the river. Mr. Worthington. The navigation improvement of the Tennessee River from the foot of Muscle Shoals, and practically at this dam, is completed to the Ohio River at Paducah. Mr, :Miller. How far is it from the confluence of the Ohio and the Tennessee' Mr. Worthington. Forty miles to the ^lississippi. Mr. Miller. Then in the event this enterprise goes through, vou have an un- obstructed channel by water from ]Muscle Shoals to the very heart of the country, Mr. Worthington. That is exactly it. Mr. Miller. You can go up the Ohio and up the Mississippi Mr. Worthington. Yes, and down the Mississippi to New Orleans. Mr, Miller. Yes; down to New Orleans and down and up the Missouri River Mr. Worthington. Exactly. Mr. IMiller. And then you will be connected with the very heart of the country which, of course, is the Mississippi Basin. ♦Mr, Worthington. Yes, sir. Mr, Miller, You have, of course, exafnined the offer of ^Ir, Ford, and if I understood you in answer to Mr. .lames, you stated that vou were present part of the time when tt was being drafted in the Judge Advocate General's office? Mr. Worthington. Yes, sir. Mr. ]MiLLER. I suppose that was on account of your interest to get something established in the valley of the Tennessee River; that was your primarv Dur- pose? ^ ^Ir. Worthington. That, and my agreement with Mr. Ford that I would con- tmue, since he signed this, to furnish such information and assistance as I could. 372 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIOJSTS. 373 Mr. Miller. And the assistance you have rendered is wholly in a disinter- ested way? Mr. WoRTHiNGTON. Absolutely ; almost to the point of being foolish. Mr. Miller. And up to the present time Mr. Ford is the only man in the coun- try of sufficient enterprise and wealth to make any coherent proposition to the Government for this enormous expenditure we have made. Mr. WoRTHiNGTON. Let me answer that, if I may be permitted to, in this way : He is the only man that has done so. Mr. Miller. Of course, in this agreement the identity of Mr. Ford is destroyed, his personal identity with this concern, because the second paragraph of the provision provides that he creates or organizes a company and thereby the per- sonal relation of Mr. Ford to the Government will be nil, and the arrangements and the intercourse will all be between a corporation and the United States Government. That is to be the future, as marked out by this offer of Mr, Ford, except Mr. Ford agrees and covenants to control the corporation. Mr. WoRTHiNGTON. Ycs ; I was .iust going to say that I feel very confident he will absolutely control and dominate it as long as he lives. Of course, I could not say beyond that point, but the proposal as signed by him binds his €'state. Mr. Miller. Of course, we do not look upon that as any serious factor in the matter, because under the law of the State of Michigan, in common with the law of nearly ever State of the Union, any claim against an estate has to be filetl within one year after the death of the party. Mr. WORTHINGTON. That is true; but, Mr. Miller, I do not believe you will ever get Muscle Shoals developed unless there is some confidence in somebody. Mr. INIiLLER. No one disputes that , Mr. Worthington, and I believe that every member of this committee is looking for something in the way of this offer. Mr. WORTHINGTON. Yes. Mr. Miller. And while some of us may probably on the spur of the moment appear hostile to this enterprise, we are searching for the relations between the Government and this company and where the Government is coming out financially on this enterprise. Mr. WORTHINGTON. Yes. Mr. Miller. Is there a public-service commission in the State of Alabama? Mr. WORTHINGTON. Oh, yes. Mr. Miller. That puts the price upon electric energj-? Mr. WORTHINGTON. Oh, yes. Mr. IMiLLER. It controls the prices? Mr. WORTHINGTON. Yes ; they fix prices. Mr. Miller. We are dealing, then, with one of those institutions where the Government owns the origin of power, the raw product. Mr. WORTHINGTON. Yes. Mr. Miller. And the State controls the output and the price of it. Mr. WORTHINGTON. Yes. Mr. Miller. We are dealing with that kind of an enterprise. * Mr. WORTHINGTON. Yes. Mr. Miller. The probable future of this thing, should this offer be accepted, will be of inestimable value to the people of that locality and surrounding territory for hundreds of miles, in two particular channels, one of which is the industrial development of the community and the second is the navigation of the Tennessee River. ]Mr. WORTHINGTON. Yes, Mr, Miller, And it is from those two angles that the people of that entire geographical locality are intensely interested in the future of Muscle Shoals. Mr. WORTHINGTON. Yes ; and I hope you would be willing to add the elec- trification or the improvement of rail transportation. Mr. Miller, Oh, yes; I would include that as a part of the industrial end of it. Mr. WORTHINGTON. Yes. Mr. ]VIiLLER. Now, according to this offer, Mr. Worthington, a sum of money variouslv estimated is required to complete these two dams. I believe that is estimated by Mr. Mayo at $42,230,000; is that correct? Mr. WORTHINGTON. I did not have the opportunity to hear Mr. Mayo testify. Mr. Miller. I think that was the aum, was it not, Mr. Mayo? Mr. Mayo, That is right. Mr. Miller. The Engineers place it at $50,000,000. Now, probably, there are only two ways of raising that money ; one is by increasing taxes through- out the country and the other is by a bond issue, by which the interest that Mr. Ford would pay and agrees to pay under his contract would be sufficient to meet the expenses of the Government to pay the interest on the bonds, pro- vided, of course, that the Government can negotiate the bonds at par at 4 ner cent. That is the limit of Mr. Ford's offer in all this thing— 4 per cent. Now practically, I dare say, in your search for improvements of the Tennessee River and the installation of industrial concerns there, utilizing the splendid water power of the Tennessee River, you have been unable to attract 4 per cent money to these enterprises. Mr. WORTHINGTON. That is quite true; you could not do that. Mr. Miller. Then, it is quite clear that the excess between what these bonds can be sold for and the 4 per cent Mr. Ford pays will have to be met out of the public Treasury ; and I think you will also agree with me that the net propo- sition of Mr. Ford is that the Government will finance this proposition at 4 per cent. That is the proposition, is it not? Mr. WORTHINGTON. I'es. Mr. Miller. In other words, the Government is lending its credit to Mr. Ford, which credit is not to exceed 4 per cent. Mr. WORTHINGTON. Ycs ; but the Government, if we accept the statement— and I am prepared to accept it if you wish as you have jnst announced it— but the Government itself, however, is financing its own propertv. Mr. Miller. That is quite true, Mr. Worthington. Mr. WORTHINGTON. And it is doing no more, if I may be permitted to call the attention of the committee to the facts, it is doing no more than it is do- ing on other rivers. It is doing that on the Ohio, which I think it ought to do, onl,v it does not do enough and does not improve the navigation enough. In this particular case I hope you will remember that you get on your invest- ment 4 per cent and that you get the return of the principal at the end of the lease period, whereas on the Ohio River— and let me. if I may, impress the committee with this fact — you never do get a single cent's interest'and you never do get a single penny of the principal returned ; and I may go further. Out in your State — I do not know for how many projects nor to what extent the capital has been invested — but I think you have in your own State .some of the irrigation projects of the country. I think in that policy e.verybody agrees to the wisdom of it, but it is a fact, also — and drawing a friendly contrast — the invest- ment stands to-day at a net total, in your Reclamation Service, of $125,870,830, which you invest to make arid lands productive. Now, you do not get a penny's interest, and you get the principal returned very slowly ; and I must ask you to let me hold to one thing, that in respect to the reclamation policy of this Government, there is no difference in policy at Muscle Shoals, because while you to-day may not have the confidence and feeling of certainty that others have and that I have, in time you will see demonstrated there that you can do as much with water for Agriculture east of the Mississippi as you can do with water for agriculture in the State of Washington and in other reclamation States. Mr. Mller. Except you do it through a different medium. Mr. WORTHINGTON. Exactly. In one case, you use the water to get the fertilizer and carry it to the land, but out there you put the water on the land. Mr. Miller. I am aware, Mr. Worthington, that the Government lends money to the reclamation fund without any interest. Mr. WORTHINGTON. YcS. Mr. Miller. And the fund is amortized through a certain system that they work out. Now, under Mr. Ford's offer, there is also a plan of amortization. Mr. WORTHINGTON. Yes. Mr. Miller. He pays semiannually $19,868 on Dam No. 2, and semiannually $3,505 on Dam. No. 3, which amounts to something like $47,000 a year. Mr. WORTHINGTON. $46,746. Mr. Miller. And that is put in there for the purpose of amortizing the cost of those dams, and it is figured that it will amortize them if placed at interest com- pounded semiannually at 4 per cent. Mr. Worthington. The offer does not mention the rate, but 4 per cent, if secured, Mr. Miller, will do it. Mr. Miller. If that sum of money with payments semiannually in those amounts can be put at interest at 4 per cent compounded semi-annually, the figures are,, I believe, that it would amount to something like $49,000,000 at the expiration of this leasehold interest. Mr. Worthington. That is right. 374 MUSCLE SHOALS PROPOSITIONS. 'iil|i Mr. MiLLEK. And, of course, that would be a very difficult thing, practically to do. In the first place, we are confronted with the same proposition that financial institutions were in financing this thing. It is not attractive for that kind of investment. I know of no concern in the United States of sufficient stability where this fund could be deposited for 100 years that would take any deposit on any such terms as that. Mr. WoRTHiNGTON. Of coursc, I am not prepared to resist your fear, but I do feel that in view of your very large investment down there, whether fortu- nately or unfortunately made, it is made, and I do feel there ought to be some way for the Federal Reserve Board to take care of this, and I believe if vou provided for it, that they can and will. Mr. Miller. In other words, it is a financial enterprise that no one but the Government could be the banker in. Mr. WoRTHiNGTON. Now, if I may, I would like to right now settle one thing Muscle Shoals has always been, is now, and always will be too big for any private enterprise. We might just as well face the facts. They are not new. Mr. Miller. That is the reason I say that no enterprise has gone in there tliat was willing to take it. Mr. WoRTHiNGTox. Yes ; and, moreover, long ago I came to the conclusion that they did not have any business there. Mr. Miller. Now, here is what the Ford offer gets down to. Financ'ng it with 4 per cent money, which no private enterprise could do, paying it back in an amortization fund, compounding it semiannually at 4 per cent, \\'lich no private enterprise could do. Now, there is the Government's angle to this thing, so far as the dams are concerned. Coupled with that is Mr. Ford's purchasing the fee of an investment of between $105,000,000 and $106,000,000 less $17,000,000, that has gone into the dam, or approximately eighty-eight or ninety million dollars. Mr. WoRTHiNGTON. Yes ; though I do not agree that It is impossible for a private concern to invest money at 4 per cent, compounded semiannuallv. Thousands of banks do that for their savings depositors every year. Mr. Miller. In an enterprise that the Government never intended to part with, and Mr. Ford is buying it at 4 cents on the dollar, or at practically 4 cents on the dollar. Mr. WoRTHiNGTON. Well, may I suggest that the intention, I think, is not the controlling pont. What you intended or did not intend during the war was n-ever thought of. It is a fact, whatever your intention was, that you built the biggest smokeless-powder plant on the face of the earth and you sold it out for 3 cents on the dollar ; and, moreover, you parted title and it is gone, and you will not find it there as Mr. Ford offers to let you find the nitrate plant if vou ever get into trouble ; and I can go down the line with the sales of your wooden ships and if I might wish to I could bring a sad story here about cantonments, and they are all gone ; and while I expect Mr. Ford will give me a rap over the knuckles for defending this thing because he does not want it done in that way, at the same time I can not remain slent when there are such horrible examples that offset this horrible example you set up at Muscle Shoals. Mr. Miller. Your analogy-, Mr. Worthington, is something I do not intend to get into an argument about, as to the enterprise at Nitro, W. Va., or any of the others, but this is a dist nctive enterprise that did not grow out of theVar. Mr. Worthington. That is true. Mr. Miller. Keep that plainly in mind, Mr. Worthington. Mr. Worthington. That is true: I gi*ant it. Mr. Miller. The Government embarked upon this enterprise before we had any war. Mr. Worthington. Yes. Mr. Miller. Possibly with a .war imminent, which some people refused to heed, but the Congress scented what was in the future before we entered into the war — embarked on this one enterprise for nitrate preparedness, so you can not place it alongside one of those enterprises which was a direct outgrowth of the war and which we constructed after we got into the war. Th's was some- thing that was provided for prior to the war, and the whole philosophy of the legislation was in the absence of war between this country and any other coun- try in the world ; and therefore I say it was one of the enterprises and the only one, I dare say, that the Government embarked upon as a permanent enter- prise that would endure throughout the future. Now, we are takng that plant, so constructed, and instead of following out the legislation as it was intended, that that should be a permanent proposition for the manufacture of munitions MUSCLE SHOALS PROPOSITIONS. 375 to be used in case of war and the manufacture of substances useful in times of peace, Ike fertilizer, the proposition now pending before us is that we shall part with it. Mr. Worthington. Well, you will, I am sure, be indulgent enough with me to grant that the only thing left for me to say respectfully to vou is that that is what you have got before you in the Ford offer for your respectful decision. Mr. Miller. Yes. Then the proposition pending before us is exactly the an- tithesis of what the Congress intended in establishing this plant. They in- tended it should be a permanent enterprise. Now, the proposition of Mr Ford IS to buy it and the Government is to part title with it at 4 cents on the dollar Mr. Worthington. Well, I can not help, Mr. Miller, from asking vou, I just can not help it, if you do not intend to do it by means of this antithesis or some other *' ant- way," what are you going to do with it? If the Ford offer does not solve it and is not acceptable, you will pardon a poor fellow who has been in this Muscle Shoals game for apout 15 or 16 or 20 years for being interested enough to inquire, what are you going to do with it? Mr Miller. That is exactly what I want to suggest to you. The punwse of this legislation was that the Muscle Shoals proposition would be good for two purposes, one in time of war and one in time of peace, and now we are inves- tigating what shall be done with it in time of peace, and we have before us the com»rete offer of Mr. Ford who, up to this good hour, is the onlv gentlemen of sufficient enterprise and wealth to make a concrete proposition. ' Mr. Worthington. Which offer makes it permanent for 100 vears. Mr. Miller. Now, there may be this angle to it: That before the expiration of this leasehold interest of 100 years, industrial chemistrv, applied chem- istry, or economic chemistry and its relation to economics, may discover an en- • tirely new method of generating ammonium nitrate, as you suggested this morning, but the cyanamid process, together with the Haber method are the two best ways of producing it in sight now, outside of the coke-oven method Mr. Worthington. I believe there are witnesses to follow me who, as far as the field of commercial chemistry is concerned, could be more instructive than I can. However, I want to grant one suggestion that I understand you make, that the great possibilities of the future, say, in just the one field of'soil foods produced by electric-furnace methods, are so inviting and promise so much that I do not think anybody in the world can tell now what will happen ; but I do not think that because we can not tell we should not try to find out Mr Miller. It would be the very goal of shortsightedness not to tA- to find out the.se things and to keep abreast of the world. Mr. Worthington. Y"es; and without speaking to the comnv'ttee with exces- sive partiality for Mr. Ford, I must ask you to remember that he is the onlv one that has had the courage to say he would try to do it. Mr. Miller. There is embodied, then, in this proposition, several elements all of which are of value, enormous value, some directly flowing to the Govern- ment, others flowing to your State ; some indirectly to your State and some in- directly to the Government. We have the retention of this Nitrate Plant No -, available throughout the leasehold interest for the verv purpose for which It was constructed, the manufacture of nitrate for war purposes Mr. Worthington. Yes. Mr. Miller. We have, second, in times of peace, the availability of that en- terprise for the manufacture of commercial fertilizers, another one of the purposes for which the plant was constructed. Therefore, we have complied with the legislative intent in those two particulars fullv. We have following that a large surplus of hydroelectric energy for distribution throughout the ^outh generally, or at least throughout that zone of the South surrounding Muscle Shoals, which we are told is impregnated with large mineral deposits, and only awaits the hand of man and economical power. We have another element, the navigation of the Tennessee River, which is clearly distinct from the province of our committee to inquire into, that coming before another committee of the Congress. We have, then, bv the installation of large com- mercial enterprises in the South, the upbuilding of that community which wiU be reflected throughout every corner of it, and a Nation to be great must be great in all of its parts, leading thereby to increased taxable wealth of vour ^tate and the surrounding States where this enterprise will be reflected ;* but one of the obstacles to my mind is how the Government is coining out on this hnancially, and, in the second place, we are doing something in disposing of this property that Congress never intended we should do, because it was the con- gressional intent that that property should remain an abiding part of our 376 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 377 ill. national preparedness from the nitrate point of view. Now, we may be getting indirectly all that we would accomplish by directly holding the' plant, and that may be overcome in some measure by the better manipulation of the plant and by putting it to more useful purposes in times of peace, which this enter- prise contemplates. Mr. WoBTHiNGTON. I would like to be permitted to add this much to what you have said, and that is, that one of the most valuable considerations about the Ford offer, unless you can get a better one, is that that plant will keep pace with the art, not only of air-nitrogen lixation but it will keep pace with the whole field of opportunity to improve agriculture through electrochemistry Mr. Miller. Now, you have opened up a suggestion there that I want to ask you a question about. It matters not to your people or to your concern ; that is the Tennessee River Improvement Association, or whatever its name is, whose money goes into this thing, whether it is Mr. Ford's or anvbodvs else, so Ion*' as you get results. Mr. WoRTHiNGTON. Oh, but that is true in one sense, and then there is another sense, if you please, that I can not agree with you. We are interested, and in this way: As far as we know there is nobody that has the intention and the money at the same time to do what Mr. Ford savs he will do. Nobody has ever suggested to the Tennessee River Improvement Association, as far as I am advise f Mr. Worthington. Oh, no. Mr. Crowther. I am speaking of myself entirely: and thev seem to convev the Idea to many of the witnesses that we are hostile as 'a body to everv proposition that is before us. Mr. Worthington. No; I did not mean to convey that. Mr. Crowther. It seemed to me you did this morning. Mr. Worthington. I want to be understood as not meaning that. I poorlv expressed, perhaps, what I did mean. What I meant to sav was that, ^ince a Member of Congress is not a trained engineer, it is difficult 'for the engineer to get contact with him. That is what I meant. Mr. Crowther. To get it into his head, you mean. Mr. Worthington. Well, I do not mean that either. I certainlv did not mean to attack or question the intelligence of Congress. Many people are highly intelligent on one subject and at the same time on another subject it is impossible to get connection with them. I think you will agree to that will you not? ' Mr. Crowther. VeiT often a question is asked by a member of the com- mittee and is answered and that conveys the idea through the press imme- diately that he is or is not violently opposed to a particular measure, and those things develop. I want to ask you one or two questions, not from a legal standpoint, because like Mr. Greene, of the committee, I am not a lawyer. All the rest of the members of the committee, I believe, are lawyei^, and there has been some suggestion that lawyers make poor legislators because they are vastly more concerned about the establishment of precedents than they are about actual accomplishments. I do not know that that is so, and I make that statement \Aith all due deference to the members of that profession. What I think would be of interest and would be a necessity for this committee in order to pi-esent the matter to the members of the House and to the country at large would be, as suggested by Mr. James this morning, an actual state- ment as to the amount of fertilizer that is to be produced, because in this quasi legal document, incidentally, there is one paragraph which to mv mind is demagogic and did not belong in the agreement, and this section 15, as I understand it, was adopted at the suggestion of agricultural and farm bureaus and several other societies who wrote that section the way it was put in here. Mr. Worthington. No ; I must correct that impression altogether. Mr. Crowther. I am glad you are going to correct that, because that state- ment has been made. Mr. Worthington. They did not do anything of the sort, and anyone who intimated that they did was doing an injustice to Mr. Ford and those who were associated with drafting his offer. I will say, though, that when this paper came to the point of actually getting on the road to this committee the farmers were consulted about the language, and there was nothing wrong in that, was there? Mr. Crowther. Nothing wrong, particularly, except I do not see the need for using that language. Why could you not say, as is stated in one other line, " in order that commercial fertilizer," but instead of that it says, " in order that the farmers may be supplied with fertilizer at fair prices and with- out excessive profits, the company agrees," etc. It keeps referring to the close relationship between this project and the advantages to the farmer that are to accrue. Mr. Worthington. I wanted to get the opportunity to sav that the language employed was so employed in order to carry the thought to you that the fer- tilizer Avas to get to the farmer as directly as possible. Mr. Crowther. That is exactly what I have wanted to find out and what I have asked about several times, and I do not believe as vet we have had a e the major end. Mr. Crowther. That that would be the major end of this entire proposition? Mr. AVoRTHiNGTON. Yes, sir. Mr. Crowther. When he went down there that was one of the things that was farthest from his mind, was it not? Mr. Worthington. Let me impress you with the fact that at that time Mr Ford had never looked into this question of producing soil food by electric- furnace methods and by using cheap water power, and did not believe in the game at all. He twitted me rather unmercifully about this whole proposition but when he got deeper into it and the facts were laid before him he seized it! Mr. Crowther. You have testified also during the course of your testimony or suggested that in connection with the tremendous explosion which caused such a terrific loss of life abroad, that that proi>osition would probably not l\ I 380 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 381 ig the be considered— that is, the development of the air-reduction plant, usin Haber process. Mr. WoETHiNGTON. The modified Haber process for nitrate plant No. 1, as designed; no, sir. That is a plain business proposition. It has never been worked out, and my information is, from those who are vastly better informed than I am, that it is not suited to this country at all. We have not yet at- tained technical perfection for any such plant. Germany has, and Germany has paid the sad lesson for using the Haber process. Whatever did happen that caused the explosion I do not pretend to say, but the explosion happened at the Haber plant. Mr. Crowther. It was testified before the committee that there was an in- vestigation being made to find out what the cause was. Mr. W^ORTHiNGTON. I belicve there is an investigation going on at this time. Mr. Crowther. It has been testified here that ammonium nitrate itself is not especially explosive. It can be detonated, but not easily. Mr. WoRTHiNGTON. That is true. Mr. Crowther. You spoke about Mr. Ford having this vision before him, of reducing the price of hydroelectric power for manufacturing purposes, and you pictured the tremendous burden industry was carrying because of those high prices. Mr. WoRTHiNGTON. Yes. Mr. Crowther. Do you know whether or not he intends to establish, from this 1,000,000 horsepower, new rates, and intends to let the people have the power cheaper than has been customary, or will he be prohibited from doing that by the State laws and the public utilities commission? Wiil he thus be prohibited from disseminating power at a lesser rate than is being charged? Has he any philanthropic vision as regards very much cheaper power and carrying through this cheap horsepower? Mr. WoRTHiNGTOx. Yes; I think he has. Mr. Crowther. So that the people will be able to light their houses and apply the power to their other needs? Mr. WORTHINGTON. Yes : what he wishes to get at is this : He wishes to take the interest burden off of power, and he thinks there ought to be a policy established in this country tx) do that. Mr. Crowther. He is making a good start, paying only 4 per cent and com- pounding the interest. Mr. WoRTHiNGTON. He will, I think, establish other enterprises on the Ten- nessee River on his own account. Mr. Crowther. You spoke this morning of the applications that were made under the Fedenil water power act- I have a copy of the magazine published here in Washington, within the last week, which published the entire list as of January 1. 1922, and I notice that those applications cover practically every site in the United States. Mr. WoRTHiNGTON. That is a fact. Mr. Crowther. I notice 384- MUSCLE SHOALS PROPOSITIONS. Mr. Hill. Then, Mr. Worthington, we have a situation in which the United States would have to advance vast amounts, roughly, from the Treasury, for the purpose of completing this project. Mr. WoKTHiNGTON. Yes. Mr. Hill. Would you mind telling us what, in your opinion, would be the benefits that the Federal Government would receive from its financing this proposition? Shall I say as a preface, that what is bothering me is this: Cheap fertilizer for the farmers is a very desirable thing. It is just as beneficial to the people in the cities as it is to the people in the country ; we are inextricably tied up, and it seems to me it is a very false thing to raise a question between the city man and the country man on the matter of fertilizer. It is a question in my niind how far the Federal Government should go in the expenditure of credit for Government activities in trying to create cheap fertilizer. The second thing is that it is very necessary to have our nitrates for use in time of war, and, of course, that is one of the big elements in this proposition. Then, the third thing is that it is a very beneficial proposition, concerning which there is no dispute, that we need our water power developed. I know something about the water power situation in Switzerland and what it has done for Switzerland. It being granted that cheap fertilizer is desirable, that preparedness in ni- trates is now very essential and that the development of water power is most highly desirable, I would like your views as a departure in the policy of financing States would get out of what I regard as a departure in the policy of financing a private enterprise. That is the question in the minds of a great many of our colleagues. We have this project before us ; so far nobody else has come along with a suggestion as to what should be done with it. Iklr. WOBTH13VGTON. Let us include navigation in there; will you not agree to that? Mr. Hill. I would like to ask you about that. Mr. Worthington. I would like to get you to include that before my an- swer is made. Mr. Hill. I would like you to put in there anything else you would like to put in. The improvement of rivers and harbors is a very legitimate function of the Government. Would you make a state«ient as to what character of navigation that stream had been subjected to before the dams came in, and include that in your general answer? I know you said there had been certain navigation there. Mr. Worthington. I answered Mr. Miller on that phase of it. I think. Mr. Hill. What I did not understand then was about how serious was the navigation, about how much 'tonnage a year. Mr. Worthington. Practically none, Congressman. Mr. Burton pronounced 3Iuscle Shoals the most horrible example in all the rivers of this country. Mr. Hill. I may say we have a certain amount of navigation on the Sus- quehanna Kiver, but it is not very serious navigation, so far as the transpor- tation of proal. Mr. Hull. That would be ia) completion of Dam No. 2* (b) the maintenance of niti-ate plant No. 2 in stand-by or ready condition; (c) the general creation of taxable values which the Federal Government needs; (d) improvement of navigation, which has to be compared with the Ohio, the Mississippi and other river projects. Mr. Worthington. Yes. Mr. Hull. In that you have not included the fertilizer output for the farmer That would be another element. Mr. Worthington. I was going to leave that to sav that I thought, and I . really do think that has greater promise in it as a national ccmtribution than (my other phase of the ease. Mr. Hill. That has made a vei-y great public appeal. Mr. Worthington. I do not believe the public is going to be disappointed It is going to take some courage and a lot of money. Mr. Hill. The question in reference to the fertilizer that I am constantlv met with is this question about which ^Ir. Miller and various other members of the committee have asked you. That is the question, how much actual fertilizer the American farmer is going to get. Mr. Worthington. That is as hard to answer. I think, as to have tried to answer the question, if it had been asked, how^ much basic steel would the conntry get when the basic steel operations started in this country You can not answer such a question in tons. I do not think vou could answer that question to your entire satisfaon a different formula it would change the amount of the completed product; if it should l>e prepared, for instance, upon the formula of l*-8-2 it would mean .3,(XK).0. Mr. Fields. I believe you statetl they had acquired property. Mr. WoRTHiNGTON. They had. However, the cost of the property they had there was negligible. They spent a lot of money on surveys, and they hoped, I suppose — of cour.se, they hopetl — to see the development made and to carry out their plans which they had proposed to the United States, but which I had to decide were hopeless. I had to make my decision on that iK>int ; and, on the other hand, they made their decisions in their own interests, and I do not think they are altogether to blame, and I am not going to confess that I was. Mr. Fields. The thing that strikes me in connection with other things that have developed in the hearings is that here is an organization that is laying its plans to get hold of Muscle Slioals. if it can, and I do not blame them for that. Mr. \A'oKTHTNGTOX. It lias a perfect right to try to get it. Mr. Fields. But if it can not get hold of it. it is apparently trying to so retard its progress that nobody else can get hold of it, and thereby prevent it from becoming a competitor in its line. Mr. WoRTHiNGTON. Well; you are carrying me into a field Mt. Fields (interposing). That was an expression of my own opinion. Mr. \\'oi;thington. I would be criticizing some good fellows, perliaps, and maybe making a ini.stake in doing it, and I do not want to do that. Mr. Fields. You will grant me the right to draw my own conclusions. Mr. AVoRTHTNGTOX. Of course. Mr. Fields. I believe the Alabama Power Co. claims to have an option upon a i)art of this property covered by Mr. Ford's proposition. Mr. WORTHINGTON. Yes. MUSCLE SHOALS PROPOSITIONS. 389 Mr. Fields. And the Air Nitrate Corporation claims to have an option upon nitrate plant No. 2. What is the connection, Mr. Worthington, if you know, between these companies? Mr. WORTHINGTON. The American Cyanamid Co. and the Alabama Power Co.? Mr. Fields. Tlie Air Nitrate Corporation really is the American Cyanamid Co.? Mr. WORTHINGTON. Ycs ; it is all about one. Mr. Fields. Is there any connection between the American Cyanamid Co. and the Alabama Power Co.? Mr. Worthington. I do not know what the intercorporate relations are now. I do not think I would be willing to testify on that point. When I was a director of the American Cyanamid Co. some of the leading controlling stockholders of tlie Alabama Light & Traction Co. Avere in the Alabama Powder Co. ; I do not know whether they are yet or not. I have not been interested enough for a long time to find out. Mr. Fields. It is a fact that they were at one time? Mr. Worthington. Yes. At one time Mr. Washburn was president of the Alabama Power Co. and at the same time president of the American Cyanimid Co. Their intercorporate relations were very close. Mr. Fields. What are the activities of the American Cyanimid Co.? Mr. Worthington. The operation of a very large air nitrogen fixation plant and the production of cyanimid in Canada at Niagara Falls. The extent of the American Cyanimid Co.'s operations in New Jersey I do not know, e;ccept that I think they produce ammonium phosphate, and they have very large phosphate operations in Florida. Mr. Fields. Mr. James Duke is connected w^ith the American Cyanimid Co.? Mr. Worthington. Oh, jes ; Mr. Duke, I think, controls it, he and his associates control it beyond question ; they did at one time. Mr. Fields. And they also control the Air Nitrate Corporation which claims to have an option on nitrate plant No. 2? Mr. Worthington. I suppose they do, because that is all one; the Air Nitrate Corporation and the American Cyanimid Co., as far as this proposi- tion was concerned, it seems to me, would be regarded as one. Mr. Fields. I'ou referred this morning to the power development of North Carolina and what it had meant to that State in the increase of revenue^ etc. Was that water-power development? Mr. Worthington. Oh, yes; it was hydroelectric development, about 400.000 horsepower is being developed in that State. Mr. Fields. How do the possibilities of the Tennessee River and its tribu- taries compare with the development in North Carolina? Mr. Worthington. Do you mean the Muscle Shoals development? Mr. Fields. Yes ; Muscle Shoals and those above. Mr. Worthington. In answering that question one must ask for a very wide latitude, because the possible water powers on the upper Tennessee anil its tributaries have never been surveyed. The tributaries upon which these powers may be iK>ssibly found — in which, indee^l. many will be found — are regarded as navigable streams, and we have been trying to get the surveys made. I think it is possible some of those powers would be developed if the surveys were to be made, and by surveys I mean detailed surveys, like that at Muscle Shoals. That is what is the matter with the power on these streams, they are not surveyed. Mr. Fields. How does Muscle Shoals, which has been surveyed, compare with the other water powers? Mr. Worthington. One comparison would be this: The approximate total hydroelectric development in the Carolinas, Georgia, Alabama, and Tennessee is about 750,000, approximately the same as Muscle Shoals will be, but with more secondary powder than is at Muscle Shoals. Note. — The principal completed hydroelectric developments in the States named may be summarized as follows : Horsepower. North Carolina 298,900 South Carolina 140, 400 Georgia , . 129, 400 Alabama 92, 000 Tennessee . 112,700 Total 773,400 390 MUSCLE SHOALS PROPOSITIONS. Mr. Fields. Nitrate plant No. ] has been referred to by some of the mem- bers of the committee. I want to add at this point that an officer of the Ordnance Department stated here the other day it would require about .$4,000,000 to equip nitrate plant No. 1 so that it would produce nitrogen as it was first intended to do. I judge that Mr. Ford would not want to put that additional $4,000,000 upon that plant, and that is one of the reasons, possibly, why he may not consider using it for the production of nitrogen. Mr. WoRTHiNGTON. For that reason quite largely, and others economic and conclusive. Mr. Fields. There was one question asked here this morning wh'lch seemed to me you did not clearly grasp. That was whether this product that would be produced at plant No. 2 could be used for other purposes than the pro- duction of fertilizers. Could it be marketed? Mr. AVoRTHiNGTON. It would be impossible, in such quantity of production. Mr. Fields. Therefore, if Mr. Ford produces 190,000 tons of ammonium sul- phate at plant No. 2, annually, in order to find a market for it he must use it in the production of fertilizer and sell it as a fertilizer compound? Mr. WoRTHiNGTON. We might illustrate that. Suppose there was a loophole in that agreement by which Mr. Ford might operate nitrate plant No. 2 in the prount of fertilizer now produced there have been estimates as to whether this product will reduce the price of fertilizer. Mr. Worthington. That is rigljt. The Chairman. Mr. Worthington, thi*? matter of the fixation of nitrogen has been before Congress since about 1912, hasj it not? Mr. Worthington. Yes, Mr. Chairman. I think that is right. The Chairman. Were you not interested in bringing the matter to the atten- ti(m of Congress at that time? Mr. Worthington. Oh, yes ; back in 1912. representing, in part, the Alabama Power Co. and the American Cyanamid Co., I did do my best to get a grant for the Alabama Power Co. to build what was known as Lock No. 18 at the dam on the Coosa Iliver. I supi)ose that is what you refer to? The Chairman. It is. MUSCLE SHOALS PROPOSITIONS. 403 Mr. ^\ okthington. That is true ; and perhaps as you were a Member of Congress at that time you reniember the grant was given, and that Mr Taft A\iio was then President, found it necessary to veto it. That was a very sad thing. I do not know but that I am glad you mentioned it. It seems that we made, unluckily, so many mistakes ai>out the fixation of nitrogen in this country that if it is possible we ought not to do it any more. The Chairman. We did learn some things from our mistakes. Mr. Worthington Yes ; and we ought surely try to get right on this thin- at this time, if possible. That failed. Mr. Chairman, as I remember it onlv because the Secretary of War at that time demanded that he be given the right to make a charge for the use of the water. AVell, that could not be agreed to The result was the cyanamid plant designed to be built at Mont- S?"r^.i' :^ ' 7^^} ^^ Canada, and the sad thing about the whole matter is that it the mistake had not l)een made the Government would have «aveer, what period of time have you allowed for the com- pletion of Dam No. 2? Mr. Cooper. Thirty-six months. ^^ oo I^Ir. Miller. How long do you consider it would take to construct Dam No. 6! Mr! Cooper. About the same time. Mr. Miller. Would you carry on those operations sinmltaneously, or wouW you complete Dam No. 2 and then go to Dam No. 3? Mr. Cooper. Complete Dam No. 2 first. Mr. Mitxer. Then you have a period of six years to cover. Mr. Cooper. Yes, sir. MUSCLE SHOALS PROPOSITIONS. 419 Mr. Greene. Of course, the Federal Government now holds the les.sees of water power to a 50-year contract. INIr. Cooper. Yes. Mr. Greene. If we were to give Mr. Ford 100 years we might give him the advantage in the way of competition with people who do not derive the support of the Federal Government in their enterprises. Mr. Cooper. And if the price of coal goes up. as nearly everybody thinks it is going, at the end of 100 years the Ford lease would be worth a perfectly fabulous sum. Mr. QuiN. Mr. Cooper, your interest charge which you have allowed would bring :Mr. Ford out in debt to the Government to the amount of $1,200,000,000, would it not? Mr. Cooper. Oh, no; not at all; he would not owe the Government anything. Mr. QuiN. Y"ou mean that is just what it would theoretically bring to the Government? Mr. Cooper. No; no theory at all; it is a practical matter. The taxpayers would have to pay this $1,275,000,0(K> of real money into the United States Treasury because IMr. Ford's payments did n«»t meet the costs to the Treasury of the properties leased by that amount. Mr. QuiN. Mr. Eliot — and no doubt you are familiar with his w^ork — said that if 1 cent were invested on the 1st day of January A. D. 1, drawing 6 per cent interest per annum, compounded every year, up to January 1, 1895, would have amounted to $8,497,840,000; then we have lost all that, have we not? Mr. Cooper. Nothing like that at all. Mr. Garrett. In response to a question asked of you you said that if coal continues to go up, at the end of this 100-year period the lease would be worth a fabulous sum. Mr. Cooper. Yes ; I would say for the last 50 years of the period. Mr. Garrett. But at the end of the 50 years Mr. Cooper (interposing). It all goes back to th^ Government. Mr. Garrett. Then the Government would have this property that had been bi-ought up to a high state of development? Mr. Cooper. And would have great value. Mr. Garrett. It w^ould have great value to the Government? Mr. Cooper. It would have gi-eat value to the Government. Mr. Greene. In making that answer have you taken into consideration the fact that one of the propositions submitted by Mr. Ford is that whatever dis- position the Government may seek to make of this property at the end of the 100-year lease Mr. Ford's heirs or assigns or the company that represents them shall have a perpetual right to the power. Mr. Cooper. I did not know that they had a perpetual right to the power, I thought they had a perpetual preference right. Mr. Greene. That is the point in contention, but the language was interpreted by some to give them a perpetual right to take the powei* at reasonable rates. Mr. Cooper. I think that may be so. but I am not a lawyer, and I do not want to get into that end of it. Mr. Stoll. In reference to the question I asked you a while ago when I said the Government was not in the business of lending money, I meant that was not their business ; that is, lending any surplus money they might have. Of course, it is true they do have arrangements for lending money to farmers, based on farm security. I meant any surplus money. Mr. Cooper. Not as bankers per se. The Chairman. We will be glad to have you continue your statement, Mr. Cooper. Mr. Cooper. I thought it would be of interest to the committee to know some- thing about the size of the wateriwwer that they were considering that was included in the Ford offer, and by size I mean the amount of energj- covered by the lease. To estimate the quantity of power that will be available during the term of this lease is a very difficult question for any engineer to solve for the reason that undoubtedly, begii>ning at once and continuing for many years, there will be created in the valley of the Tennessee above these dams nunierous storages which will greatly increase the value of these water powers. In my estimates I am now about to quote to you I have taken no account of that be- cause I do not want to get into the realm of conjecture. I am only quoting from absolute measurements of existing conditions which I have made through my own organization, and therefore, in so far as that is worth anything it is authoritative, as far as I am concerned. i w 420 MUSCLE SHOA-LS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 421 I find that the annual production of energj- from these two dams will be 3.883,000,000 kilowatt hours. That does not mean anything to you or to me because you can not comprehend it, or I can not at least, but it is the equiva- lent of 517,000 horsepower, 8.000 hours a year, which is about the current maximum of continuous use of power; .">17,n my part to carefully and conserva- tively estimate what Mr. Ford's annual exi)enses will be when these two dams are completely in commission, in that way enabling us to find out how much power is to cost Mr. Ford under his proposed contract. If that has all been brought out here before I do not think I ought to take your time to talk about it, but if it has not been brought out I think it would be a good thing for you to know now. The Chairman. I think we would like to have your view of the matter, at least. Mr. Cooper. If you will turn to page 8. we can consider statements Nos. 2 and 3 together. I find, and this estimate is based upon practical experience, that a careful interpretation of Mr. Ford's proposed contract shows that his annual expenses or operating costs when dams Nos. 2 and 3 are finished, would be . .$3,622,000 a year. That, of course, will include the $2,000,000 lease money he will have to pay, and I have included taxes at the rate of $765,000 a year, which is considerably less than ordinary water powers in the United States are now paying. Mr. Crowther. May I interrupt to ask if the Alabama law exempting con- cerns for 10 years is still in force; that is, against power companies? Mr. Cooper. I do not know; if it is, it ought not to be, in my opinion. The Chairman. Mr. Martin, of the Alabama Power Co., is in'^the audience. Can he tell us about that? Mr. Martin, That law is still in force and exempts the property, business, and franchises of companies engaged in the development of hydroelectric energy for a period of 10 years after the beginning of construction. Mr. Crowther. Would that apply if there was any departure from merely primary production of that power, if there was any development considered or premeditated, if there was any subsidiary business in connection with it. Take, for instance, the fertilizer business. Would they still come under that exemption, or would it apply only to the development of hydroelectric power, Mr. Martin. The statute, as it is to-day, provides that the property, busi- ness, and franchise of any person, firm, or corporation who may develop hydro- electric power is exempt for a period of 10 years after the construction. If you will examine section 2069 of the code of Alabama of 1907 you will find the full statute. It is only about 15 or 20 lines. Mr. Crowther. It provides for an exemption for 10 years? Mr. Martin. After the beginning of construction. Mr. COOPER. In 10 years he would have to pay taxes, and I wanted to take the most generous view of it. I think the figures I have used should be used, and I do not want to be accused of trying to build up some situation that is in the slightest enses, as I have .just quoted them, into the amount of energy thrit I previously showed as being derivable from the dams, we find that Mr. Ford would get his 24-hour power for $10.80 a horsepower per annum, which is about half the current price for this chiss of power anywhere else in the United States. On the basis of a 60 per cent load factor, by which I mean a power that is used, such as the cotton mills use, and which is the ordinary commercial power in the South, the power 6 (b) would only cost $7.10 a horse- power, which is a good deal less than half the price in that territory. On sec- ondary power 6 (c) the price would only be $5.40 a horsepower. I would like conclude this part of the statement by saying that as a net result of the propo- sition, as it is written, Mr. Ford wiU be getting the cheapest power on the American Continent. Whether Congress wants to give it to him is another matter, and I do not enter into that field at all. Mr. Stoll. That is predicated on the idea that he can sell or utilize all of this power. Mr. Cooper. Oh, yes ; I think he can. Mr. Stoll. You think he can. Are there enterprises there now that use that much power? Mr. Cooper. I will come to that in connection with another statement The Chairman. The Chief of Engineers of the War Department told this committee at the beginning of these hearings that along in 1921 he was instructed by the Secretary of War to invite bids from the men who might be interested in continuing the work at Muscle Shoals. He told some 8, 10, or 12 men of this country who were engaged in building up plants of that kind to make some offer to the War Department or to the Secretary of War for the utiliza- tion of the plant at Muscle Shoals, and the only favorable reply he received from anybody was the reply from Mr. Ford. They all seemed to be afraid of the thing, but Mr. Ford really did make an offer. Then the Secretary of War wrote Mr. Ford that his offer did not even contemplate interest on the great expense of building Dam No. 2, or completing it, and building Dam No. 3 Then Mr. Ford made a subsequent offer which is the offer we have before us Now, taking your statement of the situation at Muscle Shoals, do vou not think it rather remarkable that nobody else in this country was willing to make an offer regarding the plant at Muscle Shoals, except Mr. Ford? Mr. Cooper. Mr. Ford has more money than anybody else in the United States. I do not think that is very remarkable. The Chairman. Of course, he has considerable means ; but do you not think there was a risk involved in the proposition? Was he not taking any risks at all? Mr. Cooper. I do not think so at all. Not at these prices ; no. The Chairman. You think it was not surprising that all these other men who were already in the business-^ — Mr Cooper (interposing). I think if anybody in the business had thought that Congress would take such a kindly view of a price as cheap as his there would have been several fellows bidding. The Chairman. We had some exhibits in the hearings showing that quite a number of big corporations handling water power found it could not be worked at all through Congress, and rather sneered at the whole thing Mr. Cooper. I have read those statements ; I think they were made with a deliberate attempt to bear the market ; that is what I think of them all They were not made in good faith. I want to say that with especial emphasis. The Chairman. We respect you for making a courageous statement. Mr. Cooper. I thank you. The Chairman. That is a remarkable view of the situation— that it was done to bear the market. Mr. Fields. Are your statements in the paper you are talking about' Mr. Cooper. Those are the one^ lam talking about specifically. On page 10 you will find the last statement. It shows that if Mr. Ford would pav 4 ner cent on the $83,000,000, instead of $50,000,000 (his present offer equals about 2* per cent on $83,000,000), he would still get the power for a price 20 per cent less than he could anywhere else on the American continent. If I was as rich as Mr. Ford, or half as rich, I would not be trying to pry that other li per cent out of the United States Treasury ; I would go down there and take this job and pay 4 per cent on the whole thing. The details are all shown in this statement, and I do not think it is neces- sary to take the committee's time In going into the details. I hoi^e I have made myself plain, that if he paid 4 per cent on the $83,000,000, and thereby save the Government $1,275,000,000. he would still have in his possession for 100 years the greatest water power in the South, and at a price that is abnor- mally cheap. If there are no questions I only have one or two more statements to make, and then I will be through. Mr. Stoll. Y^ou said you would state how he could utilize that power. P 422 MUSCLE SHOAJLS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 423 ? Mr. CcKtPEE. I am coming to that. KoT''^ Chairman The flowaRe rights between Dam No. 2 and Dam No 3 hnvB So!L',^""'f?„^ t'" ^ "^T^'f ""l^ t" 'he committee at from $lSS).5oS to ?2.000,000. Do I understand you to say that you think, instead of ask iw^tlm Government to include those lands In the purchase i"gMs ifrshould be wi li iof tl^arfandr' *•""' '"'""'' "" "" '""""'' ""* Go-venin'nt is to lay o"t ^^rbii'i^^t^r tiiT"''- '''■• '^'"■" "■""•" ^"' '"'^•^ » ""-^^ -'"'-'"•" I thmk If there is any value in any statement I have made to this commit tee. to-day, it is this statement I have just now made to vou Yorwirfim " It you go to the bottom of it, it is the truth, too. ' Mr. Parker. I think your statement shows he gets his horsepower at a verv cheap price compareeriod of time from .$280 a ton to $95 a ton; incidentally, one of the first of the commercial wars, in which the English said thev were goin- to take back the market that they had in this <,,«„trv— and thev'did The phosphorus is evolved as phosphorus by th^ heat of the electric arc or furnace. A\hen it comes in. contact with air in an inclosed furnace, it turns to phosphorus pentoxide, sindlar to the form in which they use the phosphor s for snioke-screen work. It is a dense, heavy, white fume. That is carried over in the gases and pas.sed through a condenser and precipitator Bein- hydroscopic or picking up water easily, strange as it may seem, it comes out of the electric furnace as a liquid. The liquid phosphoric acid that we colle<-t IS approximately 65 per cent P205, which is four times the strength of ordinarv acid phosphate as produced by the sulphuric-acid method Now, once we obtained liquid phosphoric acid of this high degree of nuritv and high strength, we naturally sought first the markets that would bring us the best price, which are known as the foerphosphate is pro- duced containing 48 i)er cent phosidioric acid, or three times that of ordinarv phosphate. The ordinary acid phosphate is produced bv grinding phosi)hate rock, treating it with suli)huric acid to n)ake available the phosphoric acid present in the rock. By our process we first obtain a liquid pliosphoric acid out of the rock and then use that element of paint food to li Iterate nioi-e i)lant food from the raw rock. We also can take liquid phosphoric :uid and fix ammonia gas from the oy-product coke ovens into an ammonium phosphate, or take the liquM -ind n^u^ gaseous element and collect it as a salt available for use as a fertilizer i his led up to another interesting experiment in connection with the lu-oduc- tion of potash and phosphoric acid. In the priHluction of phosphoric acid we Charge into the furnace a material for fluxing silica rock, in the pro«luctio)i ot potash the base being an acid with rharged lime. So the natural question that would occur would be, why not charge enough potash-bearing shale into The furnace to satisfy the requirements and preen tohl r.Lnh"P•'"''"^^^'**^''^ fertilizer with resi>ect to the plant food are amuKuiia; phosphoric acid, and potash. The statistics do not show the exact amount or each used throughout the United States, because they vary, depending on vv«/r^ '^^' ''^^'^ 1^^^ ^" ''"'^ t^'^ avaialbility of the potash. When our suiiidv anZm/'^r]^n^"i ''^' «.^, ^-^^i'^^- ^'^* '^^^ »ot use as much potash or as large an ulalT 1 ^^"l^an nitrates: but it is generally accepteer cent inert material or filler. The variations in the ^liddle West and the East and so on are slij^htly different from that, but perliaps that is not far from the general average of the Unitee slow. There, will have to be a campaign of education. I think it might be proper to read into the record a statement in the Fer- tilizer Green Book entitled. " High analysis approveven that phosphate rock can be smelted in an electric furnace and phosphoric acid collected for use in the fertilizer industry that will reduce the jiresent costs. Referring to Prof. Whitney's testimony as to the amount of phosphoric acid that is washed away and left on the dumps at the mines, we have used annd, as they call it. at 50 cents }i ton, which will represent a saA'ing to me. when I utilize it, of some five or six hun; in 1920 by the cyanamid process, 325,000, and by the Haber, 308.0(K), showing conclusively that the cyanamid process was not increasing in anything like the relation of the Haber process. I do no pretend to be an expert on the production of ammonia at all, but I am merely taking the figures and, naturally, looking at the Muscle Shoals plant to see what could be done with it and knowing that our furnaces at Anniston were of the same general type as the furnaces at Muscle Shoals, a simple archroof of brick could be put over the furnaces in Nitrate Plant ^o. 1. and a long brick gas main built, a cooling system and a precipitator ouilt, and phosphoric acid could be produced there in large quantities in that plant, which is well equii>i)e(l to handle phosphoric acid, since the elements or the raw materials that go into making carbide are lime and coke and the elements that go into the other material could be handled in the same bins being jihosphate rock, silica rock, and coke braize. You would, of course, in that connection, not make ferro phosphorus which we have made. Then, either by the modified Haber process or some o'.her process which will likely come, you would produce your ammonia and not carry it to the point of anniKmiiiin nitnite oi- aniinoiiium sulphate, but fix the gaseous ammonia into liquid phosphoric acid produced there, and if it was found cheaper to l)roduce your potash than to buy it. charge into your electric furnaces potash- bearing shale from the neighborhood. And there are great tonnages of it, so that you would produce the p(»tassium phosphate as a liquid and utilize that in fixing your gaseous ammonia into a complete, concentrated fertilizer Now. with respect to concentrated fertilizer, as I stated before, the farmer may be rather slow to come to it, but I believe in his intelligence, and that when once shown, he will use it, and I do not think that anvthing can stop the development and the utilization of concentrated fertilizer. A number of the experts believe that the farmer will use on his soil direct a more conceuti-ated fertilizer, but it is very easy to produce a concentrated fertilizer that will contain from four to five times as much plant food as is now containetl in an jiverjige ton of mixed fertilizer, ship it to him, even though the average freight rate, perhaps, is not over $3 or .$3.50 per ton from the j)oint of prfKluction to the point of consumption, let him m'x that concentrated fertilizer with two or three or four sacks of good dry sand or good dry d'rt, and I suppose if he is a dirt farmer he ought to have those products on his farm, and apply those to his soil in the equipment he now has, his farm machinery, which is adapted for spreading a dilute fertilizer on the soil. This process is adaptable to be used anywhere, where secondary or cheap power is available, and I say secondary because that means cheaper power than primary power, and, of course, should be used if the greatest economy is desired as n^r the center of consumption as possible. In carrying on our investigations we have negotiated with the Aluminum Co. of America for secondary power at their Alcoa, Tenn., plant, believing we could make some fertilizer for the section that could easily be served from there. AVe have had negotiations with an electric furnace company at Chat- tanooga, who own an electric furnace that is partially idle, and get their power from the Tennessee Power Co. We have had negotiations with the Anaconda Copper Mining Co., who have a large electric furnace plant at Great Falls, Mont., which they built during the war to produce ferromanganese, and' which is now shut down, and through an allied company, the Montana Power Co.. they have large quantities of power available. Also, there have been discovered in that section of the West the greatest known deposits of phosphate rock in the world. That phosphate rock has no hope of reaching ceitain of the present consuming markets, unless it can be sent out in a concentrated form. And, just at this point, without apparently knocking the present method of manufacture, I would like to call your attention to a striking instance of which I do not believe you will find the equal in any other of the great industries. Phosphate rock, as mined, contains about 32 per cent phosphoric acid. After you have treated it with sulphuric acid to make it available to the soil, it has an average of about 16 i>er cent. By the time it actually gets to the farmer it is. cut down in the mixture he gets to about 9 per cent; or the finished material is approximately one-fourth of the raw material originally minetl. High freights have brought a lot of that home to us. Many things could be done with lower freight rates that can not be done to-day. High freight rates will relocate many industries, and that is some- thing to be considered. When you try to find out how' much fertilizer can be made at Muscle Shoals, you must bear in mind that you could make too much there. It would cost you too much to distribute from that point. There are 436 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 437 other xyiUvv -powers. There are oMier secoiularv powers. There are other locations thai use it. That is purely a husiness question, as to the ewt o n .0.1 and the tonnage that couhl he made at that particular location. Xend in? t ei hi ■T^'h ^*"'''- f r'"" "'••'^^^•••••^^' t»'^ ^---^t <,f manufacture, and outj^'o ng tieijrhts to the point of consumption. ^ v^!^f\Ji!^? l^'^'^'^^^T^/ti'''''^'''- ^^'^ '*'*^*^"t "'*^^»»«*1 «f manufacture and to epeat ^^]mt I said ahout the fertilizer manufacturer not deliberately diluting his material, his <„sts are hij;h herause of the fact that he has t^iL in the n;;"i\\en mTt^H^ ^'l" ^'"•^'''^^^^, "'*' ^"^'^''^^^ ''^ ainin<>nia';uU>lu^ie",c^ F(.r instance assume the fij,'ure is corre '»t -^1- 'IHivered at the by-products c^»ke-oven plant the luoducer of l,y-pro0 a ton. That monev is lost In round hgures. the amount of plant food in a td grade market because it brought us a higher prce. ^^ e nee< ed the nu.ney in our ' association witii the other eoUan es a number of them, which are involved in one way or another. I am verv glad to say that I have been selling Mr. Ford phosnhori<. acid which he user n n st- proohng his cars. I am not only independent but alwa.vs have been ^^^^i he ( HAiKMAx. The committee will be very pleased to hear your state- Mr. SwAxx (continuing). Having owned 51 per cent, or the control of mv CO inpany, and always expecting to; and it has been a development in which r Nvll say. we have l>een encourages! by the power company. We have l^n assisted by them at many times when conditions were hard AVe have lea^d foVn inVJfhwrV' ^^^1 "'""•^' '""*^"- ^"'^ ^'*^ "»-^ negotiating with them now for a large block of secondary power from their new dam on the Coosa River- at the same time, we have sold our fertilizer to the fertilizer companies since we were not producing, up to this time, a sufficient quantity "nustifv us in having a d stributing organization. So you can see that it p?ac^ me in a very peculiar position, and I have tried to relate to vou a few of the fundamental facts in the statement of what has been accomplished This can be repeated at Muscle Shoals. This can be retreated in Montana, in GeorSa jn Tennessee, or elsewhere. vreoi^ui, The farmer can get cheaper fertilizer by this process and leave the manu- facturer a legitimate manufacturing profit which he must have If you will refer to the financial statements of some of the fertilizer com- panies, you will find they have lost some very large sums of money I be- Qon^/Sm^^r^ sheets of the two largest companies show a loss o*f above pO,000,000 last year in the decline m prices, due to the fact that they have to buy their raw materials a long time ahead. Now, my object is to make the bulk of the monev we make out of the food- grade product which we can reduce greatly in value, and to see our process used wherever it is required in the United States for the production of fertilizer. W e have a total of 15 patents on it. We have spent a lot of monev We risked everything we had and a few things we did not have in the development of the process. We only expect a very reasonable rovalty. We will not burden *i^ i'^5"u^''^V ^'^ ^°^^' "^^^^^ ^ ""^^y •'*"^^*^ part of the saving that can be effected by whoever may want to use this process. I think this statement will rather clear up any question of my connections or any question as to what our policy may be. I will be verv glad to answer any specific questions the committee may desire to ask The Chairman. At the beginning of your statement, or near the beginning of your statement, you spoke of the fact that England had been very active prior to the war and could not extend her industries over the world during the war, but at the end of the war period began to reach out again for the market in this country; do you remember that? Mr. SwANN. I do; to the tune of $250,000. That is what I lost in the de- cline of manganese when we had tried to do what the Government wanted us to do in keeping a stock of manganese ore ahead. The Chairman. Is there no provision of any American law that will pro- tect the American producer in that regard? Mr. SwANN. I personally appeared before the Federal Trade Commission and we tried to invoke an old antidumping law, and got away with it for a short time, but it did not hold in court. They were selling in the United States cheaper than they sold in England or on the continent. The Chairman. They were, at that time? Mr. SwANN. Yes. The CHAiRiiAN. Is there any protection so far as the tariff is concerned^ Mr. SwANN. No. There is a tariff' proposed but not enacted. The Chairman. That is being proposed in the bill which is still pending in the Senate committee? Mr. Swann. Yes. The Chairman. And that will give protection if it is enacted into law' Mr. Swann. Yes. The Chairman. You said something about concentrated fertilizer and the difficulty of getting the farmers to use it. The farmer, I take it. from what you and others have said, is accustomed and has been accustomed for some time t(» i)iirchase fertilizer which contains quite a good amount of filler. Mr. Swann. Yes. The CHAiRifAN. Of course, he pays the freight on that, and not onlv pavs the freight but pays for the .service of packing it in bags or boxes, whichever wav it is shipped, and that is all an added expense, I take it. Mr. Swann. Yes ; and wlien he finds out the cost of packing and of freight and of bags and of handling, he will certainly turn slowlv but surely to the more concentrated fertilizers. The farm bureaus and the countv demonstration agents and so on will carry that i)ropaganda on, and I believe a market will be found for the concentrated fertilizers about as fast as thev are developed Prof. Whitney went one step be.vond what I have suggested, which I think will apply to certain crops, and that is. they will take this concentrate& . Mr. Swann. Of course, I can not answer what he or aiivone else would do I can only say from the knowledge I have I do not believe anniionia for fer- tilizer can be made as cheaply by the cyanamid process as it can be obtained from other sources. Mr. Hull. Yes; but you are speaking of ammonia for fertilizer Mr. Swann. Yes. Mr. Hull. We are speaking of ammonium nitrate for high explosives That is the question we have got to solve primarily. Mr. Swann. If your plant is there, of course; it is available. Mr. Hull. And in order to follow this line of development, it woidd not be necessary to destroy what we have, would it? Mr. Swann. No. Mr. Hull. That is the point I had in mind. Mr. Swann. I did not make complete my statement a moment ago. Should It be desirable from an economic point of view and from the point of view of getting low costs, which, of course, must come, jou could convert these furnaces over to phosphoric acid furnaces, and I should say that two weeks' time would be all that would be required to convert them back to carbide furnaces All you would have to do would be to tear the roof off and put in a new lining of carbon blocks, and if you wanted to keep prepared, vou could keep on hand a stock of carbon blocks sufficient to line all the furnaces again. Mr. Hull. That is the answer I wanted. I thank you. Mr. Cbowtheb. Mr. Swann, you said you had some acquaintance with the conditions at Muscle Shoals, having been with the Alabama Power Co They owned the site of Dam No. 2 or the Wilson Dam, did they not? Mr. Swann. Yes, sir. Mr. Cbowtheb. And they disposed of that to the Government for a small consideration ? Mr. Swann. It is my understanding they gave it to the Government. That is my understanding but I am not exactly informed on that. Mr. Cbowtheb. You do not know about that. What is ferromanganese used for? Mr. Swann. It is used in the production of steel. Everv ton of steel must contain a certain percentage of manganese and especially shell steel contains more than the general run of steel. Mr. Cbowtheb. Is it not true that in the early part of the Sixty-sixth Con- gress we introduced in the House a special bill in connection with five or SIX other small bills to protect that material from a tariff point of view as a war industry. * Mr. Swann. Yes. Mr. Crowtheb. And that was one of the bills criticised as popgun legislation or popgun bills by Mr. Kitchen who was on the fioor at that time, and it did not meet with any very favorable consideration, and tungsten, if I remember correctly, was another product, and several other things. Mr. Swann. Yes. Mr. Crowtheb. You spoke of the sprinkling method of using fertilizer. I think I brought that out by asking Dr. Whitney whether the two ingredients he has submitted were soluble in ordinary water and he said yes. There is nothing new about that? Mr. Swann. Absolutely nothing new. Mr. Cbowtheb. The old fertilizers and the natural fertilizers have been sprinkled and distributed that way on the soil for manv vears, have they not' Mr. Swann. That is correct. Mr. Cbowtheb. Do you thing that is a pretty good method to use? Mr. Swann. In some instances it might be a very good way, especially if you bought your fertilizer originally in a concentrated form. Mr. Cbowtheb. Are these 49ynthetic compounds? Mr. Swann. Your ammonia, perhaps, would be called a synthetic compound. Mr. Cbowtheb. What have you to say about Dr. Whitney's statement that after a 10-year period of treatment with these compounds or these artificial fertilizers, the crop growth showed a gradual increase up to 10 years and then they went m\ m 440 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 441 down in direct proportion to the soil tliat had had no treatment at all. You will remember that he spoke of that? Mr. SwANN. Yes. Mr. Crowther. Have yon any knowledge on that subject? Mr SwANN. I have no direct knowledge on that subject. Mr. Crowther. He spoke as if they were hurting the soil with these artificial ingredients because after 10 years the crops deteriorated in just the same pro- portion that crops deteriorated on soil year after year that had had no special fertilizer and no special attention given to it, and I think he spoke of the distinct advantage of the natural forms of nitrogen that were produced by rotation of crops and by plowing in certain crops, as being perhaps the ideal system. I was just wondering if you had anything to say on that. That is all. * Mr. Fields. In vour opinion, :Mr. Swann, there is no question but what it will be possible to get fertilizer to the farmer in concentrated form, so he can use it and apply it to the soil without the expense of the large amount of filler that is carried to-day. Mr. Swann. That is our opini(m and we have backed it up with our money in the last three years and a half. Mr. Fields. I am mighty glad to hear you say that, and I will say, INIr. Chair- man, that what he has said and shown here is what I had in mind the other day when I askes. Mr. Fields. I do not want to make a statement, Mr. Chairman, but I do want to refer to one or two questions you asked a moment ago about the professors of the colleges in your State. I suppose every State in the Union, certainly every one I know of. is working with the Federal Government in what they call farm demonstration work. The CHAiRAfAN. Extension courses, they call them in California. Mr. Fields. They do not come in contact with all the farmers, but they do come in contact with the most progressive farmers of the counties, and the elimination of the heavy expense incident to freighting and handling the amount of filler that we get in fertilizer to-day is a crying need of the farmers. They all realize the necessity of relief from that expense. That is all. Mr. Chairman. Mr. QiiN. :Mr. Swann, you have from actual experience of manufacture, the knowledge of this subject which you have just detailed to this committee^ as I understand it. Mr. Swann. Yes. Mr. QuiN. Then it is not any dream that concentrated fertilizer can be pro- duced and turned over to the farmer? Mr. Swann. No, sir. Mr. QuiN. The gentleman who contended that it was impossible unless you had about 80 per cent of filler is in error, is he not? Mr. SwANN. By these samples we can demonstrate that. Mr. QuiN. From practical demonstration by your own factory, there is no doubt but what concentrated fertilizer can be sent out and economically sent out from the factory to the consumer? Mr. Swann. I have no doubt about it ; no. Mr. QuiN. As you stated, the expense of this so-called filler, this sand or dirt, and the expense of putting it into sacks and storing it in warehouses and the expense of high freight rates, adds materially to the cost of the fer- tilizer sent in bulk with all that filler, does it not? Mr. Swann. Yes ; and not only that, but, as I stated before, they do not add the filler, but by the process of making it with sulphuric acid the filler is pro- duced. So you have an additional cost. It is more expensive even than if you did add it, because filler would not cost as much as sulphuric acid, the ma- terial they use to make available the phosphoric acid in the rock and to fix the ammonia and the ammonia gas. Mr. QuiN. A fertilizer factory at Atlanta, Ga., Jackson, Miss., or New Orleans, La., gets its gross products in as concentrated form as po.ssible? Mr. Swann. Yes; the way the rock is mined, they do. They get as high grade as they can get. Mr. QuiN. And still the expense on all of that gross product in shipment and handling must be paid by the ultimate consumer of the fertilizer? Mr. Swann. Yes. Mr. QuiN. Then as a practical and sensible thing for the farmers directl.v, and for all the people who consume farm products indirectly, it is necessary to give them cheap fertilizer, or as cheap as possible, is it not? Mr. Swann. Naturally. Mr. QuiN. In the Ford contract he i>roposes to put this fertilizer up to 110,000 tons, and that means if they add a filler to it in proportion, it would be about 2,000,000 tons of fertilizer ready to go on the soil. Mr. Swann. I think that was tlie figure given. Of course, the amount of nitrogen or ammonia varies in the different fertilizers and that question can only be definitely answered when you state the formula, but that is about correct; yes. Mr. Quin. The question of potash was mentioned by you. Is it possible to get potash economically from any source around Muscle Shoals? Mr. Swann. At the present time you can buy German potash cheaper than you could produce it. Mr. Quin. What sources of potash have we in the United States? Mr. Swann. Well, there is the kelp in the western States, and the natural brines in Nebraska and the by-product from the cement mills, as well as wood ashes and various miscellaneous, small sources. Mr. Qi IN. The great potash field at present is the quarries of Germany? Mr. Swann. At the moment it can be bought cheaper than it can be produceperate with the Government, that its punishment should have been as com- plete as it was possible to make it. I think that perhaps the committee may find, upon investigation, that this particular nitrate plant is not subject to the provisions of that act of 1916. I believe it is a fact that if you will examine the accounting of the War Department, you will not find any part of the nitrate plant paid for out of the appropriation carried in that particular bill. I think ycm will tind it paid for out of appropriations for armaments and fortifica- tions, and it may possibly be, although I would not like to pass upon the ques- tion, that that provision does not apply to the nitrate plant itself. It does ai)ply to other parts of the offer of Mr. Ford. The Chairman. I think the evidence i)efore the committee is that the money that was used for building this nitrate plant was not taken out of this fund,, but the money for Dam No. 2 was taken out of this fund. ;Mr, Hammitt. Yes, sir. The Chairman. But the fact remains that all the money that is in the Muscle Shoals plants was taken from appropriations that were made for military pur- l>oses. Mr. Hammitt. There is not the slightest doubt about that, Mr. Chairman. The Chairman. I was going to read what Col. Hull had to say about the matter, and I will read what Col. Hull has to say about the matter of the m<»ral obligation. I said to him: "The Chairman. What do y(m think about that moral obligation? " Col. Hull. Ordinarily, I am strictly in favor of the Government carrying 4»ut its contracts that are duly entered into, notwithstanding that the officer, in the time of emergency, exceeded his powers." That is the case here, probably. But in this contract I notice it is a cost-plus contract. It is a long contract that bears many evidences of having been very carefully prepared by the uttorneys for the company, and they have provided in there several very re- markable things, namely, the construction of a power-transmission line and power plant at the expense of the United States, but at the .same time providing that the company takes the real estate and an option. The company can not get. ordinarily, in time of war, the right of way as cheaply or as expeditiously as the Government can, and it certainly would have been a matter of ordinary Inisiness sense when they were constructing a plant and buying real estate to do it in that way. Therefore, I believe it is a perfecty proper case to leave to Congress, after a due investigation, to determine what the equity of the matter may be. Mr. Hammitt. My comment on that, Mr. Chairman, is that the witness is discussing an entirely different contract, with an entirely different company, wih which the American Cyanamid Co. and Air Nitrates Corporation have no <*onnection whatever, and that whatever he may have said, whether it was well sa d or ill said, regarding the moral obligation in that particular transaction, has n<»thing whatever to do with the moral obligation in this transaction which I have been discussing. The Chairman. The fact is that both companies, both the Air Nitrates Corporation and the Alabama Power Co. violated this positive section of the law, that, the plant or plants provided for under this act shall be constructed and operated solely by the Government and not in conjunction with any otner industry or enterprise carried on by private capital." That is verv clear to me as an expression of law. Mr Hammitt. I do not think you mean to say, Mr. Chairman, though, that by taking a contract which made us the agent of the United States for the design and construction of the Muscle Shoals nitrate plant, which is all we have done, we violated the provisions of the national defense act. If that is the view, then our only escape from violating that provision would have been never to have built the planf, and the phmt was needed for war purposes, and it IS very fortunate that we were advised that we were not violating the law by building it. The Chairman. That is why I asked you a moment ago what would have happened to your corporation if you had refused to come to the assistance of the Government while the Government was in a state of war. Mr. Hammitt. I think some means undoubtedly would have been found to have compelled us to do so. Mr. McKenzie. Mr. Hammitt, how many years have vou been connecter I with the American Cyanamid Co.? Mr. Hammitt. My connection with the American Cyanamid Co. develope Mr Hammitt. No : it does not prevent competition, provide^l Mr. Ford or somebody else is willing to purchase it on terms more favorable to the Gov- ernment than we are willing to purchase it on. If we are willing to purchase it on as good terms as anybody else it gives us protection. If somebody else is willing to offer the Government better terms than we will accept, it gives us no protection. ^ * ^ Mr. McKenzie. Is it a fact that the American Cyanamid Co. has, for a number of years, had its eye on this particular plant at Muscle Shoals, and at no time was it taking any chances on anyone getting in there, either the fX^^il™^'* ^^ ^^^ ^^^^^ ^^ *^^ Government who might enter into competition with that company, and in the preparation of this contract, was not that one of the vital propositions you had under consideration? Mr. Hammitt. That question is also in two parts. In the first place. I do not know it to be a fact that the American Cyanamid Co. has had its eve looking In the direction of Muscle Shoals for a long period of time. It certainly is a fact, as the Congressman has suggested, when we got into negotiation with the Government looking to the design and construction of a plant four times the size of a similar unit in one of our own plants we considered it vitally important that there should be some protection against that plant being used in competition with us after the war. If there had not been a war there would not have been any plant at Muscle Shoals, certainly not built on those terms Since there was a war, and by reason of the war need we provided that plant for the Government, we thought it very necessary that we should have protec- tu>n against the use of that plant to destroy our investment after the war In regard to the matter of protection I might say that the contract pi-ovided that we should be permitted to buy it on as good terms as anybody else. Mr. McKenzie. You are a business man, I take it? Mr. Hammitt. Yes, sir. Mr. McKenzie. You are somewhat familiar with the practices of business men in large corporations? Mr. Hammitt. Yes, sir. Mr. McKenzie. Do you think it would be possible for any outsider, other than the American Cyanamid Co., under all the existing conditions, the Ameri- can Cyanamid Co. controlling the patents and having an absolute monopoly of the situation, to come in and pay a price that the American Cyanamid Co. would be willing to pay in order to keep this proposition blocked? Mr. Hammitt. I will say that I do not think it is at all likely that anyone else can afford to pay the Government a better price than the American Cyana- mid Co. can afford to pay the Government for the Muscle Shoals plant. Mr. McKenzie. Then this is the situation : The millions of agriculturists of this country and those believing in the national defense feature of it are in- terested in the development of this particular proposition. You come to us very frankly— and I am not censuring you for it— you come very frankly putting your cards on the table, and ask this Congress not to take any action that would disregard a contract that was entered into by the American Cyanamid Co., and this Government when we were at war that would absolutely shut out the agriculturists of this country, or the Government, in the purchase of the materials to make explosives, and put them absolutely at the mercy of this company which has a monopoly ; is that not the question? Mr. Hammitt. I should say it is not. Mr. McKenzie. That is the way it looks to me; I may be wrong about it. Mr. Hammitt. Because, in the first instance, we have, under the provisions of this contract, no right to purchase that plant unless we pay for it as much as anybody else is prepared to pay. In the second place, I assume you have had some experience in business. MUSCLE SHOALS PROPOSITIONS. 453 Mr. McKenzie. Not very much. Mr. Hammitt. I assume, at any rate, you will recognize the public policy back of the patent law, and you recognize that the United States patent law has a particular provision which provides that any person who has been granted a patent shall have the exclusive use of that patent for a certain number of years, for the purpose of encouraging invention, and you wouhl certainly con- sider it unconscionable if, after investing money in the development of proc- esses and the acquisition of patents and the find ng of a marktt for a material on the strength of the existing laws, because of the interposition of a war the protection that those laws extend to everybody should be taken away from a particular company. Mr. McKenzik. I do not suggest any such thing. I think the owner of a pat- ent is entitled to the protection of the law and royalty for the use of the pat- ent by anyone else. Mr. Hammitt. But you do not require any otlier patentee lo allow the use of his patent uixni the payment of a royalty. You give him. under the pro- visions of the patent law — and if you do not believe that is a proper public policy, I think you should go about changing it — protection for a certain i)erio«t of time. We inveJ^ted our money on the faith of that protection. We ask that that protection be not taken away from us by reason of the interposition of a war emergency. Mr. McKenzie. If this contract is good under existing law, then in my .iudg- nient, the law it.self needs amendment, because the way I view it. a contract of this character ought to be void on the ground of public policy. Mr. Hammitt. I am sorry you feel that way about it. Mr. Greene. Mr. Hammitt, you have called attention to article 19 of your contract, that is, the contract of the Air Nitrates Corporation and the United States of America, regarding the construction of the Muscle Shoals plant. You make out that you have, by the terms of article 19, the right to purchase the same upon as favorable terms as the United States is willing to accept from anybody else, and therefore, before the United States shall sell the same to any other party, you shall have the right to meet those terms, if you desire. Have you made any offer to the Government, based upon the provisions of article 19V Mr. Hammitt. We have not. ]Mr. Greene. In view of the fact that other offers have been made, do you wish to have yourselves now regarded as competitors for the plant on the terms of article 19? Mr. Hammitt. We do, on the terms of Article 19, to this extent. Of course, we did not make an offer of the character of the one that is under considera- tion before this (committee, because, frankly, we would not have had the nerve to present that kind of a proposition to the United States Government, and we believe if we had come down here and presented that kind of a proposi- tion to the United States Government, most of the comment would have been upon the extent of our nerve. But if the committee definitely decides that, contrary to what we frankly believe is public policy, the United States Govern- ment shall go into the business of subsidizing a particular manufacturing opera- tion, then we want to bid for the subsidy. ^Ir. Greene. Is that answer to be interpreted to mean that if the United States Government will itself continue to hold the property and administer it, or let it stand out in a stand-by condition, you make no offer? Mr. Hammitt. At the present time we wf accepting Mr. Ford's offer outright if Congress shall elect to provide that the property may be put into shape to be offered for competitive bids, you will then be a bidder? Mr. Hammitt. I would not be prepared to state, in behalf of the Air Nitrates Corporation or the American Cyanamid Co. that under any circumstances, if you separate the ntrate plant from the water-power project, that we would be prepared to offer a bid. But if the committee decides to deal, in the name of a nitrate proposition with what really is a water-power proposition, then I am quite certain in my own mnd that the American Cyanamid Co. would like to be considered as a competitive element in the bidding. Mr. Greene. And until Congress elects one policy or another, you do not make any offer? ]Mr. Hammitt. No; we do not. Mr. Greene. And you stand, admittedly, as a dog in the manger? Mr. Hammitt. Not at all; because I will say this. Congressman, that while I can not speak, of course, on a matter that obviously must be submitted to the board of directors of the American Cyanamid Co., without it first being so submitted, that if the matter would be put in such a shape that I could submit to the board of directors of the American Cynamid Co., and they to their stockholders, the acceptance of rejection of this property on the terms proposed by Mr. Ford, then my personal opinion is it would be acccepted. Mr. Greene. Let us see how we get at that. When the United States Govern- ment did ask for bids on this propert.v — that is, the War Department — flid your company submit any bids? Mr. Hammitt. We were not asked to submit a bid on the nitrate plant in the first instance, but if we had been asked to submit such a bid, we would have been compelled to tell the War Department that there was no possibility of the operation of this nitrate plant at this time, or for a substantial period to come, on a commercial basis without loss, and we would not consider it proper to sub- mit to the Government a proposal that the Government make up that loss. What we did receive was an inquiry as to whether we would be interested in pro- posals regarding the development of water power, and w^e advised the Chief of Engineers of the Army that our only connection with the Muscle Shoals prop- erty related to the nitrate plant, and that we could not see at present any way of making the nitrate plant a profitable customer for the water power, and that therefore it did not seem to us that we were able to help him any, but if he desired anything in particular from us in the way of cooperation, we would be glad to give it. Mr. Greene. You did not bid, but Mr. Ford did? Mr. Hammitt. Those two statements are certainly correct ; yes, sir. Mr. Greene. Now, that Mr. Ford has bid, you interpose your right to prevent the execution of any contract with him, but you do not offer, on your own account, to take up, by a definite proposition from yourselves, property which you seek to prevent going to Mr. Ford? MUSCLE SHOALS PROPOSITIONS. 455 Mr Hammitt. Congressman, I do not believe, frankly, that the United States Congress is ever going to approve the principle of the Government dipping down into the Treasury to support a manufacturing operation. And I do not want, personally, to see the American Cyanamid Co. or the Air Nitrates Corporation put in the position of competing for that, kind of subsidy, nor do I, as a matter of public policy, want to see the United States Government granting that kind of a subsidy to somebody else. However, after all, when we get down to it, no matter how much you and I are discussing this from the point of view of the nitrate plant, this is not a nitrate-plant proposition ; this is a water-power proposition, and this nitrate plant end of it is nothing except what somebody offers for the purpose of at- tracting a certain support in order to enable him to get a cheap water-power contract. We never conceived of the Muscle Shoals project in that light, and because we did not conceive of it in that light we, of course, were not in a posi- tion to write anything like this offer which Mr. Ford has proposed. Mr. Greene. I understiind that very likely some phases of your suggestions might meet with a response from other persons in the room with regard to the matter of public policy. But that is not the issue involved. The is.sue is one plainly of the construction of contractural relations between the two parties and your alleged intervening right. What use do you intend to make of your right? The Government has asked you to make a proposition, but, as you explained, you have refrained from doing so because your idea of public policy would not permit you to make such an offer. In the meantime another man who has not the same idea of public policy but whose idea of public policy is quite different, has made an offer. Upon the receipt of his offer and notice to the public that he has made such an offer, you interpose your alleged inter- vening right. Now, the question is one concerning which the Government does not intend to let anything remain in suspense. It must dispose of one or both of these propositions. It must either accept or reject Mr. Ford's offer. Do you then insist that your regard for a proper public policy is so great that you will neither make an offei yourselves nor allow the Government to accept Mr. Ford's offer? Mr. Hammitt. I am firmly convinced that this whole problem can be solved nnich better, and you could get along with it very much faster if you removed the existing legislative barriers with which you obstruct the possibility of the disposition of this property, by placing an administrative officer in a position to negotiate. Then you may get some one, perhaps, who is willing to negotiate, but anybody who can not capitalize the advertising end of his proposition can not negotiate with the Congress of the United States. I could not negotiate directly with Congress as a Congress, so that I would talk across the table with you and you ask me to commit my company to something; you are only one of 43.5 men in one House. You could get along much faster and much better the other way. That is the fact, and that, as a man of some experience in busi- ness, you and other members of the committee recognize. Mr. Greene. You express your distrust of the court to which you submit your testimony. Mr. Hammitt. No: I simply suggest my view, very respectfully, to the effect that the function of this court is to perform within its legislative, function, and my appeal t.o the committee is based upon a recognition of its legislative func- tion. Mr. Greene. All right. Then, it seems, taking you at your own words, that you have not appeared with a definite, affirmative proposition; that instead of adopting Mr Ford's course and making an offer your suggestion is that Congress shall write some new legislation that will enable you to make an offer, and you have confined yourself in your statement simply to intervening your right. These suggestions that we change the law in order to enable you to come in appear to be second thoughts. Mr. Hammitt. I felt that the particular function that I had before the oommittee was to present this feature of the proposition as it bears upon the Ford offer, and I hope I will not be ruled out of court on the ground that I have not gone further than that But if you desire my suggestion, which I did not have the temerity to offer, as to what you ought to do about this Muscle Shoals situation, I will be perfectly glad to present it to you. Mr. Greene. That is exactly what we want. Mr. Hammitt. In the first place, I would separate the two propositions, which do not belong together. I would deal with the water-power proposition 456 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 457 as a water-power proposition, and I would deal with the nitrate proposition as a preparedness proposition. i^uyuMLion Now, first as to the water-power proposition, I would provide by general law for the development of the water power down there, by private capita under the provisions of the Federal water power act. the same as e^'^rv S re^ rUr'^'-"\\?^ T""'"^' ^^'^'^^ '^ developed, and I would remofe the VeSn restrictions m the law against the development of that water power under propertv ^"'' *'''''''"'' ""^ ^^'^ '''«*^'' I^<^^^'^»* a<^t, without regard to the nitrate ,.^^^fr ^-^^'^ I would do in regard to the nitrate propertv, or what I would advise the United States Government it shouhl do! I would keep hat nitrate plant unoperated, in a stand-by condition, which is 100 per cent better preparedness anyway than putting it in operat^.n. If you want to know win that IS so. I will be very glad to go into it, although I did not believe it was my function before this committee to do so. That is 100 per cent better pre- paredness. I would say keep it until such time as there is a possibilitv of its being oi)erated commercially without a subsidy, and without bankrupting the operator, and when that time came I would lease it or .sell it, or do whatever seems wise to do, and I would protect the Government's interest and mesh this into the general scheme of nitrate manufacture. At the present time there is not any commercial operation of that plant that !s possible without a subsidy, and that is what I would recommend to the Government because there is no commercial operation of that plant now possible without a subsidy. Mr. Greene. Let me ask a question right here. Mr. Ham MITT. Certainly. Mr. Greene. You la'd stress upon tlie words "that plant." Is there not something in the local or physical condition that makes vou have the view that it can not be operated without a subsidy? Mr. Hammitt. It is both in the local and* physical condition, ves. The plant can not be operated commercially. Congressman, because !t 'is not capable of mak ng anything that has a market on which vou could get back the cost of production. Mr. Greene. You are speaking of the nitrate plant? Mr. Hammitt. I am speaking of the nitrate plant ; yes sir. It is not capable of being operated on a basis that would carry any overhead. It is simplv not a practicable commercial proposition. I will say this to you also in order that you may fully appreciate our position. The verv minute we feel that there is a pos.sibility of operating the plant down there without losing money we will come to the United States Government with a proposition to oiierate that plant, if the way is still open. Mr. (JREENE. Your last remarks, I suppose, are directed to the ph.vsical con- dition of the plant, as the reason why it can not be operated without overhead. Mr. Hammitt. It is designed for the manufacture of a war explosive, ammo- nium nitrate. It can not be operated on ammonium nitrate, and nobody ever suggested it could be so oi)erated at a profit. Tliere is no market for aminoniuni nitrate that the full product of that plant would amount to, and there is no mar- ket for the ammonium nitrate that would be made there that would pay the cost of production. Now, it can be, with certain additions and alterations, converted to the manu- facture of various nitrogenous fertilizer materials. The only one of those that has a large enough market to make it an attractive operation for a plant any- where near approaching that size is sulphate of ammonia, and the cost of pro- ducing sulphate of ammonia at Muscle Shoals would be from 30 to 50 per cent more than the present wholesale market price of sulphate of ammonia. That is the reason I say you can not operate that plant commercially at the present time Mr. Greene. Then your proposition is if the Government should put it into such condition so that it may be operated commei'cially you will make a bid for it. Mr. Hammitt. If the Government retains it as a pfant capable of producing ammonium nitrate, and that is the only field we have explored in our considera- tion of the matter, of course, because we have always considered and have been advised by the War Department that the preparedness feature of that situation was the paramount one, we do not know what they could change it to that would make it profitable in operation. Mr. Greene, Have you come forward with any helpful suggestions? Mr. Hammitt. I am sorry to say we have not been .able to develop any sug- gestions that were really helpful. We have spent a good many hours discussing the matter with representatives of the Department of Agriculture and the War Department, and we have made rooms full of figures trjing to 'work out .some proposition that would make the operation of that plant a feasible operation. We have gone at it seriously, and with a great deal of experience going back over a number of years. And I want you gentlemen to appreciate that I am not holding anything back at all when I say we know of no way by which that plant can be made commercially practicable. Mr. Greene. My questions are not to be construed as necessarily hostile. I want the facts. Mr. Hammitt. I have not so construed them. Mr. Greene. I want to know what your situation may be defined on the floor •of the House to be, and so defined with your own authority back of it. It is ap- parent that so long as the Government will do nothing with this plant, will not let it get into the hands of any possible competitor of yours, you do not want the plant yourselves. Mr. Hammitt. Only with this modification, and that is that the present situa- tion might change with market conditions, or if there were development in the art that would make it possible to have a successful commercial operation of a plant of that character. But under present conditions, and the conditions that we believe will obtain for a period of years, that is exactly the position of the cyanamid company. Mr. Greene. If somebody else makes a proposal that they will take the plant with such iini)rovements and experiments as they may make and produce, how about that? Will you make any comi^etitive offer in connection with that? Mr. Hammitt. We will not be interested in competing with them if they propose to do it at the expense of the United States Government. Under those circumstances we will not compete with them. We will not propose that the Government of the United States extend a subsidy, but as soon as it becomes apparent that the Government proposes to extend a subsidy to somebody else to compete with us, then we would want an opportunity to bid on it. Mr. Greene. I do not see after all but that the situation simply depends upon what Congress may do by and by, and therefore it is not merely a conjectural situation, but it is an impossible one. After Congress has done that it is too late for you to do anything. Mr. Hammitt. Would it be assisting this matter to have you instruct me to go back to New York and consult with the lM)ard of directors of the American Cyanamid Co. regarding what kind of a proposition, involving a heavy subsidy from the Government, thev could offer to the Congress? Mr. Greene. The connnittee has no authority to offer any specific terms upon which a proposition may be based. You are aware of the fact that we are simply an advisory committee and not the final deciding power. Mr. Hammitt. Yes ; and I think in disposing of this matter it is not a legis- lative but an adminstrati\ e matter, and the legislative function is to provide certain general provisions of law under which the matter can be disposed of by an administrative authority. Mr. Greene. Then under those circumstances how would you figure it? In doing business with tlie Government you have to do things " as is," do you not? You do that in the commercial world? Mr. Hammitt. Yes; but we do not make much progress unless Congress makes the " as is " a condition under which progress can be made. Mr. Greene. You have, only a few sentences back, proposed how we might make that progress. Mr. Hammitt. No ; I did not understand that I was making any proposition. I was asking you whether it would assist the committee to do a certain thing. Mr. Greene! But you defined what you would do with this property if you had control of it. That is the first time you put up an affirmative proposition. If you have that affirmative proposition in mind, why are you not empowered, in your own relationship to your company, to ask them to submit some propo- sition on the basis of that reason? Mr. Ford apparently went to work on the basis of his own reasoning, assisted by the advice of his experts, and sub- mitted his proposition and asked Congress to come up to it. There is no existing law in reference to many of the details of Mr. Ford's proposition, and that is why he makes an affirmative proposition. Why do you not, having your own idea of what the public policy ought to be, and having your own i 458 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 459 idea which you have expressed to the committee of the commercial status^ make your owh proposition and ask Congress to come up to it? Mr. Hammitt. You do not know the board of directors of the American Cyanamid Co. as well as I do if you think I can go into a meeting of that board of directors and suggest that we propose to the United States Government that the Government subsidize us to operate that nitrate plant. Mr. Greene. I did not make any such statement. Mr. Hammitt. That is the only basis on which we would operate the nitrate plant, or on which Mr. Ford can operate it, or anybody else, and make it a com- mercial success. Mr. Greene. You are here to oppose a subsidy to Henry Ford ? Mr. Hammitt. Absolutely; Yes, sir. (Thereupon the committee took a recess until 2 o'clock p. m.) after recess. The committee met, pursuant to recess, at 2 o'clock p. m. STATEMENT OF MR. J. O. HAMMITT — Resumed. The Chairman. Mr. Hammitt, Mr. Hull would like to ask you some questions. Mr. Hull. You spoke of a subsidy this morning. Mr. Hammitt. Yes, sir. Mr. Hmx. In what way do you think we are subsidizing Henry Ford? Mr. Hamm:itt. If the offer of Mr. Ford is accepted. Mr. Ford will receive very cheap water power at the expense of the United States Treasury because, in the first place, 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, like all the rest of us in industry, he was compelled to finance the development of the water power in the usual way; and, secondly, 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, and so I am sure, if you set the figures down, you will find that a considerable part of the cost of that water power will be paid, first, by the credit, and then by the actual expenditure by the United States of cash which will not be reimbursed to the Government. It was my impression that the committee had gone into that question thoroughly enough to have the exact financial facts relating to that offer before it, but if the committee has not such an analysis I should certainly be very glad to furnish one to the com- mittee. Mr. Hull. I do not know what the rest of the committee has. but I have gone into it far enough to say that in my opinion the use of the word " sub- sidy " is wrong. It is not a subsidy at all. Mr. Hammitt. Then suppose we say Mr. Hull (interposing). It may be a good bargain. I am not saying any- thincT about that, but the use of the word "subsidy" is unfortunate, in my opinion. Mr. Hammitt. Then suppose we say, Congressman, instead of using the word " subsidy " which, of course, I use with a definition of my own in mind, that Mr. Ford would receive aid out of the Government Treasury in order to make up the losses which he would certainly incur from any operation of the nitrate plant he engaged in. Now, that is exactly what I meant by subsidy. Mr. Hull. As I understand it, your company will not make an offer under any circumstances similar to Henry Ford's; is that true? Mr. Hammitt. No; my company will not come to the United States Con- gress and request the United States Congress to give it a subsidy; but I will say. Congressman, that if the Congress adopts a policy, which we understand is not the Government's policy, of dealing with matters of this sort by giving aid out of the Government Treasury and indicate that the best terms upon which it is prepared to give such aid are the terms involved in Mr. Ford's offer, and then, in carrying out this particular contract, puts that matter in such shape that I can take it to the board of directors of the American Cyanamid Co., it is my firm belief, of which I am just as certain as one can be of what will be the action of another group of men exercising their individual judgment,^ that we would accept it, and yet we would not ask it, Congressman, because, frankly, we do not believe it is in accordance with public policy that such a thing should be done. Mr. Hull. As I understand it, Mr. Ford was asked to make an offer. Now, he has made an offer. As I understaid it, notice was sent to all companies to make an offer, and your company, which claims prior rights, has made no offer that gives it any prior rights. Mr. Hammitt. What rights my company has. Congressman, do not depend upon any offer made by my company. In the second place, neither Mr. Ford, as I understand it, nor the American Cyanamid Co., as I know the facts, was invited by the Chief of Engineers to make an offer for the nitrate plant at all, and we are not in the water-power business. We advised the Chief of Engineers that our interest in the Muscle Shoals situation could, naturally, in view of the business we are in, be only in relation to the nitrate plant, and as to that, we could see no way of making it a profitable customer for the water power, and that, therefore, we were not in a strong position to make any suggestion regarding the water power. Mr. Hull. There is the peculiar part of your argument, as I see it. You claim that Mr. Ford is going to lose money, in one place. Mr. Hammitt. No; Congressman — ■■ — Mr. Hull (continuing). And then you claim in another place he is receiving a subsidy. Mr. Hammitt. And the two go together. Mr. Hull. One moment. And you say you do not want to make an offer on the part where he would make money, but you would like to make an offer where he would lose money, perhaps; is that your proposition? Mr. Hammitt. Not at all. Mr. Hull. It sounds like it to me. Mr. Hammitt. We see no way, without aid of the Government Treasury, that any company can afford to undertake at the present time the operation of that nitrate plant, and we will not ask aid out of the Government Treasury. Mr. Ford will not lose money on his proposition if it be accepted and sustained in the courts, in my opinion, because the losses will be borne by the United States Government through its contributions to the cost of the large and impor- tant blocks of power that Mr. Ford will receive, and it is entirely conceivable that by financing a valuable thing like a water power for an individual or a corporation you can make up to it enough of a premium to justify it in oper- ating a manufacturing plant at a loss, and that; really is the essence of the Ford proposal. It is not a fertilizer proposition, primarily, but it is a means of ob- taining at the expense of the Government Treasury a very cheap water power. Mr. Hull. But all the rights you have under article 19 are contained in this language : "The agent shall be given the first opportunity (for a reasonable period of time not to exceed six months after receipt of written notice stating the deter- mination of the United States to dispose of the same, and the material terms upon which such disposition will be made), to purchase the same upon as favor- able terms as the United States is willing to accept therefor, before the United States shall sell the same to any other party." Mr. Hammitt. Yes, sir; and we have not yet received that written notice. If it is desired Mr. Hull (interposing). But you know about it. You have that notice. You would not be here if you had not. Mr. Hammitt. Mr. Hull, if you will again direct your attention to the pro- vision you have just read, you will observe it provides this procedure: First, the United States determines to dispose of the plant. That is the first thing that must be done. Now, the United States has not determined any such thing as yet. That is a matter that is under consideration here. That has not been determined and that is the first step. The second step is that the United States makes a written offer to the American Cyanamid Co. on what it con- siders the best terms it is prepared to accept, and then the American Cyana- mid Co. having been given a reasonable time to consider that offer indicates whether it will purchase the plant on those terms or not. If it will not pur- chase the plant on those terms, then you are entirely free to deal with Mr. Ford or with anybody else unless you improve your terms. You must give us an opportunity to purchase this plant on as good terms as you are making with anybody, but if there is anybody who is prepared to purchase the plant on better terms than the American Cyanamid Co. will pay, then you can dispose of this option as soon as you place the matter in the hands of some administrative officer who can attend to an administrative job of that character, and it is not a matter of difficulty, and I do not believe it would take any six months. 460 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 461 ^ Mr. HuLfi. I will say riirht liere that I am somewliat (►f a stickler for keeiv mg our obligations, but 1 certainly am not a stickler for keeping obligation* witli a comimny that does n«»t try to protect its rights and hides behind hair- splitting technicalities such as you have mentioned here as a reason for not making an offer. You have known, the country has known, evervbody has- km'!"' Pi:«ctically. that we are going to dispose of this property, in all prob- ability. You have tiled no offer. You make no pretense yet to making us an oiler, and then you come in here and say that this committee can not dispose of this property ; that you want it tunied over to somebodv else that vou can do business with across the table. I might say that in my opinion there has been too much ot that kind of business done across the table and not enough of it out here m the open where peoi)le can see what is being done. Mr. Hammitt. I hope, Mr. Hull, I have not made any suggestion that a ref- erence of this matter to a member of the President's Cabinet would have the effect of initiating a kind of negotiation that could not stand the light of day and, surely Mr. Hull, you must recognize that a company like the American eyananiid Co., whose total assets are not more than approximately one-tenth of the bank account of the Ford companies can not undertake to submit an offer m the existing state of the law with the same facilitv that Mr Ford with his control of more wealth than any other individual in the world, can under- take to submit. It is necessary, before we can make such an offer, that the matter be gone over with our bankers, with those who will be responsible for the hnancmg of the proposition ; and it is a matter of very much more difficulty I assure you, to even excite the interest of a banker on a* proposal that the con- tract never contemplated we should be required to make in order to protect our interests, made to the United States Government at a time when the United States GoveiTiment requires a procedure through Congress and the enactment of laws m order that that proposition may be considered. Now, I think it is most unreasonable, especially after agreeing with the American Cyanamid Co that it should have this opportunity of having the matter submitted to it and an opportunity to give it consideraion— I think it is most unreasonable now to insist that the American Cyanamid Co. do a thing which only a man in Mr Ford's peculiarly fortunate position would be in a position to do. Mr. Hull. Yes : but you forget that we passed a law especially prohibiting this verj' thing of dealing with a private corporation. Mr. Hammitt. Yes; and Mr. Ford proposes now that you do so. Mr. Hill. But it seems as though those who were to administer the law were r)ersuaded, at least, by some one, to make a contract that defied the law and then you come in here and get under that contract which was in express defiance of the law of Congress. Mr. Hammitt. Xow, Congressman. I can clear that situation up, in the first place, and help, I think, the whole discussion of this question, by pointing out that the law to which you refer— the national defense act— does not apply to this contract at all, has nothing whatever to do with the work that was done under this c(mtract. You have several different things down there at Muscle Shoals, and the one thing, the one important thing, that Mr. Ford is interested in and that the Chief of Engineers asked people to make offers for is the water power, and that water power, so far as it has been constructed, has been con- structed under the provisions of the national defense act and with appropria- tions made by it. The nitrate plant was not built under the national defense act and did not come under the provisions of the national defense act It is not held by the War Department that the national defense act has anything whatever to do with the nitrate plant or with this contract. So that the sug- gestiay us back anything ; is not that true? Mr. Hammitt. I am not sure I understand that question. Mr. Hull. If your company operated and made $1,500,000 and we paid it, and you h)st $1,500,000 in another enterprise, you would not pay us back anything at all; Js not that true? Mr. Hammitt. No; that is one of the effects of the creation of the Air titrates Corporation as a separate corporation. You see. Air Nitrates Corpora- tion had no other business in which it might h)se this amount of money. So niat Air Nitrates Corps, sir. Mr. Parker. And construes the other somewhat. Now, I desire to know, re- turning to the contract itself, whether under the terms of that contract it is or is not true that the United States is bound to pay the operating expenses of a quar- ter of a cent a pound whether it applies to the agent or not. The contract pro- vides that the agent agrees to operate until June, 1921, or as long as the United Estates remains in the present war. On page 12, in the paragraph providing for the operation fee it provides " one-quarter of a cent per pound of ammonium nitrate produced in compliance with article 7 hereof." That is $5 a ton, is it not? 92900—22 31 480 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 481 Mr. HA3»lMi'n. Yes, sir. Mr. Parker. "And accepted or utilized by the United States, up to and in- cluding,' 110,000 tons produced in any fiscal year." That would be $550,000 a year. Now, on page 15, article 17, there is a provision for the termination of the agreement as to any plants, and the United States is to pay for any materijil on hand, etc.; and also, on page 15, it is provided tliat if the contract is terminated as to any plant during or prior to the operation thereof by the agent " then the agent shall be paid the sum of money, if any, then due on account of the production of ammonium nitrate in said plants, and the United States shall thereafter continue to pay during the period set forth in article 4 "— that is, until the termination of the war, or 1921 — " a quarter of a cent per pound." So that this provides for paying the agent whether it operates the plant or nq^ ; is that not true? Mr. Hammitt. I think that is limited to the period of the war, which has already expired. Mr. Parker. During that period, anyway, the United States was to pny that whether it was operated by the agent or not? Mr. Hammitt. I think so ; yes, sir. Mr. Parker. I find in article 18, on page 16, the provision that " nothing in this contract contained shall be deemed to prevent the United States from at any time discontinuing the construction or operation of any or all of said plants, and in the event of such discontinuance the United States shall be under no liability to the agent for any payments as respects such plant or plants beyond those in this agreement specified. In the event that construction or operation is resumed at any of said plants at which construction or operation has been discontinued the provisions of this contract shall govern the rights and obliga- tions of the parties with respect to any such plant to the same effect as though the construction or operation thereof had not been discontinued." Does that apply? Suppose the United States began to operate the plant after the war; would they have to pay operating expenses to the company? Mr. Hammitt. Judge Parker, I would like to make the same explanation I made to the chairman in regard to questions that involved the interprets! tion of the contract. I want the committee to understand I am not a lawyer and do not profess to be able to answer legal questions. Mr. Parker. Representing the company, do you say that if the United States was to operate that plant they would have to pay the operating expenses amounting to a quarter of a cent a pound, or $5 a ton? Mr. Hammitt. It is my understanding that that operating fee would have to be paid to the Air Nitrates Corporation only as long as it operated the plant. Mr. I'ARKER. Nov/, after the war is over? Mr. Hammitt. Yes, sir. Mr. Parker. It would, if it had to be operated during the war. Mr. Hammitt. It would seem to me that would be the interpretation of the contract. Mr. Parker. It was to be paid during the war. But this is not limited to the war. It says, " In the event that construction or operation is resumed at any of the said plants at which construction or operation has been discontinued, the provisions of this contract shall govern the rights and obligations of the parties." I want to be sure you do not claim one-quarter of a cent per pound if the T'nited States should try to operate that. Mr. Hammitt. Judge Parker, I am perfectly veiling to accept your interpreta- tion of the provisions of the contract, but my understanding is Mr. Pabkeb (interposing). I want to know what your understanding is. Mr. Hammitt. My understanding is that there will be no fee for oiierating of the plant unless the Air Nitrate. Corporation operates the plant. That was my understanding as a layman, but just how it is worked out from the provisions of this contract, I would very much prefer that lawyers would pass upon that question. Mr. Pabkeb. At the time this contract was made there was a statute appro- priating $20,000,000 for plants at Muscle Shoals to produce fixed nitrates for fertilizers or explosives, which plant should be operated solely by the United States, and every provision of this contract, whether money was spent under that statute or not, is entirely in agreement with the statute for the plant is to be operated by the United States through its agents. That is true, is it not? Mr. Hammitt. I should say it were true, except possibly for those provisions relating to the sale of the plants. Mr. Parker. I am speaking of the provisions for the construction and opera- tion; they are entirely in accordance with, and it seems as if thev had been drawn under that statute. Mr. Hammitt. I think there is no doubt about that. Mr. Parkeb. That they are in agreement with that statute? Mr. Hammitt. Yes, sir. Mr. Parker. And your suggestion, I think, is that that statute made no provision for the sale of any of those plants, and you desire to guard against a sale which may be made or suggested by the United States under some other statute or some other power. You want to guard against a sale not provided for by that statute? Mr. Hammitt. Yes, sir. Mr. Pabkeb. Did you not get notice last July of Mr. Ford's proffer *> Mr. Hammitt. The only notice we have received of Mr. Ford's offer is the same everybody else has received, namely Mr. Pabkeb (interposing). That was published in the newspaper, was it not'' Mr. Hammitt. Well, not as early as last July, because that proposition was discussed for months before the details of it were published, but it was pub- lished in the newi^papers ultimately. Mr. Pabkeb. If you had been a private individual and not the United States and had owned a nitrate plant that required an enormous amount of power and' was also very expensive for that reason, and also had owned a lot of water power adjacent to it, which was very cheap, would you not as a business propo- sition, consider that it was sensible to try to dispose of them together** Mr. Hammitt. No, sir : I think I would not. Mr. Pabkeb. If you were a private individual who owned power and a plant which could not be made of any value except with that power, would you not think that a good business proposition to try to dispose of them together' Mr. Hammitt. No, sir. Mr. Parker. You have already testified that without verv cheap power that nitrate plant can not be used in the production of anv kind of nitrogen with success, and producing under present market conditions. Mr. Hammitt. I would say even with a cheap power, as provide :Mr. Hammitt. I think that at the present time the calcium-carbide indiistrv IS very largely down in the United States and Canada. Mr. Parker. Is there a demand for it? Mr. Hammitt. There is a demand for a certain amount of it, of course- init the present state of the industry is one of depression. Mr. Parker. I do not care for a general statement. How much calcium carbide is made at this factory during the year? Mr. Hammitt. They can produce 175,000 tons. Mr. Parker. How much calcium carbide is disposed of in the United States iiiid the world at the present time? I mean how much is disposed of in a year? Mr. Hammitt. I can not say; I am not at all familiar with the carbidfe industry. ^Ir. Parker. Is there more than 175,000 tons? Mr. Hammi'i^. I am not sure that outside of the consumption of carbide for Var Department there shouhl be maintained in stand-by condition several other T)lants for the production of several other ingredients to make this one avail- able: they must all work together? Mr. Hammitt. Tbey nnist all work together, and there would certainly be no opportunity to use the product of the Muscle Shoals plant successfully until .'^ome of these other things were also ready. (Thereupon tbe committee adjourned at o o'clo<*k p. m.. to meet to-morrow, Tuesday, February 21, 1922, at 10.30 o'clock a. m.) Committee on Military Affairs. House of Representatives. Tuesday, Fehruam 21, 1922. The committee met at 10.30 o'clock a. m.. Hon. Julius Kahn (chairman) pre siding. STATEMENT OF MR. J. O. HAMMITT — Resumed. The Chairman. Mr. Hammitt, the committee will be very glad to conclude with you this morning, and Mr. Wurzbach would like to ask you some questions. Mr. Wurzbach. Mr. Hammitt, what is cyanamid? Mr. Hammitt. Cyanamid is a form of fixed nitrogen which is produced by soaking up all the nitrogen gas you can soak up into calcium carbide and then pre[>aring it in a form in which it can be practicably used in a fertilizer mixing plant. It has approximately 25 per cent of ammonia. ^Ir. WuRZKACH. Did you explain why the Air Nitrates Coi-poratlon could not nuike an offer now for the nitrate plant if the nitrate plant was separated from the water-power proposition? Mr. Hammitt. Y'es, sir. Assuming that the situation were all laid out clear, so that it was perfectly practicable to, make a disposition of the nitrate jdant separately from the water power, we would not be able to make a proposi- tion for the nitrate plant, because we can not work out any manufacturing pro- gram for that nitrate plant that could be commercially successful, unless it received aid from the Government, and a proposition involving aid from the (Jfjvernment we believe is against public policy, as involving an indirect en- trance of the Government into private industry. Mr. \VnizBACH. If that is true, then the option you have under section V^ is such an option that you could not avail yourself of it if you were given tlie right to avail yourself of it, by your own admission? Mr. Hammitt. No ; because while we will not make the Government a propo- sition for the operation of the plant with financial aid from the Government, if the Government decides that it is going to provide for the operation aided out of the Government Treasury ; if, for example, the Government should decide that this proposition of Mr. Ford's would be acceptable to the Government, then we would have something we could do business on, of course. It would not be in accordance with our judgment of the way contracts ought to be made with the United States Government but it would protect the interests of our stock- holders. Mr. Wurzbach. But aside from any governmental aid or subsidy, suppose that the P^ord offer had not been made or suppose that it were withdrawn from all consideration, and the Government were to separate the nitrate plant from the water power, and in accordance with article 19 would give you notice and would ask you to make a bid, you would not be able to make any kind of bid at all? Mr. Hammitt. Under article 19 what the Government would give us would be a notice that would contain a statement of the best terms upon which the Government was prepared to dispose of that plant. Now, we believe that the Government is not in a position to offer terms that will protect the Government that we would accept ; but if the Government should offer us terms, then it would no longer be any part of our function to consider whether those terms pro- tected the Government; that would have been decided by responsible govern- mental authority, and we would give very careful consideration to the question of whether we could take over that nitrate plant and operate it on those terms, and it is our belief that we would be in at least as good a position, and very likely in a better position, to work out an operation of that plant, as soon as a situation arises where such an operation is commercially feasible, than any other party. Mr. AVurzbach, But there is nothing in article 19 that either expressly states or implies any Government aid to the corporation or individual contemplating the purchase of the nitrates plant, is there ? Mr. Hammitt. Nothing whatever, as I read that article. Mr. Wurzbach. Nothing at all. Now, putting aside or taking out of con- sideration the Ford proposal altogether, and assuming that the Government would suggest to the Air Nitrates Corporation that they intend to sell this property for cash. Mr. Hammitt. Yes, sir. Mr. Wurzbach. Would the Air Nitrates Corporation be in a position to avail themselves of that article 19 and make an offer; and, if so, what offer would they be able to make? Mr. Hammitt. It is my opinion that the Air Nitrates Corporation would not be in a position to offer to purchase the plant under those conditions. Mr. Wurzbach. What is the financial ability of the Air Nitrates Corporation? Mr. Hammitt. The Air Nitrates Corporation is able to pay its bills, sir, and it is able to conduct its present operations and it has good credit. The financial capacity of any relatively small industrial unit, such as Air Nitrates Corpora- tion, to take over a new proposition is always dependent upon the soundness of that new proposition, among other things, and if the new proposition were an attractive proposition financially and one that promised to be able to earn interest on bonds that might be issued for the purpose of financing it, the Air Nitrates Corporation could present that matter to those whose business is finance and doubtless could get a hearing before them, and if the proposition were sound, could get that cooperation which every corporation requires to get when it expands in financing. It would be most uneconomical for a coiT)oration with the business that the American Cyanamid Co. has to have an enormous bank account, because that would merely mean so much money that was not put to work. The Air Nitrates Corporation, or rather I mean the American Cyanamid Co., has not money that has not got to work. The Air Nitrates Corporation is merely a subsidiary of the American Cyanamid Co. Mr. WmzBACH. The option inures, however, only to the Air Nitrates Corpora- tion and not to the American Cyanamid Co., does it not? Mr. Hammitt. The option is a right of the Air Nitrates Corporation, and the Air Nitrates Corporation is owned entirely by the American Cyanamid Co., and I would be deceiving the committee if I did not make it clear to the committee that the American Cyanamid Co. is the real party in interest. Mr. Fields. Mr. Hammitt, where is the home office of the American Cyan- amid Co.? Mr. Hammitt. 511 Fifth Avenue, New York. Mr. Fields. What is the extent of its operations in the United States? Mr. Hammitt. It has a phosphate mine in Florida ; one of the largest of the Florida pebble phosphate mines, involving an investment of approximately $5,000,000, without the actual figures before me. It has a plant on the New I 486 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 487 o?^'a^^^ ^ ^'^^ ^^^^ Harbor involving an investment of something over ?3,0(X),000, a part of which has been written off as depreciation, bringing the amount of that investment down to something over $2,000,000. It has a plant in California, which is a relatively small plaqt, but engaged in the very impor- tant business of manufacturing hydrocyanic gas for the fumigation of citrus trees in California. The Chairman. In what part of California? Mr. Hammitt. It is near Los Angeles. Those are the plants of the American Cyanamid Co. in the United States To complete the story, its only other plant is located on the Canadian side of the Niagara River at Niagara Falls. Mr. Fields. And that is its big operation? Mr. Hammitt. The size of the investment in that plant, so far as not amor- tized, is a little under $3,000,000. I would not say it was its big operation in normal times. At the present time the main business of the American Cyan- amid Co. has nothing whatever to do with the fertilizer industry and consists of products made at Niagara Falls, Canada, and at Azusa, Calif., which is the location near Los Angeles. Mr. Fields. What connection has the American Cyanamid Co. with the Alaba)jia Power Co.? Mr. Hammitt. It has absolutely no intercorporate connection of any char- acter whatever. Mr, Fields. None of the stockholders of the American Cvanamid Co own stock in the Alabama Power Co.? :Mr. Hammitt. I could not say that as to all of our stockholders, but I will say that no one owning a very large, substantial interest in the American Cyan- amid Co. owns a large, substantial interest in the Alabama Power Co. I think It is entirely possible that some of our stockholders may have stock in the \la- bania Power Co. or own some of their securities. Mr. Fields. It is highly probable, is it not, that some of the stockholders of the American Cyanamid Co. own stock in the Alabama Power Co.? Mr. Hammitt. I think it is probable to this extent: There is one banking house in London that at one time handled some of our securities, and, accord- ing to my information, has handled securities of the Alabama Power Co., and that is Sperling & Co. Sperling & Co.'s interest in the American Cyanamid Co. IS entirely through stock ownership, for we have no bonds, and the amount of stock in American Cyanamid Co. that they own, I should say, does not amount to more than 6 per cent; and when I state that I am including not only the stock that Sperling & Co. probably actually own but I am speaking also of the stock that Sperling & Co. were engaged in marketing. Mr. Fields. What connection has the American Cyanamid Co. with the Georgia Railroad & Power Co.? Mr. Hammitt. None whatever. Mr. Fields. None of its stockholders own stock in the Georgia Railroad & Power Co.? Mr. Hammitt. Not to my knowledge. Mr. Fields. What connection has it with the Columbus Power Co. ; that is. what connection has the American Cyanamid Co. with the Columbus Power Co.? Mr. Hammitt. None whatever. Mr. Fields. What connection has the American Cyanamid Co. with the Cen- tral Georgia Power Co.? Mr. Hammitt. None whatever. Mr. Fields. Has it any connection with the Tennessee Power Co. ? Mr. Hammitt. It has none. Mr. FiEiJis. The reason I am asking these questions is because I notice thai Mr. Duke and the representatives of these four companies are apparently agreed as to their opinion of the production of power at Muscle Shoals. Mr. Hammitt. Yes. Mr. Fields. And I thought there might be some connection between the com- panies because their minds so thoroughly agreed upon that subject. Mr. Hammitt. There is no connection whatever. Mr. Fields. You say that the Air Nitrates Corporation is a subsidiarv of the American Cyanamid Co.? Mr. Hammitt. Yes, sir. Mr. Fields. And you claim that the Government of the United States is mor- ally, if not legally, bound to sell nitrate plant No. 2 to the Air Nitrates Cor- poration by reason of article 10 in this contract? Mr. Hamaiitt. Providing, in the first place, the Government determines to sell it; and, in the second place. Air Nitrates Corporation is prepared to pay for it as good a price as anybody else is prepared to pay. Mr. Fields. I notice that article 19 does not apply alone, as I construe it, to plant No. 2 at Muscle Shoals, but also to plants 3 and 4 in Ohio. Mr. Hammitt. That is true. Mr. Fields. Is the Air Nitrates Corporation in a position and ready to sub- mit a proposition to the Government on plants 3 and 4? Mr. Hammitt. Those plants were not completed. Congressman ; and quite in accordance with our views, and I think in accordance with the advice that in response to inquiry we gave to the Government, those plants have been dis- mantled. Mr. Fields. They have already been dismantled? Mr. Hammitt. Yes, sir. Mr. Fields. I knew they were not completed, but I did not know they had been dismantled. Mr. Hammitt. Yes, sir; they have been. Mr. Fields. Now, with regard to public policy, you contend that as a matter of public policy the Government and the Congress should recognize this contract in article 19? Mr. Hammitt. I do. I think it is proper public policy for the United States Government to live up to the agreement that it has made, and as, of course, I have made clear to the committee, I consider this an agreement which the United States Government has entered into, and that there is no objection to it except one that is based upon legal technicality. Mr. Fields. Now, let us see about that. Let us forget, for the moment, your connection with the Air Nitrates Corporation and my connection with the Government, except our connection as citizens. Mr. Hammitt. Yes, sir. Mr. Fields. As a matter of general public policy, would you feel that the agents of the Government should be bound in their transactions with corporations or individuals who are negotiating with the Government by the Constitution of the United States and the laws upon the statute books, or by their own desires or what they might desire to accomplish upon the spur of the moment? As a general policy, which would you recommend? Mr. Hammitt. As a general policy, I am certainly in favor of sustaining the Constitution and the laws. Mr. Fields. Then as a general policy, if you are in favor of sustaining the Con- stitution and the laws, why would you make an exception in this particular case? Mr. Hammitt. In the first place you do not want to put me in the position of appearing to state that this is an exception, because, of course, you recognize the fact that we do not think it is an exception. We think that this provision is en- tirely valid, but assuming that there was a sound, legal objection to the validity of this particular provision, I would have in mind the fact that at the time this contract was made there were a great many unusual things which the Govern- ment was required to do. Everyone, certainly, who was familiar with the ex- perience of the Government in its endeavor to mobilize American industry recog- nizes that fact. Now, not only were there a great many unusual things to do, but there were a great many things that had to be done under very great pressure ; and in addi- tion to that there was a very considerable amount of very unusual emotion in the country that is always an incident of a thing like this World War. Feeling ran very high. If a matter upon which there had been very competent legal advice, taking it in the ordinary terms, if regarding a matter of that sort, as to which there had been very competent le;?al advice, the American Cyanamid Co. had said, " Well, now, there is a little legal doubt as to whether that particular provision will hold, despite this advice we have received, and we will not risk entering into that kind of a contract," you know that the officers of the American Cyanamid Co. would have been considered pro-German. Their lives would not have been very pleasant in these United States, and I say that it is entirely proper that it should be so. So that I think I would consider, as to this particular contract which, as I have said, I believe in this particular provision is valid, and will hold in the courts, but assuming that there were a shade of doubt about it, I think, under those circumstances, I certainly would resolve the sh«de of doubt in favor of carrying out this contract ; and I will say that if you do not do that itis more than likely that a most careful and meticulous legal examination of a great many contracts that were made at that time, during the war, might 488 MUSCLE SHOALS PROPOSITIONS. ead you to raise similar question regarding them. Now, all of this, I am statins Congressman, in an effort to give a complete answer to your question. I want it dear on the records that all of it is predicated on a thing being a fact which I do not admit as being a fact, and do not believe as being a fact, nanielv, that there is any substantial doubt as to the legality of that provision of the contract 3lr. i^iELDs. In reply to your suggestion. that a failure on the part of the Gov- ernment to recognize this contract may lead to an investigation of other con- tracts, I want to say in that connection that if other illegal contracts were made uiider the conditions to which you refer, this one being made on the 18th dav of July just as our Armies were starting their drive in Europe, when the nublic mind was not centered upon contracts or their legality, but upon winning the war, it any corporation or tirni or individual at that time and under that stress with the aid of the most able counsel that the United States has, suc- ceetled in securing illegal contracts, not authorized by the Constitution of the Lnited States and the laws of the United States, thev ought every one to be contested, and I for one hope that that may be done. ' ^ ^ *^^*^^> '^"^ to be Now, let us take up the question again of the moral obligation. A few davs ago I asked Col. Burns, who was counsel for the American Cyanamid Co H.. was not able to tell me. I was sure they had able counsel, and I learned from you yesterday that their counsel was Mr. Justice Hughes, one of the most honorable citizens of the United States, and possibly the most able lawver hi the United States. Mr. Hammitt. Now, Congressman, do not Mr. Fields (inteiposing). Wait until I finish my statement I am not savina anything that is disparaging ol Mr. Hughes, and I am not going to Mr. Hammitt. But you are stating Mr. Fields (interposing). But, of course, when the cyanamid company told him what they wanted, that they wanted to construct this plant on a cost-plus basis and wanted a royalty fee and an operation fee and an option upon th»' plant m the event the Government should decide to sell it, he, as an attorney and an honorable man, proceeded to draw their contract for them as stron"- as it Could be drawn, and nobody criticizes him for that. Mr. Hammitt. Now, Congressman, in the first place Mr. Fields (interi)osing). I have not finished mv statement. Mr. Hammitt. All right, sir. Mr. Fields. We want to come again to the moral obligation of the Congress and the Government upon a contract of that kind. Mr. Hammitt. But you are not going to leave that other statement in the record without allowing me to correct the facts regarding our retainer to Justice Hughes. It was not a general retainer. He was not our attorney. Mr. Fields. He was your counsel upon this proposition. Mr. Hammitt. As to the matter of the drafting of this contract our attoruevs were Messrs Sullivan & Cromwell. Justice Hughes was called in solely 't«» advise regarding this one particular point, as to the form of protection 'that we could receive, and I do not want t^ have the record appear that Justice Hughes's part in this matter was any greater than it was. Now, I think that does not affect your subsequent statement at all, and you must be glad to have the record correct. Mr. Fields. Yes; I am glad to have you make that statement, because it brings out anotJier thought. Messrs. Sullivan & Cromwell were able attorneys. I assume, or they would not have been in the employ of the American Cyana- mid Co. Mr. HAMiiiTT. Their reputation does not depend upon this particular re- tainer. They certainly are able attorneys. Mr. Fields. But for some particular reason, unknown to the committee. Mr. Justice Hughes was called in for consultation upon this contract or upon this particular provision of the contract. Mr. Hammitt. And if the committee does not know the reason, I would like to state it to the committee, which is that we desired to have the verv best legal advice on that point we could get in the United States, and we suggested, to that end, the retention of Justice Hughes to advise on that point to the offi- cers of the Government, and found that it was satisfactory to them, and were so advised by them, and thereupon Justice Hughes was called in. Mr. Fields. Well, Mr. Hammitt, you evidently had a lingering suspicion that you were about to involve the United States in an illegal contract or at least a contract about which there was a great deal of question as to its legalitv. MUSCLE SHOALS PROPOSITIONS. 489 Mr. Hammitt. No; we simply had a very difficult problem as to how we should i)rovide the kind of protection that the American Cyanamid Co. desired and the (Jovenimcnt officers agreed it should have, and to do it in a legal way. We had never had any expectation of writing an illegal contract, and if there had been any doubt whatever at that time as to the legality of this contract, after the matter had been considered by the attorneys, we would have sought our protection in some different way and surely would have found a legal way. Mr. Fields. Well, how could you have found a legal way other tlian to liave come to Congress, Mr. Hammitt. Well, wherever we would have had to go or whatever we would have had to do, I am perfectly confident that we would have found a legal way, and just what form that would take and just how that thing would be workeil out is a question, as you have observed, that very able attorneys were engaged upon, and not being an attorney of any sort myself, I certainly do not want at this time, after the facts, to suggest how it would have been done. Mr. Fields. Y'ou would not have refused to have constructed that plant for the Government, for which they paid you $1,. 500,000, if the Government had re- fused to give you this option, would you? Mr. Hammitt. As to the construction of that plant for which we have re- ceived no money that we have not had to pay back, the American Cyanamid Co., I imagine, if faced with a situation where that thing had to be done, in a way that would give the American ('yanamid Co. no protection whatever in the future — in other words, if it had to be done on the basis of the American Cyanamid Co. paying the cost of the war at the expense of its stockholders instead of its being paid by the United States Government, we would have been faced with a problem that I confess I do not know just how it would have been worked out, but I am very strongly impressed with the fact that it is conceiv- al)le that under those circumstances, without any protection whatever, the American Cyanamid Co. would have felt compelled to contribute what it could contribute and trust to the fairness of the Government in the future, through its legislative as well as its executive branches, in protecting the American Cyanamid Co. against destruction as a result of what it had contributed. Now, that situation we did not face, because even if we had been advised that this thing was invalid, we would have exhausted, no doubt, the possibilities of find- ing some form of protection that would have been clearly valid. Now, just what form that would be, as I said before, I can not specify or speculate regarding at all, but I know that we would have looked for some other form of prote<*- tion if there had been any doubt about the validity of this. Mr. Fields. Arti.'le IV, section 3, clause 2, «f the Constitution reads in part : " The Congress shall have power to dispo.se of and make all needful rules and regulations respecting the territory or property belonging to the United States." Upon your contention that you think it was a legal contract, do you mean for the record to show that you contend that you believe that Mr. Justice Hughes, for many years an Associate Justice of the Supreme Court of the United States, was not familiar with that clause of the Constitution? Mr. Hammitt. No; I am quite sure he was familiar with it. Mr. Fields. Then, every ^lember of Congress at the beginning of each session takes an oath to support and defend the Constitution ; and, in view of the fact that your chief counsel knew that the Constitution contained that language and that a Member of Congress takes an oath to support and defend the Constitu- tion, you claim that this contract should carry more moral force with the Con- gress that the Constitution and the oath that they have taken to support it. Mr. Hammitt. I certainly do not claim that any contract should carry more moral or binding force in any way than the Constitution of the United States. Mr. Fields. Very well. I am glad to hear you say that. Now, in regard to the exercise of your option. It seems that — following you as carefully as I can — there is hardly any course that the Government can take in line with the principles implied hi other Government contracts or with the sound, honorable ethical methods of business that will enable you to exercise your option : just what would the Government have to do? Mr. Hammitt. I think it is an actual fact. Congressman, and this is undoubt- edly what you are coming to in your consideration of the matter; that that nitrates plant down there can not possibly be operated by the American Cyan- amid Co. or by anybody else at the present time upon a commercial basis without sustaining a loss. Therefore, if the United States Government is to 490 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 491 provide for its operation on a commercial basis, the United States Government must bear that loss or somebody else must, and the American Cyanamid Co is unable to do so. Mr. Fields. Well, did the American Cyanamid Co. have that thought in mind when it drew this contract? Mr. Hammitt. I would not be able to say whether the American Cyanamid Co. at that time was able to project as to what the situation regarding a com- mercial operation of that plant would be after the war. And, right at that point let me tell you one reason why it would have been very difficult to project it' You take the year 1914, before the World War, and you take the wliole history back for a considerable period of years before we entered into the World War, the amount of sulphate of ammonia produced in the United States in those years was very insufficient to meet the American requirements, and we were im- iwrting somewhere from 60,000 to 100,000 tons of sulphate of ammonia annually, mostly from Great Britain. Now, along came the war, and the capacity of the by-product coke ovens built up to meet war needs and in some cases ' Mr. Fields (interposing). Which was an abnormal condition, of course. Mr. Hammitt (continuing). And in some cases, aided with the advance of Government funds for that purpose, built up under pressure to meet war needs,, so expanded the American production that it went up from approximately 185,000 tons to 500,000 tons; and, so, in the year 1920 and even in the year 1921, with the steel industry very largely down, we have had a surplus of sulphate- of ammonia in the United States for export and have exported as much as approximately 125,000 tons in one year, instead of importing 100,000 tons. Mr. Fields. Oh, yes ; but you are not taking into consideration the depressed condition in agriculture whereby agriculture did not consume the amount of fertilizer or the amount of ammonium nitrate that it did under normal con- ditions. Mr. Hammitt. But the total amount of consumption of ammonia in the United States in the most banner and bumper year for agriculture and for everj'thing else never approached the present production capacity of the by- product coke ovens and the gas works, and we have become a large exporting Nation. And there is another thing I did not take into account in that state- ment. The same expansion in that industry for producing ammonia as a by- product which occurred in the United States during the war also occurred during the war in Germany. It occurred during the war in England. It oc- curred during the war in France. So that when we go into the export market with our surplus products we are meeting an over-expanded industry in those other countries ; and it is a fact that you are paying now, if you buy sulphate of ammonia, less than one-half tlje price for it that you were paying for it a few years ago. Now, I am not sure that the American Cyanamid Co. engaged at that time In negotiation with the United States Government was able to forecast that situation, and therefore I am not at all sure that the American Cyanamid Co. w^ould have been able to say at that time that after the war it was not prac- ticable to operate this plant on a commercial basis; but we can say it now,, with our knowledge of the facts. Mr. Fields. In that connection, if fertilizer products could be produced more cheaply than they have been produced, that would naturally increase the de- mand for them and the consumption of them in the United States, would it not? Mr. Hammitt. Yes; it would. I think that is undoubtedly true. I think that the quantity of fertilizer that is sold is very materially affected by the price, and I think that that matter must be of very great concern to the fertilizer indu.stry, which at the present time has a capacity in this country of 10,000,000 tons and has a market of less than 5,000,000 tons. Mr. Fields. And that should be a matter of great concern to the consumers and users of fertilizer. Mr. Hammitt. It certainly should, because the price of any product is of importance to the consumer. Mr. Fields. And if, by any method, the cost of production can be lessened, the users of fertilizer certainly must be entitled to some consideration in an analysis of that problem. Mr. Hammitt. Yes, Congressman; and that consideration, I think, does not extend to this point: I do not think that the money of the taxpayers should be taken out of the United States Treasury to make up the losses of a manu- facturing operation in order to dump more sulphate of ammonia on the market in order to depress the price of sulphate of ammonia still further. That I do not think should be done even for the purpose of reducing the pric^ of fertilizer. Now, th'at is irrespective of the question of what effect that would have upon the price of the fertilizers, which would be exceedingly small ; but if you are going to attempt to examine me on a fertilizer question, let me take you further into my confidence and say I am not a fertilizer manufacturer. I do not know anything about fertilizer manufacturing except in a very general way. I am engaged in a chemical manufacturing business, one of whose products goes into the fertilizer industry, but my knowledge of the fertilizer industry is extremely general, and I think it would be to the interest of this committee, if it wants to examine into a fertilizer question, to call before it somebody— and the committee has not had anybody here yet— who has had some practical experience in the manufacture of fertilizer. Mr. Fields. I had no thought of going into that. Mr. Hammitt. I do not want to qualify as a fertilizer manufacturer. Mr. Fields. Your reference to the price of sulphate of ammonia led to the question I asked, but let us get back to plant No. 2. I would like to under- stand, if possible, just how you expect the Government to proceed to make a proposition to .sell this plant to the Air Nitrates Corporation. I have never been able to get that straightened out in my mind from your statements, and I am very anxious to do that. Mr. Hammitt. Now, of cour.se, the United States will have to adopt its own methods, and would not necessarily accept what I think, personally, would be the most satisfactory method, but whatever method it adopts, and I am per- fectly willing to suggest what I think would be the most satisfactory method t)efore I get through ; but first let us lay down the general principles, that un- der this provision of the contract the first thing the United States must do must be, in some form or other, to reach a decision to dispose of the plant. Then having reached that decision it must communicate in writing, through whatever body it sets up as the proper authority to do that, to the Air Nitrates Corporation the fact of its determination to dispose of its plant, and the mate- rial terms upon which such disposition will be made, and then the Air Nitrates Corporation has something before it to consider, something that can be con- sidered by its directors and its stockholders, and something that can be con- sidered by the bankers ; and it is to have a reasonable time for such considera- tion, and such reasonable time is not to exceed six months, and I do not think the reasonable time will reach six months, because a matter of that sort will receive very prompt and very thoroughgoing consideration, and we will start out with a considerable knowledge of what the capabilities and the limitations of the plant are. ^ Mr. Fields. Judging from what you have said here, and what you said on yesterday, I gather that you contend for the right to compete with any offer made by any other individual or corporation. Mr. Hammitt. Well, we contend for rather more than that. Mr. Fields. All right; what is it? Mr. Hammitt. We contend for the right to purchase that plant on as favor- able terms as the Government is willing to make with somebody else. That is, if it is between us and the other fellow, and we are each of us willing to offer precisely the same terms, there is not any competition under this provision of the contract; we get the plant. Mr. Fields. That is the point I wanted to bring out. Suppose the Govern- ment should say to you, "We have determined to sell this plant to Mr. Ford for a certain price," we will say the approximate salvage value, $7,000,000, and you come in and say, " We are going to exercise our option." Then somebody of- fers $10,000,000 for it, and somebody else $12,000,000. Do you expect the Govern- ment to hold it open for you and to give you a chance to compete with the other man after he has offered his bid? Do you contend that the Government should not permit others to bid, if they wanted to do so, and would not that be a one-sided proposition? Mr. Hammitt. Well, as to whether that offer, delivered to Air Nitrates Cor- poration, at the $7,000,000 price could subsequently be withdrawn by the Gov- ernment before it was accepted, being an entirely new point which I have never given any consideration to, I would not want to make any statement upon it. I think that matter would have to be considered by an attorney, and I think your judgment on that, for I judge you are an attorney, would be better tlmn mine. Mr. Fields. No ; I am not an attorney. 11 I , rt 492 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 493 Now, I believe that j;oii recommended that this nitrate plant No. 2 be main- tained by the Government in an idle, stand-by condition. Mr. Hammitt. I think that is the best disposition to make of that plant at the present time; yes, sir. Mr. Fields. And that it be maintained indefinitely in an idle, stand-by con- dition for the use of the Government in case of emergency. Mr. HAMiiiTT. Yes; and by "indefinitely" I mean until such time as it is practicable to operate that plant on a commercial basis without loss Mr. Fields. Then, getting right down to the milk in the coconut, vou are not seeking a chance to exercise your option, but you desire to have the Gov- ernment hold this plant in an idle, stand-by condition, holding it out of com- petition with the American Cyanamid Co., at an expense of approximately ?>200,()(X) a year. Mr. Hammitt. There are several parts to that question, and I have been over this so frequently that I thought my position was thoroughly clear; but let us go over it again briefly. In the first place, we think the best thing the (;<»vernment can do with the plant at the present time is to keep it in stand-by condition, and the testimony you have had from the Ordnance Department does not say that that costs $200,000, but is now costing $125,000 a vear, and that the proposition is self-sustaining in view of the fact that a part of that plant is rente- pose you put him under oath. Mr. QuiN. No ; we have faith in the integrity of the gentlemen who come be- fore this committee. Mr. Hammitt. Yes; and I presume you also have in mind that you are asked to make a contract with a corporation which will live for a hundred years, and Mr. Ford can not possibly have an active life of more than 15 years longer, so that you have the great bulk of the hundred years period, 85 years, when you will be dealing with somebody else, and you do not know now who he is. I frankly think your confidence may possibly be misplaced, if it is placed entirely in Mr. Ford. Mr. QuiN. Yes, sir; but this is not 10 men with a hundred dollars apiece that we are dealing with now. The Air Nitrates Corporation is composed of 10 men. Did they put up the hundred dollars apiece? There is no evidence that tHey paid the $1,000 in there. Mr. Hammitt. I wonder if it is necessary for me to state again that the 10 men to whom you refer, whose names at your request, I have read into the lecord, did not organize the Air Nitrates Corporation, do not own a penny of the stock of the Air Nitrates Corporation, and never did; and never received a penny of compensation from the Air Nitrates Corporation, and, so far as I know, never will, and can not possibly get any profit out of the Air Nitrates Corporation unless they get it as stockholders in the American Cyanamid Co., which is the only way anybody can ever get any profits out of the Air Nitrates Corporation, if it made those profits. Mr. QuiN. But, Mr. Hammitt, your contract states that this Air Nitrates Corporation was formed for the special purposes of avoiding liability of the Cyanamid company. That is stated in plain language, so its assets would not be responsible. Mr. Hammitt. That is one of the reasons why it was formetl. Mr. QriN. Now, after that corporation was formed, with no assets back of it except a thousand dollars, it undertakes to deal with the 100,000,000 people of the United States, and in that deal it has had itself called the agent of the United States under the terms of the contract ; is that not true? Mr. Hammitt. It was called the agent under the terms of that contract. Mr. QuiNN. And then this agent of the United States with no assets to back it up went into a deal by which the Government was to put up all the money, and this thousand dollar corporation was to receive a fee which amounted to .$1,.500,000 for the designing and construction of the nitrate plant. Mr. Hammitt. There was that and some other things connected with it, all •»f which I have explained to the committee, not once, but nmny times, the »iet result of which was that the coi-poration did not make one penny out of the operation. ^Ir. QuiN. How much remains unpaid of the fee of $1,500,000? Mr. Hammitt. My recollection is that it is something over $300,000. Mr. Qvix. Then there has been about $1,150,000 or $1,200,000 paid on that fee? Mr. Hammitt. I have not the exact figures: I think they are in the record. I think you went over this matter with the ofllcers of the Ordnance Department, and that is in the record. 498 MUSCLE SHOALS PROPOSITIONS. ]Mr. QtTiN. What lawyer repn'seiitinj? the Government was present when ihe contract was sig:neecome the property of the United St- tes. The United States may at its option from time to time furnish the corporation with any property for the construction and operation of the plant-; provided, however, that the corporation's undertakings for the same made in good faith are not thereby interfered with. The corporation in operating, caring for, and storing' property shall use all jeasonable efforts to adequately protect the same, and otiierwise shall not be liable for any loss or damage thereto, and the corporation shall be obligated to procure and thereafter maintain only such fire, liability, indemnity, or other insurance in such forms, in such amounts, and for such periods of time as the contracting officer or inspector may approve or require. The corporation and contractors shall make no departure from the standard rate of wages paid to workmen in the locality where the said work of construc- tion and operation is being done without the prior consent or approval of the contracting officer or the inspector. Art. 7. The United States shall not be obligated to make any expenditures relating to the performance of this contract unless the approval or ratification of the contracting officer shall have been obtained. The corporation in the construction and operation of the plant shall abide by such directions of the contracting officer as he shall give the corporation from time to time, and such construction and operation shall be in all respects subject to the approval or ratification of the contracting officer. The corjiora- tion, its officers and agents duly appointed by the corporation for the puriM)se of obtaining such approval or ratification as the case may be, shall from time to time consult with the contracting officer upon the general charactjer of work • ontemplated or previously done, or previously or about to be contracted for. The proces.ses and work involved in the manufacture of the final product ot iunmoniuni nitrate shall be conductjed so that said final product may bo in accordance with the Ordnance Department's specifications for such mat^^rial. Pay rolls for labor and services performed, invoices for material. inv(»ic( s for rental, contracts for construction of plant, and payments thereunder shall bo furni.shed to the contracting officer or insi^ector for approval or ratification. Upon such approval or ratification the contracting officer shall either furnish 514 MUSCLE SHOALS PROPOSITIONS. funds to the amounts of all of said charges approved or ratified, which shall be immediately paid out by the corporation under the supervision of the contract- ing officer or his representatives, or may be paid direct by the contracting officer or his representatives to the persons entitled thereto. The United States may make payments for property delivered or services performed under any con- tracts or subcontracts direct to the contractors or subcontractors. The contracting officer will from time to time instruct the corporation as to (1) the methods to be followed in reporting cost; (2) the submission of state- ments thereof, bills therefor, and all other supporting papers; (3) the sub- mission of engineers' and accountants' certificates; and (4) such additions, if any there be, to the allowance of costs and such regubitions and instructions with regard to its determination as from time to time shall be adopted by the Chief of Ordnance, or as may be required in order to enable the contracting officer to issue his proper certificate for payment thereof. Instructions for all purposes under this agreement whenever practicable shall be in writing addressed to the corporation. Abt. 8. As full compensation for the services of the corporation the United States shall make payment to the corporation of the following fees : (1) Fee No. 1, equivalent to 3^ per cent of the entire cost of the creation and construction of the plant. Payments of such fee shall be made monthly upon the proper certificate of the contracting officer for that portion of the entire cost approved or ratified during the month or months preceding and for which the fee is then unpaid. The total of this fee shall not exceed $1,000,000. (2) Fee No. 2 is equivalent to one-quarter of 1 cent per pound of am- monium njtrate produced at the plant in accordance with the Ordnance De- partment's specifications for such material, or accepted by the inspector, from commencement of operation to June 1, 1921, and thereafter for so long as the United States shall remain in the present war. Payment shall be made monthly upon the proper certificate of the contracting officer or inspector show- ing delivery and acceptance of ammonium nitrate. Art. 9. Cost upon which fee No. 1 of the corporation is based shall be tlio entire cost from the 16th day of November, 1917, of creating and constructing the plant approved or ratified by the contracting officer, including, among other items, the following : (a) All the land, including quarry or quarries, labor, material, machinery, fixtures, equipment, apparatus, appurtenances, tools not owned by the workmen, supplies and equipment necessary for either temporary or permanent use for the construction and operation of the plant, including the opening up and operation of quarry or quarries. (b) Rental for construction plant and for the main and branch offices, and for furnishing and equipment for such offices. (c) Loading and unloading construction plant, the transportation thereof, including transportation to and from the place or places where it is to be used in connection with said work, the installation and dismantling thereof, and ordinary repairs and replacements during its use in the said work. (d) Transportation and expenses, including transportation tax to and from the work of the necessary field and office forces, procuring labor, and expeditinj: the production and transportation of material and equipment. All freight charges on equipment, furnishings, material, and supplies, including transpor- tation tax thereon. (e) Salaries of managers, engineers, superintendents, timekeepers, foremen, and other employees at the main and field offices of the corporation in connec- tion with said work, salaries of the executive officers of the corporation, except such as shall be placed at the disposal of the corporation by the American Cyanamid Co., and set forth in contract marked " I." (/) Temporary buildings, houses, warehouses, hospitals, infirmaries, stores, commissaries, and structures, and the equipment required therefor, and fi- nishings and equipment required for main and field offices, and the cost <>f maintaining and operating the same, and including such minor expenses as telegrams, telephone service, expressage, postage, etc. (g) Temporary buildings of different grades, warehouses, local power plant, structures, plant machinery, railway tracks, locomotives, cars, roundhouses, roadways, grading and sewerage, water and lighting systems, fixtures men- tioned and described in article hereof. ih) All bonds required by this agreement, and all bonds necessary or proper, fire, liability, and other insurance, and such los.ses and expenses not compen- sated by insurance or otherwise as are found and certified by the contracting MUSCLE SHOALS PROPOSITIONS. 515 officer to have been actually sustainetl (including settlements made with the written consent and approval of the contracting officer) by the corporation in connection with said work, and to have clearly resulted from causes other than the fault or neglect of the corporation. Such losses and expenses, when incurred by the corporation in connection with damage to third person result- ing? from the work, shall be included in the cost of the work, but not for the purpose of tletermining the corporation's fee; but such losses and expenses, when incurred by the corporation in connection with constructing and replacing imy of the work destroyed or damaged, shall be included in the cost of the work for all purposes hereunder. (i) Permit fees, royalties, and other similar items of expense incidental to the execution of this argeement. ij) Transportation, including all transportation tax, traveling and hotel expenses, and telephone, telegraph, mail, and express, expenses of officers, engineers, and other employees of the corporation as are actually incurred in connection with this work. (k) Amounts paid to contractors or subcontractors under contracts approved or ratified by the contracting officer, and sums paid by the United States upon contracts made with any person at the request of the corporation. (0 All manner of expense of the corporation in creating and constructing the plant and its equipment, including administration, superintendence, engi- neering, materials, labor, freight, transportation tax, power, heat, light, rentals, insurance, liabilities, losses not covered by insurance, and all overhead, general, and legal costs and expense, and including all other items of expenditure made by the corporation not properly chargeable to manufacturing. (m) In addition thereto further allowances, if any there be, of cost from time to time may be made by the contracting officer. The enumeration of the foregoing items shall not be deemed to be inclusive of all items of cost and shall not be construed to exclude in determining cost and the fee thereon other items of expenditures entering into the cost of creation and construction of the plant and not herein enumerated. All revenue, if any, from the operation of any housing, boarding houses, connmssary, stores, infirmary, hospital, or other facilities, or from rebates, refunds, etc., shall be accounted for by the corporation to the United States. The United States may itself furnish construction plant, materials, machinery, equipment, or other property for use upon the job ; the cost of all such property shall be includeer of years ahead before there would be a demand for it ;' that is, the nitrogen part of it. The CirATRirAX. So that Mr. Ford, being lo<^ked upon as a shrewd business man, probably, would be justified in asking for a long lease or the sjile of that nitrate plant, and then a long lease of the leased portion of Muscle Shoals? Mr. :MacDowell. He naturally would want to get as long a lease as he couhl, but from the standpoint of the production of nitrogen at that plant, under th.^ cyanamid process, I am of the opinion that within five years that process will be obsolete and that therefore that particular plant will not at that time bt? nearly as efficient in the production of nitrogen, if we get beyond the by-product production, as other methods, one of which is already operating in this country. The Chairman. Do you think that the cyanamid process will be obsolete in about five years? Mr. MacDowelt.. I think so, as far as the production of nitrogen is concerned for fertilizer purposes. It has other uses, of course. The Chairman. Of course, the numufacture of these various products has been rather limited in point of time. Mr. MacDowell. Oh, yes.. The Chairman. How long, if you know, has the cyanamid lu'ocess been used by the world? Mr. ^MacDowell. I am not accurate in my memory, but I would say about 15 years. 522 MUS(XE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 52a The Chairman. And we got into tlie World War, or at least, the World War broke out in 1914, eight years ago? Mr. MacDowell. Yes. The Chairman. Germany at that time was producing cvanamid. Mr. MacDowell. Yes; in a limited way. The Chairman. So that she was probably ahead of the rest of the woi-1,1 We had some discussion of it in Congress along in 1912 or 3913. Mr. MacDowell. Yes. The Chairman. But we did practically nothing about it. T think there was a plant installed at Niagara Falls. Mr. MacDowell. Yes. The Chairman But the amount of production was not very great. Mr. MacDowell. That was experimental and following certain other methods than the one used by the cyanamid company. The Chairman. Now, you believe that progress has been made with regard to the products of the nitrate iilants that enables the world, or will enable th(^ world in a comparatively short time, to set aside those products and employ an entirely new method with regard to the making of the material that g(Ms into the fertilizer. Mr. MacDowell. I will say this : I think from all I know and have read that the Haber method and the Claude method, which is a French development, will enable nitrogen compounds to be produced much moi-e efficiently than under the main-strength method, as you might say, which is used for making it by the cyanamid process. I think that is the general feeling of the scientists of the worhl, that the greatest progress is coming in that direction, and it is for that reason I say that I think inside of possibly tive years this method will probably be called obsolete, because it takes at Muscle Shoals 100,000 horsepower coii- tinuously to make 110,000 tons of annnonium nitrate, whereas under the Haber process 20,000 horespower would be used: and, as I understand it, under the C'laude process 10,000 horsepower would be used, and it does not seem to me that it is the economical an«l sound thing to use 90.000 additional horsepower in any locality, when power can be so well usetl for other purposes, to make n proyould they not be benefited to some extent If the product was cheapened ? Mr. MacDowell. Yes. naturally ; but as we already have a big surplus and as we have gotten away with that surplus pretty successfully, because Eng- land was not coking coal and Germany was not prepared to compete around the world, even though we have had to come down to $2 per 100 pounds and even less for the product, yet as those countries come into the market, we are goin" to have increasing difficulty in disposing of the surplus sulphate of ammonia around the world. The point I am making is that it does not matter to the fertilizer people, providing there are reasonably stable conditions, because their materials have to be bought a long time ahead. It does not matter to them from a nitrogen-production standpoint, because they are buyers, but that does not d») away with the question which comes up: Is it good sense to waste coal and transportat'on and power which could be better used in other direc- tions to make something which is already, and for some time apparentlv, is overproduced in this country? That is the attitude of the fertilizer people fron) that standpoint. Mr. Hull. Perhaps— I do not quite catch the point— but it seems to me as though the fertilizer people were worrying for fear Henry Ford would break up on this proposition ; is that the point? Mr. MacDowell. Will break up? Mr. Hull. Yes : that he will go broke on this proposition. Mr. MacDowell. Oh, no ; we are not woirying about Henry, and he is abun- dantly able to take care of himself, and if he wants to get into the fertilizer game he can do it. He does not have to have ^luscle Shoals to get into the fertilizer game. If he thinks it is something he wants to tackle he can got into it without that, and do it very much better, as a matter of fact. We can not dispute his right to do that. Mr. Hull. Is it because you are afraid of his making a bad bargain? Mr. MacDowell. I am not afraid of his making a bad bargain and did not appear here from that standpoint at all. I thought that the committee might be interested in having me tell them plainly the annnoniates or nitrogen situa- tion, because you gentlemen are asked to do something based on the proposi- tion that there is need for certain fertilizer materials, and we say that for the time there is no such need. Now, Mr. Swann was here. I am the Mr. MacDowell that Mr. Swann referred to^ as having gotten him started in this particular research which he has been doing down at Anniston. Ala. We wanteil some phosphorus during the war and he had a large part of the equipment necessarj- to make it, and we thought, as we were having difficulty in getting it from Niagara Falls and Canada, that the Government might be able to get facilities for making phosphorus there very much cheaper than anywhere else. At that time he had this equipment, which was not beinir used, and I asked him if he would not like to experiment to see if he could not make some potash, which we needed in agriculture, and also suggested that he might work further on some phosphate volatilization, which I knew something about, because I had done a little something on it myself. He has done splendid work. He has gotten up to about 80 per cent recoven'. The fertilizer industry in the acid method recover about 9.5 per cent. His statements with regard to concentrated fertilizers and the economy of ship- ping them, however, do not accord with the development of the art as the scientists and as the farmers understand it to-day. A good deal of the fertilizer which is used is distributed in grain drills and in close proximity to the grain. We know from practical experience and from tests that you can not go beyond a certain concentration or you injure the ger- minating power of the seed. We know further from Work which Dr. Shriner. of the Department of Agriculture, has been doing for some time, and fnun other sources, that plants require balanced rations, that certain plants require excess ammonia or excess phosphoric acid or excess potash. We are finding out Ji whole lot about that. Now, we do not think it is good sense simply because you can ship con- centrated stuff to give the plants something which may give them the bellyache, so far as phosphoric acid is concerned, because they do not need anywhere near that quantity of material. Now, the fertilizer industry has adopted this plan or policy, and that is that it is the business of the agricultural experiment stations and the United States Government experiment station to tell them what formulas and what strengths are best adapted for the different soils or for the different kinds of crops to be grown in the different localities. In other words, it is their business to do that, and it is our business to make fertilizers to match as nearly as we can those instructions which they put out. Now, when we speak of 2-8-2 and 3-9-3, they are pretty fair fertilizers. There are large tonnages of fertilizers put out for trucking and for crops that run 10 per cent ammonia and 8 per cent available phosphoric acid and 5 per cent potash, and some of them run as high as 15 per cent potash. We want to concentrate. We are advising the farmer all the time to use as strong a mixture as he can. That is our belief. It is economy, and the fertilizer industry is vitally interested in getting cheaper ferilizers to the farmer. The farmer is the only man that the fertilizer industry sells. His interest is the fertilizer industry's interest. They must do everything they can to cheapen, the cost of getting plant food to the farm. It would be a foolish industry if it did not work in that way. It is experimenting, and it wants the power to use processes or the right to use processes perfecting the art or anything which has to do with decreasing the cost of making fertilizer. If Mr. Swann works out his process or if somebody else works out a process which will cheapen the cost of making fertilizer, the industry or some component part of the industry wants the right, if he will give it under a royalty, to use those things. It would not feel happy, I will admit, if Mr. Ford had secondary power w^hich cost him $5.20 per horsepower per year, as Mr. Cooper suggested the other day, and not be able to get somewhere near the same line of cost in order to supply a certain part of the territory or certain sections of the country. In other words, the fertilizer industry feels that the Government, if it puts in that power plant, should make it available, as far as cost is concerned, to different people who may want to go down in that locality and perform any function which is beneficial to the country. I am speaking very frankly, gentlemen, because I want you to know how those I have talked with feel about it in regard to the industry. Mr. Hull. Of course we want to get all the information we can, and while perhaps some of these questions may seem a little personal, yet it is because we want to get the different angles to this matter. Mr. MacDowell. Yes; that is right. Mr. HUT.L. Now, the amount of fertilizer that a farmer uses depends upon the soil he has, largely, does it not? Mr. MacDowell. No ; not necessarily. It depends primarily upon the crop he is growing, plus the condition of his soil. For cereals, for instance, you do not begin to use the tonnage of fertilizer you would under cotton, or more par- ticularly under the various truck crops which are grown in sandy soils. Mr. Hull. There are certain soils that require practically no fertilizer, although I do not say there is any soil but what would be improved by the use of it. Mr. MacDowell. Oh, yes. Mr. Hull. Out in Iowa, for instance, we have used very little fertilizer. Mr. MacDowell. Yes ; but you are doing some good work at your experiment station there. Mr. Hull. And yet wis are the first State in the Union in the production of agricultural crops, but that is due to the soil. Mr. MacDowell. Yes. Mr. Hull. And I presume that even in Iowa we have found that we have got to go to the use of fertilizer. Mr. MacDowell. Yes; in maturing your com early and to get away from soft com. Mr. Hull. And the question all comes back to this main point ; if you make the fertilizer cheap enough, you would increase the production very materially ; is not that tme? Mr. MacDowell. If you will use fertilizers more extensively, you will in- crease the acre production very materially and cheapen the cost of growing a bushel of wheat or a bushel of potatoes. Mr, Hull. The only limitation to that is the consumption of food products. Mr. MacDowell. Yes ; if you want to tackle it from that angle. The ferti- lizer industry does not think it would be good sense for the United States, for instance, to materially increase its production of wheat, but it might be good 92900—22 34 I 528 MUSCLE SHOALS PROPOSITIONS. sense for it to grow the wheat it does produce on fewer acres to make it cost them less per bushel, so they would have a greater spread between the market and what it cost them. Mr. Hull, j would not want to get into an argument about that with you because I do not agree with you at all on that proposition and I have had some experience. I do not think there is any such thing as overproduction. Mr. MacDowell. I will admit from the economic standpoint that is true. Mr. HuLu Not in the present state of the world. Mr. MacDowell. I will admit that theoretically you are right on that, but what I mean is, broadly speaking, we have 300,000,000 bushels of wheat for export now, and we are having difficulty in selling it, and it would not be wise for us to go ahead and increase that to 500,000,000 bushels simply because we could produce it. Mr. Hull. Of course, by decreasing production we might increase the price but to me that is contemptible. ' Mr. MacDowell. I am not speaking of decreasing production. ^Ir. Hull. With the present state of the world, every time you increase the price of wheat, somebody starves in the world. Mr. MacDowell. I am not talking about decreasing the production; I am talking about increasing the production per acre so you can grow it cheaper and so you can sell it cheaper and still make a profit, which is the other side of it. Mr. Hull. That is like the farmer who started to burn his corn. Mr. MacDowell. That is economically wrong, of course. I guess there is no dispute about our economics. I think we are in accord on that. Mr. Pabkeb. Mr. MacDowell, I believe that the coke that comes to this plant at Muscle Shoals comes from Birmingham? Mr. MacDowell. Very likely; yes. Mr. Pabkeb. How much coke is made there in a year? Mr. MacDowell. I have not any idea. They make quite a little sulphate of ammonia there. I have not any figures, and, as a matter of fact, it is verv dlflacult to get that. Mr. Pabkeb. How much ammonia do they make there? Mr. MacDowell. That I could not tell you, but I know there are a number of thousands of tons made there a year. Mr. Pabkeb. Is most of that coke made there by the old beehive oven or by the modem by-products oven. Mr. aiAcDowELL. None of it by the beehive oven, and all of it by the modem oven. Mr. Pabkeb. And only some few thousand tons come out of it? Mr. MacDowell. A number of thousands. I do not know how many. I have not any data on that feature of it, but it is a fairly considerable produc- tion, because thefre is a good deal of iron made there. Mr. Pabkeb. I was trying to get at the amount of ammonia that was made there. Mr. MacDoweu:,. I could not say. Mr. Pabkeb. That is, the amount of sulphate of ammonia. Mr. MacDowell. I could not tell you, but there is a considerable produc- tion made there. Mr. Pabkeb. With such a large iron business as exists there, would not that produce a very large proportion of the sulphate of ammonia used in this coun- try? Mr. MacDowell. No ; if you will figure that you get from 16 to 20 pounds of sulphate of ammonia per ton of coal coked and will multiply that by the coking capacity of these different coking centers, you can tell something about what the production is from that standpoint; but, further, you have got the city gas plants and they are coming in very rapidly. Mr. Pabkeb. I believe you stated that there is 60,000 horsepower installed in the plant at Muscle Shoals. Mr. MacDowell. As I recall, there is 60,000 kilowatts, which is 80,000 horse- power. Mr. Pabkeb. How much coal would that plant use a year? Mr. MacDowell. I could not tell you. Mr. Pabkeb. About how much? Mr. MacDowell. I could not even give you an estimate on that. It is a very large amount. MUSCLE SHOALS PROPOSITIONS. 52g Mr. Pabkeb. Three or four tons or more per horsepower, is it not? Mr. MacDowell. I have not any figures on that. Mr. Pabkeb. I was trying to find out whether it would be cheaper to make the sulphate of ammonia by this expensive process you have mentioned or to use the coal that went into it. Mr. MacDowell. If you have use for the coke. Of course, you would not go into the coking business to get sulphate of ammonia. Mr. Pabkeb. No; but in operating that plant, how much would you get out of it? Mr, MacDowell. From 16 to 20 pounds per ton, coked. Mr. Pabkeb. But you do not know how many tons are used in that engine? Mr. MacDowell. No, sir ; I do not. Mr. Parker. Do you use cyanamid as a fertilizer? Mr. MacDowell. Very little— a few hundred tons. I think our greatest con- sumption has been 3,000 tons in one year, and that was some years ago. Mr. Parker. Is there any difference, or can you compare sulphate of ammonia and cyanamid for that purpose and state which is the best? Mr. MacDowp:ll. Cyanamid is a form of nitrogen which is classified ^Ir. Parker (interposing). I do not want to go into the details, but which is the best for fertilizer? Mr. MacDowell. Sulphate of ammonia is the best. Mr. Parker. Why? ^Ir. MacDowell. Because it is not alkaline, and you can use it in much larirer quantities per ton and make a much more concentrated fertilizer. Mr. Parker. And the cyanamid, you think, is alkaline? Mr. MacDowell. Decidedly so. Mr. Pabkeb. And can not be used in large quantities? Mr. MacDowell. It is nor recommended by the makers at over 60 pounds of cyanamid per ton of finished fertilizer. Mr. Parker. I believe it spoils your acid phosphate if it is used in larger quantities? Mr. MacDowell. It reverts the soluble phosphoric acid in the acid phosphate ; yes, and it also has a tendency to release the ammonia from other forms off into the air. Mr. Fields. Mr. MacDowell, I was very much impressed by your reference to the condition of the country with regard to nitrates during the war. Mr. MacDowell. Yes. Mr. Fields. Figuratively speaking, we were on very thin ice. Mr. MacDowell. Very thin. I was worried to beat the band, but I did not let anybody know it. Mr. Fields. And you would recommend that the country exercise due pre- caution to prevent being confronted with that kind of a condition again. Mr. MacDowell. I certainly would ; yes. Mr. Fields. Would you recommend the maintenance of the Muscle Shoals proposition for the production of nitrates for war purposes in time of neeil? Mr. MacDowell. I would. Mr. Fields. Would you recommend the completion of the dams there, with that object in view, if there was nothing else to be considered? Mr. MacDowell. I would. ^Ir. Fields. And you would recommend the maintenance of nitrate plant No. 2, if for no other purpose, in connection therewith? Mr. MacDowell. I would; yes. I think there is no question but what in the Interest of national defense until \ve .get along past the troublesonfe days of to-day, we ought to keep everything of that sort handy, so that it can be niade use of very quickly in case of need. Mr. Fields. I am very glad to have the benefit of your views upon that sub- .iect. With regard to tlie consumption of fertilizer, there has been a general increase in the use of fertilizer from the first use of it, has there not? Mr. MacDowell. Yes ; it was increasing, 'I would say, from an average of ab(mt 7i per cent a year up to 1914. During some periods it would go to 10 per cent, but I would say an average of 7^ per cent yearly increase up to 1914. Mr. Fields. Have you informed yourself as to the number or the percentage of farmers in the United States who now use fertilizer? Mr. MacDowell. I could not give you definite information as to the num- ber. The largest consumption of fertilizer is in the coastal plains, starting with 530 MUSCLE SHOALS PROPOSITIONS. Aroostook County, Me., and going clear down to Florida, with a little swing around on the Gulf. That is the point of largest consumption, and if you gentlemen would be interested, I have here some copies of maps prepared by the Department of Agriculture showing where the plants for fertilizer produc- tion are located and the tonnages made. I think it will give you an idea of the matter. This was gotten out by the Department of Agriculture as a result of their study of the situation. Mr. Fields. The fact that the first use and the greatest use of fertilizer is in the older sections of the country is an indication that the use of fertilizer will continue to increase, will it not? Mr. MacDowell. Oh. yes. Wherever they start them and study them properly there is a general increase. You may slip somewhat. You slipped last year, and you have gone down from 8,000,000 tons to less than 4,500,000 tons. • Mr. Fields. You attribute that, however, to the general condition in agri- culture, do you not? Mr. MacDowell. Yes, sir. Mr. Fields. There is a very large percentage of the farmers of the country who have not yet begun to use fertilizer at all. Mr. MacDowell. Yes. Mr. Fields. And the fertilizer people take on new customers every year. Mr. MacDowell. Yes ; and they are having materials tried out, and they are doing everything they can with the State people to find out what is needed in a given section of the country. Mr. Fields. I notice you referred a while ago to one very important point with regard to the use of highly concentrated fertilizers. You stated tliat if the fertilizer was too highly concentrated it would injure the seed. Mr. MacDowell. Yes; or the root growth conring from the germination of the seed. Mr. Fields. That must necessarily be overcome and doubtless will be over- come to a great extent by the invention of new machinery with which to apply fertilizer to the soil and by changing the methods of application, will it not? Mr. MacDowell. Yes; depending on the crop on which it is used. I had more particular reference to the grains, where the cost of growing Is such that they want to get the maximum fertilizer efficiency from a m'nimum appli- cation. Therefore they drill it right in with the grains and it is right in the hill with the short root growth of the grain. You know the grain roots do not cover a large territory; but if you are fertilizing corn, where the roots extend out and hunt around for their grub wherever they can smell it, then you adopt a diifeent method of distribution. Mr. Fields. In other words, to distribute fertilizer scientifically, you must distribute it according to the root of the plant which is to be fertilized? Mr. MacDowell. Yes; and that is what we are studying, how best that can be done. Mr. Fields. When the farmer first began the use of fertilizer, before he had any machinery for putting it on the ground, he would take a spoon and drop some fertilizer under each hill of corn. Mr. MacDowell. Yes. Mr. Fields. And he thought he got better results by putting all his fertilizer close to the plant. - Mr. MacDowell. Yes. Mr. Fields. Whereas he has since learned that he gets better results by sowing it broadcast so the roots of the corn can feed on it and get water, Mr. MacDowell. Yes; that is right. Mr. Fields. And before we get to anything like a high state of development in the use of fertilizer, we must study more carefully the plants to be fertilizeil and the proper methods of putting the fertilizer in the ground. Mr. MacDowell. Yes; that is right, and the other things which are neces- sary in the soil to make the fertilizer valuable, such as the bacteria which put a lot of this plant food- in shape ^ the plant can take it. You see nitrate of soda, for Instance, is carried all over the farm, and the plant takes it up. It is a nitrate. Sulphate of ammonia has got to be worked on by the bac- teria and converted Into a nitrate because it goes Into the plant's stomach as a nitrate. So you have got to have food for the bacteria, and there is where your clovers and your organic matter come in. Mr, Fields, And the agricultural experiment stations are working on this problem of the scientific development of the use of fertilizer. Mr. MacDowell. Yes, sir. MUSCLE SHOALS PROPOSITIONS. 531 Mr. Fields. And advising the fertilizer people on the one hand how to pre- pare the fertilizer, and the manufacturers of farming Implements how to pre- pare the farming Implements, and the farmer, on the other hand, how to use the combination of the two. Mr. MacDowell. Yes. Mr. Fields. All of which adds to the consumption of fertilizer by the fariijer who has been using it for years and all of which also contributes new cus- tomers. Mr. MacDowell. Yes; naturally. And I may say right there, gentlemen, tliat tJie way to get the cost of fertilizers down is for the farmer to buy more fertilizers. If you have a plant that is pitched to ship, say, 40,000 tons, and vour various charges for your salesmen, office expenses, and everything of that sort are $200,000, that is $5 a ton. If that plant only ships 20,000 tons you have got a cost of $10 a ton. If you can squeeze it beyond 40,000 and get 50,000 tons you have then less than $5 a ton as your expenses. In other words, rhe fertilizer industry to-day has a capacity to make, I should say, from eleven to twelve million tons under forced draft. The biggest year it has had is 8,000,- 000 tons. It dropped down last year to $4,500,000 tons. The industry lost millions and millions of dollars, and In addition to that it has sixty or seventy million dollars still out for 1920 and 1921 with the cotton farmers, and it is paying Interest on It and sweating like the devil, wondering where it is going to come out. I just instiince that to show you that increased tonnage cheapens the cost of fertilizer and cheapens that cost of fertilizer to the farmers, because the fertilizer man's salvation Is tonnage. He is foolish if he tries to pitch his price at a point where he will not move the greatest possible tonnage through his plant, because that is the way he gets his cost down and makes his busi- ness more secure. Mr. Fields. As a farmer who uses a good deal of fertilizer, I regret to hear you state that oup only hope of cheap fertilizer is to buy more of it, because 1 know that it is very burdensome to pay our bills now for fertilizer. Mr. MacDowell. Yes. I will say, gentlemen, that In the South to-day a pound of cotton will buy as much, if not more, pounds of standard fertilizei than it would in 1914. Now, that is not a healthy situation for the fertilizer people, because they are losing a large amount of money. Mr. Fields. Of course, we all understand that every class of business is now shot to pieces. Mr. MacDowell. Every effort has been made. Our greatest obstacle to cheap fertilizer is railroad rates. We are 122 per cent over 1914 in the North, and about 116 per cent in the South, and we have many instances where the freights on fertilizer are 200 pe rcent over what they were in 1914. When you con- sider that on an 8,000,000-ton outshipment you bring in materials and ship out tjo the extent of about 14,000,000 tons, you can see how your freight pyra- mids up on a proposition of that kind. Mr. Fields. Since you have referred to the freight rates, that brings to my mind another question. If plans can be worked out whereby highly concen- trated fertilizers may be used, that will relieve the farmers materially on freight rates, will it not? Mr. MacDowell. Yes; and on bags and labor and every other item that goes into the making of fertilizer. Mr. Fields. By reason of the elimination of all that dead weight ; the bags must be furnished, and that requires so much labor to handle it, and everything else. Mr. MacDowell. But you can go only so far, and as far as we can foresee, practically, we can only get a certain concentration, because you have to have u certain dilution, or you will get a soil solution strength there which Is too strong. Ill other words. It is a question of distribution, scattering all over the acre of ground, or In the right place for that particular crop. If It Is one that jr<>es too far down for seeding purposes. Mr. Fields. That Is where we need to be studying more scientific methods all the time? Mr. MacDowell. Yes. Mr. Fields. .Judge Parker suggests that I ask you whether fertilizer could ii«»t be diluted on the farm? ^Ir. MacDowell. It can, if you have dry sand, or if you can pulverize clay 'lods. But until you get your farm consumption very much bigger than it is now it is not, broadly speaking, a practical thing. In Ohio they use only 1^ tons of fertilizer on a farm, and they do not use a high enough grade. In } I 532 MUSCLE SHOALS PROPOSITIONS. South Carolina they use something like 4 tons, while in N«w Jersey they use 5. Certain farmers handling the thing in a big way can do it. We are trying all the time to improve the situation ; that is a big part of the fertilizer busi- ness. Mr. Parker. I wanted to Icnow whether you can not lielp the situation by diluting it at the station. Mr. MacDowell. We do that so much better. We have plants that ship out as much as 50,000 tons a year. The stuff has to be treatetl and mixed and given a certain treatment so that it will be drillable when it goes out. You can not keep fertilizers in bags for a long time and have a good drillable condition. Nothing makes the farmer madder, after he has gone over a good part of his farm, than to find that his drill has not been working. Furthermore, we ship our phosphate rock from Tennessee and Florida, but the bulk comes from Florida because it is cheaper than in Tennessee. But that is scattered around and shipped by boat from Tampa to New York and Baltimore and other places, but Baltimore is the biggest producing center in the United States. It is way beyond its capacity ; they try to do too much there. Then it meets our sulphur, which comes from the Texas and Louisiana fields. As a matter of fact, Mr. Chairman, the raw material situation is largely a southern proposition. It is owned and manned largely by southern people — that is. the sulphur and the phosphate rock. As a matter of fact, the discovery that this calcium carbide could be made into cyanamid was made at Sprague, N. C, by some southern men working in one of their laboratories, where they were working on phos- phate rock experiments. There is one other point, in considering the practicable side of the Muscle Shoals proposition as a large fertilizer-producing section, and that is in con- nection with the facilities for shipment. Muscle Shoals is on two branch lines of railroads. There is always a car shortage in Atlanta, Birmingham, and Montgomery, and with the present business, not this last year, but under nor- mal conditions, we have the greatest trouble in getting cars to ship out ferti- lizers, and we could do a bigger business if we could get more cars. But if you will notice the maps you will see that we are shipping from many sections. We have the greatest difRculty now in getting the cars to haul 350,000 tons of phos- phate rock every year under normal conditions from the southern phosphate fields to the plants farther north. Some suggestion has been made that this amount of nitrogen produced at this plant would make 2,000,000 tons of 2-8-2. But 2,000,000 tons means 100,000 cars carrying 20 tons each. During the shipping season that would mean from 800 to 1,000 carloads a day. But it is not practicable to figure on any tonnage as high as that. As a practicable proposition, it is very difficult to get the cars because other people are using them, and other sections of the country must have their fertilizers, and in my judgment it is not practicable to develop sucli an unusual fertilizer manufacturing and shipping plant at that point. That is purely a physical proposition. Mr. Fields. But that point, like all other points in the country, has its in- fancy. Of course, there might be such development there as would justify the construction of greater transportation facilities. Mr. MacDowell. Yes; and you have the river, and you may be able to barge some stuff. There are several large plants at Nashville on that river, but it is very seldom that they barge anything because they have not the barge facilities. Then, too, you have to keep fertilizers under cover. That means that you hav(» to have facilities at the different stations along thfe river to properly take care of that stuff, and we have not got those facilities at the present time. But we hope we can get them, because that is one of the biggest things we can do, to develop a terminal for that stuff so that we will not have to pay so much dead freight. We are not there to-day, and it is a slow development. Mr. QxjiN. Mr. MacDowell, you are at the head of the Armour fertilizer in- dustry? , Mr. MacDowell. Yes ; I started that by-product business and developed it. Mr. Qthn. How long ago? Mr. MacDowell. It was started in 1894. Mr. QuiN. That is their method of disposing of waste? Mr. MacDowell. We found that we had these waste materials, and we wanted to increase the value of the hog, and we got into it for that reason, and to avoid being shut up as a public nuisance. Mr. QuiN. How many factories have you? MUSCLE SHOALS PROPOSITIONS. 533 Mr. MacDowell, We have, I would say, outside of the packing houses, some twenty odd plants around the United States, two in Cuba, one in Porto Rico, and then we have plants in South America and around the world. Mr. QuiN. The ones where the packing houses themselves are located use a great many of the elements of waste from the stock which is slaughtered, do they not? Mr. MacDowell. Everything that can not be better used for something else goes into those materials; yes. Mr. QuiN. And you can produce your fertilizer cheaper at the factory close to your slaughterhouses than you can somewhere else, can you not? Mr. MacDowell. If we were dependent on that material; yes. Mr. QuiN. What fertilizer elements come from the stock yards? Mr. MacDowell. Nitrogen and phosphoric acid. I may say as a matter of interest that within the last six or eight years much of the blood and a great deal of the tankage has been going out to Mr. Hull's country in Iowa to feed hogs, and we get the fertilizer only indirectly. Many of the packing-house products are getting into the feeds. Mr. QuiN. Do you get any potash out of the slaughterhouse products? Mr. MacDowell. No, sir. I may say that I developed the first potash mine in the United States, personally, out in Utah ; but we do not get anv potash out of by-product stuff. Mr. QuiN. This country is short on that element of fertilizer, is it not? Mr. MacDowell. As far as its own production is concerned ; yes. Mr. QuiN. We have been dependent upon importations from Germany, so far as potash is concerned? Mr. MacDowell. Yes ; and from France now. Mr. QuiN. Do you gentlemen have any idea that any important sources for potash can be discovered here in the United States? Mr. MacDowell. I have been hopeful that it can be made economlcallv near Salt Lake City, to the west of Salt Lake City. I have had engineers go through tliat field very carefully, and as far as the cost out there is concerned, it can be made economically at Searles Lake in southern Calif(u-nia. Mr. QuiN. That is kelp? Mr. MacDowell. No ; that is some of the brines in the old, dry lakes. There is that plant there, and there are lakes out in Nebraska that make pretty fair potash. But the trouble is they are so far away from the coastal plain sec- tion, so that it would be difficult to make use of them because of the high cost of tran.«rportation. That is the difficulty, and I do not know how we are going to overcome it, although we may be able to get water transportation from Searles Lake later on. When I say that I mean that the industries are paying from $13 to $20 a ton freight charges on potash from Salt Lake Citv or from the brines of Nebraska down to the sections in the South where they use them. And we are getting our potash from France and from Germanv to-day at $2.70 a ton by water. There is your problem. I do believe that we will discover some way of developing some potash in this country, and that is one Veason why I had Mr. Swann do some work in that section, because I was hopeful that he might stumble on something which wouhl be beneficial. Mr. QuiN. What are the ingredients of fertilizer that go into vegetables? You spoke of the trucking industry ; just what do you mean? Mr. MacDowell. You grow truck generally on sandy loams, with not over 8 per cent of clay, and if you get that you could in two or three weeks get a good start in maturing your truck. You use fertilizer there because the sandy soils are not very rich. You use quite concentrated fertilizer, especially oil some truck crops, running as high as 15 per cent potash. ^Ir. QuiN. What percentage of nitrogen do they use on the truck crop? Mr. MacDowell. They run as high as 10 per cent of ammonia and 8* per cent of nitrogen. That is one of the sections where they use a lot of nitrogen, sind Aroostook County, Me., which is one of the most heavily fertilizeil sections of the world, and also the Hawaiian Islands, beat any other section. They use 2,000 pounds of a fertilizer containing 5 per cent of ammonia and often as much as from 6 to 8 per cent of phosphoric acid and from 7 to 10 per cent of potash. Mr. QuiN. What do they use on cotton? Mr. MacDowetx. On cotton they use, speaking in averages, about 3 per cent of ammonia, 9 per cent of phosphoric acid, and 8 per cent of potash. The average has been going up. But the better planters are using higher grades than that, such as 4-10-4, and along that line. We have been putting out 534 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 535 ourselves an acid phosphate of 16 per cent. We do make it stronger thM^ that but to get it driUable we make a combination of ^16-2. That is 16 per cent of acid phosphate, 2 per cent of ammonia, and 2 per cent of Potash. On the other hand, to compete with the 1-^1 stuff, which we do not believe is the economical thing for the farmers to use, we are putting In a combination of 2-16-2, which saves the farmer $10 a ton. , , ^ ^ , u « „ Mr. Qtjin. One method of applying fertilizer in the truck industry is by spray- ''^ lir^ Ma"cDoweix. No ; that is used only a very littie. It is mostly applied bv broadcasting or with some drills. Broadcasting is rather an extravagant way in which to do it. however. They have found that drilling and puttmg it in little rows, with a certain application, will bring them more money than by using the broadcasting method, and thus using it rather extravagantly. Mr. QuiN. They have a method of placing the fertilizer on the crop after the croD is up and partly worked out, do they not? Mr mIcDowell. Yes ; they do that in certain sections of the country, and that is what they call top dress. Sometimes they make a second, or even a ^^Mr.^QuiT They have several methods; one is to put it down when they break the ground? Mr. MacDoweix. Yes. Mr. QuiN. In a drill? Mr. Q^?.*'tSJ^ h^e another method, by putting It down while they are planting? Mr. QuiN.^And^hen^'they have another method by which they apply it by "^SJ^'M^cDowE^^'Yes; but the spraying method is not very heavily used because the soil has tiie power of fixing the salts in the soil and you do not want vour roots to come up to the surface; you want the fertilizer to stay In the ground below the surface. They are just like dogs, they will go where thp ffrub is and vou have to keep it down. Ilf QUIN we have the practical men understanding the different sod needs for fertilizer, and what the different types of crops need In the way of different Dercentaees if fertilizers. Do you think the agricultural colleges and the ex- SentlTs?atfons In each State, and the farm demonstrators in each county should deal directly between the fertilizer producer and the consumer? Mr MacDowell. You mean having them engaged In business i Mr' QuiN. No; I mean telling the farmer what the soil needs. Mr" MacDowell. That Is our endeavor, so far as we can get them to do it , we tlilnk that Is sound. But we do not believe the fertilizer industry should c^Tvyonex^r^Leutal stations or do that work that the Government itself can do more impersonally than we can. We think that Is their business to tell the ^^n-^VuiTAniTthe national association of which you are president has that as one of Its functions, to give the farmers what Is best suited to their soils? M? MACDOWELL. Yes; we are trying to help sell the work which these scien- tific liien do in their stations. They really need it, because there is a wonderful lot of scientific development hidden away In pamphlets that nobody gets at We do not think they are especially good salesmen of the work which they do. Thev are content when they make their reports. Mr QuiN In the type of fertilizer for cotton which you are familiar with and sell In my country', how much of that In a ton is sand and waste? Mr. MacDowell. That depends upon what kind of material you use. Mr. QuiN. I said fertilizer for cotton. Mr. MacDowell. Take 3-8^3. Mr OriN That is about what you have for cotton i „ , , u ^ Mr" MacDowell. Yes: or about 3-9-3. There is 1,700 pounds of acid phos- nhntP in It at the beginning. If you use cottonseed meal you have 60 pounob of fertUzer 7 l>^r cent, and it would take 800 pounds of cottonseed meal to ^ give the 3; and that would be 1,000 pounds thei-e. and 800 pounds of meal; and if vou want 8 per cent you have only 300 pounds leeway there If you use muriate of potash, you use roughly about 100 pounds of muriate of Potash. ur if vou do not use muriate of potash you would use some other form that did noi give so much. And vou could correct that without much trouble. Mr. QuiN. That is the cottonseed meal is helping us in making fertilizer? Mr. MacDowell. It is right now, although some of it is going in because the spinner wants it, he is asking for It, and It has to be given to him. Mr. QuiN. The elements of fertilizer can be made at the Muscle Shoals plant? Mr. MacDowell. There are two things you can make. One Is your nitrogen and the other is the phosphoric acid, either in the regular way or by the elec- tric-furnace method, if that works. As far as potash is concerned, you could bring your shales in there and make your potash. But I would say, in that connection, however, the cheaper thing would be to buy the French and Ger- man potash and ship It In here. Mr. QuiN. If you can get the potash and the nitrogen, what is the other sub- ^i'flnce ^ Mr. MacDowell. You have potash, nitrogen, and phosphoric add. Mr. QuiN. That makes fertilizer, does it not? Mr. MacDowell. Yes ; that is right. Mr. QuiN. That is the complete fertilizer in the proper proportion .to be ap- plied on any crop? Mr. MacDowell. You have to mix it to get your proper proportion. Mr. QuiN. Those are the three fertilizer ingredients? Mr. MacDowell. Oh, yes. Mr. QuiN. And all of those fertilizer ingredients can be obtained from the raw materials that are at or in the vicinity of Muscle Shoals? Mr. MacDowell. Or in that neighborhood ; yes. For instance, at Birmingham they have sulphate of ammonia. They get phosphoric acid or phosphate rock from that territory and ship It in and treat it. They get their add from the Tennessee Copper Co. And there is another illustration of the usefulness of fertilizer. The using of that acid permits the plant to run, and the plant employs thousands of people, which Is Its direct contribution to the welfare of that community through being able to use add for fertilizer purposes. Mr. QuiN. Commercial fertilizer Is a necessity now? Mr. MacDow ell. In that section ; yes. Mr. QuiN. You have to get it through these leguminous plants, if you can not get It commercially? Mr. MacDowell. Yes ; that Is the first thing to do, anyway. Mr. QuiN. From the soya bean and other leguminous plants. In the absence of that the farmer Is bound to have fertilizer, or you would not do any business. Mr. MacDowetx. Or in the presence of it, If he wants to get the best results. Mr. QuiN. If they can make at Muscle Shoals these three Ingredients of fertilizer, which are all they use Mr. MacDowell (Interposing). Outside of a little magnesium and a few- other things. Mr. QuiN. And put them in a concentrated form and get that concentrated fertilizer to the consumer, he can mix it or spray it, as the case may be. If that were done, would that not cut out the expense of shipping all of that filler? Mr. MacDowell. In part he can do that to-day, and a good many farmers are doing it. Mr. QuiN. Some gentlemen said they could not do It. Mr. MacDoweli.. They are buying sulphate of ammonia, which contains 25 per cent of ammonia, and it is being shipped to certain fruit and truck farmers. They are doing It also with nitrate of soda. That is a part of ♦^hp fertilizer business. Mr. QuiN. There is no discount on the farmer being able to mix it with the filler. If he has any sand? Mr. MacDowell. Yes; and If he happens to be located In tho narht location he can drv It and get It Into shape to drill. Mr. QuiN. You speak of a lack of shipping facilities from Muscle Shoals. Is it not a fact that with the concentrated form of fertilizer which would be sent out of there the large number of cars you refer to would not be required? Mr. MacDowell. That is true if he does ship nitrogen which he makes; it would require fewer still. Mr. QuiN. This project as contemplated proposes to Improve navigation there so they can float those products on boats out Into the Ohio River and send them out that way? j^jj. \TacDowell Yes. Mr. Qum. Then there would not be any objection to that, if you can make that stuff and get it to the seaboard at $2.20 a ton? 536 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 537 Mr. MAbDowEix. We can do that now at Nashville, for instance, which is very close to the phosphate field. The plants are right on the river, but there are no barges and no facilities for handling it. Mr. QuiN. Your association in the literature which was sent to each Mem- ber of Congress stated that obviously no matter how cheap the Muscle Shoals plant could make sulphate of ammonia, it could not greatly reduce the cost of er way of mixing that, do you not think it is a matter of knowledge between the commercial fertilizer manufac- turer and the farmer, and that knowledge should be carried to the farmer? Mr. MacDowell. Yes; he has the knowledge, and if he wants to do it, he can mix the fertilizers any time he wants to try it ; there is nothing to prevent him from doing it. But you must remember that fertilizers are shipped in car- load lots, whereas fertilizer ingredients are shipped in less than carload lots. And if the consumption on the farm is only a ton and a quarter, as it is in Ohio, it is cheaper to take low-grade fertilizer and try to fuss with it himself. but when we get into big trucking operations it is a different i>roposition, I will say this, that we prefer, as an industry, to ship high-grade goods. Mr. Qi'iN. I presume you read the evidence of Mr. Ford's engineers? IMr. MacDowell. No, sir; I did not. Mr. QriN. If Mr. Ford can make this fertilizer in any form of finished prod- uct, or in a concentrated form, do you not think it would make it cheaper to the fai-mer if that cost is so nuich less than it would be elsewhere on account of the cheap water power? Mr. MacDowell. I do not know how much power would come in on that proposition, but the farmer can get concentrated fertilizers to-day. Just what Mr. Fold is proposing to make. As a matter of fact, there is 4 per cent super- phosphate made to day, and it is unsalable. The American Cyanamid Co. put in a plant to make ammonium phosphate, the very thing which they have been talking about making at Muscle Shoals. But the plant is closed ; they can not afford to run it. Mr. QuiN. They belong to the National Fertilizer Association, do they not? Mr. MacDowell. I think they do ; they are an associate member. Mr. QuiN. There is another company making fertilizer, the Virginia-Carolina Chemical Co. They are members of the National Fertilizer Association? Mr. MacDowell. Yes. Mr. QriN. That plant at IMuscle Shoals was constructed for the manufacture of nitrates in time of war, and fertilizer in time of peace, was it not? Mv. MacDowell. Well, they hoped to make it in time of peace; yes. ^Ir. QuiN. If Mr. Ford says he can make this fertilizer there — and he said that through his representatives at a hearing by this committee — at 50 per cent less than it is being made for to-day, would not that be a great boon for the people of this country? Mr. MacDowell. He can not do it unless he steals his stuff, and I am quite^ sure he could not do that. Mr. QuiN. Why then is your association so much opposed to this plant down there being devoted to the manufacture of fertilizer by Mr. Ford? Mr. MacDowell. We have not any objection to Mr. B^ord manufacturing fertilizer, if he wants to get into it. But we have this stock, as I explained earlier, that Congress is asked to put in 800,000 or 850,000 horsepower, with electrical equipment, in order to be able to use 100,000 horsepower to produce nitrates. Is that sound from the standpoint of public policy? Furthermore, the fertilizer industry felt that the Congress should know more about the fertilizer business and the need for additional fertilizer now. One of the great troubles with this country and the world is that there is about 150 per cent of over normal capacity in everything. We have got a big excess of capacitv in fertilizer to-day. We have a big excess of capacity in sulphate of annnonia, which will be made at Muscle Shoals. Simply because you have .some- thing vou can make something out of, we do not believe it should be used to make it unless there is need for it. If Mr. Ford goes into the fertilizer business, we will compete with him, and if we can not we will get out of the business. We have to take a risk. We have made all these developments, and if we can make these things more cheaply by reason of improved development we think we ought to have a chance as well as Mr. Ford, and we do not think he should have a monopoly down there. Mr. QuiN. Did you not have a chance to bid on this plant? Mr. MacDowell. Fertilizer people wouM not bid on a proposition of this k'nd. Mr. QuiN. The invitations were sent out generally. iMr. MacDowell. I know, but it is not a fertilizer proposition. As to the ph«»sphoric acid, I do not agree with some of the gentlemen in regard to that. f m 538 MUSCLE SHOALS PROPOSITIONS. I think there are opportunities there of making concentrated fertilizers cheaper than by the acid method, quite materially cheaper than by the acid method. But I say, as a practical proposition, supplying stuff to the farmers all over the country, you can only go so far, because these concentrated fertilizers have been made for 35 years. They have been making this concentrated stuft' in Belgium and Holland for a number of years, but they have to send it away to get rid of it. There have been two companies making this triple-strength stuff, and they have either only been able to sell a limited amount of it or they can not do it at all, although it is shipped all over the country. That is the triple-strength phosphate. It takes time to work those things out. Mr. QuiN. I see that they are using the concentrated fertilizer in large quanti- ties in my country. I know they are using it. Mr. MacDowell. Yes ; and we sell a lot of it. We would like to sell more of it. Mr. QuiN. Then these gentlemen who say it can not be done are Igriorant on that subject? Mr. MacDowell. I will say that from the standpoint of fixing nitrogen, Mr. Ford can not compete at Muscle Shoals with the cost of the present methods of recovery from by-product coke, and we have a surplus from that. Mr. QuiN. With the scientists at work all the time, and with Mr. Ford's ability to get the best scientists on his staff, do you not presume that in a short time this industry will be revolutionized and that the fertilizer products will be at a much cheaper price than at the present time? Mr. MacDowell. I hope so. I am working to that end as fast as I can. Mr. QuiN. Did you not state that in five years' time the present method will be obsolete? Mr. MacDowell. I think so; yes. Mr. QuiN. It is not unreasonable to think that Mr. Ford should begin t(» make it cheaper very soon? Mr. MacDowell. He could not use h'.s equipment and would not need all that power for that purpose. Mr. QuiN. He could use such of it as he did need for that purpose. Mr. MacDowell. Well, I think he could use the power to better advantnge making something else. Mr. QuiN. You do not think he is going to let that power go to waste? Mr. MacDowell. No; I think not. Mr. QuiN. You know that Mr. Ford, as a business man, would utilize it? Mr. MacDowell. Yes ; and I think myself that it is a tremendous amount of power to put in the hands of one man to say who shall use it. Furthermore, from the engineering standpcunt, I think that you are interested to see that he develops as much of the primary power Mr. QuTN (interposing). That is what he is going to do down there; we can not do it. This man proposes to do that very thing, to develop 1,000,000 horsepower. Mr. MacDowell. There is large secondary power. You have, from an engi- neering standpoint, only got 150,000 primary horsepower down there. I think you ought to go to work and reservoir it back so that there will be from 250,000 to 350,000 primary power down there. You do not want to have an industry established and working down there for four or five months in the year, and have all those men hunting after jobs for the balance of the year. You do not want to have the industries down there in such a condition so that when you first wake up in the morning you have to go out and fin Shoals project has performed that (hity in the double capacity of personally in- spectinj? plants and by collecting; the available information' from all source?^ for your consi«lerarion. Wt* bej; lea>e t'» report as follows: I. iNTUOUL'CTrON. Sutce the sipiiiij- <»r the armistice on November 11, 1918, many of tlie oi)eratious in whi'ch the Federal (government tVmnd itself enj;aj,'ed prior to that date have been ort. The outstanding war-time projey the conmiittee and with two very definite rec) The site on wh Ch this plant is built comprises approximately 2 0(¥) acres iq) At the height of operations on this plant 20,000 workmen were employed It was built in one year, and the flrst ammonium nitrate was produced one da v less than a year from the time of starting (onstruction work, per cent of the mammoth plant was finished, and to-dav it is plete for the production of fixed nitrogen. (/•) The steam power plant was built so that nitrate plant No. 2 could begin production without waiting for the comidetion of the Wils( n Dam, which was expected to take approximately three years. This steam plant produces nearlv as nnich electrical energy as any other steam plant ever built and contains one steam turb:ne unit Mith electrical generators which generates 60000 kdowatts or 80,000 horsepower— being one of the largest turbines ever con- structed and operated. In addition, there is place for a smaller unit which wouhl be capable of producing 30,000 kilowatts, or 40,000 horsepower making a total horsepower for the entire steam power electric plant when completed of 120,000 horsepower, which is ample to operate the electric furnaces in {mother part of the plant. ( «?) The boiler room of this immense plant comprises a batterv of 15 units each rated at 15.000 horsepower. These boilers when running full capacity consume ap- proximately 1..5()0 tons of coal each day, which fuel is dumped from the cars on overhead tracks into vast bins, and thence fed into the furnaces by automatic stokers without being touched by human hands since leaving the 'mine The three stacks to provide draught for these furnaces vary in height from 275 feet to ,i(X) fe(-t, and in diameter at the base from 23 feet to 26 feet. (0 The kiln room where the lime rock is burned to lime contain^ seven <-.N iindrical kilns which turn slowly and which are heated bv a blast from huely ground coal. These kilns are of steel, lined with fire brick,^lnd are so mounted niat the lime rock when placed in the higher end will gradually travel the en- nre length of the kiln, which is 125 feet and emerge from the lower end as Durned lime. Approximately 1,500 tons of lime rock can be burned in a day \\ inch shrinks in the form of burned lime to about one-half that weight. (M) The electric furnace building where the burned lime and coke are fused electrically into carbide, as the first step toward fixing nitrogen, is about 1 000 reet long and contains 12 electric furnaces, eacli of which requires 10,000 horse- power for Its oi)eration. Only 10 of these furnaces are expected to operate « 1 ^"/ ?,"^ ^'"^^' ^^a^'i"S 2 for repairs at all times. The giant electrodes through >Much the electrical current passes and which furnish the heat for fusing the urned lime and the coke, are subjected to such terrific heat that thev have to oe renewed every three days. This shows the necessitv for extra 'furnaces m 546 MUSCLE SHOALS PROPOSITTOJ^^S. MUSCLE SHOALS PROPOSITIONS. 547 ^^^rU^''"^''^ produces 50 tons of carbide per day, or a total for the 10 furnace^ of '>00 tons. Practically all work of l.andling the materials used in nitrato plant .No. 2 is done by machinery. However, these electrical furnaces mu^t be fed by hand in order to fill the blowholes that appear in the molten mas<^ wbich, unless filled by shovelfuls of coke and lime, cause rapid radiation of neat. (V) The plant where nitrogen is taken from the air by the liquid-air process IS many t:mes larger than any similar plant ever constructed. In this plant nitrogen testing 99.9 per cent pure is secured in volumes aggregating 500 0(H) cubic feet every hour. The oxygen and a small part of the nitrogen are returned to the atmosphere. iw) The oven building contains 1,536 ovens in which the nitrogen is fixed or caught in the carbide. Each oven is about 3 feet in diameter and 5 feet deen holding approximately 1,600 pounds of carbide. This charge is heated, elel' tncally, to white heat, and the nitrogen from another building is forced throu'-Ii It and is caught. The product from these kilns is cyanamid or lime nitrogen and contains 21 per cent of fixed nitrogen. (x) The autoclave building contains 56 cylindrical steel autoclaves, which are steam-tight, vertical boilers with agitators to stir the powdered cyanamid in order to drive off the ammonia gas. Each autoclave holds four tons of the pow^dered cyanamid, and it takes about an hour and one-half to get the fixefl nitrogen out of the cyanamid and into the form of ammonia gas in order later to convert it into ammonium nitrate for military or agricultural purposes (?/) Many smaller buildings, each of which is indispensable in the complete process through which lime, coke, and air must go in order to get nitrates for either explosives or fertilizers, are component parts of the gigantic whole of nitrate plant No. 2. In all there are about 30 buildings as units in this plant. iz) Nitrate plant No. 1 is a much smaller plant than No. 2 and is designed to secure nitrogen from the air and fix it for military or agricultural uses by nn entirely different process than the one used in No. 2. It has never operated on a commercial or practical scale but is completely equipped for operation. COMMENT BY THE COMMITTEE. The information given above contains some remarkable facts which your com- mittee feels free to comment upon, not in the way of specific recomniendations but rather that you may be informed what relation these facts bear to our welfare as citizens and as farmers. (a) That the Wilson Dam contains the possibility of develoiJng a hydro- electric plant far in excess of any yet contemplated in America — with the excep- tion of Niagara Falls— is evidenced by the fact thnt it will maintain a head of water almost 100 feet high and has the volume of flow referred to in II (a). whereas the great Keokuk Dam across the Mississippi River holds only a 40-foot head of water. (h) There seems to have been no graft in the (rovernment's ncquisition of tlie land which will be inundated. The average price paid for this land seems to your committee to be entirely within reason ; furthermore, there appears no likelihood of litigation subsequent to such inundation, (c) Millions of dollars, undoubtedly, have been spent in the prepnratory work which necessarily had to precede actual construction. Now that all this pre- paratory work has been done and paid for, it is the thought of your committe<' that legislation and appropriation should be provided for in Congress to avoid the loss of all this preliminary construction. (d) The engineers in charge of construction work on the Wilson Dam state that although only about one-third of the permanent work has been completed. more than one-third of the total expense has been met on account of the cofjt of the preparatory work. (e) Your committee is impressed with the necessity for a resumption of build- ing operations on the 5am, which were discontinued in April on account of a lack of appropriatio»js. if) It is needless to state that the great steam plant which is capable of running all of nitrate plant No. 2 was built only to operate the plant until the Wilson Dam could be completed and furnish a cheaper power. The steam plant should now be considered as an auxiliary power plant to the hydraulic development, as nitrates can be made much cheaper with hydraulic rather than with steam power. ((/) Your committee desires you to remember that in the fixation of atmos- pheric nitrogen in the lime-nitrogen process some substance must be made that will soak up nitrogen somewhat as a sponge does water. Carbide, which is made by fusing lime and coke in an electric furnace, is the material used in nitrate plant No. 2. However, it is a chemical reaction that takes place, and not a physical one. III. Availability or Nitkate Plant No. 2 fob Manufactubing Febtilizebs. It is a generally recognized fact that up to a certain point the manufacturing of nitrates for military or for agricultural uses follows a common course. This is true whether the nitrates are atmospherically fixed or obtained otherwheres. Tn this report, of course, we are primarily concerned with the form of niti-ates which is secured from the air, as the other forms have been longer used and more fully understood. There are three great sources of commercially used nitrates. First in tonnage is Chilean nitrate ; then the ammonia secured as a by-product from coke ovens; and finally atmospheric nitrogen, which' until recent years has been a dream of scientists, but is now very practical and is rapidly forging ahead in the tonnage produced. To these three may be added a fourth source, which is the use of legumes in fixing atmospheric nitrogen, and which farmers are coming more and more to value. This is nature's way of taking fertilizer out of the air and placing it in the soil in tubercules on the roots of legumes. Man has recently learned how to do the same thing mechanically and chemically. In the fixation of atmospheric nitrogen, either for military or agricultural purposes, several steps are necessary before we have a commercial product. In order that there may be a clear understanding of the process used in nitrate plant No. 2 at ^luscle Shoals, an effort will be made herewith to detail in non- technical and comprehendable terms the various stages in the process. 1. Lime rock is burned into lime and mixed with dried coke which has been finely powdered. 2. This mixture is melted together in electric furnaces which generate a heat exceeding 1,500° C. The product of tliese furnaces is known as carbide, which is the same product that is used in all acetjiene lighting plants. 3. The carbide, after cooling, is ground through various machines until most of it will pass through a screen having 200 meshes to the square inch. 4. Air being formed of a mixture of nitrogen and oxygen, and only the nitrogen l)eing needed for this process, the two gases are separated, first, by compressing and cooling the air until it becomes liquid, then distilling this liquid to separate the two gases, much in the same way that alcohol is separated from water in making spirituous liquors. 5. This nitrogen is then blown gently through ovens, in which the powdered carbide has been heated electrically to a white heat ; and the result is that the carbide catches or fixes the nitrogen, in a manner very similar to the " soaking up " of water sprayed into a box of sand. 6. Now we have lime nitrogen (cyanamid), which is the first form of air- fixed nitrogen either for military or agricultural uses. It carries about 21 per cent fixed nitrogen and is directly available as a fertilizer but has some limita- tions in its use. 7. The lime nitrogen after being ground to a fine powder is treated to a bath of steam and a weak alkali under pressure of about 150 pounds to the square inch. This causes a gas to be formep expected to become users of electric current, too fpSiH!o''''V ^^ r>^^'""tted the committee to remark that the cheapness of any fertilizer depends to a very large extent upon the ease and simplicitv with \Nhich it IS manufactured, and that the more frequentlv it is handled or treated m the process of manufacturing the more expensive it becomes. Consequently the cheapest fertilizer which is capable of being produced at Muscle Shoals is the hme-nitrogen (cyanamid). This product is a good nitrogenous fertilizer when used by itself but carries much more nitrogen than the usual mixed fert Uzer and niust be used carefully. When only a nitrogenous fertilizer is needed hme-mtrogen gives as good results as are secured by anv other form of nitrogen but is somewhat slower in its availability. However, in mixed fertilizers the linie-nitrogen. if used in too great quantities, causes the phos- phates to become less soluble, and hence less available as plant food on account ?l . f J f *'^^^tiug unfavorably on the phosphates. It is fair to state, though, that the chemists seem nearly to have a treatment for the lime-nitrogen which will remove this undesirable characteristic. It is entirely to be expected that with further experiment these difficulties will be entirely overcome. When lime-nitrogen is advanced through its subsequent stages and is changed into ammonia gas, then to nitric acid, and finally into ammonium nitrate or ammonium sulphate, it can be readily used, either alone or in mixed fertilizers. All these later stages, as above stated, increase the cost of the nitrogen content of whatever product is manufactured. 3. In this report but little mention will be made of nitrate plant No. 1. The process designed to be used in that plant is entirely different from the one in No. 2, and, although it is comparatively a simple chemical process, the me- chanical difficulties have been such as to offer great diflaculties to a practical operation of the plant. Your committee desires the permission to suggest, however, that its faith in the ability of our chemists is so great as to justify us in holding nitrate plant No. 1 intact ready to operate when the difficulties shall have been overcome. Accordingly you will note in one of the two definite recommendations at the end of this report that your committee has incorporated both nitrate plants in the same recommendation. IV. NECESSITY FOK AN INCREASED NITROGEN SUPPLY. The world's supply of nitrogen comes from two ^reat classifications — the or- ganic and the inorganic. The organic nitrogen is supplied by such commodi- ties as tankage, dried blood, and cottonseed meal. These products are rapidly being transferred from the fertilizer field to the stock-feeding industry. It has developed that the feeder of live stock can compete in the purchase of these products much to the disadvantage of the feeder of soils who desires to use them as fertilizers. Their use as fertilizers is rapidly ceasing, but a constant in- crease is noted for these products as stock food. So we may as well not con- sider these organic nitrogenous products in summing up our available fertilizer sui)ply. Their use is comparatively negligible as plant food. Our inorganic nitrogen comes almost wholly from three sources. First in iniportnnce, as measured by the tonnage used, is the Chilean nitrates. Next in tonnage produced comes the coke ovens, from which a form of nitrogen is se- rurefl as a by-product. In recent years a third source has been developed in the fixation of atmospheric nitrogen. The development of methods, especially the lime nitrogen or cyanamid process for fixing, or capturing, the nitrogen that is in the air, has assumed such importance in recent years, not alone in our country, but in several other nat'ons, as to justify the statement that the world's increasing demand for nitrates in industry for military purposes and in agriculture will be met largely by the fixation of atmospheric nitrogen. A review of the present situation as regards the Chilean nitrates and the by-product from the coke ovens will serve to confirm the statement made. In the period between 1913 and 1920 the production of Chilean nitrates increased only about 28 per cent, although the whole world was seeking nitrogen. This may be accounted for partly by the falling off of the nitrate content in the Chilean product, which requires the handling of a much larger tonnage of the raw material to satisfy the world needs. The available nitrogen in the Chilean product has dropped from nearly 30 per cent, where it was in former years, to less than 20 per cent now. This signifies, no doubt, that the best beds of the nitrate deposits have been used. Also, it may seem that inaccessi- hility of the remaining beds makes production much slower than was formerly the case. Whereas, a laborer years ago was able to produce more than 70 tons per year, now the same laborer is producing approximately 55 tons. The production of nitrogen as a by-product from coke ovens is altogether dependent upon the growth of the steel industry. Coke is produced primarily !is an adjunct to the production of steel, and can not profitably be produced in quantities in excess of the requirements of the steel furnaces. In other words, it can not be produced simply for its by-products, which are nitrogen, tar, gas, and oil. Somewhat more than half the coke of our country is produce'S ammonium-sulphate pro- pmluct ovens had been made into ammonium sulpZte ThrLcts are tw alHeultte ""in '191^^'.^ T «^"T•'°'""' ^"'P'«"^ '« neverTaifable'fo agriculture. In 1918 the actual production of ammonium sulnhate wm 2lSiQd tons, according to the United States Geological SurveTreS As a len^l^t average, 45 per cent of the so-called ammonium sulphafe represents sfml^^^ production of ammonia in gaseous form, which is absorbed %watT and k ►suipnate and sold as a fertilizer ingredient. In other words the nmnmnio in"rk"et "' ''" ''"' "''"' '''''' '^^ refrigeration rathei thn'; the 'feSr In opposition to the slow growth of nitrogen production in the rhilP-n, nitrates, and n coke ovens, it is significant to note that foi the years ?9 3 t" 1920 the Productmn of atmospherically fixed nitrogen enjoyed ^i growth of approximately 783 per cent. It is also worthy of note that thrworld took • H this nitrogen and asked for more. We may confidently exp^t the use of nitroii^e m fertilizers, in nmmunition, and in industry to constantly expand^ pansion will be measured largely by the price of the nitrogen soJ can be manufactured and placed on the markets cheaply, and cease to be-al It now is-the determining factor in the price of all mixed fertSs we m.?v look forward to a multiplied use of nitrogen. Farm^s kUv that the^opc^^^^^ ations are rapidly depleting our soil of nitrogen, and thev willin-lv woi^d replace this ingredient in the soil if it could be had reasonablv A masonab le estimate of he annual nitrogenous loss from our soils will be between ?hroe and four million tons, to balance which we had in 1920 a total w^r?d's pro duction of nitrogen of only one and one-half million tons, not aH of whfch w-^s available for us, of course. To feed the world and to make at least a temnor^n !:rLk"e^^oT^-crea^'nLT^^^ '^ "^^'^^ ^"^ ^^^^ ^^^^ - ea J ^ilreThTaV; ^\^ - -;: tion of nitrogen is doubling every decade. AVhether this increase can be im - tamed-and it can be accelerated under the most favorable conditions fo^nro- COMMENT BY THE COMMITTEE. peSnemVcts^"^"^^*'"^ conclusions your committee calls attention to these iV^ m?^! fj!^ ^^'?^^^ ^^ running behind in the production of nitrogen. (6) That the price of Chilean nitrate is increasing as its supply becomes more inadequate. Jwl Vl^Vl'u ^^^'I'^'l^i?*^^ •'^''"'^ P^*^ ^" 1^^^' $85,000,000 for Chilean nitrato. (tf) That the United States has paid, including 1919. altogether for Chilean nitrate, plus freight, insurance, etc.. approximated $800,000 000 lV^ JJ^* ^^.i® ^'^®* expenditure justifies us in seeking other sources of nitrogen. in THat nitrogen either by itself or in mixed fertilizers should be placed on the market at a valuation which is not so nearly prohibitory of its use (g) That to secure a lessened valuation in nitrogen it must be taken from the air, where it is inexhaustible. (h) That since only about 55 per cent of our estimated total consumption would be produced by our own nitrogen plants of all descriptions, including nitrate plant No. 2, there is only a remote possibility of overproduction for the present decade. MUSCLE SHOALS PROPOSITIONS. (i) That the by-product coke ovens are not to be considered as primarily pro- ducers of fertilizer ingredients, because, first, their production depends' upon the steel industry; and, secondly, their products are sold as much as possible in the form of aqua-ammonia, and the remainder only as ammonium sulphate. V. Costs and Estimates. A. NITRATE PLANT NO. 1. 3 large buildings $7,19.5,496.71 13 smaller buildings 2, 270, 413. 97 Railways, land, walks, village, etc 3, 788, 661 ! 05 Total 13, 254. 571. 73 B. NITKATE PLANT NO. 2. Approximate total expenditures 1__. $69,026,833.43 Overhead, Air Nitrates Coii)oration $3,504,628.14 Construction fees. Air Nitrates Corporation, in- cluding unpaid l)alance 1,500.000.00 Temporary buildings 4, 260, 550. 00 Chemical plant 37,842.899.98 Power plant 10, 436, 337. 05 Land for plant reservation site 237. 711. 00 Permanent housing 1 2, 767, 837. 36 Reservation site and public works 1. 427, 162. 47 Community and commissarv ac- tivities ■_ $9, 411. 528. 79 Less cash revenues (miscellaneous and commissary) 4, 922, 799. 69 Quarry 715^ 494 ^5 Opmition 1, 860, 46:^, 60 Total Less operating expenditure 69, 026, 88;5. 43 1, 860, 463. 60 Construction expenditure 67. 166. 369. 83 C. THE WILSON DAM. Various estimates have been offered as to the total cost of this dam but as conditions relative to cost are changing so rapidly it is impossible to secure great accuracy. Two estimates are herewith submitted. The first one is based on conditions as they were in 1919, and is being held on that level in order to be definitely sure that the final cost can not exceed the figures given. The sec- ond estimate is based on conditions as they were in 1916. but there has been added in each item a 100 per cent increase, in the hope that such an arbitrary increase will approximately rei3resent the difference in the cost factors in the year 1916 and at the present time. (A.) Allotted for construction, as per national defense act of 1916_- Transf erred from armament and fortification fund June, 1910- $13, 160, 000. 00 4. 000, 000. 00 Total allotments to date 17,160,000.00 Total approximate expenditures and commitments to date 16. 6.~)0, 000. 00 Amount to be asked from Congress 10, 000, 000. 00 Approximate total cost (based on 1919 condi- tions) $50, 000, 000. 00 Amount properly allotted to navigation purposes. 4, 500, 000. 00 Net cost for power purposes 4.5, 500. (XK). 00 Production cost, one horsepower per year (based on average horsepower 300,000 and a 10 per cent interest and operating expense) 15. 00 552 MUSCLE SHOALS PROPOSITIONS. (B.) General engineering? and offices expenses $2,275,000.00 Camps, general plant, railroad constructions 2, 212, 000 00 The dam proper 4. 12?', OOo! 00 Locks 1, 064, 000. 00 Substructure of powerhouse and tailrace 2, 000. 000. 00 Flowage damages ' 350] OOo! 00 Road changes 30,000.00 Clearing 76, ooo. 00 Head gates 135, ooO. 00 Racks 68. 000. 00 Cranes 50, 000. 00 Generating equipment 4, 200,000.00 Cables and wiring 150,000.00 100 per cent increase 16,737.000.00 Total 16, 737, 000. 00 Total cost of dam 33,474,000.00 Amount properly allotted to navigation purposes and not useful for power 4, 500, 000. (X) Cost of dam for power purposes 28.974,000.00 Production cost of 1 horsepower per year (based on average horsepower 300,000 and a 10 per cent interest and oi)eratiiig expense) 9 6g' Note, — One horsepower at Niagara Falls sells at $17 per year. D. MANUFACTUBING COST OF CALCIUM CYAN A MID (LIME-NITROGEN) AT TXITED STATES NITRATE PLANT NO. 2. [Based on a two-weeks' run with steam power.) MUSCLE SHOALS PROPOSITIONS. 553 Two weeks' test at approxi- mately 20 ner cent ca- pacity, production, 1.450 tons: cost per ton of lime nitrogen. Estimated cost of manufacture at 100 per cent capacity, production 222,200 tons per year. Item. Quan- tity per ton of lime nitro- gen. Unit cost. Cost per ton of lime nitrogen. Quantity per year. Unit cost. Total yearly cost Cost per ton of lime nitrogen. Limestone tons. . Coke do Coal do Electrodes pounds. . Power kilowatt hours. . Miscellaneous material and supplies 2 ..54 .26 44 2,765 $2.25 9.75 4.25 .06 .00738 }4.50 5.26 LIO 2.64 20.40 2.75 n.35 388,906 120,000 46,700 8, 400, 000 624,000,000 $1.25 6.00 4.00 .05 .0042 $486,000 720, 000 187,000 420,000 2,496,000 591,000 1,600,000 $2.19 3.24 .84 1.89 » 11. 23 2 66 Labor 1 7.20 1 Total 1 48.00 13.85 1 6,500,000 411,000 2Q 25 Overhead ....|... — .. 1 8.'> .............. ........ Total i 61.85 6,911,000 1,533,000 •^1 10 Royalties per present contract. 1 2.56 3.12 . 6.90 Operating fee per present con- tract ........1... ....... I Total 67.53 I 8,444,000 38 00 1 1 iWhen the Wilson Dam is complete, the cheaper water power will be available. If we assume this to cost $0.00075 per kilowatt hour, the cost of cyanamid fertilizer will be reduced to $30.85 per ton. It should be noted that the power cost of $0.00075 per kilowatt hour, used in this and the following tables is not as large as will be placed upon the power which is sold, but represents approximately what may fairly be charged against nitrate plants for power. One ton of lime nitrogen when oiled and hj'drated produces 1.10 tons of commercial cyanamid. Cost of 1 ton commerciMl cyanamid ($38) divided by 1.10 $34. 5.j Cost of oil and oiling .75 Bagging 1-75 Research and main office 2. 10 Total, commercial cyanamid 39. 15 E. MANUFACTURING COST OF AMMONIUM NITRATE AT UNITED STATES NITRATE PLANT NO. 2. [Based on a two-weeks' run with steam power.] Two weeks' test at approx- imately 20 per cent capac- ity, production 950 tons; cost per ton of nitrate. Estimated cost of manufacture with lime- nitrogen plant running 100 per cent capac- ity: 20 per cent of the product being con- verted into 22,000 tons of nitrate. Item. Quan- tity per ton of ammo- nium nitrate. Unit cost. Cost per ton of ammo- nium nitrate. $9.08 10.62 2.22 5.34 43.87 11.36 34.73 Quantity per year. Unit cost. Total yearly cost. Cost per ton of nitrate. Limestone tons.. Coke do — Coal do.... Electrodes pounds. . Power kilowatt hours. . Miscellaneous material and sronlies . . . 4.04 1.09 .53 89 5,945 $2. 25 9.75 4.25 .06 .00738 77,780 24.000 9,340 1,680,000 133,270,000 $1.25 6.00 4.00 ".05 .004 $97,200 144.000 37,360 84,000 533,080 266,000 $4.42 6.51 L70 3.82 24.22 12.08 Labor 509,000 1 23.14 Total 117.22 40.38 1,670,640 1 75.92 Overhead . 1 100,000 1 4.56 Total. 157.60 6.27 1,770,640 80.48 Royalties per present con- tract. . 254,000 1 11.55 Oneratine fee 5.00 Total 168. 87 i 1 2,024,640 ' 92.03 Baeeinc . . ... .... 2.00 5.63 Research and main office •. 1 Total 99.66 Note. — When the Wilson Dam is complete, the cheaper water power will be available. If we assume this to cost $0.00075 per kilowatt hour, the cost of nitrate will be reduced to $80.05 per ton. 554 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 555 r. M\yvFMTrniya cost of A^rMoxiUM silphati: at i^^ited statks nitrate PLANT NO. 2. Estimated cost of manufacture with lime nitrogen plant running 100 per cent capacity; 40 per cent of the product being converted into 86,000 tons of sulphate. [Based on a two-weeks' run with steam power.) Item. Limestone tons. Coke do. . . Coal do. . . Electrodes pounds. Power kilowatt-hour. Sulphuric acid Miscellaneous materials and supplies Labor ■ Total . Overhead . . Total Royalties per present contract. Total for 86,000 tons of ammonium sulphate .Vssuming 65 per cent would be shipped in bulk, the cost of bagginp the remainder prorated is estimated at . Research and main office ' Quantity per year. Unit cost. Total yearly cost. 155,560 48,000 18,680 3.360,000 255,482,400 82,600 $1.25 2.00 4.00 0.05 0.004 10.00 $194, 450 288,000 74,720 168,000 1,022.000 826.000 447,500 1,033.000 4. a53, 670 198,000 4.251,670 582.000 4.83:^.670 Total . Cost per ton of sulphate. $2.27 3.35 .87 l.% U.89 9.60 5.20 12.01 47, 15 2.30 49.45 6.77- 56.22 .50 3.41 60.13 Note.— When the Wilson Dam is complete, the cheaper water power will be available. If we assume this to cost $0.00075 per kilowatt-hour, the cost of sulphate will be reduced to $50.58 per ton. (J. K.STI.MATKl) COST ( EXCLUSIVE OF INTEREST CHARGES) OF PRODUCING PHOSPHORIC ACID I?Y THE ELF:CTRIC-FTTRNACE METHOD, ASSUMING POWEU AT $25 PER HORSE- POWER YEAR. Item. Quantity (tons) * "mine run." Phosphate rtx-k Phosphate matrix Sand Coke Operating expenses: labor, $4.45; power, Electrodes, $44.01 $2.13; Total cost per ton Total cost per pound. Cost of material per ton . Tennes- see. 3.73 1..50 .75 $1.60 .50 4.50 Cost per ton of acid (Pj0.s) raw rock. Quantitj' (tons) "washed." 3.32 $5.40 .75 3.37 50.59 1.50 .75 Cast of material per ton, Tennes- sec* $7.00 Cost per ton of acid (PjO.O raw rock . .50 4.50 $22.24 .75 3.37 50.59 60.11 .03-J- 76.95 .04- NoTE.— When we assume power to cost $0.00075 per kilowatt hour ($0.0005625 per horsepower hour) and use this cheaper hydroelectric power, the power item will stand at $4.92 per horsepower year instead of at $25 as is used in the above table, which is approximately the commercial rale for power. This will reduce the operating expense for power as estimated above from $44.01 to $S.hosphate, which will give us for the " mine run " $9.60 and for the " washed " $12.80. With power from the hydroelectric installation, these prices further reduce to $5.65 and $6.65 re- spectively per ton of acid phosphate. The figures in the above table and notes constitute what will doubtless be a very spectacular development relative to fertilizer prices. H. ESTIMATED SUPPLY AND CONSUMPTION OF NITROGEN FOB 1924 AND 1930, IN TONS OF PURE NITROGEN. Estimated peace-time consumption in- Agriculture Industries Military explosives 1924 172,000 120,000 2.500 1930 285,000 150,000 3,000 Total consumptiou Ei-timatcd doTTiCstic supply from— By-product coke ovens Privately owned fixed-nitrogen plants Total domestic supply Deficiency in domestic supplv if Government plants do not operate Estimated supply from Government fixed-nitrogen plants Deficiency in domestic supply if Government plants operate Estimated imports necessary: Canadian lime-nitrogen - - Chilean or European nitrate, if Govenunent plants not operated Chilean or European nitrate, if Government plants operated Proportion of total consumption furnished by domestic supply: If Government plants not operated per cent. If Government plants operated do- • - 122,500 172,000 45,000 127,000 15,000 157,000 112,000 41.6 56.9 184,500 353,500 55,000 198,500 15,000 238,000 183,500 42. 2 54. 7 I. NITROGEN IN RED CLOVER AND COWPEAS. Condition of crop. 2 Nitrogen in pounds per acre. Fixed in soil per afcre. 6 Crop. 1 Whole plant. • 3 From air. 4 Roots and stubble. 5 References. 7 Red clover Mature ...do 103.00 103.40 146.00 69.70 112.90 68.60 68.90 97.30 46.40 75.20 33.20 40.30 78.40 25.30 16.70 *1.20 t5.80 t29.70 t2.00 ♦21.00 Delaware, A. E. S. Do New York, A. E. S. M ammoth clover Cowpea ...do ...do ...do Do. Mississippi, U. S D. A. Indiana, A. E. S. ' Total 535.00 356.40 193.90 tl5.30 • The sum of 4 and 5 when compared to 3 gives the amount of nitrogen fixed in the soil or taken from the soil in growing the plant. ., , ^^^ ^ ^ . . ^ t r In 6 the sign (*) means the pounds of nitrogen fixed in the soil and (t) means what has been taken from the soil. ,. . , It seems that not all clover and cowpea fields enrich the soil by cheimcal action. No figures are available in this connection relative to alfalfa. „.^ . , The average vield per acre of alfalfa hay in the United States for 1920 was 2.74 tons. This hay analyzes 2.3 per cent of nitrogen, which gives us 0.063 tons of nitrogen, or 126 pounds in each ton of alfalfa hay. How much of this is drawn from the air and how much from the soil has not yet been definitely determined. The average yield per acre of red clover hay in the United States for 1920 was 1.46 tons. This hay ana- lyzes 2 per cent of nitrogen, which gives us 0.029 tons of nitrogen, or 58 pounds, in each ton of red clover hay. It would seem, from the above table that many red clover fields are drawing upon the nitrogen e serves of the soil instead of adding thereto. J. WATER POWER AT MUSCLE SHOALS. [Based on flowage records of 19 years.] Horsepower in stream. 100,000 240,000 360,000 480,000 600,000 Months avail- able. 12 9 7 5i 4 Horsepower used and wasetd with — 4 power units. Used. Wasted. '100,000 120,000 120,000 120,000 120,000 120,000 240,000 360,000 480,000 10 power units. 18 power units. Used. 100,000 240,000 336,000 336,000 336,000 Wasted. Used. Wasted. 24,000 144,000 264,000 100,000 240,000 360,000 480,000 600,000 ? Note.— The first four units are to be of 30,000 horsepower, but all others are to be rated at 36,000 horse- power. 556 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 557 K. ROYALTIES. Product. Royalty t I Total Air I American per ton. Reduction ! Cyanamid Co. Co. Commercial lime-nitrogen. Ammonium nitrate Ammonium sulphate $0,522 1.16 .594 $5. 753 10. 305 6. 176 $6. 275 11.555 6.770 Note —Although most of the patent rights on methods and devices for fixing atmospheric nitroeen ari^ Sri"!l?-^/^^ American ( yanamid Co., some are owned by the American Reduction cT This Ses if necessary to pay two royalties. These royalties are now subject, however, to arbitration . L. MAIXTENANCE OR STAND-BY EXPENSE OF NITRATE PLANTS NOS. 1 AND 2. July 1, 1919, to .Tuly 1, 1920, to I Julv 1. 1921, to June 30, 1920. June 30, 1921. j June 30, 1922.» 1171,605. .58 ' 472,642.63 $H0, .500. 00 179. 476. 20 Nitrate plant No. 1 Nitrate plant No. 2 ...........!.. ..^ y^^ ^j It has been stated by War Department officers that the daily'operation of these plants IS equu-alent to a storage of 150,000 tons of nitrate of soda for explosives. At m per ton this represents an investment on the part of the Government of $7,;500,000, which, at o per cent interest annually, amounts to Storage on ir)0,000 tons annually (estimated by War Department officials at %m,m) $60,000.00 132,000.00 375,000.00 100,000.00 Totalfor 19221. 667,000.00 1 Estimated. M. world's production of mixed inorganic nitrogen. [In metric tons of nitrogen.] Product. Chilean nitrate By-product from coke ovens Atmospheric nitrogen (arc, Haber, cyanamid) — — ^ 1 — 1913 1917 390,000 343,000 85,000 392,000 .364,000 340,000 I 1920 500,000 410,000 665,000 Per cent of increase from 1913-1917. 28 19 783 N. comp-\rative prices. (In tons.) Products. Muscle Shoals. Steam I Water Wholesale 1920 prices. Domes- power, power, j Imports. ^"fP' Lime nitrogen (21 per cent) 139 15 Ammonium nitrate (35 per cent) " 99*66 Ammonium sulphate (21 per cent) I 60 13 Acid phosphate (16 per cent) ] " ] From mine run From washed \]\\\\.]\\] Nitrate of soda (Chilean nitrate, 17 per cent) 9.60 12.80 $30.85 80.05 50.58 $65.36 132.67 5.65 6.60 68.50 $110.00 19.50 1 Not quoted as fertilizer. Re^pSrterT^" wholesale prices here quoted are taken from the 1920 Yearbook of the Oil, Paint and Drug V'l. The Ueport of the Nitrogen Pkoducts Coaimittee of the Ministry ok Munitions of War of the British Government. The j^neatest contributioii to the literature relating to the fixation of atnios- I)herie nitrogen that is now available is the report of the committee of eminent Englishmen, 24 in number, who were appointed in June, 1916, to investigate fully all the scientific and industrial problems incident to the creation of a nitrogen-fixing industry in the Empire. This report contains 36 large pages, and is the result, of months of painstaking work on the part of the committee. The final report of this committee was made in May, 1919. It will be of decided value in our study of the Muscle Shoals project to know what conclusions were reached by the nitrogen products committee. Conse- quently, space in this report is being taken for several quotations from the English document. "(A) A hirge addition to the home output of ammonium sulphate, coupled with the increasing competition of synthetic nitrogen products, would undoubt- edly cause a reduction in its market price, and this would be of advantage to agriculture and to the export trade. "(B) It appears probable that undertakings of this character would have to. receive the support of the Government or be carried out entirely as national projects. "(C) The main characteristics of the cyanamid process are: "(«) The relatively small power requirements per unit fixed as contrasted to the arc process. "(?)) The direct production of a solid nitrogenous fertilizer (lime nitrogen), thus avoiding the costs incurred in all the other established synthetic processes for converting liquid products into a solid, marketable form. "(c) The production of a cheaper marketable form of combined nitrogen than is obtainable by any other fixation process. "(f/) Its great adaptability as regards the products obtainable. "(D) There seems no reason why manufacture both of carbide and also ol calcium cyanamid (lime nitrogen), if laid out on a large scale, should not be successful in this country. There are blocks of undeveloped water power in Scotland of sufficient size for the operation of a large factory. "(E) The market price of a metric ton of combined nitrogen in the rniteectiou of our country. But it is a national problem which challenges the interest of all citizens who have regard for public safety in time of war or who desire that soil conservation and food proiiuction be safeguarded in order that agri- culture and industry may prosper. "(0 That there is slight danger of an overproduction of nitrogen so long as the price factor is held constant and equable." VII. Power. Enough information has been offered in other portions of this report to show that any plant designed for the fixation of atmospheric nitrogen, which is to be placed on the competitive markets, must have readily and steadily available the cheapest form of power. In war times, when low cost of operation was not of prime importance, provided a higher cost expedited our activities, it was possible to contemplate the operation of such plants as nitrate plant No. 2 with lK)wer which did not qualify as being the least costly. Accordingly a giant steam plant was installed to run the plant during the interim between the completion of No. 2 and of the Wilson Dam, it being known that the power from the dam could not be available for perhaps three years after the plant began production. Nitrogen production by steam power is, of course^ more costly than by water power, which is true of any other industry that can be hydroelectrified. In peace times the successful and economical operation of nitrate plant No. 2 for the production of fertilizers depends almost wholly upon the completion of the hydroelectric plant in connection with the Wilson Dam. The whole propo- sition at Muscle Shoals revolves around the item of cheap power. Without this cheap power it is hardly possible to hope that the production of nitrogen will be secured at a figure low enough to materially affect the market price of fertilizers. All estimates, data, and reports from every country point sig- nificantly to hydroelectric power as being the determining factor in the manu- facturing of atmospheric nitrogen. All other competitive factors, such as tlie supply of raw materials, their location with regard to the plant, the available market for the product, the chemical and mechanical difficulties, all take places of secondary importance when compared with the one indispensable factor, cheap power. That there will be an abundance of water power at Muscle Shcals upon the completion of the Wilson Dam is evident when the salient facts connected there- with are considered. The dam, being 100 feet high, will maintain a normal head of 95 feet. The dam and power house are being constructed for the ultimate installation of 18 generating units, each consisting of a water turbine and generator capable of producing 30,000 or 36,000 horsepower. Seventeen of these units are expected to be ready for operation at all times, leaving one out for repairs. These 17 operating units will, therefore, have a total normal output of about 600,000 horsepower. The installation plans call for the immediate placing of only four of these units, which will be ample to operate nitrate plant No. 2, as they will produce 120,000 horsepower. It is worthy of note that the installation of only four units will allow much water to flow over the top of the dam unused during most of the year, whereas if 10 units were installed they caiu on any other basis other than one that contemplpates the eventual use ot all power classified above. Undoubtedly, either l»y direct location of fac- t'Mies or by transmission, all the power that the dam is capable of producing will be utilized. Therefore, taking the total estimated cost of the dam with its power equipment but without the navigation features (which will be found in detail in another division of this report) and dividing by the maximum power (levelojied we have the f(>llowing; Forty-five million five hundred thousand dol- lars divided by 600,000 equals $75, cost of installing each horsepower if all iwwer were used constantly. Inasmuch, however, as the primary and secondary power do not stand at that high figure all the time, but maintain a mean average of about 300,000 horsepower, the following equation more nearly represents a fair estimate of installation costs per horsepower. Forty-five million five hundred thousand dol- lars divided by 300,000 equals $150, cost of installing each horsepower, based on average power developed. It will be seen that the initial capital cost of 1 liorsepo>ver at Musch* Shoals compares favorably with the same power when bought in the form of a high-grade gasoline engine for use about the barn or in the shop. It is only fair to state, however, that other estimates as to the cost of tlie dam. exclusive of navigation features, and which are from dependable sources, reduce the figures above used by fully $]5,000,(K)0. Tlie estimate here used was made in 1919 at peak prices and is being adhered to as the highest possible cost of the dam. Moreover, the cost of operaticm, per horsepower, after the installation is paid for is far less than that of any other kind of plant, not excei>ting the most eco- nomical steam plant. In this connection the great saving in coal that would be brought about shouM not be overlooked. ft COMMENT BY THE COMillTTEE. liecogiiizing that the power development at Muscle Shoals as represented by tile Wilson Dam ecpials in importance, though not in expense, the building of nitrate plant No. 2; and fully realizing that No. 2 will be greatly handicapped »nril the dam is completed; and considering that the dam will meet its first 562 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 563 justification for the expense of building it in the operation of No. 2 ; your com- inittee, therefore, desires most candidly to state its thoughts on the correlation that exists between the two undertakings: "(a) First of all, it is desirable that the Muscle Shoals project pay a ren- sonable return on a reasonable capitalization. "(?>) Next in importance, no doubt, is the necessity for operating No. 2 by power from the Wilson Dam. "(c) Provision should be made for installing, at least the major part, of the power units so that excess power would be available. "(f/) If the complete installation of power units is placed then it might be well to suggest that the excess power be disposed of commercially but that in any event the necessities of the nitrate plants for power be met fully before «u('h excess power is sold. "(€) There will be enough excess power, however, to return a handsome revenue to the Government. "(/) It must not be forgotten that the combined expenditures at Muscle Shoals in the Wilson Dam and nitrate plant No. 2 represent a citizens' invest- ment made for us by our Government. This investment will be of value to all citizens, and consequently, all citizens should desire that the entire project be put on a business basis. The effort should be to make this gigantic undertaking of our Government ' pay out.' It can only be done by a business- like administration of its affairs as will be explained in a later division of this report." YIII. POSSTBILITIES. In our consideration of nitrate plant No. 2 thus far in this report attention has been focused almost exclusively upon its capacity to produce nitrogenous fertilizers, as lime-nitrogen, ammonium nitrate, and ammonium sulphate. In fact the plant was built as a nitrogen-fixation establishment so that nitric acid and nitrates could be available for the manufacture of military explosives and for use in fertilizers. That in the erection of this great plant Congress ha <>oniponent gases, nitrogen and oxygen. The nitrogen is used in mailing lime- nitrogen, but the oxygen is released and returns to the atmosphere. Inasnnich as this gas is used extensively in factories and shops for welding and simihir uses, eventually we may expect that it will be retained and disposed of com- mercially. COMMENT BY THE COMMITTEE. Although the making of phosphate and potash fertilizers at nitrate plant No. 2 are herein classified as possibilities, it must be conceded by all that not much remains to be done in an experimental way as most, if not all, the chemical problems have been solved. Their classification as pos.sibilities rather th.in actualities is accounted for by the fact that No. 2 was built to make lime- nitrogen and other forms of nitrogenous products, and certain additions to tlie equipment and perhaps some new construction would be necessary if other feiti- lizers were made. Whether or not such expenditures will be approved remains in doubt. Farmers should realize, though, that the phint is abundantly justified if it produces nothing more than nitrogenous products. That there may be a clearer understanding of the importance of the entire Muscle Shoals project, and especially that the significance of its phosphate de- velopment may be fully realized, your committee submits herewith some quora- tions from an article written in July, 1919. by Dr. Caro, who is recognized in Germany as the leading authority on nitrogen fixation. Di* Caro was minister of war munitions for Germany at one time. " Far more dangerous (to the German nitrogen industry) than the competition of Chilean nitrate appears to be the possibility of competition with artifically fixed nitrogenous fertilizers produced in foreign countries. " The largest of these foreign lime-nitrogen i)lants is located in the I'nited States in Alabama. Its situation is most excellent. It is connected witli the ocean by means of the Tennessee River, which has been made navigable. It is situated at a source of almost constant water power amounting to 400,000 horse- power, and is right in the midst of a locality where all the raw materials of the lime-nitrogen (cyanamid) industry are present in the highest purity and at the Tery lowest prices. " Nearby are the inexhaustible deposits of high i^er cent phosphate rock. The possibility, therefore, exists of producing cheaply ammonium phosphate contain- ing roughly 45 per cent of water soluble phosphoric acid and 20 per cent nitrogen. " To be sure the Unitetl States is in a position to use right there the nitrogen thus protluced, amounting to about 130,000 tons per year — nevertheless it will be possible to ship it long distances to places where its phosphoric acid content will be of importance, and hence it will be sure to offer very strong competition to the German fixed nitrogen industry." IX. Conservation. Nitrate plant No. 1. nitrate plant No. 2, and the Wilson Dam together consti- tute what is probably the greatest single conservation activity of our Govern- ment. This entire project should be viewed in the same light as is an irrigation project, a forest reclamation activity, or a levee and drainage problem. Its great purpose, in peace times, is to assist in maintaining our soil fertility, and. consequently, in the adequate production of food for our increasing millions. As all other conservation projects are of general interest to all the citizens, so is this undertaking at Muscle Shoals. Farmers and military men need not assume to themselves all the benefits accruing from an operation of this project. In times of war it will be predominately military in type; in times of peace it will be almost wholly agricultural in character; but at all times it will be <>t service to all our people, to protect and to feed. When the rapid depletion of our soil resources, especially the nitrogen content, is considered we can not view with complacency the ultimate condition toward which we are advancing agriculturally. An average crop of corn takes from tlic soil about 3,000,000,0(X> pounds of nitrogen. A cotton crop of 15,000,000 bales depletes the soil to the extent of one-half billion pounds of nitrogen. Otln'r crops take lesser amounts but the grand total will not fall below 6,000.000,000 pounds. Of course, the alchemy of nature is working all the time in slowly replacing this lost nitrogen but the process is wholly inadequate to keep pace with the requirements of our growing crops. Man is doing a great deal to replace what his crops take from the soil in the form of nitrogen by growing legumes, by spreading manures, and by using fertilizers. But his efforts do not more than half restore the nitrogen that the soil loses yearly. More nitrogenous fertilizers at a cheaper price would assist wonderfully in checking this soil depletion. COMMENT BY THE COMMITTEE. In 1920 the average yield of red clover hay was, for the whole nation, 1 46 tons per acre. This hay carried enough nitrogen to yield 0.029 tons per acre or 58 pounds. If enough of this clover had been turned under by the plow so that all the nitrogen would have been given to the soil, it would have taken approxiinatelv 4.000,000 acres to equal the annual output of nitrate plant No. 2. Since, however, the sacrifice of all this clover hay, at the price secured on an average for such a product, would represent a soil fertility in- vestment of ai'proximately $60,(X)0,000, it can be seen how significant our soil conservation problems are becoming. X. RECOMMENDATIONS. In consideration of all the foregoing information: after personally in- specting nitrate plant No. 1, ntrate plant No. 2, the Wilson Dam, the flood area above the dam, and the construction equipment ; after advising with engineers and chemists on the sites of the project; and after submitting the items of cost and estimates herein contained to other engineers and chemists of national reputation; your committee unanimously makes two specific recom- mendations, as follows : ..... ^ (a) That the Wilson Dam be completed by the Government without undue tlelay. , ^ ... i (h) That since the Government now has the r gh!^s, under contract, to produce nitrates by air-fixation processes, the ntrate plants. No. 1 and No. 2, shall be placed under the direction of a governmentally owned corporation, wh.ch may at its d'scretion, operate the plants or maintain them ready for operation, but with strict regulations relative to prices to be secured for commodiies in which products of these plants are used. COMMENT BY THE COMMITTEE. In connection wilh the recommendations above set out your committee offer this additional information: Relative to recommendation («) : ^ . j> - {a) That the work on the Wilson Dam is now only sufficient for main- tenance. . . . 1 , (h) That such maintenance, or stand-by expense, is too great to be long continued. ^ .., ^ i (c) That work can not be resumed on the Wilson Dam unt 1 Congress makes the necessarv appropriation, which wlil be approximately .$10,000,000. ((/) That the completion of the Wilson Dam is indispensable to a successful and economical operation of the nitrate plants. .. ^ „ (e) That since the Federal Government has invested millions of dollars at Muscle Shoals, it is nothing but good business to complete the investment by finishing the Wilson Dam so that the entire undertaking may begin to return service to the people and interest to the Treasury. if) That if work is too long suspended on the Wilson Dam, much of the temporary preparations for construction will not then be available but will have to be again performed. Relative to recommendation (5) : ,...„,, {a) That nitrate plants No. 1 and No. 2 can be operated by the Inderal Gove,i-nment as the lessee of patent rights covering the processes usecesses, formulas, or otherwise, but these different practices have been built up and enter into wliat we call in our production high cost factors. I can illustrate one of those factors with the Pittsburgh plus case. Pitts- burgh plus provides — it is purely an agreement with no law for it, but an agree- ment among interested parties— that they sell all steel on the Pittsburgh base price plus freight. If steel is produced at Muscle Shoals, and all the materials are there to-day, just as they are at Birmingham, a little further down the river it would vacate this Pittsburgh plus case. This Pittsburgh plus case is beinp contested before the Federal Trade Commission as well as before the Inter- •^tate Commerce Commission, and $7.60 is paid in phantom freights on ever.v ion of steel that is resold on the Pittsburgli base used at Chicago, there beinj; tL.;t i.iu.h of a handicap between Pittsburgh and Chicago. The Chaiumain. What do you mean by "phantom freights"? ^Ir. SiLVEii. I mean that is freights that are paid under this Pittsburgh plus agreement on goods never shipped. The Chairman. To whom is that paid? Mr. Silver. That is paid to the manufacturers, either the producer or the manufacturer of steel. Steel is sold through a trade agreement on what i?^ known as the Pittsburgh plus base. That means that if I buy steel at Gary, lud., and 1 nsi^ this figuratively, because any other place would apply as well, r 568 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 569 although i have paid no freight except from Gary, which is just u suburb of Cliicaj,'0, into Chicago, if I buy that steel, I pay the Pittsburgh price plus the freight from Pittsl)urgh to Chicago. That is a phantom freight added to the cost of tlie steel when produced, and after it has been produceil and sold to a manufacturer he adds on his 20 per cent to this phantom freight as a manu- facturing cost which makes it $8.40, and that is all phantom but is verv real to the person who pays it. The Chairmax. In otlier words, he maltes a profit of 20 per cent on the freight that he is compelled to pay? Ml-. Silver. Tliat he does not pay but is inchided in the agreement. Tlie Chaikaiax. Do tliey not charge the conmiodity with that freiglit at all? :Mr. Silver. If the steel were produced in Pittsburgh and shipped to Chi- cago, it is a legitimate charge, because they pay the freight. If it is pro- duced in Chicago, I might say, l)ecause Gary is a suburb of Chicago, if it is produced in Chicago they pay that freight under this selling game just the same. It is added to the cost. So that $7.60 a ton is added to the selliii^i I)rice of the steel and then 20 per cent is added on that by the manufacturers when we go to buy a binder or any other part of our equipment made from steel. That is one of the ways of building what we call high cost factors. If steel is produced at Muscle Shoals it vacates that as one of the 4ngh-cost factors and is one of the things that makes a strong ;ippeal in the development of a natural resource that Henry Ford be given the opportunity to develop that I)!ant. because we believe he would not enter into any such trade agreements. ^\'e feel we would have another base, ami that would vacate the Pittsburgh plus base generally. The Chairman. On this phantom freight proiK)sition, the consumer or the buyer of the steel is compelled to pay for something that nobody has got. Mr. Silver. That nobody has rendered any service for. The Chairman. And ultimately Mr. Silver (interposing). And it is a great sum. approximating some $70,- 000,000 a year. Why, in the Federal Reserve Hank building in Chicago alone there was $60,000 of phantom freight and plus costs. Mr. Crago. It is an attempt to make up to the manufacturer who is not ad- vantageously located like the man in the Pittsburgh district the difference in cost. That is what it is done for, is it not? Mr. Silver. It started out in that way, but it has got to be just one system of building up what we call high-cost factors. Mr. Parker. I have not seen that agreement. Have you got it here? Mr. Silver. I beg your pardon. Mr. Parker. Have you got that Pittsburg base agreement here? O'he point of it. as I understand it, is all steel is paid for as if it were produced in Chicago? Mr. Silver. No; in Pittsburgh. Mr. Parker. I mean in Pittsburgh. Mr. Silver. That is right. Mr. Crago. And, of course, the great quantity is produced at Pittsburgh and pays this legitimate freight, and this just helps the others to get the same advantages, does it not? Mr. Silver. If the cost prices were the same at all the places and it was sohi where it was produced, but Gary enjoys the advantage of making cheaper steel than Pittsburgh does and so does Birmingham, and therefore in addition to the fact they produce cheaper steel they not only sell on Pittsburgh base but sell plus the freight. Mr. Kearns. What makes you think that Mr. Ford would not adopt the same tadics that other manufacturers do? What is in his record to make you think that? Mr. Silver. His life business; I am thinking now of the automobile business. Mr. Kearns. Does he not sell the most expensive machine to operate that was ever made? Mr. Silver. I shall not discuss with you that point, but with his viewpoint in industry he has produced a car that has enabled the average farmer to own a car when but for Mr. Ford's viewpoint in industry many farmers would never have been able to have ridden in an automobile, and they would still be using the horse and wagon. Mr. Kearns. Yes; he produces a cheap car, but what makes you believe (hat if he should get this contract or this lease at Muscle Shoals he would produce steel or any other manufactured commodity and would not take advantage of prices the same as any other business man? Mr. Silver. His viewpoint in producing at a low cost and selling in volume. He would fight just as he fought in the Selden patent case. The Selden patent was a method of building high-cost factors. He contested it successfully and sold his cars cheaper. The Chairman. The chairman will not ask any more questions, and we will all pass around the table as usual. I wanted to get a little enlightenment about this matter when you spoke of it, because I knew nothing of the situation, but I will not interrupt further. Just make your own statement in your own way. ]Mr. McKenzie. Mr. Chairman, as one member of the committee, I think it is entirely within the province of the chairman of the committee as the witness goes along to interject such questions as he sees fit and proper, and I think all of the members of the committee will join me in extending to our chairman that courtesy. Mr. QuiN. I think that myself. The chairman can frequently help the witness to de^elop the case. Mr. Fields. I have never understood the rule that was adopted for the guid- ance of the committee in conducting these hearings to apply to the chaiinian in straightening out some statement that is made, and I thiidv that the chairman can be of a great deal of assistance to the committee in that way. The Chairman. That is what I thought, too. INIr. Fields. I am perfectly willing as a member of the conunittee to ol)serve the ride as long as it is observed by other members, and I think the rule should not apply to the chairman. The Chairman. Of course, what I was trying to get from the witness was an explanation of this term, which was new to us and which we have not heard of before to-day. ]\Ir. Fields. It was very proper, and the chairman rendered a service to the committee, as he has upon a number of other occasions ; and I will add, in this connection, Mr. Chairman, that my complaint the other morning, when I stated I had not been the first to violate the rule, was not directed at the chairman but at other members of the committee. The Chairman. As long as we have agreed among ourselves to ask questions in rotation, we had better observe the rule and we will get along all right. Mr. Silver. However, I would consider it a favor. Mr. Chairman, if at any time I am not making myself understood that the chairman would interrogate me so that I may be clearly understood. Mr. Wright. I think, Mr. Chairman, it is the unanimous desire of the com- mittee that the chairman ask questions as he chooses ; and, to set that matter at rest, I make a motion to that effect. (The motion, being duly seconded, prevailed unanimously.) Mr. Kearns. I am in hearty sympathy with that motion, and I hoi>e my questions have not provoked all this discussion. The Chairman. Oh, no. Will you kindly proceed, Mr. Silver? Mr. Silver. Along with that illustratin tor a Muscle Shoals bond issue of $40,000,000 would remove the necessity for an appropriation. I am confident that under present conditions such a bond issu*- could be floated at 4 per cent. The interest payments of iMr. Ford amounting to $1,680,000 annually, would pay 4 per cent interest on $42,()00.(^H)0 of bonds. He provides an amortization fund through which the bonds would be retinal at the end of the 100-year period. It would be my thought to issue the bonds for 50 years, at which time the sinking fund would have accumulated to the point where a reissue might be fioat;«l at a lower rate of interest. By this means the Government would secure the development of this power with no 570 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 571 I additional appropriation and have amortized nearly one-half of the present war-time expenditure of $17,000,000 on the dam, since the amortization fund will, in addition to retiring the bond issue of $40,000,000, retire $8,000,000 ad- ditional. Should this suggestion meet with your approval we shall be glad to cooper- ate with you in securing the adoption of this plan of financing the develop- ment. Very truly, yours, American Farm Bureau Federation, Gray Silver, Washington Representative. If the waterways of this country are developed on a basis that permits you to amortize out the cost of the investment, you have electric current on a very much less base than any now produced. In other words, if you, and I am think- ing of your committee and Congress, authorize, in accepting Mr. Ford's tender, a bond issue for the needed amount, as much as $40,000,000, and these pay ments of Mr. Ford are allowed to go as proposed to amortize out the cost of the dam, that current would, on one of these days, be on a basis of mainte- nance and depreciation, and in that way you would have less manufacturing cost. I gave you an illustration of steel, and the same principle will apply to man- ufacturing cotton, to manufacturing farm equipment and machinery, and in all the economic phases of our life. I am thinking of our farm life, but it applies just the same to other phases of our national life; and in addition to that, it would make a cheap current that could be used on the farm. The farmers of this country, where they carry their water from the foot of the hill, as I have done so many times, where they have to bend over the washtub and wash their clothing, where they have to drive their cattle down the lane to water, opening gates, etc., can all be done by electric power, and many more things other than I have enumerated, when it is produced on a basis that is cheap enough so that the production of foodstuffs and raw materials for clothing will pay the bill. Any time that the economics of the situation are right, the farm homes will be much more comfortable homes. In addition to the things I have mentioned, they will have labor-saving devices and comfort-making equipment, Jind that will stop, in a measure, this movement from the farm to the town, for the country people will have the opportunity to have in their homes the same kind of labor-saving devices and comfort-making equipment that are found in the city homes, and they should be allowed to have them. Here is a natural resource, and here is a method of developing it that will give it on a basis they can use it, and we most earnestly appeal to Congress that they do the thing that will enable us to avail ourselves of the results of tills natural resource with a proper method of development. I am now speaking particularly of Muscle Shoals, and my mind drifts to people who may make other tenders or who are objecting to it. Why pick on Mr. Ford at Muscle Shoals? There are many, many other water-power sites, and if the Alabama Power Co., or somebody else, wants to develop water power, why not just move over here on some other river, or at some other point in that river, and develop it? Why protest against the development of Muscle Shoals, if you are unwilling to develop water power? It is just arguing against the law of economics, and you are not going to stop water-power development, and if you want to develop water power, why bother with this situation? Here is a man who is willing to develop this water power, and is willing to go on and do the needed thing, so that we insist and urge that you give him the oppor- tunity, and if somebody else wants another opportunity, why, give him that opportunity also. Now, in reference to the less-cost factors, I will speak on another phase, namely, railroad freight, the thing that has to do very much with the farmer's life. There is enough of undeveloped water power and more to operate the railways of the Nation. We are suffering under a burden of excessively high freights, and if those railways could be electrified, we would have many econo- mies that would make the cheapest freights we have ever had, if the power is developed on the plan I mentioned, amortize out the cost and put the current down on the basic cost of maintenance and depreciation. This would not change the cars we have to-day. It would necessitate the changing of the steam locomotives for an electric motor and the wiring and machinery, etc., to run it, or a third rail or whatever they saw fit to use, but it is not such a staggering thought from the viewpoint of the investment, for we would have saved a great amount of money in equipment thnt would other- wise be necessary to be expended. For instance, the average movement of freight cars is something like 7 miles a day, where they are moved by steam. Where they are moved by electric power, it is something like 14 miles a day. The same equipment speeding up twice as fast, barring the time it stops for loading and unloading, would move twice the freight. This means you do not have to go on building freight cars in the same proportion as you otherwise would, for you get a greater utility out of the cars that are now necessary. The money' that would go into new freight equipment would very properly go into the development of water powers. Then another thought, as illustrated out here in West Virginia, going from Bluefield up to Roanoke, where they have an unusually steep hill to pull, with the steam engines — trains were always broken down on this hill. The cars would pull apart and the engines would puff and blow and would pull the trains apart and the railroad had to lay sidings around this hill so that when these freight trains were broken down the passenger trains could operate. Seven years ago that line was electrified, and in the seven years it is reported that not a single drawbar head has been pulled. In other words, the trains hauled with the new method of power have gone up with a steady pull and have pulled the same equipment exactly that used to break down and have pulled it up over this hill and gone on their way without delay, and that has become so uniform and general that they have taken out these side switches that they formerly had to have to let the passenger trains around when they were pulled by steam engine. This means also that the equipment wears longer and you do not have the repairs on it. It also, in a great measure, makes a happy situation as to the terminals. You do run with an electric motor down to every station or every division and have a lot of hostlers to take your steam horse out and put him in a stable and blanket him and rub him down. These electric motors run on and stand a more continuous pull and run. I am reading now from a report on the advantages of this sui>erpower system, and I will rend this, as it is just a short clause : "The reserves of line and machinery required for joint operation will be much less than the aggregate of the separate reserves required for individual operation. The great waste involved in the maintenance of separate reserves of motive power as prepared by the operating statistics of the roads, quoteken of be applied, you can take 80 per cent of that cost out: and if that is true, is it not due the American people that that be done? If we go on building high cost, as we have, wliether it be with a tariff or trade practce or formula or patents, and get so far above the other countries of the world, do we not simply isolate ourselves and bring down trouble* on ourselves? A great many nations have air fixation i)rocesses; in fact, ihe .United States is the only large Nation that does not have them. Now. while they have air fixation plants in other nations, they are going to produce cheaply. They are going to produce not only clieap fertilizer, but cheap manufactured goods, and if we are going to keep the export trade we liave in manufactured goods, as well as in farm products, we must have this cheap raw material, this cheap current, and in that financing is the biggest single item that can make it cost much less money. As one illustration of the economy effected by the use of electricity, which I did not mention awhile ago, based on the experience of the Chicago. Alil- waukee & St. Paul Railroad, if all the railroads were electrified we would save annually 122,500 000 tsidy. Mr. Ford, if we understand it right, and we believe we do, is not asking for a subsidy and the farmers are n(»t asking for a subsidy. We are asking for a fair opportunity to develop on a proper business basis. It has been said that 4 per cent bonds will not sell; that you can not finance this enterprise in that way. If you take a 4 per cent Government bond which is nontaxable and add to it the taxes in the local communities, for instance, in New York State where they had 2.7 mills in 1920 or 1.5 in 1921, or the city taxes in the different cities which run from 1 to 3 per cent, that is not such a bad investment ; and, in addition, I believe that if it was necessary 574 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 575 the farmers of this country would buy the necessary bonrts at 4 per cent to see that this development goes on. I know that farmers are in d'stress and T know that lots of them have not any money and ran not meet their intere-t charges and pav their debts- but there are some farmers who still have some monev. and I feel I am clearlv within the truth when I say that I believe there \vould be no hesitation oil the part of the farmers of the country to subscribing for these bonds There has been considerable contention, I do not know whether it has been before the committee, but in public meetings and in the press, abont INIr *ords guaranty of 8 per cent as a maximum profit that would be allowed" In spite of all the contention and all the statements that he is not goin- to do It and can not do it, nobody has offered to produce it on a like basis. Not a single soul has said, " I will do it for less or I will do it for that amount " beveral years ago Mr. Ford promised a tractor, a truck, and a touring car all for .$1,000. That made a strong appeal to the heart of the farmer, and the farmers did not forget the promise. He has now gotten the prices down so that $1,187 will buy the three, and if he goes to Muscle Shoals we believe he will be clearly within the $1,000. It was reported several days ago that the Alabama Power Co. would make a tender, which I understand has been submitted to Congress, and I have a copy of the release here with me. but the matter I want to call to vour attention is a telegram from Charles W. Rittenour, president of the Alabama Farm Burenii Federation, as follows: MoNTG03krERY. Ala., February 17, 1922. Gray Silver. Munney BuiUmg, Wnshinfjton, D. C: The Alabama Farm P»ureau Federation fee's that any legislation providing for turning Muscle Shoals project to the Alabama Power Co. as against arrange- ment with Henry Ford will be passed in opposition to the best interests of the farmer of Alabama, the South, and the Nation, as well as that of business in general, and that the offer of the Alabama Power Co. is the culmination of trick methods which are devoid of business ethics. Charles W. Rittenoue, President Aloha ma Farm Bureau Federation. Now. personally, I do not know the Alabama Power Co., but here is the Farm Bureau of Alabama, which they list among their 17.000 customers, and they speak in this language. The Chairman. I have a great many telegrams that were sent to the chairman of the commitee and we will put them in the record at the proi)er time. Mr. Silver. Thank you. There have be^n lots of estimates made by different parties and freely talked^ about, as well as published, in referenre to the costs. We believe tiiat Mr. Ford should be given the opportunity to demonstrate what he can do in the fertilizer end, as he has so well demonstrated to the world what he can do in the manufacturing business in other lines. He may not proceed by the turn of mind of some other folks that have other figures. We believe he is a genius and will be helpful in this situation. Mr. Chairman, my assistant will discuss technically with you the fertilizer end of this proposition. I think I have about completed my statement, and the whole story that I want to get across to you is embraced in just a few words and is this: We must have less cost factors in agriculture, and we believe that Muscle Shoals is a starting place. We want to start right there and carry the principles involved in the development there to all our water powers. I thank you. The Chairman. I take it the members of the committee wiM want to ask you some questions, and I would like to ask you a few questions mvself. Section 15 of Mr. Ford's second proposal refers to your organization and several others in this language: " In order that the farmers may be supplied with fertilizers at fair prices and without excessive profits, the company agrees that the maximum net profit which it shall make in the manufacture and sale of fertilizer products at nitrate plant No. 2 shall not exceed 8 per cent of the actual annual cost of production thereof. In order that this provision may be carried out the com- pany agrees to the creation of a board of not more than nine voting members, chosen as follows: The three leading representative farm organizations- national, in fact — namely: The American Farm Bureau Federation, the Na- tional Grange, the Farmers' Educational and Cooperative Union of America (or their successors) shall each designate not more than seven candidates for said board. The President shall nominate for membership on this board not more than seven of these candidates selected to give representation to each of the above-mentioned organizatons, said nominations to be made subject to confirmation by the Senate, and there shall be two voting members of said board selected by the company. A representative of the Bureau of Markets, Department of Agriculture (or its legal successor), to be appointed by the President, shall also be a member of the board, serving in an advisory capacity, without the right to vote. The said board shall determine what has been the cost of manufacture and sale of fertilizer products and the price which has been charged therefor, and, if necessary for the purpose of limiting the annual profit to 8 per cent as aforesaid, shall regulate the price at which said fertilizer may be sold by the company. For these purposes said board shall have access to the books and records of the company at any reasonable time. The said board shall also determine the equitable territorial distri- bution of fertilizer products produced at nitrate plant No. 2. If and when said board can not agree upon its findings and determinations then the points of disagreement shall be referred to the Federal Trade Commission (or its legal successor) for arbitration and settlement, and the decision of said com- mission in such cases shall be final and binding upon the board." Your organization is one of the three mentioned in this section. Mr. Silver. Yes. The Chairman. Have you any method by which you can perpetuate your- selves; in other words, I take it, you are organized at the present time for a limited period. You may, through a condition of affairs over which you have no control, go out of existence altogether, and so may the other two organiza- tions. Then, how would you keep alive this organization that Mr. Ford refers to in this section? Mr. Silver. You no doubt noticed right after the words " Cooperation Union of America " the words " or their successors." The Chairman. Yes; I did. Mr. Silver. Now, the Farm Bureau may disappear, the grange may disap- pear, or the farmers' union. That is all within the possibilities, but when agriculture disappears there will be no need for continuing the contract, and so long as agriculture continues there will no doubt be organizations among the farmers, and the words " or their successors " were put in there for that purpose. Although we have a considerable membership and are a right smart organization at this time, there would be our successors in whatever organi- zations may spring up. The Chairman. But this contract refers particularly to these particular organizations. Mr. Silver. Or their successors, and the successors w^ould be the organlza- tion« that would come along to take our place. The Chairman. Suppose the men in agriculture do not form any organiza- tions to take the place of those mentioned in this proposal, it is very important, I take it, that in a 100-year lease there should be a distinct understanding who the members of the board referred to may be for that whole period of 100 years. Have you given that any thought? Mr. Silver. Our thought on that point is that with our whole national life organized and with all other phases of society organized, agriculture can only exist by being properly organized, and if the time should come when there Is no organization, and we still had a country, we would have Congress, and we would come back and ask Congress to change to suit the conditions that then existed. We would work out some plan that would be a workable plan at that time. The Chairman. If you had to go to Congress, who would make that repre- sentation if your organization had gone out of existence? Mr. Silver. We would still have agriculture, if we had a country. We would still have the same people referred to as our successors. The Chairman. Among the farmers of the country, have you not had fights among yourselves? Mr. Silver. Sure. The Chairman. I think it is a good thing that you should study these things out. It may not be possible for you to agree, and suppose one faction comes to Congress and says, " We are the successors of such and such an organiza- tion," and then another group of farmers comes to Congress and says, "That 92900—22 ^37 576 MUSCLE SHOALS PROPOSITIONS. MUSCUa SHOALS PROPOSITIONS. is not so f there is not a word of truth in that. We are the successors of this organization," and then hoth sets of farmers wlio appear before Congress put up seven men to represent their organizations. How is the President going to Ivuow from whom to select or who to nominate as the ones lie is to send to Congress f(»r contirmation? Mr. Silver. Well, that is one of the things we have wished on the President, whoever he may be at that time. If more than the three mentioned here should recommend their seven, I am entirely willing to leave that to the determina- tion at that time of the President, whoever he may be, in his reconnnendation. The Chairman. You see the peculiar thing involved here, Mr. Silver, is that this is a contract. Mr. Silver. Yes; it is. The Chairman. You cannot imagine things. Mr. Silver. No: but the contract provides The Chairman (interposing). And you have got to go by the terms of the contract. I^Ir. Silver. But the contract provides for their successors. There may be some question as to w^ho they may be, but the contract provides that at the time the matter comes up there shall be some action taken as to who they are. The Chairman. The courts and Congress, even, will abide by the language in the contract. Mr. Silver. Yes. The Chairman. I can see that possibly great differences can grow up, and we can have bitter fights about this end. Now, is it not better to try to reach some agreement which will make it clear and specific as to just who is meant. Mr. Silver. What is your thought, Mr. Chairman? The Chairman. I have not given it any gi-eat amount of thought, because I have been busy with a lot of other things ; but I really think it will not take a long time for the men who are in the organizations to think out a procedure whereby it will be absolutely definite as to who the men will be that the President shall name for this board. Mr. Garrett. Mr. Chairman, would you mind asking him the question there as to whether it would be objectionable to this organization to provide that in the event of their disappearing from activity, that in that event the Secretary of Agriculture shall make the suggestion to the President referred to in this naragraDh. The Chairman. You have heard the suggestion of the gentleman from Texas. He suggests that if vour organization goes out of business and you have nu successor, that the Secretary of Agriculture might be empowered to name seven men from whom the President shall make his selection. Mr. Silver. Yes. The Chairman. Would that be satisfactory? Mr Silver I would be verv glnd to have any suggestions from the com- mittee but I would not want to acquiesce in any change without submitting it to our executive committee. We have discussed some clarifying expressions with the maker of the tender, and I still have a reservation here as to thai matter for future use, and I will be glad to submit that suggestion, anion? others to our executive committee, so that we may have a meeting of minds as to the best thing that can be done. We want the best possible thing we can get out of the situation. ^ . ^, . ..^ The Chairman. The only thing that has impelled me to mention this matter at this time is that we have had discussions on that very thing with .several witnesses, and as you represent a farm organization, I wanted to bring it to vour attention and see what recommendations you might make. I think your organization and the other organizations and the members of the committee cao finally work out a thing that will, be thoroughly satisfactory to everybody concerned n Mr Silver. Yes ; I thank you for the suggestion, and feel sure that we an want 'to cooperate; and that the language which makes it right the committee and the Farm Bureau would want to accept in good faith. Mr McKenzie. Mr. Silver, you are speaking to our committee as tlie repie^ sentative of all the organized farmers of the United States, as I understand you ■ Mr. Silver. I speak as the representative of the Amer can Farm Bureau Fed- eration. The other farm organizations are in accord with the thought but 1 am not officiallv speaking for them. This contract or clause was written after consiSon an^agreement with the farm organizations, but I am not the official spokesman of the other groups. 577 Mr. McKenzie. I assume, however, that the views expiessed by you have the ;ipproval of the other farm organizations? Mr. Silver. Yes. There is no difference of opinion, so far afi I know, be- tween us. Mr. McKknzie. About how many men are included in those organizations, Mr. Silver, just as a rough estimate? Mr. Silver. I can si)eak more definitely for the Farm Bureau Federation. At tlie last annual meeting, our reports showed around 1,000,000 paid-up members at that time. That is not the full roll that is carried on our books, which will pay in some time later. Owing to financial difficulties among the farmers, some of tliem are in arrears, but we feel there are around a million and a half per- fectly good members in our organization, but the actually paid-up membership in the latter part of November was just about 1,000,000. Mr. McKenzie. That is, in the one organization? Mr. Silver. Yes; in the one organization. The grnnge — and I am going by the testimony given by the Washington representative of the grange before a com- mittee in Congress some time since — showed a membership of about 700,000; and, I am not quite sure, but somewhere between a quarter and a half million members was the testimony of the Farmers' Union. Mr. McKenzie. If I understood you correctly, you have organizations in prac- tically all of the States of the Union except two? Mr. Silver. Yes. Mr. McKenzie. In your organization you include in your membership the retired farmers? Mr. SiivER. Yes. Mr. McKenzie. And anyone who has an interest in agriculture? Mr. Silver. Yes ; the determination in selecting our ofl[icei*s is that their prin- cipal source of income vshall be from and their principal activity shall be devoted to agriculture. Mr. McKenzie. If I understand your testimony, and I think I do, the conten- tion of the men whom you represent is that they are compelled to carry on their lifework and to pay a higher rate of cost for the production of their products than they can well do? Mr. Silver. Right. Mr. McKenzie. And sell their production at the prices fixesidy On the ot^^^ hand-and I am not going to enter into a discussion ^^JJ'^^-l^"".^^^^^^ levies a tariff, which is a class privilege, that may or may not be J"st\fled ^nd it takes from one group of people and gives to another b/ Governmejit authority^ Mr. GREENE. On that theory would you argue that two wrongs made one riffht*' Mr* SiTVER No sir: but I do contend that there are sometimes conditions tluit instifv certain things being done, and Congress in its wisdom tries to d tha takin- in o consfderation the fact which they realize that they some- Hmes tread oS people's toes. But they have used their best judgment to do a helpful thing for the people as a whole. . ^ ^4. «„ Mr GREENE There are other raw materials or essentials to industry in otlier lines which are quite as essential to the support and maintenance of so- cietv as fertilizer. I realize that agriculture is the mother of the arts, but 582 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 583 our presently organized social system depends on other things as much as on fertilizer. Mr. Silver. Not until they have gotten something to eat. Mr. Greene. But you are balancing it between the present highly organized social system and a return to the primitive way in which everybody would feed himself, as they used to do, and we do not expect to go back to that We do not want to. But we can not escape from the original conclusion that we have to eat to live, and having lived there are other things as essen' tial, or else we do not want to eat to live. We do not live to eat. There are other things considered as essential, perhaps clothing, but we do not set up some machinery by which we can assist private enterprise by having favorable terms to compete with its neighbors in the manufacture of clothing. Mr. Silver. Just turn your question around — when you say we do not just live to eat. But we do live to eat, if we do not do the things we are discussing in providing the things we are discussing for clothing and foodstuffs, we do not eat to live and do other things. Mr. Greene. You would not undertake to convince the committee that you have arrived at that stage where foodstuffs are in a perilous condition. Mr. Silver. I am not thinking of to-day ; I am thinking of the future. Mr. Greene. So am I, and I am wondering what kind of policy we will commit our children to. Mr. Silver. Whether we have an abundance of foodstuffs on the most eco- nomic basis, or raw materials for clothing on the most economic basis, is the question involved here. Mr. Greene. I dare say your mind and mine would not meet on that Mr. Silver. We might not. Mr. Greene. You said, concerning the question of financing this proposition. that the farmers would take bonds at 4 per cent. Mr. Silver. Yes. Mr. Greene. How do you reconcile that with the constant clamor that they can not pay their mortgages on their farms now? Mr. Silver. I will qualify that. In the farmer's meetings now the talk is like this: "I have not been able to pay interest on my mortgage; I have not been able to pay ; in many instances the girl who was in school has had to get out, because I did not have money to continue her in school ; the boy, who was ready to go to school, could not go, because I did not have the funds where- with to send him, and so on down the line. The house furnishings, which ran down during the war period, are still down, because then it was not thought very patriotic to buy those things, and now I have not the money to buy with." And so on. But there are still farmers with money, in spite of the fact that farm- ing, as an industry, is in a very unhappy plight; just so unhappy that it can not meet its payments. But, on the other hand, there are some farmers who still have money, and I believe in the 6,500,000 farmers there would be some, who, if necessary, could buy these bonds to see that Muscle Shoals was de- veloped, for they are looking forward to its development that would mean a program along the lines of developing our natural resources that would be a help to our farmers. Mr. Greene. You think they would come to the support of bond issues for this purpose much more readily than to the maintenance of bonds issued for Federal farm loans, directly for their purposes? Mr. Silver. There have been so few Federal farm-loan bonds issued that that is hardly a question which you can raise. I do not know who bought them; but the other day $75,000,000 of those Federal farm loan-bonds were sold almost In one day. Mr. Greene. When the Federal farm-loan proposition was originally pre- sented we were told when the law passed that the farmers would soon take care of themselves. Mr. Silver. They did ask for some working capital, and that you give an authorization for a higher interest rate when money was selling higher. Mr. Greene. I mean working capital. We were told originally that if we just started them off, that then they would take care of themselves. Mr. Silver. But the courts tied them up tight. They were tied up by the court procedure for quite a while, and then we got into a period of high-priced money, so that they had so many handicaps that were not anticipated. Mr. Greene. I am not trying to minimize the handicaps that the farmer has been living under, but I am asking whether you have confidence in the purposes of the farmers as a whole so that you believe that they will finance this proposition any more than any other we have put before them. Mr. Silver. I am thinking about the war issues of securities, and that is the only time the farmer had a chance to buy government issues, except the really small amount of farm loans. The farmers did buy war issues to the limit; they were good buyers. I live in an agricultural county, and of the 5,000 men in my home county, over 4,900 invested in Government bonds, or war savings stamps. They were not able to buy in the volume that some other communities were able to buy in. Mr. Greene. Of course, that was not a commercial or a business proposition, and you would not make the analogy that people coming to the support of the Government in time of war for patriotic purposes were of the same mind as they would be in the case of a commercial venture. Mr. Silver. I grant that, but I do say that in the case of the only chance they ever had to buy they did buy. Mr. Greene. They had a chance to put working capital into the Federal farm loans. Mr. Silver. The farmer has been asking for months for Federal farm loan bonds. But they have not been supplied, and they have not been in distribu- tion so the farmer could readily get them. Recently they have been selling at a premium. When the time comes that those bonds can reach the farmer readily he will buy if he has the money with which to buy. But whether he has the money depends upon the things we are discussing here. Mr. Greene. I come from a farming community that is very thrifty, and I have the utmost respect for my farmer neighbors. I am a descendant of the soil, as all of us in that part of the country are, but I think if I took you from this table to one side and appealed to your business instinct to get your expression as to whether farmers as a rule temperamentally flock to the support of commercial issues supposed to be to their advantage, I think you would want to be sure that the stenographer had a few cautionary limitations in your answer. Mr. Silver. In that question I scarcely think you are quoting me, and you are making a suggestion that I do not think I have read into the record, Mr. Greene. No, I do not mean that. I am talking about making an invest- ment that the farmer will back up. You and I can not quite get together on the subsidy side of it. There is only one more question I want to ask you. Of course, the matter of the electrification of railroads by the potential power in the country is naturally one of the great economic problems that confront us, and I do not suppose that you would contend that the mere development of Muscle Shoals would give us much light on that. The water power of the country is not so dispersed geographically that all of the railroads would get power from them even if the power were developed. That is rather a theory than a probability of actual realization, as yet. Mr. Silv-er. I specifically said, on the contrary, that I was not discussing Muscle Shoals from the point of view of operating service, but if developed rightly it will be helpful. Mr. Greene. It would be an experiment along that line. Mr. Silver. The experimentation is in a very large degree done. Hundreds of miles of railways are now being operated electrically and econoi^ically. I am thinking of the national life of our people when I say if we could develop waterways on the plan proposed here, amortizing the cost as we go along, and getting power down on a low basis instead of on a high basis it would be of tremendous advantage. As it is now our waterways and other things are built up by issuing bonds and stock, and more bonds and more stock as the earnings increase, and the cost of material and power is built up to a high level. But if wo reverse the proposition as it can be applied to Mr. Ford's tender, and instead of building and financing at a tremendously high rate of interest if we could get it on a low basis we will be helping every kind of activity that can use raw material with the power. Mr. Greene. Would you have the Government do that? Mr. Silver. I would not hesitate to have the Government authorize a bond issue just for any water-power development that was of sufficient size to enter into our life's activities as this does. Mr. Greene. You mean the Government shall stand back of it or stand sponsor for the bonds, or would you authorize their issue by private capital? Mr. Silver. Authorizing their issue by private capital means bonds and stocks and more bonds and stocks, building high-cost factors or high-priced raw material and of power all the time. A proposition in this immediate 584 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 585 tender, which' I see no reason for not being extended to others, is the amortiza- tion of the cost in the way it is provided for here. „. , , Mr Greene. But that is not what I was asking you. Would you have the Government authorize the disposal of power by the amortization process and limit such a process by law, or would you have the Government itself own and control the power and itself amortize it on some terms or lease it to private individuals? . . , * i.v „ 4.- Mr. Silver. Just as I said, I would apply the same principle in the amortiza- tion at Muscle Shoals at other places as it is desirable. Mr. Greene. That would mean the Government buying property. Mr. Silver. The Government starts with the property. Mr. Greene. I am not talking about this property. Mr Silver. It has a river to start with. There is no reason why the Gov- ernment should not amortize the cost of the dam and have the lowest-cost factor in raw material. .^ . x ^v.- m «* ««? Mr Greene. I guess we do not get together on that. I am thinking of pri- vate water powers now, owned and controlled, because if you start anywhere you would want them all. That is a question of proper national policy, and I think you are getting pretty close to the edge of a dangerous practice. I will just try to make that clear. I am simply trying to draw the line m between the proposition you made to Mr. McKenzie and this proposition. You did not want the Government to own and operate railroads. You thought it could be done better by private enterprise. And yet I wonder if there is very much difference in the Government undertaking to get possession of all these private water powers and then leasing them out on terms to private individuals— I wonder if there is any difference in principle. Mr Silver. The question involved there is not a serious question, nor is it a question of Government operation at all. If the Government does exactly what I suggested and authorizes a bond issue and it is amortized as I have suggested and that policy is carried as far as the .iudgment of the Government sees fit but in doing so keeping in mind the public welfare, which applies in the case of railroads and other things which I have mentioned, then I think there will be a solution. The purpose is to get cheap raw material in the way of power needed for the different activities, the essential activities of national life Mr Greene. You appreciate that once the Government began to direct by that process of limitation the control and administration of all natural resources involved in power it opens a field of going into mines and quarries and other natural resources just the same. Mr. Silver. Let me say right there that the group of people I speak for— and i am referring to farmers, largely— are the group of people that, in the main you have got to rely upon to protect and maintain private ownership. If the farmers of the country had taken a different attitude on the railway que"^tion there might have been a different answer to-day. They believe in private ownership, and if at any time big business, as it is sometimes re- ferred to, breaks with the great farming group and their fixed belief m private property, which is more firmly fixed in that group of people than in any other group of our national life, because next to human rights they be- lieve in property rights— if big busine^^s does break with that group, although I do not anticipate that they will, because there is no reason for them break- ing organized labor would take the railroads under the Plumb plan or some other plan, from the owners, and organized labor would take the coal mines from the owners, and the very people you refer to are the people you have to rely on to maintain property rights. ^ , ,. .^^ ^„ Mr Greene. You echo my opinion quite convincingly. I believe with you that the substantial element we must depend upon for the old constitutional idea of Government is largely the people of the countryside. I heartily con- cur in that opinion. That is one of the reasons why I am suggesting to you that in undertaking contracts of this character are we not in danger of be- ginning to woo them away from their original faith? ^ „ u « At the end of Mr. Ford's offer there is a provision that there shall be a right at the expiration of the hundred-year lease in this company or its successor to the use of the power for all time, under reasonable rates, you believe that is healthy public policy? ^ >, t Mr. Silver. I read into the record one of the resolutions under which I acting, which ought to answer that question. (Thereupon at 12.30 o'clock p. m., the committee adjourned to meet morrow, Thursday, February 23, 1922, at 10.30 o'clock a. m.) Do am to- committee on military affairs, House of Representatives, Thursday, February 23, 1922. The committee met at 10.30 o'clock a. m., Hon. .tulius Kahn (chairman) presiding. STATEMENT OF MB. GRAY SILVER — ^Resumed. The Chairman. tion in part, and Hull will begin to Mr. Silver. Mr. Yesterday I read I did not give it be included in the The Chairman. (The statement At noon yesterday we had only completed your examina- this morning we will continue from where we left off. Mr. ask you some questions. Chairman, If I may, I would like to make one ^atement. an extract from the report on the superpower system and to the reporter. I would like to ask that this entire sheet record in connection with the part I read on yesterday. If there is no objection, that will be done, referred to follows:) "advantages of railroad electrification. " Unified operation by electricity, on the other hand, would give much better conditions than any that could possibly be attained under unified operation bv steam. There would be a new motive power, in which all units or parts designed for similar service would be identical and interchangeable. There would be pooling of all power, with great reduction of reserves. Repair shops would be consolidated and maintenance would become a standardized manu- facturing job. Track capacity would be greatly increased and certain tracks would be allocated to freight or passenger service exclusively. All freight trains would be run on schedule; the average speed would be more nearly the same and would be increased at least to the 12..5 miles an hour needed to avoid the present punitive overtime payments. Engine houses facilities would be much simplified by consolidation. . , ^ ^ , ^ *. m k^ " The reserves of men and of machinery required for joint operation will De much less than the aggregate of the separate reserves required for individual operation The great waste involved in the maintenance of separate reserves of motive power is exhibited by the operating statistics of the roads, quoted el^- where which show that the average freight locomotive in this territory is in productive service onlv 3,2.50 hours out of the 8,760 hours in a year, an^nch vou ?efei-imirof our executive conunittee and our legislation com- mitted amrsuie others were with us and went over that measure-Mr Hov^^ nrd our nre^ident and Mr. Bradfute, and Mr. McKenzie, and-1 do not kno^^ mat I carname allof them that were present, but there were several of our executive committee and our legislative committee. Mr. James. Who represented the Grange? Mr:Ks.Who''*re%Ts^^ the Farmers' Educational and Cooperative ^mT sLv^R^Tam not sure whether Mr. Loomis of the Grange was there at the time or not He was in and out at different times, but whether he was present at that time or not, I am not sure. Mr. James. Who wrote this language? . . , , Mr Silver. I do not know who suggested the original language Mr. James. Does that language carry out your ideas, or is that the idea ot ^Mr^^^iLVER. The matter came to us, of course, in the forna of the Ford proposal and there was a rewriting of part of it, and we still have some matters to debate as clarifying language and not as changmg the purpos^ S the contract. There has been some debate among our group as to just what language most clearly states what is involved here, but we felt at the time that that language was used that it was happy language. We have some su^ystfons under consideration, as I have twice told the committee, at this time for clarifying it somewhat. ,. ,, „ , Mr. JAMES. Did you suggest this idea to Mr. Ford or did Mr. Ford sug- gest it to you? „ ^ « Mr. Silver. Which idea, Mr. Congressman? Mr stf^^. The^form 'of the original or the first draft, as you might put it is the form in which it came to us originally, and it was somewhat changed I do not know that I know just the individual who suggested the language. I do not know whether I have answered your question or not. I '^Mr.^'j^MErThis section provides that the three leading representative farm organizations shall each designate seven members to the board^ etc. Was that Mr. Ford's idea to have seven members or was that your idea .' Mr Silver Mr. Ford's original suggestion was that the farmers have rep- resentatives on that board. Mr. Ford made that proposal to us. Mr JAMES Yesterday you talked about cooperative distributing of this fertilizer; is there any language that covers that in section 15, and if so, '"^ Mr 's^4r. Realizing that this is a new development and that cooperative mSeti^ bv legal authority is new, although, of course, 10 per cent of the Sioducts of the farms of the country are marketed cooperatively, but Sntil recentlv we had no legal authorization for so doing, and it may not be Cked as defiXlv as we hope, since the passage of that bill to hook it, and ?w i^ « Tiart of the language we have under discussion at this time. The ho^ and ambition ol th^ farLr and of Mr. Ford is that when this fertilizer fsTrXce^ it will be taken by farmer groups for distribution in a coopera- We wav We want to not only save in the cost of the Pr?^"?tion of fer" tm/er but we want to have all the possible economies in the distribution of it. It L just Ts important to economically distribute it as it is to economically ^M^r" LvMES That is vour hope, but there is not anything in this proposition of sec^fon l^?hat has anvthing at kll to do with cooperative distribution, is there? Mr Silver The contract would not necessarily carry the cooperative distribu- tion buf the farmers can organize other distributing groups without this con- tract when Mr Ford delivers it to them, and when we see it is economically produced and is delivered to us we will attend to the distribution. -690 MUSCLE SHOALS PROPOSITIONS. 591 MUSCLE SHOALS PROPOSITIONS. I 1. Mr. James. '^Ir. Ford's corporation is limited to 8 per cent profit. Do you not think there shouhl be some provision by which the corporation during the 100 years can not farm out territory to certain individuals and then have them farm it out, which they could €io unless there was some amendment made to this language? Have you any proposed amendment in mind? Mr. Silver. Yes; the language we are are trying to clarify that with has to do with the point you have in mind. Mr. James. You w^ould like to have whoever buys this property guarantee to manufacture fertilizer, would you not? Mr. SiLVEB. We are very much interested in the fertilizer feature We do not think it is the only feature, but we are very much interested in it, and it is one of the big things we hope to accomplish. Mr. James. Under section 14, how many tons of fertilizer do you think is guaranteed to be produced per annum? Mr. Silver. Mr. Congressman, the per ton basis is not the basis that arises in our minds when we talk of fertilizer. While we buy fertilizer by the ton, the plant food in the ton is the real basis ; and when he says he will produce a certain amount of a certain kind of commercial plant food, it may be inter- preted in a 2-8-2 goods or in a 2-8-3 or a 2-8-4, or it may be in the form of sulphate of ammonia, which we buy and use on our orchards just in the form of sulphate of ammonia, 24 per cent. Mr. James. How many tons do you think are guaranteed under section 14 as a minimum? Mr. Silver. The capacity of the plant, which is estimated at 110,000 tons of ammonium nitrate, which is one of the parts of the cbmplete fertilizer, and the other parts that are necessary to go with that will make up the complete fer- tilizer, Mr. James. The amount of nitrogen, as I understand it, contained in that amount of sulphate of ammonia is 190,000 tons, and in 2-8-2 commercial fertilizer the amount is 1,925,000 tons? Mr. Silver. In that formula ; yes. Mr. James. And in 3-S-3 commercial fertilizer, 1,283,300 tons, and in 4-8-4 commercial fertilizer, 962,500 tons. Do you not think those figures ought to be included in this proposal, so that we will know definitely about that feature of it? Mr. SnvER. I want to carry you back just a minute to the testimony of the Bureau of Soils. There is a great amount of fertilizer used, and it is used on quite a few crops, but the fertilizer needs change from time to time. You may not want that same formula, and we want different formulas on different crops. If you specified in this contract certain fixed formulas for them to deliver a cer- tain tonnage by, I wonder if we might not put sometliing in that was hurtful rather than heli)ful. I am in sympathy with your thought, and we want the greatest output ; but if we go to writing it in there in fixed formulas, I wonder if we do not do a hurtful rather than a helpful thing. Mr. James. Read me the exact language where he agrees to manufacture fertilizer. Mr. Silver. Where he agrees to manufacture it at all? Mr. James. Yes. Mr. Silver. I am reading from section 14: " The company agrees to operate nitrate plant No. 2 at the approxiate pres- ent annual capacity of its machinery and equipment in the production of nitro- gen and other fertilizer compounds (said capacity being equal to approximately 110000 tons of ammonium nitrate per annum) throughout the lease period, except as it may be prevented by strikes, accidents, fires, or other causes be- yond its control," etc., which is the usual clause in industry. He says they will manufacture it. ^ , ^ ^ ^.t, „«,« Mr. James. He agrees to manufacture the compound, but can not the com- pound be used for other things. Mr Silver. Outside of the war-time needs of some of these things, and tne explosive and fertilizer elements are largely the same, outside of that, tne fertilizer is the great place where all the manufacturers of these chemicals look for the sale of their products. In addition to that, I have the greatest belief and faith that under that language they could not well do any otner thng It refers to fertilizer, and further do^yn it says, " I^. «J^^f/ "^^^M^^ farmers may be supplied with fertilizers at fair prices and without excessive profits " The whole of sections 14 and 15 refer to the producing and supply ?ng of the farmers with fertilizers at reasonable prices. I ^arcely th nk tha -any mind can read this section-and I am thinking of the judicial mind th.it might have to interpret it — and I do not think any mind would read that alto- gether and say that there was but one purpose that could rightfully be accom- plished, and that is to produce and supply fertilizer for agricultural purposes. Mr. James. Do I understand that Mr. Ford is going to offer an amendment clearing that up? Mr. Silver. I think there will be some clarifying language. Mr. Kearns. Would your organization accept any proposition or advise the acceptance of any proposition other than one coming from Mr. Ford? Mr. Silver. It is a little hard to answer a moot question. I do not know what might be proposed, Mr. Congressman. As it stands at this time, there is no doubt about their viewpoint, and as it has stood up to this time — the Ford tender has been made for some seven months and has been printed and pub- lished to the world at large, and to our mind there is nothing comparable with it ; and in addition to that, we still go back to the point of this genius of Mr. Ford, which we hope to help along in this situation. Mr. Kearns. You or your organization are banking a great deal, then, on the genius of Mr. Ford. Mr. Silver. Sure, we bank a great deal on the genius of Mr. Ford along with other things. Mr. Kearns. Why; what has justified you in such a belief as that? Mr. Silver. Mr. Ford's business life with the farmers has been such that they have a very great amount of confidence in him and in his ability to con- struct the great manufacturing industry that he has. It took genius to do it, and Mr. Ford has passed the place where he has any selfish need for money. Mr. Kearns. So has Rockefeller, has he not? Mr. Silver. Yes ; but they have led different kinds of lives. Mr. Kearns. How is that? .^ . v. ^ •* , * 4. *.>.«4. Mr. Silver. Well, it may be difficult to answer how it is, but it is a fact that they have done it. • ^ ^ ^ Mr. Kearns. They have both amassed great fortunes. Mr Silver. Yes ; by different methods. ' Mr! Kearns. And they have gotten that fortune out of the pockets of the American people. Mr. Silver. Yes, sir. Mr. Kearns. Both of them. Mr KE^s^Mr Ford, if newspaper reports are true, stated the other day thftke hafmade $1^0,0^ himself, and he got that out of the pockets of the American people. Mr! KEl^s.^That does not Indicate he Is a great philanthropist, as you said "'^"^M^'Mr^Ford has done Just exactly what you challenge He has shown thaTfn his production at all times he has maintained it on the lowest nSle lever consistent with proper wages and proper living conditions for Ms people and has supplied the public with the wares on a basis under what "'Mr K^ABN^Do'^younot think he could have furnished this product to the American wople on a much cheaper basis than he has done If he has amassed WWkJwO.^ in ?he last few years; do you not think he has been charging %"."s^^^ riV^d^the same article that I presume you refer to. it was a newspaper article • Mr S^t^^ I?f read the same article, I understand he did not plead guilty to^aVKade $l5m000,000, although' it does not make much difference in tL point^'ou make, but I just waut to caU y«^^/"entmn to the fa^ that he specified he had around $100,000,000 of real estate and $100,000,000 of ma- chServ and over $1^,000 000 of money that might by some means be capital- izS and earn on $1,000,000,000. Now, that is a different thing. He has not 'tr' kSrn^ Tthini Ws^exa^tC?^ent was that his real estate holdings, his de^si^s in the banks, his personal property of various kinds, and his good will could be capitalized at $1,000,000,000. v, ^ f 1. f Mr. Silver. Yes ; I think that is right. We agree about that Mr Kearns Now, do you not believe that if he had had the interest of the American people o7 of Ws customers at heart, he could have conducted busi- 92900—22 38 592 MUSCLE SHOALS PROPOSITIONS. i' ness and exacted a less profit than one that would net him $1,000,000,000 in 10 or 15 ye^s? Mr. Silver. You get back to the point and you make the statement that he has netted that. As I read the statement, he has not netted that amount, but I will not contend about that point. He has made several hundred million dol- lars, according to his own statement, and he has made it in such a way that the people who have bought his wares and consequently paid that money are not unfriendly to him. They have gotten more for their money when they dealt with Ford than when they dealt with somebody else. Mr. Kearns. They paid a big tariff on it, however, at that. Mr: Silver. At that time, if it had not been for Ford's genius, they would have been worse off. They have been able to pay Ford his tariff, if you want to call it that, or his fortune, if you want to put it the other way, and have still been better off than would have been the case with some of these other groups. We do not feel the same way about it. Mr. Kearns. Why do you say that the owner of a Ford machine is better off by having one? Mr. Silver. Well, it was a choice with the farmer of whether he had a Ford or went on foot. It was just the choice of walking or riding in a Ford. Of course, we can never hope to ride in a Packard or Pierce-Arrow or something of that sort. Mr. Kearns. Of course, we all take off our hats to Mr. Ford for having made this money, but what I am trying to get at is why it is that after he has amassed this great fortune and gotten it out of the pockets of his customers. you can bring yourselves to believe that he is going to produce fertilizer at a cheaper rate for the farmer than anybody else. Mr. Silver. If he just does for us in the fertilizer business what he has done in the "flivver" business, he has provided cheaper goods tor us at a good standard and at a cheaper price than anybody else has done. Mr. Kearns. There are a great many people, and a great many of them owners of Ford cars, who would not agree with you that he has furnished things cheaper for them in the long run. Of course, the original price is cheaper. Mr. Silver. We could get into long argument along that line, but I will go back to my statement that farmers would have either been driving their horse and buggy or walking, who to-day are able to own a Ford automobile. He has made the product on a basis of keeping down cost factors so that we have been able to buy them, and, compared with what we would have paid elsewhere, it has been a bargain when we bought them. Mr. Kearns. Well, as the owner of two Fords, I can not agree with you. Mr. Silver. You had the alternative of buying somebody else's machine. Mr. Kearns. Has your organization read and studied the proposition of the Alabama Power Co.? Mr. Silver. Yes; they have studied it to the extent that they see there is no provision for fertilizer in the sense in which we feel it should be in there, and to our mind that is a wall right there. Mr. Kearns. Getting back to the proposition of fertilizer, why does not your organization insist on some clause being put in this contract by which this Ford company would be compelled to manufacture some kind of standard fer- tilizer that is used by the farmers? i Mr. Silver. If you will tell me what a standard fertilizer is — - Mr. Kearns. I do not know. Mr. Silver. No. Mr. Kearns, But I know he has not agreed to make fertilizers in this con- tract. He has agreed to make a certain component part of the fertilizer. Mr. Silver. Yes. Mr. Kearns. But has not agreed to make fertilizer. Mr. Silver. But the commercial plant food, and as to the carrier, we will agree about that. . Mr Kearns. Is there not some clause that could be put in there— I do noi understand the formulas for fertilizers— but could not your organization, with all the wisdom that is in the organization, and with the knowledge that the members of that organization must have of the manufacture of fertilizer, could they not devise some clause or construct some clause that would compel the manufacture of fertilizer that would be ready for distribution and use by the farmers ? Mr Silver. This clause, keeping in mind the reservations that I have once or twice referred to, is satisfactory to the people that use the fertilizer. Ihen MUSCLE SHOALS PROPOSITIONS. 593 I will go back to the statement of the head of the Bureau of Soils, who testified very fully on the fact that different analyses of the soils did not give the same results in the crops. I want to say that the handling of fertilizers and soils is a very difficult thing, and as yet there has been no single formula devi^ or no plan by which we can know ahead of time just what is the most useful thing, or, if we use it successfully one time, we may need to change it at some other time. .^. , '4.x. Mr Kearns. Getting back to my original statement as to this clause m the contract, I understand that in this contract there is not any language in there that would compel him to manufacture a finished fertilizer, is there? That question can be answered yes or no. ^ .^ x^r /-. Mr. Silver. I have not made myself plain to you. I want to do it, Mr. Con- gressman. If you took any one formula and wrote in there that formula as a finished fartilizer, as I believe you have in mind TVTr TCearns Yes Mr. Silver (continuing). You would limit the use of the fertilizer and the output of that plant to the particular crop and the particular soil that that one formula applied to. Mr. Kearns. I understand that. Mr. Silver. And consequently you would deny a great many people access to the product of that plant. Mr. Kearns. That is just the question I am asking. Can not your organiza- tion devise language here that would compel him to manufacture fertilizers, we will say, the finished product, whatever that may be, if he is desirous of making fertilizers for the farmers, so that he may advance the cause of the farmers, rather than the cause of his own company ; then could you not get together and put in your contract an agreement by which he agrees to make fertilizers as the needs of the time should demand. I will put it in that way. Mr. Silver. The farmers would not want to enter into a contract for 10 years or 100 years based on a specific demand. Mr. Kearns. I do not mean a specific fertilizer, but could you not devise lan- guage that will compel him to make fertilizers that will be demanded by the farmers from time to time? Mr. Silver. And this does specifically provide for the manufacture of the commercial plant food involved in fertilizers. Mr. Kearns. Yes ; involved in fertilizers, I will admit that. Mr. Silver. This provides for that, and the only way to market that and sell it is to sell it in fertilizer. Mr. Kearns. But suppose under his contract he made this nitrate and then refused to go any further. How are you going to compel him under this contract to go any further. That is what I would like to know, how you propose to do that? „ ^ 1 1^*. Mr Silver. I think that is one of the features that we can well take with a certain amount of faith and also on the language we have under consideration and have not yet submitted. . . . .t », ^ * n*, Mr Kearns. But you are asking us, Mr. Silver, to vote into the hands of Mr. Ford practically $1.50,000,000 that belongs to the taxpayers, and when we do that we do not want to take too much on faitn. UTr Silver Yes Mr. Kearns. We want something in the contract. In other words, we want it denominated in the bond. Mr Silver. We think there is something in the contract. I do not mean to say that this contract is without force and effect. To my mind I can not think of a manufacturer, I do not care who the manufacturer is, manufacturing and agreeing to manufacture and to keep on manufacturing for 100 years and not keep up his outlet, and there is only one outlet that he can hope to occupy at all times and under all conditions for the output of that plant. Mr. Kkakns. But under this contract he can sell it to other fertilizer firms, if he wants to, or to anybody else. Mr Silver That is the point about which we are discussing some clarifying language, and that is one of the points I referred to in answer to one of the other gentlemen. I think we will have a suggestion to make before the hear- ings are closed that will answer that particular question. Mr. Kearns. Do you think you are going to have language in there that will be certain and definite, requiring him to manufacture fertilizer. 594 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 595 1 Mr. SiLVEE. We think so. We think we will have language that will not only be entirely happy to us but we trust will be hapy to this committee. Mr. Keabns. I think the committee wants to know, if it is going to vote out that amount of money, that the farmers are going to get what they are ex- pecting. Mr. Silver. Do not think that the farmers want to take any chance about it. They want to be right sure about it, and they are trying to be sure about it, and they have special committees studying and following up this matter, and they want to know just what you want to know. Mr. Kearns. If you are studying the matter along those lines, I think the committee will anxiously await a further report from you on that study. Mr. Silver. Before these hearings close, we will have the results of that study brought to you. Mr. Xearns. Has your organization ever studied or given any consideration to what this plant would cost to build now? If you should find it in the shape that the Government did a few years ago, when they undertook to build this plant, what would it cost to build it and complete it as Mr. Ford wants it completed ? Mr. Silver. We have this plant just as it stands not like an interested party would go out and find an unoccupied site on a river bank some place. We approach this as a waste of the war, we might say. Now, we either use it or we do not use it, and it is either used and made an asset of or else it is in a large measure wasted. Mr. Kearns. I understand that, but that does not answer my question. Mr. Silver. Well, I beg your pardon. Mr. Kearns. The taxpayers of the United States have already spent there or had on the first day of last July, $106,000,000 plus. Mr. Silver. Yes ; whatever the amount may be. Mr. Kearns. $106,000,000 plus, so the Secretary of War testified here, or in round numbers $106,000,000. Of course, we will grant that that was done under the stress of war, and that a great deal of that money was wasted and squand- ered, but the question I would like to have answered is what it would cost to-day to do what the Government has already done down there and to com- plete the plant as Mr. Ford wants to complete it. How much would that cost? Mr. Silver. I do not know. Mr. Kearns. Do you not think your organization ought to know how much they are giving Mr. Ford? Mr. Ford agrees to complete it, and he believes it will cost anywhere from forty to fifty million dollars. Mr. Silver. Yes. Mr. Kearns. And he is to pay 4 per cent on what it costs tx> complete it. TW^i* ^TT VER Yes sir. Mr. Kearns. Therefore, he wants the taxpayers of the United States to give him the $106,000,000 for his use for 100 years witliout paying anything on It; is not that true? Mr. Silver. By the same reasoning, would we not be glad to turn our Navy over to some one who would keep it in good running shape and turn it over to us in time of war? The fellow who did tliat would not have a bargain. Mr. Kearns. But he is going to»use this plant in the manufacture of power and he is going to use it to manufacture parts for his automobile, and will possibly manufacture plows, etx?. Mr. Silver. Sure ; but whether business goes good or bad, he has to still keep that plant in shape to produce these needed chemicals in peace time, under this contract, for agricultural purposes, and be ready in time of war to turn it over to the Government as a going concern. Mr. Kearns. But is not the cost of that negligible, compared with the money that the Government has already invested down there? Mr. Silver. Not according to some estimates of what it would cost the Gov- ernment to keep it as a stand by. Maj. Burns testified it would cost $2,500,000 to keep it in a stand-by condition, charging depreciation, etc., and if we let it stand as an idle concern in 20 years you have lost it, anyhow. Mr. Kearns. Let me ask you this question : If Mr. Ford wanted to go down to Muscle Shoals, and there was nothing built there, but he wanted to go there to build a plant, just as any other business firm would want to do, it would cost him at least $100,000,000 to build the plant the way he wants it, would it not? Mr. Silver. No; not according to your statement, because you said that a great deal of money that the Government spent down there was wasted, and I concur in the stat^ement that war expenditures are always wasteful. Mr. Kearns. I moan if the plant is completed down there as he wants it, it would cost him at least $100,000,000 to build it from the ground up? Mr. Silver. I do not know that I am competent to guess on what it would cost, but it would cost a heap of money. Mr. Kearns. Certainly there was not more than $56,000,000 wasted down there, which is cutting it more than half in two. Mr. Silver. We are just guessing at that. Mr. Kearns. Yes ; but we will say that it cost him $100,000,000, and if that is true, the Government is giving him a subsidy of $50,000,000, is it not? Mr. Silver. Now, may I put that around tlie other way? Mr. Kearns. You do not like the word " subsidy "? Mr. Silver. Walt. I am going to let you use the word subsidy. I did not like the word subsidy when it was first mentioned yesterday, but I am going to put it around the other way, and maybe I will think more of It. Wliat kind of a subsidy is the Government giving at the people's expense to the present manufacturers of fertilizer if they do not do this? Mr. Kearns. What kind of a subsidy? Mr. Silver. Yes; are they not subsidizing them? Mr. Kearns. How is that? I do not understand that. You mean they are paying them exorbitant prices for the fertilizer? Mr. Silver. Yes. Mr. Kearns. I will agree with you about that, and I will agree with you about that as to practically every manufacturer to-day, and on the same theory we are subsidizing every manufacturer because practically all of them are charging more for their wares than they are justified in charging. Mr. Silver. You and I agree about that situation— and this Is one place to cure it. That is all. I do not have another word to say on that. Mr. Kearns. But do you not think that Mr. Ford ought to pay some in- terest on this other $50,000,000 that the people are giving him? That is the point. Do you not think he ought to pay 4 per cent Interest on more than what.lt requires to complete this plant? Mr. Silver. That is not our belief. Mr. Kearns. If he had to build it himself, it would cost him that much money. Mr. Silver. I grant you that, and he would build a plant that would be suitable and right for his plans at this time. I understand that he has got to spend millions of dollars there to make that plant the kind of plant he wants to have there. Mr. Kearns. You mean millions of dollars in the operation of the plant? Mr. Silver. Oh, no ; in reequlpment and rearrangement, etc. ; millions of dol- lars to put that plant in shape to manufacture in the way he believes it has to be operated to be economical and right to carry out this theory of manu- facturing. Mr. Kearns. Is not that what he wants the Government to spend this other $50,000,000 for? Mr. Silver. No, sir; after it is turned over to him, he will have to spend that money in order to effect the kind of economies he has in mind. Mr. Kearns. Do I understand you to say that he Is going to spend this twenty-five or forty million dollars? Mr. Silver. Steady; I did not use any amount. I said millions of dollars. I do not hesitate to say that in discussing it with him he intimated it might take between ten and fifteen million dollars to make this plant the kind of production plant that he desired. Mr. Kearns. Did he mean he would have to spend that much more on machinery ? Mr. Silver. On equipment and rearrangement of the plant itself to make it the kind of a fertilizer plant he thinks it must be made to do the real trick. Mr. Kearns. I have not heard that testimony, and this is the first time I have heard the statement made. Mr. Sil\t:r. That may be. Mr. Kearns. This Is the first time I have heard It said that he was going to spend anything on additional machinery. My impression was he wanted the Government to finance the completion of that plant, ready to manufacture ni- trates and furnish power, etc., and If I am wrong I would like to know about it. The Chairman. His representatives in appearing before the committee gave it as their opinion that Mr. Ford would have to expend thirty or forty million dollars. 596 MUSCLE SHOALS PROPOSITIOKS. MUSCLE SHOALS PROPOSITIONS. 597 Mr. Kearws. I remember that testimony, but I thought they meant he was going to expend that in carrying on his business. The Chairman. Oh, no. Mr. Fields. And with the permission of Mr. Kearns. inasmuch as he says lie wants to get the matter straightened out Mr. Kearns. I do. Mr. Fields. The Secretary of War said it ^yould require from one and a lialf million dollars to ten million dolhirs for additional equipment of plant No. 2 for the production of the nitrate agreed to be produced by Mr. Ford. Mr. Kearns. What is this fifty or sixty million dollars that the Government is to spend there to be expended on? Mr. Silver. You have got to finish the dam. and you have got to do a lot of other things. I do not know that I could answer as to the items. You had bet- ter have Mr. Ford's engineer tell you about that. The Chairman. According to what the representatives of Mr. Ford said, the Government is expected to provide the money for the completion of Dam No. 2 and the thorough building of Dam No. 3, which has not even been commenced at the present time, and the Government engineers say that will take about $50,000,000. Mr. Ford thinks it will take about $42,300,000, Mr. Silver. They are talking about the water power in making that statement. The Chairman. Yes. On this nitrate plant, the evidence is that Mr. Ford wants to buy that outright. It has cost the Government up to date $67,000,000 and is practically in working order. It will not require a great deal of money to complete it ; Mr. Ford, of course, would have to go ahead with it as it is, but he would like the Government also to buy the flowage rights and the water rights necessarv in the construction of Dam No. 3. Of course, the amounts vary in the different calculations of the engineers. The Government engineers are a little higher and provide a little more money than Mr. Ford's engineers. That is the situation that the plant is in at the present time, and that is the testimony before the committee as I recall it. Mr Silver Yes Mr. Kearns. Tlie Air Nitrates Corporation claims to have certain rights in this plant. Has your organization ever investigated that question? Mr. Silver. I do not think our organization has ever investigated as to that. We liave the expression of the opinion of the Judge Advocate General, and aside from that they have not done anything about it. Mr. Kearns. Would the farmers whom you represent want this contract en- tered into with Mr. Ford if they knew how we stood with this Air Nitrates Corporation? . , , ^ ,. Mr Silver. Our people are inclined to take the opinion of the Government officials and of the Judge Advocate General to the effect that this is not a valid obligation and that they have no claim. Mr. Kearns. I think myself they have no claim, but I wanted to know what your organization thought about it. Mr Silver. So we simply dismiss it with that thought in mind. Mr. Miller. Mr. Silver, you went into something of the philosophy of the economic life of the agriculturist. "h/if Silver Yes Mr! Miller. One thing basically that is the matter with the philosophy of the agriculturist or the system under which we do business is that under the present-day methods whatever he buys the other man fixes the price. Mr. Silver. Yes. Mr. Miller. And whatever he sells the other man fixes the price. "Mv Silver Verv true. Mr! Miller. In other words, he differs in that respect Mr. Silver. From any other group. Mr. Miller (continuing). From any other producer in the world. Mr! Silver. That is true. ^ ,^ i^ Mr Miller. The Congress undertook to overcome that, as near as it could be done by legislation, by providng for what is known as the cooperative mar- keting principla , ^, Mr. Silver. For which we are very appreciative. , , ^ «^ Mr. Miller. And which, probably, may in future years develop into a com^ gponding independence of the agricultural producer along the lines of other producers. That is the hope? Mr. Silver. Yes. Mr. Miller. I think there is no well-poised man in this country, Mr. Silver, tout what is interested intensely in agricultural production. Mr. Silver. I think that is true. Mr. Miller. And friendly toward it, because it is the basic support of the human family. Now, coming down to this concrete Ford proposition, you spoke about your belief that there was a sort of element of philanthrophy involved in it, and that Ford is going to do this wonderful thing for the farmers in the production of cheap fertilzers; that is right, is it not? Mr. Silver. Yes. Mr. Miller. I suppose you have observed that the net result of this contract is that the Government is financing Mr. Ford at the rate of 4 per cent interest, but the product the farmer has to buy he buys at 8 per cent interest? Mr. Silver. Not to exceed that. Mr. Miller. In other words, Mr. Ford is charging double the amount of inter- est to the farmer that he pays to the United States Government. There is not much philanthrophy in that, is there? Mr. Silver. He does not necessarily charge the 8 per cent under the contract. Mr. Miller. Tell me where he does not necessarily charge that I will take issue with you right on that. Mr. Silver. It says not to exceed that amount. Mr. Miller. Not to exceed 8 per cent. Mr. Silver. Yes. Mr. Miller. And you folks have a committee to see that it does not exceed that. Mr. Silver. That they do not charge in excess of that. Mr. Miller. Mr. Ford then is privileged in all that provision of the contract in which you folks are bound, that he can make 8 per cent out of his money. Mr. Silver. Now, so far as that Mr. Miller (interposing). That is right, is it not, Mr. Silver? Mr. Silver. Just a word. So far as Mr. Miller. Is not that right? Mr. Silver. So far as Mr. Miller. That is all I desire to ask, Mr. Chairman. The Chairman. As I understand it, Mr. Silver wants to make some explana- tion. Mr. Miller. I asked Mr. Silver twice if that was not right and he did not and would not answer my question, so I am through Mr. Sn.vER. I am trying to answer and I want to answer, but I thinlj that neither yes nor no would be a complete answer, sir. The Chairman. I think under the rules of evidence you woyld be entitled to say yes or no, and then explain what you meant by your answer; I think this question can be answered in that way. Mr. Silver. I would say no, then, as to that. The Chairman. Then you want to make an explanation of your answer? M^r Silver Yes The Chairman. I think you would have a right to do that. Mr. Silver. There is nothing here requiring the payment of the full 8 per cent, and Mr. Ford, in conversation with me, said, " I would not give that for it to make money out of it," speaking of the fertilizer end of the proposition at Muscle Shoals. "My business has been built up largely by dealing with the farmers of this country," If I can serve them, and if I can develop a great agricultural foundation there that will be good for all people, I will think my life has been worth while. I do not feel that making money alone makes a good citizen. Now, just a moment further. The 4 per cent which the gentleman refers to is a part of the cost of manufacture, and no interest on the profit. It goes in on that basis, what it costs him, and not as a part of his profit. In addition, the 4 per cent which the gentleman refers to is invested in water power, in the dam, and that is permanent. This fertilizer is manufactured with machinery on which there is a different degree of depreciation involved. The fertilizer in its cost will just carry the 4 per cent charge against that part of it, whatever part is contributed by it. ^ ^ * Mr. Crowther. Mr. Silver, referring to the statement you just made about Mr. Ford producing this fertilizer, let me call your attention to the statement on page 29 of the tesimony of Secretary Weeks, which you will find on examina- tion of Mr. Mayo'« testimony was not disputed ; in fact, he rather acquiesced In the .statement. The Secretary says, " but I did suggest that it seemed to me 1 598 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 599 1 that thero slioiihl be a forfeit in case of the failure to carry out that part of the a.ifreenient, l)ecause in niy conversation with Mr. Ford I said to him, ' will you jruarantee to continue to manufacture fertilizer during the life of this con- tract,' to which he replied that he would not. I said, ' will you agree to iii- vesta C{'rtain definite amount of money in the manufacture of fertilizer,' an<'. he said he would not. Now, of course, he does, in effect. " I said then, in effect, ' You might stop the manufacture of fertilizer in flvo years or in any other time to the great disappointment of the people down there.' and he said : ' Of course, I am going to stop if I can not manufacture it profitably.' " Has Mr. Ford denied those statements, or have any of those who represent him here ma- ful thing in developing our national life and n preventing it be. ng done? Mr. Crowther. Of course, that would be discussed from the individual pomt rHT speaking of constructive and destructive methods yo^^^^^^ eized Mr. Rockefeller and held him up as the very antithesis of Mr Ford or you held up Mr. Rockefeller's methods as the very antitheses o^.^r. Ford s proposition Is there not some credt at least to be given Mr. Rockefeller s genius in the development of the business he is engaged in? Mr SiLA^ I think he has great genius. I did not mean to reflect on Mr. Ro^kefelTeXabiUty I was simply Ulustrating the atf tude of the two men ^Mr'^^CR^ow^H^^^^ is the difference in their attitude toward the public? Mr Stiver I tried to make that plain. ^ , * Mr. C^^HER What has Mr. Rockefeller done that has been detrimental to %rSr^vER. He has taken a great natural resource a«d built up a great fo^^^ tune, and the methods he used, according to the P^f ^^^^^f f ,?^,f f^^* mind, have been questionable ; but they do not question Mr. Ford s methods "'m^ Crowther. They do not? Do you know how much Mr Ford took out of the War Corporation profits that were granted under the Dent Act for what was coming to him? Mr. Silver. I do not. <.i.„*.o Mr. Crowther. You do not know anything about that/ Mr cS^hS* I hope to put a photostatic copy in the record in regard to that p^rttc^t matter to offset some of the statements you have been mak- ing in regard to the suggestion about Mr. Ford's ^^'^^J^'^'^^^J^'^^^ To„ lested in connection with this particular matt^, and at other tirn^^^ You alleged in a direct statement made by you that Mr. Cooper, the engineer who m 602 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 603 n ^ appeaml i)efore the committee the other day, spoke for the Water Power Trusf By whnt authority do you make that statement? abo^^t ^^^^^* ^ ^^'"^^ repeat the same language; that Is commonly talke-N \ . 92900—22- -39 608 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 609 Mr Silver. But the replacement simply to maintain it at its status quo wou d not be keeping abreast of the times. He will need sometimes to junk perfectly good equipment so that new processes may be applied. Mr Fields. Yes; I had not taken into account such new processes. Mr'. Silver. So it is even more than what you mention, and just how to measure that in dollars would be very difficult. . . i. r t-. i Mr FIELDS Theu of the amount to be expended from this time on, Mr. Ford agrees to pay $55,000 a year, first, for the maintenance of the locks and dams, etc ' Mr. Silver. Yes ; for the operation of them . _ _^ ,^ Mr. Fields. Which, during the lease, would be $5,500,0UU. Mr F^Ids H?'will pay interest at the rate of 4 per cent which upon the figures preTentedb; his^ngineers, will «niount to $161^OiOj000, making a total income to the Government in those two items of $lbb,o4U,0UU. ,^ ,., ^ .^ Mr SiivER Yes There is some interest included there, and I would like if I may to n^rt Irom the statement of the public debt of the United States a list of the inte?St bearing debts of the Government so that it may show what rate of interest tL^ has paid in peace times, which would be some reason- able basis for figuring what it would pay in ordinary peace times. Mr F^LDs. Yes ; I would be very glad to have that put in the record. (The statement referred to is as follows:) Bonds. 4 per cent consols of 1930 2 per cent loan of 1925 2 per cent Panamas of 1916-1936 3 per cent Panamas of 1918-1938 3 per cent Panamas of 1961 - 2 per cent conversion bonds of 1946-1947. .... - - - • • - 2i per cent postal sa\angs bonds, first to twenty-first series Amount issued. $646,250,150 162, 315, 400 54,631,980 30,000,000 50,900,000 28,894,500 11,774,020 Amount retired. Amount outstanding. $46, 526, 100 43, 825, 500 5,677,800 4,052,600 $599,724,050 118,489,900 48,954.180 25,947,400 .50,000,000 28,894,500 11,774,020 Mr. FIELDS. Then, Mr. Ford proposes an amortization fund which, retired at 4 per cent, would amount to $49,000,000 at the expiration of the list. Mr* F^^a Which all combined, would represent in cash actually paid to fi^Tdo^'Snmelo^eivena^ by Mr! Ford in the maintenance of this plant and ^ saving the Government the expense of operating the canal, a grand total of ^^m;^^. They seem to be correct figures, but some of it, however, is in- *Tr' S?EiSrSrred to that. The $166,540,000 is interest, the $49,000,000 is^he SLtion S and the balance of it is the $260,300,000 in the saving on maintenance, etc. ^l- !S ^M ih^^Govemmeni should be able to retire this amortization f„ml «r?^r ceS that would amount, at the expiration of the lease, to $;w,868,W2!^hicirwould be an additional gain to the Government of $51,797,70.. Mr! IS. How would 5 per cent compare with the market for farm loan """m/ fi^^ F?rm loan bonds at this time carry that rate of interest. Mr' fS' AnTi have heard that some people have made application for *''Mr*i^^V^plfhaveCt*onTy applied for the bonds and could not get .„ w^thVtUne of the sale of the $40,000,000 bond issue, there was more iS»n's^ 0^000 askid for by one of the 12 banks of the system. So that not SJy it^hS^e'Tdemand for the bonds but there is also a demand for the loan, o^tw tn oiHipr Instance the money could be well loaned and at that rate. M? fSiIs So white I s^idta the begimilng that for argument's sake we wo^W cSetta^ there was a subsidy, coming back "ow to my opinion » Ss to mTthat instead of the Government extending a subsidy in this case W^S maktag a trade with Mr. Ford which Is the most favorable trade the Golemmem has ever made with an Individual in the United States. Mr. SiLVEB. I believe so. Mr. Fields. For the reason that this plant is not to be converted by the purchaser solely to his ov^n use without giving any consideration to the interests of the Government, but plant No. 2 is to be maintained at this enormous ex- pense by Mr. Ford for the benefit of the Government in time of stress, should the Government need it. Mr. Silver. Yes ; it is. Mr. Fields). I believe that is all, Mr. Chairman, and I will admit that these questions are not very pertinent to the Washington representative of the farm bureau, but were more for the purpose of getting a statement in the record to meet such suggestions that have been made here from time to time. The Chairman. The chairman of the committee has repeatedly asked that we <*onfine ourselves to the questions involved in Mr. Ford's proposition, but the members of the committee have seen fit to go outside of that and ask about everything else, and I am not stopping anybody. Mr. Fields. Yes; and because that has happened and some statements have gotten into the record that need to be answered, I have answered them with these figures. The Chairman. Well, go as far as you like. Mr. Fields. Thank you, Mr. Chairman, I am through. Mr. QuiN. Mr. Silver, the 21 men on this committee know who you are and for whom you are speaking, but there are 421 gentlemen on the floor of the House who are our colleagues. Now, you are president of the Federation of Farm Bureaus, is that the title? Mr. Silver. Not guilty. Mr. QuiN. What is the position you hold? Mr. Silver. J. R. Howard, of Iowa, is the president. I am the Washington representative. Mr. QuiN. You are what they call the legislative representative? Mr. Silver. Well, my title is the Washington representative. I am a member of the executive committee and a director from the State of West Virginia. Mr. QuiN. How many organizations directly belong to the Farm Bureau Federat on or whatever you call your organization? Mr. Silver. I would answer that question by saying that we have more than 1,500 and upward of 2,000 county organizations which are federated into 46 State federations, and those 46 State federations are federated into the Ameri- can Farm Bureau Federation, or the national association. Mr. QuiN. Does the Farmers' Union belong in that group? Mr. Silver. No; that is another organization. Mr. QuiN. I used to belong to the Farmers' Alliance, but that is now out of existence. Mr. Silver. Yes, sir ; that is the one w^e were discussing the other day. Mr. QuiN. We busted the jute trust. They tried to rob us on our cotton bagging. Mr. Silver. Right. Mr. QuiN. Now, in the Un'ted States there are between six and seven million farmers, are there not? Mr. Silver. Yes ; according to th« census. Mr. QuiN. And the great majority of those farmers are represented through your organ zation, directly and indirectly? Mr. Silver. Yes, sir. Mr. QuiN. Now, we have many types of farmers. You are a practical farmer yourself, are you? Mr. Silver. I am. Mr. QuiN.. We have the landlord with his broad acres, with a big house sitting up in the grove and cattle on a thousand hills. He is an agriculturist farmer. Mr. Silv-er. Yes ; some have labeled him in that way. Air. QuiN. And then we have the farmer who produces cotton or grain, and so on, on a large scale. Mr. Silver. Yes. Mr. QuiN. Now, about 90 per cent of this great number of farmers who with their own hands and with the efforts of their good wives and children cultivate from 15 to 50 acres, is not that true? Mr. Silver. Yes ; but I would put the acreage a little larger than that. The Government saw fit, when it split up the western domain, to make the unit about 160 acres, and I would say from 20 or 25 acres to 160 acres. 610 MUSCLE SHOALS PKOPOSinONS. MUSCLE SHOALS PKOPOSITIONS. 6U -ii ^ 1' ! i Mr. QuiN. The great majority of them have about that amount? Mr. Silver. Yes. Mr. QuiN. That is the man who has a few beehives sitting out there in the yard and hen nests in the back yard? Mr. Silver. Right. Mr. QuiN. And he worljs all day, from daybreak until dark. Mr. Silver. Yes. Mr. Qx'iN. And we have even gone out after supper and picked cotton in the moonlight. Some of them do that? Mr. Silver. Yes. Mr. QuiN. They work all day, and some of them, in certain seasons of the year, build a torcli in the fields so they can see to work among their vegetables. 3Ir. SiLA-ER. True. Mr. QuiN. Then the farmer is not any 6-hour or 8-hour-day man, is he? Mr. Sn.vER. No. The joke is that he is an 8-hour-day man, eight hours be- fore dinner and eight hours after dinner. Mr. Quix. And works about 13 months in the year. Mr. Silver. That is right. Mr. Qttin. Now, that class of men and their families, who really produce about 90 per cent of the farm produce in certain periodicals, are calle must accept what the world's demand allows him; is not that true? s Mr. Silver. No. Mr. QuiN. tobacco Mr. Silver. That is very true. fv^L'i..^ h'"'- -^^'^"^ '^'^^'' '* ^^*^ *^ **^ destination, the warehouse charges the iZfll: l'^ "^^";;^'^^'^' «»^1 the handling are all charged against the product that the farmer has put up? * Mr. Silver. True. •. ^^»'- QuiN. Then he pays the freight on that stuff to the consumer. He pavs It to the factory that puts up the raw material, because that adds to the price of it. ' Mr. Silver. He certainly pays it to the controlling market. To illustrate with wheat. Liverpool makes the price of wheat. We certainlv pav on that wheat delivered to Liverpool, whether it goes to Liverpool or not. Mr. QuiN. The man who gets his cotton out of his field, gets it to the gin has to pay for ginning it; he has to pay the cotton broker's fee for selling it- he has to pay the warehouse charges ; he has to pay the freight, and two-thirds of -it goes across the high seas. Mr. Sn.VER. Yes. Mr. QuiN. He pays the, freight on it and all the expenses until it is turned over to the spinner in the foreign country, is not that true? Mr. Silver. Yes. Mr. QuiN. Now, then, the man who produces that cotton must hav«^ fertilizer. They are growling here about Mr. Ford paying tlie Government 4 i)er rent. The man who must have fertilizer will have to pay that 4 per cent, will he not? Mr. Silver. Certainly. Mr. QuiN. And if it was 10 per cent, the farmer would have to pay that excess 6 per cent, would he not? Mr. Silver. Yes. Mr. QuiN. Now. he pays the freight on all of the equipment that lie must have on his farm, does he not? Mr. Silver. Certainly ; he does. Mr. QuiN. The factory makes that stuff and it goes to the farmer and ho is bound to pay the price plus the freight. Mr. Silver. Yes; the factory price plus the freight. Mr. QuiN. Then there is not anything astonishing about the statement the farmers are paying four-sevenths of the freight paid in the country. Mr. Silver. The hearings of the Interstate Commerce Commission give in very much detail and follow it through in a very complete way. Mr. QuiN. I never knew before that that was true, but I can see how would be so with the great number of people involveil, and if tliose farmers were to go on a strike for 6 months all of us city fellows would starve to death: would we not? The Chairman. What city do you come from? Mr. QuiN. I am living here in Washington. The Chairman. You say " us city fellows," and I was just wondering what city you came from. Mr. QriN. McComb city, and we do not farm in the farmers and all towns have to live off of them. Mr. Silver. During the war p«riod, when a meeting was called of the house- wives league in the city of New York, Mr. Scrivens, the president of the New York State Federation, was on the platform and was talking about what was involved in food production. He was interrupted by a lady on the platform who said, " We know you farmers are profiteering, and if you do not quit your profiteering, we are going to get our food some place else." .Just what she had in mind. I do not know, but unless you do like that lady said, you would rely on the farmers of the United States, which is the Egypt at this time of the world. Mr. QuiN. I have no doubt that some of them believe the farmers profiteer, but as a sample of that my ancestors have been farming for two or three hundred years, and before the war they were big plantation holders, but by the time it got to me I was a '* one gallus " farmer. The farmer, working the number of hours you have stated, a great many of them, have to wear patched and shabby clothes, do they not? Mr. Silver. Indeed, they do. that that that that city. We know We that. live off of MUSCLE SHOALS PROPOSITIONS. 613 Mr. QuiN. And it is not from choice, is it? , , , ^. , ^, ,„„ , , ^„i^ Mr. Silver. It certainly is not. and the patched and shabby clothing i^ only a little part of it. They would like to send their children to better schools and thev would like to have better homes and would like to have better equip^ ment in their homes. There are just lots of them they would like to have and they labor long and hard so that they might have just the simplest of comforts ^"ilr QuiN. And there are thousands of farmers all over the United States who are not able to have shoes for their children in the wintertime. , ,, . ^. Mr Sit.ver a great many of them do not have them, particularly at this time. Mr*. QuiN. Mr. Silver, they seem to doubt Mr. Ford's feelings for the people. He manufactured these automobiles you were talking about and started in xn-iUi nothing. Did he have to have anybody else to lower the price for him or did he do that voluntarily? Mr. Silver. He did it voluntarily. Mr. QuiN. As soon as the war was over, did he not announce a great princijially from (ieriiumy, be<-ause of the price. Nitrogen is tlu' limiting factor in crop production in most of our worn-out soils. I might use an illustration of a barrel in which the staves are broken : one stave is broken about one-third way up toward the top of the barrel, another stave is broken about half way np the barrel, and another stave is broken two- thirds of the way up the barrel. The crop is demanding three elements— nitro- gen, phosphorus, and potassium. The nitrogen in most of our soil is the stave broken ofl: just one-third the way up the barrel, and when the crop has reached the i>oint where it needs more nitrogen, which is not there, it will not go up, no matter how high the staves are that carry the phosphorus and potash, but } i 618 MUSCLE SHOALS PROPOSITIONS. It runs out at that point. But if we have a sufficient amount of nitrogen tlie crop will go up until it reaches tlie phospliorous lealv, and then the crop pro duction stops at tliat point. But if we have enough of those two elements but do not have a sufficient amount of potash, the crop will go up to the third lirolven stave. If we have a sufficient amount of all of those elements it will run over the top. Let me give you an illustration to show why nitrogen is the linnting factor. A 100-bushel crop of corn in the grain and stalk takes from the soil 148 pounds of nitrogen, 23 pounds of phosphorus, and 71 pounds of potash. You can easily see the large jiroportion of nitrogen, 14S pounds to 23 pounds of plios- phorus and 71 pounds of potash. In order to show you what the demand for nitrogen is — and you have had it stated here that our demand will not use the output of the sulphate ovens— in 1909, corn, wheat, and oats in grain alone removed from the soil of the United States 3.9(>5,000,000 pounds of nitrogen, G06,(XK),000 pounds of phos- phorus, and 875,000,000 pounds of potash. That was in just three crops in the grain alone. Of course, some of the stalk did not come back on the land, an per cent ; on tobacco at lOi cents i)er pound, a net profit of 275 per cent ; and on cotton at 12 cents per pound a net profit of 115 per cent. These prices assumed are the five-year average received by the farmer, 1909 to 1913, inclusive. To obtain the true net profit one nnist deduct the cost of handling the fertilizer from the railway station and applying it to the soil. I want to draw special attention to the significance of the figures which have just been given in so far as they apply to the cereal crops. Here the profit in the use of fertilizers at prevailing high prices is comparatively small and uncertain. These crops cover 60 per cent of the cultivated acreage in the United States, and in these MUSCLE SHOALS PROPOSITIONS. 619 figures we have in part the explanation of why it is that the use of "/trogen is practically confined in the United States to crops other than the cereals, such as cotton, potatoes, truck, tobacco, etc." ^ i ^i I thfnk that dearly demonstrates why these fertilizers are used ex enslvely on cotton, tobacco, and potatoes. Now, in this matter the question is where are we going to get this nitrogen. I think I have demonstrated the fact that we need it. and there is only one source from which we can get it, and that is from the air. The Chilean nitrate beds are eventually going to be exhausted , in a hundred years, according to the testimony of some experts, they will be exhausted. The cheapest deposits have been exhausted. They can not lower their price suddenly unless they cut out their export duty, which we hope the operation of this plant will make them do. .^ ,, a ^ r. ,^»f ,•« ti,o In the same year, 1916— and there has been considerable development in the art since that time-the American Cyanamid Co. again, through their president, Mr Frank S. Washburn, on page 5 of a hearing before the Senate Committee on 'Agriculture and Forestry, on March 16, 1916 testified as follows : " What has been obtained, economically speaking, is this : That the fnctory costs under most favorable conditions, those which are not only theoretically obtainable, but actually obtainable in some parts of the wodd, eyerything, including overhead and superintendence, and all that sort of thing mside the factory, but not including the interest on the investment, for producing nitrogen comparable to the nitrogen that is in the Chilean nitrate is about one-third of the ordinai-y market price of the Chilean nitrate. , ^ \ «. " Senator Smith of South Carolina. You mean to say that the factory cost is about one-third of the selling cost? ^^ "Mr. Washburn. Of the selling cost of Chilean nitrate. Also, in a hearing before the Committee on Agriculture of the House on February 9, 1916, Mr. Washburn said: . ^ ^ "Mv anticipation is that the establishment of the nitrogen industry, as it can be established with what I believe, and what I believe would appeal to those who study the subject, is the proper and legitimate Government c-oopera- tion, will giv(^ the farmer his fertilizer for one-half of what he would otherwise pav for it " in testifying before the Senate Committee on Agriculture and Forestry Dr. L H Baekeland, one of the foremost chemists in this country, an independent chemist and the inventor of Baekolite, a man well recognized in the profession, nmde the following statement on this subject of the fixation of atmospheric nitrogen * •' The statement is made by the present Government monoptdy in Germany that after the war is over aiid after what they know now about the synthetic manufacture of nitrogenous fertilizer from the air, after all the experience thev have acquired during this war while making nitric acid, that they will be in such condition that they intend to furnish the farmers of Germany nitrogen fertilizer at about one-half the price it is costing the consumer here in the United States. If Germany can do that, gentlemen, there is not the slightest doubt in my mind that we can do the same here, or that we can do better. The report of the nitrogen products committee of the British Empire, in item (d), paragraph 654, on page 133, says: u w • i " Combined nitrogen, as cvanamide or ammonium sulphate, can be obtained hv svnthetic processes at a cost, at the factory, which is less than one-half the niarket price of combined nitrogen from other sources, prewar conditions be- ing taken as a basis in each case." As an interesting matter in this connection, I have a copy of an argument prepared bv the Koppers Co., of Pittsburgh, arguing for a duty on sulphate of ammonia, and on page 8 of that argument, under the heading, A\hy pro- tection by legislation is necessary," the second paragraph says: "The cost of operating these plants is relatively low, so that even to-day sulphate of ammonia is being sold in Germany at half the price m the Lnited States, based on the present rate of exchange." So it is an accomplished fact in Germany. Now Dr Whitney and Dr. Tolman and Mr. Swann have given some won- derful 'testimony to this committee as to the possibilities of the phosphorous compounds bv the use of the electric furnace, all depending upon cheap water power which we believe we can secure through the operation of this plant under 'the contract proposed by Mr. Ford. I will not read their testimony in regard to these high-grade materials, except to show you a few things along that line. I will come back to that a little later. V ! 620 MUSCLE SHOALS PROPOSITION'S. \ The (letelopinent of the fertilizer industry will not brini; about the neces- sary improvement in the use of hij;h-gracle fertilizer compounds throu«a a shny improvement; that is to say, 16 per cent is the highest content phos- phate material furnished to the American farmer to-day ' The ('HAiRMAN. You say 16 per cent? Mr. BowEB. Sixteen per cent acid phosphate. It is not possible to make economically !>(» per cent acid phosphate; there is no wav of doins it and tne next compound jumps, as testified by Dr. Whitney and Mr. Swann to the several superphosphates, which carry above 40 per cent, and if we are goinc to make this step now, we have got to cross that creek. We can not make two jumps land at 20 per cent and go on to 40 per cent. We have got to jump from ? i ?; P^^ Pi-esent fertilizer industry, with its investment in acid-sulphate plants that are making 16 per cent, feel probably that the jump could not be made. It would injure them— I do not question that for a moment— and I think that explains the reason why they are here. But agriculture must "o on • we must feed our crops ; we must begin to do it intelligently and scientifically' And Mr. Washburn himself recognized that situation in his testimonv before the Agricultural Committee of the House in the same hearing I referred to a moment ago, when he said, "The answer to the fertilizer problem to be of any practical and immediate value, must lie in revolutionizing present condi- tions instead of slow evolution proceeding under their domination " He recog- nized that it must be a jump to get to these high-grade materials ; and this is the crux of the whole situation and the cause of the opposition There is no question about it. It is not that these gentlemen are coming here in a philanthropic spirit to prevent the Government making a bad deal with Mr. Ford. ^ Last year— if T may be i>ermitted to inject this at this point— when the propo- sition was for the Government to operate this plant and trv to secure the same results there was no bad bargain with a private individual interwoven in it or connected with it, and they were just as strenuous in their opposition, as most of you gentlemen know. What they fear is the result of this development. What we ^eek as farmers is to maintain our soil fertilitv and increase our crop pro- duction through the greatly increased use of fertilizer material. It is those re- sults that these gentlemen fear. It is a clejir-cut issue. You can not take a step forward in the line of progress without treading on somebodv's toes, and unfor- tunately to make this development somebody's toes have got to be stepped on But I am sure that the committee would not agree that the interests of an indus- try dependant upon a primary interest such as agriculture should be considered as superior to the interests of agriculture itself. That is not a situation that will appeal to the people of this country as a whole, and certainly it will not appeal to the farmers. Now, with reference to the nitrogen production in this country. I want to make this flat statement, and that is, simply that there is no business in the United States of America engaged primarily in the production of nitrogen com- pounds. All nitrogen compounds produced within the borders of the United States are by-products of industries that depend upon the sale of a major product for their existence; and these industries who are asking that you protect their interests are asking you to protect the interests of a by-product of another major industry. Take, for instance, if you please, the by-product coke ovens. Their major product is coke, for the steel industry, and by the testimony of Mr. MacDowell the cost of the ammonia in a ton of ammonium sulphate, the 500 pounds in a ton of ammonium sulphate is $1.50. That is his statement. They argue if they do not get a dollar and a half for the 500 pounds of ammonia they will have to increase the price of coke, and consequently increase the price of steel ; but the amount of ammonia they get in producing a ton of coke is not worth 15 cents on the ton. It is only worth about 6 or 7 cents. I will put the correct figures on that in the record. If I am not mistaken it is not more than that on a ton of coke. On the basis of $1.50 per 500 pounds of ammonia it is 0.021 cent per ton of coke. The Chairman. How much is it on a ton of steel? Mr. Bower. I will try to obtain those figures. I do not know exactly the amount of coke that is used in the manufacture of a ton of steel, but I can get that information for you. The Chairman. I wish you would put that in the record. Note.— One ton of coke is usetl to 1 ton of steel. So it would be the same 0.021 cent on a ton of steel. Mr. Bower. I will be glad to do it. In the case of the by-product coke-oven industry they have said repeatedly, and they used that argument most effectively MUSCLE SHOALS PROPOSITIONS. 621 last spring, that their production was 550,000 tons of ammonium sulphate per annum; but if you read the testimony carefully where they make that state- ment — and I notice Mr. MacDowell was careful to make it in that way — you will see that it refers to sulphate equivalent. The meaning is simply this, that 550,000 tons per annum is the amount of ammonium sulphate that they can produce if all the ammonia recovered from the by-product ovens was manufac- tured into ammonium sulphate and sold as such ; but that is not the situation. Their primary market which is always supplied first — I do not mean in point of time, but first in point of the industry — is the great market for aqua ammonia and anhydrous ammonia and the various ammonia liquors that go into house- hold use, and that amount has got to be deducted from the amount of ammonium sulphate produced before the farmer gets any ammonium sulphate from the by- product industries. In 1920, which is the biggest actual production year the by- product coke-ovens ever had, the total production was 467,000 tons. . That is the production of sulphate equivalent ; that was their total production, 467,000 tons. The actual production of ammonium sulphate, which is the fertilizer ingredient, was only 337,500 tons, and that was the largest year the by-product coke ovens ever had. So you will see that there is a difference there of 129,500 tons of sulphate equivalent going into ammonia liquor. Let me just point out another difficulty. Those figures are from the United States Geological Survey state- ment as to the by-products obtained from coke-oven operation in 1920. There is another difficulty in depending upon such a by-product source for our nitrogen. During this past year, as you gentlemen know, the farmers of This country have been passing through one of the worst crises that agricul- ture ever experienced in the United States. Yet the by-product coke ovens are nearly shut down; the steel industry has come to a halt, and the pro- duction -of ammonium sulphate is not coming forward ; and exactly identical conditions will again take place whenever you have a crisis in agriculture. When agriculture goes through a stress and storm period, as has been the case recently all over the country, all industry slacks down, eventually work- ing back to the steel industries; and when the farmer needs a larger amount of cheap fertilizer to get back on his feet the production of ammonium sul- phate is reaching its lowest level in the course of its decline following after agriculture. That is one reason why the American farmer can not get cheap nitrogen to increase his soil fertility. This is a by-product, with a preferen- tial first market for the ammonia liquors before we get any. In 1920 the exports amounted to 59.566 tons. Last spring, when the proposition was for the Government completion and operation of this project, the by-product coke oven interests were actively en- gaged in defeating it, and following its defeat they prepared a document argu- ing against the completion of the Wilson Dam for the operation of nitrate plant No 2. They sent out a letter to a large number of by-product coke-oven manufacturers over the country in effect stating that w^hile the proposition had been defeated last spring it would undoubtedly come up again in the fall and they wanted to be prepared, and they got quite a few signers on the back, about 20 of them. I want to call attention to fiive of those especially, namely, the Indiana Coke & Gas Co., of Terre Haute, Ind. ; the Minnesota By-product Coke Co of St Paul, Minn. ; the New England Fuel & Transportation Co., Boston, Mass • the Seaboard By-product Coke Co., of Jersey City, N. J. ; and the Kop- pers Co., of Pittsburgh, Pa. Those five I wish you to remember for a moment. Mr Crowther. Why not put the names of the other signers in the record? Mr Bower I would be very glad to have them all printed in the record. I have a reason for calling especial attention to the group I have mentioned, and I have no objection to all the names going in the record. The other sign- ers were • Alabama By-products Corporation, Birmingham, Ala. ; Camden Coke Co Newark N J. ; Citizens Gas Co., Indianapolis, Ind. ; Coal Products Manu- fai^turlnc Co' Aurora, 111. ; Chattanooga Coke & Gas Co., Chattanooga, Tenn. ; Donner Un^on Coke Corporation, Buffalo, N. Y. ; Domestic Coke Corporation, Fairmont, W. Va.; Gulf States Steel Co., Birmingham, Ala.; Inland Steel Co Buffalo N Y • uk Velle Iron Works, Wheeling, W. Va. ; St. Louis Coke & Ohemckl Co CWcago 111.; the Hanna Furnace Co., Cleveland, Ohio; the MSSee^Cokfrias Co. Milwaukee, Wis.; Toledo Furnace Co., Toledo Ohio; the Brier Hill Steel Co., Youngstown, Ohio; the Youngstown Sheet & Tube Co., Youngstown. Ohio ; Woodward Iron Co., Woodward, Ala. ; Zenith "^FTl^wing't^e'Sef;^''^ Muscle Shoals appropriation, when the tariff bUl pasTed the House, after it had passed the attention of the farmers was called tTthe fact thai there was a duty of $12 a ton on ammonium sulphate dl 622 MUSCLE SHOALS PROPOSITIONS. in the tari|P bill, on the very product that they manufacture; and after they had argued that their production was ample for the American farmer and at as low a price as he could get it from anywhere, they turned right around and asked for this duty, and it was put into the tarifE bill. There was no public hearing, or at least no printed hearing, and I have examined them very carefully to see what representations were made. But the duty of $12 a ton is in the tariff bill as it passed the House for the first time. When we took up the matter we found they had been to the Senate Committee on Finance and had presented testimony there asking that the duty of $12 a ton be left in the tariff bill. They gave their reasons in the hearing before the Senate Finance Committee on Schedule 1. The hearing was held on July 30, 1921, before the Senate Committee on Finance, and in their statement they say : " What we do fear is abrupt and demoralizing fall of prices due to the flooding of our markets with unnaturally cheap material manufactured in Ger- man-subsidized, syndicate-controlled, war-built nmnitions plants, and that the American product will be displaced on the American market by unnaturally cheap material made by low-priced labor in these plants built during the war to manufacture munitions." That is the danger they feared, and what they sought protection against was not the Chilean nitrate, but the German fixed nitrogen, and they got their duty. The reason I called your attention to the names of those signers of this statement is that in the list of organizations represented by this committee are the very five names that I read to the com- mittee as signing this argument in opposition to the completion of the Muscle Shoals nitrate plant. That is, after defeating whc^t the farmers believe was a chance to get cheaper nitrogen, and having, as they claimed, defeated that, and according to their letter preparing to carry their opposition through to this Congress, they turned around and got $12 a ton duty In the tariff bill protecting them in their high-priced nitrogen. Mr. Crowther. May I interrupt long enough to say that I hope we might have a copy of the letter in which they claim to have defeated that measure. It seems to me we ought to put that letter in the record. Mr. BowEB. I will try to procure a copy of that. I had one, but it has been misplaced. I will state this, that they did not state definitely in the letter that they had defeated this proposition, but the set-up was that this has been defeated, but is coming up again this fall, and we must be again prepared to protest against it. That is the whole tenor of the letter. I do not think they ^nade the flat statement that they had defeated it. Mr. Crowther. I think with that statement the letter need not be put in the record. The Chairman. I think it would be a good thing if you could get the letter and put it in the hearing. Mr. BowEB. I will try to get it. Understand me, Mr. Chairman and gentle- men, I am not criticizing the House of Representatives because of that duty of $12 a ton in the tariff bill, because I do not believe any member of the committee or the House knew that that duty was in there when the tariff bill passed. The Chahiman. This committee has nothing to do with the tariff bill. Mr. Bower. I understand that, but this bill has already passed the House. I do not want you to think that I think the members of this committee really knew that that duty on ammonium sulphate was in there, because if they had known it I am sure they would have taken it out. Mr. Crowther. We could not take it out; the bill was passed under a rule and there was no way to amend it, or take anything out of it. Mr. Bower. The thought in our minds is that the arguments which have been presented to you have been that we should be left to depend upon such sources of industry that would do away with all our efforts to get cheap nitro- gen and all we want of it. We would never get it. The next great source of nitrogen i)roduced in America is cottonseed meal, and there we are making an economic mistake in putting back in the soil cotton- seed meal. Cottonseed meal should go to the dairies of Mr. C'rowther's State and of Iowa to feeply all of our needs. I find that propaganda sheet No. 2 and sheet No. 3 and sheet No. 4 are all based (m the ammonium sulphate industry supplying the deinanerhaps limited amounts of sulphate, there is practically none to be had. " This situation, which supplies new evidence of the influence of industrial interdependence, is avidly seized upon in certain circles to point a moral as to what may happen to American industries of many sorts. Some are vocifer- ously declaring that the domestic ammonium sulphate producers face a future of glfK>ni if not of extinction. A parallel is drawn with the position of American pro that stuff to New Zealand. I do not know what the New Zealand people did with it. Of course, what tbey shii)ped to New Zealand, on account of the high freight charges, was the superphosphates ; they shipped the 40 and 45 i)er cent material to New Zealand instead of the 16 per cent. The American Fertilizer Handbook for 1920, page 39, has this statement : " The Ammo-Phos works in New York Harbor was in steady operation during the year, pnictically all of the output going into the export field. This product, which is made in two grades, one containing about 13 per cent ammonia with 48 per cent available phosphoric acid and the other 20 i>er cent ammonia with 20 per cent available phosphoric acid, commands a premium in the export trade on account of its high concentration of plant food with corresponding reduction in transportation costs." The production of high-grade materials of that character at Muscle Shoals will correspondingly reduce our freight rates, as well as the export freight rates, which these gentlemen would have to pay in shipping their fertilizers abroad. They ship these high concentrates out of the country and leave us the low con- centrates with the high freight rates. Mr. MacDowell stated that plants required a balanced ration, and that the 2-8-2 and 3-9-3 were good' fertilizers. I would like to give you a little table of the food requirements of plants. Thirty bushels of wheat require 35 pounds of nitrogen, 15 pounds of phosphoric acid, and 9 pounds of potash ; 75 bushels of <-orn require 60 pounds of nitrogen, 20 pounds of phosphoric acid, and 16 pounds of potash ; 60 bushels of oats require 40 pounds of nitrogen, 16 pounds of i)hosphoric acid, and 11 pounds of potash ; 4 tons of alfalfa require 190 pounds of nitrogen, 43 pounds of phosphoric acid, and 178 pounds of potash; and 2^ tons of clover require 103 iwunds of nitrogen, 20 pounds of phosphoric acid, and 82 pounds of potash. So the 2-8-2 — that is. 2 per cent nitrogen and 8 per cent of phosphoric acid — is not a balanced ration for a plant. What has established that formula? The price. They can not put 10 per cent of nitrogen in there and furnish fertilizer at a price at which the farmer can buy it. because the nitrogen is the most expensive element. W'here we only go to 2 and 3 per cent of nitrogen the total fertilizer bill is made up of over half on the nitrogen cost, and the other two items, the phosphoric acid and the potash, make up the other half. He says we do not consume it and that the lower grade of 2 per cent and 3 per cent are what we neied. The reason it is 2 and 3 per cent is because it is sold on a tonnage basis. If lie puts 10 per cent in, the price goes up and the farmer can not use it, and 628 MUSCLE SHOALS PROPOSITIONS. ho does not buy it. But they hahnu-e it on the basis of tlie price of nuiterial and the pro tit they can make out of selling a ton. That is wliat we are trying to get away from'. That is one of the reasons why we have hope of getting an increased percentage in connnercial fertilizer out of Mr. Ford's proposition. We would like to get away from the 2-8-2 and the 8-9-3; we wouUl like to ^et some of these superphosphates, because if we can cut our freight rates we can get our product on much more advantageous terms. We would have a saving in price; it might not be in the factory cost, but if you make am monium phosphate and sell it to the farmers direct, the saving between the fa( tory door and the farm would put that plant food on the farmers' soil at half the price. If the factory cost was on a parity per unit of plant food the saving of warehousing, hauliug, aud the dealer's profits, baseil on a per ton cost on a high-grade material all of those elements of cost would be reduced to one-sixth after it leaves the factory door, and by the time it gets to the farm I venture to say it will be not over lialf the price of the former cost, and the identical thing wouhl be true on all the high-grade material. Now, with reference to the grades. I declare that sometimes I do not know what kind of a game the fertilizer people are trying to put on the farmer. In this Survev of the Fertilizer Industry. Bulletin No. 798, of the United States Departnient of Agriculture, dated October 20, 1919, on page 14, there is a table sliowing the distribution of fertilizer purchased in 1917. by grades. Starting at tlie beginning of that table there are four columas of grades, different combinations of nitrogen, phosphorus, and potash, that they have foisted off on the American farmer, and there is a total of 218 grades actually listed, with the percentage that each grade bears to the total, and of the 218 grades they made up 9.").sr) per cent of the fertilizer. Then at the end it says, "All other grades (724 grades) made up 4.15 per cent." That is not an intelligent proposition. Then, in addition to that we have the brands. In the Federal Trade (Join mission's report on the fertilizer intVustry issued in 1916, on page 219, it lists the brands of fertilizer in the Southern States. We find there that the Vir- ginia-Carolina Chemical Co. put on the market in Georgia 999 different brands of fertilizer, all made up of 2-S-2 and 3-9-^3, and lots of it goes down to one-half per cent of nitrogen. So the farmer would never get as nmch as a pound on his soil after you had bought it. and yet that company, which comes here and asks ycm to protect their interest, registered 999 brands in one State to sell to the farmers; and the Armour Fertilizer AVorks, of whicli Mr. MacDowell is president, registered 977 additional brands. So that com- pany would sell the farmer fertilizer on a tonnage basis and keep him away from the knowledge of what this plant food is, and continue this proposition of putting out, as this table I have showed you shows, thii? tremendous amount of different grades of this nuiterial. You will find that 52.79 per cent of all grades that went to the farmer is made up of 12 per cent or less of plant food. That is to say. in buying a ton of fertilizer we only get 240 pounds of fer- tilizer out of 2,000 pounds of material. We have had a lot of talk about fillers. It is not the filler. I will not go that far in criticizing the fertilizer industry. That is not the crux of the situation. ^ ^ , _ , Let me show you what they do. Take, for instance, the 2-8-2 grade. Let me read you this from this survey of the industry : "If it is desired to make a mixture containing 2 per cent of ammonia, 8 per cent of phosphoric acid, and 2 per cent of potash (the well-knowm grade 2-8-2) and the materials at hand are cottonseed meal, containing 7 per cent of ammonia; acid phosphate, containing 16 per cent of phosphoric acid; and Nebraska potash, containing 28 jjer cent of potash, the method of making up the mixture will be as follows: Two per cent of a 2,000-pound ton is 40 pounds; in order to obtain 40 pounds of ammonia from 7 per cent cottonseed meal it' will be necessary to use 571 pounds of cottonseed meal. The amount of phosphoric acid desired is 8 per cent of a ton or, in fertilizer parlance, b units, or 160 pounds. To obtain 160 pounds from a 16 per cent acid phosphate will require 1,000 pounds of acid phosphate. The amount of potash called for is 40 pounds and to obtain that from a 28 per cent material 143 pounds wiU be required. The total amount of materials used, therefore, will be 571 pl"^^ 1.000 plus 143. or 1.714 pounds. To this are added 286 pounds of filler ni order to make up the ton." ^ The filler is not the great big thing in that, but they put in the 286 pounds of filler to make up the ton, and then you have the ton of 2-8-2. But they MUSCLE SHOALS PROPOSITIONS. 629 start with the cottonseed meal which carries 7 per cent of nitrogen, and then they have the acid phosphate which carries only 16 per cent of nitrogen. If we can get this proposition of ammonium nitrate carrying 35 per cent of nitrogen, and you will find that the superphosphate carries as high as 60 per cent of phosphorus, and if you take that kind of material and fix it you wdl get awav from the necessity of the 2-8-2 stuff. But you can not get away from it ' without developing these high compound materials to start with. That is why I say vou have to quit using the low-grade stuff, and you have to jump the creek in one .lump; you can not do it step by step in a slow process. " While it is likelv that in the 5,000,000 tons of fertilizer produced in 1918 more than 270.000 tons of filler were used, the filler constitutetr. Bower. They made other recommendations, as we do as to the conserva- tion of all nitrogen products. Mr. Parker. This was the only single recommendation in reference to the cyanamid process^ Mr. Bower. Yes, sir. Mr. Parker. I notice from what you read that they said it might be hoped that nitrogen might be made as cheaply as it had been imported. Mr. Bower. They said it could be. Mr. Parker. Is that limited to the cyanamid process or to the other processes? Mr. Bower. No, sir ; I would not think it was. Mr. Parker. Are not the other processes reported as being much cheaper than the cyanamid process? Mr. Bower. They are reported as such, but that is denied by others. Mr. Parker. They did not say the cyanamid process was cheaper? Mr. 'Bower. No ; not necessarily. Mr. Parker. Has it not proved to be much more expensive? Mr. Bower. I do not think so. Mr. Parker. You do not know, do you ? Mr. Bower. I know the cyanamid plants in Germany had operated at full capacity, and one of their Haber plants was destroyed. Mr. Parker. That was an explosion? Mr. Bower. Yes. in • ' J I •il I - 1 I t h 634 MUSCLE SHOALS PROPOSITIONS. Mr. Pakker. They were working that at a larger capacity when it exploded"; Mr. Bower. Not larger than the total cyanamid production. Mr. Parker. On the whole, were they not operating the Haber process much more than the cyanamid process? Mr. Bower. The cyanamid process was operated to the full capacity. Mr. Parker. Wh"ch was producing the more? Mr. Bower. I could not give you those figures. Mr. Crowther. You said that what the farmers wanted was nitrogen, and the cheapest method, the one everybody looked forward to, was the air reduc- tion method? Mr. Bower. Yes, s'r. Mr. Crowther. Mr. Ford does not intend to run an air-rehnri<- {N-in top roduct away from Mr. Ford's plant through cooperative organizations, but we are going to try and take just as much as we can to get away from that practice, and with the present fertilizer industry we have had a time and a half getting them to deal with cooi)erative enterprises at all. A good many of them will not quote us. Mr. Quin. They are not encouraged by them to say the least. Mr. Bower. Not at all. Mr. Quin. Mr. Bowers, the Virginia -Carolina Chemical (3o. mentioned by you sells fertilizer in several States, does it not? Mr. Bower. Oh, yes ; it is one of the large fertilizer manufacturing concerns. Mr. Quin. Is this Mr. Duke connected with that concern? Mr. Bower. Yes; he owns a controlling interest in the Virginia-Carolina Chemical Co. The Chairmaj^'. I think that has been testified to a half a dozen times. ^Ir. Quin. The American Cyanamid Co. man told me not. The Chairman. Mr. Duke owns 26 per cent of the stock. Mr. Quin. In the American Cyanamid Co., but this man denied his having any interest in the Virginia-Carolina Chemical Co. The Chairman. No ; I think it was testified he had an interest in that company also. Mr. Quin. Wliat percentage does he own in the American Tobacco Co.? Mr. Bower. I have not any idea. Mr. Quin. Mr. Bower, you stated that Mr. Washburn was president of the cyanamid company at the time he made these statements before this committee. Mr. BowER. He was. Mr. Quin. And that statement was to the effect that for the Government to cooperate with them in the proposition that 3 per cent would be a fine thing. Mr. Bower. He called it proper Government cooperation. Mr. Quin. Is this proposition Mr. Ford has made this committee to be decided as improper under any construction of the language used by Mr. Washburn? Mr. Bower. I could not understand it so ; no. Mr. Quin. It would be illogical to construe it in that way? Mr. Bower. Absolutely so. If it was a proper Government cooperation with them in 1916, they would have to admit it is proper Government cooperation now with Mr. Ford, and Ui\ Ford is paying 1 per cent more interest than they offered. Mr. Quin. There is no doubt in your mind as a representative of the farmers as to the language used in this contract touching the fertilizer part of it, is there? Mr. Bower. No ; there is no doubt in our minds. Some of our friends who feel they want to protect us a little further suggest we might get a little clarifi- cation of that language ; not a change in the contract, but in order to make what we are absolutely confident is Mr. Ford's intention and purpose a little clearer in the contract, we are discussing with Mr. Ford's general representatives some possible clarification along that line, and I believe that will be adjusted satis- factorily to everyone. Mr. Quin. As a practical proposition, with different crops requiring different foimulas, some as you stated needing more nitrogen than others, it would be a fatal mistake to set up in a contract; what formulas ought to be used or made? Mr. Bower. Absolutely so. It would not be possible to do so. Mr. Quin. It would just ruin it so far as the farmers' interests are con- 39 pounded at the rate of 4 per cent (semiannual payments of 2 per cent) would be credited by the $1,000,000 annual payments made to the Government as and when they were made under the proposed contract. This method of crediting the payments direct to the account they are indebted to avoids the necessity of assuming that the Government would turn around and loan this monev at 4 per cent. 6 The above four assumptions (A, B, C, and par. 5) make a total unpaid cost $1 0^6 800 000 *^^ ^^^^^ ^^'''^'^' ^^^""^ '^ January 1, 2025, of 7. DAM NO. 3. Basis (A). Mr. Ford's 4 per cent interest payment specified in paragraph 7 ?oo l^^SJ^^"".^^'^ ^""y ^^"' ^^- ^ '^"^ ^PP^y ^^ $33,000,000 January 1, 1931. This {i»33,000,000 IS arrived at as follows : Cost to build Dam No. 3 $25 OOO 000 Overflowed lands ~_ ~ ~__ 9' 33^^' ^^qq Net accrued interest before full 4 per cent payments beginZZIZI Z 5,' 669,' 000 Total 33^ Q^^ QQQ Above figures are Chief of Engineers' estimates. ^cSfi^^'^^^.?,* *^*® ^ P®^ ^^^* interest (2 per cent payable semiannually) (»u $33,000,000 will run until January 1, 2028. Basis (C). That beginning January 1, 1932, Mr. Ford will pav annually into the Treasury of the United States, account Dam No. 3, $1,000,000 (4 per cent annually on $25,000,000). »-»-'. \ y 8. Using the above bases for calculations, I have assumed that the $33,000 000 principal as of January 1, 1931, and the interest thereon, thereafter compounded at the rate of 4 per cent (semiannual payments of 2 per cent), would be cred- ited by the $1,000,000 annual payments made to the Government as and when they were made under the proposed contl'act. 9. The above four assumptions (A, B, C, and par. 8) make a total unpaid cost of Dam No. 3 at the end of the lease period, w^iich is January 1, 2028, of •?409,100,000. 10. The Treasury account against Dam No. 2 will show a deficit at the end of the lease period (see par. 6) of $1,076,800,000. With reference to Dam No 6, the deficit will be $409,100,000, making a total Treasury deficit at the end of the lease period, after crediting all of Mr. Ford's payments as called for by paragraphs 3 and 7 (Mr. Ford's contract) of $1,485,900,000. 11. During the lease period, as per paragraph 10 of Mr. Ford's contract, there IS to be in operation two amortization funds, as follows : For Dam No. 2 $19 §68 For Dam No. 3 3 505 both payments being paid every six months, beginning with specified dates. These two sums for the lease period, if invested at the rate of 4 per cent (2 per cent compounded semiannually) will return to the Treasury approximatelv $50,000,000. 12. The net total deficit tha£ the Federal Government must supply by general taxation because of the failure of Mr. Ford's payments to foot the cost to the Treasury becomes $1,485,900,000 (par. 10) minus $50,000,000 (par. 11), or a net deficit in the Treasury of $1,435,900,000. 13. I believe that with the above data before you, you will be able to see — (a) That the method of computing the cost to the Treasury is the correct and practical method, and tells accurately what the effect on the Treasury and the taxpayers in the United States will be. (ft) That you will find, if this question is investigated, the bases for calcula- tion and the mathematics applied to the same are both correct. 14. This letter does not cancel the statement made before the committee that the deficit would be $1,275,000,000, which amount is correct for annual interest applied to the $83,175,000 principal. The figures herein submitted are based tiI>on semiannual interest payment on the same $83,175,000. Very truly, yours, Hugh L. Cooper. 92900—22 41 iV 640 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 641 \. The Chairman. The chairman this morning received a nimil)er of telegrams from the mavors of Chattanooga, Nashville, Knoxville, and Memphis. They had read in the newspapers that there was a possibility of this committee going down to Muscle Shoals, so they have extended a very cordial invitation to the mem- bers of the committee to spend a day or two with everyone of them. STATEMENT OF HON. S. HUBEBT DENT, JB., ATTOBNEY FOB THE ALABAMA POWEB CO. The Ch\irman. Gentlemen, Mr. Dent, former chairman of this committee, is present, and I understand he is here to represent the Alabama Power Co. in t'his matter Mr Dent Mr Chairman, I represent the Alabama Power Co. as an attorney with 'reference simply to their legal rights in connection with this proposition. I do not represent the Alabama Power Co. or anybody else with reference to any policy that the committee may see fit to adopt. Mr. Thomas W. Martin, the president of the Alabama Power Co., is here and desires first to present the facts relative to the legal rights and other aspects of the Alabama Power Co. s attitude in respect to Muscle Shoals this morning before we present the legal argument in the matter, and I would like for Mr. Martin to be heard with reference to the facts first. , , . ^ ^ r^ ^ ^ The Chaibm\n. As I understand it, the Acting Judge Advocate General made some recommendations regarding the legality of any agreement that the Alabama Power Co. has with the United States Government regarding the rights of the Alabama Power Co. in this plant. .^, ttt • t>*,.«« Mr. Dent. Which is known as the Gorgas plant, near the Wariior Kiver. The Chairman. Yes. Mr Dent. Which is some 88 miles south of Muscle Shoals. The Chairman. That is our understanding, and we would like to go into that. Mr Dent. I would like to go into that with you. I do not know what the program of the committee is. Since I was here about two weeks ago, the Ala- bama Power Co. has put in a bid for Muscle Shoals. The Chairman. Yes. .^.^ i „ 4.^ v>«n.. Mr Dent I do not know what the disposition of the committee is as to heal- ing the power company on that proposition now or whether they would rather finish the hearing on the Ford proposition with reference to the rights of the Alabama Power Co. under that proposition. « ^ ,k« tt^^i r.rnnn The Chairman. We would prefer that you take up, first, the Ford propo- ^* Mr' Dent. Then I will ask that Mr. Thomas W. Martin, the president of the Alabama Power Co., be heard with reference to the facts. Mr Miller. Mr. Chairman, as I understand it, we are to hear now the Alabama Power Co. side of their contention regarding the Ford proposition. The Chairman. Yes. Mr. Miller. And not their own proposition? The Chairman. No ; I thought it best to take up the Ford proposition farst, and then they will take up their own proposition. Mr. I^IiLLER. I agree perfectly with the chairman. STATEMENT OF MB. THOMAS W. MABTIN, PBESIDENT ALABAMA POWEB CO., BIBMINGHAM, ALA. The Chairman. Mr. Martin, we will be very glad to hear what you have to sav regarding this matter and you may proceed, for the present at leas^' "^ vour own wav and explain to the committee what your position is regar^^"^- the matter that was referred to by the Acting Judge Advocate General in ms letter to the Secretary of War regarding the rights of your company. I ^vll» ask you first to state your name and the position you occupy. .,^^ ^in Mr. Martin. My name is Thomas W Martin; I live in Birmingham, Al^- I am president of the Alabama Power Co I have been president of the com nanv since February, 1920, succeeding Mr. James Mitchell, who had bee" Kklnwith paralysis and' who died in 1920. Prior to that time I was v e president and general counsel of the company, and had been connected >Mt the company as its counsel since 1912. A,.r\n<' Mr. James Mitchell was the active executive of the company durin. its entire active history and until he was stricken with paralysis in 19-"- Some of the transactions of which I will speak were conducted by Mr. Mitchell. I knew of some of them from participation in them, and possibly to some extent, or to a larger extent, possibly, from contact with him ; and in the affairs of our company I have been a director of the company since its active work began in 1912. It is a rather difficult problem to know just where to confine myself in this discussion, and I hope, Mr. Chairman, if you think I am going beyond the strict limits of the question which you wish me to present, you will call my attention to it. I will try to confine myself to those limits. Necessarily, there are some incidents or statements which for the moment may seem as collateral or indirect, but which I believe are necessary to be presented to this committee. The Chairman. Of course, the statement made by the Acting Judge Advo- cate General regarding this matter refers to the law of 1916, the national defense act, in a measure; and that act provided that the Government alone should erect this plant and should conduct it without any interference from any private corporation. You are familiar with that act, of course. Mr. Martin. Yes; quite familiar, Mr. Chairman. The Alabama Power Co. was organized under the laws of Alabama in 1906 by citizens of that State. That company remained a nonoperating company for six years. Meanwhile, on March 4, 1907, the stockholders interested in it, citizens of that State, obtained an act of Congress approved March 4, 1907, to authorize the con- struction of a dam at the site selected for Lock No. 12 on the Coosa River. That was one of the sites which had been selected prior thereto by the engi- neers of the United States at which a dam should be built in a scheme of navigation improvement on that river. Those gentlemen who were interested in the company, having obtained that act of Congress, undertook to find some one to take over the company and develop the property. There were others interested in Alabama in undevel- oped water power projects, some connected with this same Alabama Power Co. group, others not connected with it. I shall not go into the relationships of those companies, because possibly that belongs to another branch of this investigation. Mr. James Mitchell came into the situation in 1912: was invited into it bv those people interested in the Alabama Power Co. and other companies. He formed a plan and took over this company with others, with a view to the developing of one or more hydroelectric stations. This plan or these various properties, I might say, had been presented time and again to bankers and business men throughout this country and abroad for many years without any success. Mr. Mitchell was an ' engineer, an American citizen, who had never been in our State prior to 1911, and came there to look the situation over, and became interested in it, and undertook to find capital for the development of one or juore properties. A plan was formed to develop this Lock No. 12 property. The initial plan was to finance this property with English capital, and the program worked out pretty much as it was outlined in the beginning. Millions of dollars of capital were found abroad principally for this development. The work of constructing the Lock 12, dam, and powerhouse was proceede was not built under the national defense act. It also appeared in that in- vestigation that the Warrior extension was not built under that act. We have m the record ^ copy of President Wilson's directions, dated February 23, 1918 authorizing $13,385,000 of the fund appropriated by section 124 to be used on what is now the Wilson Dam and powerhouse. Maj. Burns has testified that the balance of that fund had previously been spent on other projects, or is now in hand. Gen. Williams testified that nitrate plant No, 2 was erected from the appropriations for fortifications, and also that the extension at the Gorgas plant was erected from that source, and not one cent of the $20,000,000 ap- propriated under the national defense act was spent on the Gorgas plant or the transmission line. These two elements represented a large sum, $67,000,- 000, many times in excess of the $20,000,000 appropriation. Of course, the plants provided for under this act were not the plants provided for here, be- cause the President did not designate Gorgas in his letter at anv time; there was no reference to it at all. When the President discharged the duties im- posed upon him by that act he selected property other than the Warrior ex- tension, and never said the plant selected by him under that act should be treated as the nitrate property. On that basis of the case, considering its entire history, we feel that we have all along complied with every request, verbal or written, of the Government. We have stood ready at all times to place our entire system at the disposal of the Government. We have made a contract in good faith with Government officials and we stand ready to carry it out. The Chairman. Is that as far as you care to go at the present time, Mr. Martin? Mr. Martin. I would be glad to answer any questions you wish to ask me. Something was said about our own investment in connection with this extension. If the committee would care to know about that I would be glad to tell you what we spent in connection with this matter. Our investment and expenses amounted to $1,016,515.61 in connection with the station. I shall be glad to read the items in detail if you desire me to do so. The Chairman. We will be glad to hear the statement. That is in connection with the Government's request regarding the transmission of power from the line at Gorgas to nitrate plant No. 2? Mr. Martin. Yes; and those investments and expenses related to the Gorgas project. We had a number of obligations which we took on in connection with it from time to time. The Chairman. Will you kindly read the statement you refer to? Mr. Martin. We agreed in article 1 of the contract to construct what is known as a tie line with a certain capacity, and which also involved the duty of con- structing a substation of sufficient capacity at Bessemer to enable the power to be passed from our system into this line. Those transmission lines from Warrior to Bessemer and additional substation facilities at the Bessemer sub- station, inclusive of additional rights of way purchased by the Muscle Shoals- Warrior transmission lines, cost us $330,720. We agreed to stand part of the cost of constructing what is known as the Drifton Railroad. The Government advanced $30,000 toward that construction, and our company advanced $103,- 962.27 in addition to that. Then we had certain expenses, consisting of engineering, excavation, and con- struction, chargeable to the second unit, placed or purchased for the second unit, which was occupied by the Government facilities, representing an investment on our part of $212,627.50. When this plant was created, or just before the plant was put into service, we purchased additional coal from many sources to operate this additional unit. As we had to place the coal in storage, the storage facilities were inade- quate. This is not a very large item, but we had a fire which burned $17,100 worth of coal, the fire being caused by spontaneous combustion. We were under an expense of $17,222 for the cost of handling coal in storage made neces- sary by the cessation of Government activities and the lack of coal-handling facilities. Then there was additional labor cost at the Warrior plant due to the compulsory operation under the 8-hour law, and that amounted to $12,- 799.75. We had a coal mine that we equipped to supply coal for the entire out- put of this station, and we increased the facilities from a capacity of 350 tons a day up to approximately 800 tons a day. The (equipment we put in there rep- resented an investment of $224,736.79. Then we had some expenses of this character: We had on order, for in- stance, when the Government came into the situation, a 20,000-kilowatt unit to occupy this second space in our power house. We canceled the order at the request of the Government, and we had certain losses with the manufacturers to meet for the turbine and for the condensers. We paid the General Electric Co. approximately $10,000 to rewind the turbine to meet the needs of an- other purchaser. We had to take the condenser which we now have on the j^round at a cost of $42,744.86, Tlien we had some expense for completing the installation of the Government equipment at the Warrior plant after the Gov- ernment had stopped all payments in connection with that work. Those items altogether make a total of $1,016,515.61. We do not claim anything for those things ; we merely mention those to show our out-of-pocket and investment expenses in connection with this work. Of course, our system there represented at that time property values of approxi- mately $35,000,000, and that entire system with all this generating capacity and facilities were connected through this tie line and station with this War- rior plant. I am reminded by one of my associates that there were a supple- mental contract to contract T-69, which I will place in the record, if the com- mittee wishes, making certain changes in certain provisions. It was negotiated in 1919: which, in its recitals, in effect, reaffirmed this contract that is now before the committee. I will be glad to place same in the record. (The contract referred to is as follows:) The United States of America and The Alabama Power Co., Birmingham. Ala. — Supplementary Contract T-69 A for Compi.etion of Construction Features Relating to Original Contract T-69. Dated August 1, 1919. This contract made this 1st day of August, 1919, between the Alabama I'ower Co., a corporation organized and existing under the laws of the State of Alabama (hereinafter called the contractor) party of the first part, and the United States of America, by R. H. Hawkins, lieutenant colonel, Ord- nance Department, United States Army, acting as contracting officer by authority of the Chief of Ordnance. United States Army, and under the direc- tion of the Secretary of War, party of the second part, witnesseth : (a) Whereas a certain contract was entered into between the United States and the contractor. No. T-69, dated December 1, 1917, a copy of which con- tract is hereto attached and made a part hereof, marked "Exhibit A" (herein- after \ called " original contract " ) which term also includes, wherever used herein, all agreements or orders, if any, supplementary to said contract, except this acreoment: and (6) Whereas the original contract provided that the Contractor should at the expense of the United States prepare and submit to the contracting officer general plans and specifications for approval and upon such approval, con- struct certain facilities for the benefit and account of the United States, gen- erally known as the "Warrior Extension," "Warrior Substation," "Warrior- Muscle Shoals Transmission Line," "Muscle Shoals Substation," and an ex- tension to the Enslev-Southern Branch of the Southern Railway, known as the "Drifton Extension* Railroad," which facilities are described in greater detail in Schedules A, B, C, D, and E, which form part of the original contract No. T-09; and n\ 'I ■^1 650 MUSCLE SHOALS PROPOSITIONS. I • at Mull^ value and are not saying so to^ay. It would be unfair for us to «v^fZ' "iv ?^^'''"' ^^"/^^"i^"' e»-^cted as it is, forms an integral part of our ^v^ter' intake! facilities common to one plant. We also hare a single sor^tnf^^^o'Sfn """^^ ^T "'^^ ^^^^'^ ^^ * *^^^^ Pl^^t known as the Wind- ^t^H ,, ^^^*>' ^^'l»ere there are two distinct ownerships, and that was cited as evidence that such a plant as this can be divided in ownei-ship B^t I know the Windsor situation. There are two ownerships there but there ^s a contract between both of those companies. They have organized an ODemt JTpli^r^T' ^ T^^^ ^P^'^**"^ ^^™P^"-^ '^ ^P^^^te that entire statioS as one" mav r^uirp'' Th^,,^?«^P«">' ^^^^ ^^^^^nts of power as their respective nee^S may require. That is an arrangement which could not be worked out exceot fa^"^^ ^ /^°i^^ operation, each contributing in proportion to the m)wer k fS«f ^^""^ ^"^ *^® operating expense of the station. But our situation is such that there can not be two operating stations. The Government officials tried hr'/.T''^ ^^V'^'^^ ^""i ^ ^"^ ^""'^ t^^y ^o "«t think it can be done now that IS, those gentlemen who know the facts. «,„^*^®?u^* ^.^?^ *^ this question of the national defense act Secretary Baker made the statement before the Graham committee that nitrate plant No '> vltJL"*/- lY ."?K^'*J^^ national defense act. It also appeared in that in*'- yestigation that the Warrior extension was not built under that act. We have m the record -a copy of President Wilson's directions, dated Februarv 23 1^1 S authorizing $13,385,000 of the fund appropriated by section 124 to be used on what IS now the Wilson Dam and powerhouse. Maj. Burns has testified that the balance of that fund had previously been spent on other projects, or is now m hand. Gen. Williams testified that nitrate plant No. 2 was erected from the appropriations for fortifications, and also that the extension at the Gorgas plant was erected from that source, and not one cent of the $20,000,000 ap- propriated under the national defense act was spent on the Gorgas plant or the transmission line. These two elements represented a large sum $67 000- 000, many times in excess of the $20,000,000 appropriation. Of course' the plants provided for under this act were not the plants provided for here be- cause the President did not designate Gorgas in his letter at any time • there was no reference to it at all. When the President discharged the duties im- posed upon him by that act he selected property other than the W^arrior ex- tension, and never said the plant selected by him under that act should be treated as the nitrate property. On that basis of the case, considering its entire history, we feel that we have all along complied with every request, verbal or written, of the Government. We have stood ready at all times to place our entire system at the disposal of the Government. We have made a contract in good faith with Government officials and we stand ready to carry it out. The Chaieman. Is that as far as you care to go at the present time. Mr. Martin? Mr. Martin. I would be glad to answer any questions you wish to ask me. Something was said about our own investment in connection with this extension. If the committee would care to know about that I would be glad to tell you what we spent in connection with this matter. Our investment and expenses amounted to $1,016,515.61 in connection with the station. I shall be glad to read the items in detail if you desire me to do so. The Chaibman. We will be glad to hear the statement. That is in connection with the Government's request regarding the transmission of power from the line at Gorgas to nitrate plant No. 2? Mr. Martin. Yes; and those investments and expenses related to the Gorgas project. We had a number of obligations which we took on in connection with it from time to time. The Chairman. Will you kindly read the statement you refer to? Mr. Martin. We agreed in article 1 of the contract to construct wliat is known as a tie line with a certain capacity, and which also involved the duty of con- structing a substation of sufficient capacity at Bessemer to enable the power to be passed from our system into this line. Those transmission lines from Warrior to Bessemer and additional substation facilities at the Bessemer sub- station, inclusive of additional rights of way purchased by the Muscle Shoals- Warrior transmission lines, cost us $330,720. We agreed to stand part of the cost of constructing what is known as the Drifton Railroad. The Government MUSCLE SHOALS PROPOSITIONS. 651 advanced $30,000 toward that construction, and our company advanced $103.- 962.27 in addition to that. Then we had certain expenses, consisting of engineering, excavation, and con- struction, chargeable to the second unit, placed or purchased for the second unit, which was occupied by the Government facilities, representing an investment on our part of $212,627.50. When this plant was created, or just before the plant was put into service, we purchased additional coal from many sources to operate this additional unit. As we had to place the coal in storage, the storage facilities were inade- quate. This is not a very large item, but we had a fire which burned $17,100 worth of coal, the fire being caused by spontaneous combustion. We were under an expense of $17,222 for the cost of handling coal in storage made neces- sary by the cessation of Government activities and the lack of coal-handling facilities. Then there was additional labor cost at the Warrior plant due to the compulsory operation under the 8-hour law, and that amounted to $12,- 799.75. We had a coal mine that we equipped to supply coal for the entire out- put of this station, and we increased the facilities from a capacity of 350 tons a day up to approximately 800 tons a day. The equipment we put' in there rep- resented an investment of $224,736.79. Then we had some expenses of this character: We had on order, for in- stance, when the Government came into the situation, a 20,000-kilowatt unit to occupy this second space in our power house. We canceled the order at the request of the Government, and we had certain losses with the manufacturers to meet for the turbine and for the condensers. We paid the General Electric Co. approximately $10,000 to rewind the turbine to meet the needs of an- other purchaser. We had to take the condenser which we now have on the j^'round at a cost of $42,744.86. Tlien we had some expense for completing the installation of the Government equipment at the Warrior plant after the Gov- ernment had stopped all payments in connection with that work. Those items altogether make a total of $1,016,515.61. We do not claim anything for those things ; we merely mention those to show our out-of-pocket and investment expenses in connection with this work. Of course, our system there represented at that time property values of approxi- mately $35,000,000, and that entire system with all this generating capacity and facilities were connected through this tie line and station with this War- rior plant. I am reminded by one of my associates that there were a supple- mental contract to contract T-69, which I will place in the record, if the com- mittee wishes, making certain changes in certain provisions. It was negotiated in 1919. which, in its recitals, in effect, reaffirmed this contract that is now before the committee. I will be glad to place same in the record. (The contract referred to is as follows:) The United States of America and The Alabama Power Co., Birmingham. Ala. — Supplementary Contract T-69 A for Completion of Construction Features Relating to Original Contract T-69. Dated August 1, 1919. This contract made this 1st day of August, 1919, between the Alabama Power Co., a corporation organized and existing under the laws of the State of Alabama (hereinafter called the contractor) party of the first part, and the United States of America, by R. H. Hawkins, lieutenant colonel, Ord- nance Department, United States Army, acting as contracting officer by authority of the Chief of Ordnance. United States Army, and under the direc- tion of the Secretary of War, party of the second part, witnesseth : (a) Whereas a certain contract was entered into between the United States and the contractor. No. T-69, dated December 1, 1917, a copy of which con- tract is hereto attached and made a part hereof, marked "Exhibit A" (herein- after s called "original contract") which term also includes, wherever used herein, all agreements or orders, if any, supplementary to said contract, except this agreement: and (6) Whereas the original contract provided that the Contractor Should at the expense of the United States prepare and submit to the contracting officer general plans and specifications for approval and upon such approval, con- struct certain facilities for the benefit and account of the United States, gen- erally known as the " Warrior Extension," " Warrior Substation," "Warrior- Muscle Shoals Transmission Line," " Muscle Shoals Substation," and an ex- tension to the Ensley-Southern Branch of the Southern Railway, known as the " Drifton Extension Railroad," which facilities are described in greater detail in Schedules A, B, C, D, and E, which form part of the original contract No. T-69; and t > I t' ti ll si 652 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITION'S. 653 ji ((•) \VU«'rt'as tlie ruited States did on April 15, 1919. direct the suspension of further coiistriution work on account of the original contract, and as a re- sult, the contractor has been unable to complete certain minor details of con- struction calleil for and shown on plans properly approved by the representa- tive of the contracting ofttcer, under the terms of that contract, the remaining details being essential to the satisfactory operation of the facilities provided by the United States but not of sufhcient importance to warrant the expense for further maintenance by the United States of a staff of inspectors, clerical and other help to supervise their execution as was necessary in the public interest during the active construction period; and (i1) Whereas the contractor has a regularly organized staff of operating engineers, mechanics, and workmen established at its Warrior generating sta- tion, capable of carrying out the completion of such minor construction items as remain, and with a view toward economy and the satisfactory termination of the construction program, it is the desire of the United States and the contractor that the operating staff of the contractor, guided by the contractor's technical staff, carry out such work; and ie) Whereas it is the desire of the United States and the contractor to main- tain in full force and effect the conditions and covenants embodied in the original contract T-69, and to only modify the conditions of the said original contract in respect to the methods of executing the minor construction works and tests, covered by this supplementary contract and of making payment for such work. Now, therefore, in- consideration of the mutual agreements herein contained the said parties have agreed, and by these presents do agree, with each other as follows : Article I. GENERAL. The contractor shall, at its own expense, furnish all necessary engineering talent, drawings, skilled and common hibor, likewise all materials and supplies not now available at the storehouse of the United States at Gorgas, and will complete the items listed in the following schedule of unfinished items of con- struction in a thoroughly workmanlike manner (and to the complete satisfaction of the contracting officer, or his duly authorized representative). The United States shall furnish without cost to the contractor such materials and supplies purchased by the United States for use in connection with this contract and/or now in its storehouse at Gorgas, Ala., as may be necessary for the completion of the work scheduled and described in Article II hereof. Article II. SCHEDULE. The following is a schedule of items of construction which the contractor, under the terms of this contract, agrees to carry out : Power house (the following items required to complete) : 1. Install Louvres at end of main monitors over conveyors (material on hand) ; labor ,^25 2. Provide stop logs for west entrance to ash pit (material on hand) ^ labor 50 3. Double rivet each vertical seam of corrugated galvanized iron on temporary ends of boiler-house and turbine-room sections of building (rivets on hand) ; labor lOO 4. Place flashing around 42 and 16 inch exhaust (material on hand) ; labor 10 5. Grout around pipe holes in floor of No. 3 boiler room ; materiaL $4; labor, $36 40 6. Install floor drains in No. 3 boiler room ; material, $4 ; labor, $16__ 20 7. Install glass in door of 13,000 volt switch room (glass on hand) ; labor 10 8. Install locks on doors of monitors ; material, $5 ; common labor, $5_ 10 9. One additional coat of paint on boiler room No. 3, whitewash ash rooms ; 2 coats of paint on condenser room ; 2 coats of paint on all floors; all window sash to be drawn ; material, $1,0(X); labor, $445 1^ 445 10. Fit and bolt down manhole covers on air ducts (material on hand) ; labor 50 Smoke flues and stack: 11. Install check valves between flues and ash sump (material on hand) ; labor |20 12. Furnish and place one cover for damper frame ; material, $5 ; labor, $5 10 Coal-handling tracks : 13. Install standard-gauge track scales (scales and material for scales on hand) ; cement powder, etc., $100; labor, $1,400 1.500 14. Adjust cross-over dumps and resurface tracks ; labor 200 Coal crushers and conveyors : 15. Provide side aprons for screens in crusher pits to prevent coal from sifting into pit (material on hand) ; labor 100 16. Put one coat of paint on conveyor sheds (material on hand) ; labor 300 Boilers : 17. Put plastic fire clay around superheaters on boilers Nos. 7, 8, and 9 (clay on hand) ; labor 150 18. Install plates on sides of all boilers between fronts and building columns (plates on hand) ; labor 150 Stokers : 19. Repair broken governor on No. 16 stoker; labor 10 Steam and exhaust lines : 20. Furnish and install one Davis automatic valve for No. 14 boiler ; labor -# 20 21. Reinstall by-pass valve on 20-inch and 2 valves on 16-inch when valves are replaced by the Chapman Co.; labor 25 22. Connect steam and exhaust piping on No. 16 stoker (pipe on hand); labor 25 23. Repair stay bolts in big steam separator ; labor 25 24. Connect steam and exhaust piping to fans in No. 3 ash pit; 2 4-inch steel ells, $25 ; labor, $25 5i» 25. Install steam and exhaust line drains in boiler rooms (8 f-inch check valves have been shipped) ; labor 50 26. Install crossties on 4 main steam lines over boilers (material on hand); labor 200 Feed- water lines : 27. Replace Ross expansion joints on No. 3 unit with pipe ; labor 100 28. Furnish and install one 4-inch globe valve on boiler No. 15; valve, $25; labor, $25 50 29. Furnish and install 1 new handwheel on 4-inch globe valve on No. 13 boiler; handwheel, $2; labor, $3 5 Feed-water pumps. 30. Install new shaft in steam-driveli pump in No. 2 unit when shaft supplied without cost to contractor by manufacturers ; labor— 50 31. Replace coupling pins in motor-driven pump in No. 3 boiler room ; labor ' ^ 32. Install new operating cylinders and adjust Copes regulators on the steam-driven pumps (cylinders being shipped) ; labor 25 Air compressor: 33. Install motor on foundation and bolt to compressor (motor on order) ; labor : ^0 34. Install air lines to turbine room and condenser pit ; pipe, $100 ; labor, $50 1^0 Pipe covering : 35. Furnish and install additional pipe covering omitted from the Armstrong Cork & Insulating Co.'s contract 3. 000 36. Turbine to be painted (paint on hand) ; labor 100 37 Furnish superintendence, labor, fuel, and miscellaneous supplies necessary for the final test of the 30,000-kilowatt General Elec- tric steam-turbo generator and auxiliaries upon the reerec- tion of the turbo-generator and auxiliaries by the General Electric Co. (lubricants on hand) 2,500 654 MUSCLE SHOALS PROPOSITIONS. 39. ii Boiler andaurbine room instruments : 38. Pipe up boiler steam-flow meters on boilers 8, 9, 13, 14, l.j 16 17 ^^^'^^[^ ^2 ®^^^ boiler; pipe up draft gauges on boilers 8, 9.' 16, 14, 15, 16, 17, and 18 ; pipe up steam gauges on instrument boards of boilers 9, L3, 14, 15, 16, 17. and 18; install, with pipmg complete, Venturi meters on individual boilers, except No. 12 boiler ; pipe up recording pressure gauge for live steam to turbine ; pipe up CO' recorders for No. 1 and No. 2 stacks • pipe up pressure gauges for feed-water pumps in No. 3 boiler room ; pipe up Venturi meter recorder for boiler feed in No. 3 boiler room; erect and pipe up recording thermometer for heater inlet and outlet in No. 3 boiler room ; erect and pipe up recording thermometer for live steam to turbine ; furnish and install, with piping complete, the manometer tubes for boilers 7, 8, 9, 10. 11, 13, 14, 15, 16, 17, and 18; 10 manometer tubes, $950; 3,000 feet of f and i inch pipe, $500 $1,450 Install signal system system in boiler room and engine room, equipment on hand _ _ ' 400 Oil filters: 40. Install two small filters for oil from auxiliaries (filters on hand) ; pipe, $500; labor, $350 __ 350 Sump pumps: 41. Install 2 42. Install 1 43. Install 2 Electrical installation 44. Give 1 coat of labor 45. Install choke coils hand) ; labor__. 46. Install signal system for generator ; material, $250 ; labor,~$100l 47. Replace single strain insulators on No. 3 bank, 110 K. V. trans- formers, by double strain insulators (material on hand) ; labor 48. Install corona shields on 110 K. V. afr-brake switch^' (material on hand) ; labor 49. Install three cables to No. 3 bank, 110 K. V. transformers" (cable on order) ; labor 50. Erect new bushings on spare transformers (one 110 K. V. bush- ing to be repaired, four 12 K. V. bushings on order) ; labor. 51. Install sheet-iron covers on both exciter switch panels (material on hand) ; labor 52. Connect up air compressor motcJt (material on hand) TlaborZ_IZ 53. Connect up 5 sump pump motors (material on hand) ; labor__ 54. Wire turbine trip sw:tch to gauge board ; labor 55. Replace 3 current transformers and connect up potential trans" . formers at the same time (transformers and material on hand) ; labor 56. Lay concrete floor in tunnel ; material, $25 ; labor, $25 I MUSCLE SHOALS PROPOSITIONS. 655 sump pumps in condenser pit (on hand) sump pump in ash pit (on Ijand) I__I sump pumps in coal crushers (on hand) Z paint to 110 K. V. switches (paint on hand) ; on Sheffield line switch No. 1114 (coils on 450 25 25 350 50 125 50 50 25 25 125 10 25 50 Complete drainage of 110 K. V. switchyard ; labor Z__ZI_Z~ 250 57. 58. Fill oil tanks and return empty oil barrels ; labor 25 20 semipermanent houses : 59. Build 500 feet of 6-'nch sewer (pipe on hand) ; labor 100 ^ '^ -- - gQ houses (paint on hand) ; labor. 60. Paint the outside of 4 12 permanent houses: 61. Complete the inside of painting of house No. 5 62. Complete the outside painting and do all of the inside" painting on house No. 6 (paint on hand) ; labor 63. Lay floors in house No. 8 ; give 2 coats of paint inside, 1 coat of paint outside; erect hot- water tank (material on hand) • labor ' 64. Screen all of the 12 labor Niles crane: 65. Repa'r niles crane, installing 2 $10; labor, $20 66. Repair automatic stop for crane; labor permanent houses (material on hand) new sheaves; sheaves ordered. 25 100 250 200 30 25 Cleaning up: 67. Cleaning up property, dismantling temporary structures and buildings ; collect and store all salvaged material at places at Gorgas satisfactory to thii contracting officer or his authorized representative, making a complete list of all such materials; this does not include crating, dismantling, and packing ma- chinery and equipment and does not include storing or moving salvaged materials after same have been placed or stored at said location once designated by contracting officer $1.500 Total amount 17, 300 Article III. PAYMENT. (a) For and in consideration of the contractor's acceptance of the accom- plishment of the above 67 items, and upon receipt of a certiflcate from the con- tractor that the Alabama Power Co. accepts the above 67 items as accomplished, and the " Warrior Extension," " Warrior Substation," " Warrior-Muscle Shoals Transmission Line," and the " Muscle Shoals Substation " as complete and ready for use in the performance of contract T-69, the United States of America shall pay to the contractor the sum of $17,300. (6) In reference to item 37 of the schedule contained in Article II hereof. It is agreed that for the specified sum of $2,500 the contractor will furnish super- intendence, labor, fuel, lubricants, and miscellaneous supplies, necessary for the final test of the 30,000 kilowatt General Electric steam turbogenerator and auxiliaries, and will conduct such test; it being understood, however, that should conditions beyond the control of the Alabama Power Co. require that additional test or tests be made in connection with the 30,000 kilowatt steam turbogenerator included under item No. 37 above, and involving an expense in excess of the sum of $2,500 as agreed upon for that item, the Alabama Power Co. will not be obliged to make same, but the contracting officer may request that same be done at the further expense of the United States. (c) The contractor shall not be liable for accident or damages arising from or occurring during the test of the said 30,000 kilowatt steam turbogenerator and auxiliaries included under said item No. 37 of said schedule or for any modification of the same as they are set up in said original contract. Article IV. This contract is made in pursuance of a certain proposal made by the Alabama Power Co. to Col. J. W. Joyes, dated May 24, 1919, and an acceptance thereof by Col. Joyes dated May 24, 1919, copies of which are attached hereto marked " Exhibit B " and made a part hereof, and the rights of the parties under this contract shall be defined by such proposal and acceptance unless otherwise specifically provided herein. The United States shall not be released from any obligation or responsibility on commitments made as provided for in said original contract, on or before April 15, 1919. The United States shall not be relieved of any responsibility to the contractor resulting from the performance of the work covered by said original contract nor does the contractor release or waive any claims not heretofore allowed under said original contract. This contract, including the proposal and acx?eptance above referred to, does not change, alter, or amend the terms, conditions and obligations contained in the original contract except as herein specifically set out. In witness whereof, the i)arties hereto have caused this contract to be executed in sextuplicate on the day and year first above written, at Washington, D. C, by their officers thereunto duly authorized. United States of America, By R. H. Hawrins, Lieutenant Colonel, Ordnance Department, Witness • United States Army, Contracting Officer. Genevieve Strohl. Attest : Walter M. Hood, Secietary. (United States of America Seal.) (Alabama Power Co. Seal.) 92900—22 42 Alabama Power Co., By W. N. Walmsley, Its General Manager, Contractor. hi y 656 MUSCLE SHOALS PROPOSITIONS. m 4fi State of Alabama, Jefferson County. I, Walter M. Hood, secretary of Alabama Power Co., do hereby certify that the following resolution was unanimously adopted by the board of directors of said company at its regular meeting held at the office of the company in the Brown-Marx Building, in the city of Birmingham, Ala., on March 9, 1919, a quorum of the board being present : " Hesolved, That her<^after the signatures of two persons, officers or employees of the company, shall be affixed to checks and acceptances, and that the board hereby authorizes to sign such checks and acceptances the president, the vice president, the general manager, the assistant to the president, or the assistant general manager, and the treasurer, the assistant treasurer, or the auditor ; and for bills, receipts, and indorsements for deposit, the president, vice president, general manager, treasurer, assistant treasurer, or auditor ; and for notes, leases, contracts, and documents, the president, vice president, or general manager, and the secretary or assistant secretary." And I further certify that the following officers of the company were elected at said meeting for the ensuing term and until their successors are elected and qualified: James Mitchell, president ; Thomas W. Martin, vice president; Walter M. Hood, secretary ; H. S. Swan, treasurer ; H. S. Swan, assistant secretary ; M. P. Randall, assistant secretary : and M. P. Randall, assistant treasurer. And I do further certify that Mr. W. N. Walmsley was heretofore on, to wit, July 1, 1916, duly appointed general manager of the company by the president, and that he is now" acting in such capacity. Given under my hand and the seal of said company at its office in the city of Birmingham, Ala., on this the 11th day of September, 1919. Walter M. Hood, Secretary Alabama Power Co, Exhibit A. (Inserted at this place is copy of the contract, dated December 1, 1917, be- tween Alabama Power Co. and the United States of America, and known as con- tract T-69. which contract has heretofore been placed in the record of these hearings at page 146, et seq.) Exhibit B. ALABAMA POWER CO. Washington, D. C, May 2Jf, 1919. Col. J. W. JOYES, Chief Nitrate Dimsion Ordnance Department, United States Army, Washington, D. C. Subject: Contract T-69. Sir: The certain items of work remaining to be done under contract T-69, and as shown on the accompanying schedule, Alabama Power Co., will com- plete for its account upon the payment to it of $17,500 by the United States. Such material and supplies belonging to the United States, purchased for use in connection with this contract, which may be necessary for the com- pletion of the above-mentioned work, will be available to Alabama Power Co. free of charge. The above sum includes the cost of testing of the Warrior extension, esti- mated at $2,500. Should conditions beyond the control of Alabama Power Co. require that an additional test or tests be made, then Alabama Power Co. will not be obligated to make same, but the contracting officer may request that same be done at the expense of the United States. The completion of the items shown on the attached schedule will, in our judgment, fulfill the conditions and intent of the construction program covered by contract T-69 as instructed by you February 19, 1919 (T-108453). It is the understanding that no further work under this contract is to be done at the expense of the United States unless same may be specifically ordered by the contracting officer, and, consequently, upon the completion of the work MUSCLE SHOALS PROPOSITIONS. 657 herein mentioned, the construction features of contract T-69 will be considered to be finished. It is not intended that the payment to Alabama Power Co. of the $17,500 above referred to will commit Alabama Power Co. to responsibility for com- mitments or obligations incurred by the United States in connection with this contract, or for any claims which may arise thereunder. Alabama Power Co., By W. N. Walmsley, General Manager, I certify that the above is a true copy of the original. C. F. Beames, Lieutenant CoMiel, Ordnance Department United States Army. May 24, 1919. From: J. W. Joyes, colonel. Ordnance Department, United States Army, con- tracting officer. To: Alabama Power Co. Subject: Contract T-69 dated December 1, .1917: Acceptance of proposal of May 24, 1919, for certain work ; notice of termination of period of preliminary operation, article 14 ; notice of suspension of demand, article 21. 1. With mutual consent and agreement on your part and on that of the contracting officer, and because of actual unreadiness of the turbogenerator pertaining to the Warrior extension, the Chief of Ordnance has deemed that the Warrior extension (and therefore "the Warrior extension, the Warrior substation, and the transmission line") was (and were) not, on December 1, 1918, and is (and are) not, at this date, "complete and ready for use in the performance of this contract." 2. Your proposal in your letter of May 24, 1919, to complete the several minor items of work now unfinished and the testing of the Warrior extension still needed for the sum of $17,500 is accepted as submitted. This understanding will be confirmed by a contract (supplemental) providing for payment of that sum — $17,500 — by the United States upon your certificate that you accept the items as accomplished and the Warrior extension as complete and ready for use in the performance of this contract not later than July 31, 1919. 3. The Chief of Ordnance now deems that, for the purposes of the definition in article 14, and of the provisions thereof, the Warrior extension, the Warrior substatioui and the transmission line will be complete and ready for use in the performance of this contract on the 31st day of July, 1919, and therefore sets that date as the definite date of termination of the period of preliminary operation defined in article 14 of the contract. 4. As this date is set in advance, your written acceptance thereof is re- quested in order that for mutual convenience there may be no future mis- understanding or doubt. 5. Furthermore, the United States, by me, the undersigned contracting officer, hereby serves upon you this written notice as contemplated and provided for by article 21 that the United States does hereby suspend as of July 31, 1919, its demand for energy provided for by said article 21, and that having allowed the full 60 days' notice (and more) the United States does from and after said 31st day of July, 1919, and during the period of such suspension as provided, stand relieved of its obligation to make the minimum monthly payment of $30,000 and the contractor does, correspondingly and during the same period, stand relieved of the payments mentioned in subdivision (1) of article 17. 6. For certainty of mutual understanding your written acceptance of this notice and of such effect thereof under article 21 is requested. J. W. Joyes, Colonel, Ordnance Department, United States Army, Conir acting Officer. Mr. Dent calls attention to one other act which I wish to mention. There ^yas passed by Congress an act which was approved on March 2, 1919, entitled "An act to provide relief in the cases of contracts connected with the prose- cution of the war, and for other purposes," which reads as follows: ''Be it enacted by the Senate and House of Representatives of the United States of America in Congress assemtblcd. That the Secretary of War be, and I 658 MUSCLE SHOALS PROPOSITIONS. he is herfeby, authorized to adjust, pay, or discharge any agreement, express or implied, upon a fair and equitable basis that has been entered into, in good faith during the present emergency and prior to November 12, 1918, by any officer or agent acting under his authority, direction, or instruction, or that of the President, with any person, firm, or corporation for the acquisition of lands, or the use thereof, or for damages resulting from notice oy the Govern- ment of its intention to acquire or use said lands, or for the production, manu- facture, sale, acquisition or control of equipment, materials or supplies, or for services, or for facilities, or other purposes connected with the prosecution of the war. when such agreement has been performed in whole or in part, or expenditures have been made or obligations incurred upon the faith of the same by any such person, firm, or corporation prior to November 12, 1918. and such agreement has not been executed in the manner prescribed by law: Provided, That in no case shall any award, either by the Secretary of War or the Court of Claims, include the prospective or possible profits on any part of the contract beyond the goods and supplies delivered to and accepted by the United States and a reasonable remuneration for expenditures and obli- gations or liabilities necessarily incurred in performing or preparing to perform said contract or order: Provided futher, That this act shall not authorize payment to be made of any claim not presented before June 30, 1919: And provided further, That the Secretary of War shall report to Con- gress at the beginning of its next session following June 30, 1919, a detailed statement showing the nature, terms, and conditions of every such agreement and the payment or adjustment thereof: And provided further. That no settle ment of any claim arising under any such agreement shall bar the United States Government through any of its duly authorized agencies, or any com- mittee of Congress hereafter duly appointed, from the right of review of such settlement, nor the right of recovery of any money paid by the Government to any party under any settlement entered into, or payment made under the provisions of this act, if the Government has been defrauded, and the right of recovery in all such cases shall exist against the executors, administrators, heirs, successors, and assigns of any party or parties: And provided further. That nothing in this act shall be construed to relieve any officer or agent of the United States from criminal prosecution under the provisions of any statute of the United States for any fraud or criminal conduct : And provided further. That this act shall in no way relieve or excuse any officer or liis agent from such criminal prosecution because of any irregularity or illegality in the manner of the execution of such agrement: And provided further, That in all proceedings hereunder witnesses may be compelled to attend, ap- pear, and testify, and produce books, papers, and letters, or other documents; and the claim that any such testimony or evidence may tend to criminate the person giving the same shall not excuse such witness from testifying, but such evidence or testimony shall not be used against such person in the trial of any criminal proceeding. " Sec. 2. That the Court of Claims is hereby given jurisdiction on petition of any individual, firm, company, or corporation referred to in section 1 hereof, to find and award fair and just compensation in the cases specified in said section in the event that such individual, firm, company, or corpo- ration shall not be willing to accept the adjustment, payment, or compensa- tion offered by the Secretary of War as hereinbefore provided, or in the event that the Secretary of War shall fail or refuse to offer a satisfactory adjustment, payment, or compensation as provided for in said section. " Sec. 3. That the Secretary of War. through such agency as he may des- ignate or establish, is empowered, upon such terms as he or it may deter- mine to be in the interest of the United States, to make equitable and fan- adjustments and agreements, upon the termination or in settlement or re- adjustment of agreements or arrangements entered into with any foreifoi Government or Governments or nationals thereof prior to November 12, 1918, for the furnishing to the American Expeditionary Forces, or otherwise for war purposes, of supplies, materials, facilities, services, or the use of prop- erty, or for the furnishing thereof by the United States to any foreign Gov- ernment or Governments, whether or not such agreements or arrangement? have been entered into in accordance with applicable statutory provisions; and the other provisions of this act shall not be applicable to such adjust- ments, p " Sec. 4. That whenever under the provisions of this act the Secretary oi War shall make an award to any prime contractor with respect to any por- MUSCLE SHOALS PROPOSITIONS. 659 tion of his contract which he shall have sublet to any other person, firm, or corporation who has in good faith made expenditures, incurred obligations, rendered service, or furnished material, equipment, or supplies to such prime contractor, with the knowledge and approval of any agent of the Secretary of War duly authorized thereunto, before payment of said award to Sec- retary of War shall require such prime contractor to present satisfactory evidence of having paid said subcontractor or of the consent of said sub- contractor to look for his compensation to said prime contractor only; and in the case of the failure of said prime contractor to present such evidence or such consent, the Secretary of War shall pay directly to said subcontractor the amount found to be due under said award; and in case of the insolvency of any prime contractor, the subcontractor of said prime contractor shall have a lien upon the funds arising from said award prior and superior to the lien of any general creditor of said prime contractor. " Sec. 5. That the Secretary of the Interior be, and he hereby is, authorized to adjust, liquidate, and pay such net losses as have been suffered by any person, firm, or corporation by reason of producing or preparing to produce either manganese, chrome, pirites, or tungsten in compliance with the re- quest or demand of the Department of the Interior, the War Industries Board, the War Trade Board, the Shipping Board, or the Emergency Fleet Corpora- tion to supply the urgent needs of the Nation in the prosecution of the war; said minerals to be enumerated in the act of Congress approved October 5, 1918, entitled * An act to provide further for the national security and defense by encouraging the production, conserving the supply, and controlling the dis- tribution of those ores, metals, and minerals which have formerly been largely imported, or of which there is or may be an inadequate supply.' "The said Secretary shall make such adjustments and payments in each case as he shall determine to be just and equitable; that the decision of said Secretary shall be conclusive and final, subject to the limitation hereinafter provided; that all payments and expenses incurred by said Secretary, includ- ing personal services, traveling and subsistence expenses, supplies, postage, printing, and all other expenses incident to the proper prosecution of this work, both in the District of Columbia and elsewhere, as the Secretary of the Interior may deem essential and proper, shall be paid from the funds appropriated by the said act of October 5, 1918, and that said funds and ap- propriations shall continue to be available for said purpose until such time as the said Secretary shall have fully exercised the authority herein granted and performed and completed the duties hereby provided and imposed: Pro- vided, hotvever, That the payments and disbursements made under the pro- visions of this section for and in connection with the payments and settle- ments of the claims herein described, and the said expenses and administra- tion shall in no event exceed the sum of $8,500,000: And provided further, That said Secretary shall consider, approve, and dispose of only such claims as shall be made hereunder and filed with the Department of the Interior within three months from and after the approval of this act: And provided further. That no claim shall be allowed or paid by said Secretary unless it shall appear to the satisfaction of the said Secretary that the expenditures so made or obligations so incurred by the claimant were made in good faith for or upon property which contained either manganese, chrome, pyrites, or tungsten in sufficient quantities to be of commercial importance : And provided further. That no claim shall be paid unless it shall appear to the satisfaction of said Secretary that moneys were invested or obligations were incurred subsequent to April 6, 1917, and prior to November 12, 1918, in a legitimate attempt to produce either manganese, chrome, pyrites, or tungsten for the needs of the Nation for the prosecution of the war, and that no profits of any kind shall be included in the allowance of any of said claims, and that no investment for merely speculative purposes shall be recognized in any uianner by said Secretary: And provided further, That the settlement of any claim arising under the provisions of this section shall not bar the United States Government, through any of its duly authorized agencies, or any com- mittee of Congress hereafter duly appointed, from the right of review of such settlement, nor the right to recover any money paid by the Government to any party under and by virtue of the provisions of this section, if the Gov- ernment has been defrauded, and the right of recovery in all such cases shall extend to the executors, administrators, heirs, and assigns of any party. "That a report of all operations under this section, including receipts and ^disbursements, shall be made to Congress on or before the first Monday in I^ecember of each year. 660 MUSCLE SHOALS PROPOSITIONS. " That nothing in this section shall be construed to confer jurisdiction upon any court to entertain a suit against the United States: Promded further. That in determining the net losses of any claimant the Secretary of the In- terior shall, among other things, take into consideration and charge to the claimant the then market value of any ores or minerals on hand belonginjr to the claimant, and also the salvage or usable value of any machinery or other appliances which may be claimed was purchased to equip said mine for the purpose of complying with the request or demand of the agencies of the Government above mentioned in the manner aforesaid." The Chairman. That is the so-called Dent Act? Mr. Martin. Yes. The Chairman. I think we can put that into the hearings. Have you filed any claims under that law? Mr. Martin. No, sir. Mr. Dent. It was not necessary to file any claims because they had no money demand against the Government. The Chairman. Of course that act, as I recall it, was passed in order to validate those claims that had been entered into informally and not in accord- ance with the strict letter of the law. Mr. Martin. Yes. The Chairman. You had no such claims. Mr. Martin. If there was any informality in the execution of the contract— and I am not aware of it — this law would reach the question. The Chairman. Then it may not be necessary to put that in the hearings? Mr. Dent. I do not know that it is necessary to put it into the hearings, but a reference to it may be necessary because I expect to use it in what I have to say to the committee. The Chairman. Very well. Is there anything else, Mr. Martin? Mr. Martin. I will be very glad to answer any questions the committee may desire to ask me. Mr. McKenzie. Mr. Martin, in order that I may get a picture of this whole thing firmly fixed in my mind, I want to ask you a few questions. As I under- stand your testimony your company in the fall of 1917, was operating a plant known as the Gorgas plant, on the Warrior River in Alabama, and selling your product to the people living in the surrounding towns and villages, and going on about your business practically unmindful of the fact that we were at war? Is that true? Mr. Martin. No ; I do not put it that way. Of course, we all knew we were at war, because every plant we had was affected and this Warrior plant was affected, and 80 per cent of our entire output was supplied to plants in the Birmingham district and other parts of our State engaged in the manufacture of war material. Mr. McKenzie. Up to that time, as I understood you, Mr. Martin, you had not entered into any negotiations with the Government, or made any tender of the services of your plant to enable the Government to better prosecute the war? Mr. Martin. The question did not come up until November, 1917. The ques- tion was where the nitrate plant might be located, and it only came up in No- vember, 1917. Mr. McKenzie. I am just trying to get this picture of the situation down there. So far as your corporation was concerned, you had not made any tender and had not entered into negotiations with the Government to assist in the prosecution of the war, so far as this particular plant was concerned? Mr. Martin. We had notified Col. Joyes that that plant was there and at his service. Mr. McKenzie. Did Col. Joyes reply to that? Mr. Martin. In several conversations we did discuss it, and we acquainted him with the situation. Of course, we told Col. Joyes that the plant was there and we would be glad to do anything he cared to have us do about it. Mr. McKenzie. You stated along about that time, however, Mr. Waslibnrn came to see you, or came to see the ofllcers of your company, and suggested that the plant might be enlarged, or something to that effect. Mr. Martin. I think he just telephoned Mr. Mitchell, the president, to take up the matter with Gen. Crozier, and that is the way it came up. Mr. McKenzie. At that time Mr. Washburn was a stockholder in the Alabama Power Co., was he not? Mr. Martin. He was a stockholder. MUSCLE SHOALS PROPOSITIONS. 661 Mr. McKenzie. What other position did he hold in connection with any other company or corporation? Mr. Martin. Connected with us? Mr. McKenzie. Any other corporation or company. Mr. Martin. I do not know that — he was president of the American Cyanamid Co., but he was not connected with us in any other way. Mr. McKenzie. But he Was a stockholder in your company. Mr. Martin. Yes. Mr. McKenzie. At the same time he was president of the American Cyanamid Co. Mr. Martin. Yes. Mr. McKenzie. And the American Cyanamid Co., as has been testified to here, controlled the patent under which the fixation of nitrogen of the air is carried on. Mr. Martin. I only know what the record states. I have no comments to make on that, because I only know what is in the record. Mr. McKenzie. Some years back, of which you perhaps have some knowledge, Mr. Washburn and those connected with him at that time, in 1916, and prior to that time had endeavored to get the Government to begin the construction of certain plants at Muscle Shoals for the purpose of manufacturing nitrate, or adopting a system of the fixation of nitrogen from the air; is that true? Mr. Martin. I only have heard it mentioned here ; I had no contiection with it. Mr. McKenzie. You have no knowledge of it. In December, I think you said it was, you had your first consultation with the representative of the Government in connection with this matter, and the representative with whom you talked was a Mr. Williams? Mr. Martin. No, sir; Col. Joyes, representing the Ordnance Department. Mr. McKenzie. Representing the Ordnance Department? Mr. Martin. Yes. Mr. McKenzie. From that conversation you entered into a sort of verbal agreement as to what you were to do down on the Warrior River in connection with the Muscle Shoals proposition. Had the work begun at Muscle Shoals at that time? Mr. Martin. I am sure I do not know, Mr. McKenzie. Mr. McKenzie. You are not sure tbout it? Mr. Martin. I do not know. Mr. McKenzie. Do you know what company contracted with the Government for the construction of a plant by the Government for the manufacture of nitrates? Mr. Martin. The contractors? Mr j^pkenzie Yes Mr. Martin. I think it was the J. G. White Co. It is my recollection that they were the contractors. Mr. McKenzie. I mean the contractor that undertook the construction of the plant. Was it the Air Nitrates Corporation? Mr. Martin. I have heard that testimony here. Mr. McKenzie. Do you know whether or not that is a subsidiary of the American Cyanamid Co.? Mr. Martin. I only know what has been testified to here. Mr. McKenzie. You do not know that as a fact? Mr. Martin. No, sir ; I do not. Mr. McKenzie. Up to that time there had not been any work performed on Muscle Shoals on that proposition, Mr. Martin. I can neither say yes or no, because I do not recall anything about it. Mr. McKenzie. There was no activity at Muscle Shoals at that time, as I understand it. and immediately after your company, or the representatives of your company, had this conversation with the representative of the War De- partment you proceeded to buy the right of way, as I understand it, for the transmission line from the Gorgas plant to Muscle Shoals. Mr. Martin. No; we had the right of way, and for about one-third of the distance we had service lines on it, serving other districts, and on the sugges- tion of Col. Joyes, or at his request, we had to purchase the remainder of the right of way. Mr. McKenzie. You proceeded to purchase the right of way up to Muscle Shoals? Mr. Martin. Yes. 662 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 663 Mr. McICenzie. That was prior to the commencement of the construction work at Muscle Shoals, was it not? Mr. Maktin. I do not know, Mr. McKenzie. You are not sure about it? Mr. Martin. No, sir ; I am not sure about it. Mr. McKenzie. Did you purchase that right of way with the funds of the Alabama Power Co., or with money furnished by the Government? Mr. Martin. With the funds of the Alabama Power Co. Mr. McKenzie. You own that in fee? Mr. Martin. We own the easement in fee ; we do not have a fee title. Mr. McKenzie. The right of way? Mr. Martin. The right of way. Mr. McKenzie. And over that right of way you proceeded to construct the transmission line from your Gorgas plant to Muscle Shoals, and did con- struct it. Mr. Martin. Yes, sir; and it was in operation for a distance of 88 miles within five months, long before there were any Warrior extension, and we were supplying power over it within five months for the use of the Govern- ment. Mr. McKenzie. Was that done to help out the Government? Mr. Martin. That is what we did it for. Mr. McKenzie. Was your purpose to help out the Government, or having in mind the sale of power? Mr. Martin. Well, we did it because the Government requested us to do it. The question of the sale of power — the primary question was that the Goverp- ment wanted the power. Mr. McKenzie. Let us keep this in mind. Mr. Washburn came to see you, and after Mr. Washburn came to see you you had this interview with the representatives of the Government and they requested you to build this trans- mission line from the Gorgas plant, on the Warrior, up to Muscle Shoals, alleging that it was necessary to aid the Government in carrying on the war. Mr. Martin. I would not say alleging; I can only speak of the way those gentlemen treated it. Mr. McKenzie. I do not want to put the matter in a false light. Mr. Martin. Col. Joyes said his plan was to construct a nitrate plant and to have the first unit or division of it in operation in six months, and our system furnished the only available means of getting power for the operation of the unit in that time. Mr. McKenzie. Going back a little, Mr. Martin, when you constructed the original plant on the W^arrior River at Gorgas, you laid the foundation for a 3-unit plant, as I understood you? Mr. Martin. Yes. t Mr. McKenzie. And with one v/ater intake. You only completed one unit of it in the beginning? Mr, Martin. Yes. Mr. McKenzie. And at that time you only had one unit completed from which you were selling power? Mr. Martin. That was only a reserve at that time. Our principal station at that time, Mr. McKenzie, was the water-power plant at Lock No. 12, in the Coosa River. This Warrior plant was the reserve station for our system. Mr. McKenzie. Looking to the future, you had laid the foundation for a 3-unit plant? Mr. Martin. Yes, sir. Mr. McKenzie. I am not criticizing that as a business proposition. Then you entered into this contract with the Government? Mr. Martin. After we had ordered our second unit, in the latter part of 1917. At that time we had plans made for installing a second unit of our own, which we did not complete. Mr. McKenzie. You had not undertaken it up to that time? Mr. Martin. No. Mr. McKenzie. Then you went into this arrangement with the Government, and under that contract the Government was to pay for the construction of this plant with the transmission lines? Mr. Martin. Of this section of the plant ; yes. Mr. McKenzie. Did you undertake the building of that — that is, your com- pany? Mr. Martin. Yas. Mr. McKenzie. Did you have a cost-plus contract with the Government? Mr. Martin. Cost plus a fixed fee ; yes. Mr. McKenzie. How much did your company receive as a fee for constructing that? Mr. Martin. It is stated in the contract. Mr. McKenzie. I wish you would put that in the record. Mr. Martin. It was $225,000 plus $60,000, a total of $285,000. Mr. McKenzie. Now, then, did the representatives of the Government at that time understand you were building this plant as an addition to your own plant, or as a separate unit? Mr. Martin. As an extension. Mr. McKenzie. Then, as a matter of fact, you simply dovetailed onto the property you then owned and operated at Gorgas another addition paid for with Government money, and on which you got a fee for the construction? Mr. Martin. We extended our plant, that was the effect of it ; made an exten- sion of it for the purpose of supplying the Government with the power from our system. Mr. McKenzie. The Government paid all the bills and you simply con- structed it. Mr. Martin. Yes. Mr. McKenzie. Was that sort of a plant the suggestion of the Government officials or was it your suggestion that it be done in that way? Mr. Martin. I do not recall that. The main point was this: The question arose first of whether the Government could advance the funds in any way to us to enable us to make the extension. We found it was impracticable, upon application to the War Credits Board, to make an advance of those funds, and the question of credits on all kinds of propositions such as ours was a very serious one. The granting of credits on such propositions was seriously curtailed and the Government had absorbed all the credits at that time, so the question was how we could finance this extension. That was the question. Mr. McKenzie. It is true, is it not, Mr. Martin, that the Government could have constructed a steam plant at Muscle Shoals at the same time and had it at no greater cost than for constructing this one? Mr. Martin. Mr. McKenzie, coincidentally the Government began the con- struction of a steam plant at Muscle Shoals, and completed that steam plant in the year 1919, long after the war was over, and they did it with the utmost speed. But they had to start from the ground up, and the Government had power six, seven, or eight months before the steam plant was constructed at Sheffield. Mr. McKenzie. Before the nitrate plant was completed, too? Mr. Martin. Yes; we had our line ready and waiting. The Government began to use it in June or July. Mr. McKenzie. As a matter of fact, you had your plant all completed and ready for operation before the Government had any use for it at all. Mr. Martin. Yes; they had begun to use our power — the line was ready on May 15, and the Government began to use the power about the 1st of June for construction purposes, and for operating purposes some time in August. Mr. McKenzie. Now, Mr. Martin, I want to ask you, as a business man, are you a lawyer? Mr. Martin. Yes; I am a lawyer. Mr. McKenzie. And as a lawyer if it is not your judgment that with this particular addition hooked onto your plant in the manner in which it was hooked on and constructed that you practically shut out any other purchaser than the Alabama Power Co.? Mr. Martin. You ask me my judgment? Mr. McKenzie. Yes; as a practical proposition. Mr. Martin. As a practical question, yes. There could not be two operations at that plant in the very nature of things ; it is not adapted for two operations. Mr. McKenzie. But in order to be doubly secure in protecting yourself — and I do not censure you for that — you entered into an agreement whereby you tried to tie the hands of the Government with a proposed option, giving you the option to buy the plant. Is not that true? Mr. Martin. Mr. McKenzie, we agreed to buy on the demand of the Govern- ment at a fair value. It never occurred to us that the day would come when this Government would want to take away our station and destroy our property 664 MUSCLE SHOALS PROPOSITIONS. !! J there in owier to give it to some one else, and it was never contemplated that the Government wouhl do otherwise than realize a fair value out of what it had erected. Mr. McKenzie. Mr. Martin, you have stated that your company was anxious to serve the Government, and that that was your purpose in the matter, unmind- ful of any selfish interests. Did you have a reciprocal provision In your con- tract that you would sell to the Government at a fair value '^ Mr. Mabtin. The land? Mr. Mckenzie. The plant. Did you have a reciprocal proposition that the Government could buy your property in case they did not desire to sell to vour company ? Mr. Martin. No; in the first place we had a general mortgage on it and we could not agree to sell it. Mr. McKenzie. You could sell it subject to the mortgage, could you not? Mr. Martin. I do not suppose that there would be a very good title to a piece of property with a $10,000,000 mortgage on it. Mr. McKenzie. You could have sold your equity, could you not? Mr. Martin. We could not do it. Mr. McKenzie. At any rate, you did not. Mr. Martin. We did not. Mr. McKenzie. But the provision was in there that if the Government ever desired to sell this property the Alabama Power Co. should be the purchaser. Mr. Martin. Would buy at a fair value. Mr. McKenzie. And had the preference. Mr. Martin. I think, very naturally, being on our land, and its being a part of our system, as a basis on which we were performing public service. Mr. McKenzie. Being a lawyer, you understand that the law of this country has been in time of peace that the War Department, represented by Col. Joyes. who happened to be our representative, apparently, in many of these contracts, and who seemed to feel that he had authority to do as he pleased with Govern- ment property — in peace times the War Department can not sell real estate belonging to the Government without an act of Congress giving them authoritv. You were aware of that, were you not? Mr. Martin. I was aware of that. Mr. McKenzie. Then all your contention is based on the war-time legislation in the act you have read in our hearing here this morning? Mr. Martin. Our contention? Mr. McKenzie. Your contention that the contract is legal is not founded on the general law of the country, but on the war-time legislation you have read to us this morning. Mr. Martin. W^holly aside from the legislation, the Goveniment bound us to buy it at a fair value on its demand; and when the legislation came into being, then it was that the Government agreed to sell to us on our demand. Mr. McKenzie. This New York gentleman, who, at that time, had on a sol- dier's uniform, I presume, and was connected with tlie Ordnance Department, agreed with you that that contract was good, and that the Government would be bound under the provisions of that contract? Mr. Martin. I am sure he did, or he would not have executed it, if he hail doubted the legal authority to do so. Mr. McKenzie. Of course, I am not going to enter into a discussion with you about the legality or the illegality of it, except that I simply want to say this, that in my judgment the Government's hands are just about as effectively tied in the manner in which rhis thing was done as they could possibly be tied by any legal contract. And I may have the wrong view of what, the aiding of th*' Government consists of. But I ask you now, to have it go into the record, if it is .vour view of the matter that the construction of the plant in the way in which this plant was constructed and the entering into the character of con- tract which is in evidence is a propei* evidence of supporting the Government'/ Mr. Martin. I certainly think the company acted fairly and justly in this matter. We have agreed to purchase this property at the demand of the Gov- ernment at a fair value. We have complied with every request made of us b.A the Government ; we hold ourselves ready to carry out that plan. You will find many contracts made during the war by which extensions and enlargements oi plants were made on the property of others, and in how many of them will yon rind a provision which requires the owner of the land to pay fair value as distin- guished from junk value? W^e think we are in a position to protect the Gov- ernment. Naturally, this plant was part of our system, a system on which nn*' MUSCLE SHOALS PROPOSITIONS. 665 had built up public service. To create two separate and distinct operations there would vitally interfere with our whole arrangement and our whole public service. Mr. McKenzie. Let nie ask you, How do you arrive, in such matters as this, at a fair valuation? Mr. Martin. The contract provides for the selection of arbitrators. The Government selects one, the company selects one, and those two select the third, and they consider the question of fair value in the light of those prin ciples of law which would naturally govern a court in determining value. Mr. McKenzie. It is true that a fair valuation is such a valuation as the property would have in the community in which the property is located, as a general proposition. Is not that one way of arriving at fair valuation? Mr. Martin. Is not that a different question? I doubt wliether that would be the basis here. Mr. McKenzie. That is the general rule. But the general rule of fair valua tion could not apply in this case, because there would be no comiietition. Mr. Martin. Yes. Mr. McKenzie. No one could bid on it Mr. Martin. If you ask me that question, I do not believe that principle would apply here, because we engaged to buy it at a fair value, which means its value as a going extension, and it is a going proi)erty. Mr. McKenzie. You are willing to do that now? Mr. Martin. Yes, sir ; we are willing to carry out our contract to the letter. Mr. McKenzie. Do you feel, Mr. Martin, that in serving the Government at this time you made any great sacrifice? Mr. Martin. I have explained tx) you what we exjiended. We have never had any of it paid back. Mr. McKenzie. Are you operating that plant at the present time? Mr. Martin. Well, not at this moment, because the rivers are full now. We are not operating it this very day. Mr. McKenzie. I understand you are paying a rental to the Government? Mr. Martin. Yes ; we are paying a rental to the Government. Mr. McKenzie. How much are you paying? Mr. Martin. It is a mill and a half per kilowatt hour of power generated. Mr. Hull. What are you receiving for power at the present time? Mr. Martin. What are we receiving? Mr. Hull. Yes; what are your prices? Mr. Martin. Delivered? Mr. Hull. Yes. Mr. Martin. It ranges from o mills up, delivered over our transmission system. Mr. Hull. I mean per horsepower? Mr. Martin. It averages about $25 per horsepower per year, delivered. Mr. Huix. How does that compare with the price received generally by power companies, say at Niagara Falls, for primary power? Mr. Martin. I have some records of comparison here. This is taken from a Department of Commerce publication dated in 1920, showing the cost per horse- power hour to the consumer of light and i)ower generated at central electric stations, based on the use of 3,000 hours per year. For Alabama, the price per horsepower hour in 1907 was 2 cents. In 1912 it was 1.9 cents, and in 1917 the price had gone to 7 mills. There was a reduction from 2 cents to 7 mills. In 10 years it went from $72 per horsepower to $21, and that is the average in Alabama to-day. In Georgia the price is the same as in 1907. In Mississippi the price per horsepower was $96 in 1907, and $93 in 1917. The price per horsepower hour in Mississippi was 3 cents in 1907. and it is 3 cents now. So, ticking the lowest and the highest, taking Alabama at 7 mills and Mississippi at 3 cents you can get an idea of what the average is, and the same thing is true in connection with the price per horsepower per year, $21 for Alabama and $93 for Mississippi. Mr. Hull. Why is there that discrepancy? Mr. Martin. It is due to the fact that there is no hydroelecjtric development in the Stxite of Mississippi. There are no large central stations distributini: power, and hence there is that great discrepancy. Mr. Hull. How does that compare with the price you are paying to the Government for the power you are getting from the Government? Mr. Martin. We pay the Government, but we are supplying all the fuel and we transmit the power. Mr. Hull. There can be no comparison there. I I j )! 666 MUSCLE SHOALS PROPOSITIONS. Mr. James. Who drew up this contract? Mr. Martin. I have explained that Col. Williams was the officer representing; the Government. Mr. James. Did he draw it up or did you draw it up? Mr. Martin. You know it is a question of how lawyers work together. He drew a part of it and I drew a part of it, and we worked together until it was completed. Mr. James. Did you draw up section 22? Mr. Martin. I do not recall now. Mr. James. Was it your suggestion or his suggestion? Mr. Martin. As to what? Mr. .Fames. Section 22. Mr. Martin. Well, I could only say it was drawn up in a mutually satisfac- tory' form. He undoubtedly drew a part of it, and undoubtedly I made sug- gest'.ons as to a part of it. Mr. James. In regard to the suggestion for the purchase of it by your com- pany, was that your idea or his idea? Mr. Martin. I can not say, Mr. James. But I will take the responsibility of saying it was ours. Mr. James. Did you consult any outside attorney in regard to the wording of section 22? Mr. Martin. I do not think we did. Mr. James. Why was there a delay of 11 months in having the contract signed ? Mr. Martin. I was living in Alabama and these gentlemen were living in Washington. Capt. Noble died in the midst of the work. There is no particular reason I could give. It was one of the many contracts not completed. Mr. James. How long did you talk with Col. Williams when you saw him in New York City? Mr. Martin. I met him several times. Mr. James. I mean the last time. Mr. Martin. Probably five minutes. Mr. James. Did you see Col. Beames? Mr. Martin. No. Mr. James. How much of a bond did you put up to guarantee the faithful performance of the contract against labor liens, etc.? Was it $50,000? Mr. Martin. It was $50,000. Mr. James. When was it put up? I see by the contract you had a year to put it up. Mr. Martin. It was put up within that time. Mr. James. Within a year? Was there not a bond given to the United States before a year after you first started negotiations or started work? Mr. Martin. My recollection is that it was given after the contract was actually executed. Mr. James. That was a year after you got the contract for the station? Mr. Martin. Yes ; while the contract was in process. Mr. James. The work started in December, 1917, and you did not put up a bond until December, 1918, did you? Mr. Martin. That is my recollection. (Thereupon a recess was taken until 2 o'clock p. m.) AFTER RECESS. The committee met, pursuant to recess, at 2 o'clock p. m. STATEMENT OF MB. THOMAS W. MARTIN — Resumed. The Chairman. Mr. Martin, we will proceed, and Mr. Kearns would like to ask you some questions. Mr. Kearns. At the time the Government entered the Warrior plant, how much money had you invested in that plant? Mr. Martin. Ih the plant and in services and stations and lines leading back to our system we had invested approximately $3,000,000, but you might re- member this, Mr. Kearns, in building a steam plant, which is a reserve, for a system such as ours, we also add water-power equipment, and then add steam to balance it up, so that you can not segregate the investment in steam from the investment in the main system, because one goes to balance the other. MUSCLE SHOALS PROPOSITIONS. 667 Mr. Kearns. Then the Government has no interest in the steam system? Mr. Martin. No ; as I say, this $3,000,000 which I spoke of as investment in line and equipment in connection with the Warrior station was only a part of our whole system which represented some $35,000,000 of investment. Mr. Kearns. Since this contract was entered into between your company and the Government, how much money, by virtue of the contract, has the Gov- ernment invested there? Mr. Martin. Approximately $5,000,000 was invested in the plant, substation, and the transmission line to Sheffield. Mr. Kearns. Does that include the extension? IV^ARTiN Yes Kearns. That includes the extension, the substation, and transmissiou Mr. Mr. lines? Mr. Mr. Mr. Mr. Martin. Yes. Kearns. And that was approximately $5,000,000? Martin. $5,000,000. Kearns. Then the Government has invested $5,000,000 and your com- pany has invested $3,000,000? Mr. Martin. We have $3,000,000 in the station; $5,000,000 was the Govern- ment's investment in plant and line ; in the plant the Government had approxi- mately $3,400,000. Mr. Kearns. Whatever right you have to purchase from the Government is found in article — what is the number of that article? Mr. Dent. Article 22, I think it is. Mr. Kearns. Yes; article 22 of your contract, which is dated December 1, 1917; is that right? Air I^artin Yes sir. Mr. Kearns. I am now reading from article 22 : "At any time subsequent to three years after the terniiination of the war the United States shall have the option to sell to the contractor, and the conractor shall, upon writen demand of the United States, buy all its rights, title, and interest," and so on. If the United States fails to exercise its option, how would you have the right to buy? Mr. Martin. Under the next succeeding provision, Mr. Kearns. Under sub- division 3 you will notice this language : " The contractor may also at any time demand that the United States con- vey to it all of the right, title, and interest of the United States in and to the Warrior extension and the Warrior substation upon payment to the United States of any excess of the actual cost of said properties over the amount of said accumulated fund then in the possession of the United States." Mr. Kearns. If the United States entered into this contract with you in order to get possession of your plant as a war activity, how was it going to avail itself, under section 3 of that plant, if you had the right at any time to buy it out? Mr. Martin. We might buy the title, continuing our obligation to the United States to deliver power. Mr. Kearns. But there is nothing in the contract saying you would be under any further obligation. Mr. Mabtin. Yes. Mr. Kearns. Where is that? Mr. Martin. You will find that Mr. Kearns (interposing). There is not anything in section 22. Mr. Martin. You will find our obligation that we shall deliver power for a period of 10 years. Mr. Kearns. Then what do you mean in section 3 that you have the right, on your demand, to compel the United States to turn over all of its right, title, and interest in that plant to you? Mr. Martin. Yes; but that does not relieve us of the obligation to deliver power by another provision of the contract. ]Vir. Kearns. This contract was entered into on December 1, 1917, or it bears that date. Mr. Martin. Yes, sir ; it bears that date. Mr. Kearns. When was this contract actually entered into? Mr. Martin. On the date of the false report of the armistice, 1918. Mr. Kearns. That was some time in November? Mr. Martin. Yes, sir; November 9. Mr. Kearns. About the 2d or 3d of November, was it not? Mr. Martin. November 9. 668 MUSCLE SHOALS PROPOSITIONS. \ The Chairman. The date of the actual armistice was November 11. Mr. Kearns. Yes ; but he refers to the day of the false report. The Chaibman. That was about three or four days before that. Mr. Kearns. I thought it was earlier in November than that, about the 4th. The Chairman. No ; I think it was a little later than that. Mr. Kearns. At that time this statute had been passed that would authorize the Secretary of War to sell this or any other plants. Mr. Martin. Yes. Mr. Kearns. But at the time this contract bears date — that is, on December 1, 1917 — that statute, of course, had not been passed. Mr. Martin. That is true, Mr. Kearns. Mr. Kearns. And were it not for this enabling statute, you would not have any authority to enter into this contract? Mr. Martin. The United States could not bind itself to agree to sell to us. Mr. Kearns. Yes ; that is what I mean. Mr. Martin. That is correct, Mr. Kearns. Of course, I suppose that you gentlemen who have been on this committee can appreciate the position in which many manufacturers, many producers of equipment, and many con- tractors were in in the early days. There were thousands of people who went ahead on verbal requests or requests by telephone or any kind of request from Government officials to produce equipment or what not for the purpose of going forward with the war program. The question of contract rights and obligations were secondary. The question was to do the thing that the officials of the Government wanted. The question of terms and conditions and obligations of the contracts remainees your company claim any right to the buildings that the Government built on your land, aside from what rights you are given under the statute that was passed after December 1, 1917? Mr. Martin. No. Mr. Kearns. What is your answer? Mr. Martin. If I understand your question, you mean do we claim any right by virtue of the fact that they are fixtures? Mr. Kearns. Yes. Mr. Martin. We do not. We simply recognize the Government has the right, title, and interest in that property, and that the Government has agreed to sell it to us at a fair value, and whatever that property appraises at as the fair value under this contract we think we have a contract with the Government to purchase it. Mr. Kearns. Let me see if I understand you. Mr. Martin. Your company is not claiming any interest in that part that the Government erected on this land except what rights you are given under this statute passed subsequent to December 1, 1917? Mr. Martin. And the contract entered into,- which is under discussion here. Mr. Kearns. Now, let me understand you. Would you claim any right be- cause the Government without authority entered upon your premisas and erected buildings on your land; do you claim a right to retain those buildings? Mr. Martin. No ; Mr. Kearns, we do not. Mr. Kearn. You do not claim that? Mr. Martin. No. Mr. Kearns. All the rights you are claiming are under and by virtue of your contract as construed under the statute which was passed, giving the Secretary of War authority to dispose of real estate? Mr. Martin. You say as construed "by the Secretary of War. We can not agree with the construction that the law officers of the Government place upon it. We claim our legal rights as expressed here and as interpreted by ourselves under this contract. Mr. Kearns. Has the Government taken any power under this contract? Mr. Martin. Yes. Mr. Kearns. For how long has the Government been using i>ower generated by your company? Mr. ]Martin. I will put it in this form : The Government had the right to take energy, making payment therefor under the specific terms of this contract. It might suspend the taking of energy, under the terms of this contract, for a time and take energy from our system on a different basis. It suspended the taking of energj' under this contract and has all along been taking energy from us MUSCLE SHOALS PROPOSITIONS. 669 under a separate arrangement, as a power company, because it did not need the volume of power, by reason of the armistice coming, that was contemplated in the making of the contract. Mr. Kearns. Has the Government each month been paying you $30,000? Mr. Martin. Oh, no, sir ; it never has paid us $30,000 a month. Mr. Kearns. It provides for that in this contract. Mr. Martin. Yes, Mr. Kearns; it does provide that the Government, so long as it takes power under this contract, shall pay $30,000 a month as a minimum charge. It never did pay the $30,000 a month, and it never did take under this contract. You will see that the very next section says that the Government may suspend the taking of power under this contract, whereupon its obligation to pay $30,000 a month ceases, and we got formal notice from the Government that they desired to suspend its right to take power under this contract, which we accepted, of course, and thereupon the Government arranged with us, wholly independently, to serve power to the Government from our system in a very much less quantity, paying therefor at rates in effect by the public service commission. Mr. Kearns. Just one more question, Mr. Martin: Your company does not claim anything at Muscle Shoals except the Warrior plant and its connecting lines? Mr. Martin. At Muscle Shoals? Mr. Kearns. Yes. Mr. Martin. Yes; we have Mr. Kearns. I mean any part that would be included in the Ford offer. Mr. Martin. Yes. The Alabama Power Co. owns in fee simple the abutment sites at the proposed Dam No. 3, which the Government is asked to construct under the Ford offer. Mr. Kearns. And that is included in the Ford offer? Mr. Martin. Yes, sir ; the abutment sites and some other lands which we own in fee simple. Mr. Kearns. At how much money do you value that interest? Mr. Martin. I could not answer that question, Mr. Kearns. We have never placed any value on it. We have owned it for many years. Mr. Kearns. Have you not any idea of what the value of that property is? Mr. Martin. I could not undertake to express any opinion on that question now. The property has been in our possession and ownership for 10 or 15 years, in our company and its preceding company. Mr. Kearns. Did the Government ever make any contract with you for that? Mr. Martin. No, sir. Mr. Kearns. And you have no idea what that interest would be worth? Mr. Martin. No ; none that I would care to express now, Mr. Kearns. Mr. Kearns. Then, if Congress should authorize the Secretary of War to accept the Ford offer, then it would be transferring to Ford a part of your prop- erty for which the Government never had any kind of a contract. Mr. Martin. That is correct, Mr. Kearns. We did convey to the Govern- ment, in fee simple, several years ago, the site at which the Wilson Dam is being erected. We also owned that and we conveyed that to the Government in 1918 for $1. Mr. Kearns. But thai: does not include these other properties? Mr. Martin. No, sir ; that land which constituted the abutment sites of Dam No. 2, the Wilson Dam. we had expended upward of $500,000 on its develop- ment, and at the inception of the war we were asked to hasten the whole pro- gram and we conveyed that title to the Government for $1. Mr. Kearns. Was there a provision in the contract or in this conveyance whereby the Government was to return it to you? Mr. Martin. No, sir ; we practically donated it to the Government. Mr. Kearns. You donated $500,000 worth of property to the Government for $1? Mr. Martin. Yes, sir. I have in my hands the letter, if you care to know about it, to the Government officers, tendering it, giving our reasons for it, and the answer of the Secretary of War acknowledging it with thanks and appre- ciation, if you would like to hear it, I would be glad to read it. Mr. Kearns. You can put that in the record. Mr. Hill. May he not read that, Mr. Chairman ; I would like very much to hear it. The Chairman. Is it very long, Mr. Martin? L 670 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 671 Mr. Mab^n. No, sir. The Chairman. Then you might read both the letter transmitting the offer and also the letter accepting it. Mr. Mabtin. I am reading from a letter dated February 18, 1918 : Alabama Poweb Co., Birmingham, Ala., February 18, 1918. Col. C. Keller, Corps of Engineers, Office of the Chief of Engineers, United States Army, Washington. D. C. Sir: Following the several interviews which I have had with you recently on the subject of the desire of the Government to acquire him* the Muscle Shoals Hydroelectric Power Co. the dam 'site an;l certain other properties at Muscle Shoals, I have conferred fully not only with the directors of that company but also with the representatives of the securitv holders of the Ala- bama Traction, Light & Power Co. (Ltd.). As I believe I explained to you, the last-mentioned company is interested by reason of its stock holdings m Alabama Power Co., which latter company owns the stock of the Muscle Shoals Hydroelectric Power Co. The properties in question represent a very heavy investment by our com- pany, and have occupied an important position in our plans for securing power for the future. For several years we have worked on plan^ for ulti- mately developing these water powers as an integral part of the hydroelec- tric system which will be required by our companies to meet the needs of the comnmnities which they serve. Much of this work was done by us in collaboration with the Army engineers, looking toward a development in co- operation with the Government on some such plan as was favorably reported on by the Army engineers in House Document No. 1262, Sixty-fourth Con- gress, first session. I am adverting very briefly to these features, as I .iudge from the several interviews which I have had with you and with other representatives of the Government that you are fully aware of what the company has done in preparation for the ultimate development of this water power, and I be- lieve you appreciate that it should receive consideration in the disposition of any surplus power not required for the needs of the Government. From our recent interviews it is obvious that our respective views as to the value of our property and the price which you would agree to pay are quite irreconcilable. As directors of a large public-service corporation, we have always believed that in addition to the development of our water powers at Muscle Shoals being a very valuable and necessary complement to our system throughout the State, the large industrial community which would grow up at Muscle Shoals would add a special value to that power plant. In times like these, however, such considerations must be secondary to the urgent needs of the Nation to secure these properties immediately for the carrying out of the Government project for the production of war nitrates, and we have ac- cordingly determined to donate our lands to the Government for this purpose. I have already given instructions to the company's attorneys for the prepara- tion of the necessary deeds of conveyance. It is our understanding from you that the Governntent only desires to ac- quire the site at Dam No. 2 and adjacent properties, with flowage easement on such of our other properties as may be affected by this development. I need hardly assure you of the desire of the company to cooperate with the War Department to the fullest extent in placing at your disposition the benefit of all our engineering studies and records relating to the projected development. I trust that this disposition of the matter meets with your views. Yours, very truly, James Mpichell, President. Then, on the 20th of February, 1918, a letter from the Secretary of War: War Department, Washington, February 20, 1918. Mr. James Mitchell, President Alabama Poicer Co., Birmingham, Ala. Deab Sib: Referring to your letter of the 18th instant, addressed to Col. Keller, in which you express the willingness of your company to donate to the United States certain properties and flowage easements needed for the f)ro|»()s^'d PVderal ixnvtM- dcvoloimuMit ;it Muscl(» SIiomIs, I beg to acknowledge with thnnks the company's generous and pT!hli<--si)irited action. The further steps necessary in reirard to the matt^^r will be given immediate attention. Vei-y truly, yours, Nkwtox I>. 1>akeu, l^ecrctary of War. Then, I have in my hand a photograph of the check which we received from the United States in the sum of $1 in payment for these lands. Mr. Keabns. And that was land connected with Dam No. 2? Mr. Mabtin. Dam No. 2, the Wilson Dam. Mr. Keabns. Which had cost your company $500,000? Mr. Mabtin. Yes, sir; slightly less than $500,000 we had expended in con- nection with that development. Mr. Keabns. Would the other land which you have at Muscle Shoals, or other property of whatever character that is included in the Ford offer, either land or property, or land and property, be worth as much as the land at Dam No. 2 that you transferred to the Government for $1? Mr. Mabtin. Would it be worth as much? Mr. Keabns. Would it be worth as much or more? Mr. Mabtin. I would not want to say whether it was worth as much or more, but $500,000 does not measure the value of the land. Mr. Keabns. The value of the land you still have there? Mr. Mabtin. Yes, sir. Mr. Keabns. That is included In the Ford offer? Mr. Mabtin. Yes, sir. Of course, our expenditures in that connection cover a long period of years, investigations and studies and plans and what not. We had some engineering and borings at the sites and we carried on for years civil engineering work as well as the purchasing of land. Mr. Keabns. At the time these letters were written, your letter offering your land at Dam No. 2 to the Government for $1, and the Government's ac- ceptance, was that before or after you had entered into your contract for the air nitrates plant? Mr. Mabtin. You mean whether it was before or after this Warrior situa- tion arose? Mr. Keabns. I mean before or after you had donated or really given these rights to Dam No. 2 to the Government. Mr. Mabtin. We started in on the Warrior extension work with the Gov- ernment late in December, 1917. This matter of donating the land to the Government arose in February, 1918, two months later. Mr. Keabns. Two months after that. Mr. Mabtin. Approximately two months. Mr. McKenzie. If you will pardon me, Mr. Kearns, following your question, the point which it occurs to my mind Mr. Kearns is trying to arrive at, is whether or not at the time you wrote this letter to the War Department and they replied, whether that was subsequent to the date of the contract entered into between the Air Nitrates Corporation and the Government of the United States covering the plant constructed by the Air Nitrates Corporation. Mr. Mabtin. I do not know the date of that contract, Mr. McKenzie. Mr. Keabns. Whatever land you own, however, at Muscle Shoals, that is to be included in the Ford offer, you realize the Government would have the right to condemn? Mr. Mabtin. Of course, no one questions the right of the Government to condemn property for governmental purposes in accordance with the Constitu- tion, Mr. Kearns. There are limitations upon those questions, possibly. Mr. MiLLEB. Prior to the war, the Alabama Power Co. was engaged in this business of creating and distributing power generally throughout the State of Alabama or the northern portion of it, and in the progress of its enter- prise it installed this plant on the Warrior River. Mr. Mabtin. Yes, sir ; that is correct. Mr. MiLLEB. As you say, a relay plant or a reserve plant Mr. Mabtin. A reserve plant ; yes. Mr. Milleb. And for the purpose of being a reserve plant, and to function as such, it was connected up with your distribution system? Mr. Mabtin. Yes. Mr. Milleb. That plant is south of a point called Jasper, is it not? Mr. Mabtin. Yes; it is southeast of Jasper, Mr. Miller. 92900—22- -43 672 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 673 1 - * Mr. MiLLKR. You had started a line from the Warrior steam phuit as far north as\lasper? Mr. Maktin. Yes; and as I recall it had also extended somewhat nortli- wt'sterly from Jasper to certain coal mines. ]Mr. Miller. Now, with that completed before the war and in operation, as your reserve plant or a part of it, it became necessary, then, when the subse- quent arrangement was entered into between you and the War Department to complete that transmission line on northward from Jasper to Muscle Shoals? Mr. Martin. Yes. Mr. Miller. How many miles is it from the Warrior steam plant to Jasper or about how many? Mr. Martin. It is probably about 20 miles. Mr. Miller. And from Jasper on to Muscle Shoals is approximately how far? Mr. Martin. About 68 miles. Mr. Miller. Then, so far as the Government's necessities were concerned, the transmission line to be completed to comply with the Government's necessi- ties was 68 lUiles from Jasper northwesterly to Muscle Shoals? Mr. Martin. No, sir. You see this line from the Warrior plant to Jasper was a 44,000-volt line. It was therefore of small capacity, and you need a 110,000- volt line to transmit power a distance of 90 miles efficiently. Mr. Miller. Then you had to practically reconstruct that line? Mr. Martin. No, sr; we did not reconstruct that line. It was a question of build ng a new line all the way back from the Warrior plant. Mr. Miller. From Jasper? Mr. Martin. No ; from the Warrior plant. Mr. Miller. From the Warrior plant to where? Mr. Martin. To Sheffield. Mr. Miller. Then you built two transmission lines. Mr. Martin. The line still stands serving Jasper and other places in that district, on the same right of way, and side by s.de is a new line constructed from the Warrior plant 90 miles to Sheffield. Mr. Miller. Now, I see very clearly that in the construction of the Govern- ment's activities there they utilized your foundations at the Warrior plant to construct add.tional units, and so on. and as a result of the method of construc- tion, whether the most practical or not, the Government's activities there were inseparably inerwoven and interlaced with your activities in the physical con- struction of the Warrior steam plant. Mr. Martin. Yes, sir; that is right. Mr. Miller. They were not capable of a division in any wise. Mr. Martin. That is true, Mr. Miller. It was not physically possible to ex- tend the plant and do what was necessary to increase that plant and make it a separately contaned plant. Mr. Miller. Then, preceding this time, you had a verbal understanding which, eventually, ripened into a contract, which was s gned on the day that the false report of the armistice was circulated in the United States, but which dated back to the 1st day of December, J917 ; that is right, is it not? Mr. Martin. Yes, sir ; that is correct. Mr. Miller. Now, simultaneously with the building of the Government's addi- tion to the Warrior steam plant, or very closely connected with it, the Govern- ment commenced constructing its own steam plant up at nitrate plant No. 2. Mr. Martin. Yes: that is true. Mr. Mill1':r. Which was of a capacity approximately double what they ha<^ put in at the Warrior steam plant. Mr. Martin. Yes. Mr. Miller. Now. crottinjr back to this contract, the contract was drawn to cover the very contingency that has now arisen. Mr. Martin. It was, Mr. Miller. Mr. IVIiLLER. And the condition of the Government and the condition of the Alabama Power Co. is just in that status to which your contract applies so far as section 22, I believe, is concerned. Mr. Martin. Y^es, sir; neither the Government nor the power company ever contemplated that the United States would desire to engage in the power business, but the Government contemplated that it would desire to purchase power from us, under an arrangement which would insure a fair, honorable, decent way for the Government to get the fair value out of the property 't created. That was the basis of our understanding. Mr. Miller. Now, let us see what that understanding is. You were to operate not only for your use there at the Warrior steam plant but also to operate the units the Government. i\Ir. Maktin. Operate 3'es, sir. Mr. MlLLEK. Martin. Miller. Martin. Miller. of the installed by the Government or that portion installed by i!, maintain it, and insure it at o\w <'w:i c :rK ;ie electric current to the Government? Mr. Mr. Mr. Mr. report which Mr. Mr. in $4,978,0(X), according to the !^5>y. approximately, .$5,000,00«), And furnish Yes. At 6* mills pt»r kilowatt hour? At (H mills. Now, the Government had put Chief of Ordnance, or as you is correct, T dare say, Mr. Martin. Martin. It is slightly under $o,0(Xl,000. Miller. Now, you say .vou had put hi your instalhition at the Warrior steam plant, before the (Jovernment made any additions thereto, approximately $3,000,000. IMr. Martin. Yes. Mr. Miller. Then after the Government had embarked jointly with you the investment stood as 3 is to .">; that is right, is it not? Mr. Martin. Ah 3 is to 5? Mr. Miller. You say that before the Government put anything in there yon had an investment of approximately $3,000,000. Mr. Martin. Yes, sir. Mr. Miller. And the Government put in approximately $5,(X)0,000. Mr. Martin. In the power plant and transmission line, together. Mr. Miller. Yes. Mr. Martin. There was about $3,500,000 iVIr. iNIiLLER (interposing). Then your respective interests in the money paitl in would be ai>proximately as 3 is to 5? • Mr. Martin. In station equipment it is about 3^ to 3. Mr. Miller. Tlie Urdimnce Department tells us that we have put into tlie Warrior generating plant $3,337,000. Mr. Martin. That is correct. Mr. Miller. AVe have put into the Warrior substation $384,<300, and we have put into the transmission lines $905,000, and then they have included the Drifton Railway with which we are not concerned just now, because I am simply getting at the comparative sums of money that the United States Gov- ernment and the Alabama Power Co. put in there, and as near as I can get the figures, it is about as 3 is to 5, because the United States Government put in $5,000,000 and you put in $3,000,000. Mr. Martin. Now, there are some other elements, if I may call your attention to them. Mr. Miller. I am just taking your word that you have put in approximately $3,000,000 there. Mr. Martin. Prior to that time ; yes. Mr. Miller. Yes; prior to that time, and at the time the Government came into your activities. Mr. Martin. Yes. Mr. Miller. Now, after the Government came into your activities, it put in $5,000,000, approximately? Mr. Martin. Yes. Mr. Miller. Now, what did you put in after the Government came in? Mr. Martin. We put in by way of investment, and certain expenses which I enumerated this morning, something in excess of $1,000,000, and in addition to that, by this investment in tie lines, the Government was enabled to draw on our entire system for its power supply, and you can not overlook the fact of the reserve value of our entire system in connection with the Warrior station. Mr. IVJiLLER. What I was getting at was the respective amounts of money Involved. Mr. Martin. Yes. Mr. Miller. You testified this forenoon, I believe, that your expenses in con- nection with the matter were $1,016,000? Mr. Martin That is correct. Mr! Miller. Now, we will take $1,016,000, which, added to your .$3,000,000 of previous investment, would make approximately $4,000,000. Mr. Martin. Yes. 1 674 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 675 l\ •i' ^ mi Mr Miller. Then your relations would be about as 4 is to 5? Mr. Martin. If you want to separate the Warrior plant from the rest of the system * ves. Mr Miller. No ; I am not separating it. I am Iceeping it with the plant, and what I am getting at there is who has the major investment there, you or the United States of America? Now, after the Government had put in approximately $5,000,000, you were to operate this plant and charge the Government 6i mills per kilowatt "hour? Mr. Martin. Yes. . ^' n n Mr. INIiLLER. And out of that the Government was to retain a fund ot 2 mills, which was to be put into a fund by itself, was it not? « Mr. Martin. Yes ; that is correct. Mr Miller. Now, this contract further provides that when thjit accumulatinR fund of 2 mills shall have reached the amount of the Government's investment, the Government's investment should be turned over to the Alabama Power Co.? Mr. Martin. Yes. . ^ . o^ m Mr Miller. In other words, you were charging the Government 6* mills per kilowatt hour, and there was 2 mills put down as a sinking fund and retained bv the Government, and w^hen those 2 mills should have accumulated into approximately $5,000,000, the Alabama Power Co. should absorb the entire United States Government holdings there, so far as they related to the Warrior ^ Mr! Martin. Now, we have got to get at that 6^ mills and see just what tho relations of the parties are. Mr. Miller. I am taking the terms of your contract. , « •„ Mr. Martin. Yes ; but we were required to pay to the Government 2 mills as si sinking fund : that is true. . , ^ Mr. Miller. Hold on; f^as that 2 mills that you were required to pay or was that taken out of the 6^ mills? Mr Martin. I was going to say that the result is just the same. Mr Miller. I understand that the result mathematically is just tlie same; but it is quite different from the Government's angle of it. Now, look at your clause 18 or 19 and give me your construction of article 18, on page lo4 of part 3 of the hearings. Let me read and see if I am not right : ^ , , ^ „ " The United States shall pay to the contractor [which is the Alabama Power Co 1 at the rate of 6^ mills for each k.w.h. of energy actually delivered to the United States at the Warrior substation. Said rate is based upon the po\yer factor of the load of the United States measured at the Warrior substation bein? no less than 85 per cent. Energy generated at the Warrior extension or the Warrior substation shall be measured at the low tension side of the step-up transformers at said Warrior substation." „^fH««, .,t The balance of that section relates to the voltage. Now, what I am getting at is where did this 2 mills come from? Mr Martin. It came in this way ^ . „ Mr. MttLER (interposing). Let us get the provision of the contract governing ***Mr. Martin. It you will go back to article 17 you will see " Payments by con- tractor." , . ^ ^ , 4.1 1 ^ft« Mr. Miller. Mr. Martin, is this not covered in article 19? ^ Mr. Martin. Yes ; but you have to consider 17 and 19 together, I think, to get Mr. Miller. Yes ; I see it Is referred to In section 17. ^BeeinnSg at^he^termination of the period of preliminary operation men- tioned In article 14, and so long as the United States shall require the contractor fo supply ene?^ to the United States for the operation of either or both of said nVrTplants'The contractor shall pay to the United States monthly for the us of the Warrior extension and Warrior substation interest at the rate of 6 per cent per annum upon the actual cost to the United States of said extension and substation, less the amount of the accumulated fund referred to In article 19, as thrsame may vary at each monthly computatien of such interest. In computing such costThJre s?all be excluded all payments by the United States for ^P r- vision " etc " * * ♦ The contractor shall also pay to the United Statesin, terest'monthly at the rate of 6 per cent per annum upon the sum of $30,(K)u ex^nded In the Drlfton extension. Now that operated In this manner: There was Invested In the Warrior extension, $3,417,602.70. Mr. Miller. Where do you get those figures? Mr. Martin. That is in the record. Mr. Miller. You mean that is the Chief of Ordnance estimate. Mr. Martin. Yes, sir. Mr. Miller. You are taking then the figures of the Chief of Ordnance? Mr. IMartin. Yes, sir. And (»ie Warrior substation, $383,756.30; Drlfton extension, .$30,000, or .$3,831,496.06. We are required to pay 6 per cent on that, or $229,887.54 a year. That is the interest charge. You have got to take that into account in getting at the question to which you are leading. Mr. Miller. Well, we will take it into account. Now, return to paragraph 19 of your contract which reads as follows: " From and after such date as the contractor shall begin to operate the Warrior extension and Warrior substation as a part of Its own system, the United States shall retain 2 mills per k. w. h. from the amounts payable to the contractor by the United States under article 18 hereof, except that (a) in no case shall the said minimum monthly payment by the United States be less than $30,000, and (6) the United States shall retain no part of the payments due for energy delivered by the contractor at a rate in excess of the capacity at the time of the said Warrior extension." Now, you are charging there only on the Government's own property; is not that true? Mr. Martin. Six per cent; yes. Mr. Miller. They pay you these amounts, then, for that part of your in- creased capacity, the United States putting in this Investment with yours? Mr. Martin. The Government pays us 6^ mills for power and we contract to pay the Government interest on its investment. Mr. Miller. But according to exception (&) the United States shall retain no part of the payments due for energy delivered by the contractor at a rate In excess of the capacity at the time of the said Warrior extension, provided that said 2 mills shall no longer be retJiined by the United States when the accumu- lated fund shall equal the actual cost to the United States of the Warrior ex- tension and the Warrior substation, computed as set forth In article 11. Now, when this accumulated fund reached the sum of $4,417,000, the entire property investment of the United States, so far as it was connected with the Warrior substation, passed to the Alabama Power Co. Mr. Martin. We had paid for It. Mr. Miller, But you operated it in the meantime. Mr. Martin. We were to pay a certain amount for it; yes. Mr. Miller. How much? Mr. Martin. Actual cost. Mr. Miller. Actual cost? Mr. Martin. Yes, sir. Mr. Miller. Now, where in your contract do you say that at the time when this accumulated fund should reach the amount of the Government's Invest- ment, you should pay the Government what it had Invested? Mr. Martin. I do not say that. Mr. Miller. No; that is not there. Mr. Martin. You see the theory of this payment of 2 mills was to return to the Government its capital Investment. Mr. Miller. You returned to the Government its capital investment? Mr. Martin. Yes, sir ; we simply repaid to the Government this $3,800,000. Mr. Miller. Now% let us see about that. We will take up that contingency and see how that applies. Let us look at article 22, and I am reading now from the top of page 157, subdivision (&). " If the value so fixed be greater than said fund, then the United States shall upon payment by the contractor of the amount by which such value Is greater than said fund, or payment thereof being secured as hereinafter provided, convey all of Its rights, title, and Interest In and to said properties to the contractor by proper instruments in writing within 60 days after notice of the award, retaining In payment the whole of said fund." Mr. Martin. Yes. Mr. Miller. Now, suppose you purchased the property from the Government, do you take the fund? Mr. Martin. Do we? Mr I^iLList Yes Mr. Martin. No, sir. That was In the event of an arbitration fixing the value of the property at any given figure, whatever might be in this accumulated fund was to go as a credit on that value thus fixed. 676 MUSCa:.E SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 677 Mr. Millers Suppose that accumulated fund is equal to the value fixed by the arbitrators as the value of the plant. Mr. Martin. If the value was fixed as the amount in the fund? Mr. MnxEB. Yes. Mr. Martin. Then, there is a provision for conveying the title to the company. Mr. Miller. Yes. Now, where does the Government get any money out of it? Mr. Martin. By the payment of the 2 mills. That is a capital payment. Mr. Miller. Then you construe it that when this accumulated 2 mills pay- ment should have reached the value of the United States interest there, the United States retained this 2 mills constantly — did you say you paid that to the United States? Mr. Martin. Yes; we certainly would. Mr. Kearns. May I ask just one question, Mr. Miller? Mr. Miller. Yes. Mr. Kearns. I understand the Government was to pay you 6i mills per kilowatt hour for your energy. Mr. Martin. Yes. Mr. Kearns. And instead of paying you the full amount of 6i mills it would keep 2 mills? Mr. Martin. That is correct. • Mr. Kearns. And those 2 mUls belonged to you? Mr. Martin. Yes, sir. Mr. Kearns. And when the 2 mills grew into a sum equal to the amount the Government had invested in your property it was to transfer the property to you; is that it? Mr. Martin. Yes, sir. Mr. Miller. Now, that is one element, and let us turn to Mr. Martin. You understand that 6^ mills was fixed as the base price for energy based on coal at $2.30. Mr. Miller. Yes. Mr. Martin. Based upon that figure of 6^ mills for energy, this arranj^ement was worked out. Now, we are prepared to defend and show any figures you want and any data you want as to the fairness and correctness of that figure of 6i mills, and we were to pay the Government 2 mills into that accumulated fund on account of its capital investment in the plant. Mr. Miller. I think I understand that. Now, you say you were willing to take that plant from the Government as a going concern and not at its scrap value. It being indivisible and incapable of physical division, this contract was so drawn that you would have no competitor in undertaking to purchase the holdings of the United States Government in the Warrior steam plant, provided the value of the plant or the investment had not been absorbed by this fund of which we have been speaking. Mr. Martin. You assume that there must be a competitor in fixing a fair value. Mr. Miller. Yes. Mr. Martin. I think you will agree with me that under the principles of law which govern the ascertainment of fair value they are as well defined as any principles of law. Those principles of law are read into this contract, and, competitor or no competitor, far value can be fixed. Mr. Miller. There is a way of fixing the fair value by what an article would bring in the market, free and open, where the purchaser or any contemplated purchaser would get property capable of segregation and something he could use himself, but no human being who was a bidder on this property in com- petition with you could ever separate his property from your property down there. Mr. Martin. No, Mr. Miller; but on a reproduction basis, and considering all the elements that must enter into fair value, you do not need to consider the question of competition. Mr. Miller. And, furthermore, there is a clause in this agreement 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. Mr. Martin. That is correct, Mr. Miller. Mr. Miller. Yes. Mr. Martin. And It was put in there because the situation was not capable of being divided into two operating plants. Mr Miller. Then the whole thing was shaped so that the Alabama Power Co. would ultimately absorb the United States interest there, and no other human being could come in competition with the Alabama Power Co. Mr. Martin. There was no way by which this arrangement could be worked out except on a basis of our agreeing to purchase the property at a fair value, and we stand ready and willing to do it. . , ». Mr. Miller. I understand all that, and I have had it deeply impressed here that in your relations with the United States Government you so entwined the Government's investment with your own investment and laced backward and forward until ultimatelv there would be no human being that could purchase or come in competition with you for the purchase of the Government's rights in that property. ^, ^, ^ _ Mr. Martin. Mr. Miller, I do not accept your premise. The Alabama Power Co. did not interlace anything. This contract was made by Government officials with us on a fair basis, and it was understood from first to last that this prop- erty was to be developed and constructed just as it was to accomplish the Government's purposes, namely, the sale and delivery of energy. Mr. Miller. I understand; but there are different ways of accomplishing the same result. Now, you take issue with me, let us refer to subdivision 5, of article 22, on page 157, part 3, of the hearings : ^ ^ ^^ "In the event that the contractor [that is you] shall on demand of the United States fail or refuse to purchase the Warrior Extension and Warrior substation under any of the foregoing subdivisions of this article, the United States may sell the same to another, subject to the conditions that said prop- erties shall not be operated and that they shall be removed within six months after the sale has been consummated. Upon the consummation of such a sale with another purchaser, the United States shall pay over to the contractor the whole of said accumulated fund [that is, this 2 mills fund we were talkiftg about a moment agol less the amount, if any, by which the actual cost of the said properties shall exceed the price realized from such sale." Mr. Martin. Yes, sir. Mr. Miller. Now, we have got a $5,000,000 investment down there, and we have got it so interlaced and stitched up with the Alabama Power Co. that If the United States should want to sell it, it could only sell it to some person who could not operate it, and still you say that you want to buy it as a going concern, but no other human being could possibly buy it on the basis of a going concern. That gives the Alabama Power Co. a wonderful advantage, does it not, over any possible competitor? , ^ ^ j., Mr. Martin. The very inception of this whole arrangement looked to the thing which is done now. The United States Government appreciated that this extension could only be made in the manner in which it was made, and we obligated ourselves to buy it at a fair value in order to protect the Government in the situation of which you speak. Mr. Mitxer. And in buymg it at a fair value you absolutely bar any com- petitor. J. , . 2. J Mr. Martin. We could not afford to have our plant segregated into two parts. We could not afford to turn our plant over. That was the funda- mental basis of this whole arrangement. Mr. Miller. You are not transferring any plant. You turn over the output of a part of your plant, but you did not turn over any plant to the United States? Mr. Martin. That is exactly what we could not do. Mr. Miller. But the Government turned over a plant to you which bears a relation to your investment of 5 to 4, the Government being the major holder of interest there. Mr. Martin. The Government advanced funds for the extension of property, and we agreed to buy that property on the basis of fair value. Mr Miller. And the Government advanced an amount one-fourth more than you have put in there, but still this thing is so interwoven that when the time conies when the war shall be over and the Government shall desire to dispose of it, which time is now. Mr T^I VRTiN Yes Mr! Miller. The only possible people that the Government can deal with will be the Alabama Power Co. ; is not that true? Mr. Martin. That is correct, Mr. Miller, and that was contemplated, and the contract from beginning to end contemplated that, and there is no other way by which this extension could have been worked out. Un m 678 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 67^ WM- '#9' i; I Mr. Miijj!:u. I see very plainly what the contract is, but I have been wondering if there is any othei human being that would put a dollar into an enterprise on such a basis as the United States Government put its money in with you. Can you conceive of any institution in the world, or can you conceive of the United States, except in the extremity of war, making such a contract? Mr. Maktin. This was the extremity of war, Mr. Miller. Mr. MiLLEB. And I am afraid, Mr. Martin, that I am forced to believe that you took advantage of the Government in its extremity of war. Mr. Martin. We resent the insinuation, sir. We did not. We made a fair, decent, honorable contract with the United States Government. Mr. MiLLEB. I have the right to my interpretation, I think, Mr. Martin. Mr. Mabtin. And I have the right to mine, too. Mr. MiLUiR. And I have the right to express my opinion. Mr. Mabtin. And I have the right to express my opinion, and I will. Mr. MiLLEK. And I say, sir, that it looks to me as if the Alabama Power Go. had ingeniously interwoven the Government's interest along with yours to such an extent tliat tliey never could be segregated and that you would be the only man that could become the purchaser. Mr. M.\JiTiN. And I resent the insinuation. Mr. MiLLEB. You can resent it all you please, Mr. Martin. Mr. Mabtin. Yes. The Chaibman. The gentlemen will please observe order. We are getting along very nicely here, and there is no use losing your tempers. Mr. Mabtin. The Government could have gone and built a plant. The Gov- ernment came to us. The Government officials recognized the situation and wanted power, and this was the way that the Government officials had of get- ting power. Mr. MiLLEB. It is plain tliat they got the power and I see the end of the horn the Government is coming out in this thing, too, notwithstanding the great patriotism that you suggested to the committee this morning, Mr. Martin. Mr. Mabtin. Has any representative of the Government in the Ordnance De- partment questioned the fairness of this contract — Gen. Williams or Col. Burns? Mr. MiLLEB. We will take that up Mr. Mabtin. And those men who made this contract? Mr. Milleb (continuing). When we come to it. Mr. Mabtin. They know it is a fair contract. Mr. Milleb. You say it is a fair contract. Mr. Mabtin. Yes, sir. Mr. Milleb. In opposition to that, Mr. Martin, I would say that it is the most unconscionable contract I ever saw signed by people. Mr. Mabtin. We nevertheless have our opinion. Mr. Milleb. Now, that is your view and my view. Mr. Mabtin. Yes, sir. Mr. Muxes. I have no hesitation about accepting your view and you should have none in accepting my view. Mr. Mabtin. I do not accept your view. Mr. Milleb. And I dare say, from my reading of this contract, the Govern- ment was simply overreached under the terms of this contract or else it was taken advantage of by the exigencies of war. Mr. Mabtin. Neither of which was the case. Mr. Milleb. Let us now go on a little further. I am referring now to para- graph 6. "In the event that (a) the Warrior extension and Warrior substation are not sold in the manner herein provided to the contractor or to another within the period of 10 years, referred to in article 15, or (b) said properties not having been so sold, the United States or its said successor shall cease for 365 con- secutive days to take any energy from the Warrior extension ; the United States shall, upon six months' notice in writing from the contractor, remove the Warrior extension and Warrior substation from the lands of the contractor unless it shall, within 90 days after receipt of such notice, proceed to exercise its option under subdivision 1 on this article." Now, there is another contingency. If somebody should come along and should be induced to buy the United States' interest in it he could not operate the plant, and if the United States should hold it and not sell it, it must remove the plant from your property, in which case you get the benefit, likewise, of this two-mills fund. Mr. Mabtin. There is not a cent in that accumulated fund. Mr. Milleb. I understand there is no accumulated fund now. Mr. Mabtin. And never was. Mr. Milleb. But suppose the war had continued, as you were preparing for in this contract, evidently, and a great deal of your energy had been absorbed, there would be considerable in this accumulated fund, would there not? Mr. Mabtin. That is possible. Mr. Milleb. Yes. Now, then, let us take the power extension and trans- mission line. The Alabama Power Co. built those, did they, on your land? Mr. Mabtin. Yes, sir. Mr. Milleb. Did you own the land prior to the time the United States Gov- ernment got into relations with you? Mr. Mabtin. We had owned the right of way to a point beyond Jasper, about 20 miles. Mr. Milleb. Then between Jasper northward, for approximately 68 miles Mr. Mabtin. Something like that. Mr. Milleb (continuing). You acquired the right of way? Mr. Mabtin. We did. Mr. Milleb. Why did not the United States acquire that right of way itself? Mr. Mabtin. The United States requested us to acquire and pay for it. Mr. Milleb. And then why did you not acquire it for the United States? Mr. Mabtin. We were requested to acquire it and take the title in our name. Mr. Milleb. Who made that request? Mr. Mabtin. Col. Joyes. Mr. Milleb. Col. Joyes did not deem it worth while for the United States to have anything down there in its own name, but everything on the property of the Alabama Power Co. ; every dollar of this $4,800,000 investment. That is right, is it not? Mr. Mabtin. That is your interpretation of it. Mr. Milleb. I am asking you if it is not your interpretation? Mr. Mabtin. I did not get your question. (The stenographer read the question referred to.) Mr. Mabtin. Col. Joyes considered that the interest of the United States was protected when the contract required us to buy the property at fair value. Mr. Milleb. I will ask you this question : As a matter of fact, every dollar of the $4,878,000 that the Government has put in there, in connection with the Warrior Steam Plant and the transmission line, is on the property of the Alabama Power Co.? Mr. Mabtin. It is. Mr. Milleb. Then we have this condition: We have an investment there which is heavier than yours, bearing the relation of five to four, and that is on your property, and we can not sell it to a purchaser who can operate it, and if we do not sell it to you, and the Government keeps It, it has got to take it off of your land. That is the condition of the United States Government, is it not? Mr. Mabtin. But the Government is protected because it can require us to buy at a fair value, and that was contemplated from the first, that we would stand ready to buy at a fair value. Mr. Milleb. And the whole thing was so shaped, was it not, Mr. Martin, let us be frank, that when the Government was through using it. there could be nobody that could take over that property but the Alabama Power Co.? Mr. Mabtin. At a fair value. Mr. Milleb. At a fair value? Mr. Mabtin. Yes, sir. Mr. Milleb. Now. if you were after fair value, why was the wording of this contract so twisted around that nobody could compete against you? Mr. Mabtin. In the first place, we had the Warrior Station and it was an integral part of our hydroelectric system. If that station was to be extended and we were to obligate ourselves to deliver power from it, and if we were to undertake to extend it for the account of the Government, we could not under- take that if the extension should be separated into another plant. The Gov- ernment might take the whole plant. It might have taken it all, of course, but if the Government undertook to take it all there were other obligations and conditions which would arise by reason of that. The Government did not undertake to do that. It was not necessary for the Government to take 680 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITION'S. 681 fltti IL the station. Wv could not part with a part of the station. It would dis- arrange our whole hydroelectric system. Mr. Miller. It would disarrange your whole system? Mr. Martin. It would disarrange our whole system because our water- power system must have a steam reserve. This plant was built for that steam reserve. We had many contracts to sell power based on our ability to deliver power throughout the year, this plant supplying the deficiency. Mr. Miller. Mr. Martin, we are very familiar with the principle of steam- reserve plants. Mr. Martin. And that accounts for the fact that we could not undertake to separate this property into two stations. It could not be operated as two stations. Mr. Miller. The plant w^as so constructed there, physically, that it could not be separated from your plant. Mr. Martin. It could not be, because the very location of it is such that it can not be separated. There is not physically enough space or square feet of acreage to permit of two plants being operated there. There is not sufficient cooling water. That was a part of the whole situation which the Government officials recognized. Mr. Miller. If the war had run along a sufficient amount of time, Mr. Martin, for this accumulated fund to have reached the value of the plant, you say you would have taken over the entire plant and have paid the United States the value of it ; is that right? Mr. Martin. If we had paid the United States Government the cost of the property, we would have taken the title to it. Mr. Miller. I will ask the reporter to read the question and answer. (The reporter read the question and answer referred to.) Mr. Martin. My answer is right. Mr. Miller. But if the war did not run along long enough for this accumu- lated fund to amount to anywhere sufficient to meet the cost of the plant, the plant then was to be in such a position that it could not be sold to anybody in the world except you? Mr. Martin. At a fair value. Mr. Parker. Mr. Martin, you have stated that this contract was not signed until November, 1918. Mr. Martin. Yes, sir. ^ ^^.r- Mr. Parker. Col. Hull, on page 129, calls it a contract of December 1, 191 <, and refers to previous statutes. He was asked when that contract was made and answered that it was dated December 1, 1917, and seems not to have understood that it was made in November, 1918. It is a matter of some im- portance. Have you any correspondence or written statements which show when the contract was really executed? Mr. Martin. We have. Mr. Parker. There was no acknowledgment? Mr Martin. We have, Mr. Parker. I have before me the minutes of the board of directors of the Alabama Power Co. of November 4, 1918, which I will give you. Mr. Parker. That is already in the record, on page 168, or the motion au- thorizing the execution of the contract. There may be something else in the Mr Martin. Yes; there is something else in the minutes which I want to read to you. At this meeting of the board of directors, held November 4, 1918, the minutes recite : ^ .... ^, tt -^^i " The Chairman then explained the proposed agreement with the United States for the construction of the Warrior extension and transmission Ine to Sheffield dated December 1, 1917, and after full discussion of the subject il was on 'motion, resolved that the president and vice president, or either ot them is separately authorized to sign and execute on behalf of this company any and all proposals which may be submitted, any contracts, bonds, or other documents relative to any work which is or may be awarded by the United States Government to this company, and also any contracts and bonds witli the Government concerning such work." , ., ,^. There is a certified copy of this resolution attached to the contract itseit. Mr. Parker. A copy of the resolution but not of the recital. Mr. Martin. Yes ; not of the recital. Mr Parker. Have you any correspondence which shows that the Ordnance Department at that time asked you to attend to the execution of that contrsut. Mr. Martin. As late as November? Mr. Parker. In November; yes. Mr. Martin. I think we have. I have letters to and from Col. Williams. Mr. Parker. They are not here, are they? Mr. Martin. My associate has just handed me one letter. The Chairman. This morning, I think, you stated that you had correspondence regarding this matter prior to the time when the formal contract was ratified, and that you agreed to put into the hearings those letters, as I recall. Mr. Parker. What does this letter say. Mr. Martin. It is just a letter under date of October 19, 1918, to me from Col. Williams transmitting to me certain articles of the contract which he has rewritten, from articles 1 to 21, with the exception of article 15. He trans- mits them under date of October 19, 1918. Col. Beames, a witness to the contract, is available and various other witnesses are available. I was pres- ent myself when the contract was executed, and both witnesses to the contract can be very readily had. I have here another letter from Col. Williams, dated November 1, 1918, addressed to me at our New York office relative to the con- tract, sending certain pages of the rewritten contract. It is dated November 1, 1918. The Chairman. But, Col. Williams, you said, has gone to Japan. Mr. Martin. Yes. The Chairman. So, he is not available to be called before the committee. Mr. Martin. No, sir. The Chairman. Could Col. Beames be called? Mr. Martin. Yes, sir. . The Chairman. I think you gave us his address when you testified this morning? Ml* Martin Yes sir Mr. Parker. Now, Mr. Martin, you have stated something about the price of water power in Alabama as given from a report of the Department of Com- merce as being in 1917, 2 cents ; and in 1912, 1.9 cents per kilowatt ; and in 1917, 7 mills per kilowatt. What was it in 1918 or does not that appear? Mr. Martin. That does not appear from the tabulation I have here, Mr. Parker. Mr. Parker. It is important to know what a fair price was and I want to know what you were selling power in large quantities for in 1916, 1917, and 1918? Mr. Martin. The average price was between 8 and 9 mills per kilowatt-hour. Mr. Parker. To everybody except the Government? Mr. Martin. Yes. Mr. Parker. In large quantities? Mr. Martin. Yes; that was the average return we received over our entire system, approximately 8 mills. Mr. Parker. What was the lowest you sold power for to any large customer outside of the United States? Mr. Martin. I would have to look that up to see, Mr. Parker. Mr. Parker. I wish you would look that up and put in the record all your sales in large quantities. I do not care about any of your small sales to small factories, but this contemplated a very large number of kilowatts. Mr. Martin. Yes ; it contemplated the sale of ix>wer which we were unable to make from our water-power system without steam addition. Rates charged by Alabama Power Co. for hydroelectric power supplied to large consumers with service requirements comparable to those of the United States Government at nitrate plant No. 2, (rates are based on hydroelectric and not steam-generated power). 1917, 1918, and 1919. (1) 7,500 kilowatts, 50,000,000 kilowatt-hours per year, 6.32 mills per kilowatt- hour; (2) 15,000 kilowatts, 100,000,000 kilowatt-hours per year, 6.27 mills per kilo- watt-hour ; (3) 30,000 kilowatts, 200,000,000 kilowatt-hours per year, 6.26 mills per kilo- watt-hour ; 682 Mk 'pll ;rei|:: I' MUSCLE SHOALS PROPOSITIONS. 1920 AND 1921. MUSCLE SHOALS PROPOSITIONS. 683 (1) 7,500 kilowatts, 50,000,000 kilowatt-hours per year, 7.24 mills per kilowatt- hour ; (2) 15,000 kilowatts, 100,000,000 kilowatt-hours per year, 7.04 mUls per kilo- watt-hour. (3) 30,000 kilowatts, 200,000,000 kilowatt-hours per year, 6.92 mills per kilo- watt-hour. Mr. Pabkeb. Very true; but I want to know what was a fair price at that time, and you can give us that with all the remarks you choose to make about it. Did it sell in 1919 at a lower or higher rate? Mr. Martin. Our average return? Mr. Parker. Yes. Mr. Martin. It was slightly above. It went probably a little more than 8 mills, but was still between 8 and 9 mills. Mr. Parker. What was it in 1920? Mr. Martin. There was practically no change. Mr. Parker. What is it now? Mr Martin. It is practically the same. There is very little change. Mr. Parker. The price you named to the Government was 6^ mills, was it? Mr. Martin. Yes. Mr. Parker. Was tJiat price higher or lower than the price you get from other customers who buy in large quantities? Mr. Martin. Considering the fact that it was based on steam, it was lower. Mr. Parker. If it was based on water power, how is it in comparison with what you sold power for to other people? Mr. Martin. Our commercial manager tells me there would be very little difference. It would work out between 6 and 6i mills. It might have worked out a little less than 61 mills. Mr. Parker. You mean in sales to other people? Mr. Martin. You asked me the question whether this quantity of power if sold at our standard rate would be less than 6i mills. Based on our water- power systjem it might have been a little less than 61 mills. I will have to work that out and see. Mr. Parker. For the whole year? Mr. Martin. Yes ; but would not have been less than 6 mills. Mr. Parker. And what was the price of your steam power? Mr. Martin. We had no other contract with anyone based on tlie delivery of steam power. Mr. Parker. And steam power is more or less expensive than \\'ater povverV Mr. Martin. It is more expensive. We could not deliver steam power at 6| mills except on a very high load factor. Mr. Parker. I understand that the tract of land on which the iwwor plant was erected belonged to you. Mr. Martin. It did. Mr. Parker. When did you buy it? Mr. Martin. Either in 1915 or 1916, before we began the erection of our plant. Mr. Parker. Do I understand your i)osition correctly to be that you consid- ered the money spent by the Government as advanced to put the plant and lines upon your property which should become yours, if you wished it, and which should be paid for, not at the cost of construction, but at a fair price as a working plant according to its value, when you finally took it over, and with a provision that meanwhile, while the Government got the benefit of the plant and paid for power, they should pay 61 mills a kilowatt, but deduct 2 mills a kilowatt, and you should pay 6 per cent interest on the cost of the whole plant? Mr. Martin. Yes, sir. Mr. Parker. That proposition is a little troublesome, because I understand you do not pay interest at all except when the Government takes power from you. . ^, Mr. Martin. If the Government does not take power from us we pay m the form of a mill and a half a kilowatt hour, generated at the station. Mr. Parker. That is in the contract? Mr. Martin. Yes, sir. Mr. Parker. That is to say, if they do not take from you and you use the plant, you pay 11 mills per kilowatt hour, you furnishing the expense? Mr. Martin. Tlie thought being that the mill and a half amounts to per oent interest on the investment. Mr. Parker. Is that what you are paying now? Mr. Martin. Yes. Mr. Parker. Then the payments you are making now are under the same original contract? Mr. Martin. Yes, sir. Mr. Parker. What clause is that? Mr. Martin. That is subdivision 2 of article XVII. Mr. Parker. Are you using the plant to its full capacity? Mr. Martin. We are at times. Mr. Parker. When you are short of water? Mr. Martin. Yes; that is right. Mr. Parker. How will a temporary use of that sort amount to anything like 6 per cent interest? Mr. Martin. How would it amount to that? Mr. Parker. Yes; a temporary use of that sort. How much di merits of the Ford proposition? The Chairman. No. Mr. Hill. Then I have not any questions at all to ask to-day. Mr. Wttrzbach. When and how long was Mr. Washburn president of your ecmipany? Mr. Martin. He became president of our company some time in 1913; that i« my recollection. He continued as presdent until the annual meeting of our directors in Febiniary, 1915. He was president two years. Mr. Wurzbach. Was he connected with the company in any other official capacity before 1913 or after 1915? Mr. Martin. Yes; he became director and president in 1913, and, as I say, he resignef the endi- tures Committee did not go down there. I think they would have handle^ this whole situation differently if they had gone. They would have seen what it was and would have been better able to appreciate the entire situation which confronted us down there at that time. . , , .^ . ^ ^v, *. • ^ Mr Quin. Then thev were in error when they said in their report that irre- spective of the armistice the work was pushed rapidly, and the entire installa- tion was made and work not stopped until in April, 1919? m ^v. ^ ^ - ^ Mr Martin. They were in error in making a general statement of that kind. We have answered that statement, all of those statements, in a written memoran- dum, which is now in the Congressional Record. This Committee on War Ex- penditures did not go to that place, and gave us no opportunity to appear before it. We knew nothing of their report until it was filed, and I asked Senator Underwood to spread our answer upon the Congressional Record, and now that vou have introduced the Graham report. I am going to ask leave of the chairman to file as a part of this proceeding our answer to those pro- ceedings and to that report. Mr. Quin. You say it is already in the record? The Chairman. Of course, this committee is holding its own investigation. Mr. Graham's committee may have made findings about your company, but I do not think this committee has anything to do with that. Mr Martin. That is correct, but some one has already introduced into these hearings the Graham report, so far as it deals with this company, and it is now a part of this record. ^ ^ _* The Chairman, I do not recall that the Graham report was made a part of this record, ^ . ,- « x*. Mr. Martin, Then may I take the liberty of referring specifically on the record to our answer to those charges or criticisms in the Graham report? The Chairman. I frankly do not believe the Graham report is a part of the record of this committee. Therefore, there is nothing to answer. Mr. Martin, I simply wanted to refer to the Congressional Record, wherein it is contained, , ^ ^ ^ , ^.x, j. *.4. The Chairman, I do not think this committee ought to take up that matter. Mr. Dent. Mr, Chairman, I think you misunderstood Mr. Martin. All he wants is for the reporter to note where the answer to the Graham report ap- pears in the Congressional Record, giving the date and page number of the Congressional Record. 694 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 695 The Chairman. I have no objection to that. Mr. Martin. The answer is contained in the Congressional Record at page 1275 and following, under date of January 10, 1921. Mr. Fields. In whose remarks? Mr. Martin. They were offered in the Senate by Senator Underwood, and they were offered at my request in a telegram, which is also set out in this record. Mr. QtJiN. They spoke of a turbogenerator being furnished at a cost of approximately $2,000,000, installed after the armistice? Mr. Martin. No; it was installed before the armistice; 95 per cent of the work was completed at that time. Mr. QuiN. When was it tested? They say it was tested in December, 1919. Mr. Martin. It was tested on Thanksgiving Day, 1918, and the test went into December and into January. Then the machine was not found satis- factory and It was taken down and some of the parts were returned to the factory. The machine remained down for months. Then the machine was restored to its original condition and was tested again and more trouble; developed, and it was not until May, 1919, that the machine was pronounced in order and all testing correct. These changes were made by the manufac- turers. The troubles were due to the character of steel which they were able to obtain at that time, and it was not of sufficient tensile strength to meet the severe tests of that character of operation. Mr. QuiN. Did your company carry on the supervision of the work by the Government after the armistice? Mr. Martin. The supervision of the work? Mr. QuiN. Yes; or did you do it? Mr. Martin. The Government had an agent there. Mr. QuiN. Your company did the work and the Government supervised it? Mr. Martin. Yes. Mr. QuiN. They had officers there for that purpose? Mr. Martin. They had Maj. Coombs, Capt. Stiles, Capt. Hemphill, and sev- eral other officers were stationed there. The Chairman. Were they emergency officers or Regular officers? Mr. Martin. They were all emergency officers. Mr. QuiN. What work was done with Government money in addition to this building, and equipping the building and putting up those houses? Mr. Martin. There was the equipment of the stations. Mr. QuiN. Equipping both stations or only one? Mr. Martin. No Mr. QuiN (interposing). The equipment for this one big station? Mr. Martin. For this extension. Mr. QuiN. All those buildings built for residential purposes and the comple- tion of the transmission line? Mr. Martin. Yes; the transmission line. Mr. QuiN. What else? Mr. Mabtin. I do not recall anything except the substations. There was an extension of our substation, Mr. QuiN. What substations were finished with the Government's money? Mr. Martin. The Warrior station was enlarged to meet the requirements. In order to transmit this power we have to generate it at one voltage, 6,600, and we step it up to 110,000 volts and transmit it, and to step it up you have to have a layout in a substation consisting of transformers and switches, and things of that kind. Mr. Qihn. Where is that substation? Mr. Mabtin. Right at the plant. The transmission lines run out of the plant into the station and go through transformers, where the power is stepped up to the transmission voltage and transmitted to the point where it is to be used, and at the other end it is reduced again through a transforming station to the voltage required. Mr. Qxhn. How many dollars were invested there by the Government, ap- proximately? Mr. Martin. At this location, $3,500,000. Mr. QuiN. Where was that other money spent? Mr. Mabtin. Part of it was in the transmission line to Sheffield and the other part was in the substation at Sheffield. Mr. Quin. Was the balance of the $3,500,000 in the plant itself? Mr Martin It is set forth in the statement sent to this committee by Sec- retary Weeks That shows that there was $3,400,000 in the Warrior generating station, $383,000 in the Warrior substation ; in the transmission Ime— — Mr Quin (interposing). That is the transmission line to Muscle Shoals? The Chairman. Are you reading from one of the statements made before the committee? Mr. Martin. Yes. The Chairman. It is all in the record. . . ., , ^ , Mr. Quin. I want to get the amount of money actually put m the plant and transmission line. The Chairman. That is in the record. . .^ , * * Mr Quin I wish you would tell me what amount you have m the plant, not counting your land, in the buildings and equipment, as near as you can approxi- mate. Mr. Martin. I think I stated this morning it was $3,000,000. Mr. Quin. I thought that included your land holdings. Mr. Martin. You can not separate land from the rest of it. Mr. Quin. You have approximately $3,000,000 invested at that point in your ^^Mr™MABTiN. Yes, and in addition to that we have various properties which we acquired in connection with this same situation. Mr Quin. And the Government has in all $5,000,000 in that property and the transmission line, as I understand it, and you have $3,500,000 in those plants? Mr Martin. No ; our investment there in connection with this Warrior plant is a part of the system which represents some $35,000,000 of investment by our ^^Mr!^ Quin. I understand that ; but I want to get into the record the exact amount at that point. , ^ ^ ^ .^ ^., ^„„ Mr Martin. In addition to this plant forming a part of our system, if you can segregate it, which I do not believe you can, because the system has to be bal- anced UP, and it is balanced with this steam plant reserve, the steam plant re- serve represents something in excess of $3,000,000. In addition to that we ex- pended approximately $1,000,000 for various items which I enmnerated this morning in connection with this work, and that makes more than $4,000,000, but vou can not segregate that from the system because there are other investments in the system, dependent for their value and usefulness upon this Warrior sta- w'hen you get into that question as to the investment which is really depend- ent upon this station, you get into a very large question. ^ . ^^ ^ , .. Mr. Quin. What is the matter with the Government taking that second unit and building its own transmission line to Muscle Shoals? Mr. Martin. Why can not the Government do it? Mr! Mabtin. Vf course the Government can do it if it does not want to carry out its contract with us. Mr. Quin. I am not discussing that feature of it. Mr. Martin. Leaving outside the contract? i. , , „• Mr OuiN Yes ; I am taking it as a business proposition. As a physical possi- bilitv* the Government can do that. There is a big building and equipment there and the Government could complete the transmission line to Muscle Shoals as well as you could? iVTi* TVIartin Yes Mr*. Quin. You built 68 miles of that on Government money, and it is on ^^Mr Mmitin. Yes ; but it would cost the Government a good many hundreds of thousands of dollars to take that equipment and erer ownt^d pri>i)ertv which it could not sell lo some one else, or Mr. Wright (interposing). I understand the contract; I want to ^et the^ peculiar situation. Mr. Martin. You have to consider all the elements In discussinj; it. Mr. Wright. Mr. Martin, how many dam sites or dams does your comapny own in northern or westtrn Alabama? Mr. Martin. We simply own these two at Muscle Shoals. I think we have tw(^ «»ii a small creek in Jackson County. Mr. Wright. How many have you developed? Mr. Martin. We have developed in our system one at a point known ns .racks(»n Shoals and another on the Coosa Kiver. We are in process now of ilevcloping, and we are actually constructing another development, on the Coosa River to have 110.000 horsepower capacity. That is beng constructed under the terms of the Federal water power act. That is in course of construction and will be in service at the end of the year. We have been ready and waiting on Congress for a good many years to pass legislation under which we could develop water powers. Mr. Wright. Are there very many desirable water powers in that section aside from the ones you own ? Mr. Martin. There are a great many water powers in Alabama, small and large. Mr. Wright. I mean those of any consequence. The one on the Coosa River ancf the one on the Tennessee River are the principal ones in that section? Mr. Martin. Yes. Who owns those? We own the ones I referred to. Those are the principal dam sites or power sites? Those t\NO are. Mr. Wright. Mr. Martin, you say your company acquired the abutments on dam site No. 2. Was that property acquired at one time or in separate parcels? Mr. Martin. It was acquired at different times. The Muscle Shoals Co. that owned the title was organized in 1906. and from tlien on for a period of a good many years the company acquired rights and property. Mr. Wright. From time to time? Mr. Martin. Yes. Mr. Wright. I am speaking about the key to the situation — the dam-site property. Mr. Martin. Some time probably In 1912. Mr. Wright. That your company purchased? Mr. Martin. This company purchased? The people who now own or con- trol the situation, the present stockholders, had no interest in the Muscle Shoals Co. prior to 1912. Mr. Wright. You mean to say it was first purchased by a water power com- pany? Mr. Martin. By some citizens of Alabama. Mr. Wright. Called the Muscle Shoals Co., and your company purchased from them? Mr. Martin. Purchased the stock of the Muscle Shoals Co. Mr. Wright. Which carried with it Mr. Martin (interposing). The properties it had. Mr. Wright. That was in 1912? Mr. Martin. Yes. We took over the stock of that company in 1912. Mr. Worthington had been in active charge of that company's work for many years and was president of that company until March, 1920. Mr. Wright. That property was acquired — that is, the site and the flowage rights — at an expense of about half a million dollars? Mr. Martin. We had expended about half a million dollars on the No. 2 site. Mr. Wright. What did you do? Mr. Martin. We purchased the lands. We had been carrying the property from 1906 up to the time of this development. Mr. Wright. You made no development ; you simply own the property ? Mr. Martin. Own the property. Mr. Wright. Now, without in the slightest questioning your generosity or patriotism, Mr. Martin, will you tell the committee just the consideration which prompted your company to donate this site to the Government? Do you mean to tell the committee it was intended purely as a voluntary gift to the Govern- ment, just an outright donation to the Government, without any return to your <:ompany or any prospect of any advantages accruing to the company? I Just want to know about that. Mr. Martin. That letter I read to you Mr. Wright (interposing). That is a splendid letter; the sentiment is fine and well expressed. Mr. Martin. I did not write it, but I thank you for that, anyway. Mr. Wright. You are quite capable of writing one as good. Mr. Martin. The letter speaks for itself. We were asked by numerous citi- zens of that district to make a donation to encourage development, and we did. It was made at the time the Government was engaged in a war program. It was not an industrial program upon which the Government was engaged, it was a war program. Mr. Wright. Just coming down to this proposition as man to man, you are an Alabaman and I am a Georgian; of course, in this Great War there were a great many sacrifices made on the part of men and women, even to the' su- preme scrifice. Women all over the country deprived themselves almost of the necessities of life; their food in some instances was short; they did not have enough sugar or wheat bread all the time. There were sacrifices made and deprivations on the part of the people everywhere, and ultimately a great many of them made the supreme sacrifice. We all understand that. Do you know of any companies over this country who did work for the Gov- ernment in the construction of cantonments or any other enterprises who con- tributed those things to the Government? Mr. Martin. Contributed what? Mr. Wright. Do you know of any who made contributions? Mr. Martin. Of property such as this? Mr. Wright. Yes. Mr. Martin. I think it was very rare. Mr. Wright. Does not your case stand out singly and alone during the whole war as the only company which made a literal donation of a piece of property worth half a million dollars? Mr. Martin. I will go further, and say the property is worth a great deal more than half a million dollars. Mr. Wright. It cost you that? Mr. Martin. Its value is more than that. **Ir. Wright. Then, keeping in mind the fact that the country has never been •considered insolvent, but has always been able to pay its obligations, and did pay handsomely during the war, there was no limitation upon the conduct of the war, so far as money was concerned — I want to know whether you tell me, man to man, that your company simply made this voluntary (Ibnation to the Government without expecting any reward or hoping for any development that would be made there, but just parted with it without any thought of any- thing like that? Mr. Martin. I mean to tell you we made the donation and the deed, and I mean to tell you also that in the making of the deed we discussed it with every- one who had any interest in the situation in Washington. It was the unanimous feeling at that time that in the progress of this development there should be a surplus of power for governmental purposes, which would reach the public over transmission lines such as ours. That was expressed in the letter I read this morning. That was the situation on one side. Mr. Wright. The further fact is, Mr. Martin, that the Muscle Shoals Co. had exploited this property and tried to finance it for many years. Mr. Martin. I would not express it just that way. Mr. Wright. They wanted a development made there, they sought some in- terests which would finance it, and they had not succeeded. Mr. Martin. It was not financed ; that is correct. Mr. Wright. Mr. Martin, it is no secret, is it, that for many, many years it was extremely difficult in the South to finance a water-power proposition? Mr. Martin. Yes; it was difficult, but at the same time our company was ready to act, to have the project financed, and an act passed Congress, but President Taft vetoed it. At different times since then our company has been in a position to finance water-power development. We are now financing a development which will cost us about $9,000,000. Mr. Wright. It is easier to finance one now with your holdings and the busi- ness you have worked up, than it would be for a pioneer? 700 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 701 Mr. MAih-iN. It is quite diflferent now. Mr. Wright. Mr. Martin, you spoke a few moments ago about tliis property being conveyed to Mr. Ford. Of course, that is not the contention. Under the Ford offer the property goes baclv to the Government at the end of 100 years, if he should lease it from the Government ; that is. Dam No. 2. I wanted to get the record straight on that. It would not be conveyed to Mr. Ford. Mr. Martin. I do not know what the situation is about that. Mr. Wright. Speaking about your contract, the work under the contract was practically completed before the contract was really executed? Mr. Martin. It was. Mr. Wright. I think you have explained about what was going on in the meantime, but the fact remains that the contract was not executed until the work was completed? Mr. Martin. Yes. Mr. Wright. Mr. Martin, going back to the donation of the dam site, when your company came to construct this Warrior River steam plant, you did not even donate your services in doing that, did you? I am not criticizing you; I think you ought to have been paid for it. Mr. Martin. If you examine the situation first and last, you will find that we came out rather on the financial bad side of it. Mr. Wright. That may be true in connection with the matter of taxation. But you were to get a fee of $220,000, and did get it. Mr. Martin, Yes ; but it did not cover our losses or our expenses. Mr. Wright. The Government financed it all the way through ? Mr. Martin. Yes. Mr. Wright. In addition to the fee you received, there is embodied in the contract the right to purchase? Mr. Martin. At a fair value. Mr. Wright. You said the only two rights the Government would have would be to sell the property or move it, and it would be ruinous to the Government to undertake to move that investment. Mr. Martin. Yes ; and I can not say that it was ever contemplated. Mr. Wright. That would be reckless? Mr. Martin. In my judgment, it would. Mr. Wright. In other words, it would be practically a loss for the Govern- ment to undertake to move that, including the buildings and machinery? Mr. Martin. I am sure the Government would come out better if it under- takes the arbitration in accordance with the contract and permits us to go forward in accordance with the contract and buy, than if it undertakes to re move the property. Air. Stoll, 'Is it not a fact, Mr, Martin, that the people of Alabama are very hostile to the Alabama Power Co.? Mr. Martin. Mr. Stoll, there are many people in Alabama who take the view that this power at Muscle Shoals should be developed and distributed by the Alabjima Power Co. There are thousands of people who believe that. There are, on the other hand, thou.sands of people, no doubt, who think Mr. Ford would succeed in his undertaking. We have in Alabama thousands of stock- holders. ]Mr. Stoll. I have seen a statement In the papers from prominent citizens of Alabama that 99 per cent of the people of Alabama are against the Alabama Power Co, That was the statement that was made, Mr. Martin. I think that is a very exaggerated .statement. Mr. Stoll. So that your general reputati 22- -45 703 704 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 705 I Mr. James. Whom did you go up to New York with? Mr. Mahoney. I was stationed in New York at the time and was called over there, I believe, by Lieut. Col. Beames to assist him or to look over certain par- ticular paragraphs of this contract which was all ready at that time for signa- ture, and it was signed on that day. ^. ^ 4.0 Mr. James. Is that the only time you know anything about this contract? Mr. Mahoney. No ; I had had connection with it prior to that time, but not in some six months prior to that time, I suppose. Mr. James. Whom did you work for before you went into the Army? Mr. Mahoney. I was with the American Gas Co. of Philadelphia. The Chaibman. Were you an emergency officer during the war? Mr. Mahoney. I was not, Mr. Chairman. I was attached in a civilian ca- pacity, as a consulting engineer, to the Ordnance Department. The Chaibman. You were not in the Army at all? Mr. Mahoney. I was not. , «, -rrr ta Mr. McKenzie. Under whose employ were you serving in the War Depart- Mr Mahoney. I was in the Ordnance Department. I was under Col. Joyes in the nitrates division up until about— I think the date was July or August, when I went over to New York under Mr. Frederick L. Cranford, who was made director of construction of all nitrate plants, and was an assistant to Mr. Fred*- erick Cranford from that time until I left in February. Mr. McKenzie. How did you happen to get into the service of the Govern- ment? ^.,11 Mr. Mahoney. I was working at the time on some transmission Ime work up in New York and up in the anthracite regions of Pennsylvania, and I think my first knowledge of this situation came through Mr. Edward Wells, chief engineer of the J. G. White Co., who was constructing Nitrate Plant No. 1 at Sheffield. I was naturally desirous of getting into the service and he told me about this work, and I got in touch with the Ordnance Department and went on to this nitrates program. Mr. McKenzie. What was your age at that time? Mr. Mahoney. Twenty-eight. _^ . * . Mr. McKenzie. When did you enter the service? That is, you were not in the military service at all. , t^ t Mr. Mahoney. No, sir; not in the military service, in a sense. It was in the latter part of 1917. ^^ ,„^ , ^_ Mr. McKenzie. Did you make any effort to get into the military service? Mr. Mahoney. Indeed I did. Mr. ]^IcKenzie. What was the trouble, physically not fit? ^ 3^Ir Mahoney. No, sir. Of course, I went in with the thought of being com- missioned an officer. At that time there was some question about commission ing fellows of my age in Ordnance or out of the line capacity, because 1 was in the draft age, and the thing went up and back, and it is a long story as to how it came out, but I never did get my commission. Mr McKenzie. You were working for a Philadelphia electrical company? Mr. Mahoney. I was working for the American Gas Co., a holding com- panv, in Philadelphia. ^ ^.., ^f Mr McKenzie. But after your service with the Government you did not return to your former company, but entered the employment of the Alabama Power Co.? Mr. Mahoney. Exactly. ^ ^ ^ ^ ^u *. 1^1 Mr. McKenzie. Did the Alabama Power Co. hold out inducements that ien vou to go with them rather than with your former company? * Mr Mahoney. After the armistice was signed we in Mr. Cranford's office were engaged in winding up the affairs of plants 3 and 4, which as you may recall from the testimony, were salvaged, and I had a portion of that work; that is, gathering all the data and arranging for the cancellation of the van- out contracts which were extant on plants 3 and 4 and some on plant - Naturally, I was looking to my future after that work should wind up. I hart several offers from various concerns, among them the company I had lett. the American Gas Co., and one of them from Mr. James Mitchell, of the Ala- bama Power Co.. and that was the offer which I finally accepted. Mr McKenzie. What are your duties at the present time? Mr Mahoney. I have change of matters of power sales, rates, investiga- tions, valuations, and any operation in the smaller towns that the compan> owns and operates, railway plants or electric systems. Mr. Mr. Mr. Mr. Mr. McKenzie. You are not a stockholder in the companv, I take it. Mr. Mahoney. I am. Mr. McKenzie. You are a stockholder and employee? Mr. Mahoney. Yes, sir ; as practically every employee of the Alabama Power Co. is. Mr. Stoll. When did you acquire that stock in the Alabama Power Co *» Mr. Mahoney. When? Stoll. Yes. Mahoney. Within the last year. Stoll. Since you were connected with them? Mahoney. Oh, yes. Mr. Stoll. Do you know why it was that this contract was dated back to December 1, 1917? Mr. Mahoney. I do not, Mr. Stoll ; unless it was to validate work which had been done— more as a ratification than anything else. I never heard it dis- cussed. I do not believe I noticed at the time the date of the contract. I just happened to be present in the building or in the conference, and was used as a witness. Mr. Fields. What did I understand you to say your duties were while you were with the Ordnance Department? Mr. Mahoney. My duties were maqj', but my position was that of consulting electrical engineer. Mr. Fields. Were you on this Muscle Shoals or Gorgas proposition? Mr. Mahoney. I was on the entire program, Mr. Fields— Muscle Shoals, Gor- gas, nitrate plants 3 and 4 at Cincinnati and Toledo. Mr. James. Were you offered a position by the Alabama Power Co. ? Mr. Mahoney. Was I offered one? Mr. James. Yes. Mr. Mahoney. Yes, sir. Mr. James. While you were in the employ of the Government? Mr. Mahoney. It was about the middle of January, 1919, when Mr. Mitchell tirst discussed with me the matter of going to Alabama. Mr. QuiN. What was the date, as near as you can recall, that you were con- nected with the construction of this plant at Gorgas and the Muscle Shoals nitrate plants? Mr. Mahoney. I presume it was in January of 1918 that I first heard of this phase of the situation, Mr. Quin, the Gorgas phase of the Muscle Shoals situa- tion; somewhere in January of 1918. Mr. Quin. When did you go to work with that enterprise? Mr. Mahoney. About that time. Mr. Quin. And that was under the contract of December 1, 1917, that that construction was going on? Mr. Mahoney. Yes, sir. Mr. Quin. Did you stay with that branch of the service until the armistice was signed? Mr. Mahoney. Not directly connected with the Washington office. As I say, I was moved over to New York in July or August. Mr. Quin. I meant with that branch of the service. Mr. Mahoney. Yes, sir. Mr. Quin. Who was paying you, the Government or the contractor? Mr. Mahoney. The Ordnance Department. Mr.. Quin. The Ordnance Department was paying you, not as an officer, but as a civilian? Mr. Mahoney. Yes, sir. Mr. Quin. That work was carried on under the contraeceniber 1, 1917, was it not? Mr. Mahoney. Yes. sir. Mr. Quin. The Alabama Power Co. did its part under that contract, as you understand it? Mr. Mahoney. Yes, sir. Mr. Quin. They receivetl their pay or fee under that contract? Mr. Mahoney. Yes, sir. Mr. Quin. Do you know anything about how the fees were paid? Mr. Mahoney. I do not. sir. Mr. Quin. You were not one <»f the bookkeepers? Mr. Mahoney. No, sir. Nv 706 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 707 The Chairman. If there are no further Ii?e(l to you, Mr. Mahoney. , . ^, . *. ^ #>» i Mrv Dent. Now, Mr. -Chairman, the other wrtne«8 to this contract. Col. Beames lives in New York City, and we are prepared to get hhn here, hot not to-day and if the committee desires any further testimony we will bring jiini down here just simply to take the time of the committee to prove the date of the actual execution of the contract. We have a telegram from him to the effect that he remembers distinctly that it was on the day of the false report of the armistice. The Chairman. You can file the telegram. Mr. Dent. The telegram from Tiim relative to his recollection as to when the contract was executed? The Chairman. Yes. Mr. Dent. All right. ^ . „ m^,o Mr McKenzie. As 1 understand it, CoL Beames was an Engineer officer? Mr. Martin. He was an Engineer officer, yes, sir ; Lieut. Col. Beames. The Chairman. And what is his full name? Mr. Martin. C. F. Beames. (The telegram referred to follows:) [Telegram. J ^ Macon, Ga.. February J, 1922, Thos. W. Martin, Care Hotel Waldorf Astoria, New York, N. ) . \s n witness to the signing of contract No. T-^, bearing date December 1, 1917 I confirm vour understanding that said contract was finally executed by the contracting officer and the late Mr. Mitchell at New York, on November "' ^^^^' C. F. Beamks. Mr Dknt Mr. Chuirniaii, there is just one add tional statement Mr. IMartin would. like to make, and then I will be prepared to go ahead and wind up. ADDITIONAL STATEMENT OE MB. THOMAS WM^TIN^ PBESI- DENT ALABAMA POWEB CO., BIBMINGHAM, ALA. The Chaikjuan. We will be glad to hear from Mr. Martin. Mr M\RTi\ I lust want to make an additional statement, Mr. Chairman, to the effect that no one connected with the proposal of Mr. Henry Ford in any wav has taken up with us this subject of our property rights; and no one representing the Government has taken up with us the subject of our propeit.N rights prior to the hearings before this committee, and we would h/jve likeil to have had, but did not have, an opportunity to present our views to «ie .Tiidse Advocate General. We had no opportunity, prior to the time the matter came before this committee, to present our case. Mr. Dent. In other words, neither party to the conti-act consulted you with reference to your property rights at all. Mr. Martin. No. That is correct. ,. ^, , • - „ ..f The Chairman. Then, let me ask you these questions. At the beginning >t .July, say, of 1921, y«m were engaged in your present business of selling iwwei . Mr. Martin. Yes. The Chairman. An into another branch of the question, but if you wish me to, I will go into it °**T^ie Chairman. I think it would be well to go into it because fat matter has been brought to the attention of the committee by the Chief of Engineei.- The Chmrman^ He called the attention of the committee to the fact that h^ issued probably a dozen letters to people who were in that business at tnai time, and said that the Ford offer was the only reply received favoralde to this proposition that we are considering. Mr. Dent. Mr. ( -hairinan, if I may make a suggestion, would not that be l)ropeiiy in line with the hearing when you consider the bl completion had to be paid for, did it not? Mr. Mabtin. Yes. Mr. Quin. And the Government advanced all of that money? Mr. Mabtin. It did after the work was well started ; yes. Mr. Quin. And you paid your men and the subcontractors out of Govern- ment funds? Mr. Mabtin. No; the Government took over the pay rolls and made direct payments for the work after the job was well advanced, and had a disbursing officer on the job and handled the payments direct. Mr. Quin. Mr. Wurzbach asked you the other afternoon to produce the let- ters and written memoranda and working orders; have you procured those? Mr. Mabtin. Yes, sir; there is quite a batch of them [indicating]. Mr. Quin. Will you put those in the record, according to his request? Mr. Mabtin. Yes. (The letters, work orders, and written memoranda requested are as follows : ) NOVEMBEB 6, 1917. Col. J. W. JOYES, Ordnance Department, Washington, D. C. Deab Sib: In a conference to-day Mr. Frank S. Washburn, president of the American Cyanamid Co., asked the Alabama Power Co. to formulate a definite proposal as to what it was prepared to do in the way of supply of power to the proposed new nitrate works at Muscle Shoals, Ala., on the Tennessee River. Until such time as there shall have been definitely determined the details of the Government's requirements we are only able to formulate a proposal along general lines, and one which may be considerably modified as to details in carrying it out The financing of such an installation at this time would not be warranted by the present needs of the power company, but it is prepared to cooperate in every possible way with the Government in the undertaking which you have in view. We estimate that the necessary additions to our Warrior River steam plant and the transmission lines and substation necessary for delivering power at Muscle Shoals will cost approximately $2,250,000. If the Government will finance the undertaking and assist in deliveries, the power company will be prepared to install with maximum urgency the necessary steam plant, substa- tion, and transmission lines. The company will supply 30,000 kilowatts, deliv- ered to the Muscle Shoals substation at a combined energy, and demand charge of 7 mills ($0,007) per kilowatt-hour. The power company will undertake to set aside 3 mills ($0,003^) per kilowatt- hour for all energy supplied under this proposal until the Government has been reimbursed for all sums advanced to the company in this connection. We understand tne power requirements of the proposed nitrate plant, so far as this company is now concerned, to be about 30,000 kilowatts, which must be in readiness in about six months. The company can be in readiness with this amount of power within the time required, and with the completion of the extension above referred to can continue to furnish this amount of power regu- larly. The company has contracts with the Gulf States Steel Co., Tennessee Coal &■ Iron Co., many coal mines, the Southern Manganese Co., and various graphite products companies, all of which are directly connected with the proper con- duct of the war, whose continued operations will not be affected under the plan proposed herein. The Alabama Power Co. has available considerable apparatus which ordi- narily takes a long period to obtain and which might be used in connection with the proposed work. It also has an excellent construction and operating organization with a long experience with local conditions. Holding ourselves at your orders for further treatment of the subject, we are. Very respectfully, yours, Alabama Poweb Co., James Mitchell, President. " suggested basis fob CONTBACT between ALABAMA POWEB CO. AND UNITED STATES FOB POWEB FOB AIB NITBATES COBPOBATION PLANT AT SHEFFIELD. "Whereas the United States desires to obtain from Alabama Power Co. at as early a date as possible after the completion of the nitrate plant on or after Jime 1, 1918, about 35,000 kilowatts, and Alabama Power Co. has con- tracted for all the power from its existing plants that are economical to operate, and can not finance at this time any extensions of plants, but has exist'ng at its Warrior River plant certain foundations and accessories for two 35.000- kilowatt units additional to what is now installed ; and " Whereas Alabama Power Co. would effect some economies in the operation of its present Warrior plant by operating therewith other units and would derive benefit from the use of such quantity of power as might be available after meeting the United States needs from additional units there installed ; and " Whereas the United States would likewise derive benefit from the economies of joint operation of all the units — that now existing and those now proposed to be installed at "the Warrior plant — and would thereby derive the further benefits of power at a cost probably lower than elsewhere obtainable and of the assurance 710 MUSCLE SMOAI.S PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 711 of ample power for its neeils by the guaranties of the Alabiania Power Co., based upon all its plants ; "Agreed that the Ahibaina Power Co. shall acquire at its expense the necessary rights of way and shall build a transmission line from its Warrior plant to the Air Nitrates Corporation plant at Sheffield, and also upon its existing founda- tions at Warrior, so far as suitable, to erect suitable temporary buikiing and procure and erect therein and on said foundations one 35,000-kilowatt turbo- generator, with battery of boilers and all accessories as now there exist and can serve such unit in addition to that now installed belonging to Alabama Power Co.. and also procure and erect ready for use but without boilers, etc.. therefor, another similar 35,000-kilowatt turbo-generator as a spare generator available in the event of temporary un serviceability of the aforesaid one ; "The United States to pay all cost of the foregoing constructions and pro- curements, except right of way. and in addition as remuneration for its services and as payment In full for whatever of its existing facilities, etc., may be used to aid in such work, a basic fee of — per cent of sucli cost, provided such fee is understood to be based upon completion and availability for use of the trans- mission line by six months from date of contract and of the first power unit complete by eight months frcmi said date, and that, as representing the estimated value to the United States of such utilities, a sum equal to 1 per cent of said fee on each of said utilities shall be added to the o per cent fee thereon for each day by which completion shall antedate the stipulated date of completion, and, like- wise, 1 per cent of said 5 per cent fee shall be deducted therefrom for each day by which completion shall l)e delayed beyond sudi stipulated date, provided, however, that in no event shall the fee be less than 3 per cent nor more than 7 per cent, the Government to coopei*ate in securing deliveries, subject to delays beyond control. "Also, as soon as transmission line and nitrate unit shall be completed, and upon demand of contracting officer, Alabama Power Co. to stand obligated to furnish 10,000 kilowatts and to furnish as much more Iant or depriving other customers now under con- tract, at rates as follows: Demand charge of $1.25 per' kilowatt per month, plus energy charge for current used according to scale, which shows for over 50.000 kilowatt hours per month a price of $0,004 per kilowatt hour — no extras, no constructive basis for demand rate, which shall be upon 10,000 kilowatt hours, that is, $12.5(M) r>er month — and this arrangement to continue in force until the additional iwwer-generating equipment (first unit) above provided to be in- stalled at cost of United States shall be ready for operation. " Thereafter, Alabama Power Co. to operate all units at Warrior plant — their own and those of the United States — as a single plant, keeping careful cost record, furnish United States regularly 30,000 kilowatts whenever needed, whatever other customers' demands may be, supporting this guarantee by the entire sj^stem owned or controlled by it, hydro or steam, including the Birming- ham steam plant; and the Alabama Po\^^er Co. to have the privilege of using as they see fit in their general business such portion of the power generated as above at their Warrior plant (including the United States owned apparatus) as the United States shall not require; and " In consideration of such use by Alabama Power Co. of such surplus ixiwer, and the expectation of economies of such joint operation, the Alabama Power Co. agrees to accept from United States as payment in full of all obligation of United States for use of Alabama Power Co. land, foundations, accessory apparatus, right of way, and all other of its property thus used in the joint operation of the plant or in the transmission, or occupied by the articles be- longing to United States and of all services whatsoever by Alabama Power Co., and any of its agents, employees, etc., only the proportions of the operat- ing costs of the Warrior plant which the current held for or used by United States bears to total current generated. "After June, 1921, or later date of cessation of United State participation In present war, the United States owned transmission line and i)ower ap- paratus and temporary building, etc., to be leased or sold to Alabama Power Co., if law permits and if satisfactory agreement on price, and if not, all prop- erty of United States to be removed within, say, six months, from premises and right of way of Alabama Power Co. at United States's expense. The Gov- ernment to commandeer power from Alabama Power system when necessary to deprive other customers in order to supply (jrovernment under any provision hereof." Washington, D. C, December 7, 1917. Col. J. W. JOYES, Colonel, Ordnmive DciJartment, United States Annp, Washington, 1). C. Sir: This company acknowledges receipt of your purchase order (Ex. Order No. 154) of date December 7, 1917, for the construction of a transmission line from our steam plant on the Black WaiTior River to the site of the pro- I)osed ammonium nitrate plant at Sheffield. Ala. In acc* ^ oVlJ^^^\^^^^ division of the cost of operating that plant, a lirm quan my Of d5,0(X) kilowats, or so much thereof as may be needed by the United Estates, undertaking to assure this quantity of power by your power resources other than the Warrior steam plant, the conditions of such assurnnce and of the basis of distribution of costs to be more particularly set forth in contract now tentatively agreed upon and to be signed directly. Priority Class A-1 has been requested from the' War Industries Board for the electrical power (copy of which is inclosed). K^H ^iS"""/*^*^!? writing is in letter form, please book it as a definite order on behalf of the Ordnance Department, United States Army, by the undersigne<1 and promptly acknowledge receipt thereof. Very truly, yours, Colonel, Ordnance Department, United sitates Army. War Depabtment, Office of the Chief of Ordnance, ALABAMA PowEK Co., Washington, December 7, 1917. Birmingham, Ala.: onr/fnH^n«?«if /^^H^*?T^ ?5 ?^1°«"^^' ^^^^ ^''^ h^^eby given an order to pro- nnw..,. jr • " 7 }u% ^""^i^^ ^^^*^' ^^ ^ temporary addition to the steam power producing facilitiea at your Warrior River plant in Alabama, and to !rSlir?H*^?^^I?' *1^^^. y^l^^ ^***^ "^^^^^^^ Pl«°t No. 2, being constructed at Sheffield, Ala., by the Air Nitrates Corporation for the United States, the supply of power contemplated by a separate purchase order XOT-156 of even date herewith, as follows: 1. 35,000-kilowatt turbo-generator unit, with suitable accessories, as con- densers, switchboards, battery of boilers, etc., directly necessary to its service, and such auxiliary accessories as may be needed in addition to what you now have installed, or should properly put in for the portion of your plant now existing, which may be necessary for the operation of this plant as a whole approved by the undersigned. Spare turbo-generator of approximately 35.000 kilowatts, as above, with the necessary accessories, not including steam-producing equipment, as may be nec- essary to enable this unit to take the place of the first unit mentioned above in the event of temporary unserviceability thereof, as recommended by you and approved by the undersigned. Also, to install the foregoing upon your existing land and foundations, etc.. and to erect thereover a temporary building for the production of such appa- ratus. Provided, That all of the foregoing work is to be performed by vou on the basis of reimbursement of actual cost plus a construction fee, in consideration of which you will allow, without special rental or similar charges therefor, the use of your land, foundations, and other property as needed, all such condi- tions* to he embodied in a contract now tentatively agreed upon and to be signed directly. Priority Class A-1 has been requested from the War Industries Board for the construction of this temporary addition to power plant (copy of which is in- closed ) . Although this writing is in letter form, please book it as a definite order on behalf of the Ordnance Department, United States Army, by the undersigned, and promptly acknowledge receipt thereof. Very truly, yours, J. W. JOYES, Colmiel, Ordnance Department, Uwited States Arm if. December 11, 1917. Memorandum of the conference, Saturday afternoon. December 8, 1917, be- tween Col. J. W. Joyes. Ordnance Department. United States Army, and Messrs. James Mitchell and Thomas W. Martin, of the Alabama Power Co. at Col. Joyes's office, Washington, D. C. In a number of previous conferences we discussed the various questions in- volved in the proposed agreement between the Alabama Power Co. and the United States, to be dated December 1, 1917, touching the supply of electric power for the ammonium nitrate plant at Muscle Shoals, and we reached cer- tain preliminary agreements substantially embodied in the final draft handed to Col. Joyes at this interview. Mr. Mitchell explained to the colonel that we had made a number of in- quiries of manufacturers of equipment and apparatus which would be needed for the proposecl extension at our Warrior plant and the transmission line, and found that there were available two 35,000-kilowatt turbines, one of which would be completed in January, and that we had placed an order with the General Electric Co. for this turbine for the purpose of this contract. Mr. Mitchell then took up in detail with the colonel the various apparatus and equipment which would be needed, and the colonel said that he would at once request the priority committee for a general priority order for this material, and took down the following general items to be covered : One 35,000-kilowatt (reneral Electric turbine, with switchboard and transformers and other equip- ment (in connection with transformers, we discussed the question whether the Alabama Power Co. would purchase the stepdo\\ni transformers and other sub- station equipment for that purpose at Muscle Shoals and it seemed to be the view that the Power Co. should do this, but this was left somewhat uncertain ) : Babcock & Wheeler to furnish the necessary boilers, probably 12 or 13, anil stokers (Mr. Mitchell pointed out that the manufacturers of boilers usually furnished stokers with the boilers) : about 35,000 insulators to be furnished by the Ohio Brass Co., if it can handle so large an order, otherwise to be divided among other manufacturers, also the necessary stranded copper cable, to be either 400,000 circular mills for one circuit only or the equivalent in two circuits; also 160 or 320 miles of 7/16-inch .steel cable for ground wire; also ereosoted poles to be furnished by manufacturing concems at Birmingham and New Orleans, the order to be divided between them. We also discussed the proposed 8,000-foot extension of one Southern Railway line to the Warrior plant, but Col. Joyes indicated that he did not care to put this in the contract and would, if necessary, take this up later in some other way. Meanwhile he requested an estimate of the freight business which this extension might bring to the Southern Railway from the carriage of construc- tion equipment, laborers, etc., to the Warrior plant; also permanent business, such as the carriage of coal. It was understood that Mr. Thurlow would make up an estimate covering the items of freight mentioned. Col. Joves further stated that he would issue at once a work order for us to proceed with the construction of these additions to the Warrior plant, taking as the basis of his action the draft of agreement above referred to. Mr. Mitchell mentioned that we would probably arrange for some one to remain in Washington constantly to represent us in the various matters which would arise from time to time with the Ordnance Department in connection with this contract and asked the colonel whether the expenses of the repre- sentative would be included as a part of this construction; to which he as- sented, but suggested that it would probably be best for the representative to come into the office of Col. Joyes and there take a desk, as will be done by other contractors, as this would lead to better results and would enable him to keep in closer touch with us. Col. Joyes further explained that he was leaving Saturday night for Sheffield, and would probably arrange to visit our Warrior plant on Wednesday next and would then return to Washington, meeting the colonel on Friday, the 14th instant, to further complete the contract. Birmingham, Ala., December 13, 1917. Col. J. W. Joyes, Ordnance Department, Washington, />. C. Dear Sir : We beg to acknowledge receipt of Ex. (^rdor No. 1.16 covering purchase order on our company for electr'c power to be delivered to the Federal Government after the completion of the transmission line order on your Ex. Order T-154. Also Ex. Order T-155 covering temporary addition of one 35,000 kilowatt turbo generator with the accessories and one spare turbo generator for our Warrior steam plant. * I I 714 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 715 Following the writer's conservation with you at the Warrior steam plant Wednesday, we are holding these onlers in suspense until we are further ad- vised bj' you. Yours, very truy. Chikf Engineer. Ill to SlTCCESTEl) BASIS FOR l.EASE OR PUW^'HASE OF PROPOSED STEAM PLANT. The Alabama Power Co. lease to the Government free of charge such lands, cleariujf .sites, and foundations, tunnels, and other contruction work which it may have completetl or partially conjpleted as may be neower company to operate the combined >\'arrior plant as a unit separate from the rest of the power company's system and charge each party with the power actually used at actual power house cost ; each party to pay such costs, maintenance, etc.. as pertains to its share of the plant. The ix)wer company to agree to lease or buy and the Government to lease or sell its investment at Warrior site on termination of its need for war purposes. Value to be agreee made to have this entire lino with the two substations in readiness for use by June 1, 1918, and that what- ever temporary arrangements are necessary for taking the current (which you will then have to take from your own lines, instead of from your additional generating cai>acity which we expect to install) must be provided in some manner satisfactory to this office. In rtddi^ton to the payments i«e«tioned in the original order foF-nat-Wftlt'est the percentage will be 6 per cent. Nothing else on order to be changed. .1. W. JOYES, Colonel, Ordnance Department, United ^aies Army. War Department. Office of the Chief of Ordnance, Washington, January 8, 19 18. Alabama Power Co., Birmingham, Ala. By direction of the Chief of Ordnance, Purchase Order XOT-155 and letter rr-8277) of December 14, 1917, are hereby cancelled, and you are hereby given an order to purchase and install for the Unitenstiiiction fee in consideration of which you will allow without special rental or similar charge therefor, the use of your land, foundations, and other property as needed — the actual amount or percentage of such construction fee to be embodied in a future contract ; said contract to be nmtually agreed to by your company and this office, or in the event of disagreement to be referretl to a competent and authorizetl board for settlement. Although this writing is in letter form, please book it as a definite order on behalf of the Ordnance Department. United States Army, by the undersigned, and sign below the acknowledgment and acceptance on the part of your company. J. W. JOYES. Colonel, Ordnance Department, United States Army. We accept the above order. January' 8, 1918. Alabama Power Co.. By James Mitchell. President. Thomas W. Martin. Vice President and General Counsel. War Department, Office of the Chief of Ordnance, Washington. .January 8, t9l8. Alabama Power Co., B irm ingh am, Ala. By direction of the Chief of Ordnance, purchase order XOT-156 is hereby canceled, and you are given this order to furnish certain electric i>ower, to be specified hereafter, to the United States, at Sheffield, Ala., viz : Upon completion of the transmission line from your Warrior plant to Sheffield, which line you are to construct under my order XOT-154, you will furnish from any resources of your system such part of 10,000 kilowatt as the Ignited States niay require ; and in excess of that quantity, if available, as the United States may require. The rates of payment to be embodied in a future contract. Also upon completion of the additions to your Warrior steam plant to be built by you for the United States, as covered by my order XOT-156, Mod. No. 2, which 716 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 717 completion is expected to be about August 1, 1918, you will furnish from said additions such part of 30,000 Ivilowatt as the United States may require, and in excess of that quantity, if available, from your system as the United States may require. The rates for power and other terms hereunder to be embodied in a future con- tract; said contract to be mutually agreed to by your company and this office, or in the event of disagreement, to be referred to a competent and authorized board for settlement. Although this writing is in letter form, please book it as a definite order on behalf of the Ordnance Department, United States Army, by the undersigned, and sign below the acknowledgment and acceptance on the part of your company. J. W. JOYKS, Colonel, Onlnance Department, United States Army. We accept the above order. January 8, 1918. AiABAMA Power Co. By James Mitchell, President. Thos. W. Martin, Vice President and General Counsel. War Department, Office of the Chief of Ordnance, Washington, Jnnvnry 2.1, 1918. From: Nitrate Division T, Ordnance Department. To: Alabama Power Co., 120 Broadway, New York, Subject: Power installation at Warrior. 1. Please reserve space for extending power house so that an additional unit or perhaps units might be installed. This would not involve building any addi- tional foundations or superstructure, but would indicate the use of a perhaps somewhat temporary end wall and the preservation of the necessary ground beyond the limits of the present buildings, 2. Also reserve spiice for future additions to transformer station, and bear in mind that a duplicate transmission line may sometime be necessary. 3. Please advise if this introduces any extra expense or difficulty, J. W. JOYES, Colonel, Ordnance Department, United States Army. By R, D, Coombs, Major, Ordnance Reserve Corps. War Department, OiTicE OF the Chief of Ordnance, Washington, February 28, 1918. Alabama Power Co., Birmingham, Ala.: By direction of the Chief of Ordnance, Purchase Order XOT-154 Model No. 1 of December 21, 1917, is hereby specifically stated and agreed to be an agency contract order. All of your purchase orders will continue to be issued " For the account (►f the United States Ordnance Department, Nitrate Division." All contracts with venders will be specifically stated therein as for the ac- count of the United States and title to such property will vest in the United States, Direct payments for labor and materials will be made by the United States to the parties furnishing the same. J. W. JOYES, Colonel f Ordnance Department, United States Army. By Alfred H. White, Lieutenant Colonel, Ordnance Department, National Army. Alabama Power Co., By James Mitcheli., President. W. N. WALliSLEY, Oeneral Manager. FxnuABT 28, I9ia War Department, Office of the Chief of Ordnance, Washington, February 28, 1918. Alabama Power Co., Birmingham, Ala.: By direction of the Chief of Ordnance, Purchase Order XOT-155 Model No, 2 of January 8, 1918, is hereby specifically stated and agreed to be an agency contract order. All of your purchase orders will continue to be issued " For the account of the United States Ordnance Department, Nitrate Division." All contracts with venders will be specifically stated therein as for the ac- count of the United States, and title to such property will vest in the United States. Direct payments for labor and materials will be made by the United States to the parties furnishing the same. J. W. JOYES, Colonel, Ordnance Department, United States Army. By Alfred H. White, Lieutenant Colonel, Ordnance Department, National Army. Alabama Power Co., By James Mitchell, President. W. N. Walmsley, General Manager. February 28, 1918. memorandum in re instructions for disbursements under agency contracts with particular reference to the contract with the alabama power co. Purchases. — The agent — that is, the Alabama Power Co, — will issue purchase orders to vendors for material needed in the discharge of the contract work. There should be at least three copies of these purchase orders, one for the con- tractor, one to accompany the vouchers to the Auditor for the War Department, and one for the records of the disbursing officer who shall make the payment thereunder. Invoices. — It would perhaps be wise for the agent to prepare a particular form of invoice to be issued by vendor containing such data as the agent may desire for his files. These invoices should be at least three in number, one for the agent, one to accompany the voucher to the Auditor for the War Department, and one to remain with the memorandum voucher in the office of the disbursing officer who shall make the payments. The invoice which shall go to the Auditor for the War Department along with the original voucher should contain the following certificate signed in each case by the vendor : "I (or we) certify that the above account is correct and just, and that pay- ment therefor has not been received." When the invoice, including the one containing the certificate above indicated, shall be received by the inspector at the plant, or other Government officer, he will prepare a voucher on voucher form 330-a and attach thereto a certified copy of the invoice and also one of the duplicate copies thereof. The inspector will also sign the certificate on the public voucher to the effect that the material has been received and that the quality and quantity are satis- factory, etc. The approval form on the voucher should also be signed by the proper officer, and if desirable the agent may also approve on the voucher the amount of the exi)enditures. Poi/wienf.— After the voucher shall have been prepared in the manner above indicated it will be presented to the disbursing otRcer at the plant, who, if satis- tied that the account is correct upon comparing it with the purchase order in his possession, will pay the voucher directly to the vendors; that is, to the l)ersons who have filled the order that was given them by the agent. Vouchers for the agenVs profit.— ¥xom time to time the agent can state a voucher on form 330-a, signing the voucher in the place indicated for the creditor, for the amount of his profit as determined in the contract. He will, of course be in a position to obtain the proper amount upon which to base this profit upon consulting his records as to orders given and actually filled. The agent's voucher for profit will also be certified to by the inspector and by the I)roper officer and will be paid by the disbursing officer at the plant in the manner above indicated. 718 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 719 Vouchee's for pay rolls and method of authenticating payment to employees, Under aa agency contract the employees are considered as employees of the Uniljed Stftl^. Tbi» being tbe case, the .agent will, prepare the pay roll of his employees from his time records, and will certify the rolls as to its being correct The inspector will also certify the roll on the faith of tl»e certification of the 'agent or upon sncli independent information as he may have, and the disbursing officer will make the payments to the employees direct in whatever mannei- that may be the most convenient, presumably making the payments in cash. Under recent decisions of the Comptroller of the Treasury the payment of these employees must be authenticated in the following or similar manner : On the morning of the pay day there shall be circulated to all employees, by means of the paymaster, a form of receipt for the payment ; these forms wiil be signed immediately by the employees, and all such employees who can not write will sign by mark, their signature to be witnessed by the paymaster, w^ho is a United States employee. These employees will also have an identificji- tion tag of some sort, and when they appear before the paymaster for their pay they will exhibit the identification tag and also their pay receipt. The pay- master ^vill then take up the pay receipts, and they will be filed away carefully as supporting papers in the accounts of the disbursing officer when his vouchers are sent to the Auditor for the War Department for settlement. Adraiwe payments. — Se<'tion 3648 of the Revised Statutes expressly prohibits the payment for any service or supplies in advance of the actual renderinj; of the service or the receipt of the supplies. Under this statutory provision, therefore, you would not be authorized to make a payment of a certain per cent of the purchase price of an artfcle at ttt^ time, say, when the order was given, and further payment of a certain per cent, when the shipment began to move from the contractors plant, etc. f)n the contrary the material must actually be received by the United States (although this receipt may be at the plant of the contractor if an insiJector be sent there to receive it) before the payment may lawfully be made ; and title must vest in the United States at the time of initial payment. L. W. Blythe, Lieutenant Colonel, Ordnance Department, National Armp. ^ By F. J. Keelty, Major, Ordnance Department, National Arnuh .July 8, 1918. Col. J. W. Joyce, Division T, Office of the Chief of (trdnance. United States Army, Washington, D. C. Dear Sir: We have given careful consideration to the contract outline suh- niitted to us on July 6 for (^)erating the steam plant now being installetl at the Warrior Plant for aci-ount of the United States Government. We have also ha«l an opportunity to consult several of our directors on the subject and we are of the view that the contract outline is acceptable to this company in its major points, and in some of the minor points it is a matter of phraseoloK.v ratlier than meaning. I inclose herewith a copy of the memorandum as suh mitteil to us under date of July 6 and beg to make the following comments : Clause 1 : In our original discussion on the subject of power production at the Warrior plant we calle Gabbett. Where are your minutes kept, m Alabama or In ^ew York.' Mabtin. They are kept, an original in one place and a carbon in the Mr. Mr. ofther. Mr. Gabbett, Mr. Mabtin. Mr. Gabbett Mr. Mabtin. Mr. Gabbett. Where are the originals kept? In Alabama. And the carbons are kept in New York? Yes. «*». „^.«...... What was there at Muscle Shoals before the erection of Dams N<^.'i and"2 or before any activity on the part of the Government for war pur- poses; what phvsical properties were at Muscle Shoals before that time? Mr.' Mabtin. Before the nitrate plants were begun in 1917? Mr. Gabbett. Yes. Mr. Martin. I do not know of any properties that the Government had except its navigation canals, in connection with the Muscle Shoals. Mr. GtikBBBTT. Was th€*fe any other power plant there at that time? Mr. Martin. Yes; there was a power plant and distribution system serving those communities of Sheffield, Florence, and Tuscumbia. Mr. Garrett. That plant was at Muscle Shoals. Mr. Martin. Yes. Mr. Garrett. Where was that located? Mr. Martin. I do not know. We have no connection with it. Mr. Garrett. Where is this power plant located with reference to Dam No. 2? Mr. Martin. I do not know where that plant is located. There is a* steam plant located in the the city of Sheffield, as I understand it, some two miles from that plant, so our engineer says. Mr. Garrett. There is no water-power plant there? Mr. Martin. No, sir. Mr. Garrett. There was nothing of that kind at Muscle Shoals before the Government began this activity? Mr. Martin. That is my understanding. Mr. Garrett. Then, there was nothing at Muscle Shoals, either steam or power plants, or any other activity, before the Government began this project of establishing nitrate plants. Mr. Martin. There was a steam plant and distribution system supplying the needs of those communities for water and power. Mr. Garrett. You mean at Muscle Shoals? Mr. Martin. Muscle Shoals, you understand Mr. Garrett. I mean anywhere in the neighborhood of Plants 1 or 2. * Mr. Martin. Yes, sir; Dam No. 2 is in the corporate limits, I believe, of those communities. Florence is on one side and Sheffield on the other, anania Mr. Garrett, ^Ir. Martin. Mr. irARRETT. Mr. Martin, Mr. Garrett, Power Co.? Mr. Martin. 'Mr. Garrett. Mr. Martin. Mr. Garrett corpany are largely held in America now. As a result of the war in Europe in 1914 there has been an entire change in the security status situation in our coui- pany^ and the largest blocks of stock are held in America to-day, and the largest single block of stock i.s held in Alabama by citizens of Alabama. Mr. Garrett. Is that common or preferred stock? Mr. Martin. Preferred stock, and all the preferred stock of the Alabama Power Co. outstanding, of course, ranks pari passu with the common, and is all held in Alabama. Mr. Garrett. What did you say is the name of the Canadian corporation that owns this stock of the Alabama Power Co.? Mr. Martin. The Alabama Traction, Light & Power Co. (Ltd.). Mr. Garrett. Does it not still own a majority of the stock ? Mr. Martin. It owns all the common stock of the Alabama Power Co. Mr. Garrett. And the common stocjc is the majority of all the stw'k, common and preferred? Mr. Martin. Oh, yes. Mr. Garrett. Do you know whether Mr. Washburn owns any stock in the Canadian controlling corporation or not? Mr. Martin. He does not now own any stock in it. Mr. Garrett. Did he ever ow^n any of it? Mr. Martin. He did, as I have stated to you. Mr. Garrett. He owned his stock in that company? Mr. Martin. Yes. Mr. Garrett. One thousand shares? Mr. Martin. Yes; 1,000 out of $18,000,000. I would just like to say that for many years the Alabama Power Co.'s board of directors has consisted from time to time of varying numbers, but at the present time we have, as I recall, 12 directors, 10 of whom live in this country, and the majority of whom live in Alabama. Mr. Dent. How many live in Alabama? Mr. Martin. I think there are 7 of the 10 who are living in Alabama. The directors' meetings are usually held there, and all the policies of the company are fixed by this board and have always been fixed by this board. Mr. Garrett. The emergency officer who made the contract with your com- pany was a New York lawyer, also, was he not? Mr. Martin. Col. Williams. Mr. Garrett. Before entering the service? :Mr. Martin. Col. Williams was a New York lawyer ; yes. Mr. Garrett. Do you know whether or not he owned stock in the Canadian corporation or the American Cyanamid Co.? Mr. Martin. I know that he did not. Mr. Garrett. You know that he did not? Mr. Martin. Yes. Mr. Garrett. Did you get that information from him? Mr. Martin. No, sir. I never heard of his name and never knew the gentle- man before he came into the situation, and I have heard nothing from him since he concluded the contract ; but if he had had any stock, I would have known it I would have heard something of it. Of course I can not speak of the Cyanamid Co. finally, but I never heard of his having any stock in it, and I do know he never had any stock in our company. How long has your company maintained offices in New York? We opened an office there, as I recall, ina912 or 1913. In 1912 or 1913? Yes, sir. And you have those offices now? Yes, sir. Who is in charge of them? We have an assistant secretary in charge of them. What is the purpose in maintaining those New York offices now? Well, our banking relations are conducted in New York. We constantly must have touch with bankers to obtain funds with which to make our developments. All of our funds are raised in America and have been for many years, and we maintain that office as a matter of convenience, if not neces- sity, to keep in touch with our business relations in New York. Formerly Mr. James Mitchell was president of our company until his death two years ago, and liveil in New York, and, of course, that was an additional reason.* Mr. Garrett. Does anybody else occupy the New York office In conjunction with your company at this time? Mr. Martin. Yes ; there are two or three different concerns that occupy the office. Mr. Garrett. Have they any connection with any of these other corporations? Mr. Martin. No; none at all. Mr. Garrett. Then as general counsel for the Alabama Power Co. and as its president you really are the one who drew this contract? Mr. Martin. I was not president at that time. Mr. .Tames ^litchell was presi- dent of the company. Mr. Garrett. You were the general counsel? Mr. Martin. Yes ; I was the general counsel. Mr. Garrett. At that time? Mr. Martin. Yes. Mr. Garrett. And you were the one who drew this contract? Mr. Martin. Well, in behalf of our company, I imrticipated in working it out. Mr. Garrett. Mr. Martin. Mr. Garrett. Mr. Martin. Mr. Garrett. Mr. Martin. Mr. Garrett. Mr. Martin. Mr. Garrett, Mr. Martin. I 728 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 729 i\ ^ m Mr. Garrett. Now, just getting right down to between us boys, right across the table here, you are the man who wrote this contract out yourself, are you not? Mr. Martin. No, sir; I am not. Mr. Garrett. Well, who did write it out? Mr. Martin. The contract, naturally, was evolved from time to time from 1917 to its execution. You have got to go back to the beginning to get the fundamental basis of it. Mr. Garrett. I understand that, and am going back to the beginning, but you were operating there without any written contract executed. Mr. Martin. That is right. Mr. Garrett. Until the 7th of November, and on the 7th of November you finally got this contract signed, and yet during all this time your company had been doing over $5,500,000 worth of work that the Government was paying for. Mr. Martin. Yes. Mr. Garrett. And it was all being done just simply by a common under- standing after the 1st of December Mr. Martin (interpos'ng). Just as hundreds of others were done, because we were doing a job of work and the question of contract, both to the Gov- ernment officials and our company, was of less importance than getting the thing done that the Government officials wanted done. Mr. Garrett. Then, if you were perfectly willing to do all that without n rice," is agreed ui)on. Before any work was y any repiesentative of the Government? Mr. Martin. No. The Chairman. But you began to act on it? Mr. Martin. Here is what happenetl on the 7th of December. Mr. Crowther. I wante*! to ask about that phi-ase which s^ys "if the law permits." Diil the law at that time i)ermit? Mr. Martin. It did not, and it is uiy understHiiding that there was no authority at that time, ox<'ept his, that we understood there was some such provision. On the 7th day of December there followed this order: "Alabama Power Co., Hinninyham, Ala.: "By authority of the Chief of Onlnance you are hereby given an <»nler to construct " Tlie Chairman. Pardon me; that was on December 7? Mr. Martin. \>s, sir. The Chairman. That would be December 7. 1917? Mr. Martin. That is correct. Mr. Chairman. It says : " By authority of the Chief of Ordnance you are hereby given an order to con- struct on lands owned by you or rights of way under your control from your steam-pf>wer plant on the Black Warrior Uiver to the site of the proposed* am- monium nitrate plant of the Air Nitrates Corporation at Sheffield. Ala., for the present known as tlie United States Nitrate Plant No. 2, a transmission line for the purpose of, and of proper capacity for transmitting electrit! current of 3-pha.se, 60 cycle, and about 110,0(X) volts. Tliis line to be built as economically as possible, being for the temporary use of the United States in transmission of iK)wer during the iierioil of the present war, or thereabouts. The line to be the proi)erty of the United States, and suitable arrangements to be made as already tentatively agreed upon to cover the payment of actual cost plus a per- centage thereof, to cover use of Alabama Power Co.'s lands, right of way, con- struction forces, and other facilities, etc., and profit. All these conditions to be embodied in a future contract. " Priority Class A-1 has been requested from the War Industries Board for the manufacture of this material, copy of which is inclosed, so that delivery may be made at the earliest possible date. "Although this writing is in letter form, please book it as a definite order on behalf of the Ordnance Department, United States Army, by the undersigned, and promptly acknowledge receipt thereof." That was signed by Col. Joyes under date of December 7, 1917. We accepted that. The Chairman. You accepted it? Mr. Martin. Yes; our company under date of December 7, acknowledged receipt of that order and said, " In accordance with your instructions, we are proceeding to book this order as a definite order on behalf of the Ordnance Department, United States Army, and will proceed as speedily as possible toward carrying out your instructions." The Chairman. As I recall your reading, the line was to belong, or the work you were to do there was for the United States Government, and it was to belong to the United States Government. I^Ir. Martin. That is correct. Mr. Charman, on land or sites that are owned by us or under our control. The Chairman. You accepted that and proceeded? Mr. Martin. We accepted that and proceeded, yes. On the 7th of December there was issued another order to us. The Chairman. December 7. 1917? Mr. Martin. Yes ; the same date. This is headed " Purchase order on : " It «ays : ^'Alabama Power Co., ''Birmingham, Ala. " By direction of the Chief of Ordnance you are hereby given an order to furnish certain electric power as specified hereafter to the United States Nitrate Plant No. 2 being constructed for the United States at Sheffield, Ala. (Muscle Shoals), by the Air Nitrates Corporation of New York, viz: " Upon completion of the transmission line from your Warrior plant to the United States Nitrate Plant No. 2, at Sheffield, expected to be by or soon after June 1, 1918, which you are to construct under my order XOT-154, you to fur- nish from any resources of your system a guaranteed 10,000 kilowatts and as much more as may be available without interfering with your present signed customers, or requiring operation of the Birmingham steam plant, and as the United States may reletion is exi)ected to be about August 1, 1018. you to furnish from said Warrior steam plant as a whole, including your present plant and the United States temporary additions thereto, on the basis of an equitable division of the cost of operatiang that plant, a firm quan- tity of 35,000 kilowatts or so nmch thereof as may be needed by the United States, undertaking to assure this quantity of power by your power resources other than the Warrior steam plant, the conditions of such assurance and of the basis of distribution of costs to be more particularly set forth in contract now tentatively agreed upon and to be signed directly. " l*riority Class A-1 has been requested from the War Industries Board for the electrical power (copy of which is inclosed). "Although this writing is in letter form, please book it as a definite order on behalf of the Ordnance Department. United States Army, by the undersigned and promptly acknowledge receipt thereof." , That was on the 7th of December. The Chairman. That was another case where you were to do certain things for the oGvernment of the United States? Mr. Martin. Yes, sir ; which we accepted. The Chairman. And you proceeded to carry that out? ]Mr. Martin. Y'^es, sir; we carried it out. The Chairman. Did the Government of the United States take possession of these things? Mr. Martin. They had officers there who were directing what was to be done under this contract, but we proceeded in accordance with Col. Joyes's order. The Chairman. Col .Toyes in this communication said you were to do these things for the United States Government? Mr. Martin. Yes. 732 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 738 The Chaibman. He did not say you were to do them for the Alabama Power Co.. but you were to do them for the Government of the United States? Mr. Martin. Yes. The Chaibman. And you proceeded to carry that out? Mr. Mabtin. We proceeded to carry that out. On the 7th of December, the* same date there was tlie third of these purchase orders which had to do with this Warrior extension, in the same phraseolojry, substantially, as those which I have already read. That order says : "Alabama Poweb Co., "Birmingham, Ala.: " By direction of the Cliief of Ordnance you are hereby given an order to procure and install for the I-nited States as a temporary addition to the steam- IK)wer producing facilities at your Warrior River plant in Alabama, and to en- able you to supply to the United States nitrate plant No. 2, being constructel at Sheffield, Ala., by the Air Nitrates Corporation for the United States, the supply of power contemplated by a separate purchas-e order XOT-156 of even date herewith, as follows: "1. Thirty-five thousand kilowatt turbo-generator unit, with suitable acces- sories, as condensers, switchboards, battery of boilers, etc., directly necessjiry to its service, and such auxiliary accessories as may be needed in addition to what you now have installed, or should properly put in for the portion of your plant now existing, which may be necessary for the operation of this plant as a whole, and approved by the undersigned. " 2. Spare turbo-generator, of approximately 35,000 kilowatts, as above, with the necessary accessories, not including steam-producing equipment, as may be necessary to enable this unit to take the place of the first unit mentioned above, in the event of temporary unserviceability thereof, as recommended by you and approved by the undersigned. " Also to install the foregoing upon your existing land and foundations, etc., and to erect thereover a temporary building for the production of such apparatus. " Provided, That all of the foregoing work is to be performed by you on the basis of reimbursement of actual cost, plus a construction fee in consideration of which you will allow without special rental or similar charges therefor, the use of your land, foundations, and other property as needed — all such condi- tions to be embodied in a contract now tentatively agreed upon and to be signed directly. " Priority Class A-1 has been requested from the War Industries Board for the construction of this temporary addition to power plant (copy of which is inclosed). " Although this writing is in letter form, please book it as a definite order on behalf of the Ordnance Department United States Army by the undersigned, and promptly acknowledge receipt thereof." The Chaibman. That, again, I take it, contained instructions to your com- pany to build a transmission line for the Government of the United States? Mr. Mabtin. This says, " by direction of the Chief of Ordnance, you are hereby given an order to procure and install for the United States as a temporary addition to the steam power producing facilities at your Warrior River plant in Alabama, and to enable you to supply to the United States nitrate plant No. 2 being constructed at Sheffield, Ala., by the Air Nitrates Corporation for the United States, the supply of power contemplated by a separate pur- chase order." The first one I read described the equipment. The Chaibman. You carried out that order? Mr. Mabtin. Yes, sir. The Chaibman. I understand the situation now. Mr. WuBZBACH. Mr. Martin, I understand that it was your impression that the law of 1916, the national defense act, did not carry with it any authority to enter into the contract that was signed on November 7, 1918. Mr. Mabtin. I said that the work was not initiated under section 124 of the national defense act. Mr. Wubzbach. Did you not also state, and will you not state now, that it is your opinion as a lawyer that that law of 1916 did not give any authority for this contract, which you are claiming under? Mr. Mabtin. Yes; the law of 1916 did not have anything to do, one way or the other, with this question. Mr. Wubzbach. You knew that in 1917, when you first began this matter? Mr. Mabtin. Yes, Mr. Wurzbach. This whole question of authority was, as we understood, held in abeyance. The only law which had to do with this question was an act of 1892, under which the Secretary of War might make temporary leases of Government property. But when it came to authority for carrying out this work it was under certain provisions of acts of Congress mak- ing appropriations for armament and fortifications. Col. Joyes took the posi- tion that under that there was the authority for doing this work and there was the appropriation for paying for it, as I understood it. Mr. Wubzbach. But I am asking you as a lawyer, and as counsel for the Alabama Power Co., this question: You yourselves recognize that there was no legal authority for this contract that was later signed in November, 1918? Mr. Mabtin. To this extent, that at that time Congress had not conferred the power, as we understood it, upon the executives of the Government to dis- pose of property created during the emergency. That was the status of it at that time. Later, as we see it, two acts of Congress were passed Mr. Wubzbach. I want to come to those acts a little later. Exclusive of the acts of May, 1918, and July, 1918— exclusive of those two acts, and keeping in mind only the existing law, in December, 1917, you, as a lawyer, recognized that there was no authority for entering into this kind of contract that was later signed in November, 1918? Mr. Mabtin. No; I will go this far with that: I recognized, as a lawyer, that there was no authority in the Government to agree to sell that which was created. There was authority in the Government, first, to go and create that which was necessary to supply its armament of its fortifications, and tllat was the theory on which Col. Joyes proceeded. Mr. Wubzbach. It is not that feature of the contract, as pointed out by the chairman of the committee, that we are referring to. I am referring to the provisions in the contract under which you are claiming, that were supposed to put obligations on the Government that you are claiming under. I recognize the right to order certain work in the military department. But in reference to the giving of your company an option which you are now claiming under, you recognize that there was no law in December, 1917, authorizing that kind of a contract. Mr. Mabtin. On that, Mr. Wurzbach — as I read to you in the very initial draft of this contract by Col. Joyes, he so expressed it, and all along it was treated in this light, that if the law permitted the property to be disposed of, as proposed at first. Later on this provision arose Mr. Wubzbach (interposing). In May and July, 1918? Mr. Mabtin. In May and July. Mr. Wubzbach. I will ask you this question first : Knowing that, did you not have in mind, as the attorney for the company, the necessity for further legis- lation making this agreement legal? Mr. Mabtin. I did not give any consideration to that, because it was just the natural discussion of the subject at that time that Congress would have to pass legislation of some character because this was one of thousands of cases, which you will find on examining the records of your committees, which came up. There were hundreds and hundreds of contractors for equipment, con- cerns who manufactured all kinds of equipment, who proceeded in the same M ay, erecting property for the account of the Government on their own lands. Mr. Wubzbach. You knew the necessity for further legislation in order to protect your rights or your equity? Mr. Mabtin. Of course, it .was necessary for further legislation if we were to buy the property, but the Government also agreed in this initial memo- randum, or Col. Joyes proposed in this initial memorandum, that if the law did not permit the Government to sell it to us, then the Government would re- move the property from our lands, because we could not agree to sell the lands without destroying our plant. We were perfectly willing to agree to buy on the demand of the Government, and Col. Joyes recognized the fairness of the Government agreeing to remove the property if the Government did not sell it to us. Mr. Wubzbach. I think you stated that the biggest part of the work was completed in about five months after you started the construction of the trans- mission line?- Mr. Mabtin. The transmission line was completed and in operation in the early part of May, 1918. The turbo-generator and the other facilities at the i iht) i I r ' I 734 MUSCLE SHOALS PROPOSinONS. MUSCLE SHOALS PROPOSITIONS. 735 Warrior extension were completed toward the end of the year. But mean- time we supplied the power requirements of the Government over this line from our system pending the completion of the Warrior extension. That was the order Col. Joyes gave us. Mr. WuRZBACH. The main part of this work was completed before these acts of Congress of May and July, 1918? Mr. Mabtin. No; the transmission line represented about one-fifth of the total cost, but I should say probably 40 per cent of it was completed when these acts were passed. Mr. WuBZBACH. Did you know when this legislation was enacted? Were you in touch with any Member of Congress with reference to this legislation? Mr. Martin. No. The only thing I knew about the legislation was after it was passed in August. Capt. Noble handed me a copy of a general order issued by Gen. Goethals which I have read into the record, and which I under- stood was founded on these acts of Congress. That was an order, or a bulletin, rather, issued by Gen. Goethals. Mr. WuRZBACH. You did not find that out until August, 1918? Mr. Martin. August, 1918. Mr. WuBZBACH. You testified in response to questions just asked you by the chairman of the committee with, reference to certain letters that were consid- ered by you as part of the contract which was later signed in November, 1918. Mr. Martin. These work orders which I have referred to were issued to us and formed the basis upon which we proceeded. Mr. WUBZBACH. Under which you proceeded to do certain work for the Gov- ernment. Have you any correspondence covering any of the other provisions of the contract as it was finally signed? Mr. Martin. I have a lot of correspondence here, probably 50 sheets of it. and they do cover various features of it. Mr. WuRZBACH. Do they refer to the compensation this company was to receive? Mr. Martin. I have not been over the correspondence to see, but I have filed it with the reporter. Mr. WURZBACH. Do they refer to the provisions of the contract with the Gov- ernment that gave you authoritj' to buy this property from the Government at a fair price? Mr. Martin. I do not recall. I suppose they do refer to that question in some form, of course. Mr. W^urzbach. All of the provisions of the contract were verbally agreed upon, or you had some correspondence about them before November 7, 1918? Mr. Martin. Yes : I think it might be considered in that way. It is a ques tlon where different ofllcers had different ways of expressing it. Capt. Noble had' one way of writing the contract and Col. Williams had an entirely different way. When he came into it he redrafted the contract. Capt. Noble had put it into two contracts, one for construction and one for operation, and Col. Williams entirely changed the theory of the contract and made an entirely new contract. This is the contract which was signed. Mr. Wurzbach. I suppose you had considerable correspondence with the Ieg:al representatives of the Government with reference to the drafting of this contract? Mr. Martin. Yes; there was one as recent as November 1, 1918. inclosinjr certain parts of the contract, and another one Mr. Wurzbach (interposing). Have you included in that all the correspond- ence and the data which would throw any light on that? Mr. Martin. Here is another of October 19. Mr. Wurzbach. Together with copies of letters which you read? Mr. Martin. Yes, sir. Mr. McKenzie. Forgetting the contract for a moment, I want to ask you n few questions at this time, thinking perhaps I may not get another opportunity, in connection with the practical proposition with which we are confronted, having in mind that the Committee on Military Affairs, under the leadership of our chairman, has been endeavoring for months to aid the War Department in disposing of what we might call surplus proi)erty. I am going to assume in asking these questions that your company and you were animated at the time of this transaction by the highest and most patriotic motives, the country being in war. and assuming that you as an American citizen are still so animated, :. all of which is held by rhe Alabauja Tra«-tion, Light & l*ower Co. (Ltd.). But now you nuist get at the stockholders of the Alabama Traction, Light & I*ower Co. (Ltd.) to see wherein the control and ownership lies. The stock of that com- pany was originally held, the large majority of it. abr(>ad, and since the war in Europe that slock has been sold and has come to this country in great volume, and the hirgest single hohl'ngs of that stock are in this country. For instance, in the Slate of Alabama, there is one single group of people who hav(» the larsrest Molvci!. You are the counsel of the Alabama Power Co., an;!, of course, you know the law. II, • i 1 I 740 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 741 m. ^Bl| Thp presumption is that we all know it. l)ut it is a very violent presuuiotioir sometimes. Mr. Martin. Yes; T areept that. too. Mr. Garrett. I am tryinjr to ^et at the le^al pliMse of it. I understan-l a ^eat deal of this work was done, but there is a (luestiim involved here in con- nection with a certain option that you are claiming as a matter of law under this contract. When did that take effect, at the time you made the contract, or at th9 time you executed the contract? Mr. Martin. I will answer that this way. An agreement to make an agree- ment is tlie substance of these work orders, and we affreetl with Col. .Toyes and he aj;i*eed with us that we woul.l both make a future contract. But an agree- ment to make an agreement is not a contract, in the technical, legal sense. An agreement to make an agreement is unenforcible, you will admit that. Mr. Garrett. But your agreement began on a memorandum and on corre- spondence. Mr. Martin. We began work under a memorandum. Mr. Garrett. The question I want to know is: When did your riglits begin, when you began to execute and perform under the contract by oral agre<^ment and memoranda agreement, or di;l it begin several months later wlien it was formally executed? Mr. Martin. When there was a formal execution of the contract, that was the fixing of the rights of the parties. That is my answer to your question. Mr. Garrett. Tliere were no rights fixed prior to that time? Mr. Martin. No. lilr. Garrett. There is one more question I want to ask you in reference to Dam No. 2, under section 124 of tlie National Defense Act. I notice that the President, on February 23, 1918, wrote a letter to the Secretary of War. Is that in the hearing? Mr. T^lARTiN. I do not think we put it in the hearing, but the Secretary of War did. Mr. Garrett. The President said in that letter " I refer to Section 124 of the National Defense Act of June 3, 1916, authorizing the President to determine the best means and adopt the most advantageous i)ro.1ects for the production of nitrates, and appropriating the sum of $20,000,000 for that purpose. Of this appropriation. I am advise- tbe Tennessee River, as designed and projected by your department, is, in my judg- ment, of vital importance in accomplishing the purpose of the law. I should be pleaseil. therefore, to have you allot to that work all of the aforesaid bah' nee. after deducting the sum of $400,000. which I understand will be acquired for the purchase of land required in connection with another pro.iect." What has that to do with your contract? Mr. Martin. It has not anything to do with it. Mr Garrett. I notice in Mr. Graham's report of his investigation in connec- tion with the statement of Col. .Toyes, on page 5, it says : " Under a project No. 12F in regard to land for the United States nitrate plant No. 2 at Muscle Shoals there was charged to the appropriations for this fund $350,000." That was under the national defense act, section 124? Mr Martin. I am not familiar with that. I am only familiar with what has been state)ngress on the 4th day of last March. The Ford proposition is a new proposition in connection with Muscle Shoals. It is a proposition that has arisen since I retired from Congress. It was never made during my term of office as a Member of Congress, and so far as the Gorgas plant is concerned, and that is the property in which I am interested as an attorney, I do not know that I ever heard of the Gorgas plant i^ending the various propositions that were made to develop Muscle Shoals during my term of service as a Member of Congress, and while we were trying to develop Muscle Shoal a I do not recall that the Gorgas plant ever entered into any of our deliberations or was ever considered as a necessary adjunct to the devel- opment of the Muscle Shoals proposition. As a matter ot fact I may have heard of the Gorgas plant, but it had no significance to me. I knew not where it was or how it was constructed, and when we were endeavoring in the last Congress to get the Government to continue its operations at Muscle Shoals I am sure that the Gorgas plant was never considered as necessary in order for the Government to develop that project. So that the Gorgas plant has been put into the Muscle Shoals project by Mr. Ford, and since the 4th day of last March. Now, let it be remembered that the Gorgas plant is 88 miles south of Muscle Shoals ; that it is situated out in the coal fields of Walker County ; that the original plant was constructed by the Alabama Power Co. as a reserve plant in order to effectuate their hydroelectric system in the State of Alabama, to utilize it in case of low water. According to the proof the Government itself came to the power company with the idea of utilizing this plant pending the construction of its Muscle Shoals project, after the Government had decided to undertake the manufacture of nitrates at that point. ^ Now, Mr. Chairman, the examination in this case has taken a wide range. A great many, it seems to me, immaterial questions have been asked of the president of this company in his testimony before the committee, undertaking to present his legal rights ; and let it be remembered right here, too, that this is the first time that the company has had an opportunity to be heard at all. Notwithstanding the fact that everybody concedes that it owned the original plant at Gorgas; notwithstanding the fact that everybody concedes that it owns the land upon which the plant is located; notwithstanding the fact that everybody concedes that it owns the right of way over which the transmission line up to Sheffield runs, yet it never was consulted either by Mr. B'ord or by the War Department as to its rights in the matter at all, and this is the first opportunity it has had to present those rights to anybody. I take it for granted, Mr. Chairman, that it is an immaterial matter, whether it be true or not, that the i)eople of Alabama are hostile to the Alabama Power Co. I take it to be immaterial whether a majority of the stock of the Alabama Power Co. is owned by people in England and other foreign countries or not. I take all of these things to be absolutely immaterial, if the Alabama Power Co., a coiporation duly chartered under the laws of Alabama, has a valid contract with the Government of the United States. Now, of course, everybody knows that there is some prejudice, some hos- tility against every public-service corporation in this country. It is sometimes a little difficult to understand, because I do not see how we can get along with- out them, myself; but still that hostility exists against every kind and char- acter of public-service corporations ; but I do know this, that the Alabama Power Co. is chartered under the laws of Alabama ; that it is subject to the jurisdiction and control of the Public Service Commission of Alabama, and that conmiission has about as wide powers as any I know of in any State in the Union ; and I know, furthermore, that Alabama is one of the richest States in the United States in water power, and during all of its existence as a State that water power had been going to waste until the Alabama Power Co. came to our assistance. But that is neither here nor there. The fact is, the Alabama Power Co. has a contract with the Government of the United States, conceding now first the validity of the contract. It has a contract with the Government of the United States by which the Government of the United States was to furnish the Jnoney to increase the equipment at the Gorgas plant and at the end of a cer- tain period, or at a particular time, we may say, the Government has the right to demand of the Alabama Power Co. that it purchase the property whicli was I. V I ' I f 744 MUSCLE SHOALS PBOPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 745 placed upon its land and in connection with its original plant, and the Alabama I ower Co., on the other hand, has the right to demand of the Government that it sell to it that power equipment. Now, what are the objections to that contract? First, it is said that the contract was dated on December 1, 1917. Second, it is said that the contract is violative of the spirit and intention of section 124 of the national defense act And third, it is said that it is a hard and unconscionable bargain Now let us take those three objections up in the inverse order. First that It is a hard and unconscionable bargain. In the first place, let me call the attention of the lawyers on this committee to the fact that if this contract is unconscionable, if it is a hard bargain it appears on the face of the instrument itself. It has not been developed bv any outside, extraneous testimony. I repeat, it appears on the face of the instrument Itself. Now, I know of no rule, even in a court of e<]uitv, 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. If both parties had the mentality to make the contract, could read and understand the contract, no court on God's green earth would relieve against its terms because on the face of it it appears that one party got a little advantage of the other. One of the parties must be under a disability or there must have been some outside pen^etrated fraud or advantage taken before a court of equity, even, would intervene to relieve against a contract of that kind ; but let us see if the contract is unconscionable The mam reason, as I gather it, from the various questions asked by the members of this committee, that it is a hard bargain and an unconscionable contract, is because the only party that can purchase the Government's in- terest m the contract is the Alabama Power Co. Now, is that unusuaP I again ask the lawyers on this committee if the law books are not full of cases where the owner of land has entered into a cootract 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 tixeeing 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 contract they would have to pay that price, and I venture the as- sertion that this is one of the fairest contracts that was made during the war. in the stress of war, of that class. Now, it was not unusual for the Government to make contracts of this kind ; in fact, the Government made contracts of this kind all over this country from the beginning of the war almost up to the end, and if you will search the records of the various departments of the Government, you will find that this character of contract was made by the different branches of the Government in various parts of the United States during the war, and the only difference that I have found is that in most of the contracts, the Government, if the con- tractor did not pay the price that the Government thought its property was worth, could remove the property from the premises at its own expense, whereas under this contract the Government can either remove it if it wants to or it can make the Alabama I»ower Co. pay what arbitrators say is the fair value of the property. , ^ v f ^^ Now, just let me call attention right in that connection to the hearings before ihe Naval Affairs Committee of the United States Senate, Sixty-fifth Con- praisal made of that plant by the com- pensation board, which handles the financial matters, and if the contractor is satisfied with our appraisal he may pay the price for the plant. If he does not accept, we will have the right to remove the portable plant. In the case of the other plant, we have the right to wreck the buildings for their scrap value. Tln>se are the standard provisions in these contracts." Now, I think, Mr. Chairman, that the Alabama Power Co., when that was the habit of the (lovernment. not only in the War Department but in the Navy De- partment and in the other branches of the (tovernment. shcmld not be singled out as having made an unconscionable bargain with the Government, especially when their contract was a little different from the others and provides for a repay- ment to the Government of the property that they invest in their plant at fair value, to be fixed by three arbitrators, one selected by the Government, the other by the power company, and the two selecting a third. 746 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSinONS. 747 Now, file otlier objecti»»ns to the contract are the date and the fact it is con- trary to section 124 of tlie nati<>nal defense a<'t. I take it, it will not be disputed l»y any lawyer on the coninilttiv that one of the well-estahlisheil excei)tions 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. That rule is laid down in all the lawbooks without any single, solitary exception, and the unefore I go any further into that, the question has been raistnl as to whether or not the Alal>ama Power Co. hud anything to do with the passage of that law. I would like to make a brief statement in regard to that, because that question has been raise«l by some questions by diflFerent members of the ooin- mittee. That i)rovision of law is a rider on the Army api)ropriation bill of July 9, 191S. It is very conqirehensive. I have before me that Army appropriation act on page 497 of this volume, which the committee has, of " Legislation of the war Congress relative to the Army," which was compiled shortly after the war and given to each member of our connnittee at the time. Ot course, the act can be found elsewhere. On page G of the act, page r»02 of this volume, there is ii provision headed, " Sale of war supplies." The Chairman. Wjis that provision put in by the Senate? Mr. Dent. No, sir ; I «lo not think that was put in by the Senate. I was going to explain that to you, ami I think you will recall, ^Ir. Chairman, when I make the explanation, how this all occurred. I thought I would read it to the com- mittee, as it is verj* brief, to show how comprehensive it is. The Chairman. Proceed. Mr. Dent. " That the President be, and he hereby is, authorized, through the head of any executive department, to sell, upon such terms as the head of such department shall deem expedient, U> any person, partnership, associa- tion, corporation, or any other department of the Government, or to any foreign State or Government engaget sure whether there was a point of order made against this on the floor of the House or not ; I think not. My recollection is that this was incorporated iu the House appropriation bill itself and went through, but if not I am sure that it was put on in the Senate at the request of the Secretary of War and as a part of the legislative program that he neeiled during the war to carry out war purposes and contracts that had already been made. I would like to send this act up to you to look at. You will find that this appropriation bill of July 9, 1918, is loaded down with legislative riders, all due to the fact that we were trying to put through the legislation that the War Department con- sidered as absolutely essential in order to carry on its program. Beginning on page 36 of the bill and page 532 of this volume, on down to the end of the hill, page 58 of the bill, and page 554 of this volume, are the riders. There are 22 pages of riders attached to the appropriation bill, and this is one of them. J simply show you that, Mr. Chairman, in order to explain how that got into the Army appropriation bill. It was a request of the Secretary of War and vas one of his schemes of legislation. Now, Mr. Chairman, coming down to the proposition as to whether or not this contract is violative of section 124 of the national defense act, in the first I)lace there may arise some question, if the contract between the Government and the Alabama Power Co. violates the spirit, the purpose, and the intent of section 124, whether or not the Government itself can claim any right in the prendses, and whether or not both parties are not in pari delicto, and the law would leave them where they stood. Judge Parker, of New Jersey, who is a member of the conmiittee, directed attention to that point, when Col. Hull was on the stand testifying as to this contract. However, I simply mention that because it is not the disposition of our people to take any such technical ad- vantage. We are standing on what w^e believe to be substantial rights, but our contention is that this se<-tion absolutely has no application to this contract for two reasons: First, because this section limited the appropriation to .$20,000,000, and under the order that Judge Almon read here to-day, which is the same that Mr. Martin read to the committee on Friday, it was provided that the unexpended balance of that money should be used for the construction of the dam, so that there was nothing left by way of appropriations to carry on any other feature of section 124. Now, section 124 gives the President several powers. In the first place, the President is authorized and empowered to make or cause to be made an investigation as to the cheapest, best, and most available means for the production of nitrate and other munitions of war; second, he is also authorized and empowered to designate for the exclusive use of the United States, if in his .iudgment such means is best and cheapest, such site or sites upon any navigable or nonnavigable river or rivers or upon the public lands, as in his opinion will be necessary for carrying out the purposes of this act ; and, third, he is authorized to construct, maintain, and operate, at or on any Mite or sites so designated, dams, locks, improvements to navigation, power houses, and other plants, etc. So that the President under this order simply selected and designated the site and expendeerty that is necessary and essential in order to carry out the fundamental rate' if you make this contract, nobody could blame the Alabama Power Co , a^ [he owner of this property, from asserting its rights in the courts, and acceptance of the conrtact in its present form would mean a lawsuit. Now, Mr. Chairman, I do not intend to weary the committee any ^i^ore than 1 can possiblv help, but I want to discuss just one other feature of this proposi ^'^Tiie'cHA^K^^ waift to 'sat Mr. Dent, that you are not wearying the com- mittee but the committee is deeply interested in what you are saying. Mr. Dent. Thank you very much. Mr. Chairman. Suppose there was a technical advantage, a purely legal technical advantage, that tlie Government has, tind which it could use, in order to take advantage of the Alabama Power Co. and refuse to carry out the terms of the contract. Let lis come right down to that point. I do not think so, because I think we have established clearly a legal right in the premises here which I think any court of the land will uphold, but let us go further and let us suppose, jmst for a moment, that the Government could, by some technical, legal question, take advantage of the Alabama Power Co. jind refuse to carry out this contract Secretary Weeks stated very frankly before the committee that he was sur- l>rised at the opinion of the Judge Advocate General stating that this contract was void ; but even if it were void, he did not believe that a great Government like this ought to take advantage of a technicality and refuse to carry out it«? obligations, and thereby set such an example to the entire American people The Congress of the United States, so far as I know, representing the \ineri- can people, has never been guilty of anything of that kind. On the contrary the Congress of the United States ha« always exhibited just the opposite spirit' That was well illustrated by the passage of what somebody has seen tit to denominate as the Dent Act of March 2, 1919. I do not know who named it the Dent Act, because we all worried over that act together for a long time and we had a great deal of trouble with it. You will remember the coini)trol- ler brought us down a bill which we did not like, and we all set to work and wrote one ourselves, and finally worked it out among ourselves, but at any rate that act, according to the testimony before us, as I recall, at that tim'e was said to have involved at least something like $1,600,000,000 worth of contracts- contracts that had been entered into over the telephone, contracts that had been entered into by telegram, contracts that had been entered into by mere verbal conversation between the contracting officers and the contractor's. Un- der the ruling of the comptroller, it was held that not a single, solitary one of those contracts could be enforced, because the statute required that all Government contracts should be signed by the contracting officer and attached to the contract should be an affidavit to the effect, as I recall the substance of it, that the contract was to the advantage of the Government and that he. the officer, had no personal interest whatever in it. The comptroller ruled that unless all three of those conditions were complied with— that the con- tract was in writing, that it was signed by the contracting officer, and this affidavit attached by the contracting officer— that the contract was not enforce- able. What did Congress do in that situation? We passed the so-called Dent Act correcting, or rather validating, so to speak, every bona fide contract that was en- tered into on the part of the Government, on the one hand, and the con- tractor, on the other, regardless of its form, regardless of whether it was signed by the contracting officer or not, regardless of whether the affidavit was made or not ; and there was not a dissenting voice, as I recall it, on the floor of the House against the passage of this legislation. We did have some con- troversy over the form that it should take. Some of the Members wanted a commission to pass on the contracts, whereas the bill itself authorized it to be done under the direction of the Secretary of War, as reported by the com- mittee, and it finally passed in the form the committee reported it. But there was not a dissenting voice, as I recall it, on the floor of the House or of the Senate against the passage of this legislation. Why? Because this Govern- ment was too big to take advantage of any technicality; and if the contract had been entered into in good faith and it had been performed on the part of the contracting party, then Congress held that that contract should be fulfilled. Now, I want to call attention briefly in that connection to the language of this statute. As I construe this statute, it is permanent law. It is the law of to- day. The time provision 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 agamst the Government. The Alabama Power Co. has no money demand against the Government in this case, but is simply asking that its contract be fulfilled. If there is any money demand at all, it is due fix)m us to the Government. Now, that statute reads as follows : " That the Secretary of War be, and he hereby is. authorized to adjust, pay, or discharge any agreement, express or implied, upon a fair and equitable basis that has been entered into, in good faith, during the present emergency 750 MUSCLE SHOALS PROPOSITIONS. and prior to November 12, 1918, by any officer or agent acting under his author- ity, direction, or instruction, or tliat of tlie President, with any person, Arm, or corporation for tlie acquisition of lands or tlie use thereof, or for damages resulting from notice by the Government of its intention to acquire or use said lands or for the production, manufacture, sale, acquisition, or control of equip- ment, materials, or supplies, or for services, or facilities, or other puiposes connecteil with the prosecution of the war, when such agreement has been per- formed in whole or in part, or expenditures have been made or obligations in- curred upon the faith of the same by any such person, firm, or corporation prior to November 12, 1918, and such agreement has not been executetl in the manner prescribed by law." Now, I say that that statute 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. Mr. Chairman, in simple form, that presents our case. Your attention has been called to the fact that we also own the abutting property at dam site No. 3 on the Tennessee River, which is involved in Mr. Ford's proposition. Of course, we concede that if the Ford proposition should be accepted by the Government, unquestionably. Congress could authorize that property to be condemned, be- cause that is directly in connection with the navigation of the Tennessee River. Tliere is no question about that, but the other proposition we do not by any means concede. . Our contention therefore is that this 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 earing as counsel for the Alabama Power Co., was chairman of the Committee on Military Affairs, and I as the ranking majority njember of that committee had a share in the perfecting of legislation that was enacted. I do not recall whether it was the act of May or the act of July, but I do recall that when the Secretary of War sent his draft to the committee and requested that it be enacted into law, Mr. Dent, then the chairman of the connnittee, did not approve of the idea of it, in that it would confer upon the War Department powers that he thought were too broad. I dif- ferred with him and took the view of the Secretary of War, and the committee, over the protest, as I re<-all, and against the vote of the chairman, voted out the bill I am referring to. Whether it was the act of July or the act of May I do not now recall, but I do specifically recall that the chairman of the oommittee opposed the legislation. Mr. Dent. I had forgotten, Mr. Fields; you are probably correct about it. Mr. Fields. Kemenibering that, I thought I should make that statement at this point. The Chairman. Of course at that time, we were in the midst of war, and we were sending our men as fast as we could get them across to the other side. During the month of July 300,000 soldiers were sent across the water to join our f(»rces at the front. We were moving very rapidly, and I am inclined to believe that there was not any Member of Congress in those days that was fearful of kicking up a mare's nest. The committee tried in every way possible to make it absolutely certain that this country would do everything it could do, and as speedily, t(» bring about a successful conclusion of the war. so we could get our soldiers back honu^ and settle down once again to peace. Mr. Fields. I made my statement, to be perfectly frank, remembering, as I did, the circumstances, calling attention to the fact that Mr. Dent, who now contends for the legal rights of his client under this law, was not responsible for the enactment of the law. Mr. Dent. I am very nmch obliged to you. I did not remember how I stooose was to make nitrates. If the Government still intends making nitrates or fertilizers, as provided for in the act — and they need it — why can they not condemn it and take it? Mr. Dent. Because I do not think it is necessary in order to accomplish their purpose. Of course, all of this is purely a matter of argument between you and myself. So far as I see it, I can not see the absolute necessity — the esstMi- MUSCLE SHOALS PROPOSITIONS. Y57 tial necessity— of having to use this plant to operate the nitrate plant at Muscle Shoals, which ultimately is to be operated, if you are going to operate this plant at all, according to the testimony before this committee, by water power. Mr. Stoll. I know that, but I am talking about the purpose for which the United States Government spent this money to get this transmission line. If the Government is to still carry out this purpose, why is it not a part and parcel of it? Mr. Dent. I think I can answer that by asking you a question, and that is. if the Government intended to use the Gorgas plant in connection with the further development of nitrogen from the air. why did the Government con- tract to sell the plant back to the Alabama Power Co. if the Government in- tended to use it as a permanent proposition? Mr. Stoll. They had a very foolish officer to make that kind of a contract, in my opinion. Mr GxRRETT. Mr. Dent, if the date of the contract between the Alabama Power Co. and the United States of America, as shown by the hearings, or if the contract, as a matter of fact, was executed on December 1. 1917. what law would have governed the rights of the parties? Mr. Dent. The law then in existence, if there was any. and, as I recall, there was no law authorizing the contract at that time. If that was the true Mr. Garbett (interposing). As a matter of fact, I understand that is not the true date, but that is the date the record shows. In the statement vou made a moment ago you said that the conversation, the correspondence, and the memoranda leading up to a written contract was the controlling thing, and that is generally accepted under the law of contracts. But to my mind that is not the thing before the committee. That is not the question involvetl as a general proposition. The questicm I am trying to get at now is this: That these parties did reach bv correspondence and memoranda, as shown here, an agreement, and that they began to operate under that agreement ; and that then the contract was finally executed inNew York instead of Washington, D. C. where it says it was exe- cuted, and that practically all the performance had b^n had Now comes the question I want to have answered, which is this If the minds 'of the parties reached a sufficient conclusion so that they could begin to operate and did operate under the contract that was actually executed at some future date, would not the IriV upon the date upon which they reached their understanding and began the work and began the execution of "le con- tract control the rights of the parties instead of the law that happened to be in force at the time of the actual final execution of the agreement? Mr Dent. I can not agree with that as a legal opinion. I am expressing mvown legal opinion. My own opinion is that the final draft of the contract, duly excuted by the parties, is the controlling evidence of the contract between the parties, and that all previous negotiations are merged into that written instrument. ^ , , ^ ^^ , . Mr. Garrett. But that is only the evidence of the contract. Mr Dent Sure Mr*. Garrett. The contract had finally been executed and the work per- formed prior to its execution. Mr. Dent. According to your argument, that contract does not amount to anvthing at all ; It was a mere useless formality. Mr Garrett. I am not expressing an opinion upon that, but I am trying to get at what the facts are. As a matter of fact, they performed all of the work thev had to do without a written contract ; is that not true? Mr Dent Most of it ; I understand Mr. Martin testified that when the con- tract was finally executed in November, 1918, 95 per cent of the work was done. But I contend that the fact that they did this, even under mformal arrange- ments between them and the Government constituted sufficient consideration after the law was passed for the execution of that contract m Noveniber, and that contract is the final memorial of the agreement between the Parties. Mr GABRErr. As a lawyer, let me ask you this question: If they performed work' not under an executed contract, but under an agreement which was readied bv correspondence, and memoranda, and telegrams, and letters, would not their rights then be on a question of quantum meriut and not on a question of specific contract execution? I- I 758 MUSCLE SHOALS PEOPOSITIONS. Mr. Deniv That would be involved if they had not finally put the contract into written form and duly executed it. That applies as between individuals and not as between a party and the Government, on account of the fact that Government contracts must be executed in a certain way or otherwise they are void. I think that is the rule of the Comptroller of the Treasury. Mr. Garrett. If this contract had been executed on the date that it is pur- ported to have been executed, according to the record, then the law on the 1st day of December, 1917, would control and not the law on the 7th dav of No- vember, 1918. Mr. Dent. That is very true. Mr. Hull. Mr. Dent, as I understand it, you believe that the Government should not make a contract with Mr. Ford, owing to the fact that the Alabama Power Co. has a prior right on the Gorgas plant; is that correct? Mr. Dent. My proposition, Mr. Hull, is 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 our proDertv to Mr. Ford ; that is, the steam plant at Gorgas. Mr. Hull. Is the objection addressed to the steam plant or the transmission line? Mr. Dent. It is both ; they both belong to us. Mr. Hull. The Government took the transmission line, did it not? Mr. Dent. No. The Power Co. built it, but the Government loaned them the money during the war for that purpose. Mr. Hull. Who owns the transmission line? * Mr. Dent. I think the Alabama Power Co. owns it, but the Alabama Power Co. was under contract to pay the Government for the value of the property that was put in there with its money. Mr. Hull. The transmission line was not there before the war? Mr. Dent. No ; neither was the addition to the steam plant. Mr. HuLLi But the steam plant, as I understand it— and I do not know, of course — was so built that you can not take over one without taking over the other. Mr. Dent. That is true. Mr. Hull. But the transmission line is not in that shape, as I understand It. Mr. Dent. As I said a little while ago, Mr. Hull, I am not an expert In mat- ters of that kind, and I do not know anything about it ; I suspect that that is true. It may be they could take over the transmission line without the plant, but that is not in my line, and I am not aa expert on that subject. Mr. Hull. I am simply trying to get the right angle on the proposition. It is very hard to understand it without seeing it. Mr. James. Mr. Dent, will you turn to part 3 of the hearings, at page 168? At the bottom of the page you will see what is marked "1st indorsement." When Mr. Quin read that a while ago, did I understand you to say that that was authority given by Maj. Gen. C. C. Williams to Lieut. Col. William Williams to sign the contract? Mr. Dent. I did not know that Mr. Quin read this to me. Mr. James. You were asked that question. Mr. Dent. Mr. Wurzbach asked me some questions as to whether there was any contract, whether the contracting officer had authority, and I referred to the memorandum at the bottom of the contract which is signed by Maj. Gen. C. C. Williams, Chief of Ordnance. Mr. James. Is this the exact language? Mr. Dent. And I notice that you read it this morning to Mr. Martin. Mr. James. Do you think that is the authority of Gen. Williams given to Lieut. Col. Williams? Mr. Dent. I would presume that is a written authority. Mr. James. That is a memorandum from the Chief of Ordnance to Col. Joves. ^Ir. Dent. Which one are you referring to, the one signed by C. C. Williams or the one signed by William Williams? Mr. James. The one marked " 1st indorsement" ; that is, the one you read in response to the question asked by Mr. Wurzbach as conferring upon Lieut. Col. William Williams authority to sign the contract. Mr. Dent. Yes. That was the memorandum; I read that as a memorandum at the end of the contract showing that it was Qen. Williams's indorsement of the signing of the contract by Lieut. Col. Williams. MUSCLE SHOALS PKOPOSinONS. 759 Mr. James. But the communication is not to Lieut. Col. Williams, but to Col. Joyes. Mr. Dent. That is because of the fact that Col. Joyes in this memorandum is designated as the contracting officer thereafter to carry out the contract, and that was signed by Gen. Williams. Mr. James. I asked Mr. Martin this morning if the communication just above that on the same page dated November 9, 1918, was the one in which Col. Williams gave his proxy to Col. Joyes to sign in his stead, and Mr. Martin said that had nothing to do with the contract, that it was simpiy a matter of form followed by the Army officers, and if that is true, then that means nothing else except that Col. Joyes is to relieve Col. Williams and has nothing to do with the contract, as Mr. Martin said this morning. Mr. Martin. That is my impression, that at the time Col. Williams concluded the negotiations he was relieved so far as the performance of the contract was concerned, passing the authority to Col. Joyes. Mr. James. Then that brief indorsement does not confer any authority upon Col. Williams, but it simply means he was relieved by Col. Joyes, and it had nothing to do with the contract. Mr. Martin. The communication marked " 1st indorsement," as Mr. Dent points out, is the recognition by Gen. Williams of the fact of the execution of the contract by Lieut. Col. Williams. Mr. James. But it is not an order from Gen. Williams authorizing Col. Williams to sign any contract. Mr. Martin. Undoubtedly there is such an order. Mr. James. If there is such an order, I think it must be in some other place. Mr. Dent. If any question is raised about the authority of Col. Williams to sign the contract, I should like to produce Gen. Williams to make proof of that. Mr. James. Mr. Wurzbach raised that question. Mr. Dent. It would be a question of but a short time to prove it. I thought it was in the record. The Chairman. I had the impression that Gen. Williams did testify to that effect. Mr. Dent. If the technical point is going to be raised we can easily over- come it by producing a witness himself who can testify to that. He has told me so himself, that the contract was properly executed and it ought to be carried out. The Chairman. I will say this, that to-night I will read Gen. Williams's testimony, and if I find the testimony does not show affirmatively what he said regarding the matter we will give you notice and you can ask Gen. Williams to appear to testify In that regard. Mr. Crowther. Take the last clause of the contract. I would like to ask whether this clause has anything to do with the date. It says, " In witness whereof the parties hereto have caused these presents to be executed and de- livered In quadruplicate at Washington, D. C, the year and date above written." Mr. Dent. That is simply a repetition of the first clause. The parties, in other words, can adopt any date they want to when they sign a contract, pro- vided 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 execution the law always permits the proof to be established by parole evidence. Mr. Crowther. What is the meaning of this being delivered in quadruplicate at Washington? Mr. Dent. I do not know. Mr. Crowther. That was executed in New York, was it not? Mr. Dent. Yes. I was not representing the power company at that time and I know nothing about it. I presume that the form of the contract was prepared with the idea that it would be signed in Washington, and written that way, and the parties happened to meet in New York and signed it there without making any change in it. They can also adopt the place as well as the time, hut the proof as to the time can always be established by parole evidence. Mr. Crowther. Your contention is and you would hold as a lawyer that this contract dated from the time of its signature in New York? Mr. Dent. And delivery. Without that no contract is good. It has not only to be signed but delivered before it has any vitality. Mr. Crowther. The date of December 1, 1917, does not mean anything, really. Mr. Dent. It means nothing, except that the parties adopted it for some rea- son, I know not what ; it may be because that was the date when the original transaction began. 760 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 761 Mr. Cbowtheb. You glean from the questions that have been asked that some of the lawyers on the committee do not agree with that conclusion. Mr. Dent. Yes. ^ ^,^ ^ 4^, Mr. Ckowther. I think Mr. Garrett suggested that he did not agree with Mr Dent Yes ; Mr. Garrett seemed to have a dil¥erent opinion. Mr Fields. Mr. Dent, I gather from following you that your contention is that the Gorgas steam plant does not come within the provisions of the na- tional defense act, because it is not a part of plant No. 2 for the production ot nitrates or necessary for the operations of plant No. 2. Mr Dent. Yes Mr' FiEi.DS. If* the Government had continued the operation of plant No. '2 from the time it operated it up to this time and found that the Gorgas steam plant was essential to the operation of plant No. 2 there would be no question as to the Government's right to hold It. , , , . w . ^i *. i^ i Mr. Dent. If your premise is conceded that would be true, but that would ])e begging the question. Mr. Fields. If they found that essential. Mr Dent. That Is the very question we raised, that it Is not essential. Mr* Fields. I am trvlng to get this straight In my own mind. It has been my understanding— and I may have a wrong understanding— that this plant and the steam plant at nitrate plant No. 2 were both constructed with a view to using them to supplement the water jwwer at the time of low water in the operation of the nitrate plant, If It should be operated by hydroelectric power in the future. , , ^ , ^ ^ 4.i.„4. Mr Dent. I think vou are mistaken about the facts in regard to that. Mr FiEiJ)S I^t us *go back to the Government's oiieration. If the Government should have determined, after It had made a test of that plant, to continue the operation of that plant for the proending the time their plants were under construction. Mr Fields. Is there anything In the contract stipulating the time when the Government shall discontinue the use of the Gorgas plant after the con.struction ^ Mr^ Dknt.* The contract, Mr. Fields, authorizes the power company at any time to purchase this additional equipment from the Government, even before the work at Muscle Shoals was finished, as I understand Mr. Martin. Mr. Fields. That Is, at any time after the Government determined to diseon- ^r Dent No ; at any time under the contract the Alabama Power Co., after the construction of this additional equipment and this transmission line, coiiin have demanded of the Government, if they were ready to pay for It, that tne iiroi^ertv be sayment of the value, the Government resei - ing the" right to demand of the power company that they continue to suppi.^ nower pending the construction of this plant at Muscle Shoals. Mr. Fields, I have read the contract, and I am frank to say I overlooked tuai '^Mr Dent. That Is the reason I asked Mr. StoU that question, if he tNniil^j the Government Intended to use this permanently, why is it they agreed to m'i it to the Power Co.? Mr. Fields. Here is the point that has been in my mind, if this plant paid for by the Government. anosltion. Mr. Di.:nt. There is nothing in this act requiring any report to be made to Congress. There is an absolute right to the heads of the department to make a sale. Mr. Fields. To give an absolute title? Mr. Dent Absolutelv. Mr! Wfhzbach. I calVvour attention to article 32 of this contract. I suppose you are familiar with tlie terms. It provides: "The contractor shall, prior to December 1. 1918, furnish to the United States a bond In the sum of .$50,000. conditioned upon the full and faithful performance by the contractor of all terms, covenants, and conditions hereof in relation to construction work and upon the prompt payment to all persons suv>plying labor or materials in the prosecution of the construction work uns. Let us say that on the 7th day of December, 1917. the officers of the War Department had the right under the law to option or to sell this prop- erty to the Alabama Power Co., to enter into a legal contract, which you claim you have, and that agreement was made between the Government and the Ahi- hania Power Co. on the 7th day of December, 1917. and they went ahead in performance of the contract. On the 9th day of July following Congress en- acted a law which tt>ok away from the War Department the right to enter into such an agreement of sale or option. Then you come with a contract dated the t>th day of November, 1918, which provides that the Alabama Power Co. .shall liave the right to purchase this property. You have a contract there that you say is valid only from the date on which it is signed, and yet on that date there is no law authorizing that to be done. Mr. Dent. Then it would not be valid. As I understood your question origi- nally, Mr. Fields, you assumed that on the 1st day of December, 1917, both the KNT. That would not have heen valid under the law. An unsigned agreement is not valioint entirely different from that anuounc*ed by Mr. Dent, I will state that my study of the authorities leads me to ctmclude that there can really be no two opinions as to the i)ower and extent of the Nationnl (Government's power to condemn. It does not extend alone to proi»erty essential to the permanent oiieration of a Government project or plant, but it likewise ex- tends with etpial force to any proi)erty that may be economically neces.sary for the construction of such plant or project, or for the temporary operation therer>f. and I think the authorities are uniform on that proposition. Aside from that, the question was suggested by Mr. Martin in his statement, and also by Mr. Dent, that in all comlemnation proceedings it nuist be shown to the court that there is a public necessity for the taking of the property souglit to be condemned. Now, when Congress directs that any property be taken in connection with a public project, such action by Congress precludes all further inquiry, gentlemen, into the question of necessity. 1 think the authorities are uniforn» on that proposition. In other words, here is a plant at Muscle Shoals constructed, whether with the $20,000,000 appropriated in the 1910 national defense act or not is immaterisil. since confessetlly it was constructed pursuant to the purpose and declareeriod, ending three years after i)eace is de- clared, to call upon the Government to sell the plant to it, and to credit as part payment on the value of the plant to be thus fixed by arbitration, if not agreetl on, any amount to its (the Alabama Power Co.'s) credit out of the amount the Government or its assignee is required to pay for current supplied during such option period. The whole plan being that during the time the Government is ower conferred by Congress on the President or the head of an executive de- partment of the Government to sell. Let me, however, call your attention to a further fact. The act of May 10, 1918, and the act of July 9, 1918, relate alone to property acquired by the Government or purchased by the Government for the war emergency. These acts never had in contemplation, if you will read them, any property acquiretl by the Government for future use after the war was over, as the plant at Muscle Shoals was, because that plant was to be retained for all time to serve the country in peace as well as in war. So the acts of May 10, and .July 9, 1918, conferred no authority on the President or the head of an execu- tive department to sell the plant at Muscle Shoals or its power unit at Gorgas. But it is not necessai*y to assume that in order to show the absolute fallacy of the contention of the Alabama Power Co. in this case. Take, for instance, the act of May 10, which Mr. Dent passed loosely over and said perhaps it did not apply, or he thought that the act of July 9 was fuller and he was not insisting so much on the May act, but I will read it in connection with the July 9 act : ** Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assembled. That during the existing emergency the President be, and he is hereby, authorized in^his discretion and upon sucii terms as he shall deem expedient, through the head of any executive depart- ment, to sell any supplies, materials, and so on." You will find that the words " supplies, materials, and so on " relate to war emergency supplies and could not by any stretch of the imagination relate to a plant constructed for permanent use by the Government in war as well as in peace time. Now, evidently, when some one came to consider this act of May 10, they found that Congress had vested the power solely in the President, and had used the words " in his discretion and on terms to be fixed by him." The act of July 9 was evidently framed with a view to somewhat broaden that power, and since there is no contention on the part of the Alabama Power Co. that the President ever, in the exercise of his discretion, fixed the terms on which any property was to be sold, Mr. Dent well said, " We will pass that by." But he contends that under the act of July 9, 1918, the power was broadened as follows : "That the President be, and he hereby is, authorized through the head of any exetfutive department to sell, upon such terms as the head of such depart- ment shall deem expedient, to any person, partnership, association," describ- ing likewise war emergency property. I wish to call your attention first to the fact, and doubtless the members of the committee have already thought of it, that the term "executive de- partment " has a well-defined meaning, and when Congress authorizes the President or the head of an executive department to do an act, you are not at a loss to know on whom Congress is conferring authority, and the changing heads of bureaus and of bureau establishments when such language is em- ployed are never in the contemplation of Congress, nor can there be found any statute or any decision construing the words " head of an executive de- partment " as designating a bureau or any subordinate agency of any of the executive departments. The Revised Statutes, 158, 159, and 160, define an executive department to be 1 of the 10 departments of the Government, and when you say the President or the head of an executive department, of course, you mean the President cl- one of the Cabinet officers who is at the head of an executive department. We have but 10 executive departments, and throughout the Revised Statutes and throughout all the decisions, whether you take the decisions of the- courts, or those of the comptroller in the past, or of the budget oflUcer at present, they MUSCLE SHOALS PROPOSITIONS. 767 have all uniformly recognized that the "head of an executive department" has reference alone to one of the 10 Cabinet officers of the Government. Con- gress would not in conferring important powers upon the President link there- with the words " or a bureau head " and thus give to the bureau head the same power given to the President. Of course the only department Congress linked with the President in the conferring of important powers by the July 9 act was a Cabinet officer, who alone is designated as the head of an executive de- partment. So this discussion by Mr. Dent and others as to whether Gen. Williams, of the Ordnance Bureau, gave any written authority to the reserve officer, Lieut. Col. Williams, to sign this alleged contract, is wholly irrelevant and immaterial, because you must show, if your contention is correct, that the head of an executive department had the right to sell this class of property, and if he delegated such authority, that it was properly delegated and such delegation confined to acts not involving judgment and discretion requiring the personal exercise or approval by the head of an executi^ e department. Now let us carry the analysis of this act of July 9 a little further, and I caU your attention especially now to a proviso, important indeed, in determining the extent of the authority that Congress sought to confer even upon the President or the head of an executive department in the sale of war-time emergency-ac- quired property. Congress did not when it passed that act, Mr. Chairman, leave it simply as a broad, unlimited authority conferred for all time to make sales, but it placed an important qualifying clause on the authority to sell in the act of July 9, 1918. The reason why I called your attention to what section 22 of the Alabama Power Co. contract provided, as to the postponement of the Govern- ment's right to sell, was to show that under this alleged contract with the Alabama Power Co. the Government is absolutely precluded from selling the Gorgas steam plant until three years after peace is declared. Now listen to the proviso and see whether that proviso has been or can be complied with by any officer seeking to bind the Government in what the Alabama Power Co. claims is an exclusive right given it to purchase. ''Provided further''— this is from the act of July 9, 1^18— '' Provided further, That a detailed report shall be made to Congress, on the first day of each regu- lar session, of the sales of any war supplies, materials, lands, factories, or build- ings and equipment sold under the authority contained in this or any other act, except sales made to any foreign state or government engaged in war against and government with which the United States is at war." Making such foreign state or government the only exception, you understand. " Showing the character of the article sold, to whom sold, the price received therefor, and the purpose for which sold." How could an agent of the Government, whether the head of an executive department or fhe President, have complied with that proviso if the alleged con- tract of the Alabama Power Co. is valid? The Government under that con- tract can not elect to say, " I wish to sell this property " until three years have elapsed after peace. 'The Government by some agent has tied its hands, and yet Congress said that in the exercise of the power to sell emergency acquired property the agent on whom we confer authority to sell shall report to the next regular session of Congress; in this case that happened to be December, 1918, since it is claimed the sale was made in November, 1918 • and then he must show what? The property sold, the party to whom sold, the pur- pose for which sold, and the amount received. This certainly was a limitation, and 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. If that be a binding contract, you then con- strue it as giving to the Alabama Power Co. the right to say to an emer- gency officer named Williams, "You need not sell us now the Gorgas plant but you can postpone the Government's right to sell it at aU to anyone until three years after peace," although Congress said in conferring authority to sell that the President or head of an executive department, as to all sales made must report the purchaser and terms of said sale, including price received to the next regular session of Congress, which as to their alleged sale would nave required a report in December, 1918. 92900—22 49 768 MUSCLE SHOALS PBOPOSITTONS. m But thaf is not all. There is still another well understood and well recog- nized rule of law that would prevent an unconscionable contract like this from taking effect, and it is this : Assume that all I have said in reference to the limitation of the agent to sell is untenable. I do not think it can be assailed, but just assume for the sake of argument that it is untenable, what more do we find has been attempted in this contract to violate the plain language of the act of July 9, 1918, which it is claimed confers authority upon the President or the head of an executive department to sell? Why, when Congress conferred authority on the President or the head of an executive department to sell by the July 9 act, it clothed the President and the head of such executive department with important, personal respon- sibilties to be exercised in time of war, involving the selection of property which, without hurt, could be sold ; the suitability of the party or Government to whom it could be safely sold; the price to be paid; and the purpose for which sold ; yet, lo and behold, we find the Alabama Power Co. and an emer- gency Government officer entering into a contract whereby the Government has not reserved to the President or to the head of the executive department, who alone were clothed with authority to sell at a fixed price, any right to fix the price of the property ; but the Government has postponed its right to sell for three years after peace is declared, and if the Alabama Power Co. elects to purchase under an option given it in such contract, and the price can not be agreed on, then the Alabama Power Co. under this alleged contract may appoint one of the arbitrators to determine the value of the property at such postponed date and the amount to be paid by the Alabama Power Co. therefor. It might be Mr. Martin himself, the man who helped to draw the contract, and assuming that he might be selected by the Alabama Power Co. to sit on this tribunal to fix the price the Government Is to receive for this property, he shall have voice, equal with the agent to be appointed by the Government, 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, that 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, and there can be no sane, intelligent insistence that this anomalous contention of the Alabama Power Co., either through its president or its attorney, is ten- able or would be enforceable in any court. I thank you, gentlemen. I would be glad to answer any questions the com- mittee may wish to ask. Mr. MiLLEB. Mr. Oliver, you contend that in the act where it designates the President or the head of any executive department, that the head of the execu- tive department can not delegate that power to anybody else? Mr. Oliver. I do not think he could delegate the ^ower to the extent of hav- ing the price fixed, the property to be sold, the purchaser to whom sold deter- mined by a subordinate. Mr. MrLLEE. That is what I mean. Mr. Oliver. But even if that be incorrect there would have to be some delega- tion of that power regularly shown. I am very glad Mr. Miller asked that question, because as showing that even the Secretary of War understood that this alone confeiTed authority on him, and that before anything could be done pur- suant to it there would have to be an order issued by him. I refer you to the order of Gen. Goethals which Mr. Martin read into the record and passed over rather hurriedly, and I am not surprised that he did not dwell on it, because it is against his contention. You will note that the order of Gen. Goethals is "by authority of the Secretary of War, Geo. W. Goethals, major general, Assistant Chief of Staff," and so on. So if there could be any delegation of this authority, it must be in that way by the head of an executive department. There was evidently no difference of opinion in the War Department as to whom the head of the executive department was. Let me call your attention to that bulletin, as they call it, issued at that time, which was August 3, fol- lowing the act of July 9, and so far from conferring upon any agent the right to deny to the Government the right to sell this property until three years after peace — and you will remember that that is the language of section 22— or to confer upon any purchaser the right to claim the exclusive right to buy it, n he so elects, let us see what Gen. Goethals said in that order : MUSCLE SHOALS PROPOSITIONS. 769 ' Where increased manufacturing facilities are constructed at the expense of the Government or where their cost is amortized in the price paid by the Gov- ernment, the contract shall provide that title to such facilities shall vest in the United States. The contractor may agree to take such facilities at a fair value in dimunition of the profits which he otherwise would make " Where title to increased manufacturing facilities vests in the United States the contract shall provide that the contractor may make written offer to the Government to purchase such facilities, whereupon, if the Government accepts such offer, the contractor shall become obligated to pay for such facilities at their appraised value at that time." Is there any insistence here that this contract is a compliance with that and let us read further: ' " The contract shall further provide that if the contractor does not make or the Government does not accept such offer, the Government shall have the right to remove such facilities after the termination of the contract within a time reasonably sufficient to effect such removal. The contract may provide that the Government shall have an option at the termination of the contract to pur- chase at an appraised value the land on which such facilities are erected " How carefully they avoided that, you understand, and certainly the contract they set up does not meet any of the conditions specified in the bulletin that I have thus far read. Now, listen further : " If, in case of such increased manufacturing facilities, it is desired to make a contract along lines different from those herein established, the approval of the superior board of review shall first be secured." Is there any contention here that that was ever complied with' None at all But the emergency officer, the lieutenant colonel, now in Japan, seems to have been the officer who exercised the authority that Congress conferred upon the Presid-ent and the head of an executive department. Mr. McKenzie. Since Mr. Miller has asked that question, I would like to ask you one question, Mr. Oliver. As I understand you, one of your contentious is that under the peculiar conditions surrounding this plant, you maintain that the Government would have the power to condemn the rights of the Alabama Power Co. in this plant and take over the entire plant, and' then the Govern- ment would be in position to sell it and deliver it to anybody else. Mr. Oliver. Either the entire plant or the plant the Government constructed there, without question, and I go further, Mr. McKenzie, and I think the authori- ties are not hard to find on that insistence, that where a party situated as the Alabama Power Co. was, with the knowledge that they were impliedly char^^ed with, and in this case expressly knew, of the r.ght of the Government to con- demn and take the whole property, if it desired, suffered- or permitted money of the Government to be expended in the construction of a plant of this kind upon its property, and even selected the site or suffered it to be selected- that the power company could not be heard in condemnation proceedings to set ud ;iny claim as to consequential damages to the adjacent property Mr. McKenzie. If I understand you, and I think I do, under the terms of the contract entered into with the Alabama Power Co., there can be no sale made until three years have elapsed after the declaration of peace Mr. Oliver. Absolutely. Mr. McKenzie. And your contention is that the Government can condemn and can take possession of at least that part of the plant paid for bv the Government without waiting for the expiration of the three-year period ' Mr. Oliver. Absolutely. Mr. McKenzie. And in addition to that, if the plant is so constructed that the CTOvernment can not preserve its rights :n any other way, then on the basis ^^^^^^^^^^ justice to the Government, they can condemn the whole plant Mr. Oliver. I do not question it, either condemn all or a part. I want how- oJ^^^il ^"^V^y ^y answer by saying that, of course, I do not think that Article -^ of the alleged contract is a binding agreement on the part of the Govern- hnf J' i?'^'^^^®:^^^' ^"y^^' unfortunately, I did not hear all of your argument but following the question of Mr. McKenzie with reference to the condemnation proceedings to be instituted by the Government, do you mean to say that the (government could exercise the right of condemnation at the Warrior plant mJ'nt sf^'^'^^d •^'?"''^^^ ^"^ ^^ Alabama Power Co. prior to the t.me the Govern- I I li 770 MUSCLE SHOALS PROPOSITIONS. Mr. Oliver. They could do it if Congress, in its wisdom, declared that that was necessary for the operation of the plant at Muscle Shoals, and the action of Congress, as I read the decisions on the question as to the necessity, would be conclusive. Mr. Kearns. I am quite clear in my own mind that the Government would have the right to condenni property of the Alabama Power Co. for its own use. but this would be a makeshift or a makebelieve, and that is the question that is in my mind. Possibly I am vrrong, but I would like to hear about that. Mr. Olive*. I am very glad you have asked that question. "Mr. Kearns. Could the Government do something for Mr. Ford that Mr. Ford could not do for himself: that is, 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 and would be whipping the devil around the stump. Mr. Oliver. That is a very interesting and important question, and I recog- nize the pertinency and force of it. Let me, however, call your attention to this fact before making answer, that this plant at Muscle Shoals is to serve the Government for the next 100 years even under the Ford contract. It is to serve the Government in the event of war and it is to serve the Government in time of peace if the Ford offer before you means anything, So the Goveniment in making a sale to Mr. Ford or u 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 pui-pose, the governmental purpose having been declared in the national defense act of 1916. That is a broad governmental purpose, declared both for war as well as for peace, and so Mr. Ford, If you accept his contract, takes it sub.iect to those national pui-poses fixed on the plant for the next 100 years or longer. Mr. Kearns. And that fact you think would justify or would give the Gov- ernment a standing in court. Mr. Oliver. Yes: and Judge Tyson calls my attention to the fact of the Gov- ernment's interest in navigation in connection therewith. It is also in connec- tion with that important public use. I do not think there can be any question about it. Mr. Kearns. That is my opinion. Mr. Wurzbach. Mr. Oliver, what do you consider the legal date of the termi- nation of the war under the provisions of this contract? Mr. Oliver. The legal date of the termination of the war? Mr. Wurzbach. Yes; when peace was declared. Mr. Oliver. My attention has been called by Mr. McDuffie to the fact that the contract itself provides, probably, that the date of the armistice shall deter- mine that. I have not examined it, however, with that in view. That, as you know, is an open question, and in the absence of an express provision declar- ing the date of the armistice to be the date, perhaps it might not have been until after the President issued his proclamation of peace. Mr. Wurzbach. Do you consider that the three-year period provided for in that contract has passed? Mr. Oliver. Taking their contention that it takes effect from November. 1918, when it was signed, you understand, and running up to November, 1922, it would have passed. Mr. WuTizBACH. The armistice was signed in November, 1918. "Mt Oliver Yes. Mr! Wurzbach. Then if that was the legal date the three-year period would have elapsed at this time. Mr. Oliver. Yes. , Mr. Wurzbach. Do you think as a lawyer, Mr. Oliver, that assuming that tue Chief of Ordnance or an agent of the Government had power to act under this law of July, 1918, or May. 1918 Mr. Oliver (interposing). Unquestionably not. Mr. Wurzbach (continuing). Had any power to sell, do you think that would include the power to provide against a sale or to prohibit a sale during a period of three years? ^ .„...., i. if Mr Olh-er. Unquestionably not; I do not think anyone will insist that n would The power to sell would certainly not confer on the agent the powoi to postpone the right of the Government to sell for three years after peace, an«» this is what this contract does. In other words, in executing the power to sen, MUSCLE SHOALS PROPOSITTOXS. 771 taking it as they view the power conferred by the act of .July 9, they have con- strued it as a power on the agent to postpone the right of the Governmont to soil for three years after peace, and yet Congress said, " You shall report the sales at the next term of Congress, the terms of sale and the amounts received, etc." Mr. Wurzbach. That 3-year period having elapsed— it is in one sense not pertinent— but do you think that provision is so materially a part of the entire section of the contract that it would vitiate the entire provisions of the contract? Mr. Oliver. The provision I refer to, of course, is a part of the only section which seeks to confer what they claim is an option on them to purchase, and the right on the part of the Government to compel them to buy if it so elects, and, of course, if you take out that part of it, it would certainly vitiate the tilt ire section relating to the sale of this plant. Mr. Wurzbach. That is what I wanted your opinion on. Mr. Miller. May I make a suggestion? The contract itself. Mr. Oliver, be- tween the United States Government and the Alabama Power Co. provides, you will observe, in section 22, " at any time subsequent to three years after the termination of the war," and in the closing paragraph of the contract the words, " termination of the war " are defined. Mr. Oliver. Yes. Mr. Miller. As the time when the President of the United States shall, by proclamation, declare the war terminated. Mr. Oliver. That, then, would not be in November. 1918. When was that procl.-imation issued? I think it was last November, and, of course, it would be three years from that time. In other words, the Government itself, under this contract, if valid, would be postponed in its right to sell for three years from November, 1921, and the Alabama can use it and hold possession of it during that time. Ml-. Wurzbach. If that 3-year period has not elapsed, do you think that the (Jovernment would have the right to sell this property, because the option of the Alabjuiia Power Co. to buy only begins at the termination of the 3-year period? Mr. Oliver. Not if the contract is valid, unless needed for a national purix)se. So unfair, unreasonable, and overreaching is tliis contract in favor of the Alabama Power Co. that while it postpones the right of the Government to sell until three years have elapserrever, the Air Nitrates Corporation option arises only in case the United States determines to dispose of the plant as an entirety. Accordingly, even if the option is valid, it would seem not to intetrfere with the acceptance of this offer. 12. This offer makes no provision for Dam No. 3. To provide for the local requirements there is probably no necessity for the construction of this dam at this time; but, in case the local demand and the requirements of navigation develop, there would be no difficulty in providing for the financing of Dam No. 3 on reasonably fair terms. Yours, very truly, John W. Weeks, Secretary of irar. Tlie Speaker of the House of Representatives. Alabama Power Co., Birmingham, Ala., February 15, 1922. Hon. John W. Weeks, Secretary of War, Washington, D. C. Sir: This company offers to carry out the following plan by which the Wilson Dam at IMuscle Shoals may be completed and the nitrate problem of the Government in connection therewith may be simplified without further advances or expenditures by the United States. 1. To take out a license under the Federal water power act under which we will complete the construction of the dam, locks, and powerhouse at Muscle Shoals, known as Wilson Dam, or Dam No. 2, at our own expense, with initial installation to be made in accordance with the Federal water power act as may be necessary to meet the market demands. 2. To furnish free to the Government, or anyone it may designate, from the hydropower plant 100,000 horsepower, as required for the production of fertilizers and munitions of war and for research in connection therewith: and if. due to changes in the art, this use of such 100,000 horsepower is dis- continueroduction. Our proposal leaves the Government in full title and possession of these plants and the quarry, to give it lOO.OlX) horsepower and from two to five million dollars in cash for the operation thereof and for carrying on experime**'^^ in connection thereAvith. The Government will then be in position to turn ovRr the two plants, with power and money for the operation thereof, to anyon«^ capable of meeting the requirements of the Government and the farmers for nitrates and fertilizers, or the Government may retain the properties and itself carry on such experiments and manufactures as it sees fit. The Govei'nment can dispose of the plants in perpetuity for a long period of years or for a short period of years, and it should be able, with the free use of modern plants, no taxes, no power charges, and even with the free use of working capitnl, to attract the best skill and talent to be found. The art of producing nitrates is still in its infancy and may so develop that in a few years these plants and this power will not be needeower act. This act provides for a 50-year license with the right of the Govermnent to recapture the property at the end of the license period. It requires the licensee to operate and maintain the power plant, dim, and gates at its own expense, to make all ncessarj- renewals and replacements, and it permits the Government to oper-. ate and maintain the locks, power to be furnishe expense, added to the earlier engineering investigations and reports coverin: a period of six years prior to your circular of June 25, 1913, further studies, sur- veys, soundings, and estimates, and transmits the result thereof to your board in the form of maps anl drawings, tying in its work with the surveys of tli«^ Corps of Engineers. United States Army, wherever prncticable. The rt^ult "' the engineering studies and investigations by the Muscle Shoals Co. during the past six months has confirmed the conclusion suggested to your board on June 24, 1913, that the most feasible and economical plan for the joint improvement of navigation and development of power at* Muscle Shoals is with two power dams instead of three, the low^r dam being located on the site designated by your board as " No. ,2 " and the upper dam on the site designated by your board as "No. 4"; the lower dam site, No. 2, to have a crest elevation of 500. with the tail-water at 400.5 the upper dam, at site No. 4, to have an elevation of 540 for the top of the movable crest and 528 for the top of the fixed portion of the dam. Our engineering studies and investigations, now running over six years, and especially the investigations we have made during the past six months, sup- port the estimate which we have made that the cost of lands, dams, locks, power- MUSCLE SHOALS PROPOSITIOiNS. 783 house substructures, and miscellaneous and engineering expenses, in connec- M? ^'' iM o^fn .'^™^'^^''^^"'^^ ^^'^^^ ^ C(mtingent and interest fund of $1,000,000, will be $17,349,100. Our plans are based on the gravity dam, sections, adopted by your board for Dams Nos. 2 and 4, and upon unit prices, which we believe, in the light of our recent experience, are more than ample, and which we hope and believe will commend themselves to vou as safe. The Muscle Shoals Hydroelectric Power Co. respectfully submits to vour board the following proposals based ur)on the conditions therewith stated •' 1. That the Government shall complete the dam at site No. 2 and the appur- tenances thereto mentioned above and permanently raise the waters behind the said dam to the level of the spillway thereof within four vears after the date of the first appropriation made for the carrying out of the project and not later than the 1st of January, 1919, and for a sufficientlv long period of time prior to that date give entrance to the Muscle Shoals Co. for the completion by it, at its expense, of the power-house sui>erstru(tuies ; n 1 the v.itin] li .'r.ii- lic and electrical equipment by that t nie. That the Government shall complete the dam at Site Xo. 4 and the nnpurte- nances thereby mentioned above and permanently raise the waters behind the said dam to the level of the spillway thereof within five vears after the date of the first appropriation made for the carrving out of the project and not later than the 1st of January, 1920, and for a sufficiently long period of time prior to that date give entrance to the Muscle Shoals Co. for the completion by it, at its expense, of the power-house superstructures and the initial hvdrauli'c and electrical equipment by that time. 2. The Muscle Shoals Co., upon the completion of the dam at Site No. 2 and the appurtenances mentioned above and the permanent raising of the waters behind said dam to the level of the spillway thereof, will pav to the Govern- ment the sum of $3,000,000 in cash as its first contribution to the cost of the lands, docks, dams, and substructures. 3. The Muscle Shoals Co., within a i>eriod of 100 years from the completion of the dam at site No. 2 and appurtenances theretx) meiitione • War Department. Washington, June 28, 1916. The Speaker of the House of Representatives. Sir: I have the honor to transmit herewith a letter from the Chief of Engi- neers. United States Army, dated 26th instant, together with copies of reports from :^Iaj, H. Burgess, Corps of Engineers, dnte6, 101 art of the river covered by these reports is generally known as the " Muscle Shoals " sectioiL The improvement of this section by the United States in cooperation with water-power interests has been under consideration for some years and an exhaustive report publisheil as Committee Document No. 20, Sixty-third Congress, second session, contains favorable recommend:!- tions for such an improvement at an estimated cost of $18,701,000, of whicli approximately .1;8,575,000 was considered as representing the value of the im- provement to navigation, the remainder being chargeable to power development and to be reimbursed to the United States. The information then available w:is considered sufficient for a general estimate of cost and a determination of tli»' advisability of the United States, adopting the project, but was not sufhcieiit for the final selection of sites and the making of detailed estimates of co.st. As a result of the present survey, the district officer suggests a few minor changes in the plans, the most important being the selection of a new site for Lock and Dam No. 2. The estimate of cost is increased from $18,701,000 to $19,000,000. He also submits an alternative plan which would permit the de- velopment of about 82 per cent of the power that would be available under the first proposition. This plan is estimated to cost $16,000,000, but is not favored MUSCLE SHOALS PROPOSITIONS. 787 by the district officer if flowage rights for the original plan can l)e secured at a reasonable cost His recommendations are as follows: (1) That provision be made by Congress for the improvement of the Muscle ♦Shoals section of the Tennessee River for the combined purpose of providing suitable navigation facilities and for the development of power in cooperation with the Muscle Shoals Hydroelectric Power Co.; (2) that a cash appropria- tion of $5,000,000 be made, and that the Secretary of War be authorized to con- tmct obligations for such material and work as may be necessary to complete the proposed improvement, to be paid for as appropriations may 'from time to time be made by law, not to exceed in the aggregate $11,000,000, exclusive of the initial appropriation of $5,000,000; (3) that the Secretary of War be authorized to adopt either the plan of improvement first de.scribed, or that designated as the alternative plan, depending upon whether satisfactory terms ran be reached with the riparian owners in basin No. 3; (4) that the Secretary of AVar be authorized to enter into a contract with the Muscle Shoals Hydro- electric Power Co. for cooperation in the proposed work of improvement and for a lease of the power developable at the proix)sed power houses, under term< proposed by the company in its offer of December 11, 1913, or under such modified terms as may be agreed upon which are equivalent in vahiue to the I lilted States or which may be made necessary by reason of the selection of the alternative plan; (5) that the Secretary of War be authorized to enter into a contract with the Muscle Shoals Hydroelectric Power Co under such terms as may be agreed upon, or to do the work bv the hired-labor method- and (6) that the Secretary of War be authorized to retain in the service iintii the completion of the work all satisfactory employees who inav be appointed because of lack of civil-service eligibles at the time of emploVment without regard to the subsequent establishment of a register of eligibles The division engineer concurs in the opinions and recommendations of the district officer. 3. These reports have been referred, as required by law, to *the Board of Engineers for Rivers and Harbors, and attention is invited to its report here- with, dated May 24, 1916. The board states that while the results of the detailed survey and the further study based thereon suggest .some minor modi- hcations in the project already before Congress, the report is in all essentials corroborative of the earlier one and presents nothing to change the opinion expressed therein that it is advisable for the United States to take this oppor- tunity of entering into an arrangement w.th the Muscle Shoals Hvdro-Electric lower Co. whereby this serious obstruction to navigation on the Tennessee River will be overcome and at the same time one of the great natural resources of the country will be conserved. The board invites attention, however to the provisions contained in section 124 of the act to increase the efficiencv of the Military Establishment of the United States, approved June 3, 1916, r^pecting the establishment of nitrate plants to supply Government needs in the manu- tacture of explosives for military uses, and in view of this legislation it recommends that action on the proposed contract with the Muscle Shoals Hvdro- Electric Power Co. be suspended until it has been determined whether the Muscle Shoals power will be utilized for such a nitrate plant. If this question IS decided in the negative, the board is of opinion that the proposed improve- ment for combined navigation and the power purposes is advisable substantially as proposed by the district officer. 4. After due consideration of the above-mentioned reports, I concur in the views of the Board of Engineers for Rivers and Harbors, and therefore recom- niend that action on the proposed contract with the Muscle Shoals Hydro-Electric 1 ower Co. be suspended until it has been determined whether the Muscle Shoals power will be utilized for a nitrate plant. If this question be decided in the negative, and the improvement by the United States of "Tennessee River '•etween Browns Island and the railroad bridge below the city of Florence" IS deemed advisable in cooperation with the Muscle Shoals Hvdro-Electric Power < o. at a total estimated cost of $19,000,000, substantially in accordance with the recommendations of the district officer as given above, and in this case it is recommended that the first appropriation be $5,000,000, and that continuing contract be authorized covering the balance necessary to complete the project. W. M. Black, Chief of Engineers, United States Army. 788 MUSCLE SHOALS PROPOSITIONS. Extract from report on preliminary examination of Tennessee River between Browns Island and Florence, Ala., from Maj. H. Burgess, Corps of Engineers, district engineer's office, Chattanooga district, to the Chief of Engineers. United States Army, forwarded, concurring in the opinion and recommendations of the district engineer, by Lansing H. Beach, colonel. Corps of Engineers, division engineer : "82. The benefit to result, then, from combining the Muscle Shoals power development with the storage plants on the Tallapoosa and Little River sys- tems is the increase of primary power from 100,000 to 280,000 horsepower, and of 10-month secondary power from 115,000 to 210,000 horsepower ; and of being able to use of the potential energy at Muscle Shoals a total of about 3,330,000,000 horsepower-hours per year, as against a probable utilization of only about 2,020,000,000 horsepower-hours per year for the independent plants (assuming that 9-month secondary is developed). "83. The importance of the combination of power plants may possibly be emphasized by showing the annual expenditure of coal required for producing an equivalent amount of electrical energy. The latest and most efficient type of steam-power plants show a consumption of coal of approximately 1^ pounds per horsepower-hour. It may be assumed that improvements will reduce this to 1 pound per horsepower-hour. On this assumption, the annual output of electrical energy for the independent development of Muscle Shoals is equivalent to the consumption of 1,010,000 tons of coal per year, and the annual amount of potential power at Muscle Shoals utilized under the combination of power plants is equivalent to an annual consumption of 1,665,000 tons of coal per year. The waste of the coal supply of the United States resulting from the failure to utilize to the greatest practicable extent the potential water power at Muscle Shoals would therefore be approximately 650,000 tons per year. " 84. It does not seem reasonable that such great benefits should be lost for the fear of possible evils to result from large power combinations. There is no doubt that either the United States Government or the State governments should control such combinations of power for the purpose of regulating rates to consumers, but combinations that produce enormous savings of energy which would otherwise be wasted ought to be encouraged rather than forbidden. True conservation requires the utilization without waste of all natural resources, and here at Muscle Shoals there will be enormous wastage if this run-of-the-river power can not be combined with plants having facilities for storing great quantities of water to make up for the shortage at Muscle Shoals during tmies ^ "85 Another great benefit from the combination of power plants which is sometimes lost sight of is the elimination of duplications of expensive trans- mission lines, transformers, and other equipment necessary for distribution of Dower Since interest must needs be paid by some one on the extra capital invested in the duplication of equipment, it follows that the actual cost of plac- ine DOwer on the switchboard of the consumer is greater for separate develop- ments than for combined plants. It is true that competition may result in the consumer paying less for power under the supposition of separate developments than in the case of combinations, and it is for this reason that it is desirable to so re«Tilate rates of power combinations that most of the benefit of cheap pro- duction of power shall revert to the consumer rather than to the stockholder ^"^'^ 93 ^lUrnotT^ue^'conservation of natural sources which forbids their develop- ment on the plea that the State or General Government is not obtaining full ^alue for thi grant of privileges. There is little doubt that franchises for power developments should be for limited periods, so that the people may again take over their property and provide for its future operation under conditions suit- abll to the time when the limited franchise has ended. It is equally certain that the interests of the people demand a regulation of rates to the consumei, so that the company which has been granted the franchise for operating a prop- ertv belonging to the people may not obtain an undue profit at the expense or the owners. Assuming such regulation, it is unimportant whether or not ai> payment is required to be made to the State or General Government, or what tUt iize of such payment shall be. In any event, under the assumed regulation ot rates, whatever amount is charged to the power company is paid by the con sumer and the collection of such amount is merely an exercise of the taxiWr. power' of the Government. It seems reasonable, therefore, that the Preseut plan which contemplates the navigation improvement of this section of the iner and a more complete utilization of the potential power than seems practical MUSCLE SHOALS PROPOSITIONS. 789 by any other combination of plants, and which can be secured under fair and reasonable terms, ought to be adopted, rather than to have this power continue to be wasted for many years and to have through navigation remain obstructed by these shoals, on the ground that delay may result in securing somewhat better terms from some other power company proposing to cooperate." Mr. Mabtin. As I have stated on another occasion before this committee, in 1918 we were notified that this site No. 2 had been selected by the President for development in connection with a nitrate supply. We were asked to donate this site and we. did donate the site No. 2 to the Government. I have at a previous hearing placed in the record a letter from our company, under date of February, 1918, addressed to Col. Charles Keller, of the Corps of Engineers, making the offer of donation and the reply of the Secretary of War accepting it. Now, the next situation that developed w as this : In April, 1921, the Chief of Engineers, sent out his letter to many of those interested, and others not inter- ested, inviting suggestions in regard to the Wilson Dam project, as it then stood. The Chairman. Did it confine Itself simply to inviting suggestions or did it ask the tender of bids. Mr. Martin. I will be glad to file the letter of the Chief of Engineers. The Chairman. Very well. Mr. Martin. The letter received by the Alabama Power Co. is as follows : War Department, Office of Chief of Engineers, Washington, April 2, 1921. Alabama Power Co., Birmingham, Ala. Gentlemen : 1. The Secretary of War has directed me to ascertain what ar- rangements can be made to derive a reasonable return upon the investment if the United States completes the dam and hydraulic power plant at Muscle Shoals, Tennessee River. 2. If you are interested I would be pleased ot discuss the matter with you at this office at the earliest date that may be mutually determined. 3. It is desired to develop the matter and come to a conclusion at as early a date as possible. Very truly, yours, Lansing H. Beach, Major General, Chief of Engineers. Now, the question of what arrangements might be made to derive a reason- able return upon the investment, if the United States completed the dam and hydraulic plant presented, of course, a very big question to all of us, and our company was interested, naturally, in the question because of its long connec- tion with this whole situation. We replied to that letter under date of May 28, 1921. Our letter has been introduced, but not certain exhibits which were attached, and I will take the liberty of handing to the reporter, if the chairman permits, the letter with the exhibits, to be incorporated in the record. The Chairman. Were the exhibits presented to be put into the hearings? Mr. Martin. They were not put in the record by the one who offered the let- ti?r. The exhibits were not attached, and I w^ould like to have them in the record. The Chairman. Very well, if they are a part of the letter. Mr. Martin. Yes ; they .are a part of the letter and are referred to therein, and in order to get the letter entirely before the committee it might be better to introduce the whole letter at this point. In this letter our company re- viewed the situation with regard to the Tennessee River and the Tallapoosa River situations to which I have referred, and in the course of the third para- graph of our letter made this statement with regard to our previous proposal : " Believing that this was an economical and profitable undertaking, we were prepared under the conditions then existing to proceed with our share of this undertaking, and if this recommendation had been favorably acted upon the project would, have been available for the manufacture of nitrates during the war period and many millions of dollars w^ould have been saved." We further invited attention to that provision of section 124 of the national defense act which provides that these plants should be constructed or operated solely by the Government; and hence there was no authority in law to deal with the subject at that time, nor any indication as to what extent the Con- I W 790 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 791 I ' ■m§ gress would authorize a part of this power supply to be devoted to conmiercinl or industrial uses; but we did state that if those conditions and difficulties were cleared up, that our company was of the opinion that the development could go forward and be completed with the view of the sale and distribution of a sufficient volume of power therefrom by this company and others engaged in the public service in the territory adjacent to the development to enable the United States to derive a reasonable return upon that part of the project and the investment which might be allocated to the power feature of the project, and that we were prepared to cooperate in any manner desired by the United States in working out the project. (The letter and exhibits referred to above are as follows:) Alabama Power Co., Birmingham, Ala., Man 28, lf)21. Maj. Gen. Lansing H. Beach, Chief of Engineers, Washington, 1). C. Dear Sir: We duly received your communication of April 2, 1921, inquiring what arrangements can be made to derive a reasonable return upon the investment if the Government completes the dam and hydraulic power plant at Muscle Shoals, Tennessee River, and you invite a discussion of the matter if we are interested. We hive given the subject of your letter careful consideration since its receipt and wish to make a reply as follows: 1. The site at which the^ dam is being constructed on the Tennessee River was purchased by our company in 1906, and from that time until 1918, a period of 12 years, we expended large sums of money in making studies, ex- ploring foundations, and in the purchase of reservoir lands, with the view of its development as an integral part of the hydroelectric system which would be required to meet the needs of the communities which the company proposed to serve from time to time.. It was our plan to construct storage reservoirs and to connect them with the proposed Muscle Shoals development to make up the deficiency in power at the latter place during seasons of low water. This fact alone would have enabled this company to plan for an ultimate installation at Muscle Shoals largely in excess of the installation that should be made as an indei)endent, separate development. In short, our plans were adapted to fully conserve and utilize in the public interest the navi- gation and water resources of the region. 2. In the meanwhile we acquired other power sites in Alabama, and under an act of Congress of 1907, constructed a dam and power plant on the Coosa River, a smaller hydro plant on a nonnavigable stream, and several steam plants at different points on our sysem. with a total capacity of 177,400 horsepower (not including the Government steam plant at Warrior). This system embraces about 1,500 miles of high tension lines over which we are distributing energy to the public in more than two-thirds of Alabama, includ- ing one of the greatest industrial and mining districts in the country. 3. During the same period the engineers of the United States were investi- gating the project pursuant to the direction of Congress. A special board of engineers was created for the purpose of obtaining information and estimates relative to the cooperation of proposed improvements for navigation and water power, and that board invited bids for cooperation by water power interests in the proposed development. This company, through its subsidiary, Muscle Shoals Hydroelectric Power Co.. submitted a plan in response to that invi- tation of the United States Engineers. Plans were also submitted by others, but upon careful investigation the special board recommended that Congress undertake the improvement in cooperation with this company, and that recom- mendation was concun-ed in by the Board of Engineers for Rivers and Harbors and by the Chief of Engineers. Believing that this was an economical and profitable undertaking, we were prepared under the conditions then existing to proceed with our share of this undertaking, and if this recommendation had been favorably acted upon the project would have been available for the manufacture of nitrates during the war period, and many millions of dollars would have been saved. 4. A further examination and survey of the project was made by the engineers of the United States in compliance with the provisions of the rivers and harbors act approved March 4, 1915. Recommendation was again made that the im- provements be undertaken in cooperation with this company, but the engineers further recommended that action be suspended until it should be determined whether the Muscle Shoals power would be utilized for a nitrate plant under the act of Congress of June 3, 1916 (Doc. No. 1262, 64th Cong., 1st sess., 1916). 5. We are adverting to these matters in order that you may see that we were for a number of years interested in working out a feasible plan for the develop- ment of the Muscle Shoals power for general industrial use on lines of coordina- tion with improvements for navigation. However, in 1918-19 this particular site was selected for development by the United States to supply power for a nitrate plant ; and as it seemed that the United States needed to go forward quickly in its war program to make provision for nitrates, we concluded, as the result of various conferences with representatives of the Government, to donate to the United States the dam site and other lands owned in fee by this com- pany, leaving entirely to the Government the question of any plan for future cooperation with the United States. This donation wan made, and we received from- the United States its voucher for the sum of $1, being the nominal con- sideration expressed in the deed. As you may recall, the donation was accepted in behalf of the United States by the Secretary of War, under date of Feb- ruary 20, 1918, who expressed the thanks of the Government for the company's action in so donating the property. The property thus donated represented on our books a total investment by this company to the time of the donation of approximately $476,000, but we desired to be helpful to the Government in its war program and made the donation in that spirit. From that time until the receipt of your letter we have taken no action with regard to the Muscle Shoals project other than the interest common to every patriotic citizen to encourage the progress and development of the Tennessee River Valley and the contiguous country. 6. We do not wish to suggest a course contrary to the expressed purpose of Congress that all of the Muscle Shoals power shall be used in the manufacture of nitrates or other products needed for munitions of war and useful in the manufacture of fertilizer and other useful pro and reliable power the law should be changed and the interconnection and joint operation of all the developed power should be provided for. " 145. It is important that the law should be mollified and the plants per- fected at as early date for the joint operation of all southern electric utilities and the Muscle Shoals power, since the reconnnended future construction for the development of power facilities for the scmthern States mtist depend, in a large measure, on whether or not Muscle Shoals will be available for other than (Jovernment work. For instance, if Muscle Shoals power is to constitute an inii)ortant source of the generating capacity of an intercoiniecting system for the s(»uthern States, the logical procedure for other developments hy the public utility companies will be to build hydro plants with large storage reser- voirs and steam plants, both of which will work economiusly sui>p!emenr Mus- cle Shoals and turn its second-class power into prime power should the (Gov- ernment i)olicy later be changed. Even if a Government demand is built for the entire use of ^luscle Shoals, the Government would be handicai>i)ed in hav- ing a large amount of second-class power, which is not so valuable as prime l)ower. and for which it would not have the most effective sonrc»» of conversion of second class to prime jjower. '* 146. It is especially desirable that the interconnection to the conibined southern i)ower system be available for the purpose of distr.buting the JIuscle Shoals i)ower immediately urM)n its completion, and at least until its own market can be obtained, and that the developments for the next •'» to 10 years be directed toward the construction of such plants as will advantageously sup- plement Muscle Shoals. By this is meant by the time Muscle Shoals is com- pleteil it is perfectly practicable for the power systems of the sower into prime power. This is true; it can be used, but it is not the best plan available. There are large steam plants already built, and others will probably l)uihl before Muscle Shoals is completed, which, because of their more a«lvantageous location for fuel, can make steam i)ower more cheaply than the Government steam plant at Sheffield. Also, if the futiu-e loae interconnected for exchange of power with the existing power systems of the Southern States and that this interconnection and exchange should be arranged for without delav, so that future construction, both at Muscle Shoals and elsewhere, can be directed for the production of plants which will supplement such other for economy of consti'uction and operation." I would like at this point to invite your attention. Mr. Chairman, report of the engineers of the United Statt^s dealing with this micompleted condition. There was a rei>ort prepared in the office of the Chief of Engineers and transmitted to the Secretary of War in 1921, entitled "The Power Situation During the War" reviewing the activities of the Government touching various aspects of the power question which arose during the war, with comments upon the efforts made to coordinate power resources, to get power for the benefit of war industries, and containing suggestions for the coordination of power developments in every section of this country looking to the better utilization or greater utilization of all the power resources. There is a large part of this rei>ort devoteil to the Muscle Shoals situation. The gentlemen who made this report in behalf of the (Joveniment on this Muscle Shoals project— that is to say, the Dam Xo. 2 and the Dan» No. 3. not then started — considered its relation to this proposed Tallapoosa development and {igain reconnnendeower sys- tems and the econonues in the building for increase in generating capacity as herein stated apply equally to a combination of the privately owned com- panies with the Government's powers now building at Muscle Shoals. The characteristics of this Government power and the gain both to the Government power and to the privately owned powers that would result from intercon- nectifni and exchange of facilities was an important consideration in the recom- mendation of the Tallapoosa lUver project, inasmuch as the interstate com- bination, with other power substituted for Tallapoosa, might be quite as favor- able as the Tallapoosa power in a combination without IVIuscle Shoals." The Chairman. How many pages are there in that report? Mr. Martin. This report involves about 300 pages.. \ m 796 MUSCLE SHOALS PROPOSITIONS. The Chairman. Would you kindly refer to the report, so that it may be iden titled in the record? Mr. Martin. It is entitled " The Power Situation During the War," by Col. Charles Keller, Corps of Engineers, War Department, Office of the Chief of Engineers, dated December 13, 1919, and is addressed to the honorable the Sec- retary of War, through the Chief of Engineers, United States Army, Washing- ton, D. C. The Chairman. The reason I wanted you to identify the report was that in case any Member wanted to look it over he would know just what document is referred to. Mr. Martin. It is not described by a document number, but it is printed as a public document. The Chairman. Do you wish to read any more from it? Mr. Martin. I will not, except to say that in our proposal submitted a day or two ago to the Secretary of War we quoted section 150 of this report, as follows : " It therefore appears that a broad and well-founded judgment would dictate that the Muscle Shoals development should be interconnected for exchange of power with the existing power systems of the Southern States, and that this interconnection and exchange should be arranged for without delay, so that future construction, both at Muscle Shoals and elsewhere, can be directed for the production of plants which w^ill supplement each other for economy of con- struction and operation." In substance that is the recommendation of that report. Our attention was again invited to this question by Gen. Beach in a letter dated June 18, 1921, which I will hand the reporter to be made a part of my statement, as follows : War Department, Office of the Chief of Engineers, Washington, June 18, 1921. .Air. T. W. Martin, President Alahama Poicer Co., Binmngham, Ala. Dear Sir : I would like to inquire what power the Alabama Power Co. would desire or be willing to take from Muscle Shoals two years from this date, and also three years from this date, if one year's advance notice of actual date at which power could be delivered could be given and a satisfactory price is guaranteed. Very truly, yours, Lansing H. Beach, Major General, Chief of Engineers. Now, we replieil to that letter under date of the 14th of July, 1921, which I would also like to place in the record, in which we point out that at the time oi this letter, July, 1921, we were engaged in the construction of a new hydro plant on the Coosa River in Alabama, under a 50-year license from the Federal Power Commission which would give us approximately 100,000 horsepower; that that development would be completed by the end of the year 1922, but that the power from this development would be absorbed immediately, and that further power would be needed in Alabama in our own situation, and that we would be im- pelled to go further with some further power development some time in the present year to meet the demands in the State of Alabama unless we could have some program aranged by which this Muscle Shoals power could be made available. Now, I would like to make it very clear that the particular power develop- ment in progress in the year 1922 will supply only the market which exists to-day, which is supplied from steam power, and will be completely absorbed, practically, upon its completion. We stated to Gen. Beach that a study of the power markets in our territory convinced U8 that the demands for power would require further sources, which should be available by 1926 at the latest. We are still in the position stated, and it is now quite clear that our anticipa- tion or forecast of power requirements in the territory which is immediately served by the lines of our company and in the territory which is easily adjacent to this development are so large that there can be no doubt that this entire development would be absorbed promptly upon its completion. (The letter above referred to follows:) MUSCLE SHOALS PROPOSITIONS. 797 Alabama Power Co., Birmingham, Ala., July 1^, 1921. Maj. Gen. Lansing H. Beach, Chief of Engineers, United States Army, Washington, D. C. Dear Sir : We wish to acknowledge receipt of your letter of the 18th ultimo, inquiring what power this company would desire or be willing to take from Muscle Shoals two years from that date, and also three years from that date, if one year's advance notice of actual date power could be delivered could be given and a satisfactory price guaranteed. We wrote you under date of May 28 last regarding certain aspects of this problem, to which we beg to refer in connection with our answer to your letter. As therein stated, we have insistent demands for power ; that to fill its imme- diate requirements this company has applied to the Federal Power Commis- sion for a license to construct an important additional hydroelectric develop- ment on the Coosa River, and added : " While it is true that the power thus secured will be completely absorbed and new sources required by the time the Muscle Shoals Dam could be com- pleted, yet the difficulties above mentioned and the doubt which arises from the apparent reluctance of Congress to sanction an arrangement of coopera- tion, as shown by the clause of the act of 1916 above quoted, suggest that this company would scarcely be justified in depending upon Muscle Shoals to take care of even more remote demands which are certain to arise and which must be prepared for well in advance." We concluded our letter in this language : " If, therefore, authority is conferred by Congress to conclude a contract for the use of any part of the power by power companies, we wish to assure you that we are ready to work out a mutually satisfactory arrangement looking to the completion of the dam and the disposal of such part of the power as Congress wishes to place in commercial use, desiring now, as at all times in the past, to cooperate in every way desired by the United States in working out the matter." Since that letter was forwarded to you the Federal Power Commission has issued to this company a license to construct the Coosa development. We are planning to install 60,000 horsepower and preliminary construction is now be- ginning. It is our purpose to prosecute the work with all diligence with the view of having power available therefrom in the spring of 1923. While the initial installation as now planned is 60,000 horsepower, the ultimate installa- tion will be 120,000 horsepower. In going forward with this development we considered that we were in duty bound to proceed, because it did not seem at all possible that the Muscle Shoals hydro development could produce any power during 1923 or 1924. Our power demands are at present in excess of our water- power capacity, but the power which will result from the new Coosa develop- ment will fulfill our immediate requirements; i. e., will enable us in 1923 to greatly reduce our steam running and we will thus be enabled to meet the public demands during 1923 and for the most part in 1924 with the output of our hydro plants. However, we wish to say that study of the power markets in the territory served by our company convinces us that the demands for power will require further sources which should be available during 1926 at the latest. We must make our plans for several years in advance of actual power needs, and longer notice than one year in advance of actual date at which the Muscle Shoals power could be delivered would be necessary for this company to com- mit itself for the taking of definite amounts of power ; and unless a commitment can be made not later than March, 1922, by the United States Government for the delivery of definite amounts of power, we will find it necessary to proceed with another hydro development in Alabama to meet our requirements. We will he glad meanwhile to discuss the subject with you in a definite way if desired. Awaiting your further suggestions, we are. Yours, very truly, Alabama Power Co.. By Thomas W. Martin, President. During the year 1921 financial conditions which would enable a company such as ours to finance the Wilson Dam to completion were not satisfactory, and it it only resulting from the financial conditions of very recent weeks, or the last two months, that have made it practicable for a company engaged in such service as our company to make a proposal that will undertake the financing of this project. I 798 MUSCLE SHOALS PROPOSITIONS. The financial conditions liave improved, have substantiallv improved, in so far as concerns the sale of long-term securities, within the past 60 or 90 davs or four months, and the conditions are such that we are prepared to, and can go forward with a program such as we have outlined in our proposal. I would like to say just a word or two on the question of the power market which exists for the power from this development. The present iK)wer and lighting load which is carried on the system of the Alabama Power Co. is approximately 135,000 horsepower. We have established what we call the maximum peak load of our system, which is as high as 160 000 nin^^^^i^'^^' ' ^^^^^ ^*' ^^'^ ^'^^'^ carried at recent times, within re<^ent months ]bO,000 horsepower for short periods. With a return to normal business durin- the present year, and having regard to applications for service which have been made to our company, the service within our own State will increase our iwwer load to a definite, day-to-day program of 160,000 horsepower. As we go along in the power business we find there is a certain natural growth of load due to the increased demand of existing customers. There are also new industries normally coming into a system such as ours which we assume to be, from our experience, approximately 10 per cent ner annum. ' * That will carry us by the 1st. of January, 1926, we will say. just on the system we have to-day without any extension of the system at all, to 210,000 horsepower. In addition to that there is service very near our line, exclusive of railway electrification, of 160,000 horsepower, which is now served from isolated plants or plants which would be discontinued and which would be very glad to have central station service if and when available. Now, that is within the State of Alabama alone. We have made investiga- tions into various sections of the South. Inquiries have been made to us from various sections of the South. I would like to take the liberty of calling the attention of the committee now to a map which we have prepared, as probably you can see from there, Mr. Chair- man. With Muscle Shoals as a center, there are lines drawn at intervals of 50 and 100 miles— the light lines are 50 miles from Muscle Shoals and the heavier dark lines are 100 miles. In a radius of 150 miles, we will say, there is Memphis, which has no hydro service, of course ; Jackson, Tenn., which has none; Nashville, Tenn., has hydro service, but should have additional service: Columbia, Tenn., the same ; and you will also see Meridian, Miss., and in the next line you will see, 150 miles away, Little Rock and Vicksburg. You will see that Jackson is within 200 miles. I was mistaken about Little Rock and Vicksburg. They are within a radius of 200 miles. Going farther, we have at 300 miles Natchez, Mobile, and at a farther distance of slightlv over 350* miles New Orleans, Baton Rouge, Pensacola, and at 400 miles the city of Shreveiwrt. We have for a long time been asked to consider the extension of transmis- sion lines from power developments in Alabama to New Orleans, to Mobile, to Pensacola, to Little Rock, to Memphis, to Meridian, and in fact to all the towns and cities that you see in that circle, and you will notice that Paducah is within easy transmission distance of this Muscle Shoals development. I would also like to mention, Mr. Chairman, that whereas this circle shows a 400-mile radius from Muscle Shoals, when you come to actually transmit power to places such as Mobile, Pensacola, and New Orleans, the' logical program would be to develop jwwers in or near Montgomery, Ala., or northeast of Montgomery, in the rivers in that section, running transmission lines from there down to New Orleans, transmitting the power that is generated in that district southeast, and Muscle Shoals, of course, supplementing the whole situation. But there can be no development and no transmission of power to meet anywhere near the approximate needs of the communities southwest and south unless the Mnscle Shoals development is made available in this whole situation. It is. of course, the largest water power in the ^outh, and without it the developments which exist in this immediate territory are not suflficient to supply these markets In the States of Mississippi and Louisiana, and even as far away as Memphis. It is interesting, as. of course^, you gentlemen know, that when we reach the end of the Appalachian chain in the State of Alabama there is no water power after you pass Alabama until you get beyond the Mississippi River, hundreds of miles away. That whole development of water power in Alabama, then, is the last, and the last opportunity the public will have south and southwest tc MUSCLE SHOALS PROPOSITIONS. 799 » ^o'^r'^themTvpr to nM^-^'^H ^"^'^ '^^ ^"^^^^ '^'''^'^^ "^^^e is no oppor- that even thP^^vl/J'' ''^l^''' ^^^''^ P^^^^' ^^ ^^ possible, but only poss^le, drfwr If that^n^^^ °'^'^ obtain hydro power if Muscle Shoals is with- board is devotPd i^ tl?v .n t*""^^^ ^^^ ^^^^ announced by others on this Xs to obtafn hvnrn V ^^''^^^ development, then there is no chance for Mem- through the StatP^nf i£nnf ^""^^^ ^J ^^^^^sively long transmission lines wS^sl'^douSful^ '^"™ developments hundreds of miles away, ruPnTon'/fn^^^i'' 'V"''^ ^ ^'''''^ referred and which are within transmission ^!SS5Yo^4'^p"^^^^^^ '^"" ^ '''^' P^^^'^^ '^-^ to-day of app;olSe" In addition to that, the existing companies in the States of Tennessee md Theie IS then a possible power load, inclusive of the present load on our system plus this prospective load by 1926, of 880,000 hors^^wer. P^«L/??'"^''^,/' -^^^1^' without any further power developments, the Alabama Tf nfp i-^i.^H^^^'r^^''' ^""''^ ^^'^ horsepower, sufficient alone for the neeSs of the limited circles we are now serving in Alabama ,. 'i"*®/.^"/t of this whole calculation, which I will put in detail in the record \q9r'^.i"'^'^ '-iP^ ^^^^t** ""PP^y ^^'^^^ "^^"'•^1 ™«rket demands bv Januarv 1, 1926. theie will be a shortage or a deficit of approximatelv 500,000 hoS- power ,n the territmy to which I have referred and which shouldbe^upS logically from the Muscle Shoals development sui»piiea A large part of this Muscle Shoals power, undoubtedly, will in any case be consumed at the place of development. It is the natural thing to exp^Hhaf hat will be done. It is also natural to expect that a part of this poVer that IS available or can be developed in Alabama will reach other sections of the South to which I have referred. I will hand to the reporter the detailed statement which I have used in my explanation of the poxv^er demands in tliS seccion. (The statement referred to follows:) General statement concerning power situation in Alahama and contiguous territory. IxorsPDowpi' (1) The present power and lighting load of Alabama Power Co can be considered as ^ jg- q^ (2) The maximum load established in December, 1921, due to urgent ' needs for power in Georgia and Carolina, was 160 000 i3) With a return to normal business conditions in coal iron and textile industries in 1922, the power and lighting load exclu- sive of requirements in Georgia and Carolina, will be_L * 160 000 (4) Assuming 10 per cent per annum as a measure of natural growth of load due to increased use by present customers, plus new in- dustries that will be attracted into the State bv low-priced power, the load in 1926 will be 1 ^lo OOO (5) There is an available power load in territory adjacent to present " ' transmission lines of Alabama Power Co., exclusive of railway electrification, of _. j^q ^jqq (6) There is a power load available to Alabama Power Co. by exten- sion of lines to Memphis, New Orleans, Mobile, Meridian, etc., of ' 200 000 (7) The Tennessee Power Co., the Georgia Railway & Power Co the Columbus Power Co., the Central Georgia Power Co., in order to supplement existing plants, will absorb 70 oOO (8) Railway electrification in Alabama alone offers a potential mar- ket for 240 000 (9) The total load in 1926, inclusive of present load plus prospective " ' load, may reasonably be 880,000 (10) Alabama Power Co. present generating capacity 190 000 (11) Additional generating capacity from Muscle Shoals steam plant' So'oOO (12) Additional generating capacity from Mitchell Dam llo'oOO (13) Total generating capacity available under present program with- out Muscle Shoals in 1926 will be 330 oOO (14) Deficit to be supplied by Muscle Shoals I_I_Z 500,' 000 92900—22 51 » 800 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 801 ■ The map Vhicli has just been handed to the members of the committee, Mr. Chairman, is an illustration of the power situation in the South and of the industries which now exist in or near power lines. Of course, the striking thing about this map is the industrial development of the States with water power and the development in those States that have no water power, which is> most strikingly shown in each of the States that have such power. I would like to mention here that in addition to service to districts south and west of Alabama, there has developed in recent years a program of inter- connecting the lines of power companies, with the view of assistance one to the other in time of trouble and difficulty. There arose within the past six months a serious shortage of power at Raleigh, N. C, and the district surrounding, which is shown on the map^ which has just been handed to you. That district is served by a power com- pany. I believe it is the Carolina Power & Light Co. Their water-power plants were down and their steam plants could not operate because of the low water. The drought was so extreme that the water was needed for domestic use. Water was hauled by train to keep steam plants going even for part of the time for house lighting. The industries were down. New connections were completed at certain points so that our system could render pome service to relieve that situation. None of the intermediate companies r'ould do so. Our company having this whole Warrior station, having a better condition as to water at that time so far as the Coosa River goes, was en- abled then to transmit some power to the Georgia Railway & Power Co., and that company to the next company, and so on, with the result that cities and towns 600 miles away were directly benefited, industries were started, ami public service began, as a direct result of our sending power to Georgia, and so on, by a system of relaying to the Raleigh district. It was in that connection that we then applied to the Secretary of War for a lease upon the Sheffield steam plant at nitrate plant No. 2, a temporary lease for that plant, to further aid this whole power situation in those States, tO' meet the conditions of last fall and the conditions which we anticipate will arise this year. The Secretary of War investigated the power conditions in this territory and had an Army officer go throughout the territory and spend some days there, and he concluded that there was then a power shortage, and that there would be a power shortage this year, so that the Secretary of War Teased the Shef- field steam plant to the Alabama Power Co. for a period of one year, under a lease subject to termination at any time, for the relief of this whole power situation. ... . : i,*. • *u„<. I might say in passing that we claim no property interest or rights m that steam plant. It is not an issue here, although I do regret, Mr. Chairman, that some one has confused the Sheffield steam plant in our own State with the Gorgas plant, and has complained to the committee that we had leased the Sheffield steam plant under this terminable lease, and are claiming rights under it We are not, but there was a confusion on the part of some whom I know have confused it in telegrams sent to this committee. We claim no rights under that lease except to operate it from day to day until the Secre- tary of War sees fit to terminate it, and he reserves the right to terminate it in the event Congress authorizes the disposition of this property in some other wav. That planf did not get into service in time to meet the needs of this section last fall. Many difficulties arose due to the fact that the plant had been idle for some two vears. The plant is now ready to operate. Of course the river is running now. but we will have serious need for that plant this year, and so will other companies in this section, supplementing existing power supplies. During the vears 1923 and 1924 there will be several power developments in this section which will be completed. We have every reason to fieel, however, that that steam plant will be very important for the present year, but we cl.unv no property rights in it. It is absolutely, of course, in the control of the Secretary of War to terminate that lease at any time. Mr. Chairman, I would like to refer to two other points, and then I will close my statement. In our plan proposed to this committee through the Secretary of War there is involved the financing of the Wilson Dam and the power-house development. We will agree to take care of that completion. We will agree to pay $5,000,000 for the Sheffield steam plant and the Government's interest in the Warrior plant, and in addition give the Government 100,000 secondary horsepower for its uses at these nitrate plants. Now, the Alabama Power Co., of course, is a power-producing company. We manufacture and sell power. We are not in the fertilizer business. We feel we are creating here a very important and vital situation, one that the Government can take advantage of, having power with the nitrate plant, and can interest those who wish to manufacture nitrates. Of course this does not settle the question of who shall manufacture nitrates. We have all been told that the art of producing nitrates by artificial methods is changing from time to time. Only last Sunday there was a very interesting technical article as to the present state of the art in Germany. ' The Haber process is advancing there rapidly. It may, and undoubtedly will, come to this country. There will doubtless be other processes come to this country. The result of this, it s oiws to us, will be, Mr. CJhairnian. with power available and with these plants, there will be opportunity for first (»ne and then another, as the Secretary of War more or less suggests, to undertake the manufacture of fertilizer and to undertake the manufacture of nitrates by any process or methods that commercial or other conditions for the moment may make available. We only wish to say that since this whole question has been under discussion we have been approached by those interested in the manufacture of nitrates by some other methods, indicating a desire to go forward with the manufacture of nitrates in some way at these plants ; people who are not now engaged in the fertilizer business, people who have not appeared before you at all, and who have no connection with any of the companies or interests which have come into the situation. I can not speak, of course, in the sense that these gentlemen are ready to do business on a basis or on what basis; I can only say that in my judgment, if the Government of the United States has power and a plant, it will find people who are ready and willing to go forward and manufacture nitrates. It has been suggested here by one gentleman that secondary power could not he used for this purpose. I wish to go into that for a little while, Mr. Chairman, although I do not undertake to speak as an expert. One gentleman who has appeared in that connection is Mr. Bower and the other is Mr. Swann. Mr. Swann, who is the president of the Federal Phosphorus Co., took the definite position, you will recall, that secondary power could be used, and that in the course of his own development he planned to use secondary power because that was cheaper, naturally, and it would be of interest to the public to use secondary power because in that way they would get this fertilizer product cheaper. The other gentleman was Mr. Bower. Mr. Bower took the view, as I under- stood, that this secondary power could not be used. Now, Mr. Chairman, I do not want to take issue with Mr. Bower, but -I would like to hand to the reporter Mr. Bower's own statements on this subject before, a subcommittee of the House Committee on Appropriations February 15, 1921, found in the hearings on the sundry civil appropriation bill for 1922, page 119 et seq. Tlje substance of that is this (Mr. Magee was asking the questions) : " Mr. Magee. Then, if you are going to use the secondary power, there would lie certain seasons when you could not operate the plant? " Mr. Bower. Yes ; at certain seasons. " Mr. Magee. And you would have to shut down and throw out of work 2,000 or 2,500 men? " Mr. Bower. No ; you would not shut down altogether and throw out 2.500 or account of the drop in horsepower, because your horsei>ower requirements at that plant are at the carbide furnaces. " Mr. Magee. You would have to cut down the number of your men? " Mr. Bower. Some of them, for a little while. " Mr. Magee. What proportion would you cut down — 50 per cent? *' Mr. Bower. Oh, no, sir. It would simply be the men employed around the ^tion that tie second^ power should be used. As to whether it can be S7s a matter for this committee to determine, in its own .ludgment after baring those who are capable of advising the committee. Of course, if mon^ rwiwpr is needed it is always there and can be purcliasea. ^rThe ex^^s from the Statement of Mr. Bower referred to above follow:) "PRIMARY AND SECONDARY HORSEPOWER. " Mr MAGEE. Unless you use the primary and secondary horsepowers for this same purpose, how are you going to keep your ^^J^J^f^^^^^^' ^^^^^^^ f^^nace, "Tvit^ Rowkr The nower consumed in this plant is in tne caiume luiim^^, using ibfr^onJary'^^ower, but the whole 100.000 secondary power is not ""^mTmagee (interposing). Unless you use the primary power you can not run the year round. " Mr Bower. That is the point. :^ ^ow^-. no" I?" yon can not run the total capacity of the plant. .4 TIT,. ■vTArii'ir ThPii von woiild liave to use steam? , ^ . 1. -Mv Bowt^. TXe come to that a little later. Then the second statement "^.Tlle CHlmM'^roWTposing). You may proceed to make your statement I relme«fat there harb^n interruptions, and we will try not to ask qu.-st.on. until vou have finished. . ^ « " Mr BOWER. I do not object to questions at all. ::l,'r Bo"wrThat' is-tSond thing that con,es to our attention-the c.^. subm^tteTr,he ^^^^^^^^^^ nunistry of munitions of 7^'."''™°^^tPirthe record the names, but this was r<.ha"r r^th^^ meniU'of'Sii'commlttee [exhibiting]. I am referring deUnds upon the cheapness of the power sold? cost at Muscle Shoals. . , ., "Mr. BOWER. It is very low-not so much lower. MUSCLE SHOALS PROPOSITIONS. 803 " The Ch A.1RMAN. When you bring in reports of that kind bearing upon povver I can not myself bring my judgment to the conclusion that it if,^^'^"/;;!"!;^^^- tive— I do not believe that it has any bearing at all. \ou would first have to 'hoVme what a power plant that would produce 100,000 horsepower :i >H^ar woidd cost, what the operation of it would cost, and then what you have read, it seems to me, would have some force. "Mr Bower. We have Col. Cooper's estimate that the secondary power can '^" ThVcnTiRMAN. I understand in Norway the cost to produce hydroelectri^ Dower is from $2 to $12 per kilowatt year, whereas at Muscle Shoals it costs ?.>0 a kilowatt year. So the comparison you have given is one that it seems to me «»f itself fails of its own weight. , x. 1 1 "Air Bower. Mr. Good, the cost of 1.2 mills per kilowatt hour as hgnier<>J^^<;t that it could be completed in from three to five years, and that at the end ot 10 vears more the Government could lease this plant for a light and power proposi- tion without even distributing the power, but selling it at the plant? " Afi* BowFR Yes sir "Mr M\gee' And get a rental of two and a half million dollars a year, or .5 per cent net on the amount of money which he estimated it would cost to com- plete this project. I would like to know if you concur in that view, or whether it is your idea the Government should complete this project solely as a fertilizer ^'''"X.^BowER. No, sir; I do not claim so. Our thought is that with these im.s- sibilities, Mr. 3^Iagee, held out to us in the way of future production of fertilizer materials by the electric furnace . ^ ^. r ^ ^ "Mr. MAGEE (interposing). Then if you do not f;;>n^"^^'th him as I umh^^^ stand, the statement shows that there can be produce00 on account of the drop in horsepower, because your horsepower requirements at that plant are at the carbide furnaces. " Mr. Magee. You would have to cut down the number of your men? •• Mr. Bower. Some of them, for a little while. "Mr. Magee. What proportion would you cut down— 50 per cent? " Mr. Bower. Oh, no, sir. It would simply be the men employed around the carbide furnaces, which would be closed temporarily only. "Mr. Magee. You would have to disorganize your organization? "Mr. Bower. My thought would be this: You figure your total labor cost on cyanamid over the year, and you would run 10 months of the year and have a certain amount of labor cost, and then for two months they were idle. It would pay to keep those men. It might add .50 or 75 cents a ton to your cost, but that would be so much cheaper " Mr. Magee. When you figure on using the secondary power, when you did not get that power, then you would not operate the plant? *" Mr. Bower. Not the total plant ; abs(^lutely not. 804 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 805 " The dHAiRMAN. Why, Mr. Bower, I am amazed that the farm bureaus are interested in building this plant to sell 100,000 primary horsepower to a British corporation. " Mr. BowEE. Oh, no, sir. " The Chairman. That is practically what this means. I supposed that you were coming here and wanting to use the primary horsepower to manufacture fertilizer. •" Mr. Bower. If it does not cost too much. If it were not for that we would, but it is uneconomical to do that. " The Chairman. Why, Col. Cooper, who is one of the best engineers in the world, said that, considering the erratic flow of the Tennessee River, it would be uneconomical to manufacture fertilizer at this plant if you sold all of your 100,000 primary horsepower. " Mr. Bower. And Col. Cooper stated before the Senate committee "The Chairman (interposing). On that matter you are putting your judg- ment as a representative of farmers against the judgment of one of the best hydroelectric engineers in the world. " Mr. Bower. I am not criticizing his standpoint as a hydroelectric engineer, but I wish to put in the hearing Col. Cooper's own statement* " The (.'hairman. I can not understand why the farmers "Mr. Bower (interposing). Just a moment, . Mr. Chairman. Col. Cooper testified before the Senate committee : • I have put it in on that basis. It is the basis I know something about. The fertilizer business I do not know anything about.' " Mr. Byrns. That is what he said here, "The Chairman. Col. Cooper was here yesterday and testified positively that you would have to sell this primary horsepower at Muscle Shoals at the point of production, and that if you were going to use it for fertilizer you would have to use it at a basis of cost of 4.4 mills per kilowatt hour. " Mr. BowETi. He said himself before the Senate committee that he knows nothing about the fertilizer business. " COST OF secondary POWER. " The Chairman. And that if you sold it for commercial purposes, as you have proposed, then you could not use the secondary power and keep 2,000 or 2,500 men there at work. "Mr. Bower. Our thought has never been to use that big primary power unless it is cheap enough. We might agree with Col. Cooper that that is too valuable for fertilizer production purposes. "Mr. Byrns. Let me say that I think Col. Cooper and Geri. Taylor — and when the record is published it will be shown — made their statements in reply to hypothetical questions, assuming certain facts, put to them by the chair- man, and both of them especially disclaimed any knowledge whatsoever of fertilizer or its manufacture. " The Chairman. I can see Bow representatives of these power companies down there would take your attitude, but why a representative of a farmers' organization should take this attitude is something I can not understand. " Mr. Bower. Because we have got to get that cheap power to get our results. "The Chairman. But look at that power as shown by plate No. 2. After you have taken 100,000 primary horsepower, as shown by the War Depart- ment's plates, which Col. Cooper states are correct, then your power falls off so rapidly that for more than 40 per cent of the year you will have to run a steam plant, which you say you can not run and produce cheap power. "Mr. BowEB. Oh, not for 40 per cent of the year, Mr. Good. " The Chairman. Yes ; for 40 per cent of the year after you take off your primary power. "Mr. Bybns. Col. Cooper did not agree with that statement, Mr. Chairman. He said that that statement was based on only a few years, whereas he liad taken 22 years. "Mr. Magee. Col. Cooper absolutely stated, Mr. Byrns, as I understand, that you could not run this plant as a fertilizer plant unless you used the primary horsepower. " Mr. Byrns. Oh, no ; I beg to differ with you. Col. Cooper especially dis- claimed any information about that, and any reply he made was in response to hypothetical questions put to him by the chairman. " Mr. Magee. Of course, his statement will show about that ; but, as I under- stand, that was his absolute, unqualified statement. "Mr. Byrns. He further stated that he would work out and file with his statement the results of his investigations with reference to the flow of water covering a period of 22 years, and he especially disclaimed any knowledge of that plate to which the chairman has referred. " Mr. Bower. I say that we want cheap power, the secondary power, for the fertUizer production. Along that line, let me show you what the limitation Is in this power. This is the testimony of Mr. Milton Whitney, Chief of the Bureau of Soils, before the Senate Agriculture Committee, with reference to the production of phosphate: " ' The first thing we tried was the electric furnace.' " This was with reference to the production of phosphoric acid by some new method instead of using sulphuric acid. " ' We put in a mixture of phosphate rock, coke, and sand and fused it witn electrodes and electric current. When this rock was in a molten condition, dense white fumes of phosphoric acids were given off, and reaction taking place and silicate of lime being formed, the phosphoric acid was set free. Those gases were put through a cottrell precipitator and we obtained phosphoric acid in a very pure form. We entered into negotiations with a commercial firm in Hoboken and made a run of six months, and at the end of that time we found that the cost of the current was so great that the cost of producing phosphoric acid by this method was about three-fourths of a cent more than by the sul- phuric-acid method. We felt, therefore, that unless we could get cheap water power the electric method could not be used. As a matter of fact, our calcula- tions were based upon electric power at $25 per horsepower per year. If you could get electric power for $6 to $10 per horsepower per year you could use an electric furnace and get phosphoric acid out cheaper than you can by the sul- phuric-acid method.' " Now, of course, if you are going to take Col. Cooper's position that you can not run this plan on anything except the selling price of primary power, then we have not got anything in this proposition, but we have never even thought about that. ^ ^ , - " Mr. Magee. It looks to me that you can not make flesh of one and fowl of the other. If the Government is going into this business you have either got to make it an electric light and power proposition or you have got to make it a fertilizer proposition, and you can not get away from that conclusion. "The Chairman. Mr. Bower, in making your computation, what did you figure you would have to get the secondary power for? " Mr. Bower. Well, I have here Mr. Whitney's statement. Of course, I have not made any computation on this. I am not capable of doing that; but Mr. Whitney's computation was that if he could get electric power for $6 or $10 per horsepower per year * you could use an electric furnace and get phosphoric acid out cheaper than you can by the sulphuric-acid method.' " Col. Cooper's cost of the secondary power is 1 and 2 mills, which, I think, figures out $7.58 per horsepower per year. " Mr. Magee. His idea was, if you will read his statement, that you should «ell all the power, not distribute it but sell it, the primary and secondary power, for use in the localities. "Mr. Bower. I would not be surprised if the Government adopted that method, that this secondary power possibly could bring a higher price for other purposes. " The Chairman. Col. Cooper's figure, as I recall, was 1.3 mills per kilowatt hour, or perhaps it was 1.2 mills. As I read the hearings here the department has figured 0.75 mill. " "M-V Bower Yes "The Chairman. So that if you had to have power at 0.75 mill, then the Government would l)e losing the difference between 0.75 mill and 1.2 mills, which Col. Cooper says the secondary power could be sold for. " Mr. Rower. And tliat would increase the cost of cyanamid. as I gave it, on page 95 referred to before. I think it would make it $23.04 instead of $21.97, by taking Col. Cooper's cost of the secondary power. That is the difference between 0.75 mill and 1.2 mills. " The Chairman. Give that increase again. " Mr. Bower. It is on page 95. I simply multiplied 2,808 kilowatt hours at f of a mill, which would figure out $2.10. At 1.2 mills, it would be 2,808 kilowatt 806 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 807 hours times one and two-tenths. I made that computation, but unfortunately I did not k^p it. That would increase the price "The Chairman (interposing). About $1.25. "Mr Bower. It would be $3.37 instead of $2.10, an increase of $1.27 a ton '^ Mr. Martin. I would like to sa.y just a word about the water power act Our coinpany is one of many, gentlemen of the committee, which is niakn<' de- velopments under the water i)ower act. It is true that there are some 16,000,000 horsepower of applications pending, but applications for the development of well in excess of 1,000,000 horsepower have been grantetl and work is in progress on over 1,000.000 horsepower to be developed under the terms of the Federal water power act in various parts of th:s country. ' As you gentlemen know, of course, there is a limit of 50 vears on the tenure of the iK-ense. That, coupled with one other verv important feature as I recall, were the two principal debatable questions before the Congress the 50 year tenure plus the basis on which the development might be taken over at the end of the license perile who make proposition to us, anticipated or real. You hold, therefore, as I understand it, that this I^Iuscle Shoals power might, consistent with good bus.ness and eco- nomics, be emploved first as a preliminary to the ,000,0(M) of (iJovernment investment. That the Government retains, umler imr propcvsition. In arovision refered to by the Secretary of War with regard to taking over ann the river is complete. This is one end of that proposition. Mr. Hull. If we accepted your proposition there would be no positive as- surance that in the future we would have nitrates for war purposes, because- .vou do not propose to maintain plant No. 2 in condition to produce nitrates? Mr. Martin. No ; we do not undertake any obligations with respect to plant ^<>. 2; but we undertake to give the Government power and money. Mr. Hull. You propose to give the Government secondary power? -Mr. Martin. Y'es. Mr. Hull. At plant No. 2? Mr. Martin. Yes. Mr. Hull. Now, there are several different kinds of secondary power, as T "iiderstand this proposition, especially in a flow of water as variable as that 814 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 815 ■ in the Tennessee River. Secondary power mijjht be very inefiicient or it might be very good power. What is there to assure us that we will get tirst-class secondary power? Mr. Martin. The contract you make would insure it. Mr. Hull. You propose to give us tirst-class secondary power? Mr. :Martin. Yes, sir: that is the stipulation. Our offer says, "This power to be the second 1(K).. I^Ir. HvLL. The second 100,0(X)? Mr. Martin. Yes: it is a matter of engineering; that is ascertainable. Mr. Hill. Is there any mention of plant No. 1 in your proposition? Mr. Martin. No. sir. Mr. Hill. That you do not propose to buy at all? Mr. Martin. No. sir. I^Ir. Hill. That would remain in the possession of the Government? INlr. Martin. Yes. sir. Mr. Mtllkr. Ky tlie acquisiti<»n of the Muscle Shoals property, as you hav«' oxplaineam development, of course. Mr. Milleb. To develop this Dam No. 2 under the Federal water power net, and subject to all the provisions tliereof ? Mr. Martin. Yes. Mr. MiLiJCR. I notice a little provision here in your bid, Mr. Martin. I do not want to be technical in connection with the matter, at all, but in the second clause on page 3 of the Secretary of War's report — that is, the second paragraph of your offer — you provide, " To furnish free to the Government, or anyone it may designate, from the hydro power plant 100,000 hoursepower as rWiuired for the production of fertilizers and munitions of war and for research in con- nection therew^ith; and if, due to changes in the art, this use of such 100()0<> horsei^ower is discontinued by the Government, the Alabama Power Co. to pur chase and pay for same in accordance with a schedule to be set forth in the license. This power to be the second 100,000 horsepower at any time avail- able from the normal flow of the river." Now, suppose a system should be organized there and installed at nitrate plant No. 2 by which the maximum production of that plant may be put out " ith less than 100,000 horsepower? ^tr. :\Iartin. That is quite likely. Mr. Milleb. Suppose that in the future — and we are looking far into the future in connection with this proposition — the manufacture of fertilizer should so go forward in its evolutionary stage that it would become necessary and might be desirable to greatly extend the present nitrate plant No. 2 in its an- nual producing capacity of fertilizer. Would that 100,000 horsepower be available for any such expansion that the United States Government may make, or is it limited to the present capacity of the present plant? Mr. Martin. I did not have in view any limitation of that kind. Mr. Miller. I know, and I do not want to be over nice in these things ; but I wondered what was in your mind, and would it cover a contingency of that character? Ml-. Martin. Of course the Government would have it, and the contract in connection with this whole matter would undoubtedly cover it. Mr. Miller. In other words, 100,000 horsepower would be available for such uses as th6 Government desired to put it to. Suppose the Government wanted to establish an arsenal there, or some other industry entirely apart from the manufacture of ammonium nitrate. Would the 100,000 horsepower you agree to furnish free of charge be available for such governmental uses and purposes as the Government might desire to establish there? Mr. Martin. We had in mind that, in general, the production of fertilizer and munitions of war would be carried on there ; whatever that might be is a matter we have made no point about. ]Mr. Miller. My attention was attracted to this language that I read to you, and I did not know whether that was a limitation of the use of the horsepower. Mr. Martin. No, sir ; we simply meant to say that if the Government did not use this power Mr. Miller (interposing). That is what I am getting at. Mr. Martin. Then we would purchase it, whether due to changes in the art or any other reason, if the Government w^ants to sell it. »Ir. Miller. So you propose to furnish the Government 100,000 horsepower for such purposes as the Government needs it for, and if the Government does not use all of it, then you would purchase what the Government does not use? Mr. Martin. Yes; we had in mind that, in a general way, these puriK)se.' is an impossible condition, because ^Ir. Dent. Of course, that makes it absurd, but it illustrates the point. At any rate, that authority, in my opinion, is in point, and I do not hesitate to say that if the conunittee is not satisfied with that, I am sure I can supply them with abundant authorities on the proposition. I^Ir. :Mn.LER. If you are through with that decision, will you pass it down to me? Mr. Stoll. Right there, may I ask a question? Mr. Dent, who declares the national policies, the courts or the Congress? Mr. Dent. Congress. Mr. Stoll. AVell. has not Congress declared the development of nitrates for nmnitions in time of peace to be a national policy? Mr. Dent. Yes, sir ; I think so, in a way. Mr Stoll. And did they not stipulate that it should be at INIuscle Shoals? Mr. Dent. Ccnigre.ss never did; no, sir. Congress never has mcnt oned Musr-le Shoals. Mr. Stoll. But it was under Executive order of the President, who was given authority to do that. Mr. Dent. The President hxated plants there during the war. Mr. Stoll. Under authority given by the Cimgress? Air Dent Yes sir. Mr! Stoll. Anil having declared that a national policy, do ylic service corporation. Mr. Dent. I think the Fetleral water power act would give such a corpora t'on the right of eminent domain, Mr. Garrett. But in the absence of that. Inasmuch as this is kind of inter- twined with a public interest to start with, and has a sort of governmental charge on it now, wcmld not that be true as to tlie i)ro))erties down there? Be- fore asking any furtTier questions, 1 would like tt) inquire if Mr. Martin has been dismissed from the stand? Mr. McKenzie. He h^s not concluded ; no, sir. Mr. Garrett. Then I will reserve the question I wanted to ask, to ask it of Mr. Martin, Mr. Greene. Mr. Dent, may I follow my former ciuestions with this qui^stion. to make a distinction between rights which may be vested in m quasi-puhlic cor- poration and the oiierations of the Government itself in making a contract with some pun^ose, would the (Jovernment be within its powers to exercise the right of eminent domain for the sake of getting property together, s«) that it might subsequentlv turn it over to a privnte corporation for its own uses. Mr. Dent. I think. Mr. (Jreene, that perhaps the ngi-ess had to be dele- gated through that act to some one, and they delegated it to the heaower of attorney could transmit that authority for the principal to some other party? Mr. Dent. Under the terms of this act, Mr. Quin. as I have repeatedly stated to the committee, the act does not say that the contracts must be signed by the heads of the departments, but says that these contracts nmst be made through the heads of the various departments, and that language was used intentionally, because it would have been absurd, it would have been ridiculous, it would have been a physical impossibility for Congress to have stated that the Secretary of War, and the Secretary of War alone, should sign all the millions of dollars worth of contracts that the War Department made during the war. That would be .'ibsurd. Mr. QiiN. So you do not think that that statute should be construed stri0.rKX) as a balance due on construction, on its fee for constructing. On what would they recover? What would be the status in that case? Mr. Dent. They could not recover. Mr. Garrett. They would have no claim against the Government? "Slv. Dent. No legal claim. ^Ir. Garrett. Because there was no contract? Mr. Dent. Because there was no contract ; yes. Mr. (tArrett. Do you not think they would have a rght to it'cover on quantum meruit? Mr. Dent. Not against the Government. If the contract had been a contract between individuals, they would have, but not aga'iist the Government. Mr. Garrett. When they wetit ahead and eut Act. That act was passed for the very purpose of takng (-are of contiacts that had not been executed in accordance with the terms prescribetl by the statute. Mr. (Jakkktt. Then I understand your pos tion to l>e that if this contract failed, thei'e is no contractural relationship existing between the Alabama Power (Sk and the I'nited States for any jmrpose? Mr. Dkxt. Ves. sir; that !s ujy position. Mr. (fARRETT. And that although the Alabama Power Co.. representing the (iovernment. dd, as a matter of fact, take (Jovernment funds and con- struct this property upon its real estare, and re<*eive compensation for con- struct ng it upon its real estate, a good fee. and all of the funds necessary for the complet On of the work were furnished by the (Iovernment, still, that they KNT. In the tirst place, Mr. Garrett, the Alabama Power Co, never receved any money from the CJovernment. The Government disbursed its own funds on its construction work down there by its own disbursing officer. Mr. (JAUKFrrr. Who d d this work? Ml*. Dknt. It was done under the supervision f»f the Alabama Power Co. — that is, the construction — but the disbursements and the payment for it were made through Govermnent officers and by Government officers. Mr. (tARrett. Did not the Alabama Power Co, have a contract to construct this work? Mr. Dent. The only one tliey had was the one of November, 1918. Mr. Garrett. As to the actual construction work, did they have the con- tract, or some other corporation? Mr. Dent. I believe some of the work was sublet. Mr. Martin. On the minor part, such as grading, some contractors were em- ployeeatedly stated to the committee in answer to your question, because, of course, it is my opinion, which I give for what it is worth, that if this transaction had taken place between private parties or between private corporations that the law would imply a contract, and that there could be a recoverj-, at least upon quantum meruit. provideo you think that an agent, under a power to .sell, would be permitted to nuike an optional agree- ment, say, that no .sale couhl be made except to one particular person, say, for a per.otl of six years after tlie power of sjile was granted to the agent? Mr. Dent. I will answer that in this way, by stating the fact in conne<,*tion with this contract. Mr. W^URZBACH. That is a hypothetical ca.se? Mr. Dent. Yes: and it is rather a moot question. But the facts in th s case are that under the terms of this contract the Government had the right to denmnd that the Alabama Power Co. purchase this property, on the one hand, anntract ha?this nrovS In the event that the contractor shall on demand of the Unt^StZ^^ fail or refu^ to purchase the Warrior extension and Warrior substS nndpr III of the foregoing subdivisions of this article, the United States mav til ^fZ same to another, subject to the conditions that%aid properi^^^^^ Erns^mUYell^J^^^ ^'^" '' '''^''^' ^^^^ «^^ mo^ntr^/fertrsaTe^^s but a tim and binding agreement, on the face orthe contract i? is stUl on IS prid^e'd^ inhTaVee";^er ^^ "^^ ^^^^ '^ ^"^ ^^t^'^ Z Mr. Dent. I think they do, Mr. Wurzbach. I think that clause von h«xv» Mr. Wurzbach. Could not or would not' Mr. Dent. Could not or would not cariy out this contract and th«t tho ^r/r^Ai r"'^ li^^" ^^^ alternative right to sell this propertrr^^ suing the Alabama Power Co. for a breach of the contract Mr. Wurzbach. Of selling it to some one else' Mr. Dent. Yes. Mr. Garrett. Selling it to some one who would operate it' b;<.„ a,. „„„„ .SSSld^tr™, Sr'i bS.o'^^.ST'.S s Mr' WrrT; J^^' \ ^''' ^^^'"^ ^^ ^ Privilege on the part of the Government Ml WURZBACH. I can not agree with you on that. government. ^L^J' nv!""^ "^'^^ K^""^ *^ construe the whole section together that respect, because the President located this plant there ns « wn. .^ 832 MUSCLE SHOALS PROPOSITIONS. ment As to what has been done down there, it was, strictly speaking, no more or no less than a war measure, which the President by his order mad-e in order that we might be protected in tlie event that we could not get nitrates from Chile. . ^ . . ^1, The last proposition is this : Mr. Oliver calls attention to a prov.so in the act of July 9 1918. and contends that that proviso shows that the act had its limitations, and that by reason of the fact that the Secretary of War should make a detailed report to Congress of the sales of war materials, lands, fac- tories, or build. ngs and equipment sold under authority contained in this act. Now Mr. Oliver states in his argument, after quoting that proviso in the lan- guage in which it is written in the law, that they had to report to Congress the terms of the sale, the price received, and so on, at the next regular session of Congress, which occurred within eight or nine months after the act was passed. I am sure my good fr.end and former colleague from Alabama did not intend to mislead the committee. I know he would not do anything of that kind ; but he overlooked the fact that the language of that proviso reads this way, that a detailed report shall be made to Congress on the first day of each regular session of the sales of such war supplies. It was not limited, Mr. Oliver, to the next regular session ; it provides expressly that a report must be made on the first day of each regular session following the sale under this authority. That is the language of the act itself, so the proviso can not be construed as my friend has contended. He evidently overlooked the word " each " in that proviso. I believe that covers practically everything except one little paragraph that 1 want to call attention to, the closing paragraph in Mr. Oliver's remarks, the very last sentence, where he says by way of peroration, " 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 n 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?" You would conclude from reading that statement— that is. anybody who was nut familiar with the terms of the contract— that Mr. Oliver intended to convey the idea that this contract gave to the Alabama Power Co. the right to fix the price of this property. I am sure Mr. Oliver did not intend that. But yet that is the way his language reads. I am sure when my good friend comes to revise Ills remarks he will change that somewhat, because there is absolutely nothing in the contract which authorizes the Alabama Power Co. to fix the price of that property. We have already shown you that. In conclusion — and I am sorry I have taken up so much of the time of the committee— we contend that this property is not necessary for the public use at Muscle Shoals, and that we have a legal right which we can assert in the courts. We contend that the right to make an absolute sale carries with it the right to fix the time, the terms, and conditions of sale, all the details neces- sarv. Those are the two main propositions asserted by my friend here. We contend that under this contract we have the right, the absolute right, to purchase this property at a fair value to be fixed, if it can not be agreed upon, by arbitration ; and we furthermore contend that under the law of Alabama, if the contract between the Governmeut and the Alabama Power Co. is held to be absolutely void, and that there is no contract whatever between the parties, tlieu under the law the property which the Government has placed upon our land belongs to us. Mr. Garrett. On the question of sale, under the contract that provides for sale but does not fix the terms. Does not the law in the respective States and does not the law in Alabama provide that where you have a contract for sale, but the terms and conditions of the sale are not fixed in the contract, there is a statute which provides that it shall be sold as under execution? Usually the States have such a statute, that where you have a contract providing for the disposition of property, as in this contract, but it does not fix the time or the terms, is there not generally a statute that provides that where there is no time fixed or no terms fixed in the contract that it shall be sold as under exe cution? Mr. Dent. There is no such statute in Alabama. Mr. Chairman, let me call your attention to a daily news letter issued by the War Department on Tuesday, August 18, 1918. I just want to have this go in the re<-ord. showing that the action of the Government in furnishing money to increase manufacturing facilities during the war was not limited to the Ala- bama Power Co. That was an ordinary form of contract that the Government MUSCLE SHOALS PROPOSITIONS. 833 entered into yvith various manufacturing industries during the war. This cir- cular issued by Gen. Goethals contains this language • " The increased manufacturing facilities that have been created by the War Department, exclusive of the new industries serving the Navy and the Emer- SofS^^ Corporation, from April 7, 3917, to July, 1918, cost approximately ;f T^^ . • ?v?. ^"""^ \f ^"^^ ^ peculiar contract ; that was the ordinarv form or contract m this case. .MS'''J^''i^'^^ir"^"" ^ ^,™ ^/''^^^^ ^^^* ^^»^- ^^^ten, of the Ordnance Depart- ment, who has the records of the department in reference to this contract is here and prepared to give the testimony which I stated we could establish to s-how that the Secretary of War himself did authorize the making of th s con> tract. Are you ready to hear him now? Ill' rlll^^' J ^':?^^^^^;if. *^e committee would give me a few moments? Mr GRKI..NE (acting chairman). What is the committee's pleasure' Without oluectiori, IMr. Oliver may proceed. piensuie. ^vitnout ADDITIONAL STATEMENT OF HON. WILLIAM B OLIVEB A RPPHir SENTATIVE IN CONGBESS FROM THE STATE OF ALAKAmI Mr. Oliver. Mr. Chairman, I appreciate the indulgence of the committee and will endeavor not to impose long on your valuable time. ^o^nniircee, and .u u E?"^.^°^ i ^^'^ ^^^ exceptions to the ordinary lawyers who drift into the habit of confidently asserting the correctness of'^ourTes^ctive positions fn 1 \^JT' ^«^,^.^?«tely for me, I think Mr. Dent has referrS the committ^ nnw t.1^''^''° r^^''*^' '^ ^'^'^ "^"^ carefully read, fully answers the positSn hi now takes, and is an unquestioned authority in support of the position taken by me on yesterday. It is not unusual for two lasers to think ?hat one anS the jame decision constitutes an authority for the positions taken by Xh of Mr. Dent. Or to think they have. r.at^I' ?^'J*- ^f to "^y remarks on yesterday, I had no opportunity to pre- pare a brief, and my statement was made in an impromptu way, but the au^ ions of Jaw involved were simple and well and thoroughly sett^? and I cfn but fee that the committee will agree as to the correctness of my posUion I stated that since the Government had a national project at Muscle Shoals devoted and to continue to be devoted, to a public use, that Congress had the unquestioned right to determine what property was n^essary to bTtaken by condemnation for the enjoyment or furtherance of such national project, and that vvhen Congress directed what property was necessary and should be acquired by condemnation, that the necessity for the taking of such Drooertv was a matter of legislative decision and not open to the courts for review I .n!Jl5^.'^^^*'ll^^*^ ^^ l*"^ ^*''i ^"""^ ^^^ ^»«® <^*t^ ^y M**- J^ent is the highest authority for the correctness of my position. In the case he refers to, two questions were raised : First, whether a battle ground could be acquired and set apart for public use, and second, whether Congress had the right to determine what property should be taken in con- nection therewith for such public use and enjoyment. In that case a railroad company contested the right of the Government, through Congress, to first de- clare that the battle ground could be maintained and set apart for public use and second even though the court should hold that such was a proper public use that the righth of way of the railroad company, which Congress had directed should be condemned, was in no way necessary to the use and en- joyment of the battle ground. The court held that Congress had properly de- clared a public use by seeking to preserve the j^attle gi-ound at Gettysburg, and tliat since It had declared a public use at such place, the question as to what property should be taken for that public use was altogether a legislative ques- tion, and the necessity for the taking of such property as Congress might de- termine should be taken could not be inquired into by any court The court simply held that courts could inquire into the public use sought to be de- clared by Congress, but when a proper public use was found that then the action of (Jongress in declaring what property should be taken for the en- joyment of that public use was a legislative and not a judicial question I read in support of my decision ths excerpt from the decision citetl bv Mr 834 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 835 " It is also objected that the exception below is valid, wherein it is stated that all of the land of the railroad company ought to be taken, if any were to be taken. The use for which the land is to bo taken having been determined to be a public use, the quantity which should be taken is a legislative and not a judicial question," citing the case of Shoemaker v. The U. S., 147 U. S. These are the decisions that Mr. Miller, a member of the committee, had in mind when he asked Mr. Dent, " Have you any authority holding that where a public use has been properly fixed and declared, that it is then a matter of judicial determination as to the necessity for taking property to carry out such public use, where Congress had declared the taking of such property a necessity *'" Mr Dent had no authority which he could cite Mr. Miller to, and I submit he can find none. The very authority he reads to the committee denies the position hp asserts On yesterday the committee will recall that I stated that since the Govern- ment owned a 'nitrate plant at Muscle Shoals, which was to serve the Govern- ment in war and in peace for a public use, and since the question now before the connnittee was whether the power plant at Gorgas and the transmission line leading therefrom, constructed with Government money, on land of the Alabama Power Co , and which supplied electric enerj?y and power to the nitrate plant at Muscle Shoals, was ne<-essary for the use and enjoyment of such nitrate plant, if Ccm'^ress decided that it was, and ordered the acquirement of the land on which the Government property was situated, by condemnation, that the action of Cou'^re*;*; w(mld be conclusive on the question of necessity, and could not be inquired into by any court. The rereading of my remarks on yesterday will show to the committee that that was the position I took. Mr. B^iELDs. You meant the power plant at Gorgas? .,,.., Mr Olivkr Yes In conclusion, 1 do not think my distinguished tnend and former colleague,.Mr. Dent, will be able to supply the committee with any author- ity to sustain the position he announces as to the law of agency. I have read the law of agency to no effect, if Mr. Dent's remarkable dec:aration of what a simple power to sell, with the qualifjing proviso, which I called attention to cm yester- div can be construed into an authority for the agent to postpone the right of the principal to sell his property for six years, and further authorize an option on the property, delivering possession to the optionee with the right to use the property during such term of six years, when the right of the principal has been postponed to sell, the optionee, however, having the right to purchase dur- ing such time if he so elects, and should he elect at the expiration of said six years to purchase and the price and value of the property at that time could not be agreed on, that then the optionee should have the right to appoint an arbitra- tor and the Government an arbitrator, and these two the right to select a third to ascertain and fix the value of the property at such postponed time. Surely mv friend will not insist that the President or head of an executive department, authorized by the Julv 9 act to sell war emergency property, requiring that where a sale was made that a report should be submitted to the next ensuinji 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 propert.v 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, when its election to purchase was so exercised, if ever, could not be agreed on, that then the power company mi|:ht appoint one arbitrator, the Government one. and these two a third, could by any stretch of the imagination be construed as a proper exercise of authority by the President or the head of an executivt^ department under the said act. If he can find any authority to sustain him in that contention, I am sure the lawyers on the committee will be glad to read it. Mr Wurzbach properly called attention to the absurdity of such an insistence. There is no law so well understood as that the agent must get his authority absolutely from the principal, and all reasonable intendments against the im- proper exercise of it are mdulged in favor of the principal, and the party deal- ing with an agent must himself consult the authority under which the agent seeks to act, and is chargeable with notice of every limitation placed on the agent. Surelv, in the power given by Congress to the President or to the head of an executive department to sell property, no authority was given to anyone, whether President or head of an executive department, much less to a subordinate, to postpone the right of the Government to dispose of that property for three or six years and to grant to a prospective purchaser an option on and the free use of it during such postponed period, or to exercise a right which he might or might not claim, to call for an earlier sale. I am astounded that the gentleman could read into any law of agency so broad an interpretation as that. Now, in reference to his criticism of my statement of the proviso in the act of July, if he had read just a little further on in the speech, he would have found that it was subject to this limitation, that the agent must report sales made prior to the next session of Congress. Of course, that is what I meant. In other words, if the President, or head of an executive department, under- took, in the exercise of the authority to sell, granted by the act of July, to sell before the next regular session of Congress, then as to the sales he under- took to make, he was to report the purchaser, the purpose of the sale, and the price received. In this case it so happened that the power company claimed that there was a sale to it before the December session of 1918. Then, under the provisions of the act of July 9, the agent had to report that sale to the December, 1918, session of Congress. And in doing so he had to report the name of the purchaser, the purpose for which he bought it, and the price re- ceived. Pray tell me how the agent in this case, granting that he had authority to sell, could have reported those facts, since, lo and behold, we find no price is fixed, or even is to be considered, until after three years from the date when the proclamation of peace is issued by the President. That proviso of itself served notice on all prospective purchasers that if you undertake to buy property from the Government under act of July, 1918, you must, before the next session of Congress, in so far as to that which you now seek to buy, agree definitely on the terms of the sale, because the agent of the Govern- ment is only authorized to sell when he can report that fact ba<*k to Congress. How could this requirement of Congress, as set out in the proviso of the July 9 act. have been complied with? I thank you, Mr. Chairman and gentlemen. Mr. Hull. I would like to ask you one question. Probably I do not under- stand the matter. I understand from your argument that yon claim that deci- sion gives Congress the right to take this property away from the Alabama Power Co. and at the same time, pracf.cally, to make a Contract with Henry Ford for its purchase. In other words, I have not any doubt that we have the right to take it for our own use, but there is a question in my mind as to whether we have the right to take this property from the Alabama P(»wer Co. and transfer it to Henry Ford. Mr. Oliver. That question was asked on yesterday in your absence. Mr. Hull. Do you claim that the decision you quoted g ves us that rght? It is not clear in my mind that it does. Mr. Oliver. I stated on yesterday in reply to a similar question that thi^ property, as I understood, if you should order it taken by the Government, is to be used in connection with a governmental purpose which you in the 1916 act had declared to be a national project, to wit, the maintenance of the nitrate units at Muscle Shoals, and they were to be kept by the party to whom you might sell or lease, if the proposition now before you is accepted, for 100 years in a stand-by ready condition, and I thought that if the Gorgas Power Plant was taken to supply electric current to Nitrate Plant No. 2, that would be in connection with the use and permanent operation of a national project, and on that hypothesis unquestionably had the right to acquire and condemn the Gorgas plant. Mr. Hull. I agree with you as to plant No. 2, and that, fundamentally, is what we are after, the preservation of plant No. 2. But if we do it under that power, then we have got to establish in a court that this plant at Gorgas, 8S miles away, was essential to plant No. 2. Mr. Oliver. No. Mr. Hull. I think you would. Mr. Oliver. This decision holds, Mr. Hull, I think you will find if you read it carefully, that since you have declared a public use which is recognized as a public use, at Muscle Shoals, for a national project, then you have the right to condemn property to be used in connection therewith, and Congress deter- mine the necessity of what property is necessary for the operation of that plant at Muscle Shoals. That is a legislative question and not a judicial one. 836 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 837 h Mr. HuvL. But there Is nothing in the Ford contract as to the preservation of this transmission line to the Gorgas plant for the use of the Government in the future, is there? Mr. Oliver. That is the way I read it, Mr. Hull; that is my understanding of it. Mr. Greene. We are very much obliged to you, Mr. Oliver. Mr. Oliver. I appreciate the courtesy of the committee very much. (Thereupon, the committee adjourned to meet to-morrow, Thursdav, March 2 1922, at 10.30 o'clock a. m.) ' ' COMiflTTEE ON MILITARY AfFAIHS. House of Representatives. Thursday, March 2, 1922. The committee met at 10.30 o'clock a. m., Hon. Julius Kahn (chairman) pre- siding. The Chairman. I have before me two letters asking that certain statements be put in the record so as to correct other statements that have bf*en made here. One is from Mr. Waldo, calling attention to a telegram from Mr. Swann. and the other letter is from Mr. Bower, and. if there is no objection, the letters will be put in the record. ( The letters referred to follow : ) Washington, D. C, February 27, 1922. Hon. JULIUS Kahn, Chairman Committee on Militarn Affairs, House of Representatives, Washington, I). C. Dear Mr. Kahn : In order to meet the representations made by Mr. Hammitt regarding the limitations of the Swann process for the manufacture of phos- phoric acid, I wired Mr. Swann advising him of their statement regarding his process and have received the attached reply. Will you kindly read this into the record and verv much oblige, Respectfully, W. G. Waldo. r Telegram.] Birmingham. Ala., February 20, 1922. W. G. Waldo, No. 203 Third Street, SE.. ^\'a. but this is not analogous to the operation of the nitrate plant No. 2 with the large investment In machinery required for the air-fixation feature of it, which is the question when you consider operating nitrate plant No. 2 with such secondary horsepower as would be provided by the Alabama Power Co. I would greatly appreciate it if you would bring this statement to the atten- tion of the committee and allow it to be printed in the hearing directly follow- ing the testimony of the Alabama Power Co., and I wish to say in fairness to Mr. Martin, that had he analyzed the situation as above set out I do not believe he would have called the attention of the committee to the so-called contra- diction. Very truly, yours, American Farm Bureau Federation. R. F. Bower, Special As^sistant. STATEMENT OF MB. THOMAS W. MABTIN, PBESIDENT ALABAMA FOWEB CO. — Besumed. The Chairman. Mr. Martin, we will now proceed from where we left off. Mr. Miller was asking you some questions, but he tells me he has concluded, and Mr. Hill would like to question you. Mr. Hill. Mr. Martin, thanks very largely to some of the senior membei-s of this committee, the United States has a definite national^defense policy at this time. The Fourth Army Corps Area takes in North Carolina. South Carolina, Tennessee, Mississippi, Florida, Georgia, and Alabama. It has been recom- mended by this committee that Camp McClellan, which is near Anniston, be retained as the headquarters training area for that corps. I have before me here the map of the Alabama Power Co.'s distributing system, which you furnished the committee, and I want to ask you if I am correct in these esti- mates of mileages which I have made, using the scale that you have on this map. As I see it from this map, nitrate plant No. 2 is 120 miles from Anniston on a straight line. Mr. Martin. That is approximately correct. 838 MUSCLE SHOALS PBOP0SITI0N8. MUSOLE SHOALS PROPOSITIONS. 839 Mr. Martin. That is about right, Mr. HilL r^erv^^mp^a^'^'^ ^^^"* ^'*' ^ ^'' ^^^^^^^^ '^^ ™"^« ^^«™ ^he Warrior Mr. Martin. As the transmission line .is constructed, which I think is really the nearest route, it is nearer 90 miles. ^ Mr, Stoll. Eighty-eight miles. Mr. Hill. The transmission line, I understand, is 88 miles. I was sinmlv hgiiring this on air-line distances for purposes of comparison ^nf'i'Jl^Sir'J''l.^''^V^^''^ *^^* *" building a transmission line you have got to build It with reference to contours, railroads, supplies, and in some instances they can not be directly on an air line because mountains or vaHe^'s or marsh conditions may slightly change the direction. ^ are mountainlis.* '" ^ ""^"^ ^'"•'' ''''"''*^' *^''''"^*' ^^^""^ ^""^ '^"'^ P^^^" «^ '^ contouJ'of Th'l' lYnd"^^^^ **" ^^'^^ ^^^ '**'"*^ ^'^ '''''"^ ^""^^"^ '''•**' reference to the ^//iT" ^"'^U?"!?'^ McClellan is situated, roughly, in approximately the center Anni^^?on,Ts i? ifot?'' ^''^^' ^'''''* ^'''^^''^^'' ^^^^^^^ ^^^"^ ^^^ ^'^^'^ ^^^^ ^o ^Ir. ]Martin. Yes. sir; about 30 miles from Anniston. Mr. Hill. During the war your company furnished the American Oovernment light and power for the Camp McClellan situation, did it not' Mr. Martin Yes, sir; we furnished the light and power at Camp McClellan MKi^lInan'*'' '^"PP^^*'^^' <^^ ^^^^^s^' the light and power that is used at Camp or^^^^n ^V^^'' ^" «^her words, your company during the war supplied what power and light was needed at Camp McClellan and is still doing so for Go^-ernment Mr. Martin. That is correct, Mr. Hill. Mr. HiTx. And your company's network of plants and lines runs all through through'thele?*' "' McClellan, Talladega, and all that region down Mr. Martin. That is correct, Mr. Hill. Mr. Htlt>. That is a very rough, mountainous country through there' Mr. Martin. Some parts of it are quite mountainous, ^fr. Hill. And especially near Camp McClellan. Mr. Martin. Yes Mr. Hill. But it was considered by the War Department one of their verv best southern training camps? ' Mr. Martin. Undoubtedly it is. Mr. Hill, because the country is very healthv and there are many advantages, of course, which vou understand because I understand you were there for a while. Mr. HiLT^ Yes; I was there for nearly a year, and I know that general countr>'. A\e maneuvered all around that Gadsden countrv and Talladega countrj^ with the division. ' Mr. Martin. Yes. Mr. Hill. Were you here during most of these hearings, Mr. Martin' Mr. Martin. I was not in the room. I was in Washington during all of these hearings; yes. Mr. Hill. I want to call your attention to page 374 of the hearings Have you that volume before you? It is part 7. Mr. Martin. Mr. J. W. Worthington's statement. Mr. Hill. Yes ; this is Mr. J. W. Worthington's statement given on Thursday, February 16. Mr. Worthington appeared as chairman of the executive com- mittee of the Tennessee River Improvement Association. I asked him certain questions and a would like to read a portion of that page in order to bring the matter up again. We were discussing the guaranties offered by the Ford proposition for the production of fertilizer, and I suggested a different method of measuring the guaranteed power that was to be put in fertilizer. There had been some question about how much finished fertilizer would be the equivalent of 110,000 tons a year of nitrate, and there was some uncertainty about it. I said thii: " Mr. Hill. In connection with your expression in reference to the allotment, whether there would be any allotment of a definite amount of horsepower for the use of the fertilizer plant and the nitrate plant, what would that be In value? "Mr. Worthington. In that particular case, measuring the production of nitrate plant No. 2 in ammonium nitrate, it would be about 110,000 horse- power. " Mr. Hill. You spoke of its being from 100,000 to 110,000 horsepower. "Mr. Worthington. Stating the production in terms of ammonium nitrate. " Mr. Hill. Would it be a thing for us to consider here in connection with section 14, concerning which there has been a good many questions — you prob- ably recollect that the Secretary of War testified that he was not clear as to the guaranty for the production of fertilizer, so we have been particularly interested in section 14. Suppose we added to section 14, in the third line, after the words ' ammonium nitrate per annum ' something to this effect : 'And that the company would promise to devote to the said production 100,000 of primary horsepower from dams Nos. 2 and 3, or from the steam plant at Gorgas, or the steam plant at nitrate plant No. 2 throughout the lease period.* That is providing that there would be a devotion of a certain amount of horse- power to that production of fertilizer. "Mr. Worthington. That section absolutely carries that amount of power that Nitrate Plant No. 2 is operated to the capacity production of llOyOOO tons of ammonium nitrate or its equivalent. "Mr. Hill. I so understood from you. Would there be any objection to put- ting that in as an amendment to the provisions of the section — that they devote a minimum of 100,000 horsepower to the production of fertilizer? " Mr. Worthington. You will, I am sure, appreciate how one in my position is situated right now ; that I could not answer whether Mr. Ford would agree to that. "Mr. Hiix. Would .vou mind talking that over with Mr. Ford? " Mr. Worthington. I will discuss it with Mr. Mayo, and we will see what can be done." Now, I am much interested to see that in your offer you have measured your annual rental, as you might say, or your annual return to the Government, in power on that horsepower basis. Now I hold in my hand the printed copy of your offer furnished by the Secretary of War. You offer, in the first place, to take out a license under which you will complete the dam, locks, and power house at Dam No. 2, which is the Wilson Dam. Second, you offer to furnish free to the Government, or anyone it may designate, from the hydro-power plant 100,000 horsepower as required for the production of fertilizer and the munitions of war and for research in connection therewith, and if, due to changes in the art, its use of as much as 100,000 horsepower is discontinued by the Government, the Alabama Power Co. is to purchase and pay for the same in accordance with the schedule set forth in the license. This power to be the second 100,000 horsepower at any time available from the normal flow of the river. Then you speak of purchasing the Government's interest in the Warrior extension. Now, as a member of this committee, I am looking at this proposition from the point of view primarily of national defense. Mr. Martin. Yes. Mr. Hill. But also having in mind tlie great demand on the part of the public for cheaper fertilizer; but to me this is primarily a national-defense proposi- tion. This corps area here — the Fourth Corps Area — has always been a mobilization-camp section in every war we have had. Mr. Martin. Yes; that is my understanding. Mr. Hill. As I understand, Huntsville was a very important mobilization center in the Spanish- American War, was it not Mr. Chairman? The Chairman. I do not recall. Mr. Martin. That is correct, sir. The Chairman. I recall there was a very big camp at Chattanooga. Mr. Hill. Yes. Now, Mr. Martin, can you tell us what other big camps there were in what is now the Fourth Army Corps Area during the past war? There was Camp Greene, in North Carolina, was there not? Mr. Martin. Yes ; and there was a camp at Columbia, S. C, one at Atlanta, one at Columbus, Ga. ; Camp Benning, I believe, is the name of that camp. Mr. Hill. That is a permanent camp? Mr. Martin. Yes. Mr. Hill. How far are you from Camp Benning? 840 MUSCLE SHOALS PBOPOSITIONB. Mr. MAftTiN. You will see that our lines on the eastern border of Alabama run to a point called Opelika, the extreme southeastern point of our line. Mr. Hill. How near is Benning to your power-transmission line? Mr. Mabtin. We go to a point known as Opelika, in Alabama, and Columbus, Ga., where this camp is located, is about 20 miles to the eastward of Opelika. Mr. Hill. Then you are within serving range of Camp Benning, are you not? Mr. Mabtin. We are, Mr. Hill; and it has been in discussion between our company and the Columbus Light & Power Co. that we would connect our lines at Opelika with the Columbus company to better serve the needs of that section of Alabama and Georgia, giving assistance to each company when it needs it, from one system to another; in fact, we are under an arrangement with them to go forward with that connection. As you know, during the war, there was a very large camp at Montgomery, Camp Sheridan. Our company now has extended its lines and is serving power to the Montgomery district. We do not distribute there, but it is distributed by anotber company, the Montgomery Light & Water Power Co., and that com- pany furnished all the requirements for lighting and power service at Camp Sheridan during the war. Mr. Hill. Then your company during the war and at the present time is within serving distance of the majority of the great training centers in what is now the Fourth Army Corps Area? Mr. Mabtin. Yes. Chattanooga is within easy distance. We have a tie-line connection with the Tennessee Power Co. which easily enables power to pass to Cbattanooga for any purpose that might be required there. Mr. Hill. Now, I am not entirely clear as to the difference between primary and secondary' horsepower. In my questions that I asked Mr. Worthington I had in mind primary horsepower, because I had in mind that if the Government did not need all of this 100,000 horsepower for purposes of developing ferti- lizer it could use it in this corps area for lighting and for other purposes. Now, can you light lamps, etc., with this secondary horsepower? Mr. Mabtin. Yes; of course. Mr. Hill. What is the difference, in plain words, between primary and sec- ondary horsepower? Is there any difference except the steadiness of flow? Mr. Mabtin. That is all. The Chaibman. Mr. Hill, that has been explained in the record, but I have no objection to having it repeated at this time. Mr. Hnx. I wanted it in this connection because my understanding of it is The Chaibman. It is already in the record, but I think it is probably fair that Mr. Martin should again explain what the difference is. Mr. Hill. Then for all practical purposes primary and secondary horsepower are the same except in the flow? Mr. Mabtin. Absolutely. It is just a question of river flow. Mr. Hill. If the United States had available during the term of this arrange- ment 100,000 horsepower a year, that power could be used for lighting and heating or for any other purposes in these various camps, could it not? Mr. Mabtin. Yes, Mr. Hill. Mr. Hill. During the war you furnished electric power to Camp McClellan? Mr. Mabtin. Yes. Mr. Hill. Now, at war prices how much would 100,000 secondary horsepower be worth a yenr? Is that a fair question or is it the kind of question that could be properly answered? Mr. Martin. Well, you would have to take into the question so many assump- tions as to the place of delivery, the hours of use Mr; Hill. Let us take Camp McClellan as an illustration. Mr. ;Martin. And the place of its delivery, etc. I might express it in this form : In times of war this power would be very useful, but you would want in addition to this power steam power or some other power to make it permanent. You would not want to be dependent necessarily on the flow of the streams in times of war. What would happen would be that you would exercise, or the President would exercise, some part or all the power vested in him under the terms of the Federal water power act and direct us to deliver any amount from Lock 12 or Mitchell Dam or the Tennessee River that might be needed for any of those locations. The Chairman. Mr. Hill, will you allow me to ask a question there? Mr. Hill. Certainly. MUSCLE SHOALS PROPOSITIONS. 841 The Chaihman. As I understand it, primary i)ower is power that is always on tap. Mr. Mabtin. Yes. The Chairman. And secondary power depends upon the amount of water in the river, as to whether it is available or not. Mr. Martin. Yes, sir. The Chairman. Sometimes it is available for seven months, sometimes only for three months, and so secondary power changes in volume according to the amount of water on hand, is not that the case? Mr. Mabtin. That is true. Mr. Hill. And am I correct in my recollection that you said under these circumstances there would be about 82 per cent of secondary power available at most times in your testimony the other day? Mr. Mabtin. Yes ; that is correct. This 100,000 horsepower is available for 82 per cent of the time, taking an average period of 30 years, Mr. HilL Mr. Hill. That was my understanding. Mr. Mabtin. There have been very fine and complete records made of this Tennessee River flow, as complete as any river in the United States, and they have been plotted. Mr. Hill. Let me ask you this further question in that connection : Can you give the committee any estimate of about how much the value of this 100,000 secondary horsepower would be delivered, say, right at the nitrate plant, per year, because you have offered this as a sort of permanent payment per year? Mr. Martin. It depends altogether on how the Government would wish to set it up. The Government might set it up at once price or another and might charge one price or another to its licensee. I noticed in some testimony which was offered and which I placed in the record the other day, that in former hearings before this committee one of the Government's consulting engineers placed a value in fertilizer production at this point on this power of $7.53 per horsepower per year Mr. Hill. That woufd be .$753,000 per year. Mr. Martin. .$753,000 a year. That was the average of the entire secondary )iower. Of course, this is ^Ir. Hill (interposing). From your testimony the other day this is prac- tically all the secondary power that would exist at present. Mr. Martin. It would be, with the equipment which we would initially put in, 240,000 horsepower, but there will be additional equipment until we finallv reach 600,000 horsepower, the full installation, and everj'thing above 100,000 horsepower is secondarj-, and the Government gets the first 100,000 horsepower. Mr. Hill. The first 100,000 of the secondary power. Mr. Martin. Yes. Mr. Hill. Your proposition divides this up into a power proposition which in my opinion it is essentially. Mr. Martin. Yes. Mr. Hill. But it also takes care of the fertilizer end by setting apart not so much nitrate, but by setting apart so nmch power which can be converted into nitrate. Mr. Martin. Yes, Mr. Hill. Or sulphate, or whatever is necessary. Mr. Martin. That is correct. Mr. Hill. You offer therefore this guaranteed supply of power, which can be used for fertilizer, expressing it not in terms of nitrate production but in terms of power. Mr. Martin. Yes. Mr. Hill. And am I to understand that the value of that would be about $7.53,000 a year? Mr. Martin. The testimony, Mr. Hill Mr. Hill. Or would you prefer to go into that further and file a further report on that? Mr. Martin. Well, I am not saying myself what the value would be for ferti- lizer production, but I am taking the testimony which is before the committee, and that was very exhaustively gone into at one of the earlier hearings, a hearing last year, and the value of $7.53 was placed on that power during that hearing, and by $7.53 I mean this entire block of. secondary power. That which we offer the Government is 82 per cent of the time, then it reduces and goes down to 70 per cent, 50 per cent, 40 per cent, and 30 per cent. The gentleman who made the calculation as to the value of $7.53 included all ''wiev a42 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 84a I of the secohdary power over and above $100,000, and placed the value of $7.53 on it. Now, if you segregate the first 100,000 of secondary power from that volume you no doubt will find it has a very much better value than $7.53. Mr. Hux. Am I right in this interpretation or in this comparison of your offer and Mr. Ford's offer? Mr. Ford offers to take over this plant, the Gov- ernment financing the completion of the dam. Mr. Mabtin. You say our offer does that? Mr. Hnx. No ; Mr. Ford's offer. Your offer contemplates your financing the completion of the dam. Mr. Mabtin. Yes; that is correct. Mr. Hill. Mr. Ford's offer contemplates taking over the title to Nitrate Plant No. 1 and Nitrate Plant No. 2, subject to certain reservations as to No. 2. Mr. Mabtin. Yes. Mr. Hill. You contemplate leaving that with the Government? Mr. Mabtin. That is correct Mr. Hill. And you contemplate furnishing the Government power, which^ translated into fertilizer, would perhaps be worth as much as $753,000? Mr. Mabtin. Or might be worth $10 per horsepower or $1,000,000 a year. It depends on the times and conditions and tlie price at which the Government sees fit to pass it on to its assignees. I have no doubt you would find that the Government could realize $10 per horsepower. Mr. Hill. Then under your offer you finance the water power development under the general water power act? Mr. Mabtin. Yes. Mr. Hill. And you leave to the Government its nitrate plants and guarantee it power? I Mr.^ ^Martin. Yes. Mr. Hill. Whereas under the Ford offer, he takes the whole th'ng personally :in«l the Government finances it. Mr. :Makti.\. That is my underistaiuling. Mr. Hill. ^ ' Mr. Hill. Thank you : that is all. Mr. Martin. As to this 100,000 secondary horsepower, under the calcula- tions which have been niawer for use at Camp McClellan. it would be more needed in the winter months for lighting and heating than in the summer months. Mr. Martin. Yes. Mr. Hill. And naturally would be more available din*ng tliat season of the year ; is not that right? Mr. Martin. That is correct. Mr. Hill. In other words, umler this proposition the Government would have available in th's Fourth Corps Area this secondary power as its own and tben would have the reserves of your company behind it for use in case of emergency. Mr. Martin. Yes, sir. They would have all of those reserves, not only as a matter usually connected with the conduct of war but as a matter of contract, by virtue of the fact that we will have two licenses issued under the terms of tile Federal water-power act, which impose that specific obligation upon the licensee. Mr. Hill. As T understand Mr. Ford's offer, if a scheme could be devised by which the fertilizer equivalent r)f 110,000 tons of nitrate could be made out of 25.000 sectmdary horsepower a year, Mr. Ford would get all the remaining horsei)ower; in other words, his contract does not dedicate a specific amount of horsepower to this proposition, and I do not think his representatives have yet filed an answer as to whether Mr. Ford would be willing to do that. Mr. Martin. I have not seen it, Mr. Hill. Mr. Hill. And as the case now stands, yours is in terms of horsepower and his is in terms of nitrate. Mr, Martin. Yes. Mr. Fields. Mr. Martin, I would like to get a little more information with regard to the two local development companies that you referred to earlier in your testimony upon this subject. I believe you said there was a wmpany organized at Muscle Shoals and a Birmingham companv whose object it was to develop Cherokee Bluffs. Mr. Martin. Yes, sir ; that is correct, Mr. Fields. Mr. Fields. And those companies were taken over bv the Alabama Power Co ' Mr. Martin. Yes, Mr. Fields. Mr. F1E1.DS. By whom was the principal stock in those companies owned. Mr. Martin, before they were taken over by the Alabama Power Co.? ^Ir. Martin. I would have to go back to the old records, Mr. Fiehls. There were a number of people owning them. Shall I go into all the details? I would be glad to, so far as my recollection carries me, Mr. Fields. Mr. Fields. Was Mr. Washburn connected with those companies? Mr. ]Martin. He was interested in both the Muscle Shoals Co. and the Cherokee Bluffs Co. Mr. Fields. Was he a large stockholder in them? Mr. ;Martin. Yes ; he was a considerable stockholder. Mr. Fields It is a fact that Mr. Washburn inanipuhited the transaction wliich resulted in the Alabama Power Co. taking over those companies, is it not? Mr. Martin. Well, I would not put it just in that form. I think Mr. Washburn was one of the principals in those negotiations. The negotiations with Mr. Mitchell came up first through others than Mr. Washburn. Those negotiations came up through a Mr. Paul Brady, who lives in the city of New York. He is the gentleman who initiated the program with ]Mr. Mitchell, and he was inter- ested in the matter at the instance of some of his friends who owned some in- terest in the Alabama Power Co. at that time. Then Mr. Mitchell, having looked into the situation of the Alabama Power Co,, became interested in these two other situations in a few weeks afterwards. Mr. Washburn was one of the principals in the negotiations in transferring the interests to Mr. Mitchell; Mr. Washburn and Mr. Henry C. Jones, of Montgomery; Mr. .Tames S. Pink- hardt, of Montgomery ; Mr. W. P. Lay, of Gadsden ; and Mr. Hohenburg and Mr. J. W. Worthington and Mr. Charles H. Baker. They were the gentlemen, principally, with whom the transactions were conducted. Mr. Fields. Mr. Worthington, to whom you have referred, did not own a majority of the stock or a great percentage of it, did he? He was only a light stockholder, was he not? Mr. Martin. I do not recall just what his stock interests were. I do not recjill that, and would have to look it up to see. Mr. FiEij)S. Have any other local power-development companies been taken over by the Alabama Power Co. or the Alabama Light & Traction Co. in the Southeast? Mr. iMARTiN. Yes ; there were a number of companies operating in small towns and in the larger towns of Alabama, selling light and power to communities. We operate in about 60 different towns in the State, and at different times our company has taken over lighting systems in various parts of the State, and we have brought into those communities hydroelectric service and made available power for lighting and industrial use where it never existewers of California. Mr. Martin. Yes ; and they have practically no power cost, due to the excep- tional conditions under which power development is made in Sweden. Mr. F1EI.DS. Of course, they are situated like we are with regard to Muscle Shoals and many other splendid water powers. They have very splendid water Iiowers there. Mr. Martin. With high heads and great rivers tliey are able to develop their powers at verj- much less cost than we can ever develop ours, at at least some of them. ' Mr. Fields. It has aiiparently been the policy of the Government for several years, beginning with the consideration of the national defense act of 191G to provide some place for the prmluction of nitrates for war puriioses in times of stress and for fertilizer in times of peace, and it apiiears further that the Goveniment settled upon Muscle Shoals as the place to carry on that produc- ^**!?i: ^«^ l\ ^^H** **^ '"®' ^•^"sidering the proposition of the Alabama Power Co. in the light of the opinion expresseil by the Secretarv of War in his letter to the Congress accompanying the offer of the Alabama Power Co , that we s«v» the finish of this policy, if the offer of the Alabama Power Co. is accepted and the recommendations of the Secretary of War as expresse of his letter, to which I have referred, are carried out. 1 - Mr. Martin ()n the contrary, it would seem to me, Mr. Fields, that it makes ft more practicable. Mr FiEiDS. In paragraph 2 of the letter referred to, the Secretary sjivs • "The coinpany offers to furnish the Government, or anv one it mav desi- •late with free power in the amount of 100,000 secondary 'horsepower 'for the 'Jit1^"''nn V -r J**''*"*''^*^^ »""^ munitions of war and res*.arch in connection there- uith, antl if for any reason this use of the power is discontinued Hip ff»ni. imny will purclutse same. The feature of the offer 1ms thTa'w^^^^^^^ viding the Government a return on the $17,000,000 it now has invested in the water-power project." So I understand from the Secretary's letter that he is looking at the return that would come to the Government by the Alabama Power Co. purchasing this project and paying for it, which payment would be applied as a return upon the $17,000,000 invested in the dam. Mr. Martin. The Government gets a return, may I suggest, Mr. Fields, in that it receives 100,000 horsepower, whether it puts it into fertilizer production, munitions of war, or sells it; in either case, the Government gets a return. Now, I do not know just in what sense it was intended here, but it seems to us that the Government is definitely getting a return on its wartime invest- ment, whether it converts that power into fertilizer or sends it out for com- mercial or other uses. Mr. Fields. That might be your construction of that paragraph of the Sec- retary's letter, but I am frank to say that it is not my construction of it. Now, in order to try to arrive at a conclusion as to where the Government is getting on and off in these two propositions. I have tried to figure out. as best I could, the return that the Government would get under each one, and in that calculation I have been more liberal than you were in vour estimates made in reply to the questions of Mr. Hill a while ago. I took the estimate of Col Cooper on the value of power at Muscle Shoals. I believe he placed an estimate of 1.2 mills per kilowatt hour, which would amount to $7.80 per horsepower. Mr. jNIarttn. For secondaiy power. :Mr. FiEiJ)s. Yes ; for secondai\v power. .Mr. Martin. What load factor do you use? Mr. Fields. I have figured it out on 100 per cent load factor, and also upon what the testimony shows is the average load factor used in the United States. If the flow of the river would provide continuous power at $7.80, that would amount to $780,000 a year, and I believe you suggested a while ago that the flow of the river would afford that power about 80 per cent of the time. Mr. Martin. Eighty-two per cent of the time. Mr. Fields. In the calculation which I made last night and have roughly revised here, for 10 months, that would amount to $650,000 on a 100 per cent load factor, and on a 51 per cent load factor, which the testimony shows is the average load factor in all operations of this character, it would amount to $331,500, and comparing your contract with the life of the Ford lease, the Gov- ernment would get a return there of $33,150,000. Now. what other return does the Government receive under your offer? Mr. Martin. We will have to go back to your hypothesis a moment. The very price of $7.80 per horsepower per year is predicated on the secondary class of power and does not vary, due to the question of load-factor use. All of those factors you have taken into account, if I may suggest, Mr. Fields, when you reached the figure of $7.80 per horsepower per year were taken into account and taking your basis of $7.80, that becomes $780,000 a vear. rather than $330,000 a year. Mr. Fields. All right : I will admit my inability, with my limited knowledge of the power business, to figure out in a few minutes or to take into consideration all these things to which you refer, but let us take it on the broadest po.ssible basis that we can make it and put it on 12 months a vear. with 100 per cent load factor ; that would be $780,000 a year, or $78,000,000 for the life of the contract using the same length of time as is contemplated in the Ford contract. Mr. IMartin. Yes, .sir. Mr. Fields. And that is as broad as you can possibly make it, and that Is giving you every advantage and is conceding that the river flows 12 months out of each year for the 100 years? Mr. Martin. Oh, no. Mr. Fields. So as to furnish this 100,000 horsepower, giving vou a load factor of 100 per cent. Mr. Martin. We can not concede that it will flow 100 per cent of the time Mr. Fields. I know we can not, but I am giving you the advantage of that. I am conceding that only for argument's sake and am giving vou that advan- tage. Mr. Martin. We do not want the advantage, and we do not need the ad- vantage. We do not need that assumption. We take 82 per cent of the time and that fixes the basis, and that is all we can assume. We go by the records of 30 years, and if you will go into the power business you will find that these records of 30 years are going to work out in practice, and the gentlemen f 846 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROt»OSinONS. 847 who figure out this power situation on the Tennessee River do so upon those same recoVds. Now, taking that basis as a starting point, without any ad- vantage given to us— and we do not think we are entitled to any advantage — 82 per cent is the basis. Then you have the question of 50 times $780,000 in the 50-year period, or $39,000,000, and in a 100-year period you have $78,000,000. That is the advantage to start with. Mr. Fields. That is on a 100 per cent load factor for continuous power? Mr. Mabtin. No. Mr. Fields. I beg your pardon. Mr. Mabtin. No; that is secondary power. Mr. Fields. I think if you will look into it you will find that is at $7.80 per liorsepower, and I am basing my calculation upon the figures given by Col. Cooper for continuous flow. Mr. Martin. I do not know of anyone, Mr. Fields, in the United States that would sell you continuous horsepower at $7.80 per horsepower per year. Mr. Fields. You think that is too high? Mr. Mabtin. No, sir ; it is too low. Mr. Fields. That is the figure that Col. Cooper gave. Mr. Martin. That is for secondary power? Mr. Fields. Yes; for secondary power, and I say, granting that the flow of the river is so continuous that it will furnish this secondary 100,000 horse- power continuously Mr. Martin (interposing). For 82 per cent of the time. Mr. Fields. But if it does that for 100 per cent you can not figure out more than $780,000 a year, which would be $78,000,000 for a period of 100 years, which is equal to the period of the Ford lease. The Chairman. Mr. Fields, will you allow me to ask a question there, and maybe I can clarify the situation? If power is furnished 100 per cent of the time, it is no longer secondary power. Mr. Martin. That is correct, Mr. Chairman, and that is the answer. ^Ir. Fields. I understand that thoroughly, but I was just making it as broad and as much in favor of the Alabama Power Co. as I could, to show what the maximum could possibly be. Then at the end of the contract you own the property under the terms of your contract, as I understand, with the right of the Government to recapture? Mr. Martin. Yes: Mr. Fields, at the end of 50 years, or during the 50-year period, the licensee owns the property. If it greatly increases in value, and it is bound to increase in value, jit the end of this 50-year period the Government may come in and take it over on paying the licensee his original cost, whatever in dollars that project has cost to the end of the 50-year period, without any increment or anything representing this increase in value, and even the lands, rights of way, water rights, and intangibles of that character, going value, good will, all of those elements, by the terms of the Federal water power law are excluded, except the actual, reasonable cost of those things to the licensee, so you come back at last to the net dollars the licensee has in the project, and that is the basis on which the Government may take it over. Mr. Fields. But the Government must pay the license the value of the property as defined by you in your statement. Mr. Martin. I would not say value, but the cost. Mr. Fields. Yes; the cost. Mr. Martin. Yes; what is known in the Federal water power act as "net investment." Mr. Fields. Then in arriving at just how the Government is going to come out, we would deduct that cost from the Government's income from the Alabama l*ower Co. during the life of the contract. Mr. Martin. No; because the Government has not suffered that at all. We do not ask the Government to put up that net investment. We advance that net investment you see. It is not a deduction. The Government has saved tlu' net investment. Mr. Fields. But the point I am getting at is that the Government would own the property at that time with its income from the Alabama Power Co. during the life of the contract, less the cost of the construction which the Government would have to pay back to the Alabama Power Co. Mr. Martin. Yes; in the intervening period the Government is better oft because it has saved this investment itself. It has saved the annual interest charge on that investment, which you can calculate very easily, and at the end '^f this period, the Government may do exactly what it may do to-day, without any added cost, namely, come in and pay the net investment to the licensee and take it over. Mr. Fields. I understand, but you are not contending— I hope that the Gov- ernment could recapture the property and own it in fee, and at the same time have all the income that it gained from the Alabama Power Co. during the life of the contract. Mr. Martin. Yes. Mr. Fields. It would have to pay the Alabama Power Co. for the property which would naturally, in the final balance, be deducted from the amount the Government had gotten from the company. Mr. Martin. It would only pay that which the Alabama Power Co. had con- tributed in the meantime toward the capital cost of the project. Mr. Fields. But you will not claim that it would own the property and still have all the income that it received. Mr. Weathers. The property now there. Mr. Fields. Of course, it would own the property now there. It owns it any- how, but with the improvements put on by the Alabama Power Co. Mr. Martin (interposing). The Government would take over the improve- ments and everything we put there. Mr. Fields. And pay you for putting them there? Mr. Martin. And pay our net investment. Mr. Fields. If it had $78,000,000, which I reach by allowing you 100 per cent time and 100 per cent load factor, it would, of course, deduct whatever amount that was, and the Government would say that I have the contract and have so many dollars that I have acquired. Mr. Martin. That is one way of looking at it ; in other words, if the Govern- ment has realized this income of $40,000,000, we will say, from power in the meantime it may turn back and use the $40,000,000 income in paying the net investment and take it over without any cost, if that is what you mean. Mr. Fields. And I have figured all the advantage that could come to the Alabama Power Co. by reason of the 100 per cent time and 100 per cent loa2(>(),000.000 and own Locks 2 and 3, and the benefits we have had of a navigable river for a hundred years. Mr. Martin. Yes; but how much are you out in doing that? Mr. Fields. Forty-two million dollars, in addition to what we would l)e out in supplying the Alabama Power Co. Mr. Martin. No; you are out $1,275,000,000 on your basis of calculation, on 100 years, in doing that. Mr. Fields. No ; if we go back that far you want 4 per cent on the $17,000 000 Mr. Martin. We are willing to balance figures on that, and the Government must credit itself with the annual savings which it otherwise be out to the bondholders, because the Government does not have any additional money to put out in the 100 years under our program. Mr. Fields. It has the $17,000,000 in the dam? Mr. Martin. We will let you make that calculation and give the Government credit. The Government must charge itself this annual return in the form of the value of this power. It has that income, and it has no outgo bv way of interest charges or any further investment in it. It is saving to the Govern- ment over the periolARTiN. We propose to give you a return on that, and we stop right tliere with the outgo. Mr. Fields. If we charge you that 4 per cent interest on the $17,000,000 that will result m quite a different figure so far as concerns what the Government receives from the Alabama Power Co. at the end of 100 years r.^-^'' J'Jo)^!^' ^''^^'^^ y^"r figure at $7.80, what is 4 per cent on $17,000,000? It is $680,000 a year, and according to the figures you have used, the $7 80 the Government will get o\et 4 per cent out of this $17,000,000 annuallv Yoii have over $100,000 more than your annual interest charge. You have got to give the whole situation that credit as you go along. .v^^- ^P^^®- ^P^^ ^^^ ^^™® proposition, by putting in the additional $42,000,- 000 received from Mr. Ford, we will get there, from you, on a 10-month's flow and a 100 per cent load factor, which I am only conceding for the sake of the nrgnment— we would get $650,000 a year, and that would be $65,000,000 during the period of 100 years, and that is all we would get from you, and if we re- capture the property we must deduct from that the amount you have put into tlie property^ Then we have been giving you the benefit of a Government con- V-,%^AJ?LJr9 y?^*"^' whereas under the Ford proposition we have alreadv got $17,000,000 in the plant, and by putting in $42,000,000 we would have a navi- i?^^^"* ^^^ ^^ ^^^^® ^^^ *^® nitrate plant maintained at an expense of .15^,500,000 a year; that is, a deterioration of 5 per cent, and an account for maintenance, which the War Department figures at $200,000 a year, and $260,- 000,000 from Ford m interest and amortization fund. So it looks to me like there is a wide difference between the two propositions, if I am correct \nd 1 want to be correct on this proposition ; I want the facts. Mr. Martin. Let us take navigation. Mr. Fields. That is not accounted for in the Ford proposition Mr. Martin. When we come to the question of navigation, it is more com- F ?• mP^L^* ^^ important. In oinier to get the navigation complete vou have to build Dam No. 1 ; that is, below the Wilson Dam. Mr. Fields. It has been estimated it will cost $1,400,000 to do that Mr. Martin. That is not involved in this situation at the moment That is an appropriation which you must make independent of this matter Then vou have the Wilson Dam as a part of the navigation scheme. It will carrv \he water back 17 miles. Then you have to build Dam No. 3 to carry that naviga- tion back, I think, 65 miles. Then you have to build from five to seven more oains in the next stretch of the river between the headwaters of Dam No 3 and iiales Bar on the Tennessee River to make your all-round navigation I do not Know what those estimates are; perhaps they amount to ten or flftetMi million 850 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 851 dollars. ' You have all those things to do. What I say is that then Dam No. 2 can be taken care of by financing in the usual business way^ of inviting capital to come in to do it. Dam No. 3 can be taken care of in the same way. The Government probably will find it necessary to finance these other dams on that river because the water power does not justify privately financing other water powers on that river. When you come into the question of navigation you have to consider it as a whole. By building Dam No. 2 and Dam No. 3 you do not complete the scheme of navigation, but it would be a matter of millions of dollars which would have to be put into those other dams. Mr. Fields. While it does not appear in the Ford offer. Mr. Ford's engineer has stated that it is Mr. Ford's intention to build these dams in the upper reaches of the river. Mr. Martin. I am not speaking of the upper reaches ; I am speaking of the stretch from Chattanooga to Muscle Shoals. You will find you have to do a great deal of river improvement in that stretch. Mr. Fields. But Dams Nos. 2 and 3 will put us into the heart of the raw- material regions there, will they not? Mr. Martin. No; it will improve a stretch of the river, just as Dam No. 2 improves a part and also Dam No. 3 will improve a part. Mr. Fields. Dam No. 2 would put the water back 14.7 miles and Dam No. 3 would put it back 63 miles. Mr. Martin. Then, you have to build the other dams before the navigation scheme is completed. Mr. Fields. It is fair to say that the completion of Dams. Nos. 2 and 3 will make quite an improvement in the navigation of the river by carrying it over Muscle Shoals, which has always been a great impediment to the river. Mr. Martin. You will find on examining the profile of the river as shown in Document 1262, Sixty-fourth Congress, first session, plate No. 1, that the scheme of improvement requires several dams between Dam No. 3 and Hales Bar. Hales Bar is the large dam built just below Chattanooga. Mr. Fields. How far is it from Dam No. 3 to Hales Bar? Mr. Martin. About 150 miles. Mr. Fields. How many locks are recommended by the Government engineers from Dam No. 3 to Hales Bar? Mr. Martin. They are Hobbs Island Dam, Buck Island Dam, Mink Creek Dam. Belief onte Dam. and Widows Bar Dam— that is five dams in that stretch, and that will carrv the water level to the Hales Bar Lock and Dam. Mr. Fields.* It will provide for a 6-foot draft. But the river, in the absence of these dams, is navigable a great portion of the year, or would be navigable a great portion of the year if Muscle Shoals were supplied with Locks 2 and 3, would it not? Mr. Martin. Yes ; that is correct, if you also add Lock No. 1. I believe the Widows Bar Dam is now under construction, or at least one of those dams is now under construction. Of course, the navigation question is itself important and if the Wilson Dam is completed, somewhere along the lines we have suggested, bv a licensee under the Federal water power act, in the course of five years' private capital will be ready to undertake the next one, because of the power feature of the proieot. and if the Government wants to undertake that one to-day, on a basis which is better than anything that has been pro- posed, the Government can do it to-day. All of those interest charges that the Government is now proposing to meet on this $50,000,000 of new capital; yon have to bear in mind you have to balance that in the whole equation to see where the Government comes out. Mr. FiKT.Ds. Of course, if we follow the figures suggested by you and Col. Cooper the Government has got to depart from its policy. Mr. Martin. I am speaking of the $.")0,000,()00 of new money ; excluding the amount of interest you have $50,000,000 of new capital to put into these two developments now. 1 would like to say the completion of the Wilson Dam with a lock restores navigation upon that river as it existed before the dam was constructed; in fact, it improves the condition of things. There is a canal which has long been . in existence, and which goes around the remainder of the Muscle Shoals (lis trict. Carrvincr the improvement then from the upper river into the pool created bv the Wils(m Dam you get exactly the same navigation with the Wilson Dam completed; in fact, you get greatly improved navigati(m with the Wilson Dam completed over that which existed before the dam was begun. Mr. Fields. You have a pool for 14 miles above, and when you get up there you are no better off. Mr. Martin. There is a Government canal there. Mr. Fields. Your statement suggests another question. I believe in your I)roposition you propose to operate the l(>cks during the period of your contract, whereas Mr, Ford proposes to make a cash allwance to the Government of .$55,000 a year for the operation of the locks. Mr. Martin. No. Here is the situation : We do not propose to operate the locks, and neither does Mr. Ford. We propose to furnish power to operate the locks, and so does Mv. Ford. We propose to maintain the jjower house and dam. In the cjise of the Ford proposal, he propf)ses to operate the power house and maintain the power house. Our proposal goes further, and we undertake to operate and maintain the dam gates in addition. Mr. Ford pro- poses to give you a fixed sum of $55,000 a year. We propose to undertake the full burden and the hazard. Mr. Fields. But the difference there is this : The expense of oi>erating these gates with Dam No. 2 only constructed would not be as great as if Dam No. 3 were also constructed, would it? Mr. Martin. I do not know that it makes any great difference as to the risk. It is a matter of risk. Do you mean Mr. Fields (interposing). I mean the actual expenses of operation, of doing it. Mr. ^Iaktin. I can not see that it makes very much difference. Mr. Fields. There would not be very much navigation. Mr. Martin. We are speaking of two different things, are we not? The expense of oi)erating a lock is in any case an expense for the Government to take care of. The expense of oi)erating and maintaining the dam and the gates on the dam, not the lock gates, is a thing which is wholly outside of the ques- tion of navigation whether No. 3 is in or out. Mr. QuiN. Mr. Martin, these questions I am going to ask you are based on the fact that we are considering you as an outsider, the same as Mr. Ford, in this proposition. This is an affirmative offer of yours, and of course the ques- tion of the contract would be irrelevant here. But I think it is necessary for the record to show who your company is for the benefit of our colleagues who are not here. You admit, and Poor's Manual shows, that the Alabama Power Co. is owneer cent of our company is owned in America and 35 per cent abroad, as I stated the other day. Mr. QuiN. Poor's Manual on public utilities shows that all of the commcm stf all the terms and conditions of the act. (a) The right of the United States or any State or municipality is expressly reserved to take over by condemnation proceedings and maintain and operate tli*^ project at any fme during the 50 years license period upon payraeht of just compensation to the licensee therefor. (Sec. 14.) MUBCLE SHOALS PROPOSITIONS. 855 (6) At the end of the period the right is reserved to the Government to take over the project upon payment of net investment by the licensee, but not to exceed its fair value. (Sec. 14.) (c) At the end of 50 years, in event the Government does not exercise the right to take over the project, preference is given to applications by States or municipalities. (Sec. 7.) id) No preference right for renewal of the franchise or any proprietary claim for power is secured to the licensee. If a license is renewed, it must be under the then existing law and regulations. (Sec. 15.) 3. The licensee can not execute a transfer of any right secured under the license or of property under the license without the written approval of the power commission. All transfers or assignments, whether by judicial sale or foreclosure, must be subject to the conditions of the act. This is construed by the present power commission to extend to a lease of any property under license. (Sec. 8.) 4. The licensee is required at its own expense, under the supervision of the power commission at all times, to maintain the project adequate for purposes of navigation and efficient operation in the development and transmission of power, must make necessary renewals and replacements and maintain adequate depreciation reserves. (Sec. 10c.) 5. The licensee is required to provide free of cost, power for operation of all navigation facilities (sec. lie), and authority is reserved in the Government at all times to prescribe regulations governing control of the pool level and other regulations in the interest of navigation, including maintenance of operation of necessary lights and signals. (Sec. 18.) 6. All power sold from the project by the company regarding the service ren- dered its customers and its lates and charges of payment therefor are at all times subject to regulation by duly constituted public authority. (Sec. 19.) All power sold in public service entering into interstate commerce must be "reasonable, nondiscriminatory, and just to the customers, and all unreason- able discrimination and unjust rates or services are hereby prohibited and de- clared unlawful." 7. After 20 years of operation, amortization reserves are required out of sur- plus earned thereafter, if any, not in excess of a .specific reasonable rate of return upon the actual, legitimate investment to be applied, in the discretion of the power commission, in reduction of the net investment of the licensee. (Sec. 9tl.) This rate has been fixed by rules and regulations of the power com- mission. 8. The licensee is reciuired to make e^iuitable contribution for benefits accru- ing to it from headwater improvements either by storage reservoirs or other- wise, whether done by other licensees or by the Government. (Sec. lOf.) 9. " Combinations, agreenients. arrangements, or understandings, expressed or implied, to limit the output of electrical energy, to restrain, direct or to fix, maintain or increase prices for electrical energ>' or service are prohibite«l." (Sec. 9h.) 10. The right is expressly reserved to the United States at any time, in the opinion of the President, to take over, when the safety of the United States demands, the project for manufacturing nitrates for "manufacturing nitrates, explosives, or munitions of war or for any other purpose involving the safety (►f the United States," but involving a liability only for just and fair compensa- tion for use of the property taken, to be determined by the Power Commission upon a basis of a reasonable profit to the licensee in peace time, plus the cost of restoring the property to as good condition as when taken, less a reasonable value for improvements made by the United States that are serviceable and valuable to the licensee. (Sec. 16.) One of the other pending offers requires the Government to protect the com- pany from losses by such use and to return the property in as good condition as received, plus reasonable compensation for the use thereof. 11. The United States is vested with authority to revoke the " license or to remewer. which you say is procirrable about 82 i)er cent of the year. Mr. Martin. Mr. Quin, no one is in the hands of a public utility. Its rates are regulated by a public service commission, and if no public service com mission exists in a State, then they are regulated by the Federal Power Com mission. We have no voice except to initiate rates. The public authorities themselves fix the rate. With this great steam plant, with these other hydro- electric plants in the immediate vicinity, and in many other portions of the State, you have a direct call on all the primary power that anyone would ever need at rates that are reasonable. Mr. QriN. Mr. Martin, according to the evidence produced here, the Alabama Power Co. has practically all of the available sites there, outside of this site and site No. 3. Mr. Martin. I do not know that that is the evidence, but I am speaking of whatever power there may be developed. Whatever power is developed and transmitted to the user is transmitted at rates which by law must be fair and reasonable. Mr. Quin. That is true, but the evidence shows that your company has al- ready, through lease or acquirement, gained control of practically all of the available water power in that State or territory. Mr. Martin. Whatever developments we have made in this situation have reduced the cost of the power to the user from 3 cents, which prevails in your State, Mr. Quin, to about 8 mills in ours, and if you take the powers whicli exist in Alabama, Georgia, and Tennessee, producing as they do a billion and a half kilowatt hours a year, what would it cost if we had those rates pre- vailing in Mississippi? It would cost the consumer $45,000,000 a year. Mr. QuiTn. But they have no water power there. Mr. Martin. That is true, and at these same sites the public industries are going to pay approximately $12,000,000 for that same power, a net saving to the public in those States over the rates which prevail in your own State of over $30,000,000 a year. You have no water power. The effect x)t these water powers which have been developed is to reduce the rates to the public and to create for the public a great advantage which realizes itself in industrial development MUSC'LE SHOALS PROPOSITIONS. 857 P -ami your State will realize it, and other States will realize it in proportion ^8 the water power industry is developed, and the lines are built to carry power Into the different States. Mr. Quin. Do you believe any representative of the Government ought to recommend a monopoly of a great public utility like that ; that is, a natural re- rsource of that kind? Mr. Martin. It is a resource that can be developed and can be transmitted to the public, and it can best be developed in great units and a great system combining the water powers in different water sheds can give the public ad- vantages which come from low seasons in one place and flood seasons in an- other in such a way as you can not otherwise realize those great advantages lor the public. Take first your cwn Army engineers. The Engineer board, headert to C<»n;rress. which I read to vou. in \vhich tliey have told you that the only way in whicli Musele Shoals will <»vcr realize its tru«^ economic value is by the connection of that water-power development with the development in other watershefls. Mr. Quin. But they do not reconnnend tliat one corporation shtmld <^>wii them all? Mr. Maktin. No; one company can not own them all. That rerK)rt recow mended TJio interconnecticm of this system, this development, with the svstem •of all the companies, if you please. Mr. (^uiN. There are several of them down there, and five of those concerns "Avrote a letter, dated June 24, 1921, to Gen. Beach, the f ^hief of Engineers. Mr. Martin. Several of them did. Mr. Quin. They said this secondary hors?power would be of no i)ractical value. Were they correct in that statement to the War Department? ^Ir. Martin. I do not put it that way. I do not think they made just that statement, Mr. Quin. Mr. Quin. Here is their language. Mr. Martin. Whatever statement they made. Mr. Quin. This is what they say : " The 10 months' secondary power which it is possible to produce at Muscle Shoals has little or no conunercial value." What do you say about that? Mr. Martin. Our views are expressed in our letter of May 6, 1921, in which we take the view that this development has a commercial value and had its true economic place in southern affairs, and if the Government desired to go ahead with that development in a way to make some of the power available to the public, we were prepared to go forward with it. We know that power has great value in connection with the systems of other companies in that part of the country. Mr. Quin. You take issue with those other water-power companies in that part of the country who wrote that letter I referred to? Mr. Martin. We stand on the letter we wrote to the Chief of Engineers. We have stated the situation ; we know that our letter is correct ; we know there are great public advantages which will come from carrying out projects ;along the lines of that letter. Mr, Quin. You do not indorse that letter those other gentlemen wrote? Mr. Martin. We stand en the letter we wrote, and as I explainwl to von. our letter expresses our views. If those gentlemen expressed those views, thev •do not know enough about the situation down there. Mr. Quin. All I know is that it was presented to the connnlttee and apiRuirs •on page 114 of the hearings, Mr. Martin. If those views are in conflict with our views, we stand on our positirn, and we show our good faith by telling you that we are ready to pro- •(•ure the money to complete the development without any Government expens*-. That is the best guaranty that we can give you. Mr. Quin. Since you have mentioned that, Mr. Martin — it will naturally ( t)me up on the floor of the House— therefore I will ask you how the Alabama Power Co. will be able to do this? This ig a pretty big undertaking, as pro posed in your offer. How are we going to answer that question? ^Ir. Martin. We realize that it is a big undertaking, Mr. Quin, but as :\ <*onipany that is established as a going company and is selling p<»wer to the public, having 60,000 consumers of their energy, dire<-t and indirect, that has a fixeil position in the money market, has a fixed position by which it can g«» •<»ut and sell its securities to most of the public. We have a power development 858 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 859 III' S^''"" ("iterpasinir). Wl.at time of the year did voii ^ell tho^e^ Mr. Martin No other enterprises are connected with us There is no ntilifv fn fin.iT \''"V''f^'*'^'^^' '" ^'^^ ^^^'^^'i"- husiness. who a^ r;adv to ,iist IS Air. Af'^JON. The canal that, was pnt in there has been there for mnnv vp«r« thi" n,ornir«? ' ""^ "*''*'■ '"•""" """^ ""o^" «•«' ><>" motioned Mr ?f.T;5T'^T;Jr,i """ r"i" ^'o.- 1- That is .lownstreain from Pan. No. -> Mr. Martin. Approximately. River?^'^^'''* ''^^^"^ ^«^' ^«'' ^^^"' ^^^^'^ i« it that It turns back toward the (^hio Mr. Martin. Thirty or forty miles: it groes in a northwesterly direction The Chairman The hour of half past 12 has arriyecl, wl en ir usu^ take a rec-ess, and if you will come bao;fr\"oCny ina'Je tKte^esri ''^ ''"^'^^"^^ '^^'^ ^^^^^^ ^« ^^ "'^--^ --'<^ Mr. Mabtin. We liaye not those figures anyway definitely, Mr. Quin. You understand that all those things depend u£>on the preyailing market conditions, and the conditions that preyailed a year or so ago are not the conditions that preyail now, and the conditions that preyail now may not be the conditions that will preyail six months from now. Mr. QuiN. What did you haye to pay for money in January of this year? Mr. Martin. The securities were retailed to the public at a little oyer 6 per cent. We do not know what the conditions will be six months from now. We hope they will be better, but our plan, of course, is the same as that of all other public seryice companies, to go into the market and obtain money on the most fayorable terms and the best terms that preyail at the time, and I belieye that our company is in position to obtain funds on just as fayorable a basis as any public utility in the country. Mr. QuiN. Mr. Martin, the big packing plants paid 8 per cent, their statement shows. Mr. Martin. Oh, undoubtedly there haye been securities sold on an 8 per cent basis within the past 12 months, and eyen on higher rates, Mr. Quin, within two years, when yery extrayagant rates of interest were paid, but you will appreciate that long-term, good inyestments in securities of this kind appeal to the public. For instance, take the past year. In the past 12 months there were securities of light and power companies sold amounting to $472,500,000, of which $145,493,000 were issued and sold by hydroelectric companies, most of them within the past 60 or 90 days, and there is an established, good going market for high-grade securities based on hydroelectric properties ; and further- more. Mr. Quin, when you consider the demands that are going to arise from year to year, the natural and normal demands of the lighting and power indus- try of this country will require approximately $733,000,000 a year for a number of .yeai-s to meet the public demand. A great deal of that will be deyoted directly to the manufacture and distribution of hydroelectric energy. Part of it will be for other seryices relating to lighting and power. When you go into tile question of financing public utilities of this class, you must remember that tl»e Uoyernnient's program of financing some part of the public utility situa- tion in the South inyolyes not alone that, but if the Goyeninient undertakes the financing of hydroelectric properties at all .you are going to run into the policy of financing them generally, inyolying yolumes of money here that >ye can not foresee by any sort of a guess, this great industry requiring, as it does, over $700,000,000 a year to meet public demands, and where will you come out if you do not meet those demands? Mr. Quin. You state^l that you expecteil to develop through the completion of the Wilson Dam. with the aid of the steam plant, 240,000 horsepower: is that correct ? Mr. Martin. No ; not through the use of the steam plant. Our suggestion. Mr. Quin. is simply that as this construction and development goes forward we would install 240,000 horsepower by the time the dam is completed and the power house ready for initial service. Mr. Quin. You mean that would all be water power? ^Ir. Martin. Yes, sir ; 240,000 horsepower would be the installation. Mr. Quin. There would be 240,000 horsepower installed, of which 100,000 horsepower would be primary power? Mr. Martin. Yes, sir: and as the business grew in that territory, then the licensee or company would install further equipment until the complete installa- tion in this power house is made ; that is, assuming 600,000 horsepower as the complete installation, a company situated as ours, for instance, would install further units from year to year. We have a plant on the Coosa River, lock 12, where we have six units totaling 110,000 horsepower. We first installed three, and within another year or two we installed another, and then another, and then finally we reached the sixth unit, the sixth unit being installe«l about six years after the first three were installed, and that is the way this industry grows, and that is the way the installation is made to meet the demands as they arise. Mr. Quin. The question of the rate of interest and all overhead charges and costs would be bound to be taken into consideration by the public-utilities com- mission in the matter of rates, would they not? Mr. Martin. Oh, yes; the question of rates, the question of service, and the question of securities issues are all under the control of the public-service com- missions in the South. In our own State all those questions are under the control of the commission. 860 MUSCLE SHOALS PROPOSITION'S. ifci'' Mr. QuiN. If you have to pay a high interest rate, that comes out of tliP- .us oiuer^ under the rate allowed by the public-utility commission' Mr. Martin Of course, the company is entitled to a fair return. Mr. QuiN. And that is what the utility commission bases the rate on? Mr. MARTIN It bases the rates not necessarily on the cost of monev, but thev are based on the variety of elements that enter into that. ^ Mr. QuiN. And that is one of the elements, because a man is bound to be allowed a profit or he can not run. Mr. Martin. Of course ; and you must bear in mind that nowadays the verv purpose of the public authorities in controlling security issues is to prevent an abnormal charge being made on the public through rates, and that is the situa- tion now. Mr. QuiN. You stated and showed by your map the territory that could be served by power there. That is also the main territory that uses connnercial fertilizer, is it not, all those States around there— Alabama, Georgia, Mississippi Arkansas, and the Carolinas? Mr. Martin. Yes ; that territory, of course, uses a great deal of commercial fertilizer. Mr. QuiN. Then that place is located practically in the center of the real fertilizer community, is it not? Mr. Martin. It is well located for that purpose. ^Ir. QuiN. Do you not think that for the whole good, the question of cheap fertilizer being given to those conununities amounts to a good deal more than the power consumed? :Mr. :Martin. In the first place, Mr. Quin, we do not interfere with that ques- tion. According to the statements which have been made to this committee by Mr. Worthington and by others, 100,000 horsepower should be used in the cyanamid process in manufacturing nitrates at plant No. 2. We propose that the Government shall have that free. Now, when you get into the question of fertilizer, as to the advantage which comes from one or the other, we say that we are giving the Government a definite volume of power for that pur- pose. Now, when it comes to the balance of the power, whether it is used in industries locally, and a lot of it will be, or elsewhere, it is distributed by a concern engaged in public service. Your own State needs power, and needs it very much. You need only look at the industrial development in those States of the South which have great systems such as this and those which have not to see the relative advantages. Mr. Quin. We think we need fertilizer much more than we need that power. Mr. Martin. Well, undoubtedly you do, and you should get them both. Mr. Fisher. How many directors are there in the Alabama Power Co ' Mr. Martin. There are 12 as I recall, Mr. Fisher. Mr. Fisher. Could you give the ones who are American citizens and the ones who are aliens? Mr. Martin. They are all American citizens but two. In Alabama there reside the following — shall I give the names? Mr. Fisher. If you will, if you remember them. Mr. Martin. I will try to remember them. These live in Alabama: Mr Mitchell, Mr. Weatherley, Mr. Hobbie, Mr. Moody, Mr. Hassinger, Mr Walmslev Mr. Hood, and myself. These live in different parts of the North: Another Mr. Mitchell, Mr. Dahl, Mr. Swan, who is not related to the Mr. Swann who has testified here, and Mr. Grosbeck; and outside of this country, living in Mon- treal, Canada, there are Mr. McFarland and Mr. Henderson. Mr. Fisher. Can you give us the percentage of the stock In the Alabama Power Co. that is held in this country by American citizens? Mr. Martin. The stock of the power company and the stock of the holding company is held in this country something in excess of 40 per cent, consisting of the Alabama Power Co.'s preferred, and, of course, that votes along with the common, and the common stock of the holding companv, which is largely held in this country, as I stated, those holdings amount to something in excess of 40 per cent, and the largest single holdings of the stock of the holding company are in this country, and the largest single holdings is by citizens of Alabama. Mr. Fisher. Are you stating that from a careful examination of the stock books of the Alabama Power Co. ? Mr. Martin. Yes. I have not seen the stock books for some time, Mr. Fisher but I keep up with it, naturally, from contact witli the secretarv of the com- pany. MUSCLE SHOALS PROPOSITIONS. 861 Mr. Fisher. As I understand the history of the contract with the United States Government, you formed a tentative agreement a year before the final contract was signed; is that correct? Mr. Martin. Yes. May I go back to your former question just a moment? Mr. Fisher. Yes. Mr. Martin. As ^I stated to Mr. Quin, taking our securities, both bonds and stocks, about 65 per cent of all our securities are held in America, and all the securities of our company which carry any interest charge at all or any divi- dend charge, practically all of them, are held in this country. We have never paid any dividend on the common stock, and all of our dividends and earnings have practically gone to American citizens. I am very sorry to say that be cause people abroad who invested in our securities have been disappointed, and disappointed because of the reorganization which had to take place in our com- pany in 1914, due to the changing conditions brought about by the late war. Mr. Fisher. As you understand, this nitrates proposition is one of national defense, and you can understand why this matter is of interest to Congress and to the country. Mr. Martin. Yes. Mr. Fisher. Now, referring again to the date of the tentative contract which you had with the Government and the final contract, what transpired through all that period of time to delay a contract on so large a job? You were spend- ing millions of dollars for the Government each month, were you not? Mr. Martin. No; not each month. Mr. Fisher. Within a few months' time. Mr. Martin. These expenditures, of course, ran over a period of 12 to 15 months. We did not spend the money. The Government had a disbursing ofl'icer there. It was spent directly. As you probably know, all the purchases were made for the account of the Government, on its approval, and the moneys were paid direct by the disbursing officer from funds which he had to his credit arranged in some way through the Treasury Department of the United States. We did not control any of the funds. Mr. Fisher. Who were the officers in the Ordnance Department that you negotiated with in this contract? Mr. Martin. I believe I stated to you that at different times we had negotia- tions with Col. Joyes, Col. Beamcs, and there was a Col. White, who had some- thing to do with our contract, and Maj. Coombs. At one time, in its inception, the question was before the Wai" Industries Board, Power Section, and Gen. Keller had a great deal to do with the whole subject of the location of power facilities; Gen. Charles Keller, of the United States Army. Then there was < 'apt. Raymond Hull Noble, who was the counsel for the Government in the be- ginning of the negotiations, and who died in the summer of 1918; and there was Lieut. Col. William Williams; and at another time Maj. Burns had some l»art in it; and Capt. Gaillard was another officer; and Maj. Runcie was another officer of the Government; and Maj. Gen. Williams, who is the Chief of Ord- nance. Mr. Fisher. Which one of those officers is the officer who had the final say as to the approval of the items of the contract? Mr. Martin. Well, I am not able to say. In its beginning Col. Joyes initiated the program. It was approved, however, by the power section of the tSTar Industries Board, and in carrying out the contract at some points the negotiations were taken up and concluded by Col. William Williams. Now, just who had the authority I can not say. I can only say who I discussed it with. Mr. Fisher. Were you in Washington the day the fake armistice notice came out? Mr. Martin. No, sir. Mr. Fisher. Was the contract signed in Washington? Mr. Martin. No, sir; it was signed in New York. I was present when the contract was signed. Mr. Fisher. Was there anything about the fake news story that produced the signing of the contract? Mr. Martin. No. Mr. Fisher. Did that have anji:hing to do with it? Mr. Martin. Not a thing. Mr. Fisher. You had expended millions of dollars for the Government over the period of a year with no contract, and news of the armistice came or of the end of the war, and the contract was signed. That was just a coincidence. Is that your interpretation of It? 862 MUSCLE SHOALS PROPOSITION'S. MUSCLE SHOALS PROPOSITIONS. 863 Mr. M^BTiN. Col. Williams asked us to meet in New York for the signing of the contract, and we met there in pursuance of his request. Mr. Fisher. It was always understood, was it not, that this was a war contract? Mr. Martin. Yes, sir. Mr. FiSHf^B. Would you kindly tell the committee just when you stopped work on this contract? Mr. Martin. We did some work at our own expense some time in the spring of 1919. We stopped work in the spring of 1919. The Government's expendi- tures stopped very soon after the contract was made and we took it up and completed the work. Mr. Fisher. Did the Government ever get any power from the extension to your plant that was erected? Mr. Martin. No; it was this way, Mr. Fisher: The Government had the right to take power from this extension, or, rather, from our company, say, 30,000 kilowatts. The Government also had the right to suspend the taking of energy under the terms of the contract. If the Government took power under that contract, it meant a very large volume, and, of course, a very large use for power, with a minimum monthly charge of $30,000, because we had to provide a staff and coal and men to furnish that power. Now, there never was a minimum charge of $30,000 a month paid, because when the armistice came the use of power in large volume was unnecessary. So Col. Joyes or Maj. Burns, I have forgotten who it was now, gave us an order suspending the right to take energy under the contract and electing to take energy from our system as any user of power would. So our company supplied power to the Government, not under the contract but at rates prevailing for such service fixed by the public service commission of Alabama, and from that time on we have supplied the Government with power for the needs at Muscle Shoals, for construction needs around the Wilson Dam, for lighting and policing, and such operating as took place at the nitrate plant. Of course, before the Warrior extension was completed and during the period of the war, we supplied the Government with power in varying amounts from 10,000 kilowatts to 30.000 kilowatts for its uses, and that was from our system before the extension was completed. • Mr. FisHiat. Was any work done down at Gorgas under this contract other than the completing of the extension of the powerhouse? Was there not some work done on a railroad after the armistice? Mr. Martin. Part of that was done before and most of it afterwards. Our company expended in completing the railroad $105,000 and the Goveniment expended $30,000. All the money we spent was entirely after the armistice. Mr. FisiiER. The war was over, and when did you begin to take steps to bring ' about an adjustment of your differences which the Government and a settlement? You had this enormous extension to your plant which was the property of the Government : when did you begin to take steps to bring about a settlement with the G(»vernnient. or did you take any steps? Mr. Martin. You mean Mr. Fisher (interposing). Under the contract, did you take any steps at some time after the armistice, or how soon after the armistice did you take steps to brinsr about a settlement? Mr. Martin. The whole matter was adjusted within 90 days after the armi- stice, we taking over the completion of various work at our expense, and the GoveriuDent's advances stopped. Mr. FisHEK. Has anything been done in the last year by the Government or by you toward bringing about a settlement? Mr. Martin. You mean taking over the property? Mr. Fisher. Yes. Mr. Martin. We discussed the question several times, and we were preparing to start this arbitration last summer, and the Ford proposal came in, involving this property, and the Ordnance Department wore unwilling to go any further until the Secretary of War disposed of that. We were in active negotiation looking to the arbitration and settlement of the whole matter last summer and last fall. Mr. FisHEK. Until tlie Ford offer was made last summer you took no further interest in Muscle Shoals, did you? You had no interest in the development of Muscle Shoals? Mr. Martin. Yes; of course; our letter of May showed our interest. Mr. Fisher. P.ut not in the near future? Mr. Martin. Yes; in the immediate future, because we had to have power to meet the public demands. Mr. Fisher. Would you have made an offer for the Muscle Shoals project if Ford had not included in his offer the Gorga.s power plant and the transmission line? Mr. Martin. We have always felt, Mr. Fisher, that this Muscle Shoals devel- opment should be made in such a way as to interconnect with power systems of the southeast, and our letter of May showed exactly how we felt about it, and we stand on the terms of that letter. Mr. Fisher. Who was the lawyer for the Alabama Power Co. in all the negotiations leading up to the signing of the contract? Did you represent them as their general counsel at that time? Mr. Martin. I was general counsel, and the only other lawyer we had was Mr. Weathers, the gentleman right here I indicating]. Mr. AVright. Mr. Martin, I understood you a day or two ago, in response to a question from Mr. Miller, to state that this 100,000 secondary horsepower mentioned in section 2 of your offer would be available to the Government or the Government's assignee for the puriK)se of the production of fertilizers at Muscle Shoals or munitions of war, and for making experiments in the pro- duction of fertilizer or for any other purposes for which the Government might want to use this power. Did I understand you correctly? Mr. Martin. If I understand your question; yes. We proposed to furnish the 100,000 horsepower, as rwiuired, for the production of fertilizer and muni- tions of war and for research work. Mr. Wright. But if I understood your response to Mr. Miller, if the Gov- ernment (lid not see tit to use it for that puri>ose, it would be available to the Government for any other use it might want to put it to? Mr. Martin. Substantially so. I assume the (Jovernment, if it did not want to use it for these purposes, would want to sell it. I do not suppose the Gov- ernment would want to engage in public service. That is the only thing I have in mind. Mr. Wright. Have you your offer before you? Mr. Martin. Yes, sir. Mr. Wright. I call your attention to section 2. Let us read that carefully : " To furnish free to the Government, or anyone it may designate, from the hydropower plant 100,000 horsei)ower, as required, for the production of fer- tilizers and munitions of war anIr. Wright. Of course, you have to have some basis for that, and you have carefully compiled this from the records for the past 30 years. Mr. Martin. And the United States Geological Survey has had its gauge readers on ths river for 30 or 40 years, and on the Chattahoochee River and the Alabama and the Coosa, and the records of those rivers are in splendid condi- tion, and we have compiled our figures from those records. Mr. Wright. I understand that, and I do not challenge the statement at all, and I assume you are correct in saying that the average for the past 30 years would be 82 per cent. Mr. Martin. Yes, sir. Mr. Wright. That is the best information available. Mr. Martin. Based on daily stream flow on records taken for 30 years. Mr. Wright. There is no difference l>etween us about that, but what I do want to ask you about is whether you have any records or statistics to show in this period of 30 years what the least production would have been. Mr. IVIartin. Yes, sir; those records all show that. Mr. Wright. Wliat is that? What is the least it would have produced in any one year, or the year when the flow was lowest? Mr. Martin. You mean the 100,000 secondary horsepower? Mr. Wright. Yes, sir. So that you may understand me fully, as I under- stand, the average during the 30 years would have been about 10 months in the year? » Mr. Mabtin. Yes; something like that. Mr. Wright. Now, I want to know the year, if there was a year, during the 30 years when it was less than 10 months a year, and how much less. Mr. Martin. If you will look at this map and follow me here, I can show you that. Mr. Wright. But I want to get the figures in the record. That is a beauti- ful map. but I doubt if they can get that in the record. Mr. Martin. No; they probably can not. There are 6 years out of the 20 here when none of this power would be available for certain months of the year. Mr. Wright. What proportion of the year is that? That is what I want to get at. Mr. Martin. For instance, in 1899 the river flow was such that there were two months. Mr. Wright. Two months when it was available? Mr. Martin. When it was not available. In 1903, there were two months; in 1904. there were two months; and in 1913. there were three months. Nine- teen hundred and thirteen is the longest continued interruption in the history of the river. \ Mr. Wright. So that during that year this power would have been available for nine months? Mr. Martin. Yes. During 1914. one month, and if you will notice in some oi these years the power is available for every month in the vear. You can see how this chart will give you a better idea of the real value of this i^ower and its availabilit.v Mr. Wright. I will be very glad to examine the map, but I want to get these figures in the recoi-d. Wlujt tliree months do the records sliow that that power was not available? Mr. Martin. In 1899 the months of October and November; September and October of 1903 ; October and November of 19L\RTiN. Mr. Wright. Mr. :Martin. Mr. Wright. That is owned l>y the Columbus Power Co.? Mr. Martin. Yes; although I have never been there. Mr. Wright. That is quite an extensive plant, is it not? Mr, Martin. Yes: I think so. Mr. Wright. Thev run to Columbus and north of Columbus? Mr. Martin. Yes'; they have a large plant of 50,000 or 60.000 horsepower. Mr. Wright. And then at Xewnan. Ga., the Columbus Power Co. and the Georgia Railway & Electric l*ower Co. each cw. as a water-i>ower man — I am speaking of you as a water- ]K)wer man— the Columbus l*ower Co. does not really need the current of the Georgia Railway & Power Co.. and the CJeorgia Railway & Power Co. does not really need tbe current of the Columbus Power Co. except in cases of breakdown or something like that. Is not that the reason they connect up? ^Ir. Martin. Yes. :Mr. Wright: but you will remember that those two rivers, the Chattahoochee and the Tugaloo are in different watersheds, and that very fact Mr. Wright (interposing). I just wanted to know about those two companies. Mr. Martin (continuing). Aiid there is quite a fluctuation in the river flow of the Chattahoochee watershed and the Tugaloo watershed, and in the nature of things you are going to have water in one watershed when there is not water in the other, and the faly? Mr. Martin. I do not think it would he a monopoly in the sense you are si)eaking of, and I just want to sjiy this: You are faiiiiliar with the Federal water i>ower act? Mr. Stoll. Somewhat, although I am not an expert on it hy a goos : hy any one who develops it with that theory, but I have not seen any program here which indicates that any one is looking to that u.se, and, furthermore, there is a program pending, the very pui*pose of which is to con- solidate this entire water-power situation into one hand, not for public use but for private use, and I will ask you the question, if that does not create a real monopoly, a monopoly where there is no regula^^ion as to rates, as to service, as to security issues, or as to anything else. Mr. Stoll. It does not do that because he is only getting one water power, and you have a great deal of other water powers, Mr. Martin. You spoke of the question of monopoly. There is a monopoly of the greatest water-power situation in the South. Mr. Stoll. An individual water power. MUSCLE SHOALS PROPOSITIONS. 871 f Mr. Martin. These two water powers, without any public regulation of any sort and made not upon the basis of interconnecting it and getting the greatest use out of it. Mr. Stoll. Would you not have a bigger mono])oly if you owned what you now owned and you owned Muscle Shoals in addition than Mr. Ford w(mld have if he merely owned ^luscle Shoals? You would have a bigger monopoly then, would you not? Mr, Martin. No. Mr. Stoll. With what you have now and with :\Iuscle Shoals in addition? Mr. Martin. Of cama Power ('o. is so very, very anxious to serve the iieople down there, why is it that so many people in Alabama are so hostile to them? Why is it that the boards of trade and those who represent Alabama in Con- gress and everyone seems so much interested in the Alabama Power Co. not getting this project? If you are such a concern that your sole desire is to serve the people, why would they not be for you? Mr. Martin. I agiee that there are a good many people who at the moment take another vi(»w of this situation. Mr. Stoll. Yes, sir. Mr. Martin. But there are also thousands of people who look upon it just exactly as I am stating it to you — thousands of them — and that situation you are going to see expressed in Alabama first and last. You will see it expressed now bvjndividuals, by newspapers, and by many members of the public at large. Mr.' Stoll. You heard the statement of the governor of Tennessee made before this conunittee. did you not? Mr. Martin. No: I did not. I heard of it. Mr. Garrett. Mr. :Martin, when did your board of directors meet and change their minds and decide they wanted to take over this Muscle Shoals proposition? Mr. Martin. They did not change their minds at all about anything that is here expressed, Mr. Garrett? Mr. Garrktt. Did you iK)t write a letter to the Secretary of War, or rather your company, some time ago, saying you were not inteivste'^" ^^'^"t us to give a bond to-day of $0,000,000 or $10,OOtK).000, we will be glad to do it. We are not plaving with the Government. Mr. Garrett. But you do not say that in your proposal. Mr. Martin. No, sir; because the law under which we propose to act carries with It the right of the Federal Power Commssion to exact guaranties as to the tinaiic.al responsibility of the proposeil licensee, and you will notice tliat not only in the act, but the Secretary of War refers to it and says : It is m the province of the Federal Power Commission to require such assurances and guaranties as may be necessary as to the financial ability of the hcensee^ to complete its undertaking." We will comply with any request or demand made by the Federal Power Commission as to our financial abilitv to complete this undertaking. Mr. Garrett. That is very commendable, and what I want to know is this • This propos tion of :Mr. Ford's has been pending since the 8th of July, 1921 and after the hearings had been going on here for a week on his proposition' which was the only proposition that had ever come before Congress, vou come forward now and show great anxiety to get this property, and you are willing to do anything the Government wants you to do in order to get hold of this plant. Why d d you not do something before that? Mr. Martin. Now, let us get the record straight. I think this proposal is dated some time in January. Mr. Garrett. No; Mr. Ford's first proposal is dated July 8. Mr. Martin. Yes ; but his last proposal is dated in January. Mr. Garrett. Yes; that was his first propostU. but I am referring to the last proposition he has submitted. ^Ir. Martin. The one that is pending before the Congress is dated in January, as I recollect. The Chairman. January 25. 1922. Mr. Martin. Yes. We submitted our ideas on the subject in a letter to the Chief of J:ngineers in May. We again took it up with the Chief of Engineers by letter dated in July. Mr. Garrett. Now, let us keep the record straight as we go along. In those letters that j'ou refer to did you make any definite proposition to the Govern- ment for the taking over of Muscle Shoals and carrying out the purposes for which the original project was started? Mr. Martin. We stated in those letters that if the Government was pre- pared to consider a plan by which a part of the power would be devote^J to public service, we were prepared to deal with it. As you know, of course — — The Chairman. Pardon me, in what year? Mr. Martin. In the year 1921, and those letters point out the inhibition against proceeding now, that clause in section 124 of the national defense act, and hence there was not authority or power in the Government oflicers to deal with it at the time. Mr. Garrett. I did not catch that. Mr. Martin. There was, as of course you know, the provision in section 124 of the national defense act, which provided that the plants or plant should be constructed and operated solely by the Government, and, of course, that made it impossible for us or anyone to make any arrangement or agi-eement. Mr. Garrett. Now, what I want to do is to get right down to the bottom of your proposition here, so far as the manufacture of fertilizer is concerned, to supply the agricultural interests of the country, and so far as the manufacture of nitrate of ammonia is concerned for ammunition purposes. You do not propose to have anything to do with that except to turn over to the Govern- ment 100,000 secondary horsepower, and the Government is to do that, if any- body does it, or name somebody to do it. Mr. Martin. That is correct. Mr. Garrett. That is your position. So that under your proposition, so far as maintaining the nitrate plant No. 2 for munition purposes at all times for the use of the Government and keeping a force there and everything of that sort is concerned, and so far as making any fertilizer for agricultural purposes is concerned, you are not interested in that. You are going to leave that to the Government, if it can find somebody that will do that and your proposition when stripped of everything else, including the 100,000 secondary horsepower, is a water right that you get for 50 years and nothing else. Mr. Martin. We propose to give the Government the 100,000 horsepower and $5,000,000 and the Government retains its nitrate plant. Mr. Garrett. The Government already has that. Mr. Martin. And you have enough money out of this deal which, at 4 per cent, will maintain your nitrate plant in a state of efficiency. Mr. Garrett. Now, when you have done that and wound it all up, you have got the extension of your plant that the Government paid for with its own money !^Ir. Martin (interposing). And which we pay for. Mr. Garrett. I say you are going to pay for that which the Government has nlready paid for, but you will have that and you will have dam No. 2, and that will be yours absolutely. Mr. Martin. No: I do not accept that. Mr. Garrett. I mean subject to the right of the Government to recapture Mr. Martin. Subject to the right of the (government at the «nd of 50 years by paying the n(4 investment and not any added value by reason of any in- crease in value in the interim, but simply the net investmtnt in the project. Mr. Garrett. But you have that for 50 years. Mr. Maktin. Yes. Mr. Garrett. Absolutely? Mr. Martin. Y'es, sir. Mr. Garrett. And l>oth the steam plants, and all you have paid the Govern- ment will be $5,000,000? Mr. Maetin. Plus the 100,000 annual horsepower. Mr. Garrett. Plus the 100.000 secondary horsepower. Mr. Martin. Yes. In addition to that we pay the Goveniment anotlier very substantial item in tha4; we relieve the Government of the obligation to main- tain the dam and gntes, ]Mr. Garrett. I understand that. Mr. Martin. Yes. Mr. Garrett. But that is the only thing except maintaining the dam and gates and giving the Goveniment the right to go through them for 50 years, and that is nil the Government really has left under your proposition after you pay the $5,000,000. Mr. Martin. And we relieve the Government of the obligation of putting up from $50,000,000 to $80,000,000 more money in tlie project. Mr. Garrett. But you are putting that up with the idea of making a whole lot more out of it. I am speaking now from the Government's viewpoint, and you take out fest acquainted man as to its value as a going concern, and as a part of your organization. Your company is the lessee of it now? Mr. :Martin. In a technical sense we are not the lessee, we are In possession of it, under the terms of the contract, and operate it under that contract. Mr. Miller. Under the contract of December 1, 1917? ;Mr. Martin. Yes, sir; that contract requires us to maintain and operate it as a part of our system. Mr. Miller. How much rental do you pay? Mr. :Martin. We pay a mill and a half a killowatt hour produced. Mr. Miller. AVhat does that amount to in a year. Mr. ;Martin. It dejiends upon the production. Mr. Miller. What has it amounted to? ^Ir. Martin. Last year it was something in exce.ss of .$7o,(XX). This year it will probal)ly be twice that amount. Mr. Miller. Last year you paid something on a basis of 1* per cent on the construction cost, amounting to $4.800.()0(). On(> and one-lialf per cent of that would be approximately $74,80(), so that you paid approximately 1* per cent. Mr. Martin. Yes. And we have also maintained it. That is based on the investment in the plant and substations. The Government takes power from us now at the station and hence carries the investment in the line. Mr. INIiLLER. You are also acquainted with the power plant at nitrate plant No. 2. Mr. Martin. I do not know very much about that. Mr. Miller. But your men do. Mr. Martin. Our people do, of course. ^iv. :Milleij. Are you the lessee of that? Mr. Martin. Yes. Mr. Miller. What are you paying for that, alxmr how much? Mr. Martin. Ten thousand dollars a month plus the energy charge for the energy generated. . , , Mr. Miller. It is very clear to observe from your offer that you have pKked out surh units of the Government property in and about Muscle Shoals as will fit in with youi- business as a manufacturer of power. Mr. Martin. Yes, sir. ]Mr. Miller. And have rejected those which are not and coidd not be made a part of your system. Mr. MARTIN. Supplving the Government in lieu of those units Mr Miller (Interposing). I am not talking about that. We will get back to that in a little bit. So this is a good-sized bill— .$5,0(M),00(>— you are going to pay for those units and also the transmission lines frecember 1 1917 -""The contractor s>hall, subfect to the approval of the contracting ottiier, at the sole expense of the contractor." That is the only time that expression has been use to the interlocking and lockstitching this thing altogether, is it not? Suppose the transmission line, both the right of way and the title to the power line, belonged to the United States. Mr. Martin. We had 30 miles of it, and had lines on it. Mr Miller That went as far as Jasper, and from Jasper on it is 88 miles. Mr* MARTIN. Sixtv-eight miles. You have to weigh the question of time. Having 20 miles of the wav cleared, you could begin to build the transmission line the next dav, but when you have to buy a clear title through an unde- veloped district it is a very different problem. This transmission line, or the construction of the transmission line, was begun within a week after the Government asked us to undertake it. There was 20 miles clear. That was worth a great deal in the emergency ; it enabled us to get power to Sheffield at a verv much earlier date than otherwise. Mr. Miller. That is not answering my question. You could have bought the right of way as an agent of the United States from Jasper to Muscle Shoals as cheaply as you could have bought it for yourselves. Mr. Martin. You mean from Jasper to Muscle Shoals? Mr. Miller. Yes ; from Jasper to Muscle Shoals. 876 MUSCLE SHOALS PROPOSITIONS. the United States Government, as the officers of Mr. M.viTm. Of course, we could have. Mr. Miller. As cheaply as agents of you could have bought it yourselves? Mr. ^lARTiN. Just as cheaply. But we were asked to buv it bv the Government themselves, or by one of the officers. Mr. :Miller. Who was that gentleman who gave you that advice •> That was Maj. Runcie. What is his first name? I have forgotten his name now. AVas he a Regular Army officer or an emergencv gentleman "^ He was an officer of the Government at that 'time. I do not Mr. Mr. Mr. Mr. Mr. think Mr. Mr. Mr. Martin. ]Miller. Martix. IMlLLER. Martix. he was in the service. Miller. He was not in the service? Martin. He was a civilian adviser in the department at that time K.. KATHERs :May I say, Mr. Miller, he was a retired Armv (.fficer who had been engaged in the practice of law for manv years'? that?' ^'"''™- ^''" '"'^ "^^ ^^"'^ t^ S« ^« a lawyer to get advice on a question like i,.n^ H ^^'^:\'^"^.«'^- J^^ Government officials naturally brought their law talent into this situation from the very start. In the initiation of the negotiations Mai I uncie was the lawyer in charge of the interests of the (Government Ma" m Inv vP^'l^ whf ir ^'"^'''" t"''-'' ^'"''^'' ""'^ ^^^ ^'^^^^^'^ «"'^ practiced law for "•' "• ^^"^""^J^^'f}' ^^'^ ^^"i* began he evidently returned to the service and was statMuied in AA ashmgton in charge of this particular negotiation at the start Mr. Miller. I wonder where he can be found now Mr. Weathers. I heard yesterday that he is now librarian at West Point MrMiLLER^ He is the gentleman who advised you that it was quite unneces- sary for the Government of the United States to buv the right of waV of .1 ;\P'^«P«- ^^ ^'«s »>e gentleman who raised the question as' to whether J!.i rVV"^ ^^""^ 7.^^ ^"-^ ^^^""^ authority for the United States to acquire this aTlvis^fVlTalTcouMir '""' ""' ^'"^'' ' ""'^^ "^^ ^«-^' that he 'definitely Mr. Miller. I am wondering, if there was ever such a limitation, how we ac- quired any lan,000 in the Warrior steam plant, which makes ap- proximately $17,000,000 worth of equipment of steam-producing energy for «?— ,>>00,(KM) ; Mr. Martin. I can not accept your premise. Mr. Miller. I am talking about the money consideration. Of course, we have differed in many things, but that is the cold, God's honest truth so far as what you pay is concerned, is it not? Mr. :Martin. Suppose we do not get the lock. Mr. Miller. That is what you pay in cash? Mr. Martin. If we pay that much cash we build the lock, which is $2,500,000. and give it to the Government. Mr. Miller. You do what? Mr. Martin. We build the lock and convey it in fee to the Government on the comjiletion of its coitstruction ; we agree to convev it ]Mr. Miller. You build the h)ck? Air. Martin. Yes; and we agree to convey to the Government in fee the lock on completion. Then that money which goes into the lock is part of the money which we put up and must be taken into account as a part of the $5,000,000. Mr. IMlLLER. Mr. ]Martin Mr. Miller. and $2,500,000 And be deducted therefrom? Yes; we convey to the Government that equipment. You pay to the Government $2.500,0(X> in the cost of the l two men fannliar with steam-plant operation could agree in aii hour s time on what is necessjiry and what is not necessary ^ corporitkm^r ^^^ Alahama Traction, Light & Power Co/ (Ltd.) is a Canadian Mr. Martin. Yes, sir. Mr. James. What is the capital stock of that company? Mr. Martin. I think it is $17,000,000 in common stock Mr. Martin. Limited in that relation. P^\^'a^2!Z Po7er"^o:f ' '"""' ''''' P-position, the Canadian com- Mr. Martin The Alabama Power Co. The Canadian company is no longer a business factor in the situation because it came into it prior to 1914 simnlv as a company through which we could raise money abroad. The conditions haye entirely changed since 1914. and that company is not in such relation to our company or to tlie public as that it can command money on its securities Tr^c^ion: lS./& plerVc^^ '*"^'"* ^" '' ^"^^'^^'^''^ ^^ «^« ^'^^^-^^^ Mr. Martin. Yes ; I haye explained that at great length. Mr. James. How long haye you had your home office in Birmingham' Mr. ^L\rtin. Since 1912. "fe"ui" . Mr. James. How do you account for the people down there considering your company a foreign corporation— that is. the people of Birmingham' Mr. >LvRTiN. Propaganda which emanates from people who are opposed in ^> ash ington to our proposition. n ^ Mr. James. Did they not haye a mass meeting down there the other night %yith about 3.(XK) representatiye people present, anreign corporation. Mr. Martin. And the resolution is untrue : the Alabama Power Co was oi- ganized under the laws of the State of Alabama. ^Ir. James. How huig since Mr. Washburn was president of the Alabama Power ( o.? Mr. Martin. T haye answered that before: he resigned as president of our company in the year ]9ir). ^Ir. James. Do you know when he was president of the American Cyanamid Mr. :Martix. I think the record shows that. too. Mr. James. He was president of both companies at the same time, was he not /or a while? Mr. ^L\rtin. I think he was prior to the year 3915. :vir. James. President of both companies? Mr. Martin. For one or two years about that time. Mr. James. Do you consider Mr. Ford's ofler as dated January 26 1922' Mr. ]\L\RTiN. The offer which as I understand it is being considered by the committee is so dated. The Chairman. It is dated January 25. 1922. Mr. James. He started to deal with the Goyernment about last July Mr. Martin. Yes, sir ; and we started to deal with the Goyernment in 1913. Mr. James. Really his offer is the offer of last July, modified' Mr. Martin. Yes, sir. Mr. Fields. Mr. Martin, I would like to follow Mr. Miller's inquiry a little further in reference to Maj. Runcie. You say he had been practicing law, that he was retired from the Army and was practicing law? Mr. Weathers. Yes. MUSCLE SHOALS PROPOSITIONS. 881 Mr. Fields. Wliere did he practice law? Mr. Weathers. 1 knew of him practicing law in Cuba. 1 know he also prac- ticet know. Mr. Fields. Do you know whether or not he practiced law in New York? ;Mr. Weathers. Xo; I do not. Mr. Fields. You couhl not n:iiiie any city in this country in which he prac- ticed law? Mr. Weathers. No. (Mr. Fields. I am asking you these questions because it is a little strange to me, unless this officer was nor froni New York, that each of the emergency odicers who liad to do with this <(»ntract came from the c t.y of New York, two of tliem from one institution, and I am just wondering if this man — I do not know how tliey ha])i)ened to be .()0() which you estimate it will cost, and whiok entitleerates it continuously? He can not depend ui>on secondary power to do so. Mr. Martin. I do not so understand it. Mr. Fields. :dr. Fields. If that be tnie, he is to devote 100,000 primary horsepower, which, on the basis of cost presented to the con)nnttee by Col. Cooper, wouhi be S2S7.300 a year, where your 1;2.'» per lu^rsepower per year. If you put primary power in at $2."'» per hower supplemented by steam power. Mr. Maktin. If you want to juit it on that basis, here is a steam plant capable of generating steam ]>ower. and we will sell anybody who wants to make fertilizer there all the steam jjovver he wants or needs chea|>er than he can manufacture it himself. That plant is there, always subject to public regulation and an.vbody can buy the steam power. ^Ir. Fii:i.DS. The Government or the lessee would have to buy it, and the th'ng that has been runm'ng through my mind is ]\Ir. Ma!:ti.\ (inten)osing). How mucli .steam power you want. Ml-. Fields. Would an.vbody lease this plant under limitations of that char- acter? I fear they would not. Mr. Martin. You can buy all the steam power ,vou want: that is to say, you can buy the coal or so mucli power for this plant for as many days and months as you want it for the manufacture of fertilizer or anything else and not be or under any obligation for the maintenance and upkeep of the plant That i* the business of a public service company, :Mr. Fields. With the steam plant ^ n *^ l\} . ¥"^^^ ^^ ^ ''"'^^'^' '^^^'^'^^'^ company that can alwavs resiK)nd to a call of that character, with seamdary power there at any price the Govern- ment sees fit to make it, available for n<^thing. if you want it, everv facilitv is n.ade jnailable for whoever wants to go there and manufacture fertilizer ' Mr. Fields. But viewing it in my mind from the standpoint of the agricul- tural interests of the country, there is a great difference between making the production of nitrogen the first consideration and operating the whole thiiio' combined and developing it. and making the production of nitrogen the second and last consideration. Mr. Martin. Let me suggest this to you : Take the case of coal mines down m Alabama or somewhere else. In Alabama the coal industry has develoi>ed leinarkably in recent years. Our company is supplying power to-dav to 40 or oO c-oal mine.s, large and small, with which to operate the trollev cai-s with which to pump the water in and pump the water out, and to conduct all of the direct and incidental operaticms around the plant, in lieu of what? In lieu ot the steam power which the mines had been accustomed to use in the past and we are selling that power to those mines cheaper than thev can manufac- ture steam power at their own mines and with their own coal right at their miiips,^ delivering it hundreds of miles away to mines for use in the mining There is another instance where we are selling a cotton mill in our State one of the largest in the United States, this power. It bought its coal and set up its plant at the mouth of the coal mine. That plant is closed down and vve are generating and delivering power to that cotton mill for the operation of its entire facilities much cheaper than it can manufacture power from its own r!fil ^ h^u''''^ """!u Y"* '-''''' ^"^^'^-^^ ^^^^'^"^ P^^^'^i* for «^» the cotton indus- tries in Alabama, with the exception of two plants, north and south everv company ; serving them pow^r frcmi a central station. Whv do thev take it'-^ Because they can get it cheaper. * u t c.v lane ii . Mr. Fields. You stated that if the operator of plant No. 2, whether the Gov- ernment or a lessee of the Government, should need steam power to sup lenient secondary power which you are to furnish, you are to furnish it to that open to • I believe you have stated that the price of power would probablv continue to go higher, so If there should be an increase in the price of power from time Vo time he would have to pay the market ju-ice at the time he used the power Do you think that any man would enter into a contract with the Government as a lessee, or do you not think the very fact that if he wante«l to operate this plant continuously he would have to depend a iK)rtion of the time upon steam power which he must purchase from you. not knowing what the price might be in the future— that he would con.sider that an item of verv great concern *> Would not you as a business man, or any other man, so consider it? Mr. Martin. No ; when you get into this question of power there are certain fixed determined elements involved. Mr. Fields. Based upon present-day conditions. Mr. Martin. Take the water-power development. Mr. Fields. We do not know what it will be 25 or 40 years hence. Mr. Martin. That is very true, and when you come to fix the price for iwwer the value of power 40 years hence, that question goes back in part to the original cost of the property. Mr. Fields. You are referring to hydroelectric power; you are not referring to steam power. Mr. Martin. Your question is Mr. Fields (interposing). With this additional cost. Mr. Martin. Your steam power to be used to supplement water. Mr. Fields. Yes. You can realize that there may be in the future a very great difference in the cost of power. Mr. Martin. Nevertheless, when you come to your question of additional cost, if you please, of steam power, in percentage of the whole cost it would be very >een gone over many times, and I do not care to go into them in detail at this time, but I w;iiit to ask you whether or not it is a fact that the primary horsepower you expect to get from this development is the main consideration leatling you to make the proposition which is now before us? JMr. Martin. That is so, of course. IMr. McKenzie. In coming to a conclusion in ths matter have .vou taken into cons deration what effect it may have upon the stocks of the Alabama l*ower Co.? Mr. Martin. I can not say that we have. Mr. McKenzie. I'ou did not take into consideration the fact that this plant being the greatest water power in the South and iocateusiness by your c(unpany, wouhl have a very great effect upon your stock? JMr. Martin. It does naturally have an effect in a business way upon the securities of a company of this kind, but I do not know to what extent it will affect the secur.ties of our company. ]Mr. WuRzBACH. What property would your company acquire in fee if your order was accepted that would not include property in fee acquired by the Ford company if their offer was accepted? IMr. Martin. We do not purchase or unerty under local taxation laws, and, you see, the project will tlien bear its local burden of taxation, and at the same time the Govern- ment has its right of recapture of that project at the end of 50 years. As res|x^cts a lease, of course, if the Government would want to retain the title and lease the project and finance it. that has a very different aspect. ]Mr. WrRZBACH. With reference to the two nitrate plants, is it contemjilated that Mr. Ford would get title in fee to the two nitrate plants; is that your understanding of the Ford offer? Mr. WuRzBACH. That is my undersea nding of the project, Mr. Wurzbach. Mr. Wurzbach. In section 5 of your offer it is provided " The Government is to transfer to the licensee the Wilson Dam prrperty represented by its invest- ment and commitments to date, fret* of liabilities and unencumbered, inclu.l- ing the construction plant." What do you understand as being includeerty. ]Mr. Martin. Of course. ^Ir. Wi^RZBACH. And salvage this property without in anv wav affecting the offer of Mr. Ford. Mr. Martin. I do not know ; I can not answer that question. I would have to reserve the right to answer it at another time. The Chairman. We are very much obliged to you Mr. Martin. You have been very patient. We will now call upon the military officer whose evidence Mr. Dent desires to introduce. STATEMENT OF MAJ. JOHN G. BOOTON, ORDNANCE DEPARTMENT, IN CHARGE OF CONTRACT SECTION, ORDNANCE DEPARTMENT, AND CUSTODIAN OF THE RECORDS OF THE CONTRACT SECTION. The Chairman. Will you state to the reporter your name in full, your rank, and also the position you occupy in the War Department? Maj. BooTON. Maj. John G. Booton ; Ordnance Department ; in charge of the contract section of the Ordnance Department and custodian of the records of the contract section. The Chairman. How long have you been in the War Department? 886 MUSCLE SHOALS PBOPOSITIOXS. Jlaj. tJooTox. As an officer of the War Department? The Chairman. Yes. Mai. BooTON. Since 1911. The Chairman. Were you a private before you became an officer? Maj. BooTON. I was a graduate of the United States Military Academy, entering in 1906. The Chairman. Mr. Dent wants to ask you a few questions, and he will kindly propound them now. ^Ir. Dent. Major, you say you are the keeper of the records, contracts, orders, and regulations by the Secretary of War in the Ordance Department? Maj. BooTON. Yes, sir. Mr. Dent. Has your attention been called to the contract relative to the Oorgas plant between the Government and the Alabama Power Co.? Maj. BooTON. Yes, sir; within the past three or four days. Mr. Dent. Are you familiar with the act of July 9, 1918, authorizing the sale of war materials, supplies, and so forth? Maj. BooTON. Yes, sir. ' Mr. Dent. Did the Secretary of War make any order or regulation relative to that act; and, if so. when, and will you please produce It? Maj. BooTON. The Secretary of War on August 31. 1918, issued Bulletin No. 50, headed " War Department, Washington. August 31, 1918," article 5 of which quotes an extract of the act of Congress on the sale of war supplies; that is, the act approved July 9, 1918, and further provides that — "2. (a) Bureaus of the War Department desiring to sell supplies embraced within the provisions of this act, the cost price of which is in excess of $5,000, shall secure the approval of the Director of Purchase. Storage and Traffic Divi- sion, General Staff, except in the Philippine and Hawaiian Departments, where the authority of the department commanders is sufficient. "(h) Upon receipt of such approval from the Director of Purchase, Storage and Traffic, such supplies which are intended for sale to persons, partnerships, associations, and corporations will then be disposed of unless otherwise directed by the Director of Purchase, Storage and Traffic, for cash at auction, or to the highest bidder on sealed proposals, on due public notice, and in such market as the public interests may require. The officer making the sale will suspend it when in his opinion better prices can be obtained. The auctioneer's certified detailed account of the sale, and the vouchers for the expenses attending it, will be reported on the proper forms to the chief of the bureau to which the property pertained. Such supplies as are intended for sale to any other de- partment of the Government or to any foreign State or Government engaged in Var against any Government with which the United States is at war shall be at not less than the invoice price, including cost of inspection and transporta- tion. "(c) The proceeds of sales shall be deposited to the credit of that appropria- tion out of which was paid the cost to the Government of the property thus sold, and the same shall immediately become available for the purposes named in the original appropriation." Mr. Dent. Was any order made relative to contracts of this character by the Purchase, Storage and Traffic Division of the General Staff? Maj. BooTON. There was Supply Bulletin No. 13, headed " War Department, Purchase, Storage and Traffic Division, General Staff, Purchase and Supply Branch, Washington, August 3, 1918," reading as follows : " Subject : Contract provisions regarding increased manufacturing facilities. " 1. Where increased manufacturing facilities are constructed at the expense of the Government or where their cost is amortized in the price paid by the Government, the contract shall provide that title to such facilities shall vest in the United States. The contractor may agree to take such facilities at a fair value in diminution of the profit which he otherwise would make. "2. Where title to increased manufacturing facilities vests in the United States, the contract shall provide that the contractor may make written offer in the Government to purchase such facilities, whereupon, if the Government ac- cepts such offer, the contractor shall become obligated to pay for such facilities at their appraised value at that time. The contract shall further provide that if the contractor does not make or the Government does not accept such offer, the Government shall have the right to remove such facilities after the termina- tion of the contract within a time reasonably sufficient to effect such removal. MUSCLE SHOALS PROPOSITIONS. 887 The contract may provide that the Government shall have an option at the termination of the contract to purchase at an appraised value the land on which such facilities are erected. "3. If, in any case of such increased manufacturing facilities, it is de- sired to make a contract along lines different from those herein established, the approval of the Superior board of review shall first be secured." That 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. The last paragraph refers to the superior board of contract review in the General Staff. Mr. Dent. Have you any record of the action of the Chief of Ordnance in appointing contract officers to execute contracts for the department, and any records relative to this particular contract? Maj. BooTON. I have an office order, No. 157, of 1918; which appoints, among others, William Williams, lieutenant colonel, Ordnance Department, National Army, as a contracting officer. Mr. Dent. What was the date of that? Maj. Booton. This is order No. 157. No. 156 is dated February 26, 1918, and No. 158 is dated March 5, 1918, and in looking up some other records I find March 2 given as the date of the appointment of Lieut. Col. Williams. Mr. Dent. Who signed this contract? Maj. Booton. Who signed this contract, and whose name appears on this order. This office order for some reason is not dated. Mr. Dent. Have you a record showing that the board of review approved this contract? Maj. Booton. The office order 157, to which I just referred, reads as follows : War Department, Office of the Chief of Ordnance, Washington, March 3, 1918. Office order No. 157 (authority to execute contracts). 1. Office order No. 145, relating to officers authorized to execute contracts, is hereby rescinded, and the following substituted therefor : " 1. Contracts with private manufacturers to meet the schedules of require- ments for ordnance and ordnance stores and supplies will be executed only by the procurement divisions of the Ordnance Office. The following officers, but no others, are hereby authorized to execute such contracts : Samuel McRoberts, colonel, Ordnance, N, A. ; Charles N. Black, lieutenant colonel, Ordnance, N. A. ; R. P. Lament, lieutenant colonel, Ordnance, N. A. ; William WMlliams, lieuten- ant colonel. Ordnance, N. A. ; C. F. Cook, major. Ordnance, N. A. "2. Paragraph A of section 6 of officer oMer No. 104 is hereby amended to the extent necessary to give effect to the foregoing." C. B. Wheeler, Brigadier General, Ordnance, N. A., Acting Chief of Ordnance. Official : W. S. Peibce, Brigadier General, Ordnance, N. A. Copies sent to : Chiefs of bureaus and divisions, heads of sections, and arsenals. I find by examination of the records that William Williams, lieutenant colonel. Ordnance Department, National Army, was contra(:ting officer until February 4, 1919, continuing from March 2, 1918. Mr. Dent. I asked you about the board of review approving this contract. Maj. Booton. There is attached to the retained copy of the contract in the nitrate division an approval carrying the signature of the officers approving the contract, and the statement " approved by Board of Contract Review of Procurement Division, November 8. W. Arthur Babson, secretary." That board was an ordnance function, a committee appointed by the order of the Purchase, Storage and Traffic Division of the General Staff. Mr. McKenzie. Are the names of the officers attached there? MAj. Booton. Yes, sir. Mr. McKenzie. Will you please read those names? Maj. Booton. They are J. W. Joyes, colonel. Ordnance, United States Army; C. F. Beames, major, Ordnance Department, United States Army; E, V. Pren- 888 MUSCLE SHOALS PROPOSITIONS. tiss. major. Onlnance Department, United States Army; G. U. Alexander, captain, (Ordnance Department, United States Army ; Dale Bnmstead, lieutenant. Ordnance Department, United States Army. Then there is typed an oflicer's signature, R. H. Swartwont, which is in!tlaleked after the legal rights. Mr. ]MiLLER. Was that customary? Maj. Ber officer for us to call? Maj. BooTox. I can get it for you, and, usually, 1 would be the one to get it eventually. Jfr. QriN. Please let me see the original draft. Maj. B(X>Tox. Those are the signatures. , Jlr. (^uiN. Is that the same one that is printed? 5Iaj. BooTox. So far as I know it is is. That is one of the office copies. Then, there is a lot of miscellaneous data attache«o provide for the development <»f navigation at Muscle Shoals as fast as the power dams are completed. These objects can now be obtsiined by the completion of Dam Xo. 2. The- expenditure of the money necessary to build Dam No. 3 can not at this time be justified on any grounds. I agree, however, that when required to do so by the lants when reijuired by the growing needs for nitrates. I subm t that to accomplish the public purpose in view the nitrate plants ami the i)owei- to be develoi>ed should be leased to the same parties. The success of nitrate maunfacture which can be (^ononiically used for fertilizer is depend- ent entirely on sale of power; without th*' support of the power development and sale of excess power to finance the nitrate plants it w(ndd not be possible to manufacture and .sell such nitrates. The power end of the industry is to be solely developed for the benefit of the nitrate plants and fertilizer factory. The separation of such plants and factory from the power woidd destroy tlie unity and purpose of the industry. The other outstanding features of my proposal may be sunnnarized as follows: 1. The United States is not divested of title to any of its pro]>erty, but retains ownership and preserves assets of approximately $141,000,000. 2. Returns from investment on a basis of 4(M).000 kilowatts g)-oss 00.000 per year for .')() years, or a total at compound interest at 4 iier cent of approximately $r)87.0eration of a research plant for the development of the improved metluxls for the reduction of the cost of producing such nitrates. 4. The method projwsed to finance, by the sale of excess power, the manufac- ture of nitrates is the only possible method by which nitrates can be producen to be approved by the Government, and the lessee will lease the same under the terms of this contract. 5. Locks or lifts. — It is further agreed that the lessee will c«»nstruct for the Government the locks or lifts for the purpose of maintaining navigation over the dam or dams to be constructed at Muscle Shoals. 6. Manufacture of nitrate^s. — The lessee agrees to operate the ntrate plants, now a part of the property (which have an estimated capacity of 120.000 tons per annum), together with other plants that may hereinafter be built, to manu- facture such fertilizer compounds or mixtures and complete fertilizers as approved by the Secretary of Agriculture, and to conunence oi^eration of one plant within one year after it acquires possession, and as soon as sutticient power is generated by the hydroelectric plants belonging to the property, it will operate at full capacity all the plants that can be operated from the re- ceipts of the sale of the fertilizer compounds, together with the receipts from one mill per kilowatt-h<»ur, from sale of all power generated in excess of that required to operate the plants. 7. Alterations of nitrate plants. — It is also agreed that the le.ssee will make such alterations, additions, or changes in the nitrate plants as may be required to produce the nitrates or other fertilizer compounds approvetl by the Secretary of Agriculture, and to be completed within the time require Southern Building. In offering my proposal for the lease and completion of Muscle Shoals I luive associated with me Senator Butler, whom I would like to present the offer Mr* Chairman, and I will l)e very ghid at that time to answer anv quesrions oi- make any changes possible that the committee sees fit, or do whatever I cjin to meet the desires of the Government in respect to entering into a lease of this kind. The CHAuarw. You want Senator Butler to explain the proposition more in detail? Mr. Engstrum. If you please, Mr. Chairman. The Chairman. We will be very glad to hear from Senator Butler. Senntor Butler was formerly a Member of the United States Senate and is well known by reputation, at least, to all of you. STATEMENT OF HON. MARION BUTLER, ATTORNEY FOR MR FREDERICK E. ENGSTRUM. Mr. BuTLEK. IMr. Chairman and gentlemen of the committee: This great water rM»wer has been a matter of more than ordinary interest to everv American citi- zen who has given any attention to the water powers of this country, their devel- opment and their possibilities— even before the passage of the national defense :ict of .Tune 3, 1910. Indeed, the possibilities at Muscle Shoals had the serious .•ittention of our (Jovernment long before that time; under congressional author- ity the War Department had made extended investigations and borings and orticial reports to Congress with a view to developing this power, without any regard to the immediate approach of war, for the general public welfare. The question of producing cheap and sufficient nitrates, I think, was seriously considered at that time, before the shadow of war was upon us, because even theii we knew that there was a serious scarcity of nitrates in the world, and especiallv in this country. The chemical world has been studying the question for years and progress had been made, even at that time, that led to the well-founded hope that there were great possibilities in the fixation of nitrogen from the air when we could develoi) cheap hydroelectric power. When war came Congress at once decided to develop this great water power for the immediate needs for the production of nitrates for exph)sives, and that led to the passage of tlie national defense act. in which, right in the midst of war. Congress did not lose sight of the resultant peace advantages that* would come from making lutrates for fertilizer when the war wjis over: while Muscle Shoals was not named in the act, yet everybody had it in mind, and it was selected by the President as the best location and the best powei- to develop to make nitrates needed for explosives in time of war, and for the further declared purpose of using this same development for making nitrates fit for fertilizers in time of peace. Of CMUirse, at that time nitrates for explosives was the overshadowing idea; in the same way to-day, the making of nitrates for fertilizers is the overshadow- ing inirpose for peace time, together with nitrogen preparedness for war for all time in the future. Now, ^n the light of that declared purpose of the Government, and in the face of a great need for more nitrogen and cheaper fertilizers, this proposal has been prepared to meet that sentiment and that need. Of course, we prepared it from a purely business standpoint, but in making the proposition it has been MUSCLE SHOALS PROPOSITIONS. 901 shaped to meet, as we understand it, the declared public i)urpose ami public need ; therefore, our proposition is to devote this entire development to the making of nitrates ami to developing the art. The hearings before this com- mittee show the interest of the country in the making of more nitrogen and cheaper fertilizers and the development of this art of taking and using this most valuable element from the air, which is unlimited in quantity, for both national defense and the general public welfare in peace. It is, indeed, a great govern- mental purpo.se, and the present depression in agriculture has accentuated it, if possible. The need for fertilizer is keenly felt in every part of the country, probably more keenly to-day than ever before, not only because we are learning more the need and value of fertilizer but also because the parts of our country that had stored up fertilizer values in the soil that nature put there from the beginning are beginning to realize the need of fertilizer. The South has always needed it more than the West, but we are approaching the time, indeed it is here, when every part of this country, in the development of agriculture and its suc- cess in feeding and clothing the Nation, will depend upon an adequate supply of fertilizer, cheap enough to enable the farmers to produce cheaply and to enable the consumers to consume at prices that are not prohibitive. So when, we face the proposition of a cheap fertilizer we are facing a basic question that aftects the prosperity of agriculture and the cost of living to the great consuming world. It is wise for us as individuals and also as a Nation occasionally to stop and take our bearings, our prospective as to other individuals and as to the other nations of the world. This great country is behind in the vital matter of giving proper attention 1o the production of food and clothing. This great country is using less fertilizer material than the small country of Germany, which we could put in one corner of this country and forget it was there. We are starving our soil. We did it from necessity during the war, but we did it before the war and we are again doing it now. Germany nsed last year 500,000 tons of nitrates for fertilizer. This country, with its enormous acreage, needing such fertilizers more than Germany — hungry for it, calling for it, impotent without it, with over half of the labor and toil of our wealth producers thrown away without this fertilizer to give nature a chance to respond to human efforts — used last year less than 175,000 tons, and at least half of that we imported from Chile. I submit, Mr. Chairman, that these figures, which are correct, are staggering, and we should not lose any time in correcting this mo.«5t serious situation. Now, what is the trouble? To begin with, we are not producing sufficient nitrogen in this country and therefore we are not in a position to furnish ourselves in time of war or in time of peace. Germany produced last year over 300,000 tons of nitrogen from the air by a process they have invented, called the Haber process. That is cheaper and more efficient than the cyanamid process, which she is using to only a limited extent. But Germany can not produce nitrogen from the air by either process as cheaply as we can, because she has no great water powers by which she can develop cheap hydroelectric uower. But we have got it to burn and we are burning it — we are not using it. Talk about conservation, we are the most prodigal sons in the world with watrt* power, because the only wa.v you can conserve water power is to use it. What has gone over the (lam an hour ago never will go over it again; it :s gone. The trouble is it did not go over a dam, it went down the run or over the rapids: the only way we can conserve it is to use it and use all of it ever.v minutt\ lint we are not conserving our water power and we are most prorligal sons in that respect. We have everything in this country to enable us to outstrip the rest of the world in furnishing ourselves with everything we need, but we are not using it. Germany produced last year by the cyanamid process 100,000 tons of nitrogen, in addition to the 300,000 tons produced by the Haber process. They are using both iirocesses. but they find the Haber process the most valuable, the cheapest and the most etticient. and they are bending all their energies to developng it still further, and to perfect it. That country does not waste anything, and so. in addition to using these two scientific methods for taking the nitrogen from the air, they have saved every ounce of ammonia or nitrogen from the coke ovens. The.v saved in that way 100,000 tons last year, and that is the way they got the 500.000 tons — 300,000 tons from the air by the Haber process. 100.000 tons from the air by the cyanamid process, and 100,000 tons from the coke ovens. I I 902 MUSCLE SHOALS PROPOSITIONS. ,um ';./^nn^t>f^«• k"--^ ^'■'^ "^^^ Pi-ocmcmg commercially one pound of I^i > "Tk T ^^^ ^''' by either process. We are dependent on what we save trom the coke ovens Every fertilizer factory in this country has To l^ok rhnpT'f '''' the by-product they can get there, and then they Save to go IL 1. I I? ^"""'^ ''^^^'' ^«"nti'.V which is manufacturing it, in order to get the rest of the nitrates that they use for fertilizer. The result is that it i J IVZ' '^^ '.tf"i''"' companies do not use as much nitrogen in fertilTzer as hey should, and the farmers do not buy half the fertilizer that they know they need >mv, that brings us, Mr. Chairman, concretely to why Mr Engstrum's ^;Tl%Kr'''^^V'''' "'^t ^^^mn^ Nitrate Plant No. 1 at Muscle ShoSs >Mi.ch IS the Haber process. I believe no other offer vou have before vou proposes to utilize Nitrate Phmt Xo. 1. "eiore >ou The Chairman. Not for manufacturing nitrates. Mr. Butler. But to scrap it as a nitrate plant and to use it for general niann f:K-turmg purposes, for making automobile parts or dolls or something else" imra'tes. ""^ ^^ ' ^^^ ^'^^'''^ ^^ "'^ ^""^^ "^^"«^^ plants for Snaking Now, Mr. Chairman and gentlemen of the committee, if vou will pardon me for a moment. I want to say that I am Interested in this 'question more than as counsel I was born and raised on a farm and have been largelvTnteresteS m agriculture as a business all my life; I own and am operating one of the largest farms in my State, and therefore I know the situation intXtelv as a practical farmer. I am a little more than an agriculturist: I am a rell farmer I spend much time on that plantation in person. During the war T devoted my whole time to it: when my boys went to the front to shoot bTillets LT w-H '" ^^ *^ ^r" ^'' ".^^^^^ ^*^"*^«' «»^ I ^^^y^^ Personallv Xring the 1T>; / * ' "^y plantation stripped of its best labor I tried to supplv its place ^^^S^J^^'J'' machinery, but the most serious problem was fertilizers This fertilizer proposition I have faced and studied from everv angle and 1 IS the worst handicap I have had to face as a wealth producei ; that ?s to find a way to buy enough fertilizer to make my machinerv and mv abot^ and my land and my own efforts produce the results that should have b^n produced I have found it impossible for me to produce what that effort a^S Sness ^^^""'^ ^'"''^ produced and would have produced in any other 1 have niixed my own fertilizers: T was forced to do it: and everv farme- should do It until he can buy them compounded cheaper, because we nav too much for the mixing. So I have dealt W.th the fertilizer ingredients and have searched the world to try to get them cheap and then mix theL mvS^ I mix different combinations to suit each field and each crop, not onlv from an analysis of the soil but also from experience, which has proved to be a better gu.de than soil analysis. Therefore, gentlemen of the committee this question, that you are considering, would apix'al to me lust as stronclv if I were not counsel in this case, but simply as a citizen : and I trust vou will pardon me for thus qualifying myself from experience to testifv in this matter as an expert. * "muci I have watched and followed the proposed development of Muscle Shoals from the very beginning; I have read and kept up with everv report and everything you have done, never with any idea at that time of appearing here .InnHnn 'ni '^''^y*' ^"^^ ^^ ^^ American citizen deeply interested in the pro- duction of a sufficient supply of nitrogen to meet the serious question of nitrogen preparedness for both war and peace. I am as much delighted to-day as any American citizen can be, at this interest vour committee is now showmg in this matter. No one was more disappointed than m7self when Congress failed to make the appropriation after the war to continue the development of this project. It now looks as if we were going to do it and it is a glad message of cheer to all of the American people, not only to the farmers but to all of the consumers, for it means much to them Now, Nitrate Plant No. 1 is the only plant in this countrv. outside of the one small plant that has been built at Syracuse since the war that is built ri"if«i^n^ ?^^'' P^^^^^^J ^^i\ t« «^«' it i« a shocking proposition to abandon the use and development of that process at Muscle Shoals, and to go back \'''^^^' ^"""iJ?" the cyanamid plant there, which is more expensive and which has not the same future posibilites of development. It is not possible to meet our needs for nitrogen by the cyanamid process alone, and when I say that I think I am speaking from the composite wisdom of the scientists and the experts who have studied the question of the fixation of nitrogen MUSCLE SHOALS PROPOSITIONS. 903 from the air, because that process is more expensive and has not the possi- bilities in it for development that the Haber process has. They all expect the progress to be made in improving the methods for the fixation of at- mospheric nitrogen to be along the lines of the Haber process; and, if that is true, then we should not scrap Nitrate Plant No. 1, which is the Haber process. It is true that during war times and without full knowledge of what the Haber process was we did not make a success of Nitrate Plant No. 1. I do not criticize anybody. I think it was done the best that could have been done at the time — with the information we had — but we know to-day that we can redesign that plant and run it perfectly by the Haber process. The one serious defect in that plant is the need of an efficient catalyst, which is es- sential in forcing the nitrogen and the hydrogen to join to make ammonia. The Germans keep the composition of their catalyst a secret, but we have succeeded since the war in making a catalyst which is better than the one used by the Germans. Therefore, we can to-day make Nitrate Plant No. 1 a better plant than anyone in Germany — as far as we know; and we can ert of the Agricultural Department, told you that we know now how to make nitrate plant No. 1 the best and most etfi- cient Haber process plant in the world. Therefore, by spending $4,000,000 more on that plant we have a plant, which will be taking more nitrogen from the air at less cost than any other plant in existence. Now, if this water power is going to be used for the great purposes declared in the national defense act, then we should not scrap anything we have there, but we should run both nitrate plants and, as we develop the power further, we should build more nitrate plants. That is exactly the vision that we had, Mr. Chairman, when we prepared this proposal. Mr. Engstrum's proposal does not require the building of Dam No. 3 at this time, but it does provide for doing it later. We all know that a succes.sion of dams and reservoirs can and will be built up that river. There is no public need for Dam No. 3 at the present time, but under our proposal we stand in readiness any minute that the Government decides, as a matter of ix)licy to proceed with it. to build it under our contract. The Government should use the same ordinary common sense that you and I use in our own business or that we would use in this matter if this was our water power and we were spending our money. We would take what we have there now and use it to the best advantage to develop this art to make cheap nitrates ; we would rede- sign the two plants there to meet present needs, and we would not spend, prob- ubly, any more money in building any more dams after finishing Dam No. 2 until there was need for more power and until we had developed the art a lit- tle further and learned to make nitrogen cheaper. Everybody expects some morning to wake up and find that, if we have not learned it ourselves, some- hody else has discovered some cheaper method or some better process. The whole world is seeking for it, and we are sure soon to find a cheaper method ; it wi)l come. Then we should not scrap, but we should conserve what we have and use it, and also run a research plant there in connection with these two nitrate plants, until either we or somebody else discovers how we can make the nitrates for fertilizers cheaper; then we should build Dam No. 3 at once and at the same i 904 MUSCLE SHOALS PROPOSITIONS. J VI time put. Ill additional nitrate plants and do it at once, and as fast as neoessarv utilize all of that tremendous water power in making cheap nitrates for cheap fertilizers. When that time comes, we will build the extra dams— Dam No. 3 ■ ' mu.^' ^"^ ^'^* ^' ^^*^ storage dams— way up to the headwaters of that river. This is what our proposal contemplates, and further to use all this de- velopment in producing cheaper nitrates. In this connection, I wish to point to the fact that the Haber process as now operated in a small wa.v at Syracuse, and as designed during the war to be used at Muscle Shoals, did not contemplate producing a nitrate suitable for fer- tilizer but a nitrate for explosives, and, therefore, if we had finished plant No. 1 and had operated it successfully, it would now be necessary to make certain changes or additions in order to make the nitrates needed for ferti- lizers. It is perfectly simple and easy to make the necessary changes to pro- duce a nitrate fit for fertilizers. We know now how to make a soluble nitrate that is fit for fertilizers at both of the.se plants by redesigning them, and that can be done within the cost I have given you. Indeed. Mr. Chairman, we have learned' a number of things we here for us during all these years since creation, that we have spent it and wasted.it — been like a drunken sailor: nationally, we have not thought except when we were pinched: we are getting old enough to quit that and begin to think, conserve, and develop every hour in peace as in war, as all high-class nations must do if they are going to keep up in the world procession. If we liad not been of that go-lucky temperament we would not have been caught in the last war where we couhl not get enough nitrates even for explosives; we found our supply from Chile in danger any minute of being cut off: we did not have enough for explosives, and none for agriculture. I was forced to make two crops without nitrogen and exhausted my soil so that I now neeims and the rest»rVoirs but also as to the remodeling of the nitrate plants and the construction of new nitrate plants. We want the closest inspection both by the Government engineers and by our engineers or inspectors, so that if there should be a difference of opinion we could stop, before another dollar is spent, and have the highest authorities pass upon the work. We consider that as important to us as if we were spending our own money. This matter of the best possible construc- tion is so important that we have already arranged for the services of one of the greatest engineers in this country to take charge of supervising and directing this construction if we shall be awarded this lease. In drafting section 17 we looked ahead to the time when more dams and more power will be needed to make more nitrates and more fertilizers. In drafting section 18 we again looked ahead. Our idea is in the beginning to finance the making of the nitrates and to use every dollar of the 1 mill per kilowatt-hour from the sale of power, if necessary, in making nitrates even at a loss. It will not be long, however, before we will be making those nitrates at cost or a profit. When that time comes every dollar which has gone into financing the making of nitrates will go into the Treasury. So we are offering to the Government a handsome return for the investment, which goes either into the financing of the production of nitrates, or, when it is not needed for that, which goes into the United States Treasury. Therefore it becomes a trust fund, which goes sacredly to one purpose or the other. Now, a word in regard to section 19; after this proposal was printed it oc- curred to us that further words might have been put into or added to that section in order to clarify the meaning as to how the cost of construction is to be determined. The word " cost " with a percentage to be paid thereon, it has occurred to us might be construed to mean cost such as we had unfortunate experiences about during the World War. We have fresh in mind the fact that if a percentage is to be paid on costs, human nature often does not limit the cost, but the tendency is to make the cost run higher than it ought to. We had in mind, when we wrote that section, that the cost would be a matter to be determined by the lowest bid and to be approved by the Government. So we have prepared this amendment, which we wish to go into the record and which we want to be considered as a part of section 19. The amendment 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 «uch bidder, subject to approval by the Secretary of War." This makes it perfectly clear and certain that the work will be done at the lowest possible cost ; and it will also be done in the most eflicieijt manner, be- cause, as I have said, we will have there in charge one of the best engineers in the country to-day. Our idea has been always that we would submit all the !l A i 908 MUSCLE SHOALS PROPOSITIONS. coiistrucUon work to public bidding, because we can in this way get responsible- contractors with their complete equipment and in the business, who can unqiest tionably do this construction work cheaper than we could by forming an organi- zation to do It, or cheaper than the Government can do it, because thev are en- gaged in that kind of work all the time. because iney are en There are resi>onsible concerns for doing such work, who go from one job to another and tlieir organizations are at the highest state of efficiency and equip- ment iUi the time. So we would have all that work done by contract and let it out to the lowest bidder, always, of course, subject to the approval of the Secre- i^'L •"*. . ^*'- "^^^^^ *® ^^^^ ^^''^'^' ^^ would be done, even if there was no languaire ot this kind added to section 19. B""fet^ In reading over this proposal many times I did not see any other changes or additions that I could suggest to clarify it, because the language is very plain and direct ; but, of course, a person who writes a thing may not see its defects because you have in mind when you write it what you mean, and you may fail to express it m words ; so that is the only change or addition I could see that was necessary to clarify its meaning. Now, Mr. Chairman, I think it would conserve time, if it is the pleasure of the committee, for me to answer questions that may occur to any members of the committee. The C'HAiBMAN. Senator, as I caught the reading of your proposition, the Gov- ernment puts up the money? Mr. Butler. Yes; the amount necessary to tinish Dam No. 2 and to make the- , initial changes necessary in nitrate plants No. 1 and No. 2. The Chairman. For the various things that are to be done, and Mr. Engstrum. is to be the contractor to carry out those things. Mr. Butler. Yes ; and also to operate the plant as lessee. As such lessee, under his bond, he will superintend the completion of Dam No. 2 and the redesigning of both nitrate plants and then put it into practical operation under a 50-year lease. I want to say that the matter of completing these jobs is secondary to us. We are willing for the Government to do that, and then lease us the com- pleteil plant ; but somebody has to linish Dam No. 2 and redesign these nitrate plants before you can ever use them. The part of it that we are interested in primarily, and that appeals most to me, and, I think, to the public, is the operation of this property as provided in the national defense act. We have made what we think is a fair and just business offer to the Government for this incidental, initial stage of necessary work to get ready to do business. The lease under our proposal covers the whole business, and if it is given to us in that shape we will put the property in operating condition and then operate it. >Ve 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 prop- erty, and then to turn it back at the end of 50 years if the lease is not renewed, in as geration of the property is the important thing but the necessary construction work to get it ready to operate must be done by some one. Mr. McKenzie. Senator, you are here representing Mr. Engstrum, who, by the way, is representing a corporation to be hereafter formed, but which is not now in being, and which under you plan will become the lessee of the Gov- ernment for the purpose of carrying out the conditions set forth in the contract? Mr. Bitttjcr. Yes. or MUSCLE SHOALS PROPOSITIONS. 901^ Mr. Mckenzie. Now, Senator. I think it would be very beneficial for us and help us out very much if you would give us a brief analvsis of just, exactiv what you expect to give to the Government and what you expect to get in returfi, and then we can ask you some questions about that. You can tell us what vou expect to give to the Government as a consideration, and then what you expect ill return. I think we can, perhaps, get along better in that way. \\^^. ^™'^^- }Ve tried, primarily, I will say, to figure out ii proposition on a different basis, to agree to finish this unfinished work for a fixed sum so as not to have any question of the amount of the cost to the Government • but we found great difficulty in offering you such a lump-sum proposition, as we could look you m the face and say it was absolutelv fair, that it was as low a figure as we could do it for and make a living profit,' and feel that we were safe under a bond, and not go into bankruptcy. There was a wide diversitv of opinions between our own engineers and the Government engineers as to what it would cost to do the necessary construction work. We do not want and we felt confident that the Government did not want, anv cheap work done on this great project. This is a great proposition and the work should be as durable if possible, as the eternal rocks on each side of the stream. Every time we put on pai^er a fixed amount that we felt would be safe tor our bondsmen and for ourselves, we had to put tlie figure, in order to be safe, higher than w^» believed it would cost, because if we did not do that we nught go broke. And finally, as a matter of good conscience and a matt^>r of good business, we came around to this proposition, as stated in section 19 to imt it as a cost proposition. ' Now, as to the advantages to the Government : AVell, broadly speaking this proposal will give the Government exactly what it has declared it wants ' The only question is, are we offering to do it on a fair business basis and on the- best basis on which a responsible individual can do it. That is the point, and that IS where, finally, the question is directed as to what we are offering to the Government and what we are expecting to set out of it ourselves first, we propose to finish Dam No. 2 and to redesign both nitrati plants in a way which will guarant(>e the best possible construction, and at a cost which we believe will be less than the Government can do it. We will be lucky if we m.nke any profit on that Next, we propose to lease the whole propertv and to devote it entin»lv to the making of nitrates ; and we all know thaf when you htive devoted the wbole thing to that one object you will produce more nitrates and get greater progres.s m the art of the fixation of atmospheric nitrogen than if vou d'vidtHl up tlu^ proposition and leave the making of nitrates as a minor consideration We will devote the whole Muscle Shoals project to this one purpose We will operate both of those nitrate plants. There is a steam plant at nitrate plant Jjo. 1, and also a steam plant at nitrate plant No. 2. We would liave also the Wari-ior steam plant, which we proteose to lease alontr with this propertv Ihe (Government has them there, all built for this purpose. We would be-iii to operate at once with that power. When we get Dam No. 2 liidshed we figure to keep the steam plants in a standby condition to increase the amount of primary power when necessary. Say that we produce 100,000 kilowatts of primary power, we could add another 100,000 primarv power by ')peratiii<- those ste^m plants for 10 or 15 per cent of the year,* during the low-wate? period. But we can, of course, run these steam plants for a longer period or all the time, if necessary. That would make a peak load all the time if 'we did that, of 440,000 kilowatts. , " ^^^- Now, we would do that if there was a market for it and we could sell it We propose to sell power, as much as we can make to sell, above what is required to run the two nitrate plants, and it is to our interest to sell all we can at a profit, and to devote one mill per kilowatt hour of the power sold to nnancmg tlie production of these nitrates, because we are going to begin at a loss: everybody knows that. We set that aside as n trust fund, to be given as rental for the lease, in addition to the power that is necessarv to run the two plants. Then we agree to sell the products that we produce and add to tnat fund, it being a fund which belongs to the Government to. go into the iieasury, or into the financing of nitrates. We figured with the one mill per Kiimvatt hour on the power sold, based on a development of 440,000 kilowatts Vi -/vl'^'*^- -' ^^^^ ^*^^ income to the Government will be, in round numbers, ^J,ouo,000 a year during the whole length of the lease from Dam No. 2 alone • ^ • i* 910 MUSCLE SHOALS PROPOSITIONS. and it either goes in cash Into the Treasury, or it goes into the produclSion of nitrates. That much is certain. We are giving the Government the certain end of the proposition. Our proposal also provides that when there is a need for more power and more nitrates that we will build Dam No. 3 and put a nitrate plant there also. Thus the return to the Government and the benefits to the farmers will be increased in proportion to the increased power developed there; and so on until all the water power is developed. The next part of the question is, What are we going to get out of it? It depends on the amount of power we are able to sell and the price we can get for it. We reserve whatever we get for that power above 1 mill per kilo- watt hour for our compensation, and that is the only compensation we get I say to you frankly that it is a proposition on which we were taking the chances, and on which we were giving the certain end to the Government. That is about as definitely as I can answer your question. Does that answer your question? Mr. McKenzie. In a way it does. You have answered it in a way, but not entirely to my satisfaction. I want to say, Senator, that vour statement on the general proposition, in my judgment, was a splendid, enlightening state- ment. That is a matter we are all interested in, generally. But what we ara interested in at the moment is the proposed contract or offer by Mr. Engstrum Mr. Butler. That is why I stopped talking; I knew you were interested iii the details of this proposal. Mr. McKenzie. You have come to this committee emptv handed, to begin with— without a dollar? Mr. Butler. Yes ; so far as putting our money into completing this project Mr. McKenzie. The first proposition is that hereafter there will be a corpora- tion formed? Mr. BUTT.ER. Yes. Mr. McKenzie. Will that corporation own stock? Mr. Butler. I will tell you frankly what we have in mind. We will form a corporation, but we have not yet agreed on any amount of capitalization, be- cause we are giving a bond, and we did not think it was necessary to guarantee a large paid-up capital. Mr. McKenzie. You have not thought of the amount of capital stock? Mr. Butler. We have considered that entirely immaterial since we are giving a bond. But if it is desirable, if it cuts any figure, we are ready to meet anv suggestions the committee may make along that line. But It never occurred to me that it would be considered essential, if you thought you were dealing with responsible people, as individuals, regardless of how much wealth we might have. But we are ready to give any bond which may be required— with a sufllcient bond the personnel of the company is, of course, important to insure the greatest results— that will produce the greatest good. I want to say in this connection that I have given that matter a great deal of consideration because I will be one of the directors of that company myself. This subject has gripped me so that I have decided to stay with this company as a director and as general counsel ; I do not know of anything that has ever appealed to me so much; and, if you give us this contract, the rest of my life will be devoted to developing this proposition. I shall devote my best efforts to de- veloping this great water power in a way to be a credit to this administration and to the Government, and to producing the most beneficent results for agri- culture and the public good— I intend to devote my whole life and time to it Mr. McKenzie. My question was not prompted by any idea that I had anv fear that the Government might lose out. But it was in connection with my question as to what you expect to get out of this contract. Mr. Butler. The organization of the company is purely a question of busi- ness. Of course, Mr. Engstrum or I could seek this contract as an individual and go ahead and do it, but we all know from business experience that it is much more desirable to form a corporation to carry out such a program for a term of 50 years. We expect to bring men into the company who will be worth something not only for their means but also because of their experience and standing, selected with the same care, almost, as you would select an engineer of the greatest ability and reputation. And, of course, we expect to make money operating this plant. Mr. McKenzie. Let me put it: in another way. As I have said, you come to us empty-handed, not proposing to finance any proposition. You form a corpo- ration to become a lessee of the Government, and then as lessee you proceed to MUSCLE SHOALS PROPOSITIONS. 911 do certain construction work for the Government to carrv out the purposes of the Government, the Government furnishing all the money, the company gettin<' a fee as compensation for the construction of those various plants necessary to complete the project. Air. Butler. We are willing to accept a contract from the Government to-day to finish the work on a fair basis, and then lease it when it is finishelants from the power to be developed at Dam No. 2, and to sell the remainder, giving the Government 1 mill per kilowatt hour on all power sold and keep the remainder for our profits. When more dams are built and more nitrate plants are erected by them then we must have the proportion between the power pro- duced and the capacity of the nitrate plants the same, or there would have to be a new adjustment as to our profits. Of course, we will always be forced to sell a certain amount of power or there will be no profits. We can never use it all in making nitrates without changing the contract. Mr. McKenzie. Then I misunderstood you as to your plan. Your plan, as you have it in vour mind is that you will furnish sufficient power to operate these two plants at Muscle Shoals, and whatever surplus there is you want to sell. MUSCLE SHOAI^ PROPOSITIONS. 913 Mr. Butler. Yes. Mr. McKenzie. I got the idea that it was your hope at Icjist that while this is a matter of experiment, up to this stage, that the (Joveiimient will go (ni ex- perimenting and as this develops that in time all this vast power at Muscle Shoals could be utilized in the production of fertilizers for the farmers of this country. I got that idea from your statement. Mr. Butler. What I intended to say is that we devote all the power necessary from Dam No. 2 to the making of nitrates at these two plants and sell the remainder of the power to finance the operation, 1 mill of each kilowatt hour sold going to the Government and the remainder to us for our profits. Now, that is what we will do with the one dam and the two nitrate plants. Of course, when Dam No. 3 is built we will put in another nitrate plant, and if its size is in the same proportion to the output of the dauL then our i)n»- posal will apply to it the same, and if not, the difference can then be adjusted : and so on with the whole development of the river. But when we can make nitrates at a profit, then the returns to the Government will be greater. Mr. McKenzie. My reason for asking about your profit in case you utilized all the water power in the production of fertilizer, is because in your contract, as you have submitted it, you would then be dependent upon the will of the Secretary of Agriculture as to the amount of your profit; is that not true? Mr. Butler. We can never sell nitrates under our proposition at a price higher than he would approve of. Mr. McKenzie. If all the power was going into the manufacture of fertilizer and you were not selling any, for general use, then you would be dependent, under your contract, for any income or profit upon the will of the Secretary of Agriculture? Mr. Butler. We had thought of that, and that is why we do not propose to make any profit from the sale of nitrates and fertilizera, and this is the only sure way to guarantee cheaper fertilizers to the farmers ; it is not our idea that any of the fertilizers will be sold at a profit. (Thereupon, the committee took a recess until 2 o'clock p. m.) after recess. The committee met pursuant to recess at 2 o'clock p. m. STATEMENT OF HON. MARION BTTTLER, ATTORNEY FOR MR. FREDERICK E. ENGSTRITM — Resumed. The Chairman. Senator, Mr. McKenzie this morning, when we adjourned, had finisdied asking you such questions as he desired to ask, and we will con- tinue, if you please. Mr. Hull would like to ask you a few questions. Mr. Hull, Senator, I am considerably impressed with some features of your proposition, and especially with the preservation of nitrate plant No. 1. I think that should be done in any case. What is your estimate as to the capac- ity of that plant, if it is made available as at present planned. Mr. Butler. The statement of the Chief of Ordnance is that if modified and made an operating plant, according to the plans they had in view, the capacity would be 30 or more tons per day of ammonia. Mr. Hull. It is a very small plant, then, in comparison with No. 2. Mr. Butler. Oh, yes. You see, when they built that plant on the Haber process, we did not know all of the process; it was an experiment, so we were not going into it on as big a scale as on the cyanamid process, which we thoroughly knew. We built it as far as we knew how to build it by the Haber process, experiment on the remainder; it was built small with a view to try- ing to work out that process, feeling that we ought to have both processes. The idea was to enlarge it, if it was a success. We know now how^ to equip and run the best Haber process plant in the world. What we consider now to be the most economical thing to do, is to complete it by the improved methods which we have worked and put it to work at once. It would be better to build a larger plant, if we were starting out initially, but the sensible thing to do now is to complete it as it was started. There is a complete steam plant standing by it, so we could begin to operate this plant before Dam No. 2 is finished. Mr. Hull. And that plant, as I understand you. would make about 10.000 tons per year or about one-tenth the capacity of plant No. 2. m^ 914 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 915 Up m Mr. Bl^lek. a little more than that. It is three times as large as the Haber plant at Syracuse. Mr. Hull. Yes; just a shade more. Have you any estimate as to the cost under that system compared with the cost under the cyanamid process? Mr. Butler. Germany and the Syracuse plant have proven that it is much cheaper and it will be very much cheaper when we can make the changes and improvements which I indicated this morning, the new catalyst and the new electrolytic cell for getting the hydrogen instead of passing the water over coke to separate it. When we can use the hydroelectric power, it will be much cheaper, and that is the line of development along which the world expects to see great, progress made in the fixation of atmospheric nitrogen. The new ratalyst, which is the most efficient in the world for joining the hydrogen and the nitrogen we will put in at once. The electrical process for producing the hydrogen we will put in when the hydroelectric power is available; and then we will also i)ut in the liquid-air method for getting the nitrogen from the air, which is also nnich cheaiier than the method now used at Syracuse and also now used in Germany. When that is done we can produce nitrogen for fer- tilizers much cheaper than anyone else is doing it, and very much cheaper than it can be done by the cyanamid process. Mr. Hull. You say it will be much cheaper; how much cheaper, propor- tionately? Mr. BuTTJCR. That is diflScult to say. Mr. Hull. Yes. Mr. Butler. We do not know until we do it. Germany is the only people wlio are doing that. At Syracuse they are simply going to the point of mak- ing the ammonia, and they stop there, but they are doing it cheaper than they thought they could when they started and are making progress. So we are on the edge of development; it is an undeveloped art with great possibilities si> far as we know. Germany is very successful with the Haber process, but she is experimenting all the time. She made 300,000 tons by that method and is gradually dropping the cyanamid process. Germany made only 100,000 tons by the cyanamid process last year, and she is now pushing the Haber process because it is much cheaper. Mr. Hull. You incorporate in your proposition the purchase or the turn- ing over to you of the Warrior or the Gorgas plant. Mr. Butler. Yes ; we lease it ; it is necessary at present. We might develop enough power so that it would not be necessary later, but we need it for the construction work and to operate the plant successfully until we get the dam built; it is the cheai>est power we can get. It is cheaper to get it over the transmission lines from the Warrior plant than from the two stand-by steam l>lants that are there now, therefore it is very desirable. If the Government wanted to sell it later, that would be a question for negotiation; but it is needed for the economical use of the property for the present, certainly. Mr. Hull. I am rather uncertain in regard to that Gorgas plant. Perhaps if I was down there and could look it over, I could get the proper angle. You all seem to want that Gorgas plant. It is 80 miles away from Muscle Shoals. Mr. Butler. Y'es. 'Mr. Hull. And it is simply a duplication, so far as your plant goes, of the steam plant you already have, or would have. ]yir. BuTLEK. It is right at the coal mines. You see, it is cheaper to trans- mit electricity tlmn it is to haul coal. Mr. Hi'i.L. Yes; but you do n<>t, any of you, figure you would need it after you get the dam completed. Mr. Butler. Well now, frankly, we could use it all the time in this way: In making more than 100,000 primary horsepower from the water power for the 365 days' peak load, we could increase that primary power by supplement- ing it with steam power and do it cheaper from that plant than from the two stand-by plants, and to that extent it is a matter of continuing importance; just to that extent, and that extent only. Mr. Hull. I presume you think, then, that the Government would have the right both legally and morally to take that plant away from the Alabama Power Co.? Mr. Butijjr. We, of course, do not desire to become a party to that con- troversy, and it does not enter into our proposition at all. You see that con- troversy is in case the Government was to sell it. Our offer is the use of it under a lease that would come, as we take it, within that contract which the Government has with them. Mr. Hull. But, if we should accept your proposition, you certainly would become a party to the taking over. Mr. Butler. We take it over as lessee. We would simply operate it just Is it has been operated by the Government, and for the same purix)ses. Mr. Hull. And, assuming it costs five or six millions of dollars, that cost would go in against the proposition, would it not? Mr. Butler. Certainly. But the Government owns the larger part of that plant already; and, as I have stated, it is essential until we build the dams and is desirable afterwards. We 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 should be no litigation about it under our lease. Mr. Hull. Now, there is another part of your proposition that I want t<» ask you about, and that is, you do not have any capitalization or any paid-up capital in your proposed company. That was gone over this morning by Mr, McKenzie. Mr. Butler. Yes; we have not yet stated the amount of our capitalization for the reasons given, and because the bond covers faithful performance. Mr, Hull. Now, what kind of a bond do you think could be executed that would cover a proposition of this kind? Mr, Butler. It is for the faithful performance of everything we agree to do as lessee, and it is to be approved by the Government. So far as we are con- cerned, a bond can not be made too strict or go too much in detail, because people who expect to live up to their contracts do not object to binding them- selves under a good and sufficient bond. Mr. Hull. But what kind of a company could guarantee the proposition? Mr. Butler. When we have given a bond, of course, the bonding company is liable. If our company were absolutely penniless and was not responsible for damages at all the bond would be, and besides our company will be com- posed of men of some standing and respon.sibility, and also men of a good deal of means, but the bond is the important thing. I should take it that if we were worth an aggregate of one thousand million dollars, you would want us to give a bond, because our assets, in case of death, are wound up in a year, and money can disappear, but a bond is good for the whole period. So, the bond is the thing that the Government needs, no matter if the five richest men in the United States were our stockholders and directors. Mr. Hull, Then, the bond you contemplate is your own personal bond an no conditions about the liind of bond, and we feel entirely confident that we can satisfy the Government with a bond, and can give any reasonable bond that is asked Mr. Huix, If I understand your proposition correctly, in a way, it is a profit- sharing proposition for the Government on the entire project, the Govern- ment to furnish the money to complete the project and to pay a certain amount, I think, 5 per cent on the cost, and then to share in different ways in the profits therefrom ; is not that it? Mr. Butler. Well, we pay a rental for the lease and it is based on profits, but it had not framed itself in our minds in just that way. This proposal has been drawn as a result of trying to find some practical business method on which we could undertake this great proposition and do it in a way that would produce the results that the Government expects, and, at the same time, be safe for us to do it from a business standpoint. It is a difficult problem to draw a lease contract to operate over a period of 50 years, and we have had great difficulty in doing it; we have changed the form of it a number of times, trying to simplify it, and that has been a very difficult thing to do. Now, we have done the best we could, and, as Mr. Engstrum stated to you, we are ready to modify it within any limits that would leave it a decent, sound, business proposition, because the purposes .that are set forth here we intend to carry out, if given the contract, and we are willing to be bound in the greatest detail to carry out these purposes. This is not a philanthropic offer any further than the results to be ac- complished will be of the greatest public benefit, and the Government will get a handsome return on the investment, while, at the same time, we will make, not an immense fortune, but a good and a reasonable profit. We propose to carry out a great public purpose to result in great public good, and we guarantee the Government a definite rental for the lease, that rental to increase as more power is developed. Mr. Hull. As I understand it Mr. Butler (continuing). And we could not see any better way to do it than to guarantee to the Government a certain definite income from the sale of power not needed to run the two nitrate plants. Our profits are to come from the same source ; the nitrates are to be sold at cost or less— no one is to make a profit on that. This, I submit, is a simple proposition and a fair and just one. Mr. Hull. You would not object seriously if convinced that certain parts of your contract should be changed in order to make it a better contract for the Government, if we saw fit to ask you to change it, and you would agree to that? . . Mr. Butler. No; and we so stated this morning; and, while that point is up, I will say right now that I have been asked since the morning session for a further explanation about that amendment which we offered to section 19. The question is : What profit would that mean to us, and what do we do to earn it. I will answer that now : Under what were known as cost-plus contracts during the war there was no limit to cost and really an inducement to increase the costs. Under section 19 of our proposal, as amended this morning on our own motion, all this work will be done by the lowest bidder, and the lowest bid will determine the basic cost, but that does not include overhead or any engineering charges, and the percent- age fee of 5 per cent paid to us for superintendence and for engineers and for all that sort of thing is a most modest sum. We are offering to do that just as cheap as we feel it is possible to do it and employ the highest-class men in the country, men who are fit to handle such a proposition. That is what section 19 means, and if it is not clear as worded we will make it so. Mr. Hull. Then this fee that the Government would pay would go directly to you personally or to the proponents of the proposition. Mr. Butler. Yes, of course ; and we will be very modestly paid for the service that we must render on so Important an undertaking. We must not only em- ploy the very highest class engineers and the best experts for redesigning the nitrate plants, but the administration there and every kind of overhead charge and expense in seeuig that the contractors do their work in good faith, will fall on us. The Government will hold us to our bond. All of those things we have figured out, as far as we could, from every angle. The Government is not responsible for anything, and we are responsible for everything under our bond and if we can not do this and have a profit left, then we do not get any profit. It is a very small fee. MUSCLE SHOALS PROPOSITIONS. 917 Mr. Hull. Of course, under the estimated cost of Dam No. 2, this 5 per cent would practically mean .$150,000 as a fee for the finishing of the job. Mr. Butler. Out of our fee we will have to pay all expenses ov^r and above the bid of the contractors. Mr. Hull. And you will pay the overhead, etc., out of that and not out of the capitalization of the company. Mr. Butler. Yes; if the 5 per cent fee will cover it; if not, then we will have to pay it out of the capitalization of our company. We will have to pay it from some source, or our bond will be responsible for it. Five per cent is the usual engineering fee by itself, and we have employed already one of the greatest engineers in the country, who will carry out this construction for us. As I said this morning, but I say it again, if the Govern- ment will finish this work and then lease it to us, we are ready to make such a lease. The construction part of this proposal is an incident only, but it must be done by somebody. Now, we are willing to do it, and do it as cheap as it can be done on any decent, business basis. The finishing of the dam does not interest us much, but we do desire to redesign the nitrate plants if we are to be given the lease to operate them. Mr. Hull. I made a mistake, did I not, in saying it would be $150,000? Mr. Butler. You meant $1,500,000. Mr. Hull. Yes; that is quite a difference. Mr. Butler. But, as I say, it is the usual engineering fee. Mr. Hull. It appears to me as though that was a rather large fee for simply the superintendence of the job. Mr. Butler. And to cover all of the expenses. Mr. Hull. The plans are all there and you know just what you are going to do. Mr. Butler. That amount of money will not go very far during the period It will take to do all of this work, and I fear that we will be digging into our capitalization before we get through. But we say to you, have the Govern- ment finish the dam, if you think it can be done cheaper that way. What I am interested in is the lease, and in doing the things that I know we can do to add to the prosperity of this country. Besides the development of the art of the fixation of atmospheric nitrogen is a most fascinating proposition. Mr. MoRiN. Is it necessary to build Dam No. 3 in order to produce fertilizer or fertilizer compounds? Mr. Butler. No; not for the two nitrate plants we have there now, and there being no market now for that much power, and the art of making the nitrates being so undeveloped, we felt there was not justifiable reason to build Dam No. 3 at this time. No business man would do it on his own hook, and therefore, we have not made any offer asking the Government to do it now. Mr. MoRiN. Is it necessary to complete Dam No. 2? Mr. Butler. Yes; otherwise your property there will deteriorate and go to wrack. It will only be two or three years until what has been done there on that dam alone, at a cost of between sixteen and seventeen million dollars, will be gone and all the other property is standing idle and deteriorating. If you are not going to complete Dam No. 2 you ought to blow it up and get it out of the river. It is just a hindrance; you must either throw the whole thing up or complete it. Now, when you complete it you have two nitrate plants there with a modest outlay compared with what they cost originally to redesign them, which will be a going concern, that will render great public service and will finance itself under our proposition without any more expense to the Government: and it should soon be a money-making proposi- tion — that is what everybody hopes and believes. Mr. MoRiN. As I understand you, plant No. 1 and plant No. 2 in operation will produce all the fertilizer that will be marketable throughout the country at the present time. Mr. Butler. No; we can produce about 230,000 tons, roughly speaking, of ammonium sulphate there. You understand you can make more ammonium sulphate than you can ammonium nitrate. It is about 120,000 tons of ammonium nitrate. This would make between 2,000,000 and 3,000,000 tons of fertilizer, and our consumption of fertilizer is now about 5,000.000 tons and ought to "be over 10,000,000 tons. So it would make about one-third of the fertilizer needed. That river will be developed some time, and we can and will go on and finish developing it, if we have this lease, until we furnish all the nitrates for fertilizers needed in this country, or practically so, by building Dams No. 3 and No. 4 and No. 5 and No. 6, and storage dams up the river, conserving all the water ; 918 MUSCLE SHOALS PROPOSITIONS. iiiul the time will tome when we will e lea.sed to us. the tiling we would start doing to-morrow would be going out looking for s«»niebody who would invest capital and come there and start small manufacturing enterprses around there to be customers. We would bave to start out and develop that business, and it does not appeal to us as business men to do it ; and we have not the face to ask the Government to invest that money and build another dam n I •I 920 MUSCLE SHOALS PROPOSITIONS. Mr. MiLL*ai. To carry out the peace-time purposes and also to stand by for war emergencies. Mr. BuTLEB. Exactly. Mr. MiLLEB. Senator, now, let us see just a moment, what kind of propo- sition we can outline to our colleagues on the floor of the House. In the first place, this proposition of yours will require a complete Congressional reversal of what was its policy last year. You then take hold of the completed plant as an operating company and there is possibly a bond for the faithful performance of your duties. Mr. Butler. Yes. Mr. Miller. I do not suppose the bond would guarantee that your proposi- tion would be a financial success. Mr. Butler. It would bind us to do what we agree to do, and the Govern- ment would get a certain income or rental regardless of what we got. That much of it the bond would cover, because that is definite and specific. Mr. Miller. And, as you said to Mr. McKenzie, your corporation now is with empty pockets. It has no operating fund to commence to operate this plant. You are hopeful, however, under economical and good business management, to make the surplus power establish a fund for the operation of your plant. Mr. Butler. Yes; but pockets not entirely empty. Mr. Miller. Operate it under the steam power until your hydroelectric power comes into production. Mr. Butler. Yes ; but we are not entirely without means, and our company will have a sufficient .capital for an operating company. Mr. Miller. And your plan is further, aside from calling upon the Govern- ment to complete this dam at Government expense, which will be in the neigh- borhood of $32,000,000, is it not, Mr. Chairman? The Chairman. No ; the Government said $25,000,000. Mr. Miller. $50,000,000 for both dams. Mr. Butler. From $22,000,000 to $27,000,000 have been the various figures submitted before the committee to complete Dam No. 2. The Chairman. Of course, Mr. Ford's people proposed to complete both dams for $42,300,000. The Government engineers first agreed that the amount would be $28,000,000 apiece or $56,000,000, but when prices began to fall, they finally said that both dams could be completed for $50,000,000. Mr. Miller. And then again they gave us figures of $32,000,000 and $19,- 000,000 at some place in the hearings. You provide then that the Government shall also expend approximately $7,000,000 for the rearrangement of these nitrate plants. Mr. Butler. Yes. Mr. Miller. Then that would call upon the Congress for $7,000,000 more in addition to what it would take to complete the dam. Mr. Butler. Yes. Mr. Miller. Now. by the expenditure of these respective sums on the re- construction of these nitrate plants, it would be your idea to follow out the complete Haber formula of construction in nitrate plant No. 1? Mr. Butler. Yes; we know how to do it. We can make it a going concern and a successful one. We can make it the best Haber-process plant in the world. Mr. Miller. And its product is the direct synthetic ammonia. Mr. Butler. Yes. Mr. Miller. Do I understand that it is your plan to reconstruct nitrate plants so as to use the arc system? Mr. Butler. We will much improve the Haber process with a new catalyst and with an electrolytic cell and the liquid air method as soon as we have power from Dam No. 2. Mr. Miller. Or to leave nitrate plants under the cyanamid process. Mr. Butler. Plant No. 2 is a perfect plant for making nitrates for explosives, ammonium nitrates, and we would not interfere with that plant at all, except to add a sulphuric acid unit. Mr. Miller. You would go part way with the plant as it is now. Mr. Butler. The processes are exactly the same down to a certain i)oint, until the last step where you use either sulphuric acid or nitrate acid in treating the ammonia. We would put in the machinery and the unit necessary to take up the process at that point and make the nitrates for fertilizers, leaving the remainder of it just as it is, ready at any minute to make nitrates for ex- plosives for war purposes. MUSCLE SHOALS PROPOSITIONS. 921 Mr. Miller. Now, you spoke of the electric arc process originally. Mr. Butler. You mean the Haber process? Mr. Miller. The electric arc is not the Haber process. Mr. Butler. The electric process to which I referred is an electrolytic cell for taking the hydrogen from the water. This with the liquid air method and the new catalyst with all the improvements on the Haber process. I am not sure that I understand your question. The Chairman. I think the arc process has been referred to before this com- mittee as the French process. Mr. Miller. I am frank to say that there is a nitrogen products company for manufacturing nitric acid by the electric-arc process in my State, and it is the only factory of the kind in the United States, but its product is direct nitric acid as distinguished from ammonium nitrate or anything of that kind. They simply get the nitrogen out of the air and the hydrogen out of the water. Mr. Butler. Yes. Mr. Miller. Then the proposition which we would have to lay before our <-olleagues on the floor of the House would be that the Government is to furnish the money to complete the dam, furnish the money for the reconstruction of these two nitrate plants, and then to lease it to your company for its operation. Mr. Butler. Yes. But the consideration being the rental offered and the beneficial results to agriculture and the general public Mr. Miller. Under the terms and conditions specified in your offer here? Mr. Butler. Exactly. Mr. Miller. I think that is all. Mr. Butler. Please pardon me to say. Mr. Miller, that I am sure that you reach the point when this will be a self -opera ting proposition, excei)t in a general way. Of course, if our proposition appeals, (mtside of that, we will put our heads together and meet that situation. We can anrl we will do it to the satisfaction of the committee. Mr. Miller. I will say this, that no offer hns ever been made nor has any suggestion ever been made to the Congress along the lines of your offer. Sir. Butler. It is because we have proposed to render a great public pur- pose which needs a subsidy, and we liav^ worked out a way to make this project subsidize itself. We have also worked out a profit for ourselves and for the Government, and we do not come to you either as paupers or as phi- l.Tiitropists. .Mr. Miller. I understand that. 'Sir. BuTLEK. We come r<» you with a business proposition. We :ire wonder- fully interested, as you nre, in what can be done. It appeals to the imagina- tion. It would api)eal to us as citizens, but we are trying to make a sound business proposition to do what we conceive to be the Government's purpose and a great public service, ami to do it at a reasonable charge for that service. Somebody must reiider this service antrum does not pay .$75,000,000 of income tax, but he pays a very big one. Mr. Miller. Doubtless ^Mr. Engslium is able and his associates are able, amply able, to organize a company that is jimply able to satisfy the Congress of its financial responsibility. Mr. Bi'TLER. There is no trouble about doing that. Mr. MiLLPiR. If that was nipany have upon which to incorporate, outside of the prospective profits that wouhl accrue from this r"" tb^ steam plants for at least 15 or 20 per cent of each year in order to have much power to sell, after . running both nitrate plants. If we have contracted to sell power at a certain price we may, in some years, have to run the steam plant longer than in other years, and that, of course, would cut down our profit. Mr. Fields. With dam No. 2 completed and supplemented during low water periods by the steam plants, what do you figure you could make from the maximum production of power there? Mr. Butler. It is possible to make 440,000 kilowatts if we were to run all tlic steam power to supplement the water power to its full capacitv except during flood water. We can produce the 440,(K)0 kilowatts for everV dav in tl)e year, if it will pay. But you can understand that we will reach a point when it will not be profitable to run the steam plants. Mr. Fields. When you supply the market you have to quit^ Mr. Butler. Exactly. When we reach the point when it does not pav. we have to stop. It depends. If it would pay. we could make 440.000 kilowatts every day in the year. Mr. Fields. What iiercentage of the 440.000 kilowatts would be requirever. j.nis manes Mr. Wright. You were speaking about the cost of nitrates I am a sm«ii 'TI^Ttolf: rZr'""' *'"* '"'' *'"'='"^*''^' *•"* *^ >ast quotaUoS; ? thTnk. Mr. Butler. It has fluctuated much recently Mr. Wright. You think there is no doubt that the lessee could nroduce ni trates there at a very much less price than that to the farmer ^ Mr. Butler We can not by the present process, with Chilean nitrates around !!.''/''''' Z'^^""']^ a subsidy. But our proposal provides to furaVsh that sub feidy from the sale of excess power as long as may be necessarv We pv^a^^ nroV^'^^'T'.'^.^l"^^" *^ ^^^^ "^t^^t^« ^t ^ cost iess tha^XTost^f ChS mmemU«^^^^ ^ P'^^*' ^'^^'^^^^y «^Pects this to come from im piovements in the Haber process. Mr. Wright. Have you considered the far-reaching results that misht como fiom the operation of this great plant on the production of fertilizer ?^^ Mr. Butler. It is simply staggering. crop^^'"'"''- ^'""^ ^^^"^ '* "^^"^^ "^* ^"^-^^ ^^«bl^ the farmer to produce more Mr. Butler (interposing). But cheaper. it 1'^ )T v?^'^'. -"^t cheaper prices than he can afford to sell them for now and It \yould likewise lower the cost to the consumer' ' *^ " Mr. Butler. Yes ; the benefits will be Nation ^vlde Mr. Wright. It is not for the benefit of any particular section? -achinTt" eveJy p^son'^n ^^^^^^^^^^^ ^ ^^^"^^"^^"^ governmental function, Mr. Wright. Of great national scope? Mr W^R^rrl"!; V^""^ ^"t""^ national scope that it is a governmental function. Air. VV right. It almost reaches into world-wide scope? Mr. Butler. Yes; to an extent. |i J 930 MUSCLE SHOALS PROPOSITIONS. Mr. Stoll. You state haletuJ";; Tthe construction as well as the operation ''\VVr ?'did"n^Tsk i::'lC^^T\ asked you the direct ques- tion w™ld it not be a good proposition for Mr. Engstrum, he being an en- efn^rW he could get "he 5 per cent provided for in section 19 on a conti^ct f"Zk size? ^d then after it was done the other part could go to the bow- ^™Mr' rTX.rHe1ould"ro-ibrmrknmnrproflt out of the construcHon He ou^Ho b" he can make more out of the leases, and his bond would 'Tr'sToS. If XaT U Z :^t etTneer-s fee. it must be a good. proposition ^l' TUTTTFiT Yes- but I sav to you frankly that in our figuring out this '"Mr'Toi^i'Xflhe fact remains that Mr. Engstruni's business is that of *'Vr"t.1^."lfTe'wrnot responsible and could not give a bond, he could "llfVo"! TTtThlsTu'sTnels and it would be a good business proposition '"m'^But^^ No" ns good as some that he 1ms had. or as the lease under this "'^Rrtori, One million two hundred and fifty thousand dollars sounds "'^'J g^'Hrhas bin Sng l^Itt^r- than that. But then let the Goveriv M' BUTLEB. He ""?»**" " i* jf jj^ Government will finish that dam. then rar;;ia^Tto ?ease ;td%re the ^a'n? under the terms of this proposal. MUSCLE SHOALS PROPOSITIONS. 931 Mr. Stoll. I want to direct your attention to section 15 wliich says : " It is agreed that the lessee will not be required to invest in the manufacture of nitrates or other fertilizer compounds, other than that received from the sale of the products of nitrate plants plus 1 mill per kilowatt hour received from the sale of power in excess of that required to operate the plant." Under this agreement you can not be required and it is understood that you are not going to put 1 cent of money into it. That much is understood. Mr. Butler. It has to be a going concern and we agree to begin work within 60 days, and we give a bond to cover that. Mr. Stoll. It says you are not to put anything into it except what you get from that. Mr. Butler. We are not called upon to spend our money to complete Gov- ernment property. We offer to finish it or let the Government finish it. and then to lease and operate, giving a greater rental than any Mr. BuTLEB. It is in the excess above the 1 mill, Mr. Stoll. You get no profit from the nitrates or from the fertilizer •> Mr Butler. Absolutely none. The price is subject to the regulation of the Secretary of Agriculture. We hope and believe this plant will in the near future be making nitrates for fertilizer at a profit. Mr. Stoll. If you can not make fertilizer at a profit Mr. BuTLEB (interposing). We can not when we begin. Mr Stoll If you never do all the revenue the Govei-nment will get will be 1 mill per kilowatt-hour for the sale of the power. Mr. Butler. That will go into the financing of the making of fertilizer as long as It IS needed ; and then it will go into the Treasury. Mr. Stoll. That is all the Government would get if the fertilizer was not successful? Mr. Butler. Yes. Mr. Stoll. If you did not sell very nmch power the revenue to the Go\-- emment would be very small? Mr. Butler. Certainly. ^y.^^l\ ?™^^- ^^ y^^ ^ot think you would have pretty stiff competition from the Alabama Power Co. in selling power in that section of the country *> Mr. Butler. No. The fact is, it will no doubt be one of our be.^t customers We are not going to be retailing power. We will be wholesalers. Mr. Stoll. That is purely conjecture on your part ; that the Alabama Power Co. IS going to take your power. Mr. Butler. Certainly ; but somebody will take it. Mr. Stoll. You have seen Mr. Martin on the stand here, or at least I have and he is not a man who throws up his hands and quits verv easilv He has a great concern down there. Mr. Butler. Yes. Mr. Stoll. That is their business? Mr. Butler. Yes. Mr. Stoll. Do you think he will quietly take ix)wer from vou and not start to fight you? Mr. Butler. How could he fight us if we are furnishing power to him cheaper than anyone else? Mr. Stoll. Is he after power to sell? Mr. Butler. He testified here, and I am satisfied it is true, that he has a demand for more than he can furnish. Mr. Stoll. Mr. Martin is in the power business. Mr. Butler. So are we, but we are wholesalers. Mr. Stoll. That is all conjecture; you ha-e to develop that business. . Mr. Butler. We can sell it if we offer it on better terms than they can make it or get it from some one else. After paying 1 mill to the Government, we figure we can get out whole on the average and have enough to make us safe, and w*^ know that the demand foi- power will increase. Mr. Stoll. If the fertilizer proposition proves a failure so far as producing it on an economic basis is concerned and you fail to get a ready market for it and do not get a ready market for your current, the Government will get no revenue whatsoever and your concern will get .$1.2r)0,aX) for building this dam on a 5 per cent contract. That is true, is it not? Mr. Butler. If we are going to begin by supposing something which will never happen, then you can end by concluding anything you desire. There i^ there now a market for 100,000 horsepower, and this will finance the running of both nitrate plants on full time, with nitrates sold at a loss of at least $5 a ton or more. Mr. Stoll. I just wanted to see if my idea of your contract was correct. Mr. Butler. We can not start to-morrow making nitrates nt a profit, hnt we can sell enough power to finance the making of it at a loss. . Mr. Stoll. The only thing that is certain is that ^Ir. Engstrum, who is n contractor and an engineer, and his company will get $1,250,000 for building this dam, and then if the other proposition pro\es a failure, that is the fer- MUSCLE SHOALS PROPOSITIONS. 933 tilizer, and there is no special market for your current, the whole thing falls down and is back on the hands of the Government and you liave not investt*d one cent in it ; that is true, is it not? Mr. Butler. But it can not be a failure. We give a bond to run those nitrate plants and we can do it by the sale of power, no matter if the nitrates are sold below cost. The plant finances itself, pays us a profit, and it pays the Gov- ernment a profit, and it produces cheap nitrates. This is plain, simple, and certain. How much more can anyone want us to do? Mr. Stoll. Who drew this contract? Mr. Butler. Well, it has been the result of the thoughts of a number of people. There is no one person who drew it. It has been worked over many times. Mr. Engstrum has written some paragraphs and has changed some; I have writen some and changed some; and several other people have had a part in it. We have conferred with everybody whom we have been associated with; it is a composite production. Mr. Stoll. Have you ever been in the electrical business? Mr. Butler, No ; not as an expert, but I know much about it. Mr. Stoll. Has Mr. Engstrum ever been in the electrical business? Mr. Butler, No ; he is a contractor and an engineer. Mr. Engstrum. I have built power plants for the Edison people in southern California, also the industrial plants for the production of potash for the American Trona Potash Corporation. Mr. Stoll. Those were built according to specifications that had been drawn. He has not been engaged in the marketing and selling under competition of electrical current or engaged in the business of making fertilizer from nitrogen from the air, or any of those things ; had no experience in that ; you have no experience to offer and you are putting up no money. That is all, Mr. Chairman. Mr. Cbowther. Mr. Fields asked you a question, and I am sure that he did not quite mean it as he stated if, perhaps, and you did not mean to answer to the effect that the tonnage charge on Chilean nitrate was $11.50, or the export charge. Then he said that in the $45 a ton there was about 25 per cent charge on fertilizer due entirely to that fact. Of course, he does not mean that, because there is not a ton of Chilean nitrate in a ton of fertilizer. Mr. Fields. I meant 25 per cent of the nitrate in the fertilizer. Mr. Crowther. That has been the idea carried all through these hearings, that about one-quarter of a ton of fertilizer was spent entirely for the Chilean export fee. That is not so, is it? Mr. Butler. No. Mr. Crowther. That is 15 per cent nitrogen, is it not? Mr. Butler. Sixteen per cent is what it ought to be ; 16 per cent of nitrogen. Mr. Crowther. If it was very heavy fertilizer, there would be 10 per cent of nitrogen, and if it was only nitrogen it would be $1.50, would it not? Mr. Butler. The usual formula of fertilizer is to take this Chilean nitrate, which has 16 per cent nitrogen, and put in 3 or 4 per cent of it and about the same of potash and from 8 to 10 per cent of phosphoric acid, and make it up in the usual proportion in a ton of commercial fertilizer. In that ton of commercial fertilizer three-quarters of it is made up of these products and the other is the filler. There is a certain amount of binder or rather holder required. There is about 25 per cent of ammonia in the sulphate of ammonia and the remainder is holder, not filler. Mr. Crowther. That is where a great error has occurred in much of the discussion. The word filler has been used when it should not have been used. Mr. Butler. The filler is only the thing which is finally put in the fertiUzer by the fertilizer man to add to the weight. When you have the ammonia ready for mixing there is 25 per cent ammonia and the rest of it is the binder or holder. Then you have the nitrate, of which 16 per cent is nitrogen, and the phosphoric acid which is 16 per cent phosphoric acid, and the rest of it is holder or binder. This makes three-quarters of the ton; then 25 per cent of filler is added to that to make the ton of weight. Mr. Crowther. The statement has been made that there is only 320 pounds of fertilizer to 1,680 pounds of filler. Mr. Butler. That is incorrect. On the average, there is three-quarters of every ton of fertilizer that is plant food in the best form in which we can now make it. We do hope, however, that this development will add to the world's supply, which everybody has been looking forward to, and will at the same time 934 MUSCLE SHOALS PROPOSITIONS. show us the way to concentrate these ingredients, so that instead of having 100 pounds of sulphate of ammonia of which only 23 per cent is annncmia and the rest of it holder, that we can get a holder that would be half that s'ze; that would be a great improvement. There has been some progress along that line, and when wo make nitrates by the Haber process there will be less of the holder than is in the nitrates that come from Chile. We possibly will get to the point where we can combine these three ingredients to make \vhat is now in a ton to equal not more than 350 or 360 pounds. Mr. Crowtiier. In reference to the question Mr. Stoll asked you, as tt> your knowledge or Mr. Engstrum's knowlesal. We provide for selling a certain amount of power, and it will be sold and distributed to conserve the needs of that sur- rounding and growing connnunity. If you are ever going to use any one great power at any one place for one thing, then heaven knows that fertilizer is the most justifiable thing for which you could use it — nitrates, both for peace and in war. Such a water power should never be turned over to private use and profit. This proposition uses a large part of the power in making fertilizer and leaves still a large amount to be sold to the public, not to any one enterprise, not to any one farmer, but to the whole circle of people and industries around. So we are doing two things if we develop it on this line. We get the greatest results for the production of nitrates for preparedness, for i>eace, and war; we are furnishing an enormous amount of power for sale to the surrounding country that will help every individual and every industry as their needs re- quire. I have had a kind of glowing feeling of pride and satisfaction that we had been able to work out a proposal which from every angle will serve the public good and will never serve any special or i)rivate interest above the public interest. It is to have the opportunity to develop this great property along the lines of this proposal, because we have a real desire to see these beneficent puri^oses materialized and to help do it. Mr. Chairman, if w^e are given this contract we will have the best engineer- ing talent available in this country. Mr. Engstrum is an engineer of a good MUSCLE SHOALS PROPOSITIONS. 935 deal of experience, but we felt that in a great proposition like this we ought to have the best engineer who could be gotten in the world. We also wanted to get a man whose name and work is known to you, and who would carry confidence. So we have taken this matter up with General Goethals, and have been fortunate enough to secure his services. Of course, we wanted first to get his approval and to know that it appealed to him and we wanted to em- ploy him and have the benefit of his advice if we were given this contract. So we have reached a contract agreement with him to sei*ve as the engineer named. We have provided in this agreement that there shall be an engineer representing our company, and he will serve as our engineer to do the work under this contract. He is not now in New York; he has had a number of engagements on the Pacific coast, but is now on his way e;ist. We hope lie can appear before your committee. The Chairman. Will he be ready to come here Monday? Mr. Butler. Mr. Engstrum says he has just heard from his ottice in Ncv York and they tell him General Goethals will not be ba<-k until Wednesdn.v or Thursday. If the committee desires to close the hearings before that tinu', we may desire some one from his office to appear. Of course he has some very able engineers in his office. The Chairman. Of course, the committee has been working Aery hard, and it is the desire of every member of the comm ttee that we get through with these hearings as speedily as possible. We will have to take up the hearings in executive session, and it will probably be a full week before we can agree on a report. It is very des rable that we get through with the hearings. If you can have a representative of General Goethals here on Monday we will hear him. Mr. Butler. We will have a representative of his here on Monday. The Chairman. We thank you very much for your can. The committee met at 10.30 o'clock a. m., Hon. Julius Kahn (chairman) presiding. STATEMENT OF MR. FBEDERICK E. ENGSTBUM — Resumed. The Chairman. Mr. Engstrum, when we closed on Friday, Senator Butler siiid that you would be ready to go again this mornng. He intimated you would have an engineer here from General Goethals's office in New York. I understand he has not come and therefore you would Ike to go on with the hearing? Mr. Engstrum. Yes, Mr. Chairman. I telephoned to our engineers iu New York, General Goethals's office, and General Goethals's colleagues or his en- gineers there did not feel they would like to step in front of the General in this matter because he personally was more familiar with it, having built the old canals down at this point and having been stationed at th s point, and being thoroughly familiar with the project, more than any of the other engineers in the office. The General is returning from the coast and will not be back in the New York office unt 1 Wednesday night. He could not be here until Thursday. I regret very nmch we can not have his testimony unless we could have it transcribed and transmitted to the connnittee as a matter of a letter later on, in case the hearings were closed. AVe want to give all the informa- tion to the committee that we can and de you will rweive it in the same spirit in which it is made. As foolish as this contract is, as absurd as I think it is, it is a better contract io-day than the Alabama Power Co. or the Ford contract. Tho«e contracts, if you examine them carefully, are about as bad as a con- tract could be; in fact, neither one of the three, in my opinion, is a contract. I am not a lawyer, but I «lo clann that neither of these three contracts raised to the dignity of a contract, but are simply well worded appplications for a hand-out. I want to make this fui'ther explanation. .\s the Engstrum proposition was first drawn 1 thought it was an honest and fair one. and I do not say it is dis- honest now. because the ambiguities are so plain that nobody could accuse him of trying to get anything under false pretenses. It is right out in print, but the proposition that I took up with the general contractors of America, one of their members, or several of their members, have now got a proposition that is in the hands of the printer and will be out in about two hours, and which will go to the Secretary of War, which I think will meet all the conditions that fail in the Ford, in the Engstrum. or the Alabama Power Co. offers. It will beat either one of them as a producer of nitrates at cheap rates and with less money to the Government. They are putting in quite a sum of the money themselves and they have taken care of it in a businesslike way. I do not care to review the other two contracts — the Ford or the Alabama F*ower Co. I had nothing to do with them, but they are just about on a par with the Engstrum contract. I thank you. Mr. KcKenzie. Let me ask you this question? Will this new contract you speak of contain any element of chance to be taken on the part of the con- tractor? Mr. Levering. They take care of their own iwwer and they use their own power, and they take all the elements of chance. They put up a part of the money for the construction of the dam — their share of it. They start right. It will at least save the Government $20,000,000 over the Ford offer and $15,000,000 over either the Engstrum or the Alabama Power Co. offer in money. It is a business proposition. The men have been here for years and know a fair contract when they see it. Mr. McKenzie. If I understand your position, in analyzing these contracts, the Ford contract is the worst one of all. Mr. IjE\^ering. I believe it is. Mr. McKenzie. And the Alabama Power Co. is second in Iniquity? Mr. Lea^ering. Yes. Mr. McKenzie. And Mr. Engstrum's proposition, while you think it is in- equitable and unjust to the Government, you still feel it has some elements of virtue in it? MUSCLE SHOALS PROPOSITIONS. 941 Mr. Levering. It has not so much harm in it ; that is all. The fangs are not so long. Mr. McKenzie. And you are quite certain it is a safe proposition, so far as the company is concerned? Mr. Levering. Yes ; so far as the company is concerned. Yes ; it is all right for the lessee. Mr. McKenzie. In other words, you have no apprehension about the coniininy going broke? Mr. Levering. Not at all. Mr. Greene. I would just like to ask you a question — whether you took out burglary insurance before you began negotiations with these gentlemen? Mr. Levering. I have known Mr. Engstrum all his life, and I do not think Mr. Engstrum has intended to rob the GoTernment. He has been led by his friends, and they all hope to make some money. They have brought Mr. Goethals here to throw dust in the eyes of this committee — there is no question about it — or to try to, because the Government engineers are doing that work con- scientiously and well. They have Hugh Cooper, of New York, who has made more dams than any of them, as their consulting engineer. There is no call for Mr. Goethals to change or perfect the plans. Mr. Greene. You say you were in the employ or service of Mr. Engstnim? Mr. Levering. I helped him on this matter after I came here. Mr. Greene. Was it a matter of compensation and employment? Mr. Levering. Well, to a certain extent. Mr. Greene. Was it a matter of compensation and erflployment. Were your services engaged by him? Mr. Levering. I went to Muscle Shoals for him, and while there I spoke before the chamber of commerce and connected myself with the proposition, and I felt that after they changed it it was not fair. Mr. Greene. I simply want to get at the question of whether you were engaged in the hire of Mr. Engstrum. Mr. Levering. Well, I was to have a sort of working interest in the thing; that is all. Mr. Greene. That does not answer the question. Mr. Levering. Will you repeat the question, please? Mr. Greene. Were you in the hire and pay of Mr. Engstrum? Mr. Levering. He was paying the expenses ; that is all. Mr. Greene. Was this a voluntary association on your part, in the sense that you went and tendered your services, or did he seek to engage you? Mr. Levering. I think I brought the matter up to him. I thought there was a chance there to get a good contract. Mr. Greene. Have you ever had any definite sundering of your relations with Mr. Engstrum? Mr. Leverinq. After we talked with Mr. Weeks, and I left Mr. Weeks's office and I thought everything was satisfactory, when I got to their ofiice and found these changes were made I dropped them right there. Mr. Greene. Did you drop it or did Mr. Engstrum drop you? Mr. Levering. I dropped it. I walked out of the office. Mr. Greene. Was there anything coming to you from Mr. Engstrum? Mr. Levering. I would say not. I guess not. No ; I am through with it. Mr. Greene. All right ; so am I. Mr. Hull. You have told us about the iniquities of the Engstrum contract, and you have said that the Ford contract was worse. Mr. Levering. I think so. Mr. Hull. Will you, in your own words, explain to us in what way the Ford contract is w^orse than the Eugstrum contract? Mr. Levering. I would like to ask you if you will allow me to get the Ford contract and read it over again and return after dinner, and then I will go into it again carefully? Mr. Hull. You have read it, have you not? Mr. Levering. Yes ; but I could not refer to it as thoroughly as I could if I had it before me. Mr. Hull. We can give you a copy of it. Mr. Levering. But I would have to go over it and fix the places, and I will be here after dinner again and will explain it to you. Mr. Hull. You need not come back, but simply put it in the record. r 942 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 943 Defects in the Ford Tender. 1. It limits the production of nitrates to the present capacity of plant No. 2, whicli does not produce fertilizer compounds. Should the plant be refitted to make fertilizers it could meet but a small part of the demands. 2. Plant No. 2 will consume most of the primary power of Dam No. 2. To pro- vide for the interest, sinking fund, maintenance, and other charges it will be necessary to build Dam No. 3 on the site owned by the Alabama Power Co. This is an uncertainty and may require years of time and large expenditures. n. The Ford tender is " in whole and not in part." The burden of construction rests on the Government. This, with the delay incident to the litigation now in prospect, leaves but one dependable feature in the tender; that is, Mr. Ford will be given $16,000,000 worth of property for $5,000,000. The maintenance and renewal charges necessary to keep the dams in efficient condition should Dam No. 3 be built on present plans may exceed the allowance provided for interest, sinking fund, and maintenance. 4. Tliere is no guarantee that the nitrate production will be increased to meet the growing demands. Should large industries be established there, to use the power, it would preclude further development of the nitrate plant. The Govern- ment, after bearing the burden of the investment and maintenance charges, would become a subsidiary of the Ford interests. .^>. Have the Ford undertakings been such a success as to warrant the Govern- ment in irrevocably giwng to them our one supply of nitrates that is essential to our agricultural interests in peace and may become vital to our national life in time of war? Henry Ford has made a success of light automobile construction. When he usurped the functions of Congress and undertook to adjust the rights of nations he made our country appear weak, impotent, and ridiculous. Was that a success? Does any one put faith in his promise of a 75-mile town? Or the Mississippi River dams? Or the self-propelling boats? Mr. Ford has commenced operating a railroad. At the inception the Ford propaganda startled us with claims of enormous profits. Now we hear less of it. Mr. Ford may learn the railroad business, but so far his proficiency seems to be in ringing the bell and blowing the whistle. It is to be hoped that the noise will not mislead the Government. Would it be good business judgment to place our vital interests under the management of persons responsible for these visionary projects? 6. When the country decided to provide an ample and dependable supply of nitrates it wrote the final paragraph in our Declaration of Independence of all other nations. With this promise realized w^e could compete with the world in times of peace and defy it in times of war. 7. This great plant should be completed and kept in action, otherwise it will be a source of expense and soon become obsolete. 8. There are two contenders for the ownership of this publid necessity — one a corporation controlled to some extent by foreign owners. This company, at a time when action was more important than language and when during the emergencv of war the representatives of the Government depended largely on the support and patriotism of our citizens, secured a contract affecting the value of this project. I am impres.sed that the Alabama Power Co. should either modify its contract or meet the charge that it is an enemy corporation and its contract is against public policy. 9. The great dam across the Tennessee River distinguishes it as a permanent improvement, not a temporary war measure. The Ford tender asks for a deed to the greater part of this property and a perpetual lease for the remainder, for the avowed purpose of converting it to an automobile factory or other Ford uses. , ^ . ,. , . ^ The Alabama Power Co. ask it as a gift to make it a part of their light and power plant. Under the laws of Alabama they would be in a position to compel its citizens to pay interest on this large investment that cost them nothing. SUMMARY. t I The' Ford tender requires the completion of Dam No. 3, which is uncertain. 2. It requires the Government to litigate the title to Gorgas steam plant and transmission lines before it becomes operative. This means delay and the ruin of nitrate plant No. 2. . .^ .x ^ i mu« 3. The Ford tender does not provide for increasing the nitrate supply, ihe 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 makes 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. Respectfully, .7. H. Levering. Mr. Levering. All right ; I will do that ; but 1 don't want it to go in the record without somebody to answer me. I don't want to put anything over in the dark. Mr. Hull. This is simply for our information. Mr. Levering. Yes. Mr. Hull. And I think we are entitled to have the information. Mr. Levering. You shall have it, Mr. Hull, on siny terms you say ; but I want it understood that I am perfectly willing to meet Mr. Ford's people here when I make that statement. I am not trying to hide or put it in the record in the dark ; but just as you say. I will do just exactly as you say. I am at your service. Mr. Hull. We would also like to have your ideas about the offer of the Ala- bama Power Co. Mr. Levering. Yes, sir; they are here, and I can go into that nny time. I do not wnnt to attack anybody behind their backs. That is the way I feel about it. Mr. McKenzie. They have representatives here. Levering. Yes ; they have representatives here. Hull. Well, give us your idea of the Alabama Power Co. offer. Lev'ering. Sure. Hull. We want to have it all. Levering. I do this at the request of the committee, of course, volunteering it. Have you a copy of the Alabnma Power Co. offer? Mr. Fields. Here is a copy of their offer you may use. Mr. Levering. Now, in the first place, to start in. the Alabama Power Co., under their proposition, take over the wires between Muscle Shoals and Gorgas. One of the essential things to work that nitrate plant is the quarry at Waco. There would be no chance to get power down there without you hired or bought the wires back again from the Alabama Power Co. That is one point. They would have your lime tied up forever. Another thing is that the 100,000 kilowatts that they give you to operate your plant they take from you the right to go on that dam or make any repairs if it does not keep up to standard output; you can not help it. Mr. Mr. Mr. Mr. Mr I am not It goes under the jurisdiction of another department, under their offer, and this second 100,000 kilowatts would be worthless in a nitrate plant that was using the furnace method : now I want to explain to you in a little way about the manufacture of nitrates, and it will be very little, because I don't know but little myself; but there are two processes there, one is the furnace process or the carbide process and the other is the synthetic process. As a matter of fact the synthetic process is now the most satisfactory one to oi)erate. The carbide procoss is practically out of date ; but they leave you tho.se two plants and they put in 250,000 horse- power and give you the second 100.000 l.orst ])()wer. wnicii you would get inter- mittently throughout the year. They say 82 per cent of the time. As a matter of fact, it would not be 82 per cent of the time, for this reason, that if the excess power was multiplieours. You would still have secondary power under their tender. There is no assurance there, if they increased their primary power, you would get any benefit of it. and they would then own the Gorgas plant, which is worth, I should say, five or six million dollars, the transmission line which you have practically built, and the steam plant at nitrate plant No. 2 which you have built. Those three plants would cost, well, in the neighborhood of $20,000,000. Then they have the $17,000,000 you have in Dam No. 2, which they take over, and they get at least $35,000,000 with which to finance 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, be<.'ause you are turning over to them property that you can go out into the market and borrow the money im to complete 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. Mr. Fields. Mr. Levering, how did you say you happt^ned to come to Wash- ington V Mr. Levering. I was interested in a power project in Califoinia, and under the law we could not get any action, and this power bill was iiending a long time, and I came here originally to help if I could, to see if we could not get the bill over. We got the bill over, but it was in such shape that it never has done us any good, but we got the bill over, however. Mr. Fields. How did you happen to become interested in the Muscle Shoals proposition? Mr. Levering. I made a set of plans, if you will remember, for the Govern- ment or for the power board for Great Falls, and while that was up I got interested in the discussion of that kind of work, and I went down and looked over Muscle Shoals. I knew the Government was going to stop the appropria- tion, and I thought maybe we could see if there was a chance to get some of my friends interested in the prfjject, and maybe we could get to work, because that would not be built under the power act. and it was simply a straight business proposition. Mr. Fields. And that was before you were connected with Mr. Engstrum? Mr. Levering. Well, that was about the time. I talked with him often off and on for quite a while. Mr. Fields. That was the trip you made at the expense of Mr. Engstrum? Mr. Levering. He paid part of that expense; not all of it. There was an- other power company that paid part of the expense. Mr. Fields. What power company was that? Mr. Le\'ering. The Arkansas Light & Power Co.. an Arkansas corporation. Mr. Fields. Have you been associjited with any other power companies other than INIr. Engstrum in formulating plans for the lease of Muscle Shoals? Mr. Levering. Not until after I withdrew from the Engstrum proposition. I had a talk with General Marshall, of the Associated Contractors, and he thought that it would be worth while to see some of their members who possibly were in a po.sition to finance an offer in a businesslike way. I said that I felt I had done so nmch work on it I did not like to see it wasted, and we MUSCLE SHOALS PROPOSITIONS. 945 finally made a proposition, and within a couple of hours it will be ready to be delivered to the Secretary of War. It is probably ready now. Mr. Fields. And you will be interested in that proposition? Mr. Levering. Yes, sir; and I want it up here and if there is anything wrong with it I want you to kick me out right away. I think I have covered the objections of the other three. Mr. Stoll. Your principal objection to these offers is that you are not in on them? Mr. Levering. No, sir; I am sure that these offers are not fair to the Gov- ernment, and I would not go into any of them. I might if they were changed somewhat, of course. Mr. Stoll. When did you get out with Mr. Engstrum — when Senator Butler got in? Mr. Levering. No; Senator Butler and Mr. Engstrum and I all called on Mr. Weeks and we had what I thought was a fair understanding with Mr. Weeks. After we got back to the office Mr. Butler and Mr. Engstrum or some- body — I think it was both of them — changed from a lump sum to a cost plus and put in Mr. Stoll. I do not care for the details about that. You are not in on that contract now? Mr. Levering. No; I don't want to be in with it. Mr. Stoll. You are not in on the Ford contract? Mr. Levering. Not at all. Mr. Stoll. And you are not in on the Alabama Power Co. contract? Mr. Levering. Not at all. Mr. Stoll. And you are against all of those. Now, this fourth one you will be in? Mr. Levering. Yes, sir. Mr. Stoll. So you are for that? Mr. Levering. Yes, sir; and I hope you will be, too, and I think you will when you see it. I think you will ; I hope you will. Mr. Stoll. From whom is it coining? Mr. Levering. The tender is signed by Thomas Hampton, one of the largest producers of bauxite in the country. He has been selling his bauxite. Mr. Stoll. Where is he Irom? Mr. Levering. The deposits are in Georgia. Mr. Stoll. Is it capitalized? Mr. Levering. Yes; it is capitalized. Mr. Stoll. I mean is your company going to capitalize? Mr. Levering. I am not in the company. I am simply an engineer for them. They have business there and are established. Mr. Hampton is going to Texas; they have some oil fields; and he is going at 3 o'clock. I can bring him here between 2 and 3 o'clock if you want to talk with him. Mr. Stoll. I do not want to talk with him'. Mr. Levering. They are business men and ready to put the proposition over. Mr. Stoll. Who first drew your attention to Muscle Shoals? ^Ir. Levering. The Muscle Shoals came up in the discussion of the Great Falls matter. Mr. Stoll. And you drew Mr. Engstrum's attention to it? Mr. Levering. I drew Mr. Engstrum's attention to it, I think. Mr. Stoll. And now he has left you out in the cold. Did you draw this other man's, Mr. Hampton's, attention to it? Mr. Levering. Now, I do not know that I did. Mr. Hampton was figuring on it. I have done Mr. Hampton's consulting work for quite a while. I think he spoke of it himself to me. I do not think that I did. He asked me if I had data enough so I could make up the estimates for him, which I have done. I have done Mr. Hampton's work off and on for more than a year. Mr. Stoll. Who is in it besides you and Mr. Hampton? Mr. Le\'ering. I am not in it at all. Mr. Stoll. Who is in it besides Mr. Hampton? Mr. Levering. I do not know the names of the members of his association. I can find out for you and let you know at 2 o'clock. IVIr. Stoll. Did you not put him up to make the bid? Mr. Levering. No ; I talked w^ith him about it just a few days ago. I think it was Saturday. Yesterday was the last time I talked with him, and we got the proposition in shape and sent it to the printer and had it printed, and we 946 MUSCLE SHOALS PROPOSITIONS. are ^ohyx to send it to the Secretary of War to-day. I am not a pnrtner in the one that is coming. They have their own capital and their own organiza- tion, I was told hy General Marshall, who had charge Mr. Stoll (inteiposing). What part do you play in it? Mr. Lkvkrino. I was simply as an engineer to do this work. Mr. Stoll, That is all, Mr. Chairman, Mr. McKenzie. We are much obliged to you, Mr, Levering. FURTHER ADDITIONAL STATEMENT OF MR. THOMAS W. MARTIN, PRESIDENT ALABAMA POWER CO. Mr. :McKenzie. Mr. Martin is present this morning and wants to make some additional statement, as I understand it. Mr, Martin. Mr. Chairman, I will take only a short time, not over five minutes of the committee's time this morning. I have been asked whether our company is interested in propaganda which is coming to the committee, for or against other ofl'ers, propaganda which is com ing to Members of Congress for or against other offers. I have been asked Miiether any other company is interesteil in the proposition of the Alabama Power Co, in connection with this matter. T wish to state that our company is in no way concerned with or responsible for any propaganany has made no such claim, and the connnittee knows our company has made no such claim. The Secretary of War leased that particular steam ])lant under a lease which is subject to revu; Ja then westward through Montgomery. Ala., and then, turning northward, fh'nmgh Tuscaloosa Ala. and still north through SheflieM. and then in a wide iwin'^ to the north and west, crossing Tennessee, the Mississippi River aiul retunr ing to the Gulf some distame west of the present location of the Mississippi Uiver. Those facts absolutely determine the conditions of which I am speakin- On the sea side of that line, except for the navigable rivers of which I hax,'^ spoken, there are no streams except of small size and very minor importance lliere can be in this area no hydroelectric developments except, very small ones at small falls on these local streams, which, in the aggregate, as" against the povvers we are speaking of, amount to nothing. Those are the facts as nature made them, and there is no hydroelectric power, speaking in general terms in Mississippi, none in western Tennessee, none in Louisiana, none in eastern lexas, almost none in Oklahoma, and in Arkan.sas onlv a verv small .unount west and northwest of Little Rock. * .unounu That means that this entire region, if it is tx) have electric power, ean onlv ffet It from these powers on the southwestern flank of the Alleghenv Mountains 1011 have had a map laid before you, and if you will draw a circle with the center on Birmingham and a radius of 300 miles, it would include New Orleans La., and Little Rock, Ark. Mobile is 200 miles away, and ^^lemphis and Nash- ^^^. M^'^v ''..^^*'?Pl'^*''"^*'- ^^^ ^""^^ ^^^^^ ^^ Mississippi is inside of that .iUU-mile limit. If these powers I shall speak of are coordinated and brought together in the only way that will enable them to realize to the maximum their potentialities, it will be possible for this region to be served from such a source «»nd I really think it will not be possible otherwise. fv. II.*^,*,^^^^ ^^*^^^ I^^^^'^'* streams of Alabama are the Tennessee, the Coosa and rne lallaiioosa Rivers. It has already been explained to von that the Tennessee IS a river of very rapid and extreme variations in flow, varying from a mini- 'r^'^^ ^'"''?S ^^""''^^ ""^ something like 7,000 second-feet to a maximum of •>w,uoo second-feet. That means the number of cubic feet of water that passes a given point in the river in one second, I might compare this river with a couple of other rivers that we all know ine Colorado River at Glen Canyon in northern Arizona has a drainage areji or .some 100,000 square miles. The Tennessee River at Muscle Shoals has a 948 MUSCLE SHOALS PROPOSITIONS. h drainage area of 30,000 square miles. But the Colorado River has a minimum flow of 3,500 second-feet and a maximum flow of only approximately hn!f of that of the Tennessee. The Mississippi River at Keokuk, with u draina^'e area of approximately 110,000 to 120,000 square miles, has a minimum recorded flow of about 12,000 second-feet, and a maximum which is only three-quarters of that of the Tennessee. That means that the Tennessee River is chronically an irregidarly flowing stream. From Knoxville to the Ohio River, with the ex- ception of the falls at Hales Bar and at Muscle Shoals, the river is what is called a sluggish stream, and the topography of the country is such that there is no opportunity for reservoir capacities that relatively have any particular consequence. If you use the 7,000 second-feet of \^'ater in the Tennessee River over the head to be developed at Muscle Shoals you will get from 60,000 to 70.000 horsepower. But that is a misleading figure to use, because the average minimum flow of the river is not so small over a considerable period of time ; the average minimum flow will produce from 100,000 to 125,000 horsepower. I am speaking now about continuous power. If the capacity of those stream flows is used in 12 hours of the day, inst.ead of 24 hours, those figures wouhl be approximately doubled. I think that shows that if advantage is to be taken of the power in the Tennessee River that is available for less than all the year, so tJiat it can be available all the time, it must be supplemented by power from some other sources ; you can not make use of the less than all the year flow of the Tennessee River otherwise. This means that the Tennessee River is in itself, as an independently power- producing stream, disappointing and of very little availability. The problem is how to make use to the advantage of the greatest number of people in all sorts of ways these less than all the year flows of the river, which amount to a great deal. It so happens that on the Coosa and the Tallapoosa Rivers there are not (.nly large h^'droelectric development possible in certain places, but nature lias so designed the topography of their drainage areas that there can be created exceptionally large storage reservoirs. That, in turn, means that if those capacities are tied together by transmission lines and in every way known to science interconnected, the greatest value that is in the Tennessee River may be realized. Under such an interconnected system as markets grow to demand its fullest power possibilities, the results are very impressive. Under such a scheme of full and complete development 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-mille radius of Birmingham is in the neighborhood of 1,500,000. And the Muscle Shoals power will have reached the full of its usefulness because it is one limb of a whole live functioning body. Now, the problem is so to develop those capacities that they can be made progressivelv available in the most complete way possible. When I say one million* and a half, gentlemen, I am mentioning an approximate figure, and I do not mean power that is available from hydroelectric sources all the time. No installations are made in that way. Power is used by the ordi- nary public less than all the time, and the storage reservoir and pondage capacities mean that the water maj,' be held back during the night and used during the day ; so the figures I have mentioned are the figures showing the approximate ultimate hydroelectric installation. But those figures can only be realized and full advantage taken of them if coordinated, as I have uuli- cated, 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 factor which such a combination can realize. Now, by diversity factor I mean this— and I speak of it because it is an exceedingly important element for the public to take advantage of in its own interest. 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 installation of power producing and distributing capacity and a correspondingly less investment 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 most eflicient route. That is applying the pnn- ciple of load factor to all the various portions and to the whole of such ;» jiroperty. MUSCLE SHOALS PROPOSITIONS. 949 Now, the Alabama Power Co. has been devoting itself to the development of these resources along these lines. Until the Alabama Power Co. brought money into the State and began work there was no money available for such a pur- pose. It is confining itself to the manufacture of power. The old adage says, " Shoeman, stick to your last." If you apply yourself to the manufacture of a single product you become proficient and expert at it ; and this electric business is a most highly technical and highly specialized business. I think that I have, perhaps, misused the word power, and I, perhaps, should not have used it in this connection. I should have said, rather, that the Alabama Power Co. manufactures electricity because we think of ijower rather in connection with industrial uses. Electricity is a universal medium; it is used for many pur- poses. Wherever transmission lines or electric wires may go electricity is made available, and it can immediately be either used for light, heat, or for power. It is the same electricity that turns the 1 inch in diameter armature of a little motor that stirs the drinks in the soda-water shop and that turns the 10 foot in diameter armature of the 20,000 horsepower motor that turns the rolling mills of the big steel plants at Bessemer or turns the motors under the street cars. It is the same electricity that performs a thousand and one miscellaneous serv- ices of our everyday life, and which we can scarcely get along without. In the butcher shop it runs the meat-cutting and meat-chopping machine; in the grocer's, the coffee grinder. In our homes it is used in a thousand ways — to heat water, to warm the bathroom, to run the sewing machine, to run the wash- ing machine, the dishwasher, to cook our food, to keep the fan going in hot weather. Its uses are so manifold and so widespread that they simply can not be enumerated. For the farmer the use of electricity is very important, in the difficulties under which he works. With electricity he cuts corn for his silo and relieves the onerous duties of farm life in many ways, to say nothing of substituting electric light in house and barn for the dangerous oil lamp and lantern. And though not so large in amount as the power use. electricity is put to a much more important use in adding to community health and safety. There is nothing more effective as a health or police officer than electric lights in otherwise dark rooms and passageways and in the streets, alleys, and public places of towns, large and small. So the Alabama Power Co. is in the business of making electricity for general use and for needful service. There are many towns, gentlemen, which, until the coming of this company with its service, never had any electricity, or had it for only part of the da.v. If any of these lines reach out in tentacle fashion into the country to a towii, that town not only has service 24 hours a day, but it has it in unlimited quan- tities, and it can advertise for industry to come to it to increase its population and business — advertising it has an abundance of cheap power. It offers thur town an opportunity to make the most of any location or other favoring con- dition it ma.y have. When this is said, I think it may go through the minds of some of you gentlemen that this is simply building up a great monopoly, and that monopol.v is contrary to public policy. Let us look at th«t proposition a moment and see what it means. I think when we think of monopoly we usually imagine some industrial concern manufacturing a product, and that it manages in some way to exclude everybody else and charge the consumer all the traffic will bear and we do not like it and we want to avoid it. And why should we? But does that con- dition apply in this case? Evidently and absolutely not. The Alabama l*ovver Co. is carrying on its business, and will have to continue to carry on its busi- ness under public regulation, either the regulations of the State, of the Con- gress, or of the Federal Water Power Commission. There is no twilight zone between those jurisdictions; where one does not apply the other does. What does that mean? It means that that company is allowed to earn only a fair return on the money actually used in the public service. That return anybody is entitled to. Who determines all those questions? The public authority. It determines what money shall be spent; whether or not it is right and proper to raise it at a given time, and what the rates for service shall be. As the Secretary of War has stated here " these regulating laws all provide for service to everyone without discrimination." 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. In other words, that it will be the monopo- lizer and not the Alabama Power Co. or anyone else. It simply elects who it i |l 950 MUSCLE SHOALS PROPOSITIONS. will allow to run that business. And by doing so, and by allowing private con<'erns to conduct the business, it takes advantage of private initiative, which has been at the base of all the growth and prosperity that this country has experienced. The question is, how that private initiative can be harnessed in the public interest. The public decided, in effect, that it will monopolize this business, and it determines how it shall be run for itself. But, you may sav, the law of Alabama requires that a certificate of convenience and neces sitv shall be granted by the commission, after a hearing, before a competitor may engage in business in any town which the company is already serving. True; it protects the Alabama Power Co. or any other public utility from unfair comiietitlon. But in whose interest is that protection? It is in the public's interest, because the public has determined that it will not be sub- jected to the annoyances and the expenses of competition in a service so un. versal, necessary, and vital as this is. It will not stand for duplication of poles and wires in the streets, for two power stations, where one is sufficient, or for any other duplication of expense, all of which must, sooner or later, no matter how we may try to avoid it, be absorbed by the public. May I illustrate the results of competition, by the experiences a number of years ago in La (Crosse, Wis. Competition started against the local electric light company. As a result of it there was a reduction of rates and price cutting until the inevitable happened, and one company failed and the other took it over, and it got back again onto its feet by making charges and rates which would take care of all expenses. That company had scarcely gotten on its feet when there was another case of competition, with the same result. Then that company had hardly gotten under way again when chere was more competition of the same kind. It happened four times in the city of La Crosse, and finally the Public Service Commission of Wisconsin rightly decideil that when that sort of thing went on it was an injury to the city, and that the protection of the community requlretl that a certificate of public necessity and convenience be secured before competition could be inaugurated. Now, so far as the public is concerned that simply stimulates iTrivate operation, because private management knows that if it does not perform its duties properly and competently, and some other agency can come into its territory and perform those duties better, the power of control which lies in the public will say that the other agency can do it. . v,,. ^i, ^ In other words, I come around to this conclusion, that it is the public that controls the situation in its own interests absolutely, and that in allowing the Alabama Power Co., or any other private agency to make developments along the lines I have indicated, which insure the maximum of service at the least cost to the greatest number of people, they are taking advantage of private initiative to its own gain. ^ .„ . .^. , x ^ , Now, may I touch upon one more point, and then I will be through. I take it that what the Government of the United States wants in connection with Muscle Shoals, leaving words aside for the moment, is that it shall be put to the maximum possible use in the best interest of the people, as it sees it That maximum possible use, as I have very briefly tried to explain, can only be had if there is interconnection, full and complete, and every advantage taken of the resources available, so that no development will be made which , only realizes part of the possibilities, and may be in the way of future and larger possibilities. The fact that the Alabama Power Co. can develop no hydroelectric powers without the consent of the Federal Power Commission or of Congress, insures that. Now, the Government has taken its position, partly as a result of its experiences in the war and partly realizing that the farming industry is at the base of our national prosperity. It has said that we want, first, to' be sure that the power at Muscle Shoals is available for emergency in case of war, for the manufacture of nitrates. Let us see how the Alabama Power Co.'s proposition answers that require- ment It leaves the nitrate plants and the quarry which supplies them in the possession of the Government, and it gives to the Government, free of cost, too 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 And not onlv that, but if the Alabama Power Co. is allowed to finish the Muscle Shoals plant, it has started a great power system on its way so that a^ time goes on and the markets increase, there will be developed such an a^'gregate of power in that territory that in the event of war the Government \\ill have more power available, because it has the right to reach out and take it, than it can conceivably use. In other words, as I see it, the Alabama Power Co 's proposal answers that requirement of the Government 100 per cent. MUSCLE SHOALS PROPOSITIONS. 951 The second thing that the Government wants is that :Mus(le Shoals shall be available for the manufacture of fertilizer. You gentlemen know that in the West, where water is scarce in the arid regions, the highest use of water is the irrigation use. The power use of water is second, and power permits are always granted subject to the superior rights of irrigation. In a similar way, if you choose, the Government wants to be sure that there is always power available for the manufacture of fertilizer. The Alabama Power Ck). offer leaves the nitrate plant in the hands of the Government and provides 100,000 horsepower without cost to the Government, or to any other agency that the Government \Vants to specify, in its own discretion, to manufacture fertilizer, and the Government is at liberty to give any additional subsidy it cares to give beyond the 100,000 free horsepower to whomever it chooses to selei-t as its lessee. May I say in that connection, I doubt very much, having human nature in mind as I have seen it. if a manufacturer does not concentrate on the manu- facture of fertilizer that it will be successfully done. If anybody manufactures fertilizer and also goes into the general manufacturing business, one or the other is going to be more successful, and the less successful business is bound to re- ceive less attention and to fall by the wayside. In other words, I think the Alabama Power Co.'s proposal meets the second demand of the Government completely. With regard to the balance of the power, so long as these two requirements are taken care of the Government is concerned only that the i>ower shall be put to its maximum use for the greatest number of people over the greatest extent of territory possible. That can only be accomplished— and I say "only" ad- visedlv, because the war has taught us that to squeeze the last bit of power out of existing power facilities there must be interconnecting transmission lines and every advantage taken of the diversity factors and the loaed in coniunction with them a plan which was approved ])y them, for the ng to you what seem to me to be the facts in the case and the deiluctions that imist inevitably be drawn therefrom. I thank you for your patience. The Chairman. It is about (luarter past 12 o'clock: to-day is unanimous- consent dav in the House, and many of the members of the committee want to be present in the House for a while at least. Can you come back at half past 2 o'clock this afternoon, so that the members of the committee may ask you such questions as they desire? Mr. Frothingham. I am at your service, sir. The Chairman. If you can do that, we will appreciate it very much. We will take a recess until half past 2, and then the members of the committee will ask you such questions as they desire. (Thereupon the committee took a recess until 2.30 o'clock p. m.) 952 MUSCLE SHOALS PROPOSITIONS. AFTER RECESS. The committee met pursuant to recess at 2 o'clock p. m. STATEMENT OF MR. FRANCIS E. FROTHINGHAM, OF COFFIN & BURR, BOSTON, MASS. — Resumed. Mr. FROTHINGHAM. Mr. Chairman. I wonder if I may have permission of the committee to add a word to what I was saying this morning that I did not quite get around to. The Chairman. Yes; you may finish your statement. Mr. FROTHINGHAM, J Wanted to refer to another nspe<'t of the proposition of the Alabama Power Co. All through the congressional discussion which finally resulted in the Federal water power bill, in which it was determineil that the Government should retain control over those hydroelectric powers and possibilities that in Its jurisdiction in the public domain and on navigable streams, I was throughout in sympathy with that position of the Government. Many of my associates, or at least some of my associates, in the business, were not. I am not referring to anybody here, but to those with whom I generally come in contact. I think now all are agreed as to the wisdom of that policy. The Chairman. How many months did it take to come to an agreement upon that policy? It was pending a long time in Congress, was it not? Mr. FROTHINGHAM. It was a matter of several years, sir; and during that period the Government in very deliberate nmnner matured its policy with regard to the handling of the powers in the public domain and on navigable streams, and it deliberately, if I understand it, took the position of nongovernmental operation but of licensing to others the developments and uses of these powers under carefully laid down restrictions, among which were a gi-ant of 50 years only with the right of recovery by the Government if it wanted to, and the development and operation under very carefully prescribed tei*ms to be laid down by the Federal Water I'ower Commission, so that whatever was done under the bill was under the most careful and complete regulation, and I sub- mit that the proposition of the Alabama Power Co. completely complies with that policy, and that if the war had not intervened undoubtedly this Muscle Shoals and the other Tennessee River proposition would now be included in the jurisdiction of the Federal Water Power Connnission, so that all these matters would have come up before that body. So not only does the power com- pany's proposition comply with that deliberately chosen ix)licy of the Govern- ment, but under present conditions, where the utmost governmental economy is sought, the fact that the company completes the development at its own cost is no slight consideration. The Chairman. Do you believe that that provision in the act of the 3d of June. 1916. which authorized the beginning of the water-power project and which contemplated that no private party shcmld be joined with the Govern- ment in i>erforming this work, would have been altered if we had not gone into the war? Mr. FROTHINGHAM. My personal feeling is, sir, it would not have been brought forward if we had not gone into the war. I think it was entirely prompted by the thought that the Government must itself have control against any other during the emergency. The Chairman. That was the reason, as I recall, why that language was put in. Mr. FROTHINGHAM. That was my impression, sir. The Chairman. But when we got into the war, of course, those outside com- panies were asked through our War Department officials to help the Govern- ment in carrying out these various provisions. Mr. Fbothingham. Yes, sir. Mr. Miller. Mr. Frothingham, your idea is that it is to the best interest of the people of the southern States that this Muscle Shoals property be given, or rather that the offer of the Alabama Power Co. be accepted. Mr. Frothingham. Yes, sir. Mr. Miller. Now, you are looking at that from the standpoint or as one element — the stability of the securities of the Alabama Power Co.? Mr. Frothingham. I think not. Mr. Miller. Mr. Milleb. If you had no interest in the Alabama Power Co. and your firm had no interest, and you never expected to have any interest, would you have appeared here in the same interested manner that jou have, Mr. Frothingham'/ MUSCLE SHOALS PROPOSITIONS. 953 Mr. Frothingham. I should have been glad to, IMr. Miller. Mr. Miller. Of course, that is an old idea of dividing tlie country up anosition. but that in such coordination there was a basis on which the project could be entered upon, and accordingly, a report was made to the United States Government, as I understand it, in the hope that when Congress duly looked into it, it would give the necessary authority ; and at that time the war inter- vened and everything took an entirely different coui-se. Now, the war has come to an end and the question is whether or not, as I see it, sir, the Government will revert to its former policies or whether it will not. In the meantime the business of the Alabama Power Co. has grown so that by the time the Muscle Shoals jn'oject can be conqUeted to the proposewer Co., y<»u do not think it advisable for a com- petitor to get in the field down there. Mr. Frothingham. Not at all, Mr. Miller. ^Ir. Miller. You do not think It is advisable? Mr. Frothingham. T do not think, if I may so put it, that frcmi our point of view, as bankers who have handled the securities, the bonds of the Alabama Power Co., that it will make any difference to the Alabama Power Co. whether this proposition is handled in one way or another. Mr. Miller. It will not make any difference? Mr. Froth ix(iHAM. What I thiidv with equal sincerity Is, as an American citizen who has studied these question the country over, that the best interests of the public are served by putting that situation into the hands of the agency which is prepared and has demonstrated its ability to serve the public already. I am speaking in that respect in the public interest. Mr. Miller. Well, of course, if that philosophy is true, Mr. Frothingham, there is nothing in the philosophy of municipal or State enterprises, where municipalities develop their own water power and supply their own municipal needs. 956 MUSCLE SHOALS PKOPOSITIONS. Mr. JRIOTHINGHAM. My theory is based on the principle, Mr. Miller, that the greatest progress is made where private initiative is taken advantage of. That is simply my theory. Mr. :Mili.er. I am quite familiar with that angle of it. I have been mixed up with it for a good many years and with all kinds of philosophies in that direction, but nevertheless if anyone should get this property besides the Ala- bama Power Co. it may be possible that there will be a competitor in the field down there, right in their territory, which you say would have no effect what- ever on the securities of the Alabama Power Co.? Mr. Frothingham. Pardon me, sir; I do not think I said that. "Sir. Miller. I understood you to say that. Mr. Frothingham. No; I said I did not think that the development of the Muscle Shoals situation by anyone other than the Alabama Power Co. would affect the Alabama Power Co. If there was somebody who went in in direct competition and some authority gave them permission to compete in every town and hnmlet in which the Alabama Power Co. is doing business, there un- doubtedly would be disturbance. Mr. Miller. Undoubtedly would be what? Mr. Frothingham, Disturbance, but that is not a condition which I think it is fair to contemplate. There is in the State of Alabama a public-service com- mission, and it requires that a certificate of public convenience and necessity be secured before competition is allowed. That is a provision in the safety of the public, and I can not conceive, Mr. Miller, that the public w^ouhl allow needless duplication of transmission lines, needless buiding of steam stations, needless duplication of expense, in order, deliberately, to injure an activity which has always been its good servant. Mr. Miller. Of course, that opens up another field. We are all acquainted with these certificates of necessity and these public utility corporations. Some of us have lived in States before they had them anful lines to the public it wishes to serve, Mr. Miller. The question is, AVhat are sound and helpful lines? That has to be viewed from so many different angles, Mr, Frothingham. That is it. precisely. Mr. Miller. I see very clearly, Mr. Frothingham, and so do you, and you saw it before I did, that if Mr. Ford's proposition should be accepted, and he should go in there and develop i)ower and should sell his power, he would, in the first place, have an institution free from the financial government of the bankers ; that is, hs securities would never get on Wall Street or in Boston. He has enough money to put it in there himself. Now. suppose he goes to distributing power right in the same locality, granting that a certificate of necessity will be given by the State of Alabama, because we have had it before us that the Alabama Power Co. is a very unpopular institution in the State of Alabama, and so suppose that a certificate should be given him and he should enter into the distribution and sale of iiower in the very center now touched by the Alabama Power Co., we would have, first, an institution free from banker control of the large financial centers of the East: second, you would have a (•oini)etitor right 'n the field competing against the securities you are interested In, and I can see very clearly why you would ndvocate that such a condition be not brought .nbout. can not you? ]Mr. Frothingham. Mr. Miller, I sui>pose that all soits of things are possible. ^Fr. Miller. Let us figure on probnbilities and not possibilities. Mr. Frothingham. If Mr. Ford should go into that business, Mr. Ford would become a public utility. Mr. Miller. His company would. Mr. Frothingham. And have to submit to the same regulation that the Ala- bama Power Co. does, and being a public utility Mr. Ford would have to go to the expenses in connection with such service, which he would be quite MUSCLE SHOALS PROPOSITIONS. 957 unwilling in all probability to go to. Now, the Alabnma Power Co. or any other power company is in the business of collecting and distributing power in the most economical and the cheapest way, and if ^Ir. Ford should develop this project and should have power for sale cheaper than tlie Alabama Power Co. in that respect would not be injured by the existence of that power devel- oped by somebody elsp; but, on the contrary. Mr. Miller, if 1 do not gauge it wrongfully, 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 hsinds of a private owner beyond the reach of governmental regulation, and I think that would be very much the graver of the two evils to the public. And, Mr. Miller, you have spoken about — is it proper for me to ask Mr. Miller a question? I do not want to if it is not. The Chairman. Does Mr. Miller want to answer the question? Mr. Miller. I have no objection. I do not know, though, that it is very interesting to the discussion. I have been over this so many times with different power companies and bankers and everyone else I think I understand all the angles to it. I would not hesitate at all to go into a discussion with the gentleman, but I do not know that it would be vei-y beneficial to my brethren <»n the committee. Mr. Frothingham, I wanted to ask you this question. ^Nlr. Miller referreIr. Frothingham, if I understood correctly your statement before noon, it is your contention or your belief that the pawer at Muscle Shoals will be necessary to meet the requirements of that section for the municipali- ties, factories, etc., which the Alabama Power Co. is now supplying. Mr. Frothingham. I think I would say, Mr. Fields, that for several years to come the market requirements of Alabama can be taken care of without the use of the Tennessee River at all. It is simply a question of getting the Ten- nessee River harnessed as soon as market conditions make that a justifiable proposition in the public interest, and that time has come. In a few years it would in any case be demanded. Mr. Fields. Would you apply the power produced at Muscle Shoals to the uses of the industries now supplied by the Alabama Power Co. entirely, to the exclusion of the production of fertilizer? Mr. Frothingham. The Alabama Power Co. is an electric current making company. It does that business only, and it does not want to go into any other business, as I understand it. Mr. Fields. Under your theory, there would be no water power in that sec- tion devoted to the production of fertilizer products, except the 100,000 sec- ondary horsepower under the proposition of the Alabama Power Co., unless, perhaps, it is possible to successfully operate nitrate plant No. 2 with that power! Mr. Frothingham. As the proposition stands at the moment, although, of course, should other development of the fertilizer business take place and addi- tional power be required, I should be inclined to say that nowhere in the United States could it get more abundant or cheaper power than from a combination •of these various resources which I have spoken of. Mr. Fields. But you are making the production of fertilizer the secondary consideration and giving it secondary consideration. You would take care of everything first, and then, if there is power to produce fertilizer compounds, you would produce them, but you would not do so until all these other needi or requirements are supplied. Mr. Frothingham. No; I think not, Mr. Fields. My thought was that the Government wanted to have this 100,000 secondary horsepower to operate the nitrnte plants with, either for munition purposes or for the manufacture of fertilizer; and as I understand the proposition of the Alabama Power Co., It sets that aside as the primary claim of that business upon the capacity of the Muscle Shoals plant. Mr. Fields. But, it being secondarj- power, that makes the production of fertilizer, when we come down to the meat in the coconut, a secondary propo- sition. The other is to be supplied first ; and we make fertilizer, if we can do so, with secondary horsepower. Mr. Frothingham. Perhaps my mind is confused about it, Mr. Fields, but I had understood— mind you, I have had no hand in working these phases out at all — but I have understood that what was wanted to operate that plant was the second 100,000 horsepower, and that that is being provided. Now, if that is not what is wanted, then, that is something which somebody else must take up and discuss. Mr. Fields. This being the greatest water power in the Southeast and possi- bly the greatest one east of the Mississippi River in the United States, from my point of view, what is wanted is: First, the production of fertilizer compounds; and, then, if there is any available power, it might go to the other Industries. Mr. Frothingham. But, Mr. Fields, it is the greatest power in the Southeast only if it is coordinated with the other power and storage reservoir possibilities MUSCLE SHOAI^S PROPOSITIONS. 963 in the vicinity. Otherwise, it is of comparatively little value. That is the point which I would like particularly to bring out. That alone, as a separate proposition, unconnected in any way it is a comparatively uninteresting proiK)- sition. Mr. Fields. But properly harnessed it is the greatest? Mr. Frothingham. Properly harnessed it is the greatest single point of power production that there is in eastern United States, with the exception of the Niagara River and the St. Lawrence River. Mr. Fields. You have stated that your institution sells the securities of the Alabama Power Co., I believe? Mr. Frothingham. Yes ; sells its bonds, sir. Mr. Fields. If the Government should accept the proposition of the Alabama Power Co., now before the committee, that company would doubtless sell a great many more bonds, would it not? Mr. Frothingham. Probably. Mr. Fields. And your firm doubtless would get its share of the business? Mr. Frothingham. We should hope, Mr. Fields, that if that condition came about, that Mr. Martin would ask us if we could supply the money, and we should try to supply the money ; and, if we could not, Mr. Martin would seek for it elsewhere. But we have told Mr. Martin that we believe that in the face of what he has told us of the growing markets and the business which is expected to absorb the initial output of this plant when it is completed, that we believe his proposition can be financed and that we could probably supply the money. Mr. Fields. In view of the interest you have manifested in this company, and the very forceful 'presentation that you have made here in support of his offer, he would be very ungrateful if he did not give you the business, all other things being equal. Mr. Frothingham. I confess I might feel that way. Mr. FiEiJiS. That is all, Mr. Chairman. Mr. Frothingham. But, Mr. Fields, we are in the business of handling public utility bonds in the United States and Canada, and there is a good deal of busi- ness that we would like to get that we do not get, and if we did not get the business here we would get some other business. Mr. Fields. That reminds me to ask another question. You are not ex- pecting to handle any bonds for the development of Muscle Shoals if Mr. Ford should get it? Mr. Frothingham. I can imagine that if Mr. Ford should come to us and jffer us the right securities, and want to borrow some money, we would lend him money as well as we would anybody else. Mr. Fields. Yes ; but you are hardly expecting him to come. Mr. Frothingham. I am not anticipating that ; no, sir. Mr. Wright. Mr. Frothingham, are you acquainted with the water-power situation in Georgia? Mr. Frothingham. A while ago I was intimately acquainted with it, although I am a little rusty now. Mr. Wright. What :ire the principal rivers of Georgia? Mr. Frothingham. The power-producing streams? Mr. Wright. The principal power-producing streams ; yes. Mr. Frothingham. The Chattahoochee, the river which flows down the middle of the State, the Flint River, I think, north of Macon; the Etowah River, and the Savannah, or the upper tributaries of the Savamiah, namely, the Tal- lulah and the Tugaloo. I think those are the major power streams in Georgia. Mr. Wright. Now, can you tell us the amount of horsepower being produced (►n any of those streams? Mr. Frothingham. Only very roughly. On the Tallulah River there is a 90,000-horsepowx^r development, I think. Mr. Wright. At Tallulah Falls? Mr. Frothingham. Yes, sir; operating under one of the highest heads in East. Mr. Wright. That is a very splendid development there, is it not? Mr. Frothingham. It is a fine development. On the remaining stream, the Tugaloo, I believe they are starting a development which is to have something of the same horsepower. Mr. Wright. And that is being done by the same company? 964 MUSCLE SHOALS PROPOSITIONS. Mr. Fhothingham. By the same company. I should roughly say that on the upper reaches of the Etowali there might be forty to fifty thousand horsepower in two or three developments. Mr. Wright. The Etowah is a wonderful stream, so far as waterpower de- velopment is concerned, is it not? Mr. Frothingham. It is a very interesting stream. Mr. Wright. Do you know of any river in the United States which has more natural dam sites and places for power development than the Etowah? Mr. Frothingham. The topography of the country in northern Georgia does provide reservoir capacities of importance. Mr. Wright. Now, about the Chattahoochee; how many developments are there on the Chattahoochee? Mr. Frothingham. I am afraid I do not remember. The Stone & Webster people have a development just above Columbus. Mr. Wright. That is at Goat Rock, is it not? Mr. Frothingham. Yes ; I do not remember how large it is. I suggest about twenty-five or thirty thousand horsepower, although I may be 100 per cent wrong about it. Mr. Wright. There are about three developments right at the city of Columbus, are there not? Mr. FROTftiivGHAM. I think there are several developments or that there can be several developments made there. I have never studied it myself. Mr. Wright. Then there is one at what is known as Bull Sluice near Atlanta, Ga., on the Chattahoochee. Mr. Frothingham. Is Bull Sluice on the Chattahoochee or the Etowah? Mr. Wright. On the Chattahoochee. Mr. Frothingham. Perhaps it is. I do not remember. Mr. Wright. That formerly furnished the current for the city of Atlanta and operated their street railway, etc. Mr. Frothingham. I had been under the impression it was on the Etowah, perhaps it is on the Chattahoochee. Mr. Wright. Then up near Gainesville there are two or three developments on the Chattahoochee. Mr. Frothingham. I do not remember the details of that, sir. Mr. Wright. Mr. Frothingham, the water-power development on the Chatta- hoochee is just in its infancy, is it not? The river has not been developed? Mr. Frothingham. I do not know, Mr. Wright, what the -possibilities of the Chattahoochee River are. I have never had occasion to study them in detail. I do know it is one of the streams which takes its source in the Allegheny range and so is a stream that has water enough to have water-power possibilities. The extent of them I do not know. Mr. Wright. Did you ever hear of the site at Franklin, Ga., on the Chatta* hoochee River? Mr. Frothingham. No. sir. Mr. Wright. That produces 100.000 horse power. Mr. Frothingham. I have never heard of that. Mr. Wright. The point I am making is that the power is not nearly all devel- oped in Georgia on these power-producing streams. Mr. Frothingham. It is not nearly all developed on any of the streams that flow from the Appalachian Mountains. Mr. Wright. In other words, it has just commenced. Mr. Frothingham. It has just begun. Mr. Wright. Do you think, Mr. Frothingham, that in the next 1,000 years there will be any dearth of water power in the Southeast, even if Muscle Shoals was eliminated entirely? Mr. Frothingham. My vision has not gone as far as that. I have been think- ing in terms of the more immediate present. Mr. Wright. You do not want to impress the committee with the idea that unless this Muscle Shoals proposition is developed — I mean the hydroelectric power there on the Tennessee River, and coordinated and interwined and inter- linked with all the systems in the Southeast — that there is going to be a scarcity of electric current down there, do you? Mr. Frothingham. Not in the immediate future, if the Federal Water Power Commission gives permits at other points. Mr. Wright. What you do mean to say is that the power at Muscle Shoals on the Tennessee River could be better utilized and the highest development could bo reached provided it was coordinated with other systems throughout that section. MUSCLE SHOALS PROPOSITIONS. 965 Mr. Frothingham. Not that it can be better utilized, but that it can only be utilized to its maximum by such coordination. Mr. Wright. In other words, you figure that the maximum could not be utilized unless it was coordinated with these other systems. Mr Frothingham. Not with economy. The maximum could be utilized by building steam stations sufficient to provide all of the secondary power that was necessary to offset a shortage in the stream flow of the Tennessee River, but that is an expensive way of supplying that shortage if you can get it cheaper from hvdroelectric sources, as you can, in that region. Mr Wright. 'But the point I want to get at is that if you eliminate the Muscle Shoals proposition and concede for the moment that every kilowatt that can be produced there would be utilized in the manufacture of nitrates there would still be enough water power in the southeast to supply the demands, so far as any human vision can now foresee, would there not? Mr Frothingham. In my judgment, there is power there, under those cir- cumstances, to last for a great many years ; but this, I think, is the thought in that connection : That it does not mean that in every locality there will be an abundance of power. There may be a shortage of power for one reason or another There may be a shortage of power in Mississippi, for instance, that can only be supplied in some particular way. I refer to aggregate markets and aggregate supplies. I should not have said "A great many years, as I d"d lust now, but rather as a few moments ago I said to Mr. Fields. That for several years the capacities of Muscle Shoals could be dispensed with, if other permits were granted. But the markets in the Alabama territory are growing so fast that in a few years Muscle Shoals will have to be called on and must be available. The wise plan is to incorporate it now and add the other oppor- tunities later Mr. Wright. I have just one other question. You have made a very inter- esting statement here, Mr. Frothingham. Mr. Frothingham. Thank you, sir. ^ ^t. * n ^* rUffot.nt.f Mr Wright. You have been asked about the flow and' the fall of different rivers, do you anticipate that the fact that the country may be denuded of its forests will decrease the flow of the rivers in that section and lessen the ^"^MrFROTHiNGHAM. It is uot likely, probably, to decrease the total water that in the course of a year runs through the river. Mr W^right. I understand that, but I mean the average of the >ear Mr! Frothingham. Some people have said that the ^^^^Z^J^'f^TolTt to atmospheric changes which result in less precipitation Whether^^^^^ borne oyt by facts or not I do not know, but the denudation of the hill slopes does result in a faster run-off of the water that falls. Mr! Wright. That is the point I had in mind. There is nothing left to ""^ Mr 'frothingham (continuing). Whether it falls as water or whether it falls as Xow. It means, correspondingly, that there must be proportionately larger storages to accomplish the same results. ^^ , ^ , -..u 4.^^^ Mr Wright. In other words, when you leave the lands covered with trees and brush and leaves and undergrowth, the water instead of flowing 9^ rapidly from a rainfall is largely stored there and flows gradually, but if the land is denuded of brush or growth or leaves, it flows off lmmedlateb^ Mr. Frothingham. There is not room for argument on that. IJ, o?^^^ lojoks up a hill slope the bottom of which is an open field, the open field has lost its snow when there are still signs of the snow up above in the forests. Mr. Wright. And the reason that the stripping of the country «/ f f ffjf *» might affect the water power would be because it would caiise the v^ater to all flow off at one time ^fter a rain and not gradually flow on- . Mr Frothingham. It would make the erratic flow of the Tennessee River still more erratic. That is the effect it would have Since w are speaking of that, one reason why the Tennessee River has such ^n^^^^^ic flow is that it> headwaters are in the Allegheny Mounta ns. which is ^^^ ^l^^'^'^.f,^^'^ J''^^^^ precipitation in the United States, outside of the mountains n the ext erne northwest of the United States on the Pacific coast, so tj^at the rain faUs m great quantities and falls suddenly, and runs off m a corresponding way Mr Wright Mr Frothingham, you have also gone into the very interesting field of nTonopolfes. Of coulse, you are familiar with the old adage that com- petition is the life of trade. H I * 966 MUSCLE SHOALS PROPOSITIONS. i U Mr. Fbothingham. Yes. Mr. Wright. We Americans have always believe' for your record the list of employees of Air Nitrates Corporation who received compensation of more than $5,000 per vear. As such list is published at page 3065 of the hearings before Subcommittee No. 5 of the Select Committee on Expenditures in the War Department of the House of Representatives, Sixty-sixth Congress, second session, volume 3, serial 6 parts 50 to 59 and 64 to 66, I find this list is correct. 5. I was requested to supply for your record the correct date and exact language of the statute referred to in article 21 of the contract of the Govern- ment with the Air Nitrates Corporation, dated June 8, 1918. This statute was by misprint referred to in copies of the contract before your committee as " Section 116 of the act of Congress approved March 4, 1919." The statute referred to was approved March 4, 1909. and the section referred to is as follows : " Sec. 116. (Contracts to which two preceding sections do not apply). Noth ing contained in the two preceding sections shall extend, or be construed to ex- tend, to any contract or agreement made or entered into or accepted by any incorporated company where sucli contract or agreement is made for the general benefit of such incorporation or company ; nor to the purchase or sale of bills of exchange or other property by any Member of or Delegate to Congress, or Resident Commissioner, where the same are ready for delivery and payment thereof is made at the time of making or entering into the contract or agree- ment." (35 Stat. L., 1109.) The two preceding sections referred to in section 116 as quoted above are as follows : "Sec. 114. (Member of Congress not to be interested in contract.) Who- ever, being elected or appointed a Member of or Delegate to Congress, or a Resident Commissioner, shall, after his election or appointment, and either before or after he has qualified, and during his continuance in oflTice, directly or indirectly, himself, or by any other person in trust for him, or for his use or benefit, or on his account, undertake, execute, hold, or enjoy in whole or in part any contract or agreement, made or entered into in behalf of the United States by any officer or person authorized to make contracts on its behalf, shall i)e fined not more than $3,000. All contracts or agreements made in violation of this section shall be void ; and whenever any sum of money is advanced by the United States in consideration of any such contract or agreement it shall forthwith be repaid ; and in case of failure or refusal to pay the same when demanded by the proper oflicer of the department under whose authority such contract or agreement shall have been made or entered into, suit shall at once be brought against the person so failing or refusing and his sureties for the recovery of the money so advanced. (35 Stat. L., 1109.) "Sec. 115. (Oflicer making contract's with Member of Congress.) Whoever being an oflicer of the United States shall, on behalf of the United States, di- rectly or indirectly make or enter into any contract, bargain, or agreement, in writing or otherwise, with any Member of or Delegate to Congress, or anv Resident Commissioner, after his election or appointment as such Member. Delegate, or Resident Commissioner, and either before or after he has qualified, and during his continuance in oflice, shall be fined not more than $3,000." (35 Stat. L., 1109.) Respectfully, yours, J. O. Hammitt, Vice President. MUSCLE SHOALS PROPOSITIONS. 971 The Chairman. This morning we have nith us tht' rcpresower project, then the position of Muscle Shoais would not be the particular crux of the whole matter. Mr. Mayo. If the water power did not exist no project such as we have in mind could be carried out sit all. , x. ^ 4. Mr Greene. Exactly. Now\ it is a question of the regulation of water power and no amount of shading the meaning of words can change that, and so far as the Government is concerned the issue is, How shall we dispose of some water power, under what terms, to whom, under what regulation as to use and we are met on the floor with the suggestion, " Everybody else, Uncle Sam that you let have water power is tied right down to 50 years, and is under the regulation of the public service commisson as provided for in this law vet you propose to let Mr. Henry Ford have a water power for twice that period and under terms far more advantageous." What do you suppose other people are going to say about that? ^.1^4.^ „4.^^ Mr. Mayo. You are confining yourself, it seems to me, entirely to the water power. , , , ^ ^ Mr. Greene. Because that is the basis of this contract. Mr. Mayo. I do not think wholly so. . . , ^v „.^, „ Mr Greene. If it was not, then you would not want to make the propos.tion. Mr Mayo. While that miiy be true, yet it is not wholly so, because if the nitrate plant and the war emei-geney plant were not there I doubt if Mr. tord would have made the offer as it now stands because the nitrate plant really is a part of the prime object. Mr. Greene. But they are run by water power. Mr. Mayo. Exactly ; but you are not treating the water power alone, because the other is hooked on to it. , 1 1. i i*. Mr Greene. Of course, as we all know, you can fix up a little alcohol so it is not called alcohol when they sell it, but it turns out to be alcohol when you ^The "chairman. If you will permit me, Mr. Greene, I think at one of the hearings, when you were not present, there was evidence brought in to the effect that the keokug, Iowa, plant has a perpetual right. Mr Greene. That was before the Federal water power act was passed. Mr' Mayo. Hales Bar. on the Tennessc^e River, is for 99 years. Mr. Greene. But those other things were before the water power act was passed, as I recall. MUSCLE SHOALS PROPOSITIONS. 973 Mr Mayo I think you are correct about that. Mr. GrfIne we are^alking about the law as it is now. Of ^'-^;^'^'?^ as I have said, that there is no use wearying the ^•«»»"^ttee with my impor- tunities because the man who proposes the contract can not be made to go S on his own offer. I understand that and I will not wrury .v-«;^"y l«^^/{f/. I would like to again ask you if you have any construction to put upon that final proposition in your offer that reserves the right to use the power to the heirs and assigns of your corporation forever. Does that mean just exactly wha? U has been interpreted to mean here, that no matter what disposi ion the Government itself makes of that property, there still goes w,th it the right upon the part of your people forever to the first use of that P^^e^^n terms to be agreed upon, and, of course, the terms may be enforced one vyay or the other: do vou understand that gives you a right in perpetuam to that power? :^Ir IM\YO It gives us the preferential right at the same price you can get from anyone else. We do not have any advantage over anybody else in price or ^^Mr^' Greene. No; the only advantage that amounts to anything is that you have the power. Mr. Mayo. Yes, sir. Mr. Greene. And nobody else can take it away from you. Mr. Mayo. Apparently. .^. ,, __ ^^ . .. ^ Mr Greene. Now, what is your judgment, as a citizen, Mr. Mayo, as to the nublic policy involved in the United States Government giving any living creature the right to use this power in perpetuam, basing the contract on present-day conditions and the contract to run to our children s children and for all the generations hence? u^ ia i.«,.^ Mr Mayo We think, under the conditions of this contract, w^e should have that preference. I do not know that that should apply to every kind of a contract We have kept the war emergency plant in order for 100 years and we have invested a great deal of money, and any change in that that would so fix it that it is not possible to take the power right from under our feet would be agreeable, but we can not be left with a very large investment there and with no power; that is the point. ,, „ ^ .^ * 1 •♦-i, fv,i- Mr Greene. It is very obvious that if Mr. Ford is as successful with this enterprise as he has been with others that at the end of 100 years the ori^nftl investment at Muscle Shoals will have been returned more than once and nobody then owning the property or the lease would have ventured a dollar into it They will simply be heirs to the thrift of the century before. They will wake up to find themselves owning something. Do you think it is altogether con- sistent with a proper public policy that looks to the future in the disposition of the Government's property and rights that we should mortgage our chil- dren's children's children to this proposition to-day when we have not the faintest idea what conditions will confront them, socially or economically? Mr Mayo. I do not see that you are mortgaging it in any way, because, after all Mr. Ford has got to pay the same rate that anybody else would pay. Mr. Greene. But there is no competition if he does that. In other words, the proposition all runs against the Government and in favor of your people. In other words, the Government, again, can not choose its customer. The GoverAment has something, but it can not choose the customer for it, because the very instant that you pay the price that the Government asks, as you will, nobody else who offers to pay the same price can have the property. You leave the Government in a peculiar situation. It may be that 100 years from now what your folks are making is by no means as desirable in the public interest as something which somebody else comes in with a tender to make but Uncle Sam has to throw his hands up and say, "A hundred years ago they bound me to sell this power to these people, no matter what they made.'* Mr Mayo I think Congress has the right to take it away at any time. Mr Greene It has the right to break faith, if you call it a right, but you do not urge that upon the Government as the only way out of what it finds to be a bad bargain when it went into that bargain with its eyes open. Mr Mayo I think at the end of the contract period the Government will be able to get just as much out of that power as though it was a wide-open prop(»- sition and without a preference in the contract. .. ^ . . , Mr. Greene. It is not a question of money; it is a question of principle. We are not interested in the mere makeshift that might obtain in a bargain. We are charged with the custody of public property and we are interested in 974 MUSCLE SHOALS PROPOSITIONS. ^"i N the principle of government as a matter of public interest and public policy as to what shall be done with it. Mr. Mayo. Strictly, under the letter of the contract, we have a preferred right to negotiate upon such terms as may be agreed upon. Mr. Greene. But read the next sentence : " If the said leases are not reu(nved or the property covered thereby is not sold to said company, its successors, or assigns, any operation or disposal thereof shall not deprive the company, its suc- cessors, or assigns of the right to be supplied with electric power at reasonabh' rates and in amounts equal to its needs, but not in excess of the average amount used by it annually during the previous 10 years." That means something in English and it is plain enough on the face of it. Mr. QuiN. Mr. Chairman, it occurs to me that this gentleman has declined to change that part of the offer, and we went over all that in the direct ex- amination. The Chairman. Of course, the statement that Mr. Quin makes, that we have gone into this thing on direct examination, is true, and if the witness is not prepared to make any alteration in that language, that is a matter for the com- mittee to consider when the whole thing is taken up in executive sess on. Mr. Mayo. What would happen at the end of the lease if you made a new contract on this wording: "Terms then to be agreed upon"? Say for argu ment's sake you made a contract for a year, at the end of the year where would you be? Mr. Greene. Mr. Mayo, you know that article 17 is divided into two sen- tences: The first one tells what you may do by way of negotiation, and the second one says that no matter what is done, however, this one particular thing, the right of your company to power, shall not be disturbed. Mr. Mayo. But that is at the end Mr. Greene. There are two propositions involved there. Mr. Mayo. That is at the end 'of the period only, it seems to me, and then you have the right, so far as I can see, to furnish the plant with power from any source. You do not have to supply it from that particular source. Mr. Greene. That does not change the principle of the thing. That is only a change of the source from which the power might come. Mr. Mayo. That is true. Mr. Greene. And it is binding and obligatory on the United States Govern- ment always to furnish the power. Mr, Mayo. I am not a lawyer, but I am not sure you are right. It seems to me that at the end of the period you have the opportunity to make a new contract on terms to be agreed upon. There is no length of time stated for that contract. Mr. Greene. What, then do you mean by language that is as explicit and specific as this: "If the said leases iire not renewed or the property covered thereby is not sold to said company, its successors or assigns, any operation or disposal threof— it does not mjike any difference what it is — shall not deprive the company, its successors or assigns, of the right to be supplied with electric power," etc. Mr. Mayo. I know ; but what are you talking about at all times? Mr. Greene. I am just talking about this language in the proposal. Mr. Mayo. But you are talking about the end of the period. • Mr. Greene. Yes ; the end of the 100 years. Mr. Mayo. Then, supi)08e you make another shorttime contract at that time, when that one would lapse, where would you be? Mr. Green. This says that at the end of tire period, no matter what other negotiations Uncle Sam proposes to enter into with respect to the disposal of this property, there is one thing he can not dispose of, or become free of, and that is the right of your people to that power. Mr. Mayo. Yes ; but saying that you make a new contract for another 10 years and then at the expiration of that 10 years, what? Mr. Greene. Unless your people surrender that right you can not make a new contract that will deny that right. Mr. Mayo. But say you make a new 10-year contract with Mr. Ford at the end of the period for 10 years, then at the expiration of the 10 years, what? Mr. Greene. You have to make a new ccmtract based upon conditions thac exist at the end of the old one. Mr. Mayo. I am not so sure about that. Mr. Greene. You have to take things as they are before you can change tlio -contract. MUSCLE SHOALS PROPOSITIONS. 976 Mr. Mayo. You have to take things as they are at the termination of the 100 years, but after another contract, I am not so sure about it. Mr. Greene. This provides that at the end of the 100-year period, that right to the use of the power is still maintained, no matter what other use is made of the property, t realize again that you can not get a man to go back on his own proposition, but I am simply x>lacing this before you as one of the serious obstacles Mr. Mayo (interposing). And I am trying to justify Mr. Ford's position. Mr. Greene. I think there is a general disposition to look upon this proposi- tion with the idea that if the Government can salvage its property and if the terms are reasonable and if, perhaps, the public benefit, such as the manufacture of fertilizer, is a part of it, there might be a very general agreement easily arrived at ; but to hogtie the United States Government in this way and under these conditions, and to ask the Government in this form to subsidize your enterprise against all other private capital in the land, will make trouble on the floor, if this bill ever gets there. I simply leave that little suggestion with you. Mr. Hull. Mr. Mayo, I was not here when you began your statement, and perhaps you have covered this, but to my mind there is a serious difficulty in- volved here. I am not saying how serious it is because I have not definitely decided in my own mind, and I presume none of the committee has, and that is in regard to the taking over of the Gorgas plant ; the taking away from the Alabama Power Co. of this integral part of a plant of theirs. I do not think there is any question but what financially we would involve ourselves consid- erably in the matter. We might get by with that if there was only the financial side. However, there might be in the minds of the committee the question of the moral obligation. If we should decide we were morally obligated to return this property to the Alabama Power Co., of course, I do not suppose any of us would want to override that objection. Now, in case we should feel that way about it, is that an unsurmountable proposition wnth the Ford people? In other words, do they have to have that plant in order to make this contract? I will put it straight and frankly because we want to know about it. Mr. Mayo. We have always considered it very necessary to supplement our primary power. . Mr. Hull. I understand that, and I can see that it is quite necessary. Mr. Mayo. It is the first steam pow^er available and the cheapest steam power that we would use. Mr. Hull. But that is not answering the question. If w^e decide that we are morally obligated, I do not suppose there is any member of the committee who would want to override that objection. I think we are trying to be fair in this proposition, and I am not saying that it is my opinion at the present time that we are morally obligated, but there will come a time when we will have to decide that point, and when we decide it, if we decide that we are morally obligated to return this plant to the Alabama Power Co., then the question will come up, Will the Ford people consider this proposition at all without the Gorgas plant? Mr. Mayo. Mr. Ford has never indicated he would consider it without that plant. Mr. Hull, could I answer Mr. Greene's question further? Mr. Waldo has just showed me this pamphlet which has the water power act in it and it refers to what you were talking about. In section 15 it says : " That if the United States does not, at the expiration of the original license, exercise its right to take over, maintain, and operate any project or projects of the licensee, as provided in section 14 hereof, the commission is authorized to issue a new license to the original licensee upon such terms," and so on. Mr. Greene. But that is optional and there is no intervening condition as there is in this proposition. There is no option left the Government here. The Government may dispose of its property and it may lease or otherwise contract that property at the end of 100 years, but it does so always subject to your right to have the power there. That is the way your proposition reads and that is the way the average man will read it. Mr. Mayo. Do you think they can take it away from the original licensee under this language? Mr. Greene. Yes; they can. At the end of the time they can take it all away, but if they leave it, they leave it with them, which is a reasonable propo- ■ition under those circumstances. In this case, however, you have to take 92900—22- -62 976 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 977 it up from another angle. You offer us words and promises for our heirs but you take away all chance of our carrying out those promises. You say we can dispose of the property except the water power. Mr. Mayo. If they take this property away, they have to pay for every thmg that the licensee has Mr. Greene. I am not talking about the question of money but the question of principle and the question of the proper public policy, and what we shall do to our heirs when we are dead and gone for a good many years, and they are helpless about it. Once upon a time, in the development of our English- speaking jurisprudence, there was a revolt against this very doctrine of rule by a dead hand, which ruled living generations from the grave centuries back. Now, you are going to tie us and our children's children for centuries to your contract. I do not care to ask any further questions. Mr. Hull. Is that all you wanted to say, Mr. Mayo? Mr. Mayo. Yes; thank you. Mr. Hull. Mr. Mayo, you have read Mr. Cooper's letter to the committee under date of February 21, I presume. Mr. Mayo. I have not ; no, sir. Mr. Hull. Has not your attention been called to Mr. Cooper's letter in which he makes the statement that if we accept the Ford offer it will cost $1,- 275,000,000 over and above the amount of money received from Ford? Mr. Mayo. I heard Mr. Cooper's testimony but I did not read the letter. Mr. Hl-ll. You heard the testimony along the same line, which was thi same as the letter. Mr. Mayo. Yes. Mr. Hurx. Have you had his figures analyzed? Mr. Mayo. They appeared so ridiculous to me I did not attempt it. Mr. Hull. The figures ought not to be ridiculous if you put them down and some one can figure them out. that is a mere matter of figuring. As I under- stand your proposition, you claim that you return the money that the Govern ment will spend from this time on, with 4 per cent interest ; is not that true? Mr Mayo. Yes sir. Mr! Hull. And he says that under your proposition you do not return it by ^1,275.000.000. Mr. Mayo. I know it. Mr. Hull. Now, surely, there is some one who can figure that out and straighten that out and bring those figures together and tell us wherein he is wrong, if he is wrong. Mr. Mayo. We can do that. Mr. Hull. I should certainly like to have that done. Mr. Mayo. We will do that and put it in the record, if you wish. Mr. Hull. I would like to have that done. (The statement referred to follows:) Mr. Cooper's statement of the losses to the Government under the Ford offer is based upon the assumption that it is possible for the Government to collect compound interest on its war or other losses. One does not lose that which one never had, and never had a possibility of having, and the Government does not lose interest which is not payable and never was payable, because no one has ever offered to pay compound interest to the Government on its expenditures. On the other hand, Mr. Ford offers to actually set up a sinking fund for the benefit of the Government, and provide for the maintenance and administration of the fund so that all interest earned by the fund shall be reinvested for the increase of the fund. The higher the rate which the fund can be made to earn, the more quickly the Government's investment in the project will be amortized and refunded. He is not using compound interest against the Government, but for the benefit of the Government. There is nothing theoretical about this advantage to the Government, for the sinking fund is to be actually set up and the earnings are to be actually realized under his plan. If we were to follow Mr. Cooper's method of figuring on Government losses, a compound interest that can never be realized, then we should do the same with Government gains. The Ordnance Department has indicated that 5 per cenl of $47 000,000, or $2,350,000, is a reasonable measure of the annual saving to the Government through the assuming by Mr. Ford of the depreciation on the nitrate plant for 100 years. If Mr. Cooper's statement is fair, then it is fair to assume that the Govern- ment should set aside this amount annually and let it draw compound interest at 4 per cent. In 100 years this annual saving invested at 4 per cent would amount to the tidy sum of $2,908,183,750, and we have not included any item of Mr. Ford's offer, other than this one feature. We could add to the absurdity by including in the annuity the saving due to guarding, routine maintenance, etc., but it does not appear to be necessary. Mr. Ford's payments under his offer will take care of the principal and in- terest of a 4 per cent bond issue without an appropriation by ^Congress, and we believe that the project can be readily financed on this basis. Nitrate plant No. 2 will produce some 2,000.000 tons of completed 2-8-2 fertilizer, or somewhat more than 25 per cent of the annual fertilizer consump- tion of the United States. If Mr. Ford's economies result in saving only $15 per ton to the farmer, on only this amount of production the annual saving would be $30,000,000, and the saving in 100 years, without interest, would be .$3,000,000,000. Mr. James. Mr. Mayo, in response to a question by Mr. Greene, you read a part of the water power act. Are you willing to strike out the language that you use in section 17 and use the language you read to the committee from the water power act? Mr. Mayo. I could not say right off the bat. I will take it under considera- tion, however. Mr. James. I thought that was your explanation of what you thought your language meant. . , ^ . ^ . Mr. Mayo. No; I simply brought that up. I never saw it before, but it seemed to me it was quite parallel. I will take it under consideration, though, and see. Mr. James. Mr. Mavo, when you were before the committee before, I said : " Mr. James. When the Judge Advocate General was before the committee the other day, the matter concerning the cost of the flowage rights came up, and he stated that Mr. Ford beleved the Government could acquire those cheaper than anybody else, and there was not any doubt in his mind that Mr. Ford intended* to reimburse the Government for those expenditures, and that when you appeared before the committee you would agree with his view concerning that matter." Have you taken that up with Mr. Ford? Mr. Mayo. I have, but he has not changed his views yet. Mr. James I understand that Mr. Worthington in his conversation with Mr. Ford had the impression that Mr. Ford intended to repay the Government Mr. Mayo. A little difference of opinion has existed on that, and we have not come to a conclusion as yet. Mr. James. Have you talked with him about it? Mr Mayo Yes sir Mr. James. When you were before the committee before, and when Mr. Worthington was before the committee, I called attention or asked you if nitrogen could not be used for some other purpose besides manufacturing fer- tilizers, and you both said yes. Mr Mayo Yes sir Mr. James. That being so, why not strike out the word " nitrogen," so that it w 11 read, " the company agrees to operate nitrate plant No. 2 at the approxi- mate present annual capacity of its machinery and equipment In the pro- duction of fertilizer compounds." Mr. Mayo. The nitrogen capacity of the plant was the reason for putting that in. Everything is based on its nitrogen capacity. Mr. James. Could we not put put in some language there by which the nitrogen could not be used for any other purpose except the manufacture of fertilizer? Mr. Mayo. Does not this imply that it is for use for fertilizers? Mr. James. You say that nitrogen can be used for manufacturing something else besides fertilizers ; and if that is so, there is no prohibition here so that you can not use it for any other purpose, no matter what you may intend to do. Mr. Mayo. We might say nitrogen for fertilizer and other fertilizers. I think we could take care of that all right. 978 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PEOPOSITIONS. 979 11 m l" m Mr. James. That might make it better. Major Burns said this when he was before the committee in answer to a question from Mr. Hull : "Now, over and above that he may or may not guarantee to run it as a nitrogen-fixation plant. I think you can interpret it very readily to the effect that he does agree to run it as a nitrogen-fixation plant." Have you taken that up with Mr, Ford so the language can be changed, so that there will not be any doubt about it? Major Burns seemed to think there was some question about it, although he thought it might be construed in that way. Mr. Mayo. \Vell, nitrogen is one of the component parts of fertilizer. Mr. James. If you will turn to page 209 of Mr. Burns's testimony, in the middle of the page you will find that his statement is, " If he does, that is a very great additional benefit to the Government from the standpoint of pre- paredness." Mr. Mayo. I think this is plain. It ties it down to the "present annual capacity of its machinery and equipment in the production of nitrogen am! other commercial fertilizers." I think that nails it down. Mr. James. I am not an attorney, but when the attorney representing the Ordnance Department has some doubt about it it seems to me the language ought to be changed so there will not be any doubt about it. Mr. Mayo. We have not given that any thought, because the question was not brought up before. No matter how we operate we guarantee it will be available. Mr. James. As I have said, I am not an attorney, but when the attorney for the Ordnance Department has some doubt as to what the language means I say again that it seems to me the language ought to be changed, after con- sultation with him, so that you both understand it in the same way. Mr. Mayo. On the other hand, the attorney of the Judge Advocate General'i* oflSce was sure that we had so worded our offer that we guarantee it. If it Is necessary to clarify it, I think we can do it. Mr. Kearns. Mr. Mayo, you speak of clarifying this contract. If the com- mittee should decide to go to Muscle Shoals, would it be possible for Mr. For 1 and yourself to accompany the committee in order that they could have a chance to talk with him and with you together. Mr. Mayo. I am sure I could go. I can not answer for Mr. Ford. Mr. Kearns. I was talking about Mr. Ford and whether he could go with you. Mr. Mayo. He may be able to. Mr. Kearns. We have had this experience. You are limited in your power to agree to do certain things that are not contained in the contract, but with Mr. Ford there on the ground he could tell us whether or not he would agree to any changes we wanted to make. Mr. Mayo. Well. I will ascertain if he can go. I think he will be glad to if he can. Mr. Kearns. Now, you have authorized a change in the contract so that this company that is to be organized will have a paid-up capital of $10,000,000? Mr. Mayo. Yes, sir. Mr. Kearns. Would that $10,000,000 be the working capital? Would that $10,000,000 be put in the business to operate the business alone? Mr. Mayo. It would all be put into the business. I could not say just how It would be used — whether it would be working capital or partly plant In- vestment. Mr. Kearns. That is what I wanted to know, and I should think that the committee would want to know whether this $10,000,000 was to be used in carrying on the business there or whether part of it would be used in develop- ing the plant. Mr. Mayo. Some of it would have to go into the plant most assuredly. Mr. Kearns. You would not be able to say how much of the $10,000,000 would be used in conducting the business? Mr. Mayo. My opinion is the whole $10,000,000 would go into the plant. Mr. Karns. You would have to have working capital in some amount, would you not? Mr. Mayo. We said not less than $10,000,000. Mr. Kearns. That means, then, you would put in more than $10,000,000, probably? Mr. Mayo. Well, whatever is necessary. I imagine it will be twice that. Mr. Kearns. How much money will you have to invest for the purpose of carrying on that part of the business which would be represented by the manu- facture of fertilizer? Mr. Mayo. I do not know that I could answer that. Mr. Ford has always said he would put in suflicient capital to properly operate it. Now, we do not know what that will run to in amount. Mr. Kearns. That is, to properly operate it, manufacturing 110,000 tons of ammonium nitrate? Mr. Mayo. Yes, sir. Mr. Kearns. And as I understood your testimony before, that would mean about 2,000,000 tons of manufactured fertilizer; that is, the finished product? Mr. Mayo. That would be the equivalent of 2,000,000 tons on about a 2-S-2 mixture. Mr. Miller. Mr. Mayo, your conference with Mr. Ford has only changed his original bid or his offer of January 25 in the two particulars that you have 9numerated ? Mr. Mayo. Yes, sir. Mr. Miller. You still adhere to the obligation that the United States must acquire the title to this Gorgas steam plant, do you? Mr. Mayo. Yes, sir. Mr. Miller. And vest it in Mr, Ford? Mr. Mayo. Yes, sir. Mr, Miller. Since you have appeared before the committee very able argu- ments have been made, pro and con, on the rights of the Alabama Power Co. under their contract with the United States Government regarding this Gorgas plant, and it appears that it is going to be an exceedingly troublesome thing to do, and promises a litigation that is almost appalling. Some of our col- leagues on the floor of the House may adopt the view that to undertake to segregate the rights of the Government and the rights of the Alabama Power Co. under their contract as they are sewed together, or as I have expressed it l>efore, lockstitched and bound together, I do not know how we can do it, and thnt may defeat the entire offer of Mr. Ford. Is it beyond the range of possi- bility that Mr. Ford would further consent to a modification of his offer so that he would take the Gorgas plant in its present condition and assume the responsibility of segregating the Government's rights from the rights of the Alabama Power Co.? Mr. Mayo. Mr. Ford would not be wiling to take over any legal work in reference to it, Mr. Miller. Would not be willing? Mr. Mayo. No, sir. Mr. Miller. Then so far as the Gorgas plant is concerned, the offer of Mr. Ford is that he shall have all the property — I am referring now to sub- lant in the condition it is in now and fight it out with the Alabama Power Co. You think he would not do that, Mr. Mayo? Mr. Mayo, I thnk he is of the opinion that the Government is in a much better position to untangle it. He has said right along that he does not exi)ect any- thing of the Government that they could not straighten out. Mr. Miller. But if the Government should undertake to settle it along the lines indicated by Colonel Hull, of the Judge Advocate General's office, and the court should hold that the Alabama Power Co. had a subsisting right there and the United States Government was bound, according to its contract vith the Alabama Power Co., it would be an utter physical and legal im- possibility for the United States Government to comply with Mr. Ford's offer, because it could not turn over to him this property. Mr. Mayo, If it was not a legal possibility I am of the opinion that he would n<»t ask for it. The opinions we have are, though, that it is quite possible. Mr. Miller. But our contract with the Ford Co., in the event that it was accepted by Congress, absolutely binds the United States Government to quiet the title to the Gorgas steam plant and vest It in your company. Mr. Mayo. Yes. 980 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 981 Mr. ^^iLLEit. Now, suppose we should undertako that and at the en horsepower for the Government's general puri)oses: for instance, to light Camp McClellan or to use it for anything else there that it might be necessary to use it for. The Alabama Power Co. has made an offer to dedicate 1(X),000 secondary horsepower, and I would like to ask y<»u if Mr. Ford wonld be willing to modify paragraph 14 by guaranteeing the Government during the terms of the lease either 100,000 primary horsepower or 100.000 secondary horsepower for use for anv purpose the Government decided to pnt it to. Mr. Mayo. I think he would be glad to guarantee the Government something along these lines. Mr. Hill. Will you please think of that and let us have your answer to it in the rec-ord, because w^e will be askeetnam,' it may be, very possibly, that in 1(K) years from now not only is the concept and policy of our Government completely changed, but the Gov- ernment itself mav be at that time doin^- thinjrs which most of ns do not want it to do. Not only that, but this very fact is possible, that we no longer shnll dei^end npon water power for motive i)ower: it may be possible that the dreams of the philosophers and engineers of extracting power from the great reservoirs in the imiverse are applicable, and this thing is entirely out of the question. It m;iv be snid that works to the interest of the Government as much as to the intjerest of Mr, Ford, but yet we are presently engaged in mortgaging a future in specific detail. The fathers very wisely provided in the Constitution terms of generality, so that those provisions would be general enough to meet conditions in the future. Why should not this contract be written in the same sort of way, so that if conditions chjinge the Government is always free, it is superior to any interest that may compete against it? That is what I am asking for. . Mr. Mwo. I do not wjint you to think you are wearying me. We court the full vent of the connnittee's feeling on this matter. It is quite a different thing to sit :irounth. ^Tr. Greene. I understand that thoroughly. Mr Mayo. The only instructions we had from Mr. Ford in making this con- tract up was not to give him any preferential r ght of any kind, with the excep- tion that we were to fortify it against the lability of having the power taken away from the plant. We worded it as best we knew how. I do not pretend to sav that we are dead right or that we have it in the host form. Mr. Greene. While it is true thnt presently we are engaged in criticizing Mr Ford's offer, if we take it to the floor of the House, it becomes our offer. Mr. Mayo I know that, and. as I say, we wnnt the full vi(-ws of the com mittee. and vou may let them come as fast nnd ns long as y to keep safe, and to make a contract in which it will keep safe to keep that contract in the hoi>e that it will give public benefit, and yet to be sure that the contract has within it powers of its own termination, m-oviding against the contingencies, not of a day, but of a century. Mr M\YO Of course, Mr. Ford is H)f the opinion, I think that the niles and regulations for operating this i)lant will be so laid down that there will be n(rquestion about the power at the end of the lease period. Mr Greene. You and I can stiimlate here, and we would be very much in the siime relationship to it that Ben Franklin was to his kite and his door key. It is true that he got a little glimpse of what lightning was, but he never saw a Packard. Mr. Mayo. Tliat is true. . ^v, v, v. i «.i :Mr HiLi Mr. INIayo, it is obvious from the questions that have been asked this morning that this committee Is very much interested in section 17. Mr. Mayo. Yes, sir. .^^ _ , „„, i< Mr Hill. I think when you appeared before the committee on February 34 vou made a very clear statement of that subject, and I want to read to you two questions that I then put to you and two answers you then made, and the ques- tion T want to ask vou now is whether you have said anything this morning differing from the answers you then made, or whether Mr. Ford is ready to make any change in the position you then took, and which I understand you ^^^l invite' your attention to page 275 of the testimony in order that you may look at it. T Shall only read two questions and two answers at the bottom oi that page: "Mr. Hii.L. Now, then, that paragraph, iiccording to Mr. Ford's intention, lueitns that after the 100-year period, if it is not arranged that his interests or the successors of his company shall buy the property, he will have a perpetual right to get indefinitely a first lien on power that is producetl there, not to ex- ceed the average amount used annually in the previous 10 years? " Mr. Mayo. He thought he ought to have it, everything else being equal." J^Ir. Hill. That is a very urmsual arrangement; it is one not noticed before. Here is the proposition which he puts up, as I understand it : It does not make any difterence what the ultimate position is, his company has a perpetual first chiim on the plant after the 100-year period; is that not right? Mr. Mayo. Yes, sir. [Reading:] *' Mr. Hill. Do you think it is a proper thing for the United States Govrrn- nient to tie itself up in reference to this plant forever": *' Mr. Mayo. I think so ; I do not see that they can lose anything in doing so. They can always exact of him whatever they could get from anybody else." Mr. Hill. As I understand it, that is Mr. Ford's position. Mr. Mayo. Yes, sir. Mr. Fields. :Mr. Mayo, you and Mr. McKenzie api)arcntly agree that this company could secure, either un
  • r the Federal or State public service laws at that tinie, the rights that it attempts to secure in paragraph 17. If you are cor- rect in that, this paragraph is of no value to the Ford Co., except that it would give it without litigation what it would get by litigation, thereby saving the trouble of going into litigation; that is to get that right either through the Federal or State public service commission at the end of th(» lease; that is, to -ret what it asks for in this paragraph. Mr. Mayo. Yes, sir. Mr. Wukzbach. Mr. Mayo, in line with the questions put to you by Mr. Greene, in reference to a grant in perpetuity involvcKl in this contract, is it not a fact that whenever the Government makes any grant of proi>erty — say land, for instance — that the Government surrenders all control of that property in perpetuity? Mr. Mayo. I think so. Mr. Wukzbach. Without reference to the added vtilne that iliat jaoperty may have at the end of 100 years, or at the end of l.OOo years? Mr. Mayo. Yes, sir. Mr. WuRZBAcH. lender this section 17 the Government retains the right to operate this plant. Mr. Mayo. Yes, sir. Mr. WuRZBACH. And oniy if it elects not to operate the i)lant, but desires to lease or sell the property, the Ford Co., in effect, asks for an equal right to become the purchaser of power sufficient to operate its plants? Mr. Mayo, Yes, sir. Mr. WuRZBACH. At a reasonable rate? Mr. Mayo. Yes, sir. Mr. WURZBACH Suppose that tliis provision was not in the contract at all, at the end of 100 years what other rights would the Government have in addition to the right that they have if they enter into this contract with sec- tion 17 in it? They could either operate the plant or they could sell the prop- erty or lease the property, and if they sold the proiierty they would sell it at a reasonable price, and if they lease it they would lease it on reasonable terms. Mr. Mayo. Yes sir. Mr. Wurzrach. Or if they sold part of the power they would sell it on rea- sonable terms. Mr. I^ayo Yes sir Mr! WURZBACH.' So, in effect, what limitation is there upon the Government in section 17, except to prevent the Ford Co. from not receiving an equal oppor- tunity with anyone else to become a purchaser or contractor with the Govern- ment? Mr.' Mayo. As Mr. Greene brought out, of course they wruhl be tied to one customer. , „ ,.,. Mr. WURZBACH. Suppose they wanted to sell to S(mie other customer? I he conclusive presumption is that they would sell It on reasonable terms. Mr Mayo Yes sir Mr*. WURZBACH. Is not that all that the Ford Co. reserves the right to do under section 17? Mr. Mayo. I think so. .im 986 MUSCLE SHOALS PROPOSITIONS. ^d Mr. WuHZBACH, So, do you see where there would be any real limitation or restriction upon the rights of the Government at the end of the 100 years? Mr. Mayo. I thinli with this reservation in the contract the Government could get as much money out of it, whatever they might do. as though that provision were not there. Mr. WuKzBACH. And it is exceptional from the usual sale of property by the Government or the usual grant by the Government in that the Government is reserving rights it does not usually reserve when it grants land or other prop- erty? Mr. Mayo. Yes, sir. Mr. Greene. Do you see a parallel botween the granting of land by the Gov- ernment fcr occupancy, which is, of course, the tirst necessity in any social order— that is, some place to live — and the granting of a natural power of some kind, stored, like mines, or quarries or water power? Are they analogous? Mr. Mayo. What is the difference? Mr. Greene. A thing can not contain any more than it will hold. Land can only be occupied by a man as a homestead, and the broad purpose is to give him the exclusive right to use it. Water power may be disposed of by many agencies and it is not dependent upon occupancy. Mr. Mayo. I think it is the same. Mr. Greene, Are they embraced in the same class, like tenant holding, or the use of natural powers? Mr. Mayo. Not quite. Mr. Greene. There is quite a difference in the philosophy of their operation, is there not ? Mr. Mayo. There is some difference between an ordinary homestead tenant and a public-property tenant. Mr. Greene. Is it not the fact that the Government has two enactments of law, one for homesteading, and another for the use of water powers, which are provided for by separate acts of Congress, based upon different use? Mr. Mayo. Unfortunately, I am not very conversant with the law in respect Mr. Greene. I do not think the analogy holds. I think there is a different philosophy engaged in their use. Then there is another thing, and that is the question as to where the Gov- ernment would come out at the end of the hundred years ; I do not mean ex- pressed in terms of money : I do not care about that. Mr. Mayo. I know ; you are referring to the principle involved. Mr GreenEa Yes Mr. WUKZBACH. I do not suppose Mr. Greene would make any objection if the Government should undertake to sell this property outright. Still it would be subject to the same conditions if it was a matter of policy. Mr. Mayo. I would like to ask Mr. Greene, if he were the owner of this prop- erty how he would protect his rights at the end of a hundred years? What is your suggestion? Mr. Greene. My suggestion is that any man engaging in a contract with the Government has to weigh between his own mind and — not using the term in a mean sense— his selfish right of the conservation -of the interests of himself and his family and his own necessity, with relation to what he has, as one unit in the great whole to all other units that make up the Government. There is quite a nice balance to start with. The second, perhaps, is that Henry Ford and all of this living generation will have passed into oblivion long before this contract becomes terminated at the end of the 100-year period : that is, such parts of it as do terminate, and the people who will be in the then enjoyment of the property will at that time be in the enjoyment of property thnt has been paid for out of its earnings, and the full amount of its capital stock will have been returned more than once in all probability, and they will have made no original investment and incurred no risk. Mr. McKenzie, Will you permit me to inject this at the end of your question in connection with this matter, Mr. Greene? Of course, there is a very wide distinction recognized now between the disposition of what might be termed natural resources and of property, such as public lands, and that principle, I think, Mr. Greene, has been trying to bring out in connection with that, that the Government heretofore, it might be said in severe criticism, has parted with many of our valuable natural resources and conveyed them to private interests, which, perhaps, was a mistake. MUSCLE SHOALS PROPOSITIONS. 987 Mr. Mayo. I agree with you on that. The way I look at it is this: If the plan is successful, the plant will keep on increasing in size, and at the end of the 100-year period it will be larger than at any other period, hence the neces- sity for safeguarding the power. Where will you be if you do not protect yourself in some manner? You say it has paid for itself. But right at that period there may be many stockholders iii it that are new; they may be new investors and they may not have made any money out of it. Mr. Greene. But they take the same risk that everybody does, because no generation starts even with the i)eople of that generation, knowing the conditions of that generation. The whole philosophy of the English-speaking system is to leave each generation free to settle its own policies. As a business proposition we realize that you have to fix some definite period of time, and we have set upon 50 years as the duration of a water-power project. A century is a long time when we have to consider the future. Mr. Mayo. There is no difference in the principle, as I see it, whether it is 50 years or a hundred years, is there? Mr. Greene. There is no difference in the principle so far as the pure logic is concerned, but so far as physical effects are concerned there may be all the difference in the world. So it is recognized that the term of years is not the recognition of a principle, but is an admitted compromise. Mr. Mayo. There was considerable difference of opinion in regard to the term of 50 years. Mr. Greene. Oh, yes ; but it was an arbitrary compromise ; it was a compro- mise in the lifetime of a living person. The Chairman. The testimony before the committee is to the effect that the Alabama Power Co., and also the Air Nitrates Corporation, believe that they have a bona fide agreement with the War Department officials turning over to them nitrate plant No. 2. It is very evident to me — and I have heard all the testimony — that we are going to have litigation on that proposition ; whether we turn it over to you or whether we give it to either of those other companies, it is going to bring us litigation. We may not be able to deliver over to Mr. Ford the plant as readily as some of the members wouldl like; it may take some years to thrash this thing out in the courts. Do you think that Mr. Ford expects the Government to expend the money in the litigation, or will he bear that expense himself? Mr. Mayo. No, sir ; I do not think he will bear the expense, but he does not think you are going to have any litigation to speak of. The Chairman. Of course, he has not been listening to the testimony that this committee has been listening to, and I am convinced that it is going to result in litigation, so far as I can see, whatever we do. Now, of course. I would like to settle this matter so that the country can begin to get fertilizer as soon as possible, and that the whole question can be settled without delay. Do you not think if Mr. Ford were seen about this provision it is possible that he might come to some conclusion which would avoid the great amount of litigation that evidently might crop out? Now, I say frankly that the judge advocate general has made a firm statement to the Secretary of War. He says that these other agreements are void, that these people have no rights at all. These people also have eminent lawyers, and they have been consulted regarding the rights of the companies during the war, and their coming to the assistance of the Government at the Government's request during the war, doing certain things for the Government which the Government accepted. Do you think we can brush that all aside and expect that the courts will brush it all aside, and that we ought to be compelled to bear any expense growing out of that condition? Do you think that Mr. Ford would be willing to take the thing subject to any possible litigation? Mr. Mayo. I think if Mr. Ford took it subject to litigation there would be no telling where he was " at." The Chairman. Do you think there is any telling where the Government is *' at," if we agree to practically encourage litigation? Mr. Mayo. It is the Government's business ; not his. The Chairman. Of course, this whole thing really is a matter that has come up in comparatively recent months; but I imagine that most Members of Congress, and I am sure, so far as this committee is concerned, we did not know of all these involved situations until we began to take up this very matter. 988 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOAI>S PROPOSITIONS. 989 I Mr. Mayo. I tfiink that Is very true, ami I think it is a good thing that they have all been broufjht to light. The Chairman. I think so myself. Mr. ;Mayo. Of course, Mr. Ford can not buy litigation ; you can never tell vhat the price is. I also think the Judge Advocate General's opinion is worth a great deal. I do not think it is an opinion only. I think it is backed by his consivith only enough i»ower 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. Agriculture in the United States is now in a starved condition f(»r want of nitrogen. With our needs for it increasing at the rate of 7^ per cent a year, our starved condition will be 100 per cent worse at the end of the next 9i years. Indeed, at the end of 100 years our needs for nitrogen will be greater than could be supplied by the whole 1,000,000 horsepower which can and will be developed at Muscle Shoals. The Engstrum proposal provides for operating both the nitrate plants at their full capacity from the beginning, and also provides for the operation of another nitrate plant with the power to be developed at Dam No. 3 ; and, further, for the operation of still other nitrate plants as fast as there is necessity to defvelop more power to produce more nitrogen on this river. In fact, nitrate plant No. 1, instead of being scrapped should be enlarged, as soon as possible, so as to pro- ensive litigation, to say nothing of the threatened litigation from the Air Nitrate Corporation, if the nitrate plants shall be sold instead of leased. Thus there are two basic de- fects in Mr. Ford's offer: (a) It is not a good business proposition on the part of the Government; (6) it defects the purpose of the Government as declureil 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, instead of using all of the same to serve the public welfare. 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. No one can now and probably no one will ever be able to make nitrates at any profit by the cyanamid process. All the testimony before your committee shows that there is not any plan! to-day for the fixation of atmospheric nitrogen which is able to produce it at a figure as low as Chilean nitrates are being sold at the present time, which i^ from $45 to $55 per ton. Therefore, Mr. Ford can not at present make any nitrates at 8 per cent profit, but he can make automobiles with greater profit at Muscle Shoals than he can at Detroit ; here is the " nigger in the woodpile " in his proposal. The Engstrum Co. proposes to run a research plant to develop improved methods for producing cheap nitrates, which will mean cheaper fertilizers. I submit that vastly greater results can be expected from a research plant oper- ated 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. Under the proposal of Mr. Ford there will not be produced at Muscle Shoals any more nitrates at the end of 100 years than will be produced the first year of the lease. There will be little purpose in operat Ing an eflicient research plant when the Haber process has been discarded and in the face of a declared purpose never to increase the output of nitrates. Th(^ MUSCLE SHOALS PROPOSITIONS. 993 fact IS, tliere is not a reasonable giound for even a hope that Mr. Ford will ever develop any improved process for making nitrates at less than present prices. The selling price of tlie Chilean product varies greatlv and without any apparent canse^ The j.rice is largely arbitrary and is based apparently on what the traffic will hear." Nitrogen is the most important and the most expensive ingredient of commercial fertilizer; therefore it is of first importance to the success c.f agriculture and to assure a lower cost of living to the con- sumers rhat nitrogen should be furnished much cheaper. Indeed, the food sup- ply of the world is threatened l^y the scarcity of nitrogen. Besides, the only possible* way to st(»p tlie growing migration from the farms to the cities i.s to make agricnltnre more profitable, and this can not be done except by a sufficient .supr)ly of cheap fertilizers. In this connection it is important to keep in m?nc present. I understand that our colleague, Mr. Bankhead of Alabama, is present and desires to make a statement. Mr. Bankhead. Mr. Chairman, by an arrangement I had with the chairman of the committee, he very kindly consented that the Alabama delegation might have an opportunity to present briefly our position on this question, and it has been agreed that there shall be three short addresses made, and Mr. Oliver will make the first statement, followed by Judge Almon. and I shall make a very brief con- cluding statement. Ml-. ]McKknzie. Just as you wish, Mr. Bankhead. STATEMENT OF HON. WILLIAM B. OLIVER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA. Mr. Oliver. Mr. Chairman, the Alabama delegation has received a letter from Hon. B. M. Allen, of Birmingham, Ala., who presided at a large mass meeting in Montgomery on Wednesday last, at which certain resolutions were adopted, and he has requested that the resolutions be read to the committee, and I desire to now read them. They are very complete and Informing, and set forth In a forceful, proper, and accurate way the attitude of the people of Alabama on the subject to which the resolutions relate. Mkmobial to the President and Congress of the United States and the (Committees of Congress, AiK)i-rED By the State- Wide Mass Meeting Held in the City Avditortum at Montgomery on Wednesday, I^Iarch 1, 1922. We. citizens of Alabama. 5.(KX) strong, representing county governments. iuunicii>al authorities, women's clubs, labor biMlies, chambers of commerce, civic l)odies. and farmers' organizations from every quarter of the State, in' mass meeting assembled at Montgomery, with full confidence in both the justice and wisdom of the President and C-ongress, do hei-eby declare: That while the entire Muscle Shoals stretch of the Tennessee River lies within the l»orders of this State, the right to control and regulate the river in the interest of the Nation's conunerce has been ceoration, is in position to litigate with any American-ownwl organization which may seek to develop any one of Alabama's wasting water powers, just as it now threatens to litigate with Henry Ford, or with the Covernment. if MUSCLE SHOALS PROPOSinOXS. 995 either seeks to build Dam No. 3 at Muscle Shoals, or to control the Govern- nient-built steam plant and transmission line at Gorgas : that in spite of the fact that this foreign-owned corporation has long enjoyed exemption from taxatMMi in this State, It has been busy ever since its entrance into Alabama in preeiiii)ting every great power site within our borders, and in so copper rivet- ing its hold on all ot Alabama's great hydroelectric potentiaLties as to prevent for all time their development by any possible competitor: that it has been Its policy to buy these power nites at farm-land prices and to hold them in perpetuity as power sites; that it already controls the utilities in our principal cities and is year by year .securing the control of the utilities in our towns and villages: and that if it secures Muscle Shoals it will have perfected its con- trol of all of our gi-eat water powers and will hold in its selfish grasp all of these instrumentalities, placed within our borders by a beneflcient providence for the promotion of the commercial and Industrial welfare (»f all the peoi>le We hold that it would be a travesty on legislation if, after manv years of congressional consideration of how best to conserve the power in our navigable streams for the benefit of all the people and how most surely to preserve them from being used as instalments of monopoly, the Nation's greatest water i>ower should be handed over to the Alabama Power Co. under the natily, the opening of a great river to navigation, and the security of the country in the event of war, we urge the President and the Congress of the United States to accept the offer of Henry Ford, whom we verily believe seeks through his offer to dedicate to the American people and esi>ecially to the farmers of America his genius and his fortune. We indorse the sentiment "America first" and Muscle Shoals first for Americans, and above all, for American farmers. Heni*y Ford is a typical American, who by his genius has done more for country people and* countrj' life than any other man of his time. A man who has the trust and confidence of the great masses of the common people, as evidenced by the resolutions adopted by every gathering of plain, ordinary Americans, including the repre- sentatives of 4,000,000 farmers, who have given voice to their sentiments in regard to his proposal for the development of Muscle Shoals. We believe the issue in Congress is clearly drawn. It is a contest between the people and the interests which control the people's fertilizer and iwwer re- sources. On behalf of the army of the unemployed, in the interest of the great body of plain American citizens, in the name of millions of perplexed and burdened farmers, we beg our President and the Congress of the Unite*! States and its committees to promptly accept the offer of Henry Ford. J. L. Andrews. Francis Pattkiison Walker. j. j. buffington. H. C. Rankin. Edw. a. O'Neal. s. p. mcdonai.ii. Chas. L. Harold. Edward Doty. This )>'siilution was unanimously adopted. B. M. Allen. Chairman. C. E. Johnson, Srcrffanj. March 1, 1922. This resolution, I feel, represents the overwhelming sentiment of the people of Alabama. The statement by Governor Ta.vlor before this conmiittee is evi- dence that it represents the sentiment of the people of Tennessee. The unani- mous indorsement of the Ford offer by our colleagues from the sister States of Mississippi, Louisiana, Georgia, the Oarolinas, Florida. Arkansiis, and Texas show that it represents the sentiment of these States. Allusion has been made to its strong indorsement by every farm organization in the country. South. East, West, and North. Likewise, you have before you a most inform- ing statement by the vice president of the Mississippi Water Valley Associa- tion, in which without reservation he states that it represents the sentiment of the many States includetl in that great organization. MUSCLE SHOALS PROPOSITIONS. 997 It is interesting, when we come to consider the proposal before you, to note that this was a project which Congress determined on prior to the war, to be primarily devoted to the Nation's use in war and to the farmers' use in peace ; and it is not surprising that the farmers, for whom it was built and con- structed to serve in peacetime, should now manifest great interest in the offer of one who, being possessed of financial ability and wiio enjoys their confi- dence, is willing to develop it along the lines that Congress declared should be its mission in peace. The President, in recognition of the importance of agriculture, perhaps may have had this as well as other projects in mind in that remarkable address which he delivered on January 23 to the gathering of farmers in the city of Washington, and I beg to invite your attention to some striking excerpts from that address showing the present condition of agriculture and the importance, as recognized by the President, of taking definite action along constructive lines at this time: " If agriculture is to hold its high place there nmst be the most liberal policy in extending its opportunity. *' There must be a new conception of the farmer's place in our social and economic scheme. " I choose to call the vocation of the farmer the most useful, and it ought to be made one of the most attractive, among all lines of human effort. " Concerning the grim reality of the present crisis in agriculture, there can be no differences of opinion among informed people. " You men are thoroughly familiar with the distressing details of present comlitions in the agricultural community. The whole country has an acute concern with the conditions and the problems which you are met to consider. It is a truly national interest and not entitled to be regarded as primarily the concern of either a class or a section. " There is every reason for us to consider those permanent modifications of policy which may make relief permanent, may secure agriculture, so far us possible, against the danger that such conditions will arise again and place it as an industry in the firmest and most assured position for the future. ** Up to this time railroad coMstruction, financing, and operation have been unscientific apd devoid of proper consideration for the wider concerns of the community. To say this is simply to admit a fact which applies to practically every railroad system in the world. It is equally applicable to the railways of continental Europe, in whose development considerations of political and mili- tary availability have too far overweighed economic usefulness. In America we have too long neglected our waterways. We need a practical development of water resources for both transportation and power. Waterway improve- ment represents not only the possibility of expanding our transportation sys- tem, but also of producing hydroelectric power for its operation and for the activities of widely diffused industry." This was a pleasing statement of what Congress in 1916 had the vision to see, and to seek, by the national defense act, to make some helpful provision for. ' Is it surprising, then, when the war was over and the proclamation of peace issued, that the farmers should take account of the fact that here at Muscle Shoals is a plant, built with Government money, pursuant to the directions of Congress, as contained in this 1916 act, now practically complete and ready to serve the purpose which Congress intended. It has its power plant at Gorgas. on the Warrior, its transmission line from there to the nitrate plant, all built with Government money. There is now needed only an expenditure of some ten or twelve million dollars which Mr. Ford offers to supply to put Nitrate Plant No. 2 in condition where it will be prepareil, from current supplied by the Gorgas steam plant, to begin the manufacture of fertilizers for the farmers. The farmers look upon it as their property, because Congress dedicated it to their use in the national e done with the Ford offer, because it might involve a litigation of some three or four years, or something of that sort. Now. they doubtless have drawn a wrong inference from an interview with Mr. Kahn. I recognize he may feel that there is a legal question involved Mr. Kearns, Would it not involve some three or four years of litigation? Mr. OLIVF31. I think not, Mr. Kearns. I think if the committee should recommend to Congress the acrceptance of the offer, and Congress should by vote accept the offer and direct the condemnation of the Gorgas plant and the transmission line, you W(mld see Mr. Ford in full control of it and operating nitrate i>lant No. 2 and turning out fertilizer in less than 15 months. Mr. Fishek, That matter was suggested when you were before the com- mittee and I asked you the question as to whether or not we could direct condemnation proceedings without first appropriating an amount of money to cover the cost of the land. Mr. Olh^r. Yes. Mr. Fisher. That question you were not certain about, and the matter is being investigated right now. Are you now prepared to state whether it is legal to proceed with a condemnation suit for the Gorgas plant — that property which the Government does not own there — without appropriating first some sum of money to cover the cost of the land? Mr. Oliver. I think you would have to appropriate some sum of money. Mr. Fisher. That was just the question, and I ask you how much you thought ought to be appropriated. Mr. Oliver. In the case whi<5h Mr. Dent read to the committee the other day, and which seems to be an authority for every proposition I have assenteil in this case as to the Government's right to condemn, there is discussed that very point, and it is held that even though the amount appropriated was ascer- tained afterwards to be insufficient such fact is not fatal; so if you appropriated some reasonable amount and ordered condemnation, the condemnation pro- ceedings could lie begun at once. That very case answej-s fully the question, Mr. Fisher, I think. !VIr. Fisher. You recommend, then, without any consideration of the state- ment from the Secretary of War — and every officer, who had anything to do with the contract with the Alabama Power Co. — that we proceed to condemn without making any offer to settle the matter amicably prior to that time? Mr. Oliver. No : I have not said that. I simply said that stmie of these re- ports had created the impression that the negotiations, perhaps, ought to be made by Mr. Ford or his representatives : and that, so long as the Power Co. feels — from certain reported interviews — that the committee thinks the contract that they set up will prevent any action being taken, you can well understand how independent the Power Co. will continue to feel ; and that is why 1 wanted to call the attention of the committee to the reports. i A i 1000 MUSCLE SHOALS PROPOSITIONS. Mr. Fisher. I wonder if you are aware of the evidence whicli has been in- troduml before the committee about the intention of the War Department and the evidence of the officers, who handled the matter for the Government and* who stated that it was the intention, wlien they drew that contract, that the Alabama Power Co. was to buy the plant as a going concern and not as a salvaged concern? Mr. Oliver. I'nquestionably. Mr. Fisher. With that thought in mind, the Secretary thinlvs, and the other officers thmk, it is a moral obligation. Now, do you think we ought now as a wmmittee, to enter into negotiations for an amicable settlement with the Ala- bama Power Co. or do you think we ought to just order that direct condemna- tion proceedings be instituted? Mr. Oi^TCR. I am very glad you ask the question, because it suggests to me that It IS proper at this time to call your attention to the fact that it is but natural that some of the Ordnance officers in the War Department may feel very friendly to the claims and insistence of the Alabama Power Co., because unfortunately, it was through them or some emergency officers in their bureau* that the Government was imposed upon in this contract? You gentlemen will recHll how, witliout defense from any one, when this matter was before Con- gress last year, :Mr. Graham, of Illinois, and others, condemned not onlv the Alabama Power Co. but also the officers of the Ordnam-e Department for* their conduct in reference to this very contract? Read the speech of Senator Len- root, in the Senate, and read the remarks of Senator Borah in reference thereto in which he. after Senator Lenroot had explained to the Senate the character of the contract entered into by Ordnance officers with the Alabama Power Co very properly inquired: "And are those officers still with the Government? " Mr. Fisher. May I ask whether or not anything was done as a result of that investigation and condemnation toward straightening out the Government'*? rights at Gorgas? Mr. Oliver. I do not think anything has been done: but I feel sure Mr. Fisher (interposing). Any resolutions introduced? Mr. Oliver. I think this committee will take action when thev come to pass finally on this matter, and will u- ceive of any institution in the world, or can you conceive of the United States, 4?xcept in the extremity of war, making such a contract? "And I am afraid, Mr. Martin, that I am forced to believe that you took. advantage of the Government in its extremity of war." And fuithor: "And I say, sir, that it looks to me as if the Alabama Power Co. had in- geniously interwoven the Government's interest along with yours to such an extent that they never could be segregated and that you would be the only man that could become the purchaser." Further : " It is ijla'n that they got the power and I see the end of the horn the (Jov- f'rnment is coming out :n thing thing, too, notwithstanding the great patriotism that you suggested to the committee his morning, Mr. Martin." And. Mr. Miller was but voicing the sentiment of Congress, as we understood it, and as it was expressed on the floor of both the Housti and the Senate last year. That is wh.^ 1 say that we, and I know the committee do not want the public to have the impression that the committee is having great trouble in even giving further consideration to the Ford offer, so long as the Alabama Power Co. stands up and threatens the Government with a lawsut. Mr. Kf:arns. Mr. Oliver, this c(mtract does not differ from thousands of ■other contracts made with the Government, does it? Mr. Oliver. I do not think you will tind any other contract like this, for this reason, Mr, Kearns: Here was a selection of the site of a natonal pro.iect at Muscle Shoals Mr. Kearns (interposing). I untlerstaiid that, but my point is Mr. Oliver (continuing). And the very comimny that Congress, in the act of 3916 had served this notice on, "the Government does not want you and will have nothing to do with you in building its nitrate idants," — the Alabama Power Co.. was responsible for the proviso that was put in section 124 of the National Defense Act of 1916. Yet, with that in mind, we find them in con- junction with some emergency officers, or perhai)s some regular officers of the Ordnance Department, making an agreement look'ng to the acquirement of large expenditures by the Government, for what purpose? Expenditures looking to the supplying of power to this Muscle Shoals project, which in I>eace and in war. was to be devoted to a public purpose. I say that .vou will find no contract during all the war, where a party, served with notice as was the Alabama Power Co. in 1916. seeking in a selfish wa.v, as indicated in the questions by this connnittee to the president of that company, to have the Gov- ernment's money so expended at its plant and on its property that it could iiev<»r be separateeration of a great national project can acquire it. We are not helpless, and it would be an in- justice to Congress and to this committee, to have the impression go out that any Member of Congress or any committee of Congress felt that the claims of the Alabama Power Co., made under a contract, characterized by every member that ever discussed it, as unconscionable, overbearing, and void, couhl prevent tlie consideration of an offer for the plant, and I do not believe it will. :Mr. Stoll. Is the fraud that vitiates the contract apparent on its face? Mr. Olrer. I think section 22 answers it. TTiat section is a complete answer to the claim of the Alabama Power Co. that any one had authority on the part of the Government from Congi*ess to bind the Government in the alleged sale of the plant at Gorgas. I think ymi, Mr. Stoll. very clearly, by your questions to Mr. Dent, the attorney of the company, demonstrated that point beyond question. Now, gentlemen, I had not intended taking up this much time, and in con- clusion I simply wish to say I recognize that this is a matter of vast importnnce 1002 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOx\LS PROPOSITIONS. 1003 i to the Nation. T question whether yon am fina any question ineasni-inj? up to It m miportance from the farmers' standpoint that has heen presented to Con- gress since the war. Fortunately it is a question that in no sense concerns alone any section. It m no sense has ever at any time been considered as parti- san, and I know tiiat in approaching: the rightful solution of this problem and m seeking to provide for the future operation of this plant, in accordance with the direction of Congress, as expressed in the 1916 national defense act this committee will tind a way whereby it can be Iveneticiallv used to serve those tor whom it was primarily intended to serve in times of peace. STATEMENT OF HON. EDWARD B. ALMON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA. ,,/^^y-/^^%^^^'^'- ^^^'- Chairman and gentlemen of the connnittee, during the recent AV orld \\ ar the Government constructed at ]Muscle KShoals, in the Tennesset- Kiver, in Northern Albania, two nitrate i)lants, known asts'o.*}. 1 and •' for the fixation of atmospheric nitrogen to be used for the manufacture of explosives for war purposes and fertilizer in peace times. The war-time cost of these plants amounted to a total of $85,423,078.73, including the Oorgas steam plant and the A\aco rock quarrj-, which is about twice the amount of cost of con- struction in normal peace times. In addition to this, about .$17,000 000 has been expen Plant No. 1 was an experimental plant. Certain parts of it were not a success. The War Department, has decided not to ask Congress for the large amount of money that would l>e necessary to make it a success but has ivcom- mejided that it be salvaged. The large plant. No. 2, at Muscle Shoals uses the cyanamid process of the American Cyanamid Co. The cyanamid process for the fixation of atmospheric nitrogen is one of the oldest and best. It is being used extensively and .suc- cessfully in the European countries, and was during and before the World War. Plant No. 2 was built in about eight months, being completed just as the war ended. It is 100 per cent in quantity and qualitv of production con- tracted for, viz, 110,000 tons ammonium nitrate annually, as has been demon- strated by a number of Government tests. Both plants are now being kept in a stand-by condition. The development at Muscle Shoals is not local ; it is a great national project and is nation-wide in the uses for which it was intended. This development as planned in the Ford ofTer, will be of great benefit to the entire countrv*^ Muscle Shoals was selected for this development on account of its natural advantages, namely, within the safety zone prescribed bv the military authori- ties ; the greatest water power east of the Mississippi River ; in close proximity to the phosphate beds, coal, coke, limestone rock, and all other raw materials in inexhaustible quantities needed in the manufacture of munitiendi- ture. In order to secure this information the Secretary of War requesteil the Chief of Engiii€?ers of the War Department to ascertain from water-power companies and others who might be interested in using a large amount of water power if they would be interested in taking the power if the years, aiul (2) to purchase the nitrate plants ami accessories. PART 1 — OFFER TO l.KASE THE DAMS. Provimona of offer. 1. Mr. Ford a;?rees to pay $5.j.000 annually for the niaintt^nince of dams, locks, etc., making a total payment in 100 years of $5. 500, 000 2. He agrees to pay interest at 4 per cent on whatever the cost may he for completing hoth dams. If this amounts to $42,000,000 (the estimate of Mr. Ford's engineers), the total in 100 years under Mr. Ford's plan of payments will amount to 161,040. 000 3. He agrees to a plan of amortization sufficient to retire S49.000.000 in 100 years ____ 49,000,000 Total payments to the Government under Ford offer during 100-year-lease period 2ir», 540, 000 Cost of dams (expended and proposed). There has been expended to date in building Dam No. 2, about 27 000 000 Cost of completing Dam No. 2 I__IIII ,$23^000, 000 Cost of building Dam No. 3 17, 000, 000 40,000,000 Total Government investment in Muscle Shoals dams and hydroelectric plants will amount to a total of 57,000,000 "Oiarges to navigation: Deducting the Jt;49,000.00ose for which the plant was originally planned. The Govern- ment, therefore, retains every advantage of the nitrate plant in time of war, but pays nothing for the maintenance of the nitrate property in times of peace. Salvage to Government from war-time investments compared with Ford offer. MUSCLE SHOALS PKOPOSITIONS. 1005 Government property sold: Muscle Shoals nitrate plants Old Hickory powder plant Wooden ships, United States Shipping Board each. . Cost of property. $85,423,078.73 80,000,000.00 800,000.00 Salvage received. 15,000,000.00 3,500,000.00 5,000.00 Per cent of cost salvaged. 5.85 4.28 0.63 " On the basis of the price leceived for the wooden ships that were sold, ^Ir. Ford would have offered only $567,0ower houses and equipment at his own exi)ense ; to pay the Government $55,000 annually for the upkeep of the dams and locks which will save the Government the expense of maintaining the present imperfect facili- ties for navigation at Muscle Shoals, amounting to from $35,000 to $85,000 per annum ; also to pay as an annual rental 4 per cent on the actual cost of the completion of the dams; and in addition to all this, create a sinking fund by paying to the Government $46,746 annually, which, if invested by the Govern- ment at 4 per cent interest, would amount to $49,071,035 at the end of the lease ; if invested at 4J per cent would amount to $58,570,003. The Secretary of War, in his report to Congress discussing this part of the Ford offer (H. Doc. 167, p. 7), made the following statement: " Should the dams be constructed at a cost of not to exceed $42,000,000, as estimated by Mr. Ford's engineers, there would be left to apply on the invest- ment of the Government heretofore made whatever the amortization payments would produce in excess of the $42,000,000. If the amortization fund should be invested continuously at 4 per cent there would be at least $7,000,000 to be thus applied, but should it be invested at a greater rate of interest the amount would bt; increased as shown by the following table : " Amount retired hy Mr. Ford's sinking fund at various rates of interest, com- pounded semiannually. Account of— Semi-, annual pay- ments. Life of fimd (years). 94 97 Amount retired at following interest rates: • 4 per cent. $40,919,798 8.152,137 4^ per cent. $48,783,949 9,786,054 4^ per c«it. $58,319,350 11.780.600 5 per cent; 6 per cent. Dam No. 2 Dam No, 3 $19,S68 3,5()5 $83,718,097 17,150,545 $176,030,810 37,103,880 Total 49,071,935 58,570,003 70,100,049 100,868,642 213,134,600 Note.— Payments are to be made into sinking fund semiannually at the beginning of each semiannual interest period. This sinking (or retirement) fund has notliing to do with Mr. Ford's interest payments, but represents a separate fund to be invested at the liighest interest rate obtainable for the purpose of returning to the Government within the lease period the largest amount possible, with the above semi- annual payments, consistent with safe investment. The Secretary of War found no fault with this part of the Ford offer, nor do I remember to have heaitl of any criticism of it by any member of this committee. A group of i>owerful interests is tloodng Congress and the country with all kinds of propaganda filled with fals(» and misleading statements about Mr. Ford's plans and purposes. One very elaborate publication was issued pur- porting to tell the trutli about Muscle Shoals, and a large part of it was an attempt to sliow that Mr. Ford would devote the Muscle Shoals plant to the manufsicture of sulphate of ammonia, and this product would have but little effect upon the cost of fertilizer. Mr. Ford does not intend to produce sulphate of ammonia as a nitrogen fertilizer compound. He will, of course, produce an)monia by the air nitrogen fixation process and mix ammonia with phosphoric jMMd. produced electrically from phosphate rock obtained nearby, thus making jimmonia phosphate. Tlie sjinre publication states the cost of completing Dam No. 2 would be .«<.",:i.f»0(>,0()f>. and of Dam No. 3, $24,000,000, or $57,000,000 for the completion of the dams. The facts are that e.xperienced and responsible c*on tractors have offered to complete Dam No. 2 for $23,000,000 and build Dam No. 3 for $17,000,000, making a total of $40,000,000 for both. The estimate of Mr. Ford's engineers is $42,000,000. The outside estimates of the engineers of the War Department is about $48,000,000, and they admit that it may be considerably less. Mr. Ford, according to his offer, is to construct the danrs under the direction of the Chief of Engineers of the War Department. It will be to his interest to do it as cheaply as he can, as he is to pay an annual rental of 4 per cent on wliat it costs. Some of those who are opposing the Ford offer have criticized the 4 per cent on what it costs to complete the dams as annual rental for the water power. To show that there is no cause for such criticism I submit the following table of Government loans now outstanding in the shape of bond issues : Per cent. Consols, 1930, $500,724,050 _' 2 Panamas, 1916-1936, $48,954,180 i! Panamas, 1918-1938, $25,947,400 2 Panamas, 1961, $50,000,000 3 Postal savings, $11,774,020 2A Conversion, 1946-1947, $28,894,500 3' "War issues * Liberty, 1932-1947, $1,410,074.050 3| Liberty, 1932-1947, $15,130.900 4 Liberty, 1927-1947, $66,362,800 1 4 Victory, 1923, $497,915,100 3J From the above table it will be seen that bond issues prior to the recent war issues were on a basis of from 2 to 3 per cent, and the average waib under 2i per cent. It also shows that a number of war issues were at 4 per cent and less. It was only toward the end of the war and in the most serious stress of the war that some bonds were issued at a rate of 4i to 4 J per cent. 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. 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 intei*est paid by the Ford Co. as rental for 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. There has been some criticism of that part of the Ford offer which provides for a lease of the water power for 100 years. Practically all of the water- power developments up to this time provide for a 99-year lease period. The criticism of this feature of the offer seems to be due to a provision in the general water-power law approved June 10, 1920, which provides for 50-year leases with rights of renewal. There should be no objection to the Ford offer on account of the 100-year lease period ; first, for the reason that the dams at Muscle Shoals were approved by the War Department and work commenced on the construction of one of them before the enactment of the general water-power law; second, because the de- velopment at Muscle Shoals is in a class to itself. There is nothing else like it. Besides the dams are being built by the Government and will be the property of the Government, and not a lessee. There is a fall of 134 feet in 36i miles. The fiow of the river is 72,000 second- feet at low water and 499,000 second feet at high water. The Wilson Dam is to be 100 feet high and 4,425 feet long; Dam No. 3, 14 miles up the river, is to be 40 feet high and 6,725 feet in length ; the two together developing about . 800.000 horsepower — more than has ever been developed at any one place in the world. There is a present market for ,only a small part of this power. It will re- quired a number of years to secure a market for it all. Mr. Ford is not willing to take over this water power under a lease for less than 100 years. He claims than on accounts of the heavy expenses and the time required to provide a use and market for this power that a lease for less than that length of time would be unreasonable. 92900—22 64 I [ 1008 MUSCLE SHOALS PROPOSITIONS. ill'. Oenera^ Beach, Chief of Eujrineers of the War Department, told you that he thought l()(>-year lease in this case was proper and rejisonahle and gave his reasons. Many others are of the same opinion. The Government and taxpayers are fully protected during the entire period of the lease, so tliere is no valid ob- jection to the 100-year lease. The chairman of this committee, after hearing this feature of the lease dis- cussed by a number of witnesses, announced in an open meeting of the com- mittee that he saw no objection to the 100-year lease period in the Ford offer. The fact that the general water-power law provides for a 50-year lease, with rights of renewal, is no reason why this lease should not be for 100 years, for the reasons I have stated. The general water-power law, as we all know, was a compromise measure in many respects and has been very disappointing in results, as there has been but little water-power development since that time. There were great differ- ences of opinion among the Members of both Houses of Congress as to what the lease period should be. A gi*eat many favored a 100-year lease period. Someone has suggested that section 17 of the Ford offer might have the effect of giving the Ford Co., its successors or assigns, a perpetual right to at least a part of the power from these dams. To show that such is not the case I refer you to that section, which is as follows : " 17. In order that said company may be supplied with electric power and the farmers with fertilizers after the termination of the said, 100-year leases, should the United States elect not to operate said power plants but determine to lease or dispose of s^me, the company shall have the preferrecl right to negotiate with the United States for such lease or purchase and upon such terms as may then be agreed upon. If the said leases are not renewed or the property covered thereby is not sold to said company, its successors or assigns, any operation or disposal thereof shall not deprive the company, its successors or assigns, of the right to be supplied with electric power at reasonable rates and in amount equal to its needs, but not in excess of the average amount used by it annually during the previous 10 years." Secretary of War Weeks made no objection to this section and does not construe it as has been suggested. Secretary Weeks has this to say about that section (House Doc. No. 167, p. 8) : " This paragraph does not bind the United States to a renewal of the lease and is in no way an attempt to control the policy of Congress beyond the 100- year period of the present lease, except to preserve to Mr. Ford's company * the preferred right to negotiate with the United States for such lease or purchase and upon such terms as may then be agreed upon.' It also attempts to preserve for the company a right to be supplied with electric power for a period not stated, ' at reasonable rates ' in the event the power plants are operated or dis- posed of to some one other than the company." If the plants of the Ford Co.. or its successors or its assigns, depending upon this power, should be denied the necessary power for operation at the end of the lease it would amount to a confiscation of their plants. The provision is reasonable and proper. The building of these dams as provided in the Ford offer will not only de- velop this great water power w^hich has been going to waste for all time, but will open up cheap water transportation on the upper Tennessee River, which runs through a vast area rich in great deposits of coal, iron ore, marble, slate, phosphate rock, zinc, and immense forests of hardwood timber, all of which is needeil in other parts of the country. With this cheap water transportation all these materials which are now locked up for want of transportation facilities can be transported in the Ohio River, thence into the Mississippi River, and to all the markets, both domestic and foreign. The Air Nitrates Coi-poration, a subsidiary of the American Cyanamide Co., with a capital stock of $1,000, constructed nitrate plant No. 2 at *a cost of nearly $70,000,000 on a cost-plus percentage contract and collected a fee of $1,500,000 in addition. This company claims that it has a right to purchase nitrate plant No. 2 under its contract with the Government. There was no authority for the execution of a contract by the Secretary of War, or any other official, at the time of the execution of the contract, December 1, 1917, obligating the Government to sell this plant to the Air Nitrates Corporation and that part of the contract is null and void. No one has furnished the committee with any authority to support such a contention. A representative of this company did appear before this committee and claim that his company had a moral, if not a legal, right to purchase plant No. 2. The nature of the contract and MUSCLE SHOALS PROPOSITIONS. 1009 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. This representative also stated that his company did not care to buy the plant and in addition was not financially able to purchase it. So this so-called "option to purchase " in no way interferes with the acceptance of the Ford offer. The Judge Advocate General of the War Department, after a careful con- sideration of this question, rendered an opinion declaring this option void, and that in his opinion there was not even a moral obligation on the part of the Government to sell the plant to the Air Nitrates Corporation. The Alabama Power Co. also claims an option to purchase the Gorgas plant and transniis.sion line from Gorgas. Ala., to Muscle Shoals. The .ludge Advo- cate General has also decided that this is void. Attorneys for the Alabama Power Co. and my colleague, Mr. Oliver, have discussed at length every feature of the contract and transactions between the Government and the Alabama Power Co. in connection with the Gorgas plant and transmission line from Gorgas to Muscle Shoals, and I deem it unnecessary to undertake to add any- thing to what has been said. I take for granted that you will act upon the opinion of the Judge Advocate General. T hoi)e that I have shown that the afcei)tanei' of thp Ford offer will not cost the Government anything in the end. But. even if it should lose some inlnrewt during the construction |)orio(1, in making provis'on for the manu- facture er cent of our population live on farms. The annual value of crops and live stock amount to from eleven to twenty -five billion dollars. Agriculture has an investment of $80,000,000,000, the largest investment by far of anv other business. The next largest business is railroads, with' an investment of $20,000,000,000. The shrinkage in value of the crops of 1920 amounted to $8,000,000,000. from which the farmers have not yet recovered. In the face of this condition of the American farmer, the price of Chilean nitrate has advanced $17 per ton within the last 30 days, with further increases threatened. The fertilizer known as 8-3-3 MUSCLE SHOALS PROPOSITIONS. 1011 has advanced from $26 a ton to $31 a ton, and the indications are that it will go to $36 in a short time. The National Fertilizer Association opposes the Ford offer. It has flooded Members of Congress with literature in which it is contended : First that the Ford Co. can not make fertilizer at Muscle Shoals ; and, second, that it can not make it cheaper than it is now being sold. The president of this association appeared before this committee and made the same claim. If this be true, why should they be so concerned about the Ford offer? It is verv apparent that they believe that Ford can make fertilizer cheaper and that it will materially affect their business. This same representative of the National Fertilizer Association contended before this connnittee that a monopoly of water-power interests was in the interest of the people. The Secretary of War, in his rei)ort to Congress on the Ford offer, made this very significant and pertinent statement : " In this time, when there is a large amount of unemployment, it is not w itliout importance to consider the advanta^s to the Nation of the employment of the large amount of labor required in undertaking this development. I therefore urge that Congress give early consideration to this matter, not only to settle a contraverted question but to furnish employment on a large scale." Mr. Ford intends, if his offer is accepted, to begin work inunediately and give employment to thousands of people who are now unable to secure employ- ment. Mr. Ford's personal representative, Mr, W. B. Mayo, said to you one day last week that Mr. Ford wanted to get in on the work at Muscle Shoals this summer while the weather is good and the river is low and before there is further damage to the unfinished dam and machinery and equipment at the dam. He claims that the development of his company will eventually result in giving employment to 1,000,000 people. This, with an average of 5 to the family, would mean 5,000,000 people employed and supi)Oi-ted as a direct result of this development. Can anyone doubt for a moment that Mr. Ford, with his immense capital, organizaticn, and wonderful record of efficiency, will not make a success of this undertaking? Would not the American people regard it as a national crime to reject the Ford offer and prevent this development, which ^Vould be nation- wide in its beneficial effects? Mr. Greene. Mr. Almon, do you want to leave in the record your deliberate suggestion that the rejection of the Ford offer would be regarded as a national crime? Mr. Almon. Well, if it is thought that expression is too strong I will say, " Would not the American people regard it as a national calamity? '* The acceptance of the Ford offer would not only result in giving employ- ment to labor on a large scale, provide for better and cheaper fertilizer, and im- provement to navigation, but that part of the country within a radius of 200 miles and probably more, and all intervening points would be supplied with cheap power for all purposes. It also means the investment by the Ford Co. of forty or fifty millions of dol- lars in equipping the nitrate plant for the manufacture of fertilizer and the establishment of other industrial plants. It is claimed by some that Mr. Ford can not make a success of the fertilizer business at Muscle Shoals ; Mr, Thomas A. Edison, after visiting Muscle Shoals and making full investigation, said he considered that it was a practical thing to make fertilizer at Muscle Shoals; that there is nothing complex about it. Is not his opinion worth something? Many said that Mr. Ford could not make cheap automobiles, trucks, and tractors in competition with those engaged in the business when he commenced, but in this they were mistaken. Last year the Ford Co. turned out 1,013,958 passenger automobiles and trucks, and is now selling an automobile, a tractor, and a truck for $1,150, and claims that he will be able to reduce to $1,000 if his offer for Muscle Shoals is accepted. The success of Henry Ford is the marvel of the century when we realize what he has accomplished was in spite of the powerful opposition, fighting a single- handed battle. The great masses of the people of the Nation not only indorse his offer but have implicit faith in his ability to carry out the big plans he has in view if he gets Muscle Shoals. One of the chief causes of his success is because he is willing to help his fellow man. No one ever hears of friction between capital and labor in the great manufacturing plants of the Ford Motor Co. 1012 MUSCLE SHOALS PROPOSITIONS. Henry Ford believes in high wages and low price of product. On that basis he has been a wonderful success. In this respect he is very ditTerent to many of the leaders of financial power in this country. The Ford otfer has the hearty and unanimous indorsement of every farm i>rK«nization and farm newspaper in this country, and their i*epresentatlves have appeared before this committee and earnestly urged its acceptance. They are equally as unanimous and unitetl in their opposition to the offer of the Alabama Power Co. This is but natural, as it makes no provision for the manufacture of fertilizer at Muscle Shoals. The representatives of these farm organizations have visited Muscle Shoals several times and made a thorough investigation of its possibilities from a f^^rtilzer standpoint and have been unanimous in their report and recommeiuh&:ions in favor of the completion of the development and the operation of the plants. They regard the acceptance of the Ford offer as the only hope of relief from the Chilean nitrate and fer- tilizer monopolies and trusts. The farmers of this country are watching closely the action of Congiess in the matter of t\\% Ford offer and will not be satisfied unless this is done. They are intelligent and fully understand the Ford offer and are confident that if it is accepted that the Ford Co. will revoluti^>nize the fertilizer industry, destroy the monopoly, and give them cheaper and better fertilizer. The Ford offer has the unqualifietl indorsement of the Mississippi Valley Association, an organization composed of strong and successful business men, representing 55 per cent of the population of the United States. The Ford offer was unanimously indorsed by the great farmers' conference which was called by the Secretary of Agi-iculture, Wallace, at the request of President Harding, which was in session in the city of Washington for five days the latter part of January of this year. During the discussion of the Ford offer in that conference only one voice was raised against it, and that was by an oflScial of the American Fertilizer Association. President Harding in addressing the Washington conference of farmers, among other things, made the following significant statement : *' Waterways Jiave been too long neglected in America. We need a practical development of water resources, both for transportation and power. A large share of the railroad tonnage is coal for railway fuel. The experiences of rail way electrification demonstrates the possibility of reducing this cost and in- creasing efficiency. We may begin very soon to consider plans to electrify our pailroads " Soon after this address was delivered by President Harding Mr. Mapothier, president of the Louisville & Nashville Railroad, one of the great railway sys- tems of the country, announced in a speech in Birmingham, Ala., that he was in favor of the Ford offer for Muscle Shoals and if it was accepted by Congress his companv would like to make a trial of electricity in railroad operation on its branch line from Muscle Shoals to Nashville, Tenn., a distance of about 150 miles. The 800,000 horsepower developed at Muscle Shoals would conserve 6,500,000 tons of coal annually. That is, the water power would be equal to the power generated by the use of that much coal. So when the water power is developed in accordance with the Ford offer it will also mean a conservation of coal on a big scale. 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 by Congress. The delegation is equally as strong and united in its opposition to the offer of the Alabama Power Co. and its efforts to defeat the Ford offer. The delegations from a number of other States have also indorsed the Ford oft'er. Business, civic, and commercial organizations in all parts of the country have pa.ssed resolutions urging Congress to accept the Ford offer. I don't recall anything that has ever heretofore attracted such a nation-wide interest and favorable indorsement. Not only farmers, but merchants, bankers, and pro- fessional men have made known to Members of Congress their approval of the Ford offer and their desire that it be accepted. It would sc»em that J)9 per cent of the people in many parts of the country favor the Ford offer. I feel sure this is true in the State of Alabama, which I in part have the honor to represent in the House. I am also sure that the opposition in that State is just as strong against the offer of the Alabama Power Co. and its eleventh- hour effort to defeat the Ford offer and perpetuate its monopoly of the water power of Alabama. MUSCLE SHOALS PROPOSITIONS. 1013 This sentiment for the Ford offer and against that of the Alabama Power Co. has been demonstrated by the people of Alabama and other parts of the country by means of petitions, resolutions, of mass meetings, women clubs, league* of women voters, posts of American Legion, labor organizations, and civic organizations of all kinds urging Congress to adopt the Ford offer and reject that of the Alabama Power Co. These expressions of the people have been filed with this committee with the request that they be carefully con- sidered. There have been mailed to me petitions signed by practically every State, county, and municipal officer in Alabama, the immediate and direct representatives of the people, urging the acceptance of the Ford offer and strongly protesting against that of the Alabama Power Ci*. I will not ask to encumber the printed hearings with all of these petitions, but I do ask that one be inserted in the record — that of Jefferson County, in which the city of Birmingham is situated, the headquarters of the Alabama Power Co. Yassed by a mass meeting held in the city of Birmingham on the 19th of last month, attendeil by 2,0(X) persons — 1.000 niore were turned away for lack of room — indorsing the Ford offer and expressing their unalterable opposition to the offer of the Alabama Power Co. The sentiment of all the people of Alabama was well and very forcefully expressed in a memorial addressed to the President and Congress and commit- tees in Congress adopted by a state-wide mass meeting, 5,000 strong, at Mont- gomery, Ala., on Wednesday. March 1, 1922, which it is agreed shall be inserted in the record. Mr. Chairman and gentlemen, I will now give very briefly my views and some- what of an analysis of the Alabama Power Co.'s offer, and then I will have concluded. The acceptance by Congress of the bid of the A-iabama Power Co. would mean ])ractically a donation by the Government of the large steam power plant at Muscle Shoals— nitrate plant No. 2, which cost $12,326,392; the Gorgfts plant and transmission lines, which cost $4,676,000; and the $17,000,000 which has been expended on the construction of the Wilson Dam, making a total of $34,002,392. The offer is deceptive in that it begins by offering $5,000,000 for the two steam plants and transmission lines, but later provides that the cost of the lock at the Wilson Dam is to be deducted from this amount. One or more of the engineers claim that the lock would cost approximately $4,500,000. Under the offer of the Alabama Power Co. it would build the lock and would have its own methods of bookkeeping, and it could easilv make it cost the full amount of $5,000,000. The $1,000,000 secondary horsepower offered for the operation of nitrate plant No. 2 would not be used by the Government, and the Government would not be able to lease it to anyone who would, for the reason that it would require from $10,000,000 to $15,000,000 working capital and expenditure to convert it into a fertilizer plant. Besides, no one could depend upon this secondary power available for 8 or 10 months in the year with which to operate the plant. The steam plants having been conveyed to the Alabama Power Co., neither the Gov- ernment nor anyone it might designate to operate the plant would have any available power from two to four months when the necessary secondary power was not available. This secondary power would be of value if there were auxiliary steam plants or primary water power available. It would be of value if both of the dams were built and if storage dams were built in the upper Tennessee River and its tributaries, as Mr. Ford proposes to do at his own ex- pense, so as to store the flood waters and let them down during the low stages of the river, and thereby convert secondary into primary power at the Muscle Shoals Dams. It is provided in section 2 of the offer of the Alabama Power Co. that if this secondary power is discontinued by the Government, due to change in the art in the production of fertilizer and munitions, at nitrate plant No. 2, and, for no other reason as the offer is written, that the Alabama Power Co. is to purchase and pay for the same in accordance with a schedule to be set forth in the license. It will be noted that this is to be done in the event the Government 1014 MUSCLE SHOALS PROPOSITTONS. MUSCLE SHOALS PROPOSITIONS. 1015 discontinues its power for the reasons stated above, which might never occur, for the reason that the Government might, and in all probability would, never begin to use it. It will also be noted that the amount to be paid the Govern- ment for it in such an event is to be fixed in accordance with the schedule set forth in the license. This license would be issued by the Federal Power Com- mission, and the schedule of rates fixed thereby would be a matter of agreement between the commission and the Alabama Power Co., so the Government would be at the mercy of the Alabama Power Co., and it would result in the Govern- ment receiving practically nothing for this secondary power. For these reasons I feel that I was justified in saying at the outset that the acceptance of the offer of the Alabama Power Co. means practically a donation by the Government to that company of the two steam plants, transmission lines, and the Wilson Dam, upon which $17,000,000 has been expended, altogether representing a total investment of $34,002,392 by the Government. If the offer of Henry Ford was not in existence I do not believe the com- mittee or Congress would consider for a moment the acceptance of the offer of the Alabama Power Co. In the absence of the Ford offer the committee would evidently recommend the completion of the Wilson Dam by the Govern- ment rather than make this donation to the Alabama Power Co. • The Secretary of War has recommended that the Dam No. 2, known as the Wilson Dam, be completed by the Government in the event the Ford offer is not accepted. He stated that the revenue from the sale of the water power from the Wilson Dam would amply justify Congress in appropriating a sufficient amount with which to complete it. The committee and Congress would cer- tainly conclude that it would be better to spend twenty or twenty-two million dollars more to complete this dam and own it for all time rather than make the donation of $34,000,000 worth of property to the Alabama Power Co. in order to Induce it to spend enough money to complete it and then own it, and if the Government acquired it at the end of 50 years would have to pay for it a fair value in accordance with the water power law. If finished in accordance with the Ford offer, it would be the property of the Government for all time. If the offer of the Alabama Power Co. was accepted there is no way by which any- one could know when, if ever, the work upon this dam would begin. When the permit was issued by the Federal Power Commission, the Alabama Power Co. would have two years under the water power law to begin construction work and might have it extended an additional two years. So the statement in the offer that work would commence within a reasonable time does not mean anything. In fact, there is no certainty whether a permit would ever be issued to the Alabama Power Co. by the Federal Power Commission if its offer should be accepted by Congress. If a permit was issued the company might never be able to borrow the money with which to complete the Wilson Dam. In fact, it might never make any effort to raise the money, but its real purpose inl making its offer would have been accomplished — that is, it would have been the means of defeating the Ford offer. Your time and that of Congress would all have been in vain, and the Alabama Power Co. would continue to enjoy a monopoly of the water powers of Alabama, which its president claims and in- sists would be in the interest of the people. I deny this; the people deny it, as is shown by resolutions, petitions, mass meetings opposing the offer of the Alabama Power Co. and its methods. The development at Muscle Shoals is a most important part of our national defense. There is located our great munitions plant. Would it not be a great piece of military strategy to turn it over to a lot of foreigners, or place it or its principal parts under their control? A majority of the stock of the Alabama Power Co. that can be voted is owned by foreigners. They own a large part of its securities. If the Alabama Power Co. completes the Wilson Dam, it would have to borrow the money with which to do it. It is natural to presume that it would do as heretofore and borrow it from foreigners. The Alabama Power Co. published and furnished the Alabama Legislature in 1918-19 a statement as to its business and how it secured its capital, in which appears the following statement : " The capital to construct the work was obtained in England, Germany,. France, Belgium, Canada, and a part in the United States." The Alabama Power Co. is owned by the Alabama Traction, Light & Power Co. (Ltd.), which is a corporation of the Dominion of Canada, and that it i» very largely the property of citizens of Great Britain. It is bad enough for this corporation under foreign influence to have a monopoly of practically all of the water-power sites in Alabama, much less to get its clutches on all of the water and steam power connected with the Gov- ernment munitions plant at Muscle Shoals and strip the plant of all of its jibility to function in the event of a military emergency. If the Ford offer is accepted it will be controlled by Americans and American money, and under no obligations to any great financial interests, trusts, or monopolies, domestic or foreign. The offer of the Alabama Power Co. can not be regarded in competition with the Ford offer. It is entirely in a different class. It makes no provision for the building of Dam No. 3, no improvement, navigation improvement, nor the operation of the nitrate plant for the manufacture of fertilizer. All of which is provided for in the Ford offer. I do not believe that the committee will consider for a moment favorable action on the offer of the Alabama Power Co. It would seem that there is but one of four courses for this committee to follow, viz: 1. That of scrapping the development which has cost over $100,000,00, as has been suggested by the big interests opposing the Ford offer. Or 2. For the Government to complete the water-power development and go into tlie business of selling power and manufacturing and selling fertilizer. Or 3. Accept the offer of the Alabama Power Co. and donate to it the steam power plants and unfinished dam. representing an investment of .$34,000,000 by the Government, and make no improvement to navigation and no provision for the manufacture of fertilizer. Or 4. Accept the Ford offer and convert a large war-time expenditure into an investment which will result in a great benefit to the entire country. It would be almost unthinkable to consider the first; the second would be very objectionable to the great majority of people; the third would mean the defeat of all of the purposes and objects of the Government in what has been done at Muscle Shoals; the fourth is the only safe and sensible course to pur- sue and would meet with the approval of the country at large. In conclusion I most earnestly ask that when you have completeil your hearings and visited Muscle Shoals that you will come to the conclusion that the offer of Henry Ford should be accepted, and that you will not only recom- mend its acceptance in your report, but that you will also prepare and intro- duce in the House such a bill as may be necessary to provide for its accept- ance by Congress. I thank you, Mr. Chairman and gentlemen, for your attention and your courtesy in permitting me to be heard. (The resolutions referred to by Mr. Almon follow.) Resolutions Introduced by Hon. C. W. Ashcbaft and Unanimously Adopted BY THE Florence Chamber of Commerce, Florence Rotary Club, and Florence PjXchange Club, in Joint Meeting Assembled, Monday, Febru.vry 20, 1922 : Cittizens of Florence in mass meeting assembled, take note of the following facts : 1. That the Alabama Power Co., doing business in this State, is owned principally by a foreign corporation with its official domicile in Canada (see official report of Graham investigating committee) ; that the majority of its stock is owned in Canada and England, and the policy of the company is there- fore necessarily alien. 2. The only streams of Alabnma offering opportunity for power developments of considerable proportions are the Coosa, Tallapoosa, and Little Rivers, and the Tennessee River at Muscle Shoals. 3. That the Alabama Power Co. has bought up and preempted the entire water-power sites and rights in perpetuity on the first three of these rivers, namely, the Coosa. Tallapoosa, and Little Rivers, and has entered upon a program of development by themselves, and the prevention of all development by others, generally estimated to cover a*period of 100 years. Although they have now been operating in Alabama almost 20 years, they have completed only one unit in this program and activities already displayed give no promise of completing, within the 100 years, the developments already preempted by them. It is therefore evident that their purpose in bidding for Muscle Shoals can not be based upon a desire either for opportunity for expansion or to faithfully serve the public, but their purpose must be found in their desire to entrench themselves and fasten upon the people of Alabama and surrounding States for all time the blight of their complete and oppressive monopoly. By inference 1016 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITION'S. 1017 iii they plead loudly against a 100-year lease to Henry Ford, but thev propose to yield nothing of the stranglehold which they have acquired in perpetuity on every important power site in Alabama except Muscle Shoals. 4. In their activities instead of developing navigation conjointly with power their development prevents navigation in any continuous form. Their entire interests is to retard development of power and navigation, as in so doing they can maintain highest possible rates for power and delay responsi- bility for navigation. Their record is that they have procured municipal franchises for light and power wherever possible and retail current at exhorbi- tant retail rates. They have not fostered or developed industry at any point they serve and their reputation in the State is in line with the findings of the Graham congressional investigating committee in reference to their unpatriotic dealings with the Government during and following the war. 5. For the foregoing reasons we conclude that should Congress accept any proposal from Alabama Power Co. that would give them control over Muscle- Shoals it could only result in delaying developments in nil other streams in Alabama over which they have already obtained control in perpetuity, or delay- ing development of Muscle Shoals. 6. Alabama Power Co. has no experience in. nor plans for, any activity out- side of development and transmission of power, and therefore could not be ex- pected to finance or develop power faster than development of Industry by others would create demand for power. 7. Being a corporation owned by aliens, the citizens of the United States could not intrust their security and preparedness as a Nation to the mercies of its policy makers, who are men whose allegiance is sworn to other countries. 8. On the other hand, Mr. Henry Ford has formulatele as a whole : and .. . , - Whereas a sequel to this great opposition is shown by the submission of a bid by the Alabama Power Co., a foreign corporation, that has never been of any material benefit to anyone other than the stockholders, who are citizens principallv of foreign countries: Therefore be it RenolVGd That we, the citizens of the Birmingham district, in mass meeting assembled this the 19th day of February, 1922, go on record as being unalterably opposed to the Government of the T'nited States considering the bid of the Ala- bama Power Co. And be it further Reftolred. That we, the citizens of this district, heartily indorse and unquali- fiedly recommend that the proposal of Henry Ford be accepted and entered into by the Government for the oi>eration of the Muscle Shoals properties. And be it further ., . l,. .^ » ^ • i_. Reftolved Tliat these resolutions be given the widest publicity by furnishing same to the press, and that a committee of five be appointed by the chairman of this meeting to forward copies of these resolutions to our two Senators and our Representatives in Congress and the committees of Congress before whom the proposals are now iiending. Petition of Offktals of .Teffkrson Cot^nty, Ala. Thk State of Alabama. .Teffersox County. The Hon. E. B. Almon, Washington, D. C: We urge the Government to accept the offer of Henry Ford for Muscle Shoals because we believe that it will be developed by him for the benefit of the American people. We protest against the acceptance of the offer of the Ala- bama Power Co., because it would insure to it the control of every large water- power site in Alabama and thereby fasten upon our people for all times a water- power monopoly. 1$ m4 4^ 1018 MUS(XE SHOALS PROPOSITIONS. M. P. Stiles, judge of probate, Jefferson County, Ala.: M. V. Henry county treasurer; William E. Fort judge criminal division' circuit court, tenth circuit: H. P. Heflin, judge criminal division, circuit court, tenth circuit ; Joseph N. Tate, solicitor tenth judi- cial circuit of Alabama ; C. B. Smith, judge civil division, circuit court ; J. O. Sims, judge civil division, circuit court ; J. B. Aird judge civil division, circuit court ; Hugh A. Locke, judge civil ■ division, circuit court; Wm. J. Waldrop, clerk of circuit court* Richard T. Evans, circuit judge ; Romaine Boyd, circuit judge ; D. C. Ball, president board of revenue; Lacey Etlmundson, board of revenue; T. E. Huey, board of revenue; J. W. Givin, board of revenue ; W. B. Copeland, board of revenue ; James F. Hawkins tax collector; J. C. Hartsfield, sheriff; L. R. Dillon, tax assessor' Jefferson County; M. E. Morris, chairman board of registrars' Conrad H. Ohme, engineer, Jefferson County. STATEMENT OF HON. WILLIAM B. BANKHEAD, A REPBESENTA- TIVE IN CONGRESS FROM THE STATE OF ALAPATWTA Mr. Bankhead. Mr. Chairman and gentlemen of the committee. I shall at least earn the gratitude of the committee by being very brief in the concluding statement I shall have to make, because it is about time for the noon recess Ihe. entire Alabama delegation, Mr. Chairman and gentlemen of the com- nnttee. are grateful for the opportunity you have extended to us. through the courtesy of the chairman, to appear before you this morning and present to you a statement of the expression of the unanimous attitude not onlv of our entire delegation m the House, but T am authorizeple of the State of Alabama, the great preponderant element of the Sffe? ^^^' ^^^^^' ^^^ unquestionably in favor of the adoption of the Ford And gentlemen, without undertaking to be critical of the Alabama Power Co.— and I do not want to be that— it is rather significant, and I think it should impress this committee, that where there is what is claimed to be a local cor- poration which is offering a competitive bid to a man who lives in a different section of the country— and the people of Alabama are fairlv intelligent people • they rate up with the ordinary people of the country in ^intelligence and in patriotisni and in an attempt to protect their own interests and the interests of their children--I say it is singularly significant, gentlemen of the committee, ^nnhf i^^^Tn Z^"" f ""^ T""} l^^.^^^ly Interested locally in this proposition, no haS^\^T^ the standpoint of their own conception of their own best interests, have with practical unanimity recommended to this committee and to the Con- MUSCLE SHi)ALS PROPOSITIONS. 1019 enditure and of that hazard? I submit to you that it is. I think a great question here is the question of the fertilizer. I do not speak of the farmers from the standpoint of propaganda. Some suggestion has been made here that probably that phase of this case has been stressed too much. But the great vital question involved in this proposition, as we people see it, is the one affecting the interests of the farmers of this country. They have been subjected to the exactions of opi)ressive prices for fertilizers, as they see it. From the evidence presented to this committee by Mr. Swann, it is fair to iissume that if the plant at jMuscle Shoals is developed and completed, the cost of fertilizer to the farmers of America will be very greatly reduced. If you reduce it one third, or even 20 per cent, figuring the aggregate of millions of dollars that the farmers all over America, not only in our section but in every section of the country, could be saved by the operation of this plant on that one matter alone, gentlemen, I say it involves the proposition of the national pros- perity of our great basic industry, which would justify the Government of the United States in the expenditure of some money, if it had to spend it. You are familiar with the proposition by which it is proposed to amortize the amount of the additional exiiense. There you have a great plant, constructed under the authority of Congre.ss, und if you accept the Ford offer .vou have that great plant always in operation for military preparedness. Some of the members of the committee, judging from their expre.ssions, regard that as the paramount question ; others look at it more particularly from the aspect of the production of fertilizer for the farmer. Then, there is the great question of opening the Tennessee River for naviga- tion. The Ford offer, if accepted, will practically complete the navigation of the Tennessee Kiver from Chattanooga to whore the river flows into the Ohio. So, there is the proposition — it is merely a question of action. The members of the Alabama delegation, the members of the Tennessee delegation, the mem- bers of the M'ssissii>pi delegation, the membf>rs of the Georgia delegation, who are the men most immediately interested in the matter from the standpoint of l(H-ality, after a full and fair examination of all of the aspects and all of the possil)ilities arising out of these two offers, gentlemen of the committee, i>?ul>mit it as their deliberate judgment — and we are merely seeking to ex- press what we believe to be for the best interests not only of the people of our States and the people of all the other States, but we are expressing the judg- ment of the membership of that great Mississippi Valley Association, composed almost exclusively of business men, representing 55 per cent of the total popu- lation of the United States, who come to you with a very carefully prepared pamphlet in which they state their reasons why the Ford offer should be ac- t:e|)tetl — after a very careful and painstaking examination. The are hard-fisted, hard-headed, bus'ness men, and they are looking out for what they conceive to be the best interests of the population which that association represents, and they give it as their opinion that the Ford offer should be recommended for acceptance by the Committee on Military Affairs. Gentlemen, we appeal to you upon the facts in tliis case, not upon prejudice, not upon rhetoric, not upon any ad hominum consiilerations at all, but upon the pure standpoint of what is for the real, best interests of the American peo- ple as a whole, and we ask you, especially the IMembers of the Alabama dele- } ■ it . Isf' 1020 MUSCLE SHOALS PROPOSITIONS. 'ii|> ^'-l' gation, t() report fnvorably upon the Ford offer, with siu'h sugrjjestions as t*^ the legal flifficiilties as may be suggested to the committee when you come to frame this legislation. :Mr. Cliairman and gentlemen of the committee, I am very grateful to you. The Chairman. The committee feels very grateful to you, Mr. Bankhead, for your kind statement regarding the efforts on the part of the committee to get through with this work, after a thorough and deep investigation of all the problems involved. We appreciate it. Mr. Byrns, of Tennessee, would like to have a few minutes to speak for the Tennessee delegation. We will be very glad to hear Mr. Byrns at this time. STATEMENT OF HON. JOSEPH W. BYRNS, A BEPBESENTATIVE IK CONGRESS FROM THE STATE OF TENNESSEE. Mr. BvKXs. Mr. Chairman and gentlemen of the connnittee, I am going to ask the committee's inf course. I do not presume to speak for them, but I feel .sure that they will agree with me when I say that the governor very correctly ex- pressed the sentiments of all the men. women, and children in Tennessee. And I feel sure that the members of the Tennessee delegation also indorse what has been said in aeople of Tennessee are convinced, and I very earnestly join in that conviction, that the only proposition before the committee, which, if accepted, guarantees that the great power at Muscle Shoals will be developed in the most complete numner. and that after its development the general public, as a result of su<:h development, will receive benefits therefrom is the proposition which has been submitted by Mr, Ford. As has been forcibly stated here. I think, by the gentleman from Alabama, Mr. Oliver, the idea of Congress in first making it possible to develop this plant at Muscle Shoals was to utilize it in case of war for the manufacture of nitrates, ami in time of peace tor the benefit of the great agricultural in- terests of this country. Mr. Ford's proi)osition, as we view it, means that that power will not only be developed to its fullest capacity, but it means that the nitrate plants, which are intended to be niaintainetl by the (Government, will be utilized in time of peace feaking. as I believe, the sentiments of an overwhelming niajority of the people of that State, I hope that this connnittee will, in its wisdom, see fit to recommend the acceptance of the proi)osition made by Mr. Ford. The Chaikman. (lentlemen of the committee, this concludes the hearing this morning, and I wouhl like to ask you if the members of the connnittee will be willing to stay for a few minutes for an executive session? MUSCLE SHOALS PROPOSITIONS. 1021 Mr. Oliver. May I say to the chairman that a newspaper reporter came to me after I concluded my remarks and said that he thought. perhai)s, I had rlone the reporters an injustice in saying there had been no accurate reports sent out I do not know who sent out the reports to which I have had refer- ence. One of them api>eared in the Washington lN)st of this morning, and I will be glad to supply a copy of that report, with some others that caure to my attention, and submit them to the connnittee later. Some of them appeared in the Alabama papers. I do not recall any repoits iu)w that I had in mind appearing in the rei>ort of the Associated Press. The Chairman. I saw that article which appearetl in the Post this morning, and I asked those very questions that are referred to of Mr. Ford's repre- sentative. Mr. Oliver. I^t me call your attention to this. I do not know whether you read this part of it. It says : "After the hearings were adjournen him to try to help us out. Mr. Davis of Tennessee. Mr. Chairman, will the conmrittee hear me for just half a minute? The Chairman. The members of the committee, of course, would be glad to hear any Member of Congress. I did not know that the gentleman wanterobably arrange for you to apajiear before the committee at the next meeting. Mr. Bankhead. Mr. Chairman. Mr. McDulfie, of the Alabama delegation, would like to have permission to file a brief statement in the record. Mr. McDiTFFiE. Mr. (Jhairnran, I am not asking the connnittee to indulge me to-day, but I wotild like i>ermission to file a brief statement in the record. The Chairman. If there is no dl)jection, you may hand your statement to the reporter and it will be i>rinted in the record. (The following statement was submitted by Mr. McDuflfie:) Mr. Chairman and gentlemen of the committee, it is my judgment that no question so far reaching in importance as the disposition of Muscle Shoals has presented itself to Congress or any committee of Congress since the end of the World War. Your problem involves not alone the return in dollars and cents to the Government upon its investment of a hundred millions of dollars, but the carrying out of a great national policy of preparedness or defense in the event of war and the encouragement and development of our basic national in- dustry of agriculture in times of peace. The disposition or solution of your problem at Muscle Shoals is a question which I feel this great committee will not and should not approach from the standpoint of local interest or partisan- ship. This committee has always claimed to be a nonpartisan committee in its work and the country has grown to know it as such. The great majority of the American people are therefore expecting you gentlemen to view this question and pass upon it in the light of its importance as a big national problem. Muscle Shoals is the child, so to speak, of the Committee on Military Affairs. It was this committee that saw the value and possibilities of that second great- est water-power site ori*the American Continent and embarked upon its develop- ment. This development was never contemplated as a scheme to make money for the Government. A distinct policy was in view when the Congress decided upon the development at Muscle Shoals, just as we had certain policies in view when we built the Panama Canal and the Alaskan Railroad. The canal has never paid a return on the investment in actual dollars, and so far we have no reason to hope the Alaskan Railroad, which has cost some seventy-five millions. 4 ^ ■ '•i 1022 MUSCLE SHOALS PROPOSITIONS. li M*< will s^on be a source of revenue for the Government, though each of theso governmental projects has served a useful purpose and is the result of broad vision on the part of our statesmen. Of course the Oovemmfent reaps no return in money for maintaining an Army and Navy. In many instances the improvement by the Government of our rivers and the development of reclamation projects have never paid any appreciable amount on the money invested. I think it can be assumed there- fore, that you gentlemen, while anxious always to secure the best possible return on money expended or to be expended by the Government at Muscle Shoals, can not and will not permit this to be your controlling thought in pass- ing upon any offer which has been submitted to you. The main question appears to me to be the carrying out of the policy of Congress as expressed in the national defense act of 1916, namely, the construction or development of plants for making explosives and fertilizer. I submit that the offer of Henry Ford more nearly conforms to that policy of Congress already adopted than any other offer in this respect, and at the same time his offer, viewed from the standpoint of a return on the invested capital, is better than any other. Measured by other investment of public money the Ford' offer means a greater return on the capital invested than any other Government enterprise I can now recall. While you figure interest on the amount of capital invested in the plants for which he offers five million cash, you should figure also interest on the money invested in the Alaskan Railroad, the Panama Canal, and the reclamation projects. It might also be well to figure on the investment in our merchant ships, some of which were offered at twenty-one hundred, though they cost about $800,000. Now, let us see what the situation is with reference to these offers for the Muscle Shoals property. You will recall that many months ago the question of completing Dam No. 2 presented itself to Congress. At that time when we were entering the readjustment period, the Congress, realizing the need for the practice of economy — rather. I would say, the Congress, realizing that a very large amount of money had already been expended in the whole project at Muscle Shoals — saw fit in its wisdom to stop the work on the big dam, where some seventeen millions had been expended. At that time I do not think Con- gress really understood the value and possibilities of this work. Be that as it may, the Secretary of War was directed to " take stock " as it were, of the property and ascertain whether or not the project was one in which the Gov- ernment could afford to invest more money at this time. The Secretary also endeavored to ascertain whether or not there were private corporations or individuals who would be interested in the purchase or lease of the project. After " taking stock " the Secretary of War has found that the dam must be com- pleted, and has said so without hesitancy. General Beach, the Chief of Engineers, connnunicated with various parties, rorporations, and individuals to ascertain if there were any who would be interested in the project. Henry Ford was the first to make a substantial proposal and one worthy of consideration. In all earnestness let me ask you. gentlemen, do you believe there would have been other offers for this property and especially offers from the Alabama Power Co. and Engstrum if Henry Ford had not submitted his offer? Sitting here somewhat like a jury to pass on all the otters and all the circumstances surrounding them, the law and the facts in the case, don't ycm know beyond peradventure that this offer made by the Alabama Power ('o. would never have been made had it not npiitared fhat Congress might look with favor on the Ford offer? The Alabama Power Co. is right there on the ground, and it is right here on the ground with all its genius, able sponsors, and advocates. That company knew probably more about the value and advantages of Muscle Shoals than any other comi>any or individual could have known. Why did it not submit its offer when called upon by General Beach or at least within seven months after the Ford offer was submitted to the Secretary of War? Surely you gentlemen put no credence in the suggestion that capital was not available to them. Is it not remarkable how quickly capital bec^ame available just as soon as this committee began consideration of the Ford offer? When did these threats begin about litigation long drawn out? When were suggestions made as their contract which is beyond question a void contract? In so far as I can answer, not until they saw that Congress would consider the Ford offer, and now they rush in here with an offer of .$5,000,000, an offer to complete MUSCLE SHOALS PROPOSITIONS. 1023 g. the dam without cost to the Government, less the cost of locks, etc., and leave the Government in control of its nitrate plants. I think the evidence here will justify the assertion that under their offer, if, accepted, they would get over $30,000,000 worth of property for $500,000, because the cost of the locks is estimated to be $4,500,000. Has it occurred to you gentlemen that the offer of Henry Ford has sud- denly made the money market easy for the Alabama Power Co.? If so, even that company owes something to the Ford offer. I think the evidence before this committee justifies the assertion that when Mr. Duke, the owner of the Southern Power Co., in answer to General Beach, condemned the Muscle Shoals project and said its completion was not feasible and that he would not be " interested " in its purchase or lease, he spoke for the gi-eat family of interests we find here condemning the offer of Henry Ford. In that family we find the American Cyanamid Co. and its child, the. Air Nitrates Corporation, which corporation some evidence shows con- sisted of 10 men who put up $100 each and drew down more than a million dollars from the Treasury— yet they, too, were great patriots in times of war. We find the Virginia-Carolina Chemical Co., a member of the National Association of Fertilizer Manufacturers, whose president, Mr. McDowell, appeared here to protest against the Ford offer. We further find in that family also the Southern Power Co., whose president and owner "was not interested," and next we find the Alabama Power Co., the child of the Ala- bama Light & Traction Co., of the Dominion of Canada. I say it is the child of the Light & Traction Co., because all of its common stock, its voting stock, is owned by that foreign corporation, which is probably the great big " daddy " of them all. ^ I do not wish to be misunderstood. I would not heap condemnation on the Alabama Power Co. solely because it is the offspring of foreign capital. We do not hate capital in Alabama. We invite capital to come and help us develop our wonderful natural resources. We have proven that in Alabama, where our legislature has exempted this corporation from taxation and has made it the recijiient of special favors. It matters not where the capital comes from, so long as it is decent, we welcome it to our great resources, but we do not like to have all our resources monopolized by any sort of capital. In so far as the danger comes from the investment of foreign capital, if war should come we Americans can take charge of that capital in just about 15 minutes. Of course, I prefer our great wealth to be owned by citizens of the United States, but this is not the controll- ing thought in the minds of about 98 per cent of the people, or maybe 99 per ^cent of the people, of Alabama who are appealing to you to accept the Ford offer. We say, gentlemen, that the Alabama Power Co. now owns practically all the available water-power sites in our State ; that it does not need Muscle Shoals in carrying out its plans to develop the power and all the power the market of Alabama will need for several generations to come. We beg you to consider the fact that if this great water-pmver project is given over to the Alabama Power Co., that company will have a complete and perfect monopoly of the water-power industry of the State. Give this project to the Alabama Power Co. and they will develop it only in accordance with needs of that sec- tion for power. They will feed it out as the demand grows. The market is not there now. General Beach has told you so. Therefore we contend if the Alabama Power Co. gets control of this project it is not unreasonable to say that generations will pass before Muscle Shoals is developed to its fullest ca- pacity. We believe if you give this contract to Ford, he or his company or companies will immediately begin work to get the benefit of the maximum amount of power to be developed there and on the upper reaches of the Ten- nessee, and the present generation will reap some benefits therefrom. Gentlemen, it must appear to you and to the people of the country remark- ably strange that only 7 or 8 or 10 months ago the very same interests, speak- ing through Mr. Duke, thought Muscle Shoals should be scrapped, or at least discouraged its completion, are now saying that the property is entirely too valuable to sell and lease to Henry Ford for the sum he offers and under the terms of his proposal. I am sure every man on this committee is convinced beyond a doubt that the action of Mr. Duke was inspired by the hope that this sreat national asset at Muscle Shoals could be secured in the future from the Government for a mere song. There can be no other conclusion. While Mr. Duke spoke only as owner of the Southerji Power Co. there is no escape from 92900—22 65 1024 MUSCLE SHOALS PROPOSITIONS. ft} ^1 #<^ the condiusion that he was speaking also for the whole family of interests which have since protested against the Ford offer. Regardless of propriety^ it is but natural for those interests with which the Ford interests would compete in the markets of the country and the world to protest against the Ford offer. INIr. Ford expects to make aluminum steel. Of course the aluminum interests are opposed to that, and probably the steel inter- ests as well. The hydroelectric power companies of the country do not care to have him mixing up in their business. He expects to make fertilizer. He guarantees to make fertilizer and fertilizer products in an amount equal to about 20 per cent of the demands of this country. He has gone far enough to guarantee to organize a $10,000,000 company for his operations. Of course, this will affect the price of fertilizer and the fertilizer interests are against him. The by-products and coke-oven fellows do not want him to get into a business that will materially affect their business, and so we find them scorning the Ford offer. So on it goes with all interests who fear that competition which will probably come with the Ford interests in control of and using this great power development of 1,000,000 possible horsepower and probably more to be developed on the upper reaches of the Tennessee River. I think I am entirely justifiable in saying that the interests now opposed to the offer of Henry Ford actually fear he will revolutionize industry along several lines. There is no well-founded fear from these opposing interests. The field is big enough, broad enough, and inviting enough for all the genius, vision, brain, energy, and skill of each of these interests. The field for the uses of hydroelectric power is new and undeveloped. I believe the future has in store thousands of uses for electric energy undreamed of by the masses of men. Your problem, gentlemen, if I may suggest, is not one involvi^ simply a clash between individual or corporate interests. The real issue before you is how the interest of the people and of the Government can best be served. The Alabama Power Co. is here to-day putting up, as we used to say in our day of football, strong " interference." They are trying their best to block the game. On the side lines there are not many rooters for their team, but the representatives of the people of this country had better keep their eye on the ball. This company works " in wondrous ways its mysteries to perform." Of course, you hear threats of litigation. Of course, you hear of their remark- able patriotism in times of war, when the truth is this company was actually hog tieing our Government. They permitted their Government to build a unit which can hardly be separated from their own. They permitted the Govern- ment to construct a transmission line on 20 miles of their right of way and bought the rest of 60 miles of right of way in their own name on which to build the line from their Gorgas plant to Muscle Shoals. They were paid a^ fee of some $285,000 for superintending this work, the Government paying for every piece of material and every hour of labor used in the construction of this unit and line at a cost of nearly $4,000,000. Now they will not even say what a reasonably fair value of this jointly owned plant and line is. All of these things were done, I contend, with some hope, if not feeling of assurance, that when the war was over the Alabama company would fall heir to the prop- er^v or buy it for a nominal sum. Shall the best interests of the whole country be now made subservient to the rights proclaimed by this company, which they secured or thought they were securing from the Government during the stress of war? It has never been made clear to me nor do I believe anyone can claim that the Government is legally bound by a contract made without the authority of law. Surely there is no legal obligation resting upon the Government under this contract. I can not agree that there is even any moral obligation resting on the Gov- ernment. The Secretary of War had power to sell but not the power to con- tract to sell to one particular company sometime in the future, to the exclu- sion of all others who might desire to purchase. The act of July, 1918, gavc^ him the power " to sell and report to the next Congress." Therefore even should he have given his representatives authority to act for him they could not bind the Government under this option to buy as set out in the contract. Here we have the best interests of the public on the one hand and the claim of this corporation on the other. I would not advocate the condemnation of private property or the destruction of vested rights. It is a very easy mattei* to figure out what the actual investment is and the value of the interest of the Alabama Power in the Gorgas plant, which is beyond question a part and parcel of the whole project of the Government at Muscle Shoals adopted for the making of nitrates and fertilizei;. It was made a part of the project with MUSCLE SHOALS PROPOSITIONS. 1025 the full knowledge and consent of the company, even though they may never have dreamed that anyone would offer to take over the whole project. It is true that the company conveyed to the Government their title at Dam No. 2 for $1. They say in their advertisements, which they are now running in prac- tically every weekly newspaper in Alabama, setting forth, amongst other things, their abundance of patriotism, that their rights at this dam site cost them "just under" $500,000. The evidence here tends to show that it cost them $476,000. Let us admit that this is true ; yet don't you know they had in view the final capture of this big dam site after the war for a very nominal sum, with the dam completed. This deed passed about the same time or just a few months before the signing up of this contract that is so full of patriotic fervor. While the Alabama Power Co. is spending so much money advertising its patriotism throughout our State, why does it not set forth the terms or just a few of the terms of this contract? Why does it not publish to the masses of the readers of these county weekly journals article 22 of the contract and the terms under which they were given an option to purchase? I do not condemn the officers of this company for their appearance here in behalf of the com- pany they are paid to represent. I know and like many of them personally and would not speak derogatory of their integrity, but I can not agree that they have a meritorious case, and I know their offer can not compare with the Ford offer if the welfare of the public is to be well considered. I have presented to your committee memorials and petitions from every section of our State urging the favorable consideration and the acceptance of the Ford offer. I may be mistaken, but I am firmly convinced that a majority of the people of the whole country favor his offer. They favor his offer because it conforms to the wise policy of Congress in adopting the Muscle Shoals project, and they further believe Ford should be given control of this great project because under his control and operation the full benefits of its development will accrue to the public. They believe this project, this great national asset, should not be turned over to any company exclusively in the jwwer business, and with which the making of explosives and fertilizers is of secondary con- sideration. They believe, and I believe, that Henry Ford or his companies is the only agency interestecl that will develop Muscle Shoals to its fullest capacity and give the people of the country the direct benefits of that development. In speaking of Mr. Ford, I do so without that same degree of admiration or reverence that many people possess. I do not find myself in accord with all of his economic and political ideals. I must confess that I do not subscribe to the belief that he can immediately give employment to 1,000,000 men at Muscle Shoals if his contract is accepted. It might be done ultimately, and I think will be done. I do believe, and you gentlemen as well as all others must admit, that Henry Ford is a wonderful genius, a great financial wizard, and stands in a class by himself as one of the world's foremost captains of industry. Indeed, he is in a class by himself, and as some one has said, he is something of a great com- mercial iconoclast. He is one of the world's richest men, with a world-wide business, and yet a business that is not interlocked with other great interests. He asks no favors of the moneyed powers and begs no quarter of other big JDusiness. Everyone must admit that he has done more to add comfort to Amer- ican farm life and given greater inspiration toward the building of good roads by the production and sale of his automobile than any other hundred men in the same business or any other man who ever lived. The people of this country believe in Henry Ford as a great developer. Ihey believe he will do what he jiromises to do. They believe he will make a success of Muscle Shoals to the people's benefit : that he will spend fifty millions and more if his contract is acccepted to make agriculture and farm life more attractive and profitable by the production of a concentrated and higher-grade fertilizer. We believe he will prove that the fertilizer industry IS in its infancy, just as the expert Doctor Whitney said it was. If he. can save to the farmers of this Nation the freight and bagging of about sixteen hundre^I pounds of material that is absolutely without value as a food for plants in every ton of fertilizer, then the great benefits he will bestow upon the people of the agricultural industry alone can not be figured out in dollars and cents. It would run into the hundreds of millions. Of course, the coastal plains and the Gulf territory now use most of the com- mercial fertilizer manufactured in this country, but as the years go by every section of this country where agricultural pursuits are followed will need 'i 1026 MUSCLE SHOALS PROPOSITIONS. soil and plant food which can be made at Muscle Shoals. In this respect there- fore the project is a national one, to say nothing of the preparedness of the Nation by having a plant ever in readiness to make explosives. The investment t)f the Ford millions at Muscle Shoals will add much to the taxable valuations of the Nation. You will recall the testimony which showed that immediately after the war between the States, North Carolina was the poorest State in the Union and to-day she pays more taxes per capita than any other State in the Union as a result of the investment in hydroelectric power. These great interests here who are fighting the Ford offer are using all their wits and power to abate your decision and final action, and trying to delay the decision of the Congress as much as possible. What better way could they bring about delay than to have another offer presented evei-y week or so and then have the Alabama Power Co. threaten the Government with a legal fight to the last ditch. If they can persuade you that the Government is so entangled >^»ith them, that it is " hog tied " in a contract that will becloud the real issue, that the interests of the Government are now so interwoven, it can not extricate itself from the hold they have, then the fight of the interests opposing the Ford offer is won. You may ask. How do you know Mr. Ford will live up to his proposal? That question was asked by some member of the committee. We do not know that the sun will shine to-morrow. We do not know that we will be alive to-morrow. We judge the future by the past. If a man has always lived up to his agree- ments, if he has accomplished every task he has undertaken, and especially if he has the means to carry out his promises, we can very safely predict that he will continue to act in good faith with his fellow man and w-ith his Govern- ment. Again, the very proposal itself of Mr. Ford provides that his contract shall be forfeited in the event he fails to live. He could not afford to break faith with the Government. The delay in disposing of Muscle Shoals has already cost an immense amount of money and is to-day costing nearly $10,000 a day to keep the plants and prop- erty in their stand-by condition. It has been estimated by Mr. Smith of the Mississippi Valley Association, comprising 55 per cent of the people of the country, that the cost to the Government already accrued by delay in com- pleting this project and accepting the Ford offer would amount to over a million dollars. ^ ^ . ^i. x ^i, « Let us sav, gentlemen, that you find, for the sake of argument, that the offer of the Alabama Power Co. is the best offer from a standpoint of finances. Then I ask what are vou going to do with the nitrate plants? Are you going to put the Government into business? Let us hope not. I maintain that the Gov- ernment can not economically operate any business. Do you really believe that anyone is coming along to offer us anything for the eighty millions invested in these plants without the assurance of more than 100,000 secondary horsepower with which to operate them. If not, are you going to junk them? We have had enough of Government operation of business. We have not forgotten the rail- road under Government control, nor a merchant marine that cost us $1,000,000 a day net loss for about a year. If you do not put the Government in the business of making fertilizers at Muscle Shoals, which would in the end cost the taxpayers much more than they now have there invested, and you have no offer to take over and operate the nitrate plants by private capital, how will you keep a plant in readiness to make explosives in times of war? These questions all find their answer in the acceptance of the offer made by Henry Ford He is the only one who has come forward at the request of the Govern- ment and submitted an offer that in my judgment you can seriously consider. At the end of the 100-year lease to him the property returns to the people. He offers to pay back to the Government the cost of completions of the dams, while at the end of the 50 years of lease to the Alabama Power Co. the Gov- ernment can only get control of the plant by paying that company for its investment under the water-power acts of Congress. I firmly believe the peoplo of this Nation would derive more from this great God-given asset at Muscle Shoals even if the Congress gave the whole project to Henry Ford than they can ever hope to gain by selling it under any other offer which has been pre- sented to you. , „ ^ , . ^x. . X X # On behalf of the people of my district and my State and in the interest or the public let me suggest that the proper solution of your problem lies in the acceptance of the offer of Henry Ford. . ^ ^ ,^ * Mr. Mabtin. Mr. Chairman, I wish merely to ask the privilege, in behalf of the Alabama Power Co., of filing in the record a statement answering state- MUSCLE SHOALS PROPOSITIONS. 1027 nients that have been made this morning, so far as they affect the Alabama Power Co., as we, of course, would have no opportunity to do so after the matter reached the committee. The Chairman. That is a matter which the committee will take up imme- diately after we get into executive session. Personally, I would have no ob- jection to it. That is simply fair play, so I think there wmII be no objection, Mr. Martin ; I will take it up with the committee. (Note. — The committee agreed to the insertion of the statement, which is as follows : ) Statement by Thomas W. Martin, President Alabama Power Co., in Answer TO Statements Made Before Military Affairs Committee of the House OF Representatives on March 8, 1922. 1. Congressman Oliver included in his statement certain resolutions which, he stated, were adopted at a mass meeting recently held in Montgomery. The first charge against this company is that it owns and controls a number of power sites on several rivers in Alabama and that in 14 years since its incor- poration 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. This statement is both misleading and untrue. By act of Congress of 1907, authority was given to construct a power dam on the Coosa River at Lock 12, and the development was completed with 110.000 horsepower within the time fixed in the act. From 1912 to 1920 no act of Congress was passed granting authority to con- struct dams in navigable streams at any place in the United States. In fact, any construction of such dams was prohibited by the act of Congress of 1899, and this act was construed by Government engineers even to require Government approval before dams could be constructed on the Tallapoosa and Little Rivers, because such dams might affect the navigable capacity of the Coosa and Ala- bama Rivers, into which those rivers emptied. 2. In 1912 a bill was prepared by Mr. J. W. Worthington, then vice president of this company, to authorize a second development on the Coosa River, and it was introduced in Congress. The bill was passed by Congress, but vetoed by President Taft because it did not contain certain provisions now In the Federal water power act. From that time until 1920 water-power development was dis- cussed continually in Congress, and during that time no special act of authority was given for any development to proceed, it being the policy of Congi-ess to await the passage of a general act under which all developments would be. placed on the same basis respecting the terms and conditions of the development. 3. Mr. Worthington, again acting under the instructions of this company, pre- sented a proposal to the Government engineers on December 10, 1913. for the construction of Dams Nos. 2 and 3 at Muscle Shoals in connection with the Cherokee Bluffs and Little River storage developments, and this plan was recom- mended by the Government engineers. (H. Doc. 20. 63d Cong.. 2d sess.) The public in Alabama was well aware that the Muscle Shoals Hydroele<'tric Power Co., a subsidiary of the Alabama Power Co., originated and was for many years active in keeping before the i^eople of Alabama the importance of that de- velopment, both for industrial and municipal purposes and for navigation. After a considerable expense and years of labor, the question assumed more than local importance until Congress provided a large sum with which to make the necessary engineering explorations, the collection of data, and information looking to the adoption of the project by the National Government in coperation with private capital. No one at that time in Alabama questioned the purposes of this com- pany, impugned its motives or assumed to suggest the approach of a power mo- nopoly that would ultimately throttle and retard the development of the State. Many of those who now denounce the company were its most enthusiastic sui> porters, and with full knowledge of its plans to connect Muscle Shoals with the storage reservoirs in east Alabama, urged that the work go forward. Delegations journeyed to Washington and importuned congressional committees. The Ala- bama delegation in Congress was earnestly active in advancing the plan. Indica- tive of the popular feeling, the Sheffield Standard, a newspaper published in one of the cities where the development is located, contained the following editorial, in 1914, entitled " Away with demogogy " : «♦ ♦ * 4c Now, after 30 years of waiting, that a corporation has been formed big enough and with sufficient ability to develop this power, many ix>liticians I 1028 MUSCLE SHOALS PROPOSITIONS. 4i|' m have beevj foolish enough to raise a hue and cry against the Muscle Shoals Hydro- electric Power Co. They have declaimed throughout the length and breadth of the land that the greater water power at Muscle Shoals is about to be seized and appropriated by a monopoly. Other politicians, like Mr. Underwood, Mr. Dent Mr. Heflin, Mr. Burnett, Judge Almon, and Mr. Blackraon, have openly declared m favor of the development of this power by the Muscle Shoals Hydroelectric Power Co. In each case the people of Alabama have, as any man with a grain of sense knew they would, rebuked the demagogue, who, for his own selfish rea- sons, has stood in the way of progress and development, and set the seal of ap- proval upon the constructive statesmen who have proclaimed from the stump that if elected to office they would encourage and support the development of Alabama's water powers. * * * "Corporations of old adopted 'the public-be-damned ' policv; the Muscle Shoals Hydro-Electric Power Co. has adoptefl the ' publlc-be-told ' policy. * * * •' Men of Alabama, let us arouse ourselves ! Mobile Harbor must be made the gateway of the Southern States to the Panama Canal. Reservoirs must be built in the head%vaters of the Tallapoosa, which will conserve the spring freshets, prevent them from deluging the farms in middle and south Alabama, and turn them loose during the periods of low water, so that Alabama's rivers may be navigable 12 months out of the year. The vast power on the Coosa and the Warrior and the Tallapoosa and the Tennessee must be harnessed and put to work. Let us have more James Mitchels, of London, bringing British gold for Alabama's development. Let us have more J. W. Worthingtons and Frank S. Washburns. And for God's sake and the sake of prosperitv and de- velopment of the State, let us have fewer Mabrys, Wattses, and Callahans." 4. No action having been taken by Congress on our proposal of 1913-14, a further study was made by the Government engineers and the same plan again approved in their report of 1916 (H. Doc. 1262, 64th Cong., 1st sess.), excerpts from which we have filed in the record. It was, however, recommended in the last report that in view of the passage of section 124 of the national defense act of 1916, action on the proposal be suspended until it was determined whether the Muscle Shoals power would be utilized for the nitrate plant. 5. In 1918, after our country entered the war, the Government determined to develop the Muscle Shoals power for war purposes. We thereupon donated the Wilson Dam site to the Government and transferred to it for $1 titles and rights in connection with which we had already spent just under $.500,000. The Secretary of War acknowledged our donation, saying, " I beg to acknowl- edge with thanks the company's generous and public-spirited action." The act of the company in making the donation was commendefl throughout our State by those who felt that by so doing we had hastened the development and had contributed to the upbuilding of the State. 6. Shortly after the Federal water power act became a law, in 1920, we filed application for a second power development on the Coosa River in Alabama, to have an installed capacity of 120,000 horsepower, costing upward of $8,- 000,000. The application was granted and license issued to the company, and construction is now under way on this development. In response to the letter of the Chief of Engineers, we advised him on May 28, 1921, that in our judgment the Muscle Shoals project was an economical and profitable undertaking, and that we were prepared, as in the past, to co- operate with the Government in any way desired looking to its completion. We again advised the Chief of Engineers on July 14, 1921, that on account of the increased demands for power, we would have to proceed promptly with another power development unless the Government policy at Muscle Shoals should be modified to permit the use of part of that power in public service. It will thus appear that this company made efforts for many years, through its representative. Mr. Worthington, and others, to obtain the consent of Con gress for power developments in Alabama, but the laws remained unchanged until the Federal water power act was passed. This was well known to at least two of those who participated in the Montgomery mass meeting, namely, Mr. J, W. Worthington, formerly an officer of this company, but who is now Mr. Ford's representative, and Mr. J. L. Andrews, one of the signers of the resolution, who is an attorney residing in Sheffield, Ala., and who was reg- ularly retained by this company in the Muscle Shoals district from 1912 to January 1, 1922. Although we have been able to make but one power development in Alabama, there being no Federal legislation until 1920. we have extended our lines in various parts of the State, and with the aid of reserve steam plants now have MUSCLE SHOALS PEOPOSITIONS. 1029 a connected load in excess of 370,000 horsepower. More than 80 per cent of this load is used for industrial purposes, and we have many consumers whose demands run from 5,000 to 25,000 horsepower. 7. In 1907, before any large power developments were made in the State, the average cost per horsepower year was $72, and in 1917, due to the direct influence of the power developments of our company 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 iii 1907, and this had decreased to $93 in 1917. In this period of 10 years there was no water-power development in Mississippi, and hence no large central-station systems. This shows in the most striking way the great advantage to the public of having power dis- tributed to the public and also answers the statement that our company has only developed power which it could sell in small units and at high pric*es. 8. It is also charged that our company controls the utilities in our principal cities. We have no interest in the utilities at Birmingham, Montgomery, and Mobile, the principal cities of our State, but furnish the power to the utilities operating in Birmingham and Montgomery. We do control, however, the utilities in a number of the other towns and cities. In every case our com- pany has taken over utilities or constructed systems in response to the public demand and we have throughout our system reduced existing rates in almost every community, or put in new and lower rates for all classes of service. We have now approximately 17,000 direct customers, and including the customers of other utilities there are more than 60.000 consumers of light and power served from our system. OWNERS OF company's SECURITIES. 9. The Alabama Power Co. is a corporation organized and existing under the laws of Alabama. The company wsis until August, 1914, largely financed abroad. We have stated before this committee and on various occasions iu Alabama that this plan of financing was changed on account of the war in Europe, and since 1914 the company has been entirely financed in the United States. AVe have also stated to this committee that if we proceed with the Muscle Shoals project it will be entirely financed in the United States. Con- gressman Almon quotes from a statement made by this company in 1918 with regard to source from which the capital was obtained for our early develop- ment. He only quoted a part of that statement, which contains a full explana- tion of our financing plan since 1914, and I am sure he did not mean by omit- ting a part of the statement any unfairness to our company, but if he had made a further quotation he would have confirmed just what we have on several times stated to this committee. Since 1914 the flow of securities to this coun- try has been so great that of its total issues at this time not over 35 per cent or 40 per cent are held out of the United States. As noted above, it was widely known in Alabama in 1914 that we were making developments with foreign capital. Congressman Almon, who was most interested at that time because the proposed Muscle Shoals development was in his district, not only did not oppose the plan but openly favored the development by our company, as noted from the above newspaper comments. The company has several thousand stockholders in Alabama and in other sections of our country. For many years a large majority of our board of directors has resided in the State of Alabama. The plans and policies of the company have in fact been controlled by citizens of that State for many years. To safeguard the national welfare, the Federal water power act, section 16. authorizes the President, whenever in his opinion it may be necessary, to take possession of any project constructed under the act " for the purpose of manu- facturing nitrates, explosives, or munitions of war, or for any purpose involv- ing the safety of the United States." The Secretary of War, in transmitting the offer of the power company to Congress, said (par. 7) : " This broad pro- vision of the act is of special importance to the United States in view of the location of the nitrate plants at this community." Therefore, it is of no importance that some of the early securities of the com- pany are held out of the United States, for the licenses and its property ar« always subject to the laws of the State and Nation. THE GORGAS STEAM PLANT. 10. The Alabama Power Co., prior to 1917, acquired and owned the Gorgas steam plant, which had been constructed as the reserve steam plant for its system. It owned a small tract of land for the plant site, had the usual 1030 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1031 tm facilities for such plants, including water intake and discharge tunnels and foundations for a three-unit plant. In order to provide for the coal neces- sary for the operation of the plant the Alabama Power Co. financed the coal operations then and now being conducted immediately at the plant. These facilities made it possible for the company to generate steam power at the lowest possible cost to supplement the Coosa River power in times of low water. When the Government decided to construct the nitrate plant during the war, it is a matter of record in certain hearings that the existence of this steam plant, together with the large hydropower plant of the company on the Coosa River, was the controlling factor in the location of the nitrate plant at Muscle Shoals, because it was necessary to have a large amount of power within six months. No water-power plant could be erected at Muscle Shoals within less than three or four years, and a new steam plant could not be erected at Muscle Shoals in time to meet the requirements of the Govern- ment at nitrate plant No. 2. Government officials then turned to our steam plant and to our system in general for this immediate supply of power. It was agreed that we would build a transmission line 90 miles to Muscle Shoals, and we did build the line, bringing it into operation within less than five months, thus enabling the Government to obtain power in advance of the schedule on which the work was then proceeding. The company was serving many industries, and at least 80 per cent of its power was being used by those which were classed as essential for the production of materials for use in the war. It was, of course, within the power of the Government to suspend the delivery of energy to any of these consumers, but it was ad- mittedly of great importance by Government officials that this service be not interrupted. It was also decided that the Alabama Power Co. at times could furnish some power, but it did not have sufficient capacity in order to enable the company to deliver continuously the amount of power needed at the nitrate plant. The Warrior facilities for installing a second unit were so far advanced that six months or more in time would be, and were, saved by making the extension of that plant. Time, as we all know, was of the greatest importance in the war period and all things made subordinate to that important factor. Therefore the Alabama Power Co. was directed in December, 1917, by the Nitrate Di- vision of the Government, to build a transmission line on rights of way of that company for the United States, and to erect at Warrior on its lands for the United States, an extension to its Warrior plant. At the same time the Alabama Power Co. agreed, at the request of the Government officials, that if the law permitted the Government to sell its interests in these facilities, the company would purchase them at fair value. The desire of the Government was to pro- ceed in the quickest possible way to obtain power, having also in view limiting its investment and making a plant which would obtain for the Government the best possible salvage after the war. Those Government officials who know the facts, as Secretary Weeks, Major General Williams, Colonel Joyes, and Major Burns, have raised no question whatever as to the fairness of this contract with the Government and have expressed the view that, aside from the legal phase of the contract, the Government has a moral obligation to carry out in its agreement with the power company. In the very beginning of the negotiations the Alabama Power Co. explained tliat 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 it 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 it 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 Gov- ernment was taking power under the contract 6 per cent interest on the actual cost of the Warrior extensioon and the Warrior substation, and when the Government was not taking power under the contract to pay the Government for the power generated by said extension. Here, then, is property of the Government located where it has a going value as compared with a junk value received for most all salvaged property acquired during the war emer- gency, and maintained 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. There has been no criticism of the rate at which the Alabama Power Co. agreed to furnish power, but on the contrary Colonel Joyes testified the Government got it on very favorable terms. Reference is made to the company's letter of November 6, 1917, to the Ord- nance 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. Certainly no one in Alabama who wishes to be fair need repeat the error of the Graham report to the effect that in 1917 we had at Warrior an old plant with indifferent machinery. To the contrary, our plant was just completed and modern to the last detail when the Government took up the matter with us. Those ofl[icers of the Government who know the real facts about the matter have but recently spoken plainly and finally that this contract was one of the best from the Government's point of view made during the war period. The Graham report refers to our system as being a small system, poorly equipped before the war, which every citizen of Alabama knows is wholly in- correct. All of our plants and lines were new and modern and had only been in service some three or four years. In this idea alone lies the principal error of the Graham' report, for it was on that erroneous assumption that the committee undertook to criticize this contract. All of the facts have been brought out at the present hearing. In addition to the investment which the Power Co. had in its plant at Gorgas prior to the war, it has many lines and stations directly connected with that plant, at the same time having a large investment in a coal mine to obtain the coal required for its operation. The plant is absolutely essential to enable the company to carry out its public- service obligations in times of low water on the Coosa River. There is no possible place at the site for two plants. The plant extension in which the Government has an interest is so connected with V\e situation that it would not be possible to operate them separately. This was the view from the first and was just in line with the Government's policy in many plants of this nature, as well as for shipbuilding, munitions, etc., whereby existing facilities of manufacture were extended to meet war needs and at the same time enable the Government to dispose of them to the best advantage after the war. It was pointed out at these hearings by one of the Government officers that in respect to the greatest number of these Government contracts the owner of the land had the right to refuse to buy the additional facilities, and if he refused, they should be removed by the Government, whereas in the case of our contract we obligated ourselves to buy the additional facilities at fair value to be fixed by arbitrators, thus insuring that the Government is bound to receive a very substantial value for them. If Congress should direct the condemnation of only a part of our land at Warrior it would destroy the usefulness of our entire plant there for any other purpose, rendering our investment in coal mines practically useless to us and imposing obligations and burdens upon this company which would be very serious. It would affect our ability to serve many customers of the company if their power supply were taken away without any opportunity to obtain other power for their continued operation. In other words, we wish to point out definitely the very serious element of public interest involved in such a course. THE ATTITUDE OF THE PUBLIC IN ALABAMA TOWARD COMPANY. 11. In December, 1921, the Power Co. invited many citizens of the State to the dedication ceremony of the Mitchell Dam. now under construction on the Coosa River. There were more than 500 representative citizens in attendance at the ceremony. Public comments from every section of the State commended the Power Co.'s public-spirited attitude in its undertakings. After describing the dedication ceremony, this statement is made in the Mont- gomery Advertiser of December 20, 1921 : * '• Mr. Martin expressed regret that Gov. Thomas E. Kilby found it impossible to be present and introduced Attorney General Harwell G. Davis, delegated to represent the governor on the occasion. Mr. Davis delivered a message from Governor Kilby in which the executive expressed appreciation of the great serv- 1032 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1033 lees reiifiered by the man for whom the dam was named; of the value of navi- sntion opened by this construction, as well as the energy created. •' President A. G. Patterson, of the Alabama Public Service Commission, speak- mg for that body, said that Alabama recognizes the necessity that justice and equity be done both to the utility corporation and to the people of the common- wealth ; that such institutions are properly regarded as servants of the people, and it becomes the duty of the commission of which he is a member to place a reasonable valuation of such properties and then to permit these utilities to make a fair return upon their investments. He said that the commission stands between the utilities and the people. " Oscar Wells, president of the First National Bank, of Birmingham, spoke of the gi-eat value of the service to be rendered by the further harnessing of the Ooosa. This power, he said, is not lessened by use, nor can it be stored up for future geneiations by not being used. He spoke of the value of the industries to be made possible by the eloctric power to be produced at Mitchell Dam. which will be distributed over 1.500 miles of high-tension lines serving more than 16,000 consumers in 60 cities and towns of Alabama." The Birmingham Age-Herald of December 20, 1921. contained the following : '• In the absence of Governor Kilby, who expressed his desire to be present but his inability to attend through the speaker. Attorney General Harwell G. Davis made a short talk in which he expressed pleasure as an official of the State to be present at a ceremony connected with the development of the resources of his State. He referred to the vision of Mr. Mitchell in sensing the measure of the water powers of Alabama and to his stoutness of heart in putting over the enterprise in sptte of many difficulties. " He forecasted the time when, with the completion of the Mitchell and the other dams to be built, the Coosa would be navigable from Rome, Ga,, to the Gulf and carry Alabama products over all the seas. "A. G. Patterson, president of the Alabama Public Service Commission, sai took the power by commandeering we were going to be interfering with so many of the industries that the War Industries Board was telling us must bt' Interfered with in no wayr shape, or manner. So it was very difficult. an-601-1014 Misc.) to be shown opinions on this question, receiving in reply four inclosures, three being correspondence containing opin- ions and one a copy of Public Act 127^ Sixty-fifth Congress. Copies herewith, marked inclosures 1-5, inclusive. " 9. The Public Act 127, Sixty-fifth Congress, approved April 11, 1918, above referred to, appears to have removed not only specific restrictions of section 355, Revised Statutes, but by conferring authority upon the Secretary of War in time of war to institute condemnation proceedings in respect to any land needed for specific war purposes or upon agreement as to price to pur- chaser to write a contract for purchase and to take immediate possession of such lands did also remove any limitations of law preventing or forbidding the use of funds, under general appropriation acts for procuring supplies, for the purchase of lands, as well as other facilities necessary to the procurement of such supplies." The line of reasoning here, of course, was that the only thing that had pre- vented our using the general appropriations in the past for purchase of land had been the Revised Statutes, and that bar was lifted, and, furthermore, the fact that the legislation of 1918 specifically authorized the Secretary of War to go and take immediate possession of lands involved, and that there must be some provision for paying for them. That was the reasoning upon which it was all based. " 10. This view is supported by the following, which appeared in the fourth indorsement, .Judge Advocate General's ofiice, April 23, 1918, on Judge Advo- cate General, 601 purchase : " * It is the opinion of this office, therefore, that the act of April 11, 191S. fairly construed, confers authority for the acquisition of either title in fee or a temporary interest in lands needed for the test of guns and other munitions of war, for the manufacture of which appropriation had been made by Congress.' " That specific decision was with a view to a purchase of land for a proving ground. That is why they refer it to the test of guns. " 11. That opinion confirmed such use of supply appropriation funds for the purchase of land for the test of the supplies. If the approriation be available for such an incident to the procurement of the supplies appropriated for it would seem certain that it could be used for such an essential as land for the manufacture of the supplies." That was signed by me. Coming out of that I was given a new allotment out of the armament of fortifications appropriation to pay for the land for the United States nitrate plant No. 2, and the original allotments made for that purpose out of the " nitrate plants," section 124 of the national defense act, were revoked in toto, every cent. The Chairman. Did you return that money back into the Treasury? Colonel JoYEs. It was just a credit on my books, and when an allotment is revoked it means that the credit is taken back. It is the same thing as if I had written or received a check for $350,000 and I drew my check for $350,000 back. As a matter of fact, it was transferred to another account in my office; it was turned over to plant No. 1 to help finish up, I think. The Chairman. The money for plant No. 1 was taken out of the money Colonel JoYEs (interposing). Yes, sir; but I say that that $350,000 from the national defense act which had been given me to buy land for plant No. 2 was, I think, simply transferred to plant No. 1, because we needed more money there. At any rate, it was credited to some other activity or else taken away from me. It was altogether separate from any connection whatever with plant No. 2, the cyanamld plant, and there was never a cent of it spent for that pur- pose at all. There has been so much said about that that I thought I had better go into it rather elaborately to clear it up. The Chairman. We are very much obliged to you, because the whole thing seems to have been all mixed up. Colonel JoYEs. I have been digressing. Mr. Chairman. You wanted me to analyze the provisions for sale in the Alabama Power Co. contract. The Chairman. Let me ask you this question: You considered that nitrate plant No. 1 was constructed under the act of June 3, 1916, the national defense act? Colonel JoYEs. Absolutely; yes, sir. The Chairman. And you considered that nitrate plant No. 2 was not so constructed? Colonel JoYES. I know it was not. The Chairman. It was constructed out of money appropriated for armament of fortifications? Colonel JoYES. The money appropriated to purchase munitions and armament of fortifications ; yes, sir. I think every penny came from that appropriation. There may have been some other, but absolutely not a penny of it came from the national defense act, I am sure of that. We were afraid to go on with it, because of the talk about the prohibition against working with a corporation* We could not do it. We thought we might do it in the first place, but we were afraid all the time, and as soon as we found a way out we got out, and got out quick, and everything connected with it. The Chairman. That is very instructive. Colonel JoYES. Coming back now to the provisions for sale in the Alabama Power Co. contract. When we started out we had a proposition from the Ala- bama Power Co. which said if we would advance them about two and a quarter million dollars they would put in there necessary facilities as their own invest- ment, and would then furnish us the power that we wanted, give us a firm demand for it, and something like 7 mills would be the price, they would ask for It on every kilowatt-hour which we bought from them, and they would give ns back so much, immediately, or set it aside, to make an amortization fund to pay us back what money we had' advanced. When we could not make thf* loan we thought we would make the construction ourselves, because we could see a color of a way to do it. We then cast about to see how we would be sure to get some of that money back. We figured we would try to have some kind of a repayment to us each time we made a payment to them for power, that we would get some back into the Government's pocket to go toward the I 1058 MUSCLE SHOALS PaOPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1059 repayment of a good, substantial pan of the money we liad put m for that •structure. We worked always along those lines, and when we looked at it we said, "How are we going to fix that up; what are we going to do with itV If we take the money back, it must go somewhere; how is that going to be treated *> If we buy the power from the Alabama Power Co. and pay them, and then we say to them, * Give us back so much, then we can put into the Treasury what comes back, and that will be a partial payment for the purchase of that plant by them.' " It was the only way I see, or ever did see, how you could handle it and it was exactly the plan that was being followed in other places. I can show vou, if you want it, that instead of this contract being, as some jpeople have hinted, an unprecedented monstrosity, it has got lots of good prece- dents and that the precedents have gone further than it went, and that those that went the furthest got the best ultimate result in the settlement generally. The CHAIRMAN. Who entered into the contract with the Alabama Power Co. for the Government? . Colonel JOYES. The signatory officer was Col. William Williams. The Chairman. Did you have anything to do with it? Colonel JoYES. I had a gi'eat deal to do with it : all the time I took a leading nart I was in charge of all the negotiations from December, 1917, up to about August 1918. or thereabouts, and from that time on I took a leading part in the negotiations. Col. William WMUiams was the one who was looking out to see that the thing was put into the best possible legal shape it could be, and vet put in nothing in the way of a provision that I did not assent to. There Were other people with us. I had men of large experience in power matters, who had been frequentlv employed by several of the big investment companies, and I had some lawvers with me who had had considerable experience. One man who helped a great deal a number of times was Mr. Anson Burchard, vice president of the General Electric Co., who was in a strictly advisory canacitv so far as anv official appointment was concerned ; but he was a man who had been brought^ in by Mr. Stettinius to handle some of the certain broad aspects of business for him and give him the big business point of view upon them as to what they really were. The Chairman. I take it from what you have stated that by reason of the fact that vou did not use a dollar of the money that was appropriated m the act of 19i6 and vou did use the money from the fortifications allowances, at nitrate plant No. 2. you felt you were not running counter to any of the provisions of the act of June 3, 191C, in building that plant. Colonel JoYES. I felt absolutely confident of it, sir; did it with that intent, and felt absolutely confident we were perfectly correct in it, and had been so advised by several people at the time. I never had any doubt of it. The Chairman. I think that is about all the information we want on this subiect I think all the correspondence that you say Mr. Williams had re- garding this matter you have either read to us or it is in the record. You have read to us those things which we did not have in the record before Colonel JoYES. I have read no correspondence of Colonel Williams. The correspondence I read was between me and the Ordnance Office, and the rnclos- ures to it were the decisions from the Judge Advocate General's office. Mr. Parker. I want to know whether the correspondence on which you made the agreement with the Cyanamid people Colonel JoYES (interposing). Starting that work? Mr Parker. The whole thing is in the record already? Colonel JoYES. Yes ; I think that is all in the record. • , , „, ^„ The Chairman. Some of the members of the committee will want to ask you ^^Colonel JoYES. I would like to volunteer one thing, Mr. Chairman, and that is in connection with this analysis I have made of the provisions for sale, sev- eral copies of which are around the table. That was intended to be helpful, and I did it because a view of that article, Article XXII, or whatever the number is, is very difficult to get from reading the contract. I had to sit down and make this analysis in order to understand it myself and know just what it meant, in spite of all the work I had done in connection with it. This analysis first gives a column covering the time or conditions under which the different alternatives come up, and then another column covering the provisions for dis- position, and a third column stating what consideration there is. The first section of that article says that three years after the end of the war the United States has the option to demand that the contractor purchase the WaiTior extension and the Warrior substation, and the consideration is the arbitration value. The second section of the article says that if and when the accumulated fund shall equal or be greater than the actual total cost the United States has spent, then the contractor may demand that the United States convey title in the Warrior extension and the Warrior substation back. In that case the United States was to retain — and you will find that the contract supports this state- ment absolutely — the United States was to retain the total that had been paid in by the Alabama Power Co. to it from time to time while it was buying power from them, except such surplus as the Alabama Power Co. might have paid to the United States over and above the total original expense of the United States. In other words, under that settlement, if we took power from them long enough, bought enough power, under the contract there would have been enough money paid in by the Alabama Power Co. to the United States to more than cover the actual total expenditure that we had made on the proposition. In that event they could demand that we sell to them, and we would then sell to them at the total we had spent, every penny of it back. That was, of course, hypothetical, you would say, a thing never to be realized. But it w^ould have been realized, and if you figure it out I think you will find that if we had gone on to the end of the period contemplated by the contract, 10 years, it would have been realized. We had no way of telling at that time how long the war would go on, and whether the plant would have a use after the war. So that is not altogether hypothetical. The third alternative, in section 3, said that at any time whatever the con- tractor may demand that the United States convey title to him, provided he pays the total actual cost we have put into it. The fourth alternative, in section 4, provided that after December 1, 1926, or prior to that, if the United States finally ceases to take energy, and the accumulated fund is less than the actual cost, the contractor may demand, eventually, that the plant be sold to it at a value to be arrived at by arbitration. Of course, if we are going to provide for any sale, if we are going to have an agreement that is worth anything, we have to touch upon the price. We could not set a firm price; neither side could then set a firm price, because we could not tell what the conditions would be. or the value of the plant, or anything of that kind. In some of the earlier contract drafts we wrote that the prewar cost would be the price, thinking that was the way to f^et at it. Ultimately we came around to what we considered a much happier expression of it, that the value as fixed by arbitration should be the value, and I think the definition of that value, the arrangements for arriving at it are sufficiently clear in the contract to show that that meant a fair value as a going concern at the time the appraisal was made. The principle that has been followed in settling other contracts of a like status, has been that they figured out a reproduction value of the plant at the time the appraisal was made, estimating what it would cost to build that plant at the time of settlement, say. for example, to day. Then, assuming a plant actually built, say in 1918 — it has been used for four years — and you charge off four years of depreciation, four years of the life of the plant are gone. So you arrive at a fair present value, and naturally there may be consideration, and I think should be and would be consideration given to the market for the product of the plant, and all other considerations indicating its value as a going concern. That was the thought we all had in our minds on our side, and I am sure the same thought was in the mind of the power company, from what I have heard them say. I am not speaking for them, but for myself. The fifth proposition was another option, that if the contractor failefl to purchase on the demand of the United States, the United States may sell to another party, but not for operation. But it must remove all of its property from the premises of the power company within six months. This being not a sale to the contractor, the price is, of course, problematical. It works no hard- ship upon the United States at all. The situation was this. You look back at my original purchase order and you will find that I called upon the power company to grant us the temporary use of their land in order that we might build up there the facilities for what we wanted, and it was our thought all the time that it was a temporary use of their land and their facilities. There are plenty of precedents for that in other work done during the war. There was a coke-oven contract I happened to look at the other day, signed in May, 1918, to build a coke-oven plant, and I 1060 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1061 build it upon ground leased from the owners, who were to be the owners of the plant, and there is a provision there for the sale of the plant back to the people who owned the land. They were allied to near-by steel people, etc. To show how that kind of a contract is apt to work out, that contract was settled in 1920, and the Government had spent $6,000,000 on the job, and it was closed out by payment back to the Government of $4,140,000, about 70 per cent of tlie Government's war expenditure for that purpose, brought back to it and recaptured. I happened to see several others which were settled about in that proportion, anywhere from 50-50 up to 75 per cent of the original ex- penditure came back to the Government. There are some other provisions, such as financing power companies at other places, where the Government actually put in money after an arrangement was made by which they could do it, and they had not even the same color that we had here. It was not a question of the United States ever owning anything. The United States just put the money in the bank and the people drew upon it without any restrictions whatever, other than the business undertaking to put it into the plant that they were building for Government purposes. They put in some money of their own, and upon final settlement the power company was not to repay all of the advance, but got credit for depreciation, excess war costs, etc. The company owned the plant when they got through. There are two contracts — one the coke oven and one the power plant — and I could give you the details of several other coke ovens or power- plant transactions along those lines. There is still another proposition, and this is the vital point, I think, in the whole of article 22 of the contract ; that is, in section 6. The alternative there is provided that should anything be wrong or unenforceable in any of the preceding alteratives, if the plant be not sold in 10 years from the date of the contract, 1917, or if for any reason the United States did not take energy from the company for 365 days, the United States shall, upon demand, remove the Warrior extension and the Warrior substation within six months. In other words, it ceases its temporary use of the property of the Alabama Power Go. and gets out of the way ; that is, unless the United States shall exercise its option No. 1 and demand that the contractor purchase at the arbitrated value. That is all there is in that. Mr. Pabkeb. I thought No. 1 related to the cost? Colonel JoYES. No, sir; option No. 1 is on arbitration value. The seventh provision relates to the transmission line. The Chairman. You have just one more provision? Colonel JoYEs. Yes, sir; the seventh relates to the transmission line, and says if the United States shall take no energy under this contract for two years, or in any event in 1927, the United States shall remove the transmis- sion line from the Alabama Power Co.'s premises, unless the United States prefers to demand that the contractor purchase it at an arbitrated value — that is the gist of it. The Chairman. Mr. McKenzie will yield to Mr. Greene, because Mr. Greene will not be able to be here at 2 o'clock. Mr. Greene. Colonel, I rather think, on reflection, that my questions have been anticipated in some of the questions that have been directed to you already. But I want to be quite sure I understand this situation as you do. Acting under the direction of section 124 of the national-defense act you es- tablished the nitrate plant that was contemplated by it, at what is now calletl nitrate plant No. 1.? Colonel Joyes. Yes, sir. Mr. Gbeene. About what date was that policy determined upon and work begun or preparations for it begun? Colonel JoYES. I am quite sure it was within a day or two of July 13, 1917. It was within a day or two of that date that the matter was approved by the President and by the Secretary of War and handed to General Crozier and passed over to me. Mr. Greene. What was your understanding of the language of section 124, that the Government was embarking in anything like an established and con- tinuous manufacture of nitrate and fertilizer, or that such plant as was to be set up under section 124 was in the nature of experimental, research work, looking toward the development of the art? Colonel JoYES. I think the language unquestionably, primarily, covered in- vestigation and preliminary searching out. and at the same time the act did provide specifically that the President might take over processes and take over power facilities, make power developments, etc. And it provided for the sale of the proceeds, etc. I thought there was ample provision of law under that, if it had been desired to do it, and if the time had been thought to be ripe to go into an acthal business, the business being primarily for munitions and material for munitions, and rather incidentally for agriculture. Mr. Greene. When you had therefore done the business you did with what is now known as nitrate plant No. 1 you thought you were in compliance with sec- tion 124 of the national defense act, and that you had carried out its general intent and purpose. Colonel Joyes. Yes, sir ; but not necessarily completely. Mr. Greene. As far as you went? Colonel Joyes. Directly under it. Mr. Greene. When you started on No. 2 that is the time you divorced your- self from section 124 of the national defense act, after some reflection, and after thought about it, taking counsel to make yourself very clear in your position that you were no longer acting under that ; believing that you had accomplished, as far as you had gone, the purpose of section 124 in another place ; is that your understanding? Colonel Joyes. Yes. sir ; especially so because the cyanamid process had been quite considerably before the nitrate commission, which made recommenda- tions as to the program to be followed out, and they had declined to recom- mend it. I would prefer, if the committee is interested in that, that you look up the actual wording of the report of the nitrate commission. I can give it to you, if you desire it, because I would be afraid that a little turn of a phrase might have a wrong meaning. I do not mean to say they ever recommended against it, but they had considered and passed over it, and recommended other action. Mr. Greene. What I am getting at is w^here you differentiated between not merely the authority and limitation of section 124 of the national defense act, but this property which is now under our consideration. If it is to be understood 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, then we are to understand that nitrate plant No. 2 was primarily and completely a war proposition? Colonel Joyes. Absolutely such, in my opinion ; that was my intent, and that was supported by the nature of the actual need which inspired the creation of plant No. 2. (Thereupon, the committee took a recess until 2 o'clock p. m.) after recess. The committee met, pursuant to recess, at 2 o'clock p. m. STATEMENT OF COL. J. W. JOYES, ORDNANCE DEPARTMENT, UNITED STATES ARMY — Resumed. The Chairman. Colonel, when we took a recess, the members of the com- mittee were about to begin asking you questions. Out of order, Mr. Greene, of Vermont, asked you a few questions. We will now begin by having Mr. McKejizie ask you some questions, he being the senior member on the com- mittee. Mr. McKenzie. Colonel Joyes, you are a commissioned officer in the Regular Army? Colonel Joyes. Yes, sir. Mr. McKenzie. How long have you been commissioned in the Regular Army ? Colonel JoYES. My first commission was dated in 1894, June 12 or there- abouts — 1894, when I graduated from the Military Academy. Mr. McKenzie. You are a graduate of the West Point Military Academy? Colonel Jo YES. Yes, sir. Mr. McKenzie. Have you been continuously assigned to the Ordnance De- partment? Colonel Joyes. I have; since 1897. Mr. McKenzie. You explained at some length this morning, Colonel, the different funds from which the construction at Gorgas and also at Muscle Shoals, used in construction at those two different places, and gave a very interesting explanation. However, do you consider that material at this time so far as this committee Is concerned? 1062 MUSCLE SHOALS PBOPOSITIONS. o S^lTli ''^^'^^^' ^ ^*^^ "^^ ^"y ^P-^^on about that, sir, except I have noticed a good fcany remarks on the record before to which considerable imDirtanc^ mtnTof Ve^acts ^^' '' ' ''''"^''' '' "'' ''"'"'''''' '" ^'^^'^^ byTstTte' as^uStrnt h^^n^dffn^tf^^^^^^^^^^^^^ ^^^ ^^^^^ «^ ^^^ ^^^^«^-' Colonel JoYEs. Yes, sir. Mr. Mckenzie. And as such chief, if I understood your testimony correctlv fZ t-tw^"^ ^"i^''^ '^'"P^^^^ responsibility for all Zt occuSe^in cS: tion with the development at the Warrior steam plant and at Muscle Shoals Colonel JoYEs. Yes, sir. The purpose of the Division T, later called the farVvL''ou7Tthr^-'f^'''\' ^^'^^ ^^^^^"^^ "^ ^^^y' 1^17' ^^«' of course, he carrying out of the different purposes and objects of the national defense act section 124, the nitrate supply, which was largely the investLation of D^sfblP processes and perhaps the development of promising p?ocessls ; in general to lo^ around and see what we could find, in addition to the car?vfne onf n? certain specific things that had been recommended Sy the Nit^rtesCommis sion. ^ow, pursuant to that, after starting out on the special \wkwS the commission had recommended, that was No 1 plant Co'o^efr^'f* Yp^"" Iw- ^/hnV' '^^ ^^^' ^^ ^^" '^^'^ «* ^^«t commission? followed— ' ""^^^ recommended by the commission and we r.^n^ Mckenzie (interposing). I mean the date when they filed the report of which you are speaking. iei««t oi o.^'''?''^^ .^""J^^- ^ ^J"''^ "'^^ ^^P^^'t was dated May 11, 1917, or thereabouts and It had been under discussion for some little time, and it was Sv an proved on or about the 13th of Julv 1917 That T thi^iT JLlu ""^^y^ap- that Mr Baker. Sec-retary of War^tad^^it ovir' wit'h'Sfs aTd thi Pre«?de„rl !?,ffi.-^'.'J''' P'^^'^^'^^P^^^^.^^ ^'^^ ^"^ ^'^ two others, none of which was iH orderly study of all the processes that might be heard from and to do what we could to investigate them. T ^? the course of that a prominent process was the cyanamid process, and, as ^^l' li!^^ ?^'^f ^'^^ ^^^^^ the commission had considered very carefully ind which they had not seen fit to recommend for any immediate attention by the Government for several reasons: In the first place, it was a thoroughly devel- oped process. Another reason, not exactly stated by the commission, but, I think, to be inferred from their report, was that they thought the cyanamid process would not be the most economical process of the near future; but, any- how, we thought It worth while to reexamine that a little bit, realizing that we were then m the war and might have a need to make some use of certain processes of fixation for the immediate, urgent demands of the war We cast about to see what we could use in an emergency of that kind, and we decided in our mmds that the cyanamid process was the only process we could use for that purpose, and so that was the answer we had ready to make when we were asked if we could help out, in October, 1917,. in the provision of needs for the war. So you see how we were drawn into it in that way. It was rather an incident, due to the fact that we were an organization already established, with some information as to fixation processes. Mr. McKenzie. At any rate, you decided that you would undertake to process nitrates m two ways— by the cyanamid proces and also by the so-called Haber process, or the synthetic method, I believe you call it. Colonel JoYEs. Yes, sir. Mr. McKenzie. Now, Colonel, you testified this morning that vou had a num- ber of assistants. Colonel JoYES. Yes, sir. Mr. McKenzie. Who were also commissioned officers in the Army? Colonel JoYES. Yes. Mr. McKenzie. Emergency officers? Colonel Joyes. The principal ones were ; yes, sir. I had no Regular officers assigned to me at all at that time. I had a number of men commissioned in the National Army, or Reserve Corps first and then the National Army, and MUSCLE SHOALS PBOPOSITIONS. 1063 then some of them later on got commissions in the Regular Army, but I also had some civilians. * o j, ^ Mr. McKenzie. Did you have anything to do with the procuring of commis- sions for these various officers that were under vou in this department' Colonel Joyes. Oh, yes. Mr. McKenzie. You did? Colonel Joyes The only way you could get an officer in those days was to try to find somebody you thought had what you needed, and go out and rustle for him and fight with other people for him. Mr. McKenzie. Was Colonel Williams commissioned at your request' Colonel JoYES. No, sir ; I never heard of him until I took the contract to him • at least, I never heard of him directly. Mr. McKenzie. Were any of the officers you mentioned this morning com- missioned at your request? Colonel JoYES. I do not think so. Those lawyers? Mr. McKenzie. Yes. Colonel Joyes. I do not think any of them, except possibly Nightingale. Cap- tain Noble, I think, was already commissioned before I got him. I asked to have him transferred to me if I remember correctly. I never saw him until he reported for duty. I know that. Mr. McKenzie. Just what procedure did you go through with down there when you wanted to commission a man? Haw was it brought about? Colonel Joyes. Well you generally tried to find where you could get a man who had what you needed. You generally had an interview with him to find out if he appealed to you and then you would get him to make up an applica- tion and pass it through some of the boards that they had. They changed the organization several different times during different epochs of the war but you always had to go first through the personnel branch of the Ordnance Depart- ment and get them to O. K. it and then get the man commissioned by the "higher-ups" in the War Department. It was a pretty slow process some- times and sometimes it was rather easy. Mr. McKenzie. Is it not true that frequently a man was commissioned an officer in the Army on the recommendation of friends who might come to inter- cede for him — I mean in the different staff corps? Colonel Joyes. I have not much dout that was done in some cases But I do not think that the intercession of friends was a determining factor in many appointments made during this war. It was remarkably clear from that sort or thing. It was always required that the man being proposed for a commis- sion or seeking one would have to put up some letters from persons that he knew, stating what kind of activities he had been engaged in, what kind of edu- cation and capabilities he had, and so on. It was always preferable and more weight was attached to those that did state something specific about his capa- bilities, his education, and the kind of position he had held of trust, etc. Mr. McKenzie. I do not take it that that is material, Colonel, in this particu- lar examination. Colonel Joyes. No, sir. Mr. McKenzie. Inasmuch as you have already stated that so far as these two particular contracts are concerned, the one with the Alabama Power Co. and the one with the Air Nitrates Corporation, thev had your unqualified approval. Colonel JoYES. Yes, sir; meaning, of course, approval in the sense of con- currence — not necessarily of admiration for each individual point of the contract. Mr. McKenzie. But you O. K'd them. Colonel Joyes. I officially approved them; yes, sir. Mr. McKenzie. And you were the representative of the United States Gov- ernment that had the power through your inferior officers to bind the Govern- ment in these two contracts and did do so? Colonel Joyes. Essentially, that is correct, but it is not exactly accurate, Mr. McKenzie, because at certain times I did not have the delegated power to put my name to a contract. Mr. McKenzie. I see. Colonel Joyes. And I did not always have the unqualified power to sign a contract and have it stand and go forth and be executed without approval by some other authority. Now, coming to this Alabama Power Co. contract, for example, I knew you would ask questions about that particularly, so I happened to get up the ap- 1064 MUSCLE SHOALS PROPOSITIONS. proval records for that, and I will show you what we had on it. I think I have that here. Take, for instance, this Alabama Power Co. contract; this is what they call the approval sheet that was attached to that contract, headed with the title of the contract and signed first by me as negotiator, signed by C. F. Beames, major. Ordnance Department, United States Army, and by E. P. Prentice, major. Ordnance Department, United States Army — and I will say, by the way, there, that Major Beames was under me and was one of my sub- ordinates. Then there was Major Prentice, Capt. G. M. Alexander, Lieut. Col. Dale Bumstead, Ordnance Department, Maj. R. H. Swartwout, Ordnance De- partment. Those four, I think, were all officers of the procurement division of the Ordnance Department, and it was their especial duty to examine con- tracts that were put up to them and give them an examination, and sign if they concurred. They had no part in the negotiations and were therefore in the nature of officers of review. Then, below that appears the notation, "Ap- proved by Board of Contract Review of Procurement Division, November 8, 1918, (signed) W. Arthur Babson, secretary." Below that appears this state- ment: "I concur in the approval of this contract, (signed) Anson W. Bur- chard." He is the vice president of the General Electric Co. and was the thor- oughly trusted but not official representative of the Assistant Secretary — first Mr. Stettinius and later Mr. Crowell. Mr. McKenzie. Colonel, you have stated that the report of the nitrates commission was filed, I think, some time in May, 1917. Colonel JoYES. Yes, sir. Mr. McKenzie. Up to that time had you taken any steps to develop the production of nitrates? Colonel JoYES. I had not been connected with the matter at all until the later days of May, 1917. I was in command at the Picatinny Arsenal, the powder factory in New Jersey, and was brought out of that establishment about — I left there about the 27th of May or else arrived here on the 27th of May. Mr. McKenzie. How soon after that did you become interested in nitrate production ? Colonel Joyes. Immediately I arrived in this city, in the last days of May, I was told that that was my duty and I began to read up on it, because up to then I had paid no particular attention to it, except as a matter of news and current information ; and I was informed of the report of this commission and was told that it was just waiting to have the attention of the President and the Secretary of War, which I told you we got about the middle of July — July 13th, I think. Mr. McKenzie. Now, when did you first come in touch with the Muscle Shoals proposition, the cyanamid proposition, and the Alabama Power Co. proposition? I want to know first when. Colonel JoYES. In September of 1917, pursuant to the general examination of the possible processes of fixation of which I have spoken to you, I decided that we would like to know a little more about the cyanamid process than we had found of record, and I had my office get in touch with Mr. Washburn, of the Cyanamid Co., telling him we would like to know a little more about it. and should like to hear a little from him as to its possibilities and so on, and people from my office had one or two interviews with him, and somewhere along in that time I met him, but the talk with him over the situation was mostly done, I think, by Colonel White, who is the head of the chemical engineering department of the University of Michigan now and before the war, and also by Captain Gaillard here. Then coming out of that we thought it well to have an explicit statement from the Cyanamid Co. as to what they would do in case we needed them, and I had such a letter from them, making a specific statement as to the general character of the terms upon which they would undertake to build a plant for the United States. That was some tim'e prior to the date, October 29, that I cited to you as the first proposal for the Muscle Shoals plant, because it was not a proposal specifically for the Muscle Shoals plant, this earlier one, nor was it one for exactly that type or size of plant. You get the difference I am trying to make clear there? Mr. McKenzie. Yes. Colonel JoYEs. That was the situation then. Mr. McKenzie. Now, you had been in charge of this matter from the latter part of May until September. Had you had the matter up with anyone else other than Mr. Washburn prior to that time? MUSCLE SHOALS PROPOSITIONS. 1065 Colonel JoYEs. We had conversations with a gi*eat many people as to dif- ferent processes. I had had, of course, some conversations or talks about the cyanamid as well as other processes with different people. Mr. McKenzie. Up to that time had you visited Muscle Shoals or the War- rior steam plant? Colonel Joyes. Not the Warrior steam plant, sir, at all, but I had visited Muscle Shoals. Mr. McKenzie. When? Colonel Joyes. Some time probably in July or August. The way of that was this: I was hunting for a suitable place to build the first nitrate plant — just that — and I had such people as I could get hold of, as I was building up my orgJinization, and I would send them out on the road to look at any place we thought at all promising, and when they got some place they thought would be worth while. I would go down and inspect it. In the coui*se of that period I made probably three or four trips myself to see places that had been scouted out. We started first to try to find a site for that plant in the western end of Virginia, which was the section particularly pointed out by the Nitrates Com- mission, for various reasons, but mainly because of its proximity to the sul- phuric acid plant of the General Chemical Co., at Pulaski. That was the main reason. We tried hard to get one around there, but it was a very mount^iinous country, very uneven, and it was difficult to find an area suited fof our work, etc. So we gradually went on down until we got down as far as Muscle Shoals. Mr. McKenzie. And you visitjed Muscle Shoals in July? Colonel Joyes. Somewhere along there. Mr. McKenzie. And then along in September or October you sent for Mr. Washburn, as I understand you? Colonel Joyes. Yes. Mr. McKenzie. And then you entered into negotiations with Mr. Washburn? Colonel Joyes. Yes. Mr. McKenzie. Did he represent the Alabama Power Co. at that time? Colonel Joyes. He did not, sir. Mr. McKenzie. He represented the American Cyanamid Co.? Colonel Joyes. The American Cyanamid Co. Mr. McKenzie. And that had to do only with the Muscle Shoals proiwsition? Colonel Joyes. Yes, sir; the nitrate plant to be built at Muscle Shoals. Mr. McKenzie. Now, then, when did you come in touch with the representa- tives of the Alabama Power Co.? Colonel Joyes, I think absolutely the first point of contact with them wa*: their proposal of November 6, I think, 1917. [Witness subsequently re<*alls a letter dated Noy. 1, 1917.] It has been read and put in the record, which came. I am sure, before I had seen any of the officials of the Alabama Power Co. even, or any of their properties, or anything, and then following that we had some conversation with them, which I do not think began until the latter part of November or early in December — somewhere along around there. Mr. IVIcKenzie. At that time had you decide " Colonel JoYEs. We had it in our minds that in order to carry out tlie plans that we were considering with the American Cyanamid Co., we would have to make some provision for getting the power for the first half production of the nitrate plant from the Alabama Power Co. There was no other place to get it Mr. McKenzie. And that would be 55,000 tons or thereabouts Colonel JoYEs. That would be the production of ammonium nitrate from the nitrate plant and the power for that was variously estimated in those days There was some uncertainty about it, but we figured from thirty to thlrtv-flve thousand kilowatts would carry us through at that time. Mr. McKenzie. At that time you did not have the Haber process in mind when you were having this conference? Colojipl Joyes. We had it very prominently in mind, because we were build- ing a plant to use it— a slight variant of the Haber process— but we did not contemplate the use of it for the war needs which were then being stated to us as so urgent, because we knew and we were getting to know more and more every day that we could not reply upon it being in production at anv given definite time. ' ' Mr. McKenzie. Who was at the head of the War Industries Board at that time, Colonel? Colonel JoYEs. The man who was generally recognized as the active head I believe, was Mr. Baruch. '' Mr. McKenzie. Mr. Barney Baruch? Did you have anv conversation with him about this matter? Colonel JoYEs. Yes ; I had quite a few conversations with him and with hi« technical assistants. He was present at several of the conferences in the office of the Chief of Ordnance at which the several successive proposals of the American Cyanamid Co. were considered, from October 29 to November 13 1917. Furthermore, he introduced me to the ruling board or the clearance com- mittee, or whatever it was called, the committee which had to clear any big project, in the War Industries Board, when we presented this proposition of the American Cyanamid Co. That was, I think, on or about the 14th or 15th of November, 1917, after General Crozier, in his office and with this advice had decided to take it, and then it had to go and be cleared through the War Indus- tries Board. I took it up and Mr. Baruch went in with me and prese:ited the matter in my presence to this board, the War Industries Board, and they had some discussion of it. It was put to a vote and approved. Mr. McKenzie. Now, Colonel, at that time, of course, you have stated vou had in mind the development of the cyanamid process at Muscle Shoals and that the Alabama Power Co. was a secondary consideration from which plant you expected to get a certain amount of power to aid you in the initial manufacture of one-half the capacity of the plant. Colonel Joyes. Yes, sir. Mr. McKenzie. If I understood your testimony this morning, vou stated that you did not feel disposed to take over the plant of the Alabama Power Co at that time, which would disturb them in their sale of their product to their natrons or customers. Colonel Joyes. It was e.ssentially like that, only it was not consideration for their feelings or their iwcketbooks that kept us from doing it. It was a consid- eration of what complications would arise and what we would get the United States into. Of course, we considered everybody's rights and we did not want to go in and disturb anybody in his business if it could be avoided ; but if it was essential, and if it was going to be advantageous to the Government, we would not have hestated a moment. Mr. McKenzie. Now, Colonel, you were familiar with what was going on at that time all over the country, were you not? Colonel Joyes. Yes, sir. Mr. McKenzie. That thousands of acres of farms were being taken and just blanket authority given almost over entire counties. Colonel Joyes. Yes, sir. Mr. McKenzie. And the rights of the people just simply set at naught because it was justifiable on account of the fact that we were in war. Is not that true? Colonel Joyes. That is true; yes, sir. Mr. McKenzie. Now, then, you were also aware of the fact, were you not Colonel, at that time, that Mr. Baruch as president of the War Industries Board was also in charge of the priorities board? Colonel Joyces. Perfectly. Mr. McKenzie. And that he stated in his testimony that a citizen could not even get a piece of zinc to fix up his kitchen sink without a priority order "^ Colonel Joyes. Yes; that was rather to make it striking; he did not mean it literally ; but the idea is perfectly sound. Mr. McKenzie. He was all-powerful? Colonel Joyes. Quite right. Mr. McKen;:'ie. He had absolute power; more power than anv man has ever exercised in this country. Is not that true? Colonel Joyes. Yes, sir. Mr. McKenzie. Now, then, we come to the Alabama Power Co., and you say you wanted that power to help develop the first unit at Muscle Shoals ; but in- stead of taking the strong arm of Mr. Baruch and reaching out and putting it on that plant and saying: "'The Government needs this power," what did you do? Colonel Joyes. I will tell you what I did in just a moment, and in the mean- while you will remember that this morning I told you that when the law was passed that permitted us to take over any lands Mr. McKenzie (interposing). Well, we did take lands, however? Colonel Joyes. The first law that permitted us to take over lands or com- mandeer lands for anything except military camps was passed on April 11, 1918. For military camps and the like we could take lands. You gentlemen had passetl a law permitting us to do that in July, 1917. You did not do it for any of the munitions production at all until April, 1918. Again, we come to the matter of commandeering supplies, and the national defense act of 1916 allowed us to com- mandeer supplies. Mr. McKenzie. And plants, did it not? Colonel Joyes. But let us look at the language of that act. I have it here, section 120. This is a copy with all the corrections to date, but the index shows that this is just exactly as it was originally passed : " Sec. 120. Purchase or procurement of military supplies in time of actual or imminent war : The President in time of war or when war is imminent is em- powered, through the head of any department of the. Government, in addition to the present authorized methods of purchase or procurement, to place an order with any individual, firm, association, company, corporation, or organized manufacturing industry for such product or material as may be required," etc. Now, there was a great fight over that language in 1917, and I remember dis- tinctly hearing a lot of discussion between lawyers and officers of the Govern- ment as to whether power could be considered "product or material," as ex- pressed in the language of that law, and the general consensus of opinion was adverse. I am speaking of the period of 1917, and I remember hearing a num- ber of discussions and I remember getting, verbally, opinions from people in position of authority or in a position to know, at least, who told me that vou could not consider power a product or material. Later, they did. Mr. McKenzie. Colonel, I do not want to weary you. Colonel JoYEs. That is all right. Mr. McKenzie. But I just want to get a few of these facts. Colonel Joyes. I think that is a very pertinent point, a very pertinent point. Mr. McKenzie. What was the capacity of that Warrior plant, in kilowatts or in horsepower. Colonel Joyes. The plant that the Alabama Power Co. had, the steam power plant on the Black Warrior River, was generally called a 20,000-kilowatt plant. That means that running about as it would be expected to run in service it would deliver about that amount of power continuously, capable of going perhaps a little over. Mr. McKenzie. Would that have furnished you sufficient power to go on with the construction at Muscle Shoals? Colonel Joyes. Oh, if we had that working for us it would have been very useful in the construction period and would have given us a considerable por- tion of what we wanted for our first production at the Muscle Shoals plant; but we did not have the call upon that without taking it away from other people. Mr. McKenzie. That is the point I am getting at. Colonel Joyes. When we talk about that steam-power plant at the Warrior, you really can not divorce that from its function or its place in the system of 1068 MUSCLE SHOALS PROPOSITIONS. the Alabama Power Co.. The company, of course, had water power — some 60,000 to 70,0bo horsepower — and the.v aimed to sell water power whenever the river was running enough to give it. Then, like all other power companies with run-of-the-river power, they had to have steam stand-by plants to bolster that up, and when the river was only running about 15,000 Ijilowatts, say, and they had contracts for 35,000 kilowatts that they had to meet, then they would start up this steam plant on the Warrior and supply the other 20,000. That is how it was run and organized. Mr. McKenzie. What I am trying to get at is your justification of the pro- cedure in connection with this plant, having in mind what was happening all over the counti-y in other places. For instance, men were prevented from using their automobiles on Sundays in order to save gasoline and we were compelled to eat black bread in order to conserve flour and everybody was discommoded in one way or another, and at the same time, I want to know your reason why it was not just as fair to say to the Alabama Power Co., " We want the use of your power for so long a time while we develop power at Muscle Shoals," and, of course, they would have received compensation for it? Colonel JoYES. There was not the slightest hesitation to do that, but they could not make any additional power, any more than they had facilities to make. Mr. McKenzie. I understand that. Colonel JoYES. And what we took from them was not taken from them but taken from their customers. We had a list of their customers and looked them over and found that such a great proportion of those customers were businesses that were essential to the war, that it would not have been justi- fiable to stop the power for them. For instance, there were all the steel mills at Birmingham — I do not mean all of them, but many of them — that took the power, and there were ferromanganese plants, and ferromanganese was one article of great stringency, and I think it had about one of the highest priori- ties of any branch of production, and there were other things along that line. Then there were certain other things, some of the cities depended upon it for their light and essential power of that nature, and altogether we thought there were too many of those things to make it possible for us to interfere with that supply and that we had to provide some additional facilities. Mr. McKenzie. NoWf you built a transmission line and you got some power over that to be utilized in the construction at Muscle Shoals. Is not that true? Colonel JoYES. Yes sir ; it was ready in the spring of 1918. Mr. IMcKenzie. In other words, you got whatever the Alabama Power Co. did not have a market for down in Alabama? Colonel JoYES. Provided we needed it. Mr. McKenzie. Provided you needed it; yes; but the thing I would like to have you explain a little further, if you can, is the sacred rights enjoyed by these people down there over the other people in the country, and why you did not exercise the power which Mr. Baruch said he had, to simply put the strong arm of the Government on that plant and utilize it to such extent as the Government needed it. Colonel JoYEs. I have told you, sir. that we could, although there might not be laws for it, and we were not hesitating to do that a moment, so far as the power company w^as concerned, but it was not taking it away from them, it was taking it away from the industries which had a high priority, and wo could not take it away from those industries. That is what it would have meant if we took the power from the Alabama Power Co. system without pro- viding some additional facilities. Understand it might have been done at certnin periods of the year, and it was so represented to us by the Alabama Powr Co. We saw ourselves from an analysis of their records, all of whicli we had and looked over carefully, that at certain periods of the year they had a surplus of power and plenty of it, and we could have had it without ;i whimper and without hurting anybody at all. There was some more we could have taken without hurting the essential industries, but that was only for a brief period, and if we went in to rely on that and got our processes working the first thing we would know we would be up against a period when the river was low and there would not be any way for us to get power except then to take it away from ferromanganese and steel and some other things, and that was not a tolerable situation. Mr. McKenzie. At that time the Alabama Power Co. had a modestly con- structed plant of about 100 feet square, did it not? Colonel JoYEs. So far as the power house goes, yes. MUSCLE SHOAI^ PROPOSITIONS. 1069 Mr. McKenzie. A brick building. Colonel JoYES. A brick building. Mr. McKenzie. What was the size of the building you constructed down there and what was the character of the construction? Colonel JoYEs. Something like the same. Mr. McKenzie. The same size? Colonel JoYES. Something like it ; a little larger. Mr. McKenzie. And permanently built? Colonel JoYEs. It was of brick construction, brick walls, steel to support tlie roof, etc., about what you have got to put up to put in modern power machinery. However, we called it temporary construction. Mr. McKenzie. I am not criticizing the construction. Colonel Joyes. We called it temporary because we said we were making a temporary use of the land. There was a reason for that which I think it is well to state here. We knew the Alabama Power Co. was bonded pretty heavily and we knew that if we went in there and took the temporary use of their land, essentially as a lease, we were in some danger that our property might become subject to the lien of the previous creditors, and we did every- thing we could to safeguard against that, according to the best advices we had, and you will notice in the contract, in one place, we state that every- thing we put in there, on the land of the Alabama Power Co., is to be regarded as " personalty " and not subject to liens, etc. That was the reason for that, and that is why I want to be rather particular about saying that we stipulated that our structures should be regarded as temporary and as per- sonalty. Mr. McKenzie, You expected only to use this as a war activity so far as the Government was concerned? Colonel JoYEs. That was our reason for putting it in, sir; and yet we drew the contract for power for 10 years. We did not want to be in the position that if a need should exist the Government would be debarread in a rather deserted sort of a place, is it not? Colonel Joyes. Yes, sir; at the mouth of the coal mine, as they say down there. It is usually regarded as an ideal situation for a power plant. Mr. McKenzie. Do you contend those things were all necessary for the Government ? Colonel Joyes. I believe so, or I should not have approved them, sir. Of course, people might argue about them for a long time and all that, but you know there was a great deal of talk along in 1917, and if you will take up some of the old newspapers of that period you will find how the Government officers were criticised for not providing enough amusements and comforts and medi- cal treatment for the workers on the plants, and this, that, and the other thing, so as to reduce the turnover — and there was a lot of that. However that is, I say. I think that a good deal of that .sort of thing that was generally done ouglit to be unnecessary, but the situation w^as such you had to go into it and do it if you wanted your work done. 1070 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOAI^ PBOPOSITIOlSrS. 1071 bamn ^w^r Pn ,P Tti' ^^^" ^^""^ ^^^^^ ^^^* ^» ^^'^ ^^"t^^ct with the Ala- Colo^riovv^' viL ^^" ^^."u T'^ conserving the interests of the Government. compushed u ^''' ' "^^^ ''"'" "^^^^^ ^^•'^^^' ^^^ ^^ ^^^^^ ^'^ a^" nf^inni^^J^K^if^- ^"'^ ^'''" ''""''^ ^^^^ ^^^''^^^ ^^^^ ^^^is moming that in the month ?i? K ' ^ i^^^^'^^^t', ""'' ^""""^ ™^°^^ ^° the early part of 19187 a law was mssed which would enable you to buy propertv. pas**ea Colonel JoYES. Yes, sir ; April 11, 1918 unnrthp''f^TnfioT«'' TKl''^ ""'^^ ^^^ Alabama Power Co. was not signed until the fall of 1918, after the enactment of that law' (.V)lonel JoYES. Yes. Mr. Mckenzie. Now, do you contend that it would not have been possible for you as the representative of the Government, to have had a provision in hat contract that the Government would have the right to buv the portion of the plant belonging to the Alabama Power Co. or the Alabama Power Co. have the right to buy that of the Government; in other words, have a reciprocal contract and m case they could not have agreed upon the price, that then arbi- tratx.rs might come m and fix the price? Do you contend that you could not ha\e put in that sort of a provision in order to protect the Government' Colonel JoYEs. I could have stood out for that sort of a provision if I had thought It was proper and right and advisable to do it. Unquestionablv, after that law was passed, I could have done it. but there were a number of things that argued against it aside altogether from the inclination of the power com- pany to agree to it. There was the question of more than the land involved- r^ui.^^?^ "^^ question of the practicability of the operation of two separate establishments down there practically in the same kitchen. It would be like two people cooking in the same kitchen. That is about what it would have amounted to, and it did not seem to me to be a feasible, reasonable set-up Furthermore, at that time we had gone along so long under a more or less reasonable, temporary working basis, which was based and rested primarilv upon my original order which said that we wanted tbe temporary use of their land. It was an implied contract, and there was that matter to be considered I would not have thought it exactly good faith, so far as that went, whicli might not have prevented my doing it if I thought it strictly advisable but I thought that as the Government had been obliged to go down there and put m that power plant, the very best proposition that they could get hold of was to get the people who could make good use of it tied up so that they would have to buy it, and I think we have done that. Mr. Mckenzie. Now, Colonel, this is my last question : If you at that time could have looked down through the coming months to this present moment you can see where such a provision as that or something like that would have saved our Government considerable embarrassment at this time? Colonel JoYES. I do not see that, sir. I would say that we were not looking for embarrassments or looking to avoid embarrassments; we were looking to see what we could do to protect the physical property and assets of the United States and its equities, and we think we did that, and that is the point we were after. We never contemplated for the sake of some other interest any- body would ever wish to take one man's property from him and hand it to somebody else, and that statement is made with no impertinent reflection upon any particular offer or anything of the kind, but it is the situation. We were looking out to protect the money we had to spend, and just that Mr. James. Colonel, you had some trouble doing business with both the Ala- bama Power Co. and the American Cyanamid Co., did you not' Colonel JoYES. We did not have altogether complete harmony at all times • no, sir. Mr. James. And frequently, in order to do business with the American Cyan- amid Co., you had to follow along with their views? <'o^o?'pi .foYEs. Oh. yes. sir; to get the results we were after Mr James. What is the date of that first allotment of $300,000 that was made / * Colonel JoYEs I think it was $200,000, but the amount is immaterial. I can give you that, sir. Mr. James. I mean for nitrate plant No. 2 Colonel JoYES. On November 23, 1917, the sum of $200,000, out of the $20,000,- 000 earned by section 124 of the national defense act, was allotted for the purpose oi purchasing the site for the No. 2 nitrate plant. That was allotted for the President on that day, and I got it within a few days thereafter. The exact date of that, I think, would not be necessary, but it was within a few days thereafter. Mr. James. When was the first payment due on the land purchased? Colonel JoYEs. No definite date ever agreed upon for that, sir. When we went down there we took over the land. We marked out what we wanted and walked around and then a local board was established to go out and see the owners. Mr. James. That was the air nitrates plant. Colonel JoYEs (continuing). We told them to get busy and get their evidence of title m and to arrive at a price that they thought was reasonable and see wether we could accept it or whether we would have to condemn or try to condemn. We were only talking about condemning in those days, because we had no authority to condemn, but anyway we talked it to them. It takes a long, long time always to get a proper certificate of title, and down there It seemed as if it took an interminable time, because the people who were under- taking to handle the business for us were trying to handle it all in a lump and we could not get anything through to the point where we could pay for it People came to us in great hardship, apparently, for money. They had been run out of their homes and they wanted the money and we could not draw a cent for them, because we had not got suflJcient proof that they were the clear owners to pass title. That was a year after that time. Mr James. Are you talking now about the nitrate plant No. 1 or No 2? Colonel Joyes I am talking about No. 2, sir. The same thing wonld ahnort apply to No 1, but we had a little less trouble there because I started that i^ early and all the different boards for keeping control of this, that and The othe? T hn^^dw T -fif^ ^^^ganized, and I got a little bit the jump on them and so I handled it with my own people, and I was able to push that a little better and my payments were made there a little more promptly than they were made through the regular channels on the other plant r.1^1 ii^^^'J^ "^.u^ ^f!?"* November 23, 1917, that you started to tell the SiZ IN? T *^^^^ *^^^ '^ *^^y ^'^ ^^^ ^"^^ «^'^^ the land for a site for nitrate plant No. 2, you would condemn their land? "iL*aie J^I^T^l l^^^\^^^ did not ask them to turn it over. We went in and took it. We asked them to agree to a reasonable price, and most of them did That was . largely looked out for by some of the local interests around there, the associa Mr ""J? '^ ^Z'\\ ^^^^ ^^"^"^"^ «^^ th^t ^ reasonable price was stS Mr. James. If the payments had been made at that time, thev would havp come out of the national defense act, would they not' «.f ^1*"? ®^ fS^^^' } ^^^""^ '''^ probably would have paid them out of that because we had nothing else that we thought we could pay them out of »«^»*use Mr James. And if the money had been paid at that time all' the sites would have been under the national defense act? Colonel Joyes. Yes, sir. Mr. James. That was your intention at that time? Colonel Joyes. That was the intention at that time, sir ««r«I' it^^^- -^"^ afterwards you found out, in 1919, that you could do it in some other way. Colonel Joyes. Yes, sir. Mr. James. Do you figure that that kind of bookkeeping will nullify the taking /if r?.r* ^^^° you purchased this ground with the intention of laKing It out of the national defense act. di^ T !!h^ '^''''^^' ^ ^? 5^* *^*"^ ^ *1"^*^ ^^t y^"^ P^'^t' I^ I do, you mean why made ™'^ "^ '''* ^ ^""^^ *^^ ^^"" ^*'''™ *^^ ^''^^ provision that was ,-..^f- •^^^^^s. I know why you changed your mind. If the land was paid for ^h^/n^r""' Pi^; '^ ^^'^"^^ ^^^^ ^^^^ P^^d for out of money allotted you out or the national defense act. j « wui. Colonel Joyes. Probably; yes, sir. Mr. James. But you let the matter drift and then on January 20, 1919, you dSense a^ ^''^''^ *''^'"" '^ '*''* ""^ ^""""^ ""^^^"^ ^"""^ '""^^^^^ ^^ ^he national Hn^^^^?^^ •I^'^^^- ^* ^^''^^ ^ different thing from a journal entry. What I had crPd^if iT^^'^ ?l^i^^^^ «^™P^y *« ^^^^-^ ^ ^e^tain fund in Z ledger on the nr hii^^ T^"^ ^ \^.^ ''^''^^ ^e°* ^"^y ^^ »t' a"d before I got readv to spend it 01 before I was able to spend it, then I had another account to'charge it to It never was paid out and then charged over again from account to account ; no" 92900—22 68 1072 MUSCLE SHOALS PBOPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1073 Mr. James. AVas there no money paid on any of that land until 1919? Colonel JoYEs. That is my remembrance of it, sir, and that can easily be veri- fied by an actual examination of the books which, of course, would be much more reliable than my remembrance at this time. I am quite sure of it but I think we could have the people who are in charge of the books now go right over them and look it up and give you a specific communication about it. That would be the best way. I am confident of it. The Chairman. Who has charge of those books now? Colonel JoYES. Major Burns. He was here this morning but is not here now. Captain Gaillard. I am from this office and I will get that information. The Chairman. Will you kindly let the committee know about that. Captain Gaillard. Yes, sir. March 13, 1919. Memorandum for the Secretary of War: I hereby authorize and direct the following revocation and allotments of funds appropriated by the Congress in the " section 124, nitrate supply " of the act approved June 3, 1916, namely: Revoked : The sums allotted by me Nov. 27, 1917, and Mar. 2, 1918. for the purchase of a site for an ammonium nitrate factory, aggre- gating $350,000 Allotted for use by the Secretary of War : (ft) For the purchase of United States patents protecting processes incident to nitrogen fixation, etc 10,000 (b) For the active prosecution of investigation of processes for the industrial production of nitrate compounds useful in the manufacture of explosives or fertilizers 340, 000 Approved April 8, 1919. WooDRow Wilson, President. A certified true copy : 4r-30-19. P. B. McConville, Lientenant, Ordnance Department, United States Army. A true copy of a certified' copy, signed by P. B. McConville, lieutenant. Ordnance Department, United States Army. G. B. Attersall. Purchase of site for United States nitrate plant No. 2, " Nitrate Plants, Secre- retary of War, allotment F." 1919. Feb. 4 May 10 P. R. 117960 Revocation nitrate No. 27 F 112.4 $350,000 350,000 A true copy of a page for the ledger of the nitrate division. March 11, 1921. G. B. Attersall. Mr, Kearns, At the time you entered into negotiations with the Alabama Power Co. did you have the right to condemn the land ? Colonel JoYES. None that we could find possible, sir. Mr. Kearns. Then that is the reason you assign why you did not condemn the property? Colonel JoYES. That was only one of the reasons, sir. That was one reason and sufficient for that, but in addition, I did not consider that it was a prac- ticable or a reasonable procedure on account of the physical situation and of the complications due to power contracts, and litigation. Mr. Kearns. Did you enter into this agreement with the Alabama Power Co. partly because you wanted the experience and advice of the members of that company ? Colonel JoYES. No, sir ; I would not put it in that way. We wanted their ex- perience and advice in the actual construction work, yes. Mr. Kearns. And that is what I mean. Colonel JoYES. Yes; but we could have hired an engineering firm for that, but it was much more desirable to be done by them, and especially, to be done by them when they were contemplating a future purchase, because that would operate to keep down expenses as much as possible and would cause everything to be done as economically as possible. Mr. Kearns. When you first went to Muscle Shoals for the purpose of view- ing this as a future nitrate plant, w^hat activities did you find there. Govern- ment or otherwise? Colonel JoYES. There were no Government activities of any consequence. There was a small establishment of the Engineer Corps there handling the navigation canals. That constituted the improvement that there had been for the Muscle Shoals, and that was about all for the Government. Mr. Kearns. What private activity? Colonel JoYES. There were several iron furnaces, several in Sheffield and one or more in Florence, right across the north side of the river. There were minor industries but none of any great consequence other than the iron fur- naces. Mr, Kearns. Colonel, on the land now occupied by the Muscle Shoals proj- ect Colonel Jo YES (interposing). The nitrate plant No. 2? Mr. Keakns. Yes; what activities were there, if any? Colonel JoYEs. Principally farming, cotton raising, mostly. Mr. Kearns. How did you get possession of that land? Colonel JoYES. Well, we walked right on and took it, and a hx-al commit- lee Mr. Kearns. Wait just a minute. When did you take possession of that land? Colonel JoYES. I got down there about the 19th or 20th of November, I should say. Mr. Kearns. 1917. Colonel Joyes. Yes, sir; and we went right out and looked over the ground and decided just about where the plant would necessarily sft, and about how much area we were going to want, and the Cyanamid Co. was told by me to take possession of it. There was a local association of citizens and a com- mittee. Colonel Worthington, whom you know, was at the head of it. They said they would smooth out all the difficulties, and we essentially took possession of the land we wanted and continued our negotiations with the owners as best we could. The answer as to time, w^ould be the latter part of November, 1917. Mr. Kearns. What property does the Government own in partnership or in conjunction with the Alabama Power Co.? Colonel Joyes. What property does it own in partnership with the Alabama Power Co.? Mr. Kearns. Yes. ('olonel Joyes. Absolutely none, sir. Mr. Kearns. What properties, then, of the Alabama Power Co. has the (Jovernment invested money in — any place, except the Warrior plant and one of the transmission lines? Colonel Joyes. For every bit of property of any shape or description for \\hicli the Government spent a cent the title is vested in tlie United States absolutely. ^Ir. Kearns. The title is vested in the United States? Colonel Joyes. Absolutely. Mr. Kearns. How much money did the Government invest in properties that were at that time owned by the Alabama Power Co. ? How much did you invest? Colonel Joyes. I do not like that way of putting it I could not answer by Jigreeing with that language. We did not invest in any property of the Alabama Power Co. Mr. Kearns. The Alabama Power Co. Colonel JoY'Es (interposing). I know what you mean and I am only trying to be exact in my answer. Mr. Kearns. Then why not answer it? Colonel Joyes. We put in the neighborhood of a little over $5,000,000 into equipment and structures, which under the contract are denominated per- I I 4 Mi. , 1074 MUSCLE SHOALS PROPOSITIONS. sonnlty and temporary, which are located on hind belonging to the Alabama I'owerH'o., or land over which the Alabama Power Co. owns an easement I think that is as good a reply as I can give you on that. Mr. Kearns. The real estate title, however, is in the name of the Alabama Power Co. at this time; is it not? Ct)lonel JOYES. Yes, sir; but we are not claiming any real estate at all. We are in the position of a man who owns an automobile in another man's garage. Mr. Kearns. You claim that you have title to those buildings that vou con- structed Colonel Jo YES. Absolutely. Mr. Kearns (continuing"). With United States money? Colonel Joyes. Absolutely. We have the power company's statement of that the power company's agreement to the fact that that shall always be regarded as personalty and not subject to any lien they may set up, etc.,* and so far as It IS iwssible shall be protected against former liens, etc. B^irthermore all property is required to be prominently marked "United States property "'and is so marked. Mr. Kearns. You had an agreement, or you had a clause in your agreement or contract with the Alabama Power Co., that when vou were through with this property you were to sell it to the Alabama Power Co. at a fair value* is that right? ' Colonel Joyes. Essentially correct, sir. The language of the contract of course, will throw certain shades of meaning on that, but that is essentially the meaning of it. Mr. Kearns. The contract recites a fair value, does it not? Colonel Joyes. I do not know. I will have to look it up. Mr. Kearns. Well, it does. Colonel Joyes. I think it does. I think it uses that expression. Mr. Keabns. Under the terms of this contract, were the arbitrators to deter- mine what a fair value* would be? Colonel Joyes. Yes, sir. I had better answer those two questions together right out of the language of the contract, to be sure that there is no misinforma- tion given to you. In the first section of article 22, providing for the sale to or purchase by the contractor, article 1 says, " at the value fixed by arbitration as hereinafter provided." The second section says, " actual cost to the United States of the Warrior extension " ; section 3 says, " actual cost of said prop- erty " ; section 4 says, " actual cost to the United States of the Warrior exten- sion and Warrior substation " ; section 5-— there was no value stated in section 5, because that was a provision for removal by another than the United States ; section 6, no statement as to the value there; section 7 was also a removal proposition, and nothing said about the value until you get down to the last line which is the alternative, and there it says, "fair value as fixed bv arbitra- tion." There it says " fair value." Mr. Kearns. That is what I want your construction of. What did you mean by that? Colonel Joyes. All right, sir ; I will get to that in a moment. Mr. Kearns. Let us have that question answered here ; that is what I want. Colonel JoYEs. All right, sir ; I get your point. Mr. Kearns. When you were through with this property, the Alabama Power Co. would have the option to buy it, but it must buy it at the fair value Colonel Joyes. Yes, sir. Mr. Kearns. Fixed by arbitrators. Colonel Joyes. Yes, sir. Mr. Kearns. Now, suppose the arbitrators would fix a value below what the Government thought its interest was worth, would it not have a right to go into the court to construe what was a fair value? Colonel Joyes. Yes ; as to the right to go into court. I have not anything to help you out with on that but my understanding. Mr. Kearns. How would you determine then what the fair value would be? Colonel Joyes. I will tell you what I think the fair value would be, and I think I have something to back that up. It would be somewhat along these lines. The arbitrators would try to decide what would be the cost at the time of the appraisal or arbitration. Mr. Kearns. Yes. Colonel Joyes. What would be the cost under the conditions prevailing then of reproducing the plant in toto as it stood. That would be the fair reproduc- MUSCLE SHOALS PROPOSITIONS. 1075 IT ^1 'u-1 '/ ''"'V^'^ Jif technically called, and the reprsi it woSld amount to $3,000,000. Then we would say, " How long has it been in service " and let us say three or four years, or whatever it might be, and we will sav a plant of this nature by the establishe nitrate plant, but having that in mind during the construction period, and desirin** to have the plant itself as free as possible of any interruption from the outside and not dependent upon a long transmission line or anything of that kind and furthermore, because we thought we could make the power cheaper in the one plant at Muscle Shoals if we continued to operate it for any considerable time we changed the plant of the power house at the No. 2 nitrate plant before it got very far going ; that is, in the early part of 1918, and in addition to building It with ample room for the machinery that is now in it; that is, 60,000 kilowatt nnH''/ooSS^''M^' '^1^^^* Pu"^y ""^ '*'''''" ^^^^^ ^^'^ «» additional power unit of 30,000 kilowatts or perhaps more, which would give the plant ample power machinery for all its rated capacity, and we put in three additional boilers also, so that there w^ould be ample steam to take care of that The plant is liberally hollered for not only the unit that is now in place but for a 30 000 kilowatt unit in addition, I believe. I am not a powder expert, but I have heard It discussed by those who are, and they told me that they considered that it was liberally hollered for an ultimate 90,000 kilowatts. Furthermore there is the water power expected from the Tennessee River. Mr. Kearns. Now, there is just one other question, Colonel, I want to ask vou and it is foreign to the questions I have been asking. This may be in the record many times, but I do not recall it. Under the contract that you entered into with the Alabama Power Co., you were to pay 61 mills per kilowatt hour for power, were you not? Colonel Joyes. We were ; yes, sir. Mr. Kearns. How did that compare with the price the Alabama Power Co was charging its other customers? Colonel Joyes. I could not give you a comparison at this moment that would be accurate enough to be worth anything, but I am satisfied that it was all nght. I think it was cheap compared with their general schedule. It is a very difficult and complex matter to compare those rates, and I caii not sav at the moment really anything that would be worth while. You see it depends upon the demand, and it depends upon the quantity, etc. When I say the aemand, I mean we are flatly and absolutely entitled to 30,000 kilowatts there li^r . ^!*^^^- ^^^'' w^ "^^y take 5,000, we may take 25,000, and we have no restrictions on that at all. That is a very favorable point for the United States we can demand up to 30,000 kilowatts any time we want it, and insist upon I 1076 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1077 m^ haviiig it, but we are not tied up to take any considerable amount. We may take at the rate of 5,000 at this minute and later on in the afternoon we may be taking 25,000. Now, the private customer would pay for that and would pay for it hard. I have sten power contracts, I was looking at three of them the other day and made some notes on them to refresh my recollection, if necessary, and they were contracts where the Government assisted in financing additions to the plants. There was the West Penn, the Duquesne and another company, the name of which I have forgotten. Their prices were stated and two of them were 7.3 mills and one of them 8 mills i^er kilowatt hour, but in each of the three cases it was stated that that was the price on a 100 per cent load factor. Now, that means that if the United States has a right to take 30,000 kilowatts it has got to take as much as 30,000 kilowatts or else it pays higher for it, and those contracts stated that if that load factor was not lived up to — if the United States took power at any other load factor, then they would pay such higher rate for the power other than that stated in their contract as the published schedules provided for the reduced load factor. Now, that is the usual practice because, of course, if you have money tied up in a dam, you have got to figure on selling and making contracts to sell power, and if you contract to satisfy people, according to their demands, for all your capacity, you want to sell it. It is perfectly right and proper and it is always recognized. That was the situation. There were some other provisions in our contract as to that rate, and I could not let it pass without telling you of them, while we are about it. That rate was based upon a stated cost for coal of a given quality and was liable to be changed if the coal increased in price a certain amount. Those provisions are all in the contract which you have before you and that w^as reasonable. Nobody could foresee what the prices were going to be for the next 10 years, and so it was left in that way. The United States has a chance to call for arbitration on that power rate, also, I believe, if the price of coal should go down. Mr. Miller. Colonel, you state that the first you ever heard of the Alabama Power Co. was when you returned to Washington and you ascertained that the American Cyanamid Co. was to build a plant for the Government. Colonel JoYES. Yes, sir ; except that I had heard the name. IVIr. Miller. About when was that? Colonel JoYEs. That was about early in November. I am afraid I heard you rather incorrectly. The first I heard of the Alabama Power Co. in a business way at all was in the early part of November or the end of October. Mr. Miller. What year? Colonel Joyes. 1917; when I first heard them mentioned by the American Cyanamid Co. in its propositions. I had read the name, but I had paid no attention to it before that. Mr. Miller. At this time there was no nitrate plant building or under con- struction, except the nitrate plant authorized by the national defense act of 1916. Colonel Joyes. No. 1; yes, sir. Mr. Miller. It does not say No. 1 or No. 2, but simply nitrate plant. Colonel Joyes. I understand what you mean ; yes, sir ; that is correct. Mr. Miller. There was $20,000,000 available for the construction of a nitrate plant and at the disposal of the President under that act? Colonel JoYES. That was the original appropriation ; yes, sir. Mr. Miller. That was long prior to our getting into the war? Colonel Joyes. Yes, sir. Mr. Miller. I wish you would state where that $20,000,000 went — what i^ went into — that is, the original appropriation under the national defense act. Colonel Joyes. You will understand I had not complete control of the $20,000,000. Mr. Miller. When you came into possession of the nitrate-production propo- sition? Colonel JoYEs. I can tell you this in a general way. I think you will find it has already been put in the record of this committee earlier where it was disposed of, and I am sure it is all in the record of Mr. Graham's committee But in a general way I am right on this knowledge, that in the neighborhood of $3,000,000 or ,$3,500,000 was spent by me in nitrate plant No. 1, near Sheffield ; some considerable portion of it, but not much in present-day ^'^- ures, say, not over a million, I should say, was spent in incidental exijens*'?^ of investigations here, there, and everywhere by me or my successor in the nitrate division ; and about something like $14,000,000 or so was turned over to the Engineer Corps for use on the Wilson Dam. That is about all I know at the moment or could say in answer to your question now, sir. That is essentially a broad statement ; correct, but bioad. Some of it is still unspent now. a little amount. Mr. Miller. Nitrate plant No. 1 cost in the vicinity of $13,000,000— some- where around that sum? Colonel JoYEs. Around that, sir, meaning by that the entire establishment. Mr. Miller. That has a power plant connected with it, has it not? Colonel Joyes. It has a small power plant, about 5,000 kilowatt capacity Mr. Miller. Sufl3cient to run it? Colonel Joyes. Sufficient to run it; planned for that. There is no use in qualifying it, conditions as to what would run it successfullv were uncertain but it was designed for that plant specifically. " ' Mr. Miller. That was built some time before the plant was constructed' Colonel Joyes. It was started in the fall of 1917. Mr. Miller. I have not very clearly in my mind the necessity of this War- rior extension ; that is, the purpose it was to serve. Colonel Joyes. If T do not hit the point that is bothering vou, please let me know. Mr. Miller. I will let you know. Colonel Joyes. The thing is this, in putting up the Muscle Shoals nitrate plant Mr. Miller (interposing). Which one? Colonel Joyes. No. 2, the only one I call the Muscle Shoals nitrate plant— we were going to have a plant to produce 110,000 tons of ammonium nitrate per year. The contractor said that he estimated or believed that he could build that plant and have it in condition to be producing at one-half its rated capacity in six months from the date of breaking ground. That does not neces- sarily mean a half-completed plant, but it means it would be working at the rate of one-half of its rated capacity. They said that would require, as best they could estimate it for us at that time, around 30,000 kilowatts, or a little more than that. We now think it would take a little more, but that was about what we were figuring on at that time; and the point was how to get power for that first half production six months after breaking ground for the plant. You could not build a large power plant in that time. We were convinced of that. You have too many things to do ; you have the excavation of the ground and you have to make the plans, and all that sort of thing. So we were con- vinced that Mr. Washburn's suggestion was a very wise one — that we tap into the Alabama Power Oo.'s system, where they had already some power, so that by the time our nitrate plant would be ready for its first supply they would be able to give us some power out of their system ; and meanwhile, with our addi- tion to their plant they w^ould be prepared to make that supply continuously available to us. So we went down and contracted with them for the power, and put in the addition and the transmission line. Mr. Miller. Could you not have built the power plant at nitrate plant No. 2 as quickly as you could build one on the Warrior River? Colonel Joyes. I have not the slightest doubt, if you started under the same conditions and built the same kind of a plant, that you could do that. Mr. Miller. You could have built the plant up there, as you subsequently did build it, just as quickly as you could have built it on the Warrior River and built 88 miles of transmission line? Colonel Joyes. Provided you had the same kind of plant started under the same conditions. But neither of those provisos was realized. Mr. Miller. You say it was Mr. Washburn's suggestion that you go down there and get in connection with the Alabama Power Co. ? Colonel Joyes. That was his suggestion, sir. Mr. Miller. And Mr. W^ashburn is connected with the American Cyanamid Co.. you say? Colonel Joyes. Yes, sir. Mr. Miller. And likewise his company, or a subsidiary of his company, had the contract for building nitrate plant No. 2? Colonel Joyes. Yes, sir. Mr. Miller. So you abided by that suggestion and went down on the Warrior River and got into negotiation with the Alabama Power Co.? Colonel Joyes. Yes, sir. Mr. Miller. How many acres of land is there at the power plant, or the WaiTior River iK)wer plant, owned by the Alabama Power Co., on which this Warrior plant stands? 1078 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1079 Colonel Jo YES. I do not know. Mr. \liLLt:R. Approximately? Colonel JoYEs. I should say in all probably they have a thousand acres or so Mr. Miller. And the plant occupies but a small portion of that, I suppose*^ Colonel JoYES. That is so. Of course, we spread over and touch upon quite a little piece of it. I might have brought up the plan to show you that, but here was the Alabama Power Co.'s original power plant [illustrating], and we built alongside of it, an addition to it. Then they had an outdoor electrical switch- ing station that set over here [illustrating], and we had to put something onto that. Then we had to build some trackage around there in order to get coal into our extension and to get the ashes out of it, and then there are a number of auxiliary buildings that were about there, and they run up the hill, along in the neighborhood of one of the housing districts that the Alabama Power Co had provided. Of course, that was the logical thing to do. Mr. Miller. It was necessary to repair the railroad to get into it, too, was it Colonel JoYEs. Yes, sir. Mr, Miller. You went down there and entered into this contract for the con- struction of the extension to their power house, an extension that was larger than their original power house? Colonel JoYEs. That is correct. Mr. Miller. About one-quarter larger? Colonel JoYEs. Yes, sir ; about that, I should say. Mr. Miller. Their power house had a capacity of generating about 25,000 kilowatts, did it not? Colonel JoYEs. Somewhere in that neighborhood. Mr. Miller. And the one the Government erected was' capable of generatine about 33,000 kilowatts? ^ Colonel Joyes. Thirty thousand, or about that amount. Mr. Miller. Comparing the two plants, if we may so speak of them, the one financed by the Government and constructed by the Government was the larger one of the two? Colonel .Toyes. Yes, sir. - Mr. MirxER. In the first place you entered into a contract at 6 per cent with a maximum commission of $225,000? Colonel Joyes. Yes, sir. Mr. Miller. And we paid them $60,000 to go on their land, in the first place' Colonel Joyes. We paid them $60,000, which was defined in the contract as overhead expenses and compensation for the use of the land and facilities and so forth. ' Mr. Miller. Then we put in, or you say you expected originally to put in about $2,500,000? & j put m Colonel Joyes. No, sir ; I do not think I said that Mr. Miller. Or $2,250,000? Colonel Joyes. I mentioned that figure, but I do not think I said that was what we expected to put in. That figure was mentioned in the letter of the Alabama Power Co. as what they had figured they might put in an addition which they had under contemplation, and which they thought would insure a supply of power. Mr. Miller. Up to this time had you had any considerable experience in contracts of this character, or business negotiations of this character *> Colonel Joyes. Nothing of this character; I guess nobody had. Mr. Miller. Up to this time you were a novice at this kind of work^ Colonel Joyes. Yes, sir; but not in business. I have been doing a good deal of business for the Ordnance Department for a good many years Mr. Miller. I mean things of this character. Colonel Joyes. Yes, sir ; this was quite a novel character of work for every- body. Mr. Miller. You say one of the reasons you did this was because you could not see your way clearly to acquire land. What is the sequence of time in which you acquired the land for the construction of nitrate plant No 2 at Muscle Shoals, as compared to the time you went into this arrangement with the Alabama Power Co. on their land? Colonel Joyes. We took the land at the nitrate plant, took possession of it, before we had gone into the Alabama power work at all. Mr. Miller. You had by some means or other acquired the land on which to build this nitrate plant No. 2 at Muscle Shoals? Colonel Joyes. Yes, sir. Mr. Miller. But you had no means of acquiring the land on which to build this extension? Colonel Joyes. I do not believe I said that, sir. Mr. Miller. I am asking you that. Colonel Joyes. I mean to say that would be an inaccurate statement; I might have said it. The i)oint is this : I do not mean to say it would have been an altogether, utter impossibility for me to acquire land and take it away from the Alabama Power Co., or buy it from them, provided I had used the money out of the national defense act, which I did not want to do. And, again, there were other considerations than the actual ability to find a way to buy and pay for the land. There was the question, for one thing, whether, if we made a power house down there. Did we want to own the land? I thought not — wisely or wrongly — I thought not. I think that it was better not to be tied up with the ownership of land. And, then again, we had other things than the land to buy there. It was a question of the facilities which they had built underground, and various other things, more or less tangible, and some of them intangible, that all tied in together and gave us what we wanted there — the ability to get quickly additional facilities for pro- ducing power. Now, another thing: There was on the transmission line a great deal of work involved to get the right of way. There were a great many ownerships and if the Government had gone down there we would have had to go ahead and dicker with the people, many people through that country, a country that was unfamiliar to us. The power company's people knew the country, they had worked through it before, and they had certain powers under the State laws to commandeer it and could get the right of way with very little trouble, and they knew how to do it, and they could get it cheap whereas it would have cost us a great deal. We would have had to build up an organization in order to do it, and we would have had some trouble about it. I do not say that is a vital reason, because trouble was a thing we did expect to take ; but we had to think about what the possibilities were for timely accomplishment, and we had to give that a certain weight ; that is, whether we could actually physically accomplish the job within the proper time or not. Mr. Miller. You contracted with the Alabama Power Co. as the agents of the United States Government to do these things, did you not? Colonel Joyes. I did not know that we made that an agency contract; I had forgotten that, if we did. I believe we simply employed them as the contrac- tor to build it. Mr. Miller. I think you will find it the way I stated. Colonel Joyes. It may be it is an agency contract and I may be wrong. We called them contractors in the contract, I think. Are you not thinking of the Air Nitrates Corporation contract? They are agents. These people are not agents and never were; they were simply contractors. I do not think you will find the w^ord agent in there. Mr. Miller. Let me refresh your memory a little bit on that. Colonel Joyes. It may be they are and I may be wrong about it. Mr. Miller. Turn to article 2 of the contract. Colonel JoYES. Article 2? Mr. Miller. Yes. It says : " Upon the approval of the contracting officer of said plans and specifications for the Warrior extension and the Warrior sub- station or any part thereof, the contractor shall as the agent for and at the expense of the United States " Colonel Joyes (interposing). Where is that paragraph? Mr. Miller. That is in article 2. Colonel Joyes. " New facilities at Warrior station." Mr; Miller. Yes ; the last paragraph of that article. Colonel Joyes. I see ; you are right and I am wrong about that. Mr, Miller. Let me call your attention to the next paragraph, article 3, which says : " The contractor shall, subject to the approval of the contracting oflicer, but at the sole expense of the contractor." There is a vast difference between those two. Colonel JoY'ES. Yes, sir. Mr. Miller. Let me proceed farther in section 3, at the top of page 148 of the printed hearing, where it says, " upon the approval by the contracting oflicer of the said plans and specifications or any part thereof, the contractor shall as I 1080 MUSCLE SHOALS PROPOSITIONS. the n^ent and at the expense of the United States furnish all the labor, material, tools, machinery, equipment, facilities, and supplies, and do all things neces- sary to clear so much of said right of way," etc. Colonel Jo YES. My memory is at fault, unquestionably. I had not remem- bered that there was a mention of the word " agent " in the whole contract. Mr. Miller. Let me refer you also to paragraph 3 of the same article, where it says, " Upon the approval by the contracting officer of such plans and speci- fications the contractor shall, as the agent for and at the expense of the United States, likewise construct the quarry main line on a right of way to be pro- vided by and at the expense of the United States." Now, everything down there, Colonel Joyes, in connection with the Warrior steam plant was on the property of the Alabama Power Co., either what it then had or what was subsequently acquired. Colonel JoYES. Everything denominated, everything covered by the term " Warrior extension, and Warrior substation and the transmission line," becau.se that was on their easement ; but not the Muscle Shoals substation. Mr. Miller. No. Colonel Joyes. That was the only exception. Mr. MiLTJjR. That was on our own land. Colonel Joyes. That was on our own land, sir. Mr. Miller. I wonder why that was. Colonel JoYEs. That was at the Muscle Shoals end of the line. One of the sub- stations was at the place where the power was produced and stepped up in its voltage, so it could travel along the line — like an elevator carrying the voltage up. Then, at the other end there had to be another elevator to carry it down, or step it down, and that was on our property. Mr. Miller. The first was on the property of the Alamaba Power Co. and the other was on the property of the United States? Colonel Joyes. Yes; those are transformer stations where the voltage of the current was stepped up so as to travel along the line for a long distance. Mr. Mn.LER. Yes; I understand all that. Do you think that was a good business proposition? Colonel Joyes. I think so : as good as could be expected under the circum- stances of the war. It was a good contract for the war period, and compared ffi"vorably with any other. Mr. Miller. That was your first contract; you had never had had any experi- ence in such matters before? Colonel Joyes. I am quite ready to admit that, but I think it was doing pretty well for the first time, however that may be. Mr. Miller. We may have our differences of opinion on that. Colonel Joyes. Yes. Mr. Miller. I am the person who said it was an unconscionable contract. Colonel Joyes. Very well, sir. I consider it a good one. Mr. Miller. So we may frankly understand each other. Colonel Joyes. Very well, sir. Mr. Miller. We were going to buy this product, we put in $5,000,000, or ap- proximately $5,000,000, and were to buy the electricity from them at a price of 6^ mills per kilowatt hour. Colonel Joyes. Quite right, sir. Mr. MiiXER. Approximately what was the company charging other customers, so far as you know? Colonel Joyes. I could not give you any information on that at the present moment. I have been separated from the business too long to remember it. Mr, Miller. You can see the deep significance of that, can you not? Colonel Joyes. See what? Mr. Miller. We were simply buying electricity down there. Colonel Joyes. Not quite that. Mr. Miller. What were we doing? Colonel .Toyes. Because you have other provisions in that contract, in this way. We built the plant; yes. But did we give them the free use of it? No; they rented it from us. They paid us back, or were, under the contract, to pay us back if the contract had been operative, for the supply of power ; if we had not stopped, they were to pay us interest at 6 per cent per annum upon the total cost of what we had spent down there — not any estimated reduced value, but our actual expenses. They were to pay 6 per cent per annum on that. You will find that fully set down in the contract ; and if you will turn to it, you will find it in article 17, " Payments by contractor." MUSCLE SHOALS PROPOSITIONS. 1081 Mr. Miller. Now, then, that 6 per cent proposition was only payable so long as the Alabama Power Co. furnished power for those nitrate plants. Colonel Joyes. Absolutely not both, sir; there is no mention of both nitrate plants in that connection, bearing that significance, and inevitably having that meaning. It says, " so long as the United States shall require the contractor to suppy energy to the United States for the operation of either or both of said nitrate plants " ; that is a different thing. It goes on, " the contractor shall pay to the United States monthly for the use of the Warrior extension and Warrior substation interest at the rate of 6 per cent per annum upon the actual cost to the United States of said extension and substation." That is the essence of that. Then, paragraph 2 of the same article says, " during such period as the con- tractor may, under the provisions of article 21, be relieved of said monthly payments the contractor shall pay to the United States monthly, in lieu of said monthly payments, one and one-half mills for each kilowatt-hour of energy pro- duced by the contractor at the Warrior extension." Furthermore, when we were taking power from the contractor at more than $30,000 worth per month we were to receive from the contractor two mills toward the purchase price. There you have payments consisting of interest on the actual cost of the invest- ment, and also an amortization payment ; and also, the tenant, so to speak, was to attend to all the upkeep and insurance. So that essentially put them in the position of a tenant who rents from you something that you own at a fair rental for it and is therefore entitled to sell you the product of that plant just as if he owned the plant. I do not think there is any other construction to be put upon it. ... Mr. Miller. Let me read some portions of section 17. It says, "beginning at the termination of the period of the preliminary operation mentioned in article 14, and so long as the United States shall require the contractor to supply energy to the United States for the operation of either or both" Colonel Joyes (interposing). Either or both. Mr. Miller (continuing). "Of said nitrate plants, the contractor shall pay to the United States monthly for the use of the Warrior extension and Warrior substation interest at the rate of 6 per cent per annum upon the actual cost to the United States of said extension and substation." Do you mean to say that a limitation of that kind does not apply only to the period when they shall furnish power for one or both of those stations? Colonel Joy'Es. I never said that. Mr. MiLLFJi. That is what I said. Colonel Joyes. You said there was a limitation on there when they were to furnish power for the operation of both nitrate plants. Mr. Miller. Both or one of them. I said both where I should have said both or one of them. Colonel JoYES. I have to look out what the meaning of my reply is, so that I will not be misunderstood. Let us take the language of the contract. Mr. Miller. We understand each other. You need not be afraid of that. I am asking you if under that contract the $30,000 a month is only payable during the period when we are furnished power for one or both of those plants? Colonel JoYES. The $30,000 per month, which is the minimum payment which we undertake to make, is only i>ayable when we are exercising our demand for power, and that demand may be exercised in several ways, and without remembering the exact langimge. I am sure the contract carries this meaning, that whatever use the United States may make of the ix)wer which it chooses to set up a demand for nn» "n«l«"r a.lvantageous cir- cumstances at all. It was far removed from the coal mines We lind nn -ul vantage there. On the other hand we did not have the alv^ nta-e of beine im" "r?m Dl -ntt'o T'l't' *' P'"^« "h^re '» -«« Soing to be used ft wasTmles ?a» z:f^C7i^i^*' ''""' ^''>- - ""* " - "- •- ^-" '^ - Mr MiLLEB. Here was a steam plant and a lar-e f?eneratinjr plant Whv wa^ the ste.ira plant and the big electric installment not made at plant Xo V ''whr were they not all kept down there? ^ "' ^^^^ Colonel JoYEs They were not put there at nitrate plant No. 2 because thov had a start at the Warrior, and we could get it quicker in the way we did Tt We were not dependent upon the completion of the Warrior extension stenm plant for our first power supply from the Alabama conii.any nor dM it u.^ om that way m the end. We got power from the Alabama Power Co. as soon as the nstSf'' wl";!^'^' ^'^"''.^^ '' '" 'r'^ ^^^^^^ ^^^ permanent transfoiZrs were tha fronlv J ^ ^""^^ ^^ ^^''' ''''^*^^^ *^^ coustruction work. and immediatelv the transformers were m we had some available to run our plant. We therefore actually, as a matter of fact, had power under that contract from the Alabama Power Co before the Warrior extension was finished. The situation was this- We tapped a system which at certain periods had an available power, and to pro- tect our supply we had this additional AVarrior extension, and the whole thing worked out as planned, so that by the time we needed power we had it to use ^^VT'''' ^'%t«"l^iP"t in the Warrior extension at Gorgas to do that was simply because they had a start there, and that is whv it looked good to us It was rnore a question of time than money, the time which would have been con- sumed in going down 25 or 30 feet into rock and getting a water conduit for the «?.Hl^f l!3f Z^!'^''' ''•"'l?'^ ""^ "'^* ^^^* ^^ ^^^"-- That was all done, and it saved quite a bit of time m that work. Ti/^^; ^^11^^'- ^y ^^^ ^^"'^ ^'^^ o^' 33,000 kilowatts were to be delivered at the Muscle Shoals plant No. 2 how far along was the steam plant there at plant Colonel JoYES. It is rather hard to coordinate, but its main structure as a building was very far from completed. I think the outside brick walls were Ti?- ,"^.v.^u^°A.^®^°?- ^^™^ ^* *^® ^^^^^^^ were being set at that time. I n^i^^il , tI ^^'""^ I fan say to you is that it was very, very far from being completed. If we could show you the progress photographs that would be an accurate reply to your question. Mr. Miller. Let us take another angle of it. At the time you got 30,000 kilowatts from the Warrior plant was nitrate plant No. 2 ready for half pro- duction ? w f ColonelJoYEs. The times are difficult to coordinate from memory. We really had our first running of the nitrate plant, the actual product coming through lL?^-f ^^ J ^^^^lo ^y *^^ ™^^^^^ ^^ October, about, speaking from memory ; tnat is, October, 1918. at^hP^?^i^;hi Qnr2^^'^-? this que^ion to get the sequence; that is, whether at the time the 30,000 kilowatts were delivered at nitrate plant No 2 was the plant ready for half production? What is your memory on that' " ' Colonel JoYES. I should say they were just about even. Probably the avail- r?«H.^Le ^^^r'^^l from the Alabama Power Co.'s system was earlier than the readiness of the nitrate plant to use it. Mr. MiLi^. How did the completion of the plant ready for half production compare with the completion of the steam plant at nitrate plaat No 2? Colonel Jo YES. The nitrate plant was ready for half production considerably before the power plant at No. 2 was ready. Mr. MiLLEE. You mean for half production? Colonel JoYES. Very long before, because that complicated unit, the turbo- generating unit, gave us trouble and parts of it had to be sent back to the manufacturer, and it took many months to get them back. Of course, if the war had continued it might have been hurried up some. I have not really re- freshed my memory on those dates. I have been disconnected from this work for nearly two years, certainly a year and a half, and I do not want to be taken as making a definite statement about these comparative things. They can all be verified absolutely for you if you desire. Mr. MILLER. Now let me get down to the famous paragraph 22 of the Alabama Power Co. contract, which I believe, you said worked no hardship to the United States Government. Colonel JoYES. Yes, sir. Mr. Miller. Article 22 has several alternatives in it. The first of them is that the Alabama Power Co. shall have the right to purchase the property at its fair value. Colonel Joyes. That is the first one? Mr. Miller. That is one of them. Colonel JoYEs. I do not think that is No. 1. No. 1 is the option of the United States. Mr, Miller. It says " at any time subsequent to three years after the termina- tion of the war " ; why was that put in there. " three years after the termination of the war," and then the termination of the war was to begin at the time we formally declared peace? Colonel JoYEs, Yes, sir. Mr. Miller. At whose suggestion was that put in, yours or the Alabama Power Co.? Colonel Joyes. I do not know, sir. Frankly, I can not recall that. Mr. Miller. Subsequently, there is another paragraph by which that period can be extended two and one-half years. Colonel Joyes. That period of three years extended two and one-half years? I do not know what you mean there. Mr. Miller, Yes ; I think so. Colonel .ToYEs. For payment? Mr. Miller. Payment, I believe, to be expended. Colonel Joyes. Oh, yes. Mr. Miller. That is the red-hot part about buying anything. Colonel Joyes. Yes: but you do not expect to sell a three or four million dollar property and get cash across the table. Mr. Miller. Nt> : but within three years after the war came to a close certain rights accrued under article 22. Colonel Joyes. Yes, sir; I think it comes back to me a little bit now. I can give you a surmise of the reason for thai:. I think it was figured that that was put in to give a chance for some little stabilization of conditions following from the war, as being a fair thing. I believe that is. essentiallv, the reason for it. Mr. Miller. Yes : and we must keep in mind also and under our eye the con- dition under which this .$5,000,000 was put in; it was put in at a time when the War Finance Corporation would allow very few, if any, enterprises to borrow money and issue negotiable securities, etc. Colonel .Joyes. I am aware of that. At times they were giving priority to increases in power plants. Mr. Miller. Oh, yes: in some places. Colonel Joyes. We had A-1 on most of ours. Mr, Miller, That paragraph gives the Alabama Power Co. the right to ac- quire this property under certain conditions, and the value of it was to be arrived at under arbitration provided for in the contract, and the pavment for it. Colonel Joyes. Yes. Mr, Milu:r. The term " fair value " has a very deep significance. Colonel. I do not know whether the technical use of it was considered when that term " fair value " was put in there. Colonel Joyes. That was undoubtedly considered at the time. Mr. Miller. Anyway, that "fair value," in your judgment, was to be the fair value as a going concern, as a part of the unit of the Alabama Power Co. Colonel Joyes. That was fair value as a going concern. I 1084 MUSCLE SHOALS PROPOSITIONS. Mr. MiLLEu. As a part of the unit of the Alabama Power Co., or part of its prenerating plant. Colonel .ToYES. Yes; I think tliat would be a fair meaning to rend into it. Whether I would be upheld in that, I do not know, but I think that is fair. It acquires a cert.ain additional value, I think, by reason of its being: tied in with the general system, and I think we will get that when it comes to the manner of settlement. Mr. Miller. You realize, as the world realizes, that this Warrior extension is of greater value to the Alabama Power Co. than to any other person in the world. Colonel JoYEs. Precisely. Air. Miller. It was able to fit it in with its system so that it would become a part of it? Colonel JoYES. Absolutely ; and therefore I believed that in making the best possible arrangement in the contract that we could foT them to buy it from us we were making a considerable advance toward the best possible disposition that could be made of it. Mr. MiixER. Why did you not write into the contract that the price to be paid by the Alabama Power Co. was to be the fair and reasonable price as a going concern, as a part of the Alabama Power Co.'s system? Colonel JoYES. We might have added a number of your suggestions to the contract, but we did not do It. You were not there to help us. Mr. Miller. You had a number of able lawyers. Colonel Joyes. We would have taken any help we could get ; we were crying for help. Mr. Miller. There is a vast difference in law. Colonel, between a fair price and a fair price as a going concern and part of the property of another man. Colonel Joyes. I know it, but let us take the facts. I am not a lawyer, but I will show you some other things that have been done that I think will show you how those things have worked out. Take, for instance, the case of the Utilities Construction Co., in Lorain County. Oliio. In October. 1918, that com- pany had a power plant there on which they had spent about $600,000. The United States contracted to pay about 40 per cent of the remaining cost, and the company w^as to pay the other 60 per cent. The United States contracted to buy 200,000.000 kilowatt-hours at 8 mills. The United States actually spent on that contract $500,000 and got back $300,000, on precisely the same kind of a set-up as we have here. We went into the Duquesne plant and spent $578,000 and got out of that $300,000 back. That was on the same kind of a proposition as this one. The West Penn Power Co. contracted for 1,700.000,000 kiN»wart-hours nt 7 mills an actually had to put up more money. We spent $2,409,000 on that property, and in the final settlement of it we got out $1,204,500. which was 50 per cent of what we put in, and all of those people had similar expressions in the contract, not the identical wording, by any means. Mr. Miller. On some of those you did not come out as good as that. Colonel Joyes. That is quite right, sir. Those are where we had those in- vestments in power plants, but I have also some data relative to coke plants. I was simply showing to you the precedents we had. I think we have some precedents as to what constitutes " fair value " in the settlement of such Government contracts. Mr. Miller. This was the pioneer contract, was it not? The others were gotten up subsequent to this one, were they not? Colonel Joyes. Some of them subsequent and some of them prior. I think all of them were signed prior to the actual date of the signing of ours. Mr. Miller. But the laying of the foundation Col. Joyes (interposing). When you go into arbitration I think you would be entitled to show some of those settlements in order to show what we could get on this contract. Mr. Miller. There is another provision to the effect that if they did not buy it, according to arbitration, we were to have the privilege of selling to somebody else, provided the other fellow could not run it. Colonel .Joyes. We had the privilege of doing what we originally agreed to — get off their land and move out of the house we had rented. Mr. Miller. That meant scrapping the plant? Colonel Joyes. Essentially scrapping the plant — giving up the land which we had taken on lease. MUSCLE SHOALS PROPOSITIONS. 1085 Mr. Millek. That was the point where the Government was at a disad- vantage in not having the plant on its uwii property, Coloiu'l ; that is the great disadvantage. Colonel Joyes. The proof of the pudding is in the eating, and when you come to make a settlement you will find you will get your money back. Mr. Miller. Have you anything in mind to the effect that you would get all vour money back? * Colonel JOYES. Not all; but, if you will get a fair return, you are doing all that can be expected. If we had decided to build a power plant of our own, we could have done it. We did it at Muscle Shoals. That power plant is built on our own property, and we spent about $12,000,000 on it, but 1 under- stand the best thing we have got in sight for it now is an offer of $5,000,000 for that and a lot of other things thrown in, which cost us .$80,000,000 or so. That does not look much better than the Alabama Power Co. proposition, does it? On the Alabama Power Co. proposition, if we do not get back 60 per cent of the money we put in there, I will miss my guess; I would be willing to wager something on it right now. Mr. MILLER. You are figuring on the Warrior steam-plant extension as a tem- porary affair? Colonel Joyes. Certainly. . Mr.' MILLER. Were you figuring nitrate plant No. 2 as a temporary affair? That is permanent, is it not? Colonel Joyes. That is permanent; yes. Mr. Miller. One is permanent and the other is temporary. Colonel Joyes. What I am talking about is what you are going to get out of this or out of both places. You put in in the Warrior extension, etc., some $4,000,000 and you will get out of it $3,000,000, probably, if you treat it as a business proposition. But take this proposition at Muscle Shoals right now; it cost $12,000,000 or $13,000,000, and if you want to treat that as a business proposition, and if the business comes along for it, you can do something with it; but the best thing in sight now is an offer of about $5,000,000 for it, and everything else in the bargain. The reason you have not got anything better in sight as an offer for the Muscle Shoals steam power plant is that it is not tied into any producing and marketing concern. The reason you have a good outlook for the $4,000,000 we threw into the Warrior plant, if you want to put it that way, is that we are tied into a going concern and we have a perfectly plausible and good customer to buy it, and we are tied up to him in the best possible way to get good money for it. Mr. Miller. That is your idea of it. Colonel Joyes. That is my idea; yes. Mr. Miller. That you could dispose of that power plant hooked in with the Alabama Power Co., w^iere the Alabama Power Co. can be the only possible purchaser, and you think that is a better proposition than if it was a separate and distinct plant. Colonel Joyes. Very much better. Mr. Miller. You consider that nitrate plant No. 1 was built out of the fund provided in the national defense act? Colonel Joyes. It was; yes, sir. Mr. Miller. And nitrate plant No. 2 was built out of other funds, not out of the national defense act funds? Colonel Joyes Yes sir. Mr. Miller. You spoke about the President setting aside $200,000, and then you said there was a subsequent allotment of $150,000 for the purchase of land. Colonel Joyes. Yes, sir. Mr. Miller. You did not use it. Colonel Joyes. I did not use it for that purpose. Mr. Miller. Why did you not? Colonel Joyes. I turned it back, and it was diverted or allotted to me or somebody else for other purposes. Mr. Miller. Was not one of the purposes in turning it back so that there would be no color of claim that the nitrate plant No. 2 in anywise was affected by the national defense act? Colonel Joyes. Precisely, that is my reason absolutely. Mr. Miller. And then when you could get out from under the national defense act you could make this sort of arrangement if you wanted to, so far as it related to nitrate plant No. 2, in conjunction with the offers of a 1086 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1087 private ^concern, which you could not do with nitrate plant No. 1, which you could not do if you bouplit the land with money provided under the national defense act. Colonel JoYES. We had no specific legal bar against working in conjunction with a private corporation, Mr. Miller. Your whole theory, then, of your being authorized to entwine this Warrior steam plant in with the properties of the Alabama Power Co. as a part of their system is because it applies exclusively to nitrate plant No. 2? Colonel JoYEs. Oh, no; not at all. Mr. Miller. Then I have misunderstood you. Colonel JoYES. I think you have, sir. Mr. Miller. I understood you fully. So without nitrate plant No. 2 Colonel JoYES (interposing). The point is this as to the Alabama Power Co. We built those facilities, the transmission lines, and the Warrior extension, absolutely and specifically for the purpose of securing ourselves power to operate the first half production of nitrate plant No. 2 by the time it was ready, and we did it. Now, having done that, and having provided those facilities, we wanted, through our contract, to have as broad use of the power provided in that way as possible, and we therefore wrote such provisions in the contract as appear in that way. Mr. Miller. That the warrior extension was a part of the facilities of nitrate plant No. 2, a part of it? Colonel JoYES. I do not think we ever said that, did we? Mr. Miller. That is what it was designed for, and what you went in for, to drive the first unit through. Colonel Joyes. No, sir ; we said—" I do not recall anything that put that aspect upon it ; it was to give us the power upon it ; that was all." We were fixing it up for another sort of power, ultimately, for all these needs at nitrate plant No. 2. It was a temporary expedient, which might be used for greater or less time, and which we would hope to use as little as possible, because we hoped to make power cheaper at the bigger plant at Muscle Shoals, and, of course, in the future whatever uses might come for the nitrate plants in the future we hoped to get something out of the water power. Mr. Miller. Perhaps I did not make myself plain. If the warrior steam plant had been designed as a part of nitrate plant No. 1 you could not have gone into the arrangement with the Alabama Power Co. which you did go into, could you? Colonel JoYES. I think there would have been some doubt about it. Mr. MiixER. But when you went into it along with nitrate plant No. 2 and hooked it up with the warrior extension, that is, hooked up the warrior exten- sion with nitrate plant No. 2, the limitation in section 124 of the national de- fense act did not apply, as you considered it? Colonel Joyes. I did not think that applied ; no, sir. Mr. Miller. That is just the difference then. Colonel JoYES. My point about that is this, that I take it the contract for the power with the Alabama Power Co. was an independent proposition, inde- pendent really of plant No. 2, for that matter, because it was a separate con- tract for power. It stated the purpose for which we expected to use the power, and that determined the character of the demand and the place where it was to go and so forth. I took it it was an independent proposition. I may be wrong about that. Mr. Miller. If nitrate plant No. 2 had no reference to the national defense act why did you locate it at Muscle Shoals? Colonel Joyes. Because it was the best place it could be put. When we were putting it there we were not affected by, and did not take into consideration the national defense act. except that it might give it in the future a little fur- ther value, by giving a cheap water power nearby, and we took into considera- tion a lot of other factors. As I have said before in other hearings the location down there is very good in a number of w^ays. We have a good place down there, a level place accessible to the river, where you can get good cooling water for the power station and have the great mass of water that must go through the processes of the plant. Then it has access to a most wonderful deposit of limestone of the very par- ticular specification required for that process. Then, it is fairly near a good supply of coking coal. The limestone proposition is one of the biggest things in the whole problem. They figured that we would have to quarry about 2,000 tons of stone a day. The actual needs of the plant would call for about 1,200 tons. There is always a waste in quarrying in the matter of dust and things of that kind, and we expect to have to quarry about 2,000 tons a day in order to keep the plant going to capacity. That is some stone, and you do not want to haul it very far. We found a quarry where there was a perfectly good 50-foot bed, which had been analyzed and found to contain 98 per cent calcium carbonate. Most limestone has a lot of magnesia in it and is unfit for this particular development. We went around and hunted until we found a good class of stone. Mr. Miller. So that was just the place to put the plant— at Muscle Shoals- it was an advantageous place? Colonel Joyes. Oh, yes; it was advantageous in many ways. Mr. Miller. Why did you not put plants 3 and 4 there, wliich you placed at Cincinnati and Toledo, if this location had so many advantages? Colonel Joyes. This location was getting sort of clogged up — when you get so much in there, you can not get any more— and. then, the railroads had limi- tations. The railroads could only handle so much. There are railroads run- ning in there— the main line of the Southern and the main line of Louisville and Nashville— and there is a little branch running toward Birmingham, op- erated by the Southern Railway. They could handle the materials for plant No. 2, and that was just about their capacity business. Mr. Miller. I see we have 2,200 acres of land there. Colonel Joyes. The reason for that location of these two plants at Toledo and Cincinnati was the power question, the same thing we were up against — the same proposition in relation to power. We had to get power, and we had to get it by a certain time. So we went to going concerns and we did precisely what we did here in this "unconscionable" contract. We repeated it over again, only worse. We started to do the same thing by building absolute ex- tensions on people's property at Toledo and Cincinnati, and we would do it again under like circumstances. Mr. Parker. Colonel Joyes, without going into the exact dates, I understand that transmission line was operating and giving power before anything else was in operation. Colonel Joyes. That is correct, unquestionably. Mr. Parker. The Warrior plant extension was next to operate in giving power. What was the next thing? Colonel Joyes. What was the next thing? Mr. Parker. The Warriof extension steam plant? Coloiiel Joyes. The Warrior extension steam plant was operating long before the Muscle Shoals steam plant. Mr. Parker. How about nitrate plant No. 2? Was the nitrate plant No 2 ready for operation before or after the Warrior steam plant extension was operating? Colonel Joyes. I hesitate a little on those exact dates, because I have this in mind Mr. Parker (interposing). I do not want to press you on that. Colonel Joyes. The Warrior extension was finished and started on a test run and after running a certain time it was taken down and certain alterations made. There was no definite break of the turbine, but there was an interrup- tion. I could get you that date more exactly. Mr. Parker. I will ask you to state the exact date when the transmission Ime came into operation, giving the power ; when the Warrior extension came into operation and gave power over that line; third, when the nitrate plant No. 2 was completed and ready for operation; and, fourth, when the Muscle bhoals steam plant was complete and ready for operation. You will put those on the record. Col. Joyes. Yes, sir ; we will get you the exact dates of all that, sir. (Subseq\iently Colonel Joyes submitted the following:) CHRONOLOGY. November 13. 1917: American Cyanamid Co. proposal to build United States mtrate plant No. 2 submitted and accepted by Chief of Ordnance November 16, 1917: Above ratified by War Industries Board November 6, 1917 : Date of Alabama Power Co. proposal. 92900—22 69 1088 MUSCLE SHOALS PROPOSITIONS. r>ec(Miiber 7, 1917 : Orij;inal purchase orders Ex. orders T-154, T-155, and T- 156 dirawii by ( 'olonel Joyes on Alabama Power Co. to build transmission line, to build Warrior extension, and to furnisli electric energy, respectively. December 21, 1017 : War Industries Board ratified broad lines of this under- taking with Alabama l*ower Co. December 21. 1917: Order additional to XOT-154 transmission line, to cover transformer station ("substations"). January 8, 1918: Orders revising XOT-155 (Warrior extension) and XOT- 156 (supply of energy). May 23, 1918: Transmission line ready for operation; and power (at low voltage) available. June 24, 1918 : Alabama Power Co. ready to deliver power to U. S. N. P. No. 2 at 44,(X)0 volts. July 1, 1918 : U. S. N. P. No. 2 commenced use of energy from Alabama Power Co., over transmission line (for construction and preliminary work). October 21, 1918: Transmission line voltage raised from 44,()(X) to 110,000 volts. October 26, 1918: First operation of apparatus (electric carbide furnace) in actual nitrate production at U. S. N. P. No. 2 (same power previously used in preliminarv operation of certain plant apparatus). N. B.— At this time U. S. N. P. No. 2 could not be said to be fully ready to enter into 50 per cent capacity production, but would probably have been ready for successively increasing up to that capacity as rapidly as such work should be increased in a new plant, which rapid progressive increase w^as actually prevented by the armistice, November 11, 1918. November 12, 1918 : " Deflection tests " upon the installeout the fund with which you were going to pay for this work so much as the authority you had for slarting the work. Colonel Joyes. I am frank to say to you tliat I think tliere was very (|ues- tionable authority for doing it. Mr. Wrk.ht. Did you know exactly where you were wlien you were estab- lishing these plants, as a matter of legality? Colonel Joyes. 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 requirtnl to do. Mr. Wright. But the best legislation you had, so far as these nitrate plants were concerned, was the national-defense act of 1916, and tlie evidence of that is that the very money with which you were to pay for tlu» land was allotted out of the national-defense fund. Colonel .Toyes. We did that, sir; not because it was authority for anything carrying the word " nitrogen " or " nitrate " but because it carried the word " land," That was the only reason, sir. Mr. Wright. The land could only be used, if you paid for it out of the $20,0()0,0(X) for nitrate purposes, for the establishment of nitrate plants. You would not have been authorized, in other words, to have taken part of that $20,000,000 created by the national-defense act of 1916 and built a cantonment on the land or to have bought the land and built a cantonment on it. Colonel Joyes. I do not think we would have gone quite that far, sir ; but I know that they had their eyes on it for other things than fixation processes, as I told you. Mr. Wright. Now, 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 Joyes. I think that is a legitimate assumption. Mr. Wright. That is your idea about the whole situation? Colonel Joyes. That is my belief, sir. Mr. Wright. And that is the reason you claim now that nitrate plant No. 2 was not constructed with reference to the national-defense act of 1916? Colonel Joyes. Yes, sir. Mr. Wright, l^ecause it was not paid for out of those funds? Colonel Joyes. That is my belief. I am not claiming anything, sir. I am not making any advocacy of any particular point of view. I am simply giving you what light I can on it. That was the intent we went under. What I am here to say is that the whole reason Mr. Wright (interposing). Colonel, let us understand one another. I am not here to criticize you, I am going to assume Colonel Joyes. I am not looking for it. Mr. Wright. I am going to assume that with the situation surrounding you, you evolved out of this situation the best contract you could. Colonel Joyes. We tried to. What I would like to say to you is Mr. Wright (interposing). And what I mean by the situation is that your contracting party was pretty difficult to deal with. Colonel Joyes. Oh, yes, sir. Mr. Wright. You said here, last week, that the Alabama Power Co. sub- mitted some suggestions in the drafting of this contract that you could not meet. Colonel Joyes. Yes, sir. Mr. Wright. Now tell us some of the claims they put up while you were negotiating with them, if you recall them? Colonel Joyes. That is a pretty hard thing to come back to, sir, from such a long distance of time, but I will do my'best. Mr. Wright. Well, I suppose some of those suggestions stood out promi- nently. ^What were the ones that impressed you during these negotiations, as to the claim they were making or their insistence on what they wanted, and so on, that you did not think could be met? I am trying to get the attitude of the party you were contracting with. That is what I want. Colonel Joyes. I know. I had some extracts, sir, from the earlier attempts at a contract that might have helped a little bit on that. Well, for one thing, the president of the Alabama Power Co., Mr. Mitchell, in some of the very earlier talks had suggested or had hinted at some improvement of the water powers in Alabama as a means to help out, and I told him we could not think about that. » 1100 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1101 .jH|}' Mr. Wright. What were those water powers, some that they controlled? Colonel JoYEs. Yes, sir; I believe so, along the Coosa. Most of the difficul- ties we had with them were over little things that were coming up. For instance, they would want us to put in a little bit more than we thought we ought to put in. Mr. Wright. What do you mean by " a little bit "? Colonel JoYEs. Sometimes I mean a very little bit and sometimes I mean a big bit. That was not an accurate expression, Mr. Wright. I should not have used it. I mean, for one thing, in the beginning it was represented that we ought to put in two turbogenerators down there in order that one might be a spare. Mr. Wright. That turbogenerator would cost about $1,500,000, would it not? Colonel JoYES. No, sir ; the turbogenerator costs about $350,000. Mr. Wright. But installed it would cost about $1,500,000? Colonel JoYEs. Installed, it would cost considerable. Mr. Wright. And that was one of the little things? Colonel JoYES. No, sir ; I told you that I used that word inadvertently. Mr. Wright. Then let us withdraw that. Colonel JoYEs. It would have been better not to use that word. Then they stood out for more boiler capacity than we wanted to put in, and we ultimately put in more than I would have liked to put in, but some of my own advisers finally brought me around to that, showing that we would be in a better posi- tion as to the assurance of our power if we put in a little more liberal boiler canacitv Mr. Wright. Right there, Colonel, you had a good deal of difficulty in stand- ing between these people and the Government's interest, did you not, all along? Colonel JoYEs. I do not think I would ever willingly go into such a proposi- tion and I did not go into it willingly. Mr. Wright. I say, you had great difficulty. It was a hard task that you had to protect the Government's interest as against these people with whom you were contracting, the Alabama Power Co. Colonel JoYES. It was hard ; yes, sir. Mr. Wright. Right there. Colonel, really all you wanted was a little auxiliary power to come from this plant? Colonel JoYEs. Quite a good deal of auxiliary power. Mr. Wright. Well, some auxiliary power to supplement your steam plant at nitrate plant No. 2, the one you were constructing? Colonel JoYES. No ; that is not quite the set-up. What we really needed was enough power to put our first half of the plant into production and be able to furnish the auunonium nitrate that our people were short on at the time, when the chemical plant was expected to be ready to produce it. Mr. Wright. Well, the point is that you did not anticipate going into the improvement of the Gorgas steam plant on the Warrior River on as large a scale as they wanted you to go into it. Colonel .ToYES. Not quite, sir. I would not have ever willingly spent a penny for any such purpose as that if I possibly could have avoided it. I^Ir. Wright. In other words, they impressed you with the fact that they had built this plant for the future; that they had installed a plant there, and tlieir idea was to increase it for the future and they wanted to get you t/> enter into a contract with them by which they could do that. Colonel JoYES. Well, I do not think there is any doubt whatever in the world that the Alabama Power Co. was quite glad we came in there and did it. I do not doubt it at all. They had planned, as I have said, the improvements, and they had ordered their turbine. They had their turbine under order, and some other stuff. I noticed in the hearings the other day that their president said one piece of apparatus he had been actually forced to buy and had it in his plant, because he could not cancel his order, and they had not been able to put that in, or had not done so. Their reasons for not doing it were their own, and I really am not able to speak, but the general presumption was that perhaps they were not quite ready for it in their business and perhaps they could not get the money, either one or both. Mr. Wright. Now, you have mentioned the fact that one suggestion they made was to improve their water power and the next one was that they wanted two of these — what do you call them? Colonel JoYES. Turbo generators. Mr. Wright. Two of these turbo generators installed instead of one. Now, what were some of the other things that they suggested? Colonel JoYES. I have told you that they advised or recommended or asked for more liberal boiler capacity than Mr. Wright (interposing). Than you thought the plant required? Colonel JoYES. Than I thought at first the plant required, ancommittee on ordnance war expenditures. Mr. Wright. I would like to get those dates in this record. Colonel JoYES. I am sure it is mentioned in there. The first I heard directly from the Alabama Power Co. was in a letter from them. Now, I can not remember, but I think it is likely that Mr. Wright (interposing). But the first suggestion Colonel JoYES (interposing). Pardon me; I would like to correct one thing I said the other day. I think- it is likely I said the other day that the first communication I had from them was their proposal dated November 6 or thereabouts, but I found accidentally in looking at the files the other day that there was an earlier letter of November 1, 1917. That is a difference of' about five days, but I would like to have it as exact as possible. That was a general statement that their attention had been called to the situation, and so on. That was about all. Mr. Wright. It might become material, Mr. Chairman, to get these dates in the record. I do not think they are in the record. That is, the dates of this correspondence between the department and the American Cyanamid Co. and the Alabama Power Co. and the department. The Chairman. As I recall, when we took up this matter originally most of these dates were put in the record. Mr. Wright. No, sir ; he refers here to the report of the Graham committee and says they are in there, but I understand they are not in this record. The Chairman. Can you give the dates? Colonel JoYEs. May I refresh my memory from this record of the Graham committee for a moment? I do not know whether it is in this volinne or not. Mr. Wright. I do not care to consume the time by waiting for that now. The Chairman. Colonel,^ can you get those dates? Colonel JoYES. Oh, absolutely; yes, sir. The Chairman. And will you please put them in the record ? Colonel JoYEs. I will be very glad to do so, Mr. Kahn. That is very simple, and they are very closely connected, and they are all embraced absolutely in between about October 29 and November 13. Mr. Parker. Are the letters short? Colonel JoYEs. No, sir; the letters are quite long. I I 1102 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1103 ■i Mr. Parker. You spoke of a letter in which they offered to build an extension if you* would lend the money. Was that in a letter? Colonel JoYEs. Yes, sir; that is a letter that would occupy about a page of the record of the hearings. Mr. Parker. I would like to see such an important matter as that put in just as it is. Colonel JoYES. Very well, sir. (The witness subsequently submitted the following:) Memorandum : Citations of mentions of or allusions to loan as bftsis of addi- tional facilities Alabama Power Co. system. The following documents pertinent are listed for convenience of reference, as they do not all appear in the records of this committee ; page numbers refer to report of hearings before the Subcommittee No. 5 (Ordnance) of the Select Committee on Expenditures in the War Department, House of Representatives, Sixty-sixth Congress, first session, on war expenditures (Hon. William J. Gra- ham, chairman). Letters from American Cyanamid Co. : October 13, 1917, page 2937 ; October 29, 1917. page 228; November 5, 1917, page 230; November 12, 1917, page 234; November 13, 1917, page 238. Letters from Alabama Power Co.: November 1, 1917 (quoted immediately following this list) ; November 6, 1917, page 2708. (This letter of November 6 is also printed at an earlier point in the present hearing. ) Alabama Power Co. (Inc.), New York, November J, 1917, Col. J. W. JoYES, Division T, Ordnance Department , 719 Fifteenth Street NW., Washington, D. G, Dear Sir : The officers of the American Cyanamid Co. advise us that our co- operation may be desirable in connection with the early supply of electric energy for the production of nitrates in northern Alabama. We wish to assure you of our hearty cooperation in any measure which will tend to facilitate the Government's ends in this direction. At present our nearest point of distribution to the proposed nitrate plant at Muscle Shoals is probably our steam plant on the Black Warrior Uiver, which is adjacent to ample water and coal supply. We now have installed at this plant one 25,000 KVA steam turbin unit of the most modern type, this installa- tion haveing been completed only within the past two weeks. In addition, we have 12,500 KVA steam plant installed at Gadsden, Ala,, and hydraulic plant of 67,500 KVA installed at Lock 12 on the Coosa River, 45 miles southeast of Birmingham. These plants are all in to pconnected on the same transmission system. We believe we can arrange to supply some 30.000 kilowatt capacity on any reasonable notice within six months, and this amount can easily be doubled within a year if the Government will lend its support. We believe you nre familiar with the general hydroelectric possibilities of Alabama and we will merely add that with Government aid we believe that we can give the Government any amount of hydroelectric power it may re- suire within a shorter time than it can be procured anywhere in the central 01 eastern part of the United States. Any further data you may desire in this connection we shall be very glad to furnish you, and we are requesting our chief engineer, Mr. O. G. Thurlow, to remain in Washington in case any further information may be desired. Very truly yours, James Mitchell, President. Note that the earliest communication received by the witness from the Ameri- can Cyanamid Co., namely, that of October 13, 1917, which was merely a pre- liminary outline of a possible but indefinitely-described war plant, contained an intimation that power could be secured for an emergency installation in northern Alabama by cross-connecting various power lies in that section of the country, at a price of 7 mills per kilowatt hour,* but did not hint at any financing. The American Cyanamid Co. in letter of October 29, 1917, outlined alternative plans for a Government ammonia plant, and one containing the following : " It is contemplated, as a possibility also, that the Government would have to provide capital for the construction of 80 miles of transmission line at an estimated cost of $1,000,000." Note, this power was estimated at 1 cent per kilowatt hour under plan 3, the following: " Plan No. 3 is based upon the Government's loaning lo the local hydroelec- tric power company $2,500,000, to be paid by the power company at the rate of 3 mills per kilowatt hour on the ammonia plant switchboard for current used by the ammonia plant. Until the full amount of $2,500,000 is repaid the charge for power would be 1 cent per kilowatt hour and 7 mills thereafter. It is naturally impracticable to state definitely whether such an arrangement could be made but the prospect is at least a favorable one." " The $2,500,000 loan to the local hydroelectric power company would be ex- pended in the installation of new hydro and steam generator units and for transmission line." The American Cyanamid Co. on November 5, 1917, proposed a plan for a plant specified in two parts: " Part 1 provides for an ammonia gas plant of a capacity of 500 tons of am- monia (NHa) per week, receiving its power, approximately 30,000 kilowatts continuously, from the Alabama Power Co. "The Alabama Power Co. will have available from the 1st of June, 1918, to the 1st of .January, 1919, the requisite amount of power for part 1 without causing its customers to be deprived of power necessary for the operation of their plants. Subsequent to this latter date, however, it will be necessary to meet the growing demands for power and the contracts upon the books of the Alabama Power Co. for increase in its power deliveries and for furnishing the power required for part 1 to have installed at its Warrior River steam plant a new 25,000 to 30,000 K. V. A. turbo-generator unit with the requisite boilers and transformers. The most convenient and economical transmission of elec- tric power from the lines of the Alabama Power Co. to Muscle Shoals is by an 82-mile transmission line from the Warrior River plant. •• The estimated cost of these addtions to the physical properties of the Ala- bama Power Go. is as follows : Complete installation of a 25,000 K. V. A. turbo generator unit at the Warrior River power station $1,250,000 Outdoor step-up transformer station, substantially 30,000 K. V. A. capacity 300,000 82-mile transmission line from the Warrior River power station to • Muscle Shoals 700, 000 Total 2, 250, 000 " The Alabama Power Co. has offered to deliver the requisite electric i>ower for part 1 on the switchboard of the plant at Muscle Shoals for 7 mills per kilo- watt hour, beginning when part 1 shall be in readiness to receive the ix)wer. The United States Government is to loan the Alabama Power Co. an amount of money equivalent to the cost of the additions to its property mentioned above and estimated at $2,250,000, and not to exceed $2,500,000, which is to be repaid by the Alabama Power Co. at the rate of 3 mills per kilowatt hour of the power delivered to the ammonia gas plant at Muscle Shoals. This will reduce the out-of-pocket cost of power used in part 1 to 4 mills per kilowatt hour and will discharge the indebtedness of the power company to the Government in sub- stantially three years." Attention is invited here to the mention of an offer by the Alabama Power Co. It is not known whether that referred to a communication from the Alabama Power Co. to the American Cyanamid Co. or to the proposal addressed to the Ordnance Department, division T, by the Alabama Power Co. under date of November 6, 1917. The American Cyanamid Co.'s proposal of November 13, 1917, the proposal accepted by the Ordnance Department, contained the following: " The site for the plant suggested as the most desirable is in the vicinity of Muscle Shoals on the Tennessee River in northern Alabama. Power is available at this site sufficient for the operation of one-half the said proposed Government plant from the Alabama Power Co., which will have available from the 1st of June, 1918, to the 1st of January, 1919, the requisite amount of power, without causing its customers to be deprived of the power necessary for their uses. Sub- sequent to this latter date, however, it will be necessary, in order to meet the growing demands for power upon the Alabama Power Co. for that company to install at its Warrior River steam plant a new turbo-generator unit of approxi- mately 30,000 KVA.. capacity, with the requisite boilers and transformers. The 92900—22 70 1104 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1105 most «onvenient and economical transmission of electric power from the lines of the Alabama Power Co. to Muscle Shoals is by an 82-mile tninsmission line from the Warrior River plant. " The estimated cost of these additions to the physical properties of the Ala- bama Power Co. is as follows : Complete installation of a 25,000 KVA. turbo-generator unit at the Warrior River power station $1. 250. 000 Outdoor step-up transformer station, substantially 30,000-kilowatt capacity 300,000 S2-mile transmission line from the Warrior River power station to Muscle Shoals '^<^' ^^ Total 2, 250. 000 " The Alabama Power Co. in a proposal dated the 5th instant, addressed to Col. J. W. Joyes. Division T, Ordnance Department, has offered to deliver 30,000 kilowatts on the switchboard of the proposed Government plant at Muscle Shoals for 7 mills per kilowatt-hour, beginning not later than the 1st of June, 1918. The United States Government is to loan the Alabama Power Co. an amount of money equivalent to the cost of the additions to its property mentioned above and not to exceed $2,500,000. The loan is to be repaid by the Alabama Power Co. at the rate of 3 mills per kilowatt-hour of the power delivered to the proposed Government plant." . The undersigned is convinced, from intimate acquaintance with the busi- ness and the records, that the Alabama Power Co. submitted no proposal dated November 5, 1917, but did submit one dated November 6, 1917-4he error made either in American Cyanamid Co.'s letter or in the Ordnance Office records, but appears nominal; the essential point is considered well estab- lished that the two references are to the same paper and that but one pro- posal was submitted by the Alabama Power Co., namely that above listed as dated November 6, 1917, and appearing above in this record. Aside from the mention of the Government financing a loan, etc., by the American Cvanamid Co. in its several letters, which the undersigned had always taken as indicating the result of inquiries made by the American Cyanamid Co. in order to suggest in its several proposals methods of pro- viding power for the plants proposed, attention is invited to the letters from the Alabama Power Co. The earlier, that of November 1, 1917, reprinted above, opens by stating that the American Cyanamid Co. have advised the Alabama Power Co. that the latter's cooperation may be desirable in con- nection with early supply of electric energy for nitrates in northern Alabama, assures Alabama Power Co.'s hearty cooperation in any measure to facilitate the Government's ends and proceeds to indicate its power resources, to state its belief that it can arrange to supply some 30,000 kilowatts on reasonable notice within six months " and this amount can easily be doubled within a year if the Government will lend its support." Later on appears the statement that "with Government aid we believe that we can give the Government any amount of hydroelectric power." In the more definite proposal of the Alabama Power Co.. dated November 6, 1917 reprinted above and in other hearings, the power company, referring to conference with Mr. Frank S. Washburn of the American Cyanamid Co., proceeds to formulate a proposal along general lines as to supply of power. After stating that " the financing of such an installation at this time would not be warranted by the present needs of the power company," it estimates the cost of the necessary additions to its Warrior River steam plant as approximately $2,250,000, and states, "if the Government will finance the undertaking and assist in delivering, the power company will be prepared to install * * * " ; also in the same letter, " the power company will under- take to set aside 3 mills per kilowatt hour for all energy supplied under thii^ proposal until the Government has been reimbursed for all sums advanced to the company in this connection." J. W. JOYES, Colonel, Ord. Dept., U. S. A. Mr. Stoll. How much power was the Alabama Power Co. to furnish the Government? Colonel JoYES. How much did it furnish? Mr. Stoll. How much was it to furnish? Colonel JoYES. I can check it up right out of the contract, to be exact. Upon the termination of the preliminary operation provided Mr. Stoll (interposing). I just want the amount; I do not care for anv discussion of it. Colonel Joyes. To the extent of the capacity of the Warrior extension at the time, and that meant 30,000 kilowatts, approximately. Mr. Stoll. Is that from the plant the Government built? Colonel Joyes. It was to be furnished by the Alabama Power Co., regardless of whether they furnished it out of that plant or not. Mr. Stoll. Suppose they furnished it out of the plant ; was that a part of the contract? Colonel Joyes. I do not think I quite get your point. Mr. Stoll. What I mean is this: The Government furnished all the monev to build the Warrior extension? Colonel Joyes. Yes, sir. Mr. Stoll. Was the Alabama Power Co. to furnish the current from the plant the Government built? Colonel Joyes. At their own volition, to do that or not. Mr. Stoll. We were to pay them for the current they furnished from our own plant? Colonel .Toyes. Yes; because they rented that plant from us and were to r»ay for the rental of it. They paid in two ways. In the first place, whenever we were operating Mr Stoll (interposing). I do not care to go into a discussion of that. ( (•h»nel Joyes. I can not answer your question without telling you this, that they were to pay 6 per cent per annum of the total cost, plus 2 mills per kilowatt hour that they furnished us. toward the amortization of the plant Does that answer your question? Mr. Stoll. They were to take the plant that was built bv the Government's money ? Colonel JoYEs. Precisely. Mr Stoll. There was no current large enough to pay for the plant itself? Colonel Joyes. They were Mr. Stoll (interposing). Is that true or not? Colonel Joyes. It amounts about to that, I think, sir. Mr. Stoll. So if the contract had been carried out as was intended, the plant built by the Government money, they would have sold the power to the Government and thereby paid for the plant, and it would not have cost them a copper. Colonel Joyes. It is like any other commercial transaction. Mr. Stoll. It would not have cost them a cent. Colonel Joyes. I think that is about right. I think in most every direction nat IS so A man puts in an addition and he selLs the product at the cost Mr ^'i^i '"?i"'^'''^ ^l\^- investment in the plant and make him a profit besides. n 1 ^^?¥" ^o you thmk that was a good contract for the Government' ^oionel Joyes. I consider it the very best we could do under the circumstances, . ,» , '^ "^* ^^ unprecedented contract by any means ; there were others on the i^ame basis precisely that were made during the war. Mr Stoll. Did Mr. Washburn have anything to do with that contract' i^oionel Joyes. To my knowledge, nothing whatever, directly. He did have tins nmch by way of introduction to it, that he went and spoke to the officers or riie Alabama Power Co. before he made some of his proposals to the United 'Mates, and he suggested to them that they might be called upon to supply some Mr. Stoll. This contract was made under the law of Julv 9, 1918, which au- thorized the Secretary of War to sell any real estate or plants that the Govern- ment had? Colonel Joyes. I do not know that I would be positive about that, sir. I think that law covers it. Mr. Stoll. What law did you make this contract under? Colonel Joyes. As to the sale? My view of that matter at the time was this, sir- Mr. Stoll (interposing). I do not want your view; I want to know what law you made this contract under. <'olonel Joyes. I am free to say I do not know. I made it pursuant to a prac- tice which was established in the Ordnance Department, with the advice of lawyers and with the full consent and concurrence of my official superiors. 1106 MUSCLE SHOALS PEOPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1107 Mr. *Stoll, Do you know of any law which gave your department the right to give a concern an option on the property of the Government for a period of six years, tliereby foreclosing the right to the Government to sell that property? Colonel JoYEs. I expect I can give you one, sir. The law of July 9, 1918, I think, clearly does so, sir. Mr. Stoll. That gives you the right to sell? Colonel JoYEs. Yes, sir. Mr. Stoll. This is not a sale. Colonel JoYES. In my opinion it would come very close to being a sale. Mr. Stoll. No ; it is an option extending over a period of years. Colonel JoYES. It is an option, sir ; and an option is the first step, I believe, toward a sale. Mr. Stoll. But this is a contingent option extending over a period of years. Do you know of any authority which Congress gave you or your department to give a person an option for a period of six years to shut out the right of the Government to sell the property during that period of time? Colonel JoYES. I am not prepared to say I do, sir, so specifically as that ; no. Mr. Stoll. Do you not think this is more of a case of the spider and the fly — the Alabama Power Co. spreading its beautiful net, and you all walking right into it? Colonel JoYES. No, sir ; I do not. Mr. Stoll. To tie you up hands and feet? Colonel JoYES. No, sir ; I do not. Mr. Stoll. It lookis very much that way to me. Mr. Garkett. Where was this contract from the day it was executed, I mean the day it was agreed upon; where was the paper itself from that time until November 7, 1918? Colonel JoYES. The contract with the Alabama Power Co.? Mr. Garrett. Yes ; the contract with the Alabama Power Co. that was agreed upon back in November or December, 1917. Colonel Joyes. It was signed in 1918, and I think it bears the date of Decem- ber 1, 1917. Mr. Garrett. From December, 1917, until November 7, 1918, where was this paper; in whose possession was this paper? Colonel Joyes. There was no such thing as this paper at all those times. The Chairman. That is all in the hearings. We have gone over that, and it is all in the hearings. Mr. Garrett. I am just asking where that paper was during that time. Colonel Joyes. I mentioned that in considerable detail on Friday, that during that period we were endeavoring to arrive at a definite statement of the rela- tions; in other words, a contract. At first I met the officers of the Alabama Power Co. in Washington and with other people tried to arrive at an agreement. Then I delegated the authority to some other people to negotiate down in Ala- bama, either at the Warrior plant or in Birmingham, and tried to settle a num- ber of these details there. That came back to Washington again, and it was con- tinued on there. It was finally brought forward considerably toward an agree- ment, and then went into the hands of Col. William Williams, of the procure- ment division of the Ordnance Department, along about July or August, 1918. The negotiations from that time on took place in his office. He went into it in great detail and proceeded to chop it up with scissors and to get it into regular arrangement and form. Mr. Garrett. During all this time work was being constructed? Colonel Joyes. Yes, sir. Mr. Garrett. Then, as a matter of fact, all of the work, or at least 90 per cent of the work done on the Alabama Power Co.'s premises, the extension of the Gorgas plant and the transmission lines, was done without any written con- tract; is that not true? Colonel Joyes. Except this Mr. Garrett (interposing). Was that true or not; was the work done on any written contract? Colonel Joyes. I believe I am justified in saying it was, to this extent, that T drew a purchase order to start the work, a written purchase order, requirini: them to do thus and so, subject to later agreement as to terms of payment, etc. I signed that and it went out on the formal letterhead, and I have on that, I be- lieve, an acceptance at the bottom, by the Alabama Power Co. If I am correct on that, and I think I am, those purchase orders bore my signature and the com- pany's acceptance — two signatures at the bottom — which is, in effect, a contract. Mr. Garrett. What do you mean by purchase order -> Colonel Joyes. Those are in the record, in detail The Chairman. All three of the letters you read are in record' Colonel Joyes. Yes, sir. Mr. Garrett. I know this is very wearisome, but vou will remember Mr Chairman, that a Member who sits at the end of the table never gets a chance to ask his questions until the others are through, and he is plac^ at a S ir/hTfn 1 in^^J.^""^' r"^^ ^^^^'"^^^ "^ ^^"^'^^ "Po^ the Members and begin at the ta 1 end of the class once in a while, it would give us a chance to mver these questions without repeating so much. The Chairman. The desire of the chairman is to get through with this We have been running for four full weeks. Mr. Garrett. If the Chair will look at the record he w:il see that I have asked fewer questions than any other member of the committee. There are some things I want to find out, and if they are in the record already I do not wa^t to duplicate them, but I do want to get the information The Chairman^ They are in the record, because I heard them myself ^Mr.^ GARRETT. Did the Alabama Power Co. execute a bond to c^r^ry out this Colonel Joyes. There w^as a bond given end^of^t?^""""" ^^^° '''^' ^^""^ executed, a't the beginning of the work or at the ok2??T^^ ^''''^^' J ^vp^^i rather have that absolutely verified andgive it to vou absolutely correctly in the record. « u gi^e n lo jou endY* ^^^^^'^' ^'''' ^"^ "^^ ^°*^^ whether it was at the beginning or at the Um^on th7t!''sir. '"''"''^ '''^^'' "^'^ '"^ ^'^"^ °^'^^''^ '■ "^y ^^^^"«^^' i« ^^ "nre- contJa'ctr ^^*^'' ^^^^^^ ^^** *^^ ^''''^ ''^^' "^^^^ ^'"^"^"^ ^^^^"^ signature of to'ge^t ?i^mTu inT^'ry few^'^^^rds^"^^"^" ^'^^ ^^ '' ' ^«" '^' ^^^^ ' --* The Alabama Power Co., so far as the construction of this extension and thA construction of the transmission line was concerned, never paid out a doUar except money that was furnished by the United States; is that true" ? .fo not r?h.'S. -M-^'^^'V^i ^^ *°y ^^^^ P^^P^^*^' ^"t I mean L to the construction ?unds! was U not" " ''^-''^'^''^- ^ ««• All of that was out of Governmen" fv.P'^lf/^^l ^^7f?' ^ ^^^"^^ ^^y ^^^ *° *ot«' sir. I mean that in this wav that tte intent of the contract was that the Government should bear all 5 fhe ex penses of such work, and it was carried out practically as intended Mr. Garrett. That is a sufficient answer. mcenaea. fuSrf^r&hLrrttroStX"'''^ ""' "" ^^'^ •"" "^ *^^^"'"'«°* po^s. ®*'''^'"- ^ """^ ""* """«" ^^^'y ««°t they might have paid, for all pur- fofXh-"? x normZ"' '°'"''"*"' '^^""^ *" '•'^y ''«•' t° ^"^ ™»-y cJfoneY^^Es^^Yel'^tr "^"^ " '*^ ^^^ *"' *^ ^^^e^-^^"* in the contract? Mr. Gabkett. This plant was built, then, upon their real estate? oolonel Joyes. Yes, sir ; their premises leased to us. line wS'^cSrme^df ^^' ""^"'"^ ^^^ "^'"^^'^^ "^^ ''"'"' *"' transmission Colonel Joyes. They did, sir. thflt'"',,?^''"^''- J'"'^„''°"*™'=t provides that after the Government has done Ai^L ''?r ^*<="<'° 22 of this contract, the day after it was completed thi t. d r»* ^""'^'" ^- •^°""' ^^"^ demanded that the Government s^n itto them contract wouM"T°not7""* ""^^ "**" ^""^ '" ^"^'^ '"'^ " "nd" the «t*^^il2?*l.''°^^®- ^''* •'^y ^"e'" it was completed— weU, if they had done s» atjhat time I think they would have had to pay us every ^pemiy we p^ wamed^'tTraat toe?""'' "'"' *' "'^''' *" '"'"'*' *'* *° ^ •"""' " """y Colonel Joyes. I believe so, sir. 1108 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1109 Mr. Garrett. But the Government could not compel them to buy it before three years after the proclamation of peace by the President, could they? Colonel JoYES. I think that is correct, sir. Mr. Garrett. If the war was still going on, you would have a contract in which you would be paying rent, and would have paid enough rent to have allowed the company to have paid for the plant long before this time, under the provisions of the contract? Colonel JoYES. The Government is to pay no rent. The $60,000 lump pay- ment covered all United States use of contractor's premises, etc. Mr. Garrett. And still the Alabama Power Co. would have the right to de- mand a sale of this property by the Government, and the Government's hands would still be tied by the Alabama Power Co. if the war was still going on; and, as a matter of fact, its hands are tied because it has not been three years since the proclamation of peace by the President, and the Government is now tied up in that contract in that way, is it not? Colonel JoYES. I think that is so sir. Mr. Garrett. That is all. Colonel JoYES. I think that is correct. I realize that is one feature that may well be open to criticism as being unfavorable to the Government. I think the reason for putting that in there was that there would be a certain period of time after the close of the war when things would be rather involved and difficult, both in connection with financing and the recovery of business, etc., and that was about the expectation we had at the time, that it would be but fair to allow anybody whom we would require to make a purchase a little time for business to readjust itself. Mr. Garrett. At whose suggestion was that made? Colonel Joyes. I am very sorry I am unable to say at whose suggestion it was made. I think, in all probability, it was at the suggestion of the Alabama Power Co. ; I think so, sir. Mr. Garrett. Colonel, there has been a good deal of discussion here in this testimony to the effect that you did not know, or whether or not there was a good deal of discussion in your conferences as to your power to do the various things that were done in regard to this matter. Did the people in your conferences ever discuss the resolution declaring war against the German Government, and in that resolution did they fail to see the language in which Congress pledged not only the resources of the Government but every re- source of the Nation to the winning of that war? Did anybody ever raise the question as to whether or not that superseded any peace-time statute that might be in the way of military activity, or did they just wait for some law to be passed? Colonel Joyes. I am not able to speak for what other people thought of, sir, but I know perfectly well that there was a general feeling expressed that the declaration of war did give a certain latitude to the Executive and to the officers who had to work under him, that it called for them to Mr. Garrett (interposing). It gave the President power to call all the men in the country to arms, did it not? Colonel Joyes. No, sir; I do not think so, sir. If you will remember, there was a great deal of discussion at that time, and there was great reluctance in getting the selective draft adopted. There was no universal draft — never was — because you would not give it to us. Mr. Garrett. We had the selective service law? Colonel Joyes. If you had given us the universal draft — a universal draft of man iM»wer and of money power — there never would have been any such fool contracts, as many of the fool contracts that have been written, and many of them a re. fool contracts. Mr. Garrett. Do you say this was a fool contract? Colonel Joyes. This has been spoken of as a fool contract, and I do not blame you. with your perspective on it at this time for calling it that. I do not call it that : I call it a fairly good provision to meet a very difficult situation which we were put into from the lack of law ; that is my opinion. Many another man ha^^ felt the same way about it and has said it in much stronger language than that. Mr. Garrett. Your idea is that you were without authority, and this is the best contract that could be made because of the lack of more authority. Colonel Joyes. That is right ; that is my opinion, sir. whether that lay in the law or not ; but it is my opinion, and the situation I found myself in, as many another man, also, sir. This is not an unprecedented contract at all. You are talking of this contract as though I was the only man who presumed to do that sort of thing. Mr. Garrett. I am not presuming anything at all. This is the contract we have before us. We have not the other contracts before us, and this is the one that we are discussing. If the other contracts were before us, of course, they would be up for discussion, but they are not here. Colonel Joyes. With your tolerance, I mention it for this one reason, that I think this was not a particular provision in this contract which you have up for your consideration ; and if you choose to consider it and inquire into the pro- priety of my action, I think you should consider in connection with the pro- priety of my action that there were other contracts that did the same thing, prior to and after I did it, prior to and after the writing of this contract. Mr. Garrett. You mean section 22 ; that is the troublesome section of this contract? You mean there are other contracts that contain the exact language of .section 22? Colonel Joyes. Absolutely not ; no two contracts have exactly the same identi- cal language, but the same essential provisions, sir. Mr. Garrett. The other contracts you speak of gave the contracting party the right to demand of the Government that the Government sell at any time, and in those contracts the Government waived the right Colonel Joyes (interposing). The Government never waived any right to anything. Mr. Garrett. In such an optional contract as this one the contractor would have the right to demand the sale immediately, but yet the Government could not demand purchase by the contractor until some other time, after the signing of the armistice. Have you any other contract just like that? Colonel Joyes. Why, I am unable to cite you that particular thing, sir, but I am not so sure that I can not do it. (The witness, after consulting the records, sul)sequently submitted the fol- lowing citations from contracts:) 1. Contract dated March 1, 1918. between the Ford Motor Co. and the United States, by the Secretary of the Navy, covering the manufacture of 100 patrol boats, contains the provision in the sixteenth clause, for construction and equipment by the contractor of " buildings, building slips, plant, and other special facilities," the total actual cost of which not to exceed $3,500,000, was to be paid to the contractor by the United States as expenditures therefor were incurred ; title to all such special facilities paid for by the United States to vest in the United States. The contract further provided in the twentieth clause that upon completion of work under the contract, a compensation board of Navy officers should appraise all such facilities in two parts; the first part including all buildings, building slips, and appurtenances not susceptible of removal without destruction ; the second part including plant and other facilities which are readily removable. This clause then proceeded to allow the contractor the specific option of purchasng at such appraised price or of refusing to purchase, although the word "option" did not appear. In the event that the contractor "shall refuse to repay the amount of the appraisals, or either of them, the department shall have the right to enter upon the contractor's works and remove such parts as shall not have been accepted as are readily removable and to wreck such parts as are not sus- cept ble of removal for their salvage value, provided that any damage done in the process of wrecking to the contractor's own property shall be made good by the department." A careful reading of this contract does not disclose any special provision covering title to the land upon which Government-owned facilities were to be erected, but from the context it is patent that the structures were to be upon land owned by the contractor. There is no time limit upon contractor's decision. I am informed that a supplemental contract increased the amount liable to be spent for increased facilities and also that in the final settlement of the contract the Ford J^Iotor Co. was granted title to practically all the facilities provided by the United States, makng for some of those facilities pay- ments approximately 70 per cent of cost, for others payments at various prices ranging from 70 per cent down to nothing, and some small portion of the facilities being actually turned over to the Ford Motor Co. without com- pensation to the United States. r I 1110 MUSCLE SHOALS PROPOSITIONS. I am informed, although I have not verified the fact, that provisions quite similar to the foregoing were used in a number of Navy Department war contracts. 2. Contract No. CS 105 made by the Chief of Ordnance with the Morgan Engineering Co., of Alliance, Ohio, for eighty 12-inch mortar carriages, model of 1918, dated January 26, 1918; execution completed June 17, 1918: * * • * * * « The contractor agrees to provide at the best prices obtainable upon land now owned by the contractor, indicated upon Schedule 2 and described as follows, to wit. * * * the following: Suitable temporary factory building of approximately 210,000 square feet floor area, at a cost not exceeding $1,150,000, in accordance with the plans and specifications referred to in Schedule 3, hereto attached, being a copy of a certain approved contract by the contractor and George A. Fuller Co. And the United States Government, through the contracting officer, agrees to pay the contractor the actual cost of such temporary buildings weekly from time to time as the work of construction progresses upon statements of work done, furnished by the contractor weekly during the progress of the work and approved by the contracting officer. The above mentioned plans and costs include all cost and charges incurred by the contractor for the purpose of providing complete buildings ready for the installation of the necessary machinery without additional foundation, but with railway tracks and sidings to the buildings aforementioned and adjacent storage yards used in connection therewith. The United States Government agrees to pay all State or local taxes levied or assessed upon such buildings and the land occupied by such buildings, storage yards, etc., during such period as said buildings mav remain upon said land and be the property of the United States. Payment of these items to be made by the contracting officer to the contractor after such payment has been made by the latter, provided that such payments of taxes shall be in lieu of any and all rental charges for the use of said land It is distinctly understood and agreed that said buildings, tools, and equip- ment are and shall remain the property of the United States Government, and that said United States Government will remove or cause same and every part thereof to be removed from the property of said contractor, and leave said property in the same condition as before said buildings were erected thereon, without cost or charge of any kind to said contractor, within one year after peace is declared with the German Empire, provided that if the United States shall desire to sell said buildings without removing them, then the contractor shall have the first right to purchase same at the highest' price which the United States may be able to obtain for same, and provided further that the time of removal of said buildings may, at the option of the United States, be further extended until one year after the completion of such contracts as may be entered into between the contractor and the United States either before or after the end of the present war. The contractor, by and with the assistance and approval of the contracting officer, will purchase at the best prices obtainable (or will manufacture) cranes, tools, equipment, shop furniture where necessary and possible, and office furniture and equipment necessary for the purpose of operating the plant to be operated in said buildings under the terms of this agreement, and npt to exceed in cost the sum of $1,800,000. The contracting officer agrees to pay the contractor monthly, or oftener, the cost of all such machinery, tools, and equipment aforementioned as same may be purchased or manufactured from time to time by the contractor, upon bills furnished by the contractor for such purchases. * * * * * * * . It being hereby agreed that for such machinery, tools, and equipment as the contractor may himself manufacture in the present plant he shall be paid the following prices: All cost of (1) direct material entering into the construction of such articles; (2) cost of all direct labor entering into the construction of such articles; (3) percentage of overhead obtaining at the time of manufacture as shown by the cost records of the contractor; (4) 10 per cent upon the sum total of the foregoing three items. MUSCLE SHOALS PROPOSITIONS. 1111 All such tools and equipment aforementioned to remain the property of the United States Government and to be removed by the United States Govern- ment from the property of the contractor within the period provided for the removal of the buildings aforementioned. m * * t. * * * The Morgan Engineering Co., By W. H. Morgan, President, Contractor. Attest : W. H. Ramsey, Serrefary. Samuel McRoberts, Colonel, Ordnance Dept., U. S. National Army, Contracting Officer. By Chas. N. Black, Lieutenant Colonel, Ordnance, National Army. Witnesses : A. F. Morris. Boone G. Harding. A true extract copy of contract on file in the office of the Chief of Ordnance. John G. Booton, Major, Ordnance Dept. 3. Contract No. CF 339 made by the Chief of Ordnance with Dodge Bros., of Hamtramck, Mich., for 4,.544 recoi^ mechanism; complete, dated November 1, 1917; execution completed November 13, 1017: * * « « « # * ARTICLES CONTRACTED FOR. Article I. The contractor agrees to make for the United States the following articles: (a) 3,120 recoil mechanism, complete, for 155 mm. Howitzer (Schnei- der) ; (&) 1,424 recoil mechanism, complete, for 155 mm. G. P. guns (Filloux). ******* Art. II. Time being of the essence, the contractor agrees to provide, with the utmost dispatch, at the best prices obtainable, upon land now owned by the con- tractor, described as foUow^s, to wit : * * * the following : 1. Suitable factory buildings of approximately 500,000 square feet floor area, at a cost not exceeding $1,500,000 as per plans and specifications hereto attached marked Schedule 2. And the United States Government, through the contracting officer, agi*ees to pay the contractor the actual cost of construction of such buildings monthly from time to time as the work of construction progresses, upon estimates of work done, furnished by the contractor monthly during the progress of the work, and approved by the contracting officer plus the sum of 5 per cent on the actual cost of said buildings as a charge for organization equipment, building equip- ment and supervision furnished by the contractor in the construction of said buildings. Said charge of 5 per cent to be paid by the contracting officer to the contractor upon the final completion of said buildings. And the United States Government, through the contracting officer, also agrees to pay all costs and charges incurred by the contractor for the purpose of procuring railway tracks and siding to the buildings aforementioned and adja- cent storage yards used in connection therewith, and also all State or local taxes levied or assessed upon such buildings and the land occupied by such buildings, storage yards, etc., during such period as said buildings may remain upon said land. Payment of these items to be made by the contracting officer to the contractor within one month after such payments have been made by the contractor. Such payments of taxes to be in lieu of any and all rental charges for the use of said land. It being also understood and agreed that any sums which may hereafter be refunded by the railroads on account of such trackage aforementioned, shall be paid to the United States Government. It being distinctly understood and agreed that said buildings are and shall re- main the property of the United States Government, and that said United States Government will remove or cause same and every part thereof to be re- moved from the property of said contractor, and leave said property in same condition as before said buildings were erected thereon, without cost or charge 1112 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1113 ^ II iiqi lilt 'fl|ii of any Ifliul to said contractor within six months after peace is declared with tlit Gernian Empire, provided that if the United States shall desire to sell said buildinj;s without removing them, then the contractor s'hall have the first right to purchase same at the highest price which tlie United States may be able to obtain for same. * * t * * 4t - * By John F. Dodge. President, Contractor. Attest : A. L. McMeans. Secretary. J. H. Kick, Lieutenant Colonel, Ordnance Department, United Statea Army. Contraetinp Officer. Witnesses : F. J. Haynes. Geo, L. Lohrer. A true extract copy of contract on file in the Ordnance Department. John G. Booton. Major, Ordnance Department. 1. Contract No. CF 420, made by the Chief of Ordnance with fiesta Machiiu' Co., of Pittsburgh, Pa., for 9,000 tons of artillery forgings, dated January 11, 1918: execution complete::♦ 3. It is further agreed that the United States may accept, in full satisfaction of this contract, such lesser quantities of the articles herein contracted for as the contracting ofl^cer may designate; but in this case the contractor's obliga- tion to imrchase additional facilitie.^ at the price specified shall cease, unless the United States shall place orders with the contractor for other articles that can be produced by these facilities equal in value to the value of the portion of the contract canceled. ♦ ♦•**** ]Mesta Machine Co.. Geo. Mesta, President. Samuel McRoberts, Colonel, Ordnance Department, U. .V. National Army. By Chas. N. Black, Lieutenant Colonel, Ordnance, National Army. Witnesses : H. F. Wahr. Secretary. Estklla Swavely. A true extract copy of contract on file in the Oi-diumce Department. John J. Booton. Major, Ordnance Department. Mr. (Barrett. I think you will agree with me, under this contract, who else could buy this property from the Government except the Alabama Power Co.V Colonel JoYEs. Nobody. But there was many another contract that con- taine«l that same provision, in that same situation. I have five of them (m the table. ]Mr. Parker. So far as not already in the record, please insert everything in the way of correspondence, which constitute a part of the mateiial which you have handed to Colonel Williams. Colonel JoYES. The material I handed to Col. William Williams? Mr. Parker. Yes. It consisted largely of correspondence between you and the Alabama Power Co. ; and, so far as it is not in the record, I want it i)Ut in. Second, please, at your leisure, state why- Colonel JoYES (interposing). I expect Mr. Parker (interposing), I am not asking you to answer the question now. Please, at your leisure, state any reason why the Alabama Power Co. ought not to pay interest on the cost when they have possession of the plant and are operating it. The Chairman. If you will kindly insert the answers to tho.se questions at your leisure, that is all we will require this morning, ('olonel. We are very much obliged to you. (The matter, above referred to, is as follows:) [Memorandum to Procurement Division in re proposed construction and operating con- tract with Alabama Power Co.] September 5, 1918. 1. In order to obtain, through the medium of the Alabama Power Co., an auxiliary power station for the power requirements of the Nitrate Division. Ordnance Department, it became necessary first to construct a power station and transmission line with Goverment moneys ; and, second, to contract for the operation and ultimate disposal of such properties. 2. The construction and the work orders, under winch the same has pro- ceeded, are covered by the first portions of the attached tentative contract, dated INIay 20, 1918, and the schedules A, B, and C, relating thereto. 3. All materials and apparatus are covered by purchase orders, approved or authorized previous to August 31, except certain as yet unauthorized work, which, however, is mentioned in schedules A, B, and C. 4. The construction of the Drifton Branch Railroad extension, approxi- mately 8,000 feet of new line, was not included in the above draft of contract, and lio work or purchase thereon has occurred. The Alabama Power Co.'s representatives have agreed to provide the right of way and materials and to perform that work under this contract with an upset price to the I'niteosed facilities at Warrior are completed for operation at that time. 24. Temporary power to be furnished in the meantime on basis $12.50 per month per 1,000-kilowatt maximum demand, plus 5 mills energy charge, as pro- vided in contract draft May 20, 1918. 25. Transmission line to be maintained by power company but policing trans- mission line to be at expense of United States. Col. J. W. JOYES, Ordnance Department, United States Army. [Memorandum.] In reply to .Tiulge Parker's question as to why Alabama Power Co. should not have been required to pay interest on cost, I would say that we thought the company should pay interest and contract aims to require interest, as follows : Whenever United States has a "demand " right for power, the contractor must pay monthlv interest at 6 per cent per annum on entire cost. As facilities were for the United States requirements and as United States interests prevented contractor's agreeing to sell power regularly from Warrior extension it was felt to be only fair to remit such payment when United States suspends its pur- chases of power. But, in that case, contractor must pay li mills for each kilowatt hour which it generates itself, for its uses, by the operation of the Government's facilities. This 1^ mill would amount to more than 6 per cent per annum if the contractor used the lacilities to their full capacity continu- ously. Payment for full use facilities below : 365 by 24 by 30,000 at $0.0015, $394,200. Interest at 6 per cent on $3,851,880.99, $231,112.86. Interest on cost of Warrior extension. Warrior substation, and Drifton Rail- road : Furthermore, the contractor is required at all times to maintain the proper- ties in first-class repair, to keep them insured, and to make good all dam- ages, etc. In returning the proof of the record of my testimony in hearings before your committee on Friday, March 10, and Monday, March 13, 1922, I believe it neces- sary to submit the following brief statement as to my general attitude and opinion in regard to the contract with the Alabama Power Co. The trend of previous hearings and of the questions propounded to me natu- rally led to presentation of facts and some argument by me in support of the legality and justice of the contract, such as might possibly be misconstrued into an advocacy of the interests of the Alabama Power Co. Such an advocacy of this or any other interest in opposition to that of the United States Government is far from my intent. On the contrary, I believe that the legal rights and proper equities of the United States should be para- mount, and that in the contract are to be found the best means of enforcing such rights and protecting such equities of the United States. I therefore advise tfiat the contract be respected and enforced and urge that the policy of the Government be to secure In the manner prescribed In the con- tract the most advantageous settlement possible. Respectfully, .T. W. .TOYES, Colonel, Ordnance Department, United States Army. STATEMENT OF DR. CHARLES L. PARSONS, CONSULTING CHEMIST, WASHINGTON, D. C. The Chairman. We will now hear Dr. Parsons. Will you kindly state your name in full, also your address, your present business, and what position you occupied during the war? Doctor Parsons. I am Charles L. Parsons, and my address is 1709 G Street. Washington. D. C. I am a consulting chemist. During the war I was quite closely connected with the whole nitrogen situation and a number of other matters that were handled by the Bureau of Mines of the Interior Department. I was chief chemist and chief of the division of mineral technology of the Bureau of Mines. In the summer of 1916 I vvas transferred to the War De- partment at the request of General Crozier as their chief chemical engineer to go to Europe and investigate the whole question of nitrogen fixation and to report back to him my conclusions. After that I was made a member of the 1116 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1117 Hjl;" nitrate ^oiiniiission, consistinjr of Admiral Earle, Dr. W. R. Whituey, Dr. A. A, Noyes, Dr. Gaiio Dimn, and I tliink the other member was Mr. E. E. Summers, of the War Industries Board. 1 am not quite sure of that, hut I have the list exact if you desire it. I was consulted in connection ^^ith technical matters with reference to new plants after plant No. 2 was installed at Muscle Shoals, when such matters were referred to the commission for advice. I was also with the interdepartmental committee, consisting of the Secretaries, of Interior, Agriculture, and War, at the time they took their special trip through the South to view the various localities jn-oposed for the lirst nitrate plant, which should be referred to as plant No. 1. and the trip had nothing to do with plant No. 2. Afterwards I was in constant consultation with them, and was on the various boards that had to do with these matters. I am, of course, more especially informed on the technical side, or the chemical side of the situation. I do not think 1 can give you any testimony which would be worth while on water powers or law or contracts. While I will be very glad to reply to any question of fact, of which I have knowledge on those matters, I do not think I could give you an opinion, as you have already had men before you who are much more expert on those matters than myself. There is one thing that I ought to mention. I have been. I think, before every committee that has bad this matter up for consideration. I was. after I left the Bureau of Mines in the latter part of 1919, connectefl in a consulting chemical capacity with the Atmospheric Nitrogen Corporation, whose plant is now operat- ing at Syracuse ; I remained with them in a consulting capacity until August 15, 1921, when their plant was in full, successful operation, and my connection with them ceased with the understanding that I 'was entirely free thereafter, and I am before you as a free lance, without anyone influencing my testimony. The (^HAiRMAN. That plant at Syracuse is the one that has been referred to as the fixation plant No. 1. which is different from the plants operated by the cyanamid process? Doctor r.VRsoxs. You are coi-rect. The Chairman. What is the name of that process olficiallyV Doctor rARsoxs. It is generally spoken of as the General Chemical Co.'s process, or. if you wish to go back to a more general term, it is a modifica- tion of the Haber process. There are three modifications of the Haber i)rocess, which differ slightly, and which I will explain. Tbe Haber ]irocess was first developed in Germany. When the war began they Mere making 7.000 tons of fixed nitrogen per year by the Haber process there. Tbeir i»atents called for operation under pressure from 100 atmos- pheres to 800 atmospheres, or to put it in pounds, from 1,.500 pounds per square inch to 4,r>00 pounds i)er square inch — very high pressures. Tbe process consists in the direct combination of nitrogen and hydrogen to form ammonia, and the greatest difficulty in the process to-day is to pro- cure tbe hydrogen and to procure it cheap. Modifications of that process have been t rho r'.vnity on the synthetic process is nothing on munitions and only $5 per ton on nitrogen if the product is used for fertilizer. 5. That profits on electricity gold will be paid to Mr. Washburn and his asso- ciates. The extent of this profit is unknown. C. That a probable 10 per cent profit will have to be paid to some construction company that builds the plant. 7. Most important of all, Mr. Washburn's proposal plans to leave the cyan- amid industry in his hands after the war is over for the production of fertilizer It plans unquestionably, since he wishes it located at Muscle Shoals, to force the Government to subsidize the continuation of a process which has never commercially found place in the United States, by granting to its horsepower in quantity far below the market price of horsepower anywhere else in America, thus rendering possible a continuation of a process which can not hope to exist commercially in full and free competition with more modern processes for nitrogen fixation. I believe in the development of water power at Muscle Shoals, but not for the benefit of the American Cyanamid Co or for purposes of nitrogen fixation, which can be accomplished much cheaper other- wise. If the cyanamid process must be resorted to it should be remembered that the process is an old process, well known to many engineers both in this coun- try and abroad ; that the larger part of the process consists in the production of calcium carbide; that the Union Carbide Co. and other carbide companies are equally able, if not better able, to construct this portion of the plant- that engineers can readily be obtainable, probably in this country, but certainly in Norway, to plan, construct, and operate cyanamid plants and plants to MUSCLE SHOALS PROPOSITIONS. 1119 convert this cyanamid mto ammonia; that the basic patents are soon to run out, and any patent suit against the Government would undoubtedly be settled at a comparatively low figure; that electric power to the extent of about 20 00«^ h''f]?r wLf f« ^^ PiH-ehased at Keokuk for $20 per horsepower year, andTn Ii9 rlr wL' ^^^^l'^t)le and can be purchased in quantity at approximately $12 per horsepower year ; and that power can be produced by steam plants for from $40 to $4o per horsepower year. j' »i ^ i vmim, I, therefore, can see no reason other than the establishment of a cvanamid monopoly favorable to the American Cyanamid Co. for locating this plZ ac Muscle bhoas at a present horsepower cost of $64.50 per holsepower year This IS particularly true when it is remembered that the cost of horsepower is one of the chief controlling factors in the cost of the product ^'♦^^^^l^^^^'^^ n. rnnrS^t /l^'J"^ ^^'""^ '\ '' ^T'' expectation or plan to accept the proposal ^lon?.^?: fV ^f y.^'*^^ strongly that if it has become necessarv to erect plants for the production of ammonia through cyanamid theseDlants shmiM belong to the Government. If operated for fertiS purposes after the ^^r the Government would then be in a position to direct the use of th s nlmU so as to preclude individual subsidy. ^ I trust you will pardon the length of this communication, but I feel it mv Yours\ery Trul^ "^'^'^"^ "'"^ conception of the action proposeci * Charles L. Parsons. The Chairman. When was that written to General Crozier-J Doctor Parsons. On the 31st day of October, 1917. That was the dav after the first meeting that was held in his ottice. I was there until 2 o'clock in the morning, and you will find the details of that in the other heari m^s i never had anything to do with that nitrate plant after that Mr Wash burns' proposals were greatly modified, and theV got very much better terms before they finally signed the contract, as you know. But he fTct rema ' ^If tl'::.^fil«/''' then about the reliability of the cyanamid process as a process The Chairman. Did General Crozier replv to that letter'^ Doctor Parsons. I am not sure; he may have acknowledged it, but it was no more than an acknowledgment. ' nnnff^of"^^^'- ^«/«" l^now whether Secretary Baker saw vour letter' fee'^nls'in'^tr matter.' "'' '"'"^ ^" ' '"^" ^^^^^^^^^ ^^^- ^-- -^ -^' him?^ Chairman. How did he know that ; did you have conferences with f^£?K^^^-^*^''^^^'^' ^ *^^^ frequent conferences with him; we went on the trio Sh^o«^«^V^i^ P"''^^^ '^' ^^^'^ ^^'^ ^^'^°* «» t^^ fi^«t inspectioi. trip ?o MuSe t^nir.h ^.-^.h'^h^'^ ""T. ^V^ '^"'^ ^^ ^^^y« together, and I was quite closeirin touch with him and had letters from him and sent letters to him on nitrogen fixation matters during the war. Secretary Baker's attitude, in mv opinfon was entirely correct from the beginning to the end of the situation ^ ' xne CyHAiRMAN. Did he agree with you on these matters' Doctor Parsons. Secretary Baker agreed, in that he accepted as did thp mitTJ'7 f^^j;^^f i^«' t^« r^P^rt of the committee which the commUtt sub Sil ; ^""1 ''^^'^^ ''''^ practically the report which I made to the Ordnance Department, and the interdepartmental committee unanimouslv were for the bas^tif".^ ""^'^ ^r ^^^ ^^"^^^^'^ ^^ '^'^ P^^^^ ^^ ^^'^^' Chattanooga, on the basis that no great amount of power was needed for nitrogen fixation. Plant hronlh7nlf'''''Z^'^ '^ '.'"'"'^ ^^.^^'^ ^'^ '^^ President, as has been clear?v Sn?, • ?»"* I" *^^ previous hearings, the details of which you will find not only in the hearing referred to but in the hearings held bv Mr Grahanrs committee on war expenditures. ^lananis .^J^^^P^'^l^^^^^- ^^"^ *^^ President order the work to begin down there in the letter of his of February 18, 1918? Doctor Parsons. I think it would be better, if you want that data to eet It exact on the report of the interdepartmental committee to General Crozier suggesting that the report be accepted and that the plant be put at North ?orf".^?r^^-. ^^"^^'^^ ^^^^^^^ ^^'^<^^^ ^^«"t 1<^ '^^y^ after the receipt of that report that the whole project had been sent to Muscle Shoals by the President's order. You will find the detail in Mr. Graham's hearing. It is refeii-ed to in these hearings and the pages given. reienea to m 92900—22 71 1120 MUSCLE SHOALS PEOPOSITIONS. MUSCLE SHOAI^ PROPOSITIONS. 1121 Thfe Chairman. You can put that into the hearings when you I^ok it up. Doctor Pabsons. The page reference? The Chaibman. Yes. Mr. Miller. The reference to where it can be found in the hearings of Mr. Graham's committee. Doctor Parsons. I will do that. The Chairman. The President, then, gave orders to proceed with the work at Muscle Shoals as a war proposition, did he not? Doctor Parsons. I do not so understand it. The order was first given in ref- erence to plant No. 1, and it was under the national defense act. He ordered plant No. 1 to Muscle Shoals, when all the boards had favored the location of it elsewhere. That was some few months before plant No. 2 was decided upon at all. When the Ordnance Department decided upon building plant No. 2, it naturally followed after, because plant No. 2, if it were to have any suc- cess at all, required for its operation considerable power. There was no power developed at Muscle Shoals at that time. During the war they had to get power from a rapidly built steam plant or from some power company that might furnish it. It was generally understood that by ordering it to be built at Muscle Shoals the power at Muscle Shoals would be developed. The Chairman. Was the Wilson Dam begun about that time also in con- nection with the Muscle Shoals development? Doctor Parsons. I am afraid I have not those dates clearly in mind, but the Wilson Dam, as I understand it, was not started for some time afterwards. I think it was approximatetly a year after, but that can be easily ascertained. The Chairman. Is it not a fact that when the President ordered that work started it was investigated as to whether the completion of those dams could be considered a war emergency, and Mr. Barney Baruch. who was then at the head of the War Industries Board, decided it was not a war emergency, and ordered the work on those dams stopped? Doctor Parsons. I would rather some one else would answer that question. I do not know definitely, without going into the record. I think you will find it in the record, answered by others. I know that later there is no question whatever that the activities on the dam were ordered stopped by somebody. I think it was on the basis that it would not be needed during the war. Later, the question came up before the Nitrate Commission, of which I was a member, in regard to building further plants, for there was a great fear, and a natural scare from the submarine raids, that we might be cut off entirely from the Chilean nitrates. Then they considered the building of plant No. 3 and plant No. 4, and I w^as called in again, for the first time on that situation, as a member of the Nitrate Commission. At that time I voted for the installation of plant No. 3 and plant No. 4 as a cyanamid plant, provided they would put into the vote the following words: " Resolved, That in view of the present emergency and the necessity for ob- taining ammonia, the cost being secondary in the present emergency, the com- mission recommends that the new" nitrate plant, knowm as plant No. 3. be con- structed and operated under the cyanamid process." That was simply because we had the data and the trained men to deal with the situation, although we knew that the cost would be high and that it would be a very difficult thing to do. The commission voted unanimously as quoted. The Chairman. But they never carried out' that proposition and plant No. 3 w^as never built. Doctor Parsons. Plants Nos. 3 and 4 were started, and afterwards, I think, they expended on plants Nos. 3 and 4 approximately .$20,000,000, and then scrapped them both before they were completed, and the war had ended. I can now reply to your previous question, because the information is before me in these hearings. The page in the hearings of the Graham committee is page 2578, and in the hearings on the sundry civil bill for 1922 you will find a copy of the data on page 216, if you wish it inserted The Chairman. Is it very long? Doctor Parsons. It is about a quarter of a page. The Chairman. Will you kindly read it for the record? Doctor Parsons. Mr. Good, speaking, says: " Right in that connection, in the hefi rings before the Committee on War Expenditures, on page 2578, appears the following, the question being asked by Mr. Graham: " * On the 19th of September, 1917, the record shows a memorandum was given to the Chief of Ordnance .signed by Colonel Joyes, of the Ordnance De- partment, and a memorandum was made to you on the 20th of September, 1917 '— •' This question was directed to the Secretary of War— " ' by General Crozier about this subject. In this memorandum that General Crozier makes I find the follo^ving— this is simply the summary of his con- clusions : " • I think that the examinations made indicate the limit of choice to four localities, viz: Chattanooga, Knoxville, Sheffield, and North Birmingham, and after fully considering all the aspects of the matter it is my opinion that the site at North Chattanooga, Tenn., having been adjudged first from the fertilizer standpoint and next from the compromise standpoint, is best fitted for the constructions now contemplated, and I recommend its adoption and the purchase of a tract of 500 to 600 acres. " • WnxiAM Crozier, " ' Brigadier General, Chief of Ordnanee, United States Army: " On the margin of that memorandum, dated August 6, 1917, is a postscript or a sort of note: " • The original letter, 471,86/2020-Nitrogen-j/z, dated September 20, 1917. a memorandum for the Secretary of War signed by William Crozier, brigadier general, Chief of Ordnance, United States Army, copy of which you alreadv have been furnished, bears the following postscript in long hand : "'"The President has selected Sheffield. So informed by Secretary of War 9/28. W. C." ' " The Chairman. Have you any opinion about the cyanamid process yourself? Doctor Parsons. I have been through a number of plants; all there are in this country and several in Europe. I made a very careful study of the procesB and its operation. The Chairman. Do you think that it is likely to be superseded by new inven- tions or new processes? Doctor Parsons. I think it is practically already superseded by the Haber process and its modifications, and on that I can give you some very definite data. The cyanamid plant in Canada is practically shut down. It is producing no cyanamid, or very little cyanamid, for fertilizer. The cyanamid plants in Italy are closed. The cyanamid plants in France are closed. The cyanamid plants in Dalmatia and Silesia are closed. The cyanamid plants in Norway and Sweden are closed. The large cyanamid plant at Odda, Norway, which I had the pleasure of visiting in 1916, and which is fully equal to the Muscle Shoals plant in quality and one of the best con.structed plants I ever investi- gated. It is not quite one-half the size of the Muscle Shoals plant, is now closed, and has been sold at auction within the last month for $10,000, or rather 50,000 kronen. The Chairman. How much did it cost? Doctor Parsons. I do not know, but a very large .sum, several million dollars. It was a plant for producing approximately one-half of the plant capacity at Muscle Shoals ; say, from 80,000 to 100,000 tons of cyanamid a year, or some- thing less than 20,000 tons of nitrogen. The Chairman. Doctor Parsons, it is now about half past 12, and at this time the committee usually takes a recess and meets again at 2 o'clock. Could you kindly be here at 2 o'clock? Doctor Parsons. Certainly. (The committee thereupon took a recess until 2 o'clock p. m.) AFTKK RECESS. The committee mt^^t, pursuant to tiie recess, at 2 o'clock p. ni., Hon. .Tolin c\ McKenzie (acting chairman) presiding. STATEMENT OF DR. CHARLES L. PARSONS — Resumed. Mr. McKenzie. I think you had not concluded j'our statement, Doctor Par- sons, when we adjourned, and you may proceed. Doctor Parsons. When the hearing adjourned I was replying to a question of the chairman with reference to the present con«lition of the cyanamid process. I had just stated that the process which, in all the other hearings I had stated was in a condition of obsolescence, has practically become aln^ady ol)solescent ; 1122 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1123 that the plants in France are closed down ; the phmts in Italy are closed down, one of them fnlly (there are two in Italy), and one of them is possihly working on very short time making some products, i)ut not cyanannd for fertilizer. The plants in Sweden are closed down and the plants in Norway are closed down. The plant across the border in Canada is closed down except for short - time operations for a few profhicts wliich they make. They have no expecta- tions of g(ang ahead to any extent, immediately, so far as I am informed; iu fact. I am infornje per cent, jind I do not believe that any industrial corporation of any size tor the next six years is soin;? to jret their monev at 5 per cent There is one other thing with reference to that i)lant wh'ch I think should he brought to your attention, which, so far as I know, has not been brought before you, an:l that is the fact tli.nt if the cvanamid plant at :Mu.scle Shoals IS operated, there will be approximately 4f>0,CK)0 tons of sludge per vear that has to be disposed of. Now, -160,000 tons of sludge per vear is eriulvalent to approximately SOOm^ cubic yards. That has got to be 'disposed of an.l put somewhere. In tne hearings which have gone before, tliev have assumed it would be run into the Tennessee River. It is my opinion tliat if it is run into the Tennessee River you will damage navigation far more than you will help It by any locks you may put in, not only on account of the fact that a "-ood portion of this material itself will be dej)ositeut all the " nitrate " which could be made in plant No. 2 into it for nothing, the saving would not be 33^ per cent of llie fertilizer. I think that I have nothing more to sjiy, unless there are some questions. Mr. McKenzie. Doctor Parsons, do you have an organization in this country of chemists such as yourself V Doctor Parsons. Yes: there are several, the Electric Chemical Society, the Innstitute of Chemical Engineers, and th*' American Chemieal Society. Mr. McKenzie. I presume all of those men give more or les^s attention to iiuitters of this character? Doctor Parsons. Well, some of them specialize more in this line than others — some work on steel work and some on fertilizer work aiul some on nitrates, etc. Mr. McKenzie. In your statement to the committee have you been voicing the general sentiment or views of tliis organizaticm or these various organizations, or are they j)riiicii)ally your own views? Doctor I'arsons. None of the organizations has taken any stand on the matter whatsoever. I am voicing my own views entirely, which I believe, however, !)0 i)er cent of the chemists of the country would agree with if they went into the matter, but of that I am not preparerocess predated the Haber process, and it was the process whieh people expected to make a conunercial profit /rom in those days. Mr. MiLLKu. But its outi»ut was taken almost exclusively by Germany, was it notV Doctor Parsons. No: its output was taken ahnost exclusively l»v tlie Allies. Mr. Mii.i.KK. Ky England? I)octor Paksons. By England and France. Most of it went to France. Its output went in the form of ammonia and that was sold to the arc plant at It.jukan that had nitric acid. They converted it into anunonium nitrate and produced some 240.n(K> t<;ns of ammonium nitr.-ite per year, (he uimJoi- porti<»n of which went to France after the war broke out. Mr, MiM.KK. It was completed Just before the war was it not? Doctor Paksons. They were all greatly enlarged during the war, because there was an immense market. Mr. MiLi.Eit. Then we might say that the inducing cause f(U- the construc- tion of th<)se inunense plants was the g*'eat den.iand foi- .1 and the good ju-ice which prevailed octor Parsons. That had a very great effect. There is no' (piestion but what the eidargement was due to that almost wholly. Mr. MiFXKR. You spoke of this large plant in Norway. I beb'eve. Iniving been sold for an unreasonably small sum of me(l off of the ground before it can be used for any other method for tixing nitrogen. You could not any more make nitrogen by the Hal)er process in cyanamid plant No. 2, at Muscle Shoals, than you could make shoe strings in a blacksmith shop. You would have to clean out the blacksmith shoj) and start fresh. Mr. MiLLKK. It is fundamentally an entirely different method of procedure? Doct<>r Paksons. Fundaujentally an entirely different method of piocedure. Mr. MiLLKK. You are not connected in any way with any institution manu- facturing by the Haber process in any wise? Doctor Paksons. I am not. Mr. Mii.i.ER. Your statemmit is just a <'lean. scientitic <-omi)arison. or ji ' committee of Congress before which I have ever api>eared. iMr. Miller. Then, according to your ideas. Mr. Ford's proposition can not be other than a losing busine.'^s venture so far as the numufacture of ammonium nitrate as an ingredient of fertilizer at plant No. 2 is concerned? Doctor Parsons. Anyone that operates ](lant No. 2 will lose money from the day he starts it. if he is going to try to fix nitrogen therein. Mr. Miller. There is no exception in Mr. ?^>r(l's offer that he will n<»t run the plant unless he can run it at a protit. He agrees absolutely, and at all events, to run that plant. There has been some quibbling around here, but the contract itself .says that he will run the plant to its capacity. True, he does not bin.ow, ammonium nitrate is not at the present time salable for fer^ tihzer. They would have to put in a sulphuric acid plant. Mr Parker. I understand that. They are not at present salable" without changing them into ammonium sulphate. ^iiduie wiinout Doctor Parsons. Correct. Mr. Parker. Are they made cheaply? for any purpose? Doctor Parsons. For what? Mr. Parker. For the ammonia gas. Doctor Parsons. Only for fertilizer purposes and for refrigeration. Mv. 1 ARKER. ihere is a market for it for refrigeration*^ Doctor Parsons. But it first has to be liquefied on'!heim:S-f^^'^i:t purp^f^' manufactured there cheap enough to sell Mum^niM ^T^ ?'';/"*' ^tT^^ ''\ ^'''' ^^^^'^ ^"t« competition with other arthat plmit. "''' '"" ' "'""''^ ^'^'^'^P^'"' ^^''''' '^ ^'^^ ^^ produced Mr. 1*ARKER. Why is the other much cheaper^ Doctor Parsons. They can not. They can make it much cheaper bv the "nnand^ma^^^ "^^'' ''"" ''' ''" '^'"""""^ P^^^«^' «^ mattTwhat ISe you'not^^"'^*'''* ^""^ ^'^"^ sonrething to do witli putting in plant No. 1, did Doctor Parsons. I did not. Mr. Parker. I misunderstood you. bc^in'.^'*nni in''1f « ^ ^ ^'f ' something to do with the board that advised its Doing put in. It was put in by Government engineers Mr. Park KK. You afterwards did work witli the Syracuse company? J doctor 1 arsons. Atterwards 1 was consulting chemist with the Svrflcnsf^ company until last August, when their plant began operating ^y^atust Mr. Pakkkr. Do you know why the i)rocess failed at plant No If «-. i'"^?^ ri*'^''?''^*'- ^Z^*" ''''^ consider that the proi-ess failed at' No. 1, but USPS Thoti.T'"'? ^"^7««f""y i" the first place was due to a number of causes The first and most important was that the catalyst which at that time they expected ^to use could not be made on a large scale successfullv as they were able to make it on a snmll scale in the laboratory ^"^^^^^^""y' «^ Mr. I»ARKER. Can they do it now? Doctor Parsons. They do it now, but they use another catalyst. 3lr. Parker. Is that a secret catalyst? Doctor I'ARSoNs. It is. explain^lhat^'lel-m?^'''"'^''" '''^' ^^'' ^*^'^'^'' '''^^ ^'''' ^""^^ ^^^^^^ P^^««"« to Mr. I'ARKER. Catalyst? Mr. McKenzie. Yes. Doctor Parsons. A catalyst is a substance which by its presence enables n chemical reaction to take place rapidly, when the reaction would not take lace unless the catalyst was there. It has been explained in the hear ngs lefore, and possibly to you; and this comparison may serve, we do not know how a marriage could take place without a minister Mr. McKenzik. Oh, yes, we do. Doctor Pausons. Or some function of law. Mr. Parker. I went to Gretna Green, and at Gretna Green thev were makinir sulphuric acid. They burnt the sulphur at the bottom of a Wg^ower They brought a blast of hot air down a large tower, and they would have gotten liothiiig more than this yellow gas that comes from burning sulp^mr fxcept lor the presence ot a platinum screen or mesh across this thing, aLd for some ^'ihZ"^'." reason the screen of platinum made the yellow smoke turn ?n^o riglU Xut that'^ '"''" '' '''"'''"^ ''^^^' ^^^ absolutely pure. Am 1 dio^'xiShsS^ll^^^^^^^ ^^^'^^^ '' '^ -^ - ^^"-^ -0^- Sulphur Mr. Parker. Well, we generally think of it so. It is the kind of smoke that comes from the lighting of a sulphur match. Doctor Parsons. One of the most important and one of the largest catalyst processes was the process for the manufacture of strong sulphuric acid. As you say, the gas which comes from burning sulphur, which you get when you strike a sulphur match, and air are passed over platinum on asbestos, and if the platinum is there they combine to form sulphuric acid, and if the platinum is not there, they do not. Now, that is what a catalyst is. Mr. Parker. They make such a pure sulphuric acid that they could carry around in an iron receptacle. Doctor Parsons. Yes; and another thing, if there happens to be any arsenic in that sulphuric acid, the platinum will not work. It poisons the platinum the same as it would poison a human being. Mr. Parker. The Agricultural Department people said they had a first rate catalyst now\ Doctor Parsons. Yes; they have an excellent catalyst, the best in the world. Mr. Parker. But you said the catalyst was a secret. Doctor Parsons. The catalyst which the General Chemical Co. uses is a secret. Mr. Parker. And is the one that the Agricultural people use just as good? Doctor Parsons. In my opinion it is better. Mr. Parker. Then there is no difficulty about the catalyst in cari*ying on this manufacture by the Haber process. Doctor Parsons. That is quite correct. Mr. Parker. Now, what other difficulties besides the catalyst which they had there were there about that process. I heard something about leak- ages, etc. Doctor Parsons. That was the second great difficulty. Of course, it was (me of the first experiences that the mechanical engineers of this country had had with pressures of 1,500 pounds per square inch in large units, and there were certain leakages and certain bulges in the apparatus which they had difficulty to fix. They have overcome that absolutely at the present time, and since those early days also the Chemical Foundation has taken over the German patents. Mr. Parker. Who overcame those leakages? Do you mean that the Ord- nance people down at Muscle Shoals have overcome those leakages? Doctor Parsons. A number of those leakages were overcome and were be- ing overcome before the plant closed ; but they have been more especially over- come in the redesigned plant at Syracuse. Mr. Parker. Would you then advise, and would it be necessary, to redesign plant No. 1 to make it worthy? Doctor Parsons. Y^es, sir ; I think it would. Mr. Parker. How much would that cost, taking the unit they have there, that costs how many million dollars? Doctor Parsons. I do not think I could give you that cost without referring to the record. Mr. Parker. Would it cost one-third more than it has already cost or one- fourth or one-fifth? T)octor I'AusoNS. I think that plant at the present time could be put into operating form for $1,500,000 to $2,000,000, with about 30 tons a day capacity. Mr. Parker. Do you know what was the original cost of it? Doctor Parsons. There were a great many other things in the cost. There was an annnonium nitrate plant, there was an ammonium oxidation plant, there was a gas plant, there was a $1,300,000 steam plant, and there was a nitric acid concentration plant, and I would have to go to the records Mr. Parker (interposing). Were all those things separate? Doctor Parsons. All those things are separate entities, but the steam plant is essential to the Haber process if you are going to use the method which is used at Syracuse. Mr. Parker. You have to have a steam plant and then what do you get to mix with it — do you get hydrogen in the same way; what is the process, by the way? Doctor Parsons. In the Haber process as operated in Germany and as oper- ated at Syracuse and as was contemplated in the operation of plant No. 1 at Muscle Shoals, the hydrogen is obtained by the action of steam on red-hot coal or coke. It is impossible for me to explain this without using chemical terms, although I will try to do it. \ 1184 MUSCLE SHOAI^ PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1135 Mr. Parker. I uiuleistaiul that. That jjives you carbonous oxide gas? poctbr Parsons. That gives you a mixture of hydrogen and carbon monoxide Mr. Iarker. Thar is what they used to call carbonou^s oxide, and it is the "as that burns a blue flame? Doctor Parsons. Yes. Then they pass those two gases over a srjeciallv prepared catalyst, which consists of iron oxide, with some chromium oxide in it Mr. Pakker. Is that a secret? Doctor Parsons. It is supposed to be more or less, but it is not. I know about It and so do many others. I think the temperature is about 350 degrees Under those conditions carbon monoxide is converted, with some steam, to 'another equivalent of hydrogen and to carbon dioxide, and you get just as much more hydrogen as you had in the first place. The carbon dioxide has to be washed out at 30 atmospheres pressure in a special apparatus, just like you make soda Mr. Parker. Is there any expensive chemical required to take it out' ^Doctor I arsons. You have to use some caustic soda to get out the last part Mr. Parker. All this is a pretty cheap process of making hydrogen, is it nof Doctor Parsons, It is about as cheap as any process used extensivelv to make hydrogen in the world to-octor Parsons. That is my opinion also. Mr. Parker. That gives you the ammonia? Doctor Parsons. That gives the ammonia ; yes, sir, Mr. Parker. What is next in the Haber- process? Doctor Parsons. That completes the Haber process. Mr. Parkf:r. How do you turn that ammonia into explosives? Doctor Parsons. If they want to convert that into explosives it is blown with air over platinum gauze, heated red hot, and under those conditions the ammonia burns in the air. not to nitrogen and water, as it would ordinarily hum. but the platinum acting as a catalyst converts it into nitric oxide, which nl)sorbed in water produces nitric acid. Mr. Parker. It makes a rather weak nitric acid, does it not? Doctor Parsons. As it comes from amuK.nia oxidation it gives vou approxi- mately :)0 per cent, as Colonel .loyes told you. Mr. Parker. Do y(Ki not nee^ome time to nune. so long as the Chilean saltperter is at its present price. Mr. Parker. With the Chilean salti)eter at its present price, that will make the nitric acid much cheaper than it is to make it the other way? Doctor Parsons. No; I am not prepared to say that. I think it is becau.se m this coiuitry they have the nitric acid plants already built, and as I under- stand it, they do not want to invest the cai)ital to make the change. If I was going to start in to-day to put up a large plant for the manufacture of nitric acid I should do it by the oxidation of ammonia, at the jn-esent price. Mr. Parker. That process cloes not need much power, but needs a great deal (►f steam and coal, rofitably turn their plants int(> plants to use the Haber prcK-ess, and I think thev woiild use it if it were not for the complications in connecticm with the Oerman patents. Mr. Parker. If you were to use plant No. 1 for the manufacture of fertilizer I suppose .V(Mi would take the ammonia and pass it through sulphuric acid to make the sulphate? Doctor Parsons. That would he the normal procedure at the i>resent time. Mr. Parker. And the cheapest way to get sulphate of ammonia? Doctor Parsons. The cheapest way to get .sulphate of ammonia : but persimally I am inclineut iron gauze there or copper gauze or silver gauze the action does not' take place Imt if .you use the platinum you can blow it through almost as fast as you can blow It, and practically all of the ammonia will be <-onverted into nitric tJMde, which absorbed in water makes nitric acid. We do not know what lan a nitrate program, I win ask you whether or not they did not put you on a commission, with your exi)enses*paid, and also paying you a salary, while you traveled all over Europe, examining different types of nitrate plants? Doctor Parsons. That is correct. Mr. Fisher. I will ask you whether or not when you came back you later severed your connection with the Government, and ever since that time, in every single effort that the United States has made to carry out a nitrate program, in connection with ^Muscle Shoals you have volunteered as a witness against the Government. Doctor Parsons. I have not. I appeared as a witness. I have been called in before, and I did it before I was out of the Government, and I have not changed my testimony from the first minute, from the time I wrote a report for the Government up to and including to-day. Mr. Fisher. Doctor, you have always been opposed, have you not, to what the other experts recommendeti? Doctor Parsons. Oh, no; they agreed with me absolutely on the or ginal report, and they adopted my report practically unanimously. That is all in the record. Mr. Fisher. You appeared before the Senate Committee on Agriculture and opposed the proposition that the Government then presented, did you not? Doctor Parsons. I did not. I did not appear before the Senate Committee on Agriculture at all. I was not there. Mr. Fisher. You did not oppose the proposition when it was before the Ohu- mittee on Appropriations, to complete the dam? Doctor Parsons. In the House — my testimonv is here. Mr. Fisher. Before the House committee. Doctor Parsons. P.efore the House committee I did not oppose the building of the dam on the basis of the power being used for the development of indues- tries in the South. I am not opposed to it to-day; I am in favor of it to-day. .Air. Fisher, ^^'henever the Government connects the completion of the dam with the manufacture of nitrates or fertilizer, then you oppo.se it? Doctor Parsons. I have always stated, and I so state now. that the idea nf building or completing D.im No. 2 with the idea of using that power through the cyanamid process for the fixation of nitrogen, if that is the idea, is a false idea an power to the cities around, op 1140 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1141 sellinjr ij to any chemical or metallurgical industry that was down there, I was entirely in favor of it, and I am to-dav. Furthermore, I think it is perfectly possihle to make a nitrogen tixation industry at Muscle Shoals wliich will be a thoroughly successful industry ami which will do a good deal of what hoi>e it will do for the farmer, if vou will do It right But If you are going to bring it into politics the wav it has been done, It will never help the farmer on the basis of running plant No 2 and set- ting away from the power proposition. If you wouhl like to know what I think should be done, I shall be glad to give an outline of it to you. Mr. Fisher. I will be glad to have it. Doctor Parsons. 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. Mr. Fisher. Are you not aware of the fact that the Secretary of War through the Chief of Engineers, communicated with every concern in the United States which he thought was interested in the development of Muscle Shoals? Doctor Parsons. As I read it, he asked them what they thought shouhl be done with it, and whether they had any suggestions to make, and one or two of them did make suggestions. It has never been formulated as to what vou had to sell, and nobody knows to-day what you have to sell down there and the minute it is known what you have to sell I think you will get offers for it I thing if plant No. 1 was put up for sale, with a certain amount of power t.l i-o with it, I could myself obtain associates and make a nitrogen industry down :here along modern lines, the same as they are doing in German v, the same •A6 they have started to do in Norway, the same as they are doing in England and just as they are planning to do in France, and in Italy, and as they have started to do at Syracuse, which will fix nitrogen and make nitrogen fertilizer much cheaper than you will ever get it by any possible use of the cvanamid process. I think it can be done successfully. Mr. Fisher. The trouble is that the Secretary of War has not received any offers except the ones we are now considering. Doctor Parsons. Nobody can make an offer, because thev do not know what they are offering for. They are all tied up with lawsuits and politics, and you do not know what you can make an offer for. Mr. Fisher. Do you know of any other concern than those who have made the offers we are now considering have communicated with the War Department, or with the Chief of Engineers, to find out what the Government has to sellV Doctor Parsons. They have considered the situation, and I do not think you will get any more offers as long as it is tied up with the political situation as it is at the present day. Mr. Wright. Doctor, you think probably there will be something developed by which the production of commercial fertilizer will be greatly reduced in price? Doctor Parsons. I beg your pardon. Mr. Wrmjht. You think there will be some art or arts develoi>ed which will greatly reduce the price of commercial fertilizers? Doctor Parsons. I hope so. Fertilizer at the present time, or rather fertilizer constituents, are cheaper than they have been. I think, in the history of the ■ world ; at least some of them are. Mr. Wright. Conditions are not normal now. Doctor Parsons. I do not expect to see much advance from present conditions, if they are not normal. I think that Germany having a surplus and increasing as she is increasing, that before very long nitrogen compounds will be imported : in fact, they are now from abroad. I think we are going to have competition which will keep down the price of ammonium sulphate. Mr. Wright. Upon the whole, you think the art will be developed by which the cost of production will be decreased iu price? Doctor Parsons. I have every reason to think so. I believe in progress. Mr. Wright. But you do not think that can be done by the cyanamid process? Doctor Parsons. I never was more certain of anything in nW life than I am of that. Mr. Wright. T understand the Ford offer is based on using the cyanamid process ? Doctor Parsons. So he states — at plant No. 2. Mr. Wright. Let me call your attention to section 14 of the Ford offer as modi- fied. I will read it to you as it has been modificxl. It says : " The company agrees to operate nitrate plant No. 2 at the approximate annual capacity of its ma- chinery and equipment in the production of nitrogen and other commercial fer- tilizers (said capacity being equal to approximately 110,000 tons of ammonium nitrate per annum) throughout the le;ise period, except as it may be prevented by strikes, accidents, fires, or other causes beyond its control ; And further agrees (a) to determine by research whether by means of electric furnace methods and industrial chemistry there may be produced on a commercial scale fertilizer com- pounds of higher grade and at lower prices than fertilizer-using farmers have in the past been able to obtain, and to determine whether in a broad way the application of electrictiy and industrial chemistry may accomplish for the'agri- cultural industry of the country what they have economically accomplished for the other industries, and if so found and determined to reasonably employ such improved methods." Doctor Parsons. How does that differ from the original? It sounds prett>' much the same to me. ]Mr. Wright. The only change is in line 2 of that section, striking out the word " compounds " and using the word " fertilizer " and inserting the word "commercial" before the word "fertilizer," and then there is added to sub- section (a) of section 14 this language, "and if so found and determined, to reasonably employ such improved methods." Doctor Parsons. I can not see any essential differeYice between that and the original. It is the other clauses in there which make the basic difficulty in the whole situation. Mr. Wright. That is the stumbling block to you. Doctor Parsons. No: there is the testimony that they will not do it unless they can do it at a profit. Mr. W^right. I am drawing your attention to what processes Mr. Ford is going to use under this offer. I want to know if you insist that he is confined to the cyanamid process? Doctor Parsons. I say in plant No. 2, yes; and he has stated that plant No. 1 is going to be converted into an automobile factory. Mr. Wright. Let us see what he offers about plant No. 2 as modified. Sec- tion 14 provides that he agrees to operate the plant at the approximate annual capacity, and that is followed by subsection (a) in these words, "to determine by research whether by means of electric-furnace methods and industrial chemistry there may be produced on a coramercinl scale fertilizer compounds of higher grade and at lower prices than fertilizer-using farmers have in the past been able to obtain, and to determine whether in a broad way the application of electricity and industrial chemistry may accomplish for the agri- cultural industry of the country what they have economically accomplished for the other industries, and if so found and determined, to reasonably employ such methods." Doctor Parsons. I think that is highly desirable, but he promised to conduct this research in the first place. Mr. Wright. That is part of his agreement? Doctor Parsons. Certainly. Mr. Wright. Then he is not confined to the cyanamid process, is he. in the operation of plant No. 2? Doctor Parsons. Yes; because plant No. 2 was only built for the cyanamid process and can not be converted into anything else for the fixation of nitro- gen. I do not deny that thit is quite possible that those carbide furnaces might be used as Mr. Swann told you, for the conversion of certain phosphoric rocks into concentrated phosphoric acid, but "that is a question for the future to determine. We are at the present time profitably spending a good deal of money through the Bureau of Soils and through the Nitrogen Fixation Labora- tory for certain purposes along those lines. The Bureau of Soils has been working for some time on the production of phosphoric acid by electric-furnace methods, and they have made a great deal of progress, which is being utilized in three plants in this country, two of them running and one closed down. Mr. Wright. Your whole testimony is based on the proposition that Mr. Ford's offer only contemplates the manufacture of commercial fertilizer or compounds by the use of nitrate plant No. 2, which uses the cyanamid method and employs the cyanamid method. Doctor Parsons, My testimony has not been so directed at all, although you may think so. My testimony has been, so far as possible, to explain to you the technical processes for the fixation of nitrogen. 1142 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1148 tI»" m Mr. WRitiiiT. I will say as far as your testimony relates to this provisiim of the Ford contract. Doctor Parsons. My testimony is that phmt No. 2 can not be utilized for the fixation of nitrogen coraniercially and can not be converted into any other known process or any process wliich is even in sight for the fixing of nitrogen. Mr. Wrkjht. P^xcept by the use of the cyanaraid method. Doctor Parsons. By the use of the cyanamid methml or any other method. Mr.' Wright. You construe the offer to mean that lie is going to confine him- self to the cyanamid method in the operation of plant No. 2. Doctor Parsons. If he is going to fix nitrogen at plant No. 2. that is the only method he can use. I am not talking about the other things he may develop In phosphoric acid and jiotash and other schemes, which may be visionary or may turn out to be practical. Mr. Wright. What I want you to see, if I can, is that in addition to his positive offer to oi)erate plant No. 2 at the approximate present annual capacity of its machinery and equipment in the production of nitrogen and other com- mercial fertilizers on the basis of 110,000 tons a year, he further agrees to " determine by research whether by means of electric- furnace methods and in- dustrial chemistry" that these ingredients am be produceted you think that the Government would simply plant standing there without ever being operated at all. D<.ctor Parsons. I think so, unless they might possibly operate it for cal- cium carbide. You might possibly do that, which would enable vou to pay all th<' expenses in connection therewith. That is. a certain amount' of calcium carbide would be taken in the South for the manufacture of acetj^lene "-as for autogenous welding. For that purpose you might utilize that plant and have it pay for its upkeep. Mr. McKenzie. But do not operate it as a plant for fertilizer production Doctor Parsons. 1 think the other hundred thousand horsepower should be used, and could be used to very great advantage: I think it might be used in the electrolysis of water, which would help plant No. 1 to obtain the hydrogen There is a little calculation I have made showing what interest it might be possible to obtain from the hundred thousand hor.sepi)wer which is unques- tionably salable by the Government. The estimates which the Ordnance De- partment put in are based on three-quarters of a mill per kilowatt hour If you sell that horsepower for three-quarters of a mill on the average it amounts to $607,000 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 iV^Vl^T^*1''•^''!,^^'vf '^^'^' "^^^^ ^^ ^^"«1 ^« $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. Mr. McKenzie. You have in mind the offer of the Alabama Power Co ^ Doctor Parsons. No; I have in mind the question of the sale of lOo'ooo horsepower. I do not care whether the Alabama Power Co. sells it or anybody ^^?V ^?'^^'^" ^^'^ '^' *^"^ ^ ^^'""^ ^^ '^ perfectly salable at that figure. ^(^^^^ V^' ^^^ ^^^^ba»"a ^oxvev Co. only offers to give to the Government 100,000 secondary horsepower. Doctor Parsons I am talking about the first secondary horsepower. In the testimony before the sundry civil .subcommittee of the Committee on Appropria tions in February. 1921, Colonel Cooper estimatetl secondarv horsepower at 1 ^ mills, and the primary horsepower at 4.4 mills, and I am putting this at three" quarters of a mill. I say I think you would have no difficultv in selling it at that price. * * il ^t Mr. McKenzie. You have given us some startling figures in connection with this proposition. What do you say it would cost the Government, or Mr Ford or anyone else, to transform plant No. 2 from a cvanamid plant' Doctor Parsons. Plant No. 2 can not be transformed without transforming it from the ground up, or building a new one, or transferring it from the ground on which it stands and building a new one. Mr. McKenzie. How does it injure the ground. Doctor Parsons. The plant is not prepared for it. There are a few things in it which could be used ; for example, the power line, and a small portion of the liquid-air plant, and one or two minor things might be used in the Haber process later, but the furnace building can't be, nor would there be any use for the auto- clave plant or the cyanamid plant. The ammonium nitrate plant could be used the same as at plant No. 1 for the production of ammonium nitrate. I think, furthermore, that anyone purchasing plant No. 1 should eliminate from plant No. 1 every particle of machinery with vi^hich the General Chemical Co. de- signed, so that they couhl get rid of any possible lawsuits or difficulties. Mr. McKenzie. How much did you say it would cost to change plant No. 1 so it would be an up-to-date plant for the manufacture of this product under the modified Haber process? Doctor Parsons. I believe plant No. 1 can be converted into a plant which would opei'ate successfully, perhaps, on a 30-ton basis, the original basis of the plant, for between one and a half and two million dollars. Mr. McKenzie. I want to ask you just one question in conclusion. Are we to understand that if we accept the Ford offer, or the offer of the Alabama Power Co., that the Government would lose this $1,200,000,000? Doctor Parsons. I have not said the Government was going to make this money. The Government 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 incurred 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. Mr. McKenzie. If w^e got the power, then we could sell the power and keep the fund together that length of time, putting all those things together: that is what it would amount to? Doctor Parsons. It would amount to that, taken exactly from the Secretary of War's figures. If you take that figure of $19,868, counting it for 94 years, as given by him, it amounts to $40,919,798, and you will find by division that $1 .semiannually in 94 years amounts to $2,059.58. If you multiply one-half of $657,000 by that figure, you will get the figure I gave you, $676,572,a^>0, and the figures are right, because I had somebody else check them, and I know they are right. Mr. McKenzie. We are very much obliged to you for the testimony you have given us, and the committee will now stand adjourned, subject to the call of the chairman. (Thereupon the committee adjourned, subject to the call of the chairman.) MUSCLE SHOALS PROPOSITIONS. 1147 Appendix A. Mr. Cooper is an associate of Stone & Webster (Inc.) as vice president and a director of the Mississippi Ri^-er Power Co., which sells power to St. Louis, East St. Louis, Hannibal, Alton, Quincy, Burlington, Fort Madison, Keokuk, and adjacent territory. It is one of the largest hydroelectric plants in the world. Other Stone & Webster Co. (Inc.) properties are: Baton Rouge Electric Co.; Blackstone Valley Gas & Electric Co. ; Cape Breton Electric Co. (Ltd.) : Central Mississippi Valley electric properties ; Columbus Electric Co. : Columbus Power Co. ; Columbus Railroad Co. ; Connecticut Power Co. : Dallas Citv, Illinois, Light Co.; Eastern Texas Electric Co.; Edison ?:iectric Illuminating Co., Brockston • Edison Light & Power Co., Abingdon and Rockland; El Paso Electric Co.; Fall River Gas Works Co. ; Fort Madison. Iowa. Electric (^o. ; Galveston Electric Co. ; Galveston, Haston Electric Co. ; Galveston. Haston Electric Railwav Co. ; Haver- hill Gas Light Co.; Houghton County Electric Light Co.: Houghtcin F]lec- tric Traction Co. ; Key West Electric Co. : Lowell Electric Light Corporation • MiUerton Electric Light Co. ; Mississippi River Power Co. ; North Texas Elec- tric Co. ; North Texas Traction Co. ; Nova Scotia Tramway & Power Co ( Ltd ) • Pacific Northwest Traction Co. ; Paducah Electric Co. ; Pawtucket Gas (^o ' New Jersey; Ponce Electric Co.; Public Service Investment Co.; Puget Sound Electric Railway; Puget Sound Interurban Railwav & Power Co • Puget Sound Power «& Light Co. ; Reno Power, Light & Water Co. : Savannah Electric Co.; Savannah Power Co.; Sierra Pacific Electric Co.; Svdnev & Glace Bay Railway Co. (Ltd.) ; Tacoma Railway & Power Co.; Tampa Electric Co • Tar- rant County Traction Co.; and Trucker River General EIectn<' Co. Appendix B. Copy of Proposed Amended Contract for Completion and Lease op Muscle Shoals by Frederick E. Engstrum. THE engstrum PROPOSAL TO LEASE MUSCLE SHOALS. War Department, Washington, February 24, 1922. Dear Mr. Speaker: I inclose herewith an offer for the Muscle Shoals properties submitted by Frederick E. Engstrum which I think should be considered in con- nection with the investigations now being made by Congress. John W. Weeks, mi o TT ^ Secretary of War. Ihe bPEAKER OF THE HOUSE OF REPRESENTATIVES. Ame7ided Form of Proposed Contract for Completion and Lease of Muscle Shoals Project , by Frederick E. Engstrum. fOmit the words struck through and insert the words printed in italics.] 1. Parties.— Memoranda of contract made this day of 1922, by and between the Government of the United States, partv of the first part, and hereinafter referred to as the Government, and Frederick E. Engstrum, of the city of Washington, D. C. , for and in behalf of a corporation to be formed by him to carrv out the provisions of this contract and to be governed by a board of seven directors,' one to be selected by the Secretary of War, one by the Secretary of Agriculture, and the remaining five by proponent, party of the second part, and hereinafter referred to as the lessee. 2. Lease.— The lessee hereby leases all the property— real, personal, or mixed— now owned or hereafter acquired by the Government in connection with or forming 1146 part of, or the pooocooion, use, — eo n o tructi e«— t«ai«4€flaflee7-epefft4iefl7 or extension of the Muscle Shoals project, or any part or appurtenance thereof, includin g excluding the steam plant, located at Gorgas, Ala., on the Warrior River, together with, bjit in- cluding the transmission lines from said plant to Muscle Shoals for use at present location or elsewhere as uMl best serve the purposes of this lease. Said property is included or intended to be included in the maps, deeds, descriptions, invoices, lists, and schedules furnished to the lessee by the Government and receipted for and such maps, deeds, de3criptions, invoices, lists, and schedules, together \vith receipts for same, herein- after referred to as the schedule, shall be a part of this agreement and shall bind both parties as truly as if they were written herein. 3. TeIrm. — This lease is to continue in full force for a period of 50 years from date the lessee acquires possession of the property. The lessee shall return said property at the termination of this lease to the Government in good operating condition, subject to damage beyond fault or control of the lessee. 4. Plans and Specifications. — It is mutually agreed by both the Government and the lessee that, for and in consideration of the lease, construction, operation, rights, privileges, payments, and other considerations hereinafter mentioned or otherwise provided for in this agreement, that the lessee will construct Dam No. 2, power station, steam plant No. 2 to a capacity of 90,000 K. W. and steam plant No. 1 to a capacity of 10,000 K. W. and such other structures now under construction or agreed to be constructed at Muscle Shoals, on the Tennessee River, in the State of Ala- bama, and hereinafter referred to as the "Property," as are set forth and described more particularly in the maps, plans, specifications, photographs, and other engi- neering data (hereinafter referred to as the plans), copies of which have been delivered to lessee and duly receipted for by lessee, and such plans thus receipted for are hereby made an essential part of this contract and are as binding on both parties as if they were fully set forth and written herein. When the Government shall require the construction of Dam No. 3, for which there are no complete engineering plans, the lessee agrees and is to build the same on plans and specifications to be prepared by the Government and on a location to be approved by the Government, and the Icnocc will ■ lea s e the - sam e un d er the terms of - thi s c o ntra c t. Lessee also agrees to build, at dam No. 3, another nitrate plant, of the most improved process, by plans and specifications submitted to and approved by the Secretary of War and the Secretary of Agriculture, which plant shall hare the sam^ relative output capacity to the power to be generated at dam Ao. S, as is the combined capacity of nitrate plants Nos. 1 and 2 to the power to be generated at dam N^o. 2: other dams and nitrate plants, which may be built, to conform to the same terms. 5. Locks or Lifts. — It is further agreed that the lessee will construct for the Gov- ernment the locks or lifts for the purpose of maintaining na\igation over the dam or dams to be constructed at Muscle Shoals. 6. Manufac f ure o f N wrat^s^: — The-lessee-egfees-te-e^efate-tfee-fiitrate-f Iffi^pT now a part of the property (whi eh-ha¥e-a«-es^fB^4ed-eftpaei4y-ef-4£€-;€€€-4t'efe-yei' ' in to tha t-iftay-h cr c in ftftef--b€-fe«ilt7-te-flS£««fa€4«f e tds or m ij{^t«fe8-and-e€«F.plete-l€rtiligei'e-ae-gf jpy6¥€^-ty-4fee fri mm iij i uiiiiiiLiii u u|.»iiMin)ii ui ui it, pinTiTTfTitTtiTiciic^ttir after it acquire r pogt j c gsi on, and ao soon ap au ffiei ent pe w e r - i s-generated-by-the-hydfe- olcotric plants belonging to the propert y, it will opera4e-at-l«fi-eafiaeity-all-4hf-f leBte that can be operated from the rceci ^ o of the oa l c of the fcrtili i^e r eo mp e^ndeT-tegefhef with the rcocipto from onc -fl^l-j^ei^kilewaH-hetty^-ffefls-eale-ef-aH-ffewef-gfj^trfiteft 6. Manufacture of Nitrates. — When the two nitrate plants, now a part of the property, which plants have an estimated capacity of 120,000 tons of ammonium nitrate per annum, have been redesigned and reconstructed as herein provided to manufacture such nitrates as are needed for commercial fertilizers, fertilizer compounds or mixtures as ap- proved by the Secretary of Agriculture, the lessee agrees to operate said plants under the following conditions: As soon as adequate hydro-electric power, generated at dam No. 2 becomes available, lessee will commence to operate both plants and will continue .mch operation to the capacity they can be operated, after deducting operating expenses, from the receipts of the sale of: (a) Nitrates and fertilizer compounds, (b) Seventy- five per cent of all marketable by-products not required for the manufacture of nitrates or fertilizer compounds, (c) 66 2-3% of all power generated in excess of that required to operate the plants, which is sold by lessee either to itself or to other parties, provided that the price at which power, if any, is sold to lessee is subject to approval by the Secretary of War. The term ''Operating expenses^' as used herein shall be undir stood to include the neces- sary and legitimate expenses for the proper operation of the entire plant for the purpose* I \ 1148 MUSCLE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1149 set forth in this agreement, including maintenance, alteration, repairs and replacements but not including the salaries of officers, directors, general manager, supervising engineer and counsel fees of the operating company, the lessee. When additional dams and nitrate plants shall have been built, they shall be operated by the lessee under the same terms, except that the percentage of receipts from the excess power sold from such dam or dams, which is to be turned into the fund for the operating ojsuch plants or to be paid into the treasury, as the case mxiy be, shall be 15% thereof instead oj 66 2-3% of such power from Dam No. 2 {as provided in subparagraph (c) above) and shall be in addition thereto. 7 Alterations of Nitrate Plants.— It is also agreed that the lessee will make such alterations, additions, or changes in the nitrate plants as may be required to produce the nitrates or other fertilizer compounds approved by the Secretary of Agriculture, and to be completed within the time required to produce hydro-electric power at Dam No. 2. After the plants have been put in operation under this lease the lessee shall make such additions or changes, from time to time, as may be necessary to produce the required fertilizer or fertilizer compounds approved by' the Secretary of Agriculture, and such changes and the coot of producing Gomplctc fcrtiliBcrs, are ^9 Y^ ^^^ ^ ^^ operating charge, from the fundo on hand derived from the ottle of fcrtihacf compoundo, and the power not required t e-epefftt€-4he-pJafi4T 8 Plans of Alterations.— It is agreed that the lessee will furnish the Secretary of VN ar copies of the plans and specifications of the proposed changes to be made in the nitrate plants to fit them to produce the nitrates and fertilizer compounds approved by the Secretary of Agriculture. Such alterations are to be so designed as to keep the mtrate plant No. 2 m condition to produce explosive compounds with the least delav and expense. 9. Research.— The lessee agrees to maintain and operate a research department in cooperation with the Agriculture Department of the Government, for the purpose 01 developing the processes for the fixation of atmospheric nitrogen, the cost of research work to be charged to operating expenses of the plant. 10. Construction.— Lessee agrees to begin construction within 60 dayo from the a reasonable time after it is given possession of the property and to continue such construction m a diligent, business, and workmanlike manner until all construction work pro\ided for under this contract shall be completed, according to terms herein- aftef set forth, mthin three jears from the time of possession, reasonable extension of time to be granted for delays over which the lessee has no control. 11 Changes.— It is further agreed that at any time during the construction, if, in the opinion of either party herein, the structures pro\-ided for in the plans have become, or are liable to become weak, dangerous, uncertain, or inefficient, they may request changes, extensions, or additions to be made in the plans for the purpose of increasing the strength, stability, duty, endurance, or efficiency of the dams, locks power stations, or other structures to be built by lessee under pro^•isions of this con- tract, such changes, extensions, or additions shall be submitted to the engineer repre- senting the other party and to the surety company furnishing the bond of the lessee, and if such changes, extensions, or additions shall be approved by the engineer repre- senting the other party and the surety company thev are to become a part of this contract and become as binding on both parties, and the bonds of the lessee as if originally written herein. 12. Arbitration.— It is also provided that, in event a request of either party for changes, extensions, or additions in the plans for any of the purposes set forth in the foregoing paragraph of this contract has been approved by the suretv on the bond of the lessee, and has not been approved by the engineer representing*^ the other party, then the questions of endurance or strength of such material or members as can be determined by physical test shall be submitted to the United States Bureau of Stand- ards for final determination, and all questions as to the effect of the proposed changes extensions, or additions upon the increase of strength, stabilitv, duty, endurance,' or eflSciency of the dams, locks, power stations, or other structures to be built under this agreement, the plans for the changes as requested shall be submitted to the engi- neering faculty, or such members thereof who will undertake the work, of one or both of the follo^^•ing-named universities or schools of technologv: Massachusetts Institute of Technology, (Cambridge. Mass.; Cornell University, Ithaca, N. Y.; and the report of such faculty or faculties, if submitted to more than one, together with the report of the Bureau of Standards, shall be final, and if such report of the Bureau of Standards and faculties of technical schools, mentioned herein, show that the pro- posed changes, extensions, or additions, will materially increase the strength, stability, duty, endurance, or efficiency of the structures affected bv the changes, extensions, or additions, then such changes, extensions, or additions shall become a part of the working plans of this contract, the same as if they were originally written herein, or had been approved by the engineers of both parties and the surety bond. 13. C'osTS OF Tests. — It is also understood and agreed that the cost of testing, consulting, or other expenses caused by the request for changCH in the plans, as pro- vided for, shall be a part of the construction cost provided herein. 14. Representatives. — It is understood and agreed that during the time of con- struction that both parties hereto shall designate an engineer to represent them on the work and the acts of such engineer shall be binding as to the party designating him as a representative. 15. Investment. — It i.=! agreed that the lessee will not be required to invest in the manufacture of nitrates or other fertilizer compounds any money, other than that received from the oalc of the products of thc -»ityate-f3laB46-^j«e-^ffiiH-f€f-jtiJfc^a44- hour received from the sale of power in cxcooo of that required to op €fa4€-4h€-pI«»t sources enumerated in paragraph 6. The lessee agrees, however, to advance all the money that may be necessary for '^operating expenses^' until sufficient funds are received from the sources enumerated in paragraph 6; the said money so advanced to be reimbursed as soon as practicable. 16. Sale of Products. — It is further agreed that the lessee will sell all fertiligcf nitrates and fertilizer compounds produced by the plant at prices and on conditions and t«rms approved by the Secretary of Agriculture, and also will sell all by-products not required in the manufacture of fertilizer compounds, for which there is a market, arid all excess power for which there is a market: it being understood and agreed that primary power may be sold and the nitrate plants may be operated by secondary power to the extent that the same can be done to assure the best financial returns for the operation oJ the plant and to produce a maximum of nitrates and fertilizers under this contract. 17. Additional Plants. — It is further agreed that in event the development of power for use and sale from this plant, together with the receipts from the sale of products, should be insufficient to proiluce the amount of fertilizer compounds re- quired to supply the demands, the lessee agrees to construct, under the terms of this s^reement, other power plants or storage reservoirs, upon sites owned by the Gov- ernment and selected by the Secretary of War and itself, said plants or storage reser- voirs to be constructed and operated under the general terms of this agreement for the purpose of enabling it to provide the fertilizer compounds to meet growing needs. 1 8 . PnoFiTO FROM NiTRATEQ. — It is a fee-ferthef-agyeed-thftt-^rhe n nitra tee-eag-be made at a profit or when the coot of the Qamc -ha6--b€€BHge-f€dge€d-4fea4-4h€-f^iflds ariDing from the oalc of cxccna power a ftd-feftiligef-eefBpewfids-afe-Be^-flfedfd-ifi-^heJe or in part for financing Bu eh-pfedtterieas-as-hei-eiB-pfevidcdT-tfee-eaid-itijR^e-^hall-tfe paid by the Icooce into the Treaoury of the Unit ed-^tatesr 18. Profits from Nitrates. — It is further agreed that when nitrates for fertilizers and fertilizer compounds can be made at a profit, or when the cost of the same has been so reduced that the funds arising from the sources enumerated in paragraph ti are not needed in whole, or in part, for financing such productions as herein stated, the said funds, not needed Jor operating expenses, sliall be paid by the lessee into the Treasury of the United States. When said funds paid into the Treasury shall be in excess of the amount received from sale of excess power as described in pragraph 6, it is understood and agreed that during the period such conditions exist, fertili-.ers are made at a corresponding profit and the lessee shall be entitled to twenty -five per cent of such profit. 19. Consideration. — In consideration of the performance of the foregoing proposals and conditions the Government shall agree to pay to the lessee the coot plus 5 per cent eifor the completion of Dam No. 2, the initial alterations of nitrate plant.s No. I and No. 2, ftftd the completion of the locks at Dam No. 2, the completion oj steam plant No. 1 to a capacity oJ 10,000 K. W. and steam plant No. 2 to a capacity of 90,000 K. W. and, when required by the Government, to build for the building of Dam Xo. 3 and nitrate plant No. S and the locks at Dam No. 3 and additional dams and nitrate plants and storage reservoirs, the actual cost of the same, respecttively , togetfier wi*h a fee oJ five per cent on such cost in each case, on the aame tcrmo, in monthly payments, as per estimates of the engineers upon schedules of work performed. The cost in each case 18 to be deterniined by the lowest responsible bid resulting from a pubhc offer by lessee and by the contract awarded by lessee to such bidder subject to approval by the Secretary of War. It is understood and agreed, however, tha* if the Government shall decide to finish dam No. 2, that lessee will accept a lease subject to tfiat modifi.cation of this proposal. 20. Payments. — It is agreed herein that the engineers representing the Govern- ment and lessee wiH sfiall on the first of each month furnish the lessee and the Secretary of War an estimate of the work performed and a statement of the amount earned by it lessee during the preceding month. 21. Stores, Stock, and Equipment. — All stores, supplies, equipment, including engineers' supplies, files and instruments, and other loose personal property now on or about the premises, whether or not required for construction purposes* but not I) I I 1150 MU.S(^LE SHOALS PROPOSITIONS. MUSCLE SHOALS PROPOSITIONS. 1151 idiii*; Hubsiatence stores, shall })ecome the property of the lessee upon the execu- 01 this contrart. inclii tion It i o further ngrc e3 Letter from Acting Chief of Ordnance bearing upon, text of " " (Colonel Joyes) 1094-1095 Letter from Colonel Joyes to the clearance committee requesting clearance for proposed contract for electric energy etc text of ((^olonel Joyes) !_____'_ 1093-1094 Letter from General Goethals bearing upon, text of (Colonel Joyes) __ 1094-1095 IMemorandum m re instructions for disbursements under agency contracts with particular reference to, text of 717-718 Memorandum to Procurement Division in re proposed construc- tion and operating contract with Alabama Power Co., text of (Colonel Joyes) 1113-1115 Not executed until work on Gorgas- Warrior steam plant had been largely completed (Mr. Martin) 647 Orders and acceptances under which the work proceded, text of (Colonel Joyes) 1045-1048 Outline of, in re Warrior power 720-721 Part of contract drawn up by Colonel Williams and part by Ala- bama Power Co. (Mr. Martin) I 666 Profit made by company, contract provisions for (Colonel Hull)_ 180 Purpose of company in term of contract relative to three-year postponment of sale (Mr. Oliver) 771 Situation which led up to (Colonel Joyes) 1039-1049 Suggested basis for, for power for Air Nitrates Corporation plant at Sheffield 709-710,729-730 Suggestions of the company which were not accepted by the Ordnance Department (Colonel Joyes) \ 1099-1101 Summary of article 22 of contract (Major Burns) 70 Supplemental, text of 651-657 Text of 150-171 Work on Gorgas-Warrior steam plant largely completed before execution of (Mr. Martin) 647 Would not interfere with Engstrum proposal CMr. Butler) 918 Contract with, legal action involved in — Action by Government which would test construction (Colonel Hull) 203 Article 22 of contract is not a binding agreement on part of Government (Mr. Oliver) 760 Claims of Alabama- Power Co. would not involve three or four years of litigation if Congress should by vote accept offer of Mr. Ford and direct condemnation •of Gorgas plant (Mr. Oliver) 999 Dent Act has been fully met and complied with and is not ap- plicable to contract (Mr. Oliver) 774 Discussion of legal phases of (Mr. Oliver) 764-774,83^-836 Government plant practically part of plant of Alabama Power Co. (Major Burns) 209-210 If Congress declares property of company is necessary for public use and condemns same, the company has right to contest that question in the courts (Mr. Dent) 817-822 If Congress should cause Gorgas-Warrior steam plant to be con- demned and taken over, the necessity for thus taking it over could not arise in any court (Mr. Oliver) 765 General statement on legal rights of the company under its contract (Mr. Dent) 742-764,816-833 Legislation bearing upon (Mr. Dent) 749-752 Mr. Engstrum's proposal does not involve any litigation in con- nection with— his offer is the use of the Gorgas plant under a lease that would come within the contract the Government has with them (Mr. Butler) 914-915 1 }\ 1156 INDEX. INDEX. 1157 Alabama Power Co. — Continued. Contract with, etc. — Continued. Page. Mr. Ford would not be willing to take over any legal work in reference to segregating the Government's rights under exist- ing contract (Mr. Mayo) 979,987-988 National defense act — Contract not governed by (Mr. Dent) 747-748 Ordnance Department did not make contract with Alabama Power Co. under authority of (Mr. Martin) 723-724,732 (See also Alabama Power Co. : Gorgas- Warrior steam plant. ) Opinion from Judge Advocate General's Office 24, 25 Opinion of — Chief of Ordnance 18,19,69,90 Colonel Hull 177,194-195,203 Major Burns 212,225-229 November 16, 1921, of Acting Judge Advocate General 132-134 Plan was that contract provide that the United States would, if permitted by law, sell Warrior extension to the company on its demand (Mr. Martin) 644 Secretary of War on August 31, 1918, issued Bulletin No. 50, relating to act of July 9, 1918, on sale of war supplies (Major Booton) 886 Supply Bulletin No. 13, of August 3, 1918, on contract provisions regarding increased manufacturing facilities, text of (Major Booton) 886-887 Would not be held binding on United States by any court (Mr. Quin) 295 Damages payable to, for land, would probably be high (Major Burns) 213 Damages payable to, might amount to about $4,000,000 (Mr. Dent)-- 748 Dates partial payments of fee were made to (Mr. Martin) 708 Denounced by resolution adopted at a mass meeting of 5,(X)0 citizens of Alabama (Mr. Oliver) 994-996 Discussion as to whether the $17,000,000 the Government has put into the dam will be absorbed and used by (Mr. Miller and Mr. Fro- thingham) 953-954 Donated abutment sites valued at $500,000 to Government for Dam No. 2 in 1918 (Mr. Martin) 669-671,698-699 Gorgas-Warrior steam plant — Acts of May 10 and July 9, 1918, conferred no authority for Government to sell such property as (Mr, Oliver) 765-767, 770 Company paid the Government $77,211.61 during year 1921 for use of (Mr. Martin) 683 Company received $285,000 for constructing (Mr. Martin) 663 Company understood clearly that there was no law under which the United States could agree to selk to it (Mr. Martin) 644 Constructed by company under contract (Secretary of War's re- port) 5 Every dollar spent by Government on plant is on property of Ala- bama Power Co. (Mr. Martin) 679 Government has vested right to acquire, by condemnation, in- terests of company in (Mr. Quin) 695-69*» Indivisible and incapable of physical division from plant of com- pany .(Mr. Martin) 676-677,688 Investment and expenses in connection with, amounted to $1,- 016.515.61 (Mr. Martin) • 65<) Investment of company in plant compared with investment of the Government (Mr. Martin and Mr. Miller) __ 666-667, 673-674, 67i> Legislation giving authority to executive branch of Government to sell such property as, text of (Mr. Martin) 64r> National defense act had no connection whatever with construc- tion of (Colonel Joyes) 105:> National defense act, plant was provided for in (Mr. Almon)__ 741-742 Not necessary for Mr. Ford to have, or the property that belongs to the Alabama Power Co., in order to operate his project (Colonel Joyes) 1075 Alabama Power Co. — Continued. Gorgas-Warrior steam plant — Continued. Pag«. Operated, maintained, and insured at expense of company (Mr. Martin) 673-674 Ordnance Department has absolute right to sell plant to com- pany without reporting to Congress (Mr. Dent) 752,761 Should be sold to company (Major Burns) 211 Suggested basis for lease or purchase of proposed plant, text of, dated December 19, 1917 714 (See also Gorgas-Warrior steam plant.) Graham report on, was based on an error (Mr. Martin) 1031 Has assisted and encouraged the Federal Phosphorus Co., but that company is entirely independent (Mr. Swann) 436 History of (Mr. Martin) 641-642,1027-1029 If Congress should direct condemnation of only a part of land of, it would destroy usefulness of entire plant (Mr. Martin) 1031 If this company should secure Muscle Shoals there would be formed a combination of interests of water power and fertilizer with power for evil without limit (Mr. Almon) 1010 Intercorporate relations with Air Nitrates Corporation (Mr. Worth- ington) 388-389 No connection between companies (Mr. Hammitt)-J 448 Intercorporate relations with American Cyanamid Co. — At one time intercorporate relations were very close (Mr. Worth- ington) 389 No connection between companies (Mr. Hammitt) 448,486 Is in the business of making electricity for general use and for need- ful service (Mr. Frothingham) 949 Letter of April 2, 1921, from Gen. L. H. Beach to the company inviting suggestions in regard to the Muscle Shoals dam project, text of 789 Letter of May 28, 1921, to General Beach giving suggestions in regard to Muscle Shoals dam project — Comment on (General Beach) 99 k Text of 38-40,790-792 Letter of June 18, 1921, from General Beach to the company, text of _ 796 Letter of November 6, 1917, to Col. J. W. Joyes, text of 1041 Letter of February 18, 1918, donating land at Muscle Shoals to the Government, text of 670 Letter of February 20, 1918, to, from Secretary of War accepting donation of land, text of 670, 671 Letter of May 24, 1919, to Col. J. W. Joyes, text of 656-657 Letter of July 14, 1921, to General Beach, text of 797 Letters between Ordnance Department and Alabama Power Co. per- taining to construction of Gorgas- Warrier steam plant and trans- mission line, which led up to the contract between this company and the Government, text of 709-722 Letters of December 7, 1917, from Ordnance Department giving the company orders to construct transmission line, furnish power to Sheffield, and to construct the Gorgas-Warrior steam plant (Mr. Martin) ■_ 730-732 Memorandum of conference of December 8, 1917, between the com- pany and the Ordnance Department, text of 712-713 Mr. Mitchell, president of the company, and his associates acquired stock of Muscle Shoals Hydro-Electric Power Co. in 1912 (Mr. Martin) 779 Mr. Mitchell, president of the company, and his associates took over Birmingham, Montgomery, and Gulf Power Co. in 1912 (Mr. Martin) 730 Monopoly alleged — If company acquires Muscle Shoals project it will have a com- plete monopoly (Mr. McDuffle) 1023 Statement showing this untrue (Mr. Frothingham) 949-050 National defense act- Company was responsible for the proviso that was put in section 124 of (Mr. Oliver) lOOl i 1158 INDEX. Alabama Power Co. — Continued. Ownership of — Page. Financed entirely in America to the extent of about $23,000,000 since 1914 (Mr. Martin) 641 Is controlled by Canadian corporation but stockholdings are largely held in America (Mr. Martin) 726,738,740-741,851,860 Millions of dollars of capital were found abroad for developing first project of company (Mr. Martin) 641 Owned by Alabama Traction, Light & Power Co. (Ltd.) of Canada, an alien corporation, citizens of Great Britain (Mr. Quin) 294 Probably controlled by Canadian company, organized under laws of Alabama (Mr. Worthington) 361-362 Securities of, approximately 35 or 40 per cent now held abroad (Mr. Martin) 642 Stockholdings (Mr. Martin) 738 Owns abutment sites and flowage lands at proposed Dam No. 3, which Government would construct under Ford offer (Mr. Martin) 669, 684-685 Paid between $40,000 to $50,000 for additional right of way acquired for transmission line (Mr. Martin) 684 Prices received for power sold by (Mr. Martin) 665 Proposal of. (See Proposal of Alabama Power Co.) Rates charged by, for hydroelectric power supplied to large con- sumers from 1917 to 1921, inclusive, table showing (Mr. Martin) __ 681-682 Service now rendered by, to customers and municipalities (statement of company) 777 Statement of — Mr. Dent, attorney for 640 Mr. Mahoney, commercial manager 703-706 Mr. Martin, president 640-702, 706-741, 762, 774-816, 837-885, 946, 1027-1038 Mr. Martin, president, in answer to statements made before Mili- tary Affairs Committee of the House of Representatives on March 8, 1922 1027-1038 Stockholders of (Mr. Martin) 690 Mr. Washburn was stockholder, is not now (Mr. Martin) 643 Table showing rates for electric current sold by, at Huntsville, Ala., in effect January 1. 1922 (Mr. Worthington) 363 Value of plant of, estimate of (Major Bums) 217 Washburn, Frank S., was president of, from 1913 to 1915, continued as director of until 1916 (Mr. Martin) 684, 687 Would not be injured by the development of cheap power for sale by Mr. Ford. The public would be greatly injured (Mr. Frothing- ham) 057 Alabama public utility act. text of pertinent sections 55-56 Alabama Traction, Light & Power Co. (Ltd.) owns the common stock of Alabama Power Co. — about 52 per cent of Alabama Traction, Light & Power Co. stock is held in this country and Canada and 48 per cent in other countries (Mr. Martin) 690 Almon, Hon. Edward B., Representative in Congress from Alabama, state- ment 741-742, 1002-1018 Aluminum, for present manufacture of Ford cars — amount of horsepower necessary (Mr. Cooper) 429 Amalgamated Phosphate Co., intercoporate relations with American Cyanamid Co. (Mr. Hammitt) 504 American Agricultural Chemical Co., large company producing fertilizer, stock of (Mr. Weeks) 29 American Aluminum Co., intercorporate relations with American Cyan- amid Co. — no connection between companies (Mr. Hammitt) 505 American Cyanamid Co. : Assets and liabilities, statement of (Mr. Hammitt) 465-466 Capital stock of (Mr. Hammitt) i 504 Chronology of transactions of the Ordnance Department with (Colonel Joyes) 1087-1088 INDEX. 1159 American Cyanamid Co. — Continued. Contract with — Page. Contract of this character ought to be void on the ground of pub- lic policy (Mr, McKenzie) 453 Hughes, Mr. Charles Evans, acted as counsel in connection with protection article of contract (Mr. Hammitt) 445, 451^52, 474, 488, 501 Law firm of Sullivan & Cromwell represented company in con- tract matters (Mr. Hammitt) 488,501 Names of persons who conducted negotiations on both sides (letter from Mn Hammitt) 970 No profit made from (Mr. Hammitt) 446 Reasons for protection of stockholders in agreement (Mr. Ham- mitt) 445 Summary of protection granted (Mr. Hammitt) 446 Text of 135-144, 144-150 When plants are conveyed to Mr. Ford's company, that com- pany will take them subject to existing contract with the Gov- ernment regarding operation of plants and payment of royal- ties (Mr. Mayo) qqq Contract with, legal questions involved in — National defense act, relation to (Mr. Hammitt) 447,448,460 Opinion from Judge Advocate General's OfRco. 25 Opinion of Chief of Ordnance 18, 19 Statement of Mr. Hammitt, vice president 443-519 Wants to avoid determination of legal obligation in the courts (Mr. Hammitt) 447 (See also Air Nitrates Corporation: Contract with.) Cyananrid, amount of, sold in year (Mr. Hammitt) 518-^19 Dividends paid, statement of (Mr. Hammitt) 445 Home office of (Mr. Hammitt) 485 Intercorporate relations with Air Nitrates Corporation (Mr. Ham- mitt) 443-^44 Intercorporate relations with Alabama Power Co. — At one time intercorporate relations were very close (Mr. Worth- ington) 389 No connection between companies (Mr. Hammitt) 448,486 Intercorporate relations with — Amalgamated Phosphate Co. (Mr. Hammitt) 504 American Aluminum Co., no connection between companies (Mr. Hammitt) 505 Central Georgia Power Co., no connection between companies (Mr. Hammitt) 4gQ Columbus Power Co., no connection between companies (Mr. Hammitt) 435 , Georgia Railway & Power Co., no connection between companies (Mr. Hammitt) 4^5 Owl Fumigating Corporation (Mr. Hammitt) 504 Tennessee Power Co., no connection between companies (Mr. Hammitt) 4S6 License agreement — Amounts payable under (Mr. Parker and Mr. Hammitt) 479-480 Text of 144-150 Monopoly of (Mr. Hammitt) 451^52,503 Operations of (Mr. Worthington) 389 Ownership of, per cent of capital owned in foreign countries (Mr. Hammitt) 505 Owns Air Nitrates Corporation 136 Patents of — Government has no authority to grant a license for use of, to a lessee of nitrate plant No. 2 (Mr. Hammitt) 503 List of 149-150 Principal ones will expire in 1932 (Mr. Hammitt) 478 Products of (Mr, Hammitt) 518-519 1160 INDEX. INDEX. 1161 American Cyanamid Co.— Continued. Royalties — p Mr. Weeks ^^ Payable to, if Mr. Ford's offer is accepted (Mr. Miller and ~Mr! Hammitt) 477-479 Payable to, table showing __" _~_ ~_ 55Q Securities of, have been handled by Sperling & Co., of"London'(Mr' Hammitt) _ _ _ ^gg Statement of Mr. Hammitt, representative of the~company"II_III~443-5i9 Stockholders, leading, of (Mr. Hammitt) 4^7 Stockholdings of Mr. Duke and Virginia-Carolina Chemical Co (Mr Hammitt) 4^7 ^gg 5^3 Stockholdings of Mr. Duke, president of" Southern Power Co., are 24 ' per cent of stock of (Mr. Bower) 623 Stockholdings of Virginia-Carolina Chemical Co. are 26 per cent of stock of (Mr. Bower) _ 523 {See also Air Nitrates Corporation.) American Farm Bureau Federation : Authorized to designate candidates for a board to control price and distribution of fertilizer products, text of Ford proposals 12, 16 Indorses Ford proposal, reasons stated (Mr. Bower) 615-638 Legal successors of, discussion of (Mr. Silver) 575-576,613-614 Letter of January 9, 1922, suggesting Muscle Shoals bond issue, text of ___ 569-570 Letter of February 7, 1922, and resolutions indorsing Ford offer, text of ^ 41_42 Organization of (Mr. Silver) 609 Report of its Muscle Shoals committee, text of 544-567 Resolutions indorsing Ford proposal, text of (Mr. Silver) 542-543 Statement of Mr. Bower, assistant in Washington office 615-638 Statement of Mr. Silver, Washington representative 542-615 Ammonia : Cost of production of, in by-product coke ovens (Mr. Bower) 620 Explanation of how it is turned into explosives (Doctor Parsons)— 1135 For fertilizer, less used in United States last year than in Germany, England, France, and Italy (Mr. Butler) 990 Sources of (Doctor Whitney) 347 Ammonium nitrate: Description of making (report of Muscle Shoals committee of Ameri- can Farm Bureau Federation) 547-548 Discussion of nitrogen compounds and of fertilizer (Doctor Whit- ney) 322-349 Estimated cost to manufacture (Major General Williams) 82 Gives good results when used as a fertilizer (letter of Doctor Whitney) 337 Of no use for national defense without products of other plants which have been scrapped (Mr. Hammitt) 484 Table showing detailed estimate of cost of sulphate of ammonia and nitrate of ammonia at United States nitrate plant No. 2 (Major General Williams) 97 Table showing manufacturing cost of. at United States nitrate plant No. 2 553 (Sec also Nitrogen compounds.) Ammonium sulphate : Analysis of statistics of production for 1918 ( report of Muscle Shoals committee of American Farm Bureau Federation) 550 Approximate price to-day is around .$50 a ton (Doctor Parsons) ___ 1122 Cost of production of, at Muscle Shoals, would be from 30 to 50 per cent more than present wholesale market price (Mr. Hammitt)— 456 Cost of production of, by Mr. Ford, estimate of (Major Burns) __ 216 Description of making (report of Muscle Shoals committee of Ameri- can Farm Bureau Federation) _ 547-548 Discussion of (Major General Williams) I "II~_" 81-82 Discussion of nitrogen compounds and of fertilizer (Doctor Wlirt" ney) _ 322-349 Duty of $12 a ton on, in tariff bill, obtained by by-product coke-oven interests (Mr. Bower) _' _ _ 621-622 Ammonium sulphate — Continued. Page. Duty on, quotation from an argument for, prepared by the Koppers Co., of Pittsburgh (Mr. Bower) C19 Is a by-t)roduct with a preferential first market for the ammonia liquors before farmer gets any for fertilizer (Mr. Bower) 621 Not needed for fertilizer (opinion of Doctor Whitney) 333-334 Overproduced in this country at present (Mr. MacDowell) 526 Quantities necessary annually to replace nitrogen tak^n from soil by grain crops (Mr. Bower) 618 Table showing detailed estimate of cost of sulphate of ammonia and nitrate of ammonia at United States nitrate plant No. 2 (Major General Williams) 97 Table showing estimate of results of operation by Government of United States nitrate plant No. 2 for period of 6 years (Major Gen- eral Williams) 84-85 Table showing manufacturing cost of, at United States nitrate plant No. 2 554 Total actual production of, in 1920, as fertilizer ingredient (Mr. Bower) 621 Use of nitrate plant No. 2 to manufacture, could not show a profit (Mr. Hammitt) 463 (See also Nitrogen compounds.) Ammonium sulphate plant: Capital necessary to convert nitrate plant No. 2 into, estimated at $3,000,000 (Major Burns) 209,220 Amortization. (See Sinking fund.) Appendix A. Stone & Webster (Inc.) hydroelectric plants 1146 Appendix B. Copy of proposed amended contract by Frederick E. Eng- strum , 1146 Applications : Under Federal water power act, limited to three years (section 5) (Mr. Worthington) 380-3x1 Appropriation : For completion of work on Dam No. 2; question was raised as to whether it was subject to a point of order (Mr. Almon) 742 Necessary, if Mr. Ford's proposal is accepted, $40,000,000 to $50,000.- 000 (Secretary of War's report) 8 None needed, under proposal of Alabama Power Co. (Mr. Martin) 812 Appropriations : Use of, in Muscle Shoals construction (Colonel Hull) 198-199 Arc process: Description of (Mr. Mayo) 251 Description of (Report of Muscle Shoals committee of American Farm Bureau Federation) 559 Ashcraft, Hon. C. W.: Resolutions introduced by, text of 1015-1017 Automobiles : It would take about 250,000 horsepower to make all the aluminum necessary for the present manufacture of Ford cars (Mr. Cooper). 429 Mr. Ford can make, at Muscle Shoals with greater profit than at Detroit (Mr Butler) 992 Nitrate plant No. 1 to be used for manufacturing parts (Mr. Mayo) 258 Baekeland, Dr. L. H. : Statement before Senate Committee on Agriculture and Forestry re- - garding cost of manufacture of nitrogen fertilizer (]^Ir. Bower) __ 619 Balance sheet: Government, at Muscle Shoals during first six years of Ford lease of Dam No. 2 (Mr. Mayo) 301 Government, of Muscle Shoals during construction and for first six years under Ford proposal (Mr. Mayo) 248 Of two largest fertilizer companies shows a loss of above $20,000,000 last year (Mr. Swann) 436 Bankhead, Hon. William B.. Representative in Congress from Alabama; statement 1018-1020 Reach, Maj. Gen. Lansing H., Chief of Engineers : Analysis of Ford proposal 19-21 Statement 98-131 (See also Engineers, Chief of.) I 1162 INDEX. Beam^, Col. C. F. : p^g,^ Kepresented Ordnance Department in making contracts 648 Birmingham, Montgomery & Gulf Power Co. : Taken over by Mr. Mitchell president of the Alabama Power Co., and his associates in 1912 (Mr' Martm) ^ • -^ Board to control fertilizer products: ~ ~ Text of Ford proposals _ ^2 ig Bond^^^ "^*^ ^'^^^^ questions involved: Fertilizer ~products,~board~ to control.) Z?.,^^J^^^^ "°^^^ Engstrum proposal, text of proposal 899 Will be given for the faithful performance of evervthiug Mr Eng- strum's corporation agrees to do as lessee, and is to be approved bv the Goveniment (Mr. Butler) 915 gon qo-i 004 nor Bond issues by the Government : ' ' ' J^4-jj& For Muscle Shoals proposition- Farmers would subscribe to (opinion of Mr. Shaw) 573-574 582 Letter from American Farm Bureau Federation suggesting, ' text or RfiQ KTfl For payment of construction of dams; could "be "issued" in" blocks at 4 per cent (Mr. Mayo) 272 980 Booton, Maj. John G., in charge of contract section, Ordnance Depart- ment, statement 885-889 Bonder, R. F., assistant in Washington office of American Farm" Bureau Federation : Statement 615-638 Statements of, on February 15, 1921, before House Committee on Appropriations regarding use of secondary power for manufacture of nitrates (Mr. Martin) Rni-«nft British Nitrate Commission : " ^^ Quotations from report of — Mr. Bower ^19^25 Mr. Silver 557^558 Reference to report of (Mr. Worthington)___^ I 364-365 Burns, Maj. James H., Ordnance Department, statement 70-71 207-240 Butler, Hon. Marion, attorney for Mr. Engstrum : Letter to Chairman Kahn, dated March 13, 1922, text of 989-993 T^v r.^lH!fJ?^^i 7-r— 900-935, 989-993 By-product c^ke-oven interests: Actively engaged in defeating completion of nitrate plant No. 2 (Mr. Bower) 621-622 Claim that they are fully protecting interests of the farmer not true (Mr. Bower) * ^24 Obtained duty of $12 a ton on ammonium sulphate in tariff bilC after having opposed completion of nitrate plant No. 2 (Mr. Bower) __ 621-62*> Byrns, Hon. Joseph W., Representative in Congress from Tennessee statement ' ^q^o Calcium carbide could be produced at nitrate plant No. 2 (Mr. Parker 7" 481 Calcium cyanamid. (See Cyanamid.) ^ ~ ^^ Capital investment of Mr. Engstrum's corporation : Amount of, considered entirely immaterial, since the lessee is civinff a bond (Mr. Butler) _ _ ^^q Company not entirely without means, will have a sufficient capital for an operating company (Mr. Butler) 920 Comparison of, with that of Mr. Ford's company (Mr Butler) ~ 991 Mr. Butler thinks they can meet Mr. Miller's suggestion that the com- pany have a stated paid-up capital of from $1,000,000 to $5,000,000 (Mr. Butler) __!___ 922 More practicable for the personnel of the companv'to become per- sonally responsible In addition to the bond ; would be better than putting up a lot of idle money (Mr. Butler) 923 Capital investment of Mr. Ford's company : Capital stock will not be less than $10,000,000 (Mr. Mavo) 971 <)7S Discussion of (Mr. Mayo) ^___IZ~I 383 Estimate of (Mr. Worthington) II 1-1111381-382 Minimum figure to start with would be cost plus operating'cap'ital (Mr. Mayo) __ 242 INDEX. 1163 Capital investment of Mr. Ford's company— Continued. I*aK^- Mr. Ford will probably put $5,000,000 in fertilizer plant, to start with (Mr. Mayo) 308 Probably $25,000,000 or $30,000,000 will be invested within a few yenrs (Mr. Mayo) 259 Carbide. (See Calcium carbide.) Caro, Dr. N. : Production of nitrogen compounds at nitrate plant No. 2— Statement on — Mr. Mayo 252-253 Mr. Silver 564 Carrying charges on construction of dams : Table showing, estimated by Chief of Engineers 20 Catalyst : Definition of (Dr. Parsons) 1132-1133 Fixed nitrogen research laboratory has developed the best In the world (Dr. Parsons) 1134 Since the war the Government has made a catalyst which is the best in the world (Mr. Butler) 990 Central Georgia Power Co. : Intercorporate relations with American Cyanamid Co., no connection between companies (Mr. Hammitt) 486 Letter of May 20, 1921, from— inadvisable for Government to develop Muscle Shoajs 118-121 Chief of Engineers. (See Engineers, Chief of.) Chief of Ordnance. (See Ordnance, Chief of.) Claude process : Much more efficient method of producing nitrogen compounds than the cyanamid process (Mr. MacDowell) 522 Requires about one-tenth of the horsepower used by the cyanamid process (Mr. MacDowell) 590 Coffin & Burr : Alabama Power Co.'s proposition will probably be financed by (Mr. Frothingham) 963 Banker control over Alabama Power Co. explained (Mr. Frothing- ham) 957 Have handled bonds on hydroelectric properties all over the United States and in Canada (Mr. Frothingham) 959 Coke-oven interests. (See By-product coke-oven interests.) Columbus Power Co. : Intercorporate relations with American Cyanamid Co., no connec- tion between companies (Mr. Hammitt) 486 Letter of May 20, 1921, from, inadvisable for Government to develop Muscle Shoals 118-121 Contracts: Liability of the Government ; opinion of Colonel Hull 199-200 (See also subheading "Contracts" under the following: Air Nitrates Corporation ; Alabama Power Co. ; American Cyanamid Co ; Gen- eral Chemical Co.) Contracts of Mr. Ford, if unfulfiUed ; legal recourse of the Government : Opinion of Colonel Hull 19(^191, 202-203 Opinion of Mr. Weeks 28-29 Text of Ford proposal I HH iq Conversion of atmospheric nitrogen, description of, extract from a'paper by R. O. E. Davis, United States Bureau of Soils (Mr. Mayo) 251 C^ooper, Hugh L., consulting engineer : Analysis of statement that cost to Treasury under Ford proposal would be $1,275,000,000 638^639 Statement 40^-429, 638-639 v^ore recovery at dam sites, table showing 114 Cost of construction under Engstrum proposal ; cost fixed by the lowest bidder, and 5 per cent fee on that low and fixed cost is asked (Mr. Butler) _ 9;,^9 Cost statement of United States nitrate plants Nos. 1 and 2 and Warrior- Sheffield power station and transmission line (memorandum of Chief of Ordnance) 21-22 1164 INDEX. INDEX. 1165 % Faga. Cost to Government of the delay in accepting Ford offer, table showing (Mr. Almon) _ 1005 Costs : Dam No. 2— $16,251,038.14 (total expenditures) (Secretary of War's report). 4 $17,159,610.42 (total allotments) (Secretary of War's report)— 4 Gorgas- Warrior steam plant. (See Costs: Warrior- Sheffield power station and transmission line.) Nitrate plant No. 1, $12,887,941.31 (Chief of Ordnance) 21 Nitrate plant No. 2 — Including Muscle Shoals substation, $69,674,000 (approximately) (Chief of Ordnance) ig Including Waco quarry, $67,555,355.09 (Chief of Ordnance) _ _"__ 22 Power plant of, $12,000,000 (approximately) (Major Burns) 218 Total, including maintenance to July 1, 1921, $106,203,016.07 (Mr. Weeks) 36 Under contract with Air Nitrates Corporation, $69,000,000 (approxi- mately) (Colonel Hull) igo Under contract with Alabama Power Co., $4,676,000 (approximately) (Colonel Hull) 180 Waco quarry — $1,179,000 (approximately) (Chief of Ordnance) 18 $1,179,076.80 (Secretary of War) * __ 5 $1,302,962.88 (Chief of Ordnance) 22 Warrior-Sheffield power station and transmission line — $4,676,000 (approximately) (Chief of Ordnance) 18 $4,979,782.33 (Chief of Ordnance) __ 22 $938,057.35 (Chief of Ordnance) 22 Costs of maintenance, Muscle Shoals proposition; in stand-by condition approximately $200,000 a year spent by Engineer Department (Major General Beach) 104, 106 Credit of the Government under Ford proposal : Can be lent to Muscle Shoals proposition at 4 per cent (Mr. Mayo)__ 268 Will be loaned at not to exceed 4 per cent (Mr. Worthington) 373 Cyanamid : Amount of limestone necessary for making (Major General Williams) _ 78 Amount of sold in year, by American Cyanamid Co. (Mr. Hammitt) _ 518-519 Table showing manufacturing cost of calcium cyanamid (lime-nitro- gen) at United States nitrate plant No. 2 552-553 Use of nitrate plant No. 2 to manufacture, would show heavy loss (Mr. Hammitt) 463 (See also Nitrogen compounds.) Cyanamid process: Description of — Doctor Parsons 1131-1132 Mr. Mayo 252 Report of Muscle Shoals Committee of American Farm Bureau Federation 547-548 For the tixation of atmospheric nitrogen is one of the oldest and best (Mr. Almon) 1002 Is being abandoned by all countries which have used it (Mr. Butler). 991 Is practically already superceded by the Haber process and its modi- fications (Doctor Parsons) 1121 Many cyanamid plants in foreign countries have been closed (Doc- tor Parsons) 1121 Much less efficient method for producing nitrogen compounds than the Haber and Claude processes (Mr. MacDowell) 522 Requires more horsepower than Haber or Claude process (Mr. Mac- Dowell) 522 Used in titrate plant No. 2 (Major Burns) 208-209 Will be obsolete in five years in so far as production of nitrogen for fertilizer purposes is concerned (Mr. MacDowell) 521,522 Cyanide process : Description of (Mr. Mayo) 251 Dams : p^^^^ Capacity in kilowatt hours of Nos. 2 and 3 (statement No. 2, Mr Cooper) 4JJ Completion of, will increase amount of navigation (Mr. Quin)I 293 Construction and operation of — Text of Alabama Power Co. proposal 770 Construction, lease, and operation of— ~ " Text of Engstrum proposal coj Text of Ford proposal !__!__ " 13-14 Construction of, maximum time needed two years (Mr. Mayo)_ !___ 269 Construction to be by Mr. Ford's company, from plans bv Chifef of Engineers — • Present Ford proposal 13 14 Construction to be by the United States- First Ford proposal j^ Cost of completing, as estimated by Mr. Ford's "engineers, has not been guaranteed by Mr. Ford. (Secretary of War's report) 5 ^^fir^^^^^^P^^*^"^' ^^ estimated by Mr. Ford's engineers, inadequate (Mr. Cooper) i. ^-^j Cost of completing, by the Government, would be warranted by amount of transportation (Mr. Quin) 39^ Cost of completing Nos. 2 and 3 estimated at $50,000,000 ; appropria- tion asked to cover contingencies (Major General Beach) 102 Cost of completing Nos. 2 and 3 estimated by Chief of Engineers to De «}>ou,uuu,ooo f)fk ^^IL^^^™^^^*^"^ ^^^- ^ ^^^ ^ estimate'd'"by"Mr~Almon"fo'be $40,000,000 ififvi Cost of completing Nos. 2 and 3 estimated by Mr. Ford's euVineers at $42,230,000 (Mr. Mayo) 1 ^ ^^ugineerb ^^^ Cost of completing Nos. 2 and 3, not including locks, estimated bv Mr Ford to be $30,000,000 (Mr. Worthington) 1 _ _* 333 Cost of construction of, if completed by private party instead'of bv the Government, would show saving of approximately $16,000,000 (Mr. Mayo) ' 300-301 Cost of Nos. 2 and 3 will be wiped out by sinking fund, if invested by Government at 4i per cent (Mr. Mayo) 047 ^^foo^}^^^}J. ^^ ^^^' ^ ^^^ ^' estimated by Mr. Cooper' to"be $»t5,17o,4/5 • _ 42Q Fall of water at, figures of (Mr. Cooper) ___IIIZII_'I I_ 426 Horsepower to be generated at Nos. 2 and 3 (Mr. Mayo) ogi /¥oo ^^^^ P^^^ ^ P®^ ^^°* interest on total cost of Nos. 2 and 3 ($83,175,475), would save the United States Treasury $1275- 000,000 during lease period (statement No. 4, Mr. Cooper) L '_ 413 Keokuk, horsepower at (Mr. Cooper) 40(5 Mr. Engstrum will build extra dams as fast as necessarv, and use all this^development in producing cheaper nitrates (Mr* Butler )__ 904,913 Cost of construction, estimated at $1,400,000 (Major General Beach) ^14 Navigation project, not in this proposition (Mr. Weeks) 61 No. 2 — Alabama Power Co. donated abutment sites valued at $500 000 to Government in 1918, for (Mr. Martin) 669-671.698-699 Alabama Power Co. would apply for license under Federal water power act to complete and operate, text of proposal 775 Construction to be by Alabama Power Co. under its proposal— _ 776 Construction to be by ^Ir. Ford's company from plans by Chief of Engineers, under Ford proposal ' 1 13 Cost of (report of Muscle Shoals Conunittee of American I^'arm Bureau Federation) 551-55'> Cost of, $16,251,038.14 (total expenditures) (Seeretarv of War's report) \ 4 Could not be salvaged at any value (Mr. Cooper) 416 Desirable that it be completed by the Government if Ford pro- posal be not accepted (Mr. Cooper) 425, 4'>6 Desirable that it be completed by the Government if Ford pro-~ posal be not accepted (Secretary of War's report and state- ment) 9,60,^5 1166 INDEX. INDEX. 1167 I Damsi— Continued. No. 2— Continued. ^^^' Dimensions of, when completed (Secretary of War's report) 4 Discussion as to wlietlier the $17,000,000 the Government has put into, will be absorbed and used by the Alabama Power Co. (Mr. Miller and Mr. Frothingham) 953-954 Government could lease horsepower on basis of a return of 5 per cent on all money invested in (if Ford proposal be not accepted) (Mr. Cooper) 417 Horsepower developable (Major General Beach) . 124 Letter from Woodrow Wilson dated February 23, 1918, text of— 64 Letter of May 28, 1921, from Alnbama Power Co., to General Bench giving suggestions in regard to, text of 790-792 Mr. Engstrum believes he can complete, by the Government pay- ing him 5 per cent, at less expense than the Army engineers could complete it without the 5 per cent (Mr. Engstrum) 938 Must either be completed or blown up and removed from the river (Mr. Butler) ^'^" National defense act gave authority for construction of (Secretarj' of War's report) — — J Offers of Mr. Ford to lease i^' i&-ii Operation and maintenance. (SreDams: Repairs, maintenance, and operation.) . Overhead in construction of, under Engstrum proposal explained (Mr. Engstrum) — -- ^^^ Purpose ofe construction to reduce cost of operating nitrate plants (Major General Beach) ^^ Reported upon by Secretary of War %^s^ Status of construction, 30 per cent completed (Secretary of War's report and statement) — --- 4;^2 Time necessary to complete, estimate of (Major General Beach )_ 10^ Time necessary to complete, estimate of (Mr. Cooper) 418 Water will be raised 100 feet (Major General Beach) 109 Will render 14.7 miles of Muscle Shoals navigable (Secretary of War's report) ° No. 3— . rr. ^^^ Acquirement of lands and flowage rights for. (See Flowage rights.) ^ , ^ ^ 4. Government would construct, under Ford proposal, on abutment sites and flowage lands owned by Alabama Power Co. (Mr. Martin) 669,684-685 Mr. Engstrum's proposal does not require the building of, at present, but does provide for doing it later (Mr. Butler) 903 No justifiable reason to build, at this time (Mr. Butler)— 917,918,992 Not desirable to build if Ford proposal be not accepted (Mr. Weeks) Offers of Mr. Ford to lease ^^*2t Reported upon by Secretary of War 4-5 Time necessary to construct, estimate of (Mr. Cooper) 418 WiU render 63 additional miles navigable (Secretary of War's report) ■- ^ Repairs, maintenance, and operation under Alabama Power Go. pro- posal — text of proposal 776 Repairs, maintenance, and operation under Ford proposal- Maintenance of (Mr. Miller and Mr. Mayo) 274 Might be more desirable to have Mr. Ford maintain Dams Nos. 2 and 3 and omit annual payments proposed (report of Secre- tary of War) :iZ—^--l ^ Operation and maintenance of Nos. 2 and 3, cost to Mr. Ford (statement No. 3, Mr. Cooper) ^^^"^H Payments specified considered adequate by Chief of Engineers— 19 Text of first and present proposals 10, 11, 14 Should the Ford proposal be accepted the Government would be re- quired to spend over $60,000,000 to complete Dam No. 2 and build Dam No. 3 (Mr. Butler) 992 Statement showing cost per horsepower year to Mr. Ford for power to be generated at Nos. 2 and 3 (Mr. Mayo) 265-266 Dams — Continued. Page. Table showing core recovery at dam sites 114 Would extend navigation about 90 miles (Mr Mayo) I_I 295 Dent, Hon. S. Hubert, jr., attorney for Alabama Power Co., state- ment. g4Q 742-764, 81(^-833 Dent Act; The purpose of this law has been fully met and complied with and is not applicable to contract with Alabama Power Co. (Mr. Oliver) __ 774 Text of 657—660 Depreciation. (See Estimates : Nitrate plant No. 2, depreciation on.) Diagrams : Consumption and supply of inorganic nitrogen (Major General Williams) _ _ 75 Disposition of Muscle Shoals proposition : Alabama Power Co. proposal indorsed by Mr. Frothingham, of Coffin & Burr 950-954,968 Dam No. 2 — Desirable that it be completed by the Government if Ford pro- posal be not accepted (Mr. Cooper) 425,426 Desirable that it be completed by the Government if Ford pro- posal be net accepted (Secretary of War's report and state- ment) 9 60 65 Must either be completed or blown up and removed from the river (Mr. Butler) 917 Opinion of Major General Beach 103 Recommendation in report of Muscle Shoals Committee of Ameri- can Farm Bureau Federation, dated May 31, 1921 565 Not desirable to build if Ford proposal be not accepted (Mr. Weeks) .» 31 Desirable that an administrative officer of the Government be author- ized to dispose of property on best terms obtainable (Mr. Ham- mitt) 454, 455 Ford offer better proposition than that of Alabama Power Co., finan- cially, for the Government, for the interests of agriculturists ; and for maintenance of plant for manufacture of explosives (Mr. Bower) 632 Ford offer indorsed (Mr. Almon) 1003 Ford offer indorsed by Alabama delegation in Congress as a unit (Mr. Almon) 1012 Ford offer indorsed by Governor of Tennessee 319-322 Ford offer indorsed by Mr. Worthington of the Tennessee River Im- provement Association 355. 384-385 Ford offer indorsed by petition of officials of Jefferson County, Ala. (Mr. Almon) • 1017-1018 Ford offer indorsed by resolutions adopted by Florence Chamber of Commerce, Florence Rotary Club, and Florence Exchange Club (Mr. Almon) 1015-1017 Ford offer indorsed by resolutions of Birmingham mass meeting (Mr. Almon) ' 1017 Ford offer indorsed by resolutions of the American Farm Bureau Federation 542-543 Ford offer indorsed by Senators from Alabama (Mr. Bankhead) 1018 Ford offer would be most favorable trade the Government has ever made with an individual (Mr. Fields) 608 Gorgas-Warrior steam plant should be sold to Alabama Powder Co. (Major Burns) 21I Inadvisable for Government to develop (letter from southeastern powder companies) 118-121 Nitrate plant No. 1— No one can favor scrapping of, who is concerned with providing this country with an adequate supply of nitrogen and cheaper fertilizer (Mr. Butler) 990 Ordnance Department has recommended that it be disposed of (Major Burns) 208 Recommendation in report of Muscle Shoals Committee of Ameri- can Farm Bureau Federation, dated May 31, 1921 565-567 92900—22 74 1168 in'dex. 1169 Disposition of Muscle Shoals proposition — Continued. Nitrate plant No. 1 — Continued. !*»«•• Should not be scrapped ; could be redesigned and made the most efficient Haber process plant in the world (Mr. Butler) 903 Nitrate plant No. 2 — Opinion of Major General Williams 73 Opinion of Mr. Hammitt 456 Recommendation in report of Muscle Shoals Committee of Ameri- can Farm Bureau Federation, dated May 31, 1921 565-567 Reconnnended that it be maintained for production of nitrates for war purposes (Mr. MacDowell) 529,538-539 Statement of Department of Agriculture 316 Opinion of Mr. Duke, president of Southern Power Co 115-116, 117 Opinion of Mr. Hammitt 456 Opinion of Mr. Miller 80 Opinion of Mr. Weeks 52,63 Recommendation that the Government finish (Mr. ('ooper) 416, 417, 418, 425, 426 Recommendations in report of Muscle Shoals Committee of American FaiTu Bureau Federation, dated May 31, 1921 565-567 War Department opposed to scrapping (Major General Williams) __ 84 War Department proposed that a Government-owned corporation take over and operate the power of Dam No. 2 and all the nitrate properties (Colonel Joyes) 1(K>7 Would be most improvident to lease Muscle Shoals with only enough power reserved to operate nitrate plant No. 2 with the remainder of this enormous water power surrendered to a private monopoly for 100 years (Mr. Butler) "_ 991 Dr i f t( >n Ra ilroa d : Contract with Alabama Power Co. — Opinion of November 16, 1921, of Acting Judge Advocate Gen- eral 132-134 Text of 150-171 Cost the Government $50,421.94 (memorandum of Chief of Ordnance) _ 22 Description schedule in contract 170 Government paid $30,000 and Alabama Power Co. paid $105,000 for cost of construction (Mr. Martin) 693 Duke, James B., president of Southern Power Co. : Controls Virginia-Carolina Chemical Co. (Mr. Bower) 623,637 Letter of June 24, 1921, from — inadvisable for Government to develop Muscle Shoals 115-117 No connection with proposed corporation under the Engstrum pro- posal (Mr. Butler) 930 Statement regarding alleged connection of, ^yith Virginia-Carolina Chemical Co. (Mr. Hammitt) 496 Stockholdings in American Cyanamid Co. (Mr. Hammitt) 467,496 Stockholdings in American Cyanamid Co. are 24 per cent of stock (Mr. Bower) 623 Electric current : Table showing rates for, sold by Alabama Power Co. at Huntsville, Ala., in effect January 1, 1922 (Mr Worthington) 363 Electric light and power security issues in 1921, table showing 356 Electrical transmission of power: Alabama Power Co. sending 250 miles (Major General Beach) 101 Electrification of railroads: Advantages of (extract from report of Chief Engineer W. S. Murray on the superpower survey) (Mr. Silver) 585-586 Discussion of (Mr. Worthington) 355 In Alabama and other Southern States should require 240,0()0 horse- power (Mr. Martin) 799 Electrolytic cell: Since the war the Government has made the largest and most efficient in the world (Mr. Butler) 990 Engineers, Chief of: Analysis of the Ford proposal 19-21 Letter inviting proposals relative to Muscle Shoals, text of 99 {See aUo Beach, Maj. Gen. Lansing H.) INDEX. Engstrum, Frederick E., president of the Newi^ort Shipbuilding Corpora- tion : Amendments to offer. Appendix B 1146 Has had two contracts with the Quartermaster's Department for the building of concrete ships (Mr. Engstrum) 937,938 Proposal of. {See Proposal of Mr. Engstrum.) Statement 895-900, 935-939 Estimates : Amount obtainable from the 100,000 horsepower salable by the Gov- ernment can be figured as $1,357,854,750 (Doctor Parsons) 1144 Appropriation necessary if Mr. Ford's proposal is accepted, $40,000,000 to $50,000,000 (Secretary of War's report) 8 Carrying charges on construction of dams, $13,320,000 (memorandum of Chief of Engineers) 20 Construction plant at Dam No. 2 — $2,990,433 (present value, as estimated by Army officers, quoted by. Mr. Wurzbach) 885 $4,740,807 (book value as given by Army officers, quoted by Mr. Wurzbach) 885 Cost of making river navigable over Muscle Shoals, if dams are not constructed, $8,000,000 (approximately) (Major General Beach) ___ 122 Dam No. 1, $1,400,000 (Major General Beach) 114 Dam No. 2— $23,000,000 (Mr. Almon) 1004 $23,280,000 (Mr. Ford's engineers) 20 $25,000,000 (Chief of Engineers) 20 Dam No. 3— $17,000,000 (Mr. Almon) 1004 $19,000,000 (Mr. Ford's engineers) 20 $25.000,(K)0 (Chief of Engineers) 20 Dams Nos. 2 and 3 — $30,000,000 (not including locks) (Mr. Ford's estimate given by Mr. Worthington) '_ 333 $42,230,000 (Mr. Mayo) 267 $45,000,000 (total new money that must be spent by the Govern- ment to carry out Ford offer) (Mr. Mayo) 249 $50,000,000 (Chief of Engineers) 20 $60,000.0(X) (should the Ford proposal be accepted) (Mr. Butler) _ 992 $83,175,475 (total cost) (Mr. Cooper) 411,414 Deficit to the Government in interest payments during construction ami for first six years under Ford proposal, $7,359,800 (Mr. Mayo)_ 248 Expenditures of the Government under Engstrum proposal, $30,000,- 000. estimated (Mr. Butler) 992 Expenditures of the Government under Ford proposal — Compared with payments to the Government (Mr. Miller and Mr. Mayo) 262-265 Discussion of (Mr. Miller and Mr. Mayo) 267-273 Interest compounded on $83,175,475 would be a loss to Treasury of $1,275,000,000 at end of lease period (Mr. Cooper) (analysis of this statement by Mr. Mayo, p. 976-977) 410,414,638-639 Interest comiwunded on investments of Government as figured by Mr. Cooper can not be done (Mr. Bower) 626 Statement given by Mr. Morin (analysis of this statement by Mr. Mayo, p. 249) 249 Will not exceed $45,000,000 (Mr. Mayo) 249 Flowage rights at Dam No. 2, $350,000 in 1916 ; $383,490 actual cost of 6,612.4 acres ; $40,000 estimate of cost of remaining 600 acres ; $423,490 total amount of item (from record of Chief of Engineers, U. S. Engineer Office. Florence, Ala., statement of July 31, 1921) (Mr. Mayo) _ 25§ Flowage rights at Dam No. 3— $1,000,000 (minimum) (Mr. Ford's engineers) 243 $1,500,000 (maxinmm) (Mr. Ford's engineers) 243 $1,500,000 (Mr. Weeks) 43 $2,331,000 (Chief of Engineers) 20 $2,700,000 (rough estimate) (Mr. Cooper) 422 1170 INDEX. INDEX. 1171 Estimates— Continued. ^**** If Ford proi)osal be not accepted sind the Government completes Dam No. 2. tlie present investment of the (Tovernment might be .$21i,000,000 instead of .$40,000,000 to $50,000,000 (report of Sec- retary of War) 9 If Gorgas-Warrior steam plant is left in Mr. Ford's proposition, the Government must condemn contractual rights, plant, and land of Alabama Power Co., involving about $4,000,000 (Mr. Dent) 748 If Gorgas-Warrior steam plant is left in Mr. Ford's proposition, the Government will be giving him equivalent of approximately $9,000,000 (Mr. Dent) ^48 Locks of Dam No. 2, $2,500,000 (Mr. Weeks) 46 Navigation, prewar estimate by United States engineers of amount chargeable to. $8,575,000 (Mr. Almon) 1004 Nitrate plant No. 1, redesigning of, $4,000,000 (maximum) (Mr. Butler) 9^^ Nitrate plant No. 2, depreciation on — $2,500,000 (Army engineers' estimate, quoted by Mr. Bower). — 631 $2,500,000 annually (Mr. Mayo) . 249 $6,000,000 for six years (Major General Williams) 85 Nitrate plant No. 2, redesigning of, $3,000,000 (maximum) (Mr. Butler) ^^ Right of way for transmission line, no estimate made of probable cost (Major General Williams) 80 Salvage value of Dam No. 2, could not be salvaged at any value (Mr. Cooper) 416 Salvage value of Gorcas-Warrior steam plant. (See Estimates: Sal- vage value of Warrior-Sheffield power station and transmission Salvage value of nitrate plant No. 1, $600,000 (Chief of Ordnance)— 18 Salvage value of nitrate plant No. 2— $6,700,000 (rough estimate) (Mr. Hammitt) 500 $7,250,000 (as scrap) (Chief of Ordnance) 18 $11,640,000 (as operating concern and scrap) (Chief of Ord- nance) 18 Salvage value of Waco quarry — $102,000 (as scrap) (Chief of Ordnance) 18 $857,0(X) (as operating concern) ( Chief of Ordnance ) 18 Salvage value of Warrior-Sheffield power station and transmission line — ^o $860,000 (as scrap) (Chief of Ordnance) 18 $3,675,000 (as operating concern) (Chief of Ordnance) 18 Salvage value, total, of plants — $8,812,000 (as scrap) (Chief of Ordnance) 18 $10,032,000 (as operating concern) (Chief of Ordnance) 18 $16,272,000 (as operating concern and scrap) (Chief of Ord- nance) ^8 Less than $5,000,000 (excluding nitrate plant No. 2) (Colonel Hull) 190 Savings to the Government under Alabama Power Co. proposal — Discussion of (Mr. Martin) 845-850 Government would be relieved of obligation of putting up from $.50,000,000 to $80,000,000 more in the project (Mr. Martin) 878 Would be at least $2,000,000 a year in form of an outlay in inter- est ; it saves its annual losses by way of maintaining and up- keeping the dam and gates (Mr. Martin) 856 Savings to the Government under Engstrum proposal, statement of (Mr. Butler) 992 Savings to the Government under Ford proposal — $9,090,200 shown in Government balance sheet, during first six years (Mr. Mayo) 301 $475,840,000 (Mr. Fields) 607-608 $2,908,183,750 can be figured as, at end of 100 years (Mr. Mayo). 977 Table showing! annual cash saving amounting to $747,121.44 (Mr. Almon) 1005 Estimates — Continued. P«««. Table showing estimate of results of operation by Government of United States nitrate plant No. 2 for period of six years (Major General Williams) 84-85 Estimates of maintenance: Nitrate plant No. 2 — Could be maintained by amount payable for power leased (Major General Williams) 89 $4,000,000 for 20-year period (Major (General Williams) 85 Expenditures of the Government : Analysis of (Major Burns and Mr. Miller) 218-219 For river development (Mr. Hull and Mr. Cooper) 425 Total, $106,203,016.07 (Mr. Weeks) 36,42 Under contract with Air Nitrates Corporation, statement of Colonel Hull 180 Under contract with Alabama Power Co., statement of Colonel Hull— 18a Explosives : Explanation of how ammonia is turned into (Doctor Parsons) 1135^ Time necessary to convert fertilizer plant (nitrate plant No. 2) into plant for producing, under Ford proposal (Major General Wil- liams) 98 Fair value: Discussion of definition of term (Mr. Martin and Mr. Wright) 697 Discussion of possible method of determining (Colonel Joyes)-__ 1074-1075 Farm implements: Possibility of manufacture of, as outcome of completion of Muscle Shoals project under Mr. Ford's proposal (Mr. Quin) 294 Farm mortgages: Estimates, of (Mr. Quin) 39^ Fiirmers: Alabama Power Co. proposal makes no provision for (Mr. Bower )__ 616 If Government charges Mr. Ford 8 per cent interest on water power it will be paid in cost of fertilizer by (Mr. Bower) 631-632 Representatives of, to control price and distribution of fertilizer products, text of Ford proposals 12, 16 Use of concentrated fertilizer by, will come about as fast as demand is created and supply is made available (Mr, Swann) 437-438 Farmers Educational and Cooperative Union of America : Authorized to designate candidates for a board to control price and distribution of fertilizer products, text of Ford proposals 12, 16 Indorsed Ford proposal by resolution (Mr. Bower) 630 Membership of (Mr. Silver) 577 Resolution adopted February 8, 1916, regarding fixation of nitrogen as a fertilizer (Mr. Bower) 615-616 Farmers' organizations. {See Alabama Farm Bureau Federation, Ameri- can Farm Bureau Federation, Farmers Educational and Cooperative Union of America, National Grange.) Federal Phosphorus Co. : Has been assisted and encouraged by Alabama Power Co., but is entirely independent (Mr. Swann) 43^ Process of making concentrated fertilizer (Mr. Swann) 431-434 Statement of Mr. Swann, president 431-442 Federal Power Commission: If Mr. Ford is to have a straight lease he would be exempted from action of Federal water power law or laws of Alabama (Mr. Cooper) 418 Jurisdiction of, excluded under Ford proposal as written (statement No. 3, Mr. Cooper) 413 Might regulate sale of power by Mr. Ford (Secretary of War's re- port and statement) 9,54,56 Proposal of Alabama Power Co. complies with the policy of the' Government as laid down by (Mr. Frothingham) 952 Under Alabama Power Ck>. proposal, would issue license to company for completion of Dam No. 2 (text of proposal) '_ 776 Federal water power act : Alabama Power Co. would apply for license under, to complete and operate Dam No. 2, text of proposal 775 1172 INDEX. INDEX. 1173 Federal water power act — Continued. Page. * Provision of, bearing upon Alabama Power Co. proposal (Mr. Mar- tin) 854-855 Text of section 5, pertaining to applications for licenses (Mr. Worth- ington) 380-381 Fertilizer : Agriculture, Department of, statement regarding farmers and Ford proposal 316 Alabama Power Co., does not guarantee to manufacture (Mr. Hower)_ 630 Amount, of, Mr. Ford will produce — Mr. Mayo 259 Mr. Silver 590 602 Mr. WortJiington 366-^67, 378-379, 385-386! 402 Amount of power needed to produce 2,(X)0,000 tons of commercial fer- tilizer at Muscle Shoals (Doctor Parsons) 112r) Annual production, statistics of (Doctor Whitney) 339 Balance sheets of two largest companies show a loss of above $20,- 000,(X)0 last year (Mr. Swann) 430 Board to control price and distribution of products — Text of Ford proposals 12, 10 (See also Legal questions involved: Fertilizer products, board to control. ) Can be furnished to farmer at one-half of present cost by establish- ment of nitrogen industry with proper Government cooperation (statement of Mr. Washburn, president of American Cyanamid Co., on February 9, 1916) (Mr. Bower) 623 Can be produced at Muscle Shoals more cheaply than in any other place in the United States (Mr. Worthington and Mr. Qiiin) 398 Can not be manufactured at a profit at nitrate plant No. 2 (Mr. Ham- mitt) 462-4as Companies producing, largest (Mr. Weeks) 29 Concentrated — Description of development of process of making (Mr. Swann )_ 431-434 Market will be found for. ae fast as developed (Mr. Swann) 437 Statement of Mr. Swann regarding, does not accord with develop- ment of the art as scientists and farmers understand it to- day (Mr, MacDowell) 520 Use of, by farmers will come about as fast as demand is created and supply is made available (Mr. Swann) 437-43S Concentration of, beyond a certain limit will injure seed (Mr. Mac- Dowell) 516, 520, 521 Consumption of — Discussion of (Mr. MacDowell and Mr. Fields) 529-531 Increased on average of 7^ per cent yearly up to 1914 (Mr. Mac- Dowell) 529 Cyanamid for ingredient of, amount of, sold in year by American Cvanamid Co. (Mr. Hammitt) 518-519 Difference between cost of production and selling price (Mr. Silver)- 572-573 Discussion of (Mr. Silver) 605 Discussion of, and of nitrogen compounds (Doctor Whitney) 322-349 Effect on cost of — By operation of nitrate plant No. 2 (Major General AVilliams)___ 82-8;^ By proposed operations of Mr. Ford — Major Burns 216 Mr. Bower 623 Mr. Cooper 427 Ford proposal may benefit farmers (Major Burns) 237 Ford proposal to produce, indorsed by American Farm Bureau Fed- eration 41-42 Formula of 8, 3, and 3 — Doctor Whitney 348 Major General Williams 94-95 Furnaces at nitrate plant No. 2 could be changed to produce (Mr. Swann) 435 High grade, production of, at nitrate plant will reduce freight rates (Mr. Bower) 627 Fertilizer — Continued. ' Pa««- High price of nitrogen has established lower grade of (Mr. Bower).- 627 If Government charges Mr. Ford 8 per cent interest on water power, farmers will pay it in cost of (Mr. Bower) 6Jil-(>32 If Mr. Ford were in the fertilizer business, farmers would get much cheaper fertilizer (Mr. Silver) 572-573 If potassium phosphate is produced at Muscle Shoals it could be used to fix by-product col^e-oven ammonia gas and produce a complete fertilizer of verj' high concentration (Mr. Swann) 433 Is not sound public policy for Mr. Ford to manufacture, at nitrate plant (Mr. MacDowell) 537 Language of section 14 of Ford proposal, discus.sion of — Mr. Hill and Mr. Mayo 981 Mr. James and Mr. Mayo 977-978 Language of section 14 of Ford proposal modified (Mr. Mayo) 971 Language of section 15, discussion of — Mr. Crowther and Mr. Mayo 307-308 Mr. Silver 574-576. 588-591.613-614 Mr. Worthington 378-379 Language of sections 14 and 15 of Ford proposal, suggested changes in, agreed toby Mr. Mayo (Mr. Silver) 988-989 Largest tonnage ever produced was 8,000,000, in 1918, and prices were highest in that year (Mr, Bower) 627 Less .anunonia for, used in United States last year than in Germany, England, France, and Italy (Mr. Butler) 990 Letter of Aug. 14, 1922, from the Bureau of Soils, text of 336-343 Method of producing phosphoric acid and use as ingredient of (Mr. Swann ) 432-433 Methods of production ( report of Muscle Shoals committee of Amer- ican Farm Bureau Federation) 548-540 Mr. Ford can not make, cheaper than is being made at present (Mr. MacDowell) 537 Mr. Ford could not discontinue manufacture of, until every effort is exhausted (Mr. Mayo) 302,309 Mr. Ford could not state that he would use all products of nitrate plant No. 2 for fertilizer alone (Mr. W^orthington) 366-367 Mr. Ford hopes to start producing within a year (Mr. Mayo) 257 Mr. Ford intends to produce completed product at 8 per cent above cost, at nitrate plant No. 2 (Mr. Mayo) 253 Mr. Ford or anyone else can not operate nitrate plant No. 2 to make fertilizer (Doctor Parsons) 1138 Mr. Ford understands his offer to guarantee that he will utilize at least 100,000 horseiK)wer in the manufacture of (Mr. Mayo) 981 Mr. Ford will be able to produce at one-half the cost of production by other firms (Mr. Mayo) 284 Mr. Ford will be able to produce at 33^ per cent cheaper than it is be- ing produced at present (Mr. Mayo) 303 Mr. Ford would be turning out, in less than 15 months if Congress voted to accept his offer and directed condemnation of Gorgas plant (Mr. Oliver) 999 National Fertilizer Association opposed to Ford contract, reasons stated (Mr. MacDowell) 523-527 Necessary ingredients can be obtained from raw materials in vicinity of Muscle Shoals (Mr. MacDowell) 535,536 Nitrate plant No. 2 can produce about one-fourth of all nitrogen used in (Mr. Weeks) — 45 Nitrate plant No. 2 could make one-half of the nitrogen content of fer- tilizer used in the United States annually (Major Bums) 230 Nitrate plants Nos. 1 and 2 will produce about one-third of fertilizer needed (Mr. Butler) 917 No need for nitrogenous product at present (Mr. MacDowell) 521,538 Number of different brands of, and analysis of plant-food content (Mr. Bower) 628-629 Number of finished tons which could be produced at nitrate plant No. 2 (Mr. Mayo) 302,308-309 1174 INDEX. INDEX. 1175 Fertilizer— Continued. Obligation of Mr. Ford to produce— p-~ Colonel Hull ^''''' Doctor Parsons ii2n iT^i • Mr. Mayo III::::::::: ^Im Mr. Silver ^2^'^ Mr. Weeks III::::: of^k^i Mr. Worthinglon Hi: llfkll The one possibility of making fertilizer with any d~e'gre"e" oFcheaDness IS through the development of nitrate plant No 1 Thfoovern- ment can never hope to do anything with plant No. 2, and any- sonJ) """"'^ '^ "^"^ ^""^^ ^'"''^^ '^^''^ ''''P^^^y (Doctor Par- (Major General Williams) qa Percentage of nitrogen, phosphoric acid, aVd" pVtaVh L~eceisiryTo"~pro~ duce a balanced ration (Mr. Bower) _ __ ___ _ _ go? Phosphate ingredient can be obtained within a radius of 100 miles of plants (Mr. Mayo) ORI Phosphate rock can be smelted in an electric "furnace"7nd" phos- P . ^.^,^''^c,^^"^^^*^ ^"^^ "^^ ^» industry, which will reduce present costs (Mr. Swann) ^04 • Possibility of making potash ingredient" near" plants (Mr. Mayo)'I 28S ^?li^^^.'^^^V**f ^^ production of, by Mr. Ford, to American faVmer (Mr. Weeks) _ ^f- Power to be furnished by Alabama Power Co. for production" of text of proposal l____ 776 Present capacity of plant No 2 would produce about 2,000000 tons of fertilizer, and with cheap water power the Ford Co can make fertilizer at about one-half the present price (Mr. Alnion)_ 1006 Price of, can not be reduced 33J per cent by operation of nitrate plant No. 2 (Doctor Parsons) ^127 Price of, limits consumption in this country (Mr. Bower) !__ 617 618 Probabilities of production by Mr. Ford (Mr. Weeks) ___^ 28-29 Production of, at nitrate plant No. 2, not needed at present (Mr MacDowell) * g„g Production of. by Mr. Ford, would probably depress the market (Mr Hammitt) ^ J q^ Production of, may not be profitable (Mr. Weeks) -_II_I_ _Z___I~29 35-36 Production of, text of Engstrum proposal ' 007 Production of, text of Ford proposal I ] i^Iq Production of. under Alabama Power Co. proposal ; lease of nitrate plant by an independent concern, with 100,000 horsepower of free power supplied, would produce more and better fertilizer than anv other way (Mr. Frothingham) _ 9^ Products which can be manufactured at nitrate plant No 2 and com" mercial outlook (Doctor Tolman) 313-319 Profit of manufacturer limited but not profit of middleman under Ford proposal (Colonel Hull) _ jgo Proportion to be produced by Mr. Ford of total used in United States (Mr. Weeks) 44-45 Reason for opposition of industry to Ford proposal (Mr Bower) _Z 619-621 Resolution of the Farmers' Educational and Cooperative Union of America and of the National Grange adopted February 8 1916 regarding fixation of nitrogen (Mr. Bower) ' 615-616 Results of producing, at this great plant simply staggeringrit is a tremendous governmental function, reaching to every person in the Nation (Mr. Butler) Q29 ^^nt^'^r, }^^^^ ^J P^^'^^f .^J2? °^' ^y MirFo"r"d",'^n"b"e"estrmat^ at $5.000,(XX),0(X) at end of 100-year period (Mr. Almon) 10O6 Secretary of Agriculture would regulate the amounts to be offered for sale, under Engstrum proposal (Mr. Butler) 906 State of the art of making is very new (Mr. Cooper) I " 424 Statement of Dr. L. H. Baekeland before Senate Committee" on Agriculture and Forestry regarding cost of manufacture of (Mr Bower) [__• ^^^ Fertilizer — Continued. Pag* Statement showing number of tons of commercial fertilizer Mr. Ford could make at plant No. 2 (Mr. Worthington) 367 Statements of Frank S. Washburn, president of American Cyanamid Co., before Committee on Agriculture on February 9 and March* 16, 1916, regarding (Mr. Bower) 618-619,623-624 Statements of Frank S. Washburn, president of American Cyanamid Co., prior to the war, based on conditions radically different from preseHt conditions (Mr. Hammitt) 449 Statements relative to reduction of cost of production of, by nitrogen fixation methods (Mr. Bower) 619 Table showing average increase per acre of all fertilizer experiments in the United States published up to 1910, with the number of ex- periments reported up to that time 345 Table showing consumption of, in United States, fiscal years ending 1913 to 1920 (from American Fertilizer Handbook for 1921) (Mr. Mayo) 1 292 Table showing estimate of results of operation by Government of United States nitrate plant No. 2 for period of 6 years (Ma lor Gen- eral Williams) 84-85 Table showing fertilizer production (Major General Beach) 106 Table showing fertilizer tonnage by States 96,107,343 Table showing fertilizer tonnage in 1913 and 1919 341 Table showing total acreage in crops in 1919, the tonnage of fertilizer sold in each State, and the additional amount of amonia required to bring the intensity of use at least up to the present practice in Georgia 340-341 Term "unit," in connection with, explained (Mr. Bower) 635 To be produced at a capacity equal to 110,000 tons of amonium nitrate per annum, under specified conditions (text of Ford proposal) 15 To be produced at nitrate plant No. 2, not to be sold at a profit in excess of 8 per cent (text of Ford proposals) 12, 16 United States used last year only 175,CKX) tons of nitrates for, to Germany's 500,(X)0 tons, and at least half of what United States used was imported from Chila (Mr. Butler) 901 Use of nitrate plant No. 2 to make various ingredients of (Mr. Ham- mitt) 463-464 Use of secondary power for production of nitrates under proposal of Alabama Power Co. (Mr. Martin) 801 (See also Amonium sulphate.) (See also Nitrogen compounds.) Financing by the Government : W^hen Ford offer is accepted Congress, in- stead of appropriating money to complete the dams, could provide for issuance of 4 per cent bonds. The interest paid by the Ford Co. would pay the interest on the bonds (Mr. Almon) 1007 Fixed Nitrogen Research Laboratory, statement of Doctor Tolman, direc- tor of 3ia-319 Flowage rights: Alabama Power Co. owns some flowage lands at site of proposed Dam No. 3 (Mr. Martin) 684-685 Cost of, estimated at $1,000,000 (minimum) (Mr. Ford's engineers). 243 Cost of, estimated at $1,500,000 (maximum) (Mr. Ford's engineers). 243 Cost of, estimated at $1,500,000 (Mr. Weeks) 43 Cost of. estimated at $2,331,000 (memorandum of Chief of Engi- neers) 20 Cost of. estimated at $2,700,000 (rough estimate) (Mr. Cooper) 422 Cost of land, and, should be included in cost of enterprise (Mr. Weeks) i___ 30 Cost of, Mr. Ford should pay interest on (Mr. Cooper) 422 Cost of, should be charged to navigation (Mr. Mayo) 243.247,250 Discussion of (Mr. Weeks) 57 Government and Ford estimates for (Mr. Mayo) 243.246,247 Interpretation of Ford proposal regarding — Colonel Hull 178 Major General Beach 113 Secretary of War's report 6 To be acquired by the United States, text of Ford proposal 14 1176 INDEX. For(|. Henry, proposals of. (Sec Proposals of Mr. Ford.) Frothiiijxhani, Francis E., of Coffin & Burr. Boston, Mass. : Page. Indorses Alabama Power Co. proposal 950-954,968 Statement 947-969 General Chemical Co. : Contract with, legal questions involved in — Letter of December 14, 1921, of Acting .ludge Advocate (Jeneral_ 174-177 Opinion from Judge Advocate General'^ Office 24 Extracts from the minutes of a regular meeting of the executive committee of the General Chemical Co., held on the 1st dav of June, 1917 __"__ 204-205 Letter dated June 5. 1917, placing certain patents and processes for the production of nitrates at the disposal of the President, text of 203-204 Patents of. letter of December 14, 1921. of Acting Judge Advocate General, text of 174-177 Royalty for ja-ocess (Mr. Weeks) 44 (Jeorgia Railway & Power Co.: Intercorporate relations with American Cyanamid Co.. no connec- tion between canies (Mr. Hannnitt) 486 Letter of :May 20. 1921, from: inadvisable for (xovernment to develop Muscle Shoals 118-121 Germany developing water power : Magazine article describing Neckar River project ,^54 Goethals, Gen. <;. W. : Mr. Engstruni has secured the services of. as engineer in charge of construction (Mr. Butler) 9.S5 Text of bulletin issue(M>67, 673-674, 679 Is practically part of Alabama power plant (Major Burns) 209 Legislation giving authority to executive branch of Government to sell such property as, text of (Mr. Martin) 645 Letters between Ordnance Department and Alabama Power Co., pertaining to construction of Gorgas-Warrior plant and transmis- sion line, which led up to contract between the Alabama Power Co. and the Government, text of 709-722 Letters of December 7, 1917, from Ordnance Department to Alabama Power Co, authorizing construction of Gorgas extension (Mr. Martin) 731-732 Natioiuil defense act, relevancy of. to construction of. {See Legal questions involved: National defense act.) Necessarv that it be included in Ford proposal (Mr. Worthington)— 351 Not necessaiv for Ford to have this plant or the property that belongs to the Alabama Power Co. in order to operate h:s project (Colonel Joyes) IJJIf' Offer of Alabama Power Co. to purchase, text of proi)osal <<6 Offers of Mr. Fortatement lO'iR-iiif^ Judjre Advocate General's office : " ~ ~ -lvoo-j.xio Letter of December 14, 1921, to The Adjutant General, questions in re contract with General Chemical Co 174-177 Memorandum of January 17, 1922, sale of nitrate plants-__I_r___Z 173-174 Memorandum of .January 28, 1922, legal questions involved" in Ford proposal 23-25 Opinion of November 16, 1921, in re contract with Alabama'Power ^^ _ m2-i^ (See al^o Hull, Col. John A.) -lo^-io* Jurisdiction of this committee (Committee on Military Affairs) 65 Keokuk dam, horsepower at (Mr. Cooper) 426 Koppers Co., of Pittsburgh, quotation from an argiim~e"nt "for a duty on sulphate ot ammonia prepared bv (Mr. Rowpr^ a-in Land : prepared by (Mr. Bower) 619 Damages payable to Alabama Power Co. would probably be high (Maj. Burns) 213 Revised Statutes, 3736, prevented Ordnance Department from buying land at tmie contract was made with Alabama Power Co (Col Joyes) ^ ^ ^^^^ (Krc also Right of way for transmission line.) Land and flowage rights. (See Flowage rights.) • Lawyers, partial list of, in Ordnance Department, 1917-18__ 1043-1044 Leases: w^tj-xvnr. Properties Mr. Engstrum offers to lease, text of proposal 896-897 Propertied" Mr. Ford offers to lease, text of proposals 10-11 1.V14 Length of — Discussion of — Major (Jeneral Beach 100-101.10.3-104 Mr. Cooper 4^- ^^g Mr. Mayo _ 243, 285^288, 304-307 Mr. Qu:n and Mr. Worthington * 393-.394 50-year term — Asked for under Engstrnni i)roposal (Mr. Butler) 907 991 Text of Engstrum proposal '397 Under Federal water power act. text of Alabama Power Co proposal -j^ Mr. Ford would not consider 50-year period (Mr. Mavo) 285 971 Xo objection to 10() years (Mr. Worthington) ' 3.53-3.54' 3.5S 100 years too long. 50 years preferable — Mr. rooi>er . 4^5 4^4 Mr Weeks 31-.32, 54, 63 Ihere shouhl be no objection to the Ford (»ffer on account of the 300-year lease period (Mr. Almon) 1007-1008 Renewal of — Under Alabama Power Co. proposal Government has right of recapture at end of 50-year period, text of proposal Under Engstrum proposal — Xo preference asked at eno\ver by Mr. Ford — ' * Federal Power Commission" excluded under Ford proposal as written (statement No. 3, Mr. Cooper) 413 Federal Power Commission might regulate (Secretary of War's report and statement) _* 9 54 56 If ]Mr. Ford is to have a straight lease he would be exempted' from action of Federal water power law or laws of Alabama (^Ir. Cooiier) ^^g Power to be sold would probably be under State of Alabama law (Mr. Mayo) 943 Price will be controlled by the Public Utility Commis.sion of Ala- bama (Mr. Worthington) ^jq Public Service Commission of Alabama might regulate (Secre- tary of War's report and statement) 9 .54 56 Land, purchase of — ~ '' ' Revised Statutes. 3736, prevented Ordnance Department from buying land at time contract was made with Alabama Power Co. (Colonel Joyes) jq;^ Liability of estates under laws of Michigan 179-180 , Liability of the (Government under contracts; opinion of Colonel X' *. ^"JVi 199-200 National defense act — Appropriation of .$20,000,000 under, use of (Major Burns) 199 Contract with Alabama Power Co. not governed by (Mr. Dent) .747-748 Contract with Alabama Power Co. not made under authority of (Mr. Martin) 723-724 732 Contract with American Cyanamid Co., relevancy of act to~ (Mr. Hammitt) 447,448 460 Dam No. 2 was constructed under authority of (Secretary of War's report and statement) * 4 Gorgas-Warrior steam plant, construction of, had no connec- tion whatever with act (Colonel Joyes) 1053 Gorgas-Warrior steam plant, relevancy of act to (Mr. Kahn) 641 Gorgas-Warrior steam plant was provided for in (Mr. Almon)_ 741-742 Nitrate plant No. 1 was constructed under (Colonel Joyes) 1057 Nitrate plant No. 2 was not constructed under (Colonel Joyes) 1057 Nitrate plant No. 2— Authority for construction of, discussion of (Col. Joves and Mr AVright) :_ 1098-1099 92900—22 75 1184 INDEX. IXDEX. I^gal qiiestioiL*; involved— Coiitinuen ' Nitrate plant No. 2— Continueil. Page Authority for con.striiction of wa.s not in national defense act (Col. Joyes) __ ^^-, Deed ought to contain reservation (~Mr. Parlver)! -IIIZII'IIZZI 48 Maintenance of, in condition for war emergency, i"nterp7etation of Ford proposal (Col. Hull) * "ni-ono Proposal of Alabama Power Co.— Acceptance of. would seem not to interfere with contract with Air Nitrates Corporation (letter from Secretary of War)___ 775-770 interpretation of clause regarding purposes for which the Gov- ernment may use the power to he furnislied by the company (Mr. Martin) 8i4_^xi 8(>3-8f>4 Recapture clause would relate only to investinent of the com- pany (Mr. Martin) o^^ Proposal of ^Ir. Engstrum— ~ " Acceptance of, would not be interfereil with by present contracts of the (government with the Air Nitrates Corporation or the Alabama Power Co. (Mr. Butler) qiq Proposal of Mr. Ford— Acceptance of, would not be interfere 1 with bv so-called " option to purchase" of Air Nitrates Corporation (Mr. Almon)___ 1008-1009 Amount of money to be put in as working capital is sufficient guaranty (Mr. Mayo)_ ^qq Can not be acceptetl under existing law (Mr. Hammitt)__IZ_ 450,454 Clause iiught be added to protect Government against mortgages being placed by company (Mr. Mayo) 281 • ^.lability to fulfill contract — .Iplonel Hull 190-101, 195-197, 201-202, 20a Mr. Miller and Mr. Mavo 9^Q_9fti Mr. Stoll '_ ZZ__Z __"ZZZ'Z~Z"ZZZ 197 Mr. Weeks ZZ"28^29,"37,"5(>-51, 57 lext of I'ord proposal, sect'on IS i(] ]Mr. Ford wouhl not ob.iect to added clause in deed regarding pro- ducthm of explosives in time of war at nitrate plant No 2 (Mr. Ma.vo) gj^j^ Opinion from Judge Advocate (teneral's office Z ^3-^5 Term •' head of any executive department " — Can not l)e construed to designate a head of a bureau of a de- partment (Mr. Oliver) y^.^. Understood to include chiefs of bureaus (Mr. Dent) 750 giy Legislation : Alabama law exempts companies engaged in development of hydro- electric energy- for 10 years (Mr. Martin) I 420 Alabama public utility act of October 1, 1920, text of pertinent sec- 1185 tions. ^ ^, . . ~ 55-56 Authorizing execution of contract with Alabama Power Co. (Mr. Martin ) 722-723 Authorizing executive branch of Government to sell such property" as"" Gorgas-Warrior steam plant, text of (Mr. Martin) 645 Condemnation of land for military uses, text of act of April 11, 1918, authorizing (Colonel Joyes) 1051 Dent Act, text of 657-660 Federal water power act, text of section 5 i)ertaining to applications for licenses (Mr. Worthington) 380-381 Leasing act of July 28, 1892, text of 26 Liability of estates under laMS of Michigan 179-180 National defense act. text of section 124 25-26 Levering, J. H., civil engineer, statement 939-946 License agreement: With American Cyanamid Co. — Amounts payable under (Mr. Parker and Mr. Hammitt) 479-480 Text of 144-150 Lime-nitrogen. (See Cyanamid.) Load factor, definition of term (Mr. Martin and Mr. Thurlow) 868 Locks : Construction of and payment for — Page. Text of Alabama Power Co. proposal 776 Text of Ford proposal 10-11 Construction of, text of Engstrum proposal 897 Dam No. 2, cost to complete estimated at .$2,500,000 (Mr. Weeks) 46 ii^ee also Repairs, maintenance, and operation of dams and locks.) Louisville & Nashville Railroad, division running into Muscle Shoals will be electrifietl if Mr. Ford develops power (Mr. Worthington) 355 Mac'Dowell, Charles H., president National Fertilizer Association, state- ment 519-542 McDuffie, Hon. .John, Representative in Congress from Alabama, state- ment 1021-1026 Mahoney, F. D., commercial manager Alabama Power Co. : Statement 703-706 Was consulting engineer to Ordnance Department during the war 703 Maintenance. (♦See Estimates of maintenance.) aiaintenance of dams and locks. (See Repairs, maintenance, and opera- tion of dams and locks.) Marberly, Captain, disbursing officer of the Government in connection with the Air Nitrates Corporation (Mr. Hammitt) 499 Market for power. (»SVe Power, market for.) Martin, Thomas AV., president Alabama Power Co. : Statement 640-702, 706-741, 762. 774-816, 837-885, 946. 1027-1038 Statement of, in answer to statements made before !ililitary Affairs Committee of the House of Representatives on March 8, 1922__ 1027-1038 Mayo, William B.. chief engineer of the Ford ^lotor Co., Detroit, Mich., statement 241-311, 383, 971-988 Michigan law on liability of estates 179-180 Mitchell, James, connection with Alabama Power Co. (Mr. Martin). 640-641,779 Modifications to safeguard Government's interest suggested by Secretary of War relative to Ford proposal 1 9 Alortgages: Clause might be added to Mr. Ford's proposal to protect Government (Mr. Mayo) 281 On farms, estimates of (Mr. Quin) 396 Muscle Shoals Canal : Annual cost, average (Mr. Fields) 607 Annual cost, probable (Ma.lor General Beach) Z 108 Muscle Shoals Hydro-Electric Power Co.: Mr. Mitchell, president of the Alabama Power Co., and his associates acquired stock of (Mr. Martin) 779 Plan of development of Muscle Shoals situation in 1912 (Mr. Martin) _ 779 Proposal of December 10, 1913, for development of sites 2 and 3 on the Tennessee River, text of 782-784 Report of May 18, 1914, of Board of Engineers for Rivers and Har- bors on bid of company for development of sites 2 and 3 on the Tennessee River, text of 781-782 Statement about (Mr. Martin) Z" ZZ_Z 779-787 Worthington, Mr. J. W., sold his interest in, in 1912, but continued as officer of the company until February, 1920 (Mr. Martin) 779 Muscle Shoals proposition : All stores, supplies, equipment, and other loose personal property now on or about the premises to become property of Mr. Engstrum's ^^ corporation, text of proposal 399 "All stores, supplies, equipment," etc., under Engstrum proposal would amount to $3,5l-622 Disposition of. (See Disposition of Muscle Shoals proposition ) ~ 1186 INDEX. INDEX. 1187 Muscle Shoals i)roi)ositi()n — Continued. , Page. Financing of, standing alone, without being connected with activities in the region, would not be looked upon with favor by Mr. Froth- ingham 969 Government losing millions annually from nonuse, depreciation, and maintenance (Mr. Wright) 297 Importance of best T>ossible constructiroposal, reasons stated (Mr. MacDowell) 523-527 Purposes of (Mr. MacDowell) .522-.523 Statement of Mr. MacDowell, president 519-542 National Grange: Authorized to designate candidates for a board to control price and dii^^tribution of fertilizer products; text of Ford proposals 12,16 Membership of (Mr. Silver) 577 Resolution adoptetl February 8. 1916, regarding fixation of nitrogen as a fertilizer (Mr. Bower) 615-616 Natural resources: Alabama (Mr. Quin and Mr. Worthington) 396 Tennessee (Mr. Quin and Mr. Worthington) .396 Tennessee River valley (Mr. Worthington) 386-388 Navigability of Tennessee River: General Beach 122, 129 Hon. A. A. Taylor 320,321^322 Mr. Worthington 370-371. 404 Navigation : Amount estimated by United States engineers before the war as chargeable to, was $8,575,000 (Mr. Almon) 1004 Building of dams necessary to complete (Mr. Martin) 813,849-^850 Completing dams will increase amount of (Mr. Quin) 293 Dam No. 2 will render 14.7 miles of Muscle Shoals navigable; Dam No. 3, 63 additional miles (Secretary of War's report) 5 If nitrate plant No. 2 is operated, there will be approximately 460,000 tons of sludge per year to be disposed of, and if run into the Ten- nessee River it will damage navigation far more than the locks that may be put in will help it (Doctor Parsons) 1126 Proposal of Alabama Power Co. would make river navigable to ex- tent of pool created by Dam No. 2 (Mr. Martin) 813 Would be extended about 90 miles by proposed dams (Mr. :Mayo) 295 Would not alone justify proposed expenditures of Government (Mr. Worthington) 407 (See also Transportation.) Nitrate : War Department now has on hand about 220.000 tons (Mr. Weeks). 57 Nitrate plants : Alterations, additions, and changes in. text of Engstrum proposal-- 897,898 Nitrate plant near Chicinnati, Ohio— <'ost, .$7.321,400— has been re- tained by War Department (Major General Williams) 86 No. 1— Acreage of plant site. 1,900 acres 18 Chief defects in, and remedies therefor (Mr. Butler) 990 Chief of Ordnance has stated that if modified and ma08 Major General Williams 1 I_I '^~_J1 67^ Synthetic process of the General Chemical Co. was used at (Mr Almon ) ' JQQ.7 To be used for manufacturing parts for Ford automobile busi- ness (Mr. Mayo) oko No. 2— ^^^ Acreage of plant site, not including Waco quarry, 2,306 acres, ac- quired for $237,711 (Secretary of War's report) 5 Air Nitrates Corporation would make no offer for, if the Govern- ment continues to hold it, unless the Government provides a subsidy (Mr. Hammitt) 434 Alabama Power Co. does not propose to maintain in condition to produce nitrates, but undertakes to give Government power and money (Mr. Hull and Mr. Martin) 813 American Cyanamid Co. has made no profit from construction of (Mr. Hammitt) 440 Ammonium nitrate of no use for national defense," without prod- ucts of other plants which have been scrapped (^Ir. Hammitt)- 484 At its present capacity would produce about 2,(K),tHM) annually (Mr. Mayo) 249 Depreciation estimatetl at $6,(HX).000 for 6 years (Major Gen- eral Williams) 85 Description of (report of Muscle Shoals committee of American Farm Bureau Federation) 544-546 P^conomical operation of, deiiends chiefly uixui completion of hydroelectric plant of Dam No. 2 (report of Muscle Shoals committee of American Farm Bureau Federation) 560 Fertilizer products produced not to be sold at a profit in excess of 8 per cent (text of Ford proposals) 12,16 Furnaces could be changed to produce fertilizer (Mr. Swann) 435 Government can never hope to do anything with, and anybody that runs it will lose money very rapidly (Dr. Parsons) 1125 Govennnent has no authority to grant a license for use of pat- ents of American Cyanamid Co. to a lessee (Mr. Hammitt)— 5(^ Idle, except that power plant is leased (Secretary of War's report) 5 If changed it will have to be practically wiped off the ground before it can be used for any other method for fixing nitrogen (Dr. Parsons) 1130 If it can not be operated at a profit, then no subsidy is Involved in selling plants to Mr. For9 National defense act — Plant was not con.«^tnicte(l under authority of (Colonel .loyes) 1057 Relation of, to construction of plant (Mr. Hammitt)- 447,448,460 1190 INDEX. INDEX. 1191 Nitrate plants — Continued, No. 2 — Continue.!. Pagt. Needs a little more power than is really present in the generat- ing unit of its steam power plant to produce its full rated production (Colonel Joyes) 109(5 No need for products of, for agriculture at present (Mr. Mc- Dowell) 521, 538 Number of tinished tons of fertilizer which could be producecl" (Mr. Mayo) 302,308-309 Offers of Mr. Ford to purchase, text of 11, ir> Option to purchase by Air Nitrates Corporation, legality ques- tioned (Secretary of War report) !___! 5-0 Power from Gorgas- Warrior steam plant not needed to oi>erate (Major General Williams) 79 Power plant of. (See Power plants.) Present equipment of Government to produce nitrates (Mr. Weeks) 3g Proceilure the Government might follow in making proposition to sell to Air Nitrates Corporation (Mr. Hanunitt) 491 Production estimates of nitrogen cimiponnds (Dr. Whitney) 348 Production of high-grade fertilizers at. will reduce freight rates (Mr. Bower) _ q^I Production of nitrogen compounds at — Opinions of Dr. Caro and ^Ir. Washburn on (Mr. Mayo)__ 252-*>53 Statement of Dr. Caro on (Mr. Silver) ' 564 Products which can be manufactured at, and connnercial outlook (Dr. Tolman)__ .313-319 Proposal of Alabama Power Co. limits operation of. to 100.000 secondary horsepower, which would mean shutting aid to the Chilean Government. Price can l>e put up or down, because it is a monopoly (Mr. Butler) 924 Editorial from the Oil, I'aint, and Drug Reporter, of January 23, 1922. regarding supply of (Mr. Bower) 626 If the Muscle Shoals project is to be used to benefit agriculture, then nitrates i)rer nitrates (Mr. Butler) !H>4. 913 Mr. Engstrum will never have to make a pound of, under his contract (Mr, Levering) 940 Mr. Ford can not make, at present at 8 per cent profit, but he can make automobiles with greater profit at Muscle Shoals than he can in Detroit (Mr. Butler) 992 Nitrate commission — I'ersonnel of (Doctor Parsons > 111.5-1116 Report of, references to (Colonel Joyes) 1062,1064,1092 Produced at Muscle Shoals should be sold to farmers at a price to be approved by the Secretary of Agriculture (Mr. Butler) 905. 993 TTiKler proposal of Mr. Ford there will not be produced any more nitrates at the end of 100 years than will be produced the first year of the lease (Mr. Butler) 992 Cnited States used last year only 175,000 tons of, for fertilizers, to (Jermany's 500.(X)0 tons, and at least half of what United States used was imported from Chile (Mr. Butler) 901 Nitride process: Description of (Mr. Mayo) 251 Nitro, W. Va., smokeless powder plant: Cost, estimated salvage value, and sale price, figures of (Major General Williams) 86 Nitrogen : About 7 tons to every square foot of ground (Mr. Mayo) 292 Consumption and supply of inorganic nitrogen in United States, 1900- 1920, diagram showing (Major General Williams) 75 1192 INDEX. INDEX. 1193 Xitrog»en— roiitiimed. Page. Conversion of atmospheric nitrojren, description of (extract from a paper by R. O. E. Davis, United States Bureau of Soils) (Mr. Mayo) 251 Demand for, i?v inci^asin.2: faster than the supply (Mr. Butler) _!__ 989-990 I>em:unl for, to replace quantities tnlien from soil by crop.s — Mr. Bower ' g-jg Report of Muscle Shoals Committee of American FarinBureau Federation. 564-565 Fixed, in the future, is going to be made by a synthetic ammonia process, simply for the reason that there is no other process in the world that can compete with it commercially (Doctor Parsons) 1124 Fixed Nitrogen Research Laboratory, statement of Doctor Tolman, director of 313-319 Haber process is the most efficient process for fixation of atmos- pheric nitrogen (Mr. Butler) 990 Tliirh pi'ice of, has established lower grade of fertilizer (Mr. Bower). 627 Limiting factor in crop production in most worn-out soils (Mr Bower) * gj^ Need for. increasing at the rate of U iier cent a year. At end of 30(1 years our need will be greater than could be* supplied by the whole 1.000,000 horsepower which can be developed at Muscle Shoals (Mr. Butler) 99^ N<> neeroduct for agi'iculture at present (Mr. MacDo\velT)__~522 538 rrooctor Tolman Qiq_?MQ Doctor Whitney ~_ "^J^^^"^" 32^9 Mr. F<»rd could i)robably stabilize price (Major Burns )___"___"___ oie No business in United States engaged primarilv in production of (Mr Bower) I " g^n Percentages of nitrogen in (Major Burns) 11 ~ ~~~ 023 Profluction of. at nitrate plant No. 2, opinions of Dr.'N. Caro ~and Mr. Washburn on (Mr. Mayo) __ 950.053 •Production of, at nitrate plant No. 2, statement of Doctor Caro on (Mr. Silver) _ rya-A Table showing comparative prices of I-II-II— _IIIIII~II~ 556 A\'ill be produced much more efficiently under the Haber and Claude methods than by the cyanamid process (Mr. MacDowell) _ 522 (See aJm Ammonium nitrate, ami Ammonium .suljihate ) Nitn.gen i^n.ducts committee of the :Ministry of Muniti(.ns of W.-ir of the P.ntisli (Joverinupnt. i See British Nitrate Conunission ). Nitrogen situation : Aiinlyzed by Chief of Onlnance j« Atmospheric Nitrogen Corporation of Syracuse, Haber process has been developed by (memorandum of Chief of Ordnance) 17 Discussion of (Mr. MacDowell) 5'>3-527 Necessity for an increased nitrogen supply (Report of Mu'scle Shoals" Committee of American Farm Bureau Federa.tion 549-550 Nitroguanidine : Discussion of {Doctor Tolman) 315 ^'^'««?^^^*' ^^^ ^^"^ Reporter: Editorial from i~ssue~o~f January 23 1922, regarding nitrate supply (Mr. Bower) ' gog Old Hickory plant: Cost, estimnted salvnge value, an^ Ordnance, Chief of : . - , xa-j Analysis of the Ford proposal 17-19 Table showing cost of United States nitnite plants Nos. 1 and 2 and War- rior-Sheffield power station and transmission line •>l-*>-^ (»S'ec also Williams. Maj. Gen. C. C). Ordnance Department : Contract with Air Nitrates Corporation- Text of 135-144, 144-1.-.0 Text of first contract of November 10. 1917 ."jll-nig Contract with Alabama Power Co. Text of 150-171 Contract with American Cyanamid Co. Text of 135-144, 144-150 Letters between department and Alabaniti Power Co. i)ertaining to construction of Oorgas-AVarrior steam plant and transmission line, which led up to the contract between the company and the (Govern- ment, text of 709-722 Letters of December 7, 1917, giving the Alabama Power Co. orders to ' construct transmission line, furnish power to Sheffield, and to con- struct the Gorgas- Warrior steam plant (Mr. Martin) 730-732 Memorandum of conference of December 8, 1917, between Alabama Power Co. and the department, text of 712-713 Owl Fumigating Corporation: Intercorporate relations with American Cyanamid Co. (Mr. Ham- mitt) 504 Panama Canal: Annual total revenues compared with terms of Ford offer (Mr. Almon) 1004 Pjirsons, Dr. Charles L., consulting chemist, statement 111.5-1145 Patents : American Cyanamid Co. — Government has no authority to grant a license for use of, to a les.see of nitrate plant No. 2 (Mr. Hainmitt) 503 List of 149-150 Principal ones will expire in 1932 (Mr. Hammitt) 478 Genernl Chemical Co., letter of Dec. 14, 1921, of Acting Judge Ad- vocate General, text of 174-177 Payments by the Government : Under Engstrum proposal, cost plus 5 per cent of construction, text of propo.sal 899 Payments to the Government: Under Alabama Power Go. proposal — Compared with cost of plants (Mr. Martin) 808-809.878-879 Text of proposal 776 Under Engstrum proposal — Compared with Ford offer (Mr. Butler) 993 Text of proposal 898-899 $3,.500,000 a year on Government's investment of .$30,000,000 (Mr. Butler) . 993 Under Ford proposal — Compared with construction costs of dams — Mr. Miller and Mr. Mayo 262-265 Mr. WeJks and Mr. Parker 49 Compared with cost of plants (Mr. Weeks) 45-47,52 Compared with estimate of salvage value made by Chief of Ord- nance 18 Considered inadequate (Major General Williams) 71-72 Fair to assume that 4 per cent which Mr. Ford is to pay will be above average rate for Government bonds (Mr. Almoin 10()7 1194 INDEX. INDEX. 1195 Paymq^its to the (iovernment— rontinued. Under Ford jiroposal— Continued. Page. If Mr. i';;>i'<^» I>ays_4 per cent interest on t(»tal cost of dams Nos. ^ ami 6 i^M.l toAlo), would save U. S. Treasury $1,275,000 000 durmjj lease period (Mr. Cooper) L__'___ 413 (Analysis of this statement by Mr. Cooper) 638-6.^ Money on which ^Mr. Ford will pay 4 per cent will cost the Gov- ernment 4^ or 4$ per cent (Mr. Hill) 309 Reporteil upon by Chief of En^ineers___ " ia_o7 Reiwrted upon by Secretary of War ~ 6^7 Statement No. 1— Re difference between Mr. Ford's lease pav~ nients to the United States Treasury and the amount the treasury will have to pay out if IMr. Ford's proposal is ac- cepted as written (Mr. Cooi)er) 410-411 Statement No. 4— Re showing if 4 per cent interest is paid bv Mr *or-433 Phosphate rock can be smelted in an electric furnace and phosphoric " acid collected for use in fertilizer industrv which will reduce pres- ent costs (Mr. Swann) __!_ 4,34 Table showing estimated cost (exclusive of interest charges) of pro'- ducmg phosphoric acid by the electric-furnace method, assumin«r power at $25 iier horsepower year ^ 554 Use of nitrate plant No, 2 to manufacture, as fertilizer ingredient (Mr. Hammitt) ^ aqa Pittsburgh plus agreement, de.scription of (Mr. Silver) I Z 567-568 S.ilvjige value of. (See Salvage value of phints.) Table showing food requirements of (Mr. Bower) aot Potash: ^-' Approximately 100 per cent of supply being imported nt present (Mr. Bower) «oq Neces.sary ingredient of fertilizer — Cheaper to buy French and German product that make at Muscle Shoals (Mr. MacDowell) '__ 535 53^ Cheaper to buy German product that produce at present (Mr ^ Swnnn) " ^^^ Difficult to use homemade product because of high freight rates (Mr. MacDowell) ^ 533 Possibility of making, near plants (Mr. Ma.vo) _I 953 Two plants in vicinity of Searles Lake, in San Bernardino Countv Calif. (Mr. MacDowell) '_[ r^ Potassium phosphate, if produced at Muscle Shoals, could be used to tix by-product coke oven anunonia gas and produce a complete fertilizer of very high concentration (Mr. Swann) ___ __ s'iQ^ Power: ^^"^ Alabama Power Co. charged Government Gi mills per kilowatt-hour for (Mr. Martin) j _ 074-676 Alabama Power Co. would not be injured by development of cheap power for sale by Mr. Ford ; the public would be greatlv injured (Mr. Frothingham) ___'_ gg-- Power — Continued. Page. Amount of, needed to produce 2,000,0(X) tons of commercial fertilizer at Muscle Shoals (Doctor Parsons) 1126 Capacity in kilowatt hours of Dams Nos. 2 and 3 (statement No. 2, Mr. Cooper) , 411 Clieaper to make at Gorgas-Warrior steam plant than at plant No. 2 (Hr. Mayo) 257,292 Cheai>er to make at Gorgas-Warrior steam plant than at the two stand-by plants at present (Mr. Butler) 914 Comparison of amount developable at Muscle Shoals with develop- ment in the Carol inas, Georgia, and Tennessee (Mr. Worthing- ton) '- 389 Cost of transmission fnmi JNIuscle Shoals to Southern Power Co.'s market prohibitive (letter of Mr. Duke) 116 Demand for sale of, discussion of (Mr. StoU and Mr. Butler) 932 Developable at Dam No. 2 (Mr. Martin) 810 Developable at Muscle Shoals — Letter from Mr. Duke 115-116 Letter from southeastern power companies 118 Mr. Cooper 420 Report of Muscle Shoals committee of American Farm Bureau Federation 560-561 Developable on Tennessee River (Mr. Worthington ) 392 Discussion of amounts of horsepower to be produced at various units, and rates at which it could be sold (Mr. Mayo)— 261-262, 275-280 Distance transmissible — Alabama Power Co. sending 250 miles (Major General Beach) 101 Four hundred miles (Mr. CJooper) 428 Economical operat on of nitrate plant No. 2 depends chiefly uiwn completion of hydroelectric plant at Dam No. 2 (rei)ort of Muscle Shoals committee of American Farm Bureau Federation) 560 Estimate of interest f>btainable from the 100,000 horsepower salable by the Government (Doctor Parsons) 1144 Estimrates of sales price will prove disappointing (letter of Mr. Duke) 116-117 If Mr. Ford were to pay 4 per cent on $83,000,000 (total cost of dams) he would still be getting cheap power (Mr. Cooper) 421 Market for, from development of Dam No. 2 (Mr. Martin) 798-799 Market for. from IVIuscle Shoals (letter from southeastern power companies) 118 Market for. from iMuscle Shoals dam, overestimated (letter from Mr. Duke) 116 Mr. Engstrum proposes to sell surplus at wholesale, and set aside 1 mill for each kilowatt-hour of power sold to be paid into L^'^nited States Treasury as rental for the lease of the property (Mr. But- ler) 906,911,912,925,928,993 Mr. Engstrum*s corporation hoi)es to sell at wholesale to all con^ panies nearby (Mr. Butler) 912 Mr. Ford intends to use all produced (Mr. Mayo) 262,265 Mr. Ford wishes to take interest burden off of (Mr. Worthington )__ 380 Mr. Ford would get cheapest power on the American Continent (Mr. Cooper) 421 Mr. Ford would sell to railroad in order to get cheap transporta- tion rates (opinicm of Mr. Worthington) 358 Monopoly of, tor the development of one special thing which has been done at Niagara, should be avoided (Mr. Butler) 934 One of principal factors consideretl by Mr. Ford in making bid (Mr. Mayo) 275 Original interest of IMr. Ford in Muscle Shoals proposition (Mr. Worthington) 369 Possible demand for one-third of total producible within 200 miles of Muscle Shoals (Mr. Mayo) 282 " The power situation during the war " extracts from this report by Colonel Keller, Cori>s of Engineers 792-795 Preferred claim of Mr. Ford's company to be furnished with, beyond 100-year period. (See Leases, renewal of.) Prices received by Alabama Power Co. for (Mr. Martin) 665 1196 INDEX. INDEX. 1197 Power-v-CoiitiDuejl. Page. Probable needs of Alabama Power Co. (Major General Beach) 112 Proceeds from sale of, to be taken as compensation, under Engstrum proposal, text of proposal 399 Railway electrification in Alabama and other southern States should require 240.000 horsepower (Mr. Martin) 799 Returns to the cori)oration under Engstrum proposal depend entirely upon Its ability to make a profit out of excess of (Mr. Engstrum )__ 936 Revenue derivable from sale of, by the Government (letter from southeastern power companies) 119 ^oq Secondary, available at Muscle Shoals, records of 30 years showing ' (Mr. Martin) g^^ Secondary, use of, for production of nitrates, under proposal of Ala- bama Power Co. (Mr. Martin) gQ^ Statement No. 2, re amount of low-tension hydroelectric energy deliv- ered to generator station bus bars that will be created by the com- pletion of dams Nos. 2 and 3 according to the requirements of Mr Ford's proposal (Mr. Cooper) 411-412 Statement No. 3, re operation and maintenance of Muscle Shoals water powers (Mr. Cooper) 41'>-413 Statement showing cost to Mr. Ford for, per horsepower year at " dams Nos. 2 and 3 (Mr. Mayo) I 265-*'66 Supplied by Alabama Power Co. (Major Burns) I I__ 009 Table giving general statement concerning power situation in Ala- bama and contiguous territory (Mr. Martin) 799 Table showing rates charged by Alabama Power Co. for power sup- plied, to large consumers from 1917 to 1921. inclusive (Mr Martin ) _ 681-6S2 Table showing water power at Muscle Shoals 555 There is possible power load by 1926 of 880,0(X) horsepower (Mr. ^lartiiu _ Y99 To be funiisbed by the Alal)ama Power Co. — Estimate of value of (Mr. Martin) 841,845 EsHinated that secondary power will be available 82 per cent of the time (Mr. Martin) g^Q Interpretation of clause regarding purposes for which theGov- erninent may use (^Ir. :Martin) 814-815,863-864 Is to be the second 10(),0<»0 horsepower available (Mr. Martin )'__ 814 Is to be the second 100,0(K) horsepower which is available 82 per cent of the time, or approximately one-fifth of the year (Mr ^liller and Mr. Frothingham) 955 Text of proposal ~ 77^ To be sold by Mr. Ford — Conditions suggested (Secretary of War's report) 9 Federal Power Commission might regulate (Secretary of War's report and statement) 9 54,56 If Mr. Ford is to have a straight lease he would be exempted' from action of Federal water-power law or laws of Alabama (Mr. Cooper) ^^^ Jurisdiction of Federal Power Commission excluded" under Ford proposal as written (statement No. 3, Mr. Cooper). 413 Price will be controlled by the public utility commission of Ala- bama (Mr. Worthington) 375 Public service commission of Alabama might regulate (Secretary of War's report) 9 54 5^ Relevancy of Alabama public utility act to (Mr. WeeKs) !__' 54^56 Would probably be under State of Alabama law (Mr. Mayo) 243 To be used by Mr. Engstrum — Power to be developed at Dam No. 3 and at other dams would be conserved and used to operate more nitrate plants by the Haber process (Mr. Butler) 991 Sufficient amount would be used from the beginning to operate both nitrate plants at their full capacity (Mr. Butler) 991 Text of proposal ^ 397 To be used by Mr. Ford — At least 100,000 horsepower will be utilized either to produce fer- tilizer or in a national emergency will be placed at the Gov- ernment's disposal (Mr. Mayo) 981-982 Power — Continued. ^ Page. Total horsepower developed by the three steam plants- to which ^Ir. Ford will get title is 125.000 (report of Secretary of War) 9 Tremendous- amount of, to be put in hands of one man (Mr. Mac- Dowell) 53S Tremendous calamity lo the South if its greatest water power is taken out of field of public utility for 100 years (Mr. (Nniper) 424 Would be necessary to expend over .$50,0(K),0(X) in a manufacturing plant in order to use total produc.ble (Mr. Mayo) 282 (See also Horsepower.) Power plants: Nitrate plant No. 1, a comple e steam plant ready to operate, and ctm be used until the dam is completed (Mr. Butler) 904 Nitrate plant No. 2— Cost approximately $12,000,000 (Major Burns) 218 Leased to Alabama Power Co., lease is revocable at any time (Secretary of AVar's report) 5 Offer of Alabama Power Co. to purchase, text of proposal 770 Present revenue from rental, minimum of $120,000 (Secretary of War's report) 9 (See also Gorgas- Warrior steam plant.) Properties Mr. Engstrum offers to lease, text of proposal 890-897 Properties Mr. Ford offers to purchase : Property which has cost the Government $85,000,000 is to be sold out- right to Mr. Ford for $5,000,000 (Mr. Butler) 992 Text of proposals 11.15 Properties the Alabama Power Co. offers to purchase, text of proposal 776 Proposal of Alabama Power Co. : Ability of company to finance (Mr. Martin) S57-858 Acceptance of, by Congress would mean practically a donation of $34,002,382 (Mr. Alinon) lOl.n Acceptance of, would seem not to interfere with con'ract of the Gov- ernment with the Air Nitrates Corporation (letter fronj Se<-re- tary of War) 775-776 Advantages of — Letter from Secretary of War 774-776 Mr. Martin 813 Analysis of (Mr. Almon) 1013-1015 Answers the requirements of the Government 100 per cent (Mr. Frothingham) 950-951 Coffin & Burr will probably finance (Mr. Frothingham) 96:? Compared with that of iNIr. Ford (Mr. Martin) 884-SS5 Completely complies with the policy of the Government as laid down by the Federal Water Power Commission (Mr. Frothingham) 952 Defects in (Mr. Levering) 943-944 Denounced bv resolution adopted at a mass meeting of 5,000 citizens of Alabama (Mr. Oliver) 994-996 Depreciation plus maintenance cost annually of plant No. 2, $2,700,000 (Army engineers' estimate), is taken over by Mr. Ford, and in two years he will pay the Government more than Alabama Power Co. would pay in cash (Mr. Bower) (531 Disadvantages of, as compared with Ford offer (Mr. Almon) 1015 Does not guarantee to manufacture fertilizer (Mr. Bower) (530 Estimated return Government would receive under (Mr. Fields and Mr. Martin) 845-850 Ford proposal better than, reasons stated (Mr. Bower) 632 If accepted, that company will have a complete and perfect monopoly of the water-power industry of the State (Mr. McDuffie) 1023 If accepted, the company would get over $30,000,000 worth of prop- erty for $500,000 (Mr. McDuffie) 1023 If the Government does not use all of 100,000 horsepower provided for in, then Alabama Power Co. would purchase what the Government does not use (Mr. Martin) 815 Indorsed by Mr. Frothingham, of Coffin & Burr, bankers, Boston, Mass 950-954.968 1198 INDEX. INDEX. 1199 Proposal of Alabama Power Co. — Continueil. Page. Involves tinancing of Wilson Dam and the powerhouse development, the payment of }is5.000,C)(X) for Sheffield s eam jilant and (Jovern- ment's interest in Gorgas-Warrior plant, and in a.0(H). ).ut later provides that cost of the lock is to he deducted from this amo\int. The company would hu.ld the lock and would have its own methods of ho()kkeepinji; and it could easily make it cost the full .$r>,00(>,(KX) 4 (Mr. Almon) 1018 Is unquestionably a betler contract than that of Mr. Ford, from the standpoint of putting the cai)acities of the Tennessee River to the greatest possible use in the interest of the public wiiliin reach of that power (Mr. Frothingham) 90S Limits the operation of nitrate plant to 1(X),0(X) secondary horsepower, which would mean shuiting down perhaps 4, 5, or 6 months of the year (Mr. Bower) 6.30 Makes no in-ovision for the farmer (Mr. Bower) 616 National Fertii zer Association does not object to (Mr. Bower) 620 (>pposeprK)sed by resolutions adopted by Florence Chamber of Commerce, Florence Rotary ?cf (ilMo Estimate.^: Expenditui-es of the Government; and Esti- mates: Savings to the Government.) Proposal of Mr. Engstrum : Acceptance of, does not interfere with the present contracts of the Air Nitrates Coi*poration and the Alabama Power Co. with the United States (Mr. Butler) 918 Acceptance of, does not involve any litigation in connection with the contract tlie Government now holds with Alabama Power Co. (Mr. Butler) 914-915 Advantages of (Mr. Butler) 903-910,991-993 Amendments to appendix 1146 As absurd as it is, it is a better contract than that of the Alabama Power Co. or the Ford contract (Mr, Levering) 940 Bond will be given for the faithful performance of everything the cori>oration agrees to do as lessee, and is to be approved by the (Government (Mr. Butler) 1 915 Chief interest of. is the operation of Muscle Shoals property as pro- vided for in the national defense act (Mr. Butler) 9<^)S, 92S Defects of (Mr. Levering) 939-940 Disadvantages of Ford proposal as compared with (Mr. Butler )_ 989-993 Does not ask for a subsidy from the Government. A part of the profits from sale of i)ower will be used to sub.^idize the making of nitrates (Mr, Butler) 905-906.929 Explanation of certain paragraphs (Mr. Butler) 907-908,916 Fifty-year lease asked for under (Mr. Butler) 907 Government pays 5 per cent in addition to the cost of construction under (Mr. Butler) 911,919 Importance of best possible construction on Muscle Shoals property emphasized in (Mr. Butler) 907 Letter of submittal to the Secretary of War, dated February 23, 1922, text of 895-896 Proposal of Mr. Engstrum — Continued. ^*«** No connection between proposed corporation and Mr. Duke (Mr. Butler) 930 No connection between proi^osed corporation and Virginia-Carolina Chemical Co. (Mr. Butler) 930 No preference asked at end of 50-year period (Mr. Butler) 991 Pavments to Government under, compared with Ford offer (Mr. JButler) 993 Returns to the corporation depend entirely upon its ability to make a profit out of excess power (Mr. Engstrum) 936 Sections 15 and 18, discussion of (Mr. StoU and Mr. Butler) 931 Services of Gen. G. W. Goethals have been secured as engineer in charge of construction (Mr. Butler) 935 Text of 896-899 Text of, amendment to section 19, regarding cost of construction (Mr. Butler) 907 There will be seven directors in all in the proposed company; Mr. Engstrum one, Mr. Butler one, two to be named by the Government, and three others by the company (Mr. Butler) 930 Tried to make it safe for the proposed company, did not want to take any element of chance (]Mr. Engstrum) 937 {See also Estimates: Exiienditures of the (Government, and Esti- mates: Savings to the Government.) Proposals of Mr. Ford : First, dated July 8, 1921— Reported upon by Secretary of W^ar 3-9 Text of 10-12 Letter of .January 11, 1922, modifying first proposal, text of 13 Present, dated January 25, 1922 — Acceptance of, is in no way interfered with by option of Air Nitrates Corporation (Mr. Almon) 1008-1009 Advantages of. estimate of $475,840,000 saved to the Government (Mr. Fields) 607-608 Advantages of, possible (Major Burns) 237-238 Advantages to the Government as compared with first proposal (Secretary of War's report) 6-8 American Cyanamid Co., which denounces, as a subsidy at 4 per cent interest, askeil for identical thing at 3 per cent in 1916 ( ^Ir. Bower) : 623 Analysis of — Chief of Engineers 19-21 Chief of Ordnance 17-19 Mr. Almon 1003-1006 Better proposition than that of Alabama Powder Co., financially, for the Government, for the interests of agriculturists, and for maintenance of plant for manufacture of explosives (Mr. Bower) 6.32 Can not be accepted under existing law (Mr. Hammitt) 450,454 Clause might be added to protect Government in event of mort- gage being placed by company (Mr. Mayo) 281 Compared with that of Alabama Power Co. (Mr. Martin) 884-885 Comparison of Advantages and disadvantages by Chief of Ord- nance 19 Defects in (Mr. Levering) 942-943 Depreciation plus maintenance cost annually of plant No. 2, $2,700,000 (Army engineers' estimate), is taken over by Mr. Ford and in two years he would pay the Government more than Alabama Power Co. would pay in cash (Mr. Bower) 631 Disadvantages of Alabama Power Co. proposal as compared with (Mr. Almon) 1015 Disadvantages of, as compared with Engstrum proposal (Mr. Butler) 989-993 Discussion of (Secretary of War's report) 3-9 Discussion of certain sections of (:Mr. Mayo) 2.59-261 Fertilizer can be furnished to farmer at one-half the present costs under (Mr. Bower) 623 92900—22 76 iH 1200 INDEX. n Proposals ^t Mr. Ford — Continued. Present, dated January 25, 1922 — Continued. Page. $5,000,000 offered for ])Iants compared with estimate of salvajje value made bj' Cliief of Ordnance 18 Gorgas-Warrior steam plant, necessary that it be incHuded in proposition (Mr. Worthington) 351 Gorgas-Wai'rior steam plant not necessary for operation of proj- ect (Colonel Joyes) 1075 Gorgas-Warrior steam plant should be eliminated from (Major Burns) 211-212 Government balance sheet of Muscle Shoals during construction and for tirst six years under (Mr. Mayo) 248 Government expenditures under, will amount to $1,275,000,000 (Mr. Cooper) 410 Indorsed by Alabama delegation in Congress as a unit (Mr. Almon) 1012 Indorsed by American Farm Bureau Federation 41-42 Indorsed by American Farm Bureau Federation, reasons stated (Mr. Bower) 615-632 Indorsed by American Farm Bureau Federation resolutions (Mr. Silver) 542-543 Indorsed by Farmers' Union by resolution (Mr. Bower) 630 Indorsed by Governor of Tennes.see 319-322 Indorsed by Mr. McDuffie, a Representative in Congi'ess from Alabama 1022 Indorsed by Mr. Worthington of the Tennessee River Improve- ment Association 355 Indorsed by petition of officials of Jefferson County, Ala. (Mr. Almon) 1017-1018 Indorsed by resolution adopted at a mass meeting of 5,000 citi- zens of Alabama (Mr. Oliver) 994-996 Indorserenee Exchange Club (Mr. Almon) 1015-1017 Indorsed by resolutions of Birmingham mass meeting (Mr. Almon) 1017 Indorsed by Senators from Alabama (Mr. Bankhead) 1018 Language of section 14. discussion of — Mr. Hill and Mr. Ma.vo .981 Mr. James and Mr. Mayo 977-978 Language of seoses to sell the surplus power at wholesale, and set aside 1 mill for each kilowatt-hour of ix)wer sold, to be paid into the Unitecl Stfites Treasury as rental for the lease of the property (Mr. Butler) 906,911 Rentals offered by Mr. Ford : Analysis of (Mr. Morin) 247 Dam Xo. 2, text of proposals 10,13-14 Dam Xo. 3, text of proposals 11, 14 Letter of January 11, 1922, modifying first offer, text of 13 (»s'ee r//«o Payments to the Goveinment: Under Ford Proposal.) Repairs, maintenance, and operation of dams and locks: Comparison of Alabama I'ower Co. prorK)sal with that of Mr. Ford (Mr. Martin) 851 Under Alabama Power Co. proposal ; text of proposal 776 Under Engstrum proposal : repairs necessary should the founda- tion of Dam Xo. 2 be found defective, to be paid for by the Gov- ernment, text of proposal 899 Under Ford proposal — Maintenance of dams (Mr. Miller and Mr. Mayo) 274 flight be more desirable to have Mr. Ford maintain Dams Nos. 2 and 3, and omit annual payments proposed (report of Sec- retary of War) 9 Payments si)ecitied, considered adequate by Chief of Engineers- 19 Text of first and present proposals 10, 11, 14 Research : Department of, for the development of processes for the fixation of atmospheric nitrogen ; text of Engstrum proposal 897 Determination by, whether there may be produced fertilizer com- pounds of higher grade and cheaper prices ; text of Ford proposal- 12 Free power furnished for ; text of Alabama Power Co. proposal 775 Right of way for transmission line: Alabamji Power Co. paid about $40,000 to $50,000 for additional right of way acquired (Mr. Martin) 684 Contract with Alabama Power Co., text of . 150-171 Revised Statutes, 3736. prevented Ordnance Department from buying land at time contract was made with Alabama Power Co. (Colonel Joyes) 1050 River and harbor improvements: Government does not receive interest for investments in (Mr. Quia and Mr. Worthington) 391-392 Statement showing actual total expenditures for, from the fiscal year ended June 30, 1896, to the fiscal year ended June 30, 1920, inclu- sive (statement compiled by J. H. McGann, clerk of the Committee on Rivers and Harbors) 391 Rivers : Canadian, western United States, and foreign, discussion of (Mr. Parker and Mr. Frothinghara) 960-963 Principal power-producing streams of Georgia, discussion of (Mr. Wright and Mr. Frothingham) 963-964 Roosevelt, Theodore, statement in Outlook of October 12, 1912, regard- ing soil fertility (Mr. Bower) 616-617,630 Royalties : Contract with American Cyanamid Co., text of 147-148 . Payable to Air Nitrates Corporation (Mr. Weeks) 44 Payable to Air Reduction Co. — Mr. Weeks 44, 47 Table showing 556 Payable to American Cyanamid Co. — Mr. Weeks 4T If Mr. Ford's offer is accepted (Mr. Miller and Mr. Hammitt) 477-479 Table showing 556 Payable to General Chemical Co. (Mr. Weeks) 44 Sale of plants, article 19 of contract with Air Nitrates Corporation, text of 142 INDEX. 1203 Salvage estimates: Page. Nitro, W. Va., smokeless powder plant, compared with sale price (Major General Williams) 86 Old Hickory plant, compared with sale price (Major General Wil- liams) 86 Salvage to Government from war-time investments compared with Ford offer, table showing (Mr, Almon) 1004 Salvage value of plants. {See Estimates: Salvage value.) Savings to the Government. (See Estimates: Savings to the Govern- ment) Scrap, valuation of plants as, estimated by Chief of Ordnance 18 Searles Lake, in San Bernardino County, Calif., two potash plants in vi- cinity of (Mr. MacDowell) 540 Secretary of Agriculture would fix the price of nitrates to be sold under Engstrum proposal, and also the amount of nitrates and commercial fertilizer to be offered for sale (Mr. Butler) 905,906 Secretary of War: Mr. Baker, report of, dated June 28, 1916, relative to Muscle Shoals situation 4 Mr. Weeks — Letter of February 21, 1922, from, transmitting proposal of Ala- bama Power Co. to Congress, text of 772-773 Report of, dated February 1, 1922, discussing Mr. Ford's pro- posals 3-25 Shipbuilding, Mr. Engstrum has had two contracts with the Quartermas- ter's Department for (Mr. Engstrum) 937,938 Shipping facilities in relation to Muscle Shoals proposition (Mr. Mac- Dowell ) 532 Silver, Gray, Washington representative of American Farm Bureau Fed- eration, statement 542-615, 988^989 Sinking fund: Amount paid to Government during lifetime of lease, under Ford proposal, discussion of (Mr. Miller and Mr. IMayo) 310-311 Comment on plan by Chief of Engineers 19 Cost of Dams Nos. 2 and 3 will be wiped out by, if invested by Gov- ernment at 4^ per cent (Mr. Mayo) 247 Discussion of Ford proposal for (J^Ir. Worthington and Mr. Miller) 373-374,377 Table illustrating decrease in net investment of Government due to operation of a sinking fund (Mr. Mayo) 299 Table showing amount retiretl by Mr. Ford's, at various rates of interest, compounded semiannually (Secretary of War's report) 7 Will finally wipe out entire cost to Government of completing project (Mr. Mayo) _* 099 Soil fertility : Future of Nation depends upon maintenance and continuance of (Mr. Bower) 610 Statement of Theodore Roosevelt in Outlook of October 12. 1912. regarding (Mr. Bower) 616-617,630 Soils, Bureau of: Letter of August 14, 1922, in regard to the fertilizer industrv, text of 3.36-343 Statement of Dr. Whitney, Chief of 322-349 Southeastern power companies, letter of May 20, 1921, from ; inadvisable for Government to develop Muscle Shoals 118-121 Southern Cotton Oil Co., largest cottonseed-meal producer in the South, owned by Virginia-Carolina Chemical Co. (Mr. Bower) 023 Southern Power Co. : Letter of .Tune 24. 1921, from ; inadvisable for Government to develop Muscle Shoals 115-117 Muscle Shoals has become very valuable in the estimation of the, since Mr, Ford made his offer (Mr. Almon) IO03 Stated they would not be interested in taking the power, but strongly condemned the Muscle Shoals project (Mr. Almon) 1003 Sperling & Co., securities of American Cyanamid Co. have been handled by (Mr. Hammitt) 486 Statements. {See Tables.) 1204 INDEX. INDEX. 1205 * Page. Steam plants. {See Gorjjas-Warrior steam plant, and Power plants.) Stone & Webster (Inc.) bydroelettric plants (Api)en(lix A) 1146 Subsidy : American Cyanamid Co.. wbicb denounces Ford proiiosition as a sub- sidy at 4 per cent interest, asked for identical tbing at 3 per cent in 1916 (Mr. Bower) 623 Enffstrum proposal does not ask for a subsidy from tbe Government ; a part of tbe profits from sale of power will be used to subsidize tbe niakinj? of nitrates (Mr. Butler) 905-906,929 If nitrate plant No. 2 can not be operated at a profit, tben no subsidy is involved in selling plants to Mr. Ford for .$5,000,000 (Mr. Bower) _ 632 Nitrate plant No. 2 can not be operated connnerciallv witbout (Mr. Hammitt) 456 To ^Ir. Ford- Opposed by Mr. Hammitt, of tbe American Cyanamid Co 4i58 Proiwsed development is not a subsidy (Mr. Silver) .573,579-580 Word might be applied to war material sold by tbe Government, argu- ment developed showing (Mr. Fields and Mr. Silver) 606 Word not applicable to proposition (Mr. Hull) 458 Sullivan & Cromwell, law firm, represented American Cyanamid Co. in contract matters (Mr. Hammitt) 488, 501 Sulphate of annnonia.' (f^ee Ammonium sulphate.) Sulpliuric acid, equipment for production of, shipped to Muscle Shoals from former Government plant at NashviUo 548 Swann. Theodore, president Federal Phosphorus Co., statement 431-442 Synthetic ammonia process : Fixed nitrogen which is to be made in the future is going to be made by a, simply for the reason that there is no other process in the world that can compete with It commercially (Dr. Parsons) 1124 Synthetic process of the General Chemical Co., was used at nitrate plant No. 1. (Mr. Almon) 1002 Tables : Alabama Power Co. rates for electric current at Huntsville, Ala., in effect January 1. 1922 (Mr. Worthington) 363 Amount retired by Mr. Ford's sinking fund at various rates of interest, compounded semiannually (Secretary of War's report). 7 Analvsis of Mr. Morin's statement of non-interest-bearing charges onDam No. 2 (Mr. Mayo) 249 Annual cash saving to Government by acceptance of Ford offer (Mr. Almon) 1005 Average increase per acre of all fertilizer experiments in the United States published up to 1910, with the number of experiments re- ported up to that time 345 Carrying charges on construction of dams (memorandum of Chief of' Engineers) 20 Comparative prices of nitrogen compounds 1 556 Consumption of fertilizers in the United States, fiscal years end- ing 1913 to 1920. (From American Fertilizer Handbook for 3921) (Mr. Mayo) 292 Core recovery at dam sites 114 Cost statement of United States nitrate plants Nos. 1 and 2 and Warrior-Sheffield power station and transmis.sion line (mem- orandum of Chief of Ordnance) 21-22 Cost to Government of the delay in accepting Ford offer (Mr. Almon) _ 1005 Costs and estimates of nitrate plants Nos. 1 and 2 (report of Muscle Shoals Committee of American Farm Bureau Federation) 551 Costs and estimates of the Wilson Dam (Dam No. 2) (Report of Muscle Shoals Committee of American Farm Bureau Federa- tion) 551-.552 Detailed estimate of cost of sulphate of annnonia and nitrate of nmnvonia at United States nitrate plant No. 2 (Major General AVilliams) 97 Electric light and i)ower security issues in 1921 .356 KIstimnte of results of operation by Government of I'nited States nitrate plant No. 2 for period of 6 years (Major General Williams). 84-85 Tables— Continued. '*«f*- Estimated cost (exclusive of interest charges) of producing phos- phoric acid by the electric-furnace method, assuming ix>wer at $25 per horsepower year 554 p:stimated salvage value of ordnance property in tbe State of Ala- bama (memorandum of Chief of Ordnance) 18 Estimated supply and c*ity of use at le."st ui) to the present practice in <}eor.L'ia_ 840-341 Water power at Muscle Shoals 555 World capacity of air nitrogen plants (Mr. Mayo) 250 World's production of mixed inorganic nitrogen 556 1206 INDEX. ^ Pago. Taylor, Hon. A. A., Governor of the State of Tennesssee ; statement— 319-322 Tennessee Power Co. : Intercorporate relations with American Cyanamid Co.; no connec- tion between companies (Mr. Hammitt) 486 Letter of May 20, 1921, from ; inadvisable for Government to develop Muscle Shoals 118-121 Tennessee River: Cost of making, navigable over Muscle Shoals, if dams are not con- structed, estimated at something over $8,000,000 (Major General Beach) 122 Erratic flow of, reason stated (Mr. Frothingham) 965 Extreme minimum flow of, 7,000 second-feet CMr. Frothingham)— 947,954 Greatest vahie in. may only be realized by tying together by trans- mission lines the capacities of the Coosa and Tallapoosa Rivers (Mr. Frothingham) 948 Hydrographs of, at Florence, Ala 118,119 Is in itself, as an independently power-producing stream, disappoint- ing and of very little availability (Mr. Frothingham) 948 Is the greatest water power in the Southeast only if coordinate*! with the other power and storage reservoir possibilities in the vicinity, otherwise it is of comparatively little value (Mr. Frothingham) 962-963, 965 Navigability of — General Beach 122,129 Hon. A. A. Tayh»r .S20. 321-322 Mr. Worthington 370-371,404 Navigation of. w