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Full text of "Muscle Shoals propositions [microform]. Hearings before the Committee on Military Affairs, House of Representatives, Sixty-seventh Congress, second session. Thursday, February 9, 1922, to Monday, March 13, 1922"

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Author: 



U.S. Congress. House 



Title: 



Muscle Shoals 
propositions 

Place: 

Washington, D.C 

Date: 

1922 



•« 



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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 ^. 




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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.-'<? 






Almoii, Hoi). E.hvar.l B., Representative in Congress from Alabama. 741-742! 
Bankheail, Hon. William B., Representative in Ck)ngress from Alabam!if^^l018- 

Beach, ^lajOn. Lansing H., Cliief of Engineers.... 19-21 Qjim 

Booton. Maj. John G.. in charge of contract sect ion; 'drdnVnVe Depart 



meut 



885-889 



19-21 



895-900, 935-939 
1146 



^Fldenft'ion" ^^"'^^^'^"^ ''^ Washinitoi7office~~oY AmVr"icai7iSi7n7Biire^ 

Burns, Maj. JrH76r7n7n7e" Departmen7.7.77 7^71 ootI^S 

Butler, Hon. Marion, attorney for Mr. Engstrum::::." "900-935' 989-99^ 

S^;- 1^:^^^^^^- Alaham7i^er7o7S5, ^g; K^ 
Engstrum, Frederick E., president of the Newport" Sh7p7uikling"co7po7a 

Amended proposal IIIIII777 II 

Ford, Henry: " — 

First proposal of, July 8, 1921 .^lo 

Letter of January 11, 1922 ~_~_~_ \^ 

Present proposal of Januarv 25, 1922 10 17 

Frothingham, Francis E., of Coflin & Burrl'BoVtonl m7s7 "947-909 

HnnrS' T- 1?' 7*^«/P^^«i^ent Air Nitrates CoiporationI ^3_??2 

Hull, Col John A., Acting Judge Advocate General m oon 

Joyes, Col. J. W., Ordnance Department... Tnq?!7^?? 

Judge Advocate General's office, memorand7m ooli? 

r.evermg, J. H., civil engin^r . ~mt^l% 

Mcn^ffir w '^^'^T ^^' ^o' president National Fert7Hz7r7\ssocMon""" ^^^ 
mISv F^^D -^^J"' «^P.rf entative in Congress from Alabama III-Jo21^o1S 

Mayo,^ William B., chief engineer^^Se^^o^d"^^^^^^^^^ 

Oliver, Hon. Willi7m"B7 Rerrese7ta7i7e"]n"57ng7^7"^^^^^^^^ 

Ordnance. Chief of, memoranda.... 8.33-836. 994-1002 

Parsons, Dr. Charles L., consulting ch^mi'stllll iiiViiI? 

Secretary of War's report to Congress.. ~_~_ ^^^^^™ 

eratio^''^^' Washington representative of American FarnrBurea^Feif- "' 

laMor, Hon. A. A., Governor of the State of Tennessee HlS-l^ 

;'&i^?r/wf„iZ^-'- ^"^ ^"™-' Res.r.e.-La¥o7aTo-r,r^-- 
Weeks, Hon. John W., Secretary of Warllllll qlof S^r 

';^tney. Dr. Milton, Chief Bureau of Soils, Dep7r7me7t" of" Agric"ul 

Williams. Maj7G7n7crd7chieroY^^^^^^^ 17-19 "21-29^67^00 
nel^ill^i''"' •^T^^'" chairman of the executive committee" of the Tet 
nessee River Improvement Association --____ 351-408 

III 



\ 



MUSCLE SHOALS PROPOSITIONS. 



I 



Committee on Military Affairs, 

House of Representatives, 

Wednesday, February 8, 1922, 
The committee met at 10.30 o'clock a. m., Hon. Julius Kahn (chainnan) presidinc^. 
ihe \hairman. Thi5 meeting has been called for the purpose of taking up the 
proposal of Henry Ford which the Secretary of War has submitted to Congress. Mr. 
i^ord s proposal is m writing. He has sent a copy to every Member, I understand, 
and his secretary has also sent me a telegram stating that he was sending 25 additional 
copies, so that each member of the committee assuredly will have a copy before him. 
If there is no objection, we will print as a part of this hearing the report of the Secre- 
tary ot War submitted to Congress in House Document No. 167, Sixth-seventh Con- 
gress, second session, as follows: 

[House Document No. 167. Sixty-seventh Congress, second session.] 

War Department, 
Washington, February 1, 1922. 
The Speaker of the House of Representatives. 

Sir: Soon after I assumed the duties of Secretary of War, suggestions were made to 
me by those intere^sted in the development of the power plant and navigation at 
Muscle bhoals that I should recommend to Congress that an appropriation be made to 
complete Dam No. 2 (Wilson Dam). In response to such suggestions I stated that 
when a proposal was made which would assure the Government a reasonable return 
on at least the additional money rec|uired to complete the project, and an effective 
use of the^development for commercial purposes, I would send it to Congress, as the 
power to dispose of these plants is vested in that branch of the Government, 
nu- ^^M^^' J^^^' ^" consequence of this statement and of some negotiations with the 
iJiief of Engineers, United States Army, Mr. Henrv Ford presented a proposal in 
writing, in which he offered a fixed annual rental of $1,200,000 for Dam No. 2 and its 
power plant and appurtenances, such rental to commence six vears after the installa- 
tion of equipment capable of producing 100,000 horsepower, and a rental of $200 000 
to be paid annually during the first six years of the lease. On proposed Dam No 3 
He offered a fixed annual rental of $480,000 commencing three years after 80 000 horse- 
power should be developed, and $160,000 per annum for the first three years of the 
leas^ period. Provision was made for certain upkeep charges and payments to be 
SS AAA T^l^ * sinking fund estimated as suflScient to amortize approximately $48,- 
wo,000 of the cost of the dams. Under this proposal the United States was to under- 
take the completion of Dam No. 2 and the construction of Dam No. 3. This offer 
was conditioned upon the United States selling to Mr. Ford nitrate plants No. 1 and 
i^o. J, the Waco quarry and its equipment, and the Gorgas-Warrior steam plant and 
trajMmission line and appurtenances, all for the price of $5,000,000. 

The coat of completing the two dams is estimated by the Chief of Engineers to be 
at this time, in round figures, $50,000,000. Consequently I did not believe that the 
prOT>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 
ri<rhts necessarv for Dam No. 3). The rentals at 4 per cent are to commence, respec- 
tively in six years after Dam No. 2 has been completed to the point where equipmeiit 
for 100 000 horsepower is installed and ready for service, and three years after the 
equipment to develop 80,000 horsepower is installed and ready for service at Dam 
No. 3. In the meantime, during the six-year and three-year periods, respectively, 
he offers to pay upon Dam No. 2 an annual rental of $200,000 and on Dam No. 3 
$l()0 000. His offer places upon the United States the responsibihty for repair and 
maintenance of the two dams other than the power houses, which power houses and 
electrical equipment he agrees to maintain at his own expense m efficient operating 

^^As^ompensation to the United States for the repair and upkeep of Dam No. 2 a nd 
locks, he offers to pay the sum of $35,000 annually, and of Dam No. 3 and lock, the 
sum of $20,000 annuallv He also agrees to furnish electricity for operating the locJcs 
at each of these dams without charge to the Government, and m addition he agrees 
to pay the sum of $23,373 semiannually for the purpose of building up a sinking tund 
to return to the United States at the end of the lease period a sum ofmoney which 
he estimates, if invested at 4 per cent, will be approximately $49,000 000. As a con- 
dition of this offer he asks that the United States sell to him nitrate plants Nos. 1 and 
2 the Waco quarry, and the Gorgas-Warrior steam plant, with all appurtenances, tor 
the sum of $5.000;000, payable $1,000,000 down and the balance in annual install- 
ments of $1,000,000 each, with 5 per cent interest on deferred payments. As a turther 
consideration to the Government he agrees to operate nitrate plant No. 2 at the approx- 
imate present annual capacity of its machinery and equipment in the production of 
nitrogen and other fertilizer compounds throughout the lease period, and to maintain 
it in its present state of readiness, or its equivalent, for immediate operation m the 
manufacture of materials necessarv in time of war for the production of explosives 
He further agrees that the fertilizer produced at nitrate plant No 2 shall not be sold 
at a profit in excess of 8 per cent of the actual annual cost of production thereof, and 
to turn over to the United States nitrate plant No. 2 whenever it shall be required 
for the national defense. He likewise asks for a preference m opportunity to purchase 
or lease the property at the end of the lease period and for the right, for a period not 
stated to be supplied with electric power at reasonable rates in an amount equal to 
his average consumption during the previous 10 years in case the plant is operated 
and his company does not purchase or lease it. He also states that his proposal must 
be accepted as a whole and not in part. ,, t^ j • 

In order that you mav the more readily understand lust what Mr. Pord is proposing 
to buy and to lease, I shall state briefly what has occurred in connection with Govern- 
ment developments at Muscle Shoals, and the character of the Government-owned 

^^wftliout going into the preliminary history in connection with the proposals for 
the development and improvement of the Tennessee River, which might, if neces- 
sary, be traced to the vear 1827, it is deemed sufficient for present purposes to invite 
attention to the letter over the signature of the Secretary of War, dated June 28, 
1916 and printed as House Document No. 1262, Sixty-fourth Congress, first session, 
transmitting, with a letter from the Chief of Engineers, reports on preliminary exami- 
nation and survey of Tennessee River between Browns Island and the railroad bridge 
below the city of Florence, wherein is contained a full discussion oi Dam No. 2 now 
known as the Wilson Dam, and the proposed Dam No. 3. referred to by Mr. l^ord, but 
as TO which no construction work has yet been undertaken. The commencement ot 
construction work on the Dam No. 2 resulted from the authority contained in section 
124 of the national defense act of June 3, 1916 (39 Stat., 166, 215), under which the 
President, in a letter dated February 23, 1918, authorised the construction ot said 
dam as a result of which allotments have been made at various times amounting to 
$17 159,610.42 for its construction. The total expenditures on Dam No. 2 have been 
$16 251038 14- the greater part of the balance unexpended will be required to meet 
payments on contracts for power machinery for the dam. A large construction camp 
has been built, a railroad track laid to the site, complete construction plant assem- 
bled, and the dam itself approximately 30 per cent conipleted. 

Dam No. 2, when completed, will have a total length of 4,267 teet, of which 2,890 
feet is a spillway section, 1,221 feet will be the power-house section, and i&b feet 
abutments and approaches. The height of the dam above present low water is 95 
feet, including crest gates 18 feet in height. The total height from tlie bottom ot 
the excavation for the foundations to the roadway on top of the dam will be 132 teet. 
There have been no expenditures on Dam No. 3. which is located 14.7 miles upstream 



from Dam No. 2. Dam No. 2, when constructed, will render 14.7 miles of Muscle 
Shoals navigable, while Dam No. 3 will overflow the remaining portion of the rapids 
and will improve conditions of navigation for a distance of 63 additional miles. The 
present estimates of the Engineer Department for the completion of both Dam No. 2 
and Dam No. 3 is $50,000,000. Engineers for Mr. Ford have presented a lower esti- 
mate, but Mr. Ford has not seen fit to guarantee the construction for this lower figure. 

Situated about 6 miles southwest from Dam No. 2, at Sheffield, Culbert County, 
Ala., adjacent to the city and along the Tennessee River, is United States nitrate 
plant No. 1, constructed by the United States during the war under an agreement 
with the General Chemical Co., approved by the Secretary of War on June 14, 1917, 
for use of its process, and at a total cost of $12,887,941.31. The plant was built under 
the supervision of the Ordnance Department of the Army to produce 22,000 tons of 
ammonium nitrate per annum, using the direct synthetic ammonia (Haber process) 
of the General Chemical Co. The details of the process were not sufficiently perfected, 
however, and the plant proved unsuccessful in a test operation. The construction 
of the plant was started from an appropriation contained in the national defense act 
of June 3, 1916, and completed from appropriations made for the national security 
and defense, armament of fortifications and ordnance service. The total acreage of 
land embraced within the plant site is approximately 19,000 acres. The plant is 
now in an idle, stand-by condition, with part of the land leased for farm purposes. 
The cost of maintenance during the fiscal year 1921 was $75,506.42. 

At Muscle Shoals, Culbert County, Ala., 4 miles northeast of nitrate plant No. 1, 
and 2 miles distant from Dam No. 2, is located United States nitrate plant No. 2. 
This plant was constructed under contract with the Air Nitrates Corporation for the 
production of munitions of war under contract dated and executed June 8, 1918, at a 
total expense, including Waco quarry, of $67,555,355.09. The plant was built for 
an estimated capacitv of 110,000 tons of ammonium nitrate per annum, using the 
cyanamid process of the American Cyanamid Co. The plant was successful in a two- 
weeks test operation with one-fifth of the plant in use, during which time 1,700 tons 
of ammonium nitrate were produced, as well as 2,200 tons of cyanamid not converted. 
The cost of building said plant was paid for out of the appropriations for armament 
of fortifications and ordnance service. The plant site, not including Waco quarry, 
embraces 2,306 acres, acquired at a cost of $237,711. The plant is now in an idle 
stand-by condition, except the power plant located thereon, which was leased, 
together with a transmission line, to the Alabama Power Co., under the provisions 
of the act of July 28, 1892 (27 Stat., 321), bjr an instrument dated November 17, 1921, 
V!^*/®^°S^ole at any time. The cost of maintenance of said plant for the fiscal year 
1921, including Waco quarry, was $201,674.63. 

Situated about 20 miles south of plant No. 2 in Franklin County, and 5 miles south- 
east o^ Russellyille, Ala., is located what is knowTi as Waco quarrv, acquired by the 
L nited States in connection with the operation qi nitrate plant No. 2, embracing an 
area of 460 acres, acquired at a total cost of $52,962.88. This quarrv has a crushing 
plant sufficient to produce 2,000 tons of crushed and sized limestone per day. The 
total cost of said quarry, including buildings and plant, was $1,179,076.80, included 
however, as an element of the total cost of nitrate plant No. 2. The plant is now in an 
idle stand-by condition and a portion of the land is leased for farm purposes. 
_ Situated about 88 miles southeast of nitrate plant No. 2. in Walker County, Ala., 
i^ located what is known as the Government-owned Warrior steam plant at Gorgas. Ala! 
ims plant was constructed under contract with the Alabama Power Co., dated Decem- 
ber 1 1917, on land owned or acquired by the said company. It was built in the vicin- 

^*^QA AA^^i^M^^^^^ ^^*^ ^ ^®^ *^ "^^^^ ^^^^ ^^^®^^ ^^^^ ^^^ mines. It has a capacitv 
ot 30,000 kilowatts, and the electric power produced at said plant is carried over *a 
transmission hne extending a distance of about 88 miles to nitrate plant No 2 to fur- 
nish power for the operation of said plant. The total cost of the plant was $4,979,782.33. 
Jt was built and paid for from appropriations for armament of fortifications. This 
property is now being operated as a part of the Alabama Power Co. 's svstem on a rental 
oasis as provided for m the contract for the construction thereof, and during the cal- 
endar year 1921 netted the Government approximatelv $75,000. 

i^ome question was raised in my mind as to the binding effect of certain provisions 
appearing m the contract for the construction of nitrate plant No. 2 by the Air Nitrates 
corporation and in the contract for the construction of the Gorgas Warrior steam plant 
and transmission lines by the Alabama Power Co., which purported to give said com- 
panies options to purchase under certain conditions, but I have submitted these quoB- 
nons to the Acting Judge Advocate General who is of the opinion that at the time these 
^oniracts were made there was no authority to sell said properties, and hence no 
authority to give an option for the purchase of same. He holds that as the Constitu- 
tion vests m Congress the sole power to dispose of and make all needful rules and 



I 



6 



MtrSCLB SHOALS PROPOSITIONS. 



>i 



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 resour<es of the Nation and to wa? 
rant leasing to Mr. Ford Government property for so long a period at the ren aTpropoH 
If Mr Ford s proposal be accepted by Congress, I suggest that there should 1 e^r 
tarn modifications made to safeguard the Govlrnmint's interest. As hereto ore steted 

wnn^e ;S o,r' '"""^^*' '^^'' '''' ^""'^"^'^^ ^"^^^^ ''y ''^' proposed com^^^^^^ 

DlmKn'fT^f^f the cost Of acquiring the lands and flowa^e rights necessary for 
Dam ^o. 3 should I e included in the sum upon which Mr Ford is t^ nav 4 rTr L^f 
interest as rent. The omission of the cost of these lands from tMs compi^&\il,^Ts n o?e 
serious than would be the omission of the provision for a sinking funcf for he annual 
nterest of 4 per cent on the cost of such lands and rights, if used for that nurn^^^^^^ 
pr'oposaL ''''^ ' '^"' '""'^ ^^'''' *^"" '^"^ P^^^^^^ ^«' ^^ parag^h 10 of L"^^^^^^^^^^^ 
ihi^ T^ the proposed company sells any or all power dexeloped at either or both of 

Xnl T' '' ' n^"^"^ ^-^ ^"^"^^"^. ^« i^ «« "^^^r ^^r"^« ^"^ conditions hnposed bv the 
federal Power Commission or the Public Service Commission of Ala! «rna i^ fH 
manner required of other power companies ommission of Alal ama, in the 

formInT '* >TJ^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<?.r°^i<^ally accomplished for otESries ^ 
for immpS*^'° nitrate plant No. 2 in its present state of readiness or fte equivalent 
^e^^n^LTef^^i^es""' "^'^^'^^'^ ^' -^^^als necessary 'in tSTaX 

wilLu^^xctssite^L^^^^^ "^^y ^^ '"PP"?^ \^*^ fertilizers at fair prices and 

oui excessive profits, the company agrees that the maximum net profit which it 

92900—22 2 



16 



MUSCLE SHOALS PROPOSITIONS. 



shall make in the manufacture and sale of fertilizer products at nitrate plant No. 2 
shall not exceed eight per cent (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 (9) voting members, chosen as follows: The 
three (3) leading representative farm organizations, national in fact, namely: The 
American Farm Bureau Federation, The National Grange, The Farmers Educational 
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 member- 
ship on this board not more than seven (7) of these candidates, selected to give repre- 
sentation 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, Depart- 
ment 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 eight 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 
distribution 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 disagree- 
ment shall be referred to the Federal Trade Commission (or its legal successor) for 
arbitration and settlement, and the decision of said commission in such cases shall be 
final and binding upon the board. 

16. Whenever, in the national defense, the United States shall require all or any part 
of the operating facilities at nitrate plant No. 2 for the production of materials neces- 
sary in the manufacture of explosives or other war materials, then the United States 
shall have the immediate right, upon five days' notice to the company, to take over and 
operate the same, and the company will supply the United States with hydroelectric 
power necessary for such operations, together with the use of all patented proressei 
which the United States may need which the company owns or has the right to use;. 
When required for national defense any of the company's personnel and operating 
organization necessary for operating any part of nitrate plant No. 2 in the manufacture 
of materials for explosives, or other war materials, shall be at the disposal of the United 
States. For the facilities and services aforesaid the United States shall protect the 
company from losses occasioned by such use and shall return the said property in as 
good condition as when received and reasonably compensate the company for the use 
thereof. All duly authorized agents and representatives of the United States shall 
have free access at all reasonable times 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 use the information and the 
facts concerning any of the company's operations except for the benefit and protection 
of the United States. 

17. In order that said company may be supplied with electric power and the farmers 
with fertilizers after the termination of the said one-hundred-year leases, should the 
United States elect not to operate said power plants but determine to lease or dispose 
of same, the company shall have the preferred 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, any operation or disposal theieof shall not deprive the com- 
pany, its successor or assigns, of the right to be supplied with electric power at reason- 
able 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. 

18. As a method of procedure in the event of the violation of any of the terms of 
this proposal or any contracts made in furtherance of its terms, the company agrees 
that the Attorney General may upon the request of l^e Secretary of War institute pro- 
ceedings in equity in the District Court of the United States for the Northern District 
of Alabama for the purpose of canceling and terminating the lease of Dam No. 2 or 
Dam No. 3, or both of them, because of such violation or for the purpose of remedying 
or correcting by injunction, mandamus, or other process any act of commission or 
omission in violation of the terms of this proposal or any contract made in furtherance 
thereof. 

19. The above proposals are submitted for acceptance as a whole and not in part- 
Upon acceptance, the promises, undertakings, and obligations shall be binding upon 
the United States, and jointly and severally upon the undersigned, his heirs, repre- 
sentatives, and assigns, and the company, its successors and assigns; and all the neces- 



MUSCLE SHOALS PROPOSITIONS. 



17 



jary contracts, leases deeds, and other instruments necessary or appropriate to effec 
tuate the purposes of this proposal shall be duly executed a nfdKed bv the 
respective parties above mentioned ^^"•-^u dua ueiiverea by tne 

u^^ri922^ ^""^ ''^°'^ ^^ "^^ ^* Dearborn, Michigan, this twenty-fifth day of Jan- 

Witness: ' Henry Ford. 

W. B. Mayo. 



Exhibit D. 

War Department, 
Office of the Chief op Ordnance, 

Memorandum for the Secretary of War- Jammr;^ 28, m2. 

Subject: Analysis of the Ford offer for the Muscle Shoals projects in so far as it npr 
tams to the interests of the Ordnance Department. P^^^^^^^' ^^ ^ ^^ as it per- 

1. In compliance with your instructions of the 26th instant the OrdnanoA Dor^ort 

nitrogen preparedness 

Urdted States Nitrate Plant No. 1~Arliclp 11 (h\ >' * * * 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<?^'elopment and not leave a large amount of monev that would 
have to be provided by Confess on which there would be no return, either in principal 
or m interest. He submitted the letter, which is in the record, which brieSy states 

after a'l^pse'o^ix^^^^^^^^^ ^" *^^ ^"*^" ^'^^^^^^^^ -^* ^' ^^^ --P^^*-- -^ ^L dam 

lasYoff^f w nn*iw?;^«7l^'' engineers went to him, and they did incorporate i:. his 
last offer not only this letter, but a good many other things that had been under 
f « ?n??Q Tl ^TT^l^^ in controversy, particularly relating to paragraphs 16 17 

Vv^niV^ M^ ^^^ff.' \^^S^/ ^^ i^«^«*^d' ^ ^^^ a« I ^oSld, should be done ' 
Evidently, Mr. Ford after he left my office changed his mind regarding the points 

Irlcp'iJ'T"*^' •^'^iP"* 1*^^^ V^ *^^ ^«^^' ^^^ that makes, in mYopMon a^very 

tTe npiwn^^ ''' *5^ "^^l"! ?* *\^ ^^^'. ^''^^ *h^ standpoint of the^Govemment and 
the people concerned. That is substantially the history of the matter, Mr. Chainnan 
I have two propositions in my office, one of which is not completed, as T unde^nd" 

com^fttee'^sfthfe^' ^" ''T ^^^^\^y ^^"V,^^.^^ brought^o the attention oHhe 
8t«Worff / that the committee will have all the information. I have a verbal 
ThS n!^- T ^°''*^^' responsible company relating to the completion of Dam \o ? 
GovPr^nT?i''y^^'.S?°'P^^y ""'^^^^ complete the dam at its own expense, furnishing the 
SuTfavlble I?t IT' ^' ^* P^^<i^d for nitrate purposed, under terms ^hich 
others h« v2 w o A ''*'* ^^ wntmg, and I simply mention it to indicate that 
oiners Have been and are considenng this proposition. 

of npnrSL^'.^'f'?i5*''^ ^"^ ^^'.^ "^^""^^ "^^"^^ i^ the belief on the part of a great number 
obtS ^^V^!^ ^'^ ?^?^^ ^ °^^^i^ ^^"^^^^ ^t a lower cost than has heretofore 
thiT!hn.J.^^^^ no opinion to express on that subject because I do not know anv^ 
in tfp H^rt ^^^ manufacture of fertilizer. I think ^t. Ford himself is rathe? grop?n- 
hp hL^^^ ^"^ "^h^t th^ ^®^^lt« of ^"^ enterprise may be. I judc^e that not bvwW 
tehet^ ^'' ?" ?^^^ ^^"* ^'' ^'^«^^ thi^^ks he cin cai^y out th^^ 
tilizer a^H ?t '^"^^,^- If \t yere not for the possibility of the manufacture of feJ? 

b&cepte^ lThttTt'?« «if " l""^' V"i??^y '^?'^ ^^^"1^ '^«"lt from thi^ offer 
velon t W ^.7 I- ^ ^* if ^^J.^ t? ^y th^t BS good an offer could be obtained to de- 
No 3 fnr L^ ""T'^f ° ^ ^^l- ^^^^'^- There would be no reason for bSldin- Dam 
^No. 3, for example, for any other purpose than to carry out his proposed p?o ec?" 






28 



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MUSCLE SHOALS PROPOSITIONS. 



29 



Just what he intends to do with the power that is to be developed, I do not know. 
Incidentally, I did put a provision in my statement that the power should be dis- 
posed of if sold, under the same conditions as the power of other companies, either 
under the direction of the Federal Water Power Board or the public service com- 
mission of Alabama, but except for the carrying out of his plans, at this time there 
would be no reason for the construction of Dam No. 3. 

The Chairman. How much would it cost to construct that dam? ^ 

Secretary Weeks. There are various estimates. I think probably the estimates 
vary from forty to fifty miUion dollars for the completion of both dams and equip- 
ping them. I have left a pretty wide latitude there. I think the engineers of the 
War Department, in order to be safe, have probably put the cost higher than it will 
be. It depends somewhat about Dam No. 3 on the foundations The committee 
will understand that the rock in that section is very porous. It is difficult to be sure 
that you have got a firm, solid foundation. I think they are sure as far as the Wilson 
Dam is concerned. That foundation, and what has been done, looks as substantial 
as the Rock of Ages, but there was a development at what is known as Hale s Bar 
on the Tennessee River, not far from there, where it was originally anticipated that 
$3,000,000 would be expended, and $11,000,000, as I recall, was expended before 
the dam was completed. There were caves and holes and all that sort of thing under 
the dam which had to be filled in at very great expense. The foundations of Dam 
No 3 have not been as clearly determined as engineers would like before they say 
the final word, and that is one reason for the variation in the estimate for the con- 
struction of these dams. If there is no material fault in the foundations, my judg- 
ment is that these dams would be completed and equipped for between forty and 
forty-five million dollars. If there is material fault found there, which has to be 
corrected, I should think no one could say exactly how much it would cost. I am 
speaking, Mr. Chairman, as a layman now, rather familiar with the discussions that 
have taken place relating to the subject. x . *.o aaa aaa 

The Chairman. I think in Mr. Ford's offer he puts the probable cost at $42,000,000. 

Secretary Weeks. There have been contractors, who have tentatively looked over 
the proposition, and thev can determine pretty definitely about the completion of 
the Wilson Dam, but there are no specifications drawn yet relating to Dam No. 3. 
I think I am right about that, Gen. Beach? 

Gen. Beach. Yes, sir. . . ^ ^v, ^ n u 

Secretary Weeks. So no man can make an estunate yet of what the cost will oe. 
I think there is a pretty wide latitude there from forty to fifty million dollars, which 
would be pretty certain to cover the requirements. , t^ at o 

The Chairman. The $42,000,000, as I recall, was for the completion of Dam No. 2. 

Secretarv Weeks. Oh, you are mistaken. That would complete both dams. 
Incidentally, I think I am justified in saying that anv delay that has taken place on 
account of the n^otiations that have been going on has been entirely justified from 
the standpoint of probable cost. The estimates a year ago were substantially 
$10,000,000 higher than any one puts them to-day. The cost of constniction has 
very materially declined, and I think it is safe to say that the delay of a y^r m the 
completion of that dam will save whoever furnishes the money to complete the whole 
project from five to ten million dollars at least. 

The Chairman. Have you anvthing further to submit, Mr. Secretary? 

Secretary Weeks. I expressed a doubt, Mr. Chairman, a few minutes ago about the 
final results of the fertilizer development. Very largely the impetus for the comple- 
tion of this project came from those who believed that they were going to get fertilizer 
at a lower cost 

Mr Ford's modified offer in sections 17. 18 and 19, does give some assiurance that a 
real attempt will be made to do this. I say "some assurance," a great deal of assur- 
ance. It will be noted in his first offer, to which I made strong objections he stated 
he was going to form a company or a corporation for the purpose of carrying out this 
general proposition. There was no statement made of the amount of capital with 
which that company should be equipped or anything relating to Mr. Ford's con- 
nection with it. It did not seem to me that that was a sufficient assurance that the 
work would be carried out, at least, during the life of the contract, and Mr. Ford 
has partially remedied that by pro^iding that proceedings may be brought against 
him: that he and his estate, in other words, will back up this company. Now, 
just what those proceedings would am9unt to. in case he stopped manufacturing 
fertilizer, except a matter of damages against him or against the company which he 
forms, I am not verv clear, and I have not submitted to the law department of the 
War Department any question on that subject. That is somethihg that the com- 



because in my conversation with Mr FoM I e2?^« hi™ * ^ "^ ** agreement, 

kn^we what foCh&''^3irte^^3 bfli^i"* fTl^i?-^ .^T ""Y y^^' ""^ "<> -« 
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 jud<mient 
commUi 1 ^^"/"^ ""-^ !f ^ ''^'y ^ifl^^"^t °^^"er, because there are sevefal S»wer 
?hS?lfnl^?^'?,*'"v.^ '^ t^^* ^^\^'^^ ^^^^'^^ «f the country, and vou could efthH^ 

Mr Mm // r w ^^T I'' '?T' ^' ^^ '^'^ ^^^^^ ^^^ dispose of it. ^ 

that thp A^^K* S"* "n^^^stood that a rather peculiar situation obtained there and 
pan of thp i'f'^ ^"""^^'a^^u hacl practically a monopoly of transmission lines in that 
prohibUvel^xpenkte '' '^' construction of additional lines would be abnost 

ff^^^ftary Weeks. I do not think that is true, 
the Alfh^m^fp'^^® S^'^^'^i purchaser of this surplus hydroelectric power wouM be 

WHr^ w"""^^' ^?- ^n^.^ay^ ^t distributed ovpr its lines; is not that true^ 
anySyXl'^^^^^^ ^^^^^"^ ^^^^ ^^ -^^^ ^-^^^ it bXV than 

land w^reacauiLn'^nn^ with nitrate plant No. 1 that 19,000 acres of 

SecTetarv W^ito ^1 *M ^^f^Pu^""* l*^^^' '^ *^® °^^^^« ^^ ^hat tract of land. 
Mr Mtt 7v^ ? • ^^at^should have been 1,900 acres instead of 19,000. 

of 'land there ™ wondering how it happened that there should be 5J square miles 



44 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PBOPOSITIONS. 



45 



II 



Secretary Weeks. That is a misprint. * ♦* . *k« 

Mr Miller. Does the Government have any royalties to pav on anv patent to the 

General Chemical Co. as a royalty on their process for the manufacture of ammoniu.Q 

^^S^ecretarv Weeks. That is one of the agreements that is in controversy. That is a 
matter that came up for discussion this morning. The Air Nitrates Corporation I 
understand, is owned by the American Cyanamid Co. Are you talking about the 

^ MrM^I^Tlas'talking about the General Chemical Co. That relates to plant 

No. L , 1 >T 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 
<iuarrv we will give you what we have put into the Wilson Dam, which is |16,000 ,UUU, 
ii vou mil go on and complete the Wilson Dam and pay us the amount of rental at 4 
per cent on what has been put into it," the United States Govermnent would be ahead 
.on the deal; that is, it woidd be better for the Umted States Government than the 

^"^SeCTetaiy^WEEKS. I do not think it would be very much ahead, and 1 do not think 

it would be very much behind. . . , 

Mr. Miller. Then we are practically giving this proposition and hnancing it loi 

100 years at 4 per cent. 

Secretary Weeks. Yes; but you are getting your money back. 

Mr. Miller. We get om- money back at the end of 100 years, five generations on. 
-when we will all be dead and gone. , ,£^i. **• 

Secretary Weeks. You know that I want to get it back in half that time. 

Mr. Miller. Yes; I understand you favor 50 years. 

Secretary Weeks. May I call your attention to the fact that a navigation project is 
"being developed in connection with the development of the dam, and m connection 
with that navigation project the man who is making the development pays interest 

on the cost and returns the money. . . <, ., m -d • ,«r bp 

Mr. Miller. That is right, but would the navigation of the Tennessee River oe 

possible without the completion of the projected Dam No 1? Suppose we go aheao 

and build Dam No. 2, as Mr. Ford wants us to do, how about the navigation ot tne 

Tennessee River? _ ^ , ^ m i * ^ x-*, ^„^flv 

Secretary Weeks. I should have to ask Gen. Beach or Gen. Taylor to testify exacuy 

*^M^r. Miller. Is it your understanding that the Tennessee River will be rendered 
perfectly navigable without the construction of Dam No. 1? -r^ xt o ,it) 

Secretary Weeks. I do not think it can be. Of the expenditures on I>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? 

<lisposeofThr^Tan?: "' '^' ^^' "^ ""^''"^^ ^"'^ "'^^ until th?Government shaU 
Mr. Miller. I thank you, Mr. Secretary. I think that is all. 

and can1fp^if<SH ^l' ^^^Jf ^7' ^ understand that plant No. 2 is useful for war purposes 
ana can be used now with steam power and will be retained even if the dam k not 

^ecretary Weeks. Undoubtedly, 
from V^"^^^^^- Y?U5>oke of some royalties payable from that plant, but in reading 
nTstlte ^:CZ t'^. r.^ ^^^ ' -^^« ^ P-^^ -<i ^^e oth'er royaltie^ ^^d^l 

is «ie Aif^dSn Co"!^ ""^ *^^ ^'''^'''^'^ '' *^^ American Cyanamid Co., and the other 
Mr. Parker. You read one that received a royalty of 6 mills a Doiind 
Secretary Weeks. That is the American Cyanlmid Co ^ 

Spprff"^^^^- ^^® ^h?^^ licenses to the United States or to somebody else? 
Secretary Weeks. They are both made to the United States. ^ 
-^r. barker. Are they assignable, so that they would go to Mr Ford? 
92900—22 4 



48 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



49 



m 



Secretan- Weeks. That is a question that is somewhat debatable, 1 think. I would 
like to have you ask Gen. Hull, the Acting Judge Advocate General, about that 

subject. 
Mr. Parker. There is nothing in the proposal of Mr. Ford proposing to take over 

those licenses or anything of the sort. 
Secretar>^ 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- 

<Tors to the performance of a certain obligation, does it not^ . ^ ^ .^ ^n rin 

Secretary Week<. It agrees that the company that Mr. Ford is going to form will do 

* tfr WiTR7B\rii Yes Now, I have some serious doubts myself about the necessity 
of requiring Mr. Ford or whoever makes this application t<) secure the faithfu per- 
formance of his contract, but do you not think that section 19 which ^eafs as olb^^^^^ 
''the above proposal s-that includes 14 and all the other sections^are submitted foi 
accepLnce as Twhde and not in part. Upon acceptance the promises, undertakinas 
and obligations shall be binding upon the United States and jointly and severall} 
u^n thfundersigned, his heirs, representatives and assigns and the company , its 
s^cessors and assigns and all the necessary contracts, l^««',^f,f/' ^^^^^^^^^^^ 
ments necessary o? appropriate to effectuate the purposes ot this propo^l shall be 
dTuTy executed and delivJred by the respective parties above mentioned ''do you 
not think that that contemplates some further contract upon the part of the Govern- 
niPTit and also uDon the part of Henrv Ford to carry out these agreements. 

Secreta^ WEEK^Oh!^ un^^^^ there will have to be other contracts and 

jigreements relating to the details of this subject. 



Mr. Wurzbach. To carnr out the purposes of this proposal. 

Secretary Weeks. But I should not have raised the query in my comment if I had 
thought that that was entirely satisfactory from the Government's standpoint. 

Mr. Wurzbach. In other words, this proposal of Henry Ford is not supposed to be 
the final agreement that is to be entered into between Henry Ford and the Government 

Secretary Weeks. I do not think that he would be willing to say that there should 
be any essential change in this proposal. 

Mr. Wurzbach. But within the limits of this proposal, binding himself and his 
heirs and assigns, do you not think it was contemplated by Henry Ford that he would 
be willing to enter into other agreements, the details of which would be set out in the 

finalagreementtoprotecttheGovernmentinthefaithful performance of his agreement*^ 
Secretary Weeks. I should hope he would. 

Mr. Wurzbach. Do you not think that section 19 was contemplated by Henry Ford 
as leaving the way open to provide for the protection of the Government in the car- 
rying out of the obligations undertaken in this agreement? 

Secretary Weeks. Yes; but you must remember, Mr. Wurzbach, that Congress is 
going to accept or reject this proposal, and if Mr. Ford said that that was satisfactory- 
and that is what the Government had accepted, I do not see how he could be led into' 
doing something more than he has promised. I am not impugning Mr. Ford's good 
faith or hw intentions, but 100 years is a long time. You are dealing with a corpora- 
tion that has no fixed capital. You do not know anything about how long Mr Ford 
IS going to live, or what shape his estate will be in; not that it will not be solvent 
I do not mean to suggest that, but in what way it will be tied up, and the only recourse 
you have here is for the Attorney General to proceed against somebody for damaees 
Now, that IS a difficult matter to settle. 

Mr. Wurzbach. Do you not think there would be a natural disposition upon his 
part, in view of the fact that by the terms of section 19 he obligates and binds himself 
his heirs and assigns, to give some adequate protection to the Government to secure 
the faithful performance of this contract? 

Secretary Weeks. I should think there would be, but if I were making the contract 
and was responsible to the Government, I would have that guaranteed. 

Mr Wurzbach. Yes; I would, too. Of course, you understand that a proposal of 
this kind or a preliminary proposal in any kind of a contract could not go into the 
details of the entnre proposition . It would be a general proposition, would it not? 

Secretary Weeks. That question of a guaranty has been brought to Mr. Ford's 
attention. It is not in his offer. 

Mr. Wurzbach. This implies by its very terms that Mr. Ford intended to go into 

u m?**^ ? ^* *^® matter of protecting the (government because it reads: 
The above proposals are submitted for acceptance as a whole and not in part 
Upon acceptance, the promises, undertakings, and obligations shall be binding upon 
the United States and jointly and severally upon the undersigned, his heirs, repre- 
sentatives, and assigns, and the company, its successors and assigns; and all the 
necessary contracts, leases, deeds and other instruments necessary or appropriate to 
etfectuate the purposes of this proposal shall be duly executed and delivered by the 
respective parties above mentioned. " 

Secretary Weeks. Let me turn questioner for a moment, suppose you accepted this 
otter of Mr. Ford and then you wanted to put a guaranty in there, do you think vou 
would have any right to compel him to make a guaranty? 

Mr. Wurzbach. I think the plain implication of this proposition would be that the 
^jovernment would be entitled to protect itself in this contract. 

Secretary Weeks. I hope that is so. 

Mr. Wurzbach. Yes; I hope so, too, because I would not be in favor of it unless 
there was some secunty to the Government that these obligations that are undertaken 
in this proposal were secured to the Government, and I waa wondering whether that 
last section, section 19, did not provide for that very thing. 

Secretary Weeks. That is the reason I raised the query, to bring it to the attention 
ot the committee. 

Mr. Wurzbach. Yes; I understand. That is all. 
r .^J^® pHAiRMAN. At this point I will read into the record a telegram I had from Mr 
J^iebold, private secretary to Mr. Ford. I wired Mr. Liebold to say that the com- 
jnittee would begin its hearings to-day and that the Secretary of War would be before 
the committee the greater part of the day, but we would like to have Mr. Ford or hia 
representatives present. Mr. Liebold sent me this telegram: 

an!'^°^' *®^®^^"^ ®^®° ^^^^ received; at this date it is impossible for Mr. Ford to 
'irrange to appear before your committee on the date mentioned; if there is any special 
iniormation you desire can we not furnish same from here? 

''E.G. Liebold." 



52 MUSCLE SHOALS PROPOSITIONS. 

Washington, D. C, February 



MUSCLE SHOALS PROPOSITIONS. 



53 



on everything 



1922. 



Mr E G. LiEBOLD, ^. , 

mittee to treat Mr. F»i°'/'« '^P/u^Sf TeSe t« finish JKatt^r with as 
{SraeWrp'oSa:* *^o»r" ^^^d^^istp^ntativee come on the 9th, .0th. 
or nth? Julius Kahn, Chawnan. 

T have had no answer to that telegram. ^^„ij nvo +n ask Mr Secre- 

M?^WUKZBACH. There iB just one n>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^<i^««°/9.^^/^^Xm 
get his judgment on that subject. Just how valuable the judgment of either of them 
Is I would not undertake to say, but it would be a very bold man who would be 
willin<' to say there was not going to be any development in chemistry along those 
lines, and Mr. Ford may work out something of great benefit. ^w;^*^, 

Mr. Wright. That is why I have called attention to subparagraph A. Me obligate^ 
himself to make those experiments. „ .i. + ,.r^„i^ 

Secretary Weeks. YesT but the very fact that he calls them experiments would 
indicate that he is not certain about it. ,, ^,. , • *i,o* ,«attor'' 

Mr Wright. Do you happen to know what Mr. Edison's views are^on that matter^ 

Secretar>' 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<y\ ided, 
the United States shall convey all of its right, title, and interest in and to said proper- 
ties to the contractor. 

" (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 Warrior substation, the 
contractor may demand that the United States convey all of its right, title, and in- 
terest in and to said properties to the contractor and that it pay over to the contractor 
the excess, if any, of said fund over said cost, retaining the balance. The United 
States shall comply promptly with such demand. 

"(3) The contractor may also at any time demand that the United States convey 
to it all of the right, title, and interest of the United States in and to the Warrior exten- 
sion and 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. And upon payment to the United States of such 
excess the United States shall comply with said demand, retaining the whole of said 
accumulated fund. 

** (4) At any 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 
less than the actual cost to the United States of the W^arrior extension and Warrior 
substation, the contractor may demand that the value of said properties be fixed by 
arbitration; and 

**(a) If the value so fixed is equal to or less than the amount of such accumulated 
fund, then the United States shall convey to the contractor all of its right, title, and 
interest in and to said properties by proper instruments in writing within 60 days 
after notice of the award, retaining in payment the whole of said fund. 

"(b) 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 funS, or payment thereof being secured as hereinafter provided, convey all of 
its right, title, and interest in and to said properties to the contractor by proper instru- 
ments, in writing, within 60 days after notice of the award, retaining m 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 
not 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, 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 m the manner herein provided to the contractor or to another within the period 
of 10 years referred to in Article XV or (b), said properties not having been so sold, 
the United btates or it« said successor shall cease for 365 consecutive days to take any 
energy from the Warrior extension, the United States shall, upon six months' notice 
m 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) of this article. In the 
event of removal pursuant to such notice, the United States shall leave the premises 
in a ne^t 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 consecutive 
years fail to take energy from the Warrior extension, and in any event at the expira- 
tion of said period of 10 years, the United States shall, upon 6 months' written notice 
trom 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 any such notice the United States mav require the contractor to pur- 
ctiase all of its right, title, and interest in and to said transmission lines and their 
appurtenances at their fair value as fixed by arbitration. 

" (8) The contractor shall have a period of 5 years in which to make payment 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 m a manner satasfactorj^ to the Chief of Ordnance. During such period the 
contractor shall pay to the United States interest on deferred payments at the rate of 
b per cent per annum. At the request of the contractor said period shall be extended 
two and one-half y^rs, interest during such extended period to be at the rate of 6 per 
cent per annum. The contractor may anticipate any deferred pavment in whole or 
in part. * 

" (9) The value of ^id 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 arricle shall be computed as provided in Article XI " 

ihe Chairman After having read the article, would you desire to pass upon the 
various features of it for the benefit of the committee? i' P 

Maj. Burns I would like to say that the accumulated fund which is referred to 
constantly m that article never started because of the fact that we purchased very 
little power under the contract; in fact, I do not think we purchased any under the 
contract because of the stoppage of the war at about the time we were ready to operate, 

article ^^ * ^*^^' ^^ * ^^^' ^"* ^ ^^^"^ P^®^^' °°^ *^ *'y ^ interpret the whole 

The Chairman. The Acting Judge Advocate General being the law officer of the 
War Department can probably pass upon that when we reach him 

Gen W ilhams, what do you think about the offer of Mr. Ford of $5,000,000 for these 
properties which you have shown cost the Government approximately $85,000,000? 

ben Williams. Taking the money alone and leaving out of consideration anv 
advantages that come to the Government because of the operation of the plant by Mr. 
Ford, I should say that $5,000,000 for these properties is a very inadequate sum! 

Ihe Chairman. Will you explain why you think so? 

Gen. Williams. Because the estimated scrap value of these properties is $8,812,000 
mil A ^"^^gements be made to operate certain portions of them and scrap the re- 
c le^? t?tl. ?%tf ^'""^-^^^ ''^^"f '' $16,272 000. Mr. Ford is getting these properties, a 
f. ol • ^ "" *^.®"'' '"^ f^^cordance with his offer, for $5,000,000. and that to my mind 
acmi^fn t^fr^ fH^'if 7'"! ''''^ ?1 consideration,, as I say, any benefits that would 
l^^Z^^o^C^J^^ {h"e. ^"' ^^^"^"^ ''''' P^^^^ continuously under 

ihJrtl^^^'^^^^^u' ^"^ scrapping the property of the Government that we accumulated 
aiinng the war. have you found that your estimates were not reached in the realization 
havp fit!frT . fi^ l""! ^^^ estimated on the property. For instance, you say you 

i^ ^^1 ^ ^.^"^^^^* *^^'® P^^"^s ^^^^^ ^^ scrapped ^vith a value of $8,000,000; that 
ii> 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"'^ '^'^<J to «>■"« 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? 

<jen. Williams. Yes, sir. 

bei'ause it'L^'ot'iie^by Iteelp '' ""'^^ ''''''' '' ^^ ^^^ '^ ^^^ ^-rilizer people 

^en. Wiluams^ That would be the market for it 

J^en WWm JThTTi"^ ^^r ^^ r^^ "P^^ «»^h a market at $50 a ton? 
Mr Parker How m,fnr^''^ market price is perhaps subnormal. 

Mr T>^^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 



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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 



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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. 



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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, 2<s2, OSS 
500 
40,000 
219,000 
4,200 
9,460 
83,000 
90,5SS 
168,000 
183,350 
54,000 
60,000 
3,800 
127,400 
65,000 
900 
100 
950 
20,000 
155,414 
200 
420,000 
872, 820 
550 
203,000 
2,000 
e.3C0 
381,900 
18,164 
12,500 
l,09f.,728 
1,000 
93,550 
77,400 
1,200 
18,000 
437, 808 
2,400 
35.475 
4,500 
400 




Total ' 

Hawaii June 30 



6,544,345 7,340,528 
' 67,000 80,000 



Tons. 
302, 350 
650 
26,396 
31,540 
600 
80,000 
45,000 
208, 7^2 
872, 979 
500 
35,000 
156, 152 
5,100 
10,600 
85,000 
73, 41:0 
150,000 
168,000 
56,000 
65,000 
4,000 
85, 414 
57,000 
l,00(j 
50J 
1,000 
16,000 
153,075 
500 
400,000 
&47,188 
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 



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 

90, 4l;o 

15o,0(K) 

154,000i 

5o,000' 

70,000! 

4;.:00 

75,6671 

41,000; 

1,100 

500; 

1,000, 

18,U00| 

129, SOOi 

500; 

400, OCO; 

650,000; 

700 ! 

187, 848' 

3,000 

6,500j 

268,4551 

37 725; 

12, 000 1 

833,6241 

1,500 

91,128! 

39,845' 

i,ooo! 

15,000i 

369.5201 

3,000 

40,000 

5,000 

500 



1918 



1919 



5,563,212 5,390,519 
70,000; 65,000 



Tons. 
210,000 
500 
5S,500 
43,964 
1,000 
78,000 
50,000 
214,0>vs 
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 

<ol^}Y l""od"ction cost estimates the quantit y of raw materials and power used in the manufacture of the 
sneral products are l>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 
or<ranization in the transaction of business, and it is just a question of whether in as 
bi^" and important a matter as this the 50-year rule would not work a hardship. I ii^ 
Secretary yesterday recommended the application of the 50-year rule on the grounf 
that he did not desire to make an exception. At the same time it seems to me thai 



there are some other features which come into this case. For instance, this is not as 
yet a thickly settled portion of the country. It is not given over to manufactures 
and It is a very different matter from what the installation of a power plant at Niagara 
1 alls would be. There they have a large city, Buffalo, and cities all along the Great 
Lakes, Kochester and other large places contiguous, and it is a manufacturing section. 
Northern Alabama and Tennessee adjacent to Muscle Shoals are not manufactiu-ing 
sections, and the length of time it would take to find a market for the power which 
can be developed there might be a very serious matter in the whole case, and it seems 
to me that the matter should receive careful consideration. 
The Chairman. Then there is the matter of labor that would be required at the 

Gen. Beach. Yes; and in many cases the power is used for operating municipal 
utilities Birmingham and Memphis are the only two places anywhere near here. 
^Mashville niight be considered, but they are quite a long distance away, compara- 
tively, and the marketing of the power and the development, if it is going to be done 
along ordinary commercial lines, would be, I think, slower here than at other places 
wheTe no large water-power projects have been developed. I think it has taken at 
least JO years to utilize all the water power, amounting to about 750,000 horsepower, 
that has been developed at Niagara Falls, in spite of its greater advantage of location. 

Ihe Chairman. How long a distance has it been proven positively that electric 
power can be carried? r t- j 

«K^®f ii^^nnn"' Ti^^. ^^^^^°'^ ^^T^ ^^'^ ^ ^^^^^ ^re sending power at a voltage of 
about 110,000 volts to a distance of 250 miles. 

The Chairman. Two hundred and fifty miles? 

Gen. Beach Yes. There have been claims made by people engaged in electrical 
transmission of power that they are perfecting that work so that they can transmit 
power as economically, or will be able soon to transmit power, to a distance of 400 miles 
as economically as they do at present to a distance of 200 miles. 

ihe Chairman. I think that it is claimed by the engineers of the water-power com- 
panies m California that they can transmit power 400 miles 

Gen. Beach. But there is another feature of the case which has been developed 
as a result of the power survey during the war, which makes a great difference in that 
matter and that was referred to yesterday in the Secretary of War's testimony when 
lie spoke about relaying the power. I do not know whether the committee exactly 
understood it but it might be put in this way. There might be a demand in New 
1 ork greater than tlie power plants there could supply, using these cities as an illus- 
tration, Philadelphia could not supply any, neither could Baltimore, but Washington 
could Aow, then, they all say all along the line, if you will send forty or fifty thou- 

n?fn P^iffT^f'T^J-*^ ^^i^SiT:, Baltimore can send forty or fifty thousand horsepower 
oil to Philadelphia, and Philadelphia can turn that much loose for New York, and by 
that means of tying together they are now sending power 600 miles, 
used^ ^^hairman. Do you call that relaying power? Is that the technical term 

Gen. Beach. Yes, sir; that is one term that is used. As I say, thev are actually 
sending the power in that way through different stations to a distance of GOO miles. 

Mr Kearns. General, I do not understand that that is relaving power. Washington 
uould send Its power to Baltimore and Baltimore would use the Washington power 
^h n??' B^lti"^ore would send power to Philadelphia, and Philadelphia would use 
the Baltimore power and not the Washington power. 

Gen. Beach. Yes; they would use the Baltimore power. 

Vnlt ^^^ff ^^' :i^d„t^^ii ™iadelphia would send power on to New Yorx and New 
I ork would use the Philadelphia power. 

Gen. Beach. Yes. 

Mr. Kearns. That would not be relaying the power. 

allff ;i?!^^?xT Jh* ^^ *¥ *®"^ ^ ^^^^^ ^^^^^ ^ised. Mr. Martin is here and could tell 
M What term do you generally use? 

Mr. Martin. That is the usual expression that we use in the business. 

th^fT* ^^^?^' .1' ^^^^^111' T^:ho is the president of the Alabama Power Co., savs that 
mi ^ the term they generally use. " 

The Chairman. You may proceed. General, 
r.rm^^" B^^^°; I was just going to say that those developments in transmission mig h 
proMde a market at Muscle Shoals much earlier than would have been provided by 
va. 0.?'%"'^*^^'^ of simply supplying everything from the station where the power 
kpff. Vu ^ generated, and it imght be possible that the period of developing a mar- 
hlMl ^ P^T^^ f ^"^^^® ^^^^^^ ^^"^^ ^^^ that very reason be shorter than would 
ot^Mn J?^lV'''^w ^'^u^'''"T^'?^*^'''^5 but there is not much in the immediate vicinitv 
Muscle Shoals to absorb this power. Things will have to be brought there; either 



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MUSCLE SHOALS PBOPOSITIONS. 



101 






■ 



own proposition. I was asked by several of them to draw up specifications. })i! • 
said that the matter was so lars:e and so complex that I was very much afraid that ;• 
I 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 out 
something definite after their proposition was received. ^ , , , , 

I found that I was verv hadlv handicapped, as the Secretary found later, by the tad 
that we could not give these people an %' definite assurance. We could not come to anv 
contract or definite agreement with them, and that I think may have possibly pre- 
vented some definite offers, but Mr. Ford was the only one that came m with a 
definite respons?. , , ^ ^ , , ., . , 

To save time 1 will just $le this reply of the Alal ama Power Co. and place it in tho 
record if vou care to, or it can be read. -it 

The Chairman. Is that the same letter that the Secretary put m the record yestor- 

dav? - e ■ I, 4^ 

Gen. Beach. Yes, sir; he was requested yesterday to frmish it. . , , 

The Chairman. Then it would simply be a duplication, as that letter is already in 
the record. 

Gen. Beach. Yes. (See p. 790.) . , ^ o t^ 

The Chairman. The Alabama Power Co. was organized when? Do you know? 

Gen. Beach. No; I do not know the date of organization, but I do know that alonf? 
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 examination 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. 

The Chairman. That was before the World War in Europe started? 

Gen. Beach. That was in 1912 and 1913. 

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. . ., . i j^u- 

The Chairman. I assumed from some of the questions that were asked this morning 
that perhaps this company viks gotten up during the war particularly for the purpose 
of getting these contracts with the Government. 

Gen. Beach. No, sir; there was nothing of the kind in that respect. The com- 
pany 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? What offer did they make? 

Gen. Beach. In 1913? 

The Chairman. Yes. 

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 of that 
report with me, but I will obtain it. 

The Chairman. What was the sense of the offer that they made? Were they to do 
the building or was the Government to do it? . 

Gen. Beach. To the best of my 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 finally 
decided that in the state of water-power development and the market, that the com- 
pany would be badly handicapped by a shorter term, and 100 years was recommended. 

The Chairman. \Vas the general water power act in effect at that time? ^\^len did 
you say this was? 

Gen. Beach. In 1912 and 1913. 

The Chairman. Then, of course, there was no limit on the period of time as there 
is now? 

Gen. Beach. No, sir. 

The Chairman. Is there anything further you would like to state with reference to 
the matter? . . ^ 

Gen. Beach. There is only one thing and that is on the question of the limitation ot 
time. It seems to me that it is not always advisable to apply one general rule. You 
do not always treat the large bodies the same as the small ones, because the condition? 
which are necessary to be imposed on a large body would unduly restrict a small 
organization in the transaction of business, and it is just a question of whether in as 
big and important a matter as this the 50-year rule would not work a hardship. The 
Secretary yesterday recommended the application of the 50-year rule on the ground 
that he did not desire to make an exception. At the same time it seems to me that 



there are some other features whicb come into this case. For instance, this is not as 
yet a thickly settled portion of the country. It is not given over to manufactures, 
and it is a very different matter from what the installation of a power plant at Niagara 
Falls would be. There they have a large city, Buffalo, and cities all along the Great 
Lakes, Rochester and other large places contiguous, and it is a manufacturing section. 
Northern Alabama and Tennessee adjacent to Muscle Shoals are not manufacturing 
sections, and the length of time it woidd take to find a market for the power which 
can be developed there might be a very serious matter in the whole case, and it seems 
to me that the matter should receive careful consideration. 

The Chairman. Then there is the matter of labor that would be required at the 
plant. 

Gen. Beach. Yes; and in many cases the power is used for operating municipal 
utilities. Birmingham and Memphis are the only two places anywhere near here. 
Nashville might be considered, but they are quite a long distance away, compara- 
tively, and the marketing of the power and the development, if it is going to be done 
along ordinary commercial lines, would be, I think, slower here than at other places 
where no large water-power projects have been developed. I think it has taken at 
least 20 years to utilize all the water power, amounting to about 750,000 horsepower, 
that has been developed at Niagara Falls, in spite of its greater advantage of location. 
The Chairman. How long a distance has it been proven positively that electric 
power can be carried? 

Gen. Beach. The Alabama Power Co., I know, are sending power at a voltage of 
about 110,000 volts to a distance of 250 miles. 
The Chairman. Two hundred and fifty miles? 

Gen. Beach. Yes. There have been claims made by people engaged in electrical 
transmission of power that they are perfecting that work so that they can transmit 
power as economically, or will be able soon to transmit power, to a distance of 400 miles 
as economically as they do at present to a distance of 200 miles. 

The Chairman. I think that it is claimed by the engineers of the water-power com- 
panies in California that they can transmit power 400 miles. 

Gen. Beach. But there is another feature of the case which has been developed 
as a result of the power survey during the war, which makes a great difference in that 
matter, and that was referred to yesterday in the Secretary of War's testimony when 
he spoke about rela,ying the power. I do not know whether the committee exactly 
understood it, but it might be put in this way. There might be a demand in New 
York greater than the power plants there could supply, using these cities as an illus- 
tration, Philadelphia could not supply any, neither could Baltimore, but Washington 
could. Now, then, they all say all along the line, if you will send forty or fifty thou- 
sand horsepower to Baltimore, Baltimore can send forty or fifty thousand horsepower 
on to Philadelphia, and Philadelphia can turn that much loose for New York, and by 
that means of tying together they are now sending power 600 miles. 

The Chairman. Do you call that relaying power? Is that the technical term 
used? 

Gen. Beach. Yes, sir; that is one term that is used. As I say, they are actually 
sending the power in that way through different stations to a distance of 600 miles. 

Mr. Kearns. General, I do not understand that that is relaying power. Washington 
would send its power to Baltimore and Baltimore would use the Washington power 
and then Baltimore would send power to Philadelphia, and Philadelphia would use 
the Baltimore power and not the Washington power. 
Gen. Beach. Yes; they would use the Baltimore power. 

Air. Kearns. And then Philadelphia would send power on to New Yorx and New 
York would use the Philadelphia power. 
Gen. Beach. Yes. 

Mr. Kearns. That would not be relating the power. 

Gen. Beach. That is the term I have heard used. Mr. Martin is here and could tell 
about that. What term do you generally use? 
Mr. Martin. That is the usual expression that we use in the business. 
Gen. Beach. Mr. Martin, who is the president of the Alabama Power Co., says that 
that is the term they generally use. 
The Chairman. You may proceed, General. 

Gen. Beach. I was just going to say that those developments in transmission mig h 
provide a market at Muscle Shoals much earlier than would have been provided by 
the former method of simply supplying everything from the station where the power 
Jt'as actually generated, and it might be possible that the period of developing a mar- 
ket for the power at Muscle Shoals would for that very reason be shorter than would 
he the case under the former method; but there is not much in the immediate vicinity 
of Muscle Shoals to absorb this power. Things will have to be brought there; either 



*t 



m 



102 



MUSCLE SHOALS PKOPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



103 



some establishments created in order to utilize the power or you will have to send it 
out to other fields if you are going to utilize it at any time within the reasonable future 
after the completion of the dam. . j .r. 

The Chairman. You mentioned several cities that are along the coast and then you 
also mentioned Nashville, in Tennessee. Wilmington, I think was one of the cities 

you mentioned? . , , xr i. -n xi 

Gen. Beach. No; I named Memphis, Birnungham, and Nashville as the only 
cities within reasonable distance or within such distance that they could receive their 
power by direct transmission. I probably might have included Chattanooga also. 

The Chairman. How far are they from this place? 

Cien. Beach. They are all probably within a distance of 150 or 200 miles. 

The Chairman. So that it would not be impossible to supply them with power if 
this plant were developed as it is proposed to develop it. 

Gen. Beach. But Birmingham is already fully supplied by the Alabama Power Co. 
from its power plants on the Coosa River. Chattanooga is also ab-eady provided with 
power from the power plant at Hale's Bar, about 8 miles below the town. That leaves 
only the two other cities. . • , ^ - 

The Chairman. Of course, it might develop some competition in the supplying of 

T)ower. 

Gen. Beach. That would he a matter that would be under the public utilities com- 
missions of the States. . 

The Chairman. At any rate it would supply an additional factor m supplying 
power to the various communities. 

Gen. Beach. Yes/sir. T told all the parties who came to consult with me with 
regard to making a proposition, that it was my idea that the United States did not 
desire to instiill this power plant for the purpose of being a disturbing element to vested 
interests; that, other things being equal, we would give preference to that proposal 
which fitted in best ^^ith existing conditions and did not destroy established business 
which had already been built up at considerable expense and time. 

The Chairman. General, in the memorandum which you prepared for the Secretary 
of War and which is referred to as Exhibit E in his letter to the Speaker of the House of 
Representatives, you say that "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 in round numbers is 
$23,430,000 and for Dam No. 3, $19,000,000; in other words, the estimates of the 
engineers for the two dams is $56,000,000, while the estimates of Mr. Ford's engineers 
is a little over $42^000,000. How do you explain such a great disparity in the estimates? 

Gen. Beach. There is really very little difference in most cases between Mr. Ford s 
unit price and the unit price of the Engineer Department. If one were building a 
dam and had unusual good luck and was not called upon to provide for contingen- 
cies, it might be possible to get through with Mr. Ford's figures. Our figures are an 
estimate for an appropriation. We have to allow for contingencies, and when one is 
engaged in large construction in a big river like the Tennessee he has to provide a 
large appropriation for contingencies because of floods, or even ordinary freshets, or 
delays and interruptions to the work. You can easily see if we were caught in a big 
flood, our derricks thrown over, and our cofferdams washed out, we would have to 
spend a great deal to get back to where we were before. 

The Chairman. I have seen that exemplified in California. 

Gen. Beach. I made the remark at one interview with Mr. Ford when I was present 
that I never in all my experience had seen a man engaged for the first time in river 
work that he did not make an underestimate. Mr. Ford smiled and said he could 
bear me witness to that effect; that he had started on one little improvement which 
he expected would cost from twelve to fifteen thousand dollars, and it had cost him 
over $100,000. But we felt we could not send an estimate here to Congress and then 
find, on account of large floods or serious interruptions to work, that we were running 
short of funds and then have to come back and ask for another appropriation. VVe 
have made our estimate at that figure at which we feel that we can, so far as human 
foresight can go, complete the work for the amount asked, and if we have good fortune 
and are not interrupted by great floods or have any disaster on the work we hope we 
can complete it at a sum well within our estimate and have something to return to 
the Treasury. , , ^f 

The Chairman. Later on, in this estimate which you made of $28,000,000 for each oi 
the dams, you reported to the Secretary of War that by reason of prices after the war 
having come down considerably you thought you would be able to complete both dame 
for $50,000,000. . , ^ T,r a 

Gen. Beach. There is another feature connected with the estimate for Dam iNo. J- 
We have made no attempt at examination of the rock on which that dam will rest. 
Our information is to the effect that it is not as good rock as the rock at Dam ^o. ^ 



Mr. Ford has made more of an examination. I believe he had parties make an ex«»mi- 
nation for him at Dam No. 3 which is more extensive than the examination we have 
made. But our information is not definite enough at that locality to allow us to sub- 
mit an estimate for a better state of foundation than we belieye we may encounter. 

The Chairman. In this same memorandum you state that the indirect benefits 
accruing to the United States are the maintenance of a nitrate plant in readiness for 
war emergency. You put that first. Is that still your opinion in regard to the matter? 

Gen. Beach. My opinion, Mr. Chairman, is that preparedness is of the first impor- 
tance, and that we ought not to be caught a second time as we were a short while ago . 

The Chairman. So that the use of nitrates for explosives in case anything happens 
ought to be looked after primarily by the oflicials of the War Department before they 
take up the matter of fertilizer and things of that kind. 

Gen. Beach. I can not understand anybody who is acquainted with the conditions 
being willing to put the United States in such a position that in case of hostilities it 
would have to depend upon securing its nitrates from a foreign source of supply. 

Mr. Hull. General, if you completed the dam, how long a time do you estimate it 
would take, that is, Dam No. 2? 

Gen. Beach. Mr. Hull, I have a saying which I try to live up to, that no man ever 
gets a date out of me, but in order to answer your question to the best of my ability I 
would say that if we are not unduly interrupted by floods or some big disaster of some 
kind, we ought to be able to get through with that work in two and a half or three 
years. 

Mr. Hull. If you finish it, you ought to be able to finish it under the same condi- 
tions, of course, as Mr. Ford would finish it, approximately as cheaply as he would 
finish it; is that not true? I mean taking into consideration the character of the work 
that would go into the dam. 

Gen. Beach. As far as the cost of the materials is concerned, we probably could 
obtain them as reasonably as Mr. Ford. I think we could buy our cement, obtain our 
sand and gravel, and obtain the machinery at as reasonable a figure as he could. We 
are limited in our work to an 8-hour day. Mr. Ford, in all probability, would not be 
limited to an 8-hour day. And there are other restrictions which might interfere 
\nth our work. Under an Executive order we have to give our men a hdf holiday on 
every Saturday between the 15th of July and the 15th of September. That amounts 
to an appreciable item. Mr. Ford, on those two items, might be able to do the work 
at a somewhat less price than it would cost us. 

Mr. Hull. Suppose the Government was to finish the proposition in the next two 
or three years. You know something about the power situation. Do you think it 
would be possible for the Government to sell the power to such an advantage that it 
would pay the interest on the investment, on the entire cost of Dam No. 2? 

Gen. Beach. I have very serious doubts as to our ability to dispose of that power 
immediately, if we completed the dam ourselves. I have no doubt as to our abiuty to 
develop a market for the power in course of time; but if Mr. Ford's offer is accepted, 
we have a market immediately developed. I understand, not from Mr. Ford himself, 
but from people who have talked with him in regard to the matter, that he intends to 
utilize this secondary power, which is a very large proportion of the product, in a way 
that we would have considerable diflSculty in finding a customer for. In other words, 
I belieye he proposes to install electrical furnaces. They would be used whenever the 
power is available, and he could utilize the secondary power in that way to great ad- 
vantage, and do it immediately, whereas we would probably not be able for a good 
many years, if we were marketing the power ourselves, to find a customer who could 
use this secondary' power, except for the purpose of relaying it, as I mentioned awhile 
ago. 

Mr. Hull. Was it your branch of the Army that made the contract with the Alabama 
Power Co. as to the transmission line? 

Gen. Beach. We have had nothing to do with the Alabama Power Co., except to 
accept a deed from them for the land on which they acquired flowage rights. 

Mr. Hull. You know nothing about this contract? 

Gen. Beach. Nothing that I would like to express an opinion upon. 

Mr. Hull. You expressed an opinion here in regard to the limit of time. You have 
already made a contract, as I understand it, a minor contract, perhaps, for a hundred 
years, down there. Is that not so? I understood you had made such a contract. 

Gen. Beach. No, sir. 

Mr. Hull. Was there not one contemplated? 

Gen. Beach. Not by my department. 
. Mr. Hull. If I understood you correctly, you think that there might be something 
la the contention that in a proposition of this kind it would not be unreasonable to 
&ive them a hundred-year lease? 

Gen. Beach. I expressed the opinion that there were conditions at this locality 
regarding the state of development, the character of development of the surrounding 






104 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



105 




country, and the amount of power involved which would make the development of 
the market for this power under ordinary circumstances slower than it would be in 
other places, and that I did not think, on account of those conditions, that you should 
necessarily apply the same rule simply because you had the rule. 

Mr. Hull. You have read the offers of Mr. Ford, both the first offer and the second 
offer in modified form. Do you care to express any opinion for the information of 
the committee as to what you think we should do? ' 

Gen. Beach. That is practically the same question, is it not, which the Secretary 
hesitated so long yesterday in answering, and the member of the committee who asked 
it offered to withdraw it if the Secretary did not want to answer it? 

Mr. Hull. That is the same question. 

Gen. Beach. I would say this, that there is one feature of the case connected with 
an award to Mr. Ford that appears to be worthy of consideration, and that is this: 
The Tennessee River possesses an immenj^e potentiality with resrard to wat«:»r-power 
development. I believe there is no stream in the country, conddorijio; the amount 
of water which is carried and the steepness of its slope, which will furnish the amount 
of water power that the Tennessee Ri\'er has, except perhi]>s 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<nnid by speaking with certain parties tliat my 
statement was misunderstood. 

The Chairman. You may proceed to. explain that. 

(JeiL Beach. I did not mean to say that no examination had been made. 
What I intended to say, or what I de.^ired to be understood as saying, was tliat 
the exanunation which we made into foundation conditions at Dam No. 3 had 
not been sufficient to let us make a definite plan for the foundations at tliat 
l(K-ality.' We have had several borings, and the borings have shown some cavi- 
ties. Now, the borings we did make were not sufiicient to develoi) the extent 
of those cavities, or to deternune to what extent that rock underneath tlu' 
sand was honeyccmibed, and I felt we had to allow a greater amount tor the 
foundation conditions at that locality in our estimates than might possibly Ik- 
necessary if we had fully developed the facts at our disiwsal. 

Mr. Fields. I believe this report shows that 133 holes were bored, and in the 
133 holes three cavities were found. I will insert it in the record at this point. 
(The report referred to by Mr. Fields is as follows:) 
lielow is given a table showing core recovery at each dam site : 



Dam 
No. 2. 



Number of holes 

Total linear feet in rock 

Aggregate length of cores recovered 

Percentage of core recovery: 

Maximum 

Minimum 

Average 

Scams: 

Number 

Aggregate depth (feet) ■ 

Cavities: 

Number 

Aggregate depth (feet) 



90 
.1,194 
4,591 

99.0 
73.0 

S8.4 

100 
22.94 

12 
24.85 



Dani 
No. 3. 



i:« 
4,9-47 

4,oo:^ 

9fi.4 
.V2.4 

m.' 

18.33 

:{ 

25.Sfi 



Gen. Beach. I have here the estimates for lock and dam No. 1. It is $1,401),00<). 

as I stated a few moments ago. ^,. . ri»r 

Mr. Fields. General, the Secretary of War states that the Air Nitrates (><)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(le<l the Southei-n Power C<». can make no use of power from this dam. 

3. The cost of the Muscle Shoals hydroelectric development, estimated before 
the war at .$1.S,()()0,(MX), in April, 1920. l)y the Secretary of War at not less than 
J25,0(X),()00, and in February, 11)21, by represents! tives of the (jovernment at 
•V)0,000(MX), will be not less than .$.56.(KM),0(X) if completed at this time. This 
<'ost is of importance as indicating the difficulty vi^hich the Government will 
encounter in se<uring an adequate return upon its investment should it complete 
this project now. 

4. The primary power available. at Muscle Shoals has, in Mr. Lee's opinion, 
>een 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 



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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 
estiniate<l to be 570,000,000 kilowatt-hours per annum maximum, including d s- 
placement of approximately 135.000,(X)0 kilowatt-hours at present produced by 
steam ; and in view of the uncertainty of the amount of steam which could be 
displaced and of the amount of power which could be taken at night, it would 
l>e 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 woul<l 
be safer to estimate upon not to exceed HOO.OOO.OOO kilowatt-hours maximum. It 
is estimated that the demand for power in southeastern territory will absorb this 
latter amount of ad<litional power by the year 1927. 

There Jire nine years dur'ng the 26-year jieriod covered by the hydrograph 
of the Tennessee River at Florence, Ala., during which the total availability 
of priniai-y power on 100 per cent load factor was less than 700,(KX),000 kilowatt- 
hours i)er annum. To supply such deficiencies, which will undoubtedly occur 
iieriodicallv in future as they have in the past, steam backing equal to the full 
capacity of the Sheflield steam plant, i. e., 00,000 kilowatts, nuist be exclusively 
available subject to call to meet such deficiencies; in certain years that capacity 
would not have been suflicient. .. , . ^ . 

((7-1) The 10 months secondary power which it is possible to produce at 
Muscle Shoals has little or no commercial value. 

ANSWER TO question (2). 

(h) The only market for the power at present available is the market serve«l 
by the southeastern power companies, {ind the rates for delivered power per- 
niitted to be charged bv those conqmnies are the published rates fixed by the 
various public ut litv commissions of the States in which those companies 
oi>erate, 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 produce<l, much 
in excess of water power cost. 

To attempt to convert any substantial anxnint of 10 months' secondary iM>wer 
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 delivere<l 
to the distributing companies as to make the total water and steam power pro- 
•uced unmarketable at the rates and standards of service fixed by the pi-eseut 
vigorous public service regulations in the Southeastern States.* This steam 
plant, consisting, of only one unit of 60,000 kilowatts, must be held exclu.sively 
in reserve at all times to make up the deficiencies in primary power ; therefore 
It will not be available to convert 10-nionths secondary power into primarv 
power. 11. 



120 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



121 



The above brief statement, together with a study of various reports, data, 
and hydrographs available, including original hydrographs of the Tennessee 
River prepared new from various standpoints at Florence, Ala., for 20 years 
(from 1894 to 1919, both inclusive) leads inevitably to the following con- 
clusions in answer to the questions on page 2 of progress report of April 9, 

*is follows * 

"(d) From a strictly business commercial standpoint, could private capital 
afford to undertake the Muscle Shoals development, or make investments to use 

* ^"?e)^Ca*n the Government afford to invest additional public money in the 

Muscle Shoals development? . , .. • :« * 

♦•(/) If the Government, regardless of business considerations, in view of 
the large investment alreadv made, determines to complete the Muscle Shoals 
development, on what basis, if any, can the southeastern power companies 
cooperate so that the United States may ' derive a reasonable return upon the 
investment,' or any partial return?" 

ANRWEB TO QUESTION (D). 

(g) From a strictly business commercial standpoint, and considering the 
comparable cost of production of power at existing water-power plants and 
proposed water-power plants in the southeastern territory, private capital could 
not afford to undertake the Muscle Shoals water-power development, nor make 
investments to use its output on the basis of the present plans. Lnder pre- 
vailing conditions and rates for which power is sold under regulation in the 
southeastern territory the usable primary continuous available power output 
of the " dam and hydraulic power plant at Muscle Shoals, Tennessee River, 
can not be sold, delivered to the public-service market, at an average price 
that will pay operating expenses, taxes, reserve for renewals, and replace- 
ments, and a fair rate of interest on the estimated cost of the proposed p an 
as planned, and upon the necessary transmission system to reach the distant 
and only market. 

ANSWER TO QU1j:ST10N (E). 

ih) Nor can the United States afford to invest additional public money to 
complete "the dam and hydraulic power plant at Muscle Shoals, Tennessee 
River " as planned if the same tests which control the investment of priva^o 
capital are applied; because on the latter basis it can no be made to derive a 
reasonable rate of interest on the estimated total investment from the sale 
of the commerciallv unsable available power to the public service market, nor 
even on the amount necessary to complete the plant as estimated by Govern- 
ment engineers. 

ANSWER TO QXJE.STT0N (F). 

(i) If the United States, in view of the large investment already made. 
f«e^ermines to complete the Muscle Shoals development as planned, the south- 
eastern power companies can cooperate so that the United States may derive 
a reasonable rate of interest upon some part of the cost of "the dam and 
hydraulic power plant at Muscle Shoals, Tennessee River." That portion o 
the investment upon which a reasonable rate of interest may be expected 
can be worked out with certainty because the flow of the river limits the 
amount of commercially usable power available and the value of the product 
is definitely fixed by the rigid public service regulation of rates and service 
in the Southeastern States. ^ ^. ^ „„,i 

But the Muscle Shoals water power development is being <^^nstructed, an 
1*- is reported the United States has already spent approximately $17,000,(M"' 
on " the dam and hydraulic power plant " and navigation improvement there. 
If the United States decides to complete " the dam and hydraulic power plant 
«t ATn«;cle Shoals Tennessee River," some of the southeastern iwwer companies 
llnve^^nXc^^^ the United States to the extent of formulati.^ 

and making a definite proposition for the lease of the plant or purchase of 
u« nntnut but only within the limitations stated above. 
'%Smic conditions new existing, and undoubtedly permanent, demand tha 
nnv arrangement with the United States for the lease of " the dam and hj- 
^^•[ul'cT^v^V^^^^^ Muscle Shoals, Tennessee River," or for the purchase 
of the pm^^r output of the development must be based exclusively on the com- 



niercially usable primary power. The details of this propos tion can be readily 
formulated if the principles and data upon which it is to be based are agreed to. 
If it is true (as estimated by the Government eng neers) that the cost of 
the completed dam and hydraulic power plant and navigat'on improvements 
at Muscle Shoals, Tennessee River, will be $50,(XK),000, exclusive of transmis- 
sion costs according to the plans upon which it is being at present constructed, 
St large portion of that amount will have to be charged off or charged to war 
loss and improvement of navigat'on, because the portion of the cost upon which 
the sale to the public-service market of the commercially usable available 
power output can be made to derive a reasonable rate of interest is limited 
definitely by the existing regulation by public authorities of rates and service 
in the southeastern territory. 

This statement is based upon engineering data, hydrographs, and estimates 
of costs as to Muscle Shoals, as compared to actual costs and results of seven 
southeastern power companies. 

Georgia Railway & Power Co., 
By H. M. Atkinson, Chairman Board of Directors. 

Columbus Power Co., 
By H. H. Hunt, Vice President 
Central Georgia Power Co., 
By P. G. Gossler, Vice President. 

Tennessee Power Co., 
By C. M. Clark, President. 
Atlanta, Ga., May 20, 1921. 

Mr. Fields. General, just one other line of questions and then I am through. 
If you have it at hand, how much did the Panama Canal cost? 

Gen. Beach. I would not like to say offhand. 

Mr. Fields. (Jould you put that in the record? 

(Jen. Be-vch. Yes, sir. 

Mr. P'lELDs. Has it ever paid 4 per cent on the investnuuit? 

(Jen. Bkacii. I doubt very much if it has. I can ascertain that correctly. 

Mr. Fields. Will you put that information in the record, and also what it is 
pjiying now? 

Gen. Beach. Yes. I bplieve from what I have heard recently that they are 
•luite proud of ili^ fact that it has recently approached a pay.ng basis, and has 
more than covered expenses. 

Mr. Pakker. :May I ask what is the difference between kilowatt and horse- 
powcr— in other words, how you reduce kilowatts to horsepower? We have one 
statement in horsepower and the other in kilowatts. 

(Jen. Beach. If you want \o reduce kilowatts to horsepower, vou divide by 
soven-tenths. 

Mr. Park;:r. Multiply or divide by seven-tenths? 

(Jen. Beach. Divide by seven-tenths, and if you want to reduce horsepower to 
Kilowatts you multiply by seven-tenths. 

^Ir. QuiN. Gen. Beach, for the benefit of the record, what is the official title 
fliMt you hold in the United States Government? 

Gen. Beach. I am Chef of Engineers of the Army. 

Mr. QuiN. You are a graduate of the West Point Military Academy, I presume? 

Gen. Beach. Yes, sir. 

Mr. QuiN. What year. General? 

Gen. Beach. 1882 ; quite a ways back. 

Mr. QriN. You have had experience in engineering from that date up until 

'low? 

Gen. Beach. Constantly. 

^Ir. QuiN. The statements that you have made with reference to the poten- 
Hnlities of the Tennessee River and its tributaries are based on actual ex- 
iK'iieiu^e and ol)servation and knowledge acquired from your long experience 
"» that line of work, as I understand it? 

(Jen. Beach. I would state that they are based on quite intimate acquaint- 
"|He. For four and a half years, before I became Chief of Kiig neers, I was 
I'ivision engineer of the central division, wliich embraces the Ohio River an'l 
''Jl its tributaries, and I think I have been over every portion of the Tennessee 
'^iver that a boat could go on, and have visited pretty nearly every part of its 
^vatershed. 

Mr. (^uiN. I want the record to show that so that these gentlemen making 
"'ese propositions in the press trying to discountenance what we are attempt- 



\ 



122 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



123 



iiig to do heiv and what you are atti niptini: to ,lo. may knoxv that you uurtcr- 

'' Whar'in vouruulgn.ent anul Worn your knoNvUMl.i:e of tlu; inatlor. would ir 
cost to maU;. the Muscle Shoals stretch navijjable without the eoustruetion ul 

these dams, No. '2 and No. 3V . <«<m^hw»<i 

Gen r.E\cn As I stated, our estimate is somethmji o\er .WHKMK)0. 

Air OriN How much of the Tennessee Uiver and its tiihutaries is now navi- 
i;ai)le witlKmt the construction of these <Uims and without the comiaetion oi 
The Muscle Shoals stretch for navigation? ^ ,. . . n * • 

(Jen IJEACH. We can carry G feet from the Olfo at ordinary sta.!zes : that is. 
excel t the verv lowest sta;ies, as far as Florence, and we have a 2-toot naviira 
ion^eve at low water between (Miattanoo.'a and Knoxville. The portion he- 
tween Florence and (^hattanooga is not ordinarily navigal.Ie unless the river 
irets un several feet al)Ove low-water stage. 

Mr. (irix. How nmch would he navigahle wiih the completion ol these dams 
•IS contemplated, after they are completed? . 

gZbkmu. Dams No. L No. 2, and No. 8 would extend the .K.v.gatum, as 
we said a whle airo. to a tritle more than CA^ miles above No. 8. Tha would 
require Hnre lowdift dams between that point and Hales liar, just helow 

^%TlTlTno^^■ mu.h w</uid he navigalde with.mt the completion of the da.n 
but with th'.' opening of the Muscle Shoals stretch for navigation? 

Gen Beach. I do iu>t 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<l with not completing the dan.s. 
but simiily inaking the Muscle Shoals stretch navigable thnuigh dredging ur 

''^fvirifJuii Dams "' and 8 will extend the navigati<m about IM> 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 w<m,lerful .levelopment of water 
p<,we;^ ami of course. allie<l industries c<.nnecte<l wi'h it. it that were done. 

'' rpn 'rexch I take it for granted, if I understand your question that Mr. 
Ford would not build locks and dams unless he had some immediate use tor 
tlifr* iw>wer 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? 

<Jen. liEACH. Yes, sir. 

Mr. Wric.ht. There is no question about that being a suitable and safe foun- 
'l;ition? 

Oen. I^.eacit. At that particular point we think we are perfectly safe. We 
^yont into that question very carefully before we started the construction of 
f''<» dam. Lime rock is always more or less an uncertain quantity, owing to the 



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fact that if water can run through it, through a crevice or in any other way, 
for any length of time, it dissolves the rock and makes cavities. That is the 
way the Mammoth Cave in Kentucky is formed, and that section of the country 
is all honeyeomhed with caverns, and you will find up there in that part of the 
country there are no creeks at all. You go through a farm and you will find 
a saucer-shaped depression which is the sinkhole or the drainage for that par- 
ticular territory. The water collects there and then runs underground and 
tinds its way through these cavities into tlie Gi-een River antl the Harreii 
River and some of the other tributaries. This honeycombed condition exists 
more or less wherever you have limestone, but the excessive honey-combing 
which you tind in that section has largely disappeared by the time you reach 
the Tennessee 

Mr. Wright. You made such investigations there at Dam No. 2 that mako 
it practical from an engineering standr/oint to construct the dam, so far as 
the foundations are concerned? 

Gen. Beach. Yes, sir ; we carried our borings in some cases over 100 feet in 
depth into the rock. 

Mr. Wright. So you think that is entirely practicable, then? 

Gen Reach Yes sir. 

Mr. Wright. What would be the length of Dam No. 2 w^hen completed? 

Gen. Beach. Almost 1 mile. I think it is about 4,800 feet. 

Mr. Wright. What would be the height. 

Gen. Beach. One hundred feet. 

Mr. Wright. Do you get material conveniently there foi- the construction? 

Gen. Beach. We obtain the sand and gravel a few miles below from the bed 
of the river. That is dredged up, washed, and then brought up and placed in 
bins on the work. TMie cement, of course, we have to buy and bring in by the 
ordinary methods of transportation. 

Mr. Wright. AVhat are the nearest points at which you can secure this 

cement ? 

Gen. Beach. That has varied. There are some points in northern Georgia 
where cement is made, and there are cement mills close to the Ohio. There aiv 
some in Indiana and Illinois. 

Mr. W^RiGHT. What is the horseiM)wer which could be developed at No. 2? 

Gen. Beach. We have ordinarily counted on about 100,000 primary power. 

Mr. Wright. What is the secondary power? 

Gen. Beach. The secondary power is probably about 440,000 horsepower. 

Mr. Wright. General, there is quite a difference in the cost of primary and 
secondary power, is there not? 

Gen. Beach. To the consumer; yes, sir. 

Mr. Wright. I mean, to the consumer. 

Gen. Beiach. Yes sir. 

Mr. Wright. Will you please explain the difference between primary and 
secondary power, and how each is used? 

Gen. Beach. Primary power is that which the company can contract to 
deliver at the switchboard of the consumer at any time he wants it. Conse- 
quently, it has to be power which is available every day or at any hour of the 
day. Secondary power is power which is not primary power, and you may 
have different grades of secondary power. For instance, at Muscle Shoals 
you would have a very large amount of power which might be called primary 
for 8 months of the year, but it is not primary for the full 12 months. You 
have another amount which would be primary for six months, if I may use 
the term in that way, and you have quite a considerable portion which wouUl 
be primarj' for four months of the year, a still larger amount. It manifestly 
follows that anybody that can adopt any method of manufacture or any use for 
this secondary power is enabled to use it very advantageously. I understand 
that Mr. Ford contemplates putting in electrical furnaces, and he could 
use a very large portion of that secondary power almost as advantageously 
in that way as if it were primary power. 

Mr. Wright. General, speaking about tran-^mission, the percentage of los!- 
in the current or in the power is increased the further you undertake to transinit 
the current, is it not? 

Gen. Beach. Yes, sir ; that is, you get less at the end of the line. 

Mr. Wright. What is the average percentage of loss in transmitting it •>^' 

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- 



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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<m suggested, the more sparsely the territory is inhahite<l 
the longer he will be in finding a market for Ins power. 

MT^'wRKnrr AU 'those thngs must he taken into consideration, and he has 
hif capkal hive^e.1 while he Ts waiting a market for his product. Is not that 

^^'Gen!' BEA^^H.^That feature of the case should be taken into consideration, 
if «t»pni<i tn lue ill determining the life of the lease. , 

Mr Wek HT In ofher wonls, you .lo not think a seneral nnn-^r.a rule 
should be appHed to all these projects, and that it .hould depend on the creum- 

'*^"ef Rl\rH''ThTnoint I try to make is that a rule which would be perfectly 
iust anr^pmaSle tSTie less'ee in the case o( a small installation might be a 
i ,r.i«bin nil M lessee who had a very great amount to dispose of. . ^ ^ ,, 

Mr Wright 1^^^^^ nionrent you can not think of a project of the 

inagJlitudeTihe Muscie Shoals project where you would be more in favor of 

' l^^^^r Nc^'slr. n U^il^^l^lt is justined anywhere it is justified at this 

^"^Mr^ Wright Of course these dams No. 2 and ^o. 3 would be the property of 
the Government at the end of the 100-year lease. 

Mr^^'STOLrGeTSaryou are familiar with all the great water powers in the 

I'nited States in a general way? 
rtin Ri. \rH I have seen several of them. . , 

Mr s?or Wbari want to know is whether there is any water power in the 

Smitli ec^ual'to the Tennessee Iliver or the Muscle Shoals water i^wer? 

mT' S^TOLi^'ls^ theie any east of the Mississippi River that is equal to it? 

Gen Beach Nothing that is installed so far except Niagara. 

Mr Stoll I n?ean wholly within the United States. That is partialis m 

Ten^BiJn Wdl, you understand that at Niagara Falls it is divided into 
*wn^r«^s and we control our part and the Canadians control theirs. 
* Mr'^iTOLL well, with tbe exception of Niagara, is there any water power 
east of the Mississippi equal to Muscle Shoals? 

Gen. Beach. No, sir. , . 

Mr Stoll How about west of the Mississippi? 

nf; ^factT I doubt very much if you woud find anything west of the 
Tin^^^inni I'do not know of any possible case except-I do not believe even 
™ Rapids o^n the Slum^^^ RWer would be equal to it, but I am not cor- 

**Mr^^T^lL*^The Tennessee River project or the Muscle Shoals project, at 
onv rntP i^ one of the biggcst projects in the country. 

GerB^cH It is unqu^^^^^^^ one of the biggest projects in the countr 

Mr rl^i Generah looking back over your many years of experience n 
de^e^op?ngTa"ter^v^^^^^^^ powers, that have meant the ^-at deve | J; 

«rJ^i ).i fi.o Pnnntrv hfls nOt vour great trouble been with pessimists, dui nv 
Sl'^at fme?'rnTbecause"^^^^^^^ not calculate the immediate results of 

a gr^t projeJit, they could not see why it should be undertaken? 



Gen. Beach. That has been, to a certain extent, a drawback but T would 
'. ?fnn^n?V 'H'^'^ the greatest drawback to the developmenrhtrbeen tL^^^^^^^^ 

in fnVn ^n^' n ' i "^'^^ ^^^^^^ ^^^ answer of the gentleman in that respect 
n toto. Now, General, you have covered this subject verv comnletelv but T 

^^er^'^Vlr^ol!^^^ ^""T ^''''''' '' *^^^ charac'te'r t abou 

owf oPfi? f^^.J^^ts. So far as the public are concerned, they have not been 
able at the beginning to see the great results that have followed the work ol 
'^^''.I'K^ J'^^^^^^^ who had the vision of what the development meLr Has 
not that been one of the great troubles in developing the g^lt watLw^ 

bX'TenTvvSen'^th^c^r'''" ^"^^^ ^^"^ ^^« *^^^" spent.^at '11^^111" U was 
being spent, when the criticisms were made of the appropriations were made 

l^.fl ^/ P^^P^^ "l^^ ^^"^d "«* «^ the immediate results, and is t Lot also 
true that you can hardly calculate the immediate results? For instance we 
will take the Panama Canal, there was great criticism at the tLrof the he 
gmnmg of that project, that it would be a failure and would be a useless et 

arc^/ncTrS:^: h?vrtht'^^otr^ ^" '''-'' '-^'^ '^ '^'' - t."Ta^na- 
remwks^^^eVy.*^^''^ ^ ^^^^ ^^^""^ '^""^ transcontinental railroads making 
The Chairman. I wanted to ask a question about that verv matter wlien 
you were through I was in Congress when we put through rhfpanama Cana 

gL^upro%lM'(^'^^^^^^^ r'^'i^ cost would be $120,000,0(^"'Tt%'naltv 
grew up to $4(X),000,00, so that they missed the final cost by a good manv mil- 
lion dollars. So that, after all, it is all problematical when vou sta?t out 
and you can not tell just what you will run up against befZe you are through 
Gen Beach. That is just one of the points, Mr. Chairman, that I endeavoi^^^^^ 
to make yesterday, that while people can make an estimate on unit qi antkies 

h-mdSit'^ui?rk1w? "^-^ ^"^^^i«^«' those Who have not been accustomed to 
i.indlmg work in the rivers or large works where such an element of un- 

orSes\lnaUnr '" '''" ''""''''"'' "'""'' '""""'"'^ makeX" mistake 
Mr. Garrett. General, I want to ask you this general, hvpothetical question 
nd you can answer it if you see fit: Assuming when these dams arrcompfe^' 
ami assuming that the lease should be left to Mr. Ford as submitted? a ruT?S 
into consideration the general conditions of the country surround n- this 
l);;o.iect the opportunity to manufacture large quantities of tot^zer for the 
-UTicultural and the horticultural people and the truck growers ai d evervbodv 
who uses fertilizer, and the extension under modern plals of this elS 
power far out into the country, all around them, in your opinion woiUd vou 

:"r?r ^^''^ ^ P'^^*^'.^ ^^^^ '^^^"^^ ^^ «^«Pted by the Congress, or wou d voi" 
care to express an opinion upon that particular feature of itv * 

nh^nf^P^^^•7''"'' question rather involved two considerations. You spoke 
MrFord^ development of the country and at the same time assigning it to 

Mr. Garrett. Or to any one else. 

Gen. Beach. It is my understanding that if Mr. Ford is given the lease of 

.e power from this dam, he will establish industrial plants right in fhat 

^lelnlty. Now, that will unquestionably be an immense benefit to that section 

Of the country, but the general growth due to the existence of that powlr wiU 

<^tvl^^l^'l ^""^^'i^- ^V*^^'^^'*^ *^ somebody who has the financial ability to 
le eiop It immediately, be very slow, indeed. If the member from TennSse^ 
IpHn^nY ^"^^ my saying so, I made the remark about the people in the rural 

hoi 1 n hf'''^'' *^'^'^i ^T^ ''^""^ ^^^'''- ^ ^^''' y^'^^^ '-^^^ I ^ad occasion to 
01a a hearing on the Tennessee River in order to help the peonle of Ch^t- 

anooga obtain flowage rights. Congress had made tW appropriation for 
witw; r^^ the condition that the flowage rights should be provided 
^ithout expense to the United States. The people of Chattanooga in en- 
u^voring to get those flowage rights, found they could not do a thi'ng with 
PHcesnff -^^ *^^ property. In a few cases they would sell at exofbiTant 
a kerfn^rl''' '^ ^^"^ '^''''l £^^^^ ^^^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 ^« i^ that dam were built. I said 
Of inn. .''^u P^^^^ ^^^ construction of the dam would bring in a large amount 
so °i2°^y to be spent right in that section. They said: «We do not tMnk 

alon</wtfh T- ^^"^^Mf '\'^L^u^^^'^ ""^""^y ^"^ *^^ ^tore people that he brings 
*"n^ with him will get it but we won't get any of it." " Well," I said, " W^hat 

92900—22 9 



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MUSCLE SHOALS PROPOSITIONS. 



129 



is more, it will enable you to ship your goods to market more cheaply than you 
can do so at the present time." They said, "That does not interest us. The 
middlemen will get all that." I said, " Well, the fact that the property can be 
devekmed will bring people down here with money and that will help develop 
vour section." They said, *' We have got all the people here now we want and 
We don't want anybody here with any more money than we have got. 

Mr Garrett. That is along the same line as these letters you have been re- 
ceiving from people concerning this project to the effect that it wil be a fail- 
ure Those who do not want to furnish you any dumping ground or things 
of that kind were those directly interested and wanted to dispose of \yliatever 
thev might have to the Government or to the other people at whatever prices they 
might secure, and they were not taking into consideration the general welfare 
but were c-onsidering their own particular interests. ^ ^ , ^ 

Gen Beach. No, sir; they were people who were perfectly contented to go 
along the way that they were going, and did not want to be disturbed. 

Mr Garrett. On that flowage question, did they not argue that the Goverii- 
inent'should take care of that, and afterwards did not Congress take care of it| 

Gen Beach. 1 reported to Congress that it was absolutely impossible to fulhU 
that condition ; that the people could not obtain the lands necessary for flowage 
richts and Congress removed the restriction. 

Mr Garrett Has it no always been true. General, in all ot your experience, 
that 'people everywhere, generally speaking, are slow to give way to progress 
and tlTey are rather sloW to change their conditions ; that is, in the old, estab- 

^"Jfen "^each' ^"uZl tlfal u trait of human character everywhere. You kno^y 
that tiie people objected to the construction of railroads because a cow might 

^'llJ" gTrSt^ And the men wlio drove their wagons objected to that because 

thev would go out of business. „ ,^. c rxi.- t>«;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 
<lue to the change in the plans after they started to work ; that is, not all of it, 
but a great part of it would be due to that. 

Gen. Beach. It would have cost more if they had constructed the Panama 
Canal on the original plans or cont'nued the construction on the original plans. 
Mr. Hull. I understand that, too. There is just another question I want to 
«sk you in regard to Dams 1, 2, and 3. You stated in one place that to make 
the Tennessee River navigable you would have to build Dam No. 1, I believe, 
at a cost approximately of $4,500,000? 
Gen. Beach. No, sir; the amount was $1,400,000. 

Mr. Hull. Then you stated afterwards that if you completed Dams No. 2 
and No. 3, as proposed in the Ford offer, you would make the Tennessee R'ver 
navigable for 60 miles. You meant with Dam No. 1, did you not? 

Gen. Beach. Dam No. 1 is such a short distance below Dam No. 2 that it 
rtoes not make very much difference. It is <mly 4 or 5 miles below 

Mr. Hull. I understand that, but what I want to bring out is this- In con- 
siclering this proposition of making the Tennessee River navigable, the Govern- 
ment ^^^ll have to build Dam No. 1 itself, because that is not contained in the 
*^ord offer; is that not true? 

Gen. Beach. That is correct; yes, sir. 
nf\V* Hull. You spoke of some of the power people writing to you. Have any 
"I the fertilizer people interviewed you at all? 
Gen. Beach. No, sir; I have seen none of them. 
Mr. Hull. Have they sent you any literature? 

Gen. Beach. I can only sny that a few days ago I received circular No 2, 
'^nitii said that further information could be given me if I desired it. I wrote 



i 



130 



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MUSCLE SHOALS PROPOSITIOXS. 



131 



for it and it came, I think, day before yesterday morning, when I came up here, 
and I have not had a chance to r^ad it waterpower In the 

Mr. Parker. General you sP^^^.t^^^ll^'.^L this wXrpower mat er in connec- 
United States. We had ^^^^.^^'^^^^^ f tim^^ ^^ ^^^^ the 

tion with the waterpower bdl s^™^, Jf ^Y,%?,^^' .fi^e is from ten to twenty mil- 
otal amount of waterpower, as ^^^^f ^^^^^ll^^f^m^^^ n various streams 
lion, and three-quarters of it is west of the l^^cky Mounui ^ 

that come from the snow mountains ^J^^^^^f f^ ^^^^eTnA^^^^^ States? 

did not go into that investigation in regard t^ velterday was to the effect that 
Gen. BEACH. No, sir. The statement I mad^^^^^^^ ^.^^. development 

jf^:?ft:r^o::^e^^^^^^^ ^'^^'' ''''''''' ^'^ '^- ^^^'- 

rence River. wP^tprn streams, and as I understood you, 

tion was that it was ^-^^Sf- ^^o^pct was not greater than any that could 

be^'^-adfu^'n KiSpVVKr^ 7^ I^did not .no. how It con.- 

"Tr ?iL'krind *ereTe"^wlse ver,- great water powers in the streams 

-S& ervS ■• a^r^h^lrrairS^ ^ water powers out there 

very rapidly, and very hei^?fi^i^J.^J' ^^ oomnarison then, in total horsepower. 

Th'^^r,rbabrc<:merrrtte%:rortT^^^^^^^ 

" GerBE"c?rrdS''not understand that the comparison was in the total. I 

Z Sardir;"4rrUnh\TarTrrUrhr/or mVost o. the united 

States; is that not so? 

Gen. Beach. Yes, sir ,„nttpr von mentioned, in which you said 

Mr. PARKER. I.pa^ to he otherjtter >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.) 



\ 



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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 



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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 «"<i.;^"«tro-Hungarian Governments, constituting a natfonaremer4nc^ 
^^^^y^^'^^'^ spates requires the performance withiS the shortest possS 
T"iie of the work hereinafter described; and snoitest possible 



136 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



137 



^^H' 
^^' 



Whereas the American Cyanamid Company, a corporation of the State of 
Maine is the producer of certain chemicals by the so-called " cyanamid proc- 
esses "' necessary for the production of ammonium nitrate, and is familiar with 
and controls exclusive patents and processes for the production of such chemi- 
cals in this country, and proposes to assist the United States in performing this 

contract ^^^^J^g.^J^^j'^^ United States and the said Air Nitrates Corporation as 
agents'of the United States to use its patents and processes. ^ ^. „ .^ 

9 By placing at the disposal of the said Air Nitrates Corporation all its 
experiences, records, and plans appertaining to the production of the said chemi- 

3 ' Bv placing at the disposal of the said Air Nitrates Corporation certain 
members of its executive and technical force for the construction and operation 
of the plants hereinafter mentioned. . ^., . ^ ^. „ii -^^ 

4 Bv placing at the disposal of the said Air Nitrates Corporation all its 
plants for the purpose of training superintendents, foremen, and chief opera- 

*' And the United States proposes to compensate the American Cyanamid Com- 
pany for the foregoing as set forth in a contract marked Exhibit 1, beaiiULr 
even date herewith and annexed heretcf ; and ^ ^ 4. + 

Wherels the said company is unwilling to subject its property and assets to 
liabilitv in connection with the planning, construction, and operation of the 
pr^^^^^^^ !»«« accordingly organized the Air Nitrates Corporation 

Uhe agenUnder this agreement), which shall act as the agent of and which 
shall be solely responsible to the United States and others in the plannnm 
construction and oi^eration of the proposed plants, and according to the terms 

^^Whe'rea^'s^he United States entered into a contract with the said Air Nitrates 
CnrnSon under date of November 16, 1917, for the construction and opera- 
UoHf agenrfor the^^^^ States, at Muscle Shoals, Alabama, of a plant 
for ihe manufacture of ammonium nitrate, of an aPProxhnate capaci^^, of liom 
short tons of ammonium nitrate per annum, hereinafter referreil to as the 
Muscle Shoals plant, and work thereon has been commenced ; and 

Whereas ^t has no^^ became necessary that two additional plants, each with 
a camdtv of approximatelv 55,000 short tons of ammonium nitrate per annum. 
shaTbe constTucted and operated at sites to be selected as hereinafter pro- 

""' Whereas it is desirable that a new contract be entered into for the construc- 
tion completion, and operation of all the said plants of an approximate aggre- 
gate caSv of 220,000 tons of ammonium nitrate per annum such new con- 
fract to supL^rbf^^ consent of the parties hereto and in accordance 
wfth the best interests of the United States said contract of November 16, 191- . 
W ther^^^^^^^ of the mutual agreements herein con amed 

th^said pam^^^^^ and by these presents do agree with each other a. 

follows : 

ABTICLE I. 

Fxclmive services.— The agent shall engage exclusively in the ^'o^k of execut- 
ing thi^ contract, including the designing, constructing, and operating of the 
n^ontshPrX described It shall use its best endeavors to construct the saul 
San s as qrck^as pm^^^^^^ and at the least possible cost consistent with h 
Sroner performance of this contract. This shall include availing itself of the 
cooplrat^^^^^^^^ American Cyanamid Company to the full extent conte^p^^^^^^^^^ 

irthis contract and the one of even date herewith between the United State, 
and he American Cyanamid Company, hereunto attached and marked Ex 
hibit 1" The agent will maintain such departments as shall be necessary cu 
«nnroDriate for the carrying out of this agreement, including engineering. 
XTnSive purchasing, construction, manufacturing, inspection, labor rela- 
?fonr workmen's comp^ statistical, commissary, police, fire, medical 

housing, accounting, and legal departments. 

ABTICLE n. 

Muscle Shoals site.-The agent shall, at the cost of the United States, conduce 
fhP Tipo'otintions heretofore begun for the acquisition by and in the name of tn^^ 
UnitKatTof th^^^^^^^^^ said plant at Musde Shoals is now being con- 

structed. 



Selection and purchase of sites for new plants.— The agent acting as a'^ent 
for and at the cost of the United States, shall forthwith select two sites, each 
•suitable for the construction and operation thereon of plants of the character 
hereinafter described for the production of ammonium nitrate. After such 
sites shall have been severally approved in writing by the contracting officer, 
they shall be secured at the sole cost of the United States and be conveved to 
the United States of America by deeds in form and substance satisfactbrv to 
the contracting officer, subject only to such liens and Incumbrances as the con- 
tracting officer shall approve in writing. The deeds shall be properly executed 
and acknowledged in form for recording in the counties in which the sites are 
located. 

ABTICLE III. 

Plans for and construction of plants.— The agent, acting as agent for and at 
the cost of the United States, agrees — 

1. To proceed with and complete the planning, laying out, constructing, erect- 
ing installing, and equipping of the said plant at Muscle Shoals with an approxi- 
mate capacity as aforesaid, and to furnish all necessary labor, tools, machinerv 
and materials, and to do all other things necessary or appropriate thereto All 
plans and specifications in relation to said plant heretofore approved bv or on 
behalf of the Chief of Ordnance or the contracting officer shall be considered 
for the purpose of this agreement as having had the approval of the Chief of 
Ordnance and the contracting officer. 

2. To plan, lay out, construct, erect, install, and equip at each of said two 
new sites a complete plant, with an approximate capadty as aforesaid, for the 
production of ammonium nitrate, furnishing all necessary labor, tools, machin- 
ery, and materials, and doing all other things necessary and appropriate in the 

Each of said plants shall indude the necessary land; also necessary lime car- 
bide, nitrogen gas, lime-nitrogen, ammonia, nitric add, and nitrating plants ; also 
all necessary temporary buildings, houses for employees, administrative build- 
ings, laboratories, shops, warehouses, hospitals, stores, commissaries, structures 
lines of communication and transmission, plant machinery, railway and trolley 
tracks, dredging, docks, boiler plants, roundhouses, roads, wavs. waste disposal 
and sewerage, water and lighting systems, locomotives, cars, fixtures, tools equip- 
ment, apparatus, and appurtenances ; also power houses adequate for the de- 
velopment and transmission of such power for the operation of said plants as 
can not be advantageously obtained through outside sources or agencies- also 
gravel pits, limestone quarries, coal mines, and other things, to such extent and 
m such manner as may be reasonably necessary for the prosecution of the work 
contemplated by this contract ; but no coal mine shall be acquired without the 
written approval of the contracting officer. 

ARTICLE IV. 

Operation of plants.— The agent, acting as agent for and at the cost of the 
r?lt^rr''T/i Article XVII hereof. The agent shall do all things neces 
ciently completed and ready for operation, forthwith to proceed to operate the 
same and to continue the operation thereof up to June 1, 1921, and thereafter 
for so long as the United States shall remain in the present war, subiect to 
the provisions of Artide XVII hereof. The agent shall do all things neces- 
sary or appropriate in and about the operation of said plants, including the 
mS-r?^^" necessary labor and power and the purchase of all necessary 

Operation under this article shall indude placing ammonium nitrate pro- 
duced hereunder, as from time to time directed, on cars or lighters or in ware- 
nouses at the site of the plant where manufactured. 

Revenue from housing, etc.— Any revenue from the operation of any housing 
boarding houses, commissary, stores, infirmary, hospital, or other fadlities or 
Sta? ^^ ^*®^' refunds, etc., shall be accounted for by the agent to the United 

ABTICLE V. 

Materials.— The United States may at any time furnish the agent any ma- 
terials necessary for use ih the performance of this contract. 



138 



MUSCLE SHOALS PROPOSITIONS. 

ARTICLE VI. 



MUSCLE SHOALS PROPOSITIONS. 



139 



ARTKXE X. 



Agent to follow directions.— The agent shall from time to time consult with 
the contracting officer upon the general character of the work contemplated. 
Upon written request, made from time to time by the contractmg officer, the 
agent shall inform the contracting officer at the earliest practicable time as 
to any plan, contract, purchase, and method contemplated in the construction 
and operation of the plants and properties, and the United States may reject, 
or from time to time require the agent to modify any such plan, contract, 
purchase, or method, or to substitute therefor and carry out such other plans, 
contracts, purchases, or methods as in the judgment of the contracting officer 
may be in the interest of the United States, all at the expense of the United 
States. The agent in the planning, constructing, equipping, and operation of 
the plants shall abide bv such directions as the contracting officer shall from 
time to time give the agent. All such requests and directions shall be in writmg 
or by telegraph, addressed to the agent at its address hereinafter stated. 

ABTICLE VII. 

Specifications.— The processes and work involved in the manufacture of the 
final product of ammonium nitrate to be produced hereunder shall be con- 
ducted so that said final product may be in accordance with such specifications 
as the Ordnance Department may from time to time adopt for ammonium 
nitrate to be manufactured under this contract. 

ARTICLE VIII. 

Processes —The said plants shall be constructed for operation under tlie 
evanamid process, unless the United States shall direct that some otlier 
process be used, in which case all changes in construction thereby necessitated 
shall be made bv the agent at the cosfe of the United States. 

If at any time hereafter in the judgment of the Chief of Ordnance the oxi- 
dation of ammonia and its conversion to dilute nitric acid or the manufacture 
of ammonium nitrate from dilute nitric acid by interaction with ammonia 
inav be done more advantageously by improvetl methods or processes of per- 
sons or companies other than the agent, the Chief of Ordnance shall be free 
to call upon the agent to install and use such methods or processes in its opera- 
tion of the plants, at the cost and expense of the United States. The Chief 
of Ordnance shall be free to consult with parties other than the agent upon 
all matters relating to the operation of the plants, to the end that the best 
results of operation may be obtained. 

The agent shall use its best efforts to make contracts with its emplojees 
pursuant to which anv inventions relating or applicable to the production of 
carbide, evanamid, ammonia, and nitric acid or ammonium nitrate made b.v 
such emplovees while in the service of the agent, shall be protected by United 
States patents, which patents shall become the property of the Air Nitrates 
Corporation, subject, however, to the condition that it shall grant to the 
United States at the time of issue of such patent or patents a nonexclusive 
license without rovaltv under each and all of them, such license to be restricted 
to the United States and to the purchasers of any or all of said plants who 
mav receive a license under the provisions of Article X of the agreement or 
even date herewith between the American Cyananiid Company and the Lnit(^ 
States The term " employees " used in this paragraph shall not be deemeil to 
include the persons described in paragraph numbered 3 in Article X hereof. 

ARTICLE IX. 

Suhcontracts.—The agent shall submit to the contracting officer for his 
written approval, in advance of its execution, any proposed subcontract a^ 
to which the contracting officer may direct in writing that his approval ne 

first obtained. , . ^ ^ , ^^^„» 

All subcontracts shall contain a reference to this contract and an express 
provision that thev are subject to all provisions hereof and that they may o^ 
assigned by the agent to the United States. Upon request in writing a copy 
of any subcontract shall be delivered to the contracting officer promptly upon 
the execution thereof. 



vosts and expenses— Audit and payment thereof.— The United States sliall 
bear all costs and expanses of every character and description incurred or 
made in connection with the planning, construction, equipment, and operaticm 
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 
interruptions and without the necessity of the agent providing anv capital or 
borrowing any moneys. Vouchers for all accounts pavable shall from time to 
time be furnished to the Chief of Ordnance, and upon presentation of satis- 
factory evidence he shall either furnish the agent funds to the amounts 
thereof, which funds shall be immediately paid out bv 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 bv the Chief of Ordnance 
promptly. 

All accounts payable by the United States hereunder, ^including those in rela- 
tion 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 representa- 
tives at each of the said plants and at the agent's home office, with power and 
suffic ent 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 Company a license to it as 
agent of the Unted States to use the said company's patents and processes. 

2. For procuring from the American Cyanamid Company the disposal, for 
purposes of the Air Nitrates Corporation, of the said company's experiences, 
records, and plans appertaining to the production of the said chemicals herein- 
above referred to. 

3. For procuring from American Cyanamid Company the disposal, for the 
purposes 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 Company the disposal, for the 
purposes of the Air Nitrates Corporation, of all of the sa'd companv's plants 
for the purpose of training superintendents, foremen, and chief operatives. 

ARTICLE XI. 

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 (3J) per cent of the cost in con- 
nect'on 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 (1§) 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 whch the fee is unpaid. There shall be 
credited on account of said construction fee any payments for construction com- 
pensation heretofore made to the agent under the provisions of said contract 
of November 16, 1917. The total of the construction fee shall not exceed one 
niillion five hundred thousand (1,500,000) dollars. 

2. Operation fee. — One-quarter of one cent ($0.0025) per pound of ammonium 
nitrate produced in compliance with Article VII hereof and accepted or utilized 
'>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. 



■ 



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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, an<l expediting 
^'x' I>roduction and transixntation of material and equipment. All freight 
<liarges on (equipment, furnishing.s. material, and supplies, including transporta- 
^'<^»ii tax thereon. 

*^') Salaries of managers, engineers, superintendents, timekeepers, account- 
ants, clerks, foremen, and other employees at the main and field offices of the 
^S<^nt in connection with said work, salaries of the executive officers of the 
'iffent except such as shall be placed at the disposal of the agent by the Ameri- 
can Cyanamid Company and set forth in said contract market Exhibit 1. 

92900—22 10 



i 



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MUSCLE SHOALS PROPOSITIONS. 



145 



(/) Buildings, houses, warehouses, hospitals, infirmaries, stores, cominis- 
^aries, and structures, and the equipment required therefor and furnisliings 
and equipment reciuired for main and field oftices, and the cost of maintaming 
and operating the same, and including such minor expenses as telegrams, tele- 
phone service, expressage, postage, etc. . ^ ^ . 

(a) Buildings of different grades, warehouses, local power plant, structures, 
plant machinery, railway and trolley tracks, locomotives, cars, roundhouses, 
roadways, gradmg and sewerage, water and lighting systems, and fixtures. 

ik) All bonds required by this agreement and all bonds necessary or proper, 
fire liability, and other insurance, and all losses and expenses not compen- 
sated by insurance which have been actuaUy sustained by the agent in con- 
nection with said work. Such losses and expenses, when mcurred by the 
agent in connection with damage to third persons resulting from the work or 
due to the agent's fault or neglect, shall be included in the cost of the work, 
but not for the purpose of determining the agent's fee ; but such losses and 
expenses when incurred by the agent in connection with constructing and 
replacing any of the work destroyed or damaged shall be included in the cost 
of the work for all purposes hereunder. „iA^^^.^^ ^ 

(0 Permit fees, royalties, and other similar items of expense incidental to 

the execution of this agreement. 

(i) Transportation, including all transportation tax, traveling and hotel 
expenses, and telephone, telegraph, mail, and express expenses of officers, 
engineer^, and other employees of the agent as are actually incurred in con- 
nection with this work. . ^ vi K,r +i,« 

(k) Amounts paid to contractors or subcontractors and sums paid by the 
United States upon contracts made with any person at the request of the 
agent, and the cost of all materials furnished by the United States. 

(n All manner of expense of the agent in creating and constructing the 
plants and their equipment, including administration, superintendence engi- 
neering materials, labor, freight, transportation tax, power, heat, light, rentals, 
Tnturancr UabiUties, losses nSt covered by insurance, and all overhead, general 
and legal cost and expense, and including all other items of expenditure made 
hv the aeent not properly chargeable to manufacturing. 
^ im) if admtion thereto further allowances, if any there be, of cost as from 
time to time may be made by the contracting officer. 

Exhibit I. 

LICENSE AGREEMENT. 

This agreement entered into this 8th day of June, 1918, between American 
Cvanamid Company, a corporation organized and existing under and pursuant to 
the laws of the Stat^ of Maine, of the first part, hereinafter called the licensor 
and the United States of America, hereinafter called the licensee, by Samuel 
McRoL^r^^^^^^^^^^^^ Dep'artment, National Army hereinafter 

the contracting officer, acting by and under the authority of the Uuei oi 
Ordmmce Unued S^^ Army, 'and under the direction of the Secretary of 

AVar, of the second part. 

WhereaT^he licensee has entered into an agreement of even date here«-itb 
with Mi Nitrates Corporation, a corporation organized and existing under .uiu 
pu4ait to the laws of the State of New York, by which agreement said oor- 
nni^tion has aereed as agent of the licensee to construct and operate foi tbe 
renseepVantsSrtte manufacture of ammonium nitrate, all for the reasons nnd 
«o is more oarticularlv set forth in said agreement; and , 

Whereas the licensor possesses certain United States letters patent and js 
the owner of excSive licenses under certain other letters patent of the U. jrf 
States all as set forth in Schedule A hereto annexed and made a part he eof, 
wvering certain processes and methods involved in the "'"""^f '"'^..^rti Ion 
^troffPn (calcinni cyanamid), its conversion to ammonia gas and the oxidation 
^J»3^nni^ to weak nitric acid, and may grant licenses thereunder ; and 

Whereas the ^i^nsor to enable said Air Nitrates Corporation to carry -ut 
said aOTent.^1 place at the disposal of said corporation its expenene., 
'wdies rSs. desi^s, plans, and certain of its executive and technical fo.ce, 

"wherrafthe iTclnt^intered into a contract with the licensee under d.^ 
nf November le! 1917, which contract was executed on behalf of the licen^ 



by J. W. Joyes, colonel. Ordnance Department, United States Army, contracting 
officer, with respect to the license hereinafter granted : 

Now, therefore, in consideration of the mutual agreements herein contained 
the said parties have agreed, and by these presents do agree, to and with each 
other as follows, to wit: 

ARTICLE I. 

License to use certain patented processes, etc. — The licensor, for use and 
application exclusively by the United States Government of the aforesaid agent 
at said plants, has given, granted, assigned, and does hereby give, grant, and 
assign to the licensee the right, license, and privilege to use any and all of 
the processes, methods, and designs covered by letters patent of the United 
States and involved in the manufacture of lime nitrogen (calcium cyanamid), 
its conversion to ammonia gas and the oxidation of the ammonia to weak nitric 
acid, which said letters patent are described in Schedule A, annexed hereto 
and made a part hereof, for and during the time the United States shall remain 
in the present war, and in any event until June 1, 1921, together with all im- 
provements therein and all patents or other rights relating thereto which the 
licensor may hereafter make or secure during said period. 

The licensor agrees that nothing contained in this agreement shall restrict 
the licensee to the use only of such rights and patents, as the licensor now 
possesses or may hereafter possess, and the licensee has the privilege of using 
the processes, rights, and patents of persons other than the licensor, either 
in conjunction with the processes, rights, and patents of the licensor or inde- 
pendent thereof if in the judgment of the contracting officer such action is 
required to obtain the best results of operation. 

ABTICLE n. 

Use of licensor's experiences, records, etc. — The licensor agrees to place at 
the disposal of the said Air Nitrates Corporation and the contracting officer, 
for the production of ammonium nitrate and the construction and operation of 
the plants referred to in the agreement between the licensee and the Air Nitrates 
Corporation above referred to, all the experiences, records, studies, designs, and 
plans of the licensor bearing on and pertaining to the processes necessary 
or incidental to the manufacture of ammonium nitrate now owned by the 
licensor and agrees that the said Air Nitrates Corporation and its representatives 
and the contracting officer shall have access to said experiences, records, studies, 
designs, and plans at all reasonable hours, and shall be permitted to make 
copies thereof and excerpts therefrom. The licensor further agrees to divulge 
to the said Air Nitrates Corporation and the contracting officer for the sole 
purpose of this agreement and said agreement between Air Nitrates Corpora- 
tion and said licensee, all of the secret processes which, combined with the 
processes covered by the aforesaid letters patent, go to make up the system 
of manufacture of ammonium nitrate. 

ARTICLE III. 

Use of licensor's plants for training purposes. — The licensor agrees to place 
at the disposal of the said Air Nitrates Corporation and the contracting officer 
all of the plants now owned or operated by the licensor for the purpose of 
training of superintendents, foremen, chief operatives, and the like for the 
proposed plants to be constructed and operated by the Air Nitrates Corporation, 
and further agrees that the said cori)oration and its representatives and the 
contracting officer shall have access fu said plants at all reasonable hours for 
the purpose above referred to. 

ARTICLE IV. 

i<crviccs of certain of licensor's technical me7i. — ^The licensor agrees to place 
af the disposal of the said Air Nitrates Corporation for tlie construction and 
•operation of the plants under the contract above referred to the following mem- 
bers of the executive and technical forces of the licensor as from time to time 
constituted, namely, president, vice president and general manager, engineering 
^s^sistant to general manager, superintendent of manufacturing, sales and traffic 
^lanager, chief technologist, chief engineer, assistant engineer, and, in addition 



1 



146 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



147 



thereto in connection with the operation of said plants, two principal works 
nianajjers ; and furtlier agrees to pay the entire salaries of such persons during 
the terms of said agreement between the licensee and said corporation, and 
agrees that at all times it will maintain an executive and technical force which 
shall he familiar witli the operation of the processes involvetl in the manu- 
facture of ammonium nitrate. 

ARTICLE V. 

Benefit hereunder to acerue to Air Nitrates Corporation.— The licensor agrees 
that all of the benefits to accrue to the licensee by the terms of this agreement 
mav be at anv time assigned to the Air Nitrates Corporation and shall in any 
event accrue to the Air Nitrates Corporation, but only for the purposes of said 
agreement between the United States and the Air Nitrates Corporation. The 
licensor shall have the right to grant, and at the written request of the licensee 
will grant, a license in all respects similar to the license herein granted to the 
Air Nitrates Corporaticm to enable said corporation to carry out its agreement 
with the United States of even date herewith. 

ARTICLE VI. 

Royalty.— lu consideration of the granting of the license provided for in 
Article I* hereof and of the other conditions to be performed by the licensor, 
the licensee agrees to pav the licensor during the term thereof specified m 
said article, as rovalty, an amount equivalent to six mills ($0,006) per pound 
ot all nitrogen fixed as lime nitrogen manufactured at the plants hereinbetore 
described in the contract of even date herewith between the United States 
and the Air Nitrates Corporation, and to which reference has hereinbetore 
been made, up to and including the first ninety-one million seven hundnM 
thousan 1 (91,700.1MX)) pounds of such nitrogen so fixed in any fiscal year ol 
the United States, anil in addition thereto three mills ($0,003) per pound of 
all nitrogen fixed as lime nitrogen in any said fiscal year in excess of the saul 
liir.etv-one million seven hundred thousand (91,700,000) pounds of nitrogen, it 
])"ino-* further understood and agreed that no part of such royalty shall directly 
or indirectlv inure to the benefit of an alien enemy of the United States except 
.MS mav appear upon a disclosure of stock lists made pursuant to law. Pay- 
ment for rovalties shall be made each month as early in the month as prac- 
ti. able upon* the presentation of satisfactory evidence showing the production 
<Uu-ing the preceding month of nitrogen fixed as lime nitrogen at the plants 
In reinbefore ivferretl to. 

ARTICLE VIT. 

icknoicledfjment of ownership of patents, iwoeesses, etc.— It is understood 
atd agreetl that so far as the right, license, and privilege to use any and all or 
the patents processes, methods, and designs, as described in Schedule a 
Ik ivto annexed, is dven, granted, and assigned hereby, the Government anj 
its a<^ents and other parties claiming under this license, do and they slum 
:i ("-knowledge and reco-nize the American Cyanamid Company as the sole owner 
of said i^atents. processes, methods, and designs and of the exclusive right lO 
r.se the same, sublect only to the rights granted to the United States by tins 
license and anv license granted said Air Nitrates Corporation, and the LnitH 
States shall so far as practicable, exclude the public from all works in wUicn 
sa d process shall be employed, and generally shall use all reasonabe means to 
preserve sa'd rights unimpaired. ^ 

ARTICLE VIII. 

Jmlemnitii aflair.st infrinoement.— To the extent only that the licensor shall 
have received cash hereunder the licensor agrees to defend and save hariuit^^ 
the Air Nitrates Corporation and the United States from all suits and clan » 
for infringement ])v reason of the use by either of them of its patents for \w 
making of cvanamid and the making of ammonia gas, which said patents ait 
de.scribed in* Schedule B hereto annexed and made a part hereof, and pay an 
iud^'inents which mav be obtaint^l therefor against the licensee or the said au 
N:trates Corporation, but only to the extent aforesaid. x^iH-ites 

The licensor will defend and save harmless the licensee and the Air ■^^\\^^\1 
Corporation from anv action or suit brought by any person in privity witn 



in which the right of said licensee or said corporation to use said patents de- 
scribe<l in said Schedule A shall be attacked: Prorided, however. That the 
Inited States shall promptly give the licensor written notice of anv and ail 
such suits, actions, or claims described in this article, and tender the defense 
thereof to the licensor. 

ARTICLE IX. 

Termination of af/reenicnt as to any plant.— In the event that the United 
States shall terminate this agreement as to any one or more of the plants to be 
constructed by the Air Nitrates Corporation under said agreement of even date 
lierewith and pursuant to the provisions in that behalf therein contained, all of 
the rights and lu-ivileges herein inuring to the said Aid Nitrates Corporation 
shall mure in respect of the plant or plants as to which said agreement is ter- 
minated, to the benefit of the United States, but only until June 1, 1921, and .so 
long thereafter as the United States shall remain in the present war. 

ARTICLE X. 

License to use patents, processes, etc., after 1921 or the end of the imr; arbi- 
tration of royalties thereunder.— The licensor hereby gives and grants to the 
licensee, in addition, for use and application exclusively bv the licensee in the 
operation of the aforesaid plants, the right, license, and privileges to use any 
and all of the patents, processes, methods, and designs embraced in the liceni 
hereinbefore granted to the licensee by Article I hereof, from and after the l<t 
day of June, 1921, or the date upon which the United States shall cease to be 
in the present war (whichever date shall last occur) and until the expiration of 
the United States i>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 



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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 <a\a 
agreement of November 16, 1917, between the licensor and the licensee 

In witness whereof, the parties hereto have caused this contract to be exe- 
nited in triplicate, at Washington, D. C, the day and year first above written. 

Amp:rican Cyanamid Company, 

Licensor. 
By Frank S. Washburn President. 
By C. M. Grant, Secretary. 

United States of America, 
By Samuel McRoberts, 
Colonel, Ordnance Dcpt., N. A., Contracting Officer. 
Attest : 
Witnesses : 

M. 6. Logan. 
E. J. Pbanke. 
WiLLiAii Williams. 

Schedule A. 
[Being a part of license agreement hereto annexed.! 

LIST OF PATENTS COVEBING PBOCESSES AND PBODUCTS OF THE PBOPOSED G0\-EBNMENT 

NITBATE PLANTS. 

U. S. patent 776314. " Process of making ammonia," November 29, 1904. 
U. S. patent 785161. " Process of making nitrogen compounds," March 21, 1905. 
U. S. patent 12762. " Process of making nitrogen compounds," March 10, 1908. 
U. S. patent 996011. " Method of making nitrogen compounds," June 20, 1911. 
U. S. patent 999071. "Apparatus for producing calcium cyanamid," July 25, 
-lyi-j., 

U. S. patent 1009705. " Process of making calcium cyanamid," November 21, 

U. S. patent 987674. " Process of producing nitrogen compounds," March 21, 

U. S. patent 1006927. "Method of producing nitrogen compounds from car- 
bids," October 24, 1911. 

U. S. patent 1010404. "Apparatus for producing nitrogen compounds from car- 
bids," November 28, 1911. 

U. S. patent 1100582. " Process of crushing and grinding calcium "carbid." 
June 16, 1914. 

.n^:^' P^*®°t 1100539. "Cyclical process of fixing atmospheric nitrogen," June 
16, 1914. 

U. S. patent 1103060. " Method and means for fixing nitrogen," July 14, 1914. 
U. S. patent 1103061. " Process and apparatus of fixing atmospheric nitrogen." 
July 14, 1914. 

U. S. patent 1103062. "Method of and apparatus for fixing nitrogen," July 
14, 1914. 

U. S. patent 1149653. " Process of making ammonia from calcium cyanamid " 
August 10, 1915. 
U. S. patent 1183885. "Apparatus for producing ammonia," May 23, 1916 
IJ. S. patent 1154640. " Process of producing ammonia," September 28, 1915. 
U. S. patent 1163095. " Process of making ammonia from calcium cyanamid " 
December 7, 1915. 
U. S. patent 1193796. " Method of oxidizing ammonia," August 8, 1916 
U. S. patent 1193797. " Process of and apparatus for oxidizing ammonia," Au- 
gust 8, 1916. 

iq!^ ^" P^*®^* 1193798. " Catalyzer apparatus for oxidizing ammonia," August 8, 

•1916. 

y. S. patent 1193799. " Platinum catalyzer," August 8, 1916. 
y. S. patent 1193800. " Catalyzer for oxidizing ammonia," August 8, 1916. 
U. S. patent 1206062. " Process of making nitric acid and other products," No- 
vember 28, 1916. 

U. S. patent 1206063. " Process of making nitric acid and other products," No- 
vember 28, 1916. 

y. S. patent 1217247. " Process of making ammonia nitrate and other prod- 
'icts," February 27. 1917. 
U. S. patent 1242953. " Process for producing nitrose gases," October 16, 1917. 



150 



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MUSCLE SHOALS PROPOSITIONS. 



151 



i 



Schedule B. 
[Being a part of license agreement hereto annexed.] 

V. S. patent 776314. " I'rocess of making aniiiionia," Xoveiiiher 29, 1904. 
U. S. patent 785161. " Process of making nitrogen compounds," March 21, 1905. 
U. S. reissue 12762. " Process of making nitrogen compounds,'' :Marcli 10, 1908. 
U. S. patent 987674. " Pro<*ess of producing nitrogen compounds," March 21, 

1911. 

r. S. patent 996011. "Method of making nitrogen compounds," June 20. 1911. 
r. S. patent 999071. " Apparatus for producing calcium cyanamid," .July 25, 

1911. 

r. S. patent 1(X)97(>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 f<u' producing nitrogen compounds from car- 

l.ids." November 28, 1911. 

V. S. i)atent 1100539. "Cyclical process of fixing atmospheric nitrogen, June 

V. S. patent 1100582. " Proces's of cruslung and grinding calcium carbid. 

June 16. 1914. „ ^ , ^ • ir^i • 

r S patent 1103060. "Method and means for fixing nitrogen. July 14. 1914. 
r. S. patent 1103061. " I'rocess and apparatus for fixing atmospheric nitrogen." 

Julv 14, 1914. . ^ . .. M T 1 n 

I . S. patent 1103062. " Method of and apparatus for fixing nitrogen, July 14, 

1914 

r. S. patent 1149653. " Process of making ammonia from calcium cyanamid." 

August 10, 1915. ...... ^ , oo -im- 

r S patent 1154640. " Process of producing ammonia. September 28, 19lo. 
I'. S. patent 1163095. " Process of making ammonia from calcium cyanamid." 

December 7, 1915. • ,» T»r oo imp 

r. S. patent 1183885. " Apparatus for producing ammonia. Alay 23, 1916. 



Copy of (\)ntract No. T-69, Army No. 12835. Dated December 1, 191 <, between 
The United States and Alabama Power Co. for Construction of Generat- 
ing Station, Substations, and Transmission Lines, and for Supply of Elec- 
trical Energy to United States Nitrate Plants at Muscle Shoals and 
Sheffield. Ala. 

[Office of the Cliief of Ordnance, Nitrate Division, Wasliington, D. C] 

This agreement, datetl December 1, 1917, between Alabama Power Co., a cor- 
poration organized and existing under the laws of the State of Ah>baina (herein- 
after called the " contractor "), party of the first part, and the I nited States ot 
\merica by William Williams, lieutenant colonel, Or<lnance Department, Lnited 
States \rniv, acting as contracting (»tticer by authority of the Chief of Ordnance 
United States Army, and under the <lirection of the Secretary of War, party ot 

the second part, witnesseth : o, *« ,, vi i .. n..,- 

Whereas the United States is constructing at or near Slieftield, Alabama, ct i- 
tain plants for the production of ammonium nitrate and other chemicals and \mii 
require electric energy for their operation and for other purposes; and 

Whereas the contractor owns and operates an electric generating tiansmittinu' 
ami distributing svstem in the State of Alabama which includes hi general ( l ) 
a hvdroelectric plant on the Coosa River with an installed capacity of b<,.)(n/ 
K V \ • (2) a transmission network (including a 110,000-volt system) connect- 
ing tiie aforesaid plant with various other plants and substati<ms; (3) a steani 
reserve generating plant, hereinafter referred to as the Warrior Station, situated 
on the Black Warrior River at the junction of said river with Bakers Creek. 
Walker County, and having an installed capacity of 25,000 K- V- A. ; (4) certain 
rights of wav extending approximately twenty miles from said Warrior Station 
toward Sheffield, Ala., and available for the construction thereon of a portion 
of the transmission line hereinafter referred to; and , , ^ • ^ xv^v- 

Whereas the contractor represents that it now owns and control? at said A> 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<J to in Article III. 

Article II. 

Neiv facilities at Warrior »S7aY/oH.— The contractor shall, at the expense of 
the United States, prepare and submit to the contracting officer for approval, 
general plans and specifications for additional plant and other facilities at or 
near its Warrior Station as follows: 

(a) Warrior extension .—For a new power station building with a 33,333 
K. V. A. steam turbo generator with boilers and switchboard and for other 
facilities as more fully described in schedule A hereto annexed and made a part 
hereof. The aggregate of the new facilities to be erected or installed under 
this subdivision, including all movable property thereto pertaining, are here- 
inafter referred to as the " Warrior extension." 

[b) Wanior substation. — For a new substation ami substation apparatus, 
as more fully described in schedule B hereto annexe<l and made a part hereof* 
The aggregate of all new facilities to be erected or installed umler this sub- 
flivision, including all movable property thereto pertaining, are hereinafter 
referred to as the " Warrior substation." 

Upon the approval by the contracting officer of said plans and specifications 
for the Warrior extension and the Warrior substation or any part thereof the 
contractor shall as the agent for and at the expense of the United States fur- 
nish labor, materials, tools, machinery, equipment, facilities, and supplies and 
<lo all things necessary for the construction and completion of all builllings 
and structures for the installation of all equipment and for the performance 
of all other work described in the plans and specifications so approved as thev 
may be amplified by detailed plans and specifications submitted to and approvei^l 
by the local representative of the contracting officer. 

Article III. 

Transmission lines.— (1) The contractor shall, subject to the approval of 
rne contracting officer, but at the sole expense of the contractor, select sur- 
vey, and acquire the title to the necessary right of way of approximatelv one 
inindred feet width to provide, in conjunction with its said present right of 
jyay of approximately twenty miles lengtli and one hundred feet width a con- 
nmious and reasonably direct right of way for a transmission line from said 
^^arrlor substation to a point (to be designated by the Chief of Ordnance) on 
nie land of the United States on which is located its Muscle Shoals nitrate 
I'nnit and substation. 

<2) The c<mractor shall, at the expense of the Unite<l States, prepare and 
^"onnt to the contracting officer for approval general plans and specifications 



y 



152 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



153 



for a transmission line of the general character described in Schedule C liereto 
annexed and made a part hereof, extending from said Warrior substantion over 
said right of way to said land of the United States, thence over said land, as 
determined by the contracting officer, to the Muscle Shoals substation referred 
to in Article IV. Upon the approval by the contracting officer of said plans and 
specifications or any part thereof, the contractor shall as the agent for and at 
the expense of the United States furnish all the labor, materials, tools, ma- 
chinery, equipment, faciUties, and supplies, and do all things necessary to clear 
so much of said right of way and so much of the land of the United States alon^ 
the line which may be indicated by the contracting officer as may be necessary 
and to construct thereon a transmission line and appurtenances in accordance 
with the plans and specifications so approvetl, as they may be amplified by de- 
tailed plans and specifications submitted by the contractor to and approved by 
the local representative of the contracting officer. Such transmission line and 
appurtenances are hereinafter referred to as tbe transmission line. 

(3) The contractor shall, at the expense of the United States, prepare and 
submit to the contracting officer for approval general plans and specifications 
for a branch transmission line of the general character of the transmission 
line, extending from a point on the transmission line at or near Uussellvdk 
to tiie limestone quarry of the United States, a distance of approximately 3.0(X) 
feet Such branch transmission line and appurtenances are hereinafter referrei'i 
to as the quarry branch line. Upon the approval by the contracting officer of such 
plans and specifications the contractor shall as the agent for and at the expense 
of the United States likewise construct the quarry branch line on a right of 
wav to be provided by and at the expense of tlie Unite<l States. 

(4) The contractor shall, until the termination of the war. on written request 
bv the contracting officer, construct at the expense of the United States any 
other branch transmission lines required by the Unite<l States in connection 
with the operation of said nitrate plants, on a right of way to be provided 
by and at the expense of the United States. The Unted States shall pay the 
contractor as compensation for its services under this subdivsion such fee 
as mav be allowed by the contracting ofiicer. • 

(5)' The contractor may construct, operate, and maintain only such other 
transmission lines and appurtenances on its said right of way as in the opinion 
of the Chief of Ordnance will not in any way interfere with the construction 
and operation by the United States of the transmission line or of an additional 
110 000 volt transmission line and appurtenances, if the United States desires 
to construct such, paralleling the transmission I'ne. The contractor shall not 
use the poles or wires erected nor the way cleared at the expense of the United 
States without the written authority of the Chief of Ordnance. 

Article IV. 

Muscle SnoaU suhsfation.— The contractor shall, at the expense of the Unitecl 
States prepare and submit to the contracting officer for approval, general 
plans and specifications for a substation and substation apparatus at Muscle 
Shoals, as described in Schedule D hereto annexed and made a part hereof. 
Said substation and substation apparatus are hereinafter referred to as the 

"Muscle Shoals substation." . ., , ^ •« ^•.„. 

Upon the approval by the contracting officer of said plans and speclficatlon^ 
or any part thereof, the contractor shall, as the agent for and at the expense 
of the United States, furnish all labor, materials, tools, machinery, equipment. 
facilities, and supplies and do all things necessary for the construction of all 
buildings and structures, for the installation of all equipment and for the 
performance of all other work described in the plans and specifications so ap- 
proved, and as amplified by plans and specifications submitted by the contractor 
to and approved by the local representative of the contracting officer. 

Article IVa. 

Drifton extension raUroad.—The contractor shall prepare and submit to tht 
contracting officer for approval general plans and specifications for the ex 
tension of the Drifton branch of the Southern Railway from the terminus ot 
said branch to the Warrior extension, a distance of 8.000 feet, more or less. 
Upon the approval by the contracting officer of said plans and specification- 
or any part thereof, the contractor shall furnish all the labor, materials, tools, 
machinery, equipment, facilities, and supplies, and do all things necessary for 
the construction of said Drifton extension railroad, and of all other work de- 



scribed in the plans and specifications so approved, and as amplified by plans 
and specifications submitted by the contractor to and approved by the local 
representative of the contracting officer. The construction, operation, and main- 
tenance of said Drifton extension railroad shall be on the terms and condi- 
tions set forth in Schedule B hereto annexed and made a part hereof. The 
parties hereto shall, without unnecessary delay, execute a supplemental con- 
tract in relation to the subject matter of this article, which shall embody such 
further details and contain such reasonable clauses as the contracting officer 
shall deem necessary. 

Article V. 

Changes in drawings and specifications.— The contracting officer may, from 
time to time, by written instructions, make changes in the drawings and speci- 
fications prepared by the contractor and require additional work or direct the 
omission of work previously ordered, and the provisions of this contract shall 
apply to all such changes, modifications, and additions with the same effect as 
if they were embodied in the original drawings and specifications; but the 
contractor shall not be held responsible for delays resulting from such changes 
or delays in giving approvals. Changes, modifications, and additions affecting 
the contractor's property or system to be mutually agreeable ; provided that the 
submission by the contractor for approval and the approval by the contracting 
officer of any such change, modification, or addition shall be evidence of such 
agreement. 

Article VI. 

Subcontracts.— The contractor may, with the written approval of the con- 
tracting officer, perform any part of the construction and equipment work 
under this contract through the means of subcoutracts, but such subcontracts 
shall contain a reference t.o this contract and an express provision that they 
are subject to all provisions hereof, and that with the consent of the United 
States they may be assigned by the contractor herein to the United States or 
its nominee. Nothing in thi« article contained, nor the approval of said sub- 
contracts, shall relieve the contractor of any of its obligations hereunder. A 
copy of every subcontract shall be delivered to the contracting officer promptly 
upon the execution thereof. 

Article VII. 

Use by United States of contractor's lands. — (1) The contractor agrees dur- 
ing such period as the United States shall remain the owner of said Warrior 
extension and substation and until their acquisition by the contractor or their 
removal by the United States (a) that the United States shall have the right 
to occupy for the purposes of this contract all parcels of lard upon which 
any building or structure of whatever nature (including lines, pipes, poles, 
apparatus, or connections),' may or shall be erected under this contract for or 
at the expense of the United States in connection with the Warrior extension 
or Warrior substation; (6) that the United States shall have rights of ingress 
and egress for the purpose of this contract to and from all such parcels of 
land and from one to the other with the right to make all necessary connec- 
tions across any of such lands, to lay, relay, maintain, and repair' conduits 
and pipes and to erect poles, and in general to do all acts and things necessary 
to enable the United States to make the most convenient use of such buildings, 
structures, machinery, intake and discharge facilities and connections in carrv- 
ing out this contract; in such manner, however, as not to interfere with tlie 
operation of the contractor's Warrior station without its previous consent. 

(2) The contractor also agrees that the United States may erect and main- 
tain transmission lines on the contractor's said right of way from the Warrior 
^xtension to the land of the United States on which is located its said Muscle 
Shoals nitrate plant during such period as the United States shall remain the 
owner of tlie transmission line. 

Nothing in this article contained, however, shall prevent the contractor 
from utilizing in such manner as it may desire any of its lands not occupied 
ny the United States on December 1, 1918, subject, however, to the provisions 
of subdivision (5) of Article III. 



154 



MUSCLE SHOALS PROPOSITIONS. 



Article YIII. 



MUSCLE SHOALS PROPOSITIONS. 



155 



Maintenance of Warrior evtemimi, substations, and the transmission line- 
Insurance— The contrnctor shall at its own expense, upon the termination of the 
period of preliminary operation mentioned in Article XIV and during the period 
de'^cribed in the first paragraph of Article VII, maintain the Warrior extension 
and the Warrior substiition, including all equipment and appurtenances, in 
tirst-class repair and suitable condition for efficient and continuous operation. 

The contractor shall at its own expense, upon the termination of said period 
♦►f preliminary operation and during the period described in the second para- 
graph of Article VII hereof, maintain the transmission line ainl the quarry 
branch line in good repair and suitable condition for efficient and continuous 
operation. The contractor shall upon written request by the contracting officer 
cause the W^arrior extension, said substations, and said transmission lines to 
be duly policed, but at the expense of the United States. Upon failure of the 
contractor after reasonable notice from the contracting officer tx) maintain saul 
proijerties in repair as hereinabove provided, the United States shall make 
such repairs and charge the cost thereof to the contractor. 

The contractor shall, upon the termination of said period of preliminary 
operation, insure and keep insured all of said property of a character which 
it is customary to insure, against loss or damage by tire and any other casualty 
customarily covered bv insurance; loss or damage to be payable to the Lnited 
States as its intere^ may appear : all policies to be subject to the approval of 
the contracting officer. The cost of such insurance shall be borne by the con- 
tractor In the event of damage to or the destruction of said Warrior extension 
or Warrior substation from whatever cause after the contractor begins to oper- 
ate the s-ame as a part of its system the contractor shall, at its own expense 
promptly replace the property so damaged or destroyed. Insurance collecte(I 
in respect of such damage or loss may be paid to the contractor, as the work of 
reconstruction progesses, in such amounts as the contracting officer deems 
proper If anv right of action or claim exists in favor of the United States 
as the beneficiary of such insurance or as the purchaser of any damaged or 
destroved apparatus or property connected with ^aid Warrior extension or 
Warrior substation, the contractor shall be entitled to the benefit of such fight 
or claim for the pui-pose of reimbursing or protecting it in replacing property 
so ilamaged or destroye<l : and the United States agrees either to assign such 
riirht or claim to the contractor or to pursue the s-ame for the benefit of the 

During the construction of the Wai'rior extensicm. the Warrior substation, 
and th-e transmission line, and until the contractor shall have commenced 
operation of the same as part of its system (but not thereafter) the United 
States shall bear all losses or accidents to person or property occurring in the 
course of the work. 

AUTICLK IX. 

Title to propertif paid for hy I uited States.— The title to all property pur- 
cha-^ed acquired erected, or installed at the expense or for the account of the 
Unitetl' States, including the Warrior extens'on. Warrior substation. Muscle 
Shoals substation, the transmission line, and the quarry branch line shall forth- 
with upon such purchase, acquisition, erection, or installment vest in the Unite<i 
States Wl propertv of the United States shall, so far as practicable, be kept 
separate and apart from property belonging to the contractor and the contractor 
shall acquire no property right or interest therein. Such property shall at all 
times be considered personalty, which shall not be deemed to be so affixed to 
the real estate as to become a part thereof. It shall be plainly marked to 
denote ownership as the contracting officer may direct. « ^ # i 

The contractor agrees to protect and save harmless the United States from 
anv and all claims that may be made by or on behalf of any mortgagee, trustee, 
bondholder, or lienor to anv building, structure, machinery, equipment, or other 
propertv of the United States that may, under the provisions of this contract, 
be placed upon any of the contractor's land which now is or hereafter shall )e 
subjei-t to a mortgage, lien, or dee<l of trust, including the first mortgage of tlic 
Alabama Power Co., dated March 1. 1916. 

Article X. 

Schedule of I nitrd States propertif.-il) As soon as practicable a schedule 
of the propertv belonging to the United States under this contract shall be ma(ie 
in duplicate bv the contractor and approved an<l identified by the parties hereto. 



As additional property is acquired, at the expense of the United States, for use 
in connection with the Warrior extension, the Warrior substation, the Muscle 
Shoals substation, the transmission line, or the quarry branch line, a like sched- 
ule thereof shall be made, approved, and identified as aforesaid ; and all proi>- 
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 Uiiite<l States shall pav such 
cost in the manner following : 

(a) It shall pay directly to laborers and and material men all labor, mate- 
rials, and supplies, the cost of which has been so approved or ratified also all 
rent due the contractor under Schedule F in respect of anv construction plant 
or office si)ace of the contractor. 

(b) It reserves the right to pay directly to comm<m carriers any or all freight 
and express charges on materials, supplies, or machinerv certified bv the con- 
tracting officer as being for use under this contract. 

(c) It shall reimburse the contractor for all costs and expenditures incurred 
and paid by the contractor upon the same being approved or ratified bv the 
contracting officer. 

The United States shall detail a sufficient number of disbursing officers for 
service on the work with power and funds to make prompt pavment of all sums 
dJie upon this article. 

Article XII. 

Compensation by United States for use of contractor's lands and other facili- 
ties, and in lieu of overhead.— \J\}on the signing and delivery of this contract the 
I nited States shall pay to the contractor the sum of sixtV thousand (60 000) 
dollars in full satisfaction (a) for all uses of contractor's' lands mentioned in 
Article VII and for the use of the facilities ownied or controlled bv the con- 
tractor and referred to in the recitals to this contract; (&) for overhead ex- 
penses of the contractor. 

Article XIII. 

Contractor's fee.— As full compensation for the services of the contractor in 
all work of construction and equipment to be performed hereunder, including 
the work mentioned in Schedules A, B, C, and D, the United States shall pav 
to the contractor a fee equal to six per cent of the cost described in Article XI 
except that no fee shall be paid in respect of the following : 

(a) Plant or equipment funiished by the United States. 

(6) Freight and express charges, other than charges for transportation of 
the contractor's construction plant, equipment for construction, and tools. 

(c) Premiums on bonds, losses and expenses menti(med in subdivision (//) 
of Schedule F. 

^ (d) Cost of reconstructing or replacing any damaged work, unless the fee 
thereon shall be authorized by the contracting officer under subdivision (A) of 
Schedule F. 

The amount of said fee shall be computed by the contracting officer and 
payments shall be made monthly, based upon the cost of disbursements of the 
preceding month. In determining said fee the payments bv the United States 
flescribed in Article XII shall not be included as a part of the cost of anv of 
the work. The total of said fee shall not exceed tw^o hundred and twentv-five 
thousand (225,000) dollars. 

Article XIV. 

Period of preliminary operation.— From such time as the Warrior extension, 
ihe Warrior suUstation, and the transmission line are, in the opinion of the 
^contracting officer, ready for preliminary operation and until December 1, 1918, 



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MUSCLE SHOALS PROPOSITIONS. 



157 



or until such later date as the same are deemed by the Chief of Ordnance as 
complete and ready for use in the performance of this contract, the contractor 
shall operate the said properties at the expense of the United States, such ex- 
pense to include all labor, coal, material, and supplies which may be used in 
the testing or operation of said properties, and also a fair proportion of the 
expense of the contractor's regular operating staff engaged in said work. Such 
expense shall be paid to the contractor monthly, but shall not be included in 
the cost of such properties for the purpose of determining their value. 

During the period of preliminary operation all energy developed by the War- 
rior extension shall, to the extent that the United States shall require, be deliv- 
ered to the transmission line and no charge shall be made therefor by the con- 
tractor. The equivalent of any energy generated during suqji period at the 
AVarrior extension and used by the contractor for commercial purposes shall be 
recorded and returned to the United States by the contractor at the Warrior 
extension switchboard, either from its own systetm or from the Warrior exten- 
sion after the contractor shall have commenced operations thereof as part of its 
system. 

Arttclk XV. 

Operation of Warrior extension, of suhstatloufi, and of transmission lines— 
EJertriv envryy to he furnished. — Upon tlie termination of the period of pre- 
limiunrv «)i>eration 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. 



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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 



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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 



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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 



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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<l 
reimbursement or protection from the United States and which are of such 
character that the United States would, under the terms of this contract, 
have become liable to reimburse the contractor for its expenditures thereunder, 
had this contract not been so terminated. 

Sec. 3. Assignment of subcontracts. — In the event of the cancellation and 
termination of this contract, pursuant to the provisions of the above sections 
1 and 2, the contractor shall, upon the request of the contracting officer, 
assign to the United States, or to such person as the contracting officer may 
direct, the unperformed portion of any or all contracts and subcontracts made 
by the contractor in contemplation of or in connection with the performance 
of this contract. In the event of the failure of the contractor to assign any 
such contract or subcontracts as herein provided, this contract shall operate 
as such assignment. It is understood that such assignment in and of itself 
shall not compel the United States to assume or become responsible for any 
obligation of the contractor which has arisen prior to such assignment by 
reason of the contractor's performance of, or failure to perform, the contract or 
subcontract so assigned. 

Sec. 4. Taking possession of contractor's plant. — In the event of the cancel- 
lation or termination of tbis contract pursuant to the provisions of the 
above sections 1 and 2, the United States may, for the purpose of 
completing the i)erformance of the work herein contracted for, or any 
part thereof, take possesion of and use any or all of the plants and properties 
of the contractor used in accordance with Article VII, in carrying out this 
contract. In such event the United States shall pay to the contractor such 
reasonable sum for the use thereof as may be agreed upon between the con- 
tracting officer and the contractor, or, if they fail to agree, as may be de- 
termined in the manner and with the effect provided in Articles XXIV or 
XXV. Such plants and properties shall be occupied and used by the United 
States without cost or expense to the contractor; and during such use the 
United States shall save the contractor harmless from all damages for injury 
to person or property resulting from such use, the United States, however, 
reservii'i; any claims which it may have against the contractor under this 

contract 

Article XXVIII. 

Measuring instruments — Testing. — All energy delivered shall be measured 
bv duplicating polyphase integrating watt-hour meters or others of standard 
make, to be provided by and installed at the expense of the United States, and 
kept in repair to the satisfaction of the contracting officer by the contractor 
at its expense. All energy- shall be measured both as to rate of supply and 
quantity by the average duplicate readings of the meters. 

The meters shall be tested and adjusted by the contractor to measure and 
record within one per cent of absolute accuracy under average operating con- 
ditions. In case of dispute, each of the parties hereto shall, upon seven days' 
written notice to the other, have the right to disconnect any meter and have it 
tested bv a competent and disinterested person acceptable to both parties; and 
for failure of the parties to agree upon such a person within ten days after 
such notice has been served, he shall be selected by the Chief of Ordnance. It 
any meter shall, upon being tested, record more than two per cent in excess 
of correct registration, the contractor shall pay the cost of the test ; if it shall 
record less than ninety-eight per cent of the correct registration, the United 
States shall pay the cost of the test; and if the error shall not exceed two 
per cent, the cost of the test shaU be borne by the party in whose behalf the 
test was made. Any adjustment in the charge for energy made necessary on 
account of an error in the meter shall cover a period of not exceeding thirty 
days prior to the time when such test was called for. The United States shau 
pay for current consumed during such time as a meter is out of order in ac- 
cordance with the registration of the second or duplicate meter above referred 
to and in case both meters are in error an amount to be estimated upon tne 
basis of the registration of the meter during a similar period when they were 
functioning properly. 



At all tests, calibrations, readings, and adjustments by either party the other 
party shall have the right to be represented. 

Abticle XXIX. 

Approval by contracting officer.— The contractor shall not enter into con- 
tracts in connection with construction work or proceed with such work until 
the approval of the contracting officer has been obtained. 

Inspection.— All work of every kind to be performed and all property to be 
acquired or installed under this contract shall at all times be subject to inspec- 
tion and test by the duly authorized inspectors of the Ordnance Department, 
and the contractor shall (but at the expense of the United States) furnish 
all reasonable facilities and assistance requested by such inspectors for the 
performance of their duties. Such inspectors may reject all work and mate- 
rials not complying with the terms of this contract, and all work and materials 
so rejected shall be replaced by the contractor without charge therefor to the 
United States. 

Access to properties.— The duly authorized representatives of the United 
States shall at all times have free access to the Warrior extension, the War- 
rior substation, the transmission lines, and all other property owned by the 
United States for the purposes of inspection testing, making inventories, and 
any other purpose under this contract, provided that no directions or instruc- 
tions shall be given the employees of the contractor in respect to the operation 
of said properties except as in Article XXXV provided. Such representatives 
of the United States shall also have free access to the properties of the con- 
tractor for the purposes of inspection and testing so far as necessary under 
this contract. 

Records.— The contractor shall keep complete records, of such character and 
in such form as may be approved or required by the contracting officer, as to 
all construction expenses and as to such operating expenses as may effect the 
rate to be charged the United States for energy or any other right of the 
United States hereunder, all of which records shall at all times be open to 
the inspection of the United States or its duly authorized representatives. 
Said records shall be retained by the contractor at the disposition of the 
United States for the period of six years after the termination of this con- 
tract. 

Audit— Erroneous payments. All accounts shall be subject to audit by the 
United States. Payments by thte United States shall be subject to correction 
for errors, if any. 

Abticle XXX. 

Payments not subject to cmmter claims. — All payments hereunder shall be 
nuide as and when due, without deduction for any claim or counterclaim ; pro- 
vided, however, that the United States before making any payment as to which 
there may be a bona fide question may require, as a condition thereof, the giv- 
ing of an adequate bond for the repayment of such part thereof as may, under 
Article XXV or otherwise, be found not to be due, failing which, payment 
shall be made in escrow, subject to the terms of this agreement, to some national 
hank in the city of Birmingham, to abide the decision of competent authority. 

Abticle XXXI. 

Incumbrances.— The contractor agrees not to create or suffer to be created 
any lien or incumbrance against any work paid for by the United States, or 
against any property entering into its performance, and in the event any such 
hen or incumbrance is created, the contractor agrees promptly to pay and dis- 
charge the same or to furnish proper bond or security to have the same re- 
leased, to the end that said work may become the property of the United 
States free and unincumbered. In case the contractor shall fail to pay and 
discharge any such lien or incumbrance or to furnish proper bond or security 
to have the same released, the United States may do so at the contractor's 
expense and may deduct from any payments due to the contractor hereunder 
the amount of any expense so incurred by the United States. 



» 



] 



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MUSCLE SHOALS PROPOSITIONS. 



167 



Article XXXII. 

Band. — The contractor shall, prior to December 1, 1918, furnish to the 
United States a bond in the sum of fifty thousand dollars, conditioned 
upon the full and faithful performance by the contractor of all terms, cove- 
nants, and conditions hereof in relation to construction worli and upon the 
prompt payment to all persons supplying labor or materials in the prosecution 
of the construction work under this contract. Such bond shall be in form and 
with sureties satisfactory to the contracting officer, and, unless it is furnished 
within the time limited, this agreement may, at the option of the contracting 
officer, be canceled. The United States shall reimburse the contractor for the 
premium of such bond. 

Abticle XXXIII. 

Revenue from housing, stores, etc. — All revenue from the operation of any 
housing, boarding houses, commissaries, stores, infirmary, hospital, and other 
facilities, the property of the United States, and from refunds, shall during 
the period of construction be accounted for by the contractor to the United 
States and shall belong to the United States. 

Aeticle XXXIV. 

Contract nonassignable. — ^Neither this contract nor any interest herein shall 
be transferred by the contractor to any other party, except to the extent 
permitted by section 3477, United States Revised Statutes. 

Officials not to benefit. — No 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 exceptions of sec- 
tion 116 of the act of Congress approved March 4, 1909 (35 Stats., 1109). 

Prison labor. — ^No person or persons shall be employed in the performance 
of this contract 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. 

Article XXXV. 

Service of notices. — Notices, directions, instructions, and demands under this 
contract shall be given in writing only and shall be deemed served upon the 
contractor if addressed to it at Birmingham, Ala., and either delivered to the 
general manager at its office in said city or deposited in a postpaid or penalty 
envelope in any post-office box regularly maintained by the United States. The 
address of the contractor may be changed at any time by notice in writing to the 
contracting officer. 

Notices shall be deemed served upon the United States if deposited in the 
registered mail addressed to the Chief of Ordnance, Washington, D. C. All 
such notices shall identify this contract by stating the contractor's name, the 
date thereof, and the file and war order number as given on the cover hereof. 

The said general manager and the contracting officer may from time to time 
designate, in writing, others to receive and give notices, directions, and instruc- 
tions as to specific matters as well as the manner in which the same may be 

given and received. 

Article XXXVI. 

Definitions. — Whenever in this contract the words hereinafter enumerate(! 
are used, they shall mean what is set opposite them : 

Contractor : The party of the first part and its legal representatives, succes- 
sors, 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 any one 
from time to time designated by the Chief of Ordnance to act as contracting 
officer. 



Termination of the war : The time when the President of the United States 
shall by proclamation declare the war terminated. 

In witness whereof the parties hereto have caused these presents to be exe- 
cuted and delivered in quadruplicate at Washington, D. C, the day and year 
first above written. 

Aj,abama Power Company, 
By James Mitchell, Its President. 

United States of America, 
By William Williams, 

Lt. Col. Ord. Dept., U. 8. A., 

Contracting Officer. 
Witnesses : 

C. F. Beames. 
Frank D. Mahoney. 

schedui.e a. 

Being description of Warrior extension, annexed to and made a part of 
agreement dated December 1, 1917, between Alabama Power Co. and United 
States of America : 

WARRIOR EXTENSION. 

1. New power station building of structural steel and brick construction 
adjacent to contractor's present power generating station. 

2. One 225 feet by 18 feet inside diameter radial brick stack. 

3. Apparatus to be installed in said new power station building. — One 30,000 
k. w. General Electric Co.'s (33,333 k. v. a.) 13,200 volt, 3 phase, GO-cycle turbo- 
generator with 140 k. w. 250 volt direct connected D. C. exciter. 

4. One 56,000 square feet Worthington surface condenser together with one 
48-inch centrifugal circulating pump driven by 653 h. p. General Electric Co.'s 
motor; three No. 10 Worthington hydraulic vacuum pumps; two combined 
steam driven hydraulic supply hot- well pumps; necessary piping; car spring 
supports; 200 spare condenser tubes; 200 spare ferrules; and 500 tube pack- 
ings. 

5. Twelve 1,200 B. H. P. Babcock & Wilcox Stirling type boilers with super- 
heaters designed for 225 pounds pressure, 200 degrees superheat. 

6. Twelve sets of soot blowers for above boilers. 

7. Eleven 12-retort Westinghouse underfeed stokers with driving mechanism 
and Westinghouse engines. 

8. One 12-retort Taylor stoker with ABC engine and steam dump grate. 

9. Two 36-inch link belt coal conveyors, crusher, and screen with necessary 
structural support, cross-over dump tracks and housing, substantially as shown 
on drawings, E-6900, E-6902, C-6658, C-6633, C-6794, C-7158. 

10. Two reinforced-concrete coal bunkers. 

11. Twenty-four coal gates. 

12. Twenty-four automatic weighing machines under coal gates. 

13. Twenty-four coal chutes. 

14. Twelve reinfoi*ced-concrete ash hoppers. 

15. Thirty-six 36 by 36 inch ash gates. 

16. One l,()00-gallon 50-foot head vertical sump pump direct connected and 
driven by a motor, witJi automatic float switch in condenser room. 

17. One 1,000-gallon 20-foot head centrifugal sump pump for ash room. 

18. Two 100-gallon 40-foot head vertical bilge pumps with automatic float 
switch. 

19. One 15-ton electric trolley locomotive, 250 volt, for handling ashes. 

20. Twelve 2 cubic yard rocker dump ash cars, 36-inch gauge. 

21. One set of boiler gauges and instruments. 

22. Two double unit 430,000 pounds per hour Cochrane feed water heaters. 
^d. Twelve Copes water feed regulators. 

24. Four 1,400-gallon 565 feet head Alberger centrifugal boiler feed pumps; 
^driven by General Electric Co. motors and 2 driven by Alberger steam tur- 
omes. 

25. Four 80,000 cubic feet per minute Buffalo blowers, each directly connected 
to a 150 H. P. Westinghouse motor. 

« r^A ??"^ 80,000 cubic feet per minute Green fans, each directly connected to 
a 150 H. P. Kerr steam turbine. 



168 



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MUSCLE SHOALS PROPOSITIONS. 



169 



27 Two l,200^galloii 150-foot head Alberger centrifugal house service pumps; 
one driven by General Electric Co. motor; one driven by Alberger steam tur- 

iune. 

28. One 42-inch Crane Co.'s atmospheric exhaust valve. 

29. One set steam exhaust and water piping. 

30. One set of Nonpareil steam pipe covering. 

31. One 9-panel 550 volt service switchboard for powerhouse motors. 

32. One 4-panel D. C. exciter and railway switchboard. 

33. One 150-KW. 250 volt D. C. 550 volt A. C. motor-generator set. 

34. Six 2,000 amp., 15.000 volt, 3-phase oil switches, with cells. 

55 One 800 amp., 15,000 volt, 3-pole single-throw oil switches, with cells. 
36 Two 300 amp., 15.000 volt, 3-pole single-throw oil switches, with cells. 

37. Two 750 KW., 13,200-55 volt, 3-phase indoor type oil insulated self-cooled 
transformers, for station service. 

38. Two 13,200 volt busses with compartments and with all copper connec- 
tions and insulators. 

39. Three reactance coils, complete, with mountinga 

40. Eleven sets of control cables and conduits. 

41. Provision for storage of coal, grading, trestles, and tracks, as shown ou 
drawing C-7139, but not including crane or other coal-handling devices. 

42. Yard tracks as shown on drawing E-6887. 

43. One standard-gauge steam locomotive. (Used during construction.) 

44. Eight standard-gauge coal cars, for reloading from coal storage. 

45. One 15-ton standard-gauge locomotive crane with boom about 35 feet long, 
used during construction and to be overhauled and equipped with coal bucket 
for auxiliary coal handling. 

46. One steel guy derrick and engine, for use during construction. 

47. One wood guy derrick and engine, for use during construction. 

48 Twelve type D or E frame houses, to be in accordance with drawings dated 
May 29, 1918, sheets 1, 2, 3, 4 for each type— no serial number— by Warren & 
Knight, architects, Birgingham, Ala. 

49. One bath and locker building, in accordance with drawing C-<055. 

50. Twenty four-room frame houses, used during construction, to be im- 
proved according to drawings C-6453 and 6454, for housing operators. 

51. Seventeen two-room frame shanties. 

52. Four bunk liouses, for use during construction. 

.53. One hospital. ,,,^. ^ ., . „ 

54. One mess hall, commissary, and storeroom, as additions to Alabama 

Power Co. facilities, as shown on drawing E-6887. 

55. One ice plant. 

56. Six miscellaneous commissary and office building>< 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 



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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. 



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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." 



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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 




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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 



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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 
<jommercial fertilizer, but after it gets beyond Mr. Ford's hands, suppose some 
one should organize a purchasing corporation and purchase Mr. Ford's output, 
what is there standing between that company and the farmer? 

Col. Hull. The right of the board to determine the equitable territorial dis- 
tribution of fertilizer products at nitrate plant No. 2. 

Mr. Miller. Suppose that your board should distribute, let us say, so much 
of this product to the State of North Carolina and so much to the State of 
Tennessee and so much to Kentucky and to other States or other lesser divi- 
sions than a State and say that they are entitled to so much of this output, your 
board can control the quantity produced for each one of those localities, but 
what check has it on the price that the farmer shall pay in each one of those 
localities? 

Col. Hull. None. 

Mr. Miller. None whatever, has it? 

Col. Hull. Not that I can see. 

Mr. Miller. In other words, there is nothing in this contract, Colonel, that 
controls the price of fertilizer as it shall reach the farmer, and that is what 
we are after in this matter ; that is the whole undertaking, to get cheap fer- 
tilizer into the hands of the farmer. Now, would it not be salutary in this 
case — I am in deep sympathy with cheap fertilizer and I will go the limit to 
get cheap fertilizer to the farmer, but should there not be some clause in this 
contract by which Mr. Ford or his company have control of this product until 
it shall reach the very hands of the people who will consume the product, if 
we want to safeguard it and get a cheap fertilizer to the farmers? 

Col. Hull. All I can say as to that is that the farm organizations that were 
primarily concerned did not have any fear of that kind. 

Mr. Miller. That is true, but there will be many farm organizations come 

and go. , 

Col. Hull. After you have raised the question, they are more concern; a 



^4th it-^ 

Mr. Miller (interposing). This is a 100-year contract, and many farm 
organizations will come and go like the bubbles on the waters, just as they 
have in the last 50 years, or 20 years, or 10 years, and we are dealing here wit/J 
something that is almost in perpetuity, five generations ahead of us, and it 
we are going to do anything, which is our earnest endeavor, to increase the 
productiveness of the soil and help the farmer, should we not have something 
of a permanent character in this contract rather than to leave it to the associa- 
tions of farm organizations, as they come and go every year, dealing with tlus 
matter? 



Col. Hull. Any clause of that kind. I believe, would be acceptable to the 
representatives of the company that will appear before you next week if 
it can be so drafted. ' 

Mr. Miller. Was there any suggestion of a clause of that character in your 
draft? 

Col. Hull. No, sir. This clause was not drafted in the office. It was adopted 

Mr. Miller. We have a clause that will insure to the farmer the production 
of this plant at not to exceed 8 per cent profit to the manufacturer at the 
works. We have that safeguarded in this contract. Now, from there on, until 
it reaches the farmer, there is nothing here in this contract, and what I was 
thinking of was some clause by which it shall reach the hands of the farmers 
at a fair and reasonable price. 

Col. Hull. If a fair clause of that kind could be drafted, I believe that the 
insertion of such a reservation would not meet with opposition. Of course, you 
can find that out next week. 

Mr. Miller. What I am alarmed about in this contract, and I am frank to 
say it right now, is that if the production of fertilizer in Mr. Ford's enterprise 
or his company's enterprise should become a formidable competitor with the 
very substantial interests now engaged in the sale of fertilizer, a purchasing 
company may be organized for the purpose of purchasing the output of this 
factory and get hold of that output, even though distributed in zones as the 
contract calls for; because this board has no control over prices We want 
to keep that in our minds clearly. They could purchase the output of this' 
factory, husband it, and dispense it as they pleased, or send it to these zones, 
just as they pleased, and put the prices to the farmer up equal to what Mr 
Commercial Fertilizerman gets for his fertilizer now. 

Col. Hull. If a clause of that kind can not be drafted, I should imagine that 
a criminal statute could be drafted that would meet such a condition. 

Mr. Miller. Under what law have you in mind that a criminal statute could 
be so drawn? 

Col. Hull. The interstate commerce clause. 

Mr. Miller. Does that control the price of anything? Take, for instance the 
10 men who organized this Air Nitrates CoriK)ration, which is probably a sub- 
sidiary corporation. I think it would be wise to safeguard these things be- 
cause what we are deeply concerned in and what I think we are all in sympathy 
with is that if the Government embarks on this enterprise and puts in this 
enormous sum of money, $50,000,000 in addition to the $105,000,000 and over 
that it has now invested there, making in round numbers $160,000 000 that 
the Government has put in these plants, we are deeply concerned that the 
agricultural interests shall get the benefit of this whole thing, and that some 
cunning and clever manipulating company shall not get this thing in a condition 
so that they can control ultimately the output of this enterprise and set the 
price. 

Col. Hull. That is the first time that idea has been expressed. 

Mr. Miller. It occurred to me from an examination of the contract. I have 
not had the time to devote as much time as I would like to it. 

Col. Hull. If it had arisen it would have been more fully covered I have 
no doubt, in this contract. ' 

Mr, Miller. I think it is very, very important. 

Mr. Parker. Col. Hull, if it should turn out to cost more to manufacture sul- 
phate of ammonia at this plant than the market price at which sulphate of am- 
monia IS produced and sold by others, would the manufacture go on • is there 
anything to insure that it would go on? 

Col. Hull. Only as found in section 14. He obligates himself to manufac- 
ture at maximum capacity barring strikes and other causes. 

Mr. Parker. And other unforeseen causes, is it not? 

Col. Hull. Other causes beyond his control. 

Mr. Parker. Is not the price of the market beyond his control? 

Col. Hull. I should say that would come under the ejusdem generis rule and 
tne price would not be one of the causes. ' 

Mj. Parker. Do you think he would have to manufacture at a loss and sell 
It at a loss if he could not make it for the price at which it was sold on the 
marKet? 

orS?^\ ?.^^' ^°^ construction of that clause would do it, whether you could 
<-ompel it or not. 

Mr. Parker. At any rate, it is a matter of doubt? 

^ol. Hull. It would be a serious matter of doubt. 



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Mr. Parker. Then it is a serious matter of doubt whether he would have to 
go on and have to dispose of the goods at a loss if the market price was below 
what he could make it for? 

Col. Hull. He would have to do it unless relieved either by Congress or a 
court of equity. 

Mr. Parker. But is says, " other cause beyond his control," and the price of 
the goods on the market would be beyond his control? 

Col. Hull. As I said, in my judgment, the courts would not hold that price 
would be " other causes beyond his control." 

Mr. Parker. You think not? 

Col. Hull. No, sir. 

Mr. Parker. But it is a serious matter of doubt, anyhow? 

Col. Hull. No; I should say that the difficulty would have to be somewhat 
of a nature of those already specified. 

Mr. Parker. You think, then, he would be bound to go ahead and manufac- 
ture at a loss, under this contract, and sell at a loss, no matter how low the 
price of commercial sulphate of ammonia might be on the market? 

Col. Hull. Unless relieved by a court of equity or by Congress. That is his 
obligation as it is written. 

Mr. Parker. This contract is simply a contract, is it not? It is not a 
mortgage or anything of that sort, but is a contract to manufacture? 

Col. Hull. Yes, sir. 

Mr. Parker. Under clause 13 he is to get a deed for all this property, in- 
cluding the nitrate works, free and unencumbered, is he not? 

Col. Hull. Yes, sir. 

Mr. Parker. He could then mortgage it to raise money? 

Col. Hull. Yes, sir. 

Mr. Parker. That would create a lien on the property? 

Col. Hull. Yes, sir. 

Mr. Parker. And that would be paramount to any mere contracts that he 
had made? 

Col. Hull. Probably, without a reservation in the deed. 

Mr. Parker. So that unless there is a reservation in the deed, which is not 
provided for in this contract here, he could mortgage the whole plant for 
millions of dollars, as big companies do, and that would be prior to the obli- 
gations of this contract or the lien of this contract? 

Col. Hull. The contract being made in the nature of a statute, the mortgagor 
would be bound by a knowledge of the terms of this contract. 

Mr. Parker. But this contract is very specific, that he shall get a title which 
is free and unencumbered, and that means free and unencumbered of anything 
and ready to mortgage. 

It is a pretty easy matter to get up a strike by lowering wages, it is not? 

Col. Hull. I think the committee has had very wide experience and is 
perfectly competent to judge that. 

Mr. Parker. If Mr. Ford lowered wages, he would have a strike and would 
be perfectly protected under this strike clause, would he not? 

Col. Hull. I doubt it. A man can seldom profit by his own wrongs. 

Mr. Parker. But how can you find out that it is his own wrong, if he says 
that he has to lower them in order to meet market prices? 

Col. Hull. I think both the points you are making are well worth discussion. 

Mr. Parker. That is what I think, and that is all I want to ask about that. 
I will now pass to the Alabama contract. Have you that contract with you? 
I have not seen it and I do not think it has been read and I want to look at it. 

Col. Hull. Yes, sir. 

Mr. Parker. This Alabama Power Co. contract was one for the construction 
of a power plant and transmission line, was it not? 

Col. Hull. Yes, sir; there are four or five projects. I have forgotten now 
exactly how many projects were combined in that one contract. 

Mr. Parker. Did some of these lands on which this was done already belong 
to the Alabama Power Co.? 

Col. Hull. I think one parcel belonged to them. * 

Mr. Parker. Was the one on which the power plant was built? 

Col. Hull. Yes, sir. 

Mr. Parker. And that is the important one where almost all the money was 

si)ent, on their own lands. 
Col. Hull. I do not know as to that. 



Mr. Parker. Is not the parcel on which most of the money was spent? It 
certainly can not be true that the transmission line cost more than the con- 
struction of the plant. 

Col. Hull. Looking at page 20 of the Secretary's letter we find that the gen- 
erating plants (Warrior) cost $3,300,000; Warrior substation, $384,000; Drif- 
ton railroad, $90,000 ; Warrior-Muscle Shoals transmission line, $905,000, so that 
the great percentage of the expenditure was made on the lands which I under- 
stand they already owned. 

Mr. Parker. Were the other lands that were bought paid for by the United 
States or were they paid for by the company? 

Col. Hull. I understand that under the terms of the contract they were paid 
for by the company. 

Mr. Parker. The United States did not pay for the other lands, then? 

Col. Hull. I presume not, sir. If it did, we would own them. 

Mr. Parker. I want to know whether they paid for them or not. 

Col. Hull. Under the terms of the contract they were to be purchased by the 
company at their expense. 

Mr. Parker. At their own expense? 

Col. Hull. Yes, sir. 

Mr. Parker. So that this was a contract then to place a lot of transmission 
lines and power plants on lands owned or to be owned and bought by the com- 
pany at their own expense? 

Col. Hull. Yes, sir. 

Mr. Parker. 'That contract, I understand you to hold, is void because of ille- 
gality so that it can not be enforced by either party against the other. 

Col. Hull. I hold that the clause in the contract that provides for the 
option to purchase is void for lack of authority. 

Mr. Parker. That clause, however, is part of the essential consideration of 
the contract or part of the consideration, and would therefore render the whole 
contract void. It is an essential part of the contract, is it not? 

Col. Hull. I do not think so. 

Mr. Parker. It is a part of the consideration which the United States was to 
pay this company, is it not? 

Col. Hltll. The rest of it has been executed. 

Mr. Parker. If the United States had put it in this form : " The United States 
agrees with the Alabama company that they shall have the right to use the 
Alabama company's lands during the war and during the need for it," putting 
on what property they pleased for which the Alabama company would pay them 
when they ceased using these improvements, that would be in the nature of a 
lease or a contract for something to be done on another person's land, limited 
in time, and in spite of the part which provides for a sale of these improvements, 
that was the substantial agreement, was it not, that the United States should 
have the right to put improvements in the nature of power plants and transmis- 
sion lines on the Alabama Power Co.'s lands and get the use of those things dur- 
ing the war, and when they gave us that use, which they were bound to do and 
which the other company was bound to ask them to do, the company should pay 
them the value of those improvements; is not that substantially the contract? 

Col. Hull. That is not the form in which it was written. 

Mr. Parker. Certainly, it was not, but nevertheless is not that the substance 
of the contract? 

Col. Hull. I doubt it. 

Mr. Parker. It is a matter of doubt? 

Col. Hull. I doubt it. I think the company drafted the contract so they 
would have more rights than that. 

Mr. Parker. Let me ask you another question ; If that contract is void and 
the parties therefore have to stand in statu quo, both being wrongdoers in an 
illegal contract, all these improvements having been made on the other man's 
land would be fixtures which would go to the other man. They are fixtures, 
are they not? 

Col. Hull. They are fixtures, but I do not believe your construction is correct, 
sir. 

Mr. Parker. You do not think the whole contract is void? 

Col. Hull. No. 

Mr. Parker. Have you authority for that? I think the cases are very strong, 
as I look at them, that wherever a material part of the consideration is illegal, 
the whole contract becomes illegal. 



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189 



Col. Hull. I think I could find plenty of authorities upon the facts as we 
have them here. 

Mr. Parkeb. Now, may I see the other contract with the Air Nitrates Corpo- 
ration ? 

Col. Hull. Yes, sir. I might call your attention, on the question of whether 
this was part and parcel of the consideration, that there was a limit on the 
compensation which was reached, as I understand it. 

Mr. Parker. Yes ; on the compensation, but consideration for putting property 
on another person's land to which they expected to keep the title and not con- 
vey it, and which by being annexed to the land becomes theirs, is another 
proposition. It was understood that they should not take these Improvements 
without paying the fair value, and that does iiot seem to me a very unfair 
contract, but I do not know what the courts would say. Does it seem to you 
to be doubtful about its being a fair contract? 

Col. Hull. We have a number of those, and so far we have not got hurt. 

Mr. Parker. I now pass to the Air Nitrates Corporation contract; did that 
cover both No. 1 and No. 2, or only No. 2. 

Col. Hull. Only No. 2. 

Mr. Parker. In that contract, on the other hand, the improvements and work 
were upon lands which belonged or were to be acquired by the United States. 

Col. Hull. Yes, sir. 

Mr. Parker. It is not in the same jJosition, therefore, as the other contract? 

Col. Hull. No, sir. 

Mr. Parker. And the article is not an absolute agreement that the owner of 
the land shall pay the value of the improvements, but is simply an option, in 
the nature of an ordinary option, by which they have a right to bid at any 
sale. 

Col. Hull. Yes, sir. 

Mr. Parker. And it is not half as strong an agreement for that reason. 

Col. Hull. It is in a different form. 

Mr. Parker. It is just an option, and I think those options are always re- 
garded with some hesitation by the law and are rather strictly considered so as 
not to prevent fair sales. 

Col. Hull. You could strike that out of that contract without mutilating the 
contract in any way, shape, or form. 

Mr. Crowther. Colonel, not being a lawyer, I do not intend to interpose any 
legal questions at this time, but, of course, this will come before the Congress 
and is before the country absolutely as a fertilizer proposition. That is the 
propaganda that is being spread all over the Nation, and that is the pressure 
that will be brought to bear upon Members of Congress. 

Now, we have heard with a great deal of interest the discussion regarding 
the development of hydroelectric power, which, I think, is very pertinent and 
which is a very important subject, especially to the people in that vicinity and 
within four or five hundred miles of Muscle Shoals. But I do not find any- 
where in this contract that Mr. Ford agrees to produce fertilizer. He agrees to 
run plant No. 2 at its capacity of 110,000 tons a year of ammonium nitrate 
which, by the sulphuric process is afterwards changed to ammonium* sulphate, 
which is one of the principal ingredients in fertilizer. But nowhere do I find 
that he is to make fertilizer. That is one of the very small parts of fertilizer, 
as it is used now. 

Is there any other provision in the contract which provides that he will 
erect other plants where he will make the base, and, as Mr. Miller suggested, 
participate in the direct communication to the farmer of the product which has 
been so much talked about, that is, participate in the distribution? I do not 
find anything in the contract under which they are going to make it at all. 

Col. Hull. Only as set forth in paragraph 14. 

Mr. Crowther. I read that one, and it provides for the production of nitro- 
gen and other fertilizer compounds. 

Col. Hull. Yes, sir. 

Mr. Crowther. Nitrogen has to be changed into ammonium sulphate. They 
produce the original ammonium nitrate, with which some of us are more or less 
familiar, and then it is changed by the sulphuric process to sulphate, and that 
is what is used principally in the fertilizer compound. But I do not see any 
provision for the manufacture of fertilizer. 

The great general populace all over the country imagine that by some system 
or other there is to be erected along the shores of this river plants in which 
they are going to employ a million men, and that they are going to have some 



big air tunnels fitted up with some sort of rotary wheels, and they are going 
to put in the raw materials at one end and shoot it out at the other end as 
fertilizer. That is the propaganda which is being issued among the farm 
bureaus and granges, where they meet every week, and that is the proposition 
we are going to be up against. But I do not think there is any provision in 
this offer by which he agrees absolutely to make fertilizer. 

Do you say that section 14 is the only place where there is any suggestion 
of that kind? 

Col. Hull. Yes, sir. 

Mr. Crowther. That provides for the production of nitrogen and other fer- 
tilizer compounds? 

Col. Hull. Yes. 

Mr. Crowther. Then I think there ought to be something in this contract 
before you include Mr. Miller's section, something suggested as to this being 
routed at a reasonable cost to the farmer. We ought to put in something that 
will provide for the production of it before we provide for its distribution, 
that the other ingredients shall be furnished to make at this plant a commercial 
fertilizer that these trade organizations shall have such authority as given here 
for its distribution, and that there shall be territorial equality as regards the 
distribution. It is a fertilizer proposition, and as such is before the whole 
country. People are talking about it all over the country as that sort of a 
proposition. There are a great many people making fertilizers. The people 
who make fertilizer buy their nitrates from Chile, or wherever they can buy 
them in different parts of the country. 

Then there are some factories in the South which use crushed cotton seed to 
make fertilizer. There are many things used as a base. I do not find, as I said 
before, anything in this contract providing that Henry Ford is to produce 
fertilizer, but he is simply to produce one of its component parts, known as 
ammonium nitrate. 

Mr. Wubzbach. Colonel, I think you agree with Gen. Beach on the construc- 
tion of the proposition with reference to the acquisition of land and flowage 
rights on Dam No. 3, that that means that the Government will acquire that, 
but that it will be added to the cost of construction of Dam No. 3. 

Col. Hull. I think that can be easily arranged next week when we get Mr. 
Ford's rpresentative here. The question arises now in connection with the 
exact language in view of the fact that the language was in and was stricken 
out before the contract was signed, and it raises a question as to just what 
is the effect of such omission. 

Mr. Wurzbach. You do not think it is inconsistent? 

Col. Hull. It can be made perfectly clear without the slightest difl^culty. 

Mr. Wurzbach. Section 19 of Mr. Ford's offer says that " the above proposals 
are submitted for acceptance as a whole and not in part." Your office assisted 
in the preparation of this offer. Was that language intended to convey, and 
does that mean that no modifications or amplifications of this offer will be made 
by Mr. Ford? 

Col. Hull. I would prefer that you ask that question of his representative. 

Mr. Wurzbach. The section reads further, " 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 appropriate to effec- 
tuate the purposes of this prbposal shall be duly executed and delivered by 
the respective parties above mentioned." 

Do you not think that language in its very terms contemplates that this is 
not the final offer, but that the details of the offer will be worked out during 
the hearings, or before the end of the hearings, or, if the offer is accepted 
by the Government, in the preparation of the contracts themselves? 

Col. Hull. That depends upon the legislative enactment, if any, and the 
wording of it. If you were to pass legislation providing for the acceptance of 
this contract as it is there would be no necessity of further papers between 
the United States and Mr. Ford in carrying out this contract. We would 
have certain papers to execute and deliver to carry out the congressional 
naandate, and his company when organized would have to sign some papers 
Dinding the company to carry out these ideas. But this document under 
certain circustances, for instance, by acceptance, would stand as a contract 
between the United States and Henry Ford. 



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Mr. WuRZBACH. For instance, in the matter of security given the Government, 
a guarantee for the performance of Mr. Ford's obligations as contained in this 
offer, you anticipate that there will have to be further contracts written in 
order to secure the Government? 

Col. Hull. If you have additional security ; yes, sir. 

Mr. WuRZBACH. What security has the Government under the present offer, if 
accepted merely by a blank acceptance? 

Col. Hull. Mr. Ford obligates his estate, and the company when organized. 

Mr. WURZBACH. Do you mean to say his estate would be held liable during 
the course of 100 years? 

Col. Hull. The estate would probably be promptly wound up. You should 
have some breach of the contract or some fixing of the responsibility of the 
estate before then. If the breach might occur long afterwards practically the 
Go\ernment would be without protection except the value of the corporation. 

Mr. WURZBACH. The estate would probably be divided within 5 or 10 years 
after Mr. Ford's death. 

Col. Hull. Unless the Government intervened. 

Mr. WURZBACH. If there had been no breach up to this time of the partition 
of his estate, under the terms of this contract the Government would not have 
the right to prevent the distribution of that estate? 

Col. Hull. Unless we can show we were liable to be harmed. 

Mr. WuRZBATH. Assuming everything went along in proper course up to that 
time, what security would the Government have, under the terms of section 19. 

Col. Hull. The company would be held. ^ .^ *ri^AAAAA 

Mr WURZBACH. All of the property that Mr. Ford acquires for the $5,000,000, 
except nitrate plant No. 2, which he holds for certain purposes for the benefit 
of the Government— all of that other property he could dispose of, not only 
mortgage as was suggested, but he could sell it, or give it away? 

Col. Hull. Yes; but, outside of plant No. 2, I think the salvage value of 
that to-day is not $5,000,000. « ^^ , , • 

Mr WURZBACH. It is worth more than that, is it not? The salvage value is 
over $8,000,000, and, according to the testimony of Gen. Williams, could be 
made worth a little over $16,000,000. , ^ , . 

Col Hull. Does that not include plant No. 2? He can not dispose of plant 
No 2 and that is supposed to be worth $7,000,000 of the $8,000,000. So the 
propertv he can dispose of, which he gets for $5,000,000, is worth much less 
than $8,000,000, about which you have been talking. , ,, , , ^ ^^^ o 

Mr. WURZBACH. He could dispose of that, outside of nitrate plant INo. 2, 

could he not? ^ ^^ ^ 

Col. Hull. He could dispose of that, outside of No. 2; yes. ^. oo 

Mr. WURZBACH. All of the property he acquired except nitrate plant >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 



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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 



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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<l States, but upon which buildings have been con- 
structed, which are the property of the United States. 

Col. Hull. The lower courts have so held. I will call your attention ti» 
the case of U. S. r. Forbes, 259 Fed. 585, and on page 591 you will find the fol- 
lowing language: 

'• The claim made by the defendant is that the Secretary of A\ ar has some 
agreement with the city of Montgomery to turn this property over to the city 
upon the happening of some contingency. Answering this claim, it is apparent 
from what has been said that the Secretary of War bad a legal right to con- 
demn the fee in this land beiause, in liis judgment, he had determined that 
the fee was necessary, and Congress in its wisdom bad given him the right 
and imposed on him the duty of making this final determination, and he has 
performed such dutv. The United States Government when these damages are 
fixed and paid will' own the fee in the land. What final disposition may be 
made of this land in 1 year, 10 years, or 100 years from now is no more con- 
cern to the defendant than any other citizen of the United States." 

You might be interested in the following language. I have read it only 

" Moreover, the court takes ludicial notice of the laws of the United States 
and knows that no contract can legally exist. There is no law that confers 
authoritv upon the Secretary of W^ar to sell any real estate, and unless such 
authoritV is positively conferred by Congress on the Secretary of War he can 
not carrV out the alleged contract with the city of Montgomery. It the Secre- 
tary of War has entered into such a contract, it is void, and a void contract 
can be of no avail to the defendant." ^ . t x, , • 

I might sav that a similar case arose in the Federal court at Little RixJ, m- 
Tolvin*^ the question as to whether the United States can condemn with the 
idea of saving our rights and protecting our property with a view to salvage, 
ind it is the opinion of the oflice, and also, I understand, it has been so held in 
the Fe<leral court at Little Rock, that the interest of the United States m the 
salvaging of property is a sufficient public interest, and that we are not merel> 
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 Unite<l States and jointly and severally upon the undersigned, 
his heirs, representatives, and assigns, and the company, its successors aiul 
assigns." Now, Mr. Ford promises to organize a company and do certain 
things, and he makes his promises binding upon him and his assigns. There 
is a semicolon there, and he goes on further to say : "And all the necessary 



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MUSCLE SHOALS PROPOSITIONS. 



197 



contracts, leases, deeds, and other instruments necessary or appropriate to 
effectuate the purposes of this proposal shall be duly executed and delivered 
by the respective parties above mentioned? Under that can not the Govern- 
ment force Mr. Ford to enter into such guaranties as would be necessary to 
carry out the proposal that he made? 

Col. Hull. I do not believe so. 

Mr. Stoll. What does that mean, tlien? 

Col. Hull. You mean 

Mr. Stoll (interposing). What does that section 19 mean if it does not 
mean that? 

Col. Hull. Suppose the Government would say to Mr. Ford, " Your company 
ought to have a paid-up capital of $50,000,000. ' Could they enforce that 
under that clause, if the Secretary thought that was a reasonable amount? 

Mr. Stoll. No; I do not say that it says what the capital shall be, but I 
say that it forces him to give a guaranty to carry out what he has obligated 
himself to do ; otherwise that last clause there is absolutely of no value. 

Col. Hull. He has already guaranteed it personally. 

Mr. Stoll. Agreed personally to form a company, and he backs up that 
l>romise 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? 



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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? 



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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 



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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 Unite<l 
States would have an insurable interest in that plant. 

CoL Hull. The Unitetl States does not insure its properties. 

Mr. Miller. It would not have an insurable interest? 

Col. Hull. I think Mr. Ford under that clause would in case of fire or acci- 
dent be liable, 

Mr. Miller. That would be acted upon reasonably soon. 

Col. Hull. Yes ; within a reasonable time. 

Mr. Miller. In reference to the ultra vires contract with the Alabama 
Power Co. 

Col. Hull (intei-posing). It is comparable to that. 

Mr. Miller. Practically, as a lawyer— and you are a good one— what would 
be the best method, as well as the quickest, of determining the stability of 



MUSCLE SHOALS PROPOSITIONS. 



203 



their interest there in order to commence action on the construction of the 
contract. ^ _ , , 

Col. Hull. I think the first thing the Government ought to do— and I would 
recommend it to the Secretary of War without any hesitancy if we had an 
appropriation — would be to proceed to condemn it. 

Mr. MiLLi-ni. And acquire the fee? 

Col. Hull. And acquire the fee. 

Mr. Miller. Then, that would compel the Alabama Power Co. to establish its 
right, if any, under the contract. 

Col. HuTLL. Yes, sir. 

Mr. Miller. And then the contract would come properly before the court? 

Col. Hull. I doubt it ; I think we would have the right to condemn on ac- 
count of the interest we had. 

Mr. INIiller. In the condemnation proceedings, it would be in view of the 
Government acquiring the fee? 

Col. Hull. Yes. 

Mr. Miller. If they desired to test their rights under the contract they would 
have to set them up? 

Col. Hull. They might set them up with a view to defeating the condemna- 
tion proceedings if they would prefer to do that. 

Mr. Fields. Colonel, I would like to hear your opinion as to the full powers 
of this board which is proposed under section 15 of the contract. 

Col. Hull. I have given it no special thought. I should say their full powers 
were simply those recited here, fixing the price and determining what elements 
are properly elements of cost and what is the proper distribution. 

Mr. Fields. Those are pretty broad powers which that board has, are they 
not? 

Col. Hull. They are certainly controlling, so far as the profits which this 
company would make in the manufacture of this article are concerned. 

Mr. Fields. The profits on this commodity are under the control of this 
board? 

Col. Hull. Yes; as far as the company is concerned; they would have con- 
trol of the sales. 

Mr. WuRZBACH. I do not know whether you understood me to say that sec- 
tion 19 contained a guaranty on the part of Mr. Ford. I think you stated you 
did not think so. 

Col. Hltll. I thought it did ; that it contained his personal guaranty as strong 
as it could be written. 

Mr. WuRZBACH. And that was the limit of his guaranty here? 

CoL Hull. That w^as the limit of his guaranty, Mr. Ford and his estate. 

Mr. WURZBACH. Do you not think that the wording of section 19 is not incon- 
sistent with Mr. Ford's intention and willingness to give additional security 
for the faithful performance of his obligation? 

Col. Hull. It would not be repugnant ; if Mr. Ford wantetd to give any addi- 
tional assurance, he would be at liberty to do so. I insert herewith copy of the 
proposal of the General Chemical Co., showing Mr. Baker's acceptance thereon. 



To the President : 



General Chemical Co., * 
New York, June 5, 1917. 



The committee on nitrate supply, under section 124 of the " Act for making 
a further and more effectual provision for national defense, and for other pur- 
poses," has reciuested the General Chemical Co. to state the terms upon which 
said company would grant to the Government the right to use its processes, 
which have been exhibited to said committee, in the " production of nitrates 
and other products for munitions of war and useful in the manufacture of fer- 
tilizers." 

In compliance with said request the General Chemical Co. begs to submit the 
following tender : 

The General Chemical Co. hereby places at the disposal of the President, for 
the purposes aforesaid, and grants to the Government of the United States the 
use of its processes and designs of apparatus for catalytically combining nitro- 
gen and hydrogen to form ammonia, as exemplified in one or more of its United 
States patents Nos. 1141947 and 1141948, both of June 8, 1915 ; 1143366, of June 
15, 1915 ; 1151.537, of August 24, 1915 ; and 1159364 and 1159365, both of No- 
vember 9, 1915 ; and such other patents as may hereafter be granted ; and the 
recovery of such ammonia as liquified ammonia or as a salt, such as ammonium 
chloride, sulphate, or nitrate, and further its process of catalytically converting 



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MUSCLE SHOALS PROPOSITIONS. 



205 



ammonia and oxygen into nitric acid and of recovering such nitric acid as a 
strong acid or as nitrate such as ammonium or sodium nitrate and on whose 
patentable features final action has not yet been taken, in so far only as the 
Government shall desire to use the same in its own works for the production 
of the munitions of war and products useful in the manufacture of fertilizers, 
upon the following terms and conditions : 

1. In so far as the Government shall see fit to employ said processes or ap- 
paratus or any of them in the manufacture of products to be used exclusively 
for munitions of war, no compensation by way of royalty or otherwise will be 
asked or received by the General Chemical Co. 

2. In so far as the Government shall see fit to employ the said processes or 
apparatus or any of them in the manufacture of products to be used for fer- 
tilizers, the Government shall pay to the General Chemical Co. a royalty for 
such use. The royalty so to be paid shall be based upon the nitrogen content 
of the material produced for fertilizer purposes and shall be at the rate of $5 
for each ton of 2,000 pounds of fixed nitrogen in whatever form combined, and 
shall be payable quarterly, until the 9th day of November, 1932, and thereafter 
until the expiration of all patents involving any substantial feature of the 
process or apparatus. 

3. The General Chemical Co. hereby places at the disposal of the President the 
entire services of those members of its staff under whose immediate supervision 
its said processes have been brought to the present stage of development, upon 
the sole condition that the Government shall assume and discharge all obliga- 
tions which the company is now under with respect to the compensation 
of said employees, together with the necessary increase of their expense, so 
long as the Government shall avail itself of their services. 

4. If this tender shall be accepted, the General Chemical Co. hereby under- 
takes forthwith to communicate to the designated experts for the Government 
all of its knowledge and discoveries pertaining to the said processes and 
apparatus, whether or not the same shall be the subject of patents, and from 
time to time thereafter, so long as the Government shall continue the use of 
said processes, to communicate all further improvements promptly as they shall 
come to the knowledge of the company and without further charge for the use 
thereof, within and subject to the limitations before expressed. And, re- 
ciprocally, it is understood that all modifications and improvements in the 
processes or apparatus, which the Government shall discover or employ, shall 
be at the disposal of the General Chemical Co. and its licensees, if any, for 
use in its or their own works, and that all such modifications and improve- 
ments shall be freely exhibited upon request to the representatives of the 
General Chemical Co. 

5. It is understood that for all purposes of this agreement and generally so 
far as concerns the use of said processes, or any part thereof, by the Govern- 
ment, its agents or other parties claiming under it, it and they shall at all 
times acknowledge and recognize the General Chemical Co. as the sole owner 
of said processes and of the exclusive right to use the same, subject only to 
the rights granted to the Government pursuant to this tender, and shall, so 
far as practicable, exclude the public from all works in which said processes 
shall be employed, and, generally, shall use all reasonable means to preserve 
said rights unimpaired. 

Respectfuly submitted by the General Chemical Co. 

W. H. NiCHOLLS, 

Chairman of the Board. 
Jno. a. Mabtin, Secretary. 

Accepted on behalf of the President, June 14, 1917. 

Newton D. Baker. 



Extracts FRo^r the IMixutes of a IIegit.ar Meeting of the ExECUTnE Com- 
mittee OF the General Chemical Co. Held on the 1st day of June, 1917. 

In the matter of the tender to the President of the use of certain processes 
of the company for the production of munitions of war by the Government free 
of royalty, and for the manufacture of fertilizers by the Government upon a 
royalty to be subsequently fixed, approved by the board of directors April 20, 
1917, Mr. Steele reported that the nitrate committee of the War Department 
desires that the royalty to be paid for the use of said processes in the nmnufac- 
ture of fertilizers should be fixed at the present time, whereupon the following 
resolution was offered: 



"Resolved, That the proper officers of the company be and they are hereby 
authorized to execute and deliver in the name of the company and under the 
company's seal, a formal tender of the use of our processes or a contract there- 
for for the purposes and upon the general terms above stated and in such form 
as shall be approved by the counsel for the War Department and the general 
counsel of this company. 

" Carried." 

A true copy. 

, Secretary. 

Mr WuRZBACH. The terms of it are not inconsistent with his intention to give 
additional security. 

The Chairman. Maj. Burns, you are connected with the Ordnance Depart- 
ment of the Army? 

Maj. Burns. Yes, sir. 

The Chairman. Do you know the situation with regard to Muscle Shoals 
pretty thoroughly? You made a study of it? 

Maj. Burns. I made quite a study of it. 

The Chairman. May I ask you to return on Monday morning, because we 
may want to ask you some questions? 

Maj. Burns. I will be glad to do so. 

(Thereupon, at 5 o'clock p. m., the committee adjourned until Monday, Feb- 
ruary 13, 1922, at 10.30 o'clock a. m.) 



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MUSCLE SHOALS PROPOSITIONS. 



Committee on Military Affairs, 

House of Representatives, 

Monday, February 13, 1922. 

The committee met at 10.30 o'clock a. m., Hon. Julius Kahn (chairman) 
presiding. 

STATEMENT OF MAJ. J. H. BURNS, OBDNANCE DEPARTMENT, 

UNITED STATES ARMY. 

The Chairman. I want to say to the committee that Mr. Mayo, representing 
Mr. Ford, has arrived in town this morning. He will be able to come up here, 
and will come here at 2 o'clock for the afternoon session. In the meantime 
we will have a thorough explanation of the Muscle Shoals district by MaJ. 
Burns. 

Major, the map which is before you is supposed to represent that district 
pretty well. Can you use that in explaining the matters you want to explain? 

Maj. Burns. Yes, sir. 

The Chairman. Will you kindly state for the record your name in full and 
the position you occupy in the War Department? 

Maj. Burns. My name is J. H. Burns, major of Ordnance. I am now chief 
of the ammunition division of the Ordnance Department. I have been for two 
and a half years connected with the nitrate division of the Ordnance Depart- 
ment, which has control of the nitrate activities centered in the Muscle Shoals 
region. 

The Chairman. Major, as chief of that division, was your presence at Muscle 
Shoals required quite frequently? 

Maj. Burns. I hnve been to Muscle Shoals several times. I went into the 
nitrate division after all of tliese activiries had been started and practically com- 
pleted, but I have been connected witli tlie curtailing of activities down there 
and the establishment of the enterj)r:se on a peace time basis. 

The Chairman. I understood you to say that you had been for two and a 
half years connected with that division. 

Maj. Burns. Yes, sir; but I came into the nitrate division about June 1, 
1919, which, of course, was after the bulk of the work had been done. 

The Chairman. So you are pretty familiar with the plant? 

Maj. Burns. I think I am; yes, sir. 

The Chairman. Now, would you kindly, in your own way, state to the com- 
mittee for the benefit of the committee just what that plant' consists of and the 
condition it is in at the present time? 

Maj. Burns. The Ordnance Department has only to do with the chemical end 
of the project at Muscle Shoals, and that is subdivided into two main projects 
the No. 1 nitrate plant, and the No. 2. nitrate plant. The No. 1 nitrate plant is 
located near Sheffield, Ala., and the No. 2 nitrate plant is located about 5 miles 
up the river, very close to Muscle Shoals, on the Tennessee River. 

The No. 1 nitrate plant was started in pursuance of the national defense act 
Of June 3, 1916, by which Congress required that investigation^, etc., be made 
to determine the best method of fixing nitrogen and of using such tixed nitrogen 
lor munitions of war and for fertilizers. 

In an effort to carry out the will of Congress the War Department organizetl 
several committees, one of which went overseas in order to study the best 
Methods, and finally, as a result of recommendations of these various com- 
mittees, the No. 1 plant was started to use a modification of the so-called Haber 
process of fixing nitrogen. The plant itself was started in the fall of 1917, and 



92900—22 14 



207 



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208 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PROPOSITIONS. 



209 



it was not only to fix nitrogen and form anwnonia but also to change the fixed 
nitrogen or ammonia into nitric acid, and finally to form ammonium nitrate or 
the explosive. There was also a plant to concentrate the nitric acid. The plant, 
as far as everj- process was concerned, except the fixation part, was a success. 
The fixation process, however, was not a success. They did produce some 
ammonia, but the plant only ran intermittently, and they had a great deal of 
difliculty in making it go even from day to day. 

Mr. Parker. Was that the first part of the process, to fix the nitrogen? 

Maj. Burns. Yes. sir ; the fixation of the nitrogen. 

Mr. Parker. And that you could not do? 

Maj Burns. No, sir; that was not a success. I think it should be ponited 
out to the committee, however, that this was practically the pioneer effort 
in America for doing this work, and it would be natural to suppose that the first 
efforts would discover many serious difilculties. 

The Chairman. You say that a committee was appointed to go overseas and 
study these processes? 

Maj. Burns. Yes, sir. , . .u ^ 

The Chairman. The Haber process you are speaking of now is the trerman 

process? 

Maj. Burns. Yes, sir. . ^ .. 

The Chairman. It was used extensively during the early part of the war, 
especially in Sweden and Norway, where they had enormous water power? 

Maj. Burns. No, sir; not the Haber process. The Haber process does not 
require very much power. The cyanamid process and the arc process are the 
processes used up in Scandinavia, and they are used up there because they have 
such ^ery cheap water power, which is necessary for those processes. 

The Chairman. And that is the process used in nitrate plant No. 2? 

Maj. Burns. Yes, sir. The Germans developed the Haber process so they 
could make nitrogen without the consumption of a great deal of power. 

The Chairman. Was the Haber process the one that was used in which a 
terrible explosion occurred in Germany soon after the war? 

Maj. Burns. Yes, sir. 

The Chairman. I do not remember now how many thousands of people were 

killed by that explosion. , . . . ^ 

Maj Burns. It was a verv disastrous explosion, but, of course, the explosion 
was not due to the process. It was due to the fact they were blasting out 
the pro<luct which had been stored in immense magazines where the material 
had solidified into a solid cake. It was an explosive material, and unfortunately 
the blasting material which they used to get it out had sufficient i>ower 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<l convert It Into ammonium sulphate which is a thoroughly established fer- 
tilizer material. If ycu do this, you would have to put In an additional plant. 
So I think you could produce ammonulm sulphate down there without In any 
way jeopardizing the value of the plant as a munitions plant. 

The Chairman. Do you know how much the expense would be for making 
that conversion? 

Maj. Burns. For putting in an ammonium sulphate plant equal to the capacity 
of the No. 2 plant I believe would require a capital expenditure in the neighbor- 
ho<^)d of $3,000,000. 

The Chairman. You may proceed. Major. 

Maj. Burns. There are some adjuncts to the No. 2 plant, namely, the 
Warrlor-Gorgas plant, which has been under discussion a great deal, and the 
Waco quarry. The Waco quarry was constructed solely for the purpose of 
supplying limestone to the plant, limestone being one of the raw materials. 

The Gorgas plant, which is about 90 miles away, and which is not shown on 
this map. Is about 90 miles south of Muscle Shoals, on land owned by the Ala- 
bama Power Co. 

There is a little history behind that which I think you ought to know. When 
it was decided to build the N<>. 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 
<oal-supplying system are all one, so that it would be just like unscrambling 
an egg to try to separate those two plants. It is almost impossible. 

The Chairman. Was that the purpose? 

Maj. Burns. No. sir; the Idea was very clear-cut, in my judgment, in the 
inliKis of the contracting parties. The Alabama Power Co. agreed to put up 
this additional plant at cost plus 6 per cent for the Government and veiy defi- 
nitely agreed when they did it that they would buy back from the Government 



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210 



MUSCLE SHOALS PROPOSITIONS. 



at a specified time tliis plant at a fair value, to be determined by a l>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? 



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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 



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218 



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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,0<X) 
kilowatts produced at No. 2 plant will almost completely run the nitrate plant 
at No. 2. 

Mr. Miller. Then there are three distinct power projects for the operation 
of this No. 2; first, the Warrior plant constructed at a cost of $4,979,782.33? 

Maj. Burns. Yes, sir. 

Mr. Miller. Then we built the power plant at No. 2 plant itself? 

Maj. Burns. Yes, sir. 

Mr. MirxER. About how much did that cost, approximately? 

Maj. Burns. Approximately $12,000,000. 

Mr. Miller. That is $12,000,000 more. Then we have put $16,000,000 iuto 
u dam to furnish a third element for the operation of plant No. 2? 



Maj. Burns. That was not linked in with No. 2. 

Mr. Miller. Then it was found that there was enough power otherwise to 
drive plant No. 2? 

Maj. Burns. Yes, sir. 

Mr. Miller. Then the $16,000,000 you put into Dam No. 2 in nowise was 
necessary to furnish power to operate nitrate plant No. 2? 

Maj. Burns. No, sir; it was not. 

Mr. Miller. Then clearly there must have been some other motive for the 
construction of that dam if we already had power enough to operate all our 
units at the Muscle Shoals enterprise generally. There must have been some 
other pressing reasons that compelled us to start on that dam and put 
$16,000,000 into it and require $25,000,000 more to complete it? 

Maj. Burns. I do not know about that. I do not know what the purpose 
was with reference to that. 

Mr. Miller. I see your report is to the effect that you can scrap or sell or 
salvage the Warrior plant at approximately $3,000,000. 

Maj. Burns. That is our estimate of it. 

Mr. Miller. Then the Warrior plant can be disposed of to-morrow — that is, 
that single item can be disposed of for three-fifths of what Mr. Ford offers for 
the whole thing? 

Maj. Burns. In my judgment ; yes, sir. 

Mr. :Miller. Probably we could get more than $3,000,000? 

Maj. Burns. In my judgment, $3,000,00 is about what we would be able to get 

Mr. Miller. You say you think it will cost a very substantial sum — I infer 
that from what you say — to acquire the Alabama Power Co.'s rights in the 
Warrior plant. 

Maj. Burns. Yes, sir; I think so. 

Mr. Miller. Ajid the transmission line of 88 nriles extending from that plant 
to nitrate plant No, 2? 

Maj. Burns. I do not believe it would cost so very nruch to get the property 
rights to the transmis?>ion 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 neigliborhoo<l of $89,000,000 invested in 
that enterprise down there, exclusive of the $16,000 000 we put into the Wilso4 
Dam. ; 

Maj. BiRNs. Yes, sir. 

Mr. :Miller. And we aie getting $5,000,000 for that? 

Maj. Burns. Le.ss the money you will have to six»nd to acquiie these rights. 

Mr. :Miller. Less the money necessary to acquire the rights of the Warrior 
plant? 

Maj. Burns. Yes, sir. Q 

Mr. Miller. And the overflow damages at Dam No. 3? 

^laj. Burns. Of course, that ties in more with, the power proposition than 
with the nitrate proposition. 

Mr. ;Miller. For which the engineer department estimates the cost to be 
$2,000,000? 

Maj. Burns. Yes, sir; according to their report. 

:Mr. JMiller. Then the $5,000,000 Mr. Ford is to pay for the plant would be 
either entirely or in large portion absorbed in paying for the Alabama Power 
Co.'s rights in the Warrior plant and paying for the overflow damages at 
Dam No. 3? 

Maj. Burns. My judgment on that is that it would. 

Mr. Miller. So the enterprise on which the Government has put $89,000,000. 
in order to comply with the conditions of Mr. Ford's contract, we will get 
nothing out of, substantially, except the nitrate plant No. 2 in a stand-by con- 
dition, as a matter of nitrate preparedness for war. 

Maj. Burns. As I understand it, that is correct; yes, sir. 



i 



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220 



MUSCLE SHOALS PROPOSITIONS. 



MUSCLE SHOALS PBOPOSITIONS. 



221 



Mr. Miller. You have said that the steam plant has a 30,000 kilowatt output? 

Maj. Burns. Yes, sir. 

Mr. Miller. And the steam plant at nitrate plant No. 2 has 60,000 kilowatt 
output, or double the capacity of the other steam plant? 

Maj. Burns. Yes, sir. 

Mr. Miller. Tliat is 90,000 kilowatts altogether? 

Maj. Burns. Yes, sir. 

Mr. Miller. Have you an estimate of the kilowatt output of Dam No. 2? It 
is 100,000 hoi*sepower, is it not? 

Maj. Burns. The Chief of Engineers stated it would have a primary capacity 
of 100,000 horsepower and a secondary capacity to the extent of 440,000 horse- 
power. 

Mr. Miller. You say it will cost in the neighborhood of $3,000,000 to convert 
the ammonium nitrate plant into an ammonium sulphate plant? 

Maj. Burns. To put in the ammonium sulphate plant there, in my judgment, 
would cost abwit $3,000,000. 

Mr. Miller. Would that be in the nature of a new plant or an alteration of 
an existing plant? 

Maj. Burns. I think it would be substantially a new plant. 

Mr. Miller. Then we would be confronted with this situation, that if Mr. 
Ford should undertake to alter the process at plant No. 2 to change the produc- 
tion of ammonium nitrate into ammonium sulphate, we would have to transfer 
that back and rework the plant in case of the necessity for the production of 
ammonium nitrate? 

Maj. Burns. As I read Mr. Ford's offer, it is contemplated that he would 
keep the plant in good condition and use it for fertilizer output. 

Mr. Miller. Then you think he is obligated to continue plant No. 2 for the 
output of ammonium nitrate? 

Maj. Bu-RNS. Yes, sir. 

Mr. Miller. He can erect a plant or do anything he wants to for the con- 
version of the nitrate into sulphate? 

Maj. Burns. That is the way I understand it. 

Mr. Parker. I wish you would tell me briefly what the Habcr process is. 

Maj. Burns. It is based upon the welding together of nitrogen gas which you 
get from the air and hydrogen gas which you get from water. When these 
gases are well purified and brought together in the presence of a catalyst at a 
high temperature and pressure they combine and form ammonia. 

Mr. Parker. What materials* do you use in that process? 

Maj. Burns. The raw materials are air, water, coke, power, the catalyst, and 
some chemical purifying agents. 

Mr. Parker. What is your catalyst? Do you use a platinum screen? 

Maj. Burns. No, sir; not for the manufacture of ammonia. It is a secret 
ccnrpound, but its basis is iron. 

Mr. Parker. Is it wasted, so it has to be paid for? 

Maj. Bl-rns. It wastes to some extent. It is very expensive in the first in- 
stallation, but its consumption, if well treated, is not so very great. 

Mr.* Parker. You make use of water, do you not? 

Maj. Bltins. We have to get hydrogen from the water. 

Mr. Parker. How do you get that? 

Maj. Burns. By the water-gas method, heating the coke and spraying the 
water on it, thus separating the water into its gases. 

Mr. Parker. That becomes hydrogen and oxygen? 

Maj. Burns. Yes, sir; hydrogen, oxygen, carbon monoxide, and the rest of 
them. 

Mr. Parker. How do you get rid of the carbon monoxide? 

Maj. Bu-RNS. It is burned into carbon dioxide and then separated from the 
gases by a purification system. Water and caustic soda are used to absorb the 
carbon dioxide. 

Mr. Parker. That is another material? 

Maj. Burns. That is one of the chemicals used for purification purposes. 

Mr. Parker. Is there much cost in these materials — the chemical agents and 
the catalyst? 

Maj. Burns. The costs of your materials in the Haber process are not so 
very great, but your capitalization cost is quite large and your upkeep charge 
is high, because "the process is a very complicated chemical one. 

Mr. Parker. Is that process being used at Syracuse? 

Maj. BuTiNS. It is ; yes, sir. 



Mr. Parker. Then it is not secret anymore? You know what the real process 
is, since the war ended, do you not? 

Maj. BuENs. It is protected by patents, of course, in the name of this company. 

Mr. Parker. Have they the patents? 

Maj. Burns. Yes, sir. 

Mr. Parker. That the Government can not use? 

Maj. Bltins. That is correct; except in case of necessity, undoubtedly the 
Government could use them. 

Mr. Parker. But they have no present right to use them? 

Maj. Burns. No, sir ; I do not think they have. 

Mr. Parker. With what commercial success is the Syracuse company making 
that product? 

Maj. Burns. They are making approximately 10 tons per day of anhydrous 
ammonia. 

Mr. Parker. Do they make it at commercial prices? 

Maj. Burns. We have never seen their cost sheets, and do not know about 
that. But they are continuing in the operation of their plant, so they must be 
making a commercial success of it. 

Mr. Parker. Do they sell it? 

Maj. Burns. Yes, sir; they sell it as anhydrous ammonia. 

Mr. Parker. At what price? 

Maj. Burns. The present price is about 30 cents a pound. 

Mr. Parker. You are not concerned with other matters, if you can get 
anhydrous ammonia in sufficient quantities? 

Maj. Burns. No, sir; that is the part of the process we are most anxious 
about, the fixing of the nitrogen. 

Mr. Parker. The 10 tons a day that they produce would be a very small 
amount of the consumption of ammonia in the United States? 

Maj. Burns. Yes, sir; it is. 

Mr. Parker. What per cent — not 1 per cent, is it? 

Maj. Burns. Putting it on a nitrogen basis, the total consumption of inor- 
ganic nitrogen in America is in the neighborhood of 180,000 tons. They would 
make about 3,600 tons, so it is 2 per cent of the total production of inorganic 
nitrogen. 

Mr. Parker. That is a very satisfactory result, and something that did not 
occur until after the war? 

Maj. Burns. That is very satisfactory : yes, sir. 

Mr. Parker. That would make a very large amount of product which is easily 
converted into sulphate of ammonia or any other material used for fertilizer? 

Maj. Burns. Yes, sir ; it is easily converted into ammonium sulphate. 

Mr. Parker. At what price could they make ammonium sulphate? 

Maj. Bltrns. I said the price of anhydrous ammonia in the market is 30 
cents a pound. I do not know what the Atmospheric Nitrogen Corporation is 
paying as the production cost of ammonia. 

Mr. Parker. Can they properly change that into ammonium sulphate at pres- 
ent prices, or is the ammonium sulphate cheaper? 

Maj. Burns. They could not profitably do it in my judgment because we do 
not get as much for nitrogen in the form of ammonium sulphate as in the 
form of anhydrous ammonia. 

Mr. Parker. Do you know wherein plant No. 1 is defective, and what the 
remedy is for it? 

Maj. Burns. We do ; yes, sir. 

Mr. Parker. What is the remedy? 

Maj. Burns. A redesign of part of the plant which has to do with the puri- 
fication of the gases and of the fixing of the gases to form ammonia. 

Mr. Parker. You know it would work if that were done? 

Maj. Burns. We think it would work ; yes, sir. 

Mr. Parker. You would have to get the catalysts, would you not? 

Maj. Burns. Yes, sir. 

Mr. Parker. And buy those at large expense? 

Maj. Burns. That is very much of a secret ; that is, the catalys*t. We would 
have to make it ourselves. You appreciate, Mr. Parker, that the Government 
has had working since the armistice a research laboratory on the problem of 
fixing nitrogen and converting it into usable forms for munitions and com- 
r>onents 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. 



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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- 



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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 



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242 



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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 nee<ls of the company. 

The Chairman. How long a time do you think he would require? 

Mr. Mayo. He is going through the process of working out several schemes 
in handling the plant as a whole, and it is rather difficult to determine what 
amount is needed until he finally decides on a definite course of procedure. 

The Chairman. That is one of the matters that the committee have expressed 
a desire to know about, and that is why I am asking you the question. 

Mr. Mayo. I understand, but I do not quite get the point. I do not see how 
the amount of capital necessarily enters into it. 

The Chairman. I think one of the witnesses, or one of the members of the 
committee, tried to show two or three days ago that there were 10 gentlemen 
who organized the Air Nitrates Corporation, or some organization of that kind, 
and put up $100 apiece and organized for a very large amount. While, of course, 
Mr. Ford does not anticipate anything of that kind, yet I think the committee 
would like to know about how much he would want to incorporate for. 

Mr. Parker. Mr. Chairman. I think they would want to know the least 
amount that he would incorporate for. 

Mr. Mayo. It goes without saying that he could not operate without placing 
$5,000,000 there. 

The Chairman. That is the amount he is willing to pay for nitrate plant 
No. 2. 

Mr. Mayo. And having paid his $5.000,tXK), he necessarily must furnish the 
necessary additional capital to operate, so that if there could be a minimum 
amount named, the cost plus the operating capital to start with would be the 
minimum figure. 

The Chairman. You, at least, have no definite knowledge upon that subject? 

Mr. Mayo. No ; that has not been determined as yet. 

The Chairman. The committee also expressed some desire to know this: 
The Secretary of War stated to the committee that he had had some interviews 
with Mr. Ford, and that on one occasion at least Mr. Ford told him that if he 
could not make fertilizers profitably he would cease the work entirely. Does 
that express Mr. Ford's view? 

Mr. Mayo. I think it necessarily follows that if you operate continually at a 
loss you would soon go out of business : that is the natural sequence. He did 
not try to lead the Secretary to believe that he would stop making fertilizer and 
manufacture something else. 

The Chairman. But I think in his oflrVr he si)eaks of nitrate plant No. 2. 

iSIr. Mayo. Yes, sir. 

The Chairman. He agrees to keep that going for 100 years. 

Mr. Mayo. Yes, sir. 

The Chairman. I think the tesrmony before the committee is that that 
plant makes a nitrate which can l>e use<l for making fertilizers? 

Mr. Mayo. Yes, sir. 

The Chairman. Would yon stop operating the plant altogether if the manu- 
facture of nitrates shouhl be unprofitable? 

Mr. Mayo. I do not quite understand you. 

The Chairman. You said that if h*^ could not manufacture nitrates profitably 
to make fertilizers, he would havt- to go out of business. Now, he makes a 
positive otter on nitrate plant No. "J. 

Mr. Mayo. Yes, sir. 

The Chairman. And offers to turn it over at a moment's notice for the use 
of the Cfovernnieut in case the Government should require him to manufacture 
explosives. Now. I understand from the evidence before the committee that 
they manufacture nitrates at this plant? 

Mr. Mayo. Yes, sir. 

The Chairman. And that the nitrate is used as a component part of the 
fertilizer. Now. would he stop making that in case it should be unprofitable? 



Mr. Mayo. If it was unprofitable he might have to switch to some other 
process. 

The Chairman. That is his idea? 

Mr. Mayo. Oh, yes. 

The Chairman. You do not think he would quit running the plant if the 
profits were not as big as he had anticipated? 

Mr. Mayo. He has not that kind of a record. 

The Chairman. I quite agree with you. He speaks of the land and flowage 
rights necessary for Dam No. 3. I think the te>itimony 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<j 
property, any power he might sell from the Muscle Shoals plant ought to be 
developed and he should be required to dispose of it on the terms and condi- 
tions imposed by the Federal Power Commission or the public service corpora- 
tion commission of Alabama. Do you know whether Mr. Ford has given that 
matter any thought? 

Mr. Mayo. He has, and it has always been our impression that we would 
probably come under the State of Alabama law. 

The Chairman. That is his impression at this time? 

Mr. Mayo. Yes, sir. 

The Chairman. You would be perfectly able and willing to sell the power 
in that way? 

Mr. Mayo. So far as I know ; yes, sir. 

The Chairman- In reference tr> 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 ho