Tennessee Valley Authority v. Ashwander

• Citation: 78 F.2d 578
• Decision Date: 17 July 1935
• Docket Number: 7812.,No. 7764,7764
• Parties: TENNESSEE VALLEY AUTHORITY et al. v. ASHWANDER et al. ASHWANDER et al. v. TENNESSEE VALLEY AUTHORITY et al.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

78 F.2d 578 (1935)

TENNESSEE VALLEY AUTHORITY et al. v. ASHWANDER et al.^*

ASHWANDER et al. v. TENNESSEE VALLEY AUTHORITY et al.

Nos. 7764, 7812.

Circuit Court of Appeals, Fifth Circuit.

July 17, 1935.

No. 7764: James Lawrence Fly, Gen. Sol., Tennessee Valley Authority, and William C. Fitts, Jr., both of Knoxville, Tenn., John Lord O'Brian, of Buffalo, N. Y., and Wm. H. Mitchell, of Florence, Ala., for appellants.

Forney Johnston and Jos. F. Johnston, both of Birmingham, Ala., for appellees.

No. 7812: Forney Johnston, of Birmingham, Ala., for cross-appellants.

James Lawrence Fly, Gen. Sol., Tennessee Valley Authority, and William C. Fitts, Jr., both of Knoxville, Tenn., John Lord O'Brian, of Buffalo, N. Y., Wm. H. Mitchell, of Florence, Ala., John E. Delony, Jr., of Tuscumbia, Ala., Perry W. Turner, C. A. Bingham, J. T. Stokely, and W. Logan Martin, all of Birmingham, Ala., and Courtland Palmer, of New York City, for cross-appellees.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

BRYAN, Circuit Judge.

By contract dated January 4, 1934, the Alabama Power Company, a corporation engaged in the manufacture, transmission, and distribution of electricity, agreed to sell such of its transmission lines as extend from Wilson Dam at the Muscle Shoals plant in Alabama into seven Alabama counties, to the Tennessee Valley Authority (TVA), a corporate agency of the United States, created by the Act of Congress of May 18, 1933, 48 Stat. 58, 16 USCA § 831 et seq. The TVA agreed to pay the purchase price of $1,150,000 upon delivery. The Alabama Power Company further agreed that it would offer its distribution systems within the territory above named for sale to the respective municipalities in which such systems are located at prices which it was willing to accept; and that it would co-operate with the Electric Home & Farm Authority (EHFA), a government corporate agency created to finance sales of electrical appliances, in the sale of such appliances. The TVA, after waiting three months for the negotiation and consummation of sales of the urban distribution systems, was to have the right to furnish electric power to any and all such systems regardless of whether the Alabama Power Company had sold them to the municipalities. On May 21, 1934, the Alabama Power Company entered into an agreement with EHFA to act as the latter's agent in the collection of installments due on the purchase price of electrical appliances sold by retailers to individual customers. On August 9, 1934, the Alabama Power Company, not having sold any of its distribution systems to the municipalities, granted to TVA an option to purchase them; but on January 25, 1935, after this suit was filed, TVA gave notice that it had elected not to exercise that option.

On September 13, 1934, this suit to enjoin performance of the above-mentioned contracts was brought by a minority of the preferred stockholders of the Alabama Power Company, after they had formally but unsuccessfully demanded that the company itself institute suit to rescind those contracts.

The decree of the District Court, entered after final hearing, adjudged the contracts of January 4 and May 21 to be in furtherance of illegal proprietary operations by TVA, and ordered them annulled. It enjoined seventeen municipal defendants, which were under contract to receive electric power from TVA for use in the area served by the Alabama Power Company, from accepting or expending federal funds for the construction of city electric light plants, holding that these contracts were entered into in aid of TVA's illegal proprietary operations; and further enjoined them and the remaining municipal defendant, the city of Athens, which owns its distribution system, from purchasing electric power from TVA, on the ground that TVA was engaged in illegal competition with the Alabama Power Company. The TVA, EHFA, and city of Florence appeal from the decree. The plaintiffs below have taken a cross-appeal, contending that the decree should have included a declaratory judgment in order to prevent TVA from attempting to renew the option contract of August 9, which it is said was not exercised because of the pendency of this suit, or from engaging in divers other illegal operations not specifically enjoined.

The district judge made the following, among other, findings of fact: The United States acquired the Muscle Shoals property on the Tennessee river and built thereon Wilson Dam, an auxiliary steam plant, and two nitrate plants, for war purposes. The existence of these facilities for the manufacture of war materials constitutes a valuable national asset. Wilson Dam unaided by other power development, with its eight hydro-electric generators installed by the War Department, is capable of producing 50,000 kilowatts continuously, except during low stages of water; and the steam plant has a continuous capacity of 60,000 kilowatts. In 1934, 68 per cent. of the power generated at Wilson Dam was used for governmental purposes. Other dams under construction, which like Wilson are of the high-dam type, are, upstream, the Norris and the Wheeler; and, downstream, the Pickwick. The release of waters from Norris Dam will increase the continuous capacity of Wilson Dam by 40,000 kilowatts, and Norris Dam itself, if generators are installed, is capable of producing 73,000 kilowatts. If the Wheeler and the Pickwick Dams are used only as reservoirs, according to present plans, the total continuous capacity of Wilson and Norris Dams in combination, without the aid of the steam plant, will be 202,000 kilowatts. The construction of Wilson Dam also provides a depth of 9 feet of slack water over the Muscle Shoals rapids, thereby eliminating a serious obstruction to navigation. Navigation will be further improved by the completion of Wheeler and Pickwick Dams. Storage of water by means of reservoirs is essential to adequate flood control on the Tennessee river. Wilson Dam was completed in 1925 at a cost of $50,000,000. It probably is not capable of producing more water power than would be needed for the national defense in time of war, but in time of peace the power it makes available is so much in excess of the government's needs for it for national defense and for navigation that, without the installation of any other dam, there is a surplus even after supplying the transmission lines which TVA agreed to purchase from the Alabama Power Company. There has been no sale or contract for sale of the remaining surplus. The sale of electric energy generated at Muscle Shoals in excess of that required for operating the locks and servicing government properties can be made to produce profits which could be applied toward the reimbursement of the cost of Wilson Dam, or expended in the construction of new dams. It is not the purpose of TVA to limit the production of electric power to that needed by the government in manufacturing war materials and providing for navigation, but its declared policy is to utilize to the fullest extent possible all the electric energy which the Wilson and other dams are capable of producing, by supplying first governmental needs, and then by selling the surplus to users of electricity, in competition with public utility corporations engaged in the manufacture, transmission, and distribution of electricity. In disposing of surplus power TVA intends to obtain revenue, but at the same time to undersell its private competitors in order to establish a "power yardstick" and to demonstrate the advantages of public over private ownership of electric light plants. Upon these findings of fact, which may safely be assumed to be correct since none of them is challenged, the district judge concluded as a matter of law that the Congress has no constitutional power to confer upon TVA, or any federal agency, the right to enter into such a contract as that of January 4, and that the contract of January 4, since it was void as to TVA, was void as to the Alabama Power Company. The district judge, having reached this conclusion, consistently held that the dependent contract of May 21 was also void. The plaintiff stockholders may be dismissed from further consideration, inasmuch as they are entitled to assert only the rights of the Alabama Power Company; and so we need to consider only the effect of the principal contract of January 4 upon the rights of the contracting parties. The district judge, having held that TVA was assuming to exercise authority which no act of Congress could constitutionally confer upon it, did not pass upon the contention made on behalf of the Alabama Power Company that the TVA Act of 1933 was invalid on the ground that it purports to delegate legislative authority. It was the view of the district judge that TVA, while it had the implied right to dispose of any surplus electric...