Mississippi Valley Generating Co. v. United States, 479-55.

• Decision Date: 15 July 1959
• Docket Number: No. 479-55.,479-55.
• Citation: 175 F. Supp. 505
• Parties: MISSISSIPPI VALLEY GENERATING CO., on Its Own Behalf and to the Use of Others v. UNITED STATES.
• Court: U.S. Claims Court

175 F. Supp. 505

MISSISSIPPI VALLEY GENERATING CO., on Its Own Behalf and to the Use of Others v. UNITED STATES.

No. 479-55.

United States Court of Claims.

July 15, 1959.

COPYRIGHT MATERIAL OMITTED

John T. Cahill and William C. Chanler, New York City, for plaintiffs. Robert G. Zeller, New York City, was on the briefs.

Kendall M. Barnes, Washington, D. C., with whom was Asst. Atty. Gen. George Cochran Doub, for defendant. John B. Miller, Herman Wolkinson and Robert E. Kaufman, Washington, D. C., were on the brief.

MADDEN, Judge.

The plaintiff, an Arkansas corporation, made a contract with the United States, dated November 11, 1954. The Atomic Energy Commission, (AEC), was the agency which acted for the Government in the transaction. The contract required the plaintiff to build and operate a large plant for the generation of electricity, the plant to be located at West Memphis, Arkansas, across the Mississippi River from Memphis, Tennessee, and to sell the electrical energy there generated to the United States. After the site for the plant had been acquired and some preliminary work had been done by the plaintiff, but before any considerable amount of construction of the plant had taken place, an important event occurred which eliminated the Government's need for the electricity which it had contracted to buy from the plaintiff.

Because of the elimination of its need for the electricity, the Government, through the AEC, on July 11, 1955, orally, and on August 1, 1955, by letter, notified the plaintiff that the Government was terminating the contract. On November 23, 1955, the AEC wrote the plaintiff that the Government had concluded that there had never been a valid contract between the parties. The Government's position is that, there never having been a valid contract, it is not liable to the plaintiff for any costs incurred by the plaintiff prior to the termination of the contract nor for any damages caused to the plaintiff by its termination. The plaintiff's position is that the contract was valid, and that the Government is liable to the plaintiff for the costs which the plaintiff incurred in connection with the contract.

The Tennessee Valley Authority, (TVA), an agency of the United States, operates the largest unified enterprise in the country for the generation and distribution of electricity. Its general field of operation is the area drained by the Tennessee River and its tributaries. Since its establishment in 1933, it has constantly expanded its operations as the demand for electricity has increased. The AEC uses a large amount of electricity in its three plants at Oak Ridge, Tennessee, Paducah, Kentucky and Portsmouth, Ohio. TVA supplied the current used at the Oak Ridge plant and a considerable part of that used at the Paducah plant. The Portsmouth plant was supplied by the Ohio Valley Electric Corporation, (OVEC), a corporation formed by several nearby private utilities in 1952 for the purpose of contracting with the AEC and building a generating plant to supply electricity to the AEC's Portsmouth establishment.

TVA was supplying some 1,000,000 kw of electricity to AEC at Paducah, from TVA's generating plant at Shawnee, Kentucky. To meet the growing demands upon it, particularly in and about Memphis, Tennessee, TVA desired to build a new plant, to be operated by steam, at Fulton, Tennessee, on the Mississippi River upstream from Memphis, with a capacity of about 450,000 kw. Both houses of Congress had in 1952, however, rejected proposed amendments to TVA appropriation bills which amendments would have appropriated money to start construction of the Fulton plant.

The policy of the Eisenhower Administration, which took office in January 1953, was to have either private enterprise or local communities, rather than the United States, provide electric power generating facilities. The President's State of the Union message of February 2, 1953, announced this policy. The President's new Director of the Budget, Mr. Joseph Dodge, eliminated from the 1954 fiscal year budget the appropriation for the Fulton plant, which appropriation President Truman had proposed in that budget.

The Administration's policy with regard to public power was observed with approval by Mr. George D. Woods, chairman of the board of directors of First Boston Corporation, one of the leading investment banking concerns in the United States. First Boston had its offices in New York. Mr. Woods wanted to help to make the policy succeed. He obtained an appointment with Mr. Dodge, the Director of the Budget, and offered the services of First Boston. Mr. Dodge, a Detroit banker, new in the Government, wanted to have a study made to determine the controverted question of the extent to which the Government was really subsidizing the TVA. He needed a man experienced in public utility financing and expert in accounting and problems of the cost of money, and had not found such a man. Mr. Woods said that First Boston had such a man, Mr. Adolphe Wenzell, and he would see if Wenzell would undertake the work.

Wenzell was willing and, with the approval of his other superiors, he did accept the assignment. He served as a part-time consultant to the Bureau of the Budget, without compensation, but was to have $10 per day in lieu of subsistence, and reimbursement of his transportation expenses. It was understood that Wenzell would not sever his connection with First Boston and that he would continue to receive his regular salary from it. Wenzell began this work on May 20, 1953, and made his report to Dodge about September 20. In all, he spent 29 days in the Bureau of the Budget, and became acquainted with many of its staff. He had access to all pertinent reports and documents. His report, not surprisingly, indicated that the Government was, to a considerable extent, subsidizing the TVA. When he made his report to Dodge, he asked for and received permission to retain a copy, but was told that it was a confidential Bureau document and should not be shown to anyone else. Some time later Woods asked Wenzell to see the report and Wenzell let him read it.

The work which Wenzell did for the Bureau of the Budget in 1953 resulted in his getting acquainted with Rowland R. Hughes, then the Assistant Director, later the Director, who, as we shall see, was a principal actor in the events in 1954 leading to the contract here in litigation.

In the fall of 1953 the Bureau of the Budget decided that it would not include money for the Fulton plant, desired by TVA, in the TVA appropriation figure to be presented to Congress in 1954, for the fiscal year ending June 30, 1955. Mr. Gordon Clapp, the General Manager of TVA, when he learned of this Budget decision, took the position that TVA must be allowed to reduce the amount of electricity it was supplying to AEC so that it would have electricity to satisfy the growing needs of other patrons. The Bureau began to draft language to be included in the President's budget message to the effect that an attempt would be made to relieve TVA of some of its power delivery to AEC, and that if that could not be done, the problems of the Fulton plant would be reconsidered.

Director Dodge in December of 1953 suggested to Admiral Lewis I. Strauss, Chairman of the AEC, and Mr. Walter J. Williams, AEC's General Manager, that capital expenditures by the Government for the Fulton plant could be avoided if AEC would contract with private industry for the construction of a generating plant that would supply 450,000 kw of power to AEC at its Paducah plant and thereby release the power which TVA was supplying there, so that that power could be used by TVA for its other requirements. Mr. Dodge reminded these men that, in two other instances, private utilities had made long-term contracts to supply power to AEC. Mr. Williams said he would consult with Mr. McAfee, who was president of one of the companies referred to by Dodge. McAfee's response was encouraging.

Dodge delegated to Hughes, the Assistant Director, the responsibility for the Bureau's part in pursuing the inquiry. AEC's only interest was in being assured an adequate supply of power. The interest of the Bureau of the Budget was that the necessary power be obtained, if possible, in a manner consistent with the Administration's policy of promoting a private enterprise economy and keeping Government expenditures as low as possible.

Edgar H. Dixon, president of Middle South Utilities, Inc., which owned utilities operating in Arkansas, Louisiana and Mississippi, learned from McAfee that AEC might be seeking an additional source of power in the Paducah area. He was interested because of the possibility of selling power and because he, like Woods of First Boston, wanted to lend a hand to the Administration in its effort to put the business of generating power into private hands. Dixon went to see Strauss, and conferred with him and his principal assistants. Hughes, at the Bureau of the Budget, learned of the meeting. He requested AEC to proceed with negotiations with private interests with a view to having additional power available not later than the fall of 1957. McAfee and Dixon were invited to a meeting to be held in Strauss's office on January 20, 1954.

About January 15, 1954, Hughes suggested to Dodge that Wenzell be again requested to assist the Bureau, because of his study of TVA and his knowledge of commercial transactions. By that time, the Administration had decided that the AEC should make a contract to purchase power from private sources, and that the Fulton plant would not be built. The Administration's fixed purpose, by that time, was to find private enterprisers willing to contract with it, and to make a fair and prudent bargain with them. Wenzell had had no part in those decisions.

For the Bureau of the Budget to know what would be a fair bargain, it had to know what interest rate the enterprisers would have to pay on the bonds which they would have to...