Brief on behalf of Rocky Mountain Power Company

              UNITED STATES DEPARTMENT OF AGRICULTURE LIBRARY
292.4 Book numbfp *c-qBEFORE THE
FEDERAL POWER COMMISSION
IN RE CONFLICTING APPLICATIONS OF THE ROCKY MOUNTAIN POWER COMPANY AND WALTER H. WHEELER TO DEVELOP POWER ON FLATHEAD LAKE AND FLATHEAD RIVER, MONTANA.
BRIEF ON BEHALF OF ROCKY MOUNTAIN POWER COMPANY.
L. O. Evaiss,
D. M. Kelly,
Counsel for Rocky Mountain Power Company, 616 Hennessy Building,
Butte, Montana.I N D E X
PAGES
S t a t e m e n t o f t h e C a s e .............................................................. 1-3
A b s t r a c t o f t h e E v i d e n c e ..................................................... 4-42
1. P lan of Development and Cost of Pow er:
Rocky M ountain Pow er C o m p a n y ............. 4-9
H arry H. Cochrane
Qualifications ............................................... 4
Present P l a n ................................................ 4
F u tu re Enlargem ent ................................. 5
Cost of D ev elop m en t................................. 5
Cost P er Delivered H o rse p o w er 5
Comparison w ith A pplicant W heeler’s
E stim ate ..................................... 6
W alter H. Wheeler—Cross Exam ination
by Mr. H e n s h a w ............................................. 7
F. M. K e r r ............................................................ 9
2. Financial A bility to C arry out the P ro je c t:
Rocky M ountain Power C o m p a n y 9-13
F. M. K err, Vice President and General
M anager, Rocky M ountain Power Com­pany
.................... 9-10
G uarantee of The M ontana Power Com­pany
............................................................ 10
Financial ...................................................... H
Testimony of W alter H. W h e e le r 11
Testimony of Edw ard P. B u r c h 13
PAGES
3. Market for Pow er: Rocky Mountain Tower
C o m p an y ......................................................... 13-20
F. M. K e r r ................................................. 13
Testimony of W alter H. W h ee le r 17
Telegram to D. M. Kelly from E. M.
Allen, President Mathieson Alkali
C o m p an y ................................................. 13
Testimony of Edward P. B u r c h 19
4. Possibilities of the Fertilizer Industry and
Other Electro-Chemical and Electro-Metal­lurgical
Developments ................................. 20-39
Testimony of W alter H. W h e e le r 20
Cost Phosphoric Acid and Ammonia ..
Testimony of A rthur E. W e lls 22
Frederick L a i s t ............................. 23
H. C. Gardiner ............................ 24
H arry A. Curtis
(Exhibit 8—Wheeler) ................. 25
(Exhibit 7—Wheeler) ............ 20
(Exhibit 10—Wheeler) ............... 20
Muscle Shoals Majority R e p o r t................. 20
Muscle Shoals Minority Report................... 27
Power Reserved for Fertilizer Manu­facture
..................................................... 27
Ammonia ........................................................ 27
A rthur E. W e lls ........................................ 27
Frederick L a i s t ......................................... 28
Rocky Mountain Power Co. Exhibit 4.
Cost of Power and Raw M aterial at
Flathead per Ton Nitrogen for
Various Power C o s ts ............................ 29
H. C. G a rd in e r............................................... 39
H arry A. Curtis (Wheeler Exhibit 8) 31
PAGES
F ertilizer M arkets and General Condi­tions
in F ertilizer I n d u s tr y .............. g i
A rth u r E. W e l l s . . . . . . 31
Frederick L aist .......................! ! ! ! ! ! ! ! 32
H . C. G a r d in e r ................................ go
W heeler E xhibit 8.
Spencer C arter, P resident N ational
F ertilizer Assn., P resident Virginia-
C arolina Co............................................ gg
F. S. Lodge, D irector F ertilizer M anu­facturers,
A rm our & Co................ 34
Jo h n J . W atson, J r ................................. g4
H arry A. C u r ti s ...................................... g5
W heeler E xhibit 9.
Charles S. B rand, Executive Secre­tary
N ational F ertilizer Association 36
W heeler E xhibit 10.
L etter D epartm ent of A griculture,
California................................................’ g0
L etter Colorado A gricultural College 36
N orth D akota A gricultural C ollege.. 36
K ansas A gricultural C o lle g e . . . . 36
W heeler Exhibit 7.
Address of Charles S. B rand before
F ran k lin In stitu te, Philadelphia,
March 4. 1929 ............................. g7
P otash and Cement.
A rth u r E. W e l ls .................................... g7
Aluminum Cement from Slag.
A rth u r E. W e l ls ..................................... gg
Rental Charges ........................................... 39-42
P roject Area r e c o r d gq
F. M. K e r r ........................................................ 39
W alter H. W h e e le r.......................... gq
V alue of S i t e ’ ’
Statem ent by Mr. Cram ton ... ' !. ’ ! ’ ' 44
Argument
pages
42-69
Federal Water Power Act of March 7, 1928 ..
Federal Water Power Act of March 4, 1929 . . 43-44
1. Plan of Development and Cost of Power .. 45-49
2. Financial Ability to Carry out the Project. 49-50
3. Market for Power.............................................. 50-63
4. Possibilities of the Fertilizer Industry and
Other Electro-Chemical and Electro-Metal­lurgical Developments .................................. 50’G3
5. Rental Charges and Power for Flathead
Irrigation Project........................................... 6 >-69
69
Conclusion .............................................................................................
Requested Findings of Fact..................................................
Requested Decision .......................................................................In the Matter op the Applications op the Rooky Mountain Pouter Company and Walter H. Wiieeler to Develop Power on Flathead Lake and Flathead River, Montana.
Statement of the Case.
On June 18, 1920, Rocky Mountain Power Company, a Delaware corporation, filed in the U. S. Land Offices at Missoula, Montana, and at Kalispell, Montana, its applica­tion for preliminary permit to develop power at Flathead Lake and Flathead River in Montana, and, on June 19, 1920, said application was filed with the Federal Power ('ommission in Washington, D. C., and was, and is, des­ignated as Federal Power Project No. 5.
Thereafter on January 26,1921, an amended application for a preliminary permit was filed on behalf of the Rocky Mountain Power Company. Thereafter applications were made by Montana Water Power & Electric Company of Portland, Oregon, and Flathead Valley Electric Company of Spokane, Washington. Hearings were had in Montana before Engineers representing the Federal Power Com­mission.
The Rocky Mountain Power Company did not press its application during 1921 and years immediately following by reason of the financial depression throughout the country, as will be disclosed in a discussion of the record.
In May, 1926, there was incorporated in the appropri­ations for the Flathead Project $395,000.00 for the develop­ment of power at this site, to be used for the benefit of the project.Thereafter Rocky Mountain Power Company submitted a memorandum to the Commission of Indian affairs, wherein it proposed to pay an annual rental of $1.00 per horsepower for the use of Indian lands included within the project; $101,000.00 to the United States Government for the Newell Tunnel, and to furnish power for the use of the Flathead Project.
Thereafter, 011 December 18, 1928, an offer was made by the Rocky Mountain Power Company to modify its agree­ment for furnishing power for the Flathead Irrigation District, as follows:
“A. The power company would agree to deliver at its plant to be erected at the Newell sire electrical energy to be used by the irrigation project exclusively for pumping water for irrigation, power required by the Government for that purpose up to 5,000 h. p., at the price of one mill (.001) per kilowatt hour deliv­ered, and also such power up to 5,000 li. p. as may be demanded by the U. S. for all project and farm uses and for sale at the price of one mill (.001) per kilo­watt hour delivered.
“B. The power company will deliver either at the Newell plant, or at some place more convenient on the project, to be agreed upon, such additional power up to 5,000 li. p., as may be demanded by the U. S. for all project and farm uses and for sale at the price of two and one-half mills ($.0025) per kilowatt hour delivered.-’
On January 11, 1928, Walter H. Wheeler tiled with the Federal Power Commission his application for prelimi- nary permit for Flathead Lake site and five sites 011 Flat­head River (F. P. C. No. 808).
On March 27, 1928, the Rocky Mountain Power Com- pany made application for license for the construction of a plant and the development of the power site known as3
-Newell kite or Site So. 1. The matter is now before the nnm^ion on the original application of the Rocky Mountain Power Company for a preliminary permit to derelop the five sites on the Flathead River, and its appli- catmn for a license to develop Site No. 1, and the applica­tion of fl alter H. Wheeler for a preliminary permit on the five sites on the F.athead River. Wheeler has not ml application for a license on any of these sites.
fnAHf ^ had °n theSe applications be­fore
the Federal Power Commission at Washington D C
begmmng October 28, 1929, and ending November 9,1929’ at which hearing, in addition to representatives of the re­spective applicants, there was represented the Senate Committ^ on Indian Affairs, the Commissioner of Indian Affairs the Flathead Indians, Flathead Connty, Flathead
in;? I>ist?’tte T°'vn °f p°isou' ^ W. lr
tl teT TI T aDd C°mmereial or^«ons in-
tei t .stid 111 the development.
memTn °r “ t0 be i8SUed for tMs
meat, the sole matter for the Commission to decide is whether or not such permit and/or license shall issue to the Rocky Mountain Power Company or whether or not a permit shall issue to Walter H. Wheeler, and the fur-
^ a hter to t0 be iS8Ued t0 ^ Mountain Powei Company, what toe terms and conditions of said license shall be.
The Rocky Mountain Power Company submits the fol­lowing abstract of the evidence relied upon, arranged by subjects, with appropriate reference to pages of the record or the number of the exhibit where the evidence appears and thereafter the argument in support of its contentions’4
Abstract of the Evidence.
In presenting an abstract of the evidence the Rocky Mountain Power Company will present the evidence
showing:
1. Plan of Development and Cost of Power ,
2. Financial Ability to Carry out the Project;
3. Market for Power;
4 Possibilities of the Fertilizer Industry and Other Electro-Chemical and Electro-Metallurgical Develop-
m^tRental Charges and Power for Flathead Irriga­tion Project.
1. Plan of Development and Cost of Power: Rcc^y
Mountain Power Company.
Harry H. Cochrane :
Graduate Engineer; Degree of Master Mechanical En­gineering, Cornell University; employed by The Montana Power Company for 23 years; Chief Engineer for The Montana Power Company for 15 years last past (Tr. pp. 1319-20).
Present Plan:
A dam will be built to raise water to elevation 2893 and produce a working head of 185 feet.
Tunnels, power-house and generating equipment will be provided having rated capacity of 150,000 horsepower in three units.
Lake storage will be utilized between elevation 2893 and 2883 sufficient to regulate river to a minimum flow of 5,400 second feet 90 per cent, of the time. This will makeavailable 80,000 prime or continuous liorsepower (90 per cent, of the time) (Tr. pp. 1321-1322).
Future Enlargement:
Plant will be designed so that if additional storage is provided some time in future, either by raising upper limit of storage, or lowering lower limit of storage, or both, or by construction of storage reservoirs on head waters of lake, the resulting increased minimum flow can be fully utilized by the installation of a fourth generating unit, bringing rated plant capacity to 200,000 horsepower (Tr. pp. 1322-1323).
Cost of Development:
Cost of present proposed development estimated at 17,947,500 (Tr. p. 1333; Details in R, M. P. Co. Exhibit No. 10).
Cost Per Delivered Horsepower:
Rased on development cost of $7,947,500, the yearly cost will be:
Return on investment 8%
Taxes 2%
Repair and Replace­ment (Depreciation) 2%
Total 12% on $7,947,500 = $ 954,000
Plant operating cost 03,000
General operating ex­penses 63,000
Total yearly cost $1,080,000
Average power saleable, 80,000 x .85 — 68,000 H. P.6
Yearly cost per saleable horsepower without ^
license fee........................................ Proposed fee for Indians • • •.........
Estimated loss due to supplying 15,000 horse­power to reclamation project at less than ^ ^
cost ...................................................................
Total cost (and proposed selling price) per horsepower sold...............................................
(Tr. pp. 1333-1334).
The factor of .85 used above in computing saleable horse­power, and called Utilization Factor, is based on The Mon­tana Power Company’s system records of the last ten years, which show a utilization factor of .80 (Details on p. 1706 Tr.). This figure was arbitrarily raised to .85 to allow for the diversity of stream flow between this and other plants, and to allow for the possibility of improvement in the future (Tr. p. 1351).
Comparison with Applicant Wheeler’s Estimate:
Wheeler estimates continuous prime power from Site No. 1 at 105,000 horsepower (Tr. p. 192), and that this power will all be sold at $15 per horsepower, making an annual operating revenue of $1,575,000 (Wheeler Exhibit No. 24).
The actual prime horsepowrer which can be produced at 70 per cent, efficiency and 85 per cent, utilization factor, Avith Wheeler’s figures for available water and head (Wheeler Exhibit No. 4) is 71,000 horsepower. There­fore, in order to realize Wheeler’s estimated revenue of $1,575,000, the power actually saleable must be sold at $22.25 without allowance for compensation to Irrigation District, or, if Rocky Mountain Power Company’s estimate of $1.00 per horsepower is applied also in Mr. Wheeler’s case, the total selling price must, be $1.00 higher, or $23.25 per horsepower (Tr. p. 1348).
This comparison can be made in another way by com­paring W heeler’s estimate of his net earnings of $2G7,278 00 (Wheeler Exhibit No. 24), with Rocky Mountain Power Company’s estimate of his net earnings, which show a deficit of $204,116.00 (Rocky Mountain Power Company’s Exhibit No. 8, and Tr. p. 1414).
The difference in these figures arises from the fact that Wheeler estimates the amount of power, which can be pro­duced and sold, at a much higher figure than the facts in
the case warrant, his figure of 105,000 horsepower being based on:
(A) A flow of 6,000 second feet.
Walter H. Wheeler:
Cross Examination by Mr. Henshaw.
Q. In your study of the amount of water required to be drawn from storage to maintain the full 6,000 second feet, did you take into account the natural draw down of the I lake, the natural draft from storage during the period which you cited?
A. 1 he natural draft from storage?
Q. Yes.
A. I don t think I am clear on just what you mean.
Q. Well, aren’t you aware that before using the flow of Flathead River in determining the possibilities of opera­tion of control storage, it is necessary to make allowance for the increase or decrease in storage which has naturally occurred in the past?
A. You mean evaporation?Q. No, I mean the natural fluctuation of the surface of the lake, which affects the How as it is measured at the
outlet.
A. You mean the discharge of the outlet?
Q. I refer to the effect on the discharge at the outlet
from the lake.
A. By reason of the—
Q. By reason of the fluctuation of the lake surface.
A. I have taken into consideration the actual flow as measured by the U. S. Geological Survey.
Q. Uncorrected?
A. Uncorrected, yes (Tr. pp. 2199-2200).
Mr. Henshaw then explained that in a study which he had made of the Flathead Lake storage he found that in order to maintain a discharge of 6,000 second feet it was necessary to employ from 50,000 to 200,000 more acre feet than those which Mr. Wheeler had given, the discrepancy being due entirely to his (Mr. Wheeler’s) neglecting the natural draw down.
(B) An average over all efficiency of 90 per cent, as stated by Wheeler (Tr. p. 315), or 87.5 per cent, as stated by Burch (Tr. pp. 415-16-17). Such high efficiencies have not been realized in practice, nor can they be realized in an isolated plant where the water wheels will be called upon to operate on all parts of their efficiency curves in order to regulate their output to conform to the load (Tr. p. 1326).
An over all average efficiency figure from the operation of The Montana Power Company’s Yolta Plant is 74 per cent. (Tr. p. 1327), which is subject to adjustment in the case of Flathead to allow for some inevitable waste of stored water, making a most probable figure of 70 per cent, for this plant.(C) A utilization factor of 100 per cent. This factor can not reasonably be higher than 85 per cent, as shown by Cochrane (Tr. p. 1706).
I assume that I will sell all the power that can be pro­duced for $15 per horsepower, approximately 100,000 horsepower, continuously, at nearly 100% load factor (Tr. p. 269).
I do not know of any plant that has a 100%, 90%, or even an 85%, load factor (Tr. p. 271).
Wheeler expects to sell the entire output, approximately 100% load factor, twenty-four hours a day, 365 days a year, without any allowance for possible breakdown, shut­down, cessation of market, strikes, or other interference, and without regard for the market for the product pro­duced (Tr. pp. 271-2).
F. M. Kerr:
Over any ten year period anybody wrho made on an average load factor of 75% to 85% would do pretty well; nobody can make a 100% load factor (Tr. p. 1194).
2. Financial Ability to Carry Out the Project—Rocky Mountain Power Company.
Testimony of F. M. Kerr, Vice President and General Manager, Rocky Mountain Power Company:
Vice President and General Manager of The Montana Power Company.
Vice President and General Manager of the Rocky Mountain Power Company.
Connected with the development of the hydro-electric business in Montana for forty years.10
The Rocky Mountain Power Company’s ability to carry out any and all financial and other obligations in connec­tion with the Flathead Site is guaranteed by The Mon­tana Power Company, by guarantee authorized by its Board of Directors dated May 23, 1928, and The Montana Power Company is able to carry out this agreement (Tr. pp. 484, 486-489).
The Montana Power Company can borrow money at favorable terms; their bonds command a high price and they can finance any development desired in Montana by means of sales of securities to Montana people; this is evidenced by the sale of over $20,000,000 worth of stock in the last few years, and approximately $10,000,000 in the last year alone (Tr. p. 490).
Counsel for applicant Walter H. Wheeler admits the financial ability of The Montana Power Company to de­velop any site in Montana (Tr. pp. 485-486).
The financial position of The Montana Power Company is further shown by the balance sheet for the year ending December 31, 1928, introduced by Wheeler (Tr. pp. 18-19: Wheeler Exhibit No. 1).
The guarantee of The Montana Power Company is as follows:
‘THE MONTANA POWER COMPANY 25 Broadway, New York.
May 23, 1928.
“Federal Water Power Commission,
Interior Building,
Washington, D. C.
“Gentlemen:
“Under and by virtue of a resolution duly adopted by its Board of Directors, copy of which is attached hereto,11
The Montana Power Company, in the event that a license shall be issued to and accepted by the Rocky Mountain Power Company, upon its application now pending before the Commission for a power project on the Flathead River and Flathead Lake, in Flathead, Missoula, and Sanders Counties, Montana, does hereby undertake and guarantee to the said Federal Water Power Commission that the said Rocky Mountain Power Company will fully do and perform any and all of the obligations and agreements on the part of said Rocky Mountain Power Company in said license set forth.”
This is signed by the president and attested by the secre­tary of The Montana Power Company, and to it is at­tached the resolution of The Montana Power Company authorizing the execution of such an unlimited guarantee.
Mr. Dixon: That ought to be satisfactory (Tr. p. 2114).
Financial.
Testimony of Walter H. Wheeler :
1 have submitted estimates of cost of development to Mr. Burch, Consulting Engineer, and to one of the largest investment banking houses (E. H. Rollins and Son), and they have given me their opinion that the project would be readily financed with the set-up which I have made (Tr. pp. 120-127).
1 have submitted my estimates to a large contracting firm who do not want their name mentioned, who offered to finance and construct the entire project providing the license was issued to me and sufficient contracts for the sale of power can be made on the basis which I have out­lined” (Tr. pp. 128-129).12
Mr. F. N. Prince, Chairman of the Board, First National Bank, Minneapolis, states in a letter that Wheeler has means of his oAvn to do the preliminary work and in con­nection with the people he has interested with him would be able to fully linance the completion of the work (Tr. p. 135).
The charge of investment banking houses would be $870,000 for financing and handling this project (Tr.
p. 221).
1 stated to bankers and investment houses that I am going to sell power to fertilizer, electro-chemical, electro- metal iurgieal, paper and pulp mills, railroads and other uses available (Tr. pp. 262-263).
1 have letters from people who had offered to finance the project, but I cannot disclose to the Commission who they are (Tr. p. 278).
C. A. Fuller, Manager of Bond Department, Metro­politan National Company, of Minneapolis, states in a tele­gram to Commission that Wheeler “will be able to sell enough power to industries at $15 per horsepower year to enable him to finance and carry through the development’1 (Tr. p. 279).
William F. Ivauze, Mayor of Minneapolis, in a telegram to the Commission, stated that Wheeler has a record for professional and civic service in this community which satisfies me that he will without doubt be able to cany out successfully any project which he states he can accomplish (Tr. p. 280).
A. A. Godward, Minneapolis, Committee Executive En­gineer, telegraphed the Federal Power Commission that he has 110 hesitation in stating that Wheeler, in his opinion, will be able to carry through the project success fully (Tr. p. 280).13
Edward P. Burch testified as an expert engineer and executive that he approved Wheeler's financial plans and he would not find any great obstacle to prevent his carry­ing them out (Tr. pp. 365-367).
3. Market for Power—Rocky Mountain Power Company.
Testimony of F. M. Kerr, Vice-President and General Manager Rocky Mountain Power Company:
A single unit of power development, even though large,
situated a long distance from a railroad or other industry,
would be difficult to market as compared with combined
plants, because of the ability, where you have several
plants and several sources of power, to assure service.
This, together with the variations in river flow in different
water-sheds, assures continuity of service. This also affords
opportunity for lower rates to the consumer (Tr pp 457- 459).
Q. Yow then, with reference to the availability or the use of the secondary power or water, excess water in the lake, assuming, as has been testified to here by some of the witnesses, that there would be secondary power available at the Flathead up until around September 1, could that available power be used to save the reservoir storage of the Western Water Shed, which commences to diminish in an ordinary year sometime in July?
A. Yes, during the period between the cessation of high water on the eastern water shed and the cessation of high water on the water shed west of the Divide, what might be termed “excess power” or “additional power” could be taken from the Flathead plant and utilized in the system14
of The Montana Power Company, thereby conserving water which could be used for the production of power later on in that system, thus realizing more total power during the year from the two systems combined than could | be obtained from the two systems operating separately. And the same thing applies to the operation of this plant in parallel with plants west of the Flathead system. As has already been brought out, we have a connection withj the Washington water power system, and as I believe ha. not yet been brought out, the Washington Water Power system has connections with the Puget Sound Power and Light Company in Seattle, and the Puget Sound district Q. You mean physical transmission lines?
A Physical transmission lines, over which they trans­mit large amounts of power back and forth from one com­pany to the other. They also have connections to the! Pacific Power and Light, which operates in the southenj part of Washington, and I believe northern Oregon. Sc that if the Rocky Mountain Power Company should develop] this site it would have connections not only with the Montana Power Company but with these three other com-1 panies covering practically the entire area west of Mon­tana. That is northern Idaho, Washington and the northern part of Oregon. And water plants situated 01 the west of the coast range have still different water chai acteristics from those in either Montana or those of the Washington Water Power Company. So that a still] greater diversity between run-offs can be obtained, and the available power of the combined systems made more that if the Flathead is operated as an isolated plant, depend ing only upon its own water supply and without the ability to either receive power from or sell power to its neighboi15
Q. In other words, this kind of a development in con­nection with the Montana Power Company’s system would tend to bring about a more efficient and fuller use of the available water power that is now in this project?
A. That is the idea exactly. That is the idea which has been realized and recognized, I should say, all over the country in the great growth and extension of high tension transmission lines during the last several years, to tie together plants and loads in the large extended net­works which enable each of the plants connected to this network to give the maximum amount of available power and incidentally give the customers the loads which are supplied by this network, the maximum degree of con­tinuity and reliability in the supply of power (Tr. pp. 1350-1353).
Continuity of service is given by the combination of The Montana Power Company’s plants into one system (Tr. p. 457).
Lower rates can be quoted by The Montana Power Com­pany on account of the diversity of load with its conse­quent high load factor amounting to 80% (Tr. p. 458).
Wide distribution of market is accomplished by the adop­tion of a uniform rate for the entire system, the smallest town at the termini of the lines getting the same rate as the large city (Tr. p. 459).
Lack of available power will probably cause the shutting down of some large industries in Montana this winter (Tr. pp. 466-469).
The Montana Power Company has made studies of the market for power, being assisted by the metallurgical re­search department of the Anaconda Copper Mining Com­pany, and has developed those that the estimate showed would pay (Tr. pp. 469-470).16
The natural growth of our system without unanticipated load ought to accumulate 50,000 H. P. for the Flathead plant before it can be built (Tr. p. 466).
The available market of The Montana Power Company will take a large portion when completed, and very soon thereafter all of the power which may be generated at Site JSo. 1 (Tr. p. 489).
The Montana Power Company now furnishes 300,000 horsepower in Montana, and has 2.500 miles of Transmis­sion Lines (Tr. pp. 458-459).
The Montana Power Company has increased its horse­power capacity more than 100,000 H. P. since 1921 (Tr. p. 467).
Possible development of the Flathead Site by The Mon­tana rower Company was not pressed immediately follow­ing 1921 and 1922 because of the hard times, which caused their courage to somewhat fail in connection with this large enterprise (Tr. pp. 460-461).
F. M. Kerr :
Should the Rocky Mountain Power Company be the successful applicant for Site Ho. 1, it would agree to develop the other sites as rapidly as they were economically warranted; if for any reason the power company declined or doubtful of the judgment of developing the other sites it would relinquish any priority immediately to any one who would do it. Witness expressed doubt as to the feasi­bility of developing sites with heads as low as 14 to 40 feet as not being economical under present conditions (Tr. pp. 478, 487, 488, 489, 1070-2).
If we had a permit handed us now I could have the tunnel crews at work as quick as possible for them to get17
on tlie ground, and that is what I expect to do. We have now 500 men engaged in construction work with full equip­ment (Tr. pp. 466-67, 493).
The Flathead Site is cheaper than any undeveloped power controlled by The Montana Power Company with the exception of Canyon Ferry re-development, which is very close to the same cost and far better located (Tr. pp. 1070-1155).
The Montana Power Company has no competition for the sale of electric power in the territory that it serves (Tr. p. 1059).
Our rates to the people of Montana are not excelled in cheapness by anybody, and are the lowest under the cir­cumstances (Tr. pp. 470, 1072-3).
Testimony of Walter H. Wheeler:
My proposed market for power from the Flathead Site is wholesale to public utility companies, industries, munic­ipalities, corporations, paper mills, or other agencies which can make use of power (Tr. p. 41).
By extensive investigations, correspondence and nego­tiations I have shown a very large market for the power if it is developed on a conservative basis of capitalization and finance, so that it can be sold at a very low price (Tr pp. 41-42).
There is a local market for some of the power with other public utilities and local industries. I have found that new industries of great importance to the country can be brought into this field to use the power if sold at a very low price as proposed by me (Tr. p. 44).
The most outstanding use that I have found for the power is for the manufacture of what are called high- analysis fertilizer (Tr. p. 44).18
I have found a very keen and active interest in tlie fer­tilizer industry in tlie project (Tr. p. 52).
I have gone into the matter extensively with fertilizer concerns, and I am convinced that they will enter into contracts for the use of this power and establish fertilizer factories in the vicinity of these power sites (Tr. p. 80).
I have found very keen interest among metallurgical companies in this cheap power,—just about as keen an in­terest as I have found in the fertilizer industry (Tr. pp. 102-103).
I have also developed a considerable interest among in­dustries and other users of power in the immediate vicin­ity, and have found that they were ready to consider a contract with me on the basis that I am offering this power, as soon as I have a permit from the government upon which I can base such a contract (Tr. p. 103).
1 would be operating as a wholesale selling company selling power mainly in large blocks at the power house at a rate of $15.00 per horsepower per year (Tr. p. 104). 1 At the present time I have no definite plans for going into the business of retailing power (Tr. p. 104).
I expect to get future natural load in Montana on basis of low price offered for power (Tr. pp. 29G-298).
I did not have any definite contracts and could not get any without a permit (Tr. p. 304).
Our price being so low we see no reason why we shoulc not sell all the power and sell it quickly (Tr. p. 332).
I arrived at a tentative understanding with Mr. E. M. Allen, President of the Mathieson Alkali Company, and drew a contract for submission to the executive committee of that company for the sale of 100,000 horsepower, which they felt they would not be justified in signing in advance of the issuance of a permit (Tr. pp. 88-89).19
Negotiations had progressed further with the Mathieson Alkali Company than any other prospect for the sale of power for fertilizer or chemical manufacture, although no data was submitted to Mr. Allen, the President, showing the availability of raw material other than geological sur­vey bulletins. Mr. Allen stated that he had a. man in­vestigating the field containing phosphate rock (Tr. pp. 224-225).
Telegram addressed to D. M. Kelly, counsel for Rocky Mountain Power Company, dated October 29, 1929, from E. M. Allen, President Mathieson Alkali Company: “I au­thorized no one to speak for myself or our company at any hearing. I advised Mr. Wheeler that if he secured the permit I would have our people look into his proposi­tion relative to the use of a block of 100,000 H. P., but at the same time advised him that it did not look very promis­ing on account of the price per horsepower offered, but what was more important, it was apparently too far from seaboard for our purpose” (Tr. p. 249).
1 have prospective contracts for electro-metallurgical purposes, which I do- not care to disclose (Tr. p. 281).
Testimony of Edward P. Burch:
That Wheeler, with his approval, had “majored” on fertilizer production as a use for the Flathead power (Tr. pp. 308-309).
That Wheeler can produce and sell power cheaper than the Rocky Mountain Power Company, and would be in as good a position to dispose of this power as the Rocky Mountain Power Company (Tr. pp. 374-377).
This power is not to be used at the switchboard at the plant; it practically all will be transmitted (Tr. p. 388).20
The cost per horsepower would be more than doubled by transmitting it 100 miles, and would cost over $40.00 per H. P. delivered at Anaconda, 140 miles away, and 50 miles away, in the same proportion (Tr. pp. 381-389).
If you transmitted 50,000 H. P. instead of 25,000 H. P. you would have twice the number of conductors and twice the number of towers; if you transmitted 100,000 H. P. you would have four lines.
Transmitting 50,000 H. P. over one line just isn’t being done (Tr. pp. 418-419).
4. Possibilities of the Fertilizer Industry and Other Electro-Chemical and Electro-Metallurgical De­velopments.
Testimony op Walter H. Wheeler :
The most outstanding use I have found for power is the manufacture of what are called high analyses fertilizers. I have called the Flathead River the Muscle Shoals of the west. A huge electro-chemical industry can better be ac­complished at Flathead than it can at Muscle Shoals. We have an ideal set up. For fertilizer manufacturing of high analyses continuous prime power is required in very large blocks. Raw materials for production occur ad­jacent to site. Potash occurs in considerable quantity in Utah. Potash is being produced from these materials at Marvsvale, Utah (Tr. pp. 44-45).
Potash is beiug produced at Marysvale by leaching and roasting rock. It is now being produced and sold to the fertilizer industry (Tr. p. 85).
By the electro furnace process high analyses fertilizers1 are produced which carry a higher percentage of plant21
food as compared with so-called treble-superphosphate in Montana. Higher analyses fertilizers carry very much higher plant food content, as compared with superphos­phate produced at Anaconda by sulphuric acid process. High analyses fertilizers carry as high as 70% or 80% plant food (Tr. p. 47).
The electric furnace process produces fertilizer which would compete with Anaconda, which fertilizer contains a large amount of waste. As a result, high analyses elec­tric furnace produced fertilizer would permit much wider distribution. Possible to ship to all parts of the United States and world markets in competition with foreign fertilizers (Tr. p. 48).
They employ the acid process, treating rock with sulphuric acid and making treble-super phosphate. Phos­phoric acid is not produced by the sulphuric acid process. By the electric furnace method phosphoric acid is first produced, then phosphate rock is treated by phosphoric acid. By the electric furnace method mine run rock can be used; with acid process rock must be high grade.
Presents table showing cost of phosphoric acid by elec­tric furnace method as being $44.47 to $47, with power at $25 H. P. year. Cost with $15 power, $31.56 to $34 per ton P205.
States cost of sulphuric acid method and electric furnace method, with power at $25, same (Tr. pp. 53-55).
Fertilizer plant use 100,000 H. P.
Anaconda Company gets rock in Idaho for reasons I do not know. Presumes more suitable for acid purposes (Tr. pp. 271-272).
Character of fertilizer totally different from that pro­duced at Anaconda because it is a high grade analyses fertilizer.22
Did not discuss with fertilizer manufacturers whether with $15 power phosphoric acid could be made cheaper than by acid process at Anaconda.
Does not know what it costs to make ammonia at Charleston (Tr. pp. 258-2G0).
Does not know where mines are of any companies that would be interested in reduction of metals at Flathead (Tr. p. 268).
Testimony of Walter KL. Wheeler (Rebuttal):
Inquired of field representative of Anaconda Company in Minnesota as to whether superphosphate produced at $40 a ton could be marketed at a profit in northwest (Tr. p. 2177).
Says Dr. Gardiner stated the relatively large sum of 75$ to 90$ per ton mining cost is for ore concentration. See Tr. page 761 (Tr. pp. 759-760).
Makes new calculation electric furnace method. States Dr. Gardiner states phosphoric acid would cost $76 per ton by acid process at Anaconda (Tr. pp. 2187-2188).
Clay would be an asset in electric furnace slag (Wheeler, p. 82, direct, stated article quoted [Wheeler Exhibit No. 7] says slag can be used for manufacture of aluminous cement) (Tr. pp. 2184-2185). Wheeler Exhibit No. 7 states exact reverse.
Cost Phosphoric Acid and Ammonia :
Professor Arthur E. Wells.
Concluded that sulphuric acid method cheapest and most feasible for producing phosphoric acid. Nowhere in America produced by electric furnace process for fertilizer (Tr. pp. 528-529).23
Electric furnace process with $15 power would produce
acid for 3.70 pound P 20 5, of which .850 is power cost. Cost
at Anaconda by Anaconda sulphuric acid method, 2.70
pound (Tr. pp. 529-530).
If power was available for nothing and good grade of
rock available, electric furnace method would ju st about
equal Anaconda cost. G reater cost for low grade m aterial
in electric furnace method th a n in acid process (Tr. p.
531).
Frederick Laist:
Cost P 20 5 a t Anaconda per pound, Recovery 85%.
Rock 3.7 tons @ $6 1.10
Acid 3.7 tons @ $3.50 .65
Labor .5
Supplies .2
Power and Expenses .2
General Expenses .15
2.80 X 2000 $56 per ton
This is m anufacturing cost for operating only (Tr. pp.
833-834).
Electric furnace m ethod:
Rock, 3.7 tons @ $6 1.10
Power, 4.5 K. W. hrs. @
$0.38 1.72
Coke @ $12.00 Anaconda
Cost .54
Sand .10
Electrodes .12
Labor and superintendence .42
Repairs .15
General and miscellaneous .17
4.32 cents per pound.
24
A cost of $80.40 per ton. A total cost for material other than power, $53.90. Attention directed to error in Wheeler estimates showing that all items other than power (Wheeler Exhibit No. 5) cost $14 out of his total cost of $31.56 to $34 per ton. Actual cost for all materials other than power, $54.55 (Tr. pp. 837-839).
The above costs are not estimates but actual operating costs on electric furnace, Anaconda. Based on $15 power, Wheeler costs 3.72$ a pound P203 at Flathead, which is prohibitive compared with 2.7$ at Anaconda (Tr. p. 840).
Regardless of whether sulphuric acid process acid is used, they must be combined with base at Anaconda or Flathead. Both treble-superphospliate and ammoniated phosphate made by either or both of these processes would have to be made at Flathead, and no other products could be made. If power was available at Anaconda for noth- ing, the cost of making phosphoric acid by electrolytic process would be the same, and the value of the products would be on a parity as fertilizer (Tr. pp. 840-841).
Dr. Gardiner:
Anaconda selected Idaho mines because after full in­vestigation by mining and geological departments into economies it was decided cheapest rock could be secured there. Veins in Idaho five to thirty-five feet thick (Tr. p. 722).
Electric furnace experience at Anaconda confirmed ex­perience in rest of world that it is not economically ap­plicable to fertilizer industry. Know of no place where electric furnace is producing or even promising to be able to produce phosphoric acid for fertilizer (Tr. p. 739).25
Great strides in producing superphosphate as low as 40* a unit elsewhere and Anaconda costs 55* to 60* (Tr n 737). '
Production of phosphoric acid by industry in fertilizer territory where Anaconda markets is as low or at lower cost than Anaconda (Tr. p. 789).
^ High grade rock is not required. Mine run rock is used. No selection is made in mining or in veins. Small pro­portion is air concentrated at low cost. Cost of available phosphoric acid in Anaconda treble-superphosphate is 55* to 60* per unit; 46 units per ton (127.60). Cannot sell ammoniated phosphate in Japan because 17* unit differ­ential m favor of Japanese produced material, and because materials can be bought elsewhere cheaper (Tr pp 790- 795).
Anaconda owns two best rock deposits at Garrison, 40 miles from plant (Tr. pp. 738-760).
Coke costs $12 on large contracts from cheapest and best source (Tr. p. 751).
Plant at Anaconda makes about 20,000 tons a year (Tr p. 807).
Wheeler Exhibit No. 8:
Professor Harry A. Curtis, Yale:
There has been much talk about the use of phosphoric acid as a carrier for ammonia. Phosphate would no doubt find ready acceptance by industry if it could be produced cheaply enough, but there is no process in commercial operation in the United States that can produce phosphoric acid more cheaply than the ordinary sulphuric acid process. The Federal Phosphorus Company of Anniston,26
Alabama, has manufactured phosphoric acid by the electric furnace method, but practically none of this product is used as fertilizer * * *. It does not seem likely that phos­phoric acid can be manufactured in this country cheaply enough to be used as fertilizer, particularly in view of the low cost of ordinary acid phosphate with which it will have to compete (Tr. p. 73).
Wheeler Exhibit No. 7:
Market price superphosphate Baltimore, |10 per ton for 1G% product (G2^ a unit) (Ex. p. 50).
Wheeler Exhibit No. 10:
Referring to Anniston, Alabama, costs—letter of U. S. Department of Agriculture:
We do not have any cost data on actual commercial operations. It is our impression that the Anniston corpora­tion is on primary and secondary power. We do not know power costs.
Wheeler refers to public document “Muscle Shoals Majority and Minority Report.”
Majority Report.
“(i) * * * the lessee shall agree to determine by research whether or not, by means of electric furnace methods * * * there may be produced on a commercial scale fertilizer compounds of higher grade and at lower prices than farmers * * * have been able to obtain, and if a process or processes are found which * * * will reduce the cost of the fertilizer * * * to the farmer, the lessee shall reasonably employ such improved methods.”Minority Report {p. 6).
“Since at present there are no satisfactory electro­chemical or electric furnace methods of fertilizer manu­facturing available for immediate use on a large scale at Muscle Shoals, the power should be reserved for a reason­able time until the several new methods now in course of development can be tried out.”
"Power Reserved for Fertilizer Manufacture.
“There are no fertilizer manufacturing plants using large blocks of power now operated in the United States.”
Ammonia :
Professor Wells:
Investigated ammonia production exhaustively in 1921-2 for J. P. Morgan & Company, World wide study. Investi­gated Alaskan proposition, where power could be obtained for plant operation without investment cost. This could not now be recommended for competitive ammonia pro­duction despite fact plant is on tidewater (Tr. pp. 523- 533).
In 1925-6 studied production synthetic ammonia; vari­ous methods (Tr. pp. 534-535).
World production 1,800,000 tons; less than 80,000 tons is produced from electric power. Norway production is from $7 power (Tr. p. 539).
$10 power and coal @ $2 and coke @ $4, on a parity where plants are located at same place (Tr. p. 540).
Ammonia 40% of price seven to eight years ago. $15 power and coke $6 and coal $3.50 are about on parity.With $2 coal and $4 coke plant in eastern United States, power and plant at Flathead with power at $15, the eastern plant has decided advantage (Tr. pp. 541-542).
Cost of producing ammonia at Hopewell, Virginia, around 3y2j (Tr. p. 548).
Ammonia could not logically go from Montana to Chicago District account by-product production Joliet and South Chicago, whose surplus moves south and east (Tr. p. 550).
Price ammonia Chicago District about 3per pound; delivered Anaconda a little over 5$ per pound. Cyanamid not produced generally because of cost (Tr. p. 556).
Power cost electrolytic-hydrogen with $15 power, 1.35$ per pound ammonia (Tr. p. 589).
Knows of no source of coke supply at $8 for Flathead (Tr. p. 591).
States figures in Bulletin 1179 theoretical and not actual operating requirements (Tr. p. 599).
Criticizes Waggaman figures (Tr. p. 599).
States capital charges of .$40 per ton proper for fixed nitrogen plant such as proposed making Flathead ammonia cost 7$ per pound (Tr. p. 710).
Great improvements being made in water gas method (Tr. p. 693).
Says $90 per ton for Anniston, Alabama, cost of P205 is low (Tr. p. 595).
Frederick Laist:
Investigated ammonia production in relation to coal- coke-water-gas produced ammonia in West Virginia or Illinois (Tr. p. 828).Rocky Mountain Power Co. Exhibit No. 4.
Cost of Power and Raw Material at Flathead per Ton Nitrogen for Various Power Costs.
Power Value per H. P. Yr.
Power 16,000 K W. hrs. Steam 3 tons
Totals
$10
$15
$20
$25
$24
$37
$49
$61
3
3
3
3
$27
$40
$52
$64
Same for a Location in W. Virginia or Illinois. Power and Raw MaterialAper ton N.
Power 3,000 K W. hrs. @ .38^
Steam 11 tons @$.30
Coke 3 tons @$4.00
11.40
126.70
Cost of coal at Flathead ®o on npi. tn_
Cost of coal in W. Virginia or Illinois 2.00 Cost of Coke in W. Virginia or Illinois 4.00
Figures based on Table p. 90 in Fixation of Atmospheric -mtiogen. ,by prailk ^ Ernst.
$10 power at Flathead is at a disadvantage of $27 per ton against acid process phosphoric acid at Anaconda. $15 power is at disadvantage of $40 per ton as against acid process at Anaconda. Figures are actual cost of materials and labor (Tr. p. 829).
Where Dupont plant is located in Charleston, coal is $1.61, coke $3.38. Recent investigation of coke and coal costs made in West Virginia (Tr. p. 830).30
Fixed nitrogen plant at Flathead would be at disadvan­tage of |37.50 per ton of fixed nitrogen as against coal- coke-water-gas plant in West Virginia or Illinois (Tr. p. 844).
Flathead instead of producing cheap fertilizer would he at disadvantage with respect to established eastern plants of at Least $20 per ton, or 33%% (Tr. p. 845).
Only 3.7% of ammonia in 1927 in the United States was made out of electrolytic hydrogen; now it is nearer 1% (Tr. p. 846).
Practically all nowr produced with water-gas-hydrogen. Plant of Niagara Ammonia Company is now idle because not economically practical, although it operated on old $15 power, and got half of its hydrogen from Hooker Chemical Company as by-product of caustic soda manufacture (Tr. p. 846).
Dr. Gardiner:
Ammonia production of world increasing rapidly. In­vestigated ammonia production at Poison and Anaconda. Decided not to undertake manufacture because of lack of market and uncertainty of future prices, which dropped first from 10$ to 8^, then to 6$, then to 5^, and finally to a little over 3$ in Chicago. Cause of these drops was in­creased production by coal-coke-water-gas route and in­creased German production. Conclusion of 1927 investiga^ tion borne out by development. Plant at Anaconda or Poison would be in hopeless position because of remote­ness from market and cheaper production where cheap coal and coke exist.31
Wheeler Exhibit No. 8:
Professor Harry A. Curtis:
There are reasons for believing that production of am­monium sulphate will increase still further from normal increase of by-product coke and normal increase of coal and coke in gas production (Tr. p. 67).
Fertilizer Markets and General Conditions in Fer­tilizer Industry:
Professor A. E. Wells:
Fertilizer manufacture at Anaconda deemed practical but not attractive. 90% of fertilizer used in United States east of Mississippi. Long distance from Montana to market (Tr. pp. 526-527).
Investigated plant with power at less than $10 (cross examination, $5 per H. P., Tr. p. 701). Did not consider this feasible despite fact that there was 60,000 H. P. avail­able in Oregon at a freight cost of $1.50 per ton from sea­board, and continuous prime power available. Proposi­tion has not been financed (Tr. pp. 534-535). Estimated cost of ammonia at 3^ per jiound (Tr. p. 701).
Demand for fertilizer material slowly growing west of Mississippi and demand is small (Tr. pp. 692-693).
Montana plant would be at disadvantage assuming equal plant costs compared with Eastern plants in getting to Orient (Tr. p. 537).
Anhydrous ammonia can be purchased for pound east. At $15 power this would be Flathead plant cost (Tr. p. 544).
Duponts are making ammonia at lower cost at Charles­ton. Cost at Hopewell, Virginia, is 3y2$ pound (Tr. p. 548).32
Anaconda buys ammonia for pound; at Chicago
costs little over 5tf delivered Anaconda (Tr. p. 0G6).
Frederick Laist:
Estimated very conservatively it would cost $10 a ton at least from Montana plant to point of consumption. Flathead would be at disadvantage of at least $20 per ton
of ammonia (Tr. p. 845).
Dr. Burdick of Dupont Company offered Anaconda am monia cheaper from coal-coke-water-gas plant in Wes Virginia than from hydro-electric plant in Seattle, despk double freight rate from Virginia (Tr. p. 848).
Dr. Gardiner:
Market, domestic and Orient, investigated (Tr. p. 719). Competitive conditions world wide more serious (Tr.j
p. 723).
Anaconda produces highest grade material produced world, 2y2 times as concentrated as ordinary fertilizer coi stituting 97% of United States consumption (Tr. p. 724), Map introduced. All territory west of Kentucky, Ohic Indiana, Illinois and Michigan uses less than one eastei
state (Tr. p. 725).
1,500 miles between Montana and consuming territoi
Anaconda fertilizer being crowded out of Ohio River terri
tory by competition because of plant isolation. Hard
get farmers to use high grade material even at lower ui
cost. Farmers slow to change practice (Tr. pp. 727-731 jj
Generally cannot sell high grade materials to farmers
Must go to manufacturers to be mixed and distribute
Fertilizer manufacturers find that only with great dil
culty farmers can be interested in high grade goods.33
five years Anaconda fertilizer sales not increased (Tr. p. 735).
Fertilizer industry very sick industry, Anaconda in­cluded, and fertilizer that cost G0$ unit Anaconda is being produced as low as 40$ a unit elsewhere. If the fertilizer business was not attached to the Anaconda Company it would have been out of business five or six years ago (Tr. pp. 737-738).
Plant in west for ammonia production in hopeless posi­tion because of remoteness from market (Tr. pp. 750-751).
At no time has Anaconda Company made any money out of fertilizer business (Tr. p. 757).
There is not a fertilizer mixture referred to in National i Fertilizer Association Weekly Wholesale’ Price List- of representative American fertilizers that comes within 50% of plant food units contained in Anaconda superphosphate, and not one that comes within 60% of the ammoniated phosphate made at Anaconda (Tr. p. 786).
Process at Anaconda very different from ordinary acid process (Tr. p. 792).
We have never made a profit in any year in the fertilizer business and have had very heavy losses (Tr. p. 797).
Wheeler Exhibit No. 8 (p. 19) :
Spencer Carter, President National Fertilizer Assn., President, Virginia-Oarolina Co.:
We do not believe the nitrate plant at Muscle Shoals can produce nitrogen at a lower cost than other privately owned plants now in operation, nor do we feel it offers any advantage over other privately owned plants in respect to manufacture and distribution of fertilizer.34
Fertilizer business is seasonal; time available for dis­tribution is short. A large distributing unit in a con­centrated area would be at a serious disadvantage, etc. (Tr. p. 20).
Mr. Carter calls attention to the fact “that Muscle Shoals would manufacture and force on a market that is already over supplied enormous quantities of nitrogen, not­withstanding that domestic needs are so fully satisfied that there is now exported 150,000 tons of sulphate of am­monia.” The generation and sale of power is an entirely different proposition from the manufacture and sale of fertilizer.
Wheeler Exhibit No. 8:
F. S. Lodge, Director Fertilizer Manufactures,
Armour & Co.:
1 can not imagine why any one should want to build another fertilizer plant. We have plant capacity for 10,000,000 tons. Fair to assume G,500,000 produced (Tr. p. 31).
As an engineer familiar with problems of industry I do not know of a single location where a new fertilizer plant could profitably be constructed. Half of the plants in many areas could be closed; the rest could supply the demand. It is not sound economics to increase productive capacity in face of over-production, to say nothing of excess potential capacity (Tr. p. 32).
Wheeler Exhibit No. 8:
John J. Watson, Jr.:
The general condition of the fertilizer industry was very unsatisfactory. One of the oldest companies in the in-35
dustry had in 1930, Surplus, $27,400,000, in four years deficit $14,800,000. Loss in period, $42,200,000. Another in 1920 had Surplus, $18,000,000, in four years defi­cit $19,000,000. Loss $37,000,000. Another company $4,000,000 surplus, operating deficit four years $10,000,000, net loss $14,000,000. Two other companies showed losses of $4,000,000 each. Net loss per ton from one representa­tive fertilizer company in 1922, $4.22; 1923, $12.76; 1924, $4.69; 1925, profit $8.36. Average loss on every sale of each $100 in value during entire four years, $3.33 (Tr. p. 56).
Wheeler Exhibit No. 8:
Professor Harry A. Curtis:
Considering fact we have exportable surplus of ammo­nium sulphate, that synthetic ammonia producers will force 200,000 additional tons sulphate into fertilizer mar­ket, and world prices already below U. S. price level, it seems safe to predict U. S. price will reach lower level than ever before reached (Tr. p. 69).
The next few years will be critical ones for the air nitro­gen industry, for the markets must be wrested from by­product ammonia in order to permit present synthetic plants to operate (Tr. p. 73).
Concentrated fertilizers. Many problems remain to be solved. Change to higher standards will not come sud­denly. We have not only the natural inertia of a large industry to overcome, but inertia of large body of cus­tomers who are used to buying and applying fertilizers of present grades (Tr. p. 74).36
Wheeler Exhibit No. 9:
Charles S. Brand, Executive Secretary National Fertilizer Association:
We manufacture and distribute commodities as to which the U. S. Department of Agriculture has shown that the expenditure of $3.50 will produce from $12 to $15 per acre, and yet we sell at a spot loss of $3.75 per ton. We have had seven lean years since 1920.
Let us list and analyze in part some of our worst prob­lems. First, over-capacity; second, over-production; third, multiplicity of producers and distributors (Tr. p. 42).
Wheeler Exhibit No. 10:
Letter Department of Agriculture, California:
W e have no iigures on fertilizer export to foreign countries. As far as I know it does not amount to much where Oriental countries are concerned.
Letter Colorado Agricultural College:
Use of phosphate fertilizers is extremely low. They do not always give results because soils have enough available phosphate to produce maximum crops without fertilizer.
North Dakota Agricultural College:
\\ e are not warranted in making any general statement Nitrogen and potash were used at a loss where tried, and in some cases produced decreased yields.
Kansas Agricultural College:
We are continuing our experiments with fertilizer and have some reason to think that the use may increase con­siderably in this State.37
Wheeler Exhibit No. 7:
Address of Charles S. Brand before Franklin Institute, Philadelphia, March Jf, 1929.
(Mr. Brand had charge of distribution of nitrates for agriculture during the war).
Today the domestic production of nitrogen has increased until the United States is now self-sufficient from the standpoint of national defense. By 1931 it will be free from the necessity of importing Chilean nitrate for not only explosives in event of war, but for agricultural needs. The production of nitrogen in 1929 will amount to over five times the quantity hoped for from Muscle Shoals oper­ated at maximum capacity. Thus private industry has forged ahead and not only accomplished but far surpassed the objective sought by Congress, namely, an adequate sup­ply of nitrogen for national defense in time of Avar and an ample supply for agriculture in time of peace.
Potash and Cement :
A. E. Wells:
During the war strenuous efforts were made to develop potash. Called upon as metallurgist for Bureau of Mines to report for Congress on entire situation relating to economic possibilities. Knows no potash available within 500 to 1,000 miles of Flathead. Potash deposits Marysvale, Utah, not economic. Commercial process1 not possible. SI,000,000 sunk in Wyoming trying to make potash. (Tr. pp. 531-533).Aluminum Cement from Slag:
A. E. Wells:
Cross examination regarding alumina slag for cement. States does not know whether alumina would be obtained as phosphate rock does not have alumina. Can not see why anyone would put alumina in a furnace that was going to make phosphoric acid. It seems like a far-fetched sug­gestion. It would destroy cost estimates if alumina in­troduced (Tr. pp. 5C0-5G2). Answered question regarding quantity of slag produced from furnace.
Wheeler Exhibit No. 7:
Article on By-Products of Furnace Made Phosphoric Acid, under paragraph discussing Fused Cement and Slag.
“Several years ago Peacock proposed to obtain phos­phoric acid and slag cement by smelting various mixtures of phosphate rock and silica in the presence of various quantities of alumina. Owing to their high silica and low lime content, the slags produced by these two processes will not possess all the desirable qualities of quick setting cement. As yet high alumina cement is not produced in this country in connection with furnace processes, for manufacture of phosphoric acid, and as far as known its commercial production has not been realized in other countries. The slag produced is hard, dense material, well suited for use in concrete and would find profitable market for plants in Florida where gravel is scarce.”5. R ental C harges.
1). M. K e lly :
I w ant to incorporate in the record the Project Area
taken from Supplem ental F ile “E ” Engineers R eport
Montana P roject No. 5 Rocky M ountain Power Company.
The project area in acres is approxim ately 134,365 acres,
with possible revision dow nward as follow s:
River and Lake bed
Government Land
F o rest Reserve
P riv ate Lands
117,562 acres
2,423 “
132 “
14,228 “
Mr. D ixo n: I t is by legal subdivision, is it not?
Mr. Jon es: Yes, by legal subdivision (T r. pp. 2235-6).
F. M. K e r r :
The lake is the m ost im portant thing in connection w ith
this site, being practically three-quarters of th e develop­ment
(T r. p. 494).
2700 acres of private land will actually be flooded a t the
upper end of the lake by storage to elevation 2893, and
approximately 700 acres additional of sloughs will be
affected a little more th an they are now. If we buy these
lands we w ill w an t to reclaim them, and our engineering
udies show th a t they can be reclaim ed a t a m oderate cost
for diking and pum ping (T r. pp. 499-501).
W a l t e r l i . W h e e l e r :
(I You know th a t the law provides for a realignm ent of
the income to th e Indians a t the end of the 20 year period ?
A. The end of what?
40
Q. The end of a 20 year period.
A. My understanding is that it would be at the end of the 50 year period (Tr. p. 173).
(See paragraph E, Section 10, Federal Water Power Act.)
In making comparisons between the figures submitted as to cost of power and income therefrom on the Flathead site, with the reports of The Montana Power Company, in the examination of Mr. King it is shown that the figures on the Flathead project were based on an allowed per cent of 8 per cent of the total investment; whereas, in the figures of The Montana Power Company there is no return calcu­lated in the totals, simply the amount of interest which was paid on the bonds (Tr. p. 2180).
The figures were based on the year 1920, and the utili­zation factor was 96 per cent; whereas, the average utilization factor for ten years ending with 1928 was a little more than 79 per cent, and ranged from 42 per cent in 1921 to 103 per cent in 1928 (Tr. p. 1706).
Value of Site.
Power can be developed at the Flathead No. 1 Site for |18.00 per horsepower year, including a payment for the use of Indian lands of $1.00 per horsepower of average plant output and the payment of the equivalent of $1.00 per horsepower in addition for the rights of the Flathead Irrigation Project (Tr. pp. 1333-4, and R. M. P. Co. Ex­hibit No. 12).
The cost of transmission to the nearest existing market (Anaconda) will be $10.00 per horsepower, making a total41
cost of |28.00 per horsepower for power delivered at Ana­conda
(Tr. p. 1482).
The Montana Power Company is now delivering and
selling power at Anaconda in large quantities on a sliding
scale ranging from $25.00 to $17.50 per horsepower (Tr.
p. 1407).
If the cost of power from Flathead is in excess of the
ruling price for power already established in its only
market, the value of this bare site as such can hardly be
more than a nominal figure.
Estimated cost of developing the Flathead
Site $7,947,500
Deduct cost of lands 424,100
Net cost of building plant $7,523,400
Continuous capacity of plant 80,000 H. P.
Total cost per horsepower $99
Cost per horsepower without lands $94
(Figures from R. M. P. Co. Ex. No. 10.)
Compared with this there are given below comparable
figures of actual costs of construction of Montana Power
Company’s plants, excluding cost of lands.
Plant Cost Horsepower
Cost per
H. P.
Volta $3,944,000 63,000 $63
Rainbow $3,074,000 41,000 75
Ho Iter 3,810,000 34,000 112
Thompson Falls 3,177,000 29,500 108
Black Eagle 1,742,000 20,300 86
Total $15,747,000 187,000 $84
(Tr. pp. 1471-2-3-4.)
Mr. Cramton: In the handling of m atters affecting In ­dians
I have been governed by this doctrine, which I think
42
is sound: that when it comes to action by Congress on a matter that, affects Indians on one side and other American citizens on the other side, Congress has no moral right to take something that belongs to white men and give it to the Indian. The Indians—all they have the right to expect is an equality before the law and to be treated justly; and that does not involve taking something away from white citizens and giving it to them. But when it conies to the Treasury of the United States, we have certain obligations to the Indians, certain desires with reference to their de­velopment ; and if the country sees tit to devote some money out of the Treasury to the development of the Indians, that is quite right; and in this case we felt justified. And so there is that first restriction on the power of this Commis­sion through this legislation as to that expense (Tr. pp. 2149-50).
Argument.
The Rocky Mountain Power Company feels that this matter now pending before the Commission does not re­quire any extended argument to clarify the record and the issues involved. While the record is extensive, we have abstracted therefrom the evidence which we believe should form the basis for the decision herein, which evidence is very largely confined to the following questions:
1. Plan of Development and Cost of Power;
2. Financial Ability to Carry out the Project;
3. Market for Power;
4. Possibilities of the Fertilizer Industry and Other Electro-Chemical and Electro-Metallurgical Developments;
5. Rental Charges and Power for Flathead Irriga­tion Project.43
We will discuss these several questions briefly in the order in which they appear. Topics 3 and 4 will be dis­cussed together as they have to do with the main question, namely, Market for Power.
The applications for preliminary permits, and the ap­plication of the Rocky Mountain Power Company for li­cense, to develop the Flathead Project are made, and will be decided, under the provisions of the Federal Water Power Act, approved June 10, 1920, as amended or modi­fied by the Act of March 7, 1928, and under the rules and regulations promulgated by the Federal Power Commis­sion, under the provisions of the Act.
The Act of March 7, 1928, provides, among other things:
“That the Federal Power Commission is authorized in accordance with the Federal Water Power Act and upon terms satisfactory to the Secretary of the In­terior, to issue a permit or permits or a license or li­censes, for the use for the development of power sites on the Flat,head Reservation, and of water-rights re­served or appropriated for the irrigation projects; provided further, that rentals from said licenses for use of Indian lands shall be paid to the Indians of said reservation as a tribe.”
In the Act of March 4, 1929, it is provided:
“That the Federal Power Commission, in issuing any permits or licenses for the development of power or power sites on the Flathead Indian Reservation, in the State of Montana, as authorized by the Act of March 7, 1928 (45 Stat., pp. 212-213), is hereby au­thorized and directed to waive payment of the usual administrative fees or commissions charged under ex­isting laws relating to or under the Federal Power Commission, in the issuance of any such permits or licenses.”44
In considering the question presented herein, the follow­ing provisions of the Federal Water Power Act will neces­sarily be considered:
“* * * the commission may give preference to the applicant the plans of which it finds and determines are best adapted to develop, conserve, and utilize in the public interest the navigation and water resources of the region, if it be satisfied as to the ability of the applicant to carry out such plans.” (Sec. 7, Federal Water Power Act.)
“Sec, 10. That all licenses issued under this act shall be on the following conditions:
“(a) That the project adopted, including the maps, plans, and specifications, shall be such as in the judg­ment of the commission will be best adapted to a com­prehensive scheme of improvement and utilization for the purposes of navigation, of water-power develop­ment, and of other beneficial public uses; and if neces­sary in order to secure such scheme the commission shall have authority to require the modification of any project and of the plans and specifications of the
project works before approval.
* * * * * * *
“(e) * * * That when licenses are issued involving the use of Government dams or ot her structures owned by the United States or tribal lands embraced within Indian reservations the commission shall fix a reason­able annual charge for the use thereof, and such charges may be readjusted at the end of twenty years after the beginning of operations and at periods of not less than ten years thereafter in a manner to be described in each license. * * *”
Among the rules and regulations having particular ap­plication to the questions at issue, we quote the following from Regulation 11—General Considerations Affecting Approval:
“Section 1. Only such projects will be approved by the commission as are in its judgment best adaptedto a comprehensive scheme of improvement and utili­zation for the purposes of navigation, of water-power development, and of other beneficial uses. In deciding these matters the commission will consider:
“A. Whether the maps, plans, and specifications are such—
“(1) That full, practicable utilization will be made of the water, storage possibilities, and the head at the site to be developed.
“ (2) That the structure shall be safe and in accord­ance with good engineering practice.
“(3) That all unnecessary energy losses, whether in hydraulic works or in mechanical or electrical equipment, will be avoided.
“B. Whether in relation to existing or probable future projects upon the same or adjacent streams, the fullest practicable utilization of the water, storage possibilities, and head available will be made possible.
“C. Whether the project will be in general accord with the most beneficial utilization of the water for navigation, water power, irrigation, or other bene­ficial public uses, and for aiding flood control, reclamation, and similar developments.
“D. Whether proper provision is made for present or future electrical interconnection with other pro­jects or systems in order to take advantage of diver­sity of stream flow and of power demands.
“E. Whether the use to which the power will be de­voted is, in general, in accord with the needs of the community and of the public welfare.
“E. Whether the applicant is financially able to carry out the development.”
1. Plan of Development and Cost of Power.
The general plan of development of the applicant Rocky Mountain Power Company and applicant Walter H. Wheeler, so far as the physical structures are concerned, are substantially the same. In general, a dam is contem­plated below the mouth of the lake, built to an elevation46
Of 2,875 feet, superimposed upon which will he flash- boards or other structures sumcient to raise ■ *
2 893 which will produce a working head of XSo feet, a cording to the Rocky Mountain Power Company’s engi­neers (Abstract of Evidence, p. 4).
Power-house and generating equipment will have a rated
capacity of 150,000 horsepower, in three units, anc be ko built as to permit the installation of one other 50,000 horsepower unit, giving a total rated capaci y o 200,000, if additional storage be made available. This will permit the utilization of lake storage between elevations 9 893 and 2,883 sufficient to regulate the flow to a mmi mum of 5,400 second feet 90 per cent, of the time, making available 80,000 prime or continuous horsepower 90 per cent, of the time (Abstract of Evidence, p. 4).
The cost of development is estimated at *7,947,500.00. Allowing eight per cent, return on this investment, the yearly operating costs are estimated at fl,080,000.00 (A Struct of Evidence, p. 5) , and the cost per horsepower in­cluding rental of Indian lands and loss on power supplied for reclamation project, is estimated at *18.00 per horse­power based on a utilization factor of 85 per cent. The Montana Power Company’s utilization factor is 80 per
cent (Abstract of Evidence, p. 6).
The record discloses that these estimates, both of cost of construction, operating expenses, utilization factor and available minimum flow, are all made by the engineers of The Montana Power Company, and are the result of the experience of such operations over a period of forty years in Montana (Abstract of Evidence, pp. 4, 5 and 61.
Mr. Wheeler’s plan of development is exactly the same, so far as the height of the dam is concerned, and the avail-47
able storage will be the same for both, if no dredging w done at the outlet. The head will be the same, and conse­quently the power that may be developed will be the same. However, Mr. Wheeler estimates that he will produce 105,000 horsepower of prime power, which he pioposes to sell at $15.00 per horsepower, making an annual operating revenue of $1,575,000.00 (Abstract of Evidence, p. 6).
Using 70 per cent, efficiency and 85 per cent, utilization factor, Mr. Wheeler’s average saleable power is *1,000
horsepower (Abstract of Evidence, p. 6).
And assuming those figures to be correct, in order to realize $1,575,000.00 annual operating revenue, his power would have to be sold at $22.25, or, with $1.00 a horse­power allowed for furnishing cheap power to the irriga­tion district, for $23.25 per horsepower (Abstract of Evi­dence, pp. 6-7).
The fact that Mr. Wheeler over estimated his output is
demonstrated in several ways. In the first place he esti­mates a regulated minimum flow of 6,000 second feet. It developed upon his cross examination by Mr. Henshaw that this determination was made from the actual flow, as measured by the U. S. Geological Survey, uncorrected, in that no account was taken of the natural draw down of the lake. This, apparently, had not occurred to him. Mr. Henshaw explained that, in order to maintain a discharge of 6,000 second feet, it would be necessary to employ from 50.000 to 200,000 more acre feet than Mr. Wheeler had
allowed.
Again, Mr. Wheeler estimates an average over-all effi­ciency of 90 per cent., and Mr. Burch 87y2 per cent. Such efficiencies have never been realized in practice and can­not be, according to The Montana Power Company engi­neer, Mr. Cochrane (Abstract of Evidence, p. 8).48
In fact, it was shown that The Montana Power tom- pany’s Volta plant, which is one of the most modern plants on its system, has an average over-all efficiency of only 74 per cent., and, by reason of inevitable conditions at the Flathead, not more than 70 per cent, conld prob­ably be maintained there (Abstract of Evidence, p. 8).
Again, Mr. Wheeler takes a utilization factor of 100 per cent., when experience has shown that 85 per cent, would be all that could be anticipated.
Mr. Wheeler assumes that he can sell all of the power, which he estimates at approximately 100,000 horsepower, at nearly 100 per cent, load factor, though he does not know of any plant in the country that has even as high a load factor as 85 per cent. He likewise intends to sell the entire output on this basis 24 hours a day, 3(55 days of the year, throughout the life of this license, without any allowance for shutdowns, strikes, acts of God, demands of the market for the products produced, or other contingen­cies,—an idealistic situation never actually arrived at in the actual operation of any industrial plant.
Mr. Kerr, with forty years experience in the power busi­ness in Montana, testified that, anybody who made an av­erage load factor of 75 to 85 per cent, -would do pretty well, and that nobody could make 100 per cent, load factor.
The Commission is asked to take the judgment of an engineer, inexperienced in the construction, inaintenan< and operation of power plants, though he may be thor­oughly competent in other lines of engineering, as against the experience of Cochrane, in the business in Montana for twenty-five years, and for the past fifteen years as Chief Engineer of this large powTer company, and as against the judgment of Mr. Kerr, who has had forty years49
of experience in the operation and management of these power plants in Montana. And this in the face of the fact that it is demonstrated that his factors are not in accord­ance with either the facts or the experience of those long engaged in the business.
His estimates are so obviously unsound, and based upon such palpably erroneous factors, that the Commission must conclude that they cannot be relied upon.
2. Financial Ability to Carry Out the Project.
The Rocky Mountain Power Company’s ability to finance this project is guaranteed by The Montana Power Company, by virtue of a written guarantee executed, and filed with the Commission, duly authorized by the Board of Directors of The Montana Power Company. No argument need be made in support of the ability of The Montana Power Company to carry out a project of this character (Abstract of Evidence, pp. 10-11).
Mr. Wheeler’s financial ability to carry out this project is based upon alleged assurances received by him from financial houses, plus letters and telegrams submitted to the Commission expressing belief in his ability to do so, hut with no legal assurance or guarantee by any person or corporation (Abstract of Evidence, pp. 11-12-13).
His assurances from these financial institutions and in­dividuals were based upon estimates which he submitted to them, both as to power available for sale, and as to the uses to which it was proposed to be put. He stated to bankers and investment houses that this power was to be sold to fertilizer, electro-chemical, electro-metallurgical in­dustries, paper and pulp mills, railroads, etc. We do not doubt but that any banker or financial institution, being50
assured that 105,000 continuous prime horsepower could be produced at this site and sold on a 100 per cent, load factor for 24 hours a day, 3G5 days in a year, would give assurances that the project could be financed.
It is only common sense, however, to assume that such financial institutions would have the project examined by competent, experienced engineers, who would point out the errors into which Mr. Wheeler had fallen, and would demonstrate to their clients that no such amount of power was available, and, if available, that it could not be all sold every hour of the day, every day in the year, for the period of the license.
Since the only assurances that Mr. "Wheeler has have come from people to whom he has made these representa­tions, if the representations are found not to be correct, then the assurances mean nothing.
The other important factor in connection with financing, namely, the market for power, will be discussed under separate heading.
3. Market for Power.
4. Possibilities of the Fertilizer Industry and Oiher Electro-
Chemical and Electro-Metallurgical Developments.
The question of market for the power to be developed is one of the important factors to be considered in connec­tion with any power development. It cannot be separated from financial ability to construct because, without a mar­ket for the power, no sound financial institution would be willing to finance the construction on behalf of anyone. It therefore follows that any discussion of the question of market necessarily has direct relation to the financial ability of the applicant to carry out the project.5L
The fact that The Montana Power Company haw guar­anteed the carrying out of any contract in this connection, made by the Rocky Mountain Power Company, gives assur­ance that the officials of The Montana Power Company, with forty years of experience in the power business in this area, is not in doubt as to their ability to market the power from this project within a reasonable time after construc­tion. In this connection it is important to note that their plan of developing and marketing contemplates the inter­connection of this unit with the system of The Montana Power Company, which serves such an extensive area and such diversified interests as to insure continuous opera­tion. The record discloses that The Montana Power Com­pany serves more than 40,000 customers, with 2,500 miles of high tension transmission lines. The rules of the Com­mission require, among other things, that the Commission shall approve only such projects as are, in its judgment, best adapted to a comprenhensive scheme of improvement and utilization of water power development and other beneficial uses, and, in deciding these matters, the Com­mission will consider, among other things, the question as to Avhether proper provision is made for present or future electrical interconnection with other projects or systems in order to take advantage of stream flow and of power demands.
(Regulation 11, Rules and Regulations governing the administration of the Federal Water Power Act, Abstract of Evidence, pp. 13-16.)
The Rocky Mountain Power Company submits that the record discloses that they have not only a comprehensivescheme of development, but that their plan contemplates the use of this water for the benefit of the public generally by interconnection with other power systems, both to the east and to the west, in addition to affording- service for the reclamation project of the Flathead Irrigation Dis­trict, and such service as the towns, villages and farms in these communities may be desirous of acquiring. In that regard the plan of the Rocky Mountain Power Company complies "with Section E of Regulation 11, supra.
The development and operation of a single unit situated at considerable distance from industry makes the market­ing of power difficult as compared with the marketing of power from a combined system, because of the assurance of more continuous and efficient service from the combined system. Railroads or other large industries could not af­ford to change their equipment from steam to electricity with only one source of power situated any considerable distance from the railroad or the plant, because of the pos­sibilities of complete shutdown and cessation of operation in case of floods, storms, strikes or other contingencies that might prevent continuity of service.
On the other hand, the interconnection of large generat­ing plants, situated in different parts of the territory, gives assurance of continuous and efficient service. It likewise makes available a fuller use of the storage and water available (Abstract of Evidence, pp. 13-16).
This kind of service and this plan of development is what the Rocky Mountain Power Company proposes. The present market situation in Montana is such that The Mon­tana Power Company expects to be unable to supply the demand this Winter, which will result in the closing down of large industries in Montana for lack of power, with theresulting unemployment and distress that comes there­from (Abstract of Evidence, p. 15).
The natural growth of The Montana Power Company’s business ought to accumulate 50,000 horsepower for the Flathead plant before it can be built. The available mar­ket now afforded along the system of The Montana Power Company will take a large portion of the output when com­pleted, and very soon thereafter should take all of the out­put of Site No. 1. It is shown that the business of The Montana Power Company has increased 100,000 horse­power since 1921 (Abstract of Evidence, pp. 15-16).
Confronted with this situation, The Montana Power Company, in order to serve the growing needs of its al­ready enormous business, will be compelled immediately to proceed to the development of power somewhere along its system. The question of market is answered in so far as the Rocky Mountain Power Company is concerned. The only question remaining so far as The Montana Power Company business is concerned is where will the next de­velopment be made? If not upon the site involved herein, it must go elsewhere for this i>roduction in order to meet the demands of its customers.
If a license be granted the Rocky Mountain Power Com­pany men would be put upon the job as quickly as pos­sible for them to get upon the ground. A crew of five hun­dred men, engaged in construction work, with full equip­ment, is available for this work (Abstract of Evidence, p. 17).
We submit that the Rocky Mountain Tower Company’s application complies with every prerequisite required by the law and by the rules and regulations governing there­under.54
On the other hand, Mr. Wheeler is applying for a pre­liminary permit which might extend over a period of three years, during which time he would further investigate his vague notions about embarking on the business of generat­ing power for wholesale purposes only, and selling such power to new industries, which will be hereafter developed. He has no intention of entering into the business of the transmission and distribution of power to retail consum­ers. It is submitted that in that regard his scheme fails to comply with the provisions of the Act and of the rules to the effect that these water power projects shall be de­veloped in such manner as to bring about the most bene­ficial uses of the water in the public interest. The Rocky Mountain Power Company’s connection with The Mon­tana Power Company’s system, its proposed connection with the power systems to the west, with the plant of the Thompson Falls Power Company, its proposed service to the Flathead Irrigation District, and to the communities thereabouts, is such as to appeal to those interested in the development of these water power sites, in the interest of the public whom they are to serve.
Set over against this constructive, practical and useful proposal of the Rocky Mountain Power Company, for the development and marketing of this power, is the visionary scheme of applicant Wheeler, based upon unsound and impracticable proposals for the development of the ferti­lizer industry and other electro-chemical and electro­metallurgical enterprises.
A fair statement of the proposal of applicant Wheeler for the use of the hydro-electric energy to be developed at the Flathead site is that its primary use and importance is as a source of high-grade fertilizer—a veritable Muscle55
Shoals of the West. He proposes to manufacture phos­phoric acid by electric furnace method. Ammonia syn­thesis process by directly combining these two products with readily available potash from Utah, mixing them by electric process to meet requirements of soils throughout the country. Estimated costs of manufacture are sub­mitted proposing to show economies in favor of the Flat­head site (Abstract of Evidence, pp. 20-22).
The proposal contemplates marketing these products in the United States generally; also for export and in com­petition with materials now manufactured in Montana, in the United States and Europe (Abstract of Evidence, pp. 20-22).
In support of these general claims, government bulle­tins, trade organizations proceedings, and various docu­ments and letters are produced, purporting to support this general statement of facts and the program outlined. An equally fair statement of the facts regarding the general proposal is briefly as follows:
The processes outlined for phosphoric acid manufacture do not exist anywhere in the world in the fertilizer indus­try, and are recognized by industry and science as experi­mental processes (Abstract of Evidence, pp. 22-27).
Cost estimates for phosphoric acid production in Wheeler’s direct testimony are from 50% to several hun­dred per cent, wrong, and van- greatly from his testimony in rebuttal (Abstract of Evidence, p. 22). The general statements regarding competitive processes for phosphoric acid production are inaccurate, and not based on fact, both in regard to the processes Avliich he describes and the grade and value of materials produced (Abstract of Evi­dence, pp. 20-25). The general process of produc-56
mg ammonia as outlined is wholly impractical; the method is becoming obsolete (Abstract of Evidence, pp. 25-30). It has never existed in the United States in the fertilizer industry, and new processes and new methods, with greatly reduced costs, are now firmly established (Abstract of Evi­dence, pp. 25-30).
The plan to produce complete mixed chemically com­bined fertilizers is impractical because of lack of potash supply (Abstract of Evidence, p. 37).
The statement that it is being produced and is avail­able commercially in Utah is wholly without foundation and not in accordance with the facts (Abstract of Evi­dence, p. 37).
The specific statement that competition from Anaconda is not serious (Abstract of Evidence, p. 21) was based on two explicit and equally false assumptions: that phos­phoric acid was not manufactured at Anaconda and that phosphoric acid was not produced by the sulphuric acid method (Abstract of Evidence, p. 21). The general state­ment that high-gTade chemically combined phosphoric acid and ammonia potash could be readily marketed in a quantity of approximately 100,000 tons a year (Abstract of Evidence, p. 21). Took no cognizance of over-produc­tion and enormous surplus of fertilizer producing capacity (Abstract of Evidence, p. 34). Took no cognizance of costs generally in the fertilizer industry where plants are lo­cated adjacent to consuming areas (Abstract of Evidence, pp. 22-26). Took no cognizance of the industry’s in­ability to use such a quantity of material, irrespective of market demand or agriculture’s requirements (Ab­stract of Evidence, pp. 34-36).57
He described a complexity of metallurgical activities and other industrial activities, some without the slightest basis of proper cost investigation or location of raw materials (nickel, ferrochrome, aluminum). Others in the face of the existence of the world’s most highly developed tech­nical activity in mining, namely, zinc, copper and lead, in which case he could not even name the mines or owners of the mines whose products would be treated (Abstract of Evidence, p. 22). Other processes, such as wood pulp and paper, that for years have remained undeveloped be­cause of geographic isolation and adverse freight position; and lastly, but next in importance in his plan offered for fertilizer manufacture, that of making quick setting ce­ment from aluminous slag from phosphoric acid manufac­ture (Abstract of Evidence, p. 22).
Both sides of this picture have been described we think fairly accurately, and in consideration of the Federal Power Commission with such brevity as the extravagance of the claims permit. It is not our purpose to take up the time of the Commission with any full discussion of the inaccuracies, fallacies and misconceptions contained in this wild dream, and which it may be conservatively stated has not been equalled in the visionary schemes and wrecks that have strewn the path of development in the West. We intend only to take a few of the most glaring inac­curacies, misstatements and mistakes, and lack of knowl­edge of common facts, all fundamental to his plan, which illustrate how wholly impractical and thoroughly unde­pendable and visionary is the so-called industrial program.
We direct vour attention to the testimony of Mr. Laist, Metallurgical Manager of the Anacanda Company, in charge of Anaconda’s world wide metallurgical activities58
(Abstract of Evidence, pp. 23-28-29-30) ; to the testi­mony of Professor Wells, Professor of Metallurgy at Har­vard, and a witness who, as Metallurgist for the Bureau of Mines, investigated the fertilizer business in relation to potash, for Congress, for a Federal Commission, and for the Anaconda Company, and made a world wide investi­gation of ammonia production for large linancial interests in New York (Abstract of Evidence, pp. 22-27-31-37-38); to the testimony of Dr. Gardiner, who has had the di­rection of investigations in markets, export and domestic, and the general fertilizer activities of the Anaconda Cop­per Mining Company in Montana in the production and sale of the highest grade fertilizers produced in America (Abstract of Evidence, pp. 24-25-30-32-33).
From exhibits introduced by Applicant Wheeler we di­rect your attention to the opinions of Spencer L. Carter, President of the Virginia Chemical Corporation, and Presi­dent of the National Fertilizer Association, p. 33) ; the opinion of the Executive Secretary of that Association, Mr. Charles S. Brand, and the gentlemen who, during the war, had direction of the distribution of nitrates for the War Industries Board (Abstract of Evidence, pp. 36- 37); to the opinion of Professor Harry A. Curtis, Professor of Chemical Engineering at Yale University (Abstract of Evidence, pp. 25-35) ; to the statements of John J. Watson, President of the International Agricul­tural Corporation of New York (Abstract of Evidence, p. 34) ; to the statements of F. S. Lodge, Assistant Director of Manufacturing, Armour Fertilizer Works; and to a technical article in “American Fertilizer” by two mem­bers of the Fixed Nitrogen and Fertilizer Division of the Bureau of Chemistry and Soils (Abstract of Evidence, p.50-
.38); to statements in the Majority and Minority Report of the Muscle Shoals Inquiry (Abstract of Evidence, pp. 26-27), and other documents (Abstract of Evidence, p. 38) and reports (Abstract of Evidence, p. 36), introduced on his behalf by Applicant Wheeler.
We make this statement confidently. There is not a single proposal in his whole scheme of fertilizer manufac­ture that is not shown to be fallacious—everything from his source of materials to his process of manufacture and marketing; and these facts are demonstrable from the tes­timony offered on behalf of the Rocky Mountain Power Company (Abstract of Evidence, pp. 22 to 38); and in particular detail by the exhibits offered by Applicant Wheeler. His whole program is contradicted specifically by his own exhibits (Abstract of Evidence, pp 25-',6-°7-31- 83-34-35-36-37).
Wheeler demonstrated conclusively by his testimony that he was wholly mistaken in his premises as to costs. He testified that P„05 per ton could be made for $31.56 to 134.00 (Abstract of Evidence, p. 21). That the difference in power of $10.00 made a difference of $13.00 per ton of m, (Abstract of Evidence, p. 21). By simple arithmetic $15.00 power puts $20.25 as power cost, or $11.31 to $1.3 75 as the balance of all other expense to produce one ton Of I\Os. He uses a tabulation (Wheeler Exhibit No 5) and takes rock costs at Florida mines, and coal and coke and sand costs in that territory for theoretical quantities.
Laist states it, takes $54 for costs other than power (Ab Struct of Evidence, p. 24). Wheeler leaves out several im­portant items of cost (Exhibit No. 5, p. 23). His estimate is 3 i 0% wrong on the principal cost of a ton of phosphoric acid exclusive of power (Abstract of Evidence, pp. 23-24),60
and his total cost of a ton of phosphoric acid, all items included, is more than 250% off (Abstract of Evidence, pp. 23-24).
Wheeler demonstrated conclusively that he had no knowledge or idea of competition, nor competitive processes of manufacture. He stated that the Flathead plant would make high analyses material (Abstract of Evi­dence, p. 20). Anaconda does not produce high-grade superphosphate (Abstract of Evidence, p. 21). Flathead would make phosphoric acid and treat rock (Abstract of Evidence, p. 21). He states incorrectly Anaconda does not make phosphoric acid; it makes a mixture of acid and rock, and product contains waste material (Abstract
of Evidence, p. 21).
What Wheeler does obviously is to mistake the ordinary acid process commonly used for the new sulphuric-phos­phoric acid process at Anaconda, and then repeatedly throughout his testimony talks about the fact that low grade rock cannot be used for acid process, not realizing that at no time did Anaconda ever use the ordinary acid process which he describes (Abstract of Evidence, p. 21). He states specifically Flathead rock would be treated with phosphoric acid. Anaconda does not produce phosphoric acid (Abstract of Evidence, p. 21).
Laist, Wells and Gardiner, testified to the production of phosphoric acid and the highest grade of treble-super­phosphate at Anaconda made by the process which Wheeler stated did not exist, and upon which he based his wider markets and his competitive advantage (Abstract of Evi­dence, pp. 24-25-28-32-33).
The third equally erroneous foundation stone of Wheeler's scheme was his potash supply. Abimdant sup61
plies existed adjacent to Flathead in Utah (Abstract of Evidence, p. 20). It was necessary to make high analyses fertilizer to have phosphoric acid, potash and ammonia all available. All three existed. Potash was being com­mercially produced and sold to fertilizer trade at Marys- vale, Utah (Abstract of Evidence, p. 20).
It would seem almost idle to offer testimony to refute a matter of such common knowledge as this, that potash was not and never had been produced commercially in this territory, and that American agriculture secured prac­tically its whole supply from the Alsatian fields in Ger­many and France; but these claims have been so wildly extravagant that for the purposes of this record we direct the Commission to the testimony of Professor Wells of Harvard.
As Chief Metallurgist for the Bureau of Mines, and at the request of a Committee of Congress, he had investigated the nation-wide possibility of potash production. There was none produced in Utah. During the war an attempt had been made in Utah, but it was not successful. None is now being produced. A million dollars had been sunk in a futile effort to produce potash in Wyoming (Abstract of Evidence, p. 37).
Wheeler testified that as a by-product of phosphoric acid manufacture, a very valuable material was available for cement manufacture, that of slag (Abstract of Evidence, p. 22). He cross examined Professor Wells at great length on this subject, and offered an article as an exhibit (his Exhibit No. 7) as purporting to describe this valuable by­product (Abstract of Evidence, p. 38). This article spe­cifically stated that such slag is unsuitable for cement manufacture, and neither in this country nor in any other has it ever been used, but on account of its hardness could62
take the place of gravel in concrete. A valuable asset cer­tainly in an isolated mountain valley in Montana (Abstract of Evidence, p. 38).
Further examples just as ridiculous could be cited. These four are foundation stones in his structure. The balance is as bad, or worse. He proposes to get coke for his operations for $7 or $8 (Wheeler Exhibit No. 5), when it costs the Anaconda Company §12 to §14 in large quanti­ties from the best sources of supply available (Abstract of Evidence, pp. 24-28).
He figures phosphate rock at §2.GO to §3.00, when it costs the Anaconda Company §6. He presents a set of tables based on Tennessee and Florida rock (Wheeler Ex­hibit No. 5), and undertakes to tell this Commission the comparative cost of electric furnace phosphoric acid by his mistaken but so-called acid process, and adjusts these tables to §15 power at Flathead, but with the same charac­teristic inaccuracy refrains from adjusting the §8 sulphuric acid cost used in these tables to the §3.50 per ton sulphuric acid price at Anaconda (Abstract of Evidence, p. 23), the basis of Anaconda’s cheap treble-superphosphate.
In rebuttal, with new cost figures about cheap rock, he offers no explanation why Anaconda cannot do exactly what he proposes to do if his premises are correct, par­ticularly in view of their owning the two best Garrison deposits located 40 miles from their works. He is going to mine it at Garrison and beat Anaconda’s costs 50%, when the Anaconda Company, after full investigation, went into Idaho, where phosphate beds are five to thirty-five feet thick, while Garrison beds are four feet thick and faulted (Abstract of Evidence, p. 25).
He is going into a world market already suffering from overproduction (Abstract of Evidence, pp. 32-33-34-35-63
36), and into a remote domestic market suffering from overproduction and overcapacity to produce (Abstract of Evidence, pp. 34-35-36), and a market into which at lower costs than his the Anaconda Company cannot sell the very things he is going to produce at a profit (Abstract of Evi­dence, pp. 25-30-32-33), and as his principal business he is going to turn loose a plant, at 100% capacity 365 days in the year to dump on these markets five times as much high grade fertilizer per annum (Abstract of Evidence, p. 21) as Anaconda has sold on an average for the six pre­ceding years (Abstract of Evidence, p. 25). The flood gates are to be opened 100%; seven million units of plant food, equivalent to 475,000 tons of fertilizer of the average grade are to be dumped on a market where 6,500,000 tons of production has resulted in the practical bankruptcy of the American fertilizer industry (Abstract of Evidence, pp. 34-35-36-37).
The Federal Power Commission is asked, upon such vi­sionary and unpractical proposals, to make a finding that applicant Wheeler has shown a ready market for the power that would be available from this development, and that further, upon such a showing, financial houses would furnish the money required to make it.
5. Rental Charges and Power for Flathead Irrigation Project.
The Federal Water Power Act provides that when li­censes are issued involving the use of tribal lands embraced within Indian Reservations, the Commission shall fix a reasonable annual charge for the use thereof.
Sub-section E of Section 10.
The Act of March 7, 1928, provides for the distribution of rentals for the use of Indian lands.It therefore becomes the duty of the Commission to fix a reasonable annual charge to be paid by anyone to whom a license may be issued for the use of the tribal lands or Indian lands within the project area.
The Commission will fix a reasonable annual charge for the use of such lands, based upon the commercial value of the lands for the most beneficial purpose for which suit­able, including power development.
Section 5, Regulation 14.
Sub-section B of Section 2 of Regulation 14 provides:
“When any of the land within the project area, ex­clusive of so much of such area as is occupied and used for transmission lines only, is not public lands or reservations of the United States, the charge de­termined in accordance with the above named sched­ule shall be reduced in the proportion that the amount of land not public or reserved bears to the total amount of land in such project area, exclusive of so much thereof as is occupied and used for transmission lines only.”
While this section has application to fees payable for public lands or reservations, not including tribal lands, it is evident that the basis for the rule is considered equitable where portions of the lands are public lands and portions thereof are private lands; and no good reason would ap­pear why, in determining the rental due for tribal lands or Indian lands within the project area, a like rule should not be applied. Having this in mind, the total lands in the project area, taken from the records of the Commis­sion, Avere made a part of this record. The project area is approximately 134,305 acres, with possible revision downward, as follows:River and lake bed, 117,5G2 acres,
Government land, 2,423 “
F orest Iteserve, 132 “
Private lands, 14,228 “
This is based on the boundary lines of the project area
being ru n on legal subdivisions (A bstract of Evidence, p.
39).
The lake is the most im portant thing in connection w ith
this site, being practically three-quarters of the develop­ment
(A bstract of Evidence, p. 39).
Assum ing th a t all of the government lands outside of
forest reserve are trib al lands, they constitute less th an
two per cent, of the to ta l project area. In addition to th a t
it is clear th a t th e w aters belong to the people of th e State
of M ontana. This is recognized in the F ederal W ater
Power Act and A cts am endatory thereof, and in the rules
and regulations of th e Commission, wherein it is provided
th a t the ann ual ren tal charge in favor of the Indians shall
be based upon the lands involved in the project area.
Contention was made a t the hearing th a t the trib al lands
were the key to this w ater power site. I t is needless to
argue this question, as it is evident to anyone th a t these
trib a l lands w ithout this great lake behind it, and w ithout
the w aters of this w atershed, would be w orth nothing as a
power site. B eautiful canyons, where dams m ight be
built, can be found practically anywhere in th e great Rocky
M ountains of the W est. These are wholly unim portant
and w ithout value, unless there is available behind them a
w ater supply w ith sufficient available storage to make a
real power development.
In the case of this site, three-quarters of the prim e power
to be developed will come from w ater stored in this lake
over this area of approximately 130,000 acres, and the other one-fourth of the water available will be the natural flow of the stream (Abstract of Evidence, p. 39).
Assuming that the water constitutes fifty per cent, of the value of the site, and that the lands or project area the other fifty per cent., it follows that the 2500 acres, or less, of tribal lands represent one per cent, of the value of this site. It is idle to say that this canyon is the key to the situation, because every acre of land involved is necessary to the complete development of the project, and, as pointed out, the storage is the important thing that makes the site valuable.
The offer of the Rocky Mountain Power Company to pay $1.00 per horsepower as rental for the tribal lands means an annual payment of from $68,000.00 to perhaps $80,000.00 a year on the first site. This represents an in­terest rate of six per cent, on between $1,000,000.00 and $1,400,000.00 annually. If 2500 acres of land, or two per­cent. of the total project area, or one per cent, of the value of the site (the land and water being treated as of equal value), is worth between $1,000,000.00 and $1,500,000.00, what would be the value of the total site.
1 he Rocky Mountain Power Company agrees that the Indians should and must be fairly treated in this connec­tion. It likewise agrees with the statement made by Hon. Louis C. Cramton to the effect that in handling matters affecting the Indians on the one side and other American citizens on the other side, the Government has no right to take something that belongs to a white man and give it to the Indians. The Indians have a right to expect equality before the law and to be treated justly, but that does not involve taking something away from white citizens and giving it to the Indians.67
In making its decision upon this important matter, it is submitted that the Commission should bear in mind that 98 per cent, of these lands, and all of the waters connected with this project, belong to the State of Montana and to citizens of the United States other than Indians; that the company that develops this site will have no money in its treasury with which to pay rental or other charges except­ing what they collect from the people who shall purchase power developed at this site; and that in so far as any charge is made against this project in excess of what is fairly and honestly due the Indians for the tribal lands involved herein must be taken from the consumers of power and given to the Indians. The Indians are entitled to a fair rental for their lands, and it is respectfully submitted that a rental charge based upon a valuation of more than 11,000,000.00 for the lands involved in this first site is more than they would be entitled to.
On the other hand, the people of Montana, and others
who may purchase power developed from this site, are
entitled to have the opportunity to buy this power at the
lowest possible rates, and every dollar that is exacted above
a fair rental charge for the use of these tribal lands is
taking exactly that much money from the people who own
these water-rights, and the largest portion of this project area.
In addition to that, we call the Commission’s attention to Paragraph E of Section 10 of the Federal Water Power Commission Act, which provides that these charges may be readjusted at the end of twenty years after the begin­ning of operations, and at periods of not less than ten years thereafter. Parenthetically, it is to be noted that with Mr. Wheeler’s usual accuracy in connection with all of his68
matters, he did not know this to be a part of the Federal Water Power Act (Abstract of Evidence, pp. 39-40).
At the hearing, considerable attention was given to the possible or probable earnings of this development, with the idea of establishing a basis upon which to find justification for a larger exaction on behalf of the Indians. Consider­able time was taken up in a comparison of this project with The Montana Power Company’s system, its earnings, costs, etc. We have not taken time to go through the voluminous portion of the record that was given to this subject, as we deem it unimportant in this connection. Suffice it to say that in attempting to establish a basis of comparison, those representing the Indian Department took the reports of The Montana Power Company and, in the examination of Mr. King, comparisons were made.with the Rocky Moun­tain Power Company’s financial setup in the record, and in making such comparisons the Rocky Mountain Power Company’s financial setup was based on an allowed return of eight per cent, of the total investment, whereas, in the figures of The Montana Power Company used for com­parison purposes, no return was calculated in the totals, simply the amount of interest paid on the bonds.
Again, for purposes of all comparisons, the witness King took the figures of The Montana Power Company for the year 1926, when the utilization factor was 96 per cent,, whereas, the average utilization factor of The Montana Power Company’s system for ten years ending with 1928 was a little more than 79 per cent,, the percentages rang­ing from 42 per cent, in 1921 to 103 per cent, in 1928 (Abstract of Evidence, p. 40).
It is evident to anyone who has examined the question, that if you pick out the best or one of the best years of one69
Power Company and compare it with an average for ten years of another company, the results obtained are of no value in affording a basis of comparison. In order that such comparisons may be of any value, the same factors and the same conditions must obtain in making the calcula- (ions for each Company.
Conclusion.
It is respectfully submitted that the Rocky Mountain Power Company has presented a comprehensive scheme of development and utilization of this water power project; that it has the financial ability to carry out the project and to market the power therefrom, and that its offer to the Indians is more than fair for the portion of the project which their lands provide.
Findings and Decision.
The Rocky Mountain Power Company respectfully asks the Commission to make the following findings of fact and the following decision herein:
Findings of Fact.
1. I hat the Rocky Mountain Power Company’s maps, plans and specifications, together with all of the evidence presented in connection therewith, present a comprehen­sive scheme of improvement and utilization for the pur­poses of navigation and of water power development and of other beneficial uses, best adapted for the Flathead Project.70
2. That the Rocky Mountain Power Company has the financial ability to carry out the project.
3. That the Rocky Mountain Power Company has avail­able market for the power to be developed.
4. That the annual rental charges offered for the use of tribal lands is reasonable, and that the offer for the sale of power for the use of the Flathead Irrigation District is reasonable compensation to be paid for the use of such equities or rights as the Flathead Irrigation Project may be entitled to in the premises.
Decision.
That a preliminary permit shall issue to the Rocky Mountain Power Company, for the purpose of enabling said Rocky Mountain Power Company to secure data and to perform such other acts as are required or contemplated by the Federal Water Power Act, in connection with Sites Nos. 2, 3, 4 and 5, and that a license forthwith issue to Rocky Mountain Power Company for the development of said No. 1 Site.
Respectfully submitted,
L. O. Evans,
D. M. Kelly, Counsel for Rocky Mountain Power Company.
Service of the foregoing admitted, and copy received, this day of December, 1929.