|Ashwander v. Tennessee Valley Authority
100 U.S. 1
78 F.2d 578, affirmed.
[ Hughes ]
[ Brandeis ]
[ Mcreynolds ]
Ashwander v. Tennessee Valley Authority
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT
Separate opinion of MR. JUSTICE McREYNOLDS.
Considering the consistent rulings of this court through many years, it is not difficult for me to conclude that petitioners have presented a justiciable controversy which we must decide. In Smith v. Kansas City Title Co., 255 U.S. 180, the grounds for jurisdiction were far less substantial than those here disclosed. We may not with propriety avoid disagreeable duties by lightly forsaking long respected precedents and established practice.
Nor do I find serious difficulty with the notion that the United States, by proper means and for legitimate ends, [p357] may dispose of water power or electricity honestly developed in connection with permissible improvement of navigable waters. But the means employed to that end must be reasonably appropriate in the circumstances. Under pretense of exercising granted power, they may not, in fact, undertake something not intrusted to them. Their mere ownership, e.g., of an iron mine, would hardly permit the construction of smelting works followed by entry into the business of manufacturing and selling hardware, albeit the ore could thus be disposed of, private dealers discomfited, and artificial prices publicized. Here, therefore, we should consider the truth of petitioners' charge that, while pretending to act within their powers to improve navigation, the United States, through corporate agencies, are really seeking to accomplish what they have no right to undertake the business of developing, distributing and selling electric power. If the record sustains this charge, we ought so to declare and decree accordingly.
The Circuit Court of Appeals took too narrow a view of the purpose and effect of the contract of January 4, 1934. That went far beyond the mere acquisition of transmission lines for proper use in disposing of power legitimately developed. Like all contracts, it must be considered as a whole, illumined by surrounding circumstances. Especial attention should be given to the deliberately announced purpose of Directors, clothed with extraordinary discretion and supplied with enormous sums of money. With $50,000,000 at their command, they started out to gain control of the electrical business in large areas, and to dictate sale prices. The power at Wilson Dam was the instrumentality seized upon for carrying the plan into effect.
While our primary concern is with this contract, it cannot be regarded as a mere isolated effort to dispose of property. And certainly to consider only those provisions [p358] which directly relate to Alabama Power Company is not permissible. We must give attention to the whole transaction -- its antecedents, purpose and effect -- as well as the terms employed.
No abstract question is before us; on the contrary, the matter is of enormous practical importance to petitioners -- their whole investment is at stake. Properly understood, the pronouncements, policies and program of the Authority illuminate the action taken. They help to reveal the serious interference with the petitioners' rights. Their property was in danger of complete destruction under a considered program commenced by an agency of the National Government with vast resources subject to its discretion and backed by other agencies likewise intrusted with discretionary use of huge sums. The threat of competition by such an opponent was appalling. The will to prevail was evident. No private concern could reasonably hope to withstand such force.
The Tennessee River, with headwaters in West Virginia and North Carolina, crosses Tennessee on a southwesterly course, enters Alabama near Chattanooga, and flows westerly across the northern part of that State to the northeast corner of Mississippi. There it turns northward, passes through Tennessee and Kentucky, and empties into the Ohio forty miles above Cairo. The total length is nine hundred miles; the drainage basin approximates forty thousand square miles. The volume of water is extremely variable; commercial navigation is of moderate importance.
At Muscle Shoals, near Florence, Alabama (twenty miles east of the Mississippi line and fifteen south of Tennessee), a succession of falls constitutes serious interference with navigation, also presents possibilities for development of power on a large scale. During and immediately after the World War, a great dam was constructed there by the United States, intended primarily for generation [p359] of power. Production of electricity soon commenced. Some of this was devoted to governmental purposes; much was sold, delivery being made at or near the dam.
During the last thirty years, several corporations have been engaged in the growing business of developing electric energy and distributing this to customers over a network of interconnected lines extending throughout Tennessee, Georgia, Alabama and Mississippi. At great expense, they gradually built up extensive businesses and acquired properties of very large value. All operated under state supervision. Through stock ownership or otherwise, they came under general control of the Commonwealth & Southern Corporation. Among the associates were the Alabama Power Company, which serviced Alabama, the Mississippi Company, which serviced Mississippi, and the Tennessee Company, which operated in eastern Tennessee. Huge sums were invested in these enterprises by thousands of persons in many states. Apparently, the companies were diligently developing their several systems and responding to the demands of the territories which they covered.
In 1933, operations began under an imposing program for somewhat improving Tennessee River navigation, and especially for developing the water power along its whole course at public expense. This plan involved conversion of water power into electricity for wide distribution throughout the valley and adjacent territory. Its development was intrusted to the Tennessee Valley Authority, a federal corporation wholly controlled by the United States. This promptly took over the Wilson Dam and began work upon the Wheeler Dam, twenty miles up the River, and the Pickwick Dam, some forty miles lower down. Also it commenced construction of Norris Dam across Clinch River, a branch of the Tennessee, two hundred miles above the Wilson Dam. All these, with probable additions, were to be connected by transmission wires, [p360] and electric energy distributed from them to millions of people in many states. Public service corporations were to be brought to terms or put out of business. At least $75,000,000 of public funds was early appropriated for expenditure by the Directors, and other governmental agencies in control of vast sums were ready to lend aid.
Readily to understand the issues now before us, one must be mindful of these circumstances.
The trial court made findings of fact which fill more than sixty printed pages. They are not controverted, and, for present purposes, are accepted; upon them the cause stands for decision. They are much quoted below. Plainly they indicate, and that court, in effect, declared, the contract of January 4th was a deliberate step into a forbidden field, taken with definite purpose to continue the trespass.
Nothing suggests either necessity or desirability of entering into this agreement solely to obtain solvent customers willing to pay full value for all surplus power generated at Wilson Dam. Apparently there was ample opportunity for such sales, deliveries to be made at or near the dam. No attempt was made to show otherwise. The definite end in view was something other than orderly disposition.
The Authority's Answer to the Complaint is little more than a series of denials. It does not even allege that the contract of January 4th was necessary for ready disposal of power; or that thereby better prices could be obtained; or that no buyer was ready, able and willing to take at the dam for full value; or that the Board expected to derive adequate return from the business to be acquired. No sort of explanation of the contract is presented -- why it was entered into, or whether profitable use probably could be made of the property. And I find in the Authority's brief no serious attempt to justify the purchases because necessary. or, in fact, an advantageous method, for disposing [p361] of property. Nothing in the findings lends support to any such view.
The record leaves no room for reasonable doubt that the primary purpose was to put the Federal Government into the business of distributing and selling electric power throughout certain large districts, to expel the power companies which had long serviced them, and to control the market therein. A government instrumentality had entered upon a pretentious scheme to provide a "yardstick" of the fairness of rates charged by private owners, and to attain "no less a goal than the electrification of America."
When we carry this program into every town and city and village, and every farm throughout the country, we will have written the greatest chapter in the economic, industrial and social development of America.
The conception was to establish an independent network comparable in all respects with the electric utility system serving the area, with which TVA sought to establish interchange arrangements, both as outlets for its [p363] own power and to use existing systems as a standby or backup service.
The TVA plan as conceived and in process of execution contemplates complete and exclusive control and jurisdiction over all power sites on the Tennessee River [p364] and tributaries.
The TVA policy contemplates full corporate discretion by TVA in developing, executing and extending its electric system and service within transmission limits.
This policy contemplated service utility in type and covered not only generation, but transmission and distribution (preferably through public or nonprofit agencies, if available), both wholesale and retail. That is, [p365] moreover, implicit in both the January 4 contract and the now terminated August 9th contract.
The challenged contract is defended upon the theory that the
Federal Government may dispose of the surplus water power necessarily created by Wilson Dam, and may authorize generation of electric energy and acquisition of transmission lines as means of facilitating this disposal.
But to facilitate disposal was not the real purpose; obviously the thing to be facilitated was carrying on business by use of the purchased property. Under the guise of disposition, something wholly different was to be accomplished -- devotion of electric power to purposes beyond the sphere of proper federal action, an unlawful goal. There is no plausible claim that such a contract was either necessary or desirable merely to bring about the sale of property. This Court has often affirmed that facts, not artifice, control its conclusions. The Agency has stated quite clearly the end in view: "This public operation is to serve as a yardstick by which to measure the fairness of electric rates." "The TVA power policy was not designed or limited with a view to the marketing of the power produced and available at Muscle Shoals."
In formulating and going forward with the power policy, the Board was considering that policy as a permanent and independent commercial function.
For present purposes, a complete survey of relevant circumstances preceding the contract of January 4th and all its consequences is not essential. The pleadings and findings fairly outline the situation. What follows is mainly quoted or derived from them.
The Act of May 18, 1933, created the Tennessee Valley Authority as a body corporate
for the purpose of maintaining and operating the properties now owned by the United States in the vicinity of Muscle Shoals, Alabama, in the interest of the national defense and for agricultural [p366] and industrial development, and to improve navigation in the Tennessee River and to control the destructive floodwaters in the Tennessee River and Mississippi River Basins.
It provided, a board of three directors "shall direct the exercise of all the powers of the Corporation," and "is authorized to make alterations, modifications or improvements in existing plants and facilities, and to construct new plants", and to "produce, distribute, and sell electric power as herein particularly specified." The Corporation
shall have such powers as may be necessary or appropriate for the exercise of the powers herein specifically conferred upon the Corporation;
to acquire real estate for the construction of dams, reservoirs, transmission lines, power houses, and other structures, and navigation projects at any point along the Tennessee River, or any of its tributaries.
Also, the Board is
hereby empowered and authorized to sell the surplus power not used in its operations, and for operation of locks and other works generated by it, to States, counties, municipalities, corporations, partnerships, or individuals, according to the policies hereinafter set forth, and to carry out said authority, the board is authorized to enter into contracts for such sale for a term not exceeding twenty years.
In order to promote and encourage the fullest possible use of electric light and power on farms within reasonable distance of any of its transmission lines, the board, in its discretion, shall have power to construct transmission lines to farms and small villages that are not otherwise supplied with electricity at reasonable rates, and to make such rules and regulations governing such sale and distribution of such electric power as in its judgment may be just and equitable.
One of the first corporate acts of TVA after its organization was to formulate and announce a power policy to govern the commercial distribution of electric power by TVA. The evidence establishes the fact that the Board, [p367] from the outset, has considered that it has general corporate discretion as to the establishment and extension of its electric power policy. In establishing a power policy, the Board was not primarily considering merely the question of disposal of power produced at Muscle Shoals no longer required for governmental purposes as a result of overbuilding, obsolescence of plants, or termination of war purpose. Nor was it considering disposal of prospective increases in electric power to be unavoidably created in excess of some governmental requirement. It was considering the matter from the standpoint of the successful establishment and permanent operation of an independent and well rounded government-owned electric distribution system and the general civic, social, and industrial planning and development of the Tennessee Valley region as a whole.
Under date of August 25, 1933, TVA announced its power policy, indicating both the initial stage of its development and certain later steps originally determined upon. . . . This power policy had not been rescinded or abandoned or modified at the time of submission of this cause.
In September, 1933, the Authority announced its wholesale and retail rate schedules, which are shown by the evidence to be materially lower than corresponding schedules of the existing utilities in the area. Following this action, numerous municipalities in the area began to make efforts to construct municipal systems with which to distribute TVA current, and Public Works Administration (called PWA) gave assurances of favorable consideration of applications for loans to that end.
Under such circumstances, Commonwealth & Southern Corporation negotiated the January 4th contract for its operating subsidiaries -- Alabama Power Company, Georgia Power Company, Mississippi Power Company, and Tennessee Electric Power Company. [p368]
This recited that the Alabama Company, the Mississippi Company, and the Tennessee Company desired to sell, and the Authority desired to purchase, certain land, buildings and physical properties devoted to the generation, transmission and distribution of electricity, together with certain franchises, contracts and going business.
The Alabama Company agreed to sell for $1,000,000 all of its low tension (44 KV or lower) transmission lines, substations (including the high tension station at Decatur and the Sheffield Steam Plant Station) and all rural lines and rural distribution systems in five Alabama counties and parts of two others. [These counties are northwestern Alabama, and lie on both sides of the Tennessee River for eighty miles or more.]
The Mississippi Company, in consideration of $850,000, agreed to transfer all of its transmission and distribution lines, substations, generating plants and other property in Pontotoc, Lee, Itawamba, Union, Benton, Tippah, Prentiss, Tishomingo and Alcorn counties (except one dam site in Tishomingo County) State of Mississippi, used in connection with the generation, transmission, distribution or sale of electrical energy. [These counties are the northeastern section of the state, a territory sixty miles square.]
For $900,000, the Tennessee Company agreed to convey its transmission and distribution lines, substations, distribution systems and other properties used in connection with the transmission, distribution and sale of electrical energy in Anderson, Campbell, Morgan and Scott counties, East Tennessee, and "all of the 66 KV transmission line from Cove Creek to Knoxville." [These counties are in the mountains northward from Knoxville within a radius of about sixty miles. They lie northeast of Muscle Shoals, and some points therein are much more than a hundred miles from Wilson Dam. They have a population of 86,000.] [p369]
The power companies agreed, that
any conveyance of property shall include not only the physical property, easements and rights-of-way, but shall also include all machinery, equipment, tools and working supplies set forth in the respective exhibits, and all franchises, contracts and going business relating to the use of any of said properties.
to transfer or secure the transfer of said franchises, contracts and going business, and to transfer said properties with all present customers attached, so far as they are able.
that, during the period of this contract, none of said companies will sell electric energy to any municipality, corporation, partnership, association or individual in any portion of the above-described counties or parts thereof in Alabama, Tennessee and Mississippi,
etc. The Authority agreed not to sell electric energy outside of the specified counties to the customers of non-utilities supplied by the power companies.
Other covenants provided for interchange of electric energy between the contracting parties and for cooperation in the sale of electric appliances throughout the entire territory served by the power companies.
Power Companies covenant and agree that, after the expiration of this agreement, the interchange arrangement then in effect will be maintained by Power Companies for an additional period (not exceeding eighteen months) sufficient to permit Authority to construct its own transmission facilities for serving all of the territory which it is then serving in whole or in part with power obtained at such interchange points.
Power Companies agree to have available at all times for exchange, at each point of exchange, energy and capacity to supply the entire demands of the customers served by Authority from such points of exchange, subject to the limitations as to transmission capacity set forth in Section 10(h) hereof; Provided, that the maximum [p370] amount which Authority shall be entitled to demand at all points of exchange shall be 70,000 k.v.
Prior to the agreement for sale, The Alabama Company had derived $750,000 gross annual revenue from its properties located within the "ceded area." This district had a population of 190,000, and the Company had therein 10,000 individual customers -- approximately 1/10 of all those directly served by it. The lines transferred by the Mississippi Power Company served directly 4,000 customers in 9 counties, having total population of 184,000. When this cause began, the Mississippi properties were being operated by TVA, and rural lines were in process of extension by it in both Mississippi and Alabama.
All of the electric properties and facilities covered by the contract of January 4, 1934, . . . were contracted for by TVA for the purpose of continuing and enlarging the utility service for which they were used by the respective power companies.
The operation of a commercial utility service by TVA and the wholesaling and retailing by TVA of electricity in the area served by the Alabama Power Company is not and will not be in aid of the regulation of navigation or national defense or other governmental function insofar as any plan, purpose or activity of the TVA or of the United States disclosed on this record would indicate.
Answering the Petitioners' Complaint, Alabama Company admitted
that the public statements of TVA indicated the program therein alleged, and the directors of respondent company considered that to vest such an agency as therein alleged with unlimited power and access to public funds in a program of business competition and public ownership promotion in the area served by respondent company would in effect destroy this respondent's property, and such conclusion on its part was the [p371] principal inducement for it to enter into the contracts of January 4 and August 9, 1934, and respondent company thereby was and will be enabled to salvage a larger amount of its property than it could have done by competition.
that, under the circumstances of threatened competition, directed or controlled by TVA as averred therein, this respondent agreed to the sale of certain of its transmission lines and property, and entered into the contract dated January 4, 1934. . . . Respondent company admits that, at and before the execution of the contract, the threat was made to use federal funds to duplicate the facilities of respondent, which would result in competition with rates not attainable by or permissible to this respondent, and such rates would be stipulated, controlled and regulated by TVA.
As matter of law, the trial court found --
The function intended by TVA under the evidence in relation to service, utility in type, in the area ceded by the contract of January 4, 1934, transcends the function of conservation or disposition of government property, involves continuing service and commercial functions by the government to fill contracts not governmental in origin or character.
Performance of the contract of January 4th, 1934, would involve substantial loss and injury to the Alabama Power Company, including, inter alia, the loss or abandonment of franchises, licenses, going business and service area supporting its general system and power facilities, and, unless resisted, would tend to invite a progressive encroachment on its service area by the Tennessee Valley Authority.
Congress has no constitutional authority to authorize Tennessee Valley Authority or any other federal agency to undertake the operation, essentially permanent in character, of a utility system, for profit, involving the [p372] generation, transmission and commercial distribution of electricity within State domain, having no reasonable relation to a lawful governmental use.
The contract of January 4, 1934, expressly provided for the transfer of all or substantially all of the lines and properties of the Alabama Power Company for the service of the ceded area, included transmission lines, rural distribution systems and certain urban distribution systems, and contemplated the eventual transfer of fourteen urban distribution systems. This contract, expressly contemplating service of the ceded area by the Tennessee Valley Authority with electricity to be generated or purchased by the Tennessee Valley Authority for that purpose, was in furtherance of illegal proprietary operations by the Tennessee Valley Authority in violation of the Federal Constitution, and void. The contract was accordingly ultra vires and void as to the Alabama Power Company.
Having made exhaustive findings of fact and law, the trial court entered a decree annulling the January 4th contract and enjoining the Alabama Power Company from performing it. The Circuit Court of Appeals reversed, upon the theory that the Authority was making proper arrangements for sale of surplus power from the Wilson dam. The injunction was continued.
I think the trial court reached the correct conclusion, and that its decree should be approved. If, under the thin mask of disposing of property, the United States can enter the business of generating, transmitting and selling power as, when, and wherever some board may specify, with the definite design to accomplish ends wholly beyond the sphere marked out for them by the Constitution, an easy way has been found for breaking down the limitations heretofore supposed to guarantee protection against aggression.
* From the Annual Report, TVA Board, for 1934, pp. 23, 24, 25, 26, 27, and 28.
To provide a workable and economic basis of operations, the Authority plans initially to serve certain definite regions, and to develop its program in those areas before going outside.
The initial areas selected by the Authority may be roughly described as (a) the region immediately proximate to the route of the transmission line soon to be constructed by the Authority between Muscle Shoals and the site of Norris Dam; (b) the region in proximity to Muscle Shoals, including northern Alabama and northeastern Mississippi, and (c) the region in the proximity of Norris Dam (the new source of power to be constructed by the Authority on the Clinch River in northeast Tennessee).
At a later stage in the development, it is contemplated to include, roughly, the drainage area of the Tennessee River in Kentucky, Alabama, Georgia, and North Carolina, and that part of Tennessee which lies east of the west margin of the Tennessee drainage area.
To make the area a workable one and a fair measure of public ownership, it should include several cities of substantial size (such as Chattanooga and Knoxville) and, ultimately, at least one city of more than a quarter million, within transmission distance, such as Birmingham, Memphis, Atlanta, or Louisville.
While it is the Authority's present intention to develop its power program in the above-described territory before considering going outside, the Authority may go outside the area if there are substantial changes in general conditions, facts, or governmental policy which would necessarily require a change in this policy of regional development, or if the privately owned utilities in the area do not cooperate in the working out of the program.
The Authority entered into a 5-year contract on January 4, 1934, with the Commonwealth & Southern Corporation and its Alabama, Tennessee, Georgia, and Mississippi subsidiaries. The contract covered options to purchase electric properties in certain counties of Alabama, Mississippi, and Tennessee, the sale of distribution systems to municipalities in these counties, restrictions on territorial expansion by the contracting parties, the interchange of power, and other matters.
Alabama properties. -- All of the low-tension (44,000 volts or lower) transmission lines, substations, rural lines, and rural distribution systems of the Alabama Power Co., in the counties of Lauderdale, Colbert, Lawrence, Limestone, and Morgan (except the Hulaco area) were included in the contract; also those in the north half of Franklin County, including the town of Red Bay, and the territory in the northern part of Cullman County served by a line of the Alabama Power Co. extending south from Decatur. The price of these properties was set at $1,101,256. The purchase had not been completed at the end of the fiscal year.
The power company agreed to attempt to sell the local distribution systems in the above counties to the respective municipalities, the Authority reserving the right to serve them if sales were not consummated within 3 months of bona fide negotiation and effort. Because of the failure of any [many] of the municipalities in northern Alabama to consummate negotiations for the purchase of the distribution systems serving them, the Authority entered into negotiations for the direct purchase of these distribution systems, but a purchase contract had not been completed on June 30.
Mississippi properties. -- The contract covered all of the properties of the Mississippi Power Co. in the counties of Pontotoc, Lee, Itawamba, Union, Benton, Tippah, Prentiss, Tishomingo, and Alcorn, except a dam site on the Tennessee River in Tishomingo County. The purchase price was $850,000. The purchase was completed, and delivery was accepted on June 1, 1934.
The transmission and generation facilities acquired in Mississippi and to be retained as part of the Authority's system include the following:
44,000-volt transmission lines. . . . . . . . . . . . miles 63
44,000-volt substations . . . . . . . . . . . . . . . 6
22,000-volt transmission lines. . . . . . . . . . . . miles 45
22,000-volt substations . . . . . . . . . . . . . . . 4
Tupelo steam stand-by generating plant. . Kilovolt-amperes 4,374
Corinth steam stand-by generating plant. . . . . . do 2,225
Blue Mountain Diesel generating plant. . . . . . . do 150
Myrtle Diesel generating plant . . . . . . . . . . do 75
Part of the local distribution facilities acquired in Mississippi were sold prior to the end of the fiscal year, and it is expected that all will be sold eventually, as noted hereafter.
Tennessee properties. -- The contract covered all of the properties of the Tennessee Electric Power Co. in the counties of Anderson, Campbell, Morgan (except the lines extending into Morgan County from Harriman), and Scott; also those in the west portion of Claiborne County, and the 66,000-volt transmission line from Anderson County to Knoxville. The price of these properties was set at $900,000. The purchase had not been completed at the end of the fiscal year.
Negotiations were carried on diligently for several months with the National Power & Light Co., an affiliate of the Electric Bond & Share Co., in an endeavor to acquire the eastern Tennessee electric properties of the Tennessee Public Service Co., a subsidiary of the National Power & Light Co. The electric distribution system in the city of Knoxville is included in these properties. The negotiations resulted in a contract after the end of the fiscal year.
Construction of rural electric lines in northern Alabama and northeastern Mississippi was commenced in the latter part of 1933 with relief labor, the Authority furnishing supervision and materials. Relief labor was withdrawn on February 15, 1934, after which date the work was continued by the Authority with its own forces. Approximately 93.5 miles of rural electric lines were under construction in Lauderdale and Colbert Counties, Ala. on June 30, and approximately 127 miles in Lee, Pontotoc, Alcorn, Itawamba, Prentiss, Monroe, and Tishomingo Counties, Miss.
A standard form of 20-year contract was devised to govern the sale of power at wholesale to municipal distribution systems, and was first used in a contract with the city of Tupelo, Miss. The Tupelo contract has been published by the Authority, and is available for distribution.
Annual Report, TVA 1935, pp. 29, 30 --
The Authority has devoted special attention during the year to the problems of rural electrification, as required by section 10 of the act. By the close of the fiscal year, 200 miles of rural electric line had been built, and 181 additional miles were in process of construction. These lines are divided among the various counties as follows:
Miles Miles in
Alabama: completed progress
Colbert . . . . . . . . . . 19 15
Lauderdale. . . . . . . . . 72 __
Alcorn. . . . . . . . . . . 41 29
Lee and Itawamba. . . . . . 41 26
Pontotoc. . . . . . . . . . 27
Prentiss. . . . . . . . . . __ 7
Lincoln . . . . . . . . . . __ 104
Total. . . . . . . . . . . . . 200 181