B-120188, JUL. 29, 1955

B-120188, JUL. 29, 1955

TO HONORABLE LEWIS L. STRAUSS, CHAIRMAN, UNITED STATES ATOMIC ENERGY COMMISSION:

YOUR LETTER OF JULY 14, 1955, STATES THAT THE ATOMIC ENERGY COMMISSION HAS BEEN DIRECTED BY THE PRESIDENT TO BRING TO AN END THE RELATIONSHIP BETWEEN THE MISSISSIPPI VALLEY GENERATING COMPANY AND THE UNITED STATES. YOUR REQUEST OUR OPINION ON VARIOUS COURSES OF ACTION WHICH MAY BE TAKEN TO ACCOMPLISH THAT RESULT AND ON THE AVAILABILITY FOR EXPENDITURE IN CONNECTION WITH SUCH ACTION OF FUNDS APPROPRIATED TO THE COMMISSION.

THE PAYMENT OF APPROPRIATED FUNDS TO THE MISSISSIPPI VALLEY GENERATING COMPANY WOULD, OF COURSE, BE IMPROPER IF NOT IN FULFILLMENT OF SOME LEGAL OBLIGATION OF THE UNITED STATES, EITHER UNDER THE TERMS OF THE MVGC CONTRACT OR IN CONNECTION WITH ITS TERMINATION, AND YOU THEREFORE REQUEST OUR OPINION FIRST WHETHER THE CONTRACT IS NOW A VALID AND BINDING OBLIGATION OF THE GOVERNMENT.

THE CONTRACT ITSELF CONTAINS CERTAIN PROVISIONS PERTINENT TO THIS QUESTION. SECTION 8.22 PROVIDES THAT THE EFFECTIVE DATE OF THE CONTRACT SHALL BE THE LATEST OF FOUR DATES: (1) THE DATE OF ITS EXECUTION AND DELIVERY, WHICH WAS ON NOVEMBER 11, 1954; (2) THE DATE OF RECEIPT BY THE COMPANY OF AN OPINION OF THE GENERAL COUNSEL OF THE COMMISSION TO THE EFFECT THAT THE COMMISSION HAD AUTHORITY TO EXECUTE THE CONTRACT AND TO OBLIGATE THE UNITED STATES FOR ALL PAYMENTS REQUIRED THEREUNDER, WHICH ALSO WAS ON NOVEMBER 11, 1954; (3) THE DATE OF RECEIPT BY THE COMPANY OF A SIMILAR OPINION OF THE COMPTROLLER GENERAL OF THE UNITED STATES, WHICH WAS ON DECEMBER 17, 1954; AND (4) THE DATE ON WHICH THE WAITING OR WAIVER REQUIREMENTS OF SECTION 164 OF THE ATOMIC ENERGY ACT OF 1954 HAD BEEN MET.

THE APPLICABLE PORTION OF SECTION 164 OF THE ATOMIC ENERGY ACT IS AS FOLLOWS:

"* * * ANY CONTRACT HEREAFTER ENTERED INTO BY THE COMMISSION PURSUANT TO THIS SECTION SHALL BE SUBMITTED TO THE JOINT COMMITTEE AND A PERIOD OF THIRTY DAYS SHALL ELAPSE WHILE CONGRESS IS IN SESSION (IN COMPUTING SUCH THIRTY DAYS, THERE SHALL BE EXCLUDED THE DAYS ON WHICH EITHER HOUSE IS NOT IN SESSION BECAUSE OF ADJOURNMENT FOR MORE THAN THREE DAYS) BEFORE THE CONTRACT OF THE COMMISSION SHALL BECOME EFFECTIVE: PROVIDED, HOWEVER, THAT THE JOINT COMMITTEE, AFTER HAVING RECEIVED THE PROPOSED CONTRACT, MAY BY RESOLUTION IN WRITING, WAIVE THE CONDITIONS OF OR ALL OR ANY PORTION OF SUCH THIRTY-DAY PERIOD.'

THE CONTRACT WAS FILED WITH THE JOINT COMMITTEE AND ON NOVEMBER 13, 1954, AFTER HEARING, THAT COMMITTEE ADOPTED A RESOLUTION WAIVING THE CONDITIONS OF AND ALL OF THE THIRTY-DAY WAITING PERIOD SPECIFIED IN SECTION 164. HENCE, IF THE WAIVER BE CONSIDERED EFFECTIVE, THE LAST CONDITION PRECEDENT TO THE EFFECTIVE DATE OF THE CONTRACT UNDER THE TERMS OF SECTION 8.22 OCCURRED ON DECEMBER 17, 1954.

HOWEVER, SECTION 164 IMPOSES CERTAIN CONDITIONS UPON THE EFFECTIVENESS OF THE CONTRACT, REGARDLESS OF THE TERMS OF THE CONTRACT ITSELF. THE JOINT COMMITTEE MADE A REPORT IN JANUARY 1955 ON ITS WAIVER ACTION OF NOVEMBER 13, 1954, WHEREIN THE VIEW WAS STATED BY A MINORITY OF THE COMMITTEE THAT THE COMMITTEE HAD NO AUTHORITY TO ADOPT A WAIVER RESOLUTION UNDER SECTION 164 UNTIL IT HAD BEFORE IT A CONTRACT WHICH WAS OTHERWISE IMMEDIATELY EFFECTIVE. SINCE THE OPINION OF THE COMPTROLLER GENERAL REQUIRED BY SECTION 8.22 OF THE CONTRACT HAD NOT BEEN RENDERED ON NOVEMBER 13, 1954, AND SINCE CERTAIN REGULATORY APPROVALS NECESSARY TO THE FINANCING OF THE CONTRACT HAD NOT BEEN SECURED, THE POSITION WAS TAKEN BY THE MINORITY IN THE COMMITTEE REPORT THAT THERE HAD BEEN NO EFFECTIVE WAIVER UNDER SECTION 164. ON JANUARY 28, 1955, THE JOINT COMMITTEE ADOPTED A RESOLUTION RESCINDING THE NOVEMBER 13, 1954, WAIVER RESOLUTION.

IN OUR VIEW THE CONDITIONS OF SECTION 164 WERE SATISFIED REGARDLESS OF THE EFFECT OF THE RESOLUTION OF RESCISSION. WE DO NOT BELIEVE SECTION 164 REQUIRES THAT CONTRACTS SUBMITTED TO THE JOINT COMMITTEE THEREUNDER BE IMMEDIATELY EFFECTIVE UPON THE GRANTING OF A WAIVER OR THE LAPSE OF THE THIRTY-DAY WAITING PERIOD. THE PURPOSE OF THE REQUIREMENT IN SECTION 164 FOR A WAITING PERIOD OR A WAIVER WAS TO AFFORD THE CONGRESS AN OPPORTUNITY TO REVIEW THE POWER TO MAKE SUCH CONTRACTS AND TO TAKE APPROPRIATE LEGISLATIVE ACTION IF IT SO DESIRED. THE THIRTY-DAY PERIOD IS A MINIMUM PERIOD DURING WHICH THE CONGRESS MAY LEGISLATE; ANY ADDITIONAL POSTPONEMENT OF THE EFFECTIVE DATE OF A CONTRACT WOULD AFFORD EVEN GREATER OPPORTUNITY FOR LEGISLATIVE ACTION. CONSEQUENTLY, IT IS OUR VIEW THAT SECTION 164 FIXES A TIME BEFORE WHICH A PROPOSED CONTRACT CANNOT BECOME EFFECTIVE, RATHER THAN A TIME AFTER WHICH THE CONTRACT MUST BE EFFECTIVE. IN OTHER WORDS, THE SECTION DOES NOT REQUIRE THE SUBMISSION TO THE COMMITTEE OF A CONTRACT WHICH IS IMMEDIATELY EFFECTIVE IN ALL RESPECTS UPON THE EXPIRATION OF THE WAITING PERIOD OR THE GRANTING OF A WAIVER. THE CONTRACT HAS BEEN ON FILE WITH THE JOINT COMMITTEE FROM NOVEMBER 11, 1954, TO THE PRESENT TIME. THUS,EVEN IF THE WAIVER ACTION OF NOVEMBER 13, 1954, SHOULD BE CONSIDERED INVALID, THE PRESCRIBED WAITING PERIOD OF THIRTY DAYS EXPIRED ON FEBRUARY 4, 1955, THE CONGRESS HAVING BEEN IN SESSION SINCE JANUARY 5, 1955. THE EFFECTIVE DATE OF THE CONTRACT UNDER SECTION 8.22 IS THEN EITHER FEBRUARY 4, 1955, OR DECEMBER 17, 1954, DEPENDING ON THE EFFECTIVENESS OF THE WAIVER, BUT THIS DIFFERENCE IS NOT MATERIAL TO THE QUESTIONS PRESENTED IN YOUR LETTER.

OTHER PERTINENT CONTRACTUAL PROVISIONS RELATING TO THE OBLIGATIONS OF THE GOVERNMENT ARE CONTAINED IN A LETTER AGREEMENT DATED NOVEMBER 11, 1954, WHICH WAS EXECUTED CONTEMPORANEOUSLY WITH THE CONTRACT, AND IN SECTION 8.15 OF THE CONTRACT. THE LETTER AGREEMENT PROVIDES THAT IF THE EFFECTIVE DATE OF THE CONTRACT AS PROVIDED FOR IN SECTION 8.22 SHALL NOT HAVE OCCURRED BY FEBRUARY 15, 1955, OR IF THERE SHALL NOT BY THEN HAVE BEEN OBTAINED

"* * * VALID REGULATORY APPROVALS IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY * * * WHICH ARE NECESSARY TO PERMIT IT TO ISSUE SHARES OF ITS CAPITAL STOCK TO THE SPONSORING COMPANIES AND TO PERMIT THEM TO PURCHASE AND PAY FOR SUCH SHARES * * *" THEN EITHER PARTY TO THE CONTRACT MAY THEREAFTER TERMINATE IT BY WRITTEN NOTICE WITHOUT LIABILITY TO THE OTHER.

THE DIFFERING PROVISIONS OF THE LETTER AGREEMENT AND OF SECTION 8.22 OF THE CONTRACT ILLUSTRATE VERY WELL THE LEGAL DISTINCTION BETWEEN CONDITIONS WHICH RELATE TO THE EXISTENCE OF A CONTRACT AND THOSE WHICH AFFECT ONLY THE DUTY OF PERFORMANCE UNDER A CONTRACT ALREADY IN EXISTENCE. SECTION 8.22 PRESCRIBES CERTAIN CONDITIONS WHICH MUST HAPPEN BEFORE THE CONTRACT BECOMES EFFECTIVE. UNTIL THESE CONDITIONS ARE SATISFIED THERE IS ONLY A PROPOSED CONTRACT, AND IF SOME ONE OF THE CONDITIONS NEVER OCCURRED, NO CONTRACT WOULD COME INTO EXISTENCE. THE CONDITIONS OF SECTION 8.22 ARE THUS CONDITIONS PRECEDENT TO THE FORMATION OF A BINDING CONTRACT. ON THE OTHER HAND, THE CONDITIONS OF THE LETTER AGREEMENT DO NOT RELATE TO THE EXISTENCE OF THE CONTRACT, BUT SOLELY TO ITS ENFORCEABILITY. IF THE CONDITIONS OF SECTION 8.22 HAD BEEN FULFILLED ON A DATE SUBSEQUENT TO FEBRUARY 15, 1955, A CONTRACT WOULD HAVE BEEN CREATED AT THAT TIME, AND UNTIL WRITTEN NOTICE OF TERMINATION WAS GIVEN BY ONE PARTY OR THE OTHER THE CONTRACT WOULD BE VALID. IN OTHER WORDS, THE LETTER AGREEMENT MERELY IMPOSED CONDITIONS ON THE ENFORCEABILITY OF THE CONTRACT AFTER IT SHOULD HAVE BECOME EFFECTIVE UNDER SECTION 8.22. THE FIRST CONDITION OF ENFORCEABILITY WAS THAT THE EFFECTIVE DATE OF THE CONTRACT AND THE OBTAINING OF THE REGULATORY APPROVALS OCCUR BY FEBRUARY 15, 1955; THE SECOND WAS THAT NO WRITTEN NOTICE OF TERMINATION BE GIVEN IN THE EVENT THE FIRST CONDITION WAS SATISFIED AFTER FEBRUARY 15, 1955. IT MAKES LITTLE DIFFERENCE WHETHER THESE CONDITIONS OF THE LETTER AGREEMENT BE CALLED CONDITIONS PRECEDENT OR CONDITIONS SUBSEQUENT. IN EITHER EVENT THEY ARE CONDITIONS RELATING TO THE ENFORCEABILITY OF THE CONTRACT, NOT TO ITS CREATION. THE FIRST CONDITION MIGHT BE CALLED A CONDITION PRECEDENT TO THE RIGHT TO TERMINATE WITHOUT LIABILITY. THE RIGHT TO GIVE WRITTEN NOTICE OF TERMINATION THEREAFTER IS A CONDITION SUBSEQUENT WHICH IF EXERCISED WOULD EXTINGUISH THE CONTRACTUAL RELATIONSHIP THERETOFORE EXISTING BETWEEN THE PARTIES.

AS WE HAVE INDICATED ABOVE, THE CONDITIONS PRECEDENT TO THE EFFECTIVE DATE OF THE CONTRACT SPECIFIED IN SECTION 8.22 WERE, IN OUR OPINION, ALL SATISFIED BEFORE FEBRUARY 15, 1955. BY LETTER OF JANUARY 24, 1955, THE ATOMIC ENERGY COMMISSION MADE INQUIRY OF THE MISSISSIPPI VALLEY GENERATING COMPANY WHETHER VALID REGULATORY APPROVALS SATISFACTORY TO THE COMPANY HAD BEEN OBTAINED WHICH WOULD PERMIT THE ISSUANCE AND PURCHASE OF ITS CAPITAL STOCK. BY REPLY DATED FEBRUARY 11, 1955, MVGC ADVISED THE COMMISSION THAT THE ARKANSAS PUBLIC SERVICE COMMISSION ON DECEMBER 21, 1954, HAD GRANTED THE COMPANY APPROVAL TO ISSUE AND SELL $5,500,000 IN CAPITAL STOCK TO THE SPONSORING COMPANIES, AND THAT THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1955, HAD GIVEN ITS APPROVAL TO THE ISSUANCE OF SUCH STOCK BY MVGC AND ITS PURCHASE BY THE SPONSORING COMPANIES. THE MVGC STATED FURTHER THAT SINCE ALL CONDITIONS OF THE LETTER AGREEMENT HAD BEEN SATISFIED, THE AGREEMENT HAD BECOME INOPERATIVE AND THE RIGHT GIVEN THE PARTIES THEREUNDER TO TERMINATE THE CONTRACT WITHOUT LIABILITY HAD ENDED. SUCH ACTION AS HAS BEEN TAKEN BY THE COMMISSION SINCE RECEIPT OF THE MVGC LETTER OF FEBRUARY 11, 1955, INDICATES THEIR AGREEMENT WITH THE CONCLUSION THAT THE RIGHT TO TERMINATE HAD ENDED. FOR EXAMPLE, BY LETTERS OF FEBRUARY 16 AND 28, 1955, THE COMMISSION ACKNOWLEDGED RECEIPT OF THE FEBRUARY 11, 1955, LETTER AND REQUESTED MVGC TO ADVISE THEM AS TO THE STATUS OF THE PROPOSED DEBT FINANCING, THE REMAINING REGULATORY APPROVALS CONTEMPLATED BY SECTION 8.15, AND THEIR PLANS FOR STARTING ACTUAL CONSTRUCTION. IN ADDITION, IT IS UNDERSTOOD THAT MVGC REQUESTED AND THE COMMISSION FURNISHED ASSISTANCE IN OBTAINING PRIORITY FOR AN MVGC ORDER FOR A TURBE-GENERATOR.

QUESTION HAS NEVERTHELESS BEEN RAISED WHETHER THE RIGHT TO TERMINATE UNDER THE LETTER AGREEMENT HAS IN FACT BEEN EXTINGUISHED. ONE GROUND FOR SUCH A CONTENTION IS THAT NON-FULFILLMENT OF SOME OF THE CONDITIONS OF SECTION 8.15 PREVENTED THE CONTRACT FROM BECOMING EFFECTIVE BY FEBRUARY 15, 1955. WE DO NOT AGREE THAT THIS IS SO FOR THE REASONS GIVEN IN OUR LATER DISCUSSION OF SECTION 8.15. SO FAR AS CONCERNS THE LETTER AGREEMENT, HOWEVER, THE CONDITION IS NOT THAT THE CONTRACT BECOME EFFECTIVE UNDER SECTION 8.15; THE LANGUAGE OF THE CONDITION IS "IF, BY FEBRUARY 15, 1955, THE EFFECTIVE DATE OF THE CONTRACT SHALL NOT HAVE OCCURRED AS PROVIDED IN SECTION 8.22.' THE CONDITIONS PRECEDENT TO THE EFFECTIVE DATE OF THE CONTRACT AS PROVIDED IN SECTION 8.22 WERE ALL SATISFIED BEFORE FEBRUARY 15, 1955.

ANOTHER GROUND WHICH MIGHT BE USED TO ARGUE THAT TERMINATION UNDER THE LETTER AGREEMENT IS NOT YET IMPOSSIBLE DERIVES FROM THE FACT THAT A PETITION FOR REVIEW OF THE ORDER ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1955, GRANTING PERMISSION FOR THE ISSUANCE AND PURCHASE OF THE MVGC CAPITAL STOCK IS STILL PENDING IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT. THIS PETITION WAS FILED BY THE STATE OF TENNESSEE AND OTHERS ON MARCH 14, 1955, UNDER SECTION 24 OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, 15 U.S.C. 79X. WE DO NOT BELIEVE THAT THIS FACT GIVES THE GOVERNMENT ANY PRESENT RIGHT OF TERMINATION UNDER THE LETTER AGREEMENT FOR THE FOLLOWING REASONS. IT SEEMS EVIDENT THE CONTRACTING PARTIES THEMSELVES CONTEMPLATED THAT A DECISION COULD BE MADE ON FEBRUARY 15, 1955, AS TO WHETHER THE CONDITIONS OF THE AGREEMENT HAD OR HAD NOT BEEN SATISFIED, SINCE THE PURPOSE OF THE AGREEMENT WAS TO SET A TIME LIMIT AT THE END OF WHICH MVGC WOULD DECIDE WHETHER OR NOT IT WOULD GO AHEAD WITH THE CONTRACT. THE HISTORY OF THE CONTRACT SHOWS THAT THE LETTER AGREEMENT WAS INSISTED UPON BY DIXON-YATES BECAUSE OF THE UNEXPECTED DELAY IN CONSUMMATING A CONTRACT AFTER THEIR ORIGINAL PROPOSAL WAS MADE EARLY IN 1954, AND THE INCREASE IN CONSTRUCTION COSTS SINCE THAT TIME. IT WAS INTENDED TO AFFORD DIXON-YATES A MEANS OF ABANDONING THE PROJECT IF DECISION WAS NOT MADE BY FEBRUARY 15, 1955, ON THE PARTICULAR MATTERS SET FORTH AS CONDITIONS IN THE LETTER AGREEMENT.

THE CONDITION CONCERNING REGULATORY APPROVALS REQUIRES THE OBTAINING OF VALID REGULATORY APPROVALS SATISFACTORY TO MVGC

"* * * WHICH ARE NECESSARY TO PERMIT IT TO ISSUE SHARES OF ITS CAPITAL STOCK TO THE SPONSORING COMPANIES AND TO PERMIT THEM TO PURCHASE AND PAY FOR SUCH SHARES.'

THE SEC ORDER ISSUED ON FEBRUARY 9, 1955, AUTHORIZED MVGC TO ISSUE ITS CAPITAL STOCK TO THE SPONSORING COMPANIES AND AUTHORIZED THEM TO PURCHASE AND PAY FOR SUCH STOCK. THE ISSUANCE OF THE SEC ORDER ON FEBRUARY 9, 1955, WAS IN THE CIRCUMSTANCES ALL THAT WAS NECESSARY TO PERMIT THIS CONDITION OF THE LETTER AGREEMENT TO BE SATISFIED. SECTION 24 (B) OF THE HOLDING COMPANY ACT, 15 U.S.C. 79X (B), STATES THAT COMMENCEMENT OF REVIEW PROCEEDINGS IN COURT SHALL NOT OPERATE AS A STAY OF AN SEC ORDER UNLESS SPECIFICALLY ORDERED BY THE COURT. NO STAY ORDER WAS REQUESTED IN THE PENDING CASE, NOR HAS ONE BEEN ISSUED BY THE COURT. THE SEC ORDER HAS, THEREFORE, UNQUESTIONABLY BEEN IN FULL FORCE AND EFFECT SINCE FEBRUARY 9, 1955. FURTHERMORE, THE ENTIRE $5,500,000 IN CAPITAL STOCK HAS BEEN AUTHORIZED BY MVGC, AND AS OF MARCH 31, 1955, $1,100,000 THEREOF WAS ISSUED AND OUTSTANDING AND $4,400,000 HAD BEEN SUBSCRIBED FOR BY THE SPONSORING COMPANIES. AS OF THE PRESENT TIME, THEREFORE, THE OBJECTIVE SOUGHT TO BE ACCOMPLISHED BY THE CONDITION HAS IN FACT BEEN SATISFIED. FURTHER ACTION TAKEN WITH RESPECT TO THE SEC ORDER CAN CHANGE THE FACT THAT MVGC DID OBTAIN BEFORE FEBRUARY 15, 1955, ALL REGULATORY APPROVALS

"* * * NECESSARY TO PERMIT IT TO ISSUE SHARES OF ITS CAPITAL STOCK TO THE SPONSORING COMPANIES AND TO PERMIT THEM TO PURCHASE AND PAY FOR SUCH SHARES.'

IT IS EVIDENT, ALSO, THAT THE PARTIES BY THE PHRASE "VALID REGULATORY APPROVALS" COULD NOT HAVE MEANT REGULATORY APPROVALS REVIEWED BY THE COURT OF APPEALS AND POSSIBLY THE SUPREME COURT, SINCE SUCH REVIEW COULD NOT REASONABLY BE EXPECTED TO BE ACCOMPLISHED IN THE PERIOD BETWEEN NOVEMBER 11, 1954, AND FEBRUARY 15, 1955. FOR THE FOREGOING REASONS WE DO NOT BELIEVE THE GOVERNMENT PRESENTLY HAS ANY TERMINATION RIGHTS UNDER THE LETTER AGREEMENT.

THE REMAINING CONTRACTUAL PROVISION TO BE DISCUSSED IN CONNECTION WITH THE PRESENT OBLIGATIONS OF THE GOVERNMENT IS SECTION 8.15 OF THE CONTRACT. THIS SECTION PROVIDES AS FOLLOWS:

"SECTION 8.15. REGULATORY APPROVALS AND INDEBTEDNESS: THE OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE SUBJECT TO THE FOLLOWING:

"/1) THE RECEIPT OF ALL REGULATORY APPROVALS, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, NECESSARY TO PERMIT THE COMPANY TO PERFORM ALL THE DUTIES AND OBLIGATIONS TO BE PERFORMED BY IT HEREUNDER OR NECESSARY TO PERMIT IT TO ISSUE SHARES OF ITS CAPITAL STOCK TO THE SPONSORING COMPANIES AND TO ISSUE THE INDEBTEDNESS REFERRED TO HEREIN;

"/2) THE EXECUTION AND PERFORMANCE BY INSTITUTIONAL INVESTORS AND BANKS OF CONTRACTS OR COMMITMENTS, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, PROVIDING FOR THE ISSUANCE BY THE COMPANY AND THE PURCHASE BY SUCH INVESTORS AND BANKS OF THE INDEBTEDNESS REFERRED TO IN THE RECITALS OF THIS CONTRACT;

"/3) THE RECEIPT BY THE COMPANY OF AN OPINION OF THE GENERAL COUNSEL TO THE AEC TO THE EFFECT THAT THE AEC HAS POWER AND AUTHORITY TO EXECUTE THIS CONTRACT AND THE UNDERTAKINGS HEREIN DESCRIBED AND TO OBLIGATE THE UNITED STATES OF AMERICA FOR ALL PAYMENTS WHICH MAY BE REQUIRED TO BE MADE BY THE AEC TO THE COMPANY PURSUANT TO ANY OF THE PROVISIONS HEREOF, AND THAT THE PERSONS EXECUTING AND DELIVERING THIS CONTRACT ON BEHALF OF THE AEC HAVE FULL POWER AND AUTHORITY TO DO O; AND

"/4) THE RECEIPT BY THE COMPANY OF AN OPINION OF THE COMPTROLLER GENERAL OF THE UNITED STATES TO THE EFFECT THAT THE AEC HAS POWER AND AUTHORITY TO ENTER INTO THIS CONTRACT AND TO OBLIGATE THE UNITED STATES OF AMERICA FOR ALL PAYMENTS WHICH MAY BE REQUIRED TO BE MADE BY THE AEC TO THE COMPANY PURSUANT TO ANY OF THE PROVISIONS HEREOF, AND THAT THE AEC HAS AUTHORITY TO PAY CANCELLATION COSTS UNDER THIS CONTRACT OUT OF ANY FUNDS NOW OR HEREAFTER APPROPRIATED TO IT BY CONGRESS.'

THE CONDITIONS DESCRIBED IN PARAGRAPHS (3) AND (4) HAVE OCCURRED. CONDITIONS (1) AND (2) HAVE NOT YET BEEN FULLY SATISFIED, SINCE APPROVAL HAS NOT YET BEEN GIVEN BY THE SEC UNDER THE PENDING APPLICATION FOR THE ISSUANCE BY MVGC OF THE APPROXIMATELY $100,000,000 INDEBTEDNESS TO FINANCE CONSTRUCTION OF THE PLANT AND, OF COURSE, SUCH INDEBTEDNESS HAS NOT BEEN PURCHASED AND PAID FOR BY THE FINANCING INSTITUTIONS.

CONTRARY VIEWS HAVE BEEN ADVANCED AS TO THE LEGAL EFFECT OF THE NON FULFILLMENT OF CONDITIONS (1) AND (2) OF SECTION 8.15. BASICALLY, THESE DIFFERENCES OF OPINION INVOLVE THE QUESTION WHETHER THE CONDITIONS OF SECTION 8.15 AFFECT THE FORMATION OF THE CONTRACT OR MERELY ITS ENFORCEABILITY. THE VIEWS OF THE MINORITY OF THE JOINT COMMITTEE IN THE REPORT ON THE WAIVER RESOLUTION ARE STATED AS FOLLOWS AT PAGE 19 OF THE REPORT (SPEAKING, OF COURSE, AS OF NOVEMBER 13, 1954):

"OF THE CONTINGENCIES REQUIRED TO OCCUR BY THE TERMS OF THE CONTRACT BEFORE THE OBLIGATIONS OF THE PARTIES ACCRUE, I.E., BEFORE THE CONTRACT COULD BE EFFECTIVE, ONLY ONE CONTINGENCY HAD BEEN FULFILLED, NAMELY THE RENDITION OF THE OPINION OF THE COUNSEL OF THE AEC. ALL OF THE NECESSARY REGULATORY APPROVALS WERE STILL TO BE RECEIVED, AND ALL OF THE NECESSARY FINANCING ARRANGEMENTS WERE STILL TO BE CONSUMMATED.'

IT MAY BE NOTED THAT SECTION 8.15 DOES NOT STATE THAT THE OBLIGATIONS OF THE PARTIES SHALL NOT ACCRUE UNTIL THE CONDITIONS ARE MET. THE ACTUAL LANGUAGE IS THAT THE OBLIGATIONS OF THE PARTIES HEREUNDER (THAT IS, UNDER THE CONTRACT) SHALL BE SUBJECT TO THE CONDITIONS STATED. UPON THROUGH ANALYSIS OF THE PROVISIONS OF SECTION 8.15 IN THE LIGHT OF THE QUESTIONS NOW PRESENTED, IT SEEMS TO US THERE ARE PERSUASIVE REASONS AGAINST CONSTRUING THIS LANGUAGE AS A CONDITION PRECEDENT TO THE FORMATION OF THE CONTRACT.

IN THE FIRST PLACE, THERE IS ANOTHER SECTION OF THE CONTRACT WHICH DEALS SPECIFICALLY WITH CONDITIONS PRECEDENT TO ITS EXISTENCE OR EFFECTIVENESS AS A CONTRACT. THIS, OF COURSE, IS SECTION 8.22, AND IT IS ONLY REASONABLE TO ASSUME THAT ALL CONDITIONS WHICH THE PARTIES INTENDED TO BE PREREQUISITE TO THE EXISTENCE OF THE CONTRACT WOULD BE SET FORTH IN THAT SECTION. CONDITIONS (3) AND (4) OF SECTION 8.15 ARE ALSO CONDITIONS OF SECTION 8.22, BUT CONDITIONS (1) AND (2) ARE NOT. THIS SHOWS AN INTENT THAT CONDITIONS (1) AND (2) OF SECTION 8.15 WERE NOT CONDITIONS PRECEDENT TO THE EXISTENCE OF THE CONTRACT, ELSE THEY TOO WOULD HAVE BEEN MADE CONDITIONS UNDER SECTION 8.22.

THE LANGUAGE OF THE LETTER AGREEMENT OF NOVEMBER 11, 1954, IS ALSO OF SOME SIGNIFICANCE IN DETERMINING THE INTENDED MEANING OF SECTION 8.15. REGULATORY APPROVAL OF THE EQUITY FINANCING WAS ALREADY A CONDITION OF SECTION 8.15 WHICH SUBJECTED THE OBLIGATIONS OF THE PARTIES TO THE OBTAINING OF SUCH APPROVAL. IF THE PARTIES HAD INTENDED THAT A FAILURE OF THIS OR THE OTHER CONDITIONS OF SECTION 8.15 SHOULD ENABLE EITHER PARTY TO TERMINATE THE CONTRACT WITHOUT LIABILITY, THEY COULD EASILY HAVE SPECIFICALLY SO STATED AS THEY DID IN THE LETTER AGREEMENT WHEN THAT WAS THEIR INTENTION.

SOME OF THE MOST FORCEFUL ARGUMENTS IN FAVOR OF TREATING THE PROVISIONS OF SECTION 8.15 AS CONDITIONS OF ENFORCEABILITY RATHER THAN AS CONDITIONS PRECEDENT TO THE EXISTENCE OF A CONTRACT ARE FOUND BY COMPARING THE EFFECTS OF BOTH INTERPRETATIONS IN SITUATIONS WHICH MIGHT ARISE. FOR EXAMPLE, PARAGRAPH (1) REQUIRES THE OBTAINING OF REGULATORY APPROVAL OF THE CONTRACT FINANCING. IF THIS IS A CONDITION PRECEDENT TO THE EXISTENCE OF A CONTRACT MVGC MIGHT PREVENT THE CONTRACT FROM EVER COMING INTO EXISTENCE BY REFUSING TO APPLY FOR REGULATORY APPROVAL. WHILE THEIR REFUSAL MIGHT SUBJECT THEM TO SOME LIABILITY, IT WOULD NOT BE A BREACH OF CONTRACT. IF IT IS MERELY A CONDITION PRECEDENT TO THEIR DUTY OF PERFORMANCE UNDER THE CONTRACT, MVGC WOULD BE UNDER AN IMPLIED OBLIGATION TO ATTEMPT IN GOOD FAITH AND WITH DUE DILIGENCE TO OBTAIN THE NECESSARY REGULATORY APPROVALS. VAN RUSKIRK V. KUHNS, 164 CAL. 472, 129 P. 587; PHOENIX OIL CO. V. MACKENZIE OIL CO. (S.CT.DEL.), 154 A. 894; ODEN REALTY CO. V. DYER, 242 KY. 58, 45 S.W. 2D 838; WALKER V. CHANCEY, 96 FLA. 82, 117 SE. 705; JORDAN V. BUSCH, 285 ILL. APP. 217, 1 N.E.2D 745. A SIMILAR SITUATION MIGHT ARISE IN THE CASE OF THE OBTAINING OF FINANCING COMMITMENTS AS REQUIRED BY PARAGRAPH (2). ANY FAILURE TO OBTAIN COMMITMENTS SATISFACTORY TO MVGC MIGHT BE USED BY IT AS AN EXCUSE TO PREVENT THE FORMATION OF A CONTRACT. IF PARAGRAPH (2) IS A CONDITION OF PERFORMANCE, MVGC HAS IMPLIEDLY AGREED TO BE SATISFIED WITH LOAN COMMITMENTS WHICH WOULD BE SANCTIONED UNDER THE NECESSARY REGULATORY APPROVALS, AND ONLY IN THE EVENT ADEQUATE FINANCING COULD NOT BE SECURED ON TERMS WHICH WOULD BE APPROVED BY THE REGULATORY AUTHORITIES WOULD THERE BE A FAILURE OF THE CONDITION SUFFICIENT TO EXCUSE MVGC FROM FURTHER PERFORMANCE UNDER THE CONTRACT.

AN EVEN MERE STRIKING EXAMPLE OF THE DIFFERENT RESULTS REACHED FROM THE TWO INTERPRETATIONS OF SECTION 8.15 IS FOUND WHEN WE CONSIDER THE PROVISION OF PARAGRAPH (2) WHICH REQUIRES PERFORMANCE OF THE DEBT FINANCING COMMITMENTS. FINANCING ARRANGEMENTS FOR CONSTRUCTION NORMALLY PROVIDE THAT ADVANCES WILL BE MADE UNDER THE LOAN COMMITMENTS ONLY IN ACCORDANCE WITH THE PROGRESS OF THE CONSTRUCTION. IF PERFORMANCE OF SUCH A LOAN COMMITMENT IS A CONDITION PRECEDENT TO THE EXISTENCE OF A CONTRACT, SINCE IT COULD NOT BE DETERMINED WHETHER THE CONDITION WOULD BE FULFILLED UNTIL THE LAST OF THE LOAN PAYMENTS WAS DUE, IT COULD NOT BE DETERMINED UNTIL THEN WHETHER THE CONTRACT HAD COME INTO EXISTENCE. CERTAINLY, WHERE THE PRINCIPAL SECURITY FOR THE FINANCING IS A LONG TERM CONTRACT FOR THE SALE OF POWER, AS IN THE PRESENT CASE, IT WOULD BE IMPRUDENT FOR A FINANCING INSTITUTION TO MAKE A COMMITMENT UNDER WHICH THE TOTAL AMOUNT OF THE LOAN MUST BE ADVANCED BEFORE THE CONTRACT ITSELF WOULD COME INTO BEING. IF PARAGRAPH (2) BE CONSIDERED A CONDITION PRECEDENT MERELY TO THE ENFORCEABILITY OF THE CONTRACT, THERE WOULD NOT BE A FAILURE OF FULFILLMENT SO LONG AS PROGRESS PAYMENTS WERE MADE TO MVGC WHEN DUE UNDER THE TERMS OF THE FINANCING AGREEMENTS.

IF, AS WE BELIEVE, SECTION 8.15 PRESCRIBES CONDITIONS PRECEDENT TO THE DUTY OF PERFORMANCE UNDER THE CONTRACT, ANY ACTION TAKEN BY THE GOVERNMENT BY WAY OF CANCELLATION OR REPUDIATION OF THE CONTRACT WHICH WOULD RESULT IN THE NON-FULFILLMENT OF SUCH CONDITIONS WOULD ALSO PRECLUDE THE ASSERTION OF ANY RIGHTS THE GOVERNMENT MIGHT HAVE WHICH DEPEND UPON A FAILURE OF FULFILLMENT OF THE CONDITIONS. IT IS A FAMILIAR PRINCIPLE OF LAW AND A PRINCIPLE OF FUNDAMENTAL JUSTICE THAT IF ONE CONTRACTING PARTY IS HIMSELF THE CAUSE OF THE FAILURE OF PERFORMANCE, EITHER OF AN OBLIGATION DUE HIM OR OF A CONDITION UPON WHICH HIS OWN LIABILITY DEPENDS, HE CANNOT TAKE ADVANTAGE OF THE FAILURE. RESTATEMENT OF THE LAW OF CONTRACTS, SECTION 295; WILLISTON ON CONTRACTS, REV.ED., SECTION 677; CORBIN ON CONTRACTS, SECTIONS 767, 769. THIS PRINCIPLE HAS BEEN APPLIED IN MANY SITUATIONS. KNOWLES V. HENDERSON, 156 FLA. 31, 22 SO. 2D 384; JONES V. WALKER (COURT OF APPEALS, KY.), 56 AM. DEC. 557; CAPE FEAR AND DEEP RIVER NAV. CO. V. WILCOX, 52 N.C. 481, 78 AM.DEC. 260; ARLETTE V. NATIONAL LIBERTY INSURANCE CO., 312 PA. 442, 167 A. 295; PUBLIC MARKET CO. V. PORTLAND, 171 OR. 522, 130 F.2D 624; BEWICK V. MECHAN, 26 CAL.2D 92, 156 F.2D 757; GOLDSTEIN V. ROSENBERG, 331 ILL.APP. 374, 73 N.E. 2D 171; GRECO V. LUTRICK 212 MISS. 596. 55 S.2D 139; GOLDSTEIN BROS. V. NEWKIRK, 233 N.C. 428, 64 S.E. 2D 424; ATLAS TRADING CORP. V. S. N. CRESSMAN, INC., 169 F.2D 40; HARSCH V. SOUTHERN NEW ENGLAND N. CORP., 230 MASS. 483, 120; HAUGEN V. NAUPACH, 43 WASH. 2D 147, 260 F.2D 340; HALSEY V. WAUKESHA SPRINGS SANITARIUM, 125 WISC. 311, 104 N.W. 94; UNITED STATES V. PECK, 102 U.S. 64; ST. LOUIS AND P.R. CO. V. KERR, 153 ILL. 182, 38 N.E. 638. WILLISTON STATES P. 1953:

"THE PRINCIPLE THAT PREVENTION BY ONE PARTY EXCUSES PERFORMANCE BY THE OTHER, BOTH OF A CONDITION AND OF A PROMISE, MAY BE LAID DOWN BROADLY FOR ALL CASES.'

ANVIL MINING CO. V. HUMBLE, 153 U.S. 540; UNITED STATES V. UNITED ENGINEERING CO., 234 U.S. 236. AS LONG AGO AS 1829 THE SUPREME COURT STATED IN THE CASE OF WILLIAMS V. THE BANK OF THE UNITED STATES, 2 PET. 96, 101:

"THE PRINCIPLE HERE STATED IS NOT PECULIAR TO THIS CLASS OF CONTRACTS. IF A PARTY TO A CONTRACT WHO IS ENTITLED TO THE BENEFIT OF A CONDITION, UPON THE PERFORMANCE OF WHICH HIS RESPONSIBILITY IS TO ARISE, DISPENSE WITH, OR BY ANY ACT OF HIS OWN PREVENT THE PERFORMANCE, THE OPPOSITE PARTY IS EXCUSED FROM PROVING A STRICT COMPLIANCE WITH THE CONDITION.'

IT IS OUR CONCLUSION, THEREFORE, THAT THE GOVERNMENT HAS NO RIGHT AT THE PRESENT TIME TO TERMINATE THE CONTRACT WITHOUT LIABILITY ON THE GROUND THAT THE CONDITIONS OF SECTION 8.15, OR SECTION 8.22, OR OF THE LETTER AGREEMENT OF NOVEMBER 11, 1954, HAVE NOT BEEN FULFILLED.

WE COME THEM TO THE QUESTION WHETHER THE CONTRACT RELATIONSHIP MAY BE TERMINATED UNILATERALLY BY THE GOVERNMENT UNDER ANY OF THE CONTRACT TERMINATION PROVISIONS. SECTIONS 7.07 AND 7.09 PROVIDE FOR TERMINATION PRIOR TO COMPLETION OF THE PLANT AND WITHIN THREE YEARS FROM THE EFFECTIVE DATE OF THE CONTRACT, RESPECTIVELY. SECTION 7.07 PROVIDES THAT

"1. IF, PRIOR TO THE COMMENCEMENT OF COMMERCIAL OPERATION OF THE THIRD UNIT OF THE FACILITIES, THE POWER REQUIREMENTS OF THE AEC AT THE PROJECTS ARE SO REDUCED THAT IT WILL NO LONGER REQUIRE SERVICE HEREUNDER, THE AEC MAY ASSIGN TO TVA THE RIGHT TO POWER AND ENERGY HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF. ACCEPTANCE OF SUCH ASSIGNMENT BY TVA AND NOTICE THEREOF TO THE COMPANY BY THE AEC SHALL HAVE THE EFFECT OF THE DELIVERY OF A NOTICE OF TERMINATION BY THE AEC AT THE EARLIEST DATE POSSIBLE UNDER SECTION 7.02. IF THE AEC ADVISES TVA THAT SUCH ASSIGNMENT TO IT IS AVAILABLE AND ASCERTAINS THAT TVA HAD CONCLUDED THAT IT DOES NOT NEED THE POWER HEREUNDER DURING THE PERIOD WHICH SUCH ASSIGNMENT WOULD COVER, THE AEC SHALL BE ENTITLED TO CANCEL THIS CONTRACT BY DELIVERING A WRITTEN NOTICE OF CANCELLATION TO THE COMPANY, AND SUCH NOTICE SHALL HAVE THE EFFECT SET FORTH IN PARAGRAPH 2 OR PARAGRAPH 3 OF THIS SECTION, WHICHEVER IS APPLICABLE.' IN YOUR LETTER OF JULY 14, 1955, YOU STATE SPECIFICALLY THAT THERE HAS BEEN NO REDUCTION IN THE POWER REQUIREMENTS OF THE AEC AT THE PROJECTS COVERED BY THE CONTRACT. THE CONCEPT OF THE CONTRACT AS A WHOLE IS THAT THE AEC WILL REPLACE POWER WHICH TVA IS FURNISHING TO AEC; IN OTHER WORDS, THE CONTRACT IS DESIGNED TO SUPPLY POWER WHICH THE TVA WILL NEED BECAUSE OF HAVING TO FURNISH EQUIVALENT POWER TO THE AEC. DESPITE THE FACT THAT THE CONTRACT IS BASED ON THE CONCEPT OF TVA NEED, SECTION 7.07 PERMITS CANCELLATION ONLY IN THE EVENT OF A REDUCTION IN THE AEC POWER DEMAND (WHICH PRESUMABLY WOULD CORRESPONDINGLY REDUCE THE TVA NEED), BUT DOES NOT COVER CANCELLATION IN THE EVENT OF A REDUCTION IN THE TVA NEED. WHILE SECTION 7.07 MIGHT AND, IN THE LIGHT OF HINDSIGHT, SHOULD HAVE BEEN SO DRAFTED AS TO RECOGNIZE THE REALITIES OF THE SITUATION THE CONTRACT WAS DESIGNED TO SERVE, THE FACT REMAINS THAT THE RIGHT TO CANCEL GIVEN UNDER THE SECTION IS CONDITIONED UPON A REDUCTION IN AEC POWER REQUIREMENTS. SINCE NO SUCH REDUCTION HAS OCCURRED, IT IS OUR OPINION THAT NO RIGHT OF CANCELLATION EXISTS UNDER SECTION 7.07 AS PRESENTLY DRAWN.

SECTION 7.09 OF THE CONTRACT GIVES THE AEC THE RIGHT AT ANY TIME WITHIN THREE YEARS AFTER THE EFFECTIVE DATE OF THE CONTRACT TO PURCHASE THE CONTRACT FACILITIES UPON THIRTY DAYS' WRITTEN NOTICE. UNDER THIS SECTION THE MVGC AGREES TO TRANSFER TO AEC OR TO ANY OTHER AGENCY OF THE GOVERNMENT DESIGNATED BY AEC ALL ITS RIGHT, TITLE, AND INTEREST IN AND TO ALL PROPERTY, REAL, PERSONAL, OR MIXED, ACQUIRED FOR THE FACILITIES. THE AEC AGREES TO MAKE PAYMENT IN CASH TO MVGC FOR SUCH PROPERTY AS SPECIFIED BY THE SECTION. ASIDE FROM THE QUESTION OF THE AVAILABILITY OF PRESENT AEC APPROPRIATIONS FOR MAKING THE PAYMENT REQUIRED, THERE IS NO QUESTION AS TO THE RIGHT OF THE COMMISSION TO EXERCISE ITS PURCHASE OPTION UNDER SECTION 7.09.

IN OUR OPINION, HOWEVER, AND AS YOU WERE ADVISED BY OUR LETTER OF DECEMBER 13, 1954, FURTHER LEGISLATIVE AUTHORITY WOULD BE REQUIRED TO PERMIT THE COMMISSION TO ACQUIRE THE REAL PROPERTY OF MVGC WHICH WOULD HAVE TO BE PURCHASED BY IT UPON EXERCISE OF THE OPTION. SECTION 261 OF THE ATOMIC ENERGY ACT OF 1954 AUTHORIZES THE APPROPRIATION OF SUCH SUMS AS MAY BE NECESSARY TO CARRY OUT THE PROVISIONS OF THE ACT,

"* * * EXCEPT SUCH AS MAY BE NECESSARY FOR ACQUISITION OR CONDEMNATION OF ANY REAL PROPERTY * * *.'

NO AUTHORIZATION OR APPROPRIATION HAS BEEN MADE FOR THE ACQUISITION OF THE MVGC REAL PROPERTY, ALTHOUGH IT IS STATED IN A LETTER FROM THE GENERAL COUNSEL OF THE COMMISSION DATED JULY 15, 1955, THAT THE COMMISSION IS CONTEMPLATING REQUESTING LEGISLATION WHICH WOULD AUTHORIZE IT TO PROCEED UNDER SECTION 7.09 OF THE CONTRACT.

IN YOUR LETTER OF JULY 14, 1955, YOU STATE THAT THE OPTION TO PURCHASE WOULD NOT BE EXERCISED FOR THE PURPOSE OF CONTINUING CONSTRUCTION OF THE POWER FACILITIES, BUT WITH THE INTENTION OF LIQUIDATING THE PROPERTY ACQUIRED AND SETTLING THE LIABILITIES ASSUMED AT THE LEAST POSSIBLE COST TO THE GOVERNMENT. YOU REQUEST OUR OPINION WHETHER FURTHER LEGISLATIVE AUTHORITY FOR PAYMENTS UNDER SECTION 7.09 WOULD BE NECESSARY IF THE OPTION WERE TO BE EXERCISED UNDER ARRANGEMENTS WHEREBY MVGC WOULD RETAIN TITLE TO ALL REAL ESTATE AND WOULD RECEIVE NO PAYMENT ON ACCOUNT OF THE ACQUISITION COST THEREOF. IN VIEW OF WHAT IS SAID HEREAFTER, WE DO NOT THINK IT IS NECESSARY TO ANSWER THIS QUESTION.

THE PURCHASE OPTION UNDER SECTION 7.09 COULD NOT BE EXERCISED WITHOUT PAYING FOR THE REAL ESTATE UNLESS MVGC CONSENTED TO SUCH AN ARRANGEMENT. IF MVGC IS WILLING TO ENTER INTO SUCH A MODIFICATION OF SECTION 7.09, PRESUMABLY IT WOULD BE WILLING TO ENTER INTO A SUPPLEMENTAL AGREEMENT FOR TERMINATION OF THE CONTRACT UPON TERMS WHICH WOULD BE MUTUALLY SATISFACTORY. THIS RAISES THE QUESTION WHETHER ANY FUNDS NOW AVAILABLE TO THE COMMISSION FOR EXPENDITURE COULD BE USED TO MAKE PAYMENT UNDER SUCH AN AGREEMENT.

SECTION 164 OF THE ATOMIC ENERGY ACT OF 1954, WHICH GIVES THE COMMISSION AUTHORITY TO ENTER INTO LONG-TERM POWER CONTRACTS, PROVIDES THAT

"* * * SUCH CONTRACTS SHALL BE SUBJECT TO TERMINATION BY THE COMMISSION UPON PAYMENT OF CANCELLATION COSTS AS PROVIDED IN SUCH CONTRACTS, AND ANY APPROPRIATION PRESENTLY OR HEREAFTER MADE AVAILABLE TO THE COMMISSION SHALL BE AVAILABLE FOR THE PAYMENT OF SUCH CANCELLATION COSTS.'

THE LANGUAGE QUOTED HAD ITS ORIGIN IN THE FIRST PROVISO UNDER THE APPROPRIATION TO THE COMMISSION FOR "PLANT AND EQUIPMENT" IN THE SUPPLEMENTAL APPROPRIATION ACT, 1953, APPROVED JULY 15, 1952, 66 STAT. 643, WHICH FIRST GAVE THE COMMISSION AUTHORITY TO MAKE CERTAIN LONG TERM POWER CONTRACTS. THE PROVISO LIMITED THE AMOUNT OF CANCELLATION COSTS WHICH MIGHT BE PAID TO $57,000,000 DESPITE THE FACT THAT THE CONTRACTS, WHICH WERE NOT THEN FULLY BINDING, MIGHT REQUIRE PAYMENT OF SOME $277,000,000 IN CANCELLATION COSTS. IN ORDER TO MAKE THESE CONTRACTS FULLY OPERATIVE, THE INTERIM AUTHORITY OF THE PROVISO WAS MADE A PART OF SECTION 12 OF THE ATOMIC ENERGY ACT OF 1946 BY PUBLIC LAW 137, APPROVED JULY 17, 1953, 67 STAT. 181, WHICH CHANGED THE PHRASE ,UPON PAYMENT OF CANCELLATION COSTS OF NOT TO EXCEED $57,000,000" TO READ "UPON PAYMENT OF CANCELLATION COSTS AS PROVIDED N SUCH CONTRACTS.' THIS LANGUAGE WAS CARRIED FORWARD UNCHANGED IN SECTION 164 OF THE ATOMIC ENERGY ACT OF 1954.

THE LEGISLATIVE HISTORY OF PUBLIC LAW 137 INDICATES THAT THE ONLY PURPOSE OF THE PHRASE "AS PROVIDED IN SUCH CONTRACTS" WAS TO ELIMINATE THE PREVIOUS LIMITATION OF $57,000,000. IT WAS INDICATED IN THE HEARINGS (JOINT COMMITTEE ON ATOMIC ENERGY HEARINGS ON H.R. 4905, 83D CONGRESS) THAT AEC FELT IT NECESSARY TO HAVE THE RIGHT TO CANCEL THESE LONG-TERM CONTRACTS IN THE EVENT OF A REDUCTION IN ITS POWER NEEDS, AND THAT THE POWER SUPPLIERS INSISTED UPON CANCELLATION COSTS IF THE CONTRACTS WERE CANCELLED. THE HEARINGS SHOW FURTHER THAT CONSIDERATION WAS GIVEN ONLY TO THE POWER CONTRACTS THEN IN EXISTENCE, ALTHOUGH IT WAS RECOGNIZED THAT FUTURE CONTRACTS MIGHT BE MADE. THE ONLY CANCELLATION CHARGES ACTUALLY CONSIDERED, THEREFORE, WERE THOSE ALREADY PROVIDED FOR IN THE EXISTING CONTRACTS. HENCE, WHILE IT MIGHT BE ARGUED THAT THE CANCELLATION COSTS PAYABLE UNDER THOSE EXISTING CONTRACTS SHOULD BE RESTRICTED TO THOSE THEN PROVIDED FOR IN THE CONTRACTS CONSIDERED DURING THE HEARINGS, THE SAME REASONING WOULD NOT APPLY TO CANCELLATION COSTS PAYABLE UNDER FUTURE CONTRACTS. IT IS THE CLEAR INTENT OF THE LAW TO PERMIT THE COMMISSION TO PAY CANCELLATION COSTS UPON TERMINATION OF LONG-TERM POWER CONTRACTS, AND TO THAT END TO PERMIT THE INCLUSION IN THE CONTRACTS OF PROVISIONS SPECIFYING THE CANCELLATION COSTS PAYABLE AND THE PAYMENT OF SUCH COSTS OUT OF ANY APPROPRIATIONS THEN AVAILABLE TO THE COMMISSION. CANCELLATION PROVISION COVERING THE PRESENT SITUATION MIGHT PROPERLY HAVE BEEN INCLUDED AS A PART OF THE CONTRACT WITH MVGC, AND THERE IS NOTHING IN THE HISTORY OF PUBLIC LAW 137 WHICH EVIDENCES ANY INTENT TO PRECLUDE THE COMMISSION FROM MODIFYING FUTURE POWER CONTRACTS BY DELETING, INSERTING, OR AMENDING CANCELLATION PROVISION WHENEVER THE BEST INTERESTS OF THE GOVERNMENT WOULD BE SERVED BY DOING SO.

IT IS WELL SETTLED THAT, WHEN THE PUBLIC INTEREST REQUIRES SUCH ACTION, THE GOVERNMENT MAY TERMINATE A CONTRACT AND SETTLE ITS LIABILITY WITH THE CONTRACTOR BY MUTUAL AGREEMENT. THE SUPREME COURT, IN THE CASE OF UNITED STATES V. CORLISS STEAM-ENGINE CO., 91 U.S. 321, 323, WHICH INVOLVED A NAVY CONTRACT TERMINATED BECAUSE OF THE END OF THE CIVIL WAR, STATED AS FOLLOWS:

"* * * CONTRACTS FOR THE ARMAMENT AND EQUIPMENT OF VESSELS OF WAR MAY, AND GENERALLY DO, REQUIRE NUMEROUS MODIFICATIONS IN THE PROGRESS OF THE WORK, WHERE THAT WORK REQUIRES YEARS FOR ITS COMPLETION. * * * AND IT WOULD BE OF SERIOUS DETRIMENT TO THE PUBLIC SERVICE IF THE POWER OF THE HEAD OF THE NAVY DEPARTMENT DID NOT EXTEND TO PROVIDING FOR ALL SUCH POSSIBLE CONTINGENCIES BY MODIFICATION OR SUSPENSION OF THE CONTRACTS, AND SETTLEMENT WITH THE CONTRACTORS.'

TO THE SAME EFFECT, SEE SATTERLEE V. UNITED STATES, 30 C.CLS. 31; 22 OP.ATTY.GEN. 437; 14 COMP. DEC. 589; 15 ID. 439; 26 ID. 170; 4 COMP. GEN. 526; 18 ID. 826; 23 ID. 811; 29 ID. 36. THE DETERMINATION AS TO WHETHER THE PUBLIC INTEREST REQUIRES SUCH TERMINATION IS A MATTER FOR ADMINISTRATIVE DECISION AND DOES NOT REST WITH THE GENERAL ACCOUNTING OFFICE, WHICH IS CONCERNED PRIMARILY WITH THE AVAILABILITY OF THE APPROPRIATION FOR ANY EXPENDITURE RESULTING FROM THE TERMINATION. THE ACCOUNTING OFFICERS OF THE GOVERNMENT HAVE RULED THAT THE APPROPRIATION AVAILABLE FOR EXPENDITURES UNDER A CONTRACT IS AVAILABLE FOR PAYMENT UNDER A TERMINATION AGREEMENT RELATING THERETO. SEE DECISIONS CITED ABOVE.

IN THE PRESENT CASE, SECTION 164 OF THE ATOMIC ENERGY ACT SPECIFICALLY PERMITS PAYMENT OF CANCELLATION COSTS AS PROVIDED IN CONTRACTS SUCH AS THAT WITH MVGC TO BE MADE OUT OF ANY APPROPRIATIONS AVAILABLE TO THE COMMISSION. YOU ARE ADVISED, THEREFORE, THAT IF MVGC IS WILLING TO ENTER INTO AN AGREEMENT FOR CANCELLATION OF ITS CONTRACT UPON PAYMENT OF CANCELLATION COSTS TO BE AGREED UPON, AND IF SUCH AGREEMENT BE MADE A PART OF THE CONTRACT, BY AMENDMENT OF SECTION 7.07 OR OTHERWISE, PAYMENT OF SUCH CANCELLATION COSTS MAY BE MADE OUT OF ANY APPROPRIATION AVAILABLE TO THE COMMISSION. HOWEVER, IN VIEW OF THE OPTION TO RECAPTURE GIVEN THE COMMISSION UNDER SECTION 7.09 OF THE CONTRACT, IT IS OUR VIEW THAT THE COMMISSION SHOULD EXERCISE ITS BEST EFFORTS TO KEEP ANY CANCELLATION COSTS AGREED UPON WITHIN THE AMOUNT WHICH WOULD BE DUE IF SUCH OPTION WERE EXERCISED. OF COURSE, ANY PAYMENTS MADE UNDER SUCH A CANCELLATION AGREEMENT WILL BE SUBJECT TO AUDIT BY THE GENERAL ACCOUNTING OFFICE IN THE SAME MANNER AS OTHER EXPENDITURES OF THE COMMISSION.

WHAT WE HAVE SAID ABOVE IS BASED UPON THE CONTRACT TERMS AND STATUTES APPLICABLE TO THE OPERATIONS OF THE ATOMIC ENERGY COMMISSION. WE ARE, OF COURSE, AWARE OF THE HEARINGS NOW BEING HELD BY THE SUBCOMMITTEE ON ANTITRUST AND MONOPOLY LEGISLATION OF THE SENATE COMMITTEE ON THE JUDICIARY ON THE SUBJECT OF THIS CONTRACT. QUESTIONS OF POSSIBLE CONFLICT OF INTEREST AND PUBLIC POLICY HAVE BEEN RAISED AT THE HEARINGS. WITHOUT ATTEMPTING TO SUGGEST THE PARTICULAR COURSE OF ADMINISTRATIVE ACTION IN SUCH CIRCUMSTANCES, WE BELIEVE THERE SHOULD BE CONSIDERED APPROPRIATE MEANS TO PROTECT THE INTERESTS OF THE UNITED STATES SHOULD IT DEVELOP THAT THE GOVERNMENT IS ENTITLED TO RELIEF FROM LIABILITY ON THE GROUND OF PUBLIC POLICY.