Value of Power Plant Proposed To Be Transferred by Department of the Army to Panama Canal Company

The Army requested advice concerning the terms of a proposed transfer to the Panama Canal Company of a 33-megawatt power plant located at Fort Clayton, Miraflores, Panama Canal Zone. The Panama Canal Company has operated the plant since 1971, pending approval of a transfer agreement. In 1974, generator repairs resulted in a plant shutdown, costing the Company over $200,000 for repairs and replacement power to meet customer demands. The Company believed that the plant's cost should be reduced by this amount. GAO held that no transfer can take place until the Army and the Company agree on a price. The Company argued that it maintains the power plant under an agency relationship with the Army, and is, therefore, entitled to reimbursement for the shutdown costs. GAO disagreed, holding that the Company operates as a public utility and purchased replacement power to meet contract obligations to supply electricity during the shutdown. The use agreement under which the Company was granted authority to operate the Army power plant pending agreement on terms of the proposed transfer of ownership provides no basis whereby the Army is liable for costs incurred by the shutdown. If the parties are unable to reach an agreement to consummate the transfer, the Army, rather than assume responsibility for the plant's operation, could negotiate an arrangement whereby the Company pays a rental charge equal to the interest and depreciation on the plant.