Ashwander et al. v. Tennessee Valley Authority (TVA)

On February 17, 1936, U.S. Supreme Court Chief Justice Charles Evans Hughes delivered the principal opinion in this 8-1 ruling on the constitutionality of the Tennessee Valley Authority (TVA) after dissenting stockholders in the Alabama Power Company challenged TVA’s right to produce electric power at the World War I-era Wilson Dam in Muscle Shoals, Alabama, by filing suit against the directors of the company and the government-operated TVA.

TVA directors implemented the original vision of multiple use planning for navigation, flood control, reforestation, and regional economic development with a system of dams throughout the Tennessee River Valley; they started with electric power generation as a yardstick for inexpensive power to inhabitants of the seven-state area. TVA competition with private power companies to supply electricity, purchase transmission lines from private firms, and sell power to private companies and individuals quickly generated controversy. Dissenting Alabama Power stockholders sought to overturn a January 4, 1934, contract between the company and TVA that expanded power lines from Wilson Dam to seven surrounding counties with a population of 190,000 and ten thousand electrical customers. A district court ruled in favor of the stockholders, but the circuit court of appeals reversed the decision, setting the stage for a Supreme Court hearing on December 19-20, 1935.

The plaintiffs’ lawyers presented a constitutionally based argument favored by many conservatives at that time, contending that TVA had no legal right to exist; therefore, Alabama Power had possessed no right to enter into the original contract. Attorneys for the stockholders based their constitutional argument against the legality of TVA on the commerce clause, the Tenth Amendment reservation of rights to the states, and the Ninth Amendment restrictions on federal powers not expressly granted under the Constitution. They also argued that the federal government had no authority to create a commercial business, engage in commercial business, allow TVA to regulate navigation, or even establish the TVA commercial electric program. TVA lawyers countered that commerce and war powers included in the National Defense Act of June 3, 1916, gave the federal government authority to generate, sell, and transmit power at the Wilson Dam, and that the Ninth and Tenth Amendments did not apply in this case. The court ruled in favor of TVA, holding that Congress had authority to construct dams and sell electricity, a by-product. Justice Louis Brandeis concurred, taking the position that the constitutional issue should not have been addressed in a case involving stockholder dispute. Justice James C. McReynolds, from Tennessee, dissented.

Significantly, while the Supreme Court’s narrow interpretation applied only to the Wilson Dam, leaving open future decisions about the broader authority of TVA, it set a positive constitutional precedent in favor of this key New Deal program early in the presidential election campaign of 1936. The decision was later affirmed by Tennessee Power Company v. TVA in 1940.