Each of you I presume, is acquainted with the statutory intent and purpose of the Rural Electrification Act of 1936. I will not consume time to discuss that act in detail nor much of the operation that has occurred under it since its enactment 30 years ago. In 1936 our Company itself was only 34 years old, but it was growing as an electric operating utility and providing adequate dependable electric service in rural and urban areas of our territory, under rates established and regulated by the State regulatory commissions having jurisdiction-the Oklahoma Corporation Commission in Oklahoma and the Arkansas Public Service Commission in Arkansas. In that year the population of Oklahoma was approximately 2,386,000 which was divided roughly 43 per cent rural and 57 per cent urban. We in our Company recognized then the need for rural electrification and to the extent of our ability under regulations and economics, we supplied electric service to all rural and farm customers in our territory as rapidly as economically feasible. A large proportion of the total number of customers served by our Company are in rural areas. Of the 261 communities served by our Company 207 (79%) of them have a population of less than 1500 (the criteria used in the Rural Electrification Act of 1936 to define rural territory). In these 207 towns we serve 41,162 customers. In addition we serve approximately 30,000 other rural customers. This makes a total of 71,162 customers in rural areas which is 18 percent of the total number of customers served by our Company. The Rural Electrification Act of 1936 was enacted for specific statutory purposes with defined limitations on loans to electric suppliers and the purposes of such loans. Rural electric cooperative corporations were given certain interest subsidies and tax exemption by Federal law, and in Oklahoma under State law were given tax relief and freedom from regulation. The situation faced today by rural electric cooperative corporations is almost completely changed from what it was 30 years ago. In many cases, rural electric cooperative corporations in Oklahoma, by serving all kinds of electric consumers, commercial enterprises and other big industries in all areas even in cities and towns, are carrying on operations no different from any other electric utility. All this is being done with subsidized Federal loans and without any regulation by the State regulatory commission. The purpose and intent of the Rural Electrification Act was to bring electric service to farmers in rural areas who were not receiving central station electric service. Under present methods of operation, industrial enterprises, commercial customers and urban electric areas are the main beneficiaries of governmental subsidies, exemptions and benefits. There are 28 rural electric cooperative corporations in Oklahoma (26 distribution cooperative corporations, one generation and transmission super cooperative corporation and one transmission super cooperative corporation) with total loans approved of approximately $218,000,000.00, serving 154,558 customers. The total electric plant in service of these cooperatives in Oklahoma is approximately $196,000,000.00 with total operating revenue during year 1964 of $32,171,000.00. These statistics are taken from the 1964 Annual Statistical Report, Rural Electrification Administration, U.S. Department of Agriculture, and include portions of KAMO Electric Cooperative, Inc. statistics applicable to Oklahoma. During 1964, these cooperative corporations in Oklahoma paid total taxes of only 2.4 percent of gross revenue, whereas our Company's total tax bill was 24.5 per cent of gross revenue. The rural electric cooperative corporations in the State of Oklahoma are not required to collect state sales tax on the sale of electricity, whereas our Company must collect and pay state sales tax on the sale of electricity. The cooperative corporations in Oklahoma are exempt from state income and all other state excise taxes on the payment of 1¢ per year per customer. In lieu of property taxes, the cooperative corporations pay 2 per cent on gross receipts from the sale of electricity. The investor-owned electric utilities pay a large share of the cost of government in Oklahoma, and, of course, are subject to all the other types of taxes from which rural electric cooperative corporations are exempt. This, of course, results in discrimination against the customers of our Company. There are three cooperative-owned electric generating stations in the State of Oklahoma-a 4.400 KW station at Woodward, a 74,000 KW station at Anadarko and a 44,000 KW station at Mooreland. An additional 125,000 KW unit is being constructed at the Mooreland station and is expected to be in operation by 1968. Under State law, these plants would not be on the ad valorem tax rolls. On many occasions in appearances before Congressional committees, representatives of the Rural Electrification Administration and of the cooperatives have cited customer density figures (number of customers-per-mile of line) as being the criteria for comparing the relative economic well-being of investorowned electric systems and cooperatives. This criteria of customers-per-mile of line is not a proper basis for making comparisons between systems and is grossly misleading. The figures usually cited are the number of customers-permile of line without regard to whether the customer is a large one with billing of thousands or even hundreds of thousands of dollars, or whether the customer is a small one with only minimum billing of a few dollars. Also, this distorted criteria does not take into account the investment necessary to provide a mile of line, whether as low as $2500 per mile for low voltage distribution lines or over $150,000 per mile for extra high voltage transmission lines. Since the amount of revenue from customers and the cost per mile of line can thus vary so widely it is impossible to make meaningful comparisons by use of this criteria. The proper criteria for judging the economic well-being of electric systems is a comparison of the revenue produced from the capital invested to provide the electric service. The accompanying Tables 1 and 2 show very clearly that in most cases the revenue per dollar of investment for the REA cooperatives is comparable with, and in some instances is higher than the figures for the investor-owned electric systems. The figures in the Table, which are for the latest year available from the REA Statistical Report (1964), show that the cooperatives in Oklahoma averaged revenue of 16.6c per dollar of investment compared with revenue of 22.9c for our Company. One cooperative in Oklahoma had revenue of 23.4c per dollar of investment. All REA distribution coopera tives in the United States averaged revenue of 19.5c per dollar of investment, compared with the national average of 22.5c for all class A and B electric utilities. The cooperative revenue figures for the states ranged as high as 27.7c per dollar of investment. These figures illustrate dramatically that the cooperatives, in general, are not in dire financial condition but in many cases are in very excellent economic circumstances. During 1964, 51 per cent of the total kilowatt-hour sales by the distribution cooperatives in Oklahoma were to commercial and industrial customers. By way of comparison, only 45 per cent of our Company's sales were to commercial and industrial customers. Here is a list of nine rural electric cooperative corporations in Oklahoma whose commercial and industrial business is 50 per cent or more of their total kilowatt-hour sales: [Percent commercial and industrial business] Rural Electric Cooperative, Lindsay, Okla. Indian Electric Cooperative, Cleveland, Okla.......... East Central Okla Electric Cooperative, Okmulgee, Okla....... Red River Valley Rural Electric Association, Marietta, Okla. Kay Electric Cooperative, Blackwell, Okla_ Cookson Hills Electric Cooperative, Stigler, Okla-- Canadian Valley Electric Cooperative, Seminole, Okla_-_ Actually, these cooperative corporations are not farm cooperatives but are electric utilities without regulation, enjoying interest subsidy and tax exemption or tax relief. The farm population in Oklahoma has decreased from 43 per cent in 1935 to approximately 16 per cent at the present time. In 1970, according to a recent study issued by Oklahoma State University, only about 13 per cent of the population of Oklahoma will live on farms. According to a United States Department of Agriculture Bulletin of 1964, 97.5 per cent of all farms in Oklahoma were receiving central station electric service. The purpose for which the rural electric cooperative corporations were organized is virtually completed in Oklahoma. The Oklahoma Gas and Electric Company not only has an obligation to serve its territory with an adequate and dependable supply of electricity, but has the continuing obligation to be always preparing for the future so that we will always have available an ample supply of electric power when and where it is needed in our service area. This we have done, and will continue to do. Our Company has served for many years and still continues to serve some REA cooperatives with wholesale power requirements. We are willing and able to supply the wholesale power requirements of any cooperative in our service territory at a very reasonable rate. We are attaching a study (Table 3) showing that our Company had a lower wholesale rate for the distribution cooperatives than did either Southwestern Power Administration, KAMO Electric Cooperative, Inc., or Western Farmers Electric Cooperative. In Oklahoma there are rural electric cooperative corporations serving customers and expanding their facilities inside the city limits of the largest cities of the State. The purposes and objectives of the Rural Electrification Act did not contemplate this type of business. We believe that the proposals contained in these bills you are now considering are wholly unnecessary, that they remove many necessary limitations in the present Rural Electrification Act, and that in general they would make the most far-reaching changes in Federal public power policy that have ever been proposed to the Congress. The provision in the latest version of the bill allowing a cooperative to acquire other systems to the extent of 5000 connections could provide the means for acquisition by any cooperative of the electric system for a city of over 15,000 population. This is more than 10 times the limitation of size of communities of 1500 population provided in the original Rural Electrification Act. The provision allowing cooperative borrowing to finance electric generating plants not to exceed 5 per cent of the total generating capacity in the country would allow a 400 per cent expansion of cooperative generating facilities. The creation and unleashing of a new multi-billion dollar competitive power program as proposed could seriously weaken and undermine the ability of the investor-owned, taxpaying, and regulated electric companies to obtain their necessary financial requirements in the regular money market. Every need for electric service in Oklahoma and in Arkansas is being met now, and can be met in the future without the proposed Federal Electric Bank. There is no need whatever for the federally subsidized financing program proposed in S. 3720 and S. 3337. We sincerely urge that this Committee not approve these proposals. L TABLE 1.-Revenue per dollar of investment of electric distribution cooperatives, calendar year 1964 Source: Data from 1964 Annual Statistical Report of Rural Electrification Borrowers. (U.S. Dept. of Agric. Rural Electrification Administration-REA Bulletin 1-1.) TABLE 1A.-Revenue per dollar of investment of privately owned class A and B electric utilities in the United States, 1963 and 1964 Source: Data from 1964 Statistics of Electric Utilities in the United States-Privately Owned. (Federal Power Commission-FPC S-175.) TABLE 2.-Revenue per dollar of investment, Oklahoma REA distribution cooperatives and others, 1964 TABLE 3.-Analysis of rates to REA cooperatives, fiscal year ended June 30, 1965 Source: "27th Annual Report of Energy Purchased by REA Borrowers." STATEMENT OF DONALD F. KIGAR, PRESIDENT, DETROIT EDISON Co., DETROIT, MICH. Mr. Chairman and Members of the Subcommittee, my name is Donald F. Kigar and I am President of The Detroit Edison Company, with which I have been associated for more than 40 years. During my career in the field of energy and power, I have observed with pride the vigorous development of the electric power industry in the United States in both the private and public sectors. As of July 1, 1966, the generating capacity of the total electric power industry in the contiguous United States was 241.5 million kilowatts, almost as much as the next five leading nations combined. According to the Interim Electric Power Survey of the Edison Electric Institute, published in July 1966, new electric generating capacity installed during the first six months of the year and on order for the future totaled 89 million kilowatts. This is an increase of 21.3 million kilowatts upon the comparable figure a year ago and 8.5 million kilowatts more than shown as of April 1, 1966, in the EEI's 39th Semi-Annual Electric Power Survey. Just since the first of the year, 68 units |