history. Our people have always looked upon these programs as part of the traditional initiative of the Federal Government in helping to sponsor, foster, and develop economic enterprise essential to our national welfare. Our people have looked upon a rural electrification program and the preference provisions of the Federal power marketing program as a wise and sound partnership between Federal and local groups the same sort of partnership which has led to the development of other industrial and agricultural endeavors throughout our history. Actually, when you come right down to it, these programs, so far as the financial end of them is concerned, amount to the Government serving as the people's pooling agent to pool their own credit to build these projects, for the project users pay for the electric facilities in their electric rates. And the amortization period during which the Government requires the people to pay the projects out is only a fraction of their useful life.

I am convinced these self-liquidating REA and Federal power programs cost the taxpayers nothing, that they create work, increase profits, and add to the health and welfare of every American.

But for those who believe these programs do cost the taxpayers something, let us remind ourselves how far the Government has gone and is still going in some instances to help the people as a whole do what individually they cannot do for themselves.

Take, for example, the transportation industry. In the early days of our existence as an independent nation, when the need became apparent for development of American industrial systems as contrasted to the original colonial system based on an economy of agriculture, our Federal Government imposed tariffs on the importation of foreign manufactured goods as a stimulant to the development of industry in our own country.

Then, as our industry prospered and the need for better transportation arose, the Federal Government and the State Governments subsidized the development of inland canals, and even today the maintenance and operation of our navigable rivers and harbors is a recognized function of the Federal Government. Our coastal and inland shipping industry would be paralyzed were it not for our highly subsidized Federal rivers and harbors program.

In the middle of the 19th century, when our growth and development demanded an extensive system of uniform gage railroads, the Government again stepped in. The railroads were given not only great tracts of land in the West but also large sums of cash to spur their development and to provide the country with a modern transportation system.

Our merchant marine and our civilian air transport industries are today aided financially and encouraged by the Federal Government— all in the interest of our general welfare.

And, to mention another industry, this aid from the Federal Government to local private enterprise is nowhere more typically exemplified than in the electric utility business where accelerated tax-amortization certificates with total benefits amounting, we believe, to some $2.8 billion have been approved by the Defense Electric Power Administration as a means of encouraging the commercial electric utility companies to increase their capacity in accordance with the ever-growing need for electric power throughout the Nation-including defense needs.

Many other examples could be cited.

The new power policy: The new Interior Department power policy dated August 18, 1953, and the new Missouri Basin marketing criteria dated September 9 and 10, 1953, both came as a complete surprise and tremendous shock to rural people throughout the country and represent, in our opinion, a large step backward toward abandonment of the Government's traditional position of lending encouragement and aid to local free-enterprise endeavors which are essential to our welfare.

These documents also, in our opinion, abandon necessary safeguards against exploitation of natural resources developed by and for the people. Nonprofit retail power distributors, by their very nature, are instruments of and for the people entitled to first call upon Federal power sources. Exploitation of these power sources for profit should be always subordinated to the rights of the people to realize the full benefits obtained from development of their natural

resources.

The Government has never undertaken to distribute power at retail. It does not do so. Such would be out of keeping with the policy of Federal encouragement and partnership with local groups. It captures the power from the natural resources and sells it wholesale to distribution agencies. However, wholly aside from any concept of "utility responsibility," about which much has been said with relation to the Federal power program, the Bureau of Reclamation does have the responsibility, we feel, to proceed with a planned program of reclamation and power development and to carry out the principles of preference in the marketing of power from projects under its jurisdiction. The resources of our country must be developed to their fullest extent and we must continue to supply electricity to our rural people at the lowest possible rates.

The overall use of electric energy in the United States is doubling about each 8 to 10 years and the needs of the rural electric systems are doubling every 4 to 5 years on the average.

Our people have always looked upon the Federal power program not only as a direct source of low-cost energy, but as a yardstick against which to measure the rates and operating practices of commercial utility companies operating in areas served by Federal projects and even nationally.

We feel, among other things, that Interior's power policy statement of August 18, 1953, does not provide for the aggressive development of additional power facilities by the Bureau of Reclamation necessary to keep the Federal yardstick effective. That policy statement reads, in part:

The primary responsibilities of the Department are the reclamation of arid and semiarid lands under the Federal reclamation laws and the development of natural resources as authorized by Congress. These responsibilities include the disposal of surplus electric energy which can be economically produced in the course of the development of these resources. ***The Department will particularly emphasize those multipurpose projects with hydroelectric development which, because of size or complexity, are beyond the means of local, public, or private enterprise.

It is recognized that the primary responsibility for supplying power needs of an area rests with the people locally. *** The Department does not assume that it has the exclusive right or responsibility for the construction of dams or the generation, transmission, and sale of electric energy in any area, basin, or region.

In general, it will not oppose the construction of facilities which local interests, either public or private, are willing and able to provide in accordance with licenses and other controls of the Federal Power Commission. ***

Here is a statement in which the Department announces its intention of emphasizing only those power-producing projects which are, because of complexity of size, beyond the ability of local interests to construct. However, in explaining the August 18 power policy as it will be applied to the Missouri River Basin States, Assistant Secretary of the Interior, Fred G. Aandahl, said in a prepared statement at Fargo, N. Dak., on September 29, 1953:

It is the declared purpose to build multipurpose dams that are beyond the capacity of local resources and install in them a maximum of hydroelectric power. * * * Federal responsibility, however, is limited to that amount of power, and people locally are advised in advance that they should pick up the responsibility of supplying their own additional needs.

I want to make it clear that I do not intend anything I shall say here as a personal attack on anyone. It is simply not possible to make our case without quoting certain public officials.

Assistant Secretary Aandahl told this subcommittee, I believe, that he considers the Idaho Power Co. a local interest within the definitions of these terms. Certainly the local public or cooperative agencies are usually far too small and would not be able to obtain adequate financing to undertake the larger projects, and the larger ones are usually the most efficient ones.

Thus, we see that the application of the new Interior Department policy is more stringent than its actual wording might lead us to believe. We fear it is a policy of allowing and encouraging the giant private utility companies to exploit the most profitable hydroelectric plants or sites, leaving the Federal Government to undertake the marginal, high-cost projects which the utility companies do not wish to undertake. This means that instead of serving as a yardstick for utility rates and operating practices, exactly the opposite will be true and the rates for power at Federal projects will be dependent, in part, on how many of the choice sites are privately developed by commercial utility companies.

During the past two decades, those of us in and out of Congress, who have worked for a policy under which our natural resources could be developed for the benefit of the common man, have looked hopefully to the yardstick of Federal generation and local nonprofit distribution of power to give us a measure of the real cost of electric power. All over the country the yardstick of Federal power has provided a standard against which to measure the rates and operating practices of commercial utility companies. That yardstick has brought power costs progressively down.

However, in 1953 we have seen the initiation of what appears to be a new policy for Federal power development and marketing. The new policy on generating facilities announced by the Interior Department last August 18, and other innovations in Federal power policy about which I shall also speak, seem to be the elements of a Federal power pattern designed to raise Federal power rate levels and thereby gear them to the rates of the commercial utility companies.

In Assistant Secretary Aandall's Fargo speech of September 29, 1953, to which I have previously referred, the Secretary stated:

As a word of warning, I would like to forecast that except in high fuel cost areas, 5 years hence the spread in price between federally produced power and locally

produced power, either from steam plants or otherwise, will be much less than it is at the present time.

And in the next paragraph, he said:

The availability of remaining power to nonpreference customers, together with prospective reduced differential in the price of Federal and locally produced power, should materially reduce the unfortunate pressure on local communities to establish local public power entities just to make Federal hydropower available to themselves.

These statements look like almost certain power increases for the purpose of relieving this "unfortunate pressure on local communities" and raising rates to more nearly the levels set by the big companies. Senator KILGORE. Then you do not interpret that statement as meaning this policy would bring down the cost of private power to nearly the level of the present sale method for public power; you feel, on the other hand, the longtime contract of the public power to private utilities companies will tend to bring the price up, thereby decreasing the differential.

Mr. ELLIS. We mean the several new developments in this new power policy will tend to cause the Federal power rates to go up. I have not heard anybody claim that they thought these new policies would tend to bring either the Federal rates or the private rates down.

In that eventuality, Federal generation and transmission, coupled with local ownership of distribution facilities, will no longer serve as a measure of the reasonableness of the rates or of the adequacy of the operating practices of the private utility companies. Instead, the company rates will become the basis for the establishment of Federal rates, and the concept of the Federal yardstick will vanish. Indeed it will be replaced by this new concept whereby the charges and policies of the utility companies themselves will be the standard against which Federal power policy is established. Already this is being referred to among the farmers as "the reverse yardstick" in new policy and marketing criteria.

This new policy as it applies to generation, we feel, is a complete reversal of the previous policies established on January 3, 1946, in a memorandum published by the then Secretary of the Interior. The 1946 memorandum contains the following language concerning generation:

Hydroelectric generating facilities shall be designed and installed in all projects where feasible. The project shall have its own steam standby and reserve facilities where necessary to independent operation on an economical and efficient basis.

Facilities shall be designed and installed to provide the type of power and service required by public agencies and cooperatives.

The CHAIRMAN. Mr. Kilgore, will you preside for a while? I find I have to leave.

Mr. ELLIS. The abandonment of the 1946 Interior Department policy on generating facilities means not only that less firm power will be available to the preference customers and that the rates for such firm power as is available will be higher, but it also means that the competitive influence of Federal generation will be lessened to a marked degree. And to the extent that the availability of Federal power has spotlighted the ability of commercial utility companies to reduce rates without sacrificing profits, to that extent, the rest of the Nation that is served by the commercial utility companies may expect rate increases.

The traditional Interior policy may not have been in all respects in accord with the established will of Congress-although, generally, I believe it was. This new Interior policy may not be in all respects contrary to the established will of Congress. However, there seems to be this major difference: Where the old power policy veered from congressional directives, it did so in the interest of the people, including the rural electrics, but where the new power policy veers from congressional directives, it does so in the interest of the monopolistic power companies.

A new policy on transmission: Concerning transmission facilities, the power policy issued by the Department of the Interior on August 18, 1953, states:

The Department of the Interior will construct and operate transmission lines that are economically feasible and necessary for proper connection and operation of federally owned generating plants. Transmission facilities will also be built and operated to carry power to load centers within economic transmission distances unless other public or private agencies have or will provide the necessary facilities upon reasonable terms.

The former policy, as enunciated in the memorandum of January 3, 1946, provided that:

Transmission outlets to existing and potential wholesale markets shall be adequate to deliver power to every preferred customer within the region upon fair and reasonable terms. They must be owned and controlled by the Government unless privately owned facilities should be made available upon terms which assure full accomplishment of the basic objectives of the congressional power policy and which do not reward the private company simply because of its strategic location or monopolistic position.

The rural electric systems think that the new policy seeks to minimize construction of transmission facilities for delivery of power to the load centers of preference customers and will tend to substitute therefor sale of power to private utility companies at the Federal bus bar at the dams. Indeed that is exactly the way Interior within the last month proposed to carry out its new policy in Georgia in the marketing of power from Clark Hill Dam. The rural electric co-ops in Georgia are up in arms about it and I trust this subcommittee will look into that situation before it completes this investigation.

Senator MURRAY. Under the new policy on transmission that you have spoken about here, Montana would not have been able to have those transmission lines from Havre to Shelby constructed, as I understand it.

Mr. ELLIS. I fear that is true. That was a very important line and necessary to the expansion of rural electrification in northwest Montana.

Senator MURRAY. Prior to that, the power created at Fort Peck Dam was going to the power utilities at a dump rate; and if these lines were constructed, we would be able to get the advantage of low-cost power to that big area in the State of Montana.

Mr. ELLIS. That is right.

Private utility companies which thus come into possession of Federal power may or may not agree to wheel it to cooperatives and other preference customers. It has been our experience that, in general, where Federal transmission facilities exist, or where funds are available for their construction, the commercial utility companies are much more cooperative in providing wheeling service to preference