cially on matters requiring such constant attention as does the power business, is unhealthy in a democracy. Presumably, the other Interior Department power agencies will soon be handled in the same manner. Mr. SMITHEY. Do you view this as a step toward a Federal monopoly? Mr. ELLIS. Not a monopoly of Federal power; a step toward monopoly of the private power industry. Senator KILGORE. You mean monopoly of administration? Mr. ELLIS. Yes, sir; I suppose so. There will be centralized control of all of the power agencies in Washington apparently under this survey team report language which now is in the process of being put into effect as to SPA but which clearly indicates it is to be broadened to include the other power agencies. Senator KILGORE. Is it not a fact that we, however, at the same time are decentralizing various other functions of Government into the local areas, such as internal revenue and various other functions of Government? Mr. ELLIS. Yes, sir, but there seem to be other forces at work here. This hardly seems consistent with the views expressed by Interior's Solicitor, Clarence Davis, before your subcommittee when he stated: *** it is the view of the Department that the less Government there is in Washington and the more control there is in the areas to be served, the better in the long run the areas will be. Clarence Davis said that before this committee about the middle of January. Just within the last few days we have had this apparent complete reversal of that philosophy by the abolishment of SPA and the indication that other power agencies are going to fare similarly. The service area of the Southwestern Power Administration is a section of the country in which power has always been scarce, especially with regard to the wholesale needs of the rural electric systems. In Missouri, our systems are still paying an average of almost 10 mills per kilowatt-hour for wholesale electric energy and face serious shortages. And, although several dams have been constructed by the Corps of Engineers in that section of the country and have been integrated through the transmission system of the Southwestern Power Administration, the lack of firm energy at these projects has been a major stumbling block in bringing the benefits of low-cost, hydroelectric power to our systems down there. To overcome this obstacle, our people in Oklahoma and in Missouri formed a half dozen federated generation-transmission cooperativesthe members are the local distribution co-ops-with which to firm up the hydro generation of SPA and deliver the resulting intermingled steam and hydro energy to the load centers of their member distribution cooperatives. In 1949 and 1950, SPA and the generation and transmission cooperatives of Oklahoma and Missouri executed contracts providing for the close electrical integration of the Government's hydro systems with the cooperatives' steam systems. During the past year, these contracts have been virtually abrogated by a lack of adequate appropriations to carry them out and by the apparent desire of Interior Department officials, whose stated philosophy is expressly unsympathetic with the purposes of the contracts, to destroy their effectiveness. During previous testimony before this subcommittee, the Assistant Secretary, Mr. Aandahl, has stated that the Department's new policy "definitely prevents the Government from establishing a Federal power monopoly." In response to a question from Senator Murray, asking the Assistant Secretary to give a specific case which he considered to be a Federal power monopoly, Mr. Aandahl stated: One is the attempt of the Federal Government to build steam facilities to supplement and to increase the power supply that comes from the hydroelectric projects; and the other is the attempt to take over more and more of the transmission systems. In the Southwestern Power Administration area there was a contract worked out with the G. and T. cooperatives under which the Southwestern Power Administration would lease and operate the transmission facilities and would pay a lease fee that, over the amortization period, would liquidate the investment. And Southwestern Power Administration had an option to buy the facilities at the end of that period. Not only that, but Southwestern Power Administration agreed to buy the entire output of the steam plants of the G. and T.'s in the area, and then to integrate it with Southwestern Power Administration power and have that much more power to sell in the area. Just by one step after the other, the previous policy was to enlarge the field of the utility responsibility to the point where it goes far beyond the hydroelectric capacity of these multipurpose projects. What Mr. Aandahl did not say was that these were two-way contracts, and that several hundred thousand farm people, through their distribution co-ops and their generation and transmission co-ops would buy back from SPA their total power requirementsadequate power at tremendous savings. Actually, Mr. Aandahl's implications that the efforts of our people, as reflected in these contracts, tended to establish a Federal power monopoly in the Southwest constitute an attack on the farmers of the Southwest, are without foundation and could be no further from the actual truth if they were consciously designed to be so. All the hydropower in the Southwest, actual and potential, fully firmed up, could not begin to equal that of the commercial companies of the area. Furthermore, the Government's power is all sold at wholesale, much of it to the commercial companies. And, too, there would not be enough anyway for the rural electrification co-ops alone. And the co-ops are prohibited from serving anyone who is already served. I can see just about as much danger of a Federal power monopoly as I can of Interior's few buffalo herds replacing the milk cows of the United States. It seems that term has been used principally since this committee's monopoly investigation of the Interior power policy and marketing criteria. We had better be concerned, instead, with the giant power trust monopoly which would be strengthened, while the farmers' little electric systems are being weakened, by Interior's new policies. The contracts between the Southwestern Power Administration and the generation and transmission cooperatives of the Southwest were initiated by the cooperatives themselves as a means by which to secure maximum areawide utilization of SPA hydroelectric facilities for the mutual benefit of both the Government and the cooperatives. The whole arrangement on which they spent years of effort and engaged some of the country's best engineers was an attempt to provide low-cost electric service to a great segment of the farm people of a six-State area. The total installed capacity of these generation and transmission cooperatives is probably not more than 100,000 kilowatts as compared with the many millions of kilowatts of installed capacity owned by commercial utility companies in the area. The question in the Southwest is not one of whether the Government has been progressing toward a monopoly of power facilities, but rather whether or not the Government is to allow farmers of the Southwest to be subject to the predatory practices of a private power monopoly in that area. Senator KILGORE. We are going to have to recess. This is a very convenient place because you are getting into a new subject. We will recess until Thursday at 10 o'clock in the morning. If you will come back then, we will go ahead from there with your statement. Can you make it then? Mr. ELLIS. I can make it, subject only to a scheduled appearance before another committee, the Civil Functions Subcommittee of the Senate Appropriations Committee. I believe we are scheduled there However, the time is very short. Mr. SMITHEY. Maybe Mr. Ellis can get in touch with me and let me know. Senator KILGORE. Please get in touch with Mr. Smithey and make the arrangements. Mr. WISE. The president of the Missouri Basin Electric Consumers Association is here today, together with a number of other farm leaders throughout the country. I wonder if the record might show their presence here. Senator KILGORE. You may show their presence, and if they want to be heard Mr. WISE. I do not think they want to be heard. I did want to present the president to this committee. He is so much interested in the job you have done and the other gentlemen with him, if their names could be put into the record. Mr. Lewis Amend who is the president. Senator KILGORE. Give the rest of the names to the reporter and he will show their appearance at the hearing. (The names of those present follow: Lewis Amend, Rocky Ford, Colo., president of the Missouri Basin Electric Consumers Association; William T. Crisp, executive manager and general counsel, Tarkell Electric Membership Association, Inc.; Clark T. McWhorter, Southwest Rural Electric Association, Blair, Okla.; Christian G. Jensen, director, Topo, Michigan Electric Co-op, Boyne City, Mich.; T. William Hunter, Newberry Electric Co-op, Inc., Newberry, S. C.; and John Sargeant, Adams Electric Co-op, Camp Point, Ill.) Senator KILGORE. We will recess until Thursday. (Whereupon, at 12:10 p. m., the committee recessed, to reconvene at 10 a. m., Thursday, March 4, 1954.) POWER POLICY THURSDAY, MARCH 4, 1954 UNITED STATES SENATE, SUBCOMMITTEE ON MONOPOLY AND ANTITRUST Washington, D. C. The subcommittee met at 10 a. m., pursuant to recess, in Room 424; 'Senate Office Building, Senator William Langer (chairman) presiding. Present: Senator Langer. Also present: Wayne H. Smithey and Tom Collins, professional staff members. The CHAIRMAN. The meeting will come to order. TESTIMONY OF CLYDE T. ELLIS, EXECUTIVE MANAGER, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION; ACCOMPANIED BY CHARLES A. ROBINSON, ELECTRICAL ENGINEER Mr. ELLIS. At this point, I want to pay tribute to Senator Langer and other members of this fine subcommittee for their courage and responsiveness to the desires of the rural people in conducting this investigation of the Interior Department's new power policy and Missouri Basin marketing criteria. The subcommittee, in my opinion, has performed a splendid public service, and despite certain statements to the contrary, I feel that the revised section 7 of the marketing criteria was brought about as the direct result of the actions of this subcommittee and the uprisings of the farm people in the Missouri Basin area. I do not want to minimize the harm that we feel will still derive from the policy and that part of the marketing criteria which remains as it was originally issued, but at the same time, I do not want to leave the impression that the revised section 7 completely corrects the defects of the original section. There are still grave injustices in it and, we believe, violations of the law inherent in the revised section 7, to which I shall refer. The rural electric systems of the Missouri Basin, through their designated farm leaders, have previously explained their objections to this criteria in great detail before this subcommittee. I think that, in general, their objections to the criteria may be summarized as follows: 1. Penalties: The change in Missouri Basin wholesale rate schedules as contained in the criteria forces rural electric systems which desire to reserve generating capacity to meet their normal anticipated load growth beyond a 2-year period to pay a rate penalty in the form of a 547 41455-54-pt. 2—5 minimum annual capacity charge. If the rural systems are not able to pay a penalty or do not wish to do so, they cannot reserve power beyond a 2-year supply. The criteria provides that the contract rate of delivery will remain constant during the term of its contract so that the rural systems which do not reserve capacity for load growth a 2-year period will either be forced to turn to alternative higher costs sources of power after 2 years or stop growing. This is a difficult, if not impossible, choice for many of our systems to make, and I am not sure that any of them are able to solve the dilemma. Interior Department officials and others have stated that the Missouri Basin hydroelectric power will not be sufficient even to supply the needs of preference customers in 1956. If this is true, we can see no reason for this portion of the criteria, and a new rate schedule, at all. The Assistant Commissioner of Reclamation has stated to this subcommittee that the Department does not anticipate increased revenues under the revised rate schedule. If no increase of revenue is anticipated, then the only excuse we can see for the new rate schedule is as a device by which to help apportion the power among the preference customers and, apparently, the power companies. It appears to us that, as to the preference customers, this could easily have been accomplished under the old established policies by cooperative conferences with the preference customers involved rather than in the establishment of harsh rate schedules and dogmatic marketing criteria. We know of no instance in the Missouri Basin of preference customers contracting for more than their actual requirements of Federal power. Indeed, before the criteria went into effect, most of them, I believe, were actually taking power in the amounts contracted or very near to it. 2. Mountain States superpreference customers: The new criteria denies the farmers' electric systems and other preference customers their full preference rights under the law by setting up an Interiordesignated superpreference class of customer consisting of power companies serving areas which, in the opinion of the Secretary, have come to depend upon the Bureau of Reclamation for power over a period of years. Actually, these local people depend on the power companies and the power companies can hardly be said to have come to depend on the Bureau in perpetuity, for they have known all along what the law is, they know there are withdrawal clauses in their contracts, and they are large enough to develop their own power supplies economically any time they want to. This class of superpreference customer would be entitled to full preference rights in the purchase of Missouri River Basin power, even ahead of and to the exclusion of the Congress-designated preference customers themselves. The very farmers and ranchers which the big power companies failed or refused to serve in the past would be denied the power so that those same utility companies could serve their urban loads, including in some cases, big industrial loads. When questioned as to the legal basis for the establishment of this superpreference class of customer, Interior Department officials rely on "administrative discretion." They have stated that the Mountain States Power Co. will be granted what amounts to superpreference |