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however, that as a result of these hearings, it will be apparent that there is need for much further and deeper study of the whole matter before action is taken by the Congress. It would surely be wiser to make certain that the best possible solution is offered to the Congress rather than to act hastily upon an indefinite, uncertain measure that is difficult to comprehend, even for those who well acquainted with the whole matter it deals with.


It appears that the capital needs of electric cooperatives that have been projected in the proposal for a Federal Bank for Rural Electric Systems presume the establishment of an electric power empire that would put bureaucracy ahead of the need to supply electricity to rural areas at the lowest rates possible under fair competitive conditions.

With or without the proposed Bank, the shrinkage of the tax base and the cost of low-interest-rate funds borrowed from the Treasury by the REA cooperatives can only be to the disadvantage of the Federal Government, and thereby to the disadvantage of all taxpayers who together share the fiscal burden.

The plain fact is that the program of rural electrification originally intended by the Congress has been virtually completed. Now that the rural electric system has reached maturity it should become an integral part of the free enterprise system by assuming its fair share of that system's responsibilities and burdens. In so doing it would have no difficulty in meeting its legitimate capital needs in the same way as the noncooperative electric companies meet theirs.

The CHAIRMAN. We will now call Mr. Robert T. Person, president of the Edison Electric Institute.

We are very glad to have you with us this morning, Mr. Person. You have a lengthy statement. We have listed, here on the witness list, about 50 witnesses. The Chair will appreciate your expediting the presentation of your statement.

You may proceed.



Mr. PERSON. Thank you, Mr. Chairman and members of the committee.

My name is Robert T. Person. It is a pleasure to be here with you today. We appreciate this opportunity of presenting our viewpoint on what we consider to be a very, very serious question.

I will attempt to make my testimony as brief as possible, but in the light of the magnitude of this bill which is under consideration, together with the other bills, it seems to me that fortunately the committee seems to recognize that a full and complete record should be established for the consideration of this committee. I am president of Public Service Co. of Colorado and president of Edison Electric Institute. It is as president of Edison Electric Institute that I appear before this committee today.

Edison Electric Institute is the principal association of the investorowned electric utility companies which serve approximately 80 percent of all of the electric customers in the United States. In order to render this service the investor-owned utilities have invested in excess of $60 billion in electric generation, transmission, and distribution facilities which are necessary to serve the consuming public. It is estimated that these companies will invest, during calendar year 1966 alone, an additional more than $4.5 billion. This represents ap

proximately 8 percent of all business expenditures for new plant and equipment this year.

These same investor-owned utilities employ about 340,000 people. The stockholders of these companies number approximately 4 million. In addition to these stockholders, it is estimated there are more than 140 million other people across the country having an indirect investment but which constitutes a direct financial interest in the investorowned utility industry. Every pension of other trust fund, mutual fund and insurance company which has invested in the securities of an investor-owned utility, the beneficiaries of such funds, and the insurance policy holders of such organizations are also directly affected by any action this Congress might take which would be detrimental to the investor-owned utility industry.

The proposed legislation which you are considering today, H.R. 14000 and H.R. 14837, if enacted, could have a detrimental and adverse effect upon these millions of electric consumers, employees, stockholders, and other investors. It is, therefore, also on their behalf that I point out to you the very serious concern that Edison Electric Institute has with respect to these two bills.

Looking at this proposed legislation from the viewpoint of the taxpayer and the various tax collecting authorities, I would also like to observe that the electric utilities which comprise Edison Electric Institute, for the year 1965, paid almost $3 billion in Federal, State, and local taxes. Consequently, any proposed legislation which would aid, foster, and encourage the development and expansion of federally subsidized, tax-exempt utility suppliers at the expense of full taspaying utilities, as do the two pending bills, would have a very material impact upon the entire tax structure and economy of the United States. This obvious economic fact of life and its relationship to the entire tax base of our economy cannot be overemphasized by me and should not, in my opinion, be overlooked by you in your consideration of these bills.

The Rural Electrification Act was first adopted by Congress in the year 1936, following a similar program created by Executive order in 1935. The act states that its fundamental purpose is to provide funds for the construction of electric systems in order to furnish "electric energy to persons in rural areas who are not receiving central station service,

That this limited and well-defined purpose is all the Congress intended by the adoption of the Rural Electrification Act of 1936 is well established by the legislative history of the act as evidenced by the following comment of one of its cosponsors, Congressman Rayburn:

We are not in this bill intending to go out and compete with anybody. By this bill we hope to bring electricity to people who do not now have it. This bill was not written on the theory that we were going to punish anybody or parallel their lines or enter into competition with them.

In addition, as late as April 22, 1966, in its committee report the House Agricultural Appropriations Committee acknowledged that such is still the basic purpose of the act by the following statement:

The primary function of the rural electrification system is to provide and distribute electricity to rural and farm customers at reasonable rates.

When the Rural Electrification Act of 1936 was enacted by Congress, the economy of the United States was suffering from a severe

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depression. The obtaining of capital funds from the open market which were necessary to construct electric facilities in sparsely settled rural America was difficult, and in some cases impossible to obtain.

In order that the people inhabiting these sparsely settled rural areas could obtain the advantages of electric service, capital funds were made available by the Federal Government for this purpose at a low rate of interest. From 1936 until 1944 the rate of interest available to rural electrification borrowers was equal to the average rate of interest payable by the United States on its obligations having a maturity date of 10 years or more. In 1914, this rate of interest was modified by an amendment to the act providing that all loans should be made at a straight 2-percent rate of interest. At the same time, however, 2 percent was considered to be a compensatory rate of interest to the Government, since the then current rate of interest for long-term Government borrowing was in the same general range.

During the years that have intervened since the act was first adopted in 1936, virtually all people in rural areas now have electric

In fact, the rural electrification program has been such a complete success that almost 99 percent of the farms of this country now enjoy the benefits of electric service at reasonable rates and, as a result, four out of every five new customers to rural electric systems are non farm customers. This service to the Nation's farms has been provided by both the investor-owned utilities and other types of power suppliers, as well as by the borrowers from the Rural Electrification Administration. As of this date, in excess of 40 percent of the farms receive electric service from investor-owned utilities. It is therefore apparent that all segments of the electric industry have made substantial contribution to the program of bringing electric service to all areas of the United States.

It has always been the position and policy of Edison Electric Institute, and its member electric suppliers, that the Rural Electrification Act of 1936 and its fundamental purpose and objectives, as above discussed, were in the public interest. As evidence of this, investor-owned utilities, in addition to providing rural service to a major segment of the rural public, aided and assisted REA borrowers in many ways in rendering such service throughout the years since 1936. Ì, therefore, wish to make it clear to this committee that we do not wish to be understood as opposing the worthwhile objectives of true rural electrification. We do, however, wish to be clearly understood as being vehemently opposed to any proposal which would have as its end result the gradual displacement of taxpaying investor-owned utilities by federally financed and subsidized cooperatives. We are equally opposed to any financing concept which would transform the fundamental purposes of the Rural Electrification Act of 1936 into a vehicle capable of establishing unneeded, federally financed generation and transmission systems throughout all of America.

Both H.R. 14000 and H.R. 14837 represent a complete departure from any of the concepts of the Rural Electrification Act of 1936 and would provide the mechanics and Federal funds for essentially unlimited financing of cooperative electric systems, although they differ in some respects. Both contain the same evils which jeopardize the very bedrock of our American economy, and neither of the bills contains any congressional control or meaningful restrictions on how these immense sums of public funds may be spent.

Many of you have no doubt heard that these bills would provide a source of private financing for REA borrowers. It has been widely reported that these bills would free the U.S. Treasury from its burdensome obligation to continually support a rural electric program at a subsidized rate of interest and would, consequently, reduce Federal expenditures in this area. Neither of these bills accomplishes any such purpose but on the contrary both add to the Federal burden which now exists, at an increased cost to the American taxpayer, and Federal funds would be utilized to make available tremendous sums for the unrestricted expansion of tax-exempt rural electrification borrowers free from any congressional control.

Both of these bills provide that the present subsidized 2-percent interest rate of borrowings will continue to be made available, with the attendant substantial yearly loss to the Treasury of the United States. Both of these bills provide that the U.S. Government would purchase capital stock in the electric bank. Neither bill requires the payment of dividends or interest to the United States on its capital stock, and there is no reason to believe that the United States will ever recover its principal unless the bank in its sole discretion desires to return this money to Treasury. In H.R. 14000, this interest-free capital contribution is set at $1 billion, and in H.R. 14837 the gratuity of the taxpayers to the bank is in the amount of $750 million. Bear in mind now that these figures are in addition to the historic and continued annual loan program of 2-percent money for REA borrowers.

The claims that this program of continued subsidy of 2-percent money and an outright gift up to $1 billion, possibly in perpetuity, represents a savings to the taxpayers of this country, are sheer fabrication, and such irresponsible fiscal assertions require total exposure to the people of this country.

The evils inherent in these bills, however, are not confined to the continuation of the 2-percent loan when almost 99 percent of rural America has been electrified or to the highly questionable provision that the benevolent American taxpayer make available, interest-free, about $1 billion to the electric bank. There are others. For instance, in both bills the bank is authorized to sell debentures to the public in order to increase its lending power. In connection with the sale of these debentures, it is provided, as solace for the unwary, that the bonds shall not be guaranteed by the United States. However, while the debentures are not directly guaranteed by the United States. the bills authorize the bank to reimburse itself, in unlimited amounts from the Federal Treasury, if any additional funds are needed to meet the principal and interest payments on these bonds. As a result, there is neither any requirement nor incentive for the bank to operate prudently and profitably.

As a practical matter, one of the most inherently dangerous characteristics of the bills is the failure to provide any real guidelines or limitations on the purposes for which the funds may be spent. The

restrictions, such as the rural area limitation, contained in the Rural Electrification Act are not applicable. This opens the door for the construction of unneeded electric facilities which duplicate or parallel facilities of other electric suppliers.

Other witnesses will describe in detail these bills and point out how they represent a gross misuse of public funds, and how the bills provide a vehicle to severely limit the ability of taxpaying electric companies to continue to serve and expand" in the United States. What I have generally outlined to you, however, more than justifies our complete opposition to these proposals. In the event any of you may suggest that I am an alarmist or that I envision a result from the passage of these bills which is not realistic, I would briefly like to review some of the occurrences which have transpired in recent years with respect to the rural electrification program which fully justify my concern. If past performances are any indication of what the future holds, the creation of this proposed bank will surely provide the funds and carte blanche authority for those advocating unlimited expansion of REA systems to engage in unrestricted and wasteful duplication of the established electric utility systems of this country.

I have previously noted the basic purposes of the act as evidenced by the language of the statute itself, and by the April 22, 1966, committee report, and have assured you that Edison Electric Institute does not oppose this underlying purpose. However, during the past few years, in many instances this basic purpose has been disregarded and, instead, loan funds have been made available for purposes reaching far beyond anything connected with electrifying rural America. These abuses have increased year by year until at this time there has arisen a great public awareness that Federal funds are being expended by REA for purposes not considered to be in the public interest. Again, other witnesses will describe in detail these abuses, but I will generally refer you to enough of them so that there can be no doubt in your mind that what is needed with respect to the rural electric program is less public funds rather than more, and more congressional surveillance rather than a complete abdication and surrender of all congressional responsibility and control.

By far and away the greatest culprit in obtaining Federal funds at a subsidized interest rate for a purpose never contemplated by the Rural Electrification Act and for purposes contrary to the best interests of the economy of the United States is the so-called generation and transmission or G. & T.type of borrower. These types of cooperatives are commonly referred to as super co-ops, which have been organized to supply wholesale power to several distribution cooperatives, and in some cases to other types of power suppliers, governmental agencies, and even private industrial organization. These super co-ops have, in recent years, obtained an increasing amount of Federal funds for the sole purpose of constructing generating plants and transmission lines in order to provide federally subsidized electric power in areas historically served by investor-owned or other types of electric suppliers. In the early years of REA lending, little or no funds were lent to construct generating plants. Almost the entire loan program was devoted to the construction of distribution facilities, that is, electric lines in rural areas rendering direct service to

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