The House Agriculture Committee on the Food and Agriculture Act of 1962 expressed disapproval of the secrecy:

"Testimony revealed a growing public concern over the failure of the REA to disclose information on various phases of its operations. The public is entitled to know how public funds are being used, and the REA should approach the consideration of loans for generating facilities in a manner designed to provide as full public information as possible. . . Secrecy tends to kindle doubt, whereas public knowledge of the reasons for and justification of loans would go far toward dispelling criticism which threatens to being the program into disrepute."

The Senate Committee considering the same Act dealt similarly with REA's policy of secrecy :

"The Rural Electrification Administration should approach the consideration of such loans in a manner designed to provide as full public information as

possible. Open and aboveboard consideration of loans, bringing together all pertinent facts in an objective manner, would preclude the possibility of charges that such loans were unjustified. Secrecy, on the other hand, might well tend to induce doubt that responsible action was taken. Public knowledge of the reasons for and the justification of loans might well go far in mitigating unjust criticism."

Notwithstanding these admonitions, loans for such unnecessary generating plants continued, with the result that Congressional committees became ever more critical of REA deviations and more specific in their recommendations. Both Congressional Committees on Agriculture Appropriations for 1964 concurred in the following recommendations:

"Before public funds are loaned for power generation or transmission, the Rural Electrification Administrator, in connection with any such loan, should: "(1) Make a survey and determine wherein the existing contract for power or the proposed contract is unreasonable;

"(2) Advise the supplier wherein such contract is unreasonable; and "(3) Attempt to get such contract modified to make it reasonable. "Loans should be made only when reasonable contracts cannot be obtained.” The Congressional committees further directed that certain information on each G&T loan should be furnished to the Comptroller General and the Congress, including details of negotiations with existing power suppliers.

It is apparent that the Congress has indicated an increasingly critical concern over REA loaning practices. Congressional committees have attempted to establish guidelines which would correct the REA deviations and to return the REA to its original purposes.

To get around Congressional directives opposing the misuse of REA loans and to free the co-ops from any possibility of control by such Federal regulatory agencies as the Federal Power Commission, the device for the establishment of an electric bank has been developed. This is the real significance of the proposed legislation before this Committee. The plan being proposed gives the appearance of financing in the free market, but in fact it would increase Federally subsidized competition.

We may well ask, are government subsidies needed to build electric generating plants and transmission facilities? The answer is no. America has the most extensive, comprehensive and efficient power system on earth. Investor-owned companies serve approximately 80 percent of the customers throughout the country with various government-owned or government-financed suppliers serving the remainder. The industry has plans for serving the electrical needs of the nation through 1975 and beyond. Through research, innovation, vigorous sales efforts and good government regulation, there has developed an evolutionary process of building larger and larger generating units interconnected by transmission lines of higher and higher voltages. Today, six major interconnected operating groups supply about 97 percent of all the electricity used in the nation. The systems in these groups have been built to provide more reliable service with greater economy. The price of electricity has decreased over the long term while the cost of practically all other commodities and services has been rising.

Because of the reliability of service and the low price, nearly all industries. commercial establishments and homes obtain their electricity from one of the large interconnected systems. The trend is for manufacturing plants and municipal systems to purchase their electric energy from the large interconnected power systems.

It should be kept in mind that REA cooperatives have available to them, in ample supply now and for the future, this same reliable and economic electric service at special low wholesale rates averaging about 30 percent below most standard industrial rates.

The electric power industry is an important factor in the American economy. On the average, the investor-owned utility companies pay more in local, state and Federal taxes than any other industry. Approximately 12 percent of all capital invested in U.S. business is invested in the investor-owned electric utility industry. Average annual spending by the companies for new plant averages about $3.4 billion, and is the equivalent of about 10 percent of new construction for all American business.

The investor-owned electric utility companies have an outstanding record of service to their customers, and public opinion surveys show that customers are aware of the high quality of service. In a survey taken in 1965, customers were

asked the question: "Is there anything about the electric service or your dealings with the electric company that has been unsatisfactory in any way?" Ninety-three percent of the respondents answered "No or don't know." When asked in a 1965 survey whether they prefer investor ownership of local electric light and power facilities or Federal ownership, people favored investor ownership over Federal ownership four to one.

It may be well to consider whether REA cooperatives would hope to realize a lower price by generating their own electricity. Statistics show that the power cooperatives purchase from G&T's is in most cases more costly than that purchased from companies. In 1964, the average wholesale price paid by cooperatives to the investor-owned companies was 7.5 mills per kilowatt-hour, whereas the price cooperatives paid to G&T's amounted to 8.8 mills.

There are some few people who say that it is advisable to have some government power because it supposedly serves as a fair measure of the cost of power. This, they say, keeps the investor-owned companies on their toes. The fact is that any difference in price between government-subsidized electric power and investor-owned power is due to the subsidies in cost of money and taxes. Under good government regulation at local, state and national levels, the investor-owned companies, from the beginning of the industry, have continued a downward trend in the price of service. The idea of a lower average price did not originate with government power.

Analyses show that if the G&T's were required to obtain their funds in the free market, as do investor-owned utilities, and if they were required to pay taxes comparable to those paid by investor-owned companies, the revenues of the G&T's, and therefore the rates, would have to be increased by 44.5 percent.

It is interesting to study the attitudes of the co-op members themselves to see how they feel about the power issue. A survey was taken of co-op members throughotu the state of Indiana where a G&T loan was pending. The people surveyed were members of co-ops supplied by the power companies. Results of the survey showed that 58 percent of the people did not know what interest rate the cooperatives paid, and 63 percent said the co-ops should pay the same interest rate the government pays for borrowed money. Also, 76 percent of the people did not know that cooperatives did not pay the same taxes as investor-owned companies. The survey showed further that the co-op members had little if any interest in the government power issue or the financing of large generating plants. In brief, the co-op members were satisfied with the service they were receiving from the companies, and yet Indiana has been one of the most controversial areas in the country in that funds have been authorized to build large generating plants.

All the evidence indicates that there is no need for government subsidies to build generating plants and transmissions lines for REA cooperatives. More reliable and more economical electric energy can be obtained from the large interconnected systems. In this way the government benefits in that better use can be made of public funds while, at the same time, the government receives full tax revenues from the companies. It must be remembered that government power suppliers and suppliers subsidized by government, including REA cooperatives, pay no Federal income tax.

What would be a reasonable solution to this problem?

(1) We submit that the Congress should continually reexamine the REA to determine its capital needs, and that funds should be provided through regular appropriations by the Congress to assist with the original worthy purpose of building rural electric lines where they are needed.

(2) We submit that continual Congressional examination of the REA should determine when and to what extent the cooperatives are able to pay an interest rate more in keeping with the cost of money to the Federal government. Cooperatives should be asked to pay a higher rate of interest when they are able to do so. If a need is found for continuing the subsidy, then it should be continued.

(3) We submit the following with respect to loans for generating and transmission cooperatives:

--where ample and reliable service is available at reasonable rates, there should be no loans by the Federal government to build generating plants. They are unnecessary, and government's tax revenues are decreased when such loans are made.

-when consideration is being given to such a loan, the criterion used in determining economic feasibility should include the market or real value of capital, with appropriate adjustments for the taxes foregone.

-the full record, including all the facts and economic analyses associated with a proposed G&T loan, should be a matter of public knowledge and should not be held in secret by the REA.

(4) We submit that a Federal electric bank, as proposed in HR 14837, would not be in the public interest. The proposals for the bank could greatly stimulate the present unfair, subsidized competition that already exists in the electric power industry. Such proposals could have the further deleterious effect of threatening to nationalize the electric power industry, which has established America as the world leader in electric power supply. Such proposals could have a potentially serious effect on the structure of the nation's entire economic system.

In conclusion, we want to emphasize the constructive work that needs to be done in rural electrification. At present there is a revolution taking place in the farming industry, as more and more of the farmers' work is accomplished by electric energy. There is a large job ahead for both the cooperatives and the companies. With each segment serving about one-half of the farms, we feel that a spirit of cooperation and harmony should prevail to the end that the American people can benefit from increased utilization of electricity on the farm.

The CHAIRMAN. We will recess now until 2:30 o'clock this after

noon.

(Whereupon, at 1 p.m., the above committee recessed, to reconvene at 2:30 p.m., the same date.)

AFTERNOON SESSION

Mr. POAGE. The committee will please come to order.

The Chairman will be here a little later on. But in order to try to save as much time as we can, he has asked that I try to see if there were those who had a pressing reason for asking to be heard out of order. I am quite certain that everyone would like to be first. Mr. Corette of the Montana Power Co. is the next man listed here.

I don't know how these names were listed, or by whom, or what order. But we will follow this list unless there are those who have pressing problems that make it impossible for them to otherwise appear.

We will proceed with Mr. Corette.

STATEMENT OF J. E. CORETTE, PRESIDENT, MONTANA POWER CO., BUTTE, MONT.

Mr. CORETTE. Thank you, Mr. Chairman.

Mr. Chairman, and members of the committee, my name is Jack Corette. I appreciate very much your giving me a few moments to summarize orally my position on these two bills.

I would like at this time, Mr. Chairman, if I may, to request that my written statement be included as part of the record.

Mr. POAGE. Without objection it will be included. I am going to ask right now that we grant permission for any witness to insert his written statement as a part of the record, and proceed orally as he sees fit. If there is no objection, that will be applied henceforth.

Mr. CORETTE. Mr. Chairman, to introduce myself to you and to the committee, I am and have been for 14 years president of the Montana Power Co. It is a medium-sized company of approximately $65 million in revenue and $300 million in plant. In addition, I am a former president of the Edison Electric Institute. I was the U.S. delegate to the Electric Power Committee to Europe for 2 years. I was a director

of the Federal Reserve bank for 11 years, and am a director of both the Edison Electric Institute and the National Association of Electric Companies.

This verbal statement will contain some material not in my written statement, because I have developed some new thoughts which I believe will be of information to the committee.

I thought that I might be most helpful to the committee by endeavoring to become more specific than some of the other witnesses on some of the material that has been presented. With that thought in mind, I have had prepared and would like to now submit to the committee for the record a section by section analysis of H.R. 14837 that has already been distributed to you, Mr. Chairman, and is before you. I would also like to have that incorporated in the record.

Mr. POAGE. Without objection.

(The complete statement of Mr. Corette referred to follows:)

STATEMENT OF J. E. CORETTE, PRESIDENT, THE MONTANA POWER Co.

Mr. Chairman, Members of the Committee, my name is J. E. Corette. I reside in Butte, Montana, and I am president of The Montana Power Company. I am appearing here today on behalf of my Company. I am a former president of the Edison Electric Institute, having served in that capacity during the year 1958-1959. I also am a member of the Business Council, which is the successor organization to the Business Advisory Council of the U. S. Department of Commerce. For two years, in 1957 and again in 1958, I represented the United States as the U. S. Delegate to the Electric Power Committee, a subsidiary of the United Nations Economic Commission for Europe, at meetings in Geneva, Switzerland.

For 11 years, I was a director of the Federal Reserve Bank, four years on the board of the Branch Bank in Helena, Montana, and seven years as a director of the Federal Reserve Bank in Minneapolis.

I am appearing here today in opposition to H. R. 14000 and H. R. 14837. I do not limit my general remarks to these specific bills because I have great concern about the philosophy behind this type of legislation, which is an attempt to expand the functions of the Rural Electric Co-operatives far beyond those contemplated in the present law.

Montana Power Company service area

First, let me tell you a little about the Company which I represent and the territory we serve. The Montana Power Company is an electric and gas utility operating in the western two-thirds of Montana. Our service area encompasses approximately 96,000 square miles, an area slightly larger than all the New England states plus half of New York. In this area, we have 556,000 people or approximately 76% of the State's population.

Our system capability is 746,000 kilowatts. We now have under construction a 180,000-kilowatt steam-electric generating station which will be in operation in 1968. We operate 4,610 miles of transmission lines and 9,375 miles of distribution lines to serve 163,717 electric customers.1

A few examples will indicate our situation. Montana Power would be classified as a medium-sized utility. Out of 112 of the best-known utilities in the Nation, we rank 53rd in size.

Our service area is the second largest of any utility in the Nation but has an average population of only 5.8 persons per square mile. In contrast, New York City has approximately 24,700 persons per square mile and Washington, D. C., has merely 12,500 per square mile.

On the basis of energized miles of electric lines, we serve about 11.7 persons per mile compared with a reported average of 33 customers per mile of line for all investor-owned utilities.

Montana co-operatives enjoy extremely low power rates

The Montana Power Company's wholesale power rate for rural electric cooperatives is the lowest charged by any investor-owned utility in the Nation and

1 Montana Power Report to Stockholders, 1965.