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sula of Michigan. This area has an estimated population of 207,000. We serve a total of 70,180 customers. A little more than one-half live in cities or villages, and slightly less than one-half live in rural townships. Our customer density is one per square mile, over our entire service area.
In Michigan, we have a density of seven customers per mile of line, including those living in cities and villages. In our rural areas in Michigan, we probably have a density of about five customers per mile of line. This low density of customers might be looked upon by some as a burden.
We look on the area we serve as a responsibility and an opportunity. We have continually sought ways to improve service to our customers in both rural and urban areas and to steadily lower our rates. In 1965, we initiated a new optional rate for our farm customers that results in an estimated savings of about $55,000 per year for them.
Prior to the REA Act Wisconsin Michigan Power Co. had adopted a rural extension program under which we would extend service to our farm customers three-quarters of a mile if the customer would be willing to use $4 worth of electricity per month.
We have also served three electric cooperatives for many years at wholesale rates. Our relations with these cooperatives have been friendly. We look to them not only as customers, but as neighbors. They have been assured of all the power they will ever need for continued growth as regulated and reasonable rates. Under this arrangement, these cooperatives have prospered, and have surpluses such as investments in savings and loan associations, certificates of bank deposits, and Government bonds.
As I drive through our service area and that of our neighboring cooperative associations, I see no particular differences between them. The people, the type of homes, the filling stations, the restaurants all seem much the same. But there are differences. Those people who receive service directly from us pay in their bill for electricity their fair share of the cost of Federal Government, for the war in Vietnam, for the war on poverty, for aid to education, and for the space program. Their neighbors who get electricity from the same generators and the same transmission lines do not have equal tax costs included in their monthly electric bill. Our customers pay about five times as much in taxes on their electric bill as their neighbors in the co-ops. Furthermore, our neighboring cooperatives are privileged to buy poles and wire with money borrowed from the Federal Government at 2 percent, while our customers must be charged rates that reflect interest on money borrowed in the open market.
I doubt that most of the individual people served by these cooperatives are seeking a tax advantage over their neighbors. The legislation being considered by your committee would greatly magnify the present discrimination between those people served by us and the people served by the tax-exempt co-ops.
I believe you are being tempted to open an electric Pandora's box. From these bills can spring an entirely new form of electric utility organization, a new special privileged class of citizenship, a new attack on private industry.
We at Wisconsin Michigan Power Co. are not afraid of bogeymen in the dark. On March 25, 1966, the REA Administrator, Norman
M. Clapp, explained the proposed Federal electric bank to representatives of the Wisconsin Electric Cooperative meeting in Milwaukee. Among its purposes, he said, was a "*** greater freedom to consummate acquisitions ***". Stripped of its deceptive phrasing, this means freedom to take over companies such as mine.
This is the publicly avowed purpose of the Administrator who would be the governor of the electric bank. He also asked for a "*** greater freedom of electric generation and transmission systems to pool needs with nonrural systems in exploiting the economy of large-scale capacity ***"
Since non-rural areas are those in villages and cities and since all of our villages and cities in Wisconsin already have electric service, we must consider these bills a threat of encroachment or even complete takeover of present investor-owned electric systems.
Mr. POAGE. You have been going a little over 4 mintues.
As a former paratrooper with 2 years' combat service in World War II, I have a strong personal feeling for what our troops are going through in Vietnam. Certainly, with our Nation committing our manpower and economic resources to a $10 billion-a-year war in Vietnam, this is an inappropriate time for cooperatives to place a new drain on our Treasury. With interest rates on home mortgages climbing above 6 percent, we may need this billion dollars to help finance homes for returning veterans. I believe our veterans have a higher moral, social, and economic claim to low interest rates. And veterans will probably be happy to get loans for their home at 4 or 5 percent at least twice as much as the co-ops have been willing to pay.
Mr. POAGE. Thank you very much, Mr. McLean. And I want to point out we all take a good deal longer than we think the 31⁄2 ran into 42. I don't mean this critically of you at all—I did want everyone to recognize this.
Mr. MCLEAN. I thought it was worth saying, sir.
Mr. POAGE. I am sure that what you had to say was worth saying. I think everybody's statements are worth saying. I merely think that it is a mistake to try to tell the committee that we can get through in 2 minutes, 3 minutes, when most of us-not simply you-but all of us find it takes much longer.
Mr. STUBBLEFIELD. Mr. Chairman-do you sell wholesale power to cooperatives?
Mr. MCLEAN. Yes, sir.
Mr. STUBBLEFIELD. What rate?
Mr. MCLEAN. 1.24 cents.
Mr. HAGEN. I would like to ask a couple of questions.
Mr. POAGE. We had agreed we were not going to ask questions of these people.
Mr. HAGEN. How can we learn anything if we don't do that?
Mr. POAGE. The group that was here when you were not here had agreed on that. But go ahead.
Mr. HAGEN. As I understand from talking to some people in the audience, this telephone bank program differs from the electric bank program in that there is some provisions in the Telephone Bank
Act regarding division of territories which is not present in the Government loans under the electric bank?
Mr. GRUHL. Are you talking about the division of territory in our area?
Mr. HAGEN. That is correct.
Mr. GRUHL. We have no arrangements with REA as far as division of territory. There is in Wisconsin a nonduplication law. But this law has to do with running parallel lines to serve the same customers. Mr. HAGEN. My specific question is, Is there any difference in this bill relating to the telephone co-ops to be financed by REA than there is with respect to electric companies?
Mr. GRUHL. Not that I understand.
Mr. HAGEN. I understand there is a difference in the actual provisions of these two laws.
Mr. GRUHL. Well, I must confess I have not reviewed the telephone aspect of this bill but briefly, and devoted all my time
Mr. HAGEN. One other question. If a private utility wants to sell out to an REA, I assume they would be getting a price that would be attractive. Why should anyone object?
Mr. GRUHL. I am not sure
Mr. HAGEN. If there is a willing seller and a willing buyer, who should object?
Mr. GRUHL. That is correct-if there are both. But when you have
Mr. HAGEN. The REA's don't have any power of eminent domain or anything like that. This is an arm's-length sale, if there were a
Mr. GRUHL. It is a long ways from arm's length when you can compete at about a 20-percent advantage.
In Wisconsin, private utilities are paying our companies are paying about 23 percent of their operating revenues in taxes. The rural cooperatives are paying 3 percent. Now, with what amounts to a 20percent margin, I don't care if you are running a peanut stand or General Motors-it is not long that you can compete as long as one can move into the other's territory.
Mr. HAGEN. You are afraid of raids on territory as a preliminary to a forced sale that is what you are afraid of?
Mr. GRUHL. Yes, there is no question about that. We have no REA's in our territory, and we are not concerned about this. We are concerned about the raids.
Mr. HAGEN. And you don't feel this Wisconsin law adequately protects you; is that correct?
Mr. GRUHL. That is only on duplication of lines. It doesn't prevent the takeover of portions of the system.
Mr. HAGEN. I see. It doesn't prevent the takeover of individual
Mr. GRUHL. That is right.
Mr. HAGEN. If they got a line there, and they can run it out to the lumber mill, and you were serving it, they could get it under Wisconsin law; is that right?
Mr. GRUIL. No. Under the duplication-under the so-called duplication law, they could not extend the line over to that. But if you had an area that had a number of customers-say it is a small community,
and this community decided under Wisconsin law that they would rather be served by a cooperative that can sell its power cheaper, it is free to do so.
Mr. HAGEN. And you subtract that from your system, and that weakens your economic position, and you might be forced to sell? Mr. GRUHL. Right. That is why the absence of arm's length. Mr. HAGEN. Thank you.
Mr. POAGE. Any other questions?
Mr. GRUHL. Thank you, Mr. Chairman.
Mr. POAGE. Just a minute Mr. McLean. I would like to ask you about a statement you have on page 2 of your statement where you say, "Our customers pay about five times as much in taxes on their electric bills as their neighbors in the co-ops."
You heard the testimony of the gentleman from Virginia this morning, I believe, Mr. Gibson, and I believe there was someone else testifying to the effect that-the gentleman from Montana just testified-to the effect that they did not pass taxes on to their customers. Does your company pass taxes to the customers?
Mr. McLEAN. Taxes are not kept out in a separate account and passed directly on to the customers. They are part of the cost of doing business. They are not always passed on. Some of the increase
in taxes have not been passed on. Some of the decrease in rates that my company has achieved has been done without decreases in taxes And therefore this cannot be separated out as a separate item. It is a part of the cost of doing business, and lumped in with the total cost of doing business.
Mr. POAGE. Then let's understand your statement that "our customers"-I suppose you mean the customers of the company you represent the Wisconsin Michigan Power Co., "our customers pay about five times as much in taxes on their electric bill as their neighbors in the co-ops."
Mr. McLEAN. Part of the total cost to the customer-included in the total cost to the customer-along with all other costs, are about five times as much in taxes.
Mr. POAGE. Then you must have passed those taxes on to your customers, or they could not have paid it, is that right?
Mr. McLEAN. They are not passed on directly. But it is part of the cost.
Mr. POAGE. I don't know just how much more directly you could pass them. You say on their electric bill. I don't know how it could be more directly than to be in the electric bill. And you have just said that they paid about five times as much on their electric bill.
Mr. McLEAN. The rate provides makes provision for running on costs, including taxes.
Mr. POAGE. That is right. I am not arguing that. I think that is an exact correct statement of fact.
Now, you said substantially the same thing, Mr. Gruhl. You said, "Our electric service customers who last year paid some $18 million in Federal income taxes through their electric service bills."
Mr. GRUHL. Yes.
Mr. POAGE. You pass your taxes on to your customers, don't you? Mr. GRUHL. We are talking about the difference between the legal incidence of taxes and the ultimate effect.
Mr. POAGE. We are not talking about any differences. I am just asking you for the facts-don't you pass your taxes on to your customers?
Mr. GRUHL. Not as far as the legal incidence, but the effect of the taxes come through the dollars that customers pay, without any question.
Mr. POAGE. I agree with you a hundred percent. But you heard the gentleman from Virginia say that wasn't true this morning, did you not?
Mr. GRUHL. The gentleman from Virginia may have been talking from the standpoint of the legal incidence of taxation. From this standpoint, what he said is true.
Mr. POAGE. No; he wasn't talking about some fine-spun theory, because I asked him if his bill didn't have to be a little greater, because of taxes, and because of interest. And he said "No."
Mr. GRUHL. Well, I did not understand. I would say that the bill would have to be greater if
Mr. POAGE. I appreciate your frankness. I think you gentlemen have laid it out here, and laid out the true facts.
Mr. GRUHL. If I may add this one part-that if the rates are such that they are compensatory enough to include taxes, they do include them. We have rates, however, and have had it in the past-part of our operations have been a street railway utility, and part of them in the past have been a manufactured gas utility. And I can say definitely there that the taxes were not passed on to the customer because there wasn't enough left.
Mr. POAGE. That obviously would be true, and that would be true of a great many of the electric co-ops-that they could not pass taxes on, because there isn't enough income to pass them.
Mr. GRUHL. Well, I am not familiar with the country as a whole. In Wisconsin this is a different situation.
Mr. POAGE. I agree-Wisconsin is in pretty good shape.
Mr. GRUHL. Co-ops there have earned, according to the public service commission-I have their report here on a matter of return— if this is a matter of moment
Mr. POAGE. I think we are all in agreement that Wisconsin is in pretty good shape. But if you were doing business where you had one or two customers per mile, as we have had described here, you would find it a little more difficult, would you not?
Mr. GRUHL. Very definitely.
Mr. POAGE. Is there anything further?
Thank you very much, gentlemen.
Mr. GRUHL. Thank you.
Mr. POAGE. Thank both of you gentlemen.
Now we will call Mr. Walter Bouldin.
We are glad to hear from you.
STATEMENT OF WALTER BOULDIN, PRESIDENT, ALABAMA POWER CO., BIRMINGHAM, ALA.
Mr. BOULDIN. Thank you, Mr. Chairman and members of the committee, for this opportunity to appear in opposition to H.R. 14837 and similar bills. I understand my statement will be made a part of the record.