To avoid repetition, I will undertake to summarize my prepared statement. The first point I would like to make is that the extension of the distribution system of the electric co-ops requires no such undefined billions as would be available under this bill. In the last 10 years, the REA loans for such systems have averaged about $138 million a year, and in 1965 the loans for that purpose were $150 million. Contrasted to that, the repayments of principal and interest on co-op loans in the year 1965 totaled more than $222 million. It is, therefore, evident that if the American taxpayers are willing to continue to devote their $3.2 billion investment in co-ops to the legitimate needs of the co-ops distribution systems, the repayments on their present investment is ample for such purpose. Other witnesses have established the fact that this bill before us would make available billions of dollars for virtually unrestricted building of generation and transmission facilities. It should be borne in mind that every generation and transmission facility that is built under the provisions of this bill will displace an investor-owned, taxpaying facility. Investor-owned companies build electric facilities to supply the public needs for electricity. For that purpose, our companies make careful forecasts of what the needs will be, then they build facilities to meet those needs with a margin of safety. If a part of the public need is supplied by tax-exempt facilities, the building of taxpaying facilities will be reduced by just that much. The next section of my written statement documents the basic policy that I think has been established, that the original REA Act was not intended to displace taxpaying facilities. And so I won't quote that part of my statement. The next section of my statement is devoted to pointing out the abuses of that basic policy that have occurred in the making of generation and transmission loans. As an example of that abuse, I can personally testify about the $20.4 million generation and transmission loan that was granted by the REA to Alabama Electric Cooperative, Inc., a generating and transmitting co-op in Alabama. This loan was, of course, made without any giving our company a hearing notwithstanding the proposed project would make electric service available to no one to whom central station service was not already available, notwithstanding there was in effect a contract with our company to furnish the co-op an unlimited supply of electricity for its needs at a very low cost, notwithstanding the operation of the proposed plant would duplicate many miles of our transmission lines, and that the co-op project would take from us co-op customers which we had served for many years, and would actually increase the costs of power to those co-op customers of ours. At a later hearing in Alabama, in which the facts were disclosed, it was proved without dispute that the cost to the taxpayers of this generating loan was far in excess of any savings claimed by the co-ops for their customers. The next section of my statement is devoted to giving references to testimony of other witnesses before the Appropriations Committees about similar abuses of the REA authority to make generation and transmission loans in other States. I make reference to Indiana, Kentucky, Louisiana, Mississippi, Colorado, and Florida. The next section of my statement is devoted to quoting from excerpts from Appropriations Committee reports. Following the testimony I just referred to, these committee reports have reiterated the basic policy of the REA Act, that it was not intended for these generation and transmission facilities to displace investor-owned facilities. I would like to invite the attention of this committee to only one short excerpt from those committee reports. The Senate Committee on Appropriations in 1962 said: We make bold to suggest that the Committee on Agriculture and Forestry may wish to carefully reexamine this aspect of the program. I mention that because of a suggestion which I will make later on to this committee. It has already ben pointed out that this bill does not in any measure get the REA off the taxpayer's back. The added burden that would be put on the taxpayers by this bill would be measured only by the amount of expansion of the generating and transmission facilities which would be built under it. Every dollar that these generating and transmitting facilities escape in taxes has to be paid by some other taxpayer. Just as an indication of the magnitude of the burden that that would be cast upon the taxpayers of America, Edison Electric Institute has estimated that in the year 1964, with electric plant in service of about $4.5 billion, the co-ops paid $195,515,000 less in taxes than would have been paid had those facilities been investor owned. When you multiply that $4.5 billion of electric plant now in service for the co-op by the indefinite number of billions that would be invested under this bill, you can see the magnitude of the burden that would be cast on the American taxpayer under the provisions of this bill. We are not seeing ghosts, gentlemen, when we speak of unlimited expansion of generation and transmission facilities under this bill. An example of the type of facilities which would probably be financed under this legislation has been indirectly referred to by other witnesses, but I will refer to it specifically. It is the so-called YankeeDixie project. Mr. POAGE. Mr. Bouldin, do you have any idea how much longer you want to proceed? Mr. BOULDIN. About 5 minutes, or less. Mr. POAGE. Will you suspend just a minute. The Chair wants, in behalf of the members of the committee, to welcome our clerk. She has been ill. The committee has been much concerned. We are delighted to see Mrs. Gallagher back. I want you to know that all of the members join in welcoming you back to the committee. And we hope that you are going to be able to be with us from here on. We are just glad to have you back. [Applause.] Mrs. GALLAGHER. I hope I am back to stay this time. Mr. BOULDIN. As I said, the type of expansion of generation and transmission facilities which we greatly fear under this bill is typified by the so-called Yankee-Dixie project. That project has been seriously advanced and has been widely publicized. It is being sponsored by many prominent advocates of co-op generation and transmission facilities. This project, as conceived by its sponsors, includes three huge power stations of 2 million kilowatts each, with connecting extra-high-voltage transmission lines and radial transmission lines that extend from Maine to Florida, and cover much of the Eastern United States. I have taken a map from the brochure which has been widely circulated by this association and attached it to my testimony. I would appreciate you gentlemen referring to the map to see the magnitude of the facilities which this project involves. The project would cost over a billion dollars, and it would, of course, be tax exempt. And this is only one of the many such projects that this bill could bring into being. Gentlemen, we don't need legislation to extend the authority to build these tax-exempt generating and transmitting facilities. We need other types of amendments to the act, to the Rural Electrification Act as it stands as was suggested by the Senate Appropriations Committee. One primary and extremely urgently needed amendment would require the REA Administrator, before making these G. & T. loans, to hold a hearing; an open hearing. As this committee doubtless knows, all applications for G. & T. loans are processed in complete secrecy before the Administrator. A second area of amendment that is badly needed would require that loans for generation and transmission facilities not be made when the resulting cost to the taxpayers of those facilities is greater than the estimated savings to the co-op customer. There is certainly no valid reason why taxpayers should pay more than the co-op customers saved. So I respectfully submit for your consideration the following amendment to the Rural Electrification Act: When an electric energy supply is available from an alternate source, loans for electric generation or generation and transmission facilities shall not be made when the resulting cost to taxpayers is greater than the estimated savings to customers of such facilities. The annual resulting cost to the taxpayers shall be computed by the Administrator as the sum of (1) the difference in interest rate on the proposed loan at 6 per cent multiplied by the amount of such loan. and, (2) the Federal income taxes foregone. Federal income taxes foregone shall be calculated by multiplying the amount of the loan by that percentage the Federal income taxes paid by class (A) and (B) investor-owned electric utility companies bore to the net electric plant investment of such companies as shown by the latest reports filed by such companies with the Federal Power Commission. Any determination required under this Act to be made by the Administrator shall be made in accordance with the procedures and subject to review under the provisions of the Administrative Procedure Act. Gentlemen, the device of interest subsidy and the tax exemption that is inherent in this bill would destroy any enterprise competing against it, whether that enterprise be an electric utility, a newspaper, a steel, chemical, or any other taxpaying enterprise. So on behalf of the millions of taxpayers of America, the millions of investors in our industry, we invoke the golden rule-you would not have this done to you. Thank you. Mr. POAGE. Thank you very much. (The complete prepared statement of Mr. Bouldin follows:) STATEMENT OF WALTER BOULDIN, PRESIDENT, ALABAMA POWER Co. Thank you, gentlemen, for this opportunity to appear in opposition to H.R. 14837 and similar bills. A primary and underlying fault of H.R. 14837 does not appear on the face of the bill. That fault is the assumption implicit in the bill that the legitimate needs of the REA co-ops require the indefinite number of billions of dollars provided for by this bill. The legitimate objective of the original REA Act was to make electric service available to people who did not have such service and who would otherwise not quickly obtain it. That was the reason the American taxpayers provided funds to REA to lend co-ops at an interest rate less than cost and gave the co-ops freedom from income tax. The tax and interest subsidy was granted to achieve a public benefit. That public benefit has been achieved. That benefit can easily be maintained without the billions this bill would provide. The extension and strengthening of the distribution systems of the co-ops require no such billions. In the last ten years, the REA loans for such systems have averaged about $138 million per year. In 1965, such loans were about $150 million. The repayments of principal and interest on co-op loans in the year 1965 totaled more than $222 million. It is, therefore, evident that if the American taxpayers are willing to continue to devote their $3.2 billion investment in co-ops to the legitimate needs of the co-ops' distribution systems, the repayments on their present investment alone are more than ample for such purpose. It is also evident that this bill permits and is probably designed to permit far more than a solution to this relatively simple need. This bill permits and is evidently designed to permit a practically unlimited expanison of co-op generation and transmission facilities by making available funds for building such facilities at 4% interest-a rate substantially less than the funds cost. The taxpayer will probably pay the difference. But this inadequate interest rate is only one aspect of the unfairness of this bill. A more important aspect is that the generation and transmission facilities that would be built with funds provided by this bill will not be subject to federal income taxes. It should be axiomatic that income-tax-paying enterprise should not be displaced by income-tax-free enterprise in the absence of some public interest requiring such displacement, because every dollar in taxes escaped by one business enterprise must be paid by other taxpayers. There is no such public interest involved here. There is no lack, present or prospective, of tax-paying electric generation and transmission facilities that would justify this bill. It must be borne in mind that every generation and transmission facility built under the provisions of this bill will displace a tax-paying facility. Investor-owned companies build electric facilities to supply the public needs for electricity. For that purpose, our companies make careful forecasts of electric needs and build facilities to meet those needs with a margin of safety. If part of these needs is supplied by tax-exempt facilities, the building of tax-paying facilities will be reduced by just that much. The basic principle that co-op facilities subsidized by the taxpayers should not replace privately financed tax-paying facilities has been established by the Congress since the inception of REA. That is why Mr. Rayburn, sponsoring the original act, said in 1936: "Mr. RAYBURN. May I say to the gentlemen that we are not, in this bill, intending to go out and compete with anybody. By this bill we hope to bring electrification to people who do not now have it. This bill was not written on the theory that we were going to punish somebody or parallel their lines or enter into competition with them." (74th Cong. Rec. Vol. 80, 1936, Part 5, pp. 5282, 5283). That is why the REA Act said and still says: "The Administrator is authorized and empowered to make loans . . . for rural electrification and the furnishing ... of electric energy to persons in rural areas who are not receiving central station service. ... (Sec. 2 of the Act). That is also why the REA Act limited co-op service to communities of 1,500 people or less. These principles have often been honored only in their breach by REA administrators, but they stand today as the policy of the Congress. This established policy of the Congress has been repeatedly abused by REA in making generation and transmission loans. As an example of such abuse, I can personally testify about the $20.4 million generation and transmission loan granted in 1961 to Alabama Electric Cooperative, Inc., a generating and transmitting co-op in Alabama. This loan was, of course, granted by the Administrator without giving our company a hearing and notwithstanding the proposed project would make electric service available to no one to whom central station service was not already available; notwithstanding there was in effect a contract with our company to furnish the co-op an unlimited supply of electricity for its needs at a very low rate; that the operation of the proposed plant involved a breach of that contract by the co-op; that the co-op project would duplicate many miles of our transmission lines; that the co-op project would take from us co-op customers we had served for many years and would increase the cost of power to those co-op customers of ours. At a later hearing in Alabama on this proposed plant, it was proved without dispute that the cost to the taxpayers of this plant would far exceed the savings the co-op claimed would result to its customers by the construction of such a plant. This loan has been the subject of detailed testimony by A. W. Vogtle, Jr., on behalf of Alabama Power Company in 1963 before a Subcommittee of the House Committee on Appropriations on the 1964 Appropriations Bill. (88th Cong., 1st Sess., pp. 442-446.) Similar abuses have taken place in other states. These need not be described here in detail, as testimony has been given before the House and Senate subcommittees on Agricultural Appropriations for a number of years by witnesses who have outlined the facts about such loans. Indiana: Mr. Carroll Blanchar, president of Public Service Company of Indiana, has testified about a $70 million loan for generation and transmission purposes made in Indiana. Hearings on the Department of Agriculture Appropriations for 1967, before a Subcommittee of the House Committee on Appropriations, 89th Cong., 2nd Sess., Part 5 at 131-139 (1966). He also testified before such subcommittee on earlier occasions: Hearings for 1966 (Part 5, pp 235–239): Hearings for 1964 (Part 5, pp 409–413). Kentucky: Mr. A. Clay Stewart, vice president of Kentucky Utilities Company, has testified about a $54 million loan for generation and transmission purposes in Kentucky, the main customer therefrom to be a large industry. Hearings on the Department of Agriculture Appropriations for 1967 before a Subcommittee of the House Committee on Appropriations, 89th Cong., 2nd Sess., Part 5 at pp. 140-149 (1966). He had also testified earlier before such committee: Hearings for 1964 (Part 5, pp 403-409). Louisiana: Mr. J. J. Morrison, chairman of the board of Gulf States Utilities Company, has testified about a $56.5 million loan made for generation and transmission purposes in Louisiana. Hearings on the Department of Agriculture Appropriations for 1967 before a Subcommittee of the House Committee on Appropriations, 89th Cong., 2nd Sess., Part 5 at 358-362 (1966). Mr. Morrison earlier testified before such committee on 1966 appropriations (Hearings for 1966, Part 5, pp 239-249) and filed a statement with the Committee on Appropriations for the appropriations for 1965 (Hearings for 1965, Part 5, pp 313-315). Colorado: Mr. D. L. Broussard, vice president and secretary of Utah Power and Light Company and of Western Colorado Power Company, testified concerning the $23 million Colorado-Ute loan made for a generating plant in Colorado. Hearings on the Department of Agriculture Appropriations for 1967 before a Subcommittee of the House Committee on Appropriations, 89th Cong., 2nd Sess., Part 5 at pp 128-131 (1966). Earlier testimony had been given before such committee by Mr. E. A. Hunter, vice president of Utah Power and Light Company: Hearings for 1964 (Part 5, pp 423-428); Hearings for 1963 (Part 5, pp 291-296). Mr. Robert T. Person, president of Public Service Company of Colorado, and Mr. Ralph Sargent, vice president of such company, have testified before such committee on this loan: Hearings for 1964 (Part 5, pp 428-438); Hearings for 1963 (Part 5, pp 275–291). |