Mississippi: Mr. A. J. Watson, Jr., president of Mississippi Power Company, testified concerning a $16 million loan (later increased in amount) made for construction of generation and transmission facilities in Mississippi. Hearings on the Department of Agriculture Appropriations for 1964 before a Subcommittee of the House Committee on Appropriations, 88th Cong., 1st Sess., Part 5 at pp 400-403 (1963). Mr. Watson also testified in the preceding year: Hearings for 1963 (Part 5, pp 271–275).

Florida: Mr. R. L. Pulley, president of Gulf Power Company, testified concerning a loan of $1.2 million or more for construction of a diesel generating plant and transmission line extensions into Florida for service to an Air Force establishment. Hearings on the Department of Agriculture Appropriations for 1964 before a Subcommittee of the House Committee on Appropriations, 88th Cong., 1st Sess., Part 5 at pp 413-416 (1963). Mr. Pulley also testified in the preceding year: Hearings for 1963 (Part 5, pp 296-299).

Following this testimony protesting such abuses, the Committee reports have reiterated the basic Congressional policy that income-tax-free co-op generation and transmission facilities should be built only when it can be shown that taxpaying facilities have failed to do a reasonable job.

A few excerpts from those reports will suffice:

"Before public funds are loaned for power generation or transmission, a majority of the committee believes the REA Administrator, in connection with any such loan, should make a survey, determine wherein the existing contract for power or the proposed contract is unreasonable, advise the supplier wherein such contract is unreasonable and attempt to get such contract modified to make it reasonable. Loans should be made only when reasonable contracts cannot be obtained.

"With regard to any further generation and transmission loan approved, the Administrator should certify to the Secretary of Agriculture that each of these steps has been taken and that the private supplier has been given an opportunity to make the contract reasonable, specifying the details, and had refused or failed to do so." (H.R. Rep. No. 355, 88th Cong., 1st Sess., 1963).

The Senate Committee on Appropriations, in its Report No. 497 in the same Congress, concurred fully in the House Committee recommendation. These guidelines are still in effect.

In August 1962, the Senate Committee on Appropriations Report said: "The committee is concerned about the controversy which is developing with regard to generation and transmission loans. It is noted that in reporting the Food and Agriculture Act of 1962, S. 3225, the Senate committee report described the history and major developments under the Rural Electrification Act of 1936, as amended. The committee endorses the statements made in that committee report which caution the Administrator of REA not to make these large generation loans unless they are completely necessary, and suggest that negotiations between REA borrowers and investor-owned companies should proceed in a fair and equitable manner.

"The committee believes that both the REA cooperatives and private power are here to stay and they ought to work together as equitably and fairly as possible. We make bold to suggest that the Committee on Agriculture and Forestry may wish to carefully reexamine this aspect of the program." phasis added). (S. Rep. No. 1908, 87th Cong., 2nd Sess.)

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In June 1963, the House Committee on Appropriations Report said: "A majority of the members of the committee believe the right to make loans for power generation and transmission purposes, with funds available to implement such right, if necessary, is absolutely essential to enable REA cooperatives to obtain reasonable contracts from private power suppliers with regard to rates, terms, and conditions. However, a study of the REA Act and its history clearly shows that it was never intended that this authority be used except for substantial reasons, and not merely to supplant private suppliers." () (Emphasis added). (H.R. Rep. No. 355, 88th Cong., 1st Sess., 1963).

H.R. 14837 would abandon these principles and provide for virtually unlimited expansion of co-op generation and transmission facilities subject to no Congressional control.

It is mockery to characterize this bill as one to get REA off the taxpayers' backs. The added burden that would be cast on taxpayers by this interest-subsidized and tax-exempt expansion is measured only by the amount of such expansion; for, as I have pointed out, every dollar in taxes escaped by these co-op

facilities must be paid by other taxpayers. As an indication of the magnitude of the burden to be cast on taxpayers by the loss in taxes alone, 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 federal and state taxes than investor-owned companies would have paid on the same amount of electric plant.

Gentlemen, we are not seeing ghosts when we speak of unlimited expansion of generation and transmission facilities under this bill. An example of the type of facilities which could and probably would be financed under this legislation is the so-called Yankee-Dixie project.

This project has been seriously advanced and widely publicized. It is being sponsored by many prominent advocates of co-op generation and transmission facilities. The project, as conceived by its sponsors, includes three huge power stations of two million kilowatts each, with connecting extra high voltage transmission lines and radial transmission lines extending from Maine to Florida and covering much of the eastern United States. A map taken from the brochure circulated by the Yankee-Dixie Association is attached to this statement and shows the extent of the proposed undertaking. It would cost over a billion dollars and would be built by an organization which would, of course, pay no federal income tax. This is only one of many such projects this bill would probably bring into being.

This proposed legislation is not what the public interest requires. The public interest requires legislation to curtail the waste of public funds and the loss of tax revenues already being caused by the unnecessary building of incometax-exempt generation and transmission facilities.

A primary and extremely urgently needed amendment would require that the Administrator hold a hearing-an open hearing-before making a loan for generation and transmission purposes. As this Committee doubtless knows, all applications for such loans are processed in secrecy.

Further, any action of the Administrator in granting a loan for such purposes should be subject to review by the courts in accordance with the Administrative Procedure Act. On a number of occasions arbitrary action of the Administrator has been allowed to remain unchallenged because of court decisions to the effect that the damaged investor-owned utility had no standing to raise a question as to the Administrator's action whether it be arbitrary, lawful, or otherwise.

A second area of amendment should require that loans for generation and transmission facilities should not be made when the resulting cost to the taxpayers is greater than the estimated saving to the customers to be served from such facilities. There is certainly no valid reason why taxpayers should pay more than co-op customers would save.

I respectfully submit for your consideration the following amendment to the Rural Electrification Act:

1

"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 and 6% 1 multiplied by the amount of such loan, and (2) federal income taxes foregone. Federal income taxes foregone shall be calculated by multiplying the amount of the loan by that percentage the federal income tax paid by Classes 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."

The provisions of this bill would mark a radical departure from principles long established by the Congress, principles which have their foundations in elementary fairness and fiscal common sense. It makes no sense for a government dependent on taxes to foster unneeded enterprise which would destroy the government's tax revenues. It is unfair to take the taxes of one man to build elec tric facilities for another in the absence of some overriding public interest. It is wrong to destroy the tax-paying investment of citizens by subjecting that

16% is considered to be the minimum annual cost or worth to taxpayers of funds taken from them to build such facilities.

investment to income-tax-exempt competition in the absence of any impelling public interest.

The device of interest subsidy and tax exemption 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 tax-paying enterprise. This bill's radical departure from fundamental and established government policy would have profound economic repercussions which neither we nor this committee have had opportunity to explore.

Gentlemen, on behalf of our millions of investors whose savings have made possible the finest electric system on the face of the earth, and on behalf of all taxpayers, we invoke The Golden Rule. You would not have this done to you.

Mr. POAGE. I would like to inquire on two matters which you suggested in connection with this suggested amendment. Of course, I think you suggested an amendment which in its broad terms is appealing. But how would you determine whether the existing facilities would provide the service cheaper than the new facilities?

Mr. BOULDIN. The Administrator does that all the time. He makes his estimates.

Mr. POAGE. I know. But it is obvious-at least as far as I know— now, you may be able to correct me-you may know of some instance I don't know of. But I don't know of one single instance in the United States where there was ever an application for a generating facility that by the time it was well along and construction started, or the loans approved, that the power companies in the area didn't offer to supply the power just as cheap as it could be produced by the new facility.

Do you know of any?

Mr. BOULDIN. I know in our own case, of course. We were supplying the power before the application was ever made.

Mr. POAGE. I understand. But do you know of a single instance in the United States where there has ever been a generating facility built with an REA loan

Mr. BOULDIN. You mean an application?

Mr. POAGE. Yes-made for an REA loan, that by the time it was constructed, the power company wasn't willing to provide power just as cheap as they could produce it?

Mr. BOULDIN. Usually it has been my experience that the power company has been willing to provide that power before the generating facility is constructed.

Mr. POAGE. Let's stick with my question first.

Do you know of any such instance?

Mr. BOULDIN. That the electric company offered to meet the rate after the

Mr. POAGE. Do you know of any instance where by the time the facility was constructed, one or more local power companies had not offered to provide the power just as cheap as the new plant could produce it?

Mr. BOULDIN. I don't know that I can name an instance where an electric utility company has not offered the co-op as low a rate as it could be expected to get from generating facilities, if that answers your question.

Mr. POAGE. I think that answers it.

Now, then, would you make your amendment dependent upon the rate that the power company finally offers, or would you make it depend upon the rate that was published at the time the application was originally filed?

Mr. BOULDIN. I would make it apply to the situation at the time the Administrator was examining the application.

Mr. POAGE. You would, in effect, let the power company bid on it? You would say, if the established rate were, let us say, a cent and a half at the time the co-op asked for a loan and they figured they could produce power for a cent and they went to the Administrator, and then the power company came in and said, "But we will supply that for

three-quarters of a cent," you would say that the REA would have to turn down the loan. Is that what you are saying?

Mr. BOULDIN. Of course.

Mr. POAGE. "Of course."

Mr. BOULDIN. Yes.

Mr. POAGE. Then you have taken away any possibility of ever really getting anything down the line without going through all of the processes of working out all of the plans and spending all of the money necessary to make a presentation-because we know that in the final analysis the power company is always going to reduce the rate. They always do. They always come up with a rate that is lower than anything that can be produced at the new facility-but they don't do it until we have turned all the wheels.

Mr. BOULDIN. I don't know that that is always true, Mr. Chairman. Mr. POAGE. You cannot point out where it is not.

Mr. BOULDIN. I don't know of one. But I can imagine cases in which-particularly, if this bill should pass

Mr. POAGE. I am not talking about if this bill should pass. I am talking about right now. You are complaining that you are being mistreated by unfair competition.

Mr. BOULDIN. We are complaining about this particular matter. What you are talking about because we don't get a hearing.

Mr. POAGE. Why should you have a hearing if you have got a published rate? You have a rate which you hold out to everybody so they know what your rate is, and your rate to cooperatives is a mill and a half, and the cooperative comes along and says, "We believe we can produce that power for a mill," and that is still pretty high priced power in my country-but we think we can produce it for a mill.

Mr. BOULDIN. You mean a cent, Mr. Chairman-nobody can produce it for a mill.

Mr. POAGE. I do mean a cent, of course-certainly-we can produce that for a cent, "we think we are still pretty high, but if we reduce our rate by 30 percent, it is still a pretty good deal."

But in every event, I know of-I am not going to say there are not some exceptions-but in every event I know of, the power company has always, before that plant came on the line, offered to sell power at a lower cost than the plant could produce it.

Mr. BOULDIN. Or long before the plant was ever contemplated.

Mr. POAGE. I am not saying that nobody offered to sell it before, but I am saying there are a good many who have not offered to sell it before. All I am suggesting is that it would be fair to say in your amendment that if the power company had publicly offered, prior to the filing of an application for a loan to sell power at less than the cost of production, that then you should have a hearing. But if you have not made that offer, how does anybody know what you are going to offer?

You require, by your method, as I see it-you require that the REA lay its hand out before you and before its banker, and let you sit in on its negotiations to make a loan.

Mr. BOULDIN. Not the negotiations.

Mr. POAGE. Yes, you do whenever you require the man to show his competitor all of his financial situation, you can break most any