True, it provides the means by which generating and transmission capacity can be built and provided to serve the rural electric systems, but its purpose does not stop there. Its purpose is, also, by its very existence and by the availability of these facilities, through REA financing, to keep the wholesale market in line. In this way it has been very effective in reducing the wholesale power costs of the rural electric systems where they do continue to buy from the other power companies. The CHAIRMAN. Will you yield there? Mr. POAGE. Yes. The CHAIRMAN. You do buy power from private companies? Mr. CLAPP. About 38 percent of the total. The CHAIRMAN. You buy it because you can buy it cheaper than you can generate it? Mr. CLAPP. Where the borrowers can buy it on acceptable and proper terms, that is what they do. The CHAIRMAN. You buy it because you can purchase it cheaper than you can generate it, is that not true? Mr. CLAPP. I think in most cases this would be true. The CHAIRMAN. Would the policy be to not buy from the power companies in order to firm up your power? Mr. CLAPP. There is nothing wrong with that policy, Mr. Chairman, so long The CHAIRMAN. The REA is the best customer they have had in the past? Mr. CLAPP. Indeed it has been. Mr. POAGE. Now, following another one of these lines, what another witness testified to: It amazed me that a man would sit in that witness chair and testify that the power companies could not get 2 percent money from the REA. Dr. Dole's question was for a categorical answer and you have answered that they could. I wonder if you would comment a little bit about the early operation of this program and what actually happened. Is it not a fact that, as we established the REA in 1936, the power companies did come in and borrow-a number of them-you say 25, I believe who came in, and they secured loans from the REA for purposes of their companies, exactly the same purposes as those of cooperatives and on exactly the same rate basis, and under exactly the same terms. And would you not give the private power companies exactly the same terms today? Mr. CLAPP. As a matter of fact, Mr. Poage, I have approved in my tenure as Administrator of the REA a loan to a private power company in the State of Louisiana that is one of REA's active borrowers for its rural electrification facilities. So the answer to your question is, yes, and the record will show this. The history of the REA program as many members of this committee can recall, goes back to 1935. Mr. Morris Cooke was the first administrator of the REA and during that first year, between the creation of the REA as an agency under Executive Order of the Presi 65--357-6634 dent and the passage of the Rural Electrification Act in 1936. Mr. Cooke made a very determined effort to get the commercial industry to come in and do this job of rural electrification with REA assistance. I would just like to review some of that history, since you raised the question, and in the course of it, I would like to quote from an article written by Dr. H. S. Person, who served as consulting economist to the REÄ virtually from its inception until his retirement in the early fifties. Mr. POAGE. Is that the gentleman from the Colorado Power Co? Mr. CLAPP. It is a different man. This page in the April 1950 issue of Agricultural History-this is the way Dr. Person describes this and I quote: Before Executive Order No. 7037 was issued, there had been informal conferences with representatives of commercial companies, because it had been foreseen that their cooperation was essential if REA were to serve effectively as a relief agency. I might inject there that you will recall that the first appropriation for the REA was $100 million, made as a part of the Federal Emergency Work Relief Act of 1935. This was when the Federal Government was trying to find ways and means of putting people back to work and it was felt that there was no more worthwhile project than putting people to work building lines for electricity to bring electric service to the rural people. Nine days after its issue a formal conference was held at the Lafayette Hotel in Washington, at which 15 of the largest commercial companies were represented by major executives. This meeting was one of surface good will but without commitments. At the suggestion of the Administrator of REA the utility execu tives present appointed a special committee of the industry to make a survey of "the approximate extent to which further development of rural electrification may be effected promptly in cooperation with the Rural Electrification Administration." The subcommittee reported in a 14-page letter to the Administrator under date of July 24, 1935. This letter is reproduced in full at pages 34 to 38 of the hearings before the Committee on Interstate and Foreign Commerce, House of Representatives, 74th Congress, 2d session on S. 3483, which was enacted as the REA Act of 1936. I now continue to quote from the Person article: This report expressed the judgment that in the light of earlier extensive research work "there are very few farms requiring electricity for major farm operations that are not now served"— And let me remind you that this is 1935 when less than 1 farm in 11 had central station electric service in the country, and in many States the ratio was not that high, but this is what the subcommittee reported at that time: "there are very few farms requiring electricity for major farm operations that are not now served" and that "additional rural customers must largely be those who use electricity for household purposes." The further judgment was expressed that the problem of the farmer is “a social rather than an economic problem"; and that it is "not one of rates, but of financing the wiring and purchase of appliances." Let me continue. The proposals in this report, the assumption that rural electrification should be exclusively a commercial company affair, the lack of appreciation of the significance of rates and other costs to progress in rural electrification, and especially the lack of vision as to what could be accomplished by a vigorous and consistent program of rural electrification looking toward "area coverage" were not met by enthusiastic response on the part of REA. In a letter of July 31, the Administrator made a courteous reply, took issue on the matter of the significance of rates and costs, stated that he would refer the matter of credit for appliances to the proper agency (meaning the Electric Home and Farm Authority then in process of reestablishment with national scope), and advised the commercial companies that "we are now organized and authorized to receive requests for loans for rural line construction from public and private agencies. May we invite your further good offices in advising those sections of the industry with which you are in touch that our routines have been established and the maximum of activity is now our desire?" Informal relations with the industry continued, but they gradually diminished, and what it had been hoped would be cooperation of the commercial companies became transformed to strong opposition to REA activities that has continued to the present time. There was at the time a consensus of many that the commercial utilities had decided on advice of counsel that it would not be expedient to enter into cooperating relations with REA at the same time that legal conflicts with the Government were developing on other fronts. In his first report to the Congress on January 20, 1937, the first REA Administrator had this to say, and I quote again from the Person article: Circumstances were conspiring to compel the Administrator later to report that "Before December (1935) however, it became apparent that the industry was not going to use even a substantial portion of the funds available for rural electrification, and farm organizations of a cooperative character forged to the front as the principal borrowers under the REA program." During the hearings above referred to, Administrator Cooke testified on March 13, 1936, as follows: The CHAIRMAN. How long is that? Mr. CLAPP. It is just about 30 seconds, Mr. Chairman. The CHAIRMAN. All right. Mr. CLAPP. He said: The latchstring has been out to the private companies. Every offer, every request from private companies has been received just hospitably as from any other quarter. Again, on March 14, 1936, Mr. Cooke, while expressing reservations as to private companies as borrowers, stated: Now, as a matter of fact, with the doors wide open to them, of the money that we have loaned, somewhere between 5 and 10 percent has gone to the private companies and the fact that this percentage is low has not been because there has been any prejudice against them; quite the contrary. I am very anxious to loan private companies. I might point out that the REA Act, as enacted, specifically included corporations as eligible borrowers. I might submit for the record, Mr. Chairman, a list of the commercial power companies that borrowed money from the REA. This is the list giving the total loans approved, the date of the first loan, the date of repayment. The CHAIRMAN. All right, you may submit that for the record and it will be included at this point. (The document entitled "U.S. Department of Agriculture, Rural Electrification Administration-Cumulative REA loans to commercial power companies as of June 1, 1966," follows:) U.S. Department of Agriculture, Rural Electrification Administration— Cumulative REA loans to commercial power companies as of June 1, 1966 Mr. FINDLEY. Will Mr. Clapp be back in the morning? The CHAIRMAN. He will not be back here because we will not meet on this subject until next Monday He will be available. Mr. CLAPP. I will be available at any time, Mr. Chairman. The CHAIRMAN. He will be back then. Tomorrow we will have before us Secretary Freeman in connection with the development program. We will now stand in recess until tomorrow morning at 10 o'clock. (Whereupon, at 11:10 a.m., the hearing was adjourned to reconvene Thursday, June 9, 1966, at 10 a.m.) REA LEGISLATION TUESDAY, JUNE 14, 1966 HOUSE OF REPRESENTATIVES, The committee met, pursuant to recess, at 10:15 a.m., in room 1301, Longworth House Office Building, Washington, D.C., Hon. Harold D. Cooley (chairman) presiding. Present: Representatives Cooley, Poage, Gathings, Hagen of California, Purcell, Morrison, Olson, O'Neal, de la Garza, Vigorito, Redlin, Bandstra, Greigg, Callan, Dague, Belcher, Teague of California, Findley, Dole, Burton of Utah, and Hansen of Idaho. Also present: Betty Prezioso, staff; John J. Heimburger, counsel; Fowler C. West, staff; and Francis LeMay, consultant. The CHAIRMAN. The committee will please be in order. I recognize Mr. Herbert L. Branan, vice president of the Oklahoma Gas & Electric Co., of Oklahoma City, Okla., as our first witness. I understand that you also want to file some statements. STATEMENT OF HERBERT L. BRANAN, VICE PRESIDENT, OKLAHOMA GAS & ELECTRIC CO., OKLAHOMA CITY, OKLA. Mr. BRANAN. Mr. Chairman, and members of the committee, I would like permission to file a statement for Donald S. Kennedy, president, Oklahoma Gas & Electric Co. My name is Herbert L. Branan. I am vice president of the Oklahoma Gas & Electric Co., and I would also like to file a statement on behalf of D. J. Tuepker, president of the Public Service Co. of Oklahoma. These statements were prepared for June 2 and 3, they bearing that date. The CHAIRMAN. They will be made a part of the record at this point. (The statements of D. S. Kennedy and D. J. Tuepker follow :) STATEMENT OF D. S. KENNEDY, PRESIDENT OF OKLAHOMA GAS & ELECTRIC CO. My name is Donald S. Kennedy, President of the Oklahoma Gas and Electric Company, and I appear here in opposition to the enactment of HR 14837, HR 14000 or any legislation similar in design and purpose thereto. The Oklahoma Gas and Electric Company, with executive offices at 321 N Harvey, Oklahoma City, Oklahoma, was incorporated February 27, 1902, and has been continuously engaged in the electric utility business since that time. All gas properties were disposed of in 1928. Oklahoma Gas and Electric Company now furnishes retail electric service in 261 cities and towns in Oklahoma and Western Arkansas. In addition, the Company provides wholesale electric service to 17 communities and four rural |