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electric cooperatives. Our Company's present plant generating capabilities are 1,524,000 KW with firm power purchases of 313,000 KW, making total available power in the amount of 1,837,000 KW. Our Company's net maximum demand during the summer of 1965 was 1,372,000 KW and our estimated peak demand for the summer of 1966 is 1,570,000 KW. The service area of our Company covers about 30,000 square miles and includes approximately 1,200,000 people. As of December 31, 1965, our Company served approximately 393,000 customers. Our Company stock, listed on the New York Stock Exchange and the Pacific Coast Stock Exchange is publicly held directly by more than 18,500 shareowners. Oklahoma Gas and Electric Company has shareowners in all fifty states of the Union and in a number of foreign countries. Our Company is regulated by the Oklahoma Corporation Commission and the Arkansas Public Service Commission in the states of Oklahoma and Arkansas, respectively. We are also regulated by the Federal Power Commission and the Federal Securities and Exchange Commission. I cite these facts in order to show you the size of our Company and our adequacy to serve the electrical requirements of all the residents in our service area.
Each of you I presume, is acquainted with the statutory intent and purpose of the Rural Electrification Act of 1936. I will not consume time to discuss that act in detail nor much of the operation that has occurred under it since its enactment 30 years ago.
STATEMENT OF D. J. TUEPKER, PRESIDENT OF PUBLIC SERVICE COMPANY OF
My name is D. J. Tuepker. I am president of Public Service Company of Oklahoma. I wish to oppose H.R. 14837 and H.R. 14000, known as the Federal Electric Bank bills.
After 30 years of two per cent interest loans, peculiar to the Rural Electrification Act, nearly 100 per cent of America's farms are adequately served with electricity.
Consequently, many question the propriety of suckling a two per cent loan program, long after the original concept of rural electrification has reached maturity.
The NRECA hired the New York investment firm of Kuhn, Loeb and Company to find a way to obtain capital, over and above the annual Congressional grant of 2 per cent money. The results of that study are before this committee in varying forms, calling for establishment of a federal electric bank.
These proposals are of widespread concern, both inside and outside the electric industry. A new billion dollar subsidy program is not in the public interest at a time when the nation's taxpayers face increased government expenditures for defense, when the threat of inflation is very real and the administration seeks to hold down expenditures in the private economy.
Of even greater concern is the abrupt departure from policies pursued in recent years on funds for rural electric co-operatives, threatened in both these bills.
Several years ago, congress indicated that the original REA act itself was too liberal in powers delegated to the REA administrator. He was given controls that congress reserved to itself when it came to funds for other agencies like the Department of Interior or the Corps of Engineers.
These agencies must come before your committees and justify the need for each and every project before funds are granted for hydroelectric facilities or transmission systems. Yet REA was handed hundreds of millions of dollars, lump sum, and not even a member of congress could penetrate the cloak of secrecy surrounding the plans to spend it.
Starting in 1963, both house and senate appropriations committees saw fit to write added controls onto funds used by rural co-operatives for generation and transmission. They directed the co-operatives to take advantage of low-cost power from neighboring utilities, where it was available on reasonable terms, instead of coming to Washington for money to build duplicate facilities.
Power purchased by co-operatives from companies, according to REA's most recent figures, averages 7.4 mills per kilowatt hour. That generated by G. and T. co-operatives costs an average of 8.3 mills.
Both federal electric bank proposals would completely discard these controls, along with other restrictions contained in the original REA act.
No longer would funds be limited to areas below 1,500 population not receiving central station service. Co-ops could take over industrial, commercial or residential customers in metropolitan areas now served by taxpaying electric companies.
The funds could be used to purchase municipal systems or entire electric systems like Public Service Company of Oklahoma.
No restrictions are written into your federal electric bank bills. Congress retains no control at all.
I was concerned at the reasoning expressed recently in a senate committee hearing on matters related to the Tennessee Valley Authority. One senator remarked how peaceful it had been since Congress gave TVA $ 750 millions of self financing authority and he was no longer exposed to the private-public power fight which used to spark TVA appropriation hearings.
I am disturbed that this congress is being tempted to abdicate its responsibility for control over expenditure of one billion dollars by rural electric co-operatives.
The underlying purpose of this proposed legislation is to retain all the privileges of a government agency plus absolute independence from congressional supervision.
The power of this new, free-wheeling financial institution would render the congress helpless in its defense of our free enterprise system.
Please do not abdicate.
Please do not relinquish your obligation to represent citizens, consumers and taxpayers by assigning your duties to the Governor of an Electric Bank.
The CHAIRMAN. Without objection, there will be made part of the record at this point a statement of J. T. Dudley, manager, Singing River Electric Power Association and South Mississippi Electric Power Association; a resolution of the Jackson Purchase Rural Electric Cooperative of Paducah, Ky.; a statement of Howard A. Cummins, executive manager, Ohio Rural Electric Cooperatives, Inc., a statement and covering letter of Thomas H. Moore, general manager, Association of Illinois Electric Cooperatives; a letter dated June 3, from A. U. Haugen, manager, Northern Electric Cooperative, Inc., Aberdeen, S. Dak.; and a letter dated June 13, 1966, from our colleague, Congressman John L. McMillan, of South Carolina.
(The documents referred to follow :)
STATEMENT OF J. T. DUDLEY, MANAGER, SINGING RIVER ELECTRIC POWER Asso
CIATION AND SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION Mr. Chairman and members of the committee, I wish to express my appreciation for the opportunity of filing testimony in support of supplemental financing legislation as contained in H.R. 14000 and other similar bills which have been introduced.
My name is J. T. Dudley; I am manager of Singing River Electric Power Association, Lucedale, Mississippi, and South Mississippi Electric Power Association, Lucedale, Mississippi. As chairman of the Resolutions Committee of the National Rural Electric Cooperative Association, it was my privilege to present the resolution supporting this legislation to our 1966 Annual Meeting where it was overwhelmingly approved by the NRECA membership.
Singing River Electric Power Association is a distribution association with 14,000 member-consumers in the southeast corner of Mississippi, bordering the Gulf of Mexico and the Alabama state line. South Mississippi Electric Power Association is a generation-transmission association which purposes to serve all of the power requirements of two member associations and a portion of the power requirements of two other associations.
I have been connected with the rural electrification program since 1938, and I sincerely believe that the legislation now being considered by this committee is the most important legislation concerning rural electrification introduced in Congress since the enactment of the Rural Electrification Act. During the early days of the program, I have experienced situations where insufficient capacity or overloaded lines resulted from the scarcity of material or the lack of proper advance planning. These situations cannot and would not be tolerated now or in the future with the increased dependence people have placed in the electric power industry. I do not believe anyone can seriously and sincerely contend that a source of capital funds and a satisfactory power supply are not absolutely necessary to the electric power associations of America.
I am firmly convinced that the supplemental financing program which is now being considered by this committee is the answer to these problems. I believe that the provisions of H.R. 14000 more nearly meets these needs and requirements.
Our kilowatt hour sales have doubled each four years for the past twenty-six years. We expect this growth to continue.
During the first seventeen years of operation, Singing River Electric Power Association invested $3,300,000 in construction funds. During the next ten years ending December 31, 1965, the association invested $4,900,000. At the end of seventeen years of operation, the association was serving 7,519 consumers. At this time we are serving 14,480 consumers. We expect growth to continue at about the same rate it has for the past ten years, and we will therefore need some $9,000,000 during the next ten years for capital improvements.
It is interesting to note that the witnesses of the commercial power companies who are opposing this legislation minimize the needs for additional loan funds for associations because a high percentage of people living in our service areas now have electric service. At the same time, they expect their investment to double every ten years and surely everyone in their areas must have electric service at the present time.
While a satisfactory source of capital funds is an absolute necessity to the electric power associations, a satisfactory source of power is equally important. The testimony of Mr. A. J. Watson, President of Mississippi Power Company and Mr. Harllee Branch, Jr., President of the Southern Company would lead one to believe that the power supply in their service area is satisfactory. I challenge any association in the United States outside the Southern Company's service area to show a more unsatisfactory power supply than that experienced by the six associations who purchase from Mississippi Power Company.
From 1953 through 1964 (the only years information is available to me) the associations who purchase wholesale power from the Mississippi Power Company have paid as much as 38% more per kwh for wholesale power than those neighboring associations who purchased their wholesale power from another commercial utility in another holding company group. They attempted to raise our rate by more than 30% in 1958. but, however, the contract and rates were never put into effect because REA made a loan to South Mississippi Electric Power Association in the amount of approximately $14,000,000. Mississippi Power Company has refused to sell us power to serve not only a particular load but a particular area which they expected to develop rapidly. On many occasions we have requested delivery points, both along their existing transmission lines where practically no invest ment was necessary and points away from their transmission lines, and had them either refuse us the service or decline to answer our correspondence. We have had a long history of unsatisfactory provisions in wholesale power contracts. Contracts on all of our new delivery points since 1959 have contained what we believe to be the most vicious dual rate provision of any wholesale contract in the country.
South Mississippi Electric Power Association filed an application in the Misissippi Public Service Commission in March of 1960 for a certificate of convenience and necessity to construct a generating plant and transmission system because of our unsatisfactory power supply situation. Our application was opposed by Mississippi Power Company and Mississippi Power & Light Company and has been in litigation since that date. In spite of the strong opposition of the two companies, the Mississippi Public Service Commission found that the public convenience and necessity did require the construction of the facilities and a certificate was issued by the Commission. The action of the Commission has been upheld by an Intermediate Court and by the Mississippi Supreme Court.
I strongly urge the adoption of legislation similar to II.R. 14000. I believe this legislation will provide the funds which are absolutely necessary to keep up with the load growth on distribution systems and for the construction of generationtransmission systems where unreasonable contract provisions make such construction necessary. I am confident that this supplemental financing program will gradually ease the burden on funds and we will eventually be able to operate without any Government funds. I know the committee is familiar with the Federal Land Bank, and the Bank of Cooperatives. I sincerely believe this program will be just as successful as those two programs are.
STATEMENT OF HOWARD A. CUMMINS, EXECUTIVE MANAGER, OH10 RURAL
ELECTRIC COOPERATIVES, INC. Mr. Chairman, on behalf of the rural electric cooperatives of the State of Ohio, I wish to express to you their unanimous opinion with respect to the establishment of a bank through which they may finance operations and capital requirements that cannot be met out of appropriations to the Rural Electrification Administration of the Department of Agriculture.
We in Ohio who are interested in rural electrification are of the opinion that we may not expect the Congress of the United States to appropriate sufficient funds to provide for all of the capital requirements of the rural electric cooperatives in this Nation. We also realize that very few, if any, of the rural electric cooperatives are or in the foreseeable future will be able to meet such requirements on the open money market. We, therefore, unanimously and wholeheartedly support the concept of the establishment of a bank which will be authorized to provide capital to those cooperatives who are able to afford financing at an interest rate in excess of 2% but who cannot afford the financing costs of the private money market.
We are of the firm conviction that the establishment of a bank as contemplated in pending legislation will enable existing and future rural electric cooperatives to find a means to finance their capital requirements without looking to direct appropriations by Congress. We are convinced that the present 2% interest loan program must be continued if many of the rural electric cooperatives in this nation are to survive and their consumers are to continue receiving an adequate electric service. A cessation of this program will inevitably result in many consumers of rural electric service going back to the coal oil lamp.
We most strongly urge this Congress and the members of this committee to establish a rural electrification bank so that a large number of our rural electric cooperatives may continue to survive. We hope the day will come when many of us will have sufficient financial strength so that we may turn to the private money market for our loan needs.
RESOLUTION OF THE JACKSON PURCHASE RURAL ELECTRIC COOPERATIVE CORP.,
Whereas the Jackson Purchase Rural Electric Cooperative Corporation of Paducah, Kentucky, is a rural electric system serving 11,000 member-families in the counties of McCracken, Ballard, Carlisle, Graves, Marshall and Livingston; and
Whereas the Jackson Purchase RECC, in order to provide adequate and reliable service for their members, will need an estimated growth capital in plant facilities of $10 million in the next 15 years; and
Whereas in recent years the amounts of loan funds budgeted by Congress has fallen far short of the growing requirements of the rural electries causing critical back-log of applications; and
Whereas the National Rural Electric Cooperative Association in Washington, D. C., which is the national service organization of REA financed rural electric systems, has studied this financing problem for approxiamtely three years to alleviate the rural electric loan fund shortage now existing and has designed a proposed Supplemental Financing Program ; and
Whereas the Jackson Purchase RECC supports the Supplemental Financing Program that is designed to adequately and economically meet the vast developments of the rural electric systems: Now, therefore, be it
Resolved, That the Board of Directors of Jackson Purchase Rural Electric Cooperative Corporation urge all our Congressional Delegation from Kentucky and all others to support the “Bass-Cooper" S. 3337 Bill in the Senate and the "Poage" H.R. 14000 Bill in the House.
We further resolve and hope you will give this Supplemental Financing Program immediate consideration and priority attention.
STATEMENT OF THOMAS H. MOORE, GENERAL MANAGER, ASSOCIATION OF ILLINOIS
My name is Thomas H. Moore. This statement is submitted on behalf of the Association of Illinois Electric Cooperatives of which I am General Manager. I have served as General Manager of the Association since 1961.
The principal office of the Association of Illinois Electric Cooperatives is at R. R. 4, Springfield, Illinois. It is a Statewide Association with all of the 27 distribution and the three generation and transmission cooperatives in Illinois as active members on a voluntary basis. Its primary function is to provide service to its member-cooperatives that they would find difficult or impossible to provide on an individual basis. The Association provides electric cooperatives and their members information on legislation and other governmental activities and functions affecting individual cooperatives. It also assists in coordinating the activities of and represents member cooperatives before legislative and administrative bodies. The 27 distribution cooperatives in Illinois serve about 148,000 members.
There is considerable difference between the electric cooperatives in Illinois. One cooperative, Farmers Mutual Electric Company, with headquarters at Geneseo, has only 658 members. In contrast, Southeastern Illinois Electric Cooperative, with headquarters at Eldorado, has nearly 15,000 members. There is also considerable variance in their financial ability and financial position. For example, Spoon River Electric Co-operative, Inc., at Canton, finds it increasingly difficult to provide its members with adequate electric service at a reasonable cost. In 1964, its net margins indicated a loss of $1,308. Because its potential for growth is extremely limited, its present financial plight is likely to continue for a long period of time. Spoon River Electric Co-operative's membership of 3,249 consists primarily of small to medium sized farms, many of which are on rough land along the tributaries of the Illinois River. For more than a decade it has lost members in much greater proportion than other cooperatives in Illinois, due to the vacation of farms because of open-cut coal (strip) mining. A significant increase in the use of electricity in its service area is not anticipated now or in the foreseeable future.
On the other hand, we have in Illinois, Corn Belt Electric Cooperative, Inc. with headquarters at Bloomington. Corn Belt serres 6,389 members. The territory served by this cooperative is in the heart of the Illinois corn belt, which is one of the most productive cash grain areas in the United States. Many of the farms it serves use large amounts of electricity. In addition, power loads hare increased through the years because of the establishment of a considerable number of non-farm users of electricity in its service area. It appears that Corn Belt Electric Cooperative will experience a steady increase in the volume of electricity sold and will have little difficulty in providing its member-consumers with adequate electric service at a reasonable price in the foreseeable future.
From a financial viewpoint, the other 25 electric distribution cooperatives in Illinois fall somewhere in between the two extremes outlined above. Spoon River Electric Co-operative will continue to have difficulty operating even with loans for capital improvements amortized over a period of 35 years at an interest rate of two per cent. In contrast, Corn Belt Electric Cooperative, Inc. is in a better position to pay interest rates on money borrowed for capital improvements that will more nearly reflect the cost of money in the open money market, if there is a financial institution from which it can obtain loans. Even though Corn Belt Electric Cooperative is in a strong financial position, it is doubtful if there is a financial institutions other than the Rural Electrification Administration where it could obtain loans to provide for its capital improvements in future years.
Also, there are cooperatives in Illinois that could pay a rate of interest higher than two per cent on loans for capital improvements, if there was a place to borrow it, but are not, at the present stage of their development, in a position to pay interest rates that would reflect the cost of money in the open market.
Therefore, if the provisions of H.R. 14000 should become law, some Illinois enoperatives would continue to need loans from the Rural Electrification Administration, amortized over a period of 3.5 years at an interest rate of two per cent; some would need loans at the intermediate rate specified in H.R. 14000 ; and some would be in a position to repay loans with an interest rate reflecting the cost of money utilized by the Federal Electric Bank in the loan program.
Illinois has a large number of successful cooperatives that provide services to their members. Electric cooperatives are a significant and important part of the overall cooperative program in Illinois. When the first electric cooperative was organized in Illinois, only a little over 12 per cent of Illinois farm families had central station electric service. Now central station electric service is avail.
1 During 1964. Egyptian Electric Cooperative and Western Illinois Electrical Cooperative also operated at a loss. However, it is believed that these losses are of a temporary nature and do not indicate the long-range financial potential of these cooperatives.