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miles of rural electric lines to serve 26,700 farms. By 1949, we had constructed over 23,000 miles of rural lines and connected our 100,000th farm customer, a feat recorded in the Congressional Record on Monday, October 10, 1949, by Representative Earl C. Michener. That represented more than one-half the farms in Michigan. We still continue to serve more than one-half of the farms in Michigan. The number of farms served reached a peak of 105,802 in 1951 which represents an achievement never since reached by any other single power supplier in the United States. From the very beginning of its historic rural electrification program, and as is the case today, the company did not differentiate between rates charged its farm customers and those charged its city or urban customers.
Consumers Power Co. is opposed to the creation of a Federal Electric Bank or a Federal Electric Bank for Rural Electric Systems as proposed by H.R. 14000 and H.R. 14837. We are convinced that in order to continue to meet the electrical requirements of their customers, the rural electric distribution cooperatives in Michigan do not presently require any means of financing in addition to those presently available to them. Furthermore, we believe that the adoption of the proposed legislation would encourage the rural electric generating and transmission cooperatives in Michigan to continue to undertake uneconomical and needless expansions of their generating and transmission facilities as, the record indicates, they have done in the past. And we believe such legislation would also encourage those cooperatives to continue to extend their facilities in order to sell wholesale electric power to cities rather than to provide service in rural areas as contemplated by the law.
At present there are 13 rural electric distribution cooperatives operating in Michigan. As of the end of 1964, they had a total of about 95,000 customers, and the total amount of loans that had been advanced to them at that time by the Rural Electrification Administration aggregated approximately $58 million. Since the State of Michgan is now adequately served with electricity-it is 99 percent electrified—and inasmuch as electric facilities extend now to essentially all areas of the State, it is reasonable to assume that there will be little need for further service area expansion of the rural electric distribution cooperatives in the State. Accordingly, although we recognize that the distribution cooperatives will need additional funds in order to meet any increase in electrical requirements of their existing customers and the requirements of any new customers within their present service areas, the presently available sources of funds seem more than adequate to meet these reduced requirements for additional funds. Clearly, the asserted need for additional sources of financing on the part of the rural electric cooperatives is not reflected by the situation in Michigan. Hence, we oppose the creation of a Federal Electric Bank.
As I have indicated, our opposition is also based upon an experience of uneconomical and needless expansion of generating and transmission facilities by the cooperatives in that part of the State in which Consumers Power Co. renders electric service. In the Lower Pe. ninsula of Michigan where the company operates, there are two gener
ating and transmission cooperatives and 10 distribution cooperatives. Of the latter, two cooperatives purchase their entire power requirements and one purchases substantially all of its requirements from the investor-owned utilities in the area. The other seven distribution cooperatives have joined together to form the two generating and transmission cooperatives, which are called Northern Michigan Electric Cooperative and Wolverine Electric Cooperative, and receive all of their electricity from them.
In 1950, when Northern Michigan and Wolverine Electric were formed, Consumers Power Co. offered to provide wholesale power at costs which the record has shown to be substantially lower than costs actually experienced by the seven cooperatives who obtained their power from Northern Michigan and Wolverine. Thus, if these distribution cooperatives had purchased their power from Consumers Power Co. during the years 1950 through 1964 at a cost equal to the average rate paid by all of the company's wholesale customers, the seven distribution cooperatives would have realized a direct savings in power costs of $5,878,000 during that 15-year period. This is shown in exhibit A accompanying my statement.
As a matter of fact, the cost of power to those distribution cooperatives is among the highest experienced by rural electric cooperatives anywhere in the United States. This is shown by exhibit B accompanying my statement. It is also worthy of note that the power costs incurred by the three distribution cooperatives served by the investorowned companies are substantially less than the costs sustained by those distribution cooperatives who are served by the generating and transmission cooperatives. Thus, for the fiscal year ending June 30, 1965, the seven distribution cooperatives obtaining their power from the two generating and transmission cooperatives purchased a total of about 265,456,000 kilowatt-hours of energy at a cost of approximately $3,790,000. This is an average cost of 14.3 mills per kilowatt-hour. During the same fiscal year, the three distribution cooperatives which purchased energy from investor-owned utilities obtained their power at an average cost of 8.38 mills per kilowatt-hour. This is shown by exhibit C accompanying my statement.
In 1964, Consumers Power Co. was approached in connection with the additional power requirements of both Northern Michigan and Wolverine. As in 1950, the company again offered to supply these requirements at costs considerably below the power costs previously experienced by the cooperatives. Our proposal was amended seven times in an effort to provide the cooperatives with the type of agreement and power supply they wanted, but these were all rejected as being unsatisfactory.
Incidentally, in the revision of the contracts we offered to let them connect to our 138-kilovolt-ampere system wherever and whenever the load required it, and they rejected it. Accordingly, a loan was subsequently approved by the Administrator of the Rural Electrification Administration in the amount of $12,446,000 for additional generating and transmission facilities. In our opinion this action only perpetuated the high cost of power to the distribution cooperatives and their member customers. I might add that it has an adverse effect on the orderly industrial development of this part of the State of Michigan, because of the cost of power. It is no wonder, then, that we oppose the promulgation of legislation which will further encourage the uneconomical and needless expansion of generation and transmission facilities, which cannot help but result in economic detriment to the people of the State of Michigan-and, I might add, to the United States of America. As an example, the average residential or farm customer served by the nine distributing cooperatives operating in the company's general service area is presently paying from 12 to 61 percent more for electric service than are the company's customers in these same areas. This is shown by exhibit B accompanying my statement:
As I have suggested before, we also believe the proposed legislation would encourage the generating and transmission cooperatives in our State to expand their facilities in order to sell wholesale electric power to cities rather than to provide service in rural areas as contemplated by the law. The electric systems of the two generating and transmission cooperatives and the seven distribution cooperatives are not interconnected with a number of municipal electric systems. Although these interconnections are generally promoted as required for mutual assistance, some of these arrangements appear to be made solely for the purpose of selling wholesale electric power on a firm basis which is opposed to the basic intent of the REA Act. I would like to cite some examples.
In our service area, the Wolverine Electric Cooperative furnishes the village of Portland, Mich., a municipality of more than 3,300 population, with approximately 4,000,000 kilowatt-hours of wholesale energy a year. This amounts to about 25 percent of the annual power requirements of the village of Portland. The rate paid by Portland to Wolverine is 8 mills per kilowatt-hour as compared with the average cost of 14 mills paid to Wolverine by its distribution cooperatives during the years 1950 through 1964.
This indicates that urban customers are being given preferential rates.
In 1963, the Wolverine Electric Cooperative extended its transmission system about 16 miles to the city of Lowell, Mich., a city having a population of more than 2,500, even though Consumers Power Co. had facilities available to serve the city of Lowell and was negotiating with the city. For the fiscal year ending June 30, 1965, Wolverine sold the city approximately 7 million kilowatt-hours of wholesale energy at a rate of 8 mills per kilowatt-hour. This amounted to approximately 50 percent of the power requirements of the city of Lowell.
In 1965, the Wolverine Electric Cooperative offered to extend its transmission facilities approximately 14 miles to interconnect with the electric system of the city of St. Louis, Mich., a community having a population in excess of 3,800, and offered a 10-year contract calling for the purchase by the city of a minimum of 5 million kilowatt-hours per year at a rate of 8 mills per kilowatt-hour. The city's total requírements for electric energy are only 8 million kilowatt-hours per year.
This occurred at a time when Consumers Power Co. had adequate facilities available to serve the city and was offering to do so.
In 1965, the Wolverine Electric Cooperative offered to extend its transmission facilities approximately 14 miles to interconnect with the electric system of the city of Allegan, Mich., a city having a population of more than 4,800, under circumstances requiring no power purchases by the city and no charges to the city for such interconnection. Again, this occurred at a time when Consumers Power Co. had facilities in the city of Allegan and was willing to make an interconnection with the city.
In summary, then, it is our belief that the distribution cooperatives in the State of Michigan have been able to continue to satisfactorily finance their operations under the existing law. Moreover, it is apparent that additional financing would not be required by the generating and transmission cooperatives in our State if they would discontinue their uneconomical and unnecessary expansion of generating and transmission facilities and would discontinue the making of interconnections with municipalities for the purpose of selling electric energy at wholesale. It is our recommendation that you do not report favorably with respect to H.R. 14000 and H.R. 14837.
I thank you for affording me the opportunity to present this statement in opposition to these bills.
(Exhibits A, B, C, and D submitted by Mr. Campbell follow :)
Power cost comparison, 1950-64 (This comparison shows the cost of power purchased by rural electric cooperatives from Northern Michigan
and Wolverine Electric Cooperatives as compared to the cost of power purchased by wholesale customers from Consumers Power Co.)
Northern Michigan 1
Consumers Power Co.3
1950. 1951. 1952. 1953. 1954. 1955. 19.46. 1957 1958. 1939 1900. 1961. 1962 1963 1964..
85, 877 78, 822 91, 065 93, 525 84, 473 93, 356 111, 929 151, 784 168,518 208, 872 249, 636 278, 252 322, 776 370, 656 334, 983
979, 186 1, 129, 935 1, 135, 790 1,015, 077 1,069, 726 1, 325, 406 1, 864, 188 2,080, 179 2, 526, 043 2,956, 622 3, 298, 694 3, 740, 699 4,187, 933 3,845, 597
14, 481, 946
15, 217, 470
2, 730, 524
32, 187, 962
1 Annual report of energy purchased by REA borrowers, Rural Electrification Administration, U.8. Department of Agriculture.
* Annual report on wholesale sales to M.P.S.C.
NOTE.-Had the distributing cooperatives purchased power directly from Consumers Power Co., at a Tate equal to the average paid by all wholesale customers, a direct saving in power costs of $5,878,000 would have been realized.
(Average rate per kw.-hr., Northern Michigan, 1.55 cents; average rate per kw.-hr., Wolverine; 1.40 cents, average rate per hw-hr., Consumers Power Co., 1.18 cents.)
Nebr. 1. Dak.
S. Dak. Miss.
1. Max. Ni Car. chio
3. Car. V. S. Virginia
Florida Michigan Wash.