AFTERNOON SESSION

Mr. POAGE (presiding). The committee will please come to order. I call on our colleague, Mayor Greigg, to introduce the first witness. Mr. GRIEGG. Mr. Chairman, I am most pleased to call the attention of the committee to two very distinguished gentlemen from northwest Iowa who are here today to testify, Mr. Robert Cejka, president of the board of directors of the Corn Belt Power Cooperative located in Humboldt, Iowa, and Mr. Buckner, who is the general manager. I think Mr. Cejka will offer the oral testimony and Mr. Buckner will be available for any questions.

Mr. POAGE. Mr. Cejka, we will be glad to hear from you.

STATEMENT OF R. R. CEJKA, PRESIDENT, BOARD OF DIRECTORS, CORN BELT POWER COOPERATIVE, HUMBOLDT, IOWA; ACCOMPANIED BY MR. BUCKNER, GENERAL MANAGER

Mr. CEJKA. Mr. Chairman, members of the House Agriculture Committee, we are very pleased to be able to be heard today. We will deliver part of our testimony orally, and we are filing with the committee clerk the full text of our testimony. We will be as brief as possible, but we will get all of our testimony in.

I am R. R. Cejka, president of the board of directors of the Corn Belt Power Cooperative of Humboldt, Iowa. I have been a farmer all of my life, livestock being my principle agricultural production. I have been intimately acquainted with Rural Electrification Administration and its program since its inception. I helped organize our distribution cooperative, Pocohantas Rural Electric Cooperative, in 1936 and have been a member of its board since that time. I helped organize and served on the board of Central Electric Federated Cooperative Association, one of the parent G. & T.'s which later formed Corn Belt, and have been a member of the Corn Belt since 1961 and a member of the Iowa State Board of Rural Electric Cooperatives since 1957. As one of the pioneers of rural electrification, and with my experience as a board member of one of the oldest G. & T.'s in the United States, I feel I am qualified to speak about rural electric cooperatives and their operations.

When the REA Act of 1936 was first passed, it was the opinion of most people that this money would be borrowed by the then existing power suppliers to serve the rural areas. While a few did do this, most investor-owned utilities felt it would never be profitable to serve the sparsely populated rural areas. If a farmer wanted service, he was told, "Yes, we will serve you, if you will pay the construction costs for the line and transformers needed and then deed them to the company." This meant the cost of central station service was too expensive for all but a few who lived on or very near an existing line. All others were left out, with no hope of service at a cost which would afford them a standard of living equal to that enjoyed by people in urban communities.

The idea of cooperatives was then suggested by REA and promoted through the county extension service. It was the intent to build the distribution system and buy power from investor-owned utilities

or municipals to serve the members. It was soon found that it was impossible to buy power at a price a member could afford and meet the criteria set forth by the REA Administrator.

The two parent G. & T.'s were not formed from choice; but out of necessity. The distribution cooperatives had, with the help of their engineers and REA, made every effort to obtain a wholesale rate from the investor-owned utilities which would allow them to operate and sell to their members at a price they could afford to pay. When it was found this could not be done, the decision was reluctantly made to form G. & T.'s to supply the necessary energy. These two parent G. & T.'s operated diesel plants and used the 12.5 kilovolt distribution lines as transmission lines. As loads of the members continued to grow, the decision to merge the two G. & T.'s was made. In 1948, the merger was made, and Corn Belt was formed. Since that date, Corn Belt has continued to strengthen its generating and transmission system, as needed, to meet its members' requirements.

The history of Corn Belt shows a slow, but steady, progress in the gradual reduction of cost of electric service. All reductions and savings in cost are passed directly back to our members. We serve a firm load of 14 member rural distribution cooperatives, who in turn, serve approximately 30,000 rural families and small industries.

Corn Belt has always been an advocate of interconnections with other utilities. An interchange agreement was signed in 1942 between Central Electric, a parent of Corn Belt, and the town of Alta, a municipal generating system, from which we used to buy power. Since this time we have continued to make interconnections. At the present time we are interconnected with two investor-owned utilities (and will soon add a third), 15 municipalities and the U.S. Bureau of Reclamation. We would be the first to agree that these interconnections are of great value to Corn Belt, as they are to everyone else in the utility business.

There are two basic principles that must be met by any two systems which interconnect. First, there must be benefits for each party; and second, each party must provide its fair share of the costs involved. The ratio of benefits helps determine the cost sharing. One of the prime requisites is adequate financing. A party of interconnections must finance his share of generation, substations, and transmission facilities. You cannot expect equal benefits without equal participation. Corn Belt has always followed these principles in making interconnections; and, as a result, has helped build a system of value to its members and the area in which we operate. We are planning our generation and transmission program in conjunction with investor-owned utilities, municipals, and Federal agencies in the area. We must make our fair contribution to the generation and transmission needs of the area based on benefits received and service required. This joint planning has helped eliminate duplication of facilities in our area, and provided more efficient operation.

Corn Belt is a member of the Iowa power pool. The membership of the pool includes five investor-owned utilities and one rural electric cooperative, Corn Belt. I am a member of the executive committee. of this pool. We are one of the relatively few cooperatives who are a pool member, and we enjoy a beneficial and profitable relationship.

This relationship would not be possible if we were not willing and able to furnish our fair share of investment in generation and transmission. It is true the systems of the investor-owned utilities and Corn Belt overlap. This must be done when they serve the urban areas, and we serve the rural. Our joint planning, however, has allowed all of us to make the best use of facilities for the benefit of all consumers. Without adequate funds to furnish our fair share, this cooperative with others would obviously be impossible.

Previous testimony has mentioned the formation of NIMECA In 1965, 14 municipals, which have long been interconnected with Corn Belt, formed North Iowa Municipal Electric Cooperative Association, known as NIMECA. This organization was formed in accordance with laws enacted in the 61st general assembly of Iowa, which allows municipals to join together to perform services they can do better as a group. Since these municipals were all interconnected with Corn Belt, they petitioned Corn Belt for membership, and became a member on January 1, 1966. They will, through municipal bonds, finance their share of transmission and generation, and will not be entitled to the direct benefits derived from REA funds. The bylaws of this organization limit membership to municipals which have their own power supply. Working with NIMECA is but a continuation of our policy to work together for better service. NIMECA and Corn Belt are independent, consumer-owned systems who want to work together for the benefit of all consumers.

This urban-rural cooperation, one of the first of its kind, will open a new avenue of benefits for all concerned. I am asking Mr. Buckner to read a statement from the president of NIMECA.

Mr. BUCKNER. More than a year ago, 14 municipal electric utilities. in north Iowa realized our small generating plants were becoming obsolete and to be competitive with large investor owned utilities, we had to consolidate our efforts together. At the last Iowa Legislature, legislation was passed which is "Chapter 83, Acts of the 61st General Assembly" (also known as "an act to authorize joint exercise of governmental powers by public agencies") which gave us the authority to form an agency and work together.

We formed a cooperative under chapter 499, Code of Iowa, 1962, to be known as North Iowa Municipal Electric Cooperative Association. Since the 14 members of NIMECA are interconnected through Corn Belt Power Cooperative, we petitioned the G. & T. for membership in their cooperative with full knowledge that REA loans or Corn Belt Power Cooperative funds could or would be used to finance any facilities for NIMECA.

The members of NIMECA understand and believe that through coordination future power requirements that financing or facilities, such as transmission and/or generation, NIMECA will finance its portion by means of municipal revenue bonds and the REC's their portion through REA financing. We believe that through coordinated efforts as stated above, low-cost power will continue to be supplied to both rural and municipal patrons.

One of the requirements for membership in NIMECA as stated in the bylaws is as follows: "Requirements for membership: Any municipal electric utility operating electric transmission of distribution

lines and owning a generating plant capable of meeting their demand for the year previous to application, may become a member of the

association.

Mr. CEJKA. Corn Belt has no intention or desire to take over the other systems or the loads of other systems. We want to cooperate with them for best service to all consumers involved. Our record speaks for itself.

All of the above-mentioned interconnections and pooling agreements have been made in order to make all reductions possible in the high power cost existing in Iowa. This high power cost is primarily due to the high cost of fuel, particularly in central Iowa. On our system the cost of transportation of coal from the mine to our generating plants is equal to, or more than, the cost of the coal itself. Since the fuel cost is about four-tenths of 1 cent in the cost of our electricity, it can be seen that about one-half of this cost, or two-tenths of a cent is due to the cost of transportation of the fuel. Thus, electric systems with ready access to fuel could reduce their cost by two-tenths of a cent below our cost. While we do have access to some low-cost, federally produced power through the U.S. Bureau of Reclamation, the amount is limited and the source is quite distant from our system. To utilize such power, large investments in transmission facilities are required in order to transport this power into our area.

As a comparison of power costs in various areas of the country, we have taken figures from the "Annual Report of Energy Purchased by REA Borrowers," as prepared by the Rural Electrification Administration. This shows that distribution systems in Tennessee, with access to energy from the Tennessee Valley Authority, can purchase power for less than five-tenths per kilowatt-hour. Systems in Washington State, with access to power from the Bonneville Power Administration, purchase for about three-tenths of a cent per kilowatthour. Systems in South Dakota, with power from the U.S. Bureau of Reclamation readily available, pay about eight-tenths of a cent per kilowatt-hour at wholesale. Even in Iowa those systems which lie entirely within the marketing area of the U.S. Bureau of Reclamation have a wholesale cost of under 1 cent per kilowatt-hour. This compares with a wholesale power cost in our area from the Corn Belt system of approximately 1.3 cents per kilowatt-hour, which includes the cost of transmission and transformation.

In the area which we serve as a firm load, covered by our 14-ruralmember distribution systems, we have no large concentrations of population, nor do we have any large industry. Therefore, our capital costs in generation and transmission plant are relatively high on a per member basis. We need many more miles of line to serve the members in the sparsely populated rural areas than do systems located in metropolitan and urban areas.

We have made preliminary studies in an attempt to determine the effect of cost of money on our future power cost. These show that a 50-year loan period would increase costs unreasonably in later years, and that with 3 percent money for 35 years, our costs would increase about 2 percent; with 4 percent money increase our costs about 5 percent in the long range. Details of these studies are found in the full text and attached exhibits.

If the loan program of the Rural Electrification Administration is to continue with its present restrictions, we feel that money at 2 percent for a 35-year period must be made available to systems in the high-cost areas, such as ours, in order to maintain reasonable and equitable cost of power for our members. If the cost of capital is increased, we would need restrictions lifted in order that we might continue to serve all expanding loads in our service area. If the load in our area should increase faster than it has in past years, together with industrial growth in rural areas as it has in many other States, then we might reasonably support a 3-percent rate of interest and be able to absorb the 12- to 212-percent increase in costs. However, if the interest rates were 4 percent or more, we would need to be able to serve larger, concentrated load areas in order to maintain stable rates. We must have a considerable amount of added revenue for each investment dollar to support the higher fuel cost of capital.

We have an excellent working relationship with all other electric systems in our area. We have cooperated in the past in an attempt to secure the lowest cost possible for all customers in this State, and hope to continue to do so in the future. We do not desire to take over customers being served by any existing utility, but only ask that we could be assured that we could continue to serve the area we presently cover and to maintain reasonable rates in that area.

In order to continue cooperation with other electric systems, and in order to benefit in the large, efficient-sized generating units now being installed, we would need to share in ownership of such units. To do this, we would need to be able to invest money along with the other systems. This would require that certain mortgage requirements, now existing on Rural Electrification Administration loans, be subordinated in order that we might participate in partnership arrangements. We do not attempt to speak for those in other areas of the country where power costs are considerably less than in Iowa. Such areas, particularly if low-cost Federal power is readily available, may be able to support considerably higher capital costs. The reasonably priced electric service needed by our customers can only be provided if the capital necessary for prudent investment is available at the lowest possible cost. If such capital is available, we have demonstrated that we can overcome the other problems of high fuel cost, and a sparsely settled rural, agricultural area.

The statement has been made that cooperatives are unfair to organized labor. Corn Belt employees have, since 1950, been represented by Local 234 of the International Union of Operating Engineers. Our relations with the union and our employees have been excellent. Attached is a copy of a letter from the business manager of the union representing our employees. I am asking Mr. Buckner to read this letter for the record.

Mr. BUCKNER. This was written to our cooperative by the union:

Relative to our recent telephone conversation pertaining to our relationship with a number of rural electric cooperatives we have under labor-management agreement, this is to advise that we have just recently completed negotiations with a number of cooperatives for 2-year agreements with substantial increase in wage and other fringe benefits. We have had labor-management contracts with these cooperatives for many years. One in particular since 1950. We have

65-357-6638