eral pattern as the 2% money with the reduction being made after the 35th year when the first debt was paid off. With 4%, 35 year money the initial payment would be $532,000 per year per generating unit, with a drop at the end of 35 years. Also shown on the chart are the accumulative costs of 50 year money at 3, 4, and 5%. This illustrates the lower debt service payment with the 3%, 50 year money during the early years; but it also shows the step effect which continues for the full 50 year term. In order to compare the total system power costs in the future, we have made a further assumption that our investment in transmission and other equipment would equal that in generating units. Large blocks of heavy transmission lines would need to be built, along with the generating units, in order to transmit the power from remote points. While some additional transmission would need to be added each year, this method has been used for simplification. We have also assumed that our power costs under present money conditions would be 1 cent per kilowatt hour sold. This would be the wholesale power cost and the retail price would need be higher. Exhibit C has been prepared showing the base 1 cent cost in the future and comparing the over-all power costs with the investment made at various interest rates in the future. These costs are based on 10 year averages using the average cost in the 10 year interval between installation of generating units. It can be seen that the cost of money borrowed for a 50 year term makes a sharp increase between the 30th and 40th year. This is due to the fact that we would continue paying debt service on such money for the full 50 years, and would be affected by the compounding factor. A more reasonable comparison is looking at the money for a 35 year period. Here it can be seen that a 3% interest rate would increase our cost from 1% to 2%. With 4% interest rate, our cost would be increased from 4 to 5%, over all. The dollar effect on the assumed expansion pattern is shown on Exhibits D and E. These tabulate the total operating costs, again using the assumed 1 cent base power cost under present money conditions, and demonstrate graphically the increase in total dollar cost of the system. We believe that the result of the long range estimate discussed above shows that we must compare interest rates on borrowed money on the over-all effect and terms of such money. These results demonstrate that while longer term money may appear to be very favorable in early years of a loan, it is the final result that must be measured. We believe that the end result of long term money would be considerably higher power costs for our members in the future. If the loan program of the Rural Electrification Administration is to continue with its present restrictions, we feel that money at 2% 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% rate of interest and be able to absorb 11⁄2 to 2% increase in costs. However, if the interest rates were 4% or more, we would need to be able to serve large, 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 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 in such units. To do this, we would need to be able to invest money along with the other systems. This would require that certain mortage 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 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 not union organized and 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. The question of subsidies has been raised. We do not feel that low interest rates constitute a subsidy, when we have agreed to serve all areas which did not have adequate central station service, regardless of revenue potential. One big and significant difference is that the membership of the R.E.C.s have, by their own action, requested a way to finance their operation by the formation of a bank. This is an unusual and almost unprecedented action. We also realize it may be years, if ever, before all electric cooperatives can do without 2% money. We agree, we pay no income tax. The reason is simple; we have no profit. We operate on a cost of service basis and any money left after payment of costs is the property of, and is returned to, the member in the form of Patronage Refunds. We pay all other taxes any other utility pays. Corn Belt's property tax in 1965 was 13.7% of our revenue. The statement has been made that our job is done, since 99% of the farms are electrified. As cooperatives, we are proud of our part in getting service to these farms. The areas we serve are the skim milk areas with, in our case, about 2.3 members per mile of line. This was the area no Investor-owned Utility wanted. They said it wasn't profitable to serve. They were right, they couldn't, and still make the profit they wanted. The R.E.C.s, with the help of R.E.A. and Congress, do serve these consumers and do it at a reasonable rate. We know our job is not finished. It is just started. We have developed this marginal territory and furnished the power needed. Our members now have the benefits of modern living. According to all projections, their loads will increase to four times the present in the next 20 years. To handle this, we must install bigger transmission lines and generating equipment. This takes adequate financing. A pact was made between Congress and the R.E.C.s. We were to extend service to all who request it, in return for adequate financing. We have kept our part. We feel it is an obligation of Congress to continue as they have in the past to furnish 2% funds for those who need it, and request they establish a bank based on reasonable criteria for those who can use it. Lack of adequate financing is slow death to any business. We must maintain the G & Ts where needed in the areas where federal power is not available in adequate amounts to supply our needs. Without it, we would be unable to make reasonable negotiations. Some of the areas we have developed are now looked on with envy by others. If, because of inadequate financing for us, they are allowed to take this over, they will get the cream, and we will again be left with skim milk, and will be unable to do our job. In our own case, our studies show we need 2% money for some years to come. Ours is an agricultural load with no big industries. 98% of our load is the farm and farm home. This type of load gives us a poor load or use factor for our equipment, which we hope to improve as industry moves into our area. We then should be able to pay higher rates of interest and use bank funds. We want to go on record as supporting 2% funds for those of us who need it. We support the stand of N.R.E.C.A. on the supplemental financing bill, especially the H.R. 14,000, which we feel will, with 3% intermediate financing, more nearly meet the needs of the Cooperatives. We, personally, have no objection to congressional review of the bank and its operation. We thank the Congress for your cooperation and assistance in the past for making it possible, through legislation and appropriations, for me and my neighbors to have an adequate supply of electricity and to serve the unserved in Rural America. We also thank you for the opportunity to appear and testify before this Committee. NORTH IOWA MUNICIPAL ELECTRIC COOPERATIVE ASSOCIATION, To Whom It May Concern: Spencer, Iowa, June 6, 1966. More than a year ago fourteen 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 fourteen members of NIMECA are interconnected through Corn Belt Power Cooperative, we petitioned the G & T for membership in their cooperative with full knowledge that no 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 coordinating future power requirements that financing of 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 by-laws 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." Yours very truly, BRUCE C. JOHNSTON, President. INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL 234, CORN BELT POWER COOPERATIVE, (Attention of Mr. Richard Buckner, General Manager). DEAR MR. BUCKNER: Relative to our recent telephone conversation pertaining to our relationship with the number of Rural Electric Cooperatives we have under Labor Manegement Agreements, this is to advise we have just recently completed negotiations with a number of Cooperatives for a two year agreement with substantial increase in wages and other fringe benefits. We have had Labor Management Contracts with these Cooperatives for many years, one in particular since 1950. We have found the Directors and Managers to be fair and realistic to do business with. Once an agreement is consummated and ratified by both parties, they have lived up to their commitments religiously. I trust this answers your inquiry and if we can be of further service at any time please feel free to call on us. With kindest personal regards, I remain, Sincerely, E. A. (BUD) MAHANNAH, Business Manager-Financial Secretary. |