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means whereby he can disperse literally billions of dollars in loans to build facilities to further compete with investor-owned utilities-all without being accountable to Congress?
My company has suffered greatly from the competition of Government in the power business. With the passage in 1959 of the TVA Revenue Bond Act in prescribing territory limitations on TVA, Congress encouraged seven municipalities in Kentucky and Tennessee to acquire power from TVA rather than my company. As a result of this action, Kentucky Utilities Co. lost over 10 percent of its business. TVA's bonding authority under that act was three-quarters of a billion dollars and a billion-dollar increase is now being sought.
But this $134 billion for TVA is only one-tenth of the borrowing authority that would be given to the rural electric cooperatives of this country under H.R. 14000.
The rural electrification program was established for the whole purpose of providing electric service to the unserved farms of our Nation as a means of bettering the lot of our farmers and, in the national interest, increasing their capability to produce needed food and fiber. With 98 out of every 100 farms of this land presently receiving electric power, I respectfully suggest that this purpose has been accomplished except for such modest sums as will continue to be needed to finance the expansion of rural electric distribution systems. The support for H.R. 14837 and H.R. 14000 does not arise from any legitimate need under this original purpose.
On the contrary, if there is any support for this legislation, it is for the purpose of perpetuating and enlarging the activities of "superco-op" generating and transmission systems, in concert with other public power systems, with the aim of further encroaching upon, and ultimately replacing, the taxpaying segment of our electric power industry.
In this legislation, the farmer has been abandoned and, instead, it would provide for loans "to improve the efficiency, effectiveness or financial stability of electric systems of such corporations" as have been financed under the act.
By the time these further subsidies filter down through the multilayered arrangement of REA, the electrification account, the bank, the superco-op and the local cooperative, each bent on the purpose of its own efficiency, effectiveness, or financial stability, and with the latter two layers of corporations bent upon the industrialization (a la Harvey) of rural areas, and interchanging their so-called surplus with municipal and other public power corporations, one can hardly imagine that the farmer, at the end of the line, will be much better off as a result of this legislation.
It is my opinion that the noble purpose for REA has now been prostituted, if not abandoned completely, by those who would replace this investor-owned utility-an industry unmatched in its success in making this Nation the world's greatest electric power producer and consumer-an industry that has continually reduced the price of its product and contributed billions annually in Federal income tax revenues-replace this industry with cooperatives and other public power entities contributing nothing in Federal income taxes and consuming tax dollars through a long list of subsidies.
This is a matter of urgent concern to my company, to its 1,500 employees, its 24,400 shareholders, and almost 240,000 consumers on our lines. I am confident that this concern is shared by many other investor-owned systems throughout our land.
Therefore, this is not a matter to be dealt with hastily and without careful analysis of the ends being sought, the best means to accomplish those ends and the extent to which those so minded may hereafter dissipate or divert to unintended purposes the program and policies which you will devise in the course of acting upon this legislation.
As it always has, my company stands ready, willing, and able to supply all of the power needed by existing rural electric systems in our areas on a basis consistent with the original purposes of the REA Act.
It will do so under regulations prescribed by properly constituted agencies, both Federal and State, and in the process will, I hope, be in a position to contribute its fair share of the revenues so sorely needed by our Federal, State and local governments. Therefore, to the extent that the Federal Treasury needs relief from the substantial burden of financing generating and transmission facilities for rural electrification, my company, and many others so situated, can accomplish this end without any legislation of this sort.
Here again I would like to depart briefly from my prepared text. Mr. Clapp has called attention to what he called the gap between the cost of service in rural and urban areas and claimed the need for doubling rural electrification capital requirements to close this gap. Any such gap in Kentucky hardly warrants such capital expenditures. An analysis of currently applicable residential rural rates in our area shows that, in the case of 7 out of 18 distribution co-ops on which I have data, the cost of 250 kilowatt-hours a month is actually lower than Kentucky Utilities Co.'s urban residential rate. The lowest in the group was about 10 percent lower than our charge for similar urban
The highest of the 18 was about $1.38 a month or less than 18 percent above our urban residential charge. This analysis did not include any of the TVA-supplied co-ops.
The situation is even more marked in the case of commercial and industrial service costs. About January 1, 1966, at least 10 of the distribution co-ops in Kentucky adopted new commercial and industrial rates which in all cases are substantially lower than the urban rates applicable on comparable service from Kentucky Utilities Co. lines, even after a rate reduction which we have announced to go into effect July 1. On June 7, in answer to a question propounded by the committee, Mr. Clapp stated that 50 years is not an unreasonable period for repayment of electric loans so far as projecting the lives of electric facilities is concerned. Any such conclusion is not in line with the facts of life in the electric business. Except for hydroelectric generating facilities which may have service lives averaging as much as 50 years, few, if any, electric generating transmission or distribution facilities will average anywhere near 50 years' life. Our experience is that after 35 years few, if any, other electric facilities will have any substantial remaining life.
The Bureau of Internal Revenue guidelines for tax depreciation of steam-electric generating facilities anticipates a life of 28 years for
such a plant and a life of 30 years for transmission and distribution plant. A 50-year-life anticipation on any such facilities is ridiculous and leads to the conclusion that during the last 15 years of any 50year-loan period, the bank will have little, if any, property value securing its loans.
This could well explain in part the necessity in the bank plan to incorporate additional borrowings by the bank from the Treasury when they cannot otherwise make ends meet. The facts of the matter are, as Mr. Clapp further pointed out, that the 50-year-loan period is merely provided to "cushion the effect of" higher interest rates under public financing.
I therefore respectfully request that these bills be reported unfavorably by this committee. If any other course is considered desirable by this committee, I urge that it be adopted with the greatest of care following a detailed analysis of its ends and the means of their accomplishment.
Thank you, Mr. Chairman.
(The following telegram from Mr. Duncan was later submitted to the committee.)
Hon. HAROLD D. COOLEY,
Chairman, House Agriculture Committee,
LEXINGTON, KY., July 1, 1966.
Longworth House Office Building, Washington, D.C.
Since my appearance before your committee on June 14, I have received further information emphasizing the extent of REA Administrator's failure to protect the national interest in granting, on December 30, 1965, the $54 million loan to Big Rivers Recc. In the REA announcement of this loan on December 30, 1965, it was explained that these funds would be devoted largely to financing a 300megawatt generating station, of which two-thirds of its capacity was required to permit Big Rivers member, Green River Recc, to comply with its contract to serve a new aluminum reduction mill of Harvey Aluminum Co. at Lewisport. This contract has just become available to me and I note that section 25 conditions the effectiveness of it upon the concurrence of all of several events. One of these events is "customer (Harvey) obtaining (1) such final and unreviewable approvals and authority from Federal, interstate, State, and local entities as customer, in its sole discretion, shall determine to be desirable, for the construction and operation of the reduction plant and (2) financing, in such amounts, of such type, and upon such terms and conditions, as customer, in its sole discretion shall determine to be desirable for the construction and operation of the reduction plant." It is thus obvious that the Administrator has granted this loan to Big Rivers without any effective contractual commitment by Harvey to purchase the power required to amortize the loan in question.
W. A. DUNCAN, President, Kentucky Utilities Co.
Mr. POAGE. Thank you, Mr. Duncan. That is a rollcall on final passage of this bill, I take it. The committee must go answer it. I hope we can be back here and convene in the next 15 minutes, and we will proceed with Mr. Burton's constituent, and hear Mr. Broussard as quickly as we can get back.
The committee will stand in recess.
(Whereupon, a short recess was taken.)
Mr. POAGE. The committee will please come to order.
Mr. BURTON. Thank you, Mr. Chairman. I would like to call to the stand D. L. Broussard, vice president of Utah Power & Light Co. As I pointed out earlier, he has been very cooperative with the committee and has come back for his third time now to have an opportunity to
appear before us with what he regards as a very important statement. Mr. POAGE. I am sure he has a very important statement-anybody who would come back for the third time. We appreciate your being here.
STATEMENT OF D. L. BROUSSARD, VICE PRESIDENT, UTAH POWER & LIGHT CO.
Mr. BROUSSARD. Thank you, Mr. Chairman. I appreciate the committee's indulgence, the time they take to hear us. Mr. Burton pointed out that I am the vice president of Utah Power & Light Co. and of the Western Colorado Power Co., which serves in Utah, southeast Idaho, western Wyoming and western Colorado. In March, this year, I appeared before the Agriculture Committee of the House Appropriations Committee in support of continued financing of the basic function of the REA, which is to serve customers in rural areas who cannot obtain central station service through existing REA or investor-owned electric utility systems. We believe this is a necessary and appropriate function. We are not here to oppose rural electrification by REA and their financing.
We do, however, vigorously oppose the authorization of the funds for REA to build large generating plants and transmission lines which are not only unnecessary, but are far afleld from the legitimate and legal aims of the Rural Electrification Act.
The proposed legislation, H.R. 14837, H.R. 14000, and the other bills, would not only perpetuate the problems and abuses of lending authority now being encountered, but would open the door to an unlimited, uncontrolled, and unregulated spending spree in direct competition with long-established American industry.
It would lay the existing systems of the free-enterprise electric utilities open to pirating by federally financed and subsidized rural electrics through placing in their hands unlimited funds at rates far below competitive money market costs and unlimited lending authority. It would abandon any effective congressional control of money and surveillance of REA policies.
The combination of freedom from most taxes, unlimited money, little, if any, regulatory control, coupled with the present expansionary effort on the part of REA, invites a takeover under Federal financing of all electric service in an area. In the West, there are large areas in which there is no electric service because there are no customers. Our companies extend service as needed under a Commission-approved extension policy.
REA's are attempting to obtain certificates to preempt almost all of the unserved area, limiting our companies only to customers and areas now being served. In some cases, an REA serving only 2 percent of a county area is asking for 100 percent of the area. To encourage this would saddle the taxpayer with subsidizing the cost of all future extensions in virgin territory and halt the expansion of investor utilities. It would also jeopardize investments already made.
More than adequate electric service is now available at economic rates to all REA's and rural consumers in the area served by our company. There will be a need for a modest amount of money to extend
distribution facilities and continue the REA program as it now exists, but absolutely no need for any large generating and transmission loans. On the other hand, current abuses of lending authority and misuse of already available Federal funds by the REA Administrator, gives adequate cause for concern for any further increase in REA loan funds or extension of lending authority.
The Colorado-Ute Electric Association's Hayden plant is a prime example of the misuse of REA G. & T. funds and of illegal lending policy. The Colorado-Ute generation and transmission cooperative in February 1963 received a loan from REA of almost $23 million to build a 150,000-kilowatt plant in western Colorado.
In authorizing the loan, the Administrator ignored the fact that adequate electric service was available to each of the REA members of Colorado-Ute from no less than three alternate sources at rates less than the cost from Colorado-Ute. The Colorado Public Utilities Commission and the State courts all agreed that adequate power was available at reasonable rates. Yet, even though the State commission's order approving construction was being litigated in the State courts, the Administrator authorized the loan and the plant was built.
The Supreme Court of Colorado declared the construction of the plant illegal on February 14, 1966, and pointed out that the Administrator violated REA law (U.S.C.A. 7, sec. 904) by not obtaining final permission of State authority having jurisdiction before granting the loan. REA's own criterion was violated. Bulletin 20-6 requires that no loan be made if an alternate dependable source of power at lower cost to consumers be available.
Not only did Colorado-Ute avoid negotiations with electric utilities in the area, but, under direction of the Administrator, all 11 distribution cooperatives abandoned their rights to Bureau of Reclamation power and other sources by signing 40-year exclusive supply contracts with Colorado-Ute. Colorado-Ute's own current report shows the 11 distribution cooperatives are being charged from 10 to 111⁄2 mills per kilowatt-hour for power they could buy from the U.S. Bureau of Reclamation for 6 or 7 mills. This was accomplished with the full support and active, aggressive participation of the Department of the Interior and Bureau of Reclamation.
By giving up these important customers of reclamation powerplants, Interior seriously damages the reclamation project's ability to repay its costs and construct new projects. In 1965, the Colorado project lost $3 million and has more than 150,000 kilowatts of surplus power looking for a market. It is significant that the sale of 150 megawatts of power would bring in $41⁄2 million a year-more than enough to clear the deficit.
The prinicipal beneficiary from the Colorado-Ute Hayden plant, and a strange partner to what is supposed to be rural electrification, is the Salt River Agriculture & Power District of Phoenix, Ariz. By the simple expedient of prepaying its power bill for a number of years, Salt River paid Colorado-Ute approximately $9 million and became the beneficiary of two-thirds of the REA-financed powerplant initially and one-third of the output for 40 years. This means that most of the 2 percent money subsidy flows to the benefit of power users in metropolitan Phoenix.