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Section 903 (a) of the Rural Electrification Act, as amended, provides: "This Secretary of the Treasury is authorized and directed to make loans to the Administrator, upon the request and approval of the Secretary of Agricu’ture, in such amounts in the aggregate for each fiscal year, commencing with the fiscal year ending June 30, 1948, as the Congress may from time to time determine to be necessary. ." (Emphasis added.)

Section 903 (b) of the same Act states:

"There are authorized to be appropriated such sums as the Conrgess may from time to time determine to be necessary for the purposes of this chapter as hereinafter provided." (Emphasis added.)

Neither H.R. 14000 nor H.R. 14837 provides for the extension of any such controls by Congress.

According to our interpretation of the provisions of H.R. 14000 and H.R. 14387, the following present Congressional limitations on the existing REA electrification loan program would not apply to loans made by the Bank. These limitations include:

(a) Loans are not to be made to serve customers who have central station service.

(b) Loans are not to be made to serve customers in places with a population of 1,500 or more.

(e) Generation facilities to be financed by loans are subject to State approval. (d) Generation and transmission loans are to be made only when the Administrator cannot obtain a reasonable contract.

It is our further understanding that Section 412, to be added to the Rural Electrification Act would provide that the operations, generating plants, transmission and distribution lines of borrowers from REA who have received loans under this section that have not been repaid would be subject only to the jurisdiction of the Administrator and of State authorities. This would apply even though many of these facilities and operations are involved in interstate commerce.

This unavoidable conclusion follows: Once Congress has set up the Loan Account and the Electric Bank, it loses control. This control could not be recovered except by separate legislation. Such a recovery would be subject to delays and vagaries of political reality.

4. Unfair competition

Although the REA was set up originally to bring electric service to the rural areas of the United States more quickly than could be done otherwise under the circumstances at that time, in recent years the emphasis has changed to the financing of generating and transmission facilities. Loans are made to G&T cooperatives at 2%-less than half the cost of money to the Federal Government-and no federal income taxes are paid. We understand that five out of six new cooperative customers are not farmers-they include suburban residents, businesses, manufacturing plants, and petroleum operations. We believe that it was never intended by the original REA act that government-subsidized power plants paying no federal income taxes should compete with existing tax-paying electric power suppliers. Congress in the last few years has been increasingly critical of loans for G&T purposes. As has been mentioned above, Congress has directed that such "loans should be made only where reasonable contracts cannot be obtained" for power supply.

The power supply facilities which the G&T's and other borrowers would duplicate or displace would be those of the investor-owned tax-paying electric power companies which serve some 80% of the nation's people. These companies operate under regulations at all levels-local, state, and federal. The G&T's do not. The unfair subsidized competition represented by the proposals for a Federal Electric Bank not only threatens to nationalize the electric industry which has established America as the world leader in electric power supply, but in so doing could seriously affect the structure of the nation's entire economic system. We respectfully submit that H.R. 14000 and H.R. 14837 should be defeated.

STATEMENT BY W. C. MACINNES, PRESIDENT, TAMPA ELECTRIC COMPANY, TAMPA, FLORIDA

My name is William C. MacInnes, President of the Tampa Electric Company, Tampa, Florida.

I am presenting this statement in opposition to H.R. 14000 and H.R. 14837.

The Tampa Electric Company serves 182,000 customers in the vicinity of Tampa, Florida, located in Hillsborough, Pasco, Polk and Pinellas counties. Our service to the municipalities in our area is provided under the terms of franchises approved by the authorities in the respective city or county governments.

The territorial boundaries of our company are adjacent to, or in some cases, overlapping with other power companies, municipal power systems, and electric cooperatives.

The electric rates of the adjacent power companies are regulated by the Florida Public Service Commission and the Federal Power Commission.

The electric rates of the municipal power system are regulated by the governmental authorities in that jurisdiction.

However, the rates of the electric cooperatives are set by the cooperatives themselves without regulation by any governmental authority. With the governmental subsidy provided in the past by the use of 2% loans, the electric cooperatives have been able to provide service to their customers at competitive rates and have been able to build very healthy business enterprises.

The electric cooperatives can now compete with other power suppliers in every respect. They have been able to provide for their power supply at extremely favorable rates either from power companies, governmental agencies, or their own resources.

The electric cooperatives are now using the benefits of their favorable interest rates and almost unlimited funds to compete with other power suppliers who are heavy tax payers and who are subject to the effects of very high interest rates.

Their cost of money is the key to the cost of electric energy and the competitive position of a power supplier. Therefore, a subsidy by way of lower interest rates than those prevailing in the open market and availability of unlimited capital which is provided the electric cooperatives under the terms of this legislation, gives the electric cooperatives a completely unfair advantage which will be financed by the tax paying public.

This advantage is amplified by the exemption from taxation of cooperative enterprises.

Should this legislation become law, the door will be wide open for electric cooperatives to compete for all customers on a very favorable basis to them but completely unfair to their competitors.

This will be particularly true in the areas of commercial and industrial customers as has been proven by such agencies as the Tennessee Valley Authority and Bonneville Power Administration.

This legislation will have the effect of permitting creatures of the government, which were set up to serve farmers, to become free agents and grasping unregulated monopolists with unlimited funds at below cost interest rates.

It is easy to visualize the ultimate effect of this legislation.

In the first place, it will permit electric cooperatives to secure non-farm customers at the expense of tax paying suppliers.

Then the farm areas of our country, which we all want to preserve for their beauty and productivity, will become more desirable territories for commercial development. The blight of existing metropolitan areas will be accentuated because of this new form of subsidy to attract industry away from cities.

In Florida and in the United States, we have electric systems, including electric cooperatives, quite capable of raising their own funds for expansion. We see no possible need for the government to subsidize such an unnecessary bank as that proposed in H.R. 14000 and H.R. 14837 since electric cooperatives are quite capable of financing their own expansion if given the opportunity. Respectfully submitted.

STATEMENT OF TYRE TAYLOR, GENERAL COUNSEL, SOUTHERN STATES INDUSTRIAL COUNCIL

On May 25, 1966, at its annual meeting at Sea Island, Georgia, the Board of Directors of the Council unanimously approved the following statement:

"The Council opposes government competition with taxpaying private enterprise in all fields of endeavor, including but not limited to transportation, home building, home financing, banking, consumer financing, insurance, fertilizer, and other manufactures. In particular, the Council opposes government encroach

ment into the electric power business by such government agencies as the Tennessee Valley Authority, Bonneville Power Administration, Southwestern Power Administration, Southeastern Power Administration, and the Rural Electrification Administration.

"The REA was authorized some thirty years ago and was empowered to make loans for rural electrification to persons in rural areas who at that time were not receiving central station service.

"The REA loans money to the Rural Electric Cooperatives at 2% interest and on terms up to 35 years. Cost of this money is considerably less than the cost of money to the government. (I might interject here that the current cost of this money to the Treasury is approximately 4.6 per cent.) This means that the Rural Electric Cooperatives are being subsidized by all the taxpayers of the country and, in addition, they are income tax exempt.

"The Council calls on Congress to discontinue financing rural electric cooperatives by ceasing to appropriate tax money for the use of REA. Since 98% of the farms in America now have electricity available, there is no reason to continue to appropriate millions of dollars which this bureaucratic agency seeks in order to expand its public power operations far beyond what it was originally commissioned by Congress to do.

"The Council also calls on Congress to phase out REA which has completed the job for which it was created and, in the meantime, insist that it be compelled to operate within the law."

I.

The proposal contained in H.R. 14837 (and also H.R. 14000) would create an entirely new type of Federally subsidized power program, vastly different in purpose and intent from the REA programs which so concerned our Board and impelled them to approve the statement I have just read.

To be sure, it continues-formally and on paper, at least-the existing REA 2%, 35-year program with no upper limit on expenditures. But the fact is—and this the REA evidently finds it more and more difficult to deny that the REA's real job the job it was originally established by Congress to do-namely, that of “furnishing . . . electric energy to persons in rural areas who are not receiving central station service"-has long since been completed but, unfortunately, the melody lingers on.

It has been said that old soldiers never die: They just fade away. Unfortunately for the taxpayers, old bureaucracies never die, either, nor do they fade away. They simply find something else to do. They spawn new and bigger and more expensive bureaucracies, retaining all their old purposes, powers, and functions and adding so many new ones as to be almost unrecognizable. This, the Council believes, is what is being attempted in the present instance.

What has been added to the existing concept of REA which, if approved, would make it an entirely new type of Federally subsidized power program? Several things, but I shall confine my remarks mostly to those provisions of Title IV creating a Federal Electric Bank with initial authorized capital of $750 million to be subscribed by the Government. The Bank is authorized to issue debentures and borrow money up to ten times its paid-in capital and retained earnings. This adds up to $8,250,000,000-plus 5% of loans invested in bank stock and other possible sources of lendable funds amounting, in the aggregate, according to one estimate, to $17,287,500,000 over a period of 15 years. Other estimates based on H.R. 14000 would increase this figure to $21,550,000,000. It may be of possible interest to note in passing that the capitalization of the entire electrice industry in the United States is around $46 billion.

What is the bank going to do with these fantastic sums of money. Spend it building additional G-T facilities under the old, 2%, 35-year program?

As we have seen, the old program has been for all practical purposes completed, its mission accomplished, (about 982 per cent of the nation's 3.3 million frams are now electrified; % of the 5.4 million customers served by REA borrowers are not farmers) so the Bank would have to find new outlets for its money-outlets which are not subject to even the mild restraints-such as the annual authorization by Congress-under which REA has operated and now operates. This can mean only one thing, as we see it: What is proposed here

is the setting up of a massive, government subsidized, tax-exempt new competitor of the investor-owned, taxpaying electric power industry in this country. This conclusion is supported by such facts as the following:

On

The purposes for which the bank could lend money are nowhere defined. the contrary, the scope and breadth of the types of facilities which could be under taken with funds from this source are practically limitless.

There is no need for any such program unless it be that we have now decided further to embrace outright socialism-first in the electric industry and then in other key industries.

There is no provision in the bill which would prevent the use of Bank loans for the construction of duplicating facilities, or to require that an effort be made to secure a reasonable contract.

There is no statutory limit on the amounts the Bank could lend in any one year.

There is no requirement that bank loans be for "rural" electrification purposes as is the case with the 2%, 35-year program. The loans could be used for urban as well as rural purposes.

While Congress would continue to exert some control over the 2%, 35-year outmoded and obsolete program, it would have no control on loans by the Bank for other purposes which-increasingly and progressively-would become the main show.

Also added in fact-if not explicitly and in so many words-is a socio-economic program not unlike the poverty program. Its sponsors and supporters note that rural areas have over half the national poverty and two-thirds of its unemployment, and they assert that subsidized help and loans to build generating plants are necessary to their sociological activities.

This would be the biggest Federally-owned banking institution in historyits operations entirely outside effective Congressional control. We deplore the continued growth of Big Government and the continued erosion of the powers of Congress of which this would be if H.R. 14837 should become law--a truly disastrous if not terminal example.

I conclude by urging that this bill be defeated and repeat the Council's request that REA be phased out on the ground that it has completed its mission. We also respectfully renew our request that, in the meantime, REA be required to operate within the law.

Thank you.

STATEMENT OF BEEMAN FISHER, CHAIRMAN OF THE BOARD, TEXAS ELECTRIC SERVICE COMPANY

Mr. Chairman:

My name is Beeman Fisher. I am Chairman of the Board of Texas Electric Service Company, an investor-owned electric utility serving 46 counties in North Central and West Texas. Our general offices are located at 408 West Seventh Street in Fort Worth, Texas.

I appreciate the opportunity to appear before the House Committee on Agriculture to express my opposition to the enactment of H.R. 14000 and H.R. 14837, bills which would turn a worthwhile governmental program into a multibillion dollar Federal power program with no Congressional restrictions.

The REA program, through 2 percent loans to electric cooperatives, has been successful. Today, virtually 100 percent of the nation's farms are receiving electric service. Texas Electric Service Company is proud of the role it has played over the years in helping to make the program work. We are doubly proud of our amicable relations with the cooperatives in our service area. We have provided power at reasonable cost to the distribution cooperatives and we have further cooperated by providing multiple delivery points.

Now, with the historic goal of farm electrification in sight, the REA and the NRECA have begun to concentrate on a program to construct generating plants and high-voltage transmission lines which in my opinion are an unnecessary and wasteful duplication of investor-owned electric power company facilities. With Congress demonstrating a growing reluctance to go along with the demands for ever-increasing appropriations to build these unneeded and wasteful facilities, the REA and the NRECA are now urging the Congress to create a new type of Federally subsidized power program, vastly different from the REA rural-farm electrification program as it has been known in the past.

The establishment of this proposed Federal Bank, the largest in the history of our country, would provide the advocates of public power a free hand to launch a lavish program of waste and duplication in the construction of generating and transmission facilities, which would be entirely free from any Federal income tax and Congressional control. The tax paying, investor-owned electric companies are ready, willing and able to provide these facilities with no demand on the public treasury. Loans from the proposed bank could even be used to purchase or displace investor-owned, tax paying facilities.

I do not believe that the passage of H.R. 14000 or H.R. 14837 would be in the public interest and strongly urge that they be rejected.

STATEMENT OF W. W. LYNCH, PRESIDENT, TEXAS POWER & LIGHT CO.

Mr. Chairman and members of the Committee, my name is W. W. Lynch. I live in Dallas, Texas. I am the president of Texas Power & Light Company, and am appearing for that Company with respect to H.R. 14837.

Our Company recognizes the desire of Rural Electric Cooperatives to obtain, in the words of the pending bill, “assured and viable sources of supplementary financing," through the establishment of a Federal Bank for Rural Electric Systems. We want to request, however, that H.R. 14837 or any substitute plan for financing R.E.A. provide adequate safeguards to assure that the financing will operate within the basic purposes and limitations of the Rural Electrification Act of 1936. We have known and lived in relative harmony with the R.E.A. program for the past thirty years, and we want to continue working with the cooperatives and their members, who have been our customers, our neighbors and, in many instances, our personal friends.

Texas Power & Light Company has cooperated in numerous ways to help the R.E.A. program achieve its original purposes. We turned over to those desiring to organize cooperative associations not only our engineering plans and designs, but even, in many cases, detailed maps of rural areas showing the locations of all residences as well as county roads and highways.

This spirit of friendly and sincere cooperation has been in effect through the years. We want to see it continue. And it will, unless we are placed in an untenable competitive situation.

There are some 28 electric cooperatives in the area in which we operate. We have personnel who visit these cooperatives regularly and give them a wide range of assistance.

Often, Texas Power & Light Company assists the electric cooperatives with engineering studies, and exchanges information on new techniques and developments in the field of power distribution and marketing.

The cooperatives' managers and other personnel are invited to our sales meetings and informed of our load-building plans so they can coordinate their activities with our advertising and promotional efforts to achieve maximum benefits. We make available sales training for the cooperative's rural power salesmen and home service advisors, even to the point where their trainees work side by side with our employees who expose them to specialized problems in the fields in which they will be working. There is a free flow of information between us. When we have purchased electric lines and facilities from cooperatives because of city-limits expansions, Texas Power & Light Company, we sincerely believe, has been consistently generous and fair in determining the amount of cash payment; for instance, we pay the cooperatives an amount which is equivalent to the present-day construction cost of the facilities, less depreciation. We pay the construction cost of any facilities necessary to connect any isolated customers caused by the sale of their facilities. In addition, they are paid a lump sum equal to 10 years net margin on the revenue received from the customers served by the facilities purchased, plus 50% of the net margin of the estimated growth in revenue for the next 10 years from existing and future customers adjacent to the facilities purchased.

Our Company has sold to the cooperatives within the area in which we operate their power needs at wholesale rates which are among the lowest in the nation.

I believe many of the nation's other investor-owned utility corporations can cite similar records of harmonious relations with the electric cooperatives. I recount some of these instances to make clear that we have cooperated to help fulfill the original intent of the Rural Electrification program.

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