out that the acquisition price for which the loan was made exceeded even REA estimates of the value of the properties by $375,000.

Alabama Water Service Company was engaged primarily in providing electric service to several cities and towns in southeast Alabama, including Andalusia, Troy, Elba, Opp, Luverne and Evergreen all of which had in excess of 1500 inhabitants. However, the Company was furnishing power to two electric distributing cooperatives which served rural customers in Crenshaw, Pike, Conecuh and Coffee Counties. In addition, Alabama Water Service Company was serving at retail approximately 2177 residential, farm or commercial customers and six industrial customers. At or about the same time that Alabma Electric Cooperative, Inc., acquired such generating and transmission facilities the Cities of Andalusia, Elba and Opp acquired the distribution facilities located in their respective cities from Alabama Water Service Company and Covington Electric Cooperative, Inc., was organized to take over the other distribution lines of Alabama Water Service Company then being used to serve retail customers outside of such cities.

Alabama Electric Cooperative, Inc., commenced its operations by serving seven municipalities (Andalusia, Troy, Evergreen, Luverne, Opp, Elba and Brundidge), two industrial customers (Opp Cotton Mills and Micholas Cotton Mills) located in a city of more than 1500 inhabitants and two electric distributing cooperatives even though the justification for its initial REA loan was that the generating and transmission facilities so purchased would be used for rural electrification.

At the time of this initial REA loan to Alabama Electric Cooperative, Inc., Alabama Power Company was serving all the wholesale power requirements of eleven electric distributing cooperatives (Baldwin County Electric Membership Corporation, Black Warrior Electric Membership Corporation, Central Alabama Electric Cooperative, Inc., Clarke-Washington Electric Membership Corporation, Coosa Valley Electric Cooperative, Inc., Dixie Electric Cooperative, Inc., Pea River Electric Cooperative, Inc., Pioneer Electric Cooperative, Inc., Tallapoosa River Electric Cooperative, Inc., Wiregrass Electric Cooperative, Inc., and Tombigbee Electric Cooperative, Inc.), and a greater portion of the requirements of another distributing cooperative (Southern Pine Electric Cooperative, Inc.). These cooperatives were located in various parts of the State of Alabama south of the TVA boundary line and have been purchasing power from Alabama Power Company since 1937 at rates approved by the Alabama Public Service Commission which have followed a constant downward trend.

From the outset Alabama Electric Cooperative, Inc., used the purchased facilities to displace service then being provided by Alabama Power Company to distributing cooperatives which it had served since their inception. Thus Alabama Electric Cooperative, Inc., commenced to serve Wiregrass Electric Cooperative, Inc., and Pea River Electric Cooperative, Inc. which had previously purchased all of their wholesale power requirements from Alabama Power Company. Likewise Alabama Electric Cooperative, Inc., also commenced to serve more of the loads of Southern Pine Electric Cooperative, Inc., which had previously purchased most of its wholesale power requirements from Alabama Power Company. Prior to the sale of its generating and transmission facilities to Alabama Electric Cooperative, Inc., Alabama Water Service Company had purchased a substantial portion of its power requirements from Alabama Power Company pursuant to a power supply contract dated in 1942. When Alabama Electric Cooperative, Inc., acquired the above mentioned properties such power supply contract was assigned to Alabama Electric Cooperative, Inc., and soon thereafter Alabama Power Company offered to make available to Alabama Electric Cooperative, Inc., wholesale power on the same basis as it was then selling wholesale power to its twelve distributing cooperative customers.

Alabama G. & T. Receiving REA Funds To Supplant Existing Power Supply Notwithstanding the availability of wholesale power supply on reasonable terms from Alabama Power Company, Alabama Electric Cooperative, Inc., together with REA, commenced a program of expanding the generating and transmission facilities of the Cooperative for the purpose of taking over customers then being supplied at wholesale by Alabama Power Company. Thus in 1947 REA approved a loan in the amount of $5,516,000 to enable Alabama Electric Cooperative, Inc., to construct a 23,000 KW steam generating plant and approximately

360 miles of transmission lines with which to extend its service to distributing cooperatives then being served at wholesale by Alabama Power Company. However, before such loan could be consummated it was required by Alabama law to obtain approval of the Director of Finance in the State of Alabama. The Director of Finance in disapproving this loan found that the proposed expansion of Alabama Electric Cooperative, Inc., was merely to duplicate service then being provided at reasonable costs by Alabama Power Company and that there was no public need for the proposed facilities. After this loan was disapproved Alabama Power Company voluntarily reduced its rates to the Cooperative and entered into a new firm wholesale power supply contract with the Cooperative to deliver at delivery points designated by the Cooperative all the power required by the Cooperative in excess of its generating capacity. Again in 1950 Alabama Power Company reduced its rates to the Cooperative as it did to all of its wholesale customers.

During the period from 1951 to 1954 Alabama Electric Cooperative sought and obtained additional REA loans totaling $4,837,975 for the purpose of constructing two steam generating units and additional transmission lines. It is significant that during this period the demands of the Cooperative upon Alabama Power Company increased with the result that in the last year (1954) prior to the completion by the Cooperative of its new steam units the cost of power to the Cooperative from Alabama Power Company under the 1950 contract was only 5.55 mills per kilowatt hour. In 1955 the Cooperative commenced the operation of the steam units it had constructed with REA loan funds and as a consequence decreased the power it purchased from Alabama Power Company with the result that its power cost from Alabama Power Company under the same contract increased to 6.46 mills per kilowatt hour in 1955.

After the Cooperative installed these steam generating units Alabama Power Company offered to furnish the Cooperative all its deficit power supply requirements at the same rate and as a result the parties entered into a firm contract dated March 30, 1955, by the terms of which the Company agreed to deliver and the Cooperative agreed to purchase all the power required by the Cooperative in excess of the specified generating plants it then owned.

With this arrangement in effect plus a commitment from Alabama Power Company that it would undertake to make a further reduction in its rate to the Cooperative, as well as to all its wholesale customers, if it obtained approval from the Federal Power Commission to build certain hydroelectric plants on the Coosa River, the Cooperative, nevertheless, obtained another loan from REA to construct more generating capacity. This loan in the amount of $5,671,000 enabled the Cooperative to construct another and larger steam generating unit (22,500 KW) which was placed in operation in September of 1959 in violation of the March 30, 1955, contract.

In anticipation of its added generating capacity the Cooperative in 1958 extended its facilities to other delivery points of the distributing cooperatives supplied by Alabama Power Company and also extended its transmission lines to a distributing cooperative located in the State of Florida (Choctawhatchee Electric Cooperative) and thereby displaced power previously being supplied by Gulf Power Company.

In the meantime Alabama Power Company obtained a license to construct or enlarge five hydroelectric generating plants on the Coosa River and in accordance with its agreement reduced its rates uniformly to all its wholesale customers including Alabama Electric Cooperative, Inc. This decrease was put into effect in January 1958 retroactive to May of 1954.

$20,350,000 REA Loan of 1961 Involved Big New Expansion by G & T

Even though Alabama Power Company was selling power to all its wholesale customers at a uniform rate which in 1961 produced an average power cost to its distributing cooperative customers of only 6.08 mills per kilowatt hour and only 6.87 mills per kilowatt hour to Alabama Electric Cooperative, Inc., REA in October of 1961 announced a new loan to the Cooperative-this loan in the amount of $20,350,000 was for the purpose of enabling the Cooperative to further supplant or displace existing service being provided by Alabama Power Company and Gulf Power Company to distributing cooperatives in their respective service areas.

The $20,350,000 loan of 1961 (which increased the Cooperative's indebtedness to REA by more than 140%) is being used to construct a 66,000 KW steam generating plant (which more than doubles the Cooperative's existing generating 70-671-6631

capacity) and 710 miles of transmission lines (which will increase its existing lines to more than 1100 miles). This expansion by the Cooperative, if placed in operation will supplant central station electric service being supplied by Alabama Power Company to its distributing cooperative customers at twentytwo separate and distinct substations or delivery points and involves extending the service of the Cooperative into seven counties in Alabama and two counties in Florida in which the Cooperative had never previously served. This duplication of electric facilities also involves displacing Alabama Power Company and Gulf Power Company as the source of generation and transmission for 34,700 customers now being supplied with central station service. The most incredible aspect of this loan and proposed takeover is that the five distributing cooperatives in Alabama which are affected are now paying Alabama Power Company approximately 6 mills per kilowatt hour whereas Alabama Electric Cooperative, Inc., charges its cooperative customers approximately 9 mills per kilowatt hour. The comparison in Florida is similar.

The $20,350,000 loan authorization issued by REA in 1961 is only the beginning because Alabama Electric Cooperative, Inc., has long range plans to extend its system practically all over the State of Alabama (south of the TVA boundary) and northwest Florida. The Cooperative has engaged a large engineering firm (Stanley Engineering Company of Muscatine, Iowa) to make a power supply study to support its loan applications to REA. A study made by such engineering firm shows the long range plan for expansion of Alabama Electric Cooperative, Inc. The initial stage of such plan is substantially the same as the plan approved by REA in connection with the $20,350,000 loan of 1961. This stage extends the system of Alabama Electric Cooperative, Inc., throughout fifteen (15) counties in south Alabama and four (4) counties in northwest Florida. A copy of the initial stage plan of the Cooperative's engineer is attached as Appendix A.

The second stage of such expansion plan is attached as Appendix B. This arrangement would supply over 80% of the loads of all distributing cooperatives in Alabama south of the TVA boundary including part or all of the requirements of eight (8) distributing cooperatives now served altogether by Alabama Power Company and all the requirements of three (3) distributing cooperatives to which Alabama Power Company supplies more than 50% of their requirements. This plan also provides for transmission connections to all the municipalities now served at wholesale by Alabama Power Company but one which is located near the TVA boundary line. It was estimated by the Cooperative's engineers that this plan would involve additional investments of more than $52,000,000 by 1973. It is significant that the Board of Directors of Alabama Electric Cooperative, Inc., has already adopted a formal resolution calling for the implementation of this plan which has been submitted to REA. The third stage plan prepared by the Cooperative's engineer is attached as Appendix C involves the complete displacement of service by Alabama Power Company to twelve distributing cooperatives and would duplicate service to sixty-nine (69) substations or delivery points. This duplication would involve the displacement of power generated and transmitted by Alabama Power Company for more than 100,000 rural customers located in the State of Alabama and would provide transmission connections to all municipal customers of the Company. Insofar as has been disclosed this plan has no official sanction by Alabama Electric Cooperative, Inc., but its manager recently testified in a proceeding before the Federal Power Commission that the Cooperative intends to extend its service to all the distributing cooperatives in the State of Alabama which are its members as soon as it has the facilities available.

The extensive nature of the effort of this G & T cooperative to supplant the service of Alabama Power Company is readily noted by comparing the Cooperative's expansion plan maps (Appendices A, B, and C) with the system map of Alabama Power Company attached as Exhibit D.

The ominous threat thus posed is underscored by the fact that REA required the Cooperative to seek thirty-five (35) year all requirements contracts from all such distributing cooperatives in connection with the 1961 $20,350,000 REA loan. These contracts at the instigation of REA and Alabama Electric Cooperative, Inc., have been executed by all the distributing cooperatives outside the TVA area in Alabama, except one or two, and have been executed by several of the distributing cooperatives in northwest Florida. The contracts referred to obligate the distributing cooperatives to discontinue their power purchases from any other supplier when called upon to do so by either the Cooperative or REA

and to purchase their power from the Cooperative at any rate set by the Cooperative with approval of REA. Of course there is no procedure to contest rates before REA.

Alabama Power Company sought to oppose the approval of the $20,350,000 loan when it was before REA. The Administrator refused to even divulge that a loan application was pending and informed the Company that it would be given no opportunity to oppose the loan. The Company did strenuously oppose the approval of the loan by the Director of Finance of the State of Alabama. The Director of Finance of Alabama did approve the loan and on review by common law writ of certiorari the Supreme Coourt of Alabama held that its scope of review was so limited that no review could be had either of the merits of the loan or of the legality of the action of the REA Administrator.

The Company is still endeavoring to obtain a court determination that the 35year all requirements contracts referred to violate the federal antitrust laws and that the loan being predicated on such unlawful contracts is infected with the antitrust violation and is for that reason also unlawful.

Alabama G. & T. Seeks To Displace Existing Service to Military Alabama Power Company has served the power requirements of Ft. Rucker, a military establishment in southeast Alabama, since its creation in 1940. In 1963 the Company was informed that Alabama Electric Cooperative, Inc., and perhaps other cooperatives were seeking to bid competitively on the power supply to this installation. At that time Alabama Power Company publicly offered to enter into an agreement with Alabama Electric Cooperative, Inc., and the distributing cooperatives served by Alabama Electric Cooperative, Inc., to the effect that if the cooperatives would not undertake to take over customers of Alabama Power Company, then Alabama Power Company would agree not to take over any customers of the cooperatives. The cooperatives refused to enter into such agreement and pursued their endeavor to bid on the service to Ft. Rucker. Alabama Power Company could not at that time obtain assurance from the military contracting authorities that in evaluating bids any consideration would be given (a) to the factor of income taxes payable by the Company (but not by the cooperatives) on revenues from the service involved nor (b) to the factor of the cost to the Government of the 2% subsidized interest enjoyed by the cooperatives. Even so, Alabama Power Company was successful in its bid to continue serving Ft. Rucker and has entered into a new agreement for a five-year period to serve the power requirements of this installation.

Competition for Service to Cities

Subsequent to the bidding on service to Ft. Rucker the Cities of Troy and Luverne, Alabama approached Alabama Power Company with reference to obtaining their wholesale power supply from this company rather than from the Cooperative. As a result of such request contracts were entered into by Alabama Power Company with each of such two cities. These contracts were approved by the Alabama Public Service Commission which also issued orders granting certificates of convenience and necessity to Alabama Power Company to make the extension of its transmission system (approximately 70 miles) to supply the two cities. The Cooperative bitterly contested the proceedings before the Alabama Public Service Commission and filed a complaint with the Federal Power Commission alleging that the rates of the Company to the Cooperative were too high and should be reduced and that the same rates to the Cities of Troy and Luverne were too low and should be increased. In the proceeding before the Federal Power Commission, the Cooperative has sought to obtain an order from the Commission granting the Cooperative a rate lower than the existing uniform wholesale rate from the Company to the distributing cooperatives in Alabama and to the municipalities served by the Company. The Cooperative sought this special treatment on the questionable basis that it is a generating and transmission cooperative carrying out congressional policies.

The evidence before the Federal Power Commission showed that Alabama Power Company services all electric cooperatives and municipalities at one uniform ("postage stamp") wholesale rate which produces a power cost in the range of 6 mills per kilowatt hour as compared to 9 mills per kilowatt hour charged by Alabama Electric Cooperative, Inc., to its cooperative customers. It was also shown in such proceeding that Alabama Power Company serves approximately 124,000 rural customers as compared to approximately 104,000 served by all the cooperatives in Alabama outside the TVA area. The Presiding Examiner in his

initial decision in the case before the Federal Power Commission found (a) that the Cooperative is engaged in an endeavor to actively compete with Alabama Power Company for wholesale customers and (b) that the uniform wholesale rates of Alabama Power Company are just, reasonable and lawful and (c) that the Cooperative's complaint before the Federal Power Commission was "without merit." The Presiding Examiner's initial decision is now before the full Commission on exceptions filed by the Cooperative.

REA Pressure on Distribution Cooperatives

In 1965 and 1966 Pea River Electric Cooperative, Inc., which was being served partially by Alabama Power Company and partially by Alabama Electric Cooperative, Inc., requested Alabama Power Company to extend service to four new delivery points under its uniform rate schedule applicable to cooperatives in Alabama. These rates have been approved by the Alabama Public Service Commission and have been accepted for filing by the Federal Power Commission. In response to such request Alabama Power Company entered into two power supply agreements with Pea River Electric Cooperative, Inc., constructed the required transmission line and substation facilities and commenced to serve such cooperative at two of the designated delivery points when it received word from Pea River that at the instigation of Alabama Electric Cooperative, Inc., REA had instructed Pea River to discontinue purchasing power from Alabama Power Company at such delivery points and instead to purchase its requirements from Alabama Electric Cooperative, Inc. This instruction was given to Pea River even though its cost of power from Alabama Electric Cooperative, Inc., is approximately 9 mills as compared to approximately 6 mills from Alabama Power Company.

In recent weeks Alabama Power Company has obtained an injunction in the state court of Alabama restraining Alabama Electric Cooperative, Inc., from interfering with the power supply contracts between Alabama Power Company and Pea River and this matter is now being litigated.

(The appendixes attached to Mr. Bouldin's statement are on file with the committee.)

STATEMENT OF D. L. BROUSSARD, FINANCIAL VICE PRESIDENT, UTAH POWER & LIGHT CO., SALT LAKE CITY, UTAH

I am D. L. Broussard, financial vice president of Utah Power & Light Company serving customers in Utah, and parts of Idaho and Wyoming; and of The Western Colorado Power Company serving customers in southwestern Colorado. Earlier this year, I appeared before the Subcommittees of the House and Senate Appropriations Committee in support of the 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. This function of REA, we believe, is necessary and appropriate. 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-afield from the legitimate and legal aims of the Rural Electrification Act. The proposed legislation, S. 3337, S. 3720, and other similar 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 uncontrolled lending authority. It would abandon any effec tive 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. REAS are attempting to obtain certificates to pre-empt 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% of a county area is asking for 100% of the area. To encourage this would saddle