STATEMENT OF W. A. DUNCAN, PRESIDENT, KENTUCKY UTILITIES COMPANY, LEXINGTON, KY. Mr. Chairman and Members of the Committee: I am William A. Duncan, President of Kentucky Utilities Company, an investor-owned electric utility that supplies electric energy in 75 of the 120 counties in Kentucky. In this statement, I will (a) reaffirm my company's support of rural electrification and of the concept under which the Rural Electrification Administration was originally established; (b) call to this Committee's attention certain activities in Kentucky which demonstrate a radical departure from the original concept on the part of generating and transmission cooperatives and of the Administrator; (c) suggest that the present situation is not one in which the legitimate need of rural electrification demands legislation of the type proposed in S. 3337, S. 3720 or Committee Print No. 2 of H.R. 14837; (d) state that such legislation will foster the interests of generating and transmission cooperatives and public power proponents rather than the interest of farmers; (e) urge that such legislation would result in the displacement of investor-owned tax paying electric industry by subsidized and income tax forgiven super-coops; and (f) respectfully urge this Committee to report this legislation unfavorably. My company has 24,400 stockholders, one-third of whom are Kentucky people. We serve 239,700 electric customers in Kentucky, including the urban area of Lexington, where we serve 47,976. The balance of the communities that Kentucky Utilities Company serves breaks down as follows: From the above tabulation it may be observed that our customers served would further break down as follows: Communities served 44 Towns having more than 1,000 customers_ 559 As can be seen by the above, we are a small-community company. My company was a pioneer in bringing electric service to rural areas, as we have built since 1912, the rural distribution lines, wired homes and supplied the first electric service to approximately one-half of the 603 communities that we serve. In 1916, we connected the first farm to receive electric service in Kentucky. Today 23,513, or nearly 10% of the 239,699 customers served by my company are farm customers. Beginning in 1937, we supplied at wholesale power the requirements of 18 of the 26 distribution cooperatives in Kentucky on rates affording us substantially less than normal profit as a means of encouraging rural electrification. Because of the tremendous push to build Rural Electrification Administrative (REA) financed generation and transmission cooperative systems, we now serve only one such distribution cooperative. To date the REA has approved loans to the 26 distribution cooperatives and two generation and transmission cooperatives in Kentucky of over 400 million dollars, of which approximately 50 million dollars have been repaid. Well over 300 million dollars of Federal funds are outstanding and available to cooperatives in Kentucky. As of December 31, 1964, the cooperatives in Kentucky had longterm debt to the Federal Government of 161 million dollars, leaving 140 million dollars that have been approved and are at various stages of being advanced or yet to be advanced by the Administrator. Contrast this in size to my own company that has total capitalization at December 31, 1965, of 181 million dollars. Unless the Rural Electric Cooperatives are to be encouraged to drastically step up their generation and transmission activity, such as they have done in Kentucky, the legislation to create a Federal Bank for Rural Electric Cooperatives is not needed. Does Congress intend to continue to permit generation and transmission cooperatives to be constructed, such as Big Rivers, in Kentucky, to serve industrial loads of the magnitude of Harvey Aluminum Company? Let me tell you about Harvey Aluminum-Big Rivers' method of using the taxpayers' money to advance one industrial concern to an advantage over its competitors. In 1961, it became known that Harvey Aluminum Company, through the means of a tax-free industrial revenue bond of 50 million dollars floated by the town of Lewisport, Kentucky (population 610), planned to construct an aluminum rolling mill which would require an unusually large supply of electric energy and high-capacity transmission facilities. My company had the only transmission facilities adequate to supply this load anywhere in the area. Despite such fact and our company's diligent efforts to serve this load it was ultimately announced that Green River Rural Electric Cooperative Corporation (a distribution cooperative served by Big Rivers G&T) had signed an electric power contract with Harvey and spent an additional $1,839,000 of REA loaned funds for a transmission line to enable it to serve Harvey. It is obvious to all that Harvey found this arrangement to its liking-an arrangement providing a plant without local taxes, financed by the town of Lewisport, and with income-tax-free and subsidized power supplied by cooperatives for it immediately moved to enlarge upon its first plans. Harvey now plans the construction of a reduction plant, which, it is reported, will also be financed with industrial revenue bonds and will require even greater quantities of electric energy. On December 30, 1965, the Administrator of REA announced that he had approved a new loan to Big Rivers of 54 million dollars for the construction of an entirely new generating plant, with a capacity of 300,000 kilowatts, of which it was estimated that Harvey Aluminum will require 200,000 kilowatts. In announcing this loan, the Administrator explained that the 300,000 KW generating station was to meet the growing requirements of Big Rivers' members, “including those of Green River R.E.C.C. which has contracted to serve a new aluminum reduction mill of the Harvey Aluminum Company at Lewisport." Subsequent developments prove conclusively that the Administrator was more interested in furthering the expansion of a generating and transmission cooperative than in the prudent disbursement of REA funds. He approved this loan in spite of the fact that the November 3, 1965 Agreement for electric service between Green River R.E.C.C. and Harvey Aluminum, Inc., contains the following stipulation which makes its effectiveness contingent upon the sole discretion of Harvey Aluminum. I quote from Section 25, paragraph (c) of the Agreement "25. Effective Date. This Agreement shall become effective and binding upon the occurrence of all of the following: "(c) Customer obtaining (i) 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 (ii) 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." [Italic supplied.] Harvey Aluminum, Inc., at the present time has not obtained the "unreviewable approval" referred to in the Agreement, nor has it obtained the "financing, in such amounts, of such type, and upon such terms and conditions" as Harvey, in its sole discretion, shall determine to be desirable-nor in the present money market is it likely to do so. The Administrator's irresponsibility in approving this loan is clearly evidenced by the August 12, 1966 order of the Kentucky Public Service Commission. In this order the Commission has authorized Big Rivers to construct only one of the two 150,000 kilowatt generating units which were to be financed by the loan approved by the Administrator in December, 1965. The second of these units cannot be constructed under this Commission order unless Harvey becomes obligated, prior to October 15, 1966, to purchase 200,000 kilowatts from the Big Rivers Plant. However we are informed by a source we have no reason to question that Big Rivers G&T has placed firm orders for two 150,000 KW turbines, estimated to cost approximately $6,000,000. Does this remind the committee of Colorado-Ute? Are these the types of loans that this committee now wants to enlarge by providing additional funds to be disposed of at the uncontrolled discretion of the Governor of the Electric Bank? This Governor would be the same person as the Administrator of R.E.A. who (1) advanced $30,000,000 of the taxpayers' money for construction of the Colorado-Ute generating plant while authorization for its construction was still being litigated in the courts, and (2) approved a loan of $54,000,000 to Big Rivers G&T for construction of a 300,000 KW generating plant, 200,000 KW of which was to supply Harvey's proposed reduction plant when, even now ten months after the Administrator's approval of the loan, there is no assurance whatever that Harvey will ever build such a plant? Under the present administration of the Rural Electrification Act, REA has already gone far beyond its original intent-subsidy to assist in meeting the power needs of America's farms-and has completely belied the solemn promise of Speaker Rayburn in 1936, when he said: "We are not in this bill intending to go out and compete with anybody. By this bill we hope to bring electricity to people who do not now have it. This bill was not written on the theory that we are going to punish anybody or parallel their lines or enter into competition with them." This legislation will provide virtually unrestricted funds-free of all meaningful congressional controls and backed by the Federal Treasury-to create a program of income-tax-exempt, government sponsored power never before seen in this country. In 1965 over 65% of all loans REA approved were to finance Cooperative Generation and Transmission facilities. Less than 40% was loaned to the distribution cooperatives. Now let us move to another area in which REA has deviated from the original intent of the REA Act. Until recently, the cooperatives in Kentucky have refrained from seeking to serve municipal loads. Now they have openly embarked on a program of taking from the private utilities municipal loads, served at wholesale. The City of Henderson (population 17,000) has been a power customer of my company for 25 years. From time to time, as the city has grown, it has purchased standby and reserve capacity to supplement its own generating facilities. On September 15, 1965, it was announced that Big Rivers R.E.C.C., the same generation and transmission cooperative which supplied the Harvey Aluminum industrial load just discussed, had entered into a power contract with the City of Henderson and the city immediately thereafter acted to terminate the contract under which my company presently supplies power to that city. Kentucky Utilities Company served the City of Paris, at retail, from 1923 to 1932. In 1932 the city installed generating facilities from which it presently supplies about three-fourths of the customers in that city. My company continues to supply the remaining one-fourth, about 700 customers in Paris, a municipality with population of about 7,900. It has been apparent for several years that the city's generating facilities would soon become inadequate and the city would need additional source of power for the customers served by the city system. For several years my company sought actively to enter into a power contract with Paris, in which attempt we found that we were in direct competition with another REA-financed G&T Cooperative (East Kentucky RECC). On September 1, 1965, it was announced that Paris and East Kentucky RECC had entered into a contract for that cooperative to supply the power requirements of city's municipal system in Paris. I personally met with the REA Administrator in Washington to discuss the Paris and Henderson situations and Mr. Clapp stated that these generation and transmission cooperatives were only disposing of portions of what he chose to call their "surplus capacity" and therefore they were not in violation of the REA Act in making these types of contracts. At the time of this discussion, his office was considering, and shortly thereafter approved, the new $54 million loan application of Big Rivers (previously referred to), giving that Cooperative an even more lavish "surplus" with which to similarly compete, and ultimately take over the business of, the investor owned, tax paying utilities in the area. He also knew, full well, that the continuing needs of Paris for firm capacity cannot be met with so-called "surplus" capacity on the system of East Kentucky. Does Congress, by this legislation, intend to further increase the power and authority of the REA Administrator by also making him Governor of the Federal Electric Bank, thereby giving him a second means whereby he can disperse literally billions of dollars in loans to build facilities to further compete with investor-owned companies-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 for self-financing and the prescribed territory limitation of that Act, 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 Company lost over 10% of its business. TVA's bonding authority under that Act was three-quarters of a billion dollars and a billion dollar increase has recently been approved. But this one and three-quarter billion for TVA is only one-tenth of the borrowing authority that would be given to the Rural Electric Cooperatives of this country under this proposed legislation. The rural electrification program was established for the noble 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 of S. 3337, S. 3720 and Committee Print No. 2 of H.R. 14837 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 "super-co-op" generating and transmission systems in concert with other public power systems, with the aim of further encroaching upon, and ultimately replacing the tax-paying 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 multi-layered arrangement of REA, the electrification account, the Bank, the super-co-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 (ala Harvey) of rural areas, and interchanging their "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 industry-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-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 and by their employees. shareholders and consumers. Therefore, this is not a matter to be dealt with hastily and without careful analysis of the ends being sought by the proponents of this legislation and careful consideration of whether those ends are in fact, the purposes, programs and policies to which this Congress would knowingly subscribe. As it always has, my company stands ready, willing and able to supply all of the power needed by electric systems in our area 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 position to contribute its fair share of the revenue 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 and without any legislation of this sort. In closing, I will make one statement in unambigious terms. No matter what claims are made by its proponents as to the "need" for this legislation, those of you who, as elected representatives of the people, must act one way or another upon this proposal, must do so with your eyes open and your minds fully conscious of two basic facts. First, there is no need of this legislation for any legitimate purpose for which this legislation is sought. Secondly, a vote for this legislation, in its present form, will be a vote by you to nationalize and socialize the electric utility industry in this country by replacing it with a system of tax-exempt federally owned and/or federally sponsored electric utilities. I most earnestly urge that you individually take such action as you may ultimately take on this legislation with a full awareness of these basic facts. STATEMENT OF SAILEY ENNIS, GENERAL MANAGER, WASHINGTON ELECTRIC COOPERATIVE, EAST MONTPELIER, VT. Mr. Chairman and gentlemen of the committee, I thank you for this opportunity to appear before you on this very important legislation. I am sure what I am submitting to you, you have heard many times before possibly in much the same words. I have been with a Rural Electric Cooperative now as an employee for some 22 years, and when the Rural Electrification Act was passed in 1936 only 10% of rural America had electricity. I was born and raised on one of the farms in the 90% that did not, so I am sincere when I say it is a hardship to grow up without the benefits of electric power. This farm used to be run by my father and his five sons. We used to milk about twenty cows and cool the cream with ice which had to be stored in the winter. This farm finally was electrified in 1945 by a rural electric cooperative, the one I still work for today. Now this same farm with one man and the help of electricity is milking 40 cows and doing it in less time and with less effort than it took back in the '20s and '30s. I believe with the population growth expected in this world in the next few decades that the rural American people are going to be called on to produce more and more if we are to feed a hungry and hungrier world. Since the first rural electric system went into service in 1935 they have slowly revolutionized the rural American way of life as we know it today. They have raised farm production and increased farm efficiency, they have extended the boundaries of modern living and have helped to establish new job-creating businesses in rural areas as well as provide a billion dollars-a-year market for goods produced in the city. Would over a million American mantels tick with the sixty cycle heartbeat of an electric clock if it weren't for rural electric cooperatives? Would the 20 million plus rural people served by the cooperatives have electric power at their finger tips or would they still read by kerosene lamps, cook on wood ranges and be ignorant of the dynamic force we call electricity as I was as I grew up? Rural Electric Cooperatives are becoming aware of the fact that their efficiency of operation is becoming a standard of the industry. The more power they provide the larger the market for electric appliances becomes; by creating this fantastic market rural electric cooperatives set the pace for progress. In order for these cooperatives to meet these ever growing demands we realize that we cannot expect Congress to appropriate the large sums that are going to be required. We wish that this were possible that all financing could be done at 2%-but we are realistic people. The REA act was created by Congress and in my opinion is one of the greatest things ever to happen to this great country of ours. These farmers, ranchers, and home owners that exhausted every other means trying to obtain electricity and could not, who finally turned to you, the federal government, and received that help-we have come to you every year since then, and when it was at all possible you have been most generous and the rural electric cooperatives have shown their appreciation with their excellent repayment record. Each year as REA and NRECA have had to request larger appropriations the power companies have come before you with larger groups and opposed us more vigorously with the same old story that "their-the rural electric cooperatives— job was done because 98% of the nation's rural areas were electrified". While in their own planning, they announced plans to spend $115 billion dollars to expand their own facilities in the next 15 years. Their aim was to junk the REA |