Company, Iowa-Illinois Gas & Electric Company, Iowa Power & Light Company, and Iowa Southern Utilities Company.

These companies serve 772,000 electric customers in Iowa and the surrounding states. We employ 7,000 people and have 97,500 stockholders.

The area which we serve consists of some of the most fertile and productive farm land in the entire world. The farmers in this area are certainly among the finest and most capable in the world. We serve 85,000 rural customers.

In our areas these six companies serve twenty-four (24) cities of more than 10,000 people (or 5,000 meters) and more than 1,200 cities and towns of less than 10,000 people. I mention this to point out that any limitation by meters as was suggested in revised House Bill H.R. 14837 is indeed no effective limitation at all.

We are all members of regional power pools utilizing the latest technological developments, including installation of larger and larger, more efficient generating units, nuclear generating units, and 345,000-volt transmission lines. We are dedicated to provide the best possible electric service at the lowest possible rates consistent with good service, and we pay our full share of local, state, and federal taxes. 21.5c of every dollar of revenue we receive is used to pay these taxes. The amounts that we paid for the year 1965 are: $33,730,000 federal income taxes (which is 10.9c per revenue dollar), $1,554,000 state income taxes, and $31,234,000 general taxes.

The technical aspects of this bill have been presented by very competent industry representatives. I would like to present our view with regard to whether S. 3337 or any bill is necessary.

Let us first examine the availability of electric service to Iowa farms. To the best of my knowledge, there is not a single farm in Iowa that has requested service from our companies and does not now have service. The number of farms in Iowa is decreasing as smaller farms are combined into larger operating units. Under the laws of the State of Iowa, any new electric customer would ordinarily be served by the utility with closest facilities. I seek to point out here that there is indeed no need for vast funds to be appropriated by Congress for service to new farm customers.

Let us now examine the question of facilities for load growth. I was not in the utility business when REA was formed. To discuss the excellent job REA's have done in helping to electrify America's farms would be only to recite history. But I submit that any successful industry which is thirty years old no longer needs subsidization and tax shelter at a time when America's farms are 99.8% electrified.

A large proportion of industry in our service area is agriculturally oriented. By this I mean these industries use grains and livestock produced on the farms or that these industries produce machinery, feed, fertilizers, chemicals, or equipment used on the farms.

Is it equitable to provide for subsidized electric service to some industry while competing industries carry their full share of the tax burden? You see, the effect of this proposed legislation extends far beyond the electric business. It extends to every industry in our service area and creates subsidized competition for some industries. To be specific, one of our customers, Terra Chemicals International, is constructing a 25 million dollar anhydrous ammonia plant south of Sioux City. Terra will purchase its electric requirements from Iowa Public Service Company at rates regulated by the Iowa State Commerce Commission, and approximately 23 cents out of every dollar that they pay for their electric service will be used to discharge tax obligations imposed on my company. Right in the middle of our service area, near Fort Dodge, Iowa, Consumers Cooperative Association is building a comparable ammonia plant, and they will purchase their electric energy from a Cooperative, which, like other cooperatives, has no federal income tax obligation and at rates which are not regulated. The anhydrous ammonia produced at each of these plants will be, for all practical purposes, identical and yet the production of the Consumers Cooperative Association plant will be subsidized through the operation of the REA system and hence creates subsidized competition to an industry paying its full share of the taxes. In the field of labor, Congress has expressed itself firmly against unfair labor practices, as witness the ban on secondary boycotts. Congress has expressed itself firmly against unfair competition in industry through the enactment of the Clayton Anti-trust Act and the Robinson-Patman Act. Yet, in the field of electric power this unfairness does exist and, under the proposed legislation,

would be expanded and encouraged in proportions heretofore unthought of. I submit that this is not proper and is not in the public interest.

There is considerable evidence that REC rates are not as low as the tax differential suggests they should be considering that approximately 211⁄2 percent of the operating revenue dollar received by the investor-owned utilities for whom I speak goes to discharge their tax obligations; and in Iowa, as in most states, REC rates are not regulated by any state regulatory body as are the rates of the investor-owned utilities. This is also true on the federal level where legislation was introduced to expressly remove the REC's from the jurisdiction of the Federal Power Commission when the Federal Power Commission sought to assert jurisdiction over the REC's. The practical effect of this is that, given a particular potential customer, the REC can undercut the rate that the regulated utility must charge a particular customer. We have instances in the service area of my own Company where the Northwest Iowa Power Cooperative, which purchases all of its power from the Federal Government, has offered to sell to our customers at rates lower than they sell to their own member Cooperatives. Under the Iowa law, the Commission has the authority to authorize, after a hearing and due consideration to the preference of a customer, service from a utility other than the closest utility. It does not take too much imagination to realize that a potential customer is going to express a preference for service from a utility other than the closest utility if the service is available at a lower rate. If you consider the below-cost generation which the REC's, as preference customers, purchase from the federal power systems, the presently existing rate differential should be much greater.

Many REC people are dedicated to their jobs and have worked effectively to provide service to their customers. I have many good friends in the REC's and we have developed a mutual respect. I feel sure that they abhor the idea of a nationalized electric power system as much as I do. It is not our belief that it has been the intent of Congress to nationalize the power industry, and yet the use of federal generating plants, federal power transmission systems, and the operation of the so-called "preference clause" are giant steps in this direction. The six Iowa utilities, on whose behalf I speak today, have been and are ready, willing, and capable of serving the needs of any and all rural customers in the state. If the rural electric cooperatives need additional generating capacity for their rural customers, we are ready, willing, and capable of supplying those needs at rates regulated by the Iowa State Commerce Commission and by the Federal Power Commission.

There is no justification for this legislation based on deficiencies in our performance in the past or any lack of future capability on our part to serve the expanding potential of rural Iowa.

As you gentlemen are well aware, the Chairman of the Federal Power Commission indicated, when issuing the National Power Survey, that the utilities in this country have done a remarkable job of maintaining electric capacity ahead of the growth in electric requirements and an equally able job in anticipating and preparing for tomorrow's needs. This has historically been the responsibility of free enterprise utilities.

We stand ready to compete aggressively for customers, but we believe very sincerely that all the participants in this ballgame should play by the same rules. In summary then, it is our position that this is bad legislation in that it would permit the REC's to engage in unlimited borrowing to expand at a time when 99 percent of our nation's farms have been electrified. This can only result in unnecessary duplication of facilities and unfair competition not only between electric suppliers but by the industries which purchase their energy from the suppliers. It is bad legislation in that it would permit the REC's to borrow so as to acquire other presently existing systems. This represents a vast departure from the principles of the Rural Electrification Act of 1936 which this proposed bill seeks to amend and expand.

Before any bill is considered which would amend the present REA Act, I respectfully suggest that a very comprehensive study of the situation be initiated by your Committee. Passage of a bill which would be highly damaging to the largest single taxpaying industry in this country would be most regrettable. We are not being obstructionists in this-we feel strongly that no bill as important as this one to the nation's economy should be enacted into law without full and complete investigation. The President of the Edison Electric Institute has offered the full cooperation of our industry in making such a study. It would seem to make good economic and legislative sense that this be done.

Quite obviously the rural electric cooperatives don't want to pay higher interest rates. They want to be able to get ahold of much greater amounts of money than Congress has seen fit to provide. Need for "crash" legislation on this matter is certainly not apparent to me, particularly since a large portion of the funds requested from the proposed bank would be employed to construct or add unnecessary generating capacity on the REA systems to meet-nonfarm electric loads which the investor-owned utilities stand ready and willing to supply at reasonable rates.

I am proud to be an American. I am proud to be in the electric industry. I am proud that my Company and all of the companies I represent here today are able to operate as profitable enterprises paying their full share of taxes to support the needs of this great nation in war and peace. In view of the investor-owned electric utilities' performance and their substantial tax support to the federal government, the creation of a federal bank which would tend to destroy such a resource is completely unjustified.

Thank you for your very kind consideration.

STATEMENT OF ALFRED GRUHL, PRESIDENT, WISCONSIN ELECTRIC POWER CO., MILWAUKEE, WIS.

This statement, and the attachment thereto, is submitted on behalf of Wisconsin Electric Power Company (Wisconsin Electric) in opposition to Bill S. 3720 and related proposals.

Wisconsin Electric is a Wisconsin corporation which operates an extensive electric utility in 15 counties in southeastern Wisconsin, including the Milwaukee metropoltan area. Wisconsin Electric serves a population of about 1,750,000 in some 96 incorporated cities and villages and in 126 unincorporated towns. Its operating territory covers over 4,000 square miles.

Bill No. S. 3720 is strongly opposed by Wisconsin Electric not merely on its own behalf but in the interests of the substantial group of citizens who unquestionably would also be affected. This group includes over 4,000 employes, some 48,000 investors (over half of whom reside in Wisconsin), and some 560,000 Wisconsin customers who in 1965 supplied the revenue to pay over $18 million in federal income taxes. In the interests of fairness and equity our customers are entitled to know why the original objectives of the Rural Electrification Act of 1936 should be drastically altered 30 years later, and then continued in perpetuity, regardless of need.

Opposition to S. 3720 parallels that expressed by this Company to similar bills considered by the House Committee on Agriculture at a hearing held June 3, 1966. The objections there stated apply equally well to S. 3720, namely, that this bill is a poorly disguised vehicle for the dismembering and eventual takeover of a good portion of the investor owned electric utilities. The means by which such takeover was apparently to be accomplished was, first, by continuing the availability of government funds at less than cost; second, by increasing tremendously the funds available; and third, by surrendering to others, including the borrowers themselves, the Congressional controls and safeguards over the uses to which government funds can be put. With the continuation of federal funds at less than cost and with the continution of the unquestioned tax discrimination the odds would be so stacked against most private utilities that they would find it hard to avoid being taken over.

Assertions by proponents of S. 3720 that it would permit rural electric cooperatives to now pay their own way is a sham which has little relation to the actual provisions of S. 3720. The proposals instead of encouraging would in fact deter cooperatives from going into the open market for funds. In addition to preserving the present two percent program, S. 3720 would provide supplemental funds from a tax-exempt federally created bank, supported by the U.S. Treasury. All loans from this bank would be at interest rates below the prevailing market.

Congressional controls over the funds to be loaned by the Bank would to a large extent be delegated to a Board of Directors, a majority of whom are composed of the borrowers themselves and the Administrator of REA. Ten of the thirteen members of this Board will be borrowers or from the Department of Agriculture.

In spite of the vigorous protests, S. 3720 contains specific provisions allowing loans for installing duplicate generation and transmission facilities and for the

takeover of areas served by others, including the customers and facilities of both private and municipal utilities.

As was the situation with the House bills, other than for self-serving statements of NRECA representatives and their financial consultants, there has been no real showing of any need for the very huge sums of estimated capital requirements of the REA borrowers-mentioned as from $8.2 to $9.5 billion over the next 15 years. This figure includes some $4.5 billion for generation and transmission facilities alone. Yet, there has not been one iota of proof that the power needs in the rural areas now served by the cooperatives cannot be met by wholesale purchases from private utilities and at rates approved by competent impartial regulatory bodies.

The fact is that the electric cooperatives, along with private and municipal utilities, have experienced the greatest era of expansion that the electric utility industry has known. The growth of the cooperatives was accomplished from funds generated internally and supplemented by the present REA loan program. There is absolutely no reason to believe that future growth cannot be similarly financed.

Pursuant to a suggestion made by Senator Ellender (Wednesday, August 17, 1966, Tr. 301) we have attached as an appendix to this statement a recent statistical study, Operating Results of Rural Electric Cooperatives in Wisconsin, prepared and distributed by the Public Service Commission of Wisconsin.

There are 29 distributing cooperatives and one super cooperative in Wisconsin. In the year 1964, 27 of these cooperatives were able to repay in advance substantial portions of their outstanding REA loans (Appendix, page 5). Other factors clearly indicating that the present REA loan program is more than adequate to meet the capital requirements of the Wisconsin cooperatives are the rates of return and the coverage of interest. The 29 distributing cooperatives earned an overall average rate of return of 6.9 percent in the year 1964, and 7 of them earned in excess of 10 percent (Appendix, page 12). This study also shows that these same 29 cooperatives had average earnings for the year 1964 in excess of four times interest requirements (Appendix, page 12).

An analysis of this objective study leads to the basic conclusion that a similar examination of electric cooperative operating results for the nation would reveal whether or not an actual need for supplemental financing exists.

We recognize that S. 3720, which is virtually identical to Committee Print No. 2 of H.R. 14837, contains some revisions purportedly in answer to objections raised by the private electric utilities. We have analyzed these revisions and can categorically state that they fall far short of meeting any of the objections. Comments on just a few of these revisions follow:

1. Section 403 (g) establishes a limitation on loans for generating facilities. Such loans are not to be made if they would result in increasing the total cooperative generating capacity to exceed 5% of the total generating capacity in the United States in service at any one time. This section is an express recognition of the proponents' intention to greatly expand REA borrower-owned generating facilities in duplication of investor-owned generating facilities. Cooperatives now account for about one percent of the total generating capacity in the United States. This "limitation" would expressly authorize increasing their generating capacity five-fold. Moreover, this "limitation" would be removed coincident with the conversion of the electric bank from a government agency to a government instrumentality.

2. Section 405 (j) would require an applicant for a generating loan to first advertise for bids for the purchase of power from a supplier. We submit that this provision as it now stands would be virtually meaningless for the following

reasons:

(a) It would apply only to initial generating loans. In recent years very few such loans have been "initial".

(b) The prospective borrower could prepare the specifications for the wholesale power so as to limit the bids as he sees fit.

(c) In comparing the bids with the cost of power under the proposed loan, no adjustments would be made for the special tax and interest advantages received by the borrower as well as the shared taxes which would be lost to the communities served.

(d) A determination by the Electric Bank Board would be final without any right of review by a court.

3. Section 408, which in the original bill purported to limit loans for the purpose of acquiring other utility systems or parts thereof, has in effect been substantially liberalized or broadened. Under the revised bill there is now no

utility system limitation with respect to loans made for the purpose of acquiring utility systems in rural areas. The previous limitation of cumulative acquisitions not to exceed the size of the borrower's system at the time of his first loan has been removed. As to non-rural areas, the revised bill would limit the cumulative acquisition to 5,000 connections which would in effect mean some 15,000 or more population. The revised bill would also remove any of these limitations on the making of loans for acquisitions, exchanges and generating facilities as provided in Section 408 (a) (2) when and if all of the Class A stock has been retired.

Thirty years have elapsed since the Rural Electrification Administration was created in 1935. It has been suggested previously that a comprehensive study of electric cooperative operations would be in order at this time. In addition to an examination of the operations of REA, it is pertinent also to examine other changes which have taken place. In 1935 farms were at the depth of the depression. Statistics of electric utilities show a continuously declining number of "farm" customers. This results from the well-known fact that smaller uneconomic farms are being consolidated into larger ones and because of improved methods and farm equipment.

Since 1935 the shifting of population into metropolitan areas has brought with it serious problems. In testimony on behalf of this company before the House Committee on similar bills, members of the Committee were invited to visit "REA country" near this company's service area, to also visit its metropolitan areas, and then determine if either area was to be subsidized at the expense of the other. The discrimination which is occurring is not only that of financial subsidy but the very substantial one of tax discrimination. The 560,000 customers of this company living in both metropolitan and rural territory are being discriminated against to a far greater extent in 1966 than were our customers in 1936. In the latter year the top corporate Federal income tax rate was 15%; today it is 48%.

Our cities face overwhelming problems, and need all of the tax base they can maintain and attract. To further complicate their situation there is increasing pressure to move industry from urban to rural areas. Subsidized power rates can be an attractive lure. Even the Secretary of Agriculture in a recent speech promoting "rural industrialization" spoke in glowing terms of the many advantages of the rural areas as potential industrial sites. It is strange for one governmental department to express concern for the plight of rural areas on the one hand and promote their advantages on the other.

Also since 1935 a substantial shift has occurred in the population from rural to urban areas. It is presumed that this shift in population will substantially affect the complacency with which the whole subsidy and tax discrimination picture will continue to be tolerated by the majority of the electorate.

In summary we submit that in taking action on this bill Congress will be providing answers to the following questions:

1. Shall electric cooperatives be given the green light to double or triple in size by taking over other systems, including investor and municipally owned systems? 2. Will the metropolitan populations, with their pressing problems be asked to continue to pay 20 and more percent of their electric service bills in support of government, while this privileged group of electric cooperative customers continues to pay only a fraction of that amount?

3. Is the other half of rural America, which is served by the private and municipal utilities and which has problems similar to those of their cooperativeserved neighbors, less worthy to receive preferential tax treatment?

4. What constitutes completing the job of the Rural Electrification Act? Is it extending service to those in rural areas who do not now receive it, or is it to create a new subsidized power system in America, and if so, for what purpose? In developing the answers to these questions the Congress will determine the future course of what is perhaps its most basic industry. It will also decide whether or not to continue and even aggravate the grossly unjustified tax discrimination and financial subsidies.

We respectfully request this Committee to take the action which will keep this industry on its historic course of better electric service to all customers, at the lowest possible cost. Such action would be to not report favorably on S. 3720.

(The appendix attached to Mr. Gruhls' statement is on file with the committee.)