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passage of the original REA Act when he said, "May I say to the gentlemen that we are not, in this bill, intending to compete with anybody. By this bill, we hope to bring electricity to the people who do not now have it. This bill was not written on the theory that we were going to punish somebody or parallel their lines or enter competition with them.”

In 1958 the Company entered into negotiations with Choctawhatchee Electrie Cooperative for a new contract covering the continuation of its supply of the electric power requirements at the four delivery points of the cooperative. The Florida Public Service Commission during an investigation of the Company's earnings had indicated concern that the Company's other customers were being penalized because of the low rates to the cooperatives. The then existing rates to cooperatives, designed in 1947, had been in effect ten years and are the same rates in effect today for the four cooperatives Gulf Power Company serves. In preparation for active negotiations, the Company submitted a proposal with a rate schedule reflective of current and projected costs and about a one-third increase over existing rates.

During these negotiations, and without our knowledge, the cooperative was constructing a transmission line from the system of the Alabama Electric Cooperative to supply the electric power requirements of two of its delivery points. Both of these delivery points were disconnected from Gulf Power Company and connected to the Alabama Electric Cooperative system in December, 1958 even though Choctawhatchee was to pay more for the electrical energy from Alabama Electric Cooperative and still is paying more. The “27th Annual Report of Energy Purchased By REA Borrowers" for the fiscal year ending June, 1965 (REA Bulletin 111-2) shows that Choctawhatchee Electric Cooperative paid Alabama Electric Cooperative 8.8 mills per kilowatt-hour for power at these delivery points as contrasted with 6.6 mills per kilowatt-hour for power supplied at its other delivery points by Gulf Power Company.

The Alabama Electric Cooperative, a Generating and Transmission Cooperative, operating in South Alabama adjacent to Northwest Florida, was granted a loan by the REA Administrator in 1961 to build a generating plant in South Alabama and transmission lines extending into Northwest Florida. The transmission lines extending into Northwest Florida were for the purpose of supplying the electric power requirements of the Escambia River Electric Cooperative and the Choctawhatchee Electric Cooperative both of which are served by the Gulf Power Company. Before the Alabama Electric Cooperative could make a loan for the construction of the plant and lines, it was required to secure the approval of the Finance Director of the State of Alabama. The Alabama Power Company and Gulf Power Company, in hearings before the Finance Director opposed the approval of the loan. Testimony by REA Cooperative witnesses established that the cost of power to be purchased from the Alabama Electric Cooperative by the two Florida cooperatives would be approximately 12% higher than they were paying Gulf Power Company. Gulf Power Company witnesses testified that the Company was willing to supply the electric power requirements of these cooperatives, for purposes originally intended by Congress, under a long-term contract, at the existing low rates. Nevertheless, the duplicating uneconomical Government subsidized plant is under construction.

Within the 7.400 square mile area served by Gulf Power Company is located Eglin Air Force Base reservation with an area of approximately 800 square miles. Gulf Power Company has furnished all the electric power requirements of this base since its inception prior to World War II and has several millions of dollars invested in lines, substations and other facilities. In October, 1962, the Air Force invited Gulf Power Company and Choctawhatchee Electric Cooperative to submit proposals to furnish the electric power requirements (4.000 KW) of a radar tracking research installation to be installed by the Bendix Corporation and designated as a SPADAT "A" system. The specifications required a 115.000 volt line to the site with a capacity of 15.000 KVA and substation capacity of 7.500 KVA initially. The Air Force advised that service requirements were very critical as to variations of voltage and frequency and interruptions could not be tolerated. The cooperative had no 115.000 volt lines and had never operated such a high voltage system. At that time Gulf Power Company had approximately 900 miles of such lines. Three separate Gulf Power Company 115.000 volt lines already served the Air Force Base loads. We had such lines along the north, east and west boundaries of the Eglin reservation as shown by the sketch attached.

Bids were submitted by both the Company and the REA Cooperative. Company representatives met with the Air Force answering technical questions relative to its proposal and pointing out that it could furnish one, two or three lines as needed to the site, together with duplicate substation equipment thus providing the best assurance of uninterrupted service. All facilities were to be furnished by the Company at no cost to the Government or the taxpayers. The Company proposed service at its standard published rates for the class of service as approved by the State Commission. The Company suggested that the Air Force, in analyzing the bids, take into consideration the cost to the taxpayer of the difference between the 2% interest rate paid by the cooperative and the 4% cost to the Government and in addition the income tax payments foregone in the case of service from the cooperative. It was pointed out to the Air Force that the only 115,000 volt lines available to the REA were those of the Alabama Electric Cooperative located over 50 miles distance in Alabama and that the most conservative minimum cost of this line and substation, using the cooperative's own cost figures as revealed in testimony before the Finance Director of the State of Alabama, making no allowance for the cost of generating capacity devoted to this service, would be $1,150,000. A conservative estimate of the direct interest cost of the taxpayer during the initial five years of operation would be approximately $23,000 per year and would total $478,000 over the 35-year period of the loan. It was also pointed out that at the rates proposed by the Company the cost of service to the Air Force was estimated to be $275,700 and of this amount a minimum of $43,500 would be returned annually to the U.S. Government in the form of income taxes paid by the Company.

We have subsequently learned the cooperative's proposed rate was 7.55 mils per kilowatt-hour. If consideration had been given to interest cost and taxes foregone to the Government, the Company's rate would have been 7.43 mils and the lowest cost to the taxpayer. The Company was informed that since there is no statute requiring the Air Force to give consideration to the interest cost and the taxes foregone that the cooperative had the lowest bid and was being awarded the contract. The Company protested this award with the Comptroller General as not being in the best interest of the taxpayers, but he found himself without statutory authority to offset the subsidies granted to the cooperatives by Congress.

Ironically, despite the fact that the coperatives spent $1 million for the construction of a gas turbine-generator on the SPADAT site to provide backup power for their transmission line, we are told the Air Force now finds it needs to construct an additional $3 million generating plant in an attempt to secure adequate service. None of these expenditures of tax dollars would have been required if the multi-source supply offered by Gulf Power Company had been accepted.

The proposed legislation, by providing an additional source of tax-subsidized financing, can serve only to encourage further unnecessary duplication of facilities such as the examples I have outlined and which are not in the public interest. Since the territory served by Gulf Power Company, and for that matter the entire country, is already electrified, and since the supplemental financing proposals are of magnitudes appreciably above that being appropriated by Congress each year under the present law, the increased financing is obviously for generating and transmission facilities and not for normal growth of cooperative distribution systems. This is further borne out by the fact that over one-half of the money appropriated for electric cooperatives in the last five years has been for generating and transmission facilities, duplicating existing facilities. This duplication is not only wasteful of our resources because of duplication itself, but the smaller sized generating equipment purchased by the cooperatives has inherently much lower efficiency than existing utility units and is therefore wasteful of our country's fuel resources. This waste is surely not in the public interest. These funds for wholly unnecessary and duplicating generating plants and transmission lines do not supply service to a single customer not now being served.

The establishment of a Federal Electric Bank would, in the manner stated earlier, threaten to nationalize the electric power industry which has established America as the world leader in electric power supply, and in so doing, weaken the structure of the nation's entire economic system.

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STATEMENT OF M. S. LUTHRINGER, PRESIDENT, CENTRAL ILLINOIS PUBLIC SERVICE Co., SPRINGFIELD, ILL.

On behalf of Central Illinois Public Service Company, I appreciate this opportunity to submit testimony to your Subcommittee on these important legislative proposals.

I feel I have an obligation to our some 29,000 investor-owners, our 2,000 employees and our more than 250,000 customers to express opposition to the type of Federal electric bank outlined in S. 3337, S. 3720 and H.R. 14837.

For you to understand our particular concern, let me first give you some brief background on our Company. Central Illinois Public Service Company serves a basically rural area of some 20,000 square miles in central and southern Illinois. We are proud of our role as pioneers in the rural electrification of Illinois. Early experimental programs, conducted by our Company in cooperation with the University of Illinois, served as guidelines for future rural electrification programs. Today, virtually all farms in Illinois have central station electric service available to them.

We provide electric power at wholesale to 16 of the 27 rural electric cooperatives in Illinois at 90 points of delivery. We do this at a cost to them considerably cheaper than they can generate power for themselves. In early August, we negotiated a mutually satisfactory agreement, which included rates, for new eight-year wholesale power supply contracts for these cooperatives, to become effective January 1, 1967. This is another example that investor-owned electric companies can and do provide adequate, efficient and low cost power supplies to electric cooperatives without the necessity for the Federal Government to subsidize generating and transmission facilities at taxpayers' expense.

Further evidence of this is the case of the Southern Illinois Power Cooperative, a generating and transmission project completed with REA funds in 1963 at a cost of about 25 million dollars. Testimony before the Illinois Commerce Commission by the co-op's own expert, Mr. A. F. Hartung, consulting engineer and partner of the Burns & McDonnell Engineering Company, indicated that this G & T cooperative's average delivered rate per kilowatt hour to its three member cooperatives over a ten-year period would be considerably higher than the rate offered these same member cooperatives by Central Illinois Public Service Company. Our Company's proposed rate was accepted by all other cooperatives we serve. Actual operation of this G & T super cooperative has borne out the predictions of a higher cost power supply.

One cooperative in our state, from the beginning of its operation, generated its own requirements. Over the years, the cost of power to this cooperative was substantially more than if it had been purchased from our Company.

Not only is Central Illinois Public Service Company assuming a major share of the responsibility of bringing central station electric service to rural areas through wholesale power supply contracts with 16 electric cooperatives, but it also has compiled what we believe is an impressive record of rendering low cost electric service directly to persons in rural areas.

Our Company serves 532 communities with electricity.

Of these, 463 or 85%, are populated by less than 1,500 persons.

In fact, 392 or about 65%, have less than 500 population.

Of the 532 communities on our system, 279 had no electric service before we extended it to them, and 83 had only part time service.

Our Company is not opposed to a program of non-federal loan funds being developed to provide funds for rural electric cooperatives for their normal growth requirements. We favor such a policy under proper safeguards and controls. We feel that any Federal funds provided in the future should be loaned at a rate of interest at least comparable to the rate paid by the U.S. Treasury, should be appropriated under the terms of the Rural Electrification Act, and should have adequate congressional control.

We find, however, that the proposals now being considered do not limit themselves to an alternate plan for non-federal financing. Instead, they propose supplementary types of programs with a continuance of the present program of below-cost direct loans of Federal funds to cooperatives.

There seem to be no guidelines established in these proposals which would limit unnecessary expenditures of Federal funds or needless duplication of facilities. Legislation now proposed lacks proper congressional control. It even would permit borrowers to use below-cost, tax-subsidized funds obtained from a Federal electric bank to acquire the properties of electric companies

and other electric systems. One form of H.R. 14837 would allow co-ops to use these funds to construct or acquire electric systems with cumulative service connections up to 5,000.

In our service area, this means that it would be possible for unregulated cooperatives to invade areas now served by companies like ours and promote the purchase of, construct or acquire electric systems in cities up to, and in excess of, 13,000 population. Gentlemen, among the 532 communities our company serves 528 have population of less than 15,000. You can see how a leglislative proposal such as this could be damaging to us.

This is a far cry from the original intent of the Rural Electricfication Act which was to bring central station electric service to persons in rural areas without such service.

With more than 99% of all persons in rural areas both in Illinois and throughout the nation now receiving central station service, and with most of the rural electric cooperatives operating profitably, we see absolutely no need for this huge amount of supplementary loan funds-nor do we think any need for such funds has been justified thus far by proponents of the proposed legislation. In the 30 years of REA, it has loaned about 41⁄2 billion dollars to bring central station electric service to unserved persons in rural areas.

We have consistently supported the original purpose of the Rural Electrification Act. But, this original purpose has been largely fulfilled. Whatever remains to be done can be done adequately under the existing programs and policies, and with adherence to the original criteria REA adopted for loaning funds.

There is no need for Federal electric banks which could generate such gigantic amounts of supplementary funds UNLESS rural electric cooperatives plan to take over customers and areas now served by others.

It should be kept clearly in mind that duplication or displacement of facilities of investor-owned electric companies by rural electric cooperatives, which would be possible and probable under the proposed legislation, would erode private enterprise and the Federal income tax base.

I'd like to point out to you that rural electric cooperatives in Illinois are not "underprivileged". Neither are they "non-profit” organizations. Nor are they totally rural. They are sound financially, and are capable of borrowing such new funds as they need at current market rates of interest.

The cooperatives of Illinois, in the 20 years from 1944 through 1964, have accumulated $38,400,000 in profits, called "net Margins", without paying any federal income tax. They showed investments at the end of 1964, other than utility plant, of more than $19,000,000. Some investment houses are openly soliciting rural electric cooperatives for the privilege of investing their surplus funds.

If our Company in 1965 could have enjoyed but two of the subsidies afforded rural electric cooperatives-two per cent money and exemption from Federal income tax-we could have furnished free electric service to all 215.000 of our residential customers for 11 months of 1965; made no changes in our rates or charges to any other classes of customers and still have been slightly better off financially for the year.

We believe this committee should insist on a detailed statement of how the many billions of dollars that would be made available by the proposed legislation would be used by the co-ops so that determination can be made as to just what is the future role of the rural electric cooperatives in the overall electric power systems in our nation. You should be assured that the co-ops, through any new financing plans, are going to continue to provide electric service to persons in rural areas and not take over customers already receiving central station service from existing suppliers.

In summarizing our objections to S. 3337. S. 3720 and H.R. 14837:

We do not believe this legislation is required to supply central station electric service at reasonable rates to persons in rural areas.

We feel the funds provided by these proposals represent a totally unnecessary expenditure of federal funds.

We believe that if the Congress feels it is necessary to continue to provide low interest cost Federal funds to co-ops, these funds—

1. Should be loaned at a rate of interest at least comparable to the rate paid by the Treasury

2. Should be provided under the existing terms of the Rural Electrification Act, and

3. Should be subject to adequate Congressional control.

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