We believe that any such funds made available to the co-ops should be strictly limited for distribution purposes and made only to borrowers serving rural areas who cannot finance their needs at reasonable cost through other means. But, if Congress does see fit to establish a Federal or Rural Electric Bank, as called for in these proposals, great care should be taken to assure continued surveillance and control by Congress and the executive branch of the government until all Federal investment in the bank has been fully repaid with interest. In any consideration of whether Federal funds should be made available, the Federal costs should include a fair return on the government's investment at least equal to the average interest rate on long-term government bonds, the element of Federal taxes foregone and the administrative costs for the use of government facilities and personnel in the operation of the bank. There also should be reasonable provision made to pay out the government's investment on a definite priority basis. But, as we previously have stated, we see no reason for a Federal or Rural Electric Bank as proposed and we strongly urge disapproval of these bills. We believe that with sufficient time for adequate study, evaluation and discussion, suitable legislation can be developed which would provide rural electric cooperatives with an alternate and adequate source of non-federal funds without causing damage to existing electric systems, including investor-owned utilities. GREENSBURG, PA., August 15, 1966. Hon. HERMAN E. TALMADGE, DEAR SIR: This statement is filed on behalf of West Penn Power Company, an investor-owned electric utility company producing and selling energy in 17 counties of Western Pennsylvania. We are opposed to S. 337 for these reasons: (1) The fundamental purpose of the Rural Electrification Administration program has been substantially completed with the electrification of over 98% of the Nation's farms. (2) No showing has been made or could be made that a federally financed or subsidized bank is needed to finance the rural electric cooperatives. (3) S. 3337 would not only continue the existing REA program of subsidized loans, but would superimpose upon it a vast additional subsidy program for the benefit of electric cooperatives. (4) The proposed program would not be an effective step in the direction of transferring the burden of financing rural electric cooperatives from the taxpayers to the private money markets. (5) The loan operations of the proposed Electric Bank would be free of effective Congressional review and control, and would be a dangerous departure from sound governmental practice respecting the use of government funds. (6) The proposed Electric Bank could make loans to an electric cooperative for any type of electric generating, transmission, or distribution facilities for use in any geographical area without regard to the presence of existing electric utility facilites from which adequate electric service may be obtained at reasonable rates and on reasonable terms. Significantly, S. 3337 would not limit the Bank's loans to rural areas or to the purpose of serving persons not receving central station service. Indeed, the Bank's loans would not even be limited to the purpose of rural electrification. (7) S. 3337 would make available almost unlimited funds to finance generation and transmission facilities for use by electric cooperatives in displacing or replacing electric energy which they have been buying or would buy from investor-owned electric companies. (8) S. 3337 would launch a program which would produce increasing losses of Federal tax revenues. Rural electric cooperatives pay no Federal income tax, whereas investor-owned electric companies as a group comprise the Nation's largest income taxpayers. To the extent that the electric cooperatives conduct business operations which can be or are performed by taxpaying companies, the Federal Treasury loses income tax revenue. As the business operations of the electric cooperatives grow, so do the tax losses. In effect, S. 3337 proposes a loan program which would stimulate and encourage further losses of Federal tax revenues. We believe that Congress would perform a much needed public service if it would undertake a thorough study to determine what role the electric cooperatives can and should perform in the Nation's economy. Such an inquiry would require the formulation of a national policy toward the electric cooperatives and their relationship to the regulated and taxpaying segment of the electric utility industry with which they are competing. Only in this manner can Congress give a proper answer to the question of whether and to what extent electric cooperatives need subsidized loans and tax exemptions. We respectfully request that this statement be filed as part of the record in connection with the hearings on S. 3337. Fifty copies of the statement have been sent to the Subcommittee. Very truly yours, R. G. MACDONALD, President, West Penn Power Company. STATEMENT OF WILLIAM C. MACINNES, PRESIDENT, TAMPA ELECTRIC COMPANY, TAMPA, FLA. My name is William C. MacInnes, President of the Tampa Electric Company, Tampa, Florida. I am presenting this statement in opposition to S. 3337, and to the draft bill, covering the same general subject as S. 3337, which was proposed by the Department of Agriculture earlier this year. 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 taxpayers 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 taxpaying 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 nonfarm customers at the expense of taxpaying 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 S. 3337 and similar proposed legislation since electric cooperatives are quite capable of financing their own expansion if given the opportunity. 1. STATEMENT OF JOHN P. MADGETT, GENERAL MANAGER, DAIRYLAND POWER COOPERATIVE, LA CROSSE, WIS. Mr. Chairman and gentlemen of the Subcommittee, my name is John P. Madgett, and I am General Manager of Dairyland Power Cooperative, a generation and transmission co-op which is headquartered at La Crosse, Wisconsin. Dairyland furnishes wholesale electricity to 27 member rural electric distribution cooperatives serving 106,000 consumer-members in Wisconsin, Minnesota, Iowa and Illinois. I would like to briefly review the history of Dairyland Power Cooperative to illustrate why the generation and transmission cooperatives came into existence and why they are a vital part of the rural electrification program today. In the early days of the program, some distribution cooperatives were unable to get the lines they had built energized because of the power companies' insistence on unreasonably high rates for wholesale power. In many cases, the commercial utilities flatly refused to sell electricity to the fledgling co-ops, and the lines which they had built were "strictly for the birds" to sit on. It was just such a situation that led to the organization of Diaryland Power Cooperative. In 1937, representatives of 10 northwestern Wisconsin distribution co-ops met to discuss a common problem. They could not buy wholesale electricity from area power companies for less than the exorbitant rate of 2 to 212 cents per kilowatt hour. Their only alternative was to form Wisconsin Power Cooperative and generate their own power from a diesel plant, which, in those days, was still an economical way to generate electricity. Similarly, distribution cooperatives in Iowa, Minnesota and Southern Wisconsin found that they could not purchase wholesale power at equitable rates. They organized Tri-State Power Co-op and built a steam generation station. In 1941, Tri-State and Wisconsin Power Cooperative merged to form Dairyland. Subsequently, hydro and additional steam generating plants were added to meet the growing power needs of the consumer-members of Dairyland's 27 member distribution cooperatives. In 1965, those power requirements rose to a monthly average of 773 kilowatt hours per consumer on the lines of Dairyland's member distribution systems. Dairyland is continuously studying and utilizing the technological advances which are being made in the electric power field in order to achieve the lowest possible wholesale rate to its member cooperatives. From 1948 to 1958, when the cost of living index rose 30 percent, the cost of power from Dairyland was reduced 35 percent. During 1965, the net cost of power delivered by Dairyland to its member distribution cooperatives was reduced to 7.4 mills per kilowatt hour, which is the same as or lower than the wholesale rates charged by the commercial power companies in this region. One cannot separate the generation and transmission cooperatives and the distribution cooperatives when considering what is necessary for the continued progress of the rural electrification program. As Senator A. S. (Mike) Monroney of Oklahoma has so aptly observed: "Without the authority to make generating and transmission loans, rural America would never have been electrified." The existence of a dynamic and effective G&T loan program has given the distribution co-ops, a vital bargaining tool in their negotiations for wholesale contracts with private power suppliers. Many mutually-satisfactory power contracts have been negotiated because the investor-owned utilities knew that the cooperatives were not solely dependent upon the power companies for wholesale electricity. Mr. Chairman, I am pleased to report that over the years, Dairyland has worked long and hard to establish what is now a good working relationship with the private power companies in its area. As a result, Dairyland, four other power cooperatives and seven investor-owned electric utilities are cooperating in power pooling arrangements that result in substantial savings to all parties. These arrangements are based on sound and economic and engineering considerations, not on differences of philosophy nor on the weakness of any of the participating power suppliers. In addition to these power pooling arrangements, Dairyland has joined five other G&T cooperatives, fourteen investor-owned power companies, twenty-two municipal systems, two public power districts and one provincial system in Canada in the organization of the Mid-Continent Area Power Planners (MAPP). Its main objective is regional power planning for over-all coordinated expansion of facilities and operations, while still permitting each member to maintain its identity and integrity. Such regional power planning has been praised by the Federal Power Commission in its recent National Power Survey as the type of arrangement which will insure maximum utilization of participating electric systems and result in lower retail rates for all consumers. As I mentioned before, Dairyland Power Cooperative is endeavoring to obtain for its member distribution cooperatives all of the savings which can be realized through the utilization of the advancing technology in the generation and transmission field. For instance, Dairyland, in cooperation with the Atomic Energy Commission, has constructed a nuclear power station which we expect to put into operation this year. However, it is important to keep in mind that the advancing technology calls for larger-scale generating plants and heavier transmission lines. In order for our members to benefit from the economies afforded by the new technology, Dairyland must be able to invest larger amounts of capital in larger-sized and more efficient generating plants and transmission facilities. In view of the budgetary squeeze which has been felt by the present REA electric loan program during the past several years, it appears highly unlikely that the rural electric cooperatives-both distribution and G&T can obtain the amounts of growth capital needed to keep pace with either the technological advances of the electric power industry or the increasing use of power by their rural consumer-members. A source of supplemental growth capital is a critical necessity for the continued progress of the rural electrification program. This is a need which cannot be postponed without a detrimental effect upon the farmers and other rural residents who depend upon the rural electric cooperatives for lights and power. Mr. Chairman and members of the Subcommittee, I strongly urge that you favorably report out S. 3720, which would set up a sound and financially feasible Rural Electric Bank. With financing available through such a cooperative Bank as a supplement to the present REA 2 percent program, the rural electric cooperatives of Wisconsin and the Nation will be able to move forward with their continuing job of furnishing adequate. low-cost, area coverage electric service to the farms and other establishments which are the backbone of our rural economy. HARRISBURG, PA., August 29, 1966. Hon. HERMAN E. TALMADGE, MR. CHAIRMAN AND GENTLEMEN OF THE SUBCOMMITTEE: My name is William F. Matson. I am General Manager of the Pennsylvania Rural Electric Association. PREA is the state service organization of REA-financed, consumer-owned electric systems which furnish central station electricity to about 90 thousand people in Pennsylvania. PREA is owned and controlled by the member systems themselves. I wish to submit the following statement in support of the Cooper bill, S. 3720. The need for growth capital for the operation and maintenance of rural electric systems across the nation is vital if, in the ensuing years, we are to continue to give our members adequate electric service. The nature of the programthat of serving all people in rural, sparsely populated areas with low-cost electricity-precludes the possibility of all systems being financially able to borrow money for this purpose on the open market. The bill under consideration offers a means by which these rural electric systems can continue to serve in the capacity they were designed for, while at the same time lessening the need for financial dependence on the federal government. The record of these rural electric systems in debt repayment is good, their dedication to the concept of low-cost electricity for all is great and we do not seek to usurp the dominance of investor-owned utilities, merely to insure means to continue to serve our members in the most efficient and productive way. Thus, on behalf of the members of the Pennsylvania Rural Electric Association, I respectfully request favorable consideration of S. 3720. Very truly yours, WILLIAM F. MATSON, Pennsylvania Rural Electric Association. Hon. HERMAN TALMADGE, SANTA CLARA, CALIF., August 27, 1966. Chairman, Senate Subcommittee on Agricultural Credit and Rural Electrification, Senate Office Building, Washington, D.C. DEAR SENATOR: The California Farmer-Consumer Information Committee, representing over a quarter of a million members of affiliated farm, cooperative, church, labor, resource, professional and community groups, urges prompt action in support of S. 3720, as revised, so that this vital piece of legislation may reach the Senate floor and Senate-House Conference, if necessary, before adjournment of the 89th Congress. Our affiliates which now include the Salmon River, Plumas-Sierra and Surprise Valley Rural Electric Cooperatives and the Truckee Public Utility District, support this legislation because, in the words of Senator Gaylord Nelson, so simply stated before your subcommittee on August 15th: "It will insure that rural electric and telephone cooperatives have access to sufficient growth capital at rates they can pay to meet the growing needs of rural people, and "It will provide means for gradual and orderly transfer of rural electric and telephone systems from dependence on the government to independent financing through their own credit institution * * *" In addition, we are alarmed by the continued use of "house organs" of the privately-owned public utility corporations to propagandize customers against supplementary financing for rural electric and telephone cooperatives. This subject was publicized in the August 1966 issue of the California Farmer-Consumer Reporter, enclosed, which is the official organ of the California Farmer Consumer Information Committee. Quotes are from the San Jose Mercury-News of July 31, 1966: "abolish the bargain-basement interest rate and tax-exempt status of Rural Electrification Administration co-ops ."; Southern California Edison's "Uncontrolled waste, a new plan for your tax money" photocopy enclosed; and PG&E's quote from the San Francisco Daily Commercial which was printed in the August 1966: PG&E Progress, page 6, entitled: "A Good Place to Cut". After describing "the various proposals to put the federal government deeper into the electric utility business" in detail, the editorial concludes: "Isn't it time to give the taxpayers a break, quit destroying taxpaying business with federally subsidized competition, and let the investor-owned utilities tend to the electric and telephone business of the country for which they are so eminently qualified?" A photocopy of this "editorial" will be sent to you Monday. We could add issue after issue which erroneously brag about the county and state property taxes paid by the franchised monopoly, when, in truth, these taxes become part of the rate base upon which a rate of return is set by the California Public Utilities Commission, upon which rate of return, consumers pay their monthly bills, which means that they, not the stockholders, pay these taxes. We are also enclosing our June 10, 1966 statement in support of H.R. 14000, Poage, which, starting at the bottom of page 1 and continued on page 2, recites failure of private utilities in California to provide central station electricity and telephone facilities. To these examples, we now add Mesa Grande in San Diego County and a letter printed in the November 1965 issue of Rural Electrification which reads: "We love Mesa Grande for the very reason that it is rural and beautiful, and untouched by smog, confusion and bustle of the city. We do feel, however, that in this enlightened age, we, too, should be able to have the common necessities of life that urban dwellers take so much for granted . . .” |