operatives anywhere in the United States. This is shown by Exhibit B accompanying my statement. It is also worthy of note that the power costs incurred by the three distribution cooperatives served by the investor-owned companies are substantially less than the costs sustained by those distribution cooperatives who are served by the generating and transmission cooperatives. Thus, for the fiscal year ending June 30, 1965, the seven distribution cooperatives obtaining their power from the two generating and transmission cooperatives purchases a total of about 265,456,000 kwh of energy at a cost of approximately $3,790,000. This is an average cost of 14.3 mills per kwh. During the same fiscal year, the three distribution cooperatives which purchased energy from investor-owned utilities obtained their power at an average cost of 8.38 mills per kwh. This is shown by Exhibit C accompanying my statement. In 1964, Consumers Power Company was approached in connection with the additional power requirements of both Northern Michigan and Wolverine. As in 1950, the Company again offered to supply these requirements at costs considerably below the power costs previously experienced by the cooperatives. Our proposal was amended seven times in an effort to provide the cooperatives with the type of agreement and power supply they wanted, but these were all rejected as being unsatisfactory. Accordingly, a loan was subsequently approved by the Administrator of the Rural Electrification Administration in the amount of $12,446,000 for additional generating and transmission facilities. In our opinion, this action only perpetuated the high cost of power to the distribution cooperatives and their member customers. It is no wonder, then, that we oppose the promulgation of legislation which will further encourage the uneconomical and needless expansion of generation and transmission facilities, which cannot help but result in economic detriment to the people of the State of Michigan. As an example, the average residential or farm customer served by the nine distributing cooperatives operating in the Company's general service area is presently paying from 12 to 53 percent more for electric service than are the Company's customers in these same areas. This is shown by Exhibit D accompanying my statement. As I have suggested before, we also believe the proposed legislation would encourage the generating and transmission cooperatives in our State to expand their facilities in order to sell wholesale electric power to cities rather than to provide service in rural areas as contemplated by the law. The electric systems of the two generating and transmission cooperatives and the seven distribution cooperatives are now interconnected with a number of municipal electric systems. Although these interconnections are generally promoted as required for mutual assistance, some of these arrangements appear to be made solely for the purpose of selling wholesale electric power on a firm basis which is opposed to the basic intent of the REA Act. I would like to cite some examples. In our service area, the Wolverine Electric Cooperative furnishes the Village of Portland, Michigan, a municipality of more than 3,300 population, with approximately 4,000,000 kwh of wholesale energy a year. This amounts to about 30% of the annual power requirements of the Village of Portland. The rate paid by Portland to Wolverine is 8 mills per kwh as compared with the average cost of 14 mills paid to Wolverine by its distribution cooperatives during the years 1950 through 1964. In 1963, the Wolverine Electric Cooperative extended its transmissions system about 16 miles to the City of Lowell, Michigan, a city having a population of more than 2,500, even though Consumers Power Company had facilities available to serve the City of Lowell and was negotiating with the City. For the fiscal year ending June 30, 1965, Wolverine sold the City approximately 7,000,000 kwh of wholesale energy at a rate of 8 mills per kwh. This amounted to approximately 50% of the power requirements of the City of Lowell. In 1965, the Wolverine Electric Cooperative offered to extend its transmission facilities approximately 14 miles to interconnect with the electric system of the City of St. Louis, Michigan, a community having a population in excess of 3,800, and offered a 10-year contract calling for the purchase by the City of a minimum of 5,000,000 kwh per year at a rate of 8 mills per kwh. The City's total requirements for electric energy are only 8,000,000 kwh per year. This occurred at a time when Consumers Power Company had adequate facilities available to serve the City and was offering to do so. Consumers Power Company has since reached an agreement with the City to supply predominantly all its power requirements. In 1965, the Wolverine Electric Cooperative offered to extend its transmission facilities approximately 14 miles to interconnect with the electric system of the City of Allegan, Michigan, a city having a population of more than 4,800, under circumstances requiring no power purchases by the City and no charges to the City for such interconnection. Again, this occurred at a time when Consumers Power Company had facilities in the City of Allegan and was willing to make an interconnection with the City. The City has since chosen to sell its electric system to Consumers Power Company. Although Wolverine Electric Cooperative was unsuccessful in these last two instances in extending its system contrary to the basic intent of the REA Act, it is believed the additional means of financing, with even fewer restrictions imposed, would result in increased efforts on the part of the G&T cooperatives to so expand their systems without regard for the economics involved or its adverse effect on the distributing cooperatives they were established to serve. In summary, then, it is our belief that the distribution cooperatives in the State of Michigan have been able to continue to satisfactorily finance their operations under the existing law. Moreover, it is apparent that additional financing would not be required by the generating and transmission cooperatives in our State if they would discontinue their uneconomical and unnecessary expansion of generating and transmission facilities and would discontinue the making of interconnections with municipalities for the purpose of selling electric energy at wholesale. It is our recommendation that you do not report favorably with respect to H.R. 1400. I thank you for affording me the opportunity to present this statement in opposition to this bill. EXHIBIT A Power cost comparison, 1950–65 [This comparison shows the cost of power purchased by rural electric cooperatives from Northern Michigan and Wolverine Electric Cooperatives as compared to the cost of power purchased by wholesale customers from Consumers Power Co.j 1 Annual Report of Energy Purchased by REA Borrowers Rural Electrification Administration, U.S. Department of Agriculture. Annual Report on Wholesale Sales to M.P.S.C. NOTE.-Had the distributing cooperatives purchased power directly from Consumers Power Co., at a rate equal to the average paid by all wholesale customers, a direct savings in power costs of $6,770,881 would have been realized. |