STATEMENT OF ALFRED GRUHL, PRESIDENT, WISCONSIN Mr. GRUHL. Mr. Chairman, I want to thank you for putting me on. It was my understanding that both Wisconsin Electric Power Co. and Wisconsin Michigan Power Co., who is represented here by Mr. McLean, could substantially reduce their presentation, and we will try to do this in possibly 3 minutes apiece. Mr. POAGE. We will be delighted to have you proceed jointly. Mr. GRUHL. I would like to present a statement for the record. It is already being distributed. As I indicated, we have substantially reduced our comments, essentially to those which represent some new areas that have not been mentioned. Mr. POAGE. Proceed, Mr. Gruhl. Mr. GRUHL. Thank you. My name is Alfred Gruhl. I am president of the Wisconsin Electric Power Co. I am appearing here today on behalf of Wisconsin Electric Power Co. in opposition to REA supplemental financing bills H.R. 14837 and H.R. 14000. Wisconsin Electric is a Wisconsin corporation and operates an extensive electric utility in 15 counties in southeastern Wisconsin including the Metropolitan Milwaukee area. Its principal offices are located at 231 West Michigan Street, Milwaukee, Wis. Included is the area represented by your colleague, Representative Stalbaum. 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 contains over 4,000 square miles. The company has over 560,000 electric customers, approximately 4,000 employees, and some 48,000 stockholders of whom over half reside in the State of Wisconsin. Incidentally, there are no REA's in the Wisconsin electric service area. We oppose these bills on the ground that they are a poorly disguised vehicle for the dismembering and eventual takeover of most investor-owned electric utilities. The means by which this apparently is to be accomplished is first by continuing the availability of Government funds at less than cost, second, by increasing tremendously the funds available, and third, by surrendering most of the congressional controls and safeguards over the uses to which these funds can be put. Together with a continuation of the present substantial and unjustified tax discrimination the odds will be so stacked against most private utilities that they will find it hard to avoid being taken over. We oppose these bills on the ground that the purported need therefor is practically nonexistent in some areas. That the need for which REA was created no longer exists is evidenced by the preamble of bill H.R. 14837. There is no mention of the need to bring electricity to the rural areas. Instead this bill speaks only of capital needs. With 99 percent or 98 percent of farms now served just what can their needs be? A recent statement by Secretary of Agriculture Orville Freeman may provide a clue. Less than 3 weeks ago in an address to the Busi ness Council at Hot Springs, Va., on May 14 he announced a rural industrialization program. In his address he said in part, and I quote: Rural America has so much to offer business and industry. It has the tangibles: clean air, abundant pure water, relatively low land costs, building costs, utility costs, and service costs. If this description of today's rural area is correct there is absolutely no need for further subsidies. They have it made. If subsidized electricity is to be one of the lures which attracts industry from the metropolitan areas I am sure that the complacency with which the whole subsidy picture has been tolerated in the past will suddenly change. I would like to suggest that when we are talking about subsidizing expansion and development in some areas as opposed to others we are treading on dangerous ground, both socially and politically. I would like to take the members of this committee on a personally conducted tour of first the farms, homes, and factories in REA country near us, and then a trip through our metropolitan areas, including its core. They can then make up their minds as to which areas, if any, should be supported at the expense of the other. We also oppose these bills on the ground that they would constitute an unwarranted delegation of congressional responsibility. In my over 30 years of experience with utility financing I have never seen a financing program, even in outline form, that is as loosely devised and devoid of controls and restrictions as the type of financing contemplated by this bill. It in effect asks Congress to surrender controls to the Secretary of Agriculture and, in effect, sign a blank check. To summarize, this is definitely a Federal public power bill. Although disguised as a continuation of the original farm program, the long-range objective will be a substantial encroachment of or takeover of investor-owned electric systems. This program ironically will be financed and subsidized by the U.S. taxpayers, including our electric service customers who last year paid some $18 million in Federal income taxes through their electric service bills. We respectfully request this committee not to report out these bills. Thank you, Mr. Chairman. Mr. POAGE. Thank you very much. Mr. McLean, did you have a statement? How long are you going to talk? Mr. McLEAN. I will try to keep it to 312 minutes, sir. Mr. POAGE. All right. We will time you. STATEMENT OF JOHN H. McLEAN, ASSISTANT VICE PRESIDENT, WISCONSIN MICHIGAN POWER CO. Mr. McLEAN. My name is John McLean, I am an assistant vice president of Wisconsin, Mich., Power Co. with offices in Appleton, Wis. I have worked for this company for 13 years. My present responsibilities include all aspects of sales, including sales of electricity throughout our extensive rural areas. Our company, a part of the Wisconsin Electric Power Co. system, provides electric service over an area of approximately 86,000 square miles in east-central and northern Wisconsin and in the Upper Penin sula of Michigan. This area has an estimated population of 207,000. We serve a total of 70,180 customers. A little more than one-half live in cities or villages, and slightly less than one-half live in rural townships. Our customer density is one per square mile, over our entire service area. In Michigan, we have a density of seven customers per mile of line, including those living in cities and villages. In our rural areas in Michigan, we probably have a density of about five customers per mile of line. This low density of customers might be looked upon by some as a burden. We look on the area we serve as a responsibility and an opportunity. We have continually sought ways to improve service to our customers in both rural and urban areas and to steadily lower our rates. In 1965, we initiated a new optional rate for our farm customers that results in an estimated savings of about $55,000 per year for them. Prior to the REA Act Wisconsin Michigan Power Co. had adopted a rural extension program under which we would extend service to our farm customers three-quarters of a mile if the customer would be willing to use $4 worth of electricity per month. We have also served three electric cooperatives for many years at wholesale rates. Our relations with these cooperatives have been friendly. We look to them not only as customers, but as neighbors. They have been assured of all the power they will ever need for continued growth as regulated and reasonable rates. Under this arrangement, these cooperatives have prospered, and have surpluses such as investments in savings and loan associations, certificates of bank deposits, and Government bonds. As I drive through our service area and that of our neighboring cooperative associations, I see no particular differences between them. The people, the type of homes, the filling stations, the restaurants all seem much the same. But there are differences. Those people who receive service directly from us pay in their bill for electricity their fair share of the cost of Federal Government, for the war in Vietnam, for the war on poverty, for aid to education, and for the space program. Their neighbors who get electricity from the same generators and the same transmission lines do not have equal tax costs included in their monthly electric bill. Our customers pay about five times as much in taxes on their electric bill as their neighbors in the co-ops. Furthermore, our neighboring cooperatives are privileged to buy poles and wire with money borrowed from the Federal Government at 2 percent, while our customers must be charged rates that reflect interest on money borrowed in the open market. I doubt that most of the individual people served by these cooperatives are seeking a tax advantage over their neighbors. The legislation being considered by your committee would greatly magnify the present discrimination between those people served by us and the people served by the tax-exempt co-ops. I believe you are being tempted to open an electric Pandora's box. From these bills can spring an entirely new form of electric utility organization, a new special privileged class of citizenship, a new attack on private industry. We at Wisconsin Michigan Power Co. are not afraid of bogeymen in the dark. On March 25, 1966, the REA Administrator, Norman 65-357-66- -29 M. Clapp, explained the proposed Federal electric bank to representatives of the Wisconsin Electric Cooperative meeting in Milwaukee. Among its purposes, he said, was a "*** greater freedom to consummate acquisitions ***". Stripped of its deceptive phrasing, this means freedom to take over companies such as mine. This is the publicly avowed purpose of the Administrator who would be the governor of the electric bank. He also asked for a 66*** greater freedom of electric generation and transmission systems to pool needs with nonrural systems in exploiting the economy of large-scale capacity ***" Since non-rural areas are those in villages and cities and since all of our villages and cities in Wisconsin already have electric service, we must consider these bills a threat of encroachment or even complete takeover of present investor-owned electric systems. Mr. POAGE. You have been going a little over 4 mintues. As a former paratrooper with 2 years' combat service in World. War II, I have a strong personal feeling for what our troops are going through in Vietnam. Certainly, with our Nation committing our manpower and economic resources to a $10 billion-a-year war in Vietnam, this is an inappropriate time for cooperatives to place a new drain on our Treasury. With interest rates on home mortgages climbing above 6 percent, we may need this billion dollars to help finance homes for returning veterans. I believe our veterans have a higher moral, social, and economic claim to low interest rates. And veterans will probably be happy to get loans for their home at 4 or 5 percent at least twice as much as the co-ops have been willing to pay. Mr. POAGE. Thank you very much, Mr. McLean. And I want to point out we all take a good deal longer than we think the 31⁄2 ran into 42. I don't mean this critically of you at all—I did want everyone to recognize this. Mr. McLEAN. I thought it was worth saying, sir. Mr. POAGE. I am sure that what you had to say was worth saying. I think everybody's statements are worth saying. I merely think that it is a mistake to try to tell the committee that we can get through in 2 minutes, 3 minutes, when most of us-not simply you-but all of us find it takes much longer. Mr. STUBBLEFIELD. Mr. Chairman-do you sell wholesale power to cooperatives? Mr. McLEAN. Yes, sir. Mr. STUBBLEFIELD. What rate? Mr. McLEAN. 1.24 cents. Mr. HAGEN. I would like to ask a couple of questions. Mr. POAGE. We had agreed we were not going to ask questions of these people. Mr. HAGEN. How can we learn anything if we don't do that? Mr. POAGE. The group that was here when you were not here had agreed on that. But go ahead. Mr. HAGEN. As I understand from talking to some people in the audience, this telephone bank program differs from the electric bank program in that there is some provisions in the Telephone Bank 1 Act regarding division of territories which is not present in the Government loans under the electric bank? Mr. GRUHL. Are you talking about the division of territory in our area? Mr. HAGEN. That is correct. Mr. GRUHL. We have no arrangements with REA as far as division of territory. There is in Wisconsin a nonduplication law. But this law has to do with running parallel lines to serve the same customers. Mr. HAGEN. My specific question is, Is there any difference in this bill relating to the telephone co-ops to be financed by REA than there is with respect to electric companies? Mr. GRUHL. Not that I understand. Mr. HAGEN. I understand there is a difference in the actual provisions of these two laws. Mr. GRUHL. Well, I must confess I have not reviewed the telephone aspect of this bill but briefly, and devoted all my time Mr. HAGEN. One other question. If a private utility wants to sell out to an REA, I assume they would be getting a price that would be attractive. Why should anyone object? Mr. GRUHL. I am not sure Mr. HAGEN. If there is a willing seller and a willing buyer, who should object? Mr. GRUHL. That is correct-if there are both. But when you have Mr. HAGEN. The REA's don't have any power of eminent domain or anything like that. This is an arm's-length sale, if there were a takeover. Mr. GRUHL. It is a long ways from arm's length when you can compete at about a 20-percent advantage. In Wisconsin, private utilities are paying our companies are paying about 23 percent of their operating revenues in taxes. The rural cooperatives are paying 3 percent. Now, with what amounts to a 20percent margin, I don't care if you are running a peanut stand or General Motors-it is not long that you can compete as long as one can move into the other's territory. Mr. HAGEN. You are afraid of raids on territory as a preliminary to a forced sale that is what you are afraid of? Mr. GRUHL. Yes, there is no question about that. We have no REA's in our territory, and we are not concerned about this. We are concerned about the raids. Mr. HAGEN. And you don't feel this Wisconsin law adequately protects you; is that correct? Mr. GRUHL. That is only on duplication of lines. It doesn't prevent the takeover of portions of the system. Mr. HAGEN. I see. It doesn't prevent the takeover of individual customers. Mr. GRUHL. That is right. Mr. HAGEN. If they got a line there, and they can run it out to the lumber mill, and you were serving it, they could get it under Wisconsin law; is that right? Mr. GRUHL. No. Under the duplication-under the so-called duplication law, they could not extend the line over to that. But if you had an area that had a number of customers-say it is a small community, |