Summary of combined financial position for all Indiana rural electric membership corporations for the year ended Dec. 31, 1964-Continued Source: Compiled from reports on file with the Public Service Commission of Indiana. Operating revenues, kilowatt-hour sales and purchases and average number of consumers for all Indiana rural electrio membership corporations for the year ended Dec. 31, 1964 Operating revenues: Residential and rural electric service___ Average realization per kilowatt-hour (cents). Commercial and industrial electric service. Average realization per kilowatt-hour (cents). All other electric service___. Average realization per kilowatt-hour (cents). Kilowatt-hour sales and purchases: Residential and rural electric service_. Total classified kilowatt-hour sales Unclassified kilowatt-hour sales---- Total kilowatt-hour sales__. Add distribution losses____ Total kilowatt-hour purchased---. $25, 045, 491 2. 296 $3,592, 008 2. 137 $405, 022 2, 793 $29, 042, 521 2. 281 $29, 042, 521 2.281 1,090, 868, 338 168, 102, 707 14,502, 833 1,273, 473, 878 1, 273, 473, 878 159, 730, 018 1,433, 203, 896 $11, 953, 495 0.834 Operating revenues, kilowatt-hour sales and purchases and average number of consumers for all Indiana rural electric membership corporations for the year ended Dec. 31, 1964-Continued Source: Compiled from reports on file with the Public Service Commission of Indiana. EXHIBIT B Cost of Indiana Statewide power: Comparison of kilowatt-hour cost for distribution delivery of energy to 16 REMC's from Indiana statewide's proposed G. & T. system and from Public Service Indiana under its rate REMC-X. Interest on $71,375,000 at 2 percent.-. Mills per kilowatt-hour 1.23 Cost of power presently available from Public Service Indiana for distribution delivery (rate REMC-X) -. 8.00 Difference. 2.43 Estimated kilowatt-hour requirement for year 1969 of 16 REMC's participating in $71,375,000 loan----. 789, 000, 000 Increased cost of power from Indiana Statewide in 1969 (789,000,000 kilowatt-hours X 2.43 mills) – $1,917, 000 Mr. POAGE. I do not want to take a lot of time, but I do want to point out, as I did this morning, that your figures for the cost of power delivered by the Hoosier Statewide project include not only the cost of the power but the amortization of the plant; whereas your figures of the price you are charging includes, as I understand it, only the cost of power without any amortization of any property belonging to the co-op. Is that not right? Mr. BLANCHAR. Mr. Chairman, our figures, of course, include amortization. Mr. POAGE. Your "figures," but what of your price-clearly your price to the co-ops includes nothing but the price of power. It may very well be high enough to amortize your investment but it certainly doesn't include any payment on the co-op's plant like their own payments included. Mr. BLANCHAR. I might say, though, that they must substitute either depreciation or amortization in their costs, because at the end of 35 years, I do not think they would have much of a plant to have much equity in. In the normal operation of a baseload generating station, you are lucky to get 15 to 20 years' baseload operation out of it, and you may get 30 years' total service out of it, but in the last 15 or 20 years, it is for peaking purposes only. So I say that amortization is a very necessary Mr. POAGE. Whatever the purpose, these cost figures that you are presenting, and you are not the only one I am not directing this comment simply to you, but I think that they are giving an unfair and distorted view in these comparisons that are offered when you compare a price for power alone as against a price for power plus amortization of a plant. I just do not think that they are the same thing. I think it would be rather ridiculous to think that they would figure out to the same. Mr. BLANCHAR. Mr. Chairman, we depreciate our property on about a 35-year basis. Mr. POAGE. You depreciate it just as rapidly as the Government will let you, do you not? Mr. BLANCHAR. Mr. Chairman, we depreciate it for tax purposes, and I expect a question on deferred taxes. If you will let me get into that, I will be glad to get into that. But for ratemaking purposes, the public service commission will only permit depreciation in our figures based on approximately a 35-year life. Mr. POAGE. Yes, yet you say there is not but a 15-year life in those plants. Mr. BLANCHAR. That is right. The 35 years is the composite life of all our property. There are some that last longer; some that last less. Mr. POAGE. All right, now, turn to page 7, where you say that legally, the Administrator violated the central station service limitations in section 4 of the REA Act in making a loan. Is that only your conclusion, or is that the judgment of the court? You made the categorical statement that the Administrator violated the law. Mr. BLANCHAR. Mr. Chairman, this is our conclusion, based on our reading the law, on the advice of my attorney. Mr. POAGE. And you tried your best to get the court to agree with you, did you not? Mr. BLANCHAR. No; that is not the issue in the courts, Mr. Chairman. Mr. POAGE. Did you not try to get the courts to agree with you? Mr. BLANCHAR. We tried to get the courts to determine whether or not they needed a certificate of convenience or necessity to operate in Indiana. Mr. POAGE. And you could not get the court, either of Indiana or the United States, to hold that the Administrator had violated the law, could you? Mr. BLANCHAR. We have not taken the Administrator to court, Mr. Chairman. I understand that it would hardly be worth our while to take them to court. Mr. POAGE. You think it is not worthwhile? Mr. BLANCHAR. It is my understanding that most of these cases, whenever you go to Federal court, you just have no standing. Mr. POAGE. I do not think so, either. I agree with that entirely, because I do not think there was any violation of the law. I think had there been a violation of the law, you would have certainly gotten a judgment to that effect. Mr. BLANCHAR. Mr. Chairman, we have been approaching this plant based on the situation in Indiana, where we think they needed a certificate of convenience and necessity under the public utilities laws of Indiana. We have been approaching it from that standpoint. Mr. POAGE. You have not gotten such a judgment from the courts of Indiana either? Mr. BLANCHAR. We are not through in the courts of Indiana, sir. Mr. POAGE. Well, you have not gotten any judgment. But you hand down an opinion here, with the idea of passing out an opinion to the members of this committee, for people to quote, that the Administrator is violating the law. Now, the courts have not said that the Administrator is violating the law, but you said it, even though you have no basis of an actual finding by a court. I can say he was not violating the law, and does that wash everything out? You simply come up here with an unsupported statement charging a man with a crime, and you have not backed it up, or given us one citation where one court, either State or Federal, has held in your favor. Now, if you will pass to page 7, you say that Public Service of Indiana's bid of $150,000 is a sound one, and "we do not propose to get into an auction contest with anybody." I wonder what you mean by "an auction contest"? Do you mean you do not intend to negotiate prices with anyone? Is that it? Mr. BLANCHAR. Mr. Chairman, this business of competing for properties and outbidding each other defeats the fundamental purposes of public utilities acts that have been passed all over this land, including the Federal Power Commission Act, because the Federal Power Commission will not let you add to your property accounts anything more man. Here we were asked in good faith to submit a bid, and so were service, depreciated Mr. POAGE. I understand about the Mr. BLANCHAR. So we think that should stand on its own merits. Mr. POAGE. Am I wrongly interpreting you when I suggest what you mean is that you are not going to negotiate prices, that you lay out what you conceive to be a fair price and you tell people they can take it or leave it. Is that what you mean? Mr. BLANCHAR. No, I wouldn't say that. Mr. POAGE. Then you mean that you do negotiate prices? Mr. BLANCHAR. We have negotiated; yes, we have. Mr. POAGE. Then just what do you mean, that you won't get into a "bidding contest"? Mr. BLANCHAR. Well, I think there is quite a difference, Mr. Chairman. Here we are asked in good faith to submit a bid, and so were they. It just seems to me the winner of the bid ought to win. Mr. POAGE. I couldn't agree with you more. And that is what I hoped you would say because it is what at least some of your colleagues have seemed to feel they didn't want to agree on. You have heard some testimony last week and the question was raised that it was unsound for a co-op to make a loan with the REA to build a plant which would produce electricity at a higher cost than that at which they could buy it from the existing power company for. Now, you think that is unsound, don't you? Mr. BLANCHAR. If I get your question, you say it is unsound for people to build a plant with a higher cost than they could buy it from the power company. Mr. POAGE. That is right. Mr. POAGE. And I have been trying to agree with you. I am not falling out with anybody about that but I just think we should then say that if we are going to give the existing utility companies the right to sell this power, if they are selling it cheaper than the co-op can produce it, that there ought to be just as you have said, some termination on this bid process. And I just asked that in determining at what price the power companies were going to provide the power, that we use the figure that they had offered prior to the time the application for a loan was made. Now, would you accept that? Mr. BLANCHAR. Well, I would accept it providing that there was some negotiation that the Administrator would actually get in and actually see that those were the facts. But so far Mr. POAGE. Why should there be any negotiation at all with the Administrator? If you had offered to provide this power for 8 mills and they suggested they can produce it for 10 mills, or a cent, it seems to me right clear it is rather foolish, then, for them to produce it at a cent if you made a good-faith offer to supply it for 8 mills. Mr. BLANCHAR. Yes, I agree with you, Mr. Chairman. That is just what happened here and why did they go ahead and build it? Mr. POAGE. Now then, all I am suggesting, is that your offer should be outstanding prior to the time that they file an application. Would you suggest that you have a right, a moral right, to deny the co-op the right to borrow money if you had asked them 12 mills for this power and they found that could build a plant and produce it for 10 mills, and after they filed their application, after they draw their plans for their plant, you come in and say, "We will take 8 mills"? Now, do you think that they should then abandon everything they have done? Mr. BLANCHAR. No. I think things should be straightened out well in advance on their part, Mr. Chairman. Mr. POAGE. Should be straightened out. How do you mean? Mr. BLANCHAR. Well, I think somebody ought to get together and reconcile those widely divergent figures and I would suggest one solution to it would be the use of the Federal Power Commission, to get an outside party, because a lot of these figures that come out of REA as to what they are going to produce power for and what they actually produce it for are quite wide from the mark. Mr. POAGE. I think you are making a valid point there, that there must be some agency that can determine what the actual costs are, but I am talking now, I am assuming that we have a proposed plan, that there isn't any argument about it, that the co-op can produce at 1 cent, that the company is asking 12 mills, or was asking 12 mills until the co-op filed an application for a loan, and then the company offered to sell for 8 mills. Now, do you think the companies should be allowed to sit in the brush until the co-op has filed a good-faith application for a loan? Mr. BLANCHAR. It sounds to me like there is justification for 12 mills somewhere in there, although there was not Mr. POAGE. I am not talking about whether this is a reasonable rate or not, and I simply am using some figures that we can all understand. |