STATEMENT OF ALBERT A. CREE, CHAIRMAN, CENTRAL VERMONT PUBLIC SERVICE CORP., RUTLAND, VT.

Mr. Chairman, in Vermont we have three REA financed rural electric cooperatives:

None of these Cooperatives has any generation of their own (although the Washington Electric Cooperative did at one time own and operate some diesel engine generators which were abandoned because of their high cost) nor, because of their small size, would it be economically feasible for them to provide any generation of their own. The bulk of the power supply for each Coop is St. Lawrence and Niagara Project power bought through the State of Vermont from the Power Authority of the State of New York and sold and delivered to the Coops on the same rate and terms as such power is sold to all other utilities in the State regardless of size, location or nature of ownership. Power needed to supplement these St. Lawrence and Niagara purchases is bought from connecting investor-owned utilities, Central Vermont Public Service Corporation (CVPS) and Green Mountain Power Corporation (GMP) on rates filed with the Vermont Public Service Board and the Federal Power Commission. However, despite this equality of terms of purchase of the bulk of their power supply, in each case, the cost to the Cooperatives' customers for 500 kilowatt-hours of electricity monthly is higher than that paid for a like amount by customers of either CVPS or GMP by amounts ranging from 21% to 42.7% more than their customers would pay if they were served by either CVPS or GMP directly.

The differences are shown in the following table:

Not only is the St. Lawrence and Niagara power which constitutes the bulk of the present power supply of these Co-Ops provided to them at prices and terms in all ways equal to those available to all other utilities in the State regardless of size, location or nature of ownership, but CVPS and GMP have agreed and pledged to make available at cost through their Vermont wholesale power supply and transmission company subsidiary, Vermont Electric Power Company, Inc. (Velco) any future wholesale power supplies that come to them (CVPS and GMP) either by purchase or generation.

Thus, it can be seen that both at present and for the foreseeable future the higher cost of electric service to the customers of the Co-Ops are not now due and will not be due, if they continue proportionately as high as they now are, to any unavailability of bulk power supply on even terms with their larger contemporaries in the State. The present high cost plight of their customers could be readily and immediately and fully relieved by their incorporation into the investor-owned systems of CVPS and GMP, which are both subject to full State and Federal regulation which the Co-Ops are not.

The REA Electric Bank Bill is not needed here. It can do nothing that is not already being done. The growing needs of the customer of these Co-Ops can be readily met by the use of funds from the free investment market and without use of taxpayers' money in any way, with better protection for the future welfare of their customers than the Co-Ops themselves can provide by the simple and sensible course of integrating these less-than-marginal size Co-Op systems into the much larger connecting systems of their investor-owned neighbors. A program such as this would be far, far better for Co-Op customers and for the nation and its taxpayers than such a "far-out” proposition as the Federal Electric Bank which is before your Committee. Perhaps in some other parts of the country the situation may be somewhat different than it is here. However, it is clear that either of the Federal Electric Bank Bills now before you are designed to push the nation's Rural Electrification Program far beyond the boundaries envisaged by its early proponents and by the Congress which implemented it with law but kept its controlling hand on the fiscal throttle.

The present bills would remove virtually all Congressional fiscal controls on REA expansion-even into new fields certainly never thought of by the Congress which enacted the original REA Act nor by those later congresses which have kept the program most healthfully alive.

The Federal Electric Bank Bills should be killed and the whole REA program should be carefully restudied and re-evaluated.

STATEMENT OF WILLIAM B. WATERMAN, VICE PRESIDENT and General COUNSEL, IOWA-ILLINOIS GAS AND ELECTRIC CO.

My name is William B. Waterman. I live in Davenport, Iowa and I am Vice President and General Counsel of Iowa-Illinois Gas and Electric Company with its principal office in Davenport. This Company is an investor-owned utility extending electric and gas service in eastern Iowa and western Illinois. The principal municipalities furnished electric service are Davenport and Bettendorf on Iowa's eastern edge, Rock Island, Moline, East Moline and adjacent municipalities directly across the Mississippi River on Illinois' western edge, the cities of Iowa City and Fort Dodge, Iowa, in east central and central Iowa, and gas alone is furnished in the cities of Cedar Rapids and Ottumwa, Iowa. In addition to my own Company, I am speaking on behalf of Iowa Public Service Company with its office at Sioux City, Iowa, Iowa Power and Light Company at Des Moines, Iowa Electric Light and Power Company at Cedar Rapids, and Iowa Southern Utilities Company at Centerville, which utilities comprise all of the private utility members of the Iowa Power Pool. This Pool is a facility by which generation of energy may be exchanged between its members and provides an efficient and economical means for such exchange. It also provides increased reliability by means of interconnection between these companies.

I spoke before this Committee on June 22, 1966, likewise as a spokesman for the Iowa investor-owned utilities and will not repeat any part of that statement although your attention is respectfully directed toward its content which appears in the printed hearings before your Committee during the 89th Congress, Second Session, on HR 14000, HR 14048, HR 14837 and HR 15162, commencing at page 664.

Neither will I review the particular provisions of the proposed legislation HR 1400 which has been carefully analyzed and submitted before this Committee by industry representatives. I address these remarks to a narrow issue, one which may be singular to these utilities in Iowa and which is pertinent, we believe, to your consideration of this legislation.

The bill before you will create a very large banking facility, one which I believe has been described before you as the largest federal banking facility ever 78-690-67-21

created. The employment of these funds which at present interest rates would reflect a substantial subsidy to the borrows, is not so restricted as to protect the private utility companies from being deprived of municipalities which they serve wholesale or, indeed, retail customers within municipalities. Section 4.08 (a) of the proposed bill expands the criterion which the Administrator of the REA has introduced in his loan evaluation of approving generation and transmission loans if, in his opinion, it were necessary to protect the security and effectiveness of REA financed systems, to including distribution lines and systems.

It has further extended this criterion to substitute the word "improve" for "protect" and the words "financial stability" for "security" and has added the word "efficiency." By this broadening, the Administrator may find one or another basis for loan authorization under any or every circumstance. Certainly any loan would "improve" operations and extend the "financial stability."

I need only to refer you to my statement previously given commencing at the bottom paragraph of page 665 to point out how helpless a utility is to challenge the improper extension of a loan by the Administrator of the REA under the more strict criteria which the present Act and its administrative interpretation has imposed.

Your attention is also directed to the creation in Iowa on April 25, 1966, of an agency comprising approximately 21 municipalities in the western portion of the State which is described as the "Missouri Basin Municipal Power Agency." This Agency is presently engaged in determining whether Bureau of Reclamation power is available directly or through the Basin Electric Cooperative which, in its Report, Volume 3, No. 8 of February 1966, welcomed these municipalities and pointed out that their association would permit the distribution of government power beyond the boundaries defined by the Bureau. Iowa Public Service Company, one of the investor-owned companies for which I speak, sought to invoke the protection of the Iowa State Commerce Commission to prevent the solicitation and taking of four Iowa communities, Lake View, Wall Lake, Breda and Hinton. As a result of solicitation by the Bureau of Reclamation, these four municipalities purchasing energy wholesale from this investor-owned utility have each notified its supplier of the termination of its contract. The Iowa State Commerce Commission by order No. IU-336, dated February 6, 1967, found that the Bureau of Reclamation was not a public utility and dismissed the complaint that the Commission, under Iowa law should protect the supplying utility from raiding by other electric suppliers. This proceeding is now in the District Court of Iowa. Two other municipalities in the service area of Iowa Public Service Company require comment. Both the towns of Alton and Hull have refused to renew the franchise of Iowa Public Service Company, and Alton under date of February 16, 1967, has carried through condemnation proceedings to condemn the facilities of Iowa Public Service Company to permit it to obtain energy from the Bureau or a cooperative. It has made overtures to the Northwest Iowa Power Cooperative to purchase energy presently being supplied by Iowa Public Service Company without a franchise. The town of Hull is continuing to be served by Iowa Public Service Company at sufferance pending the completion of its negotiations for energy from other sources.

In my own Company the mayor of the town of Manson has made inquiry of our district manager at Fort Dodge of the term remaining on our franchise and has indicated that information made available to him from the Northwest Iowa Municipal Association indicates that he should look toward another source of energy. Similarly, in the town of Farnhamville, which our Company supplies at wholesale, the city employee operating the distribution system has indicated that they have been in communication with others to ascertain the availability of government, or government-subsidized sources of energy. Your attention is also directed to an affiliation of 12 municipalities in northern Iowa comprising some 32,000 consumers which have joined their municipal steam and diesel units with a supply from Corn Belt Power Cooperative, at Humboldt, Iowa. As a new distribution cooperative, joining 14 other Rural Electric Cooperatives, these municipals are seeking to obtain the benefits of Bureau of Reclamation Power furnished to Corn Belt under the preference provisions of the Federal law. Here again the blandishments of government power and of government-subsidized electric generation and transmission, together with federal income tax free operation, creates an ever-growing extension of socialization of the electric power industry in and along the western, northwestern and north central portions

of the state of Iowa. This challenge, grave though it be at present, will be minute in the face of the financing potential which the proposed bank bill offers. There would be no limit to the solicitation, acquisition, or purchase of the municipalities supplied by investor-owned utilities even of the very utility systems themselves, when this financing juggernaut commences to roll.

STATEMENT OF D. L. BROUSSARD, UTAH POWER & LIGHT CO.

I am D. L. Broussard, financial vice president of Utah Power & Light Company, which company serves in Utah, parts of Idaho and Wyoming; and of The Western Colorado Power Company which serves in western Colorado.

Providing rural America with abundant electric service is a principle our company carries out in its own territory and will vigorously support elsewhere. Certainly this Committee is unanimously dedicated to that principle. To continue their job toward this purpose, the REAs will, as will all utilities, need a great amount of money.

I appear here in support of a method of financing the rural electric distribution cooperatives of this country in the total amount of their needs and in a manner which will minimize the reliance on the Federal Government and the taxpayers of the country and at the same time add no unjust burden to those electric rate payers served by these cooperatives. I do not believe that H.R. 1400 meets these objectives.

Much has been said to this Committee about the high cost of providing power to rural America and the inability of rural electric cooperatives to pay the going rate of interest for capital funds. The fact is that the average rate paid by REA residential and farm customers of 2.17 cents/kwh is 11% below the 2.45 cents/kwh paid by the investor utility customers. The facts will also show that by far the greatest number of these cooperatives can pay the competitive interest rates and no disturb existing rates for service.

Also, there is apparently a widely held assumption that since all rural electric cooperatives began as Federally financed and subsidized power supply agencies, they must continue to obtain their funds through some Federal source. This assumption follows the other erroneous assumptions that the cooperatives all continue to need Federal assistance. The facts do not support such conclusions.

I would like to offer the Committee a financial study of these cooperatives in support of this position.

This financial analysis was made to examine the present status of each distribution-type rural electric cooperative in the country and to determine those cooperatives, if any, which are in a financial condition strong enough to obtain money from the competitive money market. Conversely, it will show those that will require the continued assistance of the Federal Government and taxpayers. I invite the Committee's attention to the tabulations.

Columns 1 and 2 show the percentage ratios of equity or accumulated margins and debt to total capitalization.

Column 3 is commonly called interest coverage and is the relationship of available margin of earnings to the present annual interest cost.

Column 4 is the ratio of operating expense to gross revenue-a common measure of efficiency.

Column 5 is a most important result of the study and shows the current margin of earnings or profit as a percent of equity or ownership in the business. Column 6 is the earnings on total capital invested and is equivalent to a rate of return figure in the regulated utility business.

All of the data in columns 1 through 6 are actual data from the 1965 results of each REA.

Column 7 is a computed result and is the actual 1965 earnings on equity recomputed to assume that the average cost of all outstanding debt of each cooperative was 4%. It should be noted that this is a severe test of their ability to sustain higher interest rates, since it would take more than 20 years at the expected rate of growth for the average interest rate of all debt to reach this level. After examining all of the REAS, they were divided into three categories. Group A includes those cooperatives which are financially the strongest. It includes all of those REAS which could pay an average interest rate of 4%%