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The CHAIRMAN. You mean that you have a lower rate than the REA?
Mr. CAMPBELL. No, sir; no, sir. Our wholesale rates for a customer who has its own generation, we have what we call our partial-purchase rate and we have also a total-purchase rate.
The CHAIRMAN. I am talking about the farmers. You said that they paid 14 mills to the REA and 8 mills to your company.
Mr. CAMPBELL. The average of the two distribution cooperatives purchasing all of their power from the investor-owned companies, and the one that purchases a portion of it power-I believe I said 8.3 mils. The CHAIRMAN. Yes?
Mr. CAMPBELL. That is right, sir.
The CHAIRMAN. And you used 14.-something mills for something else?
Mr. CAMPBELL. The 14.3 mills is what they pay the generation and transmission cooperatives sir.
The CHAIRMAN. I see.
Mr. POAGE. Are you not drawing a comparison between differing costs? Those rates that you are talking about which you say the cooperatives pay for power from REA-financed plants include the cost of buying their own facilities, do they not, so that they will own their own facilities sometime under the rates that they are paying?
Mr. CAMPBELL. Mr. Poage, the Consumers Power Co. has never raised the rates, the wholesales rates, for a municipality or a cooperative. What you say is so. Someday they will own them when they pay their 35-year loan off, but they will still continue to pay the distribution cooperatives more for their power than they could buy it elsewhere.
Mr. POAGE. The point I am making is that you are speaking of two different sets of figures as being comparable figures, and most members of the committee will accept them as such.
Mr. CAMPBELL. They are, sir.
Mr. POAGE. Begging your pardon, sir, they are not comparable figures. One is the payment for power alone, and one is the payment for the power plus a payment on the indebtedness to pay out the plant they have built.
Mr. CAMPBELL. I think it is unfortunate, sir, that we have loans made to generation and transmission that will produce higher cost power for the distribution cooperatives than they could buy it from other companies.
Mr. POAGE. I come back to the proposition, Mr. Campbell, that all I am trying to do is to get you to compare apples and apples instead of apples and doorknobs. One of those rates that you are talking about is the cost of the power plus the amortization charges on the plant. Mr. CAMPBELL. That is unfortunate, sir.
Mr. POAGE. That is true, is it not?
Mr. CAMPBELL. Yes, sir.
Mr. POAGE. All right.
Mr. CAMPBELL. I would like to make this statement, sir: That the presidents of many of these seven distribution cooperatives would like very much to do business with us, but they cannot, because they
Mr. POAGE. I do not believe that you are a competent witness to testify as to the state of mind of the presidents of these cooperatives with which you have no interest. I take it, you are a competent witness to testify as to your own operations. I do not think that you are here to testify as to other people's state of mind.
Mr. CAMPBELL. In my file at home, sir, I have letters from these presidents, some of them expressing this concern.
Mr. POAGE. Well, now, Mr. Campbell, your operation in Michigan is such that you charge a given rate for a given amount of electricity, regardless of the point at which that electricity is delivered; is that not right?
Mr. CAMPBELL. We have a system average that is statewide, that is right.
Mr. POAGE. That is right. That means that even though you make no profit, or even though you have to suffer a loss-I am not saying that you do but were you to suffer a loss on your rural operation, you still would be able to make exactly the same return on your total investment. And under the system in Michigan, that is exactly what you would do, because you would automatically raise the rates to the city consumers, would you not?
Mr. CAMPBELL. No, sir. Our rural customers pay the same rate as the city customers.
Mr. POAGE. I understand that they do. Now, obviously, a rural customer on a line where there are only three customers per mile cannot give you the same profit at the same rate that a customer does where there are 33 customers per mile. Obviously, it costs more to deliver your power to the rural customer. Your rates would have to be higher to show the same return per dollar of investment.
Mr. CAMPBELL. Mr. Poage, I would like to point out to you, sir, that our average residential customer in Consumers Power Co. is slightly under 5,000 kilowatt-hours per year; that through an effort and through the farm service advisers that work every day of the year, bringing the story of electricity to the farm, the average use on our farms in Michigan as of August 31, 1965 was 9,253 kilowatt-hours. So that the farmers do use electricity, and they are really, sir, better and stronger users of electricity than our urban customers.
Mr. POAGE. The farmers, unquestionably, do use more electricity per connection than your residents in the cities use.
Mr. CAMPBELL. Yes.
Mr. POAGE. I do not think there is any doubt about that, but you do not have as many connections per mile on your rural lines as you do in the cities.
Mr. CAMPBELL. That was back in 1927. We were aggressively in the rural electrification business. As I pointed out, in 1936, we had
over 27.500 customers.
Mr. POAGE. I do not think there is any doubt but what your company has a good record in that respect. I am not questioning it. I only raise the point-and I do not think that you will deny it-that if you were to lose money on all of your rural operations, you would still not lose money, because, under your setup, your rates would of necessity be adjusted so as to charge the city customers enough so that there would be a fair return on your total investment.
Mr. CAMPBELL. I certainly think that the attitude of charging the rural customers the same rate as the urban customers in the early pioneering days did much to encourage rural electricfication.
Mr. POAGE. I offer no criticism of that. I am just trying to lay the facts here before this committee. I think the facts are that no matter what you charge those rural customers, even though you serve them at a loss-I am not saying that you do, but even if you were to serve them at a loss, it still would not cost your stockholders, it would only cost your city customers.
Mr. CAMPBELL. Well, I cannot say that I completely agree with the application of your statement for Michigan. For example, within the last year we have reduced our electric space-heating rate by 19 percent in Michigan, which gives the farmer, if he heats his home. electrically, not only all of the energy that he uses in his home at a cent and a half but all of the processing kilowatt-hours on his farm at the same rate.
The CHAIRMAN. Thank you very much, Mr. Campbell.
Mr. CAMPBELL. Thank you.
The CHAIRMAN. We have a statement to be presented by Mr. Edward Spethmann.
STATEMENT OF EDWARD SPETHMANN, NORTHERN STATES POWER CO., MINNEAPOLIS, MINN.
Mr. SPETHMANN. Mr. Chairman and members of the committee, I would like to submit the written statement of Mr. Earl Ewald, president, Northern States Power Co., Minneapolis, Minn., and also the statement of Mr. A. V. Hartl, president, Otter Tail Power Co., Fergus Falls, Minn.
The CHAIRMAN. Without objection, they will be made a part of the record following your statement.
Mr. SPETHMANN. Yes, sir; I would like to make a very brief oral statement, if I may.
I speak only for Northern States Power Co., but I believe that the philosophy of our company is closely paralleled by all of the investorowned companies in our mid-continent area.
First of all, our policy in relation to the REA has been one of cooperation in working with them from the inception of the Rural Electrification Administration Act.
When the distribution cooperatives were organized, we sold them most of their requirements.
As the hydro developments on the Missouri River became a reality we worked with the cooperatives in working out wheeling arrangements with the Bureau of Reclamation to deliver this power to the cooperatives; that is, over our system, and thereby eliminating any duplication of transmission facilities in the area.
As the distribution cooperatives found it desirable to organize into generating and transmission, we again have attempted to work with the cooperatives. As a matter of fact, 6 of the 13 members of the Upper Mississippi Valley Power Pool are G. & T. cooperatives.
We do not oppose the use of 2-percent money now when it is used for legitimate purposes as set up in the original Rural Electrification
Administration Act. We have found that there have been some misuses of the 2-percent money, and these we do oppose.
We would support any alternate or supplemental financing to provide the cooperatives with adequate financing, as long as the use of these funds was within the original Rural Electrification Administration Act and under the control of the Congress.
I will not go into our reasons for opposing these two bills, H.R. 14000 and H.R. 14837. I think the reasons have been adequately covered by other instances.
I would say that I have talked with many REA people in our area, and their only concern is an adequate source of financing for their future developments. When we have pointed out to them some of the dangers of these two bills, they, too, show great concern over what could happen under these bills.
Most of the people in our area are interested only in serving their own customers, and this is their only concern in future financing.
We would suggest to the committee that this matter should be very closely looked into and some supplemental financing bill without the dangers of these two bills be developed.
I thank you for your time.
The CHAIRMAN. Thank you very much.
(The statement of Earl Ewald, president, Northern States Power Co., and the statement of Albert V. Hartl, president, Otter Tail Power Co., Fergus Falls, Minn., follow :)
TESTIMONY OF EARL EWALD, PRESIDENT, NORTHERN STATES POWER COMPANY Mr. Chairman and gentlemen, my name is Earl Ewald. I am President of Northern States Power Company, a public utility, operating in the states of Minnesota, North Dakota, South Dakota, and Wisconsin.
I appear here in opposition to both H.R. 14000, H.R. 14837; and any other similar bills that may be before this Committee.
I would first of all like to make clear the policy of Northern States Power Company insofar as REA cooperatives are concerned.
We recognize that the REA cooperatives were established by law to assist in the job of electrifying the farms and rural areas and they have done an outstanding job in this field.
Since the inception of REA, it has been the policy of our Company to cooperate with the REA program in our territory. Most of the distribution cooperatives have been customers of ours since the beginning of the program.
Although Northern States is ready, willing, and able to supply all of the power requirements of the REA cooperatives in our area, we recognize the existence of present G & T cooperatives and their natural desire to extend the REA program to the generation and transmission of power for their rural customers.
Northern States Power Company was instrumental in organizing the Upper Mississippi Valley Power Pool, in which six of 13 members are G & T cooperatives. Our Company was also active in organizing the Mid-Continent Area Power Planners (MAPP), a regional planning organization, composed of seven G & T's, 25 municipals, 14 investor-owned utilities, two public power districts, and a Canadian Crown group.
As a part of these pooling and planning activities, our Company has supported the G & T groups in their requests for REA funds to provide their proportionate share of the area's generation and transmission facilities under plans where all of the benefits of the 2-percent money accrued to them.
Our policy in respect to REA cooperatives has not changed. We support the REA's in their efforts to obtain adequate capital to carry out the original purposes of the REA Act. We are not opposed to 2-percent money for these purposes. If the Congress in its judgment feels that it can no longer provide adequate amounts of 2-percent money for the legitimate requirements of the REA
cooperatives, we would support an alternate plan, if it retained the necessary controls of Congress.
The testimony of other opponents to these bills will explain in detail the reasons for our conclusion that the adoption of either of these bills would result in the loss of congressional control, which could have a far-reaching adverse effect on the entire electrical industry as well as the entire tax structure of the United States.
We believe that the majority of the members of REA cooperatives in our area are concerned only with an adequate source of capital for their legitimate needs and would also oppose these bills, if they fully understood what we consider to be the long-range implications.
We respectively suggest to this Committee that, because of the complex nature of these proposed bills and the potential effect on the electric industry and on the whole economy of our nation, a complete study should be made of the longrange needs of the REA cooperatives. This study should also include the development of a sound comprehensive plan to finance these needs which recognizes the right and responsibilities of the REA, the other segments of the electric industry, and Congress.
STATEMENT OF ALBERT V. HARTL, PRESIDENT OF OTTER TAIL POWER CO., FERGUS FALLS, MINN.
My name is Albert V. Hartl. I am President of Otter Tail Power Company, an electric utility supplying energy to almost 500 communities in Minnesota, North Dakota and South Dakota, plus helping to supply 21 rural electric cooperatives at 95 points of connection.
My company has supported the growth of and worked with the rural electric cooperatives in our area ever since they came into being. It is our intention and desire to continue this amicable, mutually beneficial relationship.
However, it is our considered opinion that the so-called Federal Electric Bank Bills under consideration by this Committee would not only destroy this relationship for the future but also endanger the very existence of our company. Consequently, the purpose of this statement is to indicate the opposition of Otter Tail Power Company to HR 14000, HR 14837 and any other similar bills that may be before this Committee.
Our basic objections to this proposed legislation are five. First of all, the legislation is unnecessary; complete rural electrification is being fully accomplished by the investor-owned utilities and rural electric cooperatives under conditions that presently exist. Second, absolutely no discernible guidelines are stated under which loans would be granted, giving virtual dictatorial power to the administrator. Third, the wise Congressional supervision which now assists the rural electrification program would be eliminated. Fourth, the proposed legislation would favor the poorly managed and, consequently, unprofitable cooperative over the well-managed, solvent enterprise. Lastly, tremendous sums of taxpayers' money would be absorbed to start a new type of financial institution at a time when the Nation's resources are already strained to meet rising defense demands and existing domestic programs.
In my opinion the cause of both rural electrification and the entire electric industry would be better served by defeat of this proposed legislation.
The CHAIRMAN. Is there anyone else who would like to submit their statement for the record?
If there are no further statements to be submitted for the record, we will recess now until 2:30 o'clock this afternoon when we will resume these hearings.
I might again suggest that you attempt to avoid repetition.
I hope you will try to minimize the time, as much as possible, that you require so that we can, if possible, finish up this afternoon. We will now recess until 2:30 o'clock.
(Whereupon, at 12 noon, a recess was taken until 2:30 p.m. the same day.)