STATEMENT OF M. S. LUTHRINGER, PRESIDENT, CENTRAL ILLINOIS PUBLIC SERVICE Co., SPRINGFIELD, ILL.

On behalf of Central Illinois Public Service Company, I appreciate this opportunity to submit testimony to your Subcommittee on these important legislative proposals.

I feel I have an obligation to our some 29,000 investor-owners, our 2,000 employees and our more than 250,000 customers to express opposition to the type of Federal electric bank outlined in S. 3337, S. 3720 and H.R. 14837.

For you to understand our particular concern, let me first give you some brief background on our Company. Central Illinois Public Service Company serves a basically rural area of some 20,000 square miles in central and southern Illinois. We are proud of our role as pioneers in the rural electrification of Illinois. Early experimental programs, conducted by our Company in cooperation with the University of Illinois, served as guidelines for future rural electrification programs. Today, virtually all farms in Illinois have central station electric service available to them.

We provide electric power at wholesale to 16 of the 27 rural electric cooperatives in Illinois at 90 points of delivery. We do this at a cost to them considerably cheaper than they can generate power for themselves. In early August, we negotiated a mutually satisfactory agreement, which included rates, for new eight-year wholesale power supply contracts for these cooperatives, to become effective January 1, 1967. This is another example that investor-owned electric companies can and do provide adequate, efficient and low cost power supplies to electric cooperatives without the necessity for the Federal Government to subsidize generating and transmission facilities at taxpayers' expense.

Further evidence of this is the case of the Southern Illinois Power Cooperative, a generating and transmission project completed with REA funds in 1963 at a cost of about 25 million dollars. Testimony before the Illinois Commerce Commission by the co-op's own expert, Mr. A. F. Hartung, consulting engineer and partner of the Burns & McDonnell Engineering Company, indicated that this G & T cooperative's average delivered rate per kilowatt hour to its three member cooperatives over a ten-year period would be considerably higher than the rate offered these same member cooperatives by Central Illinois Public Service Company. Our Company's proposed rate was accepted by all other cooperatives we serve. Actual operation of this G & T super cooperative has borne out the predictions of a higher cost power supply.

One cooperative in our state, from the beginning of its operation, generated its own requirements. Over the years, the cost of power to this cooperative was substantially more than if it had been purchased from our Company.

Not only is Central Illinois Public Service Company assuming a major share of the responsibility of bringing central station electric service to rural areas through wholesale power supply contracts with 16 electric cooperatives, but it also has compiled what we believe is an impressive record of rendering low cost electric service directly to persons in rural areas.

Our Company serves 532 communities with electricity.

Of these, 463 or 85%, are populated by less than 1.500 persons.

In fact, 392 or about 65%, have less than 500 population.

Of the 532 communities on our system, 279 had no electric service before we extended it to them, and 83 had only part time service.

Our Company is not opposed to a program of non-federal loan funds being developed to provide funds for rural electric cooperatives for their normal growth requirements. We favor such a policy under proper safeguards and controls. We feel that any Federal funds provided in the future should be loaned at a rate of interest at least comparable to the rate paid by the U.S. Treasury, should be appropriated under the terms of the Rural Electrification Act, and should have adequate congressional control.

We find, however, that the proposals now being considered do not limit themselves to an alternate plan for non-federal financing. Instead, they propose supplementary types of programs with a continuance of the present program of below-cost direct loans of Federal funds to cooperatives.

There seem to be no guidelines established in these proposals which would limit unnecessary expenditures of Federal funds or needless duplication of facilities. Legislation now proposed lacks proper congressional control. It even would permit borrowers to use below-cost, tax-subsidized funds obtained from a Federal electric bank to acquire the properties of electric companies

and other electric systems. One form of H.R. 14837 would allow co-ops to use these funds to construct or acquire electric systems with cumulative service connections up to 5,000.

In our service area, this means that it would be possible for unregulated cooperatives to invade areas now served by companies like ours and promote the purchase of, construct or acquire electric systems in cities up to, and in excess of, 13,000 population. Gentlemen, among the 532 communities our company serves 528 have population of less than 15,000. You can see how a leglislative proposal such as this could be damaging to us.

This is a far cry from the original intent of the Rural Electricfication Act which was to bring central station electric service to persons in rural areas without such service.

With more than 99% of all persons in rural areas both in Illinois and throughout the nation now receiving central station service, and with most of the rural electric cooperatives operating profitably, we see absolutely no need for this huge amount of supplementary loan funds-nor do we think any need for such funds has been justified thus far by proponents of the proposed legislation. In the 30 years of REA, it has loaned about 42 billion dollars to bring central station electric service to unserved persons in rural areas.

We have consistently supported the original purpose of the Rural Electrification Act. But, this original purpose has been largely fulfilled. Whatever remains to be done can be done adequately under the existing programs and policies, and with adherence to the original criteria REA adopted for loaning funds.

There is no need for Federal electric banks which could generate such gigantic amounts of supplementary funds UNLESS rural electric cooperatives plan to take over customers and areas now served by others.

It should be kept clearly in mind that duplication or displacement of facilities of investor-owned electric companies by rural electric cooperatives, which would be possible and probable under the proposed legislation, would erode private enterprise and the Federal income tax base.

I'd like to point out to you that rural electric cooperatives in Illinois are not "underprivileged". Neither are they "non-profit" organizations. Nor are they totally rural. They are sound financially, and are capable of borrowing such new funds as they need at current market rates of interest.

The cooperatives of Illinois, in the 20 years from 1944 through 1964, have accumulated $38,400,000 in profits, called "net Margins", without paying any federal income tax. They showed investments at the end of 1964, other than utility plant, of more than $19,000,000. Some investment houses are openly soliciting rural electric cooperatives for the privilege of investing their surplus funds.

If our Company in 1965 could have enjoyed but two of the subsidies afforded rural electric cooperatives-two per cent money and exemption from Federal income tax-we could have furnished free electric service to all 215,000 of our residential customers for 11 months of 1965; made no changes in our rates or charges to any other classes of customers and still have been slightly better off financially for the year.

We believe this committee should insist on a detailed statement of how the many billions of dollars that would be made available by the proposed legislation would be used by the co-ops so that determination can be made as to just what is the future role of the rural electric cooperatives in the overall electric power systems in our nation. You should be assured that the co-ops, through any new financing plans, are going to continue to provide electric service to persons in rural areas and not take over customers already receiving central station service from existing suppliers.

In summarizing our objections to S. 3337, S. 3720 and H.R. 14837:

We do not believe this legislation is required to supply central station electric service at reasonable rates to persons in rural areas.

We feel the funds provided by these proposals represent a totally unnecessary expenditure of federal funds.

We believe that if the Congress feels it is necessary to continue to provide low interest cost Federal funds to co-ops, these funds

1. Should be loaned at a rate of interest at least comparable to the rate paid by the Treasury

2. Should be provided under the existing terms of the Rural Electrification Act, and

3. Should be subject to adequate Congressional control.

We believe that any such funds made available to the co-ops should be strictly limited for distribution purposes and made only to borrowers serving rural areas who cannot finance their needs at reasonable cost through other means.

But, if Congress does see fit to establish a Federal or Rural Electric Bank, as called for in these proposals, great care should be taken to assure continued surveillance and control by Congress and the executive branch of the government until all Federal investment in the bank has been fully repaid with interest. In any consideration of whether Federal funds should be made available, the Federal costs should include a fair return on the government's investment at least equal to the average interest rate on long-term government bonds, the element of Federal taxes foregone and the administrative costs for the use of government facilities and personnel in the operation of the bank. There also should be reasonable provision made to pay out the government's investment on a definite priority basis.

But, as we previously have stated, we see no reason for a Federal or Rural Electric Bank as proposed and we strongly urge disapproval of these bills.

We believe that with sufficient time for adequate study, evaluation and discussion, suitable legislation can be developed which would provide rural electric cooperatives with an alternate and adequate source of non-federal funds without causing damage to existing electric systems, including investor-owned utilities.

GREENSBURG, PA., August 15, 1966.

Hon. HERMAN E. TALMADGE,
Chairman, Senate Subcommittee on Agricultural Credit and Rural Electrification,
Old Senate Office Building, Washington, D.C.

DEAR SIR: This statement is filed on behalf of West Penn Power Company, an investor-owned electric utility company producing and selling energy in 17 counties of Western Pennsylvania.

We are opposed to S. 337 for these reasons:

(1) The fundamental purpose of the Rural Electrification Administration program has been substantially completed with the electrification of over 98% of the Nation's farms.

(2) No showing has been made or could be made that a federally financed or subsidized bank is needed to finance the rural electric cooperatives.

(3) S. 3337 would not only continue the existing REA program of subsidized loans, but would superimpose upon it a vast additional subsidy program for the benefit of electric cooperatives.

(4) The proposed program would not be an effective step in the direction of transferring the burden of financing rural electric cooperatives from the taxpayers to the private money markets.

(5) The loan operations of the proposed Electric Bank would be free of effective Congressional review and control, and would be a dangerous departure from sound governmental practice respecting the use of government funds.

(6) The proposed Electric Bank could make loans to an electric cooperative for any type of electric generating, transmission, or distribution facilities for use in any geographical area without regard to the presence of existing electric utility facilites from which adequate electric service may be obtained at reasonable rates and on reasonable terms. Significantly, S. 3337 would not limit the Bank's loans to rural areas or to the purpose of serving persons not receving central station service. Indeed, the Bank's loans would not even be limited to the purpose of rural electrification.

(7) S. 3337 would make available almost unlimited funds to finance generation and transmission facilities for use by electric cooperatives in displacing or replacing electric energy which they have been buying or would buy from investor-owned electric companies.

(8) S. 3337 would launch a program which would produce increasing losses of Federal tax revenues. Rural electric cooperatives pay no Federal income tax, whereas investor-owned electric companies as a group comprise the Nation's largest income taxpayers. To the extent that the electric cooperatives conduct business operations which can be or are performed by taxpaying companies, the Federal Treasury loses income tax revenue. As the business operations of the electric cooperatives grow, so do the tax losses.

In effect, S. 3337 proposes a loan program which would stimulate and encourage further losses of Federal tax revenues.

We believe that Congress would perform a much needed public service if it would undertake a thorough study to determine what role the electric cooperatives can and should perform in the Nation's economy. Such an inquiry would require the formulation of a national policy toward the electric cooperatives and their relationship to the regulated and taxpaying segment of the electric utility industry with which they are competing. Only in this manner can Congress give a proper answer to the question of whether and to what extent electric cooperatives need subsidized loans and tax exemptions.

We respectfully request that this statement be filed as part of the record in connection with the hearings on S. 3337. Fifty copies of the statement have been sent to the Subcommittee.

Very truly yours,

R. G. MACDONALD, President, West Penn Power Company.

STATEMENT OF WILLIAM C. MACINNES, PRESIDENT, TAMPA ELECTRIC COMPANY, TAMPA, FLA.

My name is William C. MacInnes, President of the Tampa Electric Company, Tampa, Florida.

I am presenting this statement in opposition to S. 3337, and to the draft bill, covering the same general subject as S. 3337, which was proposed by the Department of Agriculture earlier this year.

The Tampa Electric Company serves 182,000 customers in the vicinity of Tampa, Florida, located in Hillsborough, Pasco, Polk, and Pinellas counties.

Our service to the municipalities in our area is provided under the terms of franchises approved by the authorities in the respective city or county governments.

The territorial boundaries of our company are adjacent to, or in some cases, overlapping with other power companies, municipal power systems, and electric cooperatives.

The electric rates of the adjacent power companies are regulated by the Florida Public Service Commission and the Federal Power Commission.

The electric rates of the municipal power system are regulated by the gov ernmental authorities in that jurisdiction.

However, the rates of the electric cooperatives are set by the cooperatives themselves without regulation by any governmental authority. With the governmental subsidy provided in the past by the use of 2% loans, the electric cooperatives have been able to provide service to their customers at competitive rates and have been able to build very healthy business enterprises.

The electric cooperatives can now compete with other power suppliers in every respect. They have been able to provide for their power supply at extremely favorable rates either from power companies, governmental agencies, or their

own resources.

The electric cooperatives are now using the benefits of their favorable interest rates and almost unlimited funds to compete with other power suppliers who are heavy taxpayers and who are subject to the effects of very high interest rates.

Their cost of money is the key to the cost of electric energy and the competitive position of a power supplier. Therefore, a subsidy by way of lower interest rates than those prevailing in the open market and availability of unlimited capital which is provided the electric cooperatives under the terms of this legislation, gives the electric cooperatives a completely unfair advantage which will be financed by the taxpaying public.

This advantage is amplified by the exemption from taxation of cooperative enterprises.

Should this legislation become law, the door will be wide open for electric cooperatives to compete for all customers on a very favorable basis to them but completely unfair to their competitors.

This will be particularly true in the areas of commercial and industrial customers as has been proven by such agencies as the Tennessee Valley Authority and Bonneville Power Administration.

This legislation will have the effect of permitting creatures of the government, which were set up to serve farmers, to become free agents and grasping unregulated monopolists with unlimited funds at below cost interest rates.