and set about building rural lines, mostly into the cream of the rural areas where service was more financially feasible. The main point here is that the rural electric systems served as a competitive spur to private monopoly and compelled the private power companies to do at least a part of the job they had so miserably failed to do down to 1935. Senator KEFAUVER. Mr. Ellis, our tenure on this room holds only until 12 o'clock and the members of the Government Operations Committee want to get set up and established so we are going to have to desist now. I understand that they will carry on for about an hour. I have to appear before the Appropriations Committee at 2 o'clock for a brief time and will be back, but, we expect that Senator O'Mahoney will be able to preside along with Senator Murray and Senator Carroll at 2 o'clock. So we will stand in recess until 2 o'clock at this time. Will that enable you to get through in time to leave? Mr. ELLIS. I think so, Senator. Senator KEFAUVER. All right. We will recess now until 2 o'clock. (Whereupon at 12 o'clock a recess was taken until 2 p. m. of the same day.) AFTERNOON SESSION Senator MURRAY (presiding). The hearing will come to order please. Mr. Clyde Ellis will continue his statement. Mr. ELLIS. Mr. Chairman, the rural electric systems have always had difficulties in securing sufficient administrative and loan funds for REA which they would in turn lend to the rural electric cooperatives and power districts. Although Congress has been very kind indeed to the rural electrification program, the rural systems have had difficulties in securing adequate supplies of wholesale power at prices we could afford to pay, difficulties brought about by power company spite-lining and in more recent years by power company pirating of our consumers and raiding of our territory, and general public relations difficulties arising primarily from the multimillion dollar per year propaganda campaigns of the power companies and their fronts like the National Tax Equality Association charging us directly and indirectly as being recipients of subsidies and proponents of "socialism," creeping or otherwise. The allegations of subsidy have been tied primarily to our willingness to use the people's credit through REA and to our nonprofit status which makes it unnecessary for us to pay profit taxes and of course to the fact that the power company monopolies want no competition of any kind, not even "competition by example" such as the rural electrification program. But the allegations of subsidy have also connected us with the Federal power program which the utility propagandists have attacked so dishonestly and so savagely for years, for almost a third of our systems get all or part of their wholesale power directly or indirectly from Federal wholesale power agencies. Our members and our association have supported the Federal wholesale power program, not only as citizens, but as organized elec tric consumers because it has been a source of low-cost power to us in many areas of the country and it has served as a fine yardstick on wholesale power costs to many of our systems which have never purchased a kilowatt-hour of Federal power. Power supply to small electric systems is a very big problem. In the electric industry as a whole demand for power doubles every 7 to 10 years. Demand on rural systems is doubling every 4 to 5 years. Simply getting enough power is a great problem, but getting it at rates we can live with is quite as great-greater even. Our wholesale rates range from 3 mills to 2.25 cents per kilowatt-hour. Generally the wholesale rate paid by our systems is very closely tied to the availability or proximity of Federal power-because the Federal yardstick has a tremendous influence upon private utility rates despite the propagandists' false insistence that the yardstick is not a perfect 36 inches. It is still an effective yardstick. (References: Energy Purchased by REA Borrowers, 18th Annual Report, Rural Electrification Administration, Fiscal Year Ended June 30, 1956 (Bulletin 111-2) (also see exhibit 1.1 attached).) But the real key to our difficulties, all along the line rests upon the very nature of our position in the electric utility industry, an industry characterized and dominated by giant, franchised monopoly corporations. In this industry we serve almost 8 percent (7.7) of all connected consumers; we have 6.2 percent of the total investment in the industry; but we get only about 4.5 percent of the total revenues. If you are aware that our systems generate only one-half of 1 percent of our country's electric power-and that in the industry as a whole something like half of the total investment is in generation and transmission-and that we are compelled to contribute to the expense of maintaining and operating a considerable portion of the generating and transmission capacity of the private companies-then it becomes clearly apparent that our portion of the total revenues of 4.5 percent as contrasted to 6.2 percent of the total investment is badly understated. In fiscal 1956, REA borrowers had a total energy input of 19.9 billion kilowatt-hours. Energy purchased cost the systems a total of $132.4 million. Wholesale power costs represented approximately 32 percent of their total costs of operation. The significance is clear and that is that we are the marginal segment of the industry living on the fringes, yet carrying on our functions of supplying electric service to those areas most difficult to serve and functioning as little yardsticks on the quality and cost of electric. service to every rural family and institution in the country. It is because of our grim determination to continue to perform these functions that we are so concerned about the recent trends in Federal governmental policy and action, in (1) granting gigantic subsidies to the very power companies which already accupy the lush and strategic positions in the industry in terms of location density, size of operation, integration of facilities and monopoly franchise; (2) the steady drive openly and by stealth to kill off or cripple or increase the cost of the output of the Federal power agencies which are to us both a source of wholesale supply and a yardstick affecting the cost of wholesale power furnished by private power companies; and (3) the apparent insistence of certain Federal agencies, for example, the Federal Power Commission, on serving the power monopolies rather than the public interest, and at our expense. It's probably not necessary in discussing the matter with this particular committee to go into details on the operation of the accelerated amortization program, but for the record we would like to insert. certain exhibits indicating the size of the subsidies to the private power companies under this program, the manner in which such subsidies are computed, the recipients of such subsidies by name of company up through July 11, 1956. Exhibit 1 shows the amounts of investment approved for accelerated amortization, the estimated interest-free loans covered by certificates, and the total estimated subsidy to the private companies based on a plant life of 3313 years. Exhibit 2 indicates the methodology of arriving at the amount of interest-free loans and subsidies per million dollar certificate. Exhibit 3 shows the detailed mathematical calculations behind exhibit 2. Exhibit 4 is identical with exhibit 2 except that it deals with an assumed plant life of 50 years. Exhibit 5 is the supporting mathematical data for exhibit 4. Exhibit 6 shows the estimated value of accelerated amortization certificates by State. Exhibit 7 shows the estimated value of accelerated amortization certificates by individual power company. An examination of the exhibit inserted in the power policy hearings of this committee page 742, by Mr. Stietenroth will indicate the Ebasco Services, Inc., computes advantages in much the same way. We have been greatly concerned over these subsidies for a number of years. Those are the exhibits which the Chair this morning gave me permission to insert in the record, and I shall take this opportunity to do so. Mr. CLIFFORD. Because there is some doubt as to how long Mr. Ellis will be able to be with us this afternoon, I would request that you may order or direct that all of the exhibits which he has tendered here be incorporated in the record. Senator MURRAY. That will be done. All the exhibits that you have reference to will be incorporated. Mr. ELLIS. Thank you. (The documents are as follows:) EXHIBIT No. 1 TABLE 52.-Total accelerated amortization certificates granted by the Office of Defense Mobilization to electric utilities from June 9, 1951, through July 11, 1956, and estimates of total interest-free loans and total subsidies available to holders of certificates1 Amount approved for accelerated amortization Total estimated subsidy' 3 2 $3, 146, 932, 585 1, 390, 944, 203 4, 720, 398, 877 1 Source: Official releases ODM. Computations by Electric Consumers Information Committee. ODM certifies all or part of planned construction for accelerated depreciation. This column shows total approved for such depreciation-not the total value of the facilties planned. See tables 53 and 54 for method used in estimating interest-free loans. |