Thank you.

Mr. POAGE. Thank you very much.

(The complete prepared statement of Mr. Bouldin follows:)

STATEMENT OF WALTER BOULDIN, PRESIDENT, ALABAMA POWER CO.

Thank you, gentlemen, for this opportunity to appear in opposition to H.R. 14837 and similar bills.

A primary and underlying fault of H.R. 14837 does not appear on the face of the bill. That fault is the assumption implicit in the bill that the legitimate needs of the REA co-ops require the indefinite number of billions of dollars provided for by this bill.

The legitimate objective of the original REA Act was to make electric service available to people who did not have such service and who would otherwise not quickly obtain it. That was the reason the American taxpayers provided funds to REA to lend co-ops at an interest rate less than cost and gave the co-ops freedom from income tax. The tax and interest subsidy was granted to achieve a public benefit. That public benefit has been achieved.

That benefit can easily be maintained without the billions this bill would provide.

The extension and strengthening of the distribution systems of the co-ops require no such billions. In the last ten years, the REA loans for such systems have averaged about $138 million per year. In 1965, such loans were about $150 million.

The repayments of principal and interest on co-op loans in the year 1965 totaled more than $222 million. It is, therefore, evident that if the American taxpayers are willing to continue to devote their $3.2 billion investment in co-ops to the legitimate needs of the co-ops' distribution systems, the repayments on their present investment alone are more than ample for such purpose.

It is also evident that this bill permits and is probably designed to permit får more than a solution to this relatively simple need. This bill permits and is evidently designed to permit a practically unlimited expanison of co-op generation and transmission facilities by making available funds for building such facilities at 4% interest-a rate substantially less than the funds cost. The taxpayer will probably pay the difference.

But this inadequate interest rate is only one aspect of the unfairness of this bill. A more important aspect is that the generation and transmission facilities that would be built with funds provided by this bill will not be subject to federal income taxes.

It should be axiomatic that income-tax-paying enterprise should not be displaced by income-tax-free enterprise in the absence of some public interest requiring such displacement, because every dollar in taxes escaped by one business enterprise must be paid by other taxpayers. There is no such public interest involved here.

There is no lack, present or prospective, of tax-paying electric generation and transmission facilities that would justify this bill. It must be borne in mind that every generation and transmission facility built under the provisions of this bill will displace a tax-paying facility.

Investor-owned companies build electric facilities to supply the public needs for electricity. For that purpose, our companies make careful forecasts of electric needs and build facilities to meet those needs with a margin of safety. If part of these needs is supplied by tax-exempt facilities, the building of tax-paying facilities will be reduced by just that much.

The basic principle that co-op facilities subsidized by the taxpayers should not replace privately financed tax-paying facilities has been established by the Congress since the inception of REA. That is why Mr. Rayburn, sponsoring the original act, said in 1936:

"Mr. RAYBURN. May I say to the gentlemen that we are not, in this bill, intending to go out and compete with anybody. By this bill we hope to bring electrification to people who do not now have it. This bill was not written on the theory that we were going to punish somebody or parallel their lines or enter into competition with them." (74th Cong. Rec. Vol. 80, 1936, Part 5, pp. 5282, 5283).

That is why the REA Act said and still says: "The Administrator is authorized and empowered to make loans . . . . for rural electrification and the furnishing

of electric energy to persons in rural areas who are not receiving central station service. . . . (Sec. 2 of the Act).

That is also why the REA Act limited co-op service to communities of 1,500 people or less.

These principles have often been honored only in their breach by REA administrators, but they stand today as the policy of the Congress.

This established policy of the Congress has been repeatedly abused by REA in making generation and transmission loans.

As an example of such abuse, I can personally testify about the $20.4 million generation and transmission loan granted in 1961 to Alabama Electric Cooperative, Inc., a generating and transmitting co-op in Alabama. This loan was, of course, granted by the Administrator without giving our company a hearing and notwithstanding the proposed project would make electric service available to no one to whom central station service was not already available; notwithstanding there was in effect a contract with our company to furnish the co-op an unlimited supply of electricity for its needs at a very low rate; that the operation of the proposed plant involved a breach of that contract by the co-op; that the co-op project would duplicate many miles of our transmission lines; that the co-op project would take from us co-op customers we had served for many years and would increase the cost of power to those co-op customers of ours. At a later hearing in Alabama on this proposed plant, it was proved without dispute that the cost to the taxpayers of this plant would far exceed the savings the co-op claimed would result to its customers by the construction of such a plant. This loan has been the subject of detailed testimony by A. W. Vogtle, Jr., on behalf of Alabama Power Company in 1963 before a Subcommittee of the House Committee on Appropriations on the 1964 Appropriations Bill. (88th Cong., 1st Sess., pp. 442-446.)

Similar abuses have taken place in other states. These need not be described here in detail, as testimony has been given before the House and Senate subcommittees on Agricultural Appropriations for a number of years by witnesses who have outlined the facts about such loans.

Indiana: Mr. Carroll Blanchar, president of Public Service Company of Indiana, has testified about a $70 million loan for generation and transmission purposes made in Indiana. Hearings on the Department of Agriculture Appropriations for 1967, before a Subcommittee of the House Committee on Appropria tions, 89th Cong., 2nd Sess., Part 5 at 131-139 (1966). He also testified before such subcommittee on earlier occasions: Hearings for 1966 (Part 5, pp 235–239) : Hearings for 1964 (Part 5, pp 409–413).

Kentucky: Mr. A. Clay Stewart, vice president of Kentucky Utilities Company, has testified about a $54 million loan for generation and transmission purposes in Kentucky, the main customer therefrom to be a large industry. Hearings on the Department of Agriculture Appropriations for 1967 before a Subcommittee of the House Committee on Appropriations, 89th Cong., 2nd Sess., Part 5 at pp. 140-149 (1966). He had also testified earlier before such committee: Hearings for 1964 (Part 5, pp 403-409).

Louisiana: Mr. J. J. Morrison, chairman of the board of Gulf States Utilities Company, has testified about a $56.5 million loan made for generation and transmission purposes in Louisiana. Hearings on the Department of Agriculture Appropriations for 1967 before a Subcommittee of the House Committee on Appropriations, 89th Cong., 2nd Sess., Part 5 at 358-362 (1966). Mr. Morrison earlier testified before such committee on 1966 appropriations (Hearings for 1966, Part 5, pp 239-249) and filed a statement with the Committee on Appropriations for the appropriations for 1965 (Hearings for 1965, Part 5, pp 313-315). Colorado: Mr. D. L. Broussard, vice president and secretary of Utah Power and Light Company and of Western Colorado Power Company, testified concerning the $23 million Colorado-Ute loan made for a generating plant in Colorado. Hearings on the Department of Agriculture Appropriations for 1967 before a Subcommittee of the House Committee on Appropriations, 89th Cong., 2nd Sess., Part 5 at pp 128-131 (1966). Earlier testimony had been given before such committee by Mr. E. A. Hunter, vice president of Utah Power and Light Company: Hearings for 1964 (Part 5, pp 423-428); Hearings for 1963 (Part 5, pp 291-296). Mr. Robert T. Person, president of Public Service Company of Colorado, and Mr. Ralph Sargent, vice president of such company, have testified before such committee on this loan: Hearings for 1964 (Part 5, pp 428-438); Hearings for 1963 (Part 5, pp 275-291).

Mississippi: Mr. A. J. Watson, Jr., president of Mississippi Power Company, testified concerning a $16 million loan (later increased in amount) made for construction of generation and transmission facilities in Mississippi. Hearings on the Department of Agriculture Appropriations for 1964 before a Subcommittee of the House Committee on Appropriations, 88th Cong., 1st Sess., Part 5 at pp 400-403 (1963). Mr. Watson also testified in the preceding year: Hearings for 1963 (Part 5, pp 271–275).

Florida: Mr. R. L. Pulley, president of Gulf Power Company, testified concerning a loan of $1.2 million or more for construction of a diesel generating plant and transmission line extensions into Florida for service to an Air Force establishment. Hearings on the Department of Agriculture Appropriations for 1964 before a Subcommittee of the House Committee on Appropriations, 88th Cong., 1st Sess., Part 5 at pp 413-416 (1963). Mr. Pulley also testified in the preceding year: Hearings for 1963 (Part 5, pp 296-299).

Following this testimony protesting such abuses, the Committee reports have reiterated the basic Congressional policy that income-tax-free co-op generation and transmission facilities should be built only when it can be shown that taxpaying facilities have failed to do a reasonable job.

A few excerpts from those reports will suffice:

"Before public funds are loaned for power generation or transmission, a majority of the committee believes the REA Administrator, in connection with any such loan, should make a survey, determine wherein the existing contract for power or the proposed contract is unreasonable, advise the supplier wherein such contract is unreasonable and attempt to get such contract modified to make it reasonable. Loans should be made only when reasonable contracts cannot be obtained.

"With regard to any further generation and transmission loan approved, the Administrator should certify to the Secretary of Agriculture that each of these steps has been taken and that the private supplier has been given an opportunity to make the contract reasonable, specifying the details, and had refused or failed to do so." (H.R. Rep. No. 355, 88th Cong., 1st Sess., 1963).

The Senate Committee on Appropriations, in its Report No. 497 in the same Congress, concurred fully in the House Committee recommendation. These guidelines are still in effect.

In August 1962, the Senate Committee on Appropriations Report said: "The committee is concerned about the controversy which is developing with regard to generation and transmission loans. It is noted that in reporting the Food and Agriculture Act of 1962, S. 3225, the Senate committee report described the history and major developments under the Rural Electrification Act of 1936, as amended. The committee endorses the statements made in that committee report which caution the Administrator of REA not to make these large generation loans unless they are completely necessary, and suggest that negotiations between REA borrowers and investor-owned companies should proceed in a fair and equitable manner.

"The committee believes that both the REA cooperatives and private power are here to stay and they ought to work together as equitably and fairly as possible. We make bold to suggest that the Committee on Agriculture and Forestry may wish to carefully reexamine this aspect of the program." phasis added). (S. Rep. No. 1908, 87th Cong., 2nd Sess.)

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In June 1963, the House Committee on Appropriations Report said: "A majority of the members of the committee believe the right to make loans for power generation and transmission purposes, with funds available to implement such right, if necessary, is absolutely essential to enable REA cooperatives to obtain reasonable contracts from private power suppliers with regard to rates, terms, and conditions. However, a study of the REA Act and its history clearly shows that it was never intended that this authority be used except for substantial reasons, and not merely to supplant private suppliers." (Emphasis added). (H.R. Rep. No. 355, 88th Cong., 1st Sess., 1963).

H.R. 14837 would abandon these principles and provide for virtually unlimited expansion of co-op generation and transmission facilities subject to no Congressional control.

It is mockery to characterize this bill as one to get REA off the taxpayers' backs. The added burden that would be cast on taxpayers by this interest-subsidized and tax-exempt expansion is measured only by the amount of such expansion; for, as I have pointed out, every dollar in taxes escaped by these co-op

facilities must be paid by other taxpayers. As an indication of the magnitude of the burden to be cast on taxpayers by the loss in taxes alone, Edison Electric Institute has estimated that in the year 1964 with electric plant in service of about $4.5 billion, the co-ops paid $195,515,000 less federal and state taxes than investor-owned companies would have paid on the same amount of electric

plant.

Gentlemen, we are not seeing ghosts when we speak of unlimited expansion of generation and transmission facilities under this bill. An example of the type of facilities which could and probably would be financed under this legislation is the so-called Yankee-Dixie project.

This project has been seriously advanced and widely publicized. It is being sponsored by many prominent advocates of co-op generation and transmission facilities. The project, as conceived by its sponsors, includes three huge power stations of two million kilowatts each, with connecting extra high voltage transmission lines and radial transmission lines extending from Maine to Florida and covering much of the eastern United States. A map taken from the brochure circulated by the Yankee-Dixie Association is attached to this statement and shows the extent of the proposed undertaking. It would cost over a billion dollars and would be built by an organization which would, of course, pay no federal income tax. This is only one of many such projects this bill would probably bring into being.

This proposed legislation is not what the public interest requires. The public interest requires legislation to curtail the waste of public funds and the loss of tax revenues already being caused by the unnecessary building of incometax-exempt generation and transmission facilities.

A primary and extremely urgently needed amendment would require that the Administrator hold a hearing-an open hearing-before making a loan for generation and transmission purposes. As this Committee doubtless knows, all applications for such loans are processed in secrecy.

Further, any action of the Administrator in granting a loan for such purposes should be subject to review by the courts in accordance with the Administrative Procedure Act. On a number of occasions arbitrary action of the Administrator has been allowed to remain unchallenged because of court decisions to the effect that the damaged investor-owned utility had no standing to raise a question as to the Administrator's action whether it be arbitrary, lawful, or otherwise.

A second area of amendment should require that loans for generation and transmission facilities should not be made when the resulting cost to the taxpayers is greater than the estimated saving to the customers to be served from such facilities. There is certainly no valid reason why taxpayers should pay more than co-op customers would save.

I respectfully submit for your consideration the following amendment to the Rural Electrification Act:

1

"When an electric energy supply is available from an alternate source, loans for electric generation or generation and transmission facilities shall not be made when the resulting cost to taxpayers is greater than the estimated savings to customers of such facilities. The annual resulting cost to the taxpayers shall be computed by the Administrator as the sum of (1) the difference in interest rate on the proposed loan and 6%1 multiplied by the amount of such loan, and (2) federal income taxes foregone. Federal income taxes foregone shall be calculated by multiplying the amount of the loan by that percentage the federal income tax paid by Classes A and B investor-owned electric utility companies bore to the net electric plant investment of such companies as shown by the latest reports filed by such companies with the Federal Power Commission.

"Any determination required under this act to be made by the Administrator shall be made in accordance with the procedures and subject to review under the provisions of the Administrative Procedure Act."

The provisions of this bill would mark a radical departure from principles long established by the Congress, principles which have their foundations in elementary fairness and fiscal common sense. It makes no sense for a government dependent on taxes to foster unneeded enterprise which would destroy the government's tax revenues. It is unfair to take the taxes of one man to build electric facilities for another in the absence of some overriding public interest. It is wrong to destroy the tax-paying investment of citizens by subjecting that

16% is considered to be the minimum annual cost or worth to taxpayers of funds taken from them to build such facilities.

investment to income-tax-exempt competition in the absence of any impelling public interest.

The device of interest subsidy and tax exemption inherent in this bill would destroy any enterprise competing against it whether that enterprise be an electric utility, a newspaper, a steel, chemical, or any other tax-paying enterprise. This bill's radical departure from fundamental and established government policy would have profound economic repercussions which neither we nor this committee have had opportunity to explore.

Gentlemen, on behalf of our millions of investors whose savings have made possible the finest electric system on the face of the earth, and on behalf of all taxpayers, we invoke The Golden Rule. You would not have this done to you.