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Mr. MORRISON. No, sir.

Senator HOLLAND. Is there any law of the State of Louiaiana which prevents that being done as a matter of agreement or contract between the public utility companies ?

Mr. MORRISON. Well, we have been told on that subject by our attorneys, Mr. Chairman, that any agreement of this nature between the companies and the REC's would very likely be held in violation of both State and Federal statutes relating to antitrust matters.

Senator HOLLAND. My question, though, had to do with division of territories between the investor-owner utilities.

statute of the State of Louisiana which would permit you to enter into contracts among yourselves to divide that into territories?

Mr. MORRISON. No, sir; there is not.
Senator HOLLAND. All right, sir. Thank you.

Mr. MORRISON. Now in the face of the foregoing evidence of deliberate refusal on the part of the Administrator to negotiate with the companies and the further belief that to date he had completely failed to conduct a survey in accordance with Senate Report No. 497, we were amazed upon learning of the loan approval on September 12, 1964.

Is there any

QUESTION OF REA COMPLIANCE WITH COMMITTEE REQUIREMENTS

The evidence bearing on whether or not the Administrator complied with the requiremens of Senate Report No. 497 is submitted as follows:

Senator HOLLAND. May I ask you one more question ?
Mr. MORRISON. Yes, sir.

Senator HOLLAND. Did the Administrator know of the final figure communicated by you to the REA co-ops in April of 1964? Did he know of that before the decision was made in September?

Mr. MORRISON. Yes, sir.
Senator HOLLAND. That final figure was what, 6.04?

Mr. MORRISON. 6.04. This was the average for all of the three companies.

Senator HOLLAND. Thank you, sir; proceed.

Mr. MORRISON. The evidence as to whether or not the Administrator complied with the requirements of Senate Report No. 497 is submitted as follows:

(1) “Make a survey and determine wherein the existing contract for power in the proposed contract is unreasonable.” In the certification transmitted to Senator Hayden, the Administrator merely claims that he had "caused a survey to be made in accordance with REA Bulletin 111-3” and the "loan is needed because existing and proposed contracts to provide the facilities or service to be financed were found to be unreasonable * * *?

Please note that the certification does not claim to have determined “wherein" the companies' proposals were unreasonable. This is a critical omission.

(2) “Advise the supplier wherein such contract is unreasonable.”

Here, again, the certification merely states that “each supplier involved was so advised.” The Administrator does not even claim that he “advised the suppliers “wherein' their proposals were unreasonable." This is a critical deviation from the requirements of your report.

(3) "Attempt to get such contract modified to make it reasonable.” Although the Administrator certified to having complied with this requirement, we deny as emphatically as we can that he did so, and surely his own statement, heretofore submitted, is overwhelming evidence that he did not.

FURTHER REQUIREMENT OF SENATE REPORT NO. 497

(4) A further requirement of Senate Report No. 497 is that G. & T. loans “should be made only when reasonable contracts cannot be obtained.” Here, again, the Administrator's own statements are overwhelming evidence that he did not nor did he ever intend to examine into the reasonableness of our proposals.

Please note here again that the Administrator never alleges justification for approving the loan on criterion 1 “no dependable source of power available in the area,” or criterion 2 “where rates offered by existing power sources would result in higher cost of power to the borrower.” He bases his action upon his own interpretation of criterion 3, and nowhere does he set forth a single element of unreasonableness.

The "Information relating to the ‘A’ loan application of Louisiana Electric Cooperative, Inc.," (page 2, paragraph 2, last sentence), in support of the Administrator's certification stated:

“The analysis developed a 10-year average cost of power delivered at the lowvoltage side at the substation under the G. & T. plan of 6.80 mills per kilowatthour as compared with an average cost of 7.16 mills per kilowatt-hour under the plan of continued purchase."

COST OF REC FACILITIES AND POWER CONSUMPTION

This is a most amazing exercise in figure juggling. Why should the G. & T. deliver at the low side of the substations? The REC's now own certain transmission and substation facilities. They wanted it that way. If G. & T. transmission and/or substations are to displace presently REC-owned facilities the additional cost represented by such facilities to the REC's will not be eliminated unless the G. & T. purchases such facilities from the individual cooperatives. The cost of such facilities taken as the difference between 7.16 and 6.04 mills per kilowatt-hour or 1.12 mills per kilowatt-hour referred to estimated REC annual consumption of 555 million kilowatt-hour, amounts to an additional annual cost of $621,600. A carrying cost of 712 percent figures back to an investment of $8,288,000 by the REC's.

Do the G. & T. computations contemplate purchasing this amount of property from the REC's? If they do, where is it disclosed that such a purchase is intended? If not, RÉC transmission and substation cost of 1.12 mills must be added to the G. & T. costs of 6.80 mills for a total cost to the REC's of 7.92, which is still of course 0.76 mills above what the companies offered.

FISCAL YEAR 1965 HOUSE COMMITTEE REPORT The House committee report on 1965 agricultural appropriations bill stated:

“The committee feels that loans provided to REA should not be used for power generation loans where the feasibility is based solely on the cheaper power rates resulting from the lower interest rate paid by REA co-operatives than is available to private investor companies unless essential to get area coverage."

Mr. Chairman, the average cost of money to the companies, based on competitive bidding in the money market, is just at 6 percent, or 4 percent above the cost to REA. Applying this 4 percent differential to the $56,521,000 loan we come up with an added cost of $2,260,840, annually, or 4 mills per kilowatt-hour. Thus, if to the G. & T. estimated price of 6.80 mills we add the adjustment suggested by the House committee, we come to a real price to the taxpayer of this G. & T. power of 10.80 mills. This is to say nothing of taxes foregone.

There is nothing in the certification to indicate that the Administrator based his approval of this loan on the need for area coverage.

SUMMARY OF PUBLIC UTILITIES POSITION

To summarize:

(1) One of your committee's directives specified that G. & T. loans should be made only when reasonable contracts cannot be obtained. The companies in this case have offered one of the very lowest rates in the Nation and, despite repeated requests therefor, no claim has ever been made by the Administrator wherein our proposal was held to be unreasonable in any specific respect.

(2) The evidence is overwhelming from the Administrator's own statements, that he failed to comply with a single one of your committee's directives as contained in Senate Report No. 497, nor, except in minor degree, does he claim to have done so, in his certification transmitted to Senator Hayden.

(3) The Administrator's notions of territorial integrity, based on his “total area concept," is unsupported by any regulation or directive of the Congress, by any statutory requirement of which we have any knowledge and, as it relates to the law of the land, generally, impinges upon the basic concept of municipal sovereignty.

(4) Please remember, gentlemen, that fully regulated utilities are not granted exclusive territorial franchises in Louisiana, yet, while the REC's were claiming total exemption from any State regulation, the Administrator was demanding exclusive territorial rights and therefore the status of an unregulated monopoly.

(5) It seems to us an amazing position for the Administrator to have taken. but seemingly a G. & T. loan is justified in any State where the laws thereof do not accommodate his notions of "total area concept”-in total disregard of the reasonableness and comparative economics of any alternative proposals available.

(6) The economic juggling and manipulation which raised the price of company power from 6.04 to 7.16 mills is completely unsupported and is not acceptable. If the Administrator's reported G. & T. cost of 6.80 mills is based on 10-year average figures which excludes any part of the interest and/or principle for the first 10 years, the 6.80-mill figure is not realistic.

SUIT FILED IN FEDERAL DISTRICT COURT ATTACKING ACTIONS OF REA ADMINISTRATOR

Now, Mr. Chairman, as you may know, Central Louisiana Electric Co. filed a suit in the Federal district court in Shreveport, La., in which the other companies are intervenors, attacking the actions of the Administrator on the grounds that he had acted illegally and was really conspiring to foster illegal competition upon the companies in Louisiana. It is my understanding as a layman that the principal defense being made in that suit by the Department of Justice is that utility companies have no standing to sue. This contention is apparently based on the proposition that the only place where the companies can seek relief is in the Congress. This is probably the real issue before your committee at this time.

If your committee determines that this particular loan is in conflict with the law, with the Administrator's regulations or with the directives of the Congress, we request that you direct the Administrator to recall the loan approval or, alternatively, that the Comptroller General be directed to withhold the disbursement of funds under this loan until such time as he has conducted an investigation of the loan and reported his findings to your committee.

I wish to thank you, Mr. Chairman, very much, on behalf of my own company, and the other companies, for the privilege of appearing before you. I would gladly try to answer any question you may have.

RATE OFFERED TO LOUISIANA REC's Senator HOLLAND. What was the rate offered by the companies to the REC's in Louisiana at the beginning of these negotiations?

Mr. MORRISON. The first offer to the REC's at the beginning of the negotiations was made to Tex-La on August 31, 1961, and it provided for a 61/2-mill rate hitched to the average monthly load factor of the preceding year at all delivery points.

Senator HOLLAND. 612.
Mr. MORRISON. 61/2 mills.
Senator HOLLAND. You said that was back in 1961 ?
Mr. MORRISON. 1961.
Senator HOLLAND. 1961. Did it have a dual rate in it?
Mr. MORRISON. No.

Senator HOLLAND. In other words, there was no condition that this would not apply to industrial loads in the business area served by the co-op?

Mr. MORRISON. Not in that proposal; no sir.

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CHANGES IN PROPOSAL

Senator HOLLAND. So that as the negotiation went forward what would the changes in the proposal be? Mr. MORRISON. As you may remember for the last 7 or 8 years

fuel prices have been escalating rapidly, on the average of something like a half cent per million British thermal units per year.

It appeared about the middle of 1963 that fuel prices were stabilizing. In fact there had been some rollbacks in fuel prices, in natural gas prices. This was the principal basis for offering the further reduction of a quarter of a mill per kilowatt-hour to the cooperatives in 1963.

Senator HOLLAND. You went down from 612 to 614, did you at that time?

Mr. MORRISON. Yes, sir; that is correct, hitched to the same general monthly load factor.

Senator HOLLAND. What was that date?

Mr. MORRISON. It was sometime in April, May, or June of 1963. I believe it was June 1963.

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Senator HOLLAND, 1963 ?
Mr. MORRISON. I believe it was 1963.

Senator HOLLAND. Was there a subsequent reduction prior to the April 1964 figure which was 6.04?

Mr. MORRISON. Well, actually the 6.04 stems from the 614. The rate structure of the schedule we offered them was such that if an individual REA had a higher load factor than the load factor upon which the 614 mills was based, he would get a somewhat lower rate than the 614 mills. The actual rate itself had not been changed but the REC's load factor did improve and this resulted in the 6.04.

Senator HOLLAND. You mean the 6.04 was the result of a sliding rate offered in connection with the 614!

Mr. MORRISON. That is correct, Mr. Chairman. Senator HOLLAND. There were really then only two separate price offers made by you, the first 61/2 and the second 614, one with rollback tax?

Mr. MORRISON. This is correct.

DUAL RATE CONDITION

Senator HOLLAND. And there was no dual rate attached to either one of them?

Mr. MORRISON. There was no dual rate.

Senator HOLLAND. Mr. Morrison, did any of your associated companies in Louisiana-I understand there were five of you all toldattach a dual rate condition to their offer to the co-op that they serve?

Mr. MORRISON. Well, actually there were only three companies involved in this particular offering, Gulf States

Senator HOLLAND. Three companies?

Mr. MORRISON. Three companies. The other two companies associated with us in these proceedings are New Orleans Public Service Co., which has no REC customers, and Southwestern Electric Power Co. with headquarters in Shreveport. They actually have separate arrangements through Tex-La to serve the ŘEC's.

DUAL RATE IN SOUTHWESTERN ELECTRIC CONTRACT

Now as to that it may have been back a number of years ago,

and I think this is so, Southwestern Electric did have a dual rate in their contract, but I do not believe they ever applied it.

Senator HOLLAND. I understood, from the testimony, that one of the co-ops in Louisiana did not go into this G. & T. effort. Which one was that?

Mr. MORRISON. This is the Southwest Louisiana Electric Membership Corp. with headquarters in Lafayette, La. This is usually reputed to be the largest single cooperative in the Nation. This cooperative was associated in the first stages of considering the possibilities of the G. & T. Southwest Louisiana Electric Membership Corp. was associated with the other cooperatives. They hired their own independent engineers to make reports to them and after examining all of the evidence they decided that the G. & T. was not the best route for them to go and they have signed contracts with the companies.

Senator HOLLAND. Which of the investor-owned utilities do they buy their supply from?

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