VARIANCE OF VIEWS ON THE SUBJECT Senator HOLLAND. That is not what Mr. Pentecost's statement says, and he is a highly informed man, he has been in that business a long time, and he compares unfavorably the Alabama Co-op rate with the rate that he is having to pay the Gulf Power Co., and evidentally was quite unhappy about it. I do not understand your explanation and I do not believe it will measure up against the statement made by Mr. Pentecost. Mr. CLAPP. Well, Mr Chairman, I am satisfied that our computations are correct and I am satisfied that they are based upon his reports to us on his power purchases and the cost of power delivery. In your question you raised another point, Mr. Chairman. You made reference to Mr. Pentecost's testimony, referring to our insistence upon his performing under the contracts that he had entered into with Alabama Electric Power Cooperative. POWER CONTRACTS AMONG COOPERATIVES I am sure this committee would have real cause for criticism of the Administrator of REA if he took any other course. This Choctawhatchee Electric Cooperative entered into contracts with the Alabama Electric Cooperative first in 1958 and then in 1960, for delivery of power within the capabilities of the Alabama Electric Cooperative to its delivery points. The contract they signed with Alabama Electric Cooperative in 1960 was the basis and the security-part of the security of the U.S. Government-in the loan made to the Alabama Electric Cooperative in 1961. And the Administrator of REA is under very strict statutory admonitions not to relinquish Government security; it stands behind loan funds that the Government is providing. We have simply insisted that Mr. Pentecost and his co-op live up to the obligations that they voluntarily entered into. We take the same position that they must live up to the obligations they enter into with the power companies. If we cannot rely on performance under contractual obligations that are voluntarily and fairly entered into we have no firm basis for performing on our commitments. Senator HOLLAND. Well, on page 273 of the printed record appears the substance of Mr. Pentecost's testimony. I asked him first how much of his power he buys at 61⁄2 mills, he says "About 24 million kilowatt-hours per year at 612. Then I said: You spoke of another rate applying to some of your power that you bought from Gulf. Mr. PENTECOST. We buy about 2 million at 7.2 mills, or it averages about 7.2. Senator HOLLAND. About 2 million? Mr. PENTECOST. Yes, sir. Senator HOLLAND. How much do you buy from Alabama Co-op at 81⁄2? Mr. PENTECOST. About 12 million. And I do not see how in view of those specific facts and figures it can be claimed that he is paying more to Gulf Power than he is paying to Alabama Co-op, and you notice his testimony that continuing pressure is being brought on him to buy from the Alabama Co-op. What does his contract with Alabama Co-op require him to buy? AGREEMENT UNDER CONTRACT WITH ALABAMA CO-OP Mr. CLAPP. His contract with Alabama Electric Cooperative, which he entered into in 1960, contains an agreement to take all of the co-op's power requirements from the Alabama Electric Cooperative which it is in a position to deliver in the future. This, of course, would be subject to the contractual obligations that the cooperative then had with the Gulf Power Co. I think the situation is, and this apparently is the source of Mr. Pentecost's irritation, that the Alabama Electric Power Cooperative is in a position to deliver more power to Choctawhatchee than it is prepared to take. There was some discussion that arose over the establishment of a new delivery point which Alabama Electric Cooperative would serve. This is also involved in the necessity of giving notice under the contract, of termination of arrangements with Gulf Power Co. so that the cooperative would be free to live up to its contractual obligations with Alabama Electric Co-op. As I understand it there has to be 12 months notice, and I think it has to be given at a particular date in the year I believe in August. Senator HOLLAND. Notice from whom to whom? Mr. CLAPP. The notice would be from Choctawhatchee to Gulf Power Co. for termination of the contract with Gulf Power Co. Senator HOLLAND. You mean the Alabama Co-op wants to supply more power at the 812 mills than it is supplying? SURPLUS POWER FOR SALE BY ALABAMA CO-OP Mr. CLAPP. It is in a position to supply more power to Choctawhatchee than it is supplying. Senator HOLLAND. Well, is not the Alabama Co-op trying to get a loan for the building of more generating facilities? Mr. CLAPP. Well, they have a loan that was approved in 1961, but which has been tied up in the courts. Senator HOLLAND. Well that loan was approved on the theory that they need more generating facilities than they have to supply their current needs, was it not? Mr. CLAPP. That is correct. Senator HOLLAND. How do you reconcile those two facts? You say that the Alabama Co-op wants to sell more to Choctawhatchee and you say that Alabama Co-op has been granted another loan to build a further generating facility to supply the needs that it already has. It seems to me that those are contradictory claims there. Mr. CLAPP. Well, it is a matter of timing the power supply sources of Alabama Electric Cooperative. It takes 2 or 3 years to construct a powerplant, and the justification of additional generation is, under REA procedures and has long been, based upon a 10-year projection into the future. I think there is a further element in this situation in that there has been an increased availability of power from the Walter George Dam. ALABAMA ELECTRIC COOPERATIVE SERVICE TO OTHER FLORIDA COOPERATIVES Senator HOLLAND. Does the Alabama Co-op supply any of the other three Florida co-ops in west Florida? Mr. CLAPP. I think there is another cooperative that is a member, but is not presently taking power from them. Senator HOLLAND. How does it happen that it does not have to take power since it is a member? Mr. CLAPP. I would imagine that this would be contingent upon, first of all, the expiration of its present contractual obligations with the company; and secondly, upon the ability of the Alabama Electric Cooperative to supply the power. I will supply more specific information on these other cooperative members for the record. (The information referred to follows:) SERVICE TO OTHER COOPERATIVES The following four cooperatives in west Florida are members of Alabama Electric Cooperative: West Florida Electric Cooperative Association, Inc. Escambia River Electric Cooperative, Inc. Gulf Coast Electric Cooperative, Inc. Of these four, Choctawhatchee Electric Cooperative, Inc., and Escambia River Electric Cooperative, Inc., have approved power contracts with Alabama Electric Cooperative, Inc. The Choctawhatchee Electric Cooperative is receiving service from Alabama Electric Cooperative at three delivery points. The Escambia River Electric Cooperative is not receiving service from Alabama Electric Cooperative at the present, but service will be made available when the "H" loan funds are released to construct the necessary facilities. Service to the other two members, West Florida Electric Cooperative Association, Inc., and Gulf Coast Electric Cooperative, Inc., was not considered feasible at the time the "H" loan to Alabama Electric Cooperative was considered, and consequently no power contracts for service to these members were approved. EXPRESSION OF DISSATISFACTION IN WEST FLORIDA Senator HOLLAND. You know, of course, that there is considerable dissatisfaction in west Florida now because of the greater rate being charged by Alabama Co-op to Choctawhatchee, and the lesser rate charged to the other co-ops by the private power supplier, and there is material discontent out there because of the contrasting rates. Is there any solution to that? Mr. CLAPP. Mr. Chairman, I am not acquainted in detail with the rate comparison involving the other cooperatives but before attempting to explain it I would want to be sure that we are not involved in the same kind of numbers game on this comparison that we seem to be involved in with the comparison affecting Choctawhatchee. We run into this problem COMPARISON OF RATE STRUCTURES Senator HOLLAND. I do not know why you refer to it as the numbers game. Mr. Pentecost makes it very clear that they are just paying substantially less to Gulf Power than they are to the Alabama Co-op. Mr. CLAPP. Mr. Pentecost quotes a rate, and our conclusions are based upon the actual cost for power from the Gulf Power Co. for the delivery of an actual number of kilowatt-hours to load centers. Senator HOLLAND. I ask him the question: "And everybody in your system is paying a higher rate because of the purchase of power from the Alabama Co-op?" Mr. Pentecost says, "Yes, sir." That is what the complaint is that has come to me from users, and from directors out there, that that has resulted from the purchase of about one-third of the power from the Alabama Co-op at a higher rate. And so Mr. Pentecost testifies, and he certainly knows what he is talking about because he is there running a very successful cooperative and he is a highly respected man in that area and I respect him very highly, indeed, and that is his testimony. Yet, you say that he is not stating the real facts when he says that Alabama Co-op rate is higher than that of the Gulf Power Co., and therefore cannot be stating the facts when he says that everybody in their system is paying a higher rate because they purchase one-third of their power from the Alabama Co-op. Mr. CLAPP. All I can do, Mr. Chairman, is to report the computations which we have made on the basis of his actual payments for power purchased from the Gulf Power Co. for the cost of delivery to the load centers and for the power purchased from the Alabama Electric Cooperative. Translating the dollars into a cost per kilowatt-hour purchased it comes out as I have indicated a higher cost for power from Gulf Power Co. than from the Alabama Electric Cooperative. I will submit more specific details on these cost comparisons for the record. (The information referred to follows:) REA COST COMPARISONS Determination of the cost of power to Choctawhatchee Electric Cooperative, Inc., as purchased from the Gulf Power Co. under the equivalent delivery conditions of Alabama Electric Cooperative, Inc., for the fiscal year 1964. A. Power cost to Choctawhatchee Electric Cooperative for purchases relating to Gulf Power Co.: 1 In order to deliver the power purchased from Gulf Power Co. to load centers at distribution voltage, Choctawhatchee Electric Cooperative had to invest over $543,000 for approximately 43 miles of transmission line, and 7,000 kilovolt-amperes of substation facilities as the only adequate available delivery point from Gulf Power Co. is at De Funiak Springs at 44 kilovolts, and is not located in the area required. In addition to the annual cost, there are power and energy losses between the point of metering and load center delivery at distribution voltage which will reduce the billed megawatt-hours to 20,836. If Alabama Electric Cooperative furnished service these costs and losses would be absorbed by Alabama Electric Cooperative as delivery would be made at load centers. B. Billing to Choctawhatchee Electric Cooperative for purchases relating to Alabama Electric Cooperative: C. While the billing to Choctawhatchee Electric Cooperative in fiscal year 1964 was 8.4 mills per kilowatt-hour on the basis of Alabama Electric Cooperative's present rate, the actual overall average cost of delivery from Alabama Electric Cooperative's system to members, for the year 1964, was 8 mills per kilowatt-hour. Senator HOLLAND. Well, that is not Mr. Pentecost's testimony and it is not the belief of the users of power in that area and the whole situation has created a feeling of discontent and, frankly, they are puzzled at the attitude of REA who seems to insist on their continuing to buy power at the higher rate from Alabama Co-op. Frankly, I should think that the REA would want to have contented customers down there, contented users, rather than the present discontent which prevails. Mr. CLAPP. There is no question about that, Mr. Chairman. NEED TO ADJUST THE FLORIDA SITUATION Senator HOLLAND. I hope you will get in behind it and see if you cannot straighten it out because it certainly is a confused situation and there is discontent and there is dissatisfaction. My own feeling is that the testimony comes from a highly reputable witness like Mr. Pentecost. And the facts that he has given this committee are of concern to the committee, and frankly, I am concerned about it. Mr. CLAPP. We are concerned, too, Mr. Chairman. Senator HOLLAND. You know Mr. Pentecost is an able and longstanding REA co-op manager, who is highly respected by other managers generally throughout the field, do you not? Mr. CLAPP. Yes, Sir. Senator HOLLAND. I think it would be well for you to give some attention to his testimony and his convictions as stated here in the record because I think the situation will worsen instead of getting better unless there is some clear solution under which the customers of that co-op will have comparable rates to those of the other three co-ops which are serving the same general area of Florida. THE 1965 LOAN TO EAST RIVER ELECTRIC POWER COOPERATIVE Mr. Clapp, yesterday, there was referred to this committee the data required pursuant to Senate Report No. 497 in regard to the loan of $6,136,000 plus, announced by you last May 24. This loan was to the East River Electric Power Co-op, Inc., of Madison, S. Dak. I wish to examine into this loan in some detail at this time. |