July 12, 1967
Page 18466
COOPERATION BETWEEN PUBLIC AND PRIVATE POWER COMPANIES
Mr. MUSKIE. Mr. President, I invite the attention of Senators to an article entitled "The Gaslight Industry," written by Mr. Wallace I. Roberts, and published in the June 26 edition of the Nation.
I have long maintained that New England must speak and act as a region. With this in mind, I have advocated cooperation between public and private power companies which would provide the necessary stimulation of competition to increase the supply of lower cost power for New England. Nowhere is this need for cooperation more evident than in the present situation which exists between the private power companies themselves and between the private and public power utilities. Mr. Roberts' article is most perceptive and presents a keen insight into the need for a realistic and comprehensive long-range private and public power program for New England.
I ask unanimous consent that Mr. Roberts' article be printed in the RECORD.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
NEW ENGLAND POWER: THE GASLIGHT INDUSTRY
(By Wallace I. Roberts)
Since the gaslight era, power in New England has been controlled by the private companies, but recent developments initiated by public-power advocates suggest that the Yankee capitalists, who have administered the indstry with an amazing lack of their traditional ingenuity, may be forced to change their ways. Except for a transmission system half owned by Vermont and providing about a quarter of the state's electric needs, there are no large publicly owned generating or transmission systems in the six states, so they have escaped until now the passionate, flag-waving defenses of free enterprise that have previously been exhibited in private vs. public power battles in nearly every other section of the country. The controversy in New England has taken the form of a series of complicated legal and financial maneuvers, a somewhat misleading public relations and advertising campaign, and intensive political lobbying. It has all been most decorous, but with the April announcement by the Justice Department that it is making preliminary investigations of possible antitrust violations by the private New England utilities, and with the threat of similar action by the Federal Power Commission, things may become less restrained.
Beginning two years ago with a request for money to finance engineering studies for a federal hydroelectric project on the St. John River near the town of Dickey in northern Maine, the conflict has grown and developed on several additional fronts. It promises not to be over for some time, given the determination and recent successes of the public-power groups and the distaste for change exhibited by most private company officials.
If there is no agreement about what kind of power projects to build, there is absolute agreement as to why they are necessary – New England's electric rates are the highest of any region in the country. There are many ways to compare the cost of electricity, and by any of them, the New England states, except Vermont with its public power, are at the top of the list. Federal Power Commission figures for 1963 show that the average price per kilowatt-hour sold by the private utilities in New England was 2.48¢ compared to 1.77¢ for the private utilities of the country, a difference of 40 per cent. Similar comparison reveals that fewer kilowatt-hours per customer are sold in New England. Higher prices inhibit sales, and lower sales force the prices even higher because a smaller total revenue must be spread over the fixed charges.
Private company executives acknowledge the region's high rates, but their reply has become as automatic as an echo: "Yes, but our fuel and labor costs and taxes are so high." There is some substance to that explanation, though Joseph C. Swidler, former FPC chairman, said several years ago that if New England utilities had to pay only average fuel costs, the region's electric bills would be lowered by less than 5 percent.
An equally substantive explanation, however, is the fact that administrative expenses range, depending on how they are measured, from 33 to 100 per cent above the national average, and, according to William D. Shipman, professor of economics at Bowdoin College, account for one-quarter to one-half of the difference between the average price for electricity in New England and in the rest of the country. Local taxes, which are one-third higher for New England utilities, are the only significant inequity that is apparently beyond much control.
The most important factor in rate reductions is increased per capita use. Because New England is an "old" region in demographic terms, neither its industry nor its population, and hence its per capita use of electricity, has kept pace with the rest of the country. A slow growth rate in per capita use is almost a built-in barrier to lowering prices, but reductions can be encouraged by cutting costs through efficiencies.
Compounding the high fuel costs, the coal or oil is burned in plants that for the most part are little old teakettles, barely able to get up enough steam to whistle, when compared to the giant and efficient boiler-turbine-generator combinations that have been available for years. The region does have one show piece, the Brayton Point, Mass., plant of the New England Power Co. It opened in 1964 and was rated by the FPC as the most efficient in the country, but for thirteen years before that New England had no entry on the commission's list of the top ten most efficient plants.
Mechanical inefficiency cannot be blamed on the region's age or geographical deficiencies; it is the result of administrative decisions. Two generations ago, Samuel Insull, the man who did for electricity what Henry Ford did for the automobile, showed the power industry that it was much more efficient to use large generating plants serving as many people as possible. No one believed him at first, and it might appear that many private company executives in New England still don't. On average, the public utilities companies of the country serve three times as many people as do the companies of New England, and there are more than one and a half times as many people for every generating plant. This means for New England more executives, more plants and lines to maintain, more secretaries, more maintenance workers, more pensions and insurance, and higher labor costs per customer. New Englanders are paying to perpetuate a quaint private industry organization that is not nearly as charming as a covered bridge and much more expensive.
Attempts at consolidation have been made, but the pace is slow. In some places in New England, covered bridges have rotted away before the public realized what was happening. It is unlikely, however, that any private utility in the region will collapse, for they are protected by the state regulatory agencies and an apathetic public. Almost all of the region's utilities make the maximum profit allowed by law, and a few are considerably above the prescribed limit. Blackstone Valley Electric Co. of Rhode Island earned in 1965 a return of 9.34 per cent, almost twice the limit.
Only Vermont's Public Service Board seems to take seriously its obligation to set reasonable rates. New Hampshire and Connecticut appear indifferent at best, and the regulatory agencies in Maine, Massachusetts and Rhode Island have exhibited what can only be called an affection for the private companies. The Maine and Massachusetts agencies have been hostile, almost insulting, to recent appearances by public-power groups.
Part of this situation results from the fact that none of the agencies has money or staff to do an adequate job. Most are so short of skilled help that they are forced to accept company operating statistics as a basis for determining rates. Unless the public demands it, the regulatory agencies are not likely to hire qualified accountants or engineers, and the prevailing public attitude is that the cost of electricity has formed a triumvirate with death and taxes. The result is that the regulatory agencies are permitting monopolies to earn good profits with equipment and organizational structures that would drive them to the wall if they were faced with even moderately aggressive competition. Allowing each utility exclusive control of its sales territory prevents wasteful duplication of plants and lines, but it also creates an attitude of status quo complacency. Creative regulatory policies could impose penalties for continued use of outmoded steam plants, instead of allowing them to be included in the rate base.
However, conventional steam plants have had their day in New England. After 1969, the region's power industry will most likely build only lower-cost nuclear plants. It already has an experimental nuclear plant, Yankee, at Rowe, Mass., and five others are either under construction or committed.
These five are part of what the private companies have dubbed their "Big 11 Power Loop"; the other six installations consist of five conventional steam plants and a pumped storage plant. All eleven are scheduled to be finished by the end of 1972 and will be connected by 900 miles of 345-kilovolt transmission lines. The cost of the project is about $900 million, and the plants will provide about 6.3 million kilowatts of power.
The name "Big 11 Power Loop" – but not the plants or transmission lines – is a gimmick, pure and simple. No engineering plan or study supports the location, type or design of the plants on a system-wide basis. It all started with a full-page newspaper advertisement announcing the "Loop" and implying that the whole thing was thought out well in advance. The campaign, carried on with television commercials costing about $200,000 a year, was devised by the private companies' trade organization, the Electric Coordinating Council of New England (ECCNE), in response to the threat of the federal government's Dickey-Lincoln School hydroelectric project.
As one company official put it: "We felt the public should know about our plans because Dickey was getting a lot of publicity, but the important thing is that the eleven plants were planned long before Dickey came up. We did not just decide to build the plants after Dickey's first appropriation, as some of our opponents have said."
That first appropriation for the government project in 1965 was for $800,000; last year it received $1,100,000. This year, President Johnson asked for $1,600,000 to finish engineering studies and begin construction. The 794,000-kilowatt project is to cost an estimated $212 million and, if all goes well in Congress, will be finished in April, 1975.
The dam at Dickey is the practical reality left over from the dream of harnessing the tides in Passamaquoddy Bay at the eastern tip of Maine. [See "Reviving Passamaquoddy" by William S. Ellis, The Nation, July 13, 1964.] It was the request for its first appropriation that started the political and verbal six guns blazing. The members of the ECCNE opened an intensive lobbying campaign and sent their forces to Washington equipped with large packets of propaganda purporting to show that Dickey Was objectionable on just about any conceivable ground. They had some effect, especially on the New England delegation of twenty-four Representatives, twenty of whom voted against Dickey on one roll call. Congressional resistance to a large public-works project for the home region is unusual, and the New England vote raised speculation as to whether the area's Congressmen felt more obligated to the private utilities or to their constituents.
Dickey is not enormous; by 1980 it will provide only 1 per cent of the area's electrical requirements. But it will probably bring with it a Northeast Power Commission to market the power. It is expected that the cheaper power of Dickey, combined with the prodding effect of the power administration on state regulatory agencies, will be to force lower electrical rates. The members of the ECCNE fear, with justification, that Dickey will oblige them to cut administrative and generating expenses and become more efficient. The private companies put it a little differently, however, saying that Dickey Will force them to lose money by trying to meet its prices. The federal government's experience, on the contrary, has been that its low-cost power stimulates consumption and increases revenues for surrounding private companies.
The ECCNE has introduced masses of statistics at Congressional hearings to prove that Dickey will not break even. Public-power advocates pointed out that the same kind of argument has been used against every federal power project in recent years. In an attempt to reconcile contradictory figures supplied by the ECCNE and the Corps of Engineers, the House Appropriations Committee assigned its staff to investigate the situation. Its report, made public June 5, offers no specific recommendations, but concludes that the project will produce power at a cost lower than any comparable alternative proposed by the ECCNE. The report also contained several biting observations on the long-range planning by New England's private utilities and noted that the companies "have not produced any document supporting central planning with the exception of the newspaper advertisement," and that "the most current transmission study by the ECCNE was completed in 1963" and includes plans for none of the Big 11 projects.
The fight over Dickey is overshadowing several other power conflicts that may have even greater effect on New England. One is a plan to import 1.25 million kilowatts, almost twice as much as Dickey would generate, from a giant hydroelectric project at Churchill (formerly Hamilton) Falls in Labrador.
This scheme was seen as a real threat by the private companies when it received the backing of Gov. Philip H. Hoff of Vermont, a bright young Democrat in the land of Republicans. In January, 1966, he introduced a bill in the Republican-controlled legislature which would have created a quasi-public, nonprofit corporation to import the Canadian power and resell most of it to municipal and cooperative utilities in Massachusetts and Connecticut.
The bill was sidetracked to the legislative council which reported it unfavorably, thus killing the bill but not the idea. Even before the report was issued, a group of the state's municipal and cooperative managers got together and formed their own company to do just what the one outlined in Governor Hoff's bill would have done. Currently, that company is negotiating with both Canadian suppliers and prospective buyers in Massachusetts and Connecticut.
One group of prospective customers, the Municipal Electric Association of Massachusetts (MEAM), is also waging the private vs. public battle on several other fronts and with some success. Two years ago the MEAM was dormant; its thirty-nine members serving 239,000 customers were at the mercy of the private companies from which they were forced to buy power at rates imposed by the sellers.
Then Shrewsbury, Mass., won an FPC decision, later upheld by the U.S. Court of Appeals, forcing the New England Power Co., the area's largest wholesaler, to sell the town power at a wholesale rate, not at retail as before. Other towns followed up the victory and negotiated from NEPCO lower prices that saved $2 million. Since then the association has raised its dues, hired a first-class Washington lawyer and consultant engineers, and filed legal objections to every move made by the ECCNE.
The MEAM had tried earlier to join the ECCNE, but the private companies are apparently unwilling to let the municipals have a say in the development of the region's power industry. The application was never actually refused; the council simply voted not to change a rule it made in 1964 prohibiting municipals from joining. Reversing a cliche, the MEAM declared: "If you can't join 'em, lick 'em." It has appeared before state utility regulatory agencies in Maine,
Massachusetts and Vermont, and before the FPC and Securities and Exchange Commission, challenging some of the engineering aspects of the Big 11 plants and transmission system, and hinting that it may raise antitrust objections to the fact that the ECCNE has "blacked out" the municipals from direct participation in the Big 11 nuclear plants.
Besides trying to join the ECCNE, the MEAM has tried to buy its way into two of the Big 11 nuclear plants, Maine Yankee and Vermont Yankee. These plants are being built by various combinations of the members of the ECCNE (a good but almost singular example of regionalization of the industry) and have about a dozen owner-utilities each. The MEAM wanted a piece of each of these plants because the electricity they generate will be sold directly only to owners, in proportion to the amount of stock owned.
The MEAM has not yet had a clear-cut victory on this issue, but it has been partly successful and indications are that it will have to be reckoned with. The Vermont Public Service Board has declared that municipals should be given a chance to purchase stock in Vermont Yankee, and because of the MEAM objections, the FPC has received a staff recommendation that it institute antitrust proceedings against the ECCNE if it does not permit the MEAM to participate in future planning. The Justice Department apparently has been made aware of the FPC's staff report. On April 21, Donald F. Turner, assistant attorney general in charge of the antitrust division, in reply to a request from Sen. Lee Metcalf (D., Mont.), announced that the department has been conducting "exploratory studies" of the power industry's possible exclusion of municipals and cooperatives from participation in new generation and transmission systems planned by the private companies. Mr. Turner did not mention New England specifically, but Senator Metcalf, who has recently pained the industry's leaders with his book, Overcharge, had referred to the situation in New England in his request for antitrust action.
The answer to New England's power problems is not simply a matter of choice between private and public power; government bureaucracy can be just as inefficient as private management. What is needed above all, whether it is private or public, is a regional power company, or at most two or three. If it must be private, a corresponding and effective regional regulatory agency and competing public projects must also be established.
The area is too small, its population too dense, its problems too common to deal with electricity on a state-by-state basis, or to allow it to remain exclusively a private business. The private companies claim that they are moving toward regionalization. They said that a decade and a half ago, and there has been little change. The private company executives are wrestling with their own egos; what president, even of a small, local power company, wants to become the district manager of a six-state monolith? In this sense, as in several others, it can be said that the private companies are not acting in the public interest because they are bound to laissez faire capitalism, and that was proved obsolete before Edison set up his Pearl Street station.