February 28, 1968
Page 4538
INTERRELATIONSHIP OF PUBLIC WORKS PROJECTS
Mr. BURDICK. Mr. President, because of some of the important comments which he had to make on the interrelationship of public works projects, I would like to share with Senators today a speech Senator MUSKIE made to the Midwest Electric Consumers Association not long ago. I believe that his remarks have an importance which goes far beyond the Midwest and that is why I commend them to your attention.
There being no objection, the address was ordered to be printed in the RECORD, as follows:
REMARKS BY SENATOR EDMUND S. MUSKIE TO THE ANNUAL MEETING OF THE MID-WEST ELECTRIC CONSUMERS ASSOCIATION OMAHA, NEBR., DECEMBER 8, 1967
I welcome this opportunity to meet with you. Although your region and mine are separated by hundreds of miles, we are united by a genuine desire for reduced power costs. I was grateful to learn that your able executive director, Mr. Fred Simonton, was especially helpful in the formation of the New England Electric Consumers Association.
We are bound by other ties. We understand the value to the consumer of public power. And we know first hand that the consumer's interest is not always foremost in the planning and operations of our privately owned utilities.
With these shared concerns in mind, I would like to discuss with you the opportunities for reduced power costs across the nation, and the importance of Maine's Dickey Lincoln School Hydroelectric Project to my region's prospects for lower rates.
The Federal Power Commission has estimated that by 1980, savings of $11 billion a year can be realized from new interconnections, larger and more efficient plants, and nuclear power. That estimate may prove conservative if the technological obstacles are removed from the nuclear breeder reactor which will produce more fuel than it consumes.
The question we ask is whether these savings will be passed on to the consumer. Judging from past and present performance by the private power industry, I have my doubts.
My colleague, Senator Metcalf of Montana, has written an illuminating book on the power industry called "Overcharge." Many of you, I am sure, are familiar with the book. In it, Senator Metcalf estimates that the private companies presently overcharge consumers by $618 million a year. If these overcharges were removed, rate reductions would actually amount to more than a billion dollars. He reasons that when an overcharge is reduced, the company's profit and 48 percent tax on profit also are reduced, thus permitting further rate reductions.
How is this padding possible? Senator Metcalf found that many states are more lenient than the Federal Power Commission. They allow inclusion in the rate base of such factors as estimated fair value of facilities, accumulated tax deferrals, and construction work in progress.
Senator Metcalf also found that some utilities simply make more than they are allowed to, and that the state Public Utilities Commissions do not or cannot do anything about it.
Thus, while the state commissions report that the median rate of return for power companies is 6.1 percent, the Federal Power Commission computes the actual median rate of return at 7.4 percent.
Here is the known overcharge to consumers. We also have evidence that even this calculation is understated. Rate cases in Florida and New York show that power companies there have misstated revenues and expenses. It is not unreasonable to wonder whether such practices are not common elsewhere. The Florida Public Service Commission, never one to hound its utilities, disallowed millions of dollars in excess depreciation when the facts were put before it. The New York Commission, in the Consolidated Edison case still in progress, has received evidence that substantial political and institutional advertising expenditures have been slipped into a number of operating expense accounts, and thus charged to customers rather than stockholders.
There is reason to believe that New England's private utilities have used the same trick with their heavy costs of campaigning against the Dickey-Lincoln School Project. Only one of the major power companies in my region listed on their FTC reports contributions to the coordinating council which lobbied against Dickey.
The authority of the Federal Power Commission is relatively limited, so our first defense against abuses by the power industry are the state utility commissions. But are they up to the job of policing the nation's biggest industry?
Senator Metcalf believes not. He writes, "The regulated industries account for about one-fifth of this nation's gross national product. Yet the regulatory commissions, especially at the state level, are the most neglected arms of the government -- neglected by most of the press; neglected by the universities and foundations; neglected by the legislatures, both state and federal, including appropriations committees.
"On these commissions you will find men at both the commission and staff level attempting under the most trying circumstances to fulfill their public responsibility. Nevertheless, in state after state, a similar story is told about their insufficiency."
A survey by my Subcommittee on Intergovernmental Relations supports Senator Metcalf's belief.
We found case after case in which the commissions were understaffed, underpaid, and overwhelmed by batteries of attorneys and accountants for the private utilities.
Let me cite two examples: The Illinois Commerce Commission, with jurisdiction over 10,000 companies with assets of more than $10 billion, reported to my subcommittee that it had no attorney. In Massachusetts, the State Utility Commission has only three accountants, and they are responsible for the accuracy of financial statements filed by all the electric, gas, railroad, bus, telephone, and telegram companies in the state. The Boston Herald observed that a full rate case would be impossible because of the staff limitations of the commission.
Without effective regulation by state utility commissions, what alternative methods are there for encouraging the private power companies to keep their rates down to reasonable levels?
Experience indicates that competition is the best bet. The yardstick of federal, city owned, and other consumer-owned power systems has proven to be effective.
Throughout the country, the nearer a federal power project, the lower the electric bills. Municipal and cooperative customers pay a third less than their neighbors served by private companies.
It is no wonder, then, as Senator Metcalf says, that the private utilities fear the yardstick of competition more than regulation. I could cite scores of cases where competition or the threat of competition stimulates the private companies to reduce rates or forestall rate increases. Let me mention only the most recent example. In Texas, the Southwestern Public Service Company has proposed rate increases in 60 west Texas towns. But in three communities, served also by municipal systems, the company has not suggested increases.
In my own state of Maine, just the threat of Dickey power has caused reductions, which I will detail later.
Today, the northeast is the only region of the nation without a federal power project. It is understandable, therefore, that my region suffers from the highest power rates in the country.
This also helps explain why the private power lobby, in New England and across the nation, has organized its campaign against Dickey. The northeast is the last competition-free preserve for the power industry, and the industry obviously wants to keep it that way.
For your background information, I would like to outline the development of the Dickey-Lincoln School proposal, and to describe its importance to my region and to the national policy of resource development.
There is more at stake in the congressional debate over Dickey than the construction of a large multi-purpose water resource project. At issue is–
1. Whether the private utilities will retain their stranglehold on New England;
2. Whether their lobby can squash a justified, beneficial project;
3. Whether the public interest will be represented in the planning and development of a balanced and integrated power system for my region;
4. Whether the basic national policy for resource development will survive; and
5. Whether the northeast is an equal partner among other regions under that policy.
Since 1959, I have been a member of the Public Works Committee, where the bulk of our resource development projects are reviewed and evaluated. In the nearly nine years that I have worked with my colleagues on hundreds of projects, I have followed a simple rule: a project should be evaluated on its merits -- without reference to the region in which it is located. It should be approved if it meets the tests of being in the public interest, if it contributes to the welfare of the area in which it is located, and if it is economically feasible. These are the tests the Public Works Committee and the Senate have applied.
When Dickey is examined objectively, it meets all of these tests.
The project is the product of a long series of studies beginning with the New England-New York interagency study of the late 1940's and early 1950's.
In 1959, the Joint Engineering Board of the International Joint Commission (United States and Canada) recommended the construction of the Passamaquoddy Tidal Power Project, coupled with the construction of a high dam on the Upper St. John River at Rankin Rapids, which would have flooded the Upper St. John and the Allagash Rivers.
The engineering report was referred to the International Joint Commission for review and evaluation. In April, 1961, the commission rejected the proposed Passamaquoddy Tidal Power Project, but suggested possible development of the Upper St. John.
In the meantime, the National Park Service of the United States had proposed the protection of the Allagash River as a free flowing, "wilderness" waterway.
I recommended to President Kennedy that the Department of the Interior be assigned the responsibility of reviewing the recommendations of the Joint Engineering Board, the findings of the International Joint Commission, and the recommendations of the National Park Service, for the purpose of recommending a balanced development of the resources of northern and eastern Maine.
In July, 1963, after two years of study, Secretary of the Interior Udall recommended to the President the development of the Dickey Project as a flood control and hydroelectric program, designed to provide 100,000 kilowatts of low-cost firm energy, and 650,000 kilowatts of low-cost peaking power. The project would consist of a high dam on the Upper St. John in the town of Dickey, and a low, re-regulating dam at the site of Lincoln School House. The project would fit into the power requirements of Maine and New England, and would spare the Allagash. The plan was hailed by conservationists because of the protection it provided the Allagash River.
In 1965 Passamaquoddy dropped below 1-1 but the 1965 proposal contained an additional recommendation that the Passamaquoddy Project should receive continuing study, particularly with reference to technological advances.
I want to underscore the fact that the 1963 and 1965 proposals, which are the foundation for the present project, were based on the concept of a generating station designed to produce the bulk of its energy as peaking power. This is absolutely essential to a soundly balanced power system in which there are very large thermal plants -- fueled either by fossil fuels or nuclear energy. Dickey-Lincoln School is not an alternative to thermal plants; it is essential to their economic and efficient operation as part of a regional system.
Dickey is an eminently sound project, with a benefit-cost ratio of 1.9-1. It would provide wholesale firm energy for Maine communities at rates two-thirds below those now charged by the private utilities. It would supply essential peaking power to the New England market at rates nearly one-third below current charges and at costs lower than the best alternative proposals made by the private companies.
Since its authorization in 1965, Dickey Lincoln School has been the subject of the most intensive re-study ever required for a public works project. The staff of the House Committee on Appropriations conducted a special study of the project, including an extensive analysis of the findings of the Corps of Engineers, the Department of the Interior and the Federal Power Commission. They reviewed the allegations made by New England's private utilities. The staff findings sustained the favorable verdict of the public agencies and discredited the arguments advanced by the private companies. The Senate has always supported the project. The House however, this year disregarded the findings of its own subcommittee, and voted down Dickey.
The private power companies have claimed that Dickey-Lincoln School would not affect power rates in New England. The fact is that the threat of Dickey-Lincoln has already had an impact on the power companies of my own state.
Between 1946 and 1963 the three privately owned power companies in Maine sought increases -- but no reductions -- in their rates. Indeed, during my terms as Governor, the Public Utilities Commission was under constant pressure from power company attempts to push their rates higher and higher.
But in 1963, when the Department of the Interior recommended the construction of Dickey, the three companies, within two months of the Dickey proposal, suddenly discovered it was possible to reduce rates. The reductions weren't impressive and they provided almost no benefits for homeowners, but they were reductions. The total reductions, in 18 announcements made by the power companies since the advent of the Dickey-Lincoln proposal, have totaled $4,161,527.
It should be noted that since 1965, all but one of the reductions were announced just prior to or during the hearings and floor considerations of the Dickey-Lincoln School Project.
This record is extraordinary for companies which had not sought reductions and had been busy pushing rates up for the preceding 17 years. This record and the experience of rate reductions in other areas of the country where publicly owned power projects are located indicate the desirability of competition in the power business.
In Maine, it should be noted that the rate reductions did not result in any belt-tightening by the private utilities. A study of the rate of return received by the power companies indicates that during and since the reductions, two of the three utilities involved have been getting returns in excess of the 6 percent normally set by the Maine Public Utilities Commission. As a result of the discussion stimulated by Senator Metcalf's book, the Maine Public Utilities Commission contracted for a special study of rates of return for Maine utilities. That study moved Governor Curtis to ask the Public Utilities Commission to institute a rate case seeking reductions.
The Maine overcharge problem is matched in the rest of New England. A study of Federal Power Commission statistics shows that in 1965, for instance, the New England private power monopoly overcharged New England consumers $21,034,000. This estimate is based on the normal rate of return of 6 percent applied to this industry.
A study of 28 New England power companies showed that 14 of them had a rate of return of 7 percent or more. Five had a rate of return of 8 percent or more, and one had a rate of 11.18 percent. At these rates of return, it is not surprising that New England homeowners pay up to 35 percent more for power than the national average.
The private power companies have made one other gesture in the direction of improved operation since the advent of the Dickey-Lincoln School Project. Even that is a mixed blessing.
In January, 1956, the power companies released a series of advertisements, announcing the establishment of the "Big 11 Power Loop." In and of itself, it was a confession of past weaknesses, but it promised an integrated power system for the region, based on large nuclear power plants and larger transmission lines.
Later, however, one of the power company executives admitted in a Vermont public hearing that planning for the "Big 11" programs consisted solely of preparing the advertisement. The House Public Works Committee could find no evidence of regional planning by the utilities, except in the advertisements.
Recent developments indicate that the underlying intent of the private companies in promoting the "Big 11" proposal is not so much an improvement in reliability and service as it is another step in their effort to tighten their grip on the New England power market. They have flatly refused to permit publicly owned utilities in Massachusetts to join in a regional transmission system.
The Massachusetts case should not surprise us. What the Federal Power Commission has learned here has been echoed across the country. The FPC counsel has determined that the Massachusetts municipals were denied participation in the planning activities of the New England utilities. The FPC also found that such exclusion is detrimental to the city-owned systems and constitutes possible violation of anti-trust statutes.
Further evidence that the private utilities want to keep nuclear power all to themselves is overwhelming -- in proceedings before the FPC, the Atomic Energy Commission, the Securities and Exchange Commission and the House of Representatives.
It should be noted that Dickey would repay the entire federal investment, with interest, in 50 years. It will return to the Federal Treasury nearly two dollars for every one of the $227 million in federal funds invested in the project during that time period. It will continue to pay a substantial return on the public investment many, many years beyond the end of the pay-back period.
I have yet to hear the private power industry offer to reimburse the Federal Treasury for the nearly $2 billion federal investment in the Civil Nuclear Reactor Program.
There are two other observations which should be made. Without a public power yardstick to gauge the operations of the private utilities, and to stimulate them to develop economies, there is little hope that the northeast will ever catch up with the lower power costs of every other region of the country. Unless the Federal Government builds nuclear or other thermal plants in New England, and I have heard of no such proposal, the yardstick must be a hydro plant. There are few suitable sites in New England for large hydro plants. This means if Dickey fails, the chances would be slim for the success of any other federal public power proposal for my region. In the end, without a yardstick, likelihood of meaningful reductions in power rates would be negligible.
Furthermore, if the House does not reverse itself and fund Dickey, no economically feasible project, anywhere in the country, will be safe from raids by the lobbyists of private interests.
I want to point out that many of the House opponents of Dickey have been inconsistent in their positions on the public works appropriations bill, voting against Dickey-while supporting rivers and harbors projects in their own districts which do not measure up to the Maine project.
In the House vote of July 25, for example, congressmen voting against Dickey had 134 projects in their districts which had no benefit-cost estimate, or had a benefit-cost ratio lower than Dickey's. These projects represented 24 percent of the total appropriations approved by the Senate for construction and planning of public works projects -- $241.5 million.
I cite these figures to demonstrate that there is no justified pattern in the House opposition to Dickey, and that the House position threatens a national policy based on the merits and economic feasibility of projects.
To my mind, the inconsistency can only be explained as the product of one of the most heavy- handed lobbying campaigns in memory.
Congressmen from districts thousands of miles from New England were approached by representatives of their local utilities, and given erroneous information on the project.
The private utility lobby even rewrote a favorable analysis by the Federal Power Commission, attempting to show that the Commission opposed the project.
This move, carried out by the Electric Coordinating Council of New England, was the most brazen distortion of the findings of an independent government agency in the history of federal power projects.
From the beginning, the private power companies sought to confuse the public and mislead the Congress. The nature of the companies' campaign convinces me that their opposition to Dickey is not motivated by concern for the merits. They obviously enjoy their monopolies and are determined to maintain them -- at the expense of the public.
The private power lobby was successful this year. We will, of course, pursue the project again in the next session, and we face a tough job. If you share my commitment to Dickey, I urge you to do everything you can to encourage support for it from your region. If my mail is any indication, increasing numbers of residents of New England and other sections are becoming alert to the high cost of power in the northeast, and to the benefits of Dickey. This concern, however, must be translated into political strength, in and out of New England.
You who understand the issue can play a strategic role in education on the issue, in organizing a regional program of support, and in carrying the fight to your members of the House of Representatives. And in that fight, you can count on me.