NOTE.-Cost of Niagara power at bus bar at 50-percent load factor is taken to be 5 mills per kilowatt-hour, which assumes full use of all water availabile.

You seem to think that the Niagara project should be specially designed for the rural electric cooperatives in Pennsylvania. There are 14 of them. They have about 69,000 customers and need about 60,000 kilowatt capacity. This capacity would produce over 500 million kilowatt-hours of energy, but since their load factor is little over 50 percent, they use only about 257 million kilowatthours annually. The nearest of these cooperatives to the project is Youngsville, 95 miles away; the farthest, Gettysburg, 255 miles away.

There are 38 municipal systems in your State which have about 65,000 customers with a total demand of 40,000 kilowatts. They use about 185 million kilowatt-hours. As the crow flies, they are 98 to 285 miles from the project. The average distance is 205 miles and half of them are on the wrong side of the Allegheny Mountains. It costs money to transmit power and for every mile it is carried some is lost. The area between the Niagara and Pennsylvania is highly built up with the result that the cost of building transmission lines, including the cost of right-of-way, is high.

Niagara power will cost a high load factor customer about 31⁄2 to 4 mills at the bus bar. Since your cooperatives and municipals have a load factor of only about 50 percent, the cost to them at the bus bar would be at least 5 mills. If a transmission line were built to the Pennsylvania border near Jamestown sufficient to carry 100,000 kilowatts, the present total demand of the municipals and cooperatives, the cost per kilowatt-hour at that point would be about 7 mills. The power would then have to be split into small blocks, much more expensive to transmit, and carried anywhere from 25 to 250 miles to reach the customers. Assuming that means could be found to carry it, the cost on delivery would be prohibitive.

Obviously, it would be impractical to build special transmission lines to distribute this power. Even if private companies could be persuaded to transmit it on the most favorable terms, Niagara power would cost at the very least 9 mills when it got to the nearest cooperative and municipal, and at least 10% mills when it got to those on the other side of the mountains. Pennsylvania cooperatives now purchase power at an average rate of 94 mills.

If municipals and cooperatives in Pennsylvania within roughly 300 miles are entitled to a priority on Niagara power, so are the widely scattered municipals and cooperatives in the other States. The city of Cleveland is within 200 miles of the project and part of it is served by a municipal system. Ohio has 106 municipals and 30 cooperatives with a total capacity over 530,000 kilowatts using a total of 2,230 million kilowatt-hours annually. If it were practical to deliver Niagara power to the customers of these municipals and cooperatives it would be necessary to skip over a vast number of people in New York, and in

other States who need power and to whom it could be brought much more cheaply.

In

Pennsylvania has lots of coal. Burning coal produces steam. Steam produces power. The cost of coal is the largest component in the cost of steam power. The cost of transportation is often the greater part of the cost of coal. Pennsylvania, coal can be used to produce power without substantial transportation costs. I am sure you are also familiar with the Ohio Valley. This valley, because of the availability of coal, has become a great center for industries like aluminum to which the cost of power is an important factor in doing business. Powerplants on top of coal mines produce power as cheap as or cheaper than almost any hydroelectric plant that can be built today.

In West Virginia, where coal is plentiful, the average generation cost to power companies is less than 5 mills. Most of your municipals and cooperatives are closer to West Virginia power than to Niagara power. A steam plant was recently constructed at Shawville in western Pensylvania. It is right near a coal mine. It produces power for a total of about 4 mills, including fixed charges such as taxes and return on investment. If public bodies in Pennsylvania built a similar steam plant without the necessity of paying taxes and without the necessity of paying a return on investment, they could produce power for about 3 mills.

In your radio talk you were asked: "What would the effect of your bill be on the rates to the ordinary consumer?"

You replied: "The Pennsylvania REA Association, during the fall campaign, published some literature which I believe accurately to state the facts. They say Pennsylvania farmers on REA lines, if they got Niagara under a preference clause, would save $100 a year on their electric power bills."

How wild can you get? We don't have information as to the average total power bill of Pennsylvania's cooperative customers, but we do know that the average total amount spent for power by farmers in the eastern United States is $100.74. If customers of Pennsylvania cooperatives spend an average amount, $100 savings would give them their power for a year for 74 cents. This, of course, is ridiculous.

We know that the average Pennsylvania cooperative customer uses 3,700 kilowatt-hours per year. The main component in the retail cost of power is not what it costs the distributor at wholesale, but what it costs to distribute it. The only saving which Niagara power could possibly bring to these customers would be based upon a reduction in the wholesale cost of power to the cooperative. At 94 mills, the cooperative now spends a total of $35 a year for the average customer. If it got Niagara power free, the most it could save the customer would be this $35. If it were able to save 3 mills, which is the most that could be saved in the wholesale cost of power right at Niagara Falls, and which as we have shown could not possibly be saved in the middle of Pennsylvania, the average saving per customer would be $11.10.

You also said on the radio in discussing the preference clause in your bill: "Such a clause has been in every Federal statute dealing with the generation of electric power since the days of Theodore Roosevelt in 1906."

The fact is that preference clauses have been put in statutes calling for Federal development of projects with Federal funds. The Federal Power Act which has been on the books since 1920 deals with the generation of electric power and authorizes the Federal Power Commission in issuing licenses for power projects to give a first crack at them to State and municipal agencies, such as the Power Authority of New York. It contains no preference clause relating to the sale of power. Many licenses have been issued under it to State and municipal bodies, including the license for the St. Lawrence project, which the Power Authority of New York is building.

It

New York law established the New York Power Authority. New York law directs the power authority how to market power. It directs that the power be considered primarily for the benefit of rural and domestic consumers. recognizes that sales to high-load-factor industry, such as the aluminum industry, are nceessary to prevent power produced at hours when rural and domestic consumers cannot use it, from going to waste and in order to assure sufficiently high revenue returns to bring down the price charged to rural and domestic consumers. The law requires that a reasonable share of the power be sold to municipalities and resold at the lowest possible price. It provides for the allocation of a reasonable share of the power to other States.

In selling St. Lawrence power, we made every effort to make power available to municipals and cooperatives under the most favorable circumstances. We

spent a vast amount of time persuading private utilities to wheel power to them at reasonable rates. We sold or offered to sell the municipals and cooperatives within market area and somewhat beyond all the power they can use and pay for in the next 10 years and have assured them that when we get our Niagara license, we will be able to take care of increased needs for 25 years.

Actually, we allocated far more power to the municipals and cooperatives in proportion to their rural and domestic customers and their needs than we did to the private utilities. Of the 600.000 rural and domestic customers in the St. Lawrence economic area, 29,600 are served by 17 municipals and 3,000 by 3 cooperatives. Ninety-five thousand kilowatts are being made available to the municipals, although their total demand is 39,000. Eight thousand kilowatts are being made available to the cooperatives, whose demand is only 3,600. On the other hand, the private companies, whose rural and domestic customers use about 400,000, are receiving only about 140,000.

We have justified providing more power for the municipals and cooperatives because they do not have modern low-cost generating facilities and hence power costs them more than it does the private utilities. We shall treat the municipals and cooperatives within the Niagara economic area as we have treated those in the St. Lawrence. However, we will not lose sight of the fact that we are a business organization under Government auspices but without public credit and if we are to finance and pay for a project costing nearly $600 million, we must maintain the confidence of prudent private investors and operate it in a sensible, businesslike manner and not to vindicate radical political ideologies.

We shall be happy to allocate a reasonable amount of power to Pennsylvania and Ohio if it turns out that it is wanted and can be economically delivered and paid for there. No one should be under the illusion that this will be a great amount of power, or that it will work any economic wonders. Once the power gets to Pennsylvania and Ohio, it will have to be marketed under their laws. As far as we know, neither State has yet enacted legislation setting up a bargaining agency to purchase power from us as was done by Vermont, Massachusetts, and New Hampshire.

Your Niagara bill is impractical and unworkable, and in its present form is in conflict with New York law. It would produce litigation, but no financing and no power. On the other hand, the Ives-Javits bill is sensible and workable and does not conflict with New York law. The other bill could, of course, be amended to cure its manifest defects.

Niagara power project is of great importance to the people of western New York. Unless it is realized soon, vital industry will move away. If made available without further delay, it will be a great boon to the economy of the area and to the defense of the country.

The main object of the 1950 treaty by which the United States and Canada agreed to the diversion of additional water from the Niagara was to preserve and enhance the beauty of the falls and its environs. On the Canadian side there is a beautiful park and parkway which revenue from power has made possible. On our side years of depredation and spoilation have marred this natural beauty. It is our purpose to develop power quickly and efficiently as we are doing on the St. Lawrence and, as part of the cost of the project, to construct a scenic parkway, a park system and incidental protective improvements on the American side similar to those on the Canadian side, in accordance with the spirit and purpose of the 1950 treaty.

We know that you are sincerely interested in seeing this great constructive work accomplished and we shall welcome your support of a practical measure introduced by New York Members of Congress to make it possible. We are enclosing a copy of our St. Lawrence power marketing report. Cordially,

ROBERT MOSES, Chairman.

Hon. JACOB K. JAVITS,

POWER AUTHORITY OF THE STATE OF NEW YORK,
New York, N. Y., April 8, 1957.

United States Senate, Washington, D. C. DEAR JACK: This is a further reply to your letter of March 14, with which you enclosed a letter sent to you on February 27, by Clyde T. Ellis, general manager of the National Rural Electric Cooperative Association.

The facts show that Mr. Ellis is 100 percent wrong in suggesting that the way the power authority marketed St. Lawrence power and proposes to market

Niagara power operates as a disservice to rural electric cooperatives, and that if a different method of marketing were pursued, a competitive situation could be created which would reduce power rates and increase consumption.

Enclosed is a copy of a resolution adopted by the authority on February 4, 1957, setting up a tentative preliminary allocation of Niagara power and a staff memorandum dated January 31, 1957, showing the basis for it. The resolution and the memorandum taken together, show that 100,000 kilowatts of St. Lawrence power have been committed and 325,000 kilowatts of Niagara power allocated to the municipals and rural electric cooperatives in the State. Of the 325,000 Niagara kilowatts, 125,000-all they can handle is set up for their immediate use, and 200,000 is withdrawable from utility companies. While a total of 425,000 kilowatts is thus tentatively designated for municipals and rural cooperatives, the total of 44 municipals and 5 cooperatives anywhere near the economic market area of the 2 projects now have a total load of only 127,000 kilowatts. The 425,000 kilowatts will take care of their needs for at least 25 years.

The total present requirements of rural and domestic consumers served by private utilities in the economic market area is 1,100,000 kilowatts and will be 3,600,000 kilowatts 25 years from now. One hundred and thirty-five thousand kilowatts of St. Lawrence power and 530,000 kilowatts of Niagara power, or a total of 665,000 kilowatts, is permanently allocated to them.

Certainly it cannot be said that the authority is not making available to municipals and rural cooperatives all the power to which they are conceivably entitled. The sole justification of allocating so much power to municipals and rural cooperatives is that for the most part they do not have means of generation of their own. Their costs are higher because they have to purchase power from private utilities.

As the enclosed memo shows, we are able to save municipals and rural cooperatives money. However, it also shows the wholesale cost of power is such a relatively small component of their total cost of doing business that they will not be able to reduce their rates substantially below those of private utilities serving the same areas. As a matter of fact, what we save them in most cases pretty nearly brings the rate down to what is being charged by private utilities. Therefore, this talk about competitive influence and yardsticks is not persuasive. The enclosed tables show that it would be completely impractical to build transmission lines in order to wheel power to the municipals and rural cooperatives because of the small amount of power which they use. We have spent upward of 2 years to persuade the Niagara Mohawk Power Corp. and the New York Electric & Gas Corp. to wheel power to them at what we consider to be eminently fair and reasonable rates. If it were not for this cooperation on the part of those companies, we would be unable to sell power to the municipals and rural cooperatives at rates which would do them any good whatsoever.

In his letter to you Mr. Ellis stated that we were selling St. Lawrence power to Alcoa and Reynolds at about "5.4 mills per kilowatt-hour" and that we have offered to sell it to rural electric cooperatives for between 9 and 10 mills per kilowatt-hour, which he says "is outrageous." He is wrong on both counts. The aluminum companies, using power around the clock 365 days a year near the site of generation, buy power for 4.04 mills per kilowatt-hour. They pay higher rates for power they take at lower load factors and use in fabricating. They also bear what transmission charges are involved in taking power short distances to their plants.

Our rates are standard. Every customer pays the same for what he gets. Our rates for power at the point of generation at 50 percent load factor, which is just about the load factor of the cooperatives, is 5.4 mills per kilowatt-hour. Since the power must be transmitted to the cooperatives and losses in transmission as well as cost of transmission are involved, the delivered cost to the cooperatives will be from 8.7 to 8.9 mills per kilowatt-hour. To get power to the three cooperatives who are able to take St. Lawrence power, all of which are somewhat beyond the St. Lawrence market area, and one of which is 194 miles from the source, requires 78 miles of lines owned by the authority and also the facilities of 2 utility companies. Despite this the companies are wheeling the power for 2 mills per kilowatt-hour plus 25 cents per kilowatt for transforming it from 230,000 volts to 46,000 volts.

Enclosed are maps indicating the location of municipals and cooperatives in Pennsylvania and Ohio. They are scattered all over both States and have relatively small loads. The tables show that it would be economically impossible to build lines to bring power to them. Even assuming complete cooperation by