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Territorial Integrity Act (TIA)
During the 1965 Legislative Session,
the Territorial Integrity Act was passed at the urging of the state's
Rural Electric Cooperatives (REC). The stated purpose of the
legislation was to prevent investor-owned utility (IOU) companies,
like MDU, Xcel Energy Company (formerly NSP) and Otter Tail from
interfering with the RECs mission of serving rural areas. This
legislation has effectively allowed RECs to serve areas newly annexed
to cities at the exclusion of investor-owned utilities.
How does that work? Well, because
cooperatives can locate facilities at will in rural areas, they will
have minimum facilities located in most areas near a city. Therefore,
when a new area of a city is annexed, the REC already has equipment
located in the area, and any installation by the IOU will be
duplicative. Clearly, this prevents the IOU's from growing with the
city and they are locked into an existing base with little chance of
obtaining new electrical customers as a city grows.
We must keep today's territorial
disputes in historical perspective. During the early 20th. Century,
city leaders were aware they needed an unlimited supply of electrical
power for their cities to grow. Further, they understood their
constituents, for the most part, were struggling to make a living and
they could ill afford a large tax increase to provide electricity to
the community. As an alternative, private investors offered their
money and expertise to electrify America in exchange for an expected
return on their investments.
Cities struck franchise agreements
granting companies exclusive territories in which to operate an
electrical utility company. In exchange for providing service, the
electric utility company agreed to provide power, as a regulated
monopoly, to anyone within the city whenever it was requested. It
seems to make sense that, in exchange for these risks, the investor
owned utility's territory should expand as cities expanded. After all,
if adequate supplies of electricity had not been available, cities
would not have been able to grow as they did early in the century.
Investor-owned utilities have provided good service at a fair price
over many years and should be allowed to grow as cities grow. IOUs
should not have their future restricted by the Territorial Integrity
Act and unfair competition.
The way its looks today, the
Territorial Integrity Act seems inconsistent with the Rural
Electrification Administration Act, under which the REC's were
subsidized. Congressman Sam Rayburn of Texas, the author of the Act
in1935 said: "May I say to the gentlemen that we are not in this
bill intending to go out and compete with anybody. By this bill we
hope to bring electrification to people who do not now have it. This
bill was not written on the theory that we were going to punish
somebody or parallel their lines or enter into competition with
them."
REC's serving North Dakota's towns
and cities seem even more at odds with the intent of the REA Act
because most of their new load is in upscale urban residential
neighborhoods, industrial parks, and shopping malls, all located
inside city limits. For example, an REC now serves about one-fourth of
the incorporated area of Bismarck, and West Acres Mall (North Dakota's
largest retail area) located inside the city of Fargo is served by a
REC. We think this is a gross misapplication of the policy behind
rural electrification.
As a matter of fact, many of the
REC's in the state have dropped the word "rural" from their
cooperative name to more accurately reflect the territory they are now
serving.
Electric cooperatives were formed to
help farmers get electricity they could not afford if they had to pay
the true cost. Therefore the federal government created programs
funded through tax dollars to electrify the countryside. This was a
truly admirable goal and the rural areas would most likely not have
received electrical service as quickly as it did without this help.
But our economy has changed, and the federal programs haven't. Today
REC's are using tax dollars to directly compete with investor owned
utilities, and that isn't right.
Some of the most recognized federal
subsidies the REC's receive are an exemption from federal, and then of
course, state income tax. They are able to receive long term federal
loans at government subsidized interest rates and, they can purchase
energy from federally operated hydroelectric dams at prices far below
current market value. Further, they receive preferential property tax
treatment when compared to the taxes paid by investor owned utility
companies.
Furthermore, as we see property
devastated by floods and other acts of nature, FEMA support comes into
play. When an IOU experiences losses associated with a flood or other
weather related tragedy, they must pay the cost of repairs from
company assets and are not entitled to participate in FEMA programs.
However, when rural electric organizations suffer similar losses, they
are able to receive FEMA disaster relief programs of grants and low
interest loans even when they are serving the same urban territory as
an IOU, like in Grand Forks or Fargo.
If rural electric cooperatives want
to compete with IOUs in urban markets, they should give up federal
subsidies and compete following the same rules, regulations, and laws
as investor owned utilities.
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