Senator HOLLAND. Yes; average revenues, and we have had several witnesses who have mentioned them. Secretary FREEMAN. We will supply that. (The information is as follows:) The average density and revenue figures on REA-financed electric systems were calculated as follows from report data as furnished by 944 distribution borrowers: 1. Number of consumers served at year-end 1964_. 5, 129, 814 $762, 035, 957 1, 476, 062 The average density and revenue figures on 171 of the 214 class A and B commercial power companies, for which data were available, were calculated from information obtained from the following sources: 1. Federal Power Commission, publication S-175, "Statistics of Electric Utilities in the United States"-1964-Privately Owned: (a) Consumers served at year-end 1964_ (b) Revenues from sales of electric energy during 2. McGraw-Hill, "Directory of Electric Utilities," 1965; (c) Miles of distribution line in operation at year 45, 268, 102 $10, 419, 663, 000 Senator TALMADGE. Mr. Secretary, I take it you and Mr. Baker and Mr. Clapp can return at a later date that is convenient to the committee to continue your testimony? Secretary FREEMAN. Yes, Mr. Chairman. Senator TALMADGE. Thank you, Mr. Secretary. I would like to recognize the Senator from New Mexico now. I understand he has a statement that he would like to present. We will be glad to hear from you, Senator Montoya. STATEMENT OF HON. JOSEPH M. MONTOYA, A U.S. SENATOR FROM THE STATE OF NEW MEXICO Senator MONTOYA. Mr. Chairman and members of the subcommittee, it is with a great deal of pleasure that I appear before you today in support of S. 3720, a bill which will insure the continued orderly growth of one of the most valuable programs ever enacted by Congress for the rural citizens of the United States. Rural electrification has brought untold benefits to the farmers and ranchers of this country since the REA law was enacted in 1935. The REA's program underwent significant expansion in 1949, when provision was made for the first time for the financing of rural telephone service. REA made its first electric loan in New Mexico in May 1937. At that time, only 3.3 percent of the farms and ranches in my State enjoyed the benefits of electrification. In less than three decades, this percentage has grown to 89.6. At the same time, per capita use of electricity has undergone startling growth. In 1955, the average monthly consumption per consumer in my State was 423 kilowatt-hours. Today, it is nearly twice as great, 810 kilowatt-hours. Rural telephone service has undergone important expansion and improvement in a much shorter period of time. The first REA telephone loan in New Mexico was made only 16 years ago, in June 1950. At that time, only 14.8 percent of my State's farms and ranches had any telephone service, and much of what they had was of the obsolete fence post-to-fencepost variety. Now, 52 percent of New Mexico's farms and ranches have telephone service, much of it in modern dial systems. These figures, Mr. Chairman, show the kind of achievement which is possible when Government works hand in hand with local citizens for the good of all. These figures also tell another story, and that is that the demand for electricity and telephone service are increasing at an astounding rate. According to the REA, there are now more than 400 different uses for electricity on the farm, and at least 250 of these uses have direct application to productivity and profit of the individual farmer. As this demand for power grows, so does the need by rural electrics for increasing amounts of growth capital. A rural electric system which was designed to handle 400 kilowatt-hours per customer obviously must be expanded and improved in order to deliver a load which is now more than double that amount and which can be expected to continue to multiply. The same is true of rural telephone service. Present financial provisions for this anticipated growth are simply inadequate for the job ahead. The present 2-percent REA loan program which has financed development of these systems can no longer meet the needs for growth capital. It is for that reason, Mr. Chairman, that I am cosponsoring S. 3720 to provide a new source of capital for rural electric and telephone service expansion. S. 3720 will create a rural electric bank and a rural telephone bank. These two institutions, for which the Administrator of the REA would be the chief executive officer, would assist the more financially mature cooperatives by providing 3-percent "intermediate" loans, or loans which reflect the cost of money to the bank, currently 5.5 percent to 534 percent. At the same time, it is essential to retain the present 2-percent direct loan program to serve those areas which are unable to afford higher interest rates. The electric and telephone bank loans will be supplementary to the 2-percent loans, and will insure adequate growth capital without sacrificing the goals of these two great programs. One of the basic goals in rural electrification is area coverage, which means that a rural electric system undertakes to supply power to every farm and ranch in its service area, without regard to variations in individual service costs. In other words, the man closest to the generator pays the same rate as the man at the end of the line, on the very sound principle that the entire area will benefit. But the attitude of the commercial companies toward area coverage is well phrased in a 1965 decision of the Federal Power Commission in a case involving Southwestern Public Service Co. of New Mexico. (Opinion 451, issued March 2, 1965.) In that case, the FPC said in part: Evidence adduced by Southwestern shows that had that company undertaken to cover the rural areas within, and adjacent to its service area with area coverage, it would have been necessary for it to make investments in facilities which would have resulted in rates to the rural customer substantially higher than those offered by the cooperatives to an extent, in Southwestern's opinion, that they would have been costly beyond the value of the service. And mind you, Mr. Chairman, this decision dealt with a power company which has been more than usually friendly toward electric cooperatives, which sells large blocks of power to cooperatives, and which in the early days of REA actively encouraged their growth and development as meeting a public need which the private company did not feel that it could meet. It is apparent, I think, that if the cooperatives are deprived of adequate growth capital, service will soon deteriorate in the areas they serve because they are the only organizations which are committed to adequate rural service. Thank you. I would also like to state that I wish to associate myself with the position taken by the Secretary as given by him from his statement, and I highly endorse what he has said, and I also want to state that I am very happy to be a cosponsor with the Senator from Kentucky, Mr. Cooper, and others, with respect to this legislation. Senator TALMADGE. Thank you, Senator. The committee will stand in recess until 9:45 tomorrow morning. (Whereupon, at 12:10 p.m., a recess was taken until 9:45 a.m. Wednesday, August 17, 1966.) SUPPLEMENTAL FINANCING OF REA PROGRAMS WEDNESDAY, AUGUST 17, 1966 U.S. SENATE, SUBCOMMITTEE ON AGRICULTURAL CREDIT AND RURAL ELECTRIFICATION OF THE COMMITTEE ON AGRICULTURE AND FORESTRY, Washington, D.C. The subcommittee met, pursuant to recess, at 9:50 a.m., in room 324, Old Senate Office Building, Senator Herman E. Talmadge (chairman of the subcommittee) presiding. Present: Senators Ellender, Holland, Talmadge, McGovern, Aiken, Cooper, and Miller. Senator TALMADGE. The subcommittee will come to order. The Chair recognizes the distinguished Senator from South Dakota, a member of this committee, Senator McGovern. STATEMENT OF HON. GEORGE MCGOVERN, A U.S. SENATOR FROM THE STATE OF SOUTH DAKOTA Senator McGOVERN. Thank you, Mr. Chairman. It is my pleasure to introduce to the members of the subcommittee the spokesmen of Midwest Electric Consumers Association, an organization made up of some 250 consumer-owned power utilities in 9 States of the Midwest. Before I do so, however, I would like to make one or two very brief observations on the legislation before us. It is impossible to estimate accurately the massive effects that the REA loan program has had on rural America. When we consider the role of low-cost electric power in American agricultural abundance along with its impact on rural living, it can truly be said that the REA program as we know it today has been a revolutionary force in our rural society and economy. This fact, alone, is sufficient reason to study any proposed change in the present system of financing the cooperatives with the utmost care. In South Dakota, we have a special interest and a special concern over the source and the cost of capital for our rural electric systems. Our rural electric cooperatives have an average of only 1.4 consumers per mile of line. When this is compared with an average consumer density of 312 per mile of line on REA-financed lines in the Nation as a whole and a consumer density of 34 per mile for private utilities, we have a very clear illustration of why there are serious cost problems involved in providing low-cost power on an area coverage basis in my State. Conventional, 2-percent REA loans have been and will continue to be an absolutely essential factor in the ability of our cooperatives to provide electric power to rural consumers in ample quantities and at reasonable rates, while still keeping up interest and principal loan payments. The same is true, of course, for cooperatives in many other parts of the country. As members of the subcommittee know the Rural Electrification Act originally established a bargain between the Federal Government and the member-owners of rural electric cooperatives. The co-ops, in order to be eligible for low-cost loans, pledged themselves to serve areas where service is not considered feasible by private utilities, and to do so on an area wide basis. In return for this pledge from the cooperatives, the Federal Government committed itself to loan the capital at interest rates low enough to make low-cost area wide service possible. I am sure that no member of this subcommittee, or of the Congress, would suggest that the policy of area coverage should be changed. By the same token, the cooperatives which continue to meet those obligations and particularly those whose costs are exceptionally high because they have only two or three consumers per mile of line-are entitled to expect the Government to carry out its end of the original bargain under which the cooperatives were organized. Any modifications in the REA financing system must retain the 2percent 35-year loan program as the foundation of this Nation's rural power policy, and we must make certain that 2-percent funds are available in the future for all cooperatives that require them. In the Missouri River Basin, the cost of wholesale power represents, on the average, about 40 percent of the cost of serving a rural consumer. Consequently, 2-percent funds for the G. & T. cooperatives remains essential. I am very much concerned by the lack of any criteria in the bill through which to determine which cooperatives will continue to get 2-percent loans and which will have to pay higher interest. The criteria or standard for making this determination is, in my opinion, the most important single determination to be made under the bill. It is consequently imperative that the legislation we ultimately approve explicitly set out the conditions under which a cooperative will cease to be eligible for 2-percent funds, and that we do not leave this most basic question subject to change with every change in administrators or budget directors downtown. We have assurances from Administrator Clapp and from Secretary of Agriculture Freeman that cooperatives that need 2-percent funds will be eligible to borrow them. But they cannot tell us with certainty what the situation will be 2 years hence, or what criteria will be used then. I believe, therefore, that we must include criteria in the bill. In this connection, Ialso have some serious reservations in regard to at least one of the conditions that has already been suggested: specifically, the "parity of rates" concept, which would judge a cooperative's eligibility for 2-percent funds by comparing its power rates with those of an adjacent private utility. If adjacent rates are to be the yardstick for escalating interest charges, then those of us in the most disadvantaged areas will be the first to be charged higher interest. We will have our interest costs increased when we get the average cost of our power down to 2 or 3 cents per kilowatt-hour, but out in the Columbia Basin, or down in the |