In view of the action taken by the Bureau of the Budget, withholding funds appropriated by the Congress in the last fiscal year, the Grange feels that the additional $250 million suggested in H.R. 14000 and S. 3720 will be needed to cover the backlog of requests for services from the REA. In addition, the $1 billion allows for a safety margin which might be necessary if there are further increases in the open market interest rate. The suggestion of Senator Cooper in his proposal seems to meet the objectives of both of the other two bills and, therefore, would have the support of the Grange. Section 408-Lending power: The Grange recommends the less restrictive lending power of H.R. 14000 and S. 3720. The terms of the original act authorizing lending power to the REA were also very broad which proves the validity of this approach. A substantial restriction at the present time does not seem to be indicated. It is unrealistic for us to assume that we can foresee all the possible alterations and changes which could occur in a field as responsive to technological innovation as this one. Therefore, it seems appropriate not to place the electric and telephone banks in a financial straitjacket, incapable of handling loans for needed adjustments. The restrictive clauses of the administration bill might even cause stagnation to rural utility service. I would add at this point that one of the things that would bother us is the suggestion that the present generating facilities and lines are going to be capable of handling the increased power needs of, especially, the farmers in the future. One of the amazing changes in rural life has been that which has been brought about by the addition of electricity to our farm operations. When I grew up on the farm in Illinois, it took 4 or 5 hours a day of "child labor" to pump the water for the animals. Today, it means only the throwing of a switch. And with the added automation all the way down the line in the use of power which supplements unavailable farm labor at the present time it seems to me that the power needs of the rural areas are going continually to increase and increase sometimes in very dramatic proportions. Therefore, until we get some better reading of what the future holds in store for us in terms of power requirements and projections for power requirements, it would seem to me that restrictions at this point are unnecessary and unwise and could lead to the situation developing where the original purposes of the REA are completely prohibited by other restrictions put in this legislation. Senator ELLENDER. The present law is not changed. It remains on the statute books, so that Congress could provide funds sufficient to make available all the electricity necessary for the farmers. Mr. GRAHAM. We are aware of that, Senator. We are glad that law remains. We are also aware that the drive is toward the elimination of those funds. And with budgetary problems increasingly facing us, we are fearful that the trend would be to put us in a straitjacket which we can ill-afford to be in. We would want, certainly, some very real guidelines laid down, if these restrictions are applied, to provide that the service could be made available when it is needed. Senator HOLLAND. May I ask a question there? Senator HOLLAND. I do not think the witness has explained what he means by the restrictive clauses and the financial straitjacket; so that the testimony will be clear, just what are you referring to? Mr. GRAHAM. I do not have the bill in front of me. What I am referring to is this: Basically, what I was referring to was the limitation on the use of funds for the development of power for the increasing usage of electricity for nonfarm consumers along the lines which would add to the efficiency of the operation but also would add to the power requirements. Senator HOLLAND. Where are those restrictions in the bill? Mr. GRAHAM. May I have that [indicating]? Senator HOLLAND. I have not seen any such restriction, and I think that I have read all of the bills. I would like to have the witness's testimony clear as to just what it is you are referring to. Mr. GRAHAM. May I do that later, to save the time of the subcommittee now? I will be glad to submit that. Senator TALMADGE. You may later place that in the record at this point. (The information follows:) Section 408, Lending Power of S. 3720, is the section referred to. Mr. GRAHAM. For instance, it seems unlikely that a cooperative could significantly expand its area of service and receive adequate financing under S. 3337 since this bill specifically states that "the accumulative size of such acquisitions not result in a system larger than the borrower's existing system at the time it received its first bank loan." Senator COOPER. I think Senator Holland's question is that the testimony is directed not only to S. 3720, but also to the administration bill as originally introduced in the House of Representatives. Senator HOLLAND. This point does not pertain any more to the bill offered by the Senator from Kentucky. Senator COOPER. Not with respect to S. 3337. There are some restrictions in S. 3720, too. Mr. GRAHAM. Yes, sir. I was referring particularly to the original bill, the administration's original bill. Senator CoOPER. Yes. Mr. GRAHAM. That is the problem in testifying, or one of the problems in testifying, on three bills that we have, and another that we think is coming. Senator ELLENDER. And maybe some others, too. Mr. GRAHAM. Yes, sir. The provision in section 408 of S. 3720 providing for the acquisition of electric facilities to "improve the efficiency, effectiveness, or financial stability up to an accumulative size not to exceed 5,000 connections within nonrural areas" appears to be prudent protection for the private utility companies and also adequate for the improvement of the operations and efficiency of the electric cooperatives. We are pleased to note that there are no other unreasonable restrictions placed on the development of generating and transmission facilities in this bill. There were areas in the United States that did not have sufficient power available to them from private sources until the cooperatives 70-671-66-25 joined together and built generating and transmission lines, substantially reducing the cost of electricity to the consumers. This addi tional power was then available to private companies to use during their peak load periods. I can give you an example of that, the area in southwestern Iowa that was served by five cooperatives, REA cooperatives, and also by Iowa Southern. The power which was purchased by the REA cooperatives from Iowa Southern was some of the most expensive power in the Nation, around 25 mills. The private utility was unable to get additional generating power, and their own requirements on their own lines took most of the power they had, and it became impossible for them to get this power, because they in turn could not get into the Missouri Valley power which was available at considerably less cost, so that they had a situation there where this southwestern Iowa power was selling for almost twice as much as the power next to it that was coming from the Missouri Valley stations up around Sioux Falls. So, the five cooperatives built a plant. They are now selling their electricity for almost the same price as that which is coming from the Sioux Falls plant to their own customers, and supplying added electricity to the Iowa Southern Co. which did need it because of its power problems. At the same time, really, the power that is available in Iowa Southern Co. for some of these rural areas is so low, going down to as low as 60 to 65 kilowatts during the peakload, where fuses are blowing out on the farms at the end of the line at a time when you may need the milking machine, and it is out, and you are unable to milk. And it seems to me that we must be exceedingly careful that we do not create situations which make it impossible for groups of cooperatives to get together to solve a power problem not only for themselves, but in this instance for the private utility at the same time. And a power shortage of those proportions is extremely serious. May I comment at this time on the suggestion that the transmissiongenerating facilities be limited to a single cooperative. Why? Under that kind of a rule, five cooperatives could build five inefficient plants, but one efficient plant could not be built for the five of them put together. This would not make any sense to us. It should be an efficient unit. In connection with these generating plants, there is not only the cost of the acquisition of the land, the available water, the storage of the water, but there are many of these things that are involved in this, so that we need a different criteria at this point than one which says only the local cooperative can build the generating plant, because otherwise there simply could not be an efficient building or operation of a generating plant in a number of areas where the shortage of electricity is becoming acute. (Additional information on the above subject filed for the record is as follows:) Mr. HARRY L. GRAHAM, CENTERVILLE, Iowa, September 6, 1966. Legislative Representative, National Grange, 1616 H Street NW., Washington, D.C. DEAR MR. GRAHAM: It has come to my attention that you offered testimony to the Senate Subcommittee on Agricultural Credit and Rural Electrification on August 18, 1966, supporting S. 3337 and S. 3720, and that in your testimony was specific reference to Iowa Southern Utilities Company. In regard to your testimony, there were several erroneous and damaging statements which I believe should be corrected. I do not presume to know from whom you received your information on our operation in Iowa, but, whatever the source, the facts of the matter should be made a matter of record. The specific points that require correction are as follows: (1) Iowa Southern, from 1942 to 1951, supplied two rural electric cooperatives in Southwestern Iowa, the Clarke Co. Cooperative and the Rideta Electric Cooperative. The attached Exhibit indicates the average annual cost per Kwh of power we supplied to these co-ops during the period we were serving them. The highest annual cost per Kwh to either of these co-ops was 14.8 mills and the lowest was 13.0 mills. This cost is considerably less than the 25 mills which I understand you quoted in your testimony. Our Company also supplied a "temporary" load for Southwestern Federated Electric Cooperative for three years, 1947-1949, at an average rate of 15.2, 14.6 and 20.3 mills per Kwh, respectively. The latter figure, to the best of my knowledge, was higher because of cancellation charges after 3 years on a 5-year contract. (2) Iowa Southern was not faced with a power shortage in the period of the early 1950's as implied in your testimony. The Company did not seek to obtain Missouri Valley Power for three reasons: (1) we did not need it to supply our own and the co-ops' load, (2) it was not available in quantities sufficient to supply any load in Iowa for the reason that the Missouri River hydro facilities were only just under construction in this period, and (3) there were no transmission lines built in our area from which power could have been obtained even if it had been available. (3) Iowa Southern contested the need for or economics of a rural electric cooperative plant to be constructed in southwestern Iowa in the early 1950's. We contended then, and official records prove we were correct, that cost of energy to the cooperatives from such a plant would be more than was our rate. From the attached Exhibit, you will note that the REA reports verify this. (4) We were most surprised to hear that the voltage to our rural customers was so low that it was blowing fuses. A survey has been conducted in the last week and not one case of such occurrence has been reported to us in southwest Iowa or at any place on our system. True, during the heat storm in the early part of July, 1966, we were required to replace some rural distribution transformers due to local overload situations. I am sure the cooperatives had similar trouble. And, while we are on the subject, voltage is measured in volts, not kilowatts as referred to in your testimony. Power is measured in kilowatts. The term "kilowatts" is a product of the voltage to a load times the in-phase component of the current, in amps, which the load draws from the electric system divided by 1000. The power requirement of an average farm in our area is about 8 kilowatts. Our primary single phase lines in a rural area have an average power carrying capacity of 300 to 500 kilowatts. Many of them have a capacity of three times this figure. The three phase lines in a rural area have a capacity of 2000 to 5000 kilowatts. To speak of power to a farm dropping to 60 kilowatts during our peak load periods is ridiculous. (5) The cooperatives in southwestern Iowa had every right to group together to construct a generating plant to meet their load requirements. History has proven that this did not provide lower power costs for the REC's. The attached Exhibit clearly demonstrates this fact. For your information, we work closely and to mutual advantage with the rural electric cooperatives in southwestern Iowa. Our transmission lines are interconnected with theirs, we support sections of their system and they help us in areas of our system. We have no quarrel with rural electric cooperatives and their original purpose as set out in the REA Act. We strongly believe, however, that it is grossly unfair for a tax-subsidized cooperative to compete on equal status with an investor-owned, taxpaying utility for non-farm electric loads. Mr. Graham, I suggest that you may wish to obtain a more reliable source for your facts the next time you testify before a Congressional committee. Perhaps it would be less embarrassing to you and to those whom you name in your testimony. Very truly yours, IOWA SOUTHERN UTILITIES CO., Senator ELLENDER. Under the present law I do not suppose that any loan is refused by the REA under conditions as just stated. It is only when electricity is not available, or the cost of it is exorbitant that the REA has come in to help, but you have many applications for the construction of these generating and transmission plants wherein I am sure the applicant can obtain electricity as cheap or maybe cheaper than it itself can produce it, and in cases like that it would seem to me that no loan should be granted. Mr. GRAHAM. We would agree with you on that. I mean, why produce it more expensively than you can purchase it. Senator ELLENDER. That is exactly the point. Mr. GRAHAM. On the other hand, if it is not available- Mr. GRAHAM (continuing). And it is extremely expensive like in northern Maine, like the Passamaquoddy project, where they have a 27-mill rate. It seems to me also a bit inconsistent to make power available to federally constructed dams at a relatively low interest rate, and to say to the REA cooperatives after they get up to a certain stage that they should not be able to borrow the same kind of money to provide power for their usage, such as borrowed by such in the TVA or the Missouri Valley or the Columbia River Basin projects; you have the same power requirements, the same kind of people. Senator HOLLAND. TVA cannot get 2-percent money. Mr. GRAHAM. No, they cannot; but they are not paying 6 percent right now. Senator HOLLAND. What are they paying? Mr. GRAHAM. Do they not get money from the Government? Senator Holland. No. Senator TALMADGE. They have their own bonds. Mr. GRAHAM. But there was a time when they did get the cheaper money, in the early days. And the same was true of the others. Senator TALMADGE. We changed that law in 1959. Mr. GRAHAM. That is right, but you have a complete power structure built up over a long period of time, and for 25 years almost this money was available to the TVA, and it did a tremendous amount of good in those areas, where the power is available. What we are saying is that in areas where power is not available we do not think that we ought to put restrictions on that, making it impossible for them to get the same kind of benefits during this development period. Once they are up to this point, that is a different thing. Senator HOLLAND. It is the suggestion that when they become financially strong enough that they should stand on their own feet. There is no suggestion that I know of that the REA's which are not able to stand on their own feet should not have access to the 2-percent money. Senator ELLENDER. I think the Congress has been very liberal with the TVA. The Government did provide funds at a certain rate of interest to construct additional facilities in that area, to the detriment of other areas of our country. You know that when you started out in the TVA, it was supposed to produce electricity from falling water. 1, as a member of Congress never objected to the construction of a few steam plants to firm the electric power, but the time came when they increased the production to such an extent through steam production that today, I guess, 76 percent of the electricity produced and sold |