price paid by cooperatives to the investor-owned companies is less than the price paid to G&T's.

The need for government subsidies in support of such a Bank is highly questionable.

The needs of the rural electric cooperatives should be the subject of a thorough study and analysis before any action is taken.

Enactment of this proposed legislation will not serve the best interests of the people, more specifically of the garm population in Illinois and the nation.

STATEMENT OF JACK K. HORTON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SOUTHERN CALIFORNIA EDISON CO., LOS ANGELES, CALIF.

Mr. Chairman and Members, my name is Jack K. Horton, President, Southern California Edison Company, Los Angeles.

Other investor-owned electric industry witnesses have analyzed the major defects of the proposed REA supplementary financing legislation, including S3337, S3720, and similar bills.

I wish to emphasize several major points which have been made.

REA was established 30 years ago to furnish electricity to persons in rural areas. $.7 billion of U.S. Taxpayer funds have been loaned at 2% when the cost today to the U.S. is approximately 4%. During the last three years, about $365 million annually has been authorized. Ninety-nine per cent of our farms in the U.S. now have electric service. Nine out of ten new customers of the REA's are non-farm customers. The original purpose of REA now has been achieved.

The primary purpose of REA loans was to provide distribution facilities to serve farms and rural areas. Today the emphasis is on generation and transmission facilities to serve loads which any local power supplier is willing and able to supply at competitive costs which are completely regulated by state or federal regulatory agencies. The Rural Electrification Administration's current quarterly report on pending loan applications indicates that 69% is for generation and transmission purposes. Ample electric power is and has been available from existing sources. Why should the Federal Government, at a tremendous cost to the American taxpayer, supply funds to expand in areas already served by investor-owned or local public agencies?

The proposed Electric Bank is a complete end-run around the traditional Congressional controls that arise out of annual appropriation review and authorization. These electric bank bills would not only cost federal taxpayers hundreds of millions of dollars, but would reduce income to local taxing entities, including cities and schools, and would reduce income tax payments to federal and state governments.

There have been many abuses by REA's the Colorado-Ute and other generation and transmission loans where the local power companies were willing and able to serve at the same or less cost than those charges proposed by the cooperatives. This Committee knows about ski resorts, lumber mills, gravel operations and knitting mill abuses. If this legislation passes, there will be no controls over further abuses.

This legislation would put the Federal Government further into competition with taxpaying investor-owned utilities. The legislation is designed to escape Congressional controls and annual review of appropriation requests. It would open REA operations in suburban and urban areas. It does not deal with the problem of 2% subsidized loans. It would commit the Federal Government to provide up to $1 billion with no repayment date, no Congressional control, no guidelines, no requirement of need, or any review of power availability from local sources.

We submit this Committee should require an independent auditing body to prepare a detailed accounting of the financial capability of each of the 1,000 REA electric borrowers to see if there is any need for this legislation.

In 1965, of each revenue dollar received by investor-owned electric companies, 22.5 cents was paid in taxes. If REA's paid taxes on the same basis as investorowned companies, it is estimated they would have paid about $195 million in federal, state and local taxes in 1964. Why should the Federal Government subsidize these entities at the expense of the American taxpayer when these entities are trying to serve the same kind of customers or perform the same kind of proprietary functions which local regulated taxpaying utilities serve and perform.

Taxpayer subsidized REA's pirate industry and tax base from areas served by investor-owned companies and public power agencies. If the cooperatives want to compete with local power agencies they should get their funds on the open money market and pay the full cost of money as do all other proprietary enterprises. Their rural justification for subsidized funds no longer exists. These bills deserve extensive, careful and thorough study.

Some of the questions which need to be answered are:

Is there a proven need for a program of this scope?

What are the specific objectives of this legislation other than to make more money available to borrowers from federal taxpayers?

Why are no real Congressional controls included in the proposal.
What are the standards or criteria for granting bank loans?

When would the government's investment be repaid?

We respectfully submit that this is a scheme to draw attention away from the 2% loans and to further subsidize the REA's without Congressional controls at tremendous taxpayer expense. There is no accompanying justified public benefit. We urge this Committee and the Congress to soundly defeat this legislation.

STATEMENT OF J. C. HUNDLEY, EXECUTIVE MANAGER, TENNESSEE RURAL ELECTRIC COOPERATIVE ASSOCIATION, NASHVILLE, TENN.

Mr. Chairman and Gentlemen of the Subcommittee, my name is J. C. Hundley. I am the Executive Manager of the Tennesse Rural Electric Cooperative Association, which is the Tennessee service organization of all twenty-two rural electric cooperatives in the State, serving approximately 14 million people. This Association is owned and controlled by the Tennesse systems.

It was good of the Chairman to leave the record open until September 2nd for anyone who wished to submit statements. We wish to take advantage of this opportunity to submit a statement for the record.

I wish to voice the support of our entire association of rural electric systems of legislation which would amend the Rural Electrification Act of 1936, to enable the establishment of a bank to provide supplemental financing for the rural electric systems. You have had both the General Manager and the Assistant General Manager, Mr. Clyde T. Ellis and Mr. Jerry L. Anderson respectively, of our National Rural Electric Cooperative Association, to appear before you and submit detailed statements-copies which we have before us. We wish to endorse their statements as if they were our own. For this reason we will not attempt to go into the detail they have already covered for the Subcommittee. We respectfully urge this Subcommittee to promptly and favorably report S. 3720.

STATEMENT OF WILLIAM JACKMAN, PRESIDENT, INVESTORS LEAGUE, NEW YORK, N.Y.

Mr. Chairman and members of the Committee, my name is William Jackman. I am president of the Investors League, Inc. of New York. The Investors League is a non-profit, non-partisan, voluntary membership association of thousands of investors, small and large, residing in the fifty states of the nation.

A new Electric Bank, with freedom from Congressional controls and which could greatly increase government subsidy, is now being proposed under the bills before your Committee as a means of building electric generating plants and tranmission lines and for other purposes. This could involve billions of dollars of capital, including many hundreds of millions of government funds. The Electric Bank program is being proposed as an amendment to the Rural Electrification Act, but in reality it has little in common with the basic future needs of rural electric cooperatives in obtaining low-cost electric power.

Such a bank goes far beyond any previous concept of government in business. It is completely unnecessary and wasteful, because electric power supply is ample through the United States and because the power facilities needed for the future can be financed in the free market without government subsidy. At a time when the nation's taxpayers face increased government expenditures for such vital purposes as defense, when the threat of inflation is causing widespread concern, and when government is seeking to hold down unnecessary expenditures throughout the economy, such a subsidy program would not be in the public interest.

The bills propose Congressional consideration to set up an REA electric loan account and the Electric Bank. This legislation would change the operation of the Rural Electrification Administration and could involve billions of dollars at interest rates below the market cost of money for the construction of Federal income-tax-free generating and transmission facilities. These facilities would

duplicate or displace electric power facilities paying all taxes.

The Rural Electrification Act was passed by Congress 30 years ago to help bring electric service to the rural areas of the United States more quickly than 'could be done otherwise under the circumstances at the time. The REA has done a good job in this respect.

However, in recent years, the emphasis has changed to the financing of generating and transmission facilities (G&T's). Loans are made to G&T co-ops at 2 percent-less than half the cost of money to the Federal government-and no Federal income taxes are paid. Five out of six of new co-op customers are not farmers they include suburban residents, businesses, manufacturing plants and petroleum operations.

Because it was never intended in the original REA Act that governmentsubsidized power plants paying no Federal income taxes should compete with existing tax-paying electric power suppliers, Congress in the last few years has been increasingly critical of loans for G&T purposes. Congress has directed that such "loans should be made only when reasonable contracts cannot be obtained" for power supply.

To get around Congressional directives opposing the misuse of REA loans and to free the co-ops from any possibility of control by such Federal regulatory agencies as the Federal Power Commission, this device for the establishment of an Electric Bank has been developed. It would give the appearance of financing in the free market, but in fact it would increase Federal subsidized competition.

Under the proposal to establish an Electric Bank, neither Congress nor any Federal regulatory agency would have control over the use of billions of dollars available to the Bank. The establishment of the Bank has nothing to do with the present REA program of 2 percent loans which would continue through loan authorizations as at present or under the proposed loan account.

The Electric Bank could make loans at interest rates below the cost of money to the government. If it had insufficient funds to pay interest or principal on money the bank itself may have acquired through issuing debentures, the Electric Bank could borrow funds as needed from the Federal Treasury. This represents a wholly unnecessary burden on the Treasury, which itself must borrow money for the needs of the nation, as for example, the poverty program and urban redevelopment.

Further, there would be no Federal income tax payments from the operations of the borrowers from the Bank. Thus, government would be spending government funds to build unnecessary plants and in doing so would reduce government tax revenues.

The power supply facilities which the G&T's and other borrowers would duplicate or displace would be those of the investor-owned tax-paying electric power companies which serve some 80 percent of the nation's people. These companies operate under regulation at all levels-local, state and Federal. The G&T's do not. These investor-owned companies have an annual tax bill totaling some $2.9 billion. They pay taxes to all levels of government. The G&T's do not.

The proposals for an Electric Bank could greatly stimulate the present unfair, subsidized competition, thus not only threatening to nationalize the electric industry, which has established America as the world leader in electric power supply, but in so doing, having a potentially serious effect on the structure of the nation's entire economic system.

This proposed legislation is only incidentally a "farm-bill". It involves most serious tax revenue problems that would affect every sector of our economy. On behalf of the millions of shareowners in America's investor-owned, tax paying power and light companies, we urge that Congress reject this legislation. We also suggest that appropriate Congressional Committee give serious consideration to legislation that would prevent the Federal government from lending money to REA co-ops or other agencies at interest cotss lower than the government itself must pay. We also urge that consideration be given to the desirability of eliminating the favored tax treatment of government owned or subsidized electric power operations by levying the same taxes on them as are extracted from the investor-owned utility companies.

Gentlemen, I thank you.

Hon. HERMAN TALMADGE,
Chairman, REA Subcommittee, Senate Committee on Agriculture and Forestry,
Old Senate Office Building, Washington, D.C.:

For the record of your committee, I desire to state that the REA supplemental financed plan would be a wasteful and uneconomic use of public moneys at the expense of taxpayers. Further, the proposed legislation is unnecessary, inflationary, and adverse to the interests of the taxpayers of the United States, including all investors and customers of all privately financed electric utilities. It would put the Federal Government into further competition with its taxpaying citizens solely to provide a multibillion dollar increase in unregulated, bureaucratic power by the use of public funds. When further hearings are held, I desire to make a more complete statement before your committee.

J. T. JONES, President, Empire District Electric Co.

MONONGAHELA POWER Co., Fairmont, W. Va., August 30, 1966.

Hon. HERMAN E. TALMADGE,
Senate Office Building,

Washington, D.C.

DEAR SENATOR TALMADGE: It is respectfully requested that this letter-statement be filed as a part of the record covering hearings on the above-stated legislation held by the Agricultural Credit and Rural Electrification Subcommittee of the Senate Agriculture and Forestry Committee. Monongahela Power Company, an investor-owned electric utility and a part of the Allegheny Power System, serves more than 230,000 customers in an area of approximately 13,000 square miles in West Virginia, Ohio, Maryland, and Virginia.

Monongahela opposed the enactment of H.R. 14000 and H.R. 14837 when hearings on those bills were held recently by the House Agriculture Committee. We were represented at the hearings and followed closely the testimony submitted by the officials of the Department of Agriculture and other proponents of the legislation. It is our opinion that the proponents failed to present any sound reason or need for the establishment of a Federal Electric Bank.

Since the legislation being considered by your subcommittee is similar to the bills given hearings by the House committee, Monongahela Power Company does not hesitate to reaffirm its stand of staunch opposition to the proposed legislation. Although we contend that the entire basis for this legislation is without merit, we will take the time here to state some of our objections to specific facets and objectives of the legislation and to establish grounds for our opposition to both of the bills:

1. As of this date, there has been no demonstration of need for supplemental financing to provide quality electric service at reasonable rates to rural residents who would not otherwise receive such service.

2. Monongahela can detect no justification for a revolutionary departure from the rural electrification program by supplying public funds for vitually unlimited displacement of investor-owned facilities by: (a) take-over by tax-exempt rural electric cooperatives of customers who are already receiving quality service from existing, and tax-paying, suppliers, (b) construction by rural electric cooperatives of generation and transmission systems which would actually duplicate existing or planned service financed with private capital, (c) competition by tax-exempt rural electrical cooperatives for service to large industrial establishments to whom power is otherwise available, and (d) expansion by such tax-exempt cooperatives into urban areas.

3. If, however, subsequent and thorough study indicates that it is necessary to provide some means of supplemental financing to assist REA borrowers, we urge that the following principles be incorporated in any legislation for that purpose:

(a) Any loans made from supplemental financing should be made only where required "for the furnishing of electric service to persons in rural areas who are not receiving central station service," and only in accordance with all other standards and conditions prescribed in the Rural Electrification Act and otherwise by Congress.

(b) Any capital obtained in the open market should be through the sale of securities which receive no special tax exemptions and no direct or indirect federal guarantees.

(c) Existing REA lending programs under section 4 of the Act (now at 2 percent) should be restricted in the future to loans for distribution purposes to borrowers who, because of sparsely-populated territories, cannot reasonably be expected to finance their capital requirements through other means. We feel section 5 of the Act should be repealed.

(d) Loans to finance construction or expansion of generation or transmission facilities should be made only where it has been established, after public hearings, that there is not otherwise available to the borrower an adequate supply of electric power (or transmission facilities) at rates which, after making due allowance for the different tax components included therein, are at least as favorable as the cost of power (or transmission) from the facilities to be financed by the proposed loan. In the event of disagreement on the question of whether there is otherwise available such supply or facilities at such rates, the findings should be subject to review by an objective regulatory agency or by the Courts.

(e) Monongahela strongly urges that the committee undertake a through investigation to ascertain the amount of capital actually required to meet the legitimate needs of the rural electric cooperatives.

(f) There should be reasonable and specific provisions for periodic repayment of the government's investment and a requirement for reimbursement of the government for its cost in furnishing capital at least equal to the prevailing interest rate on long-term government bonds.

In addition, loans should be made at a rate of interest which would cover all fixed and operating costs of a supplemental financing program; application for supplemental financing for distribution purposes should be given priority over applications for loans for other purposes; no loan for the construction of any facilities should be made unless the state authority having jurisdiction over such construction is first obtained; supplementary financing loans should follow in general the terms applicable to similar commercial financing, including the duration of the loan period; a supplementary financing program should be supervised by a person other than the REA Administrator; and continuing supervision and control should be exercised by the executive and legislative branches as long as there is any federal investment in a supplementary financing program. Monongahela Power Company is not opposed to the original purpose of REA, namely, the providing of a government subsidy to aid in extending service in rural areas not receiving central station service. The comments listed above, however, point up the manner in which the proposed legislation deviates from the worthy purposes of the Rural Electrification Act.

Sincerely yours,

D. M. KAMMERT,

President.

STATEMENT OF DONALD S. KENNEDY, PRESIDENT AND CHAIRMAN OF THE BOARD, OKLAHOMA GAS & ELECTRIC CO., OKLAHOMA CITY, OKLA.

My name is Donald S. Kennedy, President and Chairman of the Board of the Oklahoma Gas and Electric Company, and I appear here in opposition to the enactment of S. 3720, S. 3337 or any legislation similar in design and purpose.

The Oklahoma Gas and Electric Company, with executive offices at 321 N. Harvey, Oklahoma City, Oklahoma, was incorporated February 27, 1902, and has been continuously engaged in the electric utility business since that time. (All gas properties were disposed of in 1928.)1

1 Oklahoma Gas and Electric Company now furnishes retail electric service in 261 cities and towns in Oklahoma and Western Arkansas. In addition, the Company provides wholesale electric service to 17 communities and four rural electric cooperatives. The Company's present plant generating capabilities are 1,524,000 KW with firm power purchases of 313.000 KW, making total available power in the amount of 1,837,000 KW. The Company's net maximum demand during the summer of 1966 was 1,575,000 KW. The service area of the Company covers about 30.000 square miles and includes approximately 1,200,000 people. As of December 31, 1965, the Company served approximately 393,000 customers. The Company stock, listed on the New York Stock Exchange and the Pacific Coast Stock Exchange is publicly held directly by more than 18,500 shareowners. Oklahoma Gas and Electric Company has shareowners in all fifty states of the Union and in a number of foreign countries. The Company is regulated by the Oklahoma Corporation Commission and the Arkansas Public Service Commission in the states of Oklahoma and Arkansas, respectively. It is also regulated by the Federal Power Commission. These facts are cited in order to show the size of the Company and its adequacy to serve the electrical requirements of all the residents in its service area.