next few years or more, it should be patterned after those Banks that have been established for other farm credit agencies. The Bank should be subject to some form of taxation, perhaps a franchise tax during those years that the Government has capital invested in it, and it should be fully subject to the corporation income tax after its ownership has been transferred completely to private hands. The legislation establishing the Bank should also provide for its actual direction by the farmer-owners of the electric cooperatives and not by Government officials. All rules concerning the terms under which loans will be made in different categories should be clearly established and not left to determination by the Governor and the Board of Directors of the Bank. Areas in which the REA borrowers are to serve should be sharply delineated to provide territorial integrity as between the REA cooperatives and the noncooperative power companies. No loans should be made either for generating and transmission facilities or for distribution facilities without the determination by the appropriate State Utility Commission that the proposed service or plant is needed. In no event should duplication of services be permitted. Still other aternatives, some of them quite complex, for achieving the goal of private ownership and private financing could be suggested. We believe, however, that as a result of these hearings, it will be apparent that there is need for much further and deeper study of the whole matter before action is taken by the Congress. It would surely be wiser to make certain that the best possible solution is offered to the Congress rather than to act hastily upon an indefinite, uncertain measure that is difficult to comprehend, even for those who are well acquainted with the whole matter it deals with. CONCLUSIONS It appears that the capital needs of electric cooperatives that have been projected in the proposal for a Federal Bank for Rural Electric Systems presume the establishment of an electric power empire that would put bureaucracy ahead of the need to supply eletcricity to rural areas at the lowest rates possible under fair competitive conditions. With or without the proposed Bank, the shrinkage of the tax base and the cost of low-interest-rate funds borrowed from the Treasury by the REA cooperatives can only be to the disadvantage of the Federal Government, and thereby to the disadvantage of all taxpayers who together share the fiscal burden. The plain fact is that the program of rural electrification originally intended by the Congress has been virtually completed. Now that the rural electric system has reached maturity it should become in integral part of the free enterprise system by assuming its fair share of that system's responsibilities and burdens. In so doing it would have no difficulty in meeting its legitimate capital needs in the same way as the noncooperative electric companies meet theirs. STATEMENT OF M. L. PINSON, GENERAL MANAGER, SULPHUR SPRINGS VALLEY ELECTRIC COOPERATIVE, WILLCOX, ARIZ. AND PRESIDENT, GRAND CANYON STATE ELECTRIC COOPERATIVE Mr. Chairman and Gentlemen of the Subcommittee, my name is M.L. Pinson, I am General Manager of the Sulphur Springs Valley Electric Cooperative, 350 North Haskell Avenue, Willcox, Arizona. I am also President of the Grand Canyon State Electric Cooperative Association whose membership consists of seven Arizona Electric Cooperatives serving in excess of 25,000 families throughout Arizona. The Sulphur Springs Valley Electric Cooperative is a membership corporation serving 9,000 members over 2,200 miles of line in southeastern Arizona. During the last ten years the Cooperative's service area has experienced tremendous growth as has the rest of the State of Arizona. The Sulphur Springs Valley Electric Cooperative has met the past electrical demands of this growth by use of Rural Electrification Administration loans. The Cooperatives in the State of Arizona will continue to experience rapid growth in the future at ever increasing rate. To meet the demand placed on it by this growth, the Sulphur Springs Valley Electric Cooperative as well as the other Arizona Cooperatives will be faced with securing growth capital. Therefore, this statement is filed in support of the Cooper Bill S. 3720 and I urge prompt and favorable consideration of this bill by the Subcommittee. FAIRBANKS, ALASKA, July 6, 1966. Hon. ERNEST GRUENING, U.S. Senate, New Senate Office Building, DEAR SENATOR GRUENING: Last month we sent you a brief telegram signed by the Board of Directors of Golden Valley indicating that, of the various bills then introduced to amend the REA Act to provide for a Federal Electric Book, we preferred the Administration Bill HR14837. The reason for this preference was simply that we felt the Administration Bill provided for better control by Congress than did the NRECA-sponsored legislation. We regarded HR14837 only as the lesser evil. In our opinion, the Federal Electric Bank is not necessary or desirable. Instead of increasing Federal participation in financing rural electric systems, we believe that steps should be taken to reduce the Federal subsidy from its present level. The stated objective of the Federal Electric Bank is to provide the capital needed by REA borrowers in continually increasing amounts and at the same time to reduce the cost of the REA to the Federal government. We believe there is a much simpler way to accomplish these worthwhile objectives in a shorter period of time. Looking first at the amount of capital needed by REA borrowers, over the years increasing amounts of REA money have gone to finance generation and transmission (G&T) facilities; in the last three years of record substantially more than 50% of REA financing has gone to G&T facilities. There are a few isolated electric systems who must build their own G&T facilities, but by far the greatest amount of REA money has gone into G&T facilities duplicating similar facilities owned by others. Eliminating this unnecessary and wasteful duplication would immediately cut in half the demand for REA loans funds. This is not our view alone. The June 1966 issue of the magazine, "POWER ENGINEERING" reports Deputy REA Administrator Richard H. Wood's comments at the recent American Power Conference in these words: "The REA official foresees far-reaching benefits coming from complete integration of the generation and transmission facilities for producing and transmitting power on a high-volume impartial basis for all electric retailers in America. Unrestricted participation in such integrated operations would make it unnecessary for REAfinanced systems to construct their own G&T facilities. But, wholesale power would have to be available on a secure, low-cost basis." Proponents of increased Federal participation in rural electric system financing claim that 2% REA financing is "an indespensable equalizer" necessary to keep rural electric rates in line with urban rates. This position is indefensible. In the first first place, electric rates vary throughout the country far more widely than the subsidy of 2% interest can equalize. There is no reason this variation in price should not exist-the price of lettuce varies widely too. In the second place, according to NRECA's figures doubling the interest rate paid for REA loans now outstanding would increase the average electric bill paid by rural residential consumers by 70¢ a month. It is inconceivable that this insignificant change, amounting to far less than the spiraling inflation we are experiencing, would destroy the rural electric systems. We believe the Congress could accomplish much for the country as a whole and the rural electrification program itself in time by: 1. Not authorizing the Federal Electric Bank. 2. Restricting REA loans for generation and transmission facilities to isolated systems only. For this to be reasonable, REA borrowers must have territorial protection and be assured of reasonable wholesale rates from their suppliers. These safeguards should be supplied by effective State Public Utility Commissions. 3. Providing for gradually increasing the interest rate on REA loans until it equals the cost of money to the Federal government plus the cost of operating the REA. 4. Modifying the present highly restrictive REA loan terms (established administratively by REA, not by Congress) to permit an REA borrower to utilize private financing to supplement, and eventually replace, REA loan funds. I don't wish to imply that the foregoing views are endorsed by the Board of Directors of Golden Valley; only the relative merits of the various Federal Bank bills have been discussed in detail. The entire matter will be reviewed at the next meeting of the Board of Directors. Sincerely yours, H. C. PURCELL, General Manager, Golden Valley Electric Association. STATEMENT OF J. LEE RICE, JR., PRESIDENT, ALLEGHENY POWER SYSTEM, NEW YORK, N.Y. The comments which follow set forth the position of Allegheny Power System, Inc., with respect to S. 3337 and S. 3720 relative to supplemental financing for rural electric systems. Allegheny is the parent company in an integrated electric utility holding company system which serves over 800,000 customers in an area of almost 30,000 square miles in Maryland, Ohio, Pennsylvania, Virginia and West Virginia. The principal operating companies of the System are Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company. The basic purpose of these bills is substantially the same as H.R. 14000 and H.R. 14837 on which the Agriculture Committee of the House of Representatives held extensive hearings. All proceed from the assertion that the rural electric cooperative systems have growing capital needs that cannot be met by REA using funds authorized by Congress. Yet you can search the record of the House hearings in vain for one wit of testimony in support of this assertion. And all proceed from this unsupported assertion to provide for a vast new program to perpetuate and expand the life of the Rural Electrification Administration. We think it is time for the Congress to undertake a comprehensive study of its own of the true capital needs of the rural electric cooperatives over the next 20 years with the object of deciding what, if any, the future of the Rural Electrification Administration should be. We are confident that such a study will show conclusively that the purposes of the Rural Electrification Act have been largely accomplished and that a phasing out of the Rural Electrification Administration, with commendation for a job well done, is the logical next step. STATEMENT OF REEVES RITCHIE, PRESIDENT, ARKANSAS POWER & LIGHT COMPANY, LITTLE ROCK, ARK. My name is Reeves Ritchie. I am president of the Arkansas Power & Light Company, an investor-owned electric utility incorporated in the State of Arkansas. The Company serves directly more than 339,000 customers, over 116,000 of whom are rural customers. In addition, it supplies all or part of the wholesale electric power requirements of 14 electric cooperatives, seven municipal electric systems and one small privately owned utility. The Company operates in 61 of the State's 75 counties. The purpose in our appearance here today is to bring to you the basic reasons for our opposition to the legislation proposed in S. 3337 and S. 3720. We believe that the establishment of a Federal bank for rural electric systems of such magnitude and with such unlimited powers as has been proposed cannot be justified as being necessary or desirable to the carrying out of the purposes of the Rural Electrification Administration as established by Congress in the original Act. At this point, I would like to make it clear that our Company does not oppose the rural electrification program as it was originally intended by Congress— to assist in bringing electric energy to persons in rural areas who did not have central station service available and who could not economically be served by investor-owned companies. Arkansas Power & Light Company has cooperated with the rural electric cooperatives in our area since the beginning of the REA program. In 1965, Arkansas Power & Light Company supplied power and energy at wholesale to 14 of the State's 18 REA cooperatives at 97 points of delivery. We sold them over 483,000,000 kilowatt hours of energy at an average rate of 7.24 mills per kilowatt hour. Twenty-year contracts with provisions for renewal are available to the electric cooperatives we serve; and under these contracts, we agree to furnish their entire requirements to meet the needs of their customers without restriction. We have been able to meet their needs in the past and will have no difficulty in doing so in the future. These bills, as proposed, would continue the present REA 2% program but, in addition, they would authorize up to $1,000,000,000 of Federal funds for the capitalization of a Federal Electric Bank and would provide no specific date for repayment of this money. They would allow the bank to operate without limitation as to the areas to be served by borrowers or the types of facilities to be financed by loans from the bank. They would allow loans to be made without proof of actual need; and, most importantly, they would allow the bank and its borrower to operate free of restrictions concerning unnecessary and duplicating facilities which Congress has written into REA appropriations reports over the years. To emphasize the need for continued surveillance by the Congress of the actions of the REA Administrator in his approval of loans, we cite a specific instance in which the Administrator recently approved a loan in the amount of $14,500,000 to the Arkansas Electric Cooperative Corporation, a G & T cooperative in the State of Arkansas, without having complied with the specific written criteria incorporated in the appropriation reports of the House and Senate in recent years. We know of no action by the Administrator to determine wherein the contracts under which the distribution cooperatives are currently furnished electric power are unreasonable. We, the present supplier, were not advised wherein our present contracts contained unreasonable conditions or charges. We were certainly given no opportunity to review the situation and submit our response to the Administrator for his consideration prior to his approval of the loan. Under these circumstances, we do not see how the Administrator could certify to the Secretary of Agriculture and the Congress that all of the required actions had been taken and, therefore, can only assume that the directives of Congress were not taken into consideration. In the current bills under consideration, no objective is set forth for the very crucial consideration of what is the basic purpose of the bank other than to supply more money to borrowers. There has been no proven detailed explanation of why the bank is needed since the present program is to continue unaltered, unmodified and without a ceiling. It sets the stage and provides the mechanics for a complete government power system which would, for all practical purposes, be beyond the surveillance of Congress and other regulatory bodies. It would preserve for the REA borrowers the present 2% financing program which it has always had, and add to it a device free of all Congressional restrictions which would enable it to build generating and transmission facilities without having to justify them on any basis of economics or need before any meaningful forum. In view of the fact that virtually all of the rural areas in America now have electric service available, there is no need for this additional financing. Since the major job of building electric distribution lines into rural areas has been accomplished, the continuing needs of the REA's for capital funds will be principally for system improvements to accommodate load growth on the existing system and for minor extensions. It is reasonable, therefore, to expect that the total requirements for capital funds in the years to come will decrease rather than increase provided the objectives of REA remain the same as those defined by Congress when it originally established the rural electrification program. These proposals state no other objectives. The source of funds to accomplish the above requirements is now available within the Rural Electrification Act. We respectfully suggest that if the rural electric cooperatives are to operate within the original intent of the Congress when it established the Rural Electrification Administration for the purpose of making low interest rate loans available in order that electric energy could be brought to persons in rural areas who were not receiving central station service, then a Federal bank for rural electric systems is not needed. If, on the other hand, the true (if unstated) purpose of this legislation is to supply funds and the authority by which rural electric cooperatives can engage in the electric utility business on a full scale, build transmission lines and generating facilities at will, and compete with taxpaying businesses for all types of customers, then they should not be granted discriminatory preference in the form of Federally subsidized financing and freedom from taxes. The annual Statistical Report on Rural Electrification Borrowers for 1964 shows the 18 Arkansas cooperatives as a group to be in sound financial condition. Certinly, most of them should be in a position at this time to borrow money for their reasonable needs on the open market. We believe that, before any move is made, careful study should be given to the question of whether existing lending agencies set up under the Farm Credit Administration, already capitalized, and having the lending mechanics already in operation, might not offer a far more economical and practical solution to the problem of REA financing. In conclusion, I strongly urge your consideration of the fact that S. 3337 and S. 3720 would, in no way, accomplish the purpose of reducing the burden of 70-671-66- -37 Federal subsidy of the REA program. On the contrary, these proposals would tend to increase the scope and magnitude of tax-exempt electric operations, replacing or displacing taxpaying electric systems with which they are in competition and thereby proportionately reducing Federal revenues. Furthermore, these proposals would free these Federally subsidized, tax-exempt electric systems from any meaningful control by Congress and other regulatory bodies even though they would remain heavily subsidized by the Federal Government. We respectfully suggest that no emergency exists which would justify precipitous action by this Committee. Congress has appropriated entirely adequate funds ($375,000,000) for REA loans in the coming fiscal year. S. 3337 and S. 3720, as proposed, is legislation of far-reaching import which is deserving of careful and deliberate study by all affected parties. Thank you for the privilege of appearing before you to present our views with regard to this extremely important proposed legislation. HOUSTON, TEX., August 31, 1966. Hon. HERMAN E. TALMADGE, DEAR SENATOR TALMADGE: It is our understanding that your Subcommittee's hearings on subject bills were concluded on August 19, 1966, that the record of such hearings has been held open until September 2, 1966 to incorporate additional statements by interested persons and that no further hearings on these or similar bills are scheduled by your Subcommittee. In the event additional hearings should be scheduled on these or similar "electric bank" bills we will appreciate an opportunity to appear before your Subcommittee and be heard concerning such bills. We are attaching a copy of the statement concerning the "electric bank" bills which we filed with the House Agriculture Committee in our letter of May 31, 1966 concerning H.R. 14837 (Cooley) and H.R. 14000 (Poage). It appears that subject S. 3720 is identical with the Committee Print No. 2 version of H.R. 14837 (except that S. 3720 would fix a 3% instead of a 4% maximum limit on intermediate bank loans) and that our general statements in the House are equally applicable to subject bills. We feel that the subjects of discriminatory taxation and control by Congress are of crucial importance in this controversy and that they deserve far more attention than many of the mechanical details which have been the subject of much discussion. We will appreciate it, therefore, if you will have this letter and the attached letter filed as a part of the record of your Subcommittee's hearings on subject bills, as a general and preliminary statement on our part concerning subject bills. As noted above, we will appreciate an opportunity to update and amplify our comments in person if your Subcommittee decides to take up this general subject again. Respectfully yours, HOUSTON LIGHTING & POWER Co., By P. H. ROBINSON, President. HOUSTON, TEX., May 31, 1966. Hon. HAROLD D. COOLEY, Chairman, Agriculture Committee, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: We appreciate this opportunity to submit our views on subject bills in connection with the hearings beginning today. THE PROPOSED REA "BANK" PLANS What is the REA program? How do the "bank" proposals relate to this program? These are difficult questions because of the fundamental ambivalence of the program as it is presently administered: At its best the REA program has brought needed electric service to rural areas which probably would not have obtained it any other way. At its worst the REA program, with no further unserved rural areas to be served, has turned its no-longer-needed aggressiveness in the direction of displacing and destroying existing suppliers of electricity. |