Therefore, I urge that as the first order of business you favorably report the Denholm bill. Once you have mandated restoration of the lawful program for funding our rural electrification program, then we can begin the long and difficult task of examining the Rural Electrification Act in order to make those changes which may be necessary. We stand ready to work with this committee and its members in developing a program which improve the budgetary impact or the interest rate structure of our present program.

We ask, however, that once that task is begun that you not be unmindful of the fact that there are still rural electric systems in this Nation-and in Pennsylvania-which must have the equalizer of lowinterest loans if they are to successfully meet the challenge of providing area-coverage electric service at reasonable rates.

I would also ask that you remember that low-interest loans under the Rural Electrification Act have not come without many strings attached. You are aware of the many requirements of the act. However, I will mention one or two as illustrations. Borrowers under the Rural Electrification Act are prevented from providing service in towns of more than 1,500 people. They are prevented from serving people who are already receiving central-station service. There are a long list of rules and regulations that Rural Electrification Administration borrowers must heed. The effect of these laws, rules, and regulations has been to restrict Rural Electrification Administration borrowers to service areas that are not as lucrative as most places. This, perhaps, is as it should be. However, when and if modifications to the Rural Electrification Act come, with an attendant increasing rate of interest, I hope the Congress will remember that the very fact that rural electric systems have followed the dictates of the Rural Electrification Act makes them that much less able to bear the burden of higher interest rates or additional restrictive provisions.

In Pennsylvania, we right now are having in our farm show complex a series of high school basketball tournaments. It is tournament time in Pennsylvania. I had forgotten, I guess, back in the old high school days, in playing basketball, the high school basketball players who were Catholics, quite often when they stepped up to the foul line, would cross themselves, obviously asking for a little help. I am not a Catholic, but I never felt more the need for a little bit of help than I do today in communicating to this committee. I have steped up to the foul line a number of times and taken my chance. Today, the life, the virtual lifeblood of rural America hangs, I think, on what this committee decides not only on the Rural Electrification Act but a number of others.

I have from my Congressman's district, George, the Daily Record out of York. It is interesting to note in this paper-this is primarily a farm paper in a rural community that Mr. Goodling and I share as our home page after page after page, Mr. Chairman, column after column, inch after inch and line after line that say, public sale of valuabie farm machinery, public sale, farm machinery and equipment, public sale. Farmers are being forced off the land. The family farmer is being forced from his home. The family farmer is being forced from a heritage of one of the most valuable things, I think, a consideration. that has made America the kind of country that it is.

I believe there are several things that are of significance here. It would seem to many of us who have as our life's work trying to repre

sent people in rural areas that there must be a concerted effort, a concerted effort to increase fram prices, to put the farmer in a bad light. The press that our President talks about is not doing rural people much of a favor these days, either. Every headline talks about increased farm prices, food at an all time high. City people are getting to the point where they believe the farmer must be getting rich out there. Yet rural papers throughout rural America substantially have for sale, farm auction ads in them because rural people just are not making it. And we believe that one of the ways that you can help keep rural people, family farmers, on the farm and producing the food and fibre that this action needs at a low cost is through the rural electrification program. I think there is abundant and good justification for this program. Farmers are a proud bunch of people, with a proud heritage. They come to this committee asking for the ability and the right to borrow money and to pay that money with interest. I do not care to debate what that interest rate is, but the farmer is not one who comes for the grants that the city boys get. The farmer does not want a grant, the farmer is not asking for a grant now. He is asking for the Federal Government to make available to him amounts of money that will enable him to accomplish an objective, an objective that I think is a sound social objective, that this committee probably shares. I think this objective is one that is vital to our Nation, to be sure that we do not drive the family farmer off the farm. When potatoes cost $10 apiece, the boys in the city will little remember that a committee saved a couple of bucks on the rate of interest out of the Federal Treasury. I believe it is a vital piece of legislation.

I think many of you members who sat on this committee for yearsand Mr. Poage, I feel I know you as I know my own father, as an observer and I know the kinds of things you stood for and fought for over the years. I tell you today that we look to you, Mr. Poage, for the real gut leadership that we have to have to save this rural electrification program, which I think is not only a selfish thing for the RE program, but to make it a broader aspect from the standpoint of asking for people to survive. That is a social objective that is of great interest and ought to be of great interest to this Congress and to this committee. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much. We do appreciate that good statement, and hope you will make yourself available here in a few

minutes.

Mr. MATSON. I will be delighted to.

The CHAIRMAN. The next witness will be Mr. David C. Fullarton, executive vice president, National Telephone Cooperative Association. I understand Mr. Fullarton brought a couple of people from his staff.

We are delighted to have Mr. Fullarton with us.

STATEMENT OF DAVID C. FULLARTON, EXECUTIVE VICE PRESIDENT, NATIONAL TELEPHONE COOPERATIVE ASSOCIATION, WASHINGTON, D.C., ACCOMPANIED BY JAMES L. BASS, GENERAL COUNSEL; AND ROSS E. HELLER, LEGISLATIVE DIRECTOR

Mr. FULLARTON. Thank you, Mr. Chairman.

I will begin by introducing those with me. On my right Mr. James L. Bass of Carthage, Tenn. Mr. Bass is general counsel.

Mr. Ross E. Heller, Washington, D.C., legislative director.

Mr. Chairman, we have no prepared statement this morning. Many of our views were presented to the committee less than 2 weeks ago. With your permission, I will make just a brief oral statement.

The CHAIRMAN. Glad to have you do so.

Mr. FULLARTON. We appreciate the opportunity to appear once again before this committee, whose interests are in rural America and for rural citizens. We feel you have done a tremendous job in the past to meet the objectives of a strong rural America. I would like to say at the outset that I have not heard anything here this morning that I cannot agree with 100 percent, Mr. Matson's and the chairman's statements, as well as Congressman Nelsen.

We have two primary concerns. We have expressed them to the committee on many occasions. I will repeat them here for the record. We are very much concerned that there be available an adequate supply of 2 percent money for those systems who need it and that this supply be a permanent one and a dependable one.

Second, we are very much concerned that there be a strong, stable, and growing rural telephone bank. This committee in its wisdom passed legislation creating a telephone bank in 1971. We think it is the best thing that ever happened. It was a vital step forward for rural telephone systems in both gaining dependence from total dependence on Government subsidized money and created a situation where borrowers could obtain funds at the rates they could afford, but not at the low 2 percent. We believe the revised compromise which is available to us is a step in the right direction and we think all the changes that were made from the first version are positive changes. and we support them. While we understand, Mr. Chairman, that there are some differences you discussed them this morning before the committee-we hope you will work those out to the best possible advantage, and we support your efforts and everybody's efforts to do so.

We do support this compromise legislation, particularly the criteria contained in it. Some of it, as you know, came from the rural telephone bank language.

We support the increased lending limits for banks; we think it is needed, the increase from eight times paid-in capital to 20 times.

We support the revolving fund concept. We are hopeful that a joint revolving fund from which both telephone and electric moneys would come would be a workable solution. As you know, these programs have always been separate.

We do suggest to the committee that they consider very carefully the present operation of rural telephone bank lending programs. As you gentlemen are aware, under the present bank law, funds are loaned at interest rates starting at 4 percent and going up to 8 percent. As we understand the revised compromise, this would be changed and the lending limits of the rural telephone bank would begin at a minimum of 5 percent and stop at the cost of money to the bank, which is 61⁄2 or 7 percent, I am not sure which. The net effect of this, of course, would be to squeeze the range of interest rates coming from the bank. In a certain sense, squeezing those limits helps the financially strong borrowers at the expense of the weak. Where a strong borrower might be paying 8 percent, where they are now paying 62 to 7. Where

he borrowed previously at 4 percent money, he would borrow at a minimum of 5 percent.

We ask the committee to consider the impact of those changes on the rural telephone bank lending program and we do feel that if in your consideration, you consider that the limits perhaps ought not to be as broad as they have been, to consider not changing that aspect of the bank operations. That change, for the record, is specified under section 90 on page 14 of the proposal.

We look forward to seeing the final language that the chairman is working out with the Administration and we have faith and confidence in his ability to well present the views and protect the interests of the people in rural America. We are sure the best possible solution will be worked out and we feel we will be able to support it.

In conclusion, H.R. 2276 also meets the concerns that we have expressed and should the committee in its wisdom decide not to report out a compromise version, then we would find ourselves in a position of fully supporting H.R. 2276, should that legislation be reported

out.

That concludes my statement, Mr. Chairman.

The CHAIRMAN. Thank you very much. We are delighted to have you with us and if you will be with us for the next few minutes, we

will ask you to come back.

Mr. FULLARTON. Fine, sir.

The CHAIRMAN. Now, our next witness is Mr. Lloyd Ernst, who is the assistant manager of the Basin Electric Cooperative, which is headquartered in Bismarck, N. Dak.

Mr. Ernst, we are glad to have your comments.

STATEMENT OF LLOYD ERNST, ASSISTANT MANAGER, BASIN ELECTRIC COOPERATIVE, BISMARCK, N. DAK.

Mr. ERNST. Mr. Chairman, members of the committee. My name is Lloyd A. Ernst, I am assistant to the manager of Basin Electric Power Cooperative which is headquartered in Bismarck, N. Dak. Basin Electric is a wholesale power supply cooperative which provides bulk power to more than 100 rural electric cooperatives and public power systems in eight States of the Upper Missouri Basin. Mr. Chairman, speaking on behalf of Basin Electric, its board of directors and its members, I wish to register our complete and unequivocal support of H.R. 2276 and related bills.

Basin Electric is in the midst of a $168 million construction program. This program includes a 460,000 kW lignite-fired power generating unit under construction near Stanton, N. Dak. and 528 miles of 345,000 volt transmission lines and numerous other transmission facilities.

To avoid a power shortage in the Missouri Basin these facilities must be in production by mid-1975. To meet that schedule there can be no delays in construction between now and 1975. Unfortunately, termination of the REA loan program threatens such delay. There will be no alternative sources of power supply available to avoid such a shortage in the region. The power is required primarily to meet the needs of farmers, ranchers, other rural residents and businesses.

94-225-73- -11

In addition to creating a power shortage, such a delay would also be extremely costly. This project is the largest single power supply construction program underway in the two Dakotas. It is also the largest ever financed by the Rural Electrification Administration. This particular program was launched in 1968 to supply needed power to rural electrics serving more than 1 million people in eight States. It was financed with $97 million of REA loan funds and $18.4 million which our member cooperatives themselves will provide out of their limited reserves.

In 1968 when plans for this project were finalized, it was estimated that the total cost would be approximately $117 million. By 1970 it was clear that inflation was going to substantially increase this cost and REA asked Basin Electric to prepare revised cost estimates. At the same time large sums of money had to be budgeted to cover costs associated with purchase and installation of equipment to meet environmental protection standards. Finally, an additional transmission line became necessary because of the failure of power companies in South Dakota and Wyoming to agree to a joint transmission program with Basin Electric and the U.S. Bureau of Reclamation.

These developments resulted in the need for approximately $51 million of additional financing. REA firmly on several occasions promised Basin Electric publicly and privately in 1971 and 1972, that it would provide this additional needed financing out of REA 2 percent loan funds. The actual making of the additional loan was postponed several times but finally firmly promised to be made on or about January 1, 1973. Unfortunately, as you know, on December 29 the Administration announced that it was canceling the entire REA loan program with no warning and without regard to outstanding commitments.

We are convinced that REA Administrator David Hamil made this commitment to Basin Electric in all good faith and that he had no way of anticipating that the program would be terminated.

As a result, Basin Electric will very soon have committed all of its financing and will need more financing in order to award the rest of our construction contracts without costly delay. We have urgently appealed to various officials in the executive branch, urging that the Administration release 2 percent loan funds to meet our needs, and that the commitment to Basin Electric be kept. Thus far, our appeals have been unsuccessful.

There is no alternative, therefore, than for the Congress to enact this legislation. It is our urgent hope that this action will be taken as promptly as possible. We were encouraged when the United States Senate passed similar legislation with a huge majority.

We request that the committee not consider amendments, which would undoubtedly delay this proposal from becoming law.

We recognize that the threat of a presidential veto looms in the minds of many. I assume, however, that Congress will not consider such possibility as a controlling basis for its decisions on legislation. We respectfully and urgently plead again, Mr. Chairman and members of the committee, that this bill be given a "do pass" by your committee, and that it will quickly be enacted into law.

On behalf of the members and Basin Electric, we thank the committee for this opportunity to present our statement.