as valuable and necessary as it was, was not alone enough for the rural electric cooperatives of South Dakota to show feasibility of repaying the loans.

It was not until 1944, with the passage of the Flood Control Act and also the Pace Act, that many of our cooperatives became feasible. And even this was not enough for some of them. Our systems were so marginal that even by purchasing low-cost hydro power from the Bureau of Reclamation, some of our cooperatives would not have proved feasible had not our state legislature passed a fair tax law, which was based on the ability to pay.

Because of our feasibility problem, we started late in organization and construction of our rural electric cooperatives in South Dakota. This created another hardship I am sure that the committee is well aware of; namely, the increased cost of construction immediately following the conclusion of WW II.

We in South Dakota have invested $1300 per consumer in distribution facilities alone. We serve an average of 1.5 consumers per mile of line. Our cooperative average less than $300 income per year per mile of line. Even with the advantage of the 2%-35 year loan program, one of our cooperatives is paying as high as 14¢ out of every dollar of revenue in interest to the Rural Electrification Administration. Our state average is over 8¢ for interest out of each dollar of revenue. Practically all agricultural production in South Dakota, as far as electrical energy is concerned, is dependent upon the rural electric cooperatives.

We are serving 90% of the farms and ranches in South Dakota and have achieved approximately 97% area coverage.

There has been real evidence this past winter that the job of serving electric energy in the Great Plains areas, and especially in the Dakotas, is a tremendous challenge. This is because of the terrain and weather hazards that we live with in attempting to supply continuous electric service in these sparsely populated

areas.

In South Dakota approximately $1.5 million damage was done to our member systems in 1965 from ice storms alone. More than half of our member cooperatives were seriously affected. More recently we also had considerable damage and loss of revenue resulting from the disastrous blizzards in the Dakotas in 1966.

I would like to call to the committee's attention that the average annual income of our farm and ranch families in South Dakota, who have to pay for the high cost of electric service in our sparsely populated areas, is less than $4,000. We are also faced with (probably even more so than most other states) a declining farm population which is affecting, I am sure, the whole structure of agriculture in the nation. In the last 10 years we have lost over 9.000 farms to which we had extended service. The economics department of South Dakota State University has projected an additional loss of 18,475 farms by 1980.

In my home county, according to a recent release from the County ASC office, we had in 1955 1,190 farms. We now have only 619 farms; a loss of 571 farms over a period of 10 years.

We, in good faith, built to and provided service to these 1,190 farms in the spirit of the covenant of agreement which we had and have with Congress for the providing of full area coverage.

The investment made to serve these vacant farms will have to be paid by the remaining consumers.

We are not wanting to convey the opinion necessarily that our state is a unique area. We are sure that other states have similar stories to tell.

With all of this we are still facing even a greater problem in our state as far as the future of our rural electrification program is concerned. The power that made our cooperatives possible in the beginning, hydro power marketed by the Bureau of Reclamation from the dams, has all been allocated. In fact, by 1971, according to Bureau of Reclamation figures, power to meet the power deficiency needs of our members will not be adequate. This means that more generating capacity must be installed.

We are still in the position that low-cost wholesale power and adequate 2%-35 year loan funds are just as essential today as they were originally to establish feasibility.

In view of the above related facts, we wish to make the following inquiries, hopeful of determining the committee's recommendation on the following:

(a) What will be the criteria and procedure used to determine the amount of 2% loan funds to be requested by the REA administrator every year?

(b) What will be the criteria and procedure for determining the interest rate charged each borrower in a three-interest rate program?

(c) What restrictions now imposed on G & T loans will not apply to the high-interest rate loans of either bill?

We appreciate very much the committee giving us this opportunity. We do hope you understand that we would not have requested this time had we not been so vitally concerned with our 2%-35 year loan program.

STATEMENT OF A. D. MUELLER, EXECUTIVE VICE PRESIDENT and GENERAL MANAGER, INDIANA STATEWIDE RURAL ELECTRIC COOPERATIVE, INC.

My name is A. D. Mueller. I am Executive Vice President and General Manager of Indiana Statewide Rural Electric Cooperative, Inc., the association of electric cooperatives in our State.

These member-owned systems were organized under the provisions of our Indiana Rural Electric Membership Corporation Act, enacted by our General Assembly in 1935. They have come to be known by their initials, as REMCs.

Back in the 1920's and early 1930's, an elaborate network of electric interurban railways linked most of the major communities of our State. From the high voltage lines required to operate the electric passenger trolleys, a comparatively small amount of additional revenue was earned by the traction companies through connecting some of the farms and rural homes located within easy reach of the interurban power system.

Consequently, by 1935 a far higher percentage of Indiana's rural people enjoyed central station electric service-some 10 percent of the farms and rural establishments-than was true in most of the other Middle Western and Western States of the Union.

The commercial electric companies, however. could not or would not, undertake to extend their facilities into the rural areas to take electric service to the remaining 90 percent of our farm and rural families.

Apparently our farmers were to be left to the backbreaking drudgery of agricultural production while the rest of our society enjoyed the benefits of electric energy. They were to find their way with a kerosene lamp while those in our towns and cities were enjoying the blessings of modern electric illumination.

The great disparity between the convenience, comfort and opportunity afforded those in our urban centers and the rural people left by the private power companies to shift for themselves in the Kerosene Age, was recognized by the Congress of the United States when it passed the Norris-Rayburn bill--the Rural Electrification Act-in 1936.

In the years since this farsighted law was enacted, Indiana's REMCS have built over 36,000 miles of distribution lines to take electric service to some 700,000 people in the rural areas of 90 of our 92 counties. From REMC facilities, energy is moving through 190,000 meters to take limitless benefits of electricity to farm and rural families, schools, churches, commercial enterprises, industrial firms, and other rural establishments.

It has, as everyone knows, completely transformed our rural areas, modernizing agricultural production and providing our rural people with a more equal opportunity for economic and social development. The REA program, and the cooperative rural electrification program which it made possible, has indeed proved to be good for all Americans.

In making a loan program available through the Rural Electrification Administration that would allow the farm and rural people of this country to provide themselves with electric service when they could not get it otherwise, the Congress had good reason to believe it was making a wise decision.

First, it was absolutely essential that action be taken that would bring farming out of its dawn-to-dusk, manual labor era into the modern age of mechanization. Central station electricity was imperative to this transition. America could not hope to prosper with a backward agriculture.

Second, Congress had every reason to place its complete confidence in the farm and rural people of this country in establishing the new REA loan program. These people are inherently honest, conscientious and dependable. When they assume a financial obligation they expect to repay it.

In the 30-year history of the Rural Electrification Administration, America's farm and rural people have amply justified the confidence Congress has had in them. They have borrowed funds prudently and they have invested them in their electric systems with wisdom and foresight. They are repaying their REA loans on time and ahead of time.

A number of REMCS in Indiana long since have retired all indebtedness to REA paying off their notes and retiring their mortgages years in advance of the final due dates. They felt this was not only good business, it expressed some of their gratitude to Congress and to their Federal Government for making it possible for them to have dependable service through their own electric systems.

The remarkable credit record established by nearly 1,000 rural electric cooperatives in this country merits the approbation of the Congress. The 20,000,000 people in rural America served by their own systems have thoroughly demonstrated their reliability and trustworthiness in discharging their obligations to the Rural Electrification Administration.

The very success they have attained, however, now is creating new and more serious problems for them. Not only has it been necessary for them to borrow and invest some $5-billion in electric facilities to serve all who want electricity in Rural America, but they are going to need still greater amounts of new capital to extend and improve their facilities to meet the demands of the future.

Some of the member-owned systems will need to continue borrowing at a low interest rate from REA to maintain adequate service and to keep pace with the rapidly increasing demand for electricity by their present users and by many more who will be coming onto their lines.

These cooperatives, for the most part, are in the more thinly settled areas of the country. They have high operating costs in relation to the number of consumers being served; they are making ends meet financially, only by the most careful conservation of their limited resources.

In time, as more members are connected to their lines and as more electricity is used by each consumer, these cooperatives can expect to attain a stronger financial position. In the years just ahead, however, they must depend upon REA loan funds to maintain adequate service and to expand to meet future demands. There are many other systems in more favorable circumstances. While they still may have rather heavy indebtedness, they are realizing sufficient net margins to justify paying a somewhat higher rate of interest than is charged by REA A number of Indiana REMCs are in this category. Several years ago, well ahead of the time when our National Association was instructed to make a study of future financial requirements, some electric cooperative leaders in The Hoosier State were exploring various possibilities for obtaining capital from private

sources.

We soon learned that our rural electric systems are much too small to attract long-range capital investments at interest rates we can afford to pay. It became apparent, in our discussions with private bankers, that the only feasible method for obtaining capital outside of the Rural Electrification Administration, was through pooling our resources and dealing with a credit source geared to the particular needs of electric utility financing.

From time to time, as far back as 1956 and 1957, REMC leaders in Indiana expressed a willingness to pay a higher interest rate than is charged by REA in return for more favorable provisions-fewer restrictions-on the capital borrowed.

While Indiana's REMC leaders, therefore, were in the vanguard of those willing to pay higher interest rates, we were careful not to publicize this attitude for fear it might prove detrimental to some of our sister-cooperatives in those areas where paying higher interest rates is not economically feasible.

We continued to urge, however, that a study in depth be made of possibilities for obtaining financing that would supplement the loan funds made available by Congress to the Rural Electrification Administration. When such a study was recommended at the annual meeting of our National Rural Electric Cooperative Association in Dallas, Texas, in March of 1964, Indiana's voting delegates were unanimous in their support. We have cooperated with NRECA in making this study and we are extremely well pleased with the results that came out of it. The services and consultation of one of Wall Street's most respected financial houses, Kuhn, Loeb & Company, were utilized extensively in the course of this

study. The final recommendations for obtaining capital from the private money market are sensible and workable.

The plan for accomplishing this desirable end has been incorporated in legislation now under consideration by this distinguished House Committee on Agriculture. The measure most workable and most practical, from every standpoint, is H.R. 14000 introduced by the Honorable W. R. Poage of Texas.

We urge you to report this bill out of Committee with the strongest possible recommendations that it be given prompt consideration and passed by the House of Representatives in this session of Congress.

In support of the position taken by Indiana's REMC leaders, I am submitting for the record Resolution No. 3, adopted unanimously by the voting delegates at the 31st annual meeting of Indiana Statewide REC, Inc. on January 28 of this year. This resolution urges Congress to enact legislation incorporated in the bill introduced by Congressman Poage, at the earliest practicable time.

No. 3. RURAL ELECTRIC COOPERATIVE FINANCING PLAN

Whereas the voting delegates of Indiana's REMCs at the 1964 annual meeting of the National Rural Electric Cooperative Association, together with a majority of voting delegates at the meeting, adopted a resolution to empower NRECA to make a long-range study of financing of America's rural electric cooperatives; and

Whereas this study was undertaken by NRECA with consultation and assistance of Kuhn, Loeb & Company and cooperation from the Rural Electrification Administration, and has developed a plan for future financing of the rural electric systems; and

Whereas the plan provides for both the preservation of the basic REA interest rate at two percent (2%) for 35-year loans, as well as development of a mechanism for procuring needed supplemental capital; and

Whereas it is our considered judgment that this plan appears to be the most feasible means for procuring the capital required for the orderly growth and expansion of the rural electric cooperatives to permit them to meet their obligations to their members and to discharge their trust to the public in general: Therefore, be it

Resolved, That Indiana Statewide Rural Electric Cooperative, Inc. endorse the NRECA Supplemental Financing Program and recommend its adoption by the members of the National Rural Electric Cooperative Association; and be it further

Resolved, That Indiana Statewide REC, Inc. and its member-systems pledge their vigorous and continuing support in seeking enactment of appropriate legislation in the United States Congress to put the proposed Supplemental Financing Program into operation.

Legislation that will provide for America's electric cooperatives and other REA borrowers to establish a highly specialized bank through which to finance their growth and expansion, when enacted into law, will some day rank in importance with the Rural Electrification Act itself, in advancing the progress of Rural America.

REA, over the years, has deserved and been accorded strong bi-partisan support in the Congress. There is no room for partisan considerations in giving the same support to legislation that will provide for establishing the Federal Bank for Rural Electric Systems. Through such a bank, those electric systems able and willing to do so, will obtain essential capital at higher interest rates than should ever be charged by REA

In obtaining funds through the bank, these electric cooperatives will in turn, substantially reduce the amount of loan funds Congress ultimately will be called upon to authorize for those who must continue to borrow from REA.

Provisions have been written into H.R. 14000 which will allow the electric cooperatives, in time, to acquire ownership and control of the Federal Bank for Rural Electric Systems. Eventually this will lead to their independence of REA and the need to return to Congress for the funds required to continue this great rural electrification program. America's electric cooperatives, as so many have urged, will stand firmly on their own.

With an unexcelled credit record extending over three decades, the memberowned electric systems more than justify the continued confidence of the Congress

and their right to establish a specialized bank through which to meet their future capital needs.

Many served by these cooperatives are the same people who have made such a great financial success of the Farm Credit System established by Congress some 33 years ago. Started with capital furnished by the Federal Government, the Farm Credit banks have retired this investment, substituting their own money and acquiring ownership and control of the Federal Land Banks, the Intermediate Credit Banks and the Banks for Cooperatives.

Congress now is being asked simply to follow the same general pattern in allowing the farm and rural people of America to attain the same measure of success through the Federal Bank for Rural Electric Systems. No group of people in the world today is a better credit risk.

All forward-looking legislation, such as H.R. 14000, inevitably draws opposition, so it is not surprising that the commercial electric companies already have organized what the press has described as a "March on Washington" in an all-out campaign to defeat this measure. Their representatives have descended upon our Nation's Capital from almost every state in the Union.

This is, indeed, a strange paradox. For years, these self-styled investorowned utilities have earned enormous profits selling power at wholesale to their electric cooperative customers while at the same time denouncing them-and the Congress for continuing REA's low interest rate loan policy.

Now, when the cooperatives themselves have come forward with a plan for establishing a new source of capital through their own Federal Bank for Rural Electric Systems-at higher rates of interest-the power companies are lined up solidly in opposition. These are the same companies-let us keep in mindwhich would do not the job themselves and have denounced cooperative rural electrification and REA, from the very first.

The record established by REA and its borrowers is the most effective answer to this power company opposition. That record speaks for itself. Congress has every reason to demonstrate its continued confidence in the people of Rural America by giving them this opportunity to establish their own Federal Bank for Rural Electric Systems, and eventually, to attain independent status in financing the capital requirements of their own electric systems.

The record of the commercial power companies also speaks for itself. They have attacked the Congress, the Rural Electrification Administration and the cooperatives over the years for promoting a successful program that the utilities insisted could not be done.

Indiana's REMCS are solidly in favor of H.R. 14000 and urge that this legislation be approved by the Committee on Agriculture and that it be enacted into law at the earliest possible time.

Thank you for the courtesy extended in permitting this testimony and for giving it your thoughtful consideration.

MERIWETHER LEWIS ELECTRIC COOPERATIVE,
Centerville, Tenn., May 23, 1966.

Hon. HAROLD D. COOLEY,

Chairman House Agriculture Committee,
Washington, D.C.

MY DEAR MR. COOLEY: In support of H.R. 14837 Supplemental Financing Legislation, I would like to submit facts from our operating records in graphic form, showing capital expenditures for plan addition for the past ten years and forecast of future capital requirements for the next ten years.

A careful study and analysis of future revenue and expense definitely reveals that, as in the past history of this Cooperative, these capital requirements cannot be met without the use of borrowed money. In the past, this Cooperative has had available loan funds from the REA at a 2% interest rate. This plan is still greatly needed. However, our present concern is the availability of capital not necessarily at the 2% rate but at a reasonable rate-a rate that we can afford to pay and continue to expand service in the rural areas. If we are to meet our service responsibilities, we must have a minimum of $300,000 in borrowed funds each year.

Very truly yours,

P. H. TIDWELL, Manager.