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problem is essentially unique and it is my hope that this Committee will agree that the exclusion of Puerto Rico from the Federal rural telephone program should not be continued.

SUGGESTED TECHNICAL AMENDMENTS Finally, I would like to suggest some technical amendments to H.R. 14000 and H.R. 14837, to correct what must have been oversights. Section 403(g) of both bills refers only to "State” laws which do not authorize firms, associations, corporations and public bodies to acquire stock. This should be expanded to include the laws of the Commonwealth of Puerto Rico. Similarly, Section 410(b) (4) of H.R. 14837 requires the consent of “the State authority" having jurisdiction in the premises before a loan to build or improve a generating plant is approved, and Section 610(b) (4) of both bills requires a certification of convenience and necessity by "State” regulatory bodies.

The normal method of including the Commonwealth of Puerto Rico and the territories and possessions within the ambit of a bill is to include a definition of “State” or “United States," as the case may be, thus eliminating the need for repetitive, awkward, and obsolete territorial language. Such a definition could easily be added to the definition section in the basic Act.

I sincerely hope that my suggested amendments meet with the Committee's approval. I believe they are both necessary for Puerto Rico, and worthwhile for the Federal rural electricity and telephone programs.



California's Second Congressional District which I represent offers recreation in some of the roughest and wildest country left in the United States. In the midst of this vacation land are mining and lumbering industries and some of the finest farming to be found anywhere.

Because some parts of the counties I represent are mountainous and the distances great, electric and telephone service was expensive and slow in reaching the more remote places. Full credit for closing the service gap for thousands of our people who live and work here must go to the people themselves and the Rural Electrification Administration.

The manager of one of these REA borrower systems in referring to the difficulties which his crew and the REA engineers had to overcome in bringing electricity, had this to say: "Sometimes I wonder how we ever built some of that pole line. We have places where construction costs run 3 to 5 times the national average. In some of the canyons where we have to run lines, the slopes are too steep for a man to walk."

The president of a telephone company which turned to REA financing describes the job this way: "We have 900 subscribers along lines strung out in an area nearly as big as the state of Connecticut. This is about the roughest terrain you can imagine. These mountain ridges run up around 7,000 feet, and the winter snows pack to 15 or 20 feet on the slopes where some of our lines are located. There have been times when our maintenance crew had to dig down under the snow to find the pole tops. When the spring thaws come, we are plagued with slides that damage the pole lines.” REA financing made it possible for this company to convert all of its toll operations to microwave, giving subscribers more dependable service, without the costly construction and maintenance of pole lines.

Plumas-Sierra Rural Electric Cooperative brought power to more than 20 communities scattered across 2,000 square miles in the early years of the rural electrification program. The 2,000 consumers on the lines of this cooperative live so far apart that they average only 242 to a mile of line-in contrast to more than 38 consumers per mile of line for the commercial power companies in California.

These rural electric and rural telephone systems which have breached the beautiful and rugged terrain in many parts of my District stand as fine examples of what the REA-financed rural electric and rural telephone programs have done to bring these utility services to even the most remote areas. They also are a reason why these systems dotting the countryside of America must be recognized and preserved as permanent segments of the great electric and telephone industries,

Norman M. Clapp, the Administrator of REA, has said that these systems, in order to carry out the commitments to the people of rural America, will need $11 billion of new capital in the next 15 years--$8 billion for rural electritication and $3 billion for rural telephone service. This is more than double the loan authorizations approved by the Congress for the REA programs during the past 15 years.

A good question to ask is: “Where is this money coming from ?"

As a result of lengthy studies by the Department of Agriculture, by REA, and by the REA borrowers themselves and by their associations an answer has been found. It is supplemental financing—financing that supplements the 2 percent loan program now available under the Rural Electrification Act. Such proposed legislation is now before this Committee.

President Johnson paved the way last fall in messages sent to regional meetings of the rural electric borrowers. He said: "it is reasonable to expect that your requirements for new capital in the years ahead will exceed the amounts that can be provided through the traditional REA loan program ... I also beliere the government, as part of its responsiblity in this partnership that has developed the rural electrification program must continue to work with you to develop and implement your plans for the future ... I am confident that you, the Administration and the Congress, will be able to develop a sensible financing program which will provide you with the opportunity to expand with the rest of the economy.”

Secretary of Agriculture Orville L. Freeman in testifying before this Committee said “this is a plan that looks toward the future. It will enable REA and its borrowers to go forward as full participants in the growth of the electric and telephone industries and our economy. The plan will permit more rural electrification, and more rural telephony, at less expense to the taxpayer."

The Secretary declared that was important as this bill is to the rural electric and telephone systems which look to REA for financing, it is even more important to our continuing efforts to strengthen and rebuild rural America, and to remove some of the causes of poverty in many of these areas."

I agree wholeheartedly with the Secretary.

REA has come a long way in the 31 years since Franklin Delano Roosevelt established it by signing his name to Executive Order 7037 on May 11, 1935. Thirty years have now elapsed since the Congress enacted what has been characterized as one of the most important pieces of domestic legislation ever placed on the Nation's statute books, the Rural Electrification Act of May 20, 1936.

Today, virtually all of rural America is being served with central station electric service and four-fifths has telephone service, most of it modern automatic dial service.

There are some who cite these figures and say the job of the REA has been accomplished. This is not so.

The success of the rural electrification program in bringing the percentage of our electrified farms up from 11 percent at the beginning of 1935 to almost 99 percent today has created new needs and new challenges. The rural electric systems, financed by REA, face continued persistent demands for service from new consumers and increasing demands for energy from existing consumers. Sales of electricity on REA-financed systems have more than doubled in the last 10 years. If this pace continues, energy requirements on these systems in 1981 will be more than double what it is in 1966.

The rural telephone program, initiated 15 years after the electric, has similar needs and challenges. There remains ahead the most difficult job of reaching the 20 percent of our rural establishments which do not have any telephone service, of modernizing service to those who are still having to use outmoded, inade quate multiparty nonautomatic telephone service, and of up-grading existing service to rural subscribers served by REA-financed systems. The average rural subscriber on an REA-financed telephone system is making three times as many calls as he did when he first obtained dial service. The demand for single-party rural service continues to increase.

In the dynamic growing economy of our Nation, with its constantly increasing population and upgrading of its standard of living, the rural electric systems

and the rural telephone systems cannot remain static. They must make heavy capital investments to meet service demands and to upgrade service. The job becomes more difficult and more costly as times goes on.

The basic objectives of the REA programs are today, as they were when the Rural Electritication Act was enacted in 1936, and amended in 1949 to include telephone service, the furnishing of electric and telephone service to rural America on an area coverage basis, at costs and of a quality comparable to that available in neighboring urban communities, by systems that are financially secure and assured of their ability to meet the service demands of tomorrow as well as those of today.

Existing statutory authorities have thus far served these objectives admirably. However, these systems will require large amounts of new loan capital between now and the 1980's if they are to continue to serve the needs of rural America. We in the Congress recognize that the increasing demands on the Federal budget to finance defense and the educational, health, and other needs of our expanding population make it unlikely that increased capital needs of these rural electric and rural telephone systems can be met fully through direct loans provided entirely in the Federal budget. It is necessary therefore to find some means of enlisting capital for rural electrification and rural telephone loans outside the Federal budget.

The Administration's proposed supplemental financing plan, like related bills which have been introduced, are designed to help the systems become strong enough so that they can ultimately stand on their own feet without special financial assistance. More specifically, the supplemental financing plans call for a ladder of credit which graduate the borrowers from their present almost complete dependence on 2 percent loans from REA to an intermediate rate and on to a full market rate all without threat or jeopardy to the honored objectives of the REA and the systems it finances.

I, as a long time friend of the REA programs, have every confidence that the legislation before the Congress would effectively serve the purpose for which it was designed—the provision of assured and viable sources of financing for the REA programs, supplemental to the existing source, from banks that will ultimately be owned and controlled by their borrowers.

Therefore I respectfully urge this Committee to support the proposals now under review by it. Passage at this session of legislation authorizing a supplemental financing plan would give the rural electric and rural telephone systems the tools they need to continue their efforts to build a better Rural America and, yes, a better America for all Americans.


Mr. Chairman, I appreciate this opportunity to express to the Committee my strong support of legislation before it to create a Federal Bank for Rural Electric Systems, as contained in the Poage, Mills, and Schisler bills.

The rural electric program was created by Congress 30 years ago with the hope that it would do a job which no one else had been willing to do. In this it has succeeded magnificently. We in Vermont feel a special kinship with REA activities because of the early leadership of Vermont's Senator George D. Aiken. REA has been, in my opinion, perhaps the most successful agricultural program ever created by any government, both in terms of the achievement of its social objective and the integrity of loan repayments, which are virtually 100% perfect.

Some detractors of rural electrification argue that since it has been so successful, its job must be over and it can be phased out. I know, and I am sure this Committee knows, that this is far from the truth for people-rural, as well as urban people—continue to demand more electricity year after year from their power suppliers. This is a demand of which we should all be proud, however; in large measure it reflects the technological progress of our civilization.

Rural electric systems can no more fail their consumers in supplying this indispensable element of modern life than can investor-owned or municipallyowned electric systems. Today, with rural electric loads doubling every ten years, or faster, these systems continue to need increasing amounts of growth capital.

Three rural electric companies in Vermont, through thir national association, have supported the Poage, Mills, and Schisler legislation as the best means of assuring that future sources of capital are available for the growth of the program. The Vermont rural electric companies certainly do a job no one else was willing to do even now they average only four consumers per mile of line. With such marginal operations, it becomes apparent that their future growth is intimately bound up with the creation of a Federal Electric Bank. The thinness of their operation can also be seen in the fact that although the net investment in our three Vermont systems since their inception, some 25 years ago, has been $6.5 million, their members have accumulated only $416,000 equity in them to this date.

Their support of a Federal Electric Bank proposal is not occasioned by the expectation that they would immediately be borrowers from such a bank at three or four or even five per cent rates of interest; however, to the extent that systems now borrowing money from the Rural Electrification Administration at the conventional two per cent, 35-year terms could turn to the Federal Electric Bank for a source of growth capital, systems such as ours in Vermont, and elsewhere, where they are of only marginal feasibility, would have better access to such two per cent funds as Congress makes available to them.

As I see it, with the two rates of interest provided for in this legislation, coupled with the existing REA loan terms, the variety of rural electric systems we have throughout the United States could pay whichever interest rate they could best afford, while being assured of adequate future sources of capital.

In closing, I would respectfully urge the Committee to see the proposal encompassed by the Poage, Mills, and Schisler bills as a “rural renewal” program. Rural electrification is one of the most viable and unifying forces in rural America today. It has been responsible for raising the level of farm electrification from 11 per cent in 1935 to over 98 per cent today; and in so doing, it has created a $144 billion a year market for electric appliances and machinery, This legislation would do much to provide the necessary path to eventual independence for many of the systems which have, over the past thirty years, amply justified the faith which the Congress placed in them. Given the opportunity through passage of this legislation, I am confident that they will again acquit themselves with great credit.




Whereas, the rural electric systems, in order to provide adequate and reliable service for their members, need increasing quantities of growth capital, estimated to total $942-billion in the next 15 years; and

Whereas, in recent years the amounts of loan funds budgeted by the Administration and authorized by the Congress have not kept up with the growing requirements, causing a critical build-up of applications backlog; and

Whereas, the loan fund shortage is an immediate problem affecting the future prospects of every rural electric system that needs to build additional capacity to keep up with the rising electric power needs of their consumers; and

Whereas, many, if not most rural electric systems in Wisconsin and other states, if they are to make progres toward meeting program objectives, are still not financially strong enough, either to operate successfully without the REA 2 percent, 35-year loans or to go individually to the private money market for the capital they need :

Now, therefore, be it resolved that we urge the Administration and the Congress in the interests of a sound and ultimately financially independent rural electrification program to help us alleviate the rural electric loan fund shortage now upon us and provide for increasing capital for future growth by adopting a Supplemental Financing Program substantially in accordance with the proposal set forth in the NRECA report of January, 1966, entitled Supplemental Financing Program for Rural Electrification which would :

(1) Continue the traditional 2 percent, 35-year REA loan program with adequate funding for those systems requiring such loans to meet program objectives;

(2) Establish a Federal Bank for Rural Electric Systems which initially will be in USDA and will operate with Federal government assistance but which, as the systems grow in maturity and invest more of their own funds in the Bank, will shift from government to borrower ownership and control; (3) Provide loans with sufficient flexibility of interest rates, amortization requirements and maturities to enable systems to achieve program objectives; Be it further resolved that we urge the Administration and the Congress to make available to REA during fiscal years 1966 and 1967 sufficient funds to dispose of the accumulated loan applications and those yet to be received by REA, in order that the rural electric systems may move steadily onward with construction programs so vital to rural consumers and in order that the Bank may initate operations on an orderly basis without gigantic loan demands exceeding its capabilities in the early years of its operation. STATEMENT OF L. REID HARRIS, MANAGER, CENTRAL ELECTRIC MEMBERSHIP CORP.,

SANFORD, N.C. Mr. Chairman and gentlemen of the committee, my name is Reid Harris. I am Manager of Central Electric Membership Corporation serving 3,500 consumermembers in parts of five piedmont counties of North Carolina. We now serve an average of four members per mile of line.

Central Electric Membership Corporation would like to be recorded as supporting fully the supplemental financing plan as recommended by our National Rural Electric Cooperative Association. The two bills, HR 14000 and HR 14048, incorporates the above plan. Our future financing has been a matter of great concern and has been discussed on many occasions. The N.R.E.C.A.'s supplemental financing plan has been studied by our board of directors, and a representative number of the board have heard the presentation of the plan at the N.R.E.C.A. regional meeting and also at the national meeting.

I believe that your favorable consideration of these bills would greatly benefit the financing problem of Central Electric and the development of our area which is so dependent on area coverage of electric service. RESOLUTION ADOPTED BY BOARD OF DIRECTORS OF SOUTHERN MARYLAND ELECTRIC COOPEATIVE, INC., HUGHESVILLE, MD., AT REGULAR MEETING HELD MAY 17, 1966

Whereas, Southern Maryland Electric Cooperative is, and for many years has been, a borrower of the Rural Electrification Administration, and

Whereas, the Rural Electrification program has been the means by which many thousands of Southern Marylanders have been provided with electric service who might otherwise not have it, and

Whereas, the need for growth capital for continuing expansion and demands for service on our system and others countrywide, is far exceeding the amount of available REA loan funds, and must be provided by supplemental financing, and

Whereas, this supplemental financing would be provided by the establishment of a Federal Bank for Rural Electric Systems under Bills already introduced in the Congress and designated as H.R. 14000, H.R. 14048, H.R. 15162 and S. 3337,

Now, therefore, be it resolved, that this Cooperative support and work for the passage of this legislation, and

Be it further resolved, that a copy of this resolution be sent to each of our Senators and Congressmen, and to the appropriate Senate and House Committees, requesting their support for the legislation.






The bills recently introduced by you and Congressman Poage proposed to provide supplemental financing for REA's rural electrification and telephone program are a direct result of a need shown by a study authorized by the nation's rural electric cooperatives over three years ago. The study indicates that the rural electric systems' needs will exceed $675 million annually.

Congress is not providing adequate growth capital for the rural electric systems now. Most members of Congress continue to support the rural electrification program, but financial demands of other programs have caused the rural electric funds to come up short.


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