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The backlog of REA loan applications at the end of June, 1966 will be 50% greater than in any recent year.
Wake Electric's long range financial plan indicates capital requirements will increase 60% by 1975. Ours, like many other electric cooperatives, will continue to be dependent upon REA loans for some time for our capital needs. Some of us will continue to need 2% money until we are in position to pay the higher interest rates.
The Poage Bill (HR 14000) and the Cooley Bill (HR 14837), amended to provide the lower rate of interest as provided in the Poage Bill, will, when passed, provide, we believe, adequate financing for our systems.
STATEMENT OF J. L. SHEARON, ACTING MANAGER, PIEDMONT ELECTRIC
MEMBERSHIP CORPORATION, HILLSBORO, N.C.
THE NECESSITY FOR SUPPLEMENTAL FINANCING FOR RURAL ELECTRIC
The economy of the rural population of the six county area in which Piedmont Electric Membership Corporation, Hillsboro, N.C., extends electric service has been greatly enhanced with the extension of cooperative electric service.
The whole economy of rural people in this area, and throughout the nation, has been lifted to the heights with rural electrification. Rural people now have more interest in themselves, their community, their government, and world affairs.
The needs for growth capital will increase over 50 per cent in the next ten years, as indicated by our system construction plans and financial forecast.
The nation's rural electric systems, through their national association, have completed and approved a study which shows rural electric systems will need 9.5-billion dollars in new growth capital between 1965 and 1980. Some systems will continue to need 2% loans to keep good service and make new extensions in thinly populated and low income areas.
The Bass-Cooper bill (S. 3337) and the Poage bill (H.R. 14000) will, if passed by the Congress, largely solve the financing needs for our rural electrics, which is not only important to the rural electrics and their members, but to the economy of the businessmen on main street and all businesses throughout this nation.
STATEMENT OF WALTER HARRISON, GENERAL MANAGER, GEORGIA ELECTRIC
MEMBERSHIP CORP., MILLEN, GA. Mr. Chairman and gentlemen of the committee, my name is Walter Harrison, General Manager, Georgia Electric Membership Corporation, Millen, Georiga, representing the 41 rural electric cooperatives of Georgia with a combined membership of near 350,000 as of this date.
We were surprised to learn that The Southern Company, a holding company for Alabama Power Company, Georgia Power Company, Gulf Power Company and Mississippi Power Company would appear and testify before this Committee on the subject of Supplemental Financing for the electric co-ops.
It is necessary that we continue to have growth capital if we are to serve the needs of our forty-one cooperatives and their member-consumers. Our investments in Electric Plant in Service before depreciation is as follows:
1964 (latest figure available), 2,383,273,938.
1960, 1,252,346,000. Our projected KWH consumption in 1980 will be 3,200,000,000.
We have many cooperatives in Georgia that are in serious need of capital funds.
Our annual appropriations on the part of the Congress is not in keeping with our normal growth and applications that are on hand for processing.
We can only see one purpose in mind from those that oppose us, and that is to slowly starve the rural electrification program to death and then be able to take over the lines of the co-ops.
We do not anticipate any need for funds whereby we would build generation and transmission within our State. This will not take place as long as the Power Companies are willing to treat fair with us ratewise and in matters of territorial integrity. Thus far we have been able to work out our problems across the Confernce table. We trust that this condition will continue to pr vail, however, we need as a "bargaining tool" the right to generate and transmit power throughout our State. Without this we would be at the mercy of the private power companies.
We would like to call to your attention some excerpts from the Annual Report of the Southern Company which shows their growth curves and their tremendous needs for growth capital, and that is all we are asking in this legislation that is now before you.
We only seek ways and means of continuing to serve the areas that we have developed and have a utility responsibility to serve their total electric needs.
In conclusion let me say "Thank You" for the opportunity of filing this statement and we solicit a continuance of your fine cooperation.
THE SOUTHERN CO. ANNUAL REPORT
Expenditures for New Construction:
1966-68, (we expect to spend nearly $700,000,000). Construction
During 1964 the system companies invested $191 million in new generation, transmission and distribution facilities. Alabama Power Company completed its Logan Martin Dam on the Coosa River, below Gadsden. The plant's three hydroelectric generators have a combined capacity of approximately 130,000 kilowatts. This project is part of a 7-dam development of the 270-mile-long river, one of the most extensive river development programs ever undertaken by private capital.
At Plant Jack McDonough, near Atlanta, Georgia Power Company placed a second 245,000-kilowatt unit in operation and that company also completed a third unit (125,000 kilowatts) at its Plant Mitchell, near Albany About half of the year's $191 million of expenditures was made for additional power generating facilities; the balance was for transmission and distribution lines and substations.
In 1965, another 625,000 kilowatts of generating capacity will be added, consisting of:
A 250,000-kilowatt unit (the first) at the Greene County Steam Plant, near Demopolis, Alabama. This plant is jointly owned by the Alabama and Mississippi companies as tenants in common.
The initial unit (also 250,000 kilowatts) at Georgia Power Company's Plant Harllee Branch, near Milledgeville; and
A 125,000-kilowatt unit, also the first, at Gulf Power Company's Lansing Smith Steam Plant, near Panama City, Florida. Scheduled for completion in 1966 are Lock 3 Dam on the Coosa River, near Ragland, Alabama (73,000 kilowatts), and a second 250,000-kilowatt unit at the Greene County plant. The following year second units will be added at Plant Harllee Branch and at Lansing Smith Steam Plant (319.000 kilowatts and 180,000 kilowatts respectively) and Alabama Power Company will complete its Jordan Development No. 2 (225,000 kilowatts) on the Coosa River. The system's projected capital expenditures for the three-year period 1965 through 1967 amount to approximately $675 million. Financing
Notwithstanding the record 1964 construction program more than half of the $191 million invested during the year by the system companies for construction of new electric facilities was generated internally, principally from retained earnings and such non-cash charges to income as depreciation, deferred income
taxes, and investment tax credit. The remainder was obtained from the sale of long-term securities to underwriters at competitive bidding.
STATEMENT OF HARRY L. GRAHAM, LEGISLATIVE REPRESENTATIVE, NATIONAL GRANGE
The National Grange is pleased to appear before this Committee to support legislation to supplement the present Rural Electrification Administration loans program with additional capital for rural electrification and rural telephone systems through the creation of Federal Electric and Telephone Banks. This testimony is consistent with our previous position in support of the REA since its inception and support of its programs to provide adequate electric and tele phone service to rural America at a reasonable cost.
REA accomplishments are a matter of record. More than 20 million rural people have received electric service and 1.7 million rural subscribers have obtained modern dial service through their efforts. Yet, additional methods of financing are needed. It is estimated that $9.5 billion will be required to finance additional rural electric service in the next 15 years.
I would like to insert into the Record the statement adopted by the Delegate Body of the National Grange at our Annual Session last fall:
"An adequate supply of dependable and reasonably priced electricity is essential to the social and economic well-being of the Nation's rural residents. Many REA-financed cooperatives serve thinly-settled areas and are not yet able to provide service at rates on a parity with those of urban people. For such systems, therefore, we urge that REA loans be made available at the present 2 percent interest rate.
"We give our full support to the rural electric cooperatives in their efforts to find new sources of supplemental, private financing to meet the rapidly increasing demands for electric service."
In accordance with this statement, we applaud the Administration's bill to provide this supplemental financing, and at the same time, to reduce the longrange cost to the Federal Government. There are, however, a few provisions of H.R. 14000, introduced by Mr. Poage, which we believe are more realistic than those in the Administration proposal, H.R. 14837, and we would like to call them to the attention of this distinguished Committee.
SECTION 405. CAPITALIZATION
The Administration proposal recommends the capitalization of $750 million to be obtained from “net collection proceeds”, while Mr. Poage's bill suggests $1 billion for capitalization.
In view of action taken by the Bureau of the Budget, withholding funds appropriated by the Congress during the last fiscal year to the REA, the Grange feels that the additional $250 million suggested in H.R. 14000 will be needed to cover the backlog of requests for services from the REA.
In addition, the $1 billion figure allows for a safety margin which might be necessary if there are further increases in the open-market interest rate.
SECTION 410(a). LENDING POWER The Grange recommends the less restrictive lending power of H.R. 14000. The terms of the original Act authorizing lending power to the REA were also very broad which proves the validity of this approach.
It is unrealistic for us to assume that we can foresee all the possible alterations and changes which could occur in a field as responsive to technological innovation as this one. Therefore, it seems appropriate not to place the electric and telephone banks in a financial straight jacket, incapable of handling loans for needed adjustments.
The restrictive clauses of the Administration bill might even cause stagnation to rural utility service. For instance, it seems unlikely that a cooperative could significantly expand its area of service and receive adequate financing under H.R. 14837 since this bill specifically states that “the accumulative size of such acquisitions not result in a system larger than the borrower's existing system at the time it received its first Bank loan."
If the electric and telephone banks are to compete on the open market with other financial institutions, we must not place undue restrictions on them now.
SECTION 410(b). LOAN TERMS A 4 per cent interest rate ceiling for "intermediate" loans is proposed in H.R. 14837, while a 3 per cent ceiling is set in H.R. 14000.
We concur with the Administration that those electric systems having accomplished their program objectives and being capable of paying higher rates of interest should be required to do so, and that there should be a "credit ladder" by which borrowers can advance to paying the full market cost of money.
However, the Grange believes that a 3 per cent rate, which is a 50 per cent increase, is more realistic at the present time than a 4 per cent ceiling, which is a 100 per cent increase over the 2 per cent interest charged by the REA. In addition, a 3 per cent rate will allow more participation in the electric and telephone banks services, and will not burden an already over-laden REA budget.
This provision in no way reduces our insistence that the 2 per cent loan money should continue to be available for loans to cooperatives serving the sparsely populated areas of the nation.
(H.R. 14000) AND SECTION 412 (H.R. 14837). CONVERSION TO PRIVATE
The Administration proposal suggests that Congress should consider the recommendation for legislation to convert both banks to private ownership, control and operation when all Federal capital has been retired from the Federal Electric and Telephone Banks.
Mr. Poage's proposal is for the effectuation of private ownership when total private stocks exceed outstanding government stocks in value.
The consistent historical position of the Grange has been to expand cooperative telephone and electric service until all rural and farm families are served by these important facilities.
The progress toward this goal has been great but the objectives have not yet been realized. The availability of government funds at low interest rates will remain a necessity until this is accomplished.
In the meantime, the Administration proposal properly protects the investment of the government and the continuity of the program. The proposal of Congressman Poage would undoubtedly make the program more attractive for private funds.
Certainly, it appears that some compromise solution is demanded encompassing both objectives. If we were ced to choose between the two proposals, it would be our opinion that H.R. 14837 would present less a threat to the integrity of private funds that H.R. 14000 would present to public funds and public policy and more assurance of the continuation of the present socially acceptable government policy regarding low interest loans to the REA cooperatives.
SUMMARY The Grange agrees in principle with the proposal of the Administration, H.R. 14837, but we suggest that this distinguished Committee consider carefully the sections mentioned in H.R. 14000.
Briefly, we would prefer a capitalization of $1 billion, a 3 per cent interest rate ceiling, less restrictive lending power, and eventual private ownership of the banks when the requirements for credit based on social factors is no longer necessary.
We would also like to emphasize that the Grange considers the bills before this Committee today to be strictly supplemental financing for the REA, and not as a substitute for adequate REA appropriations in future years.
The Grange is pleased to support this legislation and requests your favorable action on H.R. 14837 with your attention to our stated recommendations.
CORNING, Iowa, May 26, 1966. ILAROLD D. COOLEY, Chairman, House Agriculture Committee, Washington, D.C.:
In interest of brerity we are concurring with the National Grange testimony before this committee to supplement the REA loans program with additional capital for rural electrification and telephone sistems through the creation of Federal electrie and telephone hanks. We are happy to support this proposal but ask the committee's consideration of sections of H.R. 14000 which have been mentioned in the testimony of the National Grange. We respectfully request that this telegram be inserted into the record as the official position of the National Farmers Organization on this important proposed legislation. A mpy of this telegram has been furnished to the National Grange for their information.
National Farmers Organization. STATEMENT OF JERRY Voorus. EXECUTIVE DIRECTOR OF THE COOPERATIVE
LEAGUE OF THE USITED STATES OF AMERICA The story of the electrification of the American countryside is a noble story. It is the story of how, with encouragement from their gorernment, farmers and their neighbors applied the principle of mutual aid to their need for electricity