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and brought it to themselves. It is the story of how the motive of voluntary cooperation, practically applied, solved a great social and economic problem and met a great national need.
This is a noble story also because it has brought about ownership of a significant segment of the power business of this great country by some six million "little people"-farmers, rural residents, churches, schools, and small rural industries.
GREAT BENEFITS TO THE NATION FROM RURAL ELECTRICATION
The rural electric cooperatives which were formed in the midst of the great depression have made an incalculable contribution to the welfare of our country. Directly or indirectly they have brought about a 98% coverage of rural America with electric service today whereas a short 30 years ago only 11% of American farms and rural homes had any electricity at all.
The electric cooperatives have created a multi-billion-dollar market for electric appliances throughout rural America which would not exist were it not for the electric cooperatives.
These cooperatives literally enabled about two-thirds as many farmers and farm workers as would normally have been at work to produce enough food during World War II to make American food production a major factor in the winning of that great conflict.
Rural electric cooperatives have been and are making it possible to decentralize much of our industry, thus to render our country much less vulnerable to crippling devastation from a war, and giving us a far better distribution of employment and population than would otherwise be conceivable.
And rural electric cooperatives have made rural living today somewhere near as amenable as urban living, a reform and a measure of justice to our rural people which was long, long overdue.
BUT THESE BENEFITS CANNOT CONTINUE UNLESS ADEQUATE FINANCING IS
The use of electric energy in rural America has been doubling about every seven years. This is a rate of increase at least half again as fast as takes place in the country as a whole. The electric cooperatives like any other public utility companies have got to keep up with the needs and demands of their patrons for services or go out of business. To accomplish this means repeatedly increasing the carrying capacity of their lines, the procurement or generation of vastly increased supplies of electricity, much heavier maintenance expenses, and a consequent mounting need for capital resources.
To deprive rural America of equal opportunity of continuance of electric service in reasonable equality with urban American would be palpable injustice. This is the reason the pending legislation is before this distinguished committee.
BRIEF ANALYSIS OF NEED
The average amount of loans by the Rural Electrification Administration has been about $210 million per year.
The projected need for such loans in the years immediately ahead based upon careful studies and experience is more than $600 million a year. Over the next 15 years it is conservatively estimated that $9 billion of capital will be required to maintain the service of electric cooperatives to their present customers and patrons.
To expect the Congress to treble the amount of loan authorization for this program is simply not reasonable. To expect private investors to place large amounts of capital investment in cooperative, non-profit, service types of business is not reasonable either.
Electricity like air and water is an absolute necessity in our modern life. For all these reasons legislation has been introduced to provide new sources of financing for those electric cooperatives which are now or will become able to pay a higher rate of interest than the presently established one for REA loans.
OBJECTIVES OF THE LEGISLATION
The core of the proposed legislation is establishment of a bank for electric cooperatives as a financing institution which would make it possible over a period of years for the electric cooperatives to develop a self-financing system
of their own and thus to make themselves, in large part at least, independent of government programs.
Necessarily the legislation calls for an original investment of government capital. There is excellent precedent for this. This is what was done when the farm credit system was established. Today almost every penny of that government investment has been repaid and most of the cooperative farm credit institutions are wholly and completely cooperatively owned by their borrowers. Under the terms of all the bills that have been introduced, every cooperative borrowing from the proposed bank would invest 5% of each loan in capital stock of the bank and these investments would be used together with the earnings of the bank to repay the government capital.
Eventually, therefore, and indeed in not so many years in all probability, this bank would indeed be a self-financing institution for electric cooperatives using their own funds for that purpose together with such additional capital as might be raised by sale of debentures on the open capital markets.
If any additional justification for the passage of legislation to create a bank for cooperatives is needed, it can be found in the following facts.
Electric cooperatives, unlike any other utilities, must as a condition of their existence undertake to serve every potential customer in their area of operation however costly it is to do so.
Furthermore, they are limited to the most sparse and therefore the most expensive market for electricity. With only 9% of the total market, rural electric cooperatives must operate 54% of the power lines and provide electricity to 60% of the land area of the United States, according to editorial statement by the St. Louis Post-Dispatch.
In general, electric cooperatives must operate with only one customer per mile of line for every 11 customers for other electric utilities.
Finally, electric cooperatives, therefore, need to invest about nine times as much per customer as other electric utilities must do.
For reasons of simple justice as well as sound national policy this distinguished committee on agriculture is respectfully urged to report favorably and as early as practicable, legislation to provide for the establishment of a bank for electric cooperatives as provided by the bills now under consideration by the committee. STATEMENT OF CLAUDE R. WICKARD, CAMDEN, IND., FORMER SECRETARY OF AGRICULTURE AND FORMER REA ADMINISTRATOR
Mr. Chairman and gentlemen of the committee, my name is Claude R. Wickard. Some of you may remember me from my appearances before your Committee when I was Secretary of Agriculture from 1940 to 1945 and Administrator of the Rural Electrification Administration from 1945 to 1953.
Since 1953, I have lived on and helped operate the Wickard family farm in Indiana, which came into possession of the Wickard family some 125 years ago. This farm, which is entirely owned by my immediate family, is a grain-livestock farm as it has been from its beginning.
Thanks to the REA program, we have had central station electric service for the last 30 years. Nothing has helped so much to improve farm living and farming operations.
Our REA electric service is-and always has been-adequate, reliable and moderate in cost. Our rural electric system, Carroll County REMC, is owned and successfully operated by the people it serves.
We are also served by a modern, reliable and satisfactory telephone system which is locally owned and successfully operated. It, too, is an REA borrower. I serve as an official of several farm and rural organizations, and thus have an opportunity to observe the great changes taking place in rural America. My observations convince me that much greater changes lie ahead as the rural economy expands.
I am also convinced it will be to the great advantage of rural America, and the entire Nation as well, to see to it that the REA-financed rural electric and rural telephone systems have an opportunity to play the important role in the future growth of rural America that they have played in the past. The Nation will profit greatly if these rural organizations are permitted to continue to meet the challenge of providing universal, adequate, reliable, and low cost utility
service. They have demonstrated since their inception that they can do this. Let us not now be mislead by the same interests whose lack of vision or fear of competition, or both, have led them to oppose the REA program from its very beginning.
In 1935, these interests testified before Congressional Committees against the creation of REA despite the fact that only 10 percent of the Nation's farms then had central station electric service. In their testimony, they contended that nearly all the farms which could be served feasibly, already had central station electric service.
In 1945, the same interests testified before Congressional Committees in opposition to giving REA more loan funds for the great post-war expansion of rural electric service so greatly needed, and so intensely desired by rural people.
Despite all the opposition and the obstacles, it has been proven through the REA program that it is possible and practical to extend area coverage electric service to all rural America. The Nation will face the same challenge for the continuation of adequate, reliable, low cost service for rural areas in the future because of the great expansion in the use of electricity on our farms and by other rural enterprises.
The use of electricity by the producers, handlers and processors of farm commodities is growing rapidly because of the ever-increasing application of modern methods. For example, a year ago, we decided that we should install on our farm a much greater capacity for drying, handling and storing of our grain. We needed more facilities for grinding, mixing and handling livestock feed. We conferred with the manager of our rural electric cooperative, and he agreed that we required three-phase electric service. In a few days, he told us the terms under which we could obtain such electric service. We found these terms very fair and reasonable, and in a short time, we had available the increased electric capacity required by our highly mechanized farming operation. I could not help but reflect on the contrast between this experience and the one I had before REA was created, when I asked the commercial power company in the area to extend its lines two miles to serve a few of my neighbors and myself. Our request was met with an offer of terms which were unreasonable and beyond our reach.
The use of electricity on the farm is going to grow becaues modern farming methods demand it, and because of the scarcity and high price of labor in rural
Everyone who is in a position to observe rural areas in such states as Indiana is greatly impressed with the large numbers of rural homes being erected by non-farm people. Electricity and good highways are making it possible for people in cities and towns to enjoy the advantages of rural living without the inconveniences of the past. With these new rural residents comes the need for new schools, churches, medical institutions, and other services, all of which require modern electric and telephone service.
In addition, many operators of industrial or business enterprises are finding it increasingly advantageous to locate their facilities in rural areas.
All these factors mean an accelerated demand for electric and telephone service in rural areas. Since the rural electric cooperatives serve in 2700 of the Nation's 3100 counties, this increased demand is going to fall heavily on them. With it will come a demand for more capital than many of them have ever experienced. If they cannot meet this demand, they are doomed to starvation. I am sure that this fact is well known by those who want to eliminate the rural electric cooperatives and the competitive element they present in what otherwise would be a completely monopolistic field. That is why there is so much opposition to the proposals before Congress for providing a comprehensive plan for supplemental financing to meet the growing needs facing so many rural electric systems. It is not good for the Nation to destroy or render powerless the REA-financed rural cooperatives which have proven that all rural areas can be given good, reliable service at a moderate cost. That kind of competition will be needed even more in the future than it has been in the past.
It is my opinion that the best method of insuring that the future financial needs of rural electric cooperatives are met is to follow a pattern similar to that of the Federal Land Bank System. As an official in the Department of Agriculture, I have had opportunity to watch the successful development of the Land Bank System and the excellent service it has rendered the farmers of the Nation. As a farmer, I have received numerous benefits from that system,
including Federal Land Bank loans on our farm. I sincerely hope it will be possible to follow the basic pattern of the Farm Land Bank System in meeting the future capital needs of the rural electric cooperatives.
During the years I was Administrator of the Rural Electrification Administration, the Congress provided the loan funds which made possible the great post-war expansion of rural electric service under the REA program. The entire Nation has profited from this wise Congressional action, because it was an important factor in making Rural America more productive, more efficient and a much better place to live. In addition, it has given rural people an opportunity to demonstrate that they have the ability to successfully operate their own electric systems and repay their financial obligations in the time agreed. They have been able to do this even in sparsely-settled areas where the commercial power companies said such enterprises would fail.
As we now face the rapidly increasing need for more capacity by the rural electric systems and the resulting increased need for more funds than ever before, I am sure the Congress will again demonstrate its wisdom by authorizing a program of supplemental financing for the REA-financed systems.
STATEMENT OF Clarence WELANDER, PRESIDENT, NORTH DAKOTA ASSOCIATION OF RURAL ELECTRIC COOPERATIVES
Mr. Chairman, on behalf of the member cooperatives of the North Dakota Association of Rural Electric Cooperatives, and their more than 55,000 consumerowners, I want to thank you for this privilege of filing a statement with your committee.
We are in the middle of the planting season out in North Dakota, or our organization would have been present to give this statement.
Mr. Chairman, I have been advised that the private power companies, including one from my own state, will testify in force against the legislation you are now considering. This, I believe, is completely consistent with the investorowned utilities, who have annually testified against any matters pertaining to the rural electrification program. I can only conclude that, contrary to their efforts at the local level to convince people they are friendly to rural electric cooperatives, the private power monopoly's continuing purpose is to totally destroy not only all vistige of competition in the power industry, but to materially destroy and eradicate rural electric cooperatives.
Mr. Chairman, you and your committee have always been responsive to the needs and understanding of the problems of rural electrics. There is no need to dwell on burdens that these consumer-owned organizations still carry, in their efforts to provide modern, dependable, low-cost electricity in areas of sparse population.
However, in the case of North Dakota, there are some special burdens that rural electric cooperatives are forced to bear. Chief among these is the fact that the average density in North Dakota is just 1.3 consumers per mile of line. Several of our cooperatives have a density of less than one per mile, and none of them enjoy a density of more than 21⁄2 consumers per mile of line.
This, then, is the main reason why North Dakota rural electric members, along with South Dakota and other sparsely-populated Midwest states in our region, have appeared so adamantly opposed to any changes in financing for rural electric cooperatives.
We feel out in North Dakota that nowhere in the nation are the original provisions of the Rural Electrification Act still as necessary today to continuance of our assignment as they were when REA was created. In fact, the continued availability of two percent, 35-year loans through Congressional appropriations may be even more necessary today than they were when REA came to the prairies. I say this because out in North Dakota we have lost farmers-and we continue to lose farm families, at the alarming rate of more than a thousand per year.
North Dakota has made only minor strides at luring any industrial plants which, if located in rural areas, could tend to offset this loss in electric consumers. The problem of mushrooming suburbs is not one with which we are acquainted in North Dakota. Our largest city is less than 50,000 people, and the 10th largest city in the state has only about 7,000 people. So there is no significant population shift into suburban areas in our state, and no resultant residential development in rural areas which could replace the loss of displaced farmers and the electrical services they required.
Every cooperative in North Dakota has hundreds of vacant farmsteads, where the investment in lines, poles, transformers and associated equipment was once made by a rural electric cooperative. There is no revenue from these empty farms.
It is true that our farms are bigger and more productive than they were 20 years ago. But there are fewer of them. Farmers, fortunately, consume more and more electricity as they become more technical, more specialized, more productive, so we are in a situation of growing power needs, even though there are fewer people to serve, with more miles between farmsteads. We are far from completing, in North Dakota, the job we undertook through a firm partnership with the Federal Government.
We believe we have fulfilled the covenants of that partnership out in North Dakota. We have provided area coverage under the most severe handicaps. We have provided dependable, low-cost electrical service, although it is still too costly. And we have repaid our loans without fail to the Treasury.
It is for these reasons, and more, that the membership of our Statewide Association, at their March 23-25 semi-annual meeting in Dickinson, North Dakota, this spring, unanimously adopted a resolution which does not permit this association to support any legislation which would jeopardize or alter the traditional two per cent, 35-year loans which we need to continue the job.
That resolution clearly mandates the officers of our association to support the traditional two per cent, 35-year loan program in order to meet the objectives of rural electrification.
There has been no change in the position of our membership since March. Two per cent loans, over a 35-year period, remain the only kind of financing we can live with in North Dakota.
Our Congressional delegation is aware of this position, and, to the man, they are in accord with our stand.
I would be less than honest to the people I represent if I gave any indication to you, Mr. Chairman, and your committee, that we could endorse or support new legislation which, in any way, would tend to jeopardize the financial security of our member-owned businesses.
Thank you again for the opportunity to file this statement.
STATEMENT OF ARTHUR JAMIESON, NEW YORK STATE RURAL ELECTRIC COOPERATIVE
My name is Arthur Jamieson. I am Manager of the Otsego Electric Cooperative, Inc., Hartwick, N.Y., and a Director of the National Rural Electric Cooperative Association, Washington, D.C. New York State's rural electric cooperatives distribute power in some of the most productive dairy farming counties in the state, as well as some of the most active resort areas. We have become significantly important in the business communities of the areas which we
Some of the cooperatives could soon, and perhaps immediately, undertake loans from the proposed Federal Bank for Rural Electric Cooperatives as it would be established under all of the subject bills. The Poage-Mills bills provide for an intermediate interest rate of 3%. Our cooperatives could more quickly begin to borrow a portion of our needs at this level than would be possible under the 4% interest rate proposed in H.R. 14837. Other New York cooperatives could begin to borrow money from the Federal Bank in relatively few years, but again the actual time elapse would depend upon the interest rate as it is finally established and passed. One cooperative might require the use of regular REA 2% loans for a considerable period of years. All of the cooperatives in New York are in favor of the supplementary financing proposals provided for in all of these three bills, but we respectfully point out that the benefits to be expected, such as a reduction in the amounts of money that the Congress would need to appropriate for loans under the Rural Electrification Administration, are directly proportional to the rapidity that the cooperatives are able to begin borrowings from the supplementary sources. The higher the interest rate, the longer will be the period of transition.
The Cooley Bill, H.R. 14837, provides for original funding of the Federal Bank for Rural Electric Cooperatives over a 15-year period to the amount of $750,000,000. The Poage-Mills bills provide for funding to one billion dollars over a shorter period of time. It appears that the original funding might better