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be in the larger amount since all of the bills provide for eventual relief of all financial burden to the United States Government. A one billion funding would provide a more substantial basis for the expansion of the bank's lending ability through the sale of electric debentures. In our opinion, the larger funding would more adequately meet the future requirements of the rural electric cooperatives.

At this hearing, and during the period this legislation is before the Congress, it is expected that the investor owned utilities will launch a carefully planned and well financed offensive towards the defeat of the subject legislation. The reasons for this attack should be made plain. Rural electric cooperatives have always had to borrow money under severe economic handicaps compared to the ease and low cost at which investor owned utilities can secure money. For an illustration, consider the flow of money which an electric cooperative must have over the term of a loan, and the comparative flow of money an investor owned utility must produce over an equal amount borrowed for the same term period. For simplification, a loan of $3,500.00 borrowed for a term of 35 years will be used. The size of the loan is unimportant since the same comparison can be made on any loaned amount. The interest amounts are figured on a yearly basis instead of a daily basis, and on REA loans, the illustration treats deferred interest as current interest, both for purposes of simplification. The effect on total money required to finance the loan is small, and the comparison is no less valid.

A rural electric cooperative presently must pay 2% interest. On $3,500 the cooperative must produce $1,260 to pay the interest charges over the life of the loan. In addition, the cooperative must completely repay the principal of the loan over the term period. This will, of course, amount to $100 per year for 35 years to a total of $3,500. The total flow of money the cooperative must have over the 35 years of the term to borrow $3,500 amounts to $4,760. New money needed during the loan period or at the end of it must be borrowed in new loans at the same terms.

An investor owned utility will borrow at differing interest rates depending on the amount borrowed, the time at which it is borrowed, the degree of accessibility to large capital sources determined by the influence the particular utility is able to exert, and by other factors. Investor owned utilities have borrowed in the past and to the present time at rates which vary from 1% to 4%. Current rates run from 4% to 5%. For purposes of the illustration, 4% will be used which is considerably higher than any utility actually has at this time as an average cost of money for its total long term debt. Therefore, the investor owned utility will need to produce twice as much for interest as the cooperative on the $3,500 loan, an amount of $2,520. The terms of virtually all utility loans do not call for specific principal repayments: instead, the loan terms provide that the utility must meet the sinking fund requirements of that particular loan. However, the sinking fund terms rarely require that more than 1% of the principal be retired over the loan period, and are usually even lower than that. For illustration purposes, the high requirement level, % of the principal, will be used. Reference to any annual report of an IOU will amply demonstate the percentage of principal retirement in the long term debt schedule. Using the sinking fund provision, then, an investor owned utility must repay, on a $3,500 loan, an amount of $33.33 per year to a total over 35 years, or slightly over $1,166. Thus the total flow of money to the investor owned utility over the loan period on $3,500 amounts to $3,686. This is $1,074 less than the cooperative had to produce for the same loan. At the end of the loan term, the utility will either refinance the balance of principal left, or secure a new loan for the balance of the principal plus new capital requirements, and thus pay off the matured loan.

The investor owned utilities are as fully aware of the economies of their Permanent Debt Financing over REA financing as we are. They are also aware that the average American citizen, as an individual, thinks within the framework that borrowed capital must invariably be fully repaid. Therefore, the utilities have been able to use as propaganda the fact that the interest rate they must pay is much higher than cooperatives must pay, without ever having to defend the fact that they do not have to repay total principal over the term of the loan, or that their total required flow of money for a given borrowing is much less than that of a cooperative. While happily and publicly protesting that the cooperatives are able to secure "cheap money" and because of it are "unfair competition", they have pressed the Congress to reduce REA appropriations and to

more severely limit the uses to which REA loans can be put. REA loans have been a perfect propaganda weapon for the investor owned utilities, while providing at the same time a wonderful way to contain and control the amounts of money available to the cooperatives.

Now that legislation is before the Congress to provide supplementary sources of funds for cooperatives, it can be expected that the investor owned utilities will institute a campaign against the legislation to dwarf any effort seen for many years; massive, destructive, vituperative and completely determined. The reasons are obvious. This new source of funds would be beyond their influence as to size and scope. Certain restrictions under which the cooperatives have been handicapped for years will be lost. Some of the utilities' prize propaganda material will be lost or at least dulled. The funds available will not be government moneys raised by annual Congressional appropriation and thus subject to the utilities' powerful influence as to size. Not the least in their fears, although they may not be able to say so, will be the possibility that the supplementary fund bank could eventually be the means by which cooperatives could attain to a form of permanent debt financing similar to that they use themselves.

CONCLUSION

Mr. Chairman and Members of the House Agriculture Committee, we in New York who are associated with the rural electric cooperatives hope most sincerely that you will report favorably on a bill to establish a supplementary source of funds for electric cooperatives, and that you will then do everything possible to expedite the passage of the bill through the Congress.

STATEMENT OF EVERETT WILLARD, MASTER OF THE STATE GRANGE OF VERMONT Mr. Chairman, in behalf of the members of our Organization, I would like to go on record in support of the legislation before your Committee to create a Federal Bank for the rural electric cooperatives.

The job of rural electrification is not completed as many would make you believe. Only a few years ago the farms and rural people had lights, milk coolers and a milking machine. Maybe the farm wife was lucky to have an electric washing machine and a refrigerator. At present the farms have become an efficient operation, using thousands of kilowatt hours per month to substitute for labor which is impossible to get and to improve food handling and milk storage efficiency. It must be obvious where a farm was using only 50 to 100 kilowatt hours a month and is now using thousands of kilowatt hours a month, that the cooperatives' lines must be continually strengthened, bigger transformers installed and service wires to provide an adequate flow of power at a good voltage level.

I feel that this proposed legislation will supply the marginal rural electrics with the funds to continue to improve their services and the proposed bank will allow ultimately, the stronger rural electrics to be completely clear of Federal financing.

We believe that this is a very important step in the right direction. We sincerely hope that your Committee will report the proposed bills favorably so that the valuable work of the rural electric cooperatives can continue with adequate financing.

Hon. RALPH J. RIVERS,
House Office Building,

Washington, D.C.

FELTON & TENNY, Kodiak, Alaska, May 20, 1966.

DEAR REPRESENTATIVE RIVERS: Please be advised that I am in favor of legislation supporting the National Rural Electric Cooperative Association's Supplemental Financing Plan and I urge you to assist in obtaining a prompt hearing on the bills introduced.

The immediate release of loan funds to this organization is necessary for efficient operation of rural electric systems on the local level.

I would appreciate your attention on this matter.

Very truly yours,

HARRY FELTON, Owner.

MATANUSKA ELECTRIC ASSOCIATION, INC.,
Palmer, Alaska, May 20, 1966.

Hon. RALPH J. RIVERS,

U.S. House of Representatives,
New House Office Building,
Washington, D.C.

DEAR RALPH: The provisions of the three house bills which deal with supplemental financing for the REA program have been discussed with the Board of Directors of Matanuska Electric Association, Inc., and I will outline the thoughts which are pertinent. I refer to H.R. 14000, introduced by Congressman W. R. Poage of Texas, and H.R. 14048, introduced by Congressman Wilbur Mills of Arkansas, which are apparently identical, and are endorsed fully by the National Rural Electric Cooperative Association, of which MEA is a member. The third bill is H.R. 14837, introduced by Congressman Cooley, of North Carolina, which is endorsed by the Administration.

The three bills are a great deal similar in many ways, but do differ in a few essentials, which seem important to MEA. I will cite below the sections of H.R. 14000 and H.R. 14837 which contain such differences:

Title III-Section 303 of both bills. H.R. 14837 contains no provision for interest to be paid by the Treasury on bank funds on deposit, H.R. 14000 calls for 2%, and specifies that it shall be applied to interest due on loans made to the Administrator. This bank will be capitalized at some amount equal to or exceeding $750,000,000, which seems to us to indicate that the provision in H.R. 14000 might be quite important.

Section 302 (5) in H.R. 14000 provides for payment from the funds of the bank for any difference between the interest earned from intermediate 3% loans, and the interest earned by bank debentures. This appears to MEA to be a desirable feature. The provision for intermediate loans in H.R. 14837 would probably carry an interest rate of 4%, as written, and we think that this would largely kill the effectiveness of the intermediate loan program.

Title IV-Section 403 of H.R. 14000 provides that the Governor of the bank would be the Administrator of REA, as long as the majority of stock was owned by the United States, and after the majority shifted into private hands, the Governor would be elected by the Board of Directors. Section 404 of H.R. 14837 would provide that the REA Administrator would always be the Governor of the Bank. This does not seem like a good provision to MEA The position of Governor is a strong one, and we do not feel that after the majority ownership of stock passes to private hands, that a federal official should necessarily be retained as Governor. Certainly at such time as full ownership resides in private hands, it would not be advisable. An official of an unfriendly administraiton could work havoc to the program in such a position of power, and with such a powerful instrument as this bank will be.

Section 404 of H.R. 14000 and Section 403 of H.R. 14837 cover the subject of the Board of Directors. In H.R. 14000 the Secretary of Agriculture would be required to designate one employee of the Department of Agriculture, and the other Department members would be specified, and top flight men. In H.R. 14837 the Secretary would specify all federal members of the board, and in our opinion this could result in a relatively low caliber of director being appointed to this highly important job. We feel that the provisions of H.R. 14000 should be retained, since the very stature of the bank itself is at stake. In H.R. 14837 the Secretary would, in the formation of the Board, be responsible for choosing the members from the rural electric systems. No criteria is set which would actually require a fair representation across the country, as is the case in H.R. 14000, and here again we strongly favor the latter bill.

Section 405 of H.R. 14000 sets a limit of $1,000,000,000 as opposed to $750,000,000 in H.R. 14837. It is clear at this time that the yearly need for total financing is approaching $700,000,000, and it appears that the $1,000,000,000 figure would therefore be more realistic, in the NRECA bill.

Section 410 of H.R. 14837 seems to indicate that loans from the bank could only be made to corporations which had received Section 4 loans. This would appear to MEA to limit the availability of funds to newly formed cooperatives or other legally qualified borrowers which might be newly incorporated, and might never have been extended Section 4 loans. There could even conceivably be such corporations which might have applied for Section 4 loans, but which had never either received such a loan, or a commitment for one. There are

many applicants at this time who have applications on file, which would fall in this latter category. This section seems to us to hedge the use of bank funds about with more federal control than is good. The Secretary would determine what acquisitions could be made, for instance. One of the primary advantages of this loan program was to be the added latitude that would apply to such funds, as opposed to the present restrictions on use of 2% funds. The reference to adjustment of service areas is unrealistic. The laws regarding service areas, and the approaches to this primary problem are as varied as the number of states in the Union. The phrase "that in the case of any such loan made to effect an exchange of properties, such exchange shall be an appropriate means of achieving a reasonable and logical adjustment of the service areas of the borrower and another electric supplier," could provide an impossible obstacle. The Board of Directors should decide such a question.

Section 410(b) of H.R. 14837 appears to be an attempt to set up a condition where the Administrator of REA would be placed in a position where he would determine all conditions under which bank funds would be loaned, forevermore. This would in effect give him another program to administer, one which would be largely outside of the effective control of any other authority than the Board of Directors. Under this bill it is problematical how much authority the Board would be able to exercise effectively. This is not good legislation.

Section 412 of H.R. 14837 would require that after the stock of the bank all passed into private ownership, the Congress would still have to authorize the passage of the bank into private control. This does not seem to MEA to be consonant with the intent of the idea. H.R. 14000 provides that at such time as the class A stock issued to the United States has been retired, the bank will automatically become a private institution. We feel that this is a far better approach, more realistic, and one which might avoid a great deal of trouble in the future. Clearcut transfer is the best approach, in our opinion, and we do not feel that a bank which is completely privately owned should be an instrument of the United States.

The above covers the major observations which MEA has on the subject. This supplemental financing bill is of utmost importance as a must piece of legislation this session, in our view. MEA has been engaged in attempting to obtain REA loan funds since December of 1964, and to date has had absolutely no success. We are now in a position where the operation of the cooperative has to be cut back, and the construction program for 1966 will apparently never get off the ground. One of the main reasons for this is that the amount of appropriated funding for REA has steadily become smaller, in relation to the nationwide needs of the cooperatives. This plan is the only one in sight which may alleviate that situation. We are hopeful that it will be passed this session, although we realize that it will face the strongest opposition which REA programs have ever received. It ranks in importance, in our view, with the REA act itself. We urge that you do all in your power to try to secure passage of H.R. 14000 or 14048, and we know that you will do so.

As is our normal procedure, a copy of this letter will be sent to our good Senators, for their information. We have already informed Senator Gruening of our support for the Bass-Cooper bill in the Senate, and have urged that he co-sponsor it. That is also a bill which NRECA fully endorses. Senator Bartlett has requested our views on the house bill, and this letter will inform him on that point.

Sincerely yours,

MASON LAZELLE,
General Manager.

DAVIDSON ELECTRIC MEMBERSHIP CORP.,
Lexington, N.C., May 25, 1966.

Subject: Statement in Regard to REA Supplemental Financing Legislation.
Hon. HAROLD D. COOLEY,

Chairman, House Committee on Agriculture,

Longworth Building,

Washington, D.C.

DEAR CONGRESSMAN COOLEY: We wish to state that we support the specific features of the Poage Bill (HR 14000), and we also support in general the Administration Bill (HR 14837). The passage of these two Bills is of utmost importance for the continued growth of our Electric Cooperative.

Historically, over the past 5-year period, we have required an average of $275,000 in capital expenditures annually. Engineering projections show that this will increase rather drastically as our growth and demands by our members for electric service increase. It is estimated that in the next 5-year period we will require additional capital of approximately 2.9 million dollars.

The Davidson Electric Membership Corporation is located in one of the fastest growing parts of North Carolina, and if we are to keep pace with the continued growth and demands for electric service, an assured means of capital is necessary. Without the favorable passage of REA supplemental financing, we will, in all probability, be faced with a critical shortage of new capital to meet the needs of our members. We do, without reservation, urge a favorable report from your committee.

Very truly yours,

HUGH A. CRIGLER, Jr.,
General Manager.

Hon. HAROLD D. COOLEY,

TRI-COUNTY ELECTRIC MEMBERSHIP CORP.,
Goldsboro, N.C., May 26, 1966.

Chairman, House Committee on Agriculture,
Longworth Office Building,
Washington, D.C.

MY DEAR CONGRESSMAN COOLEY: We should like to inform you that the members, the Board of Directors, and the management of Tri-County Electric Membership Corporation have unqualified support for the specific features of the Poage Bill (H.R. 14000) as well as support for the intent and spirit of the Administration Bill (H.R. 14837); and we should like to express our appreciation to you for the introduction of H.R. 14837.

As you undoubtedly know with the tremendous decrease in farm population, those people left on the farms in Eastern North Carolina have become completely dependent on adequate low cost electric service and mechanization for their livelihood. Therefore, in order for Tri-County Electric Membership Corporation to provide for the tremendous increase in load growth on our electric system, and deal with the very great problem of obsolescence as the result of this load growth as well as providing electrical service to congested areas developing on our system, it is imperative that we have access to long-range financing available at a cost that we can afford, and consequently make these needed capital expenditures.

Although we are not desirous of making an oral statement at the forthcoming hearings, we shall be very grateful if you will consider having our views included in the Journal of Proceedings.

Sincerely,

ROBERT S. HOLMES, Manager.

Hon. HAROLD D. COOLEY,

RUTHERFORD ELECTRIC MEMBERSHIP CORP.,
Forest City, N.C., May 26, 1966.

Chairman, House Committee on Agriculture,
Longworth Office Building,
Washington, D.C.

DEAR MR. COOLEY: The Rutherford Electric Membership Corporation has borrowed approximately $7,000,000 from the REA since 1937. It is conservatively estimated that our need for new capital will be at least $10,000,000 in the next 10 to 15 years to provide for expansion of electric facilities to meet growth requirements for service to our members.

While we do not wish to make an oral statement at the hearings beginning May 31, 1966, we would like for our views on the proposed supplemental financing bills to be included in the Journal of Proceedings.

We strongly support the specific features of the Poage Bill (HR 14000) as well as the intent and spirit of the Administration Bill (HR 14837) and urge that consideration of supplemental financing legislation be expedited to make available adequate capital for the rural electric and telephone cooperatives.

Sincerely,

W. R. OATES, President.

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