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NORTHWEST PUBLIC POWER ASSOCIATION,
Re Proposed Amendment On REA Financing.
Hon. HAROLD COOLEY,
Chairman, House Agriculture Committee,
DEAR REPRESENTATIVE COOLEY: It is respectfully requested that this letter and resolution be made part of the record in your hearings on broadening the sources of financing for rural electric and telephone service. In 1965 I served on the NRECA Special Advisory Committee on Financing.
The Northwest Public Power Association comprises 126 public and cooperative electric systems serving 51% of the population of Alaska, British Columbia, Washington, Oregon, Idaho and Montana. This region includes 78 REA borrower electric systems plus vast frontier areas and native villages not yet served.
CONTINUE 2 PERCENT PROGRAM
To open up the vast frontier areas of Alaska and other unsettled portions of the Northwest States will require continuation of the 2% REA loan program for many years, and we emphasize the need for continued 2% money.
INCLUDE MUTUAL CO-OPS
Second, we very much hope that the Poage Bill can be amended to permit the making of loans by the proposed bank to the original and earliest rural electric systems in America, namely the mutual electric cooperatives of Southern Idaho, the Tacoma mutuals, and two mutual electric cooperatives in Oregon, a total of 19 systems which serve about 21,000 people in what have now become rapidly growing areas, and whose operations are seriously hampered by inadequate capital. The two oldest mutuals were formed in 1914 and are now 52 years old. None of these are now REA borrowers.
These mutual electric cooperatives were the precedents and were studied as the basis for the pattern of rural electric cooperatives across the Nation. Yet, they have been excluded from the REA program by virtue of the fact that they were small and their areas technically were being served. The stringent interpretation of the REA Act has prevented these systems from obtaining loans for improved service or for providing service to additional consumers.
Their loan requirements obviously would not be very large and they would generally be able to pay the interest rates contemplated for the Electric Bank loans.
I am quite familiar with these systems. They are genuine electric cooperatives, operated on a nonprofit, consumer oriented basis. They are doing an outstanding job but are hampered by insufficient capital.
In some cases loans may be needed to effect mergers or realignment of service areas. More typically funds are needed for rehabilitation and increasing capacity as well as the running of new services especially underground service.
FREEZING THE PROGRAM
A third area of great concern in the Pacific Northwest is the unjustified and severe limitation on lending authority of the Electric Bank to borrowers under section 4 of the Rural Electrification Act.
This prohibits loans to new areas and new borrowers who can afford to pay higher than 2% interest.
Again I anticipate that no large volume of future loans may be at stake, but I am sure that needs now exist or will exist, especially in Alaska. I know that Sitka, Ketchikan, Petersburg, Wrangell and similar cities in Alaska, which have limited borrowing capacity, could extend rural service outside their city limits if Electric Bank loans were available, and I think they can afford more than 2% interest and probably will not be eligible for 2% when the new criteria are determined. May I emphasize that I am talking here about people that now do not have central station electric service or adequate service or service at reasonable cost.
I regret that REA field personnel in Alaska, whether due to overwork or preoccupation with larger loans, have not followed up on my suggestions and other invitations to help these small clusters of unserved consumers.
In order to keep the door open for taking care of the needs of the mutual electric cooperatives and of the unserved or inadequately served areas, the Northwest Public Power Association strongly recommends the amendment of section 410 (a) of the Poage Bill and the indentical language of the Administration Bill. We think this can adequately be done by amending section 410(a) so as to read as follows with the inserted language italicized:
"The Governor of the Federal Electric Bank is authorized on behalf of the Electric Bank to make loans, in conformance with policies established by him, to corporations or public bodies which have received a loan or loan commitment or would otherwise be eligible to receive a loan pursuant to section 4 of this Act, ***"
We support this amendment for the purposes set forth above, and we urge your consideration of the amendment. Respectfully submitted.
GUS NORWOOD, Executive Secretary.
10. FINANCING RURAL ELECTRIFICATION
Whereas the demands and needs of rural communities in all parts of the United States for increased supplies of electric power and for adequate capital to meet this demand have been growing at a phenomenal rate; and
Whereas experience has shown that in most parts of the nation this demand can be met most efficiently and adequately by the federal program for rural electrification established by The Rural Electrification Act of 1936.
Whereas the capital requirements for continuation of rural electrifications are now substantially in excess of a half billion dollars each year, all of which sum can be fully secured and returned with interest; and
Whereas those supporting and dependent upon the rural electrification program generally recognize that the capital repirements of this program will soon reach a volume which cannot be adequately met year after year by sole dependence on congressional appropriations and that suitable supplemental financing from othre sources must be provided: Therefore be it
Resolved, That the Northwest Public Power Association does endorse the establishment by the Congress of a new Bank For Electric Cooperatives in accordance with the general principles set forth in HR 14000, known also as the Poage Bill and be it further
Resolved, That the Northwest Public Power Association urge the Congress to enact this measure in a final form which will permit the inclusion of federal equity funds in sufficient volume to make the new bank viable and effective; and that this capital will be supplemental to the basic needs of the program for continued direct loans at two percent interest; and be it further
Resolved, That since there is immediate and urgent need for capital funds which cannot wait for the organization of the new bank, even though immediately approved by the Congress, the Northwest Public Power Association urges the Congress to approve loan funds of $612 million at two percent for commitment to REA borrowers during the fiscal year 1967, as requested by NRECA.
BRUNSWICK ELECTRIC MEMBERSHIP CORP.,
Shallotte, N.C., May 30, 1966.
Hon. HAROLD D. COOLEY,
Chairman, House Committee on Agriculture,
DEAR MR. COOLEY: While we are in no position to make an oral statement at hearings on the supplemental financing bills, we do request that our enclosed views be included in the Journal of Proceedings.
We, and others interested in the rural electrification program have known for sometime that if the now successful program is to continue, other sources of financing must be made available.
It is our belief that the features of the Poage Bill (HR-14000) and the intent of other supplemental financing bills would insure for many years ahead the economic growth from the rural areas that is so vital to our nation's welfare.
Yes, we (13,000 members) are deeply concerned with financing our program and even more so of recent date as we have made application to the Rural Electrification Administration for a loan in the amount of $850,000.
From all information available, no one seems to know or will venture a guess when this loan will be approved. The continued success of this cooperative and others can hardly survive on the shaky financial structure available today. Again, we fully support the Poage Bill (HR-14000) as we feel it is our financial solution, as well as for other rural electric cooperatives across the nation.
ROBERT G. HUBBARD, Manager.
TOPEKA, KANS., May 31, 1966.
Chairman, House Committee on Agriculture,
Statement of Gene W. Porter president Kansas Electric Cooperatives. "The electric cooperatives in Kansas support in principle the bill introduced on REA supplemental financing. We support the need for continuing the present REA 2 percent loan program in addition to the establishment of a source of supplemental capital. Many of our electric cooperatives serve sparsely settled areas of Kansas that need a continuation of 2 percent capital others that serve the more populated areas will be able to use a supplemental source of financing for their capital needs. The electric cooperatives in Kansas average 1.7 members per mile. We urge and endorse a supplemental financing plan along the lines adopted by the electric cooperatives at the last annual meeting of our national association." GENE W. PORTER,
President, Kansas Electric Cooperatives, Inc.
CORDOVA, ALASKA, June 1, 1966.
Congressman RALPH RIVERS,
The Alaska Rural Electric Cooperative Association wishes to emphatically support supplemental financing of REA in general and particularly support HR 14000. We in Alaska are finished if other financing is not made available. We appreciate your support of the Poage bill and request you have our statement placed in the record.
DEAR CONGRESSMAN COOLEY: I appreciate the problems of so many people wishing to present verbal testimony in support of House Bill 14000, so will ask only that you submit this short written statement in my behalf.
This organization represents 90,000 members of rural electric cooperatives in Pennsylvania. We have supported the basic study as conducted by our national association, the National Rural Electric Cooperative Association, and have voted for it at the recent annual meeting of NRECA. Passage of this bill is vital to the rural electric program in Pennsylvania. The Poage Bill includes most of the essential items of the study which recently concluded. We wish to support the verbal testimony presented to your committee by NRECA and urge the adoption of House Bill 14000.
Very truly yours,
WILLIAM F. MATSON,
CONGRESS OF THE UNITED STATES,
Hon. HAROLD D. COOLEY,
Chairman, House Agriculture Committee,
DEAR CHAIRMAN COOLEY: I am writing to urge your committee's support for H.R. 15162, my bill to establish Federal Electric and Telephone Banks.
Most of us today take for granted the benefits of electricity and telephones. But, I can remember milking cows by lantern light in my early years on the farm. It was no small thing when electricity came to our family farm in Illinois, and it came as part of the Rural Electrification program.
Electricity and telephone service have been extended to rural homes throughout our nation in places where private power systems could not reach. The REA has expanded so rapidly that government appropriations have lagged behind capital needs. Studies show that capital demands of REA will amount to about $9.5 billion during the next 15 years. This compares to less than $5 billion which has been advanced by REA in its 30 years of existence.
The appropriations bill passed by the House in late April contained $365 million in REA loan funds-$90 million of which was in contingency reserve. The conclusion is that unless the Senate votes a substantial increase in REA loan funds, there will be a full year's backlog of loan applications this summer. It is evident that supplemental loan programs are needed if REA is to meet its increasing obligations. After several years of study, the NRECA recommended the establishment of Federal Electric and Telephone Banks to supply loans at higher than the 2% government rate to those cooperatives which can afford the higher rate but cannot afford commercial bank rates.
The major objection which has been raised by shareholders in commercial utilities and commercial banks is that this would give REA an advantage over private utilities. It should be emphasized that REA has operated and will continue to operate at a cost disadvantage in the power industry. Consumers of REA-supplied power average 3 persons per mile in Illinois and less than 3 nationwide. This compares with over 40 persons per mile purchasing commercial power in Illinois and approximately 35 persons per mile nationwide.
H.R. 15162, the bill which I introduced, closely follows the recommendations of the NRECA and is similar to S. 3337, H.R. 14000 and H.R. 14048. The provisions of my bill are known to the committee. Features which are preferred by the NRECA over Administration proposals are higher government stock subscription ($1 billion over a 15-year period as compared with the Administration's proposed $750 million) and a lower interest rate on some bank loans. Another preferred feature is the provision in my bill stipulating that a majority of the government's stock (rather than all government stock) must be retired before the bank's control goes to the borrowers.
I hope that the committee will see the urgent need for the establishment of the Federal Electric and Telephone Banks. Under this system, REA would have access to capital funds needed to meet the present growth rate of its services and for improvement of these services. It should not be overlooked that an adequate supply of electric power attracts new industry and business to rural areas. We are becoming increasingly concerned with the overconcentration of industry and business in our urban areas and the overpopulation of our cities. A viable REA can be a major force in balancing our population and our economy.
An additional and important benefit of the establishment of Federal Electric and Telephone Banks is that REA would eventually become self-supporting and self-administrating, thus relieving our already overworked government of one burden. All those concerned, as I am, about government economy and efficiency should welcome this plan.
I strongly urge this committee's support of the REA Bank concept, in general, and for my bill, in particular, because of the features which I outlined above. Your prompt and favorable reporting of this bill will be appreciated by me and by all who are concerned with bringing the benefits of electric power to all parts of our nation.
GALE SCHISLER, Member of Congress.
NATIONAL CONSUMERS LEAGUE,
Hon. HAROLD COOLEY,
Chairman, Committee on Agriculture,
DEAR MR. COOLEY: The National Consumers League, in its policy statement adopted in 1961, among other items, stated its decision to "encourage and support legislation that . . . safeguards consumer interests . . . which control the price and the furnishing of gas, electricity . . . etc." The League has always supported the REA as one means of protection of consumers of electricity, and we now urge you and the Committee on Agriculture to support H.R. 14000, which would amend the REA to provide for the supplementary financing of rural electric and telephone systems.
The need for additional capital required by the electric cooperatives, if they are to continue to bring dependable low cost electric service to consumers in the areas in which they operate, has been well documented. For consumers of electricity throughout our great nation, the existence of electric cooperatives provides the yardstick which is needed for healthy competition in this industry which touches all of us. The establishment of a Federal Electric Bank provided for in H.R. 14000 seems to be an excellent means for meeting the needs of the cooperatives, and for enabling future private ownership.
The League also endorses the provision to continue the basic program of 2% direct loans to cooperatives wherever needed. Many of the REA systems, especially in those areas where the users are far apart, have not yet achieved enough solid growth to be able to operate without this subsidy. The backlog of applications for such loans requires appropriations considerably above the $307 million set by the Administration budget for fiscal year 1966.
The League, therefore, strongly supports H.R. 14000 and urges prompt and favorable action towards its enactment. We respectfully request that this letter be made a part of the record of the hearings. Copies are enclosed for all the members of the House Agriculture Committee.
SARAH H. NEWMAN,
The CHAIRMAN. We will stand adjourned until 10 o'clock tomorrow morning.
(Whereupon, at 12: 20 p.m., the above committee recessed, to reconvene at 10 a.m. on Thursday, June 2, 1966.)