Mr. Gibbs, representing the South Dakota Rural Electric Association, had their statement placed in the record yesterday.

So with that, Mr. Chairman, I will ask you to call on Mr. Herriott.

(The prepared statement of Mr. Reifel follows:)

STATEMENT OF HON. BEN REIFEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH DAKOTA

Mr. Chairman and members of the committee, it is a special pleasure for me to come before this distinguished committee, first for the reason that it was my privilege to serve on this committee during the 87th Congress, and, secondly, because I have the honor to introduce to you two distinguished leaders of REA cooperatives in my state.

After listening to the two days of testimony that have preceded this hearing, I personally hold two major apprehensions concerning the various plans for supplemental REA financing.

First, I fear that once this bank is set up, Congress will be extremely reluctant to vote a sufficient amount of two per cent loan funds to serve those co-ops which continue to have a definite need for low-interest loan funds, I make that statement as a member of the House Committee on Appropriations. Members will ask: Why should we continue to appropriate two per cent loan funds at the same level when we have set up this bank to finance REA needs?

Furthermore, there will be a strong temptation for any administration to reduce sharply its budget requests for two per cent REA loan funds. This would be a most handy place to trim the federal budget to make it look better. Members of Congress are painfully aware of our recent experience regarding budget requests for such established programs as school lunch and school milk, soil conservation and land-grant college programs. And we all know of instances in which REA funds appropriated by Congress are not released by the Administration.

Secondly, I fear the Electric Bank itself established by this legislation would add to the pressures to do away with two per cent loans to the end that the largest possible number of co-ops would obtain their financing through the bank. This, in turn, would hasten the day when the bank would be on its own without the fetters of government supervision or other restrictions.

The result could well be increased costs for electric service on the part of REA consumers in my state. This, in turn, would largely nullify the benefits of low-cost Missouri River hydroelectric power. Low-cost power was intended to be a major benefit of the hundreds of millions of dollars spent on Missouri River development.

The two gentlemen I am about to introduce can speak much more knowledgeably than I as to the impact of this legislation in low-density areas such as in the Dakotas. They are not necessarily opposed to the idea of supplemental financing at higher interest rates for those co-ops who feel they can live with that arrangement. Of more concern to them is the necessity that co-ops in our part of the country in particular, where we have an average of only 1.5 consumers per mile of line, where we have average cooperative income of less than $300 per year per mile of line, where we are losing an average of 1,100 farm families every year, should have a dependable source of two per cent money with the loan criteria spelled out.

They do not feel, nor do I, that we should lodge this amount of power in the director of the Electric Bank.

They are Mr. Art Jones, President of Basin Electric Cooperative of Bismarck, North Dakota, who is a resident of Britton, South Dakota, and Mr. Virgil Herriott, Manager of Sioux Valley Empire Electric Association of Colman, South Dakota, a distribution cooperative. Also present are Mr. Dail Gibbs, manager of the South Dakota Rural Electric Association; Mr. Harlan Severson of East River Electric Association; and three members of the board of the Sioux Valley Empire Electric Association.

I thank the Committee.

The CHAIRMAN. We will be glad to hear you, Mr. Herriott.

STATEMENT OF VIRGIL H. HERRIOTT, GENERAL MANAGER, SIOUX VALLEY EMPIRE ELECTRIC ASSOCIATION, COLMAN, S. DAK.

Mr. HERRIOTT. Thank you, Mr. Chairman and members of the committee.

Our cooperative is one of those referred to by Mr. Jerry Anderson of NRECA as not having endorsed any of the bills to provide supplemental financing which are before you now. We are members of NRECA and we have and do support the idea that a plan to introduce supplemental sources of financing is desirable. We have not endorsed any of these bills for the following reasons:

1. We are fearful that the very existence of a Federal bank for rural electric systems will tend to dry up the amount of 2-percent funds made available regardless of need.

2. We are fearful that higher cost money will require that our electric rates be increased, thus increasing the costs to our farmer-members on another front.

Our cooperative has approximately 8,000 services in eastern South Dakota, bordering Minnesota and touching the northeast corner of Iowa. Over 5,000 of these services are to farmsteads including the residence. Many others are to pasture pumps and other small-use locations. We are still a cooperative serving predominately farms even though we serve some small rural towns, some lake cottage areas, and some small slow-growing suburban areas. Sioux Valley Electric has over 3,500 miles of line throughout a 3,000-square-mile area. Our overall density is 2.3 services per mile of line. This is better than average for the State of South Dakota, where one co-op has a density of less than one per mile.

We diligently strive to make high-quality service available on an area-coverage basis in accordance with the terms of our loan contract with the Federal Government. We are losing farms at a rapid rate and reliable predictions state that we should expect to see one-third of these remaining now to be gone within 15 years.

The growth in the use of power has been rapid, doubling every 7 to 8 years, so we must continually increase our system capacity by purchasing and installing larger transformers, bigger wires, and such things. Our total need for new capital will double our present investment in the next 15 to 20 years. And this is only in the distribution system.

The multipurpose development of the Missouri River has provided some low-cost power, but we have already received all of that capacity that we can purchase. Ours is a region of high fuel costs and traditionally a power importing area, except for the Federal hydropower. The combination of low-density, high fuel costs, declining farm population, the need for growth capital, the price cost squeeze on our farmers all make us leary of any financing plan that proposes to lessen the successful partnership arrangement that has enabled our members to work with their Government in doing for themselves the job that the commercial utilities were unwilling to do-electrifying rural South Dakota.

We have some questions and some concerns about the operation of the Federal bank for rural electric systems proposed here. Perhaps

the most apprehension is about the "policies and criteria" that will be used in determining whether our cooperative will be forced into a higher interest rate loan program. With all our present handicaps, higher interest rates might be the difference between the job being well done or just being done.

We want to be sure that the "program objectives" are mutually understood and that the measurement of achievement will be realistic. For example, we believe strongly that low rates are necessary to achieve the high level of electric usage that permits low unit costs, thus enabling the low rates. The philosophy is different from the traditional philosophy that says rates will be reduced when the high level of use has been achieved and unit costs have been low. We therefore fear a criteria based on parity of rates that might increase interest costs before the high level of use has been achieved.

We also know of the changing power requirements of the farmers in our area today. Thirty years ago 110-volt, single-phase service was considered adequate service. Today it is not. You must now provide at least 200-volt, single-phase service. More and more farmers every year are needing three-phase service to efficiently apply electrical power to their stationary power needs.

We certainly hope that a parity of service criteria would recognize this need and not impose higher interest rates on the substantially higher investment required to provide area coverage three-phase service where its use is needed for most economical production application by the farmer.

We think there may be some co-ops who can meet "program objectives" while paying the higher interest rates and we don't want to deny them the opportunity, but we want to make it clear that we feel that higher interest rates will further complicate and make more difficult the job we are now struggling to do.

We are grateful for the support the Congress has given to us in the past and share their pride in the success thus far achieved. We hope you won't feel that the job is done or that success has been fully achieved by all, but that rather that you will clearly protect continual low-cost financing by suitable amendments, which will keep the supply of 2-percent funds from being dried up and not penalize cooperatives who have low rates by making them ineligible for 2-percent funds. Thank you for your time and consideration on this subject of mutual

concern.

Thank you.

The CHAIRMAN. Thank you very much.

Mr. POAGE. It seems to me that Mr. Herriott raised some questions that help us more than those that have been raised by anybody else. I think the first question that must be decided is, would the passage of legislation providing a supplemental system of financing tend to keep the appropriation committees from meeting the legitimate needs of the less opulent cooperatives?

Now, none of use are members of the Appropriations Committee, but Mr. Reifel is. And I think we might have his opinion on that. Mr. REIFEL. My apprehension about this, as I said earlier, grows out of a feeling, as I talk to members not only of our committee but also of the House, that there are some who will vote for REA appro

priations because they realize that this assistance is necessary for rural America. But at the same time they have no alternative to which they may suggest that the subscribers turn for financing. And if we estab lish an electric bank where you can get up to not more than 4-percent rates, this will make a convenient alternative. A city Member of Congress who has to go back to his constituency when he has probably just voted for price supports-which I think are essential to the economy of agriculture-will find it less easy, it seems to me, to support REA 2-percent money even at the levels that we are supplying it now, because he has that alternative.

Now, this is an apprehension I have as a result of my experience of 6 years in the Congress supporting REA appropriations.

Mr. POAGE. I want to make it clear that I have known Mr. Reifel as a friend, and I don't want any implication otherwise. But I think that what you have just said, Ben, raises the question which then must be answered, do you think that there is assurance that if we don't do anything the Appropriations Committee will provide the larger fund for those who could pay something more as well as those who couldn't?

Mr. REIFEL. Well, as it was indicated yesterday, our Appropriations Committee has always met whatever request that has come before it, and this year, as you know, we have added to it.

Mr. POAGE. I know. But if they are going to continue to do that your fears that you have just expressed are ill founded, and there is no bother about it.

Mr. REIFEL. If I may, Mr. Chairman, in further answer to your question, all I am suggesting is that there should be come assurance that in these low-density areas such as we represent here at this table, that the 2-percent moneys are continued, so that we do not get disadvantaged in setting up this electric bank.

Mr. POAGE. Both bills clearly continue the availability of the 2percent money, subject to the action of the Appropirations Committee. And I am asking you, Is the Appropriations Committee going to continue it if we don't do anything? The whole crux of this thing lies in the attitude of the Appropriations Committee.

I am not talking about you as an individual; I am talking about the committee.

Mr. REIFEL. I appreciate that.

Mr. POAGE. If the committee will continue to provide all the money that everybody needs, then there is certainly no purpose in passing this bill, other than to get the co-ops to supply their own credit needs. I thought that was quite desirable but it is clear that many power companies prefer that the co-ops should continue to look to the Government just as do your constituents.

Mr. REIFEL. Yes. I think we have the problem, as I indicated here, that the witnesses whom I have introduced-one hasn't spoken yet, and he has with him Bob Ferrigan, who I forgot to mention-we appreciate that there is going to be some need for additional financing. And we are not opposed to that. But what we are concerned with is that in the interest of promoting the electric bank our needs can be lost sight of, and as a practical matter it will be easier to resist support of 2-percent funds in the amounts that we think will be necesary with

an electric bank unless there is some language that we can write into the bill-and whether this is possible, I don't know-that will insure that so long as we are in this low density situation, we can look forward to a dependable supply of this kind of money.

We are disadvantaged, as has been pointed out in the record yesterday, by Mr. Hauffe's testimony, because we were several years late in getting started under REA. And some of these more affluent cooperatives have had this period of growth which we haven't enjoyed.

We do find a considerable period here in which we are going to find ourselves in need of the continuing 2-percent, low-interest-rate funds. The CHAIRMAN. If you will permit me to interrupt, both bills provide for a continuation of the 2-percent interest rate, do they not? Mr. REIFEL. It is provided. But I think the language of either bill-the very establishment of the bank is going to make it easier for Members of Congress, and even our Appropriations Committee, to rationalize that you have got a bank set up to take care of REA financing and we may not be able to get the moneys, the amounts that we need.

The CHAIRMAN. Yes, I understand.

Mr. POAGE. Mr. Chairman, may I make this further observation, that this seems to me to be proof conclusive that there should be some proper middle ground between the extreme views of the representatives of power companes who say that if we provide a bank-if we enable the co-ops to borrow other than appropriated funds that we are going to ruin the $160 billion private power industry, that the co-ops are going to be able to take them all over with this $15 billion that might be available here under optimum circumstances.

And yet you gentleman come here and say that this bill is going to put you out of business because you are the poorest and the smallest and the weakest of the cooperatives.

On the one hand the power companies tell us that this thing is so big, and it is going to put out so much money, that it is just going to wipe them out of the picture, and you come here and tell us that the thing doesn't go far enough, it doesn't take care of anybody, it leaves the weakest ones stranded, and strangled, and ruined. It simply can't be as effective as they say and as important as you say. It seems to me that it proves rather conclusively that there is bound to be some actual practical ground in between these two extremes. And I believe these two bills pretty well set it out.

Mr. BELCHER. Will the gentleman yield?

Will the chairman give me the name of the witness who just testified?

The CHAIRMAN. Mr. Herriott of Sioux Valley Electric Association in Colman, S. Dak.

We will now hear from Mr. Arthur Jones of the Basin Electric Cooperative in Bismarck, N. Dak.

STATEMENT OF ARTHUR JONES, PRESIDENT, BASIN ELECTRIC COOPERATIVE, BISMARCK, N. DAK.

Mr. JONES. Mr. Chairman and members of the committee, my name is Arthur Jones, and I am from Britton, S. Dak. I appear before the committee today as president of the East River Electric Power Co.