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MAY 28, 1966.


Chairman, Agriculture Committee,
House of Representatives,

U.S. Congress, Washington, D.C.

DEAR MR. COOLEY: As a member for 25 years of the International Brotherhood of Electrical Workers and a former steward of Local #145, I would like to make the following statement in support of the bills regarding supplemental financing for the nation's rural electric cooperatives.

It has recently become very clear that the profit utilities in this area have become very active in opposing any such legislation. I feel that a brief history of the development of electric cooperatives in Eastern Iowa and our relationships with neighboring profit utilities might be of interest to you.

In the late thirties, rural electric cooperatives were organized in Iowa, as well as the rest of the nation, to attempt to serve unserved rural establishments, but only after the private utilities were apparently not interested.

It was very clear then as it is now that the private utilities could receive a much larger return for their investor dollar in urban areas than in sparsely settled rural areas.

The rural electric Cooperative extended their lines to all of the unserved rural establishments on an area basis regardless of the distance or anticipated


The rural electrics in Eastern Iowa as well as other sections of the country have not only brought progress and prosperity to their own consumer members, but have strengthened the nation's economy and helped the private utilities in many ways.

We have felt that our own relationships with the profit utilities adjoining our system were excellent.

We have interconnection agreements with four such utilities, which have operated to our mutual benefit.

We have joined with profit utilities and municipals in a long range planning group, Midwest Area Power Planners.

We have been in daily contact with profit utility operating personnel, and we have no problems. It therefore is very disillusioning to be subjected to the harassment and unfounded attacks which have begun not only locally but nationally.

Our belief is that a plan for supplemental financing for the nation's electric cooperatives, which your committee is now considering, is vital if rural electrification is to survive.

Very truly yours,


Member, Local 145, International Brotherhood of Electrical Workers. The CHAIRMAN. I understand that Mr. Joseph Birk and Mr. David Harrison desire to present statements.


Mr. BIRK. Mr. Chairman and members of the committee, my name is Joseph Birk. I am attorney for the Union Electric Co. of St. Louis, Mo. I appear here today on behalf of Mr. Charles J. Dougherty, who is president of the Union Electric Co., who is unable to appear here today, and to make a statement in opposition to H.R. 14000 and H.R. 14837 and, in the interests of saving this committee's time and recognizing that there are a great number of witnesses who have to be heard, Mr. Dougherty has asked me to request the committee to accept his written statement regarding the subject bills and that such statement be incorporated in and made a part of the record of these proceedings.

The CHAIRMAN. Thank you very much. It will be made a part of the record at this point.

(The prepared statement of Charles J. Dougherty, above mentioned, follows:)


Mr. Chairman and members of the Committee:

My name is Charles J. Dougherty. I am President of Union Electric Company of St. Louis, Missouri, and I make this statement today on behalf of that Company and its utility subsidiaries, Missouri Power and Light Company and Missouri Edison Company. Briefly, and for the reasons specified later, we urge this Committee to recommend that H.R. 14000 and H.R. 14837 DO NOT PASS.

Reduced to their simplest terms, these proposed Bills would create a new type of Federally-subsidized power program vastly different from the REA program as it has existed in the past.

At the outset, it should be understood that we do not gain-say the value of the contribution to our well being that has been made by the Rural Electrification Act of 1936. Regardless of one's motivation or interest, it must be admitted that the REA concept has served a fundamental and real purpose. By the same token, no one can deny that every purpose, every objective of the Rural Electrification Act of 1936 has been substantially fulfilled. The purpose of such legislation was to bring electric service to persons in rural areas who were not receiving central station service. To enable the accomplishment of this purpose, the borrowers of REA-mostly the rural electric cooperativeswere granted a subsidy in the cost of money. This subsidy was consideration for the bringing of electric service to rural areas. The subsidy afforded by 2% money proved to be a real incentive to the accomplishment of rural electrification. There is now no need, however, to perpetuate or to aggravate such subsidy. When the purpose has been accomplished, there is no need to maintain the starting mechanism.

This is particularly true when one recognizes that the subsidy from the government is necessarily financed by taxes. There are at least two reasons why such a tax-financed subsidy should be discontinued at the earliest reasonable opportunity, rather than enlarged:

1. There are many other demands on our taxes; and,

2. It is wasteful to expend tax monies on an undertaking which could be supported by voluntary investment.

Specifically with respect to the Bills which are the subject of this hearing, I believe that the foregoing remarks explain our belief that the subject Bills are founded on a misconception, namely, that some $8 to $9.5 billions of loans to rural electric systems will be required to "meet the public need" during the next 14 year period and that the supplementary financing program embodied in the proposed Bills is the proper means to achieve that end.

Actually, there is no need for such a subsidy. As a matter of fact, the creation of such a large subsidy would constitute a most serious challenge and affront to the American free enterprise system because it would put government-subsidized and government-guaranteed funds in direct, major competition with the voluntary investments of private citizens.

Many presentations in opposition to the proposed Bills have been offered today. We would not impose upon this Committee by repetition of the points made. Rather, we point out to the Committee three simple yet profound and basic reasons why the proposed Bills should not be enacted into law.

1. They are not needed;

2. Our governmental and our economic systems both function better when we permit citizens to invest their funds voluntarily rather than to conscript them in the form of taxes-especially when, as here, the objective can be achieved by voluntary investment; and,

3. They would constitue an abdication by the Congress of its power, authority and responsibility over the Federal Treasury.

The CHAIRMAN. Mr. Harrison.


Mr. HARRISON. Mr. Chairman and members of the committee, my name is David Harrison. I am general counsel for the Missouri Power & Light Co., but in here authorized to speak for all of the presidents of the private companies operating in the State of Missouri, with the exception of Mr. Dougherty, some of whom have requested time to appear before this committee and have been granted that time, but, recognizing the number of witnesses against the amount of time available, they have agreed that they would not press the committee for their time allotted for all presentations and would like the record merely to reflect that they endorse and support the statements submitted by Mr. Dougherty, the president of the Union Electric Co. And those presidents are:

Robert Olson, president of the Kansas City Power & Light Co.;
Richard C. Green, president of the Missouri Public Service Co.;
D. W. Runquist, president of the St. Joseph Light & Power Co.;
J. T. Jones, president of the Empire District Electric Co.;
Charles Czeschin, president of the Arkansas-Missouri Power Co.;
Ray Call, president of the Missouri Utilities; and

Davis Benning, president of the Missouri Power & Light Co. and the Missouri Edison Co.

Thank you for the time.

The CHAIRMAN. Thank you very much. We are very glad to have that information.

Mr. HARRISON. I would like to point out this presentation, therefore, eliminates the need of this committee hearing witnesses numbered on your agenda, 21, 24, 30, and 40.

The CHAIRMAN. Mr. Stalbaum.

Mr. STALBAUM. I request permission to include in the record at this point my own statement.

The CHAIRMAN. Without objection, that permission is granted. (The prepared statement of Hon. Lynn E. Stalbaum, above referred to, follows:)


Mr. Chairman and distinguished colleagues on the House Committee on Agriculture: I wish to register my support of legislation to establish a supplemental source of financing for our rural electric and rural telephone systems, which are now totally dependent for their capital upon the present two percent loan program. The importance of supplemental financing is underscored by the fact that both our Chairman and Vice Chairman have introduced bills to provide the rural electric and rural telephone systems with a banking mechanism through which they can obtain access to supplemental capital from non-Federal sources. Similar bills have been introduced in the House by Representative Wilbur Mills of Arkansas, Chairman of the House Ways and Means Committee, and Representative Gale Schisler of Illinois. On the Senate side, 29 Senators are co-sponsoring an REA supplemental financing bill.

The introduction of these measures, and the early hearings scheduled on them by our Chairman, indicates the pressing need for insuring that our rural electric and telephone systems be permitted access to sufficient growth capital to continue to meet the growing needs of their rural consumer members.

You are all abundantly familiar with the outstanding achievements of the rural electrification program during its 31 years of existence, and I do not wish

to take up your time by recounting the social and economic benefits which have accrued to our farmers and other rural residents because of the establishment of REA and the rural electric cooperatives. I would like to emphasize that the electric power industry as a whole is characterized by growth-both in the demand for electricity and in the need for ever-increasing amounts of capital to keep up with that growing demand. This is true of every segment of the electric industry. No electric utility system can long survive if it is on a starvation diet so far as growth capital is concerned.

Obviously, there are many rural electric systems in the Nation today which are serving such sparsely populated rural regions that REA two percent interest loans are an absolute necessity if these systems are to be able to continue to furnish adequate, low-cost electric service to their widely-scattered rural consumer-members. However, it is equally evident that the Administration cannot reasonably request-and the Congress cannot reasonably authorize-all of the two percent loan funds which are needed and which will be required in the future to meet the growing demand for electricity in rural America.

In studying this problem, I computed the average of the amount of two percent electric loans funds which have been made available to REA during the past 10 years. The average comes to 268 million dollars per year. This has changed very little from year to year. There is no indication that this appropriation will be substantially increased. When you consider that the rural electric loan needs for fiscal 1967 are in the vicinity of 612 million dollars and are estimated to be 700 million dollars or over for the year of 1980, it becomes plain that a mechanism for bringing supplemental capital from non-Federal sources into the rural electrification program is essential to the effective operation-and even the survival-of our rural electric cooperatives.

The bills which are before our Committee all call for the establishment of banks for rural electric and rural telephone systems. These banks would require Federal assistance in their initial years but would move toward eventual self-sufficiency and borrower ownership and control. This plan follows the tried and proven pattern of the Farm Credit System and its Bank for Cooperatives, of which I have a long-time working knowledge. Before being elected to the House of Representatives, I was the Secretary-treasurer-manager of a dairy cooperative in Wisconsin for 14 years. During that time, we had opportunity and need to borrow from the Bank for Cooperatives over a rather long period of time. It was during this period that the Bank for Cooperatives moved from being a government-owned bank to becoming, if you please, a cooperative bank for cooperatives. Based on my 14 years of experience with this type of cooperative financing, I can say without hesitation that this approach is a very effective method of obtaining necessary growth capital without forever being obliged to the government for it.

Based on the historical pattern of the past 10 years, I do not believe that the Administration or the Congress is going to greatly expand the funds for the REA two percent interest program. I would not want to see government limitations on funds become the inhibiter of the development of rural electric facilities throughout rural America. This, to me, is the main area of concern which confronts us and which should be of interest to all of those who want rural America to grow and flourish.

All of the 30 rural electric cooperatives in Wisconsin solidly support the proposed bank for rural electric systems. Through the bank, they would be able to pool their resources and supplemental capital needs in order to obtain their capital requirements at the lowest possible cost via the mass sale of debentures by an established credit institution. If I may paraphrase a famous quotation, united the rural electrics stand to secure the most favorable money market financing, while individually they are sure to pay a premium for openmarket money-if indeed they can individually borrow money in the private market. The Kuhn, Loeb Report indicates that few of our rural electric systems today could obtain individual loans from our existing financial institutions. They also indicate that some must also continue to be provided with 2 percent financing.

Mr. Chairman, I would like to have inserted in the hearing record a resolution passed by delegates to the 1966 annual meeting of Wisconsin Electric Cooperative, the statewide association of all 30 of the rural electric co-ops in my home state. This resolution endorses supplemental financing for rural electric cooperatives through a central bank which would ultimately be under the opera

tion and control of its borrower-stockholders. The resolution also calls for a continuation of the present REA two percent electric loan program for those rural electric cooperatives which cannot now achieve rural electrification program objectives without access to these low-cost loans.

(The text of the Wisconsin Electric Cooperative resolution follows:)


Whereas, the rural electric systems, in order to provide adequate and reliable service for their members, need increasing quantities of growth capital, estimated to total $91⁄2-billion in the next 15 years, and

Whereas, in recent years the amounts of loan funds budgeted by the Administration and authorized by the Congress have not kept up with the growing requirements, causing a critical build-up of applications backlog, and

Whereas, the loan fund shortage is an immediate problem affecting the future prospects of every rural electric system that needs to build additional capacity to keep up with the rising electric power needs of their consumers, and

Whereas, many, if not most rural electric systems in Wisconsin and other states, if they are to make progress toward meeting program objectives, are still not financially strong enough, either to operate successfully without the REA 2 percent, 35-year loans or to go individually to the private money market for the capital they need, now therefore.

Be it resolved, that we urge the Administration and the Congress in the interests of a sound and ultimately financially independent rural electrification program to help us alleviate the rural electric loan fund shortage now upon us and provide for increasing capital for future growth by adopting a Supplemental Financing Program substantially in accordance with the proposal set forth in the NRECA Report of January, 1966, entitled Supplemental Financing Program For Rural Electrification which would:

(1) Continue the traditional two percent, 35-year REA loan program with adequate funding for those systems requiring such loans to meet program objectives;

(2) Establish a Federal Bank for Rural Electric Systems which initially will be in USDA and will operate with Federal government assistance but which, as the systems grow in maturity and invest more of their own funds in the Bang, will shift from government to borrower ownership and control;

(3) Provide loans with sufficient flexibility of interest rates, amortization requirements and maturities to enable systems to achieve program objectives; Be it further resolved, That we urge the Administration and the Congress to make available to REA during fiscal years 1966 and 1967 sufficient funds to dispose of the accumulated loan applications and those yet to be received by REA, in order that the rural electric systems may move steadily onward with construction programs so vital to rural consumers, and in order that the Bank may initiate operations on an orderly basis without gigantic loan demands exceeding its capabilities in the early years of its operation.

The CHAIRMAN. In addition, we have a statement on behalf of the Kansas Gas & Electric Co. and other companies; one by Edwin I. Hatch, president of the Georgia Power Co.; two statements by William J. Clapp, which, without objection, will be made a part of the record at this point.

(The prepared statements of the Kansas Gas & Electric Co., et al.; Edwin I. Hatch; William J. Clapp, being two statements, follow :) STATEMENT OF STANLEY GARRITY ON BEHALF OF KANSAS GAS & ELECTRIC Co.; KANSAS POWER & LIGHT Co.; CENTRAL KANSAS POWER Co.; WESTERN POWER & GAS Co.; INC.

My name is Stanley Garrity of Wichita, Kansas. I am appearing here as a substitute for Mr. G. W. Evans, also Wichita.

The four (4) independent, investor-owned companies in Kansas desire to record their opposition to these Bills; and in the interest of the time of the committee, have set forth their reasons in a joint statement, which I would like to file and have made a part of the record.

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