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Ellis said the “Administration is determined to take some action next year on both the interest rate and the loan funds included in the budget”. According to Ellis, “The President says he is determined to keep the national budget at as low a level as possible, and that he would like for as much of the REA program as possible to be financed outside the regular budgetary process".

The pressure to move the program in this direction he contended will increase as the costs of the war in Vietnam, the space race and other new programs continue to mount. He said if REA people do not write the new legislation someone else will write it for them. He said it makes “good common sense" in view of the "apparent certainty that there is going to be an Administration bill on the REA program next year."

The Ellis statements were bulwarked not only by the President's telegram but by statements in the speech by Norman Clapp, REA Administrator, who contended that it is “quite possible to determine on a completely objective, impartial basis the interest rate needed by each individual loan applicant to accomplish program objectives”, under a two-price or even a multiple-price financing plan.

POLITICS AND STRATEGY The general manager of NRECA reviewed the “political and strategic viewpoint” of moving now on necessary changes because Congress is “mostly friendly” to REA and "if history is a reliable guide to the future, many of these men will not be in Congress after the elections next year".

Ellis also expressed concern about the effect progress in the reapportionment program would have on the REA program. He told delegates when rural Americans went to Congress to get the original act "we did not have one single bit of support from any other organization in America and the record shows it”; he also added that in their more recent legislative battles, "not a single other organization came in to help us and we pleaded with them in the past to do it when we needed more funds".

Mandatory higher interest rates to those rural electric organizations who meet certain criteria will relieve pressure on the 2% money available, delegates were told. To obtain private capital from the “money market" all speakers contended state territorial integrity laws would be imperative. A number of states have not been able to get their legislatures to accept this type of law.

Mr. BATTIN. Thank you, Mr. Chairman, for the time you have so graciously given me to present my views.

Mr. STALBAUM. What are the dates of the newspaper articles? Mr. BATTIN. They run, starting on October 8, 1965, October 15, 1965, August 27, 1965, September 3, 1965, and September 17, 1965. Mr. STALBAUM. Thank

you. Mr. Poage. That raises a question. None of these bills were introduced at the time of any single one of these newspaper articles was published. I do not see how these papers could comment on this legislation before it was even proposed.

Mr. Batrin. I might say that, according to the articles, the proposal which resulted in the legislation that is before the committee was discussed at some length during meetings of not only our State but also the regional association. A firm stand was taken then. Since that time I have had from individual cooperatives an expression of a change of heart in their position. Whether there was a change of heart or a reiteration of the position that they took, I do not know. There has been no meeting that I know of, of the cooperatives of the State of Montana, that would indicate that they, as a group, had changed their position from the one initially taken when those articles were published.

Mr. Poate. We will admit the articles for whatever value they have. I think, however, that they are rather incompetent evidence.

Mr. BATTIN. I do not offer them as evidence, Mr. Chairman, I offer them as a statement of opinion by those who took a position at the time that it was discussed and voted on.

Mr. STUBBLEFIELD. Did I understand that the gentleman is for maintaining the present program?

Mr. BATTIN. Yes.
Mr. STUBBLEFIELD. Does that mean the 2 percent interest rate?
Mr. BATTIN. Yes.
Mr. STUBBLEFIELD. Thank you.

Mr. ABERNETHY. Have they since withdrawn their previous statements ?

Mr. BATTIN. It has not been called to my attention.

Mr. ABERNETHY. Were they published by the cooperatives in your district ?

Mr. Barrin. They were published by the People's Voice, which is a weekly newspaper in the State of Montana that has through the years been a strong advocate for cooperative systems such as the REA and the RTA's, cooperative marketing of all kinds in the State of Montana.

Mr. Poage. Thank you very much. We are very delighted to have had you with us.

Mr. BATTIN. Thank you.
Mr. Poage. Now, may I say something off the record?
( Discussion was had outside the record.)

Mr. PoAGE. Our next witness is Mr. William B. Waterman, vice president and general counsel of Iowa-Illinois Gas & Electric Co.

We will be glad to hear from you now, Mr. Waterman.

STATEMENT OF WILLIAM B. WATERMAN, VICE PRESIDENT AND

GENERAL COUNSEL OF THE IOWA-ILLINOIS GAS & ELECTRIC CO., DAVENPORT, IOWA

Mr. W'ATERMAN. Thank you, Mr. Chairman and members of the committee. I am very happy to be here.

My name is William B. Waterman. I live in Davenport, Iowa, and I am vice president and general counsel of Iowa-Illinois Gas & Electric Co. I am speaking on behalf of this company and on behalf of Iowa Public Service Co. with its offices at Sioux City, Iowa Power & Light Co. at Des Moines, Iowa Electric Light & Power Co. at Cedar Rapids, Interstate Power Co. at Dubuque, and Iowa Southern Utilities Co. at Centerville. Together, these utilities represent a total investment of $767,112,000, employ more than 7.000 people and are owned by more than 97,500 stockholders. These companies are business-operated, investor-owned utilities which by virtue of interconnections and an agreement between them and others, including Corn Belt Power Cooperative, constitute what is called the Iowa Power Pool. This pool is a facility by which generation of energy may be exchanged between its members and provides an efficient and economical means for such exchange. It also provides increased reliability by means of the interconnection between these companies.

These utilities have in the past met all the electric requirements de manded of them. They are preparing and have plans to meet all expected electric requirements which may occur in the State of Iowa.

Also present in the State of Iowa are 48 distribution electric cooperatives and 6 generation and transmission electric cooperatives. By interconnection with and by association in the planning for the needs of these cooperatives, a mutually agreeable relationship has been created between the private enterprise, tax-paying segment and the cooperative segments which do not earn a taxable profit.

The proposed legislation exemplified by the Poage and Cooley bills, H.R. 1400 and H. Ř. 14837, is intended to create by a Federal bank facility an enormous reservoir of borrowing power available only to these cooperatives and to municipal and other public bodies present or to be created, so as to engage in the generation, transmission, and distribution of electrical energy.

As the Chairman of the Federal Power Commission has indicated when issuing the National Power Survey, the utilities in this country have done a remarkable job of maintaining electric capacity ahead of the switch growth in electric requirements and an equally able job in anticipating and preparing for tomorrow's needs. This has historically been the responsibility of free enterprise utilities. It has not been the responsibility of Federal power projects nor the responsibility of the Rural Electrification Administration. In Federal power projects the furnishing of electric energy has, in most instances, been a coincidence of restraining or collecting water for other purposes. In the Rural Electrification area the intent was to provide by governmental subsidy and Federal income tax forbearance a facility which could extend electric energy into rural areas which could not be served by private enterprise companies whose extensions were necessarily linked to those which would return a profit to its investor-owners.

At present the distinction between the obligation and duties of the free enterprise utilities as organizations responsible to meet the Nation's growth requirements for electric energy has been blurred by assumption by electric suppliers enjoying Government tax shelter and preference power that they, too, have a utility responsibility under Government's shelter. Although the cooperatives have substantially accomplished the purpose for which the Rural Electrification Administration was designed, they desire now to employ their governmentally devised preference to meet the energy requirements of new commercial and industrial customers and of urban and suburban nonfarm consumers. These customers were never intended to receive Federal subsidy through REA loans and tax-exempt suppliers. Except for the disadvantaged farm customers whose needs the REA Act was intended to fill, the utility responsibility and privilege rests entirely on the private enterprise utilities in our private enterprise economic system.

The proposed legislation now before this committee for consideration will create vast new borrowing sources available only to taxexempt associations, and by interagreement with municipalities and Federal and State power organizations. With a subsidized interest rate, with 50-year loans on which no principal payments are required until maturity, with no limitation of purpose or amount except the discretion of the Administrator or the ŘEA, an economic Juggernaut will be created. Two or three examples of action by the Administrator of the REA, within the restriction contained in that act may underscore our concern at the consequence of a limitless loan authority. In 1955 the Administrator as part of a loan to Central Iowa Power Cooperative (Cipco) included a loan for the construction of 20 miles of 34.5-kilovolt transmission line at a cost of $120,000 for the purpose of providing one of the member cooperatives, Green County ŘEC, with facilities to serve a large power load at Lehigh, Iowa. My company was serving Lehigh Sewer Pipe & Tile Co. at that time. It and its predecessor company had negotiated with that concern for additional electric requirements which would be needed upon the completion of a substantial addition to their plant. The first application to the Rural Electrification Administrator was denied because the Lehigh Tile Co., was a customer already receiving central station service. A second application was granted on the basis that the new addition to the plant never having received electric service, constituted a customer which qualified for loan assistance because it had no previous central station service.

We sought by complain to the Administrator and by challenge to the Iowa State Commerce Commission's issuance of a certificate for the construction of such line, to halt its construction because of the evident lack of probity in the basis for the loan. Neither course was effective and injunction proceedings were instituted in the Federal district court in Washington. Although the matter was carried to the Federal Supreme Court, no relief was obtained because of a doctrine that a utility such as ours had no right to challenge the propriety of the judgment of the Administrator in court, the technical term was “no standing to sue,” since the objecting utility was merely faced with competition. This entire proceeding was again reviewed by the Comptroller General who found the loan to have been illegally issued. The lapse of time, however, necessary for the exhaustion of these several remedies, resulted in the construction of this transmission line, the extension of service both to the new addition and to the older plant which we had been serving, and the further extension of service at wholesale to the town of Lehigh which we had been serving. For detail concerning this proceeding your attention is directed to the hearings before the Senate subcommittee of the Committee on Agriculture and Forestry on Senate Resolution 21, held March 5 and 6, 1959, and particularly to the letter of complaint by Mr. Whitmore, president of Iowa-Illinois Gas & Electric Co., commencing on page 57.

The testing of the sufficiency and correctness of findings by a generating and transmission cooperative that its proposed electric generating plant for which a loan from the Administrator is sought, will produce energy more cheaply than it can be purchased, also requires comment. In two instances Iowa-Illinois Gas & Electric Co. sought to furnish electric service at wholesale at a time when a generating cooperative was considering its own generation. In the first, we entered into correspondence with Corn Belt Power Cooperative in 1958, intending to demonstrate that we could furnish energy from our high-voltage transmission lines more cheaply than could a proposed generating plant. Their independent engineering company, however, reported to them that they could generate energy at a more reasonable rate. Following the completion of the plant, we sought on several occasions to determine whether the estimate of their independent engineering advisers was inaccurate since the publication of cost of energy by the REA indicated it to be substanially higher than our offer. At no time were we furnished information to resolve the

question of cost, the plant having been already constructed and operating

With Eastern Iowa Light & Power Cooperative we were faced with a loan authorization to a cooperative electric distributing company with which we had only recently signed a contract to supply their energy requirements. We engaged in extended communication indicating that our contract would provide energy more cheaply than their electric generation. From such information as we have been able to obtain here, too, our figures were accurate and the completion of construction and operation of their generating facilities demonstrated higher cost of generation.

It is instances such as these which indicate to us that the Administrator will employ a policy of expansion and development of the public power segment of the utility operation which will result in a construction and ultimate displacement of the private enterprise utility industry. In such an event, the responsibility would pass from an industry whose rates are subject to a searching review by State and Federal regulators, to suppliers whose rates are generally uncontrolled by any governmental body. The responsibility would pass from skilled utility management responsive to the suggestions of the Federal Power Commission to operators responsive only to the vote of the association's membership or the ballot.

Your attention is also directed to the extremely strong financial position of many cooperatives. This position is so remarkable as to draw into question the need for this or any other Federal electric bank proposal. We have made a study of the 47 distribution cooperatives in Iowa having little or no electric generation. Information for the study comes from the “1964 Annual Statistical Report of Rural Electrification Borrowers,” published by the U.S. Department of Agriculture. The study measures two things: First, the equity position of each cooperative in relation to its need for capital. In brief, gross utility plant plus current liabilities less prepaid debt and assets other than utility plant are compared with the cooperative's equity capital.

The second object is to determine the interest-paying ability of the cooperatives. Their net operating margin plus the debt interest they are paying is compared with a 6-percent rate of interest on their debt. Looking just at the total calculations for all 47 cooperatives, we find that their equity capital equals 64 percent of their calculated capital needs as I have outlined them. In the total calculation, the interestpaying ability of the cooperatives equals 134 times the interest which they would have to pay if all their loans bore interest at the rate of 6 percent.

At the back of the statement, I have introduced a single example of how this study was made, and it is related to the line numbers in this publication by the REA.

There are some extreme situations. The equity capital of two cooperatives equals more than two times their total calculated capital requirements. Equity capital exceeds 50 percent of total capital required for 28 of the 47 cooperatives.

Most of the Iowa cooperatives have sizable liquid assets which, it would appear, could be applied to debt reduction. Even so, the total outstanding debt of the 47 cooperatives of $45 million compares with their combined equity capital of $14 million.

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