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In the second place, the idea that a co-op is a nonprofit association of farmers is properly applicable only to those co-ops which have remained in the legitimate sphere of rural electrification activities. Such a contention is a travesty when it is applied to a co-op that is aggressively seeking to take industrial plants and defense installations away from existing electric suppliers.

The bar chart above represents not only the decisive economic nature of the tax shelter, from a customer's standpoint (because he must pay it), but also the relative unimportance of the interest subsidy. Question No. 2

Why is Congress' control so essential? Can't the people who are hurt by the illegitimate activities of the REA go into court and prevent them?

The answer to this question has been long and consistently announced by the courts: the taxpaying industry which is being destroyed by the REA's illegitimate activities has no "standing to sue”-it must seek redress, if any, in the halls of Congress. Question No. 3

Isn't the real purpose of the REA “bank” to allow the co-ops to borrow more money to build more lines as needed in rural areas?

The answer to this question lies in the understanding of "G & T's". Generating and transmission co-ops, the so-called G & T's, and generating plants and transmission lines built by ordinary, theretofore purely distribution co-ops, have been the battlegrounds over which the issue of control by Congress has been fought in recent years. Almost without exception the generating plants and transmission lines are unneeded, duplicative of existing facilities and wasteful of public money in addition to the eventual elimination of tax-paying industry that results If Congress were to refuse to allow the construction of further such G & T's there would be absolutely no need for any “banks"-additional lines in rural areas could be easily taken care of under existing laws. Question No. 4

Isn't electric industry opposition to co-ops simply an effort to prevent competition?

The bar chart above (p. 718) furnishes the answer to this question with little comment being necessary. A co-op, having to collect only 12 cents for taxes and interest from its customers for each one dollar of mechanical costs, can hardly be spoken of as being in "competition” with an ordinary utility, which must collect 63 cents from its customers for each one dollar of mechanical costs. The existing electric utilities do not fear-in fact they welcome_true competition with competitors who must play by the same rules. If some of the co-ops are ready to leave their legitimate sphere of rural electrification and enter the fray of competition for such customers as industrial plants, they should not only be required to obtain their borrowings in the commercial money markets but their customers should also be required, as the customers of other utilities are required, to contribute their pro rata part to the national budget. This could be accomplished simply by forcing these co-ops which seek to supply industrial and other non-member loads to drop their guise of nonprofit activity, reorganize as ordinary business corporations, and relinquish their tax exemption and Federal subsidy. Question No. 5.

Isn't it true that the construction of power generating facilities by co-ops is necessary to preserve the “bargaining position" of the co-ops in "securing power at reasonable rates and under reasonable terms"?

Translated into understanable english this means that if the co-ops and their customers are going to absolutely avoid their share of contribution to the national budget (contributions like the ordinary consumers of electricity have to make, that is) then the co-ops are going to have to generate their own electricity because if they buy it from tax-paying utilities the co-ops will (as all customers of taxpaying utilities do) have to contribute, partially and indirectly, to this national budget. Isn't it much more “reasonable" if the co-ops and their customers simply leave all such taxes to the electric companies and their customers? What could be more "reasonable"?

Returning to the element of control by Congress-the essential element to be considered in all the REA "bank” proposals because it is that control which the "bank” proposals seek to throw off-it is our plea that Congress tighten such control rather than relinquish it, that Congress force the co-ops and the REA to remain within (and return to if they have strayed from) their original legitimate task of rural electrification and, finally, that Congress enact a set of standards to accomplish such purpose, which standards would be subject to judicial review on petition by any person who is injured by the departure from such standards of either the REA or the individual co-ops.

Within its sphere of legitimate concern the REA has no financing problem which requires the creation of “banks" or other exotic and autonomous vehicles. Such "banks" are needed only if the REA is to be able to realize its aim of a Federallycontrolled public power take-over of the electric industry to the extent that it is presently made up of tax-paying (or tax collecting, from the customers, would be more correct) companies.

We do not believe that the REA's aim is the aim of Congress and we do not believe the Congress will, if it understands the true purposes of such “banks”, approve them to further such aims.

We appreciate this opportunity to express our views and we respectfully urge that H.R. 14837 and H.R. 14000 and other such measures be defeated. Respectfully yours,


EXHIBIT A.-Comparison of costs, a large investor-owned electric utilities in

Texas, with all 922 REA cooperatives in the United States, year 1964

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Source: Federal Power Commission Statistics of Electric Utilities in the United States 1964, Privately Owned. Rural Electrification Administration, U.S. Department of Commerce 1964 Annual Statistical Report, Rural Electrification Borrowers.


Washington, D.C., June 3, 1966. Re proposed amendments to the Rural Electrification Act H.R. 14000 and

H.R. 14837. Hon. HAROLD D. COOLEY, Chairman, House Agriculture Committee, House Office Building, Washington,

D.C. DEAR MR. COOLEY: The proposals in these bills would authorize broad and important programs of financing for rural electric and telephone systems which would seriously affect both cooperative systems and private systems. Since H.R. 14827 was introduced only on May 3, 1966, there has been relatively little time to consider the broad implications of these proposals. Our Association would like to consider these proposals carefully and perhaps submit constructive suggestions to your committee and we believe that other interested parties and members of the committee would find it helpful to have additional time to consider the proposals carefully before action is taken on them.

Accordingly, we respectfully urge that consideration of these bills be postponed until the next session of Congress in 1967 to afford an opportunity for careful consideration of them, and request that this letter be included in the record of the hearings. Respectfully,


STATEMENT OF WILLIAM JACKMAN, PRESIDENT, INVESTORS LEAGUE, INC. My name is William Jackman. I am president of the Investors League, Inc. of New York. The Investors League is a non-profit, non-partisan, voluntary membership association of thousands of investors, small and large, residing in the fifty states of the nation. Mr. Chairman and members of the Committee:

A new Electric Bank, with freedom from Congressional controls and which could greatly increase government subsidy, is now being proposed under the bill before your Committee as a means of building electric generating plants and transmission lines and for other purposes. This could involve billions of dollars of capital, including many hundreds of millions of government funds. The Electric Bank program is being proposed as an amendment to the Rural Ele trification Act, but in reality it has little in common with the basic future needs of rural electric cooperatives in obtaining low-cost electric power.

Such a bank goes far beyond any previous concept of government in business. It is completely unnecessary and wasteful, because electric power supply is ample throughout the United States and because the power facilities needed for the future can be financed in the free market without government subsidy. At a time when the nation's taxpayers face increased government expenditures for such vital purposes as defense, when the threat of inflation is causing wide

spread concern, and when government is seeking to hold down unnecessary expenditures throuhgout the economy, such a subsidy program would not be in the public interest.

The bill proposes Congressional consideration to set up an REA electric loan account and the Electric Bank. This legislation would change the operation of the Rural Electrification Administrative and could involve billions of dollars at interest rates below the market cost of money for the construction of Federal income-tax-free generating and transmission facilities. These facilities would duplicate or displace electric power facilities paying all taxes.

The Rural Electrification Act was passed by Congress 30 years ago to help bring electric service to the rural areas of the United States more quickly than could be done otherwise under the circumstances at the time. The REA has done a good job in this respect.

However, in recent years, the emphasis had changed to the financing of generating and transmission facilities (G&T's). Loans are made to G&T co-ops at 2 percent-less than half the cost of money to the Federal govenrment-and no Federal income taxes are paid. Five out of six of new co-op customers are not farmers—they include suburban residents, businesses, manufacturing plants and petroleum operations.

Because it was never intended in the original REA Act that governmentsubsidized power plants paying no Federal income taxes should compete with existing tax-paying electric power suppliers, Congress in the last few years has been increasingly critical of loans for G&T purposes. Congress has directed that such "loans should be made only when reasonable contracts cannot be obtained" for power supply.

To get around Congresional directives opposing the misuse of REA loans and to free the co-ops from any possibility of control by such Federal regulatory agencies as the Federal Power Commission, this device for the establishment of an Electric Bank has been developed. It would give the appearance of financing in the free market, but in fact it would increase Federal subsidized competition.

Under the proposal to establish an Electric Bank, neither Congress nor any Federal regulatory agency would have control over the use of billions of dollars avaiable to the Bank. The estabishment of the Bank has nothing to do with the present REA program of 2 percent loans which would continue through loan authorizations as at present or under the proposed loan account.

The Electric Bank could make loans at interest rates below the cost of money to the government. If it had insufficient funds to pay interest or principal on money the bank itself may have acquired through issuing debentures, the Electric Bauk could borrow funds as needed from the Federal Treasury. This represents a wholly unnecessary burden on the Treasury, which itself must borrow money for the needs of the nation, as for example, the poverty program and urban redevelopment.

Further, there would be no Federal income tax payments from the operations of the borrowers from the Bank. Thus, government would be spending government funds to build unnecessary plants and in doing so would reduce government tax revenues.

The power supply facilities which the G&T's and other borrowers would duplicate or displace would be those of the investor-owned tax-paying electric power companies which serve some 80 percent of the nation's people. These companies operate under regulation at all levels/local, state and Federal. The G&T's do not. These investor-owned companies have an annual tax bill totaling some $2.9 billion. They pay taxes to all levels of government. The G&T do not.

The proposals for an Electric Bank could greatly stimulate the present unfair, subsidized competition, thus not only threatening to nationalize the electric industry, which has established America as the world leader in electric power supply, but in so doing, having a potentially serious effect on the structure of the nation's entire economic system.

This proposed legislation is only incidentally a "farm-bill". It involves most serious tax revenue problems that would affect every sector of our economy.

On behalf of the millions of shareowners in America's investor-owned, tax paying power and light companies, we urge that Congress reject this legislation.

We also suggest that appropriate Congressional Committees give serious consideration to legislation that would prevent the Federal government from lending money to REA co-ops or other agencies at interest costs lower than the government itself must pay. We also urge that consideration be given to the desirability of eliminating the favored tax treatment of government owned or subsidized electric power operations by levying the same taxes on them as are extracted from the investor-owned utility companies. Gentlemen, I thank you.


Fairmont, W. Va., June 3, 1966. Re H.R. 14000-H.R. 14837 Federal Electric Bank. Hon. HAROLD COOLEY, Chairman, House Agriculture Committee, Room 2409, Longvoorth House Office

Building, Washington, D.C. SIR: It is respectfully requested that this letter-statement be filed as a part of the record "overing the hearings on the above bills. Monongahela Power Company, an investor-owned electric utility and a part of the Allegheny Power System, serves more than 230,000 customers in an area of approximately 13,000 square miles in West Virginia, Ohio, Maryland, and Virginia. Monongahela opposes the enactment of either of these bills for the following

(1) The purpose stated in the preamble of these bills is “to provide supple mental (italics supplied) financing for the rural electrification and rural telephone programs, and for other purposes" (italics supplied). However, based on the size of the banking facility proposed—an institution with potential lending power of as much as $8 to $10 billion—it is clearly evident from study of the bills that the purpose, described as an amendment to the Rural Electrification Act of 1936, goes far beyond supplementary financing and, in fact, is contrary to the expressed purpose of the 1936 Act.

That Act established the REA to furnish “. . . electric energy to persons in rural areas who are not receiving central station service." Based upon latest figures, it is estimated that today approximately 99% of the nation's farms have electric service, and the remaining 1% have such service available to them with minor exceptions. The basic purpose of REA has been accomplished.


Despite this, these bills would in fact supplement the present 2% REA loan program which has provided $365 million annually for the past two years with almost unlimited financial resources. One would expect that loans to rural electric cooperatives, if kept within the scope of the original intent of Congress, would be diminishing rather than demanding such an increase in lending authority.

(2) Enactment of these bills would make the proposed Federal Electric Bank (H.R. 14000) or the Federal Bank for Rural Electric Systems (H.R. 14837) the largest federally-owned bank in history. At the same time such legislation would place the operations of either institution outside effective Congressional control and surveillance over the REA program.

(3) Borrowers from such bank could drop any pretext of being “rural" in character and could own and operate generation, transmission and distribution facilities in suburban or urban areas. In most instances, such facilities would be in direct competition with investor-owned, tax-paying electric companies and would result in duplication of investment and facilities.

(4) No ceiling would be placed on funds Congress might provide under the present 2% REA loan program. The absence of such ceiling makes it difficult for us to comprehend how this proposed program could or would ease Federal budgetary pressures. In fact REA repayments now being deposited in the United States Treasury would be used to purchase stock in the bank. Futhermore, tax-exempt electric and telephone operations would be increased thereby replacing or displacing tax-paying systems and thereby proportionately reducing Federal tax revenues.

(5) It is our belief that protection for consumers would be weakened. Presently less than half of the fifty states have asserted jurisdiction over cooperatives to provide customers with the protection of regulation. As co operatives would grow larger under this legislation it is conceivable that selfpolicing by the membership would be watered-down to the point that consumers' control would be negated.

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