2% loans which would remain available under the continuation of the present program-endows him with both enormous power and grave responsibility. Necessity and results of new program It is apparent that the amounts to be made available for loans under the new program would be many, many times greater than anything which could conceivably be required to complete the basic job of bringing central station electric service to the nation's farms. As indicated earlier in this statement, extension of such service to all the presently unserved farms-a number which, if current trends continue, can scarcely be expected to increase greatly—would probably require outlays not in excess of the amounts which would be made available through the continuation of the present relatively modest program for a few more years at recent loan and authorization levels. Much more, therefore, must be intended. What, then, is the magnitude and nature of the "growing capital needs" referred to in the preamble to both S. 3337 and H.R. 14837? Some enlightening inferences can fairly be drawn, both from specific provisions of the bill itself and from statements made by advocates of the new program in one form or another. Thus, the Secretary of Agriculture in his transmittal to the Vice President refers to a need on the part of REA electric borrowers for $8 billion of capital over the next 15 years-without, however, disclosing the basis of this estimate.75 Likewise the Acting General Manager of the National Rural Electric Cooperative Association, in his foreword to a pamphlet supporting the legislative proposals embodied in HR 14000, refers to a need on the part of rural electric systems for new capital totalling $9.5 billion between 1965 and 1980. A tabulation in the same document shows total estimated growth capital requirements, 1967-1980, of $8.7 billion." The text indicates that the estimates were made by Kuhn Loeb and Company, Inc, but again we are given neither the basis for the total estimate nor any breakdown showing the specific uses to which the funds would be put. 78 In context, however, it requires no great feat of the imagination to perceive that the huge sums to be provided could only be utilized for the granting of loans to G&Ts on a very large scale. Furthermore, certain provisions of the bill indicate that this is a major purpose of the proposal. For example, the extension of the permissible term of loans to 50 years would be more appropriate in the case of longer-lived generating facilities than for distribution plant, where service lives of approximately 35 years are generally used for purposes of depreciation.78 Actually, testimony by the proponents of the proposed legislation frankly admits that this is a major purpose. In view of the objections and instructions regarding loans to G&Ts frequently voiced by Congressional Committees in the past in connection with REA loan authorizations, clearly of greatest significance is the elimination of any opportunity for the Congress to exert such guidance or restraint in the future. Once established, the Electric Bank will be given vast loan funds free from the necessity of securing Congressional authorization for apropriations. Within the very broad and vague guidelines laid down in the proposed legislation the Electric Bank-for all practical purposes, its Governor, the REA Administrator-will be able to extend G&T loans as he sees fit, regardless of the views of the Congress concerning their necessity or desirability. 75 Letter of April 13, 1966, Op. Cit., p. 3. 78 Supplemental Financing Program for Rural Electrification, National Rural Electric Cooperative Association, January 1966. 77Ibid., Table 1. 78 Electric Utility Depreciation Practices, Federal Power Commission, 1961, pp. 3-5. Under these circumstances it is easy-though disturbing-to foresee the likely result if either of the pending bills should be enacted. The program developed to assist in the distribution of electricity to rural areas would be turned into a device whereby large integrated electric systems-sheltered from federal taxation and supported by the use of federal credit at or below its cost to the government, and with no assurance of repayment-would be enabled to compete for customers and loads with investor-owned companies which must pay their full share of taxes, market rates for their borrowings, and returns to their stockholders. Not only would such extension of the subsidy program be productive of competition and comparisons which would be unfair, because of the different rules applying to the respective parties, it would also be without economic point, purpose, or justification. As shown earlier, the investor-owned companies will continue anxious and able to provide adequate supplies of electricity to REA borrowers upon fair and reasonable terms. They are doing so now at rates generally below those paid on the average for power produced by the G&Ts, and, with these rates subject to either state or federal regulation, the cooperatives are assured of fair treatment." 79 No need has been demonstrated for the vast expansion of G&T loans free from Congressional control which woud be permitted, and clearly is intended, under the proposed new program. The investor-owned utilities have definitely planned capital outlays which will increase their investment in electric utility plant from some $60 billion at the end of 1965 to $162 billion in 1980, with about onethird of this total representing production facilities. They plan to enlarge their peak generating capacity from 177.3 million kilowatts in 1965 to 492.6 million kilowatts by 1980.80 Although such aggregate figures do not prove that unusual situations may not arise in which a real need for G&T loans might be shown to exist in some sections of the country, it should be emphasized that procedures under the present program would permit such loans to be granted under authorizations made by the Congress without, however, giving carte blanche to the Administrator to whatever extent the resources of the Electric Bank would permit. Under these circumstances to encourage unnecessary duplication of their facilities would accomplish nothing of value; on the contrary, it would result in an uneconomic and wasteful use of our resources. Surely, in these times of stress, far better uses can be found for public funds! 79 S. 3337, Sec. 412, would free the decisions of the REA Administrator concerning the rate schedules, property, accounting methods, contracts, and securities of any electric system indebted to the United States under the Act from any federal regulatory control. Likewise, the issuance of stock and debentures of the Federal Electric Bank would be exempt from the requirements of the Securities Act of 1933, as amended. S. 3337, Sec. 406 (a). 80 Figures from Edison Electric Institute. CONCLUSION In conclusion let me summarize briefly the reasons for my opposition to the pending bills as follows: (1) They are not needed to finish the task of serving rural areas, which is now nearly completed; (2) They would encourage wasteful duplication of facilities and the encroachment of REA borrowers upon markets adequately served by investor-owned companies; (3) Such uneconomic duplication and competition would be subsidized at great cost to the taxpayer in terms of taxes foregone and the use of federal credit; and (4) This subsidy program would lack both definite termination provisions, and, once established, any opportunity for the exercise of effective, continu. ing surveillance by the Congress. Would it not be wiser to complete the program within its present framework, rather than to embark upon a very large new undertaking, geared to totally different objectives, and for which no real need has been shown? Would not this course be more consistent with the efforts being made to combat inflation and budget stringencies, by appealing for restraint in seeking wage and price increases and the curtailment of unnecessary capital outlays by private enterprises? APPENDIX TABLE OF EXHIBITS Exhibit 1-Number and Percentage of Farms Electrified with Central Station Service by States, 1935, 1940, 1950 and 1965 Exhibit 2-REA-Administrative Funds appropriated and Obligated by Purpose, Fiscal Years 1935-1966 Exhibit 3-Percentage of Energy Purchased by REA Borrowers, By Supplier, 1946-1965 Exhibit 4-REA Electric Loans-Funds Advanced, 1935–1965 Exhibit 5-REA-Repayments-Funds Outstanding, 1935–1965 Exhibit 6-Interest Rates-Cost to REA Borrowers-Cost to Government, 1935– 1965 Exhibit 7-Estimated Taxes Unpaid by REA Cooperative Borrowers, 1952-1964 Exhibit 8-REA Loans-By Purpose, 1935–1965 Exhibit 9-Cost of Energy Purchased by REA Borrowers—by Supplier, 19461965 70-671-66—21 |