American Electric Power Company and its operating subsidiaries, Appalachian Power Company, Indiana & Michigan Electric Company, Kentucky Power Company, Kingsport Power Company, Ohio Power Company and Wheeling Electric Company, be made part of the record in such hearings.

We do not believe that Senate Bills 3337, 3720 and related bills are required for the purpose of supplying quality electric service at reasonable rates to persons in rural areas who would not otherwise receive such service. We believe such bills call for an unnecessary expenditure of Federal funds and could be of great harm in authorizing Federal assistance which goes far beyond these objectives and would create major problems of legitimate concern for existing electric utilities financed with private capital; and we, therefore, strongly urge your Subcommittee's disapproval of such bills.

These bills provide for up to $1 billion of Federal funds on which no interest payment whatever would be required; a government guarantee of the $8 to $10 billion bank debentures which may be sold to the public without even making the charge for Federal guarantees which is required under other Federal programs; surrender by REA of its existing senior mortgage interest in borrowers property to secure the more than $3 billion of outstanding loans; staffing of the proposed bank with Federal employees to be paid with Federal funds and at no cost to the bank; and conferring upon the bank freedom from Federal, State and local taxes.

I cannot emphasize too strongly that the $10 billion or more of funds to be made available under the bills, unlike the funds which have been appropriated and expended under the existing REA program, are not confined to providing quality electric service at reasonable rates to persons in rural areas not having central station service. Under these bills these funds can be used for the wholly unrelated purposes of financing borrowers in engaging in destructive competition to supply power to persons already receiving quality electric service at reasonable rates from existing suppliers, expanding service into municipal areas, and competing for service to large industrial establishments to whom power is: otherwise available.

We suggest, first, that the Subcommittee insist on a detailed breakdown of the stated need of REA borrowers for $8 billion or more for capital financing in the next 15 years. We urge that the Subcommittee require clarification as to whether this $8 billion is for necessary plant replacement and growth to meet the objectives of the Rural Electrification Act or whether the figure includes financing to take over customers already receiving quality service from existing suppliers or to build generation and transmission systems which would duplicate existing or planned service financed with private capital.

We believe that any legislation establishing a new bank or other instrumentality to provide supplemental financing and to provide Federal funds and other Federal assistance to such new bank should incorporate the following principles:

(1) As long as Federal funds and Federal assistance are provided, all policies and limitations which have been formulated by the Congress in prescribing the conditions under which Federal funds and Federal assistance are to be provided to finance rural electrification should be fully applicable. Specifically, and most importantly, loans by the bank should be made only where required "for the furnishing of electric service to persons in rural areas who are not receiving central station service" (as is now provided in the Rural Electrification Act) and only in accordance with all other standards and conditions prescribed by the Congress as applicable to the use of Federal funds to finance rural electrification.

(2) The existing 2% lending program of REA should, in the future, be limited (a) to loans for distribution purposes, and (b) to borrowers who, because of sparse territory or the like, cannot finance their capital requirements through any other means.

(3) As long as there is any Federal investment in the bank, such bank should be under the continuing supervision and control of the Executive and Legislative Branches of the government.

(4) The bank should be required to pay a fair return on the government's investment at least equal to the average interest rate on long-term government bonds, and there should be reasonable provisions for periodic repayment of the government's investment. (This would be similar to the requirements of the TVA revenue bond financing legislation.)

(5) Additional capital of the bank should be obtained, to the extent feasible from time to time, in the open market through the sale of securities which

are given no special tax exemptions and no direct or indirect Federal guarantees.

(6) Loans by the bank should be made at a rate of interest which will cover the fixed and operating costs of the bank, including the expenses of such operating personnel as may be required.

(7) Loans by the bank to finance construction of generation and transmission facilities should be made only where it is established that there is not otherwise available to the borrower an adequate supply of power (or transmission facilities) at rates which, after making due allowance for the different tax components included therein, are at least as favorable as the cost of power (or transmission) which would be produced from the facilities to be financed by the proposed loan. Where there is disagreement on the question whether there is otherwise available an adequate supply of power (or transmission facilities) at such rates, such questions should be certified for determination by the Federal Power Commission.

Legislation embodying the foregoing principles would fully take care of all legitimate requirements of the rural electric cooperatives and would do no more than provide minimum reasonable protection for the legitimate interests of existing power suppliers.

In the event that your Subcommittee holds further public hearings with re gard to Senate Bills 3337, 3720 and related bills and to the extent the Subcommittee's time permits, we would appreciate the oportunity for a representative of the American Electric Power System to present our views to the Subcommittee in person in more detail.

Chairman, Subcommittee on Agricultural Credit and Rural Electrification, Old Senate Office Building, Washington, D.C.

DEAR SENATOR TALMADGE: The Brazos Electric Power Cooperative was chartered in Texas in 1941 and is a generating and transmission cooperative serving over 75,000 rural electric consumers through 19 rural electric member distribution cooperatives in 55 counties of the Brazos River watershed in Texas. The Brazos Electric Power Cooperative was formed out of the necessity of procuring reasonably priced wholesale electric power and energy for the rural electric distribution cooperatives of Texas. Prior to the formation and incorporation of the Brazos Electric Power Cooperative, the commercial utilities in this state were charging in excess of one and one half cents per kilowatt hour to rural electric distribution cooperatives. Almost immediately after the formation of Brazos the wholesale rates of commercial utilities to rural electric cooperatives in the state dropped to less than .6 of one cent per kilowatt hour. The Brazos Electric Power Cooperative and its 19 member cooperatives are proud of the record of service to rural electric consumers in the Brazos River watershed. The accomplishments of the rural electric cooperatives in Texas and throughout the nation could not have been made without the assistance of the Federal government through the Rural Electrification Act of 1936 and the understanding and guidance furnished us by the members of Congress of the United States.

As the result of the assistance of the Federal government, rural electric cooperatives and rural electric power districts now own and operate over 50% of all the electric lines in the United States in order to serve approximately 8% of the electric load in the United States. Through the assistance of the Federal government in making 2% loan funds available for construction of electric facilities to serve the rural areas of the nation, through good management and

by operating under the concept of a consumer-owned non-profit business, the rural electrics financed by REA have been able to sell electricity to rural consumers in most areas at rates comparable to the urban rates. In meeting its commitment to Congress to serve all of the rural areas of the nation, the REA financed rural electrics averaged 3.5 consumers per mile as compared to 34 consumers per mile in the systems of the commercial utilities. In spite of these difficulties, REA financed rural electric systems have what is perhaps the most enviable record of repaying loans of any project ever established by Congress.

The needs of the rural consumers of the 19 member cooperatives of Brazos continue to increase each year just as the needs of the urban consumers of the commercial utilities. These needs cannot be met without the availability of funds to construct the facilities to render the service needed. In many areas of the nation, the margins developed by REA financed rural electrics continue to be so meager as to require continued Federal assistance by means of 2% loan funds. In other areas of the nation, however, some of the REA financed rural electrics are becoming financially able to pay a higher rate of interest for loan funds and for that reason an extensive study was authorized by the rural electric cooperative members of the National Rural Electric Cooperative Association to determine how REA financed rural electrics could move away from complete dependence upon annual appropriations of Congress and over a period of years become self-sustaining by obtaining funds in the open market.

Senate Bill 3720 introduced by Senator Cooper on August 12, 1966, in our opinion, will enable the REA financed rural electrics to move from complete dependence upon annual Congressional appropriations to a self-sustaining financing program in the moneyed markets of the United States. It is our opinion that this legislation will rank along with the original Rural Electrification Act as a monument to the members of Congress and will inure to the benefit of all of the citizens of this great country.

Very truly yours,

H. A. DALTON, General Manager.

STATEMENT OF JOHN B. Davenport, GENERAL MANAGER, MISSOURI ELECTRIC COOPERATIVES, JEFFERSON CITY, MO.

Mr. Chairman and Gentlemen of the Subcommittee:

My name is John B. Davenport, Jr. I am General Manager of Missouri Electric Cooperatives, the statewide association of electric distribution cooperatives serving one million Missourians.

As a Jenkins County, Georgia, farmer in the 1950's, I witnessed the great economic advantage of rural electrification in enabling farmers to diversify their operations upward from a one crop economy. Two large sources of income, poultry and dairying, would not have been possible without rural electrification. On repeated occasions, Distingushed Chairman, Senator Herman Talmadge, described the rural electrification program as "the greatest thing that has hap pened for farmers since the discovery of the wheel." No other phrase could better describe the benefits of rural electrification. Congress created this vehicle and now Congress and the rural electrification program are faced with the decision whether to keep this vehicle "horse drawn or horse-less."

Forty-one (41) rural electric cooperatives in Missouri have responded to the challenge of doing the job which experts claimed couldn't be done. Today, nearly every farm, home of rural resident, and vacation site of urbanite now has initial and basic electric service. To date, these systems have been concentrating on building services to approximately one million Missourians, expeditiously and economically. As new technology developed it was initiated. Immediately urgent lies the task of heavying-up these basic and initial services and equally important and urgent is the tremendously expensive job of pole replacements. These new units cost many times those they will replace and are far superior in performance and quality. Accumulated depreciation accounts will not even compense to begin this job.

The people served by the cooperatives are equally entitled to receive and expect their electric supplier to maintain a sound system and no one would deny employees the ultimate in safety in carrying out their tasks of maintenance and construction. Without an adequate and currently available source of funds neither of these two responsibilities can be met.

The cooperatives in Missouri have developed six generating and transmission systems which are all interconnected. The cooperative grid is now interconnected with all of the major investor-owned companies in our state.

This cooperative-company grid is interconnected with the major municipal systems in Missouri resulting in all segments working together-technologicallyfor the benefit of all Missourians.

Since the runes and industries of our cities are interconnected with the most remote rural residence, wide benefits of diversity and economy accrue to all entities and persons in Missouri.

Each segment of the electric industry in Missouri depends upon each other to develop their capacity for anticipated load growth-on time and in sufficient quantity.

On July 12, 1966, the electric cooperatives peaked 29% above any previous high. At this rate, the entire cooperative generating and transmission system would have to be doubled every four years. This example, alone, portends the need for tremendous sums of capital. The statistics and financial forecasts have been presented to the Committee by experts from REA and NRECA. My statement deals primarily in relaying the advanced status of development of the electric cooperatives in Missouri, the reliance of each segment of the industry in Missouri upon the other, our responsibility to finance, construct and deliver our share of electric service on time, and this can not be done without an adequate, readily available source of funds at interest rates we can afford to pay.

Congress is well aware that electric cooperatives do not have huge profits from which to deduct interest charges. Whatever interest a cooperative pays is payed in turn in full dosage by the rural consumers via the rates.

In order to keep these interest charges as economical as possible and still provide the quantity of funds, a method has been presented in the Cooper Bill S 3720.

The concepts presented in this bill have been endorsed and have the support of every electric cooperative in Missouri, as well as our two large farm organizations: The Missouri Farm Bureau and the Midcontinent Farmers Association. We respectfully urge this Subcommittee to promptly and favorably report S 3720.

STATEMENT OF J. T. DUDLEY, MANAGER, SINGING RIVER ELECTRIC POWER ASSOCIATION AND SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION, LUCEDALE, MISS.

Mr. Chairman and members of the committee, I wish to express my appreciation for the opportunity of filing testimony in support of supplemental financing legislation as contained in S. 3720 and other similar bills which have been introduced.

My name is J. T. Dudley; I am manager of Singing River Electric Power Association, Lucedale, Mississippi, and South Mississippi Electric Power Association, Lucedale, Mississippi. As chairman of the Resolutions Committee of the Natonal Rural Electric Cooperative Association, it was my privilege to present the resolution supporting this legislation to our 1966 Annual Meeting where it was overwhelmingly approved by the NRECA membership.

Singing River Electric Power Association is a distribution association with 14,000 member-consumers in the southeast corner of Mississippi, bordering the Gulf of Mexico and the Alabama state line. South Mississippi Electric Power Association is a generation-transmission association which purposes to serve all of the power requirements of two member associations and a portion of the power requirements of two other associations.

I have been connected with the rural electrification program since 1938, and I sincerely believe that the legislation now being considered by this committee is the most important legislation concerning rural electrification introduced in Congress since the enactment of the Rural Electrification Act. During the early days of the program, I have experienced situations where insufficient capacity or overloaded lines resulted from the scarcity of material or the lack of proper advance planning. These situations cannot and would not be tolerated now or in the future with the increased dependence people have placed in the electric power industry. I do not believe anyone can seriously and sincerely contend that a source of capital funds and a satisfactory power supply are not absolutely necessary to the electric power associations of America.

I am firmly convinced that the supplemental financing program which is now being considered by this committee is the answer to these problems.

Our kilowatt hour sales have doubled each four years for the past twenty-six years. We expect this growth to continue.

During the first seventeen years of operation, Singing River Electric Power Association invested $3.300,000 in construction funds. During the next ten years ending December 31, 1965, the association invested $4.900.000. At the end of seventeen years of operation, the association was serving 7,519 consumers. At this time we are serving 14.480 consumers. We expect growth to continue at about the same rate it has for the past ten years, and we will therefore need some $9,000,000 during the next ten years for capital improvements.

It is interesting to note that the witnesses of the commercial power companies who are opposing this legislation minimize the needs for additional loan funds for associations because a high percentage of people living in our service areas now have electric service. At the same time, they expect their investment to double every ten years and surely everyone in their areas must have electric service at the present time.

While a satisfactory source of capital funds is an absolute necessity to the electric power associations, a satisfactory source of power is equally important. The testimony, before the committee of the House, of Mr. A. J. Watson, President of Mississippi Power Company and Mr. Harllee Branch, Jr., President of the Southern Company would lead one to believe that the power supply in their service area is satisfactory. I challenge any association in the United States outside the Southern Company's service area to show a more unsatisfactory power supply than that experienced by the six associations who purchase from Mississippi Power Company.

From 1953 through 1964 (the only years information is available to me) the associations who purchase wholesale power from Mississippi Power Company have paid as much as 38% more per kwh for wholesale power than those neighboring associations who purchased their wholesale power from another commercial utility in another holding company group. They attempted to raise our rate by more than 30% in 1958, but the contract and rates were never put into effect because REA made a loan to South Mississippi Electric Power Association in the amount of approximately $14,000,000. Mississippi Power Company has refused to sell us power to serve not only a particular load but a particular area which they expected to develop rapidly. On many occasions we have requested delivery points, both along their existing transmission lines where practically no investment was necessary and points away from their transmission lines, and had them either refuse us the service or decline to answer our correspondence. We have had a long history of unsatisfactory provisions in wholesale power contracts. Contracts on all of our new delivery points since 1959 have contained what we believe to be the most vicious dual rate provision of any wholesale contract in the country.

South Mississippi Electric Power Association filed an application in the Mississippi Public Service Commission in March of 1960 for a certificate of convenience and necessity to construct a generating plant and transmission system because of our unsatisfactory power supply situation. Our application was opposed by Mississippi Power Company and Mississippi Power & Light Company and has been in litigation since that date. In spite of the strong opposition of the two companies, the Mississippi Public Service Commission found that the public convenience and necessity did require the construction of the facilities and a certificate was issued by the Commission. The action of the Commission has been upheld by an Intermediate Court and by the Mississippi Supreme Court.

I strongly urge the adoption of legislation similar to S. 3720. I believe this legislation will provide the funds which are absolutely necessary to keep up with the load growth on distribution systems and for the construction of generation-transmission systems where unreasonable contract provisions make such construction necessary. I am confident that this supplemental financing program will gradually ease the burden on funds, and we will eventually be able to operate without any government funds. I know the committee is familiar with the Federal Land Bank, and the Bank of Cooperatives. I sincerely believe this program will be just as successful as those two programs are.