This town is in the San Diego Gas & Electric Service area, but there are too few customers per mile of proposed line to make it "profitable" for the franchised monopoly, with its rate base assured, to provide central station electricity. Only Rural Electric Cooperatives serve this purpose.

Once more, we refer to the 1966 issues of the California Farmer Consumer Reporter, which enumerate the cause of thousands of rural people in this state who depend on supplementary financing to develop and or expand their cooperatives.

We urge that you make these articles and the photocopy of the SCE attack part of your hearings record, along with this statement of our Committee. The issues are: March 1966-"Pacific Valley, Salmon River Fight for Central Station Service, pages 1-6; April 1966, pages 1 and 7: "Calif. Rural Electric Co-ops." "Santa Clara Rate Payers save $776.000 a Year" and "Salmon River in Bonneville Service Area"; June 1966, page 7, "Federal Bank for Rural Electrics" and "First Calif. REA Co-op"; July 1966, page 8, "Californians Back Bank for REA Co-ops"; and August 1966, "Power Lobby in Open Against REA."

Again referring to our June 10, 1966 letter to Chairman Cooley supporting H.R. 14000, Poage, note the conclusion: "Let us get the best possible bill in the interest of the greatest number of our rural citizenry," followed by our wire to Congressman Poage, August 17: "For the record the California Farmer Consumer Information Committee places its quarter of a million member rural-urban affiliates firmly behind amended Committee Print No. 2, H.R. 14837, Cooley, which is the action we are requesting your Subcommittee to take." Sincerely,

MRS. GRACE MCDONALD,
Executive Secretary,

California Farmer-Consumer Information Committee.

(The statement to the House Agriculture Committee is as follows:).

Hon. HAROLD D. COOLEY,

SANTA CLARA, CALIF., June 10, 1966.

Chairman, House Committee on Agriculture.

The California Farmer-Consumer Information Committee, with a membership în excess of a quarter of a million individuals from farm, farm co-operative, Rural Electric Co-operative Associations, labor, business and professional and consumer groups, recognizes the impact of modern increases in demand for central station service and telephone facilities presently filled by Rural Electric and Telephone Co-operatives.

We concur in the action of the 24th Annual Convention of the Nat'l Electric Cooperatie Ass'n., in Las Vegas last February 16th that the situation requires supplementary legislation, such as has been written into HR 14000, Rep. Poage, a member of your Committee.

The measure would establish two banks, one for supplementary financing for rural electric cooperatives, the other for similar service to telephone cooperatives, with interest, tied to the cost of money, but not to exceed 3% per annum. Continuation of the present 2% loan program for REAs is included.

The need for supplementary financing in addition to sufficient funds to effectively carry on the obligations of existing and contemplated Rural Electric Cooperatives, was made clear by no other than REA Administrator Norman M. Clapp when he told the RECA Convention that "If we are successful in securing enactment of such a program at this session of Congress, we can look forward to total lending resources in the electric program during fiscal 1967 of substantially more than $270 million at 2% interest *** and $130 million additional from supplementary financing * * *"

We hope that additional measures since introduced by Rep. Mills—HR 14048— and you, Mr. Chairman: HR 14837, will not reduce the proposed U.S. investment, beginning July 1, 1966 of $50 million a year for fifteen years in the electric bank and $20 million, each year, for the same period, for the telephone bank.

Californians realized with a shock the fact brought out by Ted V. Rodgers, Field Editor of the Rural Electrification Magazine and double-checked by our Committee for our official organ, the California Farmer-Consumer Reporter, that thousands of rural Americans still lack electric and telephone central station service. We would like to have the articles appearing in the March and April

issues of the California Farmer-Consumer Reporter made part of this hearing record. They are entitled:

"Pacific Valley, Salmon River Electric Co-op Fight for Central Station Service" pages 1-6, March Reporter;

"Calif. Rural Electric Co-ops," page 1, April Reporter;

"Salmon River in Bonneville Service Area," page 7, April Reporter

May we point out the difficulties which residents of "underprivileged" rural areas have in compelling private utilities to include them in their service structure:

1. Witness the Nashville area, close to Sacramento where misrepresentation on extent of extension line estimates was finally admitted by Pacific Gas & Electric Company and a proposed charge of $24,000 to be paid by residents served. was finally withdrawn when in reality the area was 20 feet within the area;

2. The fire hazard to National Forests in areas such as Pacific Valley and Salmon Forks from having to operate private diesel and gas generators, and the loss in fire damage from such type of generation, as experienced in the: Forks of Salmon area, let alone the individual operating cost and the exhorbitant cost estimates which private utilities offer as the price of providing central service facilities;

3. In fact, admitting that there are still far too many areas in the nation still unserved by central station electricity and telephone facilities, NOWHERE IS THE NUMBER SO GREAT AS IN CALIFORNIA, a state which leads the nation in population.

For these reasons, in addition to the needs of existing rural electric and telephone cooperatives who are in position to expand into areas considered too unprofitable for private utility service, that our Committee asks favorable action on HR 14,000 Poage.

We understand that there are at least two other measures dealing with this subject under consideration by your Committee at current hearings: HR 14048, Mills and HR 14837 Cooley, the latter "administration-backed". The details of the differences between these three versions of the same general objective are beyond our ability to ascertain at this writing, but they will be clear during the hearings and in time for us to express our final position as soon as the measure reaches the House floor.

May I state, however, on behalf of our Committee and its affiliates, that we consider it false economy to provide less than adequate financing for domestic programs as vital to the economic stability of our nation as is that of affording all the people of this great nation the technological facilities inherent in central station electricity and connections with the rest of the nation and world provided by modern telephone, which includes telegraph services.

We therefore want to express our appreciation to your Committee, to the Department of Agriculture and to the Rural Electrification Adm. for the oppor- › tunity to consider this important subject in time for enactment by the 89th Congress.

Let us get the best possible bill in the interest of the greatest number of our rural citizenry.

On behalf of the California Farmer-Consumer Information Committee.
Mrs. GRACE MCDONALD,
Executive Secretary.

(Note. The other attachments to Mrs. McDonald's statements are on file with the committee.)

STATEMENT OF A. H. MCDOWELL, JR., PRESIDENT, VIRGINIA ELECTRIC AND POWER COMPANY, RICHMOND, VA.

Dear Mr. Chairman: Complying with the telegram of James M. Kendall, : Assistant Chief Clerk, dated August 19, as to the hearing of the Senate Committee on Agriculture and Forestry on these bills, we submit this statement on behalf of Virginia Electric and Power Company with the request that it be made a part of the record.

The hearings on similar bills already held before the Committee on Agriculture of the House have materially narrowed and defined the issue. It is not whether the Rural Electrification Administration should be continued in accord with its original purpose, but whether Congress should sanction a radical departure from that purpose by creating a vast new public power system without

any effective limit as to location, duplication or extent, free of taxes, guaranteed by the United States and subject to no regulation or control. This can be shown concisely, as we now do.

1. In all the lengthy hearings in the House, no one questioned the REA program "for the furnishing of electric energy to persons in rural areas who are not receiving central station service" (7 USC § 904). It is established, however, that more than 98% of the farms of the country now receive such service, so that in that sense the purpose of REA has been fulfilled. We do not question that these distribution facilities will need upgrading with load growth. Nor do we question that the systems in sparsely settled territory which cannot pay the going cost of capital may fairly ask, as a matter of social need, that funds for this purpose be supplied through continuation of a subsidized lending program, even though the funds must be obtained by the United States through borrowing at much higher rates. Quite definitely, therefore, the issue is not for or against REA. The real question is obviously something larger and further afield.

2. Historically, each cooperative loan has been reviewed by the Administrator and the aggregate requests have been submitted for Congressional consideration in the budget. In contrast, there has been no evidence in any of the lengthy hearings to show the load growth or financial needs of any particular cooperative or of the cooperatives as a whole. In short, no need at all has been shown for this huge financial authorization. There is only a generalized reference (Jerry L. Anderson, before the House Committee on Agriculture, June 1, 1966) to a study by Kuhn, Loeb & Co., which has not been made available for public review, to the effect that the rural electric systems would require about $9.5 billion between now and 1980, of which over half would be needed for distribution facilities. The amount contemplated for distribution facilities could be provided by continuing the present 2% loan program in the amount of about $300 million a year. The vast additional sums to be made available by means of the so-called "Bank" contemplated by these bills are clearly for some wholly novel purpose.

3. The real purpose is therefore not normal growth but revolutionary takeover. It is in fact to enable electric systems originally established as rural electric cooperatives to take over municipally-owned plants and other existing systems (Norman M. Clapp, before the House Committee on Agriculture, July 13, 1966). The bills deliberately contemplate the invasion of urban and suburban areas even though now provided with quality electric service at reasonable rates by investor-owned, tax-paying electric utilities and impose no limitation whatever on the scope of extensions and acquisitions in rural areas. As pointed out in the House hearings (id.), "the change is basically that you take out any reference here to rural area people in any way." The result is clearly to create a new Federal system without reference to rural areas or availability of power supply from other sources, thus creating a huge duplicate facility that would compete with the investor-owned, tax-paying utility systems.

4. Both bills presuppose the continuation of the present 2% loan program and that we do not oppose for those cooperatives serving sparsely settled areas which do not provide sufficient revenues to permit a more realistic interest rate. But we invite the Committee's attention to the huge additional liabilities to be imposed on the United States. Initially S. 3337 contemplates an outlay by the United States in installments up to a total of $1 billion. This is not to be repaid at any definite time, but only "as soon as practicable" and only in such manner as "will not unduly impair the operations of the Federal Electric Bank" (§ 405 (c)). Meanwhile there will be no return on that outlay. The bill then authorizes the so-called “Bank” to borrow 10 times the whole amount of its socalled capital. Ten times the Treasury contribution makes an aggregate of $11 billion. But this is only the starting point. The bill further requires that 5% of every loan shall be reinvested in stock of the so-called "Bank", on which it may then lend 10 times such amount again, with the result that every loan automatically entitles the “Bank” to lend over half that much again. The result is a pyramiding effect on a moving base, to which no precise limits can be confidently fixed.

Our estimate is that the total lending power of the "Bank” would exceed $20 billion or, if combined with a continuation of the 2% loan program at $300 million a year for 15 years, a total exceeding $25 billion. This is over twice the total of all Federal appropriations throughout history for generation and transmission projects and nearly half of the entire electric utility industry investment in the United States in 1964. While the lending power under S. 3720 is

slightly less than under S. 3337 since it contemplates an outlay of $750 million with authorization to borrow 8 times the amount of its so-called capital, it, nevertheless, amounts to many billions of dollars and well over twice the stated requirement of REA. Finally, if the "Bank" should at any time determine that it has insufficient assets for the purpose of paying interest or principal on its obligations, it is unconditionally entitled to draw on the Treasury of the United States for that purpose (§ 406(b)). Unmistakably, the obligations are guaranteed, principal and interest, by the United States. The fact that the loans are to be for 50 years and thus outlast the facilities themselves shows that this guarantee will be widely used.

5. What are the purposes for which such unprecedented sums are requested? They are screened in words of deliberate vagueness. Section 410 (a) says first of all that they may be used "for the same purposes" as under Title I. Historically thy were to provide electric facilities "where no adequate and dependable source of power is available" or "where the rates offered by existing power sources would result in a higher cost of power to the consumers". In 1961 the REA Administrator indefinitely expanded these purposes by adding, on his own motion and without Congressional action, a third criterion, namely, where "necessary to protect the security and effectiveness of REA-financed systems". More lately, as Congress knows, REA funds have also been applied to finance snow machines and ski lifts. From this launching pad, the bill now ventures into outer space by permitting loans for

"*** the construction, improvement, expansion, acquisition, and operation of electric generating plants and electric transmission and distribution lines or systems, and for other related purposes in order to improve the efficiency, effec tiveness, or financial stability of electric systems *** financed under * * this Act." (§410(a)).

The Administrator has demonstrated such liberality in interpreting the original words of Congress that surely no limit whatever can be assigned to action that might be taken under the words proposed.

6. The bill further proposes a complete exemption from all taxation by the United States or any State or local authority except only for payments in lieu of tangible property taxes required by prior law (§ 401 (b)).

7. Congress is thus asked to underwrite obligations of enormous but undefined extent to be incurred in the installation of electric facilities "and other related purposes" of undefined nature in unlimited territory, with full tax exemption, but without any power of Congress for further scrutiny or veto. Indeed the advocates of this legislation would exempt all borrowers of the so-called "Bank" from all regulation by any other Federal authority, including the Federal Power Commission, except only the omnipotent Administrator (§ 412).

This is not "supplemental financing". This is a revolutionary innovation of policy, by which Congress would create a monstrous new public power system throughout the United States. This tax-payer supported empire would be free of taxes and supplied with subsidized capital. No one could doubt its competitive effect on the investor-owned utility systems, which must raise their capital in the mraket place and pay 23 cents out of every revenue dollar in taxes. Collectively, the 400 investor-owned electric utility systems, who supply energy to 40% of the farms in the United States, are the largest single industry in the United States, provide the largest single program of annual outlay for purchase and improvement of any industry in the United States and are the largest taxpayer in the United States.

It is not in the public interest to undermine this source of public revenue by substituting an unnecessary tax-free agency at enormous public expense. The bills should be defeated.

Virginia Electric and Power Company, on behalf of its consumers, security holders and employees, appreciates the opportunity to submit this statement for the record and, in view of the extremely adverse effect this legislation, if enacted, would have on the public interest, respectfully requests that it be given an opportunity to appear before the Committee if hearings on these bills are resumed.

STATEMENT OF JOSEPH A. MCELWAIN, ASSISTANT TO THE PRESIDENT, MONTANA POWER COMPANY, BUTTE, MONT.

Mr. Chairman, Member of the Committee, my name is Joseph A. McElwain. I reside in Butte, Montana, and I am assistant to the president of The Montana Power Company.

I am appearing in opposition to S. 3337 and S. 3720. I do not limit my general remarks to these specific bills because I have great concern about the philosophy behind this type of legislation, which is an attempt to expand the functions of the Rural Electric Co-operatives far beyond those contemplated in the present law.

Montana Power Company service area

First let me tell you a little about the Company which I represent and the territory we serve. The Montana Power Company is an electric and gas utility operating in the western two-thirds of Montana. Our service area encompasses approximately 96.000 square miles, an area slightly larger than all the New England states plus half of New York. In this area, we have 556,000 people or approximately 76% of the State's population.

Our system capability is 746.000 kilowatts. We now have under construction a 180,000-kilowatt steam-electric generating station which will be operating in 1968. We operate 4.610 miles of transmission lines and 9,375 miles of distribution lines to serve 163.717 electric customers.

A few examples will indicate our situation. Montana Power would be classified as a medium-sized utility. Out of 112 of the best-known utilities in the Nation, we rank 53rd in size.

Our service area is the second laregst of any utility in the Nation but has an average population of only 5.8 persons per square mile. In contrast, New York City has approximately 24,700 persons per square mile and Washington, D.C., has nearly 12.500 per square mile.

On the basis of energized miles of electric lines, we serve about 11.7 persons per mile compared with a reported average of 33 customers per mile of line for all investor-owned utilities.

Montana co-operatives enjoy extremely low power rates

The Montana Power Company's wholesale power rate for rural electric cooperatives is the lowest charged by any investor-owned utility in the Nation and is approximately 6% lower than the rate charged by the Bureau of Reclamation in Montana.' It is 43% lower than the average cost of wholesale power purchased by rural electric co-operatives throughout the country from REAfinanced suppliers.

We sell power at wholesale to 13 of the 25 co-operatives in Montana, supplying the complete requirements of eight of those co-operatives and the partial requirements of five. Our average revenue from such sales in 1965 was only 4.72 mills per kilowatt-hour.3

Company's position regarding rural electric co-operatives

The Montana Power Company recognizes the function of rural electric cooperatives to be one of serving rural areas not otherwise receiving central station service. It also recognizes that, because such areas normally are sparselypopulated, Congress has granted the co-operatives certain tax and interest subsidies to enable them to provide adequate electric service to these rural areas. In line with that recognition, Montana Power's policy is one of offering to the co-operatives in its service area long-term contracts to enable these co-operatives to fully meet their legal purpose of supplying rural areas which otherwise do not have central station service available.

Company helped REA program get started in Montana

When REA was enacted into law by the Congress in 1936, The Montana Power Company adopted a program of helping organize co-operatives in our State. Our Company helped in the preliminary planning studies of many of the Montana co-operatives and performed engineering services for them, including design and construction of their distribution facilities.

Two of our outstanding engineers were loaned to the Montana REA program to provide assistance in getting it started. One of these men currently is vice president and chief engineer of Montana Power. In some instances, Montana · Power turned over to the newly-formed co-operatives specific service areas to help them obtain customers and hasten the introduction of electricity to rural Montana.

1 Montana Power REA-50 Rate Schedule vs. USBR Missouri River Basin Rate Schedule. 227th Annual Report of Energy Purchased by REA Borrowers, June 30, 1965.

& Montana Power FPC Form 1 Report, p. 65.