STATEMENT OF WINFORD LEWIS, PRESIDENT, BOARD OF DIRECTORS, LA GRANGE COUNTY RURAL ELECTRIC MEMBERSHIP CORP. The La Grange County Rural Electric Membership Corporation strongly support the Poage Bill and believe it should be passed. With the growth in inland shipping and the development of the Steel Companies at Burns Harbor and the Chicago Industrial area, the northern part of Indiana will become an urban, industrial complex. Also, with the action of a citizens group of the Fort Wayne area to bring inland shipping to Fort Wayne, much expansion and growth must be done by the R.E.M.C.'s in these areas to keep abreast and ahead of the utility responsibilities that we have to our members and to our franchised areas. Monies in a much larger quantity and on a less complicated basis must be available immediately. We believe that this bill will help to accomplish this purpose and will be of mutual benefit not only to us, but to all factors of the communities that we represent. STATEMENT OF HARLEY JUstus, ManageR, MARSHALL COUNTY RURAL ELECTRIC MEMBERSHIP CORPORATION, PLYMOUTH, IND. My name is Harley Justus, Manager of the Marshall County Rural Electric Membership Corporation, Plymouth, Indiana. We serve 3000 member-consumers in Marshall, St. Joseph, Starke, Elkhart, Kosciusko and Fulton counties. Today, rural residents use electricity in more than 450 ways. Electric-powered equipment feed livestock, helps harvest crops, cools milk and eggs to maintain quality. By 1980 rural power use is expected to be eight times larger than today. To provide future electric power needs, rural electric systems must double their investment in the next ten years. Adequate power supply, bigger transformers and heavier wire are vital to supplying future rural power needs. We cannot rely solely on the capital resources which may be available through the present REA direct loan program. The capital resources to reinforce the rural electric systems must grow to match their needs. Failure to achieve this vital balance for growth will threaten not only the existence of the facilities which need to be built in the future, but even the facilities already built, which continually need to be renewed. We cannot continue indefinitely with the facilities in place today without continual renewal and expansion of investment. The nature of the electric utility business makes that impossible. Rural electric systems are expected to need $8 billion in capital in the next 15 years. This is $2 billion more than has been loaned in the 31 year history of the program. With all of the pressures on the Federal budget in these times, and the deep and growing concern of the public with the problems of public financing, the size of the national debt, rising interest rates and tax requirements, I think it is totally unrealistic to expect the capital needs of the rural electric to be met in the future solely by loans through REA. There should be a 2 percent, 35 year REA loan program with adequate funding for those systems requiring such loans to meet objectives. We need a supplemental financing plan that will assure continued growth and permanence of the rural electric systems, which will provide loans with sufficient flexibility of interest rates, amortization, requirements and maturities to enable systems to achieve program objectives. STATEMENT OF DORIS H. SALSMAN, PRESIDENT, HENDRICKS COUNTY RURAL ELECTRIC MEMBERSHIP CORP., DANVILLE, IND. Mr. Chairman and Members of the Committee, my name is Doris H. Salsman. I am President of the Hendricks County Rural Electric Membership Corporation, Danville, Indiana. I represent the Hendricks County R.E.M.C. in which we serve slightly more than 5,900 members, consisting of rural and urban families, plus twenty-nine (29) power loads consisting of small commercials and manufactures. Our area consist of parts of five (5) Counties namely Hendricks, Putnam, Montgomery, Marion and Morgan located in the central part of the State of Indiana. It is our opinion that in order for our local R.E.M.C. to render the same high quality service in the future as we have in the past it is necessary that we give a long hard look at our financial needs. Our studies show that our investment for facilities will be approximately $125,000 dollars per year for the next twenty (20) years, or a total of $2,500,000 dollars. This investment is deemed necessary in order that we may keep abreast of the ever increasing demand and useage of electrical power by our present and future members. Speaking in behalf of our Boards of Directors and membership we feel that Supplemental Financing is a way out for the future financing of our rural electrics. Your study and support of the present Legislation which is now in your Committee to establish a Rural Electric Credit System will be greatly appreciated. STATEMENT OF ARVAL M. SMILEY, PRESIDENT, WARREN COUNTY RURAL Mr. Chairman and Gentlemen of the Committee, my name is Arval M. Smiley. I am President and Chairman of the Board of Directors of the Warren County Rural Electric Membership Corporation, and a member of the Board of Directors of the National Rural Electric Cooperative Association, Washington, D.C., representing the State of Indiana. Warren County Rural Electric Membership Corporation serves three thousand three hundred fifty four (3,354) meters over eight hundred eighty five (885) miles of primary distribution line in a franchise territory within five (5) counties in the western part of Indiana. On behalf of the Board of Directors of this Corporation, I am expressing our support of legislation amending the Rural Electrification Act of 1936 to provide a Federal Bank for Supplemental Financing of the Rural Electrification Program. H.R. 1400 or an identical bill establishing a Federal Bank for the Rural Electrification Program is urgently needed to establish and provide adequate capital for all rural electric systems as well as our own system to meet the increased demands for additional capacity to serve the needs of electrical power for the rural people. Due to the tremendous demands being placed upon Congress for appropriations by the various segments of Government, we do not anticipate that Congress will appropriate sufficient funds for the growing demands for future years of the electrification program, such funds are absolutely essential to meet the escalating capital requirements of these electric systems. Establishment of a Supplemental Financing Program would, in time, ease the burden of Congressional appropriations. The records and history of this rural electrification system indicates that the sales of electricity to our member-consumers will double in less than ten (10) years. To meet this service demand on our system, we must have additional capital to increase the capacity of our existing facilities and to provide new facilities to serve new member-consumers. According to engineering and financial studies available to us, our investment in physical plant will more than double in the period of years. Without adequate capital we would be unable to make such improvements and this would act as a detriment to the growth of the rural areas in which we serve. The increased requirements in the use of electrical service for rural homes, consolidated schools, grain processing establishments and for grain and livestock farming must be provided for by this rural electric system. A large percentage of the electrical consumption in our area is used by grain and livestock farms. We believe that legislation establishing a Federal Bank for Supplemental Financing of the rural electric systems is urgent and required legislation to support the needs of our rural people. Therefore, we ask for prompt and favorable consideration by this committee on this legislation. STATEMENT OF WILLIAM F. MATSON, IN BEHALF OF THE PENNSYLVANIA RURAL ELECTRIC ASSOCIATION AND ALLEGHENY ELECTRIC COOPERATIVE, INC. And the following member systems: Adams Electric Cooperative, Inc., Gettysburg, Pa.; Bedford Rural Electric Cooperative, Inc., Bedford, Pa.; Central Electric Cooperative, Parker, Pa.; Claverack Electric Cooperative, Inc., Towanda, Pa.; New Enterprise Rural Electric Cooperative, Inc., New Enterprise, Pa.; Northwestern Rural Electric Cooperative Association, Inc., Cambridge Springs, Pa.; Somerset Rural Electric Cooperative, Inc., Somerset Pa.; Southwest Central Rural Electric Cooperative Corporation, Indiana, Pa.; Sullivan County Rural Electric Cooperative, Inc., Forksville, Pa.; Tri-County Rural Electric Cooperative, Inc., Mansfield, Pa.; United Electric Cooperative, Inc., Brookville, Pa.; Valley Rural Electric Cooperative, Inc., Huntington, Pa.; Warren Electric Cooperative, Inc., Youngsville, Pa. Mr. Chairman and Gentlemen of the Committee: My name is William F. Matson. I am general manager of the Pennsylvania Rural Electric Association, trade association for the 13 distribution Rural Electric Cooperatives and Allegheny Electric Cooperative, Inc., a G & T federation. Our member systems have 93,000 metered connections in rural Pennsylvania, and operate more than 18,000 miles of line, with total investments of nearly $60 million. These 13 cooperatives and the Pennsylvania Rural Electric Association are also members of the National Rural Electric Cooperative Association, whose spokesmen discussed in depth the legislation under consideration. The Pennsylvania Rural Electric Association would like to be recorded as supporting fully the supplemental financing plan which was based upon a lengthy study by NRECA and Kuhn-Loeb and presented to our membership upon a number of occasions, including our mid-year directors meeting at Seven Springs, Pa., our regional meeting of the national association, at meetings of managers and the February national meeting of NRECA which was attended by directors and managers. For the sake of brevity, let me summarize : 1. We support the testimony presented in detail by our national association, NRECA. 2. The members of our statewide association (PREA) have by resolution supported the Poage Bill, H.R. 1400. 3. Our needs and our position duplicate the detailed testimony presented by us and others to this Committee last year. 4. We encourage the prompt enactment of this legislation as being in the best interests not only of all rural electric members, but good for all America as well. STATEMENT OF JOE MENG, SECRETARY-TREASURER, WARREN RURAL ELECTRIC COOPERATIVE CORP., BOWLING GREEN, KY. Mr. Chairman and Members of the Committee, I am Joe Meng, SecretaryTreasurer of Warren Rural Electric Cooperative Corporation, serving a little over 20,000 members in south-central Kentucky, covering the greater part of eight counties. I appreciate the opportunity to make known to this committee the views of our Board of Directors and our Member Advisory Committee, composed of some 200 members from throughout our service area. It is our opinion that the only hope for our Cooperative meeting the electric service growth requirements of our members is by the supplemental credit system developed through our National Rural Electric Cooperative Association, R. E. A., and the friends of rural people in the Congress. It is our hope and purpose to shift the greatest possible amount of our capital requirements from Congressional authorization to a system of self-financing. Our growth at Warren R. E. C. C., and the other R. E. A. Cooperatives throughout this country, is so great that only by establishing an equitable and adequate supplemental credit system can we expect to meet these tremendous demands. Our load has been more than doubling every five years over the past fifteen year span. Our residential and farm consumption per member increased over 14% in the last twelve months. During the past five years, our own Cooperative has spent on capital improvements to provide for member increase usage a total of $5,013,654. Our Cooperative has made a comprehensive engineering and financial requirement study of our expected growth for capital requirements during the next ten years. These projected capital expenditures to accommodate the expected growth for this ten year span is $12,600,000. No regulatory utility commission would permit any utility to generate this amount of capital from its consumers through rates. The only logical solution to the financing problem of our rural electrification program is through a credit system such as being proposed before this Committee. STATEMENT OF THOMAS H. MOORE, GENERAL MANAGER, ASSOCIATION OF My name is Thomas H. Moore. This statement is submitted on behalf of the Association of Illinois Electric Cooperatives. I have served as General Manager of the Association since 1961. The principal office of the Association of Illinois Electric Cooperatives is at R. R. 4, Springfield, Illinois. It is a Statewide Association with all of the 27 distribution and the three generation and transmission cooperatives in Illinois as active members on a voluntary basis. Its primary function is to provide services to its member-cooperatives that each would find difficult or impossible to provide as an individual organization. The Association provides electric cooperatives and their members information on legislation and other governmental activities and functions affecting individual cooperatives. It also assists in coordinating the activities of its member cooperatives and represents them before legislative and administrative bodies. The 27 electric distribution cooperatives in Illinois serve about 148,000 members. The electric cooperatives are a small, but significant and necessary, part of the electrical industry in Illinois. In 1964 operating revenues of all the electric cooperatives in Illinois totaled only $29,185,144. In contrast, the total operating revenues of the six major public utilities operating in the state was $954,964,228. The average distribution cooperative in Illinois has 1,700 miles of line and serves 5,300 members. In 1964 the six major public utilities in the state averaged 14,200 miles of line and 614,600 customers each. In 1964 the average distribution cooperatives had 3.10 customers per mile of line and received $60.20 in operating margins per mile of line annually. For the same year, the major public utilities in the state averaged 43.05 customers per mile and received $1,980.83 in operating income per mile. There is considerable difference between the electric cooperatives in Illinois. One cooperative, Farmers Mutual Electric Company, with headquarters at Geneseo, has only about 265 miles of line and 660 members. In contrast, Southeastern Illinois Electric Cooperative with headquarters at Eldorado, has nearly 2700 miles of line and 15,000 members. There is also considerable variance in their financial ability and financial position. For example, Spoon River Electric Cooperative, Inc., at Canton, finds it increasingly difficult to provide its members with adequate electric service at a reasonable cost. In 1964, its net margins indicated a loss of $1,308.1 Because its potential for growth is extremely limited, its present financial plight is likely to continue for a long period of time. Spoon River Electric Co-operative's membership of 3,249 consists primarily of small to medium sized farms, many of which are on rough land along the tributaries of the Illinois River. For more than a decade it has lost members in much greater proportion than other cooperatives in Illinois, due to the vacation of farms because of the open-cut (strip) coal mining. A significant increase in the use of electricity in its service area is not anticipated now or in the foreseeable future. On the other hand, we have in Illinois, Corn Belt Electric Cooperative, Inc., with headquarters at Bloomington. Corn Belt serves 6,389 members. The territory served by this cooperative is in the heart of the Illinois corn belt, which is one of the most productive cash grain areas in the United States. Many of the farms it serves use large amounts of electricity. In addition, power loads have increased through the years because of the establishment of a considerable number of non-farm users of electricity in its service area. It appears that Corn Belt Electric Cooperative will experience a steady increase in the volume of electricity sold and will have little difficulty in providing its member-consumers with adequate electric service at a reasonable price in the foreseeable future. From a financial viewpoint, the other 25 electric distribution cooperatives in Illinois fall somewhere between the two extremes outlined above. Spoon River Electric Co-operative will continue to have difficulty operating even with loans for capital improvements amortized over a period of 35 years at an interest rate of two per cent. In contrast, Corn Belt Electric Cooperative, Inc., is in a better position to pay interest rates on money borrowed for capital improvements that will more nearly reflect the cost of money in the open money market, if there is a 1 During 1964, Egyptian Electric Cooperative and Western Illinois Electrical Coop. also operated at a loss. However, it is believed that these losses are of a temporary nature and do not indicate the long range financial potential of these cooperatives. financial institution from which it can obtain loans. Even though Corn Belt Electric Cooperative is in a strong financial position, it is doubtful if there is a financial institution other than the Rural Electrification Administration, from which it could obtain loans to provide for its capital improvements in future years. Also, there are cooperatives in Illinois that could pay a rate of interest higher than two per cent on loans for capital improvements, if there were an institution from which it could borrow funds, but are not, at the present stage of their development, in a position to pay interest rates that would reflect the cost of money in the open market. Therefore, if one of the bills pending before this Committee that provides supplemental financing for rural electric systems should become law, some Illinois cooperatives would continue to need loans from the Rural Electrification Administration, amortized over a period of 35 years at an interest rate of two per cent; some would need loans at the intermediate rate specified in the supplemental financing plan recommended by the rural electric systems and some would be in a position to repay loans with an interest rate reflecting the cost of money utilized by the Federal Electric Bank in the loan program. Illinois has a large number of successful cooperatives that provide services to their members. Electric cooperatives are a significant and important part of the overall cooperative program in Illinois. When the first electric cooperative was organized in Illinois, only a little over 12 per cent of Illinois farm families had central station electric service. Now central station electric service is available to nearly 99 per cent of the farm families in the state. Electric cooperatives in Illinois maintain over 47,000 miles of line, serve nearly 148,000 members and employ over 1,000 people. Not a single electric cooperative in Illinois has defaulted on its loans from the Rural Electrification Administration. Electric cooperatives are recognized as a significant part of the business community in the areas in which they serve and as an integral part of the electrical industry in Illinois. In 1965, the Illinois General Assembly enacted the Electric Supplier Act, which established administrative and legal machinery for resolving territorial disputes between electric cooperatives and public utilities. This gives reasonable assurance that electric cooperatives will have the opportunity to serve the territories they have developed. The outstanding record that electric cooperatives have made in Illinois could not have been accomplished without loans from the Rural Electrification Administration. Much of the growth of electric cooperatives in Illinois occurred after the adoption of the Pact Act by Congress in 1944. However, it is recognized that the financial position of electric cooperatives has changed in Illinois, as it has in other states. For several years rural electrification leaders in the state have been cognizant of the need to review the financing program for rural electric systems. The electric cooperatives in Illinois will need large amounts of capital for development in future years. It was questionable whether Congress would, or could, provide the needed capital for such development from appropriations. Leaders were aware that certain cooperatives would need loans at a two per cent interest rate to adequately serve their members, while a number of others could borrow money at an interest rate in excess of two per cent without adversely affecting their ability to adequately serve their members. As an indication of this thinking, below is an excerpt from a statement of philosophy adopted by the Board of Directors of Corn Belt Electric Cooperative, Inc., of Bloomington, on January 22, 1964: "The interest rate charged by REA was set by Congress at 2% along with the requirement that co-ops render area coverage so that all rural people could have the benefits of electricity. We believe that today Corn Belt Electric Cooperative does not need any subsidy which might be afforded by 2% money and in conformity with such beliefs have refrained from borrowing from REA. Initially when he borrowed from REA the cost of money to the government was less than 2% and, therefore, our loans were not a subsidy. Today there are areas where this low rate of interest is still necessary to support and insure area coverage." While the Board of Directors of Corn Belt Electric Cooperative stated that it had no need for additional loans at two per cent interest, they recognized that some cooperatives still had this need. This policy was adopted even though the Board of Directors had no assurance they they could borrow large amounts of capital from any institution other than the Rural Electrification Administration. Clearly the Federal Electric Bank is needed for cooperatives in this position. |