In consideration of our Cooperatives tremendous need for adequate growth capital, public criticism, our membership responsibilities and the fact that many cooperatives are able to pay more interest-we ardently support the proposed supplemental financing bills H.R. 1400, 1401, 1402, 3122, 3314 and 6026. However, we recommend one change in the bills as follows: add the following language in line 10 on page 25 after the word law, "and Federal wholesale power policy requirements". Section 408, (b) (5) as corrected would then read-Loans shall be made to cooperatives only if such cooperatives have within a period of 18 months after enactment of this section, and if permitted under state law, and Federal wholesale power policy requirements, adopted bylaws which-etc.

We believe that the adoption of H.R. 1400, as amended, will accomplish the following:

1. Enable the Federal Government to shift part of its REA financing obliga-tions to private sources.

2. Insure the cooperative an adequate source of growth capital.

3. Satisfy those who have so loudly and persistently criticized the present method of financing and the 2% interest rate.

STATEMENT OF JACK H. NEEDY, MANAGER, CO-MO ELECTRIC COOPERATIVE, INC.,

TIPTON, MO.

We would like to take this opportunity of filing a statement on behalf of our Cooperative and authorized by our Board of Directors, namely:

James W. Morton, President, Route #1, Booneville, Mo.; Robert M. Neely, Jr., Vice President, Route #2, Lincoln, Mo.; Earl Steel, Sec. & Treas., Syracuse, Mo.; Herman Wirths, Blackwater, Mo.; William B. Vogel, California, Mo.; C. C. Koerner, Route #1, Barnett, Mo.; Ewing King, Route #1, Booneville, Mo.; BruceCook, Route #4, California, Mo.; and Nelson H. Wilson, Gravois Mills, Mo.

These directors represent our approximate 11.000 consumers in the rural areas of Cooper, Moniteau, Morgan, Camden, Benton and Cole counties.

After the Pace Act was passed assuring the Cooperatives of 2% interest money for a period of 35 years providing the Cooperatives would agree to thearea coverage program, we did not realize we would have future difficulties obtaining the necessary loan funds. This Cooperative has, therefore, complied with the area coverage program and as far as I know, no person or established resident who is or has desired electric service has been deprived of obtaining such service.

Even though we are losing some of the small farms in our area, we are still connecting addtional services to new homes outside of the urban areas and primarily because we are serving a large portion of the Lake of the Ozarks, we are connecting from 300 to 500 additional consumers each year which, of course, requires quite a lot of additional capital. For the same reason and because of the rapidly increasing consumption of electricity by both the new and old consumers, we are continuously being required to heavy up our system in all areas by the rephasing of original lines, the installation of heavier poles and heavier conductor. There are also consistent requests for three phase service instead of single phase service which also requires additional conversion and construction. We have been making loan applications from the extent of some $700,000. or $800,000, to a million dollars about every two years. This is necessary to meet the above requirements for additional capital needed.

Our system is already reaching an age where we are in the program of changing out bad poles and this will continue at a more rapid rate as time goes by. Along with these additional capital requirements, because of the pressure of the enemies of the program, loan fund appropriations are being drastically cut each year in accordance with our requirements and less than one-half enough money is being appropriated to take care of our needs.

In order to alleviate this situation, a supplemental financing system has been worked out after careful and lengthy consideration and is being presented to theCongress as H.R. 1400, the Poage Bill. We personally feel this should not havebeen necessary but in view of existing situations and since evidently supple-mental financing is the only answer, we are asking that you give your support and assistance in any way possible to the passage of this bill.

STATEMENT OF R. B. MOORE, GENERAL MANAGER, LEA COUNTY ELECTRIC COOPERATIVE, INC., LOVINGTON, N. MEX.

I am R. B. Moore of Lovington, New Mexico. Since 1949 when the Lea County Electric Cooperative, Inc., commenced to doing business, I have been its manager. Prior to that time, I was the managed of the Lovington Division of Inland Utilities Company, which district was sold to the Lea County Electric. In all, I have been associated with the electric utility business for approximately 37 years, both in the employ of the private or investor-owned utilities, as well as the cooperative which I now manage. In addition, I have spent five years as a professional engineer doing consulting work for electric utilities.

The Lea County Electric Cooperative, Inc., needs and supports the proposed legislation for supplemental financing. The arguments made by the investorowned utilities against this legislation to the effect that the rural areas are now almost completely served and thus there is no need for Congress to be concerned with additional financing for the cooperatives purposely ignores the ever growing demand for electric power by present consumers who are constantly finding new uses for such electric power. The private utilities are ultimately increasing their plant capacity and modernizing their systems in an effort to keep up with their expanding needs in the areas already served by them. To deny the cooperatives the same opportunity by curtailing their financing will only serve to retard the development that the rural area would be entitled to. The rural area deserves the benefits of our constantly expanding economy in the same manner as the urban. We submit that all segments of the utility business, both urban and rural, must be in a position to obtain capital for expansion purposes if this great country of ours is to remain a leader in all facets of human endeavor. Since the cooperative territory, generally, is least attractive, profit-wise, as compared to investor-owned utility territory, the Federal Bank to continue to develop these areas is a must, especially if our government is to keep faith with the commitments already made and in lieu of the good job we have done together. We do not endeavor to stand in the way of investorowned utility financing programs, and we see no real reason why they should endeavor to curtail our ability to serve our patrons, none of whom did they want to serve in the beginning. We compliment rather than pose a threat to the industry, especially in New Mexico, inasmuch as we are under the same state regulatory commission as other electric utilities.

Evidencing the ever growing nature of the electric power business is a recent announcement of Westinghouse Electric Corporation that it is undertaking a major expansion of its facilities to manufacture electric power generating equipment and is planning to spend $285,000,000 in expanding its manufacturing facilities. A copy of a letter announcing these plans received by me within the past few days is attached as an exhibit hereto.

Having worked for the private utilities, I am well acquainted with their policy of declining to expand into unserved areas until they are assured a comfortable return on their investment. If the continued improvement of electric service in the rural areas is not properly supported by proper legislation, the day can easily return when the rural areas are again not being adequately served with electricity as compared with the urban areas.

Lea County Electric's plant and system include generating capacity of approximately 80,000 KW, with distribution in the rural area covering some 3,000 square miles. This area is almost completely served by our distribution system and has been for a number of years, but we still only average three consumers per mile of line. In addition, we find that although the number of our consumers has remained fairly constant for the last few years, our total sales are increasing year by year. For example, we have had as much as 25 per cent growth over the previous year. This growth seems to level off at 10 to 7 per cent per year. As growth increases, more transmission is needed to transmit high voltage to load centers. We are currently this year putting into operation a second steam turbine-generator to take care of our growth. We hope that our territory will continue to grow and require additional power, and we are optimistic about it just like any other utility. Trends dictate that this will happen for more uses are always found where dependable electric service is available.

We have recently had a long range study made of our system requirements in our service area by a professional consulting engineering firm, and this study points to the fact that over the next five years we will require approximately

$8,000,000 additional financing, without expanding into any appreciable new territory. It would appear to be doubtful at this time whether these requirements could be obtained under the present financing program.

It appears to me that the rural cooperatives in supporting this legislation should be complimented in their approach to this problem of financing. A rural electric bank obtaining a supply of funds from non-federal sources will certainly serve to reduce the demands on the treasury loan funds, and in addition, the treasury will be ultimately reimbursed for all its investments in the proposed rural electric bank. When one considers the various industries which in the past have obtained and continued to obtain government subsidies and other benefits of one kind or another from the United States Government, it would appear that this type of legislation, which will cost the tax payer nothing, should be praised not criticized. Why don't the private electric companies who are so strenuously objecting to this legislation, if they are only concerned about the United States Treasury, attack these types of subsidies rather than harrass the cooperatives by opposing this legislation?

It appears to me from our experience on both sides of this controversy that the ultimate concern of the private investor-owned companies endeavoring to stand in our way on this particular legislation, are more interested in bankrupting us and being in a position to take us over for 10 to 20 percent of value, rather than being concerned about the United States Treasury. We urge this committee to give H.R. 1400 a "do pass" recommendation.

WESTINGHOUSE ELECTRIC CORP.,
Pittsburgh, Pa., March 13, 1967.

Mr. R. B. MOORE, Manager, Lea County Electric Cooperative, Inc., Drawer 1447, Lovington, N. Mex. DEAR R. B.: I wanted you to be among the first to know that we are undertaking a major expansion of our facilities to manufacture electric power generating equipment. We are announcing tomorrow, in New York, our Company's plans to spend $285 million on this expansion. The details are spelled out in the attached news release and I wanted you to have a personal copy.

Our major expansion can be attributed mainly to the rapid growth of orders for nuclear power plants. Our new and expanded facilities will provide for the growing size of the larger power plant components, and at the same time, reduce the lead time required on both nuclear and fossil-fired turbine-generators. Briefly, the expansion involves new plants in Charlotte, North Carolina, Tampa, Florida, a third location yet to be announced, expansion of our present Steam Divisions' facilities at Lester, Pennsylvania, and expansion of facilities in the Pittsburgh area.

We recognize the huge equipment needs required for the dramatic growth of the electric power industry, and the future it offers. We intend to be in a position to meet those needs in the years ahead. Our present expansion program exemplifies our determination and dedication to better serve the electric power industry.

Sincerely,

J. W. SIMPSON,
Vice President, Electric Utility Group.

STATEMENT OF PAUL H. HUTCHISON, MANAGER, HANCOCK-WOOD ELECTRIC COOPERATIVE, INC., NORTH BALTIMORE, OHIO

Our organization like all other REA borrowers-indeed like all electric utilities, whether they be cooperatively, municipally, publicly or privately owned— finds itself in need of additional capital. This capital is required to up rate, heavy up and expand electric facilities to meet the increasing demand for electric service on the part of our members.

According to studies which we have made, Hancock-Wood Electric will require an average of $250,000.00 per year of "outside" capital in addition to that generated through normal operation of our system, for the next 10 years and approximately $300,000.00 per year for the following 10 years.

Our organization, like other REA borrowers, would be unable to secure this additional financing through normal "private money" channels since all our facilities are under mortgage to the United States of America, as security for the loans made to us by the Rural Electrification Administration.

As of December 31, 1966, Hancock-Wood served a 1200 square mile area in northwestern Ohio over 1250 miles of distribution line. Consumer density along our line is 4.1 per mile.

Revenue during 1966 was $785.00 per mile.

When these figures are compared with the average density of 34 consumers per mile and the average revenue of $7,800 per mile experienced by the investor-owned utilities in the United States, it becomes obvious that Hancock-Wood is indeed quite small and might even be considered to be in the "poor relation" category so fas as the utility business is concerned.

Although we are small by comparison, we are forced to rebuild and expand our facilities constantly as we mentioned earlier, and to do this, must have additional capital available.

It has been the policy of our organization, since its founding, to serve our members at rates as low as practical and to provide them with service of a quality comparable to that supplied by other utilities in the area. In spite of the difference in density and revenue per mile, between Hancock-Wood and its neighboring investor owned utilities, the cost of power to our consumers is comparable to that paid by customers of these investor-owned utilities.

It is, therefore, easily seen that we have only very limited cash reserves which could be used to finance our needed expansion, and that it is impossible to generate the required capital from current operations.

We do believe that while, like all utilities, we are forced to rely on borrowings to finance our growth, we should be willing to pay a reasonable rate of interest. Since there is, apparently, a degree of subsidy in the 2% interest charged by REA on loans which they make, Hancock-Wood believes that a higher rate of interest would be justified in our case.

Some cooperatives whose density and revenue is very low can justifiably say that they need 2% money to exist, but that is not necessarily true for all cooperatives or other REA borrowers.

Since all borrowers will, like Hancock-Wood, need additional capital in the future in quantities in excess of past requirements, and since funds allocated by Congress will, of necessity, be limited, it becomes apparent that some alternate, or supplemental source of financing is necessary.

In this statement, I have used cash requirement figures based on our own local situation. If these were projected on a nationwide basis, it would seem reasonable to estimate that the present REA borrowers might need as much as $600,000,000 of outside capital per year within the next 12 or 15 years. This would mean a deficit of between $200,000,000 and $250,000,000 per year, based on recent Congressional appropriations.

For all these reasons, we believe that it is essential-yes, even mandatorythat a source of supplemental financing for REA borrowers be arranged.

The basic plan included in HR 1400 would appear to accomplish this. In addition to minimizing the need for annual Congressional appropriations, this bill would result in a higher interest rate on loans to borrowers from the bank, and would establish a method whereby the US Government would eventually be able to withdraw from the financing phase of the rural electrification industry. The accomplishment of these goals would seem to be desirable from the standpoint of the REA borrowers, the investor owned utilities and those who object to Government involvement in private enterprise for political reasons.

We at Hancock-Wood, therefore, urge the adoption of HR 1400 with a minimum of amendments, although we recognize that some MINOR modifications are inevitable, and may, in fact, be desirable.

STATEMENT OF L. G. SMITH, MANAGER, CUIVRE RIVER ELECTRIC COOPERATIVE, INC., TROY, Mo.

A comprehensive study of the growing need for electricity in the rural areas has shown that power requirements will double every eight to ten years and that rural electric cooperatives-non-profit systems owned and operated by the mem

bers they serve-will need some $9.5 billion during the next 15 years, nearly twice as much as has been spent since the program began in 1935.

The two year study, conducted by the National Rural Electric Cooperative Association with the help of the investment firm of Kuhn, Loeb & Co., took the realistic position that the rural electrics cannot expect such sizable amounts to come solely from the Rural Electrification Administration's two percent loan program. Annual Congressional appropriations for REA loan funds have settled in the area of $300 million while projections indicate the need for about $700 million annually by 1980.

In seeking a solution, the rural electrics propose taking a page from one of the most successful Federal Credit Assistance programs, the Farm Credit System, under which the government has helped the Federal Land Banks, Banks for Cooperatives and Production Credit Associations get on their feet. Many of these have already repaid funds originally provided by the Treasury and are now free of Federal help.

Legislation introduced by House Agriculture Committee Chairman, W. R. Poage, of Texas, HR 1400, calls for the retention of the current two percent loan program for those systems which still require low cost financing. Many of these are in sparsely settled areas where it is costly to provide the service and the low member-per-mile ratio provides a low revenue return. On a national average, rural Electrics serve only 3.5 consumers per mile of line compared to 34 per mile for the commercial companies. Some rural electric systems, in the more sparsely settled areas, serve less than one consumer per mile of line.

Unlike private power companies, rural electrics are obligated, under the area coverage provision, to serve all in their area who desire service and at the same rate. Many systems, therefore, operate close to the break even point. Higher interest rates would jeopardize their survival. These systems would continue to receive the two percent loan funds until they reach a greater degree of maturity. To provide the critical needed growth capital the legislation calls for the establishment of a rural electric credit system much like the Farm Credit System. It would be funded by a combination of private, government and rural electric funds. The government money, to be supplied from repayments on currently outstanding REA loans, would eventually be paid off by the rural electrics themselves, at which time the agency would be owned and operated by rural electrics without further government assistance.

Loans made to the rural electrics by the credit agency would carry interest rates higher than the present two percent. Present legislation calls for a dual interest rate program-one at about four percent and one based on the cost of money in the open market.

We favor this approach because we believe it is the one which will guarantee an adequate supply of capital while providing a flexibility to the Rural Electrification program under which each rural electric can get the money it needs at rates each can afford.

STATEMENT OF WALTER KOTTHOFF, PRESIDENT, BOARD OF DIRECTORS, THREE RIVERS ELECTRIC COOPERATIVE, LINN, MO.

Our rural electric cooperative was organized in 1939 to fill a definite need in rural central Missouri. Today Three Rivers Electric Cooperative serves 7,209 members with 2,635 miles of line in parts of seven mid-Missouri counties.

Kilowatt hour growth from 58 KWH per member in 1943 to 542 KWH in 1966 has meant constant attention must be given to heavying up the system at all levels, and projected figures indicate this increased usage pattern will continue. We in mid-Missouri, therefore, as well as rural electric members elsewhere, face entirely different problems today than we faced in 1939. They are, however, every bit as important.

Replacement of equipment due to the ravages of time or nature, for example, is a constant and necessary expense (sometimes difficult to foresee), and because of the terrain we encounter here, demands for underground service (already beginning to be felt) may present problems which will need to be solved. Primarily our area is agriculturally oriented, however, and farmers (to meet the pressing demands of increased production and increased efficiency) must look to even greater uses of machines and electricity. The profit ratio for farmers is so close now that it is essential that they have a dependable and economical source of power.