borrow so as to acquire other presently existing systems. This represents a vast departure from the principles of the Rural Electrification Act of 1936 which this proposed bill seeks to amend and expand.

Passage of a bill which would be highly damaging to the largest single taxpaying industry in this country would be most regrettable.

Quite obviously the rural electric cooperatives don't want to pay higher interest rates. They want to be able to get ahold of much greater amounts of money than Congress has seen fit to provide. Need for legislation on this matter is certainly not apparent to me, particularly since a large portion of the funds requested from the proposed bank would be employed to construct or add unnecessary generating capacity on the REC systems to meet non-farm electric loads which the investor-owned utilities stand ready and willing to supply at reasonable rates.

I am proud to be an American. I am proud to be in the electric industry. I am proud that my Company is able to operate as a profitable enterprise paying its full share of taxes to support the needs of this great nation in war and peace. In view of the investor-owned electric utilities' performance and their substantial tax support to the federal government, the creation of a federal bank which would tend to destroy such a resource is completely unjustified. Thank you for your very kind consideration.

STATEMENT OF KANSAS INVESTOR-OWNED UTILITIES

The investor-owned utilities in Kansas have carefully examined H.R. 1400. They are opposed to its passage. We would like to here give our reasons why we believe H.R. 1400 is not in the public interest.

Other Bills similar to H.R. 1400 were considered in depth by this Committee in the 89th Congress. They failed to receive favorable consideration at that time; and H.R. 1400 should not now for many reasons, among which are:

1. H.R. 1400 is not a compromise. In many respects it would create a more fertile climate for the expansion of Federal financing of not only electric cooperatives; but, also, public power entities of all types and kinds. For example:

(a) Section 407 authorized the proposed bank to sell debentures in the amount of eight times its paid-in capital and retained earnings. The taxpayers are required by Section 406 to furnish $750,000,000 initial capital. It could provide $15,000,000,000 for expansion in 15 years, and then the possibilities would snowball after this initial period.

(b) Section 408 (a) expands the loan criteria and makes such criteria statutory law. It proposes a basic change of Congressional policy. By using such words as "protect," "financial stability" and "efficiency", the present H.R. 1400 virtually insures that any proposed loan could meet the criteria it fixes.

(c) This H.R. 1400 would promote acquisitions by borrowers of properties of other electric utilities. Section 408 (a) authorizes it in rural areas virtually without limitations. In addition, it provides for loans to serve or acquire as many as 4,000 connections in urban areas and cities. In Kansas, 4,000 connections would include all of the third class cities, all of the second class cities, and even some of the first class cities. Wichita, Kansas City, Topeka, Salina and Hutchinson, and possibly a few others, would be exceptions. The word is "connections," not "population," as was considered in the 89th Congress. 2. H.R. 1400 not only invites, but promotes, loans for large-scale generation and transmission facilities. Loans would be available to meet power requirements of ultimate consumers "projected over the estimated life of such facilities." With power requirements doubling every ten years, and on the basis of the useful life of a modern plant, H.R. 1400 invites loans for generating plants as large as 32 times current needs. This is not only the improvident expenditure of public utility money, but it could provide loans for plants producing surplus power that would completely destroy existing utilities in much of the United States, including Kansas.

3. Neither public scrutiny of the administrative policies of the Governor (also REA administrator) nor public scrutiny of the process of granting loans is provided for in the present H.R. 1400. If this bill is in the public interest, then the veil of secrecy that presently surrounds the making of loans ought to be lifted;

and every loan application and processing should be a matter of public record. The present H.R. 1400 provides for a very limited, and completely ineffective type of judicial review. Again, if this bill is in the public interest, why not make all the administrative acts which would implement it subject to review in the U.S. District Court where the loan is to be made?

4. H.R. 1400 does not establish a financing plan like the banks of the Farm Credit Administration. There, the Farm Credit banks act as bankers only. There are no vehicles for the control of the whole agricultural industry. The criteria for loans is sound business, adequate security for loans at rates that will and do carry the entire program. There is no underlying guaranty of deficits by the U.S. Treasury; and a large part of the capital initially supplied by the Government has been repaid. It would be impossible to amend H.R. 1400 to be like a Farm Credit Bank, without starting over and redrafting the entire bill.

5. H.R. 1400 continues 2% money for all purposes, including generation. The Subcommittee in the 89th Congress considered this in depth, and we thought established the principle that 2% money would no longer be available for generation loans.

6. H.R. 1400 provides no assurance that it will not become a giant vehicle to take over and control the entire electric industry in the United States, including existing tax paying electric utilities and their customers.

7. H.R. 1400 provides no assurance that control of the proposed electric bank will remain in the hands of non-partisan rural electric system members, directors and officers.

8. H.R. 1400 provides no assurance that the government subsidy will ever be phased out.

9. H.R. 1400 provides no realistic guide lines or criteria for future loans. It broadens the historic criteria; and, by statute, incorporates criteria which, by administrative ruling (not now subject to review), has been grafted upon the original intent of Congress.

10. H.R. 1400 provides no assurance that the cooperatives will ever become independent of Federal financial assistance. On the contrary, it will provide a vehicle for continued and enlarged subsidized Federal financing of borrowers, as a politically expedient policy of any administration.

11. Without these limitations and assurances, H.R. 1400 remains as one of the most gigantic schemes ever submitted to a Congress for the subsidized Federal financing of all types of public power projects. Section 4 of the present Act (7 U.S.C.A. 904) authorizes loans to a long list (probably every type) of public power entities. H.R. 1400 doesn't change that; it compounds the theory of subsidized financing, by wiping out the limiting criteria that existed in the original REA Act (loans to provide electric service only to persons in rural areas who are not receiving central station service).

We are mindful that the electric industry is one of constant expansion. New money is always needed for replacements and growth to meet the ever-increasing demands of the consuming public. This applies to both investor-owned companies, and to rural electric cooperatives, with equal force. The legitimate needs of the cooperatives for these purposes should be supplied. In the past it has been through the REA Act of 1936. Future financing ought to be under a program or plan in harmony with present day circumstances and economics. Other plans for supplemental financing have been introduced in the 90th Congress. Before action is taken on H.R. 1400, we hope all other plans will be explored; however, at this time, we respect the ruling that only H.R. 1400 be considered.

Respectfully submitted.

KANSAS POWER & LIGHT CO.,

TOPEKA, KANS.

KANSAS GAS & ELECTRIC CO.,

WICHITA, KANS.

WESTERN POWER & GAS Co.,
GREAT BEND, KANS.

CENTRAL KANSAS POWER CO.,

HAYS, KANS.

STATEMENT OF EDWIN I. HATCH, PRESIDENT AND CHIEF EXECUTIVE OFFICER, GEORGIA POWER COMPANY, ATLANTA, GEORGIA

My name is Edwin I. Hatch. I am President and Chief Executive Officer of Georgia Power Company. I appreciate the opportunity to submit this statement on the bill before your committee.

Georgia Power Company generates and distributes electric energy through 97.7 percent of Georgia. We serve about 57,000 of the State's 59,000 square miles, supplying electric power at retail in 645 towns and communities and at wholesale to 39 REA cooperatives and 50 municipalities having their own distribution systems.

My statement is occasioned by my deep concern about the provisions of H.R. 1400, and similar bills, which would greatly expand loans available to electric cooperatives by establishing an electric bank, at the same time retaining the present type of 2 percent REA loans, which would be administered through a revolving fund. I hope to show what the present situation is, particularly as it pertains to my own company, and why we cannot help but be unalterably opposed to the provisions of these bills, which we think are bound to be injurious to our company. My statement will suggest an alternative form of supplementary financing legislation that would be acceptable to us and that we feel would fully satisfy any future needs of the electric cooperatives.

Let me first mention that far from opposing the cooperative program we have fully cooperated in its development in Georgia and up to the present have a close and effective working arrangement with the cooperatives in the State. After the REA Act was passed in 1936, our company provided much assistance to them in organizing and getting started. We helped them with their preliminary surveys. We worked with them on the development of rural line cost and construction standards and with them designed a type of line construction which since then has been found to be highly satisfactory. Presently, as in the past, we provide substations at their many service points at our own expense and furnish their power requirements at the voltages they desire. In 1966 the cooperatives supplied about 23 percent of Georgia consumers, the wholesale towns 13 percent, and we directly supplied about 64 percent of consumers in Georgia, our number of customers being 876,100. The electric cooperatives obtained about 24 percent of their power from the Federal Government and 76 percent from us. We wheel the federal power to them and supply the remainder of their needs with our own power. We have contracts with each of them, renegotiated in 1965, that are thoroughly satisfactory to all parties.

The retail and wholesale rates to our own customers are regulated by the Georgia Public Service Commission. Our wholesale for resale rates to the cooperatives and municipalities are regulated by the Federal Power Commission. The cooperatives themselves are not regulated. We pay federal and state income taxes and state, county, and city property, franchise, and sale taxes. Our total tax bill for 1966 was over $42 million. The cooperatives generally pay only token property taxes.

We expect that the increasing power needs of the Georgia cooperatives will be taken care of both by the new hydroelectric projects the Federal Government is building and planning in Georgia and by our own construction program which anticipates both additional thermal and hydroelectric capacity. There is no question but that their future power needs will be met. The company contemplates furnishing the needs of the cooperatives for power, over and above what the Government furnishes them, at reasonable rates for the foreseeable future, and this commitment is provided for in all future plans. On the part of the Georgia cooperatives, Mr. Walter Harrison, General Manager, Georgia Electric Membership Corporation, in connection with similar legislation last year said in a statement printed in Hearings Before The Committee On Agriculture, House of Representatives (Serial LL, page 181), that the GEMC did not anticipate any need for funds whereby they would build generation and transmission within Georgia and that thus far they had been able to work out their problems across the conference table.

It is obvious that we are getting along quite well in Georgia, and this could continue indefinitely if we could be left alone. This doesn't happen, however. All electric cooperatives in the United States, except a few that have paid up their loans, are closely controlled by the Rural Electrification Administration in Washington. The Administration holds a mortgage on all their property, determines their accounting and bookkeeping standards and procedures, and has the

right to veto their managers, their attorneys and their engineering firms as it so desires. Mr. Norman Clapp, the REA Administrator, said in hearings for the Department of Agriculture appropriations in 1964 that this right is exercised very sparingly. Nevertheless, it is there and the REA thus can set electric cooperative policy on a national scale. Naturally, most all cooperatives belong to the National Rural Electric Cooperative Association, which can reach millions of American homes. NRECA keeps up a continual drumfire against all power companies, individually and collectively, and constantly voices the needs of the cooperatives for more federal power, more cheap money, and more subsidies. H. R. 1400 would provide the most cheap money and the most subsidies NRECA has ever asked for. At the same time such provisions of the REA Act of 1936 as presently protect the private sector of the electric power industry to some extent would be neutralized or done away with.

H. R. 1400 differs from earlier electric bank bills only in relatively minor details. There follows a brief summary of the reasons why my company is opposed to H. R. 1400 and similar bills, insofar as the electrical provisions of the bills are concerned:

1. No need has been shown for the great loaning power that would be created by H. R. 1400.-Depending upon the amounts of stock sold, the bank would have over $9 billion available for loan in the first fifteen years and could continue expending thereafter. The REA Administrator, who would also be Governor of the bank, would also have the revolving loan account established in Section 301 of the Act. It is estimated that this amount would start out with over $900 million of funds already made available by Congress, plus future repayments in excess of $200 million per year.

But over 98 percent of the farms in the United States already receive electricity. Loans for distribution purposes have leveled off at about $150 million per year. The only apparent way in which so much new money could be used would be in a greatly expanded G&T program. The provision of Section 403 (g) of the bill that would limit electric generating facilities to five percent of the total electric generating capacity in service in the United States would allow cooperatives to expand the total capacity of their generating plant over five times, and even this limitation would eventually be removed. The funds that would thus be made available and the expansion of the G&T program that would be thus authorized would indicate that a very large program is contemplated. Any such program is not needed and would be extremely duplicative and wasteful.

2. H. R. 1400 and similar bills represent a complete departure from the principles underlying, as well as the restrictions applying to, the 1936 REA Act.The bank loans would not be subject to the restrictions of the Act. Loans could be made for practically any purpose. The cooperatives could compete with and duplicate established utilities in urban areas. H. R. 1400 would allow acquisition of the properties of other utilities. In rural areas there would be no limitations on such acquisitions. In non-rural areas, acquisitions of up to 4,000 connections could be acquired. This is obviously an ineffective limitation since a few connections could serve a large town.

Under the bill there would be no real Congressional control such has been had hitherto through the questioning of government witnesses in connection with Congressional appropriations and the conditions laid down by Congressional appropriations committees. Presently Congress has continuing control of annual loan authorizations. This would be lost. Under present law the REA Administrator must operate within the limits of loan authorizations. There would be no such limitation under this bill.

3. The so-called compromises or concessions introduced into H.R. 1400 do not actually have any real effect on the loan operations contemplated by earlier bills. I have already mentioned the five percent limitation on G&T loans and the 4,000-connection figure on acquisitions. Another meaningless limitation is that contained in Section 405 (j) which provides for a bid procedure when an existing arrangement with a privately-owned supplier of wholesale power is to be displaced by construction of G&T facilities. The specified procedure would be inapplicable to numerous applications for G&T loans and the provisions for judicial review are inadequate.

4. The provisions of this bill threaten the continued well-being of my company. I have already shown the large amounts of money involved and the thrust that the cooperatives could make under the bill into urban areas. Now consider the subsidies that the cooperatives would have. The 2 percent interest rate loan program would be continued. The bank could make "intermediate rate"

loans at a maximum rate of 4 percent per year. The $750 million contribution of the Federal Government would be interest-free. The services of Rural Electrification Administration employees could be furnished without cost to process loans. The operations of the cooperatives would continue to be free of Federal income taxes. And the cooperatives would continue to benefit by participation in the Department of the Interior's Federal Power Program, which sells hydroelectric power to these preferred customers at what is called cost, although here, too, a large subsidy in cost of interest and taxes foregone is involved.

The REA Administrator would have tremendous power. As previously mentioned, he controls the policy of the cooperatives. He would continue to loan funds as Administrator under the revolving fund features of the bill. He would serve as Chief Executive Officer or Governor of the Bank. He could continue making loans in close collaboration with the borrowers either from the loan fund or the bank.

So, on one side you would have the electric cooperatives generally unregulated, virtually untaxed, having to pay only 2 to 4 percent for an almost unlimited amount of money, receiving subsidized Federal power, and able to absorb other utilities systems. On the other side would be my company and others of the electric utility industry, heavily regulated and taxed and having to pay over 6 percent for the use of money. The ultimate result would be much the same in the entire United States as the TVA Act has brought about in Tennessee.

Although, as I have said, our company has a good relationship with the cooperatives (and municipalities having their own distribution systems) in Georgia, we could no more hold out against this flood of money and centralized federal authority than could the rest of the industry.

5. The provisions of this bill are not in the public interest.-The large additional subsidies provided for the electric cooperatives would be a burden on all taxpayers, most of whom would not get any corresponding benefits from the program. The duplication of electric G&T facilities would generally hurt all consumers of electricity. Such facilities are tremendously expensive; economy in electric service can be had only through cooperation and the pooling of available facilities rather than through competition of duplicative facilities. Nor is it a reasonable argument to say that a threat of such duplication is justified because it will give the cooperatives superior bargaining power. Though this may be so, as stated in Opinion #490, issued April 21, 1966, by the Federal Power Commission in a case involving the Delaware Power and Light Company, such superior bargaining power obtained through government subsidies and tax-free status gives the cooperatives an unfair advantage over the directly served industrial, commercial and residential customers of investor-owned companies. Any concessions gained by the cooperatives will be at the expense of the others. The direction that the electric cooperatives should seek should be toward decreasing the subsidies they expect from the government and eventually bearing their share of the taxes.

My company and I therefore strongly urge that you reject these bank bills in their entirety. There is nothing that you can do to change them so that they will not cause harm to investor-owned companies, or so that they will be in the public interest.

We recognize, however, that with an increased use of electricity among the customers of cooperatives, and with an influx of people into the rural areas, there will be more capital required. Also, we couldn't agree more with the desire stated by the cooperatives to shift gradually from government financing to private financing. We would therefore subscribe to any suitable bill that would give government assistant to supplementary financing of the cooperatives until such time as, individually, they are able to depend entirely on private financing.

I think that such a program might consist of a revolving fund loan account under appropriate Congressional control, plus an insured loan program for G&T borrowers (and some distribution borrowers) under appropriate statutory rules. Such a program would, in my opinion, be far better for all concerned than the electric bank as proposed in H.R. 1400.

STATEMENT OF O. T. FITZWATER, PRESIDENT, INDIANAPOLIS POWER & LIGHT Co. Mr. Chairman, you have been kind enough to grant us permission to submit a statement for the record in the hearings on H.R. 1400 and related bills. Time has