If these criteria are maintained and if co-operatives have available wholesale power in adequate supply to meet their needs from existing electric suppliers, there is absolutely no need for this legislation.

REA loan history demonstrates Federal bank not needed

I attach herewith, as Chart No. I, a study of the loans made by REA during the last 30 years. This chart shows that REA to date has loaned approximately $3.8 billions for distribution facilities and more than $1.8 billions for generating and transmission facilities but that distribution loans are steadily becoming smaller each year while G & T loans are increasing.

In 1965, for example, distribution loans amounted to only 39.6% of the total loans made by REA while G & T loans had climbed to 60.3% of the total.

This chart points to a serious problem from the standpoint of tax revenues. In light of the enormous tax loss which results for Federal, state and local governments when generating plants and transmission lines are built by cooperatives, thereby preventing investor-owned utilities from making these investments, there should be no REA G & T loans except in rare cases where the rural electric co-operatives could not otherwise obtain a source of power at reasonable rates and under reasonable conditions.

The chart also demonstrates that, if REA loans were made only on the basis of the original intent of the Act and criteria established by Congress, an annual loan authorization of between 150 and 200 million dollars would be completely adequate to meet the present and future needs of the rural electric co-operatives. Enormous loan potential of Federal bank not necessary

The National Rural Electric Co-operative Association has made repeated statements that the rural electric co-operatives of the Nation will need $9.5 billions for new plant and facilities by 1980. NRECA has never, to my knowledge, presented a justification of this figure, and there is no way of knowing the basis on which this estimate was made.

The real reason for a Federal electric bank

When we recognize that 98% of the Nation's farms are now receiving electric service, we must ask the question: Why do we need a greatly expanded REA program that contemplates spending as much money as is involved in this proposed program?

I believe the answer is obvious. The rural electric co-operatives which developed this program and now support it are dissatisfied with the limitations places on them by the REA Act, and they are concerned about the growing criticism in Congress to their activities which are beyond the original intent and the legal restrictions of the Act.

They want to use their tax and interest subsidies to compete with the investorowned utilities for urban and suburban markets, to take over commercial and industrial customers now being supplied by the investor-owned utilities and to build generation and transmission facilities which they cannot build at the present time because of restrictions in the REA Act and the exercise of control by the Congress.

They want to embark on an uncontrolled program of direct, subsidized competition against the investor-owned utilities. This is not a function of the REA program, and it should not be made a function by this legislation.

Detrimental effect on tax revenues, taxpayers

I call your attention to Chart No. II, which is attached to my statement and which compares The Montana Power Company with all Montana co-operatives for the year 1965, the last year for which information is available on the co-operatives.

This chart shows that 10 times as much of Montana Power's revenues go into taxes for the support of government at all levels than do the revenues of the co-operatives. You will note that Montana Power's 1965 taxes amounted to approximately $84 per customer, compared with $7.01 per customer paid by the co-operative.

Unlimited expansion of the REA program, as this legislation would provide, would:

1st Result in the construction of enormous amounts of property on which no Federal taxes would be paid and on which state and local taxes would be far less than would be paid by the investor-owned utilities on identical property;

2nd-Prevent the investor-owned utilities from building similar generation and transmission facilities, thus reducing the tax base and reducing the tax revenues

that would otherwise be channeled into state and local governments and school districts, and

3rd-Increase the burden of supporting government services on the individual taxpayers of the Nation.

Loss to Federal Government by reason of interest-free use of Federal funds

The interest-free subsidy of $750,000,000, which the Federal Government puts into Class A stock, represents a direct loss to the Federal Government, assuming payback in 35 years after 1981 of $3,466,704,800.

Electric company consumers adversely affected

The proposed Federal Electric Bank also would adversely affect the customers of the investor-owned utilities.

The construction of larger and more economical generating stations and larger transmission lines and interconnections has enabled the investor-owned utilities to lower their operating costs and pass these benefits along to their customers in the form of the lowest possible rates. The duplication of facilities and the invasion of residential, commercial and industrial markets now being served by these utilities will result in higher operating costs and will greatly hamper the investor-owned utilities in their efforts to maintain low rates for their customers. If this legislation is passed, you can quickly see that it will have a devastating effect on government tax revenue sources, on individual taxpayers and on the consumers of the investor-owned utilities.

Resources of existing suppliers should be used to maximum

Wherever possible, the supply of wholesale electricity for the rural electric cooperatives should come from existing suppliers. The investor-owned utilities, as one group of those suppliers, have consistently demonstrated their ability to supply power at wholesale at lower rates than the co-operatives could achieve by selfgeneration or purchases from REA-financed suppliers.

REA funds and Federally-supported and guaranteed funds in the form of Federal Electric Bank debentures should not be used to build generation and transmission facilities unless an adequate supply of wholesale power is not available to the cooperatives from existing suppliers at reasonable rates. Since the Federal Power Commission takes the position that it has jurisdiction over practically all wholesale contracts, it appears unlikely that rural electric cooperatives cannot obtain an FPC determination as to the reasonableness of their wholesale rates. In this way, the rural electric co-operatives can amply serve their intended function without loss of urgently-needed tax revenues to Federal, state and local governments.

Conclusion

I am convinced that the record will demonstrate that the rural electric cooperatives of America have, under terms of the REA Act, an adequate source of funds to fulfill their intended and legal function of supplying rural America with electricity. The record also will demonstrate that generation and transmission facilities can and are being provided by existing suppliers at costs as low or lower than the co-operatives could achieve if they were to provide their own facilities. The record also will show that the job of electrifying rural America is nearly complete and that there is no sound fiscal basis for the enormous expansion program which would be made possible by the proposed Federal Electric Bank.

I respectfully submit to this Committee and to the Congress the following points:

1. The rural electric program should be kept within its original intent, as provided in the present REA Act.

2. The rural electric co-operatives should not be allowed to embark on a program of uncontrolled, subsidized competition with investor-owned, taxpaying utilities solely on the basis of their being able to offer lower rates because of the tax and interest subsidies they enjoy.

3. The rural electric co-operatives should not be granted the use of Federal Government credit without control by Congress, as this legislation proposes, in order to carry out a program of expansion never intended by the REA Act.

4. That rural electric co-operatives should not be given carte blanche to build at will generation, transmission and distribution facilities which duplicate existing facilities, thus reducing the revenues of the investor-owned utilities and increasing the burden on the customers of these utilities, and which prevent the

construction of such facilities by the utility companies under conditions that will produce maximum tax revenues to all levels of government.

5. If the rural electric co-operatives will limit their function to that of supplying rural areas not otherwise receiving central station service, and meeting the normal load growth of those customers, there is no need for the enormous sums of money which they seek in the legislation before this Committee, and their total requirements can be met through the legislative process with appropriate Congressional supervision and control.

CHART II.-The Montana Power Co.-Montana rural electric cooperatives

Sources: Montana Power 1965 report to stockholders: 1965 financial and operating reports; 1965 annual statistical report of REA, pp. 21-29.

STATEMENT OF D. M. KAMMERT, EXECUTIVE VICE PRESIDENT,
ALLEGHENY POWER SYSTEM, INC.

The comments which follow set forth the position of Allegheny Power System, Inc., with respect to H.R. 1400 relative to supplemental financing for rural electric systems.

Allegheny Power is the parent company in an integrated electric utility holding company system which serves over 850,000 customers in an area of some 30,000 square miles in Maryland, Ohio, Pennsylvania, Virginia and West Virginia. The principal operating companies of the System are Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company. H.R. 1400 differs in some respects from the bills on the same subject considered last year, but its basic purpose is the same. Contrary to the impression being given by some, it is not a compromise bill.

Like last year's bills, H.R. 1400 proceeds from the unsupported assumption that the rural electric cooperative systems have growing capital needs that cannot be met by REA using funds authorized by Congress. It sets up a loan account bookkeeping device that obscures the Federal investment involved. It provides for the establishment of a tax-exempt Rural Electric Bank for the purpose of making vast amounts of money available for loans to rural electric cooperatives. It provides for a Federal investment in the Bank of upwards of $750,000,000 with no absolute requirement for any return thereon or replayment thereof. It provides for the issue by the Bank of billions of dollars of debentures and for the underwriting of the Bank's losses by the Federal Treasury.

H.R. 1400 does not eliminate, supersede, or in any way limit the present Rural electrification Administration program. Rather, it provides for a multi-billion dollar expansion, free from Congressional control, of a segment of the electric utility industry that returns no taxes to the Federal Government.

As we have stated previously, it is our belief that Congress should make a complete investigation of the assumption from which this Bill proceeds and find out what the true capital needs of rural electric cooperatives are. We know of no present or foreseeable capital needs of the rural electric cooperatives that would call for monies of the scale that is contemplated here. The original purpose of the Rural Electrification Administration loans was to facilitate the furnishing of electricity to persons in rural areas not receiving central station service. A rural area was defined as a place of less than 1500 population. This purpose has to all intents been accomplished, and one would expect that loans to rural electric cooperatives would be diminishing-certainly not that a vast new program would be undertaken.

STATEMENT OF NEIL G. SIMPSON, PRESIDENT, BLACK HILLS POWER & LIGHT Co.. RAPID CITY, S. DAK.

Black Hills Power and Light Company is an investor-owned electric utility serving the Black Hills area of western South Dakota and eastern Wyoming. This statement will express the Company's opposition to the Federal Electric Bank proposed in H.R. 1400 and similar bills.

The proposed Federal Electric Bank would change the total concept of the REA program. It would bypass Congressional authority and control and existing basic restrictions of the REA Act. Broad discretionary powers would be delegated to the Administrator-Governor and large amounts of taxpayers' funds would be provided for unprecedented expansion by REA borrowers at a time when virtually all rural people are receiving central station electric service. Loans by REA for distribution purposes have leveled off over the past ten years at approximately $150 million annually. Current appropriations by Congress are more than adequate to meet this need.

The apparent need for large sums of additional financing by REA borrowers is for generation and transmission purposes, for expansion into urban areas now prohibited by the REA Act and for acquisition of other electric systems. The funds to be made available under this proposal are totally unnecessary. The proposal provides that the REA Administrator serve as the Governor of the Bank. Broad discretionary powers and the lack of effective criteria to be followed by the Governor in approving loans made by the bank at the various interest rates permit the Administrator-Governor complete discretion to prefer G & T applicants over distribution applicants or require a distribution borrower to pay the highest interest rate.

Adequate congressional controls are non-existent. The proposal provides for automatic purchase by the United States of $50 million of stock in the bank each year for 15 years at which time congressional control will diminish progressively. Required reports to Congress would not assure adequate congressional supervision of the bank or its operation.

The proposed Federal Electric Bank would remain under the control of the Department of Agriculture. Thus, this bank is not a step toward private financing, but a more toward expanded subsidies and federal involvement with minimal controls.

In view of the ever-inreasing costs of financing the Vietnam war, rising inflationary pressures, and increased deficit spending, this is a wholly unnecessary additional burden on the Federal Treasury.

Because of its unlimited and far-reaching effect on the total electric industry, other segments of the economy, and the Federal Treasury, we strongly urge rejection of the proposed Federal Electric Bank and urge study and consideration of the general principles contained in the McMillan-Herlong bills.

Any loan account for purposes of financing REA cooperatives should have adequate and appropriate congressional controls.

STATEMENT OF CARL J. FORSBERG, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, WISCONSIN POWER & LIGHT CO., MADISON, WIS.

I am Chairman of the Board and Chief Executive Officer of Wisconsin Power and Light Company, an investor owned utility serving the southern and central part of Wisconsin. The Company serves a 34 county, 15,000 square mile area with a population of 670,000 people. This includes 400 communities served retail and 33 served at wholesale.

This statement on behalf of Wisconsin Power and Light Company is in opposition to the REA supplemental financing bill, H.R. 1400 and its related proposals. The statement also expresses support for bills H.R. 7390-7393 inclusive, which are designed to set up an insured loan program for rural electric cooperatives. In submitting this statement, we feel strongly that H.R. 1400 is not in the best interest of the 220,000 customers our company serves, the 1,650 employees who work for us, our 40,000 shareowners nor the thousands of other Americans whose pensions and life insurance involve investments made in our company.

H.R. 1400 authorizes subsidized government competition to the investor-owned American business system without effective Congressional controls or restrictions. Its implications and precedents therefore, are not confined to the electric industry alone, but encompass the whole American business concept.

This legislation alters the entire purpose of the rural electrification program, which was and is to provide central station electric service to farms not now receiving it. Today this involves less than 2% of the nation's farms. In Wisconsin less than 1% are without electricity, and service is available to any farm wanting it.