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Subsection (a) establishes procedures to be followed when the amount of outstanding class B and class C stock exceeds the amount of outstanding class A (Federal Government) stock. At that time the Bank will come under control of its borrower stockholders.

Subsection (b) outlines the further steps to be taken when all the Federal Government's stock has been retired and the Bank shall cease to be an instrumentality of the United States.

The NRECA supplemental financing plan envisions the retirement of the government's class A stock through the purchase by borrowers of class B and class C stock. We believe that at the time the Bank begins operation there should be clear provision for ultimate private ownership, operation and control, specifically by the Bank's borrowers. The NRECA plan is designed to provide a strong incentive to borrowers to gain ownership, operation and control of the Bank at the earliest practical time.

H.R. 14837 lacks this incentive. It leaves the Bank in the government's hands until all of the Federal capital has been retired. A plan is then to be submitted to Congress for the conversion of the Bank to private ownership, operation and

control.

We believe there is no justification for the government to retain operation and control of the Bank after the government's capital is exceeded by that of the borrowers. Provision for transition to private ownership, operation and control should be made in the enabling legislation, as an assurance and a stimulus to borrowers to invest in the Bank and to borrow from the Bank, to the maximum extent consistent with their financial abilities.

We respectfully urge the amendment of Section 412 in conformance with the language we have supplied.

Section 4

We recommend that the language of Section 4 be stricken and the following be inserted in its place.

"SEC. 4. Section 201 of the Government Corporation Control Act, as amended (31 U.S.C. 856), is amended by striking 'and' immediately before '(5)', and by inserting, and (6) the Federal Bank for Rural Electric Systems and the Federal Bank for Rural Telephone Systems' immediately before the period at the end." This amendment replaces language of H.R. 14837 which amends the section of the Government Corporation Control Act relating to "wholly owned Government corporations". Our suggested language amends the section of the Government Corporation Control Act relating to “mixed-ownership Government corporations". It is our intention that these Banks have active participation by their borrower stockholders. This amendment makes applicable to the Banks the provisions of the Government Corporation Control Act requiring the General Accounting Office to make audits and reports on their financial transactions.

Section 5

We recommend the addition of the following section:

"SEC. 5. The second sentence of subsection (d) of section 303 of the Government Corporation Control Act, as amended (31 U.S.C. 868), is amended by inserting the Federal Bank for Rural Electric Systems, the Federal Bank for Rural Telephone Systems,' immediately following the words 'shall not be applicable to'."

This amendment adds language to exempt the Banks from certain requirements of the Government Corporation Control Act, including the requirement that the terms and conditions of debentures issued by mixed-ownership Government corporations and offered to the public be first approved by the Secretary of the Treasury.

Section 6

It becomes necessary to re-number present Section 5 to Section 6. This is made necessary by the addition of a new Section 5, described above.

NRECA recommended amendments to H.R. 14000, H.R. 14048 and H.R. 15162

As I stated at the beginning of my testimony, H.R. 14000 and the identical bills H.R. 14048 and H.R. 15162 more nearly conform to the NRECA supplemental financing plan approved by our members than does H.R. 14837.

These three bills would, in fact, fully implement the NRECA plan with the exception of the composition of the Bank Board. There are, in addition, two improvements which we believe should be made in these bills.

Section 1

We recommend that Section 1 (after the enacting clause), be amended to read as follows:

"That the Congress finds rural electric and telephone systems require everincreasing amounts of capital to keep pace with the needs of their consumermembers and users, therefore it is declared to be the policy of the Congress and the purpose of this Act that the supplemental capital requirements of the rural electric and telephone systems shall be met by the establishment of a Federal Electric Bank and a Federal Telephone Bank, which banks shall utilize both nonFederal and Federal funds, and, in time, shall become entirely privately owned, operated, and financed corporations. The Congress further finds that many rural electric and telephone systems require financing under the terms and conditions provided in Titles I and II and declares that nothing in this Act shall be construed to change the loan purposes, terms and conditions authorized in Titles I and II. In order to effectuate this policy, the Rural Electrification Act of 1936, as amended (7 U.S.C. 901-924), is amended as hereinafter provided."

This language emphasizes the intention of Congress that the REA loans programs authorized in Titles I and II are to be continued unchanged, and that these bills make no change in the operation or existing authority for the rural electric and rural telephone loan programs.

Identical language was added in the amnedment we proposed to Section 1 of H.R. 14837, and I stated our position in support of this language.

Section 404. Board of directors

We recommend that this section be amended to reduce from five to four the number of Federal officials to serve on the Federal Electric Bank Board, and to increase from five to six the number of borrower representatives to serve on the Board. This should be accomplished, we believe, by eliminating the Federal board member to be designated by the Secretary of Agriculture (Section 404 (a), lines 1-3); and by adding a sixth board member (initially appointed, thereafter elected) to serve as a representative at large together with the five board members elected from the geographic areas specified in Section 404. Our recommended amendment to Section 403 of H.R. 14837 incorporated this structuring of the Board.

We believe that a Board divided equally between Federal representatives and rural electric representatives will, after the rural electric members achieve a onevote-per-board-member status, create the possibility of deadlocks on Board actions. Furthermore, we believe that when a majority of the stock is owned by the rural electrics, they should have control of the Board by virtue of having more votes in total than the combined votes of the Federal representatives. The transition of the Bank to private ownership, operation and control will be substantially facilitated by the change we recommend.

Section 410 (a)

We recommend that Section 410 (a) be amended to read as follows:

"SEC. 410. LENDING POWER.-(a) The Governor of the Federal Electric Bank is authorized on behalf of the Federal Electric Bank to make loans, in conformance with policies and criteria established by him, with due consideration to, but not restricted to the borrower's financial condition; adequacy of funded reserves; retention of member-consumer capital; condition of electric plant; power supply arrangements; attainment of area coverage; the right or authority to operate within its service area; and the comparability of rates and service with those of other systems for which such comparisons are meaningful. The initial and subsequent policy and criteria determinations made by the Governor shall become effective 30 days after their submission to the Congress. Loans shall be made to corporations or public bodies which have received a loan or loan commitment pursuant to section 4 of this Act, or which are owned or controlled by organizations which have received such a loan or commitment, (1) for the same purposes for which loans may be made under title I of this Act, and (2) for the purposes of financing, or refinancing, 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, effectiveness, or financial stability of electric systems of such corporations or public bodies financed under sections 4 and 410 of this Act."

This amendment adds language which specifies some of the factors and rural electrification objectives to be used by the Governor in developing criteria and

policies for making loans. There is also added a requirement that the Congress be notified of policy and criteria determinations thirty days before they become effective.

The amended Section 410 which we recommend to replace Section 410 of H.R. 14837 included identical language.

We believe that the best interests of the rural electric systems, the REA Administrator, the Federal Electric Bank and the Congress will be served by the inclusion of these provisions in the bill. The eight criteria named are equitable bases for measuring rural electric systems' status with respect to accomplishment of the objectives of rural electrification and with respect to the abilities and needs for growth capital at the rates and terms available. We recommend the inclusion of these provisions in the bill.

In all other respects, H.R. 14000, and the two bills identical to it, fully measure up to the requirements of the supplemental financing plan which our members approved and instructed us to to obtain through legislation.

The CHAIRMAN. I thank you, Mr. Partridge. I would like to ask you this question: What is your objection to the Congress having the right to review this whole situation?

Mr. PARTRIDGE. I beg your pardon?

The CHAIRMAN. What is your objection to the Congress having the right to review this operation? Do you see any reason why the Congress should not review it?

Mr. PARTRIDGE. Mr. Chairman, that was not my intention, to say that. If I may state my position and our position: Our position is that the Congress will act on this bill and in acting on this bill it will approve whatever the funding arrangement is for the bank, and if that arrangement is that there be provided to the bank $1 billion from rural electrification account, there being injected into the bank that sum for the purchase of class A stock, then it seems to us that that action of the Congress is final, sufficient, and that no further review of the funding of the bank is necessary.

The CHAIRMAN. That is what I understood you to say.

Now, one Congress authorizes you to use $1 billion in money now in the REA system, and you object to having the next Congress or the next Congress review the needs of the situation that then exists?

Mr. PARTRIDGE. Mr. Chairman, I think that Congress may always review, and we take no exception to it. The Congress may change the act next year, after passing it this year. Certainly, this is within the prerogative of the Congress. However, it seems to us that it is not reasonable to require that the funding of the bank be run through the Appropriations Committee each year, and that is where it would go under the terms of H.R. 14837.

Again, I say that this committee, having taken its position and report of the bill and providing for the funding of the bank

The CHAIRMAN. We have not taken any position in reporting the bill yet; we are just starting it. You say, if we do?

Mr. PARTRIDGE. Yes, sir.

The CHAIRMAN. We have provided on page 20, as to the ownership, directing the Secretary to transmit to the President and the President to the Congress recommendations for such legislation as may be necessary or desirable to make appropriate provisions for the transfer to class B, class C, and class D stockholders of the ownership and control of the electric bank, et cetera.

I have one observation, you would deprive the future Congresses the right to review the whole situation. How much money does the Government have invested in the REA now?

Mr. PARTRIDGE. In total dollars outstanding in loans to rural electrification borrowers is around $3.4 billion.

The CHAIRMAN. That is what the Government already has invested? Mr. PARTRIDGE. Yes, sir; that is the outstanding investment.

The CHAIRMAN. I am sure that the committee will consider your suggestions.

I just want to ask this: Did you collaborate with the authors of the other bills?

Mr. PARTRIDGE. Did I?

The CHAIRMAN. Did you collaborate in connection with preparing this bill?

Mr. PARTRIDGE. We were in consultation, of course, Mr. Chairman, with the administration throughout the course of the study, and we submitted to the administration our specific views in objecting to some of the points that I have discussed here this morning. Some of those objections which we raised with the administration were satisfactorily dealt with; others were not.

The CHAIRMAN. Well, you know that after those consultations and collaboration, the administration sent this bill up here, H.R. 14837, which I introduced, and it was supported here yesterday by the administration's representatives through the Secretary of Agriculture. Mr. PARTRIDGE. Yes, sir.

The CHAIRMAN. According to your statement-you have a 40-page statement here you object to a whole lot of things in this bill, do you not?

Mr. PARTRIDGE. Yes, sir; we do, as a matter of fact. At the same time, I would like to emphasize that the bill is, as I said at the beginning, substantially in accord with the principles and concept of our plan, although it does fall substantially short in meeting the full

needs.

The CHAIRMAN. Would you prepare what you would like to propose as amendments to the bill and submit them, or do you have it all in your statement here?

Mr. PARTRIDGE. Yes.

The CHAIRMAN. There are 40 pages of statement, and your amendments are in your statement?

Mr. PARTRIDGE. Yes, sir; they are all in here. Yes, sir.

The CHAIRMAN. All right.

Mrs. May?

Mrs. MAY. Concerning the bill before us a number of the rural electric systems, cooperative electric systems, and the private utilities are very interested in testifying on this major legislation. I have, certainly, not made up my mind on this bill. I want to study it thoroughly, as we all do on this committee. We want to study it, and to do so in an arena of objectivity; all interested parties, therefore, should be heard. I think that you will agree with that; will you not? Mr. PARTRIDGE. Yes.

Mrs. MAY. We had almost a year's hearings on the farm bill last year, and we spent several months this year on the food for freedom bill which is a $6.6 billion bill. This legislation is a $10 billion bill. You have spoken very well and articulately on its behalf. You have 16 suggested amendments, as I counted them in your statement. I am sure that you want us to thoroughly consider them.

But on page 4 of your statement, Mr. Anderson, you state:

We have noted with interest that some 40 commercial power companies have requested time before the committee to oppose this financing proposal. And then in the second paragraph on that page, you say, and I quote:

We had expected private power company opposition but we have not anticipated that they would try to filibuster the bill to death in committee.

Now, this is only the second day of these hearings. I question the propriety of that statement at this stage of the hearings. I wonder in what context you used the words "filibuster the bill to death in committee."

Mr. ANDERSON. I think there are approximately 40 companies who have asked to be heard orally. We do not question the right of the commercial power industry to be heard on this bill, to be heard in opposition if that is their position, and we understand that it is. We would hope, however, in the interest of expediting the hearings as much as possible, that the power companies could do what we have done, which is to limit the number of spokesmen to appear before the committee and, perhaps, through their trade association, the Edison Electric Institute, or some other group they could have just a few witnesses who could speak for the industry.

Mrs. MAY. I must say that I think that you could hardly, at this time, and on such a tremendously important legislation, appear before a committee that wants to be objective, and fair and sound to all witnesses, say that anyone was filibustering. I question the propriety of that statement.

That is all.

The CHAIRMAN. Mr. Anderson, I have not talked with you about. this, but I did suggest to members of your association, that, in order to avoid repetition, you submit your oral statements as you have done today and to file the full statements.

I understood you to say at the beginning of your testimony that that was the procedure you would follow.

Are some of these witnesses listed here prepared to file statements today following your testimony, or do they all want to personally appear?

Mr. Anderson. We would like to file Mr. Katzin's testimony; but the other witnesses are not appearing for the NRECA, Mr. Chairman. The CHAIRMAN. I will ask unanimous consent, as I think I have already done, that we file your statement as well as the statements of others, together with any other statements or any other association or witness who wants to file a statement.

Mr. TEAGUE of California. No, no. I just wanted-this answers my question.

STATEMENT OF JEROME KATZIN, VICE PRESIDENT, KUHN, LOEB & CO., INC., NEW YORK, N.Y.

Mr. TEAGUE of California. Mr. Katzin, I understand that you are here representing a very outstanding and fine firm, Kuhn, Loeb & Co., Inc.?

Mr. KATZIN. Yes, sir.

Mr. TEAGUE of California. I am told that the recommendations contained in your company's report are at variance with the Cooley or the

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