Ranking first in all our studies is the inescapable conclusion that 2% REA financing is absolutely necessary for most of our cooperatives for some time to come.

However, recognizing our responsibilities to the government and to our members, we recognize that some of our Cooperatives may be in a financial position to participate in the bank as envisioned by the Poage, Mills and Schlisler Bills. While we are appreciative of the intent of the Administration Bill and its recognition of the problems facing Rural Electricfication borrowers, we feel that it has certain shortcomings which can, and should, be corrected, for these

reasons:

(1) The Administration's Bill does not provide sufficient capital for the bank. The federal contribution of $750-million is over a lengthy period of 15 years, whereas, the Poage-Mills and Schisler Bills provide for $1-billion at a much more rapid rate, which would enable the bank to fulfill its objectives at a much earlier date.

(2) The Administration's Bill requires 4% interest on 50-year loans, compared to 3% in the Poage and related Bills, thus increasing the interest rate 100% above current 2% REA financing. Due to the nature and character of rural electric service with its low density and high operating costs to provide a parity of service on par with that of towns and cities, margins are extremely low on most rural electric systems; therefore, a 100% increase in interest rates would work an extreme hardship on many of the bank's borrowers. The 50% increase inherent in the Poage and related Bills is somewhat drastic, but can be lived with without endangering the long-range objectives of the bank and its borrowers. It should be realized that restrictions in the REA Act of 1936, the added restrictions of Congressional committees over the years, etc., have prohibited in no small measure the ability of the Cooperatives to develop lucrative areas and large power loads with corresponding large margins on total operations. To suddenly demand the Cooperatives to take on the added burden of a 100% interest rates increase appears unrealistic and extremely harsh in view of the many restrictions upon who and what they can serve, plus the responsibility to provide total area coverage, regardless of the economic factors.

(3) The Administration Bill is not in keeping with the traditional and cherished philosophy of home ownership and control of the rural electric systems and their service facilities in that the directorship of the bank remains in complete control of the federal government until the last dime of the government's investment is repaid. The Poage Bill is patterned after the time-proved Farm Credit system which has been so successful.

(4) Section 410 of the Administration's Bill is absolutely untenable. It requires G&T borrowers to enter into reciprocals pooling agreements with power companies before the Bank will honor G&T loan applications.

This would, in effect, give the commercial utilities veto power over many G&T loan applications. It would eliminate the independent "yardstick" factor, so important to states, like Louisiana, where power companies enjoy a monopoly of wholesale power service.

It ignores that many applications for transmission have no relation to power generation, but are necessary for internal security and service to membersor in the case of Louisiana, to keep transmission facilities out of the rural service areas of the Cooperatives because power company transmission lines are only too often used primarily as vehicles to usurp and pre-empt territory and consumers of the Cooperatives. Here in Louisiana, the companies often underbuild transmission facilities for that sole purpose. Furthermore, the power companies in Louisiana have refused to negotiate with the Cooperatives for pooling and wheeling on any reasonable basis, such as provision of standby power, disposal of surplus energy, etc.

This appears to be a "special interest" feature, and, as such, should be eliminated.

In conclusion, it has been our belief for some time that the power companies will hotly contest any concept of a federal bank for rural electric borrowers which does not heavily restrict the use of such funds. No matter what they may tell the public in expensive advertisements paid for by their consumers, the companies much prefer to keep the Cooperatives utterly dependent upon government in hopes of tacking on ever more restrictions. This is verified by the flood of company-initiated news and editorial hand-outs to the news media in Louisiana in recent months, attacking the concept of a bank for Rural Electric borrowers.

Although the companies have in past years expended vast sums in Louisiana attacking the 2% REA interest rate as "unfair competition" and a "needless waste" of taxpayer money, it is most evident that the interest rate is of no real concern to the companies. The five companies operating in Louisiana have long announced intention to destroy our Cooperatives as a competitive influence, by example. They are today working diligently and in unison to accomplish that goal. It is to be expected, therefore, that the companies operating in our state will oppose adequate loan funds for Electric Cooperatives in the absence of crippling restrictions-no matter their source or the interest rate assessed. Mr. Chairman, the Poage, Mills and Schisler Bills, and the Administration's Bill, with the correction of the few flaws noted above would insure the survival of our Cooperatives as permanent, and necessary, public service institutions within the framework of our great private enterprise economy, enabling us to continue our good work for the benefit of ALL Americans in both town and country.

We thank you for your time, Mr. Chairman.

STATEMENT OF EARL J. SHIFLET, EXECUTIVE MANAGER, VIRGINIA ASSOCIATION OF ELECTRIC COOPERATIVES

Mr. Chairman, Distinguished Members of the Committee, my name is Earl J. Shiflet. I am Executive Manager of the Virginia Association of Electric Cooperatives, which represents 15 electric cooperatives in Virginia and two in Maryland. The 17 electric cooperatives have an aggregate consumer-membership of approximately 165,000, which means they serve more than 450,000 rural people in the two states.

The leadership of this Association has for several years thought that some steps should be taken to study the financing of rural electric cooperatives with a view toward relating interest rates to ability to pay.

It was, therefore, with a great deal of satisfaction that the members of the Association supported a study inaugurated by the National Rural Electric Cooperative Association in 1964 to see what, if anything, could be done about the total financing of rural electric cooperatives.

While there are those within the membership of the Virginia Association of Electric Cooperatives that would prefer minor changes in the proposals advanced by NRECA, the overwhelming majority supported the recommendations that grew out of their study. We felt this was the best that could be presented at this time.

With all the strength that we can muster, we urge this Committee to study carefully the proposed legislation before you and to report out a bill that will grant to the rural electric cooperatives a means for supplemental financing in keeping with the proposals made by NRECA and which are embodied in H.R. 14000.

The 17 member cooperatives of this Association have borrowed from REA in excess of $121,480,000 through 1965. It is estimated that the loan requirements of these 17 distribution cooperatives for the coming fiscal year will be more than $9 million. A conservative projection indicates that these same 17 cooperatives will require in excess of $250 million in new loan funds during the next 15 years.

Until a financing bill has been passed and signed, and the criteria for judging ability to pay higher interest rates have been established, we cannot know for certain how many of our systems can pay more than 2% interest on their loans. We believe now that some can pay more; we believe others cannot pay more than 2% on the money borrowed and remain financially sound. This situation is not unique to Virginia and Maryland. It is quite the same for the entire United States.

It does not seem logical to wait until every cooperative in the country is financially capable of paying more than 2% interest before any cooperatives start paying more than 2% interest on their loans. Therefore, it seems to us, the only logical approach is for Congress to provide now a means of supplemental financing for those cooperatives that can afford now to pay a higher rate of interest.

A proposal for an Electric Bank, as contained in H.R. 14000 is such a reasonable and logical approach.

It has been brought to our attention that investor-owned power companies oppose the supplemental financing provisions for rural electric cooperatives. It is stated that they fear that the electric cooperatives will achieve a permanent status by making such a Bank available.

This is exactly what should happen. There is no logic in wanting to force the electric cooperatives out of the electric business. Certainly in Virginia there is no cause for such concern. Territories have been certificated to all power suppliers, including rural electric cooperatives. One power supplier cannot compete with another for new customers. We hold, therefore, that the electric cooperatives should be accorded every opportunity to strengthen themselves in keeping with sound business principles.

While the President of the Virginia Electric and Power Company has in recent years suggested to the electric cooperatives that they consider "unification" with his company, none of our cooperatives is of a mind to unify with the investor-owned power companies. Our cooperatives prefer to increase their capability of rendering adequate and dependable service at as low a cost as possible within the territory assigned them.

While we in Virginia would welcome the support of the investor-owned power companies in the establishment of an Electric Bank, we do not consider it any of their concern, as long as we are not competing unfairly or conducting our business in an improper manner.

All of us who believe in our free enterprise system must endorse the two major concepts underlying this Electric Bank proposal. The first concept is the opportunity for certain cooperatives to pay a higher rate of interest. The second is the eventual freedom of many of the electric cooperatives from the need for Federal loans.

In view of the reasons here stated, we trust that this Committee will in its wisdom, report to the House of Representatives H.R. 14000 with such refinements as you think necessary to strengthen the ability of the electric cooperatives to fulfill their mission of rendering adequate and dependable electric service to their more than 5 million consumer-members at as low a cost as possible.

(The following statements were also submitted to the committee :) STATEMENT BY HON. WILLIAM PROXMIRE, A U.S. SENATOR FROM THE STATE OF WISCONSIN

Mr. Chairman and members of the House Committee on Agriculture, I urge you to favorably consider a sound program of supplemental financing for our Nation's rural electric and rural telephone systems. With the help of Federal loans, they have been doing an outstanding job of providing the farmers and others who live in rural America with modern, low-cost electric and telephone service.

I am very familiar with the benefits of the rural electrification program, for my home state of Wisconsin has played a leading role in its development. Even before the Rural Electrification Administration was established in 1935, Governor Philip La Follette had attacked the problem of electrifying all of Wisconsin with every available resource the state could muster.

However, before the terrific obstacles to bringing central station electricity to our farms could be overcome, it took the capital resources of the Federal government, made available through the REA program, and the leadership resources of our rural people and those of us who are concerned with their wellbeing, to really spread the benefits of universal electric service throughout the rural areas.

The first REA-financed lines in Wisconsin were energized on May 8, 1937, by the Richland Cooperative Electric Association of Richland Center, and the Columbus Rural Electric Co-op of Columbus. They were rapidly followed by 28 more rural electric cooperatives, including the largest REA-financed generation and transmission co-op, Dairyland Power of La Crosse, as our farmers realized that their long-time dream of obtaining central station electric service could indeed come true.

During World War II, virtually all construction of rural electric lines was halted by a shortage of materials. By 1945, a tremendous backlog of demand for rural electric service had developed. But it could not be filled because there

was a bottleneck of aluminum conductor. Not only in Wisconsin, but through

out the entire country, rural electric systems were stymied in their efforts to reach thousands of waiting, would-be consumers because the rural electrics couldn't get conductor.

Mr. Chairman, our statewide association of rural electric co-ops, Wisconsin Electric Cooperative, was approached by REA and officials of the National Rural Electric Co-op Association to break the bottleneck which was stalling all progress in rural electrification. I am proud to say Wisconsin broke that bottleneck once and for all time. Rural electric construction was able to move forward and make the record of which we are all so proud!

Today-right now-another bottleneck faces the more than 1000 rural electric systems now 100 percent dependent on REA for capital funds. Testimony in this session of the Congress before the Appropriations Committees of both Houses indicates that 612 million dollars is necessary to meet the rural electrics' capital requirements for fiscal 1967. Every year from now on, the capital needs will be increasing as our rural areas grow with the Nation in economic development and agricultural efficiency.

Because of the extraordinary demands on the Federal budget for 1967, the amount requested by the Administration for REA electric loans was only about one-third of the actual need. The House has raised that figure to 365 million dollars, but that is still only slightly more than one-half of the capital which the rural electrics will require in the coming fiscal year.

This situation has existed for several years now, and the backlog of unfilled applications at REA is growing. These fiscal facts point up the vital need for supplemental sources of capital. It is becoming increasingly apparent that 100 percent Federal financing is becoming more and more difficult to obtain (from resources of the Federal government which are not committed elsewhere). Since the Government apparently cannot continue to meet all of the growing capital requirements of the rural electric systems, which are serving some 22 million of our population scattered over 75 to 80 percent of the land area of the continental United States, I feel that the Congress must enact legislation which will enable these systems to obtain supplemental capital from other

sources.

Mr. Chairman, the bills before this Committee are designed to accomplish this purpose. In my opinion, they embody a sound approach not only to providing a source of supplemental capital for the rural electric systems, but also to enabling them to move toward financial independence from the Federal government.

The concept of banks for rural electric cooperatives and for rural telephone systems is founded on the long experience of the Farm Credit Administration in tapping the private money markets for capital loan funds. Behind these bills lies two years of expert study of ways and means of meeting the growth capital needs of the rural electric systems without destroying the basic elements of the existing rural electrification program and its outstanding record of service to rural America.

In Wisconsin, as in many of the other states, we still have a number of thinly-populated rural areas whose rural electric co-ops require low-interest Federal loans. For this reason, I support the continuance of the present 2 percent interest rate loan program to enable these REA borrowers to fulfill their responsibilities of providing full area coverage service to all rural consumers wanting electricity at rates they can afford to pay.

Mr. Chairman, I also support the proposed new approach to supplement the present program with higher-interest loans which will furnish a bridge to what will eventually be a bank owned and operated by its rural electric borrowers without any financial assistance from the Federal government. I feel that this proposal, made by the borrowers and beneficiaries of the REA program in order to become self-sufficient-while at the same time discharging their responsibilities to rural consumers who cannot get electric service in any other way-is a sound, businesslike way of breaking the present capital bottleneck.

REA has loaned a total of nearly one quarter of a billion dollars to finance rural electrification in Wisconsin. This money has been used by our 30 rural electric cooperatives to build 33,000 miles of line to furnish electricity to over 105,000 rural consumers. When you consider that these rural electrics serve an average of 3.2 consumers and realize only 538 dollars in annual revenue per mile of line-as compared with 23.1 consumers and 4,828 dollars in revenue per mile for the Class A and B commercial utilities in Wisconsin-it is obvious why the rural electric systems cannot move directly from the present REA 2 percent

interest loans to paying the full cost of financing in the private money market. The intermediate bank loan program provided in the bills you are considering will enable the rural electrics to bridge the gap between 2 percent and full costof-money financing without sacrificing the type and quality of service they are now furnishing to Wisconsin's farmers.

Mr. Chairman and members of this Committee, I am sure you are all well aware of the great role that dairying and cheesemaking play in the agricultural economy of Wisconsin. In America's Dairyland as well as in the other dairying areas of the United States, our present high-quality Grade A milk could not be produced without adequate electric power to provide the "muscle" for efficient, sanitary handling of this important and highly-perishable commodity. Wisconsin farmers could not stay in the darying business at all if it weren't for the universal availablity of an adequate and low-cost supply of electricity. Not too long ago, electrically-powered bulk milk cooling tanks dramatically improved the farm-to-market handling of milk, which previously went to market in cans and was handled over and over again before reaching the pasteurizing machines. And bulk cooling is only the beginning.

At a recent dairy school, dairy experts saw a wall-mounted "electrobrain" automatic washing device for rinsing, washing and sanitizing pipelines, thus bringing a new degree of push-button sanitation to the dairy farm. High standards of lighting are becoming commonplace in the dairy barns of our state. Larger vacuum pumps and motors for 2-inch vacuum lines used in mechanical milking operations are being installed. Under-the-cow illumination for lighting the udders; liquid manure handling; refinements in push-botton feed handling; electric fly killing; and electrically-heated milking parlors are just a few examples of why the rural electric load grows and grows, doubling every eight to ten years.

Some critics claim that the rural electrification program has already accomplished its purpose, but not one single dairy farmer in Wisconsin is satisfied that he has the last word in modern dairying operations. To stay competitive, to meet the high standards of quality milk production, he must adopt every new advance the dairy business finds. And that generally involves the use of more and more electric power.

Mr. Chairman, as our farms increase in size, they must have larger supplies of electric energy. In the early days of rural electrification, much of the electricity was used in the farm home to furnish light and power to operate home appliances. Today, the big demand for electricity is coming from larger and more varied farm uses. This trend is certain to accelerate as the years go by. The capital needed by our rural electric systems in order to keep pace with this growing electrical load is tremendous. The present credit bottleneck must be broken.

Wisconsin joins its neighboring states and those throughout the land in asking you to approve this constructive legislation, which will assure the rural electrics access to adequate supplemental capital to keep the power flowing to our farms and other rural establishments. It can well be the most outstanding law in its economic and social implications enacted during this session of Congress. STATEMENT OF HON. J. W. TRIMBLE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARKANSAS

Mr. Chairman and members of the committee, I have been studying the arguments on both sides of the issue involved in the consideration of H.R. 14000.

The rural electrification program is one of the best programs we have in our country today. It is one designed to help our people help themselves in getting the electricity which they need in rural areas. There are nearly a thousand consumer-owned rural electric systems in the country today, serving 20 million people in the rural areas of 46 States. The use of electricity in rural areas is doubling every 10 years.

In order to keep up with the steady growth of the rural areas and to make the needed electricity available, additional financing is needed in addition to the REA loans under the program in effect for the past several years. Under H.R. 14000, a Federal Bank for Rural Electric Systems is proposed, one similar to the Farm Credit System.

The rural electric cooperative organizations have been doing wonderful work in bringing electric service to our rural areas. I do not want to do anything to disrupt the fine public relations of these great organizations. In the light of the