study which I have made of the problem, I believe this is a good piece of legislation, and I support its passage.

STATEMENT OF SANTIAGO POLANCO-ABREU, RESIDENT COMMISSIONER OF

PUERTO RICO

Mr. Chairman and Members of the Committee, I am pleased to have been offered an opportunity to submit testimony on H.R. 14000 and H.R. 14837, the Rural Electrification Amendments of 1966.

RURAL ELECTRIFICATION

At the outset, I would like to show what the Federal rural electrification program has meant to the Commonwealth of Puerto Rico. In 1941, the Government of Puerto Rico created, as part of its "Operation Bootstrap" economic development program, the Puerto Rico Water Resources Authority. This agency's chief function was the construction and operation of the Island's electric power system. It is discharging its duty well. Power lines now stretch throughout the Island, from the modern buildings of San Juan to the smallest homes in the remotest mountains, and the output of electrical energy on the Island has increased tremendously. This fine progress might not have been possible without the Federal assistance provided under the Rural Electrification Act. The Water Resources Authority in Puerto Rico has thus far borrowed from the R.E.A., $74,040,000 and, at this date, has had a loan approved for an additional $2,000,000. These figures demonstrate how integral the Federal program has been in bringing electrical power to rural dwellers in Puerto Rico. For the people of Puerto Rico, whose homes and shops are now lighted by the electrical energy thus provided, I extend warm thanks to the Committee for its instrumental role in developing and improving the rural electrification program throughout the years.

H.R. 14,000 and H.R. 14837 represent, to me, another progressive step by the Committee to insure the rapid electrification of rural areas by providing a ready source of needed Federal funds. Accordingly, the aims of these bills have my wholehearted support.

I would, however, like to point out a serious problem for Puerto Rico in H.R. 14837. To explain this problem, I take the liberty of quoting from a letter which I received from the Executive Director of the Puerto Rico Water Resources Authority:

*

"Section 410(a) of H.R. 14837 authorizes the Governor of the electric bank to make loans for the purpose of constructing, improving, and expanding electric generating plants and electric transmission and distribution lines or systems. The same section further on states as requisites to the obtaining of such loans the fact that these facilities be used in reciprocal power or energy arrangements between the borrower and one or more other electric suppliers. * * (line 21, page 17). These reciprocal power or energy arrangements between electrical systems have proven very useful in the United States, where they are commonly used. Although such limitative requirement will have no serious effect on the operations of R.E.A. borrowers located on Continental United States, it will, on the other hand, exclude P.R.W.R.A., as a potential borrower to finance the construction, improvement, expansion, acquisition, and operation of electric generating plants and electric transmission and distribution lines or systems for the only reason that we are the only system serving the Island.

"I think the limitative effect of this section could be neutralized by adding the words 'where possible' after the word 'utilized' in line 20, page 17, of H.R. 14837, so that it will read: '***, these facilities shall be utilized, where possible, in reciprocal power or energy arrangements between the borrower and one or more other electric suppliers and shall ***?"

I am confident that the Committee does not desire to exclude the Puerto Rico Water Resources Authority from the programs contemplated by these bills simply because it is the only electrical system on the Island.

In addition, I would like to say that, although the Puerto Rican Water Resources Authority has been one of the largest customers of the R.E.A., under Section 404 (c) of H.R. 14000, Puerto Rico is not included in any of the five areas from which members of the Bank Board are to be elected. If the Committee accepts the designation scheme of H.R. 14000, I hope it will see fit to include Puerto Rico in Area 2.

RURAL TELEPHONE PROVISIONS

My comments with respect to the telephone provisions will be directed primarily to Section 610 of H.R. 14000 and H.R. 14837, which outlines the lending power of the proposed telephone bank.

Both bills limit the authority of the Governor of the telephone bank to make loans by restricting the class of borrowers to "corporations which have received a loan or loan commitment pursuant to" Section 201 of the 1949 Act. The effect of this language, with respect to Puerto Rico, will be a continuation of the exclusion of the Puerto Rico Communications Authority from the Federal rural telephone program.

In 1942, the Government of Puerto Rico established the Communications Authority to improve and expand the telephone and telegraph systems throughout the Island. In 1953 this Authority was authorized by the Legislature of Puerto Rico to commence a rural telephone program to bring public pay-station telephone sets to all sectors of the rural areas. Over the last 13 years, the Legislature has appropriated $1,595,000 for this program and the Authority has established 466 telephone pay stations in the rural areas.

Taking into consideration its strict, financial limitations, the Authority has done a commendable job. But, as is obvious from the figures cited above, much work remains to be done. When it is realized that approximately 85 percent of Puerto Rico's 3,500 square miles is rural, and approximately 58 percent of Puerto Rico's 2.7 million citizens are rural inhabitants, the inadequacy of the present 466 telephones becomes manifest.

Recognizing the need to accelerate this program, last year the Authority investigated the possibility of a loan from the Rural Electrification Administration.

It was, however, informed that under provisions of Section 201 of the 1949 Act, the R.E.A. was precluded from loaning money to "public bodies." Although no such limitation applies to the electrification program, and although the statute is susceptible of a contrary interpretation, the R.E.A. believed that the legislative history of the 1949 Act clearly indicated a Congressional desire to exclude public bodies from telephone loans.

I have investigated the legislative history to determine the basis of this exclusion, which, at least in Puerto Rico, has the effect of entirely eliminating the Federal rural telephone program. It appears that the Senate of the 81st Congress amended the House-passed bill to delete a reference in the bill to "public bodies" in the list of those persons and agencies eligible to obtain loans. This action was agreed to by the House in conference and was explained on the Senate floor by Senators Hill and Holland. Those gentlemen stated that, with perhaps one exception, all telephone systems throughout the country were privately owned and, in the words of Senator Hill,

"We know that municipalities operate light and water service, but they have not gone into the telephone business, and I do not know why they should go into it, or why we should invite them to." (95 Cong. Rec. 13864)

I am sure that these gentlemen, at that time, did not realize that there was such a public body in the telephone business in existence in Puerto Rico. Nor do I think they would have disputed the fact that in an island as underdeveloped as Puerto Rico was in 1942, and as underdeveloped in most rural areas as Puerto Rico is in 1966, it is sometimes necessary to inject the authority, energy, and finances of the Government into what is normally the private sector of the economy.

I believe that it would be in accord with the purposes of the Federal rural telephone program to amend the 1949 Act and the bills before this Committee to authorize loans to the Communications Authority in Puerto Rico. The General Manager of this agency has written to me as follows:

"The basic policy contained in Public Law 423, 81st Congress, that adequate telephone service be made generally available in rural areas, is in perfect harmony with the basic policy of our rural telephone program. Our program is the only means by which telephone service can be provided to rural areas of Puerto Rico. It is reasonable to believe that this program could be accelerated considerably if R.E.A. loans can be used for its financing."

The Department of Commerce informs me that Puerto Rico is one of three areas in the United States where a public body runs a telephone system. One county in Nevada, and some municipalities in Alaska (which are excluded, anyhow, since they service non-rural areas), are the other two. Thus, Puerto Rico's

problem is essentially unique and it is my hope that this Committee will agree that the exclusion of Puerto Rico from the Federal rural telephone program should not be continued.

SUGGESTED TECHNICAL AMENDMENTS

Finally, I would like to suggest some technical amendments to H.R. 14000 and H.R. 14837, to correct what must have been oversights. Section 405 (g) of both bills refers only to "State" laws which do not authorize firms, associations, corporations and public bodies to acquire stock. This should be expanded to include the laws of the Commonwealth of Puerto Rico. Similarly, Section 410(b)(4) of H.R. 14837 requires the consent of "the State authority" having jurisdiction in the premises before a loan to build or improve a generating plant is approved, and Section 610(b) (4) of both bills requires a certification of convenience and necessity by "State" regulatory bodies.

The normal method of including the Commonwealth of Puerto Rico and the territories and possessions within the ambit of a bill is to include a definition of "State" or "United States," as the case may be, thus eliminating the need for repetitive, awkward, and obsolete territorial language. Such a definition could easily be added to the definition section in the basic Act.

I sincerely hope that my suggested amendments meet with the Committee's approval. I believe they are both necessary for Puerto Rico, and worthwhile for the Federal rural electricity and telephone programs.

STATEMENT OF THE HON. HAROLD T. (Bizz) JOHNSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

California's Second Congressional District which I represent offers recreation in some of the roughest and wildest country left in the United States. In the midst of this vacation land are mining and lumbering industries and some of the finest farming to be found anywhere.

Because some parts of the counties I represent are mountainous and the distances great, electric and telephone service was expensive and slow in reaching the more remote places. Full credit for closing the service gap for thousands of our people who live and work here must go to the people themselves and the Rural Electrification Administration.

The manager of one of these REA borrower systems in referring to the difficulties which his crew and the REA engineers had to overcome in bringing electricity, had this to say: "Sometimes I wonder how we ever built some of that pole line. We have places where construction costs run 3 to 5 times the national average. In some of the canyons where we have to run lines, the slopes are too steep for a man to walk."

The president of a telephone company which turned to REA financing describes the job this way: "We have 900 subscribers along lines strung out in an area nearly as big as the state of Connecticut. This is about the roughest terrain you can imagine. These mountain ridges run up around 7,000 feet, and the winter snows pack to 15 or 20 feet on the slopes where some of our lines are located. There have been times when our maintenance crew had to dig down under the snow to find the pole tops. When the spring thaws come, we are plagued with slides that damage the pole lines." REA financing made it possible for this company to convert all of its toll operations to microwave, giving subscribers more dependable service, without the costly construction and maintenance of pole lines.

Plumas-Sierra Rural Electric Cooperative brought power to more than 20 communities scattered across 2,000 square miles in the early years of the rural electrification program. The 2,000 consumers on the lines of this cooperative live so far apart that they average only 21⁄2 to a mile of line-in contrast to more than 38 consumers per mile of line for the commercial power companies in California.

These rural electric and rural telephone systems which have breached the beautiful and rugged terrain in many parts of my District stand as fine examples of what the REA-financed rural electric and rural telephone programs have done to bring these utility services to even the most remote areas. They also are a

reason why these systems dotting the countryside of America must be recognized and preserved as permanent segments of the great electric and telephone industries.

Norman M. Clapp, the Administrator of REA, has said that these systems, in order to carry out the commitments to the people of rural America, will need $11 billion of new capital in the next 15 years-$8 billion for rural electrification and $3 billion for rural telephone service. This is more than double the loan authorizations approved by the Congress for the REA programs during the past 15 years.

A good question to ask is: "Where is this money coming from?"

As a result of lengthy studies by the Department of Agriculture, by REA, and by the REA borrowers themselves and by their associations an answer has been found. It is supplemental financing-financing that supplements the 2 percent loan program now available under the Rural Electrification Act. Such proposed legislation is now before this Committee.

President Johnson paved the way last fall in messages sent to regional meetings of the rural electric borrowers. He said: "it is reasonable to expect that your requirements for new capital in the years ahead will exceed the amounts that can be provided through the traditional REA loan program . . . I also believe the government, as part of its responsiblity in this partnership that has developed the rural electrification program must continue to work with you to develop and implement your plans for the future . . . I am confident that you, the Administration and the Congress, will be able to develop a sensible financing program which will provide you with the opportunity to expand with the rest of the economy."

Secretary of Agriculture Orville L. Freeman in testifying before this Committee said "this is a plan that looks toward the future. It will enable REA and its borrowers to go forward as full participants in the growth of the electric and telephone industries and our economy. The plan will permit more rural electrification, and more rural telephony, at less expense to the taxpayer."

The Secretary declared that "as important as this bill is to the rural electric and telephone systems which look to REA for financing, it is even more important to our continuing efforts to strengthen and rebuild rural America, and to remove some of the causes of poverty in many of these areas."

I agree wholeheartedly with the Secretary.

REA has come a long way in the 31 years since Franklin Delano Roosevelt established it by signing his name to Executive Order 7037 on May 11, 1935. Thirty years have now elapsed since the Congress enacted what has been characterized as one of the most important pieces of domestic legislation ever placed on the Nation's statute books, the Rural Electrification Act of May 20, 1936.

Today, virtually all of rural America is being served with central station electric service and four-fifths has telephone service, most of it modern automatic dial service.

There are some who cite these figures and say the job of the REA has been accomplished. This is not so.

The success of the rural electrification program in bringing the percentage of our electrified farms up from 11 percent at the beginning of 1935 to almost 99 percent today has created new needs and new challenges. The rural electric systems, financed by REA, face continued persistent demands for service from new consumers and increasing demands for energy from existing consumers. Sales of electricity on REA-financed systems have more than doubled in the last 10 years. If this pace continues, energy requirements on these systems in 1981 will be more than double what it is in 1966.

The rural telephone program, initiated 15 years after the electric, has similar needs and challenges. There remains ahead the most difficult job of reaching the 20 percent of our rural establishments which do not have any telephone service, of modernizing service to those who are still having to use outmoded, inadequate multiparty nonautomatic telephone service, and of up-grading existing service to rural subscribers served by REA-financed systems. The average rural subscriber on an REA-financed telephone system is making three times as many calls as he did when he first obtained dial service. The demand for single-party rural service continues to increase.

In the dynamic growing economy of our Nation, with its constantly increasing population and upgrading of its standard of living, the rural electric systems

and the rural telephone systems cannot remain static. They must make heavy capital investments to meet service demands and to upgrade service. The job becomes more difficult and more costly as times goes on.

The basic objectives of the REA programs are today, as they were when the Rural Electrification Act was enacted in 1936, and amended in 1949 to include telephone service, the furnishing of electric and telephone service to rural America on an area coverage basis, at costs and of a quality comparable to that available in neighboring urban communities, by systems that are financially secure and assured of their ability to meet the service demands of tomorrow as well as those of today.

Existing statutory authorities have thus far served these objectives admirably. However, these systems will require large amounts of new loan capital between now and the 1980's if they are to continue to serve the needs of rural America. We in the Congress recognize that the increasing demands on the Federal budget to finance defense and the educational, health, and other needs of our expanding population make it unlikely that increased capital needs of these rural electric and rural telephone systems can be met fully through direct loans provided entirely in the Federal budget. It is necessary therefore to find some means of enlisting capital for rural electrification and rural telephone loans outside the Federal budget.

The Administration's proposed supplemental financing plan, like related bills which have been introduced, are designed to help the systems become strong enough so that they can ultimately stand on their own feet without special financial assistance. More specifically, the supplemental financing plans call for a ladder of credit which graduate the borrowers from their present almost complete dependence on 2 percent loans from REA to an intermediate rate and on to a full market rate-all without threat or jeopardy to the honored objectives of the REA and the systems it finances.

I, as a long time friend of the REA programs, have every confidence that the legislation before the Congress would effectively serve the purpose for which it was designed-the provision of assured and viable sources of financing for the REA programs, supplemental to the existing source, from banks that will ultimately be owned and controlled by their borrowers.

Therefore I respectfully urge this Committee to support the proposals now under review by it. Passage at this session of legislation authorizing a supplemental financing plan would give the rural electric and rural telephone systems the tools they need to continue their efforts to build a better Rural America and, yes, a better America for all Americans.

STATEMENT OF HON. PHILIP H. HOFF, GOVERNOR OF THE STATE OF VERMONT Mr. Chairman, I appreciate this opportunity to express to the Committee my strong support of legislation before it to create a Federal Bank for Rural Electric Systems, as contained in the Poage, Mills, and Schisler bills.

The rural electric program was created by Congress 30 years ago with the hope that it would do a job which no one else had been willing to do. In this it has succeeded magnificently. We in Vermont feel a special kinship with REA activities because of the early leadership of Vermont's Senator George D. Aiken. REA has been, in my opinion, perhaps the most successful agricultural program ever created by any government, both in terms of the achievement of its social objective and the integrity of loan repayments, which are virtually 100% perfect. Some detractors of rural electrification argue that since it has been so successful, its job must be over and it can be phased out. I know, and I am sure this Committee knows, that this is far from the truth for people-rural, as well as urban people-continue to demand more electricity year after year from their power suppliers. This is a demand of which we should all be proud, however; in large measure it reflects the technological progress of our civilization.

Rural electric systems can no more fail their consumers in supplying this indispensable element of modern life than can investor-owned or municipallyowned electric systems. Today, with rural electric loads doubling every ten years, or faster, these systems continue to need increasing amounts of growth capital.

Three rural electric companies in Vermont, through thir national association, have supported the Poage, Mills, and Schisler legislation as the best means of