including Federal Land Bank loans on our farm. I sincerely hope it will be possible to follow the basic pattern of the Farm Land Bank System in meeting the future capital needs of the rural electric cooperatives.

During the years I was Administrator of the Rural Electrification Administration, the Congress provided the loan funds which made possible the great post-war expansion of rural electric service under the REA program. The entire Nation has profited from this wise Congressional action, because it was an important factor in making Rural America more productive, more efficient and a much better place to live. In addition, it has given rural people an opportunity to demonstrate that they have the ability to successfully operate their own electric systems and repay their financial obligations in the time agreed. They have been able to do this even in sparsely-settled areas where the commercial power companies said such enterprises would fail.

As we now face the rapidly increasing need for more capacity by the rural electric systems and the resulting increased need for more funds than ever before, I am sure the Congress will again demonstrate its wisdom by authorizing a program of supplemental financing for the REA-financed systems.

STATEMENT OF CLARENCE WELANDER, PRESIDENT, NORTH DAKOTA ASSOCIATION OF RURAL ELECTRIC COOPERATIVES

Mr. Chairman, on behalf of the member cooperatives of the North Dakota Association of Rural Electric Cooperatives, and their more than 55,000 consumerowners, I want to thank you for this privilege of filing a statement with your committee.

We are in the middle of the planting season out in North Dakota, or our organization would have been present to give this statement.

Mr. Chairman, I have been advised that the private power companies, including one from my own state, will testify in force against the legislation you are now considering. This, I believe, is completely consistent with the investorowned utilities, who have annually testified against any matters pertaining to the rural electrification program. I can only conclude that, contrary to their efforts at the local level to convince people they are friendly to rural electric cooperatives, the private power monopoly's continuing purpose is to totally destroy not only all vistige of competition in the power industry, but to materially destroy and eradicate rural electric cooperatives.

Mr. Chairman, you and your committee have always been responsive to the needs and understanding of the problems of rural electrics. There is no need to dwell on burdens that these consumer-owned organizations still carry, in their efforts to provide modern, dependable, low-cost electricity in areas of sparse population.

However, in the case of North Dakota, there are some special burdens that rural electric cooperatives are forced to bear. Chief among these is the fact that the average density in North Dakota is just 1.3 consumers per mile of line. Several of our cooperatives have a density of less than one per mile, and none of them enjoy a density of more than 21⁄2 consumers per mile of line.

This, then, is the main reason why North Dakota rural electric members, along with South Dakota and other sparsely-populated Midwest states in our region, have appeared so adamantly opposed to any changes in financing for rural electric cooperatives.

We feel out in North Dakota that nowhere in the nation are the original provisions of the Rural Electrification Act still as necessary today to continuance of our assignment as they were when REA was created. In fact, the continued availability of two percent, 35-year loans through Congressional appropriations may be even more necessary today than they were when REA came to the prairies. I say this because out in North Dakota we have lost farmers-and we continue to lose farm families, at the alarming rate of more than a thousand per year.

North Dakota has made only minor strides at luring any industrial plants which, if located in rural areas, could tend to offset this loss in electric consumers. The problem of mushrooming suburbs is not one with which we are acquainted in North Dakota. Our largest city is less than 50,000 people, and the 10th largest city in the state has only about 7,000 people. So there is no significant population shift into suburban areas in our state, and no resultant residential development in rural areas which could replace the loss of displaced farmers and the electrical services they required.

Every cooperative in North Dakota has hundreds of vacant farmsteads, where the investment in lines, poles, transformers and associated equipment was once made by a rural electric cooperative. There is no revenue from these empty farms.

It is true that our farms are bigger and more productive than they were 20 years ago. But there are fewer of them. Farmers, fortunately, consume more and more electricity as they become more technical, more specialized, more productive, so we are in a situation of growing power needs, even though there are fewer people to serve, with more miles between farmsteads. We are far from completing, in North Dakota, the job we undertook through a firm partnership with the Federal Government.

We believe we have fulfilled the covenants of that partnership out in North Dakota. We have provided area coverage under the most severe handicaps. We have provided dependable, low-cost electrical service, although it is still too costly. And we have repaid our loans without fail to the Treasury.

It is for these reasons, and more, that the membership of our Statewide Association, at their March 23-25 semi-annual meeting in Dickinson, North Dakota, this spring, unanimously adopted a resolution which does not permit this association to support any legislation which would jeopardize or alter the traditional two per cent, 35-year loans which we need to continue the job.

That resolution clearly mandates the officers of our association to support the traditional two per cent, 35-year loan program in order to meet the objectives of rural electrification.

There has been no change in the position of our membership since March. Two per cent loans, over a 35-year period, remain the only kind of financing we can live with in North Dakota.

Our Congressional delegation is aware of this position, and, to the man, they are in accord with our stand.

I would be less than honest to the people I represent if I gave any indication to you, Mr. Chairman, and your committee, that we could endorse or support new legislation which, in any way, would tend to jeopardize the financial security of our member-owned businesses.

Thank you again for the opportunity to file this statement.

STATEMENT of Arthur JAMIESON, NEW YORK STATE RURAL ELECTRIC COOPERATIVE

ASSOCIATION

My name is Arthur Jamieson. I am Manager of the Otsego Electric Cooperative, Inc., Hartwick, N.Y., and a Director of the National Rural Electric Cooperative Association, Washington, D.C. New York State's rural electric cooperatives distribute power in some of the most productive dairy farming counties in the state, as well as some of the most active resort areas. We have become significantly important in the business communities of the areas which we

serve.

Some of the cooperatives could soon, and perhaps immediately, undertake loans from the proposed Federal Bank for Rural Electric Cooperatives as it would be established under all of the subject bills. The Poage-Mills bills provide for an intermediate interest rate of 3%. Our cooperatives could more quickly begin to borrow a portion of our needs at this level than would be possible under the 4% interest rate proposed in H.R. 14837. Other New York cooperatives could begin to borrow money from the Federal Bank in relatively few years, but again the actual time elapse would depend upon the interest rate as it is finally established and passed. One cooperative might require the use of regular REA 2% loans for a considerable period of years. All of the cooperatives in New York are in favor of the supplementary financing proposals provided for in all of these three bills, but we respectfully point out that the benefits to be expected, such as a reduction in the amounts of money that the Congress would need to appropriate for loans under the Rural Electrification Administration, are directly proportional to the rapidity that the cooperatives are able to begin borrowings from the supplementary sources. The higher the interest rate, the longer will be the period of transition.

The Cooley Bill, H.R. 14837, provides for original funding of the Federal Bank for Rural Electric Cooperatives over a 15-year period to the amount of $750,000,000. The Poage-Mills bills provide for funding to one billion dollars over a shorter period of time. It appears that the original funding might better

be in the larger amount since all of the bills provide for eventual relief of all financial burden to the United States Government. A one billion funding would provide a more substantial basis for the expansion of the bank's lending ability through the sale of electric debentures. In our opinion, the larger funding would more adequately meet the future requirements of the rural electric cooperatives.

At this hearing, and during the period this legislation is before the Congress, it is expected that the investor owned utilities will launch a carefully planned and well financed offensive towards the defeat of the subject legislation. The reasons for this attack should be made plain. Rural electric cooperatives have always had to borrow money under severe economic handicaps compared to the ease and low cost at which investor owned utilities can secure money. For an illustration, consider the flow of money which an electric cooperative must have over the term of a loan, and the comparative flow of money an investor owned utility must produce over an equal amount borrowed for the same term period. For simplification, a loan of $3,500.00 borrowed for a term of 35 years will be used. The size of the loan is unimportant since the same comparison can be made on any loaned amount. The interest amounts are figured on a yearly basis instead of a daily basis, and on REA loans, the illustration treats deferred interest as current interest, both for purposes of simplification. The effect on total money required to finance the loan is small, and the comparison is no less valid.

A rural electric cooperative presently must pay 2% interest. On $3,500 the cooperative must produce $1,260 to pay the interest charges over the life of the loan. In addition, the cooperative must completely repay the principal of the loan over the term period. This will, of course, amount to $100 per year for 35 years to a total of $3,500. The total flow of money the cooperative must have over the 35 years of the term to borrow $3,500 amounts to $4,760. New money needed during the loan period or at the end of it must be borrowed in new loans at the same terms.

An investor owned utility will borrow at differing interest rates depending on the amount borrowed, the time at which it is borrowed, the degree of accessibility to large capital sources determined by the influence the particular utility is able to exert, and by other factors. Investor owned utilities have borrowed in the past and to the present time at rates which vary from 1% to 4%%. Current rates run from 4% to 5%. For purposes of the illustration, 4% will be used which is considerably higher than any utility actually has at this time as an average cost of money for its total long term debt. Therefore, the investor owned utility will need to produce twice as much for interest as the cooperative on the $3,500 loan, an amount of $2,520. The terms of virtually all utility loans do not call for specific principal repayments: instead, the loan terms provide that the utility must meet the sinking fund requirements of that particular loan. However, the sinking fund terms rarely require that more than 1% of the principal be retired over the loan period, and are usually even lower than that. For illustration purposes, the high requirement level, % of the principal, will be used. Reference to any annual report of an IOU will amply demonstate the percentage of principal retirement in the long term debt schedule. Using the sinking fund provision, then, an investor owned utility must repay, on a $3,500 loan, an amount of $33.33 per year to a total over 35 years, or slightly over $1,166. Thus the total flow of money to the investor owned utility over the loan period on $3,500 amounts to $3,686. This is $1,074 less than the cooperative had to produce for the same loan. At the end of the loan term, the utility will either refinance the balance of principal left, or secure a new loan for the balance of the principal plus new capital requirements, and thus pay off the matured loan.

The investor owned utilities are as fully aware of the economies of their Permanent Debt Financing over REA financing as we are. They are also aware that the average American citizen, as an individual, thinks within the framework that borrowed capital must invariably be fully repaid. Therefore, the utilities have been able to use as propaganda the fact that the interest rate they must pay is much higher than cooperatives must pay, without ever having to defend the fact that they do not have to repay total principal over the term of the loan, or that their total required flow of money for a given borrowing is much less than that of a cooperative. While happily and publicly protesting that the cooperatives are able to secure "cheap money" and because of it are "unfair competition", they have pressed the Congress to reduce REA appropriations and to

more severely limit the uses to which REA loans can be put. REA loans have been a perfect propaganda weapon for the investor owned utilities, while providing at the same time a wonderful way to contain and control the amounts of money available to the cooperatives.

Now that legislation is before the Congress to provide supplementary sources of funds for cooperatives, it can be expected that the investor owned utilities will institute a campaign against the legislation to dwarf any effort seen for many years; massive, destructive, vituperative and completely determined. The reasons are obvious. This new source of funds would be beyond their influence as to size and scope. Certain restrictions under which the cooperatives have been handicapped for years will be lost. Some of the utilities' prize propaganda material will be lost or at least dulled. The funds available will not be government moneys raised by annual Congressional appropriation and thus subject to the utilities' powerful influence as to size. Not the least in their fears, although they may not be able to say so, will be the possibility that the supplementary fund bank could eventually be the means by which cooperatives could attain to a form of permanent debt financing similar to that they use themselves.

CONCLUSION

Mr. Chairman and Members of the House Agriculture Committee, we in New York who are associated with the rural electric cooperatives hope most sincerely that you will report favorably on a bill to establish a supplementary source of funds for electric cooperatives, and that you will then do everything possible to expedite the passage of the bill through the Congress.

STATEMENT OF EVERETT WILLARD, MASTER OF THE STATE GRANGE OF VERMONT Mr. Chairman, in behalf of the members of our Organization, I would like to go on record in support of the legislation before your Committee to create a Federal Bank for the rural electric cooperatives.

The job of rural electrification is not completed as many would make you believe. Only a few years ago the farms and rural people had lights, milk coolers and a milking machine. Maybe the farm wife was lucky to have an electric washing machine and a refrigerator. At present the farms have become an efficient operation, using thousands of kilowatt hours per month to substitute for labor which is impossible to get and to improve food handling and milk storage efficiency. It must be obvious where a farm was using only 50 to 100 kilowatt hours a month and is now using thousands of kilowatt hours a month, that the cooperatives' lines must be continually strengthened, bigger transformers installed and service wires to provide an adequate flow of power at a good voltage level.

I feel that this proposed legislation will supply the marginal rural electrics with the funds to continue to improve their services and the proposed bank will allow ultimately, the stronger rural electrics to be completely clear of Federal financing.

We believe that this is a very important step in the right direction. We sincerely hope that your Committee will report the proposed bills favorably so that the valuable work of the rural electric cooperatives can continue with adequate financing.

Hon. RALPH J. RIVERS,
House Office Building,

Washington, D.C.

FELTON & TENNY, Kodiak, Alaska, May 20, 1966.

DEAR REPRESENTATIVE RIVERS: Please be advised that I am in favor of legislation supporting the National Rural Electric Cooperative Association's Supplemental Financing Plan and I urge you to assist in obtaining a prompt hearing on the bills introduced.

The immediate release of loan funds to this organization is necessary for efficient operation of rural electric systems on the local level.

I would appreciate your attention on this matter.

Very truly yours,

HARRY FELTON, Owner.

MATANUSKA ELECTRIC ASSOCIATION, INC.,
Palmer, Alaska, May 20, 1966.

Hon. RALPH J. RIVERS,

U.S. House of Representatives,
New House Office Building,
Washington, D.C.

DEAR RALPH: The provisions of the three house bills which deal with supplemental financing for the REA program have been discussed with the Board of Directors of Matanuska Electric Association, Inc., and I will outline the thoughts which are pertinent. I refer to H.R. 14000, introduced by Congressman W. R. Poage of Texas, and H.R. 14048, introduced by Congressman Wilbur Mills of Arkansas, which are apparently identical, and are endorsed fully by the National Rural Electric Cooperative Association, of which MEA is a member. The third bill is H.R. 14837, introduced by Congressman Cooley, of North Carolina, which is endorsed by the Administration.

The three bills are a great deal similar in many ways, but do differ in a few essentials, which seem important to MEA. I will cite below the sections of H.R. 14000 and H.R. 14837 which contain such differences:

Title III-Section 303 of both bills. H.R. 14837 contains no provision for interest to be paid by the Treasury on bank funds on deposit, H.R. 14000 calls for 2%, and specifies that it shall be applied to interest due on loans made to the Administrator. This bank will be capitalized at some amount equal to or exceeding $750,000,000, which seems to us to indicate that the provision in H.R. 14000 might be quite important.

Section 302(5) in H.R. 14000 provides for payment from the funds of the bank for any difference between the interest earned from intermediate 3% loans, and the interest earned by bank debentures. This appears to MEA to be a desirable feature. The provision for intermediate loans in H.R. 14837 would probably carry an interest rate of 4%, as written, and we think that this would largely kill the effectiveness of the intermediate loan program.

Title IV-Section 403 of H.R. 14000 provides that the Governor of the bank would be the Administrator of REA, as long as the majority of stock was owned by the United States, and after the majority shifted into private hands, the Governor would be elected by the Board of Directors. Section 404 of H.R. 14837 would provide that the REA Administrator would always be the Governor of the Bank. This does not seem like a good provision to MEA The position of Governor is a strong one, and we do not feel that after the majority ownership of stock passes to private hands, that a federal official should necessarily be retained as Governor. Certainly at such time as full ownership resides in private hands, it would not be advisable. An official of an unfriendly administraiton could work havoc to the program in such a position of power, and with such a powerful instrument as this bank will be.

Section 404 of H.R. 14000 and Section 403 of H.R. 14837 cover the subject of the Board of Directors. In H.R. 14000 the Secretary of Agriculture would be required to designate one employee of the Department of Agriculture, and the other Department members would be specified, and top flight men. In H.R. 14837 the Secretary would specify all federal members of the board, and in our opinion this could result in a relatively low caliber of director being appointed to this highly important job. We feel that the provisions of H.R. 14000 should be retained, since the very stature of the bank itself is at stake. In H.R. 14837 the Secretary would, in the formation of the Board, be responsible for choosing the members from the rural electric systems. No criteria is set which would actually require a fair representation across the country, as is the case in H.R. 14000, and here again we strongly favor the latter bill.

Section 405 of H.R. 14000 sets a limit of $1,000,000,000 as opposed to $750,000,000 in H.R. 14837. It is clear at this time that the yearly need for total financing is approaching $700,000,000, and it appears that the $1,000,000,000 figure would therefore be more realistic, in the NRECA bill.

Section 410 of H.R. 14837 seems to indicate that loans from the bank could only be made to corporations which had received Section 4 loans. This would appear to MEA to limit the availability of funds to newly formed cooperatives or other legally qualified borrowers which might be newly incorporated, and might never have been extended Section 4 loans. There could even conceivably be such corporations which might have applied for Section 4 loans, but which had never either received such a loan, or a commitment for one. There are