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organizations out there, but these people refuse, with the exception of the Omaha Public Power District, to bargain with our people.

Now, they will bargain with you individually, but collectively; no. Mr. OLSON. Let me say that I am not interested in going beyond the REA's. You say that you cannot-you do not have the same right and opportunity to organize the REA's as you do the private utilities? Mr. CONNLEY. We have REC's in the State of Iowa that are organized. But the problem here is that this new system of power that is being set up in the State of Iowa comes from three parts. We have the Bureau of Reclamation, we have contracts with them.

Mr. OLSON. But, sir, I respectfully say that I want to stay on the subject, and I don't want to get involved in the public power districts or the Bureau of Reclamation or any governmental entity, but I want to stay strictly on the REA's with which this legislation deals. Is there a difference in your opportunities to bargain with the REA's in exactly the same manner as you have with the public utilities?

Mr. CONNLEY. Yes, sir, I believe there is. I couldn't quote the law, I wouldn't read it to you, but

Mr. OLSON. Would you furnish it for the committee?

Mr. CONNLEY. Yes, I will.

Mr. OLSON. Thank you.

The CHAIRMAN. There is no reason why they couldn't have an election in the REA plant. They might have some trouble in one of these 8,500 municipal plants, the city ordinance would prevent organized labor with its city employees. But aren't there some organized REA's in the country?

Mr. CONNLEY. Yes, we have some in Iowa.

The CHAIRMAN. Then what are you complaining about? You have a right to organize them if you can organize them.

Mr. CONNLEY. What we are complaining about, sir, is that this new power system-we have no complaint, as we stated before about the REC's. We are not here complaining about the 2-percent money that the REC's contain. What we are saying, as this new system is set up which this bank would allow, this is what we are concerned about. Now, under this system that the bank would allow, as we see it, the areas where the municipals are can come in and join with the REC's and the Bureau and set up a public power district.

Now, we have a cooperative in the State of Iowa known as the Corn Belt. This is an affiliation of several cooperatives in the State. Now, just recently we had 14 municipals that affiliated wih Corn Belt. So now we have a situation where we have an affiliation of municipals and cooperatives in one group.

Now, it would be impossible to go in and organize these municipals. These in turn are getting power, bargaining with the Bureau. And this is the situation that is developing.

The CHAIRMAN. We appreciate your statement very much. And we are very glad to have you. But we must accommodate some other people. Thank you very much.

I recognize now a very distinguished Member of Congress and former distinguished member of this committee, Mr. Ben Reifel, of South Dakota.

STATEMENT OF HON. BEN REIFEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH DAKOTA

Mr. REIFEL. Mr. Chairman and members of the committee, first I want to express my appreciation for letting us come ahead of schedule. We were scheduled to be with you tomorrow. But these gentlemen have come in from South Dakota and want to get back there as soon as they can. We certainly do appreciate your giving us this opportunity.

The CHAIRMAN. We will be very glad to hear you, sir.

Mr. REIFEL. It is a special pleasure for me to come before this distinguished committee, first for the reason that it was my privilege to serve on this committee during the 87th Congress, and, second, because I have had the honor to introduce to you two distinguished leaders of REA cooperatives in my State.

I do have two apprehensions, after listening to 2 days of testimony, with respect to the supplemental financing with regard to REA's.

One is a fear that after the bank is set up it is going to be a little more difficult for Members of the Congress to vote 2-percent funds. There will be a tendency to say that you have a bank to fund REA programs; and second, if the electric bank is set up and established, the possibility of administering it in such a manner as to make it difficult for those cooperatives in the State of South Dakota where we have a density of about one and a half per mile, and the lowinterest loans.

I will leave the discussion of that to the two witnesses that I will introduce.

These two gentlemen can speak much more knowledgeably than I as to the impact of this legislation in low-density areas such as in the Dakotas. They are not necessarily opposed to the idea of supplemental financing at higher interest rates for those co-ops who feel that they can live with this arrangement. Of more concern to them is the necessity that co-ops in our part of the country in particular, where they have an average of only one and a half consumers per mile of line, where they have an average cooperative income of less than $300 per year per mile of line, where we are losing an average of 1,100 farm families every year, should have a dependable source of 1-percent money with the loan criteria spelled out.

They do not feel, nor do I, that we should lodge this amount of power in the director of the electric bank.

Now, these two gentlemen are Mr. Arthur Jones, president of the Basin Electric Cooperative, Bismarck, N. Dak., who is a resident of Briton, S. Dak., and he will also speak for Mr. Virgil Hanlon, who is not able to be here, and he will represent him as far as the East River Electric Co-op is concerned.

The one who will speak first will be Mr. Virgil Herriott, manager of the Sioux Valley Empire Electric Association of Colman, S. Dak., a distribution cooperative.

Also present are Mr. Dale Gibbs, manager of the South Dakota Rural Electric Association, and three members of the board of the Sioux Valley Empire Electric Association.

Mr. Gibbs, representing the South Dakota Rural Electric Association, had their statement placed in the record yesterday.

So with that, Mr. Chairman, I will ask you to call on Mr. Herriott.

(The prepared statement of Mr. Reifel follows:)

STATEMENT OF HON. BEN REIFEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH DAKOTA

Mr. Chairman and members of the committee, it is a special pleasure for me to come before this distinguished committee, first for the reason that it was my privilege to serve on this committee during the 87th Congress, and, secondly, because I have the honor to introduce to you two distinguished leaders of REA cooperatives in my state.

After listening to the two days of testimony that have preceded this hearing, I personally hold two major apprehensions concerning the various plans for supplemental REA financing.

First, I fear that once this bank is set up, Congress will be extremely reluctant to vote a sufficient amount of two per cent loan funds to serve those co-ops which continue to have a definite need for low-interest loan funds, I make that statement as a member of the House Committee on Appropriations. Members will ask: Why should we continue to appropriate two per cent loan funds at the same level when we have set up this bank to finance REA needs?

Furthermore, there will be a strong temptation for any administration to reduce sharply its budget requests for two per cent REA loan funds. This would be a most handy place to trim the federal budget to make it look better. Members of Congress are painfully aware of our recent experience regarding budget requests for such established programs as school lunch and school milk, soil conservation and land-grant college programs. And we all know of instances in which REA funds appropriated by Congress are not released by the Administration.

Secondly, I fear the Electric Bank itself established by this legislation would add to the pressures to do away with two per cent loans to the end that the largest possible number of co-ops would obtain their financing through the bank. This, in turn, would hasten the day when the bank would be on its own without the fetters of government supervision or other restrictions.

The result could well be increased costs for electric service on the part of REA consumers in my state. This, in turn, would largely nullify the benefits of low-cost Missouri River hydroelectric power. Low-cost power was intended to be a major benefit of the hundreds of millions of dollars spent on Missouri River development.

The two gentlemen I am about to introduce can speak much more knowledgeably than I as to the impact of this legislation in low-density areas such as in the Dakotas. They are not necessarily opposed to the idea of supplemental financing at higher interest rates for those co-ops who feel they can live with that arrangement. Of more concern to them is the necessity that co-ops in our part of the country in particular, where we have an average of only 1.5 consumers per mile of line, where we have average cooperative income of less than $300 per year per mile of line, where we are losing an average of 1,100 farm families every year, should have a dependable source of two per cent money with the loan criteria spelled out.

They do not feel, nor do I, that we should lodge this amount of power in the director of the Electric Bank.

They are Mr. Art Jones, President of Basin Electric Cooperative of Bismarck, North Dakota, who is a resident of Britton, South Dakota, and Mr. Virgil Herriott, Manager of Sioux Valley Empire Electric Association of Colman, South Dakota, a distribution cooperative. Also present are Mr. Dail Gibbs, manager of the South Dakota Rural Electric Association; Mr. Harlan Severson of East River Electric Association; and three members of the board of the Sioux Valley Empire Electric Association.

I thank the Committee.

The CHAIRMAN. We will be glad to hear you, Mr. Herriott.

STATEMENT OF VIRGIL H. HERRIOTT, GENERAL MANAGER, SIOUX VALLEY EMPIRE ELECTRIC ASSOCIATION, COLMAN, S. DAK.

Mr. HERRIOTT. Thank you, Mr. Chairman and members of the committee.

Our cooperative is one of those referred to by Mr. Jerry Anderson of NRECA as not having endorsed any of the bills to provide supplemental financing which are before you now. We are members of NRECA and we have and do support the idea that a plan to introduce supplemental sources of financing is desirable. We have not endorsed any of these bills for the following reasons:

1. We are fearful that the very existence of a Federal bank for rural electric systems will tend to dry up the amount of 2-percent funds made available regardless of need.

2. We are fearful that higher cost money will require that our electric rates be increased, thus increasing the costs to our farmer-members on another front.

Our cooperative has approximately 8,000 services in eastern South Dakota, bordering Minnesota and touching the northeast corner of Iowa. Over 5,000 of these services are to farmsteads including the residence. Many others are to pasture pumps and other small-use locations. We are still a cooperative serving predominately farms even though we serve some small rural towns, some lake cottage areas, and some small slow-growing suburban areas. Sioux Valley Electric has over 3,500 miles of line throughout a 3,000-square-mile area. Our overall density is 2.3 services per mile of line. This is better than average for the State of South Dakota, where one co-op has a density of less than one per mile.

We diligently strive to make high-quality service available on an area-coverage basis in accordance with the terms of our loan contract with the Federal Government. We are losing farms at a rapid rate and reliable predictions state that we should expect to see one-third of these remaining now to be gone within 15 years.

The growth in the use of power has been rapid, doubling every 7 to 8 years, so we must continually increase our system capacity by purchasing and installing larger transformers, bigger wires, and such things. Our total need for new capital will double our present investment in the next 15 to 20 years. And this is only in the distribution system.

The multipurpose development of the Missouri River has provided some low-cost power, but we have already received all of that capacity that we can purchase. Ours is a region of high fuel costs and traditionally a power importing area, except for the Federal hydropower. The combination of low-density, high fuel costs, declining farm population, the need for growth capital, the price cost squeeze on our farmers all make us leary of any financing plan that proposes to lessen the successful partnership arrangement that has enabled our members to work with their Government in doing for themselves the job that the commercial utilities were unwilling to do-electrifying rural South Dakota.

We have some questions and some concerns about the operation of the Federal bank for rural electric systems proposed here. Perhaps

the most apprehension is about the "policies and criteria" that will be used in determining whether our cooperative will be forced into a higher interest rate loan program. With all our present handicaps, higher interest rates might be the difference between the job being well done or just being done.

We want to be sure that the "program objectives" are mutually understood and that the measurement of achievement will be realistic. For example, we believe strongly that low rates are necessary to achieve the high level of electric usage that permits low unit costs, thus enabling the low rates. The philosophy is different from the traditional philosophy that says rates will be reduced when the high level of use has been achieved and unit costs have been low. We therefore fear a criteria based on parity of rates that might increase interest costs before the high level of use has been achieved.

We also know of the changing power requirements of the farmers in our area today. Thirty years ago 110-volt, single-phase service was considered adequate service. Today it is not. You must now provide at least 200-volt, single-phase service. More and more farmers every year are needing three-phase service to efficiently apply electrical power to their stationary power needs.

We certainly hope that a parity of service criteria would recognize this need and not impose higher interest rates on the substantially higher investment required to provide area coverage three-phase service where its use is needed for most economical production application by the farmer.

We think there may be some co-ops who can meet "program objectives" while paying the higher interest rates and we don't want to deny them the opportunity, but we want to make it clear that we feel that higher interest rates will further complicate and make more difficult the job we are now struggling to do.

We are grateful for the support the Congress has given to us in the past and share their pride in the success thus far achieved. We hope you won't feel that the job is done or that success has been fully achieved by all, but that rather that you will clearly protect continual low-cost financing by suitable amendments, which will keep the supply of 2-percent funds from being dried up and not penalize cooperatives who have low rates by making them ineligible for 2-percent funds. Thank you for your time and consideration on this subject of mutual

concern.

Thank you.

The CHAIRMAN. Thank you very much.

Mr. POAGE. It seems to me that Mr. Herriott raised some questions that help us more than those that have been raised by anybody else. I think the first question that must be decided is, would the passage of legislation providing a supplemental system of financing tend to keep the appropriation committees from meeting the legitimate needs of the less opulent cooperatives?

Now, none of use are members of the Appropriations Committee, but Mr. Reifel is. And I think we might have his opinion on that.

Mr. REIFEL. My apprehension about this, as I said earlier, grows out of a feeling, as I talk to members not only of our committee but also of the House, that there are some who will vote for REA appro

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