ment provides the Cooperative with the necessary transmission at reasonable cost to deliver large amounts of power to our wholesale power cooperative membersthe G & T Cooperatives. At the same time, this arrangement makes use of existing Federal facilities and improves the payout of the Federal Missouri River Basin Project by about $34 million over the life of the contract. This improved payout has enhanced the feasibility of the much-needed Garrison Diversion Project in North Dakota, and other proposed irrigation projects in the Missouri Basin.

Because of the REA loan at 2% interest for our first unit, Basin Electric was able to build a large enough power generating plant to produce some of the lowest cost thermal power in the nation. As a result of region-wide sharing of the investment in a very large unit, the rural electric cooperatives were able to establish a low enough wholesale power rate to make it possible for them to retain the rates they had been able to establish with the advent of the Federal hydro program in the 1940's. In our sparsely settled part of the nation, wholesale power at reasonable cost is a crucial matter to the distribution cooperatives serving the region's farms. Whereas distribution systems were paying 12 to 17 mills per kilowatt hour for wholesale power before the Federal hydro electric program began, they were able to obtain wholesale power at 5 to 9 mills per kilowatt hour with the completion of the Federal dams. Basin Electric's rate is higher than that for Federal hydro, but it is low enough so that present retail rates will not have to be increased.

I wish to stress here the importance of wholesale power to the rural electric cooperatives. Although individual systems need to be partly rebuilt to provide more reliable service, or heavied up to provide power in greater amounts to the farms, the basic systems have been built to serve rural areas. The largest portion of new investment will have to go for power supply facilities if our member cooperatives are to assure themselves of long-term power supply at prices they can afford to pay. It is for this reason, that 106 rural electric cooperatives are joined together in Basin Electric to construct power generating facilities to provide bulk power supply.

Today, approximately 40% of the cost of service of our member distribution cooperatives is for wholesale power. As power use increases in future years, the cost of wholesale power may become 60% or more of the cost of service of the local distribution cooperative. The local cooperative's interest in their wholesale power supply is direct and vital. An increase in the interest rate on loans to build these generating facilities will be passed on in the cost of wholesale power. After years of working to bring down power costs, there is serious concern among the Basin Electric cooperatives that the supplemental financing proposals in their present form will create higher interest rates for all the rural systems and reverse the trend toward low cost power for our region.

It is because of the great importance of power supply to the Missouri Basin rural electric cooperatives that our Board of Directors instructed me to express to this Committee their concern about the possible effects of pending proposals for supplemental REA financing.

The rural electric cooperatives in Basin Electric believe that there has been little assurance to date that a multi-interest rate program will not result in the rapid disappearance of all two percent loan funds. Our national association-NRECA—and REA, have both indicated that about 75% of the rural electric cooperatives will continue to need two percent loan funds. We are especially certain that the cooperatives in the Missouri Basin need 2% loan funds in order to carry out an adequate program of rural electrification which will give area coverage with adequate electric service and keep rates down to provide the farmer with low cost energy for his farming.

We have grave fears that once a program with three different interest rates is created, two percent loan funds will dwindle to insignificance. It will be far too simple for an Administration to slight the 2% program by requesting inadequate funds, thus driving a rural electric system to the higher interest loan funds. Our fears, we think, were given substance during the recent requests for REA loan funds for Fiscal Year 1967. NRECA estimated that backlog and present loan fund requirements would require an appropriation of $612 million. REA Administrator Clapp, recommended $500 million. But the Administration's

budget requested a woefully inadequate $220 million. Such reductions would be even more easily rationalized under a multi-interest rate program unless Congress provides safeguards for the two per cent loan program.

We are aware of the practice of the Bureau of the Budget to impound critically needed REA loan funds already approved by Congress. The rural electric cooperatives of the Missouri Basin do not see any assurance in the present supplemental financing proposals which would prevent the Bureau of the Budget from impounding funds appropriated by Congress for the 2% loan program and thus forcing those cooperatives qualifying for 2% loans to the higher interest rate programs.

We are concerned about the intentions of the Administration when we read in Secretary of Agriculture Orville Freeman's letter of transmittal of the Administration's supplemental finance program that:

"The renewed emphasis on these activities (of achieving equalizers to offset the handicaps of rural electrification) in recent years has enabled a significant number of borrowers to develop the capability to accomplish program objectives and to pay a higher rate of interest on future borrowing than the present 2 percent rate.

"We hope and are committed to the furtherance of this trend through the strengthening of the systems in their growth and in their protection of the fruits of their growth so that more and more can move away from dependence upon the 2 percent financing. We are convinced that the way to Government economy in the REA programs is through the strengthening of these rural systems so that they will require less and less Government assistance."

And later in the letter the Secretary remarks that:

"This proposed financing plan would . . . provide a credit ladder by which borrowers can advance to paying the full market cost of money for their financing."

Rural electric directors in the Missouri Basin think these sentiments assume a far greater change in the rural economy than is taking place. I believe that what is being slighted are those social purposes for which the rural electrification program was created by Congress, and which have been served well by the nation's rural electric cooperative systems. We feel that the Administration, and proponents of other supplemental financing plans, are placing more emphasis on the equality of everyone using the same banking window than upon the equity we need to achieve in this country for the farmers who today are receiving only 82% of parity prices during an era of unprecedented boom.

Let me emphasize again, the question we raise here is whether the proposed programs in actuality will protect and maintain the two per cent loan program for rural electrification.

At the fifth annual meeting of Basin Electric Power Cooperative in November, 1965, representatives of our member cooperatives adopted a resolution which urged that a supplemental financing program for rural electrification meet three criteria if it were to meet the objectives of these systems:

"1. Such supplemental financing must afford an opportunity to achieve truly low cost power for rural electric members and result in the lowest possible retail rates.

"2. Such supplemental financing must make it possible for the rural electric cooperatives and their members to share the economy which results from large scale generation and transmission and the modern technology of producing and transmitting such power.

"3. Such supplemental financing must preserve the right of rural electrics to own and control their own generation and transmission cooperatives and provide adequate financing of these cooperatives."

A copy of the resolution is attached.

The delegates introduced this resolution of requirements for a supplemental financing plan with this statement:

"We believe that in this sparsely settled region there continues to be an essential need for 2 percent, 35 year loans from the Rural Electrification Administration in order to carry out the program of rural electrification.

"We ascribe to the position that the cooperatives ought to produce for their rural members the lowest cost power it is possible to generate and deliver. Onecent electricity for our member-owners should continue to be the goal of rural electric cooperatives."

Following the annual meeting of NRECA in February and the approval by about 85% of the membership of a resolution directing NRECA to seek passage of a supplemental financing plan, the Basin Electric Board of Directors formally adopted a position in regard to future financing. I have attached a complete copy of that statement and wish only to note here that although we would prefer the continuation of the 2% REA loan program in adequate amounts to meet the requirements of the Missouri Basin rural electrics, and others serving such sparsely settled regions, the prospect of a multi-interest rate program seemed to threaten the unity among the rural electric cooperatives and suggested to us that a single-interest rate program would be the wiser course, although that rate might be greater than 2%.

I mention this point because it accentuates the Missouri Basin cooperatives' desire to preserve a unified program based on the lowest possible interest rate in order to carry on rural electrification in a region where it is necessary to build a mile of line to serve less than two consumers or on the average, for Basin Electric members, one mile of distribution line for 1.7 consumers.

Our concern about the future of low cost financing is partly based upon the fact that not one member cooperative, that I know of, in the two Dakotas are not losing farms every year. A neighboring cooperative I have knowledge of, for example, has lost on an average about 50 services a year during the past several years. This cooperative has only .96 consumers per mile of line. To double the interest rate on such a rural electric cooperative either intentionally or because inadequate safeguards to 2% interest loans were not provided in the supplemental financing legislations-would be a cruel blow to the farmers in that area. America's farmers are expected to feed the nation. Today the farmers in the Missouri Basin are providing one of the most valuable exports we have-wheat-and yet receive only 82% parity for their products.

The question I mean to raise is not the survival of the rural electric cooperatives. The question is whether the legislation being considered today is going to result in an additional cost of farming. Without a doubt the local rural electric cooperative can pay the higher interest rates-it merely has to increase the rate it charges for electricity. It is the man at the end of the line, the farmer and rural resident, who will bear the cost of this increased interest cost. In the case of Basin Electric, we have conservatively calculated that should we be required to build our next generating unit with 4% funds rather than 2% loan funds, $17 million additional costs will have to be paid by the farmers of the Missouri Basin during the first ten years of unit operation alone.

It does not seem logical to us to promote such programs as rural areas development and stable food prices on the one hand and to propose to increase the cost of essential electric power to farmers on the other.

In conclusion Mr. Chairman, I respectfully, urge the members of the Committee to give full weight to the social values of rural electrification in their deliberations upon a plan for supplemental financing and to assure themselves that the legislation they approve will not mean taking away a vital equalizer for the rural people who have enjoyed a much smaller share of the nation's prosperity than most. Surely there can be some positive assurance to rural people that at the very time they are being asked to produce more food and fiber for their nation and the world, that the cost of farming is not going to be increased, because of increased interest costs on rural electric facilities. It is not a hand-out that the farmers of the Missouri Basin ask for, but a measure of equity in an economic system which has left the farmer with little bargaining power and a dwindling share in the nation's prosperity.

This need for equity has been recognized many times by Congress in a variety of legislative acts. We respectfully urge that in acting upon supplemental financing programs, Congress will provide adequate safeguards to preserve the low interest loan program so necessary to the majority of rural electric systems. Thank you for this opportunity to present our views to your Committee.

BASIN ELECTRIC MEMBERS

Central Power Electric Cooperative, Inc., Minot, North Dakota.
Baker Electric Cooperative, Cando, North Dakota.
Capital Electric Cooperative, Bismarck, North Dakota.
James Valley Electric Cooperative, Edgeley, North Dakota.
McLean Electric Cooperative, Garrison, North Dakota.
North Central Electric Cooperative, Bottineau, North Dakota.
R.S.R. Electric Cooperative, Milnor, North Dakota.

Tri-County Electric Cooperative, Carrington, North Dakota.
Verendrye Electric Cooperative, Velva, North Dakota.

East River Electric Power Cooperative, Inc., Madison, South Dakota.
Beadle Electric Cooperative, Inc., Huron, South Dakota.

Bon Homme-Yankton Electric Association, Tabor, South Dakota.
Charles Mix Electric Association, Lake Andes, South Dakota.
Clay-Union Electric Corporation, Vermillion, South Dakota.
Codington-Clark Electric Cooperative, Inc., Watertown, South Dakota.
Douglas Electric Cooperative, Inc., Armour, South Dakota.
H-D Electric Cooperative, Inc., Clear Lake, South Dakota.
Intercounty Electric Association, Inc., Mitchell, South Dakota.
Kingsbury Electric Cooperative, DeSmet, South Dakota.
Lake Region Electric Association, Inc., Webster, South Dakota.
Lincoln-Union Electric Company, Alcester, South Dakota.
Lyon-Lincoln Electric Cooperative, Inc., Tyler, Minnesota.
McCook Electric Cooperative, Inc., Salem, South Dakota.
Northern Electric Cooperative, Inc., Aberdeen, South Dakota.
Ree Electric Cooperative, Inc., Miller, South Dakota.

Sioux Valley Empire Electric Association, Colman, South Dakota.
Spink Electric Cooperative, Redfield, South Dakota.

Tri-County Electric Association, Inc., Plankington, South Dakota.
Turner Hutchinson Electric Cooperative, Marion, South Dakota.
Traverse Electric Cooperative, Inc., Wheaton, Minnesota.
Union County Electric Cooperative, Inc., Elk Point, South Dakota.
Whetstone Valley Electric Cooperative, Inc., Milbank, South Dakota.

L & O Power Cooperative, Rock Rapids, Iowa.

Lyon Rural Electric Cooperative, Rock Rapids, Iowa.

Osceola Electric Cooperative, Inc., Sibley, Iowa.

Southwestern Minnesota Cooperative Electric, Pipestone, Minnesota.

Northwest Iowa Power Cooperative, Le Mars, Iowa.

Cherokee County Rural Electric Cooperative, Cherokee, Iowa.
Harrison County Electric Cooperative, Woodbine, Iowa.
Ida County Rural Electric Cooperative, Ida Grove, Iowa.

Monona County Rural Cooperative, Onawa, Iowa.

Nishnabotna Valley Rural Electric Cooperative, Harlan, Iowa.
O'Brien County Rural Electric Cooperative, Primghar, Iowa.
Plymouth Electric Cooperative, Le Mars, Iowa.

Sioux Electric Cooperative Association, Orange City, Iowa.
South Crawford Rural Electric Cooperative, Denison, Iowa.
Woodbury Country Rural Electric Cooperative, Moville, Iowa.
Rushmore Electric Power Cooperative, Rapid City, South Dakota.
Black Hills Electric Cooperative, Inc., Custer, South Dakota.
Butte Electric Cooperative, Inc., Newell, South Dakota.
Lacreek Electric Association, Inc., Martin, South Dakota.
Tri-County Electric Association, Inc., Sundance, Wyoming.
West Central Electric Cooperative, Inc., Murdo, South Dakota.
West River Electric Association, Inc., Wall, South Dakota.
Tri-State G & T Association, Inc., Denver, Colorado.

Big Horn Rural Eectric Company, Basin, Wyoming.
Carbon Power & Light, Inc., Saratoga, Wyoming.
Chimney Rock Public Power District, Bayard, Nebraska.
Garland Light & Power Company, Powell, Wyoming.

Gering Valley Rural Public Power District, Gering, Nebraska.
Highline Electric Association, Holyoke, Colorado.

Hot springs County Rural Electric Association, Inc., Themopolis, Wyoming.
K. C. Electric Association, Hugo, Colorado.