America will pay the price for the loss of such protection. Of all the money we collect from our consumers, over one-third goes for the wholesale cost of electric power. We do not believe it is good for America, rural electric cooperatives or the electric consumers for a company to have such monopolistic power.

Therefore we urge your committee to approve the rural electric and telephone banks for supplemental financing of the program and to leave in tact in the bill the provisions for financing generation and transmission projects as proposed.

STATEMENT OF ROBERT GREEN, PRESIDENT OF KENTUCKY RURAL ELECTRIC
COOPERATIVE CORP., LOUISVILLE, KY.

More than 20 years ago the rural electric cooperatives in Kentucky realized that if they were to accomplish their objectives, they must work together. Therefore, in 1943, the local distribution cooperatives in the state joined together to form the State Association of Rural Electrics.

It is by working through this organization that we, as individual rural electric cooperatives, meet together, plan together, and work together to decide on the problems and issues facing our program. Twenty-four of Kentucky's 28 rural electric systems participate in this voluntary cooperative effort.

As far back as 1959, the rural electrics in Kentucky, acting through their State Association, recognized the need to study our financing requirements for the future. In a membership meeting of the State Association, held in the Fall of 1959, we adopted a resolution setting forth our viewpoints concerning our financing needs.

The legislation (H.R. 1400) now pending before this Committee of Congress. embodies many of the concepts and ideas expressed in that resolution. At that time, we were aware that we could not expect Congressional appropriations to meet all our needs indefinitely. We are glad to see Congress considering this supplemental financing legislation because it will enable us to be assured of a dependable source of growth with sufficient flexibility to meet our needs. This legislation provides us with a transition plan for assuming a greater share of our fiscal responsibilities as sound business enterprises.

We believe that the time has come for us to accept and work for an improved. new financing plan. We think the proposals now being considered by this Committee, as set forth in House Bill H.R. 1400, are good.

Speaking as president of the Kentucky Association of Rural Electrics representing 24 of the 28 rural electric systems in Kentucky and as an officer and director of a local rural electric system, I can assure you that we support this legislation. We believe that the proposals are fair and just.

We sincerely hope you agree with our viewpoints and will give this measure favorable consideration.

STATEMENT OF J. K. SMITH, GENERAL MANAGER, KENTUCKY RURAL ELECTRIC COOPERATIVE CORP., LOUISVILLE, KY.

Today, as rural electric cooperatives, we face one of the greatest problems in our history.

This problem is the result of our success. We have made a dependable source of power available at reasonable rates throughout the rural areas of this country, thereby creating living standards and conveniences which have induced the people to turn to the rural areas for a place to live, work and play.

The demands for power by our members are growing at an unprecedented rate *** a fact that is also true throughout the total power industry. We are experiencing a migration of industry to the rural areas because these areas offer an abundant labor supply, adequate space, low-cost power, and all other assets essential to economical production and good living conditions.

However, these new developments have brought us face to face with our problem *** the needs for increasing amounts of capital to meet our increasing demands for power.

The legislation being considered by this Committee is designed to provide us with the kind of financing we must have in order to meet our unique needs.

(1) We serve primarily the rural areas *** areas which are thinly populated. Our systems lack load diversity, thereby resulting in a low return on our

plant investment. Therefore, long-term, low-cost capital is a prime requirement of the rural electric systems.

(2) Wholesale power costs represent a high percent of our revenue dollar from power sales (about 30 per cent). We, therefore, have found it necessary in Kentucky to generate and transmit our own wholesale power. So whatever financing plan is enacted must have provisions in it for financing our generation and transmission facilities. In this way, we shall be able to provide ourselves an adequate supply of wholesale power.

(3) As rural electric systems, scattered over 46 states, serving all types of areas and in all kinds of terrain under many and varied economic conditions, we require a flexible financing program that can be adapted to the individual requirements of any and all the rural electric systems. It is for these reasons that we oppose establishing in the legislation loan criteria. This would be extremely difficult to define and it would be equally difficult to secure united agreement in this regard. We believe that this is an administrative matter.

The legislation that is being proposed takes into consideration these needs through such provisions as:

(1) Continuation of the existing 2 per cent loan program as we know it today for those rural electrics which have a justified need for it *** and there are several rural electric systems which fit into this category.

(2) An intermediate financing phase with a higher rate of interest for those rural electrics which can absorb a higher interest rate burden and still meet their objectives, but which are not able to make the complete move from 2 per cent loans to the cost of money from the open money market. This phase then becomes a transition program for this particular group of cooperatives, providing them with additional time for growth and development in order to move into the private financing area of the Credit System.

(3) By reason of areas served and the general economic conditions within those areas, some cooperatives have developed to a point where they can now meet their objectives and still assume a higher cost of financing from private money sources.

We feel the Rural Electric Credit System as proposed in the legislation being considered by this Committee, if enacted without major change, will put us on the road to eventual ownership of our own financing structure. This will assure the rural electrification program the kind of future it deserves.

There are many thinks in this legislation which are appealing to those of us who share the responsibility of leadership in the program. For example:

(1) We recognize that Congress cannot provide plant capital in sufficient amounts to meet our total needs. The Rural Electric Credit System as proposed will provide this needed capital.

(2) The Rural Electric Credit System is flexible. It has alternate financing which will allow each rural electric system to fit into the plan that meets its particular needs.

(3) The Rural Electric Credit System will take care of our power generation and transmission requirements for the future.

(4) The Rural Electric Credit System enables us to plan for the future and to plan on a long-term basis. In the area of generation and transmission, in particular, we need to plan several years in advance of our needs. Under the restrictions which are now a part of the present program, we cannot make these long-range plans.

(5) The Rural Electric Credit System will provide us the opportunity to share a greater portion of the realistic cost of money *** and, at the same time, will move us toward the day when as rural electric systems, we shall be able to own and operate our own credit system, freeing us from complete dependence upon the government for our survival.

These financing proposals have not been formed overnight. They are the product of review, research, study, and discussion by consultants, financial experts, and rural electrification program leaders.

It is not the intent or desire of the rural electrification program to place others in jeopardy or to compete for territory now served by any other power supplier. It is, however, our intent and objective to provide complete electric service to those areas we are serving *** areas which we are working to develop fully. We have listened to the arguments by those who oppose this proposed financing program. We have not found that this opposition is based upon valid reasoning. Really, one should ask who it is that is opposing these proposals and why are

they opposing them. I'm sure each of you can answer this question for yourself, but it is important to examine the opposition to any issue and to determine why this opposition exists.

Here are a few questions we might ask ourselves. Who opposed TVA when that agency proposed its self-financing plan? Who opposed the rural electrification program when it was started in 1936? Who always opposes us when we go before the Public Service Commission in Kentucky for a Certificate of Convenience and Necessity for a major plant expansion program? Who opposes us before Committees of Congress everytime those Committees are considering appropriations for the Rural Electrification Administration?

You know the answers to these questions as well as we do. And, you know why we have this opposition. The opposition is concerned about our competition by example.

As an organization that represents one-third of Kentucky's population, providing an essential service to 265,000 members, we earnestly solicit your favorable consideration of this legislation providing for supplemental financing for rural electrification.

STATEMENT OF H. L. SPURLOCK, MANAGER, EAST KENTUCKY RURAL ELECTRIC COOPERATIVE CORP., WINCHESTER, KY.

The rural electrification program has established an unprecedented record of growth and development.

In the mid-1930's when the program first began, just ten per cent of America's farms were electrified. In Kentucky, only three per cent of rural areas enjoyed electric service. The size of the job ahead was staggering.

The first rural electric cooperatives began on a small scale, depending upon the Rural Electrification Administration for 100 per cent financing. Today, the program has grown until the rural electrics are making power available to more than five-million farms and rural residents in the United States. In Kentucky, the rural electrics are providing service to about one-third of the state's population.

However, when we project our growth demands into the future, we are even more amazed. Power demands are doubling about every seven years. By the year 2000, power requirements per capita will be four times what they are today.

Power consumption in Kentucky reflects this steady growth. At the present time, the average annual power use by rural electric members is 5,856 kilowatthours per member. Our projections indicate that by 1975 this figure will reach 9,348 kilowatt-hours. Also, by 1975, Kentucky's rural electrics will be serving an estimated 317,000 members, an increase of 50,000 members over today's total.

In order to meet these growth requirements, Kentucky's cooperatives will need approximately $100-million in new capital in the next five years. Studies show that nationwide the rural electrics will require increased amounts of growth capital.

REA estimates that nationally the rural electric systems will require $8billion in new capital in the next 15 years, or $2-billion more than the $6billion Congress authorized in the first 31 fiscal years of the program. The $8-billion estimated for rural electric systems compares with a $112-billion investment projected for commercial electric utilities over the next 15 years.

The rural electrics are meeting the mandate established by Congress. By using the 100 per cent financing made available through the Rural Electrification Administration, they have achieved area coverage. At the same time, they have maintained an equitable power rate for their members.

Yet, if we are to continue meeting our objectives, we must also continue to grow. And to grow, we must have a dependable source of growth capital and this capital must be available on terms sufficiently flexible to meet the changing times and conditions.

There was a time when the rural electrics were strictly farm-oriented. However, today our environment has changed. New demands are being made by a changing membership. We must be concerned with raising the standard of living, both in terms of economic opportunity and conveniences, to match the attractions of urban living.

As REA Administrator Norman Clapp has stated, "This calls for many things-improved rural schools, more rural industry, and provision of community facilities such as hospitals, water, sewage treatment and disposal. These, along with other essentials basic to the creation of parity of opportunity for rural people, are impossible without electric power facilities capable of providing parity electric service.”

The transition taking place in rural America is having a profound effect upon the rural electrics. Cooperative membership includes services to residential consumers, industries, and recreational facilities as well as to farms. All of these members have their unique needs.

We view the future with confidence because we are certain that we can meet tomorrow's demands if we are allowed to develop our full potential. In the past, we have been called upon to contend with many problems which are unique to the rural electrics. These problems include such things as:

(1) Lack of consumer density on the rural electric lines. Kentucky's rural electrics have only 4.7 consumers per mile of line and realize just $753 in annual revenue per mile of line.

(2) Idle services are another problem. These are lines which are still in existence and connected to houses, but with nobody using the power. There are approximately 31,000 of these lines in Kentucky, representing idle investments of about $20,000,000.

(3) The rural electrics lack load diversity. We face heavy demands during certain peak periods of the day and then these demands fall off sharply. We, therefore, are not getting full utilization of our facilities.

These are problems which have existed since the beginning of the program. We shall have to continue contending with them in the future. In addition, there are several recent developments which are also affecting the rural electrics. For example, the recent ruling in Kentucky that all property must be assessed at 100 per cent of its fair value has caused a sharp increase in the amount of taxes paid by the cooperatives. We have been paying annually about threequarters of a million dollars in taxes, but now we are paying in excess of $1-million.

Like all other industries, we are facing increasing costs in all areas of operation. Salaries are higher. Essential materials and equipment, such as vehicles, conductor, hardware, transformers, generators, and similar items, are increasing in cost.

The demands for power by our members are increasing at an unprecedented rate. Today, Kentucky's rural electrics are providing continuity of service to more than 265,000 homes. Power requirements are growing at a rate of about 12 per cent a year. On a national level, the power industry has been expanding at a pace nearly twice that of the overall economy. All indications are that this growth will continue. Trends already established are testimony to this fact.

Over-crowded cities are expanding into rural areas. The urban dweller is looking to the countryside for a place to live. Industry is re-discovering rural America. The rural electrics have made low-cost power available anywhere it is needed. They have spearheaded the effort to make pure, running water available through the development of Water Districts. Industrial sites which were once unsuitable have become ideal.

These challenges add to the urgency of our needs for adequate financing for the future.

I would also like to point out that the power supply cooperatives are an integral part of the entire rural electrification program. In Kentucky, the rural electrics have developed their own sources of wholesale power. Four cooperatives receive their power from TVA and the rest, with the exception of Jackson Purchase RECC, get their power from two power supply cooperatives. Since these G & T cooperatives have been in existence, the wholesale rates paid by the cooperatives have decreased and the savings have been passed along to the

consumers.

These power supply systems must plan even farther ahead than the distribution cooperatives due to the lead time necessary for planning and constructing plant facilities.

The rural electrics operate under contractual agreements with the power supply systems requiring these systems to provide the cooperatives with all their wholesale power needs. Therefore, the power supply cooperatives must project their plans based upon the combined needs of all their member systems.

The power supply systems must also be assured of greater flexibility. Under present terms of the REA loan program, these systems can only project their needs ten years ahead. This limits the size of the generation facilities we can install. If we are provided with greater flexibility to enable us to plan farther ahead, the power supply cooperatives will be able to install larger generating units. This will provide more economy and greater efficiency, permitting us to lower our rates for wholesale power.

Therefore, in planning for our capital needs, the power supply cooperatives must be considered as a part of the total program.

With the unique problems of the rural electric program and with rapidly increasing demands, the rural electric systems must have the assurance of adequate growth capital in the future. We feel that the supplemental financing proposals now pending before Congress, if enacted, will give us that assurance.

STATEMENT OF FLOYD HAYS ELLIS, MEMBER, WARREN RURAL ELECTRIC COOPERATIVE CORP., BOWLING GREEN, KY., AND A STATE SENATOR IN THE KENTUCKY GENERAL ASSEMBLY

Just 30 years ago our rural areas were without electric service. Darkness and drudgery were the lot of the rural resident.

However, today power is available to everybody. Thanks to the area coverage concept of the rural electrification program, everybody can enjoy electric service regardless of where he may live.

No program has done as much for the rural areas of this country as rural electrification. The rural resident is enjoying a higher standard of living and his family has more opportunities available. He is participating more in our affluent society.

Certainly, we do not want to see anything done that would disturb this program or impede its progress, because it must continue. There is still much to do and this nation cannot afford to lose the contributions being made by our rural electric systems.

Speaking as a rural electric cooperative member, I can assure you that we do expect good service. We are using more power daily *** and we are finding new uses for this power. We must have reasonable rates to permit us to utilize the full potential of electricity.

Today labor is very expensive and in short supply in many areas. This is causing the farmer, as well as the industrialist and businessman, to automate his operations as much as possible. This requires a greater use of power.

As members of a rural electric cooperative, we support a rural electrification program that permits us to assume our full share of responsibility as a business enterprise. We feel that the new financing proposals will allow us to assume this position of responsibility more fully.

The members of a rural electric cooperative elect a Board of Directors which in turn employs a manager. These Directors and the manager make up the management team and to this team we delegate the task of leadership for our business. The members recognize the value of their rural electric cooperatives and support their leadership in favoring the new financing proposals.

The membership of a rural electric system today consists of farmers, bankers, doctors *** professional and business people from all walks of life. These members are well informed concerning the needs of the cooperative and they support its programs. The management team of the cooperative has kept the members well informed in a practical way concerning these financing proposals and I believe the members support these proposals.

Speaking as one of the 265,000 rural electric cooperative members in Kentucky, I solicit your consideration toward providing us with a sound financing plan that will guarantee the future of the rural electrification program.

STATEMENT OF VIDAL C. LOPEZ, PRESIDENT, SOCORRO ELECTRIC COOPERATIVE, INC., SOCORRO, N. MEX.

It has taken twenty-one years for the Socorro Electric Cooperative, Inc. to achieve one-hundred percent area coverage in Socorro and Catron Counties in the