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State of New Mexico. Twenty-one years of continually walking a financial tight rope balancing revenues against expenses. Build some lines; wait, reduce rates; wait, absorb increases in operating costs; wait, and start the cycle all over again. During these twenty-one years, margins average thirty-five thousand dollars per year, less than one percent of plant investment. Revenues have been adequate to meet expenses and loan obligations. Plant equity adequate to provide security for private investment capital is non-existant.

During the next twenty years, the Socorro Electric Cooperative, Inc. will require capital in the amount of ten million dollars. Twice the amount required during the first twenty years. Capital to provide adequate power to critical defense installations, advance research facilities, new industry and above all to meet the ever increasing demands of our member-consumers.

Capital must be available. Rural America, today, must and will have dependable, adequate, power on a parity with other utility rates. The question is, "How will this Capital be obtained?"

Supplemental financing as proposed through H.R. 1400 is a giant step in the right direction towards meeting the capital requirements of the Rural Electric Cooperative and not placing the burden on the Treasury of the United States of America. This legislation should, on a planned basis, transfer the responsibility to the member-consumers of rural electric cooperative's when they can financially accept this additional burden.

STATEMENT OF FRED J. ABOUSLEMAN, ACTING MANAGER, JEMEZ MOUNTAINS ELECTRIC COOPERATIVE, INC., ESPANOLA, N.M.

I, Fred J. Abousleman, Acting Manager of the Jemez Mountains Electric Cooperative, Inc. hereby states that this Cooperative was organized and incorporated under the laws of the State of New Mexico appropriate federal laws in 1948.

The necessity of a cooperative was demonstrated after a group of farmers, businessmen, ranchers and interested people tried unsuccessfully for several years to get central power into the central and northwestern part of Sandoval County, State of New Mexico, from the Public Service Company of New Mexico. Petition after petition had been submitted, meetings had been held and the Public Service Company showed that they were not interested in any way to deliver power in that area. Therefore, the interested group of people petitioned the Administrator of R.E.A., for a cooperative and assistance to form a cooperative. This was done and a group of trustees were elected by the people and the Articles of Incorporation were granted to this Cooperative on April 22, 1948. The original intent was to bring service into the community of Jemez Springs and surrounding area and into Cuba and surrounding area, all in the County of Sandoval. As stated in November 1949 after some discussions, the cooperative received a loan from the R.E.A. and proceeded to bring central service to all the people who were not receiving central service at that time. The Cooperative serves in a portion of five counties in the Northcentral and Northwestern part of New Mexico, to-wit: Santa Fe, Rio Arrivan, San Juan, Sandoval and McKinley and at the present time is serving some 9348 members and users and still has not started to get the complete area coverage to all those that want central power. This Cooperative is the youngest cooperative in the State of New Mexico and is now considered about fourth in size of the seventeen cooperatives in the state.

Even though it has grown from the original membership of some 2,000 to better than 9,000, the Cooperative still has not scratched the surface and is in dire need of the continuation of the availability of finances to bring central electric service to the area it serves. Due to the vast territory it serves, it averages over five consumers per mile, which is further proof that it needs availability of money to continue to serve the growing need of a developing area.

The Cooperative, in its sparsely populated area to the west, is called on to serve industry, centralized schools and defense installations which contribute greatly to the economy of the area and the defense of the nation.

The Jemez Mountains Electric Cooperative. The plant and always has been a leader in all the communities it serves, assisting in other schols, beter roads and a better way of life to all its members who would now have had this opportunity if it had not been for the Cooperative. In the short existence of this Cooperative, it has been instrumental directly and indirectly in seeing that no

less than fifteen communities have been able to have an adequate water system from a central source, which has tended to make a better life for those members. The Jemez Mountains Electric Cooperative, Inc. realizes that its primary purpose is to furnish adequate electric power at a rate consistent with good business, both through its membership and Board of Trustees, and it strives to assist all members in every possible way. The Jemez Mountains Electric Cooperative, Inc. is proud that it takes a great interest in the youth of the area it serves and in the State of New Mexico by having competitive assignments such as Spelling Contests, Essays, Junior Board of Trustees and also allowing a scholarship to each of the seven high schools it serves to a deserving student to try to assist them in making a better life for themselves.

The Jemez Mountains Electric Cooperative, Inc., and I am sure the rest of the cooperatives in the State of New Mexico, are proud of what they have been able to accomplish in helping to bring a better life to the people of the State of New Mexico and to give the people in the rural areas the same opportunity as those in the cities have.

Therefore, the Jemez Mountains Electric Cooperative, Inc., through its representatives from its total membership, petitions the Congress of the United States to push for House Bill No. 1400 and pass legislation that will eventually allow the cooperatives to be able to finance themselves from other means than from direct loans from the Department of Agriculture through the R.E.A.

STATEMENT OF J. C. HUNDLEY, EXECUTIVE MANAGER, TENNESSEE ELECTRIC COOPERATIVE ASSOCIATION

Mr. Chairman and Gentlemen of the Committee, my name is J. C. Hundley. I am the executive manager of the Tennessee Electric Cooperative Association, which is the Tennessee service organization of all twenty-two electric cooperatives in the State, serving approximately 14 million people. This Association is owned and controlled by these Tennessee systems. Its Statewide offices are located at 710 Spence Lane, Nashville, Tennessee 37217.

I wish to voice the support of our entire Association of electric cooperatives of legislation which would amend the Rural Electrification Act of 1936, to enable the establishment of a bank to provide supplemental financing for the rural electric cooperatives.

There is one serious problem to the cooperatives in the Tennessee Valley Authority area, as the Bill is now written, and that is the requirement that our cooperatives issue certificates of ownership which would mean the requirement of a capital credit plan with patronage refunds. We sincerely hope and trust that this requirement can be removed from H.R. 1400.

The cooperatives in the TVA area are operating in close proximity to the municipal electric systems where net earnings are put back into the system, debt retirement or rate reductions. Since several of the municipal electric systems are debt-free they have made substantial rate reductions. They are generally small compact operations. On the other hand, the cooperatives have extended service on an area coverage basis in sparcely settled areas. In spite of the wide difference in service areas there is a constant comparison of rates by the consumers.

Since the TVA area cooperative are on such a competitive rate situation and since TVA requires its cooperative wholesale power purchasers to go the rate reduction route, instead of patronage refunds, it follows that any margins which may accumulate over and above the basic needs should be used to lower future rates. The cooperatives in the TVA area cannot pass patronage refund monies out the back door and at the same time maintain the lowest rate possible at the front door.

With the exception mentioned above, we respectfully urge this Committee to promptly and favorably report H.R. 1400.

STATEMENT OF V. KYLE TROUT, PRESIDENT, ADAMS ELECTRIC COOPERATIVE, INC.,

GETTYSBURG, PA.

Adams Electric Cooperative, Inc., in the interest of continued service to its members and economic growth for the 4-county area of Pennsylvania it serves, supports legislation introduced for the establishment of a supplemental financing

plan for rural electric cooperatives as set out in bills, HR 1400, 1401, 1402, 3122, 3314 and 6026.

Many factors move our Directors and Management to speak out boldly on this legislation. The membership of over 8500 have also been alerted to the future financial needs of their cooperative.

In order to meet the ever-increasing demands for additional electric power, large sums of capital investment are necessary.

As of December 31, 1966, our growth history shows that since 1961 we have invested $2,104,333 in plant to serve 1,351 members along 123 miles of line. Present capital investment is $5,972,000. By engineering studies, we predict that within the next five years we will need $3,200,000 to heavy-up lines, substations and to extend lines to reach approximately 2,000 new members.

This added capital investment in the amount of $3,200,000 is in excess of what we believe the Congress will make available through appropriations to REA for our use. Therefore, we believe it necessary to obtain some other form of financing to keep our program alive.

Due to heavy migration of people from the metropolitan areas of Baltimore, Washington, Philadelphia and other large urban areas, to this area we are now extending electric service to 400 or more people a year compared to a normal increase of 150 to 200 services. The extension of lines, to provide the services needed, the increasing of substation capacity and the "heavying up" of feeder lines is now and will in the future require substantial sums of money for capital investments. More and more people are choosing to live in rural areas.

In addition, we are experiencing increasing demands for electricity to existing farm operations. Dairy farming is an important operation in this area. More and more dairy farmers are changing completely to electricity to automate their operations. Fruit farmers, fresh produce farmers and dairy people are calling for electric irrigation pumps to improve their yield. Fruit farmers are using more electricity for storage and processing.

Full rural development, land values and property sales and use depend upon the availability of reliable, adequate electric service. Without adequate capital the electric cooperatives cannot continue to meet the needs of the people now in and those moving into rural areas. It is a monstrous waste of money and facilities to cause the cooperatives to "die on the vine" for lack of capital and then have others duplicate the existing facilities.

The present normal growth of our system requires an investment of $450,000 a year to meet the ever-increasing needs of our members. For example, during the past five years, the average KWH usage per member per year has increased from 4,900 KWH to 6,120 KWH.

Annually, Congress appropriates money and the cooperatives borrow this money. In the past the average appropriation has been approximately $360 million per year. By 1980, it is expected that this requirement will be approximately $700 million a year.

With all of the pressures on the Federal Budget in these times, with the deep and growing concern of the public, with the problems of public financing, the size of the National Debt, rising interest rates and tax requirements, it is our judgment that it is totally unrealistic to expect that the rapidly expanding capital needs of the rural electric cooperatives can and should be met in the future solely through the Rural Electrification Administration direct loan program.

It is certainly fair and proper-and in the public interest-that the rural electric cooperatives should seek means whereby they may obtain part of their financing from sources other than Federal appropriations.

We favor the supplemental financing plan set forth in House Bill 1400 and other bills on this matter. We believe it is the best method to guarantee an adequate supply of capital funds while providing a flexibility to the rural electrification program under which each system can get the money it needs at the rates it can afford,

We do not believe that it is in the best interest of the cooperatives to permit "judicial review" of loans made by the Board of Directors of the electric bank. Congress, through its departments of the Federal Government, will have control of the loan making authority of the Bank Board for many years to come. To permit others to throw into the courts, if they so desire, a review of each and every loan application will and can permit endless years of expensive litigation.

In addition, we believe the real merit in the plan is that it will lead to the eventual independence from Federal financing. Annually, this matter of financing

the cooperatives is the problem of Congress. The present financing is always subject to political pressure of a partisan nature and by those who wish to destroy the cooperatives. Electricity is non-partisan-it serves people of both political parties. What is good for one is good for the other.

In order to construct and operate an electric distribution system efficiently and economically, we must plan ahead for many years. If we do not know that adequate money will be available when needed, we will be limited to twelve months planning. This will, indeed, be a most wasteful manner to spend money on a business which is always expanding.

This matter of financing the electric cooperatives through a Supplemental Financing Plan as set out in HR 1400 and other bills has been explained and discussed at our annual members meeting. A resolution on this matter was offered and was adopted without dissent.

It is the sincere hope of our Members, Board of Directors, and Management, that favorable consideration be extended this important legislation.

STATEMENT OF JOHN SARGENT, PRESIDENT, ADAMS ELECTRICAL CO-OPERATIVE, CAMP POINT, ILL.

My name is John Sargent. I submit this statement on behalf of the more than 5300 members of Adams Electrical Co-Operative of which I am the President of the Board of Directors. I am and have been a grain and livestock farmer all of my life. My farm is located in Schuyler County, Illinois, six miles west of Rushville. I have served on the Board of Directors of my electric cooperative for the past 27 years and as President since August 13, 1954.

Adams Electrical Co-Operative is a distribution cooperative serving a three county area in west central Illinois. These counties are Adams, Brown and Schuyler counties comprising the area between the Illinois and Mississippi rivers. Our Co-Operative was incorporated in 1938 and since that time has borrowed $4,863,000.00 to provide central station electric service to more than 5,300 rural members living along more than 2,000 miles of rural distribution lines. Up to the present time we have been able to provide our members with adequate electric service through loan funds advanced to us by the Rural Electrification Administration. Our experience has shown that our power requirements double every eight to ten years and that we must constantly upgrade and improve our electric system to meet the ever increasing needs of electric service to our members. Careful studies have shown that some 9.5 billion dollars will be needed by the nation's electric systems for capital growth needs in the next 15 years. This is one and one-half times as much as REA has loaned to electric borrowers since the program began in 1935. Experience in the past years show that Annual Congressional Appropriations for REA funds have averaged in the area of $300 million. This is far short of the amount needed to meet our needs for it has been determined that as soon as 1980 the expected annual capital requirement for rural electric cooperatives will be approximately $700 million. Therefore, in order for the rural electric cooperatives to survive we must bring private investment funds into the program to supplement and ease the pressures on the 2% loan program now in effect.

Our individual cooperatives cannot go directly to the open money market simply because we do not have the financial strength to attract investment capital at interest rates we can afford and still provide low cost electric service so essential to our members and the future of rural America.

Adams Electrical Co-Operative serves an average of 2.6 consumers per mile which is one-twelfth the number of consumers per mile that commercial power companies serve. Unlike private power companies, we are obligated to serve everyone in our area who desires service and at the same cost. Consequently, most of our systems operate close to the break-even point. For this reason the 2% loan program must continue for a few electric cooperatives until a greater degree of economic security has been reached.

Other systems in faster developing areas have experienced a greater growth rate and are in a position to pay higher interest rates for the money needed to meet their capital growth needs.

The Federal Electric Bank proposed in H.R. 1400 is patterned after one of the most successful Federal Credit Programs, The Farm Credit System, under

which the government has helped with Federal Land Banks, Banks for Cooperatives and Production Credit Associations to get on their feet. Many of these have already repaid funds originally provided by the Treasury and are now free of Federal help. The idea is to pool the collective credit of rural electric systems so they can borrow from non-federal sources.

We urge the Congress to pass legislation authorizing a Federal Electric Bank (H.R. 1400). This will assure rural electric cooperatives access to reasonable cost growth capital through private sources by establishing a supplemental credit mechanism to which they may turn for all or a part of their future capital requirements.

We believe this to be the most important legislation to rural people since passage of the original REA Act in 1936. We must keep our rural electric cooperatives financially sound so they can serve rural America with low cost power. Adams Electrical Co-Operative believes that it was the original intent of the Congress that rural people have service available on terms and conditions comparable to those enjoyed by people in the urban centers. We are convinced that the Federal Electric Bank will help us reach this goal.

On behalf of the 5300 members of Adams Electric Co-Operative, I respectfully urge the members of this Committee to take favorable action on the Federal Electric Bank as proposed in H.R. 1400.

STATEMENT OF WILLIAM M. ROBERTS, MANAGER, PICKWICK ELECTRIC COOPERATIVE

Mr. Chairman and Gentlemen of the Committee, my name is William M. Roberts. I am the Manager of Pickwick Electric Cooperative, serving approximately 9,600 members in McNairy, a portion of Chester and Hardin Counties, in Tennessee.

I wish to voice the support, of the nine Directors and members of this Cooperative, of legislation which would amend the Rural Electrification Act of 1936, to enable the establishment of a bank to provide supplemental financing for the rural electric cooperatives.

In 1956, the maximum load on the Pickwick Electric Cooperative system was 9,906 kilowatts. In calendar year 1966, it was 37,312 kilowatts. Despite the handicaps of low consumer density and out-migration of rural people, the facilities of the Cooperative have had to be reworked so as to provide capacity for this load growth-400 percent growth load in ten years. Capital had to be provided from a gross plant of $2,908,000 to $5,500,000, or 2.6 million in the ten year period. Conditions point to a rate of growth in the future in excess of that experienced during the past ten years. I feel the growth capital required during the next ten years will be at least twice that required for the past ten.

Enactment of this legislation will assure rural electric cooperatives access to reasonable cost growth capital through private sources by establishing a supplemental credit mechanism to which the REA borrower systems may turn for all or a part of their future capital requirements, thereby reducing the drain on the Treasury both for loan funds as well as subsidies. The proposed banks are patterned after the Federal Land Banks, which have successfully operated for more than 50 years and have long since reimbursed the Treasury for all government investments, becoming totally borrower owned and controlled.

The migration from rural areas to overcrowded cities is a national problem that can be checked with equal opportunities for employment developed in the rural sections of our nation. Electricity is a vital commodity for industrialization, park development, recreation, et cetera. To provide a reliable, abundant supply of electric energy in the rural areas is the responsibility of the electric cooperative. To meet this challenge, electric cooperatives will have to have, for continued existence, growth capital.

There is one serious problem to the cooperatives in the Tennessee Valley Authority area, as the Bill is now written, and that is the requirement that the cooperatives issue certificates of ownership which would mean the requirement of a capital credit plan with patronage refunds. We sincerely hope and trust that this requirement can be removed from H.R. 1400.

With the exception mentioned above, we respectfully urge this Committee to promptly and favorably report H.R. 1400.

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