The parties recognize that the rural electric cooperatives will require capital financing beyond anticipated congressional appropriations, if they are to meet their obligations to their members and to the Pool. The parties support a supplemental financing program which will enable the rural electric cooperatives to borrow funds at terms and interest rates and for purposes that will permit them to meet their obligations. Such program will also provide the investor-owned companies with adequate protection for existing customers as well as for new customers located in incorporated areas served solely by another party. A judicial review procedure shall be included in the program to insure compliance with the intent of the parties. The parties have had a series of meetings to seek mutual understanding. For the purposes of our deliberations, we have jointly studied H.R. 1400, which is now before the Congress, and we believe the purposes of the Bill are acceptable to the undersigned with the changes in content necessary to carry out the foregoing principles. Such changes may be exemplified by the attached suggested modifications to H.R. 1400 which are not intended to be all inclusive. Cooperative Power Association, Roy Zook, General Manager "(h) The Electric Bank Board shall meet at such times and places as it may fix and determine, but shall hold at least four regularly scheduled meetings a year, and special meetings may be held on call in the manner specified in the bylaws of the electric bank. "(i) The Electric Bank Board shall make an annual report to the Secretary for transmittal to the Congress on the administration of this title IV and any other matters relating to the effectuation of the policies of title IV, including recommendation for legislation. “(j) Prior to approval of any loan for the construction of generating facilities which displace a wholesale power supply arrangement with a loan applicant existing at the time of the loan application, where service is still available from the supplier which is not a borrower from the Rural Electrification Administration or the rural electric bank (except for a loan for the expansion or improvement of an existing generating facility that was planned prior to the enactment of this section, or which is required to (1) provide energy to the customers of the generating facility existing at the time of the loan application and to customers financed under title I or IV of this Act which commence purchasing energy from the generating facility subsequent to the time of the loan application; or, (2) fulfill the power supply requirements of all consumers within the service area of a distribution system financed under title I or title IV of this Act which at the time of enactment of this section generated its own energy), the Electric Bank Board shall "(1) require the loan applicant to advertise for firm bids, to be submitted by a date certain, for the supply of the power and energy in the quantities, at the delivery points, and on the terms and conditions specified by the loan applicant which terms shall be reasonable and based upon sound engineering and to submit to the Electric Bank Board copies of all bids received; and "(2) determine first, after a public hearing held pursuant to notice at which all interested parties would be entitled to appear, offer complete and relevant evidence and examine witnesses of other parties, that the loan applicant has complied with (1) above, and second that the cost of the power and energy under the proposed loan is lower than the cost of power and energy under the lowest bid meeting all terms and conditions specified by the applicant, taking into consideration all relevant factors including the costs associated with transforma tion and transmission. Any party in interest, who by written affidavit submitted under oath alleges that he has suffered, or will suffer, substantial economic injury as the result of any decision of the Electric Bank Board, rendered pursuant to the provisions of this subsection (j) and relating to the bidding procedure, may appeal directly to the United States Circuit Court of Appeals, located in the circuit in which the borrower's principal place of business is located. Such review shall be limited to the record of the proceedings before the Electric Bank Board and the court shall determine solely whether the decision of the Board was based on substantial evidence. (4) The purposes set forth in (2) hereof shall be subject to the following conditions: (i) No loan shall be made for generating, transmission or distribution facilities for service to consumers served by a supplier not a borrower from the Rural Electrification Administration or the electric bank or to provide service within the limits of a city or village served by a supplier not a borrower from the Rural Electrification Administration or the electric bank in which the borrower is not rendering service at the date of the loan application, except where such municipality is included in territory or service area assigned to the borrower by a regulatory Commission. (ii) No loan shall be made for acquisition of electric facilities within a city or village served by a supplier not a borrower from the Rural Electrification Administration or the electric bank at the date of loan application and from which service is still available, unless the Governor of the bank finds that: (a) Seventy-five per cent of those voting in a referendum in such municipality approves such sale; and (b) The acquisition will improve the efficiency, effectiveness and financial stability of the borrower; and, (c) The Secretary approves the acquisition. (iii) No loan shall be made for generating facilities or transmission lines for wholesale service to a city or village, which at the date of the loan application obtained its full electrical requirements from a supplier not qualified as a borrower from the Rural Electrification Administration or the electric bank, unless such supplier approves, or unless 75 per cent of those voting in a referendum in such municipality approves such service by the borrower, or unless such municipality is included in territory or service area assigned to the borrower by a regulatory Commission; and in any event no loan shall be made for the purposes of this subsection (iii), unless the borrower has agreed to supply services and facilities at rates and charges and under conditions which do not differ unreasonably from the rates, charges, and conditions under which similar services and facilities are supplied to other villages and cities taking the same class of service from the borrower. (iiii) No loan shall be made to effect an exchange of properties, unless such exchange shall be an appropriate means of achieving a reasonable and logical adjustment of the service areas of the borrower and another electric supplier. (iiiii) No loan shall be made for facilities providing capacity in excess of the power requirements projected over the estimated life of the facilities of the ultimate consumers of the borrower, its members, and members of the latter, in respect of which consumer loans have been made under Sections 4 and 408 of this Act taking into consideration all facilities of the borrower. (5) Facilities constructed with loan funds granted herein may be utilized in reciprocal power or energy arrangements between the borrower and one or more electric suppliers. (6) A supplier described in Section 408 (a) (4) hereof may proceed by verified complaint in a Federal District Court in the district of the loan applicant's principal place of business to restrain violations of said Section or to restrain the disbursement or use of loan funds in connection with such violations. Provided that with respect to a loan for generation facilities, the loan applicant shall have dismissal of the suit by certifying to the Court that the generating facilities are not designed for service, and will not be used to provide service in violation of Section 408 (a) (4). Such supplied shall have the right to subsequently seek judicial enforcement of the terms of such certification upon non-compliance by the loan applicant or its successor in the Court to which the certification was made. "(b) Loans under this section shall be on such terms and conditions as the Governor of the electric bank shall determine, subject, however, to the following restrictions: "(1) No loan may be made hereunder for a period exceeding fifty years. "(2) Loans from the bank shall be made at a single interest rate which will reflect at the time of the loan the average cost of monies to the bank including rates paid by the bank for its electric debentures, for funds supplied by the United States Government as provided for under Section 406 (a) of this bill, and shall include administrative expenses and estimated losses of the electric bank in respect to such other loans and requirements as set forth in Section 406 of this bill. STATEMENT OF HENRY J. LENNING, MANAGER, HUMBOLDT COUNTY RURAL ELECTRIC COOPERATIVE, HUMBOLDT, Iowa I believe it is imperative that we have supplemental financing for rural electric cooperatives. I am the manager of a small rural electric cooperative that is in the heart of the Iowa Farm land. Our system serves no villages, towns or cities. We serve a large portion of the rural area in a one and one-half county area. We are experiencing a continued increased use of electricity by our consumers. The average use has increased from 537 kwh per consumer per month in 1957 to 903 kwh in 1966. The density at the same time has dropped from approximately 2.3 consumers per mile to two consumers per mile. This is due to the increased size of farms and the migration of rural people to the urban areas. Due to this low density our investment per consumer is high. At the present time it is $925.00 per member. We are at the same time receiving more and more demands for three phase service to supply the large motors required for crop conditioning and larger livestock feeding operations. At the same time we are required to heavy up our existing facilities by larger transformers, etc. With the above conditions continuing it will require approximately double our present investment to continue to give the type electric service that our members are entitled to and need. This increased use, at the same time, means additional generation must be supplied by the Corn Belt Power Cooperative, the generating and transmission cooperative that supplies our power. Their investment requirements are much greater than for a distribution cooperative. We are in a high electrical cost area due to high fuel costs and the availability of only a small amount of Hydro power. The generating and transmission cooperatives need the availability of adequate funds to meet these large investment requirements even more than the distribution cooperatives. For continued efficient farm operations, more and more use is going to be made of electricity. They will continue to need this power at the cheapest possible cost to continue to keep the advances in agriculture ahead of, or even with, the ever increasing demands put on it by our increasing population. Rural electrification has improved the standard of living of the rural people. It has been a big factor in the advancement of our nation's agriculture, but much more is going to be required of it. I urge the passage of a supplemental financing measure so that we and other rural electric cooperatives may continue to help our rural people help our country as it has done in the past. STATEMENT OF PAUL M. MCCORMICK, MANAGER, HARDIN COUNTY RURAL ELECTRIC CO-OPERATIVE, IOWA FALLS, IOWA The rural electric system which I manage is located in one of the best farming areas in north central Iowa, about 30 miles to 70 miles north of Des Moines, Iowa from its southern extremity to its northern extremity and 41 miles between its western and eastern borders. The co-operative furnishes rural electric service to 2,750 meters over 1,125 miles of distribution lines in parts of six counties in north central Iowa. The co-operative serves the rural areas only. Of the members served, about 35 are small commercials such as gravel pits, railroad crossing signals, Northwestern Bell Telephone stations and several small rural businesses, plus one large commercial-a pork packing plant. These small and large commercials, plus over 2,500 farms, add much to the economy of our system area. The management of our co-operative feels that our rural electric has permitted full rural development in our area. Many of our members live on small and average size farms, but also, work in some of the rural commercials served by our rural distribution system in order to supplement their incomes. For the past few years, we have been adding corn dryer operations to our system. Farmers are expending large sums of money for corn dryer installations. The co-operative must increase the capacity of its services in order to handle this additional load on its lines. Members are becoming more interested in Electric Heat. This will mean a tremendous increase in KWH consumption. The demand on the rural electric system will become even greater in the winter time, plus the installation of air conditioners in the Summer time. In order to meet the demands of our members, the Hardin County R. E. C. has spent over $400,000 during the past four years for capital improvements, plus approximately $150,000 expended by our General and Transmission Co-operative to install additional transmission lines and substations to bring power to our system. What is true about the growth of our co-operative is true of other rural electric co-operatives across the nation. Large amounts of capital will be necessary to keep pace with the increased usage of electricity by our members. There will not be enough capital through regular REA loan funds to meet our total future requirements. It will be necessary to go to the private money market for supplemental capital at reasonable rates of interest. It is our hope that a feasible rural electric credit system can be set up so that rural electric systems can face the future with confidence in view of the everincreasing KWH load. STATEMENT OF HOWARD TAYLOR, VICE PRESIDENT, EASTERN ILLINOIS POWER COOPERATIVE My name is Howard Taylor. I am Vice President of the Eastern Illinois Power Cooperative (EIPC) of Paxton, Illinois. EIPC is a distribution-type cooperative having 2,740 miles of distribution lines serving 7,100 rural consumers in Ford, Iroquois, Livingston, McLean, and Vermilion Counties in Illinois. EIPC has borrowed a total of $5,115,000 from REA during its 30-year history. As of December 31, 1966, the cooperative's investment in its distribution system amounted to $7,305,000. Thus, more than $2,000,000 of the cooperative's growth capital has been generated from its own operating revenues through the years. In addition, the cooperative repaid a total of $2,797,499 on the principal of its loans from REA, such payments also having been made from operating revenues. The last REA loan to EIPC was approved in June 1959. Since that time, the cooperative has used its operating revenues and reserves for its needed growth capital. This practice has resulted in the cooperative's reserves being reduced to a point where we consider them to be below a safe minimum. Our concern in this matter was intensified when on January 26, 1967, approximately one-third of the cooperative's distribution system was crushed to the ground by a devastating sleet storm accompanied by high winds. We estimate that the cost of restoring the damaged part of the system to its pre-storm condition will be approximately $250,000. EIPC's service area is located in sleet, wind, and tornado belt. Because the repair and replacement of damaged lines cannot be financed with REA loan funds, we feel that we must maintain adequate reserves to provide for eventualities even greater than the sleet storm we experienced in January (we could have lost our entire system as was the case with a neighboring cooperative-the Illini Electric Cooperative-on January 26, 1967). In addition to the unanticipated expenditures for repair of sleet storm damage which we are required to make this year, our work plan for 1967 calls for a capital expenditure of $400,000 to provide increased capacity for the ever-growing electric power needs of our consumers. The financial condition of Eastern Illinois Power Cooperative has always been considered by REA to be above average. For this reason, EIPC has not been eligible for additional loans from REA since 1959. Instead, REA has channeled its available loan funds to those cooperatives in less fortunate circumstances than ours. We have no quarrel with REA's policies and practices in this regard. It is obvious to us, however, that the practice of financing our system improvements out of operating revenues and reserves cannot be continued indefinitely. We must have a source of capital to take care of the cooperative's future growth requirements if it is to remain in good financial condition and if it is to continue furnishing an adequate and reliable supply of electric service to its consumers. We strongly feel that the supplemental financing legislation presently being considered by the Committee on Agriculture of the United States House of Representatives will provide the source of capital that we need. We believe that the financial condition of EIPC will make it possible to pay a higher interest rate for its borrowed capital, although there may be some question as to its ability to pay a rate equal to the cost of money on the open market. Lastly, it is the desire of EIPC's directors and members to move away from dependence on the Federal government for its growt hcapital. For these reasons, we respectfully urge the members of the Committee on Agriculture to act favorably on the supplemental financing program for rural electric systems as embodied in H.R. 1400. STATEMENT OF RUDOLPH ROGERS, PRESIDENT, NOLIN RURAL ELECTRIC My name is Rudolph Rogers and I am President of the Board of Directors of Nolin Rural Electric Cooperative Corporation with offices in Elizabethtown, Kentucky. I am pleased to have this opportunity to submit a statement in support of the legislation establishing a supplemental financing program for rural electrification. We are proud of the record of accomplishment we have made under the terms of the present Rural Electrification Administration loan program. When the rural electric systems first undertook the job of electrifying rural Kentucky, only about 3 percent of the farms in the state enjoyed electric service. Today, approximaely 98 percent of our rural areas enjoy this service. Electricity is available to everybody within the service area of a rural electric system, regardless of location. However, there is still much to do. Because the rural electric systems have been successful in making an adequate supply of power available at reasonable rates throughout the rural areas, the demands for power being made by our members are increasing at a rapid rate. Our projections indicate that the average annual power use by rural electric members in Kentucky will increase from the present 5,856 kilowatt-hours per member to 9,348 kilowatt-hours per member by 1975. Our power demands are doubling about every seven years. In order to meet the growing demands for power, the rural electric systems must be assured of an adequate amount of capital. We realize that with these ever-increasing requirements, we cannot expect Congress to make annual appropriations to meet all our needs. In Kentucky alone, our projections indicate that the rural electrics will require approximately $100,000,000 to meet their needs during the next five years. On a national scale, the rural electrics will require $2-billion more in the next 15 years than has been provided in the past 32 years. We believe that the supplemental financing plan for rural electrics embodied in the legislation now under consideration by Congress will provide us with the kind of financing we must have in order to meet our unique needs. If enacted without major change, this legislation would put us on the road to eventual ownership of our own financing structure and would provide us with the flexibility we must have to meet our future needs. We believe that there are still rural electric systems which will continue to require the present 2 percent loans available under the present Rural Electrification Administration loan program. These systems serve few consumers per mile of line and realize low revenues per mile of line. They have not reached sufficient strength to enable them to pay more for their money and still meet their objectives. There are other rural electrics, which by virtue of the nature of the areas served and their financial position, can and should pay more for their money. |