The Rural Electric Credit System as proposed is designed to meet the needs of all rural electric systems. It provides a continuation of the 2 percent loans for those systems with a justified need; an intermediate loan program for those systems which can pay more, but still cannot afford to go to the open money market for their financing, and makes it possible for till others to go to the private money market for their financing.

We also believe that the legislation will enable us to take care of our power generation and transmission requirements for the future, enable us to plan on a long term basis, and will provide us with the opportunity to share a greater portion of the realistic cost of money.

As a representative of an organization that has vital interest in the full development of the area it serves, I urge your favorable consideration of the legislation setting up a Rural Electric Credit System.

STATEMENT OF CLARENCE W. PETERSON, GENERAL MANAGER, LAKE REGION CO-OP ELECTRICAL ASSOCIATION, PELICAN RAPIDS, MINN.

Mr. Chairman and Gentlemen of the Committee, my name is Clarence W. Peterson. I am the General Manager of Lake Region Co-op Electrical Association with headquarters at Pelican Rapids, Minnesota.

Lake Region Co-op Electrical Association is a rural electric cooperative distribution system operating in Ottertail, Wilkin and Becker Counties in westcentral Minnesota, Lake Region serves more than 12,500 farms, rural residences, rural churches, rural schools, rural industries, lakeside homes and cottages in its service area. This rural electric system operates 4500 miles of distribution and transmission lines in a 3200 square mile area.

The continued development of the rural areas of west-central Minnesota is substantially dependent upon a strong rural electrification effort. The growth and anticipated accelerated growth of the area will place even greater demands on the capacity of this rural electric system to provide high quality electric service to the people who now reside in the area and to the people who are investing in new rural industries and in new residential and commercial developments around the 1000 lakes located in Lake Region's service area.

The Board of Directors of Lake Region Co-op Electrical Association has authorized and directed me to present this statement in support of H.R. 1400, with reasonable modifications, which will achieve a sound source of financing for rural electrification growth in the foreseeable future.

In addition to our own financing requirements in the future, we are intensely concerned that our power supply group, Cooperative Power Association will have an adequate and reasonable cost financing source with which to meet its utility responsibilities in the Upper Mississippi Valley Power Pool and its responsibilities in the integrated transmission arrangements with three power companies operating in Minnesota.

To indicate the magnitude of the financing requirements of Cooperative Power Association I would like to briefly outline this arrangement. C.P.A. supplies power to 18 rural electric systems in Minnesota. C.P.A. recently secured approval from the Rural Electrification Administration for a loan in the amount of $19,512,000 to finance its share of and integrated transmission system with three power companies in Minnesota. This loan will permit C.P.A. to finance its share of transmission responsibilities in the common areas of C.P.A.-Northern States Power Company, C.P.A.-Otter Tail Power Company and C.A.P.-Minnesota Power & Light Company. Each party to these arrangements is responsible to provide its share of transmission requirements of the area in proportion to each party's respective use of the joint transmission systems. Because the loads of these power supply groups are continually growing, additions to these integrated transmission systems will be needed. In this type of arrangement, the groups do not pay each ohter for the use of the joint system but are obligated to introduce transmission additions to the joint systems in proportion to the growth of their loads to the total area load. The utility responsibility of C.P.A. in this integrated transmission program will require large capital investments in the years ahead. I have but mentioned the utility responsibility of our power supply cooperative group in the area of transmission lines. C.P.A. has similar responsibility for the production of power also. C.P.A. is planning for and anticipates to be called upon

and required to furnish a pool size generating unit of approximately 500 MW within the next ten years to contribute to area power supply reliability and, of course, to achieve the most efficient and low cost power supply for the area using the best available technology. Such a power producing facility will require more than $75,000,000 in new capital.

What I have attempted to illustrate here is the fact that rural electric systems in Minnesota and in west-central Minnesota have responsibilities to provide their share of transmission and generating capacities for their requirements in addition to their distribution system capital growth requirements. And large amounts of new capital are needed to meet these responsibilities. A good supplemental financing program is needed now for these rural electric systems.

Representatives of our system, C.P.A. and other rural electric systems have met with the power companies in Minnesota in connection with supplemental financing for the rural systems. In recognition of the utility responsibilities of the rural electric systems in power pooling and in the integrated transmission systems, these companies have acknowledged that the rural systems in Minnesota need a responsible supplemental financing program and we believe they are ready to support such a program.

We at Lake Region Co-op. Electrical Association concur in the following principles which have made it possible to achieve the objectives of the coordinated programs I have made reference to in this statement:

(1) The principle of local control and operation and electric power facilities with the management of each party retaining its local initiative and individual freedom and control.

(2) The principle that each party has the right and obligation, regardless of type or size of corporate organization, to own or otherwise provide for the facilities required to supply the electric power requirements of its consumers. (3) The principle of "live and let live" to the end that a party will not seek out and attempt to serve existing consumers or members in incorporated areas served solely by the other.

Because we recognize that the rural systems in Minnesota will require financing beyond anticipated Congressional appropriations to meet the obligations which these systems have to their members, to the Upper Mississippi Valley Power Pool and to their integrated transmission arrangements, we support a supplemental financing program which will enable these rural systems to borrow funds at terms and at rates of interest and for purposes which will enable them to meet their obligations.

We at Lake Region would prefer H.R. 1400 to be modified in a manner which will provide for a single interest rate which will reflect at the time of a 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 H.R. 1400 and provision for administrative expenses and estimated losses of the electric bank in respect to such other loans and requirements as set forth in Section 406 of the bill.

We believe that the time has now arrived when a good supplemental financing such as H.R. 1400, modified as described in this statement, should be enacted into law this year. We believe the enactment of H.R. 1400, modified to include a single interest rate will be in the best interests of the rural electric systems, the electric power industry and the Nation.

STATEMENT OF H. A. DALTON, GENERAL MANAGER, BRAZOS ELECTRIC POWER COOPERATIVE, INC., WACO, TEX.

Honorable W. R. Poage, Chairman and Distinguished Members of the Agriculture Committee of the United States House of Representatives:

The Brazos Electric Power Cooperative, Inc. with headquarters in Waco, Texas is the power supplier for 19 rural electric distribution cooperatives serving over 200,000 rural citizens in 57 counties in central and north central Texas in and along the Brazos River watershed. The cooperative was organized in 1941 as a Texas corporation and began selling electricity to its members at the wholesale rate of 7.2 mills per kilowatt hour in an area where the prevailing wholesale rate to rural electric cooperatives from investor owned utilies had been ranging from 1.2 cents to 1.5 cents per kilowatt hour.

The degree of success the Brazos has attained in furnishing dependable, low cost electricity to the rural areas it serves has in large measure been due to the continued understanding this august body and other members of Congress have had of the problems of rural electrification. Year after year you have made available to us the loan funds needed and required to economically and adequately serve rural areas which continue to average less than 3.3 consumers per mile of line as contrasted with more than 30 consumers per mile of line in urban areas.

Despite the lack of consumer density in rural areas the rural loads have continued to grow at a rate very closely paralleling the rate of growth in urban areas. To meet this load growth requires additional electric facilities. To construct these additional electric facilities requires additional loan funds. To get these loan funds under present law requires an ever increasing annual loan authorization from the Federal Government which holds a first mortgage on all of the Brazos facilities.

Brazos, along with the other rural electric systems of the nation, has sought and we believe found a solution to the financing problems which each year faces both Congress and the rural electric systems. The solution in our opinion is found in H.R. 1400 which will provide rural electrics a means of obtaining increasingly larger portions of their fund requirements in the open money markets, a diminution of Federal Government loan authorizations, and an eventual self-dependent credit system operating under the continued surveillance of Congress for compliance with the intent of Congress.

Brazos, acting in the public interest, has had cordial and contractual relations with the major investor owned utility operating in its area since 1943. The systems of Brazos and this utility have been interconnected since 1943 in order that each could obtain the mutual benefits of an integrated system. Needless to say all matters have not been resolved to the complete satisfaction of each party but, by careful and arms length negotiations, solutions have always been reached. It is our opinion that H.R. 1400 in no way presents a stumbling block to the continuance of cordial relations and electrical interconnections with the investor owned utilities and it continues to be Brazos intent to pursue with all vigor the continuance of such cordial relations and electrical connections.

Over-emphasis has been put on the matter of duplication of electric facilities. If our neighbor utility has built only the facilities normally required to meet its loads (which do not include the loads served by Brazos) such utility at best will only have temporary surplus capacity available to Brazos. The same is true when Brazos builds facilities to meet its loads. Thus, normal construction by electric utilities to meet only their loads do not create any duplication of facilities. As a matter of good business such utilities should cooperate to obtain the mutual benefits of planned use of the temporary surplus capacities and where possible jointly own and operate facilities which can and will mutually benefit both parties. In Brazos opinion H.R. 1400 provides the framework for the continuation of equitable pooling arrangements between borrower utilities and non-borrower utilities.

H.R. 1400 is designed to avoid the over-magnified danger of the David, who brought light to his people, from slaying the Goliath of the investor owned utility. Protective armor for Goliath is provided in Sec. 405 (j), the whole of Sec. 408 and, in our opinion most of all, in Sec. 410 (c) which states, "Nothing in this section shall alter or restrict the power of Congress to review the continued operations of the electric bank after all Class A stock has been fully redeemed and retired." and in Sec. 411 which states in part that, "The right to repeal, alter, or amend this title IV at any time is expressly reserved."

H.R. 1400 is not a bill that will satisfy everyone. Very few, if any, of the bills passed by Congress has satisfied or will satisfy everyone. But H.R. 1400 was hammered out not only to meet the evident needs and problems of rural electric systems but also to satisfy what members of Congress felt were, or could be, legitimate objections of investor owned utilities. H.R. 1400 will also be of help to Congress in removing from the legislative arena the annual time consuming problem of determining just how great are the financial needs of the rural electric systems.

Even though there has been a tremendous population shift from rural to urban areas since the Rural Electrification Act was first enacted in 1936 this program, which stands as a monument to what can be accomplished by the joint effort of

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the government and the electorate, exits today because in 1936 as in 1967 the Congress of this great nation, regardless of partly or locality, seeks and reaches an understanding of the fair and equitable needs of all its peoples.

STATEMENT OF HARRY L. HAILMAN, MANAGER, TIPMONT RURAL ELECTRIC
MEMBERSHIP CORP., LINDEN, IND.

Mr. Chairman and Members of Committee, my name is Harry L. Hailman, Manager of Tipmont R.E.M.C. whose offices are at Linden, Indiana. The word "Tipmont" is short for Tippecanoe and Montgomery which are two of the counties in which we serve. In addition to serving some in Clinton County, the other county which we serve the major portion of is Fountain which happens to be the home of our 7th District Representative, Mr. John T. Myers who is a member of this committee, as you know.

Tipmont now operates 1,525 miles of line serving 8,400 consumer-members. Although the number of farms in our service area is dropping slowly we are called upon to serve many subdivisions throughout our area but principally around Lafayette, West Lafayette and Crawfordsville, Indiana. We also serve a number of grain elevators, the very numerous fertilizer plants which seem to be springing up all over (we just signed contracts for six 3-phase installations in last two weeks) a number of new consolidated schools, etc., in addition to the new homes in the subdivisions and along the highways.

We average over 200 new consumers per year which at an average cost of $400 requires an expenditure of $80,000. Heavying up of services, transformers, etc., requires an additional expenditure of about the same size per year.

We have recently, with the help of our consultants on engineering, system planning, and rates, completed a five-year Financial Plan for our R.E.M.C. This calls for an expenditure of $1,547,000 during this five-year period for the construction necessary to take care of the new consumers, load growth of present consumers at about 6% per year, heavying up of lines and construction of five new substations and feeder lines therefrom.

Frankly, although our rates are at a parity with electric rates of other utilities in our area and though we now have adequate reserves we cannot make this heavy outlay of capital from our margins and reserves without borrowing. Inasmuch as we are in a comparatively, as in contrast to some rural electrics, strong financial position, we probably might be one that should borrow from the proposed bank rather than to ask for 2% money which rural electrics in thinner areas would be more entitled. Therefore, we believe both types of financing are necessary as outlined in H.R. 1400, etc.

STATEMENT OF KENNETH T. RAYBURN, PRESIDENT, TIPMONT RURAL ELECTRIC MEMBERSHIP CORP., LINDEN, IND.

Mr. Chairman and Members of Committee, my name is Kenneth Rayburn, President of Tipmont R.E.M.C. My home is in Fountain County which is in the 7th Indiana District, the same as Rep. John T. Myers.

The severe ice storm we experienced in January of this year points up the need for capital in large amounts. Ice formed on our lines to a thickness of 2'' in places, maybe more in some.

Since lines in our part of the country are only designed to carry 1⁄2" of ice and 8 lbs. wind load we were in plenty of trouble. Poles, crossarms and wires were broken. In a matter of a few hours, 60% of our members were out of service, about 5,000 on over 1500 miles of line. The ice was on for 5 days and other Rural Electrics were as much as 100% out. We were fortunate in being able to get help from 9 other R.E.M.Cs in the south to help, and also 2 Municipals. The cost of this to date has been about $60,000. Insurance for this kind of protection is out of the question.

We found where we had shortened our spans we had less outage. To do this on all lines would cost about $1,000,000 as 30,000 poles would have to be added. Since our members depend on electricity to operate heating and water systems as they do today, we know we have to improve our service and make it more dependable. This type of service improvement is only one that we must

do to meet today's needs of our member-consumers-we must install more and more automatic trouble-free devices.

There are many more examples I could refer to which makes the need for capital. They may be mentioned by others here today, so I would like to encourage your consideration of this bill.

STATEMENT OF REUBEN DOOLEY, MANAGER, PARKE COUNTY RURAL ELECTRIC MEMBERSHIP CORP.

I wish to make the following statement on behalf of the board of directors of the Parke County Rural Electric Membership Corporation, whose headquarters are located in Rockville, Indiana. The statement has been approved unanimously by this board.

The Board of Directors of the Parke County Rural Electric Membership Corporation (hereinafter called the Parke County R.E.M.C.) feels that legislation setting up a method of financing the REA borrowers patterned after the Federal Land Bank would be very desirable. Our board passed a resolution several years ago wherein they stated they were ready and willing to pay the current cost of money on future borrowings. First, because they feel this is right, and second, this is the one area of criticism wherein we have been unable to satisfy our critics regarding the right to continue to use a rate of interest less than the cost of money.

We feel that to remain competitive in the electric distribution field we must keep our plant in top condition so that a high quality of electric service will be delivered to the REMC member, and second, our rates must be competitive with that of the people in the cities in our immediate area. The rural resident is no longer a second class citizen and we feel this in part is due to the contribution made by the REMCS or REA borrowers throughout the country in bringing electric service to these rural areas. Much development has occurred in the country because of the presence of electric distribution lines that would have been piled up adjacent to the large cities had we not had rural electrification.

Rural people had faith in their ability to construct and operate electric lines and faith that they would use the electricity once it was available. Some thirty years later this faith has been justified and proved to be correct. We now need a method of financing that will allow for an orderly expansion of needed plant. We feel that the electric bank idea is sound because the Federal Land Bank over the years has done an excellent job of meeting the credit needs of the rural people. We would like to ask the committee to give this type of legislation careful consideration.

Our REMC board feels that those REMCS who are able will be much better off borrowing from an electric bank or like institution than by coming to the Congress each year for an appropriation. In our own instance we are able to generate only about one half of the capital needed for expansion—that is, heavying up our lines and serving the new residents that are located in the rural areas wherein live the people who work in the surrounding towns and cities. This spread of rural housing is good for the entire country. Many of them are locating adjacent to throughways which lets the working members of the family reach work quickly and yet they live in the less congested areas. This helps our country from the standpoint of pollution, city crowding, type of living and many other ways.

To give some idea of the amount of capital needed, the Parke County REMC is near an average REA borrower serving approximately 5700 members with 1200 miles of electric line located in six counties in midwestern Indiana with a present capital investment of $3,700,000 in distribution system. Our financial forecast indicates that we will need to borrow from $75,000 to $150,000 per year in addition to cash retained from the operation. This is necessary to provide adequate service for the member consumers of the REMC. We think this cash requirement is true of the average REA borrower across the country. Therefore, taking in account that there are more than 900 REA cooperatives, this indicates a need for a considerable amount of loan funds. Any legislation establishing an electric credit institution to put the rural electric cooperatives on a basis whereby they can establish such an institution which they would ultimately own will be good for everyone concerned.

After reviewing a print of H.R. 1400, the board of directors feels that a bill along these general lines would be quite acceptable to our corporation, and would like to urge the committee to consider favorably a bill along these lines, and that the committee recommend enactment of such a bill to the Congress.