developed, ultimately, but believe that today's legislation would work more to the detriment of our program than to its success. We know of its needs in the Plains States, and I want to urge upon this committee that we in the Plains States in South Dakota and North Dakota feel that we need to have the 2-percent program continued. This legislation provides no real safeguards than the 2-percent loan program will continue at levels that will be required. Rather, the announced intention of this administration that the purpose of the legislation is to "minimize Federal outlay" creates fears that the amount of 2-percent money will diminish rapidly. If that occurs, the entire concept fails. Once another source of capital becomes available, we fear that those paying a higher rate of interest will be reluctant, as will their Congressmen, to support the 2-percent loan program. We hope this would not be the case, but we can come to no other conclusion. This legislation contemplates a total need of about $9 billion for the next 15 years. This figure, I understand, is the result of a study by NRECA and REA. In last year's testimony, NRECA projected that about half of the loans to be made in this 15-year period would be at 2 percent, the other half at a higher rate. At the end of that 15 years, the bank would have a surplus of $115 million but would not have retired any capital. I have found no study supporting the estimate that only half of the loans will need to be 2 percent in the next 15 years. What would happen to the cooperatives, and to the soundness of this bank, if the 2-percent appropriations fall short of the need? How about the interest rate 15 years from now? Many of us would sleep better at night if there were a definite understanding of which cooperatives get 2-percent loans, which get 4 percent and which pay market cost. The proposed legislation provides only that those co-ops with 40percent equity pay one of the higher interest rates, and there are four exemptions to this one provision. About 25-percent of the co-ops, I understand, have achieved 40-percent equity. How many of this 25 percent qualify under one of the exemptions for the 2-percent fund? I am convinced that the decision on the rate of interest is left with the REA Administrator or to the administration in power. The vital point is that an electric bank loan program is being put together which has as its basis the providing of half our total needs by 2-percent funds, and half by a higher rate of interest, with no real basis for such an asumption. Is it not logical and reasonable that this committee ask REA and NRECA to provide substantiating data for this central premise before final action on this legislation? The figures we have heard are that 25 to 30 percent of the co-ops can afford now to pay higher interest. What is the basis for extending this to 50 percent? We in the thinly populated Great Plains are especially concerned about the continued availability of 2-percent money. We have power on virtually every rural place that wants it. But we do not begin to provide the type of service that many rural customers will want in the future. Our distribution systems are barebones-many times a pole, a single-phase conductor and a neutral. Three-phase lines are few. Yet any city resident in this Nation, with few exceptions, can get three-phase service if and when he wants it. You must realize that service to a farm is not residential service. It is commercial service to a small industry-requiring poles with crossarms and four wires, instead of poles without crossarms and only with two wires. Providing this service on an area-coverage basis will require large amounts of capital. But I question whether our members will have any hope of getting such service if our interest rates are raised. The bill introduced by Representative Mark Andrews of North Dakota, specifying that loans to cooperatives having an average consumer density not exceeding two customers per mile shall be from 2percent funds, is a step in the right direction. If this idea were expanded to include cooperatives whose consumers do not exceed three consumers per mile-and to provide G. & T. cooperatives serving distribution cooperatives with aggregate density not exceeding three consumers per mile-if all loans to both G. & T. and distribution cooperatives of such low density were made from section 4, and the law so clearly specified, it seems to us that this is the only concrete, definite provision proposed thus far to assure 2-percent funds for those who need these funds the most. Let me summarize this basis point. The nature of this legislation, as outlined by its advocates, is to minimize the need for 2-percent loans. This is a poor foundation on which to build a service so vital to our food and fiber production. This proposition is based, not on doing what is needed to provide low-cost, high-quality power for the rural areas, but rather on reducing Federal outlays through a farm credit-type bank. What else would these higher interest rates achieve? Last week, TVA for the first time in history announced it is increasing retail rates. Higer interest cost is a major reason for that rate increase. Raising interest rates for the rural areas will ultimately have the same effect. Is this the purpose of this legislation? There are other alarming provisions here. One version of this legislation specifies that G. & T. cooperatives would not be eligible for 2percent loans. With power supply comprising 50 to 75 percent of the cost of providing service, low interest rates are also vital to this type of cooperative, as far as the cost to the consumer is concerned. While only about one-fourth of the rural electrics get their power from a G. & T. and all others benefit because of the "yardstick" effect of a G. & T. and the real bargaining power offered by the availability of G. & T. loans. If the interest rate for G. & T.'s is doubled, the feasibility of G. & T.'s and bargaining power for REA and the rural electrics flies out the window. Providing judicial review of G. & T. loans would have the same effect-killing this most important phase of rural electrification. There apparently is some difference of opinion, and I want to comment specifically on H.R. 7700 introduced by Representative Quie. I should also like to point out that if the financing legislation gives the power companies the right to have the courts review loans for generating and transmission facilities which will replace other power suppliers, the result will be to take away from the cooperatives the ability to bargain for lower cost power. The delays and expense resulting from court action will make such projects nonfeasible. Our last East River loan is a good example. We applied for it on May 26, 1964. Because of the opposition of Northern States Power Co., the loan was not made until May 24, 1965. Then the power companies filed a court action, and REA has not even been permitted to talk to us about the loan since then. On February 28, 1967, the U.S. Court of Appeals decided that the power companies had no standing to bring the action and ordered it dismissed. The power companies are now attempting to go to the U.S. Supreme Court and we do not know when the loan funds may be released. An Alabama and Louisiana loan which were made some time before ours are still being held up. They are being held up even though the U.S. Supreme Court and various U.S. Courts of Appeals have held time and time again that no legal right of the companies is affected by a loan and that they cannot sue. To grant court review to the power companies now would overrule many such cases. Congress has refused to do this many times over the years. In the few instances in which the State courts may review a loan, the exerience has been similar. For example, in Mississippi a loan has been held for 9 years and hundreds of thousands of dollars of expense has been incurred, even though the courts have again and again decided in favor of the cooperative. The Court, in the case involving East River, points out the harm. which would result to the cooperatives if the companies were given judicial review and emphasizes that no legal rights of the companies are affected by G. & T. loans. The Court also emphasizes that the administration and Congress are better equipped to make and pass upon loans than are the courts. H.R. 7700 contains many provisions which are harmful to our program and we urge you to consider reporting it out. Its treatment of G. & T. loans is even more vicious than the provisions for judicial review in the other bills. Formal legalistic hearings would be required on bids which cooperatives would be forced to take from the companies. This can only be for the purpose of harassment and delay and adding great expense. The feasibility of a loan and costs of supplying power cannot be determined at a legalistic hearing. This can only be accomplished by engineering, rate, and financial studies made by experts. Not satisfied with the harm to the program which would result from such hearings, provision is made for appeal to the Federal Power Commission with new hearings on the record and for proceedings under section 307 of the Federal Power Act which section authorizes extremely broad investigations and hearings. By the time all this had been completed, several years would have passed and all of the cooperatives' funds would have been eaten up by the expense involved. A number of bills providing for Federal Power Commission review of G. & T. loans have been introduced over the years. Not one has seen the light of day. To destroy the program by the enactment of H.R. 7700, this Congress would be doing what many previous Congresses have refused to do. In my filed statement. I quote from a debate in which a number of illustrious Senators pointed out the delays and expense which would result from such FPC review. Their feelings were forcefully summarized by Senator Aiken in these words: "Propaganda against farm cooperatives is being distributed all over the country, in every town in the United States, and if we accept this amendment we will be aiding in destroying the effort of the farmer to help himself through rural electrification cooperatives." In summary, the program to furnish sufficient electric service at reasonable rates to the farms of America will be killed by judicial review. Unfortunately, it will be killed even more easily and faster by the hearing and FPC review provided for in H.R. 7700. We have always looked forward to 1-cent or cheaper electricity for our farms. It's that simple. What do we do to this dream when we set, by a parity-of-rates formula, as the bottom limit for our rates the rates of the power company? I refuse to believe that George Norris, FDR, or Sam Rayburn intended that only the rural people of TVA and the Columbia Basin should have 1-cent electricity. They wanted it for all rural America-for all Americans. To ask our members to provide their own expansion capital without their consent, as this policy clearly does, is not consistent with power at the lowest possible cost. Parity of rates with I O U's who flagrantly overcharge their consumers and the power company device of consumer-financed system expansion-is totally inconsistent with power at the lowest possible cost. I do not believe that the rural electrics, themselves, have done all of their homework on this legislation. NRECA members have formed a committee to study the entire subject criteria. This committee should have a look at these findings before taking final action. I think there are relevant facts which we in the rural electric program are obligated to provide. One is the basis for the need for 2-percent money in the next 15 years. Unlike some rural electric representatives, I am more concerned about the long-range effect of this legislation than any immediate crisis if there is such a crisis. Are these basic changes being proposed going to do the job 20 years from now as well as 5 years from now? Is this farm credit bank idea really adaptable to finance rural electric systems? What kind of situation are we going to find ourselves in 15 years from now? I am convinced that basic changes in legislation that has meant so much to rural America should not be made until it is clear that such changes are improvements. I am not convinced that all of the relevant facts and considerations have been determined, either for those directly affected by this legislation, or for the committees of Congress. The legislation in its various forms, therefore, should be subject to much more study by those it affects directly and by the Congress. It is not good enough the way it is. The CHAIRMAN. Thank you very much. The time has expired. Mr. KLEPPE. I would like to introduce Mr. Nygren, a farmer from North Dakota, who is a member of the board of directors of the local REA Cooperative, and he is a member of the board of the Basin Electric Cooperative of Bismarck, N. Dak. He is a member of the Board of the North Dakota Association of REA's, and very recently served 7 years on the National Board of REA's. Helge Nygren from my District of North Dakota. The CHAIRMAN. I understood that you were going to submit a prepared statement. Mr. KLEPPE. Could he have 3 minutes, Mr. Chairman? The CHAIRMAN. Please go ahead, Mr. Nygren, and supplement your statement, and you may insert your prepared statement in the record. STATEMENT OF HELGE NYGREN, DIRECTOR, BASIN ELECTRIC COOPERATIVE, BISMARCK, N. DAK. Mr. NYGREN. Mr. Chairman and members of the committee, I should like to summarize just a few of the points in my statement that we think are of great importance. No. 1, any bill dealing with rural electric financing should provide for the possibility of the distribution and generation cooperatives obtaining 2-percent 35-year loans. This system should not be barred from receiving such loans because of the rates they may charge. The legislation dealing with supplemental financing should not change in any way the present REA 2-percent 35-year loan program, but should provide for rural electric cooperatives serving sparsely settled areas. H.R. 7521 recognizes this concept, but seems to be too limited. No. 2, the Basin Electric Cooperative opposes any legislation that provides for judicial review of the loan expenditure. We have several other points here, but due to your request, Mr. Chairman, I want to thank the committee for allowing us to submit our statement and for presenting it to you. The CHAIRMAN. Thank you very much, Mr. Nygren. We are very glad to have had both of you gentlemen with us at this time. (The prepared statement of Helge Nygren follows:) STATEMENT OF HELGE NYGREN, ASSISTANT SECRETARY, BASIN ELECTRIC POWER COOPERATIVE Mr. Chairman and members of the Committee, my name is Helge Nygren. I am a farmer and live in Flasher, North Dakota. I serve on the Board of Directors of our local rural electric cooperative, Mor-Gran-Sou Electric, on the Board of Directors of Basin Electric Power Cooperative, and on the Board of Directors of the North Dakota Association of Rural Electric Cooperatives. For seven years I was a member of the Board of Directors of the National Rural Electric Cooperative Association. I appear before the Committee today as a representative of Basin Electric Power Cooperative, Bismarck, North Dakota, to present our views on the proposed legislation that would change the financing of rural electrification. Basin Electric is a generation and transmission cooperative organized initially by 67 member cooperatives. We now have 106 member cooperatives located in eight states of the Missouri River Basin. We have constructed a 200.000 kilowatt generating plant that uses one of the Missouri Basin's greatest resources-lignite. Built with a $36.6 million REA loan, this unit is the largest lignite-burning plant in the Western Hemisphere and is pioneering in the use of this fuel for large-scale power generation. The plant has been in commercial operation for more than a year, producing low-cost power for our member cooperatives. These systems comprise 11% of the rural electric cooperatives in the nation and serve 265,000 rural homes and businesses. The farms served by our member cooperatives comprise a substantial |