on fact indicate the required plant investment by 1975 will be $191 million, and in 1980 the figure will reach $267.

It is also a fact that the very nature of our business, many miles of line, low consumer density, the covenant of complete area coverage, repayment of debt with interest, results in a higher capital cost per dollar of revenue. These factors require Mississippi's electric power associations to invest $4.98 in plant to achieve a return of $1 in revenue-one of the highest investment to revenue costs of any industry, and much higher than the same figure for the commercial power companies who enjoy high customer density, more than five times the revenue per mile of line, and the opportunity to float investment with repayment of interest only.

Based on our known and projected growth pattern and an apparently stable investment to revenue ratio, it is apparent that our future rests on two important factors-low-cost financing and financing adequate to assure our ability to meet the rapidly expanding needs. In view of the fact that present capital needs are not being met, and that a backlog of applications is piling up in the Rural Electrification Administration with the necessary funds to meet current rural electrification needs unavailable, and knowing full well our own growth capital needs and recognizing that nearly a thousand electric cooperatives across the nation face a similar situation, it seems rather obvious that future growth capital requirements cannot and will not be met by Congressional appropriation alone. Thus, we must look to another source of financing for the future. We respectfully submit to this committee that favorable consideration and enactment into law of H. R. 14000, introduced by Representative Poage of Texas, or the identical bill H. R. 14048, introduced by Representative Wilbur Mills of Arkansas, is essential to the preservation of and future welfare of Mississippi's rural electric power associations. We respectfully urge your favorable consideration of one or both of these bills, thus assuring that the rural electrification program of this nation will not be hamstrung with a resulting further deterioration in an already depressed rural economy.

This supplemental financing legislation is a necessary step that will carry our Mississippi electric power associations forward in service, maintaining the fine traditions they have built. By passing this legislation, the Congress will aid materially the forward work of our electric power associations in Mississippi.

STATEMENT BY J. WILEY BOWERS, EXECUTIVE DIRECTOR, TENNESSEE VALLEY PUBLIC POWER ASSOCIATION

My name is J. Wiley Bowers. I am Executive Director of the Tennessee Valley Public Power Association, an organization of the cooperatively owned and municipally owned electric distribution systems in the Tennessee Valley which purchase electric power at wholesale from the Tennessee Valley Authority (TVA) for retail distribution to more than 5,000,000 people in parts of seven

states.

Our recommendations to your Committee may be summarized as follows:

1. That you approve legislation such as H.R. 14000, introduced on March 24 by Rep. Poage, in order to provide supplemental financing for the rural electrification program; and

2. That the Congress continue to provide adequate 2 percent interest loan funds for the many rural electric cooperatives which cannot pay the higher interest rates.

In connection with the level of interest rates, it is important that the Federal Electric Bank and Federal Telephone Bank be so authorized as to enable them to provide funds at the lowest possible interest rates, and we believe generally that this means authorizing the maximum flexibility for these entities. In the Tennessee Valley there are 50 rural electric cooperatives which provide electricity to about 575,000 farms, homes and businesses. The electrical demands of these rural electric cooperatives are growing steadily each year, and give every indication of continuing this growth.

In this respect the rural co-ops in the Tennessee Valley are like their fellow co-ops across the Nation: growth in the use of electricity-and a matching growth in facilities to serve the expanding loads-is a common characteristic of these member-owned utility systems.

However, in the Tennessee Valley, the rural co-ops do not have the same problem as their fellow co-ops in other parts of the country on power supply. The

Tennessee Valley cooperatively owned systems purchase their power at wholesale from TVA, under long-term contracts at very reasonable rates and under conditions negotiated with TVA. Our co-ops, then, do not need to build generation and transmission co-ops to meet their wholesale power requirements.

We recognize, however, that the cost of power supply is a major portion of the cost of electricity, and we believe that rural electric cooperatives across the country should have access to low-cost power either through buying it from a wholesale supplier, or through generating their own power.

Nationally, there seems to be general agreement among rural electric cooperative leaders that the time has come to supplement the present 2-percent Federal loan funds with the mechanisms set forth in H.R. 14000, in order to provide sufficient funds for rural electrification loans. While we would prefer to see the Congress continue its present loan program without supplemental financing, we believe that if legislation authorizing a supplemental financing program is to be adopted by the Congress, the legislation should be designed to achieve maximum flexibility and to achieve the lowest possible interest rates for borrowers. Restrictions which limit the authority and funds of this new lending entity will result in higher interest rates. In general, we believe that the Poage bill, H.R. 14000, provides the conditions which will best fit the requirements for flexibility of operations for the Federal Banks.

Thank you for the opportunity to present this statement on behalf of the rural electric cooperatives in the Tennessee Valley.

STATEMENT IN BEHALF OF THE ASSOCIATION OF LOUISIANA ELECTRIC COOPERATIVES, INC., AND LOUISIANA ELECTRIC COOPERATIVE, INC.

And the Following Member Systems: Valley Electric Membership Corp., Natchitoches, La.; Beauregard Electric Cooperative, Inc., DeRidder, La.; Bossier Rural Electric Cooperative, Inc., Bossier City, La.; Jefferson Davis Electric Cooperative, Inc., Jennings, La.; Teche Electric Cooperative, Inc., Jeanerette, La.; South Louisiana Electric Cooperative, Inc., Houma, La.; Dixie Electric Membership Corp., Baton Rouge, La.; Washington-St. Tammany Electric Co-op, Inc., Franklinton, La.; Pointe Coupee Electric Membership Corp., New Roads, La.; Concordia Electric Cooperative, Inc., Ferriday, La.; Northeast Louisiana Power Cooperative, Inc., Winnsboro, La.; Claiborne Electric Cooperative, Inc., Homer, La.; Panola-Harrison Electric Cooperative, Inc., Marshall, Texas, Associate Member.

Mr. Chairman: My name is Mark H. Bonner, Jr. I am general manager of the Association of Louisiana Electric Cooperatives, Inc., trade association for 13 distribution Rural Electric Cooperatives and Louisiana Electric Cooperative, Inc., a G & T federation. We support the Poage (HR-14000), Mills (HR-14048) and Schisler (HR-15162) Bills, as they are more in keeping with the objectives of our Cooperatives and the long-range study of NRECA, approved by an overwhelming majority of delegates at the recent national convention in Las Vegas. Our member systems have 153,262 metered connections in rural Louisiana, of which approximately 15% are idle due to population displacements and the rapidly changing agricultural technology. Our membership comprises but 4% of the total electric power consumers in the State. However, to serve this 4%, our Cooperatives own and maintain almost 50% of the total miles of distribution lines in Louisiana-28,794 miles to be exact. Our total investments are $90,363,011.00, or $589.00 per meter. Throughout the state, our membership averages slightly above five per mile of line. Membership per mile ranges from a low of 3.7% on one Cooperative's system to a high of 12 per mile on a Cooperative system serving a coastal area, developed because of rural electrification and the availability of 2% REA loan funds.

Mr. Chairman, it is believed that this introductory information alone reveals that our Cooperatives have a unique status, with rather awesome financial and service responsibilities, which is most uncommon to the commercial power companies operating in Louisiana. The five companies currently have approximately 40 consumers per mile of line. In addition, they enjoy (1) a total monopoly of all wholesale power service, (2) over 99% of all industrial sales, and (3) approximately 97% of the total revenue from power sales in Louisiana.

The uniqueness of our situation becomes even more apparent when one considers the commercial companies also enjoy annually a legally guaranteed mini

mum net return of 6% on all investments After taxes and operating expenses. They also enjoy Freedom From Competition. In Louisiana, our Rural Electrics are favored with no such special privileges. To the contrary, due to company hostility and in the absence of territorial integrity legislation, our Cooperatives must compete with their own wholesale power suppliers (the power companies) for retail consumers in their own historic rural service areas.

Still, we are faced on every turn with the fallacious argument of the commercial companies that our job is done that funds should not be appropriated for the Rural Electrification Administration, or if appropriated at all, that such loan funds should be heavily restricted.

Our job is not done. It is just beginning:

During the past five years, our distribution Co-ops expended $24.4-million for capital improvements to serve their members and to develop their rural areas. Our Rural Electrics estimate that during the next five years, they will invest $29-million to take care of the growing demands of their consumers and for rural development.

Kilowatt-hour consumption per member on our rural systems in 1965 was 2,103; in 1970 the average consumption per member is expected to be 6,639— more than three times present consumption.

It is not nearly enough to build a line in rural Louisiana; it must be constantly rephased and upgraded as our consumers yearly learn to live better and to produce more food and fibre with electricity. No one can logically deny that investments for rural electrification are good for both town and country progress.

The question is:

Where is the money coming from, in view of the growing reluctance of the Congress to appropriate adequate funds at 2% interest?

At this very moment, our Cooperatives are acutely feeling the results of the Congressional economy drive and the growing reluctance of the Congress to appropriate adequate funds for the REA lending program. Some of our Cooperatives report that loan applications have been before REA for many months awaiting approval. Already on file with REA this year are applications totaling $4,466,932.00. Before the end of the year it is anticipated that an additional $5,390,000.00 of loan applications will be placed before REA for approval. In 1967, our requirements are expected to be $4,933,494.00; and, as stated, will total some $29 million during the next five years.

Faced with an expanding economy and a great need for rural development in Louisiana, requiring large capital expenditures, the Cooperatives are also caught in a price-cost squeeze play. (For example, the cost of constructing a mile of single-phase distribution line has leaped from $1,297 in 1950 to $2,229 in 1966almost 100%.) And, on top of all this, REA policies forbid retention of general funds in excess of 15% of plant value. REA also stresses payment of capital credits and two-years advance payment of mortgage notes. All of this, plus the ever-increasing Congressional Committee restrictions upon REA loan funds, in effect, leaves even our most stable Cooperatives in an ever-tightening bind for capital. Therefore, we have become most apprehensive about the longrange outlook, especially in the face of the reluctance of the Congress to appropriate adequate funds.

For these reasons, we are convinced that the establishment of a federal bank for rural electric borrowers, along with continued 2% REA financing for those presently unable to participate in such a bank, is absolutely essential to provide adequate and dependable sources of capital at reasonable rates. If the Congress is unwilling to provide adequate loan funds, then the only alternatives permitting survival of the nation's member-owned Cooperatives are (1) a bank along the lines of Bills under study, or (2) a complete lifting of all restrictions upon the Cooperatives as to whom and what they may serve, including competition for consumers in towns and cities. The latter alternative is certainly undesirable from our viewpoint unless forced upon us as a matter of survival. We think the commercial utilities would do well to consider this possible alternative before rushing headlong into more demands for cripling restrictions upon funds to be loaned by the bank and REA. We do not think we need stress to this Committee the importance of the Rural Electric Cooperatives to the economy and future progress of our great nation.

We have thoroughly studied the various proposals for a federal bank for rural electric borrowers and a supplemental financing program within the present framework of the REA act of 1936

Ranking first in all our studies is the inescapable conclusion that 2% REA financing is absolutely necessary for most of our cooperatives for some time to come.

However, recognizing our responsibilities to the government and to our members, we recognize that some of our Cooperatives may be in a financial position to participate in the bank as envisioned by the Poage, Mills and Schlisler Bills. While we are appreciative of the intent of the Administration Bill and its recognition of the problems facing Rural Electricfication borrowers, we feel that it has certain shortcomings which can, and should, be corrected, for these

reasons:

(1) The Administration's Bill does not provide sufficient capital for the bank. The federal contribution of $750-million is over a lengthy period of 15 years, whereas, the Poage-Mills and Schisler Bills provide for $1-billion at a much more rapid rate, which would enable the bank to fulfill its objectives at a much earlier date.

(2) The Administration's Bill requires 4% interest on 50-year loans, compared to 3% in the Poage and related Bills, thus increasing the interest rate 100% above current 2% REA financing. Due to the nature and character of rural electric service with its low density and high operating costs to provide a parity of service on par with that of towns and cities, margins are extremely low on most rural electric systems; therefore, a 100% increase in interest rates would work an extreme hardship on many of the bank's borrowers. The 50% increase inherent in the Poage and related Bills is somewhat drastic, but can be lived with without endangering the long-range objectives of the bank and its borrowers. It should be realized that restrictions in the REA Act of 1936, the added restrictions of Congressional committees over the years, etc., have prohibited in no small measure the ability of the Cooperatives to develop lucrative areas and large power loads with corresponding large margins on total operations. To suddenly demand the Cooperatives to take on the added burden of a 100% interest rates increase appears unrealistic and extremely harsh in view of the many restrictions upon who and what they can serve, plus the responsibility to provide total area coverage, regardless of the economic factors.

(3) The Administration Bill is not in keeping with the traditional and cherished philosophy of home ownership and control of the rural electric systems and their service facilities in that the directorship of the bank remains in complete control of the federal government until the last dime of the government's investment is repaid. The Poage Bill is patterned after the time-proved Farm Credit system which has been so successful.

It re

(4) Section 410 of the Administration's Bill is absolutely untenable. quires G&T borrowers to enter into reciprocals pooling agreements with power companies before the Bank will honor G&T loan applications.

This would, in effect, give the commercial utilities veto power over many G&T loan applications. It would eliminate the independent "yardstick" factor, so important to states, like Louisiana, where power companies enjoy a monopoly of wholesale power service.

It ignores that many applications for transmission have no relation to power generation, but are necessary for internal security and service to membersor in the case of Louisiana, to keep transmission facilities out of the rural service areas of the Cooperatives because power company transmission lines are only too often used primarily as vehicles to usurp and pre-empt territory and consumers of the Cooperatives. Here in Louisiana, the companies often underbuild transmission facilities for that sole purpose. Furthermore, the power companies in Louisiana have refused to negotiate with the Cooperatives for pooling and wheeling on any reasonable basis, such as provision of standby power, disposal of surplus energy, etc.

This appears to be a "special interest" feature, and, as such, should be eliminated.

In conclusion, it has been our belief for some time that the power companies will hotly contest any concept of a federal bank for rural electric borrowers which does not heavily restrict the use of such funds. No matter what they may tell the public in expensive advertisements paid for by their consumers, the companies much prefer to keep the Cooperatives utterly dependent upon government in hopes of tacking on ever more restrictions. This is verified by the flood of company-initiated news and editorial hand-outs to the news media in Louisiana in recent months, attacking the concept of a bank for Rural Electric borrowers.

Although the companies have in past years expended vast sums in Louisiana attacking the 2% REA interest rate as "unfair competition" and a "needless waste" of taxpayer money, it is most evident that the interest rate is of no real concern to the companies. The five companies operating in Louisiana have long announced intention to destroy our Cooperatives as a competitive influence, by example. They are today working diligently and in unison to accomplish that goal. It is to be expected, therefore, that the companies operating in our state will oppose adequate loan funds for Electric Cooperatives in the absence of crippling restrictions-no matter their source or the interest rate assessed. Mr. Chairman, the Poage, Mills and Schisler Bills, and the Administration's Bill, with the correction of the few flaws noted above would insure the survival of our Cooperatives as permanent, and necessary, public service institutions within the framework of our great private enterprise economy, enabling us to continue our good work for the benefit of ALL Americans in both town and country.

We thank you for your time, Mr. Chairman.

STATEMENT OF EARL J. SHIFLET, EXECUTIVE MANAGER, VIRGINIA ASSOCIATION OF ELECTRIC COOPERATIVES

Mr. Chairman, Distinguished Members of the Committee, my name is Earl J. Shiflet. I am Executive Manager of the Virginia Association of Electric Cooperatives, which represents 15 electric cooperatives in Virginia and two in Maryland. The 17 electric cooperatives have an aggregate consumer-membership of approximately 165,000, which means they serve more than 450,000 rural people in the two states.

The leadership of this Association has for several years thought that some steps should be taken to study the financing of rural electric cooperatives with a view toward relating interest rates to ability to pay.

It was, therefore, with a great deal of satisfaction that the members of the Association supported a study inaugurated by the National Rural Electric Cooperative Association in 1964 to see what, if anything, could be done about the total financing of rural electric cooperatives.

While there are those within the membership of the Virginia Association of Electric Cooperatives that would prefer minor changes in the proposals advanced by NRECA, the overwhelming majority supported the recommendations that grew out of their study. We felt this was the best that could be presented at this time.

With all the strength that we can muster, we urge this Committee to study carefully the proposed legislation before you and to report out a bill that will grant to the rural electric cooperatives a means for supplemental financing in keeping with the proposals made by NRECA and which are embodied in H.R. 14000.

The 17 member cooperatives of this Association have borrowed from REA in excess of $121,480,000 through 1965. It is estimated that the loan requirements of these 17 distribution cooperatives for the coming fiscal year will be more than $9 million. A conservative projection indicates that these same 17 cooperatives will require in excess of $250 million in new loan funds during the next 15 years.

Until a financing bill has been passed and signed, and the criteria for judging ability to pay higher interest rates have been established, we cannot know for certain how many of our systems can pay more than 2% interest on their loans. We believe now that some can pay more; we believe others cannot pay more than 2% on the money borrowed and remain financially sound. This situation is not unique to Virginia and Maryland. It is quite the same for the entire United States.

It does not seem logical to wait until every cooperative in the country is financially capable of paying more than 2% interest before any cooperatives start paying more than 2% interest on their loans. Therefore, it seems to us,

the only logical approach is for Congress to provide now a means of supplemental financing for those cooperatives that can afford now to pay a higher rate of interest.

A proposal for an Electric Bank, as contained in H.R. 14000 is such a reasonable and logical approach.