"Rather than strangling the REA program by these alternative financing schemes, the Farmers Union urges that the 2 per cent loan program be retained and expanded for the recapitalization of rural America.”

[From the People's Voice, Sept. 3, 1965]

In Anchorage, Alaska, September 8-10 ...

RURAL ELECTRIC FINANCING WILL BE HOT ISSUE AT REGIONAL MEET

Recent recommendations by National Rural Electric Co-operative Association that the historic method of financing rural electric co-op service expansion via two per cent federal money be supplemented with money from other sources, will be a most controversial subject at the NRECA regional meeting September 8-10, at Anchorage, Alaska, according to numerous reports reaching the Voice. The Anchorage meeting, which will be attended by delegates from Montana and other northwest states' rural electrics, is the first of 10 regional meetings throughout the nation where the financing proposal will be given consideration.

First publicly announced on August 5 by NRECA Manager Clyde Ellis, the proposed financing revisions, as reported in last week's Voice, would, in addition to retaining the 35-year, 2 per cent federal loan program, provide:

Intermediate REA loans at the government's average cost of borrowing money, made for 50 years, and without some of the restrictions now imposed on co-op borrowers, and

A bank with up to $500 million in initial government capital that would become borrower-owned as the co-ops pay the money back.

...

In discussing the proposals, Mr. Ellis pointed out that "since the late 1940s... we've had difficulty securing adequate loan funds . . . It has always been an uphill fight." And he notes that although the fight gets tougher all the time, the need for funds is also skyrocketing, and that every seven years the co-ops double their need for power, and by 1980 will need $700 million in new capital each year which "we don't think it's likely Congress will authorize" in "such large sums."

FARMERS UNION IS "UNALTERABLY OPPOSED"

Immediately after NRECA's supplemental financing proposal was released, the executive committee of National Farmers Union wired President Johnson, Vice President Humphrey, Agriculture Secretary Freeman, REA Administrator Clapp and Mr. Ellis that it "is unalterably opposed to any change in financing the rural electric program.

"Increasing the cost of electricity through higher interest-type financing plans," said NFU, “will not only cut the farmers' already dwindling profits, but it will increase the cost of food for their consumers."

Continuing, the NFU wire stated:

"REA co-ops have only 3.2 customers per mile and received $460 in annual revenue per mile, compared with 33.2 consumers and $7,164 in annual revenue per mile of line for the power companies.

"To impose financing plans and criteria of the power companies on rural electric systems can only result in much higher retail rates by total domination by the power companies of the wholesale power supply for REA co-ops.

"Rather than strangling the REA program by these alternative financing schemes, the Farmers Union urges that the 2 per cent loan program be retained and expanded for the recapitalization of rural America."

ADDITIONAL OPPOSITION

Then, on August 23, the board of Mid-West Electric Consumers Association. Denver, representing rural electric and other public power associations throughout the midwest, and including mountain states such as Montana, also joined in opposition to NRECA's proposals.

In so doing, Mid-West pointed out that on June 29, 1965, they had passed a resolution "supporting the continuation of the REA 2 per cent loan program in amounts necessary to meet all the requirements of the nation's rural electric co-operatives."

1

That position was reaffirmed by Mid-West at its August 23 board meeting in Sioux Falls, So. Dakota, "after giving careful and extended consideration to the NRECA proposals. . . The board believes that the stated objective of the NRECA study of 'parity of rates' with the private power companies would cripple rural electric co-operatives' traditional objective of low-cost power."

IN EFFECT, "A COVENANT"

Continuing, Mid-West's memorandum points out that "the objective of electrifying rural America was accomplished under extremely difficult conditions through what was, in effect, a convenant between the rural electric co-operatives and the federal government. This covenant was, and continues to be: Low-cost financing by the federal government for any organization (private or consumerowned.—PV) accepting the responsibility of extending area coverage of central station electric service to rural areas.

"The difficult conditions under which rural electrification was accomplished have not changed; on the contrary, these have become more difficult as rural America continues year after year to lose tens of thousands of farms and residences. The overall economic condition of American agriculture relative to the American society generally remains one of disparity.

The memorandum continues:

"While the vast majority of our rural electric co-operatives have been successful even under these conditions, this by no means justifies imposing higher interest rates on the loan funds which make this program feasible.

TERRITORIAL PROTECTION LEGISLATION NEEDED

"Most states (including Montana-Editor) have yet to enact territorial integrity legislation giving at least some protection to their co-operatives' right to continue serving their present areas. The lack of such territorial protection is a major threat to the fiscal soundness of the co-operatives in all such states, as the NRECA financing study indicates.

Should the objective of rural electric be, as NRECA suggests, 'parity of rates' with the private power companies the primary aim of which is to produce profits for investors; or should it be an abundant supply of power at the lowest possible cost for rural consumers? Should the rural electric co-operatives continue to be able to provide a yardstick of electric rates for the nation?

"The Mid-West board believes that a program which seeks only 'parity of rates' with the private power companies will destroy the possibilities for achieving low cost power by most if not all of the rural electric co-operatives, and of furnishing a yardstick beneficial to consumers served by private power companies.

"Even with 2 per cent loan funds, the debt service requirements of the rural electric co-operatives are as great a proportion of their investments and a much greater proportion of their revenues than these same requirements for the power companies. The power companies, through their retail rates, are able to obtain substantial amounts of their new construction money directly from their consumers, and without recourse to borrowing. The rural electric cooperatives could not possibly use this device without drastically increasing their rates, as the NRECA study points out.

"The Mid-West board believes that there are great dangers involved in opening the REA Act to amendment. The Act, as it exists, has admirably and efficiently served the purpose of rural electrification. The opponents of REA would like

nothing better than a chance at amending the Act.

WARNS AGAINST HASTY ACTION ON PROPOSAL

"The Mid-West board strongly urges that every rural electric co-operative examine the effect of higher interest rates upon its long-range operations and costs, particularly on the rates their consumers will need to pay. The board believes that these effects of the NRECA proposals require intensive study before action is taken by the NRECA proposals.

"The Mid-West board strongly urges rural electric co-operatives ask searching questions about these proposals and that it refer any questions to knowledgeable sources, including state-wide organizations and its Congressional delegation."

[From the People's Voice, Sept. 17, 1965]

In Telegram to Regional Co-op Meeting in Anchorage..

PRESIDENT URGES HIGHER INTEREST RATES ON RURAL ELECTRIC LOANS

(By Gretchen Billings)

With the full force of the President of the United States behind it, a resolution that would increase interest on federal loans to rural electric co-operatives was accepted at the Region IX meeting of the National Rural Electric Cooperative Association meeting in Anchorage, Alaska, last week. (For background, see Voice, Aug. 27 & Sept. 3).

The resolution which calls for changes in financing the rural electrification program was passed at the close of the first of 13 regional conventions where the issue will be considered.

Proposed by the Board of Directors of NRECA, the resolution was the main subject of discussion at the two-day meeting in Anchorage. It was promoted and supported by NRECA General Manager Clyde Ellis and his staff in presentations to the delegates and members, and by Norman Clapp, Rural Electrification Administrator. Immediately prior to the final vote on the resolution the lengthy telegram from President Johnson urged delegates to approve such a plan.

PRESSURE FROM THE TOP RESENTED

Bucking the imposing pressure of the administrative arm of government and their national organization was a small group from Montana and Alaska. The small minority opposition kept discussion alive for over an hour in the face of overwhelming odds and almost certain defeat which must have been obvious to them early in the convention.

In discussing the futility of fighting such a formidable force, the determined opposition group told your VOICE reporter they were not willing to accept the conclusion that in a people's program the decision would be forced on them from the top down. No matter how small it might be, they said, they must make their influence felt.

The concepts which the NRECA resolution "exhort the Congress and the Administration to recognize" and for which their “active support" is sought include:

1. Retention of the REA program, in its present form and including 2% finaneing at a level of not less than $400 million per year for those systems to which it is an essential factor in carrying out their program objectives.

2. An intermediate financing plan from an REA revolving fund, free of crippling restrictions now contained in the act . . . at an interest rate equal to the cost of money to the government, to some of those more mature systems which can meet such interest rates. (Estimated at 3-4 per cent).

3. An arrangement which will make it possible to bring private financing into the program at acceptable and practical terms.

On the REA financial picture President Johnson said, "In the view of many observers it is reasonable to expect that your requirements for new capital in the years ahead will exceed amounts that can be provided through the traditional REA loan program . . . I believe we must work on a solution before the time of crisis arrives".

DO IT YOURSELF OR HAVE IT DONE

General manager of NRECA, Clyde Ellis, outlined to the delegates the increasing difficulty to convince Congress of the ever-increasing financial needs of the rural electric program. "Our difficulties this year came at a time when we have one of the most friendly Congresses and one of the most sympathetic Presidents of any who have served during the life of our program", he said and then he asked, "What will the story be in the future, when either the President or Congress or both may be hostile, and our loan needs are far greater than they are now and the blacklog bigger"?

He said "coldly realistic facts of life" are that "some Congressmen who are our long-time friends have plainly told us they would go along with fighting for the two per cent for those systems that need it if on the increased amounts we would either pay the cost of money to the government or borrow the increased amounts from the money market".

Ellis said the "Administration is determined to take some action next year on both the interest rate and the loan funds included in the budget". According to Ellis, "The President says he is determined to keep the national budget at as low a level as possible, and that he would like for as much of the REA program as possible to be financed outside the regular budgetary process".

The pressure to move the program in this direction he contended will increase as the costs of the war in Vietnam, the space race and other new programs continue to mount. He said if REA people do not write the new legislation someone else will write it for them. He said it makes "good common sense" in view of the "apparent certainty that there is going to be an Administration bill on the REA program next year."

The Ellis statements were bulwarked not only by the President's telegram but by statements in the speech by Norman Clapp, REA Administrator, who contended that it is "quite possible to determine on a completely objective, impartial basis the interest rate needed by each individual loan applicant to accomplish program objectives", under a two-price or even a multiple-price financing plan.

POLITICS AND STRATEGY

The general manager of NRECA reviewed the "political and strategic viewpoint" of moving now on necessary changes because Congress is "mostly friendly" to REA and "if history is a reliable guide to the future, many of these men will not be in Congress after the elections next year".

Ellis also expressed concern about the effect progress in the reapportionment program would have on the REA program. He told delegates when rural Americans went to Congress to get the original act "we did not have one single bit of support from any other organization in America and the record shows it"; he also added that in their more recent legislative battles, "not a single other organization came in to help us and we pleaded with them in the past to do it when we needed more funds".

Mandatory higher interest rates to those rural electric organizations who meet certain criteria will relieve pressure on the 2% money available, delegates were told. To obtain private capital from the "money market" all speakers contended state territorial integrity laws would be imperative. A number of states have not been able to get their legislatures to accept this type of law.

Mr. BATTIN. Thank you, Mr. Chairman, for the time you have so graciously given me to present my views.

Mr. STALBAUM. What are the dates of the newspaper articles? Mr. BATTIN. They run, starting on October 8, 1965, October 15, 1965, August 27, 1965, September 3, 1965, and September 17, 1965. Mr. STALBAUM. Thank you.

Mr. POAGE. That raises a question. None of these bills were introduced at the time of any single one of these newspaper articles was published. I do not see how these papers could comment on this legislation before it was even proposed.

Mr. BATTIN. I might say that, according to the articles, the proposal which resulted in the legislation that is before the committee was discussed at some length during meetings of not only our State but also the regional association. A firm stand was taken then. Since that time I have had from individual cooperatives an expression of a change of heart in their position. Whether there was a change of heart or a reiteration of the position that they took, I do not know. There has been no meeting that I know of, of the cooperatives of the State of Montana, that would indicate that they, as a group, had changed their position from the one initially taken when those articles were published.

Mr. POAGE. We will admit the articles for whatever value they have. I think, however, that they are rather incompetent evidence.

Mr. BATTIN. I do not offer them as evidence, Mr. Chairman, I offer them as a statement of opinion by those who took a position at the time that it was discussed and voted on.

Mr. STUBBLEFIELD. Did I understand that the gentleman is for maintaining the present program?

Mr. BATTIN. Yes.

Mr. STUBBLEFIELD. Does that mean the 2 percent interest rate?
Mr. BATTIN. Yes.

Mr. STUBBLEFIELD. Thank you.

Mr. ABERNETHY. Have they since withdrawn their previous statements?

Mr. BATTIN. It has not been called to my attention.

Mr. ABERNETHY. Were they published by the cooperatives in your district?

Mr. BATTIN. They were published by the People's Voice, which is a weekly newspaper in the State of Montana that has through the years been a strong advocate for cooperative systems such as the REA and the RTA's, cooperative marketing of all kinds in the State of Mon

tana.

Mr. POAGE. Thank you very much. We are very delighted to have had you with us.

Mr. BATTIN. Thank you.

Mr. POAGE. Now, may I say something off the record? (Discussion was had outside the record.)

Mr. POAGE. Our next witness is Mr. William B. Waterman, vice president and general counsel of Iowa-Illinois Gas & Electric Co. We will be glad to hear from you now, Mr. Waterman.

STATEMENT OF WILLIAM B. WATERMAN, VICE PRESIDENT AND GENERAL COUNSEL OF THE IOWA-ILLINOIS GAS & ELECTRIC CO., DAVENPORT, IOWA

Mr. WATERMAN. Thank you, Mr. Chairman and members of the committee. I am very happy to be here.

My name is William B. Waterman. I live in Davenport, Iowa, and I am vice president and general counsel of Iowa-Illinois Gas & Electric Co. I am speaking on behalf of this company and on behalf of Iowa Public Service Co. with its offices at Sioux City, Iowa Power & Light Co. at Des Moines, Iowa Electric Light & Power Co. at Cedar Rapids, Interstate Power Co. at Dubuque, and Iowa Southern Utilities Co. at Centerville. Together, these utilities represent a total investment of $767,112,000, employ more than 7.000 people and are owned by more than 97,500 stockholders. These companies are business-operated, investor-owned utilities which by virtue of interconnections and an agreement between them and others, including Corn Belt Power Cooperative, constitute what is called the Iowa Power Pool. This pool is a facility by which generation of energy may be exchanged between its members and provides an efficient and economical means for such exchange. It also provides increased reliability by means of the interconnection between these companies.

These utilities have in the past met all the electric requirements demanded of them. They are preparing and have plans to meet all expected electric requirements which may occur in the State of Iowa.

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