EXHIBIT A.-Comparison of costs, 7 large investor-owned electric utilities in Texas, with all 922 REA cooperatives in the United States, year 1964

Source: Federal Power Commission Statistics of Electric Utilities in the United States 1964, Privately Owned. Rural Electrification Administration, U.S. Department of Commerce 1964 Annual Statistical Report, Rural Electrification Borrowers.

INVESTMENT BANKERS ASSOCIATION OF AMERICA,

Washington, D.C., June 3, 1966.

Re proposed amendments to the Rural Electrification Act H.R. 14000 and H.R. 14837.

Hon. HAROLD D. COOLEY,

Chairman, House Agriculture Committee, House Office Building, Washington, D.C.

DEAR MR. COOLEY: The proposals in these bills would authorize broad and important programs of financing for rural electric and telephone systems which would seriously affect both cooperative systems and private systems. Since H.R. 14827 was introduced only on May 3, 1966, there has been relatively little time to consider the broad implications of these proposals. Our Association would like to consider these proposals carefully and perhaps submit constructive suggestions to your committee and we believe that other interested parties and members of the committee would find it helpful to have additional time to consider the proposals carefully before action is taken on them.

Accordingly, we respectfully urge that consideration of these bills be postponed until the next session of Congress in 1967 to afford an opportunity for careful consideration of them, and request that this letter be included in the record of the hearings.

Respectfully,

WILLIAM N. BANNARD.

STATEMENT OF WILLIAM JACKMAN, PRESIDENT, INVESTORS LEAGUE, INC.

My name is William Jackman. I am president of the Investors League, Inc. of New York. The Investors League is a non-profit, non-partisan, voluntary membership association of thousands of investors, small and large, residing in the fifty states of the nation.

Mr. Chairman and members of the Committee:

A new Electric Bank, with freedom from Congressional controls and which could greatly increase government subsidy, is now being proposed under the bill before your Committee as a means of building electric generating plants and transmission lines and for other purposes. This could involve billions of dollars of capital, including many hundreds of millions of government funds. The Electric Bank program is being proposed as an amendment to the Rural Electrification Act, but in reality it has little in common with the basic future needs of rural electric cooperatives in obtaining low-cost electric power.

Such a bank goes far beyond any previous concept of government in business. It is completely unnecessary and wasteful, because electric power supply is ample throughout the United States and because the power facilities needed for the future can be financed in the free market without government subsidy. At a time when the nation's taxpayers face increased government expenditures for such vital purposes as defense, when the threat of inflation is causing wide

spread concern, and when government is seeking to hold down unnecessary expenditures throuhgout the economy, such a subsidy program would not be in the public interest.

The bill proposes Congressional consideration to set up an REA electric loan account and the Electric Bank. This legislation would change the operation of the Rural Electrification Administrative and could involve billions of dollars at interest rates below the market cost of money for the construction of Federal income-tax-free generating and transmission facilities. These facilities would duplicate or displace electric power facilities paying all taxes.

The Rural Electrification Act was passed by Congress 30 years ago to help bring electric service to the rural areas of the United States more quickly than could be done otherwise under the circumstances at the time. The REA has done a good job in this respect.

However, in recent years, the emphasis had changed to the financing of generating and transmission facilities (G&T's). Loans are made to G&T co-ops at 2 percent-less than half the cost of money to the Federal govenrment-and no Federal income taxes are paid. Five out of six of new co-op customers are not farmers they include suburban residents, businesses, manufacturing plants and petroleum operations.

Because it was never intended in the original REA Act that governmentsubsidized power plants paying no Federal income taxes should compete with existing tax-paying electric power suppliers, Congress in the last few years has been increasingly critical of loans for G&T purposes. Congress has directed that such "loans should be made only when reasonable contracts cannot be obtained" for power supply.

To get around Congresional directives opposing the misuse of REA loans and to free the co-ops from any possibility of control by such Federal regulatory agencies as the Federal Power Commission, this device for the establishment of an Electric Bank has been developed. It would give the appearance of financing in the free market, but in fact it would increase Federal subsidized competition. Under the proposal to establish an Electric Bank, neither Congress nor any Federal regulatory agency would have control over the use of billions of dollars avaiable to the Bank. The estabishment of the Bank has nothing to do with the present REA program of 2 percent loans which would continue through loan authorizations as at present or under the proposed loan account.

The Electric Bank could make loans at interest rates below the cost of money to the government. If it had insufficient funds to pay interest or principal on money the bank itself may have acquired through issuing debentures, the Electric Bauk could borrow funds as needed from the Federal Treasury. This represents a wholly unnecessary burden on the Treasury, which itself must borrow money for the needs of the nation, as for example, the poverty program and urban redevelopment.

Further, there would be no Federal income tax payments from the operations of the borrowers from the Bank. Thus, government would be spending government funds to build unnecessary plants and in doing so would reduce government tax revenues.

The power supply facilities which the G&T's and other borrowers would duplicate or displace would be those of the investor-owned tax-paying electric power companies which serve some 80 percent of the nation's people. These companies operate under regulation at all levels-local, state and Federal. The G&T's do not. These investor-owned companies have an annual tax bill totaling some $2.9 billion. They pay taxes to all levels of government. The G&T do not.

The proposals for an Electric Bank could greatly stimulate the present unfair, subsidized competition, thus not only threatening to nationalize the electric industry, which has established America as the world leader in electric power supply, but in so doing, having a potentially serious effect on the structure of the nation's entire economic system.

This proposed legislation is only incidentally a "farm-bill". It involves most serious tax revenue problems that would affect every sector of our economy. On behalf of the millions of shareowners in America's investor-owned, tax paying power and light companies, we urge that Congress reject this legislation.

We also suggest that appropriate Congressional Committees give serious consideration to legislation that would prevent the Federal government from lending money to REA co-ops or other agencies at interest costs lower than the govern

ment itself must pay. We also urge that consideration be given to the desirabil ity of eliminating the favored tax treatment of government owned or subsidized electric power operations by levying the same taxes on them as are extracted from the investor-owned utility companies.

Gentlemen, I thank you.

MONONGAHELA POWER CO., Fairmont, W. Va., June 3, 1966.

Re H.R. 14000-H.R. 14837 Federal Electric Bank.
Hon. HAROLD COOLEY,

Chairman, House Agriculture Committee, Room 2409, Longworth House Office
Building, Washington, D.C.

SIR: It is respectfully requested that this letter-statement be filed as a part of the record "overing the hearings on the above bills. Monongahela Power Company, an investor-owned electric utility and a part of the Allegheny Power System, serves more than 230,000 customers in an area of approximately 13,000 square miles in West Virginia, Ohio, Maryland, and Virginia.

Monongahela opposes the enactment of either of these bills for the following

reasons:

(1) The purpose stated in the preamble of these bills is "to provide supplemental (italics supplied) financing for the rural electrification and rural telephone programs, and for other purposes" (italics supplied). However, based on the size of the banking facility proposed-an institution with potential lending power of as much as $8 to $10 billion-it is clearly evident from study of the bills that the purpose, described as an amendment to the Rural Electrification Act of 1936, goes far beyond supplementary financing and, in fact, is contrary to the expressed purpose of the 1936 Act.

That Act established the REA to furnish ". . . electric energy to persons in rural areas who are not receiving central station service." Based upon latest figures, it is estimated that today approximately 99% of the nation's farms have electric service, and the remaining 1% have such service available to them with minor exceptions. The basic purpose of REA has been accomplished.

Despite this, these bills would in fact supplement the present 2% REA loan program which has provided $365 million annually for the past two years with almost unlimited financial resources. One would expect that loans to rural electric cooperatives, if kept within the scope of the original intent of Congress, would be diminishing rather than demanding such an increase in lending authority.

(2) Enactment of these bills would make the proposed Federal Electric Bank (H.R. 14000) or the Federal Bank for Rural Electric Systems (H.R. 14837) the largest federally-owned bank in history. At the same time such legislation would place the operations of either institution outside effective Congressional control and surveillance over the REA program.

(3) Borrowers from such bank could drop any pretext of being "rural" in character and could own and operate generation, transmission and distribution facilities in suburban or urban areas. In most instances, such facilities would be in direct competition with investor-owned, tax-paying electric companies and would result in duplication of investment and facilities.

(4) No ceiling would be placed on funds Congress might provide under the present 2% REA loan program. The absence of such ceiling makes it difficult for us to comprehend how this proposed program could or would ease Federal budgetary pressures. In fact REA repayments now being deposited in the United States Treasury would be used to purchase stock in the bank. Futhermore, tax-exempt electric and telephone operations would be increased thereby replacing or displacing tax-paying systems and thereby proportionately reducing Federal tax revenues.

(5) It is our belief that protection for consumers would be weakened. Presently less than half of the fifty states have asserted jurisdiction over cooperatives to provide customers with the protection of regulation. As cooperatives would grow larger under this legislation it is conceivable that selfpolicing by the membership would be watered-down to the point that consumers' control would be negated.

(6) With the correspondingly heavy demands on the United States Treasury as the result of the Vietnam conflict, space programs, expanded social welfare programs, et cetera, it appears undesirable and unreasonable to further add to the taxpayers burden by initiating a costly program for which no real need has been demonstrated nor declared in the purpose of this legislation.

(7) This legislation would actually inspire conflict and generate problems for the future because of the establishment of three different interest rates that apparently would be in effect for rural electric borrowers. No specific standards are established to guide the bank's administrator in determining what borrower or what loan requires 2%, 3% or 4%.

In summary, the legislation proposed is contrary to the original stated purpose of the REA program; no provision has been made for future effective Congressional control; facilities and services provided by tax-paying companies would without doubt be duplicated; protection for consumers that does exist would be weakened; no need for such an ambitious and expensive program has been demonstrated, nor has any argument been presented for expanding the original purpose of the Rural Electrification Act of 1936; criteria or standards for granting loans appears to be totally absent; and no guide-lines are included to assist the administrator in deciding who is to receive lower or higher interest rates on the loans to be made.

Monongahela Power Company believes that the legitimate financing needs of the REA should be met to enable it to continue as a distribution organization. However, to set up a banking institution of the magnitude proposed and allow it to make loans to facilitate the construction of generation and transmission facilities is totally unrealistic. It is our contention that the invesor-owned utility industry has demonstrated that it can and will adequately supply all REA needs. To adopt this legislation will sap the economic strength of the nation through wasteful duplication of facilities and needless commitment of tax dollars.

Very truly yours,

D. M. KAMMERT.

STATEMENT OF NATIONAL ASSOCIATION OF MANUFACTURERS

This statement is submitted on behalf of the National Association of Manufacturers, a voluntary association of business enterprises which account for some 75 per cent of the nation's manufacturing production and about the same per cent of manufacturing employment.

The National Association of Manufacturers endorses the objectives of shifting the financing of the appropriate activities of rural electric cooperatives from a subsidized government source to private sources. By "appropriate" activities, we mean "the furnishing of electric service to persons in rural areas who are not receiving central station service," as set forth in the Rural Electrification Act of 1936. We do not mean the construction of generation and transmission facilities where an adequate supply of power is already available to the borrower at rates which, after making due allowance for the tax components included therein, are as favorable or more favorable than those which would result from the facilities to be financed by the proposed loan.

Such a shifting of financing would be entirely in accord with the official stated policy of the Association on "Federal Lending Operations." This policy statement advocates that steps be taken to reduce the scope of, and ultimately terminate, federal lending activities, but that the method used should avoid sudden or undue hardship to those sectors of the economy which have become dependent on this form of government support. Some of the suggested methods are (1) Transferring to private ownership such agencies as can be so transferred; (2) Making all credit operations, which are not readily transferable to private ownership and operations, self-supporting by appropriate increases in fees, interest, premiums or other charges; and (3) Increasing the risk of borrowers and bene ficiaries as a condtion of securing government financing help.

It is in this light that we would like to examine H.R. 14000 and H.R. 14837, bills to amend the Rural Electrification Act of 1936. Both bills are lengthy and complicated. However, the following is a brief summary of the bills as they apply to rural electric cooperatives:

1. The bills would establish a Federal Electric Bank (H.R. 14000) or a Federal Bank for Rural Electric Systems (H.R. 14837) to make loans to rural electric

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cooperatives. Under H.R. 14837, a seven-member Electric Bank Board would be appointed by the Secretary of Agriculture, four from the Agriculture Department and three representing the rural electric systems. The Administrator of the Rural Electrification Administration would serve as the chief executive officer (Governor) of the Bank.

2. Funds for the Bank's capital stock would come from the U.S. Government$1 billion under H.R. 14000; $750 million under H.R. 14837 at the rate of $50 million per year for 15 years-with no provision for payment of interest on this money or any timetable for its repayment.

3. The Bank would be authorized to borrow, by issuing debentures, up to ten times its paid-in capital and retained earnings. This could be $8-10 billion or more. It has been estimated that the total program over 15 years could involve more than $17 billion.

4. The present REA 2% loan program would be continued. In addition, the Bank would be authorized to make so-called "intermediate loans" at 3% (HR 14000) or 4% (H.R. 14837). Loans at a higher rate designed to cover the Bank's costs would also be authorized, but it appears problematical whether any loans would be made at that rate as long as "intermediate loans" or 2% REA loans were available. Loans could be made for the construction of generating and transmission facilities, as well as for distribution facilities. Loans could also be made for the acquisition of facilities owned by municipalities or investorowned electric companies. The duration of the loans would be as high as 50 years, and the schedule of payments of interest and principal could be adjusted by the Bank's Governor (REA Administrator). Loans could cover 100% of the cost of the facilities to be constructed or acquired, with no equity required of the borrower. The restriction on REA 2% loans that they be limited to service for persons not already receiving central station service in places of less than 1,500 population would not apply to loans made by the Bank.

5. The property and income of the Bank would be exempt from "all taxation now or hereafter imposed by the United States, or by any State, territorial, or local taxing authority .."

6. If the Bank did not have sufficient funds to pay interest or principal on its debentures, it could borrow money from the U.S. Treasury without an appropriation by Congress.

7. A "rural electrification account" would be established in the U.S. Treasury, and it would have as assets the $3.34 billion of evidences of debt presently held by the REA; $883 million of "undisbursed balances" of electrification loans; all collections of principal and interest received on and after July 1, 1965 (this retroactive provision would give the account about $193 million of collections due in fiscal 1966 as a source of ready cash); all future appropriations for electrification loans and for the administrative expenses of REA; and shares of the Bank's capital stock. This account would resemble a revolving fund because money placed in it could be used for designated purposes without further appropriation by the Congress. Thus, these money outlays would not have to be reflected in the Federal Budget submitted by the President to the Congress each year.

It is clear that the bills as such do not accomplish a transfer to private ownership. There is a declaration of policy objective that the Bank "will become entirely privately owned, operated, and financed. . ." Also, there is a provision in Section 405 (c) that the Class A stock (the stock issued in exchange for the capital furnished by the United States Government) "shall be redeemed and retired by the electric bank as soon as practicable after June 30, 1981, but not to the extent that the Electric Bank Board determines that such retirement will impair the operations of the electric bank." And there is a provision in Section 412 that "As promptly as practicable after all class A stock issued to the United States has been retired pursuant to section 405 (c) of this title, the Secretary shall transmit to the President for submission to the Congress recommendations for such legislation as may be necessary or desirable to make appropriate provisions for the transfer to class B, class C and class D stockholders of the ownership and control of the electric bank in order that its operations may thereafter be carried on as a privately owned, operated and financed banking corporation." However, these provisions seem to be in the category of pious hopes because they do not really establish any schedule, program or procedure for the retirement of Class A stock. In any event, the retirement would not even begin until 1981 and there is no timetable or deadline set at all. It appears that a considerable