EXHIBIT 9

Cost of energy purchased by REA borrowers, by supplier, 1946–65

Senator TALMADGE. Mr. Smith, I want to compliment you for the enormous detail and the meticulous index you provided here for the information of the committee.

Senator Holland?

Mr. SMITH. Thank you, sir. I hope it will be helpful.
Senator HOLLAND. Let us go off the record.

(Discussion off the record.)

Senator HOLLAND. I think this is really a very detailed economic brief, supported by many exhibits which have not even been mentioned.

Senator TALMADGE. Correct. It is a monumental task of research. Senator HOLLAND. I think we may need to have Dr. Smith back after we have had a chance to examine it.

Senator TALMADGE. You will be available if we need you, Professor Smith?

Mr. SMITH. I shall be happy to give you any assistance I can.
Senator TALMADGE. Senator Cooper?

Senator COOPER. I would like to say your statement is a very comprehensive study. We may disagree about some of its assumptions or conclusions. Nevertheless, it is an able study which also provides us with a quick index for our own research and study.

I would call your attention to the first complete paragraph on page 16. The thrust of this paragraph is to emphasize your view that the rural electric bank, once established, would be freed from congressional restrictions.

Mr. SMITH. Restrictions of a meaningful sort, yes, sir.

Senator COOPER. I believe that is subject to challenge, but I would like to ask you some questions about it. It would be assumed that there would not be any necessity for authorizations or appropriations to the bank itself. So I think when you say that, "Once established, the electric bank will be given vast loan funds free from the necessity of securing congressional authorization for appropriations," that sentence would not have great meaning or significance, because it is not assumed that the bank would have received appropriated funds.

Mr. SMITH. I recognize, sir, that this has more application to the other bills than it does to your bill. I have done my best in the limited time available to adapt the testimony to the newly introduced bill, which I have only had a limited opportunity to study.

However, the point is still, I think, valid, sir, that perhaps "once established" should be modified to read "once provided with capital funds," because after the appropriations have been secured, as I read your bill, sir, the lending authority of the bank is then pretty much in the hands of the Board and the Administrator subject to it, in my opinion, rather limited restraints imposed by the provisions which you mentioned this morning in the questioning of other witnesses. Senator COOPER. Then I call your attention to paragraph (i) on page 13 of the bill.

Mr. SMITH. Page 13 of the bill.

Senator CooPER. "The Electric Bank Board shall make an annual report to the Secretary for transmittal to the Congress on the administration of this title IV and any other matters relating to the effectu

ation of the policies of title IV, including recommendations for legislation."

Mr. SMITH. Yes, sir.

Senator COOPER. Then if you will look on page 25, line 16, section 410 (c) states that, "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.” Mr. SMITH. Yes, sir.

Senator COOPER. Then there is another section which says, in substance, that the provisions of this act shall continue to apply, except where it has been specifically provided that certain provisions shall lapse.

Mr. SMITH. Such as the 5-percent limitation on generation.

Senator COOPER. My point is this: First, under section 410 (c), the Congress would continue to exercise review over the bank. Second, according to another section of the bill, 410(a) (3), although the bank would no longer be an agency of the United States, it would continue to be an instrumentality of the Government. Finally, the Congress could do what it wanted to by way of legislation. Would you agree

to that?

Mr. SMITH. I am aware of this provision, sir, and I believe the one that lapses upon conversion through the retirement of class A stock is the limitation, is it not, upon the loans for acquisitions limited— for generating facilities limited to 5 percent?

Senator COOPER. I would have to study it more carefully. But in looking through it just now the only provision I found that would lapse would be the authority to make loans at the intermediate rate after 1981-at the top of page 23.

Mr. SMITH. Well, let me comment, sir, since neither of us seems to be able to find that particular section, let me comment on the other two sections to which you have called attention. One which provides that is 410 (a) (1) (c), which provides that the power of Congress to alter or restrict-wait a minute "Nothing in this section shall alter or restrict the power of Congress to review the continued operations of the electric bank of all class. A stock has been fully redeemed and retired."

The other provision which you mention, which is the requirement of annual reports and legislative recommendations, which of course. is a provision that, so far as I am aware, applies to virtually all, if not all, of the independent regulatory agencies, and many other instrumentalities of the Federal Government.

Senator CooPER. That is correct.

Mr. SMITH. From time to time, of course, when Congress has had occasion to inquire into the performance of these agencies in terms of legislative oversight, it would not appear that the requirement to report and recommend legislative changes is necessarily a guarantee of the faithful adherence to the congressional intent. I am not impugning anybody's motives, of course, in saying that. Their intentions can be of the best.

As to the matter of congressional control after the class A stock has been retired, of course, that is not going to happen until 1981, if then. It certainly will not happen if it is in the opinion of the bank going to interfere with the whole program.

But this is all after the fact, really. What I considered and do consider to be a responsibility of the Congress and would expect to be an interest of the Congress in examining the operations of such a vast lending agency would be a continuing review at the time when it would do some good of uses to which the funds are put. And that, I think, is not provided.

Senator COOPER. You do not contend that the Congress could not legislate to alter or change in any way the operations of the bank?

Mr. SMITH. Oh, of course not. I simply point out that after you provide the money, and the chairman talked about keys to the courthouse, after you have provided the funds for a bank and given them the keys to the Treasury, there is not much you can do about it, as a practical matter.

Senator COOPER. That is all the questions I have.

Senator TALMADGE. Thank you very much, Mr. Smith.

Mr. SMITH. Thank you, Mr. Chairman, Senator Cooper, Senator Holland.

Senator TALMADGE. The next witness is Mr. Moylan E. Brown, regional manager of the National LP-Gas Association.

STATEMENT OF MOYLAN E. BROWN, REGIONAL MANAGER, NATIONAL LP-GAS ASSOCIATION

Mr. BROWN. Mr. Chairman, gentlemen, in response to your request for brevity, I will summarize my statement.

Senator TALMADGE. Without objection, your statement will be inserted in full in the record and you may proceed as you see fit in the most expeditious manner.

Mr. BROWN. Thank you, sir.

My name is Moylan Brown. I am regional manager of the National LP-Gas Association.

Senator TALMADGE. I would assume that most of your customers are also REA customers, are they not?

Mr. BROWN. A great number of them are, yes, sir.

Senator TALMADGE. So you already have some degree of competition, in that they can utilize either your gas or REA power? Mr. BROWN. Yes, sir, this is the customer's choice.

Senator TALMADGE. Most of them, however, I take it, use both, the gas for heating and cooking and maybe the REA power for lights, radios, televisions, and clocks. To heat water they will use yours or the REA power, is that it?

Mr. BROWN. Yes, sir. There are other farm uses that our product is put to use for other than house use.

Senator TALMADGE. I am aware of that; poultry and livestock. Mr. BROWN. And thermal agriculture application, such as flame weeding and crop drying and all other instances where they have a need for energy.

Senator TALMADGE. Mr. Brown, there is a vote. If you will remain seated, we will go over and come back so you can complete your testi

mony.

(At this point a short recess was taken.)

Senator TALMADGE. The committee will be in order.
Mr. Brown, you may proceed.

Mr. BROWN. The National LP-Gas Association is a national trade association, having as members the producers of liquefied petroleum gas, the manufacturers of equipment and appliances using liquefied petroleum gas, and the distributors and dealers. The Association has over 3,000 companies and 39 affiliated state associations. The membership represents approximately 85% of the industry's volume of business. Its membership is predominantly at the distributor and dealer level. The Association's position as set out in this statement would also reflect the position of other industry companies including some 25,000 small dealers who may not be engaged full-time in LP-gas sale but who are equally concerned with the problem, in that they handle some LP-gas as part of their business in their stores of various types. The employment and economic well-being of over 75,000 employees more directly employed is also intimately involved in the LP-gas dealers business and the problem persented. The LP-gas industry as a whole plays an important part in the American economy. In serving nearly 12 million customers-families and businesses-it brings the modern living comfort of gas to over 40 million people. It represents private investment of an estimated $6.5 billion segment of the nation's capital. Of America's sources of energy, only versatile LP-gas serves the public in so many ways.

I am appearing before this committee on behalf of this industry and the LP-gas dealer to state our position with respect to pending legislation to amend the Rural Electrification Act of 1936. To avoid repetition of other testimony, I will direct our comment to the more particular predicament of the LP-gas dealer as a businessman and taxpayer as related to today's competition in the farm fuel market, the influence of REA and the general effect of the bill. We approach the subject of REA restraint with some trepidation for rural electrification and the subsidies furnished through REA low interest rates have enjoyed the zealous support and protection of many leading legislators over the years.

However, conditions and times change. We urge this committee to view this subject with impartial scrutiny and thoughtful analysis related to conditions of 1966 fully recognizing that it is a multibilliondollar system that competes with the small businessman taxpayer.

We hasten to add that we are not dedicated to the destruction of any program of bringing electricity to the far more rural home. LP-gas dealers are often rural citizens and are equally aware of the benefits that this program has bestowed. In many instances they may be REA co-op members. Our customers are many times REA co-op members, who favor and enjoy the benefit of gas on the farm.

We do suggest that it is time for reevaluation of the REA program and that the need for Government subsidy no longer exists. We are not alone in this belief. We have the company of such a distinguished agricultural group as the American Farm Bureau. Even many REA co-ops have adopted this point of view and within the REA itself Kenneth Scott, then Director of USDA Credit Services, some time ago stated: "These borrowers (REA) aren't flimsy little outfits any more, they are healthy going business concerns."

This maturity has also been recognized in various governmental studies as will hereinafter be noted. We are in sympathy with and support the general principle of elimination of governmental finan