This chart shows that more than 10 times as much of Montana Power's revenues go into taxes for the support of government at all levels than do the revenues of the co-operatives. You will note that Montana Power's 1964 taxes amounted to more than $83 per customer, compared with $6.37 per customer paid by the co-operative.

Unlimited expansion of the REA program, as this legislation would provide, would:

1st-Result in the construction of enormous amounts of property on which no Federal taxes would be paid and on which state and local taxes would be far less than would be paid by the investor-owned utilities on identical property; 2nd-Prevent the investor-owned utilities from building similar generation and transmission facilities, thus reducing the tax base and reducing the tax revenues that would otherwise be channeled into state and local governments and school districts, and

3rd-Increase the burden of supporting government services on the individual taxpayers of the Nation.

Loss to Federal Government by reason of interest-free use of Federal funds

The interest-free subsidy of $750,000,000, which the Federal Government puts into Class A stock, represents a direct loss to the Federal Government, assuming payback in 35 years after 1981 of $3,466,704,800. The derivation of that sum is shown on Chart No. III, attached.

Electric company consumers adversely affected

The proposed Federal Electric Bank also would adversely affect the customers of the investor-owned utilities.

The construction of larger and more economical generating stations and larger transmission lines and interconnections has enabled the investor-owned utilities to lower their operating costs and pass these benefits along to their customers in the form of the lowest possible rates. The duplication of facilities and the invasion of residential, commercial and industrial markets now being served by these utilities will result in higher operating costs and will greatly hamper the investor-owned utilities in their efforts to maintain low rates for their customers.

If this legislation is passed, you can quickly see that it will have a devastating effect on government tax revenue sources, on individual taxpayers and on the consumers of the investor-owned utilities.

Resources of existing suppliers should be used to maximum

Wherever possible, the supply of wholesale electricity for the rural electric co-operatives should come from existing suppliers. The investor-owned utilities, as one group of those suppliers, have consistently demonstrated their ability to supply power at wholesale at lower rates than the co-operatives could achieve by self-generation or purchases from REA-financed suppliers.

REA funds and Federally-supported and guaranteed funds in the form of Federal Electric Bank debentures should not be used to build generation and transmission facilities unless an adequate supply of wholesale power is not available to the cooperatives from existing suppliers at reasonable rates. Since the Federal Power Commission takes the position that it has jurisdiction over practically all wholesale contracts, it appears unlikely that rural electric co-operatives cannot obtain an FPC determination as to the reasonableness of their wholesale rates. In this way, the rural electric co-operatives can amply serve their intended function without loss of urgently-needed tax revenues to Federal, state and local governments.

This legislation does not follow the recommendations of Kuhn, Loeb Report

I believe it is important to realize that the proposed Federal Electric Bank is drastically different than the recommendations of the Kuhn, Loeb & Co. Report. That report recommended loans by the Bank to rural electric co-operatives at the full rate of interest carried by the debentures issued by the Bank, plus 1⁄2 of 1% to cover expenses of the Bank. The total capitalization and borrowing power of the Bank under the Kuhn-Loeb Report was one billion dollars, as compared to seventeen billion dollars under S. 3337 and some eight billion dollars under S. 3720. The report further required substitution of borrowers' stock for Government stock from the beginning of operation under the Bank. These are vast differences from the provsions of either S. 3337 or S. 3720.

It should be further noted that both of these bills put an obligation upon income which has not been considered by Mr. Norman Clapp in his testimony on how the Bank will operate in the black. It is obvious that if Class C and D stock is to be sold, it must offer some inducement to the investor of a return on the investment. The payment of that return is left to the discretion of the Bank Board under S. 3337, without limitation as to amount. Under S. 3720, such dividends must come out of income and cannot exceed the current average rate payable on electric debentures.

Paying dividends on C and D stock comparable to the cost of money on debentures and reloaning that money at 3% or 4% interest only serves to eat further into the possibility of operating in the black. Yet, by issuing Class C and D stock, the Bank increases its capitalization and borrowing power without any practical limitation.

Conclusion.

I am convinced that the record will demonstrate that the rural electric cooperatives of America have, under terms of the REA Act, an adequate source of funds to fulfill their intended and legal function of supplying rural America with electricity. The record also will demonstrate that generation and transmission facilities can and are being provided by existing suppliers at costs as low or lower than the co-operatives could achieve if they were to provide their own facilities. The record also will show that the job of electrifying rural America is nearly complete and that there is no sound fiscal basis for the enormous expan-, sion program which would be made possible by the proposed Federal Electric Bank.

I respectfully submit to this Committee and to the Congress the following points:

1. The rural electric program should be kept within its original intent, as provided in the present REA Act.

2. The rural electric co-operatives should not be allowed to embark on a program of uncontrolled, subsidized competition with investor-owned, taxpaying utilities solely on the basis of their being able to offer lower rates because of. the tax and interest subsidies they enjoy.

3. The rural electric co-operatives should nto be granted the use of Federal Government credit without control by Congress, as this legislation proposes, in order to carry out a program of expansion never intended by the REA Act.

4. The rural electric co-operatives should not be given carte blanche to build at will generation, transmission and distribution facilities which duplicate existing facilities, thus reducing the revenues of the investor-owned utilities and increasing the burden on the customers of these utilities, and which prevent the construction of such facilities by the utility companies under conditions that will produce maximum tax revenues to all levels of government.

5. If the rural electric co-operatives will limit their function to that of supplying rural areas not otherwise receiving central station service, and meeting the normal load growth of those customers, there is no need for the enormous sums of money which they seek in the legislation before this Committee, and their total requirements can be met through the legislative process with ap- : propriate Congressional supervision and control.

The Montana Power Co.-Montana rural electric cooperatives, calendar 1964

Sources: Montana Power 1964 report to stockholders; 1964 financial and operating reports; 1964 annual statistical report of REA, pp. 22-29.

Federal bank for Rural Electric Systems-Estimated unreimbursed interest cost to the United States, 1st 50 years of operation

STATEMENT OF W. B. MCGUIRE, PRESIDENT, DUKE POWER COMPANY,

CHARLOTTE, N.C.

Duke Power Company serves a 20,000 square mile area of North Carolina and South Carolina generally referred to as the Piedmont Carolinas. The area extends from Virginia on the North to Georgia on the South. The Company supplies electric service to over 800,000 customers and supplies two out of every three rural customers in the area. The published report of the U.S. Department of Agriculture shows that as of June 30, 1965, 98.8% of the farms in North Carolina and 97.1% of the farms in South Carolina have central station electric service. We believe that electricity is available to 100% of the farms in the Duke Power service area.