some of the reports that the administration has, and it will be pretty difficult from at least the published reports to get this information. They may have some information that can be developed along this line, but I do think that the point is well taken, except that we need to have it defined to have it meaningful to this committee. Senator ELLENDER. The chief purpose in trying to obtain this information for the use of the committee is to find out which of the many cooperatives are weak. I want to make it so that the cooperatives will go on and develop and not to try to hold back and be in the category of weak cooperatives just to get the 2-percent money. I do not say that they will do that, but it is my belief that we ought to develop the facts and to define what a weak cooperative is and why is it weak, and in that way we might be able to provide a yardstick so that it would be impossible for cooperatives just to simply drift down into being weak cooperatives and then to obtain the 2-percent money. I think that the only way to do that, in my opinion, is to get the facts of the present situation of these cooperatives, to find why they are weak. I think that it would be important to find that out so that we can be ready to put into the bill some kind of yardstick. I have never opposed the REA. I do not know that any member of this committee ever opposed the pricing of the money at 2 percent, to give electricity to the farmers. It is only when co-ops go into an expansion program, into large communities, and then sell electricity for manufacturing that, some of us have said, in cases of that kind, cooperatives should pay a little more interest. Senator COOPER. I am sure that during the course of the hearings all these facts will be developed. That is my desire also, as I know it is the desire of the committee. I can illustrate with average figures, however, the general problem undertaken by the cooperatives. To give you an example, cooperatives average 311⁄2 consumers per mile on their lines, with revenues of $516 per mile of line, compared to utilities having 30 or 40 customers and revenues of $7,000 or $8,000 per mile of line. I would like to review briefly, if I may, what the REA cooperatives have accomplished. I think it unparalleled. Since the Rural Electrification Act of 1936, over $5 billion has been advanced in loan funds to nearly 1,000 cooperatives and other borpowers, which have brought modern service to 5,500,000 consumers in 46 States. In my own State of Kentucky, in contrast to that small band of 8,000 farms who enjoyed electricity in 1936, 26 cooperatives now distribute power over 57,000 miles of line to 313,142 rural consumers. No Kentucky borrower is in default; they have paid nearly $100 million in principal and interest on their loans. It is this record of successful operation and financial integrity which should now enable the cooperatives to shift in part to private financing. And I think it does make feasible the carefully developed plan for supplemental financing contained in this proposal. We know that if it had not been for the REA, light and power would never have come to some farmers, and in all rural areas would have been delayed. The single basic fact which makes it necessary now to develop a supplemental financing plan is that the power needs of the consumers of the cooperative are increasing, just as are the power needs of consumers of the investor-owned utilities. I think it a very admirable thing that the cooperatives themselves have developed over a period of several years this plan that they now submit to the Congress one that would provide for the growing needs of their consumers, and second, would begin to move away from the 2-percent Government loans. It would relieve the Federal Treasury and taxpayers of providing the full development part of the cost of the cooperatives, and would serve the central purpose of meeting the needs of their consumers. Mr. Chairman, with this general statement I will now close so that other witnesses, including as I have said those who are expert in this field, may testify upon the details of this plan, which I know the committee is very interested in securing. Senator TALMADGE. Are there any further questions? Senator Holland? Senator HOLLAND. Do you, in your statement, go into the section as to any changes in the basic legislation affecting the REA in reference to what areas they can serve? Senator COOPER. In their main purpose, these bills will be for securing supplemental funds from the public, to finance the growing demands of the consumers in the REA cooperatives. As I said, it will be for the establishment of a Rural Electric Bank with a capitalization after 15 years of $750 million, which would be provided in part from returns of loans made to the REA cooperatives, and in part by capital stock purchased by borrowers-in the same way that the Senator knows so well and we are familiar with through our production credit associations and the Farm Credit Administration banks. This paid-in capital would furnish the base for the sale of the bank's debentures to the public. The modified bill which I introduced Friday, the one which has been worked out in the House subcommittee, does have a number of provisions which I think the committee will want to know more about. It provides criteria for the G. & T. loans; and it provides criteria in case of any acquisition, which is a question that had been raised during our preliminary discussion of this proposition in the full com mittee. Senator HOLLAND. You mean the acquisition of investor-owned utilities? Senator CoOPER. Yes. Senator HOLLAND. That would mean a departure from the basic legislation under which the REA was created and has existed up to now, does it not? Senator COOPER. I would assume that throughout the history of the REA, a few investor-owned or municipal utilities have been acquired. But I would prefer that the REA Administrator or Secretary Freeman and the others testify to that point. Senator HOLLAND. Is there any change of the original and existing provision that the REA cannot serve a community of more than 1,500 people? Senator COOPER. I believe the criteria on acquisitions imposes a limit. Senator HOLLAND. Well, I have had complaints from several sources to the effect that the legislation as introduced-and I am not clear whether it is the latest House bill that you introduced here the other day, or the administration's bill, or the REA bill, but I have had several complaints to the effect that some of this legislation would completely remove that limitation on the size of the community which could be served by the REA. I think that is a point that the committee will want very definite information on. (Additional information submitted by the Department of Agriculture is as follows:) S. 3720 contains no explicit limitations on financing by the electric bank of construction in cities, as it does in the case of financing of acquisitions. However, it is not believed as a practical matter to be necessary to include such a limitation on urban construction. In the first place, bank loans are restricted by section 408 (a) to corporations or public bodies which have received a loan or loan commitment pursuant to section 4 or which are owned or controlled by such organizations. Since section 4 loans are made only for rural electrification purposes under the restrictions set forth in that section, the organizations which are eligible for bank loans are virtually entirely rural electric systems and serve very few nonrural consumers. It is clear under section 408 (a) that if the bank loans are not made for purposes set forth in section 4 of the Act, they must be for the purpose of improving the efficiency, effectiveness and financial stability of borrowers' systems. Secondly, eligible rural electric borrowers are required by their enabling statutes, in a large number of states, to restrict service to rural areas. Even where enabling state statutes do not contain express rural restrictions, electric borrowers would be required under state law to obtain local or municipal franchises in order to extend service into any urban area. Moreover, municipalities of any significant size may be confidently assumed to be already served by franchised commercial utilities or municipal systems; rural electric borrowers would hardly be granted a franchise to establish a competing system in these circumstances. In addition to being generally unnecessary, explicit limitations on nonrural construction may prove detrimental to basic objectives of the bill. Such limitations might, for example, seriously endanger the financial security of rural systems, parts of which, by reason of population growth, have become urban and in which the borrower's facilities are the sole source of electric service. In addition, continuance of service in areas developed by borrowers and subsequently annexed by municipalities is, in many cases, important to the security of the systems and also to the consumers and areas involved. Senator COOPER. Mr. Guard, of my staff, has just noted for me the section of the modified bill, on page 21, which makes the limit 5,000 in the case of an acquisition. Also, in a new provision on page 9, the bill would limit the total generating facilities financed by the REA to not more than 5 percent of the total U.S. capacity. Senator HOLLAND. So that the bill which you introduced does contain a provision raising the limitation in the size of the community which can be served by the REA from a population of 1,500 as now existing, and has existed since the beginning, to 5,000 population? Senator COOPER. I will read the section, on page 21, of the new bill: That in the case of any such loans for acquisitions of electric facilities, the acquisitions shall be approved by the Secretary, the location and character thereof shall be such as to improve the efficiency, effectiveness, or financial stability of the electric system of the borrower, and the cumulative size thereof shall not exceed five thousand connections within nonrural areas. Senator HOLLAND. That is 5,000 connections, rather than 5,000 population? Senator CoOPER. Yes. Senator HOLLAND. How does that compare with population? Senator HOLLAND. Do you have a statement for the record of the amount of collections from outstanding loans which would be incorporated into the capital of this new proposed bank? Senator COOPER. Yes. The modified bill provides that not more than $50 million a year from repayment of loans shall be furnished, subject to the annual appropriations acts, to provide capital for the new bank. Senator HOLLAND. What was the provision of the original bill on that point? Senator COOPER. The entire amount collected. Senator HOLLAND. What is the amount of collections anticipated from the REA loans per year over the next several years? Do you have that figure? Senator COOPER. The latest year for which we have figures available is 1965. The collection was $255 million. (Information on amounts due is as follows:) Principal and interest due on debt obligations of REA borrowers, 1950–701 1 Due amounts for 1950 through 1965 based on debt service reports including amounts declared due and paid in full by borrowers ahead of schedule. 1966 through 1970 estimated on basis of all funds under loan contract and loans to be made during period, and reflect normal repayment schedules only. * Estimates rounded to $100,000. Senator HOLLAND. What is the total outstanding principal of the REA loans at this time? Senator COOPER. I think that Mr. Clapp, the Administrator of the REA, would be a better witness than I on that point. (The information is as follows:) |