I think it is important to remember that REA cooperatives were not set up as a temporary program. Their job was, and is, to assure rural areas of a supply of electricity.

Financing has always been the most difficult problem for these rural electric cooperatives. Because of distances involved in the thinly-settled areas they serve, they normally must spend a higher percentage per consumer for modernization than urban-based commercial power supplies.

This is shown by the fact that rural electric cooperatives, with their slim revenues, have built 54% of the distribution lines in this country. Yet those lines, when stretched across the countryside, reach only 8% of this country's utility consumer-homes.

REA-financed systems have to serve everyone in their areas. They can't just pick the profitable customers. They now serve an average of 3.5 consumers and $516 in annual revenue per mile of line, compared with 34 customers and $7,820 for investor-owned companies. Consumer density figures for rural telephone systems are roughly comparable.

In view of this, it is clear that adequate capital must be available on favorable credit terms for our rural electric and telephone systems.

Studies made by the Rural Electrification Administration and by the investment firm of Kuhn, Loeb and Company show rural electric systems will require between $8 billion and $9.5 billion in investment capital between now and 1980. It is clear that continuing loan fund levels provided by Congress the last few years will fall far short of even the lower figure.

Rural telephone systems also need new capital. Norman Clapp, REA's Administrator, has estimated that this program will need $3 billion in new capital the next 15 years, making a total of $11 billion to $12.5 billion for rural cooperatives for both electric and telephone systems.

It simply isn't realistic to look to Congress to provide all the loan funds rural electric and telephone cooperatives need to meet future needs. Cooperatives don't expect Congress to do this. In fact, they look forward to the day when they will not need loans from Congressional appropriations.

The rural electric cooperatives in 1964 authorized their association, the National Rural Electric Cooperative Association, to study possible sources of supplemental long-term capital. The telephone cooperatives made a similar study. Results of these studies, and those made by the Rural Electrification Administration, are the basis for S. 3337.

This bill would establish rural electric and telephone banks to enable REA borrowers to advance, according to ability to pay, from the present 2% interest level to (1) an "intermediate" 3% level and (2) to regular market rates of 4%

or more.

The 2% loan program would then be used only by those cooperatives which, because of their sparsely-populated service areas, must continue to have low interest financing in order to stay in operation.

The stronger cooperatives would, under this system, be able to move up the "credit ladder" to borrowing at rates in effect on the private money market.

The banks proposed are patterned after the highly successful credit institutions of the Farm Credit Administration, with modifications tailored to rural electrification and telephone needs. And, like the banks of the Farm Credit System, the rural electric and telephone banks would have some government money advanced to help get started.

The banks are designed to be ultimately owned, operated and controlled by their borrowers, whose capital would systematically replace that provided initially by the Federal Government. The government advance would come from borrowers' payments on existing loans.

This approach has the strong support of most rural leaders and of all 30 rural electric cooperatives in Wisconsin. At this year's annual meeting of the organization of cooperatives in Wisconsin, the Wisconsin Electric Cooperative, a resolution was adopted supporting supplemential financing through a central bank which would ultimately be borrower-owned and controlled.

That resolution also calls for continuing the 2% electric loan program for those rural electric cooperatives which cannot now reach rural electrification objectives without this low-cost money.

The enactment of this bill will accomplish two most worthwhile objectives. First, it will insure that rural electric and telephone cooperatives have access to sufficient growth capital at rates they can pay to continue to meet the growing needs of rural people. Secondly, it will provide means for gradual and orderly

transfer of rural electric and telephone systems from total dependence on the government to independent financing through their own credit institution.

Mr. Chairman, this legislation is probably the most important proposal affecting these rural programs since the original REA act was passed in 1936. I hope it will be reported out for early consideration in the Senate.

Senator TALMADGE. Thank you, Senator Nelson.

Are there any questions, Senator Cooper?

Senator COOPER. No questions.

Senator TALMADGE. Senator Holland, any questions?

Senator HOLLAND. Your testimony, Senator Nelson, stated, I believe, that it was addressed to the original bill?

Senator NELSON. Yes, sir.

Senator HOLLAND. You have not had a chance to examine the modified bill

Senator NELSON. I have not.

Senator HOLLAND (continuing). Introduced last week. I have no further questions.

Senator NELSON. Thank you.

Senator TALMADGE. Senator Miller, any questions?

Senator MILLER. No questions.

Senator TALMADGE. Thank you, again Senator Nelson.

The subcommittee is honored to have with it the senior Senator from

the State of Oklahoma, Senator Monroney.

You may proceed as you desire.

Senator MONRONEY. I will try to brief my statement.

I will skip over the first portion of it.

Senator TALMADGE. Without objection, your entire statement will be made a part of the record at the conclusion of your comments, and you may proceed as you see fit.

STATEMENT OF HON. A. S. MIKE MONRONEY, A U.S. SENATOR FROM THE STATE OF OKLAHOMA

Senator MONRONEY. Mr. Chairman and members of the subcommittee. I want to thank you for this opportunity of appearing here in support of the Cooper bill. I have not thoroughly digested it, but the points that have been explained to me appear to improve the original bill.

But even though the cooperatives have been successful in fulfilling the purposes for which they were created and have met their financial and public service obligations, they now face a crisis. No permanent long-range solution has been found to meet their continuing and increasing financial needs. The financial crisis which exists is caused in large part by the very success of the cooperative program.

Despite increasing power demands by their consumers and an increase in the total number of consumers, the REA's still serve predominantly sparsely populated areas. Throughout the Nation as a whole the density on REA borrowers' system is only 3.5 consumers per mile of line and the average annual revenue is only $516 per mile. In Oklahoma, the figures are even worse, only 2.3 consumers per mile and $321 in revenue. In some of the Western States the consumer density and revenues per mile are even lower. This contrasts with the 34 consumers per mile of class A and B investor-owned utilities with average revenues of $7,820 per mile. The cooperatives' cost of

providing service is, therefore, greater, even though they have enjoyed certain tax benefits and low interest rate loans from the Federal Government.

Because the cooperatives have enjoyed these advantages, they have been subjected to constant criticism from the private utilities and their stockholders. REA critics overlook or ignore the importance of electric power to the American farmer, whose fantastic production of food and fiber is actually the principal weapon in the arsenal of the free world. Their criticism, however, cannot detract from the important public service the cooperatives have provided during the past 30 years, nor can it legitimately be used as an argument against providing them a means to obtain capital for necessary improvements in their facilities. The issue before the committee is what role the cooperatives will have in providing needed electric and telephone service to rural America. I think they have played a vital role up to now. These programs have been so successful that no one can deny them a part to play in the future.

The goal of this pending legislation should be the attainment of economic and financial self-sufficiency. Although the cooperatives are well on their way toward maturity, they have not reached it yet. It will be necessary, therefore, to establish a supplemental financing such as proposed here. This will make much-needed funds available now to the cooperatives and at the same time enable them over the long pull to become self-sufficient.

Until that time the cooperatives will need interim financing at intermediate interest rates and at the more favorable rate now available. The power demands on their systems have almost doubled in the past 10 years. In 1955 the average monthly consumer consumption was 242 kilowatt-hours per month. By 1965, the average consumption rose to 479 kilowatt-hours per month. In the late thirties, the average monthly consumption was less than 40 kilowatt-hours.

Demand has also increased as cities and suburbs have spread into areas previously inhabited by the farm population only. Now that the demand has increased and the population has shifted into cooperative service areas, the cooperatives must be given the opportunity and the means to provide the needed service.

The establishment of a rural electric bank and a rural telephone bank, along the lines of the financing institutions under the control of the Farm Credit Administration, will give the cooperatives the interim supplemental financing they need. These will become permanent financial institutions from which the REA's can ultimately obtain all their capital needs.

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The private utilities have opposed the cooperative program fearful of further encroachment into private utility service areas. As I indicated earlier, I believe the criticism is unjustified. I believe such fears are exaggerated.

Most of the so-called rural electric cooperative competition has occurred because of the farmers' increasing electric energy demands and the shift in population. I believe the boundaries of REA service areas should continue to be set by State and local governments, but I do not believe that cooperatives should be kicked out of a previously sparsely populated area just because population has increased and

energy demands have grown to the point where private utilities now see a profitable market.

Mr. Chairman, I am a cosponsor of S. 3337, the bill introduced by Senators Bass and Cooper on May 10 and cosponsored by 28 Senators. Over the weekend I have studied the bill introduced by Senator Cooper on Friday. I believe the bill is a reasonable compromise between S. 3337 and the proposals made by the administration. Senator Cooper's bill also contains limitations on the lending power of the electric bank which I believe provide adequate protection for the private utilities that have objected so strenuously to the concept of the bank.

I endorse Senator Cooper's bill and compliment him on the fine work he has done to resolve the questions which have been raised about the establishment of rural electric and telephone banks.

The private utilities have expressed considerable concern about generation and transmission cooperatives and the possibility of unlimited expansion with the additional lending power available under the rural electric bank. This concern should be placed in proper perspective. In the first place, only 31 percent of the money lent by the Rural Electrification Administration has gone for generation and transmission facilities.

Second, these loans have been made only when cooperatives have been unable to purchase an adequate and dependable supply of power, when power costs would be reduced, or when the security and effectiveness of the cooperative system have been threatened.

Third, the cooperatives purchase more than 35 percent of their power directly from private utilities. This means that the subsidies which REA's have received have been of substantial benefit also to the private power industry. In fiscal 1965, this amounted to $121 million in direct purchase from private companies.

And fourth, the G. & T. cooperatives which some private utility spokesmen seem to view as a socialistic threat generate only about 1 percent of the total kilowatt-hours generated in the United States. They account for only about 1 percent of the revenues derived from the sale of such energy.

Under Senator Cooper's bill, the generating capacity of G. & T. cooperatives is limited to 5 percent of the total electric generating capacity in the United States.

Senator Cooper's bill also limits the cumulative size of any acquisition of electric facilities by cooperatives to 5,000 nonrural connections. In addition, no loan may be made to a G. & T. cooperative which would displace power supplied by private companies unless the cooperative has advertised for bids for the power supply it needs and unless the cost of the power under the proposed loan to the cooperative is lower than the cost of power under the lowest bid submitted.

With these restrictions I firmly believe that the private utilities are adequately protected against unwarranted expansions of G. & T. cooperatives, as well as any possible increase in competition for nonrural customers.

This entire matter has been under extensive study for many months and the provisions of S. 3720 contain a number of refinements to insure the continued success of rural electric and rural telephone

cooperatives under a variety of situations that may develop over the years to come.

Highlights of the bill that are of particular interest to me include the provisions that limit Federal capitalizations to not more than $50 million a year, up to a total of $750 million.

The bill also limits the lending power of the bank to a sum not to exceed eight times the paid-in capital. This is a more conservative restriction than had previously been considered.

Another provision that will lend integrity to the bank is the provision that borrower control will occur only after two-thirds of the stock is held by the borrowers rather than one-half as had been suggested in earlier versions.

One cannot foresee all of the future needs that will undoubtedly occupy the members of this bank board once it is established, but the bill provides for a membership on the Board that will have the expertise in the vital areas of management and finance needed to deal with future problems. At the same time the bill creates an instrumentality capable of meeting the fabulous opportunities of the 21st centuryproviding we deal successfully with the challenge of today by bringing it into being at this time.

In conclusion, Mr. Chairman, I believe the cooperatives have an important part to play in the future in providing electric and telephone service to rural areas. They have substantial capital needs which must be met and due to their high operating costs, low density, and meager revenues, they cannot pay prime bank rates at the present time.

I support S. 3720 as the right approach to meet those capital needs and to achieve the ultimate goal of freedom from financial dependence on the Federal Government. I urge this committee to take action this year to establish this new program.

(The prepared statement of Senator Monroney is as follows:)

Of all the imaginative projects in the public interest begun in this century, few faced difficulties more complicated than those overcome in bringing light and electricity to rural America. Few social and economic reforms have been as successful as the rural electrification program. It is a story recounted with pride by Presidents and a reality looked upon with envy by the leaders of many nations whose rural people still are without light and electric power.

This success was achieved by the dedicated efforts of thousands of rural Americans who formed non-profit cooperatives in almost every State of the Union and went about what the private utilities had always said was impossible. These member-owned cooperatives built the lines and strung the wires that stretched across the prairies and over the hills into the homes and barns of our farm families.

They accomplished the impossible and their achievement is one which President Johnson praised in the speech he gave at Johns Hopkins University last year, when he said:

"In the countryside where I was born, and where I live, I have seen the night illuminated, and the kitchen warmed, and the home heated, where once the cheerless night and the ceaseless cold held sway. And all this happened because electricity came to our area along the humming wires of the REA. Electrification of the countryside—yes, that, too, is impressive."

In 1935 only 11 per cent of all farms in the United States had electric service. In my own State less than three per cent of the farms had electric service in 1935. Today over 98 per cent have the benefit of it.

Through the REA's the countryside has been energized. The soundness of the original concept-the ability of the electric cooperatives to meet their obligations to repay the substantial federal investment in them-has been proven. In Oklahoma no borrower from the Rural Electrification Administration is over