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Because we cannot determine at this time the trend in future interest rates, no definite statement can be made of the cost in the future of money to this cooperative or other borrowers from the various sources provided in the proposed legislation, except where the source of the loan funds would be appropriations.

On the basis of the present statutory rate of 2 percent, and with payments of interest on a current basis and principal payments beginning the fourth year, the total interest expense during the 35-year loan period would amount to $416.80 per $1,000 of loan.

To show the effect of a somewhat higher interest rate; for example 3 percent : with payments of interest on a current basis and principal payments beginning the fourth year, the total interest expense during the 35-year loan period would amount to $649.04 per $1,000 of loan.

Furthermore, no determination of the source of funds for a loan to LyonLincoln or any other borrower can be made in advance since the prospective financial and operating status of the borrower at the time of the loan would be a primary consideration in determining the source or sources of the loan funds and the accompanying interest rates.

In the event a loan did not show feasibility under the various other sources of funds provided in the proposed legislation, without an increase in electric rates, it is contemplated that appropriated funds would be available to finance the loan at the statutory interest rate.

EFFECT OF PROPOSED LEGISLATION ON MINNESOTA COOPERATIVES

Mr. ANDERSEN. Mr. Scott, from your knowledge of their financial condition and rate structure, how many Minnesota cooperatives would have to raise their electrical rates if the administration's proposal or if the Department's proposal were approved by the Congress?

If you find by your study that any of these particular cooperatives in Minnesota will have to raise their rates because of the new legislation, I would like to have these cooperatives identified in the record at this point along with your answer.

Mr. SCOTT. We will be glad to look into that. I have not made any study of that.

(The following information was subsequently supplied:)

In submitting the proposed legislation, it was not contemplated that any borrowers, in Minnesota or elsewhere, would have to raise their electric rates be cause of the proposed legislation. The budget recommendation provides for Federal loan funds to take care of borrowers needing such funds at the statutory rate. Unless the Congress changes the rate, such funds will continue to be loaned at a 2-percent interest rate.

Mr. ANDERSEN. I realize that, Mr. Scott. That is why I am repeating this and asking for this information to go into the record at your convenience before the record is printed.

Mr. Scort. Might I make this general comment?

There is no thinking that I have learned of, about any raising of power rates, and I have been in many of these discussions after this legislative idea was determined to be one that the administration was going to propose.

The President submitted a recommendation that there would be some Federal funds to take care of those that need that type of financing. The statutory rate, as you well know, applies to those funds until the Congress changes it. And then it would still be a statutory rate. Mr. ANDERSEN. The whole purpose of this question is to try to get into the record, after careful study by you and your staff, what, according to specific instances, will occur if the Congress were to accept the legislation proposed.

Mr. SCOTT. I know that you are concerned about that.
Mr. WHITTEN. Would the gentleman yield?

Mr. ANDERSEN. Yes.

Mr. WHITTEN. I would like to point out that Mr. Scott previously testified that he did not think they would have to raise the rates. He said it was by reason of their reserves. However, if the position of the cooperatives would be injured if it pulled against reserves, it would have to raise rates. The effect on the cooperative would be the same in either instance.

I notice Mr. Scott referred to it as "this legislation." It is not legislation until the Congress passes it and the President signs it. Until you get some member of the Agriculture Committee to introduce it, I do not know whether you could even call it proposed legislation. The strongest term you could use would be "perhaps proposed legislation."

Mr. Scorr. I stand corrected.

Mr. WHITTEN. Is it true that nobody has introduced this yet?
Mr. Scort. Not that I have heard of.

Mr. WHITTEN. How much effort has been made to get some member of the Agriculture Committee to introduce it?

Mr. SCOTT. There has been very little that I know of.

Mr. ANDERSEN. I am glad to hear that there is very little effort being put toward getting this bill pushed in the Congress.

Mr. STRONG. May we go off the record?

Mr. ANDERSEN. All right.

(Discussion off the record.)

Mr. ANDERSEN. On the record.

FINANCING LOANS TO MINNESOTA BORROWERS

I want to have Mr. Scott answer this question on the record. How much financing do you estimate Minnesota cooperatives will need in the next 5 years? What does your survey show? Where would they likely have to get private financing? Would it be Minneapolis, Chicago, or New York?

Again, I leave that wide open for your answer, gentlemen, and this is where I bring in the 5-year figure.

Mr. SCOTT. We will furnish the answer for the record. (The following information was subsequently supplied :)

LOAN REQUIREMENTS OF MINNESOTA REA COOPERATIVES

Minnesota electric borrowers indicated in the 1957 survey of their construction plans and loan requirements that their loan applications during the period 1959-63 will be:

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Experience with the survey has shown that, generally, borrowers have been conservative in estimating their needs.

INSTITUTIONS DEALING IN UTILITY FINANCING

Mr. WHITTEN. Is it not a fact that utility loans are primarily handled by relatively few banking interests who specialize in that field? If you have information on this, I would like to have in the record, with the permission of Mr. Andersen, a list of those banking institutions which primarily deal with this financing. I think the DixonYates matter will clearly demonstrate that relatively few people in New York City do practically all of the financing of the utility operations in the country and have done so for many years.

Mr. SCOTT. Mr. Chairman, in responding to that question, may wẹ also include evidence in the record as to the sources of funds for bond issues?

You speak about individually negotiated loans to banks. This proposal also provides for the issuance of bonds which do not involve individual financing but seek investment funds.

Mr. WHITTEN. All right. I will modify my question on this point, so as not to get us into the broad field of conjecture and high optimism. I will ask you to add, in answer to my question, the financial institutions who primarily deal in the purchase of utility bonds. I am trying to find out what the score is up to now, which is bound to be the only basis on which you have any sound reason to project or conjecture as to what will happen if this is set up.

I think you will find the same institutions handle the bonds that may handle them on any short-term paper, or anything else. That is my recollection in connection with the Dixon-Yates matter.

Mr. SCOTT. The only thing I meant to point out, and seek your permission to include some evidence on, was this revolving fund. I believe that would be a different type of issue than the bonds that you have just referred to. If I understood your comment, they would be the securities of an individual utility. This revolving fund proposal, and the bonds and debentures that would be issued would be attractive to investment funds.

Mr. WHITTEN. Mr. Scott, let me point out again that you are speaking with high optimism. As I said, you must judge the future to a degree on that which has been true in the past.

This $3.6 billion worth of property, electric lines, and equipment would be turned in as security for any notes or bonds which might be issued against the revolving fund, as I understand it; is that right? Mr. SCOTT. That is one part of the assets. That is right.

Mr. WHITTEN. From my observation, there are many, many banking institutions that do not go in for land loans. There are many others that do not go into other type loans.

I think again that the record as to who has been financing this type of operation would be a situation where you would have to look as to who would go into this, where the security is a certain type of operation.

(The institutions referred to are as follows:)

Standard & Poor's Corporation Records in its special tables section (vol. T-Z) lists the following firms as principal offerors of electric utility bond issues during calendar year 1957:

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Mr. WHITTEN. If a utility were to buy the debentures of the REA, or if any banking institution which has close ties with private utilities were to take over this collateral, they would have to operate it. It would have to be an institution that had close ties with private utilities so they could operate in case they should in the future have to take over the security which is the REA lines, offices, and all that.

I think definitely you would find if this were ever to become law that those who have specialized in utility-type loans in the past would be the one who you would have to look to. For other reasons they would be looking to you, too. I think, from what you propose here, those folks who specialize in it would be anxious to get their hands on this type of paper.

EFFECT OF PROPOSED LEGISLATION ON ELK RIVER COOPERATIVE POWER

ASSOCIATION

Mr. ANDERSEN. We have a big generating cooperative at Elk River, Minn. We have run into one obstacle after another in our effort to help them get into the atomic power generating field. Do you expect these generating cooperatives will be able to borrow all the money they need for expansion under the proposed new legislation?

Mr. SCOTT. Mr. Andersen, I think the answer is "yes." I base that on the remark of the President in his budget message in which he said that the purpose of this proposed legislation was to broaden the sources of capital from which REA systems may obtain the financing necessary for continued growth and adequate service to consumers. Mr. ANDERSEN. Your answer would be a qualified yes in response to my question. You might want to change it in some way but you would say yes at this time.

Mr. SCOTT. Yes, sir.

Mr. ANDERSEN. Would you explain to the subcommittee on what basis you expect them to get their funds under your proposed program. I am referring to Elk River or any similar project set up to develop atomic peacetime power.

Mr. Scorт. I am not so sure about this atomic business.
Mr. ANDERSEN. I am referring to the Elk River project.

Mr. SCOTT. That gets into some of the things that the Atomic Energy Commission are doing. I can say this about the general financing of any generating or any other type of REA loan purpose: The application would be made to the administrator in the usual manner. would be developed in the very careful manner that they always fol

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low. If we had this authority to use private funds, we would know the cost of those funds at that time within reasonable limits. We would have some Federal funds and we would know the rate of interest on those funds.

The men in the staff of REA would make their projections and determine whether or not it would be feasible to finance the proposed operation with Federal funds or with private funds.

Mr. ANDERSEN. Would private funds make such an investment in something dealing with atomic energy without the bonds being insured by the Government?

Mr. SCOTT. I am not sure about this atomic energy development.

Mr. ANDERSEN. I am referring now to the Elk River, Minn., situation. Might I suggest that you place your considered answer in the record?

Mr. SCOTT. I will be glad to.

(The following information was subsequently supplied:)

Since atomic energy facilities in connection with power production are considered at the present time to be experimental in nature, REA has no authority to finance the nuclear portion of a borrower's generating facilities. The proposed legislation would not alter present REA authority concerning such loans. For the conventional portions of a borrower's generating facilities the loans under the proposed legislation would be considered in the same manner as all other types of distribution, generation and transmission applications.

Mr. ANDERSEN. I would like answers to these questions placed in the record referring to Elk River. What interest rate do you expect they would have to pay under the new legislation if adopted, what terms will be required of them, what effects will these increased costs have on electric rates on energy served by that particular organization? (The information referred to follows:)

The information supplied in response to the question concerning the cost of money to the Lyon-Lincoln Electric Cooperative under the various provisions of the proposed legislation indicates the difficulty of forecasting interest rates to be charged on funds from the various sources provided in the proposed legislation. No increase in electric rates is contemplated as a result of the proposed legislation, inasmuch as the President's budget recommendation provides for Federal funds to take care of those borrowers who need that type of financing at the statutory interest rate.

AUTHORITY OF REA ADMINISTRATOR

Mr. ANDERSEN. You advised us last week in response to questions by our chairman that neither you nor the Secretary had in any way interfered with the authority of the REA Administration. We hope you will continue, at least I say I hope you will continue to follow that policy. But this proposed legislation creates some doubt in my own mind. I notice all the way through the draft bill that where any reference is made it is made to the Secretary of Agriculture. What becomes of the Administrator of REA under the proposed bill?

Mr. Scort. It has no effect whatsoever on the authority of the Administrator, Mr. Andersen. I understand this particular style of drafting legislation is one that is commonly used in situations such as this where the Secretary under the Reorganization Act has broad supervisory responsibilities. It is in the record here I am sure, that the authority to the REA Administrator was immediately redelegated to him under the terms of the Reorganization Act.

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