GENERAL COMMENTS

The books had been maintained primarily on a cash basis.

Payroll expenditures for 1968, as summarized from the records, had been classified as follows:

An evaluation of the internal control revealed that adequate systems and procedures were in effect. Internal control procedures included the following:

Checks issued had the imprinted signatures of Mr. Walter
Underwood, Treasurer, and Mr. Virgil Peterson, Manager of
Finance and Accounting; Use of check requisition form
signed by department heads, invoice approval forms showing
verification of amounts billed, approval for payment, and
accounting verification; and board officer's subsequent
signature and date on the disbursement journal to indicate
review of the disbursements. The signature plates were in
the custody of a responsible employee.

A pension and death benefits plan for the employees was in effect. We were advised, but did not verify, that the estimated annual costs would be:

Of the annual cost, it is expected that 90.5 percent will be paid by the cooperative, and the balance by the employees. The plan is administered by the Indiana Statewide Rural Electric Cooperative, Inc.

We were informed that the Indiana Statewide Rural Electric Cooperative. Inc., had applied for and obtained an exemption from federal income taxes.

A copy of our recommendations for accounting improvements has been furnished to the management.

PROPOSED HOOSIER SETTLEMENT

Mr. MICHEL. I understand the Public Service Commission of Indiana has worked out a proposed settlement of the Hoosier problem. Have you seen the proposal and what is your opinion if you have? Mr. HAMIL. Yes, we have copies of the proposal and it appears to offer the basis for a reasonable compromise. The various cost items are subject to negotiation, with the commission as the referee.

Mr. MICHEL. Would it protect the Government's investment?

Mr. HAMIL. We believe that it offers the only alternative to a risky series of litigation which may result in the necessity for the Government to sell the property. Such sale might result in substantial loss to the Government.

Mr. MICHEL. Would it be beneficial to the co-ops?

Mr. HAMIL. The proposal appears to offer the possibility for reaching a reasonable settlement and for terminating the costly litigation that has prevented Hoosier from getting a certificate of convenience and necessity. Without this certificate, the cooperative will be unable to operate and continued public ownership will be necessary until the Government is forced to sell.

Mr. MICHEL. What is required for its consummation?

Mr. HAMIL. It will be necessary that Hoosier accept the proposal in principle, and proceed to particiate in such negotiations as will be necessary to carry out the various elements of the roposal.

PROTECTION OF THE FEDERAL INVESTMENT

Mr. MICHEL. Because of the long-range implications that any settlement of Hoosier may have on electric systems in Illinois-private, public, and cooperative-I am concerned over whether a fair and workable solution is being developed that will not only protect the Federal investment but also will be in the best long-range interests of all the consumers in the region. Have the co-ops and the private companies accepted the commission's proposal?

Mr. HAMIL. As of this date, it is our understanding that Hoosier has not accepted the commission's proposal. We are informed, however, that the private companies have accepted the proposal, and have indicated a willingness to negotiate the details.

Mr. MICHEL. Will REA be a party to the proposed agreement?

Mr. HAMIL. NO. REA will not be a party to the obtaining of a certificate of convenience and necessity. It will be our intention, however, to advise Hoosier, as an REA borrower, and to determine that the Government's security will be protected.

Mr. MICHEL. Will any more of REA money have to be advanced pending receipt by Hoosier of a certificate of convenience and necessity by the Indiana Public Service Commission?

Mr. HAMIL. It may be necessary to make additional small payments from the existing loans. It is not anticipated that additional loans will be necessary if the commission proposal is adopted.

Mr. MICHEL. What responsibities does the Federal Power Commission have in respect to the Indiana Public Service Commission. Mr. HAMIL. It has been indicated that the companies acceptance and participation in the commission's proposal will be subject to the approval of the Federal Power Commission.

HOOSIER PLANT OPERATIONS

Mr. MICHEL. I am advised that the generating plant has been going through a testing period. Who is operating the plant, and to whom is the output being sold?

Mr. HAMIL. The plant is being operated by Hoosier Energy Division, Indiana Statewide Rural Electric Cooperatives, Inc., as agent of the Government, under an operating agreement. Operation to date has been for the purpose of testing and adjusting the generating units to prepare the plant for commercial operation. The output of the plant is being disposed of to TVA, the city of Jasper, Ind., and, as usable, to Big Rivers Rural Electric Cooperative Corporation of Henderson, Ky. Mr. MICHEL. How many out-of-State consumers are there, and who are they?

Mr. HAMIL. Of these customers, TVA and Big Rivers are out of State.

Mr. MICHEL. What is your estimate of cost of power generated at the plant?

Mr. HAMIL. During the test period of any new generating plant the amount of generation varies widely-from light to full loadwith no assurance of the plant's ability to maintain any fixed load level. Under these conditions we do not feel that a realistic or meaningful cost of power can be estimated at this time.

Mr. MICHEL. Has anyone offered to buy the plant or its output? At what price?

Mr. HAMIL. There have been no offers to buy or sell the Hoosier generating plant. Under the sales and agency agreement between REA and Hoosier, the plant is to be returned to Hoosier if and when they get the certificate of convenience and necessity. Hoosier has until July 1973 to obtain a certificate. Interests both within Indiana and out of State have offered to buy portions of the output. The offering price has varied and would be subject to negotiations.

EXPEDITIOUS SETTLEMENT

Mr. MICHEL. What are you doing to expedite resolution of the Hoosier matter?

Mr. HAMIL. For more than 1 year the Administrator of REA has been meeting periodically with representatives of Hoosier and the power companies in an effort to encourage a negotiated settlement which would eliminate litigation and get the generating plant into operation. We are continuing our encouragement in this respect with the hope that the Commission's proposal offers a tangible basis for arriving at an acceptable settlement.

Mr. MICHEL. Mr. Hamil, from my reading of the language of the law and some of your mortgages, I take it that you have very broad powers in employing personnel-particularly attorneys, engineers, and experts and in approving the employment of "any manager or superintendent of any electric transmission and distribution system or electric generating plant embraced in the mortgaged property, or any chief operator, engineer, or other employee in active charge of any electric generating plant or electric transmission line embraced in the mortgaged property."

With respect to Hoosier, do you feel that you are getting enough cooperation from all the parties involved?

Mr. HAMIL. All parties involved in this matter have been attending and participating in the negotiations which REA has sponsored during the past year. At least two proposals have been prepared prior to the Commission's current proposal.

Mr. MICHEL. Is there anything that Congress can do to help?

Mr. HAMIL. No. It does not appear that any congressional action is needed or appropriate in this particular case. The need is to arrive at an agreement which will terminate costly litigation, minimize the need for future investment, and get the plant into a revenue-producing

status.

PERSONNEL

Mr. MICHEL. Do you have sufficient qualified and objective personnel on your staff to conduct the studies, and to make sound decisions on the very complex and controversial subjects with which you are faced? Mr. HAMIL. Yes. We feel that the REA staff is qualified, and that the advice and assistance being obtained from it is objective and adequate.

Mr. MICHEL. Are you encountering any problems where obstacles are being placed in your path that tend to impede or prevent the carrying out the policies and practices you and the Administration have promulgated?

Mr. HAMIL. No. Insofar as we are concerned, there are no administrative obstacles within REA or the Department of Agriculture.

Mr. MICHEL. Does the budget contain sufficient administrative funds for the proper and timely discharge of your responsibilities?

Mr. HAMIL. Yes. Insofar as these particular matters are concerned, sufficient administrative funds are available.

Mr. MICHEL. Would provision for several additional personal assistants to you speed up your operation, assure better quality and monitoring of work and better protection of the Government's investment, and better and cheaper power to the consumer?

Mr. HAMIL. No. We have sufficient assistants to the Administrator. However, it is not desirable to anticipate additional reductions in our general staff. Additional reductions would weaken our ability to administer the REA program.

RURAL HOUSING

Mr. MICHEL. I have in my office a copy of a request to the U.S. Office of Housing and Urban Development for a grant to the Basin Electric Power Cooperative for research and development on rural housing projects. How many more co-ops are involved in this kind of activity?

Mr. HAMIL. REA is not advised as to the coperatives that may have made applications to HUD for housing grants. We were not aware of the application by Basin, and are unaware of any additional applications that might have been submitted.

Mr. MICHEL. Do you think that this is the kind of activity that an electric co-op should be involved with?

Mr. HAMIL. Activities of this type are not authorized as a part of the REA program. We have encouraged borrowers to participate in community development activities as any other citizen might do. However,

with the need for capital in supporting rural electrification being so limited, it appears that the best use of the co-op's margins is to invest them in their own plants. Policy bulletins of REA govern this matter in some detail.

Mr. WHITTEN. Mr. Andrews?

Mr. ANDREWS. Mr. Administrator, we all recognize the great need of rural America for power, and I know at firsthand because when my wife and I were first married we had a combination coal and propane cookstove while we waited for the REA line to be built to the house. A few years ago we got an award as the farm which had best put REA power to work, so we are aware at firsthand of the need for a viable REA program. We must establish some criteria to determine which projects get priority support.

DENSITY AS A CRITERIA FOR ESTABLISHING LOAN PRIORITIES

Have you ever given much thought to establishing a criteria of density? We have a great demand right now in our Nation for keeping people out on the land and not crowding the metropolitan areas. Two percent REA loans started because they gave central station power to those people who lived far apart and couldn't otherwise afford it. It made power available at about the same rate their city cousins were buying it. This is still the justification for 2-percent money for these facilities. It is a lot cheaper to distribute central-station power in the city than it is on the land.

Could you then set up as a yardstick this factor of density, and give preference to distribution loans where you had less than, say, two customers per mile? Give preference to generation loans where you had, G. & T. that was tied in with cooperatives where there was an average of less than two customers per mile?

Mr. HAMIL. We always take these things into consideration when there is a loan application being reviewed. This has not been in the criteria as far as the electric program has been concerned, an exact formula for distributing funds on the basis of customers per mile. We have one system in the United States with about half a member per mile. We have got another one with a little bit more than onehalf member per mile, and our average is about four to the mile in the entire United States.

I might tell you that we will take a run at that, and see if we can develop any criteria and report back to you.

Mr. ANDREWS. I am not shooting in the dark on this. I suggested an amendment to the chairman of the legislative committee on this density factor and, as a matter of fact, the gentleman from Texas introduced it. He tacked it on to an REA bill that came out of the committee and, unfortunately, didn't reach the floor-one that would have required the continuation of 2-percent loans for those cooperatives that had below a certain density. I think it would apply as well for RTA's as well as for REA's. It is something that those of us who are advocates of REA would find easy to defend and justify on the floor of the House. We must have statistics in hand so that we can justify the budget and the reason for 2-percent money. Certainly it is totally justifiable on the basis of density in the rural areas of our country, if for no other reason than to keep the people out in the country instead of moving toward the city where problems are already far too complex.