Statement Senate Agriculture, Nutrition and Forestry Committee
Chairman Dick Lugar, U.S. Senator for Indiana

Date: 7/8/97

STATEMENT OF SENATOR RICHARD G. LUGAR SENATE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY HEARING ON RURAL ELECTRIC LOAN PORTFOLIO/ELECTRICITY RE-STRUCTURING

Our hearing today will focus on the financial condition of the Rural Utilities Service electric loan portfolio and then take a broad look at the role of rural electric cooperatives in a deregulated electric market and the effect less regulation in the electric industry might have on electric consumers in rural America.

The former Rural Electrification Administration was established by Executive Order in 1935 to bring electricity to rural areas. One year later, the Rural Electrification Act of 1936 authorized loans for the construction of rural transmission and distribution networks. Cooperatives were formed to take advantage of this government financing by building facilities to distribute power to rural customers. In the 1960's, the REA shifted its program emphasis to electric production and began to make loans to generation and transmission cooperatives. While Congress has made changes to the authority of USDA to conduct the electric loan programs, the basic premise of the programs remains the same today as when the agency was created in 1935.

Today we will hear about the ability of these cooperatives to compete in a less regulated marketplace and the role USDA should play in financing distribution as well as generation and transmission cooperatives.

We will hear about the strengths and weaknesses of the current RUS electric programs from the Administration with a special emphasis on the findings regarding electric loans highlighted in the April 1997 General Accounting Office report on the Financial Condition of the RUS Loan Portfolio.

Our second panel will provide us with information on electric power deregulation with an emphasis on the effects various changes may have on those supplying power to rural America, including the rural electric cooperatives, the investor- owned utilities and the municipal utilities. Electricity deregulation is among the most widely discussed public policy issues today. Up to this point, however, there has been less attention to its potential effects on rural America, positive or negative. Today’s hearing should be a constructive addition to an important debate.

I look forward to this opportunity to gather information about these important issues.