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Congressional Testimony

Statement of Wally Beyer
Former Administrator for the Utilities Programs

Before the House Agriculture Subcommittee for General Farm Commodities,
Resource Conservation and Credit
May 26, 1999


Mr. Chairman and members of the Subcommittee, my name is Wally Beyer. I am the Administrator of the Utilities Programs (Utilities Programs), a Rural Development agency of the United States Department of Agriculture (USDA). I appreciate the opportunity to appear today to share the views of the Utilities Programs on the challenges of delivering affordable and reliable rural electric service in a rapidly changing regulatory and market environment.

More Than Sixty Years of Progress
I would like to start by thanking the Subcommittee not only for the invitation, but for it's continued and strong support of the entire Utilities Programs. Together, we are helping strengthen local economies in rural America with quality telecommunications, electric, water and wastewater infrastructure, and improve health care and education through distance learning and telemedicine projects by providing more than $42 billion in financing to more than 9000 rural entities.

I can think of no better time to focus attention on the rural electric challenge. Last week marked the sixty third anniversary of the signing of the Rural Electrification Act. While rural America has changed greatly because of and since, the passage of that landmark legislation, many of the challenges remain. Geography and low population density make rural utility service difficult to provide and access to affordable, critically important capital.

This fiscal year, Utilities Programs will finance more than one billion dollars in rural electric infrastructure. That commitment from Congress and the Administration will unlock billions of dollars of private sector investment. Every federal dollar Utilities Programs directs to rural electric infrastructure, leverages three private sector dollars, on average, over the last five years, the public/private partnership resulted in more than three billion dollars being invested annually in the rural electric infrastructure. Today, the Utilities Programs holds $32 billion in loans to rural electric systems. Even with this significant commitment to a rural electric infrastructure, demand for Utilities Programs electric financing exceeds available program dollars by $1.3 billion.

While we are proud of our accomplishments, we know that our work is not done. Rural systems are simply more expensive to operate and maintain than systems in urban areas. Plant improvements are expensive, and capital costs are more expensive on a per consumer basis for rural systems. As we look to the future, we know that Utilities Programs public/private partnership must continue. In a competitive marketplace, Utilities Programs credit support and leveraging of private sector investment capital will be more valuable than ever.

Vision of the Future
This is a time of great regulatory and market change. These changes could have a profound effect on rural electric service providers as well as loan security issues in the Rural Utilities Service loan portfolio. As electric restructuring unfolds, the Utilities Programs is keenly focused on maintaining both quality of service and taxpayer's loan security.

As we enter this new era of restructuring, affordable access to capital will be of growing importance to rural electric systems. Accordingly, we are working to enhance the competitiveness of our borrowers and the flexibility and usefulness of our program. We are reforming our program regulations to be more customer friendly; focusing on loan security in a new customer choice competitive environment; and eliminating non-productive oversight, antiquated controls and approvals. To take advantage of a favorable credit market, and to prepare for a new marketplace, we are emphasizing Reform, Re-invention and Responsiveness.

Consistent with the spirit of re-invention, Utilities Programs continues to streamline its policies, offering borrowers more flexibility in financing, speedier response times, and 64 years of experience dedicated to quality electric service to rural Americans.

Electric Restructuring
Mr. Chairman, I support the Administration's electric restructuring legislation, the Comprehensive Electricity Competition Act. The Utilities Programs made significant contributions to this landmark legislative proposal. No restructuring plan currently before the Congress is as complete or as sensitive to rural concerns as is the President's bill.

I support this legislation because a national restructuring strategy is required. One way or the other, restructuring is coming. 18 states have passed restructuring legislation, 25 states have restructuring studies underway, and 3 other state public service commissions have initiated restructuring action.

While States have significant interests in the restructuring debate, pursuing restructuring on a state by state basis can not address nation-wide concerns, that can only be addressed through Federal legislation exclusively. With its flexible mandate, the Administration's bill appropriately balances important state interests with federal concerns which include ensuring that rural citizens share in the benefits of restructuring.

The Administration's legislation is a balanced bill which contains several important provisions important to rural America including:

Perhaps most important, the President's legislation is the only restructuring bill that incorporates specific rural-friendly provisions. The bill provides for a rural safety net of about one half billion dollars in the first year, growing to more than $600 million if necessary to help mitigate any adverse economic effects of restructuring on rural consumers.

The President's bill maintains access to preference power. 516 electric systems receive power from the Power Marketing Administrations (PMAs) and the Tennessee Valley Authority (TVA.) Also, rural systems will benefit from programs financed by the public benefits fund which will match state efforts in low income assistance, consumer education, conservation and technology development. In addition, over the long term, increased demand for biomass fuels will create new markets for agriculture products.

Rural Interests in Restructuring
In considering electric restructuring legislation, I urge the Subcommittee to keep in mind the USDA's program interests and the investments of the American taxpayers in rural electrification.

The Utilities Programs provides financing to more than 750 rural electric systems. Utilities Programs borrowers serve 25 million of the 54 million Americans who live in the 80% of our nation that is rural. Our borrowers serve 523 of the 540 highest poverty counties in the nation. It simply costs more money to serve rural consumers.

As important, the Subcommittee should appreciate that it is already very difficult to provide electricity to rural areas. Rural electric systems face daunting challenges even in a stable regulated environment. Those challenges do not disappear in a competitive environment.

For instance, all rural systems face difficulties due to low population density, lack of economies of scale, customers which are generally older and less affluent, and fewer industrial and commercial customers per residential customer.

As compared to urban systems, according to USDA and Department of Energy data, Utilities Programs borrowers receive one-eight the revenue dollars per mile of line. Also on a per consumer basis, Utilities Programs borrowers:

Rural electrification has always been a difficult and risk-filled endeavor. Our agency exists in large part because the commercial marketplace was unable or unwilling to serve many rural Americans at a price that was affordable and conducive to economic development. The need for this agency will be heightened in a competitive environment. However, under the Administration's bill, I am confident that the rewards substantially outweigh the risks and the legislation contains the tools to manage successfully and mitigate that risk. The most dangerous strategies for rural America would be for Congress to take no action or to enact legislation without the rural friendly provisions contained in the Administration's bill.

Preparing for the Future
Utilities Programs continues to study the effects on rural areas of competitive and regulatory policies in the electric, telecommunications and water industries. We have worked closely within USDA and with other federal and state agencies, and with industry experts, to study potential risks to Utilities Programs loan security and rural economic development. We will continue that work.

Conclusion
America's longstanding partnership with rural communities to help provide safe, reliable and affordable power will be more important than ever in an increasingly competitive environment. One thing is certain, there will be a continuing need for the Utilities Programs loan program, credit support, engineering expertise, and quality assurance it provides to rural America.

Restructuring the regulatory and market regime of a 100-year old electric utility industry is a complex task. There are no simple solutions. As we have learned in other major restructuring efforts, there are risks and rewards associated with every action. In those efforts, Congress has made good faith efforts to address rural concerns in a competitive marketplace. It will be no different in electricity restructuring. An appropriate mix of policies is required, including specific protections for rural consumers to ensure that all Americans benefit from restructuring. As the Administrator of the Utilities Programs and as a former manager of a Rural Electric Cooperative, I believe that the Administration's legislation provides that appropriate mix of policies.

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