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RCED/OSI-94-286R 1 (1994-08-12)

handle is hein.gao/gaobackqf0001 and id is 1 raw text is: GAO -2= 0 C/) LL CC C3 United States General Accounting Office Washington, D.C. 20548 Resources, Community, and Economic Development Division B-258095 August 12, 1994 The Honorable Mike Synar House of Representatives Dear Mr. Synar: This letter responds to your request that we review the investment activities of the Verdigris Valley Electric Cooperative, Inc. (VVEC), an electric utility located in Collinsville, Oklahoma. VVEC is a borrower of the U.S. Department of Agriculture's Rural Electrification Administration (REA). REA provides loans and guarantees to rural electric utilities, almost all of which are cooperatives, to finance rural electric systems and economic development projects. Amendments enacted in 1987 to the Rural Electrification Act of 1936 encouraged electric cooperatives to support rural economic development. These amendments authorize REA's borrowers to make investments, loans, and guarantees of up to 15 percent of the value of their total utility plant without restrictions or the prior approval of REA's Administrator. To aid in rural community development, cooperatives can invest in, among other things, water/waste systems, garbage collection, and job creation. You asked us to examine allegations of improper investment practices by VVEC or its subsidiary, the Verdigris Valley Economic Development Corporation (Development Corporation). As agreed with your office, we obtained information on VVEC and the Development Corporation, which provided loans and guarantees to Precision Tubulars, Inc. (Precision).2 'REA's guidance defines total utility plant as the value of the total utility plant in service and the construction work in progress. 2Precision was a pipe resizing business that employed the process of cold drawing. The process consists of pulling a pipe through a metal cylinder that has a smaller diameter than the pipe; as a result, the pipe is resized. GAO/RCEDIOSI-94-286R, Investment by an REA Cooperative I12393

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