U.S. DEPARTMENT OF AGRICULTURE

National Rural Electric Cooperative Association

ANNUAL MEETING

Second Generation Session

REMARKS BY

HILDA LEGG

Dallas, Texas

Tuesday, March 12, 2002

[TRANSCRIPT PREPARED FROM A TAPE RECORDING.]

P R O C E E D I N G S

MS. LEGG: Good morning ladies and gentlemen. Wow! This is my first National Convention for the NRECA and my compliments to Mr. English and to Mr. Lackey and to the staff for such a wonderful event --it has lived up to all the expectations that people have been telling me that it would. It's been informative and it's been fun, it's been exciting and I've enjoyed hearing the speakers and getting to know many of you more personally in the last few days. So, I'm delighted to be here with you this morning.

I bring you greetings from Secretary Ann Veneman, the Secretary U.S. Department of Agriculture.

It is wonderful, also, to be in Dallas, Texas, the home of our President. You know, Texas has, in my lifetime--if you want to count President Eisenhower--who was born in Denison, Texas, and then met his wife while he was stationed here in the military--has given our nation four presidents. That's pretty amazing. I bet Texans are pretty proud of that, actually. Are there any Texans in the crowd this morning? Thought there might be.

One of the favorite and, of course, one of the most colorful Presidents, who, incidently, supported the REA in it's early stages, was President Johnson and I know that you Texans have a lot of stories that you like to tell about President Johnson. One of my favorite stories was sort of tied here to Dallas.

When he was campaigning for Senate, one of his campaign workers down in Houston called him up on the phone and said, you've got to get down here right now because they're telling lies about you down here. Well, President Johnson, sort of in his typical way--said, you know, it's worse than that here in Dallas, they're telling the truth.

The trust is, ladies and gentlemen, I am excited to be the Administrator for the Rural Utilities Service. Why? Because we have a mission that is real and that is true today, just as it was 67 years ago.

And it's an exciting time to be in the utility business. Things are happening and I think when I talk about excitement, it's because there are challenges today. I think Mr. English spoke of them so eloquently yesterday and identified some of the issues.

But that means there's opportunity and so that opportunity is what gives us a chance to together make a difference. That excites me.

You know, today we are honoring--and I am so proud to be a part of the program— Luzianne Mamer. And I think about the excitement of the time that she worked. Not only did Ms. Mamer see the lights come on in this country, ladies and gentlemen, she helped to turn them on. And I look at her and I think, how can I contribute.

I know it's a hard selling job because I tried to sell rural Kentuckians on telecommunication and sometimes they would have rather had a load of good white gravel than that telecom equipment. But the point is we still have a purpose and we still have a mission. Times have changed from Ms. Mamer’s day, that's true.

In fact, as I came to RUS on September 17, my--then 18-month-old son and I boarded the plane, I think we were only two of six passengers on that plane from Louisville, Kentucky, to Washington that morning. And it dawned on me at that point in time that Washington had changed and that our country had changed and that, truly, an age of innocence had past us by.

So the challenges today that come from that require the leadership to be able to understand these new challenges, to recognize the risks that are involved and then simply be willing to step out and embrace the changes of today.

And I began to reflect on what would be the challenges of the Rural Utility Service. I tell you ladies and gentlemen, the challenge that RUS faces is to ensure that rural America participates fully in the economic recovery. I quote from our President's State of the Union address: "American workers want more than unemployment, they want a paycheck. They want a steady paycheck. When America works, America prospers. So my economic security plan can be summed up in one word: Jobs."

Ladies and gentlemen you cannot grow jobs in rural America without infrastructure. It is necessary for our communities to fully participate in economic growth and development. It is necessary that rural communities will be a part of the technological advances that are sweeping this country. And it is necessary for us to communicate what I call the "rural reality," what life is really like in rural America today. We must explain this to the decision makers and the policy makers. We must help them to recognize the life of rural America, which comprises 2,300 counties, 80 percent of the nation's land mass and 55 million people --we are a force and we will be reckoned with, because we do want to have jobs and we do want to participate. And so the challenge for RUS is to ensure that we do our part to help that to happen.

So, the past five months, I've listened, I spoke with a lot of you. You've been wonderful and forthcoming with your ideas and suggestions. I've read, and then, as always, I've looked inward. And I have looked at what it is that we can do to make a difference and what are the challenges that we must embrace.

So, first I begin by saying, what do we have? Well, let me tell you, I think we have four very important things going on for us at RUS and that is the mission--number one, the mission. If you are not driven by the mission, if you cannot embrace that mission then you truly cannot be a part of the cooperative family, I think, or RUS's family either.

I thought back on Ms. Mamer’s mission and say how did those people even begin to dream, to envision your theme today. How did they envision the idea that they could set polls across the plains of this country and up the hollers of the mountains in Appalachia or wherever else? How they would set those polls and string that line all the way across this great United States? How did they dream such a big dream. Now there might have been one or two little glitches along the way. In fact it reminded me of a joke that I saw the other day. This farmer, he walked into the local co-op office and he had that cap, kind of, you know, propped on the back of his head, like they'll do when they're thinking seriously. He walked up to the receptionist's desk there and he leans on the desk and he says, is this the headquarters of the company that strung the powerful fingers of electricity across this country. She said, yes, it is. He says, well, is this the company that rescued the farmer from benighted darkness? She kind of straightened up, and said, yes, it is.

And he says, well, is this the same company that relieved my wife from the drudgery of those housework chores every day. And she said, yes, sir, it is. And he says well, tell me, is this the same company that set that poll smack-dab in the middle of my driveway? [Laughter.]

There might have been a glitch here or there, but how did they dream that dream and how can we today have a dream that big?

The mission, ladies and gentlemen, it's still true today as it was then, the mission is to ensure that the families at the end of the line have the services that we need. And if that will be our guiding principle at RUS as we make decisions day to day, then hopefully we can make a difference. That line, today may be a telephone line, or a water line, as well as an electric line, but we must use that as our axiom for day-to-day decisions.

The second thing we have is knowledgeable leadership. I quote again from the President. When he recognized early on the energy issues and he said,”good jobs also depend on reliable and affordable energy. Congress must act to encourage conservation, promote technology, build infrastructure and it must act to increase energy production at home so America is less dependent on foreign oil.”

Secretary Veneman in her publication in September in talking about taking stock for the new century said “creating an environment that will attract and sustain private investment and job growth and income-generation activities is an important goal. Our leaders know that our needs are great.”

Thirdly, what we have in RUS are strong, and I'll say wonderful, partners, because you, the borrower, you are the strength of the RUS community. Because you are successful, because you do good financial planning, because you do sound financial management when you combine those good business principles with community and leadership. Those, ladies and gentlemen, are the components for prosperity in this country.

Our strong partners also include NRECA, Cobank, CFC, our sister agencies of Rural Housing, and Rural Business in the Rural Development Office of USDA. We have strong partners, knowledgeable leadership and a mission to drive us.

The fourth thing we have are resources. When I came to Washington, we were in the process of negotiating the budget for 2002. Our budget at RUS this year is $6.6 billion, an increase of 32 percent over last year's budget. At RUS we have 350-plus dedicated, committed employees. And in fact, I'd simply like to take this moment to ask those RUS employees who are in the audience to stand, because under Blaine Stockton's leadership, they have been a tremendous asset for me, personally, and I know that you know and recognize their commitment. So staff, please stand and let these folks say thank you for all your commitment over the years.

[Applause.]

We have 40 more positions we'd like to fill, so if you've got some good folks to send our way, we could sure use them and I'll talk a bit more about that in a moment.

But we do have dollars and we do have folks who are committed within the headquarters staff. And so as I assess the challenges ahead, I appreciate our resources and what we have. And we must plan our future. We must not lose sight of our past history. But, neither can we rest on our past laurels. And always we must be mindful of whose dollar it is that we are spending and ladies and gentlemen it is yours.

And so what we're going to do in RUS--I'm going to tell you a few things we're going to do. We are going to embrace, number one, the opportunity that is presented in the challenges. We, as in Washington, you know they always wrap everything in acronyms--there's an acronym for everything around there. So, I thought, okay, we'll follow that we can concede a little bit to the Washington culture.

So we put together what we think is a good blueprint of what RUS will focus on in the next few months and I think you're going to like a couple of them.

But I call them the three E's, again being an old school teacher, you know, we do these sorts of things. Some of you in the crowd would probably say, oh, "E" okay that's electrification, electrification, electrification, well it is a new day and it's really about efficiency, effectiveness, and education.

The question is, how can RUS improve its operations to be more customer driven and more efficient? Well, for one thing, I have told the staff, we're going to be customer friendly. We want people when they call RUS to know that we care about what they do every day. We want to know how to direct that first incoming phone call to the right person. And I'm going to tell you, if our staff doesn't know how to do that we're going to train them how to do that. We're going to let them know that they're important to RUS and I'm going to say to you, when you call in and you don't get a customer-friendly employee, you call me, okay?

Number two, we’re going to embrace President Bush's E-gov initiative, which means we're going to make greater use of Internet and the technology. This is going to save us time and money. We've already been able to process the information so that you can file your Form 7 electronically. We'll have Form 12 on-line by the end of the year.

We have established three new loan procedures. Last year, we had a very successful partnership with CFC and we put together what we call the Fast Track. So, I'm sort of one of those, if it works let's not re-invent the wheel, let's just do this thing again, because last year under Fast Track, in one year, we processed four loans and put a half a billion dollars back out into your communities for your use.

So we went back to CFC and I'm calling this working group the Lean Machine. And the purpose of this group is to develop the procedures for type-two lien accommodations for those financially sound projects that come in, in order to provide bridge funding. We hope to have the Lean Machine's work done by August 1 of this year.

Secondly, we've got another working group together; this includes RUS, the GNT CFOs and NRECA and we're calling this group the Rapid Fire Group, this is so I can keep up with them and they are in the process of developing loan applications so that when the loan application is complete, more of that information is on the front-end of your application, we get that early on and thus, it expedites the review process later on. We expect to have that application development complete by September 1.

And then we have what we call the Cash Flow Advances. And this is a new procedure. In the past, you all know that when a loan application came in all the contracts had to be in before we advanced any of the cash. I have heard you all talk about how important it is to get that money and some of the cash flow issues that you face. And so what the staff, again, under Blaine and Victor Voo,s leadership have come up with is a way that we can process your contracts as they come in. As each contract comes in, you will be allowed to be advanced funds against that contract, thus getting the money out there quicker to you.

So, this is just the beginning of what we've been trying to do to be more efficient at RUS in my tenure. We will continue to explore other ways to address your concerns.

But I also need your help because, let me tell you, one of the major issues that we will be facing in terms of the efficiency of operation at RUS is that of our human capital improvement initiative. As I mentioned earlier, we have 40 vacancies. We have $2 billion more money. We have 40 spots that we haven't even filled, much less growing the staff to accommodate the new loan dollars that we have.

At this point, 13 percent of our current work force is eligible for retirement; 30 percent is eligible for retirement in the next 5 years. Ladies and gentlemen, all the technology in the world will never make up for caring, skilled, talented, knowledgeable people. And so we're going to be joining the President's Human Capital Strategic Management initiative. And I'm going to be looking for ways to more aggressively recruit employees to RUS; to expand our personnel hiring options; to target our training dollars to the skills that we need and then I'm going to then expect a lot from these folks and, hopefully, be able to reward them as well. But I do need your help. If you know of talented people who would like to spend some time in the Washington area, we are going to be aggressively recruiting. And I know that's an issue that you all are facing, too. But bottom line is, ladies and gentlemen, people are our most valuable asset and I recognize that.

Now after we have done these things in efficiency, we're going to also simultaneously be looking at how we can be more effective in the program area.

So, today, I want to tell you that I want RUS' culture--the way we operate as an agency every day, to be one of thinkers, not just doers. They've done great jobs in processing and doing, but we also have to think down the road. This is a very complex time in the utility business, it's a very dynamic time, it's changing constantly.

So we're creating an internal group called Program Analysis. This group will focus on the future. We'll be asking the question what if--what if? We'll be looking down the road to what are the issues that are impacting you as borrowers, both in distribution and generation and transmission.

We have today at RUS a new type of borrower, especially in our broadband program, we'll be seeing also additional borrowers in the renewables and that's a different venue for us. So, we'll be thinking as a culture and as an organization in order to be more effective.

And speaking of renewables, we expect to be doing more projects in renewables --and to address that I simply assigned one of the members of my administrative staff to work with the electric staff that had already been committed to this and again to be aggressive, looking for partnerships with DOE and other agencies in the renewable energy arena.

Thirdly, risk management, as you well know, is a hot topic today. We're going to initiate a risk management staff at RUS. We'll be focusing on the ever increasing risks of the electric utility business. Our borrowers will be asked to present their risk-management plans as a presentation of the application. We will also be addressing the Home Land Security issues in our risk-management processes.

We've issued an RFP and we've asking for financial, environmental, and engineering consulting groups to become a part of an expert resource team that you will have access to. We expect that to be completed and put in place by the middle of April.

Now, I will also tell you that I challenged the staff because we run the water and environmental programs now at RUS and they were just recently cited by the President as being one of the highly effective organizations in the government. And so, when it comes time for our electric program and our telecom program to be assessed, I challenged them that they, too, will be rated as highly effective. And we, as the RUS agency will have three very effective programs to help serve your needs.

And then the third "E" of course, is education. How can RUS improve education through better communication techniques to its many varied and external public. Ladies and gentlemen, you all have a great story to tell. We just have to tell the good work that you do every day, more often and better. And so to that end, next week I'm bringing a full-time staff person on-board who will focus on both the print and the electronic communication medias in order for us to get your story out there. We will also be placing heavy emphasis on cross-training within our own staff. Our field reps are wonderful resources, the state offices are resources for our water program. But we are going to have to learn how we operate better as an entity in order to better serve you, so education among ourselves will be at the top of the ladder in terms of priority.

We will also be using information technology as a management tool so that we can not only operate more efficiently as an agency, but we can communicate more efficiently to you.

And then, also, last, I will be asking you in the near future, probably the summer, to respond to what we call a research instrument. I need your feedback, I want your ideas. I need your knowledge and information. We are going to be asking you to take time--and I know you're busy people--but the only way we can lead this organization to better meet your needs is to know what's on your hearts and what's in your minds and what ideas you have. We aren't really sure how many of the electric utilities are dealing what telecom or how many of them would be interested in the water and environment programs, so we're going to be seeking that input. I ask you to help us in that.

So the three "Es" for success at RUS in the coming months will focus on "effective" organization, "efficiency" within our operating, and "education." Now you all know and I don't have to tell you and neither am I so naive to think that we're going to change this over night.

We are an agency that operates within a bureaucratic structure. There are a lot of constraints, but I can tell you this, if we don't try, it won't happen. And so I say to you that while I'm at RUS, we're going to embrace the opportunities because my vision for RUS is that it will be an agency that is a catalyst for economic development across rural communities. We will approach it holisticly, we're all in this together. We'll be providing infrastructure, but we want to work with you to ensure that rural Americans participate in the economic recovery.

We have an entire bevy of other programs you may not be aware of, broadband, telemedicine, rural water, circuit riders, hazardous warning systems and, in fact, Secretary Veneman and I are announcing, just today, $2 million in grants that will be awarded to Minnesota, Michigan, Louisiana, Alaska--three villages in Alaska, and then also the very smallest telephone company right here in Texas, Border-to-Border Telecommunications will be receiving $400,000. All of these projects are for local dial-up, giving us access, ladies and gentlemen, to the world, that is what RUS is about.

Not all of these programs will meet all of your needs but, hopefully, we will be able to tailor our programs to meet you, the individual cooperative--what your folks need, your neighbors, your relatives, those in your community.

But all of these programs, truly, or all the dollars do not mean anything without you, because you are the ears, the eyes, the voice of RUS. Our story can be told by what you do every day. The future Rural Reality, what your community is going to look like in the future will be determined by you. You're the local leaders; you're in the position to make a difference. You have so much to share. How can you make a difference? You are great financial experts, share that knowledge with your local economic development foundation. Or what about the technology savvy that your staff has. Share that with some struggling entrepreneur--how he or she can be more successful. You have so much to give, maybe you should be the one to encourage your physician to use telemedicine to get a consultation on your x-rays even, through that electronic medium.

You are the ones who can make a difference in your local community. Because Henry Ford said that “a business that makes nothing but money, it's a poor kind of business.”

I know that you're in a position to help your communities and I know that you do, but I know that together we can all do it better. If we don't do it nobody else will, because no one else has that leadership that you have at the local level, foresight, dedication and 67 years of experience. That's a lot of resources that we can put to work together.

I'm convinced that the RUS borrower community can do more to effect change at the local rural community level than any other group in this country. And I want to be a partner with you.

NRECA, just today, in this conference, is going to provide you with opportunities to grow your leadership capability. We have Kevin Freiberg, whose going to talk about leadership in a nut shell in a few moments. Tomorrow, oh, I wish I could stay for Norman Schwarzkopf whose going to talk about leadership in difficult times.

Our President, again at the State of the Union said, “none of us would ever have wished the evil of September 11, yet after America was attacked, it was as if we looked into the mirror and we saw our better selves. We were reminded that we are citizens with obligations to each other, to our country and to our history.

We began to think less about the good we could accumulate and more about the good that we could do. We have glimpsed what a new culture of responsibility could look like. We want to be a nation that serves goals larger than self. We've been offered a unique opportunity and we must not let this moment pass.”

Ladies and gentlemen, I challenge you to welcome the leadership opportunity in your community. RUS will be there along with our partners at NRECA and others, we will be there. We'll provide capital, we'll help with the infrastructure, but you're the leaders and together, we, truly can make a difference.

I'm so grateful to be here today and I want to close with a quote that some of you may have heard me use before, from Edmund Burke, who said, “the only way for evil to survive is for good men--and I add women--to do nothing.” Ladies and gentlemen, evil is not just the terrorists of September 11. Evil is ignorance, hunger, poverty, lack of opportunity. And the only way those can survive is when good men and women do nothing and, you know what, that's not going to happen because you are the good men and women of this country that makes us great. Because you get up every day and go to work, making a difference in the lives of your community and I am thankful for the opportunity to be with you. I thank you for what you do every day and I ask you to do even more of it and accept that leadership role because this country is too great to let evil ever survive and we won't.

Thank you very much.

[Applause.]

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