few who remain unserved. We in REA are giving them every encouragement to continue that until electricity has been made available to every person in the rural areas who wants electricity and who can be feasibly and economically served by these lines.

As I stated at the outset, gentlemen, of the several bills which have been introduced in the House and in the Senate, any one, I am sure, would accomplish the purpose which we seek. Thank you.

Mr. POAGE. We are very much obliged to you, Mr. Strong. You made a very fine statement. I will now ask members of the committee if we might follow an unusual procedure. You can be with us a few minutes?

Mr. STRONG. Surely.

Mr. POAGE. It seems to me it is rather apparent that the only point of difference is the question of the census. Of course we want to hear from anybody opposed to the principle, but nobody has expressed opposition to the principle.

Mr. STRONG. That is good news.

Mr. POAGE. If there is opposition, we will listen to those opposed this morning. But there is some difference about the census, about making a determination of the unelectrified farms. I wonder if it would not be well to hear from Mr. Ellis, and then we will have some background as to why there is any difference.

Mr. STRONG. That will be fine."

Mr. POAGE. So we will ask you to stay with us, Mr. Strong, and we will ask Mr. Clyde Ellis of the National Rural Electric Cooperative Association if he will make a statement for us, then we will ask you both to answer questions.

Mr. STRONG. I will be perfectly happy to stay.
Mr. POAGE. Thank you.

STATEMENT OF CLYDE T. ELLIS, GENERAL MANAGER, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION

Mr. POAGE. Mr. Ellis, we are glad to have you back with us. Mr. Ellis served with distinction as a Member of Congress in years past.

Mr. ELLIS. Than you, Mr. Chairman. I am happy to be here and I appreciate the opportunity of appearing before this great committee again.

For the record, my name is Clyde T. Ellis, general manager of the National Rural Electric Cooperative Association, the national service organization of the rural electric systems of the United States, including Alaska. Some 92 percent of the over 900 rural electric systems over the country are members of the national organization.

Mr. Chairman, we are grateful for the interest which this great committee has always shown in the rural electrification program. It was this committee which initiated a change in the rural electrification law in 1944, known as the Pace Act, which changed the interest rate in the law, which extended the amortization period from 25 to 35 years, and which made REA a permanent organization within the Government, for REA was established for only 10 years, as you will recall, in the beginning. So we look to this committee once more for constructive legislation to improve, in terms of present-day conditions, the Rural Electrification Act.

If agreeable with you, I should like the statement which we have prepared to be filed for the record and to then highlight some of the statements which are made, but not to read the statement.

Mr. POAGE. Without objection the statement will be made a part of the record.

(The statement referred to is as follows:)

STATEMENT OF CLYDE T. ELLIS, GENERAL MANAGER, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION

Mr. Chairman and gentlemen of the committee, my name is Clyde T. Ellis. I am general manager of the National Rural Electric Cooperative Association, the national service organization of the rural electric systems of the United States, including Alaska. About 92 percent of the more than 900 nonprofit rural electric systems are voluntary dues-paying members of this organization.

We hope that the Congress will see fit to eliminate the State allocation formula in the REA Act which REA is required to follow in making electric loans. The formula perhaps worked well throughout the early days of the program but, in our opinion, its usefulness ended a good many years ago. Under it, REA must set aside one-half of the funds available for use in each of the States in proportion to the unelectrified farms in each State, as a percentage of the total unelectrified in the Nation. The other half of the available funds may be loaned at the discretion of the Administrator, except that not more than 10 percent can be loaned in any one State during the fiscal year. As individual States become more nearly 100 percent electrified, the formula imposes a stumbling block to the lending of funds which are particularly needed for system improvements, generation and transmission loans (G. and T.'s), and other purposes.

The rural electric systems are on record requesting the change that we are supporting here today. As long ago as the fall of 1952, resolutions were adopted at all of NRECA's 10 regional meetings and at the NRECA national annual meeting in 1953 in San Francisco and in 1955 in Atlantic City, supporting the legislation which would eliminate the formula from the Rural Electrification Act. Some of the reasons why our members think the formula should be eliminated

are:

(1) In many States the greatest need for funds is for system improvements, "heavying up" existing lines and purposes other than extending electric service to unelectrified farms. Under the formula, no consideration is given to these purposes. Neither does the formula give any consideration to the necessity for generation and transmission facilities where, in many States, the power supply is pitifully below the requirements of the respective areas. Generally speaking, the necessity for system improvements, additional power supply and transmission facilities is greatest in those States which have a high percentage of electrified farms.

(2) The loan funds for generation and transmission facilities are badly needed in certain States where power supply is short. As a matter of fact, this is the largest single need for loan funds.

There are at least two examples of States where the demand for loan funds next year will exceed the amount available, assuming the Senate passes the loan fund authorization item for REA in the amount as it passed the House. The bill,

as passed by the House, provided a regular REA electric loan fund authorization of $160 million and a contingency authorization of $100 million. This is $65 million in contingency funds in excess of the budget request, but about $150 million below NRECA estimates of the amount required to take care of all applications in certain States.

In these estimates, we are taking into consideration the fact that REA will have approximately $56 million available in carryover funds and $4 million in rescissions at the beginning of next fiscal year. With all of these funds, the loan needs cannot be met next fiscal year in Colorado and Illinois, and possibly some other States. Under the formula, the maximum amount which could be loaned in Colorado next year, if there is no change in the appropriation by the Senate, would be about $19,900,000. Our information indicates that Colorado will need about $23 million for generation and transmission loans alone in 1956, if no G. and T. loan is made this year. Loans also will be needed for other purposes which will further exceed the maximum that can be loaned in the State. In Illinois, the maximum which can be loaned in fiscal 1956 is about $21,500,000. Here again,

it is expected that one G. and T. application will be made for between $20 million and $25 million.

And these G. and T. loans, as you know, cannot be made piecemeal. It's all or nothing in a single year for a feasible generation and/or transmission operation. They can be enlarged later, of course, but they must be born full-grown, so to speak, out of a single year's funds.

(3) It has often been necessary, because of the State allocation formula, for REA and the rural electric systems to request more funds than are actually needed. For instance, if the Congress makes available sufficient money for next year to take care of the actual needs in the individual States under the formula, the result will be a tremendous carryover into fiscal 1957.

(4) The loan needs in some States appear to run in 3- or 4-year cycles. For example, the needs may be very low for a particular year, while in the next year they may be very high. There is a wide variation from year to year, although advances appear to be fairly uniform. It is easily possible that in one of the high years, a State may need more funds than it can obtain under the formula. following table, using Nebraska as an example, will illustrate the point:

The

The amounts in the above table are official REA figures.

(5) There are three States, namely, Massachusetts, Connecticut, and Rhode Island, for which the REA Administrator must set aside funds each fiscal year that are not used. No loans have ever been made in any one of these States and none are contemplated.

(6) In some of the Southern States, the consumer density is very high but average kilowatt-hour usage per consumer, in some cases, has lagged behind. Great changes are taking place in types of agriculture in some of these States, and as these changes take place it is expected that the average consumption will greatly increase. If this happens, there will be heavy demands for funds for system improvements, transmission facilities, and related items. As a result of these needs, some Southern States can easily exceed in applications the amount available to them under the State-allocation formula.

There are many other reasons which could be cited in support of the elimination of the formula. Ironically enough, the States which are most likely to need more funds than can be supplied under the formula are those States where REA loans have been approved in excess of $100 million. There are nine States in this category. They are Iowa, Kentucky, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, Texas, and Wisconsin. All of these States have a high percentage of electrified farms, which again illustrates the necessity for changing the formula.

There are some people who seem to have a fear that the elimination of the formula will take control of the program away from the Congress. On the other hand, it seems to us that the continuation of the formula will come nearer to taking control away from the Congress, if sufficient funds are put in the budget to take care of the needs in certain States in a particular year. For example, "It is our understanding that REA proposes a lending schedule next year of about $185 million. If the appropriations bill is finally adotped in the form in which it was passed by the House, REA will have available next year $320 million by drawing down the contingency fund which was approved by Congress last year for this fiscal year and the contingency fund available during the next fiscal year. This would then mean that, although there was not enough money to take care of the needs in Illinois and Colorado, during fiscal 1956, REA would carry over into fiscal 1957 about $135 million," which, incidentally, could be loaned at the discretion of the Administrator, with a limt of 10 percent to any one State.

RETAIN THE UNELECTRIFIED FARM SURVEY

Mr. Chairman, the members of our association wholeheartedly support the elimination of the formula. We do it for the reasons which have been cited. However, we would like to see any legislation which may be enacted by the

Congress retain the survey of unelectrified farms, which the Administrator is required to make at the beginning of each fiscal year. We believe that this is highly desirable. Such information cannot be obtained from any other reliable source. Census figures are not available soon enough to be of much help. The survey gives an accurate and quick picture of the current situation as far as electrified farms are concerned in each State. It furnishes the REA systems with ready information showing where extra effort is needed to reach unserved areas. It also serves as a ready reference to Members of Congress in following the progress being made in electrifying rural America. While the members of our association are very anxious to have the formula eliminated, they want the survey continued in the law.

In conclusion, we wish to thank you, Mr. Chairman, and your committee, for giving us this opportunity to be heard and for your friendly and considerate support of the rural electrification program in all prior years.

Mr. ELLIS. We congratulate the Administration, and the REA Administrator in particular, for advocating this constructive change in the law. The rural electric systems themselves are unanimously on record in support of this change. At their 10 regional meetings throughout the country 2 years ago they went on record favoring the change in the law, and have twice since then, the last time being at their national meeting in February, unanimously requested this change.

It is fair to say there are a few of our systems in the South whose leaders of late are apprehensive about the change, but I personally feel that without the change the program there will suffer more than it could possibly suffer with the change in the law.

Mr. POAGE. Do you know of any systems other than Mississippi who might even be apprehensive?

Mr. ELLIS. I do not think so. I think that is a fair statement.

I should like to mention some of the reasons which our people feel are good reasons for changing the law.

We are now into what we generally refer to as the heavying-up phase of the program. The power industry, as you know, is a very rapidly growing industry in America. We think it is the most rapidly growing of all the major industries. Its total plant must be increased about 100 percent every 7%1⁄2 or 10 years. The rural electrification demands are growing even faster. Our use of power is doubling about every 4 to 5 years and we see no indication that that growth will level off in the near future. Our greatest need for funds is in those States where the program is the furthest along, where there is the greatest use of power, and not in the States where the highest percentage of unelectrified farms is to be found.

So the need for the formula has ceased to exist and, as Mr. Strong has so ably stated, the formula is working in the reverse of its original good intention, and the formula was good in the early days, but it is not good now.

And of course we need additional power supply in those States where the program is the heaviest, and that calls for more funds. We need additional generation and transmission facilities. We have trouble getting under the formula enough money out of the annual congressional loan authorizations to establish a new generation or transmission system in a given State, or in some cases for additional units to the already existing generation facilities. As a consequence, we have to go before the House committee and ask for more funds each year than are actually needed, and that is a sort of embarrassing situation. We go in and say to the committees: We have made a complete survey of

the systems, which we do annually, and the system managers say they will need X amount of funds in the next fiscal year. In order for the rural electrics to be able to borrow this X amount of funds, Congress would have to approve also a Y amount in addition, so that under the formula the funds actually needed may be used. That is not good for us and not good for the Congress to have to authorize more funds than are actually needed. Therefore, it seems to us it would be better to get rid of the formula.

On page 4 of our prepared statement we have listed a table showing the variation in fund requirements, using Nebraska as an example. You will note the loans approved by REA for Nebraska were $16 million in 1950; down to $5 million in 1951; down to $2 million in 1952-these are all round figures-up to $11 million in 1953; $13 million in 1954; and drop down to $1 million in 1955. Therefore, there is no equity under the formula where there is such variation in requirements.

REA is required to set aside funds for States where it never has made loans and probably never will. It must set aside funds out of each year's authorization under the formula which it cannot lend to anybody that year, just because of the formula.

With regard to what the situation will be next year without the formula, I want to read a part of one paragraph from our prepared statement:

It is our understanding that REA proposes a lending schedule next year of about $185 million. If the appropriations bill is finally adopted in the form in which it was passed by the House, REA will have available next year $320,000 by drawing down the contingency fund which was approved by Congress last year for this fiscal year and the contingency fund available during the next fiscal year. This would then mean that, although there was not enough money to take care of the needs in Illinois and Colorado, during fiscal 1956, REA would carry over into fiscal 1957 about $135 million.

So you see, we find ourselves in the ridiculous situation where there is not enough money to take care of some of the States, and yet REA will carry over something in the neighborhood of $135 million into the next year.

The rural electric systems do want the unelectrified farm survey that is now in the law retained. Why? If it is not retained, there will never be a time henceforth that you of the Congress or we of the rural electric systems or the officials of REA can guess within a fair estimate of accuracy what the unelectrified farm situation is in the country. Sure we can take the Edison Electric Institute's figures for it, but that will be the only source, and the Edison Electric Institute is an organization of the commercial power companies, and the Edison Electric Institute and the commercial power companies, as far back as 1949, were claiming the electrification program was substantially completed. I am sure the chairman will recall that during the hearings held on his own Poage bill in the latter part of 1945 the officials of power companies appeared and said in effect that no further funds than those then authorized would be required to substantially finish the rural electrification program, and therefore your bill proposing to substantially increase the authorization was not needed. And I am sure the committee members will recall that several times as much money has been loaned since 1945 as had been loaned up to that time. So the power companies' figures were way off. We do not want to have to rely on their figures.

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