at no interest to the bank, because it is these $50 millions a year coming in that help make that possible. We will show you this in detail.

For several years now we have had a battle on our hands to convince Members of Congress that more funds were needed than the Administration requested for the fiscal year. This is difficult for us. We don't like to do it, but we just had to have the capital. Even this year, though this Congress was more sympathetic, even this year we had several substantial loan applications standing by at June 30, including the generation loan in Mississippi, and one in the Dakota-Minnesota area, and one in Missouri.

These were large loans. Every year we make a study to determine what the loan needs are going to be the next year. And as the record will show, we have been pretty accurate over the years in these studies. REA makes a similar survey of the systems. Our survey of the rural electric systems, system by system, made as of January 1, indicated that our loan fund needs this year would be something over $650 million. REA's independent survey made earlier than ours indicated a $600 million need for this year.

The House and Senate have acted, as you know. Although the bill has not gone to conference, if the House figure should prevail, then we would have about two-thirds of the money needed for this year's loan applications.

We are not sure about some of these, because every time a loan is slowed down, as some were this past year, it slows down the process behind it, and it slows down the next loan, because it slows up the next construction that is needed in a systematic, orderly procedure to round out the electric cooperative, whether it be distribution or generation and transmission..

Senator ELLENDER. Mr. Ellis, would you tell us how this $650 million would be used in the event it was made available. In other words, how much would there be for transmission lines only, and then generating?

Mr. ELLIS. Yes, sir; I think we can break that down for you.

I will have to ask our people who made the survey and evaluation to do that.

Senator ELLENDER. If you do not have it available, suppose you furnish it for the record. And we will ask the same thing of the REA directors, the $600 million that was asked for, how is that going to be spent?

Mr. ELLIS. We would be happy to do that, Senator.

(The information is as follows:)

The 1966 NRECA loan fund survey was made on March 1, 1966. On the basis of this survey, NRECA requested the House and Senate Appropriations Committees to appropriate $612 million in rural electrification loan funds for fiscal 1967. This request was made with the assumption that there would still be approximately $100 million in loan applications pending at the end of the fiscal year, making a total of $712 million in loan applications to be considered by REA during 1967.

Of this amount, $445 million represented new loan applications expected to be submitted to REA during the year-$239 million for distribution purposes and $206 million for generation and transmission purposes. The remaining $267 million represented the estimated backlog of loan applications expected to be pending in REA as of the beginning of fiscal 1967.

(The actual backlog of applications on July 1, 1966, was below the March estimate, because of the delay in completing applications to be sent to REA. The backlog totaled $226 million, of which $168 million was for generation and transmission purposes, and $58 million was for distribution purposes.)

Mr. ELLIS. The rural electric consumers themselves feel that they go a long way in helping to meet this capital need situation. They have, for instance, over a billion dollars of their own funds now in the electric cooperatives on which they get nothing in the way of retirement, except as it may reflect itself in better service or lower cost service.

When we talk about the surplus which exists in a given cooperative, that, of course, is money which they have paid in over and above the cost of operation. And they have often done this, even though their rates were higher in this area than in the adjacent municipal areas. On the average we pay abount 25 percent more in the rural areas, our consumers do, for power than in the adjacent cities. This is according to REA's studies. So they can testify best about the particulars of that.

Senator ELLENDER. You do have areas, though, in which the rate charged to the rural areas as about the same as the city areas?

Mr. ELLIS. Yes; we do have those areas, too.

Senator ELLENDER. And you have some areas where the cities' rate is higher than the rural rate, is that not true? I know some cases of that.

Mr. ELLIS. There might be some cases of that. Usually that is not the pattern, however.

It is just a mathematical certainty that if we don't have plenty of generating capacity or funds to tie into other capacity, where it exists, with our own transmission lines, or if we can't make the appropriate arrangements, we are going to be out of power, and we are going to have blackouts. And, anywhere that we have to depend on a single line feeding us in for some distance, there is a hazard. One thunderstorm can knock us out.

We are the country's best experts, I think, on blackouts. We live with them all the time.

Senator TALMADGE. You mentioned generating plants. And you mentioned further than you might have some problems purchasing power from private utilities. Is that generally the situation? I thought in our section of the country, at least, that the private power companies were very anxious to sell the REA's power.

Mr. ELLIS. Senator, we are certainly anxious to buy. And this, I think, is correct, what you say. We were a long, long time, as you know, negotiating that wheeling arrangement with the companies in the great State of Georgia to wheel power from the Corps of Engineers-built dams on the Savannah and other rivers to provide firming power where that was not firm to the extent that we might have the benefits of the federally developed power on the rivers.

Now, we hope this situation continues to exist. We hope that we may continue to get, as needed, contracts for larger amounts, because our loans, as has already been stated on the record, are doubling about every 8 to 10 years, just like those of the commercial companies. So we are constantly studying, trying to find where we are going to get power for the next year in every area of the Nation.

Senator TALMADGE. Where do you have difficulty obtaining power at this time?

Mr. ELLIS. It is looming up again in the Georgia area. We are not sure, unless recent negotiations have developed something, where we are going to get sufficient power in Georgia for several years.

Now, I know that Judge Tisinger, who is here in the room at the table, participated in some of those negotiations recently. Whether they were satisfactorily terminated, I don't know. But this, I believe, assumed and involved power from the Trotter Shoals project which is yet to be constructed. There has been talk, I know, of a generating plant in Georgia. We hope this is not necessary in Georgia or anywhere else. I would say that there probably isn't an area in the country where we are assured of power over any length of time, except as contracts are signed from time to time with either the Federal Government, such as TVA, or out in the Missouri Basin with the Bureau of Reclamation, or out in the Pacific Northwest with the Bonneville Power Administration, or where we are able to negotiate relative long-term power contracts with the power companies.

We are entering into more and more joint arrangements with the power companies to build generating plants. And we have done this, and we are going to continue to do it, if we may, if they will cooperate with us.

We would like to make joint arrangements for the transmission of power.

We have just completed some substantial arrangements in my own State of Arkansas for the companies transporting power from generating plants we are building there.

And in connection with the Southwestern Power Administration, we will have certain exchange arrangements which will help both the companies and us. We like this. It will obviate our building transmission lines, which are expensive, in the State. We will use excess capacity which may already exist in their lines, or they may build some other lines.

You have read recently about the blackouts in Nebraska. There were two, I guess. Our chief engineer, Charles Robinson, can testify as an expert about that. I couldn't, except to say that I understand that certain lines got overloaded. Any time we depend on a single line, a single transformer, a single facility, this can go out at any time. We need pooling in the area, with power coming in from many directions. And this is one of the things we are trying to achieve as we go along in our generation efforts.

Senator ELLENDER. Isn't it a fact, though, that in Nebraska, as I recall, all of the transmission lines, as well as the generating plants, are owned by the State or controlled by some State authority?

Mr. ELLIS. Yes; it is a fact that they are all owned by public units of government, I believe not the State itself, but area units of

government.

Senator ELLENDER. Are they building enough generating facilities to take care of the load throughout Nebraska?

Mr. ELLIS. No; I think not. They have built some. They have borrowed REA money to build some.

They are trying to interconnect and pool their system with the Bureau of Reclamation power in the area, and perhaps with other suppliers, so as to give them a greater capacity and obviate such things as happened recently in the blackout. This involves tying into Fort Randall Dam and other facilities on the Missouri.

Senator ELLENDER. All of these facilities had been constructed with the funds provided by Congress, and it is mostly power that is being furnished by falling water?

Mr. ELLIS. Yes. The Bureau of Reclamation power is that, although they have had some generation of their own in Nebraska-we have had to develop that is thermal.

Senator ELLENDER. When was that, do you remember?

Mr. ELLIS. Well, I was at the dedication of the first 100,000-kilowatt unit there some 7 or 8 years ago. I will get the exact time, Senator Ellender.

Senator ELLENDER. But were these facilities tied in with the Stateowned or State operated generating facilities and transmission lines? Mr. ELLIS. Tied into those of local units; yes.

Senator MILLER. I wanted to ask Mr. Ellis: What is the usual period of time that your contracts run with the Bureau of Reclamation and with the private utilities for supplying power?

Mr. ELLIS. May I refer that question to Charles Robinson, our engineer and staff attorney.

STATEMENT OF CHARLES A. ROBINSON, JR., STAFF ENGINEER AND STAFF COUNSEL, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION

Mr. ROBINSON. Senator Miller, I believe that the contract with the Bureau runs on the order of 20 or 30 years, with the right to renegotiate with respect to rates at various periods in between. Normally, contracts with private utilities run 5 years, or in some cases, 10 years. Senator MILLER. That 20- or 30-year period with the Bureau of Reclamation, would that hold true up in the Upper Missouri Valley; do you know?

Mr. ROBINSON. Yes; I believe so.

Senator MILLER. But on this 5- or 10-year period with the private power people, do they prefer to have longer or shorter terms, or do you prefer to try to work out longer or shorter terms? Who takes the initiative on that?

Mr. ROBINSON. Well, as with any contract negotiation, a particular period may be offered by the power company, 5 years, 10 years, depending on the bargaining circumstances. It has generally been the policy of REA to ask its borrowers not to sign contracts for long periods of time-namely, beyond 10 years-with the private utilities. And, as you know, all of the contracts between borrowers and the borrowers' power supplier must be approved by REA.

Senator MILLER. Do we have an option clause for renewal in those? Mr. ROBINSON. Some do. Some are automatically renewed unless notice is served prior to a certain date by the other party terminating the existing contract.

Senator MILLER. What is the usual occurrence on those optional or renewal contracts? Are most of them renewed, or do you have very many that you don't renew?

Mr. ROBINSON. I don't have information on particular cases, Senator Miller. It varies very, very widely. Each of these contracts has its own bargaining arrangement, and depending on the various elements of the contract, they may be renewed or they may not be renewed. If the rate is increased the borrower may have to look for another source of power. If the company decides it wants to raise the rates and add fuel adjustment clauses or put in dual rate provi

sions, then the borrower will try to negotiate with another supplier. And if he is successful he will go to another supplier. If he is not, he may say, "Well, we can only sign a short-term contract under these conditions, because they are too rigorous for a long period of time." Senator MILLER. Do you have more than one source to go to when the contract is coming up for renewal, or are you usually limited to just one source?

Mr. ROBINSON. That, again, depends on the circumstances. If, we will say, we are in an area where Federal power is available, then we have an alternative. If the power compny is serving at a particular rate, and decides to raise that rate, or to offer a new contract with a higher rate in it, the particular cooperative can go to the Federal Government and say, "What is your rate? Can you deliver power?"

If Federal power is not available and the rate is increased beyond any reasonable limit, then the generation and transmission loan authority comes into play, and the cooperative may join with its sister cooperatives in the area and undertake an engineering study to determine at what rate power can be made available through an REAfinanced plant. Most of the contracts between cooperatives and companies are negotiated. And the rate is really dependent upon which is the more successful negotiator rather than upon any regulatory force. That is almost axiomatic. The rate depends upon negotiation rather than upon regulatory forces.

power

Senator MILLER. Is there any kind of pattern that has developed as far as these negotiated rates are concerned as between one area where you have alternate sources, such as the Bureau of Reclamation, and another area where you don't?

Mr. ROBINSON. Yes, sir. There is no question about that. Where we have an alternative source we are nearly always able to negotiate a lower rate. I can think of two instances that come to my mind immediately. One is in the State of Montana where the rate was on the order of 10 mills. As soon as the Federal dams were completed in Montana and transmission appropriations were requested by the Bureau of the Budget the companies lowered the rate to 52 mills. And in Virginia, when the John H. Kerr Reservoir was completed and a G. & T. loan applied for to interconnect with the Kerr project, the rate came down from 10 to 72 mills. There is no question but that where alternative sources are available, where the opportunity to generate is available, and where the Federal power is available, you are always able to negotiate a better rate with these private suppliers.

Senator MILLER. I have no further questions.

Mr. ELLIS. I wish, Mr. Chairman, that I could express to you something that I feel very strongly, and that is the attitude of the rural electric people who have really studied this capital problem throughout the country. They did not lightly create a study to determine if they can get outside money. None of them wanted to give up the 2-percent money, as you can appreciate. But it was the fact that we were simply not getting enough. And there were some restrictions placed on it, frankly, which bothered us, and we didn't know the extent to which those might continue.

Senator TALMADGE. What were those restrictions?

Mr. ELLIS. With respect to our borrowing money to generate our own power and under what circumstances. These were directives that