I would like to go through them with you now.

The CHAIRMAN. They are next to page 17 of the statement.

Mr. ELLIS. We made these studies with assistance from the Federal Power Commission and the Rural Electric Administration and from every source known to us, including the organizations of the power companies back in the 1950's.

On this chart No. 1 you will note that we have estimated the production output through 1980. That dotted line shows our first estimate made in 1953 of what the production of electricity would be that would be required for the whole Nation in the next 10 years.

We have on our staff-and had then-qualified economists and statisticians capable of making these studies. But you see what happened-we underestimated.

The solid line is what the production turned out to be. The dotted line was our estimate.

The total electric industry grew at a faster rate than we thought it would, and faster than it was saying it would.

The dotted line from 1965 to 1980 represents our present forecast of the U.S. electric output that will be required for this 15-year period, through 1980.

We believe that the power required for this Nation by 1980 will increase 160 percent over 1965.

Mr. ELLIS. Chart No. 2 shows the actual and estimated kilowatthour requirements of the rural electric systems from 1936 to 1980.

1

2

5

Again, the solid line shows the actual level of kilowatt-hour requirements through 1965. This is what happened through 1965, you see. The lower dotted line shows the forecast which we made in 1953.

We used these charts at our national meeting in 1953. There was considerable comment on the charts, some of it by publications not friendly to us, and they called our estimates fantastic, indicating that we were not going as high as we said, but you will note, once again our estimate of our use of electricity was too small. By 1980, we believe that our energy requirements will increase to 135 billion kilowatt-hours annually, as compared to the 47 billion kilowatt-hours level reached in 1965. And this would be about three times the 1965 level.

Mr. ELLIS. Chart No. 3 shows what we consider to be a serious capital shortage facing us in the future.

As I think Mr. Anderson has already told you, we employed Kuhn, Loeb & Co. of New York, a well-known banking firm, investment banking firm, to assist us in these studies. We selected them partly because they had worked with our electric systems in Ohio and with the power companies in Ohio working out a joint generation arrangement and had indicated a willingness to work with us on such a study. Our people asked for this study back in 1963, and it has been underway ever since and is constantly going on.

Kuhn, Loeb & Co. estimated that the rural electric systems would need, as you see, by one of the lines you see on the chart, $9.5 billion of new capital over the next 15 years. REA also made a study about the same time and estimated that the rural electric systems would need about $8.2 billion of new capital in this period of time. This is not too long a period for us to figure on, because when we have to plan a generating plant of our own, we must look at least 10 years ahead and often as much as 15 years ahead in the planning of it.

BILLIONS
OF
DOLLARS

10

CUMULATIVE CAPITAL
SHORTAGE
1967-1981

CHART 3

We do not like to build a generating system of our own. We would rather buy all power wholesale, if we could, either from the Federal agencies or from the commercial power companies or from anyone else.

As an example of what we are up against, let us assume that over the next 15 years the Congress would appropriate about $375 million a year as it did for this fiscal year. On this assumption the rural electric systems would have available to them over this 15-year period that we are talking about, $5.6 billion at the regular 2-percent rate, 35-year repayment period program, but, in view of what Congressmen keep telling us and what people on the Appropriations Committees have told us constantly now for several years, we do not believe that it is realistic to expect the Congress to make available $375 million a year, or certainly not that average, over the next 15 years.

There has been a lot of propaganda that the rural electric prograni is finished. Actually, it has just started, because we have got to constantly enlarge our lines and other facilities. You can get only so much power through a line or other facilities of a certain size or out of a generator of a certain size. So that we are in the process of heavyingup or rebuilding our total system throughout this Nation right now. The red shaded area on this chart shows the capital shortage that we estimate, assuming that the Congress would appropriate the $375 million a year, as it did this year, for the next 15 years, that we would face, and this would run, depending on whichever of these estimates turns out to be more nearly correct, a minimum of $2.7 billion shortage by that time, possibly as much as $3.9 billion.

Our people, all of them, I am sure, would rather keep on borrowing the 2-percent money under the REA Act-in fact, they have insisted over and over again that that act not be disturbed, and that for those systems that could not afford to borrow at the higher rates that they be permitted to continue to borrow at 2-percent for the 35-year repayment period under the existing law. They are very serious about this, but for those that can borrow at a higher rate, many are willing to do, and are anxious to do it.

We thought that we would be applauded-that the rural electrics would be applauded for advancing a proposal whereby their funds would come more and more in the future from other than the U.S. Treasury. It did not turn out that way, because certain special-interest propagandists took right after us. We think if they had not taken after us on that point they would have on some other point, because they have been constantly after us for many years.

Let me show you, now, chart No. 4, which shows the percentage of the growth of the gross national product in the United States and to compare this with the growth of the electric industry and of our system.

This is for the period of 1957 to 1965.

The percentage growth of the GNP increased 36 percent during this period of time. The percentage of growth of kilowatt-hour sales for the entire electric industry was almost double that of the GNP, at 70 percent. That is in the same period. But for us, more significantly, the growth of the kilowatt-hour sales by the rural electric systems was 117 percent during this period, more than three times as great as the percentage growth of the gross national product.

The last chart forecasts the growth in these three same areas for

the period 1966 through 1980, using the best sources-and we have indicated these sources-that we know.

The growth of the GNP in this period, 1966 to 1980, is expected to be practically or approximately 80 percent, but the electric industry growth will be twice as fast as that and maybe more. It is expected to reach 160 percent in 1980, compared to what it was last year.

Again, you will note that the rural electric part of the electric industry is expected to grow at a rate somewhat faster than the rest of the total electric industry. This has been consistently true now for many years. It is due, in part, of course, to a lag in the rural areas. Many farmers are still not able and other rural people-to purchase all of the electric equipment which they would like to have. And so as they are able to purchase more and replacing man-hours which are. harder and harder to employ in rural America, with the electric energy, or as they utilize the modern facilities for better living standards, such as air conditioning, electric heating, electric automatic pumping, feed grinding, automatic milkers, and all of that, the growth is simply faster than that of the electric industry as a whole, percentagewise.

Among the great changes that are happening in rural America, as you know, is that people are living farther out into the country now, commuting to the cities to work, as the freeways entering the hearts of the cities permit them to do.

Agricultural processing plants are growing up in the rural areas, in many parts of the country, and, of course, people live out there and work in them. The processing plants use electricity. Some new industries are growing up, not related to agriculture but are being located out in the rural areas which the rural electrics serve. These are usually small ones; sometimes they are branch plants of large industries, larger factories.

Many retirement communities are being established-out in the rural areas.

There is a trend which we are able to identify-a pretty strong one-for recreation facilities to be built out from the cities more and more in the rural areas. These include water recreation; they include various types of park facilities—just about every kind of recreation that one can think of.

Mr. Chairman, this committee has done wonders for rural America. It is a great committee; it always has been. It has studied the agriculture of many nations of the world.

You will be interested in the fact, I am sure, we have a nonprofit contract with AID to help develop electric cooperatives in other developing countries of the world. I have been to many nations to introduce the program--I have been to Latin America, and to the Far East, and to India, including Vietnam I should add.

Electricity, in my opinion, is immediately the first identifiable great difference between our rural economy and that of the developing countries. Of course, other kinds of mechanical equipment than electric machinery are significant in this area, too, but if the rest of the world is to develop to where it can begin to feed itself, it will have to have electricity in their rural area. I am convinced.

About 50 of our managers of electric systems have gone, at no additional salary, to them to help develop these programs. Many of them