Mr. CLAPP. I believe not.

Mr. GRANT. No, sir.

Senator HOLLAND. Then the budget request was less than the action of the House, was it not?

Mr. CLAPP. Our budget request through the Department was for $390 million whereas the House action approved a total of $350 million, including a $65 million contingency fund.

Senator HOLLAND. I see, then your budget request was $40 million more than the House action?

Mr. CLAPP. Yes, sir.

Senator HOLLAND. You are speaking of your original budget request and not the amount that is in the budget.

Mr. CLAPP. Yes, I was, Mr. Chairman.

BUDGET REQUEST FOR TELEPHONE PROGRAM VERSUS HOUSE ACTION

Senator HOLLAND. All right, let us go to the telephone funds, the same figures. What was your original request there?

Mr. CLAPP. I beg your pardon, Mr. Chairman. To the Budget Bureau?

Senator HOLLAND. Yes.

Mr. CLAPP. It was $108 million.

Senator HOLLAND. And the budget request now is $97 million?
Mr. CLAPP. $97 million.

Senator HOLLAND. And the House action?

Mr. CLAPP. The House action provided the same amount of authorization but broke it down into two parts, $90 million of firm obligational authority and a $7 million contingency fund.

LOAN FUNDS REQUESTED BY NTCA AND NREATA

Senator HOLLAND. I notice that there is a substantial difference between the budget figures and the requests of both Mr. Peterson and Mr. Fullerton. In your own judgment, independent of the budget request, how much will you need for these two programs for this year? Mr. CLAPP. Mr. Chairman, I think we can get by with the funds requested by the Budget Bureau, but I am also sure that this will mean a further accumulation of loan applications that will not be acted upon in the next fiscal year so that the carryover of loan applications at the end of the fiscal year 1966 will be even larger than it will be at the end of this fiscal year.

I think we will probably have reached a point by the end of fiscal year 1966 when some substantial adjustment will be in order to carry on this telephone program on a sound and orderly basis.

SALARIES AND EXPENSES

Senator HOLLAND. All right, proceed with your statement.

Mr. CLAPP. Mr. Chairman, the request for administrative funds is held to the current fiscal year level of $11,934,000. Although additional funds have been needed for engineering and standards work in the telephone program, the need has been met in large measure by management improvement and cost reduction measures within the

agency.

The administrative funds requested will provide for 976 man-years of employment, which is the same as for this fiscal year. The electric program will require 536 man-years and the telephone program 440

man-years.

Senator HOLLAND. Will you use in 1965 this many man-years in both of these programs?

Mr. CLAPP. It will be approximately the same, Senator.
Senator HOLLAND. All right, proceed.

Mr. CLAPP. The 976 man-years will cover an average of approximately 968 employees paid from REA funds throughout the year plus 8 man-years of salary funds for unused annual leaves of separated employees and salaries for consulting services.

Average employment in REA is down from earlier years. Back in 1951, as this committee will recall, REA has a total staff of 1,321 employees, of which 1,131 were in the electric program and 190 in the telephone program.

We have been carrying on an extensive program of managment improvement, including stepped up employee productivity and cost reduction. This has enabled us to absorb increasing costs in workload without corresponding increases in appropriations.

During the past 10 years the electric and telephone programs have steadily expanded with resulting increases in workload. There has been an increase of 144 percent in the number of telephone borrowers, from 351 in 1955 to 858 in 1965.

There has been a 2.6-percent increase in the number of electric borrowers, from 1,077 in 1955 to 1,105 in 1965. There has been an increase of 45.5 percent in the volume of electric loans outstanding, from $2.2 billion in 1955 to $3.2 billion in 1965.

There has been an increase of 800 percent in outstanding telephone loans, from $98 million in 1955 to $862 million in 1965. There has been a 30-percent increase in consumers served on REA-financed lines, from 4.2 million in 1955 to 5.5 million in 1965.

There has been a 667-percent increase in telephone subscribers served on REA-financed lines, from 284,000 in 1955 to 1.7 million in 1965.

Yet, during the past 10 years, staffing has dropped in the electric program and has increased only slightly in the telephone program.

ABSORPTION OF INCREASED COSTS

I might point out to the committee also that during the past 10 years over $600,000 in increased annual costs have been absorbed in the appropriations for administrative costs. Costs of $21,900 involved in the Group Life Insurance Act of 1954 were absorbed.

The Pay Act of 1958 resulted in absorption of $182,700. Additional cost of $54,480 were absorbed upon passage of the Health Benefits Act of 1959. Another $198,000 was absorbed when the Pay Act of 1960 was passed.

Revised mileage and per diem rates required absorption of approximately $100,000. An increase in penalty mail costs accounted for absorption of $4,200. Since passage of the Pay Act of 1964, we have been absorbing about $40,000 in annual costs.

Mr. Chairman, the tightness of this budget request is all the more apparent in the light of the growing needs of the rural electrification and telephone programs.

PROJECTED POWER REQUIREMENTS

Long-term projections in the electric program indicate that between now and 1980, the power requirements of REA-financed rural systems will more than double. Presently they amount to 41 billion kilowatt-hours. By 1980 they are expected to rise to 116 billion kilowatthours.

This in turn is going to mean a very dramatic increase in capital requirements. The whole electric industry is a growing industry. It is estimated by industry sources that the electric industry as a whole will need additional capital totaling somewhere in the neighborhood of $140 billion between now and 1980.

Our projections indicate that the future capital needs of the rural systems financed by REA will amount to something in excess of $8 billion in that same period.

We face a period of great growth and I believe the economies inherent in this budget request are all the more remarkable in view of these needs. Let me summarize briefly where we stand with respect to our current year's experience.

RECORD VOLUME OF ELECTRIC LOAN APPLICATIONS

In the electric program we began the year with a record volume of loan applications on hand amounting to $227,644,000. This was approximately $30 million more than the applications on hand for electric loans at the beginning of fiscal year 1964.

Applications received from the first of this fiscal year to May 21 have amounted to $276,641,000, making total applications for consideration in this period of $504,285,000.

POTENTIAL AMOUNT OF LOAN APPROVALS

Up to May 21, we approved loans totaling $288,961,000 for the electric program. Bringing this total up to May 31, the total loans approved in the electric program amount to $294,880,000.

On May 21, we had applications on hand of $215,324,000. We anticipate that between that date and the end of fiscal year we will receive $97,859,000 of applications, making a total estimated for consideration for the remainder of the year of approximately $313,183,000. Senator YOUNG. Could I ask a question at this point?

Senator HOLLAND. Senator Young?

Senator YOUNG. Could you answer, Mr. Clapp, what part of the pending loan applications might eventually be approved? Certainly a part of these may never be approved; is this not true?

Mr. CLAPP. I indicated that we have approved since May 21 another $8 million of loans, and I would imagine that we certainly will approve another $60 million. Whether we approve more than that or not depends on whether we receive the apportionment for the balance of the contingency fund from the Budget Bureau.

Senator HOLLAND. Whether you receive what?

Mr. CLAPP. The additional apportionment of the contingency fund from the Budget Bureau.

Senator YOUNG. What I was trying to get at is this, are most of these applications for meritorious loans that would eventually be approved if you had the funds, or are there a certain portion of these,

and if so, how many that you would estimate would never be approved even if you had the funds?

Mr. CLAPP. We estimate that in this fiscal year there will be canceled or found ineligible or withdrawn or returned to the field a total of about $252 million worth of applications.

Senator YOUNG. Thank you.
Senator HOLLAND. Proceed.

ELECTRIC LOAN FUNDS AVAILABLE IN 1965

Mr. CLAPP. Funds available for this fiscal year total $416 million, with the reserve authorization of $90 million, a carryover of $23 million, and rescissions of $28 million added to the regular authorization of $275 million.

With $294,884,000 million loaned through May 31, there is now a total unobligated loan fund balance of $121,120,000.

STATUS OF THE TELEPHONE LOAN PROGRAM

In the telephone program we began the fiscal year with applications on hand totaling $84,694,000. Up until the 21st of May we had received in this fiscal year additional applications totaling $100,694,000 making a total of $185,388,000 in applications for consideration in this period.

Loans of $82,595,000 through May 21 reducing applications for consideration in net amount of $65 million leave applications on hand as of May 21 totaling $120,388,000. We anticipate there will be additional applications received by the end of the fiscal year totaling $9,306,000 which will provide total applications for consideration between this date and the end of the fiscal year of $129,694,000.

Since rescissions in this fiscal year are slightly more than had been projected as an estimate in the budget request, there is a little more than $100 million available for telephone loans this fiscal year.

This money is available from the regular authorization of $63 million, a reserve authorization of $7 million, a carryover of $23.3 million and estimated rescissions of $6.7 million.

With loans of $82,595,000 approved through May 21 there is a balance of $18,202,303 in telephone loan funds for the remainder of the fiscal year.

The total amount of loans made as of May 21 of this year is unchanged as of May 31.

This, Mr. Chairman, generally covers our activity to date in both programs. We are happy to have the privilege of appearing before this committee and will be glad to respond further to any questions of special interest to the committee.

STATEMENTS ON POWER COSTS TO CHOCTAW HATCHEE COOPERATIVE

Senator HOLLAND. Mr. Clapp, I was disturbed when we heard the testimony indicating that the Choctawhatchee Rural Co-op was having to pay a substantially higher rate for some of the power, which the co-op buys from the Alabama Co-op, than it is able to get power from the private supplier and which it is getting from the private supplier at the lesser rate to supply about two-thirds of its need.

I wondered what is the explanation of this as testified to by the witness from the Choctawhatchee Co-op, shall it continue to purchase power at the higher rate from the Alabama Co-op?

Mr. CLAPP. Mr. Chairman, it is not a higher rate when you make the comparison for comparable service. I realize that it is very difficult to debate power rates because it is difficult to get a complete understanding as to what each one is selling for the rate in question.

COMPARISON OF POWER COSTS

Senator HOLLAND. Well now, to make it clear, Mr. Pentecost, the witness, says that he pays wholesale for power to the Gulf Power Co., which is the private supplier, 62 to 7.2-they have two delivery points, 61⁄2 at one point and 7.2 at the other, and from the Alabama Co-op it runs to 812 mills.

The testimony appears at page 272 of the committee print of the hearing record. That is a very substantial difference. When it is averaged over the whole system so that it means a greater or higher rate to all of their users.

Now, frankly, I was disturbed by that testimony and I would like to know what is the reason for the insistence by REA, as testified to by Mr. Pentecost for the use of power from the Alabama Co-op at the higher rate?

Mr. CLAPP. Well, our computations based on reports that we have from Mr. Pentecost's co-op, indicate that he actually pays less to the Alabama Electric Co-op for his power than he pays for his power from the Gulf Power Co.

Now as I say, it is very difficult to debate these rates because it is like comparing a ticket to Baltimore with a ticket to New York.

The power company's rates frequently are quoted in terms of the rate for delivery to points at transmission voltage. All of the rates that we deal with respect to REA financed G. & T.'s are normally computed on the basis of delivery to the member cooperatives' load centers at distribution voltages.

REA RATE VERSUS POWER COMPANY

Now, if you adjust the Gulf Power Co.'s rate to which Mr. Pentecost refers, to make it cover a comparable service and based on the actual factors governing the delivery of power to the Choctawhatchee Co-op at the same load centers, you will find that it is actually costing this co-op 8.62 mills per kilowatt-hour for the power he is buying from the Gulf Power Co.

This is not a quoted rate, this is what it actually costs.

He is actually paying to the Alabama Electric Cooperative, 8.4 mills, and the 8.4 mills not only covers the cost of power, but also the capital investment which is included in the members power rate.

If you take the capital investment out of this rate which the cooperative pays Alabama Electric Cooperative, you come up with an actual overall average delivered cost of power from Alabama Electric to Choctawhatchee of 8 mills even.

Now this is 0.62 mills below what it is actually costing him for power from the Gulf Power Co.