year. Loans for generation and transmission facilities totaled $119,943,996 or 39.9 percent of the loans made. The remaining $5,305,000 or 1.8 percent was for financing consumer facilities. Loan funds advanced to borrowers.-Funds advanced on electric loans amounted to $185,977,622 during fiscal year 1957, compared with $154,739,544 during fiscal year 1956. Cumulative advances amounted to $2,941,213,434 as of June 30, 1957. Consumers served and construction progress.-During the 12 months ending June 30, 1957, electricity was extended to 104,798 rural consumers through the construction of 22,352 miles of line. During the previous fiscal year, 113,880 consumers were connected through construction of 23,932 miles of line. As of June 30, 1957, electric borrowers were operating 1,394,353 miles of line and distributing electric service to 4,406,503 consumers. Loan rescissions.-Periodically, REA reviews the status of unadvanced loans funds for all borrowers, as well as doing so each time a new loan is under consideration for a particular borrower. Loans are rescinded or transferred to other needed purposes where it is indicated that borrowers no longer need the remaining unadvanced funds for the purpose for which they are loaned. During the fiscal year 1957, loan rescissions amounted to about $1.8 million. Loan repayments.-Through June 30, 1957, cumulative principal and interest payments amounted to $577,435,945 and $285,471,883 respectively. Payments on principal made ahead of schedule amounted to $108,902,271, while principal and interest payments overdue more than 30 days amounted to $200,602, or slightly more than 0.18 of 1 percent of the amount due. The overdue amount does not include principal and interest in the amount of $44,478 on 2 loans which were foreclosed. Corresponding figures as of June 30, 1956, were: Payments: Principal. Repayments ahead of schedule_. Payments overdue more than 30 days___ $493, 144, 519 246, 129, 305 95, 870, 361 332, 363 44, 478 Increased debt service.—Borrowers have generally needed a 5-year deferment of interest and principal payments after a loan is made to complete construction and development loads on their lines before achieving a revenue producing level adequate to cover expenses and make repayments on their loans. Interest and principal payments are scheduled in equal annual installments over the remaining 30 years of the loan period. Since most borrowers have received several loans over a period of time, their total period of debt repayments to REA is substantially greater than 35 years. This frequently means that their debt service obligations will peak some time during the midpart of their loan period. From 1948 to 1957, annual principal and interest due from electric borrowers increased from approximately $32 million to over $100 million. Loan security problems.-Since most of the borrowers have not yet reached their peak loan repayment period, any analysis of loan security must go considerably beyond the borrowers' present position with respect to loan repayment. One measure is to compare the margin of revenue over expenses (including an allowance for replacements) with the maximum schedule of repayment that would be required if none of the payments were being deferred. This is most meaningful when assessed in terms of the weighted age of the borrower's plant. On this basis, the debt service earned ratios of 141 borrowers fell below expectations as of the end of the fiscal year 1957, as compared with 138 as of the end of the fiscal year 1956. There were 9 borrowers in default on payments due as of June 30, 1957, as compared to 10 as of June 30, 1956. REA works with borrowers to detect adverse trends and other unfavorable developments which might endanger loan security. Intensive effort is devoted to individual borrowers who are in financial difficulty or represent loan-security problems for other specific reasons. Electric sales program.-Except in unusual circumstances reductions in expenses are not of sufficient magnitude to solve loan security problems, and an increase in power sales is often the only practical answer. Also, increased usage of equipment besides resulting in an increase in power sales means a more highly diversified load and an improved load factor or greater kilowatt-hour sales per kilowatt of demand. The major effort of REA in this regard is in stimulating borrowers, borrower organizations, power companies, and manufacturing and sales concerns to get together and develop advertising and sales programs aimed directly at the potentially huge rural market. Through this program considerable progress has been made in promoting the increased sale and beneficial use of electric power in rural areas. This will materially strengthen the financial condition of REA borrowers. The increased use of power on farms in addition to bettering the financial condition of the borrowers is reducing the operating costs of farmers by use of this cheapest hired hand. Other program highlights.-During the fiscal year REA developed a long-range system planning guide for electric distribution systems. The new approach to system planning has had very favorable acceptance. It provides that the borrowers prepare a long-range system plan before large system improvements are installed to help insure that such facilities not only take care of immediate needs but have the potential for economical expansion to take care of the long-range needs. The objective is to achieve the most economical development of a rural distribution system which assures adequate service at the lowest cost to the consumer. Sound financial planning for the future accomplishes (1) orderly development of the system to minimize waste through lines and substations becoming inadequate early in their service life, (2) system expansion in a manner such that new investment in facilities is in step with load growth and revenue, (3) maximum use of opportunities to improve quality of service, (4) maximum use of anticipated developments in equipment design and application, and (5) a correlation of the various elements of the system-power supply, transmission, and distribution-so as to maintain reasonable economical balance between them. As loans are requested, the system plan will provide important information and aid in the development of data required in support of a loan application. In REA the applications can be processed more efficiently and in a shorter period of time where the supporting data can be analyzed and verified against a borrower's up-to-date long-range system plan. Fiscal year 1958 The primary responsibility of REA is to safeguard the Government security for over $3 billion in loans already made. Attention must also be given to the extension of electric service to the remaining unserved areas as well as to meeting the needs for the ever increasing use of power on existing systems. Applications.-Electric applications on hand amounted to $154.6 million on June 30, 1957. During the fiscal year 1958, it is expected that an additional $380 million in new applications will be received. Not all of these applications will become a part of the loan demand since many are withdrawn or returned to the field for reworking. Loans. About 5 percent of American farms were without central station electric service as of June 30, 1957. Loans to provide service to these establishments involve increasing difficulties as more sparsely settled sections are reached. Applications from the "thinner" areas require more detailed study of construction costs, probable revenues and operating costs. The problems of adequate and dependable power supply are great in sparsely settled areas where transmission distances are long. In addition to extension of electric service to remaining unserved rural people the use of electric power on all farms and in the rural areas is steadily increasing. Borrowers must increase their system capacities to be able to deliver the power required at acceptable voltages to over 4 million rural consumers. Loans are needed for such purposes as the installation of voltage regulators, new substations, heavy conductor, poles, crossarms, and hardware, and for additional generation, and transmission facilities. Complex construction plans in accordance with comprehensive system planning studies must be worked out to assure that these system improvements are carried on in an orderly and economical way, and to assure the existence of an adequate, dependable, and economical wholesale power supply. A new loan authorization of $179 million is available for loans in fiscal year 1958. This authorization together with funds carried over from the fiscal year 1957 will be used to provide $280 million for loans in the fiscal year 1958. Loan funds advanced to borrowers.-Advances of loan funds are estimated at $240 million for the fiscal year 1958, to bring cumulative advances in the program up to about $3.2 billion by June 30, 1958. Unadvanced loan funds on June 30, 1958, are expected to approximate $632 million. The amount of unadvanced loans is substantial because of the considerable time which elapses between the making of a loan and the final advance of funds when construction is completed, particularly for generation and transmission facilities and system improvements. Consumers served and construction progress.-About 25,000 miles of distribution line will be energized during 1958, bringing service to an estimated 100,000 new consumers. It is estimated that 218,000 kilowatts of generating capacity will be installed. On June 30, 1957, loans had been made for about 66,000 miles of line not yet energized; loans through that date would provide service to about 497,000 consumers not then served. Loan repayments.-Borrowers' loan-repayment schedules are increasing sharply. Repayments of record amounts loaned in recent years are now becoming due. With 5-year deferrals of interest and principal payments, cumulative loans through fiscal year 1952 of over $2 billion have already reached the repayment stage. On the basis of loans made through June 30, 1957, the figure will steadily increase to over $3 billion by fiscal year 1963. The total interest and principal due from borrowers is expected to increase from $110 million in 1957 to about $135 million in 1960. Debt service requirements will continue to gradually increase for a period of years after 1960. REA must work with the electric borrowers in helping them develop to the point where they can meet these increasing debt service requirements. Intensive effort is devoted to borrowers who currently have unsatisfactory debt service earned ratios. Condition of physical facilities.-Until recent years, borrowers have been operating plants which were substantially new and therefore have required little maintenance. As borrowers' plants become older, effective technical operations and maintenance practices become increasingly more important. With the loads of many borrowers approaching system capacity, skillful operation of these systems takes on ever greater importance. In the fiscal year 1958 about 70 percent of the borrowers' systems will be over 5 years old and about one-third of these facilities will be over 10 years of age. The soundness of the physical facilities and their operations is essential for the farmers to receive adequate service and the Government loan to be repaid. REA field engineers make surveys of the borrower's physical plant to ascertain its condition and bring possible improvements to the attention of the borrower. Technical information is continually being developed by the engineering staff for borrowers' use in important aspects of technical operations and maintenance to protect the properties that secure the Government loan. Organization and operational soundness of borrowers.-Continuous work is carried out with loan security borrowers in developing comprehensive management plans and assisting them in business and technical operations until they are back in sound operating status. Experience has shown that if sufficient attention can be given to these borrowers when the first indication of difficulty appears, serious future threats to loan security and probable losses of Government loan funds can be avoided. Increased borrower revenue. The most effective way to improve a borrower's financial condition is to increase revenue. Substantial progress is being made in this direction through continued progress in the electric sales program. Other program highlights.-The inadequacy of wholesale power supply in certain sections of the country continues to be a major problem. To meet this problem may require new wholesale power contracts, integration of existing REA-financed power facilities with other facilities in the area or generation and transmission by REA borrowers. Nuclear power may meet some of the needs but it will probably be some time before it can feasibly be adapted to current day problems. REA personnel working with the power supply problems in rural areas are keeping abreast of developments in the nuclear power field. Their close familiarity with the needs of the REA borrowers will assure that borrowers will have the full benefits of nuclear power when it becomes a reality. Cumulative statistics.-The cumulative figures presented in the following tables show the progress that has been made in the rural electrification program since its inception in May 1935: June 30, 1940 $823, 262 11,864, 836 400 8, 000 60,040, 810 122, 337, 824 June 30, 1941. 354, 616, 010 June 30, 1942. June 30, 1943. 369, 152, 582 June 30, 1944. 387, 630, 670 June 30, 1945. 427, 366, 738 June 30, 1946. June 30, 1947. June 30, 1948. June 30, 1949. June 30, 1950. June 30, 1951. June 30, 1952. June 30, 1953. June 30, 1954. June 30, 1956. June 30, 1957. June 30, 1955. 514, 619, 844 704, 705, 701 950, 941, 658 1,272, 228, 526 1,558,887, 178 1,827, 017, 836 2,054, 591, 865 2, 262, 225, 801 2,443, 754, 333 2,600, 496, 268 2,755, 235, 812 2,941, 213, 434 June 30, 1958 (estimate). 3, 181, 213, 434 June 30, 1959 (estimate). 3, 471, 213, 434 311, 479,000 566,422, 777 893,461, 286 1, 460, 460, 571 1,791, 607, 706 2,066, 121, 706 2, 185, 149, 697 2,861, 024, 042 4,016, 273, 673 5, 474, 001, 598 6, 973, 694, 936 8,737, 816, 038 10, 603, 286, 075 12, 560, 298, 086 14, 947, 103, 217 17, 788, 343, 000 20, 664, 933, 000 22, 870, 371, 000 26, 500, 000, 000 30, 000, 000, 000 1 Not available. Fiscal year 1957 TELEPHONE PROGRAM Activities reached a new high during the year. The number of loans approved, amounts loaned, amounts advanced, route miles of line completed, and subscribers served exceeded accomplishments in any previous year. Highlights of the major achievements during the year are as follows: Applications.-Applications continue to come in at a substantial rate during the year with the receipt of 280 applications totaling $87,201,000, an increase of about $11 million over applications received during fiscal year 1956. These were in addition to the $46,766,000 in applications on hand at the beginning of the fiscal year. At the end of fiscal year 1957, applications on hand totaled $63,048,000. Loans. During fiscal year 1957, 221 loans totaling $81,729,000 were made, which included loans to 94 new borrowers. During fiscal year 1956 there were 207 loans totaling $80,980,000 which included loans to 121 new borrowers. Net loans through June 30, 1957, amount to $391,139,542 and will provide funds for new or improved service to an estimated 863,329 rural subscribers, on an estimated 241,681 miles of line. Loan funds advanced to borrowers.-Funds advanced to telephone borrowers during fiscal year 1957 amounted to $72,940,243, an increase of about 35 percent over the advances for 1956. Cumulative advances through June 30, 1957, totaled $226,748,656. Construction progress.-Construction during the year provided new or improved service to about 104,000 rural subscribers, on about 35,000 miles of line. On June 30, 1957, contracts and force account proposals had been approved for construction of about 36,000 additional miles. During fiscal year 1957, central office equipment installations were completed in 340 exchanges as compared to 312 during 1956. Expedition of construction.-REA continued to encourage interest on the part of engineering firms to enter the rural telephone field and to acquaint borrower and engineering firm personnel with REA policies and requirements. Through these efforts, together with other contributing factors, the quality of the work of engineering firms has continued to improve. The standardization work of REA staff engineers, and the increased interest of equipment manufacturers in rural telephony as a market has helped to increase the pace of construction. This has been offset to some extent, however, by the limitations of the equipment manufacturers' capacity and the availability of qualified engineers. Loan repayments.-As of June 30, 1957, cumulative principal and interest payments amounted to $7,870,505 as compared to $4,288,812 through June 30, 1956. Advance payments totaled $409,946 while amounts overdue more than 30 days amounted to $504,877. Among the principal factors accounting for this overdue amount is that the deferment period accorded early borrowers was for only 2 years. Furthermore, instead of placing funds under note periodically as they were needed, the entire amount of the loan was placed under note at the time the loan contract was executed. Construction delays, especially the long delays in delivery of central office equipment, produced a situation where borrowers reached the end of their deferment period and were due to make their first payment before their systems were completed. The deferment period on current loans is three years, and amounts are now placed under note to cover only cash needs during the ensuing 6 months or so, which should materially improve this situation. Borrowers in operation.-Many telephone borrowers face operating problems almost at the time of a loan, since they are either operating existing facilities or acquire operating facilities soon after the loan. Some borrowers have a combination of new and existing facilities. Other borrowers start new systems and must develop a sound operating business and an adequate staff to carry out the daily operations. If borrowers receive the proper amount of attention from REA from the beginning, there is much less risk of serious loan security problems developing in the future. The extent of these needs is shown by the fact that operations work was carried on with 551 borrowers during the fiscal year 1957 as compared with 466 the year before. In comparison, the number of borrowers who had cut over REA-financed facilities, rose from 227 on June 30, 1956, to 323 on June 30, 1957. Loan security problems.-During the year intensive effort was devoted to individual borrowers who had not developed a level of operations adequate to assure loan repayment. These borrowers were helped with critical operating problems such as rates, operating budgets, personnel, connecting company agreeients, etc. By helping or advising borrowers in matters such as negotiation of an adequate connecting company agreement they have been able to get more favorable terms that permit them to retain more of their toll receipts or pay less for such things as operator assistance service. This type of help from REA assists borrowers to put their operations on a sound financial operating basis. REA also has assisted borrowers in extending their service more rapidly in order to realize their full revenue potential as soon as possible and thereby improve their financial position. Other program highlights.-During the year a project was begun by REA engineers which seeks to develop direct and speedy radiotelephone service |