down there on the farm. I do not think they are breaking even, to tell the truth. Maybe they are. But they certainly are not making as much as they are making from me in Waco. You have either got to have a good city with some paying customers or you got to have some kind of help on the interest rate, if you are going to give good service at reasonable prices to farm lines.

Mr. HARRIS. Mr. Poage, let me make this observation. I think you are the perfect example of the philosophy that I have tried to expound. I do not think the taxpayers need to help you on your farm. I think you can take care of it by yourself and there are many of these people who receive the subsidy like you that really do not intend to have it, but in order to get it to the few you spill it over on the many and you ought to review that.

Mr. POAGE. You got me wrong. I am buying my power from Mr. Lynch in both places.

Mr. HARRIS. That is all right.

Mr. POAGE. I buy it in both places. I am not getting the advantage of that 2-percent money. Mr. Lynch does not get 2-percentmoney, but he does give me a rate comparable with that which 2-percent money would justify. Neither he nor anyone else could give me this rate unless someone somehow or other paid for it. I think it is clear that I as an urban customer am paying to subsidize my favorable farm rate. I am not kicking because I know he must make a fair return, but I am suggesting that my farm is subsidized just exactly like the farm-or just as effectively as the farm that is on the McLennan County Electric Co-op's lines. Their subsidy comes from the low interest rate. The subsidy on my farm comes from the people of the city of Waco.

Mr. HARRIS. I am not prepared to examine Mr. Lynch's cost accounting to determine that and I could not accept that.

Mr. POAGE. Do you not do the same thing?

Mr. HARRIS. No, sir.

Mr. POAGE. You mean to tell us-well, you did suggest you thought you could change your rates in Raleigh and could change your setup in Raleigh so that it would not contribute to anybody and come out with the present rate. But you cannot tell at the present time the people of Raleigh are not paying more or contributing more to your profits than the people outside of Raleigh; can you?

Mr. HARRIS. Under established policy of regulation, and I think this would be found everywhere, if one class of customer constituted an undue burden on another class of customer, the discrimination can be remedied.

Mr. POAGE. Of course, we have not proved either one, but you cannot say that you are not charging a little more in Raleigh in order to maintain these low rates that you are maintaining in the rural areas and they are good attractive rates.

Mr. HARRIS. I am not going to say that we are.

Mr. BELCHER. Will the gentleman yield?

Mr. POAGE. Yes.

Mr. BELCHER. Mr. Poage, I should say, shame on you as a Member of Congress, letting the people in Waco subsidize your electric bill out on your farm.

Mr. POAGE. As a citizen of Waco, I might logically complain that I am contributing to the support of everybody's else's farms and I think the people of Tulsa are doing the same thing around Tulsa. The CHAIRMAN. Will you yield?

Mr. POAGE. Yes.

The CHAIRMAN. Texas has everything on earth excepting regulations.

Mr. CALLAN. Will the gentleman yield?

The CHAIRMAN. I will yield. I got the floor back.

Mr. CALLAN. I was just wondering if we are not bringing this out of proportion. The figures the companies came in with this morning said they were going to spend $4.5 billion this next year. Let us assume they spend over the next 15 years $75 billion. The testimony also showed that under this financing, it is possible that we spend $15 billion in REA. So let us assume that 20 percent of this goes into generation. If I recall correctly, it costs about $20 million to generate about 75 megawatts. So if you generate the 75 megawatts, this would be a total generation that they could possibly bill under this program of 14,250 megawatts total generation. How many megawatts of power will be needed in this country 15 years from now? Do you have an idea?

Mr. HARRIS. I am not prepared myself. The industry has the figures and as I recall, they may have been this morning. I did not follow all of it in detail. I got a rough thought in my mind, but I would not want to undertake to testify as to what the total industry requirement is.

Mr. CALLAN. Do you generate power?

Mr. HARRIS. Yes, all of it, except we exchange some with neighboring companies.

Mr. CALLAN. What is your capacity?

Mr. HARRIS. Two million in operation and 345,000 come on this month and 650,000 under construction. It is 2 million kilowatts— 2,000 megawatts.

Mr. CALLAN. So that now you have some under construction?

Mr. HARRIS. We have 345,000 under construction. It is really completed and coming on the line this month.

Mr. CALLAN. So you alone would have one-seventh of all the total that could possibly be generated under this legislation all over the United States.

Mr. HARRIS. The numbers may have that relation. I do not think that that has any pertinence to the economics that I am talking about. Mr. CALLAN. What I was getting at, as far as hurting the industry and as far as generating enough capacity here to make any difference in the country in the next 15 years, this 14,000 megawatts is not going to make much difference: is it?

Mr. HARRIS. It could make a great deal of difference to the tax revenues in many ways, Mr. Callan.

At the present time in fiscal 1965, the co-ops bought 16 billion kilowatt-hours generated by the investor-owned companies at a cost of around $120 million. Now, if all that were replaced by 2-percent financed Government loans, it would cost the Government in cost of money and in lost taxes $22 million a year.

Mr. CALLAN. Because it is not going to be all replaced?

Mr. HARRIS. But this establishes the relationship. To build the capacity that is involved here, 38 percent of their requirements, it would take an investment of something like $24 million. So when $240 million has been invested in Government-financed 2 percent and taxes forgone, then the Government would have lost something in the order of 10 percent or around $22.5 million.

Mr. CALLAN. Would you agree with this, that the amount of generation that could possibly be built under this proposed legislation would be a very small amount of the total overall capacity of generation in the United States?

Mr. HARRIS. No, sir, I would not. We are talking about the $11 billion or somewhere between $8 and $15 billion.

Mr. CALLAN. That is assuming we all go into generation, but we know a lot of this has to go into distribution.

Mr. HARRIS. Well, the Administrator testified here that he expected and wanted to keep 2 percent money for the traditional work that is now being done and that the bank financing would be at the acquisition of the privately owned systems and generation transmission facilities. This takes it all off the tax books, whether it be generation or distribution.

Mr. CALLAN. I did not understand his testimony that way. I understand that he wanted to leave it open so that the cooperatives could go into generation if they wanted to. But, regardless of whether they want to or not, all the 2 percent money that is needed for distribution is not going to be available because there is a backlog now of $600 million and there is also a backlog back in the country that has not even come in here yet.

What I am trying to point out, this $10 or $15 billion, part of which might go into generation, would be a very, very small amount of the total overall capacity for the generation of electricity in this country.

Mr. HARRIS. The percentage fraction-this would be an interesting thing and I hope when the Administrator comes back you will ask him and get on the record in this hearing how much of this bank financing he has projected for generation. I do not know.

Mr. CALLAN. Thank you.

The CHAIRMAN. Just one question and I will yield to Mr. Belcher. Did you say a moment ago that when it is necessary for you to extend the line, putting in one or two extra poles, you do not charge the customer for the installation of those poles?

Mr. HARRIS. That is true.

The CHAIRMAN. I need two on my farm next month. I have a house needing electricity but I do not have the necessary poles.

Mr. HARRIS. We will be happy to extend service to any permanent occupied residence at standard rates without charge.

The CHAIRMAN. I will remind your local representatives of this next week.

Mr. Belcher?

Mr. BELCHER. Mr. Harris, I understand your contention was that there are a lot of these co-ops that can afford to pay more than 2 percent for their expansion.

Mr. HARRIS. Yes, sir.

Mr. BELCHER. I think that was agreed to by the National Association, that there were cooperatives that could afford to pay more and were willing to pay more than 2 percent, that is, those in good financial condition.

Now, if it was absolutely necessary for a co-op to have 2 percent in order to expand their service or to take care of their responsibilities to their customers and they could not afford to pay more than 2 percent, then you would not object under the present program to their receiving 2 percent money, would you?

Mr. HARRIS. On the premises you have stipulated, I would not.

Mr. BELCHER. What I mean is, that if they needed 2 percent money, some of the smaller cooperatives, to extend service to expand service, to take care of their present customers, that you would not object to those co-ops getting that 2 percent money under the present program if they actually needed it.

Mr. HARRIS. Yes, sir; I think that is implicit in the prepared testimony that I presented.

Mr. BELCHER. And if they are willing to pay it, according to the testimony yesterday, they could go ahead and pay a larger amount of interest-a larger rate of interest-in order to take care of their expansion; that is your theory?

Mr. HARRIS. Yes, sir.

Mr. BELCHER. I presume that you are predicating this testimony on the theory that the co-ops actually are serving rural customers.

Mr. HARRIS. Yes, sir. I have said that, in my opinion, this Government-financed movement should hold to the traditional concept of rural electrification.

Mr. BELCHER. In other words, if it were held to the present concept of 1,500 people and so forth, you do not object to the co-op getting 2 percent money if it is actually needed?

Mr. HARRIS. Yes, sir; that is a pretty good generalization, but that is it. That is what I said.

Mr. BELCHER. Do you think the other power companies that you have talked to would be pretty much in agreement with your statement?

Mr. HARRIS. Mr. Belcher, each will have to speak for himself. I am here as one individual, representing my one company because I work for them. But I think that would-it would be a fair statement to be said within our industry, that while all of us feel that many co-ops are able to pay a higher rate of interest, and that the Government subsidy is beyond what the factual situation would justify, the important thing is not so much precise computation of what the interest rate is, but to avoid this being extended into a broad and uncontrolled public power system.

Mr. BELCHER. Then, I understand it is your contention that all this can be done under the present program, and it would not be necessary to set up a bank and remove the restrictions on the present program as provided for in this bill?

Mr. HARRIS. Yes, sir, and if you set up a bank with what I have suggested you do with it, you have not changed the program, you just have a different mechanism to handle the making of the loans.

Mr. BELCHER. Would you be in accord with a National Electric Bank that would actually help, owned by the cooperatives, that would

be set up for the purpose of financing the present idea of cooperatives? Mr. HARRIS. Mr. Belcher, as indicated on page 7 of my testimony, I prefer that the Administrator arrange to subordinate his mortgage to permit free market financing. I think the program will move out into the free market quickly in that fashion and I think you will get out a level of cost that the co-ops, on average, could bear today. Obviously, by putting the second on pages 8, 9, and 10, I spell out the terms on which I would be agreeable to the bank mechanism.

Mr. BELCHER. I think a lot of us agree with the idea of an electric bank for the purpose of financing REA cooperatives, so that eventually they can own that bank and control it and operate it themselves free from the Government. But do you think that this bill actually establishes that kind of a bank, or does this go way beyond that?

Mr. HARRIS. Mr. Belcher, I think certainly the Administrator and Mr. Anderson of the association clearly told you that this legislation is designed to get away from the restrictions of acquisitions of generation and transmission systems. This is the prime purpose of the legislation.

Mr. BELCHER. Is that what you are objecting to, and not the method of financing?

Mr. HARRIS. Yes, sir. The broadening of the program is my principal objection.

Mr. BURTON of Utah. Will the gentleman yield?

Mr. BELCHER. Yes.

Mr. BURTON of Utah. Before you get too far off your earlier line of questioning I would like to refresh your memory.

As you recall, I questioned one of the REA witnesses, I think Mr. Katzin. And as I recall his testimony, he said there were nearly a thousand REA's, and that their study revealed that 247 of them needed Government-financed 2-percent money, which indicates to me that nearly three-fourths of them don't.

Mr. OLSON. Will you yield?

Mr. BURTON of Utah. Mr. Belcher has the floor.

Mr. BELCHER. I yield.

Mr. OLSON. I think we cleared that up by a question that I asked, or the statement I made that was agreed to, summarizing that area of testimony. The point was clearly made and is part of the testimony that the 247 could not afford to pay anything more than 4 percent interest. In other words, there was no principal repayment involved at all. And one of the things that we must remember is that all the cooperatives have a large cost in the retirement of principal which the private utilities don't have at all.

So you can't make an accurate cost comparison in the sense of final cost to the customer without taking into consideration total costs, and in the case of the rural cooperatives, this includes principal retirement as well as interest costs.

Mr. BELCHER. I think that most any estimate would be pretty much a guess as to whether it would be 25 percent or 26 percent or 30 percent.

But the point I was trying to bring out is that regardless of the number of co-ops they still need 2-percent money to carry on their service to rural customers, and the program should be continued just like it is. And you have no objection, sir?