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is one of the things that we have got to look at. And I must say the same thing is carried on by some of our co-ops in getting into the merchandise and appliances field. And I know in my particular area that I am privileged to represent, I had two co-ops which were engaging in that, and at my insistence they did stop it, because I don't think that was one of the primary purposes of co-ops, to get into competion with private business that way.

This is one of the first times that I have participated in this debate here, and I am sorry that we don't have more members here. We have been here now for—at least the chairman, the acting chairmanand of course he is a workhorse and doesn't care how many hours he puts in. But I think it is unfortunate we have a meeting here this afternoon with such a small attendance of members. We have at the present time seven people here. I think my time is as valuable as other members of this committee, and I am sorry we don't have more here to listen to you gentlemen; I am not trying to lecture anybody.

But I think I would like to ask the chairman if these hearings, that the afternoon session will make some reference to the small number of members here, because I think it is an imposition on the people coming from out of town, and who expect to testify before a full committee, and then find such a small number here. I think there have been nine people here during the afternoon, and at times only two or three members.

Mr. Poage. The record will carry your statement, Mr. Jones, which the Chair will verify as being correct.

There are seven members of the committee present. The largest number that has been here this afternoon has been nine.

Mr. Jones. I know we have had nine. I think you started the committee with one other member here.

Mr. Poage. That is correct. Mr. Callan was here on time, and he can now ask a question.

Mr. CALLAN. Thank you. Do you have a State regulatory body in Alabama?

Mr. BOULDIN. Yes, sir.
Mr. CALLAN. Do they regulate transmission and generation?

Mr. Bouldin. They don't have any authority over the electric co-ops.

Mr. CALLAN. How about rates! Mr. Bouldin. They don't have any jurisdiction over their rates. Mr. CALLAN. But they do yours? Mr. BOULDIN. Yes, including our rates to the co-ops. Mr. CALLAN. Is there any service area set up in Alabama? Mr. Bouldin. We don't have any division of territory by statute in Alabama. We have agreements with most of the cooperatives who we serve which in effect we each agree that we won't take the customers that the other one serves that is in rural areas. Those contracts don't apply inside of municipal boundaries.

We don't have that contract unfortunately with several of the co-ops in Alabama, and that is where a good deal of the troubles come.

Mr. Callán. Have they encroached on your territory?
Mr. BOULDIN. Yes, sir.
Mr. Callax. Have you encroached on theirs ?

Mr. BOULDIN. We don't. Excuse me—this is not territory. I was thinking of customers. There are no boundary lines as far as territory is concerned.

Yes

Mr. CALLAN. Have they encroached on your customers ?

Mr. BOULDIN. That was the subject, of course, of this long hearing in Alabama which was referred to this morning—the generation and transmission system up there that was designed to take all of our co-op customers and eventually to take most of our municipal customers. It would duplicate miles and miles of our transmission lines.

Just to give another instance of this thing one of the co-ops with whom we don't have such an agreement tried to take our customer Fort Rucker, the Government installation. They actually bid on that service against us, although we had served that installation for 21 years, ever since it was built. That is the sort of thing we are up against.

Incidentally, I would like to take another minute just to talk about that one.

I came to Washington and I went to all levels of the Government that I could get to—the Engineers, the Pentagon. I even talked to one of the President's assistants. I tried to get the Government authorities to say that if the co-op bids against our company on this business, would they give our company credit for the Federal income taxes that we paid on that business that the co-op didn't. In other words, would the Government even just take the net cost to the Government. No-nobody would. And nobody would say that in valuing our bid, they would even give us credit for the income taxes that we paid that the co-op did not.

Mr. CALLAN. So we get the record straight-in 1965 you had accelerated amortization of $17,070,000, liberalized depreciation of $21 million, and investment tax credit, $3 million, which is $41,806,997.

Now, where is that money? Do you have it?

Mr. BOULDIN. We don't have any cash we can identify as that money.

That money is a part of the revenue which we earned. It is not something that the Government gave us. That is money that our customers paid us for service under our established rates.

Whatever cash we have left over, after providing for all the things we have to provide for, we devote to our construction program. But you cannot identify a figure like that and say where is it.

It is just impossible.

Nr. CALLAN. You report that much money, though, to the Government, don't you?

Mr. BOULDIN. I don't know those figures are absolutely correct. I don't remember 1964. I am sure they are approximately correct, because they are a little higher than that now. So your figures must be somewhat correct. But as I say, you cannot identify that as cash or property or anything. That is a bookkeeping entry—that is all.

Mr. CALLAN. If you didn't have this, you would have to pay this out in cash, would you not?

Mr. BOULDIN. If it had not been for the deferment of the taxes, we would have paid it in taxes. That is where it would have gone.

Mr. CALLAN. In other words, if this was not on the books, if Congress has not passed this legislation, you would have had to pay out $41,860,000 ?

Mr. BOULDIN. Whatever the figure is, for deferred taxes, yes.

Mr. CALLAN. So in effect, by having this, this is money that you don't have to go out and borrow and pay interests on, is that right?

Mr. Bouldin. You can state it that way. But don't say it is a loan from the Government to us. It helps our cash position; yes. Our cash position is improved that much.

Mr. Callan. So this is money that you get to keep because of certain legislation !

Mr. BOULDIN. And because our taxes have been deferred. Our tax burden has been slightly reduced. That is what it is.

Mr. CALLAN. Right.
Mr. BOULDIN. By deferring certain taxes.

Mr. CALLAN. If you didn't have that, you would have to raise the rate to your customers; would you

not? Mr. BOULDIN. I don't say that that follows.

Mr. CALLAN. Well, you would have to make a difference between this and interest you would have to pay on that money-you would have to get that money back from the business.

Mr. BOULDIN. Well, it doesn't work that way exactly. In theory you have got to collect all of the expenses and all of the taxes and everything else, and that is perfectly true. But the rates don't go up and down like to automatically take care of those things. You have a long and difficult procedure for every change in your rates.

Mr. CALLAN. Just one other quick question. I noticed here in Tennessee, the average monthly bill for 40-kilowatt, 10,000-kilowatt commercial service, $118.37, yours is $189.47.

Mr. BOULDIN. I assume that is TVA rates. TVA is a fine example of just what we are talking about here, gentlemen. TVA, of course, got its money to build that system from taxpayers. They didn't have to pay any return on it. TVA is also exempt from Federal income tax. That makes the difference—those two things make a difference between our rates and TVA rates.

Mr. CALLAN. How about the State of Washington? They are $135.67 against your $189.47.

Mr. BOULDIN. I don't know the Washington situation. I don't know what company that is.

Mr. CALLAN. That is the total average of the whole State.

Mr. BOULDIN. They have some magnificent waterpower, and I expect their costs of production are less than ours.

Electric rates are almost wholly based on the cost of producing electricity. And that is the reason they vary from place to place over the Nation, because the costs vary. The cost of coal varies, the cost of labor, the cost of material varies.

Mr. CALLAN. Do you think you have lower or higher fuel costs than Nebraska?

Mr. BOULDIN. I don't know the costs in Nebraska.

Mr. CALLAN. We don't have any coal. We have it all shipped in. We don't have any hydro. We have an average monthly cost $2 higher than yours.

Mr. BOULDIN. Of fuel ?

Mr. CALLAN. On this particular bill-on the commercial service, 10,000 kilowatt-hours. You have $189.47, and Nebraska has $191.83. And we have to ship our coal about 400 míles. You have a lot of coal in Alabama.

Mr. Bouldin. That is one reason your costs are higher. You have to ship your fuel in. The same thing is true up in New England, and other States.

Mr. CALLAN. Thank you.

Mr. BURTON. After hearing the gentleman from Missouri's discourse, which I think was perfectly correct, I would like to have him join me in singing the old Civil War song, "Vacant Chair" by saying, “We shall meet and we shall miss them, there shall be 27 vacant chairs.

Mr. Bouldin, I think you have been one of the better witnesses for your side. I have prodded some of the industry spokesmen to provide the committee with some concrete examples of where they feel REA's have gone in and actually taken over customers or offered to build duplicating facilities. And I commend your statement to my colleagues on the committee, because starting on page 4 you have examples cited in Alabama, Indiana, Kentucky, Louisiana, Colorado, Mississippi, Florida, some other places, too. I was very pleased with your statement-even when the chairman was bombing you, you were doing pretty well.

Mr. Bouldin. Thank you. The chairman and I just don't agree.

Mr. Poage. Just a minute. Mr. Harvey, I think, wants to ask a question.

Mr. HARVEY. Mr. Chairman-I think this is the first time I have interrupted to ask a question. I would like to say for the record first of all that I have been a longtime farmer. I lived in an area---my home is served by an REA co-op—which I may add is debt free and has rendered very excellent service. But Indiana has been the scene of one of the most controversial problems with regard to the location of a G. & T. plant, I suppose, of any place in the whole country. I have listened to and observed the various arguments on this question for many years now, and these arguments are still in the process and still in the court.

Now, I would just like to make this observation, after having listened to this colloquy that you have had with our chairman and with some of the others.

It seems to me one of the most difficult problems that an administrator would have, as well as the committee, in trying to draw the guidelines is the difficulty in comparing the rate of a plant that is financed from the Federal Government at 2 percent money and the rate that would be published by a privately owned, investor-owned utility. One cannot readily compare the costs.

Now, I know in Indiana the statement has been made, and projections have been offered, to show that the cost of producing this electricity by this proposed plant would be less than the best bid offered by the present supplier--a private and investor-owned utility. And yet I am just wondering whether the actual rate—if all the same factors were taken into consideration would actually be lower than the price that they have been bid on it.

And I would just like to say one thing in conclusion. And I think I can say this honestly and I think most of the members of the committee would agree with me—that in many instances other factors than the actual cost factors enter into the final decisions with regard to whether a plant will be approved or not.

Thank you very much.
Mr. Poage. Thank you, Mr. Harvey.
Mr. Redlin?
Mr. Redlin. Thank you, Mr. Chairman.

Do you believe there are areas where there is a need in this country for low-cost money to give service at reasonable rates? Do you believe there are some areas where this is justified?

Mr. BOULDIN. I am convinced there must be some, from what I know; yes, sir.

Mr. Poage. Thank you, Mr. Redlin.
Thank you, Mr. Bouldin.
Mr. Bouldin. Thank you, Mr. Chairman.

Mr. Poace. I had hoped we would be able to get to more witnesses, but it is 5 minutes to 5.

Mr. Hagen. Mr. Horton is here from California. He has a brief statement. As a matter of fact, I was going to suggest to him he submit it for the record without reading it.

Mr. Poage. I think that would be a really good suggestion, if he carries it out.

I think we must suggest that we have just 5 minutes here.
Mr. HORTON. I would appreciate being heard, Mr. Chairman.

Mr. Poage. Mr. Hagen wants some of the time for questioning. He has read your statement.

How about you taking 3, and giving Mr. Hagen 2?
Mr. HORTON. I will do the best I can.
Mr. Poage. I will warn you at the end of 3 minutes.

STATEMENT OF JACK K. HORTON, PRESIDENT AND CHIEF EXECU

TIVE OFFICER, SOUTHERN CALIFORNIA EDISON CO.

Mr. Horton. My name is Jack K. Horton, president of Southern California Edison Co.

I won't try to repeat what is in my statement, and much of what has been said by the other witnesses here today, particularly in an effort to meet the latest restriction on time.

I do think that the proposed electric bank is a complete end run around the traditional congressional controls that arise out of annual appropriation review and authorization.

These bank bills would not only cost the Federal taxpayers hundreds of millions of dollars, but would reduce income to local taxing entities, including cities and schools, and reduce income tax payments to Federal and State Governments.

I submit that this committee, among other things, should require an independent accounting body to prepare a detailed accounting of the financial capability of each of the 1,000 REA electric borrowers to see if there is any need for this legislation.

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