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The CHAIRMAN. Do you want to ask him for those figures?

Mr. Olson. Yes, the allegation that the co-op is paying higher wholesale power cost rates and are beating their competition retailing the power needs answering.

The CHAIRMAN. Can you furnish the information to the Committee?

Mr. Lilly. Well, I quoted from REA Bulletin No. 111-2 which shows that in fiscal year ending June 1964 they paid 8.4 mills per kilowatt-hour and for the year ending June 1965 they paid 8.8 mills per kilowatt-hour. The other figure I have is the figure we received from the Air Force which said that their contract calls for 7.55 mills per kilowatt-hour.

The CHAIRMAN. How can they do that?
Mr. LILLY. I do not know, sir. We could not do it.
Mr. CALLAN. Do you have any generation in your company?
Mr. Lilly. Yes, we have.
Mr. CALLAN. Are you a subsidiary of the Southern?
Mr. Lilly. We are one of the operating companies of Southern.

Mr. Calean. The Southern Co. is a holding company that owns the Southern Electric Generating Co. Is that right?

Mr. Lilly. The Southern Electric Generating Co., as the name implies, is a generating company which is one-half owned by Georgia Power Co. and one-half owned by Alabama Power Co. The Southern Generating Power Co. is for Georgia and for Alabama.

Mr. CALLAN. How do you account for the fact that this company with gross revenues of $34,264,000 in 1964, paid no income tax?

Mr. Lilly. I am not familiar with the numbers that you are reciting, but I do know that the Southern Co. and my company, the one that I work for, pays a lot of income tax every year.

Mr. Calean. That is right. But the Southern Electric Generating Co., according to the figures I have here, paid no income, that is, no Federal income tax on $34,264,000 gross revenue.

Mr. LILLY. This affected the income tax paid by the Alabama and Georgia companies. This is just part of the company. They, certainly, paid large income taxes.

Mr. CALLAN. So, what you have here is that the Southern Co., through its generating company, has its own generating and transmission, does it not?

Mr. Lilly. They have their own generating plant; yes, sir.
Mr. CALLAN. And they do not pay any taxes?
Mr. LILLY. Yes, they do.

Mr. CALLAN. The Southern Electric Generating Co. does not pay any taxes, according to the figures I have.

Mr. Lilly. The Alabama and Georgia Power Cos. certainly do pay taxes for the business done by the generating company, which is a part of their cost of doing business.

Mr. CALLAN. In other words, they buy the power from the generating company?

Mr. Lilly. It is a part of their own company; yes, sir.

Mr. Callan. But they do not pay any taxes on this particular company.

Mr. LILLY. They pay taxes based on the profits they make and the cost of doing business.

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The CHAIRMAN. Let me interrupt here for 1 minute. Is it not a fact that you sell the current from the generating company at a loss?

Mr. LILLY. No, sir.

The CHAIRMAN. How do you operate it then and not pay any taxes? The power companies are complaining about the cooperatives not paying taxes. I have never heard of a case where a generating company sells current at a loss.

Mr. Lilly. They are not selling it at a loss.
The CHAIRMAN. They sell it to themselves?

Jr. Lilly. That is right. The Alabama Power Co.—and maybe I should not be testifying for somebody else, but I will explain it to this degree: The Alabama Power Co. and the Georgia Power Co. inrested in this company and located it near some coal fields in order to hare low generating costs, and they split these costs. The profits those two companies make are taxed by the regular income tax.

The CHAIRMAX. They do not make any profit.

Jr. Callan said they did not pay any tax. They are generating all of the electricity and operating the company and selling it to you at a low rate, and they pay no tax.

Mr. LILLY. The Federal income tax is paid on all of the profits of those two companies.

The CHAIRMAX. How about the generating company that he is talking about?

Mr. Lilly. That is part of those two companies that is wholly owned by those two companies.

The CHAIRMAN. And they pay no taxes?
Mr. LILLY. There is no evasion of tax there,

The CHAIRMAN. I am not asking about evasion. He said that you did not pay any tax.

Mr. Lilly. It sells at cost to Alabama and Georgia.
The CHAIRMAN. That is right. So that they make no profit.

Mr. Lilly. This is right; but this increases the profit at this low cost to Alabama and Georgia, so that they pay the tax. That is not comparable to the generation and transmission cooperatives at all.

The CHAIRMAN. It is a cooperative, is it not, a partnership?
Mr. LILLY. Yes.

The CHAIRMAX. You said that two companies own it. They pay no taxes.

Mr. Lilly. One company owns the powerplant. That does not make it a cooperative. The powerplant does not pay any taxes.

The CHAIRMAX. Suppose that 200 owned it?
Mr. Lilly. It is a partnership. They are buying the power at cost.

Mr. CALLAN. It appears to me that we have the same thing here that you have in a cooperative.

Mr. Lilly. I do not agree.
Mr. Callan. You do not pay any taxes.
Mr. Lilly. I do not agree.
The CHAIRMAN. Mr. Teague?

Mr. TEAGUE of California. As I understand it, those figures, Mr. Callan, that you quoted, were they gross rather than net?

Mr. CALLAN. They are gross revenue, 100 percent.
Here is another company.

Mr. TEAGUE of California. I want to know what these are.

Mr. Calean. They are gross income of $34 million, and net income before income taxes $3,922,000, Federal income tax paid zero.

The CHAIRMAN. Thank you very much.
(The following letter was later submitted to the committee :)


Birmingham, Ala., June 28, 1966. Hon. HAROLD D. COOLEY, Chairman, Committee on Agriculture, U.S. House of Representatives, Washington, D.C.

DEAR MR. COOLEY: This letter is written for the purpose of submitting to your Committee certain facts concerning the Southern Electric Generating Company (SEGCO), a corporation whose entire outstanding capital stock is owned fifty percent each by Alabama Power Company and Georgia Power Company.

For the reasons stated below, we respectfully request that this letter be made a part of the record of hearings on H.R. 14837 and related bills concerning REA financing

In the recent course of such hearings, Representative Callan addressed several questions, and made several assertions, to Mr. C. A. Lilly, President of Gulf Power Company, concerning the nature of SEGCO and stated that SEGCO paid no federal income tax during its first five years of operation. Later, at the close of testimony of Mr. A. J. Watson, President of Mississippi Power Company, Representative Callan submitted for the record a statement in which he char. acterized SEGCO as a "cooperative venture.”

These actions occurred after our appearances before your Committee had been completed. As vice presidents of Southern Electric Generating Company, we wish to clarify certain misconceptions that Representative Callan's questions, assertions and statement may have introduced in to the record.

The business of Southern Electric Generating Company is limited to the generation of electricity all of which is sold to Alabama Power Company and Georgia Power Company under contracts which provide to SEGCO a return on its investment. As required by law, these contracts have been approved by the Federal Power Commission.

Southern Electric Generating Company was organized under the laws of Alabama as a separate corporation and is a public utility company with all the responsibilities of such a company. It is a taxable business corporation which files its federal income tax return as part of the consolidated return of the members of The Southern Company affiliated group.

During SEGCO's construction period, it incurred a large amount of tax deductible expenses such as interest during construction and payroll and other taxes during construction, all of which gave rise to large federal income tax net operating losses because SEGCO had no revenues during this period. Under the Internal Revenue Code of 1954, such losses may be carried forward by corporations generally for five years. These loss carryovers (as well as the current expenses of each carryover year) exceeded SEGCO's earnings, computed on a separate corporation income tax return basis, throughout the years in question. During these years the affiliated group of companies paid very large amounts of income tax on their "consolidated taxable income,” as provided for in Sections 1501-1504 of the Internal Revenue Code of 1954, and SEGCO's earnings contributed to such income.

During the year 1965 alone federal income tax payments amounted to $15,373,359 for Alabama Power Company and $16,912,953 for Georgia Power Company. These figures included taxes on the earnings of SEGCO. For the fiveyear period mentioned in Mr. Callan's statement, these payments amounted to $79,631,789 for Alabama Power Company and $79,868,491 for Georgia Power Company.

Securities and Exchange Commission Rule 45(b) (6) (i) provides that a member of an affiliated group filing a consolidated return shall not actually pay or contribute in payment of the tax due from the group any more federal income tax than such member would have had to pay had it filed a separate federal income tax return. In accordance with this SEC rule, no federal income tax expense was allocated to SEGCO during the period in question. We emphasize, however, that this does not mean that no federal income tax is paid on the income earned by SEGCO. The tax on such income is required to be paid by Alabama Power Company and by Georgia Power Company in accordance with a ruling of the Securities and Exchange Commission, File No. 70–3933, dated March 2, 1961, which has its basis in Rule 45(b) (6) (i) and the Public Utility Holding Company Act of 1935.

Any inference that SEGCO is in substance a "cooperative" is incorrect in law and in substance. SEGCO is entitled to, and does, earn income from its operations under contracts which have been approved by the Federal Power Commission, and it has been and is now subject to income tar determined in the same manner as are taxes on other inrestor-owned public utility corporations.

The fact that SEGCO is a separate corporation, rather than merely a steam electric generating plant owned as a part of the properties of one or the other of the operating companies, saves The Southern Company group not one single dime in federal income tax. Unlike the cooperatives which have no federal income tax responsibility, these companies and SEGCO carry their full responsibility for the payment of taxes at all levels of government.

As was brought out by many witnesses at the hearings, deferred taxes are neither a subsidy nor an interest-free loan. SEGCO's deferred taxes were of the same nature as those of other business corporations. Yours very truly,


Vice President. EDWIN J. HATCH,

Vice President. The CHAIRMAN. The Chair will now recognize Mr. Morrison.

Mr. MORRISON. Mr. Chairman and members of the committee, the next two gentlemen who will appear as witnesses are Mr. Charles E. Roemer, chairman of the board of Louisiana Electric Cooperative, Inc., and Mr. Mark Bonner, Jr., general manager of the Association of Louisiana Electric Cooperatives, Inc.

The CHAIRMAN. We will hear them now.



Mr. ROEMER. Mr. Chairman and members of the committee, my name is Charles E. Roemer II, board chairman, Louisiana Electric Cooperative, Inc., a G. & T. federation of 12 distribution cooperatives. First and foremost, I am a farmer who should be at home in the fields poisoning cotton. However, like the vast majority of our memberelected and nonpaid board directors, I strongly feel my responsibilities as president of my local Bossier Rural Electric Cooperative and as chairman of our G. & T. We in Louisiana fear for the future of rural electrification, a self-help and self-paying program that has meant so much to the economy of our State and Nation-to all Americans. Fear for the future of our electric cooperatives is why I have donated and devoted so much of my time to our G. & T. effort; and, it is the reason why I am here in Washington today as a nonsalaried spokesman for our cooperatives.

Sirs, let there be no mistake of identity. I am a fairly large property owner, a taxpayer and believe in our free and competitive private enterprise system to the very bottom of my heart

. Note, I stressed "free" and "competitive" for I just as strongly believe that unbridled monopoly, such as the Louisiana-based power companies are practicing, is a cancer to free enterprise.

With me is Mr. Mark H. Bonner, Jr., general manager, Association of Louisiana Electric Cooperatives, Inc., an award-winning country newspaper editor until he joined our staff some years ago. Although he has been painted as everything from a Socialist to unAmerican because he has had the audacity to oppose monopoly ambitions, I assure this committee that competitive, free enterprise has no more enthusastic champion.

On May 30, 1966, Mr. Bonner appeared before this committee with spokesmen for the National Rural Electric Cooperative Association. To save the valuable time of the committee, he agreed to file his statement for the record in lieu of oral testimony. Since then, Mr. Robert T. Person, president of both Edison Electric Institute and a Colorado

power company; Mr. Walter Bouldin, president, Alabama Power Co., and Mr. Jack K. Horton, president, Southern California Edison Co., apeared with many other power company officials in opposition to any bill that will establish a bank, and against any congressional action that will provide adequate loan funds, no matter the interest rate. It appears obvious that the companies are more interested in restrictions to cripple our growth and ability to stay in business than in saving taxpayers' money or solving the problems facing the rural electrics of the Nation.

These three gentlemen from Alabama, Colorado, and California all cited our $56.5 million REA loan for generation and transmission as typical of the alleged abuse of lending authority by the REA Administrator, a loan designed solely to duplicate company facilities and as a loan which will result in higher costs for our rural consumers. Doubtless, you will hear more of the same thing from the companies operating in Louisiana but controlled elsewhere, for they have been eramming the news media and airways in opposition to any type of Federal bank for rural electrification, also citing our G. & T. loan in identical terms, hinting darkly of illegal actions.

We wish here and now to emphasize that our G. & T. loan is both legal and feasible, that it is fully in accord with the laws of the Congress and committee directives. It seems that today, it is not nearly enough to prove feasibility and legality, but that REA loans must be proved and tried over and over again, before the public service commission, both State and Federal courts, before the congressional committees, the Comptroller General, and so forth, at enormous costs of money and time.

After reviewing the testimony of Mr. Person, Jr. Bouldin, and Mr. Horton, we felt we had no recourse but to request rebutal time. It is most unfortunate that the broad generalizations, dark insinuations and hints of illegality cannot be answered briefly. Answers call for detailed historic reviews and specific explanations; and, sometimes, defense of individual personalities, so far as our State is concerned. We have been faced with this burden at every hearing before the various committees, the companies appearing to be far more interested in a propaganda forum than in presenting factual information.

It is no puzzle that these gentlemen from Colorado, Alabama, and California profess to know more about our business in Louisiana than we do—know more than our public service commission, the courts, and the REA Administrator. Their real intent is to discredit the entire

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