requirements of electric power as cheaply as they have been purchasing and can continue to purchase such requirements from the investorowned suppliers. We believe it would cost the electric cooperatives in Indiana more to supply their own requirements of power than they are paying for such requirements at the present time, or may reasonably be expected to pay for such requirements in the future.

By way of brief illustration of this point, let me say that the Indianapolis Power & Light Co. has begun the installation at a site in southern Indiana, of 700 megawatts of generating capacity at an average cost of about $107 per kilowatt. Indiana Statewide Rural Electric Cooperative, Inc., is planning the installation in the same vicinity of about 200 megawatts of generating capacity, which, according to the best information we can obtain, will cost about $168 per kilowatt. The difference in such cost is attributable largely to the difference in size of the units being installed. And thus, without any consideration whatsoever of the transmission facilities which will be necessary to get the power from the cooperative generating plant to points where it can be distributed to rural customers, the cost of supplying such consumers from the co-op generating plant will be quite high as compared to our costs.

When we add to costs of generation, the cost of a high-voltage transmission system, the disparity between the cost to our company of delivering a kilowatt-hour of energy to a consumer and the cost to Indiana Statewide Rural Electric Cooperative of delivering the same amount of energy to a customer similarly situated, is beyond all reason. We think it is not surprising, therefore, that the Government was called upon to subsidize the Indiana Statewide Generation and Transmission System with a 2-percent loan.

It is our opinion that the load on the electric cooperative system is not large enough to justify installation of the larger and more economical units, nor as previously pointed out, is the load on their system apt to grow sufficiently to warrant the installation of such units, except for the increasing spilling out of urban dwellers, and industry, into rural areas. We do not question that that will happen, but we would point out that if the rural electric cooperatives insist on continuing to serve an increasing urban load, the purpose for which the rural electrification program was established by Congress will become increasingly subverted. The program will be used increasingly to finance electric service for a class of people for whom Congress never intended it to be used.

The great danger we see in establishment of the Federal electric bank is that rural electric cooperatives will be encouraged more than ever before to install unnecessary generating and transmission facilities. The granting of loans by the bank for the purpose of financing the new facilities will be entirely in the discretion of the governor of the bank. The restraining hand of Congress will not be felt in the granting of such loans as directly as it is now through the budget and appropriation procedure. We fear that the mounting pressures to borrow and build, from those who have in mind only their own selfish ends, will result in enormous investments in the wasteful duplication of facilities.

Under these circumstances, Mr. Chairman, we would venture the opinion that the likelihood of the proposed bank ever passing into pri

vate hands, as the proponents of the bills suggest, is extremely remote. The fact that the authors of the bills have drafted them so as to indefinitely continue the Federal subsidy is, in itself, an admission that they believe loans will continue to be made which are not economically sound. The fact that the proponents of the bills have felt it necessary to provide for payment by the Government of principal and interest on the bank's debentures, if bank earnings are not sufficient to retire the debt when due, is a further admission that the making of economically unsound loans is expected to continue for many, many years to come.

It is our opinion, Mr. Chairman, that establishment of the proposed bank would serve no useful purpose in Indiana. Establishment of the proposed bank would result in ever-increasing subversion of the purpose for which the REA program was instituted by Congress. It will not enable the rural electric cooperatives to render better or more economical service than they are now rendering.

Thank you.

Mr. POAGE. Thank you very much. Any questions?

Mr. GREIGG. Mr. Husted, I would like to ask you just one question. On page 4 you drew a comparison between the $107 and the $168 per kilowatt-hour by the co-op. What is the source of information you had at your disposal enabling you to draw that comparison?

Mr. HUSTED. We had our own budget figure, of course, on our construction costs, and then we had the size of the loan that has been applied for, that portion of it allocated to plant by REA.

Mr. GREIGG. You figure the $168, then, to be a fairly accurate figure. Mr. HUSTED. Well, that is an estimate, as accurate an estimate as we could make.

Mr. GREIGG. I was wondering on that, Mr. Chairman, if we couldn't ask Mr. Clapp to provide us with the figure that would be accurate.

Mr. POAGE. Yes. Mr. Clapp said he would answer any questions you send to him in writing, and if you submit it, he will answer it. Mr. GREIGG. Thank you very much.

Mr. POAGE. Now, I am going to call-I promised your witness would be next, Mr. Burton.

Mr. BURTON. Well, we are in no big hurry on that. I mean, if Mr. Duncan is first, take Mr. Duncan. I just want to make sure this man doesn't have to go back to Utah again without having testified.

Mr. POAGE. Well, in regular order, Mr. William A. Duncan, Kentucky Utilities Co., and I want to say that Mr. Stubblefield spoke to me about your appearance, Mr. Duncan. Mr. Stubblefield suffered a wrenched disk yesterday and had to go to the doctor and wasn't able to be here, but he did want to express his interest in your appearance. STATEMENT OF WILLIAM A. DUNCAN, PRESIDENT, KENTUCKY UTILITIES CO., INC., LEXINGTON, KY.; ACCOMPANIED BY HARRY BLANTON, VICE PRESIDENT, KENTUCKY UTILITIES CO., INC.

Mr. DUNCAN. Thank you, Mr. Chairman. I was sorry to hear of Congressman Stubblefield's misfortune and certainly hope he recovers

soon.

I also have with me Mr. Harry Blanton, a vice president of Kentucky Utilities Co. I am William A. Duncan, president of the Ken

tucky Utilities Co., an investor-owned electric utility that supplies electric energy in 75 of the 120 counties in Kentucky.

Mr. Chairman, I will attempt to be brief, skipping around in my prepared statement, which I hope will be accepted for filing.

Mr. POAGE. Thank you.

Mr. DUNCAN. My company has 24,400 stockholders, one-third of whom are Kentucky people. We service an estimated population in Kentucky of 600,000, including the urban area of Lexington, with a population of 150,000. The balance of the communities that Kentucky Utilities Co. serves are communities of 12,000 or less. Approximately three-quarters of these communities have a population of less than 500. Some 57 percent of the population supplied by Kentucky Utilities Co. is in towns of 5,000 or less.

My company was a pioneer in bringing electric service to rural areas, as we have built, since 1912, the rural distribution lines, wired homes and supplied the first electric service to approximately one-third of the 502 communities that we serve. In 1916, we connected the first farm to receive electric service in Kentucky. Today, roughly 23 percent of the 239,000 customers served by my company are rural customers.

Beginning in 1937, we supplied at wholesale the power requirements of 18 of the 26 distribution cooperatives in Kentucky on rates affording us substantially less than normal profit as a means of encouraging rural electrification.

At this point, I would merely emphasize that we are by no means a metropolitan company and have some knowledge of the problems associated with rural electrification, and I am certainly here today, not in opposition to rural electrification but am opposing the two bills that this committee now has under consideration.

Because of the tremendous push to build Rural Electrification Administration-financed generation and transmission cooperative systems, we now serve only one remaining distribution cooperative.

As of December 31, 1964, the cooperatives in Kentucky had longterm debt to the Federal Government of $161 million, and an additional $140 million in loans that have been approved and are yet to be advanced by the Administrator.

Contrast this if you will with the size of my own company that has total capitalization at December 31, 1965, of $181 million.

Here I would like to digress momentarily from my prepared statement and comment on what I understand Mr. Clapp said on July 7 about the co-ops only owning 1 percent of the capacity of the investor-owned facilities. This may be statistically correct, I don't know, on a national basis. But it certainly does not reflect the situation in Kentucky where the two G. & T. co-ops as of December 31, 1965, had in operation 351,000 kilowatts of capacity or almost 17 percent of that owned by the three investor-owned utilities in our State.

This 1965 ratio represents a fourfold increase in the ratio just 10 years ago. Thus, in granting G. & T. loans REA has obviously loaded some areas, and I am sure Kentucky is one of them, much more heavily than others.

The 1965 G. & T. capacity mentioned does not include additional capacity now authorized by REA, but not yet built, which by 1969 will increase G. & T. capacity in Kentucky some 143 percent over what it is now.

Unless the rural electric co-ops are to be encouraged to drastically step up their generation and transmission activity, such as they have done in Kentucky, the legislation to create a Federal bank for rural electric cooperatives is not needed.

Does Congress intend to continue to permit generation and transmission coopeatives to be constructed, such as Big Rivers, in Kentucky, to serve industrial loads of the magnitude of Harvey Aluminum Co.?

Let me tell you about Harvey Aluminum-Big Rivers' method of using the taxpayers' money to advance one industrial concern to an advantage over its competitors.

In 1961, it became known that Harvey Aluminum Co. through the means of a tax-free industrial revenue bond of $50 million floated by the town of Lewisport, Ky. (population 610), planned to construct an aluminum rolling mill which would require an unusually large supply of electric energy and high-capacity transmission facilities. My company had the only transmission facilities adequate to supply this load anywhere in the area. We negotiated diligently but unsuccessfully over an extended period of time in an effort to secure a contract with them. Then Harvey shopped with the city of Owensboro municipal utilities and those negotiations broke down. After 2 years time it was announced that Harvey had signed an electric power contract with Green River Rural Electric Cooperative (a distribution cooperative served by Big Rivers G. & T.).

It is obvious to all that Harvey found this arrangement to its liking an arrangement providing a plant without local taxes financed by the town of Lewisport, and with income tax-free and subsidized power supplied by cooperatives-for it immediately moved to enlarge upon its first plans.

Harvey now plans the construction of a reduction plant, which, it is reported, will also be financed with industrial revenue bonds and will require even greater quantities of electric energy.

On December 30, 1965, Administrator Clapp announced that he had approved a new loan to Big Rivers of $54 million for the construction of an entirely new generating plant, with a capacity of 300,000 kilowatts. It is estimated that Harvey Aluminum load will require 200,000 kilowatts of the capacity of this plant. Thus, in its present administration of the Rural Electrification Act, REA has already gone, in my opinion, far beyond its original intent—a subsidy to assist in meeting the power needs of America's farms--and has completely belied the solemn promise of Speaker Rayburn in 1936, when he said:

We are not in this bill

The REA Act-

intending to go out and compete with anybody. By this bill we hope to bring electricity to people who do not now have it. This bill was not written on the theory that we were going to punish anybody or parallel their lines or enter into competition with them.

The two bills presently before this committee will provide virtually unrestricted funds-free of all meaningful congressional controls and backed by the Federal Treasury-to create a program of income

tax-exempt, Government-sponsored power never before seen in this country.

In 1965 over 60 percent of all loans REA approved were to finance cooperative generation and transmission facilities.

Now let us move to another area in which REA, in our opinion, has deviated from the original intent of the REA Act. Until recently, the cooperatives in Kentucky have refrained from seeking to serve municipal loads. Now they have openly embarked on a program of taking from the private utilities municipal loads, served at wholesale. The city of Hnderson (population 17,000) has been a power customer of my company for 25 years. From time to time, as the city has grown, it has purchased from Kentucky Utility standby and reserve capacity to supplement its own generating facilities. On September 15, 1965, it was announced that Big Rivers RECC, the same generation and transmission cooperative which supplies the Harvey Aluminum industrial load just discussed, had entered into a power contract with the city of Henderson and the city immediately thereafter acted to terminate the contract under which my company presently supplies power to that city.

Kentucky Utilities Co. served the city of Paris, at retail, from 1923 to 1932. In 1932, the city installed generating facilities from which it presently supplies about three-fourths of the customers in that city. My company continued to supply the remaining one-fourth, about 700 consumers in Paris, a municipality with population of about 7,900.

It has been apparent for several years that the city's generating facilities at Paris would soon become inadequate and the city would need an additional source of power for the customers served by the city system. For several years, my company sought actively to enter into a power contract with Paris, in which attempt we found that we were in direct competition with another REA-financed G. & T. cooperative (East Kentucky RECC). On September 1, 1965, it was announced that Paris and East Kentucky RECC had entered into a contract for that cooperative to supply the power requirements of the city's municipal system in Paris.

I personally met with the REA Administrator in Washington to discuss the Paris and Henderson situations and Mr. Clapp stated that these generation and transmission cooperatives were only disposing of portions of what he chose to call their "surplus capacity" and, therefore, they were not in violation of the REA Act in making these types of contracts.

At the time of this discussion, his office was considering and shortly thereafter approved, the new $54 million loan application of Big Rivers RECC to give that cooperative an even more lavish "surplus with which to similarly compete with, and ultimately to take over the business of, the investor-owned, taxpaying utilities in the area. He also knew, full well, that the continuing needs of Paris for firm capacity cannot be met with so-called surplus capacity on the system of East Kentucky.

Does Congress, by this legislation, intend to further increase the power and authority of the REA Administrator by also making him Governor of the Federal electric bank, thereby giving him a second