like an 8 percent differential where the private power company furnishes electricity, in this instance, 8 percent higher than the consumer price, so far as the REA is concerned in its production and where private power is produced.

Mr. HARRIS. The best way to answer your question is to cite our own territory, where we give each of our cooperative customers-we are talking about a 7.5-mill rate, the same on both sides, on both sides of the transformer.

Mr. PURCELL. Thank you, Mr. Chairman.

The CHAIRMAN. I would like to pursue that just a little bit further. I think Mr. Purcell made an excellent point in comparing the cooperatives in his district, all of which have contracts with Brazos Electric Cooperative and the cooperative in Mr. Price's district which adjoins Mr. Purcell's district, none of which have such a cooperative generating system.

I believe these figures show that the cooperatives in Mr. Price's district charge their customers an average of 3.3 cents per kilowatt hour, and in addition to that, they have an investment of $5,612,705 in transmission lines and substations to bring the power to their system, while in Mr. Purcell's district, the six cooperatives, all of which are members of the Brazos Generating Cooperative have an average charge to the customer of 2.58 cents, and none of the local cooperators pay one dime for transmission or substation cost. The Brazos gets the power to the local systems as a part of the cost of the supply.

I hope these figures make it clear as to the difference that was described yesterday between the charge that the power company made to the Brazos Cooperative and the charge that Brazos Cooperative made to the member cooperatives. It seems to me clear that the proof of the pudding is in the eating thereof, and the test of a good power contract is what the consumer gets out of it. And the consumer gets a rate of seven-tenths of a cent or seven mills cheaper where the local cooperatives are members of the Brazos Generating Cooperative than they get in the adjoining district which actually has cheaper fuel but where the cooperatives buy their power directly from the private power companies.

You talked about fuel costs, which I recognize are important. I do not think that you can find any cheaper gas in the United States than you will find in the 18th District of Texas, which is the Panhandle. That district has the cheapest fuel cost, but without any cooperative generation, there was seven-tenths of a cent more charged to every customer for every kilowatt hour that they purchased. I think that is your real test.

I understand that you are inserting this in the record, Mr. Purcell? Mr. PURCELL. I did not ask for that, but I will do so now.

The CHAIRMAN. I will be glad to have you do it. I think it should be inserted in the record.

There is a comparison of the two districts in this.

Mr. PURCELL. I ask permission to have that done.

The CHAIRMAN. Without objection it will be made a part of the record at this point.

(The tabulations referred to follow :)

Texas Electric Service Co.-Comparison of Tesco, T.P. & L. Co. and WTU Co. billing to member co-ops of Brazos with billing on Brazos rate (based on year 1966)

NOTE. The kilowatt-hours sold by Tesco, T. P. & L. Co. and WTU Co. to each of the above member coops during the year ended June 30, 1965, represented the following percentage of all kilowatt-hours billed each such cooperative during said period:

Source: Percentages calculated from kilowatt-hours sales of Brazos shown in REA Bulletin 111-2 for fiscal year ended June 30, 1965.

1 Investment in transmission lines only; does not include substation costs. 2 Average annual revenue per farm and nonfarm residential consumer.

1 Investment in transmission lines only; does not include substation costs.

2 Average annual revenue per farm and nonfarm residential consumer.

3 Total investment in transformer lines and substations, $5,612,705; in substations, $2,913,705; capacity of substations, 194,225 kv.-a.

4 Average cost to consumer.

The CHAIRMAN. Thank you very much.

Mr. Abernethy?

Mr. ABERNETHY. Is there no regulatory agency in Texas?

Mr. PURCELL. There is not, to answer your question. There is not any regulatory body that has jurisdiction over rates in Texas. Mr. ABERNETHY. It seems to me that you should have one. The CHAIRMAN. May I comment there?

Mr. ABERNETHY. I am talking to him.

The CHAIRMAN. I believe you find that our rates in Texas without any regulatory body are cheaper than your rates are, with a regulatory body.

Mr. ABERNETHY. You have no regulatory commission?

The CHAIRMAN. No, but our power companies react to lower co-op rates. When the Brazos Electric Cooperative came into being, the companies were all charging 15 mills, wholesale. As soon as the Brazos was organized they immediately cut their rates and they did it without any commission. I just think that competition is about the best regulatory body.

Mr. ABERNETHY. I think it is well known that where you have utilities that they have more or less a monopoly, and necessarily so, like the transit system here in Washington. Any other private power concern is usually a monopoly system which I think it is sound to have State regulation, and I am amazed that the great Stat

does not have such a commission.

The CHAIRMAN. We think we are
Mr. ABERNETHY. You may be, b

day.

The CHAIRMAN. But you will
Mr. ABERNETHY. I am goin

The CHAIRMAN. What statement?

Mr. ABERNETHY. That the power people out there were charging this exorbitant rate, and I think that if you had had a regulatory agency they would have cut the rate in two.

The CHAIRMAN. They might have in 1936, but I imagine that the rates were high then.

Mr. ABERNETHY. Everything was higher.

The CHAIRMAN. You have a regulatory agency.

Mr. BELCHER. If you will yield?

The CHAIRMAN. Yes.

Mr. BELCHER. How do you operate in a city like Houston?

Do they have a franchise?

The CHAIRMAN. Yes, the city regulates the rates.

Mr. BELCHER. You do have regulation then?

The CHAIRMAN. In any municipal area.

Mr. BELCHER. You do have regulation there then?

The CHAIRMAN. Within the city, yes.

Mr. BELCHER. But you do not have it statewide?

The CHAIRMAN. That is right.

Mr. BELCHER. You do not have a State regulatory commission but you have one in the city?

The CHAIRMAN. As long as our rates compare favorable with those of the regulatory States, we feel that we are doing all right.

Mr. BELCHER. It is the Federal Government that is doing that. The CHAIRMAN. Doing what?

Mr. BELCHER. Doing this Texas does not have to do it. It is the Federal Government that is doing it.

The CHAIRMAN. The Federal Government is on one side of the State line the same as it is on the other.

Mr. GOODLING. I pointed out to this committee yesterday that I have an REA in my area and it is not a factor in rates.

In the last 2 or 3 years, two or three privately owned utilities have lowered the rates of their own violition, and before doing that they had to get permission from our public utilities commission.

I want the record to show that the REA in my area is not responsible for lowering rates.

(Discussion was had off the record.)

The CHAIRMAN. Of course, I know that rural electric cooperatives are not always a factor in the rates. Where you have State regulation you cannot cut back the rates yourself, and your co-op could not be a factor.

Mr. PURCELL. I do not suppose that I will ever get the last word, but I want to show that I have knowledge that might add to the confusion of some of our colleagues.

There are cities today which have the opportunity for the users to buy from two electric companies. Sometimes it is a municipal system and a private system. And that is why it is that competition has limited so many abuses that you would otherwise have. We are a long ways from accepting regulation.

The CHAIRMAN. Mr. Miller?

Mr. MILLER. I would like to ask a few questions.

You stated yesterday that the Texas Electric Service Corp., served the cooperatives in Texas. Am I correct on that?

The CHAIRMAN. Yes, sir; some of the cooperatives, yes, sir.

Mr. MILLER. The statement was made that at that time the rate was 15 mills and that the rate dropped to 8 mills per kilowatt hour after the electric cooperative generating plant was started in Texas. But the cooperative at that time was financed by 2-percent money, wasn't it? The CHAIRMAN. Yes, sir.

Mr. MILLER. Then, when we speak of a drop from what was paid the public utilities to what was paid the cooperative, there would be some loss in revenue in taxes to the Federal Government, and there would also be some loss because of the 2-percent money which went into this. So, we would have to figure a part of the 7-mill drop a loss to the Federal Government; is that correct? The rate would be less going from the public utility to the cooperative, because the Federal Government was involved in this transaction?

The CHAIRMAN. I would say, of course, everything that the Federal Government does to assist construction or the operation of any local enterprise tends to be an assistance, and that, of course, is a factor in their cost. The housing construction, taking place all over this country has been pretty largely as a result of Fannie Mae and the Government guarantee of these loans. And I think that it has had a great deal to do with this construction. I think you can say that Government help-there is no question about it-does enter into hundreds of our activities. I think that the building of highways is in the same situation. I think that the Government has paid a larger part of that construction. There is not any question about that, and it has helped a great many people.

Mr. MILLER. My question was that part of the 7 mills could be attributed to the fact the Government was involved with the 2-percent money and that the generating plant would not be paying taxes to the Federal Government.

The CHAIRMAN. Let me get this straight.

No generating plant that I know of pays taxes to the Federal Government.

They do pay local taxes. They do pay ad valorem taxes. They pay at the same rate as private utilities pay, but these taxes do not go to the Federal Government. The ad valorem tax goes to the State and to the local governments.

The co-op-owned generating plant pays exactly the same kind of taxes to the State and to the local government units that the utilityowned plant pays on the same investment.

Mr. MILLER. Corporation taxes?

The CHAIRMAN. State corporation taxes?
Mr. MILLER. To the Federal Government?

The CHAIRMAN. Not to the Federal Government. You asked as to the plant-the real estate-not as to income.

On the plant, taxes are the same. It happens that the Brazos Electric Cooperative pays certain Federal incomes taxes, too; that is, it pays Federal taxes on all business done with nonmembers.

As to the 2-percent money, they have that, of course.
Mr. MILLER. This would be the only part that would help.