Mr. HARRIS. The interest rate is fixed at 2 percent by law; right? The CHAIRMAN. That is right.

Now, then, do you want that law to continue as at present?

Mr. HARRIS. Let me say this: I think that you are embarked on a good mission to restructure the REA financing, but I do not think that you ought to rush to change the present law to get something that is worse.

The CHAIRMAN. Well, do you think that we ought to retain the present law?

Mr. HARRIS. I think that you need to retain it until you get a better one; yes, sir.

The CHAIRMAN. Then, you would be in favor of doing nothing? Mr. HARRIS. I would be in favor of your enacting the insured loan proposal which I would like to have an opportunity to develop further in further hearings.

The CHAIRMAN. You will have that opportunity when we hear that bill.

Mr. GOODLING. You are representing the Kentucky Utilities Co.? Mr. CLAPP. Mr. Stewart is representing that, if you wish to question him.

The CHAIRMAN. You can ask the representative of that company. Mr. GOODLING. Are you Mr. Stewart?

STATEMENT OF CLAY STEWART, VICE PRESIDENT, KENTUCKY UTILITIES CO., LEXINGTON, KY.

Mr. STEWART. I am vice president of the company.

Mr. GOODLING. Mr. Duncan gave some testimony that disturbed me. He spoke of the case of the Harvey Aluminum deal.

Mr. STEWART. Yes. I am familiar with that.

Mr. GOODLING. In his testimony he said a private utility had agreed to furnish to the Harvey Aluminum Corp. this electricity; is that right?

Mr. STEWART. That is the private utility, that agreed to serve the power to them, which I represent, and had the facilities to furnish it to the Harvey Aluminum Corp.

Mr. GOODLING. He also said that on December 30, 1965, the Administrator of REA announced that he had approved a new loan to Big Rivers of $54 million for the construction of an entirley new generating plant with a capacity of 300,000 kilowatts, and then he goes on to say that as presently administered, the REA has gone far beyond its original intent. Can you tell us why you were not given this contract and why the REA would advance this money to build a generating plant?

Mr. STEWART. Of course, I cannot say why the administrator did it. I can say, in my opinion-and I know this to be true-that we negotiated with the Harvey Aluminum Corp. for 2 years about a rate, and then the Harvey Aluminum Corp. shopped with the Owensboro Municipality Utility with reference to a rate, and then the Harvey

Aluminum Corp. went to the Big Rivers RECT and their distribution cooperative, the Green River, and eventually offered them a rate which they said was agreeable to them. And this $54 million loan, which is for an aluminum reduction plant, is to build a powerplant of 300,000 kilowatts which would serve the aluminum reduction plant; that is, the proposed aluminum plant of the Harvey Aluminum Corp. Harvey Aluminum retained in this contract the financing arrangement for this aluminum reduction plant to its sole discretion, that they should be principal criteria on which they would build this plant. Obviously, the interest rate on money is higher than it was at the time they worked on this contract. They have not started construction on this plant, and now have substituted another aluminum supplier or aluminum reduction plant; namely, the South Wire, of Charleston, Ga., who is to build a $90 million aluminum reduction plant and take up this load. Mr. GOODLING. Are the REA rates lower than the ones that you offered the aluminum company?

Mr. STEWART. The REA rates were lower, yes, sir; basically, without taking into consideration the cost of the money and taxes. If you would equate the cost of the money and the taxes, our rates would be lower.

Mr. GOODLING. I assume that the $54 million was a 2-percent loan? Mr. STEWART. It is a 2-percent loan; yes, sir.

Mr. GOODLING. Mr. Chairman, in 1936, while the original bill was under discussion, the late Speaker of the House, Mr. Sam Rayburn said this:

We are not in this bill 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.

I am afraid that Speaker Rayburn would have a rude awakening if he were back here today and knew what REA was doing.

That is all, Mr. Chairman.

The CHAIRMAN, Are there any further questions?

Mr. Brasco?

Mr. BRASCO. I wanted to ask a question of Mr. Harris.

Coming from a district that is only as rural as our few parks will allow us to be, I have never had the opportunity to see the REA in action. As I understand, the original intention of the bill was to supply electricity to areas of our country that did not have service. How much of that has been done to date?

Mr. HARRIS. From the previous testimony, and I will adopt that as a fact, electricity has now been taken to 98 percent of the farms and homes in the rural areas, and it is available to the other 2 percent if they want it.

Mr. BRASCO. In terms of area, how much of an area does your company serve?

Mr. HARRIS. We serve 30,000 square miles.

Mr. BRASCO. And you serve farmers?

Mr. HARRIS We serve 50 to 57 percent of the rural customers that are located within that 30,000 square miles.

Mr. BRASCO. And the REA serves the rest of the communities? Mr. HARRIS. The REA serves municipalities that go into the rural areas outside of their municipal boundaries, serving 8 percent, and the REA serves the rest.

Mr. BRASCO. If this entire operation were yours in terms of all of the REA installations and was converted to private power installations, would a company like yours be willing to come in and serve that entire area and supply electricity to anyone who needed?

Mr. HARRIS. Mr. Brasco, I might say that you are leading me into a very, very explosive controversial area.

Mr. BRASCO. I am not aware of that.

Mr. HARRIS. I want to qualify what I am going to say: We have no intention, as a power company, to force any rural electric cooperative out of business. I want that understood.

Mr. BRASCO. That is the thing that I am trying to find out. I do not know whether they should be in business and that is what I am trying to find out. The original intent was to supply a service that private power thought was not within economic bounds to supply at that time. That might have been so, being in the business, you would want to make money but at this stage of development of rural electrification, if it were turned over to you, would the private power companies, specifically in your area-that is, would your company be willing to supply all of the needs of the people in that area?

Mr. HARRIS. We are on record as such. For example, Mr. Brasco, I think that the direct answer to your inquiry is that 3 years ago when we were debating taxes in South Carolina, the power companies operating in South Carolina offered to acquire the properties of all of the cooperatives, to serve all of their customers, all of their areas, and to pay taxes on all of their properties.

Mr. BRASCO. Good.

Mr. HARRIS. We would be willing to do that.

Mr. BRASCO. Would the rates to the rural customers be greatly disproportionate to the rates that you would charge urban customers? Mr. HARRIS. They would be exactly the same.

Raleigh is the largest city that we serve, and the fellow who is the most remote customer on the rural lines would pay the same rate. Mr. BRASCO. You would go along without the 2-percent money? Mr. HARRIS. Oh, yes, that is true.

Mr. BRASCO. Thank you.

The CHAIRMAN. Our time has expired.

We appreciate very much your being here.

Mr. WAMPLER. Mr. Chairman, may I make an inquiry as to the program for the remainder of the week?

The CHAIRMAN. Tomorrow, we will have more questioning of the representatives of the Government and the representatives of the Rural Electrification Association.

On Friday, we will have an executive session.

Mr. CLAPP. I would like to point out that five of the gentlemen who are with us have not been able to have their papers heard.

The CHAIRMAN. They may submit their statements for the record and they will be made a part of the record.

Mr. STUCKEY. Mr. Chairman, if I may, I should like to request permission to insert into the record at this point a statement by Mr. E. M. Lindsey, president of the Colquitt County Rural Electric Co., of Moultrie, Ga.

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

STATEMENT OF E. M. LINDSEY, PRESIDENT, THE COLQUITT COUNTY RURAL ELECTRIC Co., MOULTRIE, GA.

Mr. LINDSEY. Mr. Chairman and gentlemen of the committee, my name is Ed Lindsey, president of the Colquitt County Rural Electric Co. serving seven counties in south central Georgia with rural electrification that has a membership of 17,000 consumers.

We have a deep concern about the future of our rural electric system for which we have worked and become dependent upon over the years. The growth in our area both in residential and rural industrial loads has made it necessary to rebuild a large segment of our system to provide dependable service to our members. During the next 10 years we will need funds equal to all allocations made to us by REA in the past 30 years in order to keep up with the growth in our section.

The board of directors and the membership is of the opinion that our cooperative is ready and should begin looking to other means of financing other than looking to Congress each year for allocations. The provisions of H.R. 1400 seem to be a practical approach to solving some of the financial problems we are now faced with.

Our major opponent of the financing plan, as you know, is the investor-owned utilities and in our State it is the Georgia Power Co. The power companies have been most critical of us getting 2-percent money then when we try to relieve the Government of this burden where possible the power company screams to high heaven.

The power company leads our good people to believe that the small co-ops will take over the power business if such a plan is put into effect. This is not too short of saying that the Babe Ruth League can compete and take over the major ball leagues.

It is necessary that we seek other means for capital for our continued progress, therefore, we earnestly solicit your support for H.R. 1400 which will help very much in relieving our present financial strain.

The CHAIRMAN. The committee stands in recess until 10 o'clock tomorrow morning.

(Whereupon, at 12:10 p.m., a recess was taken until 10 a.m., Thursday, April 13, 1967.)