matter was under consideration. That is why you cannot compare rates in the manner which you suggest. There are certain benefits to a community in owning its own electric system where it can get power from one of these great Federal systems, and you cannot resolve the problem of private vs. public power by saying the company in the area is willing to charge the same rate that the community would propose to charge.

Mr. JONES. But if they are doing that presently, before voting for an appropriation, as a minority Member of Congress sitting on this committee, where such a situation exists, and there is an excess of power at the plant not being sold, and the water is going down the river in that area where a private utility meets the competition substantially and has those taxes to pay, which Federal publicly owned power does not have to pay, of Federal taxes, State taxes, county taxes, and municipal franchise fees-and if they were eliminated in the rate structure the price would be lower-do you think any Federal power agency should go into that field presently and try to take the customers from that particular private utility?

Secretary KRUG. I feel that the distribution end of power should be in the hands of the local communities, either community, REA cooperatives, or power districts, and in each case the people should decide for themselves whether they want to have a public power system or to continue the private one. I think the Federal Government should stay out of that decision. But I should say, if I were a citizen of that community, the fact that the private company was serving at the same rates as proposed for public operation would not necessarily be controlling on whether I would vote for or against public

power.

Mr. JONES. I understand, but that is a different question from whether or not an agency of the Government should go in and take the customers before that decision was made by the people.

Secretary KRUG. That as I said, is what the community ought to decide. There are many considerations that enter into that other than just a rate comparison.

Mr. JONES. Assuming they have made a decision against it or, on the other hand, they have not made a decision-that is, before the public has made a decision-do you think it is fair for a Federal agency that does not have to pay Federal, State, and local taxes to come in and try to take the customers away from the private utility! Secretary KRUG. I do not think the Federal Government should try to serve the ultimate consumer at retail, but that does not apply to big industrial plants. In the interest of developing a region it may be desirable and necessary for the Government to sell a part of its power supply to industry. That is particularly true in the Northwest, which I think will enjoy great industrial development. In that region, the Government should not be stopped from selling part of its power supply to an industry that might seek to locate there.

Mr. JONES. Even though the private utility is presently serving them satisfactorily and there has been no decision by any PVC. public body, or cooperative to take public power, or to stop being a customer of the private utility?

Secretary KRUG. Well, it is not done quite that way, but this is the way I think it would be sound from every point of view: You ought

to establish rates in that area which are sound in terms of costs and will make a contribution to carrying the project. Power should be made available to REA cooperatives, to communities seeking to have their own power systems, and to industries and private utilities-in that order of preference-and if an industry elects to take power from the public system in that area, it should have the right to do so. By "industry," I mean those of substantial importance in the regional development.

EXTENT TO WHICH TAXES SHOULD BE CONSIDERED IN FIXING GOVERNMENT POWER RATES

Mr. JONES. Do you think the rate of the Federal agency should take into consideration an element for Federal, State, and local taxes, in order not to disturb or to disrupt private enterprise?

Secretary KRUG. On the question of Federal income taxes, my view is well known and I might as well restate it now. I look upon the Federal tax on income from any business as a charge by the Government on your right to make a profit out of that business. If the Government is engaged in these operations to make a profit, theoretically, it ought to pay an income tax on those profits; but if it is in operation on a nonprofit basis, being operated at cost, and it does not take a profit from the people, you should not add the Federal income tax to the ultimate expense.

That is your license fee to the Government for your right to make a profit out of the operation, and, if you do not make any profit out of the operation, you should not pay any tax.

So you are just chasing a bear by hanging onto its tail.

Mr. JONES. What about local taxes?

Secretary KRUG. I think they ought to be included.

Mr. JONES. And the franchise tax ought to be included in the rate? Secretary KRUG. A franchise tax for the purpose of taxing a corporation or individual's right to make a profit should be excluded.

Mr. JONES. How about similar operations in a State, say the gross revenue tax, which is an element the Federal Government does not have to pay?

Secretary KRUG. I think that should be included in the rate.

Mr. JONES. Both State and county taxes?

Secretary KRUG. An allowance for both.

Mr. JONES. Would you make the allowance as if the Government agency were a privately owned facility, as far as State and local taxes are concerned, on the basis of wealth?

Secretary KRUG. I think as nearly as possible the operation should include local and State taxes on the same basis that a private operation should pay.

You must remember on this question of the Federal income tax in States where there is a project like TVA, that there is a substantial amount of return which is easily equivalent to what the income taxes would be on an operation of that kind.

Mr. JONES. Thank you for giving me a clear statement of your position on that point. It has worried me personally for some time, and I just wondered from the standpoint of sound economy, if you were to eliminate the Federal tax item and eliminate ultimately the com

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pany, if the Government could not logically take that same attitude with every privately owned enterprise in which the Government attempted to go into business.

Secretary KRUG. I think you have to make a very definite distinction between a public utility and private enterprise. A utility might be privately owned, but it is a public enterprise. It has been so recognized in our law since this country was first formed.

The public interest in public services is recognized in the law of the land and you are not talking about a grocery store or a filling station when you are talking about a water utility or a power utility; you are talking about something that gets right down to the core of the people's very existence. Utilities are not private enterprises because there is no real competition between utilities. Utilities are usually given a franchise or a monopoly in an area and they are regulated by the Government. There is quite a difference between regulated public utilities and the concept of competition determining a fair price to the people.

Mr. JONES. But they are not unlike a private broadcasting station, for instance, which is given a monopoly in a town and has a license to broadcast over a certain kilocycle.

Secretary KRUG. They are unlike in some respects, although the broadcasting system is closely akin to the illustration I just gave. You can, if the broadcasting station gets unreasonable, put in another broadcasting station in the same town; or, if necessary, you can revoke its license, which has been done on occasion. But the utility which has millions of dollars invested in serving the people in a certain community has a complete monopoly of the business, which is the public's business, and the public has a real and definite interest in it as is recognized by the laws regulating utilities.

Mr. JONES. I believe that is all. Thank you very much.
Secretary KRUG. Thank you, Mr. Jones.

Mr. JENSEN. Mr. Secretary, I liked your statement very much today, and I liked the statement you made after you were sworn in last Monday. It was my privilege and pleasure to attend that ceremony. Secretary KRUG. Thank you, Mr. Jensen.

CONSTRUCTION OF TRANSMISSION LINES BY SOUTHWESTERN POWER

ADMINISTRATION

Mr. JENSEN. I have said that I favor tying in the existing power generating plants in the Southwestern Power Administration territory. I feel that may be the thing to do in order to get the full benefit of the power generated and to get full benefit of great sums of money expended. Just how far I would go on the transmission lines is yet a question in my mind. As Mr. Norrell said, I do favor the Federal Government building transmission lines to supply REA's and others with power if private utilities attempt to bottle up power as some have accused them of doing.

Now, you made a statement that you found some employees of the private utilities' word was not very good. I wonder

Secretary KRUG. May I correct myself if I said that. I did not mean their word is not good. I have dealt with them for a long time and I have found their integrity on all matters having to do with Government to be on a very high level. I am just saying their

opinion on the question of duplication has not been too reliable in the past. I do not say they are dishonest about it; I just think their judgment on the expansion of a region and the need of power facilities has been in error. You can see that error in the TVA area and in the Pacific Northwest.

Mr. JENSEN. But you will say, if they give you their word or sign a contract, they will live up to it?

Secretary KRUG. Yes, sir.

DISCUSSION OF CAPACITY OF FEDERAL PROJECTS TO PAY OUT

Mr. JENSEN. Now, there is one thing that disturbs me and I am sure it disturbs most of the members of this committee in the powerrate structures that are now in effect on many of these Governmentowned projects; is this: We have a law which provides that these projects shall be paid off in 50 years and the power rates shall be placed at such a point that they will pay off in 50 years. Now, the rates that are charged today were in effect, in most instances, many years ago before we spent a lot of millions of dollars in addition to what was originally spent on these projects. Since these projects were started the cost of operation, maintenance, and construction has increased somewhere between 40 and 60 percent, as has been testified to before this committee, and yet we find the Federal employees in charge of these Government power projects still contend that these original rates which were set away back 5, 6, 7, or 10 years ago will pay off these projects. However, now we hear them talk about 75 years' pay-off period.

This committee has the responsibility and duty to see that these projects are paid off according to the law and I am wondering what you, our new Secretary, Mr. Krug, think about it and what we or you should do about it.

Secretary KRUG. Mr. Jensen, I think I should point out, first, that the administrators of the public projects do not stand alone on the question you just raised. Private utilities as a class have not increased rates during the last 4 or 5 or 6 years and, so far as I know, they do not intend to do so.

Mr. JENSEN. Oh, yes; I understand that, Mr. Krug; but this committee have nothing to do with appropriating money from the taxpayers' pockets for private utility power projects.

Secretary KRUG. Right; although you will admit that their management is pretty sound and if they needed higher rates they would be asking for them.

Mr. JENSEN. Yes, of course; they employ sound business practices as all private industry must do to stay in business and pay enormous taxes, good wages, and so forth.

TREND OF POWER CONSUMPTION

Secretary KRUG. Second, the reason for that is not that those men are not unconscious about the change in the cost of service, but it is because another change has occurred which has, so far, more than kept abreast with the increased operating, maintenance, and labor cost. This change has been the tremendous increase in the sale of power.

(After discussion off the record:)

Secretary KRUG. I do know about the power situation in the coun try generally, and the increase in power sales has been so tremendous that the private and public power systems, for the most part, have been able to take care of all of the increased costs and still make more money than they ever made. That is true generally in the country. Mr. JENSEN. That is very natural and true, because of the war and the great amount of electricity consumed.

Secretary KRUG. The strange thing is that even with the ending of the war the power business has not slid off as so many people thought it would, and the best prediction now is that for the current year the level of sales will equal the last war-year-an amazing thing, but quite so. And had it not been for the strikes coming into the picture. it would have been true with a margin over and above the last war

year.

Mr. JENSEN. According to the administrators of these power proj ects, that has not held true, as I remember the testimony. At Bonneville, as I remember, at the present time the consumption is only about 60 percent as compared with consumption during the last war year. Secretary KRUG. That is quite possible in Bonneville. It has relatively more war loads than the electric systems of the country generally; but even at Bonneville, where there is some reason to believe the volume would not promptly come back to the level during the war, it would be very unsound to take into account conditions for a period of 12 or 18 months in adjusting the rate, because you would kill the business and would not get as much revenue as if you were to stick with the basic proposition that you can sell a good percentage of the power. And that is the level you are aiming for.

Mr. JENSEN. There are so many concerns and companies mostly from the east going down to the Southwestern Power to learn their rates, and so forth, and other conditions there, no doubt the same people are calling at Bonneville, Central Valley, Tennessee Valley, and Boulder Dam, to ascertain where they can get the best deal. And I am wondering if they are not planning and expecting too great a consumption of power; those companies I refer to cannot all build plants in each one of these Government power-project districts. So. am afraid their figures are not going to come out as they have planned. Cannot you see a little danger in that respect?

Secretary KRUG. Yes; I can. You are talking down my alley. I spent a number of years as a power planning engineer, and it was my job to estimate the power consumption.

Mr. JENSEN.. I know you did, Mr. Krug, and I am glad you have that knowledge; because certainly it is going to be very valuable in the position you now hold, so, when we talk to you, we know we are talking to a fellow who knows the power game.

Secretary KRUG. Thank you.

Mr. JENSEN. And do not you think there is danger that all of these different sections of the country where we are generating Federal power now may be expecting a power consumption that will not materialize?

Secretary KRUG. The estimate of power demands is by no means easy and I do not profess to be able to do it with any 100 percent accuracy. However, I must say I am definitely bullish on the demands in this country for electric power.