The production of coal in the Matanuska Valley of Alaska provides a payroll of $1 million annually to the coal miners and their families. An additional $1 million is spent by the operators in the normal conduct of their business for services and supplies.

The decision to convert these bases under question means that this payroll and these purchases will be stopped. We have not heard any discussion on what will take their place. We have not seen any proposals as to what will fill the vacuum created by what is to us a harsh and arbitrary decision.

Nor are we aware of any plans to provide alterate sources of employment for the coal miners who will be displaced.

But there should be. All of these factors should be taken into consideration. In a very real and immediate sense, the loss of such jobs represents a price that will have to be paid for the use of natural gas by the military at Elmendorf and Fort Richardson. Perhaps if such costs were considered, the decision which has been made would be reversed and coal would be retained.

We note with interest that the Department of Defense did go so far as to ascertain the cost of unemployment compensation, which would be incurred in the event that the conversion were made. This cost has been set by the Department of Labor at $215,000. We wonder if this has been figured into the cost of conversions and what effect it has had upon the economics of the situation.

More importantly, what happens to the people when the unemployment insurance runs out? What happens when their families and children have to endure all the rigors of poverty and all of the hopelessness of destitution because the breadwinner cannot secure a job?

We have seen situations like this all across the coalfields of this Nation. We have seen long-term unemployment and the misery that it brings. And we say to you today in the strongest possible terms that it should not be allowed to happen. We further contend that every possible resource of the Federal Government, as well as the concerted action of every person in this Nation, should be used to prevent it where possible and wipe away its stain where it exists.

It seems that we as a nation face a question of policy with respect to the bases under question and to a greater extent, on the whole question of military uses of coal. That decision comes, in essence, to the question of jobs. For the continuation of the use of coal in these two installations, as well as other such bases, will mean a continuation of jobs for coal miners. It will mean that men can work at their trade and provide for their families. It will return money into the economy of coal areas and allow business establishments to grow and prosper. On the other hand, conversions throw men into idleness and place upon the taxpayers of the Nation the burden of caring for them and for their families.

There is also the question of the Alaskan Railroad. This railroad is a creature of the Government, having been built in the interest of national security and maintained in part by a Government subsidy. The economic viability of this railroad, however, is insured in large measure by the $750,000 per year derived from the transportation of coal to the military bases in question. We understand that the loss of this coal freight revenue would force the railroad to close its line to Palmer, thus dealing a serious blow to the valley's agricultural industry, which together with the coal industry almost totally supports the economy of Palmer and the Matanuska Valley.

The Matanuska Valley coal deposits have provided a reliable fuel supply to the heating plants at Elmendorf Air Force Base and Fort Richardson. These bases constitute about 90 percent of the coal market. If they are converted to gas, the Matanuska Valley coal industry will be lost.

It would seem, therefore, that the Government has a special responsibility to the Alaskan coal industry and the men who work in it. But, more importantly, the Government has a responsibility to use its full resources to provide jobs for Americans who want them and to promote the stability of essential American industries. Apparently the policy of the administration is to do just that-wipe away the pockets of poverty in our land.

For these reasons, we strongly urge that the decision to convert Elmendorf Air Force Base and Fort Richardson to gas be reversed and that the use of coal be retained at these installations.

Senator BYRD. Thank you, Mr. Mark.

Senator Cannon, do you have any questions?

Senator CANNON. No questions.

Senator BYRD. Senator Inouye, any questions?

Senator Yarborough, any questions?

All right, thank you, Mr. Mark, for your presentation of Mr. Boyle's statement. It is a good statement.

Mr. MARK. Thank you for the opportunity of appearing, Mr. Chair

man.

Senator BYRD. It is very helpful.

The next witness is Mr. Mason La Zelle, general manager, Matanuska Electric Association, Inc., Palmer, Alaska.

STATEMENT OF MASON LA ZELLE, GENERAL MANAGER, MATANUSKA ELECTRIC ASSOCIATION, INC., PALMER, ALASKA

Mr. LA ZELLE. Thank you, Mr. Chairman.

Senator BYRD. Mr. La Zelle, do you have a prepared statement? Mr. LA ZELLE. Mr. Chairman, my statement was referred to by Representative Rivers, and I thought that if there are any questions that the committee might have that I could answer from the standpoint of being a lifelong resident of Alaska and being very well aware of the background of this situation, I would be very happy to answer them.

Senator BYRD. Do you have copies of the statement which was presented to Representatives River on your behalf?

Mr. LA ZELLE. I do have some copies here.

Senator BYRD. Without objection the statement by Mr. La Zelle will be included in the record as requested by Representative Rivers. Copies will be distributed to the members sitting, and if any members wish to ask Mr. La Zelle any questions they may do so.

(The statement referred to follows:)

To properly analyze the impact of the loss of the coal industry of the Matanuska Valley upon Mantanuska Electric Association (hereinafter referred to as "MEA"), consideration should be given to the relative position which MEA occupies in the area, economically speaking. MEA distributes electricity within two boroughs, the Greater Anchorage Borough and the Matanuska-Susitna Borough. The following figures represent the basic apportionment in each area: Total membership MEA....

Membership residing Greater Anchorage Borough
Percent of total__.

Membership residing Matanuska-Susitna Borough.

Percent of total----

Total revenue___.

Revenue from Greater Anchorage Borough.

Revenue from Matanuska-Susitna Borough.

2,828

955

33.8

1, 873 66.2

$1, 107, 266. 44 $318, 264. 01 28.7

Percent of total_____.

Percent of total___

$789, 002. 43 71.3

That part of the Matanuska Electric Association service area which is within the confines of the Greater Anchorage Borough is largely a bedroom community adjacent to Anchorage.

MEA provides the only central station service within the confines of the Matanuska-Susitna Borough. While the borough covers an area of 23,000 square miles, the population was only 5,675 as of July 1, 1963, the latest figures available. The only industry within the MEA service area lies within the Matanuska-Susitna Borough. This industry primarily consists of agriculture and coal mining. Some effort is being made to harvest the tremendous stands of timber within the borough, but financial problems continue to plague these efforts and to date they have not been successful except on a very small scale. The growth rate, populationwise, of the Matanuska-Susitna Borough from April 1, 1960, until July 1, 1963, was 9.4 percent or a total of 487. The birth rate

was 483, which indicates that migration in and out of the borough almost exactly balanced during the period. This indicates that there is a lack of economic advancement in the borough which can support an adult population increase.

The borough system, which came into being on January 1, 1964, has not yet progressed to the point where it can effectively promote new industry. The same applies to the State government, although definite progress is being made at the State level.

Of the two basic industries within the Matanuska-Susitna Borough, agriculture in 1963 sold $2,852,000 worth of products, and, of this total, the dairy industry alone accounted for $1,798,000. Some 70 farms account for the above totals, 40 of these being dairy farms, and a relatively large part of the remainder producing feed for the dairy program. Vegetable production is in its infancy and no processing plant yet exists. The agricultural community was established by the Federal Government in 1935, through transplanting of farmers from depressed farm areas in the South 48. Seventy percent of State agricultural output is in the Matanuska-Susitna Borough. The slow rate of growth of agriculture provides some criteria by which to judge the magnitude of the problems which face anyone who attempts to establish basic industry in Alaska. These include, but are not limited to, the high cost of financing and the relatively high cost of development. A fact which illustrates this problem is that MEA has 543 idle services, representing an investmentof $1,700,000, a large proportion of which are deserted homesteads.

The second basic industry in the Matanuska-Susitna Borough is the coal mining. In 1964 this industry produced revenues of $2,155,265, of which $1,028,356.57 was in direct wages. The mining in the Matanuska coalfields has been proceeding since 1923, being the oldest industry in the area. Gold mines, which in the 1930's employed on the order of 900 men, have been long dormant due to the price of gold.

Both the basic industries are in trouble. The dairy industry faces competition from importers of milk who buy dump or surplus milk in the Northwest, in subsidized areas, ship it to Alaska in cooled containers, repasteurize it, and sell in direct competition with the grade A product being produced in Alaska. This problem is being attacked and we think that headway is being made in solving it.

The coal industry has two problems. The Anchorage area is one of the few places in the United States where the three fossil fuels, coal, oil, and natural gas, are all present in great quantity. The military fossil fuel market, for which contracts have never in the past been granted for more than 1 year, has now called for bids, on 20 days' notice, on a 5-year basis. The coal miners, engaged in the operational problem of changing from an essentially strip operation to an underground operation, do not have the necessary developmental drilling accomplished to establish costs for such a period. In addition, they have been faced with a competitive bid, in one instance, which has not been ascertained to be a fair bid, in that it appears not to take into consideration essential elements of debt service investment and new facilities required, operations, and maintenance costs, and a fair return.

The foregoing background information is presented to indicate some of the economic problems which exist within the Matanuska-Susitna area. This area produces over 70 percent of the revenue of the association. MEA serves the area over 700 miles of distribution and transmission line. About 17 percent of MEA revenues derive from the farm group, and associated service oriented organizations and members. On the order of 11 percent of MEA revenue derives from the coal industry, directly and indirectly. These figures reflect the direct employment in both industries, and that in associated service industries.

There are 80 employees in the coal industry, about 70 families with about 210 children. These people have been one of the more stable elements of the economy, and the families own their own homes, for the most part. They are also among the citizens who organized Matanuska Electric Association in 1941, with the farm group also heavily represented, and have provided a great part of the guidance and direction for the association in the ensuing years. MEA therefore has a dual obligation to the members who are in the coal industry, of aiding in the main. tenance of the industry as a source of jobs and economic wealth in the area. MEA is not a wealthy cooperative. The value of the utility plant is $6,550,531.28. Of this total the membership equity is $588,380.84, with patronage capital comprising $556,624.49 of this figure. Cash reserves are only $237,044.97, with

investments of $94,838.04. Of this latter figure $70,000 represents an amount loaned to a neighboring cooperative, Homer Electric Association, to aid it in its efforts to cope with problems raised by the great earthquake of March 27, 1964. In 1961 the Eskimo village of Unalakleet, on Norton Sound some 370 air miles west of the MEA headquarters at Palmer, requested aid in establishing temporary service, following the failure of a locally owned electric plant. This village is a native reserve and some 650 Eskimo people reside there. In December and January 1961-62, MEA shipped 24,000 pounds of material from Anchorage to Unilakleet, constructed a complete high-voltage distribution system, procured two generators, one already in the village and one from a cooperative at Kotzebue. On the order of $250,000 of MEA general funds were spent in approved construction at Unalakleet before the REA loan, which was in process in December of 1961, was approved. When it was approved, MEA was requested by the Administrator to assume the obligation of the loan, rather than the cooperative which had been formed by the Eskimo people. This was done, and an agreement was made between the two cooperatives that at such time as the Eskimo people and their cooperative reach the point where they are judged to be able to assume the responsibility for the loan, REA will transfer the obligation to them. To date MEA has been the agency by which $330,000 of REA loan funds have been allocated to the village, and has expended approximately $120,000 of its general funds, the total investment being $451,810.86. This is the first such development, to my knowledge, to be financed by REA through another cooperative remote from the development area. It is the only way in which many of the larger villages in Alaska will ever be able to receive the benefits of central-station service. It appears to MEA that this is development in the true rural concept for which the Rural Electrification Administration was initiated. The system is still being developed and it has not yet begun to break even financially, but we are determined that it shall succeed and that one day the Eskimo people will take over full authority and the obligation of repayment by themselves.

Over a period between 1958 and the present, MEA has expended over $100,000 in pursuing lower cost generation through the medium of a coal-fired minemouth powerplant. This approach was begun in cooperation with all the public power agencies in central Alaska. It has not to date been successful, primarily because of elements of conflict among some of the utilities in the Anchorage MEA is still hopeful that it may be possible to accomplish, since the feasibility has never been in doubt. The area problems noted above have to date ruled out REA participation, and private financing is under consideration, although best feasibility can be obtained through use of REA funds.

At the forthcoming annual membership meeting of MEA, the membership will be requested to change the bylaws of the association to permit participation by MEA in local nonprofit development corporations which are necessary to participate in the 502 program of the Small Business Administration. At this time it appears that such a change will probably be authorized, and it will provide a tool with which we hope development capital can be brought into the economy. There is an acute shortage of such local participation capital in the area, and it has effectively stifled participation in the program.

The foregoing statement indicates that Matanuska Electric Association has indeed assumed the full obligation of the REA concept of rural electrification as a central-station utility. It serves the small communities in its service area as well as the farmer, coal miner, and homesteader. The same coal miner who approved, at the MEA annual membership meeting, the extension of aid and assistance to the Eskimo of Unalakleet, and whose dollars have been loaned to a sister cooperative to help in recovery from the earthquake of last year, now finds his own job in jeopardy. If the military powerplants in the area convert to gas firing, the military may or may not realize a saving. The proof that the gas price offered is a fair offer, and that it will not be ordered raised by the Public Service Commission before the 5-year contract is fulfilled, has to date not been offered. The only certainty is that if the coal mines loses the military contract, which provides 85 percent of the present market, coal mining will cease to exist as a significant part of the economy of the area. The effect on the area economy, and on Matanuska Electric Association, of the loss of the coal dollar will almost certainly affect other service oriented industries and personnel among the MEA membership, and, in turn, this will affect our other basic industry, agriculture. The Matanuska-Susitna borough is not healthy economically at this time, and loss of a basic industry will have widespread repercussions.

Other Government loan programs and funding in the area will be adversely affected, as will the Alaska Railroad.

We do not need a little Appalachia in Alaska, but we are on the verge of developing one in an area which has for many years had the most stable economic base in western Alaska. Before the stone of fuel conversion is dropped into the economic pond, long-range study and a great deal of thought should be applied to determine all of the primary and side effects which will result from the ensuing ripples.

MATANUSKA ELECTRIC ASSOCIATION, INC.,
MASON LA ZELLE, General Manager.

Senator YARBOROUGH. Mr. La Zelle, how far are these coalfields from Fort Richardson and Elmendorf Airbase?

Mr. LA ZELLE. In line of actual rail miles I will have to rely on memory, and this would be about 50 miles.

Senator YARBOROUGH. How far away from the gasfields?

Mr. LA ZELLE. By gasline itself, my understanding is they are about 80 miles from Turnagain Arm.

Senator YARBOROUGH. Those are the only questions I have at this time, thank you.

Senator BYRD. Senator Cannon?

Senator CANNON. How do you receive your power? Do you have coal-fired power generation there?

Mr. LA ZELLE. We are a preference user of the only Bureau of Reclamation project in western Alaska, which is Eklutna, and the association has spent, over the last 5 years, something on the order of $120,000 trying to foster the formation of a generation transmission cooperative which plan was based on two coal-fired plants, one at Healy, which is north of this area, and one at Sutton, which is in the area we are talking about.

We have not been successful, primarily because of the differences of opinion in the area among the utilities involved.

However, the project itself is feasible and has always been feasible and our concern here, the only reason I mention this is because we are a small cooperative, and this represents a very considerable expenditure and it was undertaken both to procure as cheap power as we now have and to preserve our coal industry. We have seen this problem come up and we understand that the coal can best be competitive at the mine mouth and this was our solution in trying to help the thing out.

Senator CANNON. Right now, though, your power is
Mr. LA ZELLE. From the project.

Senator CANNON. Is it coal fired there?

Mr. LA ZELLE. This is a hydro project.

Senator CANNON. It is a hydro project there so if you do get a standby project or additional project you would use the coal from this locale, of these mines?

Mr. LA ZELLE. This was our intention. At the present time the only installation being installed in the Anchorage area is gas fuel.

Senator CANNON. If this conversion should be made, would this have a substantial effect on a lot of your customers, would you undoubtedly lose a lot of your customers in this area?

Mr. LA ZELLE. It would have an effect on our revenues by about 11 percent of our total revenues.