Mr. TEEL. I would refer back to the difference in military operating costs, if they burn coal as compared to gas. The military statement there says their savings available is a million and a half dollars, and my reference to subsidy would trace from that increased artificially high-operating costs to the military. Calling it another name. Senator BYRD. Who is going to pay the subsidy to the coal company to which you refer? You say if a subsidy to the coal company is to be considered, the best course would be special rail rates. Mr. TEEL. It is our feeling that the military should not be obliged to pay coal at this price, if natural gas is available at this much savings. Senator BYRD. All right. Mr. TEEL. And were the Jonesville mine to be closed down, it is well to keep in mind that one mine does not represent the entire coal industry in Alaska. The Jonesville operation is a strip mining operation employing approximately 70 workers including those engaged in loading and hauling coal. The workers themselves are not miners in the usual sense but are more on the order of dragline operators employed in a strip mine. The major part of the Alaska coal industry is found farther north where it is and will remain the basic fuel. It is also well to bear in mind that even before the advent of gas to the Anchorage area coal had lost most of its civilian market to oil shipped from the west coast of the continental United States. However, coal continued to serve the military bases and was apparently content in doing so. No cries of economic chaos were heard when Evan Jones Coal Co. converted from conventional to strip mining in the 1950's, and the process laid off great numbers of its employees. According to news reports of Evan Jones' management, during the early 1950's Evan Jones provided employment for about 250 people, but in recent years the company has become more mechanized and has gone into strip mining to remain competitive. It was during the Korean war that the fuel load built up at Fort Richardson and Elmendorf Air Force Base to increased volumes that have largely remained in effect through the succeeding years. Yet this coal company, becoming more efficient through mechanization and making savings by vastly reducing the number of its employees, did not make substantial reductions in prices charged its captive military market until natural gas was present in the early 1960's. Another allegation which has been leveled by Evan Jones is that the bid by Alaska Pipeline Co. of 29 cents per thousand cubic feet is below cost. For the record the company states unequivocally that, based on accepted FPC methods of cost allocation, Alaska Pipeline's contract price is not below cost of service and includes a reasonable rate of return. One does not borrow $16 million from three of the larger insurance companies in this country and expect them to stand by while the product is offered below cost. Further, if our contract price were below cost of service which it is not, the difference would come out of our shareholders' pockets since the contract price to the military cannot be changed without the agreement of both parties. In plain English the contract says that we cannot raise our price without the consent of the Government nor can the Government force us to lower our price without our consent. This language, I am read ing an insert, sir, this language was substituted by the military purchasing and contracting officer prior to the execution of the contract in order to remove the uncertainty of price which earlier references to regulatory action might have been claimed. Senator BYRD. Were you reading the exact language of the con tract? Mr. TEEL. I was not here, sir. We have it. Senator BYRD. Would you read it now? Do you have it with you? Don't bother at the moment but shortly. Mr. TEEL. Yes. It may be of interest to this committee that Anchorage Natural Gas Corp. has offered rates as low as 30 cents per M c.f. for similar serviceto generate electric power when utilized in volume comparable to that which will be used by the military. Finally, allegations have been made that conversion will cause a general increase by Alaska Railroad in freight rates to the military and to civilians from Seward to Fairbanks and would bring about abandonment of service to the Matanuska Valley. This argument, Mr. Chairman, has the cart squarely before the horse. The haulage loss to Alaska Railroad is estimated by the Defense Department at $500,000 per year in gross revenue. And it is also said that approximately 20 employees of the railroad would be affected. The contradictions which are sometimes posed when Government goes into business will have reached the absurd if the attraction of private industry to Alaska and the expansion of existing private industry is to be stymied due to a threat of higher rates from the Government-owed railroad. It is absurd and it also frustrates the reasonable expectations of Congress when statehood was granted. The purpose of the Alaska Railroad's operation by the Government is to benefit and develop the State, rather than to have operations of other enterprises in the State controlled for the benefit of the railroad. It has been alleged that the conversion will result in curtailment of service by the Alaska Railroad in the Matanuska Valley area. The only validity in this allegation would be the possible termination of service on the 20-mile spur to the Evan Jones coal mine, and not the Matanuska Valley as such, because the Alaska Railroad's main line to Fairbanks runs through the heart of the Matanuska Valley and would not be in any way affected by the conversion. Here again I would like to point to the map, with your permission. Here we have a map of Alaska with Anchorage located here, Palmer here, Jonesville and Fairbanks up there. Senator BYRD. At about what distance from Jonesville and Anchorage would you say? Mr. TEEL. I would say the railroad route is approximately 500 miles. The Alaska Railroad starts at Accord and Seward and runs through Anchorage and Palmer to Fairbanks. The railroad spur affected by the conversion is this spur right here. Mr. TEEL. From Palmer to Jonesville. Senator BYRD. The length is approximately what, sir? Mr. TEEL. Twenty miles. The development of liquid natural gas through rail transportation, on the other hand, could well be the turning point for the agricultural economy of the valley, as I outlined to the chamber of commerce of the city of Palmer a few weeks ago. Low-cost refrigeration of Matanuska Valley vegetables, fruits, and meats, which would be available as a byproduct of liquid natural gas, may well be the largest factor in achieving a revolution in the agricultural economy of the valley. It is of interest that just last week it has been announced that the Matanuska Valley dairymen's cooperative has recovered the contract to supply the Anchorage military bases, against competition from milk distributors outside Alaska. It is surely significant that the processing and production of milk products under this new contract will be done in Anchorage in a new million-dollar plant which is being fueled by natural gas-at real savings over earlier process operations. Obviously, although natural gas may cause some temporary dislocations of some of the few miners at Evan Jones coal mine, the benefits of gas already are contributing to the prosperity of the Matanuska Valley. These temporary dislocations are characteristic of industrial progress everywhere. But in Alaska there is a great demand for equipment operators and thus the miners, who have these skills in general, need not be unemployed for any length of time. In conclusion, Mr. Chairman, I would summarize my remarks as follows: 1. The request by the Department of Defense for conversion funds is the result of several years of study by the Government, and every opportunity has been taken to assure that the interests of all concerned-the Federal Government and the State of Alaska-are best served by conversion of the Anchorage military bases to natural gas. 2. Benefits to the Federal Government include the saving of more than $6 million on fuel purchases, the diversifying of fuel-using capability to include both oil and gas along with coal for future use, and the development of progressive new industry for Alaska, to reduce Alaska's dependence on Federal spending. 3. Benefits to the State of Alaska include an increase of royalty payments in excess of $500,000 for gas as compared to coal; stimulation of a new and progressive industry in Alaska which will permit civilian gas rate reductions; the investment of almost $1 million of additional private capital to extend gas service to the military bases; the investment of $12 million by the military bases for the conversion; and the prospect of future extensions of gas service to other areas along the rail belt, all of which will reduce the cost of living and doing business in Alaska. Opposition to the conversion has grossly exaggerated the negative aspect of the conversion. Benefits from progress made possible by the conversion far outweighs such negative aspects. The coal industry has had more than 30 years of uncontested markets to Alaska's military installations, and only one coal mine, employing 70 people, is affected by the conversion. Severe as it may sound, this coal company has failed to keep pace with the demands vital to growth in Alaska. 4. The military conversion is vital to the future of the natural gas industry in Alaska. Only with the additional volume and fuller utilization of its investment in Alaska can this new industry develop its rightful place in Alaska's economy. The military conversion is part of-and typical of the dynamic progress of new industry in Alaska. Mr. Chairman, I appreciate the opportunity to be heard by this committee. I earnestly hope that authorization for the conversion will be approved. The use of natural gas by the military is plain common sense. (The attachment referred to follows:) UNITED ASSOCIATION OF JOURNEYMEN AND APPRENTICES OF THE PLUMBING AND PIPE FITTING Mr. MELVIN F. EVANS, Washington, D.C., April 9, 1965. DEAR SIR AND BROTHER: This will acknowledge your recent communication in which you alert this office to the fact that the Anchorage Natural Gas Corp. are prepared to furnish natural gas to the powerplants at Elmendorf Air Force Base and at Fort Richardson when money for this purpose has been voted by the Congress. We completely agree with the thoughts expressed in your communication and would suggest that you keep us aware of events as they occur from time to time in this matter, and further call upon us for whatever aid and assistance we may be able to furnish in bringing about the use of gas at the above-mentioned military installations. With best wishes, I remain, PETER T. SCHOEMANN, General President. Senator BYRD. Thank you, Mr. Teel. Your statement certainly re flects a great deal of work and it is a good statement. I have just one question and then I will call on the other Senators. You do not question, I presume, the statement that has been made to the effect that the conversion from coal to gas at the bases in Alaska would constitute a 90-percent cut in the market for coal? Mr. TEEL. I question it to this degree, Mr. Chairman, in that it would be 90 percent of the output of that mine. Now, the major part of the coal industry is farther north. It is true it would be 90 percent of that mine's output. Senator BYRD. This question follows: By what percent of your present sales volume would the contract with the military increase? Mr. TEEL. It would be 100-percent increase. At the present volume. Senator BYRD. You mean a 100-percent increase for gas in that area? Mr. TEEL. Right. Senator BYRD. So on the one hand we have a nine-tenths reduction as far as one industry is concerned. Mr. TEEL. That is correct. Senator BYRD. On the other hand we have a doubling of production in connection with another industry. Mr. TEEL. It is not a 90-percent reduction of the coal industry. It is the 90 percent of one coal mine's output. Senator BYRD. I mean the coal industry in that area. Mr. TEEL. Yes, sir. Senator BYRD. Senator Bartlett? Senator BARTLETT. Thank you, Mr. Chairman. What is the relationship, if any, Mr. Teel, between the Alaska Pipeline Co. and Alaska Natural Gas Corp.? Mr. TEEL. Anchorage Gas Corp. is a wholly owned subsidiary of Alaska Pipeline Co. Senator BARTLETT. You said in your statement that Anchorage Natural Gas Corp. had offered rates as low as 30 cents for generation of electric power. Mr. TEEL. Yes, sir; we have offered it. We have not contracted yet. Senator BARTLETT. Has Alaska Natural Gas Corp. entered into negotiations with the military? Mr. TEEL. No, sir; they have not. Senator BARTLETT. You buy your gas from whom? Mr. TEEL. Alaska Pipeline Co. buys gas from a joint venture or joint operation of Union Oil Co. of California and Marathon Oil Co. Senator BARTLETT. Where is that gas purchased? Mr. TEEL. That gas is purchased at the outlet of a reduction value at the wellhead. Senator BARTLETT. You heard that serious consideration is being given by either Japan or Korea to importing coal from Alaska. Has there been anything in the last few months on that? Mr. TEEL. Nothing new, sir. Senator BARTLETT. You say you are paying 25 cents at the wellhead now? Mr. TEEL. Yes, sir. Senator BARTLETT. That rate will go down to 20 cents? Mr. TEEL. Yes, sir. Senator BARTLETT. When and if you buy more? Mr. TEEL. When and if we can begin deliveries to the military. Senator BARTLETT. The rate then will remain constant at 20 cents for how long? Mr. TEEL. For the duration of the 5-year contract. Senator BARTLETT. How many people are now employed by the two companies? Mr. TEEL. Approximately 100. We are increasing our payroll at the moment. Senator BARTLETT. And that employment level would be just about the same, increased by some, if you got the military contracts? Mr. TEEL. On a continuing basis, yes. Senator BARTLETT. You said that it has been publicly announced that residential rates would be reduced if these contracts were to be completed? Mr. TEEL. Yes, sir; that is correct. Senator BARTLETT. By how much? Mr. TEEL. We would expect approximately $300,000 per year. Senator BARTLETT. I wonder if we could bring it into a little sharper focus. What does the average householder pay for gas now on a per annum basis? Mr. TEEL. Per annum basis it's approximately $300. Senator BARTLETT. How much would you estimate that the same householder would pay on the proposed lower rate? Mr. TEEL. I expect it would achieve approximately $25 reduction per household. Senator BARTLETT. How much is that householder paying per thousand cubic feet now? Mr. TEEL. There is a block structure for his gas rate, the lowest block of which is $1.20 per thousand cubic feet. |