General SHULER. This is the Army's alone, sir.

Senator BARTLETT. That is the Army alone?

General SHULER. When we add the Air Force we get to the figure Mr. Snell is talking about.

Senator BARTLETT. What was the total figure?

Mr. SNELL. $5,800,000.

Senator BARTLETT. That is after taking into account amortization and interest?

Mr. SNELL. Amortization, interest on investment, and paying off the conversion cost.

Senator BARTLETT. I only have one question. Since my assumption is that those are concerned chiefly, primarily, and perhaps almost altogether, with whether it is more economical for the Government, for the Department of Defense; is that assumption correct, General? General SHULER. Yes, sir.

Senator BARTLETT. Do you have any fear at all that the possibility might arise, for example, that gas might be put under regulation at some subsequent time by the State of Alaska and that the State could conceivably determine that the military was paying too low a rate in comparison with other users and the military rate would be increased? Has that been taken into calculation?

Mr. SNELL. This we do not anticipate. However, I would like to point out that even oil, with the regular prices quoted in Richmond, Calif., by the Standard Oil of California, are less than the price of coal, and we could still make a savings, substantial saving, using oil.

Senator BARTLETT. I don't know what the future may hold either in respect to such regulation, but it has been suggested that the State is interested in doing that.

How long has oil been cheaper than coal?

Mr. SNELL. Sir, this is difficult to answer. We must consider only the last offers that have been made, and this is not

years

Senator BARTLETT. I would think not. I would think that although natural gas has come into the picture relatively recently, that if there is, which there is, this concern with saving money, oil has long been available at Anchorage, and my question is, Were bids sought 10 ago from the suppliers of fuel oil competitively against coal? Mr. SNELL. Well, initially the Army forwarded a study requesting approval to convert Fort Richardson from coal to gas September 11, 1961. Oil had not been considered as competitive.

Senator BARTLETT. I wonder why it had not been.

Mr. SNELL. We had made inquiries which we had indications that they were not interested. However, Standard Oil of California came in to the Department of Defense and requested that they be given permission to make a bid. All of the bids were thrown out and new offers requested again from oil, gas, and coal interests. And since then we have been getting proposals from all three fuel interests.

Senator BARTLETT. I am sure it was the intention and desire of the Department to save money, if possible, before 1961. Standard isn't the only oil company. I wonder why it is that a call for bids wasn't made prior to that time?

General SHULER. I don't know, sir, I do know that this project has been cooking for at least 4 years, and we just now got it up before the Congress. These things seem to take a long time.

Senator BARTLETT. Well, yes, but I am still not quite satisfied, I don't know why, since oil has been competitive in some respects with coal in Alaska for a good many years, why an aggressive effort wasn't made before 1961.

Mr. SNELL. Well, sir, we were-we understood the main reason that Standard Oil of California could become competitive was the fact that oil was discovered in Alaska and they have put in refineries near Anchorage.

Senator BARTLETT. Even before then, though, they were selling oil to householders way up in Fairbanks, and if bids had been called for maybe some of the other companies along the Pacific coast or elsewhere, other companies distributed from Alaska might have been interested. But you don't know why?

General SHULER. We don't know, sir. This could very well have been a good thing to do then, but I don't know why it wasn't done.

Senator BARTLETT. I have no more questions, Mr. Chairman. I do want to suggest that the reasons behind the military submission of this authorization request, the budgetary request, are understandable, and they have to do with military function only.

But I want to state a belief, at least, that the function of this committee and of the Congress must be somewhat broader. It must take into consideration the entire welfare of the community in the area, and even the State. What the determination might be, I am not prepared to say, but I think the committee has an obvious duty to go beyond this and look at the situation as it affects the Federal Government in a total way.

Thank you very much.

Senator BYRD. Thank you, Senator Bartlett.

I would have to agree with Senator Bartlett that the interest of the Congress would go somewhat beyond that of purely the economics of the conversion. I think we have to look at the overall, and certainly the Senator from Alaska has ample justification to raise this question in view of the testimony today, to the effect that unemployment would ensue from a closing down of the mine, that agriculture might suffer, that State and local and Federal revenues might be affected adversely, that unemployment compensation costs would be more than nominal, and that following the expiration of those unemployment compensation benefits other welfare costs are not to be entirely ruled

out.

I have a few questions, General.

May I ask you what your reaction is to the statement that has been made by Representative Rivers and others here toady, to wit, that the Alaska Legislature has a bill before it to subject pipelines to regulation in order to have some control assuring that the bulk sale the pipeline wants to make to Defense is at a rate for which Defense will pay its fair share of transportation costs?

And the implication is that such a bill has considerable support and has the support of the Governor, and if it is enacted I would like to know what this does to your contract.

General SHULER. Sir, I don't believe I am able to comment personally on that. I would like to put in the record a considered answer to that, and we can get it in right away.

(The following information was subsequently submitted:)

If the Alaska Legislature subjects gas pipelines to regulation, it should not have any adverse effect on the contract for gas service with the Alaska Pipeline Co. It has been our experience that utilities service rates established through competitive procedures are usually fair and reasonable, can be adequately supported by the company furnishing the service and therefore would be approved by the State regulatory commission. The proposed gas rate should more than adequately cover transportation costs.

I do feel personally that a year, an amortization period of a year, is very, very favorable in this 5-year period. I am not implying that we would stand a longer time, but there would still be a good proposition, sir, in my personal opinion if it were somewhat longer than a year which, of course, could occur if rates were raised by such a process. I don't know whether I would go for 2 years and say that is the limit of it being favorable, but certainly there is some room between 1 year and 2 years where this would still be very favorable and the savings amount to almost $6 million at the specified rate now.

Senator BYRD. $6 million over a 5-year period.

General SHULER. Yes, sir.

Senator BYRD. But over a 2-year period?

General SHULER. Well, what I was saying is that the amortization period, if you can get your whole construction costs amortized in, let's say, a year and a half, instead of just a year, I still think it is a very economical proposition.

Senator BYRD. But suppose in the course of the two years the coal industry has become extinct, and you are then confronted with the possibility of only having two fuels, oil and gas, rather than three.

General SHULER. Well, I don't think that we would be unable to provide stockpiled coal at these bases even if this particular mine went out of operation. It might be more costly. But it would only be on a standby proposition, sir.

Senator BYRD. What reaction do you have to Mr. Rivers' statement, and I quote:

Defense has awarded a 5-year contract to gas which is in derogation of the policy of Congress to foster competition through annual bidding. More than that, the procurement law involved (sec. 201 (a) (3), Federal Property and Administrative Services Act) makes it clear that only public utility monopolies can be given contracts for more than 1 year (and up to 10 years) in those situations in which the Government needs to offer more than a year in order to get a favorable rate. The Alaska Pipeline Co., is not a public utility within the meaning of the law because it does not serve gas to consumers.

General SHULER. May I ask my witness to comment on that?

Mr. DEVINE. The law, under which we are authorized to enter into long-term contracts going beyond the fiscal year, permits us, where reasons of economy are served by a lower rate or emanation of a charge for installation of facilities, to enter into contracts for public utility services. It does not require that we enter into a contract with a public utility. The public utility, as a company itself, is not mentioned in the law or delegation. It refers to public utility services specifically naming power, gas, water, and communications. It is pursuant to that law that we can go up to 10 years in a firm contract.

Now that, I think, explains why we are authorized to go beyond a straight fiscal year procedure with a public utility service. It is for the purpose of fostering economy in the procurement of those services.

The statement made that "it must be a monopoly situation" is not correct. It is well known and we have had experience in utility procurement where there may be two competing concerns; such as, for electricity, and in the resolution of the feasibility of procuring from one or the other we have to enter into a limited sort of competitive business. So we do not consider that the utilities service is a monopoly service by any means, by any stretch of the imagination.

Have I responded, sir?

Senator BYRD. Yes. This matter is pending before the Comptroller General?

Mr. DEVINE. Yes it is, sir. We presented our case to the Comptroller General in response to the protests of the Evan Jones Coal Co. The Department of Defense made known, fully, its position and justification for the proposed procurement. The Comptroller, in their procedures, will rule by responding to Evan Jones Coal Co., and establishing in his ruling whether or not their protest has merit, and that the proposed procurement by the Department should or should not be upset.

Senator BYRD. All right. I don't know what the chairman's intention might be in this regard, but it might be well for the staff of the committee to contact the Comptroller General to inquire as to whether or not a decision is pending.

Mr. DEVINE. I might suggest, sir, that might be pertinent.

Senator BYRD. Or whether, as someone has suggested earlier, the Comptroller General intends to await the action by the Congress. It would be my inclination not to act until the Comptroller General gave us some guidance on this point.

Mr. Snell, would you indicate your basis for stating that there would be a cost savings in maintenance and repair?

Mr. SNELL. Sir, I can go into it-it is rather lengthy-if you so desire. I could put in an explanation of the data for every item included in these fuel costs for the record.

Senator BYRD. Can you summarize it? You may submit it, if it is not too lengthy. I understand you went over this with the National Coal Association.

Mr. SNELL. This is correct.

Senator BYRD. May I ask Mr. Bluth or Mr. Coryell to comment? Mr. CORYELL. Yes, Mr. Chairman, I would be very happy to.

Mr. Snell is correct in that we did not raise any criticism as to the procedure involved. We did question some of the figures, and would like to think that those questions aided and abetted the massaging action referred to previously. There was a differential there between the so-called-so-called today-temporary gas price, which could very well be a temporary gas price, and the actual price of coal, that too close a figure was not necessary in order to make the point of amortizing the costs of the project in the 5-year period. And, however, we would subject the figures to some more massaging if it meant that much at the moment. But the difference, as has been stated, is so great that that would be very insignificant, so we fell back on the other factors which have been presented here and which are in our opinion the basis on which the decision for this should be made.

Senator BYRD. Mr. Coryell, do you feel that the decision reached by the Defense Department with regard to the economics in the equation can be challenged? Do you challenge

Mr. CORYELL. Not enough to make up any substantial part of the difference that is existing now.

Senator BYRD. No one in your association feels that these figures are very much off?

Mr. CORYELL. As I say, not significant, we can cut down a few thousand dollars, shave off, but in our opinion-of course, they are going by records in some cases, estimates in others, the record we can challenge only on the basis of that if they are that they should be less because they seem to be higher than the going practice, but again we are only shaving them off, a small amount off of a rather substantial figure due to this unusual difference between the gas price and the coal price.

Senator BYRD. Well, based on the gas price?

Mr. CORYELL. Yes.

Senator BYRD. And the coal price?

Mr. CORYELL. Yes.

Senator BYRD. I take it, then, that the figures as presented by the Defense Department are acceptable to your engineers or technical people, you being one of them?

Mr. CORYELL. No; we have questioned some of the figures originally, and, on several occasions, we have combed through them, and on the basis of our original suggestion there were some subsequent to that, we can't make a direct claim that it was a direct result of our questioning, but subsequent to our questioning there was some reduction.

Senator BYRD. We are not interested in what reductions were made subsequent to your having pointed out certain factors. What about the final figures that have been arrived at?

Mr. CORYELL. The figures as they are now we still have some questions, yes; but, as I say, if they were accepted by the Defense Department they would not be anywhere near making up this difference that has been noted here, of a million and a half a year.

Senator BYRD. In other words, the differential that is involved as between your figures and theirs, if you have a set of statistics on this item, would not be substantial; it would not eliminate this

Mr. CORYELL. No, as the general pointed out they have $1,100,000 in fuel alone, and the differences that we are talking about, or, rather, we still ask questions, are maintenance figures, we would not accept as being an acceptable figure, although we cannot say they are not figures that they have been objected to and been current. But the difference then what they could expect from the coal and what they would get from the gas we do not accept, and some other figures there based on comparisons on existing records or estimates with respect to the other fuel.

Senator BYRD. So it is apparently your judgment that the savings as anticipated by the Defense Department are not as great as they contemplate?

Mr. CORYELL. That is right. There is a case in point goes back to a hearing held in this room some few months ago. They are taking credit for, or rather making a debit, for airmen who haul ashes from the plant to the source of disposal, and on the basis of a decision that is still pending that is not a legitimate charge, we believe.

Senator BYRD. I was going to get to the operating labor costs. Mr. CORYELL. This is ash disposal.