Nevertheless, in the immediate wake of this consolidation of control, we have seen coal prices as much as doubled, shortages of natural gas, and supply problems with oils. The question to be examined, then, is whether control of the major raw energy sources coal, gas, oil, and uranium in the hands of a relatively few large corporations is, in fact, in the public interest. In the past, the various fuels competed with each other as the energy source for generating electricity.

In these same years, electricity became widely available at progressively lower cost. The Nation used it in greatly increasing quantities as we grew and prospered. It is important to know, before it is too late. whether competition between a few large raw energy companies will serve the Nation as well. Whatever the reasons for this coal supply and price situation, they should be sought out and remedied quickly.

The obvious long-range solution to this problem requires the opening of new mines to supply the growing demand. Everyone agrees that there is no shortage of coal in the ground. A commonly accepted figure is 1,600 years' supply at the current rate of use.

TVA, as I mentioned at the outset, represents a market for at least 35 million tons a year for a good many years into the future. We are willing to enter into long-term contracts for that coal-contracts that can serve to back up the financing of the heavy investments needed to open new mines. We expect to pay prices that will cover costs of mine operations including necessary costs of safety for miners. We expect to pay prices that will cover the costs of strip mine reclamation and environmental protection. And we expect to pay prices that will allow a fair profit-a fair profit but not an exorbitant profit. In the normal operation of American business, it seems to us that this should provide the incentives for opening the needed new mines and expanding coal production to meet the market demands.

Electricity is so vital a factor in the economy and in the quality of life in our region and in the Nation that its continued flow in abundance and at low cost must be insured.

Mr. EVINS. I notice that you say the obvious long-range solution to your problem is to have new mines to supply your coal. This is your principal conclusion and your solution to the problem.

Let me say at the outset, Mr. Chairman, that my credentials as a friend and supporter of the TVA are well established, I believe, both in the Congress and elsewhere. However, at this time I am concerned, and the people that I represent are concerned, and others are greatly concerned about the coal situation affecting TVA, and also the rate increases. In August you announced a rate increase for TVA. And then before that went into effect, or in August, you also announced another one of 23 percent in October, for a total of 25 percent increase. And TVA serves 2 million users, 2 million people in a seven-State area. And we invited you here and others to see what we can do about solving this crisis, this problem, not only in the TVA area, but throughout the Nation.

Tell us why it is necessary for you to raise the rates of the TVA, the power rates, the electric power rates? There have been two increases. And since these were announced I was alarmed-and I hope I am incorrect in this to read a news report that you made a speech recently at Chattanooga and suggested that there might be further additional increases. The 2 million consumers in the area are very concerned about these escalating TVA rate increases in the TVA area.

Mr. WAGNER. Let me preface my explanation by pointing out that the average rate to the residential consumer in the TVA area even after this October 1 increase will be about 114 cents per kilowatt hour, which is still just about half of the national average, so that rates in the Tennessee Valley continue to be low and will continue to be low. Now, as to the reasons for the increase, as you know, we operate under the terms

Mr. EvINS. It is reassuring to know that they will be held low, and I hope the Chairman and the Board hold to this statement. But as private utilities jack up their rates and they always want to increase the price and the TVA follows, your rates may escalate and go higher even though they are still under the national average. Let's be the leader and not the follower. This is an admonition I would offer and suggest.

Mr. WAGNER. We agree with you, Mr. Chairman.

We are well aware of your interest in the TVA and your service to the area and to the organization.

However, we are in this position. We operate under the TVA Act as it was passed by the Congress. Basically, our operation is a nonprofit operation. But we must cover our costs. We are required by certain sections of the TVA Act and by the basic resolution that has been adopted for the protection of our bondholders to operate in the black, so to speak.

We must have revenues that are adequate to cover all of our costs, including our interest costs, our payments to the Treasury, our operation and maintenance costs, and our payments in lieu of taxes.

Mr. EVINS. TVA is the one agency of the Government which is selfsustaining, its power operations are self-sustaining, self-supporting, and self-liquidating. And indeed it pays into the Treasury each year when most Government agencies take out of the Treasury.

How much do you expect to pay into the Treasury from TVA operations this year?

Mr. WAGNER. About $85 million, Mr. Chairman.

Mr. EVINS. About $85 million?

Mr. WAGNER. That is correct.

Mr. EVINS. And you are telling the committee that a formula is written into the law that requires payments into the Treasury based upon efficient operations?

Mr. WAGNER. That is correct.

There is also a formula written into the law which provides-and which is also the subject of a provision in our basic bond resolution— that essentially we may use our depreciation reserves only to invest in new capital and new plant, or to retire a capital obligation. We may not use our depreciation reserves for operating costs. And this is another requirement.

And then we have a third requirement that is written into our bond resolution, which generally is geared to the cost of money to the Government. It is a rather complex test, but if you are interested. I could put it in the record.

The point I would like to make is that each of these three tests which we must meet to comply with the law and/or to protect the financial soundness of the TVA system would require in 1971, fiscal year 1971, about the same level of revenue. And it is those tests, if they are to be

met, that required us to institute the rate increase that you referred to. Mr. EVINS. And your interest rates have gone up.

up.

Mr. WAGNER. Yes, interest rates on the sale of our bonds have gone

Mr. EVINS. What is the interest rate of the latest bond that you have been able to market?

Mr. WAGNER. The last long-term bond that we have sold has an interest cost of about 9.3 percent. We are currently selling short-term notes. And the interest rates on those for the moment are down, to about 6 or 612 percent.

Mr. EVINS. I read a press release-and we can't always say that they are accurate, I hope this one was accurate-which said that the President of the White House had called on TVA to reconsider the rate increases, or at least an adjustment based upon the fact that interest rates had declined and gone down.

Did you receive any such communication from the White House or any source, or is this a press speculation?

Mr. WAGNER. The Office of Management and Budget has asked us to make that reassessment. The situation, briefly, is this, Mr. Chairman. In the $100 million increase that we needed as of October 1, and which was covered by this last rate increase, about $18 million of that was on account of interest costs, and $9 million of the 18 was on account of our payments to the Treasury, which are fixed, they are fixed by the Treasury's average interest rate as of last June 30. And, therefore, any change in interest rates now could affect only the $9 million of our $100 million need. And while it is true

Mr. EVINS. In other words, you are already committed for that 9 and 10 percent interest for a long time, you can't renegotiate these

contracts?

Mr. WAGNER. For a considerable part of our financing. For the shortterm financing we will get some help, to the extent short-time interest rates have been going down, and should they continue to go down.

Mr. EVINS. They haven't been going down to any noticeable degree. I notice that the large banks of New York announced that their prime rates would drop from 8 to 712 percent. Will this half of a percent reduction in the prime rate by the big banks of New York, who are largely the purchasers of TVA bonds, affect the rate of the electricity to the consumers of the TVA area?

Mr. WAGNER. Not this immediate rate increase, Mr. Chairman.

But let me say that we are, among other things, under the TVA Act under compulsion to sell electricity at the lowest rates that are feasible with sound financial management. We have this instruction to sell at low rates.

Mr. EVINS. That might be a little reflection on the present Chairman of the Board as to sound financial management. We want that management to be good, we want it to be sound, as the law states. At one time there was a rate reduction. You made great claims about reducing the TVA rates. It was heralded as a Norris rate reduction, and you took great pride in it.

And here recently, since this administration has been in, rates have gone up three times. And questions have come to me, and in the press, as to who is setting the policy of the TVA.

Mr. WAGNER. Mr. Chairman, the Board is still setting our rate policies.

Mr. EVINS. Are they setting other policies, too?

Mr. WAGNER. They are setting our TVA policies, too.

Mr. EVINS. All the TVA policies?

Mr. WAGNER. The TVA policies. The Board is responsible under the act, as you recall, for administering the TVA. The rate increase has been made necessary by costs over which we have really no control. We buy coal at the prices that we have to pay. We do not control the interest rates. In my statement you will find some discussion of the steps that we have taken to try to control these costs. And we will continue those steps.

Mr. EVINS. Mr. Chairman, really, the purpose of this hearing is for you to tell us what you propose to do and what can be done to hold the electricity cost down and stop these escalating rate increases in the area. If you will, please spell out for the record what you have done and what you propose to do. This would be most helpful and most encouraging.

Mr. WAGNER. We have tried to hold our power costs down. In the first place, we are building nuclear plants, which in the long run will give us lower costs than we are getting with coal. We have instituted any number of management reforms, remote control of the stations, and so on. And you will find that our actual costs of power production are considerably less than the average for the United States.

We have bought, to try to control coal costs we have bought, our own coal reserves. And we are proceeding to have those mined now for us. We have worked as hard as we can to get reasonable prices from coal producers who are supplying us now.

I would be glad to supply additional steps for the record. But those are generally the things we are doing.

One of the steps that needs to be taken is, as you indicated, to get new mines open. And we are perfectly willing, we offer to enter into long-term contracts that will help to do that. As I have said in my statement, we are willing to enter into long-term contracts for coal, that is, this 35 million tons a year that we will be buying for a good many years to come.

And these contracts will back up the financing of the heavy investments that are needed to open new mines.

We expect to pay prices that will cover the cost of mine operations, including the necessary cost of safety for miners.

We expect to pay prices that will cover the cost of strip mine reclamation and environmental protection.

And we expect to pay prices that will allow a fair profit, but not an exorbitant profit. And in the normal operation of American business it seems to us that this should provide the incentives for opening up new mines and expanding coal production to meet the market demands.

Mr. EVINS. Mr. Chairman, I want to ask some more questions on coal, but I want to read these observations here.

What can be done to broaden the competitive base in the coal industry to draw in the smaller mines to participate in the coal market? The small mines say that they are required to go through the same red tape, through the same procedural difficulties as a contractor with a large mine. What can be done to bring in a little competition from the small mines? Can you make your procedures a little less difficult or simplified for them? Why has the TVA downgraded coal and paid less to small operators than to large if it is true as reported?

Mr. WAGNER. I don't believe that the failure of the small mines to participate more extensively than they do is due to TVA's buying, or is within TVA's control. Really the small mine is more, I think, a victim of an advance in technology. The coal that is used in the quantities that are required today requires massive production.

Mr. EVINS. TVA is the biggest purchaser of coal in the world. And this committee is concerned with small business, helping the small businessman. Certainly this includes the small miners. And I don't think you should confine your operations to the giant corporations when you're sitting on the greatest coal field in the United States, with two large steamplants within 30 miles in east Tennessee where coal miners are out of work and the steamplants are idle. There is a large supply and an abundance of coal within 30 or 40 or 50 miles of TVA's steamplants, and there are a number of small coal miners that you could negotiate with. And I think with aggressive administrative action you could break this bottleneck and you could see that some contracts are let to the small miners, the small mines opened, and people put to work, and the TVA supplied with the coal which they need. Why can't this be done? If it can't be done, tell us why. If it can be done, let's do it.

Mr. WAGNER. We are buying all the coal from small miners that is offered. We have offered to assist them with financing operations of their mines. One of their problems is that under the terms of the Mine Safety Act investments are required which they simply can't make.

Mr. EVINS. You are not charged with the enforcement of the Mine Safety Act, as laudible as the act may be be, and its provisions. You are interested in buying coal, and you are interested in negotiating with the small miners in an adjacent area, aren't you?

Mr. WAGNER. Certainly. And we will buy any coal they can provide for us at prices that are at all within reason. And, as I have indicated in my statement, we are currently paying prices that are twice what we were paying a year and a half ago.

But there are other problems that I think have prevented them from supplying our market to any greater extent than they have. Mr. EVINS. We are told that in Anderson alone the county near the Kingston and the Bull Run steamplant within 50 miles has enough coal to supply TVA for a hundred years.

Mr. WAGNER. Well, Mr. Chairman

Mr. EVINS. Is there any truth in this statement that has been brought to our attention?

Mr. WAGNER. I can't verify it. I am sure that there is a great deal of coal in that area. But the fact is that when we were buying all the coal-when the small miners were producing all the coal that they could, and we were buying it, we were buying a maximum of 3 to 4 million tons a year. The figure is less now, although we are still buying all that is offered. This is a small part of our total supply problem when we will be burning 35 million tons a year for the next 15 years or so. At the same time, we would be glad to have it. And we will certainly sit down and talk with any small miners that want to produce coal for us.

Mr. EVINS. Mr. Chairman, the key here is the coal buying policies of the TVA. There is an abundance of coal in the area adjacent to where they are, they want to sell it, and you want to buy it. And why can't you get together and negotiate some contracts without too much red tape. with the small mine operators that will put them to work and supply