Mr. SMITH. What was that percentage again?

Mr. MANSFIELD. 59.2 percent, almost 60 percent; 11.6 was produced from oil.

Mr. SMITH. What is the trend?

Mr. MANSFIELD. I will come to that in just a second; 28 percent was produced by gas. And 1.2 percent by nuclear.

Now, the trend in this year has been for some companies to try to convert from coal to oil, or to gas, because of the air quality standards. And where they could get gas or oil, and they were in areas that demanded this air quality, they have been trying to do this. So I would say to you, given an adequate supply of gas and oil, the trend would be to get away from coal.

Mr. SMITH. Isn't that all the more reason why coal companies would be a little bit reluctant to put a big investment into it?

Mr. MANSFIELD. Yes, indeed. And I have a great deal of sympathy with this position. And this is on top, of course, of the potential nuclear impact.

On the other hand, and I say to you, I am very hopeful, and I am very optimistic, that sooner or later, and hopefully sooner we will develop a method of removing sulfur so that the higher sulfur coals may become usable under the strict standard, and therefore the coal people should have less reluctance to open up new mines.

Mr. SMITH. All this makes me think that they would want to be looking for more exports, and anything that would discourage exports would be bad.

Mr. MANSFIELD. No; the problem is that the exports by and large are the metallurgical coals; that is, the low-sulfur coals, and they are not exporting much of the 3-percent sulfur coals.

Mr. SMITH. Mr. Addabbo.

Mr. ADDABBO. Mr. Mansfield, actually your cost to the consumer is based on your overall cost to the company introducing the

energy

Mr. MANSFIELD. And the capital costs.

Mr. ADDABBO. And if you have a shortage of fuel, your cost of fuel goes up, is that correct?

sir.

Mr. MANSFIELD. Well, if the laws of economics are applicable; yes,

Mr. ADDABBO. And you would thereby have an increased cost to your consumer?

Mr. MANSFIELD. It doesn't happen quite that quickly, because of the regulatory lag, and so on.

Mr. ADDABBO. Now, is there any variation of cost to the small consumer, in other words, the small businessman, as far as purchasing the energy?

Mr. MANSFIELD. We have rate schedules which are based on our cost. For example, it costs us less per kilowatt-hour to serve an industrial customer who takes service, say at 138,000 volts, than it does a commercial customer that may take service at 220 volts. And so we have classwise cost allocations in order to determine the costs per kilowatt-hour per customer, so to speak. And, of course, the residential customer requires all of our facilities, transmission, subtransmission, distribution, the whole ball of wax.

Mr. ADDABBO. In New York we don't have this problem. I am just pointing out, in the Mideast, if you have a shortage of generating facilities, would there be set up a priority as to who was going to be able to purchase the energy first?

Mr. MANSFIELD. We have-and we don't like to publicize this even among our own people, Mr. Addabbo-and that is to say, what would happen if we lost part of our system, not because of a shortage of capacity, but in an emergency condition. And normally, while we don't try to pinpoint customers, in general, we would drop industrial customers first.

Mr. ADDABBO. And in dropping industrial customers first, you would set up a priority where the bigger industrial plants would be higher on priority than the small businessman?

Mr. MANSFIELD. Probably, because it is easier to drop them quickly. And sometimes you are taking about fractions of seconds. Now, of course, this leads to another question which, again, I don't think there is any real answer to. If you do drop a customer, or customers, and discriminate as you must do, somebody has got to make some judgments. What are the potential liabilities? Why is it you pick me instead of this guy, and so forth. We are wrestling with this kind of problem. And I don't think anybody has the answer.

Mr. ADDABBO. In New York, Mayor Lindsay testified earlier about the problem we have. We have a plan up in Astoria where one agency says it is a good site and another agency, Federal agency, says it is not a good site.

Mr. MANSFIELD. Right.

Mr. ADDABBO. Have you run into a similar problem, cross decisions between varying agencies?

Mr. MANSFIELD. We haven't in our own company, no. The only problem we have had, lately, at least, is, we had some complaints about a part of one of our plants on the Ohio River because of the emission of particulate matter. And we came to an understanding with the HEW people that we would close part of that plant down just as soon as the electrostatic precipitators were installed in the newer portions of the plant.

But the only hangup we have had-and it hasn't been very serious-was with respect to the location of transmission lines. We have had some of that due to objections by conservationists, and so on. Mr. ADDABBO. Thank you.

Mr. Chairman, I would ask that we be supplied with their 48th semiannual electric power survey.

Mr. MANSFIELD. If you would like us to leave the 47th one with you, we will.

Mr. SMITH. That would be fine.

And we may have another question or two to submit to you, and you can answer it.

Mr. MANSFIELD. Fine.

Mr. SMITH. Thank you very much.

We will recess now, until 2 o'clock.

(Whereupon, at 1:05 p.m., the committee recessed, to reconvene at

2 p.m., the same day.)

AFTERNOON SESSION

Mr. SMITH. The meeting will come to order. The first witness this afternoon is Mr. Alex Radin, general manager of the American Public Power Association of Washington, D.C.

We are very glad to have you here, Mr. Radin, and get your ideas and information and recommendations concerning this very important problem. You may proceed.

TESTIMONY OF ALEX RADIN, GENERAL MANAGER, AMERICAN PUBLIC POWER ASSOCIATION, WASHINGTON, D.C.; ACCOMPANIED BY PAUL FRY, STAFF ECONOMIST

Mr. RADIN. I am accompanied by Paul Fry, staff economist of the American Public Power Association.

Inasmuch as my statement is rather lengthy, I would like to ask permission to have it inserted in the record in full and then I will read only portions of it as a way of highlighting it. Mr. SMITH. We will do that. We appreciate it.

(The statement follows:)

STATEMENT OF ALEX RADIN, GENERAL MANAGER, AMERICAN PUBLIC POWER ASSOCIATION WASHINGTON, D.C.

My name is Alex Radin, and I am General Manager of the American Public Power Association, a national trade organization which represents more than 1,400 municipal and other local publicly owned electric utilities in 47 States, Puerto Rico, the Virgin Islands and Guam. Our offices are located at 2600 Virginia Ave. NW., Washington, D.C.

We particularly appreciate the opportunity to present testimony before your Select Committee on Small Business, because 61% of the local publicly owned utilities serve cities with a population of less than 5,000. Although in the aggregate the local public power systems are substantial in size, serving about 30,000,000 Americans and having an electric plant valued at about $9 billion, the Federal Power Commission's National Power Survey classified 1,997 of the nation's 2,168 publicly owned electric utilities in the category of small-that is, having annual energy production requirements of less than 100 million kilowatt-hours.

Because the present fuels situation is more critical now than at any time during the past 22 years that I have been associated with the electric industry, I would like to devote my testimony to the current crisis involving both the shortage of supply and the rapidly escalating price of fuels.

To place the subject in perspective, it should be noted that the fossil fuelscoal, oil and natural gas-today account for some 81.9% of the production of electric energy. Nuclear energy today accounts for only about 1.0% of total production, and even by the year 2,000 nuclear power is expected to provide only about half of the Nation's constantly growing requirements for electric energy. Hydroelectric power provides some 17% of total electric production, and is expected to be a progressively smaller proportion of total output in the future. The fossil fuels therefore are the very lifeblood of the Nation's electric industry, and are likely to remain so for many years in the future.

Electric rates are especially sensitive to the price of fuel, because the cost of fuels represents about 35% of total operation and maintenance expenses. An indication of the importance of fuel in determining the price of electric energy is that some utilities have fuel clauses which permit them to adjust their rates automatically, depending upon the rise or fall of the cost of fuel. The sensitivity of electric rates to the cost of fuel is further demonstrated by the fact that the Tennessee Valley Authority, which operates the Nation's largest electric utility, recently had to increase its wholesale rates by some 23%, or about $115,000,000 a year. About 60% of this rate hike was attributable to recent increases in the cost of fuel.

Nation Is Headed for Biggest Wave of Rate Increases

Reversing a long-term downward trend in rates, electric utilities throughout the country are swamping State and Federal regulatory agencies with requests for rate increases, and it is apparent that the Nation is headed for the biggest wave of electric rate increases since the inception of the electric industry almost 90 years ago.

Although other expenses-particularly interest-also have risen sharply in recent years, I believe that the hearings before Federal and State regulatory agencies will clearly show that the rapid increases in fuel costs represent the major cause of the impending electric rate increases.

According to press reports, other large-scale and important consumers of fuel-including schools, hospitals and public buildings-also are being confronted with substantial price increases in the cost of fuel.

Because the use of energy plays such a vital role in the American economy, it is obvious that the cost of fuel will make itself felt in a pervasive manner, and to a greater or lesser degree, in virtually all services or goods provided in this country.

Facts about the shortage of fuel and sharply rising prices have been reported so frequently in recent months that it is hardly necessary to document the matter further. I am sure, for example, that your committee is already aware of the fact that the TVA system is down to a 10-12 days' supply of coal, with only four or five days' supply at some individual generating stations, compared with a normal system-wide supply of at least 60 days. Your committee undoubtedly is also aware of the fact that Donald C. Cook, president of the American Electric Power System, one of the Nation's largest coal users, has warned that the supply of coal stored at a number of AEP System generating stations is "dangerously low," and that there is "a very clear and present danger that serious shortages of electric power will result this winter."

On the smaller end of the spectrum, a number of the municipally owned electric utilities which are members of APPA have been reporting to us for several months of their extreme difficulty in obtaining any bidders for oil or for adequate amounts of coal. Some of our member utilities already have been dangerously close to a situation which would require them to shut down generating plants.

On the price side, the Council of Economic Advisers, in its first "inflation alert" issued on August 7, 1970, reported that the price of bituminous coal had risen at an annual rate or 56% during the first six months of this year (34.4% in the first quarter and 81.1% in the second quarter) and that the price of residual oil had risen at an annual rate of 47.6% during a comparable period (36% in the first quarter and 60.3% in the second quarter).

The foregoing figures undoubtedly understate the problem, because during this same period there has been a deterioration in the quality of coal, with the result that there has been less Btu content per ton of coal. Utilities receiving inferior coal have had to burn more tons in order to obtain an amount of energy production equivalent to what they obtained previously, thereby further driving up their fuel costs.

In any event, reports from member utilities of our Association have indicated that price increases of 100% or more have been inflicted on some utilities within the past few months, and current reports indicate a continued rise in prices.

Inasmuch as your committee will hear from utility officials who undoubtedly will present more detailed and specific testimony about the supply and price of fuel, I will not burden the record further with such material, but would like to append to this statement, as Exhibit A, some examples of recent fuel price increases affecting member utilities of our Association.

Critical Situation Has Been Developing for Some Months

This critical fuels situation has been developing for some months, and it might be useful, for the record, and for the background of your committee, to recite some of the steps which our Association has taken during the past six months to call this problem to the attention of the President of the United States and other appropriate Government officials.

As early as March 23, 1970, I wrote to President Nixon expressing the deep concern of the American Public Power Association with the then current "inability of electric utilities to obtain adequate supplies of coal needed to fuel existing generating facilities." Based upon reports from public power systems that had been received by APPA, I described the coal shortage situation as follows to the President:

"Demand for coal for use in producing power in many parts of the country is far outrunning quantities offered by coal companies; furthermore, the number of bidders for coal contracts has dropped drastically, and prices for available coal are escalating at alarming rates. Coal companies are in some cases rationing their supplies among contract customers. In other instances, contracts are simply not being fulfilled. Utilities frequently maintain a 60 to 90 day stockpile of coal; in numerous cases reported to us, such stockpiles have decreased in recent months, are now far below usual levels, and in some areas could be wiped out in a few days of normal operation."

After outlining some of the causes of the shortages, and emphasizing the seriousness of possible disruptions of electric utility service, the letter continued: "Because of the critical nature of the situation, I urge that you:

"1. Request the Federal Power Commission to make an immediate survey of all electric utilities burning coal for generating purposes to determine their ability to obtain adequate supplies of coal at reasonable prices, their normal stockpile of coal, their existing stockpile, and their anticipated needs and sources to meet electric loads during 1970 for the purpose of identifying areas of critical need. "2. Ask the Interstate Commerce Commission to determine as soon as possible the availability of means of transporting coal by railroad, truck, barge or other means to areas of critical need.

"3. Direct the Office of Emergency Preparedness to review the situation and prepare, in consultation with representatives of coal companies, transportation firms, and utilities, any plans necessary to insure that the national interest in continued operation of coal-fired generating facilities is protected.

"4. Advise the Attorney General to investigate whether or not increasing oil company control of coal companies has resulted in coal supply or pricing practices which are in violation of the antitrust laws.

"5. Initiate within the Executive Branch a review of U.S. policies on export of coal and import of fuel oil with the aim of deciding if alteration of these positions would serve to relieve the coal shortage and price situation now and in the future.” That was in March. On April 15, 1970, I again had occasion to write to President Nixon when I forwarded to him the results of a survey conducted by APPA. The survey concerned the availability and price of coal for electric utility generation, and contained some 55 responses from publicly owned electric utilities in 17 states. I told the President, "We believe the results (of the survey) substantiate our concern over the gravity of this situation." And I added, "It appears to us that the Federal government should offer assistance and guidance in this matter." Price Increases Cited

On July 7, 1970, I wrote to President Nixon once more to express our Association's concern about the difficulty many of our member utilities were experiencing in obtaining adequate coal supplies, and about widespread reports of price increases for coal of as much as 50% since the beginning of the year. My letter urged the President to consider the serious inflationary impact of such price increases:

"Large increases in coal prices to electric utilities are likely to be embodied in higher electric rates. Because electricity is used in virtually all manufacturing and service industries, as well as homes and commercial establishments, changes in the price of electric energy are felt throughout all levels of our economy. The unavailability of coal often forces utilities to switch to other higher priced fuels to fire their generating stations, and this increased cost must also be reflected in higher electric rates.

"In summary, the short supply and escalating price of coal for use in electric generating facilities is a potentially significant factor in general price inflation throughout the economy. Consequently, the increase in coal prices would seem to be a likely candidate for early inclusion in the Inflation Alert. We hope you will take steps promptly to halt runaway price increases, such as those in coal, that could have a widespread effect on the entire economy.

"Although our information on oil is fragmentary, we have also been receiving disturbing reports about recent sharp increases in oil prices, and would respectfully suggest that close attention likewise be given to trends in prices of this energy

Our Association continued to receive alarming reports from our member utilities about the critical shortage and rapidly escalating prices of fuels. Conse quently, on August 27, 1970 again wrote to President Nixon about the by now