paper industry, not to mention the availability of capital for those purposes, the across the board conversions called for in S.1777 become clearly impossible.

Furthermore, mass conversion to coal could have serious impact on the competitive position of mills located in areas in which coal is not readily available. In the American Paper Institute's survey of 1973 energy consumption in the U.S. pulp and paper industry, it was found that while coal provided almost 11 percent of the entire industry's total energy requirements, no coal consumption whatsoever was recorded for New England,* the West South Central* region and the Mountain Pacific* regions, since those areas are for the most part located far from large coal mining operations. The mandated use of coal in those regions would cause loss of business, employment and income.

In addition, there are paper industry operations in many parts of the country whose marginal returns would oblige management to shut them down if faced with the proposed mandatory coal conversion investments.

The Nation Needs a More Flexible Coal Conversion Program Than is
Provided for in S.1777.

The American Paper Institute believes that the coal conversion program provided for in S.1777 should be much more flexible, as there are a multiplicity of factors to be weighed with respect to each coal conversion.

There are also many actions available to the government to encourage decisions to convert to coal. These include:

1. Deregulation of the price of crude oil and natural gas. The longer that prices of these fuels remain regulated, the greater the uncertainty as to future supplies and their cost compared to coal. This uncertainty will stall decisions to convert to coal. 2. Settling the air emission controls controversy by adopting a ground-level ambient basis rather than a stack emission basis for measurement. Again, as long as industry remains uncertain as to the requirements and means of emission controls, it cannot make the decision to convert to coal.

3. Providing assistance on financing of coal conversion projects. Coal-fired installations are considerably more expensive than those fired by equivalent oil or gas as much as two or three times. Such assistance might include:

a) An increase in the investment tax credit for coal conversion projects plus five year amortization of such pro

*with 8 percent, 12 percent and 14 percent, respectively, of the industry's paper and paperboard capacity.

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jects with the full credit allowed. In addition, depreciation should begin immediately when the expenditures are incurred.

b) Shorter lives and faster depreciation should be permitted
for all coal related equipment. In Rev. Proc. 74-27, the
Treasury moved in the opposite direction by lengthening the
lives for all power boilers in the pulp and paper industry,
including those fired by coal, from 16 to 28 years.
should be rescinded.

This

c) Other assistance in financing conversions such as Federal guarantees on loans or special low interest loans could provide needed cash for the pulp and paper industry in which 42% of capital requirements in the decade ahead will require outside financing, including debt.

The American Paper Institute agrees that coal is our nation's best answer to its fuel shortages and the economic power of the OPEC cartel. However, we believe that the provisions of S.1777 need considerable revisions in order to provide the basis for a sound and successful coal conversion program. We would be pleased to respond to any questions the Committee might have on this statement and to work closely with the Committee on its development of a viable program of increased coal use by industry.

Statement of the

American Public Power Association

Regarding S. 1777 "National Petroleum and Natural Gas
Conservation and Coal Substitution Act of 1975"

June 23, 1975

The American Public Power Association is a national trade organization which represents more than 1,400 local, publicly-owned, electric systems in 48 States, Puerto Rico, the Virgin Islands, and Guam.

Of the more than 2,000 local, publicly-owned, electric utilities in the United States, approximately 700 currently generate all or part of their electric power supply, while the remainder are wholesale purchasers of other generating utilities and the Federal government. Of the 700 utilities which currently generate, about 200 have some steam generation, and a significant portion of the other 500 utility systems are potential future owners of steam generation. All of the 2,000 local, publicly-owned utilities

regardless of whether they generate electricity or purchase it from others, of course, have an interest in measures such as S. 1777 which might affect the economics and reliable availability of electric power supply.

The American Public Power Association supports the coal conversion program which the Federal Energy Administration is now attempting to implement. APPA recognizes, however, that there is a need for caution in the implementation of the program so as to avoid: (1) disruption of the power supply planning process; (2) the forcing of utilities to make uneconomic plant investments; (3) unnecessary increases in consumer electric rates; and (4) impairment of the reliability of electric service.

It is the position of the American Public Power Association that an electric utility should not be required to convert an existing generating unit to burn coal, nor to construct a new generating unit with the capacity to burn coal, without first determining (1) the availability of sufficient quantities of reasonably-priced coal, (2) the availability of reliable and economic transport

for such coal, (3) the environmental impact of the proposed use of coal, (4) the economic feasibility, and (5) the ability to obtain proper construction and operating permits. It is only by making such individual, case-related findings regarding the impact of national programs that the overall cost and benefits of such programs can be measured and the national interest rationally pursued.

S. 1777 would go considerably beyond the coal conversion program now being implemented by the Federal Energy Administration by establishing three new, relatively rigid, requirements:

1. After January 1, 1979, new electric power plants and
major industrial installations which utilize fossil energy
resources as boiler fuel must be capable of utilizing coal
as their primary energy source, in a manner consistent with
environmental requirements;

2.

As promptly as possible, but in no event later than
January 1, 1980, existing fossil-fuel electric power plants
and major industrial installations which utilize fossil
energy resources as boiler fuel (and not scheduled for
retirement prior to January 1, 1985) must acquire the
capability to utilize coal as their primary energy source
in a manner consistent with environmental requirements;
and

3. By January 1, 1985, to the maximum extent practicable,
fossil-fuel electric power plants and major industrial
installations must utilize coal as their primary energy
source in a manner consistent with applicable environmental
requirements.

Since S. 1777 would require the early conversion to coal-firing of existing
fossil-fueled utility boilers and would require new installations to be
constructed with a capability to use coal as their primary energy source,
APPA wishes to reemphasize the cautions which it has offered with respect
to the existing FEA coal conversion program.

In recent months and years coal for utility use has often been in short supply, and the price of bituminous coal has increased by nearly two hundred and fifty percent during the six year period ended March 1975, according to the BLS