wholesale price index, despite strong, long-term, utility demand for coal. This experience leads us to believe that there is a serious question as to whether adequate quantities of suitable coal will be available to meet the sharply increased utility demand for coal which would be occasioned by enactment of S. 1777. Also, the price which utilities might be required to pay for coal were they to be forced into such a market would be, again based on recent experience, totally unrelated to cost of production and would place an intolerable burden on electricity consumers. Any legislation which would force the rapid conversion of electric utility generators to coal firing should deal with these two primary questions of supply adequacy and reasonable prices. The availability of adequate transportation is apt to be a serious bottleneck in any attempt to greatly increase utility use of coal in the near term. One of the most common excuses offered for coal delivery failures to APPA member utilities is the unavailability of railroad hopper cars with which to move the coal. John Corcoran, chairman of the nation's second largest coal producer, Consolidation Coal, observed in a recent interview that among the many obstacles to large scale coal conversion is the fact that many of the railroads that haul coal are in need of a "massive rehabilitation project." Not only is there not an adequate stock of modern hopper cars, but the roadbeds of many rail lines are in deteriorated condition. Long-term availability of reasonably priced coal is only part of the broader question of the economic feasibility of converting existing utility boilers to coal firing. Some generating units, especially those designed for natural gas as the primary fuel, cannot be converted to coal firing. While a national policy which denies natural gas for use under boilers so that the scarce fuel may be reserved for "superior" uses may make sense in the aggregate, if in specific instances its application would result in the waste of existing capital equipment, the national interest might be best served by use of selective exceptions to the general policy. APPA recognizes the wisdom of conserving natural gas reserves for those purposes for which there is no acceptable substitute, but there are certainly instances wherein exceptions must be made so as to avoid the gratuitous waste of other scarce resources. The environmental impact of requiring electric utilities to convert from other fuels to coal is of concern to our member utilities both as good public citizens and as business enterprises which may be asked to comply with conflicting societal wishes and directives. We believe that no electric utility should be required to make expenditures to comply with a governmentally imposed coal conversion program until such time as there is clear agreement among all levels of government that the construction and operating permits necessary for coal-fired generation will be forthcoming. This is important both to insure that scarce capital is not wasted, and to allow electric utilities to meet their responsibility to their rate payers to control costs and hence electric rates. The objectives of S. 1777, to conserve scarce domestic petroleum and natural gas, and to promote national energy self-sufficiency, are fully supported by the American Public Power Association. APPA supports the concept of a coal conversion program. We do, however, question the wisdom of the ambitious time schedule outlined in S. 1777, and ask that any new program recognize the limitations on coal supply and be sufficiently flexible to accommodate sensible exceptions to general program objectives. AMERICAN PUBLIC POWER ASSOCIATION 2000 VIRGINIA AVENUE NW WASHINGTON DC 20037 202/333-9200 OFFICERS President STANLEY R. CASE President-elect LOUIS H. WINNARD Vice President CHARLES E. DUCKWORTH Treasurer WALTER R. WOIROL General Counsel NORTHCUTTELY General Manager ALEX RADIN DIRECTORS JAMES E. BAKER Shrewsbury, Massachusetts ALDO BENEDETTI STANLEY R. CASE NORMAN E. DIETRICH CHARLES E. DUCKWORTH Muscatine, lows W. BERRY HUTCHINGS McMinnville, Oregon MAX E. KIBURZ Loup River Public Power District C. D. MCINTOSH, JR. A. J. PFISTER EARL SWITZER Macon, Missouri J. B. THOMASON Moncks Comer, South Carolina MITCHELL W. TINDER DONALD VON RAESFELD Clark County Public Ulity District LOUIS H. WINNARD WALTER A. WOIROL I noted with keen interest reports of your remarks Because of your personal concern about this pricing AR/dt Sincerely, als Radia Alex Radin 55-305 O-75 pt. 3-5 AN ECONOMIC ANALYSIS OF PRICE INCREASES IN THE U. S. COAL INDUSTRY Prepared for: American Public Power Association Emergency Committee for the Tennessee Valley By: Dr. James R. Barth, Assistant Professor of Economics, Dr. James T. Bennett, Assistant Professor of Economics, October 1, 1974 AN ECONOMIC ANALYSIS OF PRICE INCREASES IN THE U. S. COAL INDUSTRY I. Introduction The purpose of this report is to document the rapid increases in the price of all types of coal produced in the U. S. and to investigate possible causes of these increases. Coal is a primary fuel used to drive the nation's economy and to provide a source of power for the generation of electricity. Due to shortages in oil and natural gas, the traditional substitutes, the nation will become increasingly dependent upon coal, which is relatively abundant. Increases in the price of coal, therefore, have and will continue to have far-reaching effects into every segment of the U. S. economy, particularly on the cost of generation of electric power, for utilities typically consume more than 65 percent of the Bituminous coal produced in the U. S. In the second section of this paper, increases in coal prices are reviewed and trends in production in coal mining are surveyed. Although some of the price increases can be explained by increased costs of production, it appears that the supply response of the coal industry to a rapid rate of price increase cannot be justified on the basis of cost increases alone. In a competitive environment, one would typically expect a rapid rate of price increase to lead to substantial increases in |