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Unit train rates are set on an individual basis without any relationship to general rate levels. Rail coal rates generally are set to meet the

competition, but in the West there is no competition because of the lack of waterway systems west of Iowa. So there are presently no restraints on what the railroads can charge for hauling coal.

If efficient, economical coal slurry pipelines are permitted to be built, they can provide the competition to keep rail rates in line and thus help hold down the cost of electricity to the consumer. As an example

of the impact of coal slurry competition, the President of Middle South

Utilties has testified that his company can save $14 billion if it can
receive 25 million tons of coal annually by slurry line instead of
rail. That is a direct saving to the customers of Middle South--and
it also represents an additional unnecessary $14 billion that will find
its way into their electric bills if Middle South Utilities is forced to
use rail transportation instead of a coal slurry pipeline.

Thank you for this opportunity to comment on S. 1777, the National Petroleum and Natural Gas Conservation and Coal Substitution Act of 1975. We have followed the energy situation closely for the past several years and agree with you that an expanded utilization of coal, of which the country has hundreds of billions of tons, is one of the key elements in a national energy policy. Nevertheless, we believe that the approach to greater coal utilization as proposed in S. 1777 is unwise.

Georgia-Pacific is a manufacturer of pulp, paper, paper products, chemicals, gypsum
products, plywood, lumber, particleboard and other building and forest products.
We employ approximately 34,000 people in 196 plants and 140 distribution centers
located throughout the United States. In the production and distribution of our various
product lines, we use energy in almost every conceivable form. These sources
include conventional forms such as natural gas, oil, propane, coal and electricity as
well as more unconventional forms such as hog fuel, spent pulping liquors and, in
one instance, hydrogen generated as a by-product. We commercially produce some
energy, including considerable coal in West Virginia. We operate many industrial
boilers in many parts of the country.

As clearly contemplated by the detailed, perceptive questions posed by your Committee,
the entire subject of converting boiler fuels is extremely complex and interrelated
with almost every facet of our economic system. Therefore, we urgently caution
against any form of mandated conversion, except as a last resort.

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Maximum reliance must be placed on market forces with government involvement limited primarily to a "facilitating" role such as elimination of price controls on all sources of energy, adjustments in environmental controls, implementation of sensible federal leasing programs, carrying out needed reforms in labor and transportation laws, and perhaps, providing tax incentives.

The Honorable Jennings Randolph

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July 1, 1975

Based on our long, intimate experience in using all forms of energy, we are convinced it would be sheer folly to set arbitrary conversion requirements by statute, regulation or decree. There are far too many variables, such as accessibility to coal supply, availability, quality and prices of coal, and sensitivity of process. Maximum flexibility must prevail to adjust to local conditions of all kinds, to take advantage of alternate (including new) sources of energy, and to allow for technical innovations. Already much progress is being made in developing the use of municipal waste, used tires and other residues as fuel.

We must also allow for dramatic changes in consumption patterns of oil and natural gas which could ease the need for precipitous conversion from these fuels. Already a major shift to smaller cars is underway which could eventually shrink gasoline consumption by as much as 50%. Just recently a major truck manufacturer informed us improvements in new trucks will result in fuel savings of roughly 25%. Also, if wellhead natural gas prices are deregulated, resulting price increases will surely decrease consumption substantially. Such price increases will also increase supplies.

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Which leads us back to the very central and basic issue the use of market forces, especially unregulated energy pricing, to solve the energy shortage probelm. Everyone involved in the "conversion" process utilities and industries operating the boilers, coal producers, "alternate" energy suppliers, transporters, boiler conversion manufacturers (and their suppliers), financial institutions, labor forces, etc. -- must ultimately interface with the price of energy and make decisions based on that price. Attempting to ignore or circumvent economic reality will be disastrous eventually, if not immediately.

While we agree that right now greater use of coal may be a primary long range answer to the energy problem, it would be a mistake to overreact. It is premature to mandate in 1975 conversion of any kind 5 or 10 years in the future when the energy picture could be much different than today.

We question the push for a "national coal policy." It would be better to seek a "national energy policy" which, as indicated already, should include as a primary plank maximum reliance on market forces, particularly unregulated pricing (except, of course, utility rates in natural monopoly situations). In this connection, we urge your Committee to support efforts to deregulate natural gas wellhead prices as well as old oil as a matter of highest and urgent priority. Then attention should be directed toward environmental, mining, transportation and related concerns.

We are prepared to help achieve these objectives in any way we can.

Sincerely,

William

William J. Moshofsky
Vice President

WJM:jmp

W. Truslow Hyde, Jr.
Public Utility Consultant

366 Madison Avenue
between 45th and 46th Streets

New York, N. Y. 10017

Telephone: 212-986-2927

...

June 5, 1975.

The Honorable Jennings Randolph, Chairman
U. S. Senate Committee on Public Works
Washington, D. C. 20510

Dear Sir:

As requested in your letter of May 30, I am pleased to submit the following comments regarding the "substitution of coal for oil and natural gas in electric power plants".

Since I have devoted virtually all of my business activities over the past thirtyfive years to the financial aspects of public utilities, I will limit my remarks to that phase of the matter under study and respectfully submit for your consideration a proposal which would more equitably distribute the financial burden of a conversion of oil and gas fired utility boilers which otherwise would fall on the customers of the individual utilities.

The total cost of conversion of oil and gas fired utility boilers to coal is not known but obviously would necessitate huge and varying capital expenditures aggregating many billions of dollars by the affected utilities. Customers of these utilities, who are already having to pay sharply higher prices for their electricity, would be unfairly burdened by the carrying costs of the additional capital and might see the cost of their electricity increase 50% to 100%.

If, however, such a conversion should become mandatory, it would be for the benefit of all citizens of the United States and not only for the customers of the affected utilities. The purpose of the conversion would be to conserve the limited supplies of oil and natural gas so that every man, woman and child in the country could look forward to an extension of the life of these finite reserves. It would, therefore, be discriminatory and patently unfair to force the relatively few customers of the affected utilities to absorb the cost of conversion which is designed to benefit the many.

May I, therefore, respectfully suggest that, if the conversions are required, the Federal Government, in order to allocate the cost among all the people, provide the necessary funds through "Contributions in Aid of Construction" to the individual utilities affected?

"Contributions in Aid of Construction" have frequently been used by utilities in order to finance the construction of specific facilities for the benefit of a single customer that would not be justified by the anticipated revenues and would, therefore, become a burden on other customers. Before the days of rural electrification, contributions of this type were frequently made to extend power lines to individual farms. The monetary advances carried no interest but were deducted from the rate base of the utilities and were ultimately repaid in monthly credits over a specified period of time.