Alaska Railroad revolving fund-Estimates for additions and betterments, and replacement program to be financed from revenues (in thousands) REQUEST FOR AUTHORITY FOR PROJECTS Mr. FITCH. I am E. M. Fitch, Assistant to the General Manager. Mr. Smith regrets that he cannot be here and I will present his statement for him. The Railroad once again will not require any appropriation but we are requesting your concurrence in a program for additions and betterments to be financed from operating revenues. The program for which we hope to obtain authority this year will cost an estimated $1,295,000. Of this amount, approximately $1,045,000 is represented by capital items and the balance from this improvement program will accrue to expense accounts. This program will be financed from operating revenues and you will note that this program is some $705,000 less than the program for the current fiscal year. Then, the General Manager points out, costs have been increased, wages have been increased, and we have the usual problem of meeting higher costs with revenues that tend not to increase as expenses have increased. HAINES-FAIRBANKS PIPELINE In that connection the General Manager would like me to point out two situations which are going to be the cause of some problem in trying to make both ends meet in the coming years. One of them is a situation with respect to the Haines-Fairbanks Pipeline to which we called your attention before. There are interests in Fairbanks that would like the military to open up that pipeline to commercial use. If that is done and a substantial amount of petroleum is diverted from the Railroad-commercial petroleum, to the pipeline inevitably our revenue goes down, and we are quite worried about that particular problem. We do not know whether the military will agree to this. They have not in the past, and in the past they have been disinclined to enter the common carrier field in competition with other carriers, but we are worried about it. FUEL CONVERSION IN POWERPLANTS There is one other item to which I should like to call your attention. The Army and Air Force in Anchorage have been approached by the natural gas interests which are building a pipeline from the New Kenai field into Anchorage. They have made a proposition to convert the coal-burning powerplants at Elmendorff and Fort Richardson to natural gas. Those plants consume 250,000 tons of coal per year. In normal years, that all comes out of the Matanuska Valley. It represents an income to the Alaska Railroad of $629,000 annually. EFFECT ON COAL INDUSTRY Plainly, if the conversion is made, the coal industry in the Matanuska Valley will be largely destroyed. It will lose five-sixths of its market and the railroad will be hard put to make up the loss of $629,000 in revenue. We are particularly exercised about it because the pipeline itself does not exist at this point, and we have been urging the military not to commit themselves to gas when they do not know that they can get it. The line to Turnagain Arm is complete, but last summer the engineering construction outfit was unable to cross the arm. There are enormous and swift tides that come in Turnagain Arm. The streets of Anchorage, however, contain the distribution lines of the pipeline company. We do not think the military should commit themselves to an unknown. OBJECTION TO LONG CONTRACT Secondly, under applicable regulations, the military tell us they can make 10-year contracts with the gas interests on the grounds that gas is a public utility, and 1-year contracts with the coal companies, because coal is a commodity. We think that this is competitively unfair and that the Matanuska Valley should not lose out because of inability to contract for a 10-year period. If a 10-year contract would be possible with the coal mines, we think the alleged savings of using natural gas in those two powerplants would largely disappear, and we hope something can be done about that. PRESENT ACTION ON MATTER Chairman HAYDEN. Is that a matter that Congress passes on, or can it be handled administratively? Mr. FITCH. It can be handled administratively and we have been presenting our position to the Supply and Logistics Division of the Department of Defense. Chairman HAYDEN. Is there an ample supply of gas? Mr. FITCH. Yes, and if they get across Turnagain Arm, that will be used by commercial and domestic consumers in Anchorage. Chairman HAYDEN. Turnagain Arm is pretty hard to get across? To go around the head of it would be a much greater distance and it would be more costly? Mr. FITCH. There is another company talking about that, but it is just talking at the moment. NEED FOR LEGISLATION You mentioned legislation. It is possible that granting the authority to make 10-year contracts with coal mines might be a matter for legislation. I would not know, but under the present regulations, the military insists they can only make the 10-year contracts with the gas interests. Chairman HAYDEN. I do not see how they can make one sort of contract for one source of fuel and cannot make the same one with another one. Mr. FITCH. They tell us that under their regulations coal is a commodity but the supply of gas is a public utility. They have authority to negotiate with public utilities for 10 years but with the producers of a commodity only from fiscal year to fiscal year. I assume they properly interpret their own regulations, but that is the way they explained it to us. It does seem pretty unfair to the coal interests. Chairman HAYDEN. I am wondering which committee of Congress would look into that. If it were a military matter the Armed Services Committee would look into it and if it were not a military affair it would probably be the Interior and Insular Affairs Committee. This is a subject that thoroughly deserves looking into, and I cannot see how there should be any distinction made between two sources of fuel. Thank you very much. VIRGIN ISLANDS CORPORATION STATEMENT OF DR. KENNETH L. BARTLETT, PRESIDENT AMOUNT REQUESTED Chairman HAYDEN. The budget estimate for "Contributions, Virgin Islands Corporation," is $669,000, a decrease of $22,000 from the request of the current fiscal year. This amount primarily is to cover losses in the Virgin Islands Corporation's sugar operations which resulted from a drought existing thrughout the 1959 calendar year. HOUSE ACTION The House of Representatives has approved for payment to the Virgin Islands Corporation the $669,000, which is to be derived from internal revenue collections appropriated for the Virgin Islands. Your appeal from this action asks that $130,000 be made available as contributed funds for the forestry and the water and soil conservation programs. What will be done about the other $539,000? (The justification follows:) VIRGIN ISLANDS CORPORATION HIGHLIGHT STATEMENT The programs of the Virgin Islands Corporation are designed to accelerate the economic development of the Virgin Islands; namely, St. Croix, St. Thomas, and St. John. On St. Croix, the only agricultural island of importance, the Corporation operates the only sugar factory and grows approximately one-half of the sugarcane produced. The Corporation is the sole producer and distributor of electric power throughout the islands. Various other programs including the construction of dams for the preservation of water, the improvement of livestock, the development of agricultural crops other than sugar, and a forestry program are also carried out. These activities provide considerable employment and to a large extent affect the overall future economy. During the past year a new mill was installed at the sugar factory and another rehabilitated; also, two new steam turbines were added. Several new promising varieties of sugarcane are rapidly replacing older ones grown in previous years. A 2,500-kilowatt generator was installed at St. Thomas and the power distribution systems throughout the islands were expanded and improved. Engineering studies were completed for the eventual construction of a salt water distillation plant which will be operated in conjunction with the steam turbine electric powerplant at St. Thomas. Substantial plantings of West Indian mahogany were made on private and government lands. A plant for the treatment of local lumber was placed in operation. Commercial plantings of tropical fruit trees and macademia nuts were started to test their adaptability and production potential. The current year's program has been changed to a major degree from prior years with the planned installation at St. Thomas of a 3125 steam turbine generator in conjunction with a salt water distillation plant. This is an initial move from diesel generating equipment to steam. An adequate supply of power and water is essential to the continued growth of the islands and particularly the tourist industry which has made rapid advances in recent years. It is anticipated that these new powerplants will be completed and ready for test runs in late 1961. The objectives and programs for 1962 are identical with those of 1961. The prospects are excellent for a large sugarcane crop in 1962, and there exists a need for additional financing in order to market the crop in a manner which will insure maximum return to the Government. There also continues a dire need for the expansion of power facilities in order to meet the phenomenal economic growth which the islands are experiencing. The estimated appropriations and expenditures required during each of the 3 years succeeding the budget year are as follows: The only language change requested in 1962 is an increase in the limitation on administrative expenses from $172,000 to $180,000. This increase of $8,000 is required in order to meet the pay increase granted by the board of directors on a basis similar to that provided under the 1960 Federal Pay Increase Act. Appropriation, 1960. Contributions, Virgin Islands Corporation Appropriation, 1961....... Operating losses: Summary of decreases, 1962 Funds requested to cover losses represent a decrease of $22,000 as Net change, 1962. Budget estimate, 1962. The estimate of $539,000 is a decrease of $22,000 as compared to the amount available in the current year. During the fiscal year 1960 the Corporation sustained substantial losses of $539,000 in its sugar operations due to a serious drought which existed throughout the 1959 calendar year. These funds are essential to replenish operating capital and thereby maintain a sound cash position. 2. Programs not predominantly of a revenue-producing character (a) Water and soil conservation. The estimate of $100,000 is the same as for the current year, and the funds will be used for the following purposes: Dam construction__ Maintenance of pasture (special practices) $80,000 5, 000 15, 000 The (b) Forestry program.—The $30,000 is the same as for the current year. primary concern of the forestry program is the establishment of permanent forest cover on suitable land without encroaching upon the demands of other aspects of proper land use. The program covers planting of desirable forest species such as mahogany and teak, the management of established timber areas, and the utilization of forest products. PREPARED STATEMENT Dr. BARTLETT. I have a statement I will present to the reporter. (The statement referred to follows:) Mr. Chairman and members of the committee, it is a privilege to again appear before you to present the justification for funds for the operations of the Virgin Islands Corporation. The losses of the Corporation increased substantially over the previous year as a result of a serious setback in our sugar operations. During 1959 the Virgin Islands experienced another dry year, and the condition was aggravated by a previous drought in 1957. The low production of sugarcane was reflected in a poor factory operation, attributable to the small volume of sugarcane ground. Grinding operations were continuously disrupted due to the impossibility of |