Mr. O'NEILL. That is correct.

Mr. VINSON. What I want for the purpose of this record and for my own peace of mind, and for the benefit of the study that I want to give to it, is to have the different methods of arriving at a minimum price in the printed bill. I am not asking you to divulge any agreements that were not reduced to writing and presented to the Congress for consideration; but we had the original Guffey-Snyder bill. Mr. O'NEILL. That is right.

Mr. VINSON. Then probably we had even an amended GuffeySnyder bill. I am not so certain about that, but I do know that later on we had a bill offered by Mr. Neely and Mr. Guffey as a substitute for one of the Guffey bills in the Senate. That is correct; is it not?

Mr. O'NEILL. That is correct.

Mr. VINSON. Then we have this bill. Do you know of any other bills?

Mr. O'NEILL. No, I do not know of any other bills that were actually printed, if that is what you mean.

Mr. VINSON. Yes, that is what I mean.

Mr. O'NEILL. No, I do not know of any others that were actually printed.

Mr. VINSON. You get my viewpoint. If you can follow it right through here now, I would like to hear it, if you could give me a history of it.

Mr. O'NEILL. I cannot give you the history of all of them, except that the first one was a definite price established as a minimum below which no coal could be sold-certain operators.

Mr. VINSON. How did they arrive at that definite price? I take it the Commission was to fix it.

Mr. O'NEILL. The Commission had to agree on it on the basis of cost.

Mr. VINSON. What factors entered into that price?

Mr. O'NEILL. It was the first 90 percent of the cost of production, that is, the lowest 90 percent out of the 100 in the district, excluding from cost depreciation and depletion, and I think selling expense. That would reduce the cost roughly 19 to 20 cents a ton below actual f. o. b. mine cost on that basis. It was an actual fixed price based upon certain elements of cost, and the elements that were excluded were about 20 cents a ton from a total f. o. b. mine cost.

Mr. VINSON. In the original bill

Mr. O'NEILL. That is the original bill.

Mr. VINSON. You had allocations of tonnage, did you not?

Mr. O'NEILL. That is right. The operators were unwilling to agree on allocation until a complete study of that subject had been made before a body of competent jurisdiction.

Mr. VINSON. Now, tell us what you know about the controlling things that entered into the changed attitude toward that original plan. The operators, I take it, you say did not like allocation. Did they object to this fixed price?

Mr. O'NEILL. The objection to the fixed price arose in those districts which had large quantities of low-grade slack to dispose of. In other words, the contest in the establishment of a price-fixing provision in the industry goes to two things:

First, the sizing and the consist of the various sizes that are made in the various districts. In other words, the yield of slack coal, which

usually sells for a low price in my district, may be 70 percent through a 1-inch screen, whereas in another district it may be only 30 percent through a 1-inch screen. So that I must get a price provision that will protect me in the sale of my slack as against the sale of the lesser quantity of the lower priced product in another district, who would be able under an average realization set of prices to sell his slack at a lower price than I could sell my slack, because of his lower percentage, and then sell his higher percentage of premium sizes at still a lower price than I would have to get for my lower percentage of larger sizes. Now, that contest went on here for almost a year among these coal operators, those who had the large yield of fines quarreling with those who had the smaller yield of fines, as against the establishment first of a specific minimum price, which was in the original Guffey bill, and which some of us in districts with very friable coal contended for, the others contending for the average realization; and in order to reach a compromise, this provision, which spreads over this big, wide area here, area no. 1, in which possibly 85 percent of the total tonnage of the United States is produced, will give effect to establishing one basing point for the minimum price schedules of every district, so that the yield of all of the sizes sold in all districts will equal whatever the total cost of this area might be.

The price will be borne down upon by the effect of the efficient operations, or that price, I would say, would yield cost or better to about 64 percent or 65 percent of the coal production in this area.

Mr. VINSON. What is going to happen to the other 35 percent? Mr. O'NEILL. The other 35 percent have to become efficient or lose money.

When we come before the Commission as I visualize this price list, my minimum price schedule for my district will be greatly below the cost of production in that district. In other words, we will suppose that the cost in area no. 1 is $1.85. The average cost in my district is something over $2 a ton. Under paragraph (b) of that marketing provision, when I present my schedule, other districts in area no. 1 who have lower costs than I will ask that their prices be lowered according to proper coordination and what their cost of production might stand, and that my prices be increased. On account of location and quality, I may be able to and can have my prices increased somewhat where other prices are reduced somewhat below this minimum price, base price, and the yield for the whole area will be at least the cost of the whole area.

Do I make myself clear on that?

Mr. VINSON. What was the first method that you and your associates agreed to next after the introduction of the original GuffeySnyder bill in January?

Mr. O'NEILL. This is the only provision, paragraph (a) of part II of H. R. 8479 on which any substantial proportion of the coal operators of the United States have ever agreed.

Mr. VINSON. Is there any difference between the language in H. R. 8479 and the language contained in S. 2481 in regard to the minimum price?

Mr. O'NEILL. There is a slight change for clarification purposes in paragraph (a).

Mr. VINSON. Is that all it does?

Mr. O'NEILL. Yes. As it was written in this S. 2481, of calendar date June 4th, it did not provide anywhere for prices to begin, and for that reason we had to insert, "Shall be established so as to yield a return per net ton for each district", so that each district would be compelled to file with the Commission its price schedule based upon the cost of production in price area no. 1; otherwise the Commission would have had to establish them originally, and because they would have had to aggregate the costs and just arbitrarily establish the prices themselves.

Mr. VINSON. In this Neely amendment, S-2481, as I referred to this morning, it says:

Said prices shall be established so as to yield a return for the respective areas defined in the subjoined table designated "Minimum-price area table”, whereas in the bill under discussion it says, "Said prices shall be established so as to yield a return per net ton for each district in a minimum price area, and such districts are identified and such area is defined in subjoined table designated "Minimum-price area table."

Is there any material difference in that language?

Mr. O'NEILL. In my opinion there is not, except that it does clarify how the minimum prices begin.

Mr. VINSON. It seems to me that there is quite a bit of difference when you deal in the Neely amendment, getting a yield for the respective areas, that is, the minimum price areas referred to therein, and also in this bill securing a yield for each district in a minimumprice area.

Mr. O'NEILL. That is correct.

Mr. VINSON. Do you think that there is no difference in effect? That is what I want to know; but I see the difference there in language. Mr. O'NEILL. There is a difference in language, if the paragraph (b) does not give the authority for the Commission to establish a schedule of prices which may be not substantially lower than the cost for the whole area.

Mr. VINSON. What is the difference? Say that subsection (b) does not work as you say. What is the difference in practical effect between the language in those two bills?

Mr. O'NEILL. The difference in practical effect would be that each district would have to realize at least the cost of the average of the whole area. If paragraph (b) is proper and my recollection is that it is, the yield is made for the total area with a coordination of prices, one district being lower and the other higher, so that the yield for the whole area will give the average cost of all the districts.

Mr. VINSON. You have a subsection (b) in each of these bills?
Mr. O'NEILL. Yes.

Mr. VINSON. I do not know that they are identical, but it looks as if they might be, or similar.

Mr. O'NEILL. On line 7, page 15, of H. R. 8479, it reads:

The minimum prices established as a result of such coordination shall not substantially reduce as to any district the return per net ton upon all the coal produced therein below the minimum return as provided in subsection (a) of this section, nor shall they increase such return per net ton by an amount greater than necessary to accomplish such coordination.

In other words, in the coordination and with the approval of the Commission the prices can be below in a district the average return

for the minimum price area, and in another district higher, in order to accomplish fair competition.

Mr. VINSON. In this bill under consideration you use the weighted average cost. That is correct, is it?

Mr. O'NEILL. That is correct.

Mr. VINSON. In your study of this problem, did you consider any other methods of producing a base upon which the minimum price could be reached?

Mr. O'NEILL. No. We considered many methods in operators' meetings, but we never were able to agree or find a method that could be proven in court.

Mr. VINSON. Let us have some of those methods because I think the minimum price is the important thing. It is important for the operator, it is important for the mine worker, and it is important for the consuming public. I think that that statement will not be gainsaid. What other methods could be adopted? I do not mean that you are suggesting them.

Mr. O'NEILL. The method adopted under the code of fair competition was simply a hope to realize exactly what is written in this bill, except it was done by separate districts, each district doing it its own way; and the classifications of coals and the judgment of prices that could be secured in the market depended on the men constituting the various code authorities who set them up.

There were many standards attempted in the code such as maintaining the normal flow of tonnage; the relative market value, and the chemical analysis of the coal, but they are all methods that you cannot put your finger on. They are a matter of judgment, when you are all through with them.

We do say on page 12:

The minimum prices so established shall reflect as nearly as possible, the relative market value of the various kinds, qualities, and sizes of coal, shall be just and equitable as between producers within the district, and shall have due regard to the interests of the consuming public.

That means the chemical quality, the heat value, all of those characteristics that go to make one coal more desirable than another, must be reflected in the price schedule in order to maintain fair competition between the lower or medium grade coals as compared to the higher grade coals.

Mr. VINSON. How was the minimum price reached under N. R. A.? Mr. O'NEILL. In our code authority we hoped to achieve a price of $2 a ton, which we believed would be what we ought to have with the cost established under the wage scale. We realized, I think, only $1.85 during the period of the first scale under the code, but our prices were projected on the theory they were going to realize $2. Mr. VINSON. Was that a $2 average?

Mr. O'NEILL. That was to be a $2 average, but it averaged $1.85. That is, our calculations were wrong, and that was due, probably, to shifts of customers from the higher priced coals to the lower priced coals, and customers shifting from run-of-mine coal to slack coal, and lower-priced coal.

Mr. VINSON. Did the N. R. A. use the weighted average method? Mr. O'NEILL. Of cost?

Mr. VINSON. Yes.

Mr. O'NEILL. The determination of cost?

Mr. VINSON. Yes.

Mr. O'NEILL. Oh, yes.

Mr. VINSON. That was the method that they pursued?

Mr. O'NEILL. I would not know how you would get the cost unless you did weight it. That is, you would have to weight the tons against the dollars.

Mr. VINSON. That is true as to weighted cost. I was really thinking of the question of minimum price. Of course, the minimum price is going to affect the industry.

Mr. O'NEILL. There is no question about that.

Mr. VINSON. When it affects the industry it is affecting the capital invested and it is affecting the men who are working for those folks who have not a fortunate cost price.

Mr. O'NEILL. That is right.

Mr. VINSON. Have you given any consideration to marginal costs? Mr. O'NEILL. Of course, the question of marginal costs-I take it you mean costs that are above the average?

Mr. VINSON. Costs that will permit folks to stay in business.

Mr. O'NEILL. That was the first price provision, an attempt to establish a marginal cost. That was really your cash cost, less your selling price, which is cash. I think it was depreciation, depletion, and selling expense, that was excluded from the cost for the establishment of the minimum price in the original Guffey bill in the Senate. Mr. VINSON. Do you think that actually was marginal cost in the Guffey bill?

Mr. O'NEILL. I would say that marginal cost is the cost of labor, supplies, and taxes, and other production costs excluding depreciation and depletion, administration, selling, and costs. But you should take into consideration a selling cost that is about, I think, in division no. 1, 14 cents a ton, and that is cash cost.

Mr. VINSON. I did not catch that.

Mr. O'NEILL. I say, that was about 14 cents a ton.

Mr. VINSON. What is?

Mr. O'NEILL. Selling and administrative cost in division no. 1. So that a marginal cost price, if it became the maximum, which, under the conditions obtaining in the coal industry, it could and might do, would force people to sell coal 14 cents a ton below cash cost. In other words, practically all items of cost in the bituminous-coal industry are cash except depreciation and depletion. They are cash, too, when you consider them as capital which should be returned, but people do not count them in their cost sheet as cash.

Mr. VINSON. What part does transportation play in your consideration?

Mr. O'NEILL. You mean transportation, cost of carriage of coal? Mr. VINSON. Yes.

Mr. O'NEILL. Our coordinating section in paragraph (b) provides that the transportation charges upon coal shall be given consideration so that differentially higher-rated producing districts who have reached a common market will receive consideration in the coordination of these prices and so that it will reflect in the prices closer to the market, that such higher-rated districts may continue in business.

Mr. VINSON. Just what do you understand that to mean?