Many producers in the industry are extremely hard up for money, and a levy of 25 percent of sale price, if withdrawn from working capital for even 1 month, is a serious prospect for them to face.

Senator MINTON. You understand that under that section the operator would have to send the money in and then get the drawback? Mr. BRUNOT. I was somewhat at a loss to know. That was the impression that I got.

Senator MINTON. The bill would seem to indicate that was the intent of it, but if the bill should be amended in that respect to provide for the handling of that in some sort of bookkeeping fashion, without the necessity of paying out and receiving back the money, would that meet your objection?

Mr. BRUNOT. I think it would meet it from the point of view of too great an outlay of money. I do not think it would meet my objection to the clause for other reasons, which I will undertake to outline.

Senator MINTON. Very well.

Mr. BRUNOT. As an alternative it is proposed that the tax be fixed at 20 cents per ton upon the tonnage produced each month and that there shall be a refund or drawback payable or credited to the producer on or before the 10th day of each succeeding month, less the expense of administering the hereinafter enacted code, each producer to be charged with his proportionate share, computed upon a tonnage basis in accordance with regulations prescribed by the Commission. Paragraph K of section 4, which provides for additional payment for administration expense, will thus be transposed; and the manifest object of section 3 will then be to raise revenue by taxation to carry out the purposes of the act and will be in accord with a function of taxation that was once stated by Grover Cleveland, who said that it was the duty of the citizen to support the state and not the duty of the state to support the citizen.

Senator DAVIS. Then you believe that 1 percent of the tax is too much?

Mr. BRUNOT. No.

Senator DAVIS. I mean that 1 percent of the drawback that is permitted to remain in the Treasury is too much.

Mr. BRUNOT. Well, I don't think that. I think the administration of the act should be paid out of the tax. I think the tax should be a definite, fixed amount, which should not be too burdensome, sufficient to cover the expense of the administration of the act. If there is a balance over, it should be credited on the 10th day of each month as against the succeeding month's tax. In other words, make it a revenue-raising tax for a specific purpose, to pay the cost of administering the act, which is for the benefit of the persons paying the tax. Senator MINTON. But that tax has another purpose, has it not? That is to say, it is coercive.

Mr. BRUNOT. That is the very reason I object to it. I think the latter part is coercive. As it stands now, as I see it, it places a burden on anyone who will not sign an agreement. You must sign it or you are out of business.

Senator MINTON. Is that not the purpose of the act?

Mr. BRUNOT. Not from my point of view. I would not think so. As a matter of fact, the 20 cents a ton has the same effect, but it is not prima facie in the act as a coercive measure.

Senator MOORE. Do you think there would be a drawback there, too?

Mr. BRUNOT. I would think so.

Senator MOORE. You may proceed.

Mr. BRUNOT. Section 4, part 1, paragraph (a), provides for a district board of 6 members, of which 5 members shall be elected by the coal producers voting in the proportion of their annual tonnage output. It is conceivable and, in fact, probable that in some districts a small group of producers with a very large tonnage may elect and dominate all members of the board, and thus secure and establish enforced control and taxation without opportunity for representation. We oppose that clause, for the reason that it is antagonistic to representative government.

Senator MINTON. I do not locate that clause.

Mr. BRUNOT. It is the last few lines of that section.
Senator MINTON. Which section?

Mr. BRUNOT. Section 4, part 1, paragraph (a). That is under title I.

Senator MINTON. Very well.

Mr. BRUNOT. We oppose this clause for the reason that it is antagonistic to representative government. As an alternative we propose a district board of 7 members, and that 2 members of the board shall be elected by a majority vote of all the rail-shipping producers of the district, and 2 members by preponderance of tonnage alone, and 1 member by producers of captive tonnage and 1 member by truckor wagon-mine producers, and 1 member be selected by the national organization of employees.

Referring to allocation of tonnage, as provided in section 4, part 1, paragraphs (b) and (d):

The vast majority of coal-producing companies do not own or control docks, vessels, or retail yards, and they are not affiliated with common carriers either by rail or river, and have no control over captive or semicaptive coal tonnage and therefore no market for coal except through open competition. The Irwin Gas & Coal Co., with whom I am connected, sells its coal in highly competitive markets for industrial and steam uses, and for the period beginning 1918 and ending 1929 its average annual tonnage was 535,000 net tons, which has fallen to an annual average of 209,000 net tons during the depression period, 1929 to 1934, inclusive.

Section 4, part 1, paragraph (b) of the act, the method of ascertaining allocation of district tonnage, contemplates that the average annual output for all mines since 1918 shall be again averaged with the outputs for the year 1934 and that the mean average results thus obtained shall fix the district tonnage.

According to such method, the mean average tonnage contributed by this company for the purpose of building district tonnage allotment will be reduced to 342,105 net tons.

However, paragraph (d) of the act provides that quotas of tonnage to be assigned to each mine shall be measured by a different yardstick and shall be based on the average annual output since 1929. Applying such method to the production of this company, the maximum allotment for our mines will be only 209,000 tons instead of the 342,000-ton average that is used to help build the district tonnage.

Manifestly the foregoing sections of the bill place my company in the position of supplying tonnage to help build up and secure tonnage allotment for the district and then impose a minimum allotment upon our mines by the use of a different yardstick for measurement of individual allotment.

Since 1929 the depression has caused the smaller independent mines. that depend upon competitive industrial and steam business to lose a greater proportion of tonnage than the larger producers enjoying controlled or semicaptive coal or affiliated tonnage from docks, yards, railroad, byproducts, and vessel fuel. The proposed allocation provisions of the act perpetuate the depression for any producer who has had small tonnage during the depression years and will freeze his future tonnage upon the basis of the depressed business of 1929 to 1934, although taking advantage of his larger tonnage produced during the earlier times of industrial activity to swell the allotment of the district for the use and benefit of producers of controlled tonnage who did not suffer proportionately during the depression years, and also for the benefit of companies who during the latter years have maintained volume of tonnage at cut-rate prices for coal by the expedient of reducing the rates of wages and pay of their employees.

We strongly oppose paragraph (d) as now written and favor the allocation of individual mine tonnage on an alternative optional basis whereby each producer may make choice and select either the mean average tonnage allotment basis as stated in paragraph (b) or the average annual tonnage of any mine during three consecutive years within the period 1918 to 1934, inclusive, and/or in case of a mine with less operating experience than 3 years, the average annual or monthly tonnage of such mine; and/or in the case of a newly opened mine or a mine with no tonnage experience, the allotment to be based upon an award to be made and approved by the Commission upon application after consideration of the facts."

There is ample legislative precedent for such optional privilege, a pertinent example being the depreciation and depletion optional privileges provided in section 23 (M) and section 114 (4) of the Federal Revenue Act of 1934.

Section 4, part 1, paragraph (h), prohibits the transfer of tonnage quota from one mine to another, except upon express approval of the Commission.

In some respects this provision seems to impose an unnecessary restraint upon freedom of action. Business convenience requires a degree of flexibility. Coal is mostly ordered and consumed as needed, and the consumer cannot wait for a commission to act and approve a transfer of tonnage in case of a mine disaster at a certain mine or in case of break-down of machinery, flooding of mine workings, or physical conditions that prevent the prompt and economic delivery of coal. This clause could be modified to provide for such contingencies.

I might say that within the week it has become necessary for us to transfer some tonnage from one mine to another, due to a breaking through of flood water in an old working. It seems to me that permission to transfer for physical reasons, at least, should be extended to cover such conditions as that.

Section 4, part II, paragraphs (a) and (b) are obscure insofar as they do not assure to producers of steam or other inferior coals or

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to shippers in the district as a whole that fair competition relationship will be established and maintained as against competing coals. I view that from the point that even with allocation there is going to be competition between coals, plenty of it. We have our active seasons and we have our dull seasons. Inferior coals will not move in competition with superior coals in the dull season.

Fair competition is elsewhere defined as being equitable rivalry. Manifestly, equitable rivalry cannot exist where coal of recognized superior quality is pitted against admittedly inferior coal, at uniform prices. If such be the rule, serious dislocations of tonnage will result and the steam-coal shipper with the limited one-purpose outlet for his product will be subjected to inroads whenever the by-product or other best quality coal shipper loses some of that class of business and turns to steam-coal markets for recoupment.

A number of modifying factors have had a place in price determination. Consider for example the element of freight differentials with relation to the Pittsburgh district. By and large, Pittsburgh coal enters the Ohio market at 10 cents per ton freight disadvantage; it enters the northern or Buffalo market at 15 cents per ton freight disadvantage; and when entering the eastern market the freight differential against it is 23 cents per ton.

Ultimately coals of similar quality from the more favorably located districts will displace Pittsburgh coal in the West, North, and East unless flexibility in price structure is provided to preserve the factor of competitive rivalry and the inevitable economic trend will be toward shifting of sources of supply and the dislocation of present tonnage movement.

Equitable competitive pricing of coal cannot be reduced to an exact science because of the variable factors encountered such as inherent quality, structure of the material, sizing of the product, adaptation of the material and machinery for processing or the equipment for burning and the use purposes of different grades and sizes and qualities of coal.

However, there are two factors that lend themselves in large measure to precise determination:

Heat value as expressed by British thermal units.
Transportation cost differentials.

The value of coal for converting water into steam is primarily expressed by British thermal units (B. t. u.). One British thermal unit will raise the temperature of 1 pound of water 1 degree on the Fahrenheit thermometer.

For practical competitive steam-raising purposes bituminous coal may be said to range between 12,500 and 14,500 British thermal units or an average of 13,500 B. t. u. We believe that under the allocation provisions of this bill that heat value as expressed by British thermal units affords one primary equitable measure of the values of coal and that the factors of fusion and structure and coking and sulphur and volatile content and their ramified adaptation to the various makes and kinds of producers, ovens, stokers, and blowers, and firing equipment can be ignored. In other words, if coal production is limited and the product is equitably priced according to heat value, it can be expected ultimately to reach consumers who can use it economically.

Transportation cost may be grouped under rail, water and truck classifications.

Under the bituminous coal code rail differentials have been prorated with respect to consuming market areas and after many months of trial and error a uniform market area districting has been devised. We recommend the continuance of the practice and the adoption of the market area districts together with the freight differentials applicable to them and that an extension of the principal shall be adopted with respect to water-borne coal and truck transportation. We therefore suggest that the price for mine-run coal as delivered for transportation with heat value (dry basis) averaging 13,500 British thermal units shall be the average per ton cost of production f. o. b. the mines, including the cost of labor, supplies, power, workmen's compensation, taxes, insurance, administration, and all other direct expenses of production, but not including depreciation or depletion, in each of the producing districts as defined herein, plus favorable carrying differentials to consuming market areas of not more than 30 cents per net ton and that the price of all coal, irrespective of use purposes and sizing, shall be priced as delivered for transportation and that prices shall fluctuate upward and downward from said base price to the maximum extent of 40 cents per ton either way at the rate of 4 cents per 100 B. t. u. or major fraction thereof. That prices for coal shall be and remain as published on February 1, 1935, under authority of the bituminous coal code for and during 60 days from and after the enactment of this act. That within the period of 60 days from and after the enactment hereof each producer shall submit to the Commission competent proof of the British thermal unit heat value of each grade and size of coal for which price is desired or quoted, which proof shall be taken to be prima facie evidence of said British thermal unit heat value for the purpose of initial prices and shall be used by the Commission to promulgate prices at the end of said 60-day period, subject to revision and change by the Commission upon convincing evidence gathered by or submitted to the Commission, and that all contracts hereinafter concluded for the sale of coal shall be subject to change in volume of tonnage and the price thereof in accordance with the allocation of tonnage and the prices therefore as determined under the provisions of the act.

I quite appreciate that is a great big order that I am rattling off, but it has been given a lot of study.

Senator MOORE. Go right ahead.

Mr. BRUNOT. Referring to "Annex to act" district 1, it is noted that the high volatile coal producing mines located in the counties of Fayette and Westmoreland are grouped with the low volatile coals of eastern Pennsylvania instead of being grouped in their normal and natural position with the high volatile mines of district no. 2. Differences in the structural and physical character of the coal, mining practices, and market competition make this grouping highly objectionable.

Senator DAVIS. What sections are grouped in district no. 2?

Mr. BRUNOT. District no. 2 is the one in western Pennsylvania, the high volatile counties, with the exception of Fayette and Westmoreland Counties. They have been transferred to district no. 1. They