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"• ~. The Honorable Richard D. Lamm ~'' April 15, 1981 Page 3 application consisted of 12 volumes and was assembled for an effective direct cost of more than $500,000. The request for urgent treatment was necessitated by the anticipated depletion of the Marr Mine private reserves by February 1981 and the need for federal reserves to sustain contract deliveries and employment levels in 1981. Understandably, we put a great deal of pressure on both MLRD and OSM. To their credit, both agencies responded with a willingness to understand our problems and a sense of commitment to meeting an almost impossible time schedule. We were extremely happy to receive the MLRD's approval on February 16, 1981 (subject only to the filing of an appropriate bond) and the final approval by OSM on March 20, 1981. Before the close of business on March 20, 1981, our equipment had moved onto the Federal Lease and started to remove the topsoil with the objective of exposing coal at the earliest practicable date. Kerr's recent decision to reduce employment and curtail production was necessitated by the unexpected refusal of its largest customer to pay the increased regulatory, reclamation and royalty costs associated with the mining of coal from the Federal Lease. Until April 1, 1981, Kerr had been supplying coal to all of its customers from private coal reserves at the Marr Mine. Union Electric Company ("UE"), an electrical utility with offices in St. Louis, Missouri, has been Kerr's largest single customer, purchasing 500,000 tons of coal per year for consumption in its Labadie power plant in Missouri. Although Kerr's contract with UE provides for price escalations to accommodate cost increases resulting from regulatory impacts and royalty increases, when Kerr recently advised UE of the anticipated cost increases, UE took the position that the magnitude of those increases was outside the "scope of the contract." Moreover, UE advised Kerr that UE would either: (1) Negotiate a settlement that would partially compensate Kerr for the regulatory, reclamation and royalty cost increases; or (2) resolve the impasse through litigation. Incidentally, before adjustments for increased regulatory and royalty costs, the contract price specified in the Kerr-UE contract was $20.00 per ton during calendar year 1981 and $21.00 per ton during calendar year 1982. Because of the regulatory, reclamation and royalty cost increases anticipated for the Federal Lease, UE was facing a price escalation of at least $6.00 per ton (an increase of 30~) in 1981 and further increases in 1982. Kerr could not accept the UE offer of settlement nor could Kerr continue deliveries while awaiting the outcome of time-consuming litigation. Under either alternative, Kerr would not have been able to cover the