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Some of the most troublesome changes the Forest Service has implemented in 

 response to TTRA involve unilateral modification of our pricing structure. First, the 

 Forest Service excised from the contract all of the price mechanisms which formed the 

 bargain under which KPC expended enormous sums of money to build its facilities eis 

 required by the long-term sale agreement. Again, all predictability and stability was 

 eliminated. Second, the Forest Service imposed a system requiring a qucirterly upward 

 rate adjustment, purportedly based on rates paid on smaller independent timber sales 

 in the Tongass National Forest, which is paid on top of the Forest Service's appraised 

 value of the timber. Since its implementation, the Forest Service has frequently added 

 this premium even at times when the market has collapsed as it did in 1991 and 

 recently. This premium guarantees that our cost of timber will not be economic in 

 relation to the market in which we must compete. 



These changes run directly counter to the original bilateral contract. The 

 government agreed to supply economically viable timber for the contract term. Based 

 on this promise, we have spent, and continue to spend, vast sums of capital on our 

 facilities. All of our capital investment decisions have relied on this contractual 

 promise. Protections included in the contract (the "Puget Sound" clause and the test 

 for equitable and competitive rates vis-a-vis other long-term pulpwood sales on the 

 Tongass) were important to the original investors, and continue to be important. 



The recent pricing changes not only violate our contract, they are irrational 

 because, among other things, they compare KPC, with its enormous capital 

 requirements, to small independent operators with far smaller capital requirements. 



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