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provisions for the adjacent BN coal sections, (2) negotiate favorable contract rates for hauling coal, and (3) forcing negotiation of favorable
joint ventures for coal mining and conversion projects. Additionally, a
1975 Department of Interior study reported by the House Mines and Mining Subcommittee noted that the federal government's ability to capture fair market value for its coal is protected by some degree by Section 2(c):
"...If this section is successful in confining bidding on Federal
None of the issues mentioned above were addressed in the 1980 Justice Department
study, and we believe that the Subcommittee should request the Justice and
to thoroughly investigate these potential problems before
taking further action on S. 1542, Turning to our second set of problems with the proposal before this Subcommittee, BN's recent metamorphosis into a holding company and its plans to abandon hundreds of miles of spur and branch lines serving agricultural communities in Montana, North Dakota, and Minnesota has raised questions in the minds of many residents and public officials in the region regarding BN's responsibility to provide rail service to a variety of shippers. After all, Section 3 of the Northern Pacific Land Grant Statute states in part that lands granted to the railroad and its successors by Congress was granted "for the purpose of aiding the construction of said railroad and telegraph line to the Pacific Coast..." No other purpose for the land grant is given under the charter. The railroad has of course long been constructed to the Pacific Coast, but BN still retains
its enormously valuable remnant of that original grant, especially in the form of its coal holdings. Though it might be argued that encouraging BN to diversify into non-rail related business enterprises, as repeal of Section 2(c) surely would do, will have a healthy effect on BN as a corporate entity, the question should
be addressed regarding what effect will increasing diversification under the auspices of the new holding company have on the company's ability and willingness to meet the needs of non-coal shippers in the Northern Great Plains? We have just witnessed the demise of the Milwaukee Road, the only remaining rail
competitor for the BN in vast areas of the Northern Plains.
The Milwaukee Road
is owned by a profitable holding company with diverse business interests whose
portfolio did not help prevent the abandonment of the railroad's western lines. Will BN's metamorphosis into a holding company cause the same neglect of its railroad transportation responsibilities to agricultural shippers? And should
Congress encourage BN's diversification by repealing Section 2(c)?
Secondly, a question has arisen regarding BN's transferrance of its non-railroad assets from the railroad to another hodling company subsidiary: Do provisions of Northern Pacific's bonds prohibit the transferrance of the railroad's non-rail
holdings without compensation to the railroad? And if not, how does BN plan to address this issue? Shouldn't such legal clouds be dispelled
be fore Congress acts to encourage
ther non-rail related activities on
the part of BN?
Third, since the land grants were originally granted to the railroads to
directly benefit maintenance and continuance of their rail service responsibilities?
After all, the coal resources possessed by BN and other western roads as a
result of Congress' largesse were granted for only one purpose: developing a western rail transportation system. If the western railroads persist in
abandoning lines to rural communities and increasingly diversifying into non-rail related enterprises, perhaps Congress should assess whether or not the original
purposes of the land grants are being fulfilled.
If not, then Congress should
consider removing those remaining granted lands from the railroads' possession. I doubt seriously if Congress would be willing to take such action. But if the prohibition on railroad ownership of federal coal were repealed, with the obvious beneficial consequences for the western railroads which will then be able to develop that coal in conjunction with their own, shouldn't the Congress insure that the original purpose of its generosity to the railroads, under which they are today benefitting, be fulfilled?
These are some of the issues which we believe the Subcommittee should fully
consider and take into account before acting on S. 1542.
Competition in the Coal Industry, Department of Justice, 1980. P. 61
Senator WARNER. I appreciate your cooperation. It enables the Chair to have the opportunity to vote, and I thank all who participated in this hearing.
We will have a second session on the first day of October at 10 o'clock. We will now adjourn this hearing.
[Whereupon, at 1 p.m., the hearing was recessed, to reconvene Thursday, October 1, 1981, at 10 a.m.]