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the Federal Coal Leasing Act, the public interest or the antitrust laws.

In summary, Mr. Chairman, we believe that section 15 is inadequate to protect against anti-competitive abuses vis-a-vis the railroads for five reasons which I will point out and which are discussed in depth and in full in our formal statement.

They are: The Justice Department test for determining inconsistency with the antitrust laws is inadequate. The ICC no longer tightly regulates rail rates and other railroad activities. We are involved in litigation with the railroads in two proceedings, on nationwide coal rates in which the railroad industry is attempting to force the concept of what the market will bear and produce coal rates that bear no reasonable relationship to the cost of transportation at all. We are involved with the railroad industry where they are trying to exempt from those small protections provided in the compromise we have reached in the Staggers Rail Act to exempt all export coal traffic from any oversight at all by the ICC. We are litigating on that issue.

Those small protections where there was oversight responsibility, where after the rate could be demonstrated to be over 160 percent of variable cost, at least you did have a forum, and it is now sought to be emasculated by the railroads with respect to all export rates and all coal rates nationally.

The Department of Interior can reject Justice's advice. In carrying out section 15 the Justice Department would effectively use an after the event test and sole reliance on section 15 will cause more delay in the leasing process than reliance on section 2(c).

On competition, let me direct a few comments toward the assertion that by opposing the repeal of section 2(c) the coal industry fears competition in the energy marketplace. Demonstration was made on the first day of the hearing by the proponents of the elimination of section 2(c).

I dare say, Mr. Chairman, that no industry has fought harder and more consistently to bring about energy competition in this country because with more competition the coal industry stands to gain, not lose.

We have also been consistent in our belief that in the pursuit of competition it must be fair. The coal industry does not fear the addition of just three more competitors into the coal market in western lands. There are 160 coal companies which already hold Federal coal leases and which are effectively competing today.

It is quite another matter when the three competitors in question are in a position to unfairly compete and possibly dominate the coal market because of the nature of their holdings, the monopoly they enjoy over the transportation of the commodity, and the absence of adequate safeguards against discriminatory practices if section 2(c) is repealed.

Taking all three of these factors into consideration, it is a refutation of the often-repeated contention that the arguments made by the coal industry for keeping section 2(c) are tainted, that we are seeking to preserve the market controlled by huge energy producers at the expense of the little railroads. I had little in quotes because that is the way it was presented to this committee at the first hearing.

Before closing I want to address the unwarranted contention that section 2(c) is an anomaly in the American free enterprise system and should be eliminated.

The coal industry knows well how the American free enterprise system can work if constraints in the energy marketplace are removed and we are working now before the Congress to remove those constraints to let us be more competitive and do the job that we have been told since 1973 when we were told we were respectable once again, we are working to try to make this competitive with a host of legislative initiatives which I am sure this committee is aware of.

What other business besides the railroads have been granted the product which they intend to sell free of charge by the Federal Government? None.

This, taken with the other imposing advantages of the railroads presents the conditions as I said earlier which Congress has sought to prevent for more than 60 years. You sought to prevent it again when you amended the Coal Leasing Act as recently as 1976. You put in section 15 but you left section 2(c) in place. The present law is working. The railroads have the right to lease their properties to independent coal producers for mining. The railroads' share of the transportation market is obviously more than secure and they are trying to make it more secure by preventing competition and preventing the establishment of the coal slurry pipeline system we are hoping this Congress will enact soon.

In conclusion, Mr. Chairman, the coal industry believes section 2(c) should not be repealed. We believe true competition can be best served in the national interests if the railroads continue to do what they do best and that is to move America's coal.

Our industry wants, more than ever before, a competitive marketplace so that coal can reclaim a greater share of the energy mix in this country to fuel economic growth and development. That competition must be fair and that competition must be equitable. We can preserve that equity and fairness by retaining section 2(c) and I ask you, Mr. Chairman, and this committee to consider our plea favorably.

This concludes my testimony. I will be happy to answer any questions you may have.

[The prepared statement of Mr. Bagge follows:]

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My name is Carl E. Bagge. I am President of the National "oal Association

(NCA), which represents the major coal producing and coal sales companies of the

Nation.

I appreciate the opportunity to testify at these hearings concerning the

implications of repealing Section 2(c) of the Mineral Leasing Act of 1920.

Section 2(c) in essence prohibits any "...company or corporation operating a

common-carrier railroad..."from obtaining or holding a federal permit or lease for any

coal deposits except for its own use for railroad purposes." Section 2(c) was designed to

eliminate discrimination in the transportation of coal and to avoid abuses which could

result from vertical integration of coal production and transportation. The intention of

Congress was to separate coal transportation from the production and sale of coal.

INTRODUCTION

The policies which underlie the 1920 Congressional prohibition are very much alive

today. Indeed, they have greater relevance today. Contrasted to 1920 when Western coal production was insignificant, in 1980 Western coal contributed 30% (251 million tons) of total U.S. coal production (824 million tons) 1/

Three railroads, the Burlington Northern (BN), the Union Pacific (UP) and the

Atchison, Topeka and Santa Fe Railway Co. (Santa Fe) own over 16 billion tons of coal

reserves, as much as 25% of the total non-federal coal reserves in the three Western

Coul markets. Of the railroad coal reserves, approximately 15 billion tons or 93% is in

checkerboard patterns, alternating with federal coal. About 9 billion tons of railroad

coal is uncommitted (or about 17% of the total non-federal coal reserves in the West).

Approximately 95% of the railroad's uncommitted coal is in checkerboards, 2/

1/ National Coal Association, Weekly Statistical Summary, Vol. 7, No. 31, (August 10,

1981). 2/ See, Antitrust Div'n, U.S. Department of Justice Report, Competition in the Coal

Industry (1980), at 61.

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Juxtaposed to this, (1) these railroads have a virtual monopoly over the

transportation of coai in their respective service areas (Western coal is currently 98%

captive to the railroads); (2) there is no practical alternative form of transportation

available; and (3) Congress recently has been reducing Federal oversight and regulation

of the railroads.

Now there is a renewed effort to repeal Section 2(c). The coal industry, again. has

reviewed the issue and opposes the repeal of Section 2(c).

The central reason for this opposition is that repeal would permit railroads to use

their transportation monopoly and vast coal

reserves

to unfairly compete with

independent producers and possibly become the dominant developers in the areas that are

most likely to be developed first

namely the reserves along their transportation

networks.

For example, in the next few weeks, the federal government will offer for lease

federal coal in two tracts (Red Rim and China Butte) in Wyoming, along the UP's lines.

This is one of the first lease sales of any kind to be held in 10 years and is in a

checkerboarded area. About 1/2 of the Red Rim and China Butte tracts (18,480 acres) is

federal land, the remaining acres, except for some state holdings, are owned by the UP

outright or together with different surface owners. A study of these tracts has shown

that if both tracts were unitized and mined to the 400 foot level the total yield would be

nearly 1 billion tons of coal. If they were mined beyond the 1000 foot level (not an unreasonable possibility) they woud yield over 2 billion tons of coal.3! It is important to

understand that these are not especially large tracts of coal land.

3/ See, Coal Resource Analysis, Red Rim and China Butte Projects, Unpublished study

performed by Dames and Moore, Denver, Colorado, in conjunction with the U.S. Geological Survey (1981), Section A, Table i.

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