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Repeal of Section 2(c) would have a drastically adverse effect on the coal
industry's ability as it expands in the West to remain the vibrant competitive force that
it is today. During another go-around on this subject in 1976, the need for retaining
Section 2(c) was well-stated by the U.S. Justice Department:
"The Antitrust Division continues to believe in the basic wisdom of keeping
common carriers which may have natural monopolies of particular modes of
transportation out of the business of developing or marketing the
commodities which they haul.
In these situations, our experience
demonstrates that there is so much potential for abuse in a vertical
integration scheme that it is usually best to eliminate the problem ab
initio. In order to insure non-discriminatory treatment of other shippers at
the hands of (a) common carrier which is also a shipper, it is more effective
to separate the industries than to try to achieve the same result by
The Justice Department late last year changed its general position on repeal of Section 2(c). I will later discuss why the coal industry believes the Department was
incorrect in so doing. We believe the Justice Department was right in the first instance.
In sum, the coal industry strongly believes that the repeal of Section 2(c) would
destroy over 60 years of sound public policy and strongly recommends that Congress
reject the plea of the railroads to strike the Section 2(c) prohibition from the Mineral
Leasing Act of 1920.
4/ Hearings before Subcommittee on Mines and Leasing of the House Committee on
Interior and Insular Affairs, 94th Cong., 1st Sess., (1976), at 3 (herein after House hearings).
I would now like to discuss, in detail, the coal industry position on the repeal of
If I may, I would like to briefly and generally outline the history which led to
Congress adopting Section 2(c).
For more than a century, Western coal was a prisoner of geography. It lay too far
from markets. Without waterways or pipelines, the only avenue to coal's distant markets
could be rail transportation.
In the middle 1800's, as an inducement for the construction of Western railroads,
the federal government deeded certain railroads huge Western real estate holdings. They
acquired at no cost, alternate square mile sections of surface and underlying minerals from 20 to 40 miles on either side of their rights-of-way. This resulted in the
checkerboard pattern of ownership which exists to this day, in which the federal
government and railroads own alternate sections along the rights-of-way. The railroads
seek repeal of Section 2(c) to permit them to lease and develop the adjacent federal
lands together with the lands they were granted.
At the turn of the century, Congress began to be concerned about the potential
abuses which could result from vertical integration of the production of commodities and
transportation. Congress first enacted the Interstate Commerce Act in 1906. Section
1(8) of that Act
the "commodities clause"
prohibited any railroad from transporting,
except for its own use, any commodity which it owned or in which it had an interest.
Congress, however, continued to be concerned with the unique problem of
railroads being coal producers, while, at the same time, having a monopoly on coal
the Congresses, immediately preceding the passage of the Mineral
Leasing Act of 1920, as Congress debated the different proposals for leasing federal coal
lands, various members and committees expressed their concerns. In 1914, for example,
in a House report on one of the early leasing bills, the House Committee on Public Lands
stated that one of the policies of the proposed leasing bill was to "divorce transportation from production - a necessity conceded by most students of the subject."5/ Or as one
House Member put it bluntly,
If they "...have organized a railroad under a separate corporate name and
issued stocks and bonds upon it and have undertaken to carry not only their
own goods but the goods of other people, then they ought not to be engaged
also in the mining of coal.
That is what this language undertakes to forbid. If they want to run a railroad, let them get out of the coal business..." 6/
The 1919 debates exhibited similar expressions of Congressional concerns, with Senator Lafoulette reciting the evil effects of railroad ownership of anthracite coal in Pennsylvania?' and Senator Smoot assuring the Senate that the prohibition on railroad leasing would prevent a similar situation 8/
The language of that period leaves no doubt as to Congressional concern about
railroad coal production other than for its own use.
57 H. Rep. No. 668, 63rd Cong., 2nd Sess. 3 (1914).
The NCA has undertaken a fresh review of the issue and has concluded that it
would still not be in the best National interest to repeal Section 2(c). The basis for
opposing Section 2(c) repeal is the same as that which drove Congress to originally enact
Section 2(c). It is the fear that any relaxation of the protections contained in the law
would place commercial operators at a competitive disadvantage with the railroads if
they elected to enter actively into the commercial production and distribution of
THERE ARE COMPELLING REASONS TO RETAIN THE SECTION 2(c) PROHIBITION
At the outset of this portion of the discussion, I want to re-emphasize the fact
that each of the three major railroads, the BN, UP and the Santa Fe has an effective
monopoly over the transportation of Western coal. As will be discussed later, hawling
coal by truck for long distances is not practical or economical. Rivers are not available
in the West to move coal by barge, and "transporting" coal by wire or is not an effective
alternative nor are slurry pipelines in place to provide transport competition.
With this in mind, there are four major reasons why Section 2(c) should not be
First, repeal would give railroads with checkerboard ownership an overwhelming competitive advantage in obtaining the prime federal leases, that is, those close to
existing rail transportation;
Second, repeal would allow railroads to
use their monopoly control over
transportation to unfairly compete and possibly dominate the production and sale of
Third, the recently enacted Staggers Rail Act effectively reduced the Interstate
Commerce Commission's (ICC's) authority to ensure reasonable rates and does not
guarantee that railroads will extend contract service uniformly both to affiliated entities
and other competitors; and
Fourth, railroads are developing and continue to develop their checkerboard
reserves without repeal of Section 2(c); and, of equal importance, Section 2(c) has
allowed non-rail producers to participate as a co-equal in Western Coal development
The coal industry believes that repeal of Section 2(c) would give the railroads an
overwhelming competitive advantage in obtaining federal coal leases, to the point that it
would be almost impossible for independent coal producers to compete with the railroads
for federal coal leases close to existing rail transportation. This is because:
Railroads could easily obtain federal leases contiguous to their reserves
since another bidder, among other things, would not be getting a contiguous piece of land
on which to mine (called a Logical Mining Unit or LMU).
As previously mentioned, the alternate checkerboard sections owned by the
railroads extend, in many instances as much as 40 miles on each side of the railroad
rights-of-way, all across the West. Coal producers are, and will continue to be, reluctant
to compete with the railroads in bidding on those federal tracts that are surrounded or
checkerboarded by railroad lands. Stated very simply: the repeal of Section 2(c) would
mean that in many competitive lease sales, the railroads would be bidding on tracts that