Senator WARNER. We thank you very much, Mr. Abbott. I have no questions. Mr. Chairman?

The CHAIRMAN. I have no questions. Thank you.

Senator WARNER. We will hear from James C. Wilson, president of Rocky Mountain Energy Co. Your prepared statement will be inserted into the record.

STATEMENT OF JAMES C. WILSON, PRESIDENT, ROCKY

MOUNTAIN ENERGY CO.

Mr. WILSON. Thank you, Mr. Chairman, Senator McClure. My name is James C. Wilson. I am President of Rocky Mountain Energy Co.

I appreciate the opportunity to appear to respond further to questions that have been raised about S. 1542. In my earlier testimony I stressed the fact that repeal of section 2(c) is necessary to resolve a legalistic dispute between the Interior and the Justice Departments. This dispute threatens the ability of my company to compete in Federal lease sales against other companies.

Consideration of this legislation presents an unusual opportunity for the committee to judge the facts surrounding this issue presented about competition in the coal industry and to act to create more competition in an industry that has already been judged to be highly competitive.

With respect to judging the facts, I cannot help but react to Mr. Bagge's testimony this morning in which he recounted not a fresh view by any means of the association's attitude toward repeal of section 2(c) and not a factually well founded one.

One of the things I would like to do is submit for the record a memorandum reminding the subcommittee of how the lands came to the land grant railroads and what cost was involved. I would like to remind the subcommittee of comments I made last time about what a fee owner looks at when he considers committing his coal to lease and/or investment on his own part to develop that coal for the marketplace.

Also on the idea of Mr. Bagge's that the coal next to the railroad gets developed first; as I will comment later that is anything but the truth. That is only part of the picture of a complex set of economics that governs this industry and it gives no one an obvious or prima facie advantage in this business.

He also commented there were perhaps a billion tons of coal in the Red Rim and China Butte areas, an area which Mr. Abbott also commented on. I would like to set the record factually straight on that.

Referring to a USGS report, it is required in the new leasing process as a key element in considering what the minimum bid on any Federal lands offered for lease must be. I have that data and will submit that for the record.

I think it should be emphasized that section 2(c) as interpreted by the Justice Department is a unique legislative barrier to competition. It bars a special group of companies, the railroads, from competing for Federal leases and it thereby protects from new competition an industry that has become dominated by some of the largest and most capable companies in our economy.

It is these companies, including the energy majors who now control a number of the largest coal producers that are once again spearheading an effort to keep the railroads out of what they now consider to be their unique province, the coal industry.

I submitted for the record a list of companies who had participated in the preparation of testimony before you last time. I submitted a list of companies who had recorded their position with respect to Federal lease holdings. I would call the committee's attention to that and ask Mr. Berg-Hansen who is accompanying me to put that in front of you.

I would also submit a sheet of paper dated September 17, 1981, called Coal Leasing Committee. This is a group of people with whom representatives of my company met. They are a committee of the National Coal Association. We met with them to lay out our feelings and judgments with respect to the need to repeal section 2(c). We were pleased to have that audience.

It is the recommendation of this committee that Mr. Bagge referred to, the board, as having endorsed the recommendation.

The make up of that list is interesting in that it projects such a contrary image to the one Mr. Bagge and others would have us believe about the small and cowering independent coal producer in the face of the kind of competition an organization like ours would bring to the business.

I want to make clear that our point is not that we object to the make up of the coal producing industry or to the fact that utilities are deeply involved in coal production and oil companies are deeply involved in coal production and any number of other companies including ranchers have become deeply involved in coal production. Our objection is not that there is this kind of diverse participation in the industry. Our purpose it is simply to state that it is a very interesting structure, highly competitive and highly capable and that allegations that Rocky Mountain Energy would come in and dominate an industry with this kind of make up are really very idle.

According to the spokesman for the coal producers including. Mr. Bagge and the gentleman from Consolidation Coal who appeared before this subcommittee previously, the central theme of the opposition to repeal section 2(c) is the fear of railroad monopoly.

As I stressed in my earlier testimony, it is just not reasonable to suppose affiliates of major oil companies, utilities and other economic giants could be in danger of being dominated, let alone being monopolized, by organizations of our size and nature.

The emotional charge has been made that the railroad land grant coal reserves are so vast and so strategically located that if railroads are ever permitted to participate in competitive Federal leasing, they will dominate and monopolize western coal production.

As my summary remarks that will follow will emphasize, I hope, that simply is not true.

The railroad land grant coal is at a disadvantage in competing with coal that is controlled predominately by major participants or existing participants in the coal business. What I am referring to is the coal from the Powder River basin which is largely Federal coal previously leased. This coal is known throughout the coal industry

and throughout the major user industries, the utility industry, as offering unique economic advantages over most other coals in the country, give or take transportation, locational differences of the

user.

This is the coal that has moved and is expected to move primarily into new utility powerplants to be developed over the next several decades.

It is the economics of the coal deposit in an area that has no checkerboard associated with it that determines relative advantages in the marketplace and the consuming industries know and are reminded constantly of the options they have with respect to various coal sources and of its advantages.

Our coal, unfortunately, does not enjoy an inherent or basic competitive advantage by reason of its geology and economics.

The individual railroad holdings are, in fact, much smaller than reserves controlled by some of the companies who currently dominate western coal production and who hold a large share of Federal leases.

I mentioned and previously submitted this listing of coal companies arrayed by the number of Federal acres held by them. Among those were listed Peabody holding 57,000 acres; Gulf, 49,000; Consolidation Coal, 46,000; NERCO, 33,000 and so on.

I also showed on that list the number of acres sought under socalled preference right lease applications. Preference right leases are a device not now included in the Federal coal leasing program but which had previously given the opportunity in effect to acquire Federal coal free and there are very substantial acreages that have been acquired by the major competitors in the coal business free. Possibly half of the Federal acreage now under lease was acquired in that fashion and many more acres are sought under that provision.

It is the economics of the coal that gives rise to advantage, not the location, adjacency to a railroad or any of these phony argu

ments.

AMAX, one of the largest coal producers in the country, holds 6,000 acres of Federal coal. From that they produce upwards of 40 million tons of coal annually. I think we have all seen the advertisement which they claim of the fantastic coal holdings, 3.3 billion tons, from only 6,000 acres of Federal coal.

I mentioned earlier there is a State-by-State limitation of 46,000 acres on Federal coal lease holdings. They can play an extremely important role in the coal industry without coming close to that acreage limitation. I will point out later that Rocky Mountain Energy's potential participation in the coal industry is very significantly influenced by that 46,000 acre limitation.

Enormous portions of the railroad reserves are already committed by lease to companies like Peabody and Consolidation, the nation's first and second largest coal producers. These two companies are leading the fight by reason of their participation in the industry associations, against the repeal of section 2(c).

Unlike the reserves of major coal companies, only a small fraction of railroad reserves can be developed by their owners. They are interspersed among federal reserves in the land grant checkerboards and thus, can be developed only where the Interior Depart