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ment is willing to lease. You have to have Federal coal leasing as a step in creating logical mining units. Even where Interior is willing to lease, no railroad can develop more than a small number of coal projects in its land grant checkerboard before it runs into that acreage limitation, a point I made. I can emphasize that by carrying the subcommittee through the exhibit or I can submit that for the record and provide a technical definition of the reserves we have.

The point of that map is simply that we are charged now by reason of our participation in several projects involving Federal coal with 14,000 acres of Federal coal. We have something over 30

to go.

If we participated and there is no reason to believe we would be the winning bidder in any of the properties that may come up for lease in our area, but if we participated in China Butte and Red Rim, and an area we call Leucite Hills, not far from Rock Springs, we would have worked our way entirely through our 46,000 acre allotment and by that time, we would be in a position to develop a small fraction of the 4 to 5 billion tons of what we call resources.

It is this kind of practical consideration that I have not heard recognized at all by those who have testified before you fearing the consequences of the repeal of Section 2(c). These are very practical, real limitations. Contrast that with the 6,000 acres in the Powder River Basin, Federal leases held by AMAX and capable of producing 40 to 50 million tons of coal.

Both the Interior Department and Justice can prevent railroads from acquiring a monopoly position in western coal production, even if they were motivated or had any opportunity to do so. The Interior Department can prevent the unlocking of all or any part of the land grant checkerboard simply by declining to offer adjacent Federal coal for lease.

The Attorney General can effectively veto any federal coal lease to a railroad whenever he finds the lease may create a situation inconsistent with the antitrust laws. I differ sharply with the two gentlemen who appeared here this morning and who belittled the influence of the Justice Department on Interior with respect to that matter.

I think the realistic interpretation is that Interior would listen carefully to any substantial evidence Justice brought to it concerning the anticompetitive risks of coal leasing to someone like Rocky Mountain Energy.

Each of these reasons, standing alone, is sufficient I think, to foreclose any threat of railroad monopoly of western coal production. Taken together they make the threat of railroad domination wholly impossible The argument to that effect is empty and without any merit.

Opponents of repeal also argue railroads might achieve a coal monopoly by abusing their position as major transporters of coal. That possibility has been extensively analyzed by the Antitrust Division, who began their analysis with the conviction that section 2(c) might be justified by a danger of just that sort of abuse.

The Justice Department study concluded it was unnecessary and anticompetitive to exclude the entire railroad industry from competing for Federal coal leases simply because of the unlikely possibility that some single railroad might act anticompetitively, especially when the Justice Department may veto any Federal coal lease which threatens, in their mind, competition.

As Assistant Attorney General Baxter testified on September 11, the Justice Department's conclusions are not effected by the railroad rate deregulation provided for in the Staggers Act.

In their study, in the worse case, they premised their study on the notion that railroads would be free from effective regulations, that is, they assumed away the effectiveness of then existing ICC regulation and went on to conduct their analysis within the context of a theorectically assumed unregulated environment for the railroads and concluded even given that extreme assumption and even under Federal leasing to railroads would not threaten competition so as to justify this blanket prohibition against our participation in the coal industry, which section 2(c) represents.

Even with some rate deregulation, railroads are still subject, and this is part of my written response to questions raised by Senator Bumpers at the last hearing, to continuing regulatory requirements. Any attempt by railroads to use their transportation and services to control western coal production would subject them to very serious risks of criminal and trebel damage liability under the antitrust laws.

Any railroad inclined to flaunt the law and risk such grave consequences would also face denial of any further Federal leases.

This comes under the Attorney General's statutory power to recommend against any Federal lease likely to present a threat to competition and, I think, as a practical matter that would be listened to very carefully by Interior.

With respect to the leasing process, the opponents of repeal have asked members of this committee to believe railroads will achieve a monopoly by dominating the bidding for future Federal coal leases, because of a number of alleged advantages, one of which relates to the notion of free coal, the ability to market coal without the burden of a royalty cost. I would emphasize, as I tried to in my previous appearance, that a company like us, not unlike a farmer in eastern Kentucky owning fee coal, facing the alternative of leasing to a coal company or participating in the investment and development and marketing of the coal, looks at the return he is going to get from his investment. He knows what the marketplace can return to him for his leasehold but he looks at what he can obtain as a return on his investment and he does not make an unwise decision about the return on that investment, no more than any other coal company who also looks at royalties as a cost.

There is no difference in the situation. There is no free lunch as we approach marketing our coal.

Our opponents have emphasized we can lease, and indeed we can, and that is a very real option for us. The statutory acreage limitations would prohibit every railroad from acquiring more than the 46,000 acre limit. In southern Wyoming the acreage limitation would limit Rocky Mountain Energy to acquiring leases for two or three additional medium sized coal operations.

No one contends that railroads could dominate bidding for any Federal lease except a lease located in their land grant checkerboard area.

Even in the checkerboards, much of the best coal is already under control of the energy majors through long-term leasing arrangements. Overall in the west most of the best coal to be offered for lease will be found outside the railroad checkerboards, my comments on the Powder River Basin, where companies like Rocky Mountain Energy will have to compete like every other member of this highly competitive business for that Federal coal.

In conclusion I would like to ask the committee to examine very carefully the empty charges of the trade associations and the companies opposing section 2(c). It seems to me their case is an emotional one presenting hypothetical cases which I believe are both terribly unlikely of occurring and also constrained by certain facts such as acreage limitation.

The arguments presented by trade associations always seem to use the characterization of independent coal companies fearing the domination of railroad giants. While this characterization may have had some validity in 1920, I believe examination of the companies involved in the coal industry now will make that very apparent.

Senator WARNER. Mr. Wilson, I can assure you we are capable of going through any rhetoric that may have been employed. I do feel it may be the degree of emotionalism you attach to it but their arguments are made in good faith.

Mr. WILSON. I appreciate being able to reappear before you and I would entertain any questions you may have.

Senator WARNER. I think the testimony today has been very helpful. It is a difficult issue. I am going to be guided by the legislative history and the change of circumstances.

Thank you very much. We are adjourned. [Whereupon, at 1:10 p.m., the subcommittee adjourned.] (The prepared statement with attachments submitted by Mr. Wilson follows:)

TESTIMONY OF JAMES C. WILSON
PRESIDENT, ROCKY MOUNTAIN ENERGY COMPANY

BEFORE THE
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
(SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES)

OCTOBER 1, 1981

Mr. Chairman and Members of the Subcommittee:

My name is James C. Wilson and I am the President

of Rocky Mountain Energy Company.

I appreciate the opportunity to appear before this

Subcommittee to respond further to questions that have been

raised about s. 1542, which would repeal Section 2 (c) of the

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I stressed the fact that repeal of 2 (c) is necessary to

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industry and to act to create more competition in that

industry.

It should be emphasized that Section 2 (c) of the

Mineral Leasing Act as interpreted by the Justice Department is a unique legislative barrier to competition. It bars a group of companies the railroads -- from competing for

federal coal leases.

It thereby protects from new

competition an industry dominated by the largest, richest and most powerful companies in America. It is these companies the energy majors who now control the largest coal producers that are once again spearheading the

effort to keep the railroads out of what they now consider

to be "their" coal business.

According to the spokesman for the major coal producers trade association, whose statement was submitted

to this Subcommittee on September 11, "the central theme of (their) opposition to repeal of Section 2(c) is the fear of

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it is just not reasonable to suppose that affiliates of

major oil companies, public utilities, and other economic

giants could be in danger of being dominated, much less

monopolized, by a Western railroad. But I have to say in all candor that I am pleased that the opponents of repeal

continue to base their case on the "fear of railroad

monopoly" of Western coal production, because I think it is

now clear based on the facts presented to this Subcommittee

there is no possible basis for such a fear.

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