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The trade associations speaking for the onorgy majon claim that railroads will be able to dominate Western coal production by abusing their role as critical transporters of Western coal.

The Carter and Reagan Justice Departments have both rejected this claim.

I The Carter Administration's Antitrust Division initially believed that leasing to railroads would present dangers of this sort, but concluded after intensive study of the relationship between railroads and Western coal markets that they had been wrong. The present head of the Antitrust Division fully agrees.

As the Justice Department's 1980 study shows, no Westem railroad now has an economic incentive to sacrifice railroad revenues in an attempt to improve its position as a coal producer. Railroads like Union Pacific and Santa Fe face such intense competition from other coal sources or other transporters that these railroads could not exercise "market power" in the coal industry even if they wanted to

The Justice Department now says: "Plainly, whatever the merits of a general prohibition on leasing to railroads in 1920, the broad sweep of Section 2(c) is now an impediment to rather than a bulkwark (sic) of competition. The Department therefore recommends that Section 2(c) be repealed". There is adequate statutory protection against any possibility of abuso.

I Section 15 of the 1976 Federal Coal Leasing Amendments provides for anti-trust review of every federal coal lease by the Attorney General before it can be issued. If competitive conditions were to change in the future, the Justice Department is confident this case-by-case review would provide fully sufficient protection against any possible railroad abuse

Railroad rate deregulation does not free railroads to monopollze by discriminatory conduct.

Any attempt to monopolize or dominate coal markets by discriminating in railroad rates or services against competing coal producers would subject a railroad to potential liability under the antitrust laws for both criminal penalties and treble damages.

Nothwithstanding railroad rate deregulation, railroads are still required under the Interstate Commerce Act to provide reasonable rates and services to all users that are dependent on them.

ROCKY MOUNTAIN ENERGY

A Sutsdary of Union Pacific Corporation

The trade associations speaking for the energy major claim that railroads will achieve domination of Western coal production by dominating the bidding for federal coal leases in the land-grant checkerboards.

Even If railroads had a bidding advantage in the checkerboard areas, it would not give them any power to monopolize or dominate Western coal markets.

1 Opponents of repeal always fail to mention that most federal leasing, and most railroad bidding for federal leases, will occur outside railroad land grants, where railroads have no conceivable bidding advantage whatever.

The absolute ability of the Interior Department to control the rate of tederal coal leasing and, thus, to control the rate of development of both the federal and railroad coal in these areas, would prevent the railroads from using their checkerboards as bases to dominate the marketplace. There is, in fact, no ovidence that railroads will have an advantage in bidding for federal leases ottored in checkerboard areas because of their ownership of adjacent coal reserves.

In recent federal lease sales in the Wyoming checkerboard, the evidence was inconsistent with this theory. The participation of bidders who controlled the adjacent reserves did not deter vigorous bidding by others, and the leases were in fact won by others. Any possible rallroad advantage in bidding for loasos inside the checkerboard can be controlled by the Interior Department.

If Interior believes there is any such threat to competitive bidding, it can decline to lease in landgrant areas unless the railroads agree to share their reserve information with other bidders and to make their adjacent reserves available to the winning bidder. RME is publicly committed to cooperating with any such program. Most existing foderal loasos were acquired by a non-competitive process. Even If the railroads had some bidding advantage for a low now foderal loases, It would not give them any unfair advantage over the entranched losscos.

If it were assumed that the railroads had a bidding advantage in the railroad checkerboard, this could only be pro-competitive in the marketplace; it it were true it would permit the railroads to sell coal at a lower price, thereby providing exactly the benefits free market competition is supposed to provide. If ownership of railroad coal in the checkerboard confers a bidding advantage, this would likewise accrue to the energy giants who control so much of the railroad coal under leases.

ROCKY MOUNTAIN

A Subsidiary of Union Pacific Corporation

APPENDIXES

APPENDIX I

Legislative History of Section 2(c) of the Mineral Lands Leasing

Act of 1920

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At the hearing September 11, 1981, on s. 1542, a bill to repeal
section 2(c) of the Mineral Lands Leasing Act of 1920, 30 U.S.C.
§ 202, you asked the Administration to supply a legislative history
of the section for the record.

The attachments described below contain the legislative
history of which we are aware. We do not attempt here to
engage in any authoritative interpretation of this history;
the record already discloses the difficulty of such a task in
that within the Administration there are two different views
of the scope of the prohibition embodied in section 2(c).

The bill debated in the House in 1914 contained a prohibition
on leasing to railroads that expressly included railroad
affiliates in the prohibition. The debate (Attachment A)
centered on an amendment to allow railroads to lease coal for
their own use. In the debate, the Congress clarified that
spur or tap lines owned by mining companies would not be
covered.

In sum,

as Rep. Terris said, "we are trying to
divorce transportation from production, and I think everybody
agrees that that ought to be done." 51 Cong. Rec. 15181
(1914). The Justice Department relies heavily on this history
in reaching the conclusion in its 1980 report.

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The bill introduced in 1919 contained the prohibition that
"no railroad or other common carrier" could hold a lease
except for railroad purposes. It expressly defined railroad
or common carrier to include "any company or corporation
subsidiary or auxiliary thereto, whether directly or indirectly
connected

(Attachment B). A substitute was introduced

(219)

i

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and debated in August 1919 (Attachment c) which deleted reference to subsidiaries and affiliates for the stated purpose of removing "uncertainty" about the meaning of both "railroad" and "corporation subsidiary or auxiliary thereto." The change was made in response to a letter from Gifford Pinchot, then President of the National Conservation Association. (Attachment D). The meaning of the amendment generated by the letter, and the debate, which saw the withdrawal of a floor amendment to restore affiliates and subsidiaries to the express prohibition, is what lies at the heart of the different constructions of section 2(c) adopted by Interior and Justice. In any event, the Pinchot-suggested language was enacted.

The whole story is not contained solely in the debates on section 2(c). The 1920 Act contained a number of provisions designed to prohibit or discourage monopoly, especially in sections 27 and 30, 30 U.S.C. $ $ 184, 187, which authorized lease terms to prevent monopoly practices and unfair pricing, and contained acreage and leaseholding limitations, respectively. The Congress was expressly worried about monopoly in the coal industry, as evidenced in the 1914 House Public Lands Committee Report. (Attachment E). In short, the Justice Department relies on the stated purpose of separating the mining and transportation of coal to conclude that the Pinchot amendment cannot be construed to narrow the prohibition and allow railroads to do indirectly through affiliates what they could not do directly. In Justice's view, the Pinchot amendment was designed to prevent a railroad from setting up a coal mining affiliate which could claim to be taking federal coal leases "for its own use" for coal mining and thus evade the intent of the statute. The amendment was, in Justice's view, a further restriction on leasing to railroads, allowing leasing to them only for use in their locomotives. Interior's view gives literal significance to the deletion of affiliates from the prohibition, as the purpose of the Pinchot amendment was never clearly stated. Interior's view emphasizes that the provision is also a relief provision when examined in its relation to other provisions of the Act, most importantly the limit of one coal lease per state for each company and its affiliates enacted in section 27 of the Act.

The history of the construction and administration of this section is found in the following documents: the Department's decision in Sheridan-Wyoming Coal Co., A-24158 (October 11, 1945) (Attachment F); Interior Solicitor's Opinion of May 18, 1976, "Colowyo Coal Project" (Attachment G); Interior Associate Solicitor's memorandum of January 4, 1979 (Attachment H); Justice Antitrust Division memorandum of April 25, 1980 (Attachment I); and the 1980 Report of the Attorney General under section 8 of the Federal Coal Leasing Amendments Act submitted to Congress in November 1980.

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This letter was prepared in consultation with the Antitrust Division of the Justice Department. If you have any questions about this material, please contact me, or Larry McBride in Interior's Solicitor's Office (343-4803), or Nancy McMillen in the Antitrust Division (724-6316).

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