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extent the railroad would find it profitable to restrict the
supply of coal transportation services would depend in part on
the railroad's share of the coal in the relevant market.
a railroad that owned no coal would have no incentive to
restrict coal transportation services.
Anticompetitive effects in coal markets of the kind described
above would be possible only if:
(1) a railroad has market
power in the transportation of coal; (2) the railroad's ability to obtain monopoly rates for such transportation is constrained by ICC rate regulation; and (3) the railroad is able to restrict transportation services notwithstanding ICC regulation.
Determining whether the second and third of these conditions
exist or are likely to exist in the future is complex and difficult.
We discussed these matters in detail in our 1980 Coal Report.
We concluded at that time that these conditions probably did
Particularly in view of the recent passage of the Staggers
Rail Act, however, the question is not free from doubt.
here is the general nature and effectiveness of the ICC's regula
tion of rates and service, which may not differ significantly
from railroad to railroad.
Whether the first condition exists,
however--that is, whether a railroad has market power over the
transportation of coal--may differ from railroad to railroad.
railroads in general do not have such power, a blanket leasing
prohibition such as is contained in section 2(c) is not appropriate.
Unless a railroad has market power in the transportation of
coal, it will be unable profitably to withhold coal transportation
Coal shippers will simply use other means of coal
transportation. The railroad will lose transportation revenues without restricting supply sufficiently to cause an offsetting
in the West, the Burlington Northern, was found to have a signifi
cant degree of market power.
Consequently, we believe that only
the Burlington Northern might have an incentive to act anticom
petitively if federal coal leases were issued to it.
in the case of the Burlington Northern, not every coal lease
issuance would necessarily create competitive problems.
Since the issuance of federal coal leases to most railroads
would not raise serious competitive concerns, we see no reason to
continue to prohibit railroads in general from acquiring federal coal leases. If section 2(c) were repealed, however, a mechanism
would be needed to guard against anticompetitive effects in
those situations in which they are possible.
is already such a mechanism in place, and we believe that it can
adequately protect competition in those instances where the
issuance of a lease to a railroad could cause competitive concerns.
Under section 15 of the Federal Coal Leasing Amendments Act
of 1976 ("FCLAA"), the Secretary of the Interior must consult
with the Attorney General prior to each issuance, readjustment
or renewal of a federal coal lease.
The Attorney General advises
the Secretary whether the particular lease under review would create or maintain a situation inconsistent with the antitrust laws. Where it is reasonably likely that a proposed lease would
create the kind of competitive problem I have described, we would
advise the Secretary not to issue it.
Upon receiving such advice,
the Secretary would not be able to issue the lease unless he held
a hearing and specifically found:
(1) that the lease issuance
is necessary to effectuate the purposes of the FCLAA; (2) that
it is in the public interest; and (3) that there are no reasonable
alternatives consistent with the FCLAA, the public interest and
the antitrust laws. This procedure should be adequate to guard against the unique anticompetitive effects that might possibly
result from the issuance of federal coal leases to railroads.
Other competitive issues might be raised by the issuance of
coal leases to railroads, such as concentration in coal holdings,
but these issues are not unique to railroads and also are
addressed adequately by the FCLAA.
In reviewing federal coal
leases under section 15 of the Act, the Department of Justice
has stated that any federal coal lease issuance after which the
lessee would have 15 percent or more of the uncommitted, nonfederal coal 5/ in any relevant market will be deemed prima
facie to create or maintain a situation inconsistent with the
Nonfederal coal includes all coal other than unleased federally-owned coal.
If section 2(c) were repealed, the same standard
would be applied to coal lease issuances to railroads and should
prevent undue concentration in coal markets.
It is not necessary
to retain section 2(c) in order to prevent undue concentration
of coal ownership in the hands of any railroad.
Section 2(c) is not only unnecessary: it may actually have anticompetitive effects by restricting the ability of railroads
to be effective competitors in coal markets and by interfering
with the efficient development of substantial coal deposits.
Railroad coal is interspersed in many areas with federal coal
in such a manner that neither the railroad coal nor the federal
coal alone can be efficiently mined.
Section 2(c) is an obstacle
to the development of these "checkerboard" lands, since it tends
to impede the railroad's ability to acquire the coal necessary
to form logical mining units.
Others may develop these lands only
by dealing with both railroads and the Federal Government; hence,
for them, transaction costs may be higher than for the railroads. Section 2(c) may require that these transaction costs be incurred,
thus increasing the cost of coal to users.
If section 2(c) were repealed and railroads were permitted
to bid on the federal coal interspersed with their own coal, it
is likely that a railroad owning a tract adjoining a federal
lease would bid more for the federal lease than would its com
Some might argue that the railroad holds a competi
tive advantage over others that might bid for the lease because
of the location of the railroad's coal.
In point of fact, the
federal lease is simply worth more to the railroad than to other
bidders because the railroad already controls the other coal
necessary to form a logical mining unit.
Competitors for the
lease may not be willing to bid as much as the railroad because
they would be bidding only on the possibility that they may be able to form a logical mining unit by acquiring rights to mine
the railroad's adjacent coal.
In these circumstances, the rail
road's ability to bid higher reflects a real social resource
saving which should be achieved and passed on to users.
degree of economic power of the regulated entity and the absolute
size of its regulated and proposed unregulated activities.
only isolated exceptions such as the one previously mentioned, neither of those factors is of sufficient magnitude to justify
preclusion of railroad participation in coal mining activities,
and a sweeping prohibition of such is inappropriate.
In conclusion, we believe that the leasing prohibition
contained in section 2(c) is neither necessary nor appropriate.
Indeed, section 2(c) may have anticompetitive effects in the nation's coal markets by preventing railroads from becoming
vigorous competitors in the coal industry and by deterring the
efficient development of coal reserves.