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JULY 30 (legislative day, JULY 8), 1981 Mr. MCCLURE (for himself and Mr. Jackson) introduced the following bill; which was read twice and referred to the Committee on Energy and Natural Resources

A BILL
To amend the Mineral Lands Leasing Act of 1920.

1

Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That subsection 2(c) of the Act of February 25, 1920 (41 4 Stat. 438), as amended (62 Stat. 289) (presently codified in 5 30 U.S.C. 202), is hereby repealed.

Senator WARNER. We will have as our first witness this morning our distinguished colleague from Montana, Senator Melcher. STATEMENT OF HON. JOHN MELCHER, A U.S. SENATOR FROM

THE STATE OF MONTANA
Senator MELCHER. Thank you very much, Mr. Chairman.

I was quite surprised a few days ago to learn that this bill was proposed by the chairman and the ranking minority member of this committee. It has been several years since we faced this issue, the last time I was in the House of Representatives. But perhaps it is a good time to be talking about it.

It is generally considered that the repeal of 2(c) would affect principally three railroads. Those are land grant railroads. There may be more to this than just the land grant railroads, however, so that should be examined very carefully and looked at as part of the package to be buried, and I say that with thought and comprehension of the issue. On the other hand, perhaps, there is some modification of 2(c) that should be looked at, but in general anything that is going to set up such an advantageous position in the marketplace should be set aside for these three land grant railroads and not be considered as being good public policy. I want to go into that in detail.

When the land grants were given to the railroads, whether the Union Pacific, the

Burlington Northern or the Atlantic & Pacific, there was thought that the land grants would aid the railroads in developing a regional transportation system, as well as a transcontinental transportation system, that would be good for the country. It was thought to be good public policy and, I suspect, Mr. Chairman, if you and I had been in the Congress at that time we would have thought the same.

It has been debated over and over in the past 100-some years as to whether or not land grants

were, in effect, good public policy, so I don't want to get into it. They are there and the land grants belong to the railroads.

In the case of the land grants belonging to the Burlington Northern, and I suspect the Santa Fe and the Union Pacific as well, is whether or not it is good public policy, when there is checkerboard ownership of the land, to allow these railroads to develop coal and be in the marketplace as an active competitor. Would it give them too much of a competitive advantage?

I suspect that it is pretty hard for the public to realize what checkerboard ownership is, but if you think of a checkerboard and think that every other square is owned by the railroad, that is it, so that every section line touches another section line. The interspersed sections are rather dominated by those on either side, either side.

In our case, in Montana, by and large the checkerboard, the coal is owned by the Northern Pacific now the Burlington Northern. That is one part of the checkerboard.

And the other put, whether the surface is owned by a private party or not, the coal that underlies the surface is owned by the U.S. Government. It has a particular significance at this time whether or not opening, that is, repealing, 2(c) would have some effect on Burlington dominating the market.

Burlington, as the owner of the parts of the checkerboard, both the surface and the coal, has been leasing out their coal to other companies. There has been somewhat of a competitive situation. Burlington may argue, and it is their right to do so, that we could increase this competition if we were part of the actual leasing picture. Well, I, and a lot of other people, have to disagree on that part that is not now under lease.

In coalfields in southern Montana, where I live, and that Burlington owns, most of the advantageously positioned coal that they own has been already leased. So, Burlington's argument is that this won't affect a great number of companies because they already have a lot of leases of our coal lands that they haven't used yet. That is a valid point.

The companies that have those leases wonder whether on renegotiation, when the time comes up for renegotiation, whether or not Burlington is going to be in a stronger position in renegotiating the actual continuation of the leases and that they will be at a disadvantage. We will have to listen to that and we will want to read the transcript on those points.

Let me point out where there is a crucial problem now. In 1982 there are supposed to be new lease sales by the U.S. Government on much of the coal that is in Montana and Wyoming. We must examine very thoroughly if in those instances, ownership of coal by a railroad, whether the Burlington or the Union Pacific or the Santa Fe is going to place them in an unfair competitive position.

We have some advice on that from the Justice Department. I will read a quote from Competiton in the Coal Industry, the report of the U.S. Department of Justice: "extensively indicates that the railroads would have significant advantage in bidding for the Federal coal which surrounds the railroad coal holdings." That sentence is going to have significant impact on all the members of this committee as we consider the repeal of 2(c).

Senator WARNER. Senator, would you permit me to address oneI don't like to say question, but observation to you? The testimony that I assume will be forthcoming from the Department of Justice, I studied that very carefully, and this observation was made after will recommend the repeal of 2(c). The Department of Justice will state that the possible anticompetitive effects of issuing leases to railroads should be analyzed on a case by case basis pursuant to existing authority under the Federal Coal Leasing Amendments Act of 1976. Procedures set forth in that act provide adequate safeguards for competition. For these reasons the Department supports S. 1542.

What is your feeling about—the call it the FCLAA-being adequate in the way of protection?

Senator MELCHER. Well, having worked very diligently on that 1976 act, I would say that we thought it was entirely complicated enough without going through some exercise of trying to envision what would happen if 2(c) were repealed. In western coal, at least in Montana, and I will let others from Wyoming speak on the Union Pacific portion of this, but at least in Montana, with new leases coming up, if Northern Pacific land-grant land or Burlington land-grant land is involved in those leases it is very complicated to find out whether the Federal Government is going to process the lease. If they have to look at each and every section that Burlington owns as being separate, and maybe the Burlington wants to develop it, I don't think it will get leased.

I think we have to adopt a policy that_says 2(c) has to stay in effect, and Burlington can't possibly get Federal leases because it will make a monopoly out of them. If we do not take this view we won't have anything developed in those particular areas.

Finally, Mr. Chairman, we have been trying to diligently pursue a policy of making western coal available. Part of that are the proposed 1982 lease sales. If we further complicate it by repeal of 2(c) at this time, I think we are going to find that those lease sales won't go into effect.

Now, maybe you can balance this off. Maybe eastern coal wants this to happen. I don't know. Coal remains a glut on the market. Maybe coal operators in one section of the country are going to look at this as being advantageous one way or the other.

But I would say this, as a public policy, we would like competition to exist. I feel that any time when the railroad is going to own every other section, and the intermingling sections are Federal coal and you come up for an application of who is going to bid on these Federal leases, if the railroad company owning every other section can bid on them they are going to have dominance in the market on that coal because nobody else is going to have access to them. I think 2(c) better be left in place.

Thank you.

Senator WARNER. Thank you for taking the time to provide us with your valuable insight and historical knowledge on this issue.

I have been handed statements by the chairman of the committee, Senator McClure, and a statement by Senator Jackson which I will place in the record at this point.

[The statements of Senator McClure and Senator Jackson follow:

TESTIMONY OF SENATOR JAMES A. MCCLURE

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

SEPTEMBER 11, 1981

CHAIRMAN WARNER AND MEMBERS OF THE SUBCOMMITTEE, I AM PLEASED TO HAVE

THIS OPPORTUNITY TO STATE MY REASONS FOR INTRODUCING AND SEEKING

PASSAGE OF S. 1542.

SENATOR JACKSON AND I INTRODUCED S. 1542 ON JULY 30, 1981.

THE BILL

WOULD REPEAL SECTION 2(c) OF THE MINERAL LEASING ACT OF 1920 WHICH

PROHIBITS ANY COMPANY OR CORPORATION OPERATING A COMMON-CARRIER RAIL

ROAD FROM HOLDING A PERMIT OR LEASE FOR COAL DEPOSITS EXCEPT FOR ITS

OWN USE FOR RAILROAD PURPOSES.

MR. CHAIRMAN, IT IS NO LONGER NECESSARY TO LEAVE SECTION 2(c) ON THE

BOOKS.

SEVERAL LAWS AND REGULATIONS ENACTED DURING THE 1970'S ENABLE

FEDERAL AGENCIES TO RESPOND TO ANY COMPETITIVE QUESTIONS WHICH MAY

ARISE AS A RESULT OF THE PROPOSED ACQUISITION OF FEDERAL COAL LEASES

BY RAILROAD COMPANIES.

A 1980 REPORT PREPARED BY THE DEPARTMENT OF

JUSTICE IN CONNECTION WITH ITS RESPONSIBILITY TO PROVIDE AN ANNUAL

ASSESSMENT OF COMPETITION IN THE COAL INDUSTRY UNDER THE FEDERAL

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IN RECOMMENDING REPEAL OF SECTION 21c), THE JUSTICE DEPARTMENT

REPORT ACKNOWLEDGED THAT THERE HAVE BEEN NUMEROUS CHANGES IN THE

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FEDERAL STATUTES WHICH MAKE THE GENERAL PROHIBITION OF 2(c) NOT

ONLY UNNECESSARY BUT ANTI-COMPETITIVE IN ITS EFFECT.

ONE OF THE

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