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Mr. WILSON. I think that was the circumstance Mr. Evans referred to when he said, should such an event arise the rail system would have to face up to it and compete head on.

Senator BUMPERS. In all fairness, I certainly don't blame any railroad for not cooperating by granting rights-of-way across their line to somebody who is going to vigorously compete with them, but I have also championed slurry pipelines and would like to see the right of eminent domain granted them. While the railroads may gear up to carry it all, the question is, at what rate, and so I really think Union Pacific, as well as other railroads who are interested in this legislation, may find themselves in a contradictory position of favoring competition so that they can lease coal.

As I say, I am a great free enterpriser. I find a lot of people, though, champion free enterprise as long as competition doesn't get in the way. My concern is that Union Pacific and others will do everything they can to keep slurry pipelines from being built because they want to thwart that competition but they come here testifying for repeal of 2(c). You don't deliberately go out and try to foment competition, and I understand, but we have to look at it slightly differently.

If the witness and his company would supply a narrative statement and their positions on this, about what your response will be if you are approached for rights-of-way, what your position will be in legislation here to grant Federal eminent domain rights to pipeline companies, et cetera, I would really appreciate that very much.

Mr. WILSON. Thank you, Senator. We certainly will. Senator WARNER. Both Mr. Bumpers and I have to proceed to the White House for a meeting. Regretfully the colleague who was to assume the Chair is unavailable. I apologize for the personal inconvenience, but I will return no later than 12:10, and then the hearing will resume.

[Whereupon, at 11:10 a.m. the hearing was recessed, to reconvene at 12:10 p.m. the same day.]

AFTERNOON SESSION

Senator WARNER. Back on the record.

The Chair appreciates the indulgence of the witnesses and other attendees at the hearing. We shall now hear from John McCormick, Washington representative of the Environmental Policy Center.

STATEMENT OF JOHN L. McCORMICK, WASHINGTON

REPRESENTATIVE, ENVIRONMENTAL POLICY CENTER Mr. McCORMICK. Mr. Chairman, my name is John McCormick.

Senator WARNER. Your testimony was not received here yesterday. Therefore I have not read it. I would hope, however, in the essence of time, that you would condense it somewhat. I have a practice of reading the statements.

Mr. McCORMICK. Thank you. Mr. Chairman, I want to thank you for your indulgence in allowing me to testify.

Mr. Chairman, the Environmental Policy Center has been involved in the issue revolving around the repeal of 2(c) since 1975. For several reasons we oppose the repeal of 2(c) in the land grant program. The land grant program in the 1850's provided railroads with a tremendous amount of control. While there is a discrepancy about the total recoverable reserves of stripable coal, I would like to suggest that there are about 15 billion tons of stripable coal among three principal railroads. Much of that coal is in a checkerboard ownership pattern, 1 square mile alternate sections, where the railroad has one and the public has the other square. This checkerboard arrangement has resulted in great swathes of committed and uncommitted coal sometimes 20 miles wide.

Senator WARNER. Let me ask a question. What is the ratio between surface and deep mining potentially in this situation?

Mr. McCORMICK. In the West, Mr. Chairman, there is probably as much stripable coal as deep minable coal, but the market would obviously find greater attraction to stripable coal. As reserves play out there is an abundance of deep minable coal. In the East the circumstance is the reverse.

Senator WARNER. I meant with respect to this 2(c) problem. I will get more information on that later.

Mr. McCORMICK. Mr. Chairman, if 2(c) were repealed, railroads would then have an unfair competition bidding advantage because they would surround that square of coal available for lease. One might argue that much of the railroad coal has already been leased and that railroad coal being in checkerboard patterns, but those leases have some deadline attached to them and the fact is that several fairly large leases are up for renewal.

I think that the point can be made that while Peabody and other large coal companies have considerable market position in northern plains coal viz-a-viz leases with railroads, that position is at the mercy of the railroads. In the event those leases are terminated, the railroads would recapture that leased coal and would then be in a position to have that bidding advantage.

Another point that I would like to touch on, and this is entirely hypothetical for the moment, but it could materialize in the future. If we repeal 2(c) it wouldn't be beyond the realm of possibility that a foreign interest might purchase a railroad and, in fact, might use that railroad to lease Federal coal and ship that Federal coal to a western port, and, in fact, ship that coal on a foreign-flag transport to its destination. That might have some impact on

Senator WARNER. Would you forgive me for a second?
Please continue.

Mr. McCORMICK. That situation, Mr. Chairman, might relieve some of the problems, but it wouldn't be in the interest of the Nation to have that kind of fuel supply system controlled by a foreign interest.

We come to the point of what are we going to do. The Justice Department views 2(c) one way, the Interior Department in another. Several suggestions might be made. Rather than blanket repeal of 2(c), consider several alternatives to that bill. One might be a consolidation of the checkerboard where the railroad and the Federal Government negotiate a land exchange and the railroad ends up with a contiguous block of coal suitable for a profitable mining venture. The other half of the checkerboard, if you will, would go back to the public domain and be available for lease. Since the previous tenant on that leasable coal would have been

the railroad, I would say they again have an unfair advantage on bidding on the coal because the information derived from the previous ownership of the coal would tell them what is there and the amount to bid.

In the event we allowed the railroad to bid on its previous amount of coal, the railroad would be getting a double hit. The bid on that Federal bloc of coal matched with their adjoining land grant coal would give them 2 acres for the price of 1, in a sense.

In that instance, Mr. Chairman, we might as well try to see that the intent of the land grant program is carried out. And one of those attempts was that the railroads use its resources to build up and maintain its rail lines. Therefore, I would suggest, and this suggestion has become a bill introduced in the House yesterday, that a percentage of the revenues, the net revenues minus fixed costs and before taxes, be plowed back into the railroad's maintenance and upkeep where the railroad is mining that land grant coal. And that might be a good quid pro quo.

a If those two ideas are rejected and just blanket repeal of 2(c) is allowed, I think we will have more problems.

Senator WARNER. In your testimony today on the first page, you made the statement, “Throughout that involvement, the Center has continued to endorse the development of coal as an important part of the Nation's energy strategy." I have also a letter of July 2, 1981 from the Environmental Policy Center, signed by the president, Mr. Pomerantz, and executive vice president, Ms. Dunlop, in which there is some question as to whether or not you support strip mining of coal. Are you familiar with that?

Mr. McCORMICK. I am not, Mr. Chairman. I am unfamiliar with the letter itself. I could tell you just in a general sense, we supported, as you well know, the passage of the Federal surface mining law, and it was our belief that this would provide the ground rules under which a company could operate in a responsible manner, stripmine coal and return the land to a-

Senator WARNER. You don't have any specific knowledge on the letter?

Mr. McCORMICK. Not on that letter, Mr. Chairman.

Senator WARNER. So we will just let the record speak for itself. If you or your colleagues wish to put something in the record in response to what appears to be something of a inconsistent representation by the same organization, you are invited to do so.

Mr. McCORMICK. Thank you. We will.
Senator WARNER. Thank you very much.
[The prepared statement of Mr. McCormick follows:]

ENVIRONMENTAL POLICY CENTER

317 Pennsylvania Ave., S.E., Washington. DC. 20003

202/547-5330

TESTIMONY OF JOHN L. McCORMICK

BEFORE THE SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

OF THE SENATE ENERGY AND NATURAL RESOURCES COMMITTEE

ON S. 1542; A BILL TO AMEND THE MINERAL LANDS LEASING ACT OF 1920

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It is a pleasure to appear before you this moming to present the

views of the Environmental Policy Center on this important matter. The Center has been a participant in the national legislative and policy debates regarding U.S. coal production since the organization was established in 1972. Throughout

that involvement, the Center has continued to endorse the development of coal

as an important part of the Nation's energy strategy. With that support, however, has come a continued demand that coal production and utilization be

conducted pursuant to the laws and regulations enacted and enforced to protect the public health and wellbeing and the environment. There is ample evidence

to prove that coal mining and coal utilization are compatable with the environ

ment and profitable for those companies willing to operate according to the

law.

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Among those laws governing the private development of publicly-owned coal is the Mineral lands Leasing Act of 1920. That law was extensively amended in 1975 by the Federal Coal Leasing Amendments Act of 1976. During that process, the issue of the repeal of section 2(c) was extensively debated and the idea rejected by the House. However, legislation repealing 2(c) passed the Seante in 1957, 1962, and 1966. The Center opposed its repeal in 1975 and continues to hold strong reservations with regard to the blanket removal of that section.

The history of section 2(c) has been mired in inter-departmental battles in recent years as the interest in Westem coal development has increased since the mid-1960's. Since its enactment, the Department of the Interior has taken the position in the Sheridan-Wyoming Coal Company issue in 1945 that section 2(c) does prohibit leasing to a company which controls or is controlled by a railroad. Later, Interior ruled that the section does not prohibit the leasing of federal coal lands to railroad affiliates when it decided the Colowyo Coal Company issue in 1979. The Justice Department has continued to hold that railroads, affiliates and holding companies of railroads are prohibited from leasing federal coal under the provisions of section 2(c).

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Department of the Interior opinions of the Solicitor's Office of May 18, 1978 and January 4, 1979 made distinctions between section 2(c) and section 27 of the Minerals Leasing Act to justify permitting the leasing of federal coal by railroad holding companies. In 2(c), the Interior saw a special treatment of railroads wherein that section specified; "...no company or corporation operating a common carrier railroad shall be given or hold a permit or lease under the provisions of this Act for any coal deposits except for its own use for railroad purposes; ". Whereas, section 27 limits the number of leases a lessee may hold and defines corporate ownership in a more detailed manner. Interior saw that distinction as authorizing all but companies operating a railroad directly or through a corporate structure that could be characterized as the "alter ego" of the lessee company to lease federal coal.

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