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The B-N, the U.P., and the Santa Fe all serve Westem ports but the only coal loading facilities presently equipped to handle the volume are in Los Angeles and Long Beach harbor. Ports in the Pacific Northwest are desperately trying to secure financing to expand their facilities and lure the Japanese customers. To date, all the speculation about the bonanza down the road, is just that.
The big penalty in transportation costs could be overcome by Japan if it could secure its own U.S. railroad with trackage to the coast or connector lines to give it access to those Northwest routes. In fact, there has been a nmor that Japan is interested in purchasing the Denver and Rio Grande Railroad. In the event such a buy were consumated, that railroad could lease federal coal, assuming 2(c) were repealed, mine the coal and haul it on its own track and using its own hopper cars to a coastal seaport. A Japaneseowned and operated coal terminal could load Japanese-bottom coal colliers and ship the coal to Japanese markets. With this kind of a closed-loop fuel delivery system, the Japanese could undercut any U.S. producer and supply its own coal cheaper that the Australian producers.
The legalities of this scheme have not been researched for this testimony and the hypothetical situation is offered only as an example of the possible effects of repeal of 2(c). Since the Denver and Rio Grande does not own coal deposits, it would have to lease federal coal lands to obtain coal resources. Japan could buy the railroad and purchase the coal on the open market but it would forfeit control over the production and market price and lose some of its economic advantage. The consequences of this kind of deal might relieve some of the traffic problems at Hampton Roads but that would be to the detriment of Eastem coal producers.
Repeal of 2(c) could have serious negative effects upon the competition which exists within the coal industry. Repeal advocates dismiss this charge by citing the diverse make-up and huge production capacity of the industry as proof that new entrants, such as railroads, will not have the market power to capture the lion's share of the action and dominate the market. However, the
stem coal market is not a monolith and may soon became segmented into several coal-demand sectors if the foreign export market booms. In that world, railroads could very likely take over the largest share of the export market if it can mine and transport its own coal and deliver it to terminals which it controls. Since checkerboarded coal is generally situated along the railroad rights of way, it would be more attractive since shipping costs would be diminished.
The anti-trust laws should, theoretically, curb any abuses of anti-competitive or monopolistic practices, but the Assistant Attorney General for Antitrust recently gave the House Judiciary Committee some indication that the Justice Department is reviewing its priorities in the areas of antitrust enforcement. He gave the distinct impression that the Department would not be placing a high priority on the vigorous pursuit of antitrust investigations but the Department would, beyond a doubt, uphold the laws. Since this Nation's industries may be verging on an era of unprecedentedly large and numerous corporate mergers, the Department will have to devote a great deal of time to those actions. However, there are also signes that the antitrust division at Justice may have its work force reduced considerably, from 40 to 20 attorneys.
There are other options which this Subcommittee should consider before it chooses to repeal, outright, section 2(c). A more equitable solution to the obvious problems posed by checkerboard ownership of railroad and public is offered by the following:
Authorize consolidation of the checkerboard coal deposits as a means of eliminating the checkerboard ownership. The railroad and the federal government would trade all information pertaining to the quality, qualtity and geologic characteristics of the coal deposits beneath these lands. Through negotiation, a land exchange would be made where the railroad and the federal government would divide the lands equally. The railroad would then have a single block, or several large blocks of contiguous coal suitable for economic - 10
(velopment. The public could then offer the new and uncamitted blocks of coal for lease to all but the railroad which swapped the checkerboarded lands. That company would have an unfair bidding advantage in that it would know more about the value and condition of that prosective coal lease than any other bidder since it would have had access to the previously derived drilling information. There might still be the possibility of railroad influence in the bidding outcome if a prospective bidder pre-arranges access to the adjacent railroad coal block. However, that prospect would be greatly diminished.
The Subcommittee could authorize consolidation and allow that railroad which traded some of its holdings for a single, or several, large blocks of coal to bid on the newly created federal coal block, with the following, condition: the railroad would have to dedicate a certain percentage of its net revenues, minus fixed costs and paid before taxes to the maintenance and upkeep of its rail lines. Since the railroad would have derived a great economic benefit in having advantages other bidders would not enjoy, and it will have automatic access to the adjacent coal block obtained through the land grant lands having been consolidated, it could make a respectable profit and still comply with the original intent of the land grant program. A similar concept has been incorporated in a bill introduced in the House yesterday.
The abandonment of branch lines and deteriorating service by the railroads to certain Westem agricultural areas is causing great concem anong grain shippers and producers. If the railroads are invited into the coal production market and given authority to use their previously granted coal resources, they should be required to plow a percentage of the revenues they derive from that public largesse back into their railroad operations. This Nation has no shortage of coal mining companies and the overcapacity in the coal industry will attest to that fact. However, railroads are still the backbone of this Nation's transportation fleet and the public should be assured that the lure of coal mining profits will not distort the obligations that the common carrier railroads have to the economy of this Nation.
Senator WARNER. We will now have Mr. Bruce Ennis, president, coal and minerals, Burlington Northern.
Thank you, Mr. Ennis, for waiting and participating in this hearing STATEMENT OF BRUCE ENNIS, PRESIDENT, COAL AND
MINERALS, BURLINGTON NORTHERN Mr. ENNIS. Thank you, Mr. Chairman, for coming back to hear what we have to say. As you know, I am the president of the Burlington Northern Coal and Minerals subsidiary. It is a company created within the last six months as a part of the company's overall reorganization. It is our hope to establish a distinct personality very much in the manner that Rocky Mountain Energy has over a period of years. Our company is based in Billings, Mont., in the middle of the land grant area that we are concerned with here today, and we expect to continue to be based there and develop in that area.
I have submitted the testimony which you have reviewed. I won't go back through that.
Senator WARNER. I think you could be most helpful if you would care to rebut some of the statements made today, or representations which would appear to you to be somewhat inconsistent with the representations in your testimony.
Mr. ENNIS. That is exactly where I hope to go.
First, in response to your concern about the legislative history of all this, I think that I can add something to the legislative history question which will not come out of the research that is going to be done by the Government agencies.
Senator WARNER. Would you care to supplement your own analysis of the legislative history?
Mr. ENNIS. I would supplement it with historical fact about where the industry was at that time.
In 1920, when the prohibition was created, our predecessor companies were essentially the only people mining coal in the upper tier of States, and most all of that coal was being used for railroad purposes.
Senator WARNER. You say our "predecessor."
Senator WARNER. I understand. When you use "our," the antecedent is not your mineral company, it is the railroad itself?
Mr. Ennis. Yes. The railroad companies had mining subsidiaries in those days. They were major coal producers. In fact, they were the only major coal producers in the northern part of the Western States at that time, so you did have a situation where there was a very strong position that the railroad industry enjoyed in coal production. Insofar as we are concerned, that has changed absolutely in the intervening period. Neither our company or any of our affiliates is mining coal at this time, so we do have a major change in the circumstances which I think brings us back to where we are now, and the suggestion that we would like to be in that business. That brings me around to the statements, to a response I would like to make to several statements that the Senator from Montana presented earlier today.
He suggested that it would be very important for us to look at the next Federal coal sale, which will occur in 1982, to examine the question of whether or not there really is dominance on the part of the railroads by way of their owning the checkerboarded lands. I think that it is important that we do examine the 1982 lease sale vis-a-vis the Burlington Northern land position, because I think that will reveal very clearly the situation that exists now which has resulted from the fact that we have been generous lessors of our land in the past.
We have leased essentially all of our economically recoverable subbituminous coal which is of interest to markets at this time, and that in the area to be affected by the 1982 lease we have very little coal that we as a company control. Almost all of that coal is under lease to large energy companies, the largest energy companies, the same people that are appearing at this hearing and suggesting that we ought not be allowed to bid on coal because our presence in the bidding procedure will have the effect of dominating the market and in effect chilling the bidding. I suggest that an examination of the record, an examination of the facts relative to the coming lease sale, the lease sale with which our Senator was concerned, will indicate that we are not in a position to dominate that unless, as Mr. McCormick suggests, we have the ability to cancel those leases that we have previously issued, and I will guarantee you that our lessees see that situation very differently.
I think you will find that this dominance issue which has been raised really doesn't exist. We talk about, theoretically, arguments can be made. When you look at facts, laid against what is happening in the foreseeable future, it is not there.
That leads me back around to our basic thesis in this issue, and that is that we are not a force in the coal mining industry. We would like to have the right to be involved in the coal mining industry. In the West it is very difficult to be involved in the coal mining industry if you can't lease Federal coal. We are happy to have the Justice Department review our lease requests on a caseby-case basis and make their determination of whether or not we have created an anticompetitive situation, but the broad sweep of 2(c), we think, is unfair. We think that it unjustifiably discriminates against us and would urge this committee's favorable treatment of the legislation before it now.
Senator WARNER. Thank you very much. Your testimony is eminently clear. Thank you.
[The prepared statement of Mr. Ennis follows:]