TESTIMONY OF BRUCE ENNIS PRESIDENT, COAL & MINERALS BURLINGTON NORTHERN BEFORE THE SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES, SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES SEPTEMBER 11, 1981 My name is Bruce Ennis. I am President of the coal and minerals affiliate of Burlington Northern. I would like to thank the Subcommittee for giving me the opportunity to offer this coal company's comments on S.1542. I urge swift enactment of this measure. As you may know, Burlington Northern has just undergone a major reorganization. A holding corporation, headquartered in Seattle, and eight affiliates, have been established. The affiliates are involved in a broad range of activities, including rail transportation, trucking, air freight forwarding, forest products, and minerals development. The coal and minerals affiliate is based in Billings, Montana,. and is responsible for the management of all Burlington Northern minerals, except oil and gas. Currently, our role in managing our coal resources is primarily that of a landlord. Some 73 percent of our subbituminous coal reserves and 27 percent of our lignite reserves are already under lease to various mining companies, including several of the country's largest corporations. We would like to move beyond our present landlord's role and become a more active participant in coal development -2 and a more productive contributor to our domestic energy supply. We expect to participate on a modest scale in the Federal coal leasing program within the next five years. Unfortunately, section 2 (c) of the Mineral Leasing Act of 1920 may serve to inhibit, if not frustrate entirely, our leasing intentions and render questionable all our planning efforts. We firmly believe that section 2 (c)'s ban on ownership of Federal coal leases by companies operating commoncarrier railroads should be removed. We view section 2 (c) as anachronistic, anti-competitive, divisive, potentially litigious, redundant, and inequitable. These harsh words are not baseless; they are an accurate description of this unfortunate statutory provision. First, section 2 (c) is anachronistic because it has long since outlived whatever purpose it may have once served when enacted in 1920. Although the legislative history of section 2(c) is sparse and not very enlightening, it would appear that the provision was premised on fears that the western railroads would dominate coal production if they had access to Federal coal leases. In the intervening 60 years since section 2(c)'s enactment, the railroads have irretrievably lost what- · ever controlling position they might have been able to establish in the coal industry. With the major oil companies, electric utilities, and the largest coal companies gaining increasing dominance in the western coal mining industry, the basis for these worries about railroad coal monopolies has vanished. The absence of any remaining purpose for section 2 (c) was recognized over a decade ago in the authoritative final report of the Public Land Law Review Commission. The Commission stated: -3 [T]he fears of monopolistic control which In its 1978 report on Competition in the Coal Industry, the Antitrust Division of the Justice Department surprisingly suggested that section 2(c) may still be serving the purpose for which it was enacted and the purpose may still be necessary. Two years later, however, after an exhaustive study of the issues pertaining to coal competition and the railroads, the Antitrust Division devoted nearly all of its 1980 Competition in the Coal Industry report to a detailed refutation of the earlier suggestion. Second, we believe the effect of section 2 (c) to be anti-competitive. Intervening economic events have turned section 2 (c) on its head so that it now harms rather than protects competition in the purchasing of Federal coal leases and the production of western coal. Competition for Federal coal leases is now generally perceived as the best means of avoiding market dominance by large coal producers in the West. So long as section 2(c) resides in the statute books, an artificial barrier exists against bidding for Federal leases for an entire class of potential competitors. That conclusion was firmly reached by the Justice Department in its 1980 report. The document stated: Leasing to railroads can also be competi- -4 the broad sweep of Section 2 (c) is now an Other, more Third, section 2 (c) is now redundant. carefully crafted statutory provisions have been enacted which are designed to enhance competition. Most of these provisions were included in the Federal Coal Leasing Amendments Act of 1976. Prior to that Act, the Public Land Law Review Commission had already found that, "other federal laws, such as the anti-trust laws, are far more effective in regulating the competitive position of the railroads than [section 2 (c)]." [One Third of the Nation's Land 136.] The 1976 Act established a rigorous procedure for reviewing each Federal coal lease to ensure compliance with those anti-trust laws. Section 15 requires the United States Attorney General to review every lease, prior to its issuance, to determine whether it would "create or maintain a situation inconsistent with the anti-trust laws." [30 U.S.C. 184 (1) (2).] The Justice Department has rigorously followed the dictates of this provision and has required the Interior Department to submit for review each new lease it has planned to issue. With this new finely-tuned, lease-by-lease review procedure of section 15 in place and working, the blanket prohibition of section 2(c) is even less necessary to guard against anti-competitive occurrences in Federal coal leasing particularly as section 2(c) narrowly focusses on only one of many potential anti-competitive situations. We are in complete agreement with the Justice Department's analysis that section 2(c) has been made superfluous by the preferable section 15: -5 [C]ompetitive issues involved in leasing The review under section 15 is better In the same 1976 Act, the Congress adopted several other pro-competition provisions, including the requirements that leasing be conducted only through competitive bidding (with the corresponding repeal of the preference right leasing authority); that "fair market value" be obtained whenever federal coal is leased; that all federal coal leases be diligently developed under rigorous deadlines; and that the Justice Department study, and report annually to the Congress on, the state of competition in the coal industry. These provisions should provide all the additional insurance against monopolistic practices necessary to satisfy even the most skeptical that section 2 (c) is no longer required. |