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MOST IMPORTANT CHANGES, WHICH I NOTED ON THE SENATE FLOOR IN JULY
AND WISH TO EMPHASIZE AGAIN TODAY, OCCURRED AS A PART OF THE SWEEP-
ING REFORMS EMBODIED IN THE FEDERAL COAL LEASING AMENDMENTS ACT
OF 1976. THIS CHANGE, CONTAINED IN SECTION 15 OF THE ACT, RE-
QUIRES THE JUSTICE DEPARTMENT TO REVIEW EACH FEDERAL COAL LEASE
PRIOR TO ITS ISSUANCE AND TO MAKE A DETERMINATION WHETHER ISSUANCE
WOULD CREATE OR MAINTAIN A SITUATION INCONSISTENT WITH THE ANTITRUST
LAWS. THE JUSTICE DEPARTMENT STATED IN ITS 1980 REPORT TO CONGRESS:

"COMPETITIVE CONCERNS EMBODIED IN SECTION 2(c) COULD
BE HANDLED ON A CASE-BY-CASE BASIS UNDER THE ANTI-
TRUST REVIEW PROCEDURE WITHOUT THE DETRIMENTAL
EFFECT ON COMPETITION THAT ARISES FROM PROHIBITING
FEDERAL COAL LEASING TO ALL RAILROADS."

THE POLICY CONCLUSIONS AND RECOMMENDATIONS OF THE JUSTICE DEPART

MENT'S REPORT ARE CLEAR. HOWEVER, BECAUSE OF A LEGAL INTERPRETATION
INCLUDED AS PART OF THE JUSTICE DEPARTMENT'S REPORT, A QUESTION HAS
ARISEN WHETHER THE BARRIER OF SECTION 2(c) ALLOWS FURTHER DEVELOPMENT
OF FEDERAL COAL LEASES BY COMPANIES THAT ARE SEPARATE FROM BUT

AFFILIATED WITH RAILROADS AS PART OF A CORPORATE HOLDING COMPANY
STRUCTURE.

THE INTERIOR DEPARTMENT'S SOLICITOR HAS HELD MANY TIMES THAT SECTION 2(c) DOES NOT AUTOMATICALLY DISQUALIFY AFFILIATES OF RAILROAD COM

PANIES FROM HOLDING FEDERAL COAL LEASES. THE JUSTICE DEPARTMENT INTERPRETS THE PROVISION TO PRECLUDE RAILROAD AFFILIATES (INCLUDING COMPANIES OWNED BY A PARENT THAT ALSO OWNS A RAILROAD COMPANY) FROM HOLDING FEDERAL COAL LEASES. THIS DISPUTE BETWEEN THE INTERIOR AND

JUSTICE DEPARTMENTS IS RHETORICAL SINCE THE JUSTICE DEPARTMENT HAS

REPORTED TO CONGRESS ITS POLICY CONVICTION THAT BOTH RAILROAD

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AFFILIATES AND RAILROADS THEMSELVES SHOULD BE ALLOWED TO PARTICIPATE

IN FEDERAL COAL LEASING. THE RHETORICAL DISPUTE BETWEEN THE AGENCIES SADLY STANDS AS A BARRIER TO THE LEASING PROGRAM, RESTRICTING COMPETITION AND FRUSTRATING THE PLANNING OF COMPANIES WHICH PLAN TO

PARTICIPATE IN COMPETITIVE BIDDING.

NEARLY A DECADE HAS PASSED SINCE MAJOR FEDERAL LEASE SALES HAVE

OCCURRED. WE MUST NOT ALLOW THIS STAGNATION TO CONTINUE. AS RESPONSIBLE LEGISLTORS, SENSITIVE TO OUR NATIONAL ENERGY NEEDS, WE MUST CONTINUE TO SEEK THE ORDERLY AND COMPETITIVE DEVELOPMENT OF COAL IN AMERICA. REPEALING SECTION 2(c) IS A STEP IN THE RIGHT

DIRECTION. THAT IS WHY THE CONSIDERATION OF S. 1542 DESERVES THE

SERIOUS ATTENTION IT IS GETTING.

CHAIRMAN WARNER, I INTEND TO FOLLOW YOUR LEAD AND GIVE THE FULL
COMMITTEE AN OPPORTUNITY TO EXAMINE THIS LEGISLATION.

THANK YOU AGAIN FOR THE OPPORTUNITY TO STATE MY VIEWS ABOUT THIS

VERY IMPORTANT ISSUE.

OPENING STATEMENT OF SENATOR JACKSON ON S. 1542

I am pleased to co-sponsor S. 1542 with Senator McClure. My interest in this issue dates back to at least 1970 when Senator McClure's predecessor, Senator Len Jordan, and I sat on the Public Land Law Review Commission. The Commission concluded that Section 2 (c) should be repealed because the railroad companies no longer have the competitive advantages they may once have had, and because the antitrust laws are far more effective in regulating the competitive position of the railroads than the public land laws.

Repeal of Section 2(c) has been considered by Congress on numerous occasions, but never with as much information as we have before us today. The Justice Department's 1980 report on Competition in the Coal Industry carefully analyzes the legislative history of Section 2(c), the manner in which it is currently being implemented and, most importantly, the effect it has on competition within the coal industry. The Department concluded that section 2 (c) is an impediment to competition and that available antitrust review procedures provide adequate protection.

With this background, I look forward to the testimony today from witnesses supporting and opposing repeal that will further inform the Committee as to the possible ramification of this bill for Western coal development.

Senator WARNER. We will now proceed with David C. Russell, Deputy Assistant Secretary, Office of the Assistant Secretary, Land and Water Resources, of the Department of the Interior.

Mr. Russell.

STATEMENT OF DAVID C. RUSSELL, DEPUTY ASSISTANT SECRETARY, LAND AND WATER RESOURCES, DEPARTMENT OF THE INTERIOR

Mr. RUSSELL. Mr. Chairman, with your permission, I would like to submit the Department's testimony for the record, summarize the statement, and add a few background parts.

Senator WARNER. I would appreciate that.

Mr. RUSSELL. It is a pleasure for me to return to home territory and discuss with you the reasons for Interior's support of S. 1542. The Mineral Lands Leasing Act, in section 2(c), specifically prohibits common carrier railroads from holding more than one Federal coal lease for every 200 miles of trackage. Since coal use by the industry disappeared, along with steam locomotion, railroads are not, as a practical matter, eligible to hold coal leases.

Land grants totaling over 94 million acres were made as payment to railroad companies to encourage construction of rail lines to the West. Land grants took the form of transferring to railroad ownership the surface and mineral rights to alternating sections of land 20 to 40 miles on either side of the railroad right-of-way. Today those lands form the famous checkerboard ownership pattern occurring in Western States.

In the West are vast acreages of publicly owned coal lands. The 1920 act allowed leasing of those some 100 million acres of coal lands. In several cases unleased Federal coal lands and railroad checkerboard ownership intersect. It is in these lands the issue of repeal of section 2(c) is most evident.

First, the railroads wish to be able to directly, rather than through some affiliate or joint venture where legal basis may be questioned, lease and mine the Federal portion of the checkerboard coal lands.

Second, many independent coal companies, for a multitude of market and competition reasons, oppose efforts by railroads to, as they would argue, extend the regulated railroad monopoly from transport to transport and mining of western coal.

Third, there is the Department of Interior, who has leased only 0.8 percent of the public's Federal coal lands, and who has leased nearly nothing over the last decade.

Fourth, the Department of Justice, who with Interior recommends repeal of section 2(c), to, among other reasons, increase competition. That Justice and Interior have different interpretations, although the same conclusion, in favor of repeal, is an interesting sidelight. The administration supports enactment of S. 1542. The Antitrust Division of Justice will provide results of Justice's analysis of competition in the coal industry and its relationship to 2(c).

As we indicated, section 2(c) was part of the Mineral Lands Leasing Act, enacted in 1929, a time when the_railroad industry was a far more dominant factor in the economy. There was concern that the railroads would dominate the industry. Today many large

corporations are free to compete for mineral leases while railroads are restricted. In 1970 the Public Land Review Commission urged the repeal of section 2(c) because the "fears of monopolistic control which led to the existing restrictions of section 2(c) are no longer applicable.

A bit of legislative history. The Department has supported repeal of section 2(c) on prior occassions, in 1957, 1962, and 1966. The Department did not take a position in 1957 to repeal section 2(c) because it was then studying whether railroad participation in Federal coal leasing might have some form of anticompetitive effect. For the most part, this possibility has now been laid to rest. The 1980 Justice Department report, which recommended the repeal of section 2(c) noted that while the blanket proscription of section 2(c) is not appropriate, that does not apply that the concerns that led to 2(c) are not valid. The basis of the Department's recommendation for repeal was its ability to review leases issued to railroads on a case-by-case basis under section 15.

We do have some concern that this case-by-case review by the Department of Justice of proposed lease sales does not consider the ability of a producer to dominate the market where the coal will be consumed. The criteria reflect concentration of coal ownership at the point of production. They do not totally consider the ability of the railroad coal producer under the Railroad Deregulation Act of 1980 to establish discriminatory rates and thereby possibly preclude other producers from entering the market.

The Federal Coal Leasing Amendments Act has provided a number of new safeguards against any possibility of anticompetitive abuse. These safeguards include the abolition of leasing requirements that all coal leasing must be effected by competitive bidding, and that fair market value must be received in all cases, and strict new timetables for the development of leases once issued. Again, the 1976 Coal Leasing Amendments Act requires that before any coal lease may be issued it must be submitted to the Attorney General for the determination that the lease will not create a situation inconsistent with the antitrust laws.

We believe that leasing to the railroads would be beneficial in that it would increase the number of competitors bidding for Federal coal leases, likely increase revenue from lease sales and enhance the probability that leases will be acquired and developed in areas approved for leasing.

That concludes my statement. If you have questions I would be pleased to respond.

[The prepared statement of Mr. Russell follows:]