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A final, important competitive safeguard is found in the acreage limitation of the 1976 Act. No company can lease more than 46,000 acres of federal coal in one state or 100,000 acres in the whole country. Given this limitation and the nature of our uncommitted reserves in Montana and North Dakota, our company could not, at best, acquire more than several mining units through federal lease sales.

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Fourth, section 2(c) is a divisive and potentially litigious provision. These unfortunate characteristics of 2 (C) are manifested in the continuing dispute between the Department of the Interior and the Department of Justice over the reach of the provision. Through Solicitor's opinions written during the Ford and Carter Administrations, the Interior Department has maintained that the section 2 (c) prohibition applies to companies directly operating a common-carrier railroad and only those subsidiaries that are "alter ego[s]" of railroad companies. An "alter-ego" company is one that, by ownership and management, is for all intents and purposes the same entity as a parent railroad company or is so completely dominated or controlled by a common parent of a railroad company that the entire corporate family constitutes the operator of the railroad. Under this interpretation of section 2(c), the Interior. Department has felt free to issue Federal coal leases in the last few years to joint ventures involving Rocky Mountain Energy, the minerals subsidiary of Union Pacific.

The Justice Department, in its 1980 report, takes a very different and much broader view of the coverage of section 2 (c). Their interpretation of section 2(c) excludes coal leasing to any subsidiary of a railroad company or a holding company which also owns a railroad. Furthermore, the agency extends the applicability of section 2 (c) to most joint ventures in which a railroad, a railroad affiliate, or an affiliate of a railroad-owning holding company has an interest.

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This interpretation is not only a direct challenge to the propriety of past Interior Department leasing actions but calls into question any future effort by any minerals affiliate of a railroad company to bid, directly or through participation in a joint venture, on a Federal coal lease. This reading of section 2(c) could place a cloud on the title of any leases acquired by such affiliates or joint ventures; it would subject each lease to the threat of litigation by rivals who were losing bidders in the lease sale or by any other organizations or individuals who are opposed to the lease's issuance or to eventual mining on the leasehold.

We have recently discovered yet a third agency which expects to be heard from on the meaning of section 2(c). The Department of Energy apparently believes that it, not the Department of the Interior or the Department of Justice, has the "true" authority to interpret, and determine the reach of, section 2(c). The nergy Department cites the DOE Organization Act as the source of this privilege, but we are uncertain whether or when this privilege will be invoked.

One short legislative provision, three agencies asserting jurisdiction over it, with at least two divergent. interpretations already made this certainly is a classic example of the damage that can be inflicted on the private sector when the bureaucracy engages in an unproductive "turf" fight. The uncertainty created by these divergent "official" views over or any other railroad affiliate's right to acquire Federal coal leases is severely hampering efforts to engage in long-range business planning and frustrating the initiative to compete.


An added absurdity about this unproductive bureaucratic dispute is that both agencies presently involved in it want to end it, but cannot. Only the Congress can. The Interior and Justice Departments disagree about the meaning of section


2(c), but they fully agree that it is bad public policy. That policy can only be corrected if the Congress acts favorably on the Justice Department's recommendation "that section 2 (c) be repealed". (Competition in the Coal Industry 88-89 (1980).)


Fifth, we believe section 2(c) to be fundamentally inequitable. It makes second-class citizens of all commoncarrier railroad companies and also, if the Justice Department's interpretation is accepted, mineral affiliates of companies that own railroads and the many joint ventures in which they participate. I use the word "citizens" in the phrase "second-class citizens" for good reason. In truth, we treated unlike any other domestic corporation with which we share citizenship; rather we are subjected to the same treatment which section 1 of the Mineral Leasing Act gives to certain foreigners. Although a single sector of a domestic industry has been separated out by the Congress for special treatment in a number of other statutes, in each case the Congress has had a compelling, specific reason for doing so. As I believe I have demonstrated in this testimony, section 2 (c) stands bare of any such compelling or even defensible reason for applying similar discriminatory treatment to railroad affiliates.

Two final thoughts. Our company does not expect to become major Federal leaseholders should 2 (c) be repealed. With a high percentage of our lands already under lease, the areas in which Federal leasing would be attractive to us are limited. And with Federal leases now being sold for up to $3000 an acre in regions to the south of us, our financial resources would support only this limited involvement in Federal leasing. This modest level of activity by a new entrant will stimulate a measure of increased competition, but certainly cannot be seriously regarded as posing an anticompetitive threat in any reasonably defined market.


We believe we are the kind of coal company which should be encouraged to own and develop Federal coal leases. Our company is a permanent resident of Montana. As such, we are one of the few coal companies actually headquartered in the western coal fields. Unlike many coal companies, we own much of the resource we hope to develop. Our closeness to the workplace and our position as a resource owner ensure that we will not mine and move on; Montana and the upper Rocky Mountain region is our home and will be for years to come. It will be treated as our home as we conduct our coal development activities.

In summary, Mr. Chairman and Members of the Subcommittee, we believe that section 2 (c) is outdated and counter-productive to its original purpose of enhancing competition. That purpose is now served in a far better manner by the Attorney General's antitrust review under section 15 of the Federal Coal Leasing Amendments Act of 1976 and the lease acreage limitations. The ability to compete on equal terms with major companies in the federal coal marketplace should not be denied us. We strongly urge this Subcommittee and the Congress to adopt the recommendations of the Justice Department, the Interior Department, and the Public Land Law Review Commission . that section 2(c) be repealed and to act favorably on s.1542.

If you

Thank you for inviting me to testify today. have any questions, I would be happy to try and answer them.

Senator WARNER. Mr. Walsh.


SANTA FE MINING, INC., ACCOMPANIED BY JEROME MUYS AND JEFFREY WILLIAMS Mr. WALSH. Thank you, Mr. Chairman. My name is David J. Walsh, and I am the senior vice president of Santa Fe Mining Co., with headquarters in Albuquerque. I have today with me Mr. Jeffrey Williams, a member of the Santa Fe law department in Chicago, and Mr. Jerome Muys, a member of the Holland & Hart firm, headquartered in Washington. I would like to refer briefly to some excerpts from my prepared statement. I will not read it in its entirety. I would like to touch upon some of the matters that have been raised here today. Santa Fe Mining Co.

, which is an affiliate company, a subsidiary indirectly of Santa Fe Industries, has actually been in the coal business for some time, chiefly through its predecessor, the Cherokee & Pittsburg Coal & Mining Co. The Santa Fe Railroad obtained its land grant lands from the Atlantic & Pacific, and those historical facts have already been referred to.

In the early 1972 period we began a program of operating our lands, which was different from the policy that we had previously had, in which we had largely leased to other companies, including major oil companies. This program resulted in the development of over 500 million tons of coal. Most of this coal is now leased, the principal leases being with Tuscon Electric Power and Chaco Energy, which is a subsidiary of Texas Utilities. We have at present at approximately 100 million tons of uncommitted proven reserves and this figure is hardly representative of 1 percent of the total uncommitted reserves in the San Joaquin Basin, which is the area of our interest.

At this point I might refer to some of the implications that have been made that the repeal of section 2(c) might lead to other companies not bidding for Federal coal in checkerboard areas. This is sometimes referred to as a bid chilling factor. As far as the Santa Fe Pacific is concerned, we think it is unfounded.

First of all, we have historically made our coal available to other companies, and I might give two specific examples: Gulf Oil Co., Pittsburgh & Midway McKinley Mine, in operation near Gallup, N.M., composed of Santa Fe leases, Federal leases, and Navajo Nation leases.

Another example is the Star Mine that includes Santa Fe leases, Federal leases, and State leases.

We have never found other companies reluctant to bid, for instance, in the State of New Mexico amongst our checkerboarded lands.

Finally, I might emphasize the situation actually operates in the reverse. Companies come to us and say, since you can't bid because of 2(c), lease your land to us and we will pick up the check for it.

Santa Fe was actively involved in the efforts of 1975 and 1976, and I will not repeat the history of that legislation. Our concern then, as now, is that 2(c) could be interpreted to disqualify mining companies only indirectly related to a company operating a common carrier railroad from competing for Federal coal leases.

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