For these reasons, we think that the general policy of 2(c) and of the commodities clause can be appropriately modified in this particular

case.

There are several alternatives to solving this checkerboard dilemma that we have. None of them, short of forced divestiture, though, is without some difficulty under present law.

Allowing the railroads to participate in some fashion in the development of coal may well provide the national coal industry with vialbe new entrants, and that, obviously, is a generally favorable competitive development.

But outright repeal of 2(c), I think, goes beyond the problem which it is meant to cure. Aside from in effect doubling their coal holdings along the land grant strips, the railroads would be able to bid on much of the Federal coal land located outside those strips. And we think they have a substantial advantage within the strip, since they own the railroad.

In general terms therefore, the Department of Justice would support legislation directly responsive to the goal of unitary development of the coal on adjacent Federal and railroad lands.

We are concerned with how this can be done in a workable manner that will also preserve the increased development value for these lands whose fragmented value for coal development is now far less for both parties.

One possible solution would be the following. In order to forestall railroad control of all the land grant holdings in those areas, yet allow railroad participation in the coal industry, an additional provision could be added to the mineral leasing laws.

In simplified terms, it would establish a coal development rights exchange program between the Federal Government and holders of adjacent land seeking unitary development of coal resources. This exchange program would have to operate on the principle of full disclosure.

Each party, prior to any exchange, would be required to disclose to the other in confidence all information which the other may have relating to coal resources in the land in question. Material nondisclosure could be made the basis of a rescission action in the appropriate Federal district court where the land is located.

Thereafter, following full disclosure, negotiation of equivalent value transfers of development rights between the parties would enable the railroads and the Federal Government to realize the full development value of unitized parcels.

The feasibility in terms of the cost and timing of such a system is, of course, something that will have to be explored further. Basically, 2(c) would be left on the books. The railroads would not be allowed to compete for coal which they have given up during an exchange. But other potential competitors would be afforded an opportunity to participate in developing the Federal coal.

To illustrate this exchange proposal, let me go back to my chart. It is really a problem of rearranging this checkerboard pattern into economically mineable units.

Because the value of coal beneath the ground may vary from tract to tract, the exchange need not necessarily proceed on a square mile for square mile basis. I think the resulting pattern of ownership of

mineral rights might look something like this, in my hypothetical situation.

As you can see, the exchange tracts are not of identical size. What we are trying to do is come up with a system whereby the Government and the railroad can exchange equal value for equal value. The railroad can then become a potential entrant into the coal business. The Government can then lease its tracts to someone else who might be an additional potential entrant, and the ultimate result will be increased competition.

If we are going to go to that kind of a system, we should realize that exchanges of land do involve some risk to the Government. But those are the same chances which any other seller of mineral rights must take. The Government is a party to the exchange. It will acquire railroad mineral rights in exchange for some of its own.

One risk involved in land exchanges of this nature is that none of the land on either side of the exchange is subject to a free market test, so there is always some doubt whether the Government will get equivalent value for the value given up.

But this is really one of the chances inherent in any such procedure. And if we make mistakes, we make mistakes. If this system were adopted, we think we must recognize that fact. Some of the procedures we suggest here today such as full disclosure may lessen but do not

obviate these risks.

The proposed repeal of 2(c) raises a number of important economic issues warranting extended consideration before final action is taken by the subcommittee.

I would suggest that the views of the Midwestern and Western electrict utilities be solicited because they are likely to be the biggest consumers of the coal that we are talking about here. They are naturally quite concerned about the growth and the orderly development of the western coal industry, and have been studying this issue.

There are, of course, others no less interested in this matter who might wish to propose other alternatives somewhere between the status quo, the outright repeal of 2(c), and who might wish to comment upon the proposal which we make here today.

I thank the subcommittee for the opportunity to come here, and we will try and answer any questions which you might have.

Mrs. MINK. Thank you very much.

The situation which the checkerboard pattern presents is a very complicated one. I think that part of our difficulty is understanding the rationale for the establishment of this type of ownership in the first instance.

I wonder if you could give us some of the historical background that led to the conveyance of property in this fashion, and secondly, what the extent of this kind of Federal conveyance is in the areas where coal is found in the West today. What is the extent of the problem, in other words? Are we dealing with a unique situation located only in certain areas of the coal-rich parts of the West, or is this a general pattern? Is this everywhere where we are dealing with coal?

Mr. WILSON. My understanding of the historical background is the grant of the land strip rights to the railroads had really two purposes. One, was to get the railroad built. No. 2, was to enhance

the value of the remaining Federal land, the gray land on the chart, by reason of its proximity to the railroad.

Mrs. MINK. It was granted, then, as an inducement to the railroads to go out and expend their capital for the development of the railroads? Mr. WILSON. Yes.

Mrs. MINK. So it was, in a sense, a Federal subsidy to the railroads. for the purposes of opening the West?

Mr. WILSON. Precisely.

Mrs. MINK. How extensive is this pattern on either side of—I assume the line across your chart is the railroad track.

Mr. WILSON. Yes; the green line here that is the railroad.

Mrs. MINK. That is the track. So how extensive is the pattern on either side of the railroad?

Mr. WILSON. In some instances it goes 20 miles on either side. That is the illustration which we have used here. And in other instances, it goes 40 miles. So it can be 40 to 80 miles. Now-and I cannot vouch for these figures-but I picked them out of the Santa Fe testimony this morning.

Santa Fe says they have 417 million tons of proven reserves in New Mexico. They also say that the Union Pacific has reportedly some 40 billion tons of proven reserves, largely in Wyoming and Colorado, and the Burlington Northern has some 11 billion tons, primarily in Montana. That is a lot of coal.

Mr. KAZEN. Mrs. Chairman?

Mrs. MINK. Yes?

Mr. KAZEN. How long, in your opinion, will it take them to mine that coal, just those quantities that you just mentioned?

Mr. WILSON. I don't consider myself capable to express an opinion on that.

Mr. KAZEN. Will someone from Interior give-do you have that answer? Does anybody have that answer?

Mr. WILSON. As I understand it, Interior is looking at the feasibility of an exchange of this kind. What kind of information do we have now to allow us to say that the coal under this Government land is of relatively equal value to the coal under this resulting railroad land? That is one of the things we have to look into and find out.

Mrs. MINK. In your exchange proposal, you are suggesting that it would be a fee exchange and not simply an exchange of a resource of one area to another. As I understand it, the checkerboard situation results in the fee ownership by the railroad. Isn't that correct?

Mr. WILSON. That is not my understanding. My understanding is it is a leasehold interest in the mineral rights. I guess you could call it a fee interest in the mineral rights.

Mrs. MINK. Will someone in Interior clarify that?

Mr. WILSON. It is a fee interest in the mineral rights-that is my understanding.

Mrs. MINK. A fee interest in the mineral rights or a fee interest in the land? Will someone from the Department-if you would respond to that, I would appreciate it, because the balance of my questions relate to that question. Is there someone from the Department here? Mr. TURCOTT. I am George Turcott, Associate Director of the Bureau of Land Management. Madam Chairman, I don't think there is an either/or answer to that. For instance, in the legislation before

another subcommittee of this full committee, we are asking for the legislative authority to exchange mineral interests. We don't have it now as far as the general exchange authority. Occasionally we get it on specific land management acts.

Mrs. MINK. I don't know what you are talking about.

Mr. TURCOTT. Well, the Bureau of Land Management does not have a general exchange authority now.

Mrs. MINK. I am not asking whether you have authority. My question is, what is the legal nature of the ownership by the railroads of this land in question which we are now discussing.

Mr. TURCOTT. The land grants to the railroads were in fee, surfaceand mineral.

Mrs. MINK. Thank you. That was my understanding.

Mr. WILSON. The surface interests, for example, may since that time have been alienated.

Mrs. MINK. That is exactly my followup question. So my inquiry to you is that in this exchange proposal which you are recommending, are you simply exchanging the resource, the right to the mineral resource, or is your exchange concept contingent upon an exchange of the fee which I understand was initially conveyed to the railroads?

Mr. WILSON. I agree with Mr. Turcott. The answer to that question is not an either/or question, either. You may have some of this tract which has been alienated as far as the surface rights go. What I am trying to do is exchange mineral rights of equal value between the railroad and the Government, provide that the railroad then becomes a potential entrant into the coal business and provide value for the Government, because a large minable tract presumably is going to be more valuable than a single square mile on the checkerboard pattern, and that is really the purpose of our proposal now.

We have had a relatively short time to get this together. That is why I suggested that considerable

Mrs. MINK. So, in other words, your recommendation is not contingent upon the railroad still holding the fee in order for an exchange to take place?

Mr. WILSON [continuing]. No.

Mrs. MINK. You are making the assumption that in some cases the fee may have already been exchanged or sold?

Mr. WILSON. Surface. In other words, the railroad can sell the land while retaining the mineral rights. So you may have a farmer that owns part of that red square up there.

Mrs. MINK. Then my next question is, if we are dealing with a situation in which the railroads have already seen fit to sell the surface rights to someone else, to what extent should the Government now try to bail them out when they have already received value for part of their holdings?

Mr. WILSON. For part. For part.

Mrs. MINK. Yes.

Mr. WILSON. In other words, they still have value underneath the ground. Now, whether or not the surface rights have been alienated will be one factor that enters into the relative value equation.

In other words, if it is straight fee interest in both railroad and Government land, and you have a relatively good knowledge of how much coal is under each, that is a fairly easy question to solve. If part of one

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of those tracts has been alienated by letting the surface rights go, the mineral rights may be less valuable. You may not be able to get to them.

Mrs. MINK. I understand you are not for the repeal, but in dealing with the basic issue of the repeal of section 2(c), the major argument is that unless we repeal it, we are blocking the development by the railroads of a legitimate property right.

My question is really, if they have disposed of the surface, what prevents them from disposing of the mineral rights to such other individuals who might then dispose of the minerals in development, so there would not be any blocking of the development?

If they have been able to dispose of part of their ownership, why not all of it to someone that could develop the coal? Why do we have to discuss this only in terms of what the railroads could do with their property if in fact some of it has already been disposed?

Mr. WILSON. If I understand the question correctly

Mrs. MINK. I can see your argument with respect to land which exists in that fashion with the checkerboard interests still owned by the railroads, the intervening property being owned by the Federal Government, which would require the conveyance of the intervening Federal properties in order that we might develop coal.

But where the railroads have already disposed of part of the interest, why not have them dispose of all of it so that another company may come in and develop the coal? The resources would be made available to the country without necessarily preferring the railroads.

Mr. WILSON [continuing]. I don't view this proposal as preferring the railroads. The fact is that, whether right or wrong, over 100 years ago we gave the railroads this land. Now, I suppose one could go and condemn it by eminent domain or tell them they cannot mine it or something like that. But the railroads by and large are not particularly in the coal business today. They are potential entrants. They are additional competitors.

This proposal we see as one way to get railroads in as potential competitors to the coal business, and also to get a new lessee from the Federal Government of the gray squares there. So you have two in that tract. As a matter of fact, you may have three, because the Government may have one, the top gray square one and the bottom another.

Mrs. MINK. Your proposal would be a voluntary exchange, not one required by law?

Mr. WILSON. Not one required by law but simply an authorization. I, being the railroad, and Mr. Brown being the Government-I would go to Mr. Brown and say, "Mr. Brown, I've got this land. Here is everything I know about this land. I would like to exchange it for some of your land. What do you propose?" Mr. Brown would say, "Well, I have this square over here, or these squares. Here is everything I know about that land." And following that, we would enter upon a negotiation to reach an agreement.

Mrs. MINK. Is there anything to prevent such an exchange from taking place today?

Mr. WILSON. 2(c).

Mrs. MINK. Pardon?

Mr. WILSON. Section 2(c).