Mr. STEIGER. I am interested in the fact that you have addressed wide-ranging-I suppose it is inevitable-nonlegal and economic quantum results which I was unaware that you were competent to do. I mean, you describe the condition of the coal industry-with which I had not realized you were familiar. Mr. WILSON. Sir, the whole business of antitrust is the business of competition. It deals with economics. Mr. STEIGER. Theory or fact. Mr. WILSON. I suppose it is a combination of both, Congressman. Mr. STEIGER. The reason I am concerned, Mr. Wilson, is because nowhere in this in the 15 or 16 pages of statement plus exhibits-do you make the point that we are inhibiting production now because of 2(c). And maybe you aren't aware of that? Are you aware of that, that we are inhibiting production, that there are resources which are not being mined? Mr. WILSON. This situation, the checkerboard situation, inhibits production. There are resources that are not being mined. What we are trying to do is come up with a competitive solution, and that is what we tried to do. If we have failed, we have failed. Mr. STEIGER. I understand that, Mr. Wilson. But you made no reference to that, that I could determine in your statement. I wondered if you were aware of it. Your concern was very properly with the anticompetitive effects of the repeal with no mention of the fact that absent the repeal, these resources would continue not to be mined apparently. Mr. WILSON. I think it is certainly in there by implication, Congressman. Mr. STEIGER. OK. Mr. WILSON. At page Mr. STEIGER. I am also interested in Mr. WILSON. Four and five. We say, "The joint or unitary development of this resource makes economic sense." Mr. STEIGER. OK. The fact is that I think what his committee is faced with is an issue that you have not addressed, and that is, one, is there a problem; two, is it solvable by repeal or is it achievable by a method, one of which you have described? Mr. Wilson, I don't know what to tell you. I am amazed at the editorial assumptions which you have made, I suppose in the spirit of sharing the thought processes of justice. But I will read to you, starting on the bottom of page 14, the very last sentence: In working out a solution, however, I strongly urge the subcommittee to keep constantly in mind that if the railroads are to be freed from present restrictions on the development and marketing of increasingly important Western coal, it should not be at the expense of full and free competition of the coal industry. Well, that is what I call more theory than fact. I agree we should also protect the flora and fauna and the state of matrimony in whatever State these heinous operations are being carried on as well as suffer little children not to go to school, but the fact is that kind of a gratuitous fact does not help the committee in its solution. The fact is that 2(c) was designed and drafted to prevent the railroads from taking over the world. Now we ask you or I thought we should, is there still-is there a threat of them taking over the world if this is repealed? And, very frankly, you have been rather vague. What you have told us here, at least what I interpret, is, in response to most of the dialog with the gentlelady from Hawaii, that monopoly is all right so long as the checkerboards are the same color. Now, Mr. Wilson, I find that at best-the very best I can say-I find that cosmetic. Why should we go through this whole exercise of exchanging if the result is going to be the same kind of monopoly? Are you aware of the 46,000-acre restriction on the mining of Federal coal? Mr. WILSON. 46,080. Mr. STEIGER. I didn't see any reference to it. Do you look upon that as any inhibiting factor with regard to monopoly? Mr. WILSON. Yes, that inhibits monopoly, yes, sir. Mr. STEIGER. You considered it, but didn't mention it, is that it? Mr. WILSON. Congressman, what we were trying to do here today is make a suggestion, a proposal, an idea. Mr. STEIGER. Excuse me, Mr. Wilson, my time is about up. Would you explain to me why it is all right to have a monopoly if the checkerboards are all the same color and why it isn't good if they are not the same color? Mr. WILSON. Under our proposal the checkerboards will not be the same color. We were trying to prohibit monopoly. We were trying to introduce new competition into the coal industry. One way to do that is to utilize these tracts so the Government can get better value for that big tract or that big tract than it could get by leasing its square mile tracts. Mr. STEIGER. You are saying that the unitizing under the exchange principle differs from the unitizing if it is on railroad land with adjacent Federal land. Is that a different form of unitizing? Mr. WILSON. I am not sure I understand your question. Mr. STEIGER. I am certain you wouldn't. What is the distinction between unitizing as those who would like to wish to repeal 2(c) wish to give the railroad companies the opportunity of doing, or unitizing by exchange, where I assume the railroad companies would have their unit and the other private coal companies would have their unit? What is the distinction? Mr. WILSON. The distinction, sir, is that under the straight repeal of 2(c) as opposed to this proposal-under this proposal the railroads would end up with half as much land as they could possibly get under the straight repeal of 2(c). Mr. STEIGER. How about the 46,000-acre limitation? That doesn't enter into it? Mr. WILSON. That would be a limitation, part of 2 (c). Mr. STEIGER. Madam Chairman, you have been very indulgent. I now wish-what you are saying, the exchange proposal then is absent the need for legislative requirement, which you don't know if we need it or not? Mr. WILSON. As I read section 2(c), Congressman, it prohibits a railroad from holding a leasehold interest in coal deposits except for its own purposes on the gray squares. That means that you cannot unitize without either (a) a repeal, or (b) a modification of 2(c). And if you have a straight repeal, the whole thing could be red. If you don't have a straight repeal, and if one goes with a modification of this type, they get half as much land. Mr. STEIGER. You defined the problem, but not your recommendation. Mr. WILSON. Modification to permit this kind of an exchange. We do not have statutory language yet. This is an idea, a proposal, a conception. If we have failed in setting it forth, we have failed, as I have said before. Mr. STEIGER. I like that line about "Che sera sera." In the last sentence of the next-to-the-last paragraph you have: "If this is one of the risks inherent in such procedure, if we make mistakes, we make mistakes." I think that well personifies the attitude of Government. While it may not mean much to the Department of Justice, it probably means a heck of a lot to the guy who was trying to make a living mining. Madam Chairman, I would like to be able to crystalize this for the committee in some sort of a specific request, but I am unable to define the problem beyond what the gentleman from Michigan has defined it. Mr. RUPPE. One last question. On page 9 of your testimony you suggest "It may be that even absent a change in the law, the railroads could still win a fight to achieve some form of unitary development." How might that be done short of legislation? Mr. WILSON. The provision for joint venture development, which is referred to in footnote 5 of the supplement-the validity of that regulation has never yet been tested in the courts. That is the provision to which I was referring. Mr. RUPPE. The joint venture, while it has not been tested before a judge, is acceptable to Interior and that is a possible vehicle for unitization. We are somewhat hung up on the exchange question. That is best resolved by perhaps an inquiry to Justice. Mr. WILSON. Fine. We will be happy to respond to any questions. Mrs. MINK. There being no further questions, I thank you very much [At this point a letter addressed to Hon. Edward H. Levi, Attorney General, from Hon. Patsy T. Mink, dated November 18, 1975, plus answer in letter from Michael M. Uhlmann, to Hon. Patsy T. Mink dated January 5, 1976, follow:] HOUSE SUBCOMMITTEE ON MINES AND MINING, Hon. EDWARD H. LEVI, November 18, 1975. DEAR MR. ATTORNEY GENERAL: On November 11, 1975, Mr. Bruce Wilson, Deputy Assistant Attorney General for Antitrust appeared before the Subcommittee on Mines and Mining in connection with oversight hearings being conducted relative to proposals to repeal Section 2(c) of the Mineral Leasing Act of 1920 (30 U.S.C. 202). Mr. Wilson's appearance was in response to our request. We wished to obtain a statement of the position of the Justice Department with regard to the antitrust aspects of any repeal of Section 2(c). I am enclosing herewith a copy of Mr. Wilson's prepared remarks, and an extract of the relevant portion of his testimony from the transcript of the hearing. Does his testimony, including his responses to the questions of the Subcommittee, accurately state the position of the Department of Justice with regard to the anti-trust implications of repeal of Section 2(c) of the Mineral Leasing Act of 192C? If not, would you kindly supply the Subcommittee with a full statement of the position of your Department on this matter? This may be done in the form of a written response to this inquiry, unless you would prefer to appear before the Subcommittee in person, in which case of course we will be most pleased to make the necessary arrangements. Very truly yours, Hon. PATSY T. MINK, Chairperson, House Subcommittee on Mines and Mining, Washington, D.C. PATSY T. MINK, Chairperson. DEAR MADAM CHAIRPERSON: The Attorney General has asked me to respond to your letter of November 18, 1975, with respect to the testimony of Deputy Assistant Attorney General Bruce B. Wilson before the Subcommittee on Mines and Mining on November 11, 1975. The position of the Department of Justice is as stated by Mr. Wilson. The Department opposes repeal of Section 2(c) of the Mineral Leasing Act of 1920. If Section 2(c) is to be repealed, we believe that the suggestion of the Department for authorizing exchanges of mineral leasing rights between the government and the railroads should be explored with a view toward the creation of economically mineable tracts in the affected areas. Sincerely, MICHAEL M. UHLMANN. Mrs. MINK. The next witness is Mr. Starr Thomas. Mr. Thomas is accompanied by Mr. David Walsh of Albuquerque, vice president of Santa Fe Pacific Railroad and Cherokee and Pittsburg Coal & Mining Co., and Jerome C. Muys, Debevoise & Liberman, attorneys from Washington, D.C. representing Santa Fe. The Chair welcomes all of you to these hearings. The statement which has been submitted to the subcommittee will be entered in the record without objection at this point. [The prepared statement referred to follows:] STATEMENT OF STARR THOMAS, VICE PRESIDENT-LAW, SANTA FE Madam Chairman and members of the Subcommittee, my name is Starr Thomas, Vice President-Law of Sante Fe Industries, Inc. of Chicago, Illinois. I am accompanied by David Walsh of Albuquerque, New Mexico, Vice President of Santa Fe Pacific Railroad Company and Cherokee & Pittsburg Coal and Mining Company, and by Jerome C. Muys, Debevoise and Liberman, Washington, D.C. Santa Fe welcomes this opportunity to testify in support of our proposal to repeal section 2(c) of the Mineral Leasing Act of 1920, which essentially prohibits any "company or corporation operating a common-carrier railroad" from obtaining federal coal leases, other than "for its own use for railroad purposes". I. SANTA FE INDUSTRIES Santa Fe Industries, Inc. is the parent holding company of a number of subsidiary companies engaged in transportation, natural resources and real estate operations. The best known and most significant Santa Fe company is the Atchison, Topeka and Sante Fe Railway Company which accounted for over 75 percent of total revenues in 1974. I have provided the Subcommittee with several copies of our 1974 annual report, on the back page of which is an organizational chart showing the basic corporate structure of Santa Fe Industries. The geographic scope of Santa Fe's various operations is shown in the centerfold of the report. II. HISTORY OF SANTA FE'S INVOLVEMENT IN COAL DEVELOPMENT Santa Fe has been involved in coal development since shortly before the turn of the century. Today Santa Fe's coal interests are held by two wholly owned Santa Fe companies, Santa Fe Pacific Railroad Company and Cherokee & Pittsburg Coal and Mining Company. Santa Fe Pacific currently holds proved coal reserves of more than 417 million tons located largely in McKinley and San Juan countries, New Mexico. Cherokee's proved coal reserves approximate 184 million tons. Santa Fe Pacific, as the successor to the Western Division of the Atlantic and Pacific Railroad Company, holds fee title to about 154,000 acres and has reserved mineral rights in over 4 million acres of original railroad grant lands. Cherokee was acquired in 1895 for the purpose of developing coal for the Santa Fe's steam locomotives and for other railroad_purposes. Later, when oil replaced coal as locomotive fuel in the West, Santa Fe's coal operations were restricted to leasing coal for development by others as market demands permitted. In 1972 a drilling program was begun on Santa Fe Pacific lands in McKinley County, New Mexico, which are subject to an option to lease to Cherokee for development. The results of the drilling program indicated the presence of about 370 million tons of strip-minable, low-sulfur, coal. Negotiations were commenced in 1974 with potential mine operators and prospective customers in the Southwest, principally major electric utilities with long term, large volume energy needs. In July, 1975, a memorandum of intent was signed by Cherokee, PeabodyThermal Energy Co., a joint venture between Peabody Coal Company and Thermal Energy Company, and the Salt River Project Agricultural Improvement and Power District to provide 86 million tons of coal to fire the first two 350 megawatt units of Salt River's Coronado electric generating station under construction near St. Johns in eastern Arizona. A copy of Santa Fe's press release announcing the details of that project is attached as Appendix A to my statement. Santa Fe is dedicated to becoming an active competitive force in western coal development. In order to achieve that goal we must have the right to acquire federal coal leases as freely as our competitiors. III. COAL DEVELOPMENT RESTRICTIONS IMPOSED BY SECTION 2(c) Section 2(c) of the Mineral Leasing Act of 1920 prohibits any "company or corporation operating a common-carrier railroad" from obtaining federal coal leases, other than for its own use for railroad purposes.1 We believe that this restriction makes us at best a passive developer of much needed energy resources. Vast areas in the West, including those areas where our holdings lie, are interspersed with substantial federal coal lands. Unless we can compete with others for federal mining leases we cannot aggressively develop our holdings. Nor can we compete effectively for private and state leases which are interspersed with federal lands. It is generally acknowledged that the nature of the electric generation and coal gasification projects for which most western coal is likely to be developed requires substantial reserves. Consequently, this will necessitate the "blocking up" of Western coal lands into sufficiently large and geologically suitable "logical mining units", as the Department of Interior has proposed for federal lands. (39 Fed. Reg. 43229). The economic and environmental basis underlying the concept of a "logical mining unit" was explained last year by Mr. Russell Wayland, Chief of the Conservation Division of the U.S. Geological Survey, in testimony before this Subcommittee.2 ".. of some of the 500 plus leases that now exist, our engineers consider that almost 400 exist in groupings of approximately 4 leases per group that constitute logical mining units; 129 existing Federal leases are not groupable with other Federal leases and must stand on their own or with adjacent private or state holdings. A modern mine for coal requires considerably more than the 2,600 acres that are in a Federal coal lease because a modern mine is based on long range contracts requiring many millions of tons of guaranteed supply to a facility that is designed for the burning or chemical treatment of that particular coal, and not any other coal. Therefore, we see a very large commitment necessary. 1 "No company or corporation operating a common-carrier railroad shall be given or hold a permit cr lease under the provisions of this chapter for any coal deposits except for its own use for railroad purposes; and such limitations of use shall be expressed in all permits and leases issued to such companies or ecrporations; and no such company or corporation shall receive or hold under permit or lease more than ten thousand two hundred and forty acres in the aggregate nor more than one permit or lease for each two hundred miles of its railroad lines served or to be served from such coal deposits exclusive of spurs or switches and exclusive of branch lines built to connect the leased coal with the railroad, and also exclusive of parts of the railroad operated mainly by power produced otherwise than by steam. Nothing in this section and section 201 of this title shall preclude such a railroad of less than two hundred miles in length from securing one permit or lease thereunder but not railroad shall hold a permit or lease for lands in any State in which it does not operate main or branch lines." 30 U.S.C. § 202. Hearings on S. 3528 before the Subcommittee on Mines and Mining of the House Committee on Interior and Insular Affairs, 93rd Cong., 2d Sess. 45-46 (1974). |