Now, a logical mining unit as our engineers have put it together, consists of, as I say, typically four or more Federal coal leases plus intervening land, state or private, that will be committed towards such a long-term contract. Now these leases of necessity are to be mined in a logical way.

The statistic on the existing ones indicate that four plus leases, Federal leases, in these 91 logical mining units are minable under a plan which foresees the initial operation on one lease and the progression of the operation into another lease and then another lease and then maybe on to some nonfederal coal lands and then back and forth. It is a slicing operation. The overburden is set aside and then is put back into the hole. But the hole is a long, lean thing, that, if it were not systematically planned over a rather large acreage, the result would be an illogical mining of individual leases which could not have such an effective rehabilitation potential as the mining of these very large units. So, for these two reasons, what we are now facing in this greatly expanded Western coal development is that it is essential, I believe, for everyone to think in terms of not individual leases but in terms of a grouping of leases that will be mined under a single mine development plan and a mine rehabilitation plan."

Section 2(c) not only inhibits coal development along these logical lines but the reasons for its enactment no longer exist. Although the legislative history is unclear, the restrictions imposed on railroads by 2(c), which I emphasize are not applicable to any other kind of business organization, were apparently grounded on the belief in 1920 that railroads might enjoy an unfair advantage over other coal producers because they owned their own transportation capability. However, not only have other transportation modes developed since 1920, but there are strong regulatory controls restricting any possible transportation advantage of railroads. The "commodities clause" prohibits a railroad from transporting its own coal in interstate commerce for other than railroad purposes (49 U.S.C. § 18)) and other provisions of the Interstate Commerce Act effectively prohibit discrimination in rates or service against any rail customers.3

For all of the foregoing and other reasons, the Senate Interior Committee in 1957, 1962 and 1966 favorably reported and the Senate passed legislation repealing section 2(c).

The Department of the Interior supported the bill on each occasion 5 and it received unanimous bi-partisan support. In favorably reporting a bill to repeal section 2(c) in 1966, the Senate Interior Committee concluded that "the restrictions of section 2(c) have outlived their usefulness, are unnecessarily restrictive and discriminatory and there is no reason to continue them in effect." • We agree wholeheartedly with that conclusion.

Unfortunately, the section 2(c) repealers passed by the Senate were never passed by the House for reasons which are not wholly clear, although the National; Coal Association has historically opposed the repeal of 2(c). In 1966 and subsequently I understand that a principal reason for the failure of the House Interior Committee to act on the proposed repeal was Chairman Aspinall's well known and determined policy not to take up any significant public land law reform legislation until the Public Land Law Review Commission, created by Congress in 1964 to conduct a comprehensive review of public land policy, had completed its study and submitted its report and recommendations to Congress and the President. After careful consideration of the 2(c) issue, the Commission in its 1970 report, "One Third of the Nation's Land," recommended its repeal. In general it recommended that "restrictions on public land mineral activity that are no longer relevant to existing conditions should be eliminated so as to encourage mineral exploration and development." (PLLRC Rept., p. 135).

Specifically with respect to section 2(c), it is recommended that "restrictions upon the leasing of public land coal deposits to railroad companies should be removed", reasoning as follows (Id. at 136): "The fears of monopolistic control which led to the enactment of the existing restrictions no longer are applicable. The importance of pipelines and truck transportation and the growing use of mine-mouth generation have materially reduced any competitive advantages railroads may once have had over other coal producers. Furthermore it appears that other Federal laws, such as the antitrust laws, are far more effective in regulating the competitive position of the railroads than the public land laws."

3 Sections 2, 3 and 4 of the Interstate Commerce Act (49 U.S.C. § 2, 3 and 4).

4 S. 2069, 85th Cong.; S. 1192, 87th Cong.; S. 3070, 89th Cong.

5 S. Rep. No. 576, 85th Cong., 1st Sess. 2-5 (1957); S. Rep. No. 1738, 87th Cong., 2d Sess. 3 (1962); S. Rep. No. 1408, 89 th Cong., 2d Sess., 5 (1966).

S. Rep. No. 1408, 89th Cong., 2d Sess. 2 (1966).

7 See, e.g., Hearing before the Subcommittee on Minerals, Materials and Fuels of the Senate Committee on Interior and Insular Affairs on S. 3080, 89th Cong., 2d Sess. 63–65 (1966).

Relevant extracts from the contract study on federal coal leasing, done by the University of Utah College of Law for the Commission, discussing the background of section 2(c) and the pros and cons of its repeal are attached as Appendix B to my statement.

Relying on the PLLRC recommendation and rationale, the Senate Interior Committee again this year reported out a 2(c) repealer as part of S. 391, which was passed by the Senate in July and is now before this Committee.

The Department of the Interior continued its previous support of repeal of section 2(c) in the 93rd Congress in its proposed full scale revision of the Mineral Leasing Act, which would have repealed those restrictions. (See H.R. 5442, 93rd Cong., §§ 3(b), 101(a)(1), 102(a) and 123(a)(1)).

Similarly, in this Congress the Department supported repeal of section 2(c) by the Senate and advised this Committee, in commenting on H.R. 6721 by letter of July 22, 1975, as follows:

"We do not believe that there is a sound reason to prohibit railroads from leasing coal today; therefore we would support this amendment [repealing section 2(c)] if amended to include a proviso that such lessees could not give preferential treatment to the hauling of coal from such lease over its railroad lines."

Santa Fe has not objection to the condition recommended by the Department. It is obvious that section 2(c) is antithetical to the objectives of the Department and Congress to promote greater competition and more rational, environmentally sensitive decisionmaking in the federal coal leasing program. Consequently, there is no valid reason why railroad companies ought not to be eligible to compete for federal coal leases on a non-discriminatory basis with all other eligible applicants, such as large coal companies, electric utilities, natural gas pipelines, coal pipelines, and large integrated energy companies. I stress that repeal of section 2(c) will not automatically entitle railroad companies to federal coal leases, but will simply make them eligible applicants. The Secretary of the Interior will retain complete discretion under the Act to determine whether and when federal coal will be offered for leasing and, in addition, all applicants will be subject to pre-leasing antitrust review by the Department of Justice if H.R. 6721 is enacted.

IV. ISSUES WHICH HAVE BEEN RAISED IN OPPOSITION TO THE REPEAL OF SECTION 2(c)

Several issues have been raised during the course of the Committee's consideration of our proposed amendment of section 2(c). They fall into two general categories, which I have designated the "conglomerate" and "competitive" issues.

A. The conglomerate issue

Concern has been expressed that somehow repeal of section 2(c) will encourage railroads to diversify their activities into ccal operations to the detriment of their railroad operations. It has been suggested that if coal development is unsuccessful that somehow the losses associated with coal ventures will be transferred to the shoulders of railroad company customers through rate increases. On the other hand, it is alleged that if coal development is financially more attractive than railroad operations, the result may be to encourage the parent holding company to divert its capital expenditures from the railroad to coal operations.

There are several erroneous assumptions underlying these alleged concerns. The first is that somehow repeal of section 2(c) will prompt railroads to move to conglomerate status. This is clearly not the case with respect to the western land grant railroads who would be the principal beneficiaries of repeal of section 2(c)— Santa Fe, Burlington Northern and Union Pacific. These railroads are not embarking on a policy of corporate acquisitions to obtain entry into the coal business. Santa Fe and its sister railroads have owned their coal reserves, either directly or through affiliates, since before the turn of the century and actively developed them for their own purposes before the advent of the diesel locomotive. We are already in the coal business. The repeal of section 2(c) will simply enable us to develop our reserves in a more efficient and environmentally desirable fashion.

Second, there is little likelihood that our coal operations will be financially unsuccessful given the Nations's energy needs and the important role that all agree western coal must play in meeting those needs. But even if this possibility existed, the Interstate Commerce Commission would not permit us to recoup such losses from our railroad customers through an increase in railroad rates. Since the Commission will be testifying later this week I will go no further in discussing its rate setting authority and regulatory responsibility under the Interstate Commerce Act.

As to the suggestion that railroads might divert capital from railroad purposes to coal development-this certainly is not true of the western land grant railroads. As far as the Santa Fe is concerned, we made it clear in 1968 when Santa Fe Industries was created that we were committed to railroading as a major line of endeavor. Since that time we have backed up that commitment with a solid capital expenditures program for Santa Fe Railroad, as illustrated by Appendix C to this statement. Today the railroad is in top physical condition, perhaps the best in its entire history. We intend to keep it that way.

Finally, the whole question of railroad diversification through holding companies is before the House Interstate and Foreign Commerce Committee, which has before it a draft bill proposed by the Interstate Commerce Commission to regulate a variety of activities of railroad conglomerates.8

Consequently, while Santa Fe opposes that proposed legislation, any problems in this area should be dealt with on a comprehensive, industry-wide basis, rather than by attempting to drag the unrelated policy issues associated with that question into consideration of the merits of repealing section 2(c).

B. The competitive issues

The competitive issues which have been raised fall into two general areas of concern: (1) the possibility that western railroads will use their transportation capability to discriminate against coal competitors; and (2) the potential for railroad domination of western coal development because of the size and location of their coal reserves.

We think those who express the fear of discriminatory transportation practices against competing coal producers are beating a dead horse. Santa Fe has not played that kind of anticompetitive game and has no intention of doing so. Moreover, as I indicated earlier in my testimony, it is clear that such practices are barred by the Interstate Commerce Act and ICC regulations and decisions. Nevertheless, Santa Fe has no objection to including as part of any amendment repealing section 2(c) language such as that suggested by the Interior Department to specifically prohibit such practices.

Perhaps the critical policy issue involved here arises from the fear that the repeal of section 2(c) will lead to railroad domination of western coal development. It is suggested that the extent and location of proved coal reserves presently held by the western land grant railroads may afford them an undue market advantage which they may exercise to dominate future western coal development. Concern is expressed from four quarters-the National Coal Association; certain environmental groups; the Justice Department: and a number of members of this Committee.

First, to put the matter in perspective, Santa Fe owns some 417 million tons of proved reserves in New Mexico, Union Pacific reportedly has some 10 billion tons of proved reserves, largely in Wyoming and Colorado, and Burlington Northern has some 11 billion tons of proved reserves, largely in Montana. I am constrained to point out in this regard that most of the concern expressed to date on this issue has centered on our sister railroads in the West, rather than on Santa Fe. Nevertheless, since we assume that the restrictions of section 2(c) cannot be repealed in a piecemeal or regional basis, it is necessary to deal with the competitive issue on an industry basis. Even on that broader basis, we agree with the Senate Interior Committee's conclusion in 1966 that "there are available such tremendous undeveloped reserves of coal in the West, of which the railroad reserves are only a small part, that the possibility of monopoly appears non-existent." 9

Dealing first with the National Coal Association, Santa Fe is informed that NCA has been actively lobbying in opposition to the repeal of section 2(c). While Santa Fe, which is an associate member of NCA, was not aware that the NCA Board of Directors had adopted such a position and has not been informed as to the basis of NCA's reported opposition, we assume that it is motivated by a desire by some of its members to forestall the added competition for federal coal leases that repeal of section 2(c) would permit. Although NCA opposed repeal of 2(c) when it previously passed the Senate in 1966, Santa Fe had assumed that NCA's previous resistance to railroad competition had abated in light of a vastly improved western coal market and the fact, developed in your hearings, that some 16 billion tons of recoverable coal reserves have since come under federal lease to non-rail

8 It has been introduced in the Senate as S. 2455. S. Rep. No. 1408, 98th Cong., 2d sess. 3 (1966).

road coal companies (presumably NCA members), only 40 percent of which are presently committed to private development.10

Over the past year the National Coal Association has repeatedly stressed before Congress and in every other available forum that it favors greater, non-discriminatory competition for federal coal leases. For example, in commenting on the Department of the Interior's draft environmental impact statement on its coal leasing program, NCA President Carl E. Bagge's formal comments to the Bureau of Land Management on August 28, 1974 forcefully advocated free and open access to federal coal as one of the principal objectives of a federal coal leasing policy:

(1) "[I]n a market characterized by extensive demand, it is quite apparent that a prime goal of federal coal leasing must be ready and widespread availability. Such availability is clearly within the national interest and indicated by the growing need of the United States for energy in its various forms.” (p. 19).

(2) "One of the principal objectives of a federal coal leasing policy should be to 'establish guidelines which will make federal coal available on the basis of nondiscrimination to all potential bidders.'" (p. 9, emphasis added.)

(3) "Since much of the federally-owned coal is involved in the checkerboard pattern, and since access to the federal coal in the checkerboard is essential to a viable operation, the federal lease is a critical component in transforming coal from the ground to energy available to the consumer." (pp. 15-16, emphasis added.)

Santa Fe could not have stated the reasons for repealing section 2(c) any more forcefully.

Finally, in connection with other coal-related issues, NCA has repeatedly stressed that it is essential to remove unreasonable impediments to western coal development, both public and private, to meet our national energy needs and to provide much needed employment, positions in which Santa Fe wholeheartedly concurs. Unfortunately, NCA's actions speak far louder than its words, since its current opposition to Santa Fe's efforts to lift the dead hand of section 2(c) from the potential coal operations of the western railroads can only frustrate those professed goals. The National Coal Association's anticompetitive position should be rejected.

Next, as to the objections of the Environmental Policy Center, the Center significantly raises no objection to repeal of 2(c) on environmental grounds, since it is abundantly clear that 2(c)'s repeal will facilitate environmentally sound development of the many areas in the West where railroad lands are intermingled with federal, state, Indian and other private holdings. If these areas cannot be developed as a unit, because of the constraints of section 2(c), it is obvious that piecemeal development may have undesirable and unnecessary adverse environmental consequences. Furthermore, if Santa Fe and other railroads are prevented from developing their coal lands in regions where there may be agreement that development ought to proceed, it may force development of coal lands in other areas where, all other things being equal, environmental considerations might otherwise have dictated no development or development on a more modest scale. Consequently, we would have expected responsible environmental groups to support our proposed repeal of section 2(c).

Finally, with respect to the concern expressed by the Justice Department and members of this Committee, Santa Fe accepts the assurances that you, Madam Chairman, and others have made, that you are not opposed to such development of western coal as repeal of 2(c) would facilitate, as long as any potential anticompetitive impact can be effectively dealt with. Thus, Santa Fe sees the issues as (1) whether there is a basis for the competitive concerns which have been expressed, and (2) if valid, how they may best be handled.

To the extent that it is feared Santa Fe or other western railroads, absent the constraints of 2(c), might conduct their coal operations in an anticompetitive fashion or acquire an undue share of some relevant coal market so as to violate the policies of the antitrust laws, Santa Fe agrees with the conclusion of the Public Land Law Review Commission that such problems should be dealt with primarily through vigorous enforcement of the antitrust laws by the Justice Department and the Federal Trade Commission as they apply to all federal coal lessees, not just railroads. As to problems that might be presented by the size of coal holdings by railroads, we believe that the acreage limitations presently applicable to all lessees are an adequate safeguard against acquisition by any segment of the coal industry

19 Hearings on H.R. 3265 Before The Subcommittee on Mines and Mining of the House Interior and Insular Affairs Committee, 94th Cong., 1st Sess. 37 (1975).

of an undue share of federal coal lands. The Mineral Leasing Act presently prohibits any lessee from holding, either directly or through affiliates, more than 46,080 acres of federal coal lands in a single state and H. R. 6721, if enacted, would prohibit any entity from holding more than 100,000 total acres under federal leases. In addition, section 27 (k) of the Mineral Leasing Act already imposes a duty on the Secretary to take appropriate action where he finds that existing lessees are engaging in anticompetitive practices.

Nevertheless, in order to provide an additional safeguard against possible anticompetitive impacts that might flow from administration of the federal coal leasing program, Santa Fe has consistently stated that it has no objection to enactment of a provision for fair, expeditious and non-discriminatory antitrust review of proposed coal leasing actions in circumstances where there are reasonable grounds to believe that potential anticompetitive problems may be present. Representative Seiberling's antitrust review amendment to H.R. 6721, which was accepted by the full committee last week, fully accomplishes these objectives. Consequently, Santa Fe believes that any objections to repealing section 2(c) on anticompetitive grounds will be adequately dealt with if that language is enacted With respect to the proposal suggested by the Justice Department in its letter of October 7, 1975 to you, Madam Chairman, for a kind of mandatory exchange of railroad lands for federal lands obtained under lease, we have great difficulty with that proposal. As you may know the accomplishment of voluntary land exchanges by the Bureau of Land Management and the Forest Services is one of the most complex, time-consuming and controversial aspects of public land management. To make such an exchange a mandatory condition to railroad participation as a bidder for federal coal leases not only would continue discriminatory treatment of railroads but would, in our view, be completely unworkable as a practical matter. It would require Santa Fe to conduct a comprehensive inventory of all of its lands to determine which are "coal lands" and thus available for exchange. In addition, any transfers to the United States or others would require Santa Fe to reserve other valuable minerals in those lands, such as oil, gas, and uranium, many of which are already under lease. Furthermore, the Justice Department's proposal is based on the erroneous premise that railroads have not historically made their coal lands available for development by others and will not do so in the future. Santa Fe has historically made its coal and other resources available by lease to other companies and is currently actively seeking joint coal ventures with other companies. We understand that Burlington Northern and Union Pacific have followed a similar policy. Consequently, Justice's fears appear to be illusory.

In a similar vein, some have expressed concern that coal companies will not bid for federal leases in checkerboard areas of intermingled federal and railroad lands because, if successful, they might not be able to work out arrangements with the railroads for development of the common coal deposits. Again, based on our long experience, this concern is unfounded. We have never found other coal companies reluctant to bid on the federal lands in the checkerboard areas. Similarly, when we have bid on state owned lands in various checkerboard areas we have customarily encountered competition from other coal companies.

I should point out in this regard that our experience with actual or potential federal lessees and permittees in the checkerboard areas has been that the restrictions of 2(c), with which other coal companies are quite familiar, have put us at a disadvantage in negotiations with them involving development of our lands. Consequently, repeal of 2(c) will not give us an undue advantage but will simply put us on an equal basis with other lessees in the checkerboard so that we can work out mutually acceptable terms and conditions for development of the common coal deposits. In other cases the federal lessees do not have the financial resources to undertake development through a joint venture and appear to be only middlemen more interested in finding a purchaser for their leases.

In conclusion, Madam Chairman, Santa Fe contends that since the Congressional purpose in enacting section 2(c) is no longer valid, and since its restrictions may frustrate optimum development of western coal lands, it is the kind of outmoded public land legislation which can only hinder rational, efficient and environmentally sound development of our Western coal resources and should be repealed. No public interest arguments have been presented to justify a contrary position on this issue at this critical juncture in the development of a national policy to promote rational, environmentally sound development of the Nation's western coal resources.

11 Appendix D is a tabulation of Santa Fe Pacific and Cherokee lands under lease in 1974.