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Consequently, we respectfully request your consideration of the following amendment for addition to H.R. 6721 on the floor of the House or in conference with the Senate on S. 391, its version of the coal leasing amendments. In addition to repealing 2(c) our proposed amendment embodies the language suggested by the Department of the Interior concerning nondiscriminatory provision of rail service and Mr. Roncalio's proposal for access across railroad lands by adjoining coal operators. "Subject to valid existing rights, subsection 2(c) of the Act of February 25, 1920 (41 Stat. 438, as amended, 30 U.S.C. Sec. 202) is hereby repealed and the following language is substituted in lieu thereof: A company or corporation operating a common carrier railroad shall be permitted to hold a permit or lease under the provisions of this chapter; provided that the lessee shall not be given preferential treatment either in construction of railroad spurlines to such lease or in the hauling of coal from such lease over its railroad lines, and shall not deny access at the section corners of its railroad property."

My associates and I will be pleased to attempt to answer any questions the subcommittee may have about my testimony.

APPENDIX A

SANTA FE NEWS

PUBLIC RELATIONS DEPARTMENT,
Chicago, Ill., July 23, 1975.

A Memorandum of Intent has been signed by Cherokee & Pittsburg Coal and Mining Company, a subsidiary of Santa Fe Industries; Peabody-Thermal Energy Co., a joint venture between Peabody Coal Company and the Thermal Energy Co. of Dallas, Texas; and the Salt River Project Agricultural Improvement and Power District to provide coal for Salt River's Coronado electric generating station under construction near St. Johns, Arizona. Power from this station will serve Salt River Project customers in Phoenix and surrounding areas in central Arizona.

Under the terms of the memorandum, Cherokee and Peabody-Thermal, which control adjacent coal deposits in the Star Lake area of the San Juan Basin of Northwest New Mexico, will sell about 86 million tons of sub-bituminous coal to fire units 1 and 2 of the Coronado Station which will each generate 350 megawatts of electricity. It is estimated that Cherokee owns slightly more than one-half of the Star Lake coal deposits. The first unit is planned to become operational in early 1979 and the second in early 1980. The memorandum also covers an option for a third 350 megawatt unit. Each unit will require an average of approximately 4,000 tons of coal per day. The initial term of the sale will extend for the expected life of the generating units, which is 35 years. Pursuant to the terms of the memorandum, the parties are in the process of negotiating the definitive coal supply agreement which is expected to be completed in the next 60 to 90 days.

Peabody Coal Company will mine the coal from a surface mine at Star Lake. Investment in the mine when fully developed will be approximately $65 million.

A rail line into the Star Lake Mine will be constructed by a new Santa Fe Railway subsidiary, and Salt River Project will build approximately 40 miles of rail line south from Santa Fe's main line to the generating station. Santa Fe said its new line into the coal field will depart from the main line near Prewitt, N.M., approximately 40 miles east of Gallup. While final routing has not been determined, the new line is expected to be over 70 miles long and cost more than $50 million.

The companies are preparing an environmental analysis that covers the environmental and socio-economic aspects of the mining, transportation and generating phases of the operation. It is estimated that approximately 125 acres of land in the area will be mined annually for this project. Peabody will mine the coal in an environmentally sound manner, with land being reclaimed in accordance with all Federal and State requirements as the mining proceeds. Underground and surface water supplies will be protected, and clean air standards will be complied with, the companies involved stated.

Some preliminary work and final engineering are expected to be completed in time to let contracts for grading on the new rail lines during the early part of 1977. Initial coal shipments are planned to begin in mid-1978, with regular unittrain operations to the generating plant scheduled to begin in the fall of that year. There will be substantial employment during the construction stage, and continuing permanent employment by the railroad thereafter. It is also expected that more than 200 people will be employed in mining operations.

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APPENDIX B.-EXTRACTS FROM LEGAL STUDY OF COAL RESOURCES ON PUBLIC LANDS, COLLEGE OF LAW, UNIVERSITY OF UTAH, DECEMBER 1968

(PREPARED FOR THE PUBLIC LAND LAW REVIEW COMMISSION, NATIONAL TECHNICAL INFORMATION SERVICE PUB. NO. 196325)

1. Restrictions on issuance of federal coal leases to railroad companies. A. Existing law (pp. 159-60)

c. Railroad limitations.-Companies and corporations operating common carrier railroads are under special and very restrictive acreage limitations under the mineral leasing acts. Companies and corporations operating common carrier railroads may obtain coal leases or permits only for use for railroad purposes. Further, such companies are prohibited from holding permits or leases for more than 10,240 acres in the aggregate and they are further prohibited from holding

more than one permit or lease for each 200 miles of railroad lines served or to be served from the coal deposits. This length limitation is exclusive of spurs or switches and also exclusive of branch lines built to connect the leased coal with the railroad. This limitation is also exclusive of parts of the railroad operated mainly by power otherwise than by steam.1

Under the present circumstances, in which practically all the railroads in the nation are now operated by diesel electric locomotives, it is apparent that railroad companies are effectively precluded from leasing federal coal land.

As originally enacted in 1920 the limitation concerning railroad companies was phrased only in terms of the number of permits or leases per amount of line which could be held by a railroad company.

A railroad company could not hold more than one permit or lease for each 200 miles of railroad lines within the state where the coal was located. A 1944 amendment altered this to both a lease limitation and an acreage limitation.3 The legislative history for this amendment indicates that this change was ostensibly made to permit railroads to obtain needed coal more easily.

A regulation attempting to clarify the status of a company or corporation operating a common carrier railroad which might enter into a collective contract under section 201-1 was promulgated in 1967. This regulation says that if a railroad company enters into a collective contract or development contract with a federal lessee under this particular provision of law for the purpose of developing its own lands but not for development of any federal lands leased by the railroad, that the railroad company shall not be deemed to be given or to hold a lease by a virtue of any such arrangement between the working interest owners. The intent of this provision is to allow railroad companies to enter into agreements with others whereby the railroad owned lands and federal leases owned by the others could be operated under a cooperative prospecting development or operating contract without having the railroad company be considered thereby to be holding federal leases in violation of the law.5

The validity of this regulation has not been determined. Until this is done there may be a natural reluctance to make large investments based upon it. In addition it should be noted that section 201-1 prohibits apportionment of either royalty or production, two additional factors which might inhibit use of cooperative agreements.

B. Problem posed (pp. 230–31)

1. Limitations affecting railroad companies.-At the time of the original enactment of the Mineral Leasing Act of 1920 there existed strong, adverse feelings about the participation of eastern and midwestern railroads in coal activities. As a result severe restrictions were built into the act limiting the acreage and use of coal from leased federal lands by railroads. Such coal can be used only for railroad purpurposes and the acreage limitation is severely limited. Recently all commercial railroads have converted from coal to diesesl fuel, thus no meaningful use of coal from federal leases is now possible for them, This, however, is but part of the problem. Three of the western railroads received substantial land grants containing coal. These grants were in alternate sections in rows several miles wide on each side of the railroad right of way. The result is that ownership of coal lands in large areas is in a checkerboard arrangement. It is said that this checkerboard arrangement deters economic development both of the railroad and Government owned areas for present industrial, electric generation or other large uses. In any event, the use and acreage limitations imposed on railroad companies effectively preclude direct development by the three railroad companies involved of their lands, they argue, for it prevents the blocking up of sufficient acreage to permit direct or indirect participation in any large scale venture. They argue that the limitations thus inhibit development of all coal lands, whether state, federal, railroad, or private in these checkerboard areas.

Recent regulations provide that railroads which commit their lands along with lands of nonrailroad federal lessees for cooperative development contracts will not be charged with the interests of the federal lessees. This is apparently

130 U.S.C. § 202 (1964).

? Except for one or more tourist attraction railroads.

Act of June 13, 1944, ch. 244, 58 Stat. 275.

H.R. Rep. No. 1540, 78th Cong., 2d Sess., 1 (1944).

543 C.F. R. § 3131.5-6 (1968). The statute is 30 U.S.C. § 201-1 (1961).

intended to foster development of federal and railroad lands, but because of the high stakes involved in such large scale developments as might be undertaken for mine-mouth generation plants or unit-train operations, there is a natural reluctance to avoid the hazard of a lawsuit to test the validity of the regulation. On the other hand, however, it has been argued that the elimination of these restrictions on the leasing of federal coal by railroads could result in the railroads having an unfair advantage over other coal producers because of the combining of both transportation and mining in one company.

C. Proposed amendment

"RESTRICTIONS ON RAILROAD LEASING

Alternative No. 24.-Remove in whole or in part the limitations on railroad leasing and use of federal coal.

Issues or Problems to be Solved.-For reasons deemed adequate in 1920, railroads were prohibited from using coal obtained under federal leases or permits held by them for any purpose other than railroad uses, and, in addition, the amount of federal land which a railroad could hold under lease or permit was drastically restricted. Although the acreage limitations have been somewhat modified the acreage limitation applied to railroads is much less (10,240 acres) than the general acreage limitation (46,080 acres per state). Three major railroads received coal lands as part of their land grants for construction of the railroad. These lands were in a checkerboard pattern on either side of the railroad right of way. When railroads used coal for motive power, they could use coal from their lands and some coal from federal lands advantageously. Now they are considerably more limited for coal is not used as a fuel for railroad locomotives. One additional law should also be noted. The Interstate Commerce Commission Act prohibits common carrier railroads from transporting certain articles, including coal, in which they have a legal or equitable interest except for railroad uses."

It is contended by the railroads which own coal lands in the public land states that the cumulative effect of the checkerboard arrangement and the mineral leasing act restrictions is to limit severely their ability properly to utilize their own resources as well as to limit the utilization by the government of the interspersed federal coal resources.

KEY FEATURES

Railroads are now prohibited from using coal from federal lands for anything but railroad uses purposes. They are stringently restricted as to the acreage of federal leases or permits which they can legally hold. The key feature of this possible modification is the amelioration or elimination of this difference in treatment between railroad companies and others.

PROBABLE ADVANTAGES

(1) Facilitate better conservation practices.

(2) Permit more flexible use by the affected railroad companies of their own coal lands.

(3) Tend to foster development of the federal and other lands within the checkerboard areas.

(4) Foster development of western coals.

PROBABLE DISADVANTAGES

(1) Permit more active participation in coal development by owners of very large coal reserves.

(2) Potentially unfair competitive advantage inuring to the railroads owning these coal deposits because of the possibility of combined mining and transporting of their own product and that of others (ignoring for the moment the effect of the 'Commodities Clause' of the Interstate Commerce Commission Act.)"

49 U.S.C. § 1 (8) (1964).

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APPENDIX D.-STATUS OF LEASES ISSUED BY SANTA FE PACIFIC RAILROAD CO. AND CHEROKEE & PITTSBURG COAL & MINING CO. (1974)

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Mrs. MINK. If you gentlemen will, proceed in any manner you wish. I would urge you to summarize your positions so that we may have an opportunity to propound questions in the remaining time that we have this morning.

STATEMENT OF STARR THOMAS, VICE PRESIDENT (LAW), SANTA FE INDUSTRIES, INC., CHICAGO, ILL., ACCOMPANIED BY DAVID WALSH, VICE PRESIDENT OF SANTA FE PACIFIC RAILROAD CO. AND CHEROKEE & PITTSBURG COAL & MINING CO.; AND JEROME C. MUYS, DEBEVOISE & LIBERMAN, WASHINGTON, D.C.

Mr. THOMAS. Very well. I see that you have very little time, so I will be extremely brief. I think our position is perhaps best stated rather early in the statement. We are seeking the repeal of section 2(c) because we believe this restriction makes us at best a passive developer of much-needed energy resources.

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