is repealed, these sections cannot be combined into large contiguous blocks, the logical mining units, that are required to support today's large-scale mining operations over a 25-30 mine life in an efficient, economical and orderly manner. It is estimated, for example, that to supply a 1,000 megawatt powerplant for 30 years a reserve of 110 million tons of 8,500 Btu coal is required. One square mile of coal in the Northern Great Plains area would contain, however, an estimated average of only 22 million tons of coal. Other uses require even more coal. For a single 250 million standard-cubic-foot-per-day gasification plant, a 30-year reserve of 225 million tons of subbituminous coal is necessary.

While repeal of section 2(c) would reduce any potential deficiencies by allowing railroads to lease Federal coal directly and create their own large logical mining units, it may be that it would do this at the expense of substantial sacrifices in Federal revenues from leasing of its checkerboard squares.

The Department has contracted out a study on this matter. When completed, we believe it will give us a base for consideration of these matters. We will be happy to make the study available to you when it is completed.

There are some potentially adverse implications of repealing section 2(c) of the Mineral Leasing Act. Diminished competition could result in certain instances. For example, as an already adjacent owner of alternate blocks of land, railroads would have competitive advantage not enjoyed by other potential lessees in acquiring new coal supplies. This advantage, if it discourages competition, also has the potential for reducing Federal revenues from leasing. On the other hand, it might be that by setting high minimum acceptable bonus bids, the Department could negate any such effects.

Situations might arise where a railroad could deny other potential lessees the ability to put together logical mining units of sufficient size to mine economically in areas proximate to necessary rail transportation. Similarly, because transportation is such an important factor in the economic value of coal, railroads might enjoy an undue competitive advantage with respect to coal supplies which they own and transport. On the other hand, existing regulatory and antitrust laws are available to deal with situations threatening loss of competition or unfair competitive advantage. Because of this, judging at this time whether repealing section 2(c) might have an anticompetitive effect, a thorough review of the specific facts has not yet been undertaken to our knowledge.

We would also call your attention to the fact that if section 2(c) were repealed and railroads were allowed to acquire Federal coal lands, they would still be subject to the same requirements as other coal lessees with respect to diligent development and establishment of logical mining units.

Alternatives that we are studying include the following:

Exchange of interests in lands with the railroads. This alternative has some problems which need careful study. Among them are determining the values of the mineral interests to be exchanged and locating parcels of equal value for exchange. The cost of developing this information would be substantial.

A second alternative might be an amendment which would permit a railroad to lease Federal land to block up its holdings and form logical

mining units on condition that it make available for lease by others an equivalent amount of railroad land or mineral rights.

Another possibility is an amendment to prohibit the railroad from practicing discrimination through rate scheduling and the timeliness of hauling.

A provision against hauling discrimination is important. The prospect of railroads controlling coal development through new spur line location decisions is real and dangerous and hard to guard against. Likewise the possibility of railroads discriminating against other coal producers in terms of hauling coal is real and dangerous and hard to guard against.

A fourth possibility is establishing a limit on reserves or acreages that railroads may acquire on Federal lands.

There may be other solutions, some of which may be within our present leasing authority. Proper balance is important. If railroads are freed of present restrictions on development and marketing of Western coal, it should not be at the expense of full and free competition in the coal industry.

There is much necessary information which we have not been able to secure but which we have been developing since your request. The following is only a partial list of information we believe essential to evaluate this problem: estimated tonnage and value to railroad and Federal coal which is locked up within the checkerboard; percentage of national coal which is railroad-owned; percentage of western coal which is railroad-owned; percentage of national, western and railroad coal which is locked up in the railroad rights-of-way checkerboard; an estimate of the cost, in dollars, years and manpower, of evaluating checkerboard coal lands for exchange purposes; requirements of complying with the National Environmental Policy Act of 1969; amount of checkerboard now under development through unitary lease of development or joint arrangement; amount of railroad divestiture within the checkerboard; importance of transportation costs; historic number of bids and amount of checkerboard, corresponding to amount and bids on the other land; and the prospects for Western coal usage by specific project and competitive situations involved.

We would be happy to work with you in developing this information on which to base a decision on these issues and in developing any necessary controls.

Thank you.

Mrs. MINK. Thank you very much. Mr. Turcott.

Mr. Ruppe, do you have any questions.

Mr. RUPPE. Thank you very much.

You indicated on page 5 of your testimony that you have put a number of questions to your planners, and, presumably, they are going to come up with the statistical information you desire.

When did you initiate that study, and when will this committee have the benefit of your product?

Mr. TURCOTT. I would like to ask Dr. Ross to talk about this, please, sir.

Dr. Ross. The information on page 5, I believe, is being prepared by the Bureau of Land Management. There is a further study that we would also like to tell you about that was mentioned earlier, on page 2. That is a contract study that we have undertaken to try to learn

something about structuring our leasing program in ways that would enable us to capture fair market value on our minerals.

If you would be interested in that, that will be available, I expect, at the end of this year, I can tell you a little something about it now, if you want to know.

Mr. RUPPE. Well, first of all, when did you initiate it? Since this committee addressed the legislation, or perhaps because of your overriding interest in the Interior Department, or in Western coal.

Dr. Ross. Our study, as mentioned on page 2, was initiated in May of this year. And it is nearing completion.

Mr. RUPPE. You have indicated you have several additional comments concerning the study with reference to page 2 to offer this committee.

Dr. Ross. I did prepare some material on that. I thought it could be of some use on the analysis that we are doing, which bears on 2(c). It is in the form of questions and answers. And if it is alright I would go ahead and present it in that form.

Mr. RUPPE. Well, I think I will ask one question, if I might, and then, on the suggestion of the Chair perhaps we would put the other questions and answers in the record. But for the benefit of all of us, what is the basic objective in the study of Mr. Turcott?

Dr. Ross. The Department has contracted to do a study of the ways the Department might best structure its coal leasing program so as to achieve its objective of receiving a fair market value for the leased coal. The principle investigators are Profs. Robert Linn and Robert Smiley of the Graduate School of Business and Public Administration at Cornell University.

The objective of the research is to identify mechanisms for facilitating the greatest possible competitive interest in Federal coal and thereby obtain revenues from the coal which most closely approximate its true value.

The work so far has indicated that a major impediment to the Department obtaining a fair market value for its coal is the complex pattern of Western land and mineral rights holdings which prevents the Government, in many cases, from leasing tracts which are themselves complete logical mining units. The principal example of this problem is the railroad-Federal checkerboard.

However, the research is not directed at the railroad or at the checkerboard lands only, but is broadly oriented toward the overall leasing objective of receiving fair market value for publicly owned minerals.

Mr. STEIGER. Would the gentleman yield?

I trust Mr. Turcott, that you realize that entire study was unnecessary. The committee has originally established the value of coal as far as the Government is concerned. So, therefore, if you did that in May the gentleman from Wyoming is aware that the gentleman's coal leasing bill would determine that as a fair market value to be 12%1⁄2 percent of whatever it sells for.

So, really, we don't need the study. And you can all stop the presses. Dr. Ross. The 12% percent you mention is a royalty which a coal lessee would have to pay the Government on the value of coal he produces. The fair market value which the Department is concerned about in its contract study is the amount of bonus which the lessee

64-261-766

would have to pay in order to win the right to develop the lease in the first place.

But the issue is who would get the tract in the first instance to lease, and what is done on the basis of the prospective of the competitive action. And we are interested in the condition that would occur at those actions.

Mr. RUPPE. Mr. Turcott, you are suggesting a concern as to whether railroads might, indeed, practice decisionmaking through rate scheduling or timelessness of hauling. The ICC witness, Chairman Stafford has indicated that there is legislation and regulation that would prohibit discrimination in either rate scheduling or timelessness of hauling.

Do you have any experience or any suggestion that, indeed, discrimination has been programed or likely would be programed, or has been programed in the past, or is likely to be practiced in the future?

Mr. TURCOTT. I have no other than that may have been the reason for all the antitrust laws and regulatory agencies, et cetera. I have no specific knowledge of this. The latter part of your question is theoretical as far as the opportunity for it to occur in terms of any checkerboard situation.

And I am reassured by the statements of previous witnesses that they do have adequate controls and that they are diligent in watching it. But the theoretical possibility is always there in the checkerboard pattern.

Mr. RUPPE. On page 3 or 4 you indicated alternative action. Has this been done in the past or perhaps as a result of your study for this committee, indicating to what extent that has been done and how successful it has been as an approach to solving the multiple ownership package?

Mr. TURCOTT. That's a good question, Mr. Congressman. In the testimony on Tuesday by the Justice Department several questions about exchanges of these landlocked lands came up. I am glad to discuss exchanges briefly. Under section 8 of the Taylor Grazing Act, 43 U.S.C. 315(g) there is general private exchange authority. Now the constraints in layman's language are administrative. The value of the selected lands, including all resources, surface and mineral, must be at least equal in value to that of the offered lands.

In other words, the Federal Government cannot receive less in terms of value, dollar value, fair appraised, modern appraisal values, than it gives up.

And in addition to that, there must be some reason in the public interest for the Land Management Agency to want the exchange. Developing compact blocks, or at least there must be public values we are trying to enhance through surfacd or subsurface exchanges. There must be public interest shown for the exchange.

One constraint is that the selected lands cannot be more than the 50 miles inside another State from the location of the offered lands. Now that authority under the Taylor Grazing Act does not include the authority to exchange separate mineral interests alone. It is authority for exchange of the lands. That has been the interpretation of the Solicitor. We cannot exchange the minerals alone.

Mr. RUPPE. Do you think it would be easier to exchange the minerals rather than the land, and if so, would you be prepared to offer a recommendation to that effect to this committee?

Mr. TURCOTT. The administration has already in the proceedings. before another subcommittee, and in the full committee, recommended for the last 4 years enactment of an exchange authority that would let us exchange lands and interests in lands. This would finally give us general exchange authority to exchange mineral interests.

Mr. RUPPE. You can not exchange now or you can only exchange if you exchange the land as well?

Mr. TURCOTT. That is a good question. Now, it varies. Let us assume the Federal Government owns the surface and the minerals in the selected lands in the exchange applications. but as to the other lands in the application, perhaps the offeror or the applicant owns only the minerals in part or not at all. Assume the values of the surface are equal. Now, if the exchange is in the public interest we may still exchange just the surface and the Government will retain the minerals on the selected lands. This is not at all uncommon as Congressman Runnels pointed out Tuesday.

Mr. STEIGER. It is the practice, though, it is not? I say rather than not being uncommon, isn't it the practice to retain the minerals on the selected lands?

Mr. TURCOTT. Many times the offeror would just as soon retain his minerals and the Government retain its as long as the values are equal and the appraisal of values excluded the minerals. So that is one of the real questions we have here on this exchange business. I do not want to be critical-but the gentleman from the Justice Department by his own admission said he had a simplistic theoretical example of the checkerboard, and he did. It is not that simple.

Mr. RUPPE. He did not understand it either, though. I am not saying you do not but I am saying he did not even understand it in a somewhat primitive form.

Mr. TURCOTT. I think I understand the checkerboard.

Mr. RUPPE. Not you, sir, I mean he did not. As far as the direction of his testimony. Not you, I have no reference to your comments. Mr. TURCOTT. Well, I have been with it for 28 years.

With Madam Chairman's indulgence, I would like to ask Mr. Bailey to take us through a situation that is not like taking a checkerboard off a country club table and using it in here. I want to take you through a somewhat simple actual situation that exists on the ground with respect to coal resources to show you some of the problems of different ownerships of the coal, in the actual checkerboard, of the fact that the Federal Government in much of the checkerboard has sold and/or disposed of alternate Federal sections under the various land laws. The fact of the matter is that

Mrs. MINK. You have my permission to illustrate your point. I gather you are going to use the chart that you have.

Would you attempt to try to verbalize what you are pointing out so we may have as much of it in the record as possible.

Mr. BAILEY. The black line around here is the logical mining unit. Inside the logical mining unit the different color sections, shows the checkerboard and the lease applications for Federal lands.