[Senate Report 106-378]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 755
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-378

======================================================================



 
                  COAL MARKET COMPETITION ACT OF 2000

                                _______
                                

                 August 25, 2000.--Ordered to be printed

   Filed under authority of the order of the Senate of July 26, 2000

                                _______
                                

  Mr. Murkowski, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2300]

    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 2300) to amend the Mineral Leasing Act to 
increase the maximum acreage of Federal leases for coal that 
may be held by an entity in any 1 State, having considered the 
same, reports favorably thereon without amendment and 
recommends that the bill do pass.

                         Purpose of the Measure

    The purpose of S. 2300 is to amend the Mineral Leasing Act 
(MLA) to increase the maximum acreage of Federal leases for 
coal any one company can hold within a specific state and 
nationwide.

                          Background and Need

    Section 27(a) of the Mineral Leasing Act of 1920 (30 U.S.C. 
184(a)) limits the number of acres a person, association, 
corporation or any of their affiliates or subsidiaries may hold 
under a Federal coal lease or permit. The current limitation is 
46,080 acres that may be held in a single State, and an 
aggregate of 100,000 acres nationwide. S. 2300 raises these 
limits to 75,000 acres in a single State, and 150,000 acres 
nationwide.
    The original Mineral Leasing Act limited the acreage that 
could be held in any one State to 2,560 acres. This limitation 
was raised in 1948, in 1958 and again in 1964. The House Report 
accompanying the 1964 amendments stated that increases in the 
acreage limitations were necessary to accommodate technological 
advances and increases in power demands. The large amount of 
Federal coal acreage available and the diversification of 
interest and competition within the industry provided the 
necessary check against threats of monopoly in the coal 
industry, the reason behind the acreage limitations in the 
original 1920 Act. (H.R. No. 1714 at 2, 4 (1964), to accompany 
H.R. 8960.)
    The 1976 amendments to the Mineral Leasing Act added the 
national limitation of 100,000 acres as a means of preventing 
excessive control of Federal coal by a few large companies. The 
1976 amendments also provided language to strengthen safeguards 
against holding Federal coal lands for speculation, and against 
anti-competitive practices. The law requires that the 
Department of Justice review leases, or readjustment of leases, 
to assure that a situation will not be created that is 
inconsistent with the antitrust laws of the United States. 
Lessees must also meet due diligence requirements, such that 
they must produce commercial quantities of coal within 10 years 
after least issuance as a condition for retaining the lease 
beyond that period.
    The Department of the Interior testified at the June 7, 
2000 hearing on S. 2300 that the due diligence and antitrust 
provisions in current law provide sufficient safeguards to 
ensure that an increase in the acreage limitation will not 
encourage speculation or create a monopoly in the domestic coal 
industry.
    Raising the State and nationwide acreage limitations is 
necessary to provide for more efficient capital investments by 
coal operators. It will also remove unintended incentives for 
coal companies to bypass Federal coal. The permitting process 
requires coal companies to retain control of reclaimed acreage 
for 10 years for lands west of the 100th meridian, to ensure 
reclamation success. While the coal resources have been fully 
extracted from these areas, the reclaimed acreage counts toward 
the lease acreage limitations. As companies approach the 
maximum acreage limitations, coal operators may be forced to 
bypass Federal coal that could otherwise be extracted in an 
economic and environmentally sound manner.
    Statutory acreage limitations for other Mineral Leasing Act 
minerals have also been recently raised. Potassium acreage 
limitations were raised by regulation, effective December 1999, 
and this year Congress raised the sodium State acreage limit 
from 15,360 acres to 30,720 acres in Pub. L. 106-191.

                          Legislative History

    S. 2300 was introduced on March 28, 2000, by Senator 
Thomas. The Subcommittee on Forests and Public Land Management 
held a hearing on S. 2300 on June 7, 2000. At the business 
meeting on July 13, 2000, the Committee on Energy and Natural 
Resources ordered S. 2300 reported favorably without amendment.

                        Committee Recommendation

    The Senate Committee on Energy and Natural Resources, in 
open business session on July 13, 2000, by a voice vote of a 
quorum present recommends that the Senate pass S. 2300.

                      Section-by-Section Analysis

    Section 1 cites the short title as the ``Coal Market 
Competition Act of 2000''.
    Section 2 describes the finds of the Congress.
    Section 3 amends the Mineral Leasing Act (the Act of 
February 25, 1920 (30 U.S.C. 184(a)) by increasing the coal 
per-state limitation from 46,080 acres to 75,000 acres, and the 
100,000 acre nation-wide limit to 150,000 acres.

                   Cost and Budgetary Considerations

    The Congressional Budget Office (CBO) estimate of the costs 
of this measure follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 24, 2000.
Hon. Frank H. Murkowski,
Chairman, Committee on Energy and Natural Resources,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2300, the Coal 
Market Competition Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Megan 
Carroll.
            Sincerely,
                                        Steven M. Lieberman
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 2300--Coal Market Competition Act of 2000

    CBO estimates that implementing S. 2300 would not affect 
federal spending. Because S. 2300 could affect direct spending, 
pay-as-you-go procedures would apply. CBO expects, however, 
that any change in direct spending would not be significant. S. 
2300 contains no intergovernmental or private-sector mandates 
as defined in the Unfunded Mandates Reform Act and would have 
no significant impact on the budgets of state, local, or tribal 
governments.
    S. 2300 would increase the maximum acreage of federal coal 
leases any single producer may hold by about 60 percent within 
any one state and by 50 percent nationally. According to the 
Bureau of Land Management, enacting S. 2300 would allow 
individual mining companies more flexibility to merge with 
other companies holding coal leases, but is unlikely to affect 
the overall amount of federal acreage leased for coal mining. 
Such mergers could effect companies' bids for coal leases, and 
thus could change the government's offsetting receipts (a 
credit against direct spending). CBO estimates, however, that 
enacting S. 2300 would not have any significant impact on 
federal receipts from coal leaseholders or subsequent payments 
to states that share those receipts.
    The CBO staff contact is Megan Carroll. This estimate was 
approved by Peter H. Fontaine, Deputy Assistant Director for 
Budget Analysis.

                      Regulatory Impact Evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out S. 2300.
    The bill is not a regulatory measure in the sense of 
imposing Government-established standards or significant 
economic responsibilities on private individuals and 
businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any, additional paperwork would result from the 
enactment of S. 2300, as ordered reported.

                        Executive Communications

    On July 13, 2000 the Committee on Energy and Natural 
Resources requested legislative reports from the Department of 
the Interior and the Office of Management and Budget setting 
forth Executive agency recommendations on S. 2300. These 
reports had not been received at the time the report on S. 2300 
was filed. When the reports become available, the Chairman will 
request that they be printed in the Congressional Record for 
the advice of the Senate. The testimony provided by the Bureau 
of Land Management at the Subcommittee hearing follows:

Statement of Pete Culp, Assistant Director, Minerals and Realty, Bureau 
                           of Land Management

    Mr. Chairman and members of the subcommittee, I appreciate 
the opportunity to appear before you today to testify on S. 
2300 Coal Market Competition Act. S. 2300 amends the Mineral 
Leasing Act to increase the maximum aggregate acreage of 
Federal coal leases an entity may hold in any one State and the 
maximum aggregate acreage of Federal coal leases an entity may 
hold within the United States altogether.


                  s. 2300 coal market competition act


    The ``Coal Market Competition Act of 2000,'' would increase 
the amount of Federal acreage that can be held by a coal lessee 
in a single state from 46,080 acres to 75,000 acres and would 
raise the national acreage limit from 100,000 to 150,000 acres.
    The Administration supports S. 2300. We believe the current 
law provides sufficient anti-speculation and antitrust 
safeguards such that an increase in the acreage limitation will 
not encourage speculation or crease a monopoly in the domestic 
coal industry. Further, passage of this legislation will remove 
unintended incentives for coal companies to bypass Federal 
coal.
    The BLM is responsible for management of the mineral estate 
on about 570 million acres of BLM, national forest, and other 
federal lands, as well as private lands where the minerals 
rights have been retained by the Federal Government. 
Authorization to develop the coal resources within the Federal 
mineral estate is provided by the MLA. Oil, gas, phosphate, 
potassium, sodium, and sulphur minerals are also leased under 
the MLA.
    Production from Federal coal leases in Fiscal Year 1999 was 
389 million tons with a value of about $2.9 billion. This 
production generated $305 million in Federal royalties. About a 
third of the nations' 1.1 billion tons of annual coal 
production comes from Federal coal leases. At the end of Fiscal 
Year 1999 there were 349 Federal coal leases in effect, of 
which 128 (about one third) produced coal during the fiscal 
year.
    Due in part to the energy crises of the 1970's and the 
perception that Federal coal leases were being held 
speculatively, the FCLAA was enacted to amend the MLA to 
provide additional anti-speculative safeguards. Prior to FCLAA, 
the MLA's anti-speculative controls were limited to the maximum 
of 46,080 acres that a lessee or operator could hold within a 
state. The 46,080 acre limitation was established in 1964 (P.L. 
88-526) [not 1976 as incorrectly stated in Section 2, Findings 
5(A) of S. 2300] and was not changed with the passage of FCLAA. 
The requirements of FCLAA include:
           An antitrust review by the Department of 
        Justice prior to issuance or readjustment of a new 
        Federal coal lease;
           Diligent development of the Federal coal 
        lease by requiring production of commercial quantities 
        of coal within 10 years after the lease is issued; and
           Continued production of commercial 
        quantities of coal from a Federal coal lease after it 
        has achieved diligent development.
    FCLAA amended the MLA to require that a Federal coal lease 
cannot be issued or readjusted without prior consultation with 
the United States Attorney General to assure that the lease 
will not create or maintain a situation that is inconsistent 
with the antitrust laws of the United States. If the Attorney 
General recommends a lease not be issued or readjusted, BLM can 
only issue or readjust the lease after public hearings and 
making a determination; that issuance or readjustment of the 
lease is necessary to effectuate the purposes of MLA, that it 
is in the public interest, and that there are no reasonable 
alternatives that are consistent with the MLA, the antitrust 
laws, and the public interest. S. 2300 would not affect this 
part of the law.
    The amount of acreage that any lessee or operator controls 
will have no effect on the MLA requirement to produce 
commercial quantities of coal within 10 years of lease 
issuance. The statutory penalty for not having met this 
requirement is cancellation of the lease (30 U.S.C. 184(h)(1)).
    If a lessee or operator obtains a lease with a speculative 
intent and somehow manages to comply with the 10-year 
production requirement, the MLA further requires that the 
lessee or operator continue to annually produce commercial 
quantities of coal. Large investments of capital for mining 
machinery and transportation infrastructure are required to 
even minimally comply with this requirement. A speculator, 
seeking maximum return for minimum time and capital, would be 
frustrated by the requirement of continued production of 
commercial quantities. Again, S. 2300 does not affect this 
requirement.
    The Surface Mining Control and Reclamation Act of 1976 
(SMCRA) was enacted 12 years after the current state acreage 
limitation was established. The Office of Surface Mining 
Reclamation and Enforcement (OSM), also part of the Department 
of the Interior, administers SMCRA. OSM regulations require 
coal companies to retain control of reclaimed acreage for 10 
years, for lands west of the 100th meridian, to ensure 
reclamation success. While the coal resources have been fully 
extracted from these areas, BLM requires the acreage under 
reclamation to remain under lease, counting towards the acreage 
limitation, to assure access in case additional mitigation 
measures are required. We expect, in the future, more acreage 
to be held in reclamation status, causing lessees/operators to 
begin to be constrained by the acreage limits.
    Like other segments of the economy, the coal industry has 
experienced increased consolidation of companies, which has 
meant a similar consolidation of leased acreage holdings. In 
some cases, the consolidated acreage comes close to exceeding 
the current state acreage limits. Ongoing coal industry 
consolidation within the Powder River Basin of Wyoming and 
Montana is reflected by the fact that three major coal 
companies, Peabody, Arch, and Kennecott, produce 70 to 80 
percent of the Basin's 300 million plus tons of coal 
production. These consolidations have provided the companies 
economies of scale that have been directly reflected in the 
pricing of their product. The average sales value for Federal 
coal has fallen by more than half from a historic high in 1987 
of $15.57 per ton to $7.52 per ton in 1999. During the same 
period, production of Federal coal has more than doubled from 
168 million tons per year in 1987 to 389 million tons per year 
in 1999. Prices for spot market coal sales have recently been 
as low as $3.50 per ton. All reliable forecasts of coal sales 
and value do not foresee any change in the downward pressure of 
coal prices. Therefore, industry consolidation to date does not 
appear to have had an adverse or anti-competitive effect on the 
price or supply of Federal coal. Given significant other market 
parameters, such as compliance with the Clean Air Act and 
deregulation of electric generation, we do not expect an 
increase in the average limitation to effect the market for 
coal.
    Our leasable mineral acreage limits have recently been 
raised. Statutory acreage limits in any one state range from 
1,920 acres for sulphur through 246,080 acres for oil and gas. 
Potassium acreage limits, set by regulation, were recently 
increased to 96,000 acres (effective November 1999). Congress 
raised the sodium state acreage limit in P.L. 106-191 (H.R. 
3063/S. 1722) from 15,360 to 30,720 acres. S. 2300 is similar 
to these prior actions.
    The BLM has adopted as a strategic goal to provide 
opportunities for environmentally responsible commercial 
activities. We do this through the NEPA planning and the MLA 
permitting processes. To achieve this goal, BLM attempts to 
obtain the maximum economic recovery of the coal resource from 
the area that is determined to be environmentally responsible 
to mine. If the acreage limitations are left unchanged, there 
is the potential for coal operators to bypass some Federal coal 
that otherwise would not be extracted.
    In conclusion, we believe the current law provides 
sufficient safeguards to protect the public interest. Current 
statistics do not indicate any adverse impacts from industry 
consolidation to date. Further, this legislation is consistent 
with the other goals of the MLA and serves to protect the 
competitive nature of Federal coal resources. We support 
passage of S.2300.
    That concludes my testimony. I would be happy to respond to 
any questions.

                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate changes in existing law made by 
the bill S. 2300, as ordered reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italic, existing law in 
which no change is proposed is shown in roman):

The Act of February 25, 1920 (Mineral Leasing Act)

           *       *       *       *       *       *       *



                         Limitations on Leases

    Sec. 27. [(a) Coal leases or permits, acreage; regulations
    (1) No person,] (a) Coal Leases.--No person, association, 
or corporation, or any subsidiary, affiliate, or persons 
controlled by or under common control with such person, 
association, or corporation shall take, hold, own or control at 
one time, whether acquired directly from the Secretary under 
this chapter or otherwise, coal leases, or permits on an 
aggregate of more than [forty-six thousand and eighty acres] 
75,000 acres in any one State and in no case greater than an 
aggregate of [one hundred thousand acres] 150,000 acres in the 
United States: Provided, That any person, association, or 
corporation currently holding, owning, or controlling more than 
an aggregate of [one hundred thousand acres] 150,000 acres in 
the United States on the date of enactment of this section 
shall not be required on account of this section to relinquish 
said leases or permits: Provided, further, That in no case 
shall such person, association, or corporation be permitted to 
take, hold, own, or control any further Federal coal leases or 
permits until such time as their holdings, ownership, or 
control of Federal leases or permits has been reduced below an 
aggregate of [one hundred thousand acres] 150,000 acres within 
the United States.

                                  
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