[Senate Report 106-378]
[From the U.S. Government Publishing Office]
Calendar No. 755
106th Congress Report
SENATE
2d Session 106-378
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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.