CHAPTER 18 TESTIMONY OF TERRY O'CONNOR TO MMS

• Jurisdiction: United States

Federal Royalty Revolution--Coal
(Nov 1986)
CHAPTER 18
TESTIMONY OF TERRY O'CONNOR TO MMS

ON BEHALF OF:

Colorado Mining Association

Montana Coal Council

North Dakota Lignite Council

New Mexico Mining Association

Northwest Mining Association

Utah Mining Association

Wyoming Mining Association

AND

PEABODY HOLDING COMPANY, INC.

BEFORE THE MINERALS MANAGEMENT SERVICE,

U.S. DEPARTMENT OF THE INTERIOR,

RELATING TO DRAFT FEDERAL COAL

ROYALTY CALCULATION REGULATIONS

Denver, Colorado

March 19, 1986

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Good morning. My name is Terry O'Connor. I am Western Regional Counsel for Peabody Holding Company, Inc. Peabody, through its various subsidiaries, is the largest coal producer in the United States. We are currently producing coal from federal and Indian leases in the states of Montana, Wyoming, Colorado and Arizona.

However, I am appearing today, not merely on Peabody's behalf, but on behalf of a consortium of western mining associations, including the Colorado Mining Association, Montana Coal Council, North Dakota Lignite Council, New Mexico Mining Association, Northwest Mining Association, Utah Mining Association, and Wyoming Mining Association.

These state mining associations, which represent approximately one-third of all the coal produced in the United States and virtually all of the coal produced from federal coal leases in this country, have adopted a position paper, a copy of which is attached to this testimony and submitted for your review. This position paper urges the Department of Interior ("DOI") and the Minerals Management Service ("MMS") to promulgate regulations whereby the base for calculating federal coal royalty payments should be the f.o.b. mine price less all local, state and federal taxes, royalties, fees and similar assessments.

This formal position statement is significant, not only because it represents a unified position by these state mining associations on a subject which goes to the very foundation of the future competitiveness of federal versus non-federal coal development, but also represents what I believe to be the first time these various state mining associations have formally unified for a common goal and for a common purpose. This first-time "marriage" in itself reflects the seriousness with which the associations consider this issue to the

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long-term vitality and competitive position of the western coal and lignite mining industry.

At the outset, I must report that it is an understatement to express our disappointment with the approach being considered in these draft regulations.

The federal government owns lands containing some 200 billion tons of coal, which is in excess of 50% of the coal reserves in the western United States. In 1976, Congress passed the Federal Coal Leasing Amendments Act ("FCLAA") amending the Mineral Lands Leasing Act of 1920. FCLAA provides in §7 that new federal coal leases issued after 1976 shall require the payment of production royalties in an amount established by the Secretary of Interior of not less than 12 1/2% "of the value of coal as defined by regulation," except that a lesser amount may be established for underground coal. Prior to 1976, most coal was leased on a cents per ton basis. The majority of the leases were...