CHAPTER 4 FEDERAL COAL VALUATION GROSS REALIZATION ISSUES

• Jurisdiction: United States

Federal Royalty Revolution--Coal
(Nov 1986)
CHAPTER 4
FEDERAL COAL VALUATION GROSS REALIZATION ISSUES
Terry O'Connor
Western Regional Counsel
Peabody Holding Company, Inc.
Denver, Colorado

I. Background.

A. Statutory — Federal Coal Leasing Amendments Act ("FCLAA") (30 U.S.C. 181 et seq.) sets royalties at least 12 1/2% of "value."

1. Section 7 ( 30 U.S.C. 207(a) ):

"...A lease shall require payment of a royalty in such amount as the Secretary shall determine of not less than 12 1/2 per centum of the value of coal as defined by regulation, except the Secretary may determine a lesser amount in the case of coal recovered by underground mining operations..."

2. Related issues:

a. Retroactivity and timeliness:

i. See FMC Wyoming Corp. v. Clark, 587 F. Supp. 1545 (D.C. Wyo., 1984), under appeal.

ii. Coastal States Energy Company v. Watt, 629 F. Supp. 9 (D. Utah, 1985).

iii. Lone Star Steel Company v. William Clark, 84-583 (E.D. Okla.) June 30, 1986.

iv. See also Rosebud Coal Sales Company, Inc. v. Andrus, 667 F.2d. 949 (10th Cir. 1982).

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b. Royalty reductions under §39:

i. Draft guidelines (See 50 F.R. 6062, February 13, 1985).

ii. See Peabody Coal Company, 93 IBLA 317 (September 11, 1986).

B. Existing Regulations — Calculation normally will be made on basis of "...' gross value' at the point of sale, normally the mine..." (emphasis added). (See 30 CFR 203.200(f) for Minerals Management Service ("MMS") regulations). (See also 43 CFR 3485.2(f) for counterpart BLM regulations.)

1. Gross value discussed (203.200(g)) to be "...the unit sale or contract price times the number of units sold..."

2. See additional qualifications (203.200(g)(1) and (2)).

C. MMS interpretation — "gross value" interpreted to include all taxes, royalties and fees, including:

1. State severance taxes.

2. Ad valorem and property taxes.

3. Black Lung fees.

4. SMCRA abandoned mine reclamation fees.

5. Royalty itself.

II. Existing case law.

A. IBLA cases.

1. Knife River Mining Company, 43 IBLA 104, 86 I.D. 472 (1979). The SMCRA reclamation fee must be included as a part of gross value of the coal for royalty computation when the selling price is increased by the amount of the fee. (See also Knife River Coal Mining Company, 29 IBLA 26 (1977.)

2. Peabody Coal Company, 53 IBLA 261 (1981). Appeal from BIA decision on Indian leases in Arizona. Followed Knife River (supra) even though SMCRA fee was reimbursable from customers under different provisions of coal supply agreements than pricing provisions.

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Citing United States v. Southwest Potash Corp., 352 F.2d. 113 (10th Cir., 1965) cert. den. 383 U.S. 911 (1966).

3. Various non-coal cases.

a. Hoover & Bracken Energies, Inc. v. Department of Interior, 52 IBLA 27, 88 I.D. 7 (1981), aff'd. 723 F.2d. 1488 (10th Cir., 1983), cert. den. 105 Sup. Ct. 93 (1984). Value of natural gas production for federal

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