CHAPTER 5 FEDERAL COAL TRANSPORTATION AND BENEFICIATION ALLOWANCE REGULATIONS

• Jurisdiction: United States

Federal Royalty Revolution--Coal
(Nov 1986)
CHAPTER 5
FEDERAL COAL TRANSPORTATION AND BENEFICIATION ALLOWANCE REGULATIONS
John S. Kirkham
Van Cott, Bagley, Cornwall & McCarthy
Salt Lake City, Utah

I. Introduction

A. Scope

1. Transportation Allowance

The proposed Minerals Management Service rulemaking would establish a uniform method for determining transportation allowances for all Federal (onshore and offshore) and Indian leases. They are intended to apply to all lease products including oil and gas, solid minerals, and geothermal resources.

2. Beneficiation Allowance

The only beneficiation allowances contemplated by the proposed rulemaking are a coal washing allowance, a processing allowance and a transportation allowance. It appears that the defined processing allowance does not apply to coal.

B. Relationship to other presentations

1. The definition of "gross realization" precludes claims for certain "beneficiation allowances" considered reasonable in the calculation of royalties in other contexts. (See generally, 4 Am. L. of Mining § 132.04[5] (2d ed. 1984))

2. The potential for "royalty reductions" buffers the impact of the elimination of all but the transportation and washing allowances.

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II. Analysis of the Present Status

A. Statutory Basis

1. "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." (Emphasis Supplied) 30 USC § 207(a).

B. Present Regulations

1. The presently applicable regulations are found in two locations. The Bureau of Land Management regulation is at 43 CFR § 3485.2(h) and reads:

"(h) If additional preparation of the coal is performed prior to sale, such costs shall be deducted from the gross value in determining value for Federal royalty purposes. The authorized officer will allow such deductions only when, in his judgment and subject to his audit, the operator/lessee provides an accurate account of the costs incurred. However, the following shall not be deducted from the gross value in determining value for Federal royalty purposes: costs of primary crushing; storing, and loading; treatment with chemicals to prevent freezing; treatment with oil to suppress dust in transit; and, other preparation of the coal which in the judgment of the authorized officer does not enhance the quality of the coal."

The Minerals Management Service regulation is at 30 CFR § 203.200(h) and is identical except the term "District Mining Supervisor" is substituted for the term "authorized officer" where it appears.

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2. The present regulations do not contain a procedure for claiming any "allowance" for transportation or beneficiation of the coal.

3. The present regulations provide only limited instruction as to what costs will and will not be allowed as "deductions" from gross value.

4. These regulations are cited as the basis for present transportation allowances notwithstanding the fact that neither the word transportation nor the concept of transportation appears in the regulation.

C. Lease Terms

1. The standard form of lease presently in use does not contain any...