CHAPTER 7 WORKSHOP FACT PATTERN AND SUB-ISSUES

• Jurisdiction: United States

Federal Royalty Revolution--Coal
(Nov 1986)
CHAPTER 7
WORKSHOP FACT PATTERN AND SUB-ISSUES
Moderator: David R. Sturges
Delaney & Balcomb, P.C.
Glenwood Springs, Colorado

FEDERAL COAL ROYALTY VALUATION WORKSHOP PROBLEM WORKSHOP ON THE FEDERAL ROYALTY REVOLUTION ROCKY MOUNTAIN MINERAL LAW FOUNDATION

This is the story of the Whichway Coal Company. Whichway Coal Company is a wholly owned subsidiary of Tall Stacks Power Company, a privately owned utility company. Under the provisions of a long-term mining agreement, Whichway Coal Company is the contract operator of the Whichway Coal Mine located in the State of Wyoming. Whichway Coal Company's mining contract is with its parent company, Tall Stacks Power Company, and the Short Stack Power Company, another privately owned utility. Whichway Coal Company and Short Stack Power Company both have an undivided one-half ownership in the fee and leased coal lands, the equipment and structures at the Whichway Coal Mine.

The Whichway Coal Mine is a 12,000 acre strip mine made up of a mix of federal coal leases, state coal leases, private coal leases, and fee lands. These federal, state and private coal leases occupy about 60% of the acreage of the Whichway Coal Mine, with the balance of the 40% acreage being held in fee title.

80% of the current production from the Whichway Coal Mine is dedicated and currently delivered under a long-term coal supply agreement to the Lotsawatts Power Plant, which is located approximately 15 miles from the mine. Currently, the coal mine and Whichway Coal Company are in the fourteenth year of a 30-year coal supply agreement. The coal destined for the power

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plant is trucked from the active pits to a wash plant located on the site of the mine where it is initially placed in a raw coal stockpile. Adjacent to the raw coal stockpile is a crusher and conveyor which can take the coal to the wash plant for processing. After being washed, the coal is then delivered by a conveyor onto a washed coal stockpile from which the washed coal is trucked 15 miles to the power plant. Title for the washed coal passes at the time the coal is weighed on the conveyor going into the power plant stockpile from the unloaded trucks. The coal trucks taking the washed coal from the mine to the power plant are owned by an independent operator who is under contract to the Whichway Coal Company.

The Lotsawatts Power Plant is owned by eight utilities, four of which are private or investor...