Pub. 6 2016 Issue 1

14 AT THE CENTER OF UTAH INDUSTRY Western states and operators who depend on federal coal development are suspicious that fair return is not the primary reason for the moratorium. The Order was released only days after President Obama announced in the State of the Union Address his intent to “change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.” The Department’s review will address climate change, declining coal production and fair market value. BLM Director Neal Kornze has confirmed that the moratorium will last at least three years and impact some 50 pending lease applications (LBAs), including a dozen operations in Utah and Colorado. The moratorium could have a significant impact on the availability of coal nationwide. The Order recognizes that “over the last few years, approximately 41 percent of the Nation’s annual coal production has come from Federal land” and that some 85 percent of that production comes from the Powder River Basin in Montana and Wyoming. Order at Page 2. In addition to removing available federal coal reserves, the moratorium will reduce the lease revenues of Western states. Fifty percent of federal coal lease revenues are returned to the states in which the coal is mined. These funds are used to address the community impacts and develop infrastructure. Therefore, while the Order claims to raise concerns regarding fair return for federal coal, the moratorium removes pending LBAs which could have shortly returned bonus payments and royalties to the state and federal government. Upon closer examination, the Order is not an across-the- board ban on federal coal leasing. Not all public lands are subject to the Order. Tribal and allotted land is not affected. The moratorium applies exclusively to steam coal (used to fuel coal-fired power plants) and exempts metallurgical coal (used for steel production). Rather than imposing the moratorium at the point of a new application, the Secretary chose to halt any pending application without a record of decision recommending a lease. This has significant economic impacts on applicants who have borne the cost of environmental analysis but now cannot proceed to a final decision on the lease. It is difficult to see how the Department is harmed by proceeding with pending lease applications. Climate change and the direct and indirect impacts of greenhouse gas emissions resulting from coal leasing can be fully considered in the environmental analysis of a specific lease tract. Environmental stipulations can be added to lease terms and conditions. The leasing process involves public comment, competitive bidding and confirmation that the bid accepted meets fair market value and is not anti-competitive. The pending lease applications have already met the suitability criteria for leasing under the Federal Mineral Leasing Act, the Federal Land Policy and Management Act and the Surface Mining Control and Reclamation Act. Despite the considerable discretion of the Secretary to control environmental impacts and assure a fair return on value, 33 pending LBAs remain subject to the moratorium. The coal industry is carefully studying exceptions to the moratorium under Section 6 of the Secretarial Order. Based on BLM’s projections, approximately 17 LBAs for steam coal may proceed to lease sale where records of decision have already issued, lease modifications do not exceed 160 acres or a lease will avoid the bypass of federal coal reserves. The operators of existing coal mines may qualify for emergency leasing if federal coal is needed within three years to maintain existing operations. However, while the moratorium is in effect, federal coal reserves will not be available to applicants seeking to start new mining operations. The Order provides for clear exceptions under Sections 5 and 6 and states that these exceptions, although limited, will be applied during the moratorium to minimize economic hardship. The Order recognizes that a significant portion of National coal production comes from Federal land in the West. Clearly, the Secretary’s judicious use of these exceptions may be necessary to maintain coal production in the West and to meet the needs of the Nation. 6 As the next step in revamping the Federal Coal Program, BLM recently announced that it will hold public meetings to take input on “whether Americans are receiving a fair return for federal coal.” Three of the six hearings are scheduled in the West, including a venue in Salt Lake City set on May 19, 2016. The scope of this review has been preliminarily addressed in the notice of intent published on March 30, 2016. 7 The Utah Mining Association is encouraging the coal industry to participate in the upcoming hearings to voice its concerns. Written comments will be accepted by BLM through July 23, 2016. X Denise A. Dragoo is a partner with the Salt Lake City office of Snell &Wilmer. Dragoo focuses her practice in natural resources and environmental law, including coal, water, mining, public land, and issues affecting energy-related miner- als and the oil and gas industry. She serves on Utah’s Energy Advisory Council to the Governor’s Office of Energy Development and on the Board of Directors, Utah Mining Association. 1 Secretarial Order No. 3338, page 7. 2 81 Federal Register 17721. 3 OIG, Coal Management Program, U.S. Department of the Interior, Report No.: CR-EV-BLM-0001- 2012 (June 2013). 4 GAO, Coal Leasing: BLMCould Enhance Appraisal Process, More Explicitly Con- sider Coal Exports, and Provide More Public Information, GAO 14-140 (Dec. 2013). 5 Id, page 1. 6 Secretarial Order 3338 can be accessed at the following link: http://goo.gl/9T5Bnu 7 81 Federal Register 17720. MORATORIUM continued from page 13