No. 27604 (New Rule): R850-26. Coal Leases

DAR File No.: 27604
Filed: 12/23/2004, 02:50
Received by: NL

 

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this new rule is to place all of the commodity-specific provisions in one location for greater clarity and to update the rule based on current agency practices that were not explicitly set out in Rule R850-20. (DAR NOTE: The proposed repeal of Rule R850-20 is under DAR No. 27611 in this issue.)

 

Summary of the rule or change:

A classification of mineral and material substances section, specific to this commodity, has been added to this rule. The minimum annual rental was increased to $500 per year. The provisions for continuance after expiration of the primary term and for readjustments have been set forth more clearly, as well as the requirements for the operations plan and notification.

 

State statutory or constitutional authorization for this rule:

Subsections 53C-1-302(1)(a)(ii), 53C-2-201(1)(a), 53C-2-401(1)(d)(ii), 53C-2-402(1), and 53C-2-407(4)

 

Anticipated cost or savings to:

the state budget:

Because of the increase in minimum annual rental, it is anticipated that there will be a savings to the State budget of up to $480 per year for leasehold of less than 500 acres. It is anticipated that some of the administrative costs of managing smaller leaseholds will be offset by this anticipated savings.

 

local governments:

It is anticipated that there would be no additional cost or savings to local government with the implementation of this rule. The rule is a reformatting and reorganization of rules currently in force and no changes were made which will result in an increase or decrease in costs to local government.

 

other persons:

The anticipated cost to other persons with leaseholds smaller than 500 acres would be the difference between their current annual rental payment and the proposed minimum annual rental of $500 per year. This increase does not affect a lessee with a leasehold or more than 500 acres.

 

Compliance costs for affected persons:

Compliance costs for affected persons would be the increase in minimal annual rental for any lessee with a leasehold less than 500 acres. The cost to a lessee would be the difference between their current annual rental payment and the proposed minimum annual rental of $500 per year.

 

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule will have two impacts on business: 1) the annual minimum rental is being increased from $20/year to $500/year. The intention of this change is to motivate lessees to either put the leases into production, or to drop the leases so that others with the capabilities to produce can have a chance to lease the lands; and 2) lessees will have the obligation to develop a plan of operations prior to disturbing the surface during mining activities. This will allow the Agency to better regulate the mining activities and ensure that operations are conducted in a manner that will not leave unreclaimed sites which will cost the state substantial amounts to restore.

 

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

School and Institutional Trust Lands
Administration
675 E 500 S
SALT LAKE CITY UT 84102-2818

 

Direct questions regarding this rule to:

Thomas B. Faddies at the above address, by phone at 801-538-5150, by FAX at 801-355-0922, or by Internet E-mail at [e-mail]

 

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

02/14/2005

 

This rule may become effective on:

04/01/2005

 

Authorized by:

Kevin S. Carter, Director

 

 

RULE TEXT

R850. School and Institutional Trust Lands, Administration.

R850-26. Coal Leases.

R850-26-100. Definitions.

In addition to those applicable definitions in R850-24-175, the following definitions also apply to this section:

1. Lease: a lease in a coal resource as defined in R850-26-150.

2. Lessee: a person or entity holding an interest in a coal lease.

 

R850-26-150. Classification of Coal Resources.

"Coal" shall include black or brownish-black solid fossil fuel that has been subjected to the natural processes of coalification and which falls within the classification of coal by rank: I Anthracite, II Bituminous, III Sub-Bituminous, and IV Lignitic.

 

R850-26-200. Coal Leasing of Lands Acquired in Public Law 105-335 Exchange.

1. Acquired lands shall mean lands acquired by the agency pursuant to the Utah Schools and Lands Exchange Act of 1998, Public Law 105-335, 112 Stat. 3139 (1998)(the "Exchange Act").

2. Leasing of coal interests in the acquired lands shall be governed by applicable provisions of state law, the Exchange Act, that certain Memorandum of Understanding Between the Utah School and Institutional Trust Lands Administration, the United States Department of Agriculture, and the United States Department of the Interior dated January 5, 1999, as amended from time to time, and by those certain provisions of R850-24 and R850-26 not in conflict with this section.

3. The director shall have broad discretion to determine terms, conditions and procedures for leasing coal interests in the acquired lands by competitive filing, including without limitation:

(a) the determination of rental rates;

(b) lease forms and lease stipulations for particular tracts;

(c) the amount of any required bid deposit;

(d) the minimum acceptable bid for particular tracts;

(e) terms of payment for bonus bids; and

(f) bidding procedures generally.

4. The director may, but is not obligated to, disclose the minimum acceptable bid in advance of offering the lease by competitive filing.

5. In the event that the high bid in any competitive bid filing does not meet the minimum acceptable bid previously determined by the director, the director may, but is not obligated to, negotiate with the high bidder to obtain a negotiated bid that, in the discretion of the director, represents fair market value. Alternatively, the director may re-offer the lands for competitive filing, hold an oral auction of the lands pursuant to Subsection 53C-2-407(4), or withdraw the lands from leasing.

6. Nothing in this rule shall prevent the agency from leasing or otherwise disposing of coal interests in the acquired lands pursuant to Subsection 53C-2-401(1)(d)(ii), subject to compliance with applicable law.

 

R850-26-300. Coal Lease Provisions.

1. Royalty and Minimum Royalty.

(a) The director shall establish the production royalty rate, not to be less than 8%.

(b) The director shall establish the annual minimum royalty rate(s) at the time the lease is offered.

2. Size of Leaseable Tract.

A lease shall not be issued for a parcel less than a quarter-quarter section or surveyed lot unless approved by the director.

3. Primary Coal Lease Term.

The primary lease term for any lease may not exceed ten (10) years.

4. Continuance of Coal Lease After Expiration of Primary Term.

A lease shall be continued after the primary term has expired so long as:

(a) coal is being produced in paying quantities from the lease or an approved mining unit; or

(b) the agency determines that the lessee:

(i) is engaged in diligent operations, exploration, or development which is reasonably calculated to advance development or production of the coal resource; or

(ii) has made substantial financial investments for the direct purpose of advancing development or production of the coal resource; and

(iii) pays the annual minimum royalty set forth in the lease.

5. Readjustment of Coal Lease.

All leases shall contain a provision setting forth the agency's right to readjust the terms and provisions of the lease on a periodic basis, and such readjustment shall be made in accordance with R850-24-1000. A lease continued after expiration of its primary term shall be subject to such readjustment provision(s).

6. Other Lease Provisions.

(a) The agency may require, in addition to the lease provisions required by these rules, any other provisions to be included in the lease as it deems necessary.

 

R850-26-400. Existing Coal Lease Conversion.

Existing leases issued prior to the effective date of these rules and in good standing on such date shall continue for the term specified in the lease and shall be subject to the terms and provisions contained in the lease. The agency may, however, allow such lessees to convert such existing leases to the new lease, providing such conversion will not conflict with the valid existing rights of any other lessee or owner upon the same lands.

 

R850-26-450. Coal Exploration Permit.

The director may issue non-exclusive short-term exploration permits upon unleased trust lands for the purpose of conducting exploration drilling operations, according to the following terms:

1. Applications for a coal exploration permit shall include an application fee.

2. The application shall specify the location and number of exploratory drilling holes, and applicant shall pay a drilling fee as specified on the agency's fee schedule for each exploratory drilling hole approved by the agency.

3. Prior to commencing operations, the coal exploration permittee must obtain a coal exploration permit from UDOGM, and must provide 60 days' notice of intent to drill to the agency.

4. A bond for reclamation and drill hole plugging must be posted prior to the commencement of operations.

5. The coal exploration permittee must file a true and complete copy of all drilling logs and geological reports associated with the drilling project with the agency at the conclusion of drilling operations.

 

R850-26-500. Operations Notification and Plan.

1. At least 60 days prior to the commencement of any surface disturbance, drilling, mining or other operations, the lessee shall submit a plan of operations to the agency in accordance with the terms and conditions established by the agency, as set forth in R850-24-700. Under no circumstance shall the lessee/permittee commence operations without a plan of operation approved by the agency.

2. The agency shall require the lessee to meet agency reclamation requirements as set forth in R850-24-700.

 

KEY: coal, lease provisions, administrative procedures, plan of operation

April 1, 2005

53C-1-302(1)(a)(ii)

53C-2-201(1)(a)

53C-2-401(1)(d)(ii)

53C-2-402(1)

53C-2-407(4)