COALEX State Inquiry Report - 342
June, 1998
Eva Brault
Attorney General's Office
Department of Natural Resources
Fountain Square - Bldg D-2
Columbus, Ohio 43224-1387
TOPIC: 522(a)(6) - "SUBSTANTIAL LEGAL AND FINANCIAL COMMITMENT"
SEARCH INQUIRY: Certain lands in Ohio were exempted from being designated as "unsuitable
for surface mining" due to "substantial legal and financial commitment" (SLFC) which was in
existence prior to January 4, 1977. The exempted lands were sold. Does the exemption transfer
to the new owners? How do valid existing rights (VER) relate to SLFC - which has priority? Please
locate any relevant materials.
SEARCH RESULTS: Using the COALEX Library and other LEXIS materials, a number of relevant
items were identified. These include congressional reports and Federal Register preambles to
proposed and final rules discussing SLFC, VER, the relationship between SLFC and VER, and the
transferability of VER. Pertinent excerpts, in chronological order, follow. Copies of the materials
are attached.
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LEGISLATIVE HISTORY
The discussion of SMCRA section 522 (Designating Areas Unsuitable for Surface Coal Mining)
from the HOUSE OF REPRESENTATIVES REPORT 95-218, 95th Cong. 1st Session (April 22, 1977)
provides a good description of congressional intent on the issues in question. A quotation from
the "Elements of Mine Regulation Program" section appears below; excerpts from other legislative
history material are attached for background.
"The designation process is not intended to be used as a process to close existing mine
operations, although the area in which such operations are located may be designated with
respect to future mines. The committee recognized that an existing mine might not be one
actually producing coal, because it was in a substantial stage of development prior to coal
production. Thus the meaning of existing operations is extended to include operations for which
there are ‘substantial legal and financial commitments.'
"The phrase ‘substantial legal and financial commitments' in the designation section and other
provisions of the act is intended to apply to situations where, on the basis of a long-term coal
contract, investments have been made in powerplants, railroads, coal handling and storage
facilities and other capital-intensive activities. The committee does not intend that mere
ownership or acquisition costs of the coal itself or the right to mine it should constitute
‘substantial legal and financial commitments.'
"It should be noted that the designation process is structured to be applied on an area basis,
rather than a site by site determination which presents issues more appropriately addressed in
the permit application process. The committee believes that the area by area approach of section
522 thus serves the industry since such a process may, in advance of application, identify lands
which are either not open to surface mining or where surface mining is subject to restrictions."
REGULATORY HISTORY
43 FR 41662 (SEPTEMBER 18, 1978). Proposed rules. 762.5 Definitions.
The discussion of the proposed definition of SLFC included a definition of the phrase "major
investments". This definition was omitted from the 1979 final rules because it did not accurately
reflect the legislative history. (See below)
44 FR 14902 (MARCH 13, 1979). Permanent program final preamble - Final rule. 30 CFR Part
761 Areas designated by Act of Congress. Definition of VER.
"OSM decided that the VER phrase must be distinguished from the definition of substantial legal
and financial commitments. See 30 CFR 762.5. The latter exemption applies to the petition
process under Section 522(a), whereas VER applies to the Congressional prohibitions of mining
under Section 522(e). This distinction suggests that, in order for property owners to qualify for
VER and thereby mine in the prohibited areas of Section 522(e), they must have a property
interest in the mine that is even greater than the substantial legal and financial commitments
needed to mine despite a designation by petition under Section 522(a). Thus, OSM believes that
VER must be more than ‘significant investments, that have been made on the basis of a long-term coal contact, in powerplants, haulroads, coal preparation, extraction, handling and storage
facilities, and other capital intensive activities,' as substantial legal and financial commitments is
defined in Section 762.5."
44 FR 14902 (MARCH 13, 1979). Permanent program final preamble - Final rule. 30 CFR Part
762 Criteria for designating areas as unsuitable for surface coal mining operations. 762.5
Definitions.
The definition of SLFC in the final rules deleted some of the language found in the proposed
rules in order to reflect the legislative history. See the quote from H.R. Rep. 95-218, above.
45 FR 52467 (AUGUST 7, 1980). Preliminary findings on Mower Lumber Co.'s request for
determination of VER to conduct underground coal mining operations in the Upper Shavers Fork
Sub-unit of the Monongahela National Forest, in Randolph County, WV.
The Director, in his preliminary decision that Mower Lumber did have VER, cited to the 1979
final rule defining VER, above, and added:
"[A] finding of valid existing rights will also include a finding of substantial financial and legal
commitments, and thereby exempt those areas with VER from further consideration for
designation as unsuitable for mining. However, any finding of [VER and SLFC] will in no way
affect the responsibility of Mower to comply with the permitting and performance standards
requirements of the interim and permanent Federal lands programs...."
The determination of VER was upheld in IBSMA 81-64, 4 IBSMA 192 (December 10, 1982).
See, also, 46 FR 36758 (July 15, 1981) and 46 FR 50422 (October 13, 1981). Findings and
Decision on Greenwood Land and Mining Co.'s request for a determination of VER to conduct
underground coal mining operations in the Daniel Boone National Forest in Pulaski and McCreary
Counties, KY.
47 FR 25278 (JUNE 10, 1982). Proposed rules. Areas unsuitable, etc.
"OSM has been presented with questions regarding the transferability of [SLFC] from one coal
operator to another, for a given operation and land area. OSM preliminarily believes that [SLFC]
may be transferred as part of the rights and commitments sold along with a business. Once
established, this right is similar to others which are ordinarily transferred in the sale of businesses
and properties. Not to allow such a transfer would diminish the value of the property."
48 FR 41312 (SEPTEMBER 14, 1983). Final rule. Areas unsuitable, etc.
Excerpt from VER's "Relationship to ‘Substantial Legal and Financial Commitments'"
"OSM reexamined the definition of VER and determined that the relationship between VER and
[SLFC] is not suggested by the legislative history. Both concepts were covered repeatedly in the
long legislative history. Each was discussed separately in every case. Nowhere in the legislative
history does Congress compare the two concepts. Thus, the two concepts are separate and
distinct."
From 762.5 Definitions:
"OSM proposed to revise the definition of [SLFC]. The existing definition requires both
investments and commitments in capital-intensive activities and a long-term coal contract. The
proposed revision would have recognized that substantial commitments can be made with or
without a long-term coal contract.
"Following a review of the legislative history, OSM has decided to retain the existing definition."
52 FR 39186 (OCTOBER 20, 1987). Proposed rule. Unsuitability criteria; SLFC.
53 FR 26582 (JULY 13, 1988). Final rule. Unsuitability criteria; SLFC.
"The proposed rule would revise the definition of [SLFC] to clarify that an existing mine is not
necessary for SLFC." The revision was proposed in response to the court's ruling in In re:
Permanent Surface Mining Regulation Litigation II, Civil Action No. 79-1144 (DDC, July 15, 1985).
The final rule adopted the "proposal to delete all language describing ‘an existing mine'
requirement for a finding of [SLFC]."
54 FR 11576 (MARCH 21, 1989). Decision on BHP-Utah International Inc. (UII)'s request for
determination of SLFC for lands in Kane County, UT.
The Director determined that UII did not meet the criteria for SLFC: "the information submitted
by UII does not state to what extent [the enumerated] expenses and actions are attributable
solely to lands within the area designated unsuitable for surface mining. In addition, the
information provided by UII indicates that these actions and investments were not made on the
basis of a long-term coal contract prior to January 4, 1977".
COALEX STATE INQUIRY REPORT - 283, "TRANSFERABILITY OF VALID EXISTING RIGHTS (VER)"
(1994).
This Report addresses the question of transferring the permit of a tipple with VER where there
was a break in the permit. The following Federal Register Notice on VER was included as part of
the Report:
56 FR 33152 (JULY 18, 1991). Proposed rule. Areas unsuitable for mining; areas designated by
act of Congress.
Transferability of VER
"OSM believes that to interpret SMCRA to impose or authorize a limit on VER transferability
would not comply with the intent of Congress in enacting SMCRA. Thus, the property rights
requirement in this proposed section incorporates the concept that VER is transferable."
"[I]f a person with a property interest in the coal on the applicable effective date had VER, that
person could, if permitted by applicable laws and regulations, transfer the VER to a successor
after the effective date. The transferred right would suffice as the basis for a finding of VER for
the successor in interest. The determination of VER takes into account the nature of the rights
applicable on the applicable effective date. Subsequent property transactions cannot be used to
create VER if it did not exist on the effective date."
57 FR 62207 (DECEMBER 30, 1992). Final rule. Approval of amendment to Indiana program.
The enclosed excerpt discusses the approval of Indiana's definition of SLFC and how it differs
from the federal counterpart, e.g., Indiana's proposed rule "provides examples of ‘other capital
intensive activities' which qualify under the proposed definition [of SLFC] because they are based
on a long term coal contract."
62 FR 4836 (JANUARY 31, 1997). Proposed rule. Valid existing rights.
7. Transferability of VER
"As in 1991, OSM is proposing to reaffirm that VER are transferable, primarily because the
proposed definition of VER includes a property rights component. In essence, OSM is proposing to
consider VER as being attached to the property to which those rights pertain rather than as being
valid only for the person claiming such rights or, with the exception of VER under the needed for
and adjacent standard, for a specific operation. (VER under the needed for and adjacent standard
would attach jointly to both the property and a specific surface coal mining operation.) Once
attached to the property, VER would become subject to whatever State property law exists
concerning rights of alienation as an element of property ownership. SMCRA (especially section
510(b)(6)) generally defers to State property law.
"The VER exemption is analogous to a zoning variance, which, in the interest of equity, allows
an otherwise prohibited use to occur under certain fact-specific circumstances even though that
use was not in existence on the land in question at the time the zoning ordinance took effect. Like
VER under the proposed rule, zoning variances typically convey with the title to the property even
if the rights conferred by the variance have not been exercised.
"However, the alienation or transfer of property is not an absolute right. Certain interests in real
property, such as leases, licenses or profits a prendre, may be inherently nontransferable or of
limited transferability, either by their terms or by operation of State law. If a person's coal
property interests are of this nature, then any VER resting on those interests would also be
nontransferable. Furthermore, it is possible that a State could designate VER under SMCRA as
nontransferable as a matter of law.
"In the rule being published today, OSM is proposing to reaffirm the transferability of VER to the
extent that the underlying property rights are transferable under State law. Therefore, to the
extent that State law allows the sale or other transfer of the underlying coal rights or other
pertinent property rights, a person with VER may sell or transfer the VER to another person as an
appurtenance to the coal or other property rights. Nothing in this rule is intended to create rights
that do not already exist in State law or expand upon those that do. Individual States may
prohibit VER transfers to the extent that they have the authority to do so under State law."
ATTACHMENTS
A. Legislative History
H. R. REP. 95-218, 95th Cong., 1st Sess. pp 94-95, 156-157(April 22, 1977).
H.R. REP. 95-128, 95th Cong., 1st Sess. pp 78-79 (May 10, 1977).
123 CONG. REC. S8083 (May 20, 1977).
HEARING (House), 94th Cong., 1st Sess. pp 91-92 (June 3, 1975).
H.R. REP. 93-1072, 93rd Cong., 2nd Sess. (May 30, 1974).
B. 43 FR 41662 (SEPTEMBER 18, 1978). Proposed rules. 762.5 Definitions.
C. 44 FR 14902 (MARCH 13, 1979). Permanent program final preamble - Final rule. 30 CFR
Part 761 Areas designated by Act of Congress. Definition of VER.
D. 44 FR 14902 (MARCH 13, 1979). Permanent program final preamble - Final rule. 30 CFR
Part 762 Criteria for designating areas as unsuitable for surface coal mining operations.
762.5 Definitions.
E. 45 FR 52467 (AUGUST 7, 1980). Preliminary findings on Mower Lumber Co.'s request for
determination of VER to conduct underground coal mining operations in the Upper
Shavers Fork Sub-unit of the Monongahela National Forest, in Randolph County, WV.
F. IBSMA 81-64, 4 IBSMA 192 (December 10, 1982).
G. 46 FR 36758 (JULY 15, 1981) and 46 FR 50422 (OCTOBER 13, 1981). Findings and
Decision on Greenwood Land and Mining Co.'s request for a determination of VER to
conduct underground coal mining operations in the Daniel Boone National Forest in Pulaski
and McCreary Counties, KY.
H. 47 FR 25278 (JUNE 10, 1982). Proposed rules. Areas unsuitable, etc.
I. 48 FR 41312 (SEPTEMBER 14, 1983). Final rule. Areas unsuitable, etc.
J. 52 FR 39186 (OCTOBER 20, 1987). Proposed rule. Unsuitability criteria; SLFC.
K. 53 FR 26582 (JULY 13, 1988). Final rule. Unsuitability criteria; SLFC.
L. 54 FR 11576 (MARCH 21, 1989). Decision on BHP-Utah International Inc. (UII)'s request
for determination of SLFC for lands in Kane County, UT.
M. COALEX STATE INQUIRY REPORT - 283, "TRANSFERABILITY OF VALID EXISTING RIGHTS
(VER)" (1994).
56 FR 33152 (JULY 18, 1991). Proposed rule. Areas unsuitable for mining; areas
designated by act of Congress.
N. 57 FR 62207 (DECEMBER 30, 1992). Final rule. Approval of amendment to Indiana
program.
O. 62 FR 4836 (JANUARY 31, 1997). Proposed rule. Valid existing rights.
Research conducted by: Joyce Zweben Scall
