A united Utah Congressional delegation and a representative of Gov. Norman Bangerter on Tuesday urged Interior Secretary Manuel Lujan to reduce the royalty rate for underground-mined coal from eight percent to five percent.
The Utahns argued that underground coal mined in Utah is at a disadvantage when competing with strip-mined coal, and that it thus should pay the lower rate. The U.S. Tenth Circuit Court ruled last year that the interior secretary is required to readjust royalties "if conditions warrant."Sen Orrin Hatch, R-Utah, said Lujan indicated he would make a decision fairly quickly. Hatch added that reducing the underground royalty would make Utah coal more competitive in national and international markets.
James L. Van Laren, president of Coastal States Energy Co., predicted after the meeting that Utah coal output could be doubled or tripled within three or four years after the royalty was reduced.
Since coal royalties from federal leases are split between the federal and state coffers, Utah stands to lose as much as $7.5 million a year in royalty income if the rate is lowered.
Frank Davis, president of Utah Power and Light Co., who also attended the meeting, told reporters that the most immediate impact in Utah would probably be a reduction of about $5 million a year, or four-tenths of a percent, in Utah electric bills.
Members of Utah's congressional delegation said UP&L and Coastal States had implied that the increase in volume of Utah coal they mined under lower royalties would more than make up the state's initial loss of revenue. Davis said UP&L would probably be able to sell its power out of state more competitively but stopped short of promising to make up the difference in state revenues.
Van Laren emphasized the savings to state consumers of coal and power, if the royalty reduction is made.
While Gov. Bangerter has strongly backed the rate reduction since last fall, the Utah Legislature opposed it until about a week ago. Kelly Murdoch of the governor's Washington office gave reporters copies of letters from the Utah Senate and House of Representatives to Lujan, noting that they had received "new information which convinces us to withdraw" a letter they wrote Feb. 9 in opposition to the reduction.
Rep. Jim Hansen, R-Utah, said after the meeting that failure to reduce the royalty would mean that two proposed new power units at Intermountain Power would not be built. He said a royalty reduction would mean that marginal mines in the state would stay open and new ones would start operation, helping reduce unemployment in the state.
Rep. Howard Nielson, R-Utah, said that if the royalties are reduced Utah can sell more power to California in the future.
Van Laren, of Coastal, conceded that his company has been profitable in Utah under present royalties but said the issue was one of equity and competitive advantage. He showed charts indicating that on thermal value, underground-mined coal pays sharply higher federal royalties that does strip-mined coal. He said federal royalties have increased 1,200 percent since 1978, from 15 cents per ton to more that $2.
Most of any increase in Utah-mined coal would come in Emery and Carbon counties.