Summary

The Mineral Leasing Act of 1920 requires lessees to diligently develop federal coal leases and maintain continued operation of leases once production begins. To meet these requirements, lessees must produce coal in commercial quantities within 10 years and continue production in commercial quantities. The Bureau of Land Management (BLM) published a proposed rule in the Federal Register in July 1991 that would redefine commercial quantities, cutting the required level of coal production from one percent of recoverable reserves to 0.3 percent. This change would significantly reduce the minimum production level now required to retain a federal coal lease. This report examines BLM's justification for the proposed change.

GAO found that: (1) BLM proposed reducing the minimum production requirement to 0.3 percent of recoverable coal reserves because of the findings of a task force, a 1985 study that recommended payment of fees for lessees not producing coal, and the number of lessees that had difficulties meeting the 1-percent production requirement; (2) BLM did not provide a basis for reducing the minimum production level because the 1985 study did not discuss revisions to the definition of commercial quantities, BLM could not name companies that were unable to meet the 1-percent requirement, and the task force could not provide documentation to support its proposal; (3) to remain financially viable, operators will have to produce coal in excess of the current or the proposed minimum; (4) a reduction in the minimum level would make it easier for an operator to spread out or put off production until later in the lease period; and (5) a lower minimum would make it easier for an operator to retain a lease when depressed market conditions made it uneconomical to produce or sell coal.