not. There may be other socially desirable objectives to be obtained by resource allocation other than simply showing a large financial return. Other values may be greater though more difficult to measure. The present bonus system is said to favor the wealthier firms and disfavor the less well-financially endowed ones because it requires payment of the bonus at the time of leasing rather than payment from production as is the case with royalty. Sealed bids are said to provide, overall, a greater return to the Government than oral bidding. Present policy is to use sealed bids to the greatest extent possible. Exceptions relate only to instances where additional coal is needed to continue economic operations and there are other circumstances justifying oral bidding. The present maximum return policy operates against the desires of miners to be able to obtain, and to be sure of obtaining, sufficient reserves for profitable operations without the risks inherent in the sealed bid, maximum return, philosophy. (3) Bonus bidding. Present policy calls for bidding, not on the royalty or the rental but on a bonus which is a one-time payment for the lease and bears no relationship to the actual production under the lease. This type of bidding may favor wealthier and larger bidders who can afford to tie up funds in bonuses whereas smaller operators may not. There is some thought that if the lease is in fact worth more than the royalty asked, perhaps the royalty should be increased, or the bonus should be payable out of production, or the bidding might be directly on the royalty itself. (4) Bid evaluation considerations. The present policy of the Bureau of Land Management to attempt to obtain maximum revenue out of the resources it administers has recently prompted a close scrutiny by it of the adequacy of bonus bids. The present practice is to sell coal leases as though the Bureau were selling its own commercial property and had to account on a profit or loss statement to its stockholders. In evaluating bids, many varied and subtle factors are considered by the Bureau, some of which may be information not readily available to the bidders. It would appear that the Bureau is reluctant to inform aggrieved bidders of the true basis for its evaluation, giving a summary answer instead. Both the practice of operating on the basis of maximum profit and the practice of not disclosing, either before or after bidding, the information which the government might have concerning the deposits and other relevant factors used in evaluating bids can be a source of discontent. e. Length and stability of lease terms. (1) Present royalty practice. One aspect of present lease payment pricing policies which is questioned is the practice of a two step royalty during the initial twenty year period of an indeterminate coal lease. In this situation the royalty, for example, may be 12 cents per ton for the first ten years and 15 cents per ton for the second. Undoubtedly the justification for this stepped raise is expected continuation of an inflationary trend. Opposition comes from the viewpoint that this continued inflationary trend is an unproven assumption and that placing the risk of its continuance on industry is wrong. (2) Length of lease. It is said that current and proposed large scale operations, such as mine-mouth electric generation plants, require a firm commitment of fuel for periods longer than twenty years in order to justify the large financial investment needed. Thus proponents of change suggest that set terms for periods of 35 to 50 years would facilitate the planning and financial commitments needed to foster such developments. (3) Scope of twenty year readjustments. The Secretary of the Interior is authorized to readjust the terms and conditions of leases at twenty year intervals. This authority has been interpreted to allow the adding of new provisions which were not in the original lease, including mined land reclamation and environmental control provisions. Industry has suggested that the permissible scope of readjustment should not be this broad. 48/ This raises the question as to what the bounds of readjustment might be, and the extent to which the Department of the Interior, or another agency particularly in the case of acquired lands, can readjust a lease out of existence. The authority of an agency having jurisdiction over acquired lands to require specific terms at the readjustment period is also a source of latent difficulty. 48/ American Mining Congress, The Mining Industry and the Public Lands, a Statement on Behalf of the American Mining Congress before the Public Land Law Review Commission 35 (1968). (4) Effect of new regulations. It would appear in some instances that permits and leases might ⚫ be subject to regulations promulgated subsequent to the issuance of the permit or lease. Present rapid changes in the areas of mined land reclamation, environment control, etc. give concern in this type of situation for new regulations could impose onerous burdens on a lessee or permittee. 49/ f. Additional acreage and consolidated lease acreage limitations. Three sections of the original 1920 act had acreage limitations which at the time were consistent with other limitations in the act. Since then the basic acreage limitations have been increased many fold but these three sections have not been similarly modified. They are sections 3, 4, and 5 of the original act, 50/ dealing respectively with additional acreage from contiguous lands, additional acreage where a lessee faces depletion of his resources within three years, and consolidation of leases. Each of these provisions is limited to 2,560 acres. These limitations bear no relationship to any recognizable objective today. Changes in technique, in size of economical operating units, and increased demands for coal for new industrial uses, including mine-mouth electric generation plants, have prompted tremendous increases in the basic acreage limitation. These three present limitations are inconsistent with the more recently expressed congressional policy of allowing larger areas for coal leases and larger additional acreages for continuance of economical operations. At present they do not allow this and if, inadvertently, more acreage than 2,560 is included in such a lease, policy is to require divestment of the excess even though it is far less than the total acreage limitation for a new lease. The 1958 amendment which permits an additional area of 5,120 acres over the maximum of 46,080 acres is inapplicable and not likely to be of help in the usual case with which the cited sections deal for the reason that the 1958 amendment did not modify the specific lease acreage limitations of the three cited sections and furthermore it is oriented at additional acreage for an exceptionally large operation, not the typical small or medium size operation which might seek relief under the cited sections. 49/ Id. 50/ 30 U.S.C. §§ 203, 204, 205 (1964). Nor is it sufficient simply to suggest that an operator relinquish those portions of his lease which might be worked out. Often these areas must be retained for access, support, ventilation, etc. and cannot be discarded. g. Competitive bidding for additional acreage. The desires of administrators to show the largest possible financial return for the resources they administer and the competing desires of existing mining operators to stay in business present problems. Under present law an existing operation is in a precarious position when it approaches the end of its coal resources. Additional acreage under sections 3 and 4 51/ is limited to a resultant lease of no more than 2,560 acres. The additional acreage amendment of 1958 is not directed at this situation but at the opposite case where the total acreage allowable of 46,080 is insufficient to justify the large type of operation needed for mine-mouth or unit-train type ventures. Although the extra acreage there permitted can be obtained without recourse to the usual competitive sealed bidding procedures, this is not always an available procedure for the smaller operator facing exhaustion of his coal resources. Sections 3 and 4 additions have factors involved which may preclude adequate protection for a small or medium size operator facing the end of his resources. For section 3 relief, the land must be contiguous and there must not be a public interest or the land will be subject to competitive bidding. Section 4 additional acreage need not be contiguous but the operator must show that his resources will be exhausted in three years. This type of additional acreage is to be let as in the case of original leases which usually means competitive leasing. In the case of section 3 addition where there is no manifested interest by others in the contiguous land a lessee may have a preference. If there is an interest manifested by others in a section 3 addition, and in all section 4 additions (except perhaps through a permit route if the land is not known to contain workable coal deposits) the present lessee gains no real preference. He may be able to justify oral bidding, where he can then outbid anyone else, if he wishes and is able so to do. In contrast, additional acreage permitted under the 1958 amendment is, in effect, granted at negotiated prices rather than competitively. 51 Id. SS 203, 204. h. Effect of excess acreage limitation on financing. Under the present statutes, holdings in violation of the law are subject to divestment by court action except that if the unauthorized holding was acquired involuntarily, such as by will, the interest may be held for two years and no more. One who simply purchases at a foreclosure sale is not deemed to be within the group protected for the two year period. There is considerable doubt whether a financing institution which acquires excess or unauthorized holdings by virtue of foreclosure of a mortgage or deed or trust which it holds can hold excess interests for even the two year grace period. This situation may impede the availability of financing for large or small operations. i. Overriding royalty limitations. Present regulations, intended to insure profitable operations and no default on royalty to the lessor, limit overriding royalty to not greater than one half of whatever the royalty to the United States might be. An exception covers cases where the assignor has made substantial investments for improvements on the property. In this instance there is discretion to approve a greater royalty. There may be other instances when considerable effort, time, and money could be expended in developing an operation, such as exploration on unknown lands of considerable extent. Greater discretion in the matter of overriding royalties might be permitted to facilitate this type of endeavor, for often the only change of repayment, and thus of the development of the resource itself, is through royalty out of production. j. Cooperative development agreement problems. Maximum efficient recovery of oil and gas has been facilitated through the use of unit and cooperative agreements permitting the joint development of parcels of land under different ownership. There is a statutory provision for cooperative development agreements between and among coal lessees and others but this legislation contains a prohibition against apportionment of royalty or production. In other words while there can be joint development, royalty will only be paid to the royalty owner for the specific land being mined. Other royalty owners would not be receiving compensation. In addition, the prohibition against apportionment of production prevents operations on one lease in the unit from satisfying the "diligent development" requirements of others. The result could be a mine on each leasehold, defeating the purpose of unitization and resulting in waste and unnecessary duplication of expenditures and efforts. 52/ 52/ Statement of the National Coal Ass'n, etc., before the Public Land Law Review Commission, Jan. 11, 1968. |