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June 30, 1978

Curtis J. BERKLUND et al., Defendants, and Utah Power & Light Company et al., Intervening Defendants

The opinion of the court was delivered by: GREEN


Plaintiffs in this case are two environmental organizations, National Resources Defense Council (NRDC) and Environmental Defense Fund (EDF), who are suing on behalf of their members. Defendants are the Director of the Bureau of Land Management, the Secretary of the Interior, and the Director of the United States Geological Survey. Intervening defendants are Utah Power and Light Company and Chaco Energy Company.

 Plaintiffs seek a declaratory judgment (1) that the Secretary has discretion under section 2 of the Mineral Leasing Act of 1920, 30 U.S.C. § 201(b), *fn1" and the National Environmental Policy Act (NEPA), 42 U.S.C. § 4331 Et seq. to reject "preference right lease applications" on environmental grounds and (2) that the Secretary must prepare an environmental impact statement (EIS) on any proposed issuance of a preference right coal lease where the issuance would constitute major federal action significantly affecting the environment. *fn2" Plaintiffs further seek to enjoin defendants from issuing such leases without compliance with the aforementioned declaratory judgment. *fn3"

 Defendants challenge plaintiffs' complaint on a number of jurisdictional grounds, and with the intervenors, maintain that the language of § 201(b) mandates the Secretary to issue a preference right lease if the permittee finds coal in "commercial quantities." Defendants further claim that NEPA grants the Secretary broad discretion in setting lease terms but gives him no added discretion to reject a lease on purely environmental grounds once the requirement of commercial quantities has been met. Accordingly, they argue an EIS should be prepared on the proposed lease terms, not on the proposed issuance of the lease.

 This case is before the Court on cross-motions for summary judgment. Upon consideration of the full record herein and for the reasons set forth below, the Court finds that under 30 U.S.C. § 201(b) the Secretary of the Interior does not have discretion to reject preference right coal leases where coal has been found in commercial quantities. However, where the issuance would constitute a major federal action significantly affecting the environment, the Secretary is enjoined from issuing said lease unless he first prepares an appropriate EIS.

 Factual Background

 I. Past and Current Procedures for Issuing Prospecting Permits and Preference Rights Leases

 Section 2 of the Mineral Leasing Act of 1920, 30 U.S.C. § 201, governs the issuance of coal leases and prospecting permits. Section 201(a) *fn4" authorizes the Secretary to lease federal coal reserves by competitive bidding or such other methods as he may adopt. Section 201(b) *fn5" authorizes the Secretary to issue prospecting permits and so-called "preference right" leases where prospecting or exploration is necessary to determine the existence of coal. The Department of Interior, throughout the 58 years of administration of these provisions, has consistently interpreted § 201(b) as giving the Secretary discretion in the granting of the prospecting permits, but as denying him discretion to reject a preference right lease once a permit has issued and coal in commercial quantities has been found.

 Although the Secretary retained discretion in the granting of prospecting permits, until 1969 permits were issued routinely upon request where consistent with the law. Upon receipt of an application for a coal prospecting permit, the Bureau of Land Management (BLM) referred it to the United States Geological Survey (USGS), the agency responsible for making the geologic, economic and other technical judgment, for a determination whether sufficient information was known about the area to warrant offering the area for a competitive lease sale. If the USGS determined that sufficient information was not available, it notified the BLM that issuance of a prospecting permit was appropriate. Environmental consequences of issuing these permits were not examined or considered.

 After the prospecting permit was issued, and if the permittee submitted an application for a preference right lease, the BLM again referred the lease application to USGS for a determination of whether the permittee had demonstrated that the land contained commercial quantities of coal. Determination of commercial quantities was based solely on whether the coal existed, its character and heat-giving quality, and whether it could be physically extracted at a profit without regard to environmental impact or costs. Consistent with defendants' interpretation of § 201(b), if the USGS determined that commercial quantities of coal had been found, the lease was issued automatically to the applicant. The lessee could then extract the federal coal deposits specified in the lease pursuant to applicable laws, regulations and stipulations in the lease itself.

 Regulations promulgated by the Department of Interior on January 18, 1969 introduced requirements for a technical examination prior to the issuance of a permit or a lease as well as approval of a mining plan prior to actual mining operations. These requirements substantially broadened the Secretary's authority to assess and mitigate against environmental hazards. Specifically, the BLM, together with the USGS, were required to prepare a "technical examination" prior to the issuance of a permit or lease which would include a review of the prospective environmental impact of the application's proposed prospecting or mining operation. 43 C.F.R. § 23.5(a)(1). The technical examination was then used to formulate general permit or lease requirements for the protection of nonmineral resources and for reclamation. 43 C.F.R. § 23.5(a)(2)(b). After the issuance of the permit or lease but before any prospecting or mining could commence, an exploration or mining plan was to be approved by defendants. 43 C.F.R. §§ 23.7 and 23.8. Significantly, the Secretary maintained and continues to maintain that the regulations allow him to reject the mining plan if it is found to be environmentally unsatisfactory or unacceptable. 43 C.F.R. § 23.8(a)(1).

 The effect of these regulations was to guarantee that after 1969 no new prospecting permits would be issued without consideration being given to the environment. *fn6" More importantly, after 1969 all preference right lease applications, regardless of the date of issuance of the underlying permit, would be subject to an environmental scrutiny which would first determine the setting of lease terms to mitigate against environmental damage and later affect the decision whether to approve the proposed mining plan. *fn7"

 By order # 2952 dated February 13, 1973, the Secretary announced a moratorium on the issuance of any prospecting permits for coal pursuant to the 1920 Act until further notice. All pending applications for such permits would be rejected "in order to allow the preparation of a program for the more orderly development of coal resources upon the public lands . . . with proper regard for the protection of the environment." Accordingly, since February 13, 1973, no new prospecting permits have been issued. *fn8" This moratorium did not apply to, or restrict the rights of, holders of outstanding prospecting permits to obtain preference right coal leases. Defendants' policy of conditioning acceptance or rejection of a preference right lease application solely upon a discovery of coal in commercial quantities remained unchanged.

 On May 6, 1976, in conjunction with the implementation of a comprehensive new coal leasing policy, defendants issued regulations which redefined the statutory terms "commercial quantities" and substantially altered the procedures for obtaining preference right leases.

 The new regulations state that a person has found coal in commercial quantities when the deposit is ". . . of such a character and quantity that a prudent person would be justified in the further expenditure of his labor and means with a reasonable prospect of success in developing a valuable mine." 43 C.F.R. § 3520.1-1(c). The permittee must present evidence which shows that he reasonably expects his revenues to exceed his development and operating costs. Under the new regulations, however, these development and operating costs will include the cost of "complying with existing governmental regulations, reclamation and environmental standards, and proposed lease terms." 43 C.F.R. § 3521.1-1(c)(2)(vi).

 The evidence which the permittee must submit as part of his commercial quantities test consists of both an "initial showing" and a "final showing." The permittee must make an "initial showing" describing in his preference right lease application both the proposed mining operations and the measures to be taken for reclamation and protection of the environment. 43 C.F.R. § 3521.1-1(b). Defendants next conduct a "technical examination and environmental analysis" which includes an analysis of the environmental impact of the proposed mining operations. 43 C.F.R. § 3521-4. Drawing on information contained in the technical examination and environmental analysis, the defendants then determine lease terms which may include rentals and royalty payments as well as conditions for mitigation of environmental damage. The mitigating lease terms are those required by related surface management regulations, *fn9" or more stringent terms may be set at the discretion of the Secretary. 43 C.F.R. § 3521.1-5(a). These proposed lease terms are reported to the permittee in the "technical examination and environmental analysis report." After receipt of the report, the permittee presents his final showing and submits a comparison of the estimates of his revenues and costs, including the costs of complying with applicable statutes, regulations and lease terms. 43 C.F.R. § 3521.1-1(c). If the estimates are based on a reasonable factual basis and support the permittee's assertion that he has found coal in commercial quantities, the Secretary will issue the lease. The requirement that the lessee later submit a mining plan continues in expanded form under 43 C.F.R. § 3041. *fn10"

 Defendants admit that under these regulations, if there is a major federal action, an EIS might be required on the proposed lease terms prior to the issuance of the lease and on the approval of a mining plan after the issuance of the lease. These regulations do not, however, alter the Department's unbroken interpretation of the Mineral Leasing Act, that upon a finding of commercial quantities, the Secretary has no discretion to reject the lease. *fn11" Therefore, defendants will not prepare an EIS on the issuance of the lease, whether or not such issuance is a major federal action significantly affecting the environment.

 II. Federal Coal Management Facts Concerning Outstanding Prospecting Permits and Preference Right Lease Applications

 For 40 years following the passage of the Mineral Leasing Act in 1920, the federal coal leasing program was relatively small. After 1960, however, there was an enormous surge in the issuance of federal coal prospecting permits and leases, as industrial and speculative interest in federal coal deposits boomed. Sixty-four percent of all outstanding federal coal leases were issued between 1960 and 1970. As a result, in 1970, there were nearly four times the number of acres under lease as there had been in 1960. The experience with prospecting permits was the same. Of 183 prospecting permits, which have matured into preference right lease applications, 90 were issued between February 1, 1965 and January 1, 1972.

 Although the Department of Interior has not compiled figures to show the amount of land in the United States covered by currently outstanding prospecting permits and preference right lease applications, partial figures demonstrate that as of October 1974, in six western states, at least 496,000 acres containing some 12 billion tons of coal were subject to 183 preference right lease applications. *fn12" Much of this coal is minable by strip and surface mining methods. Defendants state in their papers that many of the permits upon which these applications are based were issued without the type of environmental scrutiny that would be standard today, *fn13" and some of these lease applications may cover leases where mining will not be acceptable.

 While not all leases issued in the past have resulted in active coal mining operations, in 1976 Congress amended the Mineral Leasing Act to require lessees to diligently develop mining operations upon penalty of forfeiture. 30 U.S.C. § 207(a) as amended by Pub.L. 94-377. Approval of preference right lease applications, therefore, could potentially result in coal mining activities being undertaken on hundreds of thousands of acres of federal and private lands. Such mining ...

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