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COALEX STATE INQUIRY REPORT - 68

November 7, 1986

John Henriksen

Illinois Department of Mines and Minerals

Land Reclamation Division

227 S. 7th Street, Room 201

Springfield, Illinois 62701

TOPIC: "SUBSTANTIAL LEGAL AND FINANCIAL COMMITMENTS"

INQUIRY: Please research the legislative and regulatory history of the phrase "substantial legal 

and financial commitments".

SEARCH RESULTS: Sec. 522 of the Surface Mining Control and Reclamation Act of 1977 

(SMCRA) requires each state wishing to assume primacy to establish a procedure for designating 

certain areas unsuitable for surface coal mining. Any person having an interest= which is or may 

be adversely affected has the right to petition the regulatory authority to have an area designated 

as unsuitable for mining. However, this right to have an area so designated is subject to the 

savings clause of Sec. 522(a)(6), which provides that "[t]he requirements of [Section 522] shall 

not apply to lands on which surface coal mining operations are being conducted on the date of 

enactment of this Act, or where substantial legal and financial commitments in such operation 

were in existence prior to January 4, 1977." This language is also included in Sec. 510(b)(4) of 

SMCRA 

_____________________________________________________________________________

LEGISLATIVE HISTORY

The savings clause of Sec. 522 was included in every version of SMCRA introduced since 1973, 

and was retained in essentially the same form throughout the Act's legislative history. The Senate 

report accompanying S. 425 noted that the passage of the bill, with its provisions for designating 

lands unsuitable for mining, would place all coal owners and surface mine operators on notice 

that there was a possibility that lands could be designated as unsuitable for surface mining. 

However, the report noted, this section was not designed to shut down existing operations; thus, 

no area was to be designated as unsuitable if "firm plans and financial commitments for such 

operations were in existence prior to the enactment of the Act." The committee explained the 

meaning of this language:

"Mere ownership of the coal resource with the intent to surface mine would not qualify for the 

exemption from designation as unsuitable for surface mining based on firm plans for and 

substantial legal and financial commitments'. In order to preclude designation, it must be 

established that specific plans and specific contracts for sale of coal and purchase of necessary 

equipment for an actual mining operation were in existence on the date of enactment." (S. Rep. 

No. 402, 93rd Cong., 1st Sess. 68 (1973)) 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

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The 1974 House version of Sec. 522(a)(6) contained language nearly identical to that found in 

P.L. 95-87; however, no explanation was given as to the meaning of this phrase. (H.R. Rep. No. 

1072, 93d Cong., 2d Sess. 10 (1974)) By 1975, both the House and the Senate had adopted the 

same language found in SMCRA. (See S. Rep. No. 28, 94th Cong., 1st Sess. 122 (1975); H.R. 

Rep. No. 45, 94th Cong., 1st Sess. 38 (1975).) The House report explained the designation 

process and the meaning of "substantial legal and financial commitments" as follows:

"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-tem coal 

contract, investments have been made in power plants, 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'." (H.R. Rep. No. 45, 94th Cong., 1st Sess. 91 

(1975)) 

The 1976 and 1977 House committee reports on the proposed surface mining legislation gave no 

further explanation of the meaning of the savings clause found in Sec. 522(a)(6); indeed, these 

reports adopted the identical explanatory language quoted above. (See, e.g., H.R. Rep. No. 896, 

94th Cong., 2d Sess. 47 (1976); H.R. Rep. No. 1445, 94th Cong., 2d Sess. 46 (1976); H.R. Rep. 

No. 218, 95th Cong., 1st Sess. 94 (1977).) The Senate committee reports did not specifically 

adopt this language, but it was the House bill that was adopted by the Conference Committee and 

passed by the Senate. Furthermore, the Congressional Record reveals that the identical language 

found in the House version was quoted in response to a question concerning the meaning of this 

term. (121 Cong. Rec. 6114 (1975) (statement of Sen. Metcalf).)

REGULATORY HISTORY

The OSMRE definition of "substantial legal and financial commitments", found at 30 CFR Sec. 

762.5, reflects the same basic language as that found in the legislative history. OSMRE 

attempted to expand on this definition in its 1978 proposed regulations, but later revised its 

language to conform with that found in the House reports.

The 1978 proposed regulations issued by OSMRE defined "substantial legal and financial 

commitments" as follows:

"Substantial legal and financial commitments in a surface coal mining operation means major 

investments of money in power plants, railroads, coal-handling or storage facilities and other 

capital intensive improvements and fixed equipment made on the basis of long-term, legally 
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enforceable coal sales contracts which cannot be canceled except upon payment of a substantial 

penalty. Investments are major' if they are substantial both (a) in relationship to the aggregate 

assets of the proposed operator and the operator's beneficial owners, other than non-controlling 

shareholders in publicly held corporations, and (b) in relation to the aggregate capital 

expenditures which reasonably can be anticipated to be made for capital improvements and fixed 

equipment at the mine site to, and including, completion of all reclamation operations. Costs of 

the acquisition of the coal in place or of the right to mine it do not constitute substantial legal and 

financial commitments'." (43 FR 41663, 41828 (1978)) 

OSMRE noted that it had considered not defining this term, but rejected this alternative after 

reviewing the legislative history and finding that Congress had intended a specific meaning in 

using the term. (Id. at 41686).

In the preamble to its final rules, OSMRE noted that it had received more comments on this 

definition than on any other issue in its regulations on the designation of lands unsuitable for 

mining. 

The references to "major investments", "legally enforceable" and "cancellation penalties" were 

deleted as inconsistent with Congressional intent. OSMRE also rejected a suggestion that 

"substantial" be defined by using a specific percentage of anticipated costs or a specific dollar 

amount, saying that "any fixed dollar amount or percentage would be arbitrary and might impose 

disproportionate burdens on smaller companies". (44 FR 14901, 14997 (1979)) Several 

commenters suggested that various preparatory actions by an operator should be defined as 

substantial, such as the purchase of draglines, exploration costs, and advance royalties. These 

comments were also rejected. OSMRE noted that, while these commitments were not enough to 

be considered "substantial" by themselves, they were to be considered as part of the overall costs 

and commitments to mine. (Id. at 14998). An example was added to the definition, again in 

keeping with the legislative history of the phrase:

"An example would be an existing mine, not actually producing coal, but in a substantial state of 

development prior to production. Costs of acquiring the coal in place or of the right to mine it 

without an existing mine, as described in the above example, alone are not sufficient to constitute 

substantial legal and financial commitments." (44 FR 15311, 15344 (1979)) 

Thus, instead of expanding and clarifying the definition of "substantial legal and financial 

commitment", OSMRE chose to keep its regulatory definition of the term within the boundaries 

set by the legislative history.

In 1982, OSMRE proposed to revise the definition of SLFC. The proposed revision would have 

recognized that substantial commitments could be made with or without a long-term coal 

contract. However, several commenters pointed out that the coal contract requirement was 

repeated throughout the legislative history as a precondition to granting an exemption. Therefore, 

OSMRE decided to retain the existing definition. (48 FR 41312, 41327 (1983))
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

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ATTACHMENTS

A. S. Rep. No. 402, 93d Cong., 1st Sess. (1973). 

B. H.R. Rep. No. 1072, 93d Cong., 2d Sess. (1974). 

C. S. Rep. No. 28, 94th Cong., 1st Sess. (1975). 

D. H.R. Rep. No. 45, 94th Cong., 1st Sess. (1975). 

E. H.R. Rep. No. 896, 94th Cong., 2d Sess. (1976). 

F. H.R. Rep. No. 1445, 94th Cong., 2d Sess. (1976). 

G. H.R. Rep. No. 218, 95th Cong., 1st Sess. (1977). 

H. 121 Cong. Rec. 6114 (1975). 

I. 43 FR 41661 (1978). 

J. 44 FR 14901 (1979). 

K. 44 FR 15311 (1979).M 

L. 48 FR 41312 (1983).