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Utah stands to reap $25 million this year as a result of the Interior Department's settlement of a dispute with two Utah mining companies over coal mining royalties.

Reed Searle, chief administrator assistant to Gov. Norm Bangerter, said that the Interior Department reached the tentative settlement with Utah Power & Light Co. and Coastal States Energy Corp.For three years the two firms have disputed a change in the way the federal government computes royalty rates imposed on underground coal mining operations.

About $50 million has been paid during that period into an escrow account by the two companies while they awaited settlement of the long-term dispute.

Searle, who made the announcement after returning to Utah from a Friday meeting with Interior officials in Washington, said the state will receive half of the royalty payments paid to the federal government - about $25 million.

Energy companies have historically paid royalties on production from mining operations on federal land. The Interior Department, in turn, gives half of those royalties to the states where the coal is harvested.

John Serfustini, a governmental affairs representative for UP&L, said the dispute arose several years ago when the Interior Department changed the way the royalty payments were assessed. Instead of 15 cents per ton, they imposed 8 percent of the value of the coal. Usually that is determined by the contract price of the coal, he said.

The federal royalty paid by surface mining companies is 12.5 percent. But because surface mining operations are less costly than underground mining, it works out to about $1 a ton for surface mining.

Serfustini said the 8 percent charge for underground mining, which costs between $20 and $30 a ton, ends up costing the company around $1.60 to $2 a ton.

So the underground mining companies loudly protested. UP&L and Coastal States continued to pay the old 15-cent-per-ton rate, paying the difference into an escrow account.

"With the settlement we have reached, that money in escrow will now be released, with the Interior Department getting half and giving half to Utah," said Searle. "We still have to resolve the issue of interest on that money, but there will be some interest paid."

For the government's part of the deal, the Interior Department has promised to push for a lower rate for underground mining production.

The rate must be changed by Congress, and Interior Department officials said they will determine later how much of a reduction from the 8 percent they will seek.

"Utah Power & Light is satisfied because this royalty expense represents a pass-through to our customers," Serfustini said. "And, of course, as the royalty rate is lowered to reflect the hard times in Utah's coal industry, we feel that it will assist our coal producers, including UP&L, to become more competitive with imported petroleum and natural gas."

The mining company executive expressed gratitude to state officials for working closely with UP&L to settle the dispute.

"We also received a lot of support for our position from the five-member Utah congressional delegation," said Serfustini. "Utah Power has always felt that the royalty is an inefficient form of taxation because we have to pluck two dollars out of the state's economy to get one dollar back from the federal government."

Utah law dictates that most of the royalty money go into designated state programs.

It requires that 32.5 percent of the money go into the Community Impact Fund, which is distributed back to local communities affected by energy development.

According to the law, 33.5 percent goes to higher education; 2.25 percent goes to the State Board of Education for experimental programs; 2.25 percent to the Western Research Laboratory at Utah State University, and 2.25 percent to the Utah Geological and Mineral Survey.

The rest of the money will go into the state's general fund.