Time out for coal

The coal beds of the Powder River Basin are shaped like giant bowls. For decades, this section of Wyoming and Montana has yielded a vast wealth of U.S. coal, feeding the boilers of power plants across North America, and now as far away as China. Western lands rich in coal are a great national resource for the energy they provide us and for the value they could bring to the landowners, U.S. taxpayers. For too long, however, these resources have been undervalued and mismanaged at a loss of tens of billions of dollars. This giveaway of taxpayer resources is utterly unacceptable. The Department of Interior must make it a priority to appropriately price coal leases on federally owned land, and suspend all pending and future lease sales until those reforms are in place.

Despite increasing demands for cleaner, low carbon energy sources, the market for coal is thriving. Thanks in part to the legacy of power plants built a generation ago, industry along with the federal government keep struggling to invent new ways to make use of coal, providing federal subsidies for risky processes like carbon capture and sequestration. Even if the U.S. has lost its once-great appetite for burning coal, Asian economies will buy our coal to power their growing economies. We exported more than 125 million tons of U.S. coal during 2012, more than double 2007 levels.

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In the last few months, the Government Accountability Office (GAO), the Senate Committee on Energy and Natural Resources, and the Inspector General of the Department of Interior (IG) have released findings largely confirming what others, including Taxpayers for Common Sense, have been saying for a while. The Bureau of Land Management (BLM), an Interior Department agency, has failed in its task to appropriately value the coal contained in the publicly owned land it is charged with administering. Instead of Uncle Sam making the decisions, coal companies largely dictate the size and scope of the tracts offered for lease, and they routinely submit below-market bids of pennies on the ton for public coal. And BLM accepts them. What is most alarming is the repetitive nature of the problems that continue to be the focus of government studies and audits. The recent GAO report is remarkably similar to one released thirty years ago.

Allowing the market to determine the value of a publicly held resource should not be controversial. In fact, Congress has repeatedly and expressly directed federal agencies to encourage competition and ensure a fair return to the government for the development of public assets, such as coal. In practice, as the IG and GAO reports show, this is not happening.

BLM offices “generally did not factor in export prices in the[Fair Market Value] FMV determination.” BLM state offices have accepted bids below the established FMV, in violation of the Mineral Leasing Act. In some states, coal companies are conferring with federal employees to justify low bids, which the IG report describes as “prohibited by law and regulation.” There is virtually no competition between coal companies for the leases BLM offers at auction, because the companies themselves are largely allowed to draw the tracts that suit them - and only them - the best. In the Wyoming BLM office, only one person was responsible for calculating the FMV of leases from 1991 to2012, worth a total of $4.9 billion. In some lease modifications, state offices did not bother to appraise the value of potential leases, which is required by law, and simply used the regulatory minimum bid of $100 per acre, which the IG described as “inadequate.” Finally, coal companies are also likely selling coal through subsidiaries to foreign markets at higher prices to avoid paying royalties.

The process of leasing federal land for extraction of its precious coal - from beginning to end – is a mess. This Congress especially has expressed deep concerns about the government’s fiscal situation, and ensuring fair returns for federally owned assets is an obvious place to turn to help remedy this problem. Taxpayers and the government are losing billions of dollars thanks to the mismanagement of federal coal. Congress needs to stop the bleeding. Until the government has a system for valuing public coal at worldwide market prices and ensuring legitimate competition for those resources, BLM should stop all pending and future leases. Enough is enough.

Alexander is president of Taxpayers for Common Sense.