Government undercutting Montana coal

THE US Bureau of Land Management is underpricing federal coal in the Powder River Basin region of southeastern Montana, according to two natural resources experts, in a decades-long trend they said had to stop.
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A train carrying Peabody Energy's North Antelope Rochelle Mine product in the Powder River Basin.

Donna Schmidt

University of Colorado Natural Resource Law Center director Mark Squillace and Institute for Energy Economics and Financial Analysis finance director Tom Sanzillo said the state was getting shortchanged because the BLM was undervaluing the coal put up for lease.

Over time, they said, both the states and the federal government were losing out on millions in revenue.

“The government was supposed to drive the leasing program that would maximize return [for the public],” Squillace said at a federal coal leasing forum in Cheyenne, Wyoming this week.

“Instead, the process is driven by the coal industry. They decide how much coal they want, they file an application [for lease, known as a LBA], the government reacts to it ... and the government always approves it.”

The two call for swift changes to the process, pointing to a lack of competition bids in the BLM’s sealed auctions and a flawed system the agency uses to appraise the blocks.

Additionally, they said, the bureau did not take exported coal into account when setting tonnage values.

Squillace and Sanzillo were presenters at the Powder River Basin Resource Council and the Western Organization of Resource Council’s conference earlier this week, urging a moratorium on coal sales until an investigation can be completed by Congress, the Department of Interior and the Government Accountability Office.

While the government does permit coal companies to base royalties on the sales prices to affiliate companies, which in turn make money on exports, Squillace said he was not blaming the coal industry for the poorly managed program. He rests the blame squarely on the BLM.

At the same time, Sanzillo noted coal companies in the region had profit margins high enough to allow them to pay higher prices for federal coal.

“The state should say, ‘You're cheating us. Stop it, or there's going to be hell to pay’,” he said.

A BLM spokewoman told the Associated Press that the office was “committed to obtaining fair market value for federal coal resources” in the PRB, including Montana and Wyoming.

In fact, she said, the agency had a 58-page manual it followed that dictated laws and regulations and outlined how the BLM should determine fair market value for each coal tract.

Squillace went on to tell the Wyoming crowd the federal government should make sure the price and royalties it was getting for the BLM-run blocks was fair, as much of that return goes to the states where the tonnage was located – a golden economic opportunity for those state governments.

“I don’t think there’s much doubt we’ve been subsidizing the sale of coal in this country,” he said, noting that the BLM needed to set a “floor price” for initial bids and institute international and domestic data in their calculations of value.

“Are we really prepared to continue to subsidize the sale of coal, when it’s going over to Asia?”

Following the meeting, Wyoming Mining Association president Marion Loomis told the Casper Star-Tribune the speakers made no sense to him.

“The industry is struggling and their answer is to increase the cost to the industry that's struggling,” Loomis said.

According to the speakers’ data, there are about 5 billion tons of federal coal in some phase of leasing or sale in the Powder River Basin region.

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