Witnesses arrived in Billings by the busload Tuesday to sound off on the Department of Interior’s management of coal mined on public lands.

Those who weren’t turned away from the crowded meeting room because of fire code limits blasted the federal government — on both sides of the argument — for nearly five hours.

“It’s time that you crack down on coal companies that have been getting sweetheart deals for too long,” said Renette Kaline, of the Northern Cheyenne Indian Tribe. “You must take a look at what you’re doing and the ripple effect it has on our lives, our land.”

The meetings was one of five arranged by Interior Secretary Sally Jewell, who last week said the Department of Interior was obligated to review its management of the federal government’s coal leasing program following two studies questioning whether the public was getting a fair price for its coal, namely through leasing terms and royalties. Jewell also said coal management needed to be balanced with the federal government’s climate change policy.

Most witnesses who testified spoke about royalties, which have been set at 12.5 percent since the 1920s. Lately, federal officials and coal critics have been questioning whether coal companies are paying the full royalty amount, particularly concerning coal exports.

The coal critics contend that the public is losing $1 billion a year in under-collected royalties and loopholes. And that Montana is losing $11.8 million annually.

Royalties are typically determined by federal coal’s sales price at the mine gate. When buyers are domestic, that’s usually the final sale, and the 12.5 percent royalty is then determined. But foreign buyers, who increasingly account for a higher percentage of coal sales, don’t buy at the mine gate.

Foreign buyers pay for coal at shipping ports, after the coal has been delivered by a coal company’s corporate sibling. The relationship between the mining company and its sibling is too close to be considered “arms length,” and the lack of separation can result in a sales price set artificially low, according to critics and the government. The argument is that royalties are collected on the low mine gate sales price, and then the coal company’s sibling sells the coal for a much higher price at port to the foreign buyer.

Critics of the royalty scheme say Interior agencies like the Bureau of Land Management essentially subsidize the coal industry through favorable leases and under-collected royalties.

"I want us to reform coal policy,” said Lori Byron, a physician from Hardin. “It's not BLM's job to keep the coal companies solvent.”

The meeting went on for an hour before coal supporters began making their way to the microphone. As the meeting ended, 76 people had testified, with 49 calling for tougher rules on leasing and royalties.

Several miners from Cloud Peak Energy’s Spring Creek mine in Decker made the trip and attended a pork barbecue for 100 people across the street from the Bureau of Land Management office before the meeting. From an outdoor stage, a handful of coal proponents jeered coal critics gathered across the street.

"Where are your bikes?" shouted conservative talk radio host Aaron Flint, making that point that nearly everyone attending the meeting used fossil fuels to get there.

In the BLM conference room packed with 210 people, the miners sat wearing hardhats and khaki work clothes. When coal proponents finally made it to the microphone, supporters applauded loudly.

"I’m scared,” said Ryan White, a Spring Creek coal miner. “I’m fearful of my future. I go to work every day wondering when the federal government is going to financially force my company out of business. I see pressure coming from the president, from the EPA, from the Office of Natural Resource Revenue and now the BLM to essentially shut down coal mining. I see my government trying to destroy my job and future.”

White and others said coal companies, already struggling because of competition from natural gas and clean air policies, would be further damaged by higher royalties. They wore stickers depicting a power cord curled into an ampersand with the words “stop new energy taxes.”

Tyler Hamman, of North Dakota’s Lignite Energy Council, said the current costs associated with federal leasing and royalties have made federal coal the least attractive to mine. In the future cases, mining companies in North Dakota may mine around federal land rather than mine through it

“In general, it costs more than 10 times the amount per acre to permit federal coal compared to the rest of the mine area,” Hamman said. “The taxpayer will receive zero return if coal companies determine it’s in their best interest to limit the development of federal coal and pursue other resources.”

Before the meeting, Jim Orchard, Cloud Peak’s senior vice president of marketing and government affairs, told The Gazette that the claims about underpaid royalties were unfounded. At the Spring Creek mine, 92 percent of the sales are to domestic buyers, mostly coal-fired power plants in the Midwest. The companies pay for coal at the mine gate, where the royalties are set based on an arms-length sale, he said. The remaining 8 percent are sales to foreign buyers and small coal domestic coal customers who, for lack of volume, would prefer Cloud Peak Energy’s corporate sibling, Cloud Peak Energy Logistics, deliver the coal. 

“There’s been this sort of campaign, I guess. I’m not sure if it’s based on ignorance or something Machiavellian, but there is this sort of a series of articles that have come out suggesting there’s use of affiliates or brokered coal so the cost of the utilities is something different than what we pay royalties on,” Orchard said. “Quite frankly, that’s not the case.”

Sibling companies like Cloud Peak Energy Logistics provide a delivery service to port, for which they have a right to profit, Orchard said, but if the bill for that service was backed out of the bill, the mine gate price of the coal would remain, he said.

At Spring Creek Mine, non arm’s-length sales might account for 8 percent of transactions, but in the industry, those sales are increasing. The U.S. Energy Administration reports that non arms-length sales have increased nationally from 8 percent in 2002 to 22.6 percent in 2012. In those cases, coal companies are supposed to use a comparable arm’s length sale to set royalties owed to the public. But that isn’t happening, because companies don’t like to share competitive sales data, said Ryan Alexander of Taxpayers for Common Sense.

“Coal is an important natural resource, especially here in Montana,” Alexander said. “According to the Office of Natural Resources Revenue, 113.5 million tons of coal were mined from federal lands in Montana in the last five years, worth an estimated $1.9 billion.”

Alexander said for the last 20 years coal leases where only one coal company submitted a bid account for 80 percent of coal leased in the Powder River Basin. Uncompetative bidding resulted in coal being undervalued and cost the public billions of dollars in lost revenue. Leases need to be competitive, Alexander said. Sales need to be transparent to assure the company is paying its full royalty.

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Agriculture and Politics Reporter

Politics and agriculture reporter for The Billings Gazette.