Pair of experts say feds are leasing Powder River Basin coal at bargain-basement prices

2013-08-21T18:00:00Z 2013-08-21T23:59:07Z Pair of experts say feds are leasing Powder River Basin coal at bargain-basement pricesBy MIKE DENNISON State Bureau The Billings Gazette
August 21, 2013 6:00 pm  • 

HELENA — The federal government has been underpricing its coal in southeastern Montana’s Powder River Basin for decades, and it’s time to stop the giveaway to the coal industry, a pair of experts said Wednesday.

“The government was supposed to drive the (coal) leasing program that would maximize return (for the public),” said Mark Squillace, director of the Natural Resources Law Center at the University of Colorado. “Instead, the process is driven by the coal industry.

“They decide how much coal they want, they file an application (for lease), the government reacts to it. … And the government always approves it.”

As coal sales in America decline and the U.S. coal industry looks to export markets, the disparity between what it pays for Powder River coal and fair market value will only increase, said Squillace and Tom Sanzillo, a New York-based financial and energy consultant.

The government also allows coal companies to base royalties on the sale price to an affiliated company, which then sells the coal overseas for a much higher price, Squillace said.

He said he’s not blaming the coal industry for taking advantage of a poorly managed mineral lease program. The fault lies with the U.S. Bureau of Land Management, the primary coal-leasing agency in Montana and Wyoming, he said.

A BLM spokeswoman in Billings said the agency is “committed to obtaining fair market value for federal coal resources” in the Powder River Basin in Montana and Wyoming.

The agency follows existing laws and regulations, including a 58-page manual that lays out how the BLM determines fair market value for each coal tract, she said.

Squillace and Sanzillo made a presentation Wednesday at the state Capitol in Helena. It was sponsored by the Northern Plains Resource Council, a Billings-based landowner and environmental group that often opposes and scrutinizes coal development.

State Revenue Director Mike Kadas attended the briefing, as did officials from the governor’s budget office, the state auditor’s office, the attorney general’s office and the Legislative Fiscal Division.

Mines in Montana — most of which are in the Powder River Basin — produced about 37 million tons of coal last year. In Wyoming, production is about 10 times higher.

Some of the coal mined in Montana is burned at power plants here; much of it is shipped to power plants in the Midwest or elsewhere.

Montana environmental officials are reviewing a proposed new coal mine at Otter Creek, east of Billings, and a few other mines recently have applied to expand existing operations.

Squillace said coal is in decline in this country, because competing fuel sources like natural gas are becoming relatively cheaper.

The decline, however, doesn’t have to mean lower revenue for states that rely on coal revenues, he and Sanzillo said.

Coal mining will remain a strong economic player in the Powder River Basin, they said. And more coal will probably be exported to Asia, where it fetches a higher price, they said.

But, they said, the federal government should ensure it is getting a fair price and royalties for its coal — a big portion of which goes to states.

“I don’t think there’s much doubt we’ve been subsidizing the sale of coal in this country,” Squillace said. “Are we really prepared to continue to subsidize the sale of coal, when it’s going over to Asia?”

For starters, the feds should close the loophole that allows coal companies to pay lower royalties by selling to a subsidiary and then reselling the coal for a higher price, they said.

Next, the BLM should set a “floor price” for initial bids and use international and national markets when valuing coal in the Powder River Basin, Squillace added.

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