Despite possible revenue loss, coal leasing reforms not likely to be forthcoming

Aug 30, 2013

A coal mine in the Powder River Basin
A coal mine in the Powder River Basin
Credit U.S. Geological Survey

Last week, we reported that the federal government might be selling Powder River Basin coal for less than it’s worth. As reform advocate Tom Sanzillo described the sales:

“There’s no competition, the appraisals by all accounts—including the Inspector General for [the Department of the Interior]—are flawed, and there’s been no audit in 30 years. So there’s no accountability for the program, no oversight.”

This week, we take a look at the money the state might be missing out on as a result, and what policymakers think should be done about it.

STEPHANIE JOYCE: Wyoming makes bundles of money off of federal coal—usually more than a billion dollars a year. About a fifth of that comes from the one-time sale of the right to mine the coal. In industry-speak, that’s called the coal lease bonus.

Bill Mai is a state economist. He says Wyoming spends most of that money on schools.

BILL MAI: There has been a lot of K-12 building going on the last 10 years, and the vast majority of that has been funded through those coal lease bonuses.

JOYCE: But some experts and advocacy groups say those projects aren’t getting as much money as they could because the bidding isn’t competitive. Most lease sales are initiated by the coal companies, who ask the government for certain tracts of coal—typically ones that are adjacent to their existing properties. That means that even though anyone can bid, normally it’s just that company.

Dan Neal, with the Equality State Policy Center says that’s troubling.

DAN NEAL: Which schools won't we be able to build because we sold the coal and didn't get enough money for it?

JOYCE: Neal says beyond the lack of competition, the biggest issue he sees with the leasing program is that the federal government doesn’t take into account export sales when determining the fair market value.

NEAL: Coal in that world market is worth much more than we see Powder River Basin coal sold for domestically And the people of Wyoming definitely should share in that extra value of the coal.

JOYCE: Right now, exports make up less than 1 percent of coal sales from the Powder River Basin, but both industry and the state expect them to increase in the future.

In light of that, and the fact the coal can only be sold once, Neal says he wants Wyoming’s Congressional delegation, and state lawmakers, to pressure the federal government for reforms to the system.

But he may not find a very receptive audience.

Senator Eli Bebout chairs the appropriations committee. He doesn’t put much stock in the critics’ arguments.

ELI BEBOUT: I think that the process has worked for the last decade… two decades… and we’ve seen a lot of responsible development of our coal in the Powder River Basin. And so I think it’s been working reasonably well -- and then now to start changing it, particularly given the nature of the attack on coal, I would question why we would do any of that.

JOYCE: Beyond the issue of timing, Bebout dismisses the argument that the federal government is undervaluing mining rights.

BEBOUT: Anybody can have their opinions and come up with an analysis as to what it is or what it isn’t. Fair market value is pretty easy to determine. It’s what a willing seller and a willing buyer on the day that the sale occurs are willing to a) offer and b) accept.

JOYCE: The executive branch also thinks the program is working. Shawn Reese advises the governor, and he says competition will increase on its own, without the government having to change the process.

SHAWN REESE: As the mines grow into one another, you’ll see more often, I believe, multiple companies bidding, so that price may be even higher than what the BLM has set as the fair market value.

JOYCE: In other words, as coal mines continue to expand, there will be real competition, and prices will go up.

Reese says if the state were to see a problem with the pricing, it could weigh in at various stages in the sale. But for now, it has no plans to do that. And changes to the program probably won’t happen without strong support from lawmakers in the nation’s top coal-producing state.