Is the federal government undervaluing coal leases?

Aug 27, 2013

Credit Flickr user oatsy40 (CC-BY-2)

The Department of Interior has recently published a report citing some flaws in how the federal government manages coal leases. The June report from the Office of Inspector says the government is at risk of not getting the full value for the coal it sells.

A nonprofit environmental group, The Northern Plains Resource Council, believes this is especially true for coal in Montana and Wyoming’s Powder River Basin. The group thinks the federal government should be getting a lot more money for that coal.

“We’ve lost, we the state and federal government have lost billions of dollars, I think, in the process,” said Mark Squillace, University of Colorado Law Professor. Northern Plains brought him to the Capitol building recently to talk to state officials and other interested parties about the subject. Squillace has been looking into this for years.

He said the coal is being undervalued in multiple ways. First, it’s in the competition for coal leases. Companies will apply for small lease tracts right next to a larger plot they are already leasing, Squillace said, and design it small enough so a third party will not be interested enough to bid and develop a stand alone mine. He said they then do this multiple times, giving the companies a lot of freedom in setting their own, very low, prices.

Squillace and others the Northern Plains Resource Council brought in said the government has other safeguards to ensure fair market value—like regular appraisals before the coal is sold and audits after. But, they assert the appraisal process is weak and audits are very rarely done.

Cloud Peak Energy is one of the coal companies operating in the Powder River Basin. Senior Vice President for Marketing and Government affairs Jim Orchard said the BLM is under no obligation to take the bids the company offers. He doesn’t believe the company is getting an unfairly low price for Powder River Basin Coal. He said if you look at the recent report from the Office of Inspector General, it says the potential for undervaluing is there, the report is pretty positive overall.

“I’m a little bit intrigued that people are saying just a short number of months after that report has been released that the BLM’s not doing a good job,” Orchard said. He also mentioned Cloud Peak just decided not to bid on a Powder River basin coal tract in Wyoming.

“If the coal was undervalued as a sort of generic statement,” he said, “you would expect obviously coal companies would be lapping up as much as you could.”

The domestic market for coal has been declining in recent years as more cheap natural gas is being drilled. Cloud Peak says market conditions and the uncertainty of the current regulatory environment caused the company not to bid.

BLM Public Affairs Specialist Kristen Lenhardt says the Bureau is following laws laid out in at 58-page manual to determine fair market value for coal. But she said the federal office in Washington D.C. is continuing to look into the report put out by the Office of Inspector General.

“And we are continuing to seek ways to evaluate the process while sticking to our existing regulations, laws and policies,” she said.

Whether that means BLM will charge more coal remains to be seen.