10 things to know about coal leasing on public land

Posted: Jan 17, 2013

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One of Oregon Sen. Ron Wyden’s first moves as chairman of the Senate Energy and Natural Resources Committee was to seek an investigation into the royalties taxpayers get back for coal mined on public land.

At issue: Are coal companies paying artificially low compensation to taxpayers for the coal they’re extracting from public lands and sending to markets overseas?

Wyden sat down for an interview on the topic and said it comes down to two things:

“The first is, are taxpayers getting the full actual value for what is being extracted.”

“Issue two is, what are the implications of having this coal from federal lands being exported to Asia.”

Expect to hear more debate on this issue, as coal companies seek the permits they need to build proposed export terminals in the Northwest.

To break down these complex issues, here are 10 things you should know about the federal coal leasing program in the Powder River Basin:

1. The federal government controls the supply of coal

The Powder River Basin, in Wyoming and Montana, is the nation’s largest coal-producing region; it supplies about 40 percent of the coal produced in the U.S.

Almost all the coal in the region belongs to the federal government and is managed by the U.S. Bureau of Land Management. The U.S. Geological Survey estimates that there are still 127 billion short tons of accessible coal in the basin.

In effect, this gives the BLM a near monopoly over Western coal supplies.

2. Federal rules limit competition

Seven companies currently operate mines in the Powder River Basin, including the country’s three largest coal producers:

Peabody Energy, Arch Coal, and Alpha Natural resources. Cloud Peak Energy is also a major player in the region.

The BLM offers a unit of coal for lease only if that coal will expand an existing coal mine and only after a company asks the BLM to make the coal available. That limits the possible bidders to companies already mining coal. And the BLM often limits the number of bidders to one.

Sometimes the coal up for lease is near two mines and attracts two bidders. Over the last five years, the BLM has finalized nine leases; auctions for six of them attracted only one bidder.

3. The BLM sets a minimum price

To secure a lease, companies offer bids of often hundreds of millions of dollars based on the amount of mineable coal they want. Even if only one company bids on the coal, that bidder has to meet or exceed a “fair market value” price set by the BLM. The BLM keeps that dollar figure secret. Winning bids become public information.

There is a 58-page manual that explains this process.

4. Companies that buy coal leases also pay rent and royalties

Coal companies pay royalties of 12.5 percent of revenues. The federal government gets 52 percent of the royalty payments; the rest goes to either the Wyoming or Montana state government.

Companies also pay a rental fee of at least $3 per acre.

5. Deductibles make a difference

Companies may shrink their royalty payments to taxpayers by deducting some expenses. Those deductions from their revenues are made before they calculate that 12.5-percent royalty. Companies may deduct the cost of washing the coal as they prepare it for market. They also may deduct the cost of transporting the coal to the buyer. That includes moving the product by truck, rail and ships.

These deductions can reduce royalties that must be paid to taxpayers by tens of thousands of dollars per trainload of coal.

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