Reckoning Comes to Western Coal Country
Northern Cheyenne and local ranchers protesting mining in the Powder River Basin. The totem pole, the work of master carver Jewell James, will travel from the PRB to Cherry Point, Washington, where the Lummi Nation is protesting a coal port proposal. (Paul K. Anderson)
To consider what coal has taken from the PRB is really to ask what the government has given away. Coal sales in the basin operate on a “lease by application” basis, which means producers nominate tracts of land they want to mine. The BLM auctions off the nominated parcel, but in most cases, only the company that applied for the lease shows up to bid. The BLM is charged with managing natural resources for the public good, but in effect coal companies set the land-use agenda. And although the BLM is legally obligated to reject bids lower than “fair market value,” recent investigations indicate that the agency has failed to calculate that value accurately for decades.
In June 2012, the Institute for Energy Economics and Financial Analysis, an Ohio-based nonprofit, released a major report on the BLM’s appraisal process. Written by finance director Tom Sanzillo, the report concluded that its flaws had cost taxpayers nearly $30 billion since 1982, when a scandal over the sale of 1.6 billion tons of PRB coal at below-market rates forced the DoI to reform the leasing program. (That sale cost the government $100 million in lost revenue.) Until Sanzillo’s report, neither Congress nor any independent authority had bothered to check in to see if anything had changed since the ‘82 scandal. Instead, Salazar green-lighted major expansions of PRB coal production in 2011. “When you have a program that is controlling 40 percent of the nation’s electricity and nobody looks for thirty years, what do you think is happening?” Sanzillo told me. Environmental groups had been suing to stop new leases and, though they got little traction in court, a few people in Washington noticed.
Senator Ed Markey, who requested the audit that uncovered the losses from the 1982 sale, asked the Government Accountability Office again in 2012 to probe the leasing program. The report is expected any day. The DoI’s inspector general did its own investigation, and in June reported that undervaluation and lack of oversight on lease expansions have cost taxpayers tens of millions. According to the investigation, an undervaluation of as little as a penny a ton amounts to $3 million in lost revenue per lease. Astoundingly, Beverly Gorny, a spokeswoman for the BLM in Wyoming, told me that the DoI has not told the bureau to reform the leasing process since the inspector general’s report, so the BLM is continuing with current policy.
The DoI is also looking into another giveaway to PRB producers, who are selling more coal internationally as domestic demand drops. The government collects a 12.5 percent cut on the sale of federal coal; about half of that money makes its way back to Wyoming to fund schools and other services. Coal sold in the United States fetches far less than it does internationally, so the government should collect more on a ton of PRB coal sold in China than a ton sold to a power plant in Iowa. But a recent Reuters investigation found that the government lost $40 million in additional revenue in 2011 alone because coal sold overseas was valued at domestic rather than international prices. The article suggested that coal companies have avoided paying higher royalties on international sales by selling first to domestic subsidiaries. Authorities in Montana recently sued Cloud Peak Energy for $3.4 million in taxes they say the company evaded this way.
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It’s too simple to chalk up all this lost revenue to mismanagement at the BLM and DoI. During the 1960s and ’70s, a dominant concern of policy-makers was the creation of a cheap domestic power supply. To that end, the DoI launched the North Central Power Study in 1971, which recommended turning Montana and Wyoming into a vast industrialized range of interconnected strip mines, power plants and extra-high-voltage transmission lines—a sacrifice zone for the country’s energy needs. The study noted that “semiarid conditions throughout the coal regions make reclamation most difficult,” but concluded that “most of the region’s mining is remote to population centers where land values are quite low.” Seen through this historical lens, the leasing program looks less like a mistake than an intentional subsidy. Because the government controls most Western coal, leasing it cheaply would set a market standard that would result in low prices for the rest of us.
Now, though, policy-makers have lost their enthusiasm for coal, thanks to climate change and the natural gas boom, and cheap coal is hardly a win for consumers. Below-market leases and the absence of a competitive bidding process make it more difficult for renewables to compete. Since the EPA’s carbon limits for power plants are expected to discourage domestic coal use still further, the point of the leasing program has become increasingly unclear. “The whole reason the coal is being offered for lease is that a company requested it,” explained Gorny. I told her that this sounded an awful lot like catering to the industry. “But that’s the whole purpose of the lease-by-application process!” she responded.
“There’s a disconnect between what the DoI is doing in the Powder River Basin, and what the EPA is doing, and what the president himself is saying,” says Jeremy Nichols of Wild Earth Guardians, one of several groups litigating to keep PRB coal in the ground. “Climate change is a new issue for the BLM. It’s been very hard for that agency to accept that culturally, because it’s a slippery slope. If they say no to coal leases on federal lands, what’s next? Oil drilling?”
The leasing program costs taxpayers more than lost revenue. “Now we sit with depleted coal reserves, terribly financed companies, a defective program and few alternatives. We’re behind the rest of the world in sun and wind, and are now reliant on natural gas,” says Sanzillo. “The coal industry used its monopoly given by US policy to build an unsustainable global platform that is rapidly falling apart.”
What’s happening now between the government and Big Coal is less a war than the slow unraveling of a cozy business partnership. Before things fall apart completely, though, producers would like to put one final squeeze on the PRB.
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