New Report: Government Short-Changing Taxpayers When Selling Public Coal

A report issued this week by the budget watchdog group Taxpayers for Common Sense (TCS) describes how, even after more than three decades of scandal, the federal program that sells taxpayer coal on public land to private companies is still short-changing the public.

The federal coal leasing program is managed by the Department of Interior’s Bureau of Land Management (BLM).

TCS President Ryan Alexander said at the report’s release:

“It’s outrageous that taxpayers are giving away vast resources at a time when the country faces a protracted budgetary crisis. BLM has failed to create a system that fosters competition for a valuable public resource by allowing the coal industry to largely control the process of leasing and bidding for this land.”

A 2012 report by the Institute for Energy Economics and Financial Analysis estimated that since the 1980's the coal leasing program has short-changed taxpayers $28.9 billion. The Institute estimated that one lease sale alone that happened after their study came out cost taxpayers $1.2 billion.

Alexander and TCS called for a stop to any new coal lease sales until the BLM program has been thoroughly reevaluated and overhauled. TCS is recommending more congressional oversight of BLM's coal leasing program; new rules for coal valuation, especially as more of it is being exported; and a review of the current "lease by application" (LBA) system, which often yields only one bidder.

Their report states of the government leasing system:

"It improperly skews the valuation of lease tracts, garners significantly reduced bids, and shrouds crucial information in secrecy. Under this system, BLM allows coal companies to play a large role in delineating tracts for leasing, a process that has resulted in tracts that do not generate competitive bids."

The program was also criticized in a recent report by the Interior Department’s own Inspector General, which found that "even a 1-cent-per-ton undervaluation in the fair market valuation calculation could result in a $3 million revenue loss." You can read my blog on that report here. The Government Accountability Office is conducting an investigation into BLM’s coal leasing program at the request of Congressman Ed Markey (D-MA).

The flaws in BLM’s coal leasing program are best illustrated in the Powder River Basin in Wyoming in Montana, the nation’s largest coal producing region. BLM has never sold a ton of coal there for more than $1.30, even though the coal can fetch around $10 on the domestic market and has been sold for as much as $120 a ton on the international market.

Indeed, coal giants operating in the region such as Arch and Peabody base a good deal of their company’s planned growth on selling this PRB coal in Asian markets, even though BLM’s own guidance states the coal is to “meet the nation’s energy needs,” provide “a reliable continuous supply of stable and affordable energy for consumers throughout the country,” and help to “reduce our nation’s dependence on foreign supplies of energy.”

Peabody CEO Greg Boyce made his intentions clear in a 2011 letter, noting that by stockpiling cheap taxpayer-owned coal from the PRB, Peabody is “opening the door to a new era of U.S exports from the nation’s largest and most productive coal region to the world’s best market for coal.”

Coal prices have been going down domestically and internationally. But the BLM still has approximately 3.4 billion tons of coal in line to be leased from the Powder River Basin. The agency also just put out a long-term management plan for the region with 28 proposed leases, totalling approximately 10 billion additional tons of coal for sale. (if you'd like to send BLM a comment on that plan, you can do so here).

It’s high time that the Interior Department listens to some taxpayers with common sense.