Washington Post on Government Giveaway of US Coal: Taxpayer's short-changed, Big Coal Pockets the Dollars

Some things in Washington are non-partisan. Like federal programs that rip off taxpayers. A new and deeply troubling one was brought to light by a story in today’s Washington Post.

The excellent, in-depth piece by Juliet Eilperen documents how the Department of Interior’s Bureau of Land Management (BLM) has short-changed taxpayers to the tune of nearly $30 billion over three decades by selling coal on taxpayer-owned land to big coal companies at well below fair market value.

The Post had an exclusive on an analysis  issued today by The Institute for Energy Economics and Financial Analysis (IEEFA) that details the scandalous program: “The Great Giveaway: An analysis of The United States’ Long-Term Trend of Selling Federally Owned Coal for Less Than Fair Market Value.” You can find the press release here, along with a set of recommendations.

There is so much wrong with this program that I need to summarize it here, and you can read more below:

  • Non-competitive sales of taxpayer-owned coal by the BLM short-changed taxpayers by nearly $30 billion over 30 years.
  • A scandal erupted three decades ago over the same practice, prompting three government investigations and extensive reforms. The reforms were clearly not followed.
  • The coal comes from the Powder River Basin (PRB) in Wyoming and Montana, which is the largest coal producing region in the country (44% of US coal). But BLM recently denied two appeals to certify the PRB as an official ‘coal producing region’ which would have resulted in more competition, and the government proposing land for sale, not Big Coal.
  • BLM says the coal is for domestic electricity production, but big coal companies have publicly stated they will ship it overseas, having bought this taxpayer-owned asset for just over $1 a ton, and selling for between $80 and $122.
  • BLM’s leasing program is supposed to be transparent, but the agency has denied Freedom of Information Act requests for information reforms in the wake of the scandal stated should be public, (August 12, 2011).

Three decades means Democratic and Republican Presidents and Congresses did nothing about this shameless giveaway to Big Coal. That’s especially disturbing because, as the report and story outline, a scandal erupted 30 years ago over the same practices. Back then, it was revealed that the Bureau of Land Management came up with a ‘fair market value’ price for a ton of coal, then sold that coal to industry for half the ‘fair market value.’

Three separate government investigations subsequently led to clear, transparent reforms. The IEEFA report details how none of these transparency and reform measures have been followed, and the sweet-heart deals for Big Coal continue.

To whit: the BLM is planning a massive new lease sale of over 700 million tons of coal this Thursday. There is only one bidder—Peabody Energy,  one of the world’s largest coal companies. That sale needs to be canceled, and a thorough investigation of BLM’s coal leasing program needs to be completed before anymore coal can be leased. You can find a letter that NRDC and other groups sent to Interior Secretary Ken Salazar asking for that sale to be called off here. The IEEFA report calls for a moratorium of all federal coal leasing until thorough investigations are finished. See more on that below.

In just the last year, BLM has already sold off six leases totaling 1.33 billion tons of coal. Currently, coal companies are able to secure taxpayer-owned coal from federal lands for artificially low prices, such as the $1.11 per ton Peabody paid in a recent lease sale for the South Porcupine tract, and fetch premium prices in overseas markets, often between $80-122 per ton.

The focus of the report, and the genesis for the nearly $30 billion figure, is the Powder River Basin, which is located in parts of Montana, but mostly in Wyoming. Revenue from the sale of this taxpayer-owned coal (it’s on federal land) is supposed to be split 50/50 with the states. No doubt Wyoming and Montana could have used the additional cash. You can get a sense of what Wyoming might have been able to do an approximate annually averaged $400 million a year here and here.

Since 1991, only four out of 26 major Powder River Basin coal sales have had more than one bidder, according to the study, and the small handful that were “competitive” only had two bidders each. 

Some action is being taken. Thanks to prodding from NRDC and IEEFA, and work with the Government Accountability Office (GAO), GAO is now investigating the BLM’s fair market value leasing program. The investigation came at the request of House Natural Resource Committee ranking member Ed Markey.

As The Post story notes:

Rep. Edward J. Markey (D-Mass.), whose April 24 letter has prompted the first GAO review of the program in three decades, said he is concerned that the bidding system has depressed leasing rights in the Powder River Basin, the way it did in the early 1980s. In 1983, the GAO concluded that the BLM auctioned off lease rights there for $100 million below their fair market value.

“There’s a long history of under-market coal sales from the Powder River Basin,” Markey said in an interview. “Mark Twain used to say, ‘History doesn’t repeat itself, but it does tend to rhyme.’ We need to ensure that the taxpayers are not being shortchanged the way they were back in the 1980s."

BLM has stated their belief is that the audit is unnecessary.

Eilpren’s research for the story seems to ruffled some feathers. She states in the piece that the Department of Interior’s Office of the Inspector General has now begun an investigation BLM’ (it’s own agency) coal leasing practices.

Another non-partisan farce is that the Powder River Basin--though it is largest source of US coal, currently produces 44 percent of the nation’s total—is not certified as an official coal producing region. In fact, under the Obama Administration, two petitions to certify have been denied by BLM for vague and thin reasons. That’s just patently ridiculous, and puts in bold relief the unethical chumminess between the BLM and the coal industry.

Official certification would mean that the federal government—not the coal companies—determines which parcels of land should be leased for mining. Right now, coal companies propose the parcels, and those parcels are almost exclusively appealing to an individual company as the land is adjacent only to that company’s existing mine. Certification would also require regional land use planning and thorough environmental review. All of this would unquestionably result in higher prices and more revenue for taxpayers.

Here’s how the current system works: In a tightly controlled and mostly secret process, the BLM leases coal tracts to private coal producers.  After the BLM and the coal industry select parcels to mine, the agency establishes a fair market price (floor price) for the coal tract that is held strictly confidential. The parcels are offered at a ‘competitive auction’, and the highest bidder that exceeds the confidential floor price is then awarded the mining lease. Most coal tracts sell for hundreds of millions of dollars and typically generate at least 20 years of revenue for federal and state governments, which split the revenue 50/50. If the BLM fails sets the price too low both federal and state governments lose billions of dollars in revenue.

The Department of Interior, through its agency the Bureau of Land Management, is responsible for the sale of PRB coal. Given that the United States owns almost all the coal in the region, the U.S. government holds an effective monopoly of western coal. As a result, the DOI is extremely influential, shaping U.S. annual coal production levels and the market price of coal.

The BLM says the coal will be used domestically. Our above-mentioned letter to Secretary Salazar asking for postponement of Thursday’s one-bidder auction of 700 million tons of coal, notes of a recent sale:

In the Record of Decision for this lease, the BLM High Plains Manager stated:…it is in the public interest to offer the North Porcupine LBA tract… for competitive sale so that these reserves are available to compete for sale in the open coal market to meet the national coal demand that is expected to exist until at least 2035. The public interest is served by leasing the North Porcupine LBA tract because doing so provides a reliable, continuous supply of stable and affordable energy for consumers throughout the country.

But company’s like Peabody, have told investors their plans are different. In an interview with the UK Guardian, Peabody’s Senior Vice President for Government Relations Fred Palmer said:

We've just announced a west-coast port project called Cherry Point in northern Washington which would come out of our Wyoming mines and could reach up to 50m tonnes a year, but initially 24m tonnes a year. It'll require permits from the state and federal government, but exporting is as American as apple pie, as they say.

I guess, so is taking the taxpayers for a ride.