CASPER STAR TRIBUNE 8/20/13 Coal Leasing Shortchanges States

Aug 20, 2013

EcoFlight partnered with Western Organization of Resource Councils (WORC) to conduct a tour of federal coal leasing in the Powder River Basin. The purpose was to showcase the extensive research and knowledge of two experts on the issue - Tom Sanzillo and Mark Squillace. The tour included stops at the Wyoming and Montana capitals for presentations to state officials at the governor’s budget office, the state auditor’s offices, the attorney general’s office and the Legislative Fiscal Division. The article below is a result of the tour:

coal lease

Wyoming panelists: Federal coal lease program shortchanges states

Original article here.

CHEYENNE -- Panelists at a federal coal leasing forum on Tuesday said Wyoming and Montana are getting shorted financially by the program and called for swift changes.

Mark Squillace is a professor of law and director of the University of Colorado Natural Resources Law Center and Tom Sanzillo is director of finance for the Institute for Energy Economics and Financial Analysis. The two said the federal Bureau of Land Management is undervaluing the coal put up for lease, which is costing the states and federal government million of dollars in revenue.

Squillace and Sanzillo said the causes include a lack of competition in bids, a flawed BLM appraisal system and the exclusion of exported coal in setting the value of the federal coal lease sales.

The Powder River Basin Resource Council and the Western Organization of Resource Councils hosted the forum in Cheyenne. The two landowner advocacy groups and the panelists called for a moratorium on new coal sales pending the completion of investigations by the Department of Interior, the Government Accountability Office and Congress.

Squillace said he wrote a guest column for the Casper Star-Tribune in 1998 outlining what he saw as the problem with federal coal leasing.

"Somewhat disappointingly, nothing really has changed since that time," he said Tuesday during the forum.

Coal, he said, has lost its competitive edge to natural gas and wind, but less so in the Powder River Basin. Squillace said the Environmental Protection Agency's proposed regional hazing, or air quality, rules will depress the market even further.

Despite those dour conditions, Squillace said, the states should push for reforms to ensure they're receiving fair market value for their coal.

One step, he said, would be to recertify the Powder River Basin as a coal production region. Such a federal designation would put the BLM in charge of parceling out lease tracts of coal for extraction.

Currently, without such a federal designation, coal companies can define areas they want to lease and ask the BLM to open them to bid. As coal companies jostle together in the basin, such parceling allows companies to essentially cut out competition with the stroke of a pen.

Another step would be to set a minimum on bids, the panelists said. If a $1 per ton minimum, for example, had been set in 1991 on Powder River Basin coal sales, the coal bonus revenue would have totaled $2.6 billion more in revenue for the state and federal governments.

The low coal prices represent a huge subsidy for the coal industry, Squillace and Sanzillo said, but the problem has been masked because significant revenues are still coming in from federal coal leases.

Meanwhile, Squillace said the BLM's use of comparable sales in appraising federal coal lease lands is flawed. For example, the agency only uses comparable coal sales within the Powder River Basin to value the basin's coal, although that coal is shipped nationwide.

Another problem, he said, is when a company sells coal to an intermediary at a low Powder River Basin price and pays royalties on that price, then sells the coal to China at a much higher price.

The Congressional investigation may stop that practice, Squillace said.

Sanzillo said the coal companies have profit margins high enough to enable them to pay higher prices for the federal coal leases.

The state should say, "You're cheating us. Stop it or there's going to be hell to pay," Sanzillo said.

Among the couple dozen people who attended the forum was Marion Loomis, president of the Wyoming Mining Association.

After the meeting, Loomis said that what the speakers said made no sense to him.

"The industry is struggling and their answer is to increase the cost to the industry that's struggling," Loomis said.

The forum was held in advance of a BLM lease sale scheduled for Wednesday for the Maysdorf II North lease, which will likely expand the Cloud Peak Energy's Cordero Rojo mine south of Gillette.

Contact capital bureau reporter Joan Barron at 307-632-1244 or