Last week, the Institute for Energy Economics and Financial Analysis, an energy think tank that seeks to reduce the use of coal, published a report accusing the U.S. Bureau of Land Management of leasing its coal in the Powder River Basin for such low prices that taxpayers missed out on about $29 billion in revenue over the last 30 years.
The substance of the accusation irked Ellen Pfister, a rancher in the Bull Mountain area northeast of Billings whose land lies near leased BLM land and atop a tunneling longwall coal mine. "If you're going to be mined and have your land damaged, you at least want it to be worth something to the public who owns the coal," Pfister says. "It's bad when they do it for pennies, and you're still damaged."
The Powder River Basin is a coal deposit the size of West Virginia that spans southeastern Montana and northeastern Wyoming and supplies the U.S. with more than 40 percent of the coal it burns in a year. The IEEFA report, called The Great Giveaway: The costly failure of federal coal leasing in the Powder River Basin and written by analyst Tom Sanzillo, says the BLM has been selling Powder River Basin coal for a fraction of its market value, and that the "competitive" bid process rarely is; since 1991, only four of 26 major Powder River Basin coal leases have had more than one bidder, Sanzillo found.
The report came just days before the BLM leased the North Porcupine coal tract in Wyoming, on June 28. Peabody Energy, the largest coal company in the world, bid more than $793 million for the 6,364-acre tract, which contains some 720 million tons of mineable coal. It will effectively expand Peabody's North Antelope Rachelle Mine, the most productive coal mine in the country, which shipped more than 100 million tons in 2010.
Sanzillo says Peabody's $1.10 per ton bid is well below the $2.79 he says those tons are worth—a difference of $1.2 billion. It makes the North Porcupine "a perfect illustration of everything that is wrong with the way the federal government is giving away taxpayer-owned coal for what is well under fair market value," Sanzillo said in a prepared statement.
Sanzillo is calling for the Department of the Interior to implement a moratorium on federal coal leases in the Powder River Basin while Congress conducts a review of the federal coal-leasing program.
Sanzillo isn't the only one taking the BLM to task. In April, U.S. Rep. Edward Markey, a Democrat from Massachusetts and the ranking member of the House Natural Resources Committee, asked the Government Accountability Office to examine federal coal-lease practices for the first time since 1994. "With such rapid market changes taking place," Markey wrote, referring to the push to ship U.S. coal to Asia, "American taxpayers must be assured they are receiving the full value for energy resources held in the public trust, especially when mining companies are seeking to export hundreds of millions of tons of coal for premium prices." Markey noted that Powder River Basin coal fetches more than $20 a ton in Asian markets.
And on June 25, about 20 organizations, including the Montana Environmental Information Center, penned a letter to Secretary of the Interior Ken Salazar asking for a review of the coal leasing program. "Absent a significant reform of the coal leasing process, Americans are delivering a massive subsidy to a handful of coal companies and putting the health of their own communities at risk," they wrote.
Some contend that Montana-owned coal is also selling for too little. In 2010, for example, the Montana Land Board voted to lease the state's Otter Creek tracts in southeastern Montana for 15 cents per ton. Attorney General Steve Bullock voted against the lease because of the paltry sum, saying at the time that taxpayers shouldn't "effectively be bailing out multinational coal and energy companies."
BLM spokesperson Beverly Gorny defends the agency's lease prices. "It appears that the assumption is what was paid [in last week's North Porcupine lease] is all that's being paid for the coal, and that simply isn't the case," she says. "All this does is assure the company of having the lease rights to mine that coal. They still have many, many, many more bills to pay before they're done mining that coal, such that the American public is getting the full value."
Peabody will pay an annual rental payment of $3 per acre and 12.5 percent of the value of the coal produced, which Gorny says will add billions to state and federal coffers over the life of the mine.
Federal regulations dictate how the BLM prices coal. The agency consults with appraisers, mining engineers and economists to determine the market value assessment, which is kept confidential before the bidding process. That, Gorny says, ensures that even when there's only one bidder, the auction is still competitive, because mining companies are "bidding against the house."
Ellen Pfister, the Bull Mountain rancher, isn't buying it. Taxpayers are getting fleeced, she maintains, because BLM has not "viewed their operations in leasing coal as an operation on behalf of maximizing return to the public as much as they view it as an act of accommodating the desires of the industry that wants to lease the coal."