Rep. Ed Markey, D-Mass., the ranking Democrat on the House Natural Resources Committee, on April 24 asked the Government Accountability Office (GAO) to conduct its first review of the government’s coal leasing program since 1994.
Markey said his request comes as U.S. coal companies lay the groundwork to ship hundreds of millions of tons of federally leased coal overseas at premium prices. Domestic coal producers exported 107 million tons of coal in 2011 – the most since 1991 – and Peabody Energy (NYSE: BTU) told investors recently that U.S. coal export capacity could grow to 250 million tons by 2017.
Notable is that coal exports predominantly are from non-federal coal reserves in the eastern U.S., but there has been sharp export growth in the last three years for coal out of western states like Wyoming, where most coal is federal coal.
“Coal exports are rising as U.S. electricity producers move away from coal in favor of natural gas and renewable energy,” Markey wrote in a letter to Comptroller General Gene Dodaro. “With such rapid market changes taking place, 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 asked the GAO to examine: how the U.S. Bureau of Land Management (BLM) has conducted its coal sales over the last two decades; the process used to estimate “fair market value” determining the price of those sales; whether the agency’s estimate of fair market value accounts for lower reserve estimates and increased exports to higher priced markets; and if BLM adequately tracks and makes publically available information pertaining to sales and lease payments.
Fair market value is a secret estimate of a coal reserve’s value that BLM prepares before each coal lease auction in states like Wyoming, Colorado and Utah. The agency has in the recent past rejected coal company bids for not meeting that value, forcing the company to seek a second auction where it takes another shot at exceeding that value and securing the reserve.
For example, the BLM office in Wyoming has scheduled a May 17 second auction for the South Porcupine coal tract in the Wyoming end of the Powder River Basin that a unit of Peabody Energy needs for North Antelope Rochelle, the nation’s largest coal mine. This lease sale is being held in response to an application filed by BTU Western Resources. South Porcupine was previously offered for sale on Feb. 29, but the lone bid for the tract of $361.7m, filed by BTU Western, was rejected for not meeting BLM’s secret estimate of the fair market value.
“We lack information about how the rapid growth of coal mining on federal land combined with shrinking reserves and increasing exports produced from federal leases affect the value of U.S. coal,” Markey wrote. “The House Natural Resources Committee has an interest in ensuring that BLM’s leasing process promotes competition for coal tracts and that the ‘fair market value’ established by BLM is accurate. Having GAO undertake this review of the federal coal leasing program will give us the information we need to better understand how the program is working and what implications rising coal exports and declining domestic demand might have for its future.”
Mining companies produced 451 million tons of coal from federal leases during fiscal year 2011, accounting for about 41% of total U.S. production. Nine out of every 10 tons of federally leased coal comes from the Powder River Basin in Wyoming and Montana, where producers have rapidly increased exports to Asian countries.