The House Natural Resources Subcommittee on Energy and Mineral Resources held a July 9 oversight hearing on “Mining in America: Powder River Basin Coal Mining the Benefits and Challenges.”
The Power River Basin (PRB) in Wyoming and Montana provides about 40% of the coal mined in the U.S., with the Wyoming PRB providing by far the majority of that coal. Major PRB coal producers include Peabody Energy (NYSE: BTU), Arch Coal (NYSE: ACI), Cloud Peak Energy (NYSE: CLD) and Alpha Natural Resources (NYSE: ANR).
“American coal, mined by American workers, generating revenue for the American treasury can and should be a part of their solution for the future,” said Subcommittee Chairman Doug Lamborn, R-Colo. “And yet, it appears to me that every opportunity for a coal miner to work is under attack from the Obama Administration. Coal has played an important role in the economic development and vitality of the United States – driving the industrialization of the western world – providing abundant, reliable and affordable energy. The Powder River Basin is that American story; it has and can continue to have the potential to do so well into the future.”
Statements from the hearing highlighted by the Republican majority were:
Dan Coolidge, Chairman of the Campbell County, Wyo., Commissioners – “The biggest challenge we face is the attack by the current administration on the life blood of our community, our state and every family in this country that will have to make the difficult decision of feeding their family or paying exorbitant electricity charges because coal is no longer part of our national energy policy. Mining coal is part of the custom and culture of Wyoming, with the first mines opening in 1876 and having continuous production since that time.”
Darrin Old Coyote, Chairman of the Crow Nation – “Today, the Crow Nation desires to develop its vast coal resources not only for itself, but for our energy partners, the surrounding communities and for the United States. By developing Crow coal via domestic markets, export terminals and coal conversion, we firmly believe we can help ourselves while simultaneously meeting national energy goals – achieving energy independence, securing a domestic supply of valuable energy, and reducing the country’s dependence on foreign oil. My administration has been very busy in working to develop our coal resources and to remove obstacles to successful development. I simply desire for the Crow Nation to become self-sufficient by developing its own coal resources and to provide basic services for the health, hopes and future of the Crow people.”
Mary Hutzler, Senior Fellow at the Institute for Energy Research – “Coal is the world’s most plentiful fossil fuel and is the most abundant fossil fuel produced in the United States. Over 90 percent of the coal consumed in the United States is used to generate electricity. Coal is also used as a basic industry source for making steel, cement and paper, and is used in other industries as well…Most recently, the President’s Climate Change Action Plan that he outlined in a speech at Georgetown University on June 25 includes reducing carbon dioxide emissions at existing coal-fired power plants as well as at new plants. According to his action plan, ‘President Obama is issuing a Presidential Memorandum directing the Environmental Protection Agency to work expeditiously to complete carbon pollution standards for both new and existing power plants. Many have indicated that these policies represent a ‘war on coal.’”
Hutzler said that regulating CO2 emissions for coal-fired plants, as the White House wants to do, will force mass coal plant retirements, causing unemployment at coal-fired power plants and coal mines. “According to a report from the United Mine Workers of America, job losses associated with the closure of EPA-targeted coal units (due to Utility MACT and tighter greenhouse gas standards) could amount to more than 50,000 direct jobs in the coal, utility and rail industries, and an indirect job loss figure exceeding 250,000,” Hutzler added.
“Some have suggested that these closures are mainly due to the low price of natural gas made possible through shale gas discoveries,” Hutzler said. “Regardless, it would be prudent for policy makers and analysts to consider the consequences of removing one of the major three sources of electrical generation from our fuel mix for electricity. Currently our electrical generation mix is largely coal, natural gas and nuclear power. While natural gas prices are currently low, gas-directed rig activity is also very low, which could have an impact on supplies in the out years. Further, the Wall Street Journal reported on January 29 that pressure is increasing to shutter nuclear power plants.”
Interior found problems with the federal coal lease program
Providing July 9 prepared testimony was Mary Kendall, Deputy Inspector General at the U.S. Department of the Interior. Some Democratic critics have lately complained that Interior’s Bureau of Land Management (BLM) under-values coal leases given out in the PRB and elsewhere and is not properly taking into account for royalty purposes the increasing export of PRB coals.
Coal from lands controlled by BLM makes up roughly 40% of total coal production in the United States. BLM manages a total of 314 leases—306 leases on public lands and eight on Indian lands. In fiscal year 2011, 473 million tons of coal were produced from these mining operations. Seventy-one companies operate about 80 mines on public and Indian lands. Four companies account for over 90% of BLM’s sales volume.
The largest coal producing state is Wyoming, primarily from the PRB. In fiscal year 2011, Wyoming accounted for 83% of the Department’s total coal production and 86% of its coal revenues.
“We conducted our evaluation to determine if the Department’s coal leasing process obtains a fair return on coal produced from public and Indian lands,” Kendall wrote in the prepared testimony about a recent review of the leasing program. “We also assessed the effectiveness of the Department’s coal lease inspection and enforcement program. We found several areas in which BLM could improve the coal leasing process—in valuation, bid acceptance, internal controls, exploration integrity, modifications, and royalty rate reduction—and strengthen the inspection and enforcement program.”
BLM does not fully account for export potential in developing its fair market value (FMV) estimates, which are basically a secret bid floor that coal companies have to meet or exceed during coal lease auctions. “The U.S. Energy Information Administration reported that 125 million tons of coal were exported in 2012, an amount that has more than doubled in 5 years,” Kendall wrote. “The price of exported coal has also more than doubled in only 4 years. This trend suggests that export potential should be considered in calculating FMV. Exported coal volumes from the Powder River Basin represent about 1.6 percent of production (6 million tons), but mining companies are actively exploring methods to transport the coal to western ports to export the coal overseas. Export volumes have stabilized in 2013 but are expected to rise in the long term.”
The Mineral Leasing Act requires BLM to reject bids that fail to meet or exceed FMV. But, Interior found four instances in which BLM accepted bids below FMV, resulting in over $2m in lost revenue. “We believe that any bid below FMV should be rejected,” Kendall added. “When a bid is rejected by BLM, however, the sales process starts all over. We recommended that BLM explore options to stop this inefficient practice. Entering into direct negotiations with the unsuccessful bidder is one possible solution. This may require a change to legislation and applicable regulations but may be worth the effort, as about 25 percent of lease sales in the Powder River Basin, which is among the highest producing coal areas on public lands, are rejected and go through the time-consuming process of lease reoffer.”
Also, BLM relies on reserve exploration results, including coal quality data, provided by the company when it comes up with its FMV estimates. “BLM does not, however, independently verify this information,” Kendall said. “While a BLM handbook recommends that staff witness exploration activities, at least one State office (Montana) does not conduct such oversight. We did not find specific indicators of data misrepresentation but, without verification, BLM places itself at risk of receiving, and relying upon, incorrect data from mining companies.”