Gillette to Interior: Help, don’t hurt coal

GILLETTE — Coal mine industry supporters packed a hearing here Thursday to plead with federal regulators to not increase the cost of mining as the Department of the Interior considers updating federal coal leasing and royalty programs.

Gillette is home to thousands of coal miners who work at more than a dozen surface mines in the Powder River Basin. The region supplies 39 percent of the nation’s coal, most of which is federally-owned.

Dana Miller-Eiland, owner of SignBoss LLC in Gillette, said she worries the federal coal leasing and royalty review will end up increasing the cost of mining, which could put a drag on the local coal-dependent economy. She said coal companies are community partners and contribute to local causes. If Powder River Basin operators are forced to curtail production, the loss of their corporate giving would only compound the loss of jobs.

“Raising taxes on coal sales will be detrimental on my business, and on the community,” she said. “An increased financial burden to them is a financial burden to all of us.”

Sheri England, executive director of the Youth Emergency Services home (YES House) in Gillette, also worries that Interior’s actions might cause more layoffs at the mines which would create turmoil in many homes.

“We serve about 1,000 youth per year,” England said. “They are our most vulnerable citizens. … What you’re proposing will be devastating to our community and to our families.”

What the Interior is doing

In recent years, the Interior’s Bureau of Land Management has come under scrutiny for its outdated coal-leasing and royalty programs. Reports by the Interior’s Inspector General and the Government Accountability Office suggest the BLM may be under-valuing federal coal in lease sales to mining companies, and not properly calculating royalties in sales for coal exports.

Reform proponents suggest the feds are failing to collect $40 million to $126 million from coal lease sales and royalties each year. There hasn’t been a major review of the programs in 30 years, they say.

“Everything has changed [in 30 years]: the markets, the regions of supply and demand,” said Meg Matthews of the Sierra Club’s Beyond Coal campaign. “We’re hoping the BLM at least keeps talking about what makes sense.”

The BLM has said it will review its coal leasing and royalty programs in light of the Inspector General and GOA reviews, as well as requests from conservation groups. BLM officials have said there is no predetermined outcome of the review.

Among other questions, the agency is asking itself and members of the public: “Are existing royalty rates appropriate in light of the value of the federal coal resources, the costs of their development, and the returns due to American taxpayers?”

And, “How might different levels of royalty rates affect: a) Return to the public? b) The economic viability of mining operations? c) Revenues for states and communities? d) Levels and locations of coal production? e) Jobs and coal exports markets?”

What’s driving the call for reforms

A federal royalty of 12.5 percent is applied to the sale price of publicly-owned coal, and the proceeds are split about 50/50 between the federal government and the state where the coal was produced. Wyoming received $291 million in federal coal royalty revenue in 2012.

The Interior typically applies the federal royalty once at the point of sale — the coal mine. That has been the practice for decades during which Powder River Basin mines primarily served a U.S. utility market. But critics say the method, when applied to federal coal that eventually finds its way to higher-priced international markets, leaves millions of dollars in uncollected revenue.

That’s because the 12.5 percent royalty is applied at the point of sale in the Powder River Basin. But the buyer then turns around and sells the coal to companies — sometimes companies that are affiliated with the original coal company. Those companies then sell the coal on the international market at prices up to 10-times the original price, the price on which the federal royalty was applied.

Proponents of reforming the royalty program say the royalty ought to be applied on the international sales price rather than the original domestic sale.

International sales account for a small percentage of Powder River Basin coal. Yet the federal government — and state of Wyoming — might have shared in $40 million more from international sales of federal coal in 2011 had a better royalty system been in place, according to a Reuters investigation. Several PRB producers say they are focused on increasing international sales.

What Gillette and other Wyomingites are saying

Dozens of people from Gillette and surrounding communities spoke against the federal review of the leasing and royalty programs; They believe it is a ruse to raise the cost of coal so high that it kills the industry.

“I don’t think it’s about the fair-market value,” said Dan Baker, operations superintendent for Alpha Coal West, which operates three mines in the basin.

Reports that Cloud Peak Energy is taking advantage of the so-called federal coal royalty “loophole” are wrong, said Jim Orchard, the company’s senior vice president of marketing and government affairs. “I’m not challenging them because they’re saying something I don’t like. I’m challenging them because they are mathematically wrong,” he said.

Wyoming’s congressional delegation joined Gov. Matt Mead, and was the first to comment at the hearing.

Sen. Mike Enzi (R), who served as mayor of Gillette during the initial coal boom, said it is not the time to examine federal coal leasing and royalty programs. That’s because several Powder River Basin operators are in dire financial straits.

“There isn’t anybody interested in buying any coal in Wyoming right now,” he said, referring the lack of interest in buying new federal coal leases. “On behalf of the delegation, I ask that you don’t kill the golden goose.”

Sen. John Barrasso (R) said it’s hypocritical of the Obama administration to ask whether American taxpayers are getting a fair return on coal “when he’s doing so much to make sure there’s no demand for coal.” The administration should “stop artificially suppressing the demand for coal” via the Clean Power Plan, he said.

Rep. Cynthia Lummis (R) urged BLM officials to not raise the royalty rates on coal, and to be careful not to increase the cost of leasing and mining. “You get no value out of coal by keeping it in the ground,” she said.

Gov. Mead called the current financial crisis among some Powder River Basin coal operators a disaster or Wyoming and a disaster for the nation. “You want to get more money from coal?” he asked. “Keep coal profitable. That’s how you get more money from coal.”

‘Coal is going to go away’

Groups such as the Sierra Club and WildEarth Guardians say they support the BLM’s willingness to review the leasing and royalty programs. Americans deserve to get a fair return on publicly-owned coal, the say. They also admit that, ultimately, they prefer the coal is kept in the ground, because the mining and burning of coal is a significant contributor to climate change.

Representatives of the Powder River Basin Resource Council, WildEarth Guardians, and others, said that as the BLM considers the current landscape for the coal industry — depressed markets, regulatory uncertainty, demand to cut carbon — both federal and local officials should begin discussing how coal-reliant communities such as Gillette are going to cope. Communities need to begin work now to develop financial aid and job-training programs.

“Coal is going to go away, but that doesn’t mean the Interior Department should turn its back on this reality,” said Jeremy Nichols, climate and energy program director for WildEarth Guardians.