WyoFile Energy Report

Gov Mead trusts companies on coal royalty question

January 4, 2013
— Updated to include ONRR statement and comments from Gov. Matt Mead’s office. 

Last month, a Reuters investigation suggested that Powder River Basin coal companies may be under-paying federal royalties — potentially hundreds of millions of dollars — by selling to sister companies overseas. So far, no hard evidence has been presented to prove foul play, however. And the question obviously stems from the very controversial move by Powder River Basin coal producers to export more coal overseas.

Today, two top U.S. Senators from the Energy and Natural Resources Committee said they have directed the U.S. Interior Department to investigate the matter.

Dustin Bleizeffer

According to Reuters, Democratic Sen. Ron Wyden and Republican Sen. Lisa Murkowski sent a letter this week to Interior Secretary Ken Salazar stating, “If any violations of the law have occurred, companies should be required to cure any gap in royalty payments and, if misconduct has occurred, civil penalties should be levied.”

After the initial Reuters report last month, I contacted Gov. Matt Mead’s office for a response. His press secretary Renny MacKay emailed a written statement that Mead had also shared with Reuters;

“I believe that coal is an essential part of America’s energy future,” Mead stated. “The vast majority of Wyoming coal will be used to power homes and businesses in the US for the foreseeable future. As some coal goes overseas to Europe and Asia I know that coal companies recognize the importance of Wyoming and the country receiving all revenue they are due. I am also confident that the Wyoming Departments of Audit and Revenue have a good handle on this process.”

In a follow up interview with MacKay today, MacKay said Gov. Mead has frequent conversations with coal producers about exports, including the federal royalty question. The governor seems fairly convinced there’s no foul play, said MacKay. Additionally, Wyoming’s Department of Audit, through the course of its regular work, has found no reason to be suspicious, he said.

It should be noted, too, that the volume of Powder River Basin coal currently marketed overseas is tiny — on the order of 4.4 million tons compared to approximately 400 million tons mined and sold each year.

“Neighbors to Wyoming coal mines, like my family, have sacrificed a lot for Wyoming to be the nation’s leader in coal production.” said L.J. Turner, cattle and sheep rancher, from Wright, Wyo., and member of  the Powder River Basin Resource Council. “The least we deserve is to know that we’re not getting short-changed by the coal companies. We hope the Department of the Interior acts in the public interest and seriously considers the Senators’ concerns.”

Powder River Basin coal producers contend that they are fully compliant with the law.

“Peabody is fully aware of the rules related to royalties for export coal sales and remains compliant with them,” Peabody Energy spokeswoman Beth Sutton told WyoFile on Friday.

The Interior issued this statement today;

“The Department of the Interior welcomes the letter from Senators Wyden and Murkowski and we look forward to working closely with their committee to ensure that taxpayer assets are protected. Coal resources on Federal lands are assets that belong to all Americans and the Department is committed to collecting every dollar due per provisions of existing law.

“Federal regulations stipulate how coal produced on Federal lands is valued for royalty purposes.

“Interior’s Office of Natural Resources Revenue (ONRR) continues to move aggressively to ensure that coal producers are paying the proper royalties due on coal production, and particularly coal production that could be destined for overseas sales.

“The Department is already in the process of strengthening and simplifying the Federal and Indian coal valuation regulations, and we expect that the new regulations will address a variety issues to ensure a fair return to the American taxpayer for the disposition of Federal energy resources, including overseas sales of coal.”

Federal coal royalties are managed by the U.S. Bureau of Land Management (BLM). Last month, Wyoming BLM spokeswoman Beverly Gorny told me she couldn’t go into specific overseas sales scenarios, but said, “It doesn’t matter where the coal ends up, the federal royalty is charged where the coal comes out of the ground. … Wherever they want to sell the coal is their business.”

The Mineral Leasing Act of 1920 mandates that a royalty be paid on all federal coal that is mined. The vast majority of coal in the Powder River Basin mining district is federally-owned.

— Dustin Bleizeffer is WyoFile editor-in-chief. Reach him at 307-577-6069 or dustin@wyofile.com. Follow Dustin on Twitter @DBleizeffer.

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Dustin Bleizeffer is a Report for America Corps member covering energy and climate at WyoFile. He has worked as a coal miner, an oilfield mechanic, and for 25 years as a statewide reporter and editor primarily...

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  1. Excellent article, Dustin. I hope maybe you can follow it with some analysis of what current BLM regs require re-affiliated trading companies and fair market valuation.
    Whatever that answer, the most distressing news (other than Ms Gorny, who doesn’t seem to grasp the question at all) is that our own Governor seems to have forgotten the other half of Reagan’s dictum “Trust but verify.” Does he really believe that Arch Coal (to pick a random example), is careful to pay everything they owe because they know that dear old Wyoming needs the money? Does he really believe that talking to Dave “frequently” is a valid substitute for a formal audit?
    Thank god for Ron Wyden & Lisa Murkowski. At least somebody seems to care.

  2. But, but, but,…big energy companies have always been honest and forthcoming about royalty payments, haven’t they?
    I’m more than a little pleasantly surprised that Sen. Lisa Murkoski, R-Alaska, is willing to rock the boat on this matter. Wouldn’t it be interesting if the coal companies have cheated to the tune of hundreds of millions of dollars and have suborned a few critical players at the federal and state agencies to look the other way? Well, I’m getting ahead of the curve. Let’s watch how this plays out. Could be very, very interesting.