More bad news is coming for the Interior Department’s coal leasing program. This month (or later, if the federal shutdown persists), the U.S. Government Accountability Office is expected to release findings from a year-long investigation into the Bureau of Land Management’s federal coal leasing program, which oversees the auction of coal tracts on publicly owned lands.
You’re forgiven if this sounds familiar. In July, another federal body – Interior’s own Inspector General – condemned the program, releasing a highly critical report that documented a number of flaws in the BLM’s Coal Management Program.
While we’ll have to wait for the GAO’s report to get into the details, it’s safe to assume that it will include serious criticism of the program that seems to be failing on every level. The Inspector General analysis examined specific lease auctions – in one case finding that the taxpaying public was stiffed about $52 million because the BLM was ill-equipped to figure out (or uninterested in figuring) “fair market value” for the coal in a particular tract – but this GAO report will look at the program as a whole, which was plagued by scandal in the early 1980s. Reforms were mandated as a result of a GAO report at the time, but two decades later, many of the changes demanded have still yet to be implemented.
The current GAO investigation was requested in April of 2012 by Representative Ed Markey of Massachusetts, who expressed concern that the coal on public lands in the Powder River Basin was being auctioned off at rates far below fair market value. “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,” wrote Markey. The Congressman also told the Washington Post in an interview, “There’s a long history of under-market coal sales from the Powder River Basin. Mark Twain used to say, ‘History doesn’t repeat itself, but it does tend to rhyme.’ We need to ensure that the taxpayers are not being shortchanged the way they were back in the 1980s.”
In his letter to the GAO (PDF), Markey explained:
Coal exports are rising as U.S. electricity producers move away from coal in favor of natural gas and renewable energy. Last year, 107 million tons of coal was exported, the highest export total in two decades and equal to 10 percent of domestic coal production. Peabody Energy told investors last week that the country’s coal export capacity could more than double in five years to 250 million tons. Cloud Peak Energy, which has tripled its coal exports over the last three years to 4.7 million tons, now considers its export business so important that the company has added both foreign electricity markets and clean air regulations to its required securities disclosure on business risks. 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.
GAO has not conducted a comprehensive review of the federal coal leasing program since 1994. Since that time, the coal industry has continued moving away from depleted coal reserves in the east, and increased its production from federally leased coal tracts in the west. Coal produced from federal leases has grown from less than 70 million tons in 1980 to more than 450 million tons in 2011. Federally leased coal now accounts for some 40 percent of U.S. coal production. Nearly nine out of every 10 tons of federally leased coal is mined in the Powder River Basin of Wyoming and Montana.
The GAO’s findings will come at a time when Interior’s coal leasing programs are under intense scrutiny from a variety of critics (as we explained in this recent post about the failed Hay Creek II auction) and when the very idea of selling off coal from public lands is being questioned. This post by Greenpeace climate and energy expert Kelly Mitchell does an amazing job of evaluating the current state of coal markets, domestic and international, and explaining why these leases make no sense at all.
So what should we expect from this system-wide investigation by the GAO?
Representative Markey asked the office to examine four major themes:
- National trends in coal production, lease requests and auctions, and the amount of coal and royalties generated from those leases.
- The processes that the BLM follows to estimate and get fair market value for these leases.
- Whether these fair market value estimates adequately account for revised reserve estimates and increased coal exports to foreign markets where prices are higher.
- The BLM’s system for tracking information about coal sales and payments, and how the agency makes them available to the public.
Whenever the GAO is finally able to release its findings to the public, we'll follow up with a detailed analysis.
Meanwhile, because of the government shutdown, the BLM is unable to respond to any coal tract lease nominations, nor to hold any more auctions for coal tracts in the Powder River Basin.
This isn't exactly the moratorium that environmentalists and budget hawks alike are calling for. When the government is back up and running at full capacity, we'll see exactly what the GAO has to say about this controversial program, and pressure will be on the BLM to keep a moratorium in place until the much-needed reforms are implemented.