Government Accountability Office: Taxpayers Getting Stiffed by Flawed Federal Coal Lease System

Tue, 2014-02-04 10:28Ben Jervey
Ben Jervey's picture

Government Accountability Office: Taxpayers Getting Stiffed by Flawed Federal Coal Lease System

The Department of the Interior is selling publicly-owned coal for much less than it is worth, essentially allowing the coal industry to fleece U.S. taxpayers of at least $200 million. 

That is one of the main takeaways from a much-anticipated report released today by the Government Accountability Office (GAO), which confirms that the coal leasing program is fundamentally flawed and deserves an overhaul. 

The GAO report, “BLM Could Enhance Appraisal Process, More Explicitly Consider Coal Exports, and Provide More Public Information,” finds that the coal leases employed by the Bureau of Land Management within the Department of the Interior lack competition, use outdated methods to determine “fair market value,” ignore the growing trend of coal exports, and deliberately keep information from the public. 

Senator Markey, who has been calling for an overhaul to the coal lease system since 1982, and who demanded this GAO review, responded to the report's release

These noncompetitive practices are costing taxpayers in Massachusetts and across the nation, benefitting just a few coal companies who may be leasing public coal resources at bargain basement prices,” said Senator Markey. “Taxpayers are likely losing out so that coal companies can reap a windfall and export that coal overseas where it is burned, worsening climate change. This is a bad deal all around.”

A vast majority of federal coal leases take place in the Powder River Basin of Montana and Wyoming. Coal companies like Peabody Energy, Arch Coal, and Cloud Peak Energy are all deeply dependent on this artificially cheap coal from federal leases. 

One of the report's most stunning revelations is that roughly 90-percent of the leases issued by Interior were “single bidder” auctions, won by the company that applied for the lease, and who didn't bid against anyone else. 

Of the 107 leased tracts, sales for 96 (about 90 percent) involved a single bidder, which was generally the company that submitted the lease application,” according to the report. 

Another key finding is that the BLM uses outdated and incomplete methods to determine “fair market value” of the land and the coal. This is of particular importance when there is only a single bidder, as the auction process demands that the winning bid achieve “fair market value.” According to staffers in Senator Markey's office, “for every cent per ton that coal companies decrease their bids for the largest coal leases, it could mean the loss of nearly $7 million for the American people.”

In a related finding, the GAO reports that when considering fair market value, “the BLM does not undertake sufficient consideration of exports.” Even in Wyoming and Montana, where a growing percentage of the mined coal is bound for export, the regional offices offer only a “boilerplate statement” about the possibilities of export, but do not use an export market analysis to help determine value.

Specifically, the report reads:

..economic and appraisal reports in Wyoming typically contained generic boilerplate statements about the possibility of coal exports in the future and the uncertainty surrounding them, rather than specific information on actual or predicted coal exports––even for proposed lease tracts that were adjacent to mines on federal leases that are currently exporting coal…

  “By not tracking and considering all available export information, BLM may not be factoring specific export information into appraisals for lease tracts that are adjacent to mines currently exporting coal or keeping abreast of emerging trends in this area.”

Finally, the report finds that the BLM keeps critical information – like apprasial reports from specific lease tracts and information about pending and finalized coal sales – from being easily accessed by the public. The GAO suggests that efforts are made to increase transparency of the controversial process. 

Responses to the report

“The system is broken and until it gets fixed, taxpayers are going to be cheated again and again out of millions of dollars,” said L.J. Turner, a Wyoming rancher and member of the Powder River Basin Resource Council and Western Organization of Resource Councils who grazes cattle near the largest coal mines in area. 

“The Interior Department has an obligation to the American people to make sure they’re getting fair value for this coal. Secretary Jewell should halt leasing any additional coal until the DOI can be more transparent and open in their process and ensure that taxpayers are not getting cheated anymore,” Turner said.

“Revenue from federal coal is critical for rural communities coping with impacts from large energy projects. Giving away coal cheaply undercuts our local communities,” said Steve Charter, a Montana rancher who chairs the Northern Plains Resource Council. 

Greenpeace climate and energy campaigner Kelly Mitchell said
  

The GAO report is the latest to highlight flaws with a coal leasing program that is rigged to benefit a handful of coal mining companies like Peabody and Arch, and is yet another reminder of the BLM’s failure to account for the coal industry’s plans to boost exports. But the larger problem is that the BLM is undermining President Obama’s Climate Action Plan by subsidizing the extraction of hundreds of millions of tons of publicly owned coal. Secretary Jewell should put an end to the BLM's coal giveaways and start accounting for the costs of carbon pollution and other damage to the environment when setting royalty rates for the sale of publicly owned coal.”
  

Natural Resources Defense Council (NRDC) released this statement: 


The government’s chief watchdog makes this clear: Taxpayers are getting shockingly short-changed. The GAO report exposes how the Department of Interior doesn’t follow basic business principles or due diligence when selling billions of tons of taxpayer-owned coal. Given that an earlier federal report showed that when a ton of coal is undervalued by even a penny taxpayers lose out on $3 million, taxpayers’ losses in coal leases are substantial. With billions of tons of federal coal in line for lease to big coal companies, Interior needs to push the pause button on any further sales until this deeply flawed program is fixed.”


Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis, said:


”The Government Accounting Office (GAO) affirms that there is no available rationale for how much the Bureau of Land Management (BLM) charges for federally owned coal. There have been no independent assessments of 107 leases over a 23 year period and most leases are not competitive. The GAO audit does not provide information that shows whether BLM is collecting the right revenues. The GAO tells us BLM does not count high priced export sales in its calculations. This systemic failure provides an undue enrichment to coal companies and a loss of revenue to federal and state government. The GAO tells us that, despite a policy on the books for thirty years to release information about lease sales to the public, BLM simply refuses to do so. This is the first GAO audit in thirty years. Much is left out. We hope it will not take another thirty years for additional scrutiny of this multi-billion dollar giveaway.”


Sierra Club Beyond Coal spokesperson Bill Corcoran released this reaction: 


“For decades coal companies have exploited a flawed and lax federal leasing program to buy coal on public lands for pennies on the dollar, costing the U.S. taxpayer billions and subsidizing dirty, coal-fired power plants that have contributed to health problems and premature deaths for thousands of Americans.

“This independent assessment shows why change must happen in the federal coal leasing program.  Interior Secretary Sally Jewell and the Bureau of Land Management owe it to American taxpayers to suspend the current leasing program until coal companies are paying a fair price for publicly-owned coal.

“For too long, Big Coal’s bottom line has taken precedent over the health and wealth of the U.S. taxpayer, resulting in a giveaway from the taxpayer and an abuse of our public lands. The problems which have been uncovered here deserve the strongest response from the federal government.

We call for a suspension of all coal leasing on public lands until Secretary Jewell has addressed the problems raised by this report, and has overhauled the entire coal leasing program to ensure taxpayers receive a fair price from coal companies. We cannot afford to continue the current coal leasing policies that shortchange our strapped federal budget and damage our economy.”


Senator Markey submitted the following statement to his Senate colleagues, to put the GAO report in context and begin a discussion about reform:

As part of its investigation, the GAO released two reports to me, one that is public and one that is not able to be made public. GAO kept one of these reports non-public because the Interior Department believes that the proprietary information contained in the non-public report could harm the integrity of future lease sales. I believe that increased transparency with these coal lease sales would increase the integrity of the process, not lessen it.

Based on my staff’s examination of the materials, I believe that using appropriate market calculations and assumptions in some recent coal lease sales could potentially have yielded $200 million more for the American people, and possibly hundreds of millions of dollars more.

It would be very helpful for the American people to be able to review this information. But even if that is not possible because of concerns about proprietary information, Senators should be able to review this information and debate it in order to ensure that taxpayers are protected.”  

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