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Originally published Tuesday, June 11, 2013 at 6:43 PM

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Report: Undervalued coal leases cost U.S. $62 million

The U.S. has lost about $62 million in revenue through undervalued coal sales on public land, according to a new federal report. The Powder River Basin of Wyoming and Montana accounts for the overwhelming majority of those sales.

Associated Press

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BILLINGS, Mont. — Undervalued coal sales have cost the U.S. an estimated $62 million in potential lost revenues in recent years, according to a Tuesday report from federal investigators who recommended broad changes to the government’s coal leasing program to stem further losses.

The report from the Department of Interior’s Office of Inspector General comes amid rising pressure from Congress and environmentalists to make sure taxpayers are getting their fair share from coal sales on public lands.

The Powder River Basin of Wyoming and Montana accounts for the overwhelming majority of the public coal sales, 90 percent of which involve just four industry giants: Arch Coal, Peabody Energy, Alpha Natural Resources and Cloud Peak Energy.

Proposals to ship some of the Powder River Basin coal to Asia through three terminals in the Northwest, two of them in Washington, have been the source of considerable controversy.

Critics of the leasing program seized on the Inspector General’s findings and called for a temporary halt in sales until changes can be made.

In 2011 alone, companies with leases on federal lands produced 473 million tons of coal, and the report said undervaluing sales by even a penny per ton can result in millions of dollars in lost revenue.

But the Interior Department disputed the scale of the losses, and industry representatives noted that they were relatively small in the context of a program that brought in almost $4 billion in revenue during the last two years alone.

“It’s a rounding error,” National Mining Association spokesman Luke Popovich said of the government losses detailed in the report.

About 40 percent of U.S. coal is extracted from federal lands in 10 states, with money derived from leases and royalties equally split between federal and state governments. A separate government investigation into royalties is pending.

Most of the fuel is burned in U.S. power plants. But as domestic sales lag due to competition from cheap natural gas, increasing volumes of U.S. coal are being shipped abroad — a trend that the government has failed to keep pace with, the Inspector General’s report suggested.

It also noted that 80 percent of the coal sales in the Powder River Basin over the past two decades received only one bid, a lack of competition also seen in other parts of the country. While that makes it harder to determine the fair market value of coal sold by the government, that task remains crucial, the Inspector General’s Office concluded.

How those values are set varies greatly among Interior offices in different states. In two states, officials allowed companies to justify bids that came in below fair market value, and then approved the sales for losses of more than $2 million.

In other instances, bids by companies seeking to modify or expand existing leases were approved at sales prices that were 80 percent lower on average than regular lease transactions. That translated into $60 million in potential lost revenue.

Representatives of the Bureau of Land Management, the Interior Department branch that oversees government coal sales, disputed the $60 million figure in a response to Tuesday’s report. They said lease expansions typically involve coal worth less than the original lease.

Concern over the federal coal program has drawn scrutiny from Congress, with lawmakers including Oregon Sen. Ron Wyden and Alaska Sen. Lisa Murkowski questioning whether companies are making profits at the public’s expense.

Wyden said the review “raises new questions about whether BLM stood up for taxpayers when it comes to coal leasing.”

“The Inspector General clearly thinks the agency came up short,” the Democrat said in a statement.

Industry opponents went much further, with several environmental groups including the Sierra Club calling for a moratorium on new leases.

“The coal industry is getting breaks beyond belief,” said Jeremy Nichols with WildEarth Guardians. “They should have to pay their fair share for a public resource, a public resource that incidentally is taking a tremendous toll on our environment.”

Beyond the lost revenues, the report pointed to shortcomings in Interior’s coal mine inspection and enforcement offices that “could prevent BLM personnel from detecting noncompliance with laws, regulations and lease terms.”

BLM representatives said the agency concurs with most of the recommendations offered in the report. That includes a reassessment of how export coal is valued, making the leasing program more efficient and improving its inspection program.

That work will be done by the end of 2014, the agency said.

“The BLM will continue to diligently work to improve the operation of the federal coal program,” said agency spokeswoman Celia Boddington. She added that the BLM “is committed to ensuring that the American people receive a fair return” on coal sold from public lands.

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