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June 12, 2013

A Sweetheart Deal for Big Coal is a Slap in the Face to American Families

PRBImagine your neighbor was the only person allowed to go shopping at the local grocery store. What's more, she negotiated a special arrangement with the store manager, where she can name her own price for everything they sell. After paying pennies for milk, eggs and bread, she then takes those groceries home and sells them to you and your neighbors for a staggering profit. A system like that wouldn't be sustainable to the grocery store - who is losing money every time your neighbor walks through the door - and it wouldn't be fair to you and the rest of your friends who are effectively subsidizing the neighbor's profits.

But that is exactly the system the Bureau of Land Management (BLM) has set up for coal companies in Montana and Wyoming's Powder River Basin (part of which is pictured above). This week a highly-critical report (PDF) from the Department of Interior's Inspector General (IG) detailed a litany of flaws in the BLM's coal leasing program. The report found that big coal companies are essentially dictating their own prices to mine the coal under public land in Wyoming and Montana, then turning around and selling it at a huge premium. Taxpayers are losing out on billions of dollars, and the coal companies are reaping the profits.

The report identified numerous ways that BLM fails to accurately calculate the fair market value of its coal leases: it doesn’t include the potential for exporting coal in developing fair market value appraisals, it only allows one person in each BLM office to calculate the fair market value (which the report concluded could lead to a higher risk of fraud or undetected errors), and it regularly violates an Interior Secretary Order by failing to use the Interior's Office of Valuation Services to conduct independent fair market value appraisals.

What's worse, its system doesn't create competition that would help make sure American taxpayers are getting a fair price for federal coal. According to the report, over the last 20 years 80% of coal lease sales in the Powder River Basin had just one bid and no lease sale had more than two bidders. The IG noted that even a one-cent-per-ton undervaluation could result in $33 million in lost revenue on the seven leases issued since 2011, and concluded that "correcting the identified weaknesses could produce significant returns to the Government."

While the IG's report is heartening, its findings are nothing new to those who have been following the BLM's coal leasing practices. Last year, an IEEFA report (PDF) authored by Tom Sanzillo concluded that BLM's inaccurate fair market value determinations have cost American families nearly $30 billion since 1982. And at Rep. Ed Markey's request, the Government Accountability Office is now investigating a coal royalty controversy in which coal companies pay a low royalty to the government based on sales to a subsidiary, and the subsidiary pays no royalty when it sells coal at a much higher rate overseas.

It's clear that the BLM’s coal leasing program is seriously flawed, and we hope that this report helps give Interior Secretary Sally Jewell the tools she needs to begin a long overdue revamping of the BLM's program. At a time when American families are still being asked to make difficult economic sacrifices, they are counting on our federal leaders to protect them from being short-changed by predatory companies like the coal industry, who profit from skirting the law. As we continue to learn more about the broken coal leasing process, we renew our call on for a moratorium of all coal leasing on public lands. These federal agencies must get their houses in order to prevent coal companies from further taking advantage of U.S. taxpayers and damaging our economy.

-- Bill Corcoran, Western Regional Campaign Director for the Sierra Club's Beyond Coal campaign

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