BLM Lease Program a Good Value for Wyo, US

(Wyoming Mining Association, February 14)  – The US Government Accountability Office (GAO) recently released its report on federal coal leasing. The report, while calling for more transparency and some process improvement,  confirms that federal coal leases for Wyoming are being managed in a responsible fashion.  Proper oversight by government officials ensures citizens receive fair market value for leased coal.

The GAO report recommends that the Bureau of Land Management (BLM) use both comparable sales history and an income approach to determine fair market value for nominated coal leases. The good news is that BLM in Wyoming already uses the recommended methodology.  The GAO notes that “Wyoming goes a step further to numerically adjust its comparable sales using the results of the income approach.”  Taxpayers in Wyoming and across the nation can rest assured they are getting great value, considering that 88.4% of federal coal leased from 1990 to 2012 was located in Wyoming.

The report also recommends that BLM should take exports into account when determining the fair market value of the coal.  As the GAO report shows, Wyoming accounts for 85% of all federal coal production. A small amount of that coal is exported out of the country.  In 2011, the last year for which exports were reported by the Energy Information Administration (EIA), Wyoming mines exported only 4.5 million of 438 million tons – a little more than one percent.  In short, the amount of coal mined in Wyoming is overwhelmingly used for domestic energy purposes, and any assertion that revenue is being lost on exports is just wrong.

Exported coal is a potential growth market for Wyoming. When the export market is more significant it may be appropriate for BLM to include export sales in the fair market value estimation. Higher prices for export coal may include transportation costs. However, the value that the royalties are calculated upon is determined by what the coal is sold for at the mine, not what a utility (either domestic or foreign) will pay in order to get the coal delivered to them.

The report acknowledges tracts nominated for lease are generally adjacent to existing mining operations and are nominated by companies that own these operations.  They are used to extend the life or to expand that mine’s annual production.

One of the biggest challenges offered by the GAO report refers to 96 coal leases since 1990 that received only a single bid. Those concerned about the implications should be asking why the leases are not more attractive to multiple bidders. The answer is fairly simple.  For a coal lease to be attractive and viable, the bidder must have an opportunity to realize a return on investment. Generating a return on investment is dependent on getting the mineral out of the ground and to the customer at a reasonable cost. Doing so requires an existing investment in infrastructure and equipment. It simply isn’t viable to bid on a lease that is not in close proximity to existing operations.

State, federal and local governments currently receive about 35% of the value of the coal produced in Wyoming.  Those government imposed costs are the single largest cost paid by the coal industry–more than direct labor or operating expenses.  In 2012 total taxes, royalties, and fees collected from Wyoming’s coal production exceeded $1.8 billion.  Wyoming’s share was $1.2 billion.  Over the years, bonus bids from the federal coal leasing program have totaled more than $2.6 billion for school construction, community colleges and highways across the state.  In fact, every Wyoming county boasts a new school thanks to Wyoming coal.  Wyoming also gets value from 7,000 mining jobs with an annual payroll of $750 million.  The state with the largest share of federal coal leases is doing it right.

Wyoming coal miners are providing energy to power America.  Wyoming coal is shipped to 34 states across the nation as an abundant source of affordable and reliable fuel for electricity generation. States that rely on coal for the bulk of their electric generation consistently enjoy lower energy rates.

The federal coal lease program creates great value for taxpayers and those who rely on affordable electricity.  While there may be room for process improvement, continuing the program is certainly in the best interest of Wyoming and the United States.  Those claiming the leasing process is broken and should be subject to a moratorium are just wrong. Regretfully, political attempts to impugn the leasing process is but the latest in a long series of disruptive tactics employed by anti-coal forces to halt the development of this valuable American resource.

Marion Loomis is the Executive Director of the Wyoming Mining Association.