(Gillette News Record, July 1) – Less that two days removed from closing out an extensive round of public listening sessions on the subject, the Interior Department announced sweeping changes to how the government values coal mined from public lands.
Thursday’s final rule that updates the federal mineral royalty program will ensure taxpayers receive “every dollar due” from coal leases on federal lands, said Interior Secretary Sally Jewell. It’s a change that could bring up to $1 billion more from companies that mine coal from public lands.
“These improvements were long overdue and urgently needed to better align our regulatory framework with a 21st century energy marketplace,” she said.
Jewell and the Obama administration have maintained that coal producers have been exploiting loopholes in the royalty program for decades and shortchanging the public on a fair return.
Wyoming officials were quick to decry Thursday’s announcement.
U.S. Sen. Mike Enzi called it another nail in the coffin the current administration has promised for the industry.
“These regulations are a sham designed by the Obama administration in order to raise prices and put coal, oil and natural gas companies out of business,” Enzi said in a prepared statement. “The administration doesn’t care as much about ensuring taxpayers get a fair return as it does about ending coal.”
Under the new regulations, which take effect Jan. 1, the 12.5 percent royalty rate paid for selling coal mined from public lands won’t change. What has changed, however, is a loophole that allowed the lease rate to be set by the first sale of the coal. In some cases, companies were making that first sale to a subsidiary for a reduced price, paying the 12.5 percent on that, then the subsidiary would resell it for considerably more, said Robert Godby, an associate professor at the University of Wyoming and director of the Department of Economics and Finance.
The change in the way royalties are calculated comes as the Obama administration has launched a wide-ranging review of the federal coal-leasing program, including a three-year halt on new coal leases on federal lands. Officials also are determining if longstanding royalty rates charged to mining companies are too low and reviewing how coal production on federal land contributes to climate change.
“I’ve looked at the rule, and looking at it, there are two parts to it,” Godby said.
The major change, he said, is that the government now will determine the royalty value of the coal at the time it issues a lease. That’s the wild card in the process, because although the royalty percentage hasn’t changed, if the lease is valued at twice what it normally would be under the old rule, companies would pay double what they had before.
To set that price, revenue will be based on the price paid by an outside entity, rather than an interim sale to an affiliated company or subsidiary. That means for coal exports to Asia or other markets, the royalty would be based on potentially higher prices earned there rather than on domestic sales.
Overall, by having the authority to basically set lease values at whatever it wants, the federal government has the power to price coal out of existence, said U.S. Sen. John Barrasso in a statement reacting to Thursday’s announcement.
“Today’s new valuation rule is not about closing any loophole — it’s about targeting (to) ruin American energy jobs,” he said. “President Obama has sought to destroy the mining and use of coal from day one, regardless of the consequences for mining families, the communities they support and the consumers they supply.”
He also promised that Congress and the legal system will be engaged to fight the final rule.
Who was listening?
Thursday’s final rule came less than two days after the Interior Department and Bureau of Land Management concluded its second exhaustive round of public comment on the royalty program, called “listening sessions.”
It shows there never was any genuine interest in public input into the decision, said Jonathan Downing, director of the Wyoming Mining Association.
“This is one of those things where on the federal level they said they were doing these listening sessions, but they were just checking the box that they were listening when they weren’t,” he said.
“I’m not surprised. This is just how this administration operates. I think it’s fair to question whether or not they fully evaluated (the public comment).”
Whether those comments were considered doesn’t change the fact that from the beginning, the administration has made it clear what the final goal is, Downing said.
“There’s obviously a bias against coal and fossil fuels, and this was apparent in the final rule,” he said.
How bad is it really?
While public officials and industry insiders decry the changes to the federal coal leasing program, saying it will kill coal is an overstatement, Godby said.
“This is not good news for the coal companies,” he said. “It’s going to make it harder for them to make a profit.”
For the Powder River Basin, the impacts won’t be felt as much as other coal-producing states because, even with historic low prices and production dipping to 1995 levels, coal mined here still can be profitable, or at least break even, Godby said.
“If you want to say it’s death by 1,000 cuts, this is another cut,” he said. “It’s not going to be the bullet that kills them.”
On the flip side, if the value of leases is set higher by the government and companies are ultimately paying more for mining and selling coal, that means more money for the state of Wyoming, which receives 48 percent of those royalties.
“On the other side of this, the state of Wyoming is desperate for increased revenues. We get approximately half and the state may be better off (in the long run),” he added.