UPDATE 1-U.S. not protecting taxpayers on coal exports -report

Tue Feb 4, 2014 7:33pm EST

By Patrick Rucker

WASHINGTON Feb 4 (Reuters) - U.S. officials are not doing enough to protect the interests of taxpayers in regard to the millions of tons of coal being mined from federal land and exported abroad, a government report concluded on Tuesday.

The Interior Department doles out leases and collects royalties when miners tap federal land in coal-rich regions such as the Powder River Basin in eastern Montana and Wyoming.

And while most of that fuel has gone to feed domestic furnaces, government officials have largely ignored the increasing amount that is exported, and taxpayers could be losing out as a result, the Government Accountability Office, an investigative arm of Congress, said in the report.

Coal exports are generally sold at higher prices than coal sold domestically.

"(The Bureau of Land Management) considers exports to a limited extent," the GAO said, referring to the agency that is responsible for getting the best deal possible for taxpayers on coal sales.

Wyoming officials have only considered the value of export markets with "generic boilerplate statements about the possibility of coal exports," the report stated.

Officials from Colorado and other states told the GAO, "they did not consider exports when estimating fair market value because there were few or no coal exports."

More than 6 million tons of coal were exported from Colorado mines in 2012, according to data from the Energy Information Administration, and about half of that was sold by brokers and traders.

All of the 9 million tons of coal exported from Montana that year was sold through a trading desk.

Early last year, former Interior Department Secretary Ken Salazar ordered an investigation into whether miners were wrongly using affiliated brokers to skirt royalty payments.

U.S. taxpayers are due a 12.5 percent royalty on coal sales from federal land, but officials want to know whether miners are clearing their sales at artificially low prices.

The Interior Department said that it is committed to protecting taxpayers, but declined to comment on its investigation into possible royalty shortfalls on coal exports.

COAL REGION

A major hub of coal production is the Powder River Basin, where the black rock can run in 10-story seams and the low-sulfur content has been favored.

Several export terminals are being planned for the Pacific Northwest as a gateway for Powder River Basin coal shipments to Asia at a time when domestic coal demand has slackened.

Senator Ron Wyden, an Oregon Democrat, who originally called for the investigation into royalties, said he would continue to seek answers about whether taxpayers are being protected on export sales.

"This is an issue that deserves time and attention," he said in a statement. "I plan to dig deeper."

Arch Coal Inc, Peabody Energy and Cloud Peak Energy are all leading miners on federal land.

Comments from the mine companies were not immediately available.

"There's been no meaningful progress to determine if miners are paying their fair share of royalties, but that doesn't mean people are going to stop pushing," said Theo Spencer of the Natural Resources Defense Council, a conservation group advocating clean energy that has sued the Interior Department to release documents on how it values the fuel.

POOR RECORDS

Taxpayers have a stake in coal mined from federal land even before the fuel is sold.

Interior officials organize auctions of tracts and are supposed to seek a "fair market value," but the standards for those sales are often irregular, the GAO said.

Officials were found to "not consistently document the rationale for accepting bids that were initially below fair market value," the report stated.

When using comparable sales prices to find a benchmark value, the report says, Interior has used past sales that were five years old when the market was different.