The Obama administration is set to refund as
much as $14 million in royalties to a coal company run by
billionaire investor William Koch that says it is entitled to
the money since the now-shut mine on federal land was costly to
The Interior Department recommended the payout in a December
letter to Colorado Governor John Hickenlooper, seen by Reuters,
that gives the state executive a chance to object.
The subsidy, part of a decades-old program to promote coal
production on public lands, is now under scrutiny since
President Barack Obama has vowed to curb the nation's reliance
on fossil fuels, which contribute to global warming.
Oxbow Mining, a subsidiary of Koch-controlled Oxbow Carbon
LLC, closed its Elk Creek site in western Colorado two years ago
after setbacks such as a fire and partial collapse made working
the underground mine too costly, according to the company and
Oxbow has said it has no plans to reopen the facility, which
once employed more than 200 people. Machinery is being sold for
scrap and the mine is ready to be sealed, according to
"Although production at the mine has been idled indefinitely
since the end of 2013 ... the royalty rate reduction would be
retroactive," the Bureau of Land Management wrote in an opinion
to Colorado officials, who have a say in the decision since they
share coal revenue.
The rebate would come in the form of a "royalty rate
reduction" going back to 2012 and lower the government's take to
5 percent from the usual 8 percent of coal sales.
"We are proposing to approve the royalty rate reduction,"
the BLM letter said.
The company has asked the federal government to refund
royalties it paid in years when the site yielded millions of
tons coal a year, according to regulatory paperwork.
Officials have used discretionary power to lower royalty
payments and spur production at mines where coal is hard to
William Koch was an heir to the Fred C. Koch family fortune,
and two of his brothers, Charles and David, are leading figures
in conservative politics.
While William Koch is not as politically prominent as his
brothers, he has been a significant political donor to
conservative causes in the past.
Oxbow has also lobbied the Environmental Protection Agency
to relax pollution controls and over a planned study of the
health impact of pet coke, a byproduct of oil refining used in
The health study died in Congress.
"Sometimes we need to influence politicians," William Koch
told the Tampa Bay Times in 2014. "And the easiest way to
influence is with money."
A spokesman for Koch and Oxbow declined to comment.
Rocky Mountain coal has been valued at $35 a ton or more in
the last several years, according to a Reuters review of Energy
Information Administration data.
Because the BLM recommends a royalty rate reduction on 13.1
million tons of coal, the decision positions Oxbow to receive at
least a $14 million refund on fuel mined since 2012, according
to a Reuters calculation.
Reducing royalty rates has been a tool used by the federal
government for decades when maximizing coal production was part
of a national energy policy.
"Royalty rate reductions on coal leases are authorized by
statute and BLM current implementing regulations," the agency
said in a statement. "As a result, the agency is obligated to
consider all properly filed applications."
The BLM has not made a final decision on the Oxbow royalty
rate reduction, the agency said.
Royalty rate reduction has been criticized for decades, and
an Interior Department review in 2013 found that officials often
lacked the financial expertise to determine whether a coal
company needed a lower rate.
The Obama administration has taken particular aim at
coal, introducing regulations that require utilities to obtain a
greater share of their raw energy from cleaner sources to
Those regulations have added to the financial pressures on
the coal sector, which was already facing a steep decline in
domestic demand because of competition from cheap,
cleaner-burning natural gas.