IG & GAO Review Powder River Basin Coal Leasing

The non-competitive nature of the federal coal leasing program is being reviewed by the Interior Department’s Inspector General and also will be the subject of an audit by the Government Accountability Office, according to officials at the Bureau of Land Management, which oversees the leasing program.

Currently, a mining company draws up a proposed area for leasing, and the Interior Department’s BLM auctions it off to that same firm.  This is the rule rather than the exception in the country’s single biggest coal producing region. In the 26 coal leases the federal government has awarded in southeastern Montana and northeastern Wyoming since 1991, 22 have gone to a single bidder. In the other four instances, there were only two bidders involved.

Powder River Basin Coal

On Thursday, the BLM will auction off the right to extract 721.2 million tons of coal from Wyoming’s North Porcupine tract in a region known as the Powder River Basin. Barring an unforeseen development, there will be one bidder for the lease: Peabody Energy, which bought the lease to mine 402 million tons on the adjacent tract in May.

In 1983, the GAO concluded that the BLM auctioned off lease rights there for $100 million below their fair market value.

Interior and mining industry officials said the lack of competition stems from the fact that there are only four major coal companies operating in the Powder River Basin, and mining equipment is so large and expensive that firms confine themselves to one place. The reason why a single company sometimes bids on a tract for leasing is that the company, which already has the existing infrastructure in place, is bidding on the adjacent parcel to their existing leased parcel. BLM oversees mineral rights for nearly 700 million acres of federal land.

Powder River Basin Coal

Four coal companies operate in the region — Peabody, Alpha Natural Resources, Arch Coal and Cloud Peak Energy.  They are reperesented by the National Mining Association.

Coal companies are complying with federal rules. The BLM establishes a secret floor price for each lease and withholds mineral rights if bidders fail to meet it. BLM is the one who determines the price.

The Powder River Basin supplies 44 percent of the nation’s coal and 47 percent of the coal in the United States used for electricity.

The economic future of the Powder River Basin may depend on whether it can export its coal overseas, where it can sell for more than six times what it costs to mine. All four firms there predict a rise in exports and support building new shipping terminals in the Pacific Northwest. Environmental groups are hoping to block those terminals, just as they oppose the lease auction that the BLM plans to hold Thursday. (Wash Post, 6/24/2012)