Why coal royalties matter

The paradox of the American West is the terrible beauty of a landscape largely owned and managed by the feds, nourishing a population of independent spirits skeptical of big government. Eastern Washington is emblematic of the bite-the-hand contradiction, home to the Hanford Nuclear Reservation and beneficiary of Depression-era public works projects that made the high Columbia desert bloom. Love for the feds? Not so much.

Cross federal lands with private enterprise and a bureaucratic culture sensitive to criticism, and the resulting appetizer serves up the challenge of coal terminals.

Last week, Oregon Sen. Ron Wyden, chair of the U.S. Senate Energy and Natural Resources Committee, and Alaska Sen. Lisa Murkowski, the committee’s ranking Republican, sent a letter to U.S. Interior Secretary Ken Salazar demanding specifics on the management of federal coal royalties. Their questions flow from a series of Reuters articles detailing the loss of millions of dollars from coal mined on federal land in the Powder River Basin. Presupposing that the Gateway Pacific Terminal at Cherry Point is green-lighted, the basin is the starting point for coal on its way to East Asia via rail.

The possible loss of revenue also costs states where federal coal is mined, specifically Wyoming and Montana. In 2011, Montana and Wyoming exported nearly 18 million tons of coal. Wyoming’s Republican Gov. Matt Mead and Montana’s Democratic Gov. Brian Schweitzer are working to ensure that citizens get a fair return on investment.

The royalties imbroglio centers on creative accounting. The Reuters story documents an alleged shell game that may violate the Mineral Leasing Act of 1920. Financial statements indicate that coal companies have been selling to in-house affiliates that subsequently trade to international buyers, generating a premium. The mission is classic fee sheltering, undervaluing the soon-to-be-exported coal and reporting a reduced sales price. To compound the insult, federal coal is intended to “meet the nation’s energy needs,” pursuant to the Federal Coal Leasing Amendments Act. Because of an attenuating domestic demand for fossil fuel, however, Powder River Basin coal is exported to China and other East Asian markets, de facto subsidized by U.S. taxpayers.

Wyden and Murkowski have wisely pushed the Interior Department’s Office of Natural Resources Revenue to audit previous fiscal years to see whether the undervaluing schemes cheated taxpayers out of royalty payments. The money question is central, with Murkowski and Wyden asking in their letter, “If underpayment of royalties has occurred, what recourse is available to the Department?” Hopefully, back payment.

With coal-export terminals on track, lawmakers need to ask the tough questions about who is paying, who benefits, and how the coal industry’s designs square with the country’s energy future.

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