Coal Producers: Obama Royalty Reform May Shut Us Down

coal trainThe Obama administration has proposed to change how it collects royalties on coal mined from federal land, a move that environmentalists hope, and the industry worries, will cut use of the fuel linked to climate change.

The Interior Department says the accounting change is needed to update rules adopted almost three decades ago, and streamline the program for companies such as Peabody Energy Corp. and Arch Coal Inc. And more changes are on the way.

“It’s time for an honest and open conversation about modernizing the federal coal program,” Interior Secretary Sally Jewell said in a speech last week to the Center for Strategic and International Studies in Washington. “How do we manage the program in a way that is consistent with our climate-change objectives?”

For industry, the broad effort is seen through the prism of their ongoing complaints that President Barack Obama is waging a “War on Coal.” Sales of federally owned coal from the Powder River Basin in Wyoming and Montana — the biggest source — topped 350 million tons last year, generating company revenues of almost $5 billion, government data showed.

The Interior Department wants to assess the royalty when mining companies sell the coal to an unaffiliated buyer, not when sales are made to related intermediaries. Those sales have been growing, which has raised suspicions from advocacy groups that the prices are artificially low.

‘Sneaky, Underhanded’

“It’s a sneaky, underhanded backdoor approach to do something through regulation that they don’t have the authority to do,” said Richard Reavey, vice president for Cloud Peak Energy, a Gillette, Wyoming-based company with three mines on public lands in the Powder River Basin. “What they are saying is: ‘We want the coal to stay in the ground and here are all the ways we’re going to do it.’ “

Environmental advocates are prodding Obama to halt sales of coal from federal lands, thereby living up to his soaring rhetoric on climate change. They say he has ignored the impact of mining and drilling for fossil fuels on government land.

“The administration has done a lot of work on energy efficiency and power plant emissions, but we think there should be more of a discussion on the actual resources pulled from federal land,” said Joshua Mantell, a government relations representative at the Wilderness Society. “This has been a real blind spot in terms of the climate debate.”


Reavey, of Cloud Peak, said the Interior Department is combating a problem that doesn’t exist. Companies now calculate the appropriate royalty by comparing sales to affiliates to those of similar arms-length transactions. And figuring out how to subtract costs from sales well down the line will just muddy the program further, he said.

The change may create the biggest impact on exports, which had been expanding for Powder River Basin coal. Those shipments have slowed as prices slump and demand weakens in Asia. Shutting the export market is a key push by climate activists, who are seeking to block new West Coast ports that would ship to Asia.

“There is going to be a market for Powder River Basin coal exports, and this makes for an uncertain operating environment,” Reavey said. “This absolutely does not streamline the administrative process.”

Read rest…