Federal coal leasing

From Global Energy Monitor

The federal government controls about a third of U.S. coal reserves, administered by the U.S. Department of the Interior through the Bureau of Land Management (BLM). Federal coal is concentrated mainly west of the Mississippi. Most of the coal leased in the key Powder River Basin is federally owned.

The Mineral Leasing Act of 1920, as amended, and the Mineral Leasing Act for Acquired Lands of 1947, as amended, give the Bureau of Land Management (BLM) responsibility for coal leasing on about 570 million acres of BLM, national forest and other Federal lands, as well as private lands where the mineral rights have been retained by the Federal Government. The BLM is charged with assuing that the development of coal resources is done in an environmentally sound manner and is in the best interests of the Nation.[1]

Regulations that govern the BLM's coal leasing program are in Title 43, Groups 3000 and 3400 of the Code of Federal Regulations (CFR). The CFR is also available on-line from the Government Printing Office (www.access.gpo.gov).[1]

Public Lands Coal Mine Leasing

Public lands are available for coal leasing after they have been evaluated through the BLM's multiple-use planning process. In areas where development of coal resources may conflict with the protection and management of other resources or public land uses, the BLM may identify mitigating measures which may appear on leases as either stipulations to uses or restrictions on operations.[1]

Limitations on Non-US Company Leasing

Any adult citizen of the United States may obtain and hold Federal coal leases. Minors may not acquire leases, but a lease may issued to a legal guardian or trustee on behalf of a minor. Associations of citizens and corporations organized under the laws of the United States or of any State also qualify.[1]

Aliens may hold interests in leases only by stock ownership in U.S. corporations holding leases and only if the laws of their country do not deny similar privileges to citizens of the United States. However, they may not hold a lease interest through units in a publicly traded partnership.[1]

Types of Coal Leases

The Federal Coal Leasing Amendments Act of 1976 (FCLAA), which amended Section 2 of the Mineral Leasing Act of 1920, requires that all public lands available for coal leasing be leased competitively. There are two notable exceptions to this requirement: (1) preference right lease applications where a lease may be issued on a noncompetitive basis to owners of pre-FCLAA prospecting permits; and (2) modifications of existing leases where contiguous lands of less than 160 acres are added non-competitively to an existing lease.[1]

Competitive Leasing Process

There are two distinct procedures for competitive coal leasing: (1) regional leasing where the BLM selects tracts within a region for competitive sale; and (2) leasing by application where the public nominates a particular tract of coal.[1]

Regional coal leasing requires the BLM to select potential coal leasing tracts based on multiple land use planning, expected coal demand and potential environmental and economic impacts. This process requires close consultation with local governments and citizens through a Federal/State advisory board known as a Regional Coal Team. The BLM claims that because demand for new coal leasing has dropped in recent years, all current leasing is done by application.[1]

Leasing by application begins with BLM review of an application to lease a coal tract to ensure that it conforms to existing land-use plans and contains sufficient geologic data to determine the "fair market value" of the coal. Upon review of the application and consideration of public comments, the BLM will reject, modify or continue to process the application.[1]

Once the BLM accepts an application, the agency begins either an Environmental Analysis (EA) or Environmental Impact Statement (EIS). When a draft version of the EA or EIS has been prepared, the BLM seeks public comment on the proposed lease sale. At the same time, the BLM will also consult with other appropriate State, Federal and Indian government agencies.[1]

Preparations for the lease sale start with the BLM formulating an estimate of the "fair market value" of the coal. This number is kept secret and is used to evaluate the bids received during the sale.[1]

Sealed bids are accepted prior to the date of the sale and are publicly announced during the sale. The winning bid will be the highest one meeting or exceeding the coal tract's fair market value.[1]

Lease bonus bids

Lease bonus bids are monies paid over and above any royalties due on coal. The successful bidding company must pay one-fifth of the bonus at the time of sale and then a fifth every year for the next four years. This money is divided equally between the state and the federal government. Between 2003 and 2009, the state of Wyoming received $1.095 billion in bonus bid monies.[2]

Lease Terms and Conditions

Before the BLM issues a coal lease, the lessee must furnish a bond in an amount determined by the agency to ensure compliance with all lease terms and conditions. At a minimum, a bond is required that will cover any remaining balance of the bonus bid, as well as one year of advance rental and one-quarter year of advance royalties if the lease is in production. In addition, the Surface Mining Control and Reclamation Act of 1977 requires sufficient bonding to cover anticipated reclamation costs. This bond is submitted to the Office of Surface Mining Reclamation Enforcement or the State regulatory office.[1]

Rental and Royalty Rates

The annual rental rate for coal leases is $3 per acre (or fraction thereof).[1]

The royalty for surface-mined coal has been established by law at 12% of the gross value of the coal produced. For coal mined by underground methods, the BLM requires an 8% royalty. In both cases, royalty receipts are shared equally with the State in which the lease is located.[1]

Transfer or Sale of a Lease

The BLM may assign a lease in whole or in part to another entity that is qualified to hold a Federal coal lease. The rights of the entity receiving the lease, however, will not be recognized by the BLM until the assignment is approved and the original lessee remains responsible for all obligations of the lease until the approval occurs.[1]

Under certain circumstances, an exchange of coal leases may be allowed for the purposes of compensation, or when it is in the public interest.[1]

Termination of a Lease

A Federal coal lease has an initial term of 20 years, but it may be terminated in as few as 10 years if the coal resources are not diligently developed. In addition, if the lessee fails to comply with the provisions of the Mineral Leasing Act of 1920, as amended, or fails to comply with any applicable regulations, lease terms or stipulations, the BLM may take legal steps to terminate the lease.[1]

Federal share of overall U.S. coal reserves

The U.S. government of by far the largest owner of coal in the United States.

Table 4: Major Holders of U.S. Coal Reserves (Billion short tons). Note: Figure for U.S. Government is based on a National Mining Association calculation based on federal ownership of about one-third of the United States' coal reserves of 264 billion short tons.[3]

Holder Estimate Reserves
1. U.S. Government 88.000
2. Great Northern Properties Limited Partnership 20.000
3. Peabody Energy 8.200
4. CONSOL Energy 4.422
5. Arch Coal 2.900
6. North American Coal 2.400
7. Massey Energy 2.300
8. Natural Resource Partners LP 2.300
9. Pocahontas Land Corp. (Norfolk Southern) 1.730
10. Murray Energy 1.685
11. Foundation Coal 1.585
12. Rio Tinto 1.400
13. Luminant (formerly TXU and Alcoa) 1.300
14. Patriot Coal Corp. (formerly Peabody mines) 1.263
15. International Coal Group 0.965
16. Westmoreland Coal 0.946
17. Penn Virginia Resource Partners, LP 0.818
18. Alliance Resource Partners 0.713
19. Magnum Coal Company 0.650
20. Alpha Natural Resources 0.618

Federal ownership in the Powder River Basin

As shown in the map below of the Gillette field, the core production area of the Powder River Basin, the Federal government is the primary owner of coal in most western states.[4]

small

Obama administration and coal leasing on public lands

U.S. federal coal leases have fallen since 2008. The number of tons the government leased from 2008-2011 averaged 272 million. By contrast, the Bush administration leased an average of 515 million tons annually between 2002 and 2008. However, federal royalties are continuing to rise, reaching $701 million in fiscal 2011. Overall, U.S. coal production totaled 1.17 billion short tons in 2008, but declined to 1.074 billion tons in 2009 and reached 1.084 billion in 2010. 2011 totals are expected to be roughly 1.08 billion tons.[5]

Coal mining to expand on Wyoming and Montana public lands

On March 22, 2011 Secretary of Interior Ken Salazar stated that his office was opening up four tracts of land in Wyoming's section of the Powder River Basin for coal development. The leases are expected to bring in between $13.4 billion and $21.3 billion in leasing bids and royalties to the federal government and the state of Wyoming, stated Salazar. Wyoming will receive 48% of those revenues, with the rest going to the federal government.

The four tracts of land in northeast Wyoming are expected to yield about 758 million tons of coal.[6] A day after Salazar announced the deal to open public lands to mining operations, Marion Loomis, executive director of the Wyoming Mining Association, stated that Salazar's office had overestimated the amount of money the leases would bring in by "a factor of 10". The real amount of money the mines would likely produce will be closer to $2 billion.[7]

On April 20, 2011 the BLM it would sell leases for more than 61 million tons of coal in central Montana. The leases on 2,680 acres near the Signal Peak Mine, will be auctioned in a competitive sale the summer of 2011. The sale would open an additional 72 million tons of private and state coal reserves to potential mining operations.[8]

According to the report, the Bureau of Land Management (BLM) in 1990 “decertified” the Powder River Basin as a “coal production region,” allowing BLM to avoid following standard leasing procedures by limiting environmental review to the impact of individual leases, not the cumulative effect of all mining in the region. The designation also enables coal companies - rather than the federal government - to design lease boundaries, which can preclude competition. The report found that in the last 20 years, only three lease sales out of 21 had more than one bidder. The decertification also thwarts the BLM from doing a regional analysis of global warming impacts in the region from coal mining, and has blocked the agency from limiting coal leasing or otherwise adopting measures to address global warming.[9]

As of November 2009, the BLM was pushing to offer 12 new coal leases in the Powder River Basin that would collectively mine up to 5.8 billion tons of coal—as much coal as has been mined from the region in the last 20 years.[9]

The report recommends that BLM should refrain from issuing its 12 proposed coal leases, "recertify” the Powder River Basin a “coal production region” to restore competitiveness, prepare a regional environmental analysis that addresses the global warming impacts of coal mining in the Powder River Basin, and address the impacts of any new coal leases by requiring coal companies to pay a carbon fee for new leases that would be used to create a Global Warming Impact Fund.[9]

In June 2012 Peabody Energy picked up 721 million tons of coal for about $1.10 a ton under a lease program operated by the BLM.[10]

Decertification of Powder River Basin as a coal-producing region

A 2009 WildEarth Guardians report "Undermining the Climate" found that coal mining in the Powder River Basin of northeastern Wyoming and southeastern Montana is the largest contributor to global warming in the United States, a distinction made worse by a federal coal leasing program that has diminished competition and undermined regulatory efforts to address global warming.[9]

Planned lawsuit against BLM over leases and greenhouse gas emissions

On July 12, 2010, WildEarth Guardians, Defenders of Wildlife, and Sierra Club said they plan to file a lawsuit in federal court alleging that the Department of Interior and Bureau of Land Management (BLM) are not properly evaluating the impact of greenhouse gases created by the sale of the rights to massive tracts of coal in northeast Wyoming. The groups had previously raised similar issues in a petition and subsequent lawsuit against Interior in a Denver federal court, as well as a recently withdrawn appeal at the Interior Board of Land Appeals of a coal lease known as West Antelope II.[11]

The suit, to be filed in the US District Court for the District of Columbia, alleges that federal agencies failed to consider air quality impacts, as outlined under the Federal Land Policy and Management Act, and did not adequately address impacts of greenhouse gases or consider alternatives. The suit will also challenge the agency's 20-year-old decertification of the basin as a coal production region, which allows companies to nominate and bid on what are essentially customized tracts of coal. The groups say the current process, known as leasing by application, allows companies to skirt what should be a more comprehensive environmental review. The groups hope the suit has the potential to change the federal government's environmental review process for the billions of tons of coal it sells in the Powder River Basin, slowing the acquisition of reserves by the four largest US coal companies. The region annually produces over 400 million short tons of coal -- some 40% of the coal produced in the US.[11]

The leasing issue has already drawn the attention of major PRB producers such as Peabody Energy, Arch Coal, Cloud Peak Energy, and Alpha Natural Resources, who have met with state officials to discuss various concerns about future reserve acquisitions. In the same week as the planned lawsuit was announced, coal industry representatives are scheduled to meet in Washington with the congressional offices of western- and coal-producing states. Industry officials say the lawsuits and appeals for new coal leases have forced them to lengthen the amount of time they allow for acquiring reserves, a point Wyoming Governor Dave Freudenthal has raised with top officials at Interior in letters and face-to-face meetings over the past year.[11]

BLM and contested federal coal leases

On July 30, 2010, the Bureau of Land Management (BLM) announced that one of 11 federal coal leases pending approval south of Gillette, WY, can be sold, despite strong opposition from environmental groups, who have yet to have their concerns about global warming impacts addressed.[12] The Jim Bridger Mine in southwestern Wyoming is expanding its operations to approximately another 2,000 acres. The expansion includes new lease holdings on private land bordering the mine 35 miles northeast of Rock Springs. The mine, which provides coal to the adjacent Jim Bridger Steam Plant, is already the largest in Sweetwater County. The plant provides electricity to customers of Salt Lake City-based PacifiCorp and Idaho Power in Wyoming and five other Western states.[13]

The BLM will announce its decision on three more leases in separate upcoming decisions. The 11 leases total an estimated 4.5 billion tons of coal distributed between seven mines in the Powder River Basin and would guarantee the life of those mines for the next 20 to 30 years. This first lease, applied for in 2004, is for the Belle Ayr Mine. It covers 1,671 acres and the BLM estimates it contains about 221.7 million tons of mineable coal. The lease is estimated to provide enough reserves for Belle Ayr mine through the year 2030. Wyoming BLM state director Don Simpson wrote in his record of decision that it "is in the public interest" to offer the lease so the reserves are available to meet the EIA's projected national coal demand that is expected to exist until at least 2035. According to the BLM decision document, if Powder River Basin coal is not mined, it would most likely be replaced by coal from other domestic and international coal producers that would be "more costly, worse for the environment, and mined in places where coal mine reclamation may not be as successful."[12]

The BLM also released its report on July 30, 2010, of what it thinks the environmental and economic impact will be of mining six of the leases next to Black Thunder Mine and North Antelope Rochelle Mine, the largest coal mining operation in the U.S. Those six leases include an estimated 2.5 billion tons of coal. The BLM will take comments on the report until Aug. 30.[12]

Members of US Congress call for Department to issue coal leases

On September 22, 2010, 36 members of the US Congress from coal mining states wrote a letter urging Interior Secretary Ken Salazar to "defend the agency's coal-leasing program" against lawsuits filed recently by environmental groups. The lawsuits ask the Department to begin considering air quality and climate change impacts when determining federal coal leasing. The lawmakers played the usual economic card, stating the 5.8 billion short tons in pending federal coal sales is vital "to the economy and energy security of this nation." The letter was also signed by the committee Chairman Nick Rahall, a West Virginia Democrat. In all, 20 House Republicans and eight Democrats signed the letter. Eight Republican senators also signed on.[14]

BLM denies petition to re-certify PRB as coal producing region

In Feb. 2011, the U.S. Bureau of Land Management denied the 2009 petition by WildEarth Guardians and the Sierra Club asking the BLM to change the federal leasing policy so that the BLM alone would decide which coal reserves to sell. Since 1990, the government has allowed the coal industry to nominate deposits to mine in the Powder River Basin in Wyoming and Montana. The groups said that having the federal government follow formal leasing procedures, including consideration of environmental and economic impacts and competitive bidding, would help create more competition for the leases while improving oversight of coal's contribution to climate change.[15] BLM Director Bob Abbey said the existing process provides an "optimum" public return, and that limiting coal mining in one area would not affect worldwide coal use or climate change.[16]

Even with lower leasing fees, price of PRB coal going up

Since October 2009, the price for a one-month contract for Wyoming's Powder River Basin coal, which supplies about 45 percent of all US consumption, has risen 67 percent to $13.80 a ton, according to coal broker Evolution Markets. Since 2000, demand for coal has been growing 5 percent annually, according to a study by Tudor, Pickering, Holt & Co. Securities, a Houston-based investment bank, helping drive coal prices up.[17]

Coal leases and exports

According to a Reuters article in December 2012, coal companies are valuing federal coal at lower domestic prices rather than higher international prices so they “can dodge the larger royalty payout when mining federal land,” even though much of the coal was slated for export to Asia and Europe. In response, Senators Ron Wyden (D-OR) and Lisa Murkowski (R-AK) called on Secretary of the Interior Ken Salazar to investigate, saying they were concerned that coal companies are not paying high enough royalties on coal mined on public lands: "If any violations of the law have occurred, companies should be required to cure any gap in royalty payments and, if misconduct has occurred, civil penalties should be levied,” according to Wyden and Murkowsi’s letter.[18]

Five coal export terminals have been proposed in Oregon and Washington; much of the exports are expected to come from federal coal lands.[18]

Public lands coal mining in Utah to expand

On October 10, 2011 Utah state's Division of Oil, Gas and Mining approved a preliminary permit for the Coal Hollow Mine, located on private land just 10 miles south of Bryce Canyon National Park. The mine would be the state's first strip coal mine. Alton Coal Development hopes to mine 2 million tons of coal per year for three years. The company must secure a $6 million reclamation bond before receiving final approval of its mining permit.[19] According to an internal memo obtained by the Associated Press, the permitting decision may have been fast-tracked by Governor Herbert after a meeting during which Alton complained that the process was taking too long.[20]

In November 2011, a coalition of environmental groups filed a petition to block the mine, arguing that the project would damage the region's air, water, wildlife and cultural resources. The groups include The Utah chapter of the Sierra Club, Southern Utah Wilderness Alliance, the Natural Resources Defense Council and the National Parks Conservation Association.[19] The Division of Oil, Gas and Mining is expected to begin hearings on the petition in December.[20]

BLM considers expanding Coal Hallow Mine

In November of 2011 it was announced that Bureau of Land Management reported it was considering a proposal to greatly expand the Coal Hallow Mine operation to more than 3,500 acres from a 635 acre mine. The the agency released a Draft Environmental Impact Statement laying out the proposal, which quickly drew reaction from environmental and conservation groups that formed an online petition opposing the project.[21][22]

Citizen action

200 million ton coal lease in Wyoming overturned

In late March, 2011 the WildEarth Guardians helped to overturn a U.S. Forest Service decision authorizing more than 222 million tons of coal mining in Wyoming's Powder River Basin.

In March 2011 the Rocky Mountain Regional Office of the Forest Service “reversed in whole” a decision that consented to the leasing of more than 222 million tons of coal to be mined. The U.S. Bureau of Land Management issues coal leases, however if leases include National Forests or Grasslands, they cannot lease them without getting permissions from the Forest Service first.

In this case, the Forest Service consented to the issuance of the South Hilight coal lease, which would have facilitated the expansion of the Black Thunder Mine in Wyoming. The lease included portions of the Thunder Basin National Grassland in northeastern Wyoming. When burned, WildEarth Guardians contended, "the coal would release more than 400,000,000 tons of carbon dioxide—equal to the annual emissions from 87 coal-fired power plants."[23]

Legislative Issues

Reports

GAO

A December 2013 U.S. Government Accountability Office (GAO) report, "BLM Could Enhance Appraisal Process, More Explicitly Consider Coal Exports, and Provide More Public Information," found that there were "differences across BLM state offices in the approaches they use to estimate fair market value" of federal coal leases, and "BLM state offices are not documenting the rationale for choosing their approaches for the appraisal process" (p. 46). The report also states there is a lack of oversight for fair market appraisal, and not enough consideration of coal exports in the price.

Inspector General's Report

According to a 2013 Inspector General's Report, the Bureau of Land Management is improperly applying its own rules for assessing the fair market value of coal beneath federally owned lands. The study of coal leasing found that, despite rules adopted in the 1980s devised to ensure competition, more than 80 percent of sales in the past 20 years had received only one bid, and the process by which the value of the leases were computed is faulty. At the current rate of coal leasing, the inspector general found, every penny-a-ton undervaluation costs the taxpayers $3 million.

Further, the Bureau of Land Management allows coal companies to expand their leaseholdings by as much as 960 acres with no competitive bidding and little oversight, the report said. The bureau approved 45 such lease modifications since 2000 without adequate documentation. The report concludes that the government lost as much as $60 million by undervaluing lease modifications. The report also concluded that federal officials do not properly account for the value of Powder River Basin coal in export markets - particularly Asia.

Tom Sanzillo

A 2012 report by Tom Sanzillo of the Institute for Energy Economics and Financial Analysis concluded that, since 1982, the Fair Market Value (FMV) lease process administered by the Bureau of Land Management (BLM) provided a $28.9 billion subsidy to coal producers and utilities in lost royalties and bonuses. The bids by coal companies for leases did not match the estimated market value of the reserves, which the report attributes to the increasing privatization of the federal leasing system and lack of government oversight. In total, nine billion tons of coal were mined, with 12 billion more tons slated to be mined between 2011 and 2035.

Impacts

According to the 2103 EIA report, "Sales of Fossil Fuels Produced from Federal and Indian Lands, FY 2003 through FY 2012," federal lands contributed to 42.1 percent of US coal (442 million short tons), as well as 26.2 percent of US oil (596 million barrels) and 17.8 percent of our natural gas (4,262 billion cubic feet). Climate Progress estimates that, using the Environmental Protection Agency’s “Greenhouse Gas Equivalencies Calculator,” the 2012 public lands development is equivalent to the emissions from 427 coal-fired power plants. (For comparison, there are 589 coal-fired power plants in the U.S.)

Resources

References

  1. ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 "The Federal Coal Leasing Program," US Bureau of Land Management
  2. ↑ "Concise Guide to Wyoming Coal, 2010," Wyoming Mining Association, accessed October 16, 2010
  3. ↑ 2007 Coal Producers Survey, National Mining Association, 2008
  4. ↑ James Luppens et al, Assessment of Coal Geology, Resources, and Reserves in the Gillette Coalfield, Powder River Basin, Wyoming, US Geological Survey Open-File Report 2008-1202, 2008, Figure 63
  5. ↑ "Coal extraction poses climate challenge for Obama administration" Juliet Eilperin, Washington Post, December 25, 2011.
  6. ↑ "Coal mining to expand on public lands in Wyoming" Jim Spellman, CNN.com, March 22, 2011.
  7. ↑ "Salazar appears to have vastly overstated coal money in Wyoming" Jeremy Fugleberg, Star Tribune, March 24, 2011.
  8. ↑ "61M tons of coal near Roundup to be leased by BLM" Associated Press, April 20, 2011.
  9. ↑ 9.0 9.1 9.2 9.3 Jeremy Nichols, "Undermining the Climate" WildEarth Guardians report, November 23, 2009.
  10. ↑ "Coal is Cheaper Than Dirt -- It's a Joke, But It's On Taxpayers" NRDC, June 28, 2012.
  11. ↑ 11.0 11.1 11.2 Peter Gartrell, "Environmental groups to sue US BLM, Interior over coal leases" Platts, accessed July 2010.
  12. ↑ 12.0 12.1 12.2 Steve McNamanen, "BLM: 1 of 11 federal coal leases can be sold" Gillette News, July 31, 2010.
  13. ↑ "Feds approve expansion of Wyoming coal mine" Bloomberg, August 2, 2010.
  14. ↑ "US lawmakers urge Salazar to fight challenges to Wyoming coal leases" Platts, Sep. 22, 2010.
  15. ↑ Christine Shearer, "Tapping "Our" Resources: Declining Returns on Fossil Fuel Leases" truthout, Feb. 4, 2011.
  16. ↑ "BLM denies request to change coal leasing process" Charleston Gazette, Feb. 7, 2011.
  17. ↑ Mark Jaffe, "Rising coal costs will be felt in electric bills" The Denver Post, Oct. 26, 2010.
  18. ↑ 18.0 18.1 Jessica Goad, "Bipartisan Pair Of Senators Calls For Investigation Into U.S. Taxpayer Losses From Coal Exports," Climate Progress, Jan. 4, 2013.
  19. ↑ 19.0 19.1 Mark Havnes, "Environmental groups move to stop strip mine," Salt Lake Tribune, November 20, 2009.
  20. ↑ 20.0 20.1 "Memo: Utah regulators sped up mine permit decision," Associated Press, November 19, 2009.
  21. ↑ "BLM Considering Proposal To Expand Coal Mine Near Bryce Canyon National Park" Kurt Repanshek, Natural Parks Traveler, November 14, 2011.
  22. ↑ "Dirty Coal Should Stay in the Ground" Dirty Coal Should Stay in the Ground, Sharon Buccino, NRDC, November 3, 2011.
  23. ↑ "WildEarth Guardians Scores Victories for Clean Energy" WildEarth Guardians, Press Release, April 7, 2011.

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