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Final Federal Coal Leasing Rule Will Help Ensure Taxpayers Receive Their Fair Share

June 30, 2016

Final Federal Coal Leasing Rule Will Help Ensure Taxpayers Receive Their Fair Share

Statement of Tyson Slocum, Director, Public Citizen’s Energy Program

Note: Today, the U.S. Department of Interior (DOI) announced a final rule regarding the federal coal leasing program. Tyson Slocum, director of Public Citizen’s Energy Program, testified last week at a DOI public hearing explaining why an updated rule of the program was crucial.

Public Citizen applauds the U.S. Department of Interior’s announcement today of a final rule designed to ensure that taxpayers get a fairer return for leasing coal from federal land. Public Citizen recently has raised concerns about gaps in the current leasing program that have allowed coal companies to evade paying taxpayers the proper royalties owed. Today’s final rule endeavors to close this egregious loophole.

The rule addresses so-called ‘captive transaction’ abuses where coal companies would sell coal to an affiliate at a below-market price for the sole purpose of paying smaller royalties on the lower price. This is significant, as 42 percent of the coal produced in Wyoming’s Powder River Basin was sold through such captive transactions, depriving taxpayers, local schools and other beneficiaries of royalties.

One of the reasons the captive transaction loophole is particularly egregious is that some companies have exploited it to undervalue the royalty payment on coal that ultimately is sold overseas at prices much higher than domestic coal. For example, in Public Citizen’s report last month we noted that Cloud Peak Energy was one of the more aggressive companies employing this tactic, as 19 percent of the company’s revenue came from selling just five percent of its U.S. produced coal in Asian markets. And because Cloud Peak conducted these sales through affiliate transactions, the royalty was applied to the lower affiliate sale price, rather than the higher Asian price. When confronted about the practice, Cloud Peak Energy spokeswoman Karla Kimrey said, “If you look at the regulations, we are not required to do a net-back.” Now, thanks to today’s rule, beginning January 1, they will be.

Ensuring that taxpayers receive a fair price for federal resources is a commonsense reform.