COAL

Audit faults BLM assessments of fair market value in leasing program

Updated at 2:52 p.m. EST.

The Bureau of Land Management has failed to ensure companies pay fair market value for leasing federal coal, the Government Accountability Office says in a new report.

The report says BLM failed to enforce uniform policies for establishing the fair market value of coal reserves.

"BLM's guidance offers flexibility in how to estimate fair market value," GAO says in the report summary, "and BLM state offices vary in the approaches they used to develop an estimate of fair market value."

Some BLM offices estimated the fair market value of a coal tract by analyzing information from previous lease sales and the amount of money companies stood to make from mining and selling the federal coal, the report says.

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"However," GAO adds, "some offices relied solely on the comparable sales approach and may not be fully considering future market conditions as a result."

The GAO report is the latest in a string of studies about BLM's coal-leasing program that's under scrutiny from environmental and taxpayer watchdog groups.

Massachusetts Sen. Ed Markey requested the new report when he was the top Democrat on the House Natural Resources Committee. Today he echoed BLM critics in calling for a coal leasing suspension.

Environmentalists have focused their concerns on the potential climate impacts of mining and burning federal coal, while taxpayer watchdogs accuse BLM of not taking exports into account when calculating fair market value. That, they say, means taxpayers are losing out.

The new report says BLM considered exports to a "limited extent." The issue was mentioned in reports by the Montana and Wyoming BLM state offices, GAO said, but not really considered in seven other states that lease coal.

"As a result," the report says, "BLM may not be factoring specific export information into appraisals or may not be fully considering the export potential of a lease tract's coal as called for in agency guidance."

Auditors also found that BLM didn't consistently document the reasons behind leasing decisions, including four instances out of dozens GAO reviewed where the agency accepted company bids under fair market value.

GAO said some agency offices were not following guidance for reviewing appraisal reports. The report faulted BLM for not taking advantage of the Interior Department's Office of Valuation Services, which could have provided independent, third-party reviews of appraisals.

"Adequate review of the fair market value process is critical to ensure that its results are sound and key decisions are fully documented," GAO says.

The Wyoming BLM office posts information about lease sales on its website, including past actions, while other states post only general information, the report says.

"BLM's guidance states that redacted public versions of its appraisal reports should be prepared, but no BLM state office has prepared such reports," the report adds.

"BLM supplied redacted versions of fair market value documents in response to a recent public information request only after being advised to do so by Interior's Solicitor's office," it says.

Reactions

The report was relatively tame compared with what critics of BLM have said about the agency's leasing process. Many of them have called for a moratorium.

Jeremy Nichols, climate and energy director for WildEarth Guardians, a leading group in fighting coal leases, called GAO's findings "scathing" and signs of a broken system that needs to be fixed.

"The fact that there is even one instance where BLM sold coal at below fair market value, or failed to take into account exports, or failed to document the rationale for its decisions is unacceptable," he said.

Tommy Beaudreau, acting assistant Interior secretary for lands and minerals management, said BLM was already working to correct the deficiencies identified by the audit.

BLM "has already begun implementing a number of reforms designed to improve and standardize the performance of the BLM coal program, including the establishment of a Memorandum of Understanding with the Department's Office of Valuation Services to strengthen the BLM coal valuation program," he said.

In an Aug. 29, 2013, letter to GAO, Beaudreau added, "The BLM will also soon publish additional detailed information regarding past lease sales on its national and state websites."

The National Mining Association in a statement noted GAO's "narrowly tailored" recommendations and BLM's progress in addressing them.

"The report is therefore not the condemnation of the federal coal leasing program that coal opponents hoped to see," NMA spokesman Luke Popovich said. "Nor does it credit spurious allegations that exports of leased coal deprive the public of fair market value."

He added, "There is no basis in this report for claims that there are significant deficiencies in the federal coal lease program that deprive taxpayers of fair value from coal mined on federal lands."

The report says BLM accepted most bids submitted by coal companies. The review also said most lease sales have gone to a single bidder.

Under the current system, companies often request land to be offered for lease with the purpose of expanding existing operations. But watchdog groups have called the leasing statistics evidence of lack of competition in lease sales.

"These noncompetitive practices are costing taxpayers in Massachusetts and across the nation, benefitting just a few coal companies who may be leasing public coal resources at bargain basement prices," Markey said in a statement.

"Taxpayers are likely losing out so that coal companies can reap a windfall and export that coal overseas where it is burned, worsening climate change," he said. "This is a bad deal all around."

Other reports

An Interior Office of Inspector General report released last year said BLM may have lost more than $60 million from coal lease modifications. Both the agency and coal industry supporters in Congress questioned the findings (E&E Daily, July 10, 2013).

Some lawmakers said companies were likely paying above fair market value for at least some leases. BLM accepts the highest bid as long as it falls above its fair market value estimate.

Another study released in 2012 by the Institute for Energy Economics and Financial Analysis accused BLM of missing out on $28.9 billion in revenue over the previous three decades (Greenwire, June 25, 2012).

Markey had his own estimate. "Based on my staff's examination of the materials," he said, "I believe that using appropriate market calculations and assumptions in some recent coal lease sales could potentially have yielded $200 million more for the American people, and possibly hundreds of millions of dollars more."

Markey also said GAO released two separate reports -- one public and the other private. The agency said some secrecy was necessary to ensure the integrity of the leasing process.

"It would be very helpful for the American people to be able to review this information," Markey responded. "But even if that is not possible because of concerns about proprietary information, Senators should be able to review this information and debate it in order to ensure that taxpayers are protected."

GAO found that BLM has leased more than 100 tracts for coal mining since January 1990. Revenues from coal leases have been about $1 billion annually in recent years, the review said.

Click here to read the GAO study.

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