A coal industry executive is recommending that the federal government provide more "clarity and certainty" in its rules for the payment of federal royalties.
"Companies are increasingly trying to do the right thing but increasingly not knowing how to do that," Matthew Adams, vice president of taxation at Cloud Peak Energy Inc. and a member of the U.S. Department of the Interior's Royalty Policy Committee, said at the committee's Feb. 28 meeting in Houston. "The best way to provide clarity and certainty, to avoid further appeals and costly litigation, is to request formal rulemaking around the coal valuation benchmarks."
The committee was created by Interior Secretary Ryan Zinke after he lifted a moratorium on new federal coal leases that was imposed by the Obama administration. At its first meeting in October 2017, the energy industry called for simplifying the process of calculating and reporting royalties on coal mined from leased lands.
Adams, who sits on the committee's Fair Return and Value Subcommittee, said the first valuation benchmark should be returned to draft language from rules used in the late 1980s that would allow coal producers to value coal based on the gross proceeds of a non-arm's-length contract, as long as the proceeds compare to arm's-length contracts for sales, purchases or other dispositions of like-quality coal in the area.
Critics of the royalty program have alleged in the past that coal producers shortchanged taxpayers by exploiting an alleged loophole in the valuation system, essentially first selling their coal to their own affiliates at a low value.
Adams said there are "legitimate reasons for why companies would use affiliates for transportation logistics services," including mitigating potential risks that might solely affect logistics from spilling over into coal mining. The separation of these affiliates protects coal mining operations from the possibility of closing, he said.
Taxpayers for Common Sense President Ryan Alexander said a process put into place 30 years ago is not right for a system that should be looking forward and allowing the coal industry to pick and choose the ways it values coal creates huge problems for taxpayers.
Alexander said she is concerned that the view presented by the Fair Return and Value Subcommittee is too closely aligned with the perspective of Cloud Peak when it should represent a wider view.
The coal sector will always look out for itself, she said, but "it's the job of the agency to look out for what's best for taxpayers."
Later in the meeting, Adams said he wholeheartedly agreed with recommendations made by Kathleen Sgamma, president of the Western Energy Alliance and a fellow committee member, to streamline the National Environmental Policy Act process for onshore leases.
"The current timeline to go from concept to shovel at a coal mine is in the 10- to 12-year range. Not that long ago, it was in the two-year range," he said.
