Re: West Antelope III EIS Scoping Comment

Dear Ms. Johnson:

Taxpayers for Common Sense (TCS) is submitting the following comments for consideration in the scoping process of the West Antelope III Programmatic Environmental Impact Statement (EIS). TCS is a national non-partisan budget watchdog that has been working on behalf of the nation’s taxpayers since 1995.

In 2013, TCS published a comprehensive review of the federal coal program focused on reforms that could be made to better ensure a fair return for federal taxpayers. Our review found that before leasing additional lands for coal development, the Bureau of Land Management (BLM) should fix long-standing problems in its administration of the program.

In order to maximize the return from federal coal, the BLM should establish whether current market conditions are amiable to additional supply, making its production economically advantageous. It must also analyze current leasing and royalty practices to ensure they are capable of providing a fair return for public coal resources. It is the view of TCS that BLM is not currently fulfilling these criteria, a sentiment echoed by the Government Accountability Office and others.[1]  Therefore, significant reforms to leasing and royalty valuation practices are needed in order to provide taxpayers with a fair return on the West Antelope III lease.

There are two main revenue streams generated from the leasing of public land for coal development, bonus bids during lease sales and production royalties. The systems in place that determine both of those are woefully outdated and ineffective at providing taxpayers with a fair return.[2] The leasing process and royalty valuation system must first be reformed before BLM issues any additional lease sales to ensure a fair return to taxpayers. BLM must review and reform:

• The Lease by Application (LBA) system, in order to create a more competitive system that promotes higher bidding, greater transparency of information, and reduces the role of private companies in delineating the boundaries of the land leased.
• Resource valuation, ensuring that royalties are calculated based on the full value of the resource, not its sale to a subsidiary or low dollar domestic transactions.
• Fair Market Value practices, creating a transparent system in determining what constitutes fair market value for the leasing of publically owned lands.

In order to ensure the most equitable return to taxpayers, BLM must also take into account whether current market conditions make development of publically owned natural resources economically advantageous. It is fiscally irresponsible to develop resources that could potentially provide much higher returns for taxpayers if leased at some point in the future. This is especially important when the United States is the largest oil and natural gas producer in the world, creating less demand for coal.[3]

The BLM must take into account the market conditions for coal when deciding on leases such as West Antelope III. The decreasing demand of the domestic coal market has made, and will continue to make, the export of coal abroad a desirable and economic choice for coal producers. But until the valuation process is reformed, taxpayers will lose significantly on exported coal.[4] The way in which royalties are currently calculated does not account for the downstream value of coal, such as when it is sold for export. This represents a significant loss of revenue for taxpayers given the higher prices coal can reach on the global market.[5]

Specific to the West Antelope III lease sale, there are indications that the project may not yield results for years to come. The uncompetitive nature of the current leasing system makes it highly likely that Cloud Peak Energy, the lessee of the adjacent property, will be the winner of the lease bidding, if not the sole bidder on West Antelope III. Cloud Peak Energy may not be in a position to begin producing coal from West Antelope III lands for years, something BLM must take into account before issuing the lease. Given the delayed timeframe for yielding results, it is likely in taxpayers’ best interest for the BLM to delay the lease sale until Cloud Peak Energy is poised to actually develop the land. Uncertainty of future market conditions must play a role in BLM’s decision to pursue the lease.

Please find attached Taxpayers for Common Sense’s comprehensive report entitled Federal Coal Leasing: Fair Market Value and a Fair Return for Taxpayers to serve as the entirety of our comments with respect to the scoping period of the West Antelope III EIS.

Sincerely,

Ryan Alexander

President