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Western states’ battle over coal royalties spills into House

The Western states’ battle over royalties that companies pay for coal, oil and gas taken from public lands spilled into Congress on Tuesday, where lawmakers and witnesses from Montana and Wyoming squared off.

Former Montana Department of Revenue Director Dan Bucks told the House Natural Resources Committee that more needed to be done to ensure the public was getting its money’s worth from coal, oil and gas leases on federal public lands. He scoffed at coal industry suggestions that higher royalties would kill mining.

“On the matter of coal, the issue of the effect of taxation or royalties on coal has been studied over and over again. All those studies indicate that royalties and taxes paid do not have a major impact on production levels or job levels,” Bucks said. “All those taxes and royalties are in the end only a small fraction of the final delivered price, and the demand for coal is inelastic, which means, not sensitive to price.”

Montana’s tax man under former Gov. Brian Schweitzer, Bucks has become a lightning rod for criticism from the coal industry and pro-coal politicians because of his support for Department of Interior plans to retool the way coal royalties are evaluated. The DOI proposal was at the heart of Tuesday’s hearing, where representatives from Western states called it a burden that coal companies were too broke to shoulder.

“We’ve got Arch and Alpha Natural Resources in deep financial trouble,” Rep. Cynthia Lummis, R-Wyo., said of two major mining companies in her state. “We have coal being regulated out of business. We have coal-fired power plants being shutdown prematurely in terms of their economic life because of rules being promulgated during the last couple years.

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“Is this a good time to add an additional burden and weight on companies that are just about to drown?”

The coal royalty debate has been heated in Montana and Wyoming. Hundreds of people turned out for field hearings on the DOI proposal in Billings and Gillette last summer.

The federal royalty rate on coal from open pit mines on public land is 12.5 percent. States where mines are located receive half of what’s collected. DOI’s Office of Natural Resources Revenue began scrutinizing payments in 2007, concerned that the public, and DOI’s Office of Natural Resources Revenue weren’t getting a full royalty share. Interior concluded that coal royalty rules, which hadn’t been updated since 1989, were due for revision in part to “provide early certainty to industry and ONRR that companies have paid every dollar due.”

The issue that arose for DOI concerned coal companies selling coal to subsidiaries that then resell the coal. Royalties were collected on the first sale, which DOI concluded was for a considerably lower price than what the subsidiary charged when reselling to a third-party buyer.

U.S. Rep. Ryan Zinke, R-Mont., arrived at the tail end of the meeting, just in time to question Bucks’ objections to coal royalties. When in office, former Gov. Schweitzer said coal companies weren’t underpaying state taxes, Zinke pointed out. So why was Bucks now saying coal companies weren’t paying enough?

Bucks said state Department of Revenue officials were auditing coal companies during Schweitzer’s tenure, but state law prevented Bucks from disclosing the audits to Schweitzer until the investigations were completed.

“I was subject to going to jail and losing my position and having ended my career if I briefed him on these matters,” Bucks said.

Zinke said something should have been said to Schweitzer.

“Any member working for a governor to not disclose there’s audits taking place, understanding that you cannot discuss what the results of those audits are, I think does not pay much attention and does a disservice,” Zinke said.

This article was written by Tom Lutey from Billings Gazette, Mont. and was legally licensed through the NewsCred publisher network.