Big Coal Just Saw One of Its Favorite Loopholes Closed

The Obama Administration last week took a closely-watched first step in its effort to reform the federal coal program by issuing a rule that will make it harder for coal companies to dodge royalty payments when mining on taxpayer-owned public lands.

The rule, issued by the U.S. Department of the Interior’s Office of Natural Resources Revenue (ONRR), closes a loophole that enabled coal companies to sell coal to their own subsidiaries — and then pay royalties on that artificially depressed price.  Through these self-dealing transactions, coal companies have been able to shortchange U.S. taxpayers and state governments millions of dollars in royalty payments that are owed on federal coal.

Dan Bucks, a former director of the Montana Department of Revenue, said “although these rules still leave some loopholes open for excessive deductions and exclusions, there is no doubt they represent the most substantial improvement in coal royalty administration in several decades.”

A 2015 review by the Center for American Progress found that self-dealing appears to be particularly rampant in the Powder River Basin in Wyoming and Montana, which produces the most coal of any region in the United States.  In 2012, 42 percent of coal produced in Wyoming was sold through so-called “captive transactions,” or from a parent company to a subsidiary, potentially depriving the state’s taxpayers millions of dollars in royalty revenue.
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Recent data from the U.S. Energy Information Administration, however, suggests that Montana is among the states that will benefit most from the new rule.  Nearly one-third of coal tonnage sold in Montana in 2013 and 2014 was through self-dealing transactions, indicating that the closure of the loophole will result in higher royalty collections, which are then split evenly between the federal and state government.

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