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Interior Department inspectors turn up problems with federal coal sales in Western states

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BILLINGS, Mont. - Coal sales in Western states are getting more scrutiny from federal lawmakers amid new revelations Friday about officials accepting below-market bids for some coal sales and possibly illegally negotiating with companies over prices.

A probe by the U.S. Department of Interior Inspector General found federal officials in Colorado, Utah, Wyoming and New Mexico accepted the below-market bids or sold coal without full appraisals.

Deputy Inspector General Mary Kendall said such practices violated federal rules including the 1920 Mineral Leasing Act, which requires coal sales to be competitive.

Kendall also found that some state and local offices within the Interior Department's Bureau of Land Management had negotiated with companies that submitted failed bids. That allowed the companies to justify their initial bid and avoid the time and effort of going through another sale process.

"In our view, this is a form of negotiation currently prohibited by law and regulation," Kendall wrote. She did not name the companies or specify the states involved.

The findings were contained in a letter from Kendall to U.S. Sen. Ron Wyden, an Oregon Democrat who has been critical of the government's coal program. The letter was released Friday by the lawmaker's office.

It follows a report earlier this week from Congress' nonpartisan Government Accountability Office that found widespread inconsistencies in how coal is valued before it is sold. Massachusetts U.S. Sen. Ed Markey said his office calculated that the problems identified by the GAO might have cost taxpayers hundreds of millions of dollars in lost revenue.

More than 40 per cent of the coal mined in the U.S. comes from beneath federal lands in Wyoming, Colorado, Utah, Montana and other Western states.

Amid the recent criticism, the coal industry has defended the federal program, which in 2012 brought in $876 million in royalties and almost $1.6 billion in bonus payments on lease sales, according to the Interior Department.

Despite the below market value sales found by the inspector general, Luke Popovitch with the National Mining Association said most sales are made at prices that are at or above market value.

"I don't see a consistent effort to shortchange the public," Popovitch said. "It does seem as if there are simply issues that have to be clarified with respect to how BLM makes those determinations" on the value of coal to be leased.

The inspector general's letter also weighed in regarding exports of coal overseas — an important sector for the industry as domestic sales lag. Federal officials have not adequately factored in export prices when determining the value of public coal reserves, the letter said.

Wyden, chairman of the Senate Energy and Natural Resources Committee, said he has "deep concerns" about the leasing program in a response to Interior Secretary Sally Jewell. Beyond the issues raised by the inspector general, the Oregon lawmaker said the size of some reserves appears to have been underestimated by millions of tons when leases on them were sold to mining companies.

"The Department's coal program has a history of documented problems adhering to the law and protecting taxpayers' interests that stretch back to the 1980s," Wyden told Jewell in a Thursday letter. "Over the past year, the work of the Inspector General, GAO and the committee's majority staff indicate that problems persist."

Interior officials have been working on new rules intended to strengthen the coal program, including potential changes to the way coal royalties are calculated. The current coal valuation system has been in place since 1989.

Interior spokeswoman Jessica Kershaw said the agency "remains fully committed to ensuring that taxpayers receive a fair return from the development of coal resources on public lands."

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