Implications of Report on the Powder River Basin Federal Coal Lease Sale

Testimony was given concerning the implications of a recent GAO report on the Powder River Basin Federal coal lease sale. This report raised some serious questions regarding Department of the Interior actions related to the sale while recognizing that Interior faces a difficult task in trying to sell leases competitively. GAO found that Interior had no records to document, nor could it provide a written quantitative basis to support, its need to change its bidding system to an entry-level system just 6 weeks prior to the sale. The new system did not spur the competition Interior had envisioned, and GAO believed that most of the Powder River leases sold for less than fair market value. GAO found that the method used to estimate the value of the leases was not unreasonable; however, revisions to eliminate the effects of some unnecessary features of Interior's analysis were needed. GAO found that Interior's estimates were too low. In addition, postsale procedures for determining whether the bids represented fair market value were flawed because of an overdependence on data from the sale itself. Present law does not recognize that many noncompetitive coal lease tracts exist and in many cases are desirable. Therefore, the manner in which Government leases coal does not correspond to the way industry is developing the resource. GAO believes that this problem deserves congressional attention. Interior still needs to study how the economic and geologic variables affecting coal lease value relate to one another, and it does not have uniform procedures for conducting coal lease valuations nor has it developed guidelines for using untried or experimental bidding systems. Interior also needs to update and publish proposed regulatory minimums for public comment, and its procedures require substantial revision to permit consistent postsale analyses. GAO recommended a postponement in leasing and suggested that legislative amendments are needed to authorize noncompetitive production maintenance leases, to ensure public influence in the process, and to require that detailed records be kept of negotiations.