- Associated Press - Wednesday, April 1, 2015

CASPER, Wyo. (AP) - Two Powder River Basin coal companies are at odds over the effect of an Obama administration proposal that would change the way royalties are collected on coal mined from federal land.

Peabody Energy and Cloud Peak Energy both oppose a U.S. Department of the Interior proposal to assess a royalty on the first sale between non-affiliated companies. Royalties today are levied on the first sale, regardless of the affiliation of the parties involved.

The Casper Star-Tribune reports (https://tinyurl.com/q2rc955 ) the disagreement is over what the change means for the future of mines operating on federal land.

Peabody says the proposal will have little effect on its mining operations. Cloud Peak says it could greatly limit Powder River Basin exports to Asia.

The contrasting positions reflect, in part, the two companies’ business positions.

Peabody is the world’s largest privately owned coal company and operates mines in the United States and Australia. The firm’s Australian mines already export coal to Asia, whereas its Powder River Basin mines principally supply the American market.

“Since this change mostly impacts exports, it is less impactful to them than some of their competitors who are exclusively domestic,” said Kristoffer Inton, an analyst who tracks the industry at MorningStar.

Cloud Peak is solely based in the Powder River Basin. And while exports still make up a fraction of the company’s present sales, the Gillette-based firm is pushing to expand its Asian footprint. The company has recently acquired more terminal space at ports in British Columbia to ship coal abroad and is advocating for the construction of new coal ports in the Pacific Northwest.

A recent Cloud Peak investor presentation estimated the Powder River basin’s exports would grow from 11 million tons in 2014 to 75 million tons by 2020.

Cloud Peak has cast the royalty proposal as the latest front in what it terms the Obama administration’s “War on Coal.”

“We believe the rule is designed to inhibit coal exports from the Powder River Basin and could, if unchanged, cost Montana and Wyoming access to a potential 100-million ton export market at a time when declines in the domestic market projected as a result of the Clean Power Plan mean these states could face serious budget shortfalls in the near future,” Rick Curtsinger, a Cloud Peak spokesman, wrote in an email.

The Clean Power Plan is a U.S. Environmental Protection Agency proposal to cut carbon dioxide emissions from coal-fired power plants by 30 percent of their 2005 levels in the next 15 years.

Interior’s coal-royalty plan comes in response to a rising number of transactions between mines and affiliated companies. Mines sell to their subsidiaries, which then market and ship coal for a higher price to buyers abroad.

Cloud Peak and other mining interests have said the Interior proposal constitutes a double tax, levying a royalty on the value of the coal and the cost of shipping it.

Fiscal watchdogs and environmentalists contend the practice opens the door to market manipulation, with companies potentially selling to their affiliates at artificially low prices and paying less in royalties.

Peabody spokeswoman Charlene Murdock said that while the company anticipates little impact from the proposal, it still opposes the plan.

“The proposed rule creates complex regulatory policy and Peabody Energy does not feel the change is necessary,” Murdock said.

___

Information from: Casper (Wyo.) Star-Tribune, https://www.trib.com


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