In two hours last week, the Interior Department auctioned off more federal coal than ever before, and, officially, Secretary James G. Watt was ecstatic.
"A resounding success," Watt proclaimed of the lease of 23,000 acres along the coal-rich Montana-Wyoming border. "Far exceeds the total amount of money received at any previous federal coal lease sale," Watt said of the $54.9 million in high bids.
But that euphoria masked some problems. There was little competition for the tracts; eight drew bids from only one mining company, three drew two bidders and the other two drew none. The bids reflected the lack of competition--an average of 3.56 cents per ton of coal, less than one-third the price per ton offered at a recent sale of comparable federal coal in Colorado.
Industry spokesmen and environmental groups said the lack of competition underlined a key problem facing western coal--"massive overcapacity," as industry analyst Joel Price puts it. A recent study by the congressional Office of Technology Assessment showed that the federal government has already leased enough coal in Wyoming and Montana to exceed projected demand by 100 million tons a year until 1990. Another 1.5 billion tons were offered in last week's sale, with plans for another 700 million later.
And as everyone from coal barons to Interior Department geologists debated the dollars-and-cents issues, the people of the predominantly rural Powder River Basin asked a more basic question: is it proper public policy to open such vast stretches of their countryside to strip mining? (Ranchers and farmers recently joined environmentalists in a lawsuit, asking a federal judge to bar Interior from issuing final leases.)
Rancher Gerald (Digger) Moravek, a self-described arch-conservative who is tired of speedy development there, summed it up this way: "Most people accept the fact that there's a resource here and it can be used, but it has to be used very wisely. To some people, this land may look barren, but to me it's a treasure land. It's land where you can breathe. You can see the glories of God at work."
Interior must now study the bids to determine whether they constitute fair market value, an often illusive measure defined as the amount a willing buyer pays a willing seller. If they do, the leases can be awarded--a likely outcome, according to several Interior officials, since the department accepted only those bids that exceeded a certain minimum level.
But conservation groups insist that does not answer the question of whether the government got a fair deal. On the three tracts for which there was some competition, companies bid as much as 20 times Interior's minimum (Montana Royalty Co., a subsidiary of Peter Kiewits, bid $500 an acre for a tract Interior set at $25). In contrast, on a tract that Interior valued at $13,600 an acre, Meadowlark Farms, a subsidiary of Amax, was the sole bidder, at $14,000.
Watt's decision to press ahead with the sale set off a philosophical and economic debate within the coal industry and environmental groups. Conservation groups charged that the leases amounted to a "giveaway" of public resources at bargain-basement prices. But many coal industry spokesmen wondered why companies offered as much as they did (Shell Oil-Mining bid $25.9 million for rights to 323 million tons; Meadowlark Farms bid $7.4 million for 90 million tons) in the present market.
"My advice to a company would be: stay as far away as you can because nobody is going to buy your coal. Those who are out there can't sell all they have," said Price, who studies the coal industry for the Wall Street firm of Rotan Mosle Inc.
At Interior, officials said the lease reflected a policy of pushing for long-term energy independence regardless of short-term coal slumps. It is up to industry, not the government, to decide whether to develop coal resources, said Deputy Assistant Secretary Dave Russell.
The policy departs sharply from that of previous administrations. Under Carter administration regulations, the government was supposed to lease to meet demand. Under present conditions, with oil prices falling and utility growth slowing, this would mean a slower leasing program. But Watt has switched to a policy of leasing to meet reserves--a standard determined more by industry.
The companies that bought the leases last week took a gamble that demand will revive, several spokesmen said. The companies must pay the U.S. Treasury not only their cash bids, but also a 12.5 percent royalty on the value of all coal they recover. If they do not produce 1 percent of the coal in 10 years, they forfeit the lease, under federal law.
Shell Oil-Mining, which submitted the record-high bid of $25.9 million, now has no contract for the 323 million tons of coal under their tract, according to spokesman John Irvin. But the tract lies near an existing Shell mine, and "we're very optimistic about the demand for domestic coal," Irvin said.
The coal division of W. R. Grace & Co. sat out the bidding, partly because it is less optimistic. But, as Grace vice president Charles Margolf said, "I guess that's what makes horse races."