DECKER, Mont. (AP) — From the time coal is scooped fromthe depths of the Spring Creek strip
mine in Montana’s wide-open PowderRiver Basin until it travels more than 6,000 miles across the
PacificOcean to power plants in South Korea, the price can increase more thanfivefold.Mining companies,
however, are only paying governmentroyalties on the price of the coal when it is mined from federal
lands,not when it is sold for more overseas, saving them millions of dollarsin the process.As the
Interior Department investigates theindustry’s export practices and considers a new royalty system,
severalexporters in the Montana-Wyoming coal region — the nation’s mostproductive — are planning to
increase shipments abroad to energy-hungryAsia.Whatever the department decides on royalties, a
mattercurrently under internal review, the results have the potential to cutinto profits at a time when
the industry is looking to foreign marketsto offset some of the daunting challenges it faces at
home.Proposedports on the West Coast have the potential to increase U.S. coalexports by 60 to 100
million tons a year, said Jim Rollyson, an energyanalyst with the advisory firm Raymond James."The
internationalexport market is where long-term growth for the industry might comefrom," Rollyson
said. "If you’re the government, that’s real moneyyou’re trying to get there."Federal
officials forecast that 175coal-burning power plant units will be shuttered in the next five years,equal
to 8.5 percent of the total electricity produced by coal, largelybecause of competition from cheap
natural gas and costs of complyingwith new environmental regulations.Overseas markets, by contrast, have
been booming.Whileanalysts expect demand to slip temporarily this year, 2012 saw a record125 million
tons of coal exported from the U.S. Some in the industryproject that figure could double in just the
next five years if newports and port expansions are built in Washington state, Oregon and theGulf
Coast.Federal officials declined to say what they’veuncovered since the royalties investigation was
announced in February.But they’ve said the probe will continue under the leadership ofrecently confirmed
Interior Secretary Sally Jewell."We take thisissue very seriously and remain fully committed to
collecting everydollar due," said Patrick Etchart with Interior’s Office of NaturalResource
Revenue.Among the major coal producers from federallands in the West, Peabody Energy and Spring Creek
owner Cloud PeakEnergy have denied any wrongdoing, while Arch Coal, Inc., has declinedto comment.The
investigation into the industry follows concernsraised by two prominent U.S. senators — Energy and
Natural ResourcesCommittee Chairman Ron Wyden, D-Ore., and the committee’s rankingminority member, Sen.
Lisa Murkowski, R-Alaska.They’ve warnedtaxpayers could lose many millions of dollars annually if
royalties areunfairly calculated. "Taxpayers deserve to know if Interior’s oversightand regulations
have kept up" with the rise in exports, said Wydenspokesman Keith Chu.Royalties currently are paid
based on themine price of coal — about $10.55 a ton in the Powder River Basin, keptlow by the volume of
coal produced by mines such as Spring Creek, whichboasts an 80-foot thick seam of the fuel that extends
for miles beneaththe surrounding landscape of gently rolling hills dotted with patches ofpine.By the
time it hits the export market, that same ton of coal can be sold for $60 or more.Newfilings with
securities regulators for the first time shed light on theprofitability of Cloud Peak’s exports — what
the company refers to asits "logistics business."In the past, that business was lumped inwith
the company’s domestic mining operations. It’s now been broken outto capture the transportation costs
incurred by an affiliate within thecompany that "buys" coal from the mine and arranges to
deliver it fromMontana to overseas customers.The securities filings showed thecompany earned just over
$60 million over the last two years offlogistics, most of that from exported coal. Logistics accounted
forabout 22 percent of the Cloud Peak’s 2012 total revenue of $1.5 billion.That portion of the company’s
profits fall outside royaltycalculations.And rightfully so, argue Cloud Peak executives, whosay the
export market carries far more risk than domestic sales, and theseparate line of business shipping
through West Coast ports should beexcluded from royalties. In 2013, for example, the company said low
coalprices could sharply drive down its export earnings. Even if it doesn’tmove as much coal, the
company says it’s still obligated under rail andport contracts to pay for shipping."We’re taking
some risk thatthe good years will outnumber the bad years, but there’s no guarantee onthat," said
Cloud Peak Vice President Jim Orchard.The companyadds that its domestic operations remain more
profitable, with a profitmargin of about 40 percent versus just over 10 percent for its exportdivision.
Orchard said the company paid $383 million in taxes to stateand federal authorities last year, versus a
net income less than halfthat amount, $173 million.During a recent visit to Spring Creekby an Associated
Press reporter, massive mechanized shovels at thebottom of the sprawling mine site scooped up 50 tons of
crumbling coalwith every pass.They dumped the fuel into the back of huge trucksthat lumbered up to
ground level, where they tipped the fuel ontoconveyor belts, which in turn moved coal chunks as big
basketballs into aprocessing plant where they could be broken into smaller pieces.Fromthere, it was
loaded onto a procession of BNSF Railway cars that woulddeliver the coal more than 1,500 miles to
Vancouver’s WestshoreTerminals, one of the main coal shipping ports on the West Coast. Unlikedomestic
sales, where the customer pays for delivery, Cloud Peak wouldcover the cost to get the coal to
Westshore.The 260-worker mineis the largest in Montana, and manager Bruce Jones said about a quarterof
its production — just over 4 million tons last year — now goes intothe export market. That’s up from
less than one million ton just fiveyears ago.Several industry analysts including Meredith Bandy withBMO
Capital Markets in Denver said calculating royalties based on themine price of coal appeared to be a
valid approach under federal law,particularly given high transportation costs for exports.But sheadded
that given the political overtones of the issue "it’s anybody’sguess as to what happens" as
the government considers changing royaltyrules.Copyright 2013 The Associated Press.