How Interior Should Handle Congressionally Authorized Federal Coal Lease Exchanges

EMD-81-87: Published: Aug 6, 1981. Publicly Released: Aug 6, 1981.

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GAO examined the experience of the Department of the Interior in handling a proposed exchange of federal coal lands involving the Utah Power and Light Company, an exchange authorized by Congress in October 1978.

GAO questioned whether the company had a valid right to be issued leases and whether an exchange was even appropriate. The prior administration entered into an exchange agreement with the company and began its evaluation on the basis that this question did not need to be addressed because Congress authorized the exchange. However, Congress clearly expressed its intent that, before granting a noncompetitive lease, the requirements of the Mineral Leasing Act of 1920 be met. Secondly, there was a lack of data to make a realistic estimate of the coal reserves on the preference right lands, thus making it impossible to make a valid equal value determination, as required by legislation authorizing the exchange. Finally, consummation of the proposed exchange would have resulted in leasing noncompetitively a prospective highly competitive tract. In addition, serious management weaknesses were noted which include: (1) Interior tended to overlook technical problems and disregard normal operating procedures; (2) Interior officials did not involve Geological Survey (USGS) technical people in planning the technical requirements for making an equal value determination; (3) because coal data were inadequate and transportation and marketing assumptions were of questionable validity, the method used was inappropriate; (4) USGS present coal reserve evaluation standards were not adequate for evaluating complex coal deposits; and (5) USGS unnecessarily spent $800,000 and may spend about $640,000 more this year for drilling exchange lands.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Interior's position is that each coal exchange is a unique, one-time administrative activity for which formal procedures, guidelines, etc., are unnecessary. No further follow-up is warranted.

    Recommendation: The Secretary of the Interior should direct USGS to set standards for the minimum level of data that are needed to evaluate a proposed exchange and not allow the exchange where that level of data is not available.

    Agency Affected: Department of the Interior

  2. Status: Closed - Not Implemented

    Comments: Interior's position is that each coal exchange is a unique, one-time administrative activity for which formal procedures, guidelines, etc., are unnecessary. No further follow-up is warranted.

    Recommendation: The Secretary of the Interior should direct USGS to establish definitive criteria for determining when the discounted cash flow economic evaluation method is appropriate for use in exchange evaluations.

    Agency Affected: Department of the Interior

  3. Status: Closed - Not Implemented

    Comments: Interior's position is that each coal exchange is a unique, one-time administrative activity for which formal procedures, guidelines, etc., are unnecessary. No further follow-up is warranted.

    Recommendation: The Secretary of the Interior should direct USGS to revise USGS Bulletin 1450-B or establish separate guidelines to clarify guidance on how reserve estimates are to be made for lease sale purposes, particularly in instances where coal deposits reside in complex geologic formations.

    Agency Affected: Department of the Interior

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Interior should direct USGS to develop explicit procedures under which the land exchange applicants could, and should, drill possible exchange tracts, thereby saving federal expenditures and freeing the USGS limited resources to satisfy other higher priority drilling requirements.

    Agency Affected: Department of the Interior

 

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