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APNewsBreak: Senator: No Coal Royalty Violations

Salazar said the issue underscores the need for reforms in how royalties are calculated, which was last updated in 1989, before the recent spike in coal exports. He said his agency is pursuing changes that would make the process more transparent.

Murkowski's office said she was open to changing royalty rules if needed but was waiting for the issue to further unfold.

"It doesn't appear there were any knowing or willful violations of the royalty law. That doesn't mean they might not find violations," said Robert Dillon, the Republican's spokesman.

Companies defend their use of affiliates for export sales, arguing that the higher price their fuel fetches in Asia largely reflects additional shipping costs. That should be counted as a different line of business than mining, they contend.

But the chief of the Montana Department of Revenue's business tax division, Lee Baerlocher, said the industry's practices have the attention of government auditors.

"It's an audit red flag, meaning we've got to look into it, but it doesn't necessarily mean that's not a fair price," Baerlocher said.

Until the audits are completed, Walter Archer with the Montana-based Northern Plains Resource Council said the government should stop leasing coal from federal lands. Industry representative Bud Clinch with the Montana Coal Council said that's unwarranted given no substantial violations have been issued.

Half of royalties go to the federal government and half to the states. Strip mines that account for the bulk of coal from public lands have a 12 percent royalty rate.

U.S. coal exports hit record levels last year â¿¿ an estimated 124 million tons. That includes increasing quantities of steam coal used in power plants shipped to Asia by companies including Arch Coal Inc., Peabody Energy Corp., Cloud Peak Energy Inc., and Signal Peak Energy.

Asian markets have given the industry some sorely needed relief in the face of declining domestic demand.

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