DEPARTMENT OF ENERGY PROPOSED COAL BIDDING SYSTEMS

by R. Robert Russell on September 18, 1980
by R. Robert Russell

Honorable Charles Duncan, Secretary
Department of Energy
1000 Independence Avenue, S.W.
Washington, D.C. 20585

Dear Mr. Duncan:
The Council on Wage and Price Stability (Council) has serious reservations about the Department of Energy’s (DOE) proposed rules (45 FR 46742, July 10, 1980) to establish new bidding systems and procedures for the leasing of federal coal. We believe that the contemplated use of bidding systems other than the system of cash bonus bidding with a royalty rate fixed at the statutory minimum may have an adverse effect on economic efficiency and may compromise national energy objectives.  Moreover, the new bidding systems DOE has proposed seem unnecessary to achieve the Department’s stated objectives -encourage bidding competition and ensure a fair return to the government.  Existing and likely future coal market conditions together with institutional mechanisms already available to the government (e.g., diligence requirements, acreage limitations, and deferred bonus bidding requirements) appear likely to achieve
these objectives.  The attached staff analysis discusses these points more fully.

In light of these reservations, the Council recommends that DOE not promulgate the proposed rules.  We do commend DOE’s efforts to identify alternative bidding systems that may be more efficient than cash bonus bidding in certain instances.  However, we believe that substantially more analysis is needed before the
government should adopt such alternative systems.
Sincerely,
R. Robert Russell
Director

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