UPDATE 1-U.S. to probe coal sector for export royalty shortfalls

WASHINGTON, Feb 8 (Reuters) - The U.S. Interior Department on Friday said officials will investigate whether miners and traders skirted royalty payments on lucrative coal exports to Asia.

The Senate Energy and Natural Resources Committee called for the investigation last month and Secretary Salazar said he would assemble a special team to examine the coal trades.

Reuters has reported that taxpayers stand to lose hundreds of millions of dollars in forgone royalties under current rules that govern coal exports.

"The Department shares your concern that this matter should be taken seriously and be thoroughly investigated to determine if there is any merit to the allegations contained in the... Reuters article referenced in your letter," Salazar wrote to the senior senators on the committee.

The Reuters investigation focused on the Powder River Basin - a coal region in eastern Wyoming and Montana which supplies about 40 percent of U.S. demand.

That fuel has typically gone to feed domestic power plants and policymakers never considered Asian sales when they conceived royalty rules, Reuters reported in October.

The coal policies meant to keep domestic power cheap and abundant are now padding the bottom lines of companies such as Arch Coal Inc, Peabody Energy Corp and Cloud Peak Energy Corp. at the expense of taxpayers, Reuters reported last year.

The Senate energy committee said it was concerned that coal interests may be selling to sister companies at artificially low prices in order to lower their royalty payments.