Interior moves to scrap fossil fuel valuation rule

Source: Ellen M. Gilmer and Dylan Brown, E&E News reporters • Posted: Monday, August 7, 2017

The Interior Department is moving forward with scratching an Obama era rule related to calculating the value of fossil fuels on federal land. Department of Interior

The Trump administration will carry through on reversing recent changes made to how the federal government values coal, oil and natural gas for assessing royalties.

The Office of Natural Resources Revenue (ONRR) will publish a final rule undoing the Obama administration’s fossil fuel valuation rule in Monday’s edition of the Federal Register. Thirty days later, the agency will revert to its previous standards.

Last year, ONRR finalized new requirements that would have based royalties on the value of a commodity at the first “arm’s length” transaction, among other reforms.

Critics applauded closing what they saw as a loophole allowing companies, mainly coal mining firms, to sell their product to subsidiaries or affiliates at deflated prices.

The industry responded with several lawsuits to halt what it called “complex, difficult to implement, and far less reliable” standards.

After putting implementation on hold in February, the Trump administration identified “significant defects in the rule that would have undermined its purpose and intent.”

ONRR said the changes compromised the agency’s mission to collect mineral revenues and conflicted with President Trump’s executive order to eliminate regulations that burden energy development.

ONRR also noted that Interior Secretary Ryan Zinke has begun the process to re-establish the Royalty Policy Committee, a defunct federal advisory panel, when he lifted the previous administration’s coal leasing moratorium in March (Greenwire, March 29).

Legal implications

Supporters of the Obama rule have not yet signaled whether they plan to sue over the repeal, but the move is expected to have immediate implications for ongoing litigation over Interior’s earlier efforts to delay compliance deadlines.

California and New Mexico filed suit in April, arguing that Interior had no authority to sideline the rule before completing a public notice and comment process.

Now, Justice Department lawyers representing Interior are expected to ask the U.S. District Court for the Northern District of California to dismiss the case as moot in light of the finalized repeal.

The lawsuit has been closely watched in recent months, both for its potential direct impacts and for its focus on a legal question that has arisen in debates over another Interior regulation: the Bureau of Land Management’s Methane and Waste Prevention Rule.

For both rules, Interior invoked authority under Section 705 of the Administrative Procedure Act to delay compliance requirements. The APA provision allows agencies to postpone the effective dates of rules that are subject to litigation.

States and environmental groups in both cases pushed back on the delays, arguing that Section 705 did not apply to either rule because both had already taken effect before Interior moved to stall them.

Both cases are in California’s Northern District, and the eventual outcome in the valuation lawsuit was expected to serve as a strong indicator of how the methane litigation would play out.

Trump administration lawyers will likely move to dismiss the valuation case Monday, when the rollback is formally published in the Federal Register.