Interior teams with energy industry to reverse royalties rule
Documents show coal company attorney first requested meeting
Top Interior Department officials worked privately with energy industry representatives during the first weeks of the Trump administration to suspend a new accounting system that would have forced companies to pay millions of dollars more in royalties to the government, documents show.
The push to suspend the Obama-era rule, which is the subject of three federal lawsuits in Wyoming, took on a sense of urgency after an attorney for the coal company Cloud Peak Energy first suggested the move in late January. In email exchanges contained in more than 1,000 pages, obtained by the environmental group Natural Resources Defense Council under the Freedom of Information Act, top Interior officials raced to address industry concerns by halting a system that had just taken effect Jan. 1.
Under Secretary Ryan Zinke, the department has launched a broad reassessment of what to charge firms extracting oil, natural gas, coal and other minerals from federal lands and waters, with an eye toward boosting domestic energy production. Interior on Wednesday held the inaugural meeting of a new Royalty Policy Committee, with Zinke’s energy counselor, Vincent DeVito, saying President Trump’s desire for “energy dominance” will help guide royalty rules as well as other aspects of department decisionmaking.
“This committee has a job unlike any other in the past,” DeVito said of the industry-heavy panel. It “has an agenda and authorization to pursue” energy development, he added.
Before Zinke or DeVito even arrived at Interior, though, career officials were reassessing how they should regulate these industries in light of Trump’s victory. The discussion focused on whether to revisit a method the Office of Natural Resources Revenue (ONRR) had adopted just months earlier for calculating royalties for minerals extracted on federal land.
The goal behind the change was to prevent firms from underpaying what they owe the government by selling coal to subsidiaries at an artificially low price — a strategy the government estimates costs taxpayers $75 million a year. Industry officials called the new requirements unclear and burdensome and wanted them halted before they had to file under the system for the first time.
On Jan. 31, according to the documents, a staffer emailed acting secretary Kevin “Jack” Haugrud with the message that Cloud Peak Energy lawyer Kelly Johnson and other industry attorneys wanted to meet with him and a member of Trump’s transition team at Interior. Haugrud subsequently checked with the solicitor for the Rocky Mountain Region, Matt McKeown.
“If this is about [the royalty] valuation rule, then I think a meeting is timely,” McKeown replied the next day. “An internal discussion in advance would likely be a good idea.”
By Feb. 6, other Interior officials had been enlisted to work to stay the rule so the new accounting system did not take effect. “Timeline?” one ONRR staffer emailed another. “ASAP,” her colleague replied.
Three days later, as Interior officials emailed how they would justify the change, another replied, “RIP rule.”
By Feb. 15, Interior attorney Matthew Wheeler wrote a group at ONRR to say he was conferring with lawyers for the industry groups challenging the 2016 rule to see if they could submit a letter formally requesting a stay.
“Like us, they have a number of hoops to jump through to get each client to sign off on the final product,” Wheeler noted.
Less than two weeks later — after Haugrud had personally edited the notice Interior prepared for the Federal Register — the notice posted. Interior later rescinded the rule altogether, a move that took effect Sept. 6.
“What’s deeply troubling here is how quickly Interior sprang into action at industry’s command and the lengths they went to do industry’s bidding,” said Theo Spencer, a senior policy advocate in NRDC’s land and wildlife program. “Getting a notice prepared from scratch and published in the Federal Register in less than a month is close to unheard of.”
Interior officials declined to comment on the released emails, citing the ongoing litigation and the department’s subsequent decision to revoke the rule.
Zinke said in August that he acted because the higher costs that companies would incur “had the potential to decrease exploration and production on federal lands, both onshore and offshore, making us rely more and more on imports of oil and gas.”
Rescinding the regulation, Zinke added, “restores our economic freedom by ensuring our energy independence.”
California and New Mexico, each of which receives a share of the minerals royalties collected by the federal government, challenged the decision to stay the rule in the U.S. District Court for the Northern District of California. U.S. Magistrate Judge Elizabeth Laporte decided in their favor last month, finding that the administration had violated the Administrative Procedure Act by not taking public comment first. But Laporte declined to reinstate the rule because Interior had already announced its plan to pull it. The two states are deciding whether to challenge that revocation in court.
Cloud Peak Energy spokesman Rick Curtsinger said in an email on Wednesday that the lawsuits before the U.S. District Court in Wyoming are pending “while the parties discuss the impact of the repeal on the claims.”
Curtsinger, whose company is represented on the department’s royalty committee, said the existing system has “provided tremendous benefits to the American people.”
“Nearly 40 percent of the selling price of every ton of federal coal mined in the [Powder River Basin in Wyoming and Montana] consists of taxes, fees and royalties, making it among the highest taxed commodities in the world,” he wrote. “The Obama administration’s rewrite was part of its activist . . . campaign to keep the nation’s valuable fossil fuel resources in the ground.”
Rail cars are filled with coal at a Cloud Peak Energy mine near Douglas, Wyo. The push to suspend the Obama-era royalties rule, the subject of three federal lawsuits in Wyoming, gained momentum after a Cloud Peak Energy attorney suggested the move in late January.