In­te­rior teams with en­ergy in­dus­try to re­verse roy­al­ties rule

Doc­u­ments show coal com­pany at­tor­ney first re­quested meet­ing

The Washington Post Sunday - - POLITICS & THE NATION - BY JULIET EILPERIN juliet.eilperin@wash­

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.


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