By June 30, 2016 Read More →

US fossil fuel royalty rules toughened

royalty rules

Royalty rules for valuation of oil, gas and coal have not been significantly changed in over a decade.  Getty Images photo by Robert Nickelsberg.

New royalty rules to improve transparency of federal coal program

By Valerie Volcovici

WASHINGTON, June 30 (Reuters) – The Obama administration on Thursday completed new rules for how energy companies value oil, gas and coal extracted from federal land in a reform meant to protect taxpayers’ stake in those sales.

The Interior Department updated the valuation rules that were first enacted in the 1980s and have not been significantly changed in over a decade. They were completed Thursday after four years of public engagement.

“These improvements were long overdue and urgently needed to better align our regulatory framework with a 21st century energy marketplace, offering a simpler, smarter, market-oriented process,” Interior Secretary Sally Jewell said in a statement.

Jewell said the new oil, gas and coal valuation update is a key part of the administration’s reform agenda to improve the transparency and accountability of the federal coal program.

The rule expects companies to pay royalties on sales to the first unaffiliated customer, known as an arm’s-length sale, as the fuel moves to market.

This better reflects the market value of the coal, oil or gas extracted than situations when energy companies sell to affiliates, officials have said.

“This valuation rule is important because it ensures, in part, that our federal coal program is properly structured to obtain all revenue due to taxpayers,” Jewell said.

Last week, a White House study found that the federal coal leasing program is prone to industry abuse and costs taxpayers billions of dollars in lost revenue.

Officially, the U.S. Treasury is supposed to collect a 12.5 percent royalty on coal sold from surface mines on federal land, but the real share is closer to 5 percent due to loopholes and allowances, the report found.

Public interest group Public Citizen, which also published a recent report on coal leasing program loopholes, said the new rule will prevent companies from selling coal to affiliate companies at a lower price in order to pay smaller royalties.

“This is significant, as 42 percent of the coal produced in Wyoming’s Powder River Basin was sold through such captive transactions, depriving taxpayers, local schools and other beneficiaries of royalties,” said Tyson Slocum, director of Public Citizen’s energy program.

Republican Senator Lisa Murkowski of Alaska, who chairs the Senate energy committee, said the Obama administration’s other restrictions on energy development on federal land deprive taxpayers of revenue.

“This approach will not benefit taxpayers, but instead leave them with higher energy costs and fewer economic opportunities,” she said in a statement.

(Reporting by Valerie Volcovici; Additional reporting by Patrick Rucker; Editing by Jonathan Oatis)

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