Regulators close 'loophole' in fees for fossil fuel extraction

Regulators close 'loophole' in fees for fossil fuel extraction

Federal officials rolled out a new regulation Thursday to close a “loophole” they say allows fossil fuel companies to pay low fees for extracting oil, natural gas and coal on federal land.

The rule from the Interior Department overhauls the way royalties are calculated when companies sell the fossil fuels they get from federal land in an attempt to better ensure that taxpayers are getting a fair return.

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The action is meant, in part, to prevent coal companies from selling coal to a subsidiary or affiliate company at a price lower than market value in order to pay lower royalties.

Federal officials, environmentalists and others say the practice has been common, though the coal industry has said the concerns are overblown.

“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 JewellSarah (Sally) Margaret JewellNational parks pay the price for Trump's Independence Day spectacle Overnight Energy: Zinke extends mining ban near Yellowstone | UN report offers dire climate warning | Trump expected to lift ethanol restrictions Zinke extends mining ban near Yellowstone MORE said in a statement.

“As the steward of America’s oil, natural gas and coal production on public lands, Interior has an obligation — and is fully committed — to ensuring that the American taxpayer receives every dollar due for the production of these domestic energy resources.”

The rule comes from Interior’s Office of Natural Resources Revenue and is part of a broad effort in recent years to change, and potentially increase, fees for selling federally owned fossil fuels.

A Reuters investigation in 2012 found that coal companies used subsidiaries and affiliates to pay $40 million less than they should have in Wyoming and Montana in 2011 alone.

Royalties will now be calculated based on the cost of the coal, oil or gas at the first “arm’s length” transaction by the mining or drilling company.

The new rule doesn’t go as far as environmentalists and their allies wanted. They had pushed for royalties to be based on the price that power plants, or another end user, pay for the minerals.

Nonetheless, it’s the first overhaul of the standards since the late 1980s, and regulators said it’s a major step.

“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 in the statement. “The updated rule will increase the effectiveness and efficiency of the valuation process, and provide greater clarity and consistency for lessees and revenue recipients.”

The coal industry has been critical of the rule and other Obama administration attempts to change federal land leasing costs.

“Coal producers on federal lands are paying more than their fair share in the form of bonus bids, royalties and taxes,” Hal Quinn, head the National Mining Association, wrote to Jewell last year.

“Companies operating on federal coal leases face royalty rates that are often 40 percent higher than their competitors on private coal lands and pay bonus bids that are rarely, if ever, part of leasing transactions on private lands.”