July 26, 2019
The groups’ motion to intervene can be found online here .
Groups aim to ensure companies pay a fair return for taxpayer-owned minerals
Five conservation groups moved today to intervene in a lawsuit to preserve the 2016 Valuation Rule, a set of federal requirements requiring fossil fuel companies to pay full royalties when extracting publicly owned minerals. The lawsuit was initially filed by multiple fossil fuel industry companies and trade associations aiming to overturn the rule issued by the Department of Interior’s Office of Natural Resources Revenue.
The Valuation Rule closed a loophole under which energy companies pay a deflated royalty to the federal government by selling coal, oil, and gas to affiliated companies at below-market rates. The companies then sell the minerals to a third-party at a higher price without paying a cent in royalties on the markup. This has particularly been an issue with exported coal, where international prices are often much higher than domestic ones.
The 2016 rule required that royalties be paid at full market value when federal minerals leave an energy company’s hands, rather than based on an internal company transaction. Energy companies have increasingly used affiliated companies to internally sell resources, often at lower prices. In 2016, 42% of coal sales in Wyoming were “captive transactions” from a coal company to an affiliated company, up from just 4% in 2004.
In adopting the rule, the Interior Department estimated conservatively that it will increase royalty collections by more than $70 million per year. In 2017, Former Montana Director of Revenue Dan Bucks estimated the rule could generate substantially more revenue for taxpayers. The federal government is bound by law to seek fair market value for the use of public lands and their resources, and half of federal royalties are returned to states to fund schools, roads, and other infrastructure. ONRR received nearly 200,000 public comments on the proposed rulemaking during the comment period in May 2015, the vast majority of which strongly supported the Rule.
The groups seeking to join the lawsuit are the Natural Resources Defense Council (NRDC), Northern Plains Resource Council, Powder River Basin Resource Council, The Wilderness Society, and the Western Organization of Resource Councils (WORC).
“Public lands belong to all Americans, and polluting companies shouldn’t be allowed to use accounting gimmicks to avoid paying their fair share when mining or drilling,” said Bobby McEnaney, Director of the Dirty Energy Project at the Natural Resource Defense Council. “We are asking for an opportunity to defend this commonsense rule from an attack by dirty energy companies seeking to preserve another Trump Administration giveaway.”
“The Trump Administration killed this rule for the coal industry once, and now industry is trying to do it again,” said Bob LeResche, board member of WORC and Vice Chair of Powder River Basin Resource Council. “If companies want to profit from taking America’s public resources and selling them back to us, they need to pay a fair return. States, counties, and towns depend on mineral revenue for schools, roads, and more. As coal markets collapse, it’s more important than ever to insure the coal industry can’t keep gaming the system with subsidies, loopholes, and special breaks, as they have done for years.”
“Returning to an old, flawed royalty rate that benefits industry and shortchanges taxpayers makes no sense and is illegal. This administration needs to remember that it works for the American people, who should be getting the fair market value for the minerals being extracted from our shared public lands,” said Bruce Pendery, Litigation and Energy Policy Specialist with The Wilderness Society.
Following the publication of the final Valuation Rule in 2016, industry groups filed three petitions in Wyoming federal court challenging the Rule in December 2016. Several of the conservation groups seeking intervention in today’s case were granted intervention in that suit. In February 2017, following the change in presidential administrations and at industry’s request, ONRR improperly postponed the Valuation Rule’s effective date, which was subsequently declared illegal by a federal judge in August 2017.
On April 4, 2017, ONRR sought comment on whether a new valuation rule was needed and, if so, what issues it should address, as well as whether to repeal the Valuation Rule in its entirety. ONRR finalized the repeal just four months later. The industry groups then voluntarily dismissed their petitions in Wyoming federal court without prejudice.
The States of California and New Mexico, as plaintiffs, and the conservation groups, as plaintiff-intervenors, subsequently challenged the Valuation Rule’s repeal in California federal court in late 2017 and early 2018. That court vacated the repeal of the rule in April 2019, finding that ONRR failed to give a reasoned explanation for its actions and provided inadequate notice and opportunity for public comment, in violation of the Administrative Procedure Act. Industry groups then filed this lawsuit.
A briefing schedule has not yet been set, but the petitioners have filed a motion for preliminary injunction. The motion, filed July 19, 2019, seeks to postpone the rules from going into effect during litigation. Opposing briefs are due August 16, 2019 and a hearing on the motion has been set for September 4, 2019.
Two similar cases filed separately by fossil industry companies and groups were consolidated into the lead case, number 2:19-cv-00120-SWS, on July 19, 2019.
The Natural Resources Defense Council (NRDC) is an international nonprofit environmental organization with more than 3 million members and online activists. Since 1970, our lawyers, scientists, and other environmental specialists have worked to protect the world’s natural resources, public health and the environment. NRDC has offices in New York City, Washington, D.C., Los Angeles, San Francisco, Chicago, Bozeman, MT, and Beijing. Visit us at www.nrdc.org and follow us on Twitter @NRDC.
Northern Plains Resource Council is a grassroots conservation and family agriculture group that organizes Montanans to protect our water quality, family farms and ranches, and unique quality of life.
The Powder River Basin Resource Council, founded in 1973, is a family agriculture and conservation organization in Wyoming. Resource Council members are family farmers and ranchers and concerned citizens who are committed to conservation of our unique land, mineral, water, and clean air resources.
The Western Organization of Resource Councils (WORC) is a regional network of eight grassroots community organizations with 15,190 members and 39 local chapters and affiliates in Colorado, Idaho, Montana, North Dakota, Oregon, South Dakota, and Wyoming. Northern Plains Resource Council and Powder River Basin Resource Council are organizational members of WORC.
The Wilderness Society, founded in 1935, is the leading conservation organization working to protect wilderness and inspire Americans to care for our wild places. With more than one million members and supporters, The Wilderness Society has led the effort to permanently protect 111 million acres of wilderness and to ensure sound management of our shared national lands.