October 20, 2017 Read More →

California and New Mexico AGs Sue to Restore Closure of Loophole on Coal Taken Off Federal Lands

Law 360:

The attorneys general of California and New Mexico have again gone to court to challenge a U.S. Department of the Interior decision to revoke an Obama-era rule tweaking royalty calculations for oil, gas and coal extracted from federal and tribal lands, arguing Tuesday that the regulation was repealed without adequate consideration.

California AG Xavier Becerra and his New Mexico counterpart, Hector Balderas, argue that the since-nixed “Valuation Rule” was needed to update antiquated valuation methodology and to prevent producers from shortchanging state and federal coffers by selling coal to their subsidiaries at below-market rates to avoid higher royalty fees to the government. Their lawsuit in California federal court blasts the department’s Office of Natural Resources Revenue for offering shoddy justifications contending the rule was nixed because it was “challenging to comply with, implement, or enforce.”

“Defendants’ repeal of the Valuation Rule was arbitrary and capricious because the agency failed to supply a reasoned basis for its wholesale repeal of a rule which fulfills the agency’s statutory mandate to ensure a fair and accurate return on the use of public resources,” the AGs said. “ONRR’s proffered reasons for repealing the rule are nothing more than trumped-up technicalities that do not justify throwing out the rule in its entirety.”

“Further, ONRR failed to explain why it reversed course based on the same information that it considered when it formulated and promulgated the rule just a year earlier,” they added.

The AGs had managed to convince a California federal judge over the summer that the Trump administration had no authority to postpone the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Rule’s requirements after the measure had already gone into effect in January following its July 2016 finalization. But that challenge didn’t stop ONRR from moving forward with repeal under an executive order signed by President Donald Trump in March directing a review of rules that “unduly burden the development of domestic energy resources” — part of Trump’s broader anti-regulatory push as he tries to dismantle his predecessor’s legacy.

At stake in the instant case is the tens or hundreds of millions of dollars in royalties California and New Mexico reap from oil, gas and coal extraction from federal lands within their borders, according to the complaint. California has averaged $82.5 million in federal mineral extraction royalties since 2008, while that number is $470 million for New Mexico, the complaint said.

In a statement announcing the lawsuit, Becerra characterized the repeal of the rule — which sought in part to address the valuation of “non-arm’s-length coal sales” between corporate affiliates, allowed the consideration of “downstream commodity prices” and clarified ONRR’s ability to set default production rates when it believes commodity values have been fraudulently priced — as a Trump administration giveaway to the fossil fuel companies he has coveted, especially coal.

“This is yet another example of the Trump administration bending over backwards to please the oil, gas and, in particular, the coal industry,” said Becerra.

More: NM, Calif. AGs Challenge Fed Oil & Gas Royalty Rule Repeal

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