[Congressional Record Volume 145, Number 145 (Friday, October 22, 1999)]
[Senate]
[Pages S13049-S13051]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    FISCAL YEAR 2000 INTERIOR AND RELATED AGENCIES CONFERENCE REPORT

  Mr. GORTON. Mr. President, I am pleased that the Senate has passed 
the conference report on the Interior and Related Agencies 
Appropriations Act for Fiscal Year 2000. The conference report 
represents a good faith effort to merge the spending priorities of the 
House, the Senate, and the administration, and to resolve the concerns 
voiced by the administration about various legislative provisions in 
the bill. I think the conference report is a solid, bipartisan bill 
that deserves the overwhelming support of the Senate and the signature 
of the President.
  The bill totals roughly $14.5 billion in discretionary budget 
authority, which is a significant increase from the levels contained in 
the House and Senate passed bills. Some of this increase is 
attributable to the House and Senate insisting upon funding for 
specific programs, and much of the increase is due to the efforts of 
the conferees to meet the spending priorities of the administration. 
While the bill before you represents an increase of about $500 million 
over the fiscal year 1999 level, it is still $500 million below the 
administration's request level.
  In developing the fiscal year 2000 Interior bill, the top priority 
for both the House and Senate committees was to maintain the core 
operating programs of the land management agencies, the Bureau of 
Indian Affairs, the Indian Health Service, and the cultural agencies 
funded in this bill. Because Interior bill agencies are highly 
personnel-intensive, simply keeping pace with the cost of Federal pay 
raises requires an increase of more than $300 million over the fiscal 
year 1999 level. This leaves little room from programmatic increases 
and new initiatives.
  The conference report before you, however, does contain significant 
increases for targeted, high-priority programs. The bill provides 
roughly $28 million to increase the base operating budgets of more than 
100 units of the National Park System, while also providing funds for a 
focused effort to enhance our limited understanding of the tremendous 
natural resources present within the Park System. The bill also 
includes an increase of $25 million for the operation and maintenance 
of the National Fish and Wildlife Refuge System, and increases for 
critical grazing management, road maintenance, wildlife and fisheries 
management, and recreation programs within the Forest Service and the 
Bureau of Land Management.
  For Indian programs, the bill provides the full administration 
request for the Office of the Special Trustee--the Secretary of the 
Interior's No. 1 priority within this bill. I fervently hope that these 
funds will enable the Secretary to clean up the Indian trust fund 
management mess that has been allowed to accumulate over many years. 
The conference agreement also provides an increase of $130 million for 
the Indian Health Service, and increases within the Bureau of Indian 
Affairs for law enforcement, school operations, school repairs, and 
school construction.
  With regard to the cultural agencies in this bill, I am pleased that 
the conferees agreed to the Senate position with regard to the National 
Endowment for the Humanities, thereby providing a $5 million increase. 
I was disappointed that the House would not agree to a similar increase 
proposed by the Senate for the National Endowment for the Arts, but 
anticipate we will try again next year. I also note that the bill 
includes $19 million for the Smithsonian to complete the federal 
commitment to construction of the National Museum of the American 
Indian on The Mall, and $20 million to

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continue renovations at the John F. Kennedy Center for the Performing 
Arts.
  In addition to the programs I have mentioned, the conferees made a 
concerted effort to address some of the specific funding priorities 
voiced by the administration that were not included in either the House 
or Senate bill. The conference agreement includes $30 million for the 
Save America's Treasures Program for historic preservation, a grant 
program of particular importance to the First Lady funded for the first 
time last year. The conference agreement also provides funding for 
Federal land acquisition at levels higher than in either the House or 
Senate bill, including $40 million for the purchase of the Baca Ranch 
in New Mexico.
  With regard to issues of policy, the conference agreement embodies a 
great number of compromises with both the House and the administration. 
The legislative provisions, or ``riders'' about which the 
administration has complained most vociferously have all been modified 
or scaled back significantly to address administration concerns.
  The one year moratorium on oil valuation regulations contained in the 
Senate bill has been modified to provide a maximum of a 180-day delay 
while the Comptroller General reviews several aspects of the proposed 
regulations.
  The provision in the Senate bill regarding millsites--which would 
have permanently refuted the Solicitor's opinion on this issue--has 
been limited to a 2-year provision that prohibits application of the 
new Solicitor's opinion to existing plans of operations, plans of 
operations filed prior to May 21, 1999, and patent applications that 
have been grandfathered under the terms of the Interior bill since 
fiscal year 1995. This provides some degree of fair treatment to those 
who have invested millions of dollars in the permitting process, only 
to find that the ground rules have been radically changed by the 
actions of a single bureaucrat.
  With regard to grazing, the conference agreement includes a 1-year 
provision that is substantially similar to the provision signed into 
law as part of last year's bill. This provides for renewal of expired 
grazing permits pending completion of environmental review, but 
maintains completely the Secretary's right to renew, alter, or reject a 
renewal application upon completion of such review. The Senate bill 
included a permanent provision that was opposed by the administration.
  The conference report embodies many more compromises such as those I 
have just described. I want to thank Chairman Regula, his staff and the 
House conferees for their willingness to work through these many 
complex and difficult issues. I have thoroughly enjoyed my relationship 
with Chairman Regula since becoming chairman myself, and admire his 
commitment to supporting, overseeing and, when needed, critiquing the 
important programs and agencies funded in this bill.
  Finally Mr. President, I note that there are three corrections that 
need to be made to the conference report. The number for the Historic 
Preservation Fund in the National Part Service should be $75,212,000, 
the number for Forest Service land acquisition should be $79,575,000, 
and in section 310, ``1999'' should read ``2000.'' Mr. Regula and I 
will take the necessary steps to ensure that thee corrections are made.
  Again, I urge my colleagues to support the conference report. It is a 
good bill that deserves our vote, and deserves the signature of the 
President.


                         mms royalty valuation

  Mrs. HUTCHISON. Mr. President, I rise to engage my colleagues, 
Senators Nickles, Domenici, Murkowski, and Breaux in a discussion of 
the important issue of Federal oil royalty valuation.
  Yesterday the House and Senate both passed the fiscal year 2000 
Interior appropriations conference report. Contained within that bill 
is a provision addressing proposed new rules of the Minerals Management 
Service on establishing the value of oil from Federal leases to 
determine the royalty owed on that oil.
  On September 23 of this year 60 Senators voted to break a Senate 
filibuster and vote on the Hutchison-Domenici amendment to prevent the 
MMS from going forward with its misguided and unworkable new valuation 
system. Our amendment passed, and it passed because a bipartisan 
majority of the U.S. Senate recognized that blocking the rule was the 
right thing to do. It was the right thing to do because it protected 
the American consumer, who is increasingly at the whim of foreign oil 
markets as America's oil production dwindles. And it was the right 
thing to do for the American taxpayer, who entrusts the Congress, not 
unelected bureaucrats, with the decision of whether or not to raise 
taxes in this country.
  But despite our victory on the floor, it became apparent during the 
conference negotiations between the Senate and the House, that this 
provision in the Interior appropriations bill may be used by the 
President as an excuse to veto the entire bill. Because there are so 
many important programs funded in this bill, from national parks to 
energy conservation programs, I, Senator Domenici, and the other 
sponsors of this amendment, offered a compromise, which is reflected in 
the bill, and I wonder if my distinguished colleague from New Mexico, 
who has been my partner on this issue for two years, could explain that 
compromise?
  Mr. DOMENICI. I would be happy to explain the provision, and I thank 
the Senator for her leadership and diligence in joining with me to 
fight this clear example of regulatory abuse by a Federal agency. As 
the Senator knows, Federal law requires that the value of oil from 
Federal land be determined when it is drawn from the ground, or ``at 
the lease.'' After decades of following the law and using this method 
of determining oil value, in 1997 the MMS tried to implement a new 
system without congressional approval and one not supported by 
statutory law. The proposal would peg the royalty price of the oil 
``downstream,'' that is, after value has been added to it through 
transportation, processing, and marketing. It was the equivalent of the 
Federal Government saying that, rather than determine the value of 
Federal land timber when it is chopped-down, the Federal Government 
would tax the value of the timber once it was turned into furniture. We 
fought that plan, and will continue to fight it, as long as the MMS 
continues to ignore the mandate of the law and of the Congress.
  But, as the Senator from Texas indicated, we offered a compromise on 
this issue. Frankly, part of the problem in this debate, and one of the 
reasons it has been so polarized, is that there has never been a 
comprehensive, independent assessment of just how the MMS can establish 
the value of Federal royalty oil in a simpler, more workable way, while 
following the controlling Federal statutes. Everyone agrees that the 
process as it exists today is too complex, and too subjective. In fact, 
I and other Members of Congress have held extensive meetings and 
hearings on the issue to determine just how we can make the rule easier 
and more predictable to administer, while ensuring a fair return to the 
taxpayer for Federal royalty oil. This provision included in the 
conference report requires a General Accounting Office study. We have 
directed the GAO to carefully examine the key issues raised by the 
proposed new rule and report back to Congress before any new royalty 
valuation rule can go into effect. But to ensure that this is not 
dragged out too long, we have directed that the GAO's report on the 
issue be submitted to Congress within 6 months. Finally, the provision 
requires that any new proposal by the MMS must comply fully with all 
applicable Federal laws, including those requiring the establishment of 
oil value at the lease, that is, at the wellhead.
  Mrs. HUTCHISON. I thank the Senator for that explanation, and for his 
leadership and hard work on this issue. I think he will agree that 
while this provision is certainly less than we would have liked and is 
less than the moratorium passed by the Senate, and, I might add, passed 
by the Congress and signed into law by the President on no less than 
three previous occasions, it is a step in the right direction.
  I would also like to get the comments of my colleague from Louisiana, 
Senator Breaux, who has been a stalwart supporter of reasonable and 
workable royalty valuation rules on his assessment of this issue.
  Mr. BREAUX. I thank the Senator, and I thank all of my colleagues who 
have worked with me on this important matter. I certainly agree with 
the comments of the Senators from Texas

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and New Mexico that the proposed MMS royalty valuation rule simply will 
not work. Regulations should reflect a fair, reliable, and accurate 
royalty valuation system.
  The issue here is really very simple: How do you set the fair market 
value of crude oil extracted from Federal lands on which to base the 
royalty calculation? Oil companies do not determine how much they have 
to pay--we do. Congress set the royalty percentage in the Mineral 
Leasing Act, the Outer Continental Shelf Lands Act, and other Federal 
laws and these laws provide that the royalty percentage to the Federal 
Government is \1/6\ or \1/8\ of the total value of the oil.
  This is a very complicated, ongoing rulemaking procedure to assess 
legitimate deductions and transportation costs in order to determine 
the fair market value of oil. But how do you determine the price of oil 
that is produced in the middle of the Gulf of Mexico? You can very 
easily determine the price of oil at the wellhead, if you sold the oil 
at the wellhead, some 200 miles offshore. However, the oil is 
transported hundreds of miles onshore where it is refined and then 
ultimately sold. The question then becomes: Who pays for the 
transportation of the oil from the middle of the gulf? It is the 
Federal Government's oil. Do the companies pay for the transportation 
or does the Federal Government? There is a huge disagreement on this 
very difficult and complicated issue.
  We say to the Interior Department, in the Interior appropriations 
conference report, that the rule is fundamentally flawed. It does not 
allow for the legitimate deductions in the costs of transportation that 
should be allowed. Therefore, do not go forward with this rule. 
Instead, we are giving Congress and the Interior Department time to 
come to an agreement on what is appropriate and I am pleased that we 
have been able to at least delay the rule until a suitable solution can 
be determined.
  Mr. MURKOWSKI. I thank the Senator from Texas, as well as the 
Senators from New Mexico, Oklahoma, and Louisiana who have all been 
steadfast in their desire and commitment to ensuring a royalty 
valuation process that is fair to both the American taxpayer and to 
domestic producers. As was spelled out in the report accompanying this 
conference agreement, the GAO, at a minimum, must thoroughly examine 
and answer several central issues and answer several key questions. 
Among those questions the GAO must fully answer are:
  1. Does the OCSLA and the MLLA require that a producer pay royalty on 
the value added by post-production downstream activities?
  2. Does the Interior Department proposed rule allow royalty payors to 
obtain timely valuation methodology determinations on which they can 
rely similar to the practice of Internal Revenue Service letter 
rulings?
  3. Does the proposed rule provide that the ``gross proceeds'' method 
utilized in valuation of arms-length transactions can not be later set 
aside for an alternative methodology (resulting in penalties and 
interest) simply because another entity was able to obtain a higher 
value for the sale of production in the open marketplace?
  Mrs. HUTCHISON. I thank the Senator. I would also like to ask the 
distinguished assistant majority leader, Senator Nickles, what, in his 
view, must be examined by the GAO in its study?
  Mr. NICKLES. I thank the Senator. There are, indeed, other key 
questions that must be thoroughly reviewed and discussed by the GAO 
study. Specifically:
  1. For non-arms length transactions; the GAO should study the use by 
the MMS of comparable sales as a measure of value of production at the 
lease, provided the lessee satisfies prescribed information and sales 
volume requirements. This study should not be limited to the Rocky 
Mountain region only, but studied for use in all areas.
  2. The GAO must study the adoption of alternative ratemaking 
principles for DOI use in establishing the commercial rate for 
transportation when oil is sold downstream of the lease. GAO must also 
examine what adjustments are reasonable for location and quality of 
production and post-production activities when oil is sold downstream 
of the lease.
  This seems to be the best way to arrive at a fair, accurate, and 
concise calculation of the fair market value of production at the 
lease.
  I am confident that in this way producers and the Federal Government 
would be ensured a fair and workable royalty payment system.
  Mr. DOMENICI. If the Senator will yield, I must say I agree with my 
colleagues, Senators Hutchison, Murkowski, and Nickles, who represent, 
along with myself, the key committees of jurisdiction over this issue. 
The GAO study that we have mandated must, at a minimum, provide a 
thorough examination of these issues, as detailed here and in the 
conference report.
  Mrs. HUTCHISON. Mr. President, I thank my colleagues for their 
guidance and continuing interest in this regard. Finally, I believe my 
colleagues would agree that it would be useful if the MMS would 
repropose its oil valuation rule. It has been nearly 2 years since the 
agency put forward its last complete proposed rule. The DOI has 
received voluminous comments since that time, including detailed 
recommendations by industry at three public workshops on the rule 
earlier this year. It also re-opened the comment period for a month 
earlier this year. In trying to resolve this matter, it would be 
helpful if all the parties could understand the agency's current 
thinking on the contentious issues my colleagues have described. 
Reproposing the rule would be the best way to achieve that result and I 
strongly encourage the agency to do so.

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