[Federal Register Volume 60, Number 151 (Monday, August 7, 1995)]
[Proposed Rules]
[Pages 40120-40127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19296]



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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 206

RIN 1010-AC00


Revision of Valuation Regulations Governing Coal Washing and 
Transportation Allowances

AGENCY: Minerals Management Service, Interior.

ACTION: Proposed rulemaking.

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SUMMARY: The Minerals Management Service (MMS) proposes to amend its 
Royalty Management Program (RMP) valuation regulations governing coal 
washing and transportation allowances regarding the timely filing of 
required forms.

DATES: Comments must be submitted on or before October 6, 1995.

ADDRESSES: Written comments regarding the proposed rule should be 
mailed or delivered to: Minerals Management Service, Royalty Management 
Program, Rules and Procedures Staff, Denver Federal Center, Building 
85, P.O. Box 25165, Mail Stop 3101, Denver, Colorado, 80225-0165.

FOR FURTHER INFORMATION CONTACT: David Guzy, Chief, Rules and 
Procedures Staff, Telephone (303) 231-3432, Fax (303) 231-3194.

SUPPLEMENTARY INFORMATION: The principal author of this proposed 
rulemaking is Harry Corley, Valuation and Standards Division, MMS, RMP.

I. Background

    On January 13, 1989, MMS published a final rule in the Federal 
Register governing the valuation of coal for royalty computation 
purposes (54 FR 1492). The rulemaking provided comprehensive procedures 
for valuation of minerals produced from Federal and Indian lands, 
including regulations governing certain allowances considered in 
calculating and reporting royalties. The regulations provided for 
certain washing allowances (30 CFR Secs. 206.258 and 206.259) and 
transportation allowances (30 CFR Secs. 206.261 and 206.262) for coal.
    The rulemaking distinctly changed the historical administrative 
practice of MMS and its predecessor agency, the U.S. Geological Survey, 
regarding allowances. Prior to the 1988 rule, MMS required royalty 
payors to obtain the agency's written approval before taking an 
allowance deduction in reporting and paying royalties. With the new 
rule, MMS adopted a self-implementing concept for allowances. Instead 
of requiring agency preapproval, the regulations provided for the 
royalty payor to file timely certain required forms as a condition for 
the taking of an allowance on the Report of Sales and Royalty 
Remittance (Form MMS-2014).
    The allowance forms filing requirements of the current coal 
valuation regulations provide for an annual cycle for providing 
information to the MMS. Before the beginning of each calendar year, or 
during the year but before the taking of an allowance on the Form MMS-
2014, payors must submit the required form for any coal washing and 
coal transportation allowances that they expect to take during the 
year. The forms ask for information sufficient to identify the payor, 
the lease/revenue source/product code/selling arrangement, and an 
estimate of the allowance rate per unit that is anticipated for the 
year.
    By the end of March following the allowance year, the payor must 
submit the same forms as before but with additional data fields 
completed to indicate the actual costs experienced and the allowances 
actually taken on Forms MMS-2014 during the year. Also, several 
supplementary schedules representing details of actual costs must be 
submitted for non-arm's-length allowances.
    The filing of the actual cost forms serves several purposes for MMS 
and the payor. The forms provide the actual costs incurred in 
transporting and/or processing (washing) production for the allowance 
year, together with the actual allowance deductions taken on the Form 
MMS-2014. The forms also satisfy the regulatory requirement to have an 
estimated cost allowance form on file for the succeeding allowance 
year.
    The consequences of a payor's noncompliance with the forms filing 
requirements of the regulations are monetarily significant. Simply 
stated, if a payor takes an allowance deduction against royalty value 
on the Form MMS-2014 without a required form on file, the payor is 
subject to loss of allowance and to late-payment interest charges. The 
concept of the regulations is that a required form must be on file 
before the taking of an allowance; if a payor does not meet this 
requirement MMS considers the allowance to be lost by the payor. 
Consequently, the payor is directed to pay back the allowance and, 
after payback, is charged a late payment interest amount associated 
with the lost allowance. The current regulations provide for a ``grace 
period'' of three months that gives payors a window of time to comply 
with the forms filing requirements of the regulations without losing an 
allowance. The grace period permits lessees to retain allowances 
reported on a Form MMS-2014 for up to three months prior to the month 
that a required allowance form is filed with MMS. Although a payor will 
not experience a loss of allowance for the grace period, MMS will 
assess the payor a late payment interest charge from the date of the 
taking of the allowance on Form MMS-2014 to the receipt date of the 
filing of the required allowance form. By regulation, MMS may approve a 
grace period longer than three months upon a showing of good cause by 
the lessee. 

[[Page 40121]]

    In evaluating the effectiveness of its rules, particularly as they 
related to product valuation, MMS published in the June 17, 1992, 
Federal Register, a ``Request for Information for Improvements to 
Regulations'' (57 FR 27008). MMS' request stated that the rules for 
product valuation were substantially modified in 1988 based on an 
effort started in January 1985 with the creation of the Royalty 
Management Advisory Committee. The request further stated that it had 
been several years since most of the regulations in 30 CFR Parts 201 
through 243 were published, and public comments were requested to help 
MMS assess where improvements to rules could be made. The comment 
period closed August 17, 1992.
    Many commenters felt that the allowance form filing requirements of 
the valuation regulations needed improvement. They expressed concerns 
about both the allowance form filing requirements and the regulatory 
sanctions for failure to comply with the allowance reporting 
requirements. Suggested recommendations ranged from refinements of 
existing forms to a wholesale elimination of allowance form filings 
because they serve no useful purpose. Regarding sanctions for failure 
to timely file required allowance forms, commenters stated that the 
existing penalties were unduly harsh and that the ``punishment'' is not 
reflective of the ``crime.''

II. Allowance Study Group

    Based on public comments and the over four years of experience MMS 
gained in administering the allowance requirement of the valuation 
regulations, MMS formed a study group in April 1993 to evaluate the 
existing regulatory requirements for oil and gas allowances and 
formulate recommendations for improvement. The study group was 
comprised of participants from the Council of Petroleum Accounting 
Societies, the State and Tribal Royalty Audit Committee, and MMS. The 
study group's findings, conclusions, recommendations, and alternative 
approach for allowances are presented in the preamble to the proposed 
rule titled, ``Revision of Valuation Regulations Governing Oil and Gas 
Transportation and Processing Allowances.'' This proposed rule is 
published separately in the Federal Register.

III. Additional Changes by MMS

    The majority of the changes reflected in this proposed rulemaking 
are contained in the study group report. Additionally, MMS included 
several clarifications and additional changes based on MMS' experiences 
in administering allowances.

a. Failure To File Assessment

    The study group did not specify in its alternative approach a fixed 
percentage assessment for payors' failure to timely file actual cost 
forms. For purposes of this rulemaking, MMS included a percentage rate 
of 10 percent. MMS specifically requests comments on this rate or an 
alternative rate. MMS also requests specific comments on whether or not 
an upper limit, or cap, should be established for such assessments, and 
how the upper limit should be constructed; e.g., absolute dollar amount 
per occurrence, etc.

b. Improper Netting Assessment

    Another change involves the introduction of an assessment for the 
``improper netting'' of allowances against royalty value when reporting 
royalties on Form MMS-2014. ``Improper netting'' is a circumstance 
where two arm's-length transactions, one representing a sale and the 
other representing transportation, supported by two separate invoices, 
are improperly reported on the payor's Form MMS-2014 as a one-line 
transaction. The proposed assessment is 20 percent or twice the 
assessment (10 percent) that is proposed for failure to timely file 
required allowance forms. MMS has determined that improper netting 
should carry an increased assessment because the practice represents, 
in effect, concealment of information with adverse impacts on MMS' 
efforts to monitor the accuracy of royalty payments. MMS specifically 
requests comments on the 20 percentage rate proposed and whether an 
upper limit or cap should be established and how it should be 
constructed.

c. Erroneous Reporting Assessment

    MMS also proposes an assessment for reporting erroneous information 
on required allowance forms. MMS continues to experience significant 
additional workload caused by erroneously reported information on 
allowance forms. MMS seeks to establish an erroneous reporting 
assessment to encourage more accurate reporting. This proposed 
assessment authority currently exists for monthly production and 
royalty reports. An assessment has proven to be an effective tool to 
improve the accuracy of reported information.

d. Technical Corrections

    MMS proposes several technical corrections and clarifications.
IV. Proposed Amendments

    Although the study group recommendations addressed oil and gas 
allowances, MMS has determined that they also apply to coal because the 
regulatory approach to forms filing requirements and sanctions applies 
to both categories of minerals.
    Therefore, MMS is proposing to amend its valuation regulations to 
change the allowance forms filing requirements for coal. Furthermore, 
MMS is amending its valuation regulations to change the existing 
sanctions for not timely filing required allowance forms. MMS is also 
introducing new assessments and sanctions for (1) failure to properly 
report allowances as separate lines on Form MMS-2014, a practice 
commonly referred by MMS as ``netting''; and (2) reporting erroneous 
information on required allowance forms. Lastly, MMS is proposing 
several minor technical corrections and clarifications.

a. Coal Washing Allowances

    MMS proposes to amend Sec. 206.259 by deleting the third and fourth 
sentences of paragraph (a)(1) that state:

    However, before any deduction may be taken, the lessee must 
submit a completed page one of Form MMS-4292, Coal Washing Allowance 
Report, in accordance with paragraph (c)(1) of this section. A 
washing allowance may be claimed retroactively for a period of not 
more than 3 months prior to the first day of the month that Form 
MMS-4292 is filed with MMS, unless MMS approves a longer period upon 
a showing of good cause by the lessee.

    MMS proposes replacing the deleted sentences with the following two 
sentences:

    Before any washing allowance deduction may be taken on Form MMS-
2014, Report of Sales and Royalty Remittance, the lessee must file a 
Form MMS-4402, Notice of Intent To Take Transportation and Washing 
Allowances, in accordance with paragraph (c)(1) of this section. 
After the Form MMS-4402 reporting period, the lessee must file a 
Form MMS-4292, Coal Washing Allowance Report, in accordance with 
paragraph (c)(1) of this section.

    By implementing these changes, MMS would be adopting the 
recommendations of the study group's report. These changes allow MMS 
to: (1) Focus its allowance administration efforts on actual data 
reported annually to MMS rather than on estimated allowance rates 
reported at the beginning of the allowance year; (2) eliminate the 
retroactive three-month 

[[Page 40122]]
filing limitation; and (3) simplify allowance reporting procedures by 
incorporating the new reporting form for coal washing allowances.

    MMS proposes to amend Sec. 206.259(b)(1) by deleting the fourth and 
fifth sentences that state:

    However, before any estimated or actual deduction may be taken, 
the lessee must submit a completed Form MMS-4292 in accordance with 
paragraph (c)(2) of this section. A washing allowance may be claimed 
retroactively for a period of not more than 3 months prior to the 
first day of the month that Form MMS-4292 is filed with MMS, unless 
MMS approves a longer period upon a showing of good cause by the 
lessee.

    MMS proposes replacing the two deleted sentences with the following 
two sentences:

    Before any washing allowance deduction may be taken on Form MMS-
2014, the lessee must file a Form MMS-4402, Notice of Intent to Take 
Coal Transportation and Washing Allowances, in accordance with 
paragraph (c)(2) of this section. After the Form MMS-4402 reporting 
period, the lessee must file a Form MMS-4292 in accordance with 
(c)(2) of this section.

    MMS is proposing these changes to keep in line with the 
recommendations of the study group. These changes allow MMS to: (1) 
Focus its allowance administrative efforts on actual cost data rather 
than on estimated cost data; (2) eliminate the three-month filing 
limitation for coal washing allowances; and (3) simplify allowance 
reporting requirements.
    MMS proposes to further amend Sec. 206.259(b)(1) by deleting from 
the seventh sentence the phrase ``* * * estimated or * * *'' The 
seventh sentence would read:

    When necessary or appropriate, MMS may direct a lessee to modify 
its actual washing allowance.

    MMS is proposing this change to simplify its coal washing allowance 
reporting requirements and to comply with the study group's report.
    MMS proposes to amend Sec. 206.259 (c)(1) by deleting existing 
paragraphs (i), (ii), and (iii) and add new paragraphs (i), (ii), and 
(iii) that read:

    (i) With the exception of those washing allowances specified in 
paragraphs (c)(1)(v) and (vi) of this section, the lessee must file 
a Form MMS-4402 for washing allowances for each calendar year. The 
lessee must file the Form MMS-4402 by the due date of the first 
sales month in which a washing allowance is reported on Form MMS-
2014. A Form MMS-4402 received by the end of the month that Form 
MMS-2014 is due will be considered timely received.
    (ii) The Form MMS-4402 will be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct a 
washing allowance and will continue until the end of the calendar 
year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file page one of Form MMS-4292 for washing allowances within 3 
months after the end of the reporting period, unless MMS approves a 
longer period.

    MMS proposes these changes to implement the study group's 
recommendations. These changes would: (1) Simplify coal washing 
allowance reporting procedures; (2) implement a new allowance form to 
show the payor's intent to take washing allowances for the current 
year; and (3) provide greater administrative focus on actual data 
rather than on estimated data submitted by the payor.
    MMS proposes to amend Sec. 206.259(c)(2) by deleting existing 
paragraphs (i), (ii), (iii), and (iv), and replacing them with new 
paragraphs (i), (ii), and (iii), to read as follows:

    (i) With the exception of those washing allowances specified in 
paragraph (c)(2)(iv) and (vi) of this section, the lessee must file 
a Form MMS-4402 for washing allowances for each calendar year. The 
lessee must file the Form MMS-4402 by the due date of the first 
sales month in which a washing allowance is reported on Form MMS-
2014. A Form MMS-4402 received by the end of the month that Form 
MMS-2014 is due will be considered timely received.
    (ii) The Form MMS-4402 will be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct a 
washing allowance and will continue until the end of the calendar 
year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file page one and all supporting schedules of Form MMS-4292 for the 
actual washing allowance calculated for the reporting period. Form 
MMS-4292 is due within 3 months after the end of the reporting 
period, unless MMS approves a longer period.

    These changes would address the study group's recommendations 
concerning MMS' administration of allowances and the need to focus on 
actual data reported annually rather than focus on estimated allowance 
rates reported at the beginning of each allowance year. Accordingly, 
MMS would continue to require the submission on an annual form which 
notifies MMS of the payor's intent to take allowance deductions from 
the royalty value.
    Consistent with this amendment, paragraphs (v), (vi) and (vii), 
would be redesignated (iv), (v), and (vi).
    MMS is proposing technical corrections to this section as a result 
of adopting changes recommended by the study group.
    MMS proposes to amend Sec. 206.259(c) by adding paragraph (5) to 
read:

    A lessee is required to file a new Form MMS-4292 if adjustments 
are made to actual non-arm's-length washing allowances on Form MMS-
2014.

    MMS is proposing this change to comply with the study group's 
report. This change emphasizes MMS' focus on collecting actual data as 
opposed to estimated data and allows adjustments to allowance data 
previously submitted to MMS.
    MMS proposes to amend Sec. 206.259(d) by changing the title to 
read:
    (d) Interest charges and assessments for incorrect or late reports 
and failure to report.
    This change would better define and clarify the purpose of this 
section.
    MMS proposes to amend Sec. 206.259(d) by deleting paragraphs (1), 
(2), and (3) and replacing them with the following schedule:
    (d) Interest charges and assessments for incorrect or late reports 
and failure to report. MMS may levy assessments and interest charges in 
accordance with the table below. MMS will determine interest rates in 
accordance with 30 CFR 218.202.

----------------------------------------------------------------------------------------------------------------
                 If a lessee * * *                     The assessment is * * *      Plus interest calculated * *
-------------------------------------------------------------------------------------------------*--------------
Files an inaccurate or Late Form MMS-4402.........  $10 per allowance line                                      
                                                     required on Form MMS-4402.                                 
Deducts a washing allowance on Form MMS-2014        An amount equal to 10 percent  From the date that Form MMS- 
 without complying with requirements for actual      of the total allowance         4292 was due until the date 
 cost reporting on Form MMS-4292.                    amount deducted on Forms MMS-  that the form was received. 
                                                     2014 during the year.                                      

[[Page 40123]]
                                                                                                                
Takes a washing allowance on Form MMS-2014 by       An amount equal to 20 percent  From the end of the month in 
 improperly netting the allowance against the        of the total allowance         which Form MMS-2014         
 sales value of the coal instead of reporting the    amount netted on Form MMS-     containing the netted       
 allowance as a separate line item on Form MMS-      2014.                          allowance was submitted to  
 2014 as required by paragraph (c)(4) of this                                       the date MMS discovers the  
 section.                                                                           netted amount.              
Erroneously reports a transportation allowance      .............................  Payment of interest on the   
 that results in an underpayment of royalties.                                      amount of the underpayment. 
----------------------------------------------------------------------------------------------------------------


    These changes would adopt the study group's recommendations 
concerning the need for and equity of allowance payback and late-
payment interest charges for failure to file allowance forms. The study 
group also determined that the current payback sanction is excessive. 
However, MMS' objective is to gather timely and accurate actual cost 
information to assess the legitimacy of allowance deductions. 
Accordingly, the study group recommended that payors failing to timely 
file required forms would be assessed an amount equal to a fixed 
percent of the total allowance amount deducted during the year plus an 
amount calculated as equal to late-payment interest from the date the 
actual cost was due until the date the form was actually received.

b. Coal Transportation Allowances

    MMS proposes to amend Sec. 206.262 by deleting the third and fourth 
sentences of paragraph (a)(1) that state:

    However, before any deduction may be taken, the lessee must 
submit a completed page one of Form MMS-4293, Coal Transportation 
Allowance Report, in accordance with paragraph (c)(1) of this 
section. A transportation allowance may be claimed retroactively for 
a period of not more than 3 months prior to the first day of the 
month that Form MMS-4293 is filed with MMS, unless MMS approves a 
longer period upon a showing of good cause by the lessee.

    MMS proposes adding in place of the two deleted sentences the 
following two sentences:

    Before any transportation allowance deduction may be taken on 
Form MMS-2014, Report of Sales and Royalty Remittance, the lessee 
must file a Form MMS-4402, Notice of Intent To Take Transportation 
and Washing Allowances, in accordance with paragraph (c)(1) of this 
section. After the Form MMS-4402 reporting period, the lessee must 
file a Form MMS-4293, Coal Transportation Allowance Report, in 
accordance with paragraph (c)(1) of this section.

    By implementing these changes, MMS would adopt the recommendations 
of the study group's report. These changes allow MMS to: (1) Focus its 
allowance administration efforts on actual data reported annually to 
MMS rather than on estimated allowance rates reported at the beginning 
of the allowance year; (2) eliminate the retroactive three-month filing 
limitation, and (3) simplify allowance reporting procedures by 
incorporating the new reporting form for coal transportation 
allowances.
    MMS proposes to amend Sec. 206.262(b)(1) by deleting the fourth and 
fifth sentences that state:

    However, before any estimated or actual deduction may be taken, 
the lessee must submit a completed Form MMS-4293 in accordance with 
paragraph (c)(2) of this section. A transportation allowance may be 
claimed retroactively for a period of not more than three months 
prior to the first day of the month that Form MMS-4293 is filed with 
MMS, unless MMS approves a longer period upon a showing of good 
cause by the lessee.

    MMS proposes adding in place of the two deleted sentences the two 
following sentences:

    Before any transportation allowance deduction may be taken on 
Form MMS-2014, Report of Sales and Royalty Remittance, the lessee 
must file a Form MMS-4402, Notice of Intent to Take Coal 
Transportation and Washing Allowances, in accordance with paragraph 
(c)(2) of this section. After the Form MMS-4402 reporting period, 
the lessee must file a Form MMS-4293 in accordance with paragraph 
(c)(2) of this section.

    MMS is proposing these changes to keep in line with the 
recommendations of the study group. These changes would allow MMS to: 
(1) Focus its allowance administrative efforts on actual cost data 
rather than on estimated cost data; (2) eliminate the three-month 
filing limitation for coal transportation allowance; and (3) simplify 
allowance reporting requirements.
    MMS proposes to further amend Sec. 206.262(b)(1) by deleting from 
the seventh sentence the phrase ``* * * estimated or * * *'' The 
seventh sentence would read:

    When necessary or appropriate, MMS may direct a lessee to modify 
its actual transportation allowance deduction.

    This change would simplify MMS' coal transportation allowance 
reporting requirements in accordance with the study group's report.
    MMS proposes to amend Sec. 206.262(c)(1) by deleting existing 
paragraphs (i), (ii), (iii), and (iv) and replacing them with new 
paragraphs (i), (ii), (iii), and (iv) that read:

    (i) With the exception of those transportation allowances 
specified in paragraph (c)(1)(v) and (vi) of this section, the 
lessee must file a Form MMS-4402 for transportation allowances each 
calendar year. The lessee must file the Form MMS-4402 by the due 
date of the first sales month in which a transportation allowance is 
reported on Form MMS-2014. A Form MMS-4402 received by the end of 
the month that Form MMS-2014 is due will be considered timely 
received.
    (ii) The Form MMS-4402 will be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct a 
transportation allowance and will continue until the end of the 
calendar year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file page one of Form MMS-4293 for the actual transportation 
allowances calculated for the reporting period. Form MMS-4293 is due 
within 3 months after the end of the reporting period, unless MMS 
approves a longer period.
    (iv) MMS may require that a lessee submit arm's-length 
transportation contracts and related documents. Documents will be 
submitted within a reasonable time, as determined by MMS.

    MMS proposes these changes to implement the study group's 
recommendations. These changes would: (1) simplify coal transportation 
allowance reporting procedures; (2) implement a new allowance form to 
show the payor's intent to take transportation allowances for the 
current year; and (3) provide greater administrative focus on actual 
data rather than on estimated data submitted by the payor.
    MMS proposes to amend Sec. 206.262(c)(2) by deleting existing 
paragraphs (i), (ii), (iii), and (iv), and replacing them with new 
paragraphs (i), (ii), and (iii) that read:

    (i) With the exception of those transportation allowances 
specified in paragraph (c)(2)(iv) and (vi), of this section, the 
lessee must file a Form MMS-4402 for transportation allowance 
estimates for each calendar year. The lessee must file the Form MMS-
4402 by the due date of the first sales month in which a 
transportation allowance is reported on Form MMS-2014. A Form MMS-
4402 received by the end of the month that Form MMS-2014 is due will 
be considered timely received.
    (ii) The Form MMS-4402 will be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct 

[[Page 40124]]
a transportation allowance and will continue until the end of the 
calendar year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file a page one and all supporting schedules of Form MMS-4293 for 
the actual transportation allowance calculated for the reporting 
period. The Form MMS-4293 is due within three months after the end 
of the reporting period, unless MMS approves a longer period.

    These changes would address the study group's recommendations 
concerning MMS' administration of allowances and the need to focus on 
actual data reported annually rather than the current focus on 
estimated allowance rates reported at the beginning of each allowance 
year. Accordingly, MMS would continue to require the submission of an 
annual form which notifies MMS of the payor's intent to take allowance 
deductions from the royalty value.
    Consistent with this amendment, paragraph (iv) of 
Sec. 206.262(c)(2) would be removed and existing paragraphs (v), (vi), 
(vii), and (viii) would be redesignated (c)(2)(iv), (v), (vi), and 
(vii).
    MMS would also make technical corrections to this section as a 
result of adopting changes recommended by the study group.
    MMS proposes to amend Sec. 206.262(c) by adding paragraph (5) that 
reads:

    A lessee is required to file a new Form MMS-4293 if adjustments 
are made to actual non-arm's-length transportation allowances on 
Form MMS-2014.

    MMS is proposing this change to comply with the study group's 
report. This change emphasizes MMS' focus on collecting actual data as 
opposed to estimated data and allows adjustments to allowance data 
previously submitted to MMS.
    MMS proposes to amend Sec. 206.262(d) and revise the title that 
would read:
    (d) Interest charges and assessments for incorrect or late reports 
and failure to report
    MMS is making corrections to the regulations by adding language 
that would further define and clarify the purpose of this section.
    MMS proposes to amend Sec. 206.262(d) by deleting paragraphs (1), 
(2) and (3) replacing them with the following schedule:
    (d) Interest charges and assessments for incorrect or late reports 
and failure to report. MMS shall levy assessments and interest charges 
in accordance with the table below. MMS will determine interest rates 
in accordance with 30 CFR 218.202.

----------------------------------------------------------------------------------------------------------------
                 If a lessee * * *                     The assessment is * * *      Plus interest calculated * *
-------------------------------------------------------------------------------------------------*--------------
Files an inaccurate or Late Form MMS-4402.........  $10 per allowance line                                      
                                                     required on Form MMS-4402.                                 
Deducts a transportation allowance on Form MMS-     An amount equal to 10 percent  From the date that Form MMS- 
 2014 without complying with requirements for        of the total allowance         4293 was due until the date 
 actual cost reporting on Form MMS-4293.             amount deducted on Forms MMS-  that the form was received. 
                                                     2014 during the year.                                      
Takes a transportation allowance on Form MMS-2014   An amount equal to 20 percent  From the end of the month in 
 by improperly netting the allowance against the     of the total allowance         which Form MMS-2014         
 sales value of the coal instead of reporting the    amount netted on Form MMS-     containing the netted       
 allowance as a separate line item on Form MMS-      2014.                          allowance was submitted to  
 2014 as required by paragraph (c)(4) of this                                       the date MMS discovers the  
 section.                                                                           netted amount.              
Erroneously reports a transportation allowance      .............................  Payment of interest on the   
 that results in an underpayment of royalties.                                      amount of the underpayment. 
----------------------------------------------------------------------------------------------------------------

    These changes would adopt the study group's recommendations 
concerning the need for and equity of allowance payback and late-
payment interest charges for failure to file allowance forms. The study 
group also determined that the current payback sanction is excessive. 
However, MMS' objective is to gather timely and accurate actual cost 
information to assess the legitimacy of allowance deductions. 
Accordingly, the study group recommended that payors failing to timely 
file required forms would be assessed an amount equivalent to a fixed 
percent of the total allowance amount deducted during the year plus an 
amount calculated as equivalent to late-payment interest from the date 
the actual cost information was due until the date the form was 
actually received.
    The public is invited to participate in this rulemaking action by 
submitting data, views, or arguments with respect to this notice. All 
comments must be received by 4:00 p.m. of the day specified in the DATE 
Section and at the location in the ADDRESSES section of this preamble.

V. Other Matters

    Separate regulations concerning valuation of natural gas for 
royalty purposes are currently being developed for Federal leases and 
for Indian leases through two separate negotiated rulemaking 
committees. These committees are addressing both natural gas valuation 
and transportation and processing allowance issues.
    The committee addressing natural gas valuation for Federal leases 
recommended in its March 1995 report that transportation and processing 
allowance forms no longer be required. This recommendation is one of 
numerous recommendations for broad changes to existing regulations 
governing the valuation of natural gas produced from Federal leases. 
The future rulemaking to be prepared considering the recommendations of 
the Federal negotiated rulemaking committee will include the proposal 
for eliminating the requirement for allowance forms.
    The amendments to the coal valuation regulations related to 
allowances being proposed today mirror changes being proposed by 
separate rulemaking to the oil and gas valuation regulations related to 
allowances. The changes being proposed to the coal and the oil and gas 
allowance rules may ultimately be reconsidered depending on the outcome 
of the future gas valuation rulemaking developed from the 
recommendations of the Federal negotiated rulemaking committee.
    MMS also would like comment on the effective date for the final 
rule. One option is to make any final rule effective as of January 1, 
1995, the beginning of the current allowance year. Another option is to 
make the rule effective as of the date of publication of this proposed 
rule since royalty payors are on notice of the possible rule change on 
that date. Commenters should address this issue in their comments.

VI. Procedural Matters

The Regulatory Flexibility Act

    The Department has determined that this rulemaking will not have a 
significant economic effect on a substantial number of small entities 
under the Regulatory Flexibility Act (5 

[[Page 40125]]
U.S.C. 601 et seq.). The proposed rule will streamline and improve 
existing regulatory reporting requirements related to allowances that 
are used to calculate royalty payments on coal produced from Federal 
and Indian lands.

Executive Order 12630

    The Department certifies that the rule does not represent a 
governmental action capable of interference with constitutionally 
protected property rights. Thus, a Takings Implication Assessment need 
not be prepared under Executive Order 12630, ``Government Action and 
Interference with Constitutionally Protected Property Rights.''
Executive Order 12778

    The Department has certified to the Office of Management and Budget 
that these final regulations meet the applicable standards provided in 
Sections 2(a) and 2(b)(2) of Executive Order 12778.

Executive Order 12866

    This document has been reviewed under Executive Order 12866 and is 
not a significant regulatory action.

Paperwork Reduction Act of 1980

    The information collection requirements contained in this rule have 
been approved by the Office of Management and Budget (OMB) under 44 
U.S.C. 3501 et seq. and assigned Clearance Numbers 1010-0022, 1010-
0074, and 1010-0099.

National Environmental Policy Act of 1969

    We have determined that this rulemaking is not a major Federal 
action significantly affecting the quality of the human environment, 
and a detailed statement under section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) is not 
required.

List of Subjects in 30 CFR Part 206

    Coal, Continental shelf, Geothermal energy, Government contracts, 
Indian lands, Mineral royalties, Natural gas, Petroleum, Public lands-
mineral resources, Reporting and recordkeeping requirements.

    Dated: May 19, 1995.
Bob Armstrong,
Assistant Secretary--Land and Minerals Management.

    For the reasons set out in the preamble, 30 CFR part 206 is 
proposed to be amended as set forth below:

PART 206--PRODUCT VALUATION

Subpart F--Coal

    1. The authority citation for Part 206 is revised to read as 
follows:

    Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et 
seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et 
seq., 1701 et seq.; 31 U.S.C. 9701.; 43 U.S.C. 1301 et seq., 1331 et 
seq., and 1801 et seq.

    2. Section 206.259 is amended by revising paragraphs (a)(1), 
(b)(1), (c)(1)(i) through (iii), (c)(2)(i) through (iii), removing 
paragraph (c)(2)(iv), redesignating paragraphs (c)(2)(v) through (vii) 
as paragraphs (c)(2)(iv) through (vi), revising newly designated 
paragraphs (c)(2)(iv) through (vi), adding paragraph (c)(5) and 
revising paragraph (d) to read as follows:


Sec. 206.259  Determination of washing allowances.

    (a) * * *
    (1) For washing costs incurred by a lessee pursuant to an arm's-
length contract, the washing allowance will be the reasonable actual 
costs incurred by the lessee for washing the coal under that contract, 
subject to monitoring, review, audit, and possible future adjustment. 
MMS' prior approval is not required before a lessee may deduct costs 
incurred under an arm's-length contract. Before any washing allowance 
deduction may be taken on Form MMS-2014, Report of Sales and Royalty 
Remittance, the lessee must file a Form MMS-4402, Notice of Intent To 
Take Transportation and Washing Allowances, in accordance with 
paragraph (c)(1) of this section. After the Form MMS-4402 reporting 
period, the lessee must file a Form MMS-4292, Coal Washing Allowance 
Report, in accordance with paragraph (c)(1) of this section.
* * * * *
    (b) * * *
    (1) If a lessee has a non-arm's-length contract or has no contract, 
including those situations where the lessee performs washing for 
itself, the washing allowance will be based upon the lessee's 
reasonable actual costs. All washing allowances deducted under a non-
arm's-length or no contract situation are subject to monitoring, 
review, audit, and possible future adjustment. Prior MMS approval of 
washing allowances is not required for non-arm's-length or no contract 
situations. Before any washing allowance deduction may be taken on Form 
MMS-2014, the lessee must file a Form MMS-4402, Notice of Intent to 
Take Coal Transportation and Washing Allowances, in accordance with 
paragraph (c)(2) of this section. After the Form MMS-4402 reporting 
period, the lessee must file a Form MMS-4292 in accordance with (c)(2) 
of this section. MMS will monitor the allowance deduction to ensure 
that deductions are reasonable and allowable. When necessary or 
appropriate, MMS may direct a lessee to modify its actual washing 
allowance.
* * * * *
    (c) * * *
    (1) * * *
    (i) With the exception of those washing allowances specified in 
paragraphs (c)(1)(v) and (vi) of this section, the lessee must file a 
Form MMS-4402 for washing allowances each calendar year. The lessee 
must file the Form MMS-4402 by the due date of the first sales month in 
which a washing allowance is reported on Form MMS-2014. A Form MMS-4402 
received by the end of the month that Form MMS-2014 is due will be 
considered timely received.
    (ii) The Form MMS-4402 will be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct a 
washing allowance and will continue until the end of the calendar year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file page one of Form MMS-4292 for washing allowances within 3 months 
after the end of the reporting period, unless MMS approves a longer 
period.
* * * * *
    (2) * * *
    (i) With the exception of those washing allowances specified in 
paragraph (c)(2)(iv) and (vi) of this section, the lessee must file a 
Form MMS-4402 for washing allowances each calendar year. The lessee 
must file the Form MMS-4402 by the due date of the first sales month in 
which a washing allowance is reported on Form MMS-2014. A Form MMS-4402 
received by the end of the month that Form MMS-2014 is due will be 
considered timely received.
    (ii) The Form MMS-4402 will be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct a 
washing allowance and will continue until the end of the calendar year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file page one and all supporting schedules of Form MMS-4292 for actual 
washing allowances calculated for the reporting period. Form MMS-4292 
is due within three months after the end of the reporting period, 
unless MMS approves a longer period. 

[[Page 40126]]

    (iv) Washing allowances based on non-arm's-length or no-contract 
situations which are in effect at the time these regulations become 
effective will be allowed to continue until such allowances terminate. 
For the purposes of this section, only those allowances that have been 
approved by MMS in writing shall qualify as being in effect at the time 
these regulations become effective.
    (v) Upon request by MMS, the lessee shall submit all data used by 
the lessee to prepare its Forms MMS-4292. The data shall be provided 
within a reasonable period of time, as determined by MMS.
    (vi) MMS may establish, in appropriate circumstances, reporting 
requirements which are different from the requirements of this section.
    (3) * * *
    (4) * * *
    (5) A lessee is required to file a new Form MMS-4292 if adjustments 
are made to actual non-arm's-length washing allowances on Form MMS-
2014.
    (d) Interest charges and assessments for incorrect or late reports 
and failure to report. MMS shall levy assessments and interest charges 
in accordance with the table below. MMS will determine interest rates 
in accordance with 30 CFR 218.202.

----------------------------------------------------------------------------------------------------------------
                 If a lessee * * *                     The assessment is * * *      Plus interest calculated * *
-------------------------------------------------------------------------------------------------*--------------
Files an inaccurate or Late Form MMS-4402.........  $10 per allowance line                                      
                                                     required on Form MMS-4402.                                 
Deducts a washing allowance on Form MMS-2014        An amount equal to 10 percent  From the date that Form MMS- 
 without complying with requirements for actual      of the total allowance         4292 was due until the date 
 cost reporting on Form MMS-4292.                    amount deducted on Forms MMS-  that the form was received. 
                                                     2014 during the year.                                      
Takes a washing allowance on Form MMS-2014 by       An amount equal to 20 percent  From the end of the month in 
 improperly netting the allowance against the        of the total allowance         which Form MMS-2014         
 sales value of the coal instead of reporting the    amount netted on Form MMS-     containing the netted       
 allowance as a separate line item on Form MMS-      2014.                          allowance was submitted to  
 2014 as required by paragraph (c)(4) of this                                       the date MMS discovers the  
 section.                                                                           netted amount.              
Erroneously reports a washing allowance that        .............................  On the amount of the         
 results in an underpayment of royalties.                                           underpayment.               
----------------------------------------------------------------------------------------------------------------

* * * * *
    3. Section 206.262 is amended by revising paragraphs (a)(1), 
(b)(1), (c)(1)(i) through (iv), (c)(2)(i) through (iii), removing 
paragraph (iv), redesignating paragraphs (c)(2)(v) through (viii) to 
paragraphs (c)(2)(iv) through (vii), revising newly designated 
paragraphs (c)(2)(iv) through (vii), adding paragraph (c)(5) and 
revising paragraph (d) to read as follows:
Sec. 206.262  Determination of transportation allowances.

    (a) * * *
    (1) For transportation costs incurred by a lessee pursuant to an 
arm's-length contract, the transportation allowance shall be the 
reasonable, actual costs incurred by the lessee for transporting the 
coal under that contract, subject to monitoring, review, audit, and 
possible future adjustment. MMS' prior approval is not required before 
a lessee may deduct costs incurred under an arm's-length contract. 
Before any transportation allowance deduction may be taken on Form MMS-
2014, Report of Sales and Royalty Remittance, the lessee must file a 
Form MMS-4402, Notice of Intent To Take Transportation and Washing 
Allowances, in accordance with paragraph (c)(1) of this section. After 
the Form MMS-4402 reporting period, the lessee must file a Form MMS-
4293, Coal Transportation Allowance Report, in accordance with 
paragraph (c)(1) of this section.
* * * * *
    (b) * * *
    (1) If a lessee has a non-arm's-length contract or has no contract, 
including those situations where the lessee performs transportation 
services for itself, the transportation allowance shall be based upon 
the lessee's reasonable actual costs. All transportation allowances 
deducted under a non-arm's-length or no-contract situation are subject 
to monitoring, review, audit, and possible future adjustment. Prior MMS 
approval of transportation allowances is not required for non-arm's-
length or no-contract situations. Before any transportation allowance 
deduction may be taken on Form MMS-2014, Report of Sales and Royalty 
Remittance, the lessee must file a Form MMS-4402, Notice of Intent to 
Take Coal Transportation and Washing Allowances, in accordance with 
paragraph (c)(2) of this section. After the Form MMS-4402 reporting 
period, the lessee must file a Form MMS-4293 in accordance with 
paragraph (c)(2) of this section. MMS shall monitor the allowance 
deductions to ensure that deductions are reasonable and allowable. When 
necessary or appropriate, MMS may direct a lessee to modify its actual 
transportation allowance deduction.
* * * * *
    (c) * * *
    (1) * * *
    (i) With the exception of those transportation allowances specified 
in paragraph (c)(1)(v) and (vi) of this section, the lessee must file a 
Form MMS-4402 for transportation allowances each calendar year. The 
lessee must file the Form MMS-4402 by the due date of the first sales 
month in which a transportation allowance is reported on Form MMS-2014. 
A Form MMS-4402 received by the end of the month that Form MMS-2014 is 
due shall be considered timely received.
    (ii) The Form MMS-4402 shall be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct a 
transportation allowance and shall continue until the end of the 
calendar year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file page one of Form MMS-4293 for the actual transportation allowances 
calculated for the reporting period. Form MMS-4293 is due within 3 
months after the end of the reporting period, unless MMS approves a 
longer period.
    (iv) MMS may require that a lessee submit arm's-length 
transportation contracts and related documents. Documents shall be 
submitted within a reasonable time, as determined by MMS.
* * * * *
    (2) * * *
    (i) With the exception of those transportation allowances specified 
in paragraph (c)(2)(iv) and (vi) of this section, the lessee must file 
a Form MMS-4402 for transportation allowances each calendar year. The 
lessee must file the Form MMS-4402 by the due date of the first sales 
month in 

[[Page 40127]]
which a transportation allowance is reported on Form MMS-2014. A Form 
MMS-4402 received by the end of the month that Form MMS-2014 is due 
shall be considered timely received.
    (ii) The Form MMS-4402 shall be effective for a reporting period 
beginning the month that the lessee is first authorized to deduct a 
transportation allowance and shall continue until the end of the 
calendar year.
    (iii) After the Form MMS-4402 reporting period, the lessee must 
file a page one and all supporting schedules of Form MMS-4293 for the 
actual transportation allowance calculated for the reporting period. 
The Form MMS-4293 is due within 3 months after the end of the reporting 
period, unless MMS approves a longer period.
    (iv) Non-arm's-length contract or no-contract-based transportation 
allowances that are in effect at the time these regulations become 
effective shall be allowed to continue until such allowances terminate. 
For purposes of this section, only those allowances that have been 
approved by MMS in writing shall qualify as being in effect at the time 
these regulations become effective.
    (v) Upon request by MMS, the lessee must submit all data used to 
prepare its Form MMS-4293. The lessee must provide requested data 
within a reasonable period of time, as determined by MMS.
    (vi) MMS may establish, in appropriate circumstances, reporting 
requirements that are different from the requirements of this section.
    (vii) If the lessee is authorized to use its Federal or State 
agency-approved rate as its transportation cost in accordance with 
paragraph (b)(3) of this section, it shall follow the reporting 
requirements of paragraph (c)(1) of this section.
    (5) A lessee is required to file a new Form MMS-4293 if adjustments 
are made to actual non-arm's-length transportation allowances on Form 
MMS-2014.
    (d) Interest charges and assessments for incorrect or late reports 
and failure to report. MMS shall levy assessments and interest charges 
in accordance with the table below. MMS will determine interest rates 
in accordance with 30 CFR 218.202.

----------------------------------------------------------------------------------------------------------------
                 If a lessee * * *                     The assessment is * * *      Plus interest calculated * *
-------------------------------------------------------------------------------------------------*--------------
Files an inaccurate or Late Form MMS-4402.........  $10 per allowance line                                      
                                                     required on Form MMS-4402.                                 
Deducts a transportation allowance on Form MMS-     An amount equal to 10 percent  From the date that Form MMS- 
 2014 without complying with requirements for        of the total allowance         4293 was due until the date 
 actual cost reporting on Form MMS-4293.             amount deducted on Forms MMS-  that the form was received. 
                                                     2014 during the year.                                      
Takes a transportation allowance on Form MMS-2014   An amount equal to 20 percent  From the end of the month in 
 by improperly netting the allowance against the     of the total allowance         which Form MMS-2014         
 sales value of the coal instead of reporting the    amount netted on Form MMS-     containing the netted       
 allowance as a separate line item on Form MMS-      2014.                          allowance was submitted to  
 2014 as required by paragraph (c)(4) of this                                       the date MMS discovers the  
 section.                                                                           netted amount.              
Erroneously reports a transportation allowance      .............................  On the amount of the         
 that results in an underpayment of royalties.                                      underpayment.               
----------------------------------------------------------------------------------------------------------------

[FR Doc. 95-19296 Filed 8-4-95; 8:45 am]
BILLING CODE 4310-MR-P