[Federal Register Volume 65, Number 178 (Wednesday, September 13, 2000)]
[Rules and Regulations]
[Pages 55187-55190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23402]
[[Page 55187]]
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Part 218
RIN 1010-AC76
Interest Rate Applicable to Late Payment or Underpayment of
Monies Due on Solid Minerals and Geothermal Leases
AGENCY: Minerals Management Service, Interior.
ACTION: Final rule.
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SUMMARY: The Minerals Management Service (MMS) is revoking its
rulemaking published on March 29, 1994, regarding interest rates used
to assess interest on late payment or underpayment of monies due on
solid minerals and geothermal leases. A decision of the United States
Court of Appeals for the District of Columbia Circuit invalidated the
amendments promulgated in 1994. This rule reinstates the pre-1994 rule.
EFFECTIVE DATE: This rule is effective September 13, 2000.
FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and
Publications Staff, Minerals Management Service, Royalty Management
Program, P.O. Box 25165, MS 3021, Denver, Colorado 80225-0165;
telephone (303) 231-3432; FAX (303) 231-3385; e-mail
[email protected].
SUPPLEMENTARY INFORMATION: The principal authors of this final rule are
Janet Lin and Geoffrey Heath of the Office of the Solicitor, Department
of the Interior.
I. Background
1982 Rule. On May 25, 1982, MMS promulgated a rule (47 FR 22524)
that imposed interest charges for late payment and underpayment of
royalties under Federal and Indian coal and geothermal leases (the 1982
rule). The 1982 rule specified that MMS would charge an interest rate
at the Treasury Current Value of Funds Rate (CVF rate) for late payment
and underpayment of royalties both for coal\1\ and for geothermal
resources.\2\ The Treasury Department published the CVF rate on a
quarterly basis. As a matter of practice, MMS applied the new CVF rate
for each quarter to existing indebtedness (hereinafter, this method is
referred to as ``shifting rates'').
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\1\ 30 CFR 211.67(c), later redesignated as 30 CFR 218.202(c).
\2\ 30 CFR 270.91(c), later redesignated as 30 CFR 218.302(c).
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On April 28, 1986, MMS promulgated a rule (51 FR 15763) changing a
subpart heading so that the provisions under it, including the late
payment and underpayment rate provisions, applied to all solid minerals
instead of only coal.
1994 Rule. On March 29, 1994, MMS promulgated a rule (59 FR 14559)
(the 1994 rule) that revised the interest rate for late payment and
underpayment of royalties for solid minerals\3\ and for geothermal
resources\4\ from the CVF rate to the higher Internal Revenue Service
underpayment rate prescribed at 26 U.S.C. 6621(a)(2) (IRS rate). The
IRS rate is a ``prime plus three percent'' rate that shifts quarterly
with changes in the prime rate. Under the associated provisions at 26
U.S.C. 6622, the rate is a daily compounded rate. The MMS rule imposing
the higher rate became effective on April 1, 1994.
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\3\ 30 CFR 218.202(c) and (d).
\4\ 30 CFR 218.302(c) and (d).
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In promulgating the 1994 rule, MMS sought to more appropriately
compensate the lessor for the lost time value of underpaid royalties
and to make interest rates for solid minerals and geothermal resources
consistent with those imposed on oil and gas under the Federal Oil and
Gas Royalty Management Act of 1982 (FOGRMA), section 111(a).\5\ FOGRMA
provides MMS with express statutory authority to assess interest at the
IRS rate on underpaid oil and gas royalties. Since no such statutory
provision exists for solid minerals or geothermal resources, the 1994
rule 19 relied on the Secretary's rulemaking authority under the
Mineral Leasing Act of 1920 (MLA),\6\ the Mineral Leasing Act for
Acquired Lands,\7\ the Indian mineral leasing laws,\8\ and the
Geothermal Steam Act of 1970.\9\
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\5\ 30 U.S.C. 1721(a).
\6\ 30 U.S.C. 189.
\7\ 30 U.S.C. 359.
\8\ 30 U.S.C.396 and 396(d).
\9\ 30 U.S.C. 1023.
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The 1994 rule amended 30 CFR 218.202(c) and (d) and 30 CFR
218.302(c) and (d) with identical provisions that read as follows:
(c) The interest charge on late payments shall be at the
underpayment rate established by section 6621(a)(2) of the Internal
Revenue Code, 26 U.S.C. Sec. 6621(a)(2).
(d) Interest will be charged only on the amount of the payment
not received by the designated due date. Interest will be charged
only for the number of days the payment is late.
The Amax Decision. Amax Land Company (Amax) is a Federal coal
lessee. The MMS assessed late payment interest on Amax for failure to
timely pay royalties for the period January 1989 to July 1993. The MMS
applied the IRS rate under the 1994 rule to Amax's late payment for
those periods in which the indebtedness continued after the effective
date of that rule. Amax administratively appealed the interest
assessment. The MMS Director and the Assistant Secretary for Land and
Minerals Management denied the appeal. Amax then sought judicial review
in the United States District Court for the District of Columbia
challenging the legality of the 1994 rule. The District Court held that
MMS's application of the IRS rate to solid minerals was not a
permissible exercise of MMS's rulemaking authority at 30 U.S.C. 189.
Amax Land Company v. Quarterman, 1998 WL 306582, 6 (D.D.C. 1998).
The Government appealed. The Court of Appeals for the District of
Columbia Circuit reversed the District Court's decision in part and
affirmed it in part. Amax Land Company v. Quarterman, 181 F. 3d 1356
(D.C. Cir. 1999) (Amax decision). The D.C. Circuit concluded that MMS's
adoption of the IRS interest rate under the MLA's rulemaking authority
was reasonable only if MMS could show that the particular regulations
were ``necessary and proper'' under 30 U.S.C. 189.\10\ The D.C. Circuit
remanded the question of whether MMS action was ``necessary and
proper'' in this case to the District Court.\11\
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\10\ 181 F. 3d at 1366.
\11\ Id. at 1367.
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The D.C. Circuit agreed with the District Court's conclusion that
the Debt Collection Act (DCA) \12\ and the Federal Claims Collection
Standards \13\ prevent MMS from using shifting or compounding interest
rates in situations in which the DCA applies.\14\ However, the D.C.
Circuit further held that these DCA prohibitions do not apply to
contracts executed before October 25, 1982.\15\ Therefore, for leases
issued before October 25, 1982, the DCA does not bar shifting or
compound rates.
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\12\ 31 U.S.C. 3717(c)(2).
\13\ 4 CFR 102.13.
\14\ Id. at 1367.
\15\ 31 U.S.C. 3717(g)(2); Id. at 1369.
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Under the Amax decision, MMS would first have to show that use of
the higher rate is ``necessary and proper'' under the MLA\16\ before it
could assess interest at the IRS rate on underpayments under any solid
mineral leases. However, under the D.C. Circuit's opinion, even if MMS
makes
[[Page 55188]]
the necessary showing to impose the IRS rate, it could only use an IRS
rate that neither shifts nor compounds for leases issued after October
25, 1982. For pre-October 25, 1982, leases, MMS could impose a shifting
and compounding IRS rate unless the lessee shows that use of shifting
or compound rates is not ``necessary and proper'' in the particular
case.\17\ This holding created an issue of fact that would have to be
adjudicated in every case, which effectively nullified the uniform
applicability of the rule even as to pre-October 25, 1982, leases, and
made its provisions at best contingent.
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\16\ 30 U.S.C. 189.
\17\ 181 F. 3d at 1369.
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Although Amax challenged the interest provision only with regard to
coal leases, the Amax decision affects the validity of the same
provision as it applies to other solid mineral leases and of an
identical provision that applies to leases of geothermal resources.
The practical effect of the Amax decision is that MMS is left to
defend an interest rate provision that is very different from the rule
it promulgated in 1994. As explained above, MMS promulgated the 1994
rule to make interest rates for late payment and underpayment
consistent with those imposed under FOGRMA, among other reasons.\18\
The preamble to the 1994 rule summarized the effect of the rule as
moving from a simple interest rate under the old rule (CVF rate) to a
compounding rate under the new rule (IRS rate).\19\ Instead of making
rates for solid minerals and geothermal resources consistent with fluid
minerals, the Amax decision would result in a patchwork of possible
rates. Under the Amax decision, MMS simply cannot assess interest for
solid minerals and geothermal resources under the IRS rate prescribed
in the 1994 rule. Instead, MMS would have to assess different interest
rates in each case, depending on the type of lease at issue and the
outcome of the further proceedings that the Court identified were
lacking during the rulemaking process. For these reasons, the Amax
decision has the substantive effect of invalidating the 1994 rule as
promulgated.
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\18\ 60 FR 14557.
\19\ 60 FR 14558.
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II. Reinstatement of the 1982 Rule
In the event that a court finds a regulatory change invalid, the
prior regulations are reinstated. The D.C. Circuit, in Bowen v.
Georgetown Univ. Hosp., 821 F. 2d 750 (D.C. Cir. 1987), aff'd, 488 U.S.
204 (1988), stated that ``[t]his circuit has previously held that the
effect of invalidating an agency rule is to `reinstat[e] the rules
previously in force.''' In that case, the D.C. Circuit held that when
the District Court vacated a rule, it reinstated the prior regulations.
The D.C. Circuit came to a similar conclusion when it vacated a
regulation in Action on Smoking & Health v. CAB, 713 F.2d 795, 797
(D.C. Cir. 1983).\20\
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\20\ See also Mason General Hospital v. Secretary of the
Department of Health and Human Services, 809 F.2d 1220 (6th Cir.
1987); Abington Memorial Hospital v. Heckler, 750 F.2d 242, 244 (3d
Cir. 1985); Menorah Medical Center v. Heckler, 768 F.2d 297 (8th
Cir. 1985); Cumberland Medical Center v. Secretary of Health and
Human Services, 781 F.2d 536, 538 (6th Cir. 1986).
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As discussed above, the Amax decision effectively invalidates the
1994 rule. It follows that the 1982 rule is reinstated for the periods
beginning April 1, 1994. By this notice in the Federal Register, the
text of the rule as it read before the 1994 amendment is reinstated.
Although the Amax decision did not address the 1982 rule, the D.C.
Circuit held that the DCA and 4 CFR 102.13(c) prohibit MMS from
assessing interest on the basis of shifting interest rates for leases
issued after October 25, 1982.\21\ The 1982 rule does not specify
whether a shifting rate applies. In past practice, before the 1994 rule
was adopted, MMS applied a shifting CVF interest rate under the 1982
rule to all solid minerals and geothermal royalty underpayments,
regardless of when the lease was issued. Consistent with the D.C.
Circuit's ruling, MMS will now apply the restored pre-1994 rule
language to use a constant CVF interest rate for all post-October 25,
1982, leases in accordance with the Amax decision, but will continue to
calculate interest on the basis of shifting CVF interest rates for pre-
October 25, 1982, leases. Since the text of the 1982 rule that is
reinstated does not specify whether the CVF rate shifts, the earlier
rule language is reinstated without change, and constant rates will be
used for underpayments for post-October 25, 1982, leases, as a matter
of interpretation compelled by the Amax decision. In other words, for
underpayments for leases issued after October 25, 1982, the CVF rate in
effect at the time the underpayment occurs will remain the rate at
which interest continues to accrue until the unpaid royalties are paid.
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\21\ 181 F.3d at 1367.
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The Department of the Interior finds good cause to issue this final
rule without notice and opportunity for public comment under 5 U.S.C.
553(b)(3)(B). This final rule is a direct result of a judicial decision
invalidating the 1994 rule, and public comment therefore is
unnecessary. For the same reasons, a 30-day period is not required
between publication of a final rule and its effective date under 5
U.S.C. 553(d).
III. Procedural Matters
1. Summary Cost and Benefit Data
This rule reinstates the lower interest rates contained in the 1982
rule beginning April 1, 1994. Consequently, this rule imposes the
following costs or benefits to the four affected groups: industry, the
Federal Government, State and local governments, and Indian tribes and
allottees.
A. Industry
We estimate that the solid minerals and geothermal industries will
pay approximately 40 percent less late-payment interest on Federal
leases under the reinstated 1982 interest rates. Under the 1994 rates,
MMS would have billed solid mineral and geothermal payors approximately
$2 million per year in late payment interest. Under the reinstated 1982
rates, billed interest will decrease to approximately $1.2 million, for
a $800,000 net benefit to industry.
B. Federal Government
The Federal Government will collect approximately $800,000 less
late-payment interest annually (see discussion in section A. Industry).
Approximately 50 percent or $400,000 would have been retained by the
U.S. Treasury.
C. State and Local Governments
The Federal Government will collect approximately $800,000 less
late-payment interest annually (see discussion in section A. Industry).
Approximately 50 percent or $400,000 would have been paid to States.
Those States are primarily the largest solid mineral producing States
of Wyoming, Colorado, Utah, Montana, and New Mexico.
D. Indian Tribes
Most solid mineral revenues are paid directly to the Indian
recipients, so MMS does not know the exact receipt dates. Consequently,
MMS must estimate the revenue loss to Indian tribes and allottees by
extrapolation from Federal payments. Indian solid mineral revenues are
15 percent of Federal solid mineral revenues so we estimate that the
revenue loss to Indian tribes and allottees will be 15 percent of
$800,000 or $120,000 annually.
The cost and benefit information in this Item 1 of Procedural
Matters is used as the basis for the departmental certifications in
Items 2-10.
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2. Regulatory Planning and Review (E.O. 12866)
This document is not a significant rule and is not subject to
review by the Office of Management and Budget under Executive Order
12866.
(1) This rule will not have an effect of $100 million or more on
the economy. It will not adversely affect in a material way the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities.
(2) This rule will not create a serious inconsistency or otherwise
interfere with an action taken or planned by another agency.
(3) This rule does not alter the budgetary effects of entitlements,
grants, user fees, or loan programs or the rights or obligations of
their recipients.
(4) This rule does not raise novel legal or policy issues.
3. Regulatory Flexibility Act
The Department of the Interior certifies that this document will
not have a significant adverse effect on a substantial number of small
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
Your comments are important. The Small Business and Agricultural
Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were
established to receive comments from small businesses about Federal
agency enforcement actions. The Ombudsman will annually evaluate the
enforcement activities and rate each agency's responsiveness to small
business. If you wish to comment on the enforcement actions in this
rule, call 1-888-734-3247.
4. Small Business Regulatory Enforcement Act (SBREFA)
This rule is not a major rule under 5 U.S.C. 804(2), the Small
Business Regulatory Enforcement Fairness Act. This rule:
a. Does not have an annual effect on the economy of $100 million or
more.
b. Will not cause a major increase in costs or prices for
consumers, individual industries, Federal, State, or local government
agencies, or geographic regions.
c. Does not have significant adverse effects on competition,
employment, investment, productivity, innovation, or the ability of
U.S.-based enterprises to compete with foreign-based enterprises.
5. Unfunded Mandates Reform Act
This rule does not impose an unfunded mandate on State, local, or
tribal governments or the private sector of more than $100 million per
year. The rule does not have a significant or unique effect on State,
local, or tribal governments or the private sector. A statement
containing the information required by the Unfunded Mandates Reform Act
(2 U.S.C. 1531 et seq.) is not required.
6. Takings (E.O. 12630)
In accordance with Executive Order 12630, this proposed rule does
not have significant takings implications. This rule does not impose
conditions or limitations on the use of any private property;
consequently, a takings implication assessment is not required.
7. Federalism (E.O. 13132)
In accordance with Executive Order 13132, this proposed rule does
not have Federalism implications. This rule does not substantially or
directly affect the relationship between the Federal and State
governments or impose costs on States or localities.
8. Civil Justice Reform (E.O. 12988)
In accordance with Executive Order 12988, the Office of the
Solicitor has determined that this rule does not unduly burden the
judicial system and meets the requirements of sections 3(a) and 3(b)(2)
of the Order.
9. Paperwork Reduction Act of 1995
This proposed rule does not contain an information collection, as
defined by the Paperwork Reduction Act, and the submission of Office of
Management and Budget Form 83-I is not required.
10. National Environmental Policy Act
This rule does not constitute a major Federal action significantly
affecting the quality of the human environment. A detailed statement
under the National Environmental Policy Act of 1969 is not required.
List of Subjects in 30 CFR Part 218
Coal, Continental shelf, Electronic funds transfers, Geothermal
energy, Government contracts, Indian lands, Mineral royalties, Natural
gas, Penalties, Petroleum, Public lands--Mineral resources, Reporting
and recordkeeping requirements.
Dated: September 5, 2000.
Sylvia V. Baca,
Assistant Secretary--Land and Minerals Management.
For the reasons set out in the preamble, 30 CFR part 218 is amended
as follows:
PART 218--COLLECTION OF ROYALTIES, RENTALS, BONUSES AND OTHER
MONIES DUE THE FEDERAL GOVERNMENT
1. The authority citation for part 218 continues 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. 3716; 3720A, 9701; 43 U.S.C. 1301 et
seq., 1331 et seq., and 1801 et seq.
Subpart E--Solid Minerals--General
2. In Sec. 218.202, paragraphs (c) and (d) are revised and
republished to read as follows:
Sec. 218.202 Late payment or underpayment charges.
* * * * *
(c) Late payment charges are calculated on the basis of a
percentage assessment rate. In the absence of a specific lease, permit,
license or contract provision prescribing a different rate, this
percentage assessment rate is prescribed by the Department of the
Treasury as the ``Treasury Current Value of Funds Rate.''
(d) This rate is available in the Treasury Fiscal Requirements
Manual Bulletins that are published prior to the first day of each
calendar quarter for application to overdue payments or underpayments
in the new calendar quarter. The rate is also published in the Notices
section of the Federal Register and indexed under ``Fiscal Service/
Notices/Funds Rate; Treasury Current Value.''
* * * * *
Subpart F--Geothermal Resources
3. In Sec. 218.302, paragraphs (c) and (d) are revised and
republished to read as follows:
Sec. 218.302 Late payment or underpayment charges.
* * * * *
(c) Late payment charges are calculated on the basis of a
percentage assessment rate. In the absence of a specific lease, permit,
license or contract provision prescribing a different rate, this
percentage assessment rate is prescribed by the Department of the
Treasury as the ``Treasury Current Value of Funds Rate.''
(d) This rate is available in the Treasury Fiscal Requirements
Manual Bulletins that are published prior to the first day of each
calendar quarter for application to overdue payments or
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underpayments in the new calendar quarter. The rate is also published
in the Notices section of the Federal Register and indexed under
``Fiscal Service/Notices/Funds Rate; Treasury Current Value.''
* * * * *
[FR Doc. 00-23402 Filed 9-12-00; 8:45 am]
BILLING CODE 4310-MR-P