[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