[Federal Register Volume 65, Number 187 (Tuesday, September 26, 2000)]
[Proposed Rules]
[Pages 57771-57773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-24594]



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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 208

RIN 1010-AC70


Small Refiner Administrative Fee

AGENCY: Minerals Management Service, Interior.

ACTION: Proposed rulemaking.

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SUMMARY: The Minerals Management Service (MMS) proposes to eliminate 
the fees it recovers from small refiners participating in the small 
refiner royalty-in-kind (RIK) program. MMS believes that the fees are 
no longer justified under the requirements of Office of Management and 
Budget (OMB) Circular No. A-25.

DATES: Comments must be submitted on or before November 27, 2000.

ADDRESSES: If you wish to comment, you may submit your comments by any 
one of several methods. You may mail comments to Minerals Management 
Service, Royalty Management Program, Rules and Publications Staff, P.O. 
Box 25165, MS 3021, Denver, Colorado 80225-0165. You may also comment 
via the Internet to [email protected]. Please submit Internet 
comments as an ASCII file and avoid the use of special characters and 
any form of encryption. Please also include ``Attn: RIN 1010-AC70'' and 
your name and return address in your Internet message. If you do not 
receive a confirmation that we have received your Internet message, 
contact David S. Guzy, MMS, RMP, at (303) 231-3432. Finally, you may 
hand-deliver comments to Building 85, Denver Federal Center, Denver, 
Colorado 80225.

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 proposed rule 
are Larry Cobb of the Royalty Management Program (RMP), MMS, and Sarah 
L. Inderbitzin of the Office of the Solicitor, Department of the 
Interior.

I. Background

    Congress established the small refiner royalty-in-kind (RIK) 
program to ensure a diversified refining base essential for the 
national interest and defense. Regulations at 30 CFR Part 208 define 
the MMS process for awarding RIK volumes to small refiners.
    Small refiner eligibility requirements for onshore leases are 
defined in 30 CFR part 208 and are based on the Emergency Petroleum 
Allocation Act, and by regulations of the Small Business Administration 
for offshore leases. Under the small refiner program, MMS takes its 
royalty portion of production from one or more Federal leases ``in 
kind'' (as opposed to taking the royalty ``in value'' or cash) and 
sells it to a qualifying small refiner under an RIK contract. The goal 
of the program is to keep small refiners economically viable by 
providing:
    1. Access to a crude oil marketplace where integrated oil companies 
and larger refiners account for the majority of the crude oil traded;
    2. A stable source of supply at equitable prices to sustain 
operations at or near normal operating capacity; and
    3. A vital source of trade stock, thereby creating the opportunity 
to ``exchange'' royalty oil for the quality or type of crude oil feed 
stock needed to sustain their mix of refined products.
    Before recent program changes, small refiners took delivery of the 
royalty oil MMS had awarded them from designated Federal lessees/
producers. After the lessees reported to MMS the value of the crude oil 
they had supplied, MMS then billed the small refiners according to 
those values.
    If MMS later determined that the values lessees reported 
understated the market value of the oil, MMS billed the small refiners 
for additional payments. This process created much uncertainty for both 
MMS and the small refiners and, in some cases, threatened the financial 
solvency of the small refiners when they received large bills from MMS.
    MMS required small refiners to pay a cost recovery fee to cover 
MMS's direct and indirect costs of running the small refiner program. 
In 1999, small refiners paid about $430,000 to cover the Government's 
costs. Because fewer refiners participated in the program in 1999 than 
in previous years, their individual shares of the full cost increased 
to cover the entire program.
    Small refiners had said they were dropping out of the program as a 
result of the pricing liabilities. Participation in the program 
declined from 13 refiners in 1995 to only five in 1999. Refiners cited 
the great uncertainty about the ultimate price of the RIK oil as a 
major impediment to the effective operation of their businesses.
    MMS now conducts a competitive bidding process for all eligible 
small refiners. Small refiners must bid on the oil using market-based 
prices, and MMS selects the highest bidders (highest offered prices) 
for each RIK sale. The market-based prices are applicable spot market 
prices, with appropriate location, quality, and market-value 
adjustments for a particular area.
    The revised program procedures greatly streamline royalty-in-kind 
oil sales resulting in a more efficient, business-like approach. The 
process assures that MMS receives market value for its in-kind 
production, provides small refiners with greater pricing certainty by 
avoiding the potential for retroactive charges, and eliminates the 
administrative burdens of value auditing and billing.

II. Explanatory Information

    Because of the new competitive procedures for selling RIK oil, MMS 
receives market value for the oil and, therefore, believes the cost 
recovery fee under 30 CFR 208.4(b)(4) is no longer justified under the 
requirements of OMB Circular No. A-25. Therefore, in this rulemaking 
MMS is proposing to remove the fee provision from the regulations.
    OMB Circular No. A-25 (July 8, 1993) established guidelines for 
Federal agencies to assess fees under the Independent Offices 
Appropriation Act of 1952, 31 U.S.C. 9701, to cover the costs of 
Government-provided services or benefits beyond those accruing to the 
general public. In determining the amount of user fees to assess, 
section 6a.2.(b) of OMB Circular No. A-25 states:

    Except as provided in Section 6c, user charges will be based on 
market prices (as defined in Section 6d) when the Government, not 
acting in its capacity as sovereign, is leasing or selling goods or 
resources, or is providing a service (e.g., leasing space in 
federally owned buildings). Under these business-type conditions, 
user charges need not be limited to the recovery of full cost and 
may yield net revenues.

    Section 6.d.2. describes market price as the price for a good, 
resource, or service that is based on competition in open markets, and 
creates neither a shortage nor a surplus of the good, resource, or 
service. Under the current RIK program, MMS: (1) Is not acting in its 
capacity as a sovereign in the sale of RIK oil, and (2) is receiving 
market prices for the oil. When disposing of the RIK production under a 
contractual agreement in the market place, MMS acts in the same manner 
as other entities selling production in the marketplace. That is, MMS's 
role as a seller of RIK production to small refiners is divorced

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from its role as lessor in receiving RIK production from Federal 
lessees.
    Further, OMB Circular No. A-25 states that when a substantial 
competitive demand exists for a good, resource, or service its market 
price will be determined using commercial practices, for example:
    (1) competitive bidding; or
    (2) by reference to prevailing prices in competitive markets for 
goods, resources, or services that are the same or similar to those 
provided by the Government * * * with adjustments as appropriate that 
reflect demand, level of service, and the quality of the good or 
service.
    OMB guidelines do not limit Federal agencies to the recovery of 
actual costs when disposing of goods that have market value. Under 
procedures now in place, by receiving market value, MMS will not only 
recover the value of the oil sold but also the direct and indirect 
costs of conducting the sale. Therefore, MMS is in compliance with OMB 
guidelines and does not need to assess a separate cost recovery fee for 
the small refiner program.
    Accordingly, MMS proposes to discontinue assessing the cost 
recovery fees currently recovered under 30 CFR 208.4(b)(4) by removing 
that paragraph in the regulation.

III. Procedural Matters

1. Public Comment Policy

    Our practice is to make comments, including names and home 
addresses of respondents, available for public review during regular 
business hours and on our Internet site at www.rmp.mms.gov. Individual 
respondents may request that we withhold their home address from the 
rulemaking record, which we will honor to the extent allowable by law. 
There also may be circumstances in which we would withhold from the 
rulemaking record a respondent's identity, as allowable by law. If you 
wish us to withhold your name and/or address, you must state this 
prominently at the beginning of your comments. However, we will not 
consider anonymous comments. We will make all submissions from 
organizations or businesses, and from individuals identifying 
themselves as representatives or officials of organizations or 
businesses, available for public inspection in their entirety.

2. Summary Cost and Benefit Data

    We have summarized below the economic impacts of this rule to the 
three affected groups: industry, State and local governments, and the 
Federal Government. This cost and benefit information in this Item 2 of 
Procedural Matters is used as the basis for the Departmental 
certifications in Items 3-11.
A. Industry
    The revised small refiners royalty-in-kind program and this 
associated rule will benefit small refiners by--
     Eliminating the separate cost recovery fee;
     Providing certainty in the prices they will pay for the 
royalty oil; and
     Reducing administrative costs due to a more efficient, 
commercial-like sales procedure.
B. State and Local Governments
    Currently, only oil produced from offshore leases is offered for 
sale in the small refiner RIK program. States are unaffected by the 
offshore RIK program because only those offshore leases where 100 
percent of the royalty revenues belongs to the Federal Government are 
designated for inclusion in the program. Should the small refiner 
program be expanded to onshore leases, States will incur their pro rata 
share of the cost of administering the onshore portion of the RIK 
program and will receive their share of royalties, per applicable 
revenue distribution formulas.
C. Federal Government
    With the changes to the RIK program that created the need for this 
rule, MMS will no longer have to rely on prices reported by third-
parties and impose separate cost recovery fees because it will receive 
full market value for its royalty oil. Moreover, because it will now 
recover market value, MMS believes that the financial impact to the 
government of the elimination of the cost recovery fee, if any, will be 
nominal.
    Also, MMS will achieve administrative savings because it will no 
longer have to take action to collect the additional monies owed by 
small refiners when later audits show that prices quoted by lessees 
understated the oil's market value.

3. 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.

4. 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.).
    Alternatively, the small refiner program provides noteworthy 
benefits to eligible small refiners including:
     Access to a crude oil marketplace where the major 
integrated oil companies and large refiners account for the majority of 
the crude oil traded;
     A stable source of supply at equitable market-based prices 
which helps the small refiner sustain operations at or near normal 
operating capacity; and
     A vital source of trade stock, thereby creating the 
opportunity to ``exchange'' royalty oil for the quality or type of 
crude oil feed stock needed to sustain their mix of refined products.
    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.

5. 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.

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6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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

    Continental shelf, Government contracts, Mineral royalties, Natural 
gas, Petroleum, Public lands--mineral resources.

    Dated: September 18, 2000.
Sylvia V. Baca,
Assistant Secretary--Land and Minerals Management.
    For reasons set forth in the preamble, MMS proposes to amend 30 CFR 
part 208 as follows:

PART 208--SALE OF FEDERAL ROYALTY OIL

    1. The authority citation for part 208 continues to read as 
follows:

    Authority: 5 U.S.C. 301 et seq.; 30 U.S.C. 181 et seq., 351 et 
seq., 1701 et seq.; 31 U.S.C. 9701; 41 U.S.C. 601 et seq.; 43 U.S.C. 
1301 et seq., 1331 et seq., and 1801 et seq.

    2. In Sec. 208.4, remove paragraph (b)(4).

[FR Doc. 00-24594 Filed 9-25-00; 8:45 am]
BILLING CODE 4310-MR-P