[Federal Register Volume 82, Number 37 (Monday, February 27, 2017)]
[Rules and Regulations]
[Pages 11823-11824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03861]


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DEPARTMENT OF THE INTERIOR

Office of Natural Resources Revenue

30 CFR Parts 1202 and 1206

[Docket No. ONRR-2012-0004; DS63644000 DR2000000.CH7000 178D0102R2]
RIN 1012-AA13


Postponement of Effectiveness of the Consolidated Federal Oil & 
Gas and Federal & Indian Coal Valuation Reform 2017 Valuation Rule

AGENCY: Office of Natural Resources Revenue (ONRR), Interior.

ACTION: Notification; postponement of effectiveness.

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SUMMARY: On July 1, 2016, the Office of Natural Resources Revenue 
(ONRR) published the Consolidated Federal Oil & Gas and Federal & 
Indian Coal Valuation Final Rule (2017 Valuation Rule or Rule) in the 
Federal Register. On December 29, 2016, three separate petitions 
challenging the 2017 Valuation Rule were filed in the United States 
District Court for the District of Wyoming. In light of the existence 
and potential consequences of the pending litigation, ONRR has 
concluded that justice requires it to postpone the effectiveness of the 
2017 Valuation Rule pursuant to 5 U.S.C. 705 of the Administrative 
Procedure Act, pending judicial review.

DATES: February 27, 2017.

FOR FURTHER INFORMATION CONTACT: Peter Christnacht, Royalty Valuation 
team B, at 303-231-3651 or email to [email protected].

SUPPLEMENTARY INFORMATION: On July 1, 2016, ONRR published the 2017 
Valuation Rule in the Federal Register. See 81 FR 43338. The 2017 
Valuation Rule changes how lessees value their production for royalty 
purposes and revises revenue-reporting requirements. Although the 2017 
Valuation Rule took effect on January 1, 2017, Federal and Indian 
Lessees are not required to report and pay royalties under the Rule 
until February 28, 2017. Under this notification, Lessees will not be 
required to report and pay royalties under the Rule as of that date.
    On December 29, 2016, three separate petitions were filed in the 
U.S. District Court for the District of Wyoming.\1\ The petitions 
allege that certain provisions of the 2017 Valuation Rule are 
arbitrary, capricious, and contrary to the law. On February 17, 2017, 
the petitioners sent the ONRR Director a letter requesting that ONRR 
postpone the implementation of the 2017 Valuation Rule. The petitioners 
claim that lessees affected by the Rule face significant hardship and 
uncertainty in the face of reporting under the rule for the first time 
on February 28, 2017. The petitioners also claim that the new reporting 
and payment requirements in the Rule are difficult, and in some cases 
impossible, to comply with by the royalty reporting deadline; a 
difficulty exacerbated by the fact that non-compliant lessees may be 
exposed to significant civil penalties.
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    \1\ Cloud Peak Energy, Inc. v. United States Dep't of the 
Interior, Case No. 16CV315-F (D. Wyo.);
    American Petroleum Inst. V. United States Dep't of the Interior, 
Case No. 16CV316-F (D. Wyo.); Tri-State Generation and transmission 
Ass'n, Inc., Basin Electric Power Cooperative, and Western Fuels-
Wyoming, Inc., v. United States Dep't of the Interior, Case No. 
16CV319-F (D. Wyo.)
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    Under Section 705 of the Administrative Procedure Act ``[w]hen an 
agency finds that justice so requires, it may postpone the effective 
date of action taken by it, pending judicial review.'' 5 U.S.C. 705. In 
light of the pending litigation, and for the following reasons, ONRR 
has concluded that justice requires it to postpone the effectiveness of 
the 2017 Valuation Rule until the judicial challenges to the Rule are 
resolved.
    First, the postponement will preserve the regulatory status quo 
while the litigation is pending and the Court decides whether to uphold 
the regulation. While ONRR believes the 2017 Valuation Rule was 
properly promulgated, the petitioners have raised serious questions 
concerning the validity of certain provisions of the Rule, including 
the expansion of the ``default provision'' and the use of the sales 
price of electricity for certain coal-royalty valuations. Given this 
legal uncertainty, maintaining the status quo is critical for a number 
of reasons. First, a postponement will avoid the substantial cost of 
retroactively correcting and verifying all revenue reports if the 2017 
Valuation Rule is invalidated, in whole or in part, as a result of the 
pending litigation. Federal and Indian lessees affected by the 2017 
Valuation Rule submit approximately 450,000 reporting lines every 
production month. If the Court invalidates the 2017 Valuation Rule, 
affected lessees would be forced to correct and resubmit reporting 
lines for each production month that the Rule is in effect. ONRR would 
be required to review and verify the same. Thus, postponing the 2017 
Valuation Rule will avoid forcing both the regulated community and ONRR 
to perform the complicated, time-consuming, and costly task of 
correcting and verifying revenue reports and payments if the 2017 
Valuation Rule is invalidated as a result of the pending litigation.\2\
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    \2\ Some lessees have likely converted their accounting systems 
to report and pay royalties under the new rule. While these lessees 
will incur a cost to revert back to the pre-existing system, the 
cost of doing so now, before the first reporting period, will be 
much less than if the reversion is required later upon judicial 
order, and the lessee is required to correct its reporting for each 
month it reported under the Rule.
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    In addition, the postponement will enhance the lessees' ability to 
timely and accurately report and pay royalties because they will be 
using a well-known system that has been in place for the last 25 years. 
ONRR has received numerous legitimate questions from lessees on how to 
apply the 2017 Valuation Rule, some of which will require additional 
consideration and time before ONRR can definitively answer them; thus 
increasing the likelihood that lessees will initially report 
incorrectly and later need to adjust their reports. In addition, the 
Court may resolve some of these issues differently than ONRR, again 
increasing the likelihood that lessees will need to submit corrected 
reports. Given these judicial and administrative uncertainties, relying 
on the previous regulatory system while the litigation is pending will 
reduce uncertainty and enhance ONRR's ability to collect and verify 
natural resource revenues, which is in the best interest of all those 
who benefit from royalty payments, including States, Tribes, individual 
Indian lessors, and the general public.
    The United States will suffer no significant harm from postponing 
the effectiveness of the 2017 Valuation Rule while the litigation is 
pending. As noted in the preamble to the final rule, the implementation 
of the Rule is not expected to have a significant impact on

[[Page 11824]]

the economy. 81 FR 43338, 43368. Thus, postponing the effectiveness of 
the Rule will not cause any appreciable economic harm to the general 
public. In fact, the interests of all royalty beneficiaries will be 
enhanced by the regulatory certainty provided by the postponement, as 
discussed above. In contrast, the regulated community will suffer harm 
without the postponement, especially if the Rule is later invalidated 
by the Court. If the Rule is invalidated, the regulated community would 
not only incur the unreimbursable costs of reverting back to the old 
system, but would also incur the substantial costs of correcting its 
reports and royalty payments for each production month.
    In sum, in light of the existence and consequences of the pending 
litigation, and given the potentially irreparable harm that could 
result if the 2017 Valuation Rule is immediately implemented, ONRR has 
determined that the public interest and justice requires postponing the 
effectiveness of the 2017 Valuation Rule until the litigation is 
resolved.
    Accordingly, pursuant to Section 705 of the Administrative 
Procedure Act, 5 U.S.C. 705, ONRR has postponed the effectiveness of 
the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation 
Final Rule pending judicial review.

    Dated: February 22, 2017.
Gregory J. Gould,
Director, Office of Natural Resources Revenue.
[FR Doc. 2017-03861 Filed 2-24-17; 8:45 am]
 BILLING CODE P