SAN FRANCISCO (CN) — California and New Mexico sued the Department of the Interior on Wednesday for postponing enforcement of rules on royalty payments for natural resources extracted from public lands, including closing a loophole that let coal companies sell coal to their own subsidiaries at below market value, then inflate the price at resale.
The attorneys general of the two states say in the federal lawsuit that once a new rule goes into effect, it can’t be retroactively postponed.
The Interior Department’s co-defendant Office of Natural Resources Revenue spent five years writing a new rule for calculating royalties on oil, gas, and coal extracted from federal lands, which include tribal lands. The rule simplified and clarified the way royalties paid for natural resources extracted from public lands are calculated.
Public lands in California generate 15 million barrels of crude oil a year, and about 7 billion cubic feet of natural gas. The state has received an average of $82.5 million in royalties from federal mineral extraction each year since 2008, according to the complaint.
More than one-third of New Mexico’s land is federally administered. Each year it produces about 1.2 trillion cubic feet of natural gas (5 percent of the U.S. total), 60 percent of it from federal lands; and 85.2 million barrels of crude oil (4 percent of the U.S. total), 45 percent of it from federal lands. New Mexico has received an annual average of $470 million in federal mineral extraction royalties since 2008.
The new rule took effect on Jan. 1 this year. The Office of Natural Resources Revenue (ONNR) estimated it would increase royalty collections by $72 million to $85 million per year, and reduce the industry’s administrative costs by $3.6 million.
But on Feb. 22, ONRR Deputy Director James Steward issued a letter stating that the agency had “decided to postpone the effective date of the 2017 Valuation Rule” and directing federal lessees to value, report and pay royalties under the old rules.
The delay was response to litigation filed on Dec. 29, 2016, by coal and oil industry groups in U.S. District Court in Wyoming.
But California and New Mexico say a rule cannot be postponed once it’s already in place, and that although the first royalties of 2017 were not due to be paid until Feb. 28, the rule had been in effect for 53 days when the ONRR sent its notice of delay.
The states say the ONRR has effectively revoked the rule in defiance of the notice-and-comment procedures of the Administrative Procedure Act.
They seek declaratory judgment that the ONRR abused its discretion and violated the Administrative Procedure Act, and reinstatement of the new rule.
None of the parties could be reached for comment after business hours Wednesday.