Federal and Indian Coal Valuation, 30881-30884 [2011-13284]
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Federal Register / Vol. 76, No. 103 / Friday, May 27, 2011 / Proposed Rules
would adjust for location differences
between the lease or unit and the index
pricing and publication point?
• In the interest of simplifying the
determination and verification of
location adjustments, should ONRR
consider prescribing either a fixed
differential amount per unit volume
(thousand cubic feet (Mcf) or million
British thermal units (MMBtu)) or a
fixed percentage to be deducted from
the index value to account for location
differences?
• Should ONRR apply a fixed
differential amount per unit volume to
all production in a particular area or
that is transported through a particular
pipeline? Would a flat percentage of the
index value (perhaps with a cap) be
preferable, either on a regional or
nationwide basis?
jdjones on DSK8KYBLC1PROD with PROPOSALS-1
C. Processed Gas and Processing
Allowances
The ONRR is considering accounting
for the value of liquid hydrocarbons
contained in the gas stream by applying
an adjustment or ‘‘bump’’ to the index
price, applicable to residue gas when
gas is processed, in lieu of valuing
residue gas and extracted liquid
products separately, calculating the
actual processing costs, and deducting
those costs from the value of the
extracted liquids (the procedure
required under 30 CFR 1206.153(a) and
1206.158 through 1206.159). This
adjustment could be based on, or could
incorporate, a number of components,
including the following:
• Gas quality (either Btu content or
gallons per Mcf (GPM)).
• The differential between the gas
price and the oil or natural gas liquids
(NGL) price similar to a ‘‘frac spread’’ or
a ‘‘processing margin.’’
• Certain plant operation factors,
such as shrinkage, producer processing
costs, and plant operations costs.
We also seek input regarding whether
such an approach could eliminate the
burden of accounting for allowable costs
to process gas and reduce or eliminate
the potential for disputes over
unbundling of gas plant charges,
without reduction in royalty value. The
ONRR could calculate this adjustment
on a monthly basis and make it
available on our website expressed in
the form of a price per unit volume
(MMBtu or Mcf).
ONRR could maintain current
reporting requirements for processed gas
and NGLs but establish a fixed
processing allowance. This fixed
allowance could be either on a
nationwide basis for all Federal gas or
on a narrower basis, such as offshore
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and onshore leases; offshore regions and
onshore basins; or gas-plant-specific.
We seek input regarding the
advantages and disadvantages of
simplifying processed gas royalty
reporting and payment by either of the
aforementioned methods. We also are
interested in other methodologies that
would simplify the reporting associated
with gas processing allowances or, if
possible, eliminate the allowances by
substituting a market-based proxy to
reflect the value of liquid hydrocarbons
contained in the gas stream.
D. Other Alternatives
The ONRR also is interested in
receiving comments on any other
alternative methodologies. If you
propose a methodology different from
those discussed above, please explain
how the suggested methodology would
meet the goals outlined above and why
you believe your methodology is the
best alternative.
In addition, ONRR requests your
input on how the various methodologies
would affect your business practices,
bookkeeping, etc.
Dated: May 23, 2011.
Rhea Suh,
Assistant Secretary for Policy, Management
and Budget.
[FR Doc. 2011–13287 Filed 5–26–11; 8:45 am]
BILLING CODE 4310–MR–P
DEPARTMENT OF THE INTERIOR
Office of Natural Resources Revenue
30 CFR Parts 1202 and 1206
[Docket No. ONRR–2011–0004]
RIN 1012–AA00
Federal and Indian Coal Valuation
Office of Natural Resources
Revenue (ONRR), Interior.
ACTION: Advance notice of proposed
rulemaking.
AGENCY:
The Office of Natural
Resources Revenue (ONRR) requests
comments and suggestions from affected
parties and the interested public before
proposing changes to the existing
regulations governing the valuation of
coal produced from Federal and Indian
leases, for royalty purposes. The
existing Federal and Indian coal
valuation regulations have been in effect
since March 1, 1989, with minor
subsequent amendments relating
primarily to the Federal Black Lung
Excise Taxes, abandoned mine lands
(AML) fees, state and local severance
taxes, and washing and transportation
SUMMARY:
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30881
allowances provisions. These existing
coal valuation regulations also have not
kept pace with significant changes that
have occurred in the domestic coal
market during the last 20-plus years.
This notice is intended to solicit
comments and suggestions on possible
new methodologies to establish the
royalty value of coal produced from
Federal and Indian leases. The ONRR
also plans to hold public workshops to
discuss changes to the coal valuation
regulations after the written comment
period closes, and ONRR has had a
reasonable time to review and analyze
the comments. The ONRR will
announce any public workshops in a
future Federal Register notice.
Getting feedback upfront and
involving all affected stakeholders in
the rulemaking process are the
hallmarks of good government and
smart business practice. The intention
of this rulemaking process is to provide
regulations that would offer greater
simplicity, certainty, clarity, and
consistency in production valuation for
mineral lessees and mineral revenue
recipients; be easy to understand;
decrease industry’s cost of compliance;
and provide early certainty to industry
and ONRR that companies have paid
every dollar due. The ONRR intends
that the final regulations will be revenue
neutral.
DATES: You must submit your comments
by July 26, 2011.
ADDRESSES: You may submit comments
on this advance notice by any of the
following methods. Please use the
Regulation Identifier Number (RIN)
1012–AA00 as an identifier in your
message.
• Federal eRulemaking Portal: https://
www.regulations.gov. In the entry titled
‘‘Enter Keyword or ID,’’ enter ONRR–
2011–0004, then click search. Follow
the instructions to submit public
comments and view supporting and
related materials available for this
advanced notice of proposed
rulemaking. The ONRR will post all
comments.
• Mail comments to Hyla Hurst,
Regulatory Specialist, Office of Natural
Resources Revenue, P.O. Box 25165, MS
61013C, Denver, Colorado 80225.
• Hand-carry comments or use an
overnight courier service. Our courier
address is Building 85, Room A–614,
Denver Federal Center, West 6th Ave.
and Kipling St., Denver, Colorado
80225.
FOR FURTHER INFORMATION CONTACT: For
questions on procedural issues, contact
Hyla Hurst, Regulatory Specialist,
ONRR, telephone (303) 231–3495. For
questions on technical issues, contact
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Federal Register / Vol. 76, No. 103 / Friday, May 27, 2011 / Proposed Rules
Richard Adamski, Asset Valuation,
ONRR, telephone (303) 231–3410.
SUPPLEMENTARY INFORMATION:
jdjones on DSK8KYBLC1PROD with PROPOSALS-1
I. Background
The Secretary of the Interior’s
authority to establish the value of coal
production through regulations is
contained in the Indian Mineral Leasing
Act of 1938, the Mineral Leasing Act,
and the Mineral Leasing Act for
Acquired Lands (25 U.S.C. 396d; 30
U.S.C. 189 and 359). In addition,
virtually all Federal and Indian coal
leases expressly reserve to the Secretary
the authority to establish the reasonable
value of coal production or provide that
the royalty value of coal be set by
regulation.
In 2007, the Royalty Policy Committee
(RPC) Subcommittee on Royalty
Management issued a report titled
‘‘Mineral Revenue Collection from
Federal and Indian Lands and the Outer
Continental Shelf.’’ The Subcommittee’s
report recommended ‘‘revis(ing) and
implement(ing) the regulations and
guidance for calculating prices used in
checking royalty compliance for solid
minerals, with particular attention to
non-arm’s-length transactions.’’
The existing Federal and Indian coal
regulations have been in effect since
1989, with minor amendments to
Federal Black Lung Excise Taxes, AML
fees, state and local severance taxes (55
FR 35427, August 30, 1990), and
washing and transportation allowances
provisions (61 FR 5448, February 12,
1996). In 1996, the royalty valuation
regulations for Indian leases were
separated from the regulations for
Federal leases because of amendments
to the latter removing certain form-filing
requirements for the coal washing and
transportation allowances that were
retained for Indian leases. The ONRR
continues to evaluate the effectiveness
and efficiency of its regulations,
particularly with regard to non-arm’slength valuation and ramifications
spurred by changes in the coal mining
industry, including increasing vertical
integration of mining and power
production and increasing production
by coal cooperatives. Further, ONRR’s
experience in enforcing the regulations
indicates that they can be cumbersome
because, to properly determine the
value for royalty purposes, ONRR must
analyze literally thousands of sales,
transportation, and processing
transactions each month. Performing
this analysis is costly and burdensome
for both the Federal Government and
the regulated industry and can lead to
disputes regarding valuation
methodologies.
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The 1989 coal valuation regulations
were written to establish value based on
transactions between independent, nonaffiliated parties with opposing
economic interests. The Department of
the Interior has long held the view that
the sales prices agreed to in arm’s-length
transactions are the best indication of
market value. The 1989 regulations
reflect that view. Under the regulations
at 30 CFR part 1206, subparts F and J,
the value of most Federal and Indian
coal is based on the gross proceeds
accruing to the lessee under the lessee’s
arm’s-length sales contracts. See 30 CFR
1206.257(b) (for Federal leases) and
1206.456(b) (for Indian leases).
If the lessee disposes of coal under a
non-arm’s-length arrangement, the
regulations prescribe an ordered series
of ‘‘benchmarks’’ that look to outside
indicia of market value. The value of the
coal is based on the first applicable
benchmark. Under the first of those
benchmarks, the gross proceeds
accruing to the lessee under its nonarm’s-length contract will be accepted
as value, if they are within the range of
the gross proceeds derived from, or paid
under, comparable arm’s-length
contracts for the sale or purchase of likequality coal produced in the area,
between buyers and sellers neither of
whom is affiliated with the lessee. The
regulations also prescribe criteria for
determining comparability. Regulations
at 30 CFR 1206.257(c)(2)(i) (for Federal
leases) and 1206.456(c)(2)(i) (for Indian
leases) prescribe identical criteria for
determining comparability as follows:
‘‘In evaluating the comparability of
arm’s-length contracts for the purposes
of these regulations, the following
factors shall be considered: Price, time
of execution, duration, market or
markets served, terms, quality of coal,
quantity, and such other factors as may
be appropriate to reflect the value of the
coal * * *’’ If the first benchmark does
not apply, the next benchmark
establishes value based on ‘‘[p]rices
reported for that coal to a public utility
commission’’ (30 CFR 1206.257(c)(2)(ii)
and 1206.456(c)(2)(ii)). If the second
benchmark does not apply, value would
be established based on ‘‘[p]rices
reported for that coal to the Energy
Information Administration of the
Department of Energy’’ (30 CFR
1206.257(c)(2)(iii) and
1206.456(c)(2)(iii)). If the third
benchmark does not apply, then value is
based on ‘‘other relevant matters,’’
which include, but are not limited to,
‘‘published or publicly available spot
market prices’’ or ‘‘information
submitted by the lessee concerning
circumstances unique to a particular
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lease operation or the saleability of
certain types of coal’’ (30 CFR
1206.257(c)(2)(iv) and
1206.456(c)(2)(iv)). If none of the four
preceding benchmarks apply, then ‘‘a
net-back method or any other reasonable
method shall be used to determine
value’’ (30 CFR 1206.257(c)(2)(v) and
1206.456(c)(2)(v)).
Under both arm’s-length and nonarm’s-length sales arrangements, the
lessee may deduct applicable
transportation and coal washing
allowances. See 30 CFR 1206.257(a),
1206.258 through 1206.259, and
1206.261 through 1206.262 (for Federal
leases); 30 CFR 1206.456(a), 1206.457
through 1206.458, and 1206.460 through
1206.461 (for Indian leases).
II. Public Comment Procedures
The ONRR may not be able to
consider comments that we receive after
the close of the comment period for this
advance notice of proposed rulemaking,
or comments that are delivered to an
address other than those listed in the
ADDRESSES section of this notice. After
the comment period for this advance
notice closes and ONRR has considered
the comments, we plan to open a second
public comment period, which we will
announce in the Federal Register. The
notice will focus on issues identified in
the first public comment period and
will include information about the
public workshops.
A. Written Comment Guidelines
We are particularly interested in
receiving comments and suggestions
about the topics identified in section III,
Description of Information Requested.
Your written comments should: (1) Be
specific; (2) explain the reason for your
comments and suggestions; (3) address
the issues outlined in this notice; and
(4), where possible, refer to the specific
provision, section, or paragraph of
statutory law, case law, lease term, or
existing regulations that you are
addressing.
The comments and recommendations
that are most useful and have greater
likelihood of influencing decisions on
the content of a possible future
proposed rule are: (1) Comments and
recommendations supported by
quantitative information or studies; and
(2) comments that include citations to,
and analyses of, the applicable laws,
lease terms, and regulations.
B. Public Comment Policy
Executive Order (EO) 13175 requires
Federal agencies to consult with Indian
tribes during the development of
regulatory proposals. Section 5a of EO
13175 states that each agency shall have
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an accountable process to ensure
meaningful and timely input by tribal
officials in the development of
regulatory policies that have tribal
implications. Changes to the valuation
of Indian coal for royalty purposes have
tribal implications.
The ONRR has sent an invitation to
the revenue receiving tribes and mineral
owner associations inviting them to
attend one of three consultation
meetings. The schedule is:
1. May 15, 2011, in Albuquerque, NM,
starting at 1 p.m. mountain time.
2. May 26, 2011, in Denver, CO,
starting at 1 p.m. mountain time.
3. June 9, 2011, in Oklahoma City,
OK, starting at 9 a.m. central time.
We will discuss ONRR’s plan to
amend the Federal and Indian coal
product valuation regulations. The
ONRR mailed invitation letters for the
tribal consultations on April 21st, and
ONRR believes these meetings comply
with the EO 13175 consultation
requirement.
Our practice is to make comments,
including names and addresses of
respondents, available at https://
www.regulations.gov. Individual
respondents may request that we
withhold their individual 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 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.
III. Description of Information
Requested
We are interested in submission of
proposals that will lead to improved
efficiencies for both lessees and ONRR
auditors, including state and tribal
auditors under delegated audit
agreements with ONRR. In considering
potential proposed changes to the
existing Federal and Indian coal royalty
valuation regulations, we have three
goals in mind, as follows:
• Provide clear regulations that are
easy to understand and that are
consistent with fulfilling both the
Secretary’s responsibility to ensure fair
value for the public’s resources and the
Secretary’s trust responsibility to Indian
mineral owners.
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• Provide methodologies that are as
efficient as possible for lessees to use.
• Provide early certainty that correct
payment has been made.
Accordingly, ONRR is seeking public
comment and recommendations on the
following specific issues:
A. Alternative Valuation Methods
In the existing regulations as
discussed above, value is generally
based on the lessee’s arm’s-length gross
proceeds. The gross proceeds are the
total monies and other consideration
accruing to the lessee for the production
and disposition of the coal produced (30
CFR 1206.251 and 1206.451). As noted
previously, allowable washing and
transportation costs may be deducted
from gross proceeds in determining
royalty value. Accounting for washing
and transportation costs places some
accounting burden on reporters and
makes the audit process more lengthy
and complex. In an effort to simplify the
valuation and auditing process, ONRR is
considering whether there are valuation
methods that would (1) Be more
efficient than the current method of
calculating value on gross proceeds
(minus actual costs); (2) require less
accounting and auditing work; and (3)
still establish a value that reflects, or
very closely approximates, actual
market conditions. We seek input on the
following questions:
• What alternatives to gross proceeds
would you recommend?
• Would a dollars-per-energy content
unit (e.g., dollars-per-million British
thermal units ($/MMBtu)) or dollarsper-weight unit (e.g., $/ton) valuation
method be reasonable? If so, how should
such a value be established?
• Should such ‘‘fixed’’ royalty values
be revised from time to time? If so, on
what basis, and at what time or on what
occasions?
• Are there published index prices
that accurately reflect the actual market
value of coal? If so, what are those index
prices and to what areas of the country
or to what types of coal do they apply?
• Does the concentration of Federal or
Indian production in some areas of the
country create any potential problems
with relying on index prices in those
areas, now or in the future?
B. Non-Arm’s-Length or No-Contract
Situations
The benchmarks applicable to value
coal in non-arm’s-length or no-sale
situations have proven difficult to use in
practice. In addition, the first
benchmark does not allow the use of
comparable arm’s-length sales by the
lessee or its affiliates, exacerbating the
challenging process of obtaining and
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comparing relevant arm’s-length sales
contracts to value non-arm’s-length
sales. Furthermore, disputes arise over
which sales are comparable, particularly
because of the inherent ambiguity in
applying the comparability factors.
The ONRR is soliciting comments on
how to simplify and improve the
valuation of coal disposed of in nonarm’s-length transactions and no-sale
situations. We seek input on the
following questions:
• Should the current non-arm’slength benchmarks and their current
sequential priority be retained? If not,
what other methodologies might ONRR
use to determine the royalty value of
coal not sold at arm’s length?
• Should the factors for determining
the comparability of arm’s-length
contracts to non-arm’s-length contracts,
at 30 CFR 1206.257 (c)(2)(i), be
amended, clarified, or removed?
• Should the royalty value of coal
initially sold under non-arm’s-length
conditions be based on the gross
proceeds received from the first arm’slength sale of that coal in situations
where there is a subsequent arm’slength sale? (A variant of this approach
would be to change the definition of the
term ‘‘lessee’’ to include the lessee and
its affiliates, partners, marketing agents,
and trade and export associations, and
establish royalty value based on the first
sale to a buyer who is not included in
the definition of ‘‘lessee.’’)
• Should the royalty value of coal
sold under non-arm’s-length conditions
be based on a published index price? If
so, which index and why?
• Should the royalty value be
determined by calculating the cost to
produce the coal plus a return on capital
investment, if the particular coal is
never sold at arm’s length, or if sold by
a coal cooperative of which the lessee is
a member? If so, how should the return
on capital investment be calculated?
• Are there any other appropriate
methods for determining the royalty
value of coal consumed without sale or
without an arm’s-length sale?
C. Transportation and Washing
Allowances
The ONRR is exploring potential
proposed changes to washing and
transportation allowances that would
streamline industry reporting and ONRR
auditing processes. In particular,
calculating actual transportation or
washing costs under non-arm’s-length
transportation or washing arrangements
can place a significant accounting
burden on lessees and make the audit
process lengthy and complex. We seek
input on the following questions:
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• Can the process of determining
appropriate transportation and washing
deductions or allowances be simplified?
If so, how?
• Should ONRR allow bundled
charges for coal transportation or
washing?
• Should ONRR set standard cents
per ton allowance amounts for washing
and transportation in lieu of calculating
actual costs? If so, how should such
fixed allowances be determined; and
when, and under what circumstances,
should they be changed?
• Is coal washing an operation
necessary to put coal into marketable
condition for which no allowance
should be permitted?
• Should transportation allowances
be based on yearly averages from one
region to another?
• Should the coal transportation and
washing allowances be limited to a
maximum percentage in a manner
similar to gas transportation and
processing allowances? Current coal
valuation regulations provide that under
no circumstances will the authorized
washing allowance and transportation
allowance reduce the value for royalty
purposes to zero (30 CFR 1206.261(b)
and 1206.460(b)). Gas transportation
allowances may not exceed 50 percent
of the value of the unprocessed gas,
residue gas, or gas plant product,
without prior written approval from
ONRR (30 CFR 1206.156(c) and
1206.177(c)). The gas processing
allowance deduction on the basis of an
individual product may not exceed
662⁄3 percent of the value of each gas
plant product, reduced first for any
transportation allowances related to
post-processing transportation (30 CFR
1206.158(c)(2) and 1206.179(c)). If coal
washing and transportation allowances
should be limited to a maximum
percentage of the initial value, what
would be an appropriate percentage?
D. Coal Cooperatives
Coal cooperatives are a small but
growing part of the coal industry. A coal
cooperative is owned by its member
power companies, and either mines coal
itself or through a subsidiary. A
cooperative provides its members with
a secure source of coal at below-market
prices that generally exclude a profit
component. Current valuation
regulations are not well suited to
determining the royalty value of coal
sold by cooperatives. We seek input on
the following questions:
• Should the royalty value of coal
sold by these cooperatives be
determined based on a different method
than is used for coal not sold by or
through cooperatives due to the unique
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aspects of these cooperatives? If so,
what method(s) would you propose?
• Please comment on the use of
production cost and return on
investment as a possible valuation
method.
DEPARTMENT OF HOMELAND
SECURITY
E. Other Issues
[USCG–2011–0247]
The existing ONRR regulations
contain only general provisions that
address in situ or surface gasification or
liquefaction (30 CFR 1206.264 and
1206.463). Under these provisions, a
lessee must propose a value, and ONRR
will issue a value determination. We
seek input on the following questions:
• Are there general valuation
methods that would be appropriate for
most or all in situ or surface gasification
or liquefaction operations? If so, please
describe them.
• What other new production
methods is industry developing that are
likely to be economically viable and
used in the near- to medium-term
future?
• Are there any new marketing
methods for coal of which ONRR should
be aware?
In the interest of possible
simplification, ONRR is interested in
receiving comments regarding the
continued separation of Federal and
Indian coal valuation regulations. We
seek input on the following questions:
• Should the Federal and Indian
regulations be combined?
• Should the Indian coal valuation
regulations be modified to eliminate the
approval and form-filing requirements
for washing and transportation
allowances in the current regulations at
30 CFR 1206.458(a) and 1206.461(a)?
The ONRR is also interested in
receiving comments on any other
alternative coal valuation
methodologies. If you propose a
methodology different from those
discussed above, please use our
example criteria and explain why you
believe your methodology is the best
alternative. In addition, ONRR requests
input on how the various methodologies
would affect industry business
practices, bookkeeping, etc.
Dated: May 23, 2011.
Rhea Suh,
Assistant Secretary for Policy, Management
and Budget.
[FR Doc. 2011–13284 Filed 5–26–11; 8:45 am]
BILLING CODE 4310–MR–P
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Coast Guard
33 CFR Part 100
RIN 1625–AA08
Special Local Regulation; Kelley’s
Island Swim, Lake Erie; Kelley’s Island,
Lakeside, OH
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
ACTION:
The Coast Guard proposes
establishing a permanent Special Local
Regulation on Lake Erie, Lakeside, Ohio.
This regulation is intended to restrict
vessels from portions of Lake Erie
during the annual Kelley’s Island Swim,
which takes place in the second half of
July. This special local regulated area is
necessary to protect swimmers from
vessel traffic.
DATES: Comments and related material
must be received by the Coast Guard on
or before June 16, 2011.
ADDRESSES: You may submit comments
identified by docket number USCG–
2011–0247 using any one of the
following methods:
(1) Federal eRulemaking Portal:
https://www.regulations.gov.
(2) Fax: 202–493–2251.
(3) Mail: Docket Management Facility
(M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New Jersey
Avenue, SE., Washington, DC 20590–
0001.
(4) Hand delivery: Same as mail
address above, between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays. The telephone number
is 202–366–9329.
To avoid duplication, please use only
one of these four methods. See the
‘‘Public Participation and Request for
Comments’’ portion of the
SUPPLEMENTARY INFORMATION section
below for instructions on submitting
comments.
SUMMARY:
If
you have questions on this proposed
rule, call or e-mail BM1 Tracy Girard,
Response Department, MSU Toledo,
Coast Guard; telephone (419) 418–6036,
e-mail Tracy.M.Girard@uscg.mil. If you
have questions on viewing or submitting
material to the docket, call Renee V.
Wright, Program Manager, Docket
Operations, telephone 202–366–9826.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
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]]>Agencies
[Federal Register Volume 76, Number 103 (Friday, May 27, 2011)]
[Proposed Rules]
[Pages 30881-30884]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13284]
-----------------------------------------------------------------------
DEPARTMENT OF THE INTERIOR
Office of Natural Resources Revenue
30 CFR Parts 1202 and 1206
[Docket No. ONRR-2011-0004]
RIN 1012-AA00
Federal and Indian Coal Valuation
AGENCY: Office of Natural Resources Revenue (ONRR), Interior.
ACTION: Advance notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Office of Natural Resources Revenue (ONRR) requests
comments and suggestions from affected parties and the interested
public before proposing changes to the existing regulations governing
the valuation of coal produced from Federal and Indian leases, for
royalty purposes. The existing Federal and Indian coal valuation
regulations have been in effect since March 1, 1989, with minor
subsequent amendments relating primarily to the Federal Black Lung
Excise Taxes, abandoned mine lands (AML) fees, state and local
severance taxes, and washing and transportation allowances provisions.
These existing coal valuation regulations also have not kept pace with
significant changes that have occurred in the domestic coal market
during the last 20-plus years. This notice is intended to solicit
comments and suggestions on possible new methodologies to establish the
royalty value of coal produced from Federal and Indian leases. The ONRR
also plans to hold public workshops to discuss changes to the coal
valuation regulations after the written comment period closes, and ONRR
has had a reasonable time to review and analyze the comments. The ONRR
will announce any public workshops in a future Federal Register notice.
Getting feedback upfront and involving all affected stakeholders in
the rulemaking process are the hallmarks of good government and smart
business practice. The intention of this rulemaking process is to
provide regulations that would offer greater simplicity, certainty,
clarity, and consistency in production valuation for mineral lessees
and mineral revenue recipients; be easy to understand; decrease
industry's cost of compliance; and provide early certainty to industry
and ONRR that companies have paid every dollar due. The ONRR intends
that the final regulations will be revenue neutral.
DATES: You must submit your comments by July 26, 2011.
ADDRESSES: You may submit comments on this advance notice by any of the
following methods. Please use the Regulation Identifier Number (RIN)
1012-AA00 as an identifier in your message.
Federal eRulemaking Portal: https://www.regulations.gov. In
the entry titled ``Enter Keyword or ID,'' enter ONRR-2011-0004, then
click search. Follow the instructions to submit public comments and
view supporting and related materials available for this advanced
notice of proposed rulemaking. The ONRR will post all comments.
Mail comments to Hyla Hurst, Regulatory Specialist, Office
of Natural Resources Revenue, P.O. Box 25165, MS 61013C, Denver,
Colorado 80225.
Hand-carry comments or use an overnight courier service.
Our courier address is Building 85, Room A-614, Denver Federal Center,
West 6th Ave. and Kipling St., Denver, Colorado 80225.
FOR FURTHER INFORMATION CONTACT: For questions on procedural issues,
contact Hyla Hurst, Regulatory Specialist, ONRR, telephone (303) 231-
3495. For questions on technical issues, contact
[[Page 30882]]
Richard Adamski, Asset Valuation, ONRR, telephone (303) 231-3410.
SUPPLEMENTARY INFORMATION:
I. Background
The Secretary of the Interior's authority to establish the value of
coal production through regulations is contained in the Indian Mineral
Leasing Act of 1938, the Mineral Leasing Act, and the Mineral Leasing
Act for Acquired Lands (25 U.S.C. 396d; 30 U.S.C. 189 and 359). In
addition, virtually all Federal and Indian coal leases expressly
reserve to the Secretary the authority to establish the reasonable
value of coal production or provide that the royalty value of coal be
set by regulation.
In 2007, the Royalty Policy Committee (RPC) Subcommittee on Royalty
Management issued a report titled ``Mineral Revenue Collection from
Federal and Indian Lands and the Outer Continental Shelf.'' The
Subcommittee's report recommended ``revis(ing) and implement(ing) the
regulations and guidance for calculating prices used in checking
royalty compliance for solid minerals, with particular attention to
non-arm's-length transactions.''
The existing Federal and Indian coal regulations have been in
effect since 1989, with minor amendments to Federal Black Lung Excise
Taxes, AML fees, state and local severance taxes (55 FR 35427, August
30, 1990), and washing and transportation allowances provisions (61 FR
5448, February 12, 1996). In 1996, the royalty valuation regulations
for Indian leases were separated from the regulations for Federal
leases because of amendments to the latter removing certain form-filing
requirements for the coal washing and transportation allowances that
were retained for Indian leases. The ONRR continues to evaluate the
effectiveness and efficiency of its regulations, particularly with
regard to non-arm's-length valuation and ramifications spurred by
changes in the coal mining industry, including increasing vertical
integration of mining and power production and increasing production by
coal cooperatives. Further, ONRR's experience in enforcing the
regulations indicates that they can be cumbersome because, to properly
determine the value for royalty purposes, ONRR must analyze literally
thousands of sales, transportation, and processing transactions each
month. Performing this analysis is costly and burdensome for both the
Federal Government and the regulated industry and can lead to disputes
regarding valuation methodologies.
The 1989 coal valuation regulations were written to establish value
based on transactions between independent, non-affiliated parties with
opposing economic interests. The Department of the Interior has long
held the view that the sales prices agreed to in arm's-length
transactions are the best indication of market value. The 1989
regulations reflect that view. Under the regulations at 30 CFR part
1206, subparts F and J, the value of most Federal and Indian coal is
based on the gross proceeds accruing to the lessee under the lessee's
arm's-length sales contracts. See 30 CFR 1206.257(b) (for Federal
leases) and 1206.456(b) (for Indian leases).
If the lessee disposes of coal under a non-arm's-length
arrangement, the regulations prescribe an ordered series of
``benchmarks'' that look to outside indicia of market value. The value
of the coal is based on the first applicable benchmark. Under the first
of those benchmarks, the gross proceeds accruing to the lessee under
its non-arm's-length contract will be accepted as value, if they are
within the range of the gross proceeds derived from, or paid under,
comparable arm's-length contracts for the sale or purchase of like-
quality coal produced in the area, between buyers and sellers neither
of whom is affiliated with the lessee. The regulations also prescribe
criteria for determining comparability. Regulations at 30 CFR
1206.257(c)(2)(i) (for Federal leases) and 1206.456(c)(2)(i) (for
Indian leases) prescribe identical criteria for determining
comparability as follows: ``In evaluating the comparability of arm's-
length contracts for the purposes of these regulations, the following
factors shall be considered: Price, time of execution, duration, market
or markets served, terms, quality of coal, quantity, and such other
factors as may be appropriate to reflect the value of the coal * * *''
If the first benchmark does not apply, the next benchmark establishes
value based on ``[p]rices reported for that coal to a public utility
commission'' (30 CFR 1206.257(c)(2)(ii) and 1206.456(c)(2)(ii)). If the
second benchmark does not apply, value would be established based on
``[p]rices reported for that coal to the Energy Information
Administration of the Department of Energy'' (30 CFR
1206.257(c)(2)(iii) and 1206.456(c)(2)(iii)). If the third benchmark
does not apply, then value is based on ``other relevant matters,''
which include, but are not limited to, ``published or publicly
available spot market prices'' or ``information submitted by the lessee
concerning circumstances unique to a particular lease operation or the
saleability of certain types of coal'' (30 CFR 1206.257(c)(2)(iv) and
1206.456(c)(2)(iv)). If none of the four preceding benchmarks apply,
then ``a net-back method or any other reasonable method shall be used
to determine value'' (30 CFR 1206.257(c)(2)(v) and 1206.456(c)(2)(v)).
Under both arm's-length and non-arm's-length sales arrangements,
the lessee may deduct applicable transportation and coal washing
allowances. See 30 CFR 1206.257(a), 1206.258 through 1206.259, and
1206.261 through 1206.262 (for Federal leases); 30 CFR 1206.456(a),
1206.457 through 1206.458, and 1206.460 through 1206.461 (for Indian
leases).
II. Public Comment Procedures
The ONRR may not be able to consider comments that we receive after
the close of the comment period for this advance notice of proposed
rulemaking, or comments that are delivered to an address other than
those listed in the ADDRESSES section of this notice. After the comment
period for this advance notice closes and ONRR has considered the
comments, we plan to open a second public comment period, which we will
announce in the Federal Register. The notice will focus on issues
identified in the first public comment period and will include
information about the public workshops.
A. Written Comment Guidelines
We are particularly interested in receiving comments and
suggestions about the topics identified in section III, Description of
Information Requested. Your written comments should: (1) Be specific;
(2) explain the reason for your comments and suggestions; (3) address
the issues outlined in this notice; and (4), where possible, refer to
the specific provision, section, or paragraph of statutory law, case
law, lease term, or existing regulations that you are addressing.
The comments and recommendations that are most useful and have
greater likelihood of influencing decisions on the content of a
possible future proposed rule are: (1) Comments and recommendations
supported by quantitative information or studies; and (2) comments that
include citations to, and analyses of, the applicable laws, lease
terms, and regulations.
B. Public Comment Policy
Executive Order (EO) 13175 requires Federal agencies to consult
with Indian tribes during the development of regulatory proposals.
Section 5a of EO 13175 states that each agency shall have
[[Page 30883]]
an accountable process to ensure meaningful and timely input by tribal
officials in the development of regulatory policies that have tribal
implications. Changes to the valuation of Indian coal for royalty
purposes have tribal implications.
The ONRR has sent an invitation to the revenue receiving tribes and
mineral owner associations inviting them to attend one of three
consultation meetings. The schedule is:
1. May 15, 2011, in Albuquerque, NM, starting at 1 p.m. mountain
time.
2. May 26, 2011, in Denver, CO, starting at 1 p.m. mountain time.
3. June 9, 2011, in Oklahoma City, OK, starting at 9 a.m. central
time.
We will discuss ONRR's plan to amend the Federal and Indian coal
product valuation regulations. The ONRR mailed invitation letters for
the tribal consultations on April 21st, and ONRR believes these
meetings comply with the EO 13175 consultation requirement.
Our practice is to make comments, including names and addresses of
respondents, available at https://www.regulations.gov. Individual
respondents may request that we withhold their individual 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 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.
III. Description of Information Requested
We are interested in submission of proposals that will lead to
improved efficiencies for both lessees and ONRR auditors, including
state and tribal auditors under delegated audit agreements with ONRR.
In considering potential proposed changes to the existing Federal and
Indian coal royalty valuation regulations, we have three goals in mind,
as follows:
Provide clear regulations that are easy to understand and
that are consistent with fulfilling both the Secretary's responsibility
to ensure fair value for the public's resources and the Secretary's
trust responsibility to Indian mineral owners.
Provide methodologies that are as efficient as possible
for lessees to use.
Provide early certainty that correct payment has been
made.
Accordingly, ONRR is seeking public comment and recommendations on
the following specific issues:
A. Alternative Valuation Methods
In the existing regulations as discussed above, value is generally
based on the lessee's arm's-length gross proceeds. The gross proceeds
are the total monies and other consideration accruing to the lessee for
the production and disposition of the coal produced (30 CFR 1206.251
and 1206.451). As noted previously, allowable washing and
transportation costs may be deducted from gross proceeds in determining
royalty value. Accounting for washing and transportation costs places
some accounting burden on reporters and makes the audit process more
lengthy and complex. In an effort to simplify the valuation and
auditing process, ONRR is considering whether there are valuation
methods that would (1) Be more efficient than the current method of
calculating value on gross proceeds (minus actual costs); (2) require
less accounting and auditing work; and (3) still establish a value that
reflects, or very closely approximates, actual market conditions. We
seek input on the following questions:
What alternatives to gross proceeds would you recommend?
Would a dollars-per-energy content unit (e.g., dollars-
per-million British thermal units ($/MMBtu)) or dollars-per-weight unit
(e.g., $/ton) valuation method be reasonable? If so, how should such a
value be established?
Should such ``fixed'' royalty values be revised from time
to time? If so, on what basis, and at what time or on what occasions?
Are there published index prices that accurately reflect
the actual market value of coal? If so, what are those index prices and
to what areas of the country or to what types of coal do they apply?
Does the concentration of Federal or Indian production in
some areas of the country create any potential problems with relying on
index prices in those areas, now or in the future?
B. Non-Arm's-Length or No-Contract Situations
The benchmarks applicable to value coal in non-arm's-length or no-
sale situations have proven difficult to use in practice. In addition,
the first benchmark does not allow the use of comparable arm's-length
sales by the lessee or its affiliates, exacerbating the challenging
process of obtaining and comparing relevant arm's-length sales
contracts to value non-arm's-length sales. Furthermore, disputes arise
over which sales are comparable, particularly because of the inherent
ambiguity in applying the comparability factors.
The ONRR is soliciting comments on how to simplify and improve the
valuation of coal disposed of in non-arm's-length transactions and no-
sale situations. We seek input on the following questions:
Should the current non-arm's-length benchmarks and their
current sequential priority be retained? If not, what other
methodologies might ONRR use to determine the royalty value of coal not
sold at arm's length?
Should the factors for determining the comparability of
arm's-length contracts to non-arm's-length contracts, at 30 CFR
1206.257 (c)(2)(i), be amended, clarified, or removed?
Should the royalty value of coal initially sold under non-
arm's-length conditions be based on the gross proceeds received from
the first arm's-length sale of that coal in situations where there is a
subsequent arm's-length sale? (A variant of this approach would be to
change the definition of the term ``lessee'' to include the lessee and
its affiliates, partners, marketing agents, and trade and export
associations, and establish royalty value based on the first sale to a
buyer who is not included in the definition of ``lessee.'')
Should the royalty value of coal sold under non-arm's-
length conditions be based on a published index price? If so, which
index and why?
Should the royalty value be determined by calculating the
cost to produce the coal plus a return on capital investment, if the
particular coal is never sold at arm's length, or if sold by a coal
cooperative of which the lessee is a member? If so, how should the
return on capital investment be calculated?
Are there any other appropriate methods for determining
the royalty value of coal consumed without sale or without an arm's-
length sale?
C. Transportation and Washing Allowances
The ONRR is exploring potential proposed changes to washing and
transportation allowances that would streamline industry reporting and
ONRR auditing processes. In particular, calculating actual
transportation or washing costs under non-arm's-length transportation
or washing arrangements can place a significant accounting burden on
lessees and make the audit process lengthy and complex. We seek input
on the following questions:
[[Page 30884]]
Can the process of determining appropriate transportation
and washing deductions or allowances be simplified? If so, how?
Should ONRR allow bundled charges for coal transportation
or washing?
Should ONRR set standard cents per ton allowance amounts
for washing and transportation in lieu of calculating actual costs? If
so, how should such fixed allowances be determined; and when, and under
what circumstances, should they be changed?
Is coal washing an operation necessary to put coal into
marketable condition for which no allowance should be permitted?
Should transportation allowances be based on yearly
averages from one region to another?
Should the coal transportation and washing allowances be
limited to a maximum percentage in a manner similar to gas
transportation and processing allowances? Current coal valuation
regulations provide that under no circumstances will the authorized
washing allowance and transportation allowance reduce the value for
royalty purposes to zero (30 CFR 1206.261(b) and 1206.460(b)). Gas
transportation allowances may not exceed 50 percent of the value of the
unprocessed gas, residue gas, or gas plant product, without prior
written approval from ONRR (30 CFR 1206.156(c) and 1206.177(c)). The
gas processing allowance deduction on the basis of an individual
product may not exceed 66\2/3\ percent of the value of each gas plant
product, reduced first for any transportation allowances related to
post-processing transportation (30 CFR 1206.158(c)(2) and 1206.179(c)).
If coal washing and transportation allowances should be limited to a
maximum percentage of the initial value, what would be an appropriate
percentage?
D. Coal Cooperatives
Coal cooperatives are a small but growing part of the coal
industry. A coal cooperative is owned by its member power companies,
and either mines coal itself or through a subsidiary. A cooperative
provides its members with a secure source of coal at below-market
prices that generally exclude a profit component. Current valuation
regulations are not well suited to determining the royalty value of
coal sold by cooperatives. We seek input on the following questions:
Should the royalty value of coal sold by these
cooperatives be determined based on a different method than is used for
coal not sold by or through cooperatives due to the unique aspects of
these cooperatives? If so, what method(s) would you propose?
Please comment on the use of production cost and return on
investment as a possible valuation method.
E. Other Issues
The existing ONRR regulations contain only general provisions that
address in situ or surface gasification or liquefaction (30 CFR
1206.264 and 1206.463). Under these provisions, a lessee must propose a
value, and ONRR will issue a value determination. We seek input on the
following questions:
Are there general valuation methods that would be
appropriate for most or all in situ or surface gasification or
liquefaction operations? If so, please describe them.
What other new production methods is industry developing
that are likely to be economically viable and used in the near- to
medium-term future?
Are there any new marketing methods for coal of which ONRR
should be aware?
In the interest of possible simplification, ONRR is interested in
receiving comments regarding the continued separation of Federal and
Indian coal valuation regulations. We seek input on the following
questions:
Should the Federal and Indian regulations be combined?
Should the Indian coal valuation regulations be modified
to eliminate the approval and form-filing requirements for washing and
transportation allowances in the current regulations at 30 CFR
1206.458(a) and 1206.461(a)?
The ONRR is also interested in receiving comments on any other
alternative coal valuation methodologies. If you propose a methodology
different from those discussed above, please use our example criteria
and explain why you believe your methodology is the best alternative.
In addition, ONRR requests input on how the various methodologies would
affect industry business practices, bookkeeping, etc.
Dated: May 23, 2011.
Rhea Suh,
Assistant Secretary for Policy, Management and Budget.
[FR Doc. 2011-13284 Filed 5-26-11; 8:45 am]
BILLING CODE 4310-MR-P
