Trump administration officials moved last week to save a loophole that allows some of the world’s biggest coal companies to continue to dodge royalty payments owed to U.S. taxpayers.
The administration’s action appears to be illegal.
In two documents sent directly to fossil fuel companies, the Department of the Interior’s Office of Natural Resources Revenue (ONRR) has instructed oil, gas, and coal companies operating on public lands that they do not need to pay royalties according to rules that took effect on January 1, 2017 and that were designed to ensure taxpayers are getting a fair return from publicly owned resources.
In other words, ONRR has, without notice and comment and without direction from a court, “stayed” a rule that was already in effect.
Some experts say this action appears to violate the Administrative Procedure Act, which allows an agency to postpone an effective date of a rule that has not taken effect, but not to suspend a rule that is already in place without notice and comment.
“It’s just a ham-fisted effort to try to cheat taxpayers,” Theo Spencer, senior policy advocate at the Natural Resources Defense Council, said in an interview with the Washington Post. “We and others are exploring potential litigation as we feel strongly that this was a miscarriage of justice and an example of the administration picking which laws it wants to follow.”
In fact, the judiciary has already weighed in on this very issue. According to the opinion in Safety-Kleen Corp v. EPA, the Administrative Procedures Act “does not permit the agency to suspend without notice and comment a promulgated rule.”
The rule was promulgated after a Reuters investigation found that coal companies operating on public lands were selling coal to their own subsidiaries at intentionally depressed prices to avoid royalty payments and cheat taxpayers out of hundreds of millions of dollars annually. In response, the Obama administration began a rulemaking process to close this loophole. The agency received nearly a quarter million supportive comments and the rule was finalized on July 1, 2016.
The administration’s potentially illegal rollback of a finalized rule raises questions about whether the new president intends to roll back other environmental, consumer safety, public health, and labor protections that are already in effect.
Rep. Raul Grijalva (D-AZ), Ranking Member of the House Natural Resources Committee, wrote a letter Tuesday to ONRR, recognizing that this last-minute attempt to roll back a rule could punish companies who have made efforts to comply.
“This unwarranted and potentially illegal delay of the valuation rule will not only result in the potential loss of taxpayer revenue; as ONRR itself recognized in a February 22, 2017, memo on this action, many companies have already taken significant steps to comply with the new valuation rule, and “it may be difficult” for companies to change their systems to comply with the prior rule,” Grijalva wrote.
The first royalty payments under the new rule were due Tuesday, less than one week after the letter “staying” the rule. The timing calls into question whether the attempted rollback is meant to benefit companies who have delayed in implementing procedures to comply with the rule.
Indeed, some companies are eager to see the new rules thrown out.
Cloud Peak Energy, one of the largest coal companies operating in the United States and a vocal opponent of the rule, applauded the rollback.
“Suspension of this rule is important to Cloud Peak Energy, our employees in Montana, and other coal producers and mine mouth power generators in the Powder River Basin. It was among the most egregious of the Obama administration’s punitive regulations designed to close coal mines, kill coal jobs, destroy coal communities, and raise energy prices for most Americans,” Colin Marshal, the company’s president and CEO, said in a statement circulated by Sen. Steve Daines’ (R-MT) .
Cloud Peak had previously confirmed it profited from the royalty loophole.
A study by Headwaters Economics, however, finds that the rule would not affect revenue for coal companies, electricity prices for consumers, or production of coal.
Despite the negligible effect on the coal industry, coal company executives have also found support from Interior Secretary Ryan Zinke. In 2015, then-Representative Zinke (R-MT) proposed a budget rider to block implementation of the coal loophole rule, a move that was lauded by the coal industry. A recent investigation found that Rep. Zinke receives significant campaign contributions from the fossil fuels industry.
Zinke was confirmed as interior Secretary this morning in a 68–31 vote.