Mineral Royalty Reform Closing Loophole Suspended

The Department of the Interior’s Office of Natural Resource Revenue (ONRR) has stayed implementation of a new rule regarding how royalties on federal coal, oil and gas are calculated until resolution of pending litigation.

A 2012 Reuters investigation revealed that companies were selling coal to their subsidiaries at artificially low prices to reduce royalty payments. This practice allowed companies to pocket at least $40 million more in 2011 on coal exports from Wyoming and Montana alone.

“This announcement is a gift to coal companies trying to avoid paying their fair share for publicly-owned minerals. These are funds our states depend on for roads and schools,” said Steve Charter, a board member and past Chair of the Northern Plains Resource Council who ranches above an underground coal mine. “This rule is a common-sense measure to stop energy corporations from using subsidiaries and shell companies to hide profits and dodge royalty payments. It’s terrible that the new administration has again decided to offer sweetheart deals for industry at the expense of Western families.”

Analysis of data from the U.S. Energy Information Administration by the Center for American Progress revealed that coal companies are increasing use of the loophole the ONRR rule addresses. Forty-two percent of all coal produced in Wyoming in 2012 was sold through a captive transaction—or a transaction between a parent and an affiliate company—up from just four percent in 2004. In 2013, all coal mined for export in Montana was sold through a captive transaction.

“This loophole cost state and federal taxpayers roughly $850 million between 2008 and 2012,” said WORC Board Member and Powder River Basin Resource Council Chair Bob LeResche. “Coal companies are increasingly selling coal to themselves at reduced prices to effectively avoid paying royalties to the government. This cheats taxpayers.

LeResche said the royalty reform rule brings additional transparency and accountability and prevents self-dealing.

“It’s a shame that the Trump administration is backing away from the rule,” LeResche said.

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