On February 22, 2017, the United States Department of the Interior Office of Natural Resources Revenue (ONRR) issued a stay on Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Final Rule that was published July 1, 2016. The stay will postpone the effectiveness of the rule until three lawsuits filed in federal court in Wyoming by Cloud Peak Energy, the American Petroleum Institute, and the Tri-State Generation and Transmission Association are resolved.
One of the purposes of the final rule was “to ensure that Indian mineral lessors receive the maximum revenues from coal resources on their land, consistent with the Secretary’s trust responsibility.” With the stay putting a hold on the final rule, tribes and individual Indian lessors are prevented from realizing maximum revenue for years as this litigation works its way through the courts.
Among the changes to the rule that has been stayed is the royalty calculation for arm’s-length or non-arm’s-length resales of coal using a netback method based on the value of the first arm’s-length sale. The change was intended to prevent companies from colluding with affiliates to set a lower price at resale, which in turn reduces the royalties due to the lessor.
The stay affects tribes and individual Indian coal lessors, who could have seen an increase in the amount of royalty payments they received under the new rule. In addition, the stay may violate the federal government’s trust responsibility towards tribes and individual Indian lessors. The two main reasons cited for the stay are the irreparable harm to industry in correcting and resubmitting reports, and the burden on the federal government to review those resubmitted reports. Thus, in issuing the stay the United States has put the interests of the federal government and industry over those of Indian lessors, rather than carrying out its trust responsibility to maximize income to Tribes and Individual Indians from trust assets.