A pile of jagged coal briquettes.

Coal on Public Lands

Defend­ing the Val­u­a­tion Rule

Inde­pen­dent inves­ti­ga­tors have con­firmed that coal oper­a­tors on pub­lic lands have been evad­ing roy­al­ty pay­ments owed to the fed­er­al gov­ern­ment by engag­ing in sham trans­ac­tions with cap­tive, affil­i­at­ed com­pa­nies that mask the true val­ue of coal resources removed from pub­lic lands. By engag­ing in these sham trans­ac­tions, coal lessees have avoid­ed mil­lions of dol­lars in pay­ments owed to the fed­er­al gov­ern­ment and its tax­pay­ers who own these pub­lic resources.

The Depart­ment of the Inte­ri­or, act­ing through its Office of Nat­ur­al Resources Rev­enue (ONRR) devel­oped a val­u­a­tion rule” that adopt­ed com­mon sense reforms that closed the loop­holes that coal oper­a­tors were using to avoid pay­ments owed to the fed­er­al gov­ern­ment. After five years of pub­lic engage­ment, includ­ing pub­lic work­shops and an extend­ed notice-and-com­ment peri­od, the rule was final­ized in July 2016.

2017-2021

The Trump Admin­is­tra­tion attempt­ed to scut­tle the val­u­a­tion rule and allow coal oper­a­tors to con­tin­ue to enter into sham trans­ac­tions and avoid pay­ing roy­al­ties owed to Amer­i­can tax­pay­ers. State attor­neys gen­er­al have suc­cess­ful­ly chal­lenged the Admin­is­tra­tion’s per­sis­tent attempts to scut­tle the val­u­a­tion rule.

  • Feb­ru­ary 2017

    In Feb­ru­ary 2017, ONRR uni­lat­er­al­ly pur­port­ed to put the val­u­a­tion rule on hold, not­ing its intent to pre­pare a new rule­mak­ing to repeal the rule. In April 2017, state attor­neys gen­er­al for Cal­i­for­nia and New Mex­i­co sued the Depart­ment of the Inte­ri­or for ille­gal­ly post­pon­ing the start date of a rule that already had gone into force. Wash­ing­ton Attor­ney Gen­er­al Bob Fer­gu­son filed an ami­cus brief in sup­port of Cal­i­for­nia and New Mex­i­co. In an impor­tant opin­ion issued in August 2017, the North­ern Dis­trict of Cal­i­for­nia court agreed with the state attor­neys gen­er­al, strik­ing down as ille­gal the pro­posed post­pone­ment of com­pli­ance with the val­u­a­tion rule.

  • April 2017

    While the lit­i­ga­tion over the post­pone­ment was pro­ceed­ing, ONRR pub­lished a pro­posed rule in April 2017 to repeal the val­u­a­tion rule in its entirety.” 

  • August 2017

    In August 2017, ONRR pub­lished a final rule which repealed the val­u­a­tion rule in its entire­ty” and rein­stat­ed pre­ex­ist­ing roy­al­ty regulations.

  • Octo­ber 2017

    The state attor­neys gen­er­al for Cal­i­for­nia and New Mex­i­co filed a new law­suit in Octo­ber 2017 request­ing that the court inval­i­date the final rule as arbi­trary and capri­cious and unau­tho­rized by law.

  • March 2019

    In March 2019, the fed­er­al dis­trict court in Cal­i­for­nia sided with the attor­neys gen­er­al in find­ing that ONRR vio­lat­ed the Admin­is­tra­tive Pro­ce­dure Act (APA) in repeal­ing the val­u­a­tion rule. ONRR had not pro­vid­ed an ade­quate, rea­soned expla­na­tion for dis­re­gard­ing the facts and cir­cum­stances that sup­port­ed the 2016 issuance of the val­u­a­tion rule. The court vacat­ed the August 2017 repeal rule.

  • June 2019

    In June 2019, just a day before ONRR released its order to require fed­er­al coal lessees to com­ply with the 2016 val­u­a­tion rule, indus­try filed a suit in fed­er­al dis­trict court in Wyoming chal­leng­ing the law­ful­ness of the 2016 val­u­a­tion rule. The fol­low­ing month, the attor­neys gen­er­al of Cal­i­for­nia and New Mex­i­co filed a motion to inter­vene in the Wyoming lit­i­ga­tion in order to defend the val­u­a­tion rule. Cal­i­for­nia and New Mex­i­co were allowed to inter­vene in this ongo­ing litigation.

    In response to the fed­er­al dis­trict court rul­ing that rein­stat­ed the 2016 val­u­a­tion rule’s Jan­u­ary 1, 2017 effec­tive date, ONRR, in June 2019, ordered all fed­er­al coal lessees to take steps to com­ply with the 2016 val­u­a­tion rule. The order requires that the lessees recal­cu­late roy­al­ties owed to the fed­er­al gov­ern­ment under the 2016 val­u­a­tion rule from Jan­u­ary 1, 2017 on for­ward, sub­mit amend­ed roy­al­ty reports and pay under­paid roy­al­ties to the fed­er­al gov­ern­ment by Jan­u­ary 12020.

  • Octo­ber 2020

    Unde­terred by its two pri­or defeats in the courts, ONRR, in Octo­ber 2020, issued a new pro­posed rule to elim­i­nate sev­er­al key pro­vi­sions in the 2016 val­u­a­tion rule. ONRR assert­ed that the basis for the Octo­ber 2020 pro­pos­al was the Trump administration’s pol­i­cy goals of increas­ing domes­tic ener­gy pro­duc­tion and reduc­ing reg­u­la­to­ry bur­den for industry.

  • Novem­ber 2020

    In Novem­ber 2020, the attor­neys gen­er­al of Cal­i­for­nia and New Mex­i­co filed com­ments in oppo­si­tion to the Octo­ber 2020 rule. The com­ments argued that the pro­pos­al vio­lates the APA because the fac­tu­al record for both the 2016 val­u­a­tion rule and the pro­pos­al itself demon­strate that the pro­pos­al will have no impact on ener­gy pro­duc­tion and will increase the cost to indus­try for com­ply­ing with the pro­pos­al. Fur­ther, ONRR failed to address the many impor­tant rea­sons for its 2016 issuance of the val­u­a­tion rule. The com­ments urged ONRR to with­draw the proposal.

  • Jan­u­ary 2021

    In Jan­u­ary 2021, ONRR, ignored the con­cerns of the attor­neys gen­er­al in issu­ing a final rule elim­i­nat­ing sev­er­al key pro­vi­sions from the 2016 val­u­a­tion rule. The rule was sched­uled to become effec­tive the fol­low­ing month.

Reform­ing the Fed­er­al Coal Leas­ing Program

Inde­pen­dent reviews have con­firmed that the fed­er­al coal leas­ing pro­gram suf­fers from a num­ber of sys­temic finan­cial and envi­ron­men­tal defects that have short-changed Amer­i­can tax­pay­ers and harmed the envi­ron­ment. In Jan­u­ary 2016, Inte­ri­or Sec­re­tary Sal­ly Jew­ell issued a Sec­re­tar­i­al order that paused most new coal leas­ing until the Depart­ment com­pletes a com­pre­hen­sive pro­gram­mat­ic Nation­al Envi­ron­men­tal Pol­i­cy Act (NEPA) review of the fed­er­al coal leas­ing pro­gram. To sup­port that review, the Depart­ment of the Inte­ri­or under­took a pub­lic process to col­lect feed­back on the coal pro­gram and poten­tial reforms. A year lat­er, in Jan­u­ary 2017, Sec­re­tary Jew­ell issued a report which, based on an exten­sive eval­u­a­tion of pub­lic com­ments, affirmed the need for a com­pre­hen­sive pro­gram­mat­ic NEPA review of the fed­er­al coal leas­ing program.

2017-2021

  • March 2017

    Short­ly after tak­ing office, Pres­i­dent Trump issued a so-called ener­gy inde­pen­dence” exec­u­tive order in March 2017 that direct­ed the Sec­re­tary of the Inte­ri­or to take all steps nec­es­sary and appro­pri­ate to amend or with­draw Sec­re­tary Jew­el’s Sec­re­tar­i­al order and to lift the so-called mora­to­ri­um” on fed­er­al coal leas­ing. In March 2017, Sec­re­tary Zinke issued a fol­low-up Sec­re­tar­i­al order that re-start­ed all coal leas­ing and ter­mi­nat­ed the pro­gram­mat­ic NEPA review. 

  • May 2017

    In May 2017, four states attor­neys gen­er­al filed suit in the Unit­ed States Dis­trict Court for the Dis­trict of Mon­tana chal­leng­ing Sec­re­tary Zinke’s lift­ing of the coal leas­ing mora­to­ri­um and ter­mi­na­tion of the fed­er­al coal leas­ing pro­gram review.

  • April 2019

    In April 2019, the fed­er­al dis­trict court in Mon­tana ruled in favor of the attor­neys gen­er­al. The court found that the mora­to­ri­um was a major fed­er­al action that trig­gered manda­to­ry NEPA review and that the Depart­ment of Inte­ri­or improp­er­ly lift­ed the coal leas­ing mora­to­ri­um with­out first com­plet­ing the required envi­ron­men­tal review. The judge has request­ed addi­tion­al brief­ing on mov­ing for­ward with the required envi­ron­men­tal analy­sis and leas­ing activity.

  • May 2019

    Slight­ly more than a month lat­er, in May 2019, in response to the fed­er­al dis­trict court order, the Depart­ment of the Inte­ri­or released a hasti­ly assem­bled draft envi­ron­men­tal assess­ment of lift­ing the coal leas­ing mora­to­ri­um. The draft envi­ron­men­tal assess­ment pro­vid­ed the pub­lic only 19 days to sub­mit comments.

  • June 2019

    In June 2019, Cal­i­for­nia Attor­ney Gen­er­al Xavier Becer­ra led the four state coali­tion in sub­mit­ting com­ments in oppo­si­tion to the draft envi­ron­men­tal assess­ment. The attor­neys gen­er­al not­ed that the draft envi­ron­men­tal assess­ment failed to con­duct the hard look” analy­sis required under NEPA in con­sid­er­ing a lim­it­ed range of alter­na­tives and ignor­ing many of the coal leas­ing program’s impacts. The com­ments request­ed that the Depart­ment of the Inte­ri­or with­draw the draft envi­ron­men­tal assess­ment and pre­pare a full draft envi­ron­men­tal impact statement.

  • July 2019

    In July 2019, the fed­er­al dis­trict court in Mon­tana issued a rul­ing that pro­vid­ed the Depart­ment of the Inte­ri­or with more time to com­plete its NEPA review on lift­ing the moratorium.

  • Feb­ru­ary 2020

    In Feb­ru­ary 2020, the Depart­ment of the Inte­ri­or issued a final envi­ron­men­tal assess­ment and Find­ing of No Sig­nif­i­cant Impact (“FON­SI”). The doc­u­ment restrict­ed its analy­sis to the envi­ron­men­tal impacts from resum­ing lease appli­ca­tions 24 months soon­er than antic­i­pat­ed under the Jan­u­ary 2016 order.

  • May 2020

    In May 2020, the fed­er­al dis­trict court in Mon­tana denied the claim brought by the attor­neys gen­er­al. The court found that the final envi­ron­men­tal assess­ment and FON­SI com­plet­ed by the Depart­ment of the Inte­ri­or reme­died the vio­la­tion found in the April 2019 court order. The court stat­ed that it would not opine on the legal ade­qua­cy of the envi­ron­men­tal assess­ment and FON­SI under NEPA, but that a sep­a­rate chal­lenge could be lodged to trig­ger review of those documents.

  • July 2020

    In July 2020, the four attor­neys gen­er­al returned to the fed­er­al dis­trict court in Mon­tana to file a new law­suit chal­leng­ing the March 2017 Sec­re­tar­i­al order that restart­ed the fed­er­al coal leas­ing pro­gram. The coali­tion not­ed that the deci­sion to restart the pro­gram was based on the inad­e­quate and over­ly nar­row Feb­ru­ary 2020 final envi­ron­men­tal assess­ment and FON­SI in vio­la­tion of NEPA and APA. The attor­neys gen­er­al also point­ed out that the deci­sion was made with­out eval­u­at­ing whether the pro­gram is in the pub­lic inter­est or ensur­ing that it will pro­vide fair mar­ket val­ue to the pub­lic in vio­la­tion of the Min­er­al Leas­ing Act (MLA) and the Fed­er­al Land Pol­i­cy and Man­age­ment Act (FLP­MA). The law­suit request­ed that the court vacate and set aside the March 2017 Sec­re­tar­i­al order as well as the final envi­ron­men­tal assess­ment and FON­SI and rein­state the Jan­u­ary 2016 Sec­re­tar­i­al order’s mora­to­ri­um on new coal leas­ing unless and until the Depart­ment of the Inte­ri­or com­plies with applic­a­ble law.