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Energy industry hopes to use new Interior committee to simplify royalty process

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Energy industry hopes to use new Interior committee to simplify royalty process

Energy industry representatives hope to use a new federal policy committee on resource royalties to simplify federal payment processes, meeting for the first time Oct. 4 in Washington, D.C.

Interior Secretary Ryan Zinke announced the creation of the Royalty Policy Committee on March 29 when he lifted a moratorium on new federal coal leases. The Obama administration introduced the moratorium amid criticism directed at environmental and financial issues under the current program. At the inaugural meeting of the committee at the U.S. Department of the Interior headquarters in Washington, D.C., Zinke said by teleconference that the government's role was not to pick winners and losers in the energy market but the government should be a good partner in developing energy resources on public lands.

Vincent DeVito, chairman of the committee and counselor to Interior's Secretary for Energy Policy, said the DOI is now taking a business approach to policy decisions.

"Over the years, investment in private energy resources has gone up while investment in federal energy sources has gone down. The reason for that is people just didn't want to do business with the federal government anymore," he said at the meeting.

DeVito said part of his job was to ensure the Trump administration's "energy dominance" strategy "permeates every aspect of this department."

Matthew Adams, the vice president and senior tax counsel for Cloud Peak Energy Inc., told S&P Global Market Intelligence that the coal producer was looking to be part of the solution in sorting out the royalty process.

"The more that we can develop the understanding of how the process works, we think the more the questions will go away," he said. "We're trying to the do the best thing for the taxpayers and for our companies."

Kathleen Sgamma, president of the Western Energy Alliance, which represents companies engaged in oil and natural gas production, told S&P Global Market Intelligence that industry is generally looking for a fair process that is certain and easy to follow.

"Right now we've got a Rube Goldberg machine to figure out how you report your royalties. It's extremely complex. You can be audited years and years later with a new interpretation. There's just too many moving parts and too much complexity," she said.

Another goal she mentioned is to bring companies back to do business on federal land, as they have been "leaving in droves" due to the difficulty of operating in those areas.

"The federal mineral state has been so devalued over the last several years, with layers and layers of new regulations and with bureaucracy that is set up to say 'No' instead of 'Yes' to job creation and economic growth," she said.

Doug Lempke, a representative of Tri-State Generation and Transmission Association Inc. said at the meeting that the cost of federal coal had a direct effect on its members and the consumers they served.

"Our member system serves some of the most economically depressed communities in the region, where residents can least afford to pay higher electricity bills," he said.

In addition to fossil fuel advocates, early critics of the current program attended the meeting, echoing the criticism of the royalty program that initially led to the Obama administration introducing a moratorium on new coal leases.

Mary Ellen Kustin, the director of policy for public lands at the Center for American Progress, said loopholes in the current royalty policy allowed Powder River Basin coal companies to escape higher royalty payments by transferring coal between subsidiaries at low costs before it was valued.

She also took on the DOI's recent position to lower offshore oil and gas royalty rates to 12.5% for shallow water drilling, calling it "fiscally indefensible."

"That decision was a giveaway of taxpayer dollars," she said.

At the meeting, the committee decided to form three subcommittees, one on fair return and value, one on planning analysis and competitiveness and one on Indian affairs.

The tentative timeline of meetings for the next year was also announced. The next RPC meeting will occur Feb. 27-28, 2018, in Houston, followed by a meeting June 5-6, 2018, in Albuquerque, N.M. The last meeting of the 2018 fiscal year will be Sept. 11-12, 2018, in Casper, Wyo.