Cloud Peak Energy Inc. v. U.S. Dep't of the Interior
| Decision Date | 08 September 2021 |
| Docket Number | 19-CV-120-SWS (Lead Case), 19-CV-120-SWS |
| Citation | 559 F.Supp.3d 1203 |
| Parties | CLOUD PEAK ENERGY INC.; National Mining Association ; and Wyoming Mining Association, Petitioners, v. UNITED STATES DEPARTMENT OF THE INTERIOR ; et al., Respondents. American Petroleum Institute, Petitioner, v. United States Department of the Interior ; et al., Respondents. Tri-State Generation and Transmission Ass'n, Inc.; Basin Electric Power Cooperative ; and Western Fuels-Wyoming, Inc., Petitioners, v. David Bernhardt, in his official capacity as Secretary of the U.S. Department of Interior ; et al., Respondents. |
| Court | U.S. District Court — District of Wyoming |
John F. Shepherd, Pro Hac Vice, Kristina R. Van Bockern, Pro Hac Vice, Holland & Hart LLP, Denver, CO, Walter Frederick Eggers, III, Holland & Hart, Cheyenne, WY, for Petitioner Cloud Peak Energy Inc. in 19-CV-120-SWS.
James M. Auslander, Pro Hac Vice, Peter J. Schaumberg, Pro Hac Vice, Beveridge & Diamond PC, Washington, DC, Keith Burron, The Burron Firm PC, Cheyenne, WY, for Petitioners National Mining Association in 19-CV-120-SWS, Wyoming Mining Association in 19-CV-120-SWS, American Petroleum Institute in 19-CV-121-SWS.
Gail L. Wurtzler, Pro Hac Vice, Kathleen C. Schroder, Pro Hac Vice, R. Kirk Mueller, Davis Graham & Stubbs LLP, Denver, CO, for Petitioner Tri-State Generation and Transmission Association Inc. in 19-CV-126-SWS.
Brian D. Artery, Rex Johnson, Sherard Sherard Artery & Johnson, Wheatland, WY, for Petitioners Basin Electric Power Cooperative in 19-CV-126-SWS, Western Fuels-Wyoming Inc. in 19-CV-126-SWS.
Nicholas Vassallo, US Attorney's Office, Cheyenne, WY, Paul A. Turcke, Pro Hac Vice, U.S. Dep't of Justice, Washington, DC, for Respondents United States Department of Interior in 19-CV-120-SWS, 19-CV-121-SWS, United States Department of Interior Secretary in 19-CV-120-SWS, 19-CV-121-SWS, 19-CV-126-SWS, Office of Natural Resources Revenue in 19-CV-120-SWS, 19-CV-121-SWS, Office of Natural Resources Revenue Director in 19-CV-120-SWS, 19-CV-121-SWS, 19-CV-126-SWS.
Aaron Colangelo, Pro Hac Vice, Natural Resources Defense Council, Washington, DC, Cecilia D. Segal, Natural Resources Defense Council, San Francisco, CA, for Respondent Northern Plains Resource Counsel in 19-CV-121-SWS, 19-CV-126-SWS.
ORDER UPHOLDING IN PART AND REVERSING IN PART 2016 VALUATION RULE
These joined cases come before the Court under the Administrative Procedure Act (APA), 5 U.S.C. § 706, for review of a rule promulgated in 2016 by the Office of Natural Resources Revenue (ONRR), which effectively changed how royalties owed to the federal government were calculated on oil, gas, and coal produced from federal lands and offshore leases as well as coal produced from Indian lands. The administrative record has been submitted (Doc. 80), and the matter fully briefed by the parties.1 (Docs. 89, 97, 102, 106.2 ) Additionally, the Court also considered the parties’ briefing on Federal Respondents’ Motion for Final Judgment (Docs. 87, 88, 95, 96, 98, 101) as part of the record in this case. Consistent with its earlier partial preliminary injunction (Doc. 67), the Court finds the new valuation methods for oil and gas are sufficiently supported, but the new valuation methods for federal and Indian coal must be vacated.
Oil, gas, and coal producers often enter into leases with the federal government or Indian tribes to extract natural resources from onshore federal lands, offshore federal areas, and Indian lands. California v. United States Dep't of the Interior , 381 F. Supp. 3d 1153, 1158 (N.D. Cal. 2019). Of relevance here, these areas are regulated by federal law, including the Mineral Leasing Act (MLA), 30 U.S.C. § 181 et seq. (), the Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. § 1331 et seq. (), and 25 U.S.C. § 396 et seq. ().
Federal law requires the lessees to pay royalties to the federal government based on the "value" of the fossil fuels extracted. E.g. , 30 U.S.C. § 207(a) (federal coal); 30 U.S.C. § 226(b)(1)(A) (); 43 U.S.C. § 1337(a)(1) (). For oil and gas extracted from onshore federal lands, lessees are statutorily required to pay royalty of "not less than 12.5 percent in amount or value of the production removed or sold from the lease." 30 U.S.C. § 226(b)(1)(A). For offshore oil and gas extracted from the Outer Continental Shelf, royalty is owed "at not less than 12½ per centum fixed by the Secretary in amount or value of the production saved, removed, or sold." 43 U.S.C. § 1337(a)(1)(A). For coal extracted from federal lands, royalty is owed "in such amount as the Secretary shall determine of not less than 12 ½ per centum of the value of coal as defined by regulation." 30 U.S.C. § 207(a). There is no equivalent statutory language for coal extracted from Indian lands, but regulations treat it essentially identical to coal from federal lands.
Congress requires the Department of Interior (DOI) Secretary to collect the royalties owed to the United States on those leases. 30 U.S.C. § 360 ; 30 U.S.C. § 1711 ; 30 U.S.C. § 1751. To that end, the DOI Secretary is required to "prescribe necessary and proper rules and regulations and to do any and all things necessary to carry out and accomplish the purposes" of the various leasing statutes. 30 U.S.C. § 189 (MLA) ; 43 U.S.C. § 1334 (OCSLA). Relatedly, the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA) directed the DOI Secretary to establish "a comprehensive inspection, collection and fiscal and production accounting and auditing system to provide the capability to accurately determine oil and gas royalties, interest, fines, penalties, fees, deposits, and other payments owed, and to collect and account for such amounts in a timely manner." 30 U.S.C. § 1711(a). The DOI Secretary in turn created Respondent Office of Natural Resources Revenue (ONRR), previously known by other designations, and delegated the royalty accounting tasks to ONRR. Additionally, as the statutes do not define the "value" of the production, the DOI Secretary and ONRR possess the authority and discretion to do so.
79 Fed. Reg. at 30878, 30881 (AR 214, 218.)
Following the comment periods as well as six public workshops, ONRR published a proposed rule in January 2015 ("the Proposed Rule"), which sought to change how federal oil, gas, and coal as well as Indian coal would be valued when calculating royalties. Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform , 80 Fed. Reg. 608 (Jan. 6, 2015) (AR 771-839). In July 2016, following an extended public comment period, ONRR then published the final rule ("the 2016 Valuation Rule"), which enacted most of the amendments first set forth by ONRR in its proposed rule. Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform; Final Rule , 81 Fed. Reg. 43338 (July 1, 2016) (AR73963-74028). The 2016 Valuation Rule effectively changed how lessees calculate the value of the natural resources in order to pay royalties on oil, gas, and coal produced from federal lands and offshore leases as well as coal produced from Indian lands.
On December 29, 2016, Petitioners filed challenges to the 2016 Valuation Rule in this Court.4 However, those Petitions were voluntarily dismissed in November 2017 due to ONRR's later "repeal" of the 2016 Valuation Rule. (16-CV-319, Doc. 23.) In early 2017, ONRR postponed the 2016 Valuation Rule's effective date and then undertook the rulemaking process to pass another rule ("the Repeal Rule") that repealed the 2016 Valuation Rule, leaving the former valuation methods unchanged. Repeal of Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform , 82 Fed. Reg. 36934 (Aug. 7, 2017). However, in October 2017, the States of California and New Mexico, joined by other groups as intervenor-plaintiffs, filed suit in the Northern District of California to challenge the Repeal Rule under the APA. California v. United States Dep't of the Interior , 381 F. Supp. 3d 1153, 1158 (N.D. Cal. 2019). On March 29, 2019, the Northern District of California granted summary judgment in the plaintiffs’ favor, vacating the Repeal Rule after finding ONRR violated the APA when adopting it. Id. at 1179. In an all too familiar cycle, this effectively reinstated the now-not-repealed 2016 Valuation Rule.5 In June 2019, ONRR issued a "Dear Reporter" letter that announced the 2016 Valuation Rule applies to "all federal oil and gas lessees and all federal and Indian coal lessees" from January 1, 2017 forward, and required full compliance to occur by January 1, 2020. (Doc. 23-3 p. 1.) "This means that lessees must come into compliance [with the new royalty calculation methods] retrospectively for the last two and a half years and prospectively by January 1, 2020." (Doc. 23 p. 11.6 )
Petitioners here either directly produce commodities and pay...
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