[Federal Register: July 21, 2006 (Volume 71, Number 140)]
[Proposed Rules]
[Page 41515-41542]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy06-15]
[[Page 41515]]
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Part II
Department of the Interior
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Minerals Management Service
30 CFR Parts 202, 206, 210, 217, and 218
Bureau of Land Management
43 CFR Parts 3200 and 3280
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Royalty Management--Geothermal Resources; and Minerals Management--Oil
and Gas Leasing; Proposed Rules
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Parts 202, 206, 210, 217, and 218
RIN 1010-AD32
Geothermal Valuation
AGENCY: Minerals Management Service (MMS), Interior.
ACTION: Proposed rule.
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SUMMARY: The MMS is proposing new regulations implementing the
provisions of the Energy Policy Act of 2005 (EPAct) governing the
payment of royalty on geothermal resources produced from Federal leases
and the payment of direct use fees in lieu of royalties. The EPAct
provisions amend the Geothermal Steam Act of 1970 (GSA). The new
regulations would amend the current MMS geothermal royalty valuation
regulations and simplify the royalty calculations for geothermal
resources for leases issued under the EPAct and leases whose terms are
modified under the EPAct. The new regulations would also amend various
related provisions in the MMS rules.
DATES: Comments must be submitted on or before September 19, 2006.
ADDRESSES: You may submit comments on the rulemaking by any of the
following methods listed below. Please use the Regulation Identifier
Number (RIN) 1010-AD32 in your message. See also Public Comment
Procedure under Procedural Matters:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions on the Web site for submitting comments.
E-mail: mrm.comments@mms.gov. Please include ``Attn: RIN
1010-AD32'' and your name and return address in your Internet message.
If you do not receive a confirmation that we have received your
Internet message, call the contact person listed below.
Regular U.S. Mail: Minerals Management Service, Minerals
Revenue Management, Chief of Staff Office--Denver, P.O. Box 25165, MS
302B2, Denver, Colorado 80225-0165.
Overnight mail, courier, or hand-delivery: Minerals
Management Service, Minerals Revenue Management, Building 85, Room A-
614, West 6th Ave. and Kipling Blvd., Denver Federal Center, Denver,
Colorado 80225.
Information Collection Request (ICR) Comments: Submit written
comments by either fax (202) 395-6566 or e-mail (
OIRA_Docket@omb.eop.gov) directly to the Office of Information and
Regulatory Affairs, Office of Management and Budget (OMB), Attention:
Desk Officer for the Department of the Interior [OMB Control Number ICR
1010-NEW) as it relates to the proposed geothermal valuation rule].
Please also send a copy of your comments to MMS via e-mail at
mrm.comments@mms.gov. Include the title of the information collection
and the OMB control number in the ``Attention'' line of your comment.
Also include your name and return address. If you do not receive a
confirmation that we have received your e-mail, contact Sharron
Gebhardt at (303) 231-3211.
You may also mail a copy of your comments to Sharron Gebhardt, Lead
Regulatory Specialist, Minerals Management Service, Minerals Revenue
Management, P.O. Box 25165, MS 302B2, Denver, Colorado 80225. If you
use an overnight courier service or wish to hand-deliver your comments,
our courier address is Building 85, Room A-614, Denver Federal Center,
West 6th Ave. and Kipling Blvd., Denver, Colorado 80225.
FOR FURTHER INFORMATION CONTACT: Sharron Gebhardt, Lead Regulatory
Specialist, Minerals Revenue Management (MRM), MMS, telephone (303)
231-3211, fax (303) 231-3781, or e-mail sharron.gebhardt@mms.gov. The
principal authors of this rule are Sarah L. Inderbitzin of the Office
of the Solicitor and Herb Black of MRM, MMS, Department of the
Interior.
SUPPLEMENTARY INFORMATION:
I. Background
A. Pre-EPAct Statutory Provisions and Current Regulations
Under the GSA (30 U.S.C. 1001 et seq.) before its amendment by the
EPAct (Pub. L. No. 109-58, 119 Stat. 594), geothermal leases were
issued with a reserved royalty of not less than 10 percent and not more
than 15 percent ``of the amount or value of steam, or any other form of
heat or energy derived from production under the lease and sold or
utilized by the lessee * * *.'' 30 U.S.C. 1004(a) (emphasis added). The
leases further provide for a royalty of not less than 5 percent ``of
the value of any byproduct derived from production under the lease * *
*.'' 30 U.S.C. 1004(b). The GSA further grants the Secretary broad
rulemaking authority. 30 U.S.C. 1023. The lease instruments also
reserved to the Secretary the authority to establish the value of
geothermal production or byproducts for royalty purposes. Under these
provisions, the current rules for valuing geothermal resources for
royalty purposes at 30 CFR 206.350-206.358 were promulgated in 1991.
Currently, there are 50 producing Federal geothermal leases in
Utah, New Mexico, California, and Nevada. These leases comprise 15
electrical generation projects and 2 direct use projects (an onion
drying plant and a project that uses geothermal heat to preheat boiler
water). Royalty revenues from Federal geothermal leases totaled
approximately $11,000,000 in 2004. Fifty percent of those revenues go
to the states in which the leases are located (30 U.S.C. 191(a)).
The current royalty valuation methods for geothermal resources are
grouped first by usage, i.e., electrical generation, direct use, and
byproducts. Within each usage category, valuation methods are grouped
by the method of disposition of the resources, i.e., arm's-length
(unaffiliated) sales, non-arm's-length sales, and no sales.
In an earlier effort to streamline the MMS geothermal regulations,
on October 28, 2004, MMS's Royalty Policy Committee (RPC) formed the
Geothermal Valuation Subcommittee (Subcommittee) to address the MMS
geothermal royalty valuation regulations in an effort to simplify the
regulations and reduce administrative costs to the geothermal industry.
The Subcommittee was comprised of members from one industry
association, several geothermal producers, two of the major states
affected, and MMS employees. A representative of the Bureau of Land
Management (BLM) served as technical advisor to the Subcommittee. The
RPC requested that the Subcommittee work together to develop more
efficient royalty valuation methods that will ensure a fair return to
the Federal Government as well as encourage geothermal development. The
Subcommittee prepared a report and submitted it to the RPC, and on May
26, 2005, the RPC accepted the Subcommittee's recommendations.
B. The EPAct
On August 8, 2005, the President signed into law the EPAct, Pub. L.
109-58, 119 Stat. 595. Sections 221 through 237 of the EPAct, entitled
the ``John Rishel Geothermal Steam Act Amendments,'' amended the GSA,
30 U.S.C. 1001 et seq. (1970). Congress enacted the EPAct geothermal
amendments to encourage geothermal production through regulatory
streamlining and incentives. S. Rep. No. 78, 109th Cong., 1st Sess.
(2005).
This proposed rule would implement the EPAct provisions. It also
would incorporate most of the Subcommittee's concepts, with
modifications necessary to comply with the EPAct. This proposed rule:
[[Page 41517]]
For 30 CFR part 206, subpart H: (1) Explains the general
royalty calculation and payment, direct use fee, and royalty valuation
provisions of this subpart; (2) defines which leases the subpart
applies to; (3) provides definitions of terms used in the subpart; (4)
proposes some changes to conform to plain English writing; and (5)
proposes changes necessary to implement provisions of the EPAct.
For 30 CFR parts 202, 210, 217, and 218: (1) Proposes
changes necessary to implement provisions of the EPAct; and (2) reflect
the proposed amendments to 30 CFR part 206, subpart H.
II. Explanation of Proposed Amendments
Before reading the additional explanatory information below, please
turn to the proposed rule language that we would codify in the Code of
Federal Regulations (CFR) if this rule is finalized as written. The
rule language immediately follows the ``List of Subjects in 30 CFR
parts 202, 206, 210, 217, and 218.''
When you have read the rule thoroughly, please return to the
preamble discussion below. The preamble contains additional information
about the proposed rule, such as why we defined a term in a certain
manner, why we chose a certain procedure, and how we interpret the law
this rule implements.
A. Section-by-Section Analysis of 30 CFR Part 202--Royalties, Subpart
H--Geothermal Resources
The MMS proposes to amend 30 CFR 202.351 and 202.353 in several
respects. First, we rewrote those sections in plain English, added the
term ``fees'' where applicable to reflect the fees in lieu of royalties
that proposed 30 CFR 206.356(b) would prescribe. We also have referred
to 30 CFR part 206, subpart H, where appropriate.
Second, paragraph 202.351(a) currently states that all royalties
must be paid ``in-value.'' In this context, the term ``in-value''
refers to payment in money, not to royalty valuation. Because the EPAct
now allows lessees a credit against royalties owed on geothermal
resources for delivery of electricity ``in-kind'' to states and
counties that would receive a portion of royalty revenues, and to avoid
confusion in situations where MMS will not be determining royalty
value, we would revise the provision in paragraph (a) to read: ``Except
for the amount credited against royalties for in-kind deliveries of
electricity to a state or county under 30 CFR 218.306, you must pay
royalties and direct use fees in money.''
Finally, we would add a new subparagraph 202.353(b)(3) which states
that lessees may report the quantity of direct use resources in
``Millions of pounds to the nearest million pounds of geothermal fluid
produced if valuation is in terms of mass.'' Like the other quantity
reporting requirements in this section, ``to the nearest whole'' means
that if you produce 1,500,000.00 pounds of the geothermal resource, you
would report the quantity as 2 million (2,000,000.00) pounds. Likewise,
if you produce 1,499,000.00 pounds, you would report 1 million
(1,000,000.00) pounds.
B. Section-by-Section Analysis of 30 CFR Part 206--Product Valuation,
Subpart H--Geothermal Resources
What is the purpose of this subpart? (Proposed Sec. 206.350)
Paragraph (a) of this section would explain what leases are subject
to this subpart. This subpart would be applicable to all geothermal
resources produced from Federal geothermal leases issued under the GSA,
as amended by the EPAct. It also would explain that the purpose of this
subpart is to prescribe how to calculate royalties and fees on
geothermal production.
Paragraph (b) would explain that MMS may audit and adjust all
royalty and fee payments.
Paragraph (c) would ensure that if the regulations in this subpart
are inconsistent with a statute, settlement agreement, written
agreement, or lease provision, then that provision, not the regulation,
will govern to the extent of the inconsistency. This is particularly
important in this proposed rulemaking to ensure that the provisions of
the negotiated valuation agreements MMS and lessees entered into prior
to this rulemaking remain unaffected by this rulemaking.
What definitions apply to this subpart? (Proposed Sec. 206.351)
This section would explain the definitions applicable to this
subpart. For purposes of discussion, this preamble will discuss only
new or modified definitions, except modifications to existing language
to use plain English that do not make substantive changes.
The MMS proposes to add a definition of the term affiliate and
revise the definition of the term arm's-length contract to be identical
to the June 2000 Federal crude oil valuation rule published March 15,
2000 (65 FR 14022), and the March 2005 Federal gas valuation rule
published March 10, 2005 (70 FR 11869) (collectively ``Federal oil and
gas valuation rules''), and to conform the geothermal valuation rule
with the D.C. Circuit's holding in National Mining Association v.
Department of the Interior, 177 F.3d 1 (D.C. Cir. 1999). As in the
Federal oil and gas valuation rules, MMS is proposing to define the
term affiliate separately from the term arm's length-contract. We
believe this clarifies and simplifies the definitions and should
promote better understanding of both arm's-length contract and
affiliate. For a full explanation of the reasons for this proposed
change to the definitions, see the discussion in the preamble to the
June 2000 final crude oil valuation rule at 65 FR 14039-14040.
The MMS also proposes to add definitions of allowance and byproduct
transportation allowance to this subpart.
In the EPAct, Congress added a provision regarding the royalty rate
applicable to those byproducts that are minerals specified in the
Mineral Leasing Act of 1920, 30 U.S.C. 181. The EPAct provision was
silent regarding other byproducts, which therefore are not affected.
The proposed definition of byproducts includes both those that are
minerals identified in 30 U.S.C. 181 and those that are not.
The proposed rule also would define three classes of leases,
because the royalty calculation method a lessee must use depends on the
type of lease. A Class I lease would mean (1) a lease BLM issued under
the GSA before August 8, 2005, which the lessee does not elect to
convert to a Class II lease (defined below) under BLM's proposed rule
at 43 CFR 3212.25, or (2) a lease BLM issued in response to a lease
application that was pending on August 8, 2005, which the lessee does
not elect to convert to a Class II lease under BLM's proposed
regulations at 43 CFR 3200.8. A Class II lease would mean a geothermal
lease BLM issued on or after the effective date of the final BLM
regulation under 43 CFR parts 3203, 3204, or 3205, except for a lease
issued in response to an application that was pending on August 8,
2005, which the lessee elects not to convert to a Class II lease under
43 CFR 3200.8. A Class III lease would mean a Class I lease that the
lessee converts to a Class II lease under 43 CFR 3212.25.
In the EPAct, Congress enacted the new definition of direct use
discussed below. Part of that definition included the term commercial
production of electricity, but did not define that term. Other sections
of the EPAct (see the new 30 U.S.C. 1004(b), added by EPAct
[[Page 41518]]
Sec. 223(a), and new 30 U.S.C. 1003(f), added by EPAct Sec. 223(b))
use the term commercial generation of electricity. The two terms appear
from the statutory context to have the same meaning. Therefore,
commercial production or generation of electricity would mean
generation of electricity that is sold or is subject to sale, including
the electricity that is required to convert geothermal energy into
electrical energy for sale.
As a technical amendment, Sec. 236(g) of the EPAct defined direct
use to mean the use of geothermal resources from Class I, II, or III
leases ``for commercial, residential, agricultural, public facilities,
or other energy needs, other than the commercial production of
electricity.'' Thus, we are proposing to use that definition, but
substituting the word ``generation'' for ``production'' for consistency
and accuracy.
We propose to change direct utilization facility in the current
rule to direct use facility to conform to the new definition of direct
use.
The definition of lease would remain the same as in the existing
rule.
Lessee (you) would mean any person to whom the United States issues
a geothermal lease, and any person who has been assigned an obligation
to make royalty, fee, or other payments required by the lease. This
would include any person who has an interest in a geothermal lease as
well as an operator or payor who has no interest in the lease but who
has assumed the royalty, fee, or other payment responsibility.
The term lessee also would include any affiliate of the lessee that
uses the geothermal resource to generate electricity, in a direct use
process, or to recover byproducts, or any affiliate that sells or
transports lease production. We added the lessee's affiliate to the
definition to eliminate the need to have separate regulations for non-
arm's-length sales or use of geothermal resources without sale.
We changed the definition of marketable condition to more closely
conform to the definition contained in other subparts of part 206.
Thus, marketable condition would mean lease products that are
sufficiently free from impurities and otherwise in a condition that
they will be accepted by a purchaser under a sales contract typical for
the disposition of such lease products produced from the field or area.
Plant parasitic electricity would be defined to mean the amount of
electricity used to run a power plant. This term has always been in the
definition of plant tailgate electricity. Therefore, for clarity, we
propose to define it in this rulemaking.
Public purpose would mean a program carried out by a state, tribal,
or local government for the purpose of providing facilities or services
for the benefit of the public in connection with, but not limited to,
public health, safety, or welfare, other than the commercial generation
of electricity. Use of lands or facilities for habitation, cultivation,
trade, or manufacturing is permissible only when necessary for and
integral to (i.e., an essential part of) the public purpose. This is
the same definition the Department has already promulgated under 43 CFR
2740.0-5. As discussed further in our comments to new Sec. 206.366
below, in the EPAct Sec. 223(a), Congress authorized the Secretary to
charge nominal fees for a state, tribal, or local government lessee's
use of geothermal resources without sale for ``public purposes.'' We
added this definition because Congress did not define public purpose.
The Department did not define public safety or welfare in 43 CFR
part 2740. Therefore, we propose to use the definition already used by
the Federal Government in its Federal Property Management Regulations
found at 41 CFR part 102-37, Appendix C. Those regulations state that
public safety or welfare means a program carried out or promoted by a
public agency for public purposes involving, directly or indirectly,
protection, safety, and law enforcement activities, and the criminal
justice system of a given political area. Public safety programs may
include, but are not limited to, those carried out by:
(1) Public police departments;
(2) Sheriffs' offices;
(3) The courts;
(4) Penal and correctional institutions (including juvenile
facilities);
(5) State and local civil defense organizations; and
(6) Fire departments and rescue squads (including volunteer fire
departments and rescue squads supported in whole or in part with public
funds).
How do I calculate the royalty due on geothermal resources used for
commercial generation of electricity? (Proposed Sec. 206.352)
This section would explain how you must calculate the royalty due
on geothermal resources used to generate electricity.
Paragraph (a) would apply to Class I, II, and III leases where the
lessee sold the geothermal resources at arm's length and the purchaser
uses the resource to generate electricity. (The MMS presently knows of
no such current situations, but we anticipate the possibility that some
lessees may enter into such arrangements in the future.) The RPC
recommended that in such instances, the lessee should pay a royalty
based on a royalty rate in the lease multiplied by the gross proceeds
the lessee derives from the sale of geothermal resources. The RPC
recommended no change in royalty valuation under the current rules or
in royalty rates for new or existing leases. The EPAct is silent
regarding the situation where the lessee sells the resource to an
unaffiliated purchaser that produces electricity, rather than producing
the electricity itself. Therefore, we are proposing to accept the RPC
recommendations to base royalties for existing (Class I), new (Class
II), and converted or pending application (Class III) leases, on the
gross proceeds from the sale of the geothermal resource to the arm's-
length purchaser.
For non-arm's length-sales of geothermal resources used for
electrical generation, the RPC recommended that MMS negotiate with each
lessee to determine the value of the geothermal resources sold under
non-arm's-length or no sales situations. Although lessees may still
request such a methodology under Sec. 206.364 of this subpart, we
believe it is much simpler, and more consistent with the EPAct and the
Federal oil and gas valuation rules, to base royalties on the gross
proceeds from the affiliate's sale of the geothermal resource. As
explained above, the gross proceeds accruing to the lessee would
include the lessee's affiliate's arm's-length sale of the geothermal
resource. This eliminates the necessity of examining ``comparable
arm's-length contracts'' when the lessee transfers to its affiliate,
and the affiliate then sells the resource at arm's length. It also
eliminates the need for a geothermal netback procedure wherein the
lessee would have the burden of determining the value of the geothermal
resource based on the sales of electricity by an unrelated purchaser.
Paragraph (b) would explain how to value a geothermal resource for
each class of lease in ``no sales'' situations, i.e, where you or your
affiliate use the geothermal resource in your own power plant for the
generation and sale of electricity. The RPC did not address this
situation, so we kept the current rule language for Class I leases,
with some modifications discussed below, and followed the EPAct for
Class II and III leases.
Thus, under subparagraph (b)(1), for Class I leases, the royalty on
geothermal resources produced would be
[[Page 41519]]
determined in accordance with the first applicable of the following
paragraphs:
(1) The gross proceeds accruing from the arm's-length sale of the
electricity less applicable deductions determined under Sec. Sec.
206.353 and 206.354 times the royalty rate in the lease. This is
essentially the old geothermal netback procedure. However, it is less
burdensome because a lessee who generates and sells electricity will
have all of the necessary information. Furthermore, as explained above,
because an affiliate's arm's-length sale of electricity is the lessee's
gross proceeds, there is no need to distinguish between arm's-length
and non-arm's-length sales. Finally, this subparagraph also would
explain that under no circumstances shall the deductions reduce the
royalty value of the geothermal resource to zero; or
(2) A royalty determined by any other valuation method approved by
MMS under Sec. 206.364.
Subparagraph (2) would apply to Class II leases. In EPAct Sec.
224(a)(1), Congress prescribed a royalty on electricity produced using
geothermal resources, other than direct use of geothermal resources of:
(1) Not less than 1 percent and not more than 2.5 percent of the
gross proceeds from the sale of electricity produced from such
geothermal resources during the first 10 years of production under the
lease; and
(2) Not less than 2 and not more than 5 percent of the gross
proceeds from the sale of electricity produced from such geothermal
resources during each year after such 10-year period.
Congress also specified that any regulation implementing EPAct
Sec. 224(a)(1) should seek:
(1) To provide lessees a simplified administrative system;
(2) to encourage new development; and
(3) to achieve the same level of royalty revenues over a 10-year
period as the regulation in effect on the date of enactment of this
subsection.
Therefore, for Class II leases, MMS is proposing a simple
methodology where the royalty on geothermal resources produced would be
your gross proceeds from the sale of electricity for the production
month multiplied by the royalty rate BLM prescribed for your lease
under proposed 43 CFR 3211.17, its regulation implementing Sec.
224(a)(1) of the EPAct. Because the royalty rate BLM prescribes will
take into account achieving the same level of royalty revenues over a
10-year period as the regulation in effect on the date of enactment of
the EPAct, it will have taken into account any possible deductions that
would have been available under the current regulations and should
achieve the same level of royalty revenues over the next 10 years as
the current regulations. Accordingly, this paragraph of the proposed
regulation would not allow any deductions. In addition, because this
proposal greatly simplifies the valuation methodology, it should
encourage new development.
Subparagraph (3) would apply to Class III leases. For Class III
leases, in EPAct Sec. 224(e)(1)(b), Congress prescribed that royalties
be computed on a percentage of the gross proceeds from the sale of
electricity, at a royalty rate that is expected to yield total royalty
payments equivalent to payments that would have been received for
comparable production under the royalty rate in effect for the lease
before the date of enactment of this subsection. Thus, we are proposing
to require you to calculate the royalty on geothermal resources
produced as your gross proceeds from the sale of electricity for the
production month multiplied by the royalty rate BLM calculated for your
lease under proposed 43 CFR 3211.17. The royalty rate BLM calculates
will be expected to yield total royalty payments equivalent to payments
that would have been received for comparable production under the
royalty rate in effect for the lease before the date of enactment of
the EPAct. Accordingly, that royalty rate will take into account any
deductions you were taking prior to the EPAct's enactment. As a result,
you would not be allowed to reduce your gross proceeds by any
deductions under this subparagraph.
How do I determine transmission deductions? (Proposed Sec. 206.353)
This section would explain how to determine your transmission
deductions. We have streamlined and rewritten the current rule in plain
English.
The MMS also proposes to amend Sec. 206.353 in two other respects.
First, just as we did in the Federal oil and gas valuation rules, we
propose to eliminate the requirement that the lessee report its
transmission deduction using a separate line entry on the Form MMS-
2014. That requirement is no longer relevant because the Form MMS-2014
has been revised. While you still would report the transmission
deduction in a discrete field, it would not be strictly on a separate
line from associated sales transaction data. The proposal would revise
the regulation accordingly.
Second, we also would delete the final paragraph (f) of Sec.
206.353. That paragraph provided for a one-time refund of royalties
based on the royalty value of actual dismantlement costs of a
transmission line in excess of income value from salvage at the
completion of dismantlement and salvage operations. This provision has
never been used and is complicated administratively. Therefore, we
propose to delete it. This would result in renumbering the section with
the corresponding new paragraph (f).
How do I determine generating deductions? (Proposed Sec. 206.354)
This section would explain that if you determine the value of your
geothermal resource under Sec. 206.352(b)(1)(i) of this subpart, you
may deduct your reasonable actual costs incurred to generate
electricity from the plant tailgate value of the electricity (usually
the transmission-reduced value of the delivered electricity). We
propose to rewrite the current rule in plain English form.
We also would delete the final paragraph (f) of Sec. 206.354(f).
That paragraph provided for a one-time refund of royalties based on the
royalty value of actual dismantlement costs of a power plant in excess
of income value from salvage at the completion of dismantlement and
salvage operations. This provision has never been used and is
complicated administratively. Therefore, we propose to delete it.
How do I calculate royalty due on geothermal resources I sell arm's
length to a purchaser for direct use? (Proposed Sec. 206.355)
This section would explain how to calculate royalty on geothermal
resources if you sell geothermal resources produced from Class I, II,
or III leases at arm's length to a purchaser for direct use. The EPAct
did not address such transactions. Therefore, we are proposing that in
such instances, the royalty on the geothermal resource would be the
gross proceeds accruing to you from the sale of the geothermal resource
to the arm's-length purchaser times the royalty rate in your lease or
that BLM prescribes under proposed 43 CFR 3211.18.
We believe this valuation methodology would best meet Congress'
goals that any regulation implementing EPAct Sec. 224(a)(1) should:
(1) provide lessees a simplified administrative system; (2) encourage
new development; and (3) achieve the same level of royalty revenues
over a 10-year period as the regulation in effect on the date of
enactment of this subsection.
[[Page 41520]]
How do I calculate royalty due on geothermal resources I use for direct
use purposes? (Proposed Sec. 206.356).
This section would explain how a lessee must calculate royalty on a
geothermal resource it uses itself for direct use purposes, i.e., that
it does not sell. The Subcommittee recommended that for existing
leases, MMS, in consultation with BLM, should develop and publish a
royalty schedule every 3 years for lessees to use to determine the
royalties due on direct use operations. The Subcommittee also
recommended that the royalty schedule be based on the wellhead (inlet)
temperature and an ``assumed'' fixed outlet temperature of 130 [deg]F.
In addition, the Subcommittee recommended that the lessee would meter
wellhead (inlet) temperature and monthly production and use the
published royalty schedule to determine monthly royalties due.
The Subcommittee used the following equation to develop a royalty
schedule for determining royalty due as a function of temperature of
the geothermal resource used for direct use: where:
[GRAPHIC] [TIFF OMITTED] TP21JY06.000
RTin = royalty due as a function of inlet temperature, $/
106 gallons
[rho] = water density at inlet temperature, lbms/gallon
Tin = measured inlet temperature, [deg]F
Tout = established proxy outlet temperature 130 [deg]F
e = boiler efficiency factor for coal (75 percent)
Pprbc = 3-year historical average of Powder River Basin coal
($/MMBtu)
Frr = lease royalty rate.
However, in the EPAct, Congress did not change the royalty
provisions for existing leases. Therefore, for Class I leases, we are
proposing to keep the existing regulations with minor plain English
modifications.
In Sec. 223(a) of the EPAct, for Class II leases, and Sec.
224(e), for Class III leases, Congress did direct the Secretary to:
Establish a schedule of fees, in lieu of royalties for geothermal
resources, that a lessee or its affiliate--
(A) Uses for a purpose other than the commercial generation of
electricity; and
(B) Does not sell.
Congress also stated that the schedule of fees:
(A) May be based on the quantity or thermal content, or both, of
geothermal resources used;
(B) Shall ensure a fair return to the United States for use of the
resource; and
(C) Shall encourage development of the resource.
Thus, in paragraph (b), for Class II and Class III leases, we are
proposing that lessees calculate the fee for geothermal resources they
use for direct use by multiplying the appropriate fee from the
following schedule in subparagraph (b)(1) of this section by the number
of gallons or pounds they produce from the direct use lease each month.
Direct Use Fee Schedule
[Hot water]
----------------------------------------------------------------------------------------------------------------
If your average monthly inlet temperature ([deg]F) is Your fees are . . .
----------------------------------------------------------------------------------------------------------------
But less than ($/million ($/million
At least . . . . . . gallons) pounds)
----------------------------------------------------------------------------------------------------------------
130............................................................. 140 2.524 0.307
140............................................................. 150 7.549 0.921
150............................................................. 160 12.543 1.536
160............................................................. 170 17.503 2.150
170............................................................. 180 22.426 2.764
180............................................................. 190 27.310 3.379
190............................................................. 200 32.153 3.993
200............................................................. 210 36.955 4.607
210............................................................. 220 41.710 5.221
220............................................................. 230 46.417 5.836
230............................................................. 240 51.075 6.450
240............................................................. 250 55.682 7.064
250............................................................. 260 60.236 7.679
260............................................................. 270 64.736 8.293
270............................................................. 280 69.176 8.907
280............................................................. 290 73.558 9.521
290............................................................. 300 77.876 10.136
300............................................................. 310 82.133 10.750
310............................................................. 320 86.328 11.364
320............................................................. 330 90.445 11.979
330............................................................. 340 94.501 12.593
340............................................................. 350 98.481 13.207
350............................................................. 360 102.387 13.821
----------------------------------------------------------------------------------------------------------------
Under subparagraph (b)(1)(i), for direct use lease geothermal
resources with an average monthly inlet temperature of 130 [deg]F or
less, you would have to pay only the lease rental.
This proposed fee schedule uses the methodology the Subcommittee
recommended to develop the schedule of fees, but updated the schedule
to reflect current Powder River Basin coal prices. The MMS, in
consultation with BLM, also made two modifications to the formula the
Subcommittee recommended. First, we expressed royalty due in dollars
($) per million (106) gallons and dollars ($) per million
(106) pounds to correspond with BLM geothermal resource
measurement requirements in 43 CFR part 3275. We also changed the
boiler efficiency factor from 75 percent to 70 percent to correspond to
MMS regulations at 30 CFR 206.355(c)(1)(ii). In addition, rather than
updating the schedule every 3 years, MMS is retaining the flexibility
to, in consultation with BLM, develop and publish a revised fee
schedule in the Federal Register as needed.
In addition, as the Subcommittee report stated, BLM did a further
study
[[Page 41521]]
of actual outlet temperatures at direct use facilities and found that
130 [deg]F was more representative than the initial RPC estimate of 120
[deg]F. Therefore, we are changing the assumed outlet temperature in
the fee schedule to 130 [deg]F.
We believe this proposal meets Congress' directives because it is
based on the quantity and thermal content of the geothermal resource.
In addition, we believe it will encourage development of geothermal
resources because of the simplified valuation methodology and resultant
administrative savings.
We also believe that it will ensure a ``fair return'' to the United
States for the use of the resource. ``A fair return is one which, under
prudent and economical management, is just and reasonable to both the
public and the utility.'' Mississippi Power & Light Co. v. Mississippi
Ex Rel. Moore, 487 U.S. 354, 366 (1988) (quoting Southern Bell Tel. &
Tel. Co. v. Mississippi Public Service Comm'n, 237 Miss. 157, 241, 113
So. 2d 622, 656 (1959); Mississippi Public Service Comm'n v.
Mississippi Power Co., 429 So. 2d 883 (Miss. 1983). In this instance,
to determine fair value, the BLM representative of the Subcommittee
performed an analysis to determine the feasibility of using binary
electrical generation values as a basis for valuing direct use of
Federal geothermal resources. The Subcommittee was attempting to find a
fair royalty value for direct use facilities. Direct use facilities use
lower temperature geothermal resources than most geothermal power
plants. However, binary power plants use the lowest temperature
geothermal resources of any geothermal power plants. Therefore, binary
power plants value was selected to be the most comparable to direct use
facilities' geothermal value.
The results of the Subcommittee's analysis concluded that the
bottom of the binary value range was the lowest value when compared to
various direct use valuation methods. In addition, the study showed
that the binary valuation (approximately $0.28/MMBtu--$0.77/MMBtu) was
comparable to alternative fuel valuation using Powder River Basin coal
spot prices published by Energy Information Administration of the
Department of Energy (approximately $0.30/MMBtu).
The Subcommittee then compared the value of Powder River coal spot
prices to wood chips and natural gas prices for sample months from
years 1997 through 2002. After further deliberations, the Subcommittee
recommended that MMS use the 3-year historical average of published
Powder River Basin coal spot prices to develop the fee schedule for
direct use basically because of its continuity of value and public
availability.
We welcome comments on the methodology used to develop the fee
schedule and the use of published Powder River Basin coal spot prices
to derive a ``fair return'' for the resource.
Paragraph (b)(3) would implement Sec. 223(c) of the EPAct to allow
retroactive application of the fee schedule to any existing (Class I)
lease that converts to an EPAct (Class III) lease. This paragraph would
explain that the schedule of fees established under paragraph (b)(1)
will apply to any Class III lease with respect to any royalty payments
previously paid, when the lease was a Class I lease, that were due and
owing, and were paid, on or after July 16, 2003. If you use this
provision and owe additional monies based on the fee schedule, you
would have to pay the difference plus interest on that difference
computed under 30 CFR 218.302. If you use this provision and overpaid
royalties based on the fee schedule, you would be entitled to a refund
or credit from MMS of 50 percent of the overpaid royalties. You would
be restricted to a refund of 50 percent of the royalties because, under
Sec. 223(c) of the EPAct, MMS may not refund royalties paid to a state
under 30 U.S.C. 1019 before the date of enactment of the EPAct.
However, Sec. 223(c) did not exempt states from refunds of late
payment interest previously paid on overpaid royalties under 30 U.S.C.
191a. Therefore, you would be entitled to a refund or credit of any
late payment interest that you previously paid on overpaid royalties.
How do I calculate royalty due on byproducts? (Proposed Sec. 206.357)
Neither the Subcommittee nor the EPAct addressed valuation of
byproducts. Therefore, MMS is retaining the current valuation
methodology and applying it to byproducts produced from Class I, II, or
III leases. The MMS made some modifications for plain English purposes.
Also, in paragraph (a), like the gross proceeds provisions discussed
above, the gross proceeds accruing to affiliate would be the gross
proceeds accruing to the lessee where the affiliate makes the first
arm's-length sale of the byproducts, less any applicable byproduct
transportation allowances determined under Sec. Sec. 206.358 and
206.359 of this subpart. The MMS is proposing to renumber the current
byproduct transportation allowance regulations at 30 CFR 206.357 and
206.358 to new Sec. Sec. 206.358 and 206.359.
What records must I keep to support my calculations of royalty or fees
under this subpart? (Proposed Sec. 206.360)
How will MMS determine whether my royalty value, gross proceeds, or
fees are correct? (Proposed Sec. 206.361)
What are my responsibilities to place production into marketable
condition and to market production? (Proposed Sec. 206.362)
When is an MMS audit, review, reconciliation, monitoring, or other like
process considered final? (Proposed Sec. 206.363)
Does MMS protect information I provide? (Proposed Sec. 206.365)
The MMS is proposing amendments to the text of its recordkeeping,
gross proceeds, marketable condition and marketing, audit, and
confidentiality requirements and procedures to apply principles in the
context of geothermal royalties and fees that are consistent with the
Federal oil and gas royalty regulations. In addition, like those rules,
rather than repeat the requirements or procedures in each applicable
section of this rule, MMS is proposing to have these sections apply to
this entire subpart. However, the substantive requirements remain
unchanged.
How do I request a value or gross proceeds determination? (Proposed
Sec. 206.364)
To be consistent with the Federal oil and gas valuation rules, MMS
is proposing to provide a procedure for valuation or gross proceeds
determinations regarding geothermal resources produced from Class I
leases and for byproducts produced from Class I, II, or III leases that
is more than simply nonbinding guidance. The proposed rule would
provide that you may request a value or gross proceeds determination
from MMS. (Your request would have to identify all leases involved, the
record title or operating rights owners, and the operators or payors
for those leases, and explain all relevant facts.) The MMS could
either:
(1) Issue a determination signed by the Assistant Secretary, Land
and Minerals Management; or
(2) Issue a determination by MMS; or
(3) Decline to provide a determination.
A determination signed by the Assistant Secretary, Land and
Minerals Management, would be binding on both you and MMS until the
Assistant Secretary modifies or rescinds it. It also would be the final
action of the Department and subject to judicial review under the
Administrative Procedure Act, 5 U.S.C. 701-706.
[[Page 41522]]
In contrast, a determination MMS issued would be binding on MMS and
delegated states, but not on you, with respect to the specific
situation addressed in the determination, unless the MMS or the
Assistant Secretary modifies or rescinds it.
A determination by MMS would not be an appealable decision or order
under 30 CFR part 290, subpart B. However, if you received an order
requiring you to pay royalty on the same basis as the determination,
you could appeal that order under 30 CFR part 290, subpart B.
Further discussion of determinations can be found in the 2000
Federal oil valuation regulation published March 15, 2000 (65 FR
14022).
What is the nominal fee that a state, tribal, or local government
lessee must pay for the use of geothermal resources? (Proposed Sec.
206.366)
Section 223(a) of the EPAct directs the Secretary to charge
``nominal fees'' if a state, tribal, or local government lessee uses a
geothermal resource without sale and for public purposes other than
commercial generation of electricity. This section implements that
provision and explains that a ``nominal fee'' means a slight or de
minimis fee. The MMS is not publishing a schedule of fees for this
section so that it has the flexibility to calculate appropriate nominal
fees on a case-by-case basis.
C. Section-by-Section Analysis of 30 CFR Part 210--Forms and Reports,
Subpart H--Geothermal Resources
We propose to delete Sec. 210.352 because MMS no longer requires
payor information forms.
D. Section-by-Section Analysis of 30 CFR Part 217--Audits and
Inspections, Subpart H-Geothermal Resources
This subpart is currently reserved. Therefore, as part of this
rulemaking, to be consistent with requirements for other mineral
leases, MMS proposes to add new Sec. Sec. 217.300 through 217.302.
Audit or Review of Records. (Proposed Sec. 217.300)
This section would provide that the Secretary, or his/her
authorized representative, shall initiate and conduct audits or reviews
relating to the scope, nature, and extent of compliance by lessees,
operators, revenue payors, and other persons with rental, royalty,
fees, and other payment requirements on a Federal geothermal lease.
Audits or reviews would also relate to compliance with applicable
regulations and orders. All audits or reviews would be conducted in
accordance with this notice and other requirements of 30 U.S.C. 1717.
Lease Account Reconciliations (Proposed Sec. 217.301)
This section would provide that specific lease account
reconciliations shall be performed with priority being given to
reconciling those lease accounts specifically identified by a state as
having significant potential for underpayment.
Definitions (Proposed Sec. 217.302)
This section would provide that terms used in this subpart shall
have the same meaning as in 30 U.S.C. 1702.
E. Section-by-Section Analysis of 30 CFR Part 218--Collection of
Royalties, Rentals, Bonuses and Other Monies Due the Federal Government
and Credits and Incentives Due Lessees, Subpart F--Geothermal Resources
In Sec. 230 of the EPAct, Congress authorized lessees to credit
annual rentals paid against royalties. To implement EPAct Sec. 230,
MMS proposes to add new sections 218.303 through 218.307 to this
subpart.
May I credit rental towards royalty? (Proposed Sec. 218.303)
Proposed section 218.303 would provide that if you pay your annual
rental for your lease before the first day of the year for which the
annual rental is owed and the annual rental you paid is less than or
equal to the royalty you owe that year, then you could credit the
annual rental that you paid toward the royalty due for that lease year
at any time during that lease year. For example, if you paid $1,000 in
rental for the 7th lease year and during that year you owe $50,000 in
production royalty, then you could deduct the rental ($1,000) from the
monthly royalty due for any month during the 7th lease year, resulting
in a net production royalty payment of $49,000 for that year.
On the other hand, if the annual rental you paid is more than the
royalty you owe that year, then you would not pay royalty during that
lease year. For example, if you paid $1,000 in rental for the 7th lease
year and during that year you owe $500 in production royalty, then you
would not owe any production royalty. However, the rule would also
provide that you may not apply any annual rental paid in excess of the
royalty due for a particular lease year as a credit against royalties
due for production in a future year.
May I credit rental towards direct use fees? (Proposed Sec. 218.304)
This section would provide that you may not credit annual rental
towards direct use fees you are required to pay that year under 30 CFR
206.356(b). Congress did not authorize crediting rentals against fees
in the EPAct. Therefore, you would have to pay the direct use fees in
addition to the annual rental due.
How do I pay advanced royalties I owe under 43 CFR 3212.15(a)?
(Proposed Sec. 218.305)
In Sec. 232 of the EPAct, Congress mandated that if a lessee
ceases production for any reason, the lessee must pay advanced
royalties in lieu of production royalties to maintain the lease.
Therefore, proposed section 218.305 would explain that if you must pay
advanced royalties to retain your lease under BLM regulations at 43 CFR
3212.[MRM1]15(a), then you would have to pay an advanced
royalty monthly equal to the average monthly royalty you paid under 30
CFR part 206, subpart H, for the last 3 years the lease was producing.
If your lease has been producing for less than 3 years, then you would
use the average monthly royalty payment for the entire period your
lease has been producing continuously.
You would have to ensure that MMS receives your advanced royalty
payment before the first day of each month for which production has
ceased. You could credit any advanced royalty you pay against your
future production royalties recouped after your lease resumes
production. You could not reduce the amount of any production royalty
paid for any year below zero.
For example, assume that you paid $12,000 in production royalties
annually in 2004, 2005, and 2006, and you plan to cease production on
January 1, 2007. Your advanced royalty would be $1,000 (($12,000 x 3) /
36) and would be due before January 1, 2007. Also, assume that you paid
$12,000 ($1,000 x 12) in advanced royalty from January 1, 2007, through
December 31, 2007, and resumed production January 1, 2008. Furthermore,
assume that in January 2008, your production royalties due were $1,500.
You could recoup $1,500 of the $12,000 as payment for the $1,500 in
production royalties due. You also could continue to recoup the $10,500
balance of advanced royalties paid ($12,000 - $1,500) against future
production royalties paid.
[[Page 41523]]
May I receive a credit against production royalties for in-kind
deliveries of electricity I provide under contract to a state or county
government? (Proposed Sec. 218.306)
Section 224(a) of the EPAct authorizes MMS to provide lessees with
credits against part of the royalty due for in-kind deliveries of
electricity that lessees provide to states or counties under contracts
the Secretary approves. Therefore, proposed Sec. 218.306 in paragraph
(a) would explain if you both deliver electricity in kind to a state or
county and pay production royalties, then you may receive a credit
against production royalties for electricity that you deliver in kind
under contract to a state or county government. It also would explain
that you may receive a credit only if three conditions are met. First,
the state or county to which you provide electricity is a state or
county that would receive a portion of your royalties under 30 U.S.C.
191 or 30 U.S.C 1019, except as otherwise provided under the Mineral
Leasing Act for Acquired Lands, 30 U.S.C. 355, because your lease is
located in that state or county. If your lease is located in more than
one state or county, the revenues are paid to the respective states or
counties based on each state's or county's proportionate share of the
total acres in the lease. For example, assume you have a 1,000 acre
lease. Also, assume that half of your lease is in Nevada and half is in
California. If you provide electricity to California, you would be
entitled to a credit only against the royalty in value due for the 500
acres located in California.
Second, MMS would have to approve in advance your contract with the
state or county to which you are providing in-kind electricity.
Third, your contract would have to provide that you will use the
wholesale value of the electricity for the area where your lease is
located to establish the specific methodology to determine the amount
of the credit.
Paragraph (b) would provide that the maximum credit you may take is
equal to the portion of the royalty revenue that MMS would have paid to
the state or county that is a party to the contract had you paid
royalty in money on all the electricity you delivered to the state or
county based on the wholesale value of the electricity. You would have
to pay in money any royalty amount that is not offset by the credit
allowed under this section, calculated based on the wholesale value of
the electricity. For example, assume that you have a geothermal lease
in New Mexico and that you delivered 10,000 megawatt-hours of
electricity in a month to New Mexico under a contract MMS approved.
Furthermore, assume that the wholesale value of megawatt-hours in the
area where your lease is located is $30.00 per megawatt-hour that
month. If you had paid royalties in money on the basis of that
wholesale value, and further assuming that you have a Class I lease
with a 10-percent royalty rate, you would have paid $30,000 to MMS. The
MMS then would have paid 50 percent of that amount ($15,000) to the
State of New Mexico. You would be entitled to a credit of $15,000
against the amount you would otherwise owe to MMS when royalty is
calculated on that basis. You would have to pay the remaining $15,000
to MMS in money.
Paragraph (c) would explain that the electricity the state or
county government receives from you would satisfy the Secretary's
payment obligation to the state or county under 30 U.S.C. 191 or 30
U.S.C. 1019. Thus, using the same example, the 10,000 kilowatt hours
you delivered to New Mexico would satisfy the Secretary's payment
obligation to that state that month under 30 U.S.C. 191 and 30 U.S.C.
1019, and MMS would not pay any part of the $1,500 that you paid in
money to the state.
How do I pay royalties due for my existing leases that qualify for
near-term production incentives under 43 CFR part 3212? (Proposed Sec.
218.307)
To implement Sec. 224(c) of the EPAct, MMS proposes to add Sec.
218.307. This section would explain that if you qualify for a
production incentive under BLM regulations at 43 CFR part 3212
(Sec. Sec. 3212.18 through 3212.24), then you would pay 50 percent of
the amount of the total royalty that would otherwise be due under 30
CFR part 206, subpart H. For example, if you qualified for a production
incentive and you owed $1,000 in royalties under 30 CFR part 206,
subpart H, then you would pay $500 in royalties (50 percent of $1,000).
III. Procedural Matters
1. Public Comment Policy
Our practice is to make comments, including names and home
addresses of respondents, available for public review during regular
business hours and on our Web site at http://www.mrm.mms.gov/Laws_R_D/FRNotices/FRHome.htm.
Individual respondents may request that we
withhold their home address from the rulemaking record, which we will
honor to the extent allowable by law. There also may be circumstances
in which we would withhold from the rulemaking record a respondent's
identity, as allowable by law. If you wish us to withhold your name
and/or address, you must state this prominently at the beginning of
your comments. However, we will not consider anonymous comments. We
will make all submissions from organizations or businesses, and from
individuals identifying themselves as representatives or officials of
organizations or businesses, available for public inspection in their
entirety.
2. Summary Cost and Royalty Impact Data
Of the proposed changes to the geothermal valuation regulations
outlined above, only a few will have a royalty impact on industry,
States, or the Federal Government. This section addresses those changes
and discusses the extent of their impacts. There are no ``Costs and
Benefits,'' under the meaning identified by OMB, as a result of the
proposed rule. However, there are certain estimated royalty effects of
the proposed rule to all potentially affected groups: industry, States
and local governments, and the Federal Government. These are summarized
below. There are no associated costs, to industry or to the Federal
Government, of administering the proposed rule.
Of the proposed changes that have royalty cost impacts, three will
result in royalty decreases for industry, States, and MMS. One will
result in an increase to the counties with producing Federal geothermal
leases. The net impact of the six changes will result in an expected
overall royalty revenue decrease of $4,101,583 to the Federal
Government, a corresponding increase to counties of $4,071,583, and a
decrease of $30,000 in royalties to the States.
We have evaluated potential effects on federally recognized Indian
tribes and have determined that the changes we are proposing for
Federal leases would not apply to and currently would not have an
impact on Indian leases. In addition, this proposed rule does not have
tribal implications that impose substantial direct compliance costs on
Indian tribal governments.
A. Industry
(1) Royalty Impacts. (a) No Change in Royalties--Electrical
Generation. Because the EPAct mandates that the royalty revenues
received by MMS should be the same as what would have been received
under the valuation methods of the current regulations, there would be
no revenue impact for electrical generation projects. Electrical
generation lessees that remain under the current regulations would pay
the same
[[Page 41524]]
royalties as they have been paying all along. Electrical generation
lessees who modify their leases to the new regulation's percentage of
gross proceeds method should pay the same level of royalties as they
have paid under the current regulations. New lessees would have royalty
rates determined by BLM that should result in the same level of
royalties for 10 years as they would have paid under the current
regulations.
(b) Net Decrease in Royalties--Direct Use--Estimated at $60,000.
Current direct use lessees who do not sell the geothermal resources
would have the option to convert their leases to the new fee schedule,
which would result in a reduction of $60,000 per year from the current
level of royalties, a 95-percent reduction. In addition, all new direct
use lessees who do not sell the geothermal resources under the new
regulations would use the same fee schedule, also paying about 95
percent less than they would have under the current regulations.
(2) Administrative Costs. The MMS has determined that there are no
expected administrative cost changes.
B. State and Local Governments
(1) Royalty Impacts--State Governments. (a) Net Decrease in
Royalties--Direct Use--Estimated at $30,000. The MMS estimates that
States impacted by this rule would receive the same royalties as they
do currently for electrical generation leases. However, because of the
95-percent decrease in revenue collected from direct use leases, States
who receive a share of that revenue under 30 U.S.C. 191 would be
impacted by the revenue decrease. It is unknown how this would affect
the counties because the States distribute royalty revenues to their
counties directly without MMS involvement. The new fee schedule would
result in approximately 95-percent reduction in royalties paid to
States from direct use projects. The MMS estimates the reduction to be
$30,000 per year.
(2) Administrative Costs--State Governments. The MMS has determined
that there are no expected administrative cost changes for State
governments.
(3) Royalty Impacts--Local Governments. (a) Net Increase in
Royalties--Estimated at $4,071,583. The EPAct mandates a new
distribution of 25 percent of royalties to the counties. This 25
percent would cut the Federal share in half from 50 percent to 25
percent, and leaves the States' share as 50 percent. The counties would
receive a new 25-percent distribution of total geothermal royalty
revenue under the EPAct, which would increase their revenues by
$4,071,583 per year from the Federal Government.
Prior to the EPAct, MMS distributed 50 percent of the geothermal
royalties to the States and retained 50 percent for the Federal
Government. The EPAct now mandates that MMS directly distribute 25
percent of geothermal royalties to the counties that contain producing
geothermal Federal leases. This 25-percent county share is taken from
the Federal share, cutting it in half, to 25 percent of the total
geothermal royalties. The State distribution of 50 percent would remain
unchanged under the EPAct.
(4) Administrative Costs--Local Governments. This rule would not
impose any additional burden on local governments. The counties where
geothermal facilities are located on Federal leases would receive a new
distribution of 25 percent of the total geothermal royalties for the
first time directly from the Federal Government, whereas in the past it
was left up to the States to distribute geothermal royalty revenues to
the counties. It is not known exactly how much geothermal royalty
revenue is distributed to counties by the States, as it is up to each
State to do this distribution and is not currently under MMS control.
C. Federal Government
The total combined royalty impact on the Federal Government would
be a decrease of $4,101,583 ($4,071,583 for electrical generation and
$30,000 for direct use).
(1) Royalty Impacts (a) Net Decrease in Royalties--Electrical
Generation--Estimated at $4,071,583. The Federal Government would be
impacted by a net overall decrease in royalties as a result of the
proposed changes to the regulations governing the new distribution of
25 percent of total royalties to the counties and the new direct use
fee schedule. The net impact on the Federal Government would be a
decrease of approximately $4,071,583 for electrical generation.
(b) Net Decrease in Royalties--Direct Use--Estimated at $30,000.
The Federal Government would also be impacted by the 95-percent
decrease in revenues from direct use leases due to the proposed direct
use fee schedule. The MMS estimates the reduction to be $30,000 per
year.
(2) Administrative Costs--Federal Government. The MMS does not
expect any administrative cost changes for the Federal Government.
D. Summary of Costs and Royalty Impacts to Industry, State and Local
Governments, and the Federal Government
In the table below, a negative number means a reduction in payment
or receipt of royalties or a reduction in costs. A positive number
means an increase in payment or receipt of royalties or an increase in
costs. The net expected change in royalty impact is the sum of the
royalty increases and decreases. If no costs are represented for
administrative or royalty impacts, then the increase, decrease and net
values impacts are all zero.
Summary of expected Costs and Royalty Impacts
------------------------------------------------------------------------
Costs and royalty increases or
royalty decreases
Description -------------------------------
Subsequent
First year years
------------------------------------------------------------------------
A. Industry
------------------------------------------------------------------------
Royalty Decrease from Direct Use Fee -$60,000 -$60,000
Schedule...............................
Net Expected Change in Royalty (direct -60,000 -60,000
use fee) Payments from Industry........
------------------------------------------------------------------------
B. State and Local Governments
------------------------------------------------------------------------
State:
Royalty Decrease to State -30,000 -30,000
Governments........................
Local Governments (counties):
[[Page 41525]]
Royalty Increase to counties........ +4,071,583 4,071,583
Net Expected Change in Royalty Payments +4,041,583 +4,041,583
to State and Local Governments.........
------------------------------------------------------------------------
C. Federal Government
------------------------------------------------------------------------
Royalty Decrease from 25 percent Royalty -4,071,583 -4,071,583
Disbursement to Counties...............
Royalty Decrease from New Direct Use Fee -30,000 -30,000
Schedule Implementation................
Net Expected Change in Royalty Payments -4,101,583 -4,101,583
to Federal Government..................
------------------------------------------------------------------------
3. Regulatory Planning and Review, Executive Order 12866
In accordance with the criteria in Executive Order 12866, this
proposed rule is not a significant regulatory action. The Office of
Management and Budget (OMB) makes the final determination under
Executive Order 12866.
a. This proposed rule would not have an annual effect of $100
million or adversely affect an economic sector, productivity, jobs, the
environment, or other units of Government.
b. This proposed rule would not create inconsistencies with other
agencies' actions.
c. This proposed rule would not materially affect entitlements,
grants, user fees, loan programs, or the rights and obligations of
their recipients.
d. This proposed rule would not raise novel legal or policy issues.
Under the criteria in Executive Order 12866, this proposed rule is not
an economically significant regulatory action as it does not exceed the
$100 million threshold.
4. Regulatory Flexibility Act
The Department of the Interior certifies that this proposed rule
would not have a significant economic effect on a substantial number of
small entities as defined under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.). An initial Regulatory Flexibility Analysis is not
required. Accordingly, a Small Entity Compliance Guide is not required.
Your comments are important. The Small Business and Agricultural
Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were
established to receive comments from small businesses about Federal
agency enforcement actions. The Ombudsman will annually evaluate the
enforcement activities and rate each agency's responsiveness to small
business. You may comment to the Small Business Administration without
fear of retaliation. Disciplinary action for retaliation by an MMS
employee may include suspension or termination from employment with the
Department of the Interior.
5. Small Business Regulatory Enforcement Act (SBREFA)
This proposed rule is not a major rule under 5 U.S.C. 804(2), the
Small Business Regulatory Enforcement Fairness Act. This proposed rule:
a. Would not have an annual effect on the economy of $100 million
or more.
b. Would not cause a major increase in costs or prices for
consumers, individual industries, Federal, state, or local government
agencies, or geographic regions.
c. Would not have significant adverse effects on competition,
employment, investment, productivity, innovation, or the ability of
U.S.-based enterprises to compete with foreign-based enterprises.
6. Unfunded Mandates Reform Act
In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501
et seq.):
a. This proposed rule would not ``significantly or uniquely''
affect small governments. Therefore, a Small Government Agency Plan is
not required.
b. This proposed rule would not produce a Federal mandate of $100
million or greater in any year, i.e., it would not be a ``significant
regulatory action'' under the Unfunded Mandates Reform Act. The
analysis prepared for Executive Order 12866 meets the requirements of
the Unfunded Mandates Reform Act.
7. Governmental Actions and Interference With Constitutionally
Protected Property Rights (Takings), Executive Order 12630
In accordance with Executive Order 12630, this proposed rule does
not have significant takings implications. A takings implication
assessment is not required.
8. Federalism, Executive Order 13132
In accordance with Executive Order 13132, this proposed rule would
not have federalism implications; hence, a federalism assessment is not
required. It would not substantially and directly affect the
relationship between the Federal and state governments. The management
of Federal leases is the responsibility of the Secretary of the
Interior. Royalties collected from Federal leases are shared with state
governments on a percentage basis as prescribed by law. This proposed
rule would not alter any lease management or royalty value sharing
provisions. It would determine the value of production for royalty
value computation purposes only. This proposed rule would not impose
costs on states or localities.
9. Civil Justice Reform, Executive Order 12988
In accordance with Executive Order 12988, the Office of the
Solicitor has determined that this proposed rule would not unduly
burden the judicial system and meets the exception requirements of
Sec. Sec. 3(a) and 3(b)(2) of the Order.
10. Paperwork Reduction Act of 1995 (PRA)
This proposed rule, RIN 1010-AD32, would contain new information
collection requirements. The title of the new information collection
request (ICR) is ``30 CFR Parts 202, 206, 210, 217, and 218--Valuation
of Geothermal Resources.''
The intent of this proposed rulemaking is to change the methodology
for geothermal royalty valuation and simplify these calculations for
both direct use and electrical generation purposes. We have submitted
an ICR to OMB for review and approval under Sec. 3507(d) of the PRA.
When this rule becomes effective, we will prepare the required OMB
Forms and transfer the burden hours to
[[Page 41526]]
their respective primary collections. As part of our continuing effort
to reduce paperwork and respondent burden, we will invite the public
and other Federal agencies to comment on any aspect of the reporting
burden through the information collection process.
Submit written comments by either fax (202) 395-6566 or e-mail
OIRA_Docket@omb.eop.gov) directly to the Office of Information and
Regulatory Affairs, OMB, Attention: Desk Officer for the Department of
the Interior [OMB Control Number ICR 1010-New, as it relates to the
proposed geothermal valuation rule].
Also submit copies of written comments to Sharron L. Gebhardt, Lead
Regulatory Specialist, Minerals Management Service, Minerals Revenue
Management, P.O. Box 25165, MS 302B2, Denver, Colorado 80225. If you
use an overnight courier service, our courier address is Building 85,
Room A-614, Denver Federal Center, W. 6th Ave., and Kipling Blvd.,
Denver, Colorado 80225. You may also e-mail your comments to us at
mrm.comments@mms.gov. Include the title of the information collection
and the OMB control number in the ``Attention'' line of your comment.
Also include your name and return address. If you do not receive a
confirmation that we have received your e-mail, contact Sharron
Gebhardt at (303) 231-3211.
The OMB has up to 60 days to approve or disapprove this collection
of information but may respond after 30 days. Therefore, public
comments should be submitted to OMB within 30 days in order to assure
their maximum consideration. However, we will consider all comments
received during the comment period for this notice of proposed
rulemaking.
This ICR has a new collection of regulatory information for a total
program change of 174 burden hours. The proposed rule uses Form-MMS
2014, which is covered in ICR 1010-0140 (expires October 31, 2006). See
the following chart for burden hours by CFR citation:
Burden Breakdown
----------------------------------------------------------------------------------------------------------------
Reporting and
30 CFR Parts 202, 206, 210, recordkeeping Hour burden Average number of Annual burden
217, and 218 requirement annual responses hours
----------------------------------------------------------------------------------------------------------------
Part 202--Royalties
Subpart H--Geothermal Resources
----------------------------------------------------------------------------------------------------------------
Sec. 202.353 Measurement standards for reporting and paying royalties.
----------------------------------------------------------------------------------------------------------------
202.353........................ (a) For geothermal Burden covered under OMB Control Number 1010-0140
resources used to (expires October 31, 2006).
generate electricity,
you must report the
quantity on which
royalty is due on
Form MMS-2014 * * *.
(b) For geothermal
resources used in
direct use processes,
you must report the
quantity on which
royalty or fee is due
on Form MMS-2014 * *
*.
(c) For byproducts,
you must report the
quantity on which
royalty is due on
Form MMS-2014 * * *.
(d) For commercially
demineralized water,
you must report the
quantity on which
royalty is due on
Form MMS-2014 * * *.
(e) You must maintain The Office of Regulatory Affairs (ORA) determined that
quality measurements the audit process is not covered by the PRA because
for audit purposes. MMS staff asks non-standard questions to resolve
exceptions.
----------------------------------------------------------------------------------------------------------------
Part 206--Product Valuation
Subpart H--Geothermal Resources
----------------------------------------------------------------------------------------------------------------
Sec. 206.352 How do I calculate the royalty due on geothermal resources used for commercial generation of
electricity?
----------------------------------------------------------------------------------------------------------------
206.352;....................... (b)(1)(ii) A royalty 1 1 1
determined by any
other reasonable
method approved by
MMS under Sec.
206.364 of this
subpart.
----------------------------------------------------------------------------------------------------------------
Sec. 206.353 How do I determine transmission deductions?
----------------------------------------------------------------------------------------------------------------
206.353........................ (c)(2)(i)(A) such The ORA determined that the audit process is not
purchase as necessary covered by the PRA because MMS staff asks non-standard
* * *. questions to resolve exceptions
(d)(9) Any other The ORA determined that the audit process is not
directly allocable covered by the PRA because MMS staff asks non-standard
and attributable questions to resolve exceptions
operating expense
which you can
document, including *
* *.
(e) Allowable The ORA determined that the audit process is not
maintenance expenses covered by the PRA because MMS staff asks non-standard
include: * * * (4) questions to resolve exceptions.
Other directly
allocable and
attributable
maintenance expenses,
which you can
document.
(g) To compute costs 1 1 1
associated with
capital investment *
* * the lessee may
not later elect to
change to the other
alternative without
MMS approval.
[[Page 41527]]
(h) To compute 1 1 1
depreciation you may
elect * * * you may
not change methods
without MMS approval.
(l) * * * In The ORA determined that the audit process is not
conducting reviews covered by the PRA because MMS staff asks non-standard
and audits, MMS may questions to resolve exceptions.
require you to submit
arm's-length
transmission
contracts, production
agreements, operating
agreements, and
related documents.
(l) * * * Burden hours covered under OMB Control Number 1010-0140
Recordkeeping (expires October 31, 2006).
requirements are
found at part 212 of
this chapter.
(n) In conducting The ORA determined that the audit process is not
reviews and audits, covered by the PRA because MMS staff asks non-standard
MMS may require you questions to resolve exceptions.
to submit all data
used to calculate the
deduction. You must
comply with any such
requirements within
the time MMS
specifies.
(n) Recordkeeping Burden hours covered under OMB Control Number 1010-0140
requirements are (expires October 31, 2006).
found at part 212 of
this chapter.
(o)(2) You must submit Burden hours covered under OMB Control Number 1010-0140
corrected Forms MMS- (expires October 31, 2006).
2014 to reflect
adjustments to
royalty payments in
accordance with MMS
instructions.
----------------------------------------------------------------------------------------------------------------
Sec. 206.354 How Do I Determine Generating Deductions?
----------------------------------------------------------------------------------------------------------------
206.354........................ (b)(1)(ii) You must 1 1 1
redetermine your
generating costs
annually * * * you
may not later elect
to use a different
deduction period
without MMS approval.
(c)(2)(i)(A) The The ORA determined that the audit process is not
purchase is necessary covered by the PRA because MMS staff asks non-standard
* * *. questions to resolve exceptions.
(d)(9) Any other The ORA determined that the audit process is not
directly allocable covered by the PRA because MMS staff asks non-standard
and attributable questions to resolve exceptions.
operating expense
which you can
document, including *
* *.
(e) Allowable The ORA determined that the audit process is not
maintenance expenses covered by the PRA because MMS staff asks non-standard
include: * * * (4) questions to resolve exceptions.
Other directly
allocable and
attributable
maintenance expenses,
which you can
document.
(g) * * * After a 1 1 1
lessee has elected to
use either method,
the lessee may not
later elect to change
to the other
alternative without
MMS approval.
(h) To compute 1 1 1
depreciation, you may
elect to use either a
straight-line
depreciation method
based on the life of
the geothermal
project, usually the
term of the
electricity sales
contract or other
depreciation period
acceptable to MMS, or
a unit-of-production
method. After you
make an election, you
may not change
methods without MMS
approval.
(l)(1) * * * In The ORA determined that the audit process is not
conducting reviews covered by the PRA because MMS staff asks non-standard
and audits MMS may questions to resolve exceptions.
require you to submit
arm's-length power
plant contracts * * *.
(l)(1) * * * Burden hours covered under OMB Control Number 1010-0140
Recordkeeping (expires October 31, 2006).
requirements are
found at part 212 of
this chapter.
(l)(3) * * * The MMS The ORA determined that the audit process is not
may require you to covered by the PRA because MMS staff asks non-standard
submit all data used questions to resolve exceptions.
to calculate the
deduction.
(l)(3) * * * Burden hours covered under OMB Control Number 1010-0140
Recordkeeping (expires October 31, 2006).
requirements are
found at part 212 of
this chapter.
(m)(2) You must submit Burden hours covered under OMB Control Number 1010-0140
corrected Forms-2014 (expires October 31, 2006).
to reflect
adjustments to
royalty payments in
accordance with MMS
instructions.
----------------------------------------------------------------------------------------------------------------
[[Page 41528]]
Sec. 206.356 How do I calculate royalty due on geothermal resources I use for direct use purposes?
----------------------------------------------------------------------------------------------------------------
206.356........................ (a)(1) The weighted 1 1 1
average of the gross
proceeds * * * In
evaluating the
acceptability of
arm's-length
contracts * * *.
(a)(2) * * * The 48 2 96
efficiency of the
alternative energy
source shall be * * *
or proposed by the
lessee and approved
MMS.
(a)(3) A royalty 1 1 1
determined by * * *
approved by MMS * * *.
(b)(3) * * * you must 1 1 1
provide MMS data
showing the amount of
geothermal production
in pounds or gallons
of geothermal fluid
to input into the fee
schedule * * *.
(c) For geothermal 1 1 1
resources other than
hot water, MMS will
determine fees on a
case-by-case basis.
----------------------------------------------------------------------------------------------------------------
Sec. 206.357 How do I calculate royalty due on byproducts?
----------------------------------------------------------------------------------------------------------------
206.357........................ (c) A value determined 1 1 1
by any other
reasonable valuation
method approved by
MMS..
----------------------------------------------------------------------------------------------------------------
Sec. 206.358 What are byproduct transportation allowances?
----------------------------------------------------------------------------------------------------------------
206.358........................ (d) Reporting Burden hours covered under OMB Control Number 1010-0140
requirements. (1) (expires October 31, 2006).
Arm's-length
contracts. (i) You
must use a discrete
field on Form MMS-
2014 to notify MMS of
a transportation
allowance.
(d)(1)(ii) In The ORA determined that the audit process is not
conducting reviews covered by the PRA because MMS staff asks non-standard
and audits, MMS may questions to resolve exceptions.
require you to submit
* * *.
(d)(1)(ii) Burden hours covered under OMB Control Number 1010-0140
Recordkeeping (expires October 31, 2006).
requirements are
found at part 212 of
this chapter.
(d)(2) Non-arm's- Burden hours covered under OMB Control Number 1010-0140
length or no (expires October 31, 2006).
contract. (i) You
must use a discrete
field on Form MMS-
2014 to notify MMS of
a transportation
allowance.
(d)(2)(iii) In The ORA determined that the audit process is not
conducting reviews covered by the PRA because MMS staff asks non-standard
and audits, MMS may questions to resolve exceptions.
require you to submit
* * *.
(d)(2)(iii) Burden hours covered under OMB Control Number 1010-0140
Recordkeeping (expires October 31, 2006).
requirements are
found at part 212 of
this chapter.
(e)(2) You must submit Burden hours covered under OMB Control Number 1010-0140
corrected Form MMS- (expires October 31, 2006).
2014 to reflect
adjustments to
royalty payments in
accordance with MMS
instructions.
(h) If MMS reviews or The ORA determined that the audit process is not
audits your royalty covered by the PRA because MMS staff asks non-standard
payments, you must questions to resolve exceptions
make available to
authorized MMS
representatives or to
other authorized
persons all
transportation
contracts and all
other information as
may be necessary to
support a byproduct
transportation
allowance.
----------------------------------------------------------------------------------------------------------------
Sec. 206.359 How do I determine byproduct transportation allowances?
----------------------------------------------------------------------------------------------------------------
206.359........................ (a)(2) * * * MMS will The ORA determined that the audit process is not
require you to covered by the PRA because MMS staff asks non-standard
determine the * * * questions to resolve exceptions.
MMS will notify you
and give you an
opportunity to
provide written
information
justifying your
transportation costs.
(c)(2)(i)(A) The The ORA determined that the audit process is not
purchase is necessary covered by the PRA because MMS staff asks non-standard
* * *. questions to resolve exceptions.
(d)(9) Any other The ORA determined that the audit process is not
directly allocable covered by the PRA because MMS staff asks non-standard
and attributable questions to resolve exceptions
operating expense
which you can
document, including *
* *.
(e) Allowable The ORA determined that the audit process is not
maintenance expenses covered by the PRA because MMS staff asks non-standard
include:* * * (4) questions to resolve exceptions
Other directly
allocable and
attributable
maintenance expenses,
which you can
document.* * *.
[[Page 41529]]
(g) To compute costs * 1 1 1
* * the lessee may
not later elect to
change to the other
alternative without
MMS approval.* * *.
--------------------------------------------------------
(h) To compute 1 1 1
depreciation * * *
After you make an
election, you may not
change methods
without MMS approval..
----------------------------------------------------------------------------------------------------------------
Sec. 206.360 What records must I keep to support my calculations of royalty or fees under this subpart?
----------------------------------------------------------------------------------------------------------------
206.360........................ * * * you must retain Burden hours covered under OMB Control Number 1010-
all data relevant * * 0140 (expires October 31, 2006).
*.
Recordkeeping Burden hours covered under OMB Control Number 1010-
requirements are 0140 (expires October 31, 2006).
found in part 212 of
this chapter..
You must be able to The ORA determined that the audit process is not
show: (1) How you covered by the PRA because MMS staff asks non-standard
calculated * * * (2) questions to resolve exceptions.
How you complied * *
* (b) Upon request,
you must submit all
data to MMS..
----------------------------------------------------------------------------------------------------------------
Sec. 206.361 How will MMS determine whether my royalty, gross proceeds or fees are correct?
----------------------------------------------------------------------------------------------------------------
206.361........................ (b) * * * MMS may The ORA determined that the audit process is not
require you to covered by the PRA because MMS staff asks non-standard
increase the gross questions to resolve exceptions.
proceeds to reflect *
* * MMS may require
you to use another
valuation method * *
* MMS will notify you
to give you an
opportunity to
provide written
information
justifying your gross
proceeds * * *.
(c) For arm's-length The ORA determined that the audit process is not
sales, you have the covered by the PRA because MMS staff asks non-standard
burden of questions to resolve exceptions.
demonstrating * * *.
(d) The MMS may The ORA determined that the audit process is not
require you to covered by the PRA because MMS staff asks non-standard
certify that the questions to resolve exceptions.
provisions in your
sales contract
include * * *.
(f)(2) Contract 1 1 1
revisions or
amendments you make
must be in writing
and signed by all
parties to the
contract..
----------------------------------------------------------------------------------------------------------------
Sec. 206.364 How do I request a value or gross proceeds determination?
----------------------------------------------------------------------------------------------------------------
206.364........................ (a) You may request a 3 20 60
value determination
from MMS. * * Your
request must:.
(1) Be in writing * *
*.
----------------------------------------------------------------------------------------------------------------
Part 210--Forms and Reports
Subpart H--Geothermal Resources
----------------------------------------------------------------------------------------------------------------
Sec. 210.352 Payor information forms.
----------------------------------------------------------------------------------------------------------------
210.352........................ The Payor Information The payor information form was discontinued through
Form * * * (f) reengineering by 2001. This rule removes geothermal
Abandonment of a references to the form from the Code of Federal
lease. * * *. Regulations. There are no current burden hours.
----------------------------------------------------------------------------------------------------------------
Part 217--Audits and Inspections
Subpart G--Geothermal Resources
----------------------------------------------------------------------------------------------------------------
Sec. 217.300 Audits or review of records.
----------------------------------------------------------------------------------------------------------------
217.300........................ The Secretary, or his/ The ORA determined that the audit process is not
her authorized covered by the PRA because MMS staff asks non-standard
representative shall questions to resolve exceptions.
initiate and conduct
audits or reviews
relating * * * Audits
or reviews will also
relate to compliance
* * * All audits or
reviews will be
conducted in
accordance with * * *.
[[Page 41530]]
PART 218--Collection of royalties, rentals, bonuses and other monies due the Federal Government and Credits and
Incentives Due Lessees
----------------------------------------------------------------------------------------------------------------
Subpart F--Geothermal Resources
----------------------------------------------------------------------------------------------------------------
Sec. 218.306 May I receive a credit against production royalties for in-kind deliveries of electricity I
provide under contract to a state or county government?
----------------------------------------------------------------------------------------------------------------
218.306........................ (a)(2) MMS approves in 4 1 4
advance your contract
* * *.
--------------------------------------------------------------------------------
Burden Hour Total.......... ...................... ................. 37 174
----------------------------------------------------------------------------------------------------------------
Public Comment Policy. The PRA (44 U.S.C. 3501 et seq.) provides
that an agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number. Before submitting an ICR to OMB,
PRA Sec. 3506(c)(2)(A) requires each agency ``* * * to provide notice
* * * and otherwise consult with members of the public and affected
agencies concerning each proposed collection of information * * *.''
Agencies must specifically solicit comments to: (a) Evaluate whether
the proposed collection of information is necessary for the agency to
perform its duties, including whether the information is useful; (b)
evaluate the accuracy of the agency's estimate of the burden of the
proposed collection of information; (c) enhance the quality,
usefulness, and clarity of the information to be collected; and (d)
minimize the burden on the respondents, including the use of automated
collection techniques or other forms of information technology.
The PRA also requires agencies to estimate the total annual
reporting ``non-hour cost'' burden to respondents or recordkeepers
resulting from the collection of information. If you have costs to
generate, maintain, and disclose this information, you should comment
and provide your total capital and startup cost components or annual
operation, maintenance, and purchase of service components. You should
describe the methods you use to estimate major cost factors, including
system and technology acquisition, expected useful life of capital
equipment, discount rate(s), and the period over which you incur costs.
Capital and startup costs include, among other items, computers and
software you purchase to prepare for collecting information;
monitoring, sampling, and testing equipment; and record storage
facilities. Generally, your estimates should not include equipment or
services purchased: (i) Before October 1, 1995; (ii) to comply with
requirements not associated with the information collection; (iii) for
reasons other than to provide information or keep records for the
Government; or (iv) as part of customary and usual business or private
practices.
We will summarize written responses to this proposed information
collection and address them in our final rule. We will provide a copy
of the ICR to you without charge upon request, and the ICR will also be
posted on our Web site at http://www.mrm.mms.gov/Laws_R_D/FRNotices/FRInfColl.htm
.
We will post all comments in response to this proposed information
collection on our Web site at http://www.mrm.mms.gov/Laws_R_D/InfoColl/InfoColCom.htm.
We will also make copies of the comments available for
public review, including names and addresses of respondents, during
regular business hours at our offices in Lakewood, Colorado. Individual
respondents may request that we withhold their home address from the
public record, which we will honor to the extent allowable by law.
There also may be circumstances in which we would withhold from the
rulemaking record a respondent's identity, as allowable by law. If you
request that we withhold your name and/or address, state this
prominently at the beginning of your comment. However, we will not
consider anonymous comments. We will make all submissions from
organizations or businesses, and from individuals identifying
themselves as representatives or officials of organizations or
businesses, available for public inspection in their entirety.
11. National Environmental Policy Act (NEPA)
This proposed rule deals with financial matters and would have no
direct effect on MMS decisions on environmental activities. Pursuant to
516 DM 2.3A (2), Section 1.10 of 516 DM 2, Appendix 1 excludes from
documentation in an environmental assessment or impact statement
``policies, directives, regulations and guidelines of an
administrative, financial, legal, technical or procedural nature; or
the environmental effects of which are too broad, speculative, or
conjectural to lend themselves to meaningful analysis and will be
subject later to the NEPA process, either collectively or case-by-
case.'' Section 1.3 of the same appendix clarifies that royalties and
audits are considered to be routine financial transactions that are
subject to categorical exclusion from the NEPA process.
12. Government-to-Government Relationship With Tribes
In accordance with the President's memorandum of April 29, 1994,
``Government-to-Government Relations with Native American Tribal
Governments'' (59 FR 22951) and Department Manual 512 DM 2, we have
evaluated potential effects on federally recognized Indian tribes and
have determined that the changes we are proposing for Federal leases do
not apply to and would not have an impact on Indian leases.
13. Effects on the Nation's Energy Supply, Executive Order 13211
In accordance with Executive Order 13211, this regulation would not
have a significant adverse effect on the Nation's energy supply,
distribution, or use. The proposed changes primarily involve royalty
valuation of geothermal production to simplify royalty
[[Page 41531]]
valuation, hence, any impact to the way industry does business should
be positive, and as the EPAct directs, should encourage energy
development and marketing. The proposed rule would not otherwise impact
energy supply, distribution, or use.
14. Consultation and Coordination With Indian Tribal Governments,
Executive Order 13175
In accordance with Executive Order 13175, we have evaluated this
proposed rule and determined that it has no potential effects on
federally recognized Indian tribes. This proposed rule does not have
tribal implications that impose substantial direct compliance costs on
Indian tribal governments.
15. Clarity of This Regulation
Executive Order 12866 requires each agency to write regulations
that are easy to understand. We invite your comments on how to make
this rule easier to understand, including answers to questions such as
the following: (1) Are the requirements in the rule clearly stated? (2)
Does the rule contain technical language or jargon that interferes with
its clarity? (3) Does the format of the rule (grouping and order of
sections, use of headings, paragraphing, etc.) aid or reduce its
clarity? (4) Would the rule be easier to understand if it were divided
into more (but shorter) sections? (A ``section'' appears in bold type
and is preceded by the symbol Sec. and a numbered heading; for
example, Sec. 204.200 What is the purpose of this part?) (5) Is the
description of the rule in the SUPPLEMENTARY INFORMATION section of the
preamble helpful in understanding the proposed rule? What else could we
do to make the rule easier to understand? Send a copy of any comments
that concern how we could make this rule easier to understand to:
Office of Regulatory Affairs, Department of the Interior, Room 7229,
1849 C Street, NW., Washington, DC 20240. You may also e-mail the
comments to this address: Exsec@ios.doi.gov.
List of Subjects in 30 CFR Parts 202, 206, 210, 217, and 218
Geothermal, valuation, royalty, Energy Policy Act of 2005, direct
use, arm's length.
Dated: June 28, 2006.
R. M. ``Johnnie'' Burton,
Director, Minerals Management Service, Exercising the delegated
authority of the Assistant Secretary of Land and Minerals Management.
For the reasons stated in the preamble, the Minerals Management
Service proposes to amend 30 CFR parts 202, 206, 210, and 218 as set
forth below:
PART 202--ROYALTIES
1. The authority for part 202 continues to read as follows:
Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et
seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et
seq.; 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq.; 1331 et
seq., 1801 et seq.
Subpart H--Geothermal Resources
2. Revise Sec. 202.351 to read as follows:
Sec. 202.351 Royalties on geothermal resources.
(a)(1) Royalties on geothermal resources, including byproducts,
shall be at the royalty rate(s) specified in the lease, unless the
Secretary of the Interior temporarily waives, suspends, or reduces that
rate(s). Royalty value is determined under 30 CFR part 206, subpart H.
(2) Fees in lieu of royalties on geothermal resources are
prescribed in 30 CFR part 206, subpart H.
(3) Except for the amount credited against royalties for in-kind
deliveries of electricity to a state or county under 30 CFR 218.306,
you must pay royalties and direct use fees in money.
(b)(1) Royalties or fees are due on all geothermal resources,
except those specified in paragraph (b)(2) of this section, that are
produced from a lease and that are sold or used by the lessee or are
reasonably susceptible to sale or use by the lessee.
(2)(i) Geothermal resources that are unavoidably lost, as
determined by the Bureau of Land Management (BLM), and geothermal
resources that are reinjected prior to use on or off the lease, as
approved by BLM, are not subject to royalty or direct use fees.
(ii) The Minerals Management Service (MMS) will allow free of
royalty or fees a reasonable amount of geothermal energy necessary to
generate electricity for internal power plant operations or to generate
electricity returned to the lease for lease operations. If a power
plant uses geothermal production from more than one lease, or uses
unitized or communitized production, only that proportionate share of
each lease's production (actual or allocated) necessary to operate the
power plant may be used royalty free.
(iii) MMS will also allow royalty-free a reasonable amount of
commercially demineralized water necessary for power plant operations
or otherwise used on or for the benefit of the lease.
(3) Royalties on byproducts are due at the time the recovered
byproduct is used, sold, or otherwise finally disposed of. Byproducts
produced and added to stockpiles or inventory do not require payment of
royalty until the byproducts are sold, utilized, or otherwise finally
disposed of. The MMS may ask BLM to increase the lease bond to protect
the lessor's interest when BLM determines that stockpiles or
inventories become excessive.
(c) If BLM determines that geothermal resources (including
byproducts) were avoidably lost or wasted from the lease, or that
geothermal resources (including byproducts) were drained from the lease
for which compensatory royalty (or compensatory fees in lieu of
compensatory royalty) are due, the value of those geothermal resources,
or the royalty or fees owed, shall be determined under 30 CFR part 206,
subpart H.
(d) If a lessee receives insurance or other compensation for
unavoidably lost geothermal resources (including byproducts), royalties
at the rates specified in the lease (or fees in lieu of royalties) are
due on the amount of, or as a result of, that compensation. This
paragraph shall not apply to compensation through self-insurance.
3. Revise Sec. 202.353 to read as follows:
Sec. 202.353 Measurement standards for reporting and paying
royalties.
(a) For geothermal resources used to generate electricity, you must
report the quantity on which royalty is due on Form MMS-2014 (Report of
Sales and Royalty Remittance) as follows:
(1) For geothermal resources for which royalty is calculated under
30 CFR 206.352(a), (b)(2), and (b)(3), you must report quantities in:
(i) Kilowatt-hours to the nearest whole kilowatt-hour if the
contract specifies payment in terms of generated electricity;
(ii) Thousands of pounds to the nearest whole thousand pounds if
the contract for the geothermal resources specifies payment in terms of
weight; or
(iii) Millions of Btu's to the nearest whole million Btu if the
sales contract for the geothermal resources specifies payment in terms
of heat or thermal energy.
(2) For geothermal resources for which royalty is calculated under
30 CFR 206.352(b)(1), you must report the quantities in kilowatt-hours
to the nearest whole kilowatt-hour.
(b) For geothermal resources used in direct use processes, you must
report the quantity on which royalty or fee is due on Form MMS-2014 in:
(1) Millions of Btu's to the nearest whole million Btu if valuation
is in
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terms of thermal energy used or displaced;
(2) Millions of gallons to the nearest million gallons of
geothermal fluid produced if valuation is in terms of volume;
(3) Millions of pounds to the nearest million pounds of geothermal
fluid produced if valuation is in terms of mass; or
(4) Any other measurement unit MMS approves for valuation and
reporting purposes.
(c) For byproducts, you must report the quantity on which royalty
is due on Form MMS-2014 consistent with MMS-established reporting
standards.
(d) For commercially demineralized water, you must report the
quantity on which royalty is due on Form MMS-2014 in hundreds of
gallons to the nearest hundred gallon.
(e) You need not report the quality of geothermal resources,
including byproducts, to MMS. You must maintain quality measurements
for audit purposes. Quality measurements include, but are not limited
to:
(1) Temperatures and chemical analyses for fluid geothermal
resources; and
(2) Chemical analyses, weight percent, or other purity measurements
for byproducts.
PART 206--PRODUCT VALUATION
4. The authority for part 206 continues to read as follows:
Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et
seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et
seq.; 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq.; 1331 et
seq., 1801 et seq.
5-6. Revise subpart H to read as follows:
Subpart H--Geothermal Resources
Sec.
206.350 What is the purpose of this subpart?
206.351 What definitions apply to this subpart?
206.352 How do I calculate the royalty due on geothermal resources
used for commercial generation of electricity?
206.353 How do I determine transmission deductions?
206.354 How do I determine generating deductions?
206.355 How do I calculate royalty due on geothermal resources I
sell arm's-length to a purchaser for direct use?
206.356 How do I calculate royalty due on geothermal resources I use
for direct use purposes?
206.357 How do I calculate royalty due on byproducts?
206.358 What are byproduct transportation allowances?
206.359 How do I determine byproduct transportation allowances?
206.360 What records must I keep to support my calculations of
royalty or fees under this subpart?
206.361 How will MMS determine whether my royalty value, gross
proceeds, or fees are correct?
206.362 What are my responsibilities to place production into
marketable condition and to market production?
206.363 When is an MMS audit, review, reconciliation, monitoring, or
other like process considered final?
206.364 How do I request a value or gross proceeds determination?
206.365 Does MMS protect information I provide?
206.366 What is the nominal fee that a state, tribal, or local
government lessee must pay for the use of geothermal resources?
Subpart H--Geothermal Resources
Sec. 206.350 What is the purpose of this subpart?
(a) This subpart applies to all geothermal resources produced from
Federal geothermal leases issued pursuant to the Geothermal Steam Act
of 1970 (GSA), as amended by the Energy Policy Act of 2005 (EPAct) (30
U.S.C. 1001 et seq.). The purposes of this subpart are to prescribe how
to calculate royalties and fees for geothermal production.
(b) MMS may audit and adjust all royalty and fee payments.
(c) If the regulations in this subpart are inconsistent with:
(1) A Federal statute;
(2) A settlement agreement between the United States and a lessee
resulting from administrative or judicial litigation;
(3) A written agreement between the lessee and the MMS Director or
Assistant Secretary, Land and Minerals Management of the Department of
the Interior, establishing a method to determine the royalty from any
lease that MMS expects at least would approximate the value or royalty
established under this subpart, including a value or gross proceeds
determination under Sec. 206.364 of this subpart; or
(4) An express provision of a geothermal lease subject to this
subpart, then the statute, settlement agreement, written agreement, or
lease provision will govern to the extent of the inconsistency.
Sec. 206.351 What definitions apply to this subpart?
Affiliate means a person who controls, is controlled by, or is
under common control with another person. For purposes of this subpart:
(1) Ownership or common ownership of more than 50 percent of the
voting securities, or instruments of ownership, or other forms of
ownership, of another person constitutes control. Ownership of less
than 10 percent constitutes a presumption of noncontrol that MMS may
rebut.
(2) If there is ownership or common ownership of 10 through 50
percent of the voting securities or instruments of ownership, or other
forms of ownership of another person, MMS will consider the following
factors in determining whether there is control under the circumstances
of a particular case:
(i) The extent to which there are common officers or directors;
(ii) With respect to the voting securities, or instruments of
ownership, or other forms of ownership: the percentage of ownership or
common ownership, the relative percentage of ownership or common
ownership compared to the percentage(s) of ownership by other persons,
whether a person is the greatest single owner, or whether there is an
opposing voting bloc of greater ownership;
(iii) Operation of a lease, plant, pipeline, or other facility;
(iv) The extent of participation by other owners in operations and
day-to-day management of a lease, plant, pipeline, or other facility;
and
(v) Other evidence of power to exercise control over or common
control with another person.
(3) Regardless of any percentage of ownership or common ownership,
relatives, either by blood or marriage, are affiliates.
Allowance means a deduction in determining value for royalty
purposes.
Arm's-length contract means a contract or agreement between
independent persons who are not affiliates and who have opposing
economic interests regarding that contract. To be considered arm's
length for any production month, a contract must satisfy this
definition for that month, as well as when the contract was executed.
Audit means a review, conducted in accordance with generally
accepted accounting and auditing standards, of royalty or fee payment
compliance activities of lessees or other interest holders who pay
royalties, fees, rents, or bonuses on Federal geothermal leases.
Byproduct (or mineral) means products or minerals (exclusive of
oil, hydrocarbon gas, and helium), found in solution or in association
with geothermal steam, that no person would extract and produce by
themselves because they are worth less than 75 percent of the value of
the geothermal steam or because extraction and production would be too
difficult.
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Byproduct recovery facility means a facility where byproducts are
placed in marketable condition.
Byproduct transportation allowance means an allowance for the
reasonable, actual costs of moving byproducts to a point of sale or
delivery off the lease, unit area, or communitized area, or away from a
byproduct recovery facility. The byproduct transportation allowance
does not include gathering costs. You must report a byproduct
transportation allowance as a separ