2. ENERGY POLICY: Interior chief mulls royalty overhaul, Kerr-McGee appeal (E&ENews PM, 03/06/2009)

Noelle Straub, E&E reporter

The Interior Department likely will appeal a court ruling that could allow oil and gas producers in the Gulf of Mexico to jointly forgo billions of dollars in royalty payments, Interior Secretary Ken Salazar said today.

The department also has begun a comprehensive review of royalty collection, renewable energy and transmission siting issues, Salazar told reporters.

Asked about an approaching deadline on whether to appeal the offshore oil and gas case, Salazar said, "There is a good chance that we will appeal the circuit court decision to the U.S. Supreme Court, but we have not yet reached that decision."

The 5th U.S. Circuit Court of Appeals in January sided with Kerr-McGee Oil and Gas Corp. against the Interior Department in a closely watched dispute over royalty payments from deepwater gulf leases. Kerr-McGee was acquired by Anadarko Petroleum Corp. in 2006. Kerr-McGee was challenging the legality of price thresholds contained in leases issued in 1996, 1997 and 2000 (E&E Daily, Jan. 14).

The matter will be examined as part of a comprehensive review of onshore and offshore royalty issues, resulting in a legislative package Interior will send to Capitol Hill. Interior will consider organizational issues of the Minerals Management Service and Bureau of Land Management and their management of oil and gas resources and the collection of royalties, Salazar said. Any decisions are "probably several months away."

The driving force will be to ensure the American taxpayers are getting their just return from the assets, Salazar said. The analysis will include a comparison of royalty rates on state and private lands versus federal lands.

"I do not believe that we should be subsidizing the oil and gas industry," Salazar said. "We should get to a fair market value return."

The royalties could be used to boost the Land and Water Conservation Fund, which has been authorized at $900 million a year but funded only at about 10 percent of that, Salazar said.

Meanwhile, a central Gulf of Mexico oil and gas lease sale scheduled for March 18 will proceed, Salazar announced. The secretary will travel to New Orleans to participate in the auction itself and take a look at the development of oil and gas resources in the Gulf Coast.

House Republicans sent Salazar a letter yesterday stressing that the lease sale should not be delayed.

Renewable energy issues

On renewable energy, Salazar said the department is spending "a lot of time" looking at the process of siting of renewable energy facilities both onshore and offshore.

"One of the concepts that we have been exploring is the creation of energy zones," he said. "Right now, frankly, it's helter-skelter because whatever applications are coming in the door first are being processed. It seems to me that's not the right way of doing it. We ought to have a time and place relative to where these facilities are going to be located."

The department also is very concerned about transmission issues for renewable energy, he said. Officials have mapped out 5,000 miles of electric corridors in the West, which they are now trying to refine, and in the "not-too-distant future" will have a comprehensive announcement on that, he said.

The country must also develop a national grid system, Salazar said. Interior will work closely with the Energy Department and Congress to develop electric "highway system," he added.

The ideas are similar to a bill introduced by Senate Majority Leader Harry Reid (D-Nev.) yesterday that would give the Federal Energy Regulatory Commission expanded authority to site transmission lines within broad regional grid road maps to reach renewable energy zones.

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