House Energy and Natural Resources Chairman Nick Rahall (D-W.Va.) introduced a bill yesterday to forge a new Interior agency to govern oil and gas leasing on federal lands and to overhaul the federal royalty system.
The far-reaching bill also includes measures to improve planning for offshore energy development, address wind and solar programs, and boost funding for ocean conservation and land acquisition. It comes largely as a response to a series of scandals and scathing government watchdog reports on the federal agencies that handle oil and gas drilling on public lands.
Trying to build immediate momentum for the measure, Rahall announced today that his committee will hold a two-part legislative hearing next Wednesday and Thursday on H.R. 3534. The measure as introduced contains some changes from a draft bill released by the House Natural Resources Committee's Democratic staff in May.
The legislation would create a new agency called the "Office of Federal Energy and Minerals Leasing" to handle onshore and offshore lease sales, inspection, enforcement and revenue collection. It would consolidate the oil and gas, wind, wave and solar programs now carried out by the Bureau of Land Management and the Minerals Management Service. The Interior inspector general would take over the current functions of the MMS audit and compliance management section.
The office's director would require Senate confirmation, unlike the head of MMS, which currently is the only major Interior bureau whose top official does not require confirmation. All employees of the new office who conduct audits or compliance reviews would have to meet professional auditor qualifications.
The bill would also eliminate the royalty-in-kind program, which allows industry to provide petroleum directly to Interior in lieu of royalty payments. A report by the Interior inspector general last year found that 19 employees, nearly one-third of the entire staff of the royalty-in-kind program, socialized with and received a wide array of gifts and gratuities from oil and gas companies with which the agency was conducting official business.
Other provisions include new "regional planning councils" for the outer continental shelf that would be made up of federal and state officials, industry, tribes and other stakeholders to undertake new strategic planning. The bill would also replace the current administrative process for onshore public-lands wind and solar projects with a commercial leasing program.
Royalty, conservation measures
The bill also aims to pressure oil companies to develop leases more quickly while raising several industry costs.
It would create new "diligent development" rules for onshore and offshore leases while imposing new fees on nonproducing leases. It also would raise onshore rental rates and impose "best management practices" on new leases. The bill would require onshore minimum royalty rates of 12.5 percent -- less than the 18.75 percent required under the draft bill.
The measure also would repeal provisions in a major 2005 energy law that expanded the offshore royalty waiver program called "royalty relief." It would eliminate federal reimbursement on interest accrued on overpayments made in error by lessees and increase penalties for inaccurate royalty reporting and payments.
And it would make a host of other changes aimed at improving Interior's royalty collections processes, which have been criticized in recent years by Interior's inspector general and the Government Accountability Office.
The bill would establish an Ocean Resources Conservation and Assistance Fund, dedicating a portion of outer continental shelf revenues to provide grants to coastal states and regional collaboratives for activities that protect or restore ocean, coastal and Great Lakes ecosystems.
The measure adds a provision not contained in the draft measure to provide full funding for the Land and Water Conservation Fund. It would require that $900 million in revenues generated primarily from oil and gas revenues be allocated to the fund annually without further appropriation.
The new bill doesn't spell out specific reforms prohibiting employees of the new office from accepting gifts from energy companies or a "revolving door" provision, as the draft measure did. Instead, it would require annual certification that all employees involved in royalty production oversight are in compliance with federal employee ethics laws and regulations.
Nor does the bill include a provision from the draft proposal requiring the new office to prepare five-year onshore leasing programs for 11 Western states and Alaska, similar to the five-year plans currently required for offshore leasing.
Oil industry officials and their allies had criticized the draft bill, saying it would be harmful to domestic production and would increase the price of energy. Environmental groups had praised the royalty management reforms, but some questioned whether a new "super leasing" office was needed (Greenwire, May 27).