The legal reasoning used by the Trump administration to delay a new rule that would have changed the way royalties are calculated on federal coal, oil, and gas was deeply flawed, according to a district court ruling last month. The rule change, put in place under President Obama and effective New Year's Day 2017, was intended to force companies to pay vastly higher royalties on coal removed from public lands; previously, a loophole allowed them to value that coal well below its real-world value.
One month after President Trump's inauguration, the administration set out to stop the industry-unfriendly rule change from happening. On February 22 the Office of Natural Resources Revenue, an agency within the Department of the Interior that collects royalties from industry, announced that it was postponing implementation of the valuation reform rule because of pending litigation brought by several major coal producers and western utilities. As justification, the Office of Natural Resource Revenue (ONRR) cited a provision that allows federal agencies to postpone rules that have not yet taken effect.
But the problem in this case is that the rule had already gone into effect. Companies were due to file their first reports under the new rule on February 28 and, according to ONRR's own calculations, royalty revenues were expected to grow by more than $70 million annually. The rule would have closed a loophole that allows coal companies to greatly undervalue what they owe the federal government by calculating royalties on sales to affiliates rather than the actual market value of the commodity (I wrote about this and its impact on coal states for Slate in June). California and New Mexico filed a lawsuit challenging the move and argued that, “an agency cannot 'postpone' the effective date of a rule when that effective date has already come and gone.”
The federal district court judge in California agreed and ruled that DOI's legal strategy was misguided, riddled with serious errors, and that postponement of the rule was “contrary to law.” The judge also faulted the department for trying to blur the line between the date the rule went into effect (January 1) and when companies were obligated to file their first reports under the new rule (February 28). The government tried to make the case that the effective date and compliance date were one and the same.
“By acting outside its statutory authority to in effect repeal the rule in February of 2017 without allowing the public to comment, ONRR improperly put the cart before the horse,” the judge wrote. Though the judge's decision likely won't impact the valuation rule — the department has since repealed the rule altogether — it could have consequences for other environmental regulations the Trump administration has been working to repeal or may seek to repeal in the future.
Indeed a similar lawsuit has been filed against the BLM for its postponement of the methane waste prevention rule, which is designed to reduce emissions during oil and gas drilling. The BLM used the same provision of the Administrative Procedure Act to postpone implementation of parts of the rule, citing the outcome of pending litigation. The methane rule went into effect on January 17. Lawsuits have also been filed against the Department of Energy, EPA, Department of Labor, and Department of Education for their alleged misapplication of the statute.
According to Shiloh Hernandez, a staff attorney with the Western Environmental Law Center, there's a greater likelihood that the methane waste prevention rule could be reinstated because efforts to repeal it have been delayed by congressional action and ongoing litigation.
“While the administration was able to repeal the coal valuation rule during the time that it was postponed, it has not been able to act as swiftly with the methane waste rule,” said Hernandez.
If the court comes to the same conclusion on the postponement of the methane rule, Hernandez added, there's a stronger case for reinstating it in the absence of an immediate replacement.
However Hernandez says this would depend on how long the court takes to rule on the legality of the postponement of the methane rule and whether DOI moves to repeal it before a decision is handed down.
The case is also before the Northern District of California.