Energy Interests Dominate Interior Departments Royalty Policy Committee

A Case Study in Crony CapitalismEnergy Interests Dominate Interior Departments Royalty Policy CommitteeA government committee meant to protect taxpayers is recommending huge gifts to the energy industry at the public's expense.

Energy & Natural Resources,  | Quick Take
Feb 28, 2018  | By  | 6 min read | Print Article

Originally published on February 28, 2018 in U.S. News & World Report

Today I am in Houston, Texas, to present comments at the second meeting of the Department of Interior’s Royalty Policy Committee. The committee, which was created in the spring of 2017, is charged with making recommendations to the Interior secretary to secure a fair value and return for the American taxpayer on the oil, gas, and coal and other resources developed from taxpayer-owned lands.

Since the committee’s charge overlaps with the goals of Taxpayers for Common Sense, we have been paying close attention. We were pleased that the new administration, early in its tenure, was voicing commitment to getting a fair return for taxpayers. Unfortunately, as I reported here when the members were announced last fall, we found the committee was well-represented with energy interests ready to profit from the committee’s recommendations, but lacked any independent taxpayer voice. (I volunteered to be that voice, as did other qualified people.) Even the few members included as public interest representatives have close affiliations with industry.

From what we can see so far, this is bad news for taxpayers. Spoiler alert: The committee appears to be poised to recommend that royalty rates be lowered for certain resources.

Over the years my organization has documented how royalty and leasing policies have cost taxpayers billions of dollars in lost revenue. From natural gas that is leaked, vented and flared, to millions of acres of leased and undeveloped oil and gas leases producing no royalties, to undervalued coal that skirts adequate royalty payments, to wind and solar development on public lands, we have dug into many of the Department of Interior’s energy leasing programs. In many cases, the policies that govern extractive activities on federal lands and waters are decades old and have not kept pace with changing markets or technology. And we are not alone in pointing out the department’s failure to protect taxpayers: Multiple General Accountability Office reports warn that oil, gas and coal companies are paying less than they should even under current rules.

The Royalty Policy Committee should be digging into these programs and making unbiased recommendations on how to receive the best deal for federal taxpayers. That is their charge, after all. But over the past four months the Royalty Policy Committee has been holding closed-door meetings for the three subcommittees formed at the first meeting in October: Tribal Affairs; Fair Value and Return; and Planning, Analysis, and Competitiveness. In the last several weeks notes from these private sessions began trickling out and in some cases included very troubling recommendations for the full committee. The notes revealed that proposed reforms often relied almost solely on industry input and even used language taken verbatim from industry comments. Talk about the fox guarding the hen house.

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The proposed recommendations, if implemented, are going to carry a heavy cost for taxpayers. One of the Royalty Policy Committee’s working groups’ recommendations is to lower royalty rates for outer continental shelf offshore oil and gas development from 18.75 percent to 12.5 percent. Offshore oil and gas royalty rates were raised to 18.75 percent in 2008 by Interior Secretary Dirk Kempthorne under President Bush. The Royalty Policy Committee’s new proposal would cost taxpayers valuable royalty revenue with little to no benefit to production. When rates were raised nearly 10 years ago, interest in offshore development did not decline, according to the Department of the Interior’s own records.

The recommendations go on to say that acreage for leasing should be increased and royalty rates for “costly fields” should be addressed. But if a lease is uneconomic using current technology and at current prices, then federal taxpayers cannot afford to step in and make it profitable. Fast-tracking more leasing also makes no fiscal sense when the industry already has millions of acres of undeveloped leases that are not currently generating any royalties. Let’s start by getting those to produce revenue.

Unless we see some dramatic changes, the Royalty Policy Committee could just be an echo chamber for the Trump administration’s agenda to fast-track leasing, decrease royalties and favor industry over federal taxpayers. Leaving all that the money on the table when we’re facing repeated budget crises is just bad business. That logic should make sense to both the president and industry.

The energy industry does not need any help looking out for their own interests. If the Royalty Policy Committee continues on the current path of closed door, industry-driven meetings, it will become a case study in crony capitalism.

The good news is that the Royalty Policy Committee still has time to turn the process around. The administration and the Royalty Policy Committee have a fiduciary duty to the American taxpayer. Let’s hope they remember that before it is too late.

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