01-13118. Small Refiner Administrative Fee

AGENCY:

Minerals Management Service, Interior.

ACTION:

Final rule.

SUMMARY:

The Minerals Management Service (MMS) is eliminating the cost recovery fees it charges small refiners to participate in the Small Refiner Royalty-in-Kind (RIK) Program. MMS believes these fees are no longer justified under the requirements of the Office of Management and Budget (OMB) Circular No. A-25.

EFFECTIVE DATE:

This rule is effective June 25, 2001.

FOR FURTHER INFORMATION CONTACT:

Paul A. Knueven, Chief, Regulations and FOIA Team, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 320B2, Denver, Colorado 80225-0165; telephone [phone]; FAX [phone]; e-mail [e-mail].

SUPPLEMENTARY INFORMATION:

The principal authors of this final rule are Larry Cobb, Royalty in Kind, Minerals Revenue Management, MMS, and Sarah L. Inderbitzin of the Office of the Solicitor, Department of the Interior.

I. Background

On September 26, 2000, MMS published a proposed rulemaking in the Federal Register (65 FR 57771) in which we proposed to remove the regulatory requirement to charge small refiners a fee to recover the costs of administering the small refiner RIK program (30 CFR 208.4(b)(4)). We reasoned that because of new competitive procedures for selling RIK oil, MMS receives market value for the oil. When the Government sells personal property under business-type conditions, user charges are based on market price and yield net revenues above the bureau's costs. Consequently, MMS is in compliance with the requirements in OMB Circular A-25 and does not need to assess a separate cost recovery fee for the small refiner RIK program.

MMS received one comment in response to our proposed rulemaking. A major oil company asked us to address an apparent inconsistency between language in the proposed rulemaking and the general provisions of the recently-promulgated Federal crude oil royalty valuation rule (65 FR 14022, March 15, 2000). The comment quoted a sentence from the proposed rulemaking: “The market-based prices are applicable spot market prices, with appropriate location, quality, and market-value adjustments for a particular area.” (65 FR at 57771) The commenter argued that this allegedly was in contrast to the Federal crude oil rule which, the commenter asserted, allows no additional adjustments above transportation and quality.

MMS believes there is no inconsistency between the pricing mechanism used by the small refiner program and the valuation requirements under the Federal crude oil rule. In both cases, if spot market index prices are used, adjustments for both location and quality are permitted, which account for the difference in value between the lease and the market center where the spot price is published. Accordingly, we believe the small refiner program and the Federal crude oil rule methodologies are consistent.

II. Procedural Matters

1. Summary Cost and Benefit Data

This final rule eliminates the fee charged small refiners to recover the costs of administering the small refiner RIK program. This rule imposes the following costs and benefits to the four groups affected by MMS regulations: industry, state and local governments, Indian tribes and allottees, and the Federal Government. The cost and benefit information in this Item 1 of Procedural Matters is used as the basis for the Departmental certifications in Items 2-11.

A. Industry

Small refiners will benefit from no longer paying an administrative fee (about $430,000 assessed across all active RIK contracts in calendar year 1999). However, small refiners will pay market value for RIK oil upfront rather than a typically lower price quoted by lessees upon removal from the lease and subsequently adjusted upward through audit. We believe that the combined financial impact of eliminating the fee while paying full market value for RIK oil will be a nominal revenue change to small refiners.

Eliminating the administrative fee will provide small refiners certainty in the prices they will pay for royalty oil. Pricing certainty allows small refiners to anticipate revenues and expenses more accurately and better plan future business activities. This benefit is not quantifiable at this time.

B. State and Local Governments

States are unaffected by the small refiner RIK program because they do not share in revenues accruing from Federal leases on the Outer Continental Shelf—the only leases participating in the program.

C. Indian Tribes and Allottees

Indian tribes and allottees are unaffected by the small refiner RIK program because they do not share in revenues accruing from Federal leases on the Outer Continental Shelf—the only leases participating in the program.

D. Federal Government

The U.S. Treasury General Fund will forego annual revenues of about $430,000—the administrative fee assessed across all active RIK contracts in calendar year 1999. However, with the changes to the RIK program that created the need for this rule, MMS will no longer have to rely on prices reported by third parties and impose separate cost recovery fees because we will receive full market value for our royalty oil. We believe that the combined financial impact of eliminating the fee while receiving full market value for RIK oil will be a nominal revenue change to the Federal Government.

MMS will achieve administrative savings because we will no longer have to take action to collect additional monies owed by small refiners when subsequent audits show that prices quoted by lessees understated the oil's market value. This benefit is not quantifiable at this time.

2. Regulatory Planning and Review (Executive Order 12866)

This document is not a significant rule and is not subject to review by the Office of Management and Budget under Executive Order 12866.

(1) This rule will not have an effect of $100 million or more on the economy. It will not adversely affect in a material way the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities.

(2) This rule will not create a serious inconsistency or otherwise interfere with an action taken or planned by another agency.

(3) This rule does not alter the budgetary effects of entitlements, grants, user fees, or loan programs or the rights or obligations of their recipients.

(4) This rule does not raise novel legal or policy issues.

3. Regulatory Flexibility Act

The Department of the Interior certifies that this rule will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). See item 1. Summary Cost and Benefit Data, A. Industry, above for further information on the impact of this rule on small businesses. The small refiner RIK program had approximately five participants in calendar year 1999, all of which were small businesses as defined by the U.S. Small Business Administration. By participating in the small refiner RIK program, these refiners obtain noteworthy benefits that will not be reduced or changed by this rulemaking:

• Access to a crude oil marketplace where the major integrated oil companies and large refiners account for the majority of the crude oil traded;
• A stable source of supply at equitable market-based prices which helps the small refiner sustain operations at or near normal operating capacity; and
• A vital source of trade stock, thereby creating the opportunity to “exchange” royalty oil for the quality or type of crude oil feed stock needed to sustain their mix of refined products.

4. Small Business Regulatory Enforcement Act (SBREFA)

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule:

a. Does not have an annual effect on the economy of $100 million or more.

b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, state, or local government agencies, or geographic regions.

c. Does 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.

5. Unfunded Mandates Reform Act

This rule does not impose an unfunded mandate on state, local, or tribal governments or the private sector of more than $100 million per year. The rule does not have a significant or unique effect on State, local, or tribal governments or the private sector. A statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531 et seq.) is not required.

6. Takings (Executive Order 12630)

In accordance with Executive Order 12630, this rule does not have significant takings implications. This rule does not impose conditions or limitations on the use of any private property; consequently, a takings implication assessment is not required.

7. Federalism (Executive Order 13132)

In accordance with Executive Order 13132, this rule does not have Federalism implications. This rule does not substantially or directly affect the relationship between the Federal and state governments or impose costs on States or localities.

8. Civil Justice Reform (Executive Order 12988)

In accordance with Executive Order 12988, the Office of the Solicitor has determined that this rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order.

9. Paperwork Reduction Act of 1995

This rule does not contain an information collection, as defined by the Paperwork Reduction Act, and the submission of Office of Management and Budget Form 83-I is not required.

10. National Environmental Policy Act

This rule does not constitute a major Federal action significantly affecting the quality of the human environment. A detailed statement under the National Environmental Policy Act of 1969 is not required.

11. Consultation and Coordination with Indian Tribal Governments

In accordance with Executive Order 13175, this rule does not have tribal implications that impose substantial direct compliance costs on Indian tribal governments.

List of Subjects in 30 CFR Part 208

• Continental shelf
• Government contracts
• Mineral royalties
• Natural gas
• Petroleum
• Public lands-mineral resources

Dated: May 17, 2001.

Piet deWitt,

Acting Assistant Secretary, Land and Minerals Management.

For the reasons set forth in the preamble, 30 CFR part 208 is amended as follows:

PART 208—SALE OF FEDERAL ROYALTY OIL

1. The authority citation for part 208 continues to read as follows:

Authority: 5 U.S.C. 301 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1701 et seq.; 31 U.S.C. 9701; 41 U.S.C. 601 et seq.; 43 U.S.C. 1301 et seq., 1331 et seq., and 1801 et seq.

§ 208.4

[Amended]

2. In § 208.4, remove paragraph (b)(4).