[Federal Register Volume 62, Number 79 (Thursday, April 24, 1997)]
[Proposed Rules]
[Pages 19967-19985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10387]
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Parts 227, 228, and 229
RIN 1010-AC25
Delegation of Royalty Management Functions to States
AGENCY: Minerals Management Service, Interior.
ACTION: Proposed rulemaking.
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SUMMARY: The Minerals Management Service (MMS) proposes to add part 227
which authorizes the delegation of several Federal royalty management
functions to States.
Also, MMS proposes to amend its regulations at parts 228 and 229 to
remove references to cooperative agreements and delegations for Federal
lands under those parts. As a result, those parts would apply only to
Indian cooperative agreements and delegation agreements with States for
Indian lands within the State.
DATES: MMS will consider all comments received by May 27, 1997. We will
begin reviewing comments at that time and may not fully consider
comments we receive after May 27, 1997.
ADDRESSES: Comments should be sent to: David S. Guzy, Chief, Rules and
Procedures Staff, Royalty Management Program, Minerals Management
Service, PO Box 25165, MS 3101, Denver, Colorado 80225-0165, courier
delivery to Building 85, Denver Federal Center, Denver, Colorado 80225,
or e-Mail David__Guzy@smtp.mms.gov.
FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and
Procedures Staff, Royalty Management Program, Minerals Management
Service, telephone (303) 231-3432, Fax (303) 231-3194, e-Mail
David__Guzy@smtp.mms.gov.
SUPPLEMENTARY INFORMATION: The principal authors of this proposed
rulemaking are Larry Cobb, Jim Detlefs, Clare Onstad, Robert Prael,
Todd McCutcheon, John Russo, Dave Steiber, Cecelia Williams, and Sam
Wilson, MMS; and Peter Schaumberg and Sarah Inderbitzin of the Office
of the Solicitor.
Because section 3(d) of the Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996 requires the Secretary to
promulgate standards and regulations ``pertaining to authorities and
responsibilities to be delegated [to States] * * *'' within 12 months
of its enactment, i.e. by August 13, 1997, MMS is specifying a deadline
for comments that is less than the 60 days recommended in Executive
Order 12866. MMS has determined that it is not feasible to allow the
60-day comment period referred to in section 6(a)(1) of Executive Order
12866 because a comment period of that length would make it very
difficult to comply with the 12 month statutory deadline. MMS also
believes that a 30-day comment period is appropriate in this instance
because it previously provided both States and industry with the
opportunity to comment during the numerous outreach meetings discussed
above. Although MMS will consider late-filed comments to the greatest
extent practicable, RSFA's requirement that a final rule be issued
within 12 months of enactment will make it extremely difficult for MMS
to consider comments received after the 30-day period. Thus, MMS
believes that for these reasons, a 30-day comment period is
sufficiently long to allow the public a meaningful opportunity to
comment on the proposed rule in accordance with Executive Order 12866.
I. General
On August 13, 1996, Congress enacted the Federal Oil and Gas
Royalty Simplification and Fairness Act of 1996, Pub. L. 104-185, as
corrected by Pub. L. 104-200 (RSFA). The RSFA amends portions of the
Federal Oil and Gas Royalty 33 Management Act of 1982 (FOGRMA), 30
U.S.C. 1701 et seq. Prior to the RSFA enactment, section 205 of FOGRMA,
30 U.S.C. 1735, provided for the delegation of only audits,
inspections, and investigations to the States. The RSFA amendments to
section 205 now provide that the MMS may delegate other Federal royalty
management functions to requesting States.
The royalty management functions MMS may delegate under the RSFA
amendments are:
(1) Conducting audits and investigations;
(2) Receiving and processing production and royalty reports;
(3) Correcting erroneous report data;
(4) Performing automated verification; and
(5) Issuing demands, subpoenas (except for solid mineral and
geothermal leases), orders to perform restructured accounting, and
related tolling agreements and notices to lessees or their designees.
The RSFA amendments to section 205(d) also provide that within 12
months after the date of enactment, after consultation with the States,
the Secretary must issue standards and regulations pertaining to
delegable functions and other relevant responsibilities, including:
(1) Audits to be performed;
(2) Records and accounts to be maintained;
(3) Reporting procedures to be required by the States under this
section;
(4) Receipt and processing of production and royalty reports;
(5) Correction of erroneous report data;
(6) Performance of automated verification;
(7) Issuance of standards and guidelines in order to avoid
duplication of effort;
(8) Transmission of report data to the Secretary; and
(9) Issuance of demands, subpoenas, and orders to perform
restructured accounting, for royalty accounting purposes.
In response to the section 205 RSFA amendments, MMS formed the 205
Consultation Team, comprised of MMS, interested States, representatives
from State associations, and a representative of the Bureau of Land
Management (BLM) to discuss how to implement the delegation provisions
of the RSFA. In 1996, the 205 Consultation Team met on October 2,
October 10-11, and October 23-24. The result was the development of an
initial regulatory framework that MMS used to discuss the regulation at
three outreach meetings with States and to write the proposed
regulation. The 205 Consultation Team members agreed to the regulatory
framework in a teleconference held on December 2, 1996.
During the initial meetings with the 205 Consultation Team, State
representatives sought delegated functions in addition to those
provided in RSFA. These additional functions included collecting and
disbursing funds, processing and deciding appeals, and issuing civil
penalties. However, the Act does not allow MMS to delegate these
functions. Thus, MMS has reserved such functions because they are
necessary for uniform administration of the applicable statutes,
regulations, and policies and therefore are reserved, among other
[[Page 19968]]
reasons, to ``assure[] that a uniform and effective royalty management
system will prevail among the States.'' 30 U.S.C. 1735(d).
At the initial meeting with the 205 Consultation Team, State
representatives also asked MMS to delegate royalty management functions
for solid mineral leases, geothermal leases, and offshore leases
subject to section 8(g) of the Outer Continental Shelf Lands Act, 43
U.S.C. 1337(g). In this rulemaking, the MMS Director proposes to
delegate royalty management functions to States for such leases under
Pub. L. 102-154. This 1991 law provides authority for MMS to delegate
its royalty management functions to States for these leases. However,
because MMS does not have statutory authority to issue subpoenas for
solid mineral or geothermal leases, it cannot delegate to the States
the authority to issue subpoenas for such leases.
After its meetings with the 205 Consultation Team, MMS held
outreach meetings for the States in 1996 on December 11 in New Orleans,
LA., on December 12 in Denver, CO., and on December 13 in Oakland, CA.
At those meetings, MMS representatives explained the delegation
regulatory framework, discussed the concepts of the proposed regulation
with the State attendees, answered questions, and received feedback.
MMS also held outreach meetings for industry in early 1997, in
Houston, TX on January 7, in Albuquerque, NM on January 8, in Denver,
CO on January 9, and in Casper, WY on January 10. MMS again explained
the delegation regulatory framework, discussed the concepts of the
proposed regulation with the industry attendees, responded to
questions, and received feedback.
In addition, MMS will hold several outreach meetings in the spring
of 1997 at various locations to discuss the MMS Standards for
Delegation (Standards) document which will contain the detailed
standards that States must follow when performing delegated functions.
II. Indian Lands
MMS proposes to amend 30 CFR parts 228 and 229 to remove references
to cooperative agreements and delegations for Federal lands under those
parts. As a result, those parts would apply only to Indian cooperative
agreements and delegation agreements for audits, inspections, and
investigations with States for Indian lands within the State.
Section 8 of the Act provides that as of the Act's effective date,
Sec. 202 of FOGRMA, 30 U.S.C. 1732, which authorizes cooperative
agreements with Indian tribes and States to carry out audits and
related investigation and enforcement activities, no longer applies to
Federal lands. Thus, the proposed new section would limit the rules in
30 CFR part 228 to cooperative agreements with Indian tribes and States
to perform audits, inspections, and investigations for Indian lands.
Under those rules, any cooperative agreement with a State requires the
consent of the responsible Indian tribe or allottee.
Section 9 provides that the amendments made in Sec. 205 of the Act,
30 U.S.C. 1735, do not apply to Indian lands. For those lands, the
original FOGRMA Sec. 205 provisions for delegating audits, inspections,
and investigations will continue to apply. Therefore, MMS proposes to
keep the existing part 229 delegation rules but limit their
applicability to Indian lands. Under those rules, any delegation to a
State to perform audit and related investigative activities for Indian
lands within the State requires the consent of the affected Indian
tribe or allottee, and that provision is unaffected.
In a final rule, MMS may make some changes to parts 228 and 229 to
conform the language to principles of ``plain English'' that MMS is
implementing for all rules. These changes would not be substantive
except to remove any unnecessary references to Federal lands.
As an alternative proposal, MMS would like comment on whether it
should remove part 229 completely and incorporate delegations to States
for audits, inspections, and investigations on Indian lands into new
part 227.
Under this approach, only the new procedural provisions for that
delegation process would apply for Indian lands to the same extent as
for Federal lands. However, the additional delegable activities for
Federal lands added in the Act, such as issuing demands and subpoenas
and performing error correction, would not apply for Indian lands. In
addition, MMS would continue to require the concurrence of the affected
Indian tribe or allottee before any delegation would occur.
To aid public participation in this rulemaking, MMS will post
comments received on this proposed rule on the Internet at http://
www.rmp.mms.gov.
III. Section-by-Section Analysis
Section 229.1 What is the purpose of this part?
This section would explain that the purpose of this rule is to
provide procedures to delegate Federal royalty management functions to
States under section 205 of the Federal Oil and Gas Royalty Management
Act of 1982 (the Act), 30 U.S.C. 1735, as amended by the Federal Oil
and Gas Royalty Simplification and Fairness Act of 1996, Pub. L. 104-
185, August 13, 1996, as corrected by Pub. L. 104-200. Further, it
would explain that this part also provides procedures to delegate
similar functions to States for solid mineral leases, geothermal
leases, and leases subject to section 8(g) of the Outer Continental
Shelf Lands Act, 43 U.S.C. 1337(g), under Pub. L. 102-154. This section
also would explain that this part does not apply to any inspection or
enforcement responsibilities of BLM for onshore leases or the MMS
Offshore Minerals Management office for leases on the Outer Continental
Shelf. The respective agencies will issue any regulations for those
activities separately.
Section 227.100 What States may request delegation?
This section would explain which States may request a delegation of
royalty management functions under this rule.
Paragraph (a) would provide that States may request a delegation of
royalty management functions under this rule if the State has oil and
gas leases subject to the Act on Federal lands within that State.
Paragraph (b) would provide that States may request a delegation of
royalty management functions under this rule if the State has oil and
gas leases offshore of that State subject to section 8(g) of the Outer
Continental Shelf Lands Act, 43 U.S.C. 1337(g).
Paragraph (c) would provide that States may request a delegation of
royalty management functions under this rule if the State has solid
mineral leases or geothermal leases on Federal lands within that State.
Section 227.101 What royalty management functions may MMS delegate
to a State?
This section would list the functions that, under the Act, MMS may
delegate to States eligible to receive delegations as provided under
section 227.100 of this rule.
Paragraph (a) would provide that States may request to conduct
audits and investigations. For purposes of this rulemaking, this
paragraph would pertain only to audits and investigations related to
royalty management functions. However, MMS is interested in knowing
whether States having oil and gas leases subject to section 8g of the
Outer Continental Lands Act, 43 U.S.C. 1337(g) would be interested in
[[Page 19969]]
performing inspection functions on those leases.
Paragraph (b) would provide that States may request to receive and
process either production reports or royalty reports, or both as a
delegable function. RSFA added these functions to section 205(a)(2) of
the Act, 30 U.S.C. 1735(a)(2), which refers to ``financial reports.''
However, ``financial reports'' are royalty reports or other reports
lessees or their designees file in association with the payment of
royalties. Therefore, MMS would use the term ``royalty reports'' in
this rulemaking to encompass all financial reports.
Paragraph (c) would provide that States may request to correct
erroneous report data as a delegable function for either production
reports or royalty reports, or both. This is a new function which RSFA
added to section 205. States to which MMS has delegated this function
must assure that reporters correct reporting errors. States must
perform this function to allow MMS to enter correct production or
royalty data into the applicable MMS production or royalty database.
Paragraph (d) would provide that States may request to perform
automated verification activities as a delegable function. RSFA also
added this function to section 205. States to which MMS has delegated
this function must perform verification processes to resolve various
identified exceptions. Examples of exceptions include volume and
royalty rate discrepancies. The verification process would require the
State to perform manual research. If the State's manual research
identified exceptions, the State would require reporters to submit
corrected reports or pay additional royalties.
Paragraph (e) would provide that States may request to issue
demands, subpoenas (except for solid mineral and geothermal leases),
and orders to perform restructured accounting, including related
notices to lessees or their designees. This delegation would not
include any further enforcement authority. Thus, if a lessee or its
designee appeals a demand or order to perform restructured accounting,
that appeal would go to MMS. Further, any judicial action to enforce a
demand, order to perform restructured accounting or subpoena would be
MMS's responsibility together with the U.S. Department of Justice.
Paragraph (e) also would provide that States may request to enter
into tolling agreements with lessees or their designees in order to
toll the running of the 7-year statute of limitations on demands under
the Act. This paragraph would exclude issuing subpoenas for solid
mineral and geothermal leases for the reasons discussed above.
Section 227.102 What royalty management functions will MMS not
delegate?
This section would explain the principal royalty management
functions that MMS will not delegate. These functions are specifically
reserved to MMS and are not delegable under this rule.
Paragraph (a) would provide that MMS must collect all monies
received from sales, bonuses, rentals, royalties, civil penalties,
assessments and interest. This paragraph also would provide that MMS
must collect any monies a lessee or its designee pays because of audits
or other actions of a delegated State.
Paragraph (b) would provide that MMS must compare all cash and
other payments it receives with payments shown on royalty reports or
other documents, such as bills, to reconcile payor accounts. For
example, if a lessee or its designee pays MMS $100 but reports a $110
payment on its royalty report or other document, MMS must reconcile the
discrepancy. This paragraph also would provide that MMS must disburse
all appropriate monies to States and other revenue recipients,
including refunds and interest owed to lessees and their designees.
Paragraph (c) would provide that MMS will receive, process and
decide all administrative appeals from demands or other orders issued
to lessees and their designees including demands or orders a delegated
State issues. Thus, even if a State performs the audit and issues the
demand or order, lessees or their designees must continue to send the
notice of appeal to MMS, and MMS will process and decide those appeals.
A centralized appeals process is necessary for uniform administration
of the applicable statutes, regulations, and policies. Therefore, this
authority would be reserved, among other reasons, to ``assure[] that a
uniform and effective royalty management system will prevail among the
States.'' 30 U.S.C. 1735(d).
Paragraph (d) would provide that MMS will take all enforcement
actions other than issuing demands, subpoenas and orders to perform
restructured accounting. This paragraph also would provide that MMS
will issue notices of noncompliance and civil penalties, collect debts,
write off delinquent debts, pursue litigation, enforce subpoenas, and
manage alternative dispute resolution. Furthermore, this paragraph
explains that MMS will conduct, coordinate and approve all settlements
or other compromises of an obligation that a lessee or its designee
owes. Therefore, if a State receives a settlement request from a lessee
or its designee, the State must refer that request to MMS. However, MMS
will include States in settlement discussions as it currently does. As
with appeals, centralizing the decision of whether to issue a civil
penalty is necessary for uniform administration of the applicable
statutes, regulations, and policies. Therefore, the authority would be
reserved, among other reasons, to ``assure[] that a uniform and
effective royalty management system will prevail among the States.'' 30
U.S.C. 1735(d).
Paragraph (e) would explain that MMS will decide all valuation
policies, including issuing valuation regulations, determinations, and
guidelines, and interpreting valuation regulations. For example, MMS
must respond to industry requests for valuation determinations in
specific situations. Such valuation determinations have the effect of
an order and are appealable. MMS also must decide requests for
exceptions to the limitations on allowances and the exceptions for non-
arm's-length transportation and processing allowances. However, in the
course of audits, States may apply any MMS valuation policy, make
findings consistent with such policies, and issue orders in accordance
with such policies. The purpose of this paragraph is to maintain
uniform and consistent enforcement of applicable statutes and
regulations.
Paragraph (f) is a catch-all provision that would allow MMS to
reserve additional authorities and responsibilities not included in
paragraphs (a) through (e) of this section.
Section 227.103 What must a State's delegation proposal contain?
This section would provide that if a State wants MMS to delegate
royalty management functions to it, the State must submit a delegation
proposal to the MMS Associate Director for Royalty Management. This
section also would explain that a State's delegation proposal must
contain specific minimum information to help MMS assess its potential
to receive and perform delegated functions. Such information would
include a description of what facilities, personnel, and equipment the
State will need to perform delegated functions. It also would include
what facilities, personnel, and equipment the State currently has and
what it will need to obtain, and its resources to obtain such elements.
To assist States in preparing
[[Page 19970]]
their delegation proposals, this section also would provide that MMS
will help States with any technical assistance and information they may
need.
MMS specifically requests comments on additional information that
you believe would be important to include in a State's delegation
proposal.
Paragraph (a) would require the State to provide the name and title
of the State government official authorized to submit the delegation
proposal and execute the delegation agreement.
Paragraph (b) would require the State to provide the name, address,
and telephone number of the State contact for the delegation proposal.
Paragraph (c) would require the State to provide a copy of the
legislation, State Attorney General opinion or other document
demonstrating the State's authority to accept a delegation from MMS,
and receive State or Federal appropriations to perform delegated
functions. This documentation is necessary because States must show
that State laws and regulations allow the State to perform the
delegated functions it seeks.
Paragraph (d) would require States to provide the date they propose
to begin performing delegated functions.
Paragraph (e) would require States to provide a detailed statement
of the delegable functions that they propose to perform. In addition,
for each delegable function a State proposes to assume, the State must
describe the resources available in that State to perform each
function, the procedures the State will use to perform each function,
and how the State will assure that all Federal laws, lease terms,
regulations and relevant performance standards will be met.
Paragraph (e) also would require States to provide evidence that
the State has or will have the resources to perform each delegable
function. Thus, States would have to submit a description of the
personnel they have available to perform delegated functions, the
facilities the State will use to perform delegated functions, and the
equipment, including hardware and software, the State has available for
any of the delegable functions for which it is requesting delegation.
If a State did not currently have the personnel, facilities or
equipment necessary to perform delegated functions, it would have to
provide information on when it expects to have such resources
available.
Paragraph (f) would require a State to estimate the costs to fund
the personnel, facilities and equipment necessary to perform each
delegable function that the State proposes to perform.
Paragraph (g) would require States to submit their plans to fund
the costs of the resources described under paragraph (f), including any
items the State will ask MMS to fund under the delegation agreement.
Thus, this paragraph would require a State to describe the resources
available in the State to perform each delegable function.
Paragraph (h) would require States to provide a statement
identifying any areas where State law may limit its ability to perform
delegated functions. In addition, a State would have to explain what
actions it proposes to remove any such limitation.
Paragraph (i) would require States to provide a statement that in
accordance with section 203 of the Act, 30 USC 1733, persons who have
access to information received under delegated functions are subject to
the same provisions of law regarding confidentiality and disclosure of
that information as Federal employees. Applicable laws include the
Freedom of Information Act (FOIA), the Trade Secrets Act, and relevant
Executive Orders. In addition, your statement must acknowledge that all
documents produced, received, and maintained as part of any delegation
functions are agency records for purposes of FOIA. All requests for
records or other information under the applicable laws would be subject
to MMS's review and approval.
Section 227.104 What will MMS do when it receives a State's delegation
proposal?
This section would explain that MMS will record the date it
receives a State's delegation proposal. This section also would explain
that MMS will notify the State in writing whether its delegation
proposal is complete within 15 business days of the recorded date. When
MMS notifies a State that its delegation proposal is not complete, MMS
will identify any missing items section 227.103 requires. Once a State
submits all required information, MMS will notify the State in writing
the date its delegation proposal is complete. The date the delegation
request is ``complete'' is important because under proposed section
227.107, MMS would decide whether to approve a delegation proposal
within 90 days after it is complete.
Section 227.105 What are the hearing procedures?
This section would explain the public hearing procedure that will
occur after MMS notifies a State that its delegation proposal is
complete. The hearing procedures would assure that the State has
demonstrated it has adequate resources to carry out the requested
delegation, that it will carry out the requested delegation upon
receipt of its delegation agreement, that it will effectively and
faithfully administer all applicable statutes and regulations, that it
will not impose any additional burdens on lessees or their designees,
and that it will cooperate with any MMS, General Accounting Office or
Office of the Inspector General reviews. The hearing also is to allow
other persons to present their views regarding the State's delegation
proposal.
Paragraph (a) explains that the MMS Director will appoint a hearing
official to conduct one or more public hearings for fact finding
regarding a State's ability to assume the delegated functions it
requested. Because the public hearing is purely a fact finding
procedure, this paragraph makes clear that the hearing official is not
responsible for deciding whether to approve a State's delegation
request. The remaining paragraphs of this proposed section are self-
explanatory.
Section 227.106 What statutory requirements must a State meet to
receive a delegation?
This section would make clear that the MMS Director will decide
whether to approve a State's delegation request and will ask the
Secretary of the Interior to concur in the decision. This section would
provide that the MMS Director's decision is solely within the MMS
Director's and the Secretary's discretion. This section also would
provide that the MMS Director's decision in which the Secretary concurs
in is the final decision for the Department of the Interior. Thus, the
decision is not subject to appeal to the Interior Board of Land Appeals
under 43 CFR part 4.
In addition, this section would provide that the MMS Director may
approve a State's request for delegation only if, based upon the
State's delegation proposal and the hearing record, the MMS Director
finds that the State meets the statutory requirements under section
205.
Under paragraph (a), the MMS Director would have to find that it is
likely that the State will provide adequate resources to achieve the
purposes of the Act. Thus, States must show a commitment of State
resources adequate to perform the requested delegable functions. This
would include evidence that the State has the proper appropriation from
the State legislature.
Under paragraph (b), the MMS Director would have to find that the
State has demonstrated that it will effectively and faithfully
administer the
[[Page 19971]]
rules and regulations of the Secretary under the Act in accordance with
the requirements of subsections (c) and (d) of section 205 of the Act.
The purpose of this proposed paragraph is for States to demonstrate
their ability to effectively administer a royalty management system
that will be uniform among the States. The purpose of this requirement
also is to allow a smooth, efficient transition of delegable functions
to States.
Under paragraph (c), the MMS Director would have to find that a
State's delegation will not create an unreasonable burden on any
lessee. The purpose of this section is to ensure that lessees are not
subject to duplicate requirements from MMS and one or more delegated
States. While lessees may have some increased reporting burdens because
of multiple reporting entities, MMS does not consider that an
unreasonable burden given the Act's intent.
Under paragraph (d), the MMS Director would have to find that the
State agrees to adopt standardized reporting procedures MMS prescribes
for royalty and production accounting purposes, unless the State and
all affected parties (including the Secretary and lessees and their
designees) otherwise agree. For example, a State would have to adopt
the MMS Report of Sales and Royalty Remittance (Form MMS-2014) and the
MMS Monthly Report of Operations (Form MMS-3160) reporting formats,
unless all affected parties and the Secretary agree to an alternate
procedure that fulfills MMS's reporting requirements.
Under paragraph (e), the MMS Director would have to find that the
State agrees to follow and adhere to regulations and guidelines MMS
issues under the mineral leasing laws regarding valuation of
production. Thus, a State requesting delegation must agree to follow
all Federal laws, regulations, and Secretarial and agency
determinations and orders relating to the calculation, reporting and
payment of mineral revenues. The purpose of this paragraph is to ensure
uniform application of the royalty management program among the
delegated States.
Under paragraph (f), the MMS Director would have to find that where
necessary for a State to carry out and enforce a delegated activity,
the State agrees to enact such laws and promulgate such regulations as
are consistent with relevant Federal laws and regulations. Thus, a
State applying for delegation would be required to provide evidence
that the State is authorized under State laws to perform delegable
functions. If a State is not so authorized, then it may be required to
enact laws authorizing performance of those functions before the MMS
Director will approve the State's delegation proposal.
Section 227.107 When will the MMS Director decide whether to approve a
State's delegation proposal?
This section would state that the MMS Director will decide whether
to approve a State's delegation proposal within 90 days after its
delegation proposal is complete. Under the Act, 30 U.S.C. 1735(c), MMS
has 90 days after a State submits its delegation proposal to decide
whether to approve the delegation proposal. However, the Act does not
explain what constitutes a delegation proposal sufficient to start the
90-day period running. Therefore, as part of the Secretary's rulemaking
authority under the Act, 30 U.S.C. 1751(a), MMS interprets the 90-day
period to run from the date a State's delegation proposal is complete.
This interpretation would avoid MMS unnecessarily rejecting a State's
proposal merely because some portion of it is incomplete. This section
would also provide that MMS may extend the 90-day period with a State's
written consent.
Section 227.108 How will MMS notify a State of its decision?
This section would provide that MMS will notify the State in
writing of its decision on the State's delegation proposal. In
addition, this section would explain that after MMS approves a State's
delegation proposal, MMS will hold discussions with the State to
develop a delegation agreement detailing the delegable functions which
the State will perform and the standards and requirements the State
must comply with to perform those functions.
Section 227.109 What if the MMS Director denies a State's delegation
proposal?
Under this proposed section, if the MMS Director denies a State's
proposal, MMS will state the reasons for denial. MMS also will inform
the State in writing of the conditions it must meet to receive
approval. In addition, this section would provide that a State may
submit a new delegation proposal at any time following a denial.
Section 227.110 How long are delegation agreements effective?
This section would explain how long delegation agreements issued
under this part remain in effect as well as procedures for renewal of
delegation agreements.
Paragraph (a) would provide that delegation agreements are
effective for 3 years.
Paragraph (b) would explain that after 3 years a State may ask MMS
to renew its delegation for an additional 3 years. This section also
would explain that States must submit their renewal request to the MMS
Associate Director for Royalty Management within 6 months prior to the
expiration of the 3-year delegation agreement. Paragraph (b)(1) would
provide that if a State does not want to change the terms of its
delegation agreement, it need only ask MMS to extend its existing
agreement for the 3-year renewal period. In such instances, MMS will
not schedule a hearing unless the State requests one. Paragraph (b)(2)
would explain that if a State wants to change the terms of its
delegation agreement for the renewal period, full review is required.
Therefore, in this situation, the State must submit a new delegation
proposal under this part.
Paragraph (c) would explain that the MMS Director would approve a
State's renewal request only if MMS determines that the State is
meeting the requirements of the applicable standards and regulations.
Further, it would explain that if the MMS Director denies a State's
renewal request, MMS will state the reasons for denial. In addition,
MMS would inform a State in writing of the conditions it must meet to
receive approval. This section also would provide that a State may
submit a new renewal request at any time following a denial, but not
after your current agreement expires.
Paragraph (d) would provide that after the 3-year renewal period
for a State's delegation agreement ends, the State must request a new
delegation agreement from MMS under this part. It also would explain
that MMS will not hold a hearing on the State's new delegation
agreement unless the State requests one or it wants to change the terms
of its delegation agreement. Further, it would explain that as part of
the MMS Director's decision whether to approve a State's request for a
new delegation, the MMS Director will consider whether the State is
meeting the requirements of the applicable standards and regulations
under its existing delegation agreement.
Existing Delegations
Section 227.111 Do existing delegation agreements remain in effect?
This section would explain a State's options if it is operating
under a delegation in effect on the date these regulations become
final.
[[Page 19972]]
Paragraph (a) would explain that a State not wanting to perform any
new royalty management functions in addition to those authorized under
its existing delegation agreement may continue under that agreement
until it expires. After the delegation agreement expires, a State would
have to receive a new delegation agreement meeting the requirements of
these regulations and the applicable standards.
Paragraph (b) would explain that a State wanting to perform royalty
management functions in addition to those authorized under its existing
agreement must submit a delegation proposal under this part. Thus, any
State wanting to perform the delegable functions under this part in
addition to those provided for under its existing delegation agreement
must submit a delegation proposal under this part for all delegable
functions it wishes to perform, including those under its existing
agreement.
Paragraph (c) would provide that MMS may extend any delegation
agreement in effect on the date these regulations become final for up
to 3 years beyond the date it is due to expire. The purpose of this
paragraph is to provide States whose existing delegation agreements are
due to expire shortly after these rules become final with enough time
to prepare a delegation proposal under this part and to receive
authority to accept a delegation from MMS and receive State or Federal
appropriations to perform delegated functions as required under section
227.103(c)(2) of this part.
Compensation
Section 227.112 What compensation will a State receive to perform
delegated functions?
This section would provide that a State would receive compensation
for its costs to perform each delegation function. This section also
would provide the conditions for a State to receive compensation.
Paragraph (a) would provide that compensation for costs would be
subject to agency fiscal appropriations. Thus, if Congress does not
pass a budget or continuing resolution, MMS will not have the funds
available to pay the States.
Paragraph (b) would provide that compensation could not exceed the
reasonable anticipated expenditures that MMS would incur to perform the
same function. Thus, a State's compensation would be limited to the
amount it would cost the MMS to perform the same function. For example,
if it costs MMS $1,000 to perform error correction on a State's leases,
then $1,000 is the maximum amount a State could receive to perform its
own error correction.
Paragraph (c) would provide that the cost for which a State
requests compensation must be directly related to its performance of a
delegated function and necessary for performance of that delegated
function. For example, MMS will not compensate a State for employees
who perform delegated royalty management functions to attend an
environmental conference because environmental studies are not a
delegated function. An additional example is that MMS will not
compensate a State for performing audits of State leases even though
the same audit may cover Federal leases.
Generally, MMS will compensate for items related to performing
royalty management delegations, such as, rent or lease of office space,
salary, employee benefits, supplies, equipment, and travel. For
example, MMS would compensate for reasonable purchase of office
personal computers, but would not compensate for purchase of a
mainframe computer.
Paragraph (d) would provide that States would be required to
provide vouchers detailing their expenditures quarterly or monthly
during the fiscal year as stated in their delegation agreement.
Paragraph (e) would provide that States would be required to
maintain adequate books and records to support their vouchers.
Paragraph (f) would provide that MMS would pay a State quarterly or
monthly during the fiscal year as stated in the State's delegation
agreement.
Paragraph (g) would provide that MMS could withhold compensation
for a State's failure to properly perform a delegated function whether
or not MMS takes any action under sections 227.801 or 227.802 of this
part.
States' Responsibilities To Perform Delegated Functions
Section 227.200 What are a State's general responsibilities if it
accepts a delegation?
This section would explain what general responsibilities a State
must perform for each delegated function. Specific requirements would
be explained in sections 227.300, 227.301, 227.400, 227.401, 227.500,
227.501, 227.600, and 227.601 of this part, the State's delegation
agreement, and the Standards.
Paragraph (a) would provide that States must operate in compliance
with all Federal laws, regulations, and Secretarial and agency
determinations and orders relating to the calculation, reporting, and
payment of mineral royalties and other revenues. Under this paragraph,
States also would be required to submit a written request for
interpretation of any applicable Federal requirement to the appropriate
MMS official. The purpose of this requirement is to maintain uniform
and consistent application of Federal requirements in order to minimize
the burden on lessees. MMS will respond to a State's request for
guidance in writing, and States must follow the interpretation or
guidance given.
Paragraph (b) would provide that States must comply with Generally
Accepted Accounting Principles (GAAP). Paragraphs (b) (1)-(5) explain
what GAAP requirements would pertain to performing royalty management
functions.
Paragraph (c) would require States to assist MMS in meeting the
requirements of the Government Performance and Results Act (GPRA) as
well as assisting in developing and endeavoring to comply with the MMS
Strategic Plan and Performance Measurements.
Paragraph (d) would require a State to maintain all records it
obtains or creates under its delegated functions, such as royalty
reports, production reports, and other related information. States
would be required to maintain such records in a safe, secure manner,
including taking appropriate measures for protecting confidential and
proprietary information and assisting MMS in responding to Freedom of
Information Act requests when necessary. This paragraph also would
require States to maintain such records for at least 7 years.
Paragraph (e) would require States to provide reports to MMS about
any activities it performs under its delegated functions. MMS will
specify in a State's delegation agreement and the Standards what
reports a State must submit and how often it must submit them. The rule
would provide that at a minimum, a State must provide periodic
statistical reports to MMS summarizing the activities it carried out,
such as:
(1) Production and royalty reports processed;
(2) Erroneous reports corrected;
(3) Results of automated verification resolution efforts;
(4) Number of audits performed; and
(5) Enforcement documents issued.
Paragraph (f) would require States to assist MMS in maintaining
adequate reference, royalty, and production databases as provided in
the Standards. Thus, States would provide corrected reference data to
MMS such as: lease acreage, lease ownership, royalty rates,
[[Page 19973]]
unit and communitization agreement allocation factors, and payor
information. States will have access to the reference database for use
in various delegated functions. However, MMS will update reference data
and maintain the reference database.
Paragraph (g) would require States to develop annual work plans
that:
(1) Specify the work the State will perform for each delegated
function; and
(2) Identify the resources the State will commit to perform each
delegated function. This would include the personnel, facilities, and
equipment the State will commit to perform each delegated function.
Paragraph (h) would require States to help MMS respond to requests
for information from other Federal agencies, Congress, and the public.
Thus, MMS would be responsible for responding to such requests with the
State's assistance.
Paragraph (i) would require that States cooperate with MMS's
monitoring of their delegated functions. For example, States must make
financial records available to MMS to facilitate the fiscal examination
MMS performs as part of monitoring the State's delegated functions
under Sec. 227.800(b)(2).
Paragraph (j) would require States to comply with the Standards as
required under Sec. 227.201.
Section 227.201 What standards must a State comply with for performing
delegated functions?
This section would explain a State's requirements to comply with
standards for performing delegated functions. In addition to the
requirements for performing royalty management functions under this
part and a State's delegation agreement, MMS will set out additional
requirements in the Standards. MMS will provide each delegated State
with the Standards.
Paragraph (a) would provide that if MMS delegates royalty
management functions to a State, it must comply with the Standards. The
Standards would provide guidelines for States to carry out specific
delegable functions. For example, the Standards will explain the
appropriate standards of accuracy, timeliness, and efficiency for
States to carry out each delegated function.
Paragraph (b) would provide that a State's delegation agreement may
include standards in addition to those in the Standards which
specifically apply to the functions delegated to that State.
Paragraph (c) would provide that if a State fails to comply with
its delegation agreement, the Standards, or any of the specific
standards and requirements in the delegation agreement, that would be
grounds for termination of all or part of its delegation agreement, or
other actions as provided under Secs. 227.801 and 227.802.
Paragraph (d) would provide that MMS may revise the Standards and
will provide notice of those changes in the Federal Register. This
paragraph also would provide that States must comply with any changes
to the Standards.
MMS would suggest formation of an advisory committee comprised of
States receiving delegations and MMS representatives. The committee
would be responsible for providing advice and recommendations about the
standards and procedures required for the performance of delegable
functions. MMS would like comments on this suggestion.
Section 227.300 What audit functions may a State perform?
This section would explain generally that an audit consists of an
examination of records to verify that royalty reports and payments
accurately reflect actual production, sales, revenues and costs, and
compliance with Federal statutes, regulations, lease terms, and MMS
policy determinations. This section would then provide the minimum
functions a State must perform if it requests delegation of audit
functions. Thus, a State must perform all of the functions in this
section if it requests delegation of audit functions.
Paragraph (a) would require States to issue engagement letters
informing the lessee that the State has begun an audit. This would
ensure that lessees receive maximum advance notification of scheduled
audits and have adequate time to furnish requested information.
Paragraph (b) would require States to arrange for entrance
conferences to facilitate the lessees' understanding of the audit
process, enhance the effectiveness of the initial site visit, designate
audit coordinators, and clarify policies regarding confidentiality.
Paragraph (c) would require States to submit requests for records
to lessees requesting information necessary to perform the audit.
Paragraph (d) would require States to schedule site visits to
examine the information the State has requested. States would be
required to schedule site visits sufficiently in advance to allow
lessees ample time to arrange space for the auditors and to have the
requested information available.
Paragraph (e) would require States to examine royalty and
production reports to determine whether royalties and production
volumes were properly reported and paid.
Paragraph (f) would require States to examine lessee production and
sales records, including contracts, payments, invoices, and
transportation and processing costs to substantiate that production
volumes and royalties were correctly reported and paid.
Paragraph (g) would require States to hold closeout conferences to
inform lessees that site visits are complete and to summarize audit
findings to date.
Paragraph (h) would require States to issue records releases and
audit closure letters to lessees upon completion of an audit, as
necessary.
Paragraph (i) would require States to provide assistance to MMS
regarding appealed demands or orders, including preparing field
reports, performing remanded actions, modifying orders, and providing
oral and written briefing and testimony as expert witnesses. Thus,
although MMS would decide all appeals, it would rely on States to
provide any information or assistance necessary for deciding appeals
and developing the administrative record.
Section 227.301 What are a State's responsibilities if it performs
audits?
This section would explain a State's general responsibilities if it
accepts delegation of the audit functions required under section
227.300. The Standards and a State's delegation agreement would contain
more specific responsibilities a State must perform if it accepts
delegation of audit functions.
Paragraph (a) would require States performing audits to comply with
the MMS Audit Procedures Manual and the Government Auditing Standards
the Comptroller General of the United States issues.
Paragraph (b) would require States to follow the MMS Annual Audit
Work Plan and 5-year Audit Strategy, which MMS will develop in
consultation with States having delegated audit authority.
Paragraph (c) would require States to agree to undertake special
audit initiatives MMS identifies which target specific valuation or
volume issues such as gas contract settlements and crude oil valuation.
Paragraph (d) would require States to prepare, construct, or
compile audit work papers under the appropriate procedures, manuals,
and guidelines.
Paragraph (e) would require States to prepare and submit any audit
reports required in MMS Audit Work Plans and the Standards.
Paragraph (f) would require States to comply with procedures for
appealed demands or orders, including using
[[Page 19974]]
appropriate format and content for field reports and meeting
timeframes.
Section 227.400 What functions may a State perform in processing
production reports or royalty reports?
This section would explain that production reporters or royalty
reporters provide production, sales, and royalty information on mineral
production from leases which must be collected, analyzed, and
corrected. States may receive and process production reports or royalty
reports, or both. This section would provide the minimum functions a
State must perform if it requests delegation of authority to process
production reports or royalty reports, or both.
Paragraph (a) would provide that if a State requests delegation of
either production report or royalty report processing functions, it
must perform certain minimum functions. Thus, a State must perform all
of the functions in paragraph (a) if it requests delegation of either
production or royalty report processing functions, or both. The minimum
functions States must perform are:
(i) Receiving, identifying, and date stamping production reports or
royalty reports;
(ii) Processing production or royalty data to allow entry into a
data base. MMS uses such data to disburse money to the proper entities
and to provide data to States and other affected Federal agencies;
(iii) Creating copies of reports by means such as electronic
imaging. This requirement creates an audit record and allows for use of
the copies in other functions such as automated verification and
audits;
(iv) Timely transmitting production report or royalty report data
to MMS and other affected Federal agencies as provided in the State's
delegation agreement and the Standards. For example, MMS transmits a
biweekly tape of production data to BLM and monthly production data to
the Bureau of Indian Affairs (BIA), States, and Indian tribes;
(v) Providing training and assistance to production reporters or
royalty reporters. For example, MMS holds periodic training meetings.
MMS also would expect delegated States to hold these meetings. States
processing reports also must provide telephone or written assistance to
reporters who have questions on how to report certain transactions;
(vi) Providing production data or royalty data to appropriate
Federal agencies upon request. For example, States would be required to
provide production data to BLM upon request; and
(vii) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, performing remanded actions,
modifying orders, and providing oral and written briefing and testimony
as expert witnesses.
Paragraph (b) would explain that if a State requests delegation of
either production report or royalty report processing functions, or
both, it may perform certain additional functions authorized under the
Act. Unlike the functions required under paragraph (a) of this section,
performance of the functions in this paragraph would not be mandatory.
The optional functions would include:
(i) Granting exceptions from reporting and payment requirements for
marginal properties; and
(ii) Approving alternative royalty and payment requirements for
unit agreements and communitization agreements.
Section 227.401 What are a State's responsibilities if it processes
production reports or royalty reports?
This section would explain what general responsibilities a State
must perform if it accepts delegation of the processing functions
required under section 227.400 for production reports or royalty
reports or both. The Standards and a State's delegation agreement would
contain more specific responsibilities a State must perform if it
accepts delegation of report processing functions. States must perform
the following minimum report processing functions:
(a) Process reports accurately and timely as provided in the
Standards and the State's delegation agreement;
(b) Identify fatal errors for subsequent error correction that the
State or MMS performs;
(c) Accept multiple forms of electronic media from reporters, as
MMS specifies. For example, States must be able to accept electronic
data interchange, magnetic or cartridge tapes, diskettes reporters
prepare, e-mail, model diskettes, and template diskettes;
(d) Timely transmit required production or royalty data to MMS and
other affected Federal agencies. For example, MMS transmits a biweekly
tape of production data to BLM and a monthly tape to BIA and States. A
State delegated the function of performing processing of report
functions would be required to timely transmit the required data to the
appropriate agency;
(e) Access well, lease, agreement, and reporter reference data from
MMS and provide updated information to MMS. BLM uses this information
for field inspections. MMS uses it in performing other royalty
management functions such as automated verification and audits;
(f) For production reports, maintain adequate system software edits
to ensure compliance with the provisions of 30 CFR part 216, the PAAS
Onshore Oil and Gas Reporter Handbook, the PAAS Reporter Handbook-
Lease, Facility/Measurement Point, and Gas Plant Operators, the PAAS
Solid Minerals Reporter Handbook, any interagency memorandums of
understanding to which MMS is a party, and the Standards. For example,
when a reporter submits a production report, the lease number reported
must match the lease number in the database;
(g) For royalty reports, maintain adequate system software edits to
ensure compliance with the provisions of 30 CFR part 218, the Oil and
Gas Payor Handbook, Volume II, the Solid Minerals Payor Handbook,
``Dear Payor'' letters, and the Standards. For example, the lease must
be a valid lease in the system and the correct payor must pay on the
lease; and
(h) Comply with the procedures for appealed demands or orders,
including using appropriate format and content for field reports and
supplementals and meeting timeframes.
Section 227.500 What functions may a State perform to assure that
reporters correct erroneous report data?
This section would explain that production data and royalty data
are subjected to numerous edits for errors which ensure that what is
reported is correct, that disbursement is made to the proper recipient,
and that correct data are used for other functions such as automated
verification and audits. States may perform error correction functions
for production reports or royalty reports, or both. This section would
provide the minimum functions a State must perform if it requests
delegation of authority to correct erroneous report data for production
reports or royalty reports, or both. The minimum error correction
functions a State must perform are:
(a) Correcting all fatal errors and assigning appropriate
confirmation indicators. Confirmation indicators are used for tracking
purposes and for generating confirmation reports to operators;
(b) Verifying missing production reports to ensure that all reports
are received to assist BLM in field inspections and MMS in other
functions such as automated verification and audits;
[[Page 19975]]
(c) Contacting production reporters or royalty reporters about
missing reports and resolving exceptions. States would be required to
contact reporters by phone and request that they submit additional data
and amended reports. If phone contact does not resolve the issue, the
State would be required to send a letter or issue an order to the
reporter;
(d) Documenting all corrections made, including providing
production reporters or royalty reporters with confirmation reports of
any changes;
(e) Providing training and assistance to production reporters or
royalty reporters. For example, MMS routinely advises reporters on how
to prepare their production and royalty reports. In addition, MMS holds
reporter training sessions throughout the country several times a year.
MMS also would expect delegated States to advise reporters on preparing
their reports and to hold such training sessions.
(f) Issuing notices and bills as needed, including but not limited
to, imposing assessments on a person who chronically submits erroneous
reports; and
(g) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, performing remanded actions,
modifying orders, and providing oral and written briefing and testimony
as expert witnesses.
Section 227.501 What are a State's responsibilities to assure that
reporters correct erroneous data?
This section would explain what general responsibilities a State
must perform if it accepts delegation of the error correction functions
required under section 227.500 for production reports or royalty
reports, or both. The Standards and a State's delegation agreement
would contain more specific responsibilities a State must perform if it
accepts delegation of error correction functions. States must perform
the following minimum error correction functions:
(a) Ensure compliance with the provisions of 30 CFR parts 216 and
218, any applicable handbook specified under 30 CFR 401 (f) and (g),
inter-agency memorandums of understanding to which MMS is a party, and
the Standards;
(b) Assure that reporters accurately and timely correct all fatal
errors as designated in the Standards. These errors include, for
example, invalid or incorrect reporter/payor codes, incorrect lease/
agreement numbers, and missing data fields. The Standards would list
fatal edits for both production reports and royalty reports;
(c) Submit accepted and corrected lines to MMS to allow processing
into the Auditing and Financial System (AFS) and the Production
Accounting and Auditing System (PAAS) in a timely manner as provided in
the Standards and 30 CFR 219; and
(d) Comply with the procedures for appealed demands or orders,
including using appropriate format and content for field reports and
meeting timeframes.
Section 227.600 What automated verification functions may a State
perform?
This section would explain that automated verification involves
systematic monitoring of production and royalty reports to identify and
resolve reporting or payment discrepancies. This section would provide
the minimum functions a State must perform if it requests delegation of
automated verification functions.
Paragraph (a) would provide that States may perform automated
comparison of sales volumes reported by royalty reporters to sales and
transfer volumes reported by production reporters. Paragraph (a) also
would provide that if a State requests delegation of automated
comparison of sales and production volumes, it must perform at least
the following functions:
(1) Performing an initial sales volume comparison between royalty
and production reports;
(2) Performing subsequent comparisons when reporters adjust royalty
or production reports;
(3) Checking unit prices for reasonable product valuation based on
reference price ranges MMS provides;
(4) Resolving volume variances using written correspondence,
telephone inquiries, or other media;
(5) Maintaining appropriate file documentation to support case
resolution; and
(6) Issuing orders to correct reports or payments.
Paragraph (b) would provide that a State requesting delegation of
authority to perform automated comparison of sales and production
volumes also may perform functions in addition to those it must perform
under paragraph (a) of this section. States may perform any one or more
of the following additional automated verification functions:
(1) Verifying compliance with lease financial terms, such as
payment of rent, minimum royalty, and advance royalty;
(2) Identifying and resolving improper adjustments. This involves
trying to adjust a previously reported line with a line that does not
match;
(3) Identifying late payments and insufficient estimates, including
calculating interest owed to MMS and verifying payor-calculated
interest owed to MMS;
(4) Calculating interest due to a lessee or its designee for an
adjustment or refund, including identifying overpayments and excessive
estimates, except for solid mineral and geothermal leases. MMS cannot
delegate authority to calculate interest due a lessee or its designee
for solid mineral and geothermal leases because MMS is not authorized
under the Act to pay interest to such lessees or their designees. MMS
cannot delegate authority it does not have.
(5) Verifying royalty rates;
(6) Verifying compliance with transportation and processing
allowance limitations; and
(7) Manually checking and confirming corrected reports or payments.
Paragraph (c) would require States to issue any notices and bills
associated with any of the functions under paragraphs (a) and (b) of
this section.
Paragraph (d) would require States to provide assistance to MMS for
appealed demands or orders, including preparing field reports, taking
remanded actions, modifying orders, and providing oral and written
briefing and testimony as expert witnesses.
Section 227.601 What are my responsibilities if I perform automated
verification?
This section would explain what general responsibilities a State
must perform if it accepts delegation of the automated verification of
production reports or royalty reports functions required under section
227.600 for production reports or royalty reports, or both. The
Standards and a State's delegation agreement would contain more
specific responsibilities a State must perform if it accepts delegation
of automated verification of production report or royalty report
functions. States must perform the following minimum automated
verification functions:
(a) Verify through research and analysis all identified exceptions,
and prepare the appropriate billings, assessment letters, warning
letters, notification letters, Lease Problem Reports, other internal
forms required, and correspondence required to perform any required
follow-up action for each function, as specified in the Standards or
the State's delegation agreement;
(b) Resolve and respond to all production reporter or royalty
reporter inquiries;
(c) Maintain all documentation and logging procedures as specified
in the Standards or the State's delegation agreement;
[[Page 19976]]
(d) Access well, lease, agreement, and production reporter or
royalty reporter reference data from MMS and provide update information
to MMS. Thus, States will have access to the reference database but MMS
will update reference data and maintain and update the reference
database; and
(e) Comply with procedures for appealed demands and orders,
including using appropriate format and content for field reports and
meeting timeframes.
Section 227.700 What enforcement documents may a State issue in
support of its delegated function?
This section would explain what enforcement actions a State may
take as part of its delegated functions.
Paragraph (a) would provide that States may issue demands,
subpoenas (except for solid minerals and geothermal leases), and orders
to perform restructured accounting, including related notices to
lessees and their designees. Unlike Federal oil and gas leases, under
the Act MMS does not have statutory authority to issue subpoenas for
solid mineral and geothermal leases. Thus, MMS cannot delegate this
authority to States.
Paragraph (a) also would provide that States may enter into tolling
agreements under section 15(d)(1) of the Act, 30 U.S.C. 1725(d)(1).
Paragraph (b) would provide that, when a State issues any
enforcement document, it must comply with the requirements of section
115 of the Act, 30 U.S.C. 1725.
Paragraph (c) would explain the requirements a State must comply
with when it issues a demand or enters into a tolling agreement under
section 15(d)(1) of the Act, 30 U.S.C. 1725(d)(1). When a State issues
a demand or enters into a tolling agreement, the highest State official
having ultimate authority over the collection of royalties or the State
official to whom that authority has been delegated must sign the demand
or tolling agreement.
Paragraph (d) would explain what requirements a State must meet
when issuing subpoenas or orders to perform restructured accounting.
When a State issues a subpoena or order to perform a restructured
accounting, it must:
(1) Coordinate with MMS to assure identification of issues that may
concern more than one State before it issues subpoenas and orders to
perform restructured accounting. The purpose of this paragraph is to
ensure that issues of national importance are pursued in a uniform and
coordinated manner; and
(2) Assure that the highest State official having ultimate
authority over the collection of royalties signs any subpoenas and
orders to perform restructured accounting, as required under section
115 of the Act, 30 U.S.C. 1725. Unlike demands and tolling agreements,
such officials may not delegate signature authority for subpoenas and
orders to perform restructured accounting to any other person.
Performance Review
Section 227.800 How will MMS monitor a State's performance of
delegated functions?
This section would provide procedures that MMS would use to monitor
a State's performance of its delegated functions.
Paragraph (a) would provide that a monitoring team comprised of MMS
officials would monitor a State's performance of the delegated
functions under its delegation agreement. The team would be comprised
of MMS experts from each of the delegated function areas. Please
provide comment to MMS if you have suggestions on how MMS should form
this team.
Paragraph (b) would provide that the Standards will specify the
frequency of monitoring for each delegated function.
Paragraph (c) would specify how the monitoring team would monitor a
State's performance of each delegated function. The monitoring team
would:
(1) Perform reviews to verify that the State is complying with the
Standards and 30 U.S.C. Sec. 1735;
(2) Conduct fiscal examinations to verify that the State's costs
are eligible for reimbursement;
(3) Periodically review the State's statistical reports required
under Sec. 227.200(e) to verify the State's accuracy, timeliness, and
efficiency;
(4) Check for timely transmittal of production report or royalty
report information to MMS and other affected agencies, as applicable,
to allow for proper disbursement of funds and processing of
information;
(5) Schedule on site visits and Office of The Inspector General,
General Accounting Office, and MMS audits of the State's performance of
its delegated functions; and
(6) Maintain reports of its monitoring activities.
Section 227.801 What if a State does not adequately perform a
delegated function?
This section would explain the steps MMS may take if a State's
performance of a delegated function does not comply with its delegation
agreement, or the Standards, or if MMS finds that the State can no
longer meet the statutory requirements under Sec. 227.106.
Paragraph (a) would provide that MMS would notify a State in
writing of its noncompliance or inability to comply with its delegation
agreement, or the Standards, or the statutory requirements under
Sec. 227.106. The notice would prescribe corrective actions a State
must take, and how long it would have to comply. A State could ask MMS
for an extension of time to comply with the notice and would be
required to explain why it needs more time to comply.
Paragraph (b) would provide that if a State did not take the
prescribed corrective actions within the time that MMS allows in a
notice issued under paragraph (a) of this section, then MMS may:
(1) Initiate proceedings under Sec. 227.802 to terminate all or a
part of the State's delegation agreement;
(2) Withhold compensation provided to the State under Sec. 227.112;
and
(3) Perform the delegated function, prior to terminating or without
terminating the State's delegation agreement, including, but not
limited to, issuing a demand or order to a Federal lessee, or its
designee, or any other person when:
(i) The State's failure to issue the demand or order would result
in an underpayment of an obligation due MMS; and
(ii) Such underpayment would go uncollected without MMS
intervention.
Section 227.802 How may MMS terminate a State's delegation agreement?
This section would explain the procedures MMS would use to
terminate either a State's entire delegation agreement or a part of a
State's delegation agreement.
Paragraph (a) would provide that MMS will notify a State in writing
that it is initiating procedures to terminate the State's delegation
agreement.
Paragraph (b) would state that MMS will provide a State with notice
and opportunity for a hearing under Sec. 227.803.
Paragraph (c) would provide that after the hearing, MMS may:
(1) Terminate a State's delegation agreement; or
(2) Allow the State 30 days to correct any remaining deficiencies.
If the State did not correct the deficiency within 30 days, MMS would
terminate all or a part of the State's delegation agreement.
[[Page 19977]]
Section 227.803 What are the hearing procedures for terminating a
State's delegation agreement?
This section would explain the hearing procedures MMS would
establish to assist it in determining whether to terminate all or a
part of a State's delegation agreement.
Paragraph (a) would provide that the MMS Director would appoint a
hearing official to conduct one or more public hearings for fact
finding and to determine any actions a State must take to correct the
noncompliance identified in Sec. 227.801(c). The hearing official would
act solely as a fact finder and would not decide whether to terminate a
State's delegation agreement.
Paragraphs (b) through (g) of this proposed section are self-
explanatory.
Paragraph (h) would provide that information presented at each
public hearing will help MMS to determine whether:
(1) The State has complied with the terms and conditions of its
delegation agreement; or
(2) The State has the capability to comply with the requirements
under Sec. 227.106.
Section 227.804 How else may a State's delegation agreement terminate?
This section would explain that a State may terminate its
delegation at any time by giving MMS a 90-day written notice of intent
to terminate. MMS would require 90 days notice to allow it to prepare
to reassume the functions it had delegated to the State. In addition,
industry would require the 90 days to readjust its systems to reflect
any change.
Section 227.805 How may a State obtain a new delegation agreement
after termination?
This section would explain that a State may apply again for
delegation by beginning with the proposal process under this part after
its delegation agreement terminates.
The MMS's Royalty Management Program will post the comments
received on the Internet homepage at www.rmp.mms.gov.
IV. Procedural Matters
The Regulatory Flexibility Act
The Department certifies that this rule will not have significant
economic effect on a substantial number of small entities as that term
is defined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
Some small entities might have activities in more than one State. While
these companies could be required to report to several States instead
of only the Federal Government under the proposed rule, they would not
have to file different reports. Instead, they would file the same
reports that they do now, but to a greater number of regulatory
authorities. The proposed rule will provide procedures and standards
for States interested in developing and maintaining an efficient and
effective Federal royalty management system for those functions
delegable to States under the Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996, Pub. L. 104-185, August 13,
1996, as corrected by Pub. L. 104-200.
Executive Order 12630
The Department certifies that the rule does not represent a
governmental action capable of interference with constitutionally
protected rights. Thus, a Takings Implication Assessment need not be
prepared under Executive Order 12630, ``Governmental Actions and
Interference with Constitutionally Protected Property Rights.''
Executive Order 12866
This proposed rule is significant under the Executive Order 12866.
The Office of Management and Budget (OMB) has reviewed the rule.
Although this rule will result in an increased reporting burden, there
will be several offsetting benefits which include: incentives to States
and increased State participation in Federal activities; agency
compliance with the statute.
Executive Order 12988
The Department has certified to OMB that this rule meets the
applicable reform standards provided in section 3(a) and (b)(2) of
Executive Order 12988.
Paperwork Reduction Act
This proposed rule contains a collection of information which has
been submitted to the Office of Management and Budget (OMB) for review
and approval under section 3507(d) of the Paperwork Reduction Act of
1995. As part of our continuing effort to reduce paperwork and
respondent burden, MMS invites the public and other Federal agencies to
comment on any aspect of the reporting burden. Submit your comments to
the Office of Information and Regulatory Affairs, OMB, Attention Desk
Officer for the Department of the Interior, Washington, DC 20503. Send
copies of your comments to Minerals Management Service, Royalty
Management Program, Rules and Procedures Staff, P.O. Box 25165, MS
3101, Denver, Colorado 80225-0165; courier address is Building 85,
Denver Federal Center, Denver, Colorado 80225; e:Mail address is
David____Guzy@smtp.mms.gov.
OMB has up to 60 days to approve or disapprove this collection of
information but may respond after 30 days. Therefore, public comments
should be submitted to OMB within 30 days in order to assure their
maximum consideration. However, MMS will consider all comments received
during the comment period for this notice of proposed rulemaking.
The information collection is titled Delegation of Authority to
States (OMB Control Number 1010-0088). Recently enacted legislation
expands the scope of royalty management functions that the Secretary
may delegate to States. See the Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996, Pub. L. 104-185, as corrected
by Pub. L. 104-200 (RSFA). The functions that MMS may delegate under
RSFA are:
(1) Conducting audits and investigations;
(2) Receiving and processing production and royalty reports;
(3) Correcting erroneous report data;
(4) Performing automated verification; and
(5) Issuing demands, subpoenas (except for solid mineral and
geothermal leases), orders to perform restructured accounting, and
related tolling agreements and notices to lessees or their designees.
With the increase in the number of delegable functions, the
paperwork burden upon those States assuming additional delegable
functions and upon industry which will now be interacting with several
States as well as with MMS will increase.
For example, a State requesting a delegation of any of these
functions must prepare and submit information to MMS including an
application to perform the delegable functions, evidence and testimony
for the hearing process, expense vouchers for cost reimbursement, and
annual workplans for MMS review. A delegated State must also maintain
records in accordance with applicable Federal recordkeeping
requirements. This information is necessary for tracking purposes, for
an audit trail, and to document that the State can perform the
delegated royalty management functions effectively and efficiently. MMS
will use this information to evaluate applications for delegation and
to monitor and review a State's performance of its delegated functions.
Currently 38 States receiving royalties from MMS could request a
delegation. MMS assumes that four of the larger producing States may
request a delegation of expanded functions
[[Page 19978]]
beyond those they already perform. Approved delegations will last for 3
years but can be extended for another 3 years. States may submit
vouchers for cost reimbursement monthly or quarterly. States must
submit delegable function workplans annually. MMS will specify the
frequency of monitoring and reviewing a State's performance in the
delegation agreement.
In the current Delegation of Authority to States information
collection, MMS estimated the annual burden hours to the States to be
800 hours. This was based on 10 States conducting delegated audits
spending 40 hours preparing workplans and 40 hours preparing vouchers:
[40 hours (workplans) + 40 hours (vouchers)] x 10 States = 800 annual
burden hours. In retrospect, our estimate of 80 annual burden hours per
State was low. Additional responsibilities that a State must assume
under the new legislation when they elect to perform a delegable
function include application and hearing preparation--40 annual burden
hours, voucher preparation--120 annual burden hours, annual workplan
preparation--40 annual burden hours, and recordkeeping--200 annual
burden hours. Experience gained over the last several years indicates
that each State that is conducting delegated audits is spending
approximately 400 annual burden hours, not 80, and that MMS's original
estimate of 800 annual burden hours for 10 States should be revised to
4,000 annual burden hours: [40 annual burden hours + 120 + 40 + 200]
x 10 States = 4,000 annual burden hours.
MMS estimates 8,000 burden hours for the four States to perform all
five delegable functions: 400 annual burden hours per function x 4
States x 5 functions = 8,000 annual burden hours. If six other States
continued conducting delegated audits, MMS estimates that burden at
2,400 burden hours: 400 annual burden hours x 6 States = 2,400 annual
burden hours. With the additional delegated functions, the total annual
burden hour estimate for this information collection will increase to
10,400. Using a cost of $25 an hour, the annual cost burden estimate is
$260,000. The Federal Government will reimburse some of these costs out
of current appropriations. However, States could incur additional start
up costs, such as purchasing equipment necessary to perform a delegated
function, that may not be reimbursable.
The MMS expects that the annual burden for industry will increase
by a total of 200,000 burden hours for approximately 4,500 payors and
reporters providing royalty and production reports to MMS. If four
States perform delegable functions and each State affects approximately
1,000 payors and reporters, MMS estimates that each payor or reporter
would spend 50 burden hours annually coordinating their interactions
and communications among the several States and with MMS. For example,
if a payor sends reports to the State but sends payments to MMS, the
payor must coordinate not only with MMS, as is currently done, but also
with the State. This will result in an annual burden on industry of
200,000 hours: 1,000 reporters or payors x 4 States x 50 annual
burden hours = 200,000 annual burden hours. Using a cost of $25 an
hour, the annual cost burden estimate is $5,000,000.
Based on our current experience with administering the delegated
audit function 10 States conduct, MMS's annual burden estimate is 900
hours per State for admninistering the delegated audit function and an
additional 300 hours per State for issuing related demand letters.
Since MMS will no longer issue demand letters, the 300 burden hour
estimate will decrease to an estiamte of 50 annual burden hours for
monitoring purposes. MMS's total burden for the six States continuing
to perform delegated audits plus assuming the responsibility of issuing
demand letters would be 5,700 annual burden hours: [900 hours x 1
function (delegated audits) x 6 States] + [50 hours x 1 function
(issue demand letters) x 6 States] = 5,700 annual burden hours. The
annual burden hours to the Federal Government for four States assuming
all five functions would be 14,600 hours: [900 annual burden hours per
function x 4 functions (all except issue demands) x 4 States] + [50
annual burden hours x 1 function (demand letter monitoring) x 4
States)] = 14,600 annual burden hours. MMS estimates the annual burden
hours to the Federal Government for this information collection at
20,300. Using a cost of $25 an hour, the annual cost burden estimate is
$507,500.
In compliance with the requirement of Section 3506(c)(2)(A) of the
Paperwork Reduction Act of 1995, MMS is providing notice and otherwise
consulting with members of the public and affected agencies concerning
collection of information in order to solicit comment to: (a) evaluate
whether the proposed collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information is useful; (b) evaluate the accuracy of the agency's
estimate of the burden of the proposed collection of information; (c)
enhance the quality, utility, and clarity of the information to be
collected; and (d) minimize the burden of the collection of information
on those who are to respond, including using automated collection
techniques or other forms of information technology.
The Paperwork Reduction Act of 1995 provides that an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB
control number.
Unfunded Mandates Reform Act of 1995
The Department has determined and certifies according to the
Unfunded Mandates Reform Act, 2 U.S.C. 1502 et seq., that this rule
will not impose a cost of $100 million or more in any given year on
local, tribal, State governments or the private sector.
National Environmental Policy Act of 1969
We have determined that this rulemaking is not a major Federal
action significantly affecting the quality of the human environment,
and a detailed statement under section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) is not
required.
List of Subjects in 30 CFR Parts 227, 228 and 229
Coal, Continental shelf, Geothermal energy, Government contracts,
Mineral royalties, Natural gas, Petroleum, Public lands--mineral
resources, Reporting and recordkeeping requirements.
Dated: March 28, 1997.
Bob Armstrong,
Assistant Secretary for Land and Minerals Management.
For the reasons set out in the preamble, 30 CFR part 227 is
proposed to be added and parts 228 and 229 are proposed to be amended
to read as follows:
1. Part 227 is added to read as follows:
PART 227--DELEGATION TO STATES
Delegation of MMS Royalty Functions
Sec.
227.1 What is the purpose of this part?
227.100 What States may request delegation?
227.101 What royalty management functions may MMS delegate to a
State?
227.102 What royalty management functions will MMS not delegate?
Delegation Proposals
227.103 What must a State's delegation proposal contain?
227.104 What will MMS do when it receives a State's delegation
proposal?
227.105 What are the hearing procedures?
227.106 What statutory requirements must a State meet to receive a
delegation?
[[Page 19979]]
227.107 When will the MMS Director decide whether to approve a
State's delegation proposal?
227.108 How will MMS notify a State of its decision?
227.109 What if the MMS Director denies a State's delegation
proposal?
227.110 How long are delegation agreements effective?
Existing Delegations
227.111 Do existing delegation agreements remain in effect?
Compensation
227.112 What compensation will a State receive to perform delegated
functions?
States' Responsibilities to Perform Delegated Functions
227.200 What are a State's general responsibilities if it accepts a
delegation?
227.201 What standards must a State comply with for performing
delegated functions?
227.300 What audit functions may a State perform?
227.301 What are a State's responsibilities if it performs audits?
227.400 What functions may a State perform in processing production
reports and royalty reports?
227.401 What are a State's responsibilities if it processes
production reports or royalty reports?
227.500 What functions may a State perform to ensure that reporters
correct erroneous report data?
227.501 What are a State's responsibilities to ensure that
reporters correct erroneous data?
227.600 What automated verification functions may a State perform?
227.601 What are a State's responsibilities if it performs
automated verification?
227.700 What enforcement documents may a State issue in support of
its delegated function?
Performance Review
227.800 How will MMS monitor a State's performance of delegated
functions?
227.801 What if a State does not adequately perform a delegated
function?
227.802 How will MMS terminate a State's delegation agreement?
227.803 What are the hearing procedures for termination of a
State's delegation agreement?
227.804 How else may a State's delegation agreement terminate?
227.805 How may a State obtain a new delegation agreement after
termination?
Authority: 30 U.S.C. 1735; 30 U.S.C. 196.
Delegation of MMS Royalty Functions
Sec. 227.1 What is the purpose of this part?
This part provides procedures to delegate Federal royalty
management functions to States under Section 205 of the Federal Oil and
Gas Royalty Management Act of 1982 (the Act), 30 U.S.C. 1735, as
amended by the Federal Oil and Gas Royalty Simplification and Fairness
Act of 1996 Pub. L. 104-185, August 13, 1996, as corrected by Pub. L.
104-200. This part also provides procedures to delegate similar
functions to States under Pub. L. 102-154 for solid mineral leases,
geothermal leases, and leases subject to section 8(g) of the Outer
Continental Shelf Lands Act, 43 U.S.C. 1337(g). This part does not
apply to any inspection or enforcement responsibilities of BLM for
onshore leases or the MMS Offshore Minerals Management program for
leases on the Outer Continental Shelf.
Sec. 227.100 What States may request delegation?
You may request a delegation of royalty management functions under
this part if:
(a) You have oil and gas leases subject to the Act on Federal lands
within your State;
(b) You have oil and gas leases offshore of your State subject to
section 8(g) of the Outer Continental Shelf Lands Act, 43 U.S.C.
1337(g);
(c) You have solid mineral leases or geothermal leases on Federal
lands within your State.
Sec. 227.101 What royalty management functions may MMS delegate to a
State?
MMS may delegate the following royalty management functions under
this part:
(a) Conducting audits and investigations;
(b) Receiving and processing production or royalty reports;
(c) Correcting erroneous report data;
(d) Performing automated verification; and
(e) Issuing demands, subpoenas (except for solid mineral and
geothermal leases), and orders to perform restructured accounting,
including related notices to lessees or their designees, and entering
into tolling agreements under section 115(d)(1) of the Act, 30 U.S.C.
1725(d)(1).
Sec. 227.102 What royalty management functions will MMS not delegate?
This section lists the principal royalty management functions that
MMS will not delegate to a State. MMS will not delegate to a State the
following functions:
(a) MMS must collect all moneys received from sales, bonuses,
rentals, royalties, civil penalties, assessments and interest. MMS also
must collect any moneys a lessee or its designee pays because of audits
or other actions of a delegated State;
(b) MMS must compare all cash and other payments it receives with
payments shown on royalty reports or other documents, such as bills, to
reconcile payor accounts. MMS also must disburse all appropriate moneys
to States and other revenue recipients, including refunds and interest
owed to lessees and their designees;
(c) The Department of the Interior will receive, process, and
decide all administrative appeals from demands or other orders issued
to lessees, their designees, or any other person, including demands or
orders a delegated State issues;
(d) Only MMS may take enforcement actions other than issuing
demands, subpoenas and orders to perform restructured accounting. MMS
will issue notices of non-compliance and civil penalties, collect
debts, write-off delinquent debts, pursue litigation, enforce
subpoenas, and manage alternative dispute resolution. MMS will conduct,
coordinate, and approve any settlement or other compromise of an
obligation that a lessee or its designee owes;
(e) MMS will decide all valuation policies, including issuing
valuation regulations, determinations, and guidelines, and interpreting
valuation regulations; and
(f) MMS may reserve additional authorities and responsibilities not
included in paragraphs (a) through (e) of this section.
Delegation Programs
Sec. 227.103 What must a State's delegation proposal contain?
If you want MMS to delegate royalty management functions to you,
then you must submit a delegation proposal to the MMS Associate
Director for Royalty Management. MMS will provide you with technical
assistance and information to help you prepare your delegation
proposal. Your proposal must contain the following minimum information:
(a) The name and title of the State official authorized to submit
the delegation proposal and execute the delegation agreement;
(b) The name, address, and telephone number of the State contact
for the proposal;
(c) A copy of the legislation, State Attorney General opinion, or
other document that:
(1) States which State entity is responsible for performing
delegated functions; and
(2) Demonstrates the State's authority to:
(i) Accept a delegation from MMS; and
(ii) Receive State or Federal appropriations to perform delegated
functions;
(d) The date you propose to begin performing delegated functions;
[[Page 19980]]
(e) A detailed statement of the delegable functions that you
propose to perform. For each function, describe the resources available
in your State to perform each function, the procedures you will use to
perform each function, and how you will ensure that you will meet all
Federal laws, lease terms, regulations, and relevant performance
standards. As evidence that you have or will have the resources to
perform each delegable function, you must provide the following
information:
(1) A description of the personnel you have available to perform
delegated functions, including:
(i) How many persons you will assign full-time and part-time to
each delegated function;
(ii) The technical qualifications of the key personnel you will
assign to each function, including academic field and degree,
professional credentials, and quality and amount of experience with
similar functions; and
(iii) Whether these persons are currently State employees. If not,
how you propose to hire these persons or obtain their services, and
when you expect to have those persons available to perform delegated
functions.
(2) A description of the facilities you will use to perform
delegated functions, including:
(i) Whether you currently have the facilities in which you will
physically locate the personnel and equipment you will need to perform
the functions you propose to assume. If not, how you propose to acquire
these facilities, and when you expect to have the facilities available;
(ii) How convenient the location is for travel to and communication
with lessees and Federal regulatory officials;
(iii) How much office space is available; and
(iv) How you currently are using those facilities.
(3) Describe the equipment you will use to perform delegated
functions, including:
(i) Hardware and software you will use to perform each delegated
function, including equipment for:
(A) Document processing, including compatibility with MMS automated
systems, electronic commerce capabilities, and data storage
capabilities;
(B) Accessing reference data;
(C) Contacting production or royalty reporters;
(D) Issuing demands;
(E) Maintaining accounting records;
(F) Performing automated verification;
(G) Maintaining security of confidential and proprietary
information; and
(H) Providing data to other Federal agencies.
(ii) Whether you currently have the equipment you will need to
perform the functions you propose to assume. If not, how you propose to
acquire the equipment and when you expect to have such equipment
available.
(f) Your estimates of the costs to fund the following resources
necessary to perform the delegation:
(1) Personnel, including hiring, employee salaries and benefits,
travel, and training;
(2) Facilities, including acquisition, upgrades, operation, and
maintenance;
(3) Equipment, including acquisition, operation, and maintenance;
(g) Your plans to fund the resources under paragraph (f) of this
section, including any items you will ask MMS to fund under the
delegation agreement;
(h) A statement identifying any areas where State law may limit
your ability to perform delegated functions. Explain what actions you
propose to remove any such limitation;
(i) A statement that, in accordance with section 203 of the Act (30
U.S.C. 1733), persons who have access to information received under
delegated functions are subject to the same provisions of law regarding
confidentiality and disclosure of that information as Federal
employees. Applicable laws include the Freedom of Information Act, the
Trade Secrets Act, and relevant Executive Orders (FOIA). In addition,
your statement must acknowledge that all documents produced, received,
and maintained as part of any delegation functions are agency records
for purposes of FOIA; and
Sec. 227.104 What will MMS do when it receives a State's delegation
proposal?
When MMS receives your delegation proposal, it will record the
receipt date. MMS will notify you in writing within 15 business days
whether your proposal is complete. If it is not complete, MMS will
identify any missing items that Sec. 227.103 of this part requires.
Once you submit all required information, MMS will notify you of the
date your application is complete.
Sec. 227.105 What are the hearing procedures?
After MMS notifies you that your delegation proposal is complete,
MMS will schedule a hearing on your proposal as follows:
(a) The MMS Director will appoint a hearing official to conduct one
or more public hearings for fact-finding regarding your ability to
assume the delegated functions requested. The hearing official will not
decide whether to approve your delegation request;
(b) The hearing official will contact you about scheduling a
hearing date and location;
(c) The hearing official will publish notice of the hearing in the
Federal Register and other appropriate media within your State;
(d) At the hearing, you will have an opportunity to present
testimony and written information in support of your proposal;
(e) Other persons may attend the hearing and may present testimony
and written information for the record;
(f) MMS will record the hearing;
(g) MMS will maintain a record of all documents related to the
proposal process;
(h) After the hearing, MMS may require you to submit additional
information in support of your delegation proposal.
Sec. 227.106 What statutory requirements must a State meet to receive
a delegation?
The MMS Director will decide whether to approve your delegation
request and will ask the Secretary of the Interior to concur in the
decision. That decision is solely within the MMS Director's and the
Secretary's discretion. The MMS Director's decision in which the
Secretary concurs in is the final decision for the Department. The MMS
Director may approve a State's request for delegation only if, based
upon the State's delegation proposal and the hearing record, the MMS
Director finds that:
(a) It is likely that the State will provide adequate resources to
achieve the purposes of the Act;
(b) The State has demonstrated that it will effectively and
faithfully administer MMS rules under the Act in accordance with the
requirements of subsections (c) and (d) of section 205 of the Act;
(c) The delegation will not create an unreasonable burden on any
lessee;
(d) The State agrees to adopt standardized reporting procedures
prescribed by MMS for royalty and production accounting purposes,
unless the State and all affected parties (including MMS and lessees
and their designees) agree otherwise;
(e) The State agrees to follow and adhere to regulations and
guidelines issued by MMS under the mineral leasing laws regarding
valuation of production; and
(f) Where necessary for a State to carry out and enforce a
delegated activity, the State agrees to enact laws and rules consistent
with relevant Federal laws and regulations.
[[Page 19981]]
Sec. 227.107 When will the MMS Director decide whether to approve a
State's delegation proposal?
The MMS Director will decide whether to approve your delegation
proposal within 90 days after your delegation proposal is complete. MMS
may extend the 90-day period with your written consent.
Sec. 227.108 How will MMS notify a State of its decision?
MMS will notify you in writing of its decision on your delegation
proposal. If MMS approves your delegation proposal, then MMS will hold
discussions with you to develop a delegation agreement detailing the
functions that you will perform and the standards and requirements you
must comply with to perform those functions.
Sec. 227.109 What if the MMS Director denies a State's delegation
proposal?
If the MMS Director denies your delegation proposal, MMS will state
the reasons for denial. MMS also will inform you in writing of the
conditions you must meet to receive approval. You may submit a new
delegation proposal at any time following a denial.
Sec. 227.110 How long are delegation agreements effective?
(a) Delegation agreements are effective for 3 years.
(b) After 3 years, you may ask MMS to renew the delegation for an
additional 3 years. No later than 6 months prior to the expiration of
your 3-year delegation agreement, you must submit your renewal request
to the MMS Associate Director for Royalty Management as follows:
(1) If you do not want to change the terms of your delegation
agreement for the renewal period, you need only ask to extend your
existing agreement for the 3-year renewal period. MMS will not schedule
a hearing unless you request one;
(2) If you want to change the terms of your delegation agreement
for the renewal period, you must submit a new delegation proposal under
this part.
(c) The MMS Director may approve your renewal request only if MMS
determines that you are meeting the requirements of the applicable
standards and regulations. If the MMS Director denies your renewal
request, MMS will state the reasons for denial. MMS also will inform
you in writing of the conditions you must meet to receive approval. You
may submit a new renewal request at any time following a denial, but
not after your current agreement expires.
(d) After the 3-year renewal period for your delegation agreement
ends, you must request a new delegation agreement from MMS under this
part. No hearing will be held unless you request one or you want to
change the terms of your delegation agreement. As part of the decision
whether to approve your request for a new delegation, the MMS Director
will consider whether you are meeting the requirements of the
applicable standards and regulations under your existing delegation
agreement.
Existing Delegations
Sec. 227.111 Do existing delegation agreements remain in effect?
This section explains your options if you have a delegation
agreement in effect on [the effective date of the final rule].
(a) If you do not want to perform any royalty management functions
in addition to those authorized under your existing agreement, you may
continue your existing agreement until its expiration date. After the
agreement expires, you must receive a new delegation agreement meeting
the requirements of this part and the applicable standards.
(b) If you want to perform royalty management functions in addition
to those authorized under your existing agreement, you must request a
new delegation agreement under this part.
(c) MMS may extend any delegation agreement in effect on [the
effective date of the final rule] for up to 3 years beyond the date it
is due to expire.
Compensation
Sec. 227.112 What compensation will a State receive to perform
delegated functions?
You will receive compensation for your costs to perform each
delegated function subject to the following conditions:
(a) Compensation for costs is subject to Congressional
appropriations;
(b) Compensation may not exceed the reasonably anticipated
expenditures that MMS would incur to perform the same function;
(c) The cost for which you request compensation must be directly
related to your performance of a delegated function and necessary for
your performance of that delegated function;
(d) You must provide vouchers detailing your expenditures quarterly
or monthly during the fiscal year as stated in your delegation
agreement;
(e) You must maintain adequate books and records to support your
vouchers;
(f) MMS will pay you quarterly or monthly during the fiscal year as
stated in your delegation agreement; and
(g) MMS may withhold compensation to you for your failure to
properly perform any delegated function under section 227.801 of this
part.
States' Responsibilities To Perform Delegated Functions
Sec. 227.200 What are a States' general responsibilities if it accepts
a delegation?
For each delegated function you perform, you must:
(a) Operate in compliance with all Federal laws, regulations, and
Secretarial and MMS determinations and orders relating to calculating,
reporting, and paying mineral royalties and other revenues. If you need
guidance on or interpretation of any applicable Federal requirement,
you must submit a written request for guidance or interpretation to the
appropriate MMS official. MMS will respond to your request in writing,
and you must follow the interpretation or guidance given;
(b) Comply with Generally Accepted Accounting Principles (GAAP).
You must:
(1) Provide complete disclosure of financial results of activities;
(2) Maintain correct and accurate records of all mineral-related
transactions and accounts;
(3) Maintain effective controls and accountability;
(4) Maintain a system of accounts that includes a comprehensive
audit trail so that all entries may be traced to one or more source
documents; and
(5) Maintain adequate royalty and production information for
royalty management purposes.
(c) Assist MMS in meeting the requirements of the Government
Performance and Results Act (GPRA) as well as assisting in developing
and endeavoring to comply with the MMS Strategic Plan and Performance
Measurements;
(d) Maintain all records you obtain or create under your delegated
function, such as royalty reports, production reports, and other
related information. You must maintain records in a safe, secure
manner, including taking appropriate measures for protecting
confidential and proprietary information and assisting MMS in
responding to Freedom of Information Act requests when necessary. You
must maintain records for at least 7 years;
(e) Provide reports to MMS about your activities under your
delegated functions. MMS will specify in your delegation agreement and
the MMS Standards for Delegation (Standards) what reports you must
submit and how often you must submit them. At a minimum, you must
provide periodic statistical reports to MMS summarizing the activities
you carried out, such as:
[[Page 19982]]
(1) Production and royalty reports processed;
(2) Erroneous reports corrected;
(3) Results of automated verification findings;
(4) Number of audits performed; and
(5) Enforcement documents issued.
(f) Assist MMS in maintaining adequate reference, royalty, and
production databases as provided in the Standards;
(g) Develop annual work plans that:
(1) Specify the work you will perform for each delegated function;
and
(2) Identify the resources you will commit to perform each
delegated function;
(h) Help MMS respond to requests for information from other Federal
agencies, Congress, and the public;
(i) Cooperate with MMS' monitoring of your delegated functions; and
(j) Comply with the Standards as required under Sec. 227.201 of
this part.
Sec. 227.201 What standards must a State comply with for performing
delegated functions?
(a) If MMS delegates royalty management functions to you, you must
comply with the Standards. The Standards explain how you must carry out
the activities under each of the delegable functions. The Standards
will explain, for example, the appropriate standards of accuracy,
timeliness, and efficiency for you to carry out each delegated
function.
(b) Your delegation agreement may include additional standards
specifically applicable to the functions delegated to you.
(c) Failure to comply with your delegation agreement, the
Standards, or any of the specific standards and requirements in the
delegation agreement, is grounds for termination of all or part of your
delegation agreement, or other actions as provided under Secs. 227.801
and 227.802.
(d) MMS may revise the Standards and will provide notice of those
changes in the Federal Register. You must comply with any changes to
the Standards.
Sec. 227.300 What audit functions may a State perform?
An audit consists of an examination of records to verify that
royalty reports and payments accurately reflect actual production,
sales, revenues and costs, and compliance with Federal statutes,
regulations, lease terms, and MMS policy determinations. If you request
delegation of audit functions, you must perform at least the following
functions:
(a) Issuing engagement letters;
(b) Arranging for entrance conferences;
(c) Submitting requests for records;
(d) Scheduling site visits;
(e) Examining royalty and production reports;
(f) Examining lessee production and sales records, including
contracts, payments, invoices, and transportation and processing costs
to substantiate production and royalty reporting;
(g) Holding closeout conferences;
(h) Issuing records releases and audit closure letters, as
necessary; and
(i) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, performing remanded actions,
modifying orders, and providing oral and written briefing and testimony
as expert witnesses.
Sec. 227.301 What are a State's responsibilities if it performs
audits?
If you perform audits you must:
(a) Comply with the MMS Audit Procedures Manual and the Government
Auditing Standards issued by the Comptroller General of the United
States;
(b) Follow the MMS Annual Audit Work Plan and 5-year Audit
Strategy, which MMS will develop in consultation with States having
delegated audit authority;
(c) Agree to undertake special audit initiatives MMS identifies
targeting specific royalty issues, such as valuation or volume
determinations;
(d) Prepare, construct, or compile audit work papers under the
appropriate procedures, manuals, and guidelines;
(e) Prepare and submit audit reports, MMS Audit Work Plans, the
Standards require; and
(f) Comply with procedures for appealed demands or orders,
including using appropriate format and content for field reports and
meeting time frames.
Sec. 227.400 What functions may a State perform in processing
production reports or royalty reports?
Production reporters or royalty reporters provide production,
sales, and royalty information on mineral production from leases that
must be collected, analyzed, and corrected.
(a) If you request delegation of either production report or
royalty report processing functions, you must perform at least the
following functions:
(1) Receiving, identifying, and date stamping production reports or
royalty reports;
(2) Processing production or royalty data to allow entry into a
data base;
(3) Creating copies of reports by means such as electronic imaging;
(4) Timely transmitting production report or royalty report data to
MMS and other affected Federal agencies as provided in your delegation
agreement and the Standards;
(5) Providing training and assistance to production reporters or
royalty reporters;
(6) Providing production data or royalty data to appropriate
Federal agencies upon request; and
(7) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, performing remanded actions,
modifying orders, and providing oral and written briefing and testimony
as expert witnesses.
(b) If you request delegation of either production report or
royalty report processing functions, or both, you may perform the
following functions:
(1) Granting exceptions from reporting and payment requirements for
marginal properties; and
(2) Approving alternative royalty and payment requirements for unit
agreements and communitization agreements.
Sec. 227.401 What are a State's responsibilities if it processes
production reports or royalty reports?
In processing production reports or royalty reports you must:
(a) Process reports accurately and timely as provided in the
Standards and your delegation agreement;
(b) Identify fatal errors for subsequent error correction that the
State or MMS performs;
(c) Accept multiple forms of electronic media from reporters, as
MMS specifies;
(d) Timely transmit required production or royalty data to MMS and
other affected Federal agencies;
(e) Access well, lease, agreement, and reporter reference data from
MMS and provide updated information to MMS;
(f) For production reports, maintain adequate system software edits
to ensure compliance with the provisions of 30 CFR part 216, the PAAS
Onshore Oil and Gas Reporter Handbook, the PAAS Reporter Handbook-
Lease, Facility/Measurement Point, and Gas Plant Operators, the PAAS
Solid Minerals Reporter Handbook, any inter-agency memorandums of
understanding to which MMS is a party, and the Standards;
(g) For royalty reports, maintain adequate system software edits to
ensure compliance with the provisions of 30 CFR part 218, the Oil and
Gas Payor Handbook, Volume II, the Solid Minerals Payor Handbook,
``Dear Payor'' letters, and the Standards; and
(h) Comply with the procedures for appealed demands or orders,
including using appropriate format and content for field reports and
supplementals and meeting time frames.
[[Page 19983]]
Sec. 227.500 What functions may a State perform to ensure that
reporters correct erroneous report data?
Production and royalty data must be edited to ensure that what is
reported is correct, that disbursement is made to the proper recipient,
and that correct data are used for other functions, such as automated
verification and audits. If you request delegation of error correction
functions for production reports or royalty reports, or both, you must
perform at least the following functions:
(a) Correcting all fatal errors and assigning appropriate
confirmation indicators;
(b) Verifying missing production reports;
(c) Contacting production reporters or royalty reporters about
missing reports and resolving exceptions;
(d) Documenting all corrections made, including providing
production reporters or royalty reporters with confirmation reports of
any changes;
(e) Providing training and assistance to production reporters or
royalty reporters;
(f) Issuing notices, orders to report, and bills as needed,
including, but not limited to, imposing assessments on a person who
chronically submits erroneous reports; and
(g) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, performing remanded actions,
modifying orders, and providing oral and written briefing and testimony
as expert witnesses.
Sec. 227.501 What are a State's responsibilities to ensure that
reporters correct erroneous data?
To ensure the correction of erroneous data, you must:
(a) Ensure compliance with the provisions of 30 CFR Parts 216 and
218, any applicable handbook specified under 30 CFR 401 (f) and (g),
inter-agency memorandums of understanding to which MMS is a party, and
the Standards;
(b) Ensure that reporters accurately and timely correct all fatal
errors as designated in the Standards. These errors include, for
example, invalid or incorrect reporter/payor codes, incorrect lease/
agreement numbers, and missing data fields. The Standards will list
fatal edits for both production reports and royalty reports;
(c) Submit accepted and corrected lines to MMS to allow processing
into the Auditing and Financial System (AFS) and the Production
Accounting and Auditing System (PAAS) in a timely manner as provided in
the Standards and 30 CFR part 219; and
(d) Comply with the procedures for appealed demands or orders,
including using appropriate format and content for field reports and
meeting time frames.
Sec. 227.600 What automated verification functions may a State
perform?
Automated verification involves systematic monitoring of production
and royalty reports to identify and resolve reporting or payment
discrepancies. States may perform the following functions:
(a) Automated comparison of sales volumes reported by royalty
reporters to sales and transfer volumes reported by production
reporters. If you request delegation of automated comparison of sales
and production volumes, you must perform at least the following
functions:
(1) Performing an initial sales volume comparison between royalty
and production reports;
(2) Performing subsequent comparisons when reporters adjust royalty
or production reports;
(3) Checking unit prices for reasonable product valuation based on
reference price ranges MMS provides;
(4) Resolving volume variances using written correspondence,
telephone inquiries, or other media;
(5) Maintaining appropriate file documentation to support case
resolution; and
(6) Issuing orders to correct reports or payments;
(b) Any one or more of the following additional automated
verification functions:
(1) Verifying compliance with lease financial terms, such as
payment of rent, minimum royalty, and advance royalty;
(2) Identifying and resolving improper adjustments;
(3) Identifying late payments and insufficient estimates, including
calculating interest owed to MMS and verifying payor-calculated
interest owed to MMS;
(4) Calculating interest due to a lessee or its designee for an
adjustment or refund, including identifying overpayments and excessive
estimates (except for solid mineral and geothermal leases);
(5) Verifying royalty rates;
(6) Verifying compliance with transportation and processing
allowance limitations; and
(7) Manually checking and confirming corrected reports or payments;
(c) Issuing notices and bills associated with any of the functions
under paragraphs (a) and (b) of this section; and
(d) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, taking remanded actions, modifying
orders, and providing oral and written briefing and testimony as expert
witnesses.
Sec. 227.601 What are a State's responsibilities if it performs
automated verification?
To perform automated verification of production reports or royalty
reports, you must:
(a) Verify through research and analysis all identified exceptions
and prepare the appropriate billings, assessment letters, warning
letters, notification letters, Lease Problem Reports, other internal
forms required, and correspondence required to perform any required
follow-up action for each function, as specified in the Standards or
your delegation agreement;
(b) Resolve and respond to all production reporter or royalty
reporter inquiries;
(c) Maintain all documentation and logging procedures as specified
in the Standards or your delegation agreement;
(d) Access well, lease, agreement, and production reporter or
royalty reporter reference data from MMS and provide update information
to MMS; and
(e) Comply with procedures for appealed demands and orders,
including using appropriate format and content for field reports and
meeting time frames.
Sec. 227.700 What enforcement documents may a State issue in support
of its delegated function?
This section explains what enforcement actions you may take as part
of your delegated functions.
(a) You may issue demands, subpoenas (except for solid minerals and
geothermal leases), and orders to perform restructured accounting,
including related notices to lessees and their designees. You also may
enter into tolling agreements under section 15(d)(1) of the Act, 30
U.S.C. 1725(d)(1).
(b) When you issue any enforcement document you must comply with
the requirements of section 115 of the Act, 30 U.S.C. 1725.
(c) When you issue a demand or enter into a tolling agreement under
section 15(d)(1) of the Act, 30 U.S.C. 1725(d)(1), the highest State
official having ultimate authority over the collection of royalties or
the State official to whom that authority has been delegated must sign
the demand or tolling agreement.
(d) When you issue a subpoena or order to perform a restructured
accounting you must:
(1) Coordinate with MMS to ensure identification of issues that may
concern more than one State before you issue subpoenas and orders to
perform restructured accounting; and
[[Page 19984]]
(2) Ensure that the highest State official having ultimate
authority over the collection of royalties signs any subpoenas and
orders to perform restructured accounting, as required under section
115 of the Act, 30 U.S.C. 1725. This official may not delegate
signature authority to any other person.
Performance Review
Sec. 227.800 How will MMS monitor a State's performance of delegated
functions?
This section explains MMS's procedures for monitoring your
performance of any of your delegated functions.
(a) A monitoring team of MMS officials will review and monitor your
performance of the delegated functions under the delegation agreement.
(b) The Standards will specify the frequency of monitoring for each
delegated function.
(c) The monitoring team will:
(1) Perform reviews to verify that you are complying with the
Standards and 30 U.S.C. 1735;
(2) Conduct fiscal examinations to verify that your costs are
eligible for reimbursement;
(3) Periodically review your statistical reports required under
Sec. 227.200(e) to verify your accuracy, timeliness, and efficiency;
(4) Check for timely transmittal of production report or royalty
report information to MMS and other affected agencies, as applicable,
to allow for proper disbursement of funds and processing of
information;
(5) Schedule onsite visits and Office of the Inspector General,
General Accounting Office, and MMS audits of your performance of your
delegated functions; and
(6) Maintain reports of its monitoring activities.
Sec. 227.801 What if a State does not adequately perform a delegated
function?
If your performance of the delegated function does not comply with
your delegation agreement, or the Standards, or if MMS finds that you
can no longer meet the statutory requirements under Sec. 227.106 of
this part, then MMS may:
(a) Notify you in writing of your noncompliance or inability to
comply. The notice will prescribe corrective actions you must take, and
how long you have to comply. You may ask MMS for an extension of time
to comply with the notice. In your request you must explain why you
need more time; and
(b) If you do not take the prescribed corrective actions within the
time that MMS allows in a notice issued under paragraph (a) of this
section, then MMS may:
(1) Initiate proceedings under Sec. 227.802 of this part to
terminate all or a part of your delegation agreement;
(2) Withhold compensation provided to you under Sec. 227.112 of
this part; and
(3) Perform the delegated function, before terminating or without
terminating your delegation agreement, including, but not limited to,
issuing a demand or order to a Federal lessee, or its designee, or any
other person when:
(i) Your failure to issue the demand or order would result in an
underpayment of an obligation due MMS; and
(ii) The underpayment would go uncollected without MMS
intervention.
Sec. 227.802 How will MMS terminate a State's delegation agreement?
This section explains the procedures MMS will use to terminate all
or a part of your delegation agreement:
(a) MMS will notify you in writing that it is initiating procedures
to terminate your delegation agreement;
(b) MMS will provide you notice and opportunity for a hearing under
Sec. 227.803 of this part;
(c) After the hearing, MMS may:
(1) Terminate your delegation agreement; or
(2) Allow you 30 days to correct any remaining deficiencies. If you
do not correct the deficiency within 30 days, MMS will terminate all or
a part of your delegation agreement.
Sec. 227.803 What are the hearing procedures for terminating a State's
delegation agreement?
(a) The MMS Director will appoint a hearing official to conduct one
or more public hearings for fact finding and to determine any actions
you must take to correct the noncompliance. The hearing official will
not decide whether to terminate your delegation agreement;
(b) The hearing official will contact you about scheduling a
hearing date and location;
(c) The hearing official will publish notice of the hearing in the
Federal Register and other appropriate media within your State;
(d) At the hearing, you will have an opportunity to present
testimony and written information on your ability to perform your
delegated functions as required under this part, your delegation
agreement, and the Standards;
(e) Other persons may attend the hearing and may present testimony
and written information for the record;
(f) MMS will record the hearing;
(g) After the hearing, MMS may require you to submit additional
information; and
(h) Information presented at each public hearing will help MMS to
determine whether:
(1) You have complied with the terms and conditions of your
delegation agreement; or
(2) You have the capability to comply with the requirements under
Sec. 227.106 of this part.
Sec. 227.804 How else may a State's delegation agreement terminate?
You may terminate your delegation at any time by giving MMS a 90-
day written notice of intent to terminate.
Sec. 227.805 How may a State obtain a new delegation agreement after
termination?
After your delegation agreement is terminated, you may apply again
for delegation by beginning with the proposal process under this part.
PART 228--COOPERATIVE ACTIVITIES WITH STATES AND INDIAN TRIBES
2. The authority citation for Part 228 is revised to read as
follows:
Authority: Section 202, Pub. L. 97-451, 96 Stat. 2457 (30 U.S.C.
1732).
3. Part 228 is amended by revising the title to read as follows:
PART 228--COOPERATIVE ACTIVITIES WITH INDIAN TRIBES
4. A new section 228.3 is added to read as follows:
Sec. 228.3 Limitation on applicability.
MMS will not enter into a cooperative agreement with a State under
this part to carry out audit and related investigation and enforcement
activities for leases on Federal lands within the State. This part
applies only to cooperative agreements with Indian tribes and States to
perform audits, inspections, and investigations for Indian lands. See
part 227 of this title for delegation of authority to States for
Federal lands.
PART 229--DELEGATION TO STATES
5. The authority citation for Part 229 is revised to read as
follows:
Authority: 30 U.S.C. 1735.
6. Part 229 is amended by revising the title to read as follows:
PART 229--DELEGATION TO STATES FOR INDIAN LANDS
7. A new section 229.3 is added to read as follows:
[[Page 19985]]
Subpart A--General Provisions
Sec. 229.3 Limitation on applicability.
MMS will not enter into a delegation agreement with a State under
this part to carry out audit and related investigation activities for
leases on Federal lands within the State. This part applies only to
delegation agreements with States to perform audits, inspections, and
investigations for Indian lands. See part 227 of this title for
delegations of authority to States for Federal lands.
[FR Doc. 97-10387 Filed 4-23-97; 8:45 am]
BILLING CODE 4310-MR-P
