Change to Delegated State Audit Functions

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 227

RIN 1010-AC51

Change to Delegated State Audit Functions

AGENCY: Minerals Management Service, Interior.

ACTION: Proposed rule.

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SUMMARY: The Minerals Management Service (MMS) is proposing to amend

its regulation at 30 CFR 227.101, to allow States which choose to

assume audit duties to do so for less than all of the Federal mineral

leases within the State or leases offshore of the State, subject to

section 8(g), of the Outer Continental Shelf Lands Act, 43 U.S.C.

1337(g).

DATES: Comments must be submitted on or before April 12, 1999.

ADDRESSES: If you wish to comment, you may submit your comments any one

of several methods. You may mail comments to David S. Guzy, Chief,

Rules and Publications Staff, Minerals Management Service, Royalty

Management Program, P.O. Box 25165, MS 3021, Denver, CO 80225-0165.

Courier or overnight delivery address is Building 85, Room A-613,

Denver Federal Center, Denver, CO 80225. You may also comment via the

Internet to RMP.[email protected]. Please submit Internet comments as an

ASCII file avoiding the use of special characters and any form of

encryption. Please also include ``Attn: RIN 1010-AC51'' and your name

and return address in your Internet message. If you do not receive a

confirmation from the system that we have received your Internet

message, contact David S. Guzy directly at (303) 231-3432.

FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and

Publications Staff, telephone (303) 231-3432, FAX (303) 231-3385, e-

Mail David.G[email protected].

SUPPLEMENTARY INFORMATION: The principal author of this proposed

rulemaking is Ms. Shirley Burhop, State and Indian Compliance Division,

Royalty Management Program (RMP).

We will post public comments after the comment period closes on the

Internet at http://www.rmp.mms.gov. You may arrange to view paper

copies of the comments by contacting David S. Guzy, Chief, Rules and

Publications Staff, telephone (303) 231-3432, FAX (303) 231-3385. Our

practice is to make comments, including names and home addresses of

respondents, available for public review during regular business hours.

Individual respondents may request that we withhold their home address

from the rulemaking record, which we will honor to the extent allowable

by law. There also may be circumstances in which we would withhold from

the rulemaking record a respondent's identity as allowable by law. If

you wish us to withhold your name or address, you must state this

prominently at the beginning of your comment. However, we will not

consider anonymous comments. We will make all submissions from

organizations or businesses, and from individuals identifying

themselves as representatives or officials of organizations or

businesses, available for public inspection in their entirety.

I. Background

This proposed rule will amend regulations governing the delegation

of royalty management duties to States. Section 205 of the Federal Oil

and Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C. 1735, gives

MMS the authority to delegate audit functions to States. Currently, 10

States have entered into the cooperative agreements authorized by

Section 205.

Regulations in 30 CFR part 227 implementing the Federal Oil and Gas

Royalty Simplification and Fairness Act of 1996 (RSFA), Pub. L. 104-

185, as corrected by Pub. L. 104-200, expanded upon the delegation of

duties that States could assume. Those regulations at 30 CFR 227.101

inserted the term ``all'' into the description of Federal mineral

leases subject to audit, thereby requiring that States audit all

Federal mineral leases within that State and all 8(g) leases offshore

of the State in order to enter into a cooperative agreement to assume

the audit function. The word ``all'' was, in fact, intended in the case

of the other delegable functions authorized by RSFA, but does not seem

to be either necessary or desirable in the case of the audit function.

This change is necessary in order for States, which are now

delegated audit authority under FOGRMA, to continue that audit

authority without significantly altering their staffing, funding, or

other operations.

By removing the requirement that they exercise audit authority over

all Federal mineral leases within the State, the States will again be

able to work with us in those cases where State resources do not allow

the State to sufficiently cover their entire audit universe. Thus, the

State would designate the limits of its audit activity each year

through an annual audit work plan. This wording change would also

enable the MMS to continue to assist a State in its audit efforts when

necessary.

II. Statutory Authority

Authority for this change is granted by FOGRMA, 30 U.S.C. 1735, as

amended by RSFA, Pub. L. 104-185, August 13, 1996, as corrected by Pub.

L. 104-200. Authority regarding solid mineral leases, geothermal

leases, and 8(g) leases is granted by Pub. L. 102-154.

III. Analysis

The requirement that a State audit all Federal and 8(g) leases

within/offshore of that State is only stated in 30 CFR 227.101. It is

not required by law. RSFA, Sec. 3, FOGRMA Sec. 205, states ``Upon

written request of any State, the Secretary is authorized to delegate *

* * all or part of the authorities and responsibilities of the

Secretary * * * to any State with respect to all Federal land within

the State.''

The only way to negate the effect of the rule is to write a new

rule which changes the requirement to audit all leases.

This solution will be cost neutral. States which are delegated

audit duties will continue to be fully reimbursed in accordance with

their annual, approved audit plan for their costs. This solution will

enable those States which currently are delegated audit duties to

continue to perform that delegated function, in spite

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of staffing, funding, or other limitations. It will enable other States

which might desire to take on the delegated audit function to do so

without being fully staffed to the extent necessary were they required

to audit all Federal mineral and 8(g) leases in or offshore of that

State.

IV. Procedural Matters

Regulatory Planning and Review (E.O. 12866)

This document is not a significant rule and is not subject to

review by the Office of Management and Budget under Executive Order

12866.

(1) This rule will not have an effect of $100 million or more on

the economy. It will not adversely affect in a material way the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities. Requesting States may incur additional costs for

delegation responsibilities. However, these direct costs will be fully

reimbursed by the Federal Government in accordance with their annual,

approved audit plan each year. This rule change does not require any

additional information or fees to be filed by the States.

(2) This rule will not create a serious inconsistency or otherwise

interfere with an action taken or planned by another agency. The

States' delegated audit authority will follow the policies of the

Department. State actions will be coordinated with the Bureau of Land

Management and MMS.

(3) This rule does not alter the budgetary effects or entitlements,

grants, user fees, or loan programs or the rights or obligations of

their recipients. Audits of Federal leases within State boundaries will

be individually budgeted through an annual work plan proposal prepared

by the State and approved by MMS. This is a process which has been used

effectively since 1985 and will continue under the proposed rule.

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

authority to delegate audit duties to States has been available to MMS

since 1983. The operational history has been one where the States

covered as much of the Federal lease universe as practical for each

State and MMS covered the remainder. We expect these circumstances of

operation to continue under the proposed rule.

Regulatory Flexibility Act

The Department of the Interior certifies that this document will

not have a significant economic effect on a substantial number of small

entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

The major impact of the rule will be on State governments, which

are not small entities. There will be some effect on the oil and gas

companies which are subject to audit, as various audit staffs,

including MMS's Compliance Divisions, State delegations, and Indian

Tribal delegations, may now audit Federal and Indian leases located

within a particular State's boundaries. This is no change from the way

in which MMS and delegated States and Tribes have audited companies in

the past, prior to the passage of RSFA. As has been done in the past,

MMS will continue to coordinate audit efforts of the various entities

which might be involved in any particular audit in order to minimize

disruptions to the companies being audited.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

This rule is not a major rule under 5 U.S.C. 804(2), the Small

Business Regulatory Enforcement Fairness Act. This rule:

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

more. The expense of delegated audit functions would be initially

incurred by the States and later reimbursed by MMS. The maximum

economic impact for audit delegation is estimated to be $5.5 million.

b. Will not cause a major increase in costs or prices for

consumers, individual industries, Federal, State, or local government

agencies, or geographic regions. The audit of Federal leases is not a

function which generates impacts on costs or prices to individuals or

areas. States will be reviewing royalty calculation and payments to

enforce existing Federal lease terms and royalty policies. States will

conduct the audits as efficiently and economically as possible in

accordance with State and Departmental policies.

c. Does not have significant adverse effects on competition,

employment, investment, productivity, innovation, or the ability of

U.S.-based enterprises to compete with foreign-based enterprises. The

laws providing for the delegation of audit duties, FOGRMA and RSFA, do

not provide for any other entity, except tribal governments, to conduct

these duties.

Your comments are important. The Small Business and Agriculture

Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were

established to receive comments from small businesses about Federal

agency enforcement actions. The Ombudsman will annually evaluate the

enforcement activities and rate each agency's responsiveness to small

business. If you wish to comment on the enforcement actions in this

proposed rule, call 1-888-734-3247.

Unfunded Mandates Reform Act of 1995

This rule does not impose an unfunded mandate on State, local, or

tribal governments or the private sector of more than $100 million per

year. The rule does not have a significant or unique effect on State,

local or tribal governments or the private sector. The rule does not

change valuation requirements, impose additional royalty collections or

require new reporting forms. This rule merely gives State governments

the option to conduct audits and investigations on less than all of the

Federal mineral leases within State boundaries. The costs incurred to

conduct the audits and investigations will be fully reimbursed by the

Federal Government in accordance with the State's annual, approved

audit plan. We expect those costs to be no more than $5.5 million per

year. County, local, or tribal governments will not perform the

delegable audit functions on behalf of State governments; therefore,

they will not be impacted by this rule.

A statement containing the information required by the Unfunded

Mandates Reform Act (2 U.S.C. 1531 et seq.) is not required.

Takings (E.O. 12630)

In accordance with Executive Order 12630, the rule does not have a

significant takings implication. States seeking audit delegation from

year to year will propose the level of effort they can expend auditing

Federal leases. This method of operation will give States first choice

in cooperatively planning annual work with MMS. This rule does not

represent a governmental action capable of interference with

constitutionally protected property rights. A takings implication

assessment is not required.

Federalism (E.O. 12612)

In accordance with Executive Order 12612, the rule does not have

sufficient federalism implications to warrant the preparation of a

Federalism Assessment. This rule allows States to continue to audit

selected leases within legal boundaries. It does not alter roles,

rights or responsibilities of States conducting delegated audits. A

Federalism Assessment is not required.

Civil Justice Reform (E.O. 12988)

In accordance with Executive Order 12988, the Office of the

Solicitor has

[[Page 6588]]

determined that this rule does not unduly burden the judicial system

and meets the requirements of sections 3(a) and 3(b)(2) of the Order.

Paperwork Reduction Act

This regulation does not require an additional information

collection approval under the Paperwork Reduction Act of 1995. There is

currently in place an approved information collection titled Delegation

of Authority to States, OMB Control Number 1010-0088, which expires on

June 30, 2000.

National Environmental Policy Act of 1969

This rule does not constitute a major Federal action significantly

affecting the quality of the human environment. A detailed statement

under the National Environmental Policy Act of 1969 is not required.

Clarity of This Regulation

Executive Order 12866 requires each agency to write regulations

that are easy to understand. We invite your comments on how to make

this rule easier to understand, including answers to questions such as

the following:

(1) Are the requirements in the rule clearly stated?

(2) Does the rule contain technical language or jargon that

interferes with its clarity?

(3) Does the format of the rule (grouping and order of sections,

use of headings, paragraphing, etc.) aid or reduce its clarity?

(4) Would the rule be easier to understand if it were divided into

more (but shorter) sections? (A ``section'' appears in bold type and is

proceeded by the symbol ``Sec. '' and a number heading; for example:

Sec. 227.101 What Royalty Management functions may MMS delegate to a

State?

(5) Is the description of the rule in the ``Supplementary

Information'' section of this preamble helpful in understanding the

rule?

(6) What else could we do to make the rule easier to understand?

Send a copy of any comments that concern how we could make this

rule easier to understand to: Office of Regulatory Affairs, Department

of the Interior, Room 7229, 1849 C Street NW, Washington, DC 20240. You

may also E-mail your comments to this address: E[email protected].

List of subjects in 30 CFR Part 227

Coal, Continental shelf, Geothermal energy, Government contracts,

Mineral royalties, Natural gas, Petroleum, Public lands--mineral

resources, Reporting and recordkeeping requirements.

Dated: January 26, 1999.

Sylvia V. Baca,

Acting Assistant Secretary, Land and Minerals Management.

For the reasons set out in the preamble, 30 CFR part 227 is

proposed to be amended as follows:

PART 227--DELEGATION TO STATES

1. The authority citation for part 227 continues to read as

follows:

Authority: 30 U.S.C. 1735; 30 U.S.C. 196; Pub. L. 102-154.

2. Revise Sec. 227.101 to read as follows:

227.101 What royalty management functions may MMS delegate to a State?

(a) If there are oil and gas leases subject to the Act on Federal

lands within your State, MMS may delegate the following royalty

management functions for all such Federal oil and gas leases to you

under this part:

(1) Receiving and processing production or royalty reports;

(2) Correcting erroneous report data; and

(3) Performing automated verification.

(b) If there are oil and gas leases subject to the Act on Federal

lands within your State, MMS may delegate the following royalty

management functions for some or all of the Federal oil and gas leases

to you under this part:

(1) Conducting audits and investigations; and

(2) Issuing demands, subpoenas, 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).

(c) If there are 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), or solid mineral leases or geothermal leases on Federal lands

within your State, MMS only may delegate authority to conduct audits

and investigations for some or all such Federal leases.

[FR Doc. 99-3174 Filed 2-9-99; 8:45 am]

BILLING CODE 4310-MR-P