CA and NM Sue To Stop Interior Department Taxpayer Rip Off

California and New Mexico filed a legal challenge this week against yet another attempt by the Trump Administration and Interior Department Secretary Ryan Zinke to pad the wallets of dirty energy companies at the expense of taxpayers.

California Attorney General Xavier Beccerra and New Mexico AG Hector Balderas filed suit against the Department of Interior’s (DOI) new rule that allows coal, oil, and gas companies to avoid paying proper royalty fees on their sales of coal, oil, and gas from public lands.

“Fossil fuel companies are rejoicing at the giveaways that this Administration provides them on a regular basis’” Becerra said while announcing the suit. “This is yet another example of the Trump Administration bending over backwards to please the oil, gas and, in particular, the coal industry. The President has shown what side he is on, and it is not the side of American taxpayers.”

Here’s the problem: Companies were avoiding paying proper royalties on the sale of goods owned by you and me by essentially laundering the sales through affiliates.

Let’s take coal as an example.

Companies are required to pay a 12.5% royalty on sales of coal they take from surface mining on public lands. The royalty is intended to apply to the sale of the coal from the mining company to the open market (often a power plant). Royalty revenues are split 50/50 with the states where the mining or drilling takes place. In New Mexico, all of that money goes to public education.

But as a Reuters investigation found, big coal companies were gaming the system by first selling the coal to an affiliate or subsidiary for much less than fair market prices. The royalty was charged on that low-ball sale, and then the company would turn around and sell the coal on the open market for many multiples of that original sale. To put it another way, companies were paying a royalty rate on a $1 sale when they should have been paying it on the open market price, which was anywhere from $10 to over $100 a ton.

An analysis by the Center for American Progress showed that five big coal companies had established a web of over 400 hundred subsidiaries in part to avoid paying royalties.

So the Obama Administration went through multi-year process to put in place a rule that closed the loophole. That process included ample opportunity for public comment and analysis. The rule went into effect at the beginning of the year.

Enter the Trump Administration, which—shutting out the public--said the rule was void, and that dirty energy companies could return to the same ‘ol way of doing business. California and New Mexico’s Attorneys General said you can’t do things that way, sued, and won.

But the Interior Department just turned around—again without opportunity for public comment—and wrote a new rule going back to the bad ‘ol ways. That’s what California and New Mexico are taking to the courts this week.

“…the Department went ahead with the repeal without offering any reasoned basis for doing so,” the two AG’s said in a statement. “This is a violation of the Administrative Procedure Act and the Department’s authorizing statutes. As a result, Attorneys General Becerra and Balderas are filing suit today.”

Here’s the bottom line:

Public lands belong to all of us.  They provide us with clean water and places to pursue hiking, biking, fishing, hunting, and other outdoor recreation.  They are home to our nation’s most treasured landscapes and wildlife.  They invigorate local economies and contribute to the public health of communities across the nation.   Most Americans believe these lands should be preserved and protected for this and future generations, not sold off for the profit of private interests.

And cheers to California Attorney General Xavier Beccerra and New Mexico AG Hector Balderas.

About the Authors

Theo Spencer

Senior Advocate, Dirty Energy, Lands Division, Nature Program

Join Us

When you sign up you'll become a member of NRDC's Activist Network. We will keep you informed with the latest alerts and progress reports.