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Rule2023-15310

Partial Repeal of Consolidated Federal Oil & Gas and Federal & Indian Coal Reform

Primary source

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Published

July 21, 2023

Effective

January 1, 2017

Issuing agencies

Interior DepartmentNatural Resources Revenue Office

Abstract

ONRR is republishing and revising certain subparts of its regulations to implement an order and judgment from the United States District Court for the District of Wyoming that vacated the Federal and Indian coal valuation provisions of the 2016 Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform rule. ONRR is further making non-substantive punctuation and grammatical corrections as part of this republication.

Full Text

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[Federal Register Volume 88, Number 139 (Friday, July 21, 2023)]
[Rules and Regulations]
[Pages 47003-47020]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-15310]

[[Page 47003]]

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DEPARTMENT OF THE INTERIOR

Office of Natural Resources Revenue

30 CFR Parts 1202 and 1206

[Docket No. ONRR-2022-0002; DS63644000 DR2000000.CH7000 223D1113RT]
RIN 1012-AA34

Partial Repeal of Consolidated Federal Oil & Gas and Federal &
Indian Coal Reform

AGENCY: Office of Natural Resources Revenue (``ONRR''), Interior.

ACTION: Final rule.

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SUMMARY: ONRR is republishing and revising certain subparts of its
regulations to implement an order and judgment from the United States
District Court for the District of Wyoming that vacated the Federal and
Indian coal valuation provisions of the 2016 Consolidated Federal Oil &
Gas and Federal & Indian Coal Valuation Reform rule. ONRR is further
making non-substantive punctuation and grammatical corrections as part
of this republication.

DATES: This rule is effective on January 1, 2017, because the District
Court vacated certain provisions of the rule that became effective on
that date (81 FR 43338).

FOR FURTHER INFORMATION CONTACT: For questions, contact Ginger Hensley,
Regulatory Specialist, Appeals & Regulations, ONRR, by email at
<a href="/cdn-cgi/l/email-protection#1b5455494944497e7c6e777a6f72747568567a72777974635b74756969357c746d"><span class="__cf_email__" data-cfemail="b9f6f7ebebe6ebdcdeccd5d8cdd0d6d7caf4d8d0d5dbd6c1f9d6d7cbcb97ded6cf">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

A. ONRR Regulations

ONRR performs oil, gas, coal, solid minerals, and geothermal
minerals revenue management responsibilities for the Secretary of the
Interior (``Secretary''). See U.S. Department of the Interior
Departmental Manual (``Departmental Manual''), 112 DM 34.1 (Sept. 9,
2020). ONRR regulations are published at 30 CFR Chapter XII. The
regulations contain 18 parts addressing different aspects of minerals
revenue management. This final rule covers Part 1202--Royalties and
Part 1206--Product Valuation.

B. District Court Orders and Judgment

On July 1, 2016, ONRR published the Consolidated Federal Oil & Gas
and Federal & Indian Coal Valuation Reform Rule (``2016 Valuation
Rule''). See 81 FR 43338-43402. The 2016 Valuation Rule revised the
Federal oil and gas and Federal and Indian coal sections of Parts 1202
and 1206, effective January 1, 2017. Id. at 43338.
On June 12, 2019, industry members and trade organizations filed a
lawsuit in the United States District Court for the District of Wyoming
to challenge the 2016 Valuation Rule. See Petition for Review, Cloud
Peak Energy Inc. v. U.S. Dep't of the Interior, No. 19-CV-120-SWS, ECF
No. 1.
On September 8, 2021, the District Court issued an Order Upholding
in Part and Reversing in Part the 2016 Valuation Rule (``the Order'').
Cloud Peak Energy Inc. v. U.S. Dep't of the Interior, 559 F. Supp. 3d
1203 (D. Wyo. 2021). The Order states that ``the new valuation methods
for [F]ederal and Indian coal must be vacated.'' Id. at 1208. It
further states that ``[a]s the coal-specific 2016 Valuation Rule
provisions have never been put into practice (due to the earlier
preliminary injunction), the pre-2016 valuation methodologies for
[F]ederal and Indian coal shall continue to govern.'' Id. at 1226. The
District Court's judgment (``District Court's Judgment'') was entered
the same day and states: ``the [F]ederal and Indian coal valuation
provisions of the 2016 Valuation Rule are hereby set aside and
vacated.'' Id. Because no party sought review of the portions of the
District Court's Order and Judgment applicable to Federal and Indian
coal, the District Court's vacatur of the Federal and Indian coal
valuation provisions is final. Accordingly, to ensure the rules
applicable to Federal and Indian coal, as determined by the District
Court, appear in the Code of Federal Regulations, ONRR must publish a
final rule containing the coal valuation regulations in effect before
the 2016 Valuation Rule.

C. Recodification and Revision

1. Recodification of Part 1202, Subpart F
Prior to the 2016 Valuation Rule, Subpart F of Part 1202 contained
only Sec. 1202.250, concerning overriding royalty interests. Part
1206, Subpart F, 1206.253, and Part 1206, Subpart J, Section 1206.452
addressed what coal is subject to Federal or Indian royalties. The 2016
Valuation Rule consolidated and moved Sec. Sec. 1206.253 and 1206.452
to Part 1202, Subpart F, Sec. 1202.251. See 81 FR 43369.
This final rule recodifies Part 1202 Subpart F--Coal as it appeared
prior to the 2016 Valuation Rule. As further discussed below, this
final rule also recodifies Part 1206, Subparts F and J, including
Sec. Sec. 1206.253 and 1206.452. This effectively removes Sec.
1202.251 from Part 1202 and returns the regulatory language addressing
what coal is subject to royalties to Part 1206.
2. Recodification of Part 1206, Subparts F and J
Prior to the 2016 Valuation Rule, Part 1206 contained Subparts F--
Federal Coal and J--Indian Coal. These Subparts set forth various
provisions for the valuation of Federal and Indian Coal, including
definition sections at Sec. Sec. 1206.251 and 1206.451. The 2016
Valuation Rule retained but substantially revised Subparts F and J. See
81 FR 43369-43402. This final rule recodifies the prior Subparts F and
J, including the definition sections at Sec. Sec. 1206.251 and
1206.451, as those Subparts appeared prior to the 2016 Valuation Rule.
3. Revisions to Sec. Sec. 1206.20, 1206.251, and 1206.451
Prior to the 2016 Valuation Rule, Part 1206, Subpart A--General
Provisions contained only Sec. 1206.10, which discussed information
collection requirements. Additionally, Part 1206, Subparts C--Federal
Oil, D--Federal Gas, F--Federal Coal, and J--Indian Coal contained
definition sections at Sec. Sec. 1206.101, 1206.151, 1206.251 and
1206.451, respectively.
The 2016 Valuation Rule changed the title of Part 1206, Subpart A
to ``General Provisions and Definitions,'' added Sec. 1206.20 titled
``What Definitions Apply to this Part?,'' and consolidated and moved
the definitions from Sec. Sec. 1206.101, 1206.151, 1206.251, and
1206.451 to Sec. 1206.20. See 81 FR 43369-43372. Some of these
consolidated definitions contain, in part, language only applicable to
coal. For example, after broadly defining the term ``lessee,'' Sec.
1206.20 clarified that ``lessee'' also includes ``[i]n the case of
leases for Indian coal or Federal coal, an operator, payor, or other
person with no lease interest who makes payments on the lessee's
behalf.''
Because the District Court vacated only the Federal and Indian coal
valuation provisions of the 2016 Valuation Rule, this final rule
retains, in part, Sec. 1206.20. To implement the District Court's
Order and Judgment, however, this final rule removes from Sec. 1206.20
the definitions of the following coal-specific terms: ``Ad valorem
lease,'' ``Coal,'' ``Coal cooperative,'' ``Coal washing,'' ``Region,''
``Short ton,'' ``Tonnage,'' and ``Washing allowance.'' This final rule
further revises the definitions of the following terms in Sec. 1206.20
to remove coal-specific language: ``Gross proceeds,'' ``Lessee,''
``Marketable

[[Page 47004]]

condition,'' ``Net Output,'' ``Sale,'' and ``Transportation
allowance.''
Prior to the 2016 Valuation Rule, Part 1206, Subparts F and J used,
but did not define, the terms ``affiliate,'' ``designee,'' ``lease
products,'' ``misconduct,'' ``payor,'' ``processing,'' and ``sale.''
The 2016 Valuation Rule defined these terms in Sec. 1206.20. See 81 FR
43369-43372. Because other Subparts of Part 1206 also use these terms,
this final rule leaves these definitions in Sec. 1206.20. To recodify
the version of the Federal and Indian coal valuation provisions in
effect prior to the 2016 Valuation Rule, however, this final rule adds
introductory text to Sec. Sec. 1206.20, 1206.251 and 1206.451 stating
that the definitions in Sec. 1206.20 do not apply to Subparts F and J,
and that the definitions in Sec. Sec. 1206.251 and 1206.451 apply to
their respective subparts.

II. Procedural Matters

ONRR finds good cause to issue this final rule without notice and
opportunity for public comment under 5 U.S.C. 553(b)(B). The
publication of this final rule was necessitated by the District Court's
Order and Judgment that vacated the Federal and Indian coal valuation
provisions of the 2016 Valuation Rule. Because ONRR is acting to comply
with a final court order, public comment is unnecessary.
Additionally, a 30-day period between publication of a final rule
and its effective date is not required by 5 U.S.C. 553(d) because the
District Court's Order and Judgment found that pre-2016 valuation
provisions shall continue to govern Federal and Indian coal.

A. Regulatory Planning and Review (Executive Orders 12866 and 13563)

Executive Order (``E.O.'') 12866 provides that the Office of
Information and Regulatory Affairs (``OIRA'') of the Office of
Management and Budget (``OMB'') will review all significant rules. This
final rule is not significant because it does not change the law in any
way and only publishes the current law as established by the District
Court's Order and Judgment.
E.O. 14094 reaffirms the principles of E.O. 12866 and E.O. 13563
and states that regulatory analysis should facilitate agency efforts to
develop regulations that serve the public interest, advance statutory
objectives, and are consistent with E.O. 12866, E.O. 13563, and the
Presidential Memorandum of January 20, 2021 (Modernizing Regulatory
Review). Regulatory analysis, as practicable and appropriate, shall
recognize distributive impacts and equity, to the extent permitted by
law. E.O 13563 further emphasizes those regulations must be based on
the best available science and that the rulemaking process must allow
for public participation and an open exchange of ideas. ONRR has
demonstrated, however, good cause to issue this final rule without
notice and opportunity for public comment pursuant to 5 U.S.C.
553(b)(B) because this final rule is published to comply with the
District Court's Order and Judgment.

B. Regulatory Flexibility Act

The Department of the Interior (``the Department'') certified that
the 2016 Valuation Rule did not have a significant economic effect on a
substantial number of small entities under the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.). See 81 FR 43367. Thus, a Regulatory
Flexibility Analysis and a Small Entity Compliance Guide were not
required. Similarly, the republication of the coal valuation
regulations that were in effect prior to the 2016 Valuation Rule does
not require a Regulatory Flexibility Analysis and Small Entity
Compliance Guide.

C. Congressional Review Act

The republication of the coal valuation regulations in effect prior
to the 2016 Valuation Rule is not considered a major rule under the
Congressional Review Act (5 U.S.C. 804(2)). This final rule:
(1) Does not have an annual effect on the economy of $100 million
or more.
(2) Does not cause a major increase in costs or prices for
consumers; individual industries; Federal, State, or local government
agencies; or geographic regions.
(3) 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.

D. Unfunded Mandates Reform Act

The republication of the Federal and Indian coal valuation
provisions in effect prior to the 2016 Valuation Rule does not impose
an unfunded mandate on State, local, or Tribal governments or the
private sector of more than $100 million per year. This final rule does
not have a significant or unique effect on State, local, or Tribal
governments or the private sector. Therefore, ONRR is not required to
provide a statement under the Unfunded Mandates Reform Act (2 U.S.C.
1501 et seq.) because this final rule is not an unfunded mandate.

E. Takings (E.O. 12630)

Under the criteria in E.O. 12630, section 2, this final rule has no
significant takings implications. Hence, this final rule does not
impose conditions or limitations on the use of any private property and
does not require a Takings Implication Assessment.

F. Federalism (E.O. 13132)

Under the criteria in E.O. 13132, section 1, this final rule does
not have sufficient Federalism implications to warrant the preparation
of a Federalism summary impact statement. This final rule does not
impose administrative costs on States or local governments and does not
substantially and directly affect the relationship between the Federal
and State governments. Thus, a Federalism summary impact statement is
not required.

G. Civil Justice Reform (E.O. 12988)

This final rule complies with the requirements of E.O. 12988.
Specifically, this final rule:
(1) Meets the criteria of section 3(a), which requires that ONRR
review all regulations to eliminate errors and ambiguity to minimize
litigation.
(2) Meets the criteria of section 3(b)(2), which requires that all
regulations be written in clear language using clear legal standards.

H. Consultation With Indian Tribal Governments (E.O. 13175)

ONRR strives to strengthen its government-to-government
relationship with Indian Tribes through a commitment to consultation
with Indian Tribes and in recognition of their right to self-governance
and Tribal sovereignty. ONRR evaluated this final rule and the criteria
in E.O. 13175 and determined that the final rule will not have
substantial direct effects on Federally recognized Indian Tribes. Thus,
consultation under ONRR's Tribal consultation policy is not required.

I. Paperwork Reduction Act

This final rule does not contain any new information collection
requirements or meet the definition of ``collection of information''
under 44 U.S.C. 3502(3). A submission to OMB under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.) is not required.

J. National Environmental Policy Act

This final 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
(``NEPA'') is not

[[Page 47005]]

required because this final rule implements a court order to vacate the
2016 Valuation Rule's Federal and Indian coal amendments. See 43 CFR
46.210(i) and the Departmental Manual, 516 DM 15.4.D. ONRR determined
that this final rule does not involve any of the extraordinary
circumstances under 43 CFR 46.215 that would require further analysis
under NEPA. The procedural changes resulting from these amendments have
no consequence with respect to the physical environment. This final
rule will not alter in any material way natural resource exploration,
production, or transportation.

K. Effects on the Energy Supply (E.O. 13211)

This final rule is not a significant energy action under the
definition in E.O. 13211 and, therefore does not require a Statement of
Energy Effects.

L. Clarity of This Regulation

ONRR is required by E.O. 12866 (section 1(b)(12)), E.O. 12988
(section 3(b)(1)(B)), and E.O. 13563 (section 1(a)), and by the
Presidential Memorandum of June 1, 1998, to write all rules in plain
language. This means that each rule ONRR publishes must:
(1) Be logically organized.
(2) Use the active voice to address readers directly.
(3) Use common, everyday words and clear language rather than
jargon.
(4) Be divided into short sections and sentences.
(5) Use lists and tables wherever possible.
If you feel that ONRR has not met these requirements, send your
comments to <a href="/cdn-cgi/l/email-protection#753a3b27272a271012001914011c1a1b0638141c19171a0d351a1b07075b121a03"><span class="__cf_email__" data-cfemail="337c7d61616c615654465f52475a5c5d407e525a5f515c4b735c5d41411d545c45">[email&#160;protected]</span></a>. To guide ONRR in
developing future changes to this final rule, your remarks should be as
specific as possible. For example, you should tell ONRR the numbers of
the sections or paragraphs that are not clearly written, which sections
or sentences are too long, the sections where you feel lists or tables
would be useful, etc.

List of Subjects

30 CFR Part 1202

Coal, Continental shelf, Government contracts, Indian lands,
Mineral royalties, Natural gas, Oil and gas exploration, Public lands--
mineral resources, Reporting and recordkeeping requirements.

30 CFR Part 1206

Coal, Continental shelf, Government contracts, Indian lands,
Mineral royalties, Oil and gas exploration, Public lands--mineral
resources, Reporting and recordkeeping requirements.

Howard Cantor,
Acting Director, Office of Natural Resources Revenue.

Authority and Issuance

For the reasons discussed in the preamble and to comply with the
District Court's Order and Judgment, ONRR amends 30 CFR parts 1202 and
1206 as set forth below:

PART 1202--ROYALTIES

0
1. The authority citation for part 1202 is revised to read as follows:

Authority: 5 U.S.C. 301 et seq., 25 U.S.C. 396, 396a et seq.,
398, 398a et seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq.,
1001 et seq., 1701 et seq.; 43 U.S.C. 1301 et seq., 1331 et seq.,
and 1801 et seq.

Subpart F--Coal

Sec. 1202.251 [Removed]

0
2. Remove Sec. 1202.251.

PART 1206--PRODUCT VALUATION

0
3. The authority citation for part 1206 is revised to read as follows:

Subpart A--General Provisions and Definitions

0
4. Amend Sec. 1206.20 by:
0
a. Adding introductory text;
0
b. Removing the definitions of ``Ad valorem lease'', ``Coal'', ``Coal
cooperative'', and ``Coal washing'';
0
c. Revising the definitions for ``Gross proceeds'', ``Lessee'',
``Marketable condition'', and ``Net output'';
0
d. Removing the definition of ``Region'';
0
e. Revising the definition of ``Sale'':
0
f. Removing the definitions of ``Short ton'' and ``Tonnage'';
0
g. Revising the definition of ``Transportation allowance''; and
0
h. Removing the definition of ``Washing allowance''.
The revisions read as follows:

Sec. 1206.20 What definitions apply to this part?

The definitions in this section do not apply to subparts F and J of
this part.
* * * * *
Gross proceeds means the total monies and other consideration
accruing for the disposition of any of the following:
(1) Oil. Gross proceeds also include, but are not limited to, the
following examples:
(i) Payments for services such as dehydration, marketing,
measurement, or gathering which the lessee must perform at no cost to
the Federal Government.
(ii) The value of services, such as salt water disposal, that the
producer normally performs but that the buyer performs on the
producer's behalf.
(iii) Reimbursements for harboring or terminalling fees, royalties,
and any other reimbursements.
(iv) Tax reimbursements, even though the Federal royalty interest
may be exempt from taxation.
(v) Payments made to reduce or buy down the purchase price of oil
produced in later periods by allocating such payments over the
production whose price that the payment reduces and including the
allocated amounts as proceeds for the production as it occurs.
(vi) Monies and all other consideration to which a seller is
contractually or legally entitled but does not seek to collect through
reasonable efforts.
(2) Gas, residue gas, and gas plant products. Gross proceeds also
include, but are not limited to, the following examples:
(i) Payments for services such as dehydration, marketing,
measurement, or gathering that the lessee must perform at no cost to
the Federal Government.
(ii) Reimbursements for royalties, fees, and any other
reimbursements.
(iii) Tax reimbursements, even though the Federal royalty interest
may be exempt from taxation.
(iv) Monies and all other consideration to which a seller is
contractually or legally entitled, but does not seek to collect through
reasonable efforts.
* * * * *
Lessee means any person to whom the United States, an Indian Tribe,
and/or individual Indian mineral owner issues a lease, and any person
who has been assigned all or a part of record title, operating rights,
or an obligation to make royalty or other payments required by the
lease. Lessee includes any person who has an interest in a lease.
* * * * *
Marketable condition means lease products which are sufficiently
free from impurities and otherwise in a condition that they will be
accepted by a purchaser under a sales contract typical for the field or
area for Federal oil and gas.
* * * * *

[[Page 47006]]

Net output means the quantity of gas residue gas and each gas plant
product that a processing plant produces.
* * * * *
Sale means a contract between two persons where:
(1) The seller unconditionally transfers title to the oil, gas, or
gas plant product to the buyer and does not retain any related rights,
such as the right to buy back similar quantities of oil, gas, or gas
plant product from the buyer elsewhere;
(2) The buyer pays money or other consideration for the oil, gas,
or gas plant product; and
(3) The parties' intent is for a sale of the oil, gas, or gas plant
product to occur.
* * * * *
Transportation allowance means a deduction in determining royalty
value for the reasonable, actual costs that the lessee incurs for
moving:
(1) Oil to a point of sale or delivery off of the lease, unit area,
or communitized area. The transportation allowance does not include
gathering costs.
(2) Unprocessed gas, residue gas, or gas plant products to a point
of sale or delivery off of the lease, unit area, or communitized area,
or away from a processing plant. The transportation allowance does not
include gathering costs.
* * * * *

0
5. Revise Subpart F to read as follows:
Subpart F--Federal Coal
Sec.
1206.250 Purpose and scope.
1206.251 Definitions.
1206.252 Information collection.
1206.253 Coal subject to royalties--general provisions.
1206.254 Quality and quantity measurement standards for reporting
and paying royalties.
1206.255 Point of royalty determination.
1206.256 Valuation standards for cents-per-ton leases.
1206.257 Valuation standards for ad valorem leases.
1206.258 Washing allowances--general.
1206.259 Determination of washing allowances.
1206.260 Allocation of washed coal.
1206.261 Transportation allowances--general.
1206.262 Determination of transportation allowances.
1206.263 [Reserved]
1206.264 In-situ and surface gasification and liquefaction
operations.
1206.265 Value enhancement of marketable coal.

Subpart F--Federal Coal

Sec. 1206.250 Purpose and scope.

(a) This subpart is applicable to all coal produced from Federal
coal leases. The purpose of this subpart is to establish the value of
coal produced for royalty purposes, of all coal from Federal leases
consistent with the mineral leasing laws, other applicable laws and
lease terms.
(b) If the specific provisions of any statute or settlement
agreement between the United States and a lessee resulting from
administrative or judicial litigation, or any coal lease subject to the
requirements of this subpart, are inconsistent with any regulation in
this subpart then the statute, lease provision, or settlement shall
govern to the extent of that inconsistency.
(c) All royalty payments made to the Office of Natural Resources
Revenue (ONRR) are subject to later audit and adjustment.

Sec. 1206.251 Definitions.

The definitions in Sec. 1206.20 do not apply to this subpart. For
purposes of this subpart:
Ad valorem lease means a lease where the royalty due to the lessor
is based upon a percentage of the amount or value of the coal.
Allowance means a deduction used in determining value for royalty
purposes. Coal washing allowance means an allowance for the reasonable,
actual costs incurred by the lessee for coal washing. Transportation
allowance means an allowance for the reasonable, actual costs incurred
by the lessee for moving coal to a point of sale or point of delivery
remote from both the lease and mine or wash plant.
Area means a geographic region in which coal has similar quality
and economic characteristics. Area boundaries are not officially
designated and the areas are not necessarily named.
Arm's-length contract means:
(1) A contract or agreement that has been arrived at in the
marketplace between independent, nonaffiliated persons with opposing
economic interests regarding that contract. For purposes of this
subpart, two persons are affiliated if one person controls, is
controlled by, or is under common control with another person. For
purposes of this subpart, based on the instruments of ownership of the
voting securities of an entity, or based on other forms of ownership:
(i) Ownership in excess of 50 percent constitutes control;
(ii) Ownership of 10 through 50 percent creates a presumption of
control; and
(iii) Ownership of less than 10 percent creates a presumption of
noncontrol which ONRR may rebut if it demonstrates actual or legal
control, including the existence of interlocking directorates.
(2) Notwithstanding any other provisions of this subpart, contracts
between relatives, either by blood or by marriage, are not arm's-length
contracts. The ONRR may require the lessee to certify ownership
control. To be considered arm's-length for any production month, a
contract must meet the requirements of this definition for that
production month as well as when the contract was executed.
Audit means a review, conducted in accordance with generally
accepted accounting and auditing standards, of royalty payment
compliance activities of lessees or other interest holders who pay
royalties, rents, or bonuses on Federal leases.
BLM means the Bureau of Land Management of the Department of the
Interior.
Coal means coal of all ranks from lignite through anthracite.
Coal washing means any treatment to remove impurities from coal.
Coal washing may include, but is not limited to, operations such as
flotation, air, water, or heavy media separation; drying; and related
handling (or combination thereof).
Contract means any oral or written agreement, including amendments
or revisions thereto, between two or more persons and enforceable by
law that with due consideration creates an obligation.
Gross proceeds (for royalty payment purposes) means the total
monies and other consideration accruing to a coal lessee for the
production and disposition of the coal produced. Gross proceeds
includes, but is not limited to, payments to the lessee for certain
services such as crushing, sizing, screening, storing, mixing, loading,
treatment with substances including chemicals or oils, and other
preparation of the coal to the extent that the lessee is obligated to
perform them at no cost to the Federal Government. Gross proceeds, as
applied to coal, also includes but is not limited to reimbursements for
royalties, taxes or fees, and other reimbursements. Tax reimbursements
are part of the gross proceeds accruing to a lessee even though the
Federal royalty interest may be exempt from taxation. Monies and other
consideration, including the forms of consideration identified in this
paragraph, to which a lessee is contractually or legally entitled but
which it does not seek to collect through

[[Page 47007]]

reasonable efforts are also part of gross proceeds.
Lease means any contract, profit-share arrangement, joint venture,
or other agreement issued or approved by the United States for a
Federal coal resource under a mineral leasing law that authorizes
exploration for, development or extraction of, or removal of coal--or
the land covered by that authorization, whichever is required by the
context.
Lessee means any person to whom the United States issues a lease,
and any person who has been assigned an obligation to make royalty or
other payments required by the lease. This includes any person who has
an interest in a lease as well as an operator or payor who has no
interest in the lease but who has assumed the royalty payment
responsibility.
Like-quality coal means coal that has similar chemical and physical
characteristics.
Marketable condition means coal that is sufficiently free from
impurities and otherwise in a condition that it will be accepted by a
purchaser under a sales contract typical for that area.
Mine means an underground or surface excavation or series of
excavations and the surface or underground support facilities that
contribute directly or indirectly to mining, production, preparation,
and handling of lease products.
Net-back method means a method for calculating market value of coal
at the lease or mine. Under this method, costs of transportation,
washing, handling, etc., are deducted from the ultimate proceeds
received for the coal at the first point at which reasonable values for
the coal may be determined by a sale pursuant to an arm's-length
contract or by comparison to other sales of coal, to ascertain value at
the mine.
Net output means the quantity of washed coal that a washing plant
produces.
Netting is the deduction of an allowance from the sales value by
reporting a one line net sales value, instead of correctly reporting
the deduction as a separate line item on the form ONRR-4430.
Person means by individual, firm, corporation, association,
partnership, consortium, or joint venture.
Sales type code means the contract type or general disposition
(e.g., arm's-length or non-arm's-length) of production from the lease.
The sales type code applies to the sales contract, or other
disposition, and not to the arm's-length or non-arm's-length nature of
a transportation or washing allowance.
Spot market price means the price received under any sales
transaction when planned or actual deliveries span a short period of
time, usually not exceeding one year.

Sec. 1206.252 Information collection.

The information collection requirements contained in this subpart
have been approved by the Office of Management and Budget (OMB) under
44 U.S.C. 3501 et seq. The forms, filing date, and approved OMB control
numbers are identified in part 1210 of this subchapter.

Sec. 206.253 Coal subject to royalties--general provisions.

(a) All coal (except coal unavoidably lost as determined by BLM
under 43 CFR part 3400) from a Federal lease subject to this part is
subject to royalty. This includes coal used, sold, or otherwise
disposed of by the lessee on or off the lease.
(b) If a lessee receives compensation for unavoidably lost coal
through insurance coverage or other arrangements, royalties at the rate
specified in the lease are to be paid on the amount of compensation
received for the coal. No royalty is due on insurance compensation
received by the lessee for other losses.
(c) If waste piles or slurry ponds are reworked to recover coal,
the lessee shall pay royalty at the rate specified in the lease at the
time the recovered coal is used, sold, or otherwise finally disposed
of. The royalty rate shall be that rate applicable to the production
method used to initially mine coal in the waste pile or slurry pond;
i.e., underground mining method or surface mining method. Coal in waste
pits or slurry ponds initially mined from Federal leases shall be
allocated to such leases regardless of whether it is stored on Federal
lands. The lessee shall maintain accurate records to determine to which
individual Federal lease coal in the waste pit or slurry pond should be
allocated. However, nothing in this section requires payment of a
royalty on coal for which a royalty has already been paid.

Sec. 1206.254 Quality and quantity measurement standards for
reporting and paying royalties.

For all leases subject to this subpart, the quantity of coal on
which royalty is due shall be measured in short tons (of 2,000 pounds
each) by methods prescribed by the BLM. Coal quantity information will
be reported on appropriate forms required under 30 CFR part 1210 of
this subchapter.

Sec. 1206.255 Point of royalty determination.

(a) For all leases subject to this subpart, royalty shall be
computed on the basis of the quantity and quality of Federal coal in
marketable condition measured at the point of royalty measurement as
determined jointly by BLM and ONRR.
(b) Coal produced and added to stockpiles or inventory does not
require payment of royalty until such coal is later used, sold, or
otherwise finally disposed of. ONRR may ask BLM to increase the lease
bond to protect the lessor's interest when BLM determines that
stockpiles or inventory become excessive so as to increase the risk of
degradation of the resource.
(c) The lessee shall pay royalty at a rate specified in the lease
at the time the coal is used, sold, or otherwise finally disposed of,
unless otherwise provided for at Sec. 1206.256(d).

Sec. 1206.256 Valuation standards for cents-per-ton leases.

(a) This section is applicable to coal leases on Federal lands
which provide for the determination of royalty on a cents-per-ton (or
other quantity) basis.
(b) The royalty for coal from leases subject to this section shall
be based on the dollar rate per ton prescribed in the lease. That
dollar rate shall be applicable to the actual quantity of coal used,
sold, or otherwise finally disposed of, including coal which is
avoidably lost as determine by BLM pursuant to 43 CFR part 3400.
(c) For leases subject to this section, there shall be no
allowances for transportation, removal of impurities, coal washing, or
any other processing or preparation of the coal.
(d) When a coal lease is readjusted pursuant to 43 CFR part 3400
and the royalty valuation method changes from a cents-per-ton basis to
an ad valorem basis, coal which is produced prior to the effective date
of readjustment and sold or used within 30 days of the effective date
of readjustment shall be valued pursuant to this section. All coal that
is not used, sold, or otherwise finally disposed of within 30 days
after the effective date of readjustment shall be valued pursuant to
the provisions of Sec. 1206.257, and royalties shall be paid at the
royalty rate specified in the readjusted lease.

Sec. 1206.257 Valuation standards for ad valorem leases.

(a) This section is applicable to coal leases on Federal lands
which provide for the determination of royalty as a percentage of the
amount of value of coal (ad valorem). The value for royalty purposes of
coal from such leases shall

[[Page 47008]]

be the value of coal determined under this section, less applicable
coal washing allowances and transportation allowances determined under
Sec. Sec. 1206.258 through 1206.262, or any allowance authorized by
Sec. 1206.265. The royalty due shall be equal to the value for royalty
purposes multiplied by the royalty rate in the lease.
(b)(1) The value of coal that is sold pursuant to an arm's-length
contract shall be the gross proceeds accruing to the lessee, except as
provided in paragraphs (b)(2), (3), and (5) of this section. The lessee
shall have the burden of demonstrating that its contract is arm's-
length. The value which the lessee reports, for royalty purposes, is
subject to monitoring, review, and audit.
(2) In conducting reviews and audits, ONRR will examine whether the
contract reflects the total consideration actually transferred either
directly or indirectly from the buyer to the seller for the coal
produced. If the contract does not reflect the total consideration,
then the ONRR may require that the coal sold pursuant to that contract
be valued in accordance with paragraph (c) of this section. Value may
not be based on less than the gross proceeds accruing to the lessee for
the coal production, including the additional consideration.
(3) If ONRR determines that the gross proceeds accruing to the
lessee pursuant to an arm's-length contract do not reflect the
reasonable value of the production because of misconduct by or between
the contracting parties, or because the lessee otherwise has breached
its duty to the lessor to market the production for the mutual benefit
of the lessee and the lessor, then ONRR shall require that the coal
production be valued pursuant to paragraph (c)(2)(ii), (iii), (iv), or
(v) of this section, and in accordance with the notification
requirements of paragraph (d)(3) of this section. When ONRR determines
that the value may be unreasonable, ONRR will notify the lessee and
give the lessee an opportunity to provide written information
justifying the lessee's reported coal value.
(4) ONRR may require a lessee to certify that its arm's-length
contract provisions include all of the consideration to be paid by the
buyer, either directly or indirectly, for the coal production.
(5) The value of production for royalty purposes shall not include
payments received by the lessee pursuant to a contract which the lessee
demonstrates, to ONRR's satisfaction, were not part of the total
consideration paid for the purchase of coal production.
(c)(1) The value of coal from leases subject to this section and
which is not sold pursuant to an arm's-length contract shall be
determined in accordance with this section.
(2) If the value of the coal cannot be determined pursuant to
paragraph (b) of this section, then the value shall be determined
through application of other valuation criteria. The criteria shall be
considered in the following order, and the value shall be based upon
the first applicable criterion:
(i) The gross proceeds accruing to the lessee pursuant to a sale
under its non-arm's-length contract (or other disposition of produced
coal by other than an arm's-length contract), provided that those gross
proceeds are within the range of the gross proceeds derived from, or
paid under, comparable arm's-length contracts between buyers and
sellers neither of whom is affiliated with the lessee for sales,
purchases, or other dispositions of like-quality coal produced in the
area. In evaluating the comparability of arm's-length contracts for the
purposes of these regulations, the following factors shall be
considered: Price, time of execution, duration, market or markets
served, terms, quality of coal, quantity, and such other factors as may
be appropriate to reflect the value of the coal;
(ii) Prices reported for that coal to a public utility commission;
(iii) Prices reported for that coal to the Energy Information
Administration of the Department of Energy;
(iv) Other relevant matters including, but not limited to,
published or publicly available spot market prices, or information
submitted by the lessee concerning circumstances unique to a particular
lease operation or the saleability of certain types of coal;
(v) If a reasonable value cannot be determined using paragraph
(c)(2)(i), (ii), (iii), or (iv) of this section, then a net-back method
or any other reasonable method shall be used to determine value.
(3) When the value of coal is determined pursuant to paragraph
(c)(2) of this section, that value determination shall be consistent
with the provisions contained in paragraph (b)(5) of this section.
(d)(1) Where the value is determined pursuant to paragraph (c) of
this section, that value does not require ONRR's prior approval.
However, the lessee shall retain all data relevant to the determination
of royalty value. Such data shall be subject to review and audit, and
ONRR will direct a lessee to use a different value if it determines
that the reported value is inconsistent with the requirements of these
regulations.
(2) Any Federal lessee will make available upon request to the
authorized ONRR or State representatives, to the Inspector General of
the Department of the Interior or other persons authorized to receive
such information, arm's-length sales value and sales quantity data for
like-quality coal sold, purchased, or otherwise obtained by the lessee
from the area.
(3) A lessee shall notify ONRR if it has determined value pursuant
to paragraph (c)(2)(ii), (iii), (iv), or (v) of this section. The
notification shall be by letter to the Director for Office of Natural
Resources Revenue of his/her designee. The letter shall identify the
valuation method to be used and contain a brief description of the
procedure to be followed. The notification required by this section is
a one-time notification due no later than the month the lessee first
reports royalties on the form ONRR-4430 using a valuation method
authorized by paragraph (c)(2)(ii), (iii), (iv), or (v) of this
section, and each time there is a change in a method under paragraph
(c)(2)(iv) or (v) of this section.
(e) If ONRR determines that a lessee has not properly determined
value, the lessee shall be liable for the difference, if any, between
royalty payments made based upon the value it has used and the royalty
payments that are due based upon the value established by ONRR. The
lessee shall also be liable for interest computed pursuant to Sec.
1218.202 of this subchapter. If the lessee is entitled to a credit,
ONRR will provide instructions for the taking of that credit.
(f) The lessee may request a value determination from ONRR. In that
event, the lessee shall propose to ONRR a value determination method,
and may use that method in determining value for royalty purposes until
ONRR issues its decision. The lessee shall submit all available data
relevant to its proposal. The ONRR shall expeditiously determine the
value based upon the lessee's proposal and any additional information
ONRR deems necessary. That determination shall remain effective for the
period stated therein. After ONRR issues its determination, the lessee
shall make the adjustments in accordance with paragraph (e) of this
section.
(g) Notwithstanding any other provisions of this section, under no
circumstances shall the value for royalty purposes be less than the
gross proceeds accruing to the lessee for the disposition of produced
coal less applicable provisions of paragraph (b)(5) of this section and
less applicable allowances determined pursuant to Sec. Sec. 1206.258
through 1206.262 and 1206.265.

[[Page 47009]]

(h) The lessee is required to place coal in marketable condition at
no cost to the Federal Government. Where the value established under
this section is determined by a lessee's gross proceeds, that value
shall be increased to the extent that the gross proceeds has been
reduced because the purchaser, or any other person, is providing
certain services, the cost of which ordinarily is the responsibility of
the lessee to place the coal in marketable condition.
(i) Value shall be based on the highest price a prudent lessee can
receive through legally enforceable claims under its contract. Absent
contract revision or amendment, if the lessee fails to take proper or
timely action to receive prices or benefits to which it is entitled, it
must pay royalty at a value based upon that obtainable price or
benefit. Contract revisions or amendments shall be in writing and
signed by all parties to an arm's-length contract, and may be
retroactively applied to value for royalty purposes for a period not to
exceed two years, unless ONRR approves a longer period. If the lessee
makes timely application for a price increase allowed under its
contract but the purchaser refuses, and the lessee takes reasonable
measures, which are documented, to force purchaser compliance, the
lessee will owe no additional royalties unless or until monies or
consideration resulting from the price increase are received. This
paragraph shall not be construed to permit a lessee to avoid its
royalty payment obligation in situations where a purchaser fails to
pay, in whole or in part or timely, for a quantity of coal.
(j) Notwithstanding any provision in these regulations to the
contrary, no review, reconciliation, monitoring, or other like process
that results in a redetermination by ONRR of value under this section
shall be considered final or binding as against the Federal Government
or its beneficiaries until the audit period is formally closed.
(k) Certain information submitted to ONRR to support valuation
proposals, including transportation, coal washing, or other allowances
under Sec. 1206.265, is exempted from disclosure by the Freedom of
Information Act, 5 U.S.C. 522. Any data specified by the Act to be
privileged, confidential, or otherwise exempt shall be maintained in a
confidential manner in accordance with applicable law and regulations.
All requests for information about determinations made under this part
are to be submitted in accordance with the Freedom of Information Act
regulation of the Department of the Interior, 43 CFR part 2.

Sec. 1206.258 Washing allowances--general.

(a) For ad valorem leases subject to Sec. 1206.257, ONRR shall, as
authorized by this section, allow a deduction in determining value for
royalty purposes for the reasonable, actual costs incurred to wash
coal, unless the value determined pursuant to Sec. 1206.257 was based
upon like-quality unwashed coal. Under no circumstances will the
authorized washing allowance and the transportation allowance reduce
the value for royalty purposes to zero.
(b) If ONRR determines that a lessee has improperly determined a
washing allowance authorized by this section, then the lessee shall be
liable for any additional royalties, plus interest determined in
accordance with Sec. 1218.202 of this subchapter, or shall be entitled
to a credit without interest.
(c) Lessees shall not disproportionately allocate washing costs to
Federal leases.
(d) No cost normally associated with mining operations and which
are necessary for placing coal in marketable condition shall be allowed
as a cost of washing.
(e) Coal washing costs shall only be recognized as allowances when
the washed coal is sold and royalties are reported and paid.

Sec. 1206.259 Determination of washing allowances.

(a) Arm's-length contracts. (1) For washing costs incurred by a
lessee under an arm's-length contract, the washing allowance shall be
the reasonable actual costs incurred by the lessee for washing the coal
under that contract, subject to monitoring, review, audit, and possible
future adjustment. The lessee shall have the burden of demonstrating
that its contract is arm's-length. ONRR's prior approval is not
required before a lessee may deduct costs incurred under an arm's-
length contract. The lessee must claim a washing allowance by reporting
it as a separate line entry on the Form ONRR-4430.
(2) In conducting reviews and audits, ONRR will examine whether the
contract reflects more than the consideration actually transferred
either directly or indirectly from the lessee to the washer for the
washing. If the contract reflects more than the total consideration
paid, then the ONRR may require that the washing allowance be
determined in accordance with paragraph (b) of this section.
(3) If ONRR determines that the consideration paid pursuant to an
arm's-length washing contract does not reflect the reasonable value of
the washing because of misconduct by or between the contracting
parties, or because the lessee otherwise has breached its duty to the
lessor to market the production for the mutual benefit of the lessee
and the lessor, then ONRR shall require that the washing allowance be
determined in accordance with paragraph (b) of this section. When ONRR
determines that the value of the washing may be unreasonable, ONRR will
notify the lessee and give the lessee an opportunity to provide written
information justifying the lessee's washing costs.
(4) Where the lessee's payments for washing under an arm's-length
contract are not based on a dollar-per-unit basis, the lessee shall
convert whatever consideration is paid to a dollar value equivalent.
Washing allowances shall be expressed as a cost per ton of coal washed.
(b) Non-arm's-length or no contract. (1) If a lessee has a non-
arm's-length contract or has no contract, including those situations
where the lessee performs washing for itself, the washing allowance
will be based upon the lessee's reasonable actual costs. All washing
allowances deducted under a non-arm's-length or no contract situation
are subject to monitoring, review, audit, and possible future
adjustment. The lessee must claim a washing allowance by reporting it
as a separate line entry on the Form ONRR-4430. When necessary or
appropriate, ONRR may direct a lessee to modify its estimated or actual
washing allowance.
(2) The washing allowance for non-arm's-length or no contract
situations shall be based upon the lessee's actual costs for washing
during the reported period, including operating and maintenance
expenses, overhead, and either depreciation and a return on
undepreciated capital investment in accordance with paragraph
(b)(2)(iv)(A) of this section, or a cost equal to the depreciable
investment in the wash plant multiplied by the rate of return in
accordance with paragraph (b)(2)(iv)(B) of this section. Allowable
capital costs are generally those for depreciable fixed assets
(including costs of delivery and installation of capital equipment)
which are an integral part of the wash plant.
(i) Allowable operating expenses include: Operations supervision
and engineering; operations labor; fuel; utilities; materials; ad
valorem property taxes, rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can
document.
(ii) Allowable maintenance expenses include: Maintenance of the
wash plant; maintenance of equipment; maintenance labor; and other
directly

[[Page 47010]]

allocable and attributable maintenance expenses which the lessee can
document.
(iii) Overhead attributable and allocable to the operation and
maintenance of the wash plant is an allowable expense. State and
Federal income taxes and severance taxes, including royalties, are not
allowable expenses.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or (B) of this
section. After a lessee has elected to use either method for a wash
plant, the lessee may not later elect to change to the other
alternative without approval of the ONRR.
(A) To compute depreciation, the lessee may elect to use either a
straight-line depreciation method based on the life of equipment or on
the life of the reserves which the wash plant services, whichever is
appropriate, or a unit of production method. After an election is made,
the lessee may not change methods without ONRR approval. A change in
ownership of a wash plant shall not alter the depreciation schedule
established by the original operator/lessee for purposes of the
allowance calculation. With or without a change in ownership, a wash
plant shall be depreciated only once. Equipment shall not be
depreciated below a reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable
capital investment in the wash plant multiplied by the rate of return
determined pursuant to paragraph (b)(2)(v) of this section. No
allowance shall be provided for depreciation. This alternative shall
apply only to plants first placed in service or acquired after March 1,
1989.
(v) The rate of return must be the industrial rate associated with
Standard and Poor's BBB rating. The rate of return must be the monthly
average rate as published in Standard and Poor's Bond Guide for the
first month for which the allowance is applicable. The rate must be
redetermined at the beginning of each subsequent calendar year.
(3) The washing allowance for coal shall be determined based on the
lessee's reasonable and actual cost of washing the coal. The lessee may
not take an allowance for the costs of washing lease production that is
not royalty bearing.
(c) Reporting requirements--(1) Arm's-length contracts. (i) The
lessee must notify ONRR of an allowance based on incurred costs by
using a separate line entry on the Form ONRR-4430.
(ii) ONRR may require that a lessee submit arm's-length washing
contracts and related documents. Documents shall be submitted within a
reasonable time, as determined by ONRR.
(2) Non-arm's-length or no contract. (i) The lessee must notify
ONRR of an allowance based on the incurred costs by using a separate
line entry on the Form ONRR-4430.
(ii) For new washing facilities or arrangements, the lessee's
initial washing deduction shall include estimates of the allowable coal
washing costs for the applicable period. Cost estimates shall be based
upon the most recently available operations data for the washing system
or, if such data are not available, the lessee shall use estimates
based upon industry data for similar washing systems.
(iii) Upon request by ONRR, the lessee shall submit all data used
to prepare the allowance deduction. The data shall be provided within a
reasonable period of time, as determined by ONRR.
(d) Interest and assessments. (1) If a lessee nets a washing
allowance on the Form ONRR-4430, then the lessee shall be assessed an
amount up to 10 percent of the allowance netted not to exceed $250 per
lease sales type code per sales period.
(2) If a lessee erroneously reports a washing allowance which
results in an underpayment of royalties, interest shall be paid on the
amount of that underpayment.
(3) Interest required to be paid by this section shall be
determined in accordance with Sec. 1218.202 of this subchapter.
(e) Adjustments. (1) If the actual coal washing allowance is less
than the amount the lessee has taken on Form ONRR-4430 for each month
during the allowance reporting period, the lessee shall pay additional
royalties due plus interest computed under Sec. 1218.202 of this
subchapter from the date when the lessee took the deduction to the date
the lessee repays the difference to ONRR. If the actual washing
allowance is greater than the amount the lessee has taken on Form ONRR-
4430 for each month during the allowance reporting period, the lessee
shall be entitled to a credit without interest.
(2) The lessee must submit a corrected Form ONRR-4430 to reflect
actual costs, together with any payment, in accordance with
instructions provided by ONRR.
(f) Other washing cost determinations. The provisions of this
section shall apply to determine washing costs when establishing value
using a net-back valuation procedure or any other procedure that
requires deduction of washing costs.

Sec. 1206.260 Allocation of washed coal.

(a) When coal is subjected to washing, the washed coal must be
allocated to the leases from which it was extracted.
(b) When the net output of coal from a washing plant is derived
from coal obtained from only one lease, the quantity of washed coal
allocable to the lease will be based on the net output of the washing
plant.
(c) When the net output of coal from a washing plant is derived
from coal obtained from more than one lease, unless determined
otherwise by BLM, the quantity of net output of washed coal allocable
to each lease will be based on the ratio of measured quantities of coal
delivered to the washing plant and washed from each lease compared to
the total measured quantities of coal delivered to the washing plant
and washed.

Sec. 1206.261 Transportation allowances--general.

(a) For ad valorem leases subject to Sec. 1206.257, where the
value for royalty purposes has been determined at a point remote from
the lease or mine, ONRR shall, as authorized by this section, allow a
deduction in determining value for royalty purposes for the reasonable,
actual costs incurred to:
(1) Transport the coal from a Federal lease to a sales point which
is remote from both the lease and mine; or
(2) Transport the coal from a Federal lease to a wash plant when
that plant is remote from both the lease and mine and, if applicable,
from the wash plant to a remote sales point. In-mine transportation
costs shall not be included in the transportation allowance.
(b) Under no circumstances will the authorized washing allowance
and the transportation allowance reduce the value for royalty purposes
to zero.
(c)(1) When coal transported from a mine to a wash plant is
eligible for a transportation allowance in accordance with this
section, the lessee is not required to allocate transportation costs
between the quantity of clean coal output and the rejected waste
material. The transportation allowance shall be authorized for the
total production which is transported. Transportation allowances shall
be expressed as a cost per ton of cleaned coal transported.
(2) For coal that is not washed at a wash plant, the transportation
allowance shall be authorized for the total production which is
transported. Transportation allowances shall be expressed as a cost per
ton of coal transported.
(3) Transportation costs shall only be recognized as allowances
when the

[[Page 47011]]

transported coal is sold and royalties are reported and paid.
(d) If, after a review and/or audit, ONRR determines that a lessee
has improperly determined a transportation allowance authorized by this
section, then the lessee shall pay any additional royalties, plus
interest, determined in accordance with Sec. 1218.202 of this
subchapter, or shall be entitled to a credit, without interest.
(e) Lessees shall not disproportionately allocate transportation
costs to Federal leases.

Sec. 1206.262 Determination of transportation allowances.

(a) Arm's-length contracts. (1) For transportation costs incurred
by a lessee pursuant to an arm's-length contract, the transportation
allowance shall be the reasonable, actual costs incurred by the lessee
for transporting the coal under that contract, subject to monitoring,
review, audit, and possible future adjustment. The lessee shall have
the burden of demonstrating that its contract is arm's-length. The
lessee must claim a transportation allowance by reporting it as a
separate line entry on the Form ONRR-4430.
(2) In conducting reviews and audits, ONRR will examine whether the
contract reflects more than the consideration actually transferred
either directly or indirectly from the lessee to the transporter for
the transportation. If the contract reflects more than the total
consideration paid, then the ONRR may require that the transportation
allowance be determined in accordance with paragraph (b) of this
section.
(3) If ONRR determines that the consideration paid pursuant to an
arm's-length transportation contract does not reflect the reasonable
value of the transportation because of misconduct by or between the
contracting parties, or because the lessee otherwise has breached its
duty to the lessor to market the production for the mutual benefit of
the lessee and the lessor, then ONRR shall require that the
transportation allowance be determined in accordance with paragraph (b)
of this section. When ONRR determines that the value of the
transportation may be unreasonable, ONRR will notify the lessee and
give the lessee an opportunity to provide written information
justifying the lessee's transportation costs.
(4) Where the lessee's payments for transportation under an arm's-
length contract are not based on a dollar-per-unit basis, the lessee
shall convert whatever consideration is paid to a dollar value
equivalent for the purposes of this section.
(b) Non-arm's-length or no contract. (1) If a lessee has a non-
arm's-length contract or has no contract, including those situations
where the lessee performs transportation services for itself, the
transportation allowance will be based upon the lessee's reasonable
actual costs. All transportation allowances deducted under a non-arm's-
length or no contract situation are subject to monitoring, review,
audit, and possible future adjustment. The lessee must claim a
transportation allowance by reporting it as a separate line entry on
the Form ONRR-4430. When necessary or appropriate, ONRR may direct a
lessee to modify its estimated or actual transportation allowance
deduction.
(2) The transportation allowance for non-arm's-length or no-
contract situations shall be based upon the lessee's actual costs for
transportation during the reporting period, including operating and
maintenance expenses, overhead, and either depreciation and a return on
undepreciated capital investment in accordance with paragraph
(b)(2)(iv)(A) of this section, or a cost equal to the depreciable
investment in the transportation system multiplied by the rate of
return in accordance with paragraph (b)(2)(iv)(B) of this section.
Allowable capital costs are generally those for depreciable fixed
assets (including costs of delivery and installation of capital
equipment) which are an integral part of the transportation system.
(i) Allowable operating expenses include: Operations supervision
and engineering; operations labor; fuel; utilities; materials; ad
valorem property taxes; rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can
document.
(ii) Allowable maintenance expenses include: Maintenance of the
transportation system; maintenance of equipment; maintenance labor; and
other directly allocable and attributable maintenance expenses which
the lessee can document.
(iii) Overhead attributable and allocable to the operation and
maintenance of the transportation system is an allowable expense. State
and Federal income taxes and severance taxes and other fees, including
royalties, are not allowable expenses.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or (B) of this
section. After a lessee has elected to use either method for a
transportation system, the lessee may not later elect to change to the
other alternative without approval of ONRR.
(A) To compute depreciation, the lessee may elect to use either a
straight-line depreciation method based on the life of equipment or on
the life of the reserves which the transportation system services,
whichever is appropriate, or a unit of production method. After an
election is made, the lessee may not change methods without ONRR
approval. A change in ownership of a transportation system shall not
alter the depreciation schedule established by the original
transporter/lessee for purposes of the allowance calculation. With or
without a change in ownership, a transportation system shall be
depreciated only once. Equipment shall not be depreciated below a
reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable
capital investment in the transportation system multiplied by the rate
of return determined pursuant to paragraph (b)(2)(v) of this section.
No allowance shall be provided for depreciation. This alternative shall
apply only to transportation facilities first placed in service or
acquired after March 1, 1989.
(v) The rate of return must be the industrial rate associated with
Standard and Poor's BBB rating. The rate of return must be the monthly
average rate as published in Standard and Poor's Bond Guide for the
first month for which the allowance is applicable. The rate must be
redetermined at the beginning of each subsequent calendar year.
(3) A lessee may apply to ONRR for exception from the requirement
that it compute actual costs in accordance with paragraphs (b)(1) and
(2) of this section. ONRR will grant the exception only if the lessee
has a rate for the transportation approved by a Federal agency or by a
State regulatory agency (for Federal leases). ONRR shall deny the
exception request if it determines that the rate is excessive as
compared to arm's-length transportation charges by systems, owned by
the lessee or others, providing similar transportation services in that
area. If there are no arm's-length transportation charges, ONRR shall
deny the exception request if:
(i) No Federal or State regulatory agency costs analysis exists and
the Federal or State regulatory agency, as applicable, has declined to
investigate under ONRR timely objections upon filing; and
(ii) The rate significantly exceeds the lessee's actual costs for
transportation as determined under this section.
(c) Reporting requirements--(1) Arm's-length contracts. (i) The
lessee must notify ONRR of an allowance based on incurred costs by
using a

[[Page 47012]]

separate line entry on the form ONRR-4430.
(ii) ONRR may require that a lessee submit arm's-length
transportation contracts, production agreements, operating agreements,
and related documents. Documents shall be submitted within a reasonable
time, as determined by ONRR.
(2) Non-arm's-length or no contract. (i) The lessee must notify
ONRR of an allowance based on the incurred costs by using a separate
line entry on Form ONRR-4430.
(ii) For new transportation facilities or arrangements, the
lessee's initial deduction shall include estimates of the allowable
coal transportation costs for the applicable period. Cost estimates
shall be based upon the most recently available operations data for the
transportation system or, if such data are not available, the lessee
shall use estimates based upon industry data for similar transportation
systems.
(iii) Upon request by ONRR, the lessee shall submit all data used
to prepare the allowance deduction. The data shall be provided within a
reasonable period of time, as determined by ONRR.
(iv) If the lessee is authorized to use its Federal- or State-
agency-approved rate as its transportation cost in accordance with
paragraph (b)(3) of this section, it shall follow the reporting
requirements of paragraph (c)(1) of this section.
(d) Interest and assessments. (1) If a lessee nets a transportation
allowance on Form ONRR-4430, the lessee shall be assessed an amount of
up to 10 percent of the allowance netted not to exceed $250 per lease
sales type code per sales period.
(2) If a lessee erroneously reports a transportation allowance
which results in an underpayment of royalties, interest shall be paid
on the amount of that underpayment.
(3) Interest required to be paid by this section shall be
determined in accordance with Sec. 1218.202 of this subchapter.
(e) Adjustments. (1) If the actual coal transportation allowance is
less than the amount the lessee has taken on Form ONRR-4430 for each
month during the allowance reporting period, the lessee shall pay
additional royalties due plus interest computed under Sec. 1218.202 of
this subchapter from the date when the lessee took the deduction to the
date the lessee repays the difference to ONRR. If the actual
transportation allowance is greater than amount the lessee has taken on
Form ONRR-4430 for each month during the allowance reporting period,
the lessee shall be entitled to a credit without interest.
(2) The lessee must submit a corrected Form ONRR-4430 to reflect
actual costs, together with any payments, in accordance with
instructions provided by ONRR.
(f) Other transportation cost determinations. The provisions of
this section shall apply to determine transportation costs when
establishing value using a net-back valuation procedure or any other
procedure that requires deduction of transportation costs.

Sec. 1206.263 [Reserved]

Sec. 1206.264 In-situ and surface gasification and liquefaction
operations.

If an ad valorem Federal coal lease is developed by in-situ or
surface gasification or liquefaction technology, the lessee shall
propose the value of coal for royalty purposes to ONRR. The ONRR will
review the lessee's proposal and issue a value determination. The
lessee may use its proposed value until ONRR issues a value
determination.

Sec. 1206.265 Value enhancement of marketable coal.

If, prior to use, sale, or other disposition, the lessee enhances
the value of coal after the coal has been placed in marketable
condition in accordance with Sec. 1206.257(h), the lessee shall notify
ONRR that such processing is occurring or will occur. The value of that
production shall be determined as follows:
(a) A value established for the feedstock coal in marketable
condition by application of the provisions of Sec. 1206.257(c)(2)(i)
through (iv); or,
(b) In the event that a value cannot be established in accordance
with paragraph (a) of this section, then the value of production will
be determined in accordance with Sec. 1206.257(c)(2)(v) and the value
shall be the lessee's gross proceeds accruing from the disposition of
the enhanced product, reduced by ONRR-approved processing costs and
procedures including a rate of return on investment equal to two times
the Standard and Poor's BBB bond rate applicable under Sec.
1206.259(b)(2)(v).

0
6. Revise subpart J to read as follows:
Subpart J--Indian Coal
Sec.
1206.450 Purpose and scope.
1206.451 Definitions.
1206.452 Coal subject to royalties--general provisions.
1206.453 Quality and quantity measurement standards for reporting
and paying royalties.
1206.454 Point of royalty determination.
1206.455 Valuation standards for cents-per-ton leases.
1206.456 Valuation standards for ad valorem leases.
1206.457 Washing allowances--general.
1206.458 Determination of washing allowances.
1206.459 Allocation of washed coal.
1206.460 Transportation allowances--general.
1206.461 Determination of transportation allowances.
1206.462 [Reserved]
1206.463 In-situ and surface gasification and liquefaction
operations.
1206.464 Value enhancement of marketable coal.

Subpart J--Indian Coal

Sec. 1206.450 Purpose and scope.

(a) This subpart prescribes the procedures to establish the value,
for royalty purposes, of all coal from Indian Tribal and allotted
leases (except leases on the Osage Indian Reservation, Osage County,
Oklahoma).
(b) If the specific provisions of any statute, treaty, or
settlement agreement between the Indian lessor and a lessee resulting
from administrative or judicial litigation, or any coal lease subject
to the requirements of this subpart, are inconsistent with any
regulation in this subpart, then the statute, treaty, lease provision,
or settlement shall govern to the extent of that inconsistency.
(c) All royalty payments are subject to later audit and adjustment.
(d) The regulations in this subpart are intended to ensure that the
trust responsibilities of the United States with respect to the
administration of Indian coal leases are discharged in accordance with
the requirements of the governing mineral leasing laws, treaties, and
lease terms.

Sec. 1206.451 Definitions.

[[Page 47013]]

transportation, determined pursuant to this subpart.
Area means a geographic region in which coal has similar quality
and economic characteristics. Area boundaries are not officially
designated and the areas are not necessarily named.
Arm's-length contract means a contract or agreement that has been
arrived at in the marketplace between independent, nonaffiliated
persons with opposing economic interests regarding that contract. For
purposes of this subpart, two persons are affiliated if one person
controls, is controlled by, or is under common control with another
person. For purposes of this subpart, based on the instruments of
ownership of the voting securities of an entity, or based on other
forms of ownership: ownership in excess of 50 percent constitutes
control; ownership of 10 through 50 percent creates a presumption of
control; and ownership of less than 10 percent creates a presumption of
noncontrol which ONRR may rebut if it demonstrates actual or legal
control, including the existence of interlocking directorates.
Notwithstanding any other provisions of this subpart, contracts between
relatives, either by blood or by marriage, are not arm's-length
contracts. ONRR may require the lessee to certify ownership control. To
be considered arm's-length for any production month, a contract must
meet the requirements of this definition for that production month, as
well as when the contract was executed.
Audit means a review, conducted in accordance with generally
accepted accounting and auditing standards, of royalty payment
compliance activities of lessees or other interest holders who pay
royalties, rents, or bonuses on Indian leases.
BIA means the Bureau of Indian Affairs of the Department of the
Interior.
BLM means the Bureau of Land Management of the Department of the
Interior.
Coal means coal of all ranks from lignite through anthracite.
Coal washing means any treatment to remove impurities from coal.
Coal washing may include, but is not limited to, operations such as
flotation, air, water, or heavy media separation; drying; and related
handling (or combination thereof).
Contract means any oral or written agreement, including amendments
or revisions thereto, between two or more persons and enforceable by
law that with due consideration creates an obligation.
Gross proceeds (for royalty payment purposes) means the total
monies and other consideration accruing to a coal lessee for the
production and disposition of the coal produced. Gross proceeds
includes, but is not limited to, payments to the lessee for certain
services such as crushing, sizing, screening, storing, mixing, loading,
treatment with substances including chemicals or oils, and other
preparation of the coal to the extent that the lessee is obligated to
perform them at no cost to the Indian lessor. Gross proceeds, as
applied to coal, also includes but is not limited to reimbursements for
royalties, taxes or fees, and other reimbursements. Tax reimbursements
are part of the gross proceeds accruing to a lessee even though the
Indian royalty interest may be exempt from taxation. Monies and other
consideration, including the forms of consideration identified in this
paragraph, to which a lessee is contractually or legally entitled but
which it does not seek to collect through reasonable efforts are also
part of gross proceeds.
Indian allottee means any Indian for whom land or an interest in
land is held in trust by the United States or who holds title subject
to Federal restriction against alienation.
Indian Tribe means any Indian Tribe, band, nation, pueblo,
community, rancheria, colony, or other group of Indians for which any
land or interest in land is held in trust by the United States or which
is subject to Federal restriction against alienation.
Lease means any contract, profit-share arrangement, joint venture,
or other agreement issued or approved by the United States for an
Indian coal resource under a mineral leasing law that authorizes
exploration for, development or extraction of, or removal of coal--or
the land covered by that authorization, whichever is required by the
context.
Lessee means any person to whom the Indian Tribe or an Indian
allottee issues a lease, and any person who has been assigned an
obligation to make royalty or other payments required by the lease.
This includes any person who has an interest in a lease as well as an
operator or payor who has no interest in the lease but who has assumed
the royalty payment responsibility.
Like-quality coal means coal that has similar chemical and physical
characteristics.
Marketable condition means coal that is sufficiently free from
impurities and otherwise in a condition that it will be accepted by a
purchaser under a sales contract typical for that area.
Mine means an underground or surface excavation or series of
excavations and the surface or underground support facilities that
contribute directly or indirectly to mining, production, preparation,
and handling of lease products.
Net-back method means a method for calculating market value of coal
at the lease or mine. Under this method, costs of transportation,
washing, handling, etc., are deducted from the ultimate proceeds
received for the coal at the first point at which reasonable values for
the coal may be determined by a sale pursuant to an arm's-length
contract or by comparison to other sales of coal, to ascertain value at
the mine.
Net output means the quantity of washed coal that a washing plant
produces.
ONRR means the Office of Natural Resources Revenue of the
Department of the Interior.
Person means by individual, firm, corporation, association,
partnership, consortium, or joint venture.
Sales type code means the contract type or general disposition
(e.g., arm's-length or non-arm's-length) of production from the lease.
The sales type code applies to the sales contract, or other
disposition, and not to the arm's-length or non-arm's-length nature of
a transportation or washing allowance.
Spot market price means the price received under any sales
transaction when planned or actual deliveries span a short period of
time, usually not exceeding one year.

Sec. 1206.452 Coal subject to royalties--general provisions.

(a) All coal (except coal unavoidably lost as determined by BLM
pursuant to 43 CFR group 3400) from an Indian lease subject to this
part is subject to royalty. This includes coal used, sold, or otherwise
disposed of by the lessee on or off the lease.
(b) If a lessee receives compensation for unavoidably lost coal
through insurance coverage or other arrangements, royalties at the rate
specified in the lease are to be paid on the amount of compensation
received for the coal. No royalty is due on insurance compensation
received by the lessee for other losses.
(c) If waste piles or slurry ponds are reworked to recover coal,
the lessee shall pay royalty at the rate specified in the lease at the
time the recovered coal is used, sold, or otherwise finally disposed
of. The royalty rate shall be that rate applicable to the production
method used to initially mine coal in the waste pile or slurry pond;
i.e., underground mining method or surface mining method. Coal in waste
pits or slurry ponds initially mined from

[[Page 47014]]

Indian leases shall be allocated to such leases regardless of whether
it is stored on Indian lands. The lessee shall maintain accurate
records to determine to which individual Indian lease coal in the waste
pit or slurry pond should be allocated. However, nothing in this
section requires payment of a royalty on coal for which a royalty has
already been paid.

Sec. 1206.453 Quality and quantity measurement standards for
reporting and paying royalties.

Sec. 1206.454 Point of royalty determination.

(a) For all leases subject to this subpart, royalty shall be
computed on the basis of the quantity and quality of Indian coal in
marketable condition measured at the point of royalty measurement as
determined jointly by BLM and ONRR.
(b) Coal produced and added to stockpiles or inventory does not
require payment of royalty until such coal is later used, sold, or
otherwise finally disposed of. ONRR may ask BLM or BIA to increase the
lease bond to protect the lessor's interest when BLM determines that
stockpiles or inventory become excessive so as to increase the risk of
degradation of the resource.
(c) The lessee shall pay royalty at a rate specified in the lease
at the time the coal is used, sold, or otherwise finally disposed of,
unless otherwise provided for at Sec. 1206.455(d).

Sec. 1206.455 Valuation standards for cents-per-ton leases.

(a) This section is applicable to coal leases on Indian Tribal and
allotted Indian lands (except leases on the Osage Indian Reservation,
Osage County, Oklahoma) which provide for the determination of royalty
on a cents-per-ton (or other quantity) basis.
(b) The royalty for coal from leases subject to this section shall
be based on the dollar rate per ton prescribed in the lease. That
dollar rate shall be applicable to the actual quantity of coal used,
sold, or otherwise finally disposed of, including coal which is
avoidably lost as determined by BLM pursuant to 43 CFR part 3400.
(c) For leases subject to this section, there shall be no
allowances for transportation, removal of impurities, coal washing, or
any other processing or preparation of the coal.
(d) When a coal lease is readjusted pursuant to 43 CFR part 3400
and the royalty valuation method changes from a cents-per-ton basis to
an ad valorem basis, coal which is produced prior to the effective date
of readjustment and sold or used within 30 days of the effective date
of readjustment shall be valued pursuant to this section. All coal that
is not used, sold, or otherwise finally disposed of within 30 days
after the effective date of readjustment shall be valued pursuant to
the provisions of Sec. 1206.456, and royalties shall be paid at the
royalty rate specified in the readjusted lease.

Sec. 1206.456 Valuation standards for ad valorem leases.

(a) This section is applicable to coal leases on Indian Tribal and
allotted Indian lands (except leases on the Osage Indian Reservation,
Osage County, Oklahoma) which provide for the determination of royalty
as a percentage of the amount of value of coal (ad valorem). The value
for royalty purposes of coal from such leases shall be the value of
coal determined pursuant to this section, less applicable coal washing
allowances and transportation allowances determined pursuant to
Sec. Sec. 1206.457 through 1206.461, or any allowance authorized by
Sec. 1206.464. The royalty due shall be equal to the value for royalty
purposes multiplied by the royalty rate in the lease.
(b)(1) The value of coal that is sold pursuant to an arm's-length
contract shall be the gross proceeds accruing to the lessee, except as
provided in paragraphs (b)(2), (3), and (5) of this section. The lessee
shall have the burden of demonstrating that its contract is arm's-
length. The value which the lessee reports, for royalty purposes, is
subject to monitoring, review, and audit.
(2) In conducting reviews and audits, ONRR will examine whether the
contract reflects the total consideration actually transferred either
directly or indirectly from the buyer to the seller for the coal
produced. If the contract does not reflect the total consideration,
then ONRR may require that the coal sold pursuant to that contract be
valued in accordance with paragraph (c) of this section. Value may not
be based on less than the gross proceeds accruing to the lessee for the
coal production, including the additional consideration.
(3) If ONRR determines that the gross proceeds accruing to the
lessee pursuant to an arm's-length contract do not reflect the
reasonable value of the production because of misconduct by or between
the contracting parties, or because the lessee otherwise has breached
its duty to the lessor to market the production for the mutual benefit
of the lessee and the lessor, then ONRR shall require that the coal
production be valued pursuant to paragraph (c)(2)(ii), (iii), (iv), or
(v) of this section, and in accordance with the notification
requirements of paragraph (d)(3) of this section. When ONRR determines
that the value may be unreasonable, ONRR will notify the lessee and
give the lessee an opportunity to provide written information
justifying the lessee's reported coal value.
(4) ONRR may require a lessee to certify that its arm's-length
contract provisions include all of the consideration to be paid by the
buyer, either directly or indirectly, for the coal production.
(5) The value of production for royalty purposes shall not include
payments received by the lessee pursuant to a contract which the lessee
demonstrates, to ONRR's satisfaction, were not part of the total
consideration paid for the purchase of coal production.
(c)(1) The value of coal from leases subject to this section and
which is not sold pursuant to an arm's-length contract shall be
determined in accordance with this section.
(2) If the value of the coal cannot be determined pursuant to
paragraph (b) of this section, then the value shall be determined
through application of other valuation criteria. The criteria shall be
considered in the following order, and the value shall be based upon
the first applicable criterion:
(i) The gross proceeds accruing to the lessee pursuant to a sale
under its non-arm's-length contract (or other disposition of produced
coal by other than an arm's-length contract), provided that those gross
proceeds are within the range of the gross proceeds derived from, or
paid under, comparable arm's-length contracts between buyers and
sellers neither of whom is affiliated with the lessee for sales,
purchases, or other dispositions of like-quality coal produced in the
area. In evaluating the comparability of arm's-length contracts for the
purposes of these regulations, the following factors shall be
considered: price, time of execution, duration, market or markets
served, terms, quality of coal, quantity, and such other factors as may
be appropriate to reflect the value of the coal;
(ii) Prices reported for that coal to a public utility commission;
(iii) Prices reported for that coal to the Energy Information
Administration of the Department of Energy;
(iv) Other relevant matters including, but not limited to,
published or publicly available spot market prices, or

[[Page 47015]]

information submitted by the lessee concerning circumstances unique to
a particular lease operation or the salability of certain types of
coal;
(v) If a reasonable value cannot be determined using paragraph
(c)(2)(i), (ii), (iii), or (iv) of this section, then a net-back method
or any other reasonable method shall be used to determine value.
(3) When the value of coal is determined pursuant to paragraph
(c)(2) of this section, that value determination shall be consistent
with the provisions contained in paragraph (b)(5) of this section.
(d)(1) Where the value is determined pursuant to paragraph (c) of
this section, that value does not require ONRR's prior approval.
However, the lessee shall retain all data relevant to the determination
of royalty value. Such data shall be subject to review and audit, and
ONRR will direct a lessee to use a different value if it determines
that the reported value is inconsistent with the requirements of these
regulations.
(2) An Indian lessee will make available upon request to the
authorized ONRR or Indian representatives, or to the Inspector General
of the Department of the Interior or other persons authorized to
receive such information, arm's-length sales and sales quantity data
for like-quality coal sold, purchased, or otherwise obtained by the
lessee from the area.
(3) A lessee shall notify ONRR if it has determined value pursuant
to paragraph (c)(2)(ii), (iii), (iv), or (v) of this section. The
notification shall be by letter to the Director for Office of Natural
Resources Revenue or his/her designee. The letter shall identify the
valuation method to be used and contain a brief description of the
procedure to be followed. The notification required by this section is
a one-time notification due no later than the month the lessee first
reports royalties on the Form ONRR-4430 using a valuation method
authorized by paragraph (c)(2)(ii), (iii), (iv), or (v) of this
section, and each time there is a change in a method under paragraph
(c)(2)(iv) or (v) of this section.
(e) If ONRR determines that a lessee has not properly determined
value, the lessee shall be liable for the difference, if any, between
royalty payments made based upon the value it has used and the royalty
payments that are due based upon the value established by ONRR. The
lessee shall also be liable for interest computed pursuant to Sec.
1218.202 of this subchapter. If the lessee is entitled to a credit,
ONRR will provide instructions for the taking of that credit.
(f) The lessee may request a value determination from ONRR. In that
event, the lessee shall propose to ONRR a value determination method,
and may use that method in determining value for royalty purposes until
ONRR issues its decision. The lessee shall submit all available data
relevant to its proposal. ONRR shall expeditiously determine the value
based upon the lessee's proposal and any additional information ONRR
deems necessary. That determination shall remain effective for the
period stated therein. After ONRR issues its determination, the lessee
shall make the adjustments in accordance with paragraph (e) of this
section.
(g) Notwithstanding any other provisions of this section, under no
circumstances shall the value for royalty purposes be less than the
gross proceeds accruing to the lessee for the disposition of produced
coal less applicable provisions of paragraph (b)(5) of this section and
less applicable allowances determined pursuant to Sec. Sec. 1206.457
through 1206.461 and 1206.464.
(h) The lessee is required to place coal in marketable condition at
no cost to the Indian lessor. Where the value established pursuant to
this section is determined by a lessee's gross proceeds, that value
shall be increased to the extent that the gross proceeds has been
reduced because the purchaser, or any other person, is providing
certain services, the cost of which ordinarily is the responsibility of
the lessee to place the coal in marketable condition.
(i) Value shall be based on the highest price a prudent lessee can
receive through legally enforceable claims under its contract. Absent
contract revision or amendment, if the lessee fails to take proper or
timely action to receive prices or benefits to which it is entitled, it
must pay royalty at a value based upon that obtainable price or
benefit. Contract revisions or amendments shall be in writing and
signed by all parties to an arm's-length contract, and may be
retroactively applied to value for royalty purposes for a period not to
exceed two years, unless ONRR approves a longer period. If the lessee
makes timely application for a price increase allowed under its
contract but the purchaser refuses, and the lessee takes reasonable
measures, which are documented, to force purchaser compliance, the
lessee will owe no additional royalties unless or until monies or
consideration resulting from the price increase are received. This
paragraph shall not be construed to permit a lessee to avoid its
royalty payment obligation in situations where a purchaser fails to
pay, in whole or in part or timely, for a quantity of coal.
(j) Notwithstanding any provision in these regulations to the
contrary, no review, reconciliation, monitoring, or other like process
that results in a redetermination by ONRR of value under this section
shall be considered final or binding as against the Indian Tribes or
allottees until the audit period is formally closed.
(k) Certain information submitted to ONRR to support valuation
proposals, including transportation, coal washing, or other allowances
pursuant to Sec. Sec. 1206.457 through 1206.461 and 1206.464, is
exempted from disclosure by the Freedom of Information Act, 5 U.S.C.
522. Any data specified by the Act to be privileged, confidential, or
otherwise exempt shall be maintained in a confidential manner in
accordance with applicable law and regulations. All requests for
information about determinations made under this part are to be
submitted in accordance with the Freedom of Information Act regulation
of the Department of the Interior, 43 CFR part 2. Nothing in this
section is intended to limit or diminish in any manner whatsoever the
right of an Indian lessor to obtain any and all information as such
lessor may be lawfully entitled from ONRR or such lessor's lessee
directly under the terms of the lease or applicable law.

Sec. 1206.457 Washing allowances--general.

(a) For ad valorem leases subject to Sec. 1206.456, ONRR shall, as
authorized by this section, allow a deduction in determining value for
royalty purposes for the reasonable, actual costs incurred to wash
coal, unless the value determined pursuant to Sec. 1206.456 was based
upon like-quality unwashed coal. Under no circumstances will the
authorized washing allowance and the transportation allowance reduce
the value for royalty purposes to zero.
(b) If ONRR determines that a lessee has improperly determined a
washing allowance authorized by this section, then the lessee shall be
liable for any additional royalties, plus interest determined in
accordance with Sec. 1218.202 of this subchapter, or shall be entitled
to a credit, without interest.
(c) Lessees shall not disproportionately allocate washing costs to
Indian leases.
(d) No cost normally associated with mining operations and which
are necessary for placing coal in marketable condition shall be allowed
as a cost of washing.
(e) Coal washing costs shall only be recognized as allowances when
the washed coal is sold and royalties are reported and paid.

[[Page 47016]]

Sec. 1206.458 Determination of washing allowances.

(a) Arm's-length contracts. (1) For washing costs incurred by a
lessee pursuant to an arm's-length contract, the washing allowance
shall be the reasonable actual costs incurred by the lessee for washing
the coal under that contract, subject to monitoring, review, audit, and
possible future adjustment. ONRR's prior approval is not required
before a lessee may deduct costs incurred under an arm's-length
contract. However, before any deduction may be taken, the lessee must
submit a completed page one of Form ONRR-4292, Coal Washing Allowance
Report, in accordance with paragraph (c)(1) of this section. A washing
allowance may be claimed retroactively for a period of not more than 3
months prior to the first day of the month that Form ONRR-4292 is filed
with ONRR, unless ONRR approves a longer period upon a showing of good
cause by the lessee.
(2) In conducting reviews and audits, ONRR will examine whether the
contract reflects more than the consideration actually transferred
either directly or indirectly from the lessee to the washer for the
washing. If the contract reflects more than the total consideration
paid, then ONRR may require that the washing allowance be determined in
accordance with paragraph (b) of this section.
(3) If ONRR determines that the consideration paid pursuant to an
arm's-length washing contract does not reflect the reasonable value of
the washing because of misconduct by or between the contracting
parties, or because the lessee otherwise has breached its duty to the
lessor to market the production for the mutual benefit of the lessee
and the lessor, then ONRR shall require that the washing allowance be
determined in accordance with paragraph (b) of this section. When ONRR
determines that the value of the washing may be unreasonable, ONRR will
notify the lessee and give the lessee an opportunity to provide written
information justifying the lessee's washing costs.
(4) Where the lessee's payments for washing under an arm's-length
contract are not based on a dollar-per-unit basis, the lessee shall
convert whatever consideration is paid to a dollar value equivalent.
Washing allowances shall be expressed as a cost per ton of coal washed.
(b) Non-arm's-length or no contract. (1) If a lessee has a non-
arm's-length contract or has no contract, including those situations
where the lessee performs washing for itself, the washing allowance
will be based upon the lessee's reasonable actual costs. All washing
allowances deducted under a non-arm's-length or no contract situation
are subject to monitoring, review, audit, and possible future
adjustment. Prior ONRR approval of washing allowances is not required
for non-arm's-length or no contract situations. However, before any
estimated or actual deduction may be taken, the lessee must submit a
completed Form ONRR-4292 in accordance with paragraph (c)(2) of this
section. A washing allowance may be claimed retroactively for a period
of not more than 3 months prior to the first day of the month that Form
ONRR-4292 is filed with ONRR, unless ONRR approves a longer period upon
a showing of good cause by the lessee. ONRR will monitor the allowance
deduction to ensure that deductions are reasonable and allowable. When
necessary or appropriate, ONRR may direct a lessee to modify its actual
washing allowance.
(2) The washing allowance for non-arm's-length or no contract
situations shall be based upon the lessee's actual costs for washing
during the reported period, including operating and maintenance
expenses, overhead, and either depreciation and a return on
undepreciated capital investment in accordance with paragraph
(b)(2)(iv)(A) of this section, or a cost equal to the depreciable
investment in the wash plant multiplied by the rate of return in
accordance with paragraph (b)(2)(iv)(B) of this section. Allowable
capital costs are generally those for depreciable fixed assets
(including costs of delivery and installation of capital equipment)
which are an integral part of the wash plant.
(i) Allowable operating expenses include: Operations supervision
and engineering; operations labor; fuel; utilities; materials; ad
valorem property taxes; rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can
document.
(ii) Allowable maintenance expenses include: Maintenance of the
wash plant; maintenance of equipment; maintenance labor; and other
directly allocable and attributable maintenance expenses which the
lessee can document.
(iii) Overhead attributable and allocable to the operation and
maintenance of the wash plant is an allowable expense. State and
Federal income taxes and severance taxes, including royalties, are not
allowable expenses.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or (B) of this
section. After a lessee has elected to use either method for a wash
plant, the lessee may not later elect to change to the other
alternative without approval of ONRR.
(A) To compute depreciation, the lessee may elect to use either a
straight-line depreciation method based on the life of equipment or on
the life of the reserves which the wash plant services, whichever is
appropriate, or a unit of production method. After an election is made,
the lessee may not change methods without ONRR approval. A change in
ownership of a wash plant shall not alter the depreciation schedule
established by the original operator/lessee for purposes of the
allowance calculation. With or without a change in ownership, a wash
plant shall be depreciated only once. Equipment shall not be
depreciated below a reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable
capital investment in the wash plant multiplied by the rate of return
determined pursuant to paragraph (b)(2)(v) of this section. No
allowance shall be provided for depreciation. This alternative shall
apply only to plants first placed in service or acquired after March 1,
1989.
(v) The rate of return shall be the industrial rate associated with
Standard and Poor's BBB rating. The rate of return shall be the monthly
average rate as published in Standard and Poor's Bond Guide for the
first month of the reporting period for which the allowance is
applicable and shall be effective during the reporting period. The rate
shall be redetermined at the beginning of each subsequent washing
allowance reporting period (which is determined pursuant to paragraph
(c)(2) of this section).
(3) The washing allowance for coal shall be determined based on the
lessee's reasonable and actual cost of washing the coal. The lessee may
not take an allowance for the costs of washing lease production that is
not royalty bearing.
(c) Reporting requirements--(1) Arm's-length contracts. (i) With
the exception of those washing allowances specified in paragraphs
(c)(1)(v) and (vi) of this section, the lessee shall submit page one of
the initial Form ONRR-4292 prior to, or at the same time, as the
washing allowance determined pursuant to an arm's-length contract is
reported on Form ONRR-4430, Solid Minerals Production and Royalty
Report. A Form ONRR-4292 received by the end of the month that the Form
ONRR-4430 is due shall be considered to be received timely.
(ii) The initial Form ONRR-4292 shall be effective for a reporting
period beginning the month that the lessee is

[[Page 47017]]

first authorized to deduct a washing allowance and shall continue until
the end of the calendar year, or until the applicable contract or rate
terminates or is modified or amended, whichever is earlier.
(iii) After the initial reporting period and for succeeding
reporting periods, lessees must submit page one of Form ONRR-4292
within 3 months after the end of the calendar year, or after the
applicable contract or rate terminates or is modified or amended,
whichever is earlier, unless ONRR approves a longer period (during
which period the lessee shall continue to use the allowance from the
previous reporting period).
(iv) ONRR may require that a lessee submit arm's-length washing
contracts and related documents. Documents shall be submitted within a
reasonable time, as determined by ONRR.
(v) Washing allowances which are based on arm's-length contracts
and which are in effect at the time these regulations become effective
will be allowed to continue until such allowances terminate. For the
purposes of this section, only those allowances that have been approved
by ONRR in writing shall qualify as being in effect at the time these
regulations become effective.
(vi) ONRR may establish, in appropriate circumstances, reporting
requirements that are different from the requirements of this section.
(2) Non-arm's-length or no contract. (i) With the exception of
those washing allowances specified in paragraphs (c)(2)(v) and (vii) of
this section, the lessee shall submit an initial Form ONRR-4292 prior
to, or at the same time as, the washing allowance determined pursuant
to a non-arm's-length contract or no contract situation is reported on
Form ONRR-4430, Solid Minerals Production and Royalty Report. A Form
ONRR-4292 received by the end of the month that the Form ONRR-4430 is
due shall be considered to be timely received. The initial reporting
may be based on estimated costs.
(ii) The initial Form ONRR-4292 shall be effective for a reporting
period beginning the month that the lessee first is authorized to
deduct a washing allowance and shall continue until the end of the
calendar year, or until the washing under the non-arm's-length contract
or the no contract situation terminates, whichever is earlier.
(iii) For calendar-year reporting periods succeeding the initial
reporting period, the lessee shall submit a completed Form ONRR-4292
containing the actual costs for the previous reporting period. If coal
washing is continuing, the lessee shall include on Form ONRR-4292 its
estimated costs for the next calendar year. The estimated coal washing
allowance shall be based on the actual costs for the previous period
plus or minus any adjustments which are based on the lessee's knowledge
of decreases or increases which will affect the allowance. Form ONRR-
4292 must be received by ONRR within 3 months after the end of the
previous reporting period, unless ONRR approves a longer period (during
which period the lessee shall continue to use the allowance from the
previous reporting period).
(iv) For new wash plants, the lessee's initial Form ONRR-4292 shall
include estimates of the allowable coal washing costs for the
applicable period. Cost estimates shall be based upon the most recently
available operations data for the plant, or if such data are not
available, the lessee shall use estimates based upon industry data for
similar coal wash plants.
(v) Washing allowances based on non-arm's-length or no contract
situations which are in effect at the time these regulations become
effective will be allowed to continue until such allowances terminate.
For the purposes of this section, only those allowances that have been
approved by ONRR in writing shall qualify as being in effect at the
time these regulations become effective.
(vi) Upon request by ONRR, the lessee shall submit all data used by
the lessee to prepare its Forms ONRR-4292. The data shall be provided
within a reasonable period of time, as determined by ONRR.
(vii) ONRR may establish, in appropriate circumstances, reporting
requirements which are different from the requirements of this section.
(3) ONRR may establish coal washing allowance reporting dates for
individual leases different from those specified in this subpart in
order to provide more effective administration. Lessees will be
notified of any change in their reporting period.
(4) Washing allowances must be reported as a separate line on the
Form ONRR-4430, unless ONRR approves a different reporting procedure.
(d) Interest assessments for incorrect or late reports and failure
to report. (1) If a lessee deducts a washing allowance on its Form
ONRR-4430 without complying with the requirements of this section, the
lessee shall be liable for interest on the amount of such deduction
until the requirements of this section are complied with. The lessee
also shall repay the amount of any allowance which is disallowed by
this section.
(2) If a lessee erroneously reports a washing allowance which
results in an underpayment of royalties, interest shall be paid on the
amount of that underpayment.
(3) Interest required to be paid by this section shall be
determined in accordance with Sec. 1218.202 of this subchapter.
(e) Adjustments. (1) If the actual coal washing allowance is less
than the amount the lessee has taken on Form ONRR-4430 for each month
during the allowance form reporting period, the lessee shall be
required to pay additional royalties due plus interest computed
pursuant to Sec. 1218.202 of this subchapter, retroactive to the first
month the lessee is authorized to deduct a washing allowance. If the
actual washing allowance is greater than the amount the lessee has
estimated and taken during the reporting period, the lessee shall be
entitled to a credit, without interest.
(2) The lessee must submit a corrected Form ONRR-4430 to reflect
actual costs, together with any payment, in accordance with
instructions provided by ONRR.
(f) Other washing cost determinations. The provisions of this
section shall apply to determine washing costs when establishing value
using a net-back valuation procedure or any other procedure that
requires deduction of washing costs.

Sec. 1206.459 Allocation of washed coal.

Sec. 1206.460 Transportation allowances--general.

(a) For ad valorem leases subject to Sec. 1206.456, where the
value for royalty purposes has been determined at a point remote from
the lease or mine, ONRR shall, as authorized by this section, allow a
deduction in determining value

[[Page 47018]]

for royalty purposes for the reasonable, actual costs incurred to:
(1) Transport the coal from an Indian lease to a sales point which
is remote from both the lease and mine; or
(2) Transport the coal from an Indian lease to a wash plant when
that plant is remote from both the lease and mine and, if applicable,
from the wash plant to a remote sales point. In-mine transportation
costs shall not be included in the transportation allowance.
(b) Under no circumstances will the authorized washing allowance
and the transportation allowance reduce the value for royalty purposes
to zero.
(c)(1) When coal transported from a mine to a wash plant is
eligible for a transportation allowance in accordance with this
section, the lessee is not required to allocate transportation costs
between the quantity of clean coal output and the rejected waste
material. The transportation allowance shall be authorized for the
total production which is transported. Transportation allowances shall
be expressed as a cost per ton of cleaned coal transported.
(2) For coal that is not washed at a wash plant, the transportation
allowance shall be authorized for the total production which is
transported. Transportation allowances shall be expressed as a cost per
ton of coal transported.
(3) Transportation costs shall only be recognized as allowances
when the transported coal is sold and royalties are reported and paid.
(d) If, after a review and/or audit, ONRR determines that a lessee
has improperly determined a transportation allowance authorized by this
section, then the lessee shall pay any additional royalties, plus
interest, determined in accordance with Sec. 1218.202 of this
subchapter, or shall be entitled to a credit, without interest.
(e) Lessees shall not disproportionately allocate transportation
costs to Indian leases.

Sec. 1206.461 Determination of transportation allowances.

(a) Arm's-length contracts. (1) For transportation costs incurred
by a lessee pursuant to an arm's-length contract, the transportation
allowance shall be the reasonable, actual costs incurred by the lessee
for transporting the coal under that contract, subject to monitoring,
review, audit, and possible future adjustment. ONRR's prior approval is
not required before a lessee may deduct costs incurred under an arm's-
length contract. However, before any deduction may be taken, the lessee
must submit a completed page one of Form ONRR-4293, Coal Transportation
Allowance Report, in accordance with paragraph (c)(1) of this section.
A transportation allowance may be claimed retroactively for a period of
not more than 3 months prior to the first day of the month that Form
ONRR-4293 is filed with ONRR, unless ONRR approves a longer period upon
a showing of good cause by the lessee.
(2) In conducting reviews and audits, ONRR will examine whether the
contract reflects more than the consideration actually transferred
either directly or indirectly from the lessee to the transporter for
the transportation. If the contract reflects more than the total
consideration paid, then ONRR may require that the transportation
allowance be determined in accordance with paragraph (b) of this
section.
(3) If ONRR determines that the consideration paid pursuant to an
arm's-length transportation contract does not reflect the reasonable
value of the transportation because of misconduct by or between the
contracting parties, or because the lessee otherwise has breached its
duty to the lessor to market the production for the mutual benefit of
the lessee and the lessor, then ONRR shall require that the
transportation allowance be determined in accordance with paragraph (b)
of this section. When ONRR determines that the value of the
transportation may be unreasonable, ONRR will notify the lessee and
give the lessee an opportunity to provide written information
justifying the lessee's transportation costs.
(4) Where the lessee's payments for transportation under an arm's-
length contract are not based on a dollar-per-unit basis, the lessee
shall convert whatever consideration is paid to a dollar value
equivalent for the purposes of this section.
(b) Non-arm's-length or no contract. (1) If a lessee has a non-
arm's-length contract or has no contract, including those situations
where the lessee performs transportation services for itself, the
transportation allowance will be based upon the lessee's reasonable
actual costs. All transportation allowances deducted under a non-arm's-
length or no contract situation are subject to monitoring, review,
audit, and possible future adjustment. Prior ONRR approval of
transportation allowances is not required for non-arm's-length or no
contract situations. However, before any estimated or actual deduction
may be taken, the lessee must submit a completed Form ONRR-4293 in
accordance with paragraph (c)(2) of this section. A transportation
allowance may be claimed retroactively for a period of not more than 3
months prior to the first day of the month that Form ONRR-4293 is filed
with ONRR, unless ONRR approves a longer period upon a showing of good
cause by the lessee. ONRR will monitor the allowance deductions to
ensure that deductions are reasonable and allowable. When necessary or
appropriate, ONRR may direct a lessee to modify its estimated or actual
transportation allowance deduction.
(2) The transportation allowance for non-arm's-length or no
contract situations shall be based upon the lessee's actual costs for
transportation during the reporting period, including operating and
maintenance expenses, overhead, and either depreciation and a return on
undepreciated capital investment in accordance with paragraph
(b)(2)(iv)(A) of this section, or a cost equal to the depreciable
investment in the transportation system multiplied by the rate of
return in accordance with paragraph (b)(2)(iv)(B) of this section.
Allowable capital costs are generally those for depreciable fixed
assets (including costs of delivery and installation of capital
equipment) which are an integral part of the transportation system.
(i) Allowable operating expenses include: Operations supervision
and engineering; operations labor; fuel; utilities; materials; ad
valorem property taxes; rent; supplies; and any other directly
allocable and attributable operating expense which the lessee can
document.
(ii) Allowable maintenance expenses include: Maintenance of the
transportation system; maintenance of equipment; maintenance labor; and
other directly allocable and attributable maintenance expenses which
the lessee can document.
(iii) Overhead attributable and allocable to the operation and
maintenance of the transportation system is an allowable expense. State
and Federal income taxes and severance taxes and other fees, including
royalties, are not allowable expenses.
(iv) A lessee may use either paragraph (b)(2)(iv)(A) or (B) of this
section. After a lessee has elected to use either method for a
transportation system, the lessee may not later elect to change to the
other alternative without approval of ONRR.
(A) To compute depreciation, the lessee may elect to use either a
straight-line depreciation method based on the life of equipment or on
the life of the reserves which the transportation system services,
whichever is appropriate, or a unit of production method. After an
election is made, the lessee may not change methods without

[[Page 47019]]

ONRR approval. A change in ownership of a transportation system shall
not alter the depreciation schedule established by the original
transporter/lessee for purposes of the allowance calculation. With or
without a change in ownership, a transportation system shall be
depreciated only once. Equipment shall not be depreciated below a
reasonable salvage value.
(B) ONRR shall allow as a cost an amount equal to the allowable
capital investment in the transportation system multiplied by the rate
of return determined pursuant to paragraph (b)(2)(v) of this section.
No allowance shall be provided for depreciation. This alternative shall
apply only to transportation facilities first placed in service or
acquired after March 1, 1989.
(v) The rate of return shall be the industrial rate associated with
Standard and Poor's BBB rating. The rate of return shall be the monthly
average as published in Standard and Poor's Bond Guide for the first
month of the reporting period of which the allowance is applicable and
shall be effective during the reporting period. The rate shall be
redetermined at the beginning of each subsequent transportation
allowance reporting period (which is determined pursuant to paragraph
(c)(2) of this section).
(3) A lessee may apply to ONRR for exception from the requirement
that it compute actual costs in accordance with paragraphs (b)(1) and
(2) of this section. ONRR will grant the exception only if the lessee
has a rate for the transportation approved by a Federal agency for
Indian leases. ONRR shall deny the exception request if it determines
that the rate is excessive as compared to arm's-length transportation
charges by systems, owned by the lessee or others, providing similar
transportation services in that area. If there are no arm's-length
transportation charges, ONRR shall deny the exception request if:
(i) No Federal regulatory agency cost analysis exists and the
Federal regulatory agency has declined to investigate pursuant to ONRR
timely objections upon filing; and
(ii) The rate significantly exceeds the lessee's actual costs for
transportation as determined under this section.
(c) Reporting requirements--(1) Arm's-length contracts. (i) With
the exception of those transportation allowances specified in
paragraphs (c)(1)(v) and (vi) of this section, the lessee shall submit
page one of the initial Form ONRR-4293 prior to, or at the same time
as, the transportation allowance determined pursuant to an arm's-length
contract is reported on Form ONRR-4430, Solid Minerals Production and
Royalty Report.
(ii) The initial Form ONRR-4293 shall be effective for a reporting
period beginning the month that the lessee is first authorized to
deduct a transportation allowance and shall continue until the end of
the calendar year, or until the applicable contract or rate terminates
or is modified or amended, whichever is earlier.
(iii) After the initial reporting period and for succeeding
reporting periods, lessees must submit page one of Form ONRR-4293
within 3 months after the end of the calendar year, or after the
applicable contract or rate terminates or is modified or amended,
whichever is earlier, unless ONRR approves a longer period (during
which period the lessee shall continue to use the allowance from the
previous reporting period). Lessees may request special reporting
procedures in unique allowance reporting situations, such as those
related to spot sales.
(iv) ONRR may require that a lessee submit arm's-length
transportation contracts, production agreements, operating agreements,
and related documents. Documents shall be submitted within a reasonable
time, as determined by ONRR.
(v) Transportation allowances that are based on arm's-length
contracts and which are in effect at the time these regulations become
effective will be allowed to continue until such allowances terminate.
For the purposes of this section, only those allowances that have been
approved by ONRR in writing shall qualify as being in effect at the
time these regulations become effective.
(vi) ONRR may establish, in appropriate circumstances, reporting
requirements that are different from the requirements of this section.
(2) Non-arm's-length or no contract. (i) With the exception of
those transportation allowances specified in paragraphs (c)(2)(v) and
(vii) of this section, the lessee shall submit an initial Form ONRR-
4293 prior to, or at the same time as, the transportation allowance
determined pursuant to a non-arm's-length contract or no contract
situation is reported on Form ONRR-4430, Solid Minerals Production and
Royalty Report. The initial report may be based on estimated costs.
(ii) The initial Form ONRR-4293 shall be effective for a reporting
period beginning the month that the lessee first is authorized to
deduct a transportation allowance and shall continue until the end of
the calendar year, or until the transportation under the non-arm's-
length contract or the no contract situation terminates, whichever is
earlier.
(iii) For calendar-year reporting periods succeeding the initial
reporting period, the lessee shall submit a completed Form ONRR-4293
containing the actual costs for the previous reporting period. If the
transportation is continuing, the lessee shall include on Form ONRR-
4293 its estimated costs for the next calendar year. The estimated
transportation allowance shall be based on the actual costs for the
previous reporting period plus or minus any adjustments that are based
on the lessee's knowledge of decreases or increases that will affect
the allowance. Form ONRR-4293 must be received by ONRR within 3 months
after the end of the previous reporting period, unless ONRR approves a
longer period (during which period the lessee shall continue to use the
allowance from the previous reporting period).
(iv) For new transportation facilities or arrangements, the
lessee's initial Form ONRR-4293 shall include estimates of the
allowable transportation costs for the applicable period. Cost
estimates shall be based upon the most recently available operations
data for the transportation system, or, if such data are not available,
the lessee shall use estimates based upon industry data for similar
transportation systems.
(v) Non-arm's-length contract or no contract-based transportation
allowances that are in effect at the time these regulations become
effective will be allowed to continue until such allowances terminate.
For purposes of this section, only those allowances that have been
approved by ONRR in writing shall qualify as being in effect at the
time these regulations become effective.
(vi) Upon request by ONRR, the lessee shall submit all data used to
prepare its Form ONRR-4293. The data shall be provided within a
reasonable period of time, as determined by ONRR.
(vii) ONRR may establish, in appropriate circumstances, reporting
requirements that are different from the requirements of this section.
(viii) If the lessee is authorized to use its Federal-agency-
approved rate as its transportation cost in accordance with paragraph
(b)(3) of this section, it shall follow the reporting requirements of
paragraph (c)(1) of this section.
(3) ONRR may establish reporting dates for individual lessees
different than those specified in this paragraph in order to provide
more effective administration. Lessees will be notified as to any
change in their reporting period.
(4) Transportation allowances must be reported as a separate line
item on Form

[[Page 47020]]

ONRR-4430, unless ONRR approves a different reporting procedure.
(d) Interest assessments for incorrect or late reports and failure
to report. (1) If a lessee deducts a transportation allowance on its
Form ONRR-4430 without complying with the requirements of this section,
the lessee shall be liable for interest on the amount of such deduction
until the requirements of this section are complied with. The lessee
also shall repay the amount of any allowance which is disallowed by
this section.
(2) If a lessee erroneously reports a transportation allowance
which results in an underpayment of royalties, interest shall be paid
on the amount of that underpayment.
(3) Interest required to be paid by this section shall be
determined in accordance with Sec. 1218.202 of this subchapter.
(e) Adjustments. (1) If the actual transportation allowance is less
than the amount the lessee has taken on Form ONRR-4430 for each month
during the allowance form reporting period, the lessee shall be
required to pay additional royalties due plus interest, computed
pursuant to Sec. 1218.202 of this subchapter, retroactive to the first
month the lessee is authorized to deduct a transportation allowance. If
the actual transportation allowance is greater than the amount the
lessee has estimated and taken during the reporting period, the lessee
shall be entitled to a credit, without interest.
(2) The lessee must submit a corrected Form ONRR-4430 to reflect
actual costs, together with any payment, in accordance with
instructions provided by ONRR.
(f) Other transportation cost determinations. The provisions of
this section shall apply to determine transportation costs when
establishing value using a net-back valuation procedure or any other
procedure that requires deduction of transportation costs.

Sec. 1206.462 [Reserved]

Sec. 1206.463 In-situ and surface gasification and liquefaction
operations.

If an ad valorem Federal coal lease is developed by in-situ or
surface gasification or liquefaction technology, the lessee shall
propose the value of coal for royalty purposes to ONRR. ONRR will
review the lessee's proposal and issue a value determination. The
lessee may use its proposed value until ONRR issues a value
determination.

Sec. 1206.464 Value enhancement of marketable coal.

If, prior to use, sale, or other disposition, the lessee enhances
the value of coal after the coal has been placed in marketable
condition in accordance with Sec. 1206.456(h), the lessee shall notify
ONRR that such processing is occurring or will occur. The value of that
production shall be determined as follows:
(a) A value established for the feedstock coal in marketable
condition by application of the provisions of Sec. 1206.456(c)(2)(i)
through (iv); or,
(b) In the event that a value cannot be established in accordance
with paragraph (a) of this section, then the value of production will
be determined in accordance with Sec. 1206.456(c)(2)(v) and the value
shall be the lessee's gross proceeds accruing from the disposition of
the enhanced product, reduced by ONRR-approved processing costs and
procedures including a rate of return on investment equal to two times
the Standard and Poor's BBB bond rate applicable under Sec.
1206.458(b)(2)(v).

[FR Doc. 2023-15310 Filed 7-20-23; 8:45 am]
BILLING CODE 4335-30-P

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